News Releases

ITT Educational Services, Inc. Reports 30.8 Percent Increase in EPS in Third Quarter 2003, New Student Increase of 20.7 Percent

PRNewswire-FirstCall
INDIANAPOLIS
Oct 16, 2003

ITT Educational Services, Inc. (NYSE: ESI), a leading provider of technology-oriented postsecondary degree programs, today reported its financial and operating results for the third quarter and the first nine months of 2003. During the three months ended September 30, 2003, earnings per share ("EPS") increased 30.8 percent to $0.34 compared to $0.26 in the same period of 2002. EPS in the first nine months of 2003 increased 38.9 percent to $0.75 compared to $0.54 in the comparable period of 2002. In the third quarter of 2003, new student enrollment (excluding international enrollments and enrollments at two of its institutes that are gradually ceasing operations) increased 20.7 percent to 12,690 compared to 10,518 in the same period of 2002. Total student enrollment as of September 30, 2003 (excluding international enrollments and enrollments at the two institutes that are gradually ceasing operations) increased 10.8 percent to 36,947 compared to 33,352 as of September 30, 2002. Rene R. Champagne, chairman and CEO of ITT/ESI said, "Our strong enrollment and financial performance in the third quarter and first nine months of 2003 reflects the solid demand we have experienced for our programs of study. These results position us well to meet or exceed our internal financial goals for the full year of 2003 and the full year of 2004." The Company provided the following information for the three and nine months ending September 30, 2003:

  Three Months Ending September 30th Financial and Operating Results
  (Dollars in thousands, except earnings per share and revenue per student)

                                                                Increase/
                                    2003            2002       (Decrease)

   Revenues (A)                   $134,382        $117,746        14.1%
   Operating Income                $25,206         $18,837        33.8%
   Operating Margin                  18.8%           16.0%        280 basis
                                                                   points
   Net Income                      $15,841         $12,101        30.9%
   EPS (diluted)                     $0.34           $0.26        30.8%
   Return on Equity (TTM) (B)        53.2%           46.1%        711 basis
                                                                   points
   New Student Enrollment (c)       12,690          10,518        20.7%
   Continuing Students (c)          24,257          22,834         6.2%
   Total Student Enrollment
    as of September 30th (c)
                                    36,947        33,352          10.8%
   Online Course Registrations (D)   1,531             166         822%
   Revenue Per Student              $4,018          $3,731         7.7%
   Cash and Cash Equivalents,
    Short-term Investments and
    Investments as of
    September 30th                $204,116        $126,576        61.3%
   Bad Debt Expense as a
    Percent of Revenues                1.1%            1.6%        (50)basis
                                                                    points
   Days Sales Outstanding as of
    September 30th                     6.7 days       10.0 days   (3.3) days
  Deferred Tuition Revenue as
    of September 30th             $110,087        $ 89,475        23.0%
   Debt                                 $0              $0           --
   Fully Diluted Shares of
    Common Stock Outstanding        46,415          46,506           --
   Shares of Common Stock
    Repurchased                          0         584,300 (E)       --
   Land and Building Purchases      $3,766 (F)     $19,843 (G)       --
   Number of New Colleges Opened         1 (H)           2 (I)       --
   Capital Expenditures             $5,046          $3,003           --


   Nine Months Ending September 30th Financial and Operating Results
   (Dollars in thousands, except earnings per share)
                                                                Increase/
                                    2003            2002       (Decrease)

   Revenues (A)                   $378,213        $331,183        14.2%
   Operating Income               $ 54,333         $38,836        39.9%
   Operating Margin                  14.4%           11.7%        270 basis
                                                                  points
   Net Income                      $34,368         $25,261        36.1%
   EPS (diluted)                     $0.75           $0.54        38.9%
   Shares of Common Stock
    Repurchased                  1,078,000 (J)   1,734,300 (K)      --
   Land and Building Purchases     $21,069 (L)     $19,843 (M)      --
   Capital Expenditures, Net       $11,057         $12,315          --
   New Student Enrollment (N)       28,568          24,717        15.6%

  (A) In an effort to improve revenue comparability to its peers, the
      Company reported that, effective June 30, 2003, it began classifying
      tuition and fee refunds resulting from student withdrawals as a
      reduction of revenue.  Previously, the Company included tuition and
      fees from withdrawing students in Revenues and recorded an offsetting
      expense in Cost of educational services.  The new classification had
      no impact on the Company's Net income.
  (B) Represents return on equity for the trailing 12 months.
  © Excludes international enrollments and enrollments at the two ITT
      Technical Institutes that are gradually ceasing operations.  In the
      three months ending September 30, 2003, there were 3 new student
      enrollments at those two colleges compared to 142 in the three months
      ending September 30, 2002.  As of September 30, 2003, the combined
      total student enrollment at those two colleges was 212 compared to 447
      as of September 30, 2002.
  (D) Represents the number of online courses that students were registered
      to take.
  (E) For approximately $10.0 million or at an average price of $17.12 per
      share.
  (F) Represents one of the Company's colleges.
  (G) Represents six of the Company's colleges.
  (H) Hilliard (Columbus), Ohio commenced its first class in September 2003.
  (I) Chantilly (Washington, D.C.), Virginia and Canton (Detroit), Michigan
      commenced their first classes in September 2002.
  (J) For approximately $28.7 million or at an average price of $26.65 per
      share.
  (K) For approximately $34.6 million or at an average price of $19.92 per
      share.
  (L) Represents four of the Company's colleges and its corporate offices.
  (M) Represents 6 of the Company's colleges.
  (N) Excludes international enrollments and enrollments at the two ITT
      Technical Institutes that are gradually ceasing operations.  In the
      nine months ending September 30, 2003, the combined new student
      enrollment at those two colleges was 35 compared to 334 in the same
      period in 2002.

Champagne continued, "Our third quarter EPS of $0.34 exceeded analysts' consensus estimates by 2 cents per share. Our strong financial and operating results in the quarter were primarily driven by increased total student enrollment, tuition increases and greater leveraging of the Company's operating costs. Lead flow resulting from our marketing efforts remained strong in the third quarter, and our student recruiters continued to improve their lead conversion rates during that period. In the first nine months of 2003, new student enrollment (excluding international enrollments and enrollments at the two institutes that are gradually ceasing operations) increased 15.6 percent compared to the first nine months of 2002. Demand for our programs of study has been strong to date in 2003. We are optimistic that demand can remain strong for the balance of 2003 and 2004."

Omer Waddles, president and COO of ITT/ESI said, "We are continuing to implement our 10-Point Growth Plan. New programs of study, particularly at the bachelor's degree level, continue to be offered at more of our colleges. During the first nine months of 2003, we received 131 new program approvals. Our 76th college in Hilliard (Columbus), Ohio commenced its first class in September and we hope to begin marketing our 77th college located in Eden Prairie (Minneapolis), Minnesota soon for a first class in December 2003. New sites for an additional three to four new college start-ups in 2004 are being identified and will be reported at a later date. A new MBA program that is delivered completely online commenced its initial class in September. The ITT Technical Institute in Indianapolis had received all required regulatory authorizations to offer the online MBA program in 38 states as of September 30th. Our 2+1 hybrid delivery model is now offered at 19 colleges. We anticipate introducing the 2+1 model at an increasing number of our colleges over the next several quarters. As of September 30th, 57 of our colleges had received all required regulatory authorizations to offer the 2+1 hybrid delivery model."

Kevin M. Modany, senior vice president and CFO said, "Operating margin in the third quarter of 2003 increased 280 basis points as a result of increased total student enrollment, tuition price increases, leveraging of overhead operating costs and various cost containment projects. Revenue per student in the third quarter of 2003 increased 7.7 percent compared to the same period in 2002. Net income increased 30.9 percent in the third quarter and 36.1 percent in the first nine months compared to the same periods last year. We continue to operate without debt and have $204.1 million of cash, short-term investments and investments. We are confident that we can achieve or exceed our internal financial goals for 2003."

Champagne concluded, "Based on our strong student enrollment increases and financial performance in the first nine months of 2003, we are increasing our internal EPS goal for the full year of 2003 to a range of $1.22 to $1.23 from our previous goal of $1.20 to $1.21. We are also increasing our internal EPS goal for 2004 to a range of $1.46 to $1.50 from our previous goal of $1.44 to $1.48. Other 2004 goals include increasing:

   - new student enrollment in the range of 10  to 12 percent compared to
     2003;
   - total student enrollment in the range of 9 to 11 percent compared to
     2003;
   - revenue in the range of 14 to 17 percent compared to 2003; and
   - operating margin by 120 to 150 basis points compared to 2003."

ITT/ESI intends to conduct a conference call and a live webcast open to the public today at 11:00 a.m. EDT to discuss this release. The webcast may be accessed on ITT/ESI's web site, located at www.ittesi.com and will also be available for replay.

Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are made based upon the current expectations and beliefs of the company's management concerning future developments and their potential effect on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by its management. These forward- looking statements involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: business conditions and growth in the postsecondary education industry and in the general economy; changes in federal and state governmental regulations with respect to education and accreditation standards, or the interpretation or enforcement thereof, including, but not limited to, the level of government funding for, and the Company's eligibility to participate in, student financial aid programs utilized by the Company's students; the results of the qui tam action brought under the False Claims Act, 31 U.S.C. Section 3730, in which the Company is a defendant which, if adversely determined, could result in a demand for repayment of federal student financial aid funds, trebled under the False Claims Act, and penalties; effects of any change in ownership of the Company resulting in a change in control of the Company, including, but not limited to, the consequences of such changes on the accreditation and federal and state regulation of the institutes; the Company's ability to implement its growth strategies; receptivity of students and employers to the Company's existing program offerings and new curricula; loss of lender access to the Company's students for student loans; and other risks and uncertainties detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.

                      ITT EDUCATIONAL SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF INCOME
             (In thousands, except per share and operating data)
                                 (unaudited)

                                    Three Months Ended   Nine Months Ended
                                        September 30,       September 30,
                                       2003      2002      2003      2002

  Revenues (a)                       $134,382  $117,746  $378,213  $331,183

  Costs and Expenses (a)
  Cost of educational services         69,681    64,743   210,463   193,705
  Student services and
   administrative expenses             39,495    34,166   113,417    98,642
       Total costs and expenses       109,176    98,909   323,880   292,347

  Operating income                     25,206    18,837    54,333    38,836

  Interest income, net                    551       755     1,549     2,050

  Income before income taxes           25,757    19,592    55,882    40,886

  Income taxes                          9,916     7,491    21,514    15,625

  Net income                          $15,841   $12,101   $34,368   $25,261

  Earnings per common share (b):
       Basic                            $0.35     $0.26     $0.76     $0.55
       Diluted                          $0.34     $0.26     $0.75     $0.54

  Supplemental Data:
  Cost of educational services          51.9%     55.0%     55.6%     58.5%
  Student services and
   administrative expenses              29.4%     29.0%     30.0%     29.8%
  Operating margin                      18.8%     16.0%     14.4%     11.7%
  Student enrollment at end of
   period                              37,159    33,799    37,159    33,799
  Technical institutes at end of
   period                                  76        74        76        74
  Shares for earnings per share
   calculation:
     Basic                             45,119    45,668    44,988    45,914
     Diluted                           46,415    46,506    46,126    46,968


  (a) The reclassification with respect to withdrawing students reduced
      revenues and costs and expenses by $2,993 and $9,073 in the three and
      nine month periods ended September 30, 2003, and by $2,763 and $7,699
      in the three and nine month periods ended September 30, 2002.

  (b) Earnings per common share and the number of shares in all prior
      periods have been restated to reflect the two-for-one stock split
      declared on May 10, 2002 that became effective on June 6, 2002.


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

                                       September 30,           September 30,
                                           2003     December 31,    2002
                                        (unaudited)     2002     (unaudited)
  Assets
  Current assets
       Cash and cash equivalents          $159,749    $123,934     $94,496
       Restricted cash                          --       7,103          --
       Short-term investments               37,912      25,671      32,080
       Accounts receivable, net              9,943       8,973      12,780
       Deferred and prepaid income tax       2,950       1,988       3,621
       Prepaids and other current
        assets                               4,409       5,597       3,884
            Total current assets           214,963     173,266     146,861
  Property and equipment, net               78,910      62,584      66,054
  Direct marketing costs                    10,470      10,609      10,432
  Investments                                6,455          --          --
  Other assets                                 811       1,248       1,313
       Total assets                       $311,609    $247,707    $224,660

  Liabilities and Shareholders' Equity
  Current liabilities
       Accounts payable                    $41,297     $18,162     $25,893
       Accrued compensation and
        benefits                            13,925       9,196       7,647
       Other accrued liabilities            16,146      12,140       8,601
       Deferred revenue                    110,087     102,997      89,475
            Total current liabilities      181,455     142,495     131,616
  Deferred income tax                        2,714       6,204       6,372
  Minimum pension liability                  8,041       8,041       3,021
  Other liabilities                          2,582       1,943       1,476
       Total liabilities                   194,792     158,683     142,485

  Shareholders' equity
       Preferred stock, $.01 par value,
          5,000,000 shares authorized,
          none issued or outstanding            --          --          --
      Common stock, $.01 par value,
       150,000,000 shares authorized,
       54,068,904 issued                       540         540         540
      Capital surplus                       49,838      40,393      40,135
      Retained earnings                    199,956     184,409     166,263
      Accumulated other comprehensive
       income (loss)                        (4,888)     (4,888)     (1,837)
      Treasury stock, 8,798,609,
       8,986,267 and 8,621,740
       shares, at cost                    (128,629)   (131,430)   (122,926)
          Total shareholders' equity       116,817      89,024      82,175
          Total liabilities and
           shareholders' equity           $311,609    $247,707    $224,660


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

                                        Three Months        Nine Months
                                     Ended September 30, Ended September 30,
                                        2003     2002       2003     2002
  Cash flows provided by (used for)
   operating activities:
      Net income                        $15,841  $12,101   $34,368  $25,261
      Adjustments to reconcile net
       income to net cash
          provided by operating
           activities:
             Depreciation and
              amortization                4,787    4,932    15,800   15,697
             Provision for doubtful
              accounts                    1,482    1,884     5,024    5,404
             Deferred taxes              (1,006)     128    (4,452)     665
             Increase/decrease in
              operating assets and
              liabilities:
                Short-term investments   (7,687)  (6,845)    5,796    8,988
                Accounts receivable      (3,103)  (3,473)   (5,994)  (5,505)
                Direct marketing costs      148      486       139       88
                Accounts payable and
                 accrued liabilities      1,094    3,202    32,518   14,721
                Prepaids and other
                 assets                   1,188    2,793     1,625    2,005
                Deferred revenue         15,060   12,091     7,090   12,323
  Net cash provided by (used for)
   operating activities                  27,804   27,299    91,914   79,647

  Cash flows provided by (used for)
   investing activities:
       Facility purchases                (3,766) (19,843)  (21,069) (19,843)
       Capital expenditures, net         (5,046)  (3,003)  (11,057) (12,315)
       Purchase of held to maturity
        investments                     (24,492)      --   (24,492)      --
  Net cash provided by (used for)
   investing activities                 (33,304) (22,846)  (56,618) (32,158)

  Cash flows provided by (used for)
   financing activities:
       Purchase of treasury stock            --  (10,001)  (28,726) (34,552)
       Exercise of stock options          9,037      227    22,142   12,395
  Net cash flow provided by (used for)
   financing activities                   9,037   (9,774)   (6,584) (22,157)

  Net increase (decrease) in cash,
   cash equivalents and restricted
   cash                                   3,537   (5,321)   28,712   25,332

  Cash, cash equivalents and
   restricted cash at beginning of
   period                               156,212   99,817   131,037   69,164

  Cash, cash equivalents and
   restricted cash at end of period    $159,749  $94,496  $159,749  $94,496

SOURCE: ITT Educational Services, Inc.

CONTACT: Martin Grossman, Senior Vice President, +1-317-706-9207, or
Nancy Brown, Director Corporate Relations, +1-317-706-9260, both of ITT
Educational Services, Inc.

Web site: http://www.ittesi.com/