News Releases

ITT Educational Services, Inc. Reports 2008 Fourth Quarter and Full Year Results

New Student Enrollment Increased 29.2%; EPS Increased 34.2% to $1.61

PRNewswire-FirstCall
CARMEL, Ind.
Jan 22, 2009

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 2008 increased 29.2% to 14,911 students compared to 11,542 in the same period in 2007. Total student enrollment increased 16.9% to 61,983 as of December 31, 2008 compared to 53,027 as of December 31, 2007.

Earnings per share ("EPS") in the fourth quarter of 2008 increased 34.2% to $1.61 compared to $1.20 in the fourth quarter of 2007. Revenue in the three months ended December 31, 2008 increased 21.4% to $279.8 million compared to $230.4 million in the three months ended December 31, 2007. Operating margin increased 290 basis points to 36.5% in the fourth quarter of 2008 compared to 33.6% in the same period in 2007.

The company provided the following information for the three and 12 months ended December 31, 2008 and 2007:

      Financial and Operating Data For The Three Months Ended December
                      31st, Unless Otherwise Indicated
        (Dollars in millions, except per share and per student data)

                                                                Increase/
                                     2008          2007        (Decrease)

  Revenue                           $279.8        $230.4          21.4%
  Operating Income                  $102.1         $77.3          32.0%
  Operating Margin                   36.5%         33.6%    290 basis points
  Net Income                         $63.0         $48.5          30.0%
  Earnings Per Share (diluted)       $1.61         $1.20          34.2%
  New Student Enrollment            14,911        11,542          29.2%
  Continuing Students               47,072        41,485          13.5%
  Total Student Enrollment as       61,983        53,027          16.9%
   of December 31st
  Quarterly Persistence Rate (A)     76.5%         77.3%   (80) basis points
  Revenue Per Student               $4,545        $4,293           5.9%
  Cash and Cash Equivalents,
   Restricted Cash and Investments
   as of December 31st              $375.9        $317.2          18.5%
  Bad Debt Expense as a Percentage
   of Revenue                         4.9%          2.1%    280 basis points
  Days Sales Outstanding as of
   December 31st                  9.8 days      6.0 days       3.8 days
  Deferred Revenue as of
   December 31st                    $162.2        $213.1        (23.9)%
  Debt as of December 31st          $150.0        $150.0
  Weighted Average Diluted
   Shares of Common Stock
   Outstanding                  39,100,000    40,278,000
  Shares of Common Stock
   Repurchased                          --       300,300 (B)
  Land and Building Purchases         $1.0 (C )     $1.1 (D)    (12.7)%
  Number of New Colleges in Operation    2             2
  Number of New Learning Sites
   in Operation                         --            --
  Capital Expenditures, Net           $5.4          $4.2          28.9%



      Financial and Operating Data For The 12 Months Ended December 31st
         (Dollars in millions, except per share and per student data)

                                                                Increase/
                                     2008            2007       (Decrease)

  Revenue                          $1,015.3         $869.5         16.8%
  Operating Income                   $327.9         $242.0         35.5%
  Operating Margin                    32.3%          27.8%  450 basis points
  Net Income                         $203.0         $151.6         33.9%
  Earnings Per Share (diluted)        $5.17          $3.71         39.4%
  Bad Debt Expense as a
   Percentage of Revenue               4.3%           2.1%  220 basis points
  Revenue Per Student               $18,162        $17,508          3.7%
  Weighted Average Diluted
   Shares of Common Stock
   Outstanding                   39,243,000     40,883,000
  Shares of Common Stock
   Repurchased                    1,049,700 (E)  2,659,300 (F)
  Land and Building Purchases         $18.1 (G)      $12.6 (H)     43.7%
  Number of New Colleges in Operation     8             10
  Number of New Learning Sites
   in Operation                          --             --
  Capital Expenditures, Net           $17.5          $15.5         13.1%


(A) Represents the number of Continuing Students in the academic quarter, divided by the Total Student Enrollment in the immediately preceding academic quarter.

(B) For approximately $36.9 million or at an average price of $122.93 per share.

(C ) Represents costs associated with purchasing, renovating, expanding or constructing buildings at 10 of the company's locations.

(D) Represents costs associated with purchasing, renovating, expanding or constructing buildings at 11 of the company's locations.

(E) For approximately $87.8 million or at an average price of $83.62 per share.

(F) For approximately $265.0 million or at an average price of $99.65 per share.

(G) Represents costs associated with purchasing one parcel of real estate on which the company built a facility for one of the company's colleges, and costs associated with purchasing, renovating, expanding or constructing buildings at 19 of the company's locations.

(H) Represents costs associated with purchasing one parcel of real estate on which the company built a facility for one of the company's colleges, and costs associated with purchasing, renovating, expanding or constructing buildings at 17 of the company's locations.

Kevin M. Modany, Chairman, CEO and President of ITT/ESI, said, "We would like to congratulate the approximately 8,000 faculty, management and staff at the 114 ITT Technical Institute locations across the nation for another outstanding year of contributions toward the continuing success of our organization and the students that we serve. More importantly, we would like to thank our dedicated employees for assisting our students in developing knowledge and skills for the 21st century workforce. As we entered 2009, demand for our programs of study remained incredibly strong as prospective students recognized the importance of learning new skills and enhancing their existing competencies through a high-quality postsecondary education in order to improve their career prospects."

Modany continued, "As a result of our terrific performance in the fourth quarter and optimistic outlook regarding the operating environment in 2009, we have set our internal goal for 2009 EPS in the range of $6.25 to $6.45."

Modany observed, "During the three months ended December 31, 2008, marketing expenditures increased 5% compared to the same period in the prior year, which was below our original estimated increase of between 10% and 15%. We continued to experience a very favorable advertising market as we entered the new year, which we believe was principally due to the significant overall decline in the demand for advertising in our primary media as a result of the current economic environment. Looking forward into 2009, we believe that the percentage increase in our marketing costs over those in 2008 will be approximately 10%. The number of our recruitment representatives as we began 2009 was approximately 15% more than at the beginning of 2008. As a result, we believe that we are very well positioned to service a far greater number of inquiries for our program offerings in 2009."

Modany noted, "During the fourth quarter of 2008, we began operations at our 104th college in Springfield, MO and 105th college in Huntington, WV, bringing to eight the total number of new colleges that we opened in 2008. Our goal in 2009 is to open between six to eight new locations."

Modany added, "In 2008, we added a total of 190 new degree programs throughout our network of 105 colleges and nine learning sites compared to 246 programs in 2007 and 142 programs in 2006. We have several new degree programs in various stages of research and development. During 2009, we plan to continue this important part of our growth strategy by offering a number of new technology and non-technology programs of study at the associate and bachelor degree levels that are taught both online and in residence. Our goal in 2009 is to add approximately 250 new programs across our network."

Modany commented, "Student persistence declined 80 basis points in the fourth quarter of 2008 to 76.5% compared to 77.3% in the fourth quarter of 2007, primarily due to a sizable increase in the number of graduates in the three months ended December 31, 2008 compared to the same period in 2007. Excluding the increase in the number of graduates, student persistence improved in the fourth quarter of 2008 as a result of higher student retention. We believe that student persistence will remain relatively flat in 2009 compared to 2008, excluding the impact of a year-over-year increase in the number of graduates during 2009 that we expect to occur."

Modany said, "We did not observe any further disruption in the ability of our students to access federal or private student financing during the fourth quarter of 2008. In addition, we do not expect any additional disruption in this area during 2009 that could have a significant adverse impact on the ability of our students to access the financing they need to pay the cost of their ITT Technical Institute educations."

Modany concluded, "We are entering the new year excited about our opportunity to build long-term shareholder value by continuing to execute on our proven growth strategy, and we believe that we are extremely well positioned to achieve our internal operating and financial goals for fiscal 2009."

Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said, "The outstanding results for the fourth quarter and full year of 2008 once again exceeded our internal expectations and put us in a very good position to start the new year. Revenue increased an impressive 21.4% to $279.8 million in the three months ended December 31, 2008 compared to $230.4 million in the same period in 2007. This increase was due primarily to robust new student enrollment and higher student retention. The combined increases in new student enrollment and student retention led to an impressive 16.9% year-over-year increase in total student enrollment. Operating margin in the fourth quarter of 2008 increased 290 basis points to 36.5% compared to 33.6% in the fourth quarter of 2007, due to our ability to leverage fixed operating costs on a total student enrollment that was substantially higher as of December 31, 2008 compared to December 31, 2007."

Fitzpatrick continued, "Bad debt expense as a percentage of revenue increased 280 basis points to 4.9% in the three months ended December 31, 2008 compared to 2.1% in the same period in 2007. Days sales outstanding as of December 31, 2008 were 9.8 days, a 3.8 day increase compared to 6.0 days at the same point in 2007."

Fitzpatrick added, "Based on the information that we have obtained to date regarding the current underwriting standards used by the lenders that offer private education loans to our students, we believe that the amount of internally funded student financing that we may need to provide to our students in 2009 will be approximately $75 million. As a result, we believe that days sales outstanding in 2009 will range from 15 to 20 days and bad debt expense as a percentage of revenue in 2009 will be in the range of 4% to 6%."

Fitzpatrick further noted, "In the three months ended December 31, 2008, we did not repurchase any shares of our common stock. There are approximately 4.0 million shares of our common stock remaining to be repurchased under our current share repurchase program. Depending on market conditions, we intend to repurchase additional shares of our common stock during 2009. Cash and cash equivalents, restricted cash and investments as of December 31, 2008 increased 18.5% to $375.9 million compared to $317.2 million as of December 31, 2007, primarily due to the solid increase in cash flows from operating activities in the fourth quarter of 2008 compared to the same period in 2007."

Fitzpatrick closed by noting, "The financial condition and fundamentals of the company are incredibly strong, and we entered the new year with a great deal of optimism for a very favorable operating environment in 2009. We believe that we are well positioned to execute on our established growth plan with the goal of increasing shareholder value over the long-term."

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 on 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 education loans; the company's ability to collect internally funded financing from its students; 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
                (Dollars in thousands, except per share data)

                                                       As of
                                       December 31, 2008   December 31, 2007
                                          (unaudited)
  Assets
  Current assets:
       Cash and cash equivalents               $226,255           $7,228
       Short-term investments                   138,709          303,360
       Restricted cash                           10,405            6,061
       Accounts receivable, net                  29,779           15,132
       Deferred income taxes                     12,104            7,418
       Prepaid expenses and other current assets 13,793           10,624
            Total current assets                431,045          349,823

  Property and equipment, net                   166,671          153,265
  Direct marketing costs, net                    22,973           20,567
  Other assets                                    3,170           17,298
       Total assets                            $623,859         $540,953

  Liabilities and Shareholders' Equity
  Current liabilities:
       Accounts payable                          54,815           45,120
       Accrued compensation and benefits         21,133           16,137
       Accrued income taxes                      14,976            6,028
       Other accrued liabilities                 11,423           11,512
       Deferred revenue                         162,206          213,127
            Total current liabilities           264,553          291,924

  Long-term debt                                150,000          150,000
  Deferred income taxes                           1,504           11,754
  Other liabilities                              19,951           16,717
       Total liabilities                        436,008          470,395

  Shareholders' equity:
       Preferred stock, $.01 par value,
        5,000,000 shares authorized, none issued     --               --
      Common stock, $.01 par value,
       300,000,000 shares authorized,
       54,068,904 issued                            541              541
      Capital surplus                           135,655          127,017
      Retained earnings                         732,107          531,363
      Accumulated other comprehensive (loss)    (13,384)          (3,417)
      Treasury stock, 15,352,376 and 14,375,582
       shares, at cost                         (667,068)        (584,946)
          Total shareholders' equity            187,851           70,558
          Total liabilities and
           shareholders' equity                $623,859         $540,953



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

                                  Three Months           Twelve Months
                               Ended December 31,      Ended December 31,
                                2008        2007        2008        2007
                                  (unaudited)       (unaudited)

  Revenue                      $279,799    $230,424  $1,015,333    $869,508

  Costs and expenses:
    Cost of educational
     services                   101,550      88,428     383,769     358,601
    Student services and
     administrative expenses     76,157      64,666     303,693     268,876
       Total costs and expenses 177,707     153,094     687,462     627,477

  Operating income              102,092      77,330     327,871     242,031
    Interest income               1,730       2,566       6,505      10,747
    Interest (expense)           (1,023)     (1,988)     (4,611)     (8,292)
    Income before provision
     for income taxes           102,799      77,908     329,765     244,486
    Provision for income taxes   39,776      29,439     126,793      92,894

  Net income                    $63,023     $48,469    $202,972    $151,592

  Earnings per share:
    Basic                         $1.63       $1.22       $5.22       $3.77
    Diluted                       $1.61       $1.20       $5.17       $3.71

  Supplemental Data:
  Cost of educational services    36.3%       38.3%       37.8%       41.3%
  Student services and
   administrative expenses        27.2%       28.1%       29.9%       30.9%
  Operating margin                36.5%       33.6%       32.3%       27.8%
  Student enrollment at end
   of period                     61,983      53,027      61,983      53,027
  Technical institutes at
   end of period                    105          97         105          97
  Shares for earnings per
   share calculation:
    Basic                    38,712,000  39,765,000  38,881,000  40,268,000
    Diluted                  39,100,000  40,278,000  39,243,000  40,883,000

  Effective tax rate              38.7%       37.8%       38.4%       38.0%



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

                                     Three Months         Twelve Months
                                  Ended December 31,   Ended December 31,
                                    2008      2007      2008        2007
                                     (unaudited)     (unaudited)
  Cash flows from operating activities:
    Net income                   $63,023    $48,469   $202,972    $151,592
    Adjustments to reconcile net
     income to net cash flows
     from operating activities:
      Depreciation
       and amortization            5,895      5,479     22,230      23,249
      Provision for doubtful
       accounts                   13,829      4,764     43,286      18,599
      Deferred income taxes       (1,199)       653     (8,450)     (6,737)
      Excess tax benefit from
       stock option exercises       (385)    (7,926)    (1,158)    (37,480)
      Stock-based compensation
       expense                     1,504      1,033      7,235       5,100
      Pension settlement and
       amortization of prior
       service costs               1,554         --      1,554          --
      Changes in operating assets
       and liabilities:
        Restricted cash          (10,389)    (5,432)    (4,350)     (6,087)
        Accounts receivable      (10,299)    (3,545)   (57,933)    (24,364)
        Direct marketing
         costs, net                 (279)       628     (2,406)      1,061
        Accounts payable          (3,966)   (12,538)     9,695      (2,828)
        Accrued income taxes      13,630     14,349     10,163      37,969
        Other operating assets
         and liabilities         (10,171)       (73)     1,042       7,252
        Deferred revenue          20,162     20,454    (50,921)     10,965
  Net cash flows from operating
   activities                     82,909     66,315    172,959     178,291

  Cash flows from investing activities:
    Facility expenditures and
     land purchases                 (986)    (1,129)   (18,093)    (12,589)
    Capital expenditures, net     (5,440)    (4,221)   (17,543)    (15,514)
    Proceeds from sales and
     maturities of investments   120,994    338,375  1,085,559   1,963,447
    Purchase of investments     (109,275)  (379,975)  (920,480) (2,071,800)
  Net cash flows from investing
   activities                      5,293    (46,950)   129,443    (136,456)

  Cash flows from financing activities:
    Excess tax benefit from stock
     option exercises                385      7,926      1,158      37,480
    Proceeds from exercise of
     stock options                   970      6,530      3,241      31,002
    Repurchase of common stock         -    (36,915)   (87,774)   (264,994)
  Net cash flows from financing
   activities                      1,355    (22,459)   (83,375)   (196,512)

  Net change in cash and cash
   equivalents                    89,557     (3,094)   219,027    (154,677)

  Cash and cash equivalents at
   beginning of period           136,698     10,322      7,228     161,905

  Cash and cash equivalents at
   end of period                $226,255     $7,228   $226,255      $7,228

First Call Analyst:
FCMN Contact:

SOURCE: ITT Educational Services, Inc.

CONTACT: Denise Hooker, ITT Educational Services, Inc., +1-317-706-9205

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


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