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 26, 2012.
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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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2012
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2011
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(Decrease)
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Revenue
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$ | 329.8 | $ | 387.9 | (15.0 | )% | ||||||
Operating Income
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$ | 77.4 | $ | 130.0 | (40.4 | )% | ||||||
Operating Margin
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23.5 | % | 33.5 | % |
(1,000) basis points
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|||||||
Net Income
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$ | 46.0 | $ | 79.0 | (41.8 | )% | ||||||
Earnings Per Share (diluted)
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$ | 1.96 | $ | 2.85 | (31.2 | )% | ||||||
New Student Enrollment
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15,698 | 17,351 | (9.5 | )% | ||||||||
Continuing Students
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50,699 | 61,392 | (17.4 | )% | ||||||||
Total Student Enrollment as of June 30th
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66,397 | 78,743 | (15.7 | )% | ||||||||
Persistence Rate as of June 30th (A)
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71.3 | % | 73.1 | % |
(180) basis points
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Revenue Per Student
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$ | 4,637 | $ | 4,616 | 0.5 | % | ||||||
Cash and Cash Equivalents, Restricted Cash and Investments as of June 30th
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$ | 168.0 | $ | 305.8 | (45.1 | )% | ||||||
Bad Debt Expense as a Percentage of Revenue
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5.8 | % | 4.5 | % |
130 basis points
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|||||||
Days Sales Outstanding as of June 30th
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20.3 days
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11.0 days
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9.3 days
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Deferred Revenue as of June 30th
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$ | 121.9 | $ | 266.8 | (54.3 | )% | ||||||
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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23,529,000 | 27,719,000 | ||||||||||
Shares of Common Stock Repurchased
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928,500 | (B) | 1,100,000 | (C) | ||||||||
Number of New Colleges in Operation
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1 | 1 | ||||||||||
Capital Expenditures, Net
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$ | 7.1 | $ | 7.5 | (4.9 | )% | ||||||
Graduate Employment Rate as of April 30th
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70 | % (D) | 70 | % (E) | ||||||||
Average Annual Reported Graduate Salary as of April 30th
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$ | 32,061 | (F) | $ | 31,300 | (G) | 2.4 | % | ||||
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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2012
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2011
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Increase/
(Decrease)
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Revenue
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$ | 671.6 | $ | 771.0 | (12.9 | )% | ||||||
Operating Income
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$ | 178.0 | $ | 270.6 | (34.2 | )% | ||||||
Operating Margin
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26.5 | % | 35.1 | % |
(860) basis points
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Net Income
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$ | 107.1 | $ | 164.4 | (34.9 | )% | ||||||
Earnings Per Share (diluted)
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$ | 4.36 | $ | 5.77 | (24.4 | )% | ||||||
Bad Debt Expense as a Percentage of Revenue
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5.2 | % | 3.9 | % |
130 basis points
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Revenue Per Student
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$ | 9,303 | $ | 9,141 | 1.8 | % | ||||||
Weighted Average Diluted Shares of Common Stock Outstanding
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24,583,000 | 28,511,000 | ||||||||||
Shares of Common Stock Repurchased
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3,025,700 | (H) | 3,100,000 | (I) | ||||||||
Number of New Colleges in Operation
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5 | 1 | ||||||||||
Capital Expenditures, Net
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$ | 11.6 | $ | 12.2 | (4.5 | )% | ||||||
_________________ |
(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 $61.3 million or at an average price of $65.98 per share.
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(C)
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For approximately $79.4 million or at an average price of $72.20 per share.
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(D)
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Represents the percentage of the ITT Technical Institutes’ 2011 employable graduates who obtained employment in positions using skills taught in their programs of study as of April 30, 2012.
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(E)
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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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(F)
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Represents the average annual salary reported by the ITT Technical Institutes’ 2011 employed graduates as of April 30, 2012.
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(G)
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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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(H)
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For approximately $207.9 million or at an average price of $68.72 per share.
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(I)
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For approximately $218.5 million or at an average price of $70.49 per share.
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ITT EDUCATIONAL SERVICES, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands, except per share data)
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As of
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June 30, 2012
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December 31, 2011
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June 30, 2011
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(unaudited)
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(unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 167,234 | $ | 228,993 | $ | 158,235 | ||||||
Short-term investments
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0 | 148,488 | 147,136 | |||||||||
Restricted cash
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751 | 2,128 | 387 | |||||||||
Accounts receivable, net
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73,675 | 48,106 | 47,041 | |||||||||
Deferred income taxes
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16,859 | 9,759 | 4,804 | |||||||||
Prepaid expenses and other current assets
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14,571 | 18,814 | 24,567 | |||||||||
Total current assets
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273,090 | 456,288 | 382,170 | |||||||||
Property and equipment, net
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198,175 | 201,257 | 198,207 | |||||||||
Deferred income taxes
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36,016 | 33,267 | 33,165 | |||||||||
Other assets
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49,360 | 38,006 | 45,610 | |||||||||
Total assets
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$ | 556,641 | $ | 728,818 | $ | 659,152 | ||||||
Liabilities and Shareholders' Equity
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Current liabilities:
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Accounts payable
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$ | 80,777 | $ | 78,876 | $ | 66,008 | ||||||
Accrued compensation and benefits
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25,711 | 21,438 | 23,610 | |||||||||
Other current liabilities
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19,454 | 18,190 | 8,421 | |||||||||
Deferred revenue
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121,873 | 226,543 | 266,847 | |||||||||
Total current liabilities
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247,815 | 345,047 | 364,886 | |||||||||
Long-term debt
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150,000 | 150,000 | 150,000 | |||||||||
Other liabilities
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74,615 | 64,972 | 57,791 | |||||||||
Total liabilities
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472,430 | 560,019 | 572,677 | |||||||||
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, $.01 par value, 300,000,000 shares authorized, 37,068,904 issued
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371 | 371 | 371 | |||||||||
Capital surplus
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198,812 | 189,573 | 181,954 | |||||||||
Retained earnings
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925,781 | 827,675 | 684,905 | |||||||||
Accumulated other comprehensive (loss)
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(9,147 | ) | (9,479 | ) | (4,438 | ) | ||||||
Treasury stock, 13,749,764, 10,969,425 and 10,045,948 shares at cost
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(1,031,606 | ) | (839,341 | ) | (776,317 | ) | ||||||
Total shareholders' equity
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84,211 | 168,799 | 86,475 | |||||||||
Total liabilities and shareholders' equity
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$ | 556,641 | $ | 728,818 | $ | 659,152 |
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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2012
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2011
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2012
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2011
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Revenue
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$ | 329,825 | $ | 387,877 | $ | 671,619 | $ | 771,048 | ||||||||
Costs and expenses:
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Cost of educational services
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140,940 | 142,272 | 275,881 | 280,198 | ||||||||||||
Student services and administrative expenses
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111,467 | 115,626 | 217,733 | 220,209 | ||||||||||||
Total costs and expenses
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252,407 | 257,898 | 493,614 | 500,407 | ||||||||||||
Operating income
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77,418 | 129,979 | 178,005 | 270,641 | ||||||||||||
Interest income
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502 | 790 | 1,183 | 1,625 | ||||||||||||
Interest (expense)
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(1,254 | ) | (507 | ) | (1,801 | ) | (1,064 | ) | ||||||||
Income before provision for income taxes
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76,666 | 130,262 | 177,387 | 271,202 | ||||||||||||
Provision for income taxes
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30,664 | 51,262 | 70,314 | 106,816 | ||||||||||||
Net income
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$ | 46,002 | $ | 79,000 | $ | 107,073 | $ | 164,386 | ||||||||
Earnings per share:
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Basic
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$ | 1.97 | $ | 2.88 | $ | 4.39 | $ | 5.81 | ||||||||
Diluted
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$ | 1.96 | $ | 2.85 | $ | 4.36 | $ | 5.77 | ||||||||
Supplemental Data:
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Cost of educational services
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42.7 | % | 36.7 | % | 41.1 | % | 36.3 | % | ||||||||
Student services and administrative expenses
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33.8 | % | 29.8 | % | 32.4 | % | 28.6 | % | ||||||||
Operating margin
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23.5 | % | 33.5 | % | 26.5 | % | 35.1 | % | ||||||||
Student enrollment at end of period
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66,397 | 78,743 | 66,397 | 78,743 | ||||||||||||
Campuses at end of period
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146 | 131 | 146 | 131 | ||||||||||||
Shares for earnings per share calculation:
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Basic
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23,390,000 | 27,474,000 | 24,405,000 | 28,275,000 | ||||||||||||
Diluted
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23,529,000 | 27,719,000 | 24,583,000 | 28,511,000 | ||||||||||||
Effective tax rate
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40.0 | % | 39.4 | % | 39.6 | % | 39.4 | % |
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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2012
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2011
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2012
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2011
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Cash flows from operating activities:
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Net income
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$ | 46,002 | $ | 79,000 | $ | 107,073 | $ | 164,386 | ||||||||
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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7,695 | 7,040 | 15,115 | 13,882 | ||||||||||||
Provision for doubtful accounts
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19,006 | 17,487 | 34,607 | 30,154 | ||||||||||||
Deferred income taxes
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(6,334 | ) | (4,492 | ) | (10,076 | ) | (7,177 | ) | ||||||||
Excess tax benefit from stock option exercises
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(574 | ) | (627 | ) | (1,379 | ) | (978 | ) | ||||||||
Stock-based compensation expense
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4,272 | 4,758 | 8,755 | 8,672 | ||||||||||||
Other
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96 | (987 | ) | (243 | ) | (2,417 | ) | |||||||||
Changes in operating assets and liabilities:
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Restricted cash
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372 | 1,433 | 1,377 | (132 | ) | |||||||||||
Accounts receivable
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(38,270 | ) | (4,730 | ) | (60,176 | ) | (8,258 | ) | ||||||||
Accounts payable
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3,113 | (6,681 | ) | 1,901 | (1,912 | ) | ||||||||||
Other operating assets and liabilities
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(15,400 | ) | (32,886 | ) | 6,766 | 24,036 | ||||||||||
Deferred revenue
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(58,274 | ) | 1,307 | (104,670 | ) | 22,485 | ||||||||||
Net cash flows from operating activities
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(38,296 | ) | 60,622 | (950 | ) | 242,741 | ||||||||||
Cash flows from investing activities:
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Facility expenditures and land purchases
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(253 | ) | (1,173 | ) | (385 | ) | (1,675 | ) | ||||||||
Capital expenditures, net
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(7,117 | ) | (7,487 | ) | (11,635 | ) | (12,186 | ) | ||||||||
Proceeds from sales and maturities of investments and repayment of notes
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117,216 | 118,307 | 216,171 | 260,392 | ||||||||||||
Purchase of investments and note advances
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0 | (123,104 | ) | (63,545 | ) | (281,693 | ) | |||||||||
Net cash flows from investing activities
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109,846 | (13,457 | ) | 140,606 | (35,162 | ) | ||||||||||
Cash flows from financing activities:
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Excess tax benefit from stock option exercises
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574 | 627 | 1,379 | 978 | ||||||||||||
Proceeds from exercise of stock options
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3,423 | 1,955 | 8,091 | 4,983 | ||||||||||||
Debt issue costs
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0 | 0 | (1,525 | ) | 0 | |||||||||||
Proceeds from revolving borrowings
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0 | 0 | 175,000 | 0 | ||||||||||||
Repayments of revolving borrowings
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(25,000 | ) | 0 | (175,000 | ) | 0 | ||||||||||
Repurchase of common stock and shares tendered for taxes
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(61,789 | ) | (79,434 | ) | (209,360 | ) | (219,084 | ) | ||||||||
Net cash flows from financing activities
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(82,792 | ) | (76,852 | ) | (201,415 | ) | (213,123 | ) | ||||||||
Net change in cash and cash equivalents
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(11,242 | ) | (29,687 | ) | (61,759 | ) | (5,544 | ) | ||||||||
Cash and cash equivalents at beginning of period
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178,476 | 187,922 | 228,993 | 163,779 | ||||||||||||
Cash and cash equivalents at end of period
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$ | 167,234 | $ | 158,235 | $ | 167,234 | $ | 158,235 |