-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CdQan1g3kjKK3e97tHW7vCLqAWdFrFf2irHPAC+1D7tvyO5HUa4Fbwc06qqNGAj5 UIaHhVHTQRCiPn/s93JJyw== 0000950131-96-003651.txt : 19960903 0000950131-96-003651.hdr.sgml : 19960903 ACCESSION NUMBER: 0000950131-96-003651 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960806 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ITT EDUCATIONAL SERVICES INC CENTRAL INDEX KEY: 0000922475 STANDARD INDUSTRIAL CLASSIFICATION: 8200 IRS NUMBER: 362061311 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13144 FILM NUMBER: 96604264 BUSINESS ADDRESS: STREET 1: 5975 CASTLE CREEK PARKWAY N DR STREET 2: PO BOX 50466 CITY: INDIANAPOLIS STATE: IN ZIP: 46250 BUSINESS PHONE: 3175944289 MAIL ADDRESS: STREET 1: 5975 CASTLE CREEK PKWY N DR STREET 2: P O BOX 50466 CITY: INDIANAPOLIS STATE: IN ZIP: 46250-0466 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ENDED JUNE 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_________________ to __________________ Commission file number 1-13144 ITT EDUCATIONAL SERVICES, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-2061311 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5975 CASTLE CREEK PARKWAY N. DRIVE P.O. BOX 50466 INDIANAPOLIS, INDIANA 46250-0466 (Address of principal executive offices) (Zip Code) (317) 594-9499 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 17,999,987 Number of shares of Common Stock, $.01 par value, outstanding at June 30, 1996. ITT EDUCATIONAL SERVICES, INC. Indianapolis, Indiana Quarterly Report to Securities and Exchange Commission June 30, 1996 PART I ITEM 1. FINANCIAL STATEMENTS. INDEX -----
Page ---- Consolidated Statements of Income (unaudited) for the six months ended June 30, 1996 and 1995 and the three months ended June 30, 1996 and 1995.............................................. 3 Consolidated Balance Sheets as of June 30, 1996 and 1995 (unaudited) and December 31, 1995............................................... 4 Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 1996 and 1995 and the three months ended June 30, 1996 and 1995.............................................. 5 Notes to Consolidated Financial Statements........................... 6
-2- ITT EDUCATIONAL SERVICES, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (unaudited)
Three Months Ended June 30, Six Months Ended June 30, ----------------------------- ------------------------- 1996 1995 1996 1995 -------------- ------------- ------------ ----------- REVENUES Tuition $42,376 $37,309 $ 91,644 $81,958 Other educational 9,192 7,660 17,027 14,180 ------- ------- -------- ------- Total revenue 51,568 44,969 108,671 96,138 ------- ------- -------- ------- COSTS AND EXPENSES Cost of educational services 35,074 32,082 68,561 63,685 Student services and administrative expenses 16,880 14,061 33,385 28,140 ------- ------- -------- ------- 51,954 46,143 101,946 91,825 ------- ------- -------- ------- Operating income (loss) (386) (1,174) 6,725 4,313 Interest income, net 909 801 1,856 2,013 ------- ------- -------- ------- Income before income taxes 523 (373) 8,581 6,326 Income taxes 209 (149) 3,432 2,524 ------- ------- -------- ------- Net income (loss) $ 314 $ (224) $ 5,149 $ 3,802 ======= ======= ======== ======= Earnings (loss) per common share $ .02 $ (0.01) $ .29 $ .21 Average equivalent common shares outstanding (in thousands) 18,106 18,027 18,088 18,023
The accompanying notes are an integral part of these consolidated financial statements. -3- ITT EDUCATIONAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
June 30, 1996 June 30, 1995 (unaudited) December 31, 1995 (unaudited) ------------- ----------------- ------------- ASSETS Current assets Cash $ 46 $ 595 $ 574 Restricted cash 910 5,037 10,849 Cash invested with ITT Corporation 75,347 71,885 58,432 Accounts receivable, net 8,932 7,592 6,750 Deferred income tax 509 950 1,012 Prepaids and other current assets 3,030 1,508 2,946 -------- -------- -------- Total current assets 88,774 87,567 80,563 Property and equipment, net 17,906 18,985 17,359 Direct marketing costs 5,352 5,031 5,177 Other assets 2,658 2,701 2,349 -------- -------- -------- Total assets $114,690 $114,284 $105,448 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 16,778 $ 8,336 $ 11,246 Accrued compensation and benefits 2,806 4,195 3,414 Other accrued liabilities 2,953 6,172 4,529 Deferred tuition revenue 31,457 40,063 37,797 -------- -------- -------- Total current liabilities 53,994 58,766 56,986 Other liabilities 1,706 1,677 2,210 -------- -------- -------- Total liabilities 55,700 60,443 59,196 -------- -------- -------- Shareholders' equity Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued or outstanding Common stock, $.01 par value, 50,000,000 shares authorized, 18,000,000, 12,000,000 and 12,000,000 issued and outstanding 180 120 120 Capital surplus 32,603 32,663 32,663 Retained earnings 26,207 21,058 13,469 -------- -------- -------- Total shareholders' equity 58,990 53,841 46,252 -------- -------- -------- Total liabilities and shareholders' equity $114,690 $114,284 $105,448 -------- -------- --------
The accompanying notes are an integral part of these consolidated financial statements. -4- ITT EDUCATIONAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
Three Months Ended June 30, Six Months Ended June 30, ----------------------------- --------------------------- 1996 1995 1996 1995 ------------- -------------- ------------ ------------- Cash flows from operating activities: Net earnings (loss) $ 314 $ (224) $ 5,149 $ 3,802 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 2,026 1,837 3,991 3,654 Provision for doubtful accounts 460 231 849 650 Deferred taxes 199 (81) 474 261 Increase/decrease in operating assets and liabilities: Accounts receivable (1,577) (432) (2,189) (824) Direct marketing costs (394) (109) (321) (123) Accounts payable and accrued liabilities (2,415) (1,532) 3,834 1,894 Prepaids and other assets (128) 443 (1,483) (403) Deferred tuition revenue 3,555 5,381 (8,606) (3,174) ------- ------- ------- ------- Net cash provided by operating activities 2,040 5,514 1,698 5,737 ------- ------- ------- ------- Cash flows used for investing activities: Capital expenditures, net (1,720) (1,519) (2,912) (2,692) Net increase in cash invested with ITT Corporation (140) (1,659) (3,462) (2,522) ------- ------- ------- ------- Net cash used for investing activities (1,860) (3,178) (6,374) (5,214) ------- ------- ------- ------- Net increase (decrease) in cash and restricted cash 180 2,336 (4,676) 523 Cash and restricted cash at beginning of period 776 9,087 5,632 10,900 ------- ------- ------- ------- Cash and restricted cash at end of period $ 956 $11,423 $ 956 $11,423 ------- ------- ------- -------
The accompanying notes are an integral part of these consolidated financial statements. -5- ITT EDUCATIONAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (Dollar amounts in thousands unless otherwise stated) 1. The accompanying unaudited consolidated financial statements have been prepared by ITT Educational Services, Inc. (the "Company") without audit. In the opinion of management, the financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial condition and results of operations of the Company. Certain information and footnote disclosures, including significant accounting policies, normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission for the year ended December 31, 1995. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of results for the entire calendar year. 2. On March 22, 1996, the Company declared a 3 for 2 Common Stock split, effected by payment of a stock dividend on April 15, 1996 to all shareholders of record at the close of business on April 1, 1996. The earnings per share amounts for all prior periods have been restated to reflect this stock split. -6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the same titled section contained in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission for the year ended December 31, 1995 for discussion of cash receipts from financial aid programs, nature of capital additions, seasonality of revenues, components of income statement captions, interest payments on cash invested with ITT Corporation ("ITT") and other matters. The Company records its revenues as students attend class. Due to the two week vacations in June and December, the first and third quarters include 13 weeks of revenue and the second and fourth quarters include 11 weeks of revenue. The Company's incurrence of costs, however, is generally not affected by the academic schedule and such costs do not fluctuate significantly on a quarterly basis. As a result, net income in the second and fourth quarters is significantly less than in the first and third quarters. Results of Operations - - --------------------- Revenues increased $6.6 million, or 14.7%, to $51.6 million in the three months ended June 30, 1996 from $45.0 million in the three months ended June 30, 1995. Revenues increased $12.6 million, or 13.1%, to $108.7 million in the six months ended June 30, 1996 from $96.1 million in the six months ended June 30, 1995. These increases are primarily due to a 5% increase in tuition rates in September 1995, an increase in the number of first-time students beginning classes in March and June 1996 as discussed below, increased total student enrollment at June 30, 1996 as discussed below, and a change in the mix of students to higher tuition rate courses (i.e., bachelor's degree and CAD programs). The total number of first-time and re-entering students beginning classes in 1996 and 1995 may be shown as follows:
Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------- Percentage Percentage 1996 1995 Increase 1996 1995 Increase ----- ----- ---------- ------ ----- ---------- First-time students 5,918 4,920 20.3 9,481 7,658 23.8 Re-entering students 635 552 15.0 1,312 1,130 16.1 ----- ----- ---- ------ ----- ---- Total new students 6,553 5,472 19.8 10,793 8,788 22.8 ===== ===== ==== ====== ===== ====
The total student enrollment on June 30, 1996 was 22,100, compared to 20,365 students on June 30, 1995, an increase of 8.5%. Cost of educational services increased $3.0 million, or 9.3%, to $35.1 million in the three months ended June 30, 1996 from $32.1 million in the three months ended June 30, 1995. Cost of educational services increased $4.9 million, or 7.7%, to $68.6 million in the six months ended June 30, 1996 from $63.7 million in the six months ended June 30, 1995. These increases are principally a result of costs required to service the increased enrollment, normal inflationary cost increases for wages, rent and other costs of services, and increased costs at new technical institutes (two opened in September 1995 and two in March 1996). Cost of educational services decreased as a percentage of revenue in the three and six months ended June 30, 1996 from the respective periods in 1995 primarily because of greater revenues being spread over the fixed portion of cost of educational services. -7- Student services and administrative expenses increased $2.8 million, or 19.9%, to $16.9 million in the three months ended June 30, 1996 from $14.1 million in the three months ended June 30, 1995. Student services and administrative expenses increased $5.3 million, or 18.9%, to $33.4 million in the six months ended June 30, 1996 from $28.1 million in the six months ended June 30, 1995. To address the relatively soft market for new student enrollment, the Company increased its media advertising expenses in the three and six months ended June 30, 1996 by approximately 31% and 30%, respectively, over the same expenses incurred in the three and six months ended June 30, 1995, respectively. Student services and administrative expenses also increased as a result of normal inflationary cost increases for wages and media advertising. The Company incurs operating losses when opening new institutes. Five new institutes were opened in 1993, six in 1994, two in 1995 and two in the first six months of 1996. A new institute typically is open for approximately 24 months before it experiences a profit. The revenues and expenses of these institutes are included in the respective captions in the consolidated statement of income. The amount of operating losses (pre-tax) during the three and six months ended June 30, 1996 for institutes open less than 24 months were $2.2 million and $3.6 million, respectively, compared to $2.3 million and $4.4 million for the three and six months ended June 30, 1995, respectively. Operating losses decreased $0.8 million to $0.4 million in the three months ended June 30, 1996 from $1.2 million in the three months ended June 30, 1995. Operating income increased $2.4 million, or 55.8%, to $6.7 million in the six months ended June 30, 1996 from $4.3 million in the six months ended June 30, 1995. These increases are primarily due to the control of costs and the reduction of operating losses of new institutes (i.e., ten institutes in the first 24 months of operation in the six months ended June 30, 1996 compared to 13 in the six months ended June 30, 1995). The operating margin increased to 6.2% of revenues in the six months ended June 30, 1996, up from 4.5% in the six months ended June 30, 1995. Interest income in the three months ended June 30, 1996 increased $0.1 million from the three months ended June 30, 1995 because of a non-recurring interest expense of $250,000, related to a previously accrued liability for a state tax assessment recorded in the three months ended June 30, 1995, that was offset by the reduction in the interest rate earned on the cash invested by the Company with ITT (i.e., 5.5% in the three months ended June 30, 1996 compared to 7.5% in the three months ended June 30, 1995). Interest income decreased $0.1 million, or 5.0%, to $1.9 million in the six months ended June 30, 1996 from $2.0 million in the six months ended June 30, 1995 due to the same reasons discussed above for the three months ended June 30, 1996. Financial Condition, Liquidity and Capital Resources - - ---------------------------------------------------- Due to the seasonal pattern of enrollments and the receipt of tuition payments, comparisons of financial position and cash generated from operations should be made both to the end of the previous year and to the corresponding period during the previous year. Net cash provided by operating activities was $2.0 million in the three months ended June 30, 1996 compared to $5.5 million provided by operations in the three months ended June 30, 1995. Net cash provided by operating activities was $1.7 million in the six months ended June 30, 1996 compared to $5.7 million in the six months ended June 30, 1995. These decreases are primarily due to the July 1995 federal regulation that changes the timing of receipt of federal financial aid to later dates in 1996 than 1995 and its impact on accounts receivable and deferred tuition revenue. The Company received $7.5 million of cash on July 11, 1996 pursuant to the July 1995 federal regulation. This amount would have been received in June 1996 pursuant to the previous regulations. -8- Capital expenditures were $1.7 million in the three months ended June 30, 1996 compared to $1.5 million in the three months ended June 30, 1995. Capital expenditures were $2.9 million in the six months ended June 30, 1996 compared to $2.7 million in the six months ended June 30, 1995. The Company expects that the capital additions for the full 1996 year will be approximately $9.0 million or a $0.5 million increase over 1995. The capital additions for a new technical institute are approximately $0.4 million and the capital additions for each new curriculum at an existing institute are approximately $0.2 million. The Company anticipates that its planned capital additions can be funded through cash flows from operations. Cash flows from operations on a long-term basis are highly dependent upon the receipt of funds from federal financial aid programs and the amount of funds spent on new technical institutes, curricula additions at existing institutes and possible acquisitions. Factors That May Affect Future Results - - -------------------------------------- This report contains certain forward looking statements that involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: business conditions and growth in the postsecondary education industry and in the general economy; changes in federal and state governmental regulations with respect to education and accreditation standards, or the interpretation or enforcement thereof, including, but not limited to, the level of government funding for, and the Company's eligibility to participate in, student financial aid programs utilized by the Company's students; effects of any change in ownership of the Company resulting in a change in control of the Company, including, but not limited to, the consequences of such changes on the accreditation and federal and state regulation of the institutes; receptivity of students and employers to the Company's existing program offerings and new curricula; loss of lender access to the Company's students for student loans; and a substantial increase in the shares of Common Stock available for sale in the market if ITT divests some or all of its Common Stock holdings. -9- PART II ITEM 1. LEGAL PROCEEDINGS. The Company is subject to litigation in the ordinary course of its business. Among the legal actions currently pending is Eldredge, et al. v. ITT Educational Services, Inc., et al. (Civil Action No. 689376). This action was filed on June 8, 1995 in the Superior Court of San Diego County in San Diego, California by seven students who attended the San Diego ITT Technical Institute. The suit alleges, among other things, misrepresentation, civil conspiracy and statutory violations by the Company, ITT Corporation and three employees of the San Diego ITT Technical Institute. The plaintiffs seek general damages, exemplary damages, civil penalties, restitution (including return of educational costs) on behalf of the plaintiffs and all other persons similarly situated, attorney's fees and costs. The judge has recently determined that the Company is subject to certain statutory provisions which the Company believed were not applicable to it. The Company intends to appeal this decision. While there can be no assurances as to the ultimate outcome of any litigation involving the Company, management does not believe any pending legal proceeding will result in a judgment or settlement that will have, after taking into account the Company's existing provisions for such liabilities, a material adverse effect on the Company's financial position, results of operations or cash flows. Certain litigation may, however, subject the affected ITT Technical Institute to additional regulatory scrutiny. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the second quarter of fiscal year 1996, the Company submitted the following matters to a vote of the holders of its Common Stock: The 1996 annual meeting of shareholders of the Company was held on May 14, 1996 to elect directors and approve an amendment to the Company's Restated Certificate of Incorporation. At this meeting, the shareholders elected the following persons to serve as directors of the Company in the second class of the Company's Board of Directors, each to hold office for the term of three years and until his successor is elected and has qualified: Second Class - Term expiring at 1999 Annual Meeting ------------ 1. Robert A. Bowman 2. John E. Dean 3. Vin Weber The final results of the vote taken at such meeting for the director nominees are as follows:
Broker Votes For Votes Withheld Nonvotes Abstentions ---------- --------------- -------- ----------- Robert A. Bowman 11,764,529 7,446 0 0 John E. Dean 11,764,629 7,346 0 0 Vin Weber 11,764,629 7,346 0 0
At this meeting, the shareholders also approved an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of the Company's Common Stock, $0.01 par value per share, from 25,000,000 to 50,000,000. The final results of the vote taken at such meeting to approve the amendment to the Company's Restated Certificate of Incorporation are as follows: -10- Percentage of Shares Broker Votes For Outstanding Voting For Votes Against Nonvotes Abstentions ---------- ---------------------- ------------- -------- ----------- 11,739,947 97.83% 27,955 0 4,073 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended June 30, 1996. -11- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ITT EDUCATIONAL SERVICES, INC. Date: August 5, 1996 By: /s/ Gene A. Baugh ------------------------------------------- GENE A. BAUGH Senior Vice President, Treasurer and Controller (Principal Financial Officer) INDEX TO EXHIBITS
Exhibit No. Description - - ---------------------------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation, as Amended to Date.......... 11 Statement re Computation of Per Share Earnings..................... 27 Financial Data Schedule............................................ - - ----------------
S-2 EX-3.1 2 RESTATED ARTICLES OF INCORPORATION RESTATED CERTIFICATE OF INCORPORATION OF ITT EDUCATIONAL SERVICES, INC. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware ------------------------------------ ITT EDUCATIONAL SERVICES, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is ITT EDUCATIONAL SERVICES, INC. The Corporation was originally incorporated under the name Allied School of Mechanical Trades, Inc., and the original Certificate of Incorporation of the Corporation was filed with the Secretary of the State of Delaware on June 27, 1946. 2. This Restated Certificate of Incorporation integrates, amends and restates the Certificate of Incorporation of the Corporation. 3. The text of the Certificate of Incorporation as heretofore amended is hereby integrated, amended and restated to read in its entirety as follows: ARTICLE I: The name of the Corporation is: ITT EDUCATIONAL SERVICES, INC. ARTICLE II: The Corporation's registered office in the state of Delaware is at Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of Newcastle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III: The nature of the business of the Corporation and its purpose are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV: Section 1. The amount of total authorized capital stock of the Corporation is 30,000,000 shares, of which 25,000,000 shares shall be Common Stock, having a par value of $.01 per share ("Common Stock"), and 5,000,000 shares shall be Preferred Stock, having a par value $.01 per share ("Preferred Stock"). Section 2. Except for and subject to those rights expressly granted to the holders of Exhibit 3.1 Preferred Stock, or any series thereof, by the Board of Directors of the Corporation (the "Board of Directors"), pursuant to the authority hereby vested in the Board of Directors or as provided by the laws of the State of Delaware, the holders of the Corporation's Common Stock shall have exclusively all rights of stockholders and shall possess exclusively all voting power. Each holder of Common Stock of the Corporation shall be entitled, on each matter submitted for a vote to holders of Common Stock, to one vote for each share of Common Stock standing in such holder's name on the books of the Corporation. Section 3. The Board of Directors is hereby expressly authorized, at any time and from time to time by a resolution or resolutions, to divide the shares of Preferred Stock into one or more series, to issue from time to time in whole or in part the shares of Preferred Stock or the shares of any series thereof, and to fix and determine in the resolution or resolutions providing for the issue of shares of Preferred Stock of a particular series the voting rights, if any, of the holders of shares of such series, the designations, preferences and relative, participating, optional and other special rights of such series, and the qualifications, limitations and restrictions thereof, to the fullest extent now or hereafter permitted by the laws of the State of Delaware. The voting rights, if any, of each such series and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations and restrictions thereof, if any, may differ from those of any and all other series. Unless otherwise provided in the resolution or resolutions of the Board of Directors providing for the issuance thereof, shares of any series of Preferred Stock that shall be issued and thereafter acquired by the Corporation through purchase, redemption, exchange, conversion or otherwise shall return to the status of authorized but unissued Preferred Stock. Without limiting the generality of the foregoing authority of the Board of Directors, the Board of Directors from time to time may (if otherwise permitted under the General Corporation Law of the State of Delaware): (a) designate a series of Preferred Stock, which may be distinguished by number, letter or title from other Preferred Stock of the Corporation; (b) fix and thereafter increase or decrease (but not below the number of shares thereof then outstanding) the number of shares of Preferred Stock that shall constitute such series; (c) provide for dividends on shares of Preferred Stock of such series and, if provisions are made for dividends, determine the dividend rate and the times at which holders of shares of Preferred Stock of such series shall be entitled to receive the dividends, whether the dividends shall be cumulative and, if so, from what date or dates, and the other conditions, if any, including rights of priority, if any, upon which the dividends shall be paid; (d) determine the rights, if any, to which holders of the shares of Preferred Stock of such series shall be entitled in the event of any liquidation, dissolution or winding up of the Corporation; provided, however, that in the event of any such liquidation, dissolution or winding up of the Corporation, the holders of the shares of Preferred Stock of such series shall not be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders, whether from capital, surplus or earnings, an amount in cash greater than $100.00 per share, plus accrued and unpaid dividends to the date fixed for liquidation, dissolution or winding up, whether or not declared. (e) provide for the redemption or purchase of shares of Preferred Stock of such series and, if provisions are made for redemption, determine the time or times and the price or prices at which the shares of Preferred Stock of such series shall be subject to redemption in whole or in part, and the other terms and conditions, if any, on which shares of Preferred Stock of such series may be redeemed or purchased; (f) provide for a sinking fund or purchase fund for the redemption or purchase of shares of Preferred Stock of such series and, if any such fund is so provided for the benefit of such shares of Preferred Stock, the amount of such fund and the manner of its application; (g) determine the extent of the voting rights, if any, of the shares of Preferred Stock of such series, including but not limited to the right of the holders of such shares to vote as a separate class acting alone or with the holders of one or more other series of Preferred Stock and the right to have more (or less) than one vote per share; (h) provide for whether or not the shares of Preferred Stock of such series shall be convertible into, or exchangeable for, shares of any other class or classes of capital stock, or any series thereof, of the Corporation and, if so convertible or exchangeable, determine the conversion or exchange price or rate, the adjustments thereof and the other terms and conditions, if any, on which such shares of Preferred Stock shall be so convertible or exchangeable; and (i) provide for any other preferences, any relative, participating, optional or other special rights, any qualifications, limitations or restrictions thereof, or any other terms or provisions of shares of Preferred Stock of such series as the Board of Directors may deem appropriate or desirable. Section 4. Shares of Common Stock or Preferred Stock may be issued by the Corporation from time to time for such consideration, having a value of not less than the par value, if any, thereof, as is determined from time to time by the Board of Directors. Any and all shares issued and for which full consideration has been paid or delivered shall be deemed fully paid stock and the holder thereof shall not be liable for any further payment thereon. ARTICLE V: The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation and for the purpose of creating, defining, limiting and regulating the powers of the Corporation and its Directors and stockholders: Section 1. The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors. Section 2. (a) The Board of Directors shall consist of not less than three (3) nor more than 20 (twenty) directors. The exact number of directors shall be determined from time to time by a resolution or resolutions adopted by the affirmative vote of a majority of the entire Board of Directors. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole board permits, with the term of office of one class expiring each year. At the next election of directors, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and the directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Subject to the foregoing, at each annual meeting of stockholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting and each director so elected shall hold office until his successor is elected and qualified, or until his earlier resignation or removal. (c) If the number of directors is changed, any increase or decrease in the number of directors shall be apportioned among the three classes so as to make all classes as nearly equal in number as possible, and the Board of Directors shall decide which class shall contain an unequal number of directors. (d) Notwithstanding the foregoing, whenever holders of any shares of Preferred Stock, or any series thereof, shall be entitled, voting separately as a class, to elect any directors, all directors so elected shall be allocated, each time they are so elected, to the class whose term expires at the next succeeding annual meeting of stockholders and the terms of all directors so elected by such holders shall expire at the next succeeding annual meeting of stockholders. The number of directors that may be elected by such holders of Preferred Stock shall be in addition to the number of directors fixed pursuant to paragraph (a) of this Section 2. Section 3. Subject to the rights of the holders of any shares of Preferred Stock, or any series thereof, newly created directorships resulting from an increase in the number of directors or any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal from office, retirement or other cause shall be filled solely by the affirmative vote of the remaining directors then in office, even though less than a quorum, or by the sole remaining director, and each director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which he has been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the authorized number of directors shall shorten the term of any incumbent director. Section 4. Any director may be removed from office with cause, by an affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. Any director may be removed from office with cause by the affirmative vote of a majority of the members of the Board of Directors, other than the director who is subject to a removal vote. Section 5. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of stockholders of the Corporation shall be given if required by, and in the manner provided in, the By-laws. At any annual meeting or special meeting of stockholders of the Corporation, any such business shall be conducted as shall have been brought before such meeting in the manner provided in the By-laws. Section 6. The Board of Directors shall have the express power, without a vote of stockholders, to adopt any By-law not inconsistent with this Restated Certificate of Incorporation or with any By-law adopted by vote of the stockholders of the Corporation, and to amend, alter or repeal the By-laws of the Corporation other than any By-law adopted by vote of the stockholders of the Corporation, except to the extent that the By-laws or this Restated Certificate of Incorporation otherwise provide. The Board of Directors may exercise such power upon the affirmative vote of a majority of the entire Board of Directors. Stockholders may adopt any By-law, or amend, alter or repeal the By-laws of the Corporation, upon the affirmative vote of the holders of shares having at least a majority of the voting power of the then outstanding shares of capital stock of the Corporation entitled (at all times and without regard to the occurrence of a contingency) to vote generally on the election of Directors and other matters submitted for stockholder approval, voting together as a single class. Section 7. No director shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that to the extent required by the provisions of Section 102(b)(7) of the General Corporation Law of the State of Delaware or any successor statute, as the same may be interpreted or amended from time to time, or any other laws of the State of Delaware, nothing contained in this Section 7 shall eliminate or limit the liability of a director (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the General Corporation Law of the State of Delaware, (d) for any transaction from which the director derived an improper personal benefit or (e) for any act or omission occurring prior to the date when this provision becomes effective. If the General Corporation Law of the State of Delaware hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation, in addition to the limitation provided herein, shall be limited to the fullest extent permitted by such amendment. Any amendment, modification or repeal of this Section 7 shall be prospective only, and shall not adversely affect any limitation of the liability of a director existing at the time of such amendment, repeal or modification. ARTICLE VI: (a) Each person who is or was or had agreed to become a director or officer of the Corporation, and each person who is or was serving or who had agreed to serve at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (including the heirs, executor, administrators or estate of such person), shall be indemnified by the Corporation, and (b) each person who is or was or who had agreed to become an employee or agent of the Corporation or who is or was serving or who had agreed to serve at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (including the heirs, executor, administrators or estate of such person) may be indemnified by the Corporation, in each case in accordance with the By-laws, to the full extent permitted from time to time by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) or any other applicable laws as presently or hereafter in effect. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article VI. Any amendment or repeal of this Article VI shall not adversely affect any right or protection existing hereunder immediately prior to such amendment or repeal. ARTICLE VII: No action shall be taken by the stockholders of the Corporation except at a annual or special meeting of stockholders. ARTICLE VIII: The Corporation reserves the right to amend or repeal any provision contained in this Restated Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights herein conferred upon stockholders or Directors are granted subject to this reservation. 4. This Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware and by unanimous written consent of the sole stockholder in accordance with Section 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Restated Certificate of Incorporation has been signed this 16th day of December 1994 by Clark D. Elwood, its Vice President, General Counsel and Secretary and attested to by Cheryl A. Love, its Assistant Secretary. ITT EDUCATIONAL SERVICES, INC. By: /s/ Clark D. Elwood ---------------------------------------- ATTEST: /s/ Cheryl A. Love -------------------------------------- CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF ITT EDUCATIONAL SERVICES, INC. ITT Educational Services, Inc., a Delaware corporation (the "Corporation"), hereby certifies as follows: FIRST: Resolutions setting forth a proposed amendment to the Restated Certificate of Incorporation of the Corporation (the "Amendment"), declaring the Amendment to be advisable, and submitting the Amendment to the stockholders of the Corporation for their consideration at the Corporation's 1996 Annual Meeting of Shareholders were duly adopted by the Board of Directors of the Corporation by unanimous written consent. The resolution setting forth the Amendment is set forth below: RESOLVED, that it be and hereby is declared advisable to amend Article IV, Section 1 of the Corporation's Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock, $0.01 par value per share, of the Corporation from 25,000,000 to 50,000,000 shares, and for that purpose to amend Article IV, Section 1 of the Corporation's Restated Certificate of Incorporation (the "Amendment") to read in its entirety as follows: "Section 1. The amount of total authorized capital stock of the Corporation is 55,000,000 shares, of which 50,000,000 shares shall be Common Stock, having a par value of $.01 per share ("Common Stock"), and 5,000,000 shares shall be Preferred Stock, having a par value of $.01 per share ("Preferred Stock")." SECOND: Pursuant to the resolutions of the Board of Directors of the Corporation, the 1996 Annual Meeting of Shareholders of the Corporation was duly called and held, upon notice and in accordance with the General Corporation Law of the State of Delaware, at which meeting the affirmative vote of a majority of the shares of the Corporation's voting securities outstanding and entitled to vote thereon were voted in favor of the Amendment. THIRD: The Amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, ITT Educational Services, Inc. has caused this certificate to be signed by Clark D. Elwood, its Vice President, General Counsel and Secretary, and attested by Cheryl A. Love, its Assistant Secretary, on the 14th day of May, 1996. ITT EDUCATIONAL SERVICES, INC. By: /s/ Clark D. Elwood ------------------------------------ Clark D. Elwood, Vice President, General Counsel and Secretary ATTEST: /s/ Cheryl A. Love - - ----------------------------------------- Cheryl A. Love, Assistant Secretary EX-11 3 COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS ITT EDUCATIONAL SERVICES, INC. COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (AMOUNTS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net income (loss) $ 314 $ (224) $ 5,149 $ 3,802 ======= ======= ======= ======= Shares: Weighted average number of shares of common stock outstanding 18,000 18,000 18,000 18,000 Shares assumed issued (less shares assumed purchased for treasury) on stock options 106 27 88 23 ------- ------- ------- ------- Outstanding equivalent shares for primary earnings per share calculation 18,106 18,027 18,088 18,023 ======= ======= ======= ======== Earnings (loss) per common share: $ .02 $ (.01) $ .29 $ .21 ======= ======= ======= =======
Exhibit 11 EX-27 4 FINANCIAL DATA SCHEDULE
5 1000 6-MOS DEC-31-1996 JUN-30-1996 76303 0 9529 (597) 0 88774 60891 (42985) 114690 53994 0 180 0 0 58810 114690 0 108671 0 101946 0 849 0 8581 3432 5149 0 0 0 5149 0.29 0.29
-----END PRIVACY-ENHANCED MESSAGE-----