Greenberg: Questioning ITT’s Share Repurchases

As I continue to dig into the for-profit education industry, sometimes I feel like just throwing up my hands.


For example: ITT Education’s board in recent weeks okayed the purchase of five million shares.

This makes zero sense to me because the company has told investors it really doesn’t know how it’ll be affected by new Education Department rules, a giant chunk of which are expected to be published any day now.

From new risk factors in its just-published 10-Q, ITT said:

“There are many open questions and interpretive issues with respect to the proposed regulations related to gainful employment, including questions as to the availability of, and the ability of institutions to obtain and verify, the information needed to calculate the applicable metrics. Due to the unavailability of data, we cannot predict with any certainty which or how many of our programs of study would be restricted or ineligible under the Title IV Programs.”

Gainful employment rules will be published at some point after November 1. My question: How can you authorize spending new money on share repurchases when there is so much uncertainty?

Just look at Apollo Group: A week ago it withdrew guidance entirely for next year because it said there was simply too much uncertainty.

And, oh, by the way: It's not like ITT has been great at timing purchases. For the first nine months of the year, according to its 10-Q, it bought shares at prices that, on average, were around $20 a share higher.

So, why did the board do it? According to the company, the board thought buying back more shares was the best use of excess money to create long-term value.

And maybe it will be, but at this point, does this really make sense?

Speaking of which: I’m also dubious of an off-balance sheet variable interest entity created earlier this year by the company as part of a student-lending solution.

In its filings, the company insists the so-called PEAKS Trust, which is funded with $300 million from outside investors, qualifies for off-balance sheet treatment because it doesn’t believe ITT is the primary beneficiary of the trust “because we do not have the power to direct the activities that most significantly impact the economic performance of the PEAKS Trust.”

Maybe not, but as ITT also discloses in its filings, it’s on the hook for the entire $300 million if everything doesn’t go just right.

My take: Given everything we’ve been though, when many off-balance sheet items are going on-balance sheet, such big and complex off-balance sheet financing entities are bound to raise red flags. Just as share repurchase authorizations might do at times of uncertainty.