Ex-ITT prez lost access to company records in June

Information is coming out in dribs and drabs that only adds to the intrigue surrounding the departure of Omer Waddles as president and chief operating officer of embattled ITT Educational Services Inc.

ITT has been operating under a cloud-but continuing to report impressive financial results-since

The July 12 press release announcing Waddles' departure said it wasn't connected to the probe into allegations of falsified student and job-placement records.

But the company hasn't said why he left, and Waddles hasn't responded to calls left at his Carmel home.

Adding to the drama last week: the company's filing with securities regulators of his five-page "separation agreement," and his own filing with regulators indicating his intent to unload more than $5 million in ITT stock.

The separation agreement, dated July 1, shows that Waddles' departure was effective July 30 but that he was not allowed access to any ITT financial information after June 10, more than a month before the departure was announced.

The provision adds fuel to the widespread speculation in the investment community that Waddles is poised to land at another for-profit education company. The agreement, which entitles him to a "separation payment" topping $115,000, does not include a noncompete provision.

Waddles' filing of his intent to sell 163,333 shares, apparently all his ITT holdings, appears aimed at complying with a requirement in the agreement that he exercise any outstanding stock options prior to his departure.

Based on ITT's stock price last week of $32, the sale would reap $5.2 million. However, it's not clear how much of that would be profit, since a portion of proceeds typically goes toward paying the exercise price on the options.

Analysts view the departure of Waddles, 44, as a big setback for the company at a time management is trying to stay focused on operations amid a growing number of distractions.

Since investigators seized documents as part of a Justice Department criminal probe, the Securities and Exchange Commission launched its own investigation of the company. Adding to the uncertainty at ITT are probes popping up at rival companies.

Illinois-based Career Education Corp. announced in June that it is under SEC investigation. In addition, California-based Corinthian Colleges Inc. is under scrutiny by the U.S. Department of Education for alleged wrongdoing in federal financial aid applications.

Amid the tumult, analysts praise ITT for continuing to chum out strong earnings. In the first half of 2004, the company reported profit of $23 million on revenue of $293 million.

But the legal challenges are becoming expensive, observed Piper Jaffray analyst Mark Marostica in a report. In the first half of this year, ITT took a $12.7 million pretax charge for legal costs, which it characterized as the minimum it expects to incur as a result of the investigations and lawsuits.

The report notes that ITT already has received $8.4 million in legal bills. Because the investigation may drag on for months, the total bill might run far higher.

Marketing chief moves

The sale of Galyan's Trading Co. to Dick's Sporting Goods Inc. only closed last week. But Ed Whitehead, Galyan's senior vice president of marketing, already has jumped ship and landed a plum job as chief marketing officer of Wisconsin-based Lands' End.

Whitehead, who joined Galyan's in February 2002, was one of two top executives who signed resignation agreements a week before Dick's announced the $305million Galyan's purchase. Whitehead's agreement entitled him to severance of $265,000.

Divvying out dividend

The Finish Line Inc. reached a milestone of sorts last week when it announced it would begin paying a quarterly cash dividend of 5 cents a share.

The board's decision recognizes our strong growth record as well as the significant long-term opportunities we believe lie ahead," CEO Alan Cohen said in a statement.

Finish Line, which operates more than 550 stores in 46 states, won't be confused with a utility or other income stock anytime soon, however. Its initial dividend provides an annual yield of just .7 percent.