ITT EDUCATIONAL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
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Delaware
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1-13144
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36-2061311
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(State or other
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(Commission
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(IRS Employer
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jurisdiction of
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File Number)
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Identification No.)
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incorporation)
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13000 North Meridian Street
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Carmel, Indiana 46032-1404
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (317) 706-9200
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¨
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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¨
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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¨
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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¨
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02.
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Results of Operations and Financial Condition.
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(d)
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Exhibits:
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99.1
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Text of Press Release issued by the Registrant dated July 21, 2011.
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Financial and Operating Data for the Three Months Ended June 30th, Unless Otherwise Indicated
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(Dollars in millions, except per share and per student data)
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Increase/
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2011
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2010
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(Decrease)
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Revenue
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$ | 387.9 | $ | 401.8 | (3.5 | )% | ||||||
Operating Income
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$ | 130.0 | $ | 157.1 | (17.3 | )% | ||||||
Operating Margin
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33.5 | % | 39.1 | % |
(560) basis points
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Net Income
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$ | 79.0 | $ | 96.0 | (17.7 | )% | ||||||
Earnings Per Share (diluted)
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$ | 2.85 | $ | 2.78 | 2.5 | % | ||||||
New Student Enrollment
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17,351 | 21,673 | (19.9 | )% | ||||||||
Continuing Students
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61,392 | 63,022 | (2.6 | )% | ||||||||
Total Student Enrollment as of June 30th
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78,743 | 84,695 | (7.0 | )% | ||||||||
Persistence Rate as of June 30th (A)
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73.1 | % | 74.5 | % |
(140) basis points
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Revenue Per Student
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$ | 4,616 | $ | 4,753 | (2.9 | )% | ||||||
Cash and Cash Equivalents, Restricted Cash and
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Investments as of June 30th
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$ | 305.8 | $ | 280.1 | 9.2 | % | ||||||
Bad Debt Expense as a Percentage of Revenue
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4.5 | % | 5.7 | % |
(120) basis points
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Days Sales Outstanding as of June 30th
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11.0 days
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22.3 days
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(11.3) days
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Deferred Revenue as of June 30th
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$ | 266.8 | $ | 197.1 | 35.4 | % | ||||||
Debt as of June 30th
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$ | 150.0 | $ | 150.0 | ||||||||
Weighted Average Diluted Shares of Common Stock Outstanding
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27,719,000 | 34,525,000 | ||||||||||
Shares of Common Stock Repurchased
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1,100,000 | (B) | 1,000,000 | (C) | ||||||||
Land and Building Purchases and Renovations
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$ | 1.2 | (D) | $ | 1.8 | (E) | (33.1 | )% | ||||
Number of New Colleges in Operation
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1 | 2 | ||||||||||
Capital Expenditures, Net
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$ | 7.5 | $ | 7.2 | 3.4 | % | ||||||
Graduate Employment Rate as of April 30th
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70 | % (F) | 73 | % (G) |
(300) basis points
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Average Annual Reported Graduate Salary as of April 30th
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$ | 31,300 | (H) | $ | 31,600 | (I) | (0.9 | )% | ||||
Financial and Operating Data for the Six Months Ended June 30th
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(Dollars in millions, except per share and per student data)
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2011
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2010
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Increase/
(Decrease)
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Revenue
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$ | 771.0 | $ | 785.8 | (1.9 | )% | ||||||
Operating Income
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$ | 270.6 | $ | 299.7 | (9.7 | )% | ||||||
Operating Margin
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35.1 | % | 38.1 | % |
(300) basis points
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Net Income
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$ | 164.4 | $ | 183.5 | (10.4 | )% | ||||||
Earnings Per Share (diluted)
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$ | 5.77 | $ | 5.24 | 10.1 | % | ||||||
Bad Debt Expense as a Percentage of Revenue
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3.9 | % | 5.8 | % |
(190) basis points
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Revenue Per Student
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$ | 9,141 | $ | 9,507 | (3.8 | )% | ||||||
Weighted Average Diluted Shares of Common Stock Outstanding
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28,511,000 | 35,010,000 | ||||||||||
Shares of Common Stock Repurchased
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3,100,000 | (J) | 1,952,500 | (K) | ||||||||
Land and Building Purchases and Renovations
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$ | 1.7 | (L) | $ | 2.6 | (M) | (35.4 | )% | ||||
Number of New Colleges in Operation
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1 | 4 | ||||||||||
Capital Expenditures, Net
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$ | 12.2 | $ | 12.5 | (2.8 | )% | ||||||
(A)
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Represents the number of Continuing Students in the academic term, divided by the Total Student Enrollment in the immediately preceding academic term.
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(B)
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For approximately $79.4 million or at an average price of $72.20 per share.
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(C)
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For approximately $105.0 million or at an average price of $105.03 per share.
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(D)
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Represents costs associated with renovating, expanding or constructing buildings at nine of the company’s locations
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(E)
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Represents costs associated with renovating, expanding or constructing buildings at 13 of the company’s locations.
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(F)
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Represents the percentage of the ITT Technical Institutes’ 2010 employable graduates who obtained employment in positions using skills taught in their programs of study as of April 30, 2011.
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(G)
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Represents the percentage of the ITT Technical Institutes’ 2009 employable graduates who obtained employment in positions using skills taught in their programs of study as of April 30, 2010.
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(H)
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Represents the average annual salary reported by the ITT Technical Institutes’ 2010 employed graduates as of April 30, 2011.
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(I)
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Represents the average annual salary reported by the ITT Technical Institutes’ 2009 employed graduates as of April 30, 2010.
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(J)
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For approximately $218.5 million or at an average price of $70.49 per share.
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(K)
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For approximately $200.1 million or at an average price of $102.46 per share.
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(L)
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Represents costs associated with renovating, expanding or constructing buildings at 11 of the company’s locations.
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(M)
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Represents costs associated with renovating, expanding or constructing buildings at 17 of the company’s locations.
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ITT EDUCATIONAL SERVICES, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands, except per share data)
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As of
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June 30, 2011
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December 31, 2010
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June 30, 2010
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(unaudited)
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(unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 158,235 | $ | 163,779 | $ | 140,524 | ||||||
Short-term investments
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147,136 | 149,160 | 139,486 | |||||||||
Restricted cash
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387 | 255 | 70 | |||||||||
Accounts receivable, net
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47,041 | 68,937 | 98,390 | |||||||||
Deferred income taxes
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4,804 | 9,079 | 17,141 | |||||||||
Prepaid expenses and other current assets
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24,567 | 22,887 | 16,671 | |||||||||
Total current assets
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382,170 | 414,097 | 412,282 | |||||||||
Property and equipment, net
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198,207 | 198,213 | 193,717 | |||||||||
Deferred income taxes
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33,165 | 21,814 | 12,237 | |||||||||
Other assets
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45,610 | 40,656 | 28,008 | |||||||||
Total assets
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$ | 659,152 | $ | 674,780 | $ | 646,244 | ||||||
Liabilities and Shareholders' Equity
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Current liabilities:
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Accounts payable
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$ | 66,008 | $ | 67,920 | $ | 76,116 | ||||||
Accrued compensation and benefits
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23,610 | 28,428 | 26,049 | |||||||||
Other current liabilities
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8,421 | 15,441 | 14,491 | |||||||||
Deferred revenue
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266,847 | 244,362 | 197,107 | |||||||||
Total current liabilities
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364,886 | 356,151 | 313,763 | |||||||||
Long-term debt
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150,000 | 150,000 | 150,000 | |||||||||
Other liabilities
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57,791 | 40,559 | 29,049 | |||||||||
Total liabilities
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572,677 | 546,710 | 492,812 | |||||||||
Shareholders' equity:
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Preferred stock, $.01 par value,
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5,000,000 shares authorized, none issued
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0 | 0 | 0 | |||||||||
Common stock, $.01 par value, 300,000,000 shares authorized,
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37,068,904, 37,068,904 and 54,068,904 issued
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371 | 371 | 541 | |||||||||
Capital surplus
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181,954 | 173,935 | 165,678 | |||||||||
Retained earnings
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684,905 | 524,678 | 1,182,204 | |||||||||
Accumulated other comprehensive (loss)
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(4,438 | ) | (4,509 | ) | (9,555 | ) | ||||||
Treasury stock, 10,045,948, 7,075,563 and 20,478,818 shares
at cost
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(776,317 | ) | (566,405 | ) | (1,185,436 | ) | ||||||
Total shareholders' equity
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86,475 | 128,070 | 153,432 | |||||||||
Total liabilities and shareholders' equity
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$ | 659,152 | $ | 674,780 | $ | 646,244 |
ITT EDUCATIONAL SERVICES, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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(Dollars in thousands, except per share data)
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Three Months
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Six Months
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Ended June 30,
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Ended June 30,
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(unaudited)
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(unaudited)
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2011
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2010
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2011
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2010
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Revenue
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$ | 387,877 | $ | 401,849 | $ | 771,048 | $ | 785,806 | ||||||||
Costs and expenses:
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Cost of educational services
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142,272 | 133,763 | 280,198 | 268,145 | ||||||||||||
Student services and administrative expenses
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115,626 | 110,954 | 220,209 | 217,914 | ||||||||||||
Total costs and expenses
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257,898 | 244,717 | 500,407 | 486,059 | ||||||||||||
Operating income
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129,979 | 157,132 | 270,641 | 299,747 | ||||||||||||
Interest income
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790 | 533 | 1,625 | 1,242 | ||||||||||||
Interest (expense)
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(507 | ) | (514 | ) | (1,064 | ) | (934 | ) | ||||||||
Income before provision for income taxes
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130,262 | 157,151 | 271,202 | 300,055 | ||||||||||||
Provision for income taxes
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51,262 | 61,111 | 106,816 | 116,564 | ||||||||||||
Net income
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$ | 79,000 | $ | 96,040 | $ | 164,386 | $ | 183,491 | ||||||||
Earnings per share:
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Basic
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$ | 2.88 | $ | 2.82 | $ | 5.81 | $ | 5.31 | ||||||||
Diluted
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$ | 2.85 | $ | 2.78 | $ | 5.77 | $ | 5.24 | ||||||||
Supplemental Data:
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Cost of educational services
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36.7 | % | 33.3 | % | 36.3 | % | 34.1 | % | ||||||||
Student services and administrative expenses
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29.8 | % | 27.6 | % | 28.6 | % | 27.7 | % | ||||||||
Operating margin
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33.5 | % | 39.1 | % | 35.1 | % | 38.1 | % | ||||||||
Student enrollment at end of period
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78,743 | 84,695 | 78,743 | 84,695 | ||||||||||||
Campuses at end of period
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131 | 125 | 131 | 125 | ||||||||||||
Shares for earnings per share calculation:
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Basic
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27,474,000 | 34,081,000 | 28,275,000 | 34,552,000 | ||||||||||||
Diluted
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27,719,000 | 34,525,000 | 28,511,000 | 35,010,000 | ||||||||||||
Effective tax rate
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39.4 | % | 38.9 | % | 39.4 | % | 38.8 | % |
ITT EDUCATIONAL SERVICES, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Dollars in thousands)
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Three Months
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Six Months
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Ended June 30,
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Ended June 30,
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(unaudited)
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(unaudited)
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2011
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2010
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2011
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2010
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Cash flows from operating activities:
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Net income
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$ | 79,000 | $ | 96,040 | $ | 164,386 | $ | 183,491 | ||||||||
Adjustments to reconcile net income to net cash flows
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from operating activities:
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Depreciation and amortization
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7,040 | 6,724 | 13,882 | 13,482 | ||||||||||||
Provision for doubtful accounts
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17,487 | 23,034 | 30,154 | 45,799 | ||||||||||||
Deferred income taxes
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(4,492 | ) | (6,485 | ) | (7,177 | ) | (9,463 | ) | ||||||||
Excess tax benefit from stock option exercises
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(627 | ) | (1,019 | ) | (978 | ) | (1,940 | ) | ||||||||
Stock-based compensation expense
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4,758 | 4,186 | 8,672 | 8,999 | ||||||||||||
Other
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(987 | ) | 334 | (2,417 | ) | 490 | ||||||||||
Changes in operating assets and liabilities:
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Restricted cash
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1,433 | 5,228 | (132 | ) | 1,821 | |||||||||||
Accounts receivable
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(4,730 | ) | (33,134 | ) | (8,258 | ) | (58,763 | ) | ||||||||
Accounts payable
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(6,681 | ) | 7,642 | (1,912 | ) | 14,841 | ||||||||||
Other operating assets and liabilities
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(32,886 | ) | (20,711 | ) | 24,036 | 22,340 | ||||||||||
Deferred revenue
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1,307 | 5,312 | 22,485 | 25,174 | ||||||||||||
Net cash flows from operating activities
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60,622 | 87,151 | 242,741 | 246,271 | ||||||||||||
Cash flows from investing activities:
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Facility expenditures and land purchases
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(1,173 | ) | (1,754 | ) | (1,675 | ) | (2,593 | ) | ||||||||
Capital expenditures, net
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(7,487 | ) | (7,241 | ) | (12,186 | ) | (12,539 | ) | ||||||||
Proceeds from sales and maturities of investments
and repayment of notes
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118,307 | 115,128 | 260,392 | 199,826 | ||||||||||||
Purchase of investments and note advances
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(123,104 | ) | (115,602 | ) | (281,693 | ) | (222,774 | ) | ||||||||
Net cash flows from investing activities
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(13,457 | ) | (9,469 | ) | (35,162 | ) | (38,080 | ) | ||||||||
Cash flows from financing activities:
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Excess tax benefit from stock option exercises
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627 | 1,019 | 978 | 1,940 | ||||||||||||
Proceeds from exercise of stock options
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1,955 | 1,594 | 4,983 | 2,620 | ||||||||||||
Repurchase of common stock and shares tendered for taxes
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(79,434 | ) | (105,315 | ) | (219,084 | ) | (201,015 | ) | ||||||||
Net cash flows from financing activities
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(76,852 | ) | (102,702 | ) | (213,123 | ) | (196,455 | ) | ||||||||
Net change in cash and cash equivalents
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(29,687 | ) | (25,020 | ) | (5,544 | ) | 11,736 | |||||||||
Cash and cash equivalents at beginning of period
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187,922 | 165,544 | 163,779 | 128,788 | ||||||||||||
Cash and cash equivalents at end of period
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$ | 158,235 | $ | 140,524 | $ | 158,235 | $ | 140,524 |