ITT EDUCATIONAL SERVICES INC
10-Q, 2000-08-04
EDUCATIONAL SERVICES
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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, 2000
 

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
incorporation or organization)

(I.R.S. Employer Identification No.)

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  ¨

23,910,889

Number of shares of Common Stock, $.01 par value, outstanding at July 31, 2000

ITT EDUCATIONAL SERVICES, INC.
Indianapolis, Indiana

ITT EDUCATIONAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(unaudited)

 

Three Months Ended
June 30,

Six Months Ended
June 30,
 
 

2000

1999

2000

1999

Revenues

$82,745

$70,638

$163,937

$150,610

 
 
 
 
 

Costs and Expenses
 
 
 
 

Cost of educational services

52,379

46,995

103,986

93,463

Student services and administrative expenses

24,671

22,053

48,463

43,571

Offering and other one-time expenses

—

—

—

900

  Total costs and expenses

77,050

69,048

152,449

137,934

Operating income

5,695

1,590

11,488

12,676

         

Interest income, net

527

436

1,155

1,292

Income before income taxes and cumulative effect of
 change in accounting principle

6,222

2,026

12,643

13,968

         

Income taxes

2,363

775

4,804

5,375

Income before cumulative effect of change in
 accounting principle

3,859

1,251

7,839

8,593

 
 
 
 
 

Cumulative effect of change in accounting principle,
 net of tax

—

—

(2,776)

(823)

Net income

$3,859

$1,251

$5,063

$7,770

Earnings (loss) per common share (basic and diluted):
 
 
 
 

  Income before cumulative effect of change in
   accounting principle

$0.16

$0.05

$0.32

$0.33

  Cumulative effect of change in accounting principle,
   net of tax

—

—

(0.11)

(0.03)

Net income

$0.16

$0.05

$0.21

$0.30

The accompanying notes are an integral part of these financial statements.

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

 

 
June 30, 2000
(unaudited)
December 31, 1999
 
June 30, 1999
(unaudited)
 

Assets
Current assets
  Cash and cash equivalents
$26,218
$48,510
$31,847
  Restricted cash
1,202
4,354
969
  Marketable debt securities
8,208
15,097
19,792

  Accounts receivable, net

13,438
11,685
12,049
  Deferred income tax
6,798
5,441
9,643
  Prepaids and other current assets
7,141
3,995
6,744
    Total current assets
63,005
89,082
81,044

Property and equipment, net
44,936
31,686
26,713

Direct marketing costs

9,357
8,712
8,382
Other assets
1,423
1,522
3,288
  Total assets
$118,721
$131,002
$119,427
Liabilities and Shareholders' Equity
Current liabilities
  Accounts payable
$19,002
$17,730
$27,590
  Accrued compensation and benefits
2,076
8,576
6,834
  Other accrued liabilities
5,568
5,751
6,538
  Deferred tuition revenue
34,256
36,565
22,578
    Total current liabilities
60,902
68,622
63,540
Other liabilities
5,732
4,609
3,509
  Total liabilities
66,634
73,231
67,049

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 issued
270
270
270
  Capital surplus
33,912
33,912
33,912
  Retained earnings
97,469
92,501
76,743
  Treasury stock, 3,123,563, 2,419,000 and 1,893,300 shares, at cost
(79,564)
(68,912)
(58,547)
    Total shareholders' equity
52,087
57,771
52,378

    Total liabilities and shareholders' equity

$118,721
$131,002
$119,427
 

The accompanying notes are an integral part of these financial statements.

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

 
Three Months
Ended June 30,
Six Months
Ended June 30,
 
 
2000
1999
2000
1999
 
Cash flows provided by (used for) operating activities:
    Income before cumulative effect of change in accounting
        principle

$3,859

$1,251

$7,839

$8,593
   Adjustments to reconcile income to net cash provided by
       operating activities:
       Depreciation and amortization
3,811
2,756
7,077
5,292
       Provision for doubtful accounts
1,183
1,076
2,152
1,965
       Deferred taxes
1,023
2,720
2,314
3,783
       Increase/decrease in operating assets and liabilities:
          Marketable debt securities
7,063
(58)
6,889
18,524
          Accounts receivable
(187)
(505)
(3,905)
(3,242)
          Direct marketing costs
(462)
(374)
(645)
(467)
          Accounts payable and accrued liabilities
(3,628)
(6,200)
(5,965)
(3,248)
          Prepaids and other assets
(651)
(1,298)
(3,047)
(4,724)
          Deferred tuition revenue
(1,811)
(1,003)
(6,786)
(9,683)
Net cash provided by (used for) operating activities

10,200

(1,635)

5,923
16,793
Cash flows provided by (used for) investing activities:
    Capital expenditures, net
(13,362)
(3,391)
(20,327)
(7,021)
Net cash provided by (used for) investing activities
(13,362)
(3,391)
(20,327)
(7,021)
Cash flows provided by (used for) finance activities:
    Purchase of treasury stock
(5,599)
(9,459)
(11,040)
(58,547)
    Exercise of stock options
—
56
—
639
Net cash flow provided by (used for) finance activities
(5,599)
(9,403)
(11,040)
(57,908)
Net increase (decrease) in cash, cash equivalents and restricted cash
(8,761)
(14,429)
(25,444)
(48,136)
Cash, cash equivalents and restricted cash at beginning of period
36,181
47,245
52,864
80,952
Cash, cash equivalents and restricted cash at end of period
$27,420
$32,816
$27,420
$32,816

The accompanying notes are an integral part of these financial statements.

ITT EDUCATIONAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Dollar amounts in thousands, except per share data and 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, 1999.
   
2.





During the three months ended March 31, 2000, ESI issued 21,737 treasury shares of ESI common stock to key executives in partial payment of amounts due under ESI's 1999 incentive plans. In addition, ESI repurchased 401,400 shares of ESI common stock at an average cost of $13.56 per share or $5,441 in total. During the three months ended June 30, 2000, ESI repurchased 324,900 shares of ESI common stock at an average cost of $17.23 per share or $5,599 in total. All of the repurchased shares of ESI common stock became treasury shares upon repurchase. ESI may elect to repurchase additional shares of ESI common stock from time to time in the future, depending on market conditions and considerations. The purpose of the stock repurchase program is to help ESI achieve its long-term goal of enhancing shareholder value.
   
3.








The Securities and Exchange Commission ("SEC") issued Staff Acounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101") on December 3, 1999. ESI began following the guidance provided by SAB No. 101 effective January 1, 2000 and recorded a cumulative effect of change in accounting of $4,477, less $1,701 of deferred taxes, in the three months ended March 31, 2000. In conformity with SAB No. 101, ESI changed the method by which it recognizes the laboratory and application fees charged to a student as revenue. Previously, the quarterly laboratory fee was recognized as revenue at the beginning of each academic quarter and the application fee was recognized as revenue when ESI received the fee. As of January 1, 2000, ESI began recognizing those fees as revenue on a straight-line basis over the student's program length which ranges from 12 to 24 months. If a student withdraws or is terminated from school, all unrecognized revenue relating to those fees will be recognized upon the student's departure. ESI believes that the change in accounting with respect to those fees will not have a significant effect on ESI's fiscal year revenues in 2000 or in subsequent years, but will have an effect on ESI's quarterly revenues in 2000 and in subsequent years.
   
  The American Instititute 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 startup 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.
   
4.




ESI reported 12 weeks of tuition revenue in the three months ended June 30, 2000 compared to 11 weeks of tuition revenue in the second quarter of 1999. Effective with its first fiscal quarter of 2000, ESI began reporting 12 weeks of tuition revenue in each of its four fiscal quarters. Previously, ESI's first and third fiscal quarters had 13 weeks of tuition revenue while the second and fourth fiscal quarters had 11 weeks of tuition revenue. ESI elected to standardize the number of weeks of revenue reported in each fiscal quarter, because the timing of student breaks in a calendar quarter is expected to fluctuate from quarter to quarter during the next two to three years. The total number of weeks of school during each year will remain at 48.

 

5.

Earnings per common share for all periods have been calculated in conformity with Statement of Financial Accounting Standard No. 128, "Earnings Per Share." This data is based on historical net income and the average number of shares of ESI common stock outstanding during each period.

 

Average shares outstanding
(in thousands)
 
 
Three Months
Ended June 30,
Six Months
Ended June 30,
 
2000
1999
2000
1999
 
 
 
 
Basic
24,022
  
25,279
  
24,264
  
25,668
Diluted
24,182
  
25,430
  
24,385
  
25,863

  The difference in the number of shares used to calculate basic and diluted earnings per share represents the average number of shares issued under ESI's stock option plans less shares assumed to be purchased with proceeds from the exercise of those stock options.

 

 

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, 1999 for discussion of, among other matters, the following items:

Effective January 1, 2000, we implemented SAB No. 101 and changed the method by which we recognize the laboratory and application fees charged to a student as revenue. We began recognizing those fees as revenue on a straight-line basis over the student's program length (i.e., 12 to 24 months). Previously, we recognized the quarterly laboratory fee as revenue at the beginning of each academic quarter and the application fee as revenue when we received the fee. We recorded the cumulative effect of the change in accounting as a one-time charge of $2.8 million, net of taxes, in the three months ended March 31, 2000.

We reported 12 weeks of tuition revenue in the three months ended June 30, 2000, compared to 11 weeks of tuition revenue in the second quarter of 1999. Effective with our first fiscal quarter of 2000, we began reporting 12 weeks of tuition revenue in each of our four fiscal quarters. Previously, our first and third fiscal quarters had 13 weeks of tuition revenue while the second and fourth fiscal quarters had 11 weeks of tuition revenue. We elected to standardize the number of weeks of revenue reported in each fiscal quarter, because the timing of student breaks in a calendar quarter is expected to fluctuate from quarter to quarter during the next two to three years. The total number of weeks of school during each year will remain at 48.

The following table sets forth pro forma operating results for the three and six months ended June 30, 1999 as if we had followed the SAB No. 101 revenue recognition guidance and reported the same number of weeks of tuition revenue during each period. All subsequent comparisons to the 1999 results in this management's discussion and analysis of financial condition and results of operations are made to the pro forma results for the three and six months ended June 30, 1999.

Three Months
Ended

Three Months Ended
June 30, 1999

Six Months
Ended
Six Months Ended
June 30, 1999
June 30, 2000
Proforma
As Reported
June 30, 1999
Proforma
As Reported

(In thousands, except per share and operating data)
(unaudited)

Revenues

$82,745
$75,688
$70,638
$163,937
$150,538
$150,610
Costs and Expenses:

    Cost of educational services

52,379
46,995
46,995
103,986
93,463
93,463

    Student services and administrative expenses

24,671
22,053
22,053
48,463
43,571
43,571

    Offering and other one-time expenses

—
—
—
—
900
900
 

      Total costs and expenses

77,050
69,048
69,048
152,449
137,934
137,934
 

Operating income

5,695
6,640
1,590
11,488
12,604
12,676

Interest income, net

527
436
436
1,155
1,292
1,292
 

Income before income taxes and cumulative effect of change in accounting principle

6,222
7,076
2,026
12,643
13,896
13,968

Income taxes

2,363
2,707
775
4,804
5,334
5,375
 

Income before cumulative effect of change in accounting principle

3,859
4,369
1,251
7,839
8,562
8,593
Cumulative efect of change in accounting principle, net of tax
—
—
—
(2,776)
(823)
(823)
 

Net income

$ 3,859
$ 4,369
$ 1,251
$ 5,063
$ 7,739
$ 7,770
 

Earnings (loss) per common share (basic and diluted):

    Income before cumulative effect of change in accounting principle
—
—
—
$ 0.32
$ 0.33
$ 0.33

    Cumulative effect of change in accounting principle, net of tax
—
—
—
(0.11)
(0.03)
(0.03)
 

  Net income
$ 0.16
$ 0.17
$ 0.05
$ 0.21
$ 0.30
$ 0.30
 
Supplemental Data:            

    Cost of educational services

63.3%
62.1%
63.4%
62.1%

    Student services and administrative expenses

29.8%
29.1%
29.6%
28.9%

    Offering and other one-time expenses

—
—
—
0.6%

    Operating margin
6.9%
8.8%
7.0%
8.4%

    Operating losses from new institutes (after-tax)

$ 893
$ 1,007
$ 1,760
$ 2,041

    Student enrollment at end of period

27,014
25,858
27,014
25,858

    Technical institutes at end of period

68
67
68
67

    Shares for earnings per share calculation:

      Basic

24,022
25,279
24,264
25,668
      Diluted
24,182
25,430
24,385
25,863

In 1998, we began offering a new information technology program of study involving computer network systems ("CNS") at three ITT Technical Institutes. We began offering the CNS program at an additional 18 ITT Technical Institutes in the six months ended June 30, 1999, at an additional 13 ITT Technical Institutes in the six months ended December 31, 1999 and at an additional 29 ITT Technical Institutes in the six months ended June 30, 2000. We intend to begin offering this program at an additional 6 ITT Technical Institutes in the remainder of 2000. We incur a loss with respect to each CNS program offered at an ITT Technical Institute until the revenue from the number of enrolled students is high enough to offset the fixed costs associated with the program offering (such as salaries, equipment depreciation, rent and marketing), which typically has not occurred until the program has been offered for three or four quarters. The initial amount of capital required to offer the CNS program at an ITT Technical Institute is approximately $0.2 million.

Results of Operations

Revenues increased $7.0 million, or 9.3%, to $82.7 million in the three months ended June 30, 2000 from $75.7 million in the three months ended June 30, 1999. Revenues increased $13.4 million, or 8.9%, to $163.9 million in the six months ended June 30, 2000 from $150.5 million in the six months ended June 30, 1999. These increases were due primarily to a 5% increase in tuition rates in September 1999, a 5% increase in tuition rates in June 2000 and a 3.2% increase in the total student enrollment at January 1, 2000 compared to January 1, 1999. The number of students attending ITT Technical Institutes at January 1, 2000 was 26,428 compared to 25,608 at January 1, 1999.

The total number of new students beginning classes in June 2000 was 7,310, compared to 7,272 in June 1999, an increase of 0.5%. The total student enrollment on June 30, 2000 was 27,014, compared to 25,858 on June 30, 1999, an increase of 4.5%.

Cost of educational services increased $5.4 million, or 11.5%, to $52.4 million in the three months ended June 30, 2000 from $47.0 million in the three months ended June 30, 1999. Cost of educational services increased $10.5 million, or 11.2%, to $104.0 million in the six months ended June 30, 2000 from $93.5 million in the six months ended June 30, 1999. 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 (two opened in January 1999, one opened in April 1999 and one
      opened in March 2000); and
    · increased costs associated with offering the CNS program at 63 institutes (as compared to only 21
      institutes in the second quarter of 1999).

Cost of educational services as a percentage of revenues increased to 63.3% in the three months ended June 30, 2000 from 62.1% in the three months ended June 30, 1999, and increased to 63.4% in the six months ended June 30, 2000 from 62.1% in the six months ended June 30, 1999. These increases were primarily due to the costs associated with the CNS program offerings and the new institutes, including salaries, equipment depreciation and rent.

Student services and administrative expenses increased $2.6 million, or 11.8%, to $24.7 million in the three months ended June 30, 2000 from $22.1 million in the three months ended June 30, 1999. Student services and administrative expenses increased $4.9 million, or 11.2%, to $48.5 million in the six months ended June 30, 2000 from $43.6 million in the six months ended June 30, 1999. These increases were primarily due to increased media advertising expenses (up 16.8% in the quarter and 14.8% in the six months ended June 30, 2000).

We did not incur any one-time expenses in the six months ended June 30, 2000, compared to one-time expenses of $0.9 million in the six months ended June 30, 1999 associated with ITT Corporation's ("ITT") February 1999 public offering of our common stock and special bonus payments to employees for extraordinary services, net of amounts reimbursed by ITT.

We incur operating losses when we open new institutes. We opened three new institutes in 1997, three in 1998, three in 1999, and one in the six months ended June 30, 2000. 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 were $1.4 million in the three months ended June 30, 2000 and $2.8 million in the six months ended June 30, 2000, compared to $1.6 million in the three months ended June 30, 1999 and $3.3 million in the six months ended June 30, 1999.

Our operating income decreased $0.9 million, or 13.6%, to $5.7 million in the three months ended June 30, 2000 from $6.6 million in the three months ended June 30, 1999. Our operating income decreased $1.1 million, or 8.7%, to $11.5 million in the six months ended June 30, 2000 from $12.6 million in the six months ended June 30, 1999. Our operating margin decreased to 6.9% of revenues in the three months ended June 30, 2000 from 8.8% in the three months ended June 30, 1999, and decreased to 7.0% in the six months ended June 30, 2000 from 8.4% in the six months ended June 30, 1999. These decreases are primarily due to the costs associated with offering the CNS program at 29 additional institutes in the six months ended June 30, 2000, compared to 18 additional institutes in the six months ended June 30, 1999.

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 used for operating activities, excluding the $6.9 million decrease in marketable debt securities, was $1.0 million in the six months ended June 30, 2000, compared to $1.7 million of net cash used for operating activities in the six months ended June 30, 1999.

Our capital expenditures were $13.4 million in the three months ended June 30, 2000, compared to $3.4 million in the three months ended June 30, 1999. Our capital expenditures were $20.3 million in the six months ended June 30, 2000, compared to $7.0 million in the six months ended June 30, 1999. These increases were due primarily to increased capital expenditures in 2000 for offering the CNS program at 11 more additional ITT Technical Institutes than in the same period in 1999 (29 additional in the six months ended June 30, 2000, compared to 18 additional in the six months ended June 30, 1999), equipment necessary to outfit additional computer laboratories at institutes that commenced offering the CNS program in 1999 and changes in our electronics engineering technology curriculum. We expect that our capital expenditures for the full 2000 year will be approximately $30 million, which will represent a $13 million increase over 1999. This increase is primarily due to our plans to offer the CNS program at 35 additional ITT Technical Institutes in 2000, purchase $4 million of equipment for computer laboratories at institutes that commenced offering the CNS programs initiated in 1999 and incur $7 million of capital expenditures for changes in our electronics engineering technology curriculum.

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 CNS program). We expect to be able to fund our planned capital expenditures in 2000 from cash flows from operations.

Cash flows on a long-term basis are highly dependent upon the receipt of Title IV Program funds and the amount of funds spent on new institutes, curricula additions at existing institutes and possible acquisitions.

On April 12, 2000, our Board of Directors authorized us to repurchase up to an additional 2.0 million shares of ESI common stock. As of June 30, 2000, our total remaining repurchase authorization from our Board of Directors was for approximately 2.4 million shares of ESI common stock. We may repurchase the shares of our 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 six months ended June 30, 2000, we repurchased 726,300 shares of ESI common stock at an average cost of $15.20 per share or approximately $11.0 million. All of the repurchased shares of our common stock became treasury shares upon repurchase and most of the repurchased shares continue to be held as treasury shares. We may elect to repurchase additional shares of our common stock from time to time in the future, depending on market conditions and other considerations. The purpose of the stock repurchase is to help us achieve our long-term goal of enhancing shareholder value.

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; our ability to hire and retain qualified faculty; 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 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.

PART II

OTHER INFORMATION

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

On July 1, 2000, we credited 2,048 treasury shares of ESI Common Stock to the deferred share accounts of four non-employee directors under the ESI Non-Employee Director Deferred Compensation Plan. These shares of ESI Common Stock will be issued upon the termination of the non-employee director's service as a non-employee director for any reason, including retirement or death. The shares described in this paragraph were not registered under the Securities Act of 1933, as amended (the "Securities Act"). `;The transaction described in this paragraph is exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof.

 

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

During the second quarter of fiscal year 2000, we held the ESI 2000 annual meeting of shareholders on May 10, 2000 to elect directors. Our Board of Directors currently consists of eight directors divided into three classes. The first and third classes contain three directors each and the second class contains two directors. The term of one class expires each year. Generally, each director serves until the annual meeting of shareholders held in the year that is three years after that director's election and thereafter until that director's successor is elected and has qualified. At the ESI 2000 annual meeting of shareholders, our shareholders elected the following persons to serve as directors of ESI in the third class of our Board of Directors, each to hold office for the term of three years and until his successor is elected and has qualified:

Third Class - Term expiring at 2003 Annual Meeting

                     1. Rand V. Araskog

                     2. Leslie Lenkowsky

                     3. Daniel P.Weadock

The final results of the vote taken at the ESI 2000 annual meeting of shareholders for the director nominees are as follows:

 
Votes For
Votes Withheld

Broker
Nonvotes

Abstentions

Rand V. Araskog

19,977,641

1,621,725
0
0

Leslie Lenkowsky

21,483,558
115,808
0
0

Daniel P. Weadock

21,475,330
124,036
0
0

The ESI directors who continued in office after the ESI 2000 annual meeting of shareholders are as follows:

 First Class - Term expiring at 2001 Annual Meeting

                  1. Rene R. Champagne

                  2. James D. Fowler, Jr.

                  3. Harris N. Miller

Second Class - Term expiring at 2002 Annual Meeting

                  1. John E. Dean

                  2. Vin Weber

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 June 30, 2000.

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 4, 2000

  
 

By: /s/ Gene A. Baugh
 
 

       Gene A. Baugh
       Senior Vice President and Chief
      Financial Officer
      (Principal Financial Officer)

 

INDEX TO EXHIBITS

Exhibit No.

Description

11

 Statement re Computation of Per Share Earnings

27

 Financial Data Schedule

 



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