News Releases

ITT Educational Services, Inc. Reports 2006 Second Quarter Results, New Student Enrollment Increased 10.4 Percent

PRNewswire-FirstCall
CARMEL, Ind.
Jul 27, 2006

ITT Educational Services, Inc. (NYSE: ESI), a leading for-profit provider of postsecondary degree programs, today reported that new student enrollment in the second quarter of 2006 increased 10.4 percent to 11,674 compared to 10,576 in the same period of 2005. Total student enrollment increased 6.3 percent to 44,025 as of June 30, 2006, compared to 41,419 as of June 30, 2005. The enrollment numbers and percentages referenced above in this paragraph exclude international enrollments. Earnings per share ("EPS") in the second quarter of 2006 increased 14.6 percent to $0.55 compared to $0.48 in the second quarter of 2005.

The company provided the following information for the three and six months ended June 30, 2006 and 2005:

  Financial and Operating Results For The Three Months Ended June 30th,
                        Unless Otherwise Indicated
       (Dollars in millions, except per share and per student data)

                                                          Increase/
                                  2006          2005      (Decrease)

  Revenue                       $185.6        $168.8       9.9%
  Operating Income               $36.6         $34.8       5.1%
  Operating Margin                19.7%         20.6%      (90) basis points
  Net Income                     $24.1         $22.4       7.6%
  Earnings Per Share (diluted)   $0.55         $0.48      14.6%
  New Student Enrollment (A)    11,674        10,576      10.4%
  Continuing Students (A)       32,351        30,843       4.9%
  Total Student Enrollment
   as of June 30th (A)          44,025        41,419       6.3%
  Quarterly Persistence
   (Retention) Rate (B)           73.7%         74.2%      (50) basis points
  Revenue Per Student (A)       $4,230        $4,061       4.2%
  Cash and Cash Equivalents,
   Restricted Cash and
   Investments as of June 30th  $214.5        $353.1     (39.2)%
  Bad Debt Expense as
   a Percentage of Revenue         1.5%          1.8%      (30) basis points
  Days Sales Outstanding
   as of June 30th                 4.8 days      7.4 days (2.6) days
  Deferred Tuition Revenue
   as of June 30th              $174.1        $140.3      24.0%
  Debt                             $--           $--        --
  Diluted Shares of
   Common Stock Outstanding 44,042,000    47,134,000        --
  Shares of Common Stock
   Repurchased               1,660,500 ©        --        --
  Land and Building Purchases     $5.9 (D)     $10.2 (E) (42.7)%
  Number of New Colleges
   in Operation                      3             2         1
  Number of New Learning
   Sites in Operation                1             1        --
  Capital Expenditures, Net       $9.5          $6.9      38.2%



    Financial and Operating Results For The Six Months Ended June 30th
       (Dollars in millions, except per share and per student data)

                                                          Increase/
                                  2006          2005      (Decrease)

  Revenue                       $361.9        $328.9      10.0%

  Special Legal and Other
   Investigation Costs           $(0.4)         $7.7    (105.6)%
  Operating Income               $66.8         $57.9      15.3%
  Operating Income Before
   Special Legal and Other
   Investigation Costs (F)       $66.4         $65.7       1.1%

  Special Legal and Other
   Investigation Costs as a
   Percentage of Revenue          (0.1)%         2.3%     (240) basis points
  Operating Margin                18.5%         17.6%       90 basis points
  Operating Margin Before
   Special Legal and Other
   Investigation Costs  (F)       18.4%         19.9%     (150) basis points

  Special Legal and Other
   Investigation Costs,
   Net of Tax                    $(0.3)         $4.7    (105.6)%
  Net Income                     $44.6         $37.4      19.1%
  Net Income Before Special
   Legal and Other
   Investigation Costs, Net
   of Tax (F)                    $44.3         $42.1       5.2%

  Special Legal and Other
   Investigation Costs Per
   Share (diluted), Net of Tax     $--         $0.10    (100.0)%
  Earnings Per Share (diluted)   $0.99         $0.79      25.3%
  Earnings Per Share (diluted)
   Before Special Legal and
   Other Investigation Costs,
   Net of Tax (F)                $0.99         $0.89      11.2%
  Revenue Per Student (A)       $8,332        $7,979       4.4%
  Diluted Shares of Common
   Stock Outstanding        44,920,000    47,107,000        --
  Shares of Common Stock
   Repurchased               3,886,200 (G)        --        --
  Land and Building Purchases    $10.8 (H)     $19.8 (I) (45.4)%
  Number of New Colleges in
   Operation                         3             2         1
  Number of New Learning
   Sites in Operation                3             2         1
  Capital Expenditures, Net      $13.1         $10.0      30.8%


  (A)    Excludes international enrollments.
  (B)    Represents the number of Continuing Students in the quarter,
         divided by the Total Student Enrollment as of the end of the
         immediately preceding quarter.
  ©    For approximately $106.5 million or at an average price of $64.14
         per share.
  (D)    Represents costs associated with purchasing, renovating, expanding
         or constructing buildings at 12 of the company's locations.
  (E)    Represents costs associated with purchasing, renovating, expanding
         or constructing buildings at nine of the company's locations.
  (F)    Given the large amount of legal and other investigation costs
         accrued in connection with the U.S. Department of Justice ("DOJ")
         investigation of the company, the U.S. Securities and Exchange
         Commission's ("SEC") inquiry into the matters being investigated by
         the DOJ, and the securities class action, shareholder derivative
         and books and records inspection lawsuits filed against the
         company, as described in the company's 2005 second quarter report
         on Form 10-Q which was filed with the SEC on July 29, 2005
         (collectively, the "Actions"), the company's management believes
         that the company's performance results without these additional
         costs is a useful measure for management and might be a useful
         supplement for investors in comparing the company's performance
         absent the legal and other investigation costs associated with the
         Actions.  Although legal and other investigation costs are a
         regular expense of the company, the level of legal and other
         investigation costs incurred by the company as a result of the
         Actions is much larger than the company has previously experienced,
         and the company hopes that legal and other investigation costs at
         this level will not occur in the future.  In evaluating the
         company's performance, the company's management uses the following
         measurements that are not under generally accepted accounting
         principles ("GAAP") and are, therefore, non-GAAP financial
         measures.  Although the non-GAAP financial measures exclude cash
         cost to the company, management compensates for this by also using
         the GAAP measures.  The non-GAAP financial measures should be
         considered in addition to, but not as a substitute for, the
         measures prepared in accordance with GAAP.
         (1)    The company believes that Operating Income Before Special
                Legal and Other Investigation Costs provides useful
                information to management and investors by improving their
                ability to compare the company's Operating Income without
                the Special Legal and Other Investigation Costs for the six
                months ended June 30, 2006 with the Operating Income without
                the Special Legal and Other Investigation Costs for the six
                months ended June 30, 2005.  Operating Income Before Special
                Legal and Other Investigation Costs can be reconciled to
                Operating Income as shown in the two lines of the table
                immediately preceding this entry.
         (2)    The company believes that Operating Margin Before Special
                Legal and Other Investigation Costs provides useful
                information to management and investors by improving their
                ability to compare the company's Operating Income without
                the Special Legal and Other Investigation Costs as a
                percentage of Revenue for the six months ended June 30, 2006
                with the Operating Income without the Special Legal and
                Other Investigation Costs as a percentage of Revenue for the
                six months ended June 30, 2005.  Operating Margin Before
                Special Legal and Other Investigation Costs can be
                reconciled to Operating Margin as shown in the two lines of
                the table immediately preceding this entry.
         (3)    The company believes that Net Income Before Special Legal
                and Other Investigation Costs, Net of Tax provides useful
                information to management and investors by improving their
                ability to compare the company's Net Income without the
                Special Legal and Other Investigation Costs, Net of Tax for
                the six months ended June 30, 2006 with the Net Income
                without the Special Legal and Other Investigation Costs, Net
                of Tax for the six months ended June 30, 2005.  For the
                purpose of calculating this measure, the company used
                marginal tax rates of 38.5% for 2006 and 38.5% for 2005.
                Net Income Before Special Legal and Other Investigation
                Costs, Net of Tax can be reconciled to Net Income as shown
                in the two lines of the table immediately preceding this
                entry.
         (4)    The company believes that Earnings Per Share (diluted)
                Before Special Legal and Other Investigation Costs Per Share
                (diluted), Net of Tax provides useful information to
                management and investors by improving their ability to
                compare the company's Earnings Per Share (diluted) without
                the Special Legal and Other Investigation Costs Per Share
                (diluted), Net of Tax for the six months ended June 30, 2006
                with the Earnings Per Share (diluted) without the Special
                Legal and Other Investigation Costs Per Share (diluted), Net
                of Tax for the six months ended June 30, 2005.  Earnings Per
                Share (diluted) Before Special Legal and Other Investigation
                Costs Per Share (diluted), Net of Tax can be reconciled to
                Earnings Per Share (diluted) as shown in the two lines of
                the table immediately preceding this entry.
  (G)    For approximately $246.6 million or at an average price of $63.46
         per share.
  (H)    Represents costs associated with purchasing, renovating, expanding
         or constructing buildings at 12 of the company's locations.
  (I)    Represents costs associated with purchasing, renovating, expanding
         or constructing buildings at 10 of the company's locations.


Rene R. Champagne, Chairman and CEO of ITT/ESI, said, "We are very pleased with our performance in the second quarter of 2006. Our growth initiatives helped us to deliver strong financial and operational results. We are optimistic that we can continue delivering solid results in the remainder of 2006, based on the strong interest that continued to be expressed in our programs of study as we began the third quarter of 2006."

Champagne said, "I am also pleased to announce that Kevin M. Modany, President and Chief Operating Officer of ITT/ESI, was elected on July 25, 2006 to serve as a director on ITT/ESI's Board of Directors."

Kevin M. Modany said, "Our marketing efforts generated a significant increase in leads in the second quarter compared to the same period last year. The increase in leads was supported by a 19 percent increase in advertising expenditures in the three months ended June 30, 2006 compared to the same period in 2005. The increase in advertising expenditures was primarily due to incremental advertising associated with operating new colleges and the introduction of new programs of study."

Modany continued, "During the second quarter of 2006, we began operations at our: 85th college in Dunmore (Scranton), PA; 86th college in Charlotte, NC; and 87th college in Maumee (Toledo), OH. Our new college in Charlotte increases to 33 the number of states in which we have colleges. All three new colleges have begun recruiting and expect to commence classes in September 2006. In the six months ended June 30, 2006, we began operations or started classes at six new colleges."

Modany further noted, "We also began operations at our 7th learning site in Dearborn, MI. This learning site belongs to the ITT Technical Institute in Canton, MI. During the first half of 2006, we added three new learning sites to existing institutes and we plan to add two more learning sites in the second half of 2006."

Modany said, "As part of our continuing efforts to diversify our curriculum offerings, we are pleased to announce a new Associate Degree program in Health Information Technology. We are pursuing the required authorizations to begin offering this program at five of our colleges in the second half of 2006 and at additional colleges throughout 2007 and beyond. The Health Information Technology program also marks the introduction of our new School of Health Sciences, which is our sixth school of study. We plan to develop additional programs of study at the bachelor and associate degree levels that will be offered through our School of Health Sciences and taught both in residence and online. We also plan to begin offering three new concentrations of our bachelor degree program in Business Administration. The new concentrations are in marketing, human resources and finance, and will be taught online."

Modany continued, "We are also awaiting the remaining authorization to begin recruiting students at three colleges for a new bachelor degree program in Construction Management. This program will be offered at additional colleges in future quarters, subject to obtaining the required authorizations."

Modany said, "As of June 30, 2006, 15 percent of our students were enrolled in non-technology programs of study compared to 9 percent as of June 30, 2005. Approximately 27 percent of our students were enrolled in bachelor degree programs of study as of June 30, 2006 compared to 22 percent at the same point in 2005."

Modany concluded, "The second quarter 2006 student persistence rate was 73.7 percent compared to 74.2 percent in the same period in 2005. Despite the decline, we are pleased with the student persistence rate in the quarter, considering that the prior quarter declines in the student persistence rate had been much more significant since we began expanding our use of the hybrid delivery model. We hope that the student persistence rate in the second quarter of 2006 marks the beginning of an improving trend and indicates that our various student retention initiatives are working."

Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said, "We are pleased with our financial results for the three months ended June 30, 2006, which were in line with our internal expectations. We continue to generate strong returns on our investments in our various growth initiatives and believe that we are on track to achieve our internal financial goals for 2006."

Fitzpatrick continued, "Operating margin in the second quarter of 2006 decreased 90 basis points to 19.7 percent compared to 20.6 percent in the second quarter of 2005, primarily due to the acceleration of our geographic expansion efforts. During the second quarter of 2006, there were 12 more colleges and learning sites within their first 24 months of operation than in the second quarter of 2005."

Fitzpatrick added, "In the three months ended June 30, 2006, we repurchased 1.7 million shares of our common stock at an average purchase price of $64.14 per share or $106.5 million in total. We intend to continue repurchasing our shares throughout the remainder of 2006."

Fitzpatrick said, "Bad debt expense as a percentage of revenue declined to 1.5 percent in the three months ended June 30, 2006 compared to 1.8 percent in the same period in 2005. Days sales outstanding as of June 30, 2006 were 4.8 days, a 2.6 day decrease, compared to 7.4 days at the same point in 2005."

Fitzpatrick closed by noting, "The fundamentals of the company remain strong, and our internal goal for 2006 EPS remains in the range of $2.66 to $2.69."

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. The company cannot assure you 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 company's failure to comply with the extensive education laws and regulations and accreditation standards that it is subject to; 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 its institutes; the company's ability to implement its growth strategies; the company's failure to maintain or renew required regulatory authorizations or accreditation of its institutes; receptivity of students and employers to the company's existing program offerings and new curricula; loss of access by the company's students to lenders for student loans; the company's ability to successfully defend litigation and other claims brought against it; 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.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                (Amounts in thousands, except per share data)



                                                      As of
                                         June 30,  December 31,  June 30,
                                           2006        2005        2005
                                       (unaudited)             (unaudited)
  Assets
  Current assets
       Cash and cash equivalents            $8,073     $13,735     $37,283
       Short-term investments              205,954     388,152     312,734
       Accounts receivable, net              9,736      13,989      13,722
       Deferred and prepaid income tax       4,950       7,030       6,746
       Prepaids and other current assets    10,427      14,102      14,966
            Total current assets           239,140     437,008     385,451

  Property and equipment, net              141,314     127,406     119,829
  Direct marketing costs, net               19,592      17,490      16,497
  Investments                                   --       9,538       3,055
  Restricted cash                              500         500          --
  Other assets                              18,921         549         561
       Total assets                       $419,467    $592,491    $525,393

  Liabilities and Shareholders' Equity
  Current liabilities
       Accounts payable                    $59,910     $56,101     $39,688
       Accrued compensation and
        benefits                            10,028      10,344      12,534
       Accrued taxes                         5,978       3,998       7,937
       Other accrued liabilities             5,851       5,242      18,004
       Deferred revenue                    174,065     175,454     140,346
            Total current liabilities      255,832     251,139     218,509

  Deferred income tax                       15,273      15,364      10,580
  Minimum pension liability                  9,899       9,899       9,101
  Other liabilities                          7,832       7,495       7,121
       Total liabilities                   288,836     283,897     245,311

  Shareholders' equity
       Preferred stock, $.01 par value,
        5,000,000 shares authorized,
        none issued or outstanding              --          --          --
       Common stock, $.01 par value,
        300,000,000 shares authorized,
        54,068,904 issued and outstanding      540         540         540
       Capital surplus                      59,436      68,715      62,914
       Retained earnings                   434,264     389,679     330,325
       Accumulated other comprehensive
       loss                                 (6,016)     (6,016)     (5,532)
       Treasury stock, 11,738,007,
        8,377,780 and 7,822,422
        shares, at cost                   (357,593)   (144,324)   (108,165)
          Total shareholders' equity       130,631     308,594     280,082
          Total liabilities and
           shareholders' equity           $419,467    $592,491    $525,393



                        ITT EDUCATIONAL SERVICES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                (Amounts in thousands, except per share data)
                                 (unaudited)

                                        Three Months         Six Months
                                       Ended June 30,      Ended June 30,
                                       2006      2005      2006      2005

  Revenue                            $185,569  $168,782  $361,884  $328,935

  Costs and expenses
  Cost of educational services         92,514    81,795   182,918   161,916
  Student services and
   administrative expenses             56,465    52,165   112,577   101,359
  Special legal and other
   investigation costs                     --        --      (430)    7,712
       Total costs and expenses       148,979   133,960   295,065   270,987

  Operating income                     36,590    34,822    66,819    57,948
  Interest income, net                  2,010     2,205     4,517     3,919
  Income before provision for income
   taxes                               38,600    37,027    71,336    61,867
  Income taxes                         14,489    14,626    26,751    24,438

  Net income                          $24,111   $22,401   $44,585   $37,429

  Earnings per share:
       Basic                            $0.56     $0.49     $1.01     $0.81
       Diluted                          $0.55     $0.48     $0.99     $0.79

  Supplemental Data:
  Cost of educational services           49.9%     48.5%     50.5%     49.2%
  Student services and
   administrative expenses               30.4%     30.9%     31.1%     30.8%
  Special legal and other
   investigation costs                    0.0%      0.0%     (0.1%)     2.4%
  Operating margin                       19.7%     20.6%     18.5%     17.6%
  Student enrollment at end of
   period                              44,025    41,419    44,025    41,419
  Technical institutes at end of
   period                                  87        79        87        79
  Shares for earnings per share
   calculation:
       Basic                           43,110    46,181    43,967    46,134
       Diluted                         44,042    47,134    44,920    47,107


  Effective tax rate                     37.5%     39.5%     37.5%     39.5%



                        ITT EDUCATIONAL SERVICES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Amounts in thousands)
                                 (unaudited)

                                        Three Months         Six Months
                                       Ended June 30,      Ended June 30,
                                       2006      2005      2006      2005
  Cash flows from operating
   activities:
    Net income                      $24,111   $22,401   $44,585   $37,429
    Adjustments to reconcile net
     income to net cash flows
     from operating activities:
       Depreciation and
        amortization                  5,096     4,442     9,994     8,738
       Provision for doubtful
        accounts                      2,783     3,028     5,332     5,899
       Deferred income taxes            (94)    1,184      (858)   (2,420)
       Excess tax benefit from
        stock option exercises       (3,802)      964    (6,966)    2,969
       Stock-based
        compensation expense            313        --     2,234        --
       Changes in operating assets
        and liabilities:
         Restricted cash                 --        --        --     8,194
         Accounts receivable         (2,744)   (3,965)   (1,079)   (9,191)
         Prepaids and other assets    1,494       352   (14,697)   (9,130)
         Direct marketing costs, net (1,200)     (888)   (2,102)   (1,784)
         Accounts payable and
          accrued liabilities        18,990     2,660     4,558    11,524
         Income and other taxes        (243)   (2,602)   11,793    (5,800)
         Deferred revenue            (5,261)  (10,317)   (1,389)  (16,446)
  Net cash flows from operating
   activities                        39,443    17,259    51,405    29,982

  Cash flows from investing
   activities:
    Facility expenditures and
     land purchases                  (5,864)  (10,232)  (10,813)  (19,816)
    Capital expenditures, net        (9,476)   (6,859)  (13,089)  (10,005)
    Proceeds from sales and
     maturities of investments      433,586   116,331   806,121   310,078
    Purchase of investments        (359,140) (106,375) (614,385) (286,934)
  Net cash flows from investing
   activities                        59,106    (7,135)  167,834    (6,677)

  Cash flows from financing
   activities:
     Excess tax benefit from stock
      option exercises                3,802        --     6,966        --
     Proceeds from stock option
      exercises                       5,549     1,584    14,767     4,589
     Purchase of treasury stock    (106,499)       --  (246,634)       --
  Net cash flows from financing
   activities                       (97,148)    1,584  (224,901)    4,589

  Net change in cash and cash
   equivalents                        1,401    11,708    (5,662)   27,894

  Cash and cash equivalents at
   beginning of period                6,672    25,575    13,735     9,389

  Cash and cash equivalents at end
   of period                         $8,073   $37,283    $8,073   $37,283

SOURCE: ITT Educational Services, Inc.

CONTACT: Nancy Brown, Director Corporate Relations of ITT Educational
Services, Inc., +1-317-706-9260

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