ITT Educational Services, Inc. Reports 2010 Fourth Quarter and Full Year Results

CARMEL, Ind., Jan. 20, 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 fourth quarter of
2010 decreased 9.4% to 17,722 compared to 19,563 in the same period in 2009.
Total student enrollment increased 4.9% to 84,686 as of December 31, 2010
compared to 80,766 as of December 31, 2009.

The company provided the following information for the three and twelve months
ended December 31, 2010 and 2009:

Financial and Operating Data for the Three Months Ended December
31st, Unless Otherwise Indicated
—————————————————————-
(Dollars in millions, except per share and per student data)

Increase/
(Decrease)
———-
2010 2009
—- —-

Revenue $410.1 $374.4 9.5%
Operating Income $162.4 $152.9 6.2%
(120) basis
Operating Margin 39.6% 40.8% points
Net Income $97.5 $93.6 4.1%
Earnings Per Share
(diluted) $3.14 $2.56 22.7%
New Student Enrollment 17,722 19,563 (9.4)%
Continuing Students 66,964 61,203 9.4%
Total Student Enrollment as
of December 31st 84,686 80,766 4.9%
Persistence Rate as of (120) basis
December 31st (A) 76.1% 77.3% points
Revenue Per Student $4,660 $4,727 (1.4)%
Cash and Cash Equivalents,
Restricted Cash and
Investments as of December
31st $313.2 $274.1 14.3%
Bad Debt Expense as a (230) basis
Percentage of Revenue 4.6% 6.9% points
Days Sales Outstanding as
of December 31st 15.5 days 21.0 days (5.5) days
Deferred Revenue as of
December 31st $244.4 $171.9 42.1%
Debt as of December 31st $150.0 $150.0
Weighted Average Diluted
Shares of Common Stock
Outstanding 31,025,000 36,549,000
Shares of Common Stock 1,500,000
Repurchased 1,930,000(B) (C)
Land and Building Purchases
and Renovations $1.8 (D) $1.7 (E) 1.7%
Number of New Colleges in
Operation 4 3
Capital Expenditures, Net $6.2 $8.1 (23.5)%

Financial and Operating Data for the Twelve Months Ended December
31st
—————————————————————–
(Dollars in millions, except per share and per student data)

2010 2009 Increase/
—- —- (Decrease)
———-

Revenue $1,596.5 $1,319.2 21.0%
Operating Income $613.5 $488.8 25.5%
130 basis
Operating Margin 38.4% 37.1% points
Net Income $374.2 $300.3 24.6%
Earnings Per Share
(diluted) $11.17 $7.91 41.2%
Bad Debt Expense as a (80) basis
Percentage of Revenue 5.4% 6.2% points
Revenue Per Student $18,897 $19,059 (0.8)%
Weighted Average Diluted
Shares of Common Stock
Outstanding 33,501,000 37,942,000
Shares of Common Stock 5,657,500 3,477,875
Repurchased (F) (G)
Land and Building
Purchases and
Renovations $6.1 (H) $4.2 (I) 44.4%
Number of New Colleges in
Operation 9 10 (J)
Capital Expenditures, Net $26.8 $24.0 11.7%

(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 $119.7 million or at an average price of $62.02 per share.

(D) Represents costs associated with renovating, expanding or constructing
buildings at seven of the company’s locations.

(E) Represents costs associated with renovating, expanding or constructing
buildings at nine of the company’s locations, excluding all land and buildings
of Daniel Webster College that the company acquired.

(F) For approximately $434.7 million or at an average price of $76.83 per share.

(G) For approximately $348.1 million or at an average price of $100.10 per
share.

(H) Represents costs associated with renovating, expanding or constructing
buildings at 18 of the company’s locations.

(I) Represents costs associated with renovating, expanding or constructing
buildings at 19 of the company’s locations, excluding all land and buildings of
Daniel Webster College that the company acquired.

(J) Excludes Daniel Webster College.

The following table sets forth information provided by the company regarding its
2011 internal goals for the metrics indicated:

2011 Internal Goal Range
————————
Days Sales Outstanding at December 31st 10 days to 15 days
Bad Debt Expense as a Percentage of
Revenue 4% to 6%
Earnings Per Share (diluted) $8.50 to $10.50

ITT Educational Services, Inc. will conduct a conference call with financial
analysts to discuss its 2010 fourth 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: business conditions and growth
in the postsecondary education industry and in the general economy; changes in
federal and state governmental laws and 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; 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 regulatory authorizations or accreditation of its
campuses; 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 internal student
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, December 31,
2010 2009
————- ————-
(unaudited)
Assets
Current assets:
Cash and cash equivalents $163,779 $128,788
Short-term investments 149,160 143,407
Restricted cash 255 1,891
Accounts receivable, net 68,937 85,426
Deferred income taxes 9,079 13,799
Prepaid expenses and
other current assets 22,887 17,651
—— ——
Total current assets 414,097 390,962

Property and equipment,
net 198,213 195,449
Deferred income taxes 21,814 6,416
Other assets 40,656 23,878
—— ——
Total assets $674,780 $616,705
======== ========

Liabilities and
Shareholders’ Equity
Current liabilities:
Accounts payable $67,920 $61,275
Accrued compensation and
benefits 28,428 26,323
Other current liabilities 15,441 25,261
Deferred revenue 244,362 171,933
——- ——-
Total current liabilities 356,151 284,792

Long-term debt 150,000 150,000
Other liabilities 40,559 25,328
——
Total liabilities 546,710 460,120
——- ——-

Shareholders’ equity:
Preferred stock, $.01 par
value,
5,000,000 shares
authorized, none issued 0 0
Common stock, $.01 par
value,
300,000,000 shares
authorized, 37,068,904
and 54,068,904 issued 371 541
Capital surplus 173,935 154,495
Retained earnings 524,678 1,006,903
Accumulated other
comprehensive (loss) (4,509) (10,093)
Treasury stock, 7,075,563
and 18,622,809 shares at
cost (566,405) (995,261)
Total shareholders’
equity 128,070 156,585
——- ——-
Total liabilities and
shareholders’ equity $674,780 $616,705
======== ========

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

Three Months
Ended December 31,
(unaudited)
———–
2010 2009
—- —-

Revenue $410,126 $374,378

Costs and expenses:
Cost of educational services 135,232 121,226
Student services and
administrative expenses 112,505 100,274
Total costs and expenses 247,737 221,500
——- ——-

Operating income 162,389 152,878
Interest income 628 464
Interest (expense) (494) (133)
—- —-
Income before provision for
income taxes 162,523 153,209
Provision for income taxes 65,025 59,568
—— ——

Net income $97,498 $93,641
======= =======

Earnings per share:
Basic $3.16 $2.59
Diluted $3.14 $2.56

Supplemental Data:
Cost of educational services 33.0% 32.4%
Student services and
administrative expenses 27.4% 26.8%
Operating margin 39.6% 40.8%
Student enrollment at end of
period 84,686 80,766
Campuses at end of period 130 121
Shares for earnings per share
calculation:
Basic 30,824,000 36,125,000
Diluted 31,025,000 36,549,000

Effective tax rate 40.0% 38.9%

Twelve Months
Ended December 31,
(unaudited)
———–
2010 2009
—- —-

Revenue $1,596,529 $1,319,194

Costs and expenses:
Cost of educational services 537,855 449,835
Student services and
administrative expenses 445,125 380,567
Total costs and expenses 982,980 830,402
——- ——-

Operating income 613,549 488,792
Interest income 2,504 3,291
Interest (expense) (1,918) (726)
—— —-
Income before provision for
income taxes 614,135 491,357
Provision for income taxes 239,969 191,094
——- ——-

Net income $374,166 $300,263
======== ========

Earnings per share:
Basic $11.28 $8.01
Diluted $11.17 $7.91

Supplemental Data:
Cost of educational services 33.7% 34.1%
Student services and
administrative expenses 27.9% 28.8%
Operating margin 38.4% 37.1%
Student enrollment at end of
period 84,686 80,766
Campuses at end of period 130 121
Shares for earnings per share
calculation:
Basic 33,165,000 37,490,000
Diluted 33,501,000 37,942,000

Effective tax rate 39.1% 38.9%

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

Three Months
Ended December 31,
(unaudited)
———–
2010 2009
—- —-
Cash flows from operating
activities:
Net income $97,498 $93,641
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation and amortization 7,110 6,704
Provision for doubtful accounts 18,985 25,971
Deferred income taxes 1,474 937
Excess tax benefit from stock
option exercises (130) (17)
Stock-based compensation
expense 3,106 2,827
Other (290) (854)
Changes in operating assets and
liabilities, net of
acquisition:
Restricted cash (147) 3,194
Accounts receivable (2,676) (17,582)
Accounts payable (11,700) (5,908)
Other operating assets and
liabilities 32,961 6,645
Deferred revenue 49,194 27,986
—— ——
Net cash flows from operating
activities 195,385 143,544
——- ——-

Cash flows from investing
activities:
Facility expenditures and land
purchases (1,750) (1,720)
Capital expenditures, net (6,182) (8,079)
Acquisition of college, net of
cash acquired 0 0
Proceeds from sales and
maturities of investments and
notes 103,963 102,255
Purchase of investments and
notes (128,079) (98,956)
Net cash flows from investing
activities (32,048) (6,500)
——- ——

Cash flows from financing
activities:
Excess tax benefit from stock
option exercises 130 17
Proceeds from exercise of stock
options 63 50
Repurchase of common stock and
shares tendered for taxes (119,707) (139,294)
Net cash flows from financing
activities (119,514) (139,227)
——– ——–

Net change in cash and cash
equivalents 43,823 (2,183)

Cash and cash equivalents at
beginning of period 119,956 130,971
——- ——-

Cash and cash equivalents at end
of period $163,779 $128,788
======== ========

Twelve Months
Ended December 31,
(unaudited)
———–
2010 2009
—- —-
Cash flows from operating
activities:
Net income $374,166 $300,263
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation and amortization 26,797 24,908
Provision for doubtful accounts 86,935 81,983
Deferred income taxes (14,557) (3,066)
Excess tax benefit from stock
option exercises (3,383) (5,289)
Stock-based compensation
expense 15,813 13,074
Other 468 (1,163)
Changes in operating assets and
liabilities, net of
acquisition:
Restricted cash 1,636 5,775
Accounts receivable (70,446) (136,837)
Accounts payable 6,645 4,911
Other operating assets and
liabilities 62,057 6,344
Deferred revenue 72,429 10,355
——
Net cash flows from operating
activities 558,560 301,258
——- ——-

Cash flows from investing
activities:
Facility expenditures and land
purchases (6,118) (4,236)
Capital expenditures, net (26,811) (23,992)
Acquisition of college, net of
cash acquired 0 (20,792)
Proceeds from sales and
maturities of investments and
notes 385,306 247,701
Purchase of investments and
notes (451,594) (263,012)
Net cash flows from investing
activities (99,217) (64,331)
——- ——-

Cash flows from financing
activities:
Excess tax benefit from stock
option exercises 3,383 5,289
Proceeds from exercise of stock
options 7,893 8,800
Repurchase of common stock and
shares tendered for taxes (435,628) (348,483)
Net cash flows from financing
activities (424,352) (334,394)
——– ——–

Net change in cash and cash
equivalents 34,991 (97,467)

Cash and cash equivalents at
beginning of period 128,788 226,255
——- ——-

Cash and cash equivalents at end
of period $163,779 $128,788
======== ========

FOR FURTHER INFORMATION:

WEB SITE:www.ittesi.com

SOURCE ITT Educational Services, Inc.

Subject Codes: PC/t.110120073004414, PT/lang.en, PC/ticker, IN/HED,
IN/EDU, SU/CCA, SU/ERN, RE/Indiana, PC/priority.r,
PC/category.f, PC/class.1030, PC/WAVO_l…..,
PC/APT_l…., PC/state_l, PC/wavo1_l, PC/DataFeat_indpr,
PC/port_32, PC/Billing_INI, PC/Billing_RWB,
PC/Billing_TNW, PC/1stAcc_437538, PC/bureau_DE,
PC/port_01, PC/port_96, PC/port_31, PC/port_19,
PC/port_91, PC/contact, PC/website, PC/id_DE32794

Company Codes: NYSE:ESI