ITT Educational Services, Inc. Reports 2010 First Quarter Results, New Student Enrollment Increased 21.8%

Financial and Operating Data for the Three Months Ended March 31st, Unless Otherwise Indicated

(Dollars in millions, except per share and per student data)

2010

2009 ^(A)

Increase/
(Decrease)

Revenue

$384.0

$288.0

33.3%

Operating Income

$142.6

$98.5

44.8%

Operating Margin

37.1%

34.2%

290 basis points

Net Income

$87.5

$60.9

43.6%

Earnings Per Share (diluted)

$2.46

$1.56

57.7%

New Student Enrollment

23,064

18,935

21.8%

Continuing Students

61,491

46,685

31.7%

Total Student Enrollment as of  March 31^st

84,555

65,620

28.9%

Persistence Rate as of  March 31^{st (B)}

76.1%

75.3%

80 basis points

Revenue Per Student

$4,754

$4,647

2.3%

Cash and Cash Equivalents, Restricted Cash and
Investments as of  March 31^st

$327.0

$365.7

(10.6)%

Bad Debt Expense as a Percentage of Revenue

5.9%

4.9%

100 basis points

Days Sales Outstanding as of  March 31^st

20.7 days

16.1 days

4.6 days

Deferred Revenue as of  March 31^st

$191.8

$133.1

44.1%

Debt as of March 31^st

$150.0

$150.0

Weighted Average Diluted Shares of Common
Stock Outstanding

35,499,000

39,062,000

Shares of Common Stock Repurchased

952,500 ^(C)

527,833 ^(D)

Land and Building Purchases and Renovations

$0.8 ^(E)

$1.1^(F)

(21.9)%

Number of New Colleges in Operation

2

1

Capital Expenditures, Net

$5.3

$4.6

15.0%

(A) Financial data is adjusted from amounts reported in prior periods for the change in accounting for direct costs related to the enrollment of new students ("Direct Marketing Costs").

(B) Represents the number of Continuing Students in the academic term, divided by the Total Student Enrollment in the immediately preceding academic term.

(C) For approximately $95.0 million or at an average price of $99.76 per share.

(D) For approximately $64.4 million or at an average price of $121.93 per share.

(E) Represents costs associated with renovating and expanding buildings at nine of the company's locations.

(F) Represents costs associated with renovating, expanding or constructing buildings at eight of the company's locations.

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

As of

March 31, 2010

December 31, 2009

March 31, 2009 (a)

(unaudited)

(unaudited)

Assets

Current assets:

    Cash and cash equivalents

$165,544

$128,788

$219,642

    Short-term investments

156,143

143,407

146,062

    Restricted cash

5,298

1,891

11

    Accounts receivable, net

88,290

85,426

51,513

    Deferred income taxes

13,321

13,799

12,143

    Prepaid expenses and other current assets

19,735

17,651

15,960

         Total current assets

448,331

390,962

445,331

Property and equipment, net

191,438

195,449

166,582

Deferred income taxes

9,720

6,416

8,887

Other assets

27,900

23,878

3,682

    Total assets

$677,389

$616,705

$624,482

Liabilities and Shareholders' Equity

Current liabilities:

    Accounts payable

$68,474

$61,275

$63,658

    Accrued compensation and benefits

17,465

26,323

23,670

    Accrued income taxes

49,702

10,218

36,959

    Other accrued liabilities

16,149

15,043

11,896

    Deferred revenue

191,795

171,933

133,137

         Total current liabilities

343,585

284,792

269,320

Long-term debt

150,000

150,000

150,000

Other liabilities

28,294

25,328

20,810

    Total liabilities

521,879

460,120

440,130

Shareholders' equity:

    Preferred stock, $.01 par value,

      5,000,000 shares authorized, none issued

--

--

--

   Common stock, $.01 par value,

        300,000,000 shares authorized, 54,068,904 issued

541

541

541

   Capital surplus

160,371

154,495

144,004

   Retained earnings

1,090,413

1,006,903

771,666

   Accumulated other comprehensive (loss)

(9,851)

(10,093)

(13,293)

   Treasury stock, 19,531,095, 18,622,809 and 15,743,252

      shares, at cost

(1,085,964)

(995,261)

(718,566)

       Total shareholders' equity

155,510

156,585

184,352

       Total liabilities and shareholders' equity

$677,389

$616,705

$624,482

(a) Amounts as of March 31, 2009 have been retrospectively adjusted from amounts reported in prior periods for the change in accounting for Direct Marketing Costs that was made in the fourth quarter of 2009.

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

Three Months

Ended March 31,

(unaudited)

2010

2009 (a)

Revenue

$383,957

$288,033

Costs and expenses:

Cost of educational services

134,382

101,087

Student services and administrative expenses  

106,960

88,459

Total costs and expenses

241,342

189,546

Operating income

142,615

98,487

Interest income

709

1,233

Interest (expense)

(420)

(194)

Income before provision for income taxes

142,904

99,526

Provision for income taxes

55,453

38,608

Net income

$87,451

$60,918

Earnings per share:

    Basic

$2.50

$1.58

    Diluted

$2.46

$1.56

Supplemental Data:

Cost of educational services

35.0%

35.1%

Student services and administrative expenses

27.9%

30.7%

Operating margin

37.1%

34.2%

Student enrollment at end of period  

84,555

65,620

Campuses at end of period

123

106

Shares for earnings per share calculation:

    Basic

35,028,000

38,558,000

    Diluted

35,499,000

39,062,000

Effective tax rate

38.8%

38.8%

(a) Amounts for the three months ended March 31, 2009 have been retrospectively adjusted from amounts reported in prior periods for the change in accounting for Direct Marketing Costs that was made in the fourth quarter of 2009.

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Three Months

Ended March 31,

(unaudited)

2010

2009 (a)

Cash flows from operating activities:

   Net income

$87,451

$60,918

   Adjustments to reconcile net income to net cash flows

       from operating activities:

          Depreciation and amortization

6,758

5,772

          Provision for doubtful accounts

22,765

14,209

          Deferred income taxes

(2,978)

(1,689)

          Excess tax benefit from stock option exercises

(921)

(3,793)

          Stock-based compensation expense

4,813

4,183

          Other

156

135

          Changes in operating assets and liabilities:

              Restricted cash

(3,407)

10,132

              Accounts receivable

(25,629)

(35,943)

              Accounts payable

7,199

8,843

              Accrued income taxes

40,546

26,149

              Other operating assets and liabilities

2,505

1,481

              Deferred revenue

19,862

(29,069)

Net cash flows from operating activities

159,120

61,328

Cash flows from investing activities:

    Facility expenditures and land purchases

(839)

(1,074)

    Capital expenditures, net

(5,298)

(4,608)

    Proceeds from sales and maturities of investments and notes

84,698

48,598

    Purchase of investments and notes

(107,172)

(55,770)

Net cash flows from investing activities

(28,611)

(12,854)

Cash flows from financing activities:

    Excess tax benefit from stock option exercises

921

3,793

    Proceeds from exercise of stock options

1,026

5,823

    Repurchase of common stock and shares tendered for taxes

(95,700)

(64,703)

Net cash flows from financing activities

(93,753)

(55,087)

Net change in cash and cash equivalents

36,756

(6,613)

Cash and cash equivalents at beginning of period

128,788

226,255

Cash and cash equivalents at end of period

$165,544

$219,642

(a) Amounts for the three months ended March 31, 2009 have been retrospectively adjusted from amounts reported in prior periods for the change in accounting for Direct Marketing Costs that was made in the fourth quarter of 2009.