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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Item 9.01.
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Financial Statements and Exhibits.
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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 April 29, 2016.
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99.1
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Press Release issued by ITT Educational Services, Inc. dated April 29, 2016.
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Financial and Operating Data for the Three Months Ended March 31st, Unless Otherwise Indicated
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(Dollars in millions, except per share 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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$ | 191.5 | $ | 230.0 | (16.7 | )% | ||||||
Operating Income
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$ | 14.2 | $ | 27.6 | (48.6 | )% | ||||||
Operating Margin
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7.4 | % | 12.0 | % |
(460) basis points
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Net Income
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$ | 4.1 | $ | 10.4 | (60.7 | )% | ||||||
Earnings Per Share (diluted)
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$ | 0.17 | $ | 0.44 | (61.4 | )% | ||||||
New Student Enrollment
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11,788 | 14,104 | (16.4 | )% | ||||||||
Continuing Students
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31,505 | 37,097 | (15.1 | )% | ||||||||
Total Student Enrollment as of March 31st
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43,293 | 51,201 | (15.4 | )% | ||||||||
Persistence Rate as of March 31st (A)
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70.1 | % | 69.2 | % |
90 basis points
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Bad Debt Expense as a Percentage of Revenue
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3.8 | % | 5.3 | % |
(150) basis points
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Days Sales Outstanding as of March 31st
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22.4 days
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18.1 days
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4.3 days
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Deferred Revenue as of March 31st
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$ | 106.0 | $ | 139.9 | (24.2 | )% | ||||||
Cash and Cash Equivalents as of March 31st
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$ | 108.7 | $ | 146.0 | (25.5 | )% | ||||||
Restricted Cash as of March 31st
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$ | 5.5 | $ | 6.3 | (12.5 | )% | ||||||
Collateral Deposits as of March 31st
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$ | 91.2 | $ | 97.9 | (6.8 | )% | ||||||
Private Education Loans (current and non-current), Less Allowance for Loan Losses, as of March 31st (B)
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$ | 64.7 | $ | 86.1 | (24.8 | )% | ||||||
PEAKS Trust Senior Debt (current and non-current) as of March 31st (C)
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$ | 44.6 | $ | 71.7 | (37.8 | )% | ||||||
CUSO Secured Borrowing Obligation (current and non-current) as of March 31st (D)
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$ | 107.8 | $ | 117.2 | (8.0 | )% | ||||||
Term Loans (current and non-current) as of March 31st (E)
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$ | 49.6 | $ | 93.2 | (46.8 | )% | ||||||
Weighted Average Diluted Shares of Common Stock Outstanding
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23,856,000 | 23,819,000 | ||||||||||
Capital Expenditures
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$ | 0.7 | $ | 0.9 | (17.4 | )% |
(A)
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Persistence rate 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 March 31, 2016, the amount included $9.8 million classified as current, and $54.9 million classified as non-current. With respect to the private education loans as of March 31, 2015, the amount included $9.5 million classified as current, and $76.5 million classified as non-current.
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(C)
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With respect to the PEAKS Trust Senior Debt as of March 31, 2016, the amount included $15.6 million classified as current, and $28.9 million classified as non-current. With respect to the PEAKS Trust Senior Debt as of March 31, 2015, the amount included $26.5 million classified as current, and $45.1 million classified as non-current.
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(D)
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With respect to the CUSO Secured Borrowing Obligation as of March 31, 2016, the amount included $18.1 million classified as current, and $89.7 million classified as non-current. With respect to the CUSO Secured Borrowing Obligation as of March 31, 2015, the amount included $21.0 million classified as current, and $96.2 classified as non-current.
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(E)
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With respect to the term loans as of March 31, 2016, the full amount of $49.6 million was classified as current. With respect to the term loans as of March 31, 2015, the amount included $12.1 million classified as current, and $81.1 million classified as non-current.
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·
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$27.4 million in 2016 (of which $12.4 million was paid in the three months ended March 31, 2016);
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$12.6 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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$105.3 million in 2019 and later, which amount includes an approximately $10.3 million payment in 2020 under the PEAKS guarantee.
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ITT EDUCATIONAL SERVICES, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands, except per share data)
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(unaudited)
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As of
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March 31, 2016
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December 31, 2015
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March 31, 2015
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 108,663 | $ | 130,897 | $ | 145,951 | ||||||
Restricted cash
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5,538 | 6,015 | 6,328 | |||||||||
Accounts receivable, net
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47,086 | 48,837 | 46,200 | |||||||||
Private education loans
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9,787 | 8,480 | 9,541 | |||||||||
Deferred income taxes
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22,044 | 26,440 | 28,584 | |||||||||
Prepaid expenses and other current assets
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21,447 | 22,429 | 56,068 | |||||||||
Total current assets
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214,565 | 243,098 | 292,672 | |||||||||
Property and equipment, net
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138,242 | 142,164 | 152,181 | |||||||||
Private education loans, excluding current portion, net
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54,912 | 62,161 | 76,528 | |||||||||
Deferred income taxes
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69,402 | 71,817 | 65,912 | |||||||||
Collateral deposits
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91,229 | 91,168 | 97,932 | |||||||||
Other assets
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54,041 | 53,246 | 54,022 | |||||||||
Total assets
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$ | 622,391 | $ | 663,654 | $ | 739,247 | ||||||
Liabilities and Shareholders' Equity
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Current liabilities:
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Current portion of term loans
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$ | 49,623 | $ | 68,161 | $ | 12,082 | ||||||
Current portion of PEAKS Trust senior debt
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15,634 | 20,105 | 26,533 | |||||||||
Current portion of CUSO secured borrowing obligation
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18,065 | 23,591 | 20,963 | |||||||||
Accounts payable
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56,694 | 59,753 | 73,390 | |||||||||
Accrued compensation and benefits
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15,949 | 12,425 | 15,151 | |||||||||
Other current liabilities
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29,631 | 31,973 | 28,602 | |||||||||
Deferred revenue
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105,996 | 113,739 | 139,856 | |||||||||
Total current liabilities
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291,592 | 329,747 | 316,577 | |||||||||
Term loans, excluding current portion
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0 | 0 | 81,147 | |||||||||
PEAKS Trust senior debt, excluding current portion
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28,916 | 30,701 | 45,127 | |||||||||
CUSO secured borrowing obligation, excluding current portion
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89,695 | 91,728 | 96,226 | |||||||||
Other liabilities
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50,132 | 50,342 | 52,247 | |||||||||
Total liabilities
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460,335 | 502,518 | 591,324 | |||||||||
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, $.01 par value, 300,000,000 shares authorized, 37,068,904 issued
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371 | 371 | 371 | |||||||||
Capital surplus
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178,134 | 181,160 | 185,936 | |||||||||
Retained earnings
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991,330 | 987,223 | 974,184 | |||||||||
Accumulated other comprehensive (loss) income
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(1,932 | ) | (1,693 | ) | 963 | |||||||
Treasury stock, 13,369,997, 13,394,834 and 13,516,221 shares at cost
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(1,005,847 | ) | (1,005,925 | ) | (1,013,531 | ) | ||||||
Total shareholders' equity
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162,056 | 161,136 | 147,923 | |||||||||
Total liabilities and shareholders' equity
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$ | 622,391 | $ | 663,654 | $ | 739,247 |
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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Ended March 31,
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2016
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2015
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Revenue
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$ | 191,499 | $ | 229,975 | ||||
Costs and expenses:
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Cost of educational services
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92,631 | 103,553 | ||||||
Student services and administrative expenses
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77,899 | 90,252 | ||||||
Legal and professional fees related to certain lawsuits,
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investigations and accounting matters
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4,871 | 7,286 | ||||||
Provision for private education loan losses
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1,878 | 1,244 | ||||||
Total costs and expenses
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177,279 | 202,335 | ||||||
Operating income
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14,220 | 27,640 | ||||||
Interest income
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68 | 13 | ||||||
Interest (expense)
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(7,099 | ) | (10,388 | ) | ||||
Income before provision for income taxes
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7,189 | 17,265 | ||||||
Provision for income taxes
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3,082 | 6,818 | ||||||
Net income
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$ | 4,107 | $ | 10,447 | ||||
Earnings per share:
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Basic
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$ | 0.17 | $ | 0.44 | ||||
Diluted
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$ | 0.17 | $ | 0.44 | ||||
Supplemental Data:
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Cost of educational services
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48.4 | % | 45.0 | % | ||||
Student services and administrative expenses
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40.7 | % | 39.2 | % | ||||
Legal and professional fees related to certain lawsuits,
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investigations and accounting matters
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2.5 | % | 3.2 | % | ||||
Provision for private education loan losses
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1.0 | % | 0.5 | % | ||||
Operating margin
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7.4 | % | 12.0 | % | ||||
Student enrollment at end of period
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43,293 | 51,201 | ||||||
Campuses at end of period
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138 | 143 | ||||||
Shares for earnings per share calculation:
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Basic
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23,742,000 | 23,560,000 | ||||||
Diluted
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23,856,000 | 23,819,000 | ||||||
Effective tax rate
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42.9 | % | 39.5 | % |
ITT EDUCATIONAL SERVICES, INC.
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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Ended March 31,
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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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$ | 4,107 | $ | 10,447 | ||||
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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5,183 | 5,981 | ||||||
Provision for doubtful accounts
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7,309 | 12,183 | ||||||
Deferred income taxes
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3,103 | 9,869 | ||||||
Stock-based compensation expense
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1,227 | 1,896 | ||||||
Accretion of discount on private education loans
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(2,724 | ) | (3,081 | ) | ||||
Accretion of discount on term loans
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487 | 391 | ||||||
Accretion of discount on PEAKS Trust senior debt
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720 | 1,655 | ||||||
Accretion of discount on CUSO secured borrowing obligation
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45 | 219 | ||||||
Provision for private education loan losses
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1,878 | 1,244 | ||||||
Other
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(237 | ) | (267 | ) | ||||
Changes in operating assets and liabilities:
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Restricted cash
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477 | (288 | ) | |||||
Accounts receivable
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(5,558 | ) | (12,000 | ) | ||||
Private education loans
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6,788 | 6,644 | ||||||
Accounts payable
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(3,346 | ) | 5,542 | |||||
Other operating assets and liabilities
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618 | 717 | ||||||
Deferred revenue
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(7,743 | ) | (7,619 | ) | ||||
Net cash flows from operating activities
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12,334 | 33,533 | ||||||
Cash flows from investing activities:
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Capital expenditures
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(718 | ) | (869 | ) | ||||
Collateral and escrowed funds
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(61 | ) | 0 | |||||
Net cash flows from investing activities
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(779 | ) | (869 | ) | ||||
Cash flows from financing activities:
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Repayment of term loans
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(19,176 | ) | (2,500 | ) | ||||
Repayment of PEAKS Trust senior debt
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(6,976 | ) | (15,646 | ) | ||||
Repayment of CUSO secured borrowing obligation
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(7,604 | ) | (4,037 | ) | ||||
Common shares tendered for taxes
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(33 | ) | (467 | ) | ||||
Net cash flows from financing activities
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(33,789 | ) | (22,650 | ) | ||||
Net change in cash and cash equivalents
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(22,234 | ) | 10,014 | |||||
Cash and cash equivalents at beginning of period
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130,897 | 135,937 | ||||||
Cash and cash equivalents at end of period
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$ | 108,663 | $ | 145,951 |
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)
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Net Income
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$ | 10,200 | $ | 19,800 | ||||
Plus: Interest expense, net
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23,000 | 25,000 | ||||||
Income taxes
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6,800 | 13,200 | ||||||
Depreciation and amortization
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15,000 | 17,000 | ||||||
EBITDA
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$ | 55,000 | $ | 75,000 |