In fact, as recently as October 11, 2005, Tim Beyers of the Motley Fool pointed to the 38% increase in the closing price of ITT's stock from a year ago at the same time, and suggested that the company is "worthy of further investigation" (Beyers, 2005, p. 4).
Weaknesses. Although Apollo has not fared well in recent months, ITT's competitors continue to represent a major threat to the company's efforts to capture additional market share in this dynamic industry; the company's initiatives to attract increasing numbers of minority students, though, together with its emphasis on developing new degree programs that reflect current market demand may serve to offset this increased competition.
Critical Issues. The most critical issues facing the company today are the pending investigations by the SEC and the Department of Justice (see further discussion in 4.0 Business Risk Assessment below).
Operating leverage. In terms of operating leverage, ITT is in an excellent position to take advantage of its innovative degree programs by expanding its online presence in other countries and developing an English as a Second Language (ESL) component for this purpose.
Financial leverage. The company continues to enjoy a healthy financial picture, again, notwithstanding the potential implications represented by adverse outcomes in the pending investigations; however, the company's revenues vary based on the aggregate student population, which is influenced by the following factors: a) the number of students attending our institutes at the beginning of a fiscal period; b) the number of new first-time students entering and former students re-entering our institutes during a fiscal period; c) student retention rates; and d) general economic conditions (ITT Annual Report, 2005, p. 1).
Opportunity and risk of Business leverage. The company has already invested heavily in developing a national infrastructure comprised of hybrid learning centers that are able to accommodate the specific regional needs of its students. This approach appears to represent an edge over its competition, and makes the company all the more worthy of formal consideration for investment purposes. According to the company's Form 10-Q from July 29, 2005, ITT intends to continue expanding by: a) opening new institutes; b) adding learning sites to existing institutes; c) offering a broader range of technology and non-technology programs both in residence on campus and online at our existing institutes; d) increasing the number of our institutes that offer bachelor degree programs; and e) pursuing new and expanded alliances with both domestic and international educators. In addition, "We also intend to further expand our Hybrid Delivery Model by teaching more of the courses in each of our programs online over the Internet" (Form 10-Q, 2005, p. 3).
Business Risk Assessment.
According to the company's Form 10-Q filed with the Securities and Exchange Commission (SEC) on April 26, 2005, ITT has an ongoing Department of Justice investigation that could result in monetary fines or penalties or other sanctions, including the loss of eligibility to participate in student financial aid programs, that could materially adversely affect the company's financial condition and operations. Furthermore, the results of the SEC inquiry into the allegations being investigated by the DOJ could result in the restatement of ITT's financial statements, monetary fines or penalties or other sanctions that could materially adversely affect their financial condition and operations. Finally, the outcome of a securities class action, shareholder derivative and books and records inspection lawsuits filed against ITT, if adversely decided, could have a material adverse effect on the company's financial condition and results of operations (Form 10-Q for ITT Educational Services, Inc., 2005).
Cost of Capital
Table 7. Shareholder's Equity.
Misc Stocks Options Warrants
Redeemable Preferred Stock
Other Stockholder Equity
Total Stockholder Equity
Net Tangible Assets
Source: Yahoo! Finance, 2005.
Return to shareholders.
Table 8. Financing Activities, Cash Flows Provided By or Used In
Sale Purchase of Stock
Other Cash Flows from Financing Activities
Total Cash Flows From Financing Activities
Effect Of Exchange Rate Changes
Change In Cash and Cash Equivalents
Source: Yahoo! Finance, 2005.
The company's Form 10-Q from July 29, 2005 reports that as of June 30, 2005, ITT offered associate, bachelor and master degree programs to more than 41,000 students; in addition, the company operated 79 institutes located in 31 states as of that date. Each of the company's institutes is: (a) authorized by the applicable education authorities of the states in which it operates and recruits and (b) accredited by an accrediting commission recognized by the U.S. Department of Education (Form 10-Q, 2005, p. 2). The company also design all of its own educational programs in collaboration with employers to help graduates prepare for careers in various fields involving their specific areas of study. The Form 10-Q states that: "As of June 30, 2005, all of our program offerings were degree programs. We have provided career-oriented education programs since 1969 under the 'ITT Technical Institute' name" (Form 10-Q, 2005, p. 2). During the second quarter of 2005, the company reports that it opened one new institute and…