C O R R E C T I O N — ITT Educational Services, Inc.

/C O R R E C T I O N — ITT Educational Services, Inc./ PR Newswire — January 21, 2010 In the release ITT Educational Services, Inc. Reports 2009 Fourth Quarter and Full Year Results, New Student Enrollment Increased 31.2%; EPS Increased 59.0% to $2.56, issued Jan. 21, 2010 by ITT Educational Services, Inc., the release should have included three additional tables: CONDENSED CONSOLIDATED BALANCE SHEETS, CONDENSED CONSOLIDATED STATEMENTS OF INCOME, and CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS. The complete, corrected release follows: ITT Educational Services, Inc. Reports 2009 Fourth Quarter and Full Year Results, New Student Enrollment Increased 31.2%; EPS Increased 59.0% to $2.56 CARMEL, Ind., Jan. 21 /PRNewswire-FirstCall/ — 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 2009 increased 31.2% to 19,563 compared to 14,911 in the same period in 2008. Total student enrollment increased 30.3% to 80,766 as of December 31, 2009 compared to 61,983 as of December 31, 2008. Earnings per share (“EPS”) in the fourth quarter of 2009 increased 59.0% to $2.56 compared to $1.61 in the fourth quarter of 2008. Revenue in the three months ended December 31, 2009 increased 33.8% to $374.4 million compared to $279.8 million in the three months ended December 31, 2008. Operating margin increased 440 basis points to 40.8% in the fourth quarter of 2009 compared to 36.4% in the same period in 2008. The company provided the following information for the three and twelve months ended December 31, 2009 and 2008: Financial and Operating Data for the Three Months Ended December 31st, Unless Otherwise Indicated

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

2009 2008 (A) Increase/
—- ——– (Decrease)
———-

Revenue $374.4 $279.8 33.8%
Operating Income $152.9 $101.8 50.2%
440 basis
Operating Margin 40.8% 36.4% points
Net Income $93.7 $62.8 49.0%
Earnings Per Share
(diluted) $2.56 $1.61 59.0%
New Student
Enrollment 19,563 14,911 31.2%
Continuing Students 61,203 47,072 30.0%
Total Student
Enrollment as of
December 31st 80,766 61,983 30.3%
Persistence Rate as
of December 31st
(B) 77.3% 76.5% 80 basis points
Revenue Per Student $4,727 $4,545 4.0%
Cash and Cash
Equivalents,
Restricted Cash and $274.1 $375.4 (27.0)%
Investments as of
December 31st
Bad Debt Expense as a
Percentage of 200 basis
Revenue 6.9% 4.9% points
Days Sales
Outstanding as of
December 31st 21.0 days 9.8 days 11.2 days
Deferred Revenue as
of December 31st $171.9 $162.2 6.0%
Debt as of December
31st $150.0 $150.0
Weighted Average
Diluted Shares of
Common 36,549,000 39,100,000
Stock Outstanding
Shares of Common
Stock Repurchased 1,500,000 (C) –
Land and Building
Purchases and
Renovations $1.7 (D) $1.0 (E) 74.4%
Number of New
Colleges in
Operation 3 2
Number of Learning
Sites Converted to
Colleges 5 –
Capital Expenditures,
Net $8.1 $5.4 48.5%

Financial and Operating Data for the Twelve Months Ended December 31st
———————————————————————-
(Dollars in millions, except per share and per student data)

2009 2008 (A) Increase/
—- ——– (Decrease)
———-

Revenue $1,319.2 $1,015.3 29.9%
Operating Income $488.8 $325.5 50.2%
500 basis
Operating Margin 37.1% 32.1% points
Net Income $300.3 $201.5 49.0%
Earnings Per Share
(diluted) $7.91 $5.13 54.2%
Bad Debt Expense as a 190 basis
Percentage of Revenue 6.2% 4.3% points
Revenue Per Student $19,059 $18,162 4.9%
Weighted Average Diluted
Shares of Common 37,942,000 39,243,000
Stock Outstanding
Shares of Common Stock
Repurchased 3,477,875 (F) 1,049,700 (G)
Land and Building
Purchases and
Renovations $4.2 (H) $18.1 (I) (76.8)%
Number of New Colleges
in Operation 10 (J) 8
Number of Learning Sites
Converted to Colleges 5 –
Capital Expenditures,
Net $24.0 $17.5 36.8%

(A) Financial data is adjusted from amounts reported in prior periods
for the change in accounting for direct costs related to the
enrollment of new students.
(B) Represents the number of Continuing Students in the academic
term, divided by the Total Student Enrollment in the immediately
preceding academic term.
(C) For approximately $139.3 million or at an average price of $92.86
per share.
(D) Represents costs associated with renovating, expanding or
constructing buildings at nine of the company’s locations, but it
excludes all land and buildings of Daniel Webster College that the
company acquired.
(E) Represents costs associated with renovating, expanding or
constructing buildings at 10 of the company’s locations.
(F) For approximately $348.1 million or at an average price of
$100.10 per share.
(G) For approximately $87.8 million or at an average price of $83.62
per share.
(H) Represents costs associated with renovating, expanding or
constructing buildings at 19 of the company’s locations, but it
excludes all land and buildings of Daniel Webster College that the
company acquired.
(I) Represents costs associated with purchasing a parcel of land on
which the company constructed a building, and purchasing,
renovating, expanding or constructing buildings at 19 of the
company’s locations.
(J) Excludes Daniel Webster College.

The following table sets forth information provided by the company regarding its
2010 internal goals for the metrics indicated:

2010 Internal Goal Range
————————
Days Sales Outstanding at December 31st 10 days to 15 days
Bad Debt Expense as a Percentage of Revenue 4% to 6%
Earnings Per Share (diluted) $10.00 to $10.50

Kevin M. Modany, Chairman and Chief Executive Officer of ITT/ESI, said, “We are
very pleased with our results in the final quarter and full year of 2009. As we
begin the New Year, we believe that we are well positioned to achieve our
internal financial and operating goals for 2010.”

ITT Educational Services, Inc. will conduct a conference call with financial
analysts to discuss its 2009 fourth quarter earnings at 11:00 am (ET) this
morning. The public is invited to listen to a live webcast of the conference
call. The webcast may be accessed by following the “Live Webcast” directions on
ITT/ESI’s website at www.ittesi.com.

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 internal student
financing from its students; the company’s exposure under its guarantees related
to private student loan programs; 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

As of
—–
December 31, December 31, 2008
2009 (a)
————- ——————
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $128,788 $226,255
Short-term investments 143,407 138,709
Restricted cash 1,891 10,405
Accounts receivable, net 85,426 29,779
Deferred income taxes 13,799 12,104
Prepaid expenses and other
current assets 17,651 13,793
—— ——
Total current assets 390,962 431,045

Property and equipment, net 195,449 166,671
Deferred income taxes 6,416 7,462
Other assets 23,878 3,170
—— —–
Total assets $616,705 $608,348
======== ========

Liabilities and Shareholders’
Equity
Current liabilities:
Accounts payable $61,275 $54,815
Accrued compensation and
benefits 26,323 21,133
Accrued income taxes 10,218 14,976
Other accrued liabilities 15,043 11,423
Deferred revenue 171,933 162,206
——- ——-
Total current liabilities 284,792 264,553

Long-term debt 150,000 150,000
Other liabilities 25,328 19,951
—— ——
Total liabilities 460,120 434,504
——- ——-

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 154,495 135,655
Retained earnings 1,006,903 718,100
Accumulated other
comprehensive (loss) (10,093) (13,384)
Treasury stock, 18,622,809 and
15,352,376
shares, at cost (995,261) (667,068)
——– ——–
Total shareholders’ equity 156,585 173,844
——- ——-
Total liabilities and
shareholders’ equity $616,705 $608,348
======== ========
______________

(a) Amounts as of December 31, 2008 have been retrospectively
adjusted from amounts reported in prior periods for
a change in accounting for direct costs related to the enrollment of
new students (“Direct Marketing Costs”).
Total shareholders’ equity as of December 31, 2008 decreased by
$14,007 from the previously reported amount
as a result of the change in accounting for Direct Marketing Costs.

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

Three Months
Ended December 31,
(unaudited)
———–
2009 (a) 2008 (b)
——– ——–

Revenue $374,378 $279,799

Costs and expenses:
Cost of educational services 121,226 101,550
Student services and
administrative expenses 100,274 76,436
——- ——
Total costs and expenses 221,500 177,986
——- ——-

Operating income 152,878 101,813
Interest income 464 1,730
Interest (expense) (133) (1,023)
—- ——
Income before provision for
income taxes 153,209 102,520
Provision for income taxes 59,568 39,666
—— ——

Net income $93,641 $62,854
======= =======

Earnings per share:
Basic $2.59 $1.62
Diluted $2.56 $1.61

Supplemental Data:
Cost of educational services 32.4% 36.3%
Student services and
administrative expenses 26.8% 27.3%
Operating margin 40.8% 36.4%
Student enrollment at end of
period 80,766 61,983
Campuses at end of period 121 (c) 105
Shares for earnings per share
calculation:
Basic 36,125,000 38,712,000
Diluted 36,549,000 39,100,000

Effective tax rate 38.9% 38.7%
______________

Twelve Months
Ended December 31,
(unaudited)
———–
2009 (a) 2008 (b)
——– ——–

Revenue $1,319,194 $1,015,333

Costs and expenses:
Cost of educational services 449,835 383,769
Student services and
administrative expenses 380,567 306,099
——- ——-
Total costs and expenses 830,402 689,868
——- ——-

Operating income 488,792 325,465
Interest income 3,291 6,505
Interest (expense) (726) (4,611)
—- ——
Income before provision for
income taxes 491,357 327,359
Provision for income taxes 191,094 125,854
——- ——-

Net income $300,263 $201,505
======== ========

Earnings per share:
Basic $8.01 $5.18
Diluted $7.91 $5.13

Supplemental Data:
Cost of educational services 34.1% 37.8%
Student services and
administrative expenses 28.8% 30.1%
Operating margin 37.1% 32.1%
Student enrollment at end of
period 80,766 61,983
Campuses at end of period 121 (c) 105
Shares for earnings per share
calculation:
Basic 37,490,000 38,881,000
Diluted 37,942,000 39,243,000

Effective tax rate 38.9% 38.4%
______________

(a) In the fourth quarter of 2009, we changed our accounting for Direct Marketing Costs to expense those costs in the period incurred. Previously, we capitalized Direct Marketing Costs and amortized those costs over the period during which the associated revenue was recognized. If we had not changed our accounting for Direct Marketing Costs:
- in the three months ended December 31, 2009,
- our net income would have been approximately $384 higher, and
- our diluted earnings per share would have been $0.01 higher; and
- in the twelve months ended December 31, 2009,
- our net income would have been approximately $2,974 higher, and
- our diluted earnings per share would have been $0.08 higher.
(b) Amounts for the three and twelve months ended December 31, 2008 have been retrospectively adjusted from amounts reported in prior periods for the change in accounting for Direct Marketing Costs. The change in accounting resulted in the previously reported amounts of our:
- net income decreasing by $169 in the three months ended, and $1,467 in the twelve months ended, December 31, 2008; and
- diluted earnings per share decreasing by $0.04 in the twelve months ended December 31, 2008.
The change in accounting did not affect our reported diluted earnings per share in the three months ended December 31, 2008.
(c) Includes the conversion of five learning sites to campuses.

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

Three Months
Ended December 31,
(unaudited)
———–
2009 (a) 2008 (b)
——– ——–
Cash flows from operating
activities:
Net income $93,641 $62,854
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation and amortization 6,704 5,895
Provision for doubtful accounts 25,971 13,829
Deferred income taxes 937 (1,309)
Excess tax benefit from stock
option exercises (17) (385)
Stock-based compensation expense 2,827 1,504
Other (854) 1,554
Changes in operating assets and
liabilities, net of acquisition:
Restricted cash 3,194 (10,389)
Accounts receivable (17,582) (10,299)
Accounts payable (5,908) (3,966)
Accrued income taxes 2,318 13,630
Other operating assets and
liabilities 4,327 (10,171)
Deferred revenue 27,986 20,162
—— ——
Net cash flows from operating
activities 143,544 82,909
——- ——

Cash flows from investing
activities:
Facility expenditures and land
purchases (1,720) (986)
Capital expenditures, net (8,079) (5,440)
Acquisition of college, net of
cash acquired — –
Proceeds from sales and maturities
of investments 99,586 120,994
Purchase of investments (97,425) (109,275)
Issuance of note receivable (1,531) –
Proceeds from repayments of note
receivable 2,669 –
—– —
Net cash flows from investing
activities (6,500) 5,293
—— —–

Cash flows from financing
activities:
Excess tax benefit from stock
option exercises 17 385
Proceeds from exercise of stock
options 50 970
Repurchase of common stock and
shares tendered for taxes (139,294) –
——– —
Net cash flows from financing
activities (139,227) 1,355
——– —–

Net change in cash and cash
equivalents (2,183) 89,557

Cash and cash equivalents at
beginning of period 130,971 136,698
——- ——-

Cash and cash equivalents at end
of period $128,788 $226,255
======== ========
_______________

Twelve Months
Ended December 31,
(unaudited)
———–
2009 (a) 2008 (b)
——– ——–
Cash flows from operating
activities:
Net income $300,263 $201,505
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation and amortization 24,908 22,230
Provision for doubtful accounts 81,983 43,286
Deferred income taxes (3,066) (9,389)
Excess tax benefit from stock
option exercises (5,289) (1,158)
Stock-based compensation expense 13,074 7,235
Other (1,163) 1,554
Changes in operating assets and
liabilities, net of acquisition:
Restricted cash 5,775 (4,350)
Accounts receivable (136,837) (57,933)
Accounts payable 4,911 9,695
Accrued income taxes 1,010 10,163
Other operating assets and
liabilities 5,334 1,042
Deferred revenue 10,355 (50,921)
—— ——-
Net cash flows from operating
activities 301,258 172,959
——- ——-

Cash flows from investing
activities:
Facility expenditures and land
purchases (4,236) (18,093)
Capital expenditures, net (23,992) (17,543)
Acquisition of college, net of
cash acquired (20,792) –
Proceeds from sales and maturities
of investments 242,327 1,085,559
Purchase of investments (244,787) (920,480)
Issuance of note receivable (18,225) –
Proceeds from repayments of note
receivable 5,374 –
—– —
Net cash flows from investing
activities (64,331) 129,443
——- ——-

Cash flows from financing
activities:
Excess tax benefit from stock
option exercises 5,289 1,158
Proceeds from exercise of stock
options 8,800 3,241
Repurchase of common stock and
shares tendered for taxes (348,483) (87,774)
——– ——-
Net cash flows from financing
activities (334,394) (83,375)
——– ——-

Net change in cash and cash
equivalents (97,467) 219,027

Cash and cash equivalents at
beginning of period 226,255 7,228
——- —–

Cash and cash equivalents at end
of period $128,788 $226,255
======== ========
_______________

(a) Net cash flows from operating activities, investing activities
and financing activities in the three and twelve months ended
December 31, 2009 did not change as a result of the changes in
accounting for Direct Marketing Costs.
(b) Amounts for the three and twelve months ended December 31, 2008
have been retrospectively adjusted from amounts reported in prior
periods for the change in accounting for Direct Marketing Costs.
Net cash flows from operating activities, investing activities and
financing activities in the three and twelve months ended December
31, 2008 did not change as a result of the change in accounting.

SOURCE ITT Educational Services, Inc.

Company Codes: NYSE:ESI, NYSE:ESI