News Releases

ITT Educational Services, Inc. Reports 2006 Third Quarter Results, Total Student Enrollment Increased 8.6 Percent

PRNewswire-FirstCall
CARMEL, Ind.
Oct 26, 2006

ITT Educational Services, Inc. (NYSE: ESI), a leading for-profit provider of postsecondary degree programs, today reported that total student enrollment increased 8.6 percent to 48,155 as of September 30, 2006 compared to 44,331 as of September 30, 2005. New student enrollment in the third quarter of 2006 increased 6.0 percent to 16,789 compared to 15,845 in the same period of 2005. The enrollment numbers and percentages referenced above in this paragraph exclude international enrollments.

Earnings per share ("EPS") in the third quarter of 2006 increased 5.5 percent to $0.77 compared to $0.73 in the third quarter of 2005. Before the adjustments to the reserve for special legal and other investigation costs, EPS in the third quarter of 2006 would have increased 18.5 percent compared to $0.65 in the third quarter of 2005. The reconciliation to the company's consolidated statements of income for the financial measure in this paragraph that is not under generally accepted accounting principles is provided in the table below and on the company's website at: http://www.ittesi.com/ .

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

Financial and Operating Data For The Three Months Ended September 30th, Unless Otherwise Indicated

       (Dollars in millions, except per share and per student data)

                                                               Increase/
                                    2006         2005          (Decrease)

  Revenue                          $189.7        $176.8            7.3%

  Special Legal and Other
   Investigation Costs                $--         $(6.5)        (100.0)%
  Operating Income                  $51.1         $52.5           (2.6)%
  Operating Income Before Special
   Legal and Other Investigation
   Costs (A)                        $51.1         $46.0           11.2%

  Special Legal and Other
   Investigation Costs as a
   Percentage of Revenue              0.0%         (3.7)%        370 basis
                                                                     points
  Operating Margin                   27.0%         29.7%       (270) basis
                                                                     points
  Operating Margin Before Special
   Legal and Other Investigation
   Costs (A)                         27.0%         26.0%         100 basis
                                                                     points

  Special Legal and Other
   Investigation Costs, Net of Tax    $--         $(3.9)        (100.0)%
  Net Income                        $33.1         $34.4           (4.0)%
  Net Income Before Special Legal
   and Other Investigation Costs,
   Net of Tax (A)                   $33.1         $30.5            8.7%

  Special Legal and Other
   Investigation Costs Per Share
   (diluted), Net of Tax              $--        $(0.08)        (100.0)%
  Earnings Per Share (diluted)      $0.77         $0.73            5.5%
  Earnings Per Share (diluted)
   Before Special Legal and Other
   Investigation Costs Per Share
   (diluted), Net of Tax (A)        $0.77         $0.65           18.5%

  New Student Enrollment (B)       16,789        15,845            6.0%
  Continuing Students (B)          31,366        28,486           10.1%
  Total Student Enrollment as of
   September 30th (B)              48,155        44,331            8.6%
  Quarterly Persistence Rate ©     71.2%         68.8%         240 basis
                                                                     points
  Revenue Per Student (B)          $4,308        $4,268            0.9%
  Cash and Cash Equivalents,
   Restricted Cash and Investments
   as of September 30th            $188.6        $396.5          (52.4)%
  Bad Debt Expense as a Percentage
   of Revenue                         1.1%          1.7%        (60) basis
                                                                     points
  Days Sales Outstanding as of
   September 30th                     5.9 days      9.3 days     (3.4) days
  Deferred Tuition Revenue as of
   September 30th                  $199.7        $152.3            31.1%
  Debt                                $--           $--              --
  Diluted Shares of Common
   Stock  Outstanding          42,703,000    47,257,000            (9.6)%
  Shares of Common Stock
   Repurchased                  1,153,900 (D)         0              --
  Land and Building Purchases        $6.0 (E)      $3.7 (F)        60.1%
  Number of New Colleges in
   Operation                           --             1          (100.0)%
  Number of New Learning Sites
   in Operation                         1             1              --
  Capital Expenditures, Net          $7.6          $4.1            84.8%



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

                                    2006           2005        Increase/
                                                              (Decrease)

  Revenue                          $551.6        $505.7             9.1%

  Special Legal and Other
   Investigation Costs              $(0.4)         $1.2          (135.3)%
  Operating Income                 $118.0        $110.5             6.8%
  Operating Income Before Special
   Legal and Other Investigation
   Costs (A)                       $117.5        $111.7             5.3%

  Special Legal and Other
   Investigation Costs as a
   Percentage of Revenue              0.0%          0.3%       (30) basis
                                                                    points
  Operating Margin                   21.4%         21.8%       (40) basis
                                                                    points
  Operating Margin Before Special
   Legal and Other Investigation
   Costs (A)                         21.4%         22.1%       (70) basis
                                                                    points

  Special Legal and Other
   Investigation Costs, Net of Tax  $(0.3)         $0.7          (135.2)%
  Net Income                        $77.6         $71.8             8.1%
  Net Income Before Special Legal
   and Other Investigation Costs,
   Net of Tax (A)                   $77.4         $72.6             6.6%

  Special Legal and Other
   Investigation Costs Per Share
   (diluted), Net of Tax           $(0.01)        $0.02          (150.0)%
  Earnings Per Share (diluted)      $1.76         $1.52            15.8%
  Earnings Per Share (diluted)
   Before Special Legal and Other
   Investigation Costs Per Share
   (diluted), Net of Tax  (A)       $1.75         $1.54            13.6%

  Revenue Per Student (B)         $12,640       $12,247             3.2%
  Diluted Shares of Common
   Stock Outstanding           44,181,000    47,157,000           (0.63)%
  Shares of Common Stock
   Repurchased                  5,040,100 (G)        --              --
  Land and Building Purchases       $16.8 (H)     $23.5 (I)       (28.8)%
  Number of New Colleges
   in Operation                         3             4           (25.0)%
  Number of New Learning Sites
   in Operation                         4             3            33.3%
  Capital Expenditures, Net         $20.7          $14.1           46.6%


  (A)  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 three and nine month periods ended
          September 30, 2006 with the Operating Income without the Special
          Legal and Other Investigation Costs for the three and nine month
          periods ended September 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 three and
          nine month periods ended September 30, 2006 with the Operating
          Income without the Special Legal and Other Investigation Costs as
          a percentage of Revenue for the three and nine month periods ended
          September 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 three and nine month
          periods ended September 30, 2006 with the Net Income without the
          Special Legal and Other Investigation Costs, Net of Tax for the
          three and nine month periods ended September 30, 2005.  For the
          purpose of calculating this measure, the company used a marginal
          tax rate of 38.5 percent for 2006 and 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 three and nine month
          periods ended September 30, 2006 with the Earnings Per Share
          (diluted) without the Special Legal and Other Investigation Costs
          Per Share (diluted), Net of Tax for the three and nine month
          periods ended September 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.
      (B) Excludes international enrollments.
      © Represents the number of Continuing Students in the quarter,
          divided by the Total Student Enrollment as of the end of the
          immediately preceding quarter.
      (D) For approximately $77.1 million or at an average price of $66.84
          per share.
      (E) Represents costs associated with purchasing, renovating, expanding
          or constructing buildings at 8 of the company's locations.
      (F) Represents costs associated with purchasing, renovating, expanding
          or constructing buildings at 9 of the company's locations.
      (G) For approximately $323.8 million or at an average price of $64.24
          per share.
      (H) Represents costs associated with purchasing, renovating, expanding
          or constructing buildings at 13 of the company's locations.
      (I) Represents costs associated with purchasing, renovating, expanding
          or constructing buildings at 14 of the company's locations.

Rene R. Champagne, Chairman and CEO of ITT/ESI, said, "We effectively executed our operating strategy in the third quarter of 2006, and we are pleased with the resulting performance. We remain optimistic that we can continue producing solid operating results. Strong interest continues to be expressed in our programs of study as we enter the fourth quarter of 2006, and we are beginning to experience positive results in our efforts to improve student persistence."

Kevin M. Modany, President and Chief Operating Officer of ITT/ESI, said, "During the third quarter of 2006, our quarterly persistence rate increased 240 basis points to 71.2 percent compared to 68.8 percent in the same period in 2005. Excluding the estimated impact that Hurricane Katrina had on our quarterly persistence rate in the third quarter of 2005, our quarterly persistence rate in the three months ended September 30, 2006 would have increased 150 basis points year-over-year. We are excited about the improvement in our student persistence, which was due in part to the modifications that we have begun making to our hybrid delivery model. We believe that we can achieve further improvements in our student persistence as those modifications are fully implemented."

Modany continued, "During the third quarter of 2006, our marketing efforts generated a significant increase in inquiries for our programs of study. The increase in lead flow was supported by an 18 percent increase in advertising expenditures, which were primarily directed toward promoting our new locations. The year-over-year increase in advertising expenditures is expected to be a higher percentage in the fourth quarter of 2006 in order to promote the introduction of several new programs of study."

Modany further noted, "During the third quarter of 2006, we obtained the requisite regulatory authorizations to begin offering our new:

  *  associate degree program in Health Information Technology at 20 of
     our colleges;
  *  bachelor degree program in Construction Management at 24 of our
     colleges; and
  *  associate degree program in Information Systems Administration ("ISA")
     online through our college in Indianapolis.

The ISA program is our first technology-focused associate degree program to be offered in an online format. We expect to begin offering all of these new programs at select colleges in the academic quarter that begins in November 2006."

Modany added, "Operations at our 8th learning site in Vista, CA began in the third quarter of 2006. This learning site belongs to the ITT Technical Institute in San Diego, CA. During the first nine months of 2006, we began operations at six new colleges and four new learning sites. We plan to begin operations at one additional learning site in the fourth quarter of 2006. As a result, we will have achieved our internal goal of adding between 10 and 12 new locations in 2006."

Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said, "Our third quarter financial results were strong and in line with our internal expectations. Revenue increased 7.3 percent to $189.7 million in the three months ended September 30, 2006 compared to $176.8 million in the same period in 2005. The increase in revenue was primarily due to increases in student enrollment and tuition rates. The revenue increase was partially offset by a higher percentage of students who were enrolled part-time during the academic quarter that began in June 2006. We continue to generate very good returns on our investments in our various growth initiatives, and we believe that we are on track to achieve our internal financial goals for 2006."

Fitzpatrick continued, "Excluding the reduction in the accrual for special legal and other investigation costs in the third quarter of 2005, operating margin in the three months ended September 30, 2006 increased 100 basis points to 27.0 percent compared to 26.0 percent in the third quarter of 2005. This increase was primarily due to greater operating efficiencies which reduced the cost of educational services. The increase in operating margin was partially offset by the increased costs associated with the acceleration of our geographic and programmatic expansion. During the third quarter of 2006, there were seven more colleges and learning sites within their first two years of operation than in the third quarter of 2005." The reconciliation to the company's consolidated statements of income for the non-GAAP financial measure in this paragraph is provided in the table above and on the company's website at: www.ittesi.com.

Fitzpatrick further noted, "In the three months ended September 30, 2006, we repurchased 1.2 million shares of our common stock at an average purchase price of $66.84 per share or $77.1 million in total. There are 3.2 million shares of our common stock that remain available for repurchase under our current share repurchase program that was authorized by our Board of Directors. Depending on the market conditions, we intend to continue repurchasing our shares throughout the remainder of 2006 and into 2007."

Fitzpatrick said, "Bad debt expense as a percentage of revenue declined to 1.1 percent in the three months ended September 30, 2006 compared to 1.7 percent in the same period in 2005. Days sales outstanding as of September 30, 2006 were 5.9 days, a 3.4 day decrease, compared to 9.3 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
                                        September    December    September
                                         30, 2006    31, 2005    30, 2005
                                       (unaudited)             (unaudited)
  Assets
  Current assets
       Cash and cash equivalents            $4,661     $13,735     $20,066
       Short-term investments              183,464     388,152     374,408
       Accounts receivable, net             12,172      13,989      17,880
       Deferred and prepaid income tax       5,538       7,030       5,449
       Prepaids and other current
        assets                              11,385      14,102      12,104
            Total current assets           217,220     437,008     429,907

  Property and equipment, net              149,751     127,406     123,616
  Direct marketing costs, net               20,560      17,490      16,852
  Investments                                   --       9,538       2,065
  Restricted cash                              523         500          --
  Other assets                              19,211         549         572
       Total assets                       $407,265    $592,491    $573,012

  Liabilities and Shareholders' Equity
  Current liabilities
       Accounts payable                    $53,875     $56,101     $40,074
       Accrued compensation and
        benefits                             9,760      10,344      16,529
       Accrued taxes                        12,761       3,998      13,086
       Other accrued liabilities             5,141       5,242       8,007
       Deferred revenue                    199,741     175,454     152,331
            Total current liabilities      281,278     251,139     230,027

  Deferred income tax                       13,950      15,364      10,300
  Minimum pension liability                  9,899       9,899       9,101
  Other liabilities                          7,687       7,495       7,064
       Total liabilities                   312,814     283,897     256,492

  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                       54,730      68,715      63,832
      Retained earnings                    467,316     389,679     364,366
      Accumulated other comprehensive
       loss                                 (6,016)     (6,016)     (5,532)
      Treasury stock, 12,702,130,
       8,377,780 and 7,754,100
       shares, at cost                    (422,119)   (144,324)   (106,686)
          Total shareholders' equity        94,451     308,594     316,520
          Total liabilities and
           shareholders' equity           $407,265    $592,491    $573,012



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

                                        Three Months        Nine Months
                                    Ended September 30, Ended September 30,
                                        (unaudited)         (unaudited)
                                       2006      2005      2006      2005

  Revenue                            $189,667  $176,764  $551,551  $505,699

  Costs and expenses
  Cost of educational services         84,554    81,407   267,472   243,323
  Student services and
   administrative expenses             53,969    49,347   166,546   150,706
  Special legal and other
   investigation costs                     --    (6,493)     (430)    1,219
       Total costs and expenses       138,523   124,261   433,588   395,248

  Operating income                     51,144    52,503   117,963   110,451

  Interest income, net                  1,740     2,064     6,257     5,983

  Income before provision for income
   taxes                               52,884    54,567   124,220   116,434

  Provision for income taxes           19,832    20,154    46,583    44,592

  Net income                          $33,052   $34,413   $77,637   $71,842

  Earnings per share:
       Basic                            $0.79     $0.74     $1.80     $1.56
       Diluted                          $0.77     $0.73     $1.76     $1.52

  Supplemental Data:
  Cost of educational services          44.6%     46.1%     48.5%     48.1%
  Student services and
   administrative expenses              28.5%     27.9%     30.2%     29.8%
  Special legal and other
   investigation costs                   0.0%     (3.7)%    (0.1)%     0.3%
  Operating margin                      27.0%     29.7%     21.4%     21.8%
  Student enrollment at end of
   period                              48,155    44,331    48,155    44,331
  Technical institutes at end of
   period                                  87        79        87        79
  Shares for earnings per share
   calculation:
       Basic                           41,810    46,292    43,248    46,186
       Diluted                         42,703    47,257    44,181    47,157

  Effective tax rate                    37.5%     36.9%     37.5%     38.3%



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

                                       Three Months         Nine Months
                                   Ended September 30,  Ended September 30,
                                       (unaudited)          (unaudited)
                                      2006      2005      2006       2005
  Cash flows from operating
   activities:
      Net income                     $33,052   $34,413    $77,637   $71,842
      Adjustments to reconcile net
       income to net cash
       from operating
       activities:
             Depreciation and
              amortization             5,115     4,043     15,109    12,781
             Provision for doubtful
              accounts                 2,156     2,931      7,488     8,830
             Deferred income taxes    (1,911)    1,016     (2,769)   (1,404)
             Excess tax benefit
              from stock option
              exercises               (3,302)      852    (10,268)    3,821
             Stock-based
              compensation expense       543        --      2,777        --
             Changes in operating
              assets and
              liabilities:
                 Restricted cash         (23)       --        (23)    8,194
                 Accounts
                  receivable          (4,592)   (7,089)    (5,671)  (16,280)
                 Prepaids and other
                  assets              (1,248)    2,851    (15,945)   (6,279)
                 Direct marketing
                  costs, net            (968)     (355)    (3,070)   (2,139)
                 Accounts payable
                  and accrued
                  liabilities         (7,158)   (5,508)    (2,600)    6,016
                 Income and other
                  taxes               10,085     5,149     21,878      (651)
                 Deferred revenue     25,676    11,985     24,287    (4,461)
  Net cash flows from operating
   activities                         57,425    50,288    108,830    80,270

  Cash flows from investing
   activities:
       Facility expenditures and
        land purchases                (5,951)   (3,718)   (16,764)  (23,534)
       Capital expenditures, net      (7,601)   (4,112)   (20,690)  (14,117)
       Proceeds from sales and
        maturities of investments    397,799   119,441  1,203,920   429,519
       Purchase of investments      (375,309) (180,125)  (989,694) (467,059)
  Net cash flows from investing
   activities                          8,938   (68,514)   176,772   (75,191)

  Cash flows from financing
   activities:
       Excess tax benefit from
        stock option exercises         3,302        --     10,268        --
       Proceeds from stock option
        exercises                      4,049     1,009     18,816     5,598
       Purchase of treasury stock    (77,126)       --   (323,760)       --
  Net cash flows from financing
   activities                        (69,775)    1,009   (294,676)    5,598

  Net change in cash and cash
   equivalents                        (3,412)  (17,217)    (9,074)   10,677

  Cash and cash equivalents at
   beginning of period                 8,073    37,283     13,735     9,389

  Cash and cash equivalents at end
   of period                          $4,661   $20,066     $4,661   $20,066

First Call Analyst:
FCMN Contact:

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/