ITT Educational Services, Inc. Reports 2010 Second Quarter Results

Financial and Operating Data for the Three Months Ended June 30th, Unless Otherwise Indicated

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

2010

2009 ^(A)

Increase/
(Decrease)

Revenue

$401.8

$317.1

26.7%

Operating Income

$157.1

$115.9

35.5%

Operating Margin

39.1%

36.6%

250 basis points

Net Income

$96.0

$71.1

35.1%

Earnings Per Share (diluted)

$2.78

$1.85

50.3%

New Student Enrollment  

21,673

19,692

10.1%

Continuing Students  

63,022

50,197

25.5%

Total Student Enrollment as of June 30^th

84,695

69,889

21.2%

Persistence Rate as of June 30^{th (B)}

74.5%

75.3%

(80) basis points

Revenue Per Student  

$4,753

$4,833

(1.7)%

Cash and Cash Equivalents, Restricted Cash and

Investments as of June 30^th

$280.1

$284.8

(1.6)%

Bad Debt Expense as a Percentage of Revenue

5.7%

5.9%

(20) basis points

Days Sales Outstanding as of June 30^th

22.3 days

20.0 days

2.3 days

Deferred Revenue as of June 30^th

$197.1

$126.9

55.4%

Debt as of June 30^th

$150.0

$150.0

Weighted Average Diluted Shares of Common Stock
Outstanding

34,525,000

38,425,000

Shares of Common Stock Repurchased

1,000,000 ^(C)

622,200 ^(D)

Land and Building Purchases and Renovations

$1.8 ^(E)

$0.8 ^(F)

125.4%

Number of New Colleges in Operation

2

1 ^(G)

Capital Expenditures, Net

$7.2

$7.4

(2.1)%

Financial and Operating Data for the Six Months Ended June 30th

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

2010

2009 ^(A)

Increase/
(Decrease)

Revenue

$785.8

$605.2

29.8%

Operating Income

$299.7

$214.4

39.8%

Operating Margin

38.1%

35.4%

270 basis points

Net Income

$183.5

$132.0

39.0%

Earnings Per Share (diluted)

$5.24

$3.41

53.7%

Bad Debt Expense as a Percentage of Revenue

5.8%

5.4%

40 basis points

Revenue Per Student

$9,507

$9,480

0.3%

Weighted Average Diluted Shares of Common
Stock Outstanding

35,010,000

38,742,000

Shares of Common Stock Repurchased

1,952,500 ^(H)

1,150,033 ^(I)

Land and Building Purchases and Renovations

$2.6 ^(J)

$1.9 ^(F)

40.0%

Number of New Colleges in Operation

4

2 ^(G)

Capital Expenditures, Net

$12.5

$12.0

4.4%

(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 $105.0 million or at an average price of $105.03 per share.

(D)  For approximately $60.0 million or at an average price of $96.39 per share.

(E)  Represents costs associated with renovating, expanding or constructing buildings at 13 of the company's
locations.

(F)  Represents costs associated with renovating, expanding or constructing buildings at 10 of the company's
locations, excluding all land and buildings of Daniel Webster College that the company acquired.

(G)  Excludes Daniel Webster College.

(H)  For approximately $200.1 million or at an average price of $102.46 per share.

(I)  For approximately $124.3 million or at an average price of $108.11 per share.

(J)  Represents costs associated with renovating, expanding or constructing buildings at 17 of the company's
locations.

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

As of

June 30, 2010

December 31, 2009

June 30,  2009 (a)

(unaudited)

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$140,524

$128,788

$140,204

Short-term investments

139,486

143,407

144,500

Restricted cash

70

1,891

72

Accounts receivable, net

98,390

85,426

69,747

Deferred income taxes

17,141

13,799

14,132

Prepaid expenses and other current assets

16,671

17,651

15,978

Total current assets

412,282

390,962

384,633

Property and equipment, net

193,717

195,449

194,046

Deferred income taxes

12,237

6,416

9,976

Other assets

28,008

23,878

20,235

Total assets

$646,244

$616,705

$608,890

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$76,116

$61,275

$62,420

Accrued compensation and benefits

26,049

26,323

21,016

Other current liabilities

14,491

25,261

27,206

Deferred revenue

197,107

171,933

126,878

Total current liabilities

313,763

284,792

237,520

Long-term debt

150,000

150,000

150,000

Other liabilities

29,049

25,328

21,948

Total liabilities

492,812

460,120

409,468

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

165,678

154,495

147,369

Retained earnings

1,182,204

1,006,903

842,488

Accumulated other comprehensive (loss)

(9,555)

(10,093)

(12,868)

Treasury stock, 20,478,818, 18,622,809 and 16,361,095

shares, at cost

(1,185,436)

(995,261)

(778,108)

Total shareholders' equity

153,432

156,585

199,422

Total liabilities and shareholders' equity

$646,244

$616,705

$608,890

(a)  Amounts as of June 30, 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

Six Months

Ended June 30,

Ended June 30,

(unaudited)

(unaudited)

2010

2009 (a)

2010

2009 (a)

Revenue

$401,849

$317,140

$785,806

$605,173

Costs and expenses:

Cost of educational services

133,763

110,792

268,145

211,879

Student services and administrative expenses  

110,954

90,413

217,914

178,872

Total costs and expenses

244,717

201,205

486,059

390,751

Operating income

157,132

115,935

299,747

214,422

Interest income

533

878

1,242

2,111

Interest (expense)

(514)

(208)

(934)

(402)

Income before provision for income taxes

157,151

116,605

300,055

216,131

Provision for income taxes

61,111

45,509

116,564

84,117

Net income

$96,040

$71,096

$183,491

$132,014

Earnings per share:

Basic

$2.82

$1.87

$5.31

$3.45

Diluted

$2.78

$1.85

$5.24

$3.41

Supplemental Data:

Cost of educational services

33.3%

34.9%

34.1%

35.0%

Student services and administrative expenses

27.6%

28.5%

27.7%

29.6%

Operating margin

39.1%

36.6%

38.1%

35.4%

Student enrollment at end of period  

84,695

69,889

84,695

69,889

Campuses at end of period

125

108

125

108

Shares for earnings per share calculation:

Basic

34,081,000

37,981,000

34,552,000

38,268,000

Diluted

34,525,000

38,425,000

35,010,000

38,742,000

Effective tax rate

38.9%

39.0%

38.8%

38.9%

(a)  Amounts for the three and six months ended June 30, 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

Six Months

Ended June 30,

Ended June 30,

(unaudited)

(unaudited)

2010

2009 (a)

2010

2009 (a)

Cash flows from operating activities:

Net income

$96,040

$71,096

$183,491

$132,014

Adjustments to reconcile net income to net cash flows

from operating activities:

Depreciation and amortization

6,724

6,156

13,482

11,928

Provision for doubtful accounts

23,034

18,620

45,799

32,829

Deferred income taxes

(6,485)

(3,303)

(9,463)

(4,992)

Excess tax benefit from stock option exercises

(1,019)

(94)

(1,940)

(3,887)

Stock-based compensation expense

4,186

3,173

8,999

7,356

Other

334

(557)

490

(422)

Changes in operating assets and liabilities, net of
acquisition:

Restricted cash

5,228

(1,808)

1,821

8,324

Accounts receivable

(33,134)

(36,057)

(58,763)

(72,000)

Accounts payable

7,642

(2,787)

14,841

6,056

Other operating assets and liabilities

(20,711)

(25,122)

22,340

2,508

Deferred revenue

5,312

(7,887)

25,174

(36,956)

Net cash flows from operating activities

87,151

21,430

246,271

82,758

Cash flows from investing activities:

Facility expenditures and land purchases

(1,754)

(778)

(2,593)

(1,852)

Capital expenditures, net

(7,241)

(7,398)

(12,539)

(12,006)

Acquisition of college, net of cash acquired

--

(20,792)

--

(20,792)

Proceeds from sales and maturities of investments and notes

115,128

36,791

199,826

85,389

Purchase of investments and notes

(115,602)

(48,969)

(222,774)

(104,739)

Net cash flows from investing activities

(9,469)

(41,146)

(38,080)

(54,000)

Cash flows from financing activities:

Excess tax benefit from stock option exercises

1,019

94

1,940

3,887

Proceeds from exercise of stock options

1,594

171

2,620

5,994

Repurchase of common stock and shares tendered for taxes

(105,315)

(59,987)

(201,015)

(124,690)

Net cash flows from financing activities

(102,702)

(59,722)

(196,455)

(114,809)

Net change in cash and cash equivalents

(25,020)

(79,438)

11,736

(86,051)

Cash and cash equivalents at beginning of period

165,544

219,642

128,788

226,255

Cash and cash equivalents at end of period

$140,524

$140,204

$140,524

$140,204

(a)  Amounts for the three and six months ended June 30, 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.