<PAGE>
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, 1997
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 31, 1997
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
Indianapolis, Indiana
Quarterly Report to Securities and Exchange Commission
June 30, 1997
PART I
ITEM 1. FINANCIAL STATEMENTS.
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
Statements of Income (unaudited) for the six months ended June 30, 1997 and 1996
and the three months ended June 30, 1997 and 1996...........................................................................3
Balance Sheets as of June 30, 1997 and 1996 (unaudited) and December 31, 1996.................................................4
Statements of Cash Flows (unaudited) for the six months ended June 30, 1997 and 1996
and the three months ended June 30, 1997 and 1996...........................................................................5
Notes to Financial Statements.................................................................................................6
</TABLE>
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ITT EDUCATIONAL SERVICES, INC.
STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Tuition $48,253 $42,376 $103,999 $ 91,644
Other educational 10,159 9,192 18,889 17,027
------- ------- -------- --------
Total revenues 58,412 51,568 122,888 108,671
------- ------- -------- --------
Costs and Expenses
Cost of educational services 39,807 35,074 77,791 68,561
Student services and administrative expenses 18,456 16,880 35,992 33,385
------- ------- -------- --------
Total costs and expenses 58,263 51,954 113,783 101,946
------- ------- -------- --------
Operating income 149 (386) 9,105 6,725
Interest income, net 1,193 909 2,573 1,856
------- -------- -------- --------
Income before income taxes 1,342 523 11,678 8,581
Income taxes 537 209 4,671 3,432
------- -------- -------- --------
Net income $ 805 $ 314 $ 7,007 $ 5,149
======= ======== ======== ========
Earnings per common share $ 0.03 $ 0.01 $ 0.26 $ 0.19
Average equivalent common shares
outstanding (in thousands) 27,171 27,159 27,177 27,132
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ITT EDUCATIONAL SERVICES, INC.
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
(unaudited) (unaudited)
------------- ----------------- -------------
<S> <C> <C> <C>
Assets
Current assets
Cash $ 182 $ 74 $ 46
Restricted cash 642 5,911 910
Cash invested with ITT
Corporation 93,060 89,808 75,347
Accounts receivable, net 9,092 9,378 8,932
Deferred income tax 1,302 1,455 509
Prepaids and other current
assets 4,529 1,823 3,030
-------- -------- --------
Total current assets 108,807 108,449 88,774
Property and equipment, net 21,972 19,360 17,906
Direct marketing costs 6,377 5,774 5,352
Other assets 2,160 2,166 2,658
-------- -------- --------
Total assets $139,316 $135,749 $114,690
======== ======== ========
Liabilities and Shareholders'
Equity
Current liabilities
Accounts payable $ 20,594 $ 12,188 $ 16,778
Accrued compensation and
benefits 3,141 4,253 2,806
Other accrued liabilities 3,943 5,432 2,953
Deferred tuition revenue 34,311 43,532 31,457
-------- -------- --------
Total current liabilities 61,989 65,405 53,994
Other liabilities 1,628 1,652 1,706
-------- -------- --------
Total liabilities 63,617 67,057 55,700
-------- -------- --------
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, 26,999,952 and
18,000,000 issued and
outstanding 270 270 180
Capital surplus 32,513 32,513 32,603
Retained earnings 42,916 35,909 26,207
-------- -------- --------
Total shareholders' equity 75,699 68,692 58,990
-------- -------- --------
Total liabilities and
shareholders' equity $139,316 $135,749 $114,690
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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ITT EDUCATIONAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 805 $ 314 $ 7,007 $ 5,149
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,096 2,026 4,054 3,991
Provision for doubtful accounts 404 460 857 849
Deferred taxes 81 199 308 474
Increase/decrease in operating assets and liabilities:
Accounts receivable 301 (1,577) (571) (2,189)
Direct marketing costs (408) (394) (603) (321)
Accounts payable and accrued liabilities 3,386 (2,415) 5,626 3,834
Prepaids and other assets (495) (128) (2,700) (1,483)
Deferred tuition revenue 3,511 3,555 (9,221) (8,606)
------- ------- ------- -------
Net cash provided by operating activities 9,681 2,040 4,757 1,698
------- ------- ------- -------
Cash flows used for investing activities:
Capital expenditures, net (2,639) (1,720) (6,666) (2,912)
Net decrease (increase) in cash invested with ITT Corporation (7,124) (140) (3,252) (3,462)
------- ------- ------- -------
Net cash used for investing activities (9,763) (1,860) (9,918) (6,374)
------- ------- ------- -------
Net increase (decrease) in cash and restricted cash (82) 180 (5,161) (4,676)
Cash and restricted cash at beginning of period (906) 776 5,985 5,632
------- ------- ------- -------
Cash and restricted cash at end of period $ 824 $ 956 $ 824 $ 956
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ITT EDUCATIONAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(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, 1996.
The results of operations for the six months ended June 30, 1997 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. On October
8, 1996, the Company declared a 3 for 2 Common Stock split effected by
payment of a stock dividend on November 4, 1996 to all shareholders of
record at the close of business on October 21, 1996. The earnings per share
amounts for all prior periods have been restated to reflect these stock
splits.
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 late 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 plaintiffs in one such action seek to have the
action certified as a class action. The claims alleged in these legal
actions are similar to the claims alleged in the Eldredge Case and include
misrepresentation and violations of certain statutory provisions of the
California Education Code and California Business and Professions Code.
In the opinion of management, the ultimate outcome of these matters should
not have a material adverse effect on the Company's financial position,
results of operations or cash flows.
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<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, 1996 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 $6.8 million, or 13.2%, to $58.4 million in the three months
ended June 30, 1997 from $51.6 million in the three months ended June 30, 1996.
Revenues increased $14.2 million, or 13.1%, to $122.9 million in the six months
ended June 30, 1997 from $108.7 million in the six months ended June 30, 1996.
These increases were due primarily to a 5% increase in tuition rates in
September 1996 and a 9.8% increase in the total student enrollment at January 1,
1997 compared to January 1, 1996. The number of students attending ITT
Technical Institutes at January 1, 1997 was 22,633 compared to 20,618 at January
1, 1996.
The total number of first-time and re-entering students beginning classes in
June 1997 was 6,879 compared to 6,553 for the same period in 1996. First-time
students numbered 6,158 in June 1997 compared to 5,918 in June 1996. The total
student enrollment on June 30, 1997 was 23,994, compared to 22,100 on June 30,
1996, an increase of 8.6%.
Cost of educational services increased $4.7 million, or 13.4%, to $39.8 million
in the three months ended June 30, 1997 from $35.1 million in the three months
ended June 30, 1996. Cost of educational services increased $9.2 million, or
13.4%, to $77.8 million in the six months ended June 30, 1997 from $68.6 million
in the six months ended June 30, 1996. 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 (two opened in March 1996, one in
September 1996 and one in June 1997). Cost of educational services as a
percentage of revenue increased in the three and six months ended June 30, 1997
compared to the three and six months ended June 30, 1996 as a result of a $0.5
million and $1.0 million provision in the three and six months ended June 30,
1997, respectively (none in the three and six months ended June 30, 1996) for
the Company's legal expenses in Eldredge, et al. v. ITT Educational Services,
Inc., et al. (the "Eldredge Case"). (See Note 3 of Notes to Financial
Statements.) Excluding this provision, cost of educational services in the three
months ended June 30, 1997 would have been 67.3% of revenues, a 0.7% improvement
from the three months ended June 30, 1996 and 62.5% of revenues for the six
months ended June 30, 1997, a 0.6% improvement from the six months ended June
30, 1996.
Student services and administrative expenses increased $1.6 million, or 9.5%, to
$18.5 million in the three months ended June 30, 1997 from $16.9 million in the
three months ended June 30, 1996. Student services and administrative expenses
increased $2.6 million, or 7.8%, to $36.0 million in the six months ended June
30, 1997 from $33.4 million in the six months ended June 30, 1996. The Company
increased its media advertising expenses in the three and six months ended June
30, 1997 by approximately 16% and 12%, respectively, over the same expenses
incurred in the three and six months ended June 30, 1996. This media expense
increase was less than the increases experienced during this period in 1996
because of a planned reduction in the percentage increase and an unplanned
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<PAGE>
reduction caused by higher than expected preemptions by the television stations.
Student services and administrative expenses decreased to 31.6% of revenues in
the three months ended June 30, 1997 compared to 32.7% in the three months ended
June 30, 1996, 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. Six new
institutes were opened in 1994, two in 1995, three in 1996 and one in the first
six months of 1997. 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, 1997 were $1.0 million and $2.0
million, respectively, compared to $2.2 million and $3.6 million for the three
and six months ended June 30, 1996, respectively.
Operating income increased $0.5 million to $0.1 million in the three months
ended June 30, 1997 from a $0.4 million operating loss in the three months ended
June 30, 1996. Operating income increased $2.4 million, or 35.8%, to $9.1
million in the six months ended June 30, 1997 from $6.7 million in the six
months ended June 30, 1996. These increases were due primarily to the control
of costs and the reduction of operating losses of new institutes (i.e., six
institutes in the first 24 months of operation in the three months ended June
30, 1997 compared to 10 in the three months ended June 30, 1996). The operating
margin increased to 0.3% of revenues in the three months ended June 30, 1997,
from a 0.7% operating loss in the three months ended June 30, 1996 despite the
$0.5 million provision for legal expenses in the three months ended June 30,
1997. The operating margin for the six months ended June 30, 1997 was 7.4%
compared to 6.2% for the six months ended June 30, 1996 despite the $1.0 million
provision for legal expenses in 1997.
Interest income in the three months ended June 30, 1997 increased $0.3 million
from the three months ended June 30, 1996. Interest income increased $0.7
million in the six months ended June 30, 1997 compared to the six months ended
June 30, 1996. These increases were primarily due to the increase in the
interest rate earned on the cash invested by the Company with ITT (i.e., 6.3% in
1997 compared to 5.5% in 1996) and the $17.9 million increase in cash invested
with ITT Corporation during 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.
The U.S. Department of Education ("ED") issued final regulations on November 29,
1996 detailing new rules and procedures governing how an institution which
participates in federal student financial aid programs under Title IV ("Title IV
Programs") of the Higher Education Act of 1965, as amended ("HEA") requests,
maintains, disburses and otherwise manages Title IV Program funds. These new
funds management regulations are effective July 1, 1997 and require the
Company, among other things, to receive its funds in three equal quarterly
disbursements rather than the two disbursements currently permitted. The
Company estimates that these new regulations will decrease 1997 net cash
provided by operating activities (a one-time effect) by approximately $12.0 to
$15.0 million, and will decrease interest income in the six months ending
December 31, 1997 (an on-going effect) by $0.8 to $1.0 million and annually
thereafter by $1.6 to $2.0 million.
Net cash provided by operating activities was $4.7 million in the six months
ended June 30, 1997 compared to $1.7 million in the six months ended June 30,
1996. This increase in cash provided by operating activities was due primarily
to the increased net income and the timing of payments to vendors. Accounts
payable and accrued liabilities increased by $5.6 million in the six months
ended June 30, 1997 compared to $3.8 million in the six months ended June 30,
1996.
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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. These rates are based on the historical cohort default rate of
current and former students on loans provided under certain Title IV Programs,
and are calculated on an institutional basis, defined as a main campus and all
of its additional locations and branch campuses. The cohort default rate of an
institution is calculated on the basis of the number of students who have
defaulted and not the dollar amount of such defaults. Under the Federal Family
Education Loan ("FFEL") programs, an institution whose cohort default rate on
loans made under the Federal Stafford Loan ("Stafford") and Federal Supplemental
Loans for Students ("SLS") programs is 25% or greater for three consecutive
years will no longer be eligible to participate in any of the FFEL programs
(including the Federal PLUS ("PLUS") program) or the Federal Direct Student Loan
("FDSL") program for the remainder of the federal fiscal year in which the ED
determines that the institution has lost its eligibility and for the two
subsequent federal fiscal years, unless it successfully challenges such
disqualification under procedures provided by the HEA and its implementing
regulations. During the pendency of any such appeal, the institution retains
its eligibility to participate in the applicable loan programs.
No ITT Technical Institute campus group has an FFEL cohort default rate equal to
or greater than 25% for the 1991 or 1992 federal fiscal years. Three ITT
Technical Institute campus groups, consisting of three institutes located in
Houston (West), Garland and San Antonio, Texas have an official FFEL cohort
default rate of: (a) 27.4%, 27.4% and 25.0%, respectively, for the 1993 federal
fiscal year; and (b) 25.8%, 39.1% and 25.6%, respectively, for the 1994 federal
fiscal year. For the remaining 28 ITT Technical Institute campus groups, the
official 1993 FFEL cohort default rates range from a high of 23.4% to a low of
11.8% and the official 1994 FFEL cohort default rates range from a high of 19.9%
to a low of 11.0%. The ITT Technical Institutes in Houston (West), Garland and
San Antonio, Texas have a preliminary FFEL cohort default rate of 19.3%, 29.7%
and 28.2%, respectively, for the 1995 federal fiscal year (the latest year for
which rates are available). For the remaining 28 ITT Technical Institute campus
groups, the preliminary 1995 FFEL cohort default rates range from a high of
23.8% to a low of 11.3%. The official 1995 FFEL cohort default rates are
scheduled to be released in November 1997.
The ITT Technical Institutes in Garland and San Antonio, Texas, which
collectively accounted for approximately 4% of the Company's revenues in the
Company's 1996 fiscal year, have identified corrections to their official 1993
and 1994, and preliminary 1995, FFEL cohort default rates based on (I) improper
loan servicing and/or collection of certain student loans included in the
calculation of such rates and/or (II) erroneous data used to calculate such
rates. Each of these ITT Technical Institutes has submitted the appropriate
appeals and/or requests for adjustment to make these corrections and revise
downward the institute's official 1993 and 1994 FFEL cohort default rates and
preliminary 1995 FFEL cohort default rate accordingly. None of these appeals
and/or requests for adjustment that have been considered by the ED have resulted
in a recalculation to less than 25% of either institute's official 1993 or 1994,
or preliminary 1995, FFEL cohort default rate. There can be no assurance that
either of these institutes' remaining appeals and/or requests for adjustment to
the ED regarding its official 1993 and 1994, or preliminary 1995, FFEL cohort
default rates will result in a recalculation to less than 25% of its official
1993, 1994 or 1995 FFEL cohort default rate. If the Company cannot successfully
cause the official 1993 or 1994 FFEL cohort default rate for each of the Garland
and San Antonio, Texas ITT Technical Institutes to be reduced to less than 25%
and any such institute has an official 1995 FFEL cohort default rate equal to or
exceeding 25%, such institute will be notified by the ED that it is ineligible
to participate in the FFEL and FDSL programs. The institute can challenge its
loss of eligibility through an administrative review process within the ED (as
referenced above) and continue to participate in the FFEL programs during this
process. If the institute's challenge is unsuccessful, the institute will be
ineligible to participate in the FFEL and FDSL programs for the remainder of
that federal fiscal year and for the two subsequent federal fiscal years. Loss
of eligibility to participate in the FFEL and FDSL programs by either the
Garland or San Antonio, Texas ITT Technical Institutes could have a material
adverse effect on the Company's results of operations.
The Company is in the process of converting the Garland, Texas ITT Technical
Institute from a main campus to an additional location of another main campus
(the "Conversion"). Based on the Company's interpretation of the
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applicable federal regulations, the Company believes that if it can complete
the Conversion before the official 1995 FFEL cohort default rates are issued by
the ED, the 1995 FFEL cohort default rate for the Garland, Texas ITT Technical
Institute will be blended into the calculation of the 1995 FFEL cohort default
rate of the ITT Technical Institute campus group to which this institute becomes
an additional location. Converting an ITT Technical Institute that is a main
campus into an additional location of another ITT Technical Institute campus
group requires approval of the ITT Technical Institute's accrediting commission
and the ED. The Garland, Texas ITT Technical Institute has received the approval
of its accrediting commission, but there can be no assurance that the Company
can obtain the requisite ED approval of the Conversion, that the Company can
obtain such approval before the official 1995 FFEL cohort default rates are
issued, or that the official 1995 FFEL cohort default rate for the Garland,
Texas ITT Technical Institute, when issued, will be blended into the calculation
of the official 1995 FFEL cohort default rate of the ITT Technical Institute
campus group to which that institute becomes an additional location.
In an effort to reduce the adverse effect on the Company's results of operations
that could result from the loss of eligibility to participate in the FFEL and
FDSL programs by either the Garland or San Antonio, Texas ITT Technical
Institutes, the Company is considering whether to attempt to arrange for an
unaffiliated, private funding source ("PFS") to provide loans to the students of
these ITT Technical Institutes. This alternative source of student financial
aid would most probably require the Company to guarantee repayment of the PFS
loans. Based on the Company's experience with student loan repayment on Title
IV Program loans for these institutes, such guaranty could result in significant
cost to the Company.
On January 31, 1997, Hilton Hotels Corporation ("Hilton") commenced a tender
offer for approximately 50.1% of the outstanding shares of ITT's common stock
(the "Hilton Offer"). Hilton has announced that, if its offer succeeds, it will
obtain the entire equity interest in ITT by merging ITT with Hilton or a
subsidiary of Hilton (such merger, together with the Hilton Offer, the "Hilton
Transaction"). The Hilton Transaction is more fully described in the Tender
Offer Statement on Schedule 14D-1 filed by Hilton with the Securities and
Exchange Commission (the "Hilton 14D-1"). Hilton has also commenced a
solicitation of proxies in support of proposals to be submitted to ITT
shareholders at ITT's next annual meeting of shareholders which would have the
effect of ensuring the completion of the Hilton Transaction (the "Hilton
Proposals"). The Company believes that the Hilton Transaction, if successful,
or the Hilton Proposals, if enacted at a meeting of ITT shareholders, would
constitute a change in ownership resulting in a change in control of the Company
under the regulations of the ED, all or virtually all of the state education
authorities that regulate the Company's business (the "States") and the
accrediting commissions that accredit each ITT Technical Institute (the
"Accrediting Commissions"). Upon a change in control of the Company under ED
regulations, each ITT Technical Institute would immediately become ineligible to
continue participating in Title IV Programs and its students would be unable to
obtain Title IV Program funds to pay their cost of education (except for funds
already committed to the students) until such time as the ED recertifies the
entire ITT Technical Institute campus group (defined as the main campus and all
of its additional locations) to participate in Title IV Programs. The ED will
not preapprove a change in control and will only reinstate a campus group's
eligibility to participate in Title IV Programs upon review and approval of a
complete application following the campus group's change in control. To be
complete, among other things, such application must demonstrate that all of the
ITT Technical Institutes that comprise a particular campus group are authorized
by the appropriate States and accredited by the appropriate Accrediting
Commission. Therefore, before any ITT Technical Institute campus group may
regain access to Title IV Program funds following a change in control (a) all of
its ITT Technical Institutes must be reaccredited (or continue to be accredited)
by the appropriate Accrediting Commission and reauthorized (or continue to be
authorized) by the appropriate States and (b) the change in control must
otherwise be approved by the ED. See "Item 5. Other Information." for a
discussion of the procedures involved in regaining such approvals.
A material adverse effect on the Company's business, financial condition and
results of operations would result if a change in control of the Company
occurred as a result of the Hilton Transaction or Hilton Proposals: (a) without
the requisite prior approvals of the States; (b) without the continued or
reinstated accreditation of the Accrediting Commissions; (c) without the timely
and requisite post approvals of the States; or (d) if a material number of ITT
Technical Institutes failed to timely regain eligibility to participate in Title
IV Programs from the ED. In addition, the time of year at which a change in
control of the Company occurs coupled with the length of time required by the
ITT Technical Institutes to regain their eligibility to participate in Title IV
Programs could have a material adverse
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effect on the Company's business, financial condition and results of operations
and the amount of Title IV Program funds students can obtain to pay the
education costs of attending the ITT Technical Institutes.
On July 16, 1997, ITT announced a comprehensive plan that includes the pro rata
distribution of (a) its shares of the Company's common stock (the "Common
Stock") and (b) all of the shares of a new ITT subsidiary, ITT Destinations,
Inc. ("Destinations"), that will hold ITT's hotels and gaming business among all
ITT shareholders (the "Distribution"). Under the Distribution, each ITT
shareholder is expected to receive approximately 0.25 share of the Common Stock
held by ITT for each share of ITT common stock held by the ITT shareholder. The
Distribution will be made on a date to be determined by ITT's board of directors
to ITT's shareholders of record at the close of business on a record date
determined by ITT's board of directors. No certificates or scrip representing
fractional shares of the Common Stock will be issued as part of the
Distribution. ITT's agent will, as soon as practical after the Distribution,
combine into whole shares all of the fractional shares of the Common Stock that
ITT's shareholders would be entitled to receive and sell them in the open market
at then prevailing market prices and distribute the aggregate proceeds (net of
brokerage fees) proportionately to any ITT shareholders who are entitled to the
fractional shares. The Distribution is subject to certain conditions and may be
abandoned by ITT at any time for any reason. The ED, the Accrediting
Commissions and most of the States have laws, regulations and/or standards
(collectively "Regulations") pertaining to changes of ownership and/or control
(collectively "change in control") of the educational institutions they
regulate. The ED has determined that the Distribution will constitute a change
in control of the Company and all of the ITT Technical Institutes under ED
Regulations. The Accrediting Commissions and many of the States have determined
that the Distribution will not constitute a change in control of the Company
under their Regulations. The Company and ITT plan to seek to obtain any
necessary approvals of the Distribution by the ED and the States.
Capital expenditures were $6.7 million in the six months ended June 30, 1997
compared to $2.9 million in the six months ended June 30, 1996. This increase
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). The
Company expects that the capital additions for the full 1997 year will be
approximately $13.0 million or a $5.1 million increase over 1996.
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 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, 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.
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
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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.
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 DeBattista, et al. v. ITT
Educational Services, Inc., et al. (Civil Action No. 97-1366-CA-15-W). This
action was filed on June 25, 1997 in the Circuit Court of Seminole County in
Orlando, Florida by three students who attended the Hospitality program at the
Maitland ITT Technical Institute. The suit alleges, among other things,
misrepresentation, fraud, civil conspiracy and statutory violations by the
Company, ITT Corporation and eight employees of the Maitland ITT Technical
Institute. The plaintiffs seek general damages, exemplary damages, rescission
of plaintiffs' enrollment agreements with the Company, attorney's fees, interest
and costs. The plaintiffs also seek to have the action certified as a class
action. Also pending is Eldredge, et al. v. ITT Educational Services, Inc., et
al., and six related legal actions filed in San Diego, California, all of which
have been previously reported.
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 1997, the Company submitted the
following matters to a vote of the holders of its Common Stock:
The 1997 annual meeting of shareholders of the Company was held on May 13, 1997
to elect directors and adopt the 1997 ITT Educational Services, Inc. Incentive
Stock Plan (the "1997 Plan"). At this meeting, the shareholders elected the
following persons to serve as directors of the Company in the third class of the
Company's Board of Directors, each to hold office for the term of three years
and until his or her successor is elected and has qualified:
Third Class - Term expiring at 2000 Annual Meeting
-----------
1. Bette B. Anderson
2. Rand V. Araskog
3. Leslie Lenkowsky
4. Margita E. White
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>
Bette B. Anderson 25,463,120 59,163 0 0
Rand V. Araskog 25,463,708 58,575 0 0
Leslie Lenkowsky 25,468,320 53,963 0 0
Margita E. White 25,469,245 53,038 0 0
</TABLE>
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At this meeting, the shareholders also adopted the 1997 Plan. The final results
of the vote taken at such meeting to adopt the 1997 Plan are as follows:
Broker
Votes For Votes Against Non-votes Abstentions
----------- ------------- --------- -----------
23,606,268 1,497,013 408,371 10,631
ITEM 5. OTHER INFORMATION.
At present, ITT holds 22,500,000 shares, or 83.3%, of the Company's outstanding
Common Stock and 4,499,952 shares, or 16.79%, of the Company's outstanding
Common Stock is publicly traded. On July 16, 1997, ITT announced a comprehensive
plan that includes the pro rata distribution of (a) its shares of the Common
Stock and (b) all the shares of Destinations among all ITT shareholders (the
"Distribution"). Under the Distribution, each ITT shareholder is expected to
receive approximately 0.25 share of Common Stock held by ITT for each share of
ITT common stock held by the ITT shareholder. The Distribution is subject to
certain conditions and may be abandoned by ITT at any time for any reason.
The Company intends to enter into the following agreements with ITT, which will
give effect to the Distribution, govern the Company's relationship with ITT
following the Distribution and provide for the allocation of tax and certain
other liabilities and obligations arising from periods prior to the
Distribution: (a) a distribution agreement providing for, among other things,
certain transactions required to effect the Distribution, the treatment of
existing intercompany agreements between the Company and ITT and other
arrangements between the Company and ITT after the Distribution; (b) a tax
allocation agreement providing for the allocation between the Company, ITT and
Destinations of ITT's consolidated tax liability for the years that they were
included in ITT's consolidated federal income tax return and for sharing, where
appropriate, of state and local taxes attributable to periods prior to the
Distribution; and (c) an employee benefits agreement providing for the
allocation among the Company, ITT and Destinations of retirement, welfare and
other employee benefit and executive compensation plans, programs, policies and
arrangements.
The Distribution will result in a substantial increase in the shares of Common
Stock available for sale in the market. This significant increase in public
float is expected to increase the liquidity of the Common Stock and, thereby,
raise its market profile in the long term. The market price of the Common Stock
may be adversely affected in the short term if a significant number of shares of
Common Stock are sold following the Distribution by ITT shareholders who receive
such shares in the Distribution.
The ownership and operation of educational institutions in the United States are
subject to extensive federal and state laws and regulations. In this regard, the
Company must obtain certain approvals under the applicable laws, regulations and
standards of the ED, the Accrediting Commissions and the States.
The ED, the Accrediting Commissions and most of the States have laws,
regulations and/or standards (collectively "Regulations") pertaining to changes
in ownership and/or control (collectively "change in control") of the
educational institutions they regulate. The change in control Regulations do
not, however, uniformly define what constitutes a change in control. The ED's
change in control Regulations generally subject the Company to the change in
control standards of the federal securities laws. Most States and the
Accrediting Commissions include the sale of a controlling interest of common
stock in the definition of a change in control. Practically all change in
control Regulations adopted by the ED, the Accrediting Commissions and the
States are subject to varying interpretations as to whether a particular
transaction constitutes a change in control. The ED has determined that the
Distribution will constitute a change in control of the Company and all of the
ITT Technical Institutes under ED Regulations. The Accrediting Commissions and
many of the States have determined that the Distribution will not constitute a
change in control of the Company under their
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Regulations. The Company and ITT plan to seek to obtain any necessary approvals
of the Distribution by the ED and the States.
Upon a change in control of the Company under ED Regulations, each of the
Company's ITT Technical Institutes would immediately become ineligible to
continue participating in Title IV Programs and their students would be unable
to obtain Title IV Program funds to pay their costs of education (except for
certain funds already committed to the students) until such time as the ED
recertifies the entire ITT Technical Institute campus group (defined as the main
campus and all of its additional locations) to participate in Title IV Programs.
The ED will not preapprove a change in control and will only reinstate a campus
group's eligibility to participate in Title IV Programs upon review and approval
of a complete application following the campus group's change in control. To be
complete, among other things, such application must demonstrate that all of the
ITT Technical Institutes that comprise a particular campus group are authorized
by the appropriate States and accredited by the appropriate Accrediting
Commission. Therefore, before any ITT Technical Institute campus group may
regain its eligibility to participate in Title IV Programs following a change in
control (a) all of its ITT Technical Institutes must be reaccredited (or
continue to be accredited) by the appropriate Accrediting Commission and
reauthorized (or continue to be authorized) by the appropriate States and (b)
the change in control must otherwise be approved by the ED. The Company and the
ED are discussing the implementation of certain procedures that may help to
quicken the recertification of the ITT Technical Institute campus groups to
continue participating in Title IV Programs following the Distribution.
Most States in which ITT Technical Institutes operate, including California,
require that a change in control of an institution be approved before it occurs
in order for the institution to maintain its authorization (the "Prior Approval
States"). Some States will only review a change in control of an institution
after it occurs (the "Post Approval States"). With the possible exception of
California (discussed below), management believes that the Company will be able
to obtain all necessary approvals from the ED and the States. There can be no
assurance, however, that such approvals can be obtained in a timely manner that
would not unreasonably delay the availability of Title IV Program funds. Based
on the Company's interpretation of California's change in control Regulations
and the advice of counsel, the Company does not believe that the Distribution
will constitute a change in control of the Company, or any of its ten ITT
Technical Institutes currently operating in California, under such Regulations.
If, however, the California regulators should determine otherwise, obtaining
approval from California would be complicated by a California statute that
prohibits the approval of a change in control of any institution that has been
found to have violated Chapter 7 (formerly Chapter 3) of the California
Education Code ("Chapter 7") in any judicial or administrative proceeding. In
October 1996, the jury in Eldredge, et al. v. ITT Educational Services, Inc., et
al. (the "Eldredge Case") determined that the Company, through its ITT Technical
Institute in San Diego, California, violated Chapter 7. The Company has appealed
the jury's verdict in the Eldredge Case.
A material adverse effect on the Company's business, financial condition and
results of operations: (a) would result if the Distribution occurs and a
material number of ITT Technical Institutes fail to timely (i) obtain the
requisite reauthorizations from the Post Approval States whose Regulations
regard the Distribution as a change in control of the Company or (ii) regain
eligibility to participate in Title IV Programs from the ED; or (b) could result
if the Distribution occurs at a time shortly before significant amounts of Title
IV funds were anticipated to be released to the ITT Technical Institutes and
their students and the Company experiences any delay by the ED in recertifying
the ITT Technical Institutes to continue their participation in Title IV
Programs.
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<PAGE>
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, 1997.
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<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 8, 1997
By: /s/ Gene A. Baugh
--------------------------------
Gene A. Baugh
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
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INDEX TO EXHIBITS
Exhibit
No. Description
- -----------------------------------------------------------------------------
10.8 1997 ITT Educational Services, Inc. Incentive Stock Plan.........
11 Statement re Computation of Per Share Earnings...................
27 Financial Data Schedule..........................................
S-2
<PAGE>
Exhibit 10.8
1997 ITT EDUCATIONAL SERVICES, INC. INCENTIVE STOCK PLAN
The following is the text of the 1997 ITT Educational Services, Inc. Incentive
Stock Plan:
1. Purpose
The purpose of the 1997 ITT Educational Services, Inc. Incentive Stock Plan
is to motivate and reward superior performance on the part of employees of ITT
Educational Services, Inc. and its subsidiaries and to thereby attract and
retain employees of superior ability. In addition, the Plan is intended to
further opportunities for stock ownership by such employees in order to increase
their proprietary interest in ITT Educational Services, Inc. and, as a result,
their interest in the success of the Company. Awards will be made, in the
discretion of the Committee, to Key Employees (including officers and directors
who are also employees) whose responsibilities and decisions directly affect the
performance of any Participating Company and its subsidiaries. Such incentive
awards may consist of stock options, stock appreciation rights payable in stock
or cash, performance shares, restricted stock or any combination of the
foregoing, as the Committee may determine.
2. Definitions
When used herein, the following terms shall have the following meanings:
"Acceleration Event" means the occurrence of an event defined in Section 9
of the Plan.
"Act" means the Securities Exchange Act of 1934.
"Annual Limit" means the maximum number of shares of Stock for which Awards
may be granted under the Plan in each Plan Year as provided in Section 3 of the
Plan.
"Award" means an award granted to any Key Employee in accordance with the
provisions of the Plan in the form of Options, Rights, Performance Shares or
Restricted Stock, or any combination of the foregoing.
"Award Agreement" means the written agreement evidencing each Award granted
to a Key Employee under the Plan.
"Beneficiary" means the beneficiary or beneficiaries designated pursuant to
Section 10 to receive the amount, if any, payable under the Plan upon the death
of a Key Employee.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such sections
as they may from time to time be amended or renumbered.)
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"Committee" means the Compensation Committee of the Board or such other
committee as may be designated by the Board to administer the Plan.
"Company" means ITT Educational Services, Inc. and its successors and
assigns.
"Fair Market Value", unless otherwise indicated in the provisions of this
Plan, means, as of any date, the composite closing price for one share of Stock
on the New York Stock Exchange or, of no sales of Stock have taken place on such
date, the composite closing price on the most recent date on which selling
prices were quoted, the determination to be made in the discretion of the
Committee.
"Incentive Stock Option" means a stock option qualified under Section 422
of the Code.
"Key Employee" means an employee (including any officer or director who is
also an employee) of any Participating Company whose responsibilities and
decisions, in the judgment of the Committee, directly affect the performance of
the Company and its subsidiaries.
"Limited Stock Appreciation Right" means a stock appreciation right which
shall become exercisable automatically upon the occurrence of an Acceleration
Event as described in Section 9 of the Plan.
"Option" means an option awarded under Section 5 of the Plan to purchase
Stock of the Company, which may be an Incentive Stock Option or a non-qualified
stock option.
"Participating Company" means the Company or any subsidiary or other
affiliate of the Company; provided, however, for Incentive Stock Options only,
"Participating Company" means the Company or any corporation which at the time
such Option is granted qualifies as a "subsidiary" of the Company under Section
425(f) of the Code.
"Performance Share" means a performance share awarded under Section 6 of
the Plan.
"Plan" means the 1997 ITT Educational Services, Inc. Incentive Stock Plan,
as the same may be amended, administered or interpreted from time to time.
"Plan Year" means the calendar year.
"Retirement" means eligibility to receive immediate retirement benefits
under a Participating Company pension plan.
"Restricted Stock" means Stock awarded under Section 7 of the Plan subject
to such restrictions as the Committee deems appropriate or desirable.
"Right" means a stock appreciation right awarded in connection with an
Option under Section 5 of the Plan.
"Stock" means the common stock ($0.01 par value) of the Company.
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<PAGE>
"Total Disability" means the complete and permanent inability of a Key
Employee to perform all of his or her duties under the terms of his or her
employment with any Participating Company, as determined by the Committee upon
the basis of such evidence, including independent medical reports and data, as
the Committee deems appropriate or necessary.
3. Shares Subject to the Plan
The aggregate number of shares of Stock which may be awarded under the Plan
in any Plan Year shall be subject to an annual limit. The maximum number of
shares of Stock for which Awards may be granted under the Plan in each Plan Year
shall be 1.5 percent (1.5%) of the total of the issued and outstanding shares of
Stock as reported in the Annual Report on Form 10-K of the Company for the
fiscal year ending immediately prior to any Plan Year. Any unused portion of
the Annual Limit for any Plan Year shall be carried forward and be made
available for awards in succeeding Plan Years.
In addition to the foregoing: (i) in no event shall more than four million
fifty thousand (4,050,000) shares of Stock be cumulatively available for Awards
of incentive stock options under the Plan; (ii) no more than twenty percent
(20%) of the total number of shares on a cumulative basis shall be available for
restricted stock and performance share Awards; (iii) for any Plan Year, no
individual employee may receive an Award of stock options for more than sixty-
seven thousand five hundred (67,500) shares; and (iv) until such time as ITT
Corporation, in a transaction or series of transactions approved by the ITT
Corporation Board of Directors, ceases to own at least 80.1% of the issued and
outstanding Stock, in no event shall the number of shares of Stock available for
Awards under the Plan be equal to or greater than a number which could cause ITT
Corporation to own less than 80.1% of the issued and outstanding Stock.
Subject to the above limitations, shares of Stock to be issued under the
Plan may be made available from the authorized but unissued shares or shares
held by the Company in treasury or from shares purchased in the open market.
For the purpose of computing the total number of shares of Stock available
for Awards under the Plan, there shall be counted against the foregoing
limitations the number of shares of Stock which equal the value of performance
share Awards, in each case determined as of the dates on which such Awards are
granted. If any Awards under the Plan are forfeited, terminated, expire
unexercised, are settled in cash in lieu of Stock or are exchanged for other
Awards, the shares of Stock which were theretofore subject to such Awards shall
again be available for Awards under the Plan to the extent of such forfeiture or
expiration of such Awards. Further, any shares that are exchanged (either
actually or constructively) by optionees as full or partial payment to the
Company of the purchase price of shares being acquired through the exercise of a
stock option granted under the Plan may be available for subsequent Awards;
provided, however, that such shares may be awarded only to those participants
who are not directors or executive officers (as that term is defined in the
rules and regulations under Section 16 of the Act).
4. Grant of Awards and Award Agreements
(a) Subject to the provisions of the Plan, the Committee shall: (i)
determine and designate from time to time those Key Employees or groups of Key
Employees to whom Awards are to be granted; (ii) determine the form or forms of
Award to be granted to any Key Employee; (iii) determine the amount or number of
shares of Stock subject to each Award; and (iv) determine the terms and
conditions of each Award.
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(b) Each Award granted under the Plan shall be evidenced by a written Award
Agreement. Such agreement shall be subject to and incorporate the express terms
and conditions of each Award.
5. Stock Options and Rights
(a) With respect to Options and Rights, the Committee shall: (i) authorize
the granting of Incentive Stock Options, non-qualified stock options or a
combination of Incentive Stock Options and non-qualified stock options; (ii)
authorize the granting of Rights which may be granted in connection with all or
part of any Option granted under this Plan, either concurrently with the grant
of the Option or at any time thereafter during the term of the Option; (iii)
determine the number of shares of Stock subject to each Option or the number of
shares of Stock that shall be used to determine the value of a Right; and (iv)
determine the time or times when and the manner in which each Option or Right
shall be exercisable and the duration of the exercise period.
(b) Any option issued hereunder which is intended to qualify as an
Incentive Stock Option shall be subject to such limitations or requirements as
may be necessary for the purposes of Section 422 of the Code or any regulations
and rulings thereunder to the extent and in such form as determined by the
Committee in its discretion.
(c) Rights may be granted only to Key Employees who may be considered
directors or officers of the Company for purposes of Section 16 of the Act.
(d) The exercise period for a non-qualified stock option and any related
Right shall not exceed ten years and two days from the date of grant, and the
exercise period for an Incentive Stock Option and any related Right shall not
exceed ten years from the date of grant.
(e) The exercise price per share shall be determined by the Committee at
the time any Option is granted and shall be not less than the Fair Market Value
of one share of Stock on the date the Option is granted.
(f) No part of any Option or Right may be exercised until the Key Employee
who has been granted the Award shall have remained in the employ of a
Participating Company for such period after the date of grant as the Committee
may specify, if any, and the Committee may further require exercisability in
installments; provided, however, the period during which a Right is exercisable
shall commence no earlier than six months following the date the Option or Right
is granted.
(g) The exercise price of the shares as to which an Option shall be
exercised shall be paid to the Company at the time of exercise either in cash or
Stock already owned by the optionee having a total Fair Market Value equal to
the purchase price, or a combination of cash and Stock having a total fair
market value, as so determined, equal to the purchase price. The Committee shall
determine acceptable methods for tendering Stock as payment upon exercise of an
Option and may impose such limitations and prohibitions on the use of Stock to
exercise an Option as it deems appropriate.
(h) Unless Section 9 shall provide otherwise, Rights granted to a director
or officer shall terminate when such person ceases to be considered a director
or officer of the Company subject to Section 16 of the Act.
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(i) In case of termination of employment, the following provisions shall
apply:
(A) If a Key Employee who has been granted an Option shall die before
such Option has expired, his or her Option may be exercised in full by the
person or persons to whom the Key Employee's rights under the Option pass by
will, or if no such person has such right, by his or her executors or
administrators, at any time, or from time to time, within five years after
the date of the Key Employee's death or within such other period, and subject
to such terms and conditions as the Committee may specify, but not later than
the expiration date specified in Section 5(d) above.
(B) If the Key Employee's employment by any Participating Company
terminates because of his or her Retirement or Total Disability, he or she
may exercise his or her Options in full at any time, or from time to time,
within five years after the date of the termination of his or her employment
or within such other period, and subject to such terms and conditions as the
Committee may specify, but not later than the expiration date specified in
Section 5(d) above. Any such Options not fully exercisable immediately prior
to such optionee's retirement shall become fully exercisable upon such
retirement unless the Committee, in its sole discretion, shall otherwise
determine.
(C) Except as provided in Section 9, if the Key Employee shall
voluntarily resign before eligibility for Retirement or he or she is
terminated for cause as determined by the Committee, the Options or Rights
shall be canceled coincident with the effective date of the termination of
employment.
(D) If the Key Employee's employment terminates for any other reason, he
or she may exercise his or her Options, to the extent that he or she shall
have been entitled to do so at the date of the termination of his or her
employment, at any time, or from time to time, within three months after the
date of the termination of his or her employment or within such other period,
and subject to such terms and conditions as the Committee may specify, but
not later than the expiration date specified in Section 5(d) above.
(j) No Option or Right granted under the Plan shall be transferable other
than by will or by the laws of descent and distribution. During the lifetime of
the optionee, an Option or Right shall be exercisable only by the Key Employee
to whom the Option or Right is granted (or his or her estate or designated
beneficiary).
(k) With respect to an Incentive Stock Option, the Committee shall specify
such terms and provisions as the Committee may determine to be necessary or
desirable in order to qualify such Option as an "incentive stock option" within
the meaning of Section 422 of the Code. No Incentive Stock Option shall be
granted which would permit a Key Employee to acquire, through the exercise of
Incentive Stock Options in any calendar year, shares of any capital stock of the
Company or any Participating Company having an aggregate Fair Market Value
(determined as of the time any Incentive Stock Option is granted) in excess of
$100,000. The foregoing limitation shall be determined by assuming that the Key
Employee will exercise each Incentive Stock Option on the date that such Option
first becomes exercisable. Notwithstanding the foregoing, in the case of any Key
Employee who, at the date of grant, owns stock possessing more than 10% of the
total combined voting power of all classes of capital stock of the Company or
any Participating Company, the exercise price of any Incentive Stock Option
shall not be less than 110% of the Fair Market Value per share on the date such
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Incentive Stock Option is granted and such Incentive Stock Option shall not be
exercisable more than five years from the date such Incentive Stock Option is
granted.
(l) With respect to the exercisability and settlement of Rights:
(i) Upon exercise of a Right, the Key Employee shall be entitled,
subject to such terms and conditions the Committee may specify, to receive
upon exercise thereof all or a portion of the excess of (A) the Fair Market
Value of a specified number of shares of Stock at the time of exercise, as
determined by the Committee, over (B) a specified amount which shall not,
subject to Section 5(e), be less than the Fair Market Value of such
specified number of shares of Stock at the time the Right is granted. Upon
exercise of a Right, payment of such excess shall be made as the Committee
shall specify in cash, the issuance or transfer to the Key Employee of
whole shares of Stock with a Fair Market Value at such time equal to any
excess, or a combination of cash and shares of Stock with a combined Fair
Market Value at such time equal to any such excess, all as determined by
the Committee. The Company will not issue a fractional share of Stock and,
if a fractional share would otherwise be issuable, the Company shall pay
cash equal to the Fair Market Value of the fractional share of Stock at
such time.
(ii) For the purposes of Subsection (i) of this Section 5(l), in
the case of any such Right or portion thereof, other than a Right related
to an Incentive Stock Option, exercised for cash during a "window period"
specified by Rule 16b-3 under the Act, the Fair Market Value of the Stock
at the time of such exercise shall be the highest composite daily closing
price of the Stock during such window period.
(iii) In the event of the exercise of such Right, the Company's
obligation in respect of any related Option or such portion thereof will be
discharged by payment of the Right so exercised.
6. Performance Shares
(a) Subject to the provisions of the Plan, the Committee shall: (i)
determine and designate from time to time those Key Employees or groups of Key
Employees to whom Awards of Performance Shares are to be made; (ii) determine
the performance period (the "Performance Period") and performance objectives
(the "Performance Objectives") applicable to such Awards; (iii) determine the
form of settlement of a Performance Share; and (iv) generally determine the
terms and conditions of each such Award. At any date, each Performance Share
shall have a value equal to the Fair Market Value of a share of Stock at such
date; provided that the Committee may limit the aggregate amount payable upon
the settlement of any Award. The maximum award for any individual employee in
any given year shall be one hundred thousand (100,000) Performance Shares.
(b) The Committee shall determine a Performance Period of not less than two
nor more than five years. Performance Periods may overlap and Key Employees may
participate simultaneously with respect to Performance Shares for which
different Performance Periods are prescribed.
(c) The Committee shall determine the Performance Objectives of Awards of
Performance Shares. Performance Objectives may vary from Key Employee to Key
Employee and between groups of Key
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Employees and shall be based upon one or more of the following objective
criteria, as the Committee deems appropriate: earnings per share, return on
equity, cash flow or total shareholder return of the Company. If, during the
course of a Performance Period, there shall occur significant events which the
Committee expects to have a substantial effect on the applicable Performance
Objectives during such period, the Committee may revise such Performance
Objectives.
(d) At the beginning of a Performance Period, the Committee shall determine
for each Key Employee or group of Key Employees the number of Performance Shares
or the percentage of Performance Shares which shall be paid to the Key Employee
or member of the group of Key Employees if the applicable Performance Objectives
are met in whole or in part.
(e) If a Key Employee terminates service with all Participating Companies
during a Performance Period because of death, Total Disability, Retirement or
under other circumstances where the Committee in its sole discretion finds that
a waiver would be in the best interests of the Company, that Key Employee may,
as determined by the Committee, be entitled to payment in settlement of such
Performance Shares at the end of the Performance Period based upon the extent to
which the Performance Objectives were satisfied at the end of such period and
prorated for the portion of the Performance Period during which the Key Employee
was employed by any Participating Company; provided, however, the Committee may
provide for an earlier payment in settlement of such Performance Shares in such
amount and under such terms and conditions as the Committee deems appropriate or
desirable. If a Key Employee terminates service with all Participating Companies
during a Performance Period for any other reason, then such Key Employee shall
not be entitled to any Award with respect to that Performance Period unless the
Committee shall otherwise determine.
(f) Each Award of a Performance Share shall be paid in whole shares of
Stock, or cash, or a combination of Stock and cash either as a lump sum payment
or in annual installments, all as the Committee shall determine, with payment to
commence as soon as practicable after the end of the relevant Performance
Period.
7. Restricted Stock
(a) Restricted Stock shall be subject to a restriction period (after which
restrictions will lapse) which shall mean a period commencing on the date the
Award is granted and ending on such date as the Committee shall determine (the
"Restriction Period"). The Committee may provide for the lapse of restrictions
in installments where deemed appropriate and it may also require the achievement
of predetermined performance objectives in order for such shares to vest.
(b) Except when the Committee determines otherwise pursuant to Section
7(d), if a Key Employee terminates employment with all Participating Companies
for any reason before the expiration of the Restriction Period, all shares of
Restricted Stock still subject to restriction shall be forfeited by the Key
Employee and shall be reacquired by the Company.
(c) Except as otherwise provided in this Section 7, no shares of Restricted
Stock received by a Key Employee shall be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of during the Restriction Period.
(d) In cases of death, Total Disability or Retirement or in cases of
special circumstances, the
E-7
<PAGE>
Committee may, in its sole discretion when it finds that a waiver would be in
the best interests of the Company, elect to waive any or all remaining
restrictions with respect to such Key Employee's Restricted Stock.
(e) The Committee may require, under such terms and conditions as it deems
appropriate or desirable, that the certificates for Stock delivered under the
Plan may be held in custody by a bank or other institution, or that the Company
may itself hold such shares in custody until the Restriction Period expires or
until restrictions thereon otherwise lapse, and may require, as a condition of
any Award of Restricted Stock that the Key Employee shall have delivered a stock
power endorsed in blank relating to the Restricted Stock.
(f) Nothing in this Section 7 shall preclude a Key Employee from exchanging
any shares of Restricted Stock subject to the restrictions contained herein for
any other shares of Stock that are similarly restricted.
(g) Subject to Section 7(e) and Section 8, each Key Employee entitled to
receive Restricted Stock under the Plan shall be issued a certificate for the
shares of Stock. Such certificate shall be registered in the name of the Key
Employee, bear an appropriate legend reciting the terms, conditions and
restrictions, if any, applicable to such Award and be subject to appropriate
stop-transfer orders.
8. Certificates for Awards of Stock
(a) The Company shall not be required to issue or deliver any certificates
for shares of Stock prior to: (i) the listing of such shares on any stock
exchange on which the Stock may then be listed; and (ii) the completion of any
registration or qualification of such shares under any federal or state law, or
any ruling or regulation of any government body which the Company shall, in its
sole discretion, determine to be necessary or advisable.
(b) All certificates for shares of Stock delivered under the Plan shall
also be subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other requirements
of the Securities and Exchange Commission, any stock exchange upon which the
Stock is then listed and any applicable federal or state securities laws, and
the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. In making such
determination, the Committee may rely upon an opinion of counsel for the
Company.
(c) Except for the restrictions on Restricted Stock under Section 7, each
Key Employee who receives Stock in settlement of an Award of Stock, shall have
all of the rights of a shareholder with respect to such shares, including the
right to vote the shares and receive dividends and other distributions. No Key
Employee awarded an Option, a Right or Performance Share shall have any right as
a shareholder with respect to any shares covered by his or her Option, Right or
Performance Share prior to the date of issuance to him or her of a certificate
or certificates for such shares.
9. Acceleration Events
(a) For the purposes of this Plan, an Acceleration Event shall occur if:
(i) a report on Schedule
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<PAGE>
13D shall be filed with the Securities and Exchange Commission pursuant to
Section 13(d) of the Act disclosing that any person (within the meaning of
Section 13(d) of the Act), other than the Company, ITT Corporation or a
subsidiary of the Company, or any employee benefit plan sponsored by the
Company, ITT Corporation or a subsidiary of the Company, is the beneficial owner
directly or indirectly of 20 percent or more of the outstanding Stock of the
Company; (ii) any person (within the meaning of Section 13(d) of the Act), other
than the Company, ITT Corporation or a subsidiary of the Company, or any
employee benefit plan sponsored by the Company, ITT Corporation or a subsidiary
of the Company, shall purchase shares pursuant to a tender offer or exchange
offer to acquire any Stock of the Company (or securities convertible into Stock)
for cash, securities or any other consideration, provided that after
consummation of the offer, the person in question is the beneficial owner (as
such term is defined in Rule 13d-3 under the Act), directly or indirectly, of 15
percent or more of the outstanding Stock of the Company (calculated as provided
in paragraph (d) of Rule 13d-3 under the Act in the case of rights to acquire
Stock); (iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Stock of the
Company would be converted into cash, securities or other property, other than a
merger of the Company in which holders of Stock of the Company immediately prior
to the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger as immediately before, or (B)
any sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company; or
(iv) there shall have been a change in a majority of the members of the Board
within a 12-month period, unless the election or nomination for election by the
Company's stockholders of each new director during such 12-month period was
approved by the vote of two-thirds of the directors then still in office who
were directors at the beginning of such 12-month period.
(b) Notwithstanding any provisions in this Plan to the contrary:
(i) Each outstanding Option granted under the Plan shall become
immediately exercisable in full for the aggregate number of shares covered
thereby and all related Rights shall also become exercisable upon the
occurrence of an Acceleration Event described in this Section 9 and shall
continue to be exercisable in full for cash for a period of 60 calendar
days beginning on the date that such Acceleration Event occurs and ending
on the 60th calendar day following that date; provided, however, that (A)
no Right shall become exercisable earlier than six months following the
date the Right is granted, and (B) no Option or Right shall be exercisable
beyond the expiration date of its original term.
(ii) Options and Rights shall not terminate and shall continue to
be fully exercisable for a period of seven months following the occurrence
of an Acceleration Event in the case of an employee who is terminated other
than for just cause or who voluntarily terminates his or her employment
because he or she in good faith believes that as a result of such
Acceleration Event he or she is unable effectively to discharge his or her
present duties or the duties of the position he or she occupied just prior
to the occurrence of such Acceleration Event. For purposes of Section 9
only, termination shall be for "just cause" only if such termination is
based on fraud, misappropriation or embezzlement on the part of the
employee which results in a final conviction of a felony. Under no
circumstances, however, shall any Option or Right be exercised beyond the
expiration date of its original term.
(iii) Any Right or portion thereof may be exercised for cash within
the 60-calendar-day
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<PAGE>
period following the occurrence of an Acceleration Event with settlement,
except in the case of a Right related to an Incentive Stock Option, based
on the "Formula Price" which shall be the highest of (A) the highest
composite daily closing price of the Stock during the period beginning on
the 60th calendar day prior to the date on which the Right is exercised and
ending on the date such Right is exercised, (B) the highest gross price
paid for the Stock during the same period of time, as reported in a report
on Schedule 13D filed with the Securities and Exchange Commission or (C)
the highest gross price paid or to be paid for a share of Stock (whether by
way of exchange, conversion, distribution upon merger, liquidation or
otherwise) in any of the transactions set forth in this Section 9 as
constituting an Acceleration Event.
(iv) Upon the occurrence of an Acceleration Event, Limited Stock
Appreciation Rights shall automatically be granted as to any Option with
respect to which Rights are not then outstanding; provided, however, that
Limited Stock Appreciation Rights shall be provided at the time of grant of
any Incentive Stock Option subject to exercisability upon the occurrence of
an Acceleration Event. Limited Stock Appreciation Rights shall entitle the
holder thereof, upon exercise of such rights and surrender of the related
Option or any portion thereof, to receive, without payment to the Company
(except for applicable withholding taxes), an amount in cash equal to the
excess, if any, of the Formula Price as that term is defined in Section 9
over the option price of the Stock as provided in such Option; provided
that in the case of the exercise of any such Limited Stock Appreciation
Right or portion thereof related to an Incentive Stock Option, the Fair
Market Value of the Stock at the time of such exercise shall be substituted
for the Formula Price. Each such Limited Stock Appreciation Right shall be
exercisable only during the period beginning on the first business day
following the occurrence of such Acceleration Event and ending on the 60th
day following such date and only to the same extent the related Option is
exercisable. In the case of persons who are considered directors or
officers of the Company for purposes of Section 16 of the Act, Limited
Stock Appreciation Rights shall not be so exercisable until they have been
outstanding for at least six months. Upon exercise of a Limited Stock
Appreciation Right and surrender of the related Option, or portion thereof,
such Option, to the extent surrendered, shall not thereafter be
exercisable.
(v) The restrictions applicable to Awards of Restricted Stock
issued pursuant to Section 7 shall lapse upon the occurrence of an
Acceleration Event and the Company shall issue stock certificates without a
restrictive legend. Key Employees holding Restricted Stock on the date of
an Acceleration Event may tender such Restricted Stock to the Company which
shall pay the Formula Price as that term is defined in Section 9; provided,
such Restricted Stock must be tendered to the Company within 60 calendar
days of the Acceleration Event.
(vi) If an Acceleration Event occurs during the course of a
Performance Period applicable to an Award of Performance Shares pursuant to
Section 6, then the Key Employee shall be deemed to have satisfied the
Performance Objectives and settlement of such Performance Shares shall be
based on the Formula Price, as defined in this Section 9.
10. Beneficiary
(a) Each Key Employee shall file with the Company a written designation of
one or more persons as the Beneficiary who shall be entitled to receive the
Award, if any, payable under the Plan upon his or her death. A Key Employee may
from time to time revoke or change his or her Beneficiary
E-10
<PAGE>
designation without the consent of any prior Beneficiary by filing a new
designation with the Company. The last such designation received by the Company
shall be controlling; provided, however, that no designation, or change or
revocation thereof, shall be effective unless received by the Company prior to
the Key Employee's death, and in no event shall it be effective as of a date
prior to such receipt.
(b) If no such Beneficiary designation is in effect at the time of a Key
Employee's death, or if no designated Beneficiary survives the Key Employee or
if such designation conflicts with law, the Key Employee's estate shall be
entitled to receive the Award, if any, payable under the Plan upon his or her
death. If the Committee is in doubt as to the right of any person to receive
such Award, the Company may retain such Award, without liability for any
interest thereon, until the Committee determines the rights thereto, or the
Company may pay such Award into any court of appropriate jurisdiction and such
payment shall be a complete discharge of the liability of the Company therefor.
11. Administration of the Plan
(a) Each member of the Committee shall be both a member of the Board and a
"disinterested person" within the meaning of Rule 16b-3 under the Act or
successor rule or regulation. No member of the Committee shall be, or shall have
been, eligible to receive an Award under the Plan or any other plan maintained
by any Participating Company to acquire stock, stock options, stock appreciation
rights, performance shares or restricted stock of a Participating Company at any
time within the one year immediately preceding the member's appointment to the
Committee.
(b) All decisions, determinations or actions of the Committee made or taken
pursuant to grants of authority under the Plan shall be made or taken in the
sole discretion of the Committee and shall be final, conclusive and binding on
all persons for all purposes.
(c) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and any part thereof, and its
interpretations and constructions thereof and actions taken thereunder shall be,
except as otherwise determined by the Board, final, conclusive and binding on
all persons for all purposes.
(d) The Committee's decisions and determinations under the Plan need not be
uniform and may be made selectively among Key Employees, whether or not such Key
Employees are similarly situated.
(e) The Committee may, in its sole discretion, delegate such of its powers
as it deems appropriate to the chief executive officer or other members of
senior management, except that Awards to Key Employees who are executive
officers or directors shall be made solely by the Committee and subject to
compliance with Rule 16b-3 of the Act.
(f) If an Acceleration Event has not occurred and if the Committee
determines that a Key Employee has taken action inimical to the best interests
of any Participating Company, the Committee may, in its sole discretion,
terminate in whole or in part such portion of any Option (including any related
Right) as has not yet become exercisable at the time of termination, terminate
any Performance Share Award for which the Performance Period has not been
completed or terminate any Award of Restricted Stock for which the Restriction
Period has not lapsed.
12. Amendment, Extension or Termination
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<PAGE>
The Board may, at any time, amend or terminate the Plan and, specifically,
may make such modifications to the Plan as it deems necessary to avoid the
application of Section 162(m) of the Code and the Treasury regulations issued
thereunder. However, no amendment shall, without approval by a majority of the
Company's stockholders: (a) alter the group of persons eligible to participate
in the Plan; (b) except as provided in Section 13, increase the maximum number
of shares of Stock which are available for Awards under the Plan; (c) materially
increase the benefits accruing to participants under the Plan; or (d) extend the
period during which awards may be granted beyond ten years and two days from the
effective date of this Plan, as provided below in Section 15. If an Acceleration
Event has occurred, no amendment or termination shall impair the rights of any
person with respect to a prior Award.
13. Adjustments in Event of Change in Common Stock
In the event of any reorganization, merger, recapitalization,
consolidation, liquidation, stock dividend, stock split, reclassification,
combination of shares, rights offering, split-up or extraordinary dividend
(including a spin-off) or divestiture, or any other change in the corporate
structure or shares, the Committee may make such adjustment in the Stock subject
to Awards, including Stock subject to purchase by an Option, or the terms,
conditions or restrictions on Stock or Awards, including the price payable upon
the exercise of such Option and the number of shares subject to restricted stock
awards, as the Committee deems equitable.
14. Miscellaneous
(a) Except as provided in Section 9, nothing in this Plan or any Award
granted hereunder shall confer upon any employee any right to continue in the
employ of any Participating Company or interfere in any way with the right of
any Participating Company to terminate his or her employment at any time. No
Award payable under the Plan shall be deemed salary or compensation for the
purpose of computing benefits under any employee benefit plan or other
arrangement of any Participating Company for the benefit of its employees,
unless the Company shall determine otherwise. No Key Employee shall have any
claim to an Award until it is actually granted under the Plan. To the extent
that any person acquires a right to receive payments from the Company under this
Plan, such right shall be no greater than the right of an unsecured general
creditor of the Company. All payments to be made hereunder shall be paid from
the general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
amounts except as provided in Section 7(e) with respect to Restricted Stock.
(b) The Committee may cause to be made, as a condition precedent to the
payment of any Award, or otherwise, appropriate arrangements with the Key
Employee or his or her Beneficiary, for the withholding of any federal, state,
local or foreign taxes.
(c) The Plan and the grant of Awards shall be subject to all applicable
federal and state laws, rules and regulations, and to such approvals by any
government or regulatory agency as may be required.
(d) The terms of the Plan shall be binding on the Company and its
successors and assigns.
E-12
<PAGE>
(e) Captions preceding the sections hereof are inserted solely as a matter
of convenience and in no way define or limit the scope or intent of any
provision hereof.
(f) Insofar as Key Employees who are directors or officers subject to
Section 16 of the Act are concerned (i) the Plan is intended to comply with all
applicable conditions of Rule 16b-3 and its successors; (ii) all transactions
involving Key Employees who are directors or officers are subject to such
conditions, regardless of whether such conditions are expressly set forth in the
Plan; and (iii) any provision of the Plan that is contrary to a condition of
Rule 16b-3 shall not apply to Key Employees who are directors or officers.
15. Effective Date and Term of Plan
The Plan shall become effective upon its adoption by the Board of Directors
and shareholders of the Company. No Award shall be granted under this Plan after
the Plan's termination date. The Plan's termination date shall be ten years and
two days from the effective date, unless sooner terminated under Section 12
hereof. The Plan will continue in effect for existing Awards as long as any such
Award is outstanding.
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<PAGE>
Exhibit 11
ITT EDUCATIONAL SERVICES, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 805 $ 314 $ 7,007 $ 5,149
======= ======= ======= =======
Shares:
Weighted average number
of shares of common
stock outstanding 27,000 27,000 27,000 27,000
Shares assumed issued
(less shares assumed
purchased for treasury)
on stock options 171 159 177 132
------- ------- ------- -------
Outstanding shares for primary
earnings per share calculation 27,171 27,159 27,177 27,132
======= ======= ====== ======
Earnings per common share: $ 0.03 $ 0.01 $ 0.26 $ 0.19
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 93,884
<SECURITIES> 0
<RECEIVABLES> 9,533
<ALLOWANCES> (441)
<INVENTORY> 0
<CURRENT-ASSETS> 108,807
<PP&E> 66,415
<DEPRECIATION> (44,443)
<TOTAL-ASSETS> 139,316
<CURRENT-LIABILITIES> 61,989
<BONDS> 0
0
0
<COMMON> 270
<OTHER-SE> 75,429
<TOTAL-LIABILITY-AND-EQUITY> 139,316
<SALES> 0
<TOTAL-REVENUES> 122,888
<CGS> 0
<TOTAL-COSTS> 113,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 857
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,678
<INCOME-TAX> 4,671
<INCOME-CONTINUING> 7,007
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,007
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
