8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

DATE OF REPORT (Date of earliest event reported): January 27, 2006

ITT EDUCATIONAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

	Delaware		1-13144		36-2061311
(State or other		(Commission		(IRS Employer
jurisdiction of		File Number)		Identification No.)
incorporation)

13000 North Meridian Street
	Carmel, Indiana	46032-1404

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (317) 706-9200

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
	240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR

240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On January 30, 2006, ITT Educational Services, Inc. (the “Company”) issued a press release announcing the restatement of previously issued consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and its Quarterly Reports on Form 10-Q for the interim periods in its fiscal 2005. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K.

Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

(a)       On January 27, 2006, the Audit Committee of the Board of Directors of the Company concluded, after consultation with management of the Company and a review of the pertinent facts, that the previously issued consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 should not be relied upon because of errors in those consolidated financial statements related to how the Company reported restricted cash and where the Company reported the tax benefit from stock option exercises on the Company’s Consolidated Statements of Cash Flows. For the same reason, the consolidated financial statements contained in the Company’s Quarterly Reports on Form 10-Q for the periods ended March 31, June 30 and September 30 of 2005 should also not be relied upon. The Company determined that it is necessary to restate the consolidated financial statements (a) for the years ended December 31, 2004, 2003 and 2002 that are included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and (b) for the three months ended March 31, June 30 and September 30, 2005 and 2004 that are included its Quarterly Reports of Form 10-Q for the interim periods in its fiscal 2005 (“Restatement”).

The Company’s restricted cash results from its use of the U.S. Department of Education’s (“ED”) electronic funds transfer system as part of the Company’s participation in the federal student financial aid programs under Title IV of the Higher Education Act of 1965, as amended. All monies transferred to the Company from the ED by electronic funds transfer are subject to certain holding restrictions. The Company cannot use those funds until the Company applies them to its students’ accounts, which typically occurs within three business days. The Company previously reported restricted cash with cash and cash equivalents in the beginning and ending balances reconciled on its Consolidated Statements of Cash Flows. Statement of Financial Accounting Standards (“SFAS”) No. 95, “Statement of Cash Flows,” however, states that the beginning and ending balances reconciled on a statement of cash flows should include only the change in cash and cash equivalents during the period. To correct the positioning of restricted cash, the Company has removed restricted cash from the beginning and ending balances reconciled and now reports restricted cash under a separate caption in the Cash flows from operating activities section on its Consolidated Statements of Cash Flows as a component of the Adjustments to reconcile net income to net cash provided by operating activities. The effect of the change in how the Company reports restricted cash on its interim and annual Consolidated Statements of Cash Flows is shown in Exhibit 99.2 to this Form 8-K. The change in how the Company reports restricted cash on its Consolidated Statements of Cash Flows has no effect on any of the Company’s

-2-

previously issued Consolidated Balance Sheets, Consolidated Statements of Income or Consolidated Statements of Shareholders’ Equity. 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 Company has awarded non-qualified stock options to its employees and the non-employee members of its Board of Directors (“Stock Options”). In 2005 and prior periods, the Company followed the intrinsic value based method of accounting for the Stock Options in accordance with Accounting Principals Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and adopted the disclosure only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” Effective January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment,” which supercedes APB Opinion No. 25. When a Stock Option is exercised, the Company receives a tax deduction in the amount that the fair market value of the Company’s common stock on the date of exercise exceeds the exercise price of the Stock Option, because that amount is taxable to the optionee. Pursuant to APB Opinion No. 25, however, the Company does not recognize any tax benefit resulting from a Stock Option exercise on its Consolidated Statements of Income. As a result, any tax benefit realized by the Company from a Stock Option exercise is reported under the Capital surplus caption in the Shareholders’ equity section on the Company’s Consolidated Balance Sheets. The Company previously reported the amount of the 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. The Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board, however, provides guidance in EITF Issue No. 00-15, “Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option,” that a company’s income tax benefit from stock option exercises should be reported in the cash flows from operating activities section on the company’s consolidated statements of cash flows. To correct this classification, the Company has changed its reporting of the tax benefit from Stock Option exercises by removing those benefits from under the Exercise of stock options caption in the Cash flows from financing activities section on its Consolidated Statements of Cash Flows and reporting those benefits under a separate caption entitled, “Tax benefit of stock options exercised,” in the Cash flows from operating activities section on its Consolidated Statements of Cash Flows, as a component of the Adjustments to reconcile net income to net cash provided by operating activities. The effect of the change in where the Company reports the tax benefit from Stock Option exercises on its interim and annual Consolidated Statements of Cash Flows is shown in Exhibit 99.2 to this Form 8-K. 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; or (b) the Cash and cash equivalents at end of period that is reported on any of the Company’s previously issued Consolidated Statements of Cash Flows.

The Company will refile as soon as practicable its restated consolidated financial statements with the U.S. Securities and Exchange Commission as amendments to its Annual Report on Form 10-K for 2004 and Quarterly Reports on Form 10-Q for 2005.

In the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 that was originally filed on March 15, 2005, the Company’s management had concluded

-3-

that it maintained effective internal control over its financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended, as of December 31, 2004. The Company’s management has re-evaluated the effectiveness of its internal control over its financial reporting as of December 31, 2004, and concluded that the Company’s controls over the preparation, review and presentation of the Company’s Consolidated Statements of Cash Flows were not effective as of December 31, 2004, solely because of a failure to ensure the correct application of SFAS No. 95 and EITF Issue No. 00-15 with respect to how the Company reports restricted cash and where the Company reports the tax benefit from Stock Option exercises on its Consolidated Statements of Cash Flows. This control deficiency resulted in a misstatement of the Company’s Cash flows from operating activities and Cash flows from financing activities and the Company’s management has determined that this control deficiency constitutes a material weakness in its internal control over its financial reporting with respect to accounting for cash flows from operating and financing activities. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of the material weakness in its internal control over its financial reporting described above, the Company’s management has also concluded that its disclosure controls and procedures were not effective as of December 31, 2004, March 31, 2005, June 30, 2005 and September 30, 2005.

The Company identified those errors through its continuing self-assessment and self-testing of its internal control over its financial reporting and as a result of additional controls and enhanced procedures that the Company adopted during the preparation of its Consolidated Financial Statements in connection with the financial reporting close process of its 2005 fiscal year that ended on December 31, 2005. Further information on the Company’s internal control over its financial reporting will be contained in Item 9A of the amendment to the Company’s Annual Report on Form 10-K for 2004 and in Item 4 of the amendments to the Company’s Quarterly Reports on Form 10-Q for 2005. The Company’s management believes that, as a result of its adoption of additional controls and enhanced procedures associated with the preparation of its financial statements, its internal control over its financial reporting will be effective. A full assessment of the Company’s internal control over its financial reporting as of December 31, 2005 by the Company’s management will be contained in the Company’s 2005 Annual Report on Form 10-K.

The Company’s management and the Audit Committee of its Board of Directors have discussed the matters disclosed in this Form 8-K with the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP.

-4-

Item 9.01 Financial Statements and Exhibits

(c) Exhibits:

Exhibit No. Description

99.1 Press release dated January 30, 2006 announcing the restatement.

99.2 Pro forma interim and annual Consolidated Statements of Cash Flows of the Company showing the effect of the restatement.

-5-

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: January 30, 2006

ITT Educational Services, Inc.

By:		/s/ Clark D. Elwood
	Name: Clark D. Elwood
	Title: Senior Vice President,

General Counsel and Secretary

-6-

INDEX TO EXHIBITS

Exhibit No. Description

99.1 Press release dated January 30, 2006 announcing the restatement.

99.2 Pro forma interim and annual Consolidated Statements of Cash Flows of the Company showing the effect of the restatement.

-7-

EX-99

Exhibit 99.1

ITT EDUCATIONAL SERVICES, INC. TO RESTATE ITS CONSOLIDATED STATEMENTS OF CASH FLOWS TO REPOSITION RESTRICTED CASH AND THE TAX BENEFIT FROM STOCK OPTION EXERCISES

CARMEL, IN January 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

-8-

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:

COMPANY:	WEB SITE:
Nancy Brown	www.ittesi.com
Director Corporate Relations

(317) 706-9260

-9-

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
	RESTATED (UNAUDITED)
	For the Three Months Ended	For the Six Months Ended	For the Nine Months Ended
	March 31, 2005	June 30, 2005	September 30, 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

-10-

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	For the Six Months Ended	For the Nine Months Ended
		March 31, 2005	June 30, 2005	September 30, 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

-11-

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
	RESTATED (UNAUDITED)
	For the Three Months Ended
	March 31, 2005	June 30, 2005	September 30, 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

-12-

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, 2005	June 30, 2005	September 30, 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

-13-

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
	RESTATED (UNAUDITED)
	For the Three Months Ended	For the Six Months Ended	For the Nine Months Ended
	March 31, 2004	June 30, 2004	September 30, 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

-14-

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		For the Six Months Ended		For the Nine Months Ended
	March 31, 2004		June 30, 2004		September 30, 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

-15-

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
	RESTATED (UNAUDITED)
	For the Three Months Ended
	March 31, 2004	June 30, 2004	September 30, 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

-16-

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, 2004	June 30, 2004		September 30, 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

-17-

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

-18-

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

-19-

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:

-20-

ITT EDUCATIONAL SERVICES, INC.
FREE CASH FLOW RECONCILIATION
(Dollar amounts in thousands)
(Unaudited)
	RESTATED
	For the		For the		For the
	Three Months Ended		Three Months Ended		Three Months Ended
	March 31, 2005		June 30, 2005		September 30, 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 Ended	Three Months Ended		Three Months Ended
	March 31, 2005	June 30, 2005		September 30, 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

-21-

-22-

ITT EDUCATIONAL SERVICES, INC.
FREE CASH FLOW RECONCILIATION
(Dollar amounts in thousands)
(Unaudited)
	RESTATED
	For the Three Months Ended March 31, 2004		For the Three Months Ended June 30, 2004	For the Three Months Ended September 30, 2004	For the Three Months Ended December 31, 2004	For the Year Ended December 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 Three Months Ended March 31, 2004			For the Three Months Ended June 30, 2004		For the Three Months Ended September 30, 2004		For the Three Months Ended December 31, 2004		For the Year Ended December 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

-23-

ITT EDUCATIONAL SERVICES, INC.
FREE CASH FLOW RECONCILIATION
(Dollar amounts in thousands)
(Unaudited)
	RESTATED
	For the Three Months Ended March 31, 2003		For the Three Months Ended June 30, 2003	For the Three Months Ended September 30, 2003	For the Three Months Ended December 31, 2003	For the Year Ended December 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 Three Months Ended March 31, 2003		For the Three Months Ended June 30, 2003	For the Three Months Ended September 30, 2003	For the Three Months Ended December 31, 2003	For the Year Ended December 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)
	RESTATED			AS PREVIOUSLY PRESENTED
		For the Year Ended December 31, 2002		For the Year Ended 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

-24-

EX-99

Exhibit 99.2

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
	RESTATED (UNAUDITED)			AS PREVIOUSLY PRESENTED IN 2005 SEC FILINGS
	For the Three Months Ended	For the Six Months Ended	For the Nine Months Ended	For the Three Months Ended	For the Six Months Ended	For the Nine Months Ended
	March 31, 2005	June 30, 2005	September 30, 2005	March 31, 2005	June 30, 2005	September 30, 2005
Cash flows from operating activities:
Net income	$15,028	$37,429	$71,842	$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	4,296	8,738	12,781
Provision for doubtful accounts	2,871	5,899	8,830	2,871	5,899	8,830
Deferred income taxes	(3,604)	(2,420)	(1,404)	(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)	(5,226)	(9,191)	(16,280)
Prepaids and other assets	(9,482)	(9,130)	(6,279)	(9,482)	(9,130)	(6,279)
Direct marketing costs, net	(896)	(1,784)	(2,139)	(896)	(1,784)	(2,139)
Accounts payable and accrued liabilities	5,666	5,724	5,365	5,666	5,724	5,365
Deferred revenue	(6,129)	(16,446)	(4,461)	(6,129)	(16,446)	(4,461)
Net cash flows from operating activities	12,723	29,982	80,270	2,524	18,819	68,255
Cash flows from investing activities:
Facility expenditures and land purchases	(9,584)	(19,816)	(23,534)	(9,584)	(19,816)	(23,534)
Capital expenditures, net	(3,146)	(10,005)	(14,117)	(3,146)	(10,005)	(14,117)
Proceeds from sales and maturities of investments	193,747	310,078	429,519	193,747	310,078	429,519
Purchase of investments	(180,559)	(286,934)	(467,059)	(180,559)	(286,934)	(467,059)
Net cash flows from investing activities	458	(6,677)	(75,191)	458	(6,677)	(75,191)
Cash flows from financing activities:
Purchase of treasury stock	-	-	-	-	-	-
Exercise of stock options	3,005	4,589	5,598	5,010	7,558	9,419
Net cash flows from financing activities	3,005	4,589	5,598	5,010	7,558	9,419
Net change in cash and cash equivalents	16,186	27,894	10,677
Net change in cash, cash equivalents and restricted cash				7,992	19,700	2,483
Cash and cash equivalents at beginning of period	9,389	9,389	9,389
Cash, cash equivalents and restricted cash at beginning of period				17,583	17,583	17,583
Cash and cash equivalents at end of period	$25,575	$37,283	$20,066
Cash, cash equivalents and restricted cash at end of period				$25,575	$37,283	$20,066

-25-

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
	RESTATED (UNAUDITED)			AS PREVIOUSLY PRESENTED IN 2005 SEC FILINGS
	For the Three Months Ended			For the Three Months Ended
	March 31, 2005	June 30, 2005	September 30, 2005	March 31, 2005	June 30, 2005	September 30, 2005
Cash flows from operating activities:
Net income	$15,028	$22,401	$34,413	$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	4,296	4,442	4,043
Provision for doubtful accounts	2,871	3,028	2,931	2,871	3,028	2,931
Deferred income taxes	(3,604)	1,184	1,016	(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)	(5,226)	(3,965)	(7,089)
Prepaids and other assets	(9,482)	352	2,851	(9,482)	352	2,851
Direct marketing costs, net	(896)	(888)	(355)	(896)	(888)	(355)
Accounts payable and accrued liabilities	5,666	58	(359)	5,666	58	(359)
Deferred revenue	(6,129)	(10,317)	11,985	(6,129)	(10,317)	11,985
Net cash flows from operating activities	12,723	17,259	50,288	2,524	16,295	49,436
Cash flows from investing activities:
Facility expenditures and land purchases	(9,584)	(10,232)	(3,718)	(9,584)	(10,232)	(3,718)
Capital expenditures, net	(3,146)	(6,859)	(4,112)	(3,146)	(6,859)	(4,112)
Proceeds from sales and maturities of investments	193,747	116,331	119,441	193,747	116,331	119,441
Purchase of investments	(180,559)	(106,375)	(180,125)	(180,559)	(106,375)	(180,125)
Net cash flows from investing activities	458	(7,135)	(68,514)	458	(7,135)	(68,514)
Cash flows from financing activities:
Purchase of treasury stock	-	-	-	-	-	-
Exercise of stock options	3,005	1,584	1,009	5,010	2,548	1,861
Net cash flows from financing activities	3,005	1,584	1,009	5,010	2,548	1,861
Net change in cash and cash equivalents	16,186	11,708	(17,217)
Net change in cash, cash equivalents and restricted cash				7,992	11,708	(17,217)
Cash and cash equivalents at beginning of period	9,389	25,575	37,283
Cash, cash equivalents and restricted cash at beginning of period				17,583	25,575	37,283
Cash and cash equivalents at end of period	$25,575	$37,283	$20,066
Cash, cash equivalents and restricted cash at end of period				$25,575	$37,283	$20,066

-26-

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
	RESTATED (UNAUDITED)			AS PREVIOUSLY PRESENTED IN 2005 SEC FILINGS
	For the Three Months Ended	For the Six Months Ended	For the Nine Months Ended	For the Three Months Ended	For the Six Months Ended	For the Nine Months Ended
	March 31, 2004	June 30, 2004	September 30, 2004	March 31, 2004	June 30, 2004	September 30, 2004
Cash flows from operating activities:
Net income	$9,026	$23,006	$41,466	$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	4,867	9,788	13,708
Provision for doubtful accounts	2,501	4,901	7,704	2,501	4,901	7,704
Deferred income taxes	(3,922)	(1,753)	(1,812)	(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	(2,074)	11,343	4,448
Accounts receivable	(1,622)	(6,823)	(12,347)	(1,622)	(6,823)	(12,347)
Prepaids and other assets	(3,488)	(3,424)	(2,116)	(3,488)	(3,424)	(2,116)
Direct marketing costs, net	(1,135)	(2,082)	(2,969)	(1,135)	(2,082)	(2,969)
Accounts payable and accrued liabilities	2,765	22,714	23,453	2,765	22,714	23,453
Deferred revenue	(2,679)	(7,843)	5,730	(2,679)	(7,843)	5,730
Net cash flows from operating activities	16,994	62,789	91,504	4,239	49,827	77,265
Cash flows from investing activities:
Facility expenditures and land purchases	-	(6,798)	(8,635)	-	(6,798)	(8,635)
Capital expenditures, net	(3,024)	(9,951)	(16,085)	(3,024)	(9,951)	(16,085)
Proceeds from sales and maturities of investments	240,986	626,433	921,513	240,986	626,433	921,513
Purchase of investments	(279,177)	(702,131)	(1,017,030)	(279,177)	(702,131)	(1,017,030)
Net cash flows from investing activities	(41,215)	(92,447)	(120,237)	(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	8,494	9,049	13,425
Net cash flows from financing activities	4,235	4,583	7,682	8,494	9,049	13,425
Net change in cash and cash equivalents	(19,986)	(25,075)	(21,051)
Net change in cash, cash equivalents and restricted cash				(28,482)	(33,571)	(29,547)
Cash and cash equivalents at beginning of period	43,042	43,042	43,042
Cash, cash equivalents and restricted cash at beginning of period				51,538	51,538	51,538
Cash and cash equivalents at end of period	$23,056	$17,967	$21,991
Cash, cash equivalents and restricted cash at end of period				$23,056	$17,967	$21,991

-27-

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
	RESTATED (UNAUDITED)			AS PREVIOUSLY PRESENTED IN 2005 SEC FILINGS
	For the Three Months Ended			For the Three Months Ended
	March 31, 2004	June 30, 2004	September 30, 2004	March 31, 2004	June 30, 2004	September 30, 2004
Cash flows from operating activities:
Net income	$9,026	$13,980	$18,460	$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	4,867	4,921	3,920
Provision for doubtful accounts	2,501	2,400	2,803	2,501	2,400	2,803
Deferred income taxes	(3,922)	2,169	(52)	(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)	(2,074)	13,161	(6,895)
Accounts receivable	(1,622)	(5,201)	(5,524)	(1,622)	(5,201)	(5,524)
Prepaids and other assets	(3,488)	64	1,308	(3,488)	64	1,308
Direct marketing costs, net	(1,135)	(947)	(887)	(1,135)	(947)	(887)
Accounts payable and accrued liabilities	2,765	19,949	732	2,765	19,949	732
Deferred revenue	(2,679)	(5,164)	13,573	(2,679)	(5,164)	13,573
Net cash flows from operating activities	16,994	45,539	28,715	4,239	45,332	27,438
Cash flows from investing activities:
Facility expenditures and land purchases	-	(6,798)	(1,837)	-	(6,798)	(1,837)
Capital expenditures, net	(3,024)	(6,927)	(6,134)	(3,024)	(6,927)	(6,134)
Proceeds from sales and maturities of investments	240,986	385,447	295,080	240,986	385,447	295,080
Purchase of investments	(279,177)	(422,698)	(314,899)	(279,177)	(422,698)	(314,899)
Net cash flows from investing activities	(41,215)	(50,976)	(27,790)	(41,215)	(50,976)	(27,790)
Cash flows from financing activities:
Purchase of treasury stock	-	-	-	-	-	-
Exercise of stock options	4,235	348	3,099	8,494	555	4,376
Net cash flows from financing activities	4,235	348	3,099	8,494	555	4,376
Net change in cash and cash equivalents	(19,986)	(5,089)	4,024
Net change in cash, cash equivalents and restricted cash				(28,482)	(5,089)	4,024
Cash and cash equivalents at beginning of period	43,042	23,056	17,967
Cash, cash equivalents and restricted cash at beginning of period				51,538	23,056	17,967
Cash and cash equivalents at end of period	$23,056	$17,967	$21,991
Cash, cash equivalents and restricted cash at end of period				$23,056	$17,967	$21,991

-28-

ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
	RESTATED (UNAUDITED)			AS PREVIOUSLY PRESENTED IN 2004 10-K FILING
	Year Ended December 31,			Year Ended December 31,
	2004	2003	2002	2004	2003	2002
Cash flows from operating activities:
Net income	$75,263	$58,858	$43,854	$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	18,249	21,190	21,117
Provision for doubtful accounts	11,996	6,134	6,872	11,996	6,134	6,872
Deferred income taxes	5,290	(2,835)	2,156	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	13,347	12,197	15,397
Accounts receivable	(13,028)	(6,559)	(3,166)	(13,028)	(6,559)	(3,166)
Prepaids and other assets	(1,952)	2,400	1,541	(1,952)	2,400	1,541
Direct marketing costs, net	(3,869)	(235)	(89)	(3,869)	(235)	(89)
Accounts payable and accrued liabilities	4,501	33,647	13,304	4,501	33,647	13,304
Deferred revenue	26,428	27,367	25,845	26,428	27,367	25,845
Net cash flows from operating activities	142,882	163,066	128,498	136,225	152,164	126,831
Cash flows from investing activities:
Facility expenditures and land purchases	(16,376)	(25,718)	(19,843)	(16,376)	(25,718)	(19,843)
Capital expenditures, net	(19,116)	(14,391)	(14,265)	(19,116)	(14,391)	(14,265)
Proceeds from sales and maturities of investments	1,128,172	179,230	-	1,128,172	179,230	-
Purchase of investments	(1,277,816)	(368,392)	-	(1,277,816)	(368,392)	-
Net cash flows from investing activities	(185,136)	(229,271)	(34,108)	(185,136)	(229,271)	(34,108)
Cash flows from financing activities:
Purchase of treasury stock	-	(28,726)	(44,451)	-	(28,726)	(44,451)
Exercise of stock options	8,601	14,039	10,293	14,956	26,334	13,601
Net cash flows from financing activities	8,601	(14,687)	(34,158)	14,956	(2,392)	(30,850)
Net change in cash and cash equivalents	(33,653)	(80,892)	60,232
Net change in cash, cash equivalents and restricted cash				(33,955)	(79,499)	61,873
Cash and cash equivalents at beginning of period	43,042	123,934	63,702
Cash, cash equivalents and restricted cash at beginning of period				51,538	131,037	69,164
Cash and cash equivalents at end of period	$9,389	$43,042	$123,934
Cash, cash equivalents and restricted cash at end of period				$17,583	$51,538	$131,037

-29-