Opportunity changing lives

annual-singles-07 3/9/07 4:19 PM Page 1

Opportunity changing lives

education for the future

2006 Annua l Repor t • 2007 Annua l Meet ing & Proxy S ta tement


On the cover:Michael SantosMichael Santos

graduated from the

Lake Mary, Florida,

ITT Technical

Institute in 1995

with an Associate

of Applied Science

Degree in

Computer-Aided

DraftingTechnology.


To Our Shareholders

As of December 31, 2006, ITT Educational Services, Inc. operated 87 ITT TechnicalInstitutes in 33 states with a total student enrollment of approximately 47,000. Ourcolleges offer associate, bachelor and master degree programs in six differentschools of study: the School of Information Technology, the School of ElectronicsTechnology, the School of Drafting and Design, the School of Business, the Schoolof Criminal Justice and the School of Health Sciences.

In January 2007, we announced that Rene R. Champagne, our Chairman and ChiefExecutive Officer, has decided to step down as CEO on April 1, 2007 after havingserved as the company’s CEO for more than 21 years. He will remain Chairman ofour Board of Directors until January 31, 2008 when he plans to retire. Kevin M.Modany, our President and Chief Operating Officer, will succeed Mr. Champagneas our CEO on April 1, 2007.

This leadership transition has been ongoing for a number of years as part of oursuccession planning. Kevin has developed extensive knowledge of the company,the postsecondary education industry and the work force trends that will affect thehigher education community over the next decade. He has been instrumental inthe development and implementation of our growth strategy. We anticipate aseamless transition in leadership and maintain great confidence in the company’scurrent and future prospects with Kevin at the helm.

In today’s knowledge and skill driven business environment, higher education hasnever had a greater value or been more important. We believe that the demand willincrease over the balance of this decade for a quality postsecondary education, likethe programs of study offered at the ITT Technical Institutes. Occupational forecastsindicate that the demand for educated and skilled employees exceeds the supply ofworkers capable of fulfilling the needs of an increasingly sophisticated workplace.Our graduates should benefit from this work force demand, and the nation shouldbenefit from the volume of ITT Technical Institute graduates.

Our performance in 2006 was strong, as outlined below and in more detail in thebody of the Annual Report. In 2006, we also accelerated our geographic andprogrammatic growth initiatives, which should position the company well forcontinued success in 2007. Our strong performance was recognized by ForbesMagazine, which identified the company as one of its “200 Best Small Companies.”Our achievements in 2006 were made possible by the dedication of our faculty and staff.

Enrollment Growth. As of December 31, 2006, total student enrollment increased 9.1percent to 46,896 compared to 42,985 as of December 31, 2005.

Financial Performance. Revenue in 2006 increased 10.1 percent to $757.8 millioncompared to $688.0 million in 2005. Earnings per share (diluted) in 2006 increased16.7 percent to $2.72 compared to $2.33 in 2005. In 2006, we repurchased 5.6 millionshares of our common stock for $363.0 million or at an average share price of $64.74.In December 2006, we borrowed $150 million to allow us to continue repurchasingshares while maintaining compliance with certain financial ratios required by the U.S.Department of Education, state education authorities and our accrediting agency.Rene R. Champagne

Chairman and CEO

Kevin M. Modany

President and COO

Left:

Right:


Geographic Expansion. We opened six new ITT Technical Institutes and five newlearning sites in 2006 compared to four new institutes and three new learning sitesin 2005. As of December 31, 2006, we operated 87 institutes and nine learningsites. We plan to open six to eight new locations in 2007 in order to serve a greaterpercentage of Americans who are interested in a quality, career-focusedpostsecondary education.

New Programs of Study. In 2006, we continued our efforts to diversify our programofferings by developing residence and online programs at different degree levelsthat address work force needs in both technology and non-technology fields ofstudy, as follows:

• we created the School of Health Sciences, which is our sixth school of study;

• an associate degree program in Health Information Technology became the firstprogram offered in the School of Health Sciences;

• we began offering a new bachelor degree program in Construction Managementin the School of Drafting and Design;

• our first online technology program was unveiled in the form of an associate degree program in Information Systems Administration;

• we added five new options in our bachelor degree program inBusiness Administration:

• Marketing;• Human Resources Management;• Finance;• Marketing Management; and• Project Management; and

• we added two new options in our bachelor degree program inBusiness Accounting Technology:

• Financial Accounting; and• Internal Controls.

As we consider our 2007 prospects, we have assembled a very committed anddedicated team of employees who are focused on providing our students with aquality postsecondary education and the services that can help them prepare forcareers in various fields. We believe that the fundamentals of the company are quitestrong, and that we are well positioned to take advantage of the opportunities inthe higher education marketplace. Our focus remains on maximizing long-termshareholder value by developing quality programs of study and offering them atan expanding number of locations in flexible and convenient formats to thosestudents who desire to change their lives with the help of a postsecondary educationoffered at an ITT Technical Institute.

Rene R. Champagne Kevin M. Modany

Chairman and CEO President and COO (a) The reclassification of tuition revenue with respect to students whowithdraw reduced revenue and cost of educational services by $10.8million in the year ended December 31, 2002. The reclassification had noimpact on the company’s total consolidated results reported in 2002.

2006 $757.8

2005 $688.0

2004 $617.8

2003 $522.9

2002 $454.1

Revenue (a) ($ in millions)

2006 $181.5

2005 $165.4

2004 $119.5

2003 $94.5

2002 $68.3

2006 24.0%

2005 24.0%

2004 19.3%

2003 18.1%

2002 15.0%

2006 $118.5

2005 $109.7

2004 $75.3

2003 $58.9

2002 $43.9

2006 $2.72

2005 $2.33

2004 $1.61

2003 $1.27

2002 $0.94

Operating Income ($ in millions)

Operating Margin

Net Income ($ in millions)

Earnings Per Share (diluted)

Growth in 2006


Jeffrey R. Cooper, Senior Vice President, Chief Compliance Officer; William J. Gorge, Senior Vice President, Business Development; Eugene W. Feichtner,Senior Vice President, Operations; Daniel M. Fitzpatrick, Senior Vice President, Chief Financial Officer; Rene R. Champagne, Chairman and Chief ExecutiveOfficer; Kevin M. Modany, President and Chief Operating Officer; Nina F. Esbin, Senior Vice President, Human Resources; Clark D. Elwood, Senior VicePresident, General Counsel and Secretary

Gary R. Carlson, Vice President, Academic Affairs; Barry S. Simich, Vice President, Operations; Martin Van Buren, Vice President, Information Technology;Glenn E. Tanner, Vice President, Marketing; Timothy A. Rauschenback, Vice President, Online Operations; Phillip B. Frank, Vice President, Real Estate andAssistant General Counsel; Angela K. Knowlton, Vice President, Controller and Treasurer; Not shown: John W. Hawthorne, Vice President, Student Services

Front row,left to right:

Back row,left to right:

• Rene R. Champagne, Chairman and Chief Executive Officer, ITT Educational Services, Inc.• Kevin M. Modany, President and Chief Operating Officer, ITT Educational Services, Inc.• John F. Cozzi, Managing Director, AEA Investors LLC• John E. Dean, Partner in the Law Offices of John E. Dean• James D. Fowler, Jr., retired Senior Vice President and Director, Human Resources, ITT Industries, Inc. (now known as ITT Corporation)• Joanna T. Lau, Chairperson and Chief Executive Officer, Lau Technologies• Thomas I. Morgan, Retired President and Chief Executive Officer, Hughes Supply, Inc.• Samuel L. Odle, President and Chief Executive Officer of Methodist Hospital and Indiana University Hospital, and Executive Vice President of Clarian Health Partners• Vin Weber, Partner, Clark & Weinstock Inc.• John A. Yena, Chairman of the Board, Johnson & Wales University

Officers of the Company

Board of Directors


HS

JS

BS

DS

ES

School ofElectronicsTechnology

The Company. ITT Educational Services,Inc. (NYSE:ESI) is a leading provider oftechnology-oriented degree programs inthe United States based on revenue andstudent enrollment. At the end of 2006,the company operated 87 ITT TechnicalInstitutes in 33 states. The ITT TechnicalInstitute in Indianapolis, Indiana also offersa number of online degree programsthat are available in 48 states and theDistrict of Columbia. The company isheadquartered in Carmel, Indiana, a suburbof Indianapolis. It has offered programs inhigher education since 1969.

Performance. The company hasdemonstrated continued growth sincegoing public in 1994. It achieved recordrevenue of $757.8 million in 2006, anincrease of 10.1 percent compared to$688.0 million in 2005. The company’srevenue has increased at a 12.6 percentcompound annual growth rate (CAGR)since 1994. Net income in 2006 increased8.0 percent to $118.5 million comparedto $109.7 million in 2005 and has increasedat a CAGR of 26.3 percent since 1994.Operating margin remained steady at 24.0percent for both 2006 and 2005. In 2006,earnings per share (diluted) increased 16.7percent to $2.72 compared to $2.33 in2005. New student enrollment alsoincreased 10.8 percent to 49,935 studentsin the year ended December 31, 2006.

Programs of Study. ITT Technical Instituteprograms use a combination of theory andpractical application to assist students indeveloping knowledge and skills used injobs within their chosen career paths. Eachcurriculum is developed with the input ofemployers in that field. In addition, eachITT Technical Institute has an advisorycommittee for each field of study comprisedof representatives of local employers whoassist the institute in assessing andupdating curricula, equipment andlaboratory design.

Associates Degree Bachelors Degree Masters Degree

IS

School ofInformationTechnology

School ofDrafting

and Design

School ofBusiness

School ofCriminal Justice

School ofHealth Sciences

About the Company

Computer NetworkComputer Network Information SystemsSystems Security

Software Applications Data Communicationand Programming Systems Technology

Web Development Software EngineeringTechnology

Information Systemstion SystemsAdministraAdministration

Computer and ElectronicsComputer and Electronics Industrial AutomationEngineering Engineering Technologechnology Engineering Technology

Electronics and CommunicationsEngineering Technology

Multimedia Digital Entertainmentand Game Design

Computer DraftingComputer Drafting Graphic Designand Design

ConstructionManagement

Criminal JusticeCriminal Justice Criminal Justice

Criminal Justice—Cybersecurity

Health InformationTechnologechnology

Business Business AccountingAccounting Technical Project Master of BusinessTechnologechnology Management Administration (MBA)

Business Business Administration Business Administration—Project Management

Business Administration—Marketing Management optionand Project Management option

Business Administration—Finance option, Human ResourcesManagement option, Marketingoption, Marketing Management optionoption, and Project Management optiongement option

Business Accounting Technology—Financial Accounting option andInternal Control option


Alabama6270 Park South Dr.Bessemer 35022(Birmingham)

Arizona5005 S. Wendler Dr.Tempe 85282

1455 W. River Rd.Tucson 85704

Arkansas4520 S. University Ave.Little Rock 72204

California525 N. Muller St.Anaheim 92801(Los Angeles)

362 North Clovis Ave.Clovis 93611(Fresno)

16916 S. Harlan Rd.Lathrop 95330(Stockton)

2051 Solar Dr., Ste. 150Oxnard 93036(Los Angeles)

10863 Gold Center Dr.Rancho Cordova 95670(Sacramento)

670 E. Carnegie Dr.San Bernardino 92408(Los Angeles)

9680 Granite Ridge Dr.San Diego 92123

650 W. Cienega Ave.San Dimas 91773(Los Angeles)

12669 Encinitas Ave.Sylmar 91342(Los Angeles)

20050 S. Vermont Ave.Torrance 90502(Los Angeles)

Colorado500 East 84th Ave., Ste. B12Thornton 80229(Denver)

Florida3401 S. University Dr.Fort Lauderdale 33328

6600 Youngerman CircleSte. 10Jacksonville 32244

1400 S. InternationalParkway SouthLake Mary 32746(Orlando)

7955 N.W. 12th St., Ste. 119Miami 33126

3491 Gandy BoulevardSte. 101Pinellas Park 33781(St. Petersburg)

4809 Memorial Hwy.Tampa 33634

Georgia10700 Abbotts Bridge Rd.Ste. 190Duluth 30097(Atlanta)

1000 Cobb Place Blvd. NWSuite 300, Building 300Kennesaw 30144(Atlanta)

Idaho12302 W. Explorer Dr.Boise 83713

Illinois7040 High Grove Blvd.Burr Ridge 60527(Chicago)

1401 Feehanville Dr.Mount Prospect 60056(Chicago)

11551 184th PlaceOrland Park 60467(Chicago)

Indiana2810 Dupont Commerce Ct.Fort Wayne 46825

9511 Angola CourtIndianapolis 46268

10999 Stahl Rd.Newburgh 47630(Evansville)

Kentucky2473 Fortune Dr., Ste. 180Lexington 40509

10509 Timberwood CircleLouisville 40223

Louisiana140 James Dr. EastSt. Rose 70087(New Orleans)

Maryland11301 Red Run Blvd.Owings Mills 21117(Baltimore)

Massachusetts333 Providence Hwy.Route 1Norwood 02062(Boston)

10 Forbes Rd.Woburn 01801(Boston)

Michigan1905 South Haggerty Rd.Canton 48188(Detroit)

5405 Gateway Centre Dr.Flint 48507

4020 Sparks Dr. S.E.Grand Rapids 49546

1522 E. Big Beaver Rd.Troy 48083(Detroit)

Minnesota8911 Columbine Rd.Eden Prairie 55347(Minneapolis)

Missouri1930 Meyer Drury Dr.Arnold 63010(St. Louis)

3640 Corporate Trail Dr.Earth City 63045(St. Louis)

9150 E. 41st TerraceKansas City 64133

Nebraska9814 M St.Omaha 68127

Nevada168 N. Gibson Rd.Henderson 89014(Las Vegas)

New Mexico5100 Masthead St. N.E.Albuquerque 87109

New York13 Airline Dr.Albany 12205

2295 Millersport Hwy.Getzville 14068(Buffalo)

235 Greenfield Pkwy.Liverpool 13088(Syracuse)

North Carolina4135 S. Stream Blvd., Ste. 200Charlotte 28217

Ohio3325 Stop Eight Rd.Dayton 45414

3781 Park Mill Run Dr., Ste. 1Hilliard 43026(Columbus)

1656 Henthorne Blvd., Ste. AMaumee 43537(Toledo)

4750 Wesley Ave.Norwood 45212(Cincinnati)

14955 Sprague Rd.Strongsville 44136(Cleveland)

4700 Richmond Rd., Ste. 3000Warrensville Heights 44128(Cleveland)

1030 N. Meridian Rd.Youngstown 44509

Oklahoma50 Penn Place Office Twr.Ste. 305Oklahoma City 73118

4943 S. 78th East Ave.Tulsa 74145

Oregon6035 N.E. 78th CourtPortland 97218

Pennsylvania 3330 Tillman Dr.Bensalem 19020(Philadelphia)

1000 Meade St.Dunmore 18512(Scranton)

760 Moore Road, Ste. 150King of Prussia 19406(Philadelphia)

5020 Louise Dr.Mechanicsburg 17055(Harrisburg)

105 Mall Blvd.Ste. 200 EastMonroeville 15146(Pittsburgh)

Ten Parkway CenterPittsburgh 15220

South CarolinaSix Independence PointeIndependenceCorporate ParkGreenville 29615

Tennessee10208 Technology Dr.Knoxville 37932

7260 Goodlett FarmsParkwayCordova 38016(Memphis)

2845 Elm Hill PikeNashville 37214

Texas551 Ryan Plaza Dr.Arlington 76011(Dallas)

6330 Highway 290 EastSte. 150Austin 78723

15621 Blue Ash Dr. Ste.160Houston 77090 (North)

2950 S. GessnerHouston 77063 (West)

2101 Waterview Pkwy.Richardson 75080(Dallas)

5700 Northwest Pkwy.San Antonio 78249

1001 Magnolia Ave.Webster 77598(Houston)

Utah920 W. Levoy Dr.Murray 84123(Salt Lake City)

Virginia14420 AlbemarlePoint Place, Suite 100Chantilly 20151(Northern Virginia)

863 Glenrock Rd., Ste. 100Norfolk 23502

300 Gateway Centre Pkwy.Richmond 23235

7300 Boston BoulevardSpringfield 22153(Northern Virginia)

Washington1615 75th St. SW, Ste. 220Everett 98203(Seattle)

12720 Gateway Dr., Ste. 100Seattle 98168

13518 E. Indiana Ave.Spokane Valley 99216(Spokane)

Wisconsin470 Security Blvd.Green Bay 54313

6300 W. Layton Ave.Greenfield 53220(Milwaukee)

ITT Technical InstitutesLocations


headquarters:13000 North Meridian Street • Carmel, IN 46032 • (317) 706-9200

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Opportunity changing lives