News Releases
ITT Educational Services, Inc. Reports Year-End Results; Earnings Per Share in 2002 Increased 34.3 Percent; Fourth Quarter New Student Enrollment Increased 11.2 Percent
PRNewswire-FirstCall
INDIANAPOLIS
Jan 23, 2003
FlashResults
ITT Educational Services, Inc. ESI
(Numbers in Thousands, Except Per Share Data)
4th quarter ended 4th quarter ended
12/30/2002 YTD 12/30/2001 YTD
Sales $126,064 $464,946 $112,042 $410,551
Net Income $18,593 $43,854 $14,669 $33,714
Average Shares 46,267 46,793 47,804 48,216
EPS $0.40 $0.94 $0.31 $0.70
ITT Educational Services Inc. (NYSE: ESI), a leading provider of technology-oriented postsecondary degree programs, today reported earnings per share ("EPS") in 2002 were $0.94, a 34.3 percent increase compared to $0.70 per share in 2001. For the three months ended December 31, 2002, EPS were $0.40, a 29.0 percent increase compared to $0.31 per share in the same period of 2001. As of December 31, 2002, total student enrollment at the company's ITT Technical Institutes, excluding international enrollments, increased 6.0 percent to 32,631 compared to 30,778 as of December 31, 2001. This 6.0 increase in total student enrollment resulted from an 11.2 percent increase in new student enrollment to 5,710 in the fourth quarter of 2002 compared to 5,133 in the fourth quarter of 2001, and a 5.0 percent increase in continuing students to 26,921 in the fourth quarter of 2002 compared to 25,645 in the fourth quarter of 2001. As of December 31, 2002, the company's cash, cash equivalents and marketable debt securities increased 42.2 percent to $156.7 million compared to $110.2 million as of the same date in 2001. The company remains debt free. During 2002, the company's free cash flow increased 66.7 percent to $97.2 million after $14.3 million of capital expenditures but prior to $44.5 million of repurchased company common stock, $19.8 million of real property purchases and $13.6 million generated from the exercise of stock options, compared to $58.3 million in 2001 after $21.6 million of capital expenditures but prior to $27.3 million of repurchased company common stock and $8.6 million generated from the exercise of stock options.
Revenues in the fourth quarter 2002 increased 12.5 percent to $126.1 million compared to $112.0 million in the fourth quarter of 2001. Operating income in the fourth quarter of 2002 increased 28.0 percent to $29.5 million compared to $23.0 million in the fourth quarter of 2001. Operating margin in the fourth quarter of 2002 increased 280 basis points to 23.4 percent compared to 20.6 percent in the same period of 2001. Net income in the fourth quarter of 2002 increased 26.5 percent to $18.6 million, or $0.40 per share, compared to $14.7 million, or $0.31 per share, in the fourth quarter of 2001. During the fourth quarter of 2002, the company repurchased 440,000 shares of its common stock for $9.9 million or at an average price of $22.50 per share. The company has approximately 5.3 million shares of its common stock remaining to be repurchased under its existing repurchase authorizations. During the fourth quarter of 2002, the company had 46.3 million fully diluted shares of its common stock outstanding.
Revenues in 2002 increased 13.2 percent to $464.9 million compared to $410.6 million in 2001. Operating income in 2002 increased 32.4 percent to $68.3 million compared to $51.6 million in 2001. Operating margin in 2002 increased 210 basis points to 14.7 percent compared to 12.6 percent in 2001. EBITDA in 2002 increased 27.5 percent to $89.4 million compared to $70.1 million in 2001. EBITDA margin in 2002 increased 210 basis points to 19.2 percent compared to 17.1 percent in 2001. In the fourth quarter of 2002, bad debt as a percent of revenue decreased 50 percent to 1.2 percent compared to 2.4 percent in the same period of 2001. Days Sales Outstanding as of December 31, 2002 decreased 3.9 days to 6.5 compared to 10.4 as of December 31, 2001. Deferred tuition increased 33.5 percent to $103.0 million on December 31, 2002 compared to $77.2 million as of the same date in 2001. The company's return on equity in 2002 increased 530 basis points to 52.5 percent compared to 47.2 percent in 2001.
On December 18, 2002, the company announced that it has discontinued enrolling new students at its ITT Technical Institutes in Hayward and Santa Clara, California. The cessation of operations at each of those two institutes will be a gradual process that will occur over approximately two years as the institutes fulfill their obligations to the students who remain continuously enrolled at the institutes. The company stated that its decision regarding those two institutes would not have a material adverse effect on its financial condition, results of operations or cash flows.
In December 2002, the Federal Aviation Administration ("FAA"), Great Lakes Region, agreed to include the associate degree programs in Electronics Engineering Technology and Computer and Electronics Engineering Technology offered by ITT Technical Institute in Indianapolis, Indiana in the national Airway Facilities-Collegiate Training Initiative Program. Graduates of programs included in this collegiate training initiative will be eligible to apply for employment with the FAA.
Kevin M. Modany has been appointed senior vice president and chief financial officer of ITT Educational Services, Inc. by its board of directors. He replaces Gene A. Baugh who will retire effective February 4, 2003 after 25 years of employment with the company. Modany had previously served as senior vice president of the company since July 2002 and director of finance of the company since June 2002.
Rene R. Champagne, chairman and CEO of ITT/ESI said, "Despite prolonged high unemployment and a downturn in consumer confidence in the fourth quarter, new student enrollment in the fourth quarter of 2002 was strong increasing 11.2 percent compared to the fourth quarter of 2001. We attribute the increase in new students to the broad range of degree programs of study offered by our ITT Technical Institutes, the three-day per week class schedule for most program offerings and our marketing efforts, which continue to generate a substantial number of leads for our colleges. We continue to believe that our previously stated 2003 internal goal of increasing total student enrollment in the range of 6 to 8 percent compared to 2002 is achievable."
Omer E. Waddles, president and COO of ITT/ESI stated, "As of December 31, 2002, a total of 41 ITT Technical Institutes were approved to offer bachelor degree programs compared to 29 as of the same date in 2001. Further, our goal is for a total of 57 ITT Technical Institutes to be approved to offer bachelor degree programs by December 31, 2003. To supplement new student enrollment at our bachelor degree colleges, we plan to continue developing and offering new bachelor degree programs. To accommodate increased student enrollment, we plan to relocate four of our colleges to new facilities and add more classroom space at five colleges in 2003. In 2002, we developed five new classroom- based bachelor degree programs (Information Systems Security, Technical Project Management for Electronic Commerce, Electronics and Computer Engineering Technology, Data Communications Systems Technology and Industrial Automation and Engineering Technology) and one new online bachelor degree program (Information Systems Security). In 2002, 39 of our institutes began offering one or more of the five new classroom-based bachelor degree programs, representing a total of 109 additional program offerings at these colleges. We intend to complete the rollout of these five bachelor degree programs in 2003. We also intend to develop and obtain the necessary regulatory approvals to begin offering at one or more of our institutes six additional degree programs in 2003, including: an online master's degree program in business administration; classroom-based bachelor degree programs in Software Engineering Technology, Digital Entertainment and Game Development, Industrial Design Engineering Technology and Business Administration; and a classroom- based associate degree program in Business Administration. In addition to the MBA program, online versions of some of the new bachelor degree programs may also be developed for future online offerings. We plan to open three new colleges in 2003, provided that we obtain all of the requisite regulatory approvals in a timely manner. We are currently planning to commence classes at a new ITT Technical Institute: in Duluth (Atlanta), Georgia in June 2003; Owing Mills (Baltimore), Maryland in December 2003; and in Hilliard (Columbus), Ohio in December 2003."
"We believe that we can achieve the following financial and enrollment goals in 2003 compared to 2002," said Champagne.
* increase revenues in the range of 11 to 13 percent;
* increase operating margin in the range of 120 to 150 basis points;
* generate EPS in the range of $1.14 to $1.18 per share;
* increase new student enrollment in the range of 6 to 8 percent;
* increase total student enrollment in the range of 6 to 8 percent; and
* generate free cash flow after capital expenditures in the range of $70
to $80 million.
"We are looking forward to another successful year in 2003," concluded Champagne.
ITT/ESI intends to conduct a conference call and a live Webcast open to the public today at 11:00 a.m. EST to discuss this release. The Webcast may be accessed on ITT/ESI's web site, located at www.ittesi.com and will also be available for replay.
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 upon the current expectations and beliefs of the company's management concerning future developments and their potential effect on the Company. There can be no assurance 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 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 investigation being conducted by the U.S. Department of Education which, if adversely determined, could cause the U.S. Department of Education to subject the Company to monetary fines or penalties or other sanctions (including a limitation, suspension or termination of the Company's ability to participate in federal student financial aid programs) that could adversely affect the Company's ability to enroll students, expand the number of its institutes and increase the number of the programs of study offered at the Company's institutes; the results of the qui tam action brought under the False Claims Act, 31 U.S.C. Section 3730, in which the Company is a defendant which, if adversely determined, could result in a demand for repayment of federal student financial aid funds, trebled under the False Claims Act, and penalties; the Company's ability to hire and retain qualified faculty; 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; the Company's ability to implement its growth strategies; receptivity of students and employers to the Company's existing program offerings and new curricula; loss of lender access to the Company's students for student loans; and other risks and uncertainties detailed from time to time in the Company's filings with the 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.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended
December 31, Year Ended
(unaudited) December 31,
2002 2001 2002 2001
Revenues $126,064 $112,042 $464,946 $410,551
Costs and Expenses
Cost of educational services 66,098 62,529 267,503 248,129
Student services and
administrative expenses 30,493 26,480 129,134 110,816
Total costs and expenses 96,591 89,009 396,637 358,945
Operating income 29,473 23,033 68,309 51,606
Interest income, net 634 571 2,684 2,708
Income before income taxes 30,107 23,604 70,993 54,314
Income taxes 11,514 8,935 27,139 20,600
Net income $18,593 $14,669 $43,854 $33,714
Earnings per common share (a):
Basic $0.41 $0.31 $0.96 $0.71
Diluted $0.40 $0.31 $0.94 $0.70
Supplemental Data:
Cost of educational services 52.4% 55.8% 57.5% 60.4%
Student services and
administrative expenses 24.2% 23.6% 27.8% 27.0%
Operating margin 23.4% 20.6% 14.7% 12.6%
Student enrollment at end of
period 32,631 30,778 32,631 30,778
Technical institutes at end of
period 74 70 74 70
Shares for earnings per share
calculation (a):
Basic 45,201 46,760 45,736 47,208
Diluted 46,267 47,804 46,793 48,216
(a) Earnings per common share and the number of shares in all prior
periods have been restated to reflect the two-for-one stock split
declared on May 10, 2002 that became effective June 6, 2002.
ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31,
2002 2001*
Assets
Current assets
Cash and cash equivalents $123,934 $63,702
Restricted cash 7,103 5,462
Marketable debt securities 25,671 41,068
Accounts receivable, net 8,973 12,679
Deferred and prepaid income tax 1,988 2,805
Prepaids and other current
assets 5,597 7,310
Total current assets 173,266 133,026
Property and equipment, net 62,584 49,593
Direct marketing costs 10,609 10,520
Other assets 1,248 1,076
Total assets $247,707 $194,215
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $18,162 $16,007
Accrued compensation and
benefits 9,196 7,113
Other accrued liabilities 12,140 5,100
Deferred revenue 102,997 77,152
Total current liabilities 142,495 105,372
Deferred income tax 6,204 6,051
Minimum pension liability 8,041 3,021
Other liabilities 1,943 1,583
Total liabilities 158,683 116,027
Shareholders' equity
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued or outstanding -- --
Common stock, $.01 par value,
150,000,000 shares authorized,
54,068,904 issued (a) 540 270
Capital surplus 40,393 37,355
Retained earnings 184,409 148,602
Accumulated comprehensive income (4,888) (1,837)
Treasury stock, 8,986,267 and
7,748,156 shares, at cost (a) (131,430) (106,202)
Total shareholders' equity 89,024 78,188
Total liabilities and
shareholders' equity $247,707 $194,215
(a) The number of shares in the prior period have been restated to
reflect the two-for-one stock split declared on May 10, 2002 that
became effective June 6, 2002.
*Certain reclassifications have been made to conform to the 2002
presentation.
ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months
Ended December 31, Year
(unaudited) Ended December 31,
2002 2001 2002 2001*
Cash flows provided by (used for)
operating activities:
Net income $18,593 $14,669 $43,854 $33,714
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation and
amortization 5,420 4,928 21,117 18,527
Provision for doubtful
accounts 1,468 2,711 6,872 8,576
Deferred taxes 1,491 (396) 2,156 2,766
Increase/decrease in
operating assets and
liabilities:
Marketable debt
securities 6,409 (2,279) 15,397 (32,482)
Accounts receivable 2,339 757 (3,166) (8,841)
Direct marketing
costs (177) 369 (89) (426)
Accounts payable and
accrued liabilities (1,417) (5,570) 13,304 4,639
Prepaids and other
assets (464) 1,521 1,541 (596)
Deferred revenue 13,522 11,147 25,845 21,501
Net cash provided by (used for)
operating activities 47,184 27,857 126,831 47,378
Cash flows provided by (used for)
investing activities:
Facility purchases -- -- (19,843) --
Capital expenditures, net (1,950) (2,293) (14,265) (21,560)
Net cash provided by (used for)
investing activities (1,950) (2,293) (34,108) (21,560)
Cash flows provided by (used for)
financing activities:
Purchase of treasury stock (9,899) (27,289) (44,451) (27,289)
Exercise of stock options 1,206 1,359 13,601 8,603
Net cash flow provided by (used for)
financing activities (8,693) (25,930) (30,850) (18,686)
Net increase (decrease) in cash,
cash equivalents and restricted
cash 36,541 (366) 61,873 7,132
Cash, cash equivalents and
restricted cash at beginning of
period 94,496 69,530 69,164 62,032
Cash, cash equivalents and
restricted cash at end of period $131,037 $69,164 $131,037 $69,164
*Certain reclassifications have been made to conform to the 2002
presentation.
SOURCE: ITT Educational Services, Inc.
CONTACT: Martin Grossman, Senior Vice President, +1-317-594-4207, or
Nancy Brown, Director Corporate Relations, +1-317-594-4260, both of ITT
Educational Services Inc.
Web site: http://www.ittesi.com/
