10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 1-13144

ITT EDUCATIONAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware 36-2061311

(State or other jurisdiction of (I.R.S. Employer Identification No.)

incorporation or organization)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

40,366,520

Number of shares of Common Stock, $.01 par value, outstanding at June 30, 2007

ITT EDUCATIONAL SERVICES, INC.

Carmel, Indiana

Quarterly Report to Securities and Exchange Commission

June 30, 2007

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

Index

ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
		As of
	June 30, 2007	December 31, 2006	June 30, 2006
	(unaudited)		(unaudited)
Assets
Current assets:
Cash and cash equivalents	$10,079	$161,905	$8,073
Short-term investments	290,285	195,007	205,954
Accounts receivable, net	9,930	9,367	9,736
Deferred income taxes	9,464	4,771	4,950
Prepaid expenses and other current assets	25,470	9,902	10,427
Total current assets	345,228	380,952	239,140
Property and equipment, net	151,309	148,411	141,314
Direct marketing costs, net	21,207	21,628	19,592
Other assets	11,304	9,329	19,421
Total assets	$529,048	$560,320	$419,467
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt	$21,429	$ --	$ --
Accounts payable	60,117	47,948	59,910
Accrued compensation and benefits	14,129	13,899	10,028
Other accrued liabilities	12,110	20,496	11,829
Deferred revenue	192,392	202,162	174,065
Total current liabilities	300,177	284,505	255,832
Long-term debt	128,571	150,000	--
Deferred income taxes	11,855	13,713	15,273
Minimum pension liability	--	--	9,899
Other liabilities	15,116	8,157	7,832
Total liabilities	455,719	456,375	288,836
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	541
Capital surplus	15,635	46,982	59,435
Retained earnings	573,819	508,195	434,264
Accumulated other comprehensive (loss)	(6,364)	(6,533)	(6,016)
Treasury stock, 13,702,384, 13,029,471
and 11,738,007 shares, at cost	(510,302)	(445,240)	(357,593)
Total shareholders' equity	73,329	103,945	130,631
Total liabilities and shareholders' equity	$529,048	$560,320	$419,467
The accompanying notes are an integral part of these condensed consolidated financial statements.

ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(unaudited)
	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2007	2006	2007	2006
Revenue	$216,982	$185,569	$421,152	$361,884
Costs and expenses:
Cost of educational services	90,581	92,514	181,351	182,918
Student services and administrative expenses	68,725	56,465	138,018	112,577
Special legal and other investigation costs	--	--	--	(430)
Total costs and expenses	159,306	148,979	319,369	295,065
Operating income	57,676	36,590	101,783	66,819
Interest income, net	720	2,010	1,564	4,517
Income before provision for income taxes	58,396	38,600	103,347	71,336
Provision for income taxes	22,538	14,489	39,892	26,751
Net income	$35,858	$24,111	$63,455	$44,585
Earnings per share:
Basic	$0.89	$0.56	$1.56	$1.01
Diluted	$0.87	$0.55	$1.53	$0.99
Weighted average shares outstanding:
Basic	40,449	43,110	40,682	43,967
Diluted	41,110	44,042	41,350	44,920
The accompanying notes are an integral part of these condensed consolidated financial statements.

ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2007	2006	2007	2006
Cash flows from operating activities:
Net income	$35,858	$24,111	$63,455	$44,585
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization	6,099	5,096	12,740	9,994
Provision for doubtful accounts	5,349	2,783	9,990	5,332
Deferred income taxes	(2,945)	(94)	(6,551)	(858)
Excess tax benefit from stock option exercises	(12,224)	(3,802)	(23,274)	(6,966)
Stock-based compensation expense	1,196	313	3,171	2,234
Changes in operating assets and liabilities:
Accounts receivable	(5,421)	(2,744)	(10,553)	(1,079)
Direct marketing costs, net	353	(1,200)	421	(2,102)
Accounts payable	3,730	17,725	12,169	3,809
Other operating assets and liabilities	(3,950)	2,516	7,240	(2,155)
Deferred revenue	(13,378)	(5,261)	(9,770)	(1,389)
Net cash flows from operating activities	14,667	39,443	59,038	51,405
Cash flows from investing activities:
Facility expenditures and land purchases	(3,778)	(5,864)	(8,696)	(10,813)
Capital expenditures, net	(4,423)	(9,476)	(6,942)	(13,089)
Proceeds from sales and maturities of investments	593,489	433,586	1,184,306	806,121
Purchase of investments	(542,314)	(359,140)	(1,279,584)	(614,385)
Net cash flows from investing activities	42,974	59,106	(110,916)	167,834
Cash flows from financing activities:
Excess tax benefit from stock option exercises	12,224	3,802	23,274	6,966
Proceeds from exercise of stock options	7,916	5,549	17,541	14,767
Repurchase of common stock	(75,714)	(106,499)	(140,763)	(246,634)
Net cash flows from financing activities	(55,574)	(97,148)	(99,948)	(224,901)
Net change in cash and cash equivalents	2,067	1,401	(151,826)	(5,662)
Cash and cash equivalents at beginning of period	8,012	6,672	161,905	13,735
Cash and cash equivalents at end of period	$10,079	$8,073	$10,079	$8,073
The accompanying notes are an integral part of these condensed consolidated financial statements.

ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars and shares in thousands)
					Accumulated
	Common Stock		Capital	Retained	Other Comprehensive	Common Stock in Treasury
	Shares	Amount	Surplus	Earnings	Income/(Loss)	Shares	Amount	Total
Balance as of December 31, 2005	54,069	$541	$68,714	$389,679	($6,016)	(8,378)	($144,324)	$308,594
For the six months ended June 30, 2006 (unaudited):
Net income				44,585				44,585
Exercise of stock options			(18,326)			522	33,093	14,767
Tax benefit from exercise of stock options			6,966					6,966
Stock-based compensation			2,234					2,234
Common shares repurchased						(3,886)	(246,634)	(246,634)
Issuance of shares for Directors' Deferred Compensation Plan			(153)			4	272	119
Balance as of June 30, 2006	54,069	541	59,435	434,264	(6,016)	(11,738)	(357,593)	130,631
For the six months ended December 31, 2006 (unaudited):
Net income				73,931				73,931
Other comprehensive income:
Minimum pension liability, net of tax					6,016			6,016
Comprehensive income								79,947
Adoption of SFAS No. 158, net of tax					(6,533)			(6,533)
Exercise of stock options			(18,708)			401	26,901	8,193
Tax benefit from exercise of stock options			7,323					7,323
Common shares repurchased						(1,721)	(116,339)	(116,339)
Stock-based compensation			833					833
Restricted stock awards and shares tendered for taxes			(1,901)			29	1,791	(110)
Balance as of December 31, 2006	54,069	541	46,982	508,195	(6,533)	(13,029)	(445,240)	103,945
Effect of adoption of FIN No. 48				2,169				2,169
Balance as of January 1, 2007 (unaudited)	54,069	541	46,982	510,364	(6,533)	(13,029)	(445,240)	106,114
For the six months ended June 30, 2007 (unaudited):
Net income				63,455				63,455
Other comprehensive income:
SFAS No. 158 amortization of pension loss, net of tax					169			169
Comprehensive income								63,624
Exercise of stock options			(58,100)			856	75,641	17,541
Tax benefit from exercise of stock options			23,582					23,582
Common shares repurchased						(1,530)	(140,763)	(140,763)
Stock-based compensation			3,171					3,171
Issuance of shares for Directors’ Deferred Compensation Plan						1	60	60
Balance as of June 30, 2007	54,069	$541	$15,635	$573,819	($6,364)	(13,702)	($510,302)	$73,329

The accompanying notes are an integral part of these condensed consolidated financial statements.

ITT EDUCATIONAL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Dollars in thousands, except per share data and unless otherwise stated)

1. The Company and Basis of Presentation

We are a leading provider of technology-oriented postsecondary education in the United States based on revenue and student enrollment. As of June 30, 2007, we were offering diploma and associate, bachelor and master degree programs to approximately 49,000 students. As of June 30, 2007, we had 93 institutes and nine learning sites located in 34 states. All of our institutes are authorized by the applicable education authorities of the states in which they operate and are accredited by an accrediting commission recognized by the U.S. Department of Education ("ED"). We have provided career-oriented education programs since 1969 under the “ITT Technical Institute” name. Our corporate headquarters are located in Carmel, Indiana.

The accompanying unaudited condensed consolidated financial statements include our wholly-owned subsidiaries' accounts and have been prepared in accordance with generally accepted accounting principles in the United States of America for interim periods and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, including significant accounting policies, normally included in a complete presentation of financial statements prepared in accordance with those principles, rules and regulations have been omitted. The Condensed Consolidated Balance Sheet as of December 31, 2006 was derived from audited financial statements but, as presented in this report, may not include all disclosures required by accounting principles generally accepted in the United States. In the opinion of our management, the financial statements contain all adjustments necessary to fairly state our financial condition and results of operations. The interim financial information should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K as filed with the SEC for the year ended December 31, 2006.

2. Summary of Certain Accounting Policies

Income Taxes. Effective January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation Number 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” (“FIN No. 48”), which prescribes a single, comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on its tax returns. Upon adoption of FIN No. 48, we recognized a decrease of approximately $3,391 in the liability for unrecognized tax benefits, which was accounted for as an increase to retained earnings of $2,169 as of January 1, 2007 and a reduction of federal tax benefits of $1,222.

As of January 1, 2007, after the implementation of FIN No. 48, our unrecognized tax benefits were $6,820. The amount of unrecognized tax benefits that, if recognized, would have affected the effective tax rate as of the date of adoption was $5,494 and as of June 30, 2007 was approximately $6,300. In the six months ended June 30, 2007, our unrecognized tax benefits increased approximately $1,100. We expect our unrecognized tax benefits to increase by approximately $2,900 over the next 12 months for federal and state tax positions related to the current and prior years.

We record interest and penalties related to unrecognized tax benefits in income tax expense. As of January 1, 2007, we had approximately $523 accrued for the payment of interest and penalties related to unrecognized tax benefits in our Condensed Consolidated Balance Sheet.

We file income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, we are no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2003.

3. New Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”), which permits companies to choose to measure certain financial instruments and other items at fair value that are not currently required to be measured at fair value.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We will adopt SFAS No. 159 no later than January 1, 2008. We have not determined the effect that the adoption of SFAS No. 159 will have on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”), which requires a company to measure the funded status of a defined benefit postretirement plan as of the date of the company’s year-end balance sheet. This provision of SFAS No. 158 is effective for fiscal years ending after December 15, 2008 and will be adopted by us no later than December 31, 2008. We have not determined the effect that the adoption of this provision of SFAS No. 158 will have on our consolidated financial statements.

Also in September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which provides guidance on the use of fair value to measure assets and liabilities and expands the disclosure required in a company’s financial statements for fair value measurements. SFAS No. 157 will apply whenever other accounting pronouncements require or permit fair value measurements for assets and liabilities and is effective for fiscal years beginning after November 15, 2007. We will adopt SFAS No. 157 no later than January 1, 2008 and have not determined the effect that the adoption will have on our consolidated financial statements.

4. Equity Compensation

The stock-based compensation expense and related income tax benefit recognized in our Condensed Consolidated Statements of Income in the periods indicated were as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2007	2006	2007	2006
Stock-based compensation expense	$1,196	$313	$3,171	$2,234
Income tax benefit	$460	$120	$1,220	$860

We did not capitalize any stock-based compensation cost in the three or six months ended June 30, 2007 or 2006.

As of June 30, 2007, we estimated that pre-tax compensation expense for unvested stock-based compensation grants in the amount of approximately $9,434, net of estimated forfeitures, will be recognized in future periods. This expense will be recognized over the remaining service period applicable to the grantees which, on a weighted-average basis, is approximately 3.2 years.

The stock options granted, forfeited, exercised and expired in the period indicated are as follows:

	Six Months Ended June 30, 2007
		Weighted		Weighted
		Average	Aggregate	Average	Aggregate
	# of	Exercise	Exercise	Remaining	Intrinsic
	Shares	Price	Price	Contractual Term	Value (1)
Outstanding at beginning of period	2,570,809	$33.88	$87,103
Granted	231,362	79.10	18,300
Forfeited	(33,432)	69.96	(2,339)
Exercised	(856,083)	20.49	(17,541)
Expired	--	--	--
Outstanding at end of period	1,912,656	$44.71	$85,523	5.4 years	$138,985
Exercisable at end of period	1,627,997	$39.76	$64,728	5.3 years	$126,366

_____________________________

(1) The aggregate intrinsic value of the stock options was calculated by multiplying the number of shares subject to the options outstanding or exercisable, as applicable, by the closing market price of our common stock on June 29, 2007, and subtracting the applicable aggregate exercise price.

Information regarding the stock options granted and exercised in the periods indicated was as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2007	2006	2007	2006
Shares subject to stock options granted	74,282	10,000	231,362	66,500
Weighted average grant date fair value	$29.92	$23.11	$29.11	$21.89
Shares subject to stock options exercised	362,316	240,655	856,083	521,704
Intrinsic value of stock options exercised	$32,177	$9,937	$61,400	$18,174
Proceeds received from stock options exercised	$7,916	$5,549	$17,541	$14,767
Tax benefits realized from stock options exercised	$12,388	$3,802	$23,582	$6,966

The fair value of each stock option grant was estimated on the date of grant using the following assumptions:

	Three Months Ended June 30,		Six Months Ended June 30,
	2007	2006	2007	2006
Risk-free interest rates	4.5%	4.3%	4.5% - 4.8%	4.3%
Expected lives (in years)	4.7	4.3	4.7	4.3
Volatility	35%	42%	35%	42%
Dividend yield	None	None	None	None

The following table sets forth the shares of restricted stock and the restricted stock units ("RSUs") that were granted, forfeited and vested in the period indicated:

	Six Months Ended June 30, 2007
	# of Shares of Restricted Stock	Weighted Average Grant Date Fair Value	# of RSUs	Weighted Average Grant Date Fair Value
Unvested at beginning of period	24,532	$60.90	88	$68.25
Granted	--	--	59,684	83.69
Forfeited	(575)	58.74	(443)	77.60
Vested	--	--	--	--
Unvested at end of period	23,957	$60.95	59,329	$83.71

5. Share Repurchases

Our Board of Directors has authorized us to repurchase the following number of shares of our common stock pursuant to our share repurchase program (the "Repurchase Program"):

Number of Shares	Board Authorization Date
2,000,000	April 1999
2,000,000	April 2000
5,000,000	October 2002
5,000,000	April 2006
5,000,000	April 2007

The shares that remained available for repurchase under the Repurchase Program were 6,151,200 as of June 30, 2007. The terms of the Repurchase Program provide that we may repurchase shares of our common stock, from time to time depending on market conditions and other considerations, in the open market or through privately negotiated transactions in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Unless earlier terminated by our Board of Directors, the Repurchase Program will expire when we repurchase all shares authorized for repurchase thereunder.

Information regarding the shares of our common stock that we repurchased in the periods indicated is as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2007	2006	2007	2006
Number of shares	720,000	1,660,500	1,529,900	3,886,200
Total cost	$75,714	$106,499	$140,763	$246,634
Average price per share	$105.16	$64.14	$92.01	$63.46

6. Debt

On December 22, 2006, we entered into a credit agreement with a single lender to borrow up to $150,000 under a revolving credit facility. We can borrow under the credit facility on either a secured or unsecured basis. The credit agreement matures on October 1, 2009 and the amount of credit available thereunder decreases by $21,429 each calendar quarter beginning April 1, 2008.

Borrowings under the credit agreement bear interest at variable rates based on fixed increments over the London Interbank Offered Rate (“LIBOR”). As of June 30, 2007, we had $150,000 of secured borrowings under the credit agreement at an interest rate of 5.47% per annum. Approximately $157,950 of our investments served as collateral for the secured borrowings as of June 30, 2007.

We recognized interest expense on our borrowings under the credit agreement in the amount of $2,074 during the three months ended June 30, 2007 and $4,180 during the six months ended June 30, 2007.

7. Investments

The following table sets forth how our investments were classified on our Condensed Consolidated Balance Sheets as of the dates indicated:

	As of:
	June 30, 2007			December 31, 2006			June 30, 2006
	Available-for-Sale	Held-to-Maturity	Total	Available-for-Sale	Held-to-Maturity	Total	Available-for-Sale	Held-to-Maturity	Total
Short-term investments	$290,285	$ --	$290,285	$185,535	$9,472	$195,007	$194,435	$11,519	$205,954
Non-current investments	--	--	--	--	--	--	--	--	--
Total	$290,285	$ --	$290,285	$185,535	$9,472	$195,007	$194,435	$11,519	$205,954

The following table sets forth the aggregate fair market value of our available-for-sale investments and aggregate amortized cost of our held-to-maturity investments as of the dates indicated:

	As of:
	June 30, 2007	December 31, 2006	June 30, 2006
Available-for-Sale Investments:
Auction rate equity securities	$ --	$ 21,300	$ 35,400
Auction rate debt securities and
variable rate demand notes	290,285	164,235	159,035
	$290,285	$ 185,535	$ 194,435
Held-to-Maturity Investments:
Marketable debt securities	$ --	$ 9,472	$ 11,519

We had no material gross unrealized holding or realized gains (losses) from our investments in auction rate securities and variable rate demand notes in the three or six months ended June 30, 2007 and 2006. All income generated from those investments was recorded as interest income. The interest income recognized from our investments in the periods indicated was as follows:

Three Months Ended June 30,		Six Months Ended June 30,
2007	2006	2007	2006
$2,656	$2,053	$5,606	$4,516

The following table sets forth the contractual maturities of our debt securities classified as available-for-sale and held-to-maturity as of June 30, 2007:

Contractual Maturity	Available-for-Sale	Held-to-Maturity
Due within five years	$ --	$ --
Due after five years through ten years	26,235	--
Due after ten years	264,050	--
	$290,285	$ --

8. Earnings Per Common Share

Earnings per common share for all periods have been calculated in conformity with SFAS No. 128, “Earnings Per Share.” This data is based on the weighted average number of shares of our common stock outstanding in each period as set forth in the following table:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2007	2006	2007	2006
	(In thousands)
Shares:
Weighted average number of shares of common stock outstanding	40,449	43,110	40,682	43,967
Shares assumed issued (less shares assumed purchased for treasury) for stock-based compensation	661	932	668	953
Outstanding shares for diluted
earnings per share calculation	41,110	44,042	41,350	44,920

A total of 74,336 shares at June 30, 2007 and 16,000 shares at June 30, 2006 have been excluded from the calculation of our diluted earnings per common share because the effect was anti-dilutive.

9. Employee Pension Benefits

The following table sets forth the components of net periodic pension benefit costs of the ESI Pension Plan and ESI Excess Pension Plan for the periods indicated:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2007	2006	2007	2006
Service cost	$ --	$--	$ --	$1,669
Interest cost	769	708	1,538	1,490
Expected return on assets	(1,202)	(1,148)	(2,404)	(2,040)
Recognized net actuarial loss	138	140	276	479
Amortization of prior service cost	--	--	--	(443)
Net periodic pension cost/(benefit)	($295)	($300)	($590)	$1,155

We do not expect to make any contributions to the ESI Pension Plan in 2007.

Effective March 31, 2006, the benefit accruals under the ESI Pension Plan and the ESI Excess Pension Plan were frozen for all participants in those plans. As a result of the freeze, we recognized a pre-tax curtailment gain of $421 in the six months ended June 30, 2006 and $0 in the three months ended June 30, 2006, due to the acceleration of the amortization of prior service cost and decrease in projected benefit obligation.

We adopted the recognition provisions of SFAS No. 158 effective December 31, 2006. SFAS No. 158 requires that the funded status of a defined benefit postretirement plan be recognized on a company’s balance sheet, and that any changes in the funded status of that type of plan be recognized through comprehensive income. We recorded $8,277 in other assets for our qualified pension plan, a liability of $1,656 in other liabilities for our nonqualified pension plan and $6,533, net of tax, in accumulated other comprehensive loss on our December 31, 2006 Condensed Consolidated Balance Sheet upon our adoption of SFAS No. 158. Our June 30, 2007 Condensed Consolidated Balance Sheet reflects an asset of $9,191 in other assets for our qualified pension plan, a liability of $1,704 in other liabilities for our nonqualified pension plan and $6,364, net of tax, in accumulated other comprehensive loss.

Retrospective application of SFAS No. 158 is not permitted and, therefore, prior period balances and activity related to the pension plans have not been changed. Prepaid pension costs of $18,384 are included in other assets on the Condensed Consolidated Balance Sheet as of June 30, 2006.

10. Contingencies

As part of our normal operations, one of our insurers issues surety bonds for us that are required by various education authorities that regulate us. We are obligated to reimburse our insurer for any of those surety bonds that are paid by the insurer. As of June 30, 2007, the total face amount of those surety bonds was approximately $10,768. In addition, as of June 30, 2007, we provided irrevocable standby letters of credit in the amount of approximately $1,169 to secure the payment of construction costs associated with a facility that we built in 2006 and the payment of our workers’ compensation claims.

We are also subject to various claims and contingencies in the ordinary course of our business, including those related to litigation, business transactions, employee-related matters and taxes, among others. We cannot assure you of the ultimate outcome of any litigation involving us. Any litigation alleging violations of education or consumer protection laws and/or regulations, misrepresentation, fraud or deceptive practices may also subject our affected institutes to additional regulatory scrutiny.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

All statements, trend analyses and other information contained in this report that are not historical facts are forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Exchange Act. Forward-looking statements are made based on our management’s current expectations and beliefs concerning future developments and their potential effects on us. You can identify those statements by the use of words such as “could,” “should,” “would,” “may,” “will,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue” and “contemplate,” as well as similar words and expressions. Forward-looking statements involve risks and uncertainties and do not guarantee future performance. We cannot assure you that future developments affecting us will be those anticipated by our management. Among the factors that could cause actual results to differ materially from those expressed in our forward-looking statements 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 of those regulations, including, but not limited to, the level of government funding for, and our eligibility to participate in, student financial aid programs utilized by our students;

• our failure to comply with the extensive education laws and regulations and accreditation standards that we are subject to;

• effects of any change in our ownership resulting in a change in control, including, but not limited to, the consequences of such changes on the accreditation and federal and state regulation of our institutes;

• our ability to implement our growth strategies;

• our failure to maintain or renew required regulatory authorizations or accreditation of our institutes;

• receptivity of students and employers to our existing program offerings and new curricula;

• loss of access by our students to lenders for student loans; and

• our ability to successfully defend litigation and other claims brought against us.

Readers are also directed to other risks and uncertainties discussed in other documents we file with the SEC, including, without limitation, those discussed in Item 1A. “Risk Factors.” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the SEC. We undertake no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.

Overview

You should keep in mind the following points as you read this report:

• References in this document to “we,” “us,” “our” and “ITT/ESI” refer to ITT Educational Services, Inc. and its subsidiaries.

• The terms “ITT Technical Institute” or “institute” (in singular or plural form) refer to an individual school owned and operated by ITT/ESI, including its learning sites, if any. The terms “institution” or “campus group” (in singular or plural form) mean a main campus and its additional locations, branch campuses and/or learning sites, if any.

This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the same titled section contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the SEC for discussion of, among other matters, the following items:

• cash receipts from financial aid programs;

• nature of capital additions;

• seasonality of revenue;

• components of income statement captions;

• federal regulations regarding:

• timing of receipt of funds from the federal student financial aid programs under Title IV of the Higher Education Act of 1965, as amended (the “Title IV Programs”);

• percentage of applicable revenue that may be derived from the Title IV Programs;

• return of Title IV Program funds for withdrawn students; and

• default rates;

• private loan programs;

• investments;

• repurchase of shares of our common stock; and

• minimum pension liability.

This management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses. Actual results may differ from those estimates and judgments, under different assumptions or conditions.

Background

We are a leading provider of technology-oriented postsecondary education programs in the United States based on revenue and student enrollment. As of June 30, 2007, we were offering diploma and associate, bachelor and master degree programs to approximately 49,000 students. As of June 30, 2007, we had 93 institutes and nine learning sites located in 34 states. All of our institutes are authorized by the applicable education authorities of the states in which they operate, and are accredited by an accrediting commission recognized by the ED. We design our education programs, after consultation with employers, to help graduates prepare for careers in various fields involving their areas of study. As of June 30, 2007, all of our program offerings were degree programs, except for a few diploma programs offered at six institutes that are being converted to degree programs. We have provided career-oriented education programs since 1969 under the “ITT Technical Institute” name.

In the second quarter of 2007, we began operations at three new institutes. We plan to begin operations at two additional institutes in the remainder of 2007. Our overall expansion plans include:

• operating new institutes;

• adding learning sites to existing institutes;

• offering a broader range of both residence and online programs at our existing institutes; and

• increasing the number of our institutes that offer bachelor degree programs.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses. Actual results may differ from those estimates and judgments under different assumptions or conditions. We have discussed the critical accounting policies that we believe affect our more significant estimates and judgments used in the preparation of our consolidated financial statements in the "Management's Discussion and Analysis of Financial Condition and Results of the Operations – Critical Accounting Policies and Estimates" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the SEC. There have been no material changes to those critical accounting policies or the underlying accounting estimates or judgments, except as discussed below.

Income Taxes. Effective January 1, 2007, we adopted FIN No. 48, which prescribes a single, comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. Upon adoption of FIN No. 48, we recognized a decrease of approximately $3.4 million in the liability for unrecognized tax benefits, which was accounted for as an increase to retained earnings of $2.2 million as of January 1, 2007 and a reduction of federal tax benefits of $1.2 million.

As of January 1, 2007, after the implementation of FIN No. 48, our unrecognized tax benefits were $6.8 million. The amount of unrecognized tax benefits that, if recognized, would have affected the effective tax rate as of the date of adoption was $5.5 million and as of June 30, 2007 was approximately $6.3 million. In the six months ended June 30, 2007, our unrecognized tax benefits increased approximately $1.1 million. We expect our unrecognized tax benefits to increase by approximately $2.9 million over the next 12 months for federal and state tax positions related to the current and prior years. See also Note 2 of the Notes to Condensed Consolidated Financial Statements.

Equity-Based Compensation. The equity instruments exchanged for employee and director services have been accounted for in accordance with SFAS No. 123R, "Share-Based Payment" ("SFAS No. 123R"). We use a binomial option pricing model to determine the fair value of all stock options granted on or after January 1, 2005, and we use the market price of our common stock to determine the fair value of restricted stock and RSUs granted. Various assumptions are used in the model to determine the fair value of the stock options. See Note 4 of the Notes to Condensed Consolidated Financial Statements for further discussion of equity compensation and the assumptions.

Stock-based compensation expense in the three months ended June 30, 2007 was $1.2 million, or approximately $0.7 million, net of tax, compared to $0.3 million, or $0.2 million net of tax, in the three months ended June 30, 2006. Stock-based compensation expense in the six months ended June 30, 2007 was $3.2 million, or $2.0 million, net of tax, compared to $2.2 million, or $1.4 million, net of tax, in the six months ended June 30, 2006.

New Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, which permits companies to choose to measure certain financial instruments and other items at fair value that are not currently required to be measured at fair value.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We will adopt SFAS No. 159 no later than January 1, 2008. We have not determined the effect that the adoption of SFAS No. 159 will have on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, which requires a company to measure the funded status of a defined benefit postretirement plan as of the date of the company’s year-end balance sheet. This provision of SFAS No. 158 is effective for fiscal years ending after December 15, 2008 and will be adopted by us no later than December 31, 2008. We have not determined the effect that the adoption of this provision of SFAS No. 158 will have on our consolidated financial statements.

Also in September 2006, the FASB issued SFAS No. 157, which provides guidance on the use of fair value to measure assets and liabilities and expands the disclosure required in a company’s financial statements for fair value measurements. SFAS No. 157 will apply whenever other accounting pronouncements require or permit fair value measurements for assets and liabilities and is effective for fiscal years beginning after November 15, 2007. We will adopt SFAS No. 157 no later than January 1, 2008 and have not determined the effect that the adoption will have on our consolidated financial statements.

Results of Operations

The following table sets forth the percentage relationship of certain statement of income data to revenue for the periods indicated:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2007	2006	2007	2006
Revenue	100.0%	100.0%	100.0%	100.0%
Cost of educational services	41.7%	49.9%	43.0%	50.5%
Student services and administrative expenses	31.7%	30.4%	32.8%	31.1%
Special legal and other investigation costs	--	--%	--	(0.1)%
Operating income	26.6%	19.7%	24.2%	18.5%
Interest income, net	0.3%	1.1%	0.3%	1.2%
Income before provision for income taxes	26.9%	20.8%	24.5%	19.7%

The following table sets forth our total student enrollment as of the dates indicated, exclusive of international enrollments:

	2007		2006
	Total	Increase	Total	Increase
Total Student	Student	Over	Student	Over
Enrollment as of:	Enrollment	Prior Year	Enrollment	Prior Year
March 31	49,295	12.4%	43,868	5.6%
June 30	48,873	11.0%	44,025	6.3%
September 30	Not applicable	Not applicable	48,155	8.6%
December 31	Not applicable	Not applicable	46,896	9.1%

Total student enrollment includes all new and continuing students. A continuing student is any student who, in the academic quarter being measured, is enrolled in a program of study at an ITT Technical Institute and was enrolled in the same program at any ITT Technical Institute at the end of the immediately preceding academic quarter. A new student is any student who, in the academic quarter being measured, enrolls in and begins attending any program of study at an ITT Technical Institute:

• for the first time at that institute;

• after graduating in a prior academic quarter from a different program of study at that institute; or

• after having withdrawn or been terminated from a program of study at that institute.

The following table sets forth our new student enrollment in the periods indicated, exclusive of international enrollments:

	2007		2006
New Student Enrollment	New	Increase	New	Increase
in the Three	Student	Over	Student	Over
Months Ended:	Enrollment	Prior Year	Enrollment	Prior Year
March 31	12,738	13.1%	11,264	14.7%
June 30	12,043	3.2%	11,674	10.4%
September 30	Not applicable	Not applicable	16,789	6.0%
December 31	Not applicable	Not applicable	10,208	15.6%
Total for the year	Not applicable	Not applicable	49,935	10.8%

We generally organize the academic schedule for programs of study offered at our institutes on the basis of four 12-week academic quarters in a calendar year that typically begin in early March, mid-June, early September, and late November or early December. To measure the persistence of our students, the number of continuing students in any academic quarter is divided by the total student enrollment as of the end of the immediately preceding academic quarter.

The following table sets forth the rates of our students’ persistence for the periods indicated, exclusive of international enrollments:

	Student Persistence for the Three Months Ended
Year	March 31	June 30	September 30	December 31
2005	77.6%	74.2%	68.8%	77.0%
2006	75.8%	73.7%	71.2%	76.2%
2007	78.0%	74.7%	Not applicable	Not applicable

Under our hybrid delivery model, certain program courses are taught in residence on campus and others are taught either online over the Internet or partially online over the Internet and partially in residence on campus (the "Hybrid Delivery Model"). In the second quarter of 2004, we began using the Hybrid Delivery Model with a larger number of our students, which increased the number of courses that we taught online over the Internet to our students. Student retention is typically lower in the courses that we teach online over the Internet compared to the courses that we teach on campus. As a result of the use of the Hybrid Delivery Model, our students’ persistence decreased. In the second quarter of 2006, we modified the Hybrid Delivery Model for certain programs at select ITT Technical Institutes, such that students are no longer required to take one course online each academic quarter. In the third quarter of 2006, we expanded that modification to all programs at all ITT Technical Institutes that use the Hybrid Delivery Model. As modified, the Hybrid Delivery Model provides qualifying students with the option of taking one course online each academic quarter. Nonqualifying students are required to take all of their courses in residence at the institute each academic quarter. We consider a number of factors in determining whether a student qualifies, including his or her previous academic performance and success in courses taught online. We believe that increasing our students’ face-to-face interaction with their instructors will cause our students’ persistence to improve.

Three Months Ended June 30, 2007 Compared with Three Months Ended June 30, 2006. Revenue increased $31.4 million, or 16.9%, to $217.0 million in the three months ended June 30, 2007 compared to $185.6 million in the three months ended June 30, 2006, primarily due to:

• a 12.4% increase in total student enrollment at March 31, 2007 compared to March 31, 2006;

• a 5.0% increase in tuition rates in March 2007; and

• a 100 basis point increase in our students' persistence to 74.7% for the three months ended June 30, 2007 compared to 73.7% for the three months ended June 30, 2006.

The increase in student enrollment was primarily due to:

• operating new institutes and learning sites;

• an increased number of institutes offering bachelor degree programs; and

• an increased number of new programs of study offered by our institutes.

Cost of educational services decreased $1.9 million, or 2.1%, to $90.6 million in the three months ended June 30, 2007 compared to $92.5 million in the three months ended June 30, 2006, primarily due to:

• greater efficiencies in the operation of our institutes; and

• decreased costs associated with decreased sales of laptop computers.

The decrease in cost of educational services was partially offset by:

• increased costs associated with operating new institutes and learning sites;

• the costs required to service the increased total student enrollment; and

• normal inflationary increases for other cost of services.

Cost of educational services as a percentage of revenue decreased 820 basis points to 41.7% in the three months ended June 30, 2007 from 49.9% in the three months ended June 30, 2006, primarily due to greater efficiencies in the operation of our institutes and decreased costs associated with decreased sales of laptop computers, which was partially offset by the costs associated with operating new institutes and learning sites.

Student services and administrative expenses increased $12.2 million, or 21.7%, to $68.7 million in the three months ended June 30, 2007 compared to $56.5 million in the three months ended June 30, 2006. The principal causes of this increase included:

• a 16.9% increase in media advertising expenditures to promote new locations and program offerings and as a result of higher advertising rates charged by certain media sources;

• an increase in compensation and benefit costs associated with a greater number of employees;

• an increase in bad debt expense; and

• normal inflationary increases for compensation and other cost of services.

Student services and administrative expenses increased to 31.7% of revenue in the three months ended June 30, 2007 compared to 30.4% of revenue in the three months ended June 30, 2006, primarily due to an increase in bad debt expense and an increase in compensation and benefit expense associated with a greater number of employees. Bad debt expense as a percentage of revenue increased to 2.5% in the three months ended June 30, 2007, compared to 1.5% in the three months ended June 30, 2006.

Operating income increased $21.1 million, or 57.6%, to $57.7 million in the three months ended June 30, 2007 compared to $36.6 million in the three months ended June 30, 2006. The operating margin increased to 26.6% of revenue in the three months ended June 30, 2007 compared to 19.7% in the three months ended June 30, 2006. The increases in operating income and operating margin were primarily due to:

• greater efficiencies in the operation of our institutes, and

• increased student enrollment;

partially offset by:

• the costs required to service the increased total student enrollment, and

• increased bad debt expense.

Interest income, net decreased $1.3 million, or 65.0%, to $0.7 million in the three months ended June 30, 2007 compared to $2.0 million in the three months ended June 30, 2006 primarily due to interest expense of $2.1 million associated with borrowings under our revolving credit agreement.

Our combined federal and state effective income tax rate was 38.6% in the three months ended June 30, 2007 compared to 37.5% in the three months ended June 30, 2006. The effective income tax rate increase was primarily due to certain expenses incurred in the three months ended June 30, 2007 that were not deductible for tax purposes.

Six Months Ended June 30, 2007 Compared with Six Months Ended June 30, 2006. Revenue increased $59.3 million, or 16.4%, to $421.2 million in the six months ended June 30, 2007 compared to $361.9 million in the six months ended June 30, 2006, primarily due to:

• a 12.4% increase in total student enrollment at March 31, 2007 compared to March 31, 2006;

• a 5.0% increase in tuition rates in March 2007 and March 2006; and

• a 9.1% increase in total student enrollment at December 31, 2006 compared to December 31, 2005.

The increase in student enrollment was primarily due to:

• operating new institutes and learning sites;

• an increased number of institutes offering bachelor degree programs; and

• an increased number of new programs of study offered by our institutes.

Cost of educational services decreased $1.5 million, or 0.9%, to $181.4 million in the six months ended June 30, 2007 compared to $182.9 million in the six months ended June 30, 2006, primarily due to:

• greater efficiencies in the operation of our institutes; and

• decreased costs associated with decreased sales of laptop computers.

The decrease in cost of educational services was partially offset by:

• increased costs associated with operating new institutes and learning sites;

• the costs required to service the increased total student enrollment; and

• normal inflationary increases for other cost of services.

Cost of educational services as a percentage of revenue decreased 750 basis points to 43.0% in the six months ended June 30, 2007 from 50.5% in the six months ended June 30, 2006, primarily due to greater efficiencies in the operation of our institutes and decreased costs associated with decreased sales of laptop computers, which was partially offset by the costs associated with operating new institutes and learning sites.

Student services and administrative expenses increased $25.4 million, or 22.6%, to $138.0 million in the six months ended June 30, 2007 compared to $112.6 million in the six months ended June 30, 2006. The principal causes of this increase included:

• a 20.0% increase in media advertising expenditures to promote new locations and program offerings;

• an increase in compensation and benefit costs associated with a greater number of employees;

• an increase in bad debt expense; and

• normal inflationary increases for compensation and other cost of services.

Student services and administrative expenses increased to 32.8% of revenue in the six months ended June 30, 2007 compared to 31.1% of revenue in the six months ended June 30, 2006, primarily due to an increase in media advertising costs for the promotion of new institutes and an increase in bad debt expense. Bad debt expense as a percentage of revenue increased to 2.4% in the six months ended June 30, 2007, compared to 1.5% in the six months ended June 30, 2006.

Operating income increased $35.0 million, or 52.4%, to $101.8 million in the six months ended June 30, 2007 compared to $66.8 million in the six months ended June 30, 2006. The operating margin increased to 24.2% of revenue in the six months ended June 30, 2007 compared to 18.5% in the six months ended June 30, 2006. The increases in operating income and operating margin were primarily due to:

• greater efficiencies in the operation of our institutes, and

• increased student enrollment;

partially offset by:

• the costs required to service the increased total student enrollment, and

• increased media advertising costs.

Interest income, net decreased $2.9 million, or 64.4%, to $1.6 million in the six months ended June 30, 2007 compared to $4.5 million in the six months ended June 30, 2006 primarily due to interest expense of $4.2 million associated with borrowings under our revolving credit agreement.

Our combined federal and state effective income tax rate was 38.6% in the six months ended June 30, 2007 compared to 37.5% in the six months ended June 30, 2006. The effective income tax rate increase was primarily due to certain expenses incurred in the six months ended June 30, 2007 that were not deductible for tax purposes.

Financial Condition, Liquidity and Capital Resources

Cash and cash equivalents were $10.1 million as of June 30, 2007 compared to $161.9 million as of December 31, 2006 and $8.1 million as of June 30, 2006. The December 31, 2006 cash and cash equivalents balance included a $150.0 million certificate of deposit which represented the short-term investment of proceeds from borrowings under our revolving credit facility. We also had investments of $290.3 million as of June 30, 2007 which increased $95.3 million from $195.0 million as of December 31, 2006, primarily due to investing the proceeds from borrowings under our revolving credit agreement.

We are required to recognize the funded status of our defined benefit postretirement plans on our balance sheet. We recorded an asset of $9.2 million for the ESI Pension Plan, a non-contributory defined benefit pension plan commonly referred to as a cash balance plan, and a liability of $1.7 million for the ESI Excess Pension Plan, a nonqualified, unfunded retirement plan, on our Condensed Consolidated Balance Sheet as of June 30, 2007.

In January 2006, we contributed $15.0 million to the ESI Pension Plan. We do not expect to make any contribution to the ESI Pension Plan in 2007.

Operations.Cash from operating activities decreased $24.7 million to $14.7 million in the three months ended June 30, 2007 compared to $39.4 million in the three months ended June 30, 2006, primarily due to:

• the timing of vendor and income tax payments; and

• a change in the timing of the receipt of certain loan funds.

Cash from operating activities increased $7.6 million to $59.0 million in the six months ended June 30, 2007 compared to $51.4 million in the six months ended June 30, 2006, primarily due to:

• an increase in net income;

• no contributions to the ESI Pension Plan in 2007;

• the timing of vendor and income tax payments; and

• a change in the timing of the receipt of certain loan funds.

Accounts receivable, net, was $9.9 million as of June 30, 2007 compared to $9.7 million as of June 30, 2006. Days sales outstanding was 4.2 days at June 30, 2007 and 4.8 days at June 30, 2006.

Investing.In the three months ended June 30, 2007, we spent $3.8 million to purchase, renovate, expand or construct buildings at six of our locations compared to $5.9 million for similar expenditures at 12 facilities in the three months ended June 30, 2006. In the six months ended June 30, 2007, we spent $8.7 million to purchase, renovate, expand or construct buildings at nine of our locations compared to $10.8 million for similar expenditures at 12 facilities in the six months ended June 30, 2006.

Capital expenditures, excluding facility and land purchases and facility construction, totaled:

• $4.4 million in the three months ended June 30, 2007 compared to $9.5 million in the three months ended June 30, 2006; and

• $6.9 million in the six months ended June 30, 2007 compared to $13.1 million in the six months ended June 30, 2006.

These expenditures consisted primarily of classroom and laboratory equipment (such as computers and electronic equipment), classroom and office furniture, software and leasehold improvements. We plan to continue to upgrade and expand current facilities and equipment throughout the remainder of 2007. Cash generated from operations is expected to be sufficient to fund our capital expenditure requirements.

Financing.On December 22, 2006, we entered into a credit agreement with a single lender to borrow up to $150.0 million under a revolving credit facility. The credit facility will be used to allow us to continue repurchasing shares of our common stock while maintaining compliance with certain financial ratios required by the ED, the state education authorities that regulate our institutes and the accrediting agency that accredits our institutes.

The credit agreement matures on October 1, 2009 and the amount of credit available thereunder decreases by $21.4 million each calendar quarter beginning April 1, 2008. Cash generated from operations is expected to be sufficient to fund the repayment of borrowings. We have the option of borrowing under the credit agreement on either a secured or unsecured basis which, subject to certain conditions, can be changed by us at any time upon ten days prior written notice to the lender. Certain investments held in a pledged account serve as the collateral for any secured borrowings under the credit agreement.

Borrowings under the credit agreement bear interest at variable rates based on fixed increments over the LIBOR. As of June 30, 2007, the borrowings under the credit agreement were $150.0 million, all of which were secured, and bore interest at a rate of 5.47% per annum. Approximately $158.0 million of our investments as of June 30, 2007 served as collateral for the secured borrowings under the credit agreement.

The availability of borrowings under the credit agreement is subject to our ability at the time of borrowing to satisfy certain specified conditions. These conditions include the absence of default by us, as defined in the credit agreement, and that certain representations and warranties contained in the credit agreement continue to be true and accurate. We are also required to maintain a certain maximum leverage ratio and a minimum ratio of cash and investments to outstanding indebtedness at the end of each of our fiscal quarters. We were in compliance with those ratio requirements as of June 30, 2007.

Our Board of Directors increased the number of shares of our common stock that we are authorized to repurchase under the Repurchase Program by 5,000,000 in April 2006 and by an additional 5,000,000 in April 2007. Information regarding the shares of our common stock that we repurchased in the periods indicated is as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2007	2006	2007	2006
	(Dollars in thousands, except per share data)
Number of shares	720,000	1,660,500	1,529,900	3,886,200

Total cost	$75,714	$106,499	$140,763	$246,634
Average price per share	$105.16	$64.14	$92.01	$63.46

The shares that remained available for repurchase under the Repurchase Program were 6,151,200 as of June 30, 2007. We plan to repurchase additional shares of our common stock under the Repurchase Program from time to time in the future depending on market conditions and other considerations.

We believe that cash generated from operations and our investments will be adequate to satisfy our working capital and capital expenditure requirements for the foreseeable future. We also believe that any reduction in cash and cash equivalents or investments that may result from their use to repurchase shares of our common stock, purchase facilities or construct facilities will not have a material adverse effect on our expansion plans, planned capital expenditures, ability to meet any applicable regulatory financial responsibility standards or ability to conduct normal operations.

Contractual Obligations

The following table sets forth our specified contractual obligations as of June 30, 2007:

	Payments Due by Period
		Less than	1-3	3-5	More than
Contractual Obligations	Total	1 Year	Years	Years	5 Years
	(In thousands)
Operating lease obligations	$120,309	$31,242	$46,745	$25,481	$16,841
Long-term debt, including scheduled interest payments	$162,306	$29,340	$132,966	$0	$0

The long-term debt represents our revolving credit facility and assumes that the full amount of the facility will be outstanding at all times through the date of maturity. The amounts shown include the principal payments that will be due upon maturity as well as interest payments. Interest payments have been calculated based on their scheduled payment dates using the interest rate charged on our borrowings as of June 30, 2007.

Off-Balance Sheet Arrangements

As of June 30, 2007, we leased our non-owned facilities under operating lease agreements. A majority of the operating leases contain renewal options that can be exercised after the initial lease term. Renewal options are generally for periods of one to five years. All operating leases will expire over the next nine years and management believes that:

• those leases will be renewed or replaced by other leases in the normal course of business;

• we may purchase the facilities represented by those leases; or

• we may purchase or build other replacement facilities.

There are no material restrictions imposed by the lease agreements, and we have not entered into any significant guarantees related to the leases. We are required to make additional payments under the terms of the operating leases for taxes, insurance and other operating expenses incurred during the operating lease period.

As part of our normal course of operations, one of our insurers issues surety bonds for us that are required by various education authorities that regulate us. We are obligated to reimburse our insurer for any of those surety bonds that are paid by the insurer. As of June 30, 2007, the total face amount of those surety bonds was approximately $10.8 million. In addition, as of June 30, 2007, we provided irrevocable standby letters of credit in the total amount of approximately $1.2 million to secure both the payment of construction costs associated with a facility that we built in 2006 and the payment of our workers’ compensation claims.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

In the normal course of our business, we are subject to fluctuations in interest rates that could impact the return on our investments and the cost of our financing activities. Our primary interest rate risk exposure results from changes in short-term interest rates and the LIBOR.

Our investments consist primarily of marketable debt securities, variable rate demand notes, and auction rate debt and equity securities. We estimate that the market risk associated with these investments can best be measured by a potential decrease in the fair value of these investments from a hypothetical 10% increase in interest rates. If such a hypothetical increase in rates were to occur, the reduction in the market value of our portfolio of marketable securities would not be material.

Changes in the LIBOR would affect the borrowing costs associated with our revolving credit facility. We estimate that the market risk can best be measured by a hypothetical 100 basis point increase in the LIBOR. If such a hypothetical increase in the

LIBOR were to occur, the effect on results from operations and cash flow would not have been material for the three and six months ended June 30, 2007.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures.

We are responsible for establishing and maintaining disclosure controls and procedures (“DCP”) that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (b) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosures. In designing and evaluating our DCP, we recognize that any controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving the desired control objectives, and that our management’s duties require it to make its best judgment regarding the design of our DCP. As of the end of our second fiscal quarter of 2007, we conducted an evaluation, under the supervision (and with the participation) of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our DCP pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our DCP were effective.

(b) Changes in Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to various claims and contingencies in the ordinary course of our business, including those related to litigation, business transactions, employee-related matters and taxes, among others. We cannot assure you of the ultimate outcome of any litigation involving us. Any litigation alleging violations of education or consumer protection laws and/or regulations, misrepresentation, fraud or deceptive practices may also subject our affected institutes to additional regulatory scrutiny.

Item 1A. Risk Factors.

You should carefully consider the risks and uncertainties we describe both in this Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the SEC before deciding to invest in, or retain, shares of our common stock. These are not the only risks and uncertainties that we face. Additional risks and uncertainties that we do not currently know about, we currently believe are immaterial or we have not predicted may also harm our business operations or adversely affect us. If any of these risks or uncertainties actually occurs, our business, financial condition, results of operations or cash flows could be materially adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information regarding purchases made by us of shares of our common stock on a monthly basis in the three months ended June 30, 2007:

	Issuer Purchases of Equity Securities
	Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1, 2007 through April 30, 2007		--	$--	--	6,871,200
May 1, 2007 through May 31, 2007		720,000	105.16	720,000	6,151,200
June 1, 2007 through June 30, 2007		--	--	--	6,151,200
	Total	720,000	$105.16	720,000

_____________________________

(1) Our Board of Directors has authorized us to repurchase the following number of shares of our common stock pursuant to the Repurchase Program:

Number of Shares	Board Authorization Date
2,000,000	April 1999
2,000,000	April 2000
5,000,000	October 2002
5,000,000	April 2006
5,000,000	April 2007

The shares that remained available for repurchase under the Repurchase Program were 6,151,200 as of June 30, 2007. The terms of the Repurchase Program provide that we may repurchase shares of our common stock, from time to time depending on market conditions and other considerations, in the open market or through privately negotiated transactions in accordance with Rule 10b-18 of the Exchange Act. Unless earlier terminated by our Board of Directors, the Repurchase Program will expire when we repurchase all shares authorized for repurchase thereunder.

Item 4. Submission of Matters to a Vote of Security Holders.

During the second quarter of fiscal year 2007, our 2007 Annual Meeting of Shareholders was held on May 8, 2007 to:

• elect four directors; and

• ratify the appointment of PricewaterhouseCoopers LLP (“PWC”) by the Audit Committee of our Board of Directors to serve as our independent registered public accounting firm for our fiscal year ending December 31, 2007.

At our 2007 Annual Meeting of Shareholders, our shareholders elected the following persons to serve as directors in the first class of our Board of Directors, each to hold office for the term of three years and until his successor is elected and has qualified:

First Class - Term expiring at 2010 Annual Meeting

1.	Rene R. Champagne
2.	John F. Cozzi
3.	Kevin M. Modany
4.	Thomas I. Morgan

The final results of the vote taken at our 2007 Annual Meeting of Shareholders for the director nominees are as follows:

Percentage of Percentage of

Votes For Votes Cast For Votes Withheld Votes Cast Withheld

Rene R. Champagne 38,555,120 98.63% 535,217 1.37%

John F. Cozzi 38,825,355 99.32% 264,982 0.68%

Kevin M. Modany 38,551,577 98.62% 538,760 1.38%

Thomas I. Morgan 38,823,795 99.32% 266,542 0.68%

The directors who continued in office after our 2007 Annual Meeting of Shareholders are as follows:

First Class - Term expiring at 2010 Annual Meeting

1.	Rene R. Champagne
2.	John F. Cozzi
3.	Kevin M. Modany
4.	Thomas I. Morgan

Second Class - Term expiring at 2008 Annual Meeting

1.	John E. Dean
2.	James D. Fowler, Jr.
3.	Vin Weber

Third Class - Term expiring at 2009 Annual Meeting

1.	Joanna T. Lau
2.	Samuel L. Odle
3.	John A. Yena

At our 2007 Annual Meeting of Shareholders, our shareholders ratified the appointment of PWC to serve as our independent registered public accounting firm for our fiscal year ending December 31, 2007. The final results of the vote taken at that meeting ratifying the appointment of PWC are as follows:

Percentage of Shares

Represented in Person Broker

Votes For or By Proxy Voting For Votes Against Nonvotes Abstentions

38,173,954 97.68% 852,057 0 52,897

Item 5. Other Information.

On July 24, 2007, our Board of Directors approved and adopted an amended and restated version of our By-laws, effective on that date. The material changes to our By-laws include the following:

•	Amendments to Sections 1, 2, 3 and 5 of Article V to allow for the issuance of uncertificated shares. Along with a resolution passed by our Board of Directors permitting the issuance of uncertificated shares in accordance with the Delaware General Corporation Law (the "DGCL"), these amendments will enable us to participate in the Direct Registration System (the “DRS”). The DRS allows investors to have securities registered in their names without the issuance of physical certificates and to electronically transfer securities to broker-dealers without transferring physical certificates.
•	Amendments to
	•	Sections 1, 2, 3, 4, 5, 7 and 9 of Article II,
	•	Sections 8, 10 and 11 of Article III,
	•	Section 4 of Article IV,
	•	Sections 1 and 2 of Article VI, and
	•	Sections 3, 4 and 6 of Article VII,
	all intended to make the By-laws more consistent with modern practice and changes in the DGCL. These amendments provide us with the ability to:
	•	hold meetings of shareholders and directors by remote communication;
	•	provide notices of meetings by electronic transmission (in the case of shareholders, with their consent);
	•	provide shareholder lists on a reasonably accessible electronic network;
	•	obtain proxies and waivers of notice by electronic transmission; and
	•	obtain director consents to action by electronic transmission.
	These amendments also make the indemnification provisions of our By-laws more consistent with the current relevant provisions of the DGCL.
•	Amendments to various other sections of our By-laws to correct minor typographical errors and to make changes to reflect the fact that our Chairman of the Board and certain officer positions are no longer held by the same individual.

The full text of our By-laws, as amended and restated, is being filed as Exhibit 3.2 to this Form 10-Q and is incorporated herein by reference.

Item 6. Exhibits.

A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which immediately precedes the exhibits, and is incorporated herein by reference.

SIGNATURES

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 thereunto duly authorized.

ITT Educational Services, Inc.

Date: July 26, 2007

	By: /s/ Daniel M. Fitzpatrick
Daniel M. Fitzpatrick
Senior Vice President, Chief Financial Officer
(Duly Authorized Officer, Principal Financial Officer
and Principal Accounting Officer)

INDEX TO EXHIBITS

Exhibit
No.	Description

3.1	Restated Certificate of Incorporation, as Amended to Date (incorporated herein by reference from the same exhibit number to ITT/ESI’s 2005 second fiscal quarter report on Form 10-Q)
3.2	Restated By-Laws, as Amended to Date
10.59	Form of Restricted Stock Unit Award Agreement under the 2006 ITT Educational Services, Inc. Equity Compensation Plan
10.61	Second Amendment to 2006 ITT Educational Services, Inc. Equity Compensation Plan
31.1	Chief Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
31.2	Chief Financial Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
32.1	Chief Executive Officer’s Certification Pursuant to 18 U.S.C. Section 1350
32.2	Chief Financial Officer’s Certification Pursuant to 18 U.S.C. Section 1350

EX-3

Exhibit 3.2

____________________________________________________________________________

ITT EDUCATIONAL SERVICES, INC.

BY-LAWS

As Amended and Restated July 24, 2007

____________________________________________________________________________

TABLE OF CONTENTS

			Page
ARTICLE I	OFFICES		1
SECTION 1.		Registered Office	1
SECTION 2.		Other Offices	1
SECTION 3.		Change of Location	1
ARTICLE II	MEETINGS OF STOCKHOLDERS		1
SECTION 1.		Place of Meetings	1
SECTION 2.		Annual Meeting	1
SECTION 3.		Special Meetings	1
SECTION 4.		Notice of Meetings	2
SECTION 5.		Quorum	2
SECTION 6.		Voting of Stock	2
SECTION 7.		List of Stockholders	2
SECTION 8.		Conduct of Meeting; Business	3
SECTION 9.		Proxies	4
SECTION 10.		Inspectors	4
SECTION 11.		No Written Consent	4
ARTICLE III	DIRECTORS		5
SECTION 1.		Number	5
SECTION 2.		Nominations	5
SECTION 3.		Duties and Powers	6
SECTION 4.		Place of Meeting	6
SECTION 5.		Annual Meeting	6
SECTION 6.		Regular Meetings	6
SECTION 7.		Special Meetings	6
SECTION 8.		Notice of Meetings	6
SECTION 9.		Quorum and Voting	7
SECTION 10.		Action Without a Meeting	7
SECTION 11.		Participation by Remote Communications	7
SECTION 12.		Books	7
SECTION 13.		Compensation	7
SECTION 14.		Vacancies	7
SECTION 15.		Removal	8
SECTION 16.		Organization	8
SECTION 17.		Standing Committees	8
SECTION 18.		Other Committees	8
SECTION 19.		Resignation	9

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			Page
ARTICLE IV	OFFICERS		9
SECTION 1.		General	9
SECTION 2.		Election	9
SECTION 3.		Other Officers	9
SECTION 4.		Chairman of the Board	9
SECTION 5.		Chief Executive Officer	9
SECTION 6.		President	10
SECTION 7.		Vice President	10
SECTION 8.		Secretary and Assistant Secretaries	10
SECTION 9.		Chief Financial Officer	10
SECTION 10.		Treasurer and Assistant Treasurers	11
ARTICLE V	CAPITAL STOCK		11
SECTION 1.		Form and Signature	11
SECTION 2.		Lost, Stolen or Destroyed Certificates	11
SECTION 3.		Transfer of Shares	12
SECTION 4.		Registered Stockholders	12
SECTION 5.		Regulations	12
SECTION 6.		Record Date	12
ARTICLE VI	NOTICES		12
SECTION 1.		Notices	12
SECTION 2.		Waiver of Notice	13
ARTICLE VII	INDEMNIFICATION		14
SECTION 1.		Nature of Indemnity	14
SECTION 2.		Successful Defense	14
SECTION 3.		Determination That Indemnification Is Proper	15
SECTION 4.		Advance Payment of Expenses	15
SECTION 5.		Procedure for Indemnification of Directors and Officers	15
SECTION 6.		Survival; Preservation of Other Rights	16
SECTION 7.		Insurance	16
SECTION 8.		Severability	16

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			Page
ARTICLE VIII	GENERAL PROVISIONS; DIVIDENDS		17
SECTION 1.		Dividends	17
SECTION 2.		Checks	17
SECTION 3.		Fiscal Year	17
SECTION 4.		Seal	17
SECTION 5.		General and Special Bank Accounts	17
SECTION 6.		Loans	17
SECTION 7.		Execution of Documents	18
ARTICLE IX	AMENDMENTS OF BY-LAWS		18
ARTICLE X	CONSTRUCTION		18

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ITT EDUCATIONAL SERVICES, INC.

(a Delaware Corporation)

BY-LAWS

ARTICLE I

OFFICES

SECTION 1. Registered Office. The registered office of ITT Educational Services, Inc. (the "Corporation") in the State of Delaware and the name of the registered agent at such address shall be as specified in the Corporation's Amended and Restated Certificate of Incorporation, or as subsequently changed as specified in the most recent certificate of change filed pursuant to law.

SECTION 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors (the "Board") may from time to time determine or the business of the Corporation may require.

SECTION 3. Change of Location. In the manner permitted by law, the Board or the Corporation's registered agent may change the address of the Corporation's registered office in the State of Delaware and the Board may make, revoke or change the designation of the registered agent.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 1. Place of Meetings. All meetings of stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at such place, either within or without the State of Delaware, as may be fixed from time to time by the Board and stated in the notice of the meeting or in a waiver of notice thereof. In lieu of holding a meeting of stockholders at a designated place, the Board, in its sole discretion, may determine that any meeting of stockholders may be held solely by means of remote communication.

SECTION 2. Annual Meeting. Annual meetings of stockholders, at which they shall elect by a plurality vote a Board and transact such other business as may properly be brought before the meeting, shall be held on such date and at such time as shall be designated from time to time by the Board and stated in the notice of meeting or in a waiver thereof.

SECTION 3. Special Meetings. Special meetings of the stockholders for any purpose may be held at such time as shall be stated in the notice of the meeting or in a waiver of notice thereof. Special meetings of stockholders may be called at any time, for any purpose or purposes, by the Chairman of the Board, the Chief Executive Officer or a majority of the Board.

SECTION 4. Notice of Meetings. Except as otherwise expressly required by law, written or printed notice of each annual and special meeting of stockholders stating the place, if any, date and time of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting of the stockholders, the purpose or purposes thereof and the person or persons by whom or at whose direction such meeting has been called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, by or at the direction of the Chief Executive Officer, or the Secretary, or the officer or persons calling the meeting to each stockholder of record entitled to vote at such meeting. Notice shall be provided in accordance with Article VI of these By-laws. Notice may be given to stockholders sharing an address in the manner and to the extent permitted by applicable law.

SECTION 5. Quorum. The holders of a majority of the shares of stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Amended and Restated Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the chair of the meeting or the stockholders present in person or represented by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting in accordance with these By-laws.

SECTION 6. Voting of Stock. Except as is otherwise required by law, the Amended and Restated Certificate of Incorporation or these By-laws, each holder of record of shares of stock of the Corporation having voting powers shall be entitled, at each meeting of the stockholders, to one vote for every share of such stock standing in his or her name on the record of stockholders of the Corporation and, if a quorum is present and unless otherwise required by the Amended and Restated Certificate of Incorporation, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the stockholders, except that directors shall be elected by a plurality of votes properly cast.

SECTION 7. List of Stockholders. At least ten (10) days before each meeting of stockholders, the Secretary or agent having charge of the stock transfer book shall make a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, with the address of each and the number of shares held by each. Such list shall be subject to inspection by any stockholder for a period of ten (10) days prior to such meeting, for any purpose related to the meeting, at the principal office of the Corporation at any time during usual business hours or on a reasonably accessible electronic network. Such list shall be produced and kept open at the time and place of meeting, or if the meeting is to be held solely by means of remote

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communication then on a reasonably accessible electronic network, and shall be subject to the inspection of any stockholder during the whole time of the meeting.

SECTION 8. Conduct of Meeting; Business. The Chairman of the Board shall preside at all meetings of the stockholders. If the Chairman has not been elected or is not present, then the Chief Executive Officer shall preside. The Secretary of the Corporation, or in his absence, an Assistant Secretary, if any, shall act as Secretary of every meeting, but if neither the Secretary nor the Assistant Secretary is present the Chairman or the Chief Executive Officer (as the case may be) shall appoint a secretary of the meeting.

No business may be conducted at a meeting of the stockholders other than business that is either (a) specified in the written notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors or the Chief Executive Officer, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors or the Chief Executive Officer, or (c) otherwise properly brought before the meeting by or on behalf of a stockholder of record of the Corporation (i) who shall have been a stockholder of record at the time of giving of the notice provided for in this Section 8 and who shall continue to be a stockholder of record on the record date for such meeting and on the meeting date and who shall be entitled to vote thereat, and (ii) who complies with the procedures set forth in this Section 8 with respect to any business sought to be brought before such meeting by or on behalf of such stockholder other than the election of directors and with the provisions set forth in Section 2 of ARTICLE III of these By-laws with respect to the election of directors. In addition to any other applicable requirements, for business to be properly brought before a meeting by a stockholder, other than a stockholder proposal included in the proxy statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended, the stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation (a) no fewer than seventy (70) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of' the stockholders of the Corporation, or (b) in the case of a special meeting or in the event that the annual meeting is called for a date that ismore than thirty (30) days earlier or more than sixty (60) days later than such anniversary date, notice by the stockholder to be timely given must be so received not later than the close of business on the 10^th day following the day on which such notice of the date of the meeting was given or public disclosure of the date of such meeting was made, whichever first occurs. To be in proper written form, such stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and record address of the stockholder proposing such business, (c) the class and number of shares of capital stock of the Corporation held of record, owned beneficially or represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice by the stockholder, (d) a representation that the stockholder intends to appear in person or by proxy at the meeting to present such stockholder's proposal, (e) all other information which would be required to be included in a proxy statement filed with the Securities and Exchange Commission

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if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Proxy Rules") and (f) if the stockholder intends to solicit proxies in support of such stockholder's proposal, a representation to that effect. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his or her intention to present a proposal at anannual meeting and such stockholder's proposal has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies for such annual meeting; provided, however, that if such stockholder does not appear or send a qualified representative to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation. No business shall be conducted at a meeting of stockholders except in accordance with this Section 8, and the presiding officer of any meeting of stockholders may refuse to permit any business to be brought before a meeting without compliance with the foregoing procedures or if the stockholder solicits proxies in support of such stockholder's proposal without such stockholder having made the representation required by clause (f) of the second preceding sentence.

SECTION 9. Proxies. At all meetings of stockholders, a stockholder may vote by proxy authorized by an instrument in writing or by an electronic transmission permitted by the laws of the State of Delaware by the stockholder or his duly authorized attorney-in-fact.

SECTION 10. Inspectors. The Board may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may appoint one or more inspectors. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares of stock outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and the fact of proxies, and shall receive votes, ballots or consents herein, determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such other acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector on an election of directors. Inspectors need not be stockholders.

SECTION 11. No Written Consent. No action shall be taken by the stockholders of the Corporation except at an annual or special meeting of stockholders.

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ARTICLE III

DIRECTORS

SECTION 1. Number. The Board shall consist of at least three (3), but no more than twenty (20) directors, as shall be fixed from time to time by the affirmative vote of a majority of the entire Board of Directors; provided, however, that no decrease in the number comprising the entire Board made pursuant to this Section 1 shall shorten the term of any incumbent director. As provided by ARTICLE V of the Amended and Restated Certificate of Incorporation, the directors shall be divided into three classes and the number of directors in each such class shall be as set forth therein. Unless otherwise provided by the Amended and Restated Certificate of Incorporation, successors to each class of directors shall be elected for a three-year term at the annual meeting for the year in which the term of such class of directors expires and each such director elected shall hold office for a term continuing until the annual meeting held in the third year following the year of his or her election and until his or her successor is duly elected and qualified or until his or her resignation, death or removal; provided, that in the event of failure to hold such an annual meeting or to hold such election at such meeting, the election of directors may be held at any special meeting of the stockholders called for that purpose.

SECTION 2. Nominations. Nominations of persons for election as directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any stockholder of the Corporation who is a stockholder of record at the time of the giving of the notice of nomination provided for in this Section 2 who is entitled to vote for the election of directors. Any stockholder of record entitled to vote for the election of directors at a meeting may nominate a person or persons for election as directors only if written notice of such stockholder’s intent to make such nomination is given in accordance with the procedures for bringing business before the meeting set forth in ARTICLE II, Section 8 of these By-laws, either by personal delivery or by United States mail, postage prepaid, to and received by the Secretary not later than (i) with respect to an election to be held at an annual meeting of stockholders, not less than seventy (70) nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days earlier or more than sixty (60) days later than such anniversary date, notice by the stockholder must be so delivered or received not earlier than the 90^th day prior to such annual meeting and not later than the close of business on the later of the 70^th day prior to such annual meeting or the 10^th day following the day on which public announcement of the date of such meeting is first made and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, not earlier than the 90^th day prior to such special meeting and not later than the close of business on the later of the 60^th day prior to such special meeting or the 10^th day following the day on which public announcement of the date of the special meeting is first made and of the nominees to be elected at such meeting. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons

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specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the Proxy Rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors; (e) the consent of each nominee to serve as a director if so elected; and (f) if the stockholder intends to solicit proxies in support of such stockholder’s nominee(s), a representation to that effect. The presiding officer of any meeting of stockholders to elect directors and the Board of Directors may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure or if the stockholder solicits proxies in support of such stockholder’s nominee(s) without the stockholder having made the representation required by clause (f) of the preceding sentence.

SECTION 3. Duties and Powers. The business affairs of the Corporation shall be managed by its Board which may exercise all such powers of the Corporation including all such lawful acts and things as are not by statute or by the Amended and Restated Certificate of Incorporation or by these By-laws directed or required to be exercised or done by the stockholders.

SECTION 4. Place of Meeting. Meetings of the Board, regular or special, may be held either within or without the State of Delaware.

SECTION 5. Annual Meeting. The first meeting of each newly elected Board shall be held immediately following the annual meeting of stockholders, and no notice of such meeting to the newly elected directors shall be necessary in order to legally constitute the meeting, provided a quorum shall be present, or the newly elected directors may meet at such time and place as shall be fixed by the consent in writing of all of the directors.

SECTION 6. Regular Meetings. Regular meetings of the Board may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the Board.

SECTION 7. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board, if one shall have been elected, the Chief Executive Officer of the Corporation or by a majority of the entire Board.

SECTION 8. Notice of Meetings. Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required) shall be given by the Secretary or an Assistant Secretary at least twenty-four (24) hours before the time at which such meeting is to he held, and shall state the place, if any, date and time of the meeting, and the means of remote communications, if any, by which the directors may be deemed to be present in person and vote at such meeting. Except as otherwise required by the By-laws, neither the business to be transacted at, nor the business or the purpose of, any regular or special meeting of the Board need

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be specified in the notice or waiver of notice of such meeting. Notice of such meeting shall be provided in accordance with Article VI of these By-laws.

SECTION 9. Quorum and Voting. A majority of the directors then in office shall constitute a quorum for the transaction of business unless a greater number is required by law or by the Amended and Restated Certificate of Incorporation. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, unless the act of a greater number is required by statute or by the Amended and Restated Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board, the directors present thereat may adjourn the meeting to another time and place. Notice of the time and place of any adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and an individual director shall have no authority to act except through the Board.

SECTION 10. Action Without a Meeting. Any action required or permitted to be taken by the Board, or by a committee of the Board, may be taken without a meeting if all the members of the Board or committee, as the case may be, consent in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions setting forth actions so taken are filed with the minutes of the proceedings of the Board or committee, as the case may be.

SECTION 11. Participation by Remote Communications. One or more members of the Board, or any committee designated by the Board, may participate in a meeting of such Board, or committee of the Board, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in the meeting pursuant to this Section shall constitute presence in person at the meeting.

SECTION 12. Books. The directors may keep the books of the Corporation, except as such are required by law to be kept within the state, outside of the State of Delaware, at such place or places as they may from time to time determine.

SECTION 13. Compensation. The Board, by the affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the Corporation as directors, officers or otherwise.

SECTION 14. Vacancies. Newly created directorships resulting from any increase in the authorized number of directors and any vacancies on the Board resulting from death, resignation, disqualification, removal from office, retirement or other cause shall be filled solely by the affirmative vote of the remaining directors then in office, even though less than a

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quorum, or by the sole remaining director, and each director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which he or she has been elected expires and until such director's successor shall have been duly elected and qualified.

SECTION 15. Removal. Any director may be removed from office with cause, by an affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. Any director may be removed from office with cause by the affirmative vote of a majority of the members of the Board, other than the director who is subject to a removal vote.

SECTION 16. Organization. The Board may appoint one of its members as Chairman of the Board. The Chairman of the Board (or if there be no Chairman or in his or her absence, the Chief Executive Officer) shall preside over all meetings of the Board and stockholders.

SECTION 17. Standing Committees. By resolution adopted by a majority of the entire Board and based on the recommendations of the Nominating and Corporate Governance Committee, the Board shall elect, from among its members, individuals to serve on the Standing Committees established hereunder. Each Standing Committee shall be comprised of such number of Directors, not less than three, as shall be elected to such Committee, provided that no officer or employee of the Corporation shall be eligible to serve on any of the Standing Committees. Each Committee shall keep a record of all its proceedings and report the same to the Board. One-third of the members of a Committee, but not less than two, shall constitute a quorum, and the act of a majority of the members of a Committee present at any meeting at which a quorum is present shall be the act of the Committee. Each Committee shall meet at the call of its chairperson or any two of its members. The chairpersons of the various Committees shall preside, when present, at all meetings of such Committees, and shall have such powers and perform such duties as the Board may from time to time prescribe. The Standing Committees of the Board, and functions of each, are as follows:

(a) Audit Committee. The Audit Committee will perform the duties and functions set forth in the Charter of the Audit Committee as adopted by the Board of Directors.

(b) Compensation Committee. The Compensation Committee will perform the duties and functions set forth in the Charter of the Compensation Committee as adopted by the Board of Directors.

(c) Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will perform the duties and functions set forth in the Charter of the Nominating and Corporate Governance Committee as adopted by the Board of Directors.

SECTION 18. Other Committees. By resolution passed by a majority of the entire Board, the Board may also appoint from among its members such other Committees,

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Standing or otherwise, as it may from time to time deem desirable and may delegate to such Committees such powers of the Board as it may consider appropriate, consistent with the laws of Delaware, the Amended and Restated Certificate of Incorporation and these By-laws.

SECTION 19. Resignation. Any director may resign at any time by sending a written notice of such resignation to the principal executive officer of the Corporation addressed to the Chief Executive Officer, Secretary or the Chairman of the Board. Unless otherwise specified therein such resignation shall take effect upon receipt thereof by the Chairman of the Board, the Chief Executive Officer or the Secretary.

ARTICLE IV

OFFICERS

SECTION 1. General. The officers of the Corporation shall be chosen by the Board and may be a Chairman of the Board, Chief Executive Officer, President, Vice President, Secretary, Chief Financial Officer and Treasurer and as otherwise required by law. Any two or more offices may be held by the same person.

SECTION 2. Election. The Board at its first meeting after each annual meeting and from time to time, as vacancies occur, shall elect officers, none of whom need be a member of the Board, who shall exercise such powers and perform such duties as shall be set forth in these By-laws and as determined from time to time by the Board; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board may be removed with or without cause at any time by the Chairman, Chief Executive Officer, President or a majority of the Board. Any vacancy occurring in any office of the Corporation shall be filled by the Board. The salaries of all officers of the Corporation shall be fixed by the Board.

SECTION 3. Other Officers. The Board may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board.

SECTION 4. Chairman of the Board. The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and of the stockholders at which he or she shall be present and shall have and may exercise such powers as may, from time to time, be assigned to him or her by the Board or as may be provided by these By-laws or by law.

SECTION 5. Chief Executive Officer. The Chief Executive Officer shall be the chief executive and principal policymaking officer of the Corporation. Subject to the authority of the Board of Directors, he or she shall formulate the major policies to be pursued in the administration of the Corporation's affairs. The Chief Executive Officer shall have general direction of the business of the Corporation, and shall authorize the other officers of the Corporation to exercise such powers as he or she, in his or her discretion, may deem to be in the

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best interest of the Corporation. He or she shall study and make reports and recommendations to the Board of Directors with respect to major problems and activities of the Corporation and shall see that the established policies are placed into effect and carried out. He or she shall see that all orders and resolutions of the Board are carried into effect and shall do and perform such other duties as may from time to time be assigned to him or her by the Board. In the absence of the Chairman of the Board, the Chief Executive Officer shall preside at meetings of the stockholders and, if a Director, at meetings of the Board of Directors.

SECTION 6. President. Subject to the provisions of Sections 4 and 5, the President shall exercise the powers and perform the duties which ordinarily appertain to such office and shall manage and operate the business and affairs of the Corporation in conformity with the policies established by the Board of Directors and the Chief Executive Officer, or as may be provided for in these By-Laws. In connection with the performance of his or her duties, he or she shall keep the Chairman of the Board and the Chief Executive Officer fully informed as to all phases of the Corporation's activities. In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall preside at meetings of the stockholders and, if a Director, at meetings of the Board of Directors.

SECTION 7. Vice President. The Vice President, or if there shall be more than one, the Vice Presidents in the order determined by the Board, shall, in the absence or disability of the Chief Executive Officer and President, perform the duties and have such other powers as the Board may from time to time prescribe.

SECTION 8. Secretary and Assistant Secretaries. The Secretary shall attend all meetings of the Board and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He or she shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board in accordance with the By-laws and as required by law, and shall perform such other duties as may be prescribed by the Board, Chief Executive Officer or President, under whose supervision he or she shall be. He or she shall have custody of the records and corporate seal of the Corporation and he or she, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board may from time to time prescribe.

SECTION 9. Chief Financial Officer. The Chief Financial Officer shall be the chief financial officer of the Corporation and shall perform all of the duties customary to that office. He or she shall be responsible for all of the Corporation's financial affairs, subject to the supervision and direction of the Chief Executive Officer and President, and shall have and

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perform such further powers and duties as the Board of Directors may, from time to time, prescribe and as the Chief Executive Officer or President may, from time to time, delegate to him or her.

SECTION 10. Treasurer and Assistant Treasurers. The Treasurer shall perform all of the duties customary to that office, shall be the chief accounting officer of the Corporation and shall be responsible for maintaining the Corporation's accounting books and records and preparing its financial statements, subject to the supervision and direction of the Chief Financial Officer and other superior officers within the Corporation. The Assistant Treasurer, or if there be more than one, the Assistant Treasurers in the order determined by the Board, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board may from time to time prescribe.

ARTICLE V

CAPITAL STOCK

SECTION 1. Form and Signature. The shares of the Corporation may be represented by certificates or may be uncertificated, as provided under the laws of the State of Delaware. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chief Executive Officer, President or a Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. Each certificate representing shares shall state upon its face (a) that the Corporation is formed under the laws of the State of Delaware, (b) the name of the person(s) to whom it is issued, (c) the number of shares which such certificate represents and (d) the par value, if any, of each share represented by such certificate. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar on the date of issue.

SECTION 2. Lost, Stolen or Destroyed Certificates. The Corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation and/or the Board may require the owner of such lost, stolen or destroyed certificate, or his or her legal representatives, to make an affidavit of that fact and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or issuance of any such new certificate or uncertificated shares. Anything herein to the contrary notwithstanding, the Board, in its absolute discretion, may refuse to issue any such new certificate or uncertificated shares, except pursuant to legal proceedings under the laws of the State of Delaware.

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SECTION 3. Transfer of Shares. Upon surrender to the Corporation or the transfer agent of the Corporation, if any, of a certificate representing shares of stock duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and, in the event that the certificate refers to any agreement restricting transfer of the shares which it represents, proper evidence of compliance with such agreement, the Corporation will issue a new certificate or evidence of the issuance of uncertificated shares to the person entitled thereto, cancel the old certificate and record the transaction upon the books of the Corporation. Upon the receipt by the Corporation or the transfer agent of the Corporation, if any, of proper transfer instructions from the registered owner of uncertificated shares or proper evidence of succession, assignment or authority to transfer, and, in the event that the stock records of the Corporation indicate that there is an agreement restricting transfer of the shares, proper evidence of compliance with such agreement, such uncertificated shares shall be cancelled, issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation.

SECTION 4. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owners of shares, and shall not be bound to recognize any equitable or legal claim or claims to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.

SECTION 5. Regulations. Except as otherwise provided by law, the Board may make such additional rules and regulations, not inconsistent with the By-laws, as it may deem expedient concerning the issue, transfer and registration of the securities of the Corporation. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars and may require all certificates for shares of capital stock to bear the signature or signatures of any of them.

SECTION 6. Record Date. For the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or to express written consent to any corporate action without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitlements to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a record date. Such date shall not be more than sixty (60) nor less than ten (10) days before the date of any such meeting, nor more than sixty (60) days prior to any other action.

ARTICLE VI

NOTICES

SECTION 1. Notices. Whenever, under the provisions of law or of the Corporation's Amended and Restated Certificate of Incorporation or of these By-laws, notice is

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required to be given to any stockholder, such notice may be given (a) in writing by depositing the same in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation, or (b) by a form of electronic transmission consented to by the stockholder to whom the notice is given in accordance with applicable law. All notices given to stockholders by mail, as above provided, shall be deemed to have been given as at the time of mailing. All notices given to stockholders by a form of electronic transmission, as above provided, shall be deemed to have been given: (1) if by facsimile, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder.

Whenever, under the provisions of law or of the Corporation’s Amended and Restated Certificate of Incorporation or of these By-laws, notice is required to be given to any director, such notice may be given personally, by telephone, by mail, by express delivery service, or by electronic transmission, in each case to the address provided by the director to the Corporation. All notices given to directors (i) personally or by telephone, shall be deemed to have been given when received; (ii) by mail, shall be deemed to have been given two (2) days after depositing the same in the United States mail, postage prepaid; (iii) by express delivery service, shall be deemed to have been given on the date shown on the confirmation of delivery issued by the delivery service; and (iv) by a form of electronic transmission, shall be deemed to have been given when directed to the electronic mail address, facsimile number, or other location provided by the director to the Corporation.

For purposes of these By-laws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

SECTION 2. Waiver of Notice. Whenever a notice is required to be given by any provision of law or under the provisions of the Amended and Restated Certificate of Incorporation or these By-laws, a waiver thereof in writing signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. In addition, attendance of a person at a meeting in person or by proxy without protesting at the beginning of the meeting, the lack of notice thereof to him or her, shall be conclusively deemed to be a waiver of notice of such meeting.

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ARTICLE VII

INDEMNIFICATION

SECTION 1. Nature of Indemnity. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, including an employee benefit plan, or by reason of any action alleged to have been taken or omitted in such capacity, and may indemnify any person who was or is a party or is threatened to be made a party to such an action, suit or proceeding by reason of the fact that he or she is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including an employee benefit plan, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding had no reasonable cause to believe his or her conduct was unlawful; except that in the case of an action or suit by or in the right of the Corporation to procure a judgment in its favor (a) such indemnification shall be limited to expenses (including attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of such action or suit, and (b) no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.

The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

SECTION 2. Successful Defense. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 of this ARTICLE VII or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith.

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SECTION 3. Determination That Indemnification Is Proper. Any indemnification of a director or officer of the Corporation under Section 1 of this ARTICLE VII (unless ordered bya court) shall be made by the Corporation unless a determination is made that indemnification of the director or officer is not proper in the circumstances because he or she has not met the applicable standard of conduct set forth in Section 1 of this ARTICLE VII. Any indemnification of an employee or agent of the Corporation under Section I of this ARTICLE VII (unless ordered by a court) may be made by the Corporation upon a determination that indemnification of the employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 1 of this ARTICLE VII. Any such determination shall be made (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (b) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (c) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (d) by the stockholders.

SECTION 4. Advance Payment of Expenses. Expenses (including attorneys' fees) incurred by a current or former director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the current or former director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this ARTICLE VII. Such expenses (including attorneys' fees) incurred by other current or former employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. The Board may authorize the Corporation's counsel to represent such director, officer, employee or agent in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding.

SECTION 5. Procedure for Indemnification of Directors and Officers. Any indemnification of a director or officer of the Corporation under Section 1 of this ARTICLE VII, or advance of costs, charges and expenses to a director or officer under Section 4 of this ARTICLE VII, shall be made promptly, and in any event within thirty (30) days, upon the written request of the director or officer. If a determination by the Corporation that the director or officer is entitled to indemnification pursuant to this ARTICLE VII is required, and the Corporation fails to respond within sixty (60) days to a written request for indemnity, the Corporation shall be deemed to have approved such request. If the Corporation denies a written request for indemnity or advancement of expenses, in whole or in part, or if payment in full pursuant to such request is not made within thirty (30) days, the right to indemnification or advances as granted by this ARTICLE VII shall be enforceable by the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 4 of this ARTICLE VII where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Section 1 of this ARTICLE VII, but the burden of proving such defense shall be on the Corporation. Neither the failure of the

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Corporation (including its Board, its independent legal counsel, and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 1 of this ARTICLE VII, nor the fact that there has been an actual determination by the Corporation (including its Board, its independent legal counsel, and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

SECTION 6. Survival; Preservation of Other Rights. The foregoing indemnification and advancement of expenses provisions shall be deemed to be a contract between the Corporation and each director, officer, employee and agent who serves in any such capacity at any time while these provisions as well as the relevant provisions of the General Corporation Law of the State of Delaware are in effect, and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a "contract right" may not be modified retroactively without the consent of such director, officer, employee or agent.

The indemnification and advancement of expenses provided by this ARTICLE VII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

SECTION 7. Insurance. The Corporation shall purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, including an employee benefit plan, against any liability asserted against him or her and incurred by him or her or on his or her behalf in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this ARTICLE VII.

SECTION 8. Severability. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director or officer and may indemnify each employee or agent of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this ARTICLE VII that shall not have been invalidated and to the fullest extent permitted by applicable law.

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ARTICLE VIII

GENERAL PROVISIONS; DIVIDENDS

SECTION 1. Dividends. Subject to the provisions of the Amended and Restated Certificate of Incorporation relating thereto, if any, dividends may be declared by the Board at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to any provisions of the Amended and Restated Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

SECTION 2. Checks. All checks, drafts, bills, demands for money and notes of the Corporationor other orders or payment of money shall be signed by such officer or officers or such other person or persons as the Board may from time to time designate and, in the absence of such designation, such checks, drafts, bills, demands for money and notes of the Corporation or other orders or payment of money shall be signed by the Chief Executive Officer, President, Chief Financial Officer or any Vice President of the Corporation.

SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board.

SECTION 4. Seal. The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Delaware" and the date of incorporation. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.

SECTION 5. General and Special Bank Accounts. The Board may authorize from time to time the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may be delegated by the Board from time to time. The Board may make such special rules and regulations with respect to such accounts, not inconsistent with the provisions of these By-laws, as it may deem expedient.

SECTION 6. Loans. Such of the officers of the Corporation as shall be designated from time to time by any resolution adopted by the Board of Directors and included in the minute book, and in the absence of any such designation, the Chief Executive Officer, President, Chief Financial Officer or any Vice President of the Corporation shall have the power, with such limitations thereon as may be fixed by the Board of Directors, to borrow money in the

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Corporation's behalf, to establish credit, to discount bills and papers, to pledge collateral and to execute such notes, bonds, debentures or other evidences of indebtedness, and such mortgages, trust indentures and other instruments in connection therewith.

SECTION 7. Execution of Documents. The Chief Executive Officer, President or any Vice President of the Corporation may, in the Corporation’s name, sign all deeds, leases, contracts or similar documents that may be authorized by the Board of Directors, unless otherwise directed by the Board of Directors, otherwise provided herein or in the Corporation's Amended and Restated Certificate of Incorporation, or as otherwise required by law.

ARTICLE IX

AMENDMENTS OF BY-LAWS

The Board shall have the express power, without a vote of stockholders, to adopt any By-law, and to amend, alter or repeal the By-laws of the Corporation, except to the extent that the By-laws or the Amended and Restated Certificate of Incorporation otherwise provide. The Board may exercise such power upon the affirmative vote of a majority of the entire Board. Stockholders may adopt any By-law, or amend, alter or repeal the By-laws of the Corporation, upon the affirmative vote of the holders of at least a majority of the votes entitled to be cast by the holders of all then outstanding voting shares of the Corporation, voting together as a single class.

ARTICLE X

CONSTRUCTION

In the event of any conflict between the provisions of these By-laws as in effect from time to time and the provisions of the Amended and Restated Certificate of Incorporation of the Corporation as in effect from time to time, the provisions of such Amended and Restated Certificate of Incorporation shall be controlling.

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EX-10

Exhibit 10.59

2006 ITT EDUCATIONAL SERVICES, INC.

EQUITY COMPENSATION PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

(TIME-BASED VESTING)

This Agreement ("Agreement"), effective as of the ____ day of ______________, 2____, is by and between ITT Educational Services, Inc. ("Company") and _____________ ("Grantee").

The Grantee now serves the Company or a Subsidiary as either an Employee or a Non-Employee Director, and in recognition of the Grantee's valued services, the Company, through the Committee, desires to provide an opportunity for the Grantee to receive an award, pursuant to the provisions of the 2006 ITT Educational Services, Inc. Equity Compensation Plan ("Plan"), the value of which is based on the Company's stock, further aligning the Grantee's interests with those of the Company's stockholders.

In consideration of the terms and conditions of this Agreement and the Plan, the terms of which are incorporated as a part of this Agreement, the parties agree as follows:

1.            Grant of Restricted Stock Units. The Company hereby awards the Grantee ___________ Restricted Stock Units.

2.            Vesting/Period of Restriction. Subject to the terms of the Plan and this Agreement, including paragraph 6 below, the Period of Restriction will expire, and all of the Restricted Stock Units subject to this Award will become fully vested, on __________ ___, 2____ (time-based restriction – at least 3 years).

3.            Non-transferability. Except as otherwise provided in this Agreement or the Plan, the Grantee may not sell, assign, transfer, pledge or otherwise dispose of or encumber any of the Restricted Stock Units, or any interest therein. Any purported sale, assignment, transfer, pledge or other disposition or encumbrance in violation of this Agreement or the Plan will be void and of no effect. The Restricted Stock Units shall be subject to forfeiture until the Grantee becomes vested in the Award according to the schedule set forth in paragraph 2 of this Agreement.

4.            Settlement and Payment of the Award. On the first business day after the Period of Restriction expires (the "Settlement Date"), or as soon as administratively practicable thereafter, settlement and payment of the Restricted Stock Units subject to this Award shall be made. Payment shall be made not later than the 15^th day of the third month following the Settlement Date. The Restricted Stock Units subject to this Award shall be settled and paid in [Shares, in the amount of one Share for each Restricted Stock Unit being settled, either by delivering one or more certificates for such Shares or by entering such Shares in book entry form, as determined by the Company in its discretion] [cash, in an amount equal to the Fair Market Value of a Share on the Settlement Date, multiplied by the number of Restricted Stock Units being settled], subject to paragraph 8 below.

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5.            Limitations on Rights. The Restricted Stock Units do not provide the Grantee with any rights of a stockholder of the Company. The Grantee shall have no rights as a stockholder of the Company, no rights to regular, periodic cash dividends or dividend equivalents and no voting rights with respect to the Restricted Stock Units or any Shares issuable in respect of such Restricted Stock Units, until Shares, if any, are actually delivered to and held of record by the Grantee. Until any Restricted Stock Units are actually paid, the Restricted Stock Units will be unfunded, unsecured obligations of the Company.

6.            Termination of Service. Upon termination of the Grantee's employment or service due to death or Disability, the Period of Restriction with respect to the Restricted Stock Units will lapse immediately, the Award will become fully vested, and the Restricted Stock Units will be settled as of the date of termination of employment or service (the "Settlement Date") and paid immediately thereafter in the form specified in paragraph 4 of this Agreement. Upon termination of the Grantee's employment or service due to Retirement, the Grantee will retain his or her unvested Restricted Stock Units, the Period of Restriction will lapse in accordance with the schedule set forth in paragraph 2 of this Agreement, and the settlement and payment of such Restricted Stock Units will occur at the time and in the form specified in paragraph 4 of this Agreement. Upon termination of the Grantee's employment or service for any reason other than death, Disability or Retirement, the Grantee will forfeit immediately after the termination of employment or service all of his or her Restricted Stock Units that are unvested as of the date of termination of employment or service.

7.            Change in Control. As provided in Section 19 of the Plan, upon the occurrence of a Change in Control, the restrictions applicable to this Award of Restricted Stock Units may lapse before the expiration of the Period of Restriction in paragraph 2.

8.            Withholding. Prior to the delivery of any Shares or cash pursuant to this Award, the Company has the right and power to deduct or withhold, or require the Grantee to remit to the Company, an amount sufficient to satisfy all applicable tax withholding requirements, which shall not exceed the amount determined by the applicable minimum statutory tax withholding rate (or such other rate as will not result in a negative accounting impact). [Use if Shares to be delivered upon settlement: The Company may permit or require the Grantee to satisfy all or part of the tax withholding obligations in connection with this Award by (a) having the Company withhold otherwise deliverable Shares, or (b) delivering to the Company Shares already owned for a period of at least six (6) months (or such longer or shorter period as may be required to avoid a charge to earnings for financial accounting purposes), in each case having a value equal to the amount to be withheld. For these purposes, the value of the Shares to be withheld or delivered will be equal to the Fair Market Value as of the date that the taxes are required to be withheld.]

9.            Notices. All notices and other communications required or permitted under this Agreement shall be written and delivered personally or sent by registered or certified first-class mail, postage prepaid and return receipt required, addressed as follows: if to the Company, to the Company's executive offices in Carmel, Indiana, and if to the Grantee or his or her successor, to the address last furnished by the Grantee to the Company. Notwithstanding the foregoing, though, the Company may authorize notice by any other means it deems desirable or efficient at a given time, such as notice by facsimile or electronic mail (e-mail).

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10.          No Employment Rights. Neither the Plan nor this Agreement confers upon the Grantee any right to continue in the employ or service of the Company or a Subsidiary or interferes in any way with the right of the Company or a Subsidiary to terminate the Grantee's employment or service at any time.

11.          Defined Terms. All of the defined terms, or terms that begin with capital letters and have a special meaning for purposes of this Agreement, have the meaning ascribed to them in this Agreement. All defined terms to which this Agreement does not ascribe a meaning have the meaning ascribed to them in the Plan.

12.          Plan Controlling. The terms and conditions set forth in this Agreement are subject in all respects to the terms and conditions of the Plan, which are controlling. All determinations and interpretations of the Company are binding and conclusive upon the Grantee and his or her legal representatives. The Grantee agrees to be bound by the terms and provisions of the Plan.

The Company and the Grantee have executed this Agreement as of the date first above written.

________________________________

[GRANTEE SIGNATURE]

Print Name: ______________________

ITT EDUCATIONAL SERVICES, INC.

By: ________________________________

Print Name: _________________________

Title: _______________________________

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EX-10

Exhibit 10.61

SECOND AMENDMENT TO THE

2006 ITT EDUCATIONAL SERVICES, INC. EQUITY COMPENSATION PLAN

WHEREAS, the shareholders of ITT Educational Services, Inc. (the “Company”) approved the 2006 ITT Educational Services, Inc. Equity Compensation Plan (the “Plan”) on May 9, 2006, and the Plan was subsequently amended by a First Amendment, which was adopted by the Board of Directors of the Company on October 24, 2006, in certain respects not requiring shareholder approval; and

WHEREAS, the Board of Directors of the Company now desires to amend the Plan further to ensure compliance with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended, to the extent applicable to the Plan, which amendments do not require shareholder approval.

NOW, THEREFORE, the Plan is hereby amended as follows:

1.          The final paragraph of Subsection 2(g) of the Plan is hereby amended to read as follows:

Notwithstanding the preceding provisions of this Subsection or any other provision of the Plan, with respect to any provision or feature of the Plan, or of any Award Agreement, that constitutes or provides for a deferred compensation plan subject to Code Section 409A, the term "Change in Control" means a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, within the meaning of Code Section 409A(a)(2)(A)(v) and interpretive regulations.

2. Subsection 2(q)(i) of the Plan is hereby amended to read as follows:

(q)          “Fair Market Value” means, as of any date, the value of a Share determined as follows:

(i)           Where a public market exists for the Share, the Fair Market Value will be the closing sale price for a Share for the market trading day on the date of the determination (or, if no sales were reported on that date, on the last trading date on which sales were reported) on the New York Stock Exchange or the principal securities exchange on which the Share is listed for trading, whichever is applicable, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

3. Subsection 11(d) of the Plan is hereby amended to read as follows:

(d)          Form and Timing of Payment. As soon as practicable following the completion of the Performance Period applicable to outstanding Performance Shares, the Committee will certify in writing the extent to which the applicable Performance Measures have been attained and the resulting final value of the Award earned by the Participant and to be paid upon its settlement. By the fifteenth (15^th) day of the third (3^rd) month following the completion of the Performance Period applicable to outstanding Performance Shares, payment will be made to each eligible Participant of the final value of the Performance Shares.

The Committee, in its sole discretion as specified in the Award Agreement, may pay earned Performance Shares by delivery of Shares or by payment in cash of an amount equal to the Fair Market Value of the Shares (or a combination thereof).

4. Subsection 12(d) of the Plan is hereby amended to read as follows:

(d)          Form and Timing of Payment. As soon as practicable following the completion of the Performance Period applicable to outstanding Performance Units, the Committee will certify in writing the extent to which the applicable Performance Measures have been attained and the resulting final value of the Award earned by the Participant and to be paid upon its settlement. By the fifteenth (15^th) day of the third (3^rd) month following the completion of the Performance Period applicable to outstanding Performance Units, payment shall be made to each eligible Participant of the final value of the Performance Units. The Committee, in its sole discretion as specified in the Award Agreement, may pay earned Performance Units in cash or in Shares that have an aggregate Fair Market Value equal to the value of the earned Performance Units (or a combination thereof).

5. Subsection 24(f) of the Plan is hereby amended to read as follows:

(f)           Code Section 409A Compliance. To the extent applicable, it is intended that this Plan and any Awards granted hereunder comply with the requirements of Code Section 409A and any related regulations or other guidance promulgated with respect to that section by the U.S. Department of the Treasury or the Internal Revenue Service. Any provision that would cause the Plan or any Award granted under the Plan to fail to satisfy Code Section 409A will have no force or effect until amended to comply with Code Section 409A, which amendment may be retroactive to the extent permitted by Code Section 409A. With respect to any Award hereunder that constitutes "deferred compensation" within the meaning of Code Section 409A, notwithstanding any other provision of the Plan or the applicable Award Agreement, (i) any amount that is payable on account of separation from service to a "specified employee," as defined in Code Section 409A(a)(2)(B)(i), will not be paid earlier than the date that is six (6) months following the specified employee's separation from service; and (ii) an Award recipient will not be treated as having terminated employment or service until that individual has incurred a separation from service within the meaning of Code Section 409A. The determination of which individuals are "specified employees" will be made in accordance with such rules and practices, consistent with Code Section 409A and interpretive regulations, as are established from time to time by the Board, or its designee, in its discretion.

6.          This Second Amendment to the Plan shall become effective upon its adoption by the Board of Directors of the Company.

Adopted by the Board of Directors of ITT Educational Services, Inc. on July 24, 2007

EX-31

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a–14(a)/15d–14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

I, Kevin M. Modany, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ITT Educational Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: July 26, 2007

/s/ Kevin M. Modany

Chief Executive Officer

EX-31

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a–14(a)/15d–14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

I, Daniel M. Fitzpatrick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ITT Educational Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: July 26, 2007

/s/ Daniel M. Fitzpatrick

Chief Financial Officer

EX-32

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ITT Educational Services, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kevin M. Modany, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)          The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities

Exchange Act of 1934; and

(2)          The information contained in the Report fairly presents, in all material respects, the financial

condition and results of operations of the Company.

/s/ Kevin M. Modany

Chief Executive Officer

July 26, 2007

EX-32

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ITT Educational Services, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel M. Fitzpatrick, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)          The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities

Exchange Act of 1934; and

(2)          The information contained in the Report fairly presents, in all material respects, the financial

condition and results of operations of the Company.

/s/ Daniel M. Fitzpatrick

Chief Financial Officer

July 26, 2007