ITT Educational Services, Inc. Reports 2011 Second Quarter Results

CARMEL, Ind., July 21, 2011 /PRNewswire/ — ITT Educational Services, Inc.
(NYSE: ESI), a leading provider of technology-oriented postsecondary degree
programs, today reported that new student enrollment in the second quarter of
2011 decreased 19.9% to 17,351 compared to 21,673 in the same period in 2010.
Total student enrollment decreased 7.0% to 78,743 as of June 30, 2011 compared
to 84,695 as of June 30, 2010.

The company provided the following information for the three and six months
ended June 30, 2011 and 2010:

Financial and Operating Data for the Three Months Ended June 30th,
Unless Otherwise Indicated
——————————————————————
(Dollars in millions, except per share and per student data)

Increase/
2011 2010 (Decrease)
—- —- ———-

Revenue $387.9 $401.8 (3.5)%
Operating Income $130.0 $157.1 (17.3)%
(560) basis
Operating Margin 33.5% 39.1% points
Net Income $79.0 $96.0 (17.7)%
Earnings Per Share
(diluted) $2.85 $2.78 2.5%
New Student Enrollment 17,351 21,673 (19.9)%
Continuing Students 61,392 63,022 (2.6)%
Total Student Enrollment
as of June 30th 78,743 84,695 (7.0)%
Persistence Rate as of (140) basis
June 30th (A) 73.1% 74.5% points
Revenue Per Student $4,616 $4,753 (2.9)%
Cash and Cash
Equivalents, Restricted
Cash and
Investments as of June
30th $305.8 $280.1 9.2%
Bad Debt Expense as a (120) basis
Percentage of Revenue 4.5% 5.7% points
Days Sales Outstanding as
of June 30th 11.0 days 22.3 days (11.3) days
Deferred Revenue as of
June 30th $266.8 $197.1 35.4%
Debt as of June 30th $150.0 $150.0
Weighted Average Diluted
Shares of Common Stock 27,719,000 34,525,000
Outstanding
Shares of Common Stock
Repurchased 1,100,000 (B) 1,000,000 (C)
Land and Building
Purchases and
Renovations $1.2 (D) $1.8 (E) (33.1)%
Number of New Colleges in
Operation 1 2
Capital Expenditures, Net $7.5 $7.2 3.4%
Graduate Employment Rate (300) basis
as of April 30th 70% (F) 73% (G) points
Average Annual Reported
Graduate Salary as of
April 30th $31,300 (H) $31,600 (I) (0.9)%

Financial and Operating Data for the Six Months Ended June 30th
—————————————————————
(Dollars in millions, except per share and per student data)

2011 2010 Increase/
—- —- (Decrease)
———-

Revenue $771.0 $785.8 (1.9)%
Operating Income $270.6 $299.7 (9.7)%
(300) basis
Operating Margin 35.1% 38.1% points
Net Income $164.4 $183.5 (10.4)%
Earnings Per Share
(diluted) $5.77 $5.24 10.1%
Bad Debt Expense as a (190) basis
Percentage of Revenue 3.9% 5.8% points
Revenue Per Student $9,141 $9,507 (3.8)%
Weighted Average Diluted
Shares of Common 28,511,000 35,010,000
Stock Outstanding
Shares of Common Stock
Repurchased 3,100,000 (J) 1,952,500 (K)
Land and Building
Purchases and
Renovations $1.7 (L) $2.6 (M) (35.4)%
Number of New Colleges in
Operation 1 4
Capital Expenditures, Net $12.2 $12.5 (2.8)%

______________________

(A) Represents the number of Continuing Students in the academic
term, divided by the Total Student Enrollment in the immediately
preceding academic term.
(B) For approximately $79.4 million or at an average price of
$72.20 per share.
(C) For approximately $105.0 million or at an average price of
$105.03 per share.
(D) Represents costs associated with renovating, expanding or
constructing buildings at nine of the company’s locations
(E) Represents costs associated with renovating, expanding or
constructing buildings at 13 of the company’s locations.
(F) Represents the percentage of the ITT Technical Institutes’
2010 employable graduates who obtained employment in positions
using skills taught in their programs of study as of April 30,
2011.
(G) Represents the percentage of the ITT Technical Institutes’
2009 employable graduates who obtained employment in positions
using skills taught in their programs of study as of April 30,
2010.
(H) Represents the average annual salary reported by the ITT
Technical Institutes’ 2010 employed graduates as of April 30,
2011.
(I) Represents the average annual salary reported by the ITT
Technical Institutes’ 2009 employed graduates as of April 30,
2010.
(J) For approximately $218.5 million or at an average price of
$70.49 per share.
(K) For approximately $200.1 million or at an average price of
$102.46 per share.
(L) Represents costs associated with renovating, expanding or
constructing buildings at 11 of the company’s locations.
(M) Represents costs associated with renovating, expanding or
constructing buildings at 17 of the company’s locations.

The Company adjusted its 2011 internal goal for earnings per share from the
range of $8.50 to $10.50 to an adjusted range of $10.00 to $10.50.

ITT Educational Services, Inc. will conduct a conference call with financial
analysts to discuss its 2011 second quarter earnings at 11:00 am (ET) this
morning. The public is invited to listen to a live webcast of the conference
call. The webcast may be accessed by following the “Live Webcast” directions on
ITT/ESI’s website at www.ittesi.com.

Except for the historical information contained herein, the matters discussed in
this press release are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. Forward-looking statements are made
based on the current expectations and beliefs of the company’s management
concerning future developments and their potential effect on the company. The
company cannot assure you that future developments affecting the company will be
those anticipated by its management. These forward-looking statements involve a
number of risks and uncertainties. Among the factors that could cause actual
results to differ materially are the following: changes in federal and state
governmental laws and regulations with respect to education and accreditation
standards, or the interpretation or enforcement of those laws and regulations,
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; business conditions and growth in the postsecondary
education industry and in the general economy; the company’s failure to comply
with the extensive education laws and regulations and accreditation standards
that it is subject to; 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 its campuses; the company’s ability to implement its growth
strategies; the company’s failure to maintain or renew required federal or state
authorizations or accreditations of its campuses or programs of study;
receptivity of students and employers to the company’s existing program
offerings and new curricula; loss of access by the company’s students to lenders
for education loans; the company’s ability to collect internally funded
financing from its students; the company’s exposure under its guarantees related
to private student loan programs; the company’s ability to successfully defend
litigation and other claims brought against it; and other risks and
uncertainties detailed from time to time in the company’s filings with the U.S.
Securities and Exchange Commission. The company undertakes no obligation to
update or revise any forward-looking information, whether as a result of new
information, future developments or otherwise.

ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

As of
—–
December 31,
June 30, 2011 2010 June 30, 2010
————- ————- ————-
(unaudited) (unaudited)
Assets
Current
assets:
Cash and
cash
equivalents $158,235 $163,779 $140,524
Short-term
investments 147,136 149,160 139,486
Restricted
cash 387 255 70
Accounts
receivable,
net 47,041 68,937 98,390
Deferred
income
taxes 4,804 9,079 17,141
Prepaid
expenses
and other
current
assets 24,567 22,887 16,671
—— —— ——
Total
current
assets 382,170 414,097 412,282

Property and
equipment,
net 198,207 198,213 193,717
Deferred
income
taxes 33,165 21,814 12,237
Other assets 45,610 40,656 28,008
—— —— ——
Total assets $659,152 $674,780 $646,244
======== ======== ========

Liabilities
and
Shareholders’
Equity
Current
liabilities:
Accounts
payable $66,008 $67,920 $76,116
Accrued
compensation
and
benefits 23,610 28,428 26,049
Other
current
liabilities 8,421 15,441 14,491
Deferred
revenue 266,847 244,362 197,107
——- ——- ——-
Total
current
liabilities 364,886 356,151 313,763

Long-term
debt 150,000 150,000 150,000
Other
liabilities 57,791 40,559 29,049
—— ——
Total
liabilities 572,677 546,710 492,812
——- ——- ——-

Shareholders’
equity:
Preferred
stock, $.01
par value,
5,000,000
shares
authorized,
none issued 0 0 0
Common
stock, $.01
par value,
300,000,000
shares
authorized,
37,068,904,
37,068,904
and
54,068,904
issued 371 371 541
Capital
surplus 181,954 173,935 165,678
Retained
earnings 684,905 524,678 1,182,204
Accumulated
other
comprehensive
(loss) (4,438) (4,509) (9,555)
Treasury
stock,
10,045,948,
7,075,563
and
20,478,818
shares (776,317) (566,405) (1,185,436)
at cost
Total
shareholders’
equity 86,475 128,070 153,432
—— ——- ——-
Total
liabilities
and
shareholders’
equity $659,152 $674,780 $646,244
======== ======== ========

ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)

Three Months Six Months
Ended June 30, Ended June 30,
(unaudited) (unaudited)
———– ———–
2011 2010 2011 2010
—- —- —- —-

Revenue $387,877 $401,849 $771,048 $785,806

Costs and
expenses:
Cost of
educational
services 142,272 133,763 280,198 268,145
Student
services
and
administrative
expenses 115,626 110,954 220,209 217,914
Total costs
and
expenses 257,898 244,717 500,407 486,059
——- ——- ——- ——-

Operating
income 129,979 157,132 270,641 299,747
Interest
income 790 533 1,625 1,242
Interest
(expense) (507) (514) (1,064) (934)
—- —- —— —-
Income
before
provision
for income
taxes 130,262 157,151 271,202 300,055
Provision
for income
taxes 51,262 61,111 106,816 116,564
—— —— ——- ——-

Net income $79,000 $96,040 $164,386 $183,491
======= ======= ======== ========

Earnings
per share:
Basic $2.88 $2.82 $5.81 $5.31
Diluted $2.85 $2.78 $5.77 $5.24

Supplemental
Data:
Cost of
educational
services 36.7% 33.3% 36.3% 34.1%
Student
services
and
administrative
expenses 29.8% 27.6% 28.6% 27.7%
Operating
margin 33.5% 39.1% 35.1% 38.1%
Student
enrollment
at end of
period 78,743 84,695 78,743 84,695
Campuses at
end of
period 131 125 131 125
Shares for
earnings
per share
calculation:
Basic 27,474,000 34,081,000 28,275,000 34,552,000
Diluted 27,719,000 34,525,000 28,511,000 35,010,000

Effective
tax rate 39.4% 38.9% 39.4% 38.8%

ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Three Months
Ended June 30,
(unaudited)
2011 2010
—- —-
Cash flows from operating activities:
Net income $79,000 $96,040
Adjustments to reconcile net income
to net cash flows
from operating activities:
Depreciation and amortization 7,040 6,724
Provision for doubtful accounts 17,487 23,034
Deferred income taxes (4,492) (6,485)
Excess tax benefit from stock option
exercises (627) (1,019)
Stock-based compensation expense 4,758 4,186
Other (987) 334
Changes in operating assets and
liabilities:
Restricted cash 1,433 5,228
Accounts receivable (4,730) (33,134)
Accounts payable (6,681) 7,642
Other operating assets and
liabilities (32,886) (20,711)
Deferred revenue 1,307 5,312
—– —–
Net cash flows from operating
activities 60,622 87,151
—— ——

Cash flows from investing activities:
Facility expenditures and land
purchases (1,173) (1,754)
Capital expenditures, net (7,487) (7,241)
Proceeds from sales and maturities of
investments 118,307 115,128
and repayment of notes
Purchase of investments and note
advances (123,104) (115,602)
Net cash flows from investing
activities (13,457) (9,469)
——- ——

Cash flows from financing activities:
Excess tax benefit from stock option
exercises 627 1,019
Proceeds from exercise of stock
options 1,955 1,594
Repurchase of common stock and shares
tendered (79,434) (105,315)
for taxes
Net cash flows from financing
activities (76,852) (102,702)
——- ——–

Net change in cash and cash
equivalents (29,687) (25,020)

Cash and cash equivalents at
beginning of period 187,922 165,544
——- ——-

Cash and cash equivalents at end of
period $158,235 $140,524

Six Months
Ended June 30,
(unaudited)
2011 2010
—- —-
Cash flows from operating activities:
Net income $164,386 $183,491
Adjustments to reconcile net income
to net cash flows
from operating activities:
Depreciation and amortization 13,882 13,482
Provision for doubtful accounts 30,154 45,799
Deferred income taxes (7,177) (9,463)
Excess tax benefit from stock option
exercises (978) (1,940)
Stock-based compensation expense 8,672 8,999
Other (2,417) 490
Changes in operating assets and
liabilities:
Restricted cash (132) 1,821
Accounts receivable (8,258) (58,763)
Accounts payable (1,912) 14,841
Other operating assets and
liabilities 24,036 22,340
Deferred revenue 22,485 25,174
—— ——
Net cash flows from operating
activities 242,741 246,271
——- ——-

Cash flows from investing activities:
Facility expenditures and land
purchases (1,675) (2,593)
Capital expenditures, net (12,186) (12,539)
Proceeds from sales and maturities of
investments 260,392 199,826
and repayment of notes
Purchase of investments and note
advances (281,693) (222,774)
Net cash flows from investing
activities (35,162) (38,080)
——- ——-

Cash flows from financing activities:
Excess tax benefit from stock option
exercises 978 1,940
Proceeds from exercise of stock
options 4,983 2,620
Repurchase of common stock and shares
tendered (219,084) (201,015)
for taxes
Net cash flows from financing
activities (213,123) (196,455)
——– ——–

Net change in cash and cash
equivalents (5,544) 11,736

Cash and cash equivalents at
beginning of period 163,779 128,788
——- ——-

Cash and cash equivalents at end of
period $158,235 $140,524

WEB SITE:
www.ittesi.com

SOURCE ITT Educational Services, Inc.