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The Death of Corinthian Colleges (NASDAQ:COCO)

Written By Briton Ryle

Posted July 10, 2014

cocopaperThe desks have turned at Corinthian Colleges Inc, one of the largest privately-run for-profit colleges in the U.S.
The school’s administration received a failing grade after a U.S. Department of Education investigation revealed systematic falsification of performance data, and deceptive practices to entice new enrolments.

While the campuses will be permitted to remain open long enough to allow existing students to complete their studies, it seems a new lesson has been unwittingly added to their curriculums… namely that unforeseen risks can befall us at any time. The valuable learning experience here is how to deal with them and not let them defeat us.
Let’s take a little look at this valuable life lesson taught us by the collapse of Corinthian.

While there was a warning sign that may have spared some students of this ordeal, know that even if we miss life’s little warnings we can still gain the mastery over the experience and learn things from it that no school curriculum could possible train us for.

Corinthian Gets a Failing Grade

Corinthian Colleges, Inc., founded in 1995 and publicly traded since 2002 under the symbol COCO on the NASDAQ Exchange, operates 97 post-secondary colleges in 25 U.S. states, plus 14 campuses in Canada’s province of Ontario.

The post-secondary college offers its 80,000+ students a wide array of technical training mostly in the medical field, including medical assisting, medical insurance billing and coding, massage therapy, dental assisting, pharmacy technician, medical administrative assisting, and surgical technology. Other programs include automotive and diesel technology, HVAC, plumbing, electrical, business administration, accounting, paralegal, and criminal justice.

Following an investigation by the U.S. Department of Education, the school has agreed to shut down twelve U.S. campuses operating under its Everest brand name, and to selling its remaining 85 U.S. schools operating under its other brand names Heald and WyoTech.

The Associated Press reported that the USDE investigation centered around “allegations of falsifying job placement data used in marketing claims to prospective students, and allegations of altered grades and attendance”. “The department put Corinthian on heightened financial monitoring last month with a 21-day waiting period for federal funds” when the school “failed to provide adequate paperwork and comply with the department’s requests to address concerns about the company’s practices”.

Upon agreeing to close and sell its U.S. campuses, the release of $16 million of federal student aid funds was approved. And herein lies the nature of the problem: education has become a very big business.

As such, the temptation exists to falsify a school’s teaching performance and job placement success to attract more students which draws in more government funding through student loan programs. While that may be discomforting, it may ease students’ fears to know that at the very least the USDE has an active investigative arm.

Yet there may have been a warning sign that new students may have spotted if they had looked into the school’s other performance record… its company stock.

COCO Flashes a Warning Sign

While other publicly traded privately-run colleges have long experienced their ups and downs, Corinthian Colleges’ stock has been on a steady decline since 2010, as noted in the chart below.


Today, the stock trades for about $0.25.

It may be relatively easy for a school to alter its performance data in its brochures to prospective students, but falsifying financial performance data to the Securities and Exchange Commission is much harder to do. If there exist problems with a school’s business, its stock will show it most readily.

The company’s financial data fails to make the grade on multiple metrics, with a profit margin over the trailing 12 months of -6.52%, a return on equity of -15.07%, year-over-year quarterly growth of -11.7%, and operating cash flows of -$32.71 million over the past 12 months. In fact, the company has been haemorrhaging money for at least the past three years, losing $102 million in fiscal year 2011, $35 million in 2012, and $26 million in 2013. Worst of all is the school’s atrocious debt level of $141.61 million, some 705% of its $20.07 million market cap.

With its stock plummeting from $19 a share in 2010 to $2 within little more than a year, clearly there was ample incentive to falsify its training performance and job placement successes to save its ailing business.

Overcoming the Unexpected

It is all too easy to look back at an event and declare that we should have seen the warning signs. But the truth is such signs are not so clear before disaster strikes. This in itself offers us a valuable life lesson that no school curriculum can teach.

No matter how well planned our course may be, unforeseen setbacks strike everyone at least a few times in their lives. Our employer of many years may suddenly go out of business. Our home in which we have invested every spare dollar of our pay can suddenly lose half its value. Our retirement portfolio and nest egg could in a flash crash be nearly worthless. And our education plans could be derailed by a failing school, or a loss of accreditation value.

On this latter point, while students currently enrolled at Corinthian Colleges will be permitted to complete their degrees, many are left wondering just how valuable such accreditation will be once potential employers catch word of the school’s demise, especially since it was all centered on the school’s falsification of its own performance results.

Such unexpected derailments of our plans can be enough to shatter the confidence and optimism of anyone, let alone younger ones in their early 20’s who are just starting out in life. This may be the first serious scare of their independent lives, and they carry few examples of success from their past which they can draw strength from.

It is important, therefore, that each of us, young and old alike, periodically take a moment to consider what might happen if our current plans get derailed.

For instance, students would do well to ask themselves, “What would I do if my school goes out of business? Can I transfer to another school? Might my education be more secure in a publicly funded state university instead of a privately run school?”

Post graduates who have recently entered the workforce could also benefit from such “what if” scenario planning. “What would I do if my employer went out of business? What other companies might I try as a back-up? Or is there a completely different field I would rather turn to?”

The chances of anyone, young or old, experiencing an abrupt life-changing set-back are higher these days than they were in previous generations. Where once we could expect to work with the same company for our entire working lives, nowadays it is not uncommon for workers to change companies and even entire careers two or three times or more before retiring.

While we can never plan for every eventuality, we can gain a great deal from practicing putting into place alternative scenarios and plans of action. At the very least it trains our thinking to finding solutions to problems instead of panicking in the face of them.

Sometimes we can plough right through the obstacle and continue on our present course with only a little loss of time. Other times, if the obstacle is one that cannot be removed, we can find an alternate route around it and eventually get back on our original course. And at still other times we may find the obstacle presents us with an opportunity to embark on a whole new course all together.

The point is we can keep moving forward if we practice thinking about how to overcome setbacks. There is absolutely no obstacle strong enough to stop us in our tracks and hold us back from making progress… besides ourselves.

Remember that people, governments and businesses can fail you left, right and center, and you cannot control any of it. But it doesn’t matter, for you can control the most powerful thing of all… your own resolve. Of all the lessons you could possible learn, learn this one and you will become an unstoppable force that keeps moving forward come what may.

The greatest of life’s lessons come from the worst of life’s disasters. And they are absolutely free.

Joseph Cafariello