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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Press Release issued by ITT Educational Services, Inc. dated July 28, 2016.
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ITT Educational Services, Inc.
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By:
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/s/ Rocco F. Tarasi, III
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Name:
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Rocco F. Tarasi, III
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Title:
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Executive Vice President, Chief
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Financial Officer
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99.1
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Press Release issued by ITT Educational Services, Inc. dated July 28, 2016.
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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 average annual salary data)
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Increase/
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||||||||||||
2016
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2015
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(Decrease)
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||||||||||
Revenue
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$ | 176.3 | $ | 214.2 | (17.7 | )% | ||||||
Operating Income
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$ | 13.3 | $ | 11.6 | 14.1 | % | ||||||
Operating Margin
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7.5 | % | 5.4 | % |
210 basis points
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|||||||
Net Income
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$ | 4.3 | $ | 0.7 | 502.0 | % | ||||||
Earnings Per Share (diluted)
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$ | 0.18 | $ | 0.03 | 500.0 | % | ||||||
New Student Enrollment
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9,910 | 12,638 | (21.6 | )% | ||||||||
Continuing Students
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30,105 | 35,236 | (14.6 | )% | ||||||||
Total Student Enrollment as of June 30th
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40,015 | 47,874 | (16.4 | )% | ||||||||
Persistence Rate as of June 30th (A)
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69.5 | % | 68.8 | % |
70 basis points
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|||||||
Bad Debt Expense as a Percentage of Revenue
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4.3 | % | 4.1 | % |
20 basis points
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|||||||
Days Sales Outstanding as of June 30th
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25.4 days
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19.2 days
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6.2 days
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|||||||||
Deferred Revenue as of June 30th
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$ | 85.8 | $ | 119.6 | (28.2 | )% | ||||||
Cash and Cash Equivalents as of June 30th
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$ | 78.0 | $ | 124.6 | (37.4 | )% | ||||||
Restricted Cash as of June 30th
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$ | 5.4 | $ | 6.9 | (22.0 | )% | ||||||
Collateral Deposits as of June 30th
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$ | 91.2 | $ | 97.9 | (6.8 | )% | ||||||
Private Education Loans (current and non-current), Less Allowance for Loan Losses, as of June 30th (B)
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$ | 59.8 | $ | 79.1 | (24.4 | )% | ||||||
PEAKS Trust Senior Debt (current and non-current) as of June 30th (C)
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$ | 39.3 | $ | 63.6 | (38.2 | )% | ||||||
CUSO Obligation (current and non-current) as of June 30th (D)
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$ | 105.9 | $ | 113.0 | (6.2 | )% | ||||||
Term Loans (current and non-current) as of June 30th (E)
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$ | 34.2 | $ | 91.2 | (62.5 | )% | ||||||
Weighted Average Diluted Shares of Common Stock Outstanding
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24,122,000 | 24,086,000 | ||||||||||
Capital Expenditures
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$ | 0.3 | $ | 1.6 | (81.5 | )% | ||||||
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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$ | 36,400 | (H) | $ | 34,500 | (I) | 5.5 | % |
Financial and Operating Data for the Six Months Ended June 30th
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(Dollars in millions, except per share data)
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2016
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2015
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Increase/
(Decrease)
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||||||||||
Revenue
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$ | 367.8 | $ | 444.2 | (17.2 | )% | ||||||
Operating Income
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$ | 27.5 | $ | 39.3 | (30.0 | )% | ||||||
Operating Margin
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7.5 | % | 8.8 | % |
(130) basis points
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|||||||
Net Income
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$ | 8.4 | $ | 11.2 | (24.6 | )% | ||||||
Earnings Per Share (diluted)
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$ | 0.35 | $ | 0.47 | (25.5 | )% | ||||||
Bad Debt Expense as a Percentage of Revenue
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4.0 | % | 4.7 | % |
(70) basis points
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|||||||
Weighted Average Diluted Shares of Common Stock Outstanding
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24,181,000 | 23,953,000 | ||||||||||
Capital Expenditures
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$ | 1.0 | $ | 2.5 | (59.3 | )% | ||||||
(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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With respect to the private education loans as of June 30, 2016, the amount included $7.8 million classified as current, and $52.0 million classified as non-current. With respect to the private education loans as of June 30, 2015, the amount included $9.4 million classified as current, and $69.7 million classified as non-current.
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(C)
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With respect to the PEAKS Trust Senior Debt as of June 30, 2016, the amount included $12.8 million classified as current, and $26.5 million classified as non-current. With respect to the PEAKS Trust Senior Debt as of June 30, 2015, the amount included $23.1 million classified as current, and $40.5 million classified as non-current.
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(D)
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With respect to the CUSO Secured Borrowing Obligation as of June 30, 2016, the amount included $17.7 million classified as current, and $88.2 million classified as non-current. With respect to the CUSO Secured Borrowing Obligation as of June 30, 2015, the amount included $19.8 million classified as current, and $93.2 million classified as non-current.
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(E)
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With respect to the term loans as of June 30, 2016, the full amount of $34.2 million was classified as current. With respect to the term loans as of June 30, 2015, the amount included $14.5 million classified as current, and $76.7 million classified as non-current.
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(F)
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Represents the percentage of the ITT Technical Institutes’ 2015 employable graduates who obtained employment in positions using skills taught in their programs of study as of April 30, 2016.
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(G)
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Represents the percentage of the ITT Technical Institutes’ 2014 employable graduates who obtained employment in positions using skills taught in their programs of study as of April 30, 2015.
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(H)
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Represents the average annual salary reported by the ITT Technical Institutes’ 2015 employed graduates as of April 30, 2016.
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(I)
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Represents the average annual salary reported by the ITT Technical Institutes’ 2014 employed graduates as of April 30, 2015.
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·
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$26.5 million in 2016 (of which $17.8 million was paid in the six months ended June 30, 2016);
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·
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$12.2 million in 2017;
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·
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$13.0 million in 2018; and
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·
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$109.5 million in 2019 and later, which amount includes an approximately $10.8 million payment in 2020 under the PEAKS guarantee.
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ITT EDUCATIONAL SERVICES, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands, except per share data)
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(unaudited)
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As of
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June 30, 2016
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December 31, 2015
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June 30, 2015
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 77,999 | $ | 130,897 | $ | 124,632 | ||||||
Restricted cash
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5,408 | 6,015 | 6,936 | |||||||||
Accounts receivable, net
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49,242 | 48,837 | 45,204 | |||||||||
Private education loans
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7,807 | 8,480 | 9,379 | |||||||||
Deferred income taxes
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22,194 | 26,440 | 24,795 | |||||||||
Prepaid expenses and other current assets
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21,328 | 22,429 | 57,294 | |||||||||
Total current assets
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183,978 | 243,098 | 268,240 | |||||||||
Property and equipment, net
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134,402 | 142,164 | 150,095 | |||||||||
Private education loans, excluding current portion, net
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51,960 | 62,161 | 69,724 | |||||||||
Deferred income taxes
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68,496 | 71,817 | 67,125 | |||||||||
Collateral deposits
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91,230 | 91,168 | 97,873 | |||||||||
Other assets
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54,809 | 53,246 | 61,030 | |||||||||
Total assets
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$ | 584,875 | $ | 663,654 | $ | 714,087 | ||||||
Liabilities and Shareholders' Equity
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Current liabilities:
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Current portion of term loans
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$ | 34,231 | $ | 68,161 | $ | 14,546 | ||||||
Current portion of PEAKS Trust senior debt
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12,812 | 20,105 | 23,068 | |||||||||
Current portion of CUSO secured borrowing obligation
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17,706 | 23,591 | 19,750 | |||||||||
Accounts payable
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58,427 | 59,753 | 76,476 | |||||||||
Accrued compensation and benefits
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13,105 | 12,425 | 16,535 | |||||||||
Other current liabilities
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33,152 | 31,973 | 27,391 | |||||||||
Deferred revenue
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85,830 | 113,739 | 119,568 | |||||||||
Total current liabilities
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255,263 | 329,747 | 297,334 | |||||||||
Term loans, excluding current portion
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0 | 0 | 76,688 | |||||||||
PEAKS Trust senior debt, excluding current portion
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26,482 | 30,701 | 40,515 | |||||||||
CUSO secured borrowing obligation, excluding current portion
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88,229 | 91,728 | 93,218 | |||||||||
Other liabilities
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49,857 | 50,342 | 57,170 | |||||||||
Total liabilities
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419,831 | 502,518 | 564,925 | |||||||||
Commitments and contingencies
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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, $.01 par value, 300,000,000 shares authorized, 37,068,904 issued
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371 | 371 | 371 | |||||||||
Capital surplus
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169,037 | 181,160 | 186,501 | |||||||||
Retained earnings
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981,566 | 987,223 | 974,900 | |||||||||
Accumulated other comprehensive (loss) income
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(2,172 | ) | (1,693 | ) | 725 | |||||||
Treasury stock, 13,080,520, 13,394,834 and 13,490,795 shares at cost
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(983,758 | ) | (1,005,925 | ) | (1,013,335 | ) | ||||||
Total shareholders' equity
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165,044 | 161,136 | 149,162 | |||||||||
Total liabilities and shareholders' equity
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$ | 584,875 | $ | 663,654 | $ | 714,087 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(Dollars in thousands, except per share data)
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(unaudited)
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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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2016
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2015
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2016
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2015
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Revenue
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$ | 176,324 | $ | 214,231 | $ | 367,823 | $ | 444,206 | ||||||||
Costs and expenses:
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Cost of educational services
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88,592 | 101,865 | 180,555 | 205,418 | ||||||||||||
Student services and administrative expenses
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71,705 | 91,408 | 149,604 | 181,660 | ||||||||||||
Asset impairment
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317 | 0 | 985 | 0 | ||||||||||||
Legal and professional fees related to certain lawsuits,
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investigations and accounting matters
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1,265 | 6,005 | 6,136 | 13,291 | ||||||||||||
Provision for private education loan losses
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1,169 | 3,313 | 3,047 | 4,557 | ||||||||||||
Total costs and expenses
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163,048 | 202,591 | 340,327 | 404,926 | ||||||||||||
Operating income
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13,276 | 11,640 | 27,496 | 39,280 | ||||||||||||
Interest income
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64 | 22 | 132 | 35 | ||||||||||||
Interest (expense)
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(6,136 | ) | (9,991 | ) | (13,235 | ) | (20,379 | ) | ||||||||
Income before provision for income taxes
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7,204 | 1,671 | 14,393 | 18,936 | ||||||||||||
Provision for income taxes
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2,894 | 955 | 5,976 | 7,773 | ||||||||||||
Net income
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$ | 4,310 | $ | 716 | $ | 8,417 | $ | 11,163 | ||||||||
Earnings per share:
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Basic
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$ | 0.18 | $ | 0.03 | $ | 0.35 | $ | 0.47 | ||||||||
Diluted
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$ | 0.18 | $ | 0.03 | $ | 0.35 | $ | 0.47 | ||||||||
Supplemental Data:
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Cost of educational services
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50.2 | % | 47.5 | % | 49.1 | % | 46.2 | % | ||||||||
Student services and administrative expenses
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40.7 | % | 42.7 | % | 40.7 | % | 40.9 | % | ||||||||
Asset impairment
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0.2 | % | 0.0 | % | 0.3 | % | 0.0 | % | ||||||||
Legal and professional fees related to certain lawsuits,
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investigations and accounting matters
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0.7 | % | 2.8 | % | 1.7 | % | 3.0 | % | ||||||||
Provision for private education loan losses
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0.7 | % | 1.5 | % | 0.8 | % | 1.0 | % | ||||||||
Operating margin
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7.5 | % | 5.4 | % | 7.5 | % | 8.8 | % | ||||||||
Student enrollment at end of period
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40,015 | 47,874 | 40,015 | 47,874 | ||||||||||||
Campuses at end of period
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137 | 141 | 137 | 141 | ||||||||||||
Shares for earnings per share calculation:
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Basic
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23,928,000 | 23,621,000 | 23,835,000 | 23,591,000 | ||||||||||||
Diluted
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24,122,000 | 24,086,000 | 24,181,000 | 23,953,000 | ||||||||||||
Effective tax rate
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40.2 | % | 57.2 | % | 41.5 | % | 41.0 | % |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Dollars in thousands)
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(unaudited)
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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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2016
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2015
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2016
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2015
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Cash flows from operating activities:
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Net income
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$ | 4,310 | $ | 716 | $ | 8,417 | $ | 11,163 | ||||||||
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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4,397 | 6,061 | 8,912 | 12,042 | ||||||||||||
Asset impairment
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317 | 0 | 985 | 0 | ||||||||||||
Provision for doubtful accounts
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7,529 | 8,692 | 14,838 | 20,875 | ||||||||||||
Deferred income taxes
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803 | 2,554 | 3,906 | 12,423 | ||||||||||||
Stock-based compensation expense
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721 | 1,364 | 1,948 | 3,260 | ||||||||||||
Accretion of discount on private education loans
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(2,525 | ) | (2,948 | ) | (5,249 | ) | (6,029 | ) | ||||||||
Accretion of discount on term loans
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329 | 385 | 816 | 776 | ||||||||||||
Accretion of discount on PEAKS Trust senior debt
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516 | 1,365 | 1,236 | 3,020 | ||||||||||||
Accretion of discount on CUSO secured borrowing obligation
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30 | 214 | 75 | 433 | ||||||||||||
Provision for private education loan losses
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1,169 | 3,313 | 3,047 | 4,557 | ||||||||||||
Other
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(285 | ) | (148 | ) | (522 | ) | (415 | ) | ||||||||
Changes in operating assets and liabilities:
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Restricted cash
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130 | (608 | ) | 607 | (896 | ) | ||||||||||
Accounts receivable
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(9,685 | ) | (7,696 | ) | (15,243 | ) | (19,696 | ) | ||||||||
Private education loans
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6,287 | 6,601 | 13,075 | 13,245 | ||||||||||||
Accounts payable
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1,409 | 848 | (1,937 | ) | 6,390 | |||||||||||
Other operating assets and liabilities
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(2,033 | ) | (1,931 | ) | (1,415 | ) | (1,214 | ) | ||||||||
Deferred revenue
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(20,166 | ) | (20,288 | ) | (27,909 | ) | (27,907 | ) | ||||||||
Net cash flows from operating activities
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(6,747 | ) | (1,506 | ) | 5,587 | 32,027 | ||||||||||
Cash flows from investing activities:
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Capital expenditures
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(304 | ) | (1,640 | ) | (1,022 | ) | (2,509 | ) | ||||||||
Collateral and escrowed funds
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(1 | ) | 59 | (62 | ) | 59 | ||||||||||
Net cash flows from investing activities
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(305 | ) | (1,581 | ) | (1,084 | ) | (2,450 | ) | ||||||||
Cash flows from financing activities:
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Repayment of term loans
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(15,824 | ) | (2,500 | ) | (35,000 | ) | (5,000 | ) | ||||||||
Repayment of PEAKS Trust senior debt
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(5,772 | ) | (9,380 | ) | (12,748 | ) | (25,026 | ) | ||||||||
Repayment of CUSO secured borrowing obligation
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(1,855 | ) | (6,314 | ) | (9,459 | ) | (10,351 | ) | ||||||||
Common shares tendered for taxes
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(161 | ) | (38 | ) | (194 | ) | (505 | ) | ||||||||
Net cash flows from financing activities
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(23,612 | ) | (18,232 | ) | (57,401 | ) | (40,882 | ) | ||||||||
Net change in cash and cash equivalents
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(30,664 | ) | (21,319 | ) | (52,898 | ) | (11,305 | ) | ||||||||
Cash and cash equivalents at beginning of period
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108,663 | 145,951 | 130,897 | 135,937 | ||||||||||||
Cash and cash equivalents at end of period
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$ | 77,999 | $ | 124,632 | $ | 77,999 | $ | 124,632 |
PROJECTED
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||||||||
For the Twelve Months Ending
December 31, 2016
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||||||||
Low End of
Range
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High End of
Range
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|||||||
(Dollars in thousands)
|
||||||||
Net Income
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$ | 42,000 | $ | 48,000 | ||||
Plus: Interest expense, net
|
23,000 | 25,000 | ||||||
Income taxes
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28,000 | 32,000 | ||||||
Depreciation and amortization
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17,000 | 20,000 | ||||||
EBITDA
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$ | 110,000 | $ | 125,000 |