<PAGE>
FORM 10-Q
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, 1996
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)
(317) 594-9499
(Registrant's telephone number, including area code)
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 [ ]
17,999,987
Number of shares of Common Stock, $.01 par value, outstanding at June 30, 1996.
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
Indianapolis, Indiana
Quarterly Report to Securities and Exchange Commission
June 30, 1996
PART I
ITEM 1. FINANCIAL STATEMENTS.
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Income (unaudited) for the six months
ended June 30, 1996 and 1995 and the three months ended
June 30, 1996 and 1995.............................................. 3
Consolidated Balance Sheets as of June 30, 1996 and 1995 (unaudited)
and December 31, 1995............................................... 4
Consolidated Statements of Cash Flows (unaudited) for the six months
ended June 30, 1996 and 1995 and the three months ended
June 30, 1996 and 1995.............................................. 5
Notes to Consolidated Financial Statements........................... 6
</TABLE>
-2-
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -------------------------
1996 1995 1996 1995
-------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES
Tuition $42,376 $37,309 $ 91,644 $81,958
Other educational 9,192 7,660 17,027 14,180
------- ------- -------- -------
Total revenue 51,568 44,969 108,671 96,138
------- ------- -------- -------
COSTS AND EXPENSES
Cost of educational services 35,074 32,082 68,561 63,685
Student services and administrative
expenses 16,880 14,061 33,385 28,140
------- ------- -------- -------
51,954 46,143 101,946 91,825
------- ------- -------- -------
Operating income (loss) (386) (1,174) 6,725 4,313
Interest income, net 909 801 1,856 2,013
------- ------- -------- -------
Income before income taxes 523 (373) 8,581 6,326
Income taxes 209 (149) 3,432 2,524
------- ------- -------- -------
Net income (loss) $ 314 $ (224) $ 5,149 $ 3,802
======= ======= ======== =======
Earnings (loss) per common share $ .02 $ (0.01) $ .29 $ .21
Average equivalent common shares
outstanding (in thousands) 18,106 18,027 18,088 18,023
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
(unaudited) December 31, 1995 (unaudited)
------------- ----------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash $ 46 $ 595 $ 574
Restricted cash 910 5,037 10,849
Cash invested with ITT Corporation 75,347 71,885 58,432
Accounts receivable, net 8,932 7,592 6,750
Deferred income tax 509 950 1,012
Prepaids and other current assets 3,030 1,508 2,946
-------- -------- --------
Total current assets 88,774 87,567 80,563
Property and equipment, net 17,906 18,985 17,359
Direct marketing costs 5,352 5,031 5,177
Other assets 2,658 2,701 2,349
-------- -------- --------
Total assets $114,690 $114,284 $105,448
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,778 $ 8,336 $ 11,246
Accrued compensation and benefits 2,806 4,195 3,414
Other accrued liabilities 2,953 6,172 4,529
Deferred tuition revenue 31,457 40,063 37,797
-------- -------- --------
Total current liabilities 53,994 58,766 56,986
Other liabilities 1,706 1,677 2,210
-------- -------- --------
Total liabilities 55,700 60,443 59,196
-------- -------- --------
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,
18,000,000, 12,000,000 and
12,000,000 issued and outstanding 180 120 120
Capital surplus 32,603 32,663 32,663
Retained earnings 26,207 21,058 13,469
-------- -------- --------
Total shareholders' equity 58,990 53,841 46,252
-------- -------- --------
Total liabilities and
shareholders' equity $114,690 $114,284 $105,448
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ---------------------------
1996 1995 1996 1995
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 314 $ (224) $ 5,149 $ 3,802
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,026 1,837 3,991 3,654
Provision for doubtful accounts 460 231 849 650
Deferred taxes 199 (81) 474 261
Increase/decrease in operating assets
and liabilities:
Accounts receivable (1,577) (432) (2,189) (824)
Direct marketing costs (394) (109) (321) (123)
Accounts payable and
accrued liabilities (2,415) (1,532) 3,834 1,894
Prepaids and other assets (128) 443 (1,483) (403)
Deferred tuition revenue 3,555 5,381 (8,606) (3,174)
------- ------- ------- -------
Net cash provided by operating activities 2,040 5,514 1,698 5,737
------- ------- ------- -------
Cash flows used for investing activities:
Capital expenditures, net (1,720) (1,519) (2,912) (2,692)
Net increase in cash invested with
ITT Corporation (140) (1,659) (3,462) (2,522)
------- ------- ------- -------
Net cash used for investing activities (1,860) (3,178) (6,374) (5,214)
------- ------- ------- -------
Net increase (decrease) in cash and
restricted cash 180 2,336 (4,676) 523
Cash and restricted cash at beginning of period 776 9,087 5,632 10,900
------- ------- ------- -------
Cash and restricted cash at end of period $ 956 $11,423 $ 956 $11,423
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Dollar amounts in thousands unless otherwise stated)
1. The accompanying unaudited consolidated 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 consolidated financial statements should be read
in conjunction with the consolidated 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, 1995.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of results for the entire calendar year.
2. On March 22, 1996, the Company declared a 3 for 2 Common Stock split,
effected by payment of a stock dividend on April 15, 1996 to all
shareholders of record at the close of business on April 1, 1996. The
earnings per share amounts for all prior periods have been restated to
reflect this stock split.
-6-
<PAGE>
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, 1995 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 Corporation ("ITT") 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 $6.6 million, or 14.7%, to $51.6 million in the three months
ended June 30, 1996 from $45.0 million in the three months ended June 30, 1995.
Revenues increased $12.6 million, or 13.1%, to $108.7 million in the six months
ended June 30, 1996 from $96.1 million in the six months ended June 30, 1995.
These increases are primarily due to a 5% increase in tuition rates in September
1995, an increase in the number of first-time students beginning classes in
March and June 1996 as discussed below, increased total student enrollment at
June 30, 1996 as discussed below, and a change in the mix of students to higher
tuition rate courses (i.e., bachelor's degree and CAD programs).
The total number of first-time and re-entering students beginning classes in
1996 and 1995 may be shown as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ -------------------------
Percentage Percentage
1996 1995 Increase 1996 1995 Increase
----- ----- ---------- ------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
First-time students 5,918 4,920 20.3 9,481 7,658 23.8
Re-entering students 635 552 15.0 1,312 1,130 16.1
----- ----- ---- ------ ----- ----
Total new students 6,553 5,472 19.8 10,793 8,788 22.8
===== ===== ==== ====== ===== ====
</TABLE>
The total student enrollment on June 30, 1996 was 22,100, compared to 20,365
students on June 30, 1995, an increase of 8.5%.
Cost of educational services increased $3.0 million, or 9.3%, to $35.1 million
in the three months ended June 30, 1996 from $32.1 million in the three months
ended June 30, 1995. Cost of educational services increased $4.9 million, or
7.7%, to $68.6 million in the six months ended June 30, 1996 from $63.7 million
in the six months ended June 30, 1995. These increases are 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 (two opened in September 1995 and two in March 1996).
Cost of educational services decreased as a percentage of revenue in the three
and six months ended June 30, 1996 from the respective periods in 1995 primarily
because of greater revenues being spread over the fixed portion of cost of
educational services.
-7-
<PAGE>
Student services and administrative expenses increased $2.8 million, or 19.9%,
to $16.9 million in the three months ended June 30, 1996 from $14.1 million in
the three months ended June 30, 1995. Student services and administrative
expenses increased $5.3 million, or 18.9%, to $33.4 million in the six months
ended June 30, 1996 from $28.1 million in the six months ended June 30, 1995. To
address the relatively soft market for new student enrollment, the Company
increased its media advertising expenses in the three and six months ended June
30, 1996 by approximately 31% and 30%, respectively, over the same expenses
incurred in the three and six months ended June 30, 1995, respectively. Student
services and administrative expenses also increased as a result of normal
inflationary cost increases for wages and media advertising.
The Company incurs operating losses when opening new institutes. Five new
institutes were opened in 1993, six in 1994, two in 1995 and two in the first
six months of 1996. 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 consolidated statement
of income. The amount of operating losses (pre-tax) during the three and six
months ended June 30, 1996 for institutes open less than 24 months were $2.2
million and $3.6 million, respectively, compared to $2.3 million and $4.4
million for the three and six months ended June 30, 1995, respectively.
Operating losses decreased $0.8 million to $0.4 million in the three months
ended June 30, 1996 from $1.2 million in the three months ended June 30, 1995.
Operating income increased $2.4 million, or 55.8%, to $6.7 million in the six
months ended June 30, 1996 from $4.3 million in the six months ended June 30,
1995. These increases are primarily due to the control of costs and the
reduction of operating losses of new institutes (i.e., ten institutes in the
first 24 months of operation in the six months ended June 30, 1996 compared to
13 in the six months ended June 30, 1995). The operating margin increased to
6.2% of revenues in the six months ended June 30, 1996, up from 4.5% in the six
months ended June 30, 1995.
Interest income in the three months ended June 30, 1996 increased $0.1 million
from the three months ended June 30, 1995 because of a non-recurring interest
expense of $250,000, related to a previously accrued liability for a state tax
assessment recorded in the three months ended June 30, 1995, that was offset by
the reduction in the interest rate earned on the cash invested by the Company
with ITT (i.e., 5.5% in the three months ended June 30, 1996 compared to 7.5% in
the three months ended June 30, 1995). Interest income decreased $0.1 million,
or 5.0%, to $1.9 million in the six months ended June 30, 1996 from $2.0 million
in the six months ended June 30, 1995 due to the same reasons discussed above
for the three months ended June 30, 1996.
Financial Condition, Liquidity and Capital Resources
- - ----------------------------------------------------
Due to the seasonal pattern of enrollments and the receipt of tuition payments,
comparisons of financial position and cash generated from operations should be
made both to the end of the previous year and to the corresponding period during
the previous year.
Net cash provided by operating activities was $2.0 million in the three months
ended June 30, 1996 compared to $5.5 million provided by operations in the three
months ended June 30, 1995. Net cash provided by operating activities was $1.7
million in the six months ended June 30, 1996 compared to $5.7 million in the
six months ended June 30, 1995. These decreases are primarily due to the July
1995 federal regulation that changes the timing of receipt of federal financial
aid to later dates in 1996 than 1995 and its impact on accounts receivable and
deferred tuition revenue. The Company received $7.5 million of cash on July 11,
1996 pursuant to the July 1995 federal regulation. This amount would have been
received in June 1996 pursuant to the previous regulations.
-8-
<PAGE>
Capital expenditures were $1.7 million in the three months ended June 30, 1996
compared to $1.5 million in the three months ended June 30, 1995. Capital
expenditures were $2.9 million in the six months ended June 30, 1996 compared to
$2.7 million in the six months ended June 30, 1995. The Company expects that the
capital additions for the full 1996 year will be approximately $9.0 million or a
$0.5 million increase over 1995.
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 $0.2 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 federal financial aid programs and the amount of funds
spent on new technical institutes, curricula additions at existing institutes
and possible acquisitions.
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; 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; loss of lender access to
the Company's students for student loans; and a substantial increase in the
shares of Common Stock available for sale in the market if ITT divests some or
all of its Common Stock holdings.
-9-
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company is subject to litigation in the ordinary course of its business.
Among the legal actions currently pending is Eldredge, et al. v. ITT Educational
Services, Inc., et al. (Civil Action No. 689376). This action was filed on June
8, 1995 in the Superior Court of San Diego County in San Diego, California by
seven students who attended the San Diego ITT Technical Institute. The suit
alleges, among other things, misrepresentation, civil conspiracy and statutory
violations by the Company, ITT Corporation and three employees of the San Diego
ITT Technical Institute. The plaintiffs seek general damages, exemplary damages,
civil penalties, restitution (including return of educational costs) on behalf
of the plaintiffs and all other persons similarly situated, attorney's fees and
costs. The judge has recently determined that the Company is subject to certain
statutory provisions which the Company believed were not applicable to it. The
Company intends to appeal this decision.
While there can be no assurances as to the ultimate outcome of any litigation
involving the Company, management does not believe any pending legal proceeding
will result in a judgment or settlement that will have, after taking into
account the Company's existing provisions for such liabilities, a material
adverse effect on the Company's financial position, results of operations or
cash flows. Certain litigation may, however, subject the affected ITT Technical
Institute to additional regulatory scrutiny.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the second quarter of fiscal year 1996, the Company submitted the
following matters to a vote of the holders of its Common Stock:
The 1996 annual meeting of shareholders of the Company was held on May 14, 1996
to elect directors and approve an amendment to the Company's Restated
Certificate of Incorporation. At this meeting, the shareholders elected the
following persons to serve as directors of the Company in the second 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:
Second Class - Term expiring at 1999 Annual Meeting
------------
1. Robert A. Bowman
2. John E. Dean
3. Vin Weber
The final results of the vote taken at such meeting for the director nominees
are as follows:
<TABLE>
<CAPTION>
Broker
Votes For Votes Withheld Nonvotes Abstentions
---------- --------------- -------- -----------
<S> <C> <C> <C> <C>
Robert A. Bowman 11,764,529 7,446 0 0
John E. Dean 11,764,629 7,346 0 0
Vin Weber 11,764,629 7,346 0 0
</TABLE>
At this meeting, the shareholders also approved an amendment to the Company's
Restated Certificate of Incorporation to increase the number of authorized
shares of the Company's Common Stock, $0.01 par value per share, from 25,000,000
to 50,000,000. The final results of the vote taken at such meeting to approve
the amendment to the Company's Restated Certificate of Incorporation are as
follows:
-10-
<PAGE>
Percentage of Shares Broker
Votes For Outstanding Voting For Votes Against Nonvotes Abstentions
---------- ---------------------- ------------- -------- -----------
11,739,947 97.83% 27,955 0 4,073
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.
No reports on Form 8-K were filed during the quarter ended June 30, 1996.
-11-
<PAGE>
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: August 5, 1996
By: /s/ Gene A. Baugh
-------------------------------------------
GENE A. BAUGH
Senior Vice President, Treasurer and
Controller
(Principal Financial Officer)
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- - ----------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation, as Amended to Date..........
11 Statement re Computation of Per Share Earnings.....................
27 Financial Data Schedule............................................
- - ----------------
</TABLE>
S-2
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
ITT EDUCATIONAL SERVICES, INC.
Pursuant to Sections 242 and 245
of the General Corporation Law
of the State of Delaware
------------------------------------
ITT EDUCATIONAL SERVICES, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:
1. The name of the Corporation is ITT EDUCATIONAL SERVICES, INC. The
Corporation was originally incorporated under the name Allied School of
Mechanical Trades, Inc., and the original Certificate of Incorporation of the
Corporation was filed with the Secretary of the State of Delaware on June 27,
1946.
2. This Restated Certificate of Incorporation integrates, amends and
restates the Certificate of Incorporation of the Corporation.
3. The text of the Certificate of Incorporation as heretofore amended is
hereby integrated, amended and restated to read in its entirety as follows:
ARTICLE I: The name of the Corporation is:
ITT EDUCATIONAL SERVICES, INC.
ARTICLE II: The Corporation's registered office in the state of Delaware
is at Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of Newcastle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III: The nature of the business of the Corporation and its purpose
are to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
ARTICLE IV:
Section 1. The amount of total authorized capital stock of the Corporation
is 30,000,000 shares, of which 25,000,000 shares shall be Common Stock, having a
par value of $.01 per share ("Common Stock"), and 5,000,000 shares shall be
Preferred Stock, having a par value $.01 per share ("Preferred Stock").
Section 2. Except for and subject to those rights expressly granted to the
holders of
Exhibit 3.1
<PAGE>
Preferred Stock, or any series thereof, by the Board of Directors of the
Corporation (the "Board of Directors"), pursuant to the authority hereby vested
in the Board of Directors or as provided by the laws of the State of Delaware,
the holders of the Corporation's Common Stock shall have exclusively all rights
of stockholders and shall possess exclusively all voting power. Each holder of
Common Stock of the Corporation shall be entitled, on each matter submitted for
a vote to holders of Common Stock, to one vote for each share of Common Stock
standing in such holder's name on the books of the Corporation.
Section 3. The Board of Directors is hereby expressly authorized, at any
time and from time to time by a resolution or resolutions, to divide the shares
of Preferred Stock into one or more series, to issue from time to time in whole
or in part the shares of Preferred Stock or the shares of any series thereof,
and to fix and determine in the resolution or resolutions providing for the
issue of shares of Preferred Stock of a particular series the voting rights, if
any, of the holders of shares of such series, the designations, preferences and
relative, participating, optional and other special rights of such series, and
the qualifications, limitations and restrictions thereof, to the fullest extent
now or hereafter permitted by the laws of the State of Delaware. The voting
rights, if any, of each such series and the preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations and restrictions thereof, if any, may differ from
those of any and all other series. Unless otherwise provided in the resolution
or resolutions of the Board of Directors providing for the issuance thereof,
shares of any series of Preferred Stock that shall be issued and thereafter
acquired by the Corporation through purchase, redemption, exchange, conversion
or otherwise shall return to the status of authorized but unissued Preferred
Stock.
Without limiting the generality of the foregoing authority of the Board of
Directors, the Board of Directors from time to time may (if otherwise permitted
under the General Corporation Law of the State of Delaware):
(a) designate a series of Preferred Stock, which may be distinguished
by number, letter or title from other Preferred Stock of the Corporation;
(b) fix and thereafter increase or decrease (but not below the number
of shares thereof then outstanding) the number of shares of Preferred Stock that
shall constitute such series;
(c) provide for dividends on shares of Preferred Stock of such series
and, if provisions are made for dividends, determine the dividend rate and the
times at which holders of shares of Preferred Stock of such series shall be
entitled to receive the dividends, whether the dividends shall be cumulative
and, if so, from what date or dates, and the other conditions, if any, including
rights of priority, if any, upon which the dividends shall be paid;
(d) determine the rights, if any, to which holders of the shares of
Preferred Stock of such series shall be entitled in the event of any
liquidation, dissolution or winding up of the Corporation; provided, however,
that in the event of any such liquidation, dissolution or winding up of the
Corporation, the holders of the shares of Preferred Stock of such series shall
not be entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether from capital, surplus or earnings, an
amount in cash greater than $100.00 per share, plus accrued and unpaid
<PAGE>
dividends to the date fixed for liquidation, dissolution or winding up, whether
or not declared.
(e) provide for the redemption or purchase of shares of Preferred
Stock of such series and, if provisions are made for redemption, determine the
time or times and the price or prices at which the shares of Preferred Stock of
such series shall be subject to redemption in whole or in part, and the other
terms and conditions, if any, on which shares of Preferred Stock of such series
may be redeemed or purchased;
(f) provide for a sinking fund or purchase fund for the redemption or
purchase of shares of Preferred Stock of such series and, if any such fund is so
provided for the benefit of such shares of Preferred Stock, the amount of such
fund and the manner of its application;
(g) determine the extent of the voting rights, if any, of the shares
of Preferred Stock of such series, including but not limited to the right of the
holders of such shares to vote as a separate class acting alone or with the
holders of one or more other series of Preferred Stock and the right to have
more (or less) than one vote per share;
(h) provide for whether or not the shares of Preferred Stock of such
series shall be convertible into, or exchangeable for, shares of any other class
or classes of capital stock, or any series thereof, of the Corporation and, if
so convertible or exchangeable, determine the conversion or exchange price or
rate, the adjustments thereof and the other terms and conditions, if any, on
which such shares of Preferred Stock shall be so convertible or exchangeable;
and
(i) provide for any other preferences, any relative, participating,
optional or other special rights, any qualifications, limitations or
restrictions thereof, or any other terms or provisions of shares of Preferred
Stock of such series as the Board of Directors may deem appropriate or
desirable.
Section 4. Shares of Common Stock or Preferred Stock may be issued by the
Corporation from time to time for such consideration, having a value of not less
than the par value, if any, thereof, as is determined from time to time by the
Board of Directors. Any and all shares issued and for which full consideration
has been paid or delivered shall be deemed fully paid stock and the holder
thereof shall not be liable for any further payment thereon.
ARTICLE V: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for the
purpose of creating, defining, limiting and regulating the powers of the
Corporation and its Directors and stockholders:
Section 1. The business and affairs of the Corporation shall be managed by
and under the direction of the Board of Directors.
Section 2. (a) The Board of Directors shall consist of not less than
three (3) nor more than 20 (twenty) directors. The exact number of directors
shall be determined from time to time by a resolution or resolutions adopted by
the affirmative vote of a majority of the entire Board of Directors.
<PAGE>
(b) The Board of Directors shall be divided into three classes, as nearly
equal in number as the then total number of directors constituting the whole
board permits, with the term of office of one class expiring each year. At the
next election of directors, directors of the first class shall be elected to
hold office for a term expiring at the next succeeding annual meeting, directors
of the second class shall be elected to hold office for a term expiring at the
second succeeding annual meeting and the directors of the third class shall be
elected to hold office for a term expiring at the third succeeding annual
meeting. Subject to the foregoing, at each annual meeting of stockholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting and each director so elected shall hold office until his successor is
elected and qualified, or until his earlier resignation or removal.
(c) If the number of directors is changed, any increase or decrease in the
number of directors shall be apportioned among the three classes so as to make
all classes as nearly equal in number as possible, and the Board of Directors
shall decide which class shall contain an unequal number of directors.
(d) Notwithstanding the foregoing, whenever holders of any shares of
Preferred Stock, or any series thereof, shall be entitled, voting separately as
a class, to elect any directors, all directors so elected shall be allocated,
each time they are so elected, to the class whose term expires at the next
succeeding annual meeting of stockholders and the terms of all directors so
elected by such holders shall expire at the next succeeding annual meeting of
stockholders. The number of directors that may be elected by such holders of
Preferred Stock shall be in addition to the number of directors fixed pursuant
to paragraph (a) of this Section 2.
Section 3. Subject to the rights of the holders of any shares of Preferred
Stock, or any series thereof, newly created directorships resulting from an
increase in the number of directors or any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal from office,
retirement or other cause shall be filled solely by the affirmative vote of the
remaining directors then in office, even though less than a quorum, or by the
sole remaining director, and each director so chosen shall hold office for a
term expiring at the annual meeting of stockholders at which the term of the
class to which he has been elected expires and until such director's successor
shall have been duly elected and qualified. No decrease in the authorized
number of directors shall shorten the term of any incumbent director.
Section 4. Any director may be removed from office with cause, by an
affirmative vote of the holders of a majority of the combined voting power of
the then outstanding shares of stock entitled to vote generally in the election
of directors, voting together as a single class. Any director may be removed
from office with cause by the affirmative vote of a majority of the members of
the Board of Directors, other than the director who is subject to a removal
vote.
Section 5. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
stockholders of the Corporation shall be given if required by, and in the manner
provided in, the By-laws. At any annual meeting or special meeting of
stockholders of the Corporation, any such business shall be conducted as shall
have been brought before such meeting in the manner provided in the By-laws.
Section 6. The Board of Directors shall have the express power, without a
vote of stockholders, to adopt any By-law not inconsistent with this Restated
Certificate of Incorporation or with any By-law adopted by vote of the
stockholders of the Corporation, and to amend, alter
<PAGE>
or repeal the By-laws of the Corporation other than any By-law adopted by vote
of the stockholders of the Corporation, except to the extent that the By-laws or
this Restated Certificate of Incorporation otherwise provide. The Board of
Directors may exercise such power upon the affirmative vote of a majority of the
entire Board of Directors. Stockholders may adopt any By-law, or amend, alter
or repeal the By-laws of the Corporation, upon the affirmative vote of the
holders of shares having at least a majority of the voting power of the then
outstanding shares of capital stock of the Corporation entitled (at all times
and without regard to the occurrence of a contingency) to vote generally on the
election of Directors and other matters submitted for stockholder approval,
voting together as a single class.
Section 7. No director shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that to the extent required by the provisions of Section
102(b)(7) of the General Corporation Law of the State of Delaware or any
successor statute, as the same may be interpreted or amended from time to time,
or any other laws of the State of Delaware, nothing contained in this Section 7
shall eliminate or limit the liability of a director (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the General Corporation Law
of the State of Delaware, (d) for any transaction from which the director
derived an improper personal benefit or (e) for any act or omission occurring
prior to the date when this provision becomes effective. If the General
Corporation Law of the State of Delaware hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation, in addition to the limitation
provided herein, shall be limited to the fullest extent permitted by such
amendment. Any amendment, modification or repeal of this Section 7 shall be
prospective only, and shall not adversely affect any limitation of the liability
of a director existing at the time of such amendment, repeal or modification.
ARTICLE VI: (a) Each person who is or was or had agreed to become a
director or officer of the Corporation, and each person who is or was serving or
who had agreed to serve at the request of the Corporation as a director or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise (including the heirs, executor, administrators
or estate of such person), shall be indemnified by the Corporation, and (b) each
person who is or was or who had agreed to become an employee or agent of the
Corporation or who is or was serving or who had agreed to serve at the request
of the Corporation as an employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise (including the
heirs, executor, administrators or estate of such person) may be indemnified by
the Corporation, in each case in accordance with the By-laws, to the full extent
permitted from time to time by the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment) or any other applicable laws as
presently or hereafter in effect. Without limiting the generality or the effect
of the foregoing, the Corporation may enter into one or more agreements with any
person which provide for indemnification greater or different than that provided
in this Article VI. Any amendment or repeal of this Article VI shall not
adversely affect any right or protection existing hereunder immediately prior to
such amendment or repeal.
ARTICLE VII: No action shall be taken by the stockholders of the
Corporation except at a annual or special meeting of stockholders.
<PAGE>
ARTICLE VIII: The Corporation reserves the right to amend or repeal any
provision contained in this Restated Certificate of Incorporation in the manner
now or hereafter prescribed by the laws of the State of Delaware, and all rights
herein conferred upon stockholders or Directors are granted subject to this
reservation.
4. This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware and by unanimous written consent of the
sole stockholder in accordance with Section 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the Restated Certificate of Incorporation has been
signed this 16th day of December 1994 by Clark D. Elwood, its Vice President,
General Counsel and Secretary and attested to by Cheryl A. Love, its Assistant
Secretary.
ITT EDUCATIONAL SERVICES, INC.
By: /s/ Clark D. Elwood
----------------------------------------
ATTEST:
/s/ Cheryl A. Love
--------------------------------------
CERTIFICATE OF AMENDMENT
OF RESTATED CERTIFICATE OF INCORPORATION
OF ITT EDUCATIONAL SERVICES, INC.
ITT Educational Services, Inc., a Delaware corporation (the "Corporation"),
hereby certifies as follows:
FIRST: Resolutions setting forth a proposed amendment to the Restated
Certificate of Incorporation of the Corporation (the "Amendment"),
declaring the Amendment to be advisable, and submitting the Amendment to
the stockholders of the Corporation for their consideration at the
Corporation's 1996 Annual Meeting of Shareholders were duly adopted by the
Board of Directors of the Corporation by unanimous written consent. The
resolution setting forth the Amendment is set forth below:
RESOLVED, that it be and hereby is declared advisable to amend
Article IV, Section 1 of the Corporation's Restated Certificate of
Incorporation to increase the number of authorized shares of Common
Stock, $0.01 par value per share, of the Corporation from 25,000,000 to
50,000,000 shares, and for that purpose to amend Article IV, Section 1
of the Corporation's Restated Certificate of Incorporation (the
"Amendment") to read in its entirety as follows:
<PAGE>
"Section 1. The amount of total authorized capital stock of
the Corporation is 55,000,000 shares, of which 50,000,000 shares
shall be Common Stock, having a par value of $.01 per share
("Common Stock"), and 5,000,000 shares shall be Preferred Stock,
having a par value of $.01 per share ("Preferred Stock")."
SECOND: Pursuant to the resolutions of the Board of Directors of the
Corporation, the 1996 Annual Meeting of Shareholders of the Corporation was
duly called and held, upon notice and in accordance with the General
Corporation Law of the State of Delaware, at which meeting the affirmative
vote of a majority of the shares of the Corporation's voting securities
outstanding and entitled to vote thereon were voted in favor of the
Amendment.
THIRD: The Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, ITT Educational Services, Inc. has caused this
certificate to be signed by Clark D. Elwood, its Vice President, General Counsel
and Secretary, and attested by Cheryl A. Love, its Assistant Secretary, on the
14th day of May, 1996.
ITT EDUCATIONAL SERVICES, INC.
By: /s/ Clark D. Elwood
------------------------------------
Clark D. Elwood, Vice President,
General Counsel and Secretary
ATTEST:
/s/ Cheryl A. Love
- - -----------------------------------------
Cheryl A. Love, Assistant Secretary
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 314 $ (224) $ 5,149 $ 3,802
======= ======= ======= =======
Shares:
Weighted average number
of shares of common
stock outstanding 18,000 18,000 18,000 18,000
Shares assumed issued
(less shares assumed
purchased for treasury)
on stock options 106 27 88 23
------- ------- ------- -------
Outstanding equivalent shares
for primary earnings per
share calculation 18,106 18,027 18,088 18,023
======= ======= ======= ========
Earnings (loss) per common share: $ .02 $ (.01) $ .29 $ .21
======= ======= ======= =======
</TABLE>
Exhibit 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 76303
<SECURITIES> 0
<RECEIVABLES> 9529
<ALLOWANCES> (597)
<INVENTORY> 0
<CURRENT-ASSETS> 88774
<PP&E> 60891
<DEPRECIATION> (42985)
<TOTAL-ASSETS> 114690
<CURRENT-LIABILITIES> 53994
<BONDS> 0
<COMMON> 180
0
0
<OTHER-SE> 58810
<TOTAL-LIABILITY-AND-EQUITY> 114690
<SALES> 0
<TOTAL-REVENUES> 108671
<CGS> 0
<TOTAL-COSTS> 101946
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 849
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8581
<INCOME-TAX> 3432
<INCOME-CONTINUING> 5149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5149
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
