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TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

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Commission file number 0-25283

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CORINTHIAN COLLEGES, INC.

(Exact name of registrant as specified in its charter)

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6 Hutton Centre Drive, Suite 400, Santa Ana, California
www.cci.edu
(Address of principal executive offices)

92707
(Zip Code)

(714) 427-3000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

         If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

         As of December 31, 2011, the aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was approximately $184.2 million, based upon the closing sales price of the Common Stock as reported on Nasdaq National Stock Market on such date. For this computation, the Company has excluded the market value of all common stock beneficially owned by all executive officers and directors of the Company and their associates as a group. This determination of affiliate status for purposes of this computation is not necessarily a conclusive determination for other purposes. As of August 16, 2012, the number of outstanding shares of voting and non-voting common equity of the registrant was approximately 85,463,420.

   

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CORINTHIAN COLLEGES, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED JUNE 30, 2012

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INTRODUCTION AND NOTE ON FORWARD LOOKING STATEMENTS

        Corinthian Colleges, Inc. (hereinafter the "Company" or "Corinthian") is a Delaware corporation; its principal executive offices are located at 6 Hutton Centre Drive, Suite 400, Santa Ana, California 92707.

        You should keep in mind the following points as you read this Report on Form 10-K:

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the terms "we," "us," "our" or the "Company" refer to Corinthian Colleges, Inc. and its subsidiaries;



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the terms "school," "college," "campus," or "university" refer to a single location of any school;



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the term "institution" means a main campus and its additional locations, as such are defined under the regulations of the U.S. Department of Education, which we sometimes refer to herein as the "ED." ED assigns each institution an identification number known as an "OPEID," or Office of Postsecondary Education Identification number, and the additional locations associated with the institution are included under the institution's OPEID. We use the terms "institution" and "OPEID" interchangeably herein. As of June 30, 2012, we operated 49 separate OPEIDs (including 5 OPEIDs in discontinued operations); and



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our fiscal year ends on June 30; references to fiscal 2012, fiscal 2011 and fiscal 2010 and similar constructions refer to the fiscal year ended on June 30 of the applicable year.

        This Annual Report on Form 10-K contains statements which, to the extent they do not recite historical fact, constitute "forward looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward looking statements are used under the captions "Business," "Governmental Regulations and Financial Aid," "Risk Factors," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Annual Report on Form 10-K. You can identify these statements by the use of words like "may," "will," "could," "should," "project," "believe," "anticipate," "expect," "plan," "estimate," "forecast," "potential," "intend," "continue," and variations of these words or comparable words. Forward looking statements do not guarantee future performance and involve risks and uncertainties. Actual results may differ substantially from the results that the forward looking statements suggest for various reasons, including those discussed under the caption "Risk Factors." These forward looking statements are made only as of the date of this Annual Report on Form 10-K. We do not undertake to update or revise the forward looking statements, whether as a result of new information, future events or otherwise.

EXPLANATORY NOTE

        During fiscal 2012, the Company decided to divest two WyoTech schools located in Sacramento, CA and Daytona Beach, FL and four Everest schools located in San Francisco, CA, San Jose, CA, Hayward, CA, and Los Angeles, CA (the "Sale Schools"). The Company will continue to operate and invest in these campuses until they are sold. The campuses are available for immediate sale in their present condition, and the Company expects to complete the sales during fiscal 2013. Additionally, during fiscal year 2012, the Company completed the teach-out of the Ft. Lauderdale, FL and Chicago, IL campuses. The Company expects to have no significant continuing involvement with these locations after the respective sale or teach-outs are completed. The results of operations for the Sale Schools and teach-out schools are reflected within discontinued operations in the Company's Consolidated Statements of Operations for all periods presented, unless otherwise stated.

        During fiscal year 2011, the Company completed the teach-out of its Fife, WA and Toronto (Central), Ontario campuses. Accordingly, the results of operations of the campuses are reflected as discontinued operations in our consolidated statements of operations for all prior periods presented.

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        The information contained throughout this document is presented on a continuing operations basis, unless otherwise stated.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Company's definitive Proxy Statement for the 2012 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after June 30, 2012, are incorporated by reference into Part III of this report.

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PART I

ITEM 1.    BUSINESS

Overview

        Our Company is one of the largest for-profit post-secondary education companies in the United States and Canada, serving the large and growing segment of the population seeking to acquire career-oriented education. As of June 30, 2012, we had a student enrollment of 91,460 and operated 100 schools in 26 states, and 16 schools in the province of Ontario, Canada. We offer a variety of diploma programs and associate, bachelor's and master's degrees through a single operating segment (refer to Note 1 of the accompanying consolidated financial statements for more information). Our training program areas include healthcare, criminal justice, business, mechanical, trades, and information technology.

        On January 4, 2010 the Company completed its acquisition of Heald Capital, LLC, a Delaware limited liability company ("Heald") for consideration of $395 million. Heald, through its subsidiaries, operates Heald College, a regionally accredited institution that prepares students for careers in healthcare, business, legal, information technology and other growing fields, primarily through associate degree programs. Heald College operates 12 campuses and its results are included in the Consolidated Financial Statements from the date of acquisition.

        Historically, we have grown our business through acquisitions as well as through organic growth. Organic growth consists of opening new branch campuses, remodeling, expanding or relocating existing campuses and expanding the number of programs at existing campuses. Since the Company's formation in 1995, we have acquired 78 colleges including the Heald acquisition and we have opened 38 branch campuses, (net of closures, discontinued operations, and consolidations).

Operating Strategy

        Key elements of our operating strategy include the following:

        Emphasize Student Outcomes.    We believe that helping our students achieve positive outcomes is not only best for the student, but critical to our long-term success. Accordingly, we devote substantial resources to maintaining and improving student completion and placement rates. High completion and placement rates enhance a school's reputation and the marketability of its programs, and even modest improvements in student completion can have a significant positive impact on our profitability. We have implemented a variety of student service programs, including orientation and tutoring, academic advising, ride-sharing and referral programs, all of which are designed to help students complete their programs, graduate and achieve their career goals. We use a curriculum development team comprised of campus representatives, corporate program directors, instructional design professionals, and textbook publishers. For each program area, each campus also uses advisory boards comprised of local business professionals to help ensure that its curricula meet employer requirements. We also maintain full-time career services personnel at our schools who are responsible for helping our students obtain employment. Career services identifies prospective employers, helps students prepare resumes, conducts practice interviews, establishes externship programs and tracks graduate placement success.

        Create an Effective Learning Environment.    We seek to provide a supportive learning environment where student satisfaction and success can be achieved. We offer a flexible schedule of classes, providing students with the opportunity to attend classes throughout the day, as well as nights and weekends. Schools operate year-round, permitting students to complete their courses of study quickly. We maintain reasonable class sizes and offer support programs such as on-campus advising and tutoring. We also maintain a toll-free student hotline to address and help resolve student concerns.

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        Focus on Attractive Markets.    Our schools offer educational programs in industries which are growing and offer promising career opportunities, including healthcare, criminal justice, business, mechanical, trades, and information technology (IT). Our geographic strategy is to build a strong competitive position in attractive and growing markets where we can operate efficiently and benefit from favorable demographic and labor market trends.

        Manage School and Program Performance.    We routinely review our schools in terms of student outcomes and financial and operational performance. When a school falls below standard and is not expected to achieve satisfactory performance within a reasonable period of time, we either teach-out (close) the school or put the school up for sale. In fiscal 2012, we identified ten under-performing campuses. Of these, six of the campuses are currently for sale and have been placed in discontinued operations; two have been taught out; and two are in the process of being taught out. (For more information on the campus dispositions, see the Company's Form 8-Ks filed on March 5, 2012 and June 19, 2012.) In addition, we regularly review programs offered at our campuses and online to ensure that our student completion and graduate placement standards are being met. Programs are taught out which do not meet outcomes standards and do not have a reasonable expectation of improvement. In fiscal 2012, we taught out 7 programs which did not meet outcome standards.

        Standardize Key Business Processes.    To help ensure operational efficiency and a consistent student experience across our system of campuses, we are currently standardizing key business processes. Thus far, we have implemented a common student information system (CampusVue), a standard admissions and student finance process and we have brought in-house certain financial aid processing and cohort default prevention functions that have historically been performed by an external vendor.

        Centralize Key Functions.    In order to capitalize on the experience of our senior management team and to encourage best practices, we have established a divisional management organization consisting of local school administrators, regional vice presidents of operations and admissions, and division presidents. Local and divisional operations are supported by centralized functions supervised by senior management at our campus support center.

        Local school administrators retain control of the day-to-day operations of their individual schools. Local school administrators are assisted by and receive oversight from regional vice presidents and division presidents and their respective support teams. The campus support center management team controls key operational functions such as curriculum development, accreditation and licensing, accounting, information technology, student financial services management, marketing, staff training, the call center, legal, treasury, internal audit, human resources, payroll, purchasing, and real estate. We believe the allocation of responsibilities between the field operations and the campus support center allows us to achieve significant operating efficiencies.

Growth Strategy

        Our growth strategy consists of the following elements:

Enhance Growth at Existing Campuses

        Integrated and Centralized Marketing Program.    We employ an integrated marketing program which includes direct response advertising delivered through the Internet, television, newspaper, and direct mail. A professional staff at our campus support center manages the overall marketing program. The effectiveness of our marketing campaigns depends on timely and accurate tracking analysis and processing of inquiries from potential students.

        Launching New Programs.    During fiscal 2012 we developed several new diploma-level programs in the disciplines of healthcare, criminal justice, business and IT. We based our selection of new programs on several factors, including the student value proposition, current and projected labor market demand,

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facility capacity and operational capabilities. We expect to complete the regulatory approval process and begin implementing these programs at our Everest campuses in fiscal 2013.

        Maximizing Core Programs.    We maximize the adoption of core curricula across our network of schools in such disciplines as healthcare, trades, criminal justice, and business. We have developed detailed, campus-based plans that take into account each school's program mix, facility capacity and current and projected employer needs. In fiscal 2012, we implemented 35 core programs at 27 schools.

        Facilities Enhancement and Expansion.    We believe that modern and attractive facilities enhance the overall student learning experience. We remodel, expand and relocate our existing schools to ensure we have sufficient capacity to meet our expected enrollment demand, as well as to improve the location and appearance of our facilities. We expect to continue to systematically remodel and relocate selected schools within their respective markets. During fiscal 2012 we remodeled, relocated, or expanded 33 schools. As of June 30, 2012, the total square footage of all of our properties was approximately 5.5 million square feet.

Establish Additional Locations

        Since our initial public offering in February 1999, we have opened 45 branch campuses, of which 38 remain a part of our operations. Opening new branch campuses allows us to enter new geographic markets, create additional capacity in existing markets and effectively leverage our infrastructure and our investment in curricula. In addition, students attending new campuses which are branched from existing campuses have immediate access to federal student financial aid programs. During fiscal 2012, we opened 2 branch campuses. We expect to open additional branch campuses over time, as warranted by market and other conditions.

Expand Online Education

        Online education, or education delivered via the Internet, has become an increasingly important component of higher education. We offer online learning to two categories of students: those attending online classes exclusively, and those attending a blend of traditional classroom and online courses. The majority of our students participating in online learning are now registered in exclusively online programs.

        We enroll exclusively online students through our Florida-based Everest University and our regionally-accredited Everest College Phoenix in Phoenix, Arizona. Online degree programs are offered in business, criminal justice, criminal investigations, accounting, computer information science, and paralegal. In total, 19 accredited degrees are available exclusively online at the associate, bachelor's, and master's levels.

        During fiscal 2012, we experienced a significant increase in the number of students taking our online courses. Our online learning participation increased by approximately 34.4% to 424,998 course registrations in fiscal 2012. As of June 30, 2012, we offered 322 online courses. We served approximately 31,114 exclusively online students as of June 30, 2012.

Make Strategic Acquisitions

        Since our founding in 1995, acquisitions have been part of our growth strategy. Of the 116 campuses operated as of June 30, 2012, 78 colleges have been acquired (net of closures, consolidations, or locations sold). To evaluate acquisition opportunities, we have established several criteria, such as scale, geography, program offerings, accreditation and selected financial measurements.

        Additionally, on August 10, 2012, Corinthian, through a wholly-owned subsidiary, purchased substantially all of the capital stock of QuickStart Intelligence Corporation ("QuickStart") pursuant to a Stock Purchase Agreement with all but one of QuickStart's stockholders for $13.3 million in cash,

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plus $1.6 million for QuickStart's estimated positive working capital at closing (subject to post-closing adjustment). The Company expects to complete the acquisition of QuickStart's remaining capital stock through to a statutory merger with one of Corinthian's wholly-owned subsidiaries during the quarter ending September 30, 2012. Corinthian paid the purchase price with existing cash and borrowings under its credit facility.

        QuickStart is a corporate training company that provides short-term instruction to IT professionals on Microsoft, Cisco and other software. QuickStart currently operates through eight learning centers in California, Oregon and Washington, and also offers training via online instruction. We expect to adopt QuickStart's courses into certain of our existing colleges to provide additional sources of non-Title IV revenue to assist in compliance with ED's 90/10 rule.

        We expect to continue pursuing strategic acquisitions as part of our growth strategy, although in the near term we expect to focus our efforts primarily on opportunities to acquire companies that will help our existing colleges generate additional non-Title IV revenue. In addition to acquisition-related activity, we have developed an in-house capability to pursue other business development opportunities. In particular, we are focused on developing other federal sources of revenue outside of Title IV. Such sources include programs sponsored by the Department of Defense and the Department of Labor.

Programs of Study

        Our diploma programs are intended to provide students with the requisite knowledge and job skills for entry-level positions in their chosen career. Our degree programs are primarily designed to assist career-oriented adults in enhancing their functional and professional skills. Our curriculum development team is responsible for maintaining high quality, market driven curricula. Our colleges also use employer advisory boards to help evaluate and improve the curriculum for each program offered. These advisory boards are required to meet at least twice a year and are comprised of local industry and business professionals. Advisory board members provide valuable insight regarding changes in programs and suggest new technologies and other factors that may enhance curriculum.

        Our diploma curricula includes the following core programs: medical assisting, medical insurance billing and coding, massage therapy, dental assisting, pharmacy technician, medical administrative assisting, surgical technology, automotive and diesel technology, HVAC, plumbing, electrical, and licensed practical nursing. Our core degree curriculum includes business administration, accounting, paralegal, criminal justice, medical assisting, and registered nursing. At our Everest locations in Florida, Phoenix, AZ, Mesa, AZ, Springfield, MO and Ontario Metro, CA campuses, some of our associate degree programs also articulate into a bachelor's degree in the same course of study. Master's degrees are also offered at Everest Florida in business administration and criminal justice.

        Diploma programs generally have a duration of 7-24 months, depending on the course of study. Associate degree programs have a duration of 9-27 months, bachelor's degree programs have a duration of 18-48 months and master's degree programs have a duration of 21 months. As of June 30, 2012, approximately 37% of our students were enrolled in diploma programs, approximately 57% of students were enrolled in associate programs, approximately 5% of students were in bachelor's programs and approximately 1% of students were in master's programs.

        Additionally, we expect our recent acquisition of QuickStart to help our colleges adopt short-term courses (generally one week or less) targeted to IT professionals to prepare them to receive industry-recognized credentials and certifications.

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        The following table reflects our schools, locations, date acquired or opened, principal curricula, institutional accrediting agency, and square footage as of June 30, 2012. In the table below, programs offered are designated as follows: healthcare (HC), business (B), information technology and electronics (IT), criminal justice (CJ), trades and transportation (T), and other miscellaneous programs (OTH)(1).

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Marketing and Recruitment

        We employ a variety of methods to attract applicants who will benefit from our programs and achieve success in their chosen careers. The methods include a variety of direct response marketing techniques to generate inquiries from potential students. Our marketing department generated approximately 3.4 million inquiries in the United States and Canada in fiscal 2012, primarily through the Internet, television, direct mail, newspaper, and yellow pages. The effectiveness of these marketing campaigns is dependent upon timely and accurate tracking, analysis and processing of inquiries.

        Our external marketing agencies have access to our management information database and are provided with real time information on the effectiveness of individual campaigns. The agencies consult with our marketing department to adjust schedules and content for advertisements depending on our needs and the effectiveness of the particular advertisements. For the year ended June 30, 2012, approximately 54% of our new student enrollments were generated through the Internet; 22% were generated through referrals; 11% through television, newspaper and yellow pages; 3% were generated through direct mail; and 10% were generated through a variety of other methods.

National Branding

        We have consolidated multiple brand names to increase our company's overall visibility and gain the marketing efficiencies associated with national advertising. As of August 13, 2010 all of our schools operated under one of three national brands, Everest, WyoTech, or Heald. The Everest brand was developed by the Company, WyoTech is a well-established brand in automotive training, and Heald is a well-established brand with a long operating history in Northern California, Oregon and Hawaii. As of June 30, 2012, 100 out of 116 schools were operating under the Everest brand, 4 schools were operating under the WyoTech brand, and 12 schools were operating under the Heald brand.

Admissions

        As of June 30, 2012, we employed approximately 2,380 admissions representatives who work directly with prospective students to facilitate the admissions process. These representatives interview and advise students interested in specific careers and are a key component of our effort to generate interest in our educational services. We conduct semi-annual student satisfaction surveys at our campuses in the United States in which students have consistently given high marks to our admissions personnel for helpfulness, courtesy and accuracy of information. Because our success is highly dependent on the efficiency and effectiveness of our admissions process, we invest considerable resources to train our admissions representatives in product knowledge, regulatory compliance, and customer service. We also employ various admissions supervisory and monitoring programs, and conduct student surveys which help us ensure compliance with both government regulations and our corporate policies.

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Placement

        Graduate placement outcomes are critical to the success of our schools and their ability to continue to enroll new students. We maintain a career services department at each school and as of June 30, 2012, employed approximately 850 individuals in this capacity. We require our career services personnel to work with students from the time they begin their courses of study until they are successfully placed in jobs for which they are trained. Our career services departments assist students in preparing resumes, help them to develop a professional demeanor, conduct practice interview sessions, and identify prospective employers for graduates. Overall, we believe the efforts we devote to help our graduates find employment have achieved solid results in a difficult economic environment.

        Our colleges endeavor to obtain information regarding their students' employment following graduation. The reliability of that information depends, to a large extent, on the completeness and accuracy of the data provided to our colleges by graduates and their employers. Additionally, a dedicated team at the campus support center conducts a verification process to check the accuracy of the placement information gathered by our campuses. Based on information received from these groups of people, we believe that approximately 68.1% of our graduates in calendar year 2011 who were available for placement have been placed in a job for which they were trained by June 30, 2012, using accrediting agency standards. The various accrediting agencies evaluate placement rates by individual institution and program, and have different requirements regarding which students are considered "available for placement." In defining the graduate cohort group for the purpose of calculating placement rates, certain accrediting agencies may exclude, for example, graduates who are continuing their education, are in active military service or are deceased or disabled, and foreign students who are ineligible to work in the U.S. after graduation. Where applicable, we have also excluded those graduates in our calculation of students available for placement and the graduate placement rate.

Tuition

        Tuition rates for our programs depend on the nature and length of the program. The chart below shows average tuition in fiscal 2012 for selected categories:

        Diplomas:

Healthcare—$16,850

Trades—$18,700

Automotive/Diesel Technician—$23,000

Associate degrees, ground schools—$39,650

Associate degrees, online (full-time student)—$32,250

        In addition to tuition, students may be required to purchase textbooks and other supplies as part of their educational programs. We anticipate increasing tuition based on the market conditions at our individual schools. More detailed tuition information can be found, by program, on each school's website.

        If a student fails to complete the period of enrollment (such as a quarter, semester, academic year, or program), the institution may be required to refund tuition previously collected to the originating or disbursing agency or to the student directly, depending on the source of the funds. Refunds are calculated in accordance with the applicable federal, state, provincial or institutional refund policies.

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Campus Administration

        We establish policies at our campus support center office, implement these policies, and monitor the performance of our schools through the coordination of the executive vice president of operations, the division presidents, our regional vice presidents of operations, the regional vice presidents of admissions, and their respective support staffs and through our internal audit department. The college presidents have the responsibility for the day-to-day operation of the schools. Each U.S. college generally employs the following management personnel which report to the college president:

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an academic dean or education director;



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an admissions director;



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a career services director;



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a finance director, and



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a student accounts director.

        Our schools in Canada are typically smaller and thus employ a smaller management team. As each school's enrollment grows, additional management may be added.

        Campus support center personnel manage several key functions, including accounting, information technology, student financial services, financial aid, career services support, marketing, curriculum development, staff training, the call center, legal, treasury, internal audit, human resources, payroll, purchasing, real estate, and accreditation and licensing. Among the principal oversight functions performed by campus support center personnel (in cooperation with our division, region and college management) are the annual operating budget, strategic planning and forecasting processes. These processes establish goals for each college, assist in implementing strategies and establish performance expectations. Our senior management team monitors operating performance and profitability of each college and has established periodic communication with the college presidents to review key performance indicators such as student population, completion, placement, student satisfaction, compliance, new student inquires, new enrollments and other operating results to determine the proper course of action.

        As required by their respective regional accrediting agencies, Everest College Phoenix and Heald College are overseen by boards of trustees that include a majority of independent members who review academic integrity and autonomy of the institutions. These governing boards have broad oversight over the schools' programs and operations, set the strategic direction for the institutions, play an active role in policy-making, and review financial resources of their institutions to ensure they are able to provide a sound educational program. In furtherance of that mission, each board of trustees develops policies appropriate to the needs of the institution and works closely with their respective administrations to, among other things, establish a climate for articulating and promoting the educational vision of the institutions.

Competition

        The post-secondary education market in the United States, consisting of approximately 7,020 accredited institutions, is highly fragmented and competitive, with no institution having a significant market share. Many of the programs offered by our colleges are also offered by public and private non-profit institutions, as well as by many of the approximately 3,190 private, for-profit colleges and schools. The post-secondary education market in Canada is also highly fragmented. Typically, the tuition charged by public institutions is less than tuition we charge for comparable programs because public institutions receive state subsidies, donations and government research and other grants that are not available to our colleges. However, tuition at private non-profit institutions is often higher than the tuition charged at our colleges.

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        We compete in most markets with other institutions offering similar programs. We believe our supportive learning environment, smaller class sizes, national scale, faculty, facilities, and our emphasis on student services and placement allows us to compete effectively. In addition, many of our colleges have been operating in their markets for many years, which has led to a substantial number of graduates who are working in the community and validate the quality of the colleges' programs.

Facilities

        Our campus support center office is located in Santa Ana, California and our 116 campuses as of June 30, 2012, are located in 26 states and in the province of Ontario, Canada. Our campuses are generally equipped with classroom space, instructional labs, libraries, Internet access and other facilities.

        We actively monitor the capacity at our facilities and the expected facilities capacity required to accommodate campus growth initiatives. We provide for expansion and growth at each campus through relocations to larger facilities and by expanding or remodeling existing facilities. From the beginning of fiscal 2008 through fiscal 2012, approximately 9% of the campuses have been relocated and an additional approximately 92% of total campuses have been either expanded or remodeled. The following table reflects the number of campuses added, closed or combined, and the number of campuses that have been relocated, enlarged or remodeled during each of the last five fiscal years ended and has been updated to reflect solely continuing operations:

        All but 4 of our facilities are leased. In addition, we lease our campus support center offices. Most of our leases have primary terms between 5 and 10 years with options to extend the lease, at our election.

Management and Employees

        Our company is led by Jack D. Massimino, Chairman of the Board and Chief Executive Officer. He is assisted by the other executive officers of the Company: Kenneth S. Ord, Beth A. Wilson, William B. Buchanan, Mark L. Pelesh, Stan A. Mortensen, Robert C. Owen, Robert D. Bosic and David A. Poldoian. In addition to the executive officers, our management team includes other senior vice presidents and vice presidents who provide supervision of various functional areas and the presidents of our operating divisions.

        As of June 30, 2012, we had approximately 15,200 employees in the U.S. and Canada, of whom approximately 5,000 were part-time and approximately 740 were employed at or assigned to our campus support center.

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Faculty

        The faculty members at our colleges are industry professionals and hold appropriate credentials in their respective disciplines. The recruitment of faculty occurs at the campus level. Local leadership is charged with identifying and retaining faculty who possess the requisite academic and experiential qualifications to be successful in working with our students. Faculty are required and encouraged to pursue professional development activities to enhance their functional and classroom skills. We believe the skill and dedication of our faculty is critical to the academic and professional success of our students. As of June 30, 2012, we employed approximately 5,900 faculty in the United States and Canada, approximately 1,730 of whom were full-time employees. Faculty represents approximately 39% of our employees.

Available Information

        Free copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports may be obtained through our website at www.cci.edu, or by contacting our investor relations department after such reports are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). Our website address is provided solely for informational purposes. We do not intend, by this reference, that our website or any of the information contained therein should be deemed to be part of, or incorporated into, this Annual Report.

EXECUTIVE OFFICERS OF THE REGISTRANT

        Set forth below are the name, ages, titles and present and past positions of the persons serving as executive officers of the Company as of August 16, 2012, as well as other "significant employees" of the Company as defined under Item 401(c) of Regulation S-K:

        Jack D. Massimino served as Chairman of the Board from August 2008 through the present. He served as CEO of the company from November 2004 until July 2009, when he was named Executive Chairman of the Board. The board reappointed him CEO in November 2010. He has served on the board since 1999, and during his tenure he has been the Chair of the Audit Committee and a member of the Compensation Committee. Prior to joining our company as Chief Executive Officer in 2004, Mr. Massimino was retired and managed his personal investment portfolio. Previously, he was President and Chief Executive Officer of Talbert Medical Management Corporation, a publicly traded physician practice management company from 1995 through late 1997. Prior to his association with Talbert, Mr. Massimino was Executive Vice President and Chief Operations Officer of FHP International Corporation, a multi-state, publicly-traded HMO, with revenues of approximately $4 billion at the time of his service. He also served in other executive positions after joining FHP in 1988, including Senior Vice President and Vice President, Corporate Development. Prior to such time, Mr. Massimino held other executive positions in the healthcare field starting in the mid-1970s. He received a Bachelor of

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Arts in Psychology from California Western University and earned a Master's Degree in Management from the American Graduate School for International Management.

        Kenneth S. Ord became our Executive Vice President and Chief Financial Officer in February 2005. Mr. Ord served as our Chief Financial Officer until September 2011. He was named Chief Administrative Officer in December 2010. Mr. Ord brings more than 30 years of financial experience to his position from publicly traded companies in the healthcare, staffing services and automotive industries. Mr. Ord was the Chief Financial Officer at Alliance Imaging, Inc. from 1998 to 2004. Previously he was the Chief Financial Officer of Talbert Medical Management Corporation during 1997 and he was the Chief Financial Officer of FHP International Corporation from 1994 to 1997. Prior to his experience at FHP, Mr. Ord held several successively responsible positions at Kelly Services Inc, including Treasurer, Controller and Vice President Finance. He began his career at Ford Motor Company, working in various financial roles, ranging from financial controls to profit analysis. Mr. Ord holds a Master's in Business Administration from Brigham Young University.

        Robert D. Bosic became Corinthian's Executive Vice President of Operations in January of 2011. Since June of 2009, Mr. Bosic served as Group and Division President for the West Division. He has been with Corinthian for five years and held the position of Regional Vice President of Operations for the Southwest Region of CSI before being promoted to General Manager in 2008, when the Everest West Division was created. In addition, Mr. Bosic has served as Campus President at Everest Houston Greenspoint. Prior to joining Corinthian, Mr. Bosic spent 10 years in proprietary education. He has held campus-level and regional management positions at both publicly traded and non-profit companies focused on at-risk adolescents. Mr. Bosic has a Bachelor's of Science degree in Business from British American University, and Juris Doctorate from British American University.

        Beth A. Wilson has been employed by us since our inception in July 1995. She was promoted to Executive Vice President in July 2001 and oversees all operational support for accreditation and licensure, academic affairs and quality control, employer development and student outcomes, real estate, facilities and compliance. Previously, Ms. Wilson was Vice President of Operations from June 1998 to June 2001. Ms. Wilson was Regional Operations Director for Rhodes Colleges, Inc. from May 1997 to June 1998. From July 1995 to May 1997 she was Operations Director and Regional Operations Director for Corinthian Schools, Inc. Ms. Wilson was employed by National Education Centers, Inc. from 1991 to 1995, initially as Executive Director of its Capital Hill campus, then as Area Operations Manager. From 1990 to 1991, she was Vice President, Branch Operations for National College. She was employed by United Education and Software from 1984 to 1990, initially as Executive Director of a business school, then as Group Manager for four to fifteen locations and finally as Vice President, Administration. She was Scholarship Administrator for National University from 1982 to 1984 and Assistant Director of American Business College from 1976 to 1981. Additionally, between 1999 and 2003, and again from July 2008 to June 2012, Ms. Wilson served as a Commissioner for ACCSC. Ms. Wilson earned a Master's of Business Administration from National University and a Bachelor of Arts degree from California State College, Sonoma.

        William B. Buchanan became our Executive Vice President of Marketing in July 2004. From 2003 to 2004, Mr. Buchanan was employed by Greenpoint Mortgage, where he directed all retail marketing, with responsibility for direct marketing, internet marketing, advertising and branch marketing. From 1995 to 2002, Mr. Buchanan was employed by Providian Financial Corporation where he progressed through several senior marketing roles, including Vice President of Platinum Marketing, Senior Vice President of New Account Business, and Executive Vice President of New Channel and Product Development. Mr. Buchanan received a Bachelor of Arts in Political Science from the University of California, Berkeley.

        Mark L. Pelesh became our Executive Vice President for Legislative and Regulatory Affairs in September 2003. Prior to joining our company, he was a partner in the firm of Drinker Biddle &

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Reath LLP in Washington, DC, where he was the head of the Education Law Group. His practice focused on federal and state laws and regulations and private accreditation requirements affecting postsecondary educational institutions. Prior to joining Drinker Biddle & Reath, Mr. Pelesh was a partner and associate in the firm of Cohn and Marks and an associate in the firm of Arnold & Porter, both of which are in Washington, DC. Mr. Pelesh received a Juris Doctorate degree from the Yale Law School in 1978 and a Bachelor of Arts degree with distinction and honors in History from Stanford University in 1975.

        Stan A. Mortensen has served as our Executive Vice President, General Counsel and Corporate Secretary since May 2009. Prior to his appointment as Executive Vice President, Mr. Mortensen served as our Senior Vice President, General Counsel and Corporate Secretary from August 2002, and as Vice President, General Counsel and Corporate Secretary starting in January 2000. Prior to that time, Mr. Mortensen was an attorney at the law firm of O'Melveny & Myers LLP from 1997 through 1999, where his practice focused on securities law, corporate finance, mergers and acquisitions, and general corporate matters. From 1994 through 1996, Mr. Mortensen was an attorney at the law firm of Robins, Kaplan, Miller & Ciresi, where his practice focused on commercial litigation. Mr. Mortensen received a Juris Doctorate and a Bachelor of Arts in Political Science from Brigham Young University.

        Robert C. Owen has served as our Executive Vice President and Chief Financial Officer since September 2011. Prior to his appointment to Chief Financial Officer, Mr. Owen served as our Executive Vice President and Chief Accounting Officer since July 2011. Prior to his appointment to Executive Vice President, Mr. Owen served as our Senior Vice President and Chief Accounting Officer since February 2005. He joined Corinthian in 2004 as Vice President and Controller, and has more than 20 years' experience in industry and public accounting. Previously, he served as Vice President, Controller for Princess Cruise Lines and as Assistant Controller for Royal Caribbean Cruises Ltd. Mr. Owen began his career at Deloitte & Touche, where he spent 11 years in successively responsible positions, both in the U.S. and Canada. Mr. Owen earned a B.B.A. degree in accounting from Florida Atlantic University. He obtained his license as a Certified Public Accountant in Florida in 1985 and as a Chartered Accountant in Ontario, Canada in 1994.

        David A. Poldoian joined the Company in November 2004 as President and Chief Operating Officer of the Online Learning division. In February 2008, he became Corinthian's Executive Vice President and Chief Business Development Officer, before being named the company's Executive Vice President and Chief Compliance Officer in November 2010 and Executive Vice President, New Ventures in June 2011. In January 2012, Mr. Poldoian was appointed to be the Company's Executive Vice President and Division President, Online Learning. Prior to joining Corinthian, Mr. Poldoian spent nine years with the Anheuser-Busch Companies beginning in 1995, initially serving as the President of its Eagle Snacks, Inc. division and later reporting directly to Anheuser's Chairman and CEO. Mr. Poldoian was Vice President and Partner with Bain & Company, a strategy consulting firm, from 1986 to 1995. Mr. Poldoian completed a Bachelor of Arts degree at Tufts University, and earned a Master in Business Administration from Harvard Business School.

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GOVERNMENTAL REGULATIONS AND FINANCIAL AID

U.S. Regulations

        Students attending our schools in the U.S. finance their education through a combination of family contributions, individual resources (including earnings from full or part-time employment), federal financial aid programs, and loans from the Company or third parties.

        In connection with the receipt of federal financial aid by our students, we are subject to extensive regulation by governmental agencies and licensing and accrediting agencies. In particular, the Higher Education Act of 1965, as amended (the "HEA"), and the regulations issued thereunder by the Department of Education ("ED"), subject us to significant regulatory scrutiny in the form of numerous standards that schools must satisfy in order to participate in the various federal financial aid programs under Title IV of the HEA ("Title IV"). Under the HEA, regulatory authority is divided among each of the following components, which are referred to collectively as the "Triad": (i) the federal government, which acts through ED; (ii) the accrediting agencies recognized by ED; and (iii) state higher education regulatory bodies. Among other things, the HEA and ED regulations require each of our U.S. institutions to:

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maintain a rate of default by its students on federally guaranteed loans that are below a specified rate;



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limit the proportion of its revenue (on a cash basis) derived from the Title IV programs to less than 90 percent (the "90/10 Rule");



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comply with certain financial responsibility and administrative capability standards;



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prohibit the payment of certain incentives to personnel engaged in student recruiting, admissions activities or the award of financial aid; and



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achieve prescribed completion and placement outcomes for short-term programs.

        The regulations, standards and policies of the regulatory agencies frequently change, and changes in, or new interpretations of, applicable laws, regulations or standards could have material consequences for our accreditation, authorization to operate in various states, permissible activities, receipt of funds under Title IV programs and costs of doing business.

        The HEA is required to be reauthorized on a periodic basis, which most recently occurred in August 2008. The 2008 reauthorization of the HEA, called the Higher Education Opportunity Act ("HEOA"), made significant changes to the requirements governing the Title IV Programs, including changes that, among other things:

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revised the calculation of "cohort default rates" regarding federally guaranteed student loans and the threshold rate at which sanctions will be imposed against an institution;



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adjusted the types of revenue that an institution is deemed to have derived from Title IV Programs for purposes of complying with the 90/10 Rule, and modified the sanctions imposed on an institution that derives too much revenue from Title IV Programs;



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Increased the annual maximum amount and availability of Pell grants;



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regulated the relationship between institutions and lenders that make education loans;



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increased the type and amount of information that an institution must disclose to current and prospective students and the public; and



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increased the types of policies and practices that an institution must adopt and follow.

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        In addition, the U.S. Congress can change the laws affecting Title IV Programs in the annual federal appropriations bills and other laws it enacts between the HEA reauthorizations. In May 2008, the U.S. Congress enacted the Ensuring Continued Access to Student Loans Act of 2008 ("Continued Access Act") which, among other things:

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increased the annual and total amount of certain Title IV Program loans that students can receive;



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expanded student eligibility for, and potentially increased the amount of funds available to fund grants under, certain Title IV Programs; and



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expanded parent eligibility and created payment deferment options for parent loans under the Title IV Programs.

        In February 2009, the U.S. Congress enacted the American Recovery and Reinvestment Act of 2009 ("American Recovery Act") which, among other things, further increased the annual amount of funds available to fund grants under the Pell program. In December 2011, the Consolidated Appropriations Act, 2012, was enacted, which eliminated the eligibility of students who lack a high school diploma or its equivalent to receive Title IV Program funds, and also changed the manner in which Pell Grants are calculated.

        If any of our institutions were to lose eligibility to participate in federal student financial aid programs, the students at that institution would lose access to funds from those programs and would have to seek alternative sources of funds to pay their tuition and fees. Students in the U.S. obtain access to federal student financial aid through an ED-prescribed application and eligibility certification process. Student financial aid funds are generally made available to students at prescribed intervals throughout their predetermined expected length of study. Students typically use the funds received from the federal financial aid programs to pay their tuition and fees. The transfer of funds from the financial aid programs is to the students, who then apply those funds to the cost of their education. The receipt of funds from federal financial aid programs reduces the students' amount due to the institution, but does not affect the Company's revenue recognition.

        ED regulations define an institution, which operates under an OPEID number, as a main campus and its additional locations, if any. As defined by ED, our main campuses that have additional locations in the U.S. are as follows:

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        Since January 2012, we have been working with ED, ACICS and numerous state regulators on a project to consolidate 6 separate OPEIDs into a single OPEID. We have received approval or acknowledgment for the consolidation from the requisite state regulators as well as ACICS, and submitted the application for consolidation to ED in May 2012. That application is pending. If approved, this consolidation would simplify and centralize some of our reporting and compliance efforts, including a more unified accreditation schedule, fewer Title IV compliance audits, and simplified reporting obligations for these campuses. In addition, one of our objectives is to blend institutions that have a higher percentage of funds derived from Title IV programs with other institutions that have a lower percentage of funds derived from Title IV programs. We believe this will

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help all of the combined institutions continue to comply with the 90/10 Rule and continue providing educational opportunities to all of their students. The consolidation also entails certain risks, and will require us to place an even greater emphasis on our Title IV compliance, since a larger number of our campuses will be evaluated as a single institution and the continued Title IV eligibility of those campuses will depend on their compliance as a single institution.

        Although we are working to complete this consolidation as soon as possible, there is a risk that the consolidation will not be approved by ED. Because the consolidation did not occur in fiscal year 2012, we may again be required to prepare separate Title IV compliance audits and report separate compliance metrics for the affected predecessor OPEIDs for fiscal 2012. If one or more of the OPEIDs we are consolidating failed to meet a regulatory requirement or had a material compliance issue identified in its audit for fiscal year 2012, such a compliance issue could have a negative impact on ED's willingness to approve the consolidation. If ED approves the consolidation, and a material compliance issue is subsequently identified, there could be an adverse impact on the consolidated institution.

Increased Scrutiny of the Private, Post-Secondary Education Sector

        Over the past three years, ED, Congress, states, and accrediting agencies have increased their scrutiny and rulemaking focus on the private, post-secondary educational sector.

        On July 30, 2012, Chairman Tom Harkin and the Majority Staff of the Senate Health, Education, Labor, and Pensions Committee (the "HELP Committee") released a report, "For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success." While stating that for-profit colleges and universities have an important role to play in higher education and should be well-equipped to meet the needs of non-traditional students who now constitute the majority of the postsecondary educational population, the report was highly critical of these institutions. The report contended that these institutions have a high cost of attendance, engage in aggressive and deceptive recruiting, have high drop-out rates, provide insufficient student support services, and are responsible for high levels of student debt and loan defaults, among other things. The report called for increased disclosure of information about student outcomes at for-profit colleges and universities, prohibiting institutions from using federal financial aid funding to market, advertise and recruit, amending the 90-10 rule to require these institutions from receiving more than 85 percent of their revenues from federal funds, prohibiting the use of mandatory binding arbitration clauses in enrollment agreements, and other measures ostensibly to protect students and taxpayers. The report was a culmination of a series of hearings held by Chairman Harkin before the HELP Committee since June 24, 2010.

        As part of the HELP Committee hearings, the U.S. Government Accountability Office ("GAO") conducted a series of undercover investigations into the enrollment and recruiting practices at fifteen for-profit institutions of higher education in which GAO investigators with hidden cameras posed as potential new student enrollees. Two of our campuses, one of which was Everest College Phoenix ("ECP"), were among those visited by the GAO. On August 12, 2010, the President of ECP received a letter from The Higher Learning Commission—A Commission of the North Central Association of Colleges and Schools ("HLC") requesting a response to allegations contained in a GAO report regarding the undercover investigation, which ECP provided. On February 28, 2011, ECP received another letter from HLC peer reviewers and staff with additional questions about ECP's oversight of recruiting, admissions and financial aid practices at ECP. ECP responded to those questions in April 2011.

        Separately, as part of its normal reaccreditation cycle, ECP received notification from HLC in May 2010 that it had been placed on probation by HLC as a result of concerns related to ECP's governance model, questions about whether it had the necessary autonomy and authority to make decisions for

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itself independent of the Corinthian corporate structure, and concerns that ECP lacked sufficient operational and academic control over its branch campus and online division. Subsequently, in November 2010, HLC voted to issue a Show-Cause Order requiring ECP to present its case as to why its accreditation should not be removed. ECP responded to the Show-Cause Order, and on November 11, 2011 ECP received notification from HLC that its Board of Trustees had removed ECP from Show-Cause and had continued ECP's accreditation for three years.

        As part of HLC's reaccreditation of ECP, HLC requires ECP to submit a monitoring report each quarter with certain information, including about ECP Board of Trustees meetings, enrollment and retention reports by various student characteristics, numbers of faculty online and on-ground, and instructional loads for faculty. If the monitoring reports provide evidence that ECP is not continuing implementation of its participatory governance plan or if enrollment appears to be escalating significantly without proportionate growth in full- and part-time faculty, HLC may call for an immediate focused or advisory visit to determine what further action may be appropriate.

        In addition, HLC required ECP to host an advisory visit in spring 2012 focused on ECP's admissions, recruiting and financial aid practices to determine how ECP is addressing HLC's previous questions about these areas. HLC also informed ECP that if the final determination letter regarding the program review initiated by ED in August 2008 contains any findings of fraud, misrepresentation or other breach of integrity, HLC may initiate a reconsideration process regarding ECP's accreditation.

        In February 2012, Everest College Phoenix submitted a Focused Visit Advisory Report to HLC, and in May 2012, Everest College Phoenix hosted an additional HLC two-day visit to review its admissions, recruiting, and financial aid practices. ECP is currently awaiting HLC's response to the Focused Visit Advisory Report and the visit regarding admissions, recruiting and financial aid practices.

        Separately, since October 2010 the Company has been contacted by attorneys general offices in the states of Florida, California, Massachusetts, New York, Oregon and Illinois. Each of those states' attorneys general office has requested from the Company, either through subpoenas, civil investigative demands, or informal requests, extensive document requests regarding its business. In every state but California and Oregon, we understand the attorneys general have been conducting broad inquiries into private sector education companies in their respective states, and not solely into the Company. In California, the California Attorney General's Office requested information ostensibly pursuant to the Stipulated Judgment agreed to by the Company in July 2007 to determine compliance by the Company with the judgment and certain other matters. The Company has provided information to the State of California and considers this matter closed. Additionally, the Oregon Attorney General's Office has also closed its investigation without taking any enforcement action against the Company. The Company is continuing to cooperate with the other ongoing requests.

        In a letter dated December 8, 2010, the Company received notification that the Accrediting Commission of Schools and Colleges ("ACCSC") had voted to direct the Company's Everest Institute in Decatur, GA to show cause why its accreditation should not be withdrawn for failure to demonstrate compliance with ACCSC's required student achievement outcomes. The institution was required to provide the information requested by ACCSC on or before March 8, 2011, which the institution provided, for review at the May 2011 ACCSC meeting. At its meeting in May 2011, ACCSC continued the institution's show cause order to the November 2011 commission meeting, and requested additional information from the institution. On March 5, 2012, we announced our plan to teach-out the Everest Institute campus in Decatur, GA, along with two other Everest campuses. Subsequently, at the May 2012 commission meeting, the updated show cause information was reviewed and the institution was continued on show cause through the complete teach-out and closure of the campus in December 2012.

        In a letter dated December 21, 2011, the Company received notification that ACCSC had voted to direct the Company's Everest Institute campus in Jonesboro, GA to show cause why its accreditation should not be withdrawn for failure to demonstrate compliance with ACCSC's required student

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achievement outcomes. The institution was required to provide the information requested by ACCSC on or before April 6, 2012, which it provided, for review at the May 2012 ACCSC meeting. At its meeting in May 2012, ACCSC continued the institution's show cause order to the November 2012 commission meeting, and requested additional information from the institution. Since accreditation is required for an institution to be eligible to participate in the federal student financial aid programs, the failure by Everest Institute in Jonesboro, GA to satisfactorily resolve its show cause action with ACCSC could have an adverse effect on the Company's business, results of operations and financial condition.

        We cannot predict the extent to which the Harkin report and these investigations, hearings and reviews will result in further investigations, legislation, rulemaking or other adverse actions affecting our participation in Title IV Programs or other aspects of our business. If any laws or regulations are adopted that limit our participation in Title IV Programs or the amount of student financial aid for which our students are eligible or which otherwise materially change the way in which we do business, or if any material sanctions are proposed as a result of any of the investigations and reviews being conducted, our business could be adversely and materially impacted.

Federal Support for Post-Secondary Education in the U.S.

        The federal government provides substantial support for post-secondary education through grants and loans to students who can apply the funds received to pay for their educational costs at any institution certified by ED as eligible to participate in the federally funded student financial aid programs. Since 1972, Congress has expanded the scope of the HEA by, among other things, (i) providing that students attending proprietary institutions, such as our institutions, are eligible for assistance under the Title IV Programs, (ii) establishing a program for loans to parents of eligible students, (iii) opening the Title IV Programs to part-time students, and (iv) increasing maximum loan limits and in some cases eliminating the requirement that students demonstrate financial need to obtain federally guaranteed loans. The Federal Direct Loan Program ("FDL") was also enacted, enabling students to obtain loans directly from the federal government rather than from commercial lenders.

        Students at our U.S. institutions receive grants, loans and work opportunities to fund their education under several of the Title IV Programs, of which the two largest are the Federal Direct Lending ("FDL") program and the Federal Pell Grant ("Pell") program. Our institutions also participate in the Federal Supplemental Educational Opportunity Grant ("FSEOG") program, and some of them participate in the Federal Perkins loan program and the Federal Work-Study ("FWS") program.

        Most aid under the Title IV Programs is awarded on the basis of financial need, generally defined under the HEA as the difference between the cost of attending an educational institution and the amount a student can reasonably contribute to that cost. All recipients of Title IV Program funds must maintain both a satisfactory grade point average and progress in a timely manner toward completion of their program of study.

        Federal Student and Parent Loans.    ED's most significant forms of aid include loans to students and their parents through the William D. Ford Federal Direct Loan (the "FDL") Program. FDL loans are made directly by the U.S. Government to students or their parents. The FDL program offers Federal Stafford, Federal Parent PLUS, Federal Grad PLUS and Federal Consolidation Loans. Prior to July 1, 2010, students attending Title IV eligible institutions could generally utilize loans made under the Federal Family Education Loan ("FFEL") Program in addition to FDL. The FFEL Program was eliminated in March 2010, and, after June 30, 2010 Stafford and PLUS Loans may only be made through the FDL program.

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        Federal Stafford Loans ("Stafford Loans"), which may either be subsidized or unsubsidized, are loans made to our students directly from the federal government through the FDL program. Students who have demonstrated financial need may be eligible to receive a subsidized Stafford Loan, with ED paying the interest on this loan while the student is enrolled at least half-time in school and during the first six months after leaving school. Students who do not demonstrate financial need may be eligible to receive an unsubsidized Stafford Loan. The student is responsible for the interest on an unsubsidized Stafford Loan while in school and after leaving school. Students who are eligible for a subsidized Stafford Loan may also be eligible to receive an unsubsidized Stafford Loan. Under the Stafford Loan program, during fiscal years 2011 and 2012, students could borrow up to $9,500 for the first academic year, $10,500 for the second academic year and, in some educational programs, $12,500 for each of the third and fourth academic years in subsidized loans. PLUS loans may be obtained by the parents of a dependent student in an amount not to exceed the difference between the total cost of that student's education (including allowable expenses) and other aid to which that student is entitled. Students who are classified as independent, and dependent students whose parents are unable to obtain PLUS loans, can increase their borrowing limits and receive additional unsubsidized loans. During fiscal years 2007 and 2008, students could obtain an additional $4,000 in unsubsidized loans for each of the first and second academic years and, depending upon the educational program, an additional $5,000 for each of the third and fourth academic years. Effective July 1, 2008, such students may obtain an additional $6,000 in unsubsidized loans for each of the first and second academic years, and an additional $7,000 for subsequent academic years. The obligation to begin repaying federal loans does not commence until six months after a student ceases enrollment as at least a half-time student. Amounts received by students in our institutions under the Stafford Loan programs in the 2011-2012 award year equaled approximately 52.3% of our U.S. net revenue (on a modified cash basis). Amounts received by students in our institutions under the PLUS program in 2011-2012 award year equaled approximately 3.0% of our U.S. net revenue (on a modified cash basis).

        Pell.    Pell grants are the primary component of the Title IV Programs under which ED makes grants to students who demonstrate financial need. Every eligible student is entitled to receive a Pell grant; there is no institutional allocation or limit. For the 2011-2012 award year, the maximum Pell grant remained at $5,550. Amounts received by students enrolled in our institutions in the 2011-2012 award year under the Pell program equaled approximately 27.1% of our U.S. net revenue (on a modified cash basis).

        FSEOG.    FSEOG awards are designed to supplement Pell grants for the neediest students. FSEOG grants generally range in amount from $100 to $4,000 per year; however, the availability of FSEOG awards is limited by the amount of those funds allocated to an institution under a formula that takes into account the size of the institution, its costs and the income levels of its students. We are required to make a 25% contribution to students for all FSEOG awards disbursed. Resources for this institutional contribution may include institutional grants, scholarships and other eligible funds (i.e., funds from foundations and other charitable organizations) and, in certain states, portions of state scholarships and grants. During the 2011-2012 award year, our contribution was met by approximately $2.7 million in funds from our institutions, funds from state scholarships and grants, and funds from foundations and other charitable organizations. Amounts received by students in our institutions under the federal share (including the FSEOG match) of the FSEOG programs in the 2011-2012 award year equaled approximately 0.6% of our U.S. net revenue (on a modified cash basis).

        Perkins.    Eligible undergraduate students may borrow up to $5,500 under the Perkins program during each award year, with repayment delayed until nine months after the borrower ceases to be enrolled on at least a half-time basis. Perkins loans are made available to those students who demonstrate a financial need. Perkins loans are made from a revolving account, 75% of which was initially capitalized by ED. Subsequent federal capital contributions, with an institutional contribution of one-third of the federal contribution, may be received if an institution meets certain requirements.

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Each institution collects payments on Perkins loans from its former students and loans those funds to currently enrolled students. Collection and disbursement of Perkins loans is the responsibility of each participating institution. During the 2011-2012 award year, the amount of Perkins loan repaid by former students totaled approximately $2.1 million.

        In the 2011-2012 award year we had no required matching contribution. The Perkins loans disbursed to students in our institutions in the 2011-2012 award year equaled approximately 0.1% of our U.S. net revenue (on a modified cash basis). Congress proposes to make major changes to the Perkins program. We cannot predict whether these proposals will be enacted and if they will be beneficial to our students.

        FWS.    Under the FWS program, federal funds are made available to pay up to 75% of the cost of compensation for part-time employment of eligible students, based on their financial need, to perform work for the institution or for off-campus public or non-profit organizations. At least 7% of an institution's FWS allocation must be used to fund student employment in community service positions. FWS earnings are given directly to the student for their own discretionary use.

Regulatory Oversight

        A three-part regulatory framework, generally referred to as the Triad, provides regulatory oversight of post-secondary education institutions. The first part of the Triad involves the standards applied by ED in evaluating the financial responsibility and administrative capability of institutions participating in the Title IV Programs. In addition, ED periodically reviews the eligibility and certification to participate in the Title IV Programs of every such eligible institution. By law, all institutions are required to undergo a recertification review at least every six years, although ED may recertify an institution for a shorter time period. Under these standards, each of our U.S. institutions is evaluated by ED on a routine basis. A denial of recertification would preclude an institution from continuing to participate in the Title IV Programs.

        The second part of the Triad consists of accrediting agencies which review and accredit our institutions. Their examinations pertain to such areas as student achievement, curriculum, faculty, facilities, equipment, admissions, financial responsibility and timeliness of student refunds. ED also requires each accrediting agency recognized by ED to undergo comprehensive periodic reviews by ED to ascertain whether such accrediting agency is adhering to required standards.

        The third part of the Triad involves approvals by state education agencies with jurisdiction over educational institutions. State requirements are important to an institution's eligibility to participate in the Title IV Programs since an institution must be licensed or otherwise authorized to operate in the state in which it offers education in order to be certified as eligible. The level of regulatory oversight varies substantially from state to state. State laws establish standards for instruction, qualifications of faculty, location and nature of facilities, financial policies and responsibility and other operational matters. State laws and regulations may limit our ability to obtain authorization to operate in certain states, to award degrees or diplomas, or offer new degree programs. Certain states prescribe standards of financial responsibility that are different from those prescribed by ED.

Recent ED Rulemaking

        The agencies that regulate our U.S. schools, including ED, periodically revise their requirements and modify their interpretations of existing requirements. From 2009-11, the U.S. Department of Education ("ED") proposed and adopted changes to its regulations on the following subjects relating to Title IV Program Integrity: (i) Definition of High School Diploma for the Purpose of Establishing Institutional Eligibility to Participate in the Title IV Programs, and Student Eligibility to Receive Title IV Aid; (ii) Ability to Benefit; (iii) Misrepresentation of Information to Students and Prospective Students; (iv) Incentive Compensation; (v) State Authorization as a Component of Institutional

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Eligibility; (vi) Gainful Employment in a Recognized Occupation; (vii) Definition of a Credit Hour; (viii) Agreements Between Institutions of Higher Education; (ix) Verification of Information Included on Student Aid Applications; (x) Satisfactory Academic Progress; (xi) Retaking Coursework; (xii) Return of Title IV Funds: Term-based Programs with Modules or Compressed Courses; (xiii) Return of Title IV Funds: Taking Attendance; and (xiv) Disbursements of Title IV Funds. On October 29, 2010, ED published final rules on all 14 Title IV Program Integrity issues, with the exception of the final regulation establishing specific metrics to define "gainful employment." ED published final rules on the "gainful employment metrics" on June 13, 2011.

        The final ED rules that could have the most significant potential impact on our business are the following:

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the quantitative gainful employment requirements;



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the elimination of the 12 Safe Harbors regarding the incentive compensation prohibition;



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the requirement to notify ED of, and possibly obtaining ED's approval to offer, additional programs of study that lead to gainful employment;



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determining when a program of study is required to measure student progress in clock hours;



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new requirements about what constitutes satisfactory state authorization for institutions to offer postsecondary education in a state; and



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the enhanced definition of "substantial misrepresentation" that could impose enhanced liability on institutions of higher education.

Gainful Employment

        Under the HEOA, proprietary schools are eligible to participate in Title IV programs in respect of educational programs that lead to "gainful employment in a recognized occupation." Historically, this concept has been interpreted and applied to focus on the objectives of the programs. On June 13, 2011, ED issued final regulations which were to have become effective on July 1, 2012, that set out certain quantitative requirements for a program offered by a private sector educational institution to comply with the gainful employment requirements.

        Although the Gainful Employment Requirements were scheduled to go into effect July 1, 2012, the U.S. District Court for the District of Columbia issued a decision on June 30, 2012 in the case captioned Association of Private Sector Colleges and Universities v. Duncan (the "APSCU case") that vacated most of the Gainful Employment Requirements and remanded those regulations to ED for further action. On July 6, 2012, ED issued an electronic announcement acknowledging that the Court had vacated the repayment rate metric as well as the debt-to-income metrics that would have gone into effect on July 1, 2012. ED also noted that institutions are not required to comply with related regulations relating to gainful employment reporting requirements and adding new educational programs, but are required to comply with requirements to disclose certain information about educational programs. The Court's decision is subject to appeal by ED and could be modified or reversed on appeal. Moreover, ED could take further action to address the Court's concerns regarding the regulations and obtain approval to enforce the regulations, or ED could issue new regulations regarding gainful employment. We cannot predict what steps ED will take in response to the Court's decision, how long those steps will take, or whether those steps will result in ED being able to enforce the gainful employment regulations or issuing new regulations.

        Under the gainful employment rules that would have come into effect had the court not vacated the rules, if any of our programs of study failed to satisfy the gainful employment requirements for three out of four FFYs, that program would be deemed ineligible under the Title IV Programs. Students would be unable to obtain financial aid under the Title IV Programs to help pay their

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education costs associated with attending ineligible programs of study. A program of study would only satisfy the Gainful Employment Requirements, if:

•

the program's annual loan repayment rate, as defined and calculated by ED, is at least 35%; or



•

the program's graduates' median annual loan payment, as calculated by ED, is less than or equal to:



•

30% of discretionary income; or



•

12% of annual earnings.

        This regulation could have rendered some of our programs, as well as programs offered by other private sector educational institutions, ineligible for Title IV funding to the extent they did not meet these standards.

        We cannot predict whether the gainful employment regulations will ultimately be upheld or altered as a result of the District Court's APSCU decision. To the extent that the regulations are upheld on appeal or revised to retain provisions that still adversely affect the eligibility of the programs we offer, our business could be materially and adversely impacted.

Incentive Compensation

        A school participating in Title IV programs may not pay any commission, bonus or other incentive payments to any person involved in student recruitment or admissions or awarding of Title IV program funds, if such payments are based directly or indirectly on success in enrolling students or obtaining student financial aid. The statutory language of this prohibition does not establish clear criteria for compliance in all circumstances, but between 2002 and June 30, 2011 there were twelve "safe harbors" that defined specific types of compensation that were deemed not to constitute impermissible incentive compensation. Until June 30, 2011, the Company relied on several of these safe harbors to ensure that our compensation and recruitment practices comply with the statutory prohibition. On October 29, 2010, ED issued final regulations that eliminated all twelve safe harbors, and in lieu of the safe harbors, took the position that any adjustment to compensation based directly or indirectly on securing enrollments or awarding financial aid is inconsistent with the incentive payment prohibition in the HEA. The final rule further expands the prohibition to individuals who have "responsibility for" recruitment or admission of students or making decisions about awarding Title IV program funds. ED states that an institution still will be able to make merit-based adjustments to employee compensation, but will not be permitted to consider or base compensation directly or indirectly, in any part, on success in securing student enrollments, the award of financial aid or institutional goals based on that success. As a result of the final regulations, which took effect July 1, 2011, we changed our evaluation and compensation practices for admissions and financial aid representatives and certain other employees. This could adversely affect our ability to compensate our admissions and financial aid representatives and other employees in a manner that appropriately reflects their job performance, which in turn could reduce their effectiveness and make it more difficult to attract and retain qualified and competent personnel.

        In addition, a lack of certainty could increase the risk of future Federal False Claims Act qui tam lawsuits in which private plaintiffs assert that our compensation practices violate the incentive compensation rules and, therefore, that our receipt of Title IV funds constitutes a false claim. We have been the subject of at least three such qui tam lawsuits relating to our compensation practices, all of which that have been unsealed were initially dismissed at the district court level. The relator in one of the dismissed cases, the Lee case, appealed to the U.S. Ninth Circuit Court of Appeals, which reversed the district court's dismissal on August 8, 2011, and remanded case to the district to permit the relator to amend its complaint. On December 15, 2011, the first amended Lee complaint was filed in U.S. District Court alleging violations of the False Claims Act, 31 U.S.C. § 3729 against the Company,

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Ernst & Young LLC, David Moore and Jack Massimino. The Company moved the U.S. District Court to dismiss the first amended Lee complaint, and the relators opposed that motion. On April 19, 2012, the District Court held that the statute of limitations bars the relators from asserting claims based on conduct prior to 2005, but otherwise denied the Company's motion to dismiss.

ED Approvals for New Programs

        On October 29, 2010, ED issued final regulations requiring the Company to notify it, and possibly obtain ED's approval to offer, additional programs of study. Under these rules, ED would review the notice submitted by the institution and advise it whether the new program of study must be approved by ED, or if additional information would be required by ED to determine whether the program will be approved. The U.S. District Court for the District of Columbia also vacated this new program approval rule in the APSCU case and remanded those regulations to ED for further action. If the district court decision is overturned on appeal, or if ED promulgates new rules that survive challenge and we are required to obtain approval from ED for any new programs of study and are unable to obtain ED's approval in a timely manner, our ability to offer the new programs would be impaired, which could have a material adverse effect on our expansion plans, financial condition, results of operations and cash flows.

Clock Hours

        The final rules require that a program of study be considered a clock hour program for the purposes of Title IV Program funding when measuring student progress in clock hours is a requirement of receiving Federal or State approval to offer the program (except where such requirement applies only to a practicum, internship, or clinical experience component of the program), or completing clock hours is a requirement for graduates to apply for licensure or the authorization to practice the occupation that the student is intending to pursue. The scope of these final rules, particularly as applied to the manner by which programs of study are approved by various States, is unclear. Students attending programs of study that are now required to be measured in clock hours may receive less funds from Title IV Programs to pay their cost of education. Students interested in those programs of study may have to use more expensive private financing to pay their cost of education or may be unable to enroll in those programs of study. Students may determine that they do not qualify for private financing or that the private financing costs make borrowing too expensive, which may cause students to abandon or delay their education. Any or all of these factors could reduce our enrollment, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price.

State Authorization

        Under the HEA, an institution must be authorized by each State in which it is located to participate in Title IV programs. ED historically has determined that an institution is licensed or otherwise authorized in order to be certified as eligible to participate in Title IV Programs if the institution's State does not require the institution to obtain licensure or authorization to operate in the state. On October 29, 2010, ED issued new regulations that establish specific new federal requirements with respect to whether or not a State's authorization of an educational institution is sufficient for that institution to participate in Title IV programs. Recognizing that the final regulations may, in effect, require many States to revise existing laws or regulations, the rule issued by ED provides that a State may seek a one-year extension until July 1, 2012 to effectuate such changes, and if necessary obtain a second extension for one additional year. However, under the final regulations, an institution participating in Title IV programs must in the interim obtain from the pertinent states an explanation of how an extension will permit the state to modify its procedures to comply ED's regulations. Additional provisions of the final regulations require any institution offering distance education to

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students in states where it is not physically located to meet any state requirements for it to be legally offering postsecondary distance or correspondence education in that state, and to be able to document the state's approval of the institution to ED. Under the final regulations as issued by ED, certain of our campuses and distance education programs may be required to obtain additional or revised state authorizations to remain certified as eligible to participate in Title IV Programs. If we are unable to obtain additional or revised state authorizations, students at certain of our campuses, or certain of our students enrolled in distance education programs, may be unable to access Title IV Program funds, which could have a material adverse effect on our business, financial condition and results of operations.

Potential Impact of New Rules

        In addition to the program integrity issues specifically addressed above, the final regulations issued by ED include provisions regarding the definition of a credit hour; the types of statements by an institution or parties related to an institution that constitute prohibited misrepresentation; written agreements between institutions, particularly institutions under common ownership or control; requirements regarding an institution's return of Title IV program funds; and certain other issues pertaining to a student's eligibility to receive Title IV program funds. We cannot predict how the 2010 and 2011 rules or any other resulting regulations will be interpreted, and therefore whether we will be able to comply with these requirements. Compliance with the final rules could have a material adverse effect on our business. Uncertainty surrounding application of the final rules may continue for some period of time and could reduce our enrollment, increase our cost of doing business, and have a material adverse effect on our business, financial condition, results of operations and cash flows.

Other Regulations

        In addition to the program integrity issues specifically addressed above, the final regulations issued by ED on October 29, 2010 include provisions regarding the types of statements by an institution or parties related to an institution that constitute prohibited misrepresentation; written agreements between institutions, particularly institutions under common ownership or control; the administration of ability-to-benefit examinations; requirements regarding an institution's return of Title IV program funds; and certain other issues pertaining to a student's eligibility to receive Title IV program funds. We have modified many of our practices as a result of the final regulations issued on October 29, 2010. We cannot predict how all of the recently released regulations will be interpreted, and therefore whether we will be deemed to be in compliance with these requirements by regulators. Uncertainty surrounding the application of the final rules, interpretive regulations, and guidance from ED may continue for some period of time and could reduce our enrollment, increase our cost of doing business, and have a material adverse effect on our business, financial condition, results of operations and cash flows. We cannot predict with certainty the impact that ED's new regulations will have on our operations. Compliance with these regulations could reduce our enrollment, increase our cost of doing business and have a material adverse effect on our business, financial condition, results of operations and cash flows.

Department of Education Oversight of the Title IV Programs in the United States

        The substantial amount of federal funds disbursed through the Title IV Programs, coupled with the large numbers of students and institutions participating in those programs, have led the U.S. Congress to require ED to engage in a substantial level of regulatory oversight of institutions to ensure that public funds are properly used. Each institution which participates in the Title IV Programs must annually submit to ED both an audit by an independent accounting firm of that institution's compliance with the Title IV Program requirements, and audited financial statements. ED also conducts compliance reviews, which include on-site evaluations, and directs student loan guaranty agencies to

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conduct additional reviews relating to the FFEL programs. In addition, the Office of the Inspector General of ED conducts audits and investigations of institutions in certain circumstances. Under the HEA, accrediting agencies and state licensing agencies also have responsibilities for overseeing institutions' compliance with Title IV Program requirements. As a result, each participating institution, including each of our U.S. institutions, is subject to frequent and detailed oversight and must comply with a complex framework of laws and regulations or risk being required to repay funds or becoming ineligible to participate in the Title IV Programs. In addition, ED periodically revises its regulations and changes its interpretation of existing laws and regulations.

Cohort Default Rates

        A significant requirement imposed by Congress is a limitation on participation in the Title IV Programs by institutions whose former students defaulted on the repayment of federally guaranteed or funded student loans at an "excessive" rate ("Cohort Default Rates"). Many institutions, including all of our institutions within the U.S., have responded by implementing aggressive student loan default management programs aimed at reducing the likelihood of students failing to repay their federally guaranteed loans in a timely manner. Currently, an institution's Cohort Default Rates under the FFEL and FDL programs are calculated on an annual basis as the rate at which student borrowers scheduled to begin repayment on their loans in one federal fiscal year default on those loans by the end of the next federal fiscal year.

        Under the HEOA a separate calculation will be performed that will add an additional federal fiscal year of borrowers' repayment performance. An institution that participates in both the FFEL and FDL programs receives a single "weighted average" Cohort Default Rate in place of an FFEL or FDL Cohort Default Rate. Any institution whose Cohort Default Rate equals or exceeds 25% for any one of the three most recent federal fiscal years under the current method of calculation may be found by ED to lack administrative capability, and on that basis, placed on provisional certification status for up to three years. Additionally, any such institution may be required by its accrediting agency to provide additional information or supplemental reports. Provisional certification status does not limit an institution's access to Title IV Program funds but does subject that institution to closer review by ED and possible summary adverse action if that institution commits violations of the Title IV Program requirements. Provisional certification may also impede an institution's ability to grow by limiting its ability to add new programs and locations. Any institution whose Cohort Default Rates equal or exceed 25% for three consecutive years under the current calculation may lose eligibility to participate in the FDL and the Pell grant programs for the remainder of the federal fiscal year in which ED determines that such institution has lost its eligibility and for the two subsequent federal fiscal years.

        Pursuant to the HEOA, this percentage will increase to 30% after three years of Cohort Default Rates calculated with the additional federal fiscal year are available, and then become applicable to the imposition of sanctions. In addition, an institution whose Cohort Default Rate for any federal fiscal year exceeds 40% may have its eligibility to participate in the FDL program limited, suspended or terminated. Since the calculation of Cohort Default Rates involves the collection of data from many non-governmental agencies (i.e., lenders, private guarantors or servicers), as well as ED, the HEA provides a formal process for the review and appeal of the accuracy of Cohort Default Rates before ED takes any action against an institution based on such rates.

        In order to improve our overall default rates, we have implemented a multi-faceted cohort default prevention program. This program includes the following: a contact management system to assist in reaching students who are no longer in school; an internal department focused primarily on early stage delinquencies; an expanded program of entrance and exit counseling and financial literacy training for current students; and the use of outside firms and internal resources to reach borrowers and assist them in contacting their lenders and getting help with alternatives to default, including income-based repayment, deferral and forbearance.

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        On an on-going basis, we monitor cohort repayment data, and we are currently monitoring the repayment and default status of the 2010, 2011, and 2012 Cohorts. Given the draft results for the 2010 Cohort (under the two-year measurement methodology) combined with the most recent data we have received, we believe that none of our institutions will exceed the 30% threshold for three consecutive years under the new three-year measurement rules. We therefore do not expect any institution to lose eligibility to participate in federal student financial aid programs because of high student loan default rates in the 2009 Cohort which would have become applicable in 2014. We believe that these positive trends are the result of three main factors: 1) our substantial investment in cohort default prevention over the past two and a half years; 2) stabilization in the student lending environment; and 3) the increased participation of loan servicers in default management.

        The following table sets forth the draft and final Cohort Default Rates for the two-year measurement period for our institutions included within total operations of the Company as of June 30, 2012 in the U.S. for federal fiscal years 2007, 2008 and 2009, and the draft rates for 2010:

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        The following table sets forth the draft Cohort Default Rates for the 3-year measurement period for our institutions included within total operations of the Company as of June 30, 2012 in the U.S. for federal fiscal year 2009:

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        Generally ED publishes draft cohort default rates in February of each year for the repayment period that ended the prior September 30. The preliminary rates are subject to review by the institution, after which ED publishes final cohort default rates in the following September. On separate schedules, ED published the two-year draft cohort default rates for the students who entered repayment between October 1, 2009 and September 30, 2010 (the "2010 Cohort") and the three-year draft cohort default rates for the students who entered repayment between October 1, 2008 and September 30, 2009 (the "2009 Cohort") in February 2012.

        In addition, if an institution's Cohort Default Rate for loans under the Perkins program exceeds 15% for any one of the most recent three federal award years (i.e., July 1 through June 30), that institution may be placed on provisional certification status for up to three award years. Thirteen of our institutions had Perkins program Cohort Default Rates in excess of 15% over one of the last three federal award years. For students who were scheduled to begin repayment in the 2009/2010 federal award year, the most recent year for which such rates have been calculated, one of our institutions has a Perkins program Cohort Default Rates slightly in excess of 15%. Of the thirteen, only two have provisional certification status which was due to a high Perkins Cohort Default Rate. During fiscal 2012, Perkins loans amounted to a very small percentage of the total cash revenues of the Company but were still a useful funding source for those schools that participate and make use of those funds. The Perkins program Cohort Default Rates for these institutions generally range from less than 10% to the mid-fifties. Historically, provisional certification due to excessive Perkins program Cohort Default Rates has not had a material adverse effect on our business.

The "90/10 Rule"

        Under a provision of the HEA commonly referred to as the "90/10 Rule," a private, for-profit institution, such as each of our institutions, would cease being eligible to participate in the Title IV Programs if, on a cash accounting basis, more than 90% of its revenue was derived from the Title IV Programs. Prior to the enactment of the HEOA, any institution that violated the 90/10 Rule immediately became ineligible to participate in the Title IV Programs and was unable to apply to regain its eligibility until the following fiscal year. Under the HEOA, an institution will not become ineligible until it has exceeded the 90% maximum for two consecutive fiscal years. These changes will afford our institutions additional flexibility in meeting the 90/10 Rule. The legislation, however, also provides that institutions that exceed the 90% limit may be placed on provisional certification and be subject to additional monitoring and that those which violate the 90/10 Rule will be ineligible for two fiscal years before they regain eligibility.

        For purposes of calculating compliance with the 90/10 Rule under the HEOA, an institution is permitted, for a limited period of time, to count institutional loans as non-Title IV revenue. This provision expired on July 1, 2012. Under these modified 90/10 calculations for the 2012 fiscal year, our institutions derived between 62.8% and 94.1% of their revenues (on a modified cash basis) from Title IV programs. Two of our total 49 institutions (including five institutions in discontinued operations) exceeded the 90% threshold in fiscal 2012, ECP at 94.1% and Everest University in Tampa, FL at 92.4%. Combined, these institutions had 10,550 students at June 30, 2012. On August 14, 2012 we notified ED that these two institutions had 90/10 rates above 90% for the 2012 fiscal year.

        The two institutions that exceeded the 90/10 Rule limit for fiscal year 2012 are now considered, under ED regulations, to be certified on a provisional basis for two years and will be subject to possible additional ED sanctions. While ED has broad discretion to impose additional sanctions on these institutions, there is limited precedent to anticipate what those sanctions might be, particularly in the current regulatory environment. ED could specify a wide range of additional conditions as a part of the provisional certification and the institutions' continued participation in Title IV Programs. When an institution is subject to provisional certification at the time that its program participation agreement expires, ED also has greater discretion in considering the conditions to attach if it recertifies such

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institution. Any of our institutions that derive more than 90% of their revenue from Title IV Programs for two consecutive fiscal years will be ineligible to participate in Title IV Programs for at least two fiscal years. The Company as a whole derived approximately 84.6% of its net U.S. revenue (on a modified cash basis) from Title IV Programs. Without the temporary relief imposed by the HEOA, approximately 85.9% of our net U.S. revenues (on a modified cash basis) would have been derived from federal Title IV programs, and 3 of our 49 institutions would have exceeded the 90% threshold.

        We regularly monitor compliance with this requirement in order to minimize the risk that any of our institutions would derive more than the applicable thresholds of its revenue from the Title IV Programs for any fiscal year. At the end of fiscal 2012, the Company delayed drawing down approximately $7.5 million of Title IV funds (which were subsequently collected in July 2012 within the appropriate ED payment periods) to help its institutions comply with the 90/10 rule for fiscal 2012.

Financial Responsibility Standards

        All institutions participating in the Title IV Programs must satisfy a series of specific standards of financial responsibility. Institutions are evaluated for compliance with those requirements in several circumstances, including as part of ED's recertification process and also annually as each institution submits its audited financial statements to ED. As part of the evaluation of an institution's financial responsibility, ED calculates three financial ratios for an institution: an equity ratio, a primary reserve ratio, and a net income ratio. Each ratio is scored separately and then combined to determine the institution's financial responsibility. If an institution's composite score is below the minimum requirement for unconditional approval (which is a score of 1.5) but within a designated threshold level (the "Zone," which is 1.0 to 1.4), such institution may take advantage of an alternative that allows it to continue to participate in the Title IV Programs for up to three years under additional monitoring and reporting procedures but without having to post a letter of credit in favor of ED. If an institution's composite score falls below the minimum threshold level of 1.0 or is in the Zone for more than three consecutive years, the institution may be required to post a letter of credit in favor of ED.

        For fiscal 2012, the Company, on a consolidated basis, meets the requirements with a composite score of 1.5. We believe our calculations of the financial responsibility score are correct, however the calculation is subject to interpretive issues. If ED were to take a different interpretive position than we have with regard to this calculation, it could negatively impact the Company's composite score on a consolidated basis.

        For our fiscal year ended June 30, 2011, our calculations show that, on a consolidated basis, we also exceeded this requirement with a composite score of 2.1, excluding goodwill impairment. ED has not yet concurred with our calculations of the composite score for the fiscal year ended June 30, 2011, and we will not submit our calculations for the fiscal year ended June 30, 2012 to ED for some time. We believe our calculations of the financial responsibility score for fiscal 2011 are correct. However, the calculation is subject to interpretive issues relating to the appropriate treatment of goodwill impairment in the calculation of the composite score. In this regard, we have been in communication with an analyst at ED who questioned the appropriate treatment of the goodwill impairment charge we took in fiscal 2011, and also questioned whether other intangible assets on our balance sheet at June 30, 2011 should have been expensed for purposes of the composite score. As a result, we have engaged in discussions with ED regarding our calculations and have provided ED with a detailed explanation of our views regarding the appropriate treatment of goodwill impairment and other intangible assets on the composite score calculation. We continue to believe our calculations are correct, but if ED were to conclude that the goodwill impairment should be included as an expense in the calculation of the Company's composite score, this would negatively impact the Company's composite score on a consolidated basis for fiscal 2011, and ED might consider the Company not to be financially responsible until ED accepted our fiscal 2012 financial responsibility calculations. Depending on ED's resolutions of this matter, we could be required to satisfy the standards of financial responsibility on an

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alternative basis, including potentially by posting irrevocable letters of credit. Additionally, a definitive determination by ED that our composite score is less than 1.5 could be a default under our existing credit agreement. We cannot provide assurance that ED will agree with our calculations, or that our institutions will continue to satisfy the numeric standards in the future.

        An institution that is determined by ED not to have met the standards of financial responsibility is nonetheless entitled to participate in the Title IV Programs if it can demonstrate to ED that it is financially responsible on an alternative basis. An institution may do so by posting a surety either in an amount equal to 50% (or greater, as ED may require) of the total Title IV Program funds received by students enrolled at such institution during the prior year or in an amount equal to 10% (or greater, as ED may require) of such prior year's funds if the institution also agrees to provisional certification and to transfer to the reimbursement or cash monitoring system of payment for its Title IV Program funds. ED has interpreted this surety condition to require the posting of an irrevocable letter of credit in favor of ED.

        Under a separate standard of financial responsibility, if an institution has made late Title IV refunds to students in its prior two years, the institution is required to post a letter of credit in favor of ED in an amount equal to 25% of the total Title IV Program refunds paid by the institution in its prior fiscal year. As of July 1, 1997, this standard was modified to exempt an institution that has not been found to make late refunds to 5% or more of its students who were due refunds in either of the two most recent fiscal years and has not been cited for a reportable condition or material weakness in its internal controls related to late refunds in either of its two most recent fiscal years. Based on this standard, we currently have outstanding letters of credit in the aggregate amount of approximately $7.7 million because of late refunds at 3 of our institutions. There can be no assurance that, upon review by ED, we will not be required to post additional letters of credit in favor of ED on behalf of the affected colleges.

Restrictions on Acquiring or Opening Additional Schools and Adding Educational Programs

        An institution which undergoes a change of ownership resulting in a change in control, including all of the institutions that we have acquired or will acquire, must be reviewed and recertified for participation in the Title IV Programs under its new ownership. If an institution is recertified following a change of ownership, it will be on a provisional basis. During the time an institution is provisionally certified, it may be subject to closer review by ED and to summary adverse action for violations of Title IV Program requirements and may be impeded in expanding, but provisional certification does not otherwise limit an institution's access to Title IV Program funds. Institutions can also be placed on provisional certification primarily as a result of late refunds, financial aid audit findings and other miscellaneous matters. As of June 30, 2012, nine of our Heald institutions, covering twelve campuses, were on provisional certification due to a change of control in 2010 when we acquired them.

        The HEA generally requires that proprietary institutions be fully operational for two years before applying to participate in the Title IV Programs. However, under applicable regulations, an institution that is certified to participate in the Title IV Programs may establish an additional location and apply to participate in the Title IV Programs at that location without reference to the two-year requirement, as long as such additional location satisfies all other applicable Title IV Program participation eligibility requirements. Our expansion plans are based, in part, on our ability to acquire schools that can be recertified and to open additional locations of existing institutions.

        Generally, if an institution is eligible to participate in the Title IV Programs and adds an educational program after it has been designated as an eligible institution, the institution must apply to ED to have the additional program designated as eligible. Further, short-term educational programs, which generally consist of those programs that provide at least 300 but less than 600 clock hours of instruction, are eligible only for Title IV funding if they have been offered for a year and the institution

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can demonstrate, based on an attestation by its independent auditor, that at least 70% of all students who enroll in such programs complete them within a prescribed time and at least 70% of those students who graduate from such programs obtain employment in the recognized occupation for which they were trained within a prescribed time. Certain of our campuses offer such short-term programs in compliance with ED regulations. Students enrolled in such programs represent a small percentage of the total enrollment at our campuses. In the event that an institution erroneously determines that an educational program is eligible for purposes of the Title IV programs without ED's express approval, the institution would likely be required to repay the Title IV program funds provided to students in that educational program. Certain of the state authorizing agencies and accrediting agencies with jurisdiction over our campuses also have requirements that may, in certain instances, limit our ability to open a new campus, acquire an existing campus or establish an additional location of an existing institution or begin offering a new educational program.

Ability to Benefit Regulations

        Most of our schools in the United States have historically accepted non-high school graduates who can demonstrate an ability to benefit ("ATB students") from the program by passing certain tests which are required by ED. However, the Consolidated Appropriations Act of 2012 eliminated federal student aid eligibility for all students without a "certificate of graduation from a school providing secondary education or the recognized equivalent of such a certificate" who first enroll in a Title IV eligible program after July 1, 2012. Students who do not possess a high school diploma, or a recognized equivalent, but who have previously enrolled in a Title IV eligible program any time prior to July 1, 2012, however, may be eligible to receive Title IV student assistance after July 1, 2012. As of June 30, 2012, ATB students accounted for approximately 7.3% of total enrollments in our U.S. schools. To help offset the loss of ATB students associated with funding restrictions in the Appropriations Act, we plan to offer free General Education Development (GED) preparation services to the general public. We currently offer GED services to our existing ATB students and expect to offer similar services to the general public at most of our U.S. campuses by the end of fiscal 2013. We believe that some portion of students who obtain a GED through one of our schools could potentially enroll in one of our programs or pursue other post-secondary education.

Return of Title IV Funds

        In 1998, amendments to the HEA changed substantially the refund requirements regarding the disposition of Title IV funds when a recipient of Title IV funds withdraws from an institution. We believe our returns of Title IV funds calculations are in compliance with current regulations to implement these requirements.

Accreditation

        Accreditation is a voluntary, non-governmental process by which institutions submit themselves to qualitative review by an organization of peer institutions. There are three types of accrediting agencies: (i) national accrediting agencies, which accredit institutions without regard to geographical location; (ii) regional accrediting agencies, which accredit institutions within their geographic areas; and (iii) programmatic accrediting agencies, which accredit or approve specific educational programs offered by institutions. Accrediting agencies primarily examine the academic quality of the instructional programs offered at the institution, including retention and placement rates. Accrediting agencies also review the administrative and financial operations of the institution to ensure that it has the academic and financial resources to achieve its educational mission. A grant of accreditation is generally viewed as certification that an institution and its programs meet generally accepted academic standards.

        Pursuant to the HEA, ED relies on accrediting agencies to determine whether an institution and its educational programs are of sufficient quality to permit it to participate in Title IV Programs. The

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HEA specifies certain standards that all recognized accrediting agencies must adopt in connection with their review of post-secondary institutions and requires accrediting agencies to submit to a periodic review by ED as a condition of their continued recognition. All of our colleges are accredited by an accrediting agency recognized by ED as depicted in the table below:

        The HEOA requires accrediting agencies recognized by ED to review many aspects of an institution's operations in order to ensure that the education or training offered is of sufficient quality to achieve, for the duration of the accreditation period, the stated objectives of the education or training offered. Under the HEOA, recognized accrediting agencies must conduct regular reviews of the institutions they accredit. In addition to periodic accreditation reviews, institutions undergoing substantive changes, including a change of ownership, may be required to be reviewed by their accrediting agency. Accrediting agencies also monitor institutions' compliance during the term of their accreditation. If an accrediting agency believes that an institution may be out of compliance with accrediting standards, it may place the institution on probation or a similar warning status or direct the institution to show cause why its accreditation should not be revoked. An accrediting agency may also require the institution to supply it with supplemental reports in order for the agency to monitor one or more specific areas of the institution's performance, typically completion or graduate placement outcomes. This is commonly referred to as being on "reporting" status. Failure to demonstrate compliance with accrediting standards in any of these instances could result in loss of accreditation. Being on probation, show cause, or reporting status may cause an accreditor to deny an institution permission, or otherwise delay approval, to open and commence instruction at new locations or to add new programs.

        As previously reported, in a letter dated December 8, 2010, the Company received notification that ACCSC had voted to direct the Company's Everest Institute in Decatur, GA to show cause why its accreditation should not be withdrawn for failure to demonstrate compliance with ACCSC's required student achievement outcomes. The institution was required to provide the information requested by ACCSC on or before March 8, 2011, which it provided, for review at the May 2011 ACCSC meeting. At its meeting in May 2011, ACCSC continued the institution's show cause order to the November 2011 commission meeting, and requested additional information from the institution. In March 2012, the Company notified ACCSC that a decision was made to teach-out all programs at the school and close the campus upon completion of the teach-out. Subsequently, at the May 2012 commission meeting, ACCSC reviewed the institution's updated show cause information and continued its show cause order through the complete teach-out and closure of the campus in December 2012.

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        In a letter dated December 21, 2011, the Company received notification that ACCSC had voted to direct the Company's Everest Institute in Jonesboro, GA to show cause why its accreditation should not be withdrawn for failure to demonstrate compliance with ACCSC's required student achievement outcomes. The institution was required to provide the information requested by ACCSC on or before April 6, 2012, which it provided, for review at the May 2012 ACCSC meeting. At its meeting in May 2012, ACCSC continued the institution's show cause order to the November 2012 commission meeting, and requested additional information from the institution. Since accreditation is required for an institution to be eligible to participate in the federal student financial aid programs, the failure by Everest Institute in Jonesboro, GA to satisfactorily resolve its show cause action with ACCSC could have an adverse effect on the Company's business, results of operations and financial condition.

        As of June 30, 2012, thirty five of our colleges were on reporting status to their respective accrediting agencies. The required reports relate primarily to the completion, retention, and/or placement rates of the institutions' students. In certain of these cases, the periodic supplemental reports are required only with respect to particular programs at an institution, and not to the institution's overall completion or placement rates. We are working to improve these retention and placement rates in the identified programs at these schools.

        If any of our 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 assets for impairment and would take an impairment charge, if necessary.

State Licensure

        We must be licensed or otherwise authorized to operate in each state where we offer education in order to be certified as eligible to participate in Title IV Programs. ED historically considered an institution to be licensed or otherwise authorized in order to be certified as eligible to participate in Title IV Programs if the institution were actually licensed by a state, or if the institution's state did not require the institution to obtain licensure or authorization to operate in the state. On October 29, 2010, ED adopted final regulations that would consider an institution to be legally authorized by a state if (1) the authorization is given to the institution specifically to offer programs beyond secondary education, (2) the authorization is subject to adverse action by the state and (3) the state has a process to review and appropriately act on complaints concerning an institution and enforces applicable state laws. Additionally, if an institution offers postsecondary education through distance education to students in a state in which the institution is not physically located, the institution must satisfy any requirements of that state for the institution to offer postsecondary distance education to students in that state (although the U.S. District Court for the District of Columbia has declared this provision invalid). The proposed regulations present ED's view that a state is expected to take an active role in approving an institution, and that a state should not defer its oversight responsibilities to accrediting agencies or ED. ED will determine whether a state's institutional authorization and complaint process satisfies ED's regulations. We cannot predict the extent to which ED will determine that the institutional authorization or complaint review process of any state satisfies ED's regulations. If any of our campuses were to lose its eligibility to participate in Title IV Programs because a state's institutional authorization and complaint process does not satisfy ED's regulations, it could have a material adverse effect on our financial condition, results of operations and cash flows. We cannot

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predict with certainty the impact that ED's new regulations will have on our operations. Compliance with these regulations could reduce our enrollment, increase our cost of doing business and have a material adverse effect on our business, financial condition, results of operations and cash flows.

Compliance with Regulatory Standards and Effect of Regulatory Violations

        Our schools are subject to audits and program compliance reviews by various external agencies, including ED, state authorizing agencies, student loan guaranty agencies and accrediting agencies. The HEA and its implementing regulations also require that an institution's administration of Title IV Program funds be audited annually by an independent accounting firm. The resulting audit report must be submitted to ED for review. If ED or another regulatory agency determined that one of our institutions improperly disbursed Title IV Program funds or violated a provision of the HEA or ED's regulations, that institution could be required to repay such funds, and could be assessed an administrative fine. ED could also subject the institution to a heightened level of monitoring, under which the institution's federal funding requests would be more carefully reviewed by ED, or ED could transfer the institution from the advance system of receiving Title IV Program funds to the reimbursement system, under which an institution must document the students' eligibility for Title IV Program funds before receiving such funds from ED. Violations of Title IV Program requirements could also subject us or our schools to other civil and criminal penalties.

ED Program Reviews

        From time to time certain of our institutions have been the subject of program reviews by ED. Program reviews begin with site visits at the relevant locations. ED then prepares a program review report and the institution has the opportunity to respond. After the institution responds, ED issues a final program review determination, which may be appealed. The Company currently has open program reviews at the following stages: (i) ECP has received program review reports and provided written responses regarding the site visits ED conducted at ECP in 2008 and 2010, but has not yet received final determinations with respect to either site visit, (ii) site visits occurred at the Company's WyoTech Laramie, WY campus and its two additional locations in Blairsville, PA and Sacramento, CA in February 2012 and ED has issued a program review report and the Company is in the process of preparing its response, (iii) a site visit occurred at the Company's Everest College campus in Springfield, MO in April 2012, ED issued its program review report on July 6, 2012 and the institution is in the process of preparing a response, (iv) a site visit occurred at the Company's Everest College campus in Crosslanes, WV in April 2012, but ED has not yet issued a program review report, and (v) a site visit occurred at the Company's Everest College campus in Rochester, NY, but ED has not yet issued a program review report, and (vi) ED conducted site visits at the Company's campuses in Largo, FL and Long Beach, CA in August 2012, but has not yet issued program review reports. The Company will continue to cooperate with ED in its ongoing reviews.

        As previously reported, in April 2010 we received ED's program review report related to the site visit for ECP which occurred in August 2008. The report maintains that ECP failed to make students aware of the total amounts of financial aid for which they were entitled, failed to accurately inform students of the program costs, and delayed disbursements of Title IV funds. The report also contains findings regarding inadequate documentation, verification and availability of records for ED review, and the failure to make certain disbursements. In the report, ED characterizes certain of these findings as misrepresentations by ECP to its students, as a breach of fiduciary duty and as evidencing an intentional evasion of the 90/10 requirements. We disagree with these characterizations and have provided written responses to the program review report in two submissions to ED. We will continue to cooperate with ED in its review.

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ED were to make significant findings of non-compliance against any of the Company's institutions in any final determination letters regarding ongoing program reviews, it could result in the imposition of significant fines, penalties or other liabilities, including, without limitation, an action on the limitation, suspension or termination of the institution's participation in Title IV programs, any of which could have a material adverse effect on the Company's business, results of operations or financial condition.

        Significant violations of Title IV Program requirements by us or any of our institutions could be the basis for a proceeding by ED to limit, suspend, or terminate the participation of the affected institution in the Title IV Programs. Generally, such a termination extends for 18 months before the institution may apply for reinstatement of its participation. There is no proceeding pending to fine any of our institutions or to limit, suspend, or terminate any of our institutions' participation in the Title IV Programs, and we have no reason to believe that any such proceeding is contemplated. Any such action that substantially limited our schools' participation in the Title IV Programs could have a material adverse effect on our business, results of operations, cash flows, and financial condition.

Canadian Regulations

        Students attending our schools in Canada finance their education through a combination of family contributions, individual resources (including earnings from full or part-time employment) and federal and provincial financial aid programs.

        The schools operated by our Everest Canada division are subject to extensive regulations in the province of Ontario. These schools currently hold the necessary registrations, approvals and permits and meet the eligibility requirements to participate in governmental financial aid program. If these schools cannot continue to meet eligibility standards or fail to comply with applicable requirements, it could have a material adverse effect on our Canadian business, results of operations or financial condition.

        Licensing/Registration.    Our ability to provide private-for-profit post-secondary education and grant diplomas to graduates in Canada is regulated by Ontario government. In Ontario, the Ontario Ministry of Training, Colleges and Universities is responsible for registering and regulating private-for-profit educational institutions. The Private Career Colleges Act, 2005 (the "PCCA") stipulates that an education provider, such as our Canadian schools, must register each of its diploma granting programs for approval as well as each of its campuses with the Ministry. Typical requirements for obtaining this registered status include the financial viability of the campus, the "integrity and honesty" of the applicant's officers and directors, and the reasonable expectation that the program of study offered by the applicant will provide the skills requisite for employment in the vocation in which it is being trained. Registration must be renewed by the applicant annually. The Province of Ontario has the statutory power to deny, refuse to renew, suspend or revoke our registration if we are in breach of a term or condition of the registration.

        Government-Sponsored Financial Aid.    Financial aid programs are offered to our Canadian students by the Canadian federal government and the government of Ontario. The Province operates the provincial financial aid program for students and administers these loans in conjunction with the administration of the Canada Student Loans granted to students studying within the province. In order for students enrolled in a program of study at a private-for-profit educational institution to be eligible for public financial aid, the private-for-profit educational institution, as well as the specific program of study, must be registered in good standing under the applicable PCCA legislation in the Province. In addition, the Province typically requires that to be financial aid eligible, the specific program must be at the post-secondary level, be taught on a full-time basis, have a duration of not less than 12 weeks and lead to a diploma or certificate conferred upon the student at the completion of the program. The Province also typically requires that the private-for-profit educational institution maintain specific

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admissions requirements for entrance into eligible programs and retains specific documentation on each student receiving public financial aid.

        Financial aid programs provide students with access to funds during their study period based on a needs assessment. The loans are administered through the National Student Loan Service Centre for the program. The funds are loaned interest-free to the student during the study period and interest begins to accrue once a student either completes his or her study or stops attending school. After six months, the student must begin repayment of his or her loan(s). During the student's interest-free period, interest is paid by the federal and/or provincial governments to the National Student Loan Service Centre.

        The Ontario government has an initiative to reduce the number of loan defaults in that province. In addition to several other facets of this initiative, the Ministry of Training, Colleges and Universities (the "Ministry") has adopted a policy whereby the Ministry will only guarantee defaulted student loans to a certain capped amount, beyond which the applicable private career college is responsible for guaranteeing repayment. For the 2011/12 default cohort year, we have three Ontario locations that were required to issue a promissory note and/or collateral due to the default sharing program. If the default rate in 2014 is below 25%, no payment will be required. These three locations have experienced a default rate exceeding the 25% threshold for the past three years and are required to contract a third party default management provider and participate in a default rate reduction plan for 2011/12.

ALTERNATIVE LOANS FOR OUR STUDENTS

        Historically, we had developed several third party loan programs with origination and servicing providers such as Sallie Mae for students with low credit scores who otherwise would not qualify for loans. These loan programs required that we pay a discount fee to the origination and servicing providers of the loans as a reserve against future defaults on these loans. We have historically referred to these types of loans as "discount loans," since we incurred a portion of the default risk related to these student loans by taking a discount on the disbursement. By accepting a reduced payment for these discounted loans from the servicing providers, we were not at risk for the amounts agreed to by our students and the service providers, but we were not entitled to any proceeds collected by the service providers in excess of the net amount advanced. Therefore we had recorded this discount as a reduction to revenue.

        In 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, Genesis Lending Services, Inc. ("Genesis"). Under this Genesis program we paid a discount to the origination and servicing provider for any loans purchased by Genesis and recorded the discount as a reduction to revenue. Under this program we then had both the right and an obligation to acquire the related loan, except in certain limited circumstances where Genesis did not comply with the terms of the agreement. Under the Genesis arrangement, we acquired all of the loans that have been originated. Therefore, we are exposed to any credit defaults by students but retain all amounts collected from the students under this program.

        On June 29, 2011, we entered into a loan origination agreement with ASFG, LLC ("ASFG"), which has subsequently been amended and expanded, for the purpose of creating a new private education discount loan program for our students. Under the loan origination agreement, ASFG has agreed to purchase up to $775 million of new student loans through June 2015. Under this agreement, an unaffiliated bank will make private education loans to eligible students and, subsequently, sell those loans to ASFG or its designee. Total losses associated with the program recourse, inclusive of the discount paid to ASFG, are estimated to be approximately 50% of the amount funded. During the

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second quarter of fiscal 2012, we completed the transition from the Genesis discount loan program to the ASFG discount loan program. We estimate loans funded under the Genesis discount loan program, net of refunds, have been approximately $59.8 million for fiscal year 2012. We estimated that loans funded under the ASFG program, net of estimated refunds, have been approximately $125.3 million for fiscal year 2012.

        This ASFG loan program has characteristics similar to our previous third party "discount loan" programs. As with the previous discount third party loan programs, under the ASFG program we pay a discount to ASFG for any loans purchased by ASFG and record the discount as a reduction to revenue ratably over the program length as the related revenue is recognized. However, unlike our previous third party discount loan programs, pursuant to a backup loan purchase agreement entered into in connection with the loan origination agreement, we will be obligated to purchase any of the student loans on which no payment has been made for over 90 days. We apply historical loan performance experience to estimate and record this loan recourse obligation on a gross basis by recording both a deferred charge and liability equal to the estimated risk upon funding. The recourse liability is established at the inception of the guarantee. The deferred charge is recorded within prepaid expenses and is recognized as a reduction to revenue over the period of instruction. The total deferred charge related to unrecognized discount expense is $29.4 million as of June 30, 2012. The recourse liability is recorded within accrued expenses. Upon recourse we will repurchase any loans at the amount advanced by ASFG net of any discount paid to ASFG, less any principal payments collected by ASFG. Purchases are recorded as a decrease to cash, an increase to student notes receivable, and a reduction to the recourse liability. The recourse liability related to the loans funded under the ASFG program at June 30, 2012 was $7.8 million, net of recourse paid. This recourse liability is in addition to the discount paid to ASFG and is based upon the ultimate anticipated default. We estimate loan performance based upon actual repayment experience with similar private student loan programs. Under this backup loan purchase agreement, our maximum obligation (including the initial discount payment) could be equal to the face amount of loans originated under this loan program, although we expect the ultimate risk under this loan program to be substantially similar to the risks we face under our Genesis discount loan program.

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ITEM 1A.    RISK FACTORS

Risks Related To Extensive Regulation Of Our Business

If we fail to follow extensive regulatory requirements for our business, we could suffer severe fines and penalties, including loss of access to federal student loans and grants for our students.

        We derive a majority of our revenues on a cash basis from federal student financial aid programs. In connection with the receipt of federal financial aid by our students, we are subject to extensive regulation by governmental agencies and licensing and accrediting agencies. In particular, the Higher Education Act of 1965, as amended (the "HEA"), and the regulations issued thereunder by the Department of Education ("ED"), subject us to significant regulatory scrutiny in the form of numerous standards that schools must satisfy in order to participate in the various federal financial aid programs under Title IV of the HEA ("Title IV"). As a result, our schools are subject to extensive regulations by these agencies that, among other things, require us to:

•

undertake steps to assure that our schools do not have Cohort Default Rates that exceed applicable limits;



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limit the percentage of revenues (on a cash basis) derived at each of our institutions from federal student financial aid programs to less than 90%;



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adhere to financial responsibility and administrative capability standards;



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prohibit the payment of certain incentives to personnel engaged in student recruiting, admissions activities or awarding financial aid;



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achieve stringent completion and placement outcomes for short-term programs; and



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make timely refunds of tuition when a student withdraws from one of our institutions.

        These regulatory agencies periodically revise their requirements and modify their interpretations of existing requirements. If one or more of our schools were to violate any of these regulatory requirements, we could suffer fines, penalties or other sanctions, including the loss of our ability to participate in federal student financial aid programs at those schools, any of which could have a material adverse effect on our business. We cannot predict how all of these requirements will be applied, or whether we will be able to comply with all of the requirements.

Congress has in the past changed, and may in the future change, eligibility standards or reduce funding for federal student financial aid programs. Other governmental or regulatory bodies may also change similar laws or regulations relating to student financial aid programs, which could adversely affect our business.

        Political and budgetary concerns can significantly affect Title IV programs and other laws and regulations governing federal and state student financial aid programs. Title IV programs are made available pursuant to the provisions of the HEA, and the HEA must be reauthorized by Congress approximately every six years. Independent of reauthorization, Congress must annually appropriate funds for Title IV programs. In mid-2008, Congress passed and the President signed the HEOA in order to reauthorize the HEA. On December 23, 2011, President Obama signed into law the Consolidated Appropriations Act, 2012 (Public Law 112-74) (the "Appropriations Act"). The new law significantly impacts the federal student aid programs authorized under Title IV of the Higher Education Act of 1965, as amended ("HEA").

        Auto-Zero EFC Income Threshold—The Appropriations Act amended the HEA to reduce the income threshold for an automatic zero "expected family contribution" to $23,000 for the 2012-2013 award year for both dependent and independent students. The threshold for 2012-2013 was scheduled to be $32,000, but now will be $23,000. For students whose families make between $23,000 and $32,000 per year, this will decrease the amount of Pell grants such students will receive.

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        Ability-to-Benefit—The Appropriations Act also eliminated federal student aid eligibility for all students without a "certificate of graduation from a school providing secondary education or the recognized equivalent of such a certificate." The Appropriations Act makes an exception for students who have completed a secondary school education in a home school setting that is treated as a home school or private school under state law. Therefore, students who do not have a high school diploma or a recognized equivalent (e.g., a GED), or do not meet the home school requirements, and who first enroll in a program of study on or after July 1, 2012, will not be eligible to receive Title IV student aid. Students will qualify for Title IV student aid under one of the ability-to-benefit (ATB) alternatives if the student was enrolled in a Title IV eligible program prior to July 1, 2012. Those alternatives include the student passing an independently-administered, approved ATB test or successfully completing at least six credit hours or 225 clock hours of postsecondary education. A student who does not possess a high school diploma, or a recognized equivalent, but who is enrolled in a Title IV eligible program any time prior to July 1, 2012 may be eligible to receive Title IV student assistance after July 1, 2012. As of June 30, 2012 approximately 7.3% of our continuing operations student population were ATB students.

        Federal Pell Grant Duration of Eligibility—The Appropriations Act also amended the HEA to reduce the duration of a student's eligibility to receive a federal Pell Grant from 18 semesters (or its equivalent) to 12 semesters (or its equivalent). This provision applies to all federal Pell Grant eligible students effective with the 2012-13 award year. This may eliminate the ability of some of our students to continue to receive Pell Grants, depending on their prior receipt of Pell Grants from our institutions and from other institutions prior to enrolling in our schools.

        We are unable to predict the ultimate financial impact on the Company of these changes. However, our institutions have been unable to accept new ATB students starting on July 1, 2012, and the financial aid for some of our other students may be reduced or eliminated as a result of the Appropriations Act. If we are not able to effectively recruit additional new students to make up for those ATB students we will be unable to enroll, or if the reduction or elimination of financial aid after that date deters some students from enrolling, it would negatively affect our business, results of operations and financial condition, perhaps materially.

        Future reauthorizations or appropriations may result in numerous legislative changes, including those that could adversely affect our ability to participate in the Title IV programs and the availability of Title IV and non-Title IV funding sources for our students. Congress also may impose certain requirements upon the state or accrediting agencies with respect to their approval of our schools. Any action by Congress or ED that significantly reduces funding for the federal student financial aid programs or the ability of our schools or students to participate in these programs would have a material adverse effect on our business. Legislative action also may increase our administrative costs and burdens and require us to modify our practices in order for our schools to comply fully with applicable requirements.

        Because a significant percentage of our revenue is derived from Title IV and alternative loan programs, any action by Congress that significantly reduces Title IV program funding, the availability or attractiveness of alternative loans, or the ability of our schools or students to participate in Title IV programs could have a material adverse effect on our business, results of operations or financial condition. Legislative action also could increase our administrative costs and burdens and require us to adjust our practices in order for our schools to comply fully with Title IV program requirements.

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Congress, accrediting agencies and state attorneys general have initiated hearings and other examinations of the for-profit education sector that could result in further legislation, ED rulemaking, restrictions on Title IV Program participation by proprietary schools, adverse actions, fines, penalties or other censure that may materially and adversely affect our business.

        On July 30, 2012, Chairman Tom Harkin and the Majority Staff of the Senate Health, Education, Labor, and Pensions Committee (the "HELP Committee") released a report, "For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success." While stating that for-profit colleges and universities have an important role to play in higher education and should be well-equipped to meet the needs of non-traditional students who now constitute the majority of the postsecondary educational population, the report was highly critical of these institutions. The report contended that these institutions have a high cost of attendance, engage in aggressive and deceptive recruiting, have high drop-out rates, provide insufficient student support services, and are responsible for high levels of student debt and loan defaults, among other things. The report called for increased disclosure of information about student outcomes at for-profit colleges and universities, prohibiting institutions from using federal financial aid funding to market, advertise and recruit, amending the 90/10 rule to prohibit these institutions from receiving more than 85 percent of their revenues from federal funds, prohibiting the use of mandatory binding arbitration clauses in enrollment agreements, and other measures ostensibly to protect students and taxpayers. The report was a culmination of a series of hearings held by Chairman Harkin before the HELP Committee since June 24, 2010. As part of the HELP Committee hearings, GAO conducted a series of undercover investigations into the enrollment and recruiting practices at fifteen for-profit institutions of higher education in which GAO investigators with hidden cameras posed as potential new student enrollees. Two of our campuses, one of which was ECP, were among those visited by the GAO.

        On August 12, 2010, the President of ECP received a letter from ECP's accrediting agency, HLC, requesting a response to allegations contained in a GAO report regarding the undercover investigation, which ECP provided. On February 28, 2011, ECP received another letter from HLC peer reviewers and staff with additional questions about ECP's oversight of recruiting, admissions and financial aid practices at ECP; ECP responded to those additional questions in April 2011.

        Separately, as part of its normal reaccreditation cycle, ECP received notification from HLC in May 2010 that it had been placed on probation by HLC as a result of concerns related to ECP's governance model, questions about whether it had the necessary autonomy and authority to make decisions for itself independent of the Corinthian corporate structure, and concerns that ECP lacked sufficient operational and academic control over its branch campus and online division. Subsequently, in November 2010, HLC voted to issue a Show-Cause Order requiring ECP to present its case as to why its accreditation should not be removed. ECP responded to the Show-Cause Order, and on November 11, 2011 ECP received notification from HLC that its Board of Trustees had removed ECP from Show-Cause and had continued ECP's accreditation for three years.

        As part of HLC's reaccreditation of ECP, HLC requires ECP to submit a monitoring report each quarter with certain information, including about ECP Board of Trustees meetings, enrollment and retention reports by various student characteristics, numbers of faculty online and on-ground, and instructional loads for faculty. If the monitoring reports provide evidence that ECP is not continuing implementation of its participatory governance plan or if enrollment appears to be escalating significantly without proportionate growth in full- and part-time faculty, HLC may call for an immediate focused or advisory visit to determine what further action may be appropriate.

        In addition, HLC required ECP to host an advisory visit in spring 2012 focused on ECP's admissions, recruiting and financial aid practices to determine how ECP is addressing HLC's previous questions about these areas. HLC also informed ECP that if the final determination letter regarding

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the program review initiated by ED in August 2008 contains any findings of fraud, misrepresentation or other breach of integrity, HLC may initiate a reconsideration process regarding ECP's accreditation.

        In February 2012, Everest College Phoenix submitted a Focused Visit Advisory Report to HLC, and in May 2012, Everest College Phoenix hosted an additional HLC two-day visit to review its admissions, recruiting, and financial aid practices. ECP is currently awaiting HLC's response to the Focused Visit Advisory Report and the visit regarding admissions, recruiting and financial aid practices.

        Additionally, since October 2010 the Company has been contacted by attorneys general offices in the states of Florida, California, Massachusetts, New York, Oregon and Illinois. Each of those states' attorneys general office has requested from the Company, either through subpoenas, civil investigative demands, or informal requests, extensive document requests regarding its business. In every state but California, we understand the attorneys general are conducting broad inquiries into private sector education companies in their respective states, and not solely into the Company. In California, the California Attorney General's Office requested information ostensibly pursuant to the Stipulated Judgment agreed to by the Company in July 2007 to determine compliance by the Company with the judgment and certain other matters. The Company has provided information to the State of California and considers this matter closed. Additionally, Oregon Attorney General's Office has also closed its investigation without taking any enforcement action against the Company. The Company is continuing to cooperate with with the other ongoing requests.

        On April 11, 2011 the Company's Everest Institute in Jonesboro, Georgia was sent a subpoena from the Atlanta office of ED's Office of Inspector General (the "OIG") requesting documents related to the Jonesboro campus's employment and placement rates reported to its accrediting agency, as well as correspondence with the accrediting agency. The Company has become aware that this matter is being supervised by an Assistant United States Attorney for the Northern District of Georgia who focuses primarily on civil false claims act matters, including qui tams. The Company does not know whether a qui tam action has been filed under seal or whether the United States Attorney's Office has made a determination about whether to file a false claims act lawsuit in this matter. The Company is cooperating with the OIG's request.

        We cannot predict the extent to which the Harkin report and these investigations, hearings and reviews will result in further investigations, legislation, rulemaking or other adverse actions affecting our participation in Title IV Programs, or accreditation or other aspects of our business. If any laws or regulations are adopted that limit our participation in Title IV Programs or the amount of student financial aid for which our students are eligible, or negatively affect the accreditation of our institutions, or impose fines, penalties or other adverse actions, or which otherwise materially change the way in which we do business, our business could be adversely and materially impacted.

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 ED 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.

        On December 22, 2011, that Company received notification that ACCSC had voted to continue a Show Cause order for the Company's Everest Institute campus in Decatur, GA, and had voted to issue a Show Cause order for the Company's Everest Institute campus in Jonesboro, GA. On February 28, 2012, the Company adopted a plan to streamline operations of certain of its ground campuses, including the teach-out of its Everest Institute campus in Decatur, GA. Accordingly, the Decatur

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campus is no longer enrolling new students, and the Company expects all current students to have been taught out and operations to cease entirely by the end of the fiscal year ending June 30, 2013. The Company has informed ACCSC of this decision and process. Since accreditation is required for an institution to be eligible to participate in the federal student financial aid programs, the failure by Everest Institute in Jonesboro, GA to satisfactorily resolve its show cause order with ACCSC could result in the campus losing its ability to participate in federal student financial aid programs. The failure by any significant number of the Company's institutions to maintain accreditation could have a material adverse effect on the Company's business, results of operation, and financial condition.

Recent Rulemaking by ED could materially adversely affect our business.

        The agencies that regulate our U.S. schools, including ED, periodically revise their requirements and modify their interpretations of existing requirements. In 2009-11, ED proposed, and ultimately adopted, changes to its regulations on the following subjects relating to Title IV Program Integrity: (i) Definition of High School Diploma for the Purpose of Establishing Institutional Eligibility to Participate in the Title IV Programs, and Student Eligibility to Receive Title IV Aid; (ii) Ability to Benefit; (iii) Misrepresentation of Information to Students and Prospective Students; (iv) Incentive Compensation; (v) State Authorization as a Component of Institutional Eligibility; (vi) Gainful Employment in a Recognized Occupation; (vii) Definition of a Credit Hour; (viii) Agreements Between Institutions of Higher Education; (ix) Verification of Information Included on Student Aid Applications; (x) Satisfactory Academic Progress; (xi) Retaking Coursework; (xii) Return of Title IV Funds: Term-based Programs with Modules or Compressed Courses; (xiii) Return of Title IV Funds: Taking Attendance; and (xiv) Disbursements of Title IV Funds. On October 29, 2010, ED published final rules on all 14 Title IV Program Integrity issues, with the exception of the final regulation establishing specific metrics to define "gainful employment." ED published final rules on the "gainful employment metrics" on June 13, 2011 (all of these new rules are collectively referred to as the "Program Integrity Rules").

        Subject to the resolution of ongoing litigation related to these rules (as described below), the final ED rules that could have the most significant potential impact on our business are the following:

•

the quantitative gainful employment requirements;



•

the elimination of the 12 Safe Harbors regarding the incentive compensation prohibition;



•

the requirement to notify ED of, and possibly obtaining ED's approval to offer, additional programs of study that lead to gainful employment;



•

determining when a program of study is required to measure student progress in clock hours;



•

new requirements about what constitutes satisfactory state authorization for institutions to offer postsecondary education in a state; and



•

the enhanced definition of "substantial misrepresentation" that could impose enhanced liability on institutions of higher education.

Gainful Employment

        Under the HEA, proprietary schools are eligible to participate in Title IV programs in respect of educational programs that lead to "gainful employment in a recognized occupation." Historically, this concept has been interpreted and applied to focus on the objectives of the programs. On June 13, 2011, ED issued final regulations which become effective on July 1, 2012, that set out certain quantitative requirements for a program offered by a private sector educational institution to comply with the gainful employment requirements. If any of our programs of study fails to satisfy the gainful employment requirements for three out of four FFYs, that program would be deemed ineligible under

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the Title IV Programs. Students would be unable to obtain financial aid under the Title IV Programs to help pay their education costs associated with attending ineligible programs of study. A program of study will only satisfy the gainful employment requirements, if:

•

the program's annual loan repayment rate, as defined and calculated by ED, is at least 35%; or



•

the program's graduates' median annual loan payment, as calculated by ED, is less than or equal to:



•

30% of discretionary income; or



•

12% of annual earnings.

        This regulation could render some of our programs, as well as programs offered by other private sector educational institutions, ineligible for Title IV funding to the extent they do not meet these standards. In addition, under the regulation, the continuing eligibility of our educational programs for Title IV funding could be put at risk due to factors beyond our control, such as changes in the income level of persons employed in specific occupations or sectors, changes in student mix to persons requiring higher amounts of student loans to complete their programs, changes in student loan delinquency rates and other factors. If a particular program ceased to be eligible for Title IV funding, in most cases it would not be practical to continue offering that course under our current business model. The gainful employment requirements adopted by ED could result in a significant realignment of the types of educational programs that are offered by us and by other private sector educational institutions in general, in order to comply with the rules or to avoid the uncertainty associated with compliance over time. This realignment could reduce our enrollment, perhaps materially. In addition, we may have to substantially increase our efforts to promote student loan repayment, course completion or job placement in order to ensure continued Title IV eligibility. This could materially increase our cost of doing business and/or cause us to further limit enrollment. In addition to the qualitative gainful employment requirements adopted on June 13, 2011, the final regulations issued by ED on October 29, 2010 contained provisions imposing increased notification and approval requirements for the award of Title IV program funds in any additional programs to be offered by a proprietary institution, and new disclosure requirements that will apply to programs that are required to demonstrate gainful employment in a recognized occupation.

        Although the gainful employment requirements were scheduled to go into effect July 1, 2012, the U.S. District Court for the District of Columbia issued a decision on June 30, 2012 in the case captioned Association of Private Sector Colleges and Universities v. Duncan (the "APSCU case") that vacated most of the gainful employment requirements and remanded those regulations to ED for further action. On July 6, 2012, ED issued an electronic announcement acknowledging that the Court had vacated the repayment rate metric as well as the debt-to-income metrics that would have gone into effect on July 1, 2012. ED also noted that institutions are not required to comply with related regulations relating to gainful employment reporting requirements and adding new educational programs, but are required to comply with requirements to disclose certain information about educational programs. The District Court's decision is subject to appeal by ED and could be modified or reversed on appeal. Moreover, ED could take further action to address the District Court's concerns regarding the regulations and obtain approval to enforce the regulations, or ED could issue new regulations regarding gainful employment. We cannot predict what steps ED will take in response to the District Court's decision, how long those steps will take, or whether those steps will result in ED being able to enforce the gainful employment regulations or issuing new regulations. To the extent that the regulations are upheld on appeal or revised to retain provisions that still adversely affect the eligibility of the programs we offer, our business could be materially and adversely impacted.

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Incentive Compensation

        A school participating in Title IV programs may not pay any commission, bonus or other incentive payments to any person involved in student recruitment or admissions or awarding of Title IV program funds, if such payments are based directly or indirectly on success in enrolling students or obtaining student financial aid. The statutory language of this prohibition does not establish clear criteria for compliance in all circumstances, but between 2002 and June 30, 2011 there were twelve "safe harbors" that defined specific types of compensation that were deemed not to constitute impermissible incentive compensation. Until June 30, 2011, the Company relied on several of these safe harbors to ensure that our compensation and recruitment practices comply with the statutory prohibition. On October 29, 2010, ED issued final regulations that eliminated all twelve safe harbors, and in lieu of the safe harbors, took the position that any adjustment to compensation based directly or indirectly on securing enrollments or awarding financial aid is inconsistent with the incentive payment prohibition in the HEA. The final rule further expands the prohibition to individuals who have "responsibility for" recruitment or admission of students or making decisions about awarding Title IV program funds. ED states that an institution still will be able to make merit-based adjustments to employee compensation, but will not be permitted to consider or base compensation directly or indirectly, in any part, on success in securing student enrollments, the award of financial aid or institutional goals based on that success. As a result of the Program Integrity Rules, which took effect July 1, 2011, we changed our evaluation and compensation practices for admissions and financial aid representatives and certain other employees. This could adversely affect our ability to compensate our admissions and financial aid representatives and other employees in a manner that appropriately reflects their job performance, which in turn could reduce their effectiveness and make it more difficult to attract and retain qualified and competent personnel.

        In addition, a lack of certainty could increase the risk of future Federal False Claims Act qui tam lawsuits in which private plaintiffs assert that our compensation practices violate the incentive compensation rules and, therefore, that our receipt of Title IV funds constitutes a false claim. We have been the subject of at least three such qui tam lawsuits relating to our compensation practices, all of which were initially dismissed at the district court level. The relator in one of the dismissed cases, the Lee case, appealed to the U.S. Ninth Circuit Court of Appeals, which reversed the District Court's dismissal on August 8, 2011, and remanded case to permit the relator to amend its complaint. On December 15, 2011, the first amended Lee complaint was filed in District Court alleging violations of the False Claims Act, 31 U.S.C. § 3729 against the Company, Ernst & Young LLC, David Moore and Jack Massimino. The Company moved the District Court to dismiss the first amended Lee complaint, and the relators opposed that motion. On April 19, 2012, the District Court held that the statute of limitations bars the relators from asserting claims based on conduct prior to 2005, but otherwise denied the Company's motion to dismiss. Please see Item 3, "Legal Proceedings," for more information on this litigation.

ED Approvals for New Programs

        On October 29, 2010, ED issued final regulations requiring the Company to notify it, and possibly obtain ED's approval to offer, additional programs of study. The rule permits ED to review the notice submitted by the institution and advise it whether the new program of study must be approved by ED, or if additional information is required by ED to determine whether the program will be approved. The U.S. District Court for the District of Columbia also vacated the new program approval rule in the APSCU case and remanded those regulations to ED for further action. If the District Court decision is overturned on appeal, or if ED promulgates new rules that survive challenge and we are required to obtain approval from ED for any new programs of study and are unable to obtain ED's approval in a timely manner, our ability to offer the new programs would be impaired, which could have a material adverse effect on our expansion plans, financial condition, results of operations and cash flows.

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Clock Hours

        The final Program Integrity Rules require that a program of study be considered a clock hour program for the purposes of Title IV Program funding when measuring student progress in clock hours is a requirement of receiving Federal or State approval to offer the program (except where such requirement applies only to a practicum, internship, or clinical experience component of the program), or completing clock hours is a requirement for graduates to apply for licensure or the authorization to practice the occupation that the student is intending to pursue. The scope of these rules, particularly as applied to the manner by which programs of study are approved by various States, is unclear. Students attending programs of study that are now required to be measured in clock hours may receive less funds from Title IV Programs to pay their cost of education. Students interested in those programs of study may have to use more expensive private financing to pay their cost of education or may be unable to enroll in those programs of study. Students may determine that they do not qualify for private financing or that the private financing costs make borrowing too expensive, which may cause students to abandon or delay their education. Any or all of these factors could reduce our enrollment, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price.

State Authorization

        Under the HEA, an institution must be authorized by each State in which it is located to participate in Title IV programs. ED historically has determined that an institution is licensed or otherwise authorized in order to be certified as eligible to participate in Title IV Programs if the institution's State does not require the institution to obtain licensure or authorization to operate in the state. On October 29, 2010, ED's new Program Integrity Rules established specific federal requirements with respect to whether or not a State's authorization of an educational institution is sufficient for that institution to participate in Title IV programs. Recognizing that the new regulations may, in effect, require many States to revise existing laws or regulations, the rule issued by ED provided that a State may seek a one-year extension until July 1, 2012 to effectuate such changes, and if necessary obtain a second extension for one additional year. However, under the final regulations, an institution participating in Title IV programs must in the interim obtain from the pertinent states an explanation of how an extension will permit the state to modify its procedures to comply with ED's regulations. Additional provisions of the final regulations require any institution offering distance education to students in states where it is not physically located to meet any state requirements for it to be legally offering postsecondary distance or correspondence education in that state, and to be able to document the state's approval of the institution to ED. Under the final Program Integrity Rules as issued by ED, certain of our campuses and distance education programs may be required to obtain additional or revised state authorizations to remain certified as eligible to participate in Title IV Programs. If we are unable to obtain additional or revised state authorizations, students at certain of our campuses, or certain of our students enrolled in distance education programs, may be unable to access Title IV Program funds, which could have a material adverse effect on our business, financial condition and results of operations.

Potential Impact of New Rules

        In addition to the specific issues addressed above, the Program Integrity Rules issued by ED include provisions regarding the definition of a credit hour; the types of statements by an institution or parties related to an institution that constitute prohibited misrepresentation; written agreements between institutions, particularly institutions under common ownership or control; requirements regarding an institution's return of Title IV program funds; and certain other issues pertaining to a student's eligibility to receive Title IV program funds. We cannot predict how the Program Integrity Rules will be interpreted, and therefore whether we will be able to comply with these requirements.

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Compliance with the final rules could have a material adverse effect on our business. Uncertainty surrounding application of the final rules may continue for some period of time and could reduce our enrollment, increase our cost of doing business, and have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our U.S. schools may lose eligibility to participate in federal student financial aid programs if the percentage of their revenues derived from those programs is too high.

        Our U.S. schools may lose eligibility to participate in federal student financial aid programs if the percentage of their revenues derived from those programs is too high. Prior to the enactment of the HEOA, a proprietary institution would lose its eligibility to participate in the federal student financial aid programs for a period of one year if it derived more than 90% of its revenues, on a cash basis, from these programs in any fiscal year. Any institution that violated this rule immediately became ineligible to participate in federal student financial aid programs and would be ineligible to reapply to regain its eligibility until the following fiscal year. Under the HEOA, an institution that derives more than 90% of its total revenue from the Title IV programs for two consecutive fiscal years would become immediately ineligible to participate in Title IV programs and would not be permitted to reapply for eligibility until the end of full two fiscal years. An institution that derives more than 90% of its revenue from Title IV programs for any single fiscal year will be automatically placed on provisional certification for two fiscal years and will be subject to possible additional sanctions determined to be appropriate under the circumstances by ED in its discretion. While ED has discretion to impose additional sanctions on such an institution, it is difficult to predict what those sanctions might be under the circumstances. ED could specify additional conditions as a part of the provisional certification and the institution's continued participation in Title IV programs. These conditions may include, among other things, restrictions on the total amount of Title IV program funds that may be distributed to students attending the institution; restrictions on programmatic and geographic expansion; requirements to obtain and post letters of credit; additional reporting requirements to include additional interim financial reporting; or any other conditions imposed by ED. If an institution is subject to a provisional certification at the time that its current program participation agreement expired, the effect on recertification of the institution or continued eligibility in Title IV programs pending recertification is uncertain.

        Effective July 1, 2008, the annual unsubsidized Stafford loans available for undergraduate students increased by $2,000. The HEOA contained temporary relief from increases in the availability and amount of federal aid by, among other things, for all unsubsidized Stafford loans disbursed before July 1, 2011, permitting the $2,000 of additional Stafford loan availability to be counted as revenue not derived from Title IV programs. That relief has expired, and for the Company's fiscal year ending June 30, 2012, all Stafford loans counted as Title IV revenue. Additionally, for the Company's fiscal years ending on or before June 30, 2012, the HEOA permits loans made by the Company to its students to count as non-Title IV revenue when earned, not when the loans are repaid as was the case for fiscal years 2008 and prior. The expiration of the temporary relief in the HEOA as of July 1, 2011 with respect to the additional $2,000 in unsubsidized Stafford loans, budget related reductions in state grant and workforce training programs and other alternative funding sources that have historically helped compliance with the 90/10 Rule have all adversely affected our schools' 90/10 rates, with the rates for the majority of our institutions worsening in fiscal 2012 from our prior historical rates, and expected to further worsen in fiscal 2013. Two of our 49 institutions (44 of which are in continuing operations) exceeded the 90% threshold in the fiscal year ended June 30, 2012, and the Company as a whole derived approximately 84.6% of its net U.S. revenue (on a modified cash basis) from Title IV Programs. The two institutions which exceeded the 90 percent threshold in fiscal 2012 were ECP at 94.1% and Everest University in Tampa, FL at 92.4%. Combined, these institutions had 10,550 students at June 30, 2012. On August 14, 2012 we notified ED that two of our institutions had 90/10 rates above 90% for the 2012 fiscal year. Without the temporary relief permitted by the HEOA, approximately

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85.9% of our net U.S. revenues (on a modified cash basis) would have been derived from federal Title IV programs, and three of our institutions would have exceeded the 90% threshold.

        The two institutions that exceeded the 90/10 Rule limit for fiscal year 2012 are now considered, under ED regulations, to be certified on a provisional basis for two years and will be subject to possible additional ED sanctions. While ED has broad discretion to impose additional sanctions on these institutions, there is limited precedent to anticipate what those sanctions might be, particularly in the current regulatory environment. ED could specify a wide range of additional conditions as a part of the provisional certification and the institutions' continued participation in Title IV Programs. When an institution is subject to provisional certification at the time that its program participation agreement expires, ED also has greater discretion in considering the conditions to attach if it recertifies such institution. Any of our institutions that derive more than 90% of their revenue from Title IV Programs for two consecutive fiscal years will be ineligible to participate in Title IV Programs for at least two fiscal years. Some of our efforts to comply with the 90/10 Rule, especially for those institutions that exceed the 90% threshold for a fiscal year, may involve taking measures that reduce our revenue, increase our operating expenses, or both, perhaps significantly. If the 90/10 Rule is not changed to provide relief for private sector institutions, we may be required to make further changes to our business in order to remain in compliance, which could alter the manner in which we conduct our business and materially and adversely impact our business, financial condition, results of operations and cash flows. If any of our institutions, depending on its size, were to lose eligibility to participate in federal student financial aid programs, it could have a material adverse effect on our business.

As Congress increases available Title IV aid, we are often effectively required to increase tuition prices in order to maintain compliance with the 90/10 Rule; conversely, ED's "gainful employment" regulations (if revived on appeal or further ED rulemaking) could require us to reduce tuition prices in order to limit the debt burden of our students. Our institutions may not be able to comply with both rules.

        In order to comply with the 90/10 Rule, the Company's institutions cannot receive more than 90% of their revenues (on a cash basis) from Title IV sources. When Congress has increased available aid to students through the Title IV Program, some of our institutions—especially those that serve the most disadvantaged students who are entitled to receive the most Title IV student financial aid—have effectively been required to raise their tuition and fees in order to maintain compliance with the 90/10 Rule by maintaining a 10% "gap" between tuition charges and the average student's available Title IV funds. If ED's gainful employment rule is ultimately upheld by the courts, or if ED undertakes further rulemaking to revive the rule, on the other hand, those programs where the average graduate's debt repayment burden exceeds a particular percentage of the average graduate's compensation cease to be eligible for Title IV Program funds, or face other restrictions imposed by ED. This requirement generally puts downward pressure on tuition prices so that students do not incur debt that exceeds ED's prescribed levels. Some of our programs may not be able to comply with the gainful employment rule while also maintaining compliance with the 90/10 Rule. Our efforts to comply with both rules could have a material adverse effect on our business, financial condition, results of operation and cash flows.

Our U.S. schools may lose eligibility to participate in federal student financial aid programs if their current and former students' loan default rates on federally guaranteed student loans are too high.

        Under the HEA, an institution could lose its eligibility to participate in some or all of the federal student financial aid programs if defaults by its former students is too high. The term "institution" means a main campus and its additional locations, as defined by ED's regulations. ED generally publishes draft cohort default rates in February of each year for the repayment period that ended the prior September 30.

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        Currently, an institution's Cohort Default Rates under the FFEL and FDL programs are calculated on an annual basis as the rate at which student borrowers scheduled to begin repayment on their loans in one federal fiscal year default on those loans by the end of the next federal fiscal year. Under the HEOA, a separate calculation is performed that adds an additional federal fiscal year of borrowers' repayment performance. An institution that participates in both the FFEL and FDL programs receives a single "weighted average" Cohort Default Rate in place of an FFEL or FDL Cohort Default Rate. Any institution whose Cohort Default Rate equals or exceeds 25% for any one of the three most recent federal fiscal years under the old, pre-HEOA method of calculation may be found by ED to lack administrative capability, and on that basis, placed on provisional certification status for up to three years. Additionally, any such institution may be required by its accrediting agency to provide additional information or supplemental reports. Provisional certification status does not limit an institution's access to Title IV Program funds, but does subject that institution to closer review by ED and possible summary adverse action if that institution commits violations of the Title IV Program requirements. Provisional certification may also impede an institution's ability to grow by limiting its ability to add new programs and locations. Any institution whose Cohort Default Rates equals or exceeds 25% for three consecutive years under the current, pre-HEOA calculation would lose eligibility to participate in the FDL and the Pell grant programs for the remainder of the federal fiscal year in which ED determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. Additionally, pursuant to the HEOA this percentage is increasing increase to 30% after three years of Cohort Default Rates calculated with the additional federal fiscal year are available, and then become applicable to the imposition of sanctions. In addition, an institution whose Cohort Default Rate for any federal fiscal year exceeds 40% would have its eligibility to participate in the FDL program limited, suspended or terminated. We review all annually published cohort default rates and appeal the rates we believe are inaccurate. Draft rates do not result in sanctions and can change between February and the release of the official cohort default rates in September.

        On an on-going basis, we monitor cohort repayment data, and we are currently monitoring the repayment and default status of the 2010, 2011, and 2012 Cohorts. If any of our institutions, depending on its size, were to lose eligibility to participate in federal student financial aid programs because of high student loan default rates, it could have a material adverse effect on our business.

Our future financial condition and results of operations could be materially adversely affected if we are required to write down the carrying value of goodwill or other intangible assets.

        Goodwill and other intangible assets are tested annually, or more frequently if circumstances indicate potential impairment, by comparing their fair value to the carrying amount at the reporting unit level as defined by the accounting guidance. We determined the fair value of our reporting units using a combination of an income approach, based on discounted cash flow, and a market-based approach. To the extent the fair value of a reporting unit is less that the carrying amount of its assets, we record an impairment charge in the consolidated statements of operations.

        In connection with receipt of federal financial aid by the Company's students, the Company is subject to extensive regulation by governmental agencies and licensing and accrediting agencies. Compliance with the regulations promulgated by these various bodies could have a material impact on the manner in which the Company conducts its business. Should the Company need to take additional actions to comply with current and future regulations, the assumptions used to calculate the fair value of our reporting units, including estimation of future cash flows, revenue growth, and discount rates, could be negatively impacted and could result in an impairment of goodwill or other intangible assets. If our stock price remains depressed or declines further, or if for any other reason we are required to significantly write down the value of our goodwill or other intangible assets, it could have a material adverse effect on our financial condition and results of operations.

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If we do not meet specific financial responsibility ratios and tests established by ED, our U.S. schools may lose eligibility to participate in federal student financial aid programs.

        To participate in the federal student financial aid programs, an institution must either satisfy quantitative standards of financial responsibility, or post a letter of credit in favor of ED and possibly accept other conditions on its participation in the federal student financial aid programs. Each year, based on financial information submitted by institutions that participate in federal student financial aid programs, ED calculates three financial ratios for an institution: an equity ratio, a primary reserve ratio and a net income ratio. Each of these ratios is scored separately and then combined to determine the institution's financial responsibility or "composite score." If an institution's score is above 1.5, it is deemed financially responsible without conditions or additional oversight. If an institution's composite score is below 1.5, but within a designated threshold level (the "Zone," which is 1.0 to 1.4), such institution may take advantage of an alternative that allows it to continue to participate in the Title IV Programs for up to three years under additional monitoring and reporting procedures but without having to post a letter of credit in favor of ED. If an institution's composite score falls below the minimum threshold level of 1.0 or is in the Zone for more than three consecutive years, the institution may be required to post a letter of credit in favor of ED. On a consolidated basis, we met this requirement in fiscal 2012 with a composite score of 1.5.

        For our fiscal year ended June 30, 2011, our calculations show that, on a consolidated basis, we also exceeded this requirement with a composite score of 2.1, excluding goodwill impairment. ED has not yet concurred with our calculations of the composite score for the fiscal year ended June 30, 2011, and we will not submit our calculations for the fiscal year ended June 30, 2012 to ED for some time. We believe our calculations of the financial responsibility score for fiscal 2011 are correct. However, the calculation is subject to interpretive issues relating to the appropriate treatment of goodwill impairment in the calculation of the composite score. In this regard, we have been in communication with an analyst at ED who questioned the appropriate treatment of the goodwill impairment charge we took in fiscal 2011, and also questioned whether other intangible assets on our balance sheet at June 30, 2011 should have been expensed for purposes of the composite score. As a result, we have engaged in discussions with ED regarding our calculations and have provided ED with a detailed explanation of our views regarding the appropriate treatment of goodwill impairment and other intangible assets on the composite score calculation. We continue to believe our calculations are correct, but if ED were to conclude that the goodwill impairment should be included as an expense in the calculation of the Company's composite score, this would negatively impact the Company's composite score on a consolidated basis for fiscal 2011, and ED might consider the Company not to be financially responsible until ED accepted our fiscal 2012 financial responsibility calculations. Depending on ED's resolutions of this matter, we could be required to satisfy the standards of financial responsibility on an alternative basis, including potentially by posting irrevocable letters of credit. Additionally, a definitive determination by ED that our composite score is less than 1.5 could be a default under our existing credit agreement. We cannot provide assurance that ED will agree with our calculations, or that our institutions will continue to satisfy the financial responsibility standards in the future. If we were found by ED to have not satisfied the financial responsibility standards, or if we fail to satisfy such standards in the future, it could have an adverse impact on our access to Title IV funds, our financial condition, cash flows and results of operations.

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One or more of our institutions may have to post a letter of credit or be subject to other sanctions if they do not correctly calculate and timely return Title IV Program funds for students who withdraw before completing their program of study.

        A school participating in Title IV Programs must correctly calculate the amount of unearned Title IV Program funds that was disbursed to students who withdrew from their educational programs before completing them, and must return those unearned funds in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn. If the unearned funds are not properly calculated and timely returned, we have to post letters of credit in favor of ED or be otherwise sanctioned by ED. An institution is required to post a letter of credit with ED in an amount equal to 25% of the total dollar amount of unearned Title IV Program funds that the institution was required to return with respect to withdrawn students during its most recently completed fiscal year, if the institution was found in an audit or program review to have untimely returned unearned Title IV Program funds with respect to 5% or more of the students in the audit or program review sample of withdrawn students, in either of its two most recently completed fiscal years. We currently have outstanding letters of credit posted in favor of ED in the aggregate amount of $7.7 million. The requirement to post additional letters of credit or other sanctions by ED could increase our cost of regulatory compliance and adversely affect our results of operations.

If regulators do not approve our acquisitions, the acquired school(s) would not be permitted to participate in federal student financial aid programs.

        When we acquire an institution that participates in federal student financial aid programs, we must seek approval from ED and most applicable state agencies and accrediting agencies, because an acquisition is considered a change of ownership or control of the acquired institution under applicable regulatory standards. A change of ownership or control of an institution under ED standards can result in the temporary suspension of the institution's participation in the federal student financial aid programs unless a timely and materially complete application for recertification is filed with ED and ED issues a temporary certification document. If we are unable to obtain approvals from the state agencies, accrediting agencies or ED for any institution we may acquire in the future, depending on the size of that acquisition, such a failure to obtain approval could have a material adverse effect on our business.

If regulators do not approve transactions involving a change of control or change in our corporate structure, we may lose our ability to participate in federal student financial aid programs.

        Additionally, if regulators do not approve transactions involving a change of control of the Company, all of our institutions may lose their ability to participate in federal student financial aid programs. If we experience a change of control under the standards of applicable state agencies or accrediting agencies or ED, we or the affected institutions must seek the approval of the relevant agencies. Some of these transactions or events, such as a significant acquisition or disposition of our common stock by third parties on the open market or through a tender offer, may be beyond our control. The adverse regulatory effect of a change of ownership resulting in a change of control could also discourage bids for our outstanding shares of common stock at a premium and could have an adverse effect on the market price of our common stock.

If we fail to demonstrate "administrative capability" to ED, our business could suffer.

        ED regulations specify extensive criteria an institution must satisfy to establish that it has the requisite "administrative capability" to participate in federal student financial aid programs. These criteria require, among other things, that the institution:

•

comply with all applicable federal student financial aid regulations;

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•

have capable and sufficient personnel to administer the federal student financial aid programs;



•

have acceptable methods of defining and measuring the satisfactory academic progress of its students;



•

provide financial aid counseling to its students; and



•

submit all reports and financial statements required by the regulations.

        If an institution fails to satisfy any of these criteria, ED may:

•

require the repayment of federal student financial aid funds;



•

transfer the institution from the "advance" system of payment of federal student financial aid funds to the "reimbursement" system of payment or cash monitoring;



•

place the institution on provisional certification status; or



•

commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in federal student financial aid programs.

        Should one or more of our institutions be limited in their access to, or lose, federal student financial aid funds due to their failure to demonstrate administrative capability, our business could be materially adversely affected.

Regulatory agencies or third parties may conduct compliance reviews, commence investigations, bring claims or institute litigation against us.

        Because we operate in a highly regulated industry, we may be subject from time to time to program reviews, audits, investigations, claims of non-compliance, or lawsuits by governmental agencies or third parties, which may allege statutory violations, regulatory infractions, or common law causes of action. If the results of the investigations are unfavorable to us or if we are unable to successfully defend against third-party lawsuits, we may be required to pay money damages or be subject to fines, penalties, injunctions or other censure that could have a materially adverse effect on our business. We also may be limited in our ability to open new schools or add new program offerings and may be adversely impacted by the negative publicity surrounding an investigation or lawsuit. Even if we adequately address the issues raised by an agency review or investigation or successfully defend a third-party lawsuit, we may suffer interruptions in cash flows due to, among other things, transfer from the advance funding to the "reimbursement" or "heightened cash monitoring" method of Title IV program funding, and we may have to devote significant financial and management resources to address these issues, which could harm our business. Additionally, we may experience adverse collateral consequences, including declines in the number of students enrolling at our schools and the willingness of third parties to deal with us or our schools, as a result of any negative publicity associated with such reviews, claims or litigation.

Certain regulatory authorities have initiated investigations into us and other companies in the for-profit education sector that could result in adverse actions, fines, penalties or other censure that may materially and adversely affect our business.

        As previously reported, since October 2010 the Company has been contacted by attorneys general offices in the states of Florida, California, Massachusetts, New York, Oregon and Illinois. Each of those states' attorneys general office has requested from the Company, either through subpoenas, civil investigative demands, or informal requests, extensive document requests regarding our business. In every state but California and Oregon, we understand the attorneys general are conducting broad inquiries into private sector education companies in their respective states, and not solely into the Company. In California, the California Attorney General's Office has requested information ostensibly

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pursuant to the Stipulated Judgment agreed to by the Company in July 2007 to determine compliance by the Company with the judgment and certain other matters. The Company cooperated with the California Attorney General's reasonable requests for information, but objected to certain overly-broad requests which appeared to be unrelated to the 2007 Stipulated Judgment. The Company has not received further communication from the California Attorney General's office in many months and believes it has responded adequately to its requests. Additionally, on June 28, 2012, the Company received a letter from the Oregon Attorney General's office in which it made a small number of recommendations as a result of its investigation and also closed the investigation without taking any enforcement action. The Company is cooperating with the other ongoing attorneys general investigations.

        On April 11, 2011 the Company's Everest Institute in Jonesboro, Georgia was sent a subpoena from the Atlanta office of ED's Office of Inspector General (the "OIG") requesting documents related to the Jonesboro campus's employment and placement rates reported to its accrediting agency, as well as correspondence with the accrediting agency. The Company has become aware that this matter is being supervised by an Assistant United States Attorney for the Northern District of Georgia who focuses primarily on civil False Claims Act matters, including qui tams. The Company does not know whether a qui tam action has been filed under seal or whether the United States Attorney's Office has made a determination about whether to file a False Claims Act lawsuit in this matter. The Company is cooperating with the OIG's request.

        Additionally, the Company has also received an inquiry from the Assistant U.S. Attorney involved in reviewing the previously-disclosed Lee qui tam matter regarding the Company's student referral practices. Recently, the Assistant U.S. Attorney indicated he had no concerns about the student referral practices but requested additional information related to attendance procedures at two Florida campuses. The Company infers, but has been unable to confirm, that this inquiry may relate to another qui tam filed under seal that is pending the government's investigation and intervention decision. Separately, on April 24, 2012, a complaint captioned United States of America ex rel. Carolina Marion v. Heald College Inc. and Corinthian Colleges Inc. was filed under seal in the U.S. District Court for the Northern District of California. Since the complaint was filed under seal, the Company has not been able to obtain a copy of the complaint but infers that this too is a qui tam action brought under the False Claims Act.

        On April 3, 2012, the Company was served with a Civil Investigative Demand ("CID") from the U.S. Consumer Financial Protection Bureau ("CFPB"). The CID stated that its purpose is to "determine whether for-profit postsecondary companies, student loan origination and servicing providers, or other unnamed persons, have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans." The CID contains extensive interrogatories and document production demands related to the Company's involvement with student loans and many other aspects of the Company's business. The Company has contacted the CFPB regarding the CID and has retained outside counsel to assist it in this matter. The Company has objected to the inquiry by filing a petition with the CFPB to set aside or modify the CID, but has voluntarily provided documents and other information to the CFPB. The Company believes that its acts and practices relating to student loans are lawful and essential to preserving our students' access to post-secondary education.

        We are continuing to cooperate with these investigations, but we cannot predict their ultimate resolution. We expect to continue to incur significant legal costs and other expenses in connection with responding to them. We may be required to pay damages or settlement costs in excess of our insurance coverage related to these matters. Government investigations, including the pending investigations in which we are involved, and any related legal and administrative proceedings, may result in the institution of administrative, injunctive or other proceedings against us and/or our institutions, officers or employees, or the imposition of fines, penalties or suspensions, or other remedies and sanctions. Any

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such material costs and expenses could have a material adverse effect on our financial condition and results of operations.

Investigations, claims and actions against other companies in our sector could adversely affect our business and stock price.

        During the past decade, we and other companies in the for-profit postsecondary education industry have been subject to intense regulatory scrutiny. In some cases, allegations of wrongdoing have resulted in reviews or investigations by the Justice Department, state attorneys general, the Securities and Exchange Commission (the "SEC"), ED, state agencies, accrediting agencies and other entities. These allegations, reviews and investigations and the accompanying adverse publicity could have a negative impact on the for-profit postsecondary education sector in general, our business and the market price of our common stock.

Failure to comply with extensive Canadian regulations could affect the ability of our Canadian schools to participate in Canadian financial aid programs.

        Our post-secondary schools in Canada derive a significant percentage of their revenue on a cash basis from Canadian governmental financial aid programs, and our Canadian students receive loans under student financial aid programs.

        Our Canadian schools must meet eligibility standards to administer these programs and must comply with extensive statutes, rules, regulations and requirements. If our Canadian schools cannot meet these and other eligibility standards or fail to comply with applicable requirements, it could have a material adverse effect on our business.

        Additionally, the Canadian and Ontario provincial governments continuously review the legislative, regulatory and other requirements relating to student financial assistance programs due to political and budgetary pressures. Although we do not currently anticipate a significant reduction in the funding for these programs, any change that significantly reduces funding or the ability of our schools to participate in these programs could have a material adverse effect on our business and results of operations.

Operational and Economic Risks That Could Have a Material Adverse Effect on Our Business

North American macroeconomic conditions, particularly unemployment, could affect the demand for our services.

        The North American economy has been in the midst of a prolonged economic downturn in recent years. These conditions contributed to a portion of our enrollment growth in recent fiscal years as more potential new students were attracted to our schools to advance their education and improve their job prospects. Improvements in the North American economy, including overall reductions in unemployment, could negatively affect overall demand for our educational services and contribute to declines in new student enrollment. A more robust economic recovery in North America may further negatively impact demand for our services from potential new students, and could have a material adverse effect on our business, financial condition and results of operations.

Our discount student loan programs could have a material adverse effect on our financial condition, results of operations and cash flows.

        Our discount student loan programs have enabled students who have exhausted all available government-sponsored or other aid and are ineligible for private loans from other financial institutions to borrow a portion of their tuition and other educational expenses at our schools if they or a co-borrower meet certain criteria. Historically, we had developed several loan programs with origination and servicing providers such as Sallie Mae for students with low credit scores who otherwise would not

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qualify for loans. These loan programs required that we pay a discount fee to the origination and servicing providers of the loans as a reserve against future defaults on these loans. We have historically referred to these types of loans as "discount loans," since we incurred a portion of the default risk related to these students' loans by taking a discount on the disbursement.

        In early 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 student lending program with a different origination and servicing provider, Genesis, who specialized in subprime credit. This Genesis loan program has characteristics similar to our previous "discount loan" programs. Under the Genesis loan program, we paid a discount to the origination and servicing provider. As with our previous discount loan program, we record the discount as a reduction to revenue, as the collectability of these amounts is not reasonably assured. However, unlike our previous discount loan programs, under our Genesis discount loan program we have both the right and the obligation (subject to certain limitations in our agreement with Genesis), to acquire the related loans. Since we initiated the program in the fourth quarter of fiscal 2008, we have acquired all of the loans that have been originated.

        On June 29, 2012, the Company amended the loan origination agreement and related documents with ASFG, LLC ("ASFG"). The original agreement with ASFG was entered into on June 29, 2011 for the purpose of creating a new private education discount loan program for our students. Pursuant to the amended loan origination agreement, ASFG has indicated it intends to fund approximately $775 million in new student loans through June 2015. Under this agreement, an unaffiliated bank will make private education loans to eligible students and, subsequently, sell those loans to ASFG or its designee. During the second quarter of fiscal 2012 the Company completed the transition from the Genesis discount loan program to the ASFG discount loan program.

        This ASFG loan program has characteristics similar to our previous "discount loan" programs. As with the previous discount third party loan programs, under this ASFG program we pay a discount to ASFG for any loans purchased by ASFG and record the discount as a reduction to revenue ratably over the program length as the related revenue is recognized. However, unlike our previous third party discount loan programs, pursuant to a backup loan purchase agreement entered into in connection with the loan origination agreement, the Company will be obligated to purchase any of the student loans on which no payment has been made for over 90 days. Under this backup loan purchase agreement, the Company's maximum obligation (including the initial discount payment) could be equal to the face amount of loans originated under this loan program, although the Company expects its ultimate risk under this loan program to be substantially similar to the risks it faces under our Genesis discount loan program.

        Federal, state and local laws and public policy relating to the protection of consumers apply to the origination, servicing and collection of the loans that we purchase under this program. Any violation of the various federal, state and local laws, including, in some instances, violations of these laws by parties not under our control, may result in losses on the loans that we purchase or may limit our ability to collect all or part of the principal or interest on the loans that we purchase. This may be the case even if we are not directly responsible for the violations by such parties. Federal or state financial regulators also might delay or suspend the new student loan program for a variety of reasons. Additionally, depending on the terms of the loans, state consumer credit regulators may assert that our activities in connection with the new student loan program require us to obtain one or more licenses, registrations or other forms of regulatory approvals, any of which may not be able to be obtained in a timely manner, if at all. The CFPB may also take the position that these loans constitute unfair, deceptive, or abusive acts and practices.

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        For the Genesis and ASFG discount loans we acquire, we bear the risks of collection. Therefore, even though we record the discount as a reduction to revenue, to the extent collections are less than the net amount of revenue recorded, we may still experience increase in our allowance for doubtful accounts and our discount expense may increase. Factors that may impact our ability to collect these loans include general economic conditions, compliance with laws applicable to the origination, servicing and collection of loans, the quality of our loan servicers' performance and the priority that borrowers, particularly students who did not complete or were dissatisfied with their programs of study, attach to repaying these loans as compared to other obligations. All of these factors could result in the Genesis and ASFG discount loan programs having a material adverse effect on our business, financial condition and results of operations.

If students fail to pay their outstanding balances, our business will be harmed.

        We offer a variety of payment plans to help students pay that portion of their education expense not covered by financial aid programs. These balances are unsecured and not guaranteed. Losses related to unpaid student balances in excess of the amounts we have reserved could have a material adverse effect on our business.

Our marketing and advertising efforts may not be effective in attracting prospective students.

        In order to maintain and increase our revenues and margins, we must continue to attract new students in an effective and efficient manner. If we are unable to successfully advertise and market our schools, our ability to attract and enroll new students could be adversely impacted and, consequently, our financial performance could suffer. We use marketing tools such as the Internet, radio, television and print media advertising to promote our schools and programs. Our representatives also make presentations at high schools. If we are unable to utilize these advertising methods in a cost-effective manner or if our other costs limit the amount of funds we can contribute to advertising, our revenue and margins may suffer. Additionally, we rely on the general reputation of our schools and referrals from current students, alumni and employers as a source of new students. Among the factors that could prevent us from successfully marketing and advertising our schools and programs are the failure of our marketing tools and strategy to appeal to prospective students or current student and/or employer dissatisfaction with our program offerings or results and diminished access to high school campuses.

If we cannot effectively identify, acquire and integrate additional schools, it could harm our business.

        We expect to continue to rely on acquisitions as a component of our growth strategy. We often engage in evaluations of, and discussions with, possible acquisition candidates. We cannot make assurances that we will be able to identify suitable acquisition candidates or that we will be able to acquire any of the acquisition candidates on favorable terms. Furthermore, we cannot make assurances that any acquired schools can be successfully integrated into our operations or be operated profitably. Acquisitions involve a number of risks that include:

•

diversion of management resources;



•

integration of the acquired schools' operations;



•

adverse short-term effects on reported operating results; and



•

possible loss of key employees.

        Continued growth through acquisitions may also subject us to unanticipated business or regulatory uncertainties or liabilities. When we acquire an existing school, we typically allocate a significant portion of the purchase price to fixed assets, curriculum, goodwill and intangibles, such as covenants not-to-compete, trade names and accreditations. The Company does not amortize goodwill, accreditation, or trade names as these assets meet the indefinite life criteria outlined in the accounting

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guidance. Curricula are amortized over their useful lives ranging generally from three to fifteen years and Student Relationships was amortized over their useful life of one year. Goodwill is tested annually or more frequently for impairment. Indefinite-lived intangible assets are tested annually or more frequently if circumstances indicate potential impairment, by comparing their fair values to their carrying amounts. Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives. In addition, our acquisition of a school is a change of ownership of that school, which may result in the temporary suspension of that school's participation in federal student financial aid programs until it obtains ED's approval. If we fail to successfully manage our acquisitions, our business would likely suffer.

Failure to effectively manage opening new schools and adding new services could harm our business.

        Establishing new schools requires us to make investments in management, capital expenditures, marketing expenses and other resources. To open a new school, we are also required to obtain appropriate state and accrediting agency approvals. In addition, to be eligible for federal student financial aid programs, the new school is required to be certified as eligible to receive Title IV funds by ED. We cannot assure you that we will be able to successfully open new schools in the future. Our failure to effectively manage the operations of newly established schools could have a material adverse effect on our business.

Our success depends upon our ability to recruit and retain key personnel.

        We depend on key personnel, including Jack D. Massimino, Kenneth S. Ord, Robert D. Bosic, Beth A. Wilson, William B. Buchanan, Mark L. Pelesh, Stan A. Mortensen, Robert C. Owen and David A. Poldoian, to effectively operate our business. If any of these people left our Company and we failed to effectively manage a transition to new people, our business could suffer.

        Our success also depends, in large part, upon our ability to attract and retain highly qualified faculty, school presidents and administrators and campus support center management. We may have difficulty locating and hiring qualified personnel, and retaining such personnel once hired. The loss of the services of any of our key personnel, or our failure to attract and retain other qualified and experienced personnel on acceptable terms, could cause our business to suffer.

Anti-takeover provisions in our charter documents and Delaware law could make an acquisition of our company difficult.

        Our certificate of incorporation, our by-laws and Delaware law contain provisions that may delay, defer or inhibit a future acquisition of our Company not approved by our board of directors. These provisions are intended to encourage any person interested in acquiring us to negotiate with and obtain the approval of our Board of Directors. Our certificate of incorporation also permits our board of directors to issue shares of preferred stock with voting, conversion and other rights as it determines, without any further vote or action by our stockholders. By using preferred stock, we could:

•

discourage a proxy contest;



•

make the acquisition of a substantial block of our common stock more difficult; or



•

limit the price investors may be willing to pay in the future for shares of our common stock.

We face litigation that could have a material adverse effect on our business, financial condition and results of operations.

        We and our schools are subject to various lawsuits, investigations and claims, covering a wide range of matters, including, but not limited to, claims involving our current and former students, alleged violations of federal and state laws, false claims made to the federal government and routine

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employment matters. It is possible that we may be required to pay substantial damages or settlement costs in excess of our insurance coverage or current reserves, which could have a material adverse effect on our financial condition or results of operation. We could also incur substantial legal costs, and management's attention and resources could be diverted from our business. Please see Item 3, "Legal Proceedings," for more detailed information on these litigation risks.

Failure to keep pace with changing market needs and technology could harm our business.

        Prospective employers of our graduates increasingly demand that their entry-level employees possess appropriate technological skills. Educational programs at our schools, particularly programs in information technology, must keep pace with these evolving requirements. If we cannot respond to changes in industry requirements, it could have a material adverse effect on our business.

Competitors with greater resources could harm our business.

        The post-secondary education market is highly competitive, and has become ever more so over the past several years. Our schools compete with traditional public and private two-year and four-year colleges and universities and other proprietary schools, including those that offer on-line learning programs. Some public and private colleges and universities, as well as other private career-oriented schools, may offer programs similar to those of our schools. Although tuition at many private non-profit institutions is higher than tuition at our schools, some public institutions are able to charge lower tuition than our schools, due in part to government subsidies, government and foundation grants, tax-deductible contributions and other financial sources not available to proprietary schools. Some of our competitors in both the public and private sectors have substantially greater financial and other resources than us.

Failure to obtain additional capital in the future could reduce our ability to grow.

        We believe that funds from operations, cash, investments and access to our credit facility will be adequate to fund our currently identified plans. However, we may need additional debt or equity financing in order to carry out our growth strategies. The amount and timing of such additional financing will vary depending on the timing and size of acquisitions, our availability to access credit markets, and the sellers' willingness to provide financing themselves. To the extent that we require additional financing in the future and are unable to obtain such additional financing, we may not be able to fully implement our growth strategy.

If natural disasters, terrorist attacks, public transit strikes or economic downturns occur in specific geographic areas where we have a high concentration of schools, our business could be harmed.

        We have large numbers of schools concentrated in certain geographic areas. For instance, we have a high concentration of schools in California, Florida, Texas, Georgia, Michigan, the Province of Ontario and other states and cities. We expect to continue to have high concentrations of schools in large metropolitan areas as we create new branch campuses and acquire new schools. These geographic concentrations may change or intensify over time. If natural disasters, terrorist attacks, public transit strikes, economic developments or other adverse events occur or are more intensively felt in some of these concentrated geographic areas, our business and results of operations could be disproportionately affected compared to the rest of the United States and Canada.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

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ITEM 2.    PROPERTIES

        Our campus support center office is located in Santa Ana, California and our 116 campuses as of June 30, 2012, are located in 26 states and in the province of Ontario, Canada. Each campus provides our students with lecture rooms, instructional labs, libraries, Internet access and other facilities.

        We actively monitor the capacity at our facilities and the expected facilities capacity required to accommodate campus growth initiatives. We provide for expansion and growth at each campus through relocations to larger facilities and by expanding or remodeling existing facilities. From the beginning of fiscal 2008 through fiscal 2012, approximately 9% of the campuses have been relocated and an additional approximately 92% of total campuses have been either expanded or remodeled. The following table reflects the number of campuses added, closed or combined, and the number of campuses that have been relocated, enlarged or remodeled during each of the last five fiscal years ended and has been updated to reflect solely continuing operations:

        All but 4 of our facilities are leased. In addition, we lease our campus support center offices. Most of our leases have primary terms between 5 and 10 years with options to extend the lease, at our election.

        Square footage of our schools and colleges varies significantly based upon the type of programs offered and the market being served. Please see the section entitled "Programs of Study" in Item 1, "Business", for square footage by location.

ITEM 3.    LEGAL PROCEEDINGS

Legal Matters

        In the ordinary conduct of its business, the Company and its subsidiaries are subject to lawsuits, demands in arbitration, investigations and other claims, including, but not limited to, lawsuits and claims involving current and former students, employment-related matters, business disputes and regulatory demands. In some of the lawsuits and arbitrations pending against the Company, including matters not disclosed below, the plaintiffs seek certification of the matter as a class action or collective action in order to represent other similarly-situated persons. Except as disclosed below, none of the matters currently pending against the Company in which plaintiffs seek class certification has yet been certified as a class action or collective action. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. Information is provided below regarding the nature of each potentially material claim where the likelihood of loss is probable or reasonably possible. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company has accrued a liability for the loss. When a loss is not both probable and estimable, the Company does not accrue a liability. Where a loss is not probable but is reasonably possible, including if a loss in excess of an accrued liability is reasonably possible, the Company determines whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim. For

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the matters described below, the Company has either established an accrual that is immaterial, or has determined that a loss is reasonably possible but that it is not possible to provide a reasonable estimate of the amount of loss or the range of possible losses with respect to the matter. There can be no assurance that the ultimate outcome of any of the matters threatened or pending against the Company, including those disclosed below, will not have a material adverse effect on the Company's financial condition or results of operations.

False Claims Act Qui Tams

        On October 3, 2007, the Company was notified that a qui tam action had been filed in the U.S. District Court for the Central District of California by a former employee (the "relator") on behalf of himself and the federal government. The case was captioned United States of America, ex rel. Steven Fuhr v. Corinthian Colleges, Inc. The Company subsequently learned of two other qui tam actions filed against the Company captioned United States of America, ex rel. Nyoka Lee and Talala Mshuja v. Corinthian Colleges, Inc., et al., and United States of America, ex rel. Stephen Backhus v. Corinthian Colleges, Inc., et al., filed in the United States District Courts for the Central District of California and the Middle District of Florida, respectively. These qui tam actions alleged violations of the False Claims Act, 31 U.S.C. § 3729-33, by the Company for allegedly causing false claims to be paid, or allegedly using false statements to get claims paid or approved by the federal government, because of alleged Company violations of the Higher Education Act (the "HEA") regarding the manner in which admissions personnel are compensated. The Lee complaint also alleged causes of action for common law fraud, unjust enrichment and payment under mistake of fact against the Company, Ernst & Young LLP (the Company's Independent Registered Public Accounting Firm), and David Moore, Jack Massimino, Paul St. Pierre, Alice Kane, Linda Skladany, Hank Adler and Terry Hartshorn (all of whom are current or former directors of the Company). On March 4, 2009, the Company received written notices that the U.S. Department of Justice had declined to intervene in, or take over, these qui tam actions, and the United States District Courts in which the cases were filed unsealed the complaints. Although the government declined to intervene in these actions, the relators may continue to pursue the litigation on behalf of the federal government and, if successful, receive a portion of the federal government's recovery. Additionally, upon a showing of good cause, the government has the right to intervene in the actions at a later time. The Backhus complaint has since been voluntarily dismissed and, on August 3, 2009, the U.S. District Court issued an order dismissing the Fuhr complaint with prejudice. That dismissal was appealed, but has since been voluntarily abandoned and dismissed by the relator in that case. The Lee complaint was dismissed with prejudice by the U.S. District Court on December 4, 2009. The Lee dismissal was also appealed, and the Company opposed that appeal. On August 12, 2011, the Ninth Circuit Court of Appeal reversed the district court's dismissal, and remanded with instructions to permit the relator to amend the complaint. On December 15, 2011, the first amended Lee complaint was filed in U.S. District Court alleging violations of the False Claims Act, 31 U.S.C. § 3729 against the Company, Ernst & Young LLC, David Moore and Jack Massimino. The Company moved the U.S. District Court to dismiss the first amended Lee complaint, and the relators opposed that motion. On April 19, 2012, the District Court held that the statute of limitations bars the relators from asserting claims based on conduct prior to 2005, but otherwise denied the Company's motion to dismiss. The Company believes this remaining Lee complaint is without merit and intends to defend itself and its current and former directors vigorously.

        Additionally, the Company has received an inquiry from the same Assistant U.S. Attorney involved in reviewing the Lee matter regarding the Company's student referral practices. The Company infers, but has been unable to confirm, that this inquiry may relate to another qui tam filed under seal that is pending the government's investigation and intervention decision. Recently, the Assistant U.S. Attorney indicated he had no concerns about the student referral practices but requested additional information related to attendance procedures at two Florida campuses. The Company is cooperating and intends to respond to the request.

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        Separately, on April 24, 2012, a complaint captioned United States of America ex rel. Carolina Marion v. Heald College Inc. and Corinthian Colleges Inc. was filed under seal in the U.S. District Court for the Northern District of California. Since the complaint was filed under seal, the Company has not been able to obtain a copy of the complaint but infers that this too is a qui tam action brought under the False Claims Act.

Securities and Derivative Litigation

        On August 31, 2010, a putative class action complaint captioned Jimmy Elias Karam v. Corinthian Colleges, Inc., et al. was filed in the U.S. District Court for the Central District of California. The complaint is purportedly brought on behalf of all persons who acquired shares of the Company's common stock from October 30, 2007 through August 19, 2010, against the Company and Jack Massimino, Peter Waller, Matthew Ouimet and Kenneth Ord, all of whom are current or former officers of the Company. The complaint alleges that, in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "Act") and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission, the defendants made certain material misrepresentations and failed to disclose certain material facts about the condition of the Company's business and prospects during the putative class period, causing the plaintiffs to purchase the Company's common stock at artificially inflated prices. The plaintiffs further claim that Messrs. Massimino, Waller, Ouimet and Ord are liable under Section 20(a) of the Act. The plaintiffs seek unspecified amounts in damages, interest, attorneys' fees and costs, as well as other relief. On October 29, 2010, another putative class action complaint captioned Neal J. Totten v. Corinthian Colleges, Inc., et al. was filed by the same law firm that filed the Karam matter described above in the U.S. District Court for the Central District of California. The Totten complaint is substantively identical to the Karam complaint. Several other plaintiffs intervened in the lawsuit and petitioned the Court to appoint them to be the lead plaintiffs. On March 30, 2011, the Court appointed the Wyoming Retirement System and Stichting Pensioenfonds Metaal en Technieklead as lead plaintiffs, and Robbins Geller Rudman & Dowd LLP as counsel for lead plaintiffs, in the consolidated action. Lead plaintiffs thereafter filed a second amended consolidated complaint, and the Company moved to dismiss the second amended consolidated complaint. On January 30, 2012, the U.S. District Court granted the Company's motion to dismiss, and gave the plaintiffs thirty days to file an amended complaint. On February 29, 2012, the plaintiffs filed a third amended complaint (the "TAC") in U.S. District Court, and, on March 30, 2012 the Company and the individual defendants filed a motion to dismiss. On August 20, 2012, the U.S. District Court granted the Company's and the individual defendants' motion to dismiss, with prejudice. If the plaintiffs appeal, the Company will continue to defend itself and its current and former officers vigorously.

        On October 19, 2010, a shareholder derivative complaint captioned David Realty Company, derivatively on behalf of Corinthian Colleges, Inc., v. Jack Massimino, et al., was filed in the United States District Court for the Central District of California against all of the then-current members of the Company's Board of Directors, plus Ken Ord and Matt Ouimet, both of whom are current or former officers of the Company, and against the Company as a nominal defendant. On October 22, 2010, a second shareholder derivative complaint captioned Jake Vale, derivatively on behalf of Corinthian Colleges, Inc., v. Paul St. Pierre, et al., was filed in the United States District Court for the Central District of California against all of the current members of the Company's Board of Directors, plus Ken Ord, and against the Company as a nominal defendant. Both derivative complaints are based on factual allegations similar to those alleged in the Karam federal securities complaint identified above. The David Realty Company complaint asserts causes of action for breach of fiduciary duty, unjust enrichment, and breach of fiduciary duty for insider selling and misappropriation of information; the Vale complaint asserts causes of action for violation of Section 14(a) of the 1934 Exchange Act, breach of fiduciary duty, unjust enrichment, and indemnification and contribution. These matters have now been consolidated in the United States District Court for the Central District of California in a matter captioned In re: Corinthian Colleges, Inc. Shareholder Derivative Litigation, and the Company and the

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individual defendants filed a motion to dismiss the consolidated action. On January 30, 2012, the U.S. District Court granted the Company's motion to dismiss, and gave the plaintiffs thirty days to file an amended complaint. On November 18, 2011, David Realty Company, a putative shareholder of the Company and a plaintiff in the matter captioned In re: Corinthian Colleges, Inc. Shareholder Derivative Litigation, filed a Petition for Writ of Mandate in a matter captioned David Realty Co. v. Corinthian Colleges, Inc. in California Superior Court seeking to compel the Company to produce books and records under California common law and California Corporations Code Section 1600, et seq. The Company has filed an answer and a memorandum of points and authorities in opposition to the petition for writ of mandate. On February 29, 2012 the U.S. District Court for the Central District of California granted David Realty Company's ex parte application to extend the deadline to file an amended complaint in the shareholder derivative litigation pending resolution or further developments in the petition for writ of mandate pending in David Realty Co. v. Corinthian Colleges, Inc. In August 2012, David Realty Co. voluntarily dismissed, without prejudice, its Petition for Writ of Mandate in California Superior Court, and the Company and David Realty Co. stipulated to a stay of the derivative action pending resolution of the Company's pending motion to dismiss the Karam securities case noted above. The Company and the individual defendants believe these matters are without merit, and the Company intends to defend these matters vigorously.

Student Litigation

        On May 28, 2008, a putative class action demand in arbitration captioned Rivera v. Sequoia Education, Inc. and Corinthian Colleges, Inc. was filed with the American Arbitration Association. The plaintiffs are nine current or former HVAC students from the Company's WyoTech Fremont campus. The arbitration demand alleges violations of California's Business and Professions Code Sections 17200 and 17500, fraud and intentional deceit, negligent misrepresentation, breach of contract and unjust enrichment/restitution, all related to alleged deficiencies and misrepresentations regarding the HVAC program at these campuses. The plaintiffs seek to certify a class composed of all HVAC students in the Company's WyoTech Fremont and WyoTech Oakland campuses over the prior four years, and seek recovery of compensatory and punitive damages, interest, restitution and attorneys' fees and costs. The Company never operated any HVAC programs at the Company's WyoTech Oakland campus during its ownership of that campus. The arbitrator ruled that the arbitration provision in the former students' enrollment agreement is not susceptible to class-wide resolution. On November 22, 2011, a California state court judge refused to confirm the arbitrator's clause construction decision and remanded the matter to the arbitrator for further consideration. The Company has appealed the state court order. The Company believes the complaint is without merit and intends to vigorously defend itself against these allegations.

        On April 20, 2010, a putative class action complaint captioned Reed, an individual, on behalf of himself and all others similarly situated v. Florida Metropolitan University, Inc. and Corinthian Colleges, Inc. was filed in the District Court of Travis County, Texas. Florida Metropolitan University, Inc. is a wholly-owned subsidiary of the Company. Plaintiff purports to be a former student in the Company's Everest University Online operations. The complaint claims violations of Texas Education Code Sections 132.051(a) and 132.059(a) for alleged failure of Everest University Online to receive a Certificate of Approval or an exemption from the appropriate Texas state licensing bodies to offer online courses in the State of Texas and to register its admissions representatives with the State of Texas. The plaintiff seeks to certify a class composed of all persons who contracted to receive distance education from Everest University Online while residing in Texas, and seeks damages on behalf of such persons, pre- and post-judgment interest, declaratory and injunctive relief, cost of suit, and such other relief as the court deems proper. On July 26, 2010, the Court ordered the matter to binding arbitration, and the plaintiff subsequently filed a putative class action demand in arbitration. The arbitrator ruled that the arbitration provision in the former student's enrollment agreement is susceptible to class-wide resolution, but did not address whether a class should be certified. The Company appealed the clause-construction decision

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and on June 15, 2012 the U.S. Court of Appeals for the Fifth Circuit issued an opinion overturning the arbitrator's decision and ruling that the enrollment agreement is not susceptible to class-wide resolution. The plaintiff's motion for a rehearing by the entire Fifth Circuit was denied, and the plaintiff's only remaining avenue of appeal on this issue is to seek review by the United States Supreme Court. The Company believes the complaint is without merit and intends to defend itself and its subsidiary vigorously.

        On November 23, 2010, a putative class action complaint captioned Alisha Montgomery, et al., on behalf of themselves and all others similarly situated, v. Corinthian Colleges, Inc. and Corinthian Schools, Inc. d/b/a Everest College and Olympia College, was filed in the Circuit Court of Cook County, Illinois. Corinthian Schools, Inc. is a wholly-owned subsidiary of the Company. Plaintiffs were thirty-three individuals who purport to be current and/or former students of the Company's Medical Assistant Program at the Everest College campus in Merrionette Park, Illinois. The complaint alleged breach of contract, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act and unjust enrichment, all related to alleged deficiencies and misrepresentations regarding the Company's medical assisting program at the Merrionette Park campus. The plaintiffs sought to certify a class composed of all persons who enrolled in the Company's Medical Assisting program at the Everest College Merrionette Park campus during the four years preceding the filing of the lawsuit, and sought actual and compensatory damages on behalf of such persons, costs and attorneys' fees, punitive damages, disgorgement and restitution of wrongful profits, revenue and benefits to the extent deemed appropriate by the court, and such other relief as the court deemed proper. The Company removed the case to federal court and moved to compel individual arbitrations, which the court granted. Thirty-one plaintiffs have filed individual demands in arbitration. Individual arbitration hearings commenced as scheduled during the quarter ended June 30, 2012, but the Company and the plaintiffs have now agreed to hold the hearings in abeyance to engage in settlement discussions. The Company continues to believe these matters are without merit and will continue to defend itself vigorously if a reasonable settlement cannot be achieved.

        During fiscal 2011, the Company experienced an unprecedented increase in putative class action lawsuits by former students. In many of these cases, the plaintiffs and their counsel sought to represent a class of "similarly situated" people as defined in the complaint. The Company believes these lawsuits are largely the result of negative publicity—and aggressive lawyer recruitment of potential clients—surrounding the Department of Education's ("ED's") rulemaking efforts, the Senate HELP Committee hearings, the Government Accountability Office ("GAO") report, and other related matters that occurred during that time period. Many of the cases filed during that time have since been dismissed. In virtually all of the following remaining cases, the plaintiffs cite testimony from the HELP Committee hearings, the GAO report, public statements by elected officials and/or other negative media coverage in their complaints, although the locations of the students, the specific allegations, and the nature of their claims differ. The Company believes all of the following complaints are contractually required to

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be resolved in individual arbitrations between the named students and the Company, and the Company has moved, to compel these cases to arbitration. The following is a brief summary of such matters:

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        The Company intends to defend itself and its subsidiaries vigorously in all of these matters.

Employee Litigation

        On November 17, 2008, an action captioned Mary Credille and Roger Madden, on behalf of all similarly situated current and former employees, v. Corinthian Colleges et al., was filed in the U.S. District Court for the Northern District of Illinois. The two originally-named plaintiffs are former employees of the Company's Chicago campus, and allege failure to receive proper compensation for all overtime hours allegedly worked in violation of the Fair Labor Standards Act. Plaintiff Credille has voluntarily dismissed her claims against the Company. On December 8, 2009, the Court granted Plaintiff Madden's motion to conditionally certify a collective action to include those current and former admissions representatives at the Company's Chicago campus who also satisfy additional requirements. A total of three former employees, including Madden, have elected to participate in the lawsuit. The Company believes the allegations are without merit and intends to vigorously defend itself.

        On September 13, 2011, an action captioned Michael Harrington, individually and on behalf of all persons similarly situated, v. Corinthian Schools, Inc., et al., was filed in California's Alameda Superior Court. A virtually identical action with the same caption was filed by different plaintiff's counsel on September 15, 2011, in California's Orange County Superior Court. The plaintiff is a former admissions representative at the Company's Fremont and Hayward campuses and the two actions allege violations of California's Business and Professions Code Section 17200 and the California Labor Code for alleged failure to pay for all hours worked, purported denial of meal periods, and alleged failure to pay wages upon termination. The Alameda complaint has since been voluntarily dismissed. While the scope of the putative class is not clear, the remaining Orange County action appears to seek certification of a class to include those current and former admissions representatives over the last four years at the Company's California campuses. The Company believes the allegations are without merit and intends to vigorously defend itself.

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Regulatory Matters

        On October 19, 2010, the Company became aware of news stories which reported that the Florida Attorney General's Office (the "FL AG's Office") had begun an investigation into certain private sector education companies in Florida, including the Company, seeking information on potential misrepresentations in financial aid, recruitment and other areas. On October 21, 2010, the Company received a subpoena from the FL AG's Office seeking a wide range of documents from January 1, 2006 to the present. The Company's attorneys have met with representatives of the FL AG's Office multiple times and the Company has provided voluminous materials in response to the subpoena. Additionally, the Company has filed a motion to quash portions of the subpoena and for a protective order with respect to certain confidential and proprietary information. The Company expects to continue to provide reasonable cooperation to the FL AG's Office.

        On March 28, 2011, the Company received a letter from the California Attorney General's Office (the "CA AG") ostensibly seeking information pursuant to the Stipulated Judgment agreed to by the Company and the CA AG in July 2007. The letter requests information and documentation related to (i) the discontinuation of certain programs immediately after the Stipulated Judgment, (ii) numbers of new students, graduating students and discontinuing students, by program, (iii) marketing and solicitation materials, (iv) enrollment agreements and disclosures, (v) graduating students' employment and compensation, (vi) transferability of credit by the Company's former students, (vii) training provided to employees pursuant to the Stipulated Judgment, and (viii) disciplinary actions against certain categories of employees. The Company cooperated with the CA AG's reasonable requests for information, but objected to certain overly-broad requests which appear to be unrelated to the 2007 Stipulated Judgment. The Company not received further communication from the CA AG's office in many months and believes it has responded adequately to the CA AG's requests.

        On April 29, 2011, the Company's Everest Institute campuses in Brighton and Chelsea, Massachusetts received civil investigative demands from the Massachusetts Attorney General's Office (the "MA AG") seeking (i) information about past students who have enrolled in each institution, (ii) the identity of recruiters, (iii) recruiting and enrollment documents, (iv) documentation related to analyses of delinquency, default, drop out, refund, loan forgiveness or reduction, placement, student income, and/or any student's ability to repay loans, and (v) cohort default and graduation rates. The Company has cooperated, and continues to cooperate, with the MA AG's reasonable requests for information, including a request for additional information received on July 20, 2012.

        On April 11, 2011 the Company's Everest Institute in Jonesboro, Georgia was sent a subpoena from the Atlanta office of ED's Office of Inspector General (the "OIG") requesting documents related to the Jonesboro campus's employment and placement rates reported to its accrediting agency, as well as correspondence with the accrediting agency. The Company has become aware that this matter is being supervised by an Assistant United States Attorney for the Northern District of Georgia who focuses primarily on civil false claims act matters, including qui tams. The Company does not know whether a qui tam action has been filed under seal or whether the United States Attorney's Office has made a determination about whether to file a false claims act lawsuit in this matter. The Company has provided documents to the OIG, met with the OIG and the AUSA supervising this matter, and is continuing to cooperate with the OIG's request.

        On April 14, 2011 the Company's Everest Institute campus in Silver Spring, Maryland received a letter from the Mid-Atlantic regional office of the OIG requesting original certificates of diplomas, graduate diplomas in education and/or proof of Ability to Benefit for all students and a complete list of all instructors with documentation of their professional licenses and credentials. The Company is cooperating with the OIG's request. No additional information has been provided regarding this request and the Company believes the matter has been closed.

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        On May 19, 2011, along with other private sector education companies, the Company received a subpoena from the New York Attorney General's Office (the "NY AG") seeking information on potential issues related to financial aid, admissions, students, securities and other areas. The Company is cooperating with the NY AG's requests for information.

        On July 19, 2011, the Company's attorneys met with representatives of the Oregon Attorney General's Office ("OR AG") in anticipation of a written request for information related to the Company's Everest Institute campus in Tigard, Oregon and the Everest College and Heald College campuses in Portland, Oregon. The Company was informed that the investigation is not the result of student complaints regarding the campuses. On August 11, 2011, the Company received a civil investigative demand from the Oregon Attorney General's Office requesting information and documents regarding advertising; student recruitment; admissions; licensure and accreditation; compensation, training and evaluations of admissions personnel; job opportunities and placements of graduates; student complaints; and various other matters. The Company cooperated with the OR AG's reasonable requests for information. On June 28, 2012, the Company received a letter from the OR AG's office in which it made a small number of recommendations as a result of its investigation and also closed the investigation without seeking any injunctive or monetary relief from the Company.

        On December 15, 2011, after other private sector education companies had received similar requests, the Company received a civil investigative demand from the Illinois Attorney General's Office (the "IL AG") seeking information on potential issues related to financial aid, admissions, students and other areas. The Company has sought judicial protection of its confidential and sensitive business information and is cooperating with the IL AG's reasonable requests for information.

        On April 3, 2012, the Company was served with a Civil Investigative Demand ("CID") from the U.S. Consumer Financial Protection Bureau ("CFPB"). The CID stated that its purpose is to "determine whether for-profit postsecondary companies, student loan origination and servicing providers, or other unnamed persons, have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans." The CID contains extensive interrogatories and document production demands related to the Company's involvement with student loans and many other aspects of the Company's business. The Company has contacted the CFPB regarding the CID and has retained outside counsel to assist it in this matter. The Company has objected to the inquiry by filing a petition with the CFPB to set aside or modify the CID, but has voluntarily provided documents and other information to the CFPB while the petition is pending. The Company believes that its acts and practices relating to student loans are lawful and essential to preserving our students' access to post-secondary education.

        As previously disclosed and as updated elsewhere in this Report on Form 10-K, ED periodically conducts program reviews of institutions that participate in federal student financial aid programs. Program reviews begin with site visits at the relevant locations. ED then prepares a program review report and the institution has the opportunity to respond. After the institution responds, ED issues a final program review determination, which may be appealed. The Company currently has open program reviews at the following stages: (i) ECP has received program review reports and provided written responses regarding the site visits conducted at ECP in 2008 and 2010, but has not yet received final determinations with respect to either site visit, (ii) site visits occurred at the Company's WyoTech Laramie, WY campus and its two additional locations in Blairsville, PA and Sacramento, CA in February 2012, ED has issued a program review report and the Company is in the process of preparing its response, (iii) a site visit occurred at the Company's Everest College campus in Springfield, MO in April 2012, ED has issued its program review report and the Company is in the process of preparing its response, (iv) a site visit occurred at the Company's Everest College campus in Crosslanes, WV in April 2012, but ED has not yet issued a program review report, (v) ED conducted a site visit at the Company's Everest College campus in Rochester, NY during the week of April 30, 2012, but the Company has not yet received a program review report, and (vi) ED conducted site visits at the Everest

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Largo, Florida campus and the Long Beach, CA campus in August 2012. The Company will continue to cooperate with ED in its ongoing reviews.

        ED will review all responses to program review reports and ultimately issue final determination letters setting forth its final findings, as well as the actions it intends to take based on those findings. If ED were to make significant findings of non-compliance against any of the Company's institutions in any final determination letters regarding ongoing program reviews, it could result in the imposition of significant fines, penalties or other liabilities, including, without limitation, an action on the limitation, suspension or termination of the institution's participation in Title IV programs, any of which could have a material adverse effect on the Company's business, results of operations or financial condition.

Evaluation of Possible Outcomes

        In addition to the proceedings and other matters described above, the Company is or may become a party to pending or threatened lawsuits related primarily to services currently or formerly performed by the Company. Such cases and claims raise difficult and complex factual and legal issues and are subject to many uncertainties and complexities, including, but not limited to, class action certification, governmental intervention, regulatory or administrative agency involvement, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable statutory and common law.

        As of June 30, 2012, the Company had established aggregate reserves for all of the matters disclosed above, as well as for those additional matters where the liabilities are probable and losses estimable but for which the Company does not believe the matters are reasonably likely to have a material impact on the results of operations, financial position or cash flows. The Company regularly evaluates the reasonableness of its accruals and makes any adjustments considered necessary. Due to the uncertainty of the outcome of litigation and claims, the Company is unable to make a reasonable estimate of the upper end of the range of potential liability for these matters. Upon resolution of any pending legal matters, the Company may incur charges in excess of presently established reserves, which could have a material adverse impact on the Company's results of operations and financial position and cash flows during the period in which it is recorded or paid.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 2012.

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Dividend Policy

        We have never paid cash dividends on our common stock. Payment of dividends in the future, if at all, will depend upon our earnings and financial condition and various other factors our Board of Directors may deem appropriate at the time. Our amended credit agreement limits the payment of cash dividends.

Issuer Purchases of Equity Securities

        During July 2010, the Company's Board of Directors approved a stock repurchase program under which the Company may purchase up to $200 million of its common stock. Corinthian plans to repurchase shares on the open market or in private transactions from time to time, depending on the company's cash balances, general business and market conditions, and other factors, including

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alternative investment opportunities. As of June 30, 2012 the Company had repurchased 3,917,200 shares at an average price of $6.38.

Price Range of Common Stock

        Our common stock is listed on the Nasdaq National Market System under the symbol "COCO." The approximate number of holders of record of our common stock as of August 16, 2012 was 28. Our common stock was first listed on Nasdaq upon completion of our initial public offering in February 1999.

        On August 16, 2012 the closing price per share of common stock was $2.34 and the range of high and low closing sales prices of our common stock, as reported by the Nasdaq National Market System, for each applicable quarter in fiscal 2011 and 2012, and the first quarter to date of fiscal 2013, is as follows:

Securities Authorized for Issuance Under Equity Compensation Plans as of June 30, 2012

        As of June 30, 2012, our equity compensation plans consisted of the 1998 Performance Award Plan (the "1998 Plan"), the 2003 Performance Award Plan as amended (the "2003 Plan"), the 2004 New Hire Plan (the "New Hire Plan") and the Employee Stock Purchase Plan (the "ESPP"). The 1998 Plan, the 2003 Plan and the ESPP have all been approved by our shareholders.

        The New Hire Plan has not been approved by our shareholders. The Company's ability to issue new stock-based awards under the New Hire Plan was terminated as of November 17, 2005.

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Performance Graph

        The following graph shows a comparison of cumulative total returns for Corinthian, the Russell 2000 Index and an index of peer companies selected by Corinthian during the period commencing on June 30, 2007 and ending on June 30, 2012. The comparison assumes $100 was invested on June 30, 2007 in the Common Stock, the Russell 2000 Index and the peer companies selected by Corinthian and assumes the reinvestment of all dividends, if any. The companies in the peer group, all of which are education companies, are weighted according to their market capitalization. Included in the peer group are: Apollo Group Inc., Career Education Corporation, DeVry, Inc., ITT Educational Services, Inc., Lincoln Educational Services Corporation, Universal Technical Institute, Inc. and Strayer Education, Inc.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Corinthian Colleges, Inc., the Russell 2000 Index
and a Peer Group

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*

$100 invested on 6/30/07 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.

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ITEM 6.    SELECTED FINANCIAL DATA

        The following selected financial data are qualified by reference to, and should be read in conjunction with, our consolidated financial statements and the related notes thereto appearing elsewhere in this Report on Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected statement of operations data and the balance sheet data set forth below as of and for each of the 5 years ended June 30, 2012, 2011, 2010, 2009 and 2008 are derived from our audited consolidated financial statements. These historical results are not necessarily indicative of the results that may be expected in the future. The information contained throughout this document is presented on a continuing operations basis, unless otherwise stated.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis should be read in conjunction with the Selected Financial Data and the Company's Consolidated Financial Statements and Notes thereto appearing elsewhere in this Report on Form 10-K.

Background and Overview

        As of June 30, 2012, we operated 116 colleges with 91,460 students in 26 states and the province of Ontario, Canada. During the fiscal year ended June 30, 2012, the Company had net revenues of $1,605.5 million. Our revenues consist principally of student tuition and fees and are presented as net revenues after adjustments for refunds related to students who do not complete their courses. We recognize revenues pro-rata (on a straight-line basis) over the relevant period attended by the student of the applicable course or program.

        Net revenues decreased $178.6 million or 10.0% from $1,784.1 million in fiscal 2011 to $1,605.5 million in fiscal 2012. The decrease is primarily due to a 10.3% decrease in the average student population offset partially by a 0.3% increase in the average revenue rate per student during the period. The decline in average student population was largely due to our decision to limit the enrollment of ATB students beginning in fiscal 2011. The student population varies depending on, among other factors, the number of (i) continuing students at the beginning of a fiscal period, (ii) new student enrollments during the fiscal period, (iii) students who have previously withdrawn but who reenter during the fiscal period, and (iv) graduations and withdrawals during the fiscal period. New student starts typically occur several times per month in the diploma-granting colleges. In the degree-

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granting colleges, the majority of new student starts occur in the first month of each calendar quarter with an additional "mini-start" in the second month of each quarter in most colleges. The tuition charges vary by college depending on the local market, the program level (diploma, associate's, bachelor's or master's degree) and the specific curriculum. The majority of students at our colleges rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses.

        Most of our schools in the United States have historically accepted non-high school graduates who can demonstrate an ability to benefit ("ATB students") from the program by passing certain tests which are required by ED. Serving ATB students has historically been part of the Company's mission. However, ATB students are a higher risk population who complete their programs at a lower rate and default on their student loans at a higher rate than high school graduates. Accordingly, given the shift to a 3-year default measurement period and the structural changes in student lending, we stopped enrolling ATB students into our U.S. Everest and WyoTech institutions on September 1, 2010. Due to the success of our default prevention initiates, we resumed enrolling ATB students on a more limited basis in June 2011. However, the Consolidated Appropriations Act of 2012 eliminated federal student aid eligibility for all students without a "certificate of graduation from a school providing secondary education or the recognized equivalent of such a certificate." A student who does not possess a high school diploma, or a recognized equivalent, but who is enrolled in a Title IV eligible program any time prior to July 1, 2012 may be eligible to receive Title IV student assistance after July 1, 2012. As of June 30, 2012, ATB students accounted for approximately 7.3% of total enrollments in our U.S. schools. To help offset the loss of ATB students associated with funding restrictions in the Appropriations Act, we plan to offer free General Education Development (GED) preparation services to the general public. We currently offer GED services to our existing ATB students and expect to offer similar services to the general public at most of our U.S. campuses by the end of fiscal 2013. We believe that some portion of students who obtain a GED through one of our schools could potentially enroll in one of our programs or pursue other post-secondary education.

Critical Accounting Estimates

        Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts on those financial statements. Note 1 to the consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended June 30, 2012 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. On an on-going basis, we evaluate our estimates, including, but not limited to, those related to our allowance for doubtful accounts, insurance/self-insurance, goodwill and intangible assets, deferred taxes, assets and liabilities held for sale, contingencies and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different conditions or if our assumptions change.

        Our critical accounting estimates are those which we believe require our most significant judgments about the effect of matters that are inherently uncertain. A discussion of our critical accounting estimates is as follows:

        Allowance for Doubtful Accounts.    We maintain an allowance for doubtful accounts for estimated losses resulting from the inability, failure or refusal of our students to make required payments. We determine the adequacy of this allowance by regularly reviewing the accounts notes receivable agings and applying various expected loss percentages to student accounts notes receivable categories based

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upon historical bad debt experience and consideration of the current economic environment. We generally write off accounts receivable balances deemed uncollectible as they are sent to collection agencies. We offer a variety of payment plans to help students pay that portion of their education expense not covered by financial aid programs. These balances are unsecured and not guaranteed. We believe our reserves are adequate; however, losses related to unpaid student balances could exceed the amounts we have reserved for bad debts. The effect of an increase in our accounts receivable allowance of 3% of our outstanding receivables from 14.9% to 17.9% or $16.8 million to $20.2 million would result in a decrease in pre-tax income of $3.4 million for the year ended June 30, 2012. The effect of an increase in our student notes receivable allowance of 3% of our outstanding earned notes receivable from 43.6% to 46.6% or $79.5 million to $85.0 million would result in a decrease in pre-tax income of $5.5 million for the year ended June 30, 2012.

        Many of our students in the U.S. participate in federally guaranteed student loan programs. The federally guaranteed student loans are authorized by the Higher Education Act ("HEA") of 1965 and are guaranteed by an agency of the federal government. The guaranteed loans are not guaranteed by us, and the guaranteed student loans cannot become an obligation of ours. Accordingly, we do not record an obligation to repay any of the guaranteed loans that are not repaid by our former students and we do not record either a contingent obligation or an allowance for future obligations as a result of student defaults of federally guaranteed student loans.

        However, if an institution's former students' default rate on guaranteed loans (the "Cohort Default Rate") equals or exceeds 25% for three consecutive years, the institution may lose participation eligibility in the guaranteed loan program and its students would be denied access to the guaranteed loan program. Our institutions' Cohort Default Rates act as a gatekeeper to their eligibility to participate in the federal student financial aid programs. We have no obligation to repay any of the federally guaranteed loans that our former students default upon, even if the Cohort Default Rates of our students exceed permitted levels. Rather, if the Cohort Default Rates at a particular institution exceed 25% for three consecutive years under current calculations, the institution's students may lose eligibility to receive federal student financial aid. Under the HEOA, a separate calculation will be performed that will add an additional federal fiscal year of borrowers' repayment performance. Pursuant to the HEOA, this percentage will increase to 30% after three years of Cohort Default Rates calculated with the additional federal fiscal year are available, and then become applicable to the imposition of sanctions.

        Insurance/Self-Insurance.    We use a combination of insurance and self-insurance for a number of risks including claims related to employee health care, workers' compensation, general liability, and business interruption. Liabilities associated with these risks are estimated based on, among other things, historical claims experience, severity factors and other actuarial assumptions. The Company's loss exposure related to self-insurance is limited by stop loss coverage. Our expected loss accruals are based on estimates, and while we believe the amounts accrued are adequate, the ultimate loss may differ from the amounts provided.

        Goodwill and Intangible Assets.    We have significant goodwill and other intangible assets. Goodwill represents the excess of the cost over the fair market value of net assets acquired, including identified intangible assets. We consider a number of factors, including valuations and appraisals from independent valuation firms, in determining the amounts that are assignable to other intangible assets, such as curriculum, accreditation, and trade names. We, however, are ultimately responsible for the valuations. The fair value of identified intangible assets is derived using accepted valuation methodologies, including cost, market, and income approaches, as appropriate, following consultations with valuation firms and the requirements set forth by the Uniform Standards of Professional Appraisal Practice.

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        We do not amortize goodwill, accreditation, or trade names as these assets meet the indefinite life criteria within the accounting standards. Curricula are amortized over their useful lives ranging generally from five to fifteen years and the amortization is included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

        Goodwill is tested annually for impairment during the fourth quarter or earlier in the year upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not to be impaired. The testing of goodwill for impairment is required to be performed at the level referred to as the reporting unit. A reporting unit is either the "operating segment level" or one level below, which is referred to as a "component." We performed the goodwill impairment test one level below the operating segment level.

        During the second quarter of fiscal 2011, our market capitalization was less than the book value of our net assets, which we considered an indicator of impairment. Consequently, we performed an interim impairment test on goodwill and other indefinite lived intangible assets. The results of the interim impairment test indicated that the fair value of two of our reporting units, related to our Everest schools located in North America, with identified goodwill of $203.6 million was less than the carrying value. Accordingly, we estimated the implied fair value of the goodwill of these reporting units by allocating the fair value of each reporting unit's assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value allocated to goodwill. As a result of this analysis, we determined that the current fair value of the goodwill in these reporting units was $0, and accordingly recorded an impairment charge of $203.6 million, the majority of which was nondeductible for tax purposes during fiscal 2011. The average weighted average cost of capital (WACC), terminal growth rate, and revenue growth rate used to determine the fair value of the reporting units that incurred goodwill impairment at December 31, 2010 was 21.0%, 1.8%, and 3.6%, respectively.

        We believe the underlying reason for the $203.6 million impairment charge during the second quarter of fiscal 2011 resulted from continued uncertainty in the regulatory environment which resulted in an increase in business risk, particularly in our Everest schools. Accordingly we increased the WACC used in our impairment testing to reflect such risk, which reduced the present value of discounted cash flows and resulted in the impairment charge. The business risk related to the uncertainty in the regulatory environment remains an influence on our stock price. However, this uncertainty has had less of an impact on our operating results than originally anticipated by the market. Our forecasted operating results continue to reflect the impact of discontinuing to enroll ATB students as discussed within the "Background and Overview" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        The magnitude of the impairment charge is partially driven by changes in the difference between the carrying value and the fair value of accreditation. Prior to the adoption of SFAS No. 141, "Business Combinations" in July 1, 2002 we did not allocate value to other indefinite-lived assets. Indefinite-lived intangible assets are tested for impairment by comparing their fair values to their carrying amounts, regardless of acquisition date. Accordingly, the impairment test allocates fair market value to indefinite-lived intangible assets acquired prior to July 1, 2002 that were never assigned carrying value. This assignment of value to these indefinite-lived intangible assets for valuation purposes resulted in additional goodwill impairment as a carrying value was not allocated to these assets at the date of acquisition. Accreditation is required for an institution to be eligible to participate in the federal student financial aid programs. The process of applying for accreditation is a time intensive and expensive process, whereby an institution is required to operate without eligibility to Title IV funds for several years. The lack of access to Title IV funds creates a barrier to entry for the industry. We used the With and Without Method in valuing accreditation both upon acquisition and in the performance of our impairment analysis, which estimates the fair value of an asset as the present value of differential cash flows between two scenarios. The With and Without Method is essentially a buy versus build analysis. As it was applied to the fair valuation of accreditation, the "with" component reflects

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the present value of the "as is" cash flows, while the "without" component of the analysis assumes the initial grant of accreditation, and the hypothetical scaling of operations to the "as is" state. Historically, we have grown our business through acquisitions as well as through organic growth. Organic growth consists of opening new branch campuses. Branch campuses of an existing accredited institution receive immediate access to Title IV funds. As we open new branch campuses, the projected cash flows and fair value assigned to accreditation increases. This assignment of more value to accreditation relative to the carrying value at the date of acquisition has also resulted in additional goodwill impairment.

        We determined the fair value of our reporting units using an equal weighting of an income approach, based on discounted cash flow ("DCF"), and a market-based approach. The DCF incorporated our cash flow projections and a terminal value. This amount was then discounted using a weighted average cost of capital (WACC) which considered our costs of debt and equity. We then reconciled the calculated fair value of our reporting units to our market capitalization, including a reasonable premium, as another consideration in assessing fair value.

        In establishing the WACC, consideration was given to specific regulatory risks related to each reporting unit, including the impact of our decision with respect to enrolling "ability to benefit" students. Our cash flow projections incorporate our best estimate of potential future changes related to gainful employment. However, further negative developments in the regulatory environment could impact future assessments and result in impairments of goodwill and other indefinite lived intangible assets. In addition, impairment assessments involve significant judgments related to future revenues and earnings. Although we believe we have made reasonable and supportable estimates in connection with our impairment analyses, changes in strategy or market conditions could significantly impact these judgments and result in future impairments.

        During the first quarter of fiscal 2012, we considered if any indicators of impairment existed at the balance sheet date. Consequently, we performed an interim impairment test on goodwill and other indefinite lived intangible assets. We believe that continued regulatory uncertainties, and the potential impact of new regulations, particularly regulations regarding gainful employment, have had a sustained negative impact on our stock price and current fair value. While the results of the interim impairment test did not indicate an impairment of goodwill, it did indicate that the fair value of certain intangible assets related to the WyoTech schools were impaired. The estimated fair values of WyoTech's trade names and accreditation fell below their carrying values of $14.0 million and $2.2 million, respectively, primarily due to the decline in market capitalization and the associated increase in the discount rate assumption compared to June 30, 2011. As a result, we recorded an impairment charge of $7.1 million, which reduced the carrying value of WyoTech's trade names to $8.6 million and accreditation to $0.5 million.

        The remaining goodwill on our balance sheet of $197.9 million relates to the Heald reporting unit which was acquired in January 2010. Our annual impairment tests of the Heald goodwill and of indefinite-lived intangible assets related to the Heald acquisition did not result in an impairment charge. However, impairment assessments involve significant judgments related to future revenues and earnings. For Heald, at June 30, 2012 we assumed a WACC of 11.7%, revenue growth rates ranging from (2.4%) to 3.4% for fiscal 2013 to 2015 and a terminal growth rate of 4%, which resulted in fair value exceeding carrying value by approximately 13.6%. These assumptions reflect the lower risk of Heald relative to the Everest schools resulting from less exposure to ATB students and to regulatory uncertainty. Although we believe we have made reasonable and supportable estimates in connection with our impairment analyses, changes in strategy or market conditions could significantly impact these judgments and result in future impairments.

        We used the relief from royalty method to estimate the fair value of trade names. Under the relief from royalty method, estimated royalty rates were selected and applied to the revenue stream generated by trade names in order to estimate the potential value of the asset, assuming that trade

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names would be licensed to a third-party. For Heald, we assume a royalty rate of 3.0% based upon comparable licensing transactions, a discount rate of 13.9%, a tax rate of 39%, and a terminal growth rate value of 4.0%. For WyoTech, we assume a royalty rate of 2.25% based upon comparable licensing transactions, a discount rate of 20.9%, a tax rate of 39% and a terminal growth rate value of 1.5%.

        Indefinite-lived intangible assets are tested annually or more frequently if circumstances indicate potential impairment, by comparing their fair values to their carrying amounts. To the extent the fair value of an intangible asset is less than its carrying amount, an impairment charge is recorded in the consolidated statements of operations. When testing for impairment, management calculates the present value of its estimates of the future cash flows expected to be received from the assets tested and compares this result to the carrying value of the assets tested. If the resulting amount was below the carrying value of the related assets, we would consider the assets to be impaired and take a charge to write down those assets to fair value.

        Accreditation is required for an institution to be eligible to participate in the federal student financial aid programs. The process of obtaining accreditation and access to Title IV funds is a barrier to entry for the industry. The process of applying for accreditation is a time intensive and expensive process, whereby an institution is required to operate without eligibility to Title IV funds for several years. For the 2012 fiscal year, our institutions derived the majority of their revenues from Title IV programs, and the Company as a whole derived approximately 84.6% of its net U.S. revenue from Title IV Programs.

        We used the With and Without Method in valuing accreditation both upon acquisition and in the performance of our impairment analysis, which estimates the fair value of an asset as the present value of differential cash flows between two scenarios. As it was applied to the fair valuation of accreditation, the "with" component reflects the present value of the "as is" cash flows, while the "without" component of the analysis assumes the initial grant of accreditation, and the hypothetical scaling of operations to the "as is" state.

        For accreditation, the current "as is" scenario derives value from cash flows projected from fiscal 2013 to fiscal 2018, with compound annual growth rates ranging from (28.4%) to 10.9% with discount rates ranging from 13.9% to 30.9%. After the estimated future cash flows for the "as is" and "without" scenarios were determined, management calculated their respective present values and then subtracted the present value of the "without" scenario from the present value of the "as is" scenario to obtain the estimated fair value of accreditation. The significant assumptions for the Without scenario include estimated compound annual growth rates ranging from 53.4% to 72.8% with discount rates ranging from 13.9% to 30.9%. Using this analysis, at June 30, 2012 the fair value of accreditation exceeded book value by a range of 8.7% to 1134%.

        The determination of whether or not intangible assets are impaired involves significant judgment. This judgement includes estimates of student population, program mix, and pricing changes which could be affected by future regulations, or compliance with regulatory and accreditation standards. Although we believe our goodwill and intangible assets are fairly stated, changes in strategy or market conditions could significantly impact these judgments and result in future impairments.

        Deferred Taxes.    We currently have deferred income tax assets which are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. Realization of our deferred income tax assets is principally dependent upon achievement of projected future taxable income offset by deferred income tax liabilities. We evaluate the realizability of our deferred income tax assets annually. In addition, we review our income tax filing positions quarterly and update our tax contingency reserves as necessary. See Note 9—Income Taxes.

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        Assets and liabilities held for sale.    We estimate the fair value of certain assets and liabilities associated with schools that are held for sale. The valuation of these assets and liabilities involves subjective judgment by management on the timing and amount of proceeds or payments. These estimates had an effect on the amount of impairment losses recognized during 2012. We develop these assumptions based on past experience and by evaluating the circumstances surrounding each situation and location. These estimates are subject to change and thus any variation to the estimates could influence the total loss on the sale of schools.

        Contingencies.    In the ordinary conduct of the business, we are subject to occasional lawsuits, investigations and claims, including, but not limited to, claims involving students and graduates and routine employment matters. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, we disclose the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. There can be no assurance that the ultimate outcome of any of the lawsuits, investigations or claims pending against us will not have a material adverse effect on our financial condition or results of operations.

        Stock-based compensation.    Stock-based compensation cost for our equity instruments exchanged for employee and director services is measured at the date of grant, based on the calculated fair value of the grant and is recognized as an expense on a straight-line basis over the period of time that the grantee must provide services to us before the stock-based compensation is fully vested. The vesting period is generally the period set forth in the agreement granting the stock-based compensation.

Acquisitions/Dispositions

        Since our inception, we have completed the following acquisitions and disposals. Each acquisition has been accounted for using the purchase method of accounting. The results of operations related to the transactions are included in our consolidated results of operations since their respective dates:

        On June 30, 1995, we acquired five colleges from National Education Corporation. As part of the same transaction, we subsequently acquired from National Education Corporation a second group of five colleges on September 30, 1995 and an additional six colleges on December 31, 1995. The adjusted purchase price for all 16 colleges was approximately $4.7 million in cash.

        From July 1, 1996 through October 17, 1996, we acquired a total of 20 colleges in 3 separate transactions for a purchase price of $24.2 million in cash.

        On January 18, 2000, we acquired substantially all of the assets of Harbor Medical College, which operated one college in Torrance, California, for approximately $300,000 in cash.

        On April 1, 2000, we acquired substantially all of the assets of the Georgia Medical Institute, which operated three colleges in the greater Atlanta, Georgia metropolitan area, for approximately $7.0 million in cash.

        On June 1, 2000, we acquired substantially all of the assets of Academy of Business College, Inc. which operated one college in Phoenix, Arizona, for approximately $1.0 million in cash.

        On October 23, 2000, we acquired substantially all of the assets of Educorp, Inc. which operated four colleges in California, for approximately $12.6 million in cash.

        On November 1, 2000, we acquired substantially all of the assets of Computer Training Academy, Inc. which operated two colleges in Northern California, for approximately $6.1 million in cash. We closed one campus in April 2002 and combined the second campus with another campus in close proximity in June 2004.

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        On February 1, 2001, we acquired all of the outstanding stock of Grand Rapids Educational Center, Inc., which operated three campuses in Michigan and Illinois, for approximately $2.8 million in cash.

        On April 1, 2002, we acquired all of the outstanding stock of National School of Technology, Inc., which operated three campuses in the greater Miami, Florida area, for approximately $14.4 million in cash.

        On July 1, 2002, we acquired all of the outstanding stock of WyoTech Acquisition Corporation, which operated two colleges in Laramie, Wyoming and Blairsville, Pennsylvania. The cash purchase price was $84.4 million and was funded through cash on hand and approximately $43 million provided from our credit facility.

        On January 2, 2003, we acquired substantially all of the assets of Learning Tree University, Inc. and LTU Extension, Inc., which operated two training centers in Southern California, for approximately $3.3 million in cash, plus the possibility of an additional $2.0 million if the acquired operations achieved certain operating performance targets. We closed the two LTU training centers in May 2004.

        On August 1, 2003, we acquired all of the outstanding stock of Career Choices, Inc., which operated 10 campuses in California, Washington and Oregon, for approximately $56.3 million, financed through a combination of available cash and borrowings from our credit facility. We combined one of the campuses in Washington with other campuses in close proximity in June 2004. Additionally, in the fourth quarter of fiscal 2008 the Company completed the teach-out of its Everett, WA campus.

        On August 19, 2003, we acquired approximately 89% of the outstanding shares of common stock of CDI Education Corporation ("CDI") through a tender offer to acquire all of the outstanding shares of common stock. As of October 7, 2003, we had acquired all shares of CDI for approximately $42.1 million and the assumption of approximately $10 million of debt and other liabilities. We funded the acquisition with available cash and borrowings from our credit facility. CDI operated 45 post-secondary colleges and 15 corporate training centers throughout Canada. In October 2003, we completed the acquisition of CMA Careers, Inc. located in Kitchener, Ontario, Canada. The intent to acquire this campus by CDI had been agreed to prior to our acquisition of CDI. We combined one of the CDI campuses with another campus in close proximity in April 2004 and closed 11 campuses and one training center in fiscal 2005. During fiscal 2006 we completed the sale of substantially all the assets of CDI's corporate training division, CDI Education, whereby we sold the remaining training centers. The Company recognized a gain of approximately $1.4 million (pre-tax) which was included within other (income) expense on the Consolidated Statement of Operations.

        Effective February 29, 2008 we completed the sale of the 12 Canadian schools located outside the province of Ontario to a wholly-owned subsidiary of the Eminata Group, for a cash payment of CAD $3.0 million. This payment consists of the purchase price of CAD $7.4 million less preliminary negative working capital and other adjustments equal to CAD $4.4 million. This cash payment was subject to a final working capital adjustment that was finalized during the third quarter of fiscal 2009. The final working capital adjustment resulted in a payment to the buyer of $0.1 million.

        On January 4, 2010 we completed the acquisition of Heald Capital, LLC, a Delaware limited liability company ("Heald") for consideration of $395 million. This cash payment was subject to a final working capital adjustment that was finalized during fiscal year 2011. The final working capital adjustment resulted in a payment from the sellers of $1.8 million. Heald, through its subsidiaries, operates Heald College, a regionally accredited institution that prepares students for

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careers in healthcare, business, legal, information technology and other growing fields, primarily through associate degree programs. Heald College operates 12 campuses and its results are included in the Condensed Consolidated Financial Statements from the date of acquisition.

        On August 10, 2012, Corinthian, through a wholly-owned subsidiary, purchased substantially all of the capital stock of QuickStart Intelligence Corporation ("QuickStart") pursuant to a Stock Purchase Agreement with all but one of QuickStart's stockholders for $13.3 million in cash, plus $1.6 million for QuickStart's estimated positive working capital at closing (subject to post-closing adjustment). The Company expects to complete the acquisition of QuickStart's remaining capital stock pursuant to a statutory merger with one of Corinthian's wholly-owned subsidiaries during the quarter ending September 30, 2012. Corinthian paid the purchase price with existing cash and borrowings under its credit facility.

Results of Operations

        During fiscal 2012, the Company decided to divest two WyoTech schools located in Sacramento, CA and Daytona Beach, FL and four Everest schools located in San Francisco, CA, San Jose, CA, Hayward, CA, and Los Angeles, CA (the "Sale Schools"). The Company will continue to operate and invest in these campuses until they are sold. The campuses are available for immediate sale in their present condition, and the Company expects to complete the sales during fiscal 2013. Additionally, during fiscal year 2012, the Company completed the teach-out of the Ft. Lauderdale, FL and Chicago, IL campuses. The Company expects to have no significant continuing involvement with these locations after the respective sale or teach-outs are completed. The results of operations for the Sale Schools and teach-out schools are reflected within discontinued operations in the Company's Consolidated Statements of Operations for all periods presented, unless otherwise stated.

        During fiscal year 2011, we completed the teach-out of its Fife, WA and Toronto (Central), Ontario campuses. Accordingly, the results of operations of the campuses are reflected as discontinued operations in our consolidated statements of operations for all prior periods presented.

        We categorize our expenses as educational services, general and administrative, and marketing and admissions. Educational services expenses primarily consist of those costs incurred to deliver and administer the education programs at the colleges, including faculty and college administration compensation; college facility rent and other occupancy costs; bad debt expense; education materials and supplies; bookstore and classroom expenses; depreciation and amortization of college property and equipment; default management expenses and financial aid processing costs.

        General and administrative expenses consist principally of those costs incurred at the campus support center and regional level in support of college operations, except for marketing and admissions related costs. Included in general and administrative expenses are costs relating to executive management, campus support center staff and regional operations management compensation; depreciation and amortization of corporate property and equipment and certain intangibles; rent and other occupancy costs for campus support center; and other expenses incurred at campus support center.

        Marketing and admissions expenses include compensation for college admissions staff, regional admissions personnel, compensation expenses for marketing management, and all direct marketing and production costs.

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        The following table summarizes our operating results as a percentage of net revenues for the periods indicated.

Year Ended June 30, 2012 Compared to Year Ended June 30, 2011

        Net Revenues.    Net revenues decreased $178.6 million or 10.0% from $1,784.1 million in fiscal 2011 to $1,605.5 million in fiscal 2012. The decrease is primarily due to a 10.3% decrease in the average student population offset partially by a 0.3% increase in the average revenue rate per student during the period. The decline in average student population was largely due to our decision to limit the enrollment of ATB students beginning in fiscal 2011. At June 30, 2012, student population increased 1.1% to 91,460 compared with 90,507 at June 30, 2011. Total student starts decreased 5.2% to 110,155 for the year ended June 30, 2012 when compared to the prior year.

        Educational Services.    Educational services expenses include direct operating expenses of the schools consisting primarily of payroll and payroll related expenses, rents, occupancy, supplies expenses, bad debt expense and other educational related expenses. Educational services expenses decreased $72.3 million or 6.9% from $1,046.5 million in fiscal 2011 to $974.2 million in fiscal 2012. As a percentage of net revenues, educational services expenses increased from 58.7% of revenues in fiscal 2011 to 60.7% of revenues in fiscal 2012. The increase was primarily due to an increase in compensation expense and facility expense as a percent of revenue, partially offset by improved bad debt expense. The increase as a percentage of revenues was due to lower revenue which resulted in a lower level of utilization of our staff and facilities in fiscal 2012 as compared to fiscal 2011. As the costs of operating our facilities are largely fixed in nature, this lower level of capacity utilization negatively affects educational services expenses as a percentage of revenues. Bad debt expense amounted to $52.2 million and 3.3% of net revenue in fiscal 2012 compared to $95.6 million and 5.4% of net revenue in fiscal 2011. The improvement in bad debt expense is primarily the result of continued efficiencies in packaging students with financial aid as a result of bringing processing in-house.

        General and Administrative.    General and administrative expenses include corporate compensation expenses, headquarters office rents and occupancy expenses, professional fees and other support related

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expenses. General and administrative expenses decreased $29.5 million or 14.4% from $205.1 million in fiscal 2011 to $175.6 million in fiscal 2012. As a percentage of net revenues, general and administrative expenses decreased from 11.5% in fiscal 2011 to 11.0% in fiscal 2012.

        Marketing and Admissions.    Marketing and admissions expenses consist primarily of direct-response and other advertising expenses, payroll and payroll related expenses, promotional materials and other related marketing costs. Marketing and admissions expenses increased $6.3 million or 1.6% from $389.0 million in fiscal 2011 to $395.3 million in fiscal 2012. As a percentage of net revenues, marketing and admissions expenses increased from 21.8% in fiscal 2011 to 24.6% in fiscal 2012. The increase was primarily attributable to an increase in advertising costs due to an increase in advertising spend per start offset partially by a decrease in compensation expense. The total cost per start increased $241 or 7.2% from $3,347 in fiscal 2011 to $3,588 in fiscal 2012.

        Impairment, Facility Closing and Severance Charges.    Impairment, Facility Closing and Severance Charges decreased from $220.1 million in fiscal 2011 to $18.3 million in fiscal 2012. In fiscal 2011 we incurred a goodwill impairment charge of $203.6 million, severance of $9.6 million and recorded an impairment loss of $6.9 million related to the sale of a portion of our portfolio of student loans. During fiscal 2012, we incurred severance of $9.1 million, an impairment charge of $7.1 million, and recorded an impairment loss on long-lived assets of approximately $2.1 million related to the teach-outs of our Arlington and Decatur campuses.

        Provision for Income Taxes.    We recorded a tax provision of $7.0 million on our pretax income from continuing operations of $23.2 million for an effective tax rate of 30.2% in fiscal 2012 compared to $25.3 million tax provision on our $80.8 million pretax loss from continuing operations and negative effective rate of 31.3% in fiscal 2011. The change in our effective tax rate was due to $2.0 million in tax benefits recognized in fiscal 2012 related to return to provision adjustments associated with prior year meals and entertainment deductions and tax credit carryovers and $146.0 million of goodwill impairment charges in fiscal 2011 which were not deductible for tax. Excluding the $2.0 million of tax benefits from return to provision adjustments related to prior year meals and entertainment deductions and tax credit carryovers, the effective tax rate in fiscal 2012 was 38.8%. Excluding the impairment charge related to non-deductible goodwill, the effective tax rate for fiscal 2011 was 38.8%.

Year Ended June 30, 2011 Compared to Year Ended June 30, 2010

        Net Revenues.    Net revenues increased $126.1 million, or 7.6%, from $1,658.0 million in fiscal 2010 to $1,784.1 million in fiscal 2011. The increase is primarily due to a 6.9% increase in the average student population and a 0.6% increase in the average revenue rate per student during the period. The increase in the average student population is primarily due to the full year impact of the Heald acquisition. At June 30, 2011, student population was 90,507 compared with 105,494 at June 30, 2010. Total student starts decreased 9.9% to 116,206 for the year ended June 30, 2011 when compared to the prior year. As of June 30, 2011 and 2010, we operated 114 and 108 colleges, respectively.

        Educational Services.    Educational services expenses include direct operating expenses of the schools consisting primarily of payroll and payroll related expenses, rents, occupancy, supplies expenses, bad debt expense and other educational related expenses. Educational services expenses increased $145.7 million, or 16.2%, from $900.8 million in fiscal 2010 to $1,046.5 million in fiscal 2011. As a percentage of net revenues, educational services expenses increased from 54.3% of revenues in fiscal 2010 to 58.7% of revenues in fiscal 2011. The increase was primarily due to an increase in compensation expense, facility costs, and student services expense. The increase in facilities costs as a percentage of revenues was a result of a lower level of utilization of our facilities in fiscal 2011 as compared to fiscal 2010. As the costs of operating our facilities are largely fixed in nature, this lower level of capacity utilization negatively affects educational services expenses as a percentage of revenues. Bad debt expense amounted to $95.6 million and 5.4% of net revenue in fiscal 2011 compared to $88.5 million and 5.3% of net revenue in fiscal 2010.

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        General and Administrative.    General and administrative expenses include corporate compensation expenses, headquarters office rents and occupancy expenses, professional fees and other support related expenses. General and administrative expenses increased $12.5 million, or 6.5%, from $192.6 million in fiscal 2010 to $205.1 million in fiscal 2011. As a percentage of net revenues, general and administrative expenses were 11.6% and 11.5% in fiscal 2010 and fiscal 2011, respectively.

        Marketing and Admissions.    Marketing and admissions expenses consist primarily of direct-response and other advertising expenses, payroll and payroll related expenses, promotional materials and other related marketing costs. Marketing and admissions expenses increased $56.4 million, or 17.0%, from $332.6 million in fiscal 2010 to $389.0 million in fiscal 2011. As a percentage of net revenues, marketing and admissions expenses increased from 20.1% in fiscal 2010 to 21.8% in fiscal 2011. The increase was primarily attributable to an increase in compensation and advertising costs due to an increase in the number of admission representatives and an increase in advertising spend per start. The total cost per start increased $769 or 29.8% from $2,578 in fiscal 2010 to $3,347 in fiscal 2011.

        Impairment, Facility Closing and Severance Charges.    During the second quarter of 2011 we incurred a goodwill impairment charge of $203.6 million. See the Critical Accounting Policies and Estimates section for further discussion regarding the factors leading to the impairment loss and the valuation methodologies and assumptions used in the goodwill impairment test. If we experience a further decline in the market price of our stock, we could incur further impairment charges related to goodwill and other intangible assets in the future. Additionally, we recorded and paid severance of $9.6 million and recorded an impairment loss of $6.9 million related to the sale of a portion of our portfolio of student loans during fiscal 2011.

        Provision for Income Taxes.    We recorded a tax provision of $25.3 million on our pretax loss from continuing operations of $80.8 million for a negative effective tax rate of 31.3% in fiscal 2011 compared to 39.5% in fiscal 2010. The change in our effective tax rate was due to $146.0 million of goodwill impairment which was not deductible for tax. Excluding the impairment charge related to non-deductible goodwill, the effective tax rate for fiscal 2011 was 38.8%.

Seasonality and Other Factors Affecting Quarterly Results

        Our revenues normally fluctuate as a result of seasonal variations in our business. Student population varies as a result of new student enrollments and student attrition. Historically, our colleges, schools and training centers have had lower student populations in the first fiscal quarter than in the remainder of the year. Our expenses, however, do not vary as significantly as student population and revenues. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change, however, as a result of acquisitions, new branch openings, new program adoptions and increased enrollments from recent high school graduates. The operating results for any quarter are not necessarily indicative of the results for any future period. See the footnote entitled "Selected Quarterly Financial Summary (Unaudited)" of the Consolidated Financial Statements included elsewhere herein.

Liquidity and Capital Resources

        On May 17, 2012, we entered into a Fourth Amended and Restated Credit Agreement (the "Credit Facility") with Bank of America, N.A., which replaces the credit facility that was set to expire in October 2012. The Credit Facility, which expires July 1, 2015, provides aggregate commitments including borrowings and letters of credit of up to $145 million, of which $135 million is a domestic facility, and $10 million is a Canadian facility. The Credit Facility 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 $7.5 million for Canadian letters of

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credit. The Credit Facility is secured by guaranties from the Company and each of its subsidiaries, as well as a first priority lien on substantially all of the tangible and intangible assets of the Company and its subsidiaries, including real property.

        The following table summarizes the terms of the Credit Facility and its status as of June 30, 2012:

        The Credit Facility contains customary affirmative and negative covenants, including financial covenants requiring the maintenance of consolidated net worth, fixed charge coverage ratios, leverage ratios, and the U.S. Department of Education ("ED") financial responsibility composite score. As of June 30, 2012, we were in compliance with all of the covenants.

        Long-term debt at June 30, 2011 also included a term loan credit facility (the "Mortgage Facility") dated March 24, 2009 between the Company's wholly-owned subsidiary, Heald Real Estate, LLC ("Heald Real Estate"), and Bank of America, N.A. ("B of A") that was secured by real estate of Heald Real Estate and guaranteed by Heald Capital, LLC and Heald Education, LLC (the "Heald Guarantors"). During the third quarter of fiscal 2012, the Company completed the sale-leaseback of five Heald Real Estate properties. We used a portion of the proceeds to repay all mortgages held on these properties of approximately $14.7 million.

        Working capital amounted to $69.8 million as of June 30, 2012 and $208.3 million as of June 30, 2011 and the current ratio was 1.2:1 in fiscal 2012 and 1.9:1 in fiscal 2011. Average daily borrowings outstanding amounted to approximately $110.1 million in fiscal 2012, $203.3 million in fiscal 2011 and $57.8 million in fiscal 2010. The decrease in working capital compared to June 30, 2011 is primarily due to the reduction in borrowing capacity under the credit facility and corresponding repayment of cash borrowed for purposes of calculating our ED financial responsibility score as of year-end, a decrease in accounts receivable and an increase in prepaid tuition, partially offset by an increase in prepaid expenses and a decrease in accounts payable.

        Cash flows provided by operating activities amounted to $152.8 million in fiscal 2012 compared to $15.0 million in fiscal 2011 and to $204.3 million in fiscal 2010. The increase in cash provided by operating activities in fiscal 2012 compared to fiscal 2011 was primarily due to an increase in cash provided by working capital of $138.5 million. The change in working capital was primarily due to the Company not drawing down approximately $87.0 million of Title IV funds as of June 30, 2011 (which was subsequently collected in July 2011) and the timing of cash receipts and payments. Included in cash flows from operating activities are ($7.9) million, $0.2 million, and $9.8 million of net cash (used in) provided by operating activities related to discontinued operations for fiscal 2012, 2011 and 2010 respectively.

        Cash flows used in investing activities amounted to $2.9 million in fiscal 2012, $110.7 million in fiscal 2011 and $430.8 million in fiscal 2010. The decrease in cash used in investing activities during fiscal 2012 compared to fiscal 2011 is attributable to a decrease in in capital expenditures of $68.5 million in fiscal 2012 compared to fiscal 2011 and to net cash received during the sales-leaseback transaction.

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        Capital expenditures amounted to $42.2 million in fiscal 2012, $110.7 million in fiscal 2011 and $83.5 million in fiscal 2010. Capital expenditures were incurred to build, relocate, remodel and enlarge campuses. During fiscal 2012, we incurred capital expenditures to build 2 new campuses, relocate 1 campus and to enlarge or remodel 32 campuses. During fiscal 2011, we incurred capital expenditures to build 6 new campuses, relocate 1 campus and to enlarge or remodel 28 campuses. And during fiscal 2010, we incurred capital expenditures to build 2 campuses, relocate 1 campus and to enlarge or remodel 32 campuses. Capital expenditures of approximately $10.4 million, $19.3 million and $20.8 million were incurred to purchase and to develop software in fiscal 2012, fiscal 2011 and fiscal 2010, respectively. The capital expenditures related to discontinued operations for fiscal 2012, 2011 and 2010 were $1.4 million, $3.1 million, and $3.0 million, respectively.

        Cash flows (used in) provided by financing activities amounted to ($184.4) million in fiscal 2012, ($7.1) million in fiscal 2011, and $275.2 million in fiscal 2010. During fiscal 2012, cash used in financing activities consisted of a net repayment of borrowings of $195.4 million and deferred fees for new line of credit of $2.7 million, partially offset by net proceeds from borrowing under student notes receivable sale agreement of $13.0 million and proceeds from the exercise of stock options and the Employee Stock Purchase Plan of $0.7 million. During fiscal 2011, cash used in financing activities consisted of a $25.0 million treasury stock purchase, partially offset by net proceeds from borrowings of $16.5 million, and proceeds from the exercise of stock options and the Employee Stock Purchase Plan of $1.4 million. During fiscal 2010, cash provided by financing activities consisted of net borrowings of $262.2 million, proceeds from the exercise of stock options and the Employee Stock Purchase Plan of $11.5 million, and the excess tax benefit from share-based compensation of $1.6 million.

        Historically, we had developed several third party loan programs with origination and servicing providers such as Sallie Mae for students with low credit scores who otherwise would not qualify for loans. These loan programs required that we pay a discount fee to the origination and servicing providers of the loans as a reserve against future defaults on these loans. We have historically referred to these types of loans as "discount loans," since we incurred a portion of the default risk related to these student loans by taking a discount on the disbursement. By accepting a reduced payment for these discounted loans from the servicing providers, we were not at risk for the amounts agreed to by them and the service providers but were not entitled to any proceeds collected by the service providers in excess of this amount. Therefore we had recorded this discount as a reduction to revenue.

        In 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, Genesis Lending Services, Inc. ("Genesis"), which specializes in subprime credit. Under this Genesis program we paid a discount to the origination and servicing provider for any loans purchased by Genesis and recorded the discount as a reduction to revenue. Under this program we then had both the right and an obligation to acquire the related loan, except in certain limited circumstances where Genesis does not comply with the terms of the agreement. Since we initiated the Genesis program, we have acquired all of the loans that have been originated. Therefore, we are exposed to any credit defaults by students but retain all amounts collected from the students under this program.

        On June 29, 2011, we entered into a loan origination agreement, as amended with ASFG, LLC ("ASFG") for the purpose of creating a new private education discount loan program for students. Under the loan origination agreement, ASFG has agreed to purchase up to $775 million of new student loans through June 2015. Under this agreement, an unaffiliated bank will make private education loans to eligible students and, subsequently, sell those loans to ASFG or its designee. Total losses associated with the program recourse, inclusive of the discount paid to ASFG, are estimated to be approximately 50% of the amount funded. During the second quarter of fiscal 2012, we completed the transition from the Genesis discount loan program to the ASFG discount loan program. We estimate loans funded

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under the Genesis discount loan program, net of refunds, have been approximately $59.8 million for fiscal year 2012. Loans funded under the ASFG program, net of estimated refunds, are estimated to have been approximately $125.3 million for fiscal year 2012.

        This ASFG loan program has characteristics similar to the previous third party "discount loan" programs. As with the previous discount third party loan programs, under the ASFG program we pay a discount to ASFG for any loans purchased by ASFG and record the discount as a reduction to revenue ratably over the program length as the related revenue is recognized. However, unlike the previous third party discount loan programs, pursuant to a backup loan purchase agreement entered into in connection with the loan origination agreement, we will be obligated to purchase any of the student loans on which no payment has been made for over 90 days. We have applied historical loan performance experience to estimate and record this loan recourse obligation on a gross basis by recording both a deferred charge and liability equal to the estimated risk upon funding. The recourse liability is established at the inception of the guarantee. The deferred charge is recorded within prepaid expenses and is recognized as a reduction to revenue over the period of instruction. The total deferred charge related to unrecognized discount expense is $29.4 million as of June 30, 2012. The recourse liability is recorded within accrued expenses. Upon recourse we will repurchase any loans at the amount advanced by ASFG net of any discount paid to ASFG, less any principal payments collected by ASFG. The purchase will be recorded as a decrease to cash, an increase to student notes receivable, and a reduction to the recourse liability. The recourse liability related to the loans funded under the ASFG program at June 30, 2012 was $7.8 million, net of recourse paid. This recourse liability is in addition to the discount paid to ASFG and is based upon the ultimate anticipated default. We estimate loan performance based upon actual repayment experience with similar private student loan programs. Under this backup loan purchase agreement, our maximum obligation (including the initial discount payment) could be equal to the face amount of loans originated under this loan program, although we expect the ultimate risk under this loan program to be substantially similar to the risks faced under the Genesis discount loan program.

        Cash flows associated with the ASFG discount fee, net of refunds, are recorded as a cash outflow from prepaid expenses within cash flows from operating activities in the amount of $49.6 million for fiscal year ended June 30, 2012.

        Cash flows associated with loans funded under the ASFG loan program, net of refunds, are recorded as a cash inflow from prepaid tuition within cash flows from operating activities in the amount of $120.1 million for fiscal year ended June 30, 2012.

        Recourse payments to ASFG are recorded as a cash outflow from student notes receivable within cash flows from operating activities. Recourse payments to ASFG have been $4.7 million for fiscal year ended June 30, 2012.

        Net revenues recognized related to the ASFG program have been $36.1 million, net of discount expense; cash flows have been a net inflow of $52.4 million for fiscal year ended June 30, 2012.

        Included within the Consolidated Statement of Operations, under the caption "Other (income) expense," for fiscal years ended June 30, 2012, 2011 and 2010 is net other (loss) income of ($11.7) million, $3.3 million, and $3.9 million, associated with the student notes program, respectively.

Genesis Program

        The net other expense (income) primarily reflects the interest income, loan origination fees, and costs related to servicing loans. We defer and recognize both the loan origination income and direct loan origination costs as an adjustment to the yield over the life of the related loan. All other lending-related costs, including costs related to servicing fees are charged to expense as incurred. Net other

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expense includes $5.5 million, $3.3 and $3.9 million associated with the Genesis notes program, for fiscal years ended June 30, 2012, 2011, and 2010 respectively.

ASFG Program

        The net other expense (income) primarily reflects the program structuring fees, management fees, and other fees charged by ASFG. We defer and recognize program structuring and management fees over the program length. All other fees are charged to expense as incurred. For fiscal year 2012, there was net other expense of $6.2 million associated with the ASFG notes program. Total fees paid to ASFG have been $13.4 million, of which $11.2 million are deferred as of June 30, 2012. Total program fees expected to be incurred over the program length are expected to be $8 to 10 million per year in incremental cost above those historically incurred under the Genesis program.

        We believe that our working capital, cash flow from operations, access to operating leases and borrowings available from our amended credit agreement will provide us with adequate resources for our ongoing operations and planned capital expenditures through fiscal 2013.

Off-Balance Sheet Arrangements and Contractual Obligations

        As of June 30, 2012, future minimum cash payments due under contractual obligations, including our credit agreement, borrowings under student notes receivable sale agreement, and non-cancelable operating and capital lease agreements, are as follows:

        ED requires that Title IV Program funds collected in advance of student billings be kept in a separate cash or cash equivalent account until the students are billed for the program portion related to those funds. In addition, all Title IV Program funds received by our schools through electronic funds transfer are subject to certain holding period restrictions. These funds are also deposited into a separate account until the restrictions are satisfied. As of June 30, 2012, we held nominal amounts of such funds in separate accounts. The restrictions on any cash held have not significantly affected our ability to fund daily operations.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to the impact of interest rate changes and foreign currency fluctuations. We do not utilize interest rate swaps, forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments to manage these risks.

        Interest Rate Exposure.    As of June 30, 2012, our only assets or liabilities subject to risks from interest rate changes are (i) debt under the credit facility in the aggregate amount of $123.1 million and capital lease obligations of $12.9 million, and (ii) student notes receivable, net, in the aggregate

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amount of $102.9 million. Our capital lease obligations and student notes receivable are all at fixed interest rates. We do not believe we are subject to material risks from reasonably possible near-term changes in market interest rates.

        Foreign Currency Exposure.    A portion of our operations consists of an investment in a foreign subsidiary whose functional currency is the Canadian dollar. Our investment in our foreign operations as of June 30, 2012 was a deficit of approximately CAD $29.4 million and we had borrowings outstanding under the credit facility of approximately CAD $5.0 million. As a result, the consolidated financial results have been and could continue to be affected by changes in foreign currency exchange rates.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The following financial statements of the Company and its subsidiaries are included below on pages 96-144 of this report:

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
Corinthian Colleges, Inc. and subsidiaries

        We have audited the accompanying consolidated balance sheets of Corinthian Colleges, Inc. and subsidiaries (the Company) as of June 30, 2012 and 2011, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Corinthian Colleges, Inc. and subsidiaries at June 30, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2012, in conformity with U.S. generally accepted accounting principles.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Corinthian Colleges, Inc. and subsidiaries internal control over financial reporting as of June 30, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 24, 2012 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Orange County, California
August 24, 2012

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

   

The accompanying notes are an integral part of these consolidated financial statements.

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

   

The accompanying notes are an integral part of these consolidated financial statements.

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

   

The accompanying notes are an integral part of these consolidated financial statements.

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

   

The accompanying notes are an integral part of these consolidated financial statements.

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2012

Note 1—Description of the Business and Summary of Significant Accounting Policies

Description of the Business

        Corinthian Colleges, Inc. (the "Company"), a Delaware corporation, was formed in October 1996 during a reorganization transaction with a predecessor company which was accounted for as a recapitalization.

        As of June 30, 2012, the Company operated 100 colleges in 26 states and 16 colleges in the Ontario, Canada province in the for-profit, post-secondary education industry. All of the Company's U.S. schools are accredited and grant either diplomas or degrees (associate's, bachelor's and master's) and offer educational opportunities from an extensive and diverse curricula library with an emphasis on four primary concentrations: allied health, business, technology, and criminal justice. All of the Canadian schools grant diplomas and are regulated by the provincial ministry of education responsible for registering or licensing the for-profit educational institutions. The Company also offers an online learning alternative available to students pursuing education exclusively online. Revenues generated from the Company's schools consist primarily of tuition and fees paid by students. To pay for a substantial portion of their tuition, the majority of students in the United States rely on funds received from federal financial aid programs under Title IV ("Title IV Programs") of the Higher Education Act of 1965, as amended ("HEA"). For further discussion, see Concentration of Risk below and the footnote describing Governmental Regulation.

        On January 4, 2010 the Company completed its acquisition of Heald Capital, LLC, a Delaware limited liability company ("Heald") for consideration of $395 million. Heald, through its subsidiaries, operates Heald College, a regionally accredited institution that prepares students for careers in healthcare, business, legal, information technology, and other growing fields, primarily through associate degree programs. Heald College operates 12 campuses and its results are included in the Consolidated Financial Statements from the date of acquisition.

Fiscal Year

        Each fiscal year ends June 30.

Principles of Consolidation

        The accompanying consolidated financial statements include the accounts of Corinthian Colleges, Inc. and each of its wholly owned subsidiaries. All intercompany activity and balances have been eliminated in consolidation.

Reclassifications

        Certain prior year amounts have been reclassified to conform to the current year presentation.

Financial Statement Estimates

        The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. Such estimates and assumptions affect the amounts reported and disclosed in the financial statements. Actual results could differ from estimated amounts.

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JUNE 30, 2012

Note 1—Description of the Business and Summary of Significant Accounting Policies (Continued)

Cash and Cash Equivalents

        The Company invests cash in excess of operating requirements in short-term time deposits, money market instruments and other investments. Securities with maturities of three months or less at the date of purchase are classified as cash equivalents.

Fair Value of Financial Instruments

        The carrying value of cash and cash equivalents approximates fair value at June 30, 2012 and 2011. In addition, the carrying value of all borrowings approximates fair value at June 30, 2012 and 2011. The student notes receivable, net, balances are presented within current and non-current assets on the consolidated balance sheets. It is not practicable to estimate the fair value of these financial instruments, since observable market data is not readily available, and no reasonable estimation methodology exists.

Allowance for Doubtful Accounts

        The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability, failure or refusal of its students to make required payments. The Company determines the adequacy of this allowance by regularly reviewing the accounts and notes receivable agings and applying various expected loss percentages to certain aged balances based upon historical bad debt experience and consideration of the current economic environment. The Company generally will write-off accounts and notes receivable balances deemed uncollectible. The Company offers a variety of payment plans to help students pay that portion of their education expense not covered by financial aid programs. These balances are unsecured and not guaranteed.

Property and Equipment

        Property and equipment are stated at cost and are being depreciated or amortized utilizing the straight-line method over the following estimated useful lives:

Internal Software Development Costs

        The Company capitalizes certain internal software development costs in accordance with accounting guidance which states that costs are amortized using the straight-line method over the estimated lives of the software. Capitalized costs include external direct costs of materials and services consumed in developing or obtaining internal-use software, and payroll-related costs for employees directly associated with the internal software development project. Capitalization of such costs ceases at the point at which the project is substantially complete and ready for its intended purpose. Maintenance and repairs are expensed as incurred. The unamortized computer software costs which are included within the Property and Equipment caption of the Consolidated Balance Sheets were

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JUNE 30, 2012

Note 1—Description of the Business and Summary of Significant Accounting Policies (Continued)

$63.0 million and $65.7 million at June 30, 2012 and 2011, respectively. The total amount of amortization expense related to capitalized computer software costs recognized within operating expenses on the Consolidated Statements of Operations was $8.5 million, $6.6 million, and $5.8 million at June 30, 2012, 2011, and 2010, respectively.

Long-Lived Assets

        The Company evaluates the recoverability of its long-lived assets other than goodwill and indefinite-lived intangible assets in accordance with accounting guidance which requires the recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. The Company assesses the recoverability of its long-lived assets on an annual basis or whenever adverse events or changes in circumstances or the business climate indicate that expected undiscounted future cash flows related to such long-lived assets may not be sufficient to support the net book value of such assets. If undiscounted cash flows are not sufficient to support the recorded assets, impairment is recognized to reduce the carrying value of the long-lived assets to the estimated fair value. Cash flow projections, although subject to a degree of uncertainty, are based on trends of historical performance and management's estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. Additionally, in conjunction with the review for impairment, the remaining estimated lives of certain of the Company's long-lived assets are assessed.

Goodwill and Other Intangible Assets

        Goodwill represents the excess of the cost over the fair market value of net assets acquired, including identified intangible assets. The Company considers a number of factors, including valuations and appraisals from independent valuation firms, in determining the amounts that are assignable to other intangible assets, such as curriculum, accreditation, and trade names. The Company, however, is ultimately responsible for the valuations. The fair value of identified intangible assets is derived using accepted valuation methodologies, including cost, market, and income approaches, as appropriate, following consultations with valuation firms and the requirements set forth by the Uniform Standards of Professional Appraisal Practice.

        The Company does not amortize goodwill, accreditation, or trade names as these assets meet the indefinite life criteria within the accounting standards. Curricula are amortized over their useful lives ranging generally from five to fifteen years and the amortization is included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

        Goodwill is tested annually for impairment during the fourth quarter or earlier in the year upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not to be impaired. The testing of goodwill for impairment is required to be performed at the level referred to as the reporting unit. A reporting unit is either the "operating segment level" or one level below, which is referred to as a "component." The Company performed the goodwill impairment test one level below the operating segment level.

        Indefinite-lived intangible assets are tested annually during the fourth quarter or more frequently if circumstances indicate potential impairment, by comparing their fair values to their carrying amounts.

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JUNE 30, 2012

Note 1—Description of the Business and Summary of Significant Accounting Policies (Continued)

To the extent the fair value of an intangible asset is less than its carrying amount, an impairment charge is recorded in the consolidated statements of operations. Such testing would include estimating the future cash flows expected to be received from the assets and comparing them to their carrying values. If the estimate of the present value of these future cash flows was below the carrying values of the related assets, the Company would consider the assets to be impaired and take a charge to write down those assets to fair value.

        The determination of estimated useful lives of definite-lived intangible assets and whether or not intangible assets are impaired involves significant judgment. Although the Company believes the goodwill and intangible assets are fairly stated, changes in strategy or market conditions could significantly impact these judgments and require adjustments to asset balances.

Income Taxes

        The Company accounts for income taxes in accordance with accounting guidance which prescribes the use of the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax laws. Additionally, the Company employs a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

        The Company currently has deferred income tax assets which are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. Realization of the deferred income tax assets is principally dependent upon achievement of projected future taxable income offset by deferred income tax liabilities. The Company evaluates the realizability of the deferred income tax assets annually. In addition, the Company reviews the income tax filing positions quarterly and updates the tax contingency reserves as necessary.

Foreign Currency Translation

        The financial position and results of operations of the Company's Canadian subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of the Canadian subsidiaries are translated to U.S. dollars using exchange rates in effect at the balance sheet dates. Income and expense items are translated at monthly average rates of exchange. The resultant translation adjustments are included as a component of Stockholders' Equity designated as Accumulated Other Comprehensive Income. Exchange gains and losses arising from transactions denominated in a currency other than the functional currency are immediately recognized in earnings.

Accumulated Other Comprehensive Income

        The cumulative translation gain balance for the total operations of the Company included within other comprehensive (loss) income is $2.4 million, $2.0 million, and $1.1 million as of June 30, 2012, 2011 and 2010, respectively. The cumulative other post-employment benefit deferred tax balance for the total operations of the Company included within other comprehensive (loss) income is ($0.3) million, ($0.4) million, and ($0.5) million as of June 30, 2012, 2011 and 2010, respectively.

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JUNE 30, 2012

Note 1—Description of the Business and Summary of Significant Accounting Policies (Continued)

Revenue Recognition, Accounts Receivable and Prepaid Tuition

        Revenues consist primarily of tuition and fees derived from courses taught in the Company's colleges and schools. Revenues from tuition and fees are recognized pro-rata (on a straight-line basis) over the relevant period attended by the student of the applicable course or program. If a student withdraws from a course or program, the paid but unearned portion of the student's tuition is refunded. Refunds are calculated and paid in accordance with applicable federal, state and institutional refund policies. Textbook sales and other revenues are recognized as sales occur or services are performed and represent less than 10% of total revenues. Prepaid tuition is the portion of payments received but not earned and is reflected as a current liability in the accompanying consolidated balance sheets as such amounts are expected to be earned within the next year.

        Students attending the Company's institutions enroll in either (i) diploma programs, which cover a specific area of training over a discrete length of time (averaging nine months for such programs, including any externships) or (ii) "courses" leading to an associate's, bachelor's or master's degree. Costs of "programs" or credit hours for "courses" are clearly identified in the Company's enrollment agreements. At the start of each student's respective "program" or "course" of study leading to a degree, the student executes an enrollment agreement which specifies the field of study, the expected length of study, and the cost of the program or course. The Company recognizes revenue from tuition and fees on a straight-line basis over the relevant period attended by the student of the applicable course or program of study. If a student withdraws from an institution, the Company ceases recognition of revenue and the paid but unearned portion of the student's tuition is refunded. Additionally, to ensure the delivery of education has occurred, either attendance is taken or academic events are monitored at appropriate intervals to ensure that the student is completing his or her respective field of study within the acceptable time period.

Accounts Receivable

        Accounts receivable represent non-interest bearing trade receivables due from students. The amounts are expected to be settled with Title IV funds or other sources of financing within twelve months. These balances are unsecured and not guaranteed by any third party.

Student Notes Receivable

        Student notes receivable represent student loans extended pursuant to a promissory note or retail installment contract that contain specific repayment terms and conditions and generally cannot be discharged in bankruptcy. These balances are also unsecured and not guaranteed by any third party.

        Student notes receivable represents loans that have maturity dates that generally range between 12 to 60 months from the loan origination date but can have terms as long as 15 years depending on amounts borrowed. The average interest rate on all outstanding loans is 8.1% as of June 30, 2012. Interest income is recognized on the effective interest method. Origination fees are recognized over the weighted average loan life. Interest income and origination fees are recorded within non-operating (income) expense within the Consolidated Statement of Operations. Revenues related to the issuance of such notes are recognized over the student's applicable course or program period at the net amount

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JUNE 30, 2012

Note 1—Description of the Business and Summary of Significant Accounting Policies (Continued)

expected to be collected on such notes. Adjustments to our estimate of collectability of the notes are recorded as an adjustment to discount expense within revenue.

Educational Services

        Educational services include the direct operating expenses of the schools consisting primarily of payroll and payroll related expenses, rents, occupancy and supplies expenses, bad debt expense, and other educational related expenses.

Marketing and Admissions

        Marketing and admissions expenses consist primarily of direct-response and other advertising expenses, payroll and payroll related expenses, promotional materials and other related marketing costs. Advertising costs are charged to expense as incurred except for brochures and media production costs. The brochures and media production costs are recorded as prepaid expenses and charged to expense as consumed or upon the first airing of the advertisement, respectively. Advertising expenses amounted to approximately $167.6 million, $155.6 million, and $145.5 million for the years ended June 30, 2012, 2011 and 2010, respectively.

Insurance/Self-Insurance

        The Company uses a combination of insurance and self-insurance for a number of risks including claims related to employee health care, workers' compensation, general liability, and business interruption. Liabilities associated with these risks are estimated based on, among other things, historical claims experience, severity factors and other actuarial assumptions. The Company's loss exposure related to self-insurance is limited by stop loss coverage. The expected loss accruals are based on estimates, and while the Company believes the amounts accrued are adequate, the ultimate loss may differ from the amounts provided.

        The campus locations of Houston (Hobby) and Houston (Bissonett) suffered damage as a result of Hurricane Ike in September 2008. At the time of the event, the Company had business interruption and property damage coverage for these locations. During fiscal 2010, the Company recovered approximately $3.2 million in business interruption and property damage insurance that has been recognized within educational services expense in the Consolidated Statements of Operations.

Post Retirement Benefit Obligation

        The Company provides certain post-retirement benefits to a limited number of its previous employees and their families, which the Company recognizes the funded status of such plans as an asset or liability, with changes in the funded status recognized through comprehensive income in the year in which they occur.

Stock-Based Compensation

        Stock-based compensation cost for our equity instruments exchanged for employee and director services is measured at the date of grant, based on the calculated fair value of the grant and is recognized as an expense on a straight-line basis over the period of time that the grantee must provide

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services to us before the stock-based compensation is fully vested. The vesting period is generally the period set forth in the agreement granting the stock-based compensation.

Income Per Share

        The Company computes basic net income per common share by dividing income attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing income attributable to common stockholders by the weighted average number of common shares outstanding plus the effect of dilutive stock options and restricted stock units, utilizing the treasury stock method.

Segment Information

        The Company's operations are managed in a single reportable operating segment. The Company conducts its operations in the U.S. and Canada. Revenues and long-lived assets by geographic area are as follows:

        No one customer accounted for more than 10% of the Company's consolidated revenues or receivables. Revenues are attributed to regions based on the location of customers.

New Accounting Pronouncements

        In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2012-02 ("ASU 2012-02"), "Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." ASU 2012-02 simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. The guidance allows an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. An organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is "more likely than not" that the asset is impaired. This guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. Although

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the Company is still evaluating the impact of adopting ASU 2012-02, the Company does not believe it will have material impact on its financial condition, results of operations or disclosures.

        In June 2011, the FASB amended its guidance on the presentation of comprehensive income in financial statements to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items that are recorded in other comprehensive income. The new accounting guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. This standard is effective for the Company as of July 1, 2012 and will impact our financial statement presentation, but will not impact our results of operations, cash flows or financial condition.

Concentration of Risk

        The Company maintains its cash and cash equivalents accounts in financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. The Company performs ongoing evaluations of these institutions to limit its concentration risk exposure.

        The Company extends credit for tuition to a majority of its students. A substantial portion is repaid through the student's participation in federally funded financial aid programs. Transfers of funds from the financial aid programs to the Company are made in accordance with the U.S. Department of Education ("ED") requirements. Approximately 85.9%, 88.5% and 89.8% of the Company's U.S. revenues, on a cash basis, without the temporary relief imposed by the HEOA, were collected from funds distributed under Title IV Programs of the Higher Education Act of 1965, as amended (the "HEA") for the years ended June 30, 2012, 2011 and 2010, respectively. The financial aid and assistance programs are subject to political and budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations govern the financial assistance programs in which the Company's students participate. The Company's administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potential adverse actions including a suspension, limitation, placement on reimbursement status, or termination proceeding which could have a material adverse effect on the Company.

        If any of the Company's institutions were to lose its eligibility to participate in federal student financial aid programs, the students at that institution would lose access to funds derived from those programs and would have to seek alternative sources of funds to pay their tuition and fees. Students obtain access to federal student financial aid through an ED prescribed application and eligibility certification process. Student financial aid funds are generally made available to students at prescribed intervals throughout their predetermined expected length of study. Students typically apply the funds received from the federal financial aid programs to pay their tuition and fees. The transfer of funds is from the financial aid program to the student, who then uses those funds to pay for a portion of the cost of their education. The receipt of financial aid funds reduces the student's amounts due to the Company and has no impact on revenue recognition, as the transfer relates to the source of funding for the costs of education which may occur either through Title IV or other funds and resources available to the student.

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Note 2—Discontinued Operations

Fiscal 2012

        During fiscal 2012, the Company decided to divest two WyoTech schools located in Sacramento, CA and Daytona Beach, FL and four Everest schools located in San Francisco, CA, San Jose, CA, Hayward, CA, and Los Angeles, CA (the "Sale Schools"). The Company will continue to operate and invest in these campuses until they are sold. The campuses are available for immediate sale in their present condition, and the Company expects to complete the sales during fiscal 2013. Additionally, during fiscal year 2012, the Company completed the teach-out of the Ft. Lauderdale, FL and Chicago, IL campuses. The Company expects to have no significant continuing involvement with these locations after the respective sale or teach-outs are completed. The results of operations for the Sale Schools and teach-out schools are reflected within discontinued operations in the Company's Consolidated Statements of Operations for all periods presented, unless otherwise stated.

Fiscal 2011

        During fiscal year 2011, the Company completed the teach-out of its Fife, WA and Toronto (Central), Ontario campuses.

        The results of operations for schools held for sale and completed teach-out schools are reflected within discontinued operations in the Company's Consolidated Statements of Operations for all periods presented, unless otherwise stated.

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        Combined summary of assets and liabilities of the campuses identified above at June 30, 2012 and 2011 are as follows:

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        Prepaid expenses and other current assets consist of the following:

        Property and equipment consist of the following:

        Depreciation expense associated with property and equipment was $68.4 million, $67.2 million and $54.6 million for the years ended June 30, 2012, 2011 and 2010, respectively. The amortization for leasehold improvements included in the totals above, is approximately $19.5 million, $20.9 million and $17.3 million for the years ended June 30, 2012, 2011 and 2010, respectively. The gross cost of assets recorded under capital building leases, included above, totaled approximately $16.6 million for the years ended June 30, 2012 and 2011. The accumulated amortization related to these assets is approximately $7.7 million and $7.0 million as of June 30, 2012 and 2011, respectively. The amortization expense associated with these capital lease assets is included in total depreciation expense.

        On February 29, 2012, the Company completed a sale-leaseback of five properties for an aggregate purchase price of $39.9 million, which resulted in a gain of approximately $5.1 million. Simultaneously with the sale, Corinthian leased the five properties back for a fifteen year term at an initial aggregate

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rental rate of approximately $3.5 million per year. The Company currently operates a Heald College campus at each of the locations, and will continue to do so under the lease agreement. The Company will amortize the gain over the 15 year lease term on a straight-line basis. In addition, the Company used a portion of the proceeds to repay mortgages held on these properties of approximately $14.7 million.

        The changes in the carrying amount of goodwill for the years ended June 30, 2012 and 2011 were as follows (in thousands):

        At June 30, 2012 and 2011 the accumulated impairment losses associated with acquired goodwill was $203.6 million.

        During fiscal 2011, the Company's market capitalization suffered a substantial decline. Management believes that regulatory uncertainties, and the potential impact of new regulations, particularly regulations regarding gainful employment, had a sustained negative impact on the Company's stock price, and, consequently, the Company's market capitalization. During the second quarter of fiscal 2011, the Company's market capitalization was below book value of the Company's net assets, which the Company considered an indicator of impairment. Consequently, the Company performed an interim impairment test on goodwill and other indefinite-lived intangible assets.

        The testing of goodwill for impairment is required to be performed at the level referred to as the reporting unit. A reporting unit is either the "operating segment level" or one level below, which is referred to as a "component." The Company performed the goodwill impairment test one level below the operating segment level. The results of the interim impairment test indicated that the fair value of two of the Company's reporting units with identified goodwill of $203.6 million was less than their carrying value. The goodwill of these two reporting units relates to Everest schools located in North America. Accordingly, the Company estimated the implied fair value of the goodwill of these reporting units by allocating the fair value of the reporting unit's assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value allocated to goodwill. As a result of this analysis, the Company determined that the current fair value of the goodwill in these reporting units was $0, and accordingly recorded an impairment charge of $203.6 million, the majority of which was nondeductible for tax purposes.

        The Company determined the fair value of the reporting units using an equal weighting of an income approach, based on discounted cash flow ("DCF"), and a market-based approach. The DCF incorporated the Company's cash flow projections and a terminal value. This amount was then discounted using a weighted average cost of capital (WACC) which considered our costs of debt and

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equity. The Company then reconciled the calculated fair value of the reporting units to the Company's market capitalization, including a reasonable premium, as another consideration in assessing fair value.

        The Company believes the underlying reason for the $203.6 million impairment charge during fiscal 2011 resulted from continued uncertainty in the regulatory environment which resulted in an increase in business risk, particularly in the Everest schools. Accordingly the Company increased the WACC used in the impairment testing to reflect such risk, which reduced the present value of discounted cash flows and resulted in the impairment charge. The business risk related to the uncertainty in the regulatory environment remains an influence on the Company's stock price. However, this uncertainty has had less of an impact on the Company's operating results than originally anticipated by the market. The forecasted operating results continue to reflect the impact of discontinuing to enroll ATB students as discussed within the "Background and Overview" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations".

        The magnitude of the impairment charge is partially driven by changes in the difference between the carrying value and the fair value of accreditation. Prior to the adoption of SFAS No. 141, "Business Combinations" in July 1, 2002 the Company did not allocate value to other indefinite-lived assets. Indefinite-lived intangible assets are tested for impairment by comparing their fair values to their carrying amounts, regardless of acquisition date. Accordingly, the impairment test allocates fair market value to indefinite-lived intangible assets acquired prior to July 1, 2002 that were never assigned carrying value. This assignment of value to these indefinite-lived intangible assets for valuation purposes resulted in additional goodwill impairment as a carrying value was not allocated to these assets at the date of acquisition. Accreditation is required for an institution to be eligible to participate in the federal student financial aid programs. The process of applying for accreditation is a time intensive and expensive process, whereby an institution is required to operate without eligibility to Title IV funds for several years. The lack of access to Title IV funds creates a barrier to entry for the industry. The Company used the With and Without Method in valuing accreditation both upon acquisition and in the performance of our impairment analysis, which estimates the fair value of an asset as the present value of differential cash flows between two scenarios. The With and Without Method is essentially a buy versus build analysis. As it was applied to the fair valuation of accreditation, the "with" component reflects the present value of the "as is" cash flows, while the "without" component of the analysis assumes the initial grant of accreditation, and the hypothetical scaling of operations to the "as is" state. Historically, the Company has grown the business through acquisitions as well as through organic growth. Organic growth consists of opening new branch campuses. Branch campuses of an existing accredited institution receive immediate access to Title IV funds. As new branch campuses are opened, the projected cash flows and fair value assigned to accreditation increases. This assignment of more value to accreditation relative to the carrying value at the date of acquisition has also resulted in additional goodwill impairment.

        The average WACC, terminal growth rate, and revenue growth rate used to determine the fair value of the reporting units that incurred goodwill impairment at December 31, 2010 were 21.0%, 1.8%, and 3.6%, respectively.

        During the first quarter of fiscal 2012, the Company considered if any indicators of impairment existed at the balance sheet date. Consequently, the Company performed an interim impairment test on goodwill and other indefinite lived intangible assets. The Company believes that continued regulatory

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uncertainties, and the potential impact of new regulations have had a sustained negative impact on our stock price and current fair value. While the results of the interim impairment test did not indicate an impairment of goodwill, it did indicate that the fair value of certain intangible assets related to the WyoTech schools were impaired. The estimated fair values of WyoTech's trade names and accreditation fell below their carrying values of $14.0 million and $2.2 million, respectively, primarily due to the decline in market capitalization and the associated increase in the discount rate assumption compared to June 30, 2011. As a result, the Company recorded an impairment charge of $7.1 million, which reduced the carrying value of WyoTech's trade names to $8.6 million and accreditation to $0.5 million.

        At June 30, 2012, the remaining goodwill on the balance sheet of $197.9 million relates to the Heald reporting unit which was acquired in January 2010. The Company's annual impairment test of the Heald goodwill and of indefinite-lived intangible assets related to the Heald acquisition did not result in an impairment charge. However, impairment assessments involve significant judgments related to future revenues and earnings. For Heald, at June 30, 2012 the Company assumed a WACC of 11.7%, revenue growth rates ranging from (2.4%) to 3.4% for fiscal 2013 to 2015 and a terminal growth rate of 4%, which resulted in fair value exceeding carrying value by approximately 13.6%. These assumptions reflect the lower risk of Heald relative to the Everest schools resulting from less exposure to ATB students and to regulatory uncertainty. Although the Company believes the estimates made are reasonable and supportable in connection with the impairment analyses, changes in strategy or market conditions could significantly impact these judgments and result in future impairments.

        Should the Company's stock price remain depressed or decline further, the Company could incur additional impairment charges to write-down all or a portion of its goodwill and other intangible assets. Additionally, the fair value measure of accounting for financial instruments established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring and entity to develop it's own assumptions. The implied fair value of goodwill was determined using Level 3 inputs included in the Company's discounted cash flow valuation method.

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        Other intangibles, net consist of the following:

        Indefinite-lived intangible assets are tested annually or more frequently if circumstances indicate potential impairment, by comparing their fair values to their carrying amounts. To the extent the fair value of an intangible asset is less than its carrying amount, an impairment charge is recorded in the consolidated statements of operations. When testing for impairment, management calculates the present value of its estimates of the future cash flows expected to be received from the assets tested and compares this result to the carrying value of the assets tested. If the resulting amount was below the carrying value of the related assets, the Company would consider the assets to be impaired and take a charge to write down those assets to fair value.

        Accreditation is required for an institution to be eligible to participate in the federal student financial aid programs. The process of obtaining accreditation and access to Title IV funds is a barrier to entry for the industry. The process of applying for accreditation is a time intensive and expensive process, whereby an institution is required to operate without eligibility to Title IV funds for several years. For the 2012 fiscal year, the Company's institutions derived the majority of their revenues from Title IV programs, and the Company as a whole derived approximately 84.6% of its net U.S. revenue from Title IV Programs.

        The Company used the With and Without Method in valuing accreditation both upon acquisition and in the performance of our impairment analysis, which estimates the fair value of an asset as the present value of differential cash flows between two scenarios. As it was applied to the fair valuation of accreditation, the "With" component reflects the present value of the "as is" cash flows, while the "Without" component of the analysis assumes the initial grant of accreditation, and the hypothetical scaling of operations to the "as is" state.

        For accreditation, the current "as is" scenario derives value from cash flows projected from fiscal 2013 to fiscal 2018, with compound annual growth rates ranging from (28.4%) to 10.9% with discount

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rates ranging from 13.9% to 30.9%. After the estimated future cash flows for the "as is" and Without scenarios were determined, management calculated their respective present values and then subtracted the present value of the Without scenario from the present value of the "as is" scenario to obtain the estimated fair value of accreditation. The significant assumptions for the Without scenario include revenue compound annual growth rates ranging from 53.4% to 72.8% with discount rates ranging from 13.9% to 30.9%. Using this analysis, at June 30, 2012 the fair value of accreditation exceeded book value by a range of 8.7% to 1,134%.

        The determination of whether or not intangible assets are impaired involves significant judgment. This judgement includes estimates of student population, program mix, and pricing changes which could be affected by future regulations, or compliance with regulatory and accreditation standards. Although we believe our goodwill and intangible assets are fairly stated, changes in strategy or market conditions could significantly impact these judgments and result in future impairments.

        The Company used the relief from royalty method to estimate the fair value of trade names. Under the relief from royalty method, estimated royalty rates were selected and applied to the revenue stream generated by trade names in order to estimate the potential value of the asset, assuming that trade names would be licensed to a third-party. For Heald, the Company assumes a royalty rate of 3.0% based upon comparable licensing transactions, a discount rate of 13.9%, a tax rate of 39%, and a terminal growth rate value of 4.0%. For WyoTech, the Company assumes a royalty rate of 2.25% based upon comparable licensing transactions, a discount rate of 20.9%, a tax rate of 39% and a terminal growth rate value of 1.5%.

        Amortization expense associated with intangibles was $0.8 million, $6.6 million and $6.4 million for the years ended June 30, 2012, 2011 and 2010, respectively. Curriculum is amortized over a range of five to fifteen years. Student relationships were amortized over one year. The total remaining weighted-average amortization period for intangible assets subject to amortization is approximately 1.8 years as of June 30, 2012. Additionally, included in intangible amortization, the Company recognized non-compete agreement expense totaling approximately $0.0 million for the year-ended June 30, 2012 and $0.2 million for the years ended June 30, 2011 and 2010.

        As of June 30, 2012, estimated future amortization expense is as follows (in thousands):

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        Accrued expenses consist of the following:

Note 4—Student Notes and Accounts Receivable

        Historically, the Company had developed several third party loan programs with origination and servicing providers such as Sallie Mae for students with low credit scores who otherwise would not qualify for loans. These loan programs required that the Company pays a discount fee to the origination and servicing providers of the loans as a reserve against future defaults on these loans. The Company has historically referred to these types of loans as "discount loans," since a portion of the default risk related to these student loans by taking a discount on the disbursement is incurred. By accepting a reduced payment for these discounted loans from the servicing providers, the Company was not at risk for the amounts agreed to by them and the service providers and not entitled to any proceeds collected by the service providers in excess of this amount. Therefore the Company had recorded this discount as a reduction to revenue.

        In fiscal 2008, the Company was 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, the Company created a new lending program in the fourth quarter of fiscal 2008 with a different origination and servicing provider, Genesis Lending Services, Inc. ("Genesis"), which specializes in subprime credit. Under this Genesis program the Company paid a discount to the origination and servicing provider for any loans purchased by Genesis and recorded the discount as a reduction to revenue. Under this program the Company then had both the right and an obligation to acquire the related loan, except in certain limited circumstances where Genesis does not comply with the terms of the agreement. Since initiation of the Genesis program, the Company has acquired all of the loans that have been originated. Therefore, the Company is exposed to any credit defaults by students but retain all amounts collected from the students under this program.

        On June 29, 2011, the Company entered into a loan origination agreement, as amended with ASFG, LLC ("ASFG") for the purpose of creating a new private education discount loan program for students. Under the loan origination agreement, ASFG has agreed to purchase up to $775 million of new student loans through June 2015. Under this agreement, an unaffiliated bank will make private education loans to eligible students and, subsequently, sell those loans to ASFG or its designee. Total losses associated with the program recourse, inclusive of the discount paid to ASFG, are estimated to be approximately 50% of the amount funded. During the second quarter of fiscal 2012, the Company

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completed the transition from the Genesis discount loan program to the ASFG discount loan program. The Company estimates loans funded under the Genesis discount loan program, net of refunds, have been approximately $59.8 million for fiscal year 2012. Loans funded under the ASFG program, net of estimated refunds, are estimated to have been approximately $125.3 million for fiscal year 2012.

        This ASFG loan program has characteristics similar to the previous third party "discount loan" programs. As with the previous discount third party loan programs, under the ASFG program the Company pays a discount to ASFG for any loans purchased by ASFG and records the discount as a reduction to revenue ratably over the program length as the related revenue is recognized. However, unlike the previous third party discount loan programs, pursuant to a backup loan purchase agreement entered into in connection with the loan origination agreement, the Company will be obligated to purchase any of the student loans on which no payment has been made for over 90 days. The Company has applied historical loan performance experience to estimate and record this loan recourse obligation on a gross basis by recording both a deferred charge and liability equal to the estimated risk upon funding. The recourse liability is established at the inception of the guarantee. The deferred charge is recorded within prepaid expenses and is recognized as a reduction to revenue over the period of instruction. The total deferred charge related to unrecognized discount expense is $29.4 million as of June 30, 2012. The recourse liability is recorded within accrued expenses. Upon recourse the Company will repurchase any loans at the amount advanced by ASFG net of any discount paid to ASFG, less any principal payments collected by ASFG. The purchase will be recorded as a decrease to cash, an increase to student notes receivable, and a reduction to the recourse liability. The recourse liability related to the loans funded under the ASFG program at June 30, 2012 was $7.8 million, net of recourse paid. This recourse liability is in addition to the discount paid to ASFG and is based upon the ultimate anticipated default. The Company estimates loan performance based upon actual repayment experience with similar private student loan programs. Under this backup loan purchase agreement, the Company's maximum obligation (including the initial discount payment) could be equal to the face amount of loans originated under this loan program, although the Company expects the ultimate risk under this loan program to be substantially similar to the risks faced under the Genesis discount loan program.

        Typically, the repayment terms on student notes receivable are twelve months for each $1,000 of notes balance. The average student note balance is $2,700. The majority of loans within student notes receivable contain repayment terms of 60 months or less. Loan balances vary by program and by student, and are a function of program cost and student financial aid eligibility. The average interest rate on all outstanding loans is 8.1% as of June 30, 2012. Included in the consolidated balance sheet at June 30, 2012 and June 30, 2011 is $102.9 million and $76.9 million of notes receivable, respectively.

        During the fourth quarter of fiscal 2011, the Company sold to ASFG, on a non-recourse basis, part of its current portfolio of student loans for $24.3 million. The Company incurred an impairment charge of approximately $6.9 million associated with the sale of these loans. The impairment charge is primarily due to the write-off of imputed interest.

        During the first quarter of fiscal 2012, the Company sold student loans with a face value of $16.8 million to ASFG, on a recourse basis. The recourse provisions of this sale prevent the Company from derecognizing the underlying student loans sold. As of June 30, 2012, the Company received an advance of $10.1 million related to the sale, which has been recorded as debt on the consolidated

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balance sheet and presented as proceeds from borrowings under student notes receivable sale within financing activities in the consolidated statement of cash flows. The remaining $6.7 million of purchase price will be paid to the Company as ASFG receives student principal payments in excess of the advance. The debt and underlying student loans sold will be derecognized as ASFG receives principal payments. As of June 30, 2012, the remaining obligation is approximately $5.4 million.

        On June 29, 2012, the Company sold student loans with a face value of $25.0 million to ASFG, on a recourse basis. The recourse provisions of this sale prevent the Company from derecognizing the underlying student loans sold. As of June 30, 2012, the Company received an advance of $7.5 million related to the sale, which has been recorded as debt on the consolidated balance sheet and presented as proceeds from borrowings under student notes receivable sale within financing activities in the consolidated statement of cash flows. The remaining $17.5 million of purchase price will be paid to the Company as ASFG receives student principal payments in excess of the advance. The debt and underlying student loans sold will be derecognized as ASFG receives principal payments. As of June 30, 2012 ASFG had not collected any principal payments related to this sale and the remaining obligation is approximately $7.5 million.

        The decrease in accounts receivable at June 30, 2012 compared to June 30, 2011 was primarily due to the Company not drawing down approximately $87.0 million of Title IV funds as of June 30, 2011 (which was subsequently collected in July 2011).

        Although the Company analyzes past due receivables, it is not practical to provide an aging of non-current student receivable balances as a result of the methodology utilized in determining our earned student receivable balances. Generally, a student receivable balance is written off once it reaches greater than 180 days past due. Student notes receivables are recognized on the Company's consolidated balance sheets as they are earned over the course of a student's program and/or term, and therefore cash collections are not applied against specifically dated transactions.

        The Company monitors the credit quality of its portfolio using proprietary forecasting, which relies heavily on credit information and credit scores provided by third-party credit bureaus. These proprietary forecasting models are also based on impairment trending, delinquency trending, and population trending. The note reserve methodology is reviewed annually during the fourth quarter or earlier in the year upon the occurrence of certain events or substantive changes in circumstances that

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indicate a change to methodology is warranted. Delinquency is the main factor of determining if a loan is impaired, as loans are charged off after 270 days delinquency. Once a loan is impaired, interest no longer accrues. The income and fees earned on impaired loans was immaterial during fiscal 2012. In fiscal 2012, the Company has charged-off $68.6 million of Genesis notes net of recoveries. The charge-off is recorded as a reduction to notes receivable and a reduction to the corresponding notes receivable allowance.

        The effect of an increase in our student notes receivable allowance of 3% of our outstanding earned notes receivable from 43.6% to 46.6% or $79.5 million to $85.0 million would result in a decrease in pre-tax income from continuing operations of $5.5 million as of June 30, 2012. Recoveries for all periods presented are not material.

        Cash flows associated with the ASFG discount fee, net of refunds, are recorded as a cash outflow from prepaid expenses within cash flows from operating activities in the amount of $49.6 million for fiscal year ended June 30, 2012.

        Cash flows associated with loans funded under the ASFG loan program, net of refunds, are recorded as a cash inflow from prepaid tuition within cash flows from operating activities in the amount of $120.1 million for fiscal year ended June 30, 2012.

        Recourse payments to ASFG are recorded as a cash outflow from student notes receivable within cash flows from operating activities. Recourse payments to ASFG have been $4.7 million for fiscal year ended June 30, 2012.

        Net revenues recognized related to the ASFG program have been $36.1 million, net of discount expense; cash flows have been a net inflow of $52.4 million for fiscal year ended June 30, 2012.

        Included within the Consolidated Statement of Operations, under the caption "Other (income) expense," for fiscal years ended June 30, 2012, 2011 and 2010 is net other (loss) income of ($11.7) million, $3.3 million, and $3.9 million, associated with the student notes program, respectively.

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Note 4—Student Notes and Accounts Receivable (Continued)

Genesis Program

        The net other expense (income) primarily reflects the interest income, loan origination fees, and costs related to servicing loans. The Company defers and recognizes both the loan origination income and direct loan origination costs as an adjustment to the yield over the life of the related loan. All other lending-related costs, including costs related to servicing fees are charged to expense as incurred. Net other expense includes $5.5 million, $3.3 and $3.9 million associated with the Genesis notes program, for fiscal years ended June 30, 2012, 2011, and 2010 respectively.

ASFG Program

        The net other expense (income) primarily reflects the program structuring fees, management fees, and other fees charged by ASFG. The Company defers and recognizes program structuring and management fees over the program length. All other fees are charged to expense as incurred. For fiscal year 2012, there was net other expense of $6.2 million associated with the ASFG notes program. Total fees paid to ASFG have been $13.4 million, of which $11.2 million are deferred as of June 30, 2012. Total program fees expected to be incurred over the program length are expected to be $8 to 10 million per year in incremental cost above those historically incurred under the Genesis program.

Note 5—Business Acquisitions

Fiscal 2010

        On January 4, 2010, the Company completed its acquisition of Heald, SP PE VII-B Heald Holdings Corp., a Delaware corporation ("SP Holdings"), and SD III-B Heald Holdings Corp., a Delaware corporation ("SD Holdings"; each of SP Holdings and SD Holdings individually, a "Holding Company" and, collectively, the "Holding Companies"). The transaction was completed in accordance with a Securities Purchase and Sale Agreement, dated October 19, 2009 (the "Purchase Agreement"), by and among the Company, Heald, SP Holdings, SD Holdings, the individuals and entities set forth on Exhibit A of the Purchase Agreement (the "Sellers" and, each individually, a "Seller") and Heald Investment, LLC, a Delaware limited liability company, as the Sellers' Representative. Pursuant to the Purchase Agreement, the Company acquired all of the limited liability company membership interests in Heald ("Membership Interests") by purchasing all of the outstanding capital stock of each of the Holding Companies and by purchasing Membership Interests directly from the Sellers, for total consideration of $395 million. The consideration paid was financed via existing cash and borrowings against the Company's line of credit in the amount of $224 million. The Company believes the acquisition is strategic given the experienced management team, strong operating metrics, regional accreditation and diverse program offerings and through its expertise and financial commitments it will be able to continue to grow the student population and program offerings. The Company incurred $4.0 million in acquisition related costs which are included in general and administrative expenses in fiscal 2010.

        Heald, through its subsidiaries, operates Heald College, a regionally accredited institution that prepares students for careers in healthcare, business, legal, information technology and other growing fields, primarily through associate degree programs. Heald College operated 11 campuses and had approximately 15,447 students at June 30, 2010.

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JUNE 30, 2012

Note 5—Business Acquisitions (Continued)

        The following unaudited pro forma financial information presents the results of operations of Corinthian Colleges, Inc. and Heald as if the acquisition had occurred at the beginning of each period presented. Included within revenue and net income within the Consolidated Statement of Operations for the year-ended June 30, 2010 is $121.0 million and $8.1 million, respectively. The pro forma information is based on historical results of operations and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the combined enterprises (dollars in thousands except for per share amounts):

        The Heald acquisition yielded a $10.3 million intangible asset related to student relationships with a useful life of twelve months with actual amortization beginning January 4, 2010 and completing December 31, 2010. The student relationship is amortized on a straight-line basis and included within educational services within the Consolidated Statement of Operations. The actual results for the years-ended June 30, 2011 and 2010 contain student relationship amortization of approximately $5.2 million. Included within the pro forma information presented within operating income is student relationship amortization of $5.1 million for the year-ended June 30, 2010.

        Included within working capital at the date of acquisition was cash of $20.9 million and accounts receivable of $4.6 million, net of an allowance for doubtful accounts of $6.1 million.

Note 6—Long-Term Debt and Capital Lease Obligations

        Long-term debt and capital lease obligations consist of the following:

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Note 6—Long-Term Debt and Capital Lease Obligations (Continued)

        The Company leases certain facilities under capital leases, which require monthly lease payments of approximately $0.2 million. The leases have interest rates ranging from 7.5% to 11.7% and expire on various dates through January 2027.

        Principal payments due under the long-term debt arrangements and future minimum lease payments under the capital lease obligations discussed above are as follows:

        On May 17, 2012, the Company entered into a Fourth Amended and Restated Credit Agreement (the "Credit Facility") with Bank of America, N.A., which replaces the credit facility that was set to expire in October 2012. The amended Credit Facility, which expires July 1, 2015, provides aggregate commitments including borrowings and letters of credit of up to $145 million, of which $135 million is a domestic facility, and $10 million is a Canadian facility. The Credit Facility 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 $7.5 million for Canadian letters of credit. The Credit Facility is secured by guaranties from the Company and each of its subsidiaries, as well as a first priority lien on substantially all of the tangible and intangible assets of the Company and its subsidiaries, including real property.

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Note 6—Long-Term Debt and Capital Lease Obligations (Continued)

        The following table summarizes the terms of the Credit Facility and its status as of June 30, 2012:

        The Credit Facility contains customary affirmative and negative covenants, including financial covenants requiring the maintenance of consolidated net worth, fixed charge coverage ratios, leverage ratios, and the U.S. Department of Education ("ED") financial responsibility composite score. As of June 30, 2012, the Company was in compliance with all of the covenants.

        Long-term debt at June 30, 2011 also included a term loan credit facility (the "Mortgage Facility") dated March 24, 2009 between the Company's wholly-owned subsidiary, Heald Real Estate, LLC ("Heald Real Estate"), and Bank of America, N.A. ("B of A") that was secured by real estate of Heald Real Estate and guaranteed by Heald Capital, LLC and Heald Education, LLC (the "Heald Guarantors"). During the third quarter of fiscal 2012, the Company completed the sale-leaseback of five Heald Real Estate properties. The Company used a portion of the proceeds to repay all mortgages held on these properties of approximately $14.7 million.

Note 7—Common Stockholders' Equity

Preferred Stock

        The Company is authorized to issue 500,000 shares of preferred stock. As of June 30, 2012 and 2011, there were no outstanding shares of preferred stock.

Common Stock

        The Company's issued and outstanding common stock is entitled to one vote per share on all matters.

        Effective November 20, 2003, the Company amended and restated its certificate of incorporation to increase the number of authorized shares of common stock with a par value of $0.0001 per share to a total of 120,000,000 shares.

Employee Stock Purchase Plan

        In August 2000, the Company adopted the Corinthian Colleges, Inc. Employee Stock Purchase Plan ("ESPP"). Under the terms of the ESPP, eligible employees, as defined by the plan to include such criteria as length of employment, are permitted to purchase shares of common stock at a price equal to 90% of the fair market value on the first or last day, whichever is lower, of each six month offering period. A total of 2,000,000 shares of common stock were initially reserved for sale under the

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Note 7—Common Stockholders' Equity (Continued)

ESPP. At June 30, 2012, employees had purchased 1,369,712 shares and 630,288 shares were still available for purchase under the ESPP.

Stock Options and Restricted Stock Units ("RSUs")

        The Company maintains the Corinthian Colleges, Inc. 1998 Performance Award Plan, as amended, (the "1998 Plan"), which has been approved by the Company's stockholders. On November 20, 2003, the Company's stockholders approved the Company's 2003 Performance Award Plan, amendments and restatements of which were approved by the Company's stockholders on November 17, 2005 and November 15, 2010 and November 15, 2011 (as amended and restated, the "2003 Plan"), which authorized the issuance by the Company of up to the sum of (a) 20,550,000 additional shares of the Company's Common Stock, plus (b) the number of any shares subject to stock options granted under the 1998 Plan which expire or for any reason are cancelled or terminated without being exercised after the adoption of the 2003 Plan, plus (c) the number of any shares subject to stock options granted under the 2004 Plan which expire or for any reason are cancelled or terminated without being exercised after the termination of the 2004 Plan. When the 2003 Plan was approved by the Company's stockholders, the Company's ability to grant new awards under the 1998 Plan terminated, but did not affect awards then outstanding under the 1998 Plan. On November 17, 2004, the Company's Board of Directors also approved the Company's 2004 New Hire Plan (the "2004 Plan") (the 1998 Plan, the 2003 Plan and the 2004 Plan are collectively referred to as the "Plans"), which authorized the issuance of up to 265,000 additional shares of the Company's Common Stock, but only as an inducement material to the award recipient's entering into employment with the Company and only if the recipient was not previously an employee or director of the Company (or following a bona fide period of non-employment). When the 2003 Plan amendment and restatement was approved in November 2005, a resolution was passed by the Board of Directors that terminated the Company's ability to grant new awards under the 2004 Plan, but did not affect awards then outstanding under the 2004 Plan.

        As of June 30, 2012, the number of stock options, stock units, stock appreciation rights or other common stock-based securities available for future grant to directors, officers, employees and other eligible persons were 7,416,532 under the 2003 Plan. Options granted under the Plans were issued at exercise prices ranging from $1.89 - $33.83 per share and have expiration dates not longer than 10 years. RSUs can be settled only by delivery of the Company's Common Stock. Options and RSUs generally vest over a period of one to four years.

        The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on combining and weighting implied market volatilities and the Company's historical volatility. The Company uses historical data to estimate forfeitures and years until exercise within the valuation model. The Company's estimate of forfeitures is adjusted if actual forfeitures differ from its estimates, resulting in the recognition of compensation costs only for those awards that actually vest. If factors change and different assumptions are employed in future periods, the stock-based compensation expense that the Company records may differ from what was recorded in the previous period.

        Stock-based compensation expense of $8.9 million, $10.3 million and $14.0 million (pre-tax) were recorded for fiscal years 2012, 2011 and 2010, respectively. The tax benefit related to stock-based compensation recognized in fiscal 2012, 2011 and 2010, was $3.6, $4.1 and $5.6 million, respectively.

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Note 7—Common Stockholders' Equity (Continued)

The impact of stock-based compensation (net of tax) on fiscal years 2012, and 2011 is $0.06 and $0.07 for both basic and diluted EPS, respectively. For fiscal year 2010, the impact of stock-based compensation (net of tax) is $0.10 and $0.09 for basic and diluted EPS, respectively.

        The expected life of options granted represents the period of time for which the options are expected to be outstanding. The risk-free interest rate is derived from the U.S. treasury yield curve in effect at the date of grant. The Company's policy is not to pay cash dividends on its common stock. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option pricing model.

        A summary of the status of the Company's stock options is presented below:

        The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company's closing stock price of $2.89 as of the end of fiscal 2012, which would have been received by the option holders had all option holders exercised their options as of that date. As of the date of exercise, the total intrinsic value of options exercised in fiscal 2012, 2011, and 2010 was $0.0 million, $0.0 million, and $6.6 million, respectively.

        The weighted-average fair value of stock options granted during fiscal 2012, 2011, and 2010 was $1.08, $2.24, and $8.02 per share, respectively.

        As of June 30, 2012, there was $5.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of shares vested during fiscal year fiscal 2012, 2011 and 2010, was $8.5 million, $9.7 million and $13.7 million, respectively.

        During fiscal year 2012, the Company issued no shares in connection with the exercise of stock options. The stock options exercisable at June 30, 2012, 2011, and 2010 were 7,682,172, 7,493,844, and 6,417,778 respectively.

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Note 7—Common Stockholders' Equity (Continued)

        During fiscal 2012, the Company granted 1,452,912 RSUs with a weighted average fair value of $1.98. As of June 30, 2012, there were 1,808,959 RSUs outstanding.

Shares Reserved for Future Issuance

        At June 30, 2012, the Company has reserved the following shares of its Common Stock for issuance upon conversion of the issued and outstanding shares of the ESPP and future issuances of stock options under the 2003 Plan:

Note 8—Weighted Average Number of Common Shares Outstanding

        Basic net income per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the assumed conversion of all dilutive securities, consisting of stock options and restricted stock units.

        The table below reflects the calculation of the weighted average number of common shares outstanding used in computing basic and diluted net income per common share:

        The Company had 12.4 million, 11.3 million, and 9.8 million shares that were anti-dilutive for the fiscal years ended June 30, 2012, 2011, and 2010, respectively.

        During July 2010, the Company's Board of Directors approved a stock repurchase program under which the Company may purchase up to $200 million of its common stock. The Company plans to repurchase shares on the open market or in private transactions from time to time, depending on the company's cash balances, general business and market conditions, and other factors, including alternative investment opportunities. As of June 30, 2012 the Company had repurchased 3,917,200 shares at an average price of $6.38 under this program during fiscal year 2011. No shares were repurchased in fiscal years 2012 or 2010.

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Note 9—Income Taxes

        Geographic sources of income (loss) from continuing operations before income tax are as follows:

        The components of the income tax provision from continuing operations are as follows:

        Actual income tax provision differs from the income tax provision from continuing operations computed by applying the U.S. federal statutory tax rate of 35% for fiscal 2012, 2011 and 2010 to income before provision for income taxes as follows:

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Note 9—Income Taxes (Continued)

        The components of the Company's deferred tax asset and liability are as follows:

        The Company has acquired various companies which had net operating loss carryovers at acquisition. As of June 30, 2012, substantially all of the federal and state net operating loss carry forwards had been fully utilized. As of June 30, 2012, the Company has utilized substantially all of its Canadian non-capital loss carryovers. As of June 30, 2012, the Company has state credit carryforwards of $2.8 million of which $2.5 million do not expire. The remaining state credits begin expiring in fiscal 2016.

        The Company's current intent is to re-invest in Canada all earnings from Everest Canada. Accordingly, no deferred taxes have been provided on the Canadian un-remitted earnings.

        As of June 30, 2012 and 2011, the Company has tax deductible goodwill of $155.3 million and $172.5 million, respectively.

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Note 9—Income Taxes (Continued)

        The Company has adopted the recognition and measurement principles related to tax benefits under ASC 740. Under the standard, the Company employs a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This standard also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

        The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

        As of June 30, 2012, 2011 and 2010 the total amount of unrecognized tax benefits was $3.6 million, $3.0 million, and $3.4 million, respectively. As of June 30, 2012, 2011 and 2010, the total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, is $3.0 million, $2.7 million, and $2.7 million, respectively. The Company does not presently anticipate settlement of any uncertain tax positions matters within the next twelve months.

        The Company has classified uncertain tax positions as non-current income tax liabilities unless expected to be paid in one year. The Company reports income tax-related interest expense and penalties in income tax expense in its Consolidated Statement of Operations. For the years ended June 30, 2012, 2011 and 2010, the interest on uncertain tax positions included in the Consolidated Statement of Operations was not material As of June 30, 2012 and 2011, the total amount of accrued income tax-related interest and penalties included in the Consolidated Statement of Financial Position are not material.

        The Company may be subject to examination by the Internal Revenue Service ("IRS") for fiscal year 2011. The Company is also subject to examination in various state and foreign jurisdictions for the 2005-2011 fiscal years.

        During June 2010, the IRS contacted the Company regarding an examination of fiscal 2007, 2008 and 2009. The Company settled the examination during fiscal 2012. During fiscal 2012, the Company was examined by the IRS for fiscal 2010. During the third quarter of fiscal 2011, the Company settled a California FTB examination which included fiscal years 1999-2006. The examinations resulted in no material impact on the financial statements.

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Note 10—Impairment, Facility Closing, and Severance Charges

        In fiscal 2012, the Company incurred impairment and severance charges of $18.3 million. The charge includes intangible assets impairment charge of $7.1 million (see Note 3—Detail of Selected Balance Sheet Accounts for further discussion), severance costs of $9.1 million, and impairment of other long-lived assets of $2.1 million related to the teach-out of the Decatur GA and Arlington VA campuses. During the third quarter of fiscal 2012, the Company decided to teach-out the Decatur GA and Arlington VA campuses through fiscal 2013. The results of operations for Decatur and Arlington will remain within continuing operations in the Company's consolidated statements of operations for all periods presented. Once the respective teach-outs are completed, the campuses will be included within discontinued operations. In fiscal 2011, the Company incurred impairment and severance charges of $220.1 million. Of that amount, the Company incurred a goodwill impairment charge of $203.6 million. (See Note 3—Detail of Selected Balance Sheet Accounts for further discussion). Additionally, in fiscal 2011, the Company incurred severance costs of $9.6 million as well as an impairment of $6.9 million related to the sale of Genesis notes sold to ASFG. (See Note 4—Student Notes and Accounts Receivable for further discussion).

        The components of the charges and the related balance sheet accounts for fiscal years 2012 and 2011 were as follows (in thousands):

Note 11—Commitments and Contingencies (Continuing and Discontinued Operations)

Leases

        The Company leases most of its operating facilities and certain equipment under non-cancelable operating leases expiring at various dates through 2027. In most cases, the facility leases require the Company to pay various operating expenses of the facilities in addition to base monthly lease payments. In certain cases, the Company has renewable options and or leases containing ordinary rental

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Note 11—Commitments and Contingencies (Continuing and Discontinued Operations) (Continued)

escalations on the space. Future minimum lease payments under operating leases are as follows for the twelve months ending June 30:

        Lease expense (facility and equipment) for the fiscal years ended June 30, 2012, 2011 and 2010 amounted to $98.5 million, $91.2 million and $76.2 million, respectively, and is reflected in educational services and general and administrative expense in the accompanying Consolidated Statements of Operations.

Legal Matters

        In the ordinary conduct of its business, the Company and its subsidiaries are subject to lawsuits, demands in arbitration, investigations and other claims, including, but not limited to, lawsuits and claims involving current and former students, employment-related matters, business disputes and regulatory demands. In some of the lawsuits and arbitrations pending against the Company, including matters not disclosed below, the plaintiffs seek certification of the matter as a class action or collective action in order to represent other similarly-situated persons. Except as disclosed below, none of the matters currently pending against the Company in which plaintiffs seek class certification has yet been certified as a class action or collective action. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. Information is provided below regarding the nature of each potentially material claim where the likelihood of loss is probable or reasonably possible. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company has accrued a liability for the loss. When a loss is not both probable and estimable, the Company does not accrue a liability. Where a loss is not probable but is reasonably possible, including if a loss in excess of an accrued liability is reasonably possible, the Company determines whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim. For the matters described below, the Company has either established an accrual that is immaterial, or has determined that a loss is reasonably possible but that it is not possible to provide a reasonable estimate of the amount of loss or the range of possible losses with respect to the matter. There can be no assurance that the ultimate outcome of any of the matters threatened or pending against the Company, including those disclosed below, will not have a material adverse effect on the Company's financial condition or results of operations.

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Note 11—Commitments and Contingencies (Continuing and Discontinued Operations) (Continued)

False Claims Act Qui Tams

        On October 3, 2007, the Company was notified that a qui tam action had been filed in the U.S. District Court for the Central District of California by a former employee (the "relator") on behalf of himself and the federal government. The case was captioned United States of America, ex rel. Steven Fuhr v. Corinthian Colleges, Inc. The Company subsequently learned of two other qui tam actions filed against the Company captioned United States of America, ex rel. Nyoka Lee and Talala Mshuja v. Corinthian Colleges, Inc., et al., and United States of America, ex rel. Stephen Backhus v. Corinthian Colleges, Inc., et al., filed in the United States District Courts for the Central District of California and the Middle District of Florida, respectively. These qui tam actions alleged violations of the False Claims Act, 31 U.S.C. § 3729-33, by the Company for allegedly causing false claims to be paid, or allegedly using false statements to get claims paid or approved by the federal government, because of alleged Company violations of the Higher Education Act (the "HEA") regarding the manner in which admissions personnel are compensated. The Lee complaint also alleged causes of action for common law fraud, unjust enrichment and payment under mistake of fact against the Company, Ernst & Young LLP (the Company's Independent Registered Public Accounting Firm), and David Moore, Jack Massimino, Paul St. Pierre, Alice Kane, Linda Skladany, Hank Adler and Terry Hartshorn (all of whom are current or former directors of the Company). On March 4, 2009, the Company received written notices that the U.S. Department of Justice had declined to intervene in, or take over, these qui tam actions, and the United States District Courts in which the cases were filed unsealed the complaints. Although the government declined to intervene in these actions, the relators may continue to pursue the litigation on behalf of the federal government and, if successful, receive a portion of the federal government's recovery. Additionally, upon a showing of good cause, the government has the right to intervene in the actions at a later time. The Backhus complaint has since been voluntarily dismissed and, on August 3, 2009, the U.S. District Court issued an order dismissing the Fuhr complaint with prejudice. That dismissal was appealed, but has since been voluntarily abandoned and dismissed by the relator in that case. The Lee complaint was dismissed with prejudice by the U.S. District Court on December 4, 2009. The Lee dismissal was also appealed, and the Company opposed that appeal. On August 12, 2011, the Ninth Circuit Court of Appeal reversed the district court's dismissal, and remanded with instructions to permit the relator to amend the complaint. On December 15, 2011, the first amended Lee complaint was filed in U.S. District Court alleging violations of the False Claims Act, 31 U.S.C. § 3729 against the Company, Ernst & Young LLC, David Moore and Jack Massimino. The Company moved the U.S. District Court to dismiss the first amended Lee complaint, and the relators opposed that motion. On April 19, 2012, the District Court held that the statute of limitations bars the relators from asserting claims based on conduct prior to 2005, but otherwise denied the Company's motion to dismiss. The Company believes this remaining Lee complaint is without merit and intends to defend itself and its current and former directors vigorously.

        Additionally, the Company has received an inquiry from the same Assistant U.S. Attorney involved in reviewing the Lee matter regarding the Company's student referral practices. The Company infers, but has been unable to confirm, that this inquiry may relate to another qui tam filed under seal that is pending the government's investigation and intervention decision. Recently, the Assistant U.S. Attorney indicated he had no concerns about the student referral practices but requested additional information related to attendance procedures at two Florida campuses. The Company is cooperating and intends to respond to the request.

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Note 11—Commitments and Contingencies (Continuing and Discontinued Operations) (Continued)

        Separately, on April 24, 2012, a complaint captioned United States of America ex rel. Carolina Marion v. Heald College Inc. and Corinthian Colleges Inc. was filed under seal in the U.S. District Court for the Northern District of California. Since the complaint was filed under seal, the Company has not been able to obtain a copy of the complaint but infers that this too is a qui tam action brought under the False Claims Act.

Securities and Derivative Litigation

        On August 31, 2010, a putative class action complaint captioned Jimmy Elias Karam v. Corinthian Colleges, Inc., et al. was filed in the U.S. District Court for the Central District of California. The complaint is purportedly brought on behalf of all persons who acquired shares of the Company's common stock from October 30, 2007 through August 19, 2010, against the Company and Jack Massimino, Peter Waller, Matthew Ouimet and Kenneth Ord, all of whom are current or former officers of the Company. The complaint alleges that, in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "Act") and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission, the defendants made certain material misrepresentations and failed to disclose certain material facts about the condition of the Company's business and prospects during the putative class period, causing the plaintiffs to purchase the Company's common stock at artificially inflated prices. The plaintiffs further claim that Messrs. Massimino, Waller, Ouimet and Ord are liable under Section 20(a) of the Act. The plaintiffs seek unspecified amounts in damages, interest, attorneys' fees and costs, as well as other relief. On October 29, 2010, another putative class action complaint captioned Neal J. Totten v. Corinthian Colleges, Inc., et al. was filed by the same law firm that filed the Karam matter described above in the U.S. District Court for the Central District of California. The Totten complaint is substantively identical to the Karam complaint. Several other plaintiffs intervened in the lawsuit and petitioned the Court to appoint them to be the lead plaintiffs. On March 30, 2011, the Court appointed the Wyoming Retirement System and Stichting Pensioenfonds Metaal en Technieklead as lead plaintiffs, and Robbins Geller Rudman & Dowd LLP as counsel for lead plaintiffs, in the consolidated action. Lead plaintiffs thereafter filed a second amended consolidated complaint, and the Company moved to dismiss the second amended consolidated complaint. On January 30, 2012, the U.S. District Court granted the Company's motion to dismiss, and gave the plaintiffs thirty days to file an amended complaint. On February 29, 2012, the plaintiffs filed a third amended complaint (the "TAC") in U.S. District Court, and, on March 30, 2012 the Company and the individual defendants filed a motion to dismiss. On August 20, 2012, the U.S. District Court granted the Company's and the individual defendants' motion to dismiss, with prejudice. If the plaintiffs appeal, the Company will continue to defend itself and its current and former officers vigorously.

        On October 19, 2010, a shareholder derivative complaint captioned David Realty Company, derivatively on behalf of Corinthian Colleges, Inc., v. Jack Massimino, et al., was filed in the United States District Court for the Central District of California against all of the then-current members of the Company's Board of Directors, plus Ken Ord and Matt Ouimet, both of whom are current or former officers of the Company, and against the Company as a nominal defendant. On October 22, 2010, a second shareholder derivative complaint captioned Jake Vale, derivatively on behalf of Corinthian Colleges, Inc., v. Paul St. Pierre, et al., was filed in the United States District Court for the Central District of California against all of the current members of the Company's Board of Directors, plus Ken Ord, and against the Company as a nominal defendant. Both derivative complaints are based on

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factual allegations similar to those alleged in the Karam federal securities complaint identified above. The David Realty Company complaint asserts causes of action for breach of fiduciary duty, unjust enrichment, and breach of fiduciary duty for insider selling and misappropriation of information; the Vale complaint asserts causes of action for violation of Section 14(a) of the 1934 Exchange Act, breach of fiduciary duty, unjust enrichment, and indemnification and contribution. These matters have now been consolidated in the United States District Court for the Central District of California in a matter captioned In re: Corinthian Colleges,  Inc. Shareholder Derivative Litigation, and the Company and the individual defendants filed a motion to dismiss the consolidated action. On January 30, 2012, the U.S. District Court granted the Company's motion to dismiss, and gave the plaintiffs thirty days to file an amended complaint. On November 18, 2011, David Realty Company, a putative shareholder of the Company and a plaintiff in the matter captioned In re: Corinthian Colleges, Inc. Shareholder Derivative Litigation, filed a Petition for Writ of Mandate in a matter captioned David Realty Co. v. Corinthian Colleges, Inc. in California Superior Court seeking to compel the Company to produce books and records under California common law and California Corporations Code Section 1600, et seq. The Company has filed an answer and a memorandum of points and authorities in opposition to the petition for writ of mandate. On February 29, 2012 the U.S. District Court for the Central District of California granted David Realty Company's ex parte application to extend the deadline to file an amended complaint in the shareholder derivative litigation pending resolution or further developments in the petition for writ of mandate pending in David Realty Co. v. Corinthian Colleges, Inc. In August 2012, David Realty Co. voluntarily dismissed, without prejudice, its Petition for Writ of Mandate in California Superior Court, and the Company and David Realty Co. stipulated to a stay of the derivative action pending resolution of the Company's pending motion to dismiss the Karam securities case noted above. The Company and the individual defendants believe these matters are without merit, and the Company intends to defend these matters vigorously.

Student Litigation

        On May 28, 2008, a putative class action demand in arbitration captioned Rivera v. Sequoia Education, Inc. and Corinthian Colleges, Inc. was filed with the American Arbitration Association. The plaintiffs are nine current or former HVAC students from the Company's WyoTech Fremont campus. The arbitration demand alleges violations of California's Business and Professions Code Sections 17200 and 17500, fraud and intentional deceit, negligent misrepresentation, breach of contract and unjust enrichment/restitution, all related to alleged deficiencies and misrepresentations regarding the HVAC program at these campuses. The plaintiffs seek to certify a class composed of all HVAC students in the Company's WyoTech Fremont and WyoTech Oakland campuses over the prior four years, and seek recovery of compensatory and punitive damages, interest, restitution and attorneys' fees and costs. The Company never operated any HVAC programs at the Company's WyoTech Oakland campus during its ownership of that campus. The arbitrator ruled that the arbitration provision in the former students' enrollment agreement is not susceptible to class-wide resolution. On November 22, 2011, a California state court judge refused to confirm the arbitrator's clause construction decision and remanded the matter to the arbitrator for further consideration. The Company has appealed the state court order. The Company believes the complaint is without merit and intends to vigorously defend itself against these allegations.

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        On April 20, 2010, a putative class action complaint captioned Reed, an individual, on behalf of himself and all others similarly situated v. Florida Metropolitan University, Inc. and Corinthian Colleges, Inc. was filed in the District Court of Travis County, Texas. Florida Metropolitan University, Inc. is a wholly-owned subsidiary of the Company. Plaintiff purports to be a former student in the Company's Everest University Online operations. The complaint claims violations of Texas Education Code Sections 132.051(a) and 132.059(a) for alleged failure of Everest University Online to receive a Certificate of Approval or an exemption from the appropriate Texas state licensing bodies to offer online courses in the State of Texas and to register its admissions representatives with the State of Texas. The plaintiff seeks to certify a class composed of all persons who contracted to receive distance education from Everest University Online while residing in Texas, and seeks damages on behalf of such persons, pre-and post-judgment interest, declaratory and injunctive relief, cost of suit, and such other relief as the court deems proper. On July 26, 2010, the Court ordered the matter to binding arbitration, and the plaintiff subsequently filed a putative class action demand in arbitration. The arbitrator ruled that the arbitration provision in the former student's enrollment agreement is susceptible to class-wide resolution, but did not address whether a class should be certified. The Company appealed the clause-construction decision and on June 15, 2012 the U.S. Court of Appeals for the Fifth Circuit issued an opinion overturning the arbitrator's decision and ruling that the enrollment agreement is not susceptible to class-wide resolution. The plaintiff's motion for a rehearing by the entire Fifth Circuit was denied, and the plaintiff's only remaining avenue of appeal on this issue is to seek review by the United States Supreme Court. The Company believes the complaint is without merit and intends to defend itself and its subsidiary vigorously.

        On November 23, 2010, a putative class action complaint captioned Alisha Montgomery, et al., on behalf of themselves and all others similarly situated, v. Corinthian Colleges, Inc. and Corinthian Schools, Inc. d/b/a Everest College and Olympia College, was filed in the Circuit Court of Cook County, Illinois. Corinthian Schools, Inc. is a wholly-owned subsidiary of the Company. Plaintiffs were thirty-three individuals who purport to be current and/or former students of the Company's Medical Assistant Program at the Everest College campus in Merrionette Park, Illinois. The complaint alleged breach of contract, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act and unjust enrichment, all related to alleged deficiencies and misrepresentations regarding the Company's medical assisting program at the Merrionette Park campus. The plaintiffs sought to certify a class composed of all persons who enrolled in the Company's Medical Assisting program at the Everest College Merrionette Park campus during the four years preceding the filing of the lawsuit, and sought actual and compensatory damages on behalf of such persons, costs and attorneys' fees, punitive damages, disgorgement and restitution of wrongful profits, revenue and benefits to the extent deemed appropriate by the court, and such other relief as the court deemed proper. The Company removed the case to federal court and moved to compel individual arbitrations, which the court granted. Thirty-one plaintiffs have filed individual demands in arbitration. Individual arbitration hearings commenced as scheduled during the quarter ended June 30, 2012, but the Company and the plaintiffs have now agreed to hold the hearings in abeyance to engage in settlement discussions. The Company continues to believe these matters are without merit and will continue to defend itself vigorously if a reasonable settlement cannot be achieved.

        During fiscal 2011, the Company experienced an unprecedented increase in putative class action lawsuits by former students. In many of these cases, the plaintiffs and their counsel sought to represent a

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class of "similarly situated" people as defined in the complaint. The Company believes these lawsuits are largely the result of negative publicity—and aggressive lawyer recruitment of potential clients—surrounding the Department of Education's ("ED's") rulemaking efforts, the Senate HELP Committee hearings, the Government Accountability Office ("GAO") report, and other related matters that occurred during that time period. Many of the cases filed during that time have since been dismissed. In virtually all of the following remaining cases, the plaintiffs cite testimony from the HELP Committee hearings, the GAO report, public statements by elected officials and/or other negative media coverage in their complaints, although the locations of the students, the specific allegations, and the nature of their claims differ. The Company believes all of the following complaints are contractually required to be resolved in individual arbitrations between the named students and the Company, and the Company has moved, to compel these cases to arbitration. The following is a brief summary of such matters:

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        The Company intends to defend itself and its subsidiaries vigorously in all of these matters.

Employee Litigation

        On November 17, 2008, an action captioned Mary Credille and Roger Madden, on behalf of all similarly situated current and former employees, v. Corinthian Colleges et al., was filed in the U.S. District Court for the Northern District of Illinois. The two originally-named plaintiffs are former employees of the Company's Chicago campus, and allege failure to receive proper compensation for all overtime hours allegedly worked in violation of the Fair Labor Standards Act. Plaintiff Credille has voluntarily dismissed her claims against the Company. On December 8, 2009, the Court granted Plaintiff Madden's motion to conditionally certify a collective action to include those current and former admissions representatives at the Company's Chicago campus who also satisfy additional requirements. A total of three former employees, including Madden, have elected to participate in the lawsuit. The Company believes the allegations are without merit and intends to vigorously defend itself.

        On September 13, 2011, an action captioned Michael Harrington, individually and on behalf of all persons similarly situated, v. Corinthian Schools, Inc., et al., was filed in California's Alameda Superior Court. A virtually identical action with the same caption was filed by different plaintiff's counsel on September 15, 2011, in California's Orange County Superior Court. The plaintiff is a former admissions representative at the Company's Fremont and Hayward campuses and the two actions allege violations of California's Business and Professions Code Section 17200 and the California Labor Code for alleged failure to pay for all hours worked, purported denial of meal periods, and alleged failure to pay wages upon termination. The Alameda complaint has since been voluntarily dismissed. While the scope of the putative class is not clear, the remaining Orange County action appears to seek certification of a class to include those current and former admissions representatives over the last four years at the

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Company's California campuses. The Company believes the allegations are without merit and intends to vigorously defend itself.

Regulatory Matters

        On October 19, 2010, the Company became aware of news stories which reported that the Florida Attorney General's Office (the "FL AG's Office") had begun an investigation into certain private sector education companies in Florida, including the Company, seeking information on potential misrepresentations in financial aid, recruitment and other areas. On October 21, 2010, the Company received a subpoena from the FL AG's Office seeking a wide range of documents from January 1, 2006 to the present. The Company's attorneys have met with representatives of the FL AG's Office multiple times and the Company has provided voluminous materials in response to the subpoena. Additionally, the Company has filed a motion to quash portions of the subpoena and for a protective order with respect to certain confidential and proprietary information. The Company expects to continue to provide reasonable cooperation to the FL AG's Office.

        On March 28, 2011, the Company received a letter from the California Attorney General's Office (the "CA AG") ostensibly seeking information pursuant to the Stipulated Judgment agreed to by the Company and the CA AG in July 2007. The letter requests information and documentation related to (i) the discontinuation of certain programs immediately after the Stipulated Judgment, (ii) numbers of new students, graduating students and discontinuing students, by program, (iii) marketing and solicitation materials, (iv) enrollment agreements and disclosures, (v) graduating students' employment and compensation, (vi) transferability of credit by the Company's former students, (vii) training provided to employees pursuant to the Stipulated Judgment, and (viii) disciplinary actions against certain categories of employees. The Company cooperated with the CA AG's reasonable requests for information, but objected to certain overly-broad requests which appear to be unrelated to the 2007 Stipulated Judgment. The Company not received further communication from the CA AG's office in many months and believes it has responded adequately to the CA AG's requests.

        On April 29, 2011, the Company's Everest Institute campuses in Brighton and Chelsea, Massachusetts received civil investigative demands from the Massachusetts Attorney General's Office (the "MA AG") seeking (i) information about past students who have enrolled in each institution, (ii) the identity of recruiters, (iii) recruiting and enrollment documents, (iv) documentation related to analyses of delinquency, default, drop out, refund, loan forgiveness or reduction, placement, student income, and/or any student's ability to repay loans, and (v) cohort default and graduation rates. The Company has cooperated, and continues to cooperate, with the MA AG's reasonable requests for information, including a request for additional information received on July 20, 2012.

        On April 11, 2011 the Company's Everest Institute in Jonesboro, Georgia was sent a subpoena from the Atlanta office of ED's Office of Inspector General (the "OIG") requesting documents related to the Jonesboro campus's employment and placement rates reported to its accrediting agency, as well as correspondence with the accrediting agency. The Company has become aware that this matter is being supervised by an Assistant United States Attorney for the Northern District of Georgia who focuses primarily on civil false claims act matters, including qui tams. The Company does not know whether a qui tam action has been filed under seal or whether the United States Attorney's Office has made a determination about whether to file a false claims act lawsuit in this matter. The Company has

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provided documents to the OIG, met with the OIG and the AUSA supervising this matter, and is continuing to cooperate with the OIG's request.

        On April 14, 2011 the Company's Everest Institute campus in Silver Spring, Maryland received a letter from the Mid-Atlantic regional office of the OIG requesting original certificates of diplomas, graduate diplomas in education and/or proof of Ability to Benefit for all students and a complete list of all instructors with documentation of their professional licenses and credentials. The Company is cooperating with the OIG's request. No additional information has been provided regarding this request and the Company believes the matter has been closed.

        On May 19, 2011, along with other private sector education companies, the Company received a subpoena from the New York Attorney General's Office (the "NY AG") seeking information on potential issues related to financial aid, admissions, students, securities and other areas. The Company is cooperating with the NY AG's requests for information.

        On July 19, 2011, the Company's attorneys met with representatives of the Oregon Attorney General's Office ("OR AG") in anticipation of a written request for information related to the Company's Everest Institute campus in Tigard, Oregon and the Everest College and Heald College campuses in Portland, Oregon. The Company was informed that the investigation is not the result of student complaints regarding the campuses. On August 11, 2011, the Company received a civil investigative demand from the Oregon Attorney General's Office requesting information and documents regarding advertising; student recruitment; admissions; licensure and accreditation; compensation, training and evaluations of admissions personnel; job opportunities and placements of graduates; student complaints; and various other matters. The Company cooperated with the OR AG's reasonable requests for information. On June 28, 2012, the Company received a letter from the OR AG's office in which it made a small number of recommendations as a result of its investigation and also closed the investigation without seeking any injunctive or monetary relief from the Company.

        On December 15, 2011, after other private sector education companies had received similar requests, the Company received a civil investigative demand from the Illinois Attorney General's Office (the "IL AG") seeking information on potential issues related to financial aid, admissions, students and other areas. The Company has sought judicial protection of its confidential and sensitive business information and is cooperating with the IL AG's reasonable requests for information.

        On April 3, 2012, the Company was served with a Civil Investigative Demand ("CID") from the U.S. Consumer Financial Protection Bureau ("CFPB"). The CID stated that its purpose is to "determine whether for-profit postsecondary companies, student loan origination and servicing providers, or other unnamed persons, have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans." The CID contains extensive interrogatories and document production demands related to the Company's involvement with student loans and many other aspects of the Company's business. The Company has contacted the CFPB regarding the CID and has retained outside counsel to assist it in this matter. The Company has objected to the inquiry by filing a petition with the CFPB to set aside or modify the CID, but has voluntarily provided documents and other information to the CFPB, while the petition is pending. The Company believes that its acts and practices relating to student loans are lawful and essential to preserving our students' access to post-secondary education.

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Evaluation of Possible Outcomes

        In addition to the proceedings and other matters described above, the Company is or may become a party to pending or threatened lawsuits related primarily to services currently or formerly performed by the Company. Such cases and claims raise difficult and complex factual and legal issues and are subject to many uncertainties and complexities, including, but not limited to, class action certification, governmental intervention, regulatory or administrative agency involvement, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable statutory and common law.

        As of June 30, 2012, the Company had established aggregate reserves for all of the matters disclosed above, as well as for those additional matters where the liabilities are probable and losses estimable but for which the Company does not believe the matters are reasonably likely to have a material impact on the results of operations or financial condition of the Company, which are immaterial to the Company's financial position. The Company regularly evaluates the reasonableness of its accruals and makes any adjustments considered necessary. Due to the uncertainty of the outcome of litigation and claims, the Company is unable to make a reasonable estimate of the upper end of the range of potential liability for these matters. Upon resolution of any pending legal matters, the Company may incur charges in excess of presently established reserves. While any such charge could have a material adverse impact on the Company's results of operations and cash flows during the period in which it is recorded or paid, management does not believe that any such charge would have a material adverse effect on the Company's financial position or liquidity.

Note 12—Employee Benefit Plans

        The Company has established an employee savings plan under Section 401(k) of the Internal Revenue Code (the "Plan"). Employees classified as "regular" status as defined and who are regularly scheduled to work at least 30 hours per week (20 hours per week for instructors) are eligible to participate in the Plan beginning the first of the month following one month of employment. Company contributions begin the first of the month following 12 months of employment and 1,000 hours worked. Contributions to the plan by the Company are discretionary. The plan provides for vesting of Company contributions over a five-year period from the date of employment. Company contributions to the plan for both continuing and discontinued operations were approximately $11.5 million, $10.0 million and $7.1 million for the fiscal years ended June 30, 2012, 2011 and 2010, respectively.

Note 13—Governmental Regulation

        The Company and each institution are subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, HEA, and the regulations promulgated thereunder by ED subject the institutions to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy in order to participate in the various federal student financial assistance programs under Title IV of the HEA.

        To participate in the Title IV Programs, an institution must be authorized to offer its programs of instruction by the relevant agencies of the state in which it is located, accredited by an accrediting agency recognized by the ED and certified as eligible by the ED. The ED will certify an institution to

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participate in the Title IV Programs only after the institution has demonstrated compliance with the HEA and the ED's extensive regulations regarding institutional eligibility. An institution must also demonstrate its compliance to the ED on an ongoing basis. As of June 30, 2012, management believes the Company's institutions were in compliance with the applicable regulations in all material respects.

        As previously disclosed and as updated elsewhere in this Report on Form 10-K, ED periodically conducts program reviews of institutions that participate in federal student financial aid programs. Program reviews begin with site visits at the relevant locations. ED then prepares a program review report and the institution has the opportunity to respond. After the institution responds, ED issues a final program review determination, which may be appealed. The Company currently has open program reviews at the following stages: (i) "ECP" has received program review reports and provided written responses regarding the site visits conducted at ECP in 2008 and 2010, but has not yet received final determinations with respect to either site visit, (ii) site visits occurred at the Company's WyoTech Laramie, WY campus and its two additional locations in Blairsville, PA and Sacramento, CA in February 2012, ED has issued a program review report and the Company is in the process of preparing its response, (iii) a site visit occurred at the Company's Everest College campus in Springfield, MO in April 2012, ED has issued its program review report and the Company is in the process of preparing its response, (iv) a site visit occurred at the Company's Everest College campus in Crosslanes, WV in April 2012, but ED has not yet issued a program review report, (v) ED conducted a site visit at the Company's Everest College campus in Rochester, NY during the week of April 30, 2012, but the Company has not yet received a program review report, and (vi) ED has conducted site visits at the Everest Largo, Florida campus and the Long Beach, CA campus, in August 2012. The Company will continue to cooperate with ED in its ongoing reviews.

        ED will review all responses to program review reports and ultimately issue final determination letters setting forth its final findings, as well as the actions it intends to take based on those findings. If ED were to make significant findings of non-compliance against any of the Company's institutions in any final determination letters regarding ongoing program reviews, it could result in the imposition of significant fines, penalties or other liabilities, including, without limitation, an action on the limitation, suspension or termination of the institution's participation in Title IV programs, any of which could have a material adverse effect on the Company's business, results of operations or financial condition.

        The HEA requires accrediting agencies to review many aspects of an institution's operations in order to ensure that the training offered is of sufficiently high quality to achieve satisfactory outcomes. Failure to demonstrate compliance with accrediting standards may result in the imposition of probation or show cause orders, or the requirements of periodic reports, and ultimately the loss of accreditation if deficiencies are not remediated.

        An accrediting agency probation or show cause order may be issued based upon the agency's concerns that an accredited institution may be out of compliance with one or more accrediting standards. Probation or show cause orders afford the institution the opportunity to respond before the institution loses accreditation. The institution may demonstrate that the concern is unfounded, that it has taken corrective action to resolve the concern, or that it has implemented an ongoing plan of action which is deemed appropriate to resolve the concern. The accrediting agency may then vacate the probation or show cause order, continue the probation or show cause order or seek additional information through reports required of the institution. If the agency's concerns are not resolved, it

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may act to withdraw accreditation from the institution. Institutions on probation or under show cause orders remain accredited while they are on probation. The institutions can continue to enroll new students, and students at the affected institutions remain eligible to receive federal student financial aid. At June 30, 2012, two of the Company's institutions, the Everest Institutes in Jonesboro, GA and Decatur, GA, were on show cause with their accrediting agency, ACCSC. The Decatur campus is in the process of being taught out and the Jonesboro campus is working to resolve its accrediting agency's concerns.

        As of June 30, 2012, thirty five of the Company's colleges were on reporting to their respective accrediting agencies, primarily with respect to the completion, retention, and/or placement rates of their students. In certain of these cases, the periodic supplemental reports are required only with respect to particular programs at an institution, and not to the institution's overall completion or placement rates. The Company is working to improve these retention and placement rates in the identified programs at these schools.

        Political and budgetary concerns significantly affect the Title IV Programs. Congress must reauthorize the student financial assistance programs of the HEA approximately every five to six years, and the last reauthorization took place in 2008.

        A significant component of Congress' initiative to reduce abuse in the Title IV Programs has been the imposition of limitations on institutions whose former students default on the repayment of their federally guaranteed or funded student loans above specific rates (cohort default rate). Although the Company is not obligated to repay any of its students' or former students' defaults on payments of federally guaranteed student loans, if such default rates equal or exceed 25% (under the old rules) or 30% (under the new rules) for three consecutive years, the institution may lose participation eligibility in the guaranteed loan program and its students will be denied access to the federally guaranteed student loan programs. An institution whose cohort default rate under certain Title IV Programs for any federal fiscal year exceeds 40% may have its eligibility to participate in all of the Title IV Programs limited, suspended or terminated by the ED.

        All institutions participating in the Title IV Programs must satisfy specific standards of financial responsibility. The ED evaluates institutions for compliance with these standards each year, based on the institution's annual audited financial statements and following a change of ownership of the institution.

        The ED calculates the institution's composite score for financial responsibility based on its (i) equity ratio, which measures the institution's capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and (iii) net income ratio, which measures the institution's ability to operate at a profit. An institution that does not meet the ED's minimum composite score may demonstrate its financial responsibility by posting a letter of credit in favor of the ED in an amount equal to at least 50% of the Title IV Program funds received by the institution during its prior fiscal year and possibly accepting other conditions on its participation in the Title IV Programs.

        For fiscal 2012, the Company, on a consolidated basis, meets the requirements with a composite score of 1.5. The Company believes the calculations of the financial responsibility score are correct, however the calculation is subject to interpretive issues. If the ED were to take a different interpretive

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position than the Company with regard to this calculation, it could negatively impact the Company's composite score on a consolidated basis.

        For fiscal year ended June 30, 2011, the Company's calculations show that, on a consolidated basis, it also exceeded this requirement with a composite score of 2.1, excluding goodwill impairment. ED has not yet concurred with the calculations of the composite score for the fiscal year ended June 30, 2011, and the Company will not submit its calculations for the fiscal year ended June 30, 2012 to ED for some time. The Company believes the calculations of the financial responsibility score for fiscal 2011 are correct. However, the calculation is subject to interpretive issues relating to the appropriate treatment of goodwill impairment in the calculation of the composite score. In this regard, the Company has been in communication with an analyst at ED who questioned the appropriate treatment of the goodwill impairment charge the Company took in fiscal 2011, and also questioned whether other intangible assets on the Company's balance sheet at June 30, 2011 should have been expensed for purposes of the composite score. As a result, the Company has engaged in discussions with ED regarding its calculations and have provided ED with a detailed explanation of the Company's views regarding the appropriate treatment of goodwill impairment and other intangible assets on the composite score calculation. The Company continues to believe its calculations are correct, but if ED were to conclude that the goodwill impairment should be included as an expense in the calculation of the Company's composite score, this would negatively impact the Company's composite score on a consolidated basis for fiscal 2011, and ED might consider the Company not to be financially responsible until ED accepted the Company's fiscal 2012 financial responsibility calculations. Depending on ED's resolutions of this matter, the Company could be required to satisfy the standards of financial responsibility on an alternative basis, including potentially by posting irrevocable letters of credit. Additionally, a definitive determination by ED that the Company's composite score is less than 1.5 could be a default under the Company's existing credit agreement. The Company cannot provide assurance that ED will agree with its calculations, or that its institutions will continue to satisfy the numeric standards in the future.

        An institution that is determined by the ED not to have met the standards of financial responsibility is nonetheless entitled to participate in the Title IV Programs if it can demonstrate to the ED that it is financially responsible on an alternative basis. An institution may do so by posting a surety either in an amount equal to 50% (or greater, as the ED may require) of the total Title IV Program funds received by students enrolled at such institution during the prior year or in an amount equal to 10% (or greater, as the ED may require) of such prior year's funds if the institution also agrees to provisional certification and to transfer to the reimbursement or cash monitoring system of payment for its Title IV Program funds. The ED has interpreted this surety condition to require the posting of an irrevocable letter of credit in favor of the ED.

        As required for regulatory reporting with ED, for fiscal 2012, approximately 84.6% of the Company's revenues (on a modified cash basis) were derived from federal Title IV programs. For fiscal 2012, the Company had $1,410.2 million of Title IV cash receipts and $256.4 million of Non-Title IV cash receipts, each in the United States calculated pursuant to ED regulations. For purposes of calculating compliance with the 90/10 Rule under the HEOA, an institution is permitted, for a limited period of time, to count institutional loans as non-Title IV revenue. This provision expired July 1, 2012. Under these modified 90/10 calculations for the 2012 fiscal year, these institutions derived between

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JUNE 30, 2012

Note 13—Governmental Regulation (Continued)

62.8% and 94.1% of revenues (on a modified cash basis) from Title IV programs. Two of the Company's total 49 institutions (including five institutions in discontinued operations) exceeded the 90% threshold in fiscal 2012, ECP at 94.1% and Everest University in Tampa, FL at 92.4%. Combined, these institutions had 10,550 students at June 30, 2012. On August 14, 2012 the Company notified ED that these two institutions had 90/10 rates above 90% for the 2012 fiscal year.

        The two institutions that exceeded the 90/10 Rule limit for fiscal year 2012 are now considered, under ED regulations, to be certified on a provisional basis for two years and will be subject to possible additional ED sanctions. While ED has broad discretion to impose additional sanctions on these institutions, there is limited precedent to anticipate what those sanctions might be, particularly in the current regulatory environment. ED could specify a wide range of additional conditions as a part of the provisional certification and the institutions' continued participation in Title IV Programs. When an institution is subject to provisional certification at the time that its program participation agreement expires, ED also has greater discretion in considering the conditions to attach if it recertifies such institution. Any of the institutions that derive more than 90% of their revenue from Title IV Programs for two consecutive fiscal years will be ineligible to participate in Title IV Programs for at least two fiscal years. The Company as a whole derived approximately 84.6% of its net U.S. revenue (on a modified cash basis) from Title IV Programs. Without the temporary relief imposed by the HEOA, approximately 85.9% of the Company's net U.S. revenues (on a modified cash basis) would have been derived from federal Title IV programs, and 3 of the Company's 49 institutions would have exceeded the 90% threshold.

        Because the Company operates in a highly regulated industry, it, like other industry participants, may be subject from time to time to investigations, claims of non-compliance, or lawsuits by governmental agencies or third parties, which allege statutory violations, regulatory infractions, or common law causes of action.

        There can be no assurance that other regulatory agencies or third parties will not undertake investigations or make claims against the Company, or that such claims, if made, will not have a material adverse effect on the Company's business, results of operations or financial condition.

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JUNE 30, 2012

Note 14—Selected Quarterly Financial Summary (Unaudited)

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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JUNE 30, 2012

Note 15—Subsequent Events

        On August 10, 2012, the Company through a wholly-owned subsidiary, purchased substantially all of the capital stock of QuickStart Intelligence Corporation ("QuickStart") pursuant to a Stock Purchase Agreement with all but one of QuickStart's stockholders for $13.3 million in cash, plus $1.6 million for QuickStart's estimated positive working capital at closing (subject to post-closing adjustment). The Company expects to complete the acquisition of QuickStart's remaining capital stock pursuant to a statutory merger with one of its wholly-owned subsidiaries during the quarter ending September 30, 2012. The Company paid the purchase price with existing cash and borrowings under the credit facility.

        QuickStart is a corporate training company that provides short-term instruction to IT professionals on Microsoft, Cisco and other software. QuickStart currently operates through eight learning centers in California, Oregon and Washington, and also offers synchronous training via online instruction. The Company expects to adopt QuickStart's courses into certain of its existing colleges to provide additional sources of non-Title IV revenue for those colleges to assist them in complying with their obligations under ED's 90/10 rule.

        The Company has evaluated material transactions and events as of the filing date. No other events have occurred that require reporting in this Form 10-K, except as disclosed in Note 11—Commitments and Contingencies.

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

        We carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report and concluded that those controls and procedures were effective.

Management's Report on Internal Control Over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of June 30, 2012. The effectiveness of internal control over financial reporting as of June 30, 2012 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Changes in Internal Controls over Financial Reporting

        There were no changes in our internal control over financial reporting during the quarter ended June 30, 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

        It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Corinthian Colleges, Inc. and subsidiaries

        We have audited Corinthian Colleges, Inc. and subsidiaries internal control over financial reporting as of June 30, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Corinthian Colleges, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Form 10-K. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, Corinthian Colleges, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of June 30, 2012, based on the COSO criteria.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Corinthian Colleges, Inc. and subsidiaries as of June 30, 2012 and 2011 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2012 and our report dated August 24, 2012 expressed an unqualified opinion thereon.

Orange County, California
August 24, 2012

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ITEM 9B.    OTHER INFORMATION

        None.

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Directors and Executive Officers

        Certain information in response to this item is incorporated herein by reference to the Company's definitive Proxy Statement for the Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after June 30, 2012. Information regarding executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Item 1 hereof.

Corporate Governance

        We have adopted a code of ethics that applies to all of our executive officers and senior financial officers (including our chief executive officer, chief financial officer, chief accounting officer, and any person performing similar functions). This Code of Business Conduct and Ethics is available on our website at http://www.cci.edu under the heading "Investor Relations."

ITEM 11.    EXECUTIVE COMPENSATION

        Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after June 30, 2012.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after June 30, 2012.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

        Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after June 30, 2012.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

        Information required to be furnished by Item 9(e) of Schedule 14A of Regulation S-K will be included in the Company's 2012 Proxy Statement for the Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after June 30, 2012, and is incorporated herein by reference.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Report:

1.

Financial Statements



2.

Financial Statement Schedules.

        Our consolidated financial statements are included in Part II, Item 8, of this Form 10-K. All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require the submission of such schedules, or because the information required is included in the consolidated financial statements or the notes thereto.

3.

Exhibits:

        The exhibits listed in the accompanying Index to Exhibits are filed as part of this annual report.

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INDEX TO EXHIBITS

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SIGNATURES AND POWER OF ATTORNEY

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CORINTHIAN COLLEGES, INC.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes and appoints Jack D. Massimino and Robert C. Owen, or either of them, as attorneys-in-fact and agents to execute and file with the applicable regulatory authorities any amendment to this report on his or her behalf individually and in each capacity stated below.

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