SEC Info  
    Home      Search      My Interests      Help      Sign In      Please Sign In

Itt Educational Services Inc – ‘10-Q’ for 6/30/98

As of:  Monday, 7/27/98   ·   For:  6/30/98   ·   Accession #:  950131-98-4428   ·   File #:  1-13144

Previous ‘10-Q’:  ‘10-Q’ on 4/28/98 for 3/31/98   ·   Next:  ‘10-Q’ on 11/3/98 for 9/30/98   ·   Latest:  ‘10-Q’ on 7/29/16 for 6/30/16

Find Words in Filings emoji
 
  in    Show  and   Hints

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/27/98  Itt Educational Services Inc      10-Q        6/30/98    7:148K                                   Donnelley R R & S… 03/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      16     77K 
 3: EX-10.10    Income Tax Sharing Agreement                           8     30K 
 4: EX-10.11    Trade Name and Service Mark License Agreement         13     44K 
 5: EX-10.15    Esi Excess Savings Plan                               15     57K 
 2: EX-10.9     Employee Benefits Agreement                            9     38K 
 6: EX-11       Computation of Per Share Earnings                      1      6K 
 7: EX-27       Financial Data Schedule                                2      7K 


10-Q   —   Quarterly Report
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Item 1. Financial Statements
6Notes to Financial Statements
8Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
13Item 4. Submission of Matters to A Vote of Security Holders
"Item 6. Exhibits and Reports on Form 8-K
10-Q1st Page of 16TOCTopPreviousNextBottomJust 1st
 

FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number 1-13144 ITT EDUCATIONAL SERVICES, INC. (Exact name of registrant as specified in its charter) Delaware 36-2061311 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5975 Castle Creek Parkway N. Drive P.O. Box 50466 Indianapolis, Indiana 46250-0466 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (317) 594-9499 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] 26,999,952 Number of shares of Common Stock, $.01 par value, outstanding at July 24, 1998
10-Q2nd Page of 16TOC1stPreviousNextBottomJust 2nd
ITT EDUCATIONAL SERVICES, INC. Indianapolis, Indiana Quarterly Report to Securities and Exchange Commission June 30, 1998 PART I ITEM 1. FINANCIAL STATEMENTS. INDEX ----- [Download Table] Page ---- Statements of Income (unaudited) for the six months ended June 30, 1998 and 1997 and the three months ended June 30, 1998 and 1997............. 3 Balance Sheets as of June 30, 1998 and 1997 (unaudited) and December 31, 1997............................................................... 4 Statements of Cash Flows (unaudited) for the six months ended June 30, 1998 and 1997 and the three months ended June 30, 1998 and 1997........ 5 Notes to Financial Statements............................................ 6 -2-
10-Q3rd Page of 16TOC1stPreviousNextBottomJust 3rd
ITT EDUCATIONAL SERVICES, INC. STATEMENTS OF INCOME (In thousands, except per share data) (unaudited) [Enlarge/Download Table] Three Months Ended June 30, Six Months Ended June 30, ---------------------------------- ----------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenues Tuition $ 54,273 $ 48,253 $ 116,860 $ 103,999 Other educational 10,804 10,159 20,504 18,889 --------- --------- ---------- ---------- Total revenues 65,077 58,412 137,364 122,888 --------- --------- ---------- ---------- Costs and Expenses Cost of educational services 44,970 39,807 86,408 77,791 Student services and administrative expenses 20,341 18,456 39,777 35,992 Offering, change in control and other one-time expenses 1,429 -- 1,872 -- --------- --------- ---------- ---------- Total costs and expenses 66,740 58,263 128,057 113,783 ========= ========= ========== ========== Operating income (loss) (1,663) 149 9,307 9,105 Interest income, net 1,191 1,193 2,435 2,573 --------- --------- ---------- ---------- Income (loss) before income taxes (472) 1,342 11,742 11,678 Income taxes 188 537 5,074 4,671 --------- --------- ---------- ---------- Net income (loss) $ (660) $ 805 $ 6,668 $ 7,007 ========= ========= ========== ========== Earnings (loss) per common share (basic and diluted) $ (.02) $ 0.03 $ 0.25 $ 0.26 The accompanying notes are an integral part of these financial statements. -3-
10-Q4th Page of 16TOC1stPreviousNextBottomJust 4th
ITT EDUCATIONAL SERVICES, INC. BALANCE SHEETS (In thousands, except per share data) [Enlarge/Download Table] June 30, 1998 December 31, 1997 June 30, 1997 (unaudited) (unaudited) ------------- ----------------- ------------- Assets Current assets Cash and cash equivalents $ 95,875 $ 29 $ 182 Restricted cash 1,059 3,860 642 Cash invested with ITT -- 94,800 93,060 Corporation Accounts receivable, net 13,318 9,680 9,092 Deferred income tax 1,811 2,019 1,302 Prepaids and other current assets 4,011 2,570 4,529 --------- --------- --------- Total current assets 116,074 112,958 108,807 --------- --------- --------- Property and equipment, net 24,128 22,886 21,972 Direct marketing costs 7,480 6,882 6,377 Other assets 3,120 3,188 2,160 --------- --------- --------- Total assets $ 150,802 $ 145,914 $ 139,316 ========= ========= ========= Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 22,459 $ 14,974 $ 20,594 Accrued compensation and benefits 4,585 3,245 3,141 Other accrued liabilities 5,881 6,877 3,943 Deferred tuition revenue 21,203 30,850 34,311 --------- --------- --------- Total current liabilities 54,128 55,946 61,989 Other liabilities 2,191 2,153 1,628 --------- --------- --------- Total liabilities 56,319 58,099 63,617 --------- --------- --------- Shareholders' equity Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued or outstanding -- -- -- Common stock, $.01 par value, 50,000,000 shares authorized, 26,999,952 issued and outstanding 270 270 270 Capital surplus 32,513 32,513 32,513 Retained earnings 61,700 55,032 42,916 --------- --------- --------- Total shareholders' equity 94,483 87,815 75,699 --------- --------- --------- Total liabilities and shareholders' equity $ 150,802 $ 145,914 $ 139,316 ========= ========= ========= The accompanying notes are an integral part of these financial statements. -4-
10-Q5th Page of 16TOC1stPreviousNextBottomJust 5th
ITT EDUCATIONAL SERVICES, INC. STATEMENTS OF CASH FLOWS (In thousands) (unaudited) [Enlarge/Download Table] Three Months Six Months Ended June 30, Ended June 30, ----------------- ----------------- 1998 1997 1998 1997 ------- ------- ------- ------- Cash flows from operating activities: Net income (loss) $ (660) $ 805 $ 6,668 $ 7,007 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,347 2,096 4,561 4,054 Provision for doubtful accounts 785 404 1,459 857 Deferred taxes 39 81 271 308 Increase/decrease in operating assets and liabilities: Accounts receivable (1,333) 301 (5,097) (571) Direct marketing costs (426) (408) (598) (603) Accounts payable and accrued liabilities 4,506 3,386 7,804 5,626 Prepaids and other assets 146 (495) (1,373) (2,700) Deferred tuition revenue (1,838) 3,511 (9,647) (9,221) ------- ------- ------- ------- Net cash provided by operating activities 3,566 9,681 4,048 4,757 ------- ------- ------- ------- Cash flows used for investing activities: Capital expenditures, net (3,538) (2,639) (5,803) (6,666) Net decrease in cash invested with ITT Corporation -- (7,124) 94,800 (3,252) ------- ------- ------- ------- Net cash provided by (used for) investing activities (3,538) (9,763) 88,997 (9,918) ------- ------- ------- ------- Net increase (decrease) in cash, cash equivalents and restricted cash 28 (82) 93,045 (5,161) Cash, cash equivalents and restricted cash at beginning of period 96,906 906 3,889 5,985 ------- ------- ------- ------- Cash, cash equivalents and restricted cash at end of period $96,934 $ 824 $96,934 $ 824 ======= ======= ======= ======= The accompanying notes are an integral part of these financial statements. -5-
10-Q6th Page of 16TOC1stPreviousNextBottomJust 6th
ITT EDUCATIONAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Dollar amounts in thousands, unless otherwise stated) 1. The accompanying unaudited financial statements have been prepared by ITT Educational Services, Inc. (the "Company") without audit. In the opinion of management, the financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial condition and results of operations of the Company. Certain information and footnote disclosures, including significant accounting policies, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been omitted. The interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission for the year ended December 31, 1997. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of results for the entire calendar year. 2. From the Company's initial public offering in 1994 until June 9, 1998, 83.3% of the outstanding Common Stock of the Company was owned by ITT Corporation ("ITT"). On February 23, 1998, Starwood Hotels and Resorts Worldwide, Inc. ("Starwood, Inc.") completed the acquisition (the "Merger") of ITT and ITT became a subsidiary of Starwood, Inc. On June 9, 1998, Starwood, Inc. sold 13,050,000 shares of the Company's Common Stock held by ITT to the public (48.3% of the outstanding shares) (the "Offering"). Starwood, Inc. presently owns 35% of the outstanding shares of the Company's Common Stock. The Offering did not constitute a change of control under the U.S. Department of Education regulations. Until February 5, 1998, the Company's cash receipts were forwarded to ITT on a daily basis and the Company's cash disbursements were generally funded by ITT out of the Company's cash balances invested with ITT. On February 5, 1998, ITT transferred the balance to the Company and the Company has since been performing its own cash management function. The invested funds are included in cash and cash equivalents at June 30, 1998. In June 1998, the Company incurred total expenses for the Offering of $1.1 million. In addition, the Company incurred expenses of $0.3 million and $0.8 million in the three and six months ended June 30, 1998, respectively, associated with the Company's change in control and establishment of new employee benefit plans. 3. The Company has a number of pending legal and other claims arising out of the normal course of business. Among the legal actions is Eldredge, et al. v. ITT Educational Services, Inc., et al. (the "Eldredge Case"). This action was filed on June 8, 1995 in San Diego, California by seven graduates of the San Diego ITT Technical Institute. In October 1996, the jury in this action rendered a verdict against the Company and awarded the plaintiffs general damages of approximately $0.2 million and exemplary damages of $2.6 million. The judge also awarded the plaintiffs attorney's fees and costs, in the amount of approximately $0.9 million, and interest. The Company is seeking to overturn the awards and has appealed the decision. Management, based on the advice of counsel, believes it is probable that it will prevail in its appeal, thus no provision (other than the Company's legal expenses) for these awards has been made. If the Company's appeal of the judgment in the Eldredge Case is unsuccessful, a charge to earnings would be taken at that time in the amount of the awards, including the general and exemplary damages assessed against the Company, the plaintiffs' attorney's fees and costs and the interest assessed thereon. In January 1997, six legal actions were filed against the Company in San Diego, California by a total of 21 former students of the San Diego ITT Technical Institute. The claims alleged in these legal actions are - 6 -
10-Q7th Page of 16TOC1stPreviousNextBottomJust 7th
similar to the claims alleged in the Eldredge Case, relate primarily to the Company's marketing and recruitment practices and include misrepresentation and violations of certain state statutes. The plaintiffs in one of the California actions seek to have their action certified as a class action. Recently, the court denied such plaintiffs' request. In June 1997, a legal action was filed against the Company in Orlando, Florida by three former students of the Maitland ITT Technical Institute. In April 1998, the legal action in Florida was dismissed without prejudice by the plaintiffs. In April 1998, a legal action was filed against the Company in San Diego, California by nine former students who attended the hospitality program at either the Maitland or San Diego ITT Technical Institute. The claims alleged in this action are similar to the claims alleged in the Eldredge Case, relate primarily to the Company's marketing and recruitment practices and include fraud and violations of certain federal and state statutes. The plaintiffs seek to have their action certified as a class action on behalf of all persons similarly situated who attended the hospitality program at the Indianapolis, Maitland, Portland or San Diego ITT Technical Institutes. If a class action is certified in either California action, the number of plaintiffs that may be awarded damages would increase significantly. In the three months ended June 30, 1998, the Company increased its provision for litigation costs related to certain of the aforementioned legal actions by $1.2 million. The Company believes that it has meritorious defenses and intends to vigorously defend itself against these claims. In the opinion of management, the ultimate outcome of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. - 7 -
10-Q8th Page of 16TOC1stPreviousNextBottomJust 8th
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the same titled section contained in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission for the year ended December 31, 1997 for discussion of cash receipts from financial aid programs, nature of capital additions, seasonality of revenues, components of income statement captions, interest payments on cash invested with ITT, default rates and other matters. The Company records its revenues as students attend class. Due to the two week vacations in June and December, the first and third quarters include 13 weeks of revenue and the second and fourth quarters include 11 weeks of revenue. The Company's incurrence of costs, however, is generally not affected by the academic schedule and such costs do not fluctuate significantly on a quarterly basis. As a result, net income in the second and fourth quarters is significantly less than in the first and third quarters. Results of Operations --------------------- Revenues increased $6.7 million, or 11.5%, to $65.1 million in the three months ended June 30, 1998 from $58.4 million in the three months ended June 30, 1997. Revenues increased $14.5 million, or 11.8%, to $137.4 million in the six months ended June 30, 1998 from $122.9 million in the six months ended June 30, 1997. These increases were due primarily to a 5% increase in tuition rates in September 1997 and an 8.2% increase in the total student enrollment at January 1, 1998 compared to January 1, 1997. The number of students attending ITT Technical Institutes at January 1, 1998 was 24,498 compared to 22,633 at January 1, 1997. The total number of first-time and re-entering students beginning classes in June 1998 was 6,951 compared to 6,879 for the same period in 1997. First-time students numbered 6,075 in June 1998 compared to 6,158 in June 1997. The total student enrollment on June 30, 1998 was 25,185, compared to 23,994 on June 30, 1997, an increase of 5.0%. Cost of educational services increased $5.2 million, or 13.1%, to $45.0 million in the three months ended June 30, 1998 from $39.8 million in the three months ended June 30, 1997. Cost of educational services increased $8.6 million, or 11.1%, to $86.4 million in the six months ended June 30, 1998 from $77.8 million in the six months ended June 30, 1997. These increases were principally a result of costs required to service the increased enrollment, normal inflationary cost increases for wages, rent and other costs of services, and increased costs at new technical institutes (one opened in June 1997, two in December 1997, one in March 1998, and one in June 1998). Cost of educational services as a percentage of revenue increased in the three and six months ended June 30, 1998 compared to the three and six months ended June 30, 1997 as a result of a $1.2 million provision for legal expenses in the three months ended June 30, 1998 (compared to a $0.5 million and $1.0 million provision for legal expenses in the three and six months ended June 30, 1997, respectively) associated with the legal actions involving the hospitality program. (See Note 3 of Notes to Financial Statements.) Excluding these provisions, cost of educational services in the three months ended June 30, 1998 would have been 67.3% of revenues, the same as the three months ended June 30, 1997 and 62.0% of revenues for the six months ended June 30, 1998, a 0.5% improvement from the six months ended June 30, 1997. Student services and administrative expenses increased $1.8 million, or 9.7%, to $20.3 million in the three months ended June 30, 1998 from $18.5 million in the three months ended June 30, 1997. Student services and administrative expenses increased $3.8 million, or 10.6%, to $39.8 million in the six months ended June 30, 1998 from $36.0 million in the six months ended June 30, 1997. The Company increased its media advertising expenses in the three and six months ended June 30, 1998 by approximately 8.9% and 8.5%, respectively, over the same expenses incurred in the three and six months ended June 30, 1997. Student services and administrative expenses decreased to 31.3% of revenues in the three months ended June 30, 1998 compared to 31.6% in the three months ended June 30, 1997, - 8 -
10-Q9th Page of 16TOC1stPreviousNextBottomJust 9th
primarily because the greater revenues did not cause an increase in the fixed portion of the marketing and headquarters expenses. The Company incurs operating losses when opening new institutes. Three new institutes were opened in 1996, three in 1997 and two in the first six months of 1998. A new institute typically is open for approximately 24 months before it experiences a profit. The revenues and expenses of these institutes are included in the respective captions in the statements of income. The amount of operating losses (pre-tax) for institutes open less than 24 months during the three and six months ended June 30, 1998 were $1.5 million and $2.5 million, respectively, compared to $1.0 million and $2.0 million for the three and six months ended June 30, 1997, respectively. In June 1998, the Company incurred total expenses for the Offering of $1.0 million after tax ($0.04 per share). In addition the Company incurred expenses of $0.4 million ($0.01 per share) in the three months ended March 31, 1998 and $0.3 million ($0.01 per share) in the three months ended June 30, 1998 associated with the Company's change in control and establishment of new employee benefit plans. Operating income (excluding the Offering, change in control and other one-time expenses and legal provisions discussed above) increased $0.4 million to $1.0 million in the three months ended June 30, 1998 from $0.6 million in the three months ended June 30, 1997. Operating income (excluding such one-time costs and legal provisions) increased $2.3 million, or 22.8%, to $12.4 million in the six months ended June 30, 1998 from $10.1 million in the six months ended June 30, 1997. The operating margin (excluding such one-time costs and legal provisions) increased to 1.5% of revenues in the three months ended June 30, 1998, from a 1.1% operating margin in the three months ended June 30, 1997. The operating margin (excluding such one-time costs and legal provisions) for the six months ended June 30, 1998 was 9.0% compared to 8.2% for the six months ended June 30, 1997. Interest income in the three months ended June 30, 1998 was equal to the interest income for the three months ended June 30, 1997. Interest income decreased $0.1 million in the six months ended June 30, 1998 compared to the six months ended June 30, 1997, which was primarily due to the lower interest rate earned on the cash invested by the Company (i.e., 5.5% in 1998 compared to 6.3% in 1997) offset by the earnings on increased cash balances. The Company's combined effective federal and state income tax rate was 40% in 1997. The Company's 1998 federal and state tax provision will be greater than 40%, because $0.9 million of the Offering expenses incurred in the three months ended June 30, 1998 are not tax deductible. The following table sets forth the net income (in thousands) for the three and six months ended June 30, 1998 and 1997: [Download Table] Three Months Six Months Ended June 30, Ended June 30, ------------------ ---------------- 1998 1997 1998 1997 ------ ------ ------ ------ Net income (loss) $ (660) $805 $6,668 $7,007 Offering expense (after tax) 1,048 1,048 Change in control and other one-time expenses (after tax) 187 453 ------ ------ ------ ------ Net income before one-time expenses 575 805 8,169 7,007 Legal provision (after tax) 720 300 720 600 ------ ------ ------ ------ Net income before one-time expenses and legal provision $1,295 $1,105 $8,889 $7,607 ====== ====== ====== ====== Financial Condition, Liquidity and Capital Resources ---------------------------------------------------- Due to the seasonal pattern of enrollments and the receipt of tuition payments, comparisons of financial position and - 9 -
10-Q10th Page of 16TOC1stPreviousNextBottomJust 10th
cash generated from operations should be made both to the end of the previous year and to the corresponding period during the previous year. Until February 5, 1998, the Company's cash receipts were forwarded to ITT on a daily basis and the Company's cash disbursements were generally funded by ITT out of the Company's cash balances invested with ITT. The Company's cash invested with ITT Corporation is separately shown on the balance sheets as of December 31, 1997 and June 30, 1997. On February 5, 1998, ITT transferred the balance to the Company. The Company has been performing its own cash management functions since February 5, 1998 and no longer has any cash invested with ITT. The invested funds are included in the caption "cash and cash equivalents" in the June 30, 1998 balance sheet. The U.S. Department of Education ("DOE") issued new regulations in November 1996, which became effective July 1, 1997, that revised the procedures governing how an institution participating in federal student financial aid programs under Title IV of the Higher Education Act of 1965, as amended ("Title IV Programs") requests, maintains, disburses and otherwise manages Title IV Program funds. These new regulations require the Company to receive Title IV Program loan funds in three equal quarterly disbursements rather than the two disbursements previously permitted. The Company estimates that this change decreased deferred tuition revenues or increased accounts receivable at June 30, 1998 by approximately $15.0 million compared to June 30, 1997 and decreased interest income in the three and six months ended June 30, 1998 by approximately $0.2 million and $0.4 million from interest income in the three and six months ended June 30, 1997, respectively. Net cash provided by operating activities was $4.0 million in the six months ended June 30, 1998 compared to $4.8 million in the six months ended June 30, 1997. This $0.8 million decrease in cash provided by operating activities was due primarily to the decrease in deferred tuition revenues or increase in accounts receivable discussed above offset by an increase in the amount due ITT under intercompany agreements that the Company entered into with ITT at the time of the Offering. As of June 30, 1998, the Company had not paid ITT $6.8 million for estimated federal income taxes, pension expenses and medical expenses accrued from January 1, 1998 through the Offering date, pending the reconciliation of all accounts between ITT and the Company pursuant to the terms of such intercompany agreements. Management does not believe that the Company's reconciliation of accounts with ITT will have a material adverse effect on the Company's financial condition, results of operations or cash flows. An educational institution may lose its eligibility to participate in some or all Title IV Programs if student defaults on federal student loans exceed certain rates. An institution whose cohort default rate on loans under the Federal Family Education Loan ("FFEL") programs and the Federal Direct Loan ("FDL") programs is 25% or greater for three consecutive federal fiscal years loses eligibility to participate in those programs for the remainder of the federal fiscal year in which the DOE determines that the institution has lost its eligibility and for the two subsequent federal fiscal years. In June 1998, the ITT Technical Institute in Garland, Texas, which accounted for approximately 1.7% of the Company's revenues in 1997, lost its eligibility to participate in the FFEL and FDL programs until at least October 1, 2000, because it had FFEL/FDL cohort default rates exceeding 25% for the 1993, 1994 and 1995 federal fiscal years, the three most recent years for which the DOE has published official FFEL/FDL cohort default rates. The Company has arranged for an unaffiliated private funding source ("PFS") to provide loans to the students enrolled in the Garland institute. This alternative source of student financial aid requires the Company to guarantee repayment of the PFS loans. Based on the Company's experience with the repayment of Title IV program loans by students who attended the Garland institute, the Company believes that such guaranty should not result in a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company is also considering whether to stop enrolling new students in the Garland institute, continue teaching the students already enrolled and close the institute once the students already enrolled have completed their programs of study. The ITT Technical Institute in San Antonio, Texas, which accounted for approximately 2.4% of the Company's revenues in 1997, had FFEL/FDL cohort default rates exceeding 25% for the 1994 and 1995 federal fiscal years, but - 10 -
10-Q11th Page of 16TOC1stPreviousNextBottomJust 11th
had an FFEL/FDL cohort default rate below 25% for the 1993 federal fiscal year and a preliminary FFEL/FDL cohort default rate below 25% for the 1996 federal fiscal year. If the San Antonio institute receives an official 1996 FFEL/FDL cohort default rate equal to or greater than 25% and cannot reduce that rate to less than 25% through an appeal to the DOE, such institute will become ineligible to participate in the FFEL and FDL programs. Loss of eligibility to participate in the FFEL and FDL programs by both the Garland and San Antonio, Texas ITT Technical Institutes (but not by the Garland institute alone) could have a material adverse effect on the Company's financial condition or results of operations. Other than the Garland and San Antonio, Texas ITT Technical Institutes, no ITT Technical Institute campus group had an FFEL/FDL cohort default rate equal to or greater than 25% for the 1995 federal fiscal year. No ITT Technical Institute campus group had a preliminary FFEL/FDL cohort default rate equal to or greater than 25% for the 1996 federal fiscal year, which preliminary rates were issued by the DOE in May 1998. The official FFEL/FDL cohort default rates for the 1996 federal fiscal year are expected to be published by the DOE in the last calendar quarter of 1998. Any corporate reorganization of, or future disposition of the Common Stock by, ITT could constitute a change in control of the Company and the ITT Technical Institutes. A material adverse effect on the Company's financial condition, results of operations and cash flows would result if a change in control of the Company occurred and a material number of ITT Technical Institutes failed, in a timely manner, to be reauthorized by the state education authorities, reaccredited by their accrediting commissions or recertified by the DOE to participate in Title IV Programs. Capital expenditures were $5.8 million in the six months ended June 30, 1998 compared to $6.7 million in the six months ended June 30, 1997. This decrease was due primarily to the acquisition of approximately $3.0 million of new computers in the first quarter of 1997 (required to accommodate a software upgrade for the Company's computer-aided drafting technology curriculum) offset by increased capital expenditures in 1998 for new institutes and curricula additions at existing institutes. The Company expects that the capital additions for the full 1998 year will be approximately $10.0 million or a $1.5 million decrease from 1997. The capital additions for a new technical institute are approximately $0.4 million and the capital additions for each new curriculum at an existing institute are approximately $0.3 million. The Company anticipates that its planned capital additions can be funded through cash flows from operations. Cash flows from operations on a long-term basis are highly dependent upon the receipt of funds from Title IV Programs and the amount of funds spent on new technical institutes, curricula additions at existing institutes and possible acquisitions. Management, based on the advice of counsel, believes that it is probable that it will prevail in its appeal in the Eldredge Case (see Note 3 to the Financial Statements), thus no provision for the awards in that case has been made. If the Company's appeal of the judgment in the Eldredge Case is unsuccessful, a charge to earnings would be taken at that time in the amount of the awards, including the general and exemplary damages assessed against the Company, the plaintiffs' reasonable attorney's fees and costs, and the prejudgment and post-judgment interest assessed thereon. The American Institute of Certified Public Accountants (the "AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," in March 1998. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use and requires costs incurred in the application development stage (whether internal or external) to be capitalized. This SOP is applicable to all financial statements for fiscal years beginning after December 15, 1998, and should be applied to internal-use computer software costs incurred in those fiscal years for all projects, including those projects in progress upon initial application of this SOP. Costs incurred prior to initial application of this SOP, whether or not capitalized, should not be adjusted to the amounts that would have been capitalized had this SOP been in effect when those costs - 11 -
10-Q12th Page of 16TOC1stPreviousNextBottomJust 12th
were incurred. The adoption of this SOP is not expected to have a material impact on the annual operating results of the Company. Additionally, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," in April 1998. SOP 98-5 provides guidance on the financial reporting of start-up cost and requires the cost of start-up activities to be expensed as incurred. This SOP is applicable to all financial statements for fiscal years beginning after December 15, 1998. Initial application should be reported as a cumulative effect of a change in accounting principle as described in Accounting Principles Board (APB) Opinion No. 20, "Accounting Changes." The Company intends to adopt this standard in the first quarter of 1999. The cumulative effect of the change in accounting is not expected to have a material effect on the 1999 annual operating results of the Company. Factors That May Affect Future Results -------------------------------------- This report contains certain forward looking statements that 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 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 results of the Company's appeal in Eldredge, et al. v. ITT Educational Services, Inc., et al. and the results of any related litigation; 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 the institutes; receptivity of students and employers to the Company's existing program offerings and new curricula; and loss of lender access to the Company's students for student loans. - 12 -
10-Q13th Page of 16TOC1stPreviousNextBottomJust 13th
PART II ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the second quarter of fiscal year 1998, the Company held its 1998 annual meeting of shareholders on May 12, 1998 to elect directors. The Company's Board of Directors currently consists of ten directors divided into three classes. The first and second classes contain three directors each and the third class contains four directors. The term of one class expires each year. Generally, each director serves until the annual meeting of shareholders held in the year that is three years after such director's election and thereafter until such director's successor is elected and has qualified. At the Company's 1998 annual meeting of shareholders, the shareholders elected the following persons to serve as directors of the Company in the first class of the Company's Board of Directors, each to hold office for the term of three years and until his successor is elected and has qualified: First Class - Term expiring at 2001 Annual Meeting ----------- 1. Rene R. Champagne 2. James D. Fowler, Jr. 3. Barry S. Sternlicht The final results of the vote taken at such meeting for the director nominees are as follows: [Download Table] Broker Votes For Votes Withheld Nonvotes Abstentions ---------- -------------- -------- ----------- Rene R. Champagne 26,208,327 13,787 0 0 James D. Fowler, Jr. 26,208,077 14,037 0 0 Barry S. Sternlicht 25,205,077 17,037 0 0 The directors of the Company continuing in office are as follows: Second Class - Term expiring at 1999 Annual Meeting ------------ 1. John E. Dean 2. Robin Josephs 3. Vin Weber Third Class - Term expiring at 2000 Annual Meeting ----------- 1. Rand V. Araskog 2. Tony Coelho 3. Merrick R. Kleeman 4. Leslie Lenkowsky ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference. (b) Reports on Form 8-K. On April 8, 1998, the Company filed a Current Report on Form 8-K dated March 31, 1998 to report, under Item 5 of Form 8-K, a press release issued by the Company reporting student enrollment data for its March 1998 term. - 13 -
10-Q14th Page of 16TOC1stPreviousNextBottomJust 14th
On April 16, 1998, the Company filed a Current Report on Form 8-K dated April 16, 1998 to report, under Item 5 of Form 8-K, a press release issued by the Company reporting the Company's financial results for the quarter ended March 31, 1998. On April 17, 1998, the Company filed Amendment No. 1 on Form 8-K/A to the Company's Current Report on Form 8-K dated April 16, 1998 to correct the column headings on the Statements of Income. - 14 -
10-Q15th Page of 16TOC1stPreviousNextBottomJust 15th
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ITT Educational Services, Inc. Date: July 27, 1998 By: /s/ Gene A. Baugh ------------------------------------------------- Gene A. Baugh Senior Vice President and Chief Financial Officer (Principal Financial Officer) S-1
10-QLast Page of 16TOC1stPreviousNextBottomJust 16th
INDEX TO EXHIBITS Exhibit No. Description -------------------------------------------------------------------------------- 10.9 Employee Benefits Agreement between the Company and ITT Corporation 10.10 Income Tax Sharing Agreement between the Company, ITT Corporation and Starwood Hotels & Resorts Worldwide, Inc........................ 10.11 Trade Name and Service Mark License Agreement between the Company and ITT Sheraton Corporation................................ 10.12 (1)Amended and Restated Registration Rights Agreement between the Company and ITT Corporation......................................... 10.13 (2)Stockholder Agreement between the Company and ITT Corporation...... 10.14 *(3)ESI 401(k) Plan................................................... 10.15 *ESI Excess Savings Plan.............................................. 11 Statement re Computation of Per Share Earnings........................ 27 Financial Data Schedule............................................... ---------------------- * The indicated exhibit is a management contract, compensatory plan or arrangement required to be filed by Item 601 of Regulation S-K. (1) The copy of this exhibit filed as Exhibit 99.2 to Starwood Hotels & Resorts Worldwide, Inc.'s and ITT Corporation's Amendment No. 1 to Schedule 13D dated June 29, 1998 is incorporated herein by reference. (2) The copy of this exhibit filed as Exhibit 99.1 to Starwood Hotels & Resorts Worldwide, Inc.'s and ITT Corporation's Amendment No. 1 to Schedule 13D dated June 29, 1998 is incorporated herein by reference. (3) The copy of this exhibit filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8 (Registration No. 333-55903) is incorporated herein by reference.

Dates Referenced Herein   and   Documents Incorporated by Reference

Referenced-On Page
This ‘10-Q’ Filing    Date First  Last      Other Filings
10/1/00104
12/15/981112
Filed on:7/27/9815
7/24/981
For Period End:6/30/98111
6/29/9816SC 13D/A
6/9/986
5/12/9813DEF 14A
4/17/98148-K/A
4/16/98148-K,  8-K/A
4/8/98138-K
3/31/9891410-Q,  8-K
2/23/9863,  8-K
2/5/98610
1/1/98810
12/31/9721010-K
7/1/9710
6/30/9721110-Q
1/1/978
6/8/956
 List all Filings 
Top
Filing Submission 0000950131-98-004428   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
AboutPrivacyRedactionsHelp — Fri., Mar. 29, 8:31:25.2am ET