News Releases

ITT Educational Services, Inc. Reports 2006 Fourth Quarter and Full Year Results, New Student Enrollment Increased 15.6 Percent

PRNewswire-FirstCall
CARMEL, Ind.
Jan 25, 2007

ITT Educational Services, Inc. (NYSE: ESI), a leading provider of technology-oriented postsecondary degree programs, today reported that new student enrollment in the fourth quarter of 2006 increased 15.6 percent to 10,208 compared to 8,828 in the same period of 2005. Total student enrollment increased 9.1 percent to 46,896 as of December 31, 2006, compared to 42,985 as of December 31, 2005. The enrollment numbers and percentages referenced above in this paragraph exclude international enrollments.

Earnings per share ("EPS") in the fourth quarter of 2006 increased 19.8 percent to $0.97 compared to $0.81 in the fourth quarter of 2005. EPS in the company's 2006 fiscal year increased 16.7 percent to $2.72 compared to $2.33 in 2005. Stock-based compensation expense in 2006 reduced the company's full- year EPS by $0.04. The company began expensing its stock-based compensation on January 1, 2006 in accordance with the new accounting requirements.

The company provided the following information for the three and twelve months ended December 31, 2006:

Financial and Operating Data For The Three Months Ended December 31st, Unless

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

                                    2006            2005         Increase/
                                                                (Decrease)

  Revenue                          $206.2          $182.3           13.1%
  Operating Income                  $63.6           $55.0           15.6%
  Operating Margin                   30.8%           30.2%   60 basis points
  Net Income                        $40.9           $37.9            7.9%
  Earnings Per Share (diluted)      $0.97           $0.81           19.8%
  New Student Enrollment (A)       10,208           8,828           15.6%
  Continuing Students (A)          36,688          34,157            7.4%
  Total Student Enrollment as
   of December 31st (A)            46,896          42,985            9.1%
  Quarterly Persistence Rate (B)     76.2%           77.0% (80) basis points
  Revenue Per Student (A)          $4,282          $4,112            4.1%
  Cash and Cash Equivalents,
   Restricted Cash and
   Investments as of
   December 31st                   $357.4          $411.9          (13.2)%
  Bad Debt Expense as a
   Percentage of Revenue              1.6%            1.0%   60 basis points
  Days Sales Outstanding as of
   December 31st                      4.2             7.1         (2.9) days
  Deferred Tuition Revenue
   as of December 31st             $202.2          $175.5           15.2%
  Debt                             $150.0              $0             --
  Diluted Shares of Common
   Stock Outstanding           42,025,000      46,977,000             --
  Shares of Common Stock
   Repurchased                    566,500 ©     928,600 (D)         --
  Land and Building Purchases        $2.2 (E)        $1.6 (F)       34.4%
  Number of New Colleges in
   Operation                            0               2             --
  Number of New Learning Sites
   in Operation                         1            --               --
  Capital Expenditures, Net          $3.0            $7.2          (58.1)%
  Depreciation and Amortization      $6.5            $5.0           29.7%



     Financial and Operating Data For Fiscal Year Ended December 31st
               (Dollars in millions, except per share data)

                                    2006            2005         Increase/
                                                                (Decrease)

  Revenue                          $757.8         $688.0         10.1%

  Special Legal and Other
   Investigation Costs              ($0.4)          $1.2       (135.3)%
  Operating Income                 $181.5         $165.4          9.7%
  Operating Income Before
   Special Legal and Other
   Investigation Costs (G)         $181.1         $166.6          8.7%

  Special Legal and Other
   Investigation Costs as a
   Percentage of Revenue              0.0%           0.2%  (20) basis points
  Operating Margin                   24.0%          24.0%          --
  Operating Margin Before
   Special Legal and Other
   Investigation Costs (G)           24.0%          24.2%  (20) basis points

  Special Legal and Other
   Investigation Costs,
   Net of Tax                       ($0.3)          $0.8       (135.2)%
  Net Income                       $118.5         $109.7          8.0%
  Net Income Before Special
   Legal and Other
   Investigation Costs, Net
   of Tax (G)                      $118.2         $110.5          7.0%

  Special Legal and Other
   Investigation Costs Per
   Share (diluted), Net of Tax     ($0.01)         $0.01       (200.0)%
  Earnings Per Share (diluted)      $2.72          $2.33         16.7%
  Earnings Per Share (diluted)
   Before Special Legal and Other
   Investigation Costs Per Share
   (diluted), Net of Tax (G)        $2.71          $2.34         15.8%

  New Student Enrollment (A)       49,935         45,073         10.8%
  Revenue Per Student (A)         $16,922        $16,359          3.4%
  Bad Debt Expense as a
   Percentage of Revenue              1.4%           1.6%  (20) basis points
  Diluted Shares of Common
   Stock Outstanding           43,629,000     47,112,000           --
  Shares of Common Stock
   Repurchased                  5,606,600 (H)    928,600 (I)       --
  Land and Building Purchases       $18.9 (J)      $25.1 (K)    (24.7%)
  Number of New Colleges
   in Operation                         6              4           --
  Number of New Learning Sites
   in Operation                         5              3 --
  Capital Expenditures, Net         $23.7          $21.3         11.3%
  Depreciation and Amortization     $21.6          $17.8         21.3%


  (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 $39.2 million or at an average price of $69.22 per
       share.
  (D)  For approximately $55.6 million or at an average price of $59.88 per
       share.
  (E)  Represents the purchase of one parcel of real estate on which the
       company intends to build a facility for one of the company's
       colleges, and costs associated with purchasing, renovating, expanding
       or constructing buildings at four of the company's locations.
  (F)  Represents the purchase of one parcel of real estate on which the
       company intends to build a facility for one of the company's
       colleges, and costs associated with purchasing, renovating, expanding
       or constructing buildings at five of the company's locations.
  (G)  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 ("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 2006 fiscal year with the
             Operating Income without the Special Legal and Other
             Investigation Costs for the 2005 fiscal year.  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
             2006 fiscal year with the Operating Income without the Special
             Legal and Other Investigation Costs as a percentage of Revenue
             for the 2005 fiscal year.  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 2006
             fiscal year with the Net Income without the Special Legal and
             Other Investigation Costs, Net of Tax for the 2005 fiscal year.
             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 2006 fiscal year with the Earnings Per Share
              (diluted) without the Special Legal and Other Investigation
             Costs Per Share (diluted), Net of Tax for the 2005 fiscal year.
             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.

  (H)  For approximately $363.0 million or at an average price of $64.74 per
       share.
  (I)  For approximately $55.6 million or at an average price of $59.88 per
       share.
  (J)  Represents the purchase of one parcel of real estate on which the
       company intends to build facilities for one of the company's
       colleges, and costs associated with purchasing, renovating, expanding
       or constructing buildings at 11 of the company's locations.
  (K)  Represents the purchase of three parcels of real estate on which the
       company intends to build facilities for three of the company's
       colleges, and costs associated with purchasing, renovating, expanding
       or constructing buildings at ten of the company's locations.

Rene R. Champagne, Chairman and CEO of ITT/ESI, said, "We are very pleased with our results for the fourth quarter and full year of 2006. Our growth initiatives continued to help us produce strong increases in new and total student enrollment, and our disciplined approach to managing the business delivered attractive financial results once again. As we enter 2007, we believe that the company is well positioned to continue its attractive historical operating and financial performance."

Kevin M. Modany, President and Chief Operating Officer of ITT/ESI, said, "The number of inquiries for our programs of study was strong in the fourth quarter of 2006 and that strength has continued into the new year. Our advertising expenditures during the fourth quarter increased 17 percent over the same period during the prior year. This increase was primarily used to support our new locations and program offerings. We expect that advertising expenditures in 2007 will increase approximately 20 percent year-over-year in order to support our continuing geographic and programmatic expansion efforts."

Modany continued, "We are very pleased with our efforts to train and help prepare our new recruiting representatives who we are hiring to respond to an increased number of student inquiries for our programs of study. We began 2007 with approximately 20 percent more recruiters than we had at the start of 2006. As a result, we believe that we are well positioned to service what we anticipate will be a higher number of inquiries for our programs of study in 2007."

Modany said, "In the fourth quarter of 2006, 12 of our colleges commenced one or more classes of students in one or both of our new degree programs in Health Information Technology and Construction Management. We plan to begin offering these new programs at additional ITT Technical Institutes throughout 2007, pending receipt of the requisite regulatory authorizations. During the fourth quarter, we continued to research and develop additional program offerings in both technology and non-technology subjects that can be delivered both online and in residence. We hope to be in a position to begin offering one or more of these new programs in 2007."

Modany stated, "Our geographic expansion goals include beginning operations at between six to eight new locations in 2007, subject to obtaining the requisite regulatory authorizations in a timely manner. This compares to the 11 new locations that we began operating in 2006 and the seven new locations that we began operating in 2005."

Modany summarized, "We are optimistic that our planned growth initiatives can help us realize student enrollment increases that are similar to our historical compound annual growth rate in this area and, in turn, produce attractive financial results in 2007."

Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said, "We are extremely pleased with our financial performance in both the fourth quarter and full year of 2006. Revenue increased 13.1 percent to $206.2 million in the fourth quarter of 2006 compared to $182.3 million in the fourth quarter of 2005. Revenue increased 10.1 percent to $757.8 million in 2006 compared to $688.0 million in 2005. Operating margin was 30.8 percent in the fourth quarter of 2006 compared to 30.2 percent in the fourth quarter of 2005. This 60 basis point increase was primarily due to improved operating efficiencies in our college operations and greater leveraging of our fixed operating costs. The Operating Margin increase in the fourth quarter was partially offset by increased costs associated with the acceleration of our geographic and programmatic expansion in 2006. Operating Margin was 24.0 percent in both 2006 and 2005. Our effective tax rate was approximately 37.5 percent in 2006. "

Fitzpatrick said, "Bad debt as a percentage of revenue increased to 1.6 percent in the three months ended December 31, 2006 compared to 1.0 percent in the same period of 2005. We anticipate that our bad debt expense in 2007 will be in our historical range of one to three percent of revenue. Days sales outstanding as of December 31, 2006 were 4.2 days, a 2.9 day decrease compared to 7.1 days as of the same point in 2005. Our return on equity in 2006 was 57.5 percent compared to 40.4 percent in 2005."

Fitzpatrick continued, "Our cash and cash equivalents, restricted cash and investments as of December 31, 2006 were $357.4 million compared to $411.9 million as of December 31, 2005. In the fourth quarter, we repurchased 0.6 million shares of our common stock at an average purchase price of $69.22 per share or $39.2 million in total. In the twelve months ended December 31, 2006, we purchased 5.6 million shares of our common stock at an average purchase price of $64.74 per share or $363.0 million in total. There are 2.7 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 in 2007."

Fitzpatrick noted, "During the fourth quarter of 2006, we entered into a Credit Agreement that provides us with a reducing revolving line of credit of up to $150 million that matures on October 1, 2009. We borrowed $150.0 million upon closing to allow us to continue repurchasing shares of our common stock while maintaining compliance with certain financial ratios required by the federal and state education authorities and our accrediting agency."

Fitzpatrick reported, "In 2006, we recorded $3.1 million of stock-based compensation expense, which reduced our full year EPS by $0.04 per share. We estimate that stock-based compensation expense in 2007 will reduce our 2007 EPS by approximately $0.10. After taking into account the effect of stock- based compensation expense, our internal goal for 2007 EPS is in the range of $3.17 to $3.21."

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 the 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 U.S. 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 BALANCE SHEETS
              (Dollars in thousands, except per share data)

                                                        As of
                                         December 31, 2006 December 31, 2005
                                              (unaudited)
  Assets
  Current assets
       Cash and cash equivalents                $161,905           $13,735
       Short-term investments                    195,007           388,152
       Accounts receivable, less
        allowance for doubtful accounts
        of $2,181 and $1,118                       9,367            13,989
       Deferred income taxes                       4,771             4,190
       Prepaids and other current
        assets                                     9,902            16,942
            Total current assets                 380,952           437,008

  Property and equipment, net                    148,411           127,406
  Direct marketing costs, net                     21,628            17,490
  Investments                                         --             9,538
  Prepaid pension obligation                       8,277                --
  Restricted cash                                    527               500
  Other assets                                       525               549
       Total assets                             $560,320          $592,491

  Liabilities and Shareholders' Equity
  Current liabilities
       Accounts payable                          $47,948           $56,101
       Accrued compensation and
        benefits                                  13,899            10,344
       Accrued income taxes                       11,003                --
       Accrued other taxes                         3,242             3,998
       Other accrued liabilities                   6,251             5,242
       Deferred revenue                          202,162           175,454
            Total current liabilities            284,505           251,139

  Long-term debt                                 150,000                --
  Deferred income taxes                           13,713            15,364
  Minimum pension liability                           --             9,899
  Other liabilities                                8,157             7,495
       Total liabilities                         456,375           283,897

  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            541               541
      Capital surplus                             46,982            68,714
      Retained earnings                          508,195           389,679
      Accumulated other comprehensive
       loss                                       (6,533)           (6,016)
      Treasury stock, 13,029,471 and
       8,377,780 shares, at cost                (445,240)         (144,324)
          Total shareholders' equity             103,945           308,594
          Total liabilities and
           shareholders' equity                 $560,320          $592,491



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

                                     Three Months         Twelve Months
                                  Ended December 31,    Ended December 31,
                                (unaudited)           (unaudited)
                                   2006       2005       2006       2005

  Revenue                         $206,213   $182,304   $757,764   $688,003

  Costs and expenses:
    Cost of educational services    89,379     85,020    356,851    328,343
    Student services and
     administrative expenses        53,274     42,297    219,820    193,003
    Special legal and other
     investigation costs                --         --       (430)     1,219
      Total costs and expenses     142,653    127,317    576,241    522,565

  Operating income                  63,560     54,987    181,523    165,438

    Interest income, net             1,847      2,870      8,104      8,853

    Income before provision for
     income taxes                   65,407     57,857    189,627    174,291

    Provision for income taxes      24,528     19,987     71,111     64,579

  Net income                       $40,879    $37,870   $118,516   $109,712

  Earnings per share:
       Basic                         $0.99      $0.82      $2.77      $2.38
       Diluted                       $0.97      $0.81      $2.72      $2.33

  Supplemental Data:
  Cost of educational services        43.3%      46.6%      47.1%      47.7%
  Student services and
   administrative expenses            25.8%      23.2%      29.0%      28.1%
  Special legal and other
   investigation costs                 0.0%       0.0%      (0.1%)      0.2%
  Operating margin                    30.8%      30.2%      24.0%      24.0%
  Student enrollment at end of
   period                           46,896     42,985     46,896     42,985
  Technical institutes at end of
   period                               87         81         87         81
  Shares for earnings per share
   calculation:
       Basic                        41,196     45,994     42,722     46,138
       Diluted                      42,025     46,977     43,629     47,112


  Effective tax rate                  37.5%      34.5%      37.5%      37.1%



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

                                      Three Months        Twelve Months
                                   Ended December 31,   Ended December 31,
                                 (unaudited)          (unaudited)
                                     2006      2005       2006       2005
  Cash flows from operating
   activities:
      Net income                    $40,879   $37,870    $118,516  $109,712
      Adjustments to reconcile net
       income to net cash from
       operating activities:
          Depreciation and
           amortization               6,532     5,038      21,641    17,819
          Provision for doubtful
           accounts                   3,374     1,849      10,862    10,679
          Deferred income taxes         863     6,636      (1,906)    5,232
          Excess tax benefit from
           stock option exercises    (4,021)    4,883     (14,289)    8,704
          Stock-based compensation
           expense                      290        --       3,067        --
          Changes in operating
           assets and liabilities:
              Restricted cash            (4)     (500)        (27)    7,694
              Accounts receivable      (569)    2,042      (6,240)  (14,238)
              Prepaid expenses and
               other assets          11,892    (1,975)     (4,053)   (8,254)
              Direct marketing
               costs, net            (1,068)     (638)     (4,138)   (2,777)
              Accounts payable and
               accrued liabilities  (11,067)    7,510     (13,667)   13,526
              Income and other
               taxes                  5,505   (11,929)     27,383   (12,580)
              Deferred revenue        2,421    23,123      26,708    18,662
  Net cash flows from operating
   activities                        55,027    73,909     163,857   154,179

  Cash flows from investing
   activities:
       Facility expenditures and
        land purchases               (2,165)   (1,611)    (18,929)  (25,145)
       Capital expenditures, net     (3,027)   (7,217)    (23,717)  (21,334)
       Proceeds from sales and
        maturities of investments   433,402   260,506   1,637,322   690,025
       Purchase of investments     (444,945) (281,723) (1,434,639) (748,782)
  Net cash flows from investing
   activities                       (16,735)  (30,045)    160,037  (105,236)

  Cash flows from financing
   activities:
       Proceeds from revolving
        borrowings                  150,000        --     150,000        --
       Excess tax benefit from
        stock option exercises        4,021        --      14,289        --
       Proceeds from exercise of
        stock options                 4,144     5,410      22,960    11,008
       Repurchase of common shares  (39,213)  (55,605)   (362,973)  (55,605)
  Net cash flows from financing
   activities                       118,952   (50,195)   (175,724)  (44,597)

  Net change in cash and cash
   equivalents                      157,244    (6,331)    148,170     4,346

  Cash and cash equivalents at
   beginning of period                4,661    20,066      13,735     9,389

  Cash and cash equivalents at end
   of period                       $161,905   $13,735    $161,905   $13,735

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/


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