<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 SEPTEMBER 30, 1999
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 | |
24,720,452
Number of shares of Common Stock, $.01 par value, outstanding at October 28,
1999
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
Indianapolis, Indiana
Quarterly Report to Securities and Exchange Commission
September 30, 1999
PART I
ITEM 1. FINANCIAL STATEMENTS.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Statements of Income (unaudited) for the nine months ended
September 30, 1999 and 1998 and the three months ended
September 30, 1999 and 1998.................................................3
Consolidated Balance Sheets as of September 30, 1999 and 1998 (unaudited)
and December 31, 1998.......................................................4
Consolidated Statements of Cash Flows (unaudited) for the nine months ended
September 30, 1999 and 1998 and the three months ended September 30, 1999
and 1998....................................................................5
Notes to Consolidated Financial Statements....................................6
</TABLE>
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<PAGE>
ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES
Tuition $ 75,007 $ 69,139 $ 204,313 $ 185,999
Other educational 12,458 12,561 33,762 33,065
--------- --------- --------- ---------
Total revenues 87,465 81,700 238,075 219,064
--------- --------- --------- ---------
COSTS AND EXPENSES
Cost of educational services 49,005 45,778 142,468 132,186
Student services and administrative expenses 22,730 20,986 66,300 60,763
Litigation settlement -- 12,858 -- 12,858
Offering, change in control and other one-time expenses -- -- 900 1,872
--------- --------- --------- ---------
Total costs and expenses 71,735 79,622 209,668 207,679
--------- --------- --------- ---------
Operating income 15,730 2,078 28,407 11,385
Interest income, net 422 1,417 1,713 3,852
--------- --------- --------- ---------
Income before income taxes and cumulative effect
of change in accounting principle 16,152 3,495 30,120 15,237
Income taxes 6,102 1,398 11,477 6,472
--------- --------- --------- ---------
Income before cumulative effect of change in
accounting principle 10,050 2,097 18,643 8,765
Cumulative effect of change in accounting principle
for institute start-up costs, net of tax -- -- (823) --
--------- --------- --------- ---------
Net income $ 10,050 $ 2,097 $ 17,820 $ 8,765
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings (loss) per common share (basic and diluted):
Income before cumulative effect of change in
accounting principle $ 0.40 $ 0.08 $ 0.73 $ 0.32
Cumulative effect of change in accounting principle
for institute start-up costs, net of tax -- -- (0.03) --
--------- --------- --------- ---------
Net income $ 0.40 $ 0.08 $ 0.70 $ 0.32
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998 SEPTEMBER 30, 1998
(UNAUDITED) (UNAUDITED)
------------------- ----------------- ------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 39,505 $ 77,335 $ 63,265
Restricted cash 1,244 3,617 1,161
Marketable debt securities 14,937 38,316 35,540
Accounts receivable, net 16,300 10,772 17,303
Deferred and prepaid income tax 4,266 5,969 4,494
Prepaids and other current assets 4,951 2,749 4,221
------------------- ----------------- ------------------
Total current assets 81,203 138,758 125,984
Property and equipment, net 30,006 24,985 24,931
Direct marketing costs 8,646 7,915 7,773
Other assets 1,563 3,913 3,182
------------------- ----------------- ------------------
Total assets $ 121,418 $ 175,571 $ 161,870
------------------- ----------------- ------------------
------------------- ----------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 25,211 $ 15,992 $ 20,442
Accrued compensation and benefits 6,626 6,488 6,395
Accrued legal settlements -- 7,604 9,045
Other accrued liabilities 6,984 7,896 5,666
Deferred tuition revenue 23,993 32,261 21,381
------------------- ----------------- ------------------
Total current liabilities 62,814 70,241 62,929
Other liabilities 4,003 3,474 2,361
------------------- ----------------- ------------------
Total liabilities 66,817 73,715 65,290
------------------- ----------------- ------------------
Shareholders' equity
Preferred stock, $.01 par value,
5,000,000 shares authorized, none
issued or outstanding -- -- --
Common stock, $.01 par value, 150,000,000
shares authorized, 27,034,452, 27,011,202
and 26,999,952 issued 270 270 270
Capital surplus 33,912 32,613 32,513
Retained earnings 86,793 68,973 63,797
Treasury stock, 2,291,500 shares (66,374) -- --
------------------- ----------------- ------------------
Total shareholders' equity 54,601 101,856 96,580
------------------- ----------------- ------------------
Total liabilities and shareholders' equity $ 121,418 $ 175,571 $ 161,870
------------------- ----------------- ------------------
------------------- ----------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ---------------------
1999 1998 1999 1998
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,050 $ 2,097 $ 17,820 $ 8,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,664 2,202 7,956 6,763
Provision for doubtful accounts 990 1,092 2,955 2,551
Deferred taxes (67) (2,517) 3,185 (2,246)
Increase/decrease in operating assets
and liabilities:
Marketable debt securities 4,855 (35,540) 23,379 (35,540)
Accounts receivable (5,241) (5,077) (8,483) (10,174)
Direct marketing costs (264) (293) (731) (891)
Accounts payable and accrued liabilities 3,797 8,625 549 16,429
Prepaids and other assets 2,671 (272) (699) (1,645)
Deferred tuition revenue 1,415 178 (8,268) (9,469)
--------- -------- -------- ---------
Net cash provided by (used for) operating activities 20,870 (29,505) 37,663 (25,457)
--------- -------- -------- ---------
Cash flows provided by (used for) investing activities:
Capital expenditures, net (5,110) (3,003) (12,131) (8,806)
Net decrease in cash invested with ITT Corporation -- -- -- 94,800
--------- -------- -------- ---------
Net cash provided by (used for) investing activities (5,110) (3,003) (12,131) 85,994
--------- -------- -------- ---------
Cash flows provided by (used for) finance activities:
Purchase of treasury stock (7,827) -- (66,374) --
Exercise of stock options -- -- 639 --
--------- -------- -------- ---------
Net cash provided by (used for) finance activities (7,827) -- (65,735) --
--------- -------- -------- ---------
Net increase (decrease) in cash, cash
equivalents and restricted cash 7,933 (32,508) (40,203) 60,537
Cash, cash equivalents and restricted cash at
beginning of period 32,816 96,934 80,952 3,889
--------- -------- -------- ---------
Cash, cash equivalents and restricted cash at
end of period $ 40,749 $ 64,426 $ 40,749 $ 64,426
--------- -------- -------- ---------
--------- -------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
1. ITT Educational Services, Inc. ("ESI") prepared the accompanying unaudited
financial statements 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 ESI. 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 ESI's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the year ended December 31, 1998.
The American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," in
April 1998. SOP 98-5 provides guidance on the financial reporting of
start-up costs and requires the cost of start-up activities to be expensed
as incurred. ESI adopted this standard effective January 1, 1999 and
expensed $1,354 of institute costs, less $531 of deferred tax, as a
cumulative effect of change in accounting principle in the three months
ended March 31, 1999.
2. From ESI's initial public offering in 1994 until June 9, 1998, ITT
Corporation ("ITT") owned 83.3% of the outstanding shares of ESI common
stock.
On February 23, 1998, Starwood Hotels & Resorts Worldwide, Inc. ("Starwood
Hotels") completed the acquisition of ITT (the "Merger") and ITT became a
subsidiary of Starwood Hotels. As a result of the Merger, a change in
control of ESI occurred under regulations of the U.S. Department of
Education ("DOE") and each ITT Technical Institute campus group became
ineligible to participate in federal student financial aid programs.
Effective March 20, 1998, the eligibility of each ITT Technical Institute
campus group to participate in federal student financial aid programs was
reinstated by the DOE with certain conditions imposed by the DOE. ESI
believes that it is in compliance with or satisfies these DOE conditions.
On June 9, 1998, ITT sold 13,050,000 shares of ESI's common stock held by
ITT to the public (48.3% of the outstanding shares) (the "June 1998
Offering"). After the June 1998 Offering, ITT owned 35% of the outstanding
shares of ESI common stock. The June 1998 Offering did not constitute a
change in control of ESI under the DOE's regulations.
On February 1, 1999, ITT sold 7,950,000 shares of ESI common stock held by
ITT to the public (the "February 1999 Offering"). The February 1999
Offering did not constitute a change in control of ESI under the DOE's
regulations. Simultaneous with the close of the February 1999 Offering, ESI
repurchased 1,500,000 shares of ESI common stock from ITT at the February
1999 Offering price to the public, less underwriters' commissions and
discounts, for an aggregate cost of $49,088 (the "February 1999 Stock
Repurchase"). Following the February 1999 Offering and February 1999 Stock
Repurchase, ITT no longer owned any shares of ESI's common stock.
3. On April 21, 1999, ESI's Board of Directors authorized ESI to repurchase up
to 2,000,000 outstanding shares of ESI common stock in the open market or
through privately negotiated transactions in accordance with Rule 10b-18 of
the Securities Exchange Act of 1934, as amended. During the three months
ended June 30, 1999, ESI repurchased 393,300 shares of ESI common stock at
an average cost of $24.05 per share or $9.5 million. During the three
months ended September 30, 1999, ESI repurchased 398,200 shares of ESI
common stock at an average cost of $19.66 per share or $7.8 million. ESI is
currently holding all of the repurchased shares of ESI common stock as
treasury shares. ESI may elect to repurchase additional shares of ESI
common stock from time to time in the future, depending on market
conditions and other considerations. The purpose of the stock repurchase
program is to help ESI achieve its long-term goal of enhancing shareholder
value.
-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 our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the year ended December 31, 1998 for
discussion of, among other matters, the following items:
- Cash receipts from financial aid programs
- Nature of capital additions
- Seasonality of revenues
- Components of income statement captions
- Cash invested with ITT
- Cash transferred from ITT
- Legal settlements
- Marketable debt securities and market risk
- Change in ownership and control of ESI
- Changes in federal regulations regarding:
- Timing of receipt of funds from the federal student financial aid
programs under Title IV of the Higher Education Act of 1965, as
amended (the "Title IV Programs")
- Refunds
- Percentage of applicable revenues that may be derived from Title
IV Programs
- Default rates
We earn tuition revenue on a weekly basis, pro rata over the length of each
of the four 12-week academic quarters in our fiscal year. Due to the two-week
vacations in June and December at most of our institutes, the first and third
quarters include 13 weeks of revenue and the second and fourth quarters include
11 weeks of revenue. Our 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.
In 1998, we began offering a new program in information technology, called
Computer Network Systems Technology ("CNST"), at three ITT Technical Institutes.
We began offering the CNST program at an additional 12 ITT Technical Institutes
in the three months ended March 31, 1999, at an additional six ITT Technical
Institutes in the three months ended June 30, 1999 and at an additional six ITT
Technical Institutes in the three months ended September 30, 1999. We intend to
begin offering this program at seven additional ITT Technical Institutes in the
fourth quarter of 1999, and at 33 additional schools in 2000. We incur a loss
with respect to each CNST program offered at an ITT Technical Institute until
the revenue from the number of enrolled students is high enough to offset the
fixed and other costs associated with the program offering, such as salaries,
equipment depreciation, rent and marketing. We incurred estimated losses with
respect to the CNST program of approximately $0.9 million in the three months
ended September 30, 1999 and $3.2 million in the nine months ended September 30,
1999, compared to $0.1 million in the three and nine months ended September 30,
1998. We have been developing four separate information technology programs,
each with a different area of concentration: computer networking, software
applications and programming, web administration and multimedia. To date, the
rollout of our information technology curricula has primarily focused on the
CNST program. One ITT Technical Institute began offering the software
applications and programming curriculum in the June 1999 term. We intend to
begin offering the software applications and programming curriculum at other ITT
Technical Institutes in 2000 and intend to begin offering the remaining two
information technology programs starting in 2000. The expenses associated with
our accelerated rollout of the information technology programs will temporarily
depress our earnings in the fourth quarter of 1999 and the first half of 2000.
The amount of capital required to offer the CNST program at an ITT Technical
Institute is approximately $0.2 million.
-7-
<PAGE>
RESULTS OF OPERATIONS
Revenues increased $5.8 million, or 7.1%, to $87.5 million in the three
months ended September 30, 1999 from $81.7 million in the three months ended
September 30, 1998. Revenues increased $19.0 million, or 8.7%, to $238.1 million
in the nine months ended September 30, 1999 from $219.1 million in the nine
months ended September 30, 1998. These increases were due primarily to a 5%
increase in tuition rates in September 1998 and a 4.5% increase in the total
student enrollment at January 1, 1999 compared to January 1, 1998. The number of
students attending ITT Technical Institutes at January 1, 1999 was 25,608
compared to 24,498 at January 1, 1998.
The total number of new students beginning classes in September 1999 was
9,733, compared to 8,787 in September 1998, an increase of 10.8%. The total
student enrollment on September 30, 1999 was 28,095, compared to 27,037 on
September 30, 1998, an increase of 3.9%.
Other educational revenue is comprised of laboratory and application fees
and bookstore sales. The price of textbooks and laboratory fees for the CNST
program are included in the tuition rate and are not separately charged to the
student. In addition, we did not increase the price of textbooks sold to
students for the other programs in September 1998. As a result, other
educational revenue for the three months ended September 30, 1999 was $12.5
million compared to $12.6 million for the three months ended September 30, 1998.
The reduced revenue from bookstore sales was offset by a reduction in the
textbook costs included in cost of educational services.
Cost of educational services increased $3.2 million, or 7.0%, to $49.0
million in the three months ended September 30, 1999 from $45.8 million in the
three months ended September 30, 1998. Cost of educational services increased
$10.3 million, or 7.8%, to $142.5 million in the nine months ended September 30,
1999 from $132.2 million in the nine months ended September 30, 1998. The
principal causes of these increases include:
- the costs required to service the increased enrollment;
- normal inflationary cost increases for wages, rent and other
costs of services;
- increased costs at new institutes (one opened in March 1998, one
in June 1998, one in October 1998, two in January 1999 and one in
April 1999); and
- increased costs associated with offering the CNST program at 27
institutes.
Cost of educational services included $1.2 million of legal expenses in the
nine months ended September 30, 1998 (none in 1999). Cost of educational
services as a percentage of revenues in the three months ended September 30,
1999 was the same as in the three months ended September 30, 1998, and decreased
to 59.8% in the nine months ended September 30, 1999 compared to 60.3% in the
nine months ended September 30, 1998. The principal causes of this decrease
include the absence of a legal provision in 1999 and a reduction of textbook
costs, which resulted from lower bookstore sales in 1999.
Student services and administrative expenses increased $1.7 million, or
8.1%, to $22.7 million in the three months ended September 30, 1999 from $21.0
million in the three months ended September 30, 1998. Student services and
administrative expenses increased $5.5 million, or 9.0%, to $66.3 million in the
nine months ended September 30, 1999 from $60.8 million in the nine months ended
September 30, 1998. These increases were primarily due to increased media
advertising expenses (up 15% in the three months ended September 30, 1999 and
13% in the nine months ended September 30, 1999). Student services and
administrative expenses were 26.0% of revenues in the three months ended
September 30, 1999 and 27.9% of revenues in the nine months ended September 30,
1999, which were approximately the same percentages as in the three and nine
months ended September 30, 1998.
We incurred net one-time expenses of $0.9 million in the nine months ended
September 30, 1999 (none in the three months ended September 30, 1999)
associated with the costs of the February 1999 Offering (from which we did not
receive any proceeds) and special bonus payments to employees for extraordinary
services since 1997, net of amounts reimbursed by ITT. We incurred one-time
expenses of $14.7 million in the nine months ended September 30, 1998 ($12.9
million in the three months ended September 30, 1998) associated primarily with
our settlement of litigation, June 1998 Offering and change in control resulting
from the Merger.
-8-
<PAGE>
We incur operating losses when we open new institutes. We opened three new
institutes in 1996, three in 1997, three in 1998 and three in the nine months
ended September 30, 1999. A new institute typically is open for approximately 24
months before it generates 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
were $1.3 million during the three months ended September 30, 1999 and $4.6
million during the nine months ended September 30, 1999, compared to $1.3
million during the three months ended September 30, 1998 and $3.9 million during
the nine months ended September 30, 1998.
Our operating income increased $13.6 million to $15.7 million in the three
months ended September 30, 1999 from $2.1 million in the three months ended
September 30, 1998. Our operating income increased $17.0 million to $28.4
million in the nine months ended September 30, 1999 from $11.4 million in the
nine months ended September 30, 1998.
The following table sets forth our operating income (in millions) for the
three and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------- ----- --------- --------- --- --------
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Operating income as reported................................... $15.7 $2.1 $28.4 $11.4
Litigation settlement, offering, change in
control and other one-time expenses.......................... -- 12.9 0.9 14.7
Operating losses from new institutes........................... 1.3 1.3 4.6 3.9
Estimated losses from CNST program............................. 0.9 0.1 3.2 0.1
Legal provision................................................ -- -- -- 1.2
--------- --------- --------- --------
Adjusted operating income before one-time expenses, losses
from new institutes and CNST program and legal
provision................................................ $17.9 $16.4 $37.1 $31.3
--------- --------- --------- --------
--------- --------- --------- --------
Percent of revenue......................................... 20.5% 20.1% 15.6% 14.3%
</TABLE>
Interest income decreased $1.0 million in the three months ended September
30, 1999 from the three months ended September 30, 1998 and $2.1 million in the
nine months ended September 30, 1999 from the nine months ended September 30,
1998, primarily due to less cash and investments in 1999 as a result of our
repurchase of 1.5 million shares of our common stock from ITT on February 1,
1999 for $49.1 million, our repurchase of an additional 393,300 shares for $9.5
million in the three months ended June 30, 1999 and our repurchase of an
additional 398,200 shares for $7.8 million in the three months ended September
30, 1999.
Our combined effective federal and state income tax rate for the three
months ended September 30, 1999 was 37.8% compared to 40% for the three months
ended September 30, 1998. Our combined effective federal and state income tax
rate for the nine months ended September 30, 1999 was 38.1% compared to 40% for
the nine months ended September 30, 1998 (before non-deductible offering
expenses). These decreases were a result of lower state income taxes.
-9-
<PAGE>
The following table sets forth our net income (in thousands, except per
share data) for the three and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income as reported............................................ $10,050 $2,097 $17,820 $8,765
Cumulative effect of change in accounting principle for
Institute start-up costs, net of tax......................... -- -- 823 --
Offering, change in control and other one-time expenses (after
Tax).......................................................... -- 7,715 554 9,216
----------- ---------- ----------- ----------
Net income before one-time expenses............................... $10,050 $9,812 $19,197 $17,981
Operating losses from new institutes (after tax).................. 771 803 2,812 2,324
Estimated losses from CNST program (after tax).................... 526 48 2,017 48
Legal provision (after tax) ...................................... -- -- -- 720
----------- ---------- ----------- ----------
Adjusted net income before one-time expenses, losses from new
Institutes and CNST program and legal provision............... $11,347 $10,663 $24,026 $21,073
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Diluted average number of outstanding common shares............... 25,032 27,206 25,586 27,178
Adjusted diluted earnings per share............................... $0.45 $0.39 $0.94 $0.78
</TABLE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Due to the seasonal pattern of enrollments and our 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.
Our net cash provided by operating activities, excluding the $23.4 million
decrease in marketable debt securities, was $14.3 million in the nine months
ended September 30, 1999 compared to $10.0 million of net cash provided by
operating activities, excluding the $35.5 million increase in marketable debt
securities, in the nine months ended September 30, 1998. This $4.3 million
increase was due primarily to the increase in our net income.
Our capital expenditures were $5.1 million in the three months ended
September 30, 1999 compared to $3.0 million in the three months ended September
30, 1998. Our capital expenditures were $12.1 million in the nine months ended
September 30, 1999 compared to $8.8 million in the nine months ended September
30, 1998. These increases were due primarily to increased capital expenditures
in 1999 for offering of the CNST program at 24 additional ITT Technical
Institutes. We expect that our capital expenditures for the full 1999 year will
be approximately $17.0 million, which will represent a $5.6 million increase
over 1998 that is primarily due to our plans to offer the CNST program at a
minimum of 31 additional ITT Technical Institutes in all of 1999.
Capital expenditures for a new institute are approximately $0.4 million and
capital expenditures for each new curriculum offered at an existing institute
are approximately $0.3 million ($0.2 million for the CNST program). We expect to
be able to fund our planned capital expenditures in 1999 from cash flows from
operations.
On April 21, 1999, our Board of Directors authorized ESI to repurchase up
to 2,000,000 outstanding shares of ESI common stock in the open market or
through privately negotiated transactions in accordance with Rule 10b-18 of the
Securities Exchange Act of 1934, as amended. During the three months ended June
30, 1999, we repurchased 393,300 shares of ESI common stock at an average cost
of $24.05 per share or $9.5 million. During the three months ended September 30,
1999, we repurchased 398,200 shares of ESI common stock at an average cost of
$19.66 per share or $7.8 million. We are currently holding all of the
repurchased shares of ESI common stock as treasury shares. We may elect to
repurchase additional shares of ESI common stock from time to time in the
future, depending on market conditions and other considerations. The purpose of
the stock repurchase program is to help ESI achieve its long-term goal of
enhancing shareholder value.
-10-
<PAGE>
Cash flows on a long-term basis are highly dependent upon the receipt of
Title IV Programs funds and the amount of funds spent on new institutes,
curricula additions at existing institutes and possible acquisitions.
YEAR 2000 COMPLIANCE
THE YEAR 2000 PROBLEM. Many information technology ("IT") hardware and
software systems ("IT Systems") and non-IT Systems containing embedded
technology, such as microcontrollers and microchip processors ("Non-IT Systems")
can only process dates with six digits (e.g., 06/26/98), instead of eight digits
(e.g., 06/26/1998). This limitation may cause IT Systems and Non-IT Systems to
experience problems processing information with dates after December 31, 1999
(e.g., 01/01/00 could be processed as 01/01/2000 or 01/01/1900). These problems
may cause IT Systems and Non-IT Systems to suffer miscalculations, malfunctions
or disruptions. These problems are commonly referred to as "Year 2000" or "Y2K"
problems. We are unable at this time to assess the possible impact on our
financial condition, results of operations and cash flows that may result from
any disruptions to our business caused by Y2K problems in any IT Systems and
Non-IT Systems that we control or that any third party with whom we have a
material relationship controls. We do not believe at the current time, however,
that the cost to remedy our internal Y2K problems will have a material adverse
effect on our results of operations or cash flows.
OUR STATE OF READINESS. We have implemented a plan to ensure that the IT
Systems and material Non-IT Systems that we control are Y2K compliant before
January 1, 2000. In the first phase of the plan, which has been completed, we
assessed the potential exposure of our IT Systems and material Non-IT Systems to
Y2K problems. In the second phase, which has also been completed, we designed a
procedure to remediate our exposure to Y2K problems in the IT Systems and
material Non-IT Systems that we control. The third phase, which has also been
completed, involved the actual remediation of the IT Systems and material Non-IT
Systems that we control. We are currently in the fourth and final phase of
testing the remediation to the IT Systems and material Non-IT Systems that we
control to ensure Y2K compliance. We plan to complete the testing phase by
November 30, 1999.
We believe that we have identified all IT Systems and material Non-IT
Systems that we control that may require Y2K remediation. We have 12 people
(both employees and outside consultants) dedicated to completing enhancements to
our IT Systems, which include our accounting, human resources, financial
services, admissions, education, recruitment and career services systems. We
have been enhancing our IT Systems on a continuous basis since 1996 and we did
not accelerate these enhancements due to any Y2K problems. These enhancements
will also address the Y2K problems with our IT Systems. We plan to complete
these enhancements by November 30, 1999.
We have dedicated two employees to either remediate or cause the
remediation of material Non-IT Systems that we control and that we have
identified as possessing a Y2K problem. We plan to complete the remediation of
these Non-IT Systems by November 30, 1999. We acquired many of these Non-IT
Systems during the past few years and we believe that a substantial number of
these newer systems do not possess a Y2K problem. In addition, the vendors of
many of these Non-IT Systems have warranted them to be Y2K compliant. We have
contacted the third parties who control our other material Non-IT Systems
(including, without limitation, our communication systems, security systems,
electrical systems and HVAC systems) to assess whether any of these systems
possess a Y2K problem that could adversely affect our operations if a
malfunction occurred. We have also implemented procedures to help ensure that
any new Non-IT Systems that we acquire or utilize are Y2K compliant.
We have identified and contacted the third parties whose lack of Y2K
compliance may pose problems for us, such as the U.S. Department of Education
("DOE"), the state education authorities that regulate our institutes ("SEAs"),
the accrediting commission that accredits our institutes ("Accrediting
Commission"), student loan guaranty agencies, student loan lenders, computer
software and hardware suppliers and book vendors. In the DOE's March 8, 1999
status report on the Y2K compliance of its mission-critical IT Systems, the DOE
stated that all of its 14 mission-critical IT Systems are Y2K compliant.
-11-
<PAGE>
THE COSTS TO ADDRESS OUR YEAR 2000 ISSUES. We have expended approximately
$250,000 in direct costs through September 30, 1999 to identify and remediate
our Y2K problems. This amount does not include:
- the salaries of our employees involved in the remediation
process;
- the cost of the enhancements to our IT Systems, because we did
not accelerate the enhancements due to Y2K problems; and
- the cost of replacing any Non-IT Systems or acquiring any new
Non-IT Systems in the normal course of our operations and not
because of any Y2K problems.
Based on our current assessment of our Y2K problems, we estimate that our
remediation efforts will cost between $250,000 and $300,000 for the IT Systems
and material Non-IT Systems that we control to become Y2K compliant,
representing up to 15% of our IT budget. Approximately 75% of this amount will
be used, if necessary, to replace computer hardware and software and other
Non-IT Systems equipment owned by us at our institutes. This amount does not
include any costs associated with remediating any Y2K problems suffered by any
third parties' IT Systems and Non-IT Systems that may affect our operations. Our
operations will fund our Y2K remediation efforts.
THE RISKS ASSOCIATED WITH OUR YEAR 2000 ISSUES. The remediation of our Y2K
problems will increasingly cause us to defer some existing and contemplated
projects, particularly those involving our personnel conducting the Y2K
remediation. Although we are unable at this time to quantify our internal
indirect costs resulting from our Y2K problems, we do not believe that the cost
of remediating our internal Y2K problems or the lost opportunity costs arising
from diverting the efforts of our personnel to the remediation will have a
material adverse effect on our financial condition, results of operations or
cash flows. We do not intend to use any independent verification or validation
processes to assure the reliability of our risk or cost estimates associated
with our Y2K problems.
We have outlined several possible worst case scenarios that could arise
from our Y2K problems. At this time, however, we have insufficient information
to assess the likelihood of any worst case scenario. Our most reasonably likely
worst case Y2K scenarios involve:
- significant delays in our receipt of federal and state student
financial aid in payment of students' education costs of attending
our institutes;
- significant delays or interruptions in the eligibility to
participate in Title IV Programs, approval to operate or
accreditation of our institutes that are undergoing their initial,
or a renewal of, such eligibility, approval or accreditation; and
- significant delays in obtaining authorization to offer new programs
of study for which our institutes have applied.
In 1998, we derived approximately 69% of our revenues from Title IV Programs
administered by the DOE. In addition, a number of our institutes participate in
various state student financial aid programs administered by SEAs that, in the
aggregate, generate a material portion of our revenues. In 1998, one lender
provided approximately 65% of all Title IV Program loans under the Federal
Family Education Loan ("FFEL") program that were received by our students, and
one student loan guaranty agency guaranteed approximately 94% of all FFEL
program loans that were received by our students. As a result, we must depend on
the ability of the DOE, the SEAs and our primary student loan lender and
guaranty agency to resolve their Y2K problems. If any of these parties were to
experience a Y2K problem that significantly delays our receipt of federal or
state student financial aid in payment of students' education costs, it could
have a material adverse effect on our financial condition, results of operations
and cash flows. Similarly, an interruption in our institutes' operations could
occur if, due to a Y2K problem:
- the DOE is unable to timely grant or renew an institute's
eligibility to participate in Title IV Programs;
- any SEA is unable to timely approve an institute to operate or renew
such approval; or
- the Accrediting Commission is unable to timely accredit an institute
or renew such accreditation.
-12-
<PAGE>
A prolonged delay or interruption for a significant number of institutes
could have a material adverse effect on our financial condition, results of
operations and cash flows. We are unable to independently assess the Y2K
readiness of any of these third parties at this time.
CONTINGENCY PLAN. We have developed a contingency plan for the IT Systems
and material Non-IT Systems that we control. We have dedicated two employees to
remediate an IT System that will become obsolete after we finish the
enhancements to our IT Systems. We plan to complete the remediation of this IT
System by November 30, 1999. If the enhancements to our IT Systems are not
finished before January 1, 2000, we hope to avoid any disruption to our business
by using this other IT System. Our contingency plan with respect to the material
Non-IT Systems that we control includes, among other things, investigating the
availability and replacement cost of such Non-IT Systems that have Y2K problems,
isolating such systems that are not Y2K compliant so that they do not affect
other systems, and adjusting the clocks on such Non-IT Systems that are not date
sensitive. We believe that we could substitute other student loan lenders and
guaranty agencies for our primary lender and guaranty agency if either of these
parties experienced a Y2K problem that could significantly delay our receipt of
federal or state student financial aid in payment of students' education costs
of attending our institutes. Our current financial resources would also help us
weather any such delay. Otherwise, we have no contingency plan, and do not
intend to create a contingency plan, for the IT Systems and Non-IT Systems that
are not controlled by us, including the third party IT Systems of the DOE, the
SEAs and the Accrediting Commission on which we rely.
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 our
eligibility to participate in, student financial aid programs utilized by our
students; effects of any change in ownership of ESI resulting in a change in
control of ESI, including, but not limited to, the consequences of such changes
on the accreditation and federal and state regulation of the institutes; our
ability to implement our growth strategies, including our new information
technology programs; receptivity of students and employers to our existing
program offerings and new curricula; and loss of lender access to our students
for student loans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
-13-
<PAGE>
PART II
OTHER INFORMATION
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 the 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 September 30,
1999.
-14-
<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: November 1, 1999
By: /s/ Gene A. Baugh
-----------------------------------
GENE A. BAUGH
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
S-1
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- --------------------------------------------------------------------------
10.20 *(1)1999 Outside Directors Stock Option Plan.................
10.21 *Outside Directors Deferred Compensation Plan................
11 Statement re Computation of Per Share Earnings...............
27 Financial Data Schedule......................................
- --------------
* The indicated exhibit is a management contract, compensatory plan or
arrangement required to be filed by Item 601 of Regulation S-K.
(1) The copy of this exhibit filed as Exhibit 4.3 to ESI's Registration
Statement on Form S-8 (Registration No. 333-84871) is incorporated
herein by reference.
S-2
<PAGE>
Exhibit 10.21
ESI
NON-EMPLOYEE DIRECTORS
DEFERRED COMPENSATION PLAN
ARTICLE I
NATURE AND PURPOSE OF PLAN
1.1 NATURE. The Plan is established by the Company as an
unfunded, non-qualified deferred compensation plan for non-employee Directors of
the Company.
1.2 PURPOSES. The purposes of the Plan are to encourage the
Company's non-employee Directors to invest in the future of the Company through
ownership of an interest in the Company and to provide flexibility to the
Company in attracting and retaining Directors.
ARTICLE II
DEFINITIONS AND RULES OF CONSTRUCTION
2.1 DEFINITIONS. As used in the Plan, the following words and
phrases, when capitalized, have the following meanings:
(a) "Account" means a bookkeeping account reflecting the
amount of a Participant's annual retainer deferred under the Plan.
(b) "Beneficiary" means the person or persons designated to
receive benefits under the Plan in the event of the Participant's
death.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and interpretive rules and regulations.
(e) "Committee" means the committee appointed by the Company
pursuant to Article IV to administer the Plan.
(f) "Company" means ITT Educational Services, Inc.
(g) "Deferred Cash Account" means the Account maintained by
the Company reflecting the amount of cash credited to a
Participant's Account pursuant to Section 6.2.
<PAGE>
(h) "Deferred Share Account" means the Account maintained by
the Company reflecting the Shares credited to a Participant's
Account pursuant to Section 6.3.
(i) "Director" means a member of the Board.
(j) "Effective Date" means January 1, 2000.
(k) "Eligible Director" means a Director who is not an
Employee.
(l) "Employee" means a person employed by ESI who receives
compensation from ESI that is initially reported on a federal wage
and tax statement (Form W-2).
(m) "ESI" means the Company and all Related Employers.
(n) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(o) "Fair Market Value" of the Shares means the last sale
price on the applicable date (or if there is no reported sale on
such date, on the last preceding date on which any reported sale
occurred) of one Share on the principal exchange on which the Shares
are listed, or if not listed on any exchange, on the Nasdaq National
Market System or any similar system then in use, or if the Shares
are not listed on the Nasdaq National Market System, the mean
between the closing high bid and low asked quotations of one Share
on the date in question as reported by Nasdaq or any similar system
then in use, or, if no quotations are available, the Fair Market
Value on such date of one Share as the Board shall determine.
(p) "Participant" means a non-employee Director who elects to
defer all or a portion of the Director's annual retainer under the
Plan.
(q) "Payment Date" means each January 1 and July 1.
(r) "Plan" means the ESI Non-Employee Directors Deferred
Compensation Plan, as amended from time to time.
(s) "Plan Year" means the twelve (12) month period beginning
on the Effective Date and each succeeding twelve month period.
(t) "Related Employer" means an employer that, together with
the Company, is a part of a controlled group of trades or businesses
within the meaning of Code subsection 414(b) or (c) or part of an
affiliated service group within the meaning of Code Section 414(m).
(u) "Share" means the $.01 par value common stock of the
Company.
2
<PAGE>
2.2 RULES OF CONSTRUCTION. The following rules of
construction shall govern in interpreting the Plan:
(a) Words used in the masculine gender shall be construed to
include the feminine gender, where appropriate.
(b) Words used in the singular shall be construed to include
the plural, where appropriate, and vice versa.
(c) If any provision of the Plan shall be held to be illegal
or invalid for any reason, that provision shall be deemed to be null
and void, but the invalidation of that provision shall not otherwise
impair or affect the Plan.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Any Director who is not an Employee is
eligible to participate in the Plan.
3.2 PARTICIPATION. An Eligible Director shall become a
Participant by filing an election form in accordance with the provisions of
Section 6.1. A Participant shall remain a Participant until the Participant has
received all payments to which the Participant is entitled under the terms of
the Plan.
3.3 NEW PARTICIPANTS. The Committee, in its sole discretion,
may permit a new Eligible Director to enroll in the Plan during the Plan Year,
no later than 30 days after becoming an Eligible Director, and make an election
to defer all or a portion of the Director's annual retainer for the remainder of
the Plan Year.
ARTICLE IV
PLAN ADMINISTRATION
4.1 THE COMMITTEE. The Plan shall be administered by a
Committee appointed by the Board.
4.2 AUTHORITY OF THE COMMITTEE. The Committee shall have sole
discretion to make all determinations that may be necessary or advisable for the
administration of the Plan. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan, and all related orders or
resolutions of the Board, shall be final, conclusive and binding upon all
persons, including the Company, ESI, Participants, and their estates and
beneficiaries.
3
<PAGE>
4.3 SECTION 16 COMPLIANCE. It is the intention of the Company
that the Plan and the administration of the Plan comply in all respects with
Section 16(b) of the Exchange Act and the rules and regulations promulgated
thereunder. If any Plan provision, or any aspect of the administration of the
Plan, is found not to be in compliance with Section 16(b) of the Exchange Act,
the provision or administration shall be deemed null and void, and in all events
the Plan shall be construed in favor of meeting the requirements of Rule 16b-3
promulgated under the Exchange Act.
ARTICLE V
PAYMENT AND DEFERRAL OPTIONS
5.1 PAYMENT OPTIONS. Prior to the beginning of each Plan Year,
each Eligible Director may elect in writing, in the manner and on the form
prescribed by the Committee, to receive payment of the Director's annual
retainer for the Plan Year in cash or Shares, in increments of 25% each;
provided, however, a Director who elects payment in Shares shall receive that
number of Shares equal to the number obtained by dividing the dollar amount of
the portion of the annual retainer to be paid in Shares by the Fair Market Value
of the Shares determined as of each Payment Date. To the extent the foregoing
calculation does not result in a whole number of Shares, the fractional Share
shall be paid in cash. In the absence of an election, the annual retainer shall
be paid in cash.
5.2 TIME OF PAYMENT. In the absence of an election pursuant to
Section 6.1, the annual retainer of an Eligible Director, shall be paid in cash
or Shares, as elected by the Director pursuant to Section 5.1, on each Payment
Date.
ARTICLE VI
DEFERRAL ELECTIONS
6.1 MAKING OF ELECTION. Prior to the beginning of each Plan
Year, each non-employee Director may elect in writing, in the manner and on the
form prescribed by the Committee, to irrevocably defer payment of all or a
portion of the Director's annual retainer otherwise payable in cash or Shares,
as elected by the Director pursuant to Section 5.1, provided that any deferral
of cash pursuant to this Section must be made in increments of 25%, and any
deferral of Shares pursuant to this Section must be made in increments of 25%.
6.2 DEFERRED CASH ACCOUNT. A Participant's Deferred Cash
Account shall be credited each Payment Date, with the cash amounts deferred on
behalf of the Participant pursuant to Section 6.1. Interest will be credited to
each Deferred Cash Account at the rate of six percent (6%) compounded annually.
This assumed interest shall be compounded annually and treated as earned from
the date deferred cash is credited to the Deferred Cash Account to the date of
distribution.
4
<PAGE>
6.3 DEFERRED SHARE ACCOUNT. A Participant's Deferred Share
Account shall be credited as of each Payment Date with that number of Shares
otherwise payable to the Director as of each Payment Date pursuant to Section
5.1, but deferred under this Article, plus any cash dividends attributable to
the number of Shares credited to the Participant's Deferred Share Account as of
the record date set by the Board for the payment of dividends. Each January 1
and July 1 additional Shares shall be credited to a Participant's Share Account
equal to the whole number obtained by dividing the amount of cash credits in the
Participant's Share Account as of that date, by the Fair Market Value of Shares
on that date.
6.4 ANNUAL STATEMENT. Within 90 days following the end of each
Plan Year, the Company shall provide to each Participant a written statement
reflecting the amount of cash and Shares credited to the Participant's Accounts.
ARTICLE VII
PAYMENT OF DEFERRED AMOUNTS
7.1 PAYMENT OF ACCOUNTS. No payments may be made from a
Participant's Accounts until the Participant terminates service as an Eligible
Director. Upon termination of the Participant's service as an Eligible Director
for any reason, including death, the Participant's Accounts shall be paid to the
Director or the Director's Beneficiary, as the case may be, as soon as
administratively possible after Participant ceases to be an Eligible Director.
Payment shall be made in a lump sum, with payment from the Deferred Cash Account
made in cash and payment from the Deferred Share Account made in Shares, except
for any remaining cash dividends credited to the Deferred Share Accounts, which
shall be paid in cash.
7.2 DESIGNATION OF BENEFICIARY. A Participant may designate a
beneficiary or beneficiaries under the Plan to receive payment of the
Participant's Accounts upon the Participant's death by submitting a beneficiary
designation form to the Committee, in the form and manner provided by the
Committee. If no designated beneficiary or beneficiaries survive the
Participant, payment of the Participant's Accounts shall be made to the
Participant's estate.
ARTICLE VIII
MISCELLANEOUS
8.1 ASSIGNABILITY. No right to receive payments under this
Plan shall be transferable or assignable by a Participant except by will or by
the laws of descent and distribution.
8.2 AMENDMENT OR TERMINATION. The Board may at any time and
from time to time and in any respect amend or modify this Plan; provided,
however, that the Board may not amend this Plan more than once during any
six-month period, and provided further, that any amendments requiring
shareholder approval in order to maintain the exemption of the Plan under
5
<PAGE>
Rule 16b-3 of the Securities Exchange Act), as in effect from time to time,
shall be subject to approval by the shareholders of the Company in the manner
required by the Rule. No amendment, modification or termination of the Plan
shall, without the consent of a Participant, reduce the benefits that a
Participant has already accrued under the Plan.
8.3 FUTURE DIRECTOR TERMS. Nothing in the Plan, nor any action
taken under the Plan, shall be construed as giving any Participant a right to
continue as a Director or require the Company to nominate or cause the
nomination of a Participant for a future term as a Director.
8.4 PARTICIPANT'S RIGHTS UNSECURED. The right of any
Participant to receive payment of deferred amounts under the provisions of the
Plan shall be an unsecured claim against the general assets of the Company. The
maintenance of individual Participant Accounts is for bookkeeping purposes only.
The Company is not obligated to acquire or set aside particular assets for the
discharge of its obligations, nor shall any Participant have any property rights
in any particular assets held by the Company, whether or not held for the
purpose of funding the Company's obligations under the Plan.
8.5 TAX WITHHOLDING. The Company shall withhold from any
payment made under the Plan such amounts as may be required by applicable
federal, state, or local laws.
8.6 GOVERNING LAW. To the extent not preempted by federal law,
this Plan shall be governed by, and construed in accordance with, the laws of
Indiana, with regard to its conflict of law rules.
IN WITNESS WHEREOF, the Company has caused the Plan to be
executed this 1st day of October, 1999.
ITT EDUCATIONAL SERVICES, INC.
By: /s/ Clark D. Elwood
-------------------------
Printed Name: Clark D. Elwood
Title: Senior Vice President,
General Counsel and Secretary
6
<PAGE>
Exhibit 11
ITT EDUCATIONAL SERVICES, INC.
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- ---------------------
1999 1998 1999 1998
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $10,050 $2,097 $17,820 $8,765
------- ------ ------- -------
------- ------ ------- -------
Shares:
Weighted average number of shares
of common stock outstanding 24,935 27,000 25,424 27,000
Shares assumed issued
less shares assumed purchased
on stock options 97 206 162 178
------- ------ ------- -------
Outstanding shares, for diluted
earnings per share calculation 25,032 27,206 25,586 27,178
------- ------ ------- -------
------- ------ ------- -------
Earnings per common share:
Basic $ 0.40 $ 0.08 $ 0.70 $ 0.32
Diluted $ 0.40 $ 0.08 $ 0.70 $ 0.32
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 40,749
<SECURITIES> 14,937
<RECEIVABLES> 17,677
<ALLOWANCES> (1,377)
<INVENTORY> 0
<CURRENT-ASSETS> 81,203
<PP&E> 91,616
<DEPRECIATION> (61,610)
<TOTAL-ASSETS> 121,418
<CURRENT-LIABILITIES> 62,814
<BONDS> 0
0
0
<COMMON> 270
<OTHER-SE> 54,331
<TOTAL-LIABILITY-AND-EQUITY> 121,418
<SALES> 0
<TOTAL-REVENUES> 238,075
<CGS> 0
<TOTAL-COSTS> 209,668
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,955
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 30,120
<INCOME-TAX> 11,477
<INCOME-CONTINUING> 18,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (823)
<NET-INCOME> 17,820
<EPS-BASIC> 0.70
<EPS-DILUTED> 0.70
</TABLE>
