information technology electronics engineering technology computer-aided drafting technology automated manufacturing technology computer visualization technology accelerating opportunity (03) 1999 @ esi letter to shareholders telecommunications engineering technology (07) ittesi.com 1999 business overview (22) curricula @ esi industrial design (24) management’s discussion and analysis of financial condition and results of operations (30) report of independent accountants project management (31) consolidated financial statements (42) officers (43) board of directors chemical technology 1999 @esi >>about the company the company >> letter to shareholders ITT Educational Services, Inc. ("ESI") is a leading provider of technology- technology, electronics, computer-aided drafting, industrial design, Faster forward, the theme for our 1999 oriented postsecondary degree programs. At the end of 1999, ESI automated manufacturing, computer visualization, telecommunications operated 67 ITT Technical Institutes in 28 states, which predominantly and chemical technology. Programs of study offered at the ITT Technical Annual Report, is an appropriate provided career-focused degree programs of study in fields of technology Institutes blend traditional academic content with applied learning description of the accelerating pace of to more than 26,000 students. Headquartered in Indianapolis, Indiana, concepts. the technological innovation and change ESI has been actively involved in the higher education community in the United States since 1969. Shares are traded on the New York Stock Advisory committees, comprised of representatives of local businesses that is influencing all aspects of our and employers, help each ITT Technical Institute periodically assess and Exchange under the symbol "ESI." ESI has graduated approximately society. We are witnessing the creation update curricula, equipment and laboratory design. 150,000 students since 1969, including 80,000 in the last 10 years. of an entirely new "e-economy " in which the students’ schedules the campuses higher levels of technical knowledge Students attend classes year-round with convenient breaks provided Each ITT Technical Institute is authorized by the state in which it is and skills represent the foundation of throughout the year. Year-round classes enable students to complete located and nationally accredited or seeking accreditation by an bachelor's degree programs and begin to pursue their careers in as few as the sophisticated nature of this accrediting commission recognized by the U.S. Department of Education. three years. Bachelor's degree programs are offered only at selected marketplace. Some estimates indicate campuses. Classes in most programs (other than in the information the curricula technology curricula) are typically offered in four-hour sessions, five days that in five years almost half of our Curriculum offerings, leading primarily to associate's and bachelor's a week, and are generally available in the morning, afternoon and evening, work force may be employed in industries degrees, are designed to help students begin to prepare for career depending on student enrollment. Most information technology programs that produce or use information opportunities in various fields involving technology, such as information are offered three days per week, four hours per day. This class schedule provides students with flexibility to pursue employment opportunities. technology. Being "e-enabled" is the annual meeting of shareholders a business necessity. It is also market share will be held at 10 a.m. local time, on Wednesday, May 10, 2000 at a necessity for our ITT Technical According to U.S. Department of Education data, the ITT Technical The Jefferson Hotel, 1200 16th Street, NW, Washington, D.C. 20036 Institutes granted the largest percentage (12.9 percent) of associate's and Institutes as we strive to keep our bachelor's degrees awarded in the U.S. in electronics and electronics- curricula and services in concert with related programs in the 1996-1997 school year, the latest year for which highlights statistics are available. The ITT Technical Institutes also awarded the the technology curve. This letter speaks Dollars in thousands, except per share data. largest share (20.5 percent) of associate's and bachelor's degrees awarded to our opportunities as a leading 1999 1998 in the U.S. in drafting programs during the 1996-1997 school year. Revenue $316,370 $291,375 provider of technology-oriented degree (1) (2) Net Income $24,905 $23,157 growth programs and provides an update on several Earnings Per Share: Diluted $0.98 (1) $0.85 (2) The ITT Technical Institutes are positioned to benefit from projected current initiatives. Average Outstanding Shares 25,235 27,002 demographic, economic and social trends. These trends include: (Continued on next page.) Shareholders Equity • changes in workplace demands; at Year End $57,771 $101,856 • recognition of the value of higher education; Shareholders’ Equity • an increasing number of high school graduates in the U.S.; Per Common Share $2.35 $3.77 • growing demand for higher education by working adults; and Capital Expenditures, Net $17,005 $11,381 • an increasing demand for technically-skilled workers. Number of ITT Technical Institutes at Year End (3) 67 65 Student Enrollment shareholders’ information at Year End 26,428 25,608 Financial information about ESI and the annual report to the Securities Number of Employees 3,400 3,120 and Exchange Commission on Form 10-K are available without charge (1) Before one-time expenses and cumulative effect of change in accounting of $1,377 (after tax). (except for certain exhibits) upon written request to ESI’s Investor - Rene R. Champagne (2) Before one-time expenses of $9,216 (after tax). Relations Department at: www.ittesi.com or ITT Educational Services, Inc., (3) ITT Technical institutes that initiated classes prior to the end of the stated year. Chairman, President and CEO 5975 Castle Creek Parkway, North Drive, Indianapolis, Indiana 46250. p.2 p.3 >> letter to shareholders (Continued) As the technology revolution changes the workplace and the new "e- for a total cost of $68.9 million, and there are approximately 1.1 million at a slower rate in 1999 than in 1998. Many of the stocks of the publicly 99 $24.9* economy" expands, a serious deficiency of technically-skilled personnel shares remaining to be repurchased under the share repurchase program traded education companies experienced increased volatility and a re- 98 $23.2* is exacerbating an already tight labor supply in the country. The result authorized by the ESI Board of Directors. valuation causing most companies to end 1999 with their stock prices 97 is a growing demand for postsecondary technical education by practically well below their 52-week highs. We know that industries, including ours, $19.1 96 every segment of the work force, from recent high school graduates to Revenues increased 8.6 percent to $316.4 million compared to $291.4 fall in and out of favor with Wall Street. We believed that, as the year $14.9 began, investors expected the enrollment growth at ESI and at our peers 95 older working adults. million in 1998. $11.4 to continue at a high rate in 1999. As 1999 progressed, the market 94 $7.2 Faster forward. After consulting with employers and educators in 1998, recast its expectations, negatively impacting our stock price. Expectations 99 $316.4 $5.0 $10.0 $15.0 $20.0 $25.0 we created a new degree program in computer network systems to help are all about the future. We believe our stock is undervalued. 98 students develop the knowledge and skills in Information Technology $291.4 net income 97 1994-1999 ($ In millions) ("IT") that employers are requesting. We began offering this program at $261.7 Our slower rate of growth in total student enrollment occurred primarily * Before one-time expenses and cumulative effect of change in accounting. in our electronics and computer-aided drafting curricula. We believe one ITT Technical Institute in the third quarter of 1998. Since then, we 96 $232.3 have expanded to 34 the number of schools offering the computer that the robust national economy had a significant effect on our 95 $201.8 an IT program in 1999 only increased 1.5 percent, and these schools network systems program. More than 3,500 new students have enrolled recruitment and retention of students in these programs. The typical 94 experienced a 2 percent decline in their total student enrollment as of $186.9 in the computer network systems program since its introduction. students who enrolled in these programs in the past were 18- to 24-year December 31, 1999. It is this dichotomy in enrollment results for $125.0 $175.0 $225.0 $275.0 $325.0 olds seeking entry-level skills to commence an initial career. Historically, schools offering an IT program that generates our optimism that, as more The 33 ITT Technical Institutes that don’t yet offer the IT program are we have found that during periods of high employment some students revenues schools begin offering an IT program, our total student enrollment should each scheduled to begin offering it during 2000. We believe that the 1994-1999 ($ In millions) choose to postpone postsecondary education in favor of immediate increase at a higher rate in 2000 than in 1999. introduction of IT curricula into our 67 institutes will provide the employment. In 1999, the nation’s unemployment rate dipped to a 30- company with attractive enrollment growth opportunities in the future. Excluding one-time expenses of approximately $1.4 million (after tax), or year low, causing the job market to become a substantial competitor for The IT program in computer network systems has several very attractive $0.05 per share, associated with ITT's February 1999 public offering of its students in our traditional 18- to 24-year old profile and to negatively features. This IT curriculum is structured as a three-day per week program ESI common stock and an accounting change regarding new school start-up affect our recruitment and retention of these students.