APOL Apollo Education Grp., Inc.

Apollo Group, Inc. (Nasdaq:APOL) today reported fiscal 2006 financial results for the third quarter ended May 31, 2006. Net income attributed to Apollo Education Group common stock for the three months ended May 31, 2006, was $133.3 million, or $.77 per diluted share on 174.2 million weighted average shares outstanding, compared to $141.8 million, or $.77 per diluted share on 184.3 million weighted average shares outstanding reported for the same period last year. Net income attributed to Apollo Education Group common stock for the nine months ended May 31, 2006, was $344.8 million, or $1.95 per diluted share, compared to $338.5 million, or $1.81 per diluted share reported for the same period last year. Total consolidated revenues for Apollo Group, Inc. for the three months ended May 31, 2006, rose 5.6% to $653.6 million, compared with $619.0 million in the third quarter of fiscal 2005. The third quarter of fiscal 2005 contained an extra week at the University of Phoenix Online, thereby increasing revenue in the related period by approximately $20 million. The University of Phoenix accounted for 83.3% of the $600.1 million in net tuition revenues from students enrolled in degree programs for the quarter ended May 31, 2006. Total consolidated revenues for Apollo Group, Inc. for the nine months ended May 31, 2006, rose 11.6% to $1.852 billion, compared with $1.660 billion in the same period last year. The University of Phoenix accounted for 83.3% of the $1.709 billion in net tuition revenues from students enrolled in degree programs for the nine months ended May 31, 2006. Consolidated degree enrollments for University of Phoenix and Western International University's Axia College at May 31, 2006, increased by 10.7% to 295,600 students compared to 267,100 students at May 31, 2005. Consolidated degree enrollments of online students increased 20.6% between periods. Commenting on the quarter, Brian Mueller, President, said, "During the third quarter, we began operations in four new UOP campuses: Merrillville, Indiana; Madison, Wisconsin; Omaha, Nebraska; and Columbia, South Carolina. We continue to stay focused on our growth strategies. Our strategic and accelerated marketing programs are gaining traction and we are confident we are on the right course. We remain committed to the development of instructional delivery models and student administrative support systems that will increase student learning outcomes and retention through graduation." The company will hold a conference call to discuss these earnings results at 11:00 AM Eastern time, 8:00 AM Phoenix time, on Tuesday, June 20, 2006. The call may be accessed by dialing 877-292-6888 (domestic) or 706-634-1393 (internationally). The conference ID number is 9319496. A live webcast of this event may be accessed by visiting the company website at: www.apollogrp.edu. A replay of the call will be available on our website or at 706-645-9291 (conf. ID # 9319496) until June 30, 2006. Apollo Group, Inc. has been providing higher education programs to working adults for almost 30 years. Apollo Group, Inc., operates through its subsidiaries: The University of Phoenix, Inc., Institute for Professional Development, The College for Financial Planning Institutes Corporation, and Western International University, Inc. The consolidated enrollment in its educational programs makes it the largest private institution of higher education in the United States. It offers educational programs and services at 97 campuses and 159 learning centers in 39 states, Puerto Rico, Alberta, British Columbia, Netherlands, and Mexico. For more information about Apollo Group, Inc. and its subsidiaries, call 800-990-APOL or visit Apollo on the company website at: www.apollogrp.edu. -Table to Follow- -0- *T APOLLO GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months For the Nine Months Ended Ended May 31, May 31, 2006 2005 2006 2005 -------- -------- ---------- ---------- (In thousands, except per share amounts) Revenues: Tuition and other, net $653,628 $619,011 $1,852,063 $1,659,630 -------- -------- ---------- ---------- Costs and expenses: Instructional costs and services 273,073 243,232 791,405 682,284 Selling and promotional 137,873 118,153 390,419 359,754 General and administrative 30,977 29,323 118,262 74,010 -------- -------- ---------- ---------- 441,923 390,708 1,300,086 1,116,048 -------- -------- ---------- ---------- Income from operations 211,705 228,303 551,977 543,582 Interest income and other, net 4,476 3,984 12,546 12,401 -------- -------- ---------- ---------- Income before income taxes 216,181 232,287 564,523 555,983 Provision for income taxes 82,840 90,449 219,773 217,500 -------- -------- ---------- ---------- Net income $133,341 $141,838 $ 344,750 $ 338,483 ======== ======== ========== ========== Earnings per share attributed to Apollo Education Group common stock: Diluted net income per share $ 0.77 $ 0.77 $ 1.95 $ 1.81 ======== ======== ========== ========== Diluted weighted average shares outstanding 174,239 184,322 176,602 187,053 ======== ======== ========== ========== *T The company adopted SFAS 123(R) during the first quarter of 2006 resulting in $3.5 million and $22.0 million of stock-based compensation expense for the three and nine months ended May 31, 2006, respectively. There was no stock-based compensation expense related to employee stock options and employee stock purchases under SFAS 123 in the same periods of fiscal 2005 because the Company did not adopt the recognition provisions of SFAS 123. Net income, including pro forma stock-based compensation expense, as previously disclosed in the notes to the Condensed Consolidated Financial Statements for the three and nine months ended May 31, 2005, was $138.3 million or $0.75 per diluted share, and $326.5 million or $1.74 per diluted share, respectively. -0- *T APOLLO GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) May 31, August 31, 2006 2005 ----------- ---------- (Dollars in thousands) Assets: Current assets Cash and cash equivalents $ 201,463 $ 145,607 Restricted cash 245,108 225,706 Marketable securities 72,190 224,112 Receivables, net 190,143 201,615 Deferred tax assets, net 16,851 14,991 Other current assets 20,124 23,058 ----------- ---------- Total current assets 745,879 835,089 Property and equipment, net 297,119 268,661 Marketable securities 62,928 97,350 Cost in excess of fair value of assets purchased, net 37,096 37,096 Deferred tax assets, net 32,266 35,756 Other assets 28,248 28,993 ----------- ---------- Total assets $ 1,203,536 $1,302,945 =========== ========== Liabilities and Shareholders' Equity: Current liabilities Current portion of long-term liabilities $ 22,063 $ 18,878 Accounts payable 38,401 40,129 Accrued liabilities 66,017 61,315 Income taxes payable 14,622 9,740 Student deposits and current portion of deferred revenue 399,381 387,910 ----------- ---------- Total current liabilities 540,484 517,972 Deferred tuition revenue, less current portion 441 351 Long-term liabilities, less current portion 79,961 77,748 ----------- ---------- Total liabilities 620,886 596,071 ----------- ---------- Commitments and contingencies Shareholders' equity Preferred stock, no par value, 1,000,000 shares authorized; none issued Apollo Education Group Class A nonvoting common stock, no par value, 400,000,000 shares authorized; 188,002,000 issued at May 31, 2006 and August 31, 2005, and 172,448,000 and 179,184,000 outstanding at May 31, 2006 and August 31, 2005, respectively 103 103 Apollo Education Group Class B voting common stock, no par value, 3,000,000 shares authorized; 477,000 issued and outstanding at May 31, 2006 and August 31, 2005 1 1 Additional paid-in capital Apollo Education Group Class A treasury stock, at cost, 15,554,000 and 8,818,000 shares at May 31, 2006 and August 31, 2005, respectively (1,061,172) (645,742) Retained earnings 1,645,381 1,353,650 Accumulated other comprehensive loss (1,663) (1,138) ----------- ---------- Total shareholders' equity 582,650 706,874 ----------- ---------- Total liabilities and shareholders' equity $ 1,203,536 $1,302,945 =========== ========== APOLLO GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended May 31, 2006 2005 --------- --------- (In thousands) Cash flows provided by (used for) operating activities: Net income $ 344,750 $ 338,483 Adjustments to reconcile net income to net cash provided by operating activities: Stock-based compensation expense 14,475 Depreciation and amortization 49,291 39,157 Amortization of investment premiums 841 3,023 Provision for uncollectible accounts 57,275 30,180 Deferred income taxes 1,630 17,099 Tax benefits of stock options exercised 28,266 Excess tax benefits from stock-based compensation (9,590) Cash received for tenant improvements 1,594 1,263 Non-cash early occupancy expense 2,877 Changes in assets and liabilities Receivables (45,803) (64,599) Other assets 2,431 (3,181) Accounts payable and accrued liabilities (2,366) (26,023) Income taxes 17,438 29,946 Student deposits and deferred revenue 11,860 42,247 Other liabilities 3,499 3,879 --------- --------- Net cash provided by operating activities 447,325 442,617 --------- --------- Cash flows provided by (used for) investing activities: Net additions to property and equipment (34,203) (80,755) Development of land and buildings related to future Online expansion (35,266) Purchase of marketable securities (259,805) (39,211) Maturities of marketable securities 445,308 303,130 Purchase of restricted securities (662,146) (308,464) Maturities of restricted securities 642,744 252,444 Purchase of other assets (1,686) (1,710) --------- --------- Net cash provided by investing activities 94,946 125,434 --------- --------- Cash flows provided by (used for) financing activities: Purchase of Apollo Education Group Class A common stock (514,931) (698,851) Issuance of Apollo Education Group Class A common stock 25,691 43,170 Cash paid for cancellation of vested options (6,240) Excess tax benefits from stock-based compensation 9,590 --------- --------- Net cash used for financing activities (485,890) (655,681) --------- --------- Currency translation loss (525) (264) --------- --------- Net increase (decrease) in cash and cash equivalents 55,856 (87,894) Cash and cash equivalents at beginning of period 145,607 156,669 --------- --------- Cash and cash equivalents at end of period $ 201,463 $ 68,775 ========= ========= Supplemental disclosure of non-cash investing activities Tenant improvement allowances $ 11,639 $ 12,576 Purchases of property and equipment included in accounts payable $ 5,340 $ 11,998 APOLLO GROUP, INC. AND SUBSIDIARIES DEGREE ENROLLMENTS (Unaudited) May 31, 2006 2005 -------------------- The University of Phoenix, Inc. and Axia College Associates 66,100 34,000 Bachelors 156,400 164,500 Masters 69,300 66,000 Doctoral 3,800 2,600 -------------------- 295,600 267,100 ==================== Apollo Group, Inc. Consolidated Associates 73,400 41,200 Bachelors 168,600 177,400 Masters 77,300 74,300 Doctoral 3,800 2,600 -------------------- 323,100 295,500 ==================== APOLLO GROUP, INC. AND SUBSIDIARIES SUPPLEMENTARY DATA -- THREE MONTHS ENDED MAY 31, 2006 (Unaudited) *T Instructional costs and services increased by $29.9 million in the three months ended May 31, 2006, from the three months ended May 31, 2005. The following table sets forth the changes in significant components of instructional costs and services, in millions: -0- *T Percent of Revenues --------------------- For the Three Months For the Three Months Ended Ended May 31, May 31, 2006 2005 2006 2005 ---------------------- --------------------- Employee compensation and related expenses $97.0 $88.6 14.8% 14.3% Stock-based compensation 2.4 0.3% Faculty compensation 54.9 52.8 8.4% 8.6% Classroom lease expenses and depreciation 48.3 44.2 7.4% 7.1% Financial aid processing costs 13.5 10.6 2.1% 1.7% Bad debt expense 17.4 11.3 2.7% 1.8% Other instructional costs and services 39.6 35.7 6.1% 5.8% ---------------------- --------------------- Instructional costs and services $273.1 $243.2 41.8% 39.3% ====================== ===================== *T Selling and promotional expenses increased by $19.7 million in the three months ended May 31, 2006, from the three months ended May 31, 2005. The following table sets forth the changes in significant components of selling and promotional expenses, in millions: -0- *T Percent of Revenues -------------------- For the Three Months For the Three Months Ended Ended May 31, May 31, 2006 2005 2006 2005 -------------------- -------------------- Enrollment advisors' compensation and related expenses $63.6 $51.3 9.7% 8.3% Stock-based compensation 0.4 0.1% Advertising 56.9 50.6 8.7% 8.2% Other selling and promotional expenses 17.0 16.3 2.6% 2.6% -------------------- -------------------- Selling and promotional expenses $137.9 $118.2 21.1% 19.1% ==================== ==================== *T General and administrative expenses increased by $1.7 million in the three months ended May 31, 2006, from the three months ended May 31, 2005. The following table sets forth the changes in significant components of general and administrative expenses, in millions: -0- *T Percent of Revenues --------------------- For the Three Months For the Three Months Ended Ended May 31, May 31, 2006 2005 2006 2005 -------------------- --------------------- Employee compensation and related expenses $12.7 $12.7 1.9% 2.0% Stock-based compensation 0.7 0.1% Legal, audit, and corporate insurance 4.4 2.5 0.7% 0.4% Administrative space and depreciation 6.1 7.3 0.9% 1.2% Other general and administrative expenses 7.1 6.8 1.1% 1.1% -------------------- --------------------- General and administrative expenses $31.0 $29.3 4.7% 4.7% ==================== ===================== APOLLO GROUP, INC. AND SUBSIDIARIES SUPPLEMENTARY DATA -- NINE MONTHS ENDED MAY 31, 2006 (Unaudited) *T Instructional costs and services increased by $109.1 million in the nine months ended May 31, 2006, from the nine months ended May 31, 2005. The following table sets forth the changes in significant components of instructional costs and services, in millions: -0- *T Percent of Revenues ------------------- For the Nine Months For the Nine Months Ended Ended May 31, May 31, 2006 2005 2006 2005 --------------------- ------------------- Employee compensation and related expenses $275.3 $250.4 14.9% 15.1% Stock-based compensation 8.7 0.4% Faculty compensation 157.3 140.7 8.5% 8.5% Classroom lease expenses and depreciation 141.0 126.2 7.6% 7.6% Financial aid processing costs 39.0 31.3 2.1% 1.9% Bad debt expense 57.3 30.3 3.1% 1.8% Other instructional costs and services 112.8 103.4 6.1% 6.2% --------------------- ------------------- Instructional costs and services $791.4 $682.3 42.7% 41.1% ===================== =================== *T Selling and promotional expenses increased by $30.6 million in the nine months ended May 31, 2006, from the nine months ended May 31, 2005. The following table sets forth the changes in significant components of selling and promotional expenses, in millions: -0- *T Percent of Revenues ------------------- For the Nine Months For the Nine Months Ended Ended May 31, May 31, 2006 2005 2006 2005 ------------------- ------------------- Enrollment advisors' compensation and related expenses $183.1 $151.2 9.9% 9.1% Stock-based compensation 1.3 0.1% Advertising 162.8 166.5 8.8% 10.0% Other selling and promotional expenses 43.2 42.1 2.3% 2.6% ------------------- ------------------- Selling and promotional expenses $390.4 $359.8 21.1% 21.7% =================== =================== *T General and administrative expenses increased by $44.3 million in the nine months ended May 31, 2006, from the nine months ended May 31, 2005. The following table sets forth the changes in significant components of general and administrative expenses, in millions: -0- *T Percent of Revenues ------------------- For the Nine Months For the Nine Months Ended Ended May 31, May 31, 2006 2005 2006 2005 --------------------- ------------------- Employee compensation and related expenses $57.6 $34.6 3.1% 2.1% Stock-based compensation 12.0 0.7% Legal, audit, and corporate insurance 10.0 6.2 0.5% 0.4% Administrative space and depreciation 17.7 15.1 1.0% 0.9% Other general and administrative expenses 21.0 18.1 1.1% 1.0% --------------------- ------------------- General and administrative expenses $118.3 $74.0 6.4% 4.4% ===================== =================== *T Included in the above general and administrative employee compensation and related expenses is $19.0 million related to our former CEO's Separation Agreement. Included in the above general and administrative stock-based compensation is $7.5 million related to our former CEO's Separation Agreement.