News Releases

ITT Educational Services, Inc. to Restate Its Consolidated Statements of Cash Flows to Reposition Restricted Cash and the Tax Benefit From Stock Option Exercises

PRNewswire-FirstCall
CARMEL, Ind.
Jan 30, 2006

ITT Educational Services, Inc. (NYSE: ESI), a leading provider of technology-oriented postsecondary degree programs, today announced that it will restate its Consolidated Statements of Cash Flows contained in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and in its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, June 30 and September 30 of 2005. The restatement will correct errors in how the company reported restricted cash and where the company reported the tax benefit from stock option exercises on its Consolidated Statements of Cash Flows. The restatement will not affect any of the Company's previously issued Consolidated Balance Sheets, Consolidated Statements of Income or Consolidated Statements of Shareholders' Equity.

In prior periods, the company reported restricted cash with cash and cash equivalents in the beginning and ending balances reconciled on its Consolidated Statements of Cash Flow. In the restatement, the company will report restricted cash under a separate caption in the Cash flows from operating activities section on its Consolidated Statements of Cash Flows. The effect of the change in how the company reports restricted cash on its Consolidated Statements of Cash Flows is shown in the restated Consolidated Statements of Cash Flows attached to this release. The change in how the company reports restricted cash on its Consolidated Statements of Cash Flows has no effect on: (a) any of the Company's previously issued Consolidated Balance Sheets, Consolidated Statements of Income or Consolidated Statements of Shareholders' Equity; or (b) the company's free cash flow in any prior periods. The company's previously issued financial statements reported restricted cash under a separate caption in the Current assets section on its Consolidated Balance Sheets, which is not being changed as part of the restatement. The reconciliation of free cash flow, which is not a measurement under generally accepted accounting principles, to the company's Consolidated Statements of Cash Flows is provided on the table attached to this release.

In prior periods, the company reported the amount of tax benefit from stock option exercises under the Exercise of stock options caption in the Cash flows from financing activities section on its Consolidated Statements of Cash Flows. In the restatement, the company will report the tax benefit from stock option exercises under a new Tax benefit of stock options exercised caption in the Cash flows from operating activities section on its Consolidated Statements of Cash Flows. The effect of the change in where the tax benefit from stock option exercises is reported on the company's interim and annual Consolidated Statements of Cash Flows is shown in the restated Consolidated Statements of Cash Flows attached to this release. The change in where the company reports the tax benefit from stock option exercises on its Consolidated Statements of Cash Flows has no effect on: (a) any of the Company's previously issued Consolidated Balance Sheets, Consolidated Statements of Income or Consolidated Statements of Shareholders' Equity; (b) the company's free cash flow in any prior period; or (c) the amount of cash

and cash equivalents at the end of the period that is reported on any of the company's previously issued Consolidated Statements of Cash Flows.

The company's restated results are subject to the completion of audit procedures by PricewaterhouseCoopers LLP, the company's independent registered public accounting firm.

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; effects of any change in ownership of the company resulting in a change in control of the company, including, but not limited to, the consequences of such changes on the accreditation and federal and state regulation of the institutes; the company's ability to implement its growth strategies; receptivity of students and employers to the company's existing program offerings and new curricula; loss of access by the company's students to lenders for student loans; the results of the shareholder derivative lawsuits filed against the company which, if adversely determined, could have a material adverse affect on the company's financial condition and results of operations; 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.

  FOR FURTHER INFORMATION:
  WEB SITE:
  http://www.ittesi.com/


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

                                                    RESTATED
                                                   (UNAUDITED)
                                   For the Three For the Six  For the Nine
                                   Months Ended  Months Ended Months Ended
                                     March 31,     June 30,   September 30,
                                       2005          2005         2005
  Cash flows from operating activities:
      Net income                       $15,028     $37,429     $71,842
      Adjustments to reconcile net
       income to net cash from
       operating activities:
         Depreciation and
          amortization                   4,296       8,738      12,781
         Provision for doubtful
          accounts                       2,871       5,899       8,830
         Deferred income taxes          (3,604)     (2,420)     (1,404)
         Tax benefit of stock
          options exercised              2,005       2,969       3,821
         Changes in operating
          assets and liabilities:                        -           -
            Restricted cash              8,194       8,194       8,194
            Short-term investments           -           -           -
            Accounts receivable         (5,226)     (9,191)    (16,280)
            Prepaids and other
             assets                     (9,482)     (9,130)     (6,279)
            Direct marketing costs,
             net                          (896)     (1,784)     (2,139)
            Accounts payable and
             accrued liabilities         5,666       5,724       5,365
            Deferred revenue            (6,129)    (16,446)     (4,461)
  Net cash flows from operating
   activities                           12,723      29,982      80,270

  Cash flows from investing activities:
       Facility expenditures and land
        purchases                       (9,584)    (19,816)    (23,534)
       Capital expenditures, net        (3,146)    (10,005)    (14,117)
       Proceeds from sales and
        maturities of investments      193,747     310,078     429,519
       Purchase of investments        (180,559)   (286,934)   (467,059)
  Net cash flows from investing
   activities                              458      (6,677)    (75,191)

  Cash flows from financing activities:
       Purchase of treasury stock            -           -           -
       Exercise of stock options         3,005       4,589       5,598
  Net cash flows from financing
   activities                            3,005       4,589       5,598

  Net change in cash and cash
   equivalents                          16,186      27,894      10,677

  Cash and cash equivalents at
   beginning of period                   9,389       9,389       9,389

  Cash and cash equivalents at end of
   period                              $25,575     $37,283     $20,066




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

                                       AS PREVIOUSLY PRESENTED IN 2005 SEC
                                                     FILINGS
                                   For the Three For the Six  For the Nine
                                   Months Ended  Months Ended Months Ended
                                     March 31,     June 30,   September 30,
                                       2005          2005         2005
  Cash flows from operating activities:
      Net income                       $15,028     $37,429     $71,842
      Adjustments to reconcile net
       income to net cash from
       operating activities:
         Depreciation and
          amortization                   4,296       8,738      12,781
         Provision for doubtful
          accounts                       2,871       5,899       8,830
         Deferred income taxes          (3,604)     (2,420)     (1,404)
         Tax benefit of stock
          options exercised                  -           -           -
         Changes in operating
          assets and liabilities:                        -           -
            Restricted cash                  -           -           -
            Short-term investments           -           -           -
            Accounts receivable         (5,226)     (9,191)    (16,280)
            Prepaids and other
             assets                     (9,482)     (9,130)     (6,279)
            Direct marketing costs,
             net                          (896)     (1,784)     (2,139)
            Accounts payable and
             accrued liabilities         5,666       5,724       5,365
            Deferred revenue            (6,129)    (16,446)     (4,461)
  Net cash flows from operating
   activities                            2,524      18,819      68,255

  Cash flows from investing activities:
       Facility expenditures and land
        purchases                       (9,584)    (19,816)    (23,534)
       Capital expenditures, net        (3,146)    (10,005)    (14,117)
       Proceeds from sales and
        maturities of investments      193,747     310,078     429,519
       Purchase of investments        (180,559)   (286,934)   (467,059)
  Net cash flows from investing
   activities                              458      (6,677)    (75,191)

  Cash flows from financing activities:
       Purchase of treasury stock            -           -           -
       Exercise of stock options         5,010       7,558       9,419
  Net cash flows from financing
   activities                            5,010       7,558       9,419

  Net change in cash, cash equivalents
   and restricted cash                   7,992      19,700       2,483

  Cash, cash equivalents and restricted
   cash at beginning of period          17,583      17,583      17,583

  Cash, cash equivalents and restricted
   cash at end of period               $25,575     $37,283     $20,066




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

                                                    RESTATED
                                                   (UNAUDITED)
                                            For the Three Months Ended
                                         March 31,    June 30, September 30,
                                            2005        2005       2005
  Cash flows from operating activities:
      Net income                           $15,028     $22,401     $34,413
      Adjustments to reconcile net
       income to net cash
          from operating activities:
             Depreciation and
              amortization                   4,296       4,442       4,043
             Provision for doubtful
              accounts                       2,871       3,028       2,931
             Deferred income taxes          (3,604)      1,184       1,016
             Tax benefit of stock
              options exercised              2,005         964         852
             Changes in operating
              assets and liabilities:
                Restricted cash              8,194           -           -
                Short-term investments           -           -           -
                Accounts receivable         (5,226)     (3,965)     (7,089)
                Prepaids and other
                 assets                     (9,482)        352       2,851
                Direct marketing costs,
                 net                          (896)       (888)       (355)
                Accounts payable and
                 accrued liabilities         5,666          58        (359)
                Deferred revenue            (6,129)    (10,317)     11,985
  Net cash flows from operating
   activities                               12,723      17,259      50,288

  Cash flows from investing activities:
       Facility expenditures and land
        purchases                           (9,584)    (10,232)     (3,718)
       Capital expenditures, net            (3,146)     (6,859)     (4,112)
       Proceeds from sales and
        maturities of investments          193,747     116,331     119,441
       Purchase of investments            (180,559)   (106,375)   (180,125)
  Net cash flows from investing
   activities                                  458      (7,135)    (68,514)

  Cash flows from financing activities:
       Purchase of treasury stock                -           -           -
       Exercise of stock options             3,005       1,584       1,009
  Net cash flows from financing
   activities                                3,005       1,584       1,009

  Net change in cash and cash
   equivalents                              16,186      11,708     (17,217)

  Cash and cash equivalents at
   beginning of period                       9,389      25,575      37,283

  Cash and cash equivalents at end of
   period                                  $25,575     $37,283     $20,066




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

                                       AS PREVIOUSLY PRESENTED IN 2005 SEC
                                                     FILINGS
                                            For the Three Months Ended
                                         March 31,   June 30,  September 30,
                                            2005        2005       2005
  Cash flows from operating activities:
      Net income                           $15,028     $22,401     $34,413
      Adjustments to reconcile net
       income to net cash
          from operating activities:
             Depreciation and
              amortization                   4,296       4,442       4,043
             Provision for doubtful
              accounts                       2,871       3,028       2,931
             Deferred income taxes          (3,604)      1,184       1,016
             Tax benefit of stock
              options exercised                  -           -           -
             Changes in operating
              assets and liabilities:
                Restricted cash                  -           -           -
                Short-term investments           -           -           -
                Accounts receivable         (5,226)     (3,965)     (7,089)
                Prepaids and other
                 assets                     (9,482)        352       2,851
                Direct marketing costs,
                 net                          (896)       (888)       (355)
                Accounts payable and
                 accrued liabilities         5,666          58        (359)
                Deferred revenue            (6,129)    (10,317)     11,985
  Net cash flows from operating
   activities                                2,524      16,295      49,436

  Cash flows from investing activities:
       Facility expenditures and land
        purchases                           (9,584)    (10,232)     (3,718)
       Capital expenditures, net            (3,146)     (6,859)     (4,112)
       Proceeds from sales and
        maturities of investments          193,747     116,331     119,441
       Purchase of investments            (180,559)   (106,375)   (180,125)
  Net cash flows from investing
   activities                                  458      (7,135)    (68,514)

  Cash flows from financing activities:
       Purchase of treasury stock                -           -           -
       Exercise of stock options             5,010       2,548       1,861
  Net cash flows from financing
   activities                                5,010       2,548       1,861

  Net change in cash, cash equivalents
   and restricted cash                       7,992      11,708     (17,217)

  Cash, cash equivalents and restricted
   cash at beginning of period              17,583      25,575      37,283

  Cash, cash equivalents and restricted
   cash at end of period                   $25,575     $37,283     $20,066




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

                                                  RESTATED
                                                 (UNAUDITED)
                                   For the Three For the Six  For the Nine
                                   Months Ended  Months Ended Months Ended
                                     March 31,     June 30,   September 30,
                                       2004          2004         2004
  Cash flows from operating activities:
      Net income                       $9,026    $23,006      $41,466
      Adjustments to reconcile net
       income to net cash from
       operating activities:
         Depreciation and
          amortization                  4,867      9,788       13,708
         Provision for doubtful
          accounts                      2,501      4,901        7,704
         Deferred income taxes         (3,922)    (1,753)      (1,812)
         Tax benefit of stock
          options exercised             4,259      4,466        5,743
         Changes in operating
          assets and liabilities:                      -            -
            Restricted cash             8,496      8,496        8,496
            Short-term investments     (2,074)    11,343        4,448
            Accounts receivable        (1,622)    (6,823)     (12,347)
            Prepaids and other
             assets                    (3,488)    (3,424)      (2,116)
            Direct marketing costs,
             net                       (1,135)    (2,082)      (2,969)
            Accounts payable and
             accrued liabilities        2,765     22,714       23,453
            Deferred revenue           (2,679)    (7,843)       5,730
  Net cash flows from operating
   activities                          16,994     62,789       91,504

  Cash flows from investing activities:
       Facility expenditures and land
        purchases                           -     (6,798)      (8,635)
       Capital expenditures, net       (3,024)    (9,951)     (16,085)
       Proceeds from sales and
        maturities of investments     240,986    626,433      921,513
       Purchase of investments       (279,177)  (702,131)  (1,017,030)
  Net cash flows from investing
   activities                         (41,215)   (92,447)    (120,237)

  Cash flows from financing activities:
       Purchase of treasury stock           -          -            -
       Exercise of stock options        4,235      4,583        7,682
  Net cash flows from financing
   activities                           4,235      4,583        7,682

  Net change in cash and cash
   equivalents                        (19,986)   (25,075)     (21,051)

  Cash and cash equivalents at
   beginning of period                 43,042     43,042       43,042

  Cash and cash equivalents at end of
   period                             $23,056    $17,967      $21,991




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

                                       AS PREVIOUSLY PRESENTED IN 2005 SEC
                                                     FILINGS
                                   For the Three For the Six  For the Nine
                                   Months Ended  Months Ended Months Ended
                                     March 31,     June 30,   September 30,
                                       2004          2004         2004
  Cash flows from operating activities:
      Net income                       $9,026    $23,006      $41,466
      Adjustments to reconcile net
       income to net cash from
       operating activities:
         Depreciation and
          amortization                  4,867      9,788       13,708
         Provision for doubtful
          accounts                      2,501      4,901        7,704
         Deferred income taxes         (3,922)    (1,753)      (1,812)
         Tax benefit of stock
          options exercised                 -          -            -
         Changes in operating
          assets and liabilities:                      -            -
            Restricted cash                 -          -            -
            Short-term investments     (2,074)    11,343        4,448
            Accounts receivable        (1,622)    (6,823)     (12,347)
            Prepaids and other
             assets                    (3,488)    (3,424)      (2,116)
            Direct marketing costs,
             net                       (1,135)    (2,082)      (2,969)
            Accounts payable and
             accrued liabilities        2,765     22,714       23,453
            Deferred revenue           (2,679)    (7,843)       5,730
  Net cash flows from operating
   activities                           4,239     49,827       77,265

  Cash flows from investing activities:
       Facility expenditures and land
        purchases                           -     (6,798)      (8,635)
       Capital expenditures, net       (3,024)    (9,951)     (16,085)
       Proceeds from sales and
        maturities of investments     240,986    626,433      921,513
       Purchase of investments       (279,177)  (702,131)  (1,017,030)
  Net cash flows from investing
   activities                         (41,215)   (92,447)    (120,237)

  Cash flows from financing activities:
       Purchase of treasury stock           -          -            -
       Exercise of stock options        8,494      9,049       13,425
  Net cash flows from financing
   activities                           8,494      9,049       13,425

  Net change in cash, cash equivalents
   and restricted cash                (28,482)   (33,571)     (29,547)

  Cash, cash equivalents and restricted
   cash at beginning of period         51,538     51,538       51,538

  Cash, cash equivalents and restricted
   cash at end of period              $23,056    $17,967      $21,991




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

                                                    RESTATED
                                                   (UNAUDITED)
                                            For the Three Months Ended
                                         March 31,   June 30,  September 30,
                                            2004        2004       2004
  Cash flows from operating activities:
      Net income                            $9,026     $13,980     $18,460
      Adjustments to reconcile net
       income to net cash
          from operating activities:
             Depreciation and
              amortization                   4,867       4,921       3,920
             Provision for doubtful
              accounts                       2,501       2,400       2,803
             Deferred income taxes          (3,922)      2,169         (52)
             Tax benefit of stock
              options exercised              4,259         207       1,277
             Changes in operating
              assets and liabilities:
                Restricted cash              8,496           -           -
                Short-term investments      (2,074)     13,161      (6,895)
                Accounts receivable         (1,622)     (5,201)     (5,524)
                Prepaids and other
                 assets                     (3,488)         64       1,308
                Direct marketing costs,
                 net                        (1,135)       (947)       (887)
                Accounts payable and
                 accrued liabilities         2,765      19,949         732
                Deferred revenue            (2,679)     (5,164)     13,573
  Net cash flows from operating
   activities                               16,994      45,539      28,715

  Cash flows from investing activities:
       Facility expenditures and land
        purchases                                -      (6,798)     (1,837)
       Capital expenditures, net            (3,024)     (6,927)     (6,134)
       Proceeds from sales and
        maturities of investments          240,986     385,447     295,080
       Purchase of investments            (279,177)   (422,698)   (314,899)
  Net cash flows from investing
   activities                              (41,215)    (50,976)    (27,790)

  Cash flows from financing activities:
       Purchase of treasury stock                -           -           -
       Exercise of stock options             4,235         348       3,099
  Net cash flows from financing
   activities                                4,235         348       3,099

  Net change in cash and cash
   equivalents                             (19,986)     (5,089)      4,024

  Cash and cash equivalents at
   beginning of period                      43,042      23,056      17,967

  Cash and cash equivalents at end of
   period                                  $23,056     $17,967     $21,991




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

                                       AS PREVIOUSLY PRESENTED IN 2005 SEC
                                                     FILINGS
                                            For the Three Months Ended
                                         March 31,   June 30,  September 30,
                                            2004        2004       2004
  Cash flows from operating activities:
      Net income                            $9,026     $13,980     $18,460
      Adjustments to reconcile net
       income to net cash
          from operating activities:
             Depreciation and
              amortization                   4,867       4,921       3,920
             Provision for doubtful
              accounts                       2,501       2,400       2,803
             Deferred income taxes          (3,922)      2,169         (52)
             Tax benefit of stock
              options exercised                  -           -           -
             Changes in operating
              assets and liabilities:
                Restricted cash                  -           -           -
                Short-term investments      (2,074)     13,161      (6,895)
                Accounts receivable         (1,622)     (5,201)     (5,524)
                Prepaids and other
                 assets                     (3,488)         64       1,308
                Direct marketing costs,
                 net                        (1,135)       (947)       (887)
                Accounts payable and
                 accrued liabilities         2,765      19,949         732
                Deferred revenue            (2,679)     (5,164)     13,573
  Net cash flows from operating
   activities                                4,239      45,332      27,438

  Cash flows from investing activities:
       Facility expenditures and land
        purchases                                -      (6,798)     (1,837)
       Capital expenditures, net            (3,024)     (6,927)     (6,134)
       Proceeds from sales and
        maturities of investments          240,986     385,447     295,080
       Purchase of investments            (279,177)   (422,698)   (314,899)
  Net cash flows from investing
   activities                              (41,215)    (50,976)    (27,790)

  Cash flows from financing activities:
       Purchase of treasury stock                -           -           -
       Exercise of stock options             8,494         555       4,376
  Net cash flows from financing
   activities                                8,494         555       4,376

  Net change in cash, cash equivalents
   and restricted cash                     (28,482)     (5,089)      4,024

  Cash, cash equivalents and restricted
   cash at beginning of period              51,538      23,056      17,967

  Cash, cash equivalents and restricted
   cash at end of period                   $23,056     $17,967     $21,991




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

                                                      RESTATED
                                                     (UNAUDITED)
                                                Year Ended December 31,
                                             2004        2003       2002
  Cash flows from operating activities:
      Net income                            $75,263    $58,858    $43,854
      Adjustments to reconcile net
       income to net cash
          from operating activities:
             Depreciation and
              amortization                   18,249     21,190     21,117
             Provision for doubtful
              accounts                       11,996      6,134      6,872
             Deferred income taxes            5,290     (2,835)     2,156
             Tax benefit of stock
              options exercised               6,355     12,295      3,308
             Changes in operating
              assets and liabilities:
                Restricted cash                 302     (1,393)    (1,641)
                Short-term investments       13,347     12,197     15,397
                Accounts receivable         (13,028)    (6,559)    (3,166)
                Prepaids and other
                 assets                      (1,952)     2,400      1,541
                Direct marketing costs,
                 net                         (3,869)      (235)       (89)
                Accounts payable and
                 accrued liabilities          4,501     33,647     13,304
                Deferred revenue             26,428     27,367     25,845
  Net cash flows from operating
   activities                               142,882    163,066    128,498

  Cash flows from investing activities:
       Facility expenditures and land
        purchases                           (16,376)   (25,718)   (19,843)
       Capital expenditures, net            (19,116)   (14,391)   (14,265)
       Proceeds from sales and
        maturities of investments         1,128,172    179,230          -
       Purchase of investments           (1,277,816)  (368,392)         -
  Net cash flows from investing
   activities                              (185,136)  (229,271)   (34,108)

  Cash flows from financing activities:
       Purchase of treasury stock                 -    (28,726)   (44,451)
       Exercise of stock options              8,601     14,039     10,293
  Net cash flows from financing
   activities                                 8,601    (14,687)   (34,158)

  Net change in cash and cash
   equivalents                              (33,653)   (80,892)    60,232

  Cash and cash equivalents at
   beginning of period                       43,042    123,934     63,702

  Cash and cash equivalents at end of
   period                                    $9,389    $43,042   $123,934




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

                                           AS PREVIOUSLY PRESENTED IN 2004
                                                     10-K FILING
                                               Year Ended December 31,
                                             2004        2003       2002
  Cash flows from operating activities:
      Net income                            $75,263    $58,858    $43,854
      Adjustments to reconcile net
       income to net cash
          from operating activities:
             Depreciation and
              amortization                   18,249     21,190     21,117
             Provision for doubtful
              accounts                       11,996      6,134      6,872
             Deferred income taxes            5,290     (2,835)     2,156
             Tax benefit of stock
              options exercised                   -          -          -
             Changes in operating
              assets and liabilities:
                Restricted cash                   -          -          -
                Short-term investments       13,347     12,197     15,397
                Accounts receivable         (13,028)    (6,559)    (3,166)
                Prepaids and other
                 assets                      (1,952)     2,400      1,541
                Direct marketing costs,
                 net                         (3,869)      (235)       (89)
                Accounts payable and
                 accrued liabilities          4,501     33,647     13,304
                Deferred revenue             26,428     27,367     25,845
  Net cash flows from operating
   activities                               136,225    152,164    126,831

  Cash flows from investing activities:
       Facility expenditures and land
        purchases                           (16,376)   (25,718)   (19,843)
       Capital expenditures, net            (19,116)   (14,391)   (14,265)
       Proceeds from sales and
        maturities of investments         1,128,172    179,230          -
       Purchase of investments           (1,277,816)  (368,392)         -
  Net cash flows from investing
   activities                              (185,136)  (229,271)   (34,108)

  Cash flows from financing activities:
       Purchase of treasury stock                 -    (28,726)   (44,451)
       Exercise of stock options             14,956     26,334     13,601
  Net cash flows from financing
   activities                                14,956     (2,392)   (30,850)

  Net change in cash, cash equivalents
   and restricted cash                      (33,955)   (79,499)    61,873

  Cash, cash equivalents and restricted
   cash at beginning of period               51,538    131,037     69,164

  Cash, cash equivalents and restricted
   cash at end of period                    $17,583    $51,538   $131,037



                      Free Cash Flow Reconciliation

Free cash flow represents changes in the Company's cash and cash equivalents, restricted cash and investments over a period of time, excluding facility purchases and equity activity. Free cash flow is not a measurement under generally accepted accounting principles in the United States and may not be similar to free cash flow measures used by other companies. The Company's management utilizes free cash flow as a measure of cash generated from operations and it believes that free cash flow provides useful information to investors regarding the amount of cash that the Company generates from operations. The Company believes that free cash flow before special legal and other investigation costs provides useful information to its management and investors by improving their ability to compare the Company's free cash flow without the special legal and other investigation costs for a particular fiscal period with the corresponding period in the prior year. Free cash flow can be reconciled to the Company's consolidated statements of cash flows for the particular fiscal period, as follows:

  ITT EDUCATIONAL SERVICES, INC.
   FREE CASH FLOW RECONCILIATION
  (Dollar amounts in thousands)
  (Unaudited)

                                                   RESTATED
                                    For the        For the        For the
                                  Three Months   Three Months   Three Months
                                     Ended           Ended          Ended
                                   March 31,        June 30,   September 30,
                                     2005            2005           2005

  Cash flows from operating
   activities                       $12,723        $17,259        $50,288
  Cash flows from investing
   activities                           458         (7,135)       (68,514)
  Cash flows from financing
   activities                         3,005          1,584          1,009
  Increase in cash and cash
   equivalents                       16,186         11,708        (17,217)
  Adjust for:
    Change in short-term investments      -              -              -
    Change in restricted cash        (8,194)             -              -
    Proceeds from sales and
     maturities of investments     (193,747)      (116,331)       (119,441)
    Purchase of investments        180,559         106,375         180,125
    Facility purchases               9,584          10,232           3,718
    Exercise of stock options       (3,005)         (1,584)         (1,009)
    Tax benefit of stock options
     exercised                      (2,005)           (964)           (852)
    Purchase of treasury stock           -               -               -
  Free Cash Flow                      (622)          9,436          45,324
  Special legal and other
   investigation costs -
     Change in accrual                   -               -               -
     Charge                          7,712               -          (6,493)
  Free Cash Flow (excluding
   special legal and other
   investigation costs)             $7,090          $9,436         $38,831




                                            AS PREVIOUSLY PRESENTED
                                    For the        For the        For the
                                  Three Months   Three Months   Three Months
                                     Ended          Ended          Ended
                                   March 31,       June 30,    September 30,
                                      2005           2005           2005

  Cash flows from operating
   activities                       $2,524         $16,295         $49,436
  Cash flows from investing
   activities                          458          (7,135)        (68,514)
  Cash flows from financing
   activities                        5,010           2,548           1,861
  Increase in cash and cash
   equivalents                       7,992          11,708         (17,217)
  Adjust for:
    Change in short-term investments     -               -               -
    Change in restricted cash            -               -               -
    Proceeds from sales and
     maturities of investments    (193,747)       (116,331)       (119,441)
    Purchase of investments        180,559         106,375         180,125
    Facility purchases               9,584          10,232           3,718
    Exercise of stock options       (5,010)         (2,548)         (1,861)
    Tax benefit of stock options
     exercised                           -               -               -
    Purchase of treasury stock           -               -               -
  Free Cash Flow                      (622)          9,436          45,324
  Special legal and other
   investigation costs -
     Change in accrual                   -               -               -
     Charge                          7,712               -          (6,493)
  Free Cash Flow (excluding
   special legal and other
   investigation costs)             $7,090          $9,436         $38,831




  ITT EDUCATIONAL SERVICES, INC.
  FREE CASH FLOW RECONCILIATION
  (Dollar amounts in thousands)
  (Unaudited)

                                               RESTATED
                          For the    For the   For the    For the
                          Three      Three     Three      Three     For the
                          Months     Months    Months     Months    Year
                          Ended      Ended     Ended      Ended     Ended
                          March 31,  June 30,  September  December  December
                          2004       2004      30, 2004   31, 2004  31, 2004



  Cash flows from
   operating
   activities          $16,994     $45,539   $28,715    $51,634    $142,882
  Cash flows from
   investing
   activities          (41,215)    (50,976)  (27,790)   (65,155)   (185,136)
  Cash flows from
   financing
   activities            4,235         348     3,099        919       8,601
  Increase in cash and
   cash equivalents    (19,986)     (5,089)    4,024    (12,602)    (33,653)
  Adjust for:
    Change in short-term
     investments         2,074     (13,161)    6,895     (9,155)    (13,347)
    Change in restricted
     cash               (8,496)          -         -      8,194        (302)
    Proceeds from sales
     and maturities
     of investments   (240,986)   (385,447) (295,080)  (206,659) (1,128,172)
    Purchase of
     investments       279,177     422,698   314,899    261,042   1,277,816
    Facility purchases       -       6,798     1,837      7,741      16,376
    Exercise of stock
     options            (4,235)       (348)   (3,099)      (919)     (8,601)
    Tax benefit of
     stock options
     exercised          (4,259)       (207)   (1,277)      (612)     (6,355)
    Purchase of
     treasury stock          -           -         -          -           -
  Free Cash Flow         3,289      25,244    28,199     47,030     103,762
  Special legal and
   other investigation
   costs -
    Change in accrual   (9,541)      4,021      (590)     1,396      (4,714)
    Charge               9,700       5,606     9,837          -      25,143
  Free Cash Flow
   (excluding special
   legal and other
   investigation costs) $3,448     $34,871   $37,446    $48,426    $124,191



                                       AS PREVIOUSLY PRESENTED
                          For the    For the   For the    For the
                          Three      Three     Three      Three     For the
                          Months     Months    Months     Months    Year
                          Ended      Ended     Ended      Ended     Ended
                          March 31,  June 30,  September  December  December
                          2004       2004      30, 2004   31, 2004  31, 2004



  Cash flows from
   operating
   activities           $4,239     $45,332   $27,438    $59,216    $136,225
  Cash flows from
   investing
   activities          (41,215)    (50,976)  (27,790)   (65,155)   (185,136)
  Cash flows from
   financing
   activities            8,494         555     4,376      1,531      14,956
  Increase in cash
   and cash
   equivalents         (28,482)     (5,089)    4,024     (4,408)    (33,955)
  Adjust for:
    Change in short-term
     investments         2,074     (13,161)    6,895     (9,155)    (13,347)
    Change in restricted
     cash                    -           -         -          -           -
    Proceeds from sales
     and maturities
     of investments   (240,986)   (385,447) (295,080)  (206,659) (1,128,172)
    Purchase of
     investments       279,177     422,698   314,899    261,042   1,277,816
    Facility purchases       -       6,798     1,837      7,741      16,376
    Exercise of stock
     options            (8,494)       (555)   (4,376)    (1,531)    (14,956)
    Tax benefit of
     stock options
     exercised               -           -         -          -           -
    Purchase of treasury
     stock                   -           -         -          -           -
  Free Cash Flow         3,289      25,244     28,199    47,030     103,762
  Special legal and
   other investigation
   costs -
    Change in accrual   (9,541)      4,021       (590)    1,396      (4,714)
    Charge               9,700       5,606      9,837         -      25,143
  Free Cash Flow
   (excluding special
   legal and other
   investigation costs) $3,448     $34,871    $37,446   $48,426    $124,191



  ITT EDUCATIONAL SERVICES, INC.
  FREE CASH FLOW RECONCILIATION
  (Dollar amounts in thousands)
  (Unaudited)

                                               RESTATED
                          For the    For the   For the    For the
                          Three      Three     Three      Three     For the
                          Months     Months    Months     Months    Year
                          Ended      Ended     Ended      Ended     Ended
                          March 31,  June 30,  September  December  December
                          2003       2003      30, 2003   31, 2003  31, 2003


  Cash flows from
   operating
   activities          $13,505     $63,177   $32,134    $54,250    $163,066
  Cash flows from
   investing
   activities           (9,398)    (33,869)  (73,870)  (112,134)   (229,271)
  Cash flows from
   financing
   activities          (21,590)        500     4,707      1,696     (14,687)
  Increase in cash and
   cash equivalents    (17,483)     29,808   (37,029)   (56,188)    (80,892)
  Adjust for:
    Change in short-term
     investments         2,593     (16,076)    7,687     (6,401)    (12,197)
    Change in restricted
     cash               (7,103)          -         -      8,496       1,393
    Proceeds from sales
     and maturities
     of investments          -      (7,400)  (32,220)  (139,610)   (179,230)
    Purchase of
     investments             -      27,353    97,278    243,761     368,392
    Facility purchases   7,641       9,662     3,766      4,649      25,718
    Exercise of stock
     options            (6,368)     (1,268)   (4,707)    (1,696)    (14,039)
    Tax benefit of
     stock options
     exercised          (4,800)       (669)   (4,330)    (2,496)    (12,295)
    Purchase of
     treasury stock     27,958         768         -          -      28,726
  Free Cash Flow        $2,438     $42,178   $30,445    $50,515    $125,576



                                      AS PREVIOUSLY PRESENTED
                        For the    For the   For the    For the
                        Three      Three     Three      Three      For the
                        Months     Months    Months     Months     Year
                        Ended      Ended     Ended      Ended      Ended
                        March 31,  June 30,  September  December   December
                        2003       2003      30, 2003   31, 2003   31, 2003


  Cash flows
   from operating
   activities           $1,602     $62,508   $27,804    $60,250    $152,164
  Cash flows from
   investing activities (9,398)    (33,869)  (73,870)  (112,134)   (229,271)
  Cash flows from
   financing
   activities          (16,790)      1,169     9,037      4,192      (2,392)
  Increase in cash and
   cash equivalents    (24,586)     29,808   (37,029)   (47,692)    (79,499)
  Adjust for:
  Change in short-term
   investments           2,593     (16,076)    7,687     (6,401)    (12,197)
  Change in restricted
   cash                      -           -         -          -           -
  Proceeds from sales
   and maturities
   of investments            -      (7,400)  (32,220)  (139,610)   (179,230)
  Purchase of investments    -      27,353    97,278    243,761     368,392
  Facility purchases     7,641       9,662     3,766      4,649      25,718
  Exercise of stock
   options             (11,168)     (1,937)   (9,037)    (4,192)    (26,334)
  Tax benefit of stock
   options exercised         -           -         -          -           -
  Purchase of treasury
   stock                27,958         768         -          -      28,726
  Free Cash Flow        $2,438     $42,178   $30,445    $50,515    $125,576



  ITT EDUCATIONAL SERVICES, INC.
  FREE CASH FLOW RECONCILIATION
  (Dollar amounts in thousands)
  (Unaudited)

                                                            AS PREVIOUSLY
                                           RESTATED           PRESENTED
                                      For the Year Ended  For the Year Ended
                                       December 31, 2002  December 31, 2002



  Cash flows from operating activities      $128,498          $126,831
  Cash flows from investing activities       (34,108)          (34,108)
  Cash flows from financing activities       (34,158)          (30,850)
  Increase in cash and cash equivalents       60,232            61,873
  Adjust for:
    Change in short-term investments         (15,397)          (15,397)
    Change in restricted cash                  1,641                 -
    Facility purchases                        19,843            19,843
    Exercise of stock options                (10,293)          (13,601)
    Tax benefit of stock options exercised    (3,308)                -
    Purchase of treasury stock                44,451            44,451
  Free Cash Flow                             $97,169           $97,169

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/