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 25, 2013.
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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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2013
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2012
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(Decrease)
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Revenue
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$ | 259.9 | $ | 329.8 | (21.2 | )% | ||||||
Operating Income
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$ | 35.2 | $ | 77.4 | (54.5 | )% | ||||||
Operating Margin
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13.5 | % | 23.5 | % |
(1,000) basis points
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|||||||
Net Income
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$ | 20.9 | $ | 46.0 | (54.7 | )% | ||||||
Earnings Per Share (diluted)
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$ | 0.89 | $ | 1.96 | (54.6 | )% | ||||||
New Student Enrollment
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16,883 | 15,698 | 7.5 | % | ||||||||
Continuing Students
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41,734 | 50,699 | (17.7 | )% | ||||||||
Total Student Enrollment as of June 30th
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58,617 | 66,397 | (11.7 | )% | ||||||||
Persistence Rate as of June 30th (A)
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68.4 | % | 71.3 | % |
(290) basis points
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Revenue Per Student
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$ | 4,259 | $ | 4,637 | (8.2 | )% | ||||||
Cash, Cash Equivalents and Restricted Cash as of June 30th
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$ | 186.2 | $ | 168.0 | 10.8 | % | ||||||
Bad Debt Expense as a Percentage of Revenue
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7.3 | % | 5.8 | % |
150 basis points
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|||||||
Days Sales Outstanding as of June 30th
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43.1 days
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20.3 days
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22.8 days
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|||||||||
Deferred Revenue as of June 30th
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$ | 113.9 | $ | 121.9 | (6.5 | )% | ||||||
Debt as of June 30th
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$ | 120.0 | $ | 150.0 | ||||||||
Weighted Average Diluted Shares of Common Stock Outstanding
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23,550,000 | 23,529,000 | ||||||||||
Shares of Common Stock Repurchased
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0 | 928,500 | (B) | |||||||||
Number of New Colleges in Operation
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0 | 1 | ||||||||||
Capital Expenditures, Net
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$ | 2.0 | $ | 7.1 | (72.5 | )% | ||||||
Graduate Employment Rate as of April 30th
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70 | % (C) | 70 | % (D) | ||||||||
Average Annual Reported Graduate Salary as of April 30th
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$ | 32,612 | (E) | $ | 31,790 | (F) | 2.6 | % | ||||
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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2013
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2012
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Increase/
(Decrease)
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Revenue
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$ | 547.6 | $ | 671.6 | (18.5 | )% | ||||||
Operating Income
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$ | 87.9 | $ | 178.0 | (50.6 | )% | ||||||
Operating Margin
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16.1 | % | 26.5 | % |
(1,040) basis points
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Net Income
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$ | 52.0 | $ | 107.1 | (51.4 | )% | ||||||
Earnings Per Share (diluted)
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$ | 2.21 | $ | 4.36 | (49.3 | )% | ||||||
Bad Debt Expense as a Percentage of Revenue
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7.1 | % | 5.2 | % |
190 basis points
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Revenue Per Student
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$ | 8,971 | $ | 9,303 | (3.6 | )% | ||||||
Weighted Average Diluted Shares of Common Stock Outstanding
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23,516,000 | 24,583,000 | ||||||||||
Shares of Common Stock Repurchased
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0 | 3,025,700 | (G) | |||||||||
Number of New Colleges in Operation
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0 | 5 | ||||||||||
Capital Expenditures, Net
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$ | 3.4 | $ | 11.6 | (71.0 | )% | ||||||
_______________ |
(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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Represents the percentage of the ITT Technical Institutes’ 2012 employable graduates who obtained employment in positions using skills taught in their programs of study as of April 30, 2013.
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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 average annual salary reported by the ITT Technical Institutes’ 2012 employed graduates as of April 30, 2013.
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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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For approximately $207.9 million or at an average price of $68.72 per share.
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ITT EDUCATIONAL SERVICES, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands, except per share data)
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As of
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June 30, 2013
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December 31, 2012
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June 30, 2012
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(unaudited)
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(unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 185,408 | $ | 246,342 | $ | 167,234 | ||||||
Restricted cash
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776 | 601 | 751 | |||||||||
Accounts receivable, net
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123,076 | 77,313 | 73,675 | |||||||||
Deferred income taxes
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29,131 | 44,547 | 16,859 | |||||||||
Prepaid expenses and other current assets
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19,788 | 16,162 | 14,571 | |||||||||
Total current assets
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358,179 | 384,965 | 273,090 | |||||||||
Property and equipment, net
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179,095 | 189,890 | 198,175 | |||||||||
Deferred income taxes
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52,759 | 56,112 | 36,016 | |||||||||
Other assets
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39,440 | 41,263 | 49,360 | |||||||||
Total assets
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$ | 629,473 | $ | 672,230 | $ | 556,641 | ||||||
Liabilities and Shareholders' Equity
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Current liabilities:
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Accounts payable
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$ | 63,719 | $ | 63,304 | $ | 80,777 | ||||||
Accrued compensation and benefits
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26,219 | 21,023 | 25,711 | |||||||||
Other current liabilities
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41,521 | 86,722 | 19,454 | |||||||||
Deferred revenue
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113,891 | 135,900 | 121,873 | |||||||||
Total current liabilities
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245,350 | 306,949 | 247,815 | |||||||||
Long-term debt
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120,000 | 140,000 | 150,000 | |||||||||
Other liabilities
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84,191 | 98,327 | 74,615 | |||||||||
Total liabilities
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449,541 | 545,276 | 472,430 | |||||||||
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, $.01 par value, 300,000,000 shares authorized, 37,068,904 issued
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371 | 371 | 371 | |||||||||
Capital surplus
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204,731 | 206,703 | 198,812 | |||||||||
Retained earnings
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1,011,061 | 959,072 | 925,781 | |||||||||
Accumulated other comprehensive (loss)
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(7,787 | ) | (7,930 | ) | (9,147 | ) | ||||||
Treasury stock, 13,700,051; 13,744,395 and 13,749,764 shares at cost
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(1,028,444 | ) | (1,031,262 | ) | (1,031,606 | ) | ||||||
Total shareholders' equity
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179,932 | 126,954 | 84,211 | |||||||||
Total liabilities and shareholders' equity
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$ | 629,473 | $ | 672,230 | $ | 556,641 |
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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2013
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2012
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2013
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2012
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Revenue
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$ | 259,936 | $ | 329,825 | $ | 547,647 | $ | 671,619 | ||||||||
Costs and expenses:
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Cost of educational services
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123,828 | 140,940 | 249,049 | 275,881 | ||||||||||||
Student services and administrative expenses
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100,903 | 111,467 | 207,185 | 217,733 | ||||||||||||
Loss related to private student loan programs
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0 | 0 | 3,464 | 0 | ||||||||||||
Total costs and expenses
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224,731 | 252,407 | 459,698 | 493,614 | ||||||||||||
Operating income
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35,205 | 77,418 | 87,949 | 178,005 | ||||||||||||
Interest income
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172 | 502 | 206 | 1,183 | ||||||||||||
Interest (expense)
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(1,113 | ) | (1,254 | ) | (2,265 | ) | (1,801 | ) | ||||||||
Income before provision for income taxes
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34,264 | 76,666 | 85,890 | 177,387 | ||||||||||||
Provision for income taxes
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13,405 | 30,664 | 33,901 | 70,314 | ||||||||||||
Net income
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$ | 20,859 | $ | 46,002 | $ | 51,989 | $ | 107,073 | ||||||||
Earnings per share:
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Basic
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$ | 0.89 | $ | 1.97 | $ | 2.22 | $ | 4.39 | ||||||||
Diluted
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$ | 0.89 | $ | 1.96 | $ | 2.21 | $ | 4.36 | ||||||||
Supplemental Data:
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Cost of educational services
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47.6 | % | 42.7 | % | 45.5 | % | 41.1 | % | ||||||||
Student services and administrative expenses
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38.8 | % | 33.8 | % | 37.8 | % | 32.4 | % | ||||||||
Loss related to private student loan programs
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0.0 | % | 0.0 | % | 0.6 | % | 0.0 | % | ||||||||
Operating margin
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13.5 | % | 23.5 | % | 16.1 | % | 26.5 | % | ||||||||
Student enrollment at end of period
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58,617 | 66,397 | 58,617 | 66,397 | ||||||||||||
Campuses at end of period
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147 | 146 | 147 | 146 | ||||||||||||
Shares for earnings per share calculation:
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Basic
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23,414,000 | 23,390,000 | 23,406,000 | 24,405,000 | ||||||||||||
Diluted
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23,550,000 | 23,529,000 | 23,516,000 | 24,583,000 | ||||||||||||
Effective tax rate
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39.1 | % | 40.0 | % | 39.5 | % | 39.6 | % |
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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2013
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2012
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2013
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2012
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Cash flows from operating activities:
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Net income
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$ | 20,859 | $ | 46,002 | $ | 51,989 | $ | 107,073 | ||||||||
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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7,351 | 7,695 | 14,643 | 15,115 | ||||||||||||
Provision for doubtful accounts
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19,038 | 19,006 | 38,923 | 34,607 | ||||||||||||
Deferred income taxes
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3,123 | (6,334 | ) | 16,334 | (10,076 | ) | ||||||||||
Excess tax benefit from stock option exercises
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0 | (574 | ) | 0 | (1,379 | ) | ||||||||||
Stock-based compensation expense
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2,301 | 4,272 | 5,394 | 8,755 | ||||||||||||
Settlement cost
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0 | 0 | (46,000 | ) | 0 | |||||||||||
Other
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71 | 96 | 365 | (243 | ) | |||||||||||
Changes in operating assets and liabilities:
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Restricted cash
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(57 | ) | 372 | (175 | ) | 1,377 | ||||||||||
Accounts receivable
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(38,037 | ) | (38,270 | ) | (84,686 | ) | (60,176 | ) | ||||||||
Accounts payable
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6 | 3,113 | 415 | 1,901 | ||||||||||||
Other operating assets and liabilities
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(311 | ) | (15,400 | ) | (11,004 | ) | 6,766 | |||||||||
Deferred revenue
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(6,737 | ) | (58,274 | ) | (22,009 | ) | (104,670 | ) | ||||||||
Net cash flows from operating activities
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7,607 | (38,296 | ) | (35,811 | ) | (950 | ) | |||||||||
Cash flows from investing activities:
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Facility expenditures and land purchases
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(360 | ) | (253 | ) | (460 | ) | (385 | ) | ||||||||
Capital expenditures, net
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(1,955 | ) | (7,117 | ) | (3,373 | ) | (11,635 | ) | ||||||||
Proceeds from sales and maturities of investments and repayment of notes
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107 | 117,216 | 322 | 216,171 | ||||||||||||
Purchase of investments and note advances
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0 | 0 | (1,241 | ) | (63,545 | ) | ||||||||||
Net cash flows from investing activities
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(2,208 | ) | 109,846 | (4,752 | ) | 140,606 | ||||||||||
Cash flows from financing activities:
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Excess tax benefit from stock option exercises
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0 | 574 | 0 | 1,379 | ||||||||||||
Proceeds from exercise of stock options
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0 | 3,423 | 0 | 8,091 | ||||||||||||
Debt issue costs
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0 | 0 | 0 | (1,525 | ) | |||||||||||
Proceeds from revolving borrowings
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0 | 0 | 0 | 175,000 | ||||||||||||
Repayments of revolving borrowings
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(30,000 | ) | (25,000 | ) | (20,000 | ) | (175,000 | ) | ||||||||
Repurchase of common stock and shares tendered for taxes
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(3 | ) | (61,789 | ) | (371 | ) | (209,360 | ) | ||||||||
Net cash flows from financing activities
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(30,003 | ) | (82,792 | ) | (20,371 | ) | (201,415 | ) | ||||||||
Net change in cash and cash equivalents
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(24,604 | ) | (11,242 | ) | (60,934 | ) | (61,759 | ) | ||||||||
Cash and cash equivalents at beginning of period
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210,012 | 178,476 | 246,342 | 228,993 | ||||||||||||
Cash and cash equivalents at end of period
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$ | 185,408 | $ | 167,234 | $ | 185,408 | $ | 167,234 |