UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
November 30,
2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 0-25232
APOLLO GROUP, INC.
(Exact name of registrant as specified in its charter)
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ARIZONA
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86-0419443
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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4025 S. RIVERPOINT
PARKWAY, PHOENIX, ARIZONA 85040
(Address of principal executive offices, including zip code)
(480) 966-5394
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES
þ
NO
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
YES
þ
NO
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer
þ
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Accelerated
filer
o
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Non-accelerated
filer
o
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Smaller
reporting
company
o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
YES
o
NO
þ
AS OF
December 29, 2010, THE FOLLOWING SHARES OF STOCK WERE
OUTSTANDING:
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Apollo Group Class A common stock, no par value
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142,670,000 Shares
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Apollo Group Class B common stock, no par value
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475,000 Shares
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APOLLO
GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
2
Special
Note Regarding Forward-Looking Statements
This Quarterly Report on
Form 10-Q,
including Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A), contains certain forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements
other than statements of historical fact may be forward-looking
statements. Such forward-looking statements include, among
others, those statements regarding future events and future
results of Apollo Group, Inc. (the Company,
Apollo Group, Apollo, APOL,
we, us or our) that are
based on current expectations, estimates, forecasts, and the
beliefs and assumptions of us and our management, and speak only
as of the date made and are not guarantees of future performance
or results. In some cases, forward-looking statements can be
identified by terminology such as may,
will, should, could,
believe, expect, anticipate,
estimate, plan, predict,
target, potential, continue,
objectives, or the negative of these terms or other
comparable terminology. Such forward-looking statements are
necessarily estimates based upon current information and involve
a number of risks and uncertainties. Such statements should be
viewed with caution. Actual events or results may differ
materially from the results anticipated in these forward-looking
statements as a result of a variety of factors. While it is
impossible to identify all such factors, factors that could
cause actual results to differ materially from those estimated
by us include but are not limited to:
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changes in the regulation of the U.S. education
industry, including the regulatory and other requirements
discussed in Item 1, Business, of our Annual Report on
Form 10-K
for the year ended August 31, 2010, under
Accreditation and Jurisdictional Authorizations,
Financial Aid Programs, and Regulatory
Environment and in Part II, Item 1A, Risk
Factors, in this
Form 10-Q;
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the impact of our initiative to enhance the student
experience and outcomes, including the implementation of
University Orientation and changes in the manner in which we
evaluate and compensate our admissions personnel, as more fully
described in Part I, Item 2, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, in this
Form 10-Q
and Item 1A, Risk Factors Risks Related to Our
Business Ongoing and contemplated changes to our
business may adversely affect our growth rate, profitability,
financial condition, results of operations and cash flows, in
our Annual Report on Form
10-K
for the
year ended August 31, 2010;
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each of the factors discussed in Item 1A, Risk Factors,
of our Annual Report on Form
10-K
for the
year ended August 31, 2010 and Part II, Item 1A,
Risk Factors, in this Form
10-Q;
and
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those factors set forth in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, of our Annual Report on
Form 10-K
for the year ended August 31, 2010 and Part I,
Item 2, Managements Discussion and Analysis of
Financial Condition and Results of Operations, in this
Form 10-Q.
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The cautionary statements referred to above also should be
considered in connection with any subsequent written or oral
forward-looking statements that may be issued by us or persons
acting on our behalf. We undertake no obligation to publicly
update or revise any forward-looking statements for any facts,
events, or circumstances after the date hereof that may bear
upon forward-looking statements. Furthermore, we cannot
guarantee future results, events, levels of activity,
performance, or achievements.
3
PART I
FINANCIAL INFORMATION
Item 1. Financial
Statements
APOLLO
GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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As of
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November 30,
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August 31,
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($ in thousands)
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2010
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2010
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ASSETS:
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Current assets
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Cash and cash equivalents
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$
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1,040,490
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$
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1,284,769
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Restricted cash and cash equivalents
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472,462
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444,132
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Accounts receivable, net
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256,931
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264,377
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Deferred tax assets, current portion
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153,830
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166,549
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Prepaid taxes
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39,409
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Other current assets
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43,619
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38,031
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Assets held for sale from discontinued operations
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24,777
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15,945
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Total current assets
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1,992,109
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2,253,212
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Property and equipment, net
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643,023
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619,537
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Long-term restricted cash and cash equivalents
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126,560
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126,615
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Marketable securities
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15,174
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15,174
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Goodwill
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324,889
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322,159
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Intangible assets, net
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146,927
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150,593
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Deferred tax assets, less current portion
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113,058
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99,071
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Other assets
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15,923
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15,090
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Total assets
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$
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3,377,663
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$
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3,601,451
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LIABILITIES AND SHAREHOLDERS EQUITY:
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Current liabilities
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Short-term borrowings and current portion of long-term debt
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$
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26,618
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$
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416,361
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Accounts payable
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94,035
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90,830
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Accrued liabilities
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354,057
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375,461
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Income taxes payable
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103,721
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Student deposits
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487,433
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493,245
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Deferred revenue
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365,450
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359,724
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Other current liabilities
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52,257
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53,416
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Liabilities held for sale from discontinued operations
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6,150
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4,474
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Total current liabilities
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1,489,721
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1,793,511
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Long-term debt
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154,821
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168,039
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Deferred tax liabilities
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38,171
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38,875
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Other long-term liabilities
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228,756
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212,286
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Total liabilities
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1,911,469
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2,212,711
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Commitments and contingencies (Note 15)
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Shareholders equity
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Preferred stock, no par value
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Apollo Group Class A nonvoting common stock, no par value
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103
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103
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Apollo Group Class B voting common stock, no par value
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1
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1
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Additional paid-in capital
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58,104
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46,865
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Apollo Group Class A treasury stock, at cost
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(2,580,131
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)
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(2,407,788
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Retained earnings
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3,983,458
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3,748,045
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Accumulated other comprehensive loss
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(28,697
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)
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(31,176
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Total Apollo shareholders equity
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1,432,838
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1,356,050
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Noncontrolling interests
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33,356
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32,690
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Total equity
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1,466,194
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1,388,740
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Total liabilities and shareholders equity
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$
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3,377,663
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$
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3,601,451
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
APOLLO
GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended November 30,
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(in thousands, except per share data)
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2010
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2009
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Net revenue
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$
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1,326,435
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$
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1,258,659
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Costs and expenses:
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Instructional and student advisory
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455,812
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430,675
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Marketing
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166,143
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151,617
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Admissions advisory
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113,752
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115,271
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General and administrative
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84,874
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70,659
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Provision for uncollectible accounts receivable
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56,909
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62,698
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Depreciation and amortization
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37,102
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34,680
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Restructuring
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3,846
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Estimated litigation loss
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881
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Total costs and expenses
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919,319
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865,600
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Operating income
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407,116
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393,059
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Interest income
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983
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932
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Interest expense
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(2,170
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)
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(2,908
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)
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Other, net
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(54
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)
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(670
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)
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Income from continuing operations before income taxes
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405,875
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390,413
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Provision for income taxes
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(169,579
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)
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(149,981
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)
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Income from continuing operations
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236,296
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240,432
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Loss from discontinued operations, net of tax
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(628
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)
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(300
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)
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Net income
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235,668
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240,132
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Net (income) loss attributable to noncontrolling interests
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(255
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)
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10
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Net income attributable to Apollo
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$
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235,413
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$
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240,142
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Earnings (loss) per share Basic:
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Continuing operations attributable to Apollo
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$
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1.61
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$
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1.55
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Discontinued operations attributable to Apollo
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Basic income per share attributable to Apollo
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$
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1.61
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$
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1.55
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Earnings (loss) per share Diluted:
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Continuing operations attributable to Apollo
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$
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1.61
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$
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1.54
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Discontinued operations attributable to Apollo
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Diluted income per share attributable to Apollo
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$
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1.61
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$
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1.54
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Basic weighted average shares outstanding
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146,352
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154,824
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Diluted weighted average shares outstanding
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146,663
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156,045
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
APOLLO
GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended November 30,
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($ in thousands)
|
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2010
|
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2009
|
|
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Net income
|
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$
|
235,668
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$
|
240,132
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Other comprehensive income (net of tax):
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Currency translation gain
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2,890
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|
|
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4,621
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|
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|
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Comprehensive income
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238,558
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|
244,753
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Comprehensive income attributable to noncontrolling
interests
|
|
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(666
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)
|
|
|
(603
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)
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Comprehensive income attributable to Apollo
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$
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237,892
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$
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244,150
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
APOLLO
GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
FROM CONTINUING AND DISCONTINUED OPERATIONS
(Unaudited)
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|
|
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Three Months Ended November 30,
|
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($ in thousands)
|
|
2010
|
|
|
2009
|
|
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Cash flows provided by (used in) operating activities:
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Net income
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$
|
235,668
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$
|
240,132
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Share-based compensation
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15,032
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14,154
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Excess tax benefits from share-based compensation
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(69
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)
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|
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(238
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)
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Depreciation and amortization
|
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|
37,102
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|
|
|
35,575
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Amortization of lease incentives
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(3,531
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)
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(3,272
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)
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Amortization of deferred gain on sale-leasebacks
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(411
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)
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|
|
(450
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)
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Non-cash foreign currency (gain) loss, net
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|
|
(5
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)
|
|
|
357
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Provision for uncollectible accounts receivable
|
|
|
56,909
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|
|
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62,698
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Estimated litigation loss
|
|
|
881
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|
|
|
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Deferred income taxes
|
|
|
(2,379
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)
|
|
|
(15,899
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)
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Changes in assets and liabilities:
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Accounts receivable
|
|
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(40,333
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)
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(104,798
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)
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Other assets
|
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(12,788
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)
|
|
|
(4,105
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)
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Accounts payable and accrued liabilities
|
|
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(20,654
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)
|
|
|
(16,806
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)
|
Income taxes payable
|
|
|
142,219
|
|
|
|
170,230
|
|
Student deposits
|
|
|
(6,301
|
)
|
|
|
(11,627
|
)
|
Deferred revenue
|
|
|
(3,116
|
)
|
|
|
43,163
|
|
Other liabilities
|
|
|
15,727
|
|
|
|
(3,884
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
413,951
|
|
|
|
405,230
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(50,640
|
)
|
|
|
(37,574
|
)
|
Increase in restricted cash and cash equivalents
|
|
|
(28,275
|
)
|
|
|
(37,825
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(78,915
|
)
|
|
|
(75,399
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
Payments on borrowings
|
|
|
(406,283
|
)
|
|
|
(410,126
|
)
|
Proceeds from borrowings
|
|
|
1,799
|
|
|
|
12,251
|
|
Issuance of Apollo Group Class A common stock
|
|
|
1,847
|
|
|
|
5,771
|
|
Apollo Group Class A common stock purchased for treasury
|
|
|
(176,931
|
)
|
|
|
(1,025
|
)
|
Excess tax benefits from share-based compensation
|
|
|
69
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(579,499
|
)
|
|
|
(392,891
|
)
|
|
|
|
|
|
|
|
|
|
Exchange rate effect on cash and cash equivalents
|
|
|
184
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(244,279
|
)
|
|
|
(62,984
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,284,769
|
|
|
|
968,246
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,040,490
|
|
|
$
|
905,262
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of refunds
|
|
$
|
17,080
|
|
|
$
|
2,535
|
|
Cash paid for interest
|
|
$
|
3,179
|
|
|
$
|
1,536
|
|
Supplemental disclosure of non-cash investing and financing
activities
|
|
|
|
|
|
|
|
|
Accrued purchases of property and equipment
|
|
$
|
11,686
|
|
|
$
|
6,132
|
|
Credits received for tenant improvements
|
|
$
|
5,012
|
|
|
$
|
3,786
|
|
Restricted stock units vested and released
|
|
$
|
1,409
|
|
|
$
|
2,594
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
Note 1.
|
Nature of
Operations
|
Apollo Group, Inc. and its wholly-owned and controlled
subsidiaries, collectively referred to in this report as
the Company, Apollo Group,
Apollo, APOL, we,
us or our, has been an education
provider for more than 35 years. We offer innovative and
distinctive educational programs and services both online and
on-campus at the undergraduate, masters and doctoral
levels through our wholly-owned subsidiaries:
|
|
|
|
|
The University of Phoenix, Inc. (University of
Phoenix);
|
|
|
|
Institute for Professional Development (IPD);
|
|
|
|
The College for Financial Planning Institutes Corporation
(CFFP); and
|
|
|
|
Meritus University, Inc. (Meritus).
|
In addition to these wholly-owned subsidiaries, we have an 85.6%
ownership interest in Apollo Global, Inc. (Apollo
Global), which pursues investments primarily in the
international education services industry, and which we
consolidate in our financial statements. Apollo Global operates
the following educational institutions:
|
|
|
|
|
BPP Holdings plc (BPP) in the United Kingdom;
|
|
|
|
Western International University, Inc. (Western
International University) in the U.S.;
|
|
|
|
Universidad de Artes, Ciencias y Comunicación
(UNIACC) in Chile; and
|
|
|
|
Universidad Latinoamericana (ULA) in Mexico.
|
|
|
Note 2.
|
Significant
Accounting Policies
|
Basis
of Presentation
The unaudited interim condensed consolidated financial
statements include the accounts of Apollo Group, Inc., its
wholly-owned subsidiaries, and subsidiaries that we control.
These unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission
and, in the opinion of management, contain all adjustments,
consisting of normal, recurring adjustments, necessary to fairly
present the financial condition, results of operations and cash
flows for the periods presented.
Certain information and note disclosures normally included in
these unaudited interim condensed consolidated financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America
(GAAP) have been condensed or omitted pursuant to
Securities and Exchange Commission rules. We believe that the
disclosures made are adequate to make the information presented
not misleading. We consistently applied the accounting policies
described in Item 8,
Financial Statements and
Supplementary Data,
in our 2010 Annual Report on
Form 10-K
as filed with the Securities and Exchange Commission on
October 21, 2010 in preparing these unaudited interim
condensed consolidated financial statements. For a discussion of
our critical accounting policies, please refer to our 2010
Annual Report on
Form 10-K
and Item 2,
Managements Discussion and Analysis of
Financial Condition and Results of Operations
, included in
this filing.
The preparation of financial statements in accordance with GAAP
requires management to make certain estimates and assumptions
that affect the reported amount of assets and liabilities and
the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could
differ from these estimates.
These unaudited interim condensed consolidated financial
statements and accompanying notes should be read in conjunction
with Item 2,
Managements Discussion and Analysis
of Financial Condition and Results of Operations
,
8
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
included in this filing and the audited consolidated financial
statements and notes thereto contained in our 2010 Annual Report
on
Form 10-K.
Our fiscal year is from September 1 to August 31. Unless
otherwise noted, references to particular years or quarters
refer to our fiscal years and the associated quarters of those
fiscal years.
Our operations are generally subject to seasonal trends. We
experience, and expect to continue to experience, fluctuations
in our results of operations, principally as a result of
seasonal variations in the level of University of Phoenix
enrollments. Although University of Phoenix enrolls students
throughout the year, its net revenue is generally lower in our
second fiscal quarter (December through February) than the other
quarters due to holiday breaks in December and January.
Because of the seasonal nature of our business, the results of
operations for the three months ended November 30, 2010 are
not necessarily indicative of results to be expected for the
entire fiscal year.
Recent
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounts
Standards (SFAS) No. 167, Amendments to
FASB Interpretation No. 46(R)
(SFAS 167) (codified in Accounting Standards
Codification (ASC) 810, Consolidation
(ASC 810)), which modifies how a company determines
when an entity that is insufficiently capitalized or is not
controlled through voting or similar rights should be
consolidated. SFAS 167 clarifies that the determination of
whether a company is required to consolidate an entity is based
on, among other things, an entitys purpose and design and
a companys ability to direct the activities of the entity
that most significantly impact the entitys economic
performance. SFAS 167 requires an ongoing reassessment of
whether a company is the primary beneficiary of a variable
interest entity. SFAS 167 also requires additional
disclosures about a companys involvement in variable
interest entities and any significant changes in risk exposure
due to that involvement. SFAS 167 is effective for fiscal
years beginning after November 15, 2009 and was effective
for us on September 1, 2010. The adoption of SFAS 167
did not have a material impact on our financial condition,
results of operations, or disclosures.
In October 2009, the FASB issued Accounting Standards Update
(ASU)
No. 2009-13,
Revenue Recognition (Topic 605): Multiple-Deliverable
Revenue Arrangements a consensus of the FASB
Emerging Issues Task Force (ASU
2009-13),
which provides guidance on how a multiple-deliverable
arrangement should be separated and the consideration allocated.
ASU
2009-13
requires an entity to allocate revenue in an arrangement using
estimated selling prices of deliverables if a vendor does not
have vendor-specific objective evidence or third-party evidence
of selling price. ASU
2009-13
is
effective for the first annual reporting period beginning on or
after June 15, 2010 and may be applied retrospectively for
all periods presented or prospectively to arrangements entered
into or materially modified after the adoption date. ASU
2009-13
was
effective for us on September 1, 2010. The prospective
adoption of ASU
2009-13
did
not have a material impact on our financial condition, results
of operations, or disclosures.
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements
(ASU
2010-06).
ASU
2010-06
is an interpretation of the fair value guidance that we fully
adopted on September 1, 2009 and amends ASC 820 to add
new disclosure requirements for significant transfers in and out
of Level 1 and 2 measurements and to provide a gross
presentation of the activities within the Level 3
rollforward. ASU
2010-06
also
clarifies existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to
measure fair value. We adopted the disclosure requirements in
ASU
2010-06
on March 1, 2010, which did not have a material impact on
our fair value measurement disclosures. The requirement to
present the Level 3 rollforward on a gross basis is
effective for fiscal years beginning after December 15,
2010, and is effective for us on September 1, 2011. We do
not believe that the full adoption of ASU
2010-06,
with respect to the Level 3 rollforward, will have a
material impact on our fair value measurement disclosures.
9
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
Note 3.
|
Reclassifications
|
In executing our strategy, we have recently implemented and are
continuing to implement a number of important changes and
initiatives to transition our business to more effectively
support our students and improve their educational outcomes. One
of our most significant initiatives is to better align our
admissions personnel with our students success. Effective
September 1, 2010, we eliminated enrollment factors in
evaluating the performance and any related compensation
adjustments for our admissions personnel. This represents a
significant change as admissions personnel have been
transitioned to more of an advisory function for prospective
students during the admissions process, which includes potential
students that do not matriculate into one of our educational
programs.
Based on our business transition, we evaluated the presentation
of our operating expenses and determined that additional
disaggregation will provide more meaningful information and
increased transparency of our operations. The following details
the additional disaggregation and a description of the costs
included in our operating expense categories:
|
|
|
|
|
Instructional and student advisory
-
We previously
reported our provision for uncollectible accounts receivable and
a portion of our depreciation and amortization in
instructional costs and services on our Condensed
Consolidated Statements of Income. We have disaggregated and are
presenting separately our provision for uncollectible accounts
receivable and depreciation and amortization, which are
discussed in more detail below. Effective during the first
quarter of fiscal year 2011, we have renamed the remaining costs
instructional and student advisory. This category
primarily consists of costs related to the delivery and
administration of our educational programs and include costs
related to faculty, student advisory and administrative
compensation, classroom and administration lease expenses
(including facilities that are shared and support both
instructional and admissions functions), financial aid
processing costs, costs related to the development of our
educational programs and other related costs. Tuition costs for
all employees and their eligible family members are recorded as
an expense within instructional costs and services.
|
|
|
|
Admissions advisory
-
We previously reported costs
related to our admissions advisory personnel in selling
and promotional on our Condensed Consolidated Statements
of Income. Effective during the first quarter of fiscal year
2011, we began separately stating such costs on our Condensed
Consolidated Statements of Income as admissions
advisory. Based on the strategic initiative discussed
above, we believe the disaggregation of admissions personnel
costs better represents our admissions advisory function and
provides a more transparent view of our operations. The
substantial majority of costs included in this disaggregated
presentation consist of compensation for admissions personnel.
The category also includes other costs directly related to
admissions advisory functions.
|
|
|
|
Marketing
-
The costs associated with admissions
personnel represented a significant portion of our previously
reported selling and promotional expense. As
discussed above, we began presenting such costs separately on
our Condensed Consolidated Statements of Income. Considering the
substantial majority of the remaining costs represent
advertising and other marketing activities, we believe the
disaggregation of our marketing costs provides additional
transparency. Specifically, effective during the first quarter
of fiscal year 2011, we have renamed the remaining costs
marketing, which were previously referred to as
selling and promotional. The substantial majority of
costs included in the disaggregated presentation of marketing
consist of advertising expenses, compensation for marketing
personnel including personnel responsible for establishing
relationships with selected employers, which we refer to as our
Workforce Solutions team, and production of marketing materials.
The category also includes other costs directly related to
marketing functions. Based on this disaggregation, we also
identified certain costs previously included in selling
and promotional that we believe are now more appropriately
represented as general and administrative in our revised
presentation of operating expenses. These costs principally
|
10
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
include compensation associated with our External Affairs
employees and other costs related our External Affairs
activities.
|
|
|
|
|
|
General and administrative
-
Excluding the
reclassification noted above related to External Affairs and the
disaggregation of depreciation and amortization discussed below,
there are no additional changes to our presentation of general
and administrative expense. General and administrative costs
consist primarily of corporate compensation, occupancy costs,
legal and professional fees, and other related costs.
|
|
|
|
Provision for uncollectible accounts receivable
-
We previously reported our provision for uncollectible
accounts receivable in instructional costs and
services on our Condensed Consolidated Statements of
Income. We believe the disaggregated presentation of our
provision for uncollectible accounts receivable provides a more
transparent view of our operations and is meaningful due to
increases in our provision during recent periods.
|
|
|
|
Depreciation and amortization
-
We previously
reported depreciation and amortization in a combination of all
of our operating expense categories on our Condensed
Consolidated Statements of Income. The assets associated with
our depreciation and amortization often possess characteristics
that can be associated with multiple operating expense
categories. We expect this trend to continue as we implement
various strategic initiatives that enhance our operational
efficiencies as well as improve the student experience.
Accordingly, we believe the disaggregated presentation of our
depreciation and amortization provides a more transparent view
of our operations.
|
We have reclassified our operating expenses for prior periods to
conform to the above disaggregation and revisions to our
presentation. There were no changes to total operating expenses
or operating income as a result of these reclassifications. The
following table presents our operating expenses as previously
reported and as reclassified on our Condensed Consolidated
Statements of Income for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2009
|
|
|
February 28, 2010
|
|
|
May 31, 2010
|
|
|
August 31, 2010
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
($ in thousands)
|
|
Reported
|
|
|
Reclassified
|
|
|
Reported
|
|
|
Reclassified
|
|
|
Reported
|
|
|
Reclassified
|
|
|
Reported
|
|
|
Reclassified
|
|
|
Instructional and student advisory
|
|
$
|
519,444
|
|
|
$
|
430,675
|
|
|
$
|
517,344
|
|
|
$
|
415,458
|
|
|
$
|
540,594
|
|
|
$
|
441,700
|
|
|
$
|
547,700
|
|
|
$
|
445,301
|
|
Marketing
|
|
|
274,075
|
|
|
|
151,617
|
|
|
|
263,549
|
|
|
|
141,308
|
|
|
|
273,480
|
|
|
|
151,668
|
|
|
|
301,562
|
|
|
|
179,150
|
|
Admissions advisory
|
|
|
|
|
|
|
115,271
|
|
|
|
|
|
|
|
118,152
|
|
|
|
|
|
|
|
116,344
|
|
|
|
|
|
|
|
116,591
|
|
General and administrative
|
|
|
72,081
|
|
|
|
70,659
|
|
|
|
71,953
|
|
|
|
68,800
|
|
|
|
79,712
|
|
|
|
75,362
|
|
|
|
91,049
|
|
|
|
86,295
|
|
Provision for uncollectible accounts receivable
|
|
|
|
|
|
|
62,698
|
|
|
|
|
|
|
|
73,884
|
|
|
|
|
|
|
|
72,011
|
|
|
|
|
|
|
|
74,035
|
|
Depreciation and amortization
|
|
|
|
|
|
|
34,680
|
|
|
|
|
|
|
|
35,244
|
|
|
|
|
|
|
|
36,701
|
|
|
|
|
|
|
|
38,939
|
|
Goodwill and other intangibles impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,712
|
|
|
|
8,712
|
|
|
|
175,858
|
|
|
|
175,858
|
|
Estimated litigation loss
|
|
|
|
|
|
|
|
|
|
|
44,500
|
|
|
|
44,500
|
|
|
|
132,600
|
|
|
|
132,600
|
|
|
|
882
|
|
|
|
882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
$
|
865,600
|
|
|
$
|
865,600
|
|
|
$
|
897,346
|
|
|
$
|
897,346
|
|
|
$
|
1,035,098
|
|
|
$
|
1,035,098
|
|
|
$
|
1,117,051
|
|
|
$
|
1,117,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2008
|
|
|
February 28, 2009
|
|
|
May 31, 2009
|
|
|
August 31, 2009
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
($ in thousands)
|
|
Reported
|
|
|
Reclassified
|
|
|
Reported
|
|
|
Reclassified
|
|
|
Reported
|
|
|
Reclassified
|
|
|
Reported
|
|
|
Reclassified
|
|
|
Instructional and student advisory
|
|
$
|
368,976
|
|
|
$
|
315,099
|
|
|
$
|
364,416
|
|
|
$
|
308,968
|
|
|
$
|
390,642
|
|
|
$
|
334,156
|
|
|
$
|
443,720
|
|
|
$
|
375,696
|
|
Marketing
|
|
|
226,363
|
|
|
|
113,728
|
|
|
|
224,567
|
|
|
|
113,328
|
|
|
|
241,259
|
|
|
|
126,492
|
|
|
|
260,695
|
|
|
|
144,020
|
|
Admissions advisory
|
|
|
|
|
|
|
108,807
|
|
|
|
|
|
|
|
107,495
|
|
|
|
|
|
|
|
109,499
|
|
|
|
|
|
|
|
112,107
|
|
General and administrative
|
|
|
57,866
|
|
|
|
55,796
|
|
|
|
69,450
|
|
|
|
67,676
|
|
|
|
70,862
|
|
|
|
68,012
|
|
|
|
88,315
|
|
|
|
86,403
|
|
Provision for uncollectible accounts receivable
|
|
|
|
|
|
|
34,857
|
|
|
|
|
|
|
|
35,578
|
|
|
|
|
|
|
|
35,846
|
|
|
|
|
|
|
|
44,740
|
|
Depreciation and amortization
|
|
|
|
|
|
|
24,918
|
|
|
|
|
|
|
|
25,388
|
|
|
|
|
|
|
|
28,758
|
|
|
|
|
|
|
|
29,764
|
|
Estimated litigation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,500
|
|
|
|
80,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
$
|
653,205
|
|
|
$
|
653,205
|
|
|
$
|
658,433
|
|
|
$
|
658,433
|
|
|
$
|
702,763
|
|
|
$
|
702,763
|
|
|
$
|
873,230
|
|
|
$
|
873,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 3, Reclassifications, we have recently
implemented a number of important operational changes and
initiatives to transition our business to more effectively
support our students and improve their educational outcomes. As
part of this transition, we implemented a strategic reduction in
force primarily at University of Phoenix in November 2010 that
eliminated approximately 700 full-time positions,
principally among admissions personnel. The personnel reductions
are designed to streamline our operations and to better align
our operations with our business strategy, refined business
model and outlook. In connection with this reduction in force,
we incurred a $3.8 million restructuring charge consisting
of severance and other fringe benefit costs. This charge is
presented separately on our Condensed Consolidated Statements of
Income, and is included in accrued liabilities on our Condensed
Consolidated Balance Sheets as of November 30, 2010. We
expect to pay the restructuring costs in the second quarter of
fiscal year 2011.
|
|
Note 5.
|
Discontinued
Operations
|
In the second quarter of fiscal year 2010, we initiated a formal
plan to sell Insight Schools, engaged an investment bank and
also began the process of actively marketing Insight Schools as
we determined that the business was no longer consistent with
our long-term strategic objectives. We do not expect to have
significant continuing involvement with Insight Schools after it
is sold. Based on these factors, we concluded that we met the
criteria for presenting Insight Schools as held for sale and as
discontinued operations and began presenting Insight
Schools assets and liabilities as held for sale on our
Condensed Consolidated Balance Sheets and Insight Schools
operating results as discontinued operations on our Condensed
Consolidated Statements of Income for all periods presented. We
determined cash flows from discontinued operations are not
material and are included with cash flows from continuing
operations on our Condensed Consolidated Statements of Cash
Flows from Continuing and Discontinued Operations. Insight
Schools was previously presented as its own reportable segment.
Since Insight Schools meets the held for sale criteria, we are
required to present its assets and liabilities held for sale at
the lower of the carrying amount or fair value less cost to
sell. Accordingly, we have evaluated Insight Schools
respective assets held for sale each period, including goodwill
and other long-lived assets for impairment. Based on our
analysis, we recognized a $9.4 million goodwill impairment
charge in the second quarter of fiscal year 2010, which was the
first quarter we presented Insight Schools as held for
sale. Our fair value estimate was derived from obtaining exit
price information from advisors and interested parties specific
to the sale of Insight Schools.
Subsequent to November 30, 2010, we executed an agreement
to sell Insight Schools and expect to complete the sale during
the second quarter of fiscal year 2011. Accordingly, in
evaluating our fair value less cost to sell estimate as of
November 30, 2010, we derived our fair value estimate for
Insight Schools from exit price information specific to the
executed agreement. Based on this evaluation, we determined that
the fair value less cost to sell continues to approximate the
carrying value of Insight Schools, and we do not expect a
significant gain or loss on disposition.
12
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The major components of Insight Schools assets and
liabilities presented separately as held for sale on our
Condensed Consolidated Balance Sheets as of November 30,
2010 and August 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
August 31,
|
|
($ in thousands)
|
|
2010
|
|
|
2010
|
|
|
Accounts receivable, net
|
|
$
|
8,751
|
|
|
$
|
3,851
|
|
Property and equipment, net
|
|
|
8,379
|
|
|
|
6,037
|
|
Goodwill
|
|
|
3,342
|
|
|
|
3,342
|
|
Other
|
|
|
4,305
|
|
|
|
2,715
|
|
|
|
|
|
|
|
|
|
|
Total Insight Schools assets
|
|
$
|
24,777
|
|
|
$
|
15,945
|
|
|
|
|
|
|
|
|
|
|
Total Insight Schools liabilities
|
|
$
|
6,150
|
|
|
$
|
4,474
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes Insight Schools operating
results for the three months ended November 30, 2010 and
2009, which are presented in loss from discontinued operations,
net of tax on our Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
November 30,
|
|
($ in thousands)
|
|
2010
|
|
|
2009
|
|
|
Net revenue
|
|
$
|
12,397
|
|
|
$
|
11,642
|
|
Costs and expenses
|
|
|
(13,325
|
)
|
|
|
(12,098
|
)
|
|
|
|
|
|
|
|
|
|
Discontinued operations loss
|
|
|
(928
|
)
|
|
|
(456
|
)
|
Other, net
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes
|
|
|
(919
|
)
|
|
|
(459
|
)
|
Benefit from income taxes
|
|
|
291
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(628
|
)
|
|
$
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
We include only revenues and costs directly attributable to the
discontinued operations, and not those attributable to the
ongoing entity. Accordingly, no interest expense or general
corporate overhead have been allocated to Insight Schools.
Additionally, we have ceased depreciation and amortization on
property and equipment and finite-lived intangible assets at
Insight Schools.
|
|
Note 6.
|
Accounts
Receivable, Net
|
Accounts receivable, net consist of the following as of
November 30, 2010 and August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
August 31,
|
|
($ in thousands)
|
|
2010
|
|
|
2010
|
|
|
Student accounts receivable
|
|
$
|
405,379
|
|
|
$
|
419,714
|
|
Less allowance for doubtful accounts
|
|
|
(176,336
|
)
|
|
|
(192,857
|
)
|
|
|
|
|
|
|
|
|
|
Net student accounts receivable
|
|
|
229,043
|
|
|
|
226,857
|
|
Other receivables
|
|
|
27,888
|
|
|
|
37,520
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, net
|
|
$
|
256,931
|
|
|
$
|
264,377
|
|
|
|
|
|
|
|
|
|
|
Student accounts receivable is composed primarily of amounts due
related to tuition.
13
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the activity in the related
allowance for doubtful accounts for the three months ended
November 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
November 30,
|
|
($ in thousands)
|
|
2010
|
|
|
2009
|
|
|
Beginning allowance for doubtful accounts
|
|
$
|
192,857
|
|
|
$
|
110,420
|
|
Provision for uncollectible accounts receivable
|
|
|
56,909
|
|
|
|
62,698
|
|
Write-offs, net of recoveries
|
|
|
(73,430
|
)
|
|
|
(34,713
|
)
|
|
|
|
|
|
|
|
|
|
Ending allowance for doubtful accounts
|
|
$
|
176,336
|
|
|
$
|
138,405
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7.
|
Fair
Value Measurements
|
Assets and liabilities measured at fair value on a recurring
basis consist of the following as of November 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets/
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
November 30,
|
|
|
Liabilities
|
|
|
Inputs
|
|
|
Inputs
|
|
($ in thousands)
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (including restricted cash equivalents):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,639,512
|
|
|
$
|
1,639,512
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction-rate securities
|
|
|
15,174
|
|
|
|
|
|
|
|
|
|
|
|
15,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value on a recurring basis:
|
|
$
|
1,654,686
|
|
|
$
|
1,639,512
|
|
|
$
|
|
|
|
$
|
15,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
4,519
|
|
|
$
|
|
|
|
$
|
4,519
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value on a recurring basis:
|
|
$
|
4,519
|
|
|
$
|
|
|
|
$
|
4,519
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Assets and liabilities measured at fair value on a recurring
basis consist of the following as of August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets/
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
August 31,
|
|
|
Liabilities
|
|
|
Inputs
|
|
|
Inputs
|
|
($ in thousands)
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (including restricted cash equivalents):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,468,992
|
|
|
$
|
1,468,992
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction-rate securities
|
|
|
15,174
|
|
|
|
|
|
|
|
|
|
|
|
15,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value on a recurring basis:
|
|
$
|
1,484,166
|
|
|
$
|
1,468,992
|
|
|
$
|
|
|
|
$
|
15,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
5,148
|
|
|
$
|
|
|
|
$
|
5,148
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value on a recurring basis:
|
|
$
|
5,148
|
|
|
$
|
|
|
|
$
|
5,148
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We measure our money market funds included in cash and
restricted cash equivalents, auction-rate securities included in
marketable securities and interest rate swap included in other
liabilities on a recurring basis at fair value. A portion of the
money market funds are included in long-term restricted cash,
which represents funds used to collateralize a letter of credit
of approximately $126 million in favor of the
U.S. Department of Education. The letter of credit was
required in connection with a program review of University of
Phoenix by the Department and must be maintained until at least
June 30, 2012.
|
|
|
|
|
Money market funds
-
Classified within
Level 1 and were valued primarily using real-time quotes
for transactions in active exchange markets involving identical
assets.
|
|
|
|
Auction-rate securities
-
Classified within
Level 3 due to the illiquidity of the market and were
valued using a discounted cash flow model that encompassed
significant unobservable inputs to determine probabilities of
default and timing of auction failure, probabilities of a
successful auction at par
and/or
repurchase at par value for each auction period,
collateralization of the underlying security and credit
worthiness of the issuer. The assumptions used to prepare the
discounted cash flows include estimates for interest rates,
credit spreads, timing and amount of cash flows, liquidity
premiums, expected holding periods and default risk. These
assumptions are subject to change as the underlying data sources
and market conditions evolve. Additionally, as the market for
auction-rate securities continues to be inactive, our discounted
cash flow model also factored the illiquidity of the
auction-rate securities market by adding a spread of 450 to
500 basis points to the applicable discount rate.
|
|
|
|
Interest rate swap
-
We have an interest rate swap
with a notional amount of $48.0 million as of
November 30, 2010 used to minimize the interest rate
exposure on a portion of BPPs variable rate debt. The
interest rate swap is used to fix the variable interest rate on
the associated debt. The swap is classified within Level 2
and is valued using readily available pricing sources which
utilize market observable inputs including the current variable
interest rate for similar types of instruments.
|
At November 30, 2010, the carrying value of our debt,
excluding capital leases, was $174.1 million. Substantially
all of our debt is variable interest rate debt and the carrying
amount approximates fair value.
15
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
We did not change our valuation techniques associated with fair
value measurements from prior periods. Additionally, we did not
have any non-recurring fair value measurements that required
disclosure during the three months ended November 30, 2010.
During the three months ended November 30, 2010, we did not
have any changes in our Level 3 assets that are measured at
fair value on a recurring basis using significant unobservable
inputs.
|
|
Note 8.
|
Accrued
Liabilities
|
Accrued liabilities consist of the following as of
November 30, 2010 and August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
August 31,
|
|
($ in thousands)
|
|
2010
|
|
|
2010
|
|
|
Estimated litigation loss
|
|
$
|
178,863
|
|
|
$
|
177,982
|
|
Salaries, wages and benefits
|
|
|
76,439
|
|
|
|
80,773
|
|
Accrued advertising
|
|
|
39,693
|
|
|
|
52,472
|
|
Accrued professional fees
|
|
|
29,579
|
|
|
|
30,895
|
|
Student refunds, grants and scholarships
|
|
|
8,425
|
|
|
|
9,842
|
|
Other accrued liabilities
|
|
|
21,058
|
|
|
|
23,497
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
354,057
|
|
|
$
|
375,461
|
|
|
|
|
|
|
|
|
|
|
Debt and short-term borrowings consist of the following as of
November 30, 2010 and August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
August 31,
|
|
($ in thousands)
|
|
2010
|
|
|
2010
|
|
|
Bank Facility, see terms below
|
|
$
|
98,255
|
|
|
$
|
497,968
|
|
BPP Credit Facility, see terms below
|
|
|
48,066
|
|
|
|
52,925
|
|
Capital lease obligations
|
|
|
7,388
|
|
|
|
7,827
|
|
Other, various maturities from 2011 to 2019
|
|
|
27,730
|
|
|
|
25,680
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
181,439
|
|
|
|
584,400
|
|
Less short-term borrowings and current portion of long-term debt
|
|
|
(26,618
|
)
|
|
|
(416,361
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
154,821
|
|
|
$
|
168,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Facility
-
In fiscal year 2008, we entered
into a syndicated $500 million credit agreement (the
Bank Facility). The Bank Facility is an unsecured
revolving credit facility used for general corporate purposes
including acquisitions and stock buybacks. The Bank Facility has
an expansion feature for an aggregate principal amount of up to
$250 million. The term is five years and will expire on
January 4, 2013. The Bank Facility provides a
multi-currency
sub-limit
facility for borrowings in certain specified foreign currencies.
|
We borrowed our entire credit line under the Bank Facility as of
August 31, 2010, which included £63.0 million
denominated in British Pounds (equivalent to $97.9 million
as of August 31, 2010). We repaid the U.S. dollar
denominated debt on our Bank Facility of $400.1 million
during the first quarter of fiscal year 2011.
The Bank Facility fees are determined based on a pricing grid
that varies according to our leverage ratio. The Bank Facility
fee ranges from 12.5 to 17.5 basis points and the
incremental fees for borrowings under
16
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
the facility range from LIBOR + 50.0 to 82.5 basis points.
The weighted average interest rate on outstanding borrowings
under the Bank Facility at November 30, 2010 was 1.2%.
The Bank Facility contains affirmative and negative covenants,
including the following financial covenants: maximum leverage
ratio, minimum coverage interest and rent expense ratio, and a
U.S. Department of Education financial responsibility
composite score. In addition, there are covenants restricting
indebtedness, liens, investments, asset transfers and
distributions. We were in compliance with all covenants related
to the Bank Facility at November 30, 2010.
|
|
|
|
|
BPP Credit Facility
-
In the fourth quarter of
fiscal year 2010, we refinanced BPPs debt by entering into
a £52.0 million (equivalent to $81.1 and
$80.8 million as of November 30, 2010 and
August 31, 2010, respectively) credit agreement (the
BPP Credit Facility). The BPP Credit Facility
contains term debt, which was used to refinance BPPs
existing debt, and revolving credit facilities used for working
capital and general corporate purposes. The term of the
agreement is three years and will expire on August 31,
2013. The interest rate on borrowings varies according to a
financial ratio and range from LIBOR + 250 to 325 basis
points. The weighted average interest rate on BPPs
outstanding borrowings at November 30, 2010 was 4.0%.
|
The BPP Credit Facility contains financial covenants that
include minimum cash flow coverage ratio, minimum fixed charge
coverage ratio, maximum leverage ratio, and maximum capital
expenditure ratio. We were in compliance with all covenants
related to the BPP Credit Facility at November 30, 2010.
|
|
|
|
|
Other
-
Other debt includes $9.0 million of
variable rate debt and $18.7 million of fixed rate debt as
of November 30, 2010, and $8.7 million of variable
rate debt and $17.0 million of fixed rate debt as of
August 31, 2010. The weighted average interest rate of
these debt instruments at November 30, 2010 was 6.7%.
|
Please refer to Note 7, Fair Value Measurements, for
discussion of the fair value of our debt.
|
|
Note 10.
|
Other
Liabilities
|
Other liabilities consist of the following as of
November 30, 2010 and August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
August 31,
|
|
($ in thousands)
|
|
2010
|
|
|
2010
|
|
|
Reserve for uncertain tax positions
|
|
$
|
139,556
|
|
|
$
|
126,999
|
|
Deferred rent and other lease incentives
|
|
|
82,910
|
|
|
|
81,218
|
|
Other
|
|
|
58,547
|
|
|
|
57,485
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
|
281,013
|
|
|
|
265,702
|
|
Less current portion
|
|
|
(52,257
|
)
|
|
|
(53,416
|
)
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities
|
|
$
|
228,756
|
|
|
$
|
212,286
|
|
|
|
|
|
|
|
|
|
|
We exercise significant judgment in determining our income tax
provision due to transactions, credits and calculations where
the ultimate tax determination is uncertain.
During the first quarter of fiscal year 2011, our unrecognized
tax benefits increased by $12.2 million, excluding interest
and penalties, primarily due to uncertainty related to the
apportionment of income for Arizona corporate income tax
purposes.
17
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of November 30, 2010, $123.2 million of our total
unrecognized tax benefits would favorably affect our effective
tax rate if recognized. However, if amounts accrued are less
than amounts ultimately assessed by the taxing authorities, we
would record additional income tax expense in our Condensed
Consolidated Statements of Income.
We are subject to numerous ongoing audits by federal, state,
local and foreign tax authorities. Although we believe our tax
accruals to be reasonable, the final determination of tax audits
in the U.S. or abroad and any related litigation could be
materially different from our historical income tax provisions
and accruals.
|
|
Note 12.
|
Shareholders
Equity
|
The following tables detail changes in shareholders equity
during the three months ended November 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
Stock
|
|
|
|
|
|
Other
|
|
|
Total Apollo
|
|
|
|
|
|
|
|
|
|
Stated
|
|
|
Stated
|
|
|
Paid-in
|
|
|
Class A
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
|
|
($ in thousands)
|
|
Value
|
|
|
Value
|
|
|
Capital
|
|
|
Stated Value
|
|
|
Earnings
|
|
|
Loss
|
|
|
Equity
|
|
|
Interests
|
|
|
Total Equity
|
|
|
Balance as of August 31, 2010
|
|
$
|
103
|
|
|
$
|
1
|
|
|
$
|
46,865
|
|
|
$
|
(2,407,788
|
)
|
|
$
|
3,748,045
|
|
|
$
|
(31,176
|
)
|
|
$
|
1,356,050
|
|
|
$
|
32,690
|
|
|
$
|
1,388,740
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(176,931
|
)
|
|
|
|
|
|
|
|
|
|
|
(176,931
|
)
|
|
|
|
|
|
|
(176,931
|
)
|
Treasury stock issued under stock purchase plans
|
|
|
|
|
|
|
|
|
|
|
(406
|
)
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
|
|
1,631
|
|
|
|
|
|
|
|
1,631
|
|
Treasury stock issued under stock incentive plans
|
|
|
|
|
|
|
|
|
|
|
(2,335
|
)
|
|
|
2,551
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
216
|
|
Tax effect for stock incentive plans
|
|
|
|
|
|
|
|
|
|
|
(1,052
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,052
|
)
|
|
|
|
|
|
|
(1,052
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
15,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,032
|
|
|
|
|
|
|
|
15,032
|
|
Currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,479
|
|
|
|
2,479
|
|
|
|
411
|
|
|
|
2,890
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,413
|
|
|
|
|
|
|
|
235,413
|
|
|
|
255
|
|
|
|
235,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 30, 2010
|
|
$
|
103
|
|
|
$
|
1
|
|
|
$
|
58,104
|
|
|
$
|
(2,580,131
|
)
|
|
$
|
3,983,458
|
|
|
$
|
(28,697
|
)
|
|
$
|
1,432,838
|
|
|
$
|
33,356
|
|
|
$
|
1,466,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
Stock
|
|
|
|
|
|
Other
|
|
|
Total Apollo
|
|
|
|
|
|
|
|
|
|
Stated
|
|
|
Stated
|
|
|
Paid-in
|
|
|
Class A
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
|
|
($ in thousands)
|
|
Value
|
|
|
Value
|
|
|
Capital
|
|
|
Stated Value
|
|
|
Earnings
|
|
|
Loss
|
|
|
Equity
|
|
|
Interests
|
|
|
Total Equity
|
|
|
Balance as of August 31, 2009
|
|
$
|
103
|
|
|
$
|
1
|
|
|
$
|
1,139
|
|
|
$
|
(2,022,623
|
)
|
|
$
|
3,195,043
|
|
|
$
|
(13,740
|
)
|
|
$
|
1,159,923
|
|
|
$
|
64,690
|
|
|
$
|
1,224,613
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,025
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,025
|
)
|
|
|
|
|
|
|
(1,025
|
)
|
Treasury stock issued under stock purchase plans
|
|
|
|
|
|
|
|
|
|
|
192
|
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
1,401
|
|
|
|
|
|
|
|
1,401
|
|
Treasury stock issued under stock incentive plans
|
|
|
|
|
|
|
|
|
|
|
(4,021
|
)
|
|
|
8,391
|
|
|
|
|
|
|
|
|
|
|
|
4,370
|
|
|
|
|
|
|
|
4,370
|
|
Tax effect for stock incentive plans
|
|
|
|
|
|
|
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
(176
|
)
|
Tax benefit related to IRS dispute settlement
|
|
|
|
|
|
|
|
|
|
|
27,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,484
|
|
|
|
|
|
|
|
27,484
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
14,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,154
|
|
|
|
|
|
|
|
14,154
|
|
Currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,008
|
|
|
|
4,008
|
|
|
|
613
|
|
|
|
4,621
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,142
|
|
|
|
|
|
|
|
240,142
|
|
|
|
(10
|
)
|
|
|
240,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 30, 2009
|
|
$
|
103
|
|
|
$
|
1
|
|
|
$
|
38,772
|
|
|
$
|
(2,014,048
|
)
|
|
$
|
3,435,185
|
|
|
$
|
(9,732
|
)
|
|
$
|
1,450,281
|
|
|
$
|
65,293
|
|
|
$
|
1,515,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Reissuances
During the three months ended November 30, 2010 and 2009,
we issued approximately 0.1 million shares and
0.2 million shares, respectively, of our Apollo Group
Class A common stock from our treasury stock as a result of
stock option exercises, release of shares covered by vested
restricted stock units, and purchases under our employee stock
purchase plan.
18
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Share
Repurchases
Our Board of Directors has authorized us to repurchase
outstanding shares of Apollo Group Class A common stock,
from time to time, depending on market conditions and other
considerations. On February 18, 2010, our Board of
Directors authorized a $500 million increase in the amount
available under our share repurchase program up to an aggregate
amount of $1 billion of Apollo Group Class A common
stock. There is no expiration date on the repurchase
authorizations and repurchases occur at our discretion.
We repurchased approximately 4.7 million shares of our
Apollo Group Class A common stock at a total cost of
$176.5 million during the three months ended
November 30, 2010. This represented weighted average
purchase price of $37.58 per share.
As of November 30, 2010, approximately $384.2 million
remained available under our share repurchase authorization. The
amount and timing of future share repurchases, if any, will be
made as market and business conditions warrant. Repurchases may
be made on the open market through various methods including but
not limited to accelerated share repurchase programs, or in
privately negotiated transactions, pursuant to the applicable
Securities and Exchange Commission rules, and may include
repurchases pursuant to Securities and Exchange Commission
Rule 10b5-1
nondiscretionary trading programs.
In connection with the release of vested shares of restricted
stock, we repurchased approximately 13,000 shares for
$0.4 million and 17,000 shares for $1.0 million
during the three months ended November 30, 2010 and 2009,
respectively. These repurchases relate to tax withholding
requirements on the restricted stock units and do not fall under
the repurchase program described above, and therefore do not
reduce the amount that is available for repurchase under that
program.
|
|
Note 13.
|
Earnings
Per Share
|
Apollo
Group Common Stock
Our outstanding shares consist of Apollo Group Class A and
Class B common stock. Our Articles of Incorporation treat
the declaration of dividends on the Apollo Group Class A
and Class B common stock in an identical manner. As such,
both the Apollo Group Class A and Class B common stock
are included in the calculation of our earnings per share.
Diluted weighted average shares outstanding includes the
incremental effect of shares that would be issued upon the
assumed exercise of stock options and the vesting and release of
restricted stock units and performance share awards. The
components of basic and diluted earnings per share are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
(In thousands, except per share data)
|
|
2010
|
|
|
2009
|
|
|
Net income attributable to Apollo (basic and diluted)
|
|
$
|
235,413
|
|
|
$
|
240,142
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
146,352
|
|
|
|
154,824
|
|
Dilutive effect of stock options
|
|
|
131
|
|
|
|
1,022
|
|
Dilutive effect of restricted stock units and performance share
awards
|
|
|
180
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
146,663
|
|
|
|
156,045
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic income per share attributable to Apollo
|
|
$
|
1.61
|
|
|
$
|
1.55
|
|
Diluted income per share attributable to Apollo
|
|
$
|
1.61
|
|
|
$
|
1.54
|
|
During the three months ended November 30, 2010 and 2009,
approximately 9,439,000 and 4,501,000, respectively, of our
stock options outstanding and approximately 397,000 and 2,000,
respectively, of our restricted stock
19
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
units and performance share awards were excluded from the
calculation of diluted earnings per share because their
inclusion would have been anti-dilutive. These share-based
awards could be dilutive in the future.
|
|
Note 14.
|
Share-Based
Compensation
|
The table below details share-based compensation expense for the
three months ended November 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
($ in thousands)
|
|
2010
|
|
|
2009
|
|
|
Instructional and student advisory
|
|
$
|
5,481
|
|
|
$
|
4,154
|
|
Marketing
|
|
|
1,386
|
|
|
|
1,493
|
|
Admissions advisory
|
|
|
556
|
|
|
|
449
|
|
General and administrative
|
|
|
7,609
|
|
|
|
8,058
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
$
|
15,032
|
|
|
$
|
14,154
|
|
|
|
|
|
|
|
|
|
|
In accordance with our Apollo Group, Inc. Amended and Restated
2000 Stock Incentive Plan, we granted approximately 71,000 stock
options during the three months ended November 30, 2010.
The weighted average grant date fair value and weighted average
exercise price of these options was $14.89 and $36.47,
respectively. As of November 30, 2010, there was
approximately $48.2 million of total unrecognized
share-based compensation expense, net of forfeitures, related to
unvested stock options.
In accordance with our Apollo Group, Inc. Amended and Restated
2000 Stock Incentive Plan, we granted approximately 57,000
restricted stock units and performance share awards with a
weighted average grant date fair value of $36.50 during the
three months ended November 30, 2010. As of
November 30, 2010, there was approximately
$54.6 million of total unrecognized share-based
compensation expense, net of forfeitures, related to unvested
restricted stock units and performance share awards.
|
|
Note 15.
|
Commitments
and Contingencies
|
Contingencies
Related to Litigation and Other Proceedings
The following is a description of pending litigation,
settlements, and other proceedings that fall outside the scope
of ordinary and routine litigation incidental to our business.
Pending
Litigation and Settlements
Securities
Class Action (Policemans Annuity and Benefit Fund of
Chicago)
In October 2004, three class action complaints were filed in the
U.S. District Court for the District of Arizona. The
District Court consolidated the three pending class action
complaints under the caption
In re Apollo Group, Inc.
Securities Litigation
, Case
No. CV04-2147-PHX-JAT
and a consolidated class action complaint was filed on
May 16, 2005 by the lead plaintiff. The consolidated
complaint named us, Todd S. Nelson, Kenda B. Gonzales and Daniel
E. Bachus as defendants. On March 1, 2007, by stipulation
and order of the Court, Daniel E. Bachus was dismissed as a
defendant from the case. Lead plaintiff represents a class of
our shareholders who acquired their shares between
February 27, 2004 and September 14, 2004. The
complaint alleges violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and
Rule 10b-5
promulgated under the Act by us for defendants allegedly
material false and misleading statements in connection with our
failure to publicly disclose the contents of a preliminary
U.S. Department of Education program review report. The
case proceeded to trial on November 14, 2007. On
January 16, 2008, the jury returned a verdict in favor of
the plaintiffs awarding damages of up to $5.55 for each share of
common stock in the class suit, plus pre-judgment and
post-judgment interest. The class shares are
20
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
those purchased after February 27, 2004 and still owned on
September 14, 2004. The judgment was entered on
January 30, 2008, subject to an automatic stay until
February 13, 2008. On February 13, 2008, the District
Court granted our motion to stay execution of the judgment
pending resolution of our motions for post-trial relief, which
were also filed on February 13, 2008, provided that we post
a bond in the amount of $95.0 million. On February 19,
2008, we posted the $95.0 million bond with the District
Court. Oral arguments on our post-trial motions occurred on
August 4, 2008, during which the District Court vacated the
earlier judgment based on the jury verdict and entered judgment
in favor of Apollo and the other defendants. The
$95.0 million bond posted in February was subsequently
released on August 11, 2008. Plaintiffs lawyers filed
a Notice of Appeal with the Ninth Circuit Court of Appeals on
August 29, 2008. A hearing before a panel of the Court of
Appeals took place on March 3, 2010. On June 23, 2010,
the Court of Appeals reversed the District Courts ruling
in our favor and ordered the District Court to enter judgment
against us in accordance with the jury verdict.
Liability in the case is joint and several, which means that
each defendant, including us, is liable for the entire amount of
the judgment. As a result, we may be responsible for payment of
the full amount of damages as ultimately determined. We do not
expect to receive material amounts of insurance proceeds from
our insurers to satisfy any amounts ultimately payable to the
plaintiff class and we expect our insurers to seek repayment of
amounts advanced to us to date for defense costs. The actual
amount of damages will not be known until all court proceedings
have been completed and eligible members of the class have
presented the necessary information and documents to receive
payment of the award. We have estimated for financial reporting
purposes, using statistically valid models and a 60% confidence
interval, that the damages could range from $127.2 million
to $228.0 million, which includes our estimates of
(a) damages payable to the plaintiff class; (b) the
amount we may be required to reimburse our insurance carriers
for amounts advanced for defense costs; and (c) future
defense costs. Accordingly, in the third quarter of fiscal year
2010, we recorded a charge for estimated damages in the amount
of $132.6 million, which, together with the existing
reserve of $44.5 million recorded in the second quarter of
fiscal year 2010, represented the mid-point of the estimated
range of damages payable to the plaintiffs, plus the other
estimated costs and expenses. We elected to record an amount
based on the mid-point of the range of damages payable to the
plaintiff class because under statistically valid modeling
techniques the mid-point of the range is in fact a more likely
estimate than other points in the range, and the point at which
there is an equal probability that the ultimate loss could be
toward the lower end or the higher end of the range. Our range
of damages estimate included estimated post-judgment interest
through June 23, 2010. We have recorded charges in
subsequent periods, including $0.9 million in the first
quarter of fiscal year 2011, for estimated incremental
post-judgment interest.
On July 21, 2010, we filed a petition for a rehearing en
banc by the Ninth Circuit, which was denied on August 17,
2010. On August 23, 2010, we filed a motion to stay the
mandate while we seek review by the U.S. Supreme Court. Our
motion to stay the mandate was granted on August 24, 2010
and we filed a petition for certiorari to the U.S. Supreme
Court on November 15, 2010.
We believe we have adequate liquidity to fund the amount of any
required bond or, if necessary, the satisfaction of the judgment.
Securities
Class Action (Apollo Institutional Investors
Group)
On August 16, 2010, a securities class action complaint was
filed in the U.S. District Court for the District of
Arizona by Douglas N. Gaer naming us, John G. Sperling, Gregory
W. Cappelli, Charles B. Edelstein, Joseph L. DAmico, Brian
L. Swartz and Gregory J. Iverson as defendants for allegedly
making false and misleading statements regarding our business
practices and prospects for growth. That complaint asserts a
putative class period stemming from December 7, 2009 to
August 3, 2010. A substantially similar complaint was also
filed in the same court by John T. Fitch on September 23,
2010 making similar allegations against the same defendants for
the same purported class period. Finally, on October 4,
2010, another purported securities class action complaint was
filed in the same court by Robert Roth against the same
defendants as well as Brian Mueller, Terri C. Bishop and Peter
V. Sperling based upon the same general set of allegations, but
with a defined class period of February 12, 2007 to
21
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
August 3, 2010. The complaints allege violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and
Rule 10b-5
promulgated thereunder. On October 15, 2010, three
additional parties filed motions to consolidate the related
actions and be appointed the lead plaintiff.
On November 23, 2010, the Gaer, Fitch and Roth actions were
all consolidated under the Gaer case and the Court appointed the
Apollo Institutional Investors Group consisting of
the Oregon Public Employees Retirement Fund, the
Mineworkers Pension Scheme, and Amalgamated Bank as lead
plaintiff. The case is now entitled,
Gaer v. Apollo
Group, Inc., et al
. The lead plaintiff has until
January 24, 2011 to file a consolidated amended complaint.
We anticipate that the plaintiffs will seek substantial damages.
Discovery in this case has not yet begun. Because of the many
questions of fact and law that may arise, the outcome of this
legal proceeding is uncertain at this point. Based on
information available to us at present, we cannot reasonably
estimate a range of loss for this action and accordingly have
not accrued any liability associated with these actions.
Securities
Class Action (Teamsters Local 617 Pensions and Welfare
Funds)
On November 2, 2006, the Teamsters Local 617 Pension and
Welfare Funds filed a class action complaint purporting to
represent a class of shareholders who purchased our stock
between November 28, 2001 and October 18, 2006. The
complaint, filed in the U.S. District Court for the
District of Arizona, is entitled
Teamsters Local 617
Pension & Welfare Funds v. Apollo Group, Inc. et
al.
, Case Number 06-cv-02674-RCB, and alleges that we and
certain of our current and former directors and officers
violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and
Rule 10b-5
promulgated thereunder by purportedly making misrepresentations
concerning our stock option granting policies and practices and
related accounting. The defendants are Apollo Group, Inc., J.
Jorge Klor de Alva, Daniel E. Bachus, John M. Blair, Dino J.
DeConcini, Kenda B. Gonzales, Hedy F. Govenar, Brian E. Mueller,
Todd S. Nelson, Laura Palmer Noone, John R. Norton III, John G.
Sperling and Peter V. Sperling. We anticipate that the plaintiff
will seek substantial damages. On September 11, 2007, the
Court appointed The Pension Trust Fund for Operating
Engineers as lead plaintiff. Lead plaintiff filed an amended
complaint on November 23, 2007, asserting the same legal
claims as the original complaint and adding claims for
violations of Section 20A of the Securities Exchange Act of
1934 and allegations of breach of fiduciary duties and civil
conspiracy.
On January 22, 2008, all defendants filed motions to
dismiss. On March 31, 2009, the Court dismissed the case
with prejudice as to Daniel Bachus, Hedy Govenar, Brian E.
Mueller, Dino J. DeConcini, and Laura Palmer Noone. The Court
also dismissed the case as to John Sperling and Peter Sperling,
but granted plaintiffs leave to file an amended complaint
against them. Finally, the Court dismissed all of
plaintiffs claims concerning misconduct before November
2001 and all of the state law claims for conspiracy and breach
of fiduciary duty. On April 30, 2009, plaintiffs filed
their Second Amended Complaint, which alleges similar claims for
alleged securities fraud against the same defendants. On
June 15, 2009, all defendants filed another motion to
dismiss the Second Amended Complaint. On February 22, 2010,
the Court partially granted the plaintiffs motion for
reconsideration, but withheld a final determination on the
individual defendants pending the Courts ruling on the
motion to dismiss the Second Amended Complaint.
Discovery in this case has not yet begun. Because of the many
questions of fact and law that may arise, the outcome of this
legal proceeding is uncertain at this point. Based on
information available to us at present, we cannot reasonably
estimate a range of loss for this action and accordingly have
not accrued any liability associated with this action.
Patent
Infringement Litigation
On March 3, 2008, Digital-Vending Services International
Inc. filed a complaint against University of Phoenix and Apollo
Group Inc., as well as Capella Education Company, Laureate
Education Inc., and Walden University Inc. in
22
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
the U.S. District Court for the Eastern District of Texas,
since transferred on plaintiffs motion to the Eastern
District of Virginia. The case is entitled,
Digital Vending
Services International, LLC vs. The University of Phoenix, et
al
. The complaint alleges that we and the other defendants
have infringed and are infringing various patents relating to
managing courseware in a shared use operating environment. We
filed an answer to the complaint on May 27, 2008, in which
we denied that Digital-Vending Services Internationals
patents were duly and lawfully issued, and asserted defenses of
non-infringement and patent invalidity, among others. We also
asserted a counterclaim seeking a declaratory judgment that the
patents are invalid, unenforceable, and not infringed by us.
On March 18, 2010, we filed our opening claim construction
brief and on June 10, 2010, the Court issued its claim
construction ruling. Discovery is now concluded and we filed a
motion for summary judgment on August 13, 2010. A hearing
on our motion for summary judgment was held on November 12,
2010, and on January 7, 2011, the Court granted our motion
for summary judgment and dismissed the case with prejudice,
citing plaintiffs failure to point to admissible evidence
that could support a finding of infringement.
Sabol
Wage and Hour Class Action
On July 31, 2009, several former employees filed an action
in Federal District Court in Philadelphia alleging wage and hour
claims under the Fair Labor Standards Act for failure to pay
overtime and other violations, entitled,
Sabol, et
al. v. Apollo Group, Inc., et al
. We filed an answer
denying the asserted claim on September 29, 2009. During
the course of the action, all but one of the former employees
voluntarily opted out of the lawsuit. On January 24, 2010,
we filed a motion for partial summary judgment with respect to
plaintiffs claim that the Academic Counselor
position is incorrectly classified as exempt. On
February 9, 2010, plaintiff filed a Rule 56(f) motion
seeking leave to conduct additional discovery before response to
our motion for partial summary judgment. On March 3, 2010,
the Court granted plaintiff leave to conduct additional
discovery on issues related to the motion for partial summary
judgment until April 5, 2010. The Court also ordered
plaintiff to file his response to the motion for summary
judgment on or before April 20, 2010. On February 15,
2010, plaintiff filed a motion for class certification and we
filed our opposition on March 5, 2010.
On April 19, 2010, the parties agreed to dismiss with
prejudice their claims regarding employment as an Academic
Counselor and to withdraw their pending motion for conditional
certification to the extent it seeks to certify a class of
Academic Counselors. On May 12, 2010, the Court granted
plaintiffs motion to conditionally certify a collective
action to include current and former admissions personnel at all
of University of Phoenixs nationwide locations. The
deadline for prospective class members to submit a claim form
and opt in was December 9, 2010 and we have
received notice of approximately 700 opt-ins. We believe that
the claims do not support conditional certification as a
collective action and will move the Court to de-certify the
class following additional discovery.
Because of the many questions of fact and law that may arise,
the outcome of this legal proceeding is uncertain at this point.
Based on information available to us at present, we cannot
reasonably estimate a range of loss for this action and
accordingly have not accrued any liability associated with this
action.
Adoma
Wage and Hour Class Action
On January 8, 2010, Diane Adoma filed an action in United
States District Court, Eastern District of California alleging
wage and hour claims under the Fair Labor Standards Act and
California law for failure to pay overtime and other violations,
entitled
Adoma et al. v. University of Phoenix, et
al
. On March 5, 2010, we filed a motion to dismiss, or
in the alternative to stay or transfer, the case based on the
previously filed Sabol and Juric actions. On May 3, 2010,
the Court denied the motion to dismiss
and/or
transfer. On April 12, 2010, plaintiff filed her motion for
23
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
conditional collective action certification. The Court denied
class certification under the Fair Labor Standards Act and
transferred these claims to the District Court in Pennsylvania.
On August 31, 2010, the Court granted plaintiffs
motion for class action certification of the California claims.
On September 14, 2010, we filed a petition for permission
to appeal the class certification order with the Ninth Circuit,
which was denied on November 3, 2010. As a result, notice
of the lawsuit was mailed to 1,554 current and former employees
explaining that they will remain a part of the lawsuit unless
they complete an opt-out form within 45 days of
receiving the notice.
Because of the many questions of fact and law that may arise,
the outcome of this legal proceeding is uncertain at this point.
Based on information available to us at present, we cannot
reasonably estimate a range of loss for this action and,
accordingly, we have not accrued any liability associated with
this action.
Shareholder
Demand Letters
On November 12, 2010 and December 8, 2010, we received
separate demands on behalf of two different shareholders to
investigate, address and commence proceedings against each of
our directors and certain of our officers for violation of any
applicable laws, including in connection with the subject matter
of the report of the Government Accountability Office prepared
for the U.S. Senate in August 2010, our withdrawal of the
outlook we previously provided for our fiscal year 2011, the
investigation into possible unfair and deceptive trade practices
associated with certain alleged practices of University of
Phoenix by the State of Florida Office of the Attorney General
in Fort Lauderdale, Florida, the participation by the State
of Oregon Office of the Attorney General in the Securities
Class Action (Apollo Institutional Investors Group), and
the informal inquiry by the Enforcement Division of the
Securities and Exchange Commission commenced in October 2009.
The demands are a condition precedent under applicable Arizona
law to the filing of a derivative lawsuit on behalf of Apollo
Group seeking damages from directors and officers for breach of
fiduciary duty. We are evaluating the demands.
K.K. Modi
Investment and Financial Services Pvt. Ltd.
On November 8, 2010, a suit was filed by K.K. Modi
Investment and Financial Services Pvt. Ltd. (Modi)
in the High Court of Delhi at New Delhi against defendants
Apollo Group, Inc., Western International University, Inc.,
University of Phoenix, Inc., Apollo Global, Inc., Modi Apollo
International Group Pvt. Ltd., Apollo International, Inc., John
G. Sperling, Peter G. Sperling and Jorge Klor De Alva, seeking
to permanently enjoin the defendants from making investments in
the education industry in the Indian market in breach of an
exclusivity and noncompete provision which plaintiff alleges is
applicable to Apollo Group and its subsidiaries. The case is
entitled,
K.K. Modi Investment and Financial Services Pvt.
Ltd. v. Apollo International, et. al
. On
December 14, 2010, the court declined to enter an
injunction, but set the matter for a further hearing on
February 7, 2011. We believe that the relevant exclusivity
and noncompete provision is inapplicable to us and our
affiliates and we have moved to dismiss this action. We do not
currently conduct significant business in India. If plaintiff
ultimately obtains the requested injunctive relief, our ability
to conduct business in India may be adversely affected.
Other
We are subject to various claims and contingencies in the
ordinary course of business, including those related to
regulation, litigation, business transactions, employee-related
matters and taxes, among others. We do not believe any of these
are material for separate disclosure.
Regulatory
and Other Matters
Our domestic postsecondary operations are subject to significant
regulations. Changes in or new interpretations of applicable
laws, rules, or regulations could have a material adverse effect
on our eligibility to participate in Title IV programs,
accreditation, authorization to operate in various states,
permissible activities, and operating costs. The
24
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
failure to maintain or renew any required regulatory approvals,
accreditation, or state authorizations could have a material
adverse effect on us.
These federal and state regulatory requirements cover virtually
all phases of our U.S. operations, including educational
program offerings, branching and classroom locations,
instructional and administrative staff, administrative
procedures, marketing and recruiting, financial operations,
payment of refunds to students who withdraw, maintenance of
restricted cash, acquisitions or openings of new schools,
commencement of new educational programs and changes in our
corporate structure and ownership.
Student
Financial Aid
All U.S. federal financial aid programs are established by
Title IV of the Higher Education Act and regulations
promulgated thereunder. In August 2008, the Higher Education Act
was reauthorized through September 30, 2013 by the Higher
Education Opportunity Act. The U.S. Congress must
periodically reauthorize the Higher Education Act and annually
determine the funding level for each Title IV program.
Changes to the Higher Education Act are likely to result from
subsequent reauthorizations, and the scope and substance of any
such changes cannot be predicted.
The Higher Education Opportunity Act specifies the manner in
which the U.S. Department of Education reviews institutions
for eligibility and certification to participate in
Title IV programs. Every educational institution involved
in Title IV programs must be certified to participate and
is required to periodically renew this certification.
University of Phoenix was recertified in November 2009 and
entered into a new Title IV Program Participation Agreement
which expires on December 31, 2012.
Western International University was recertified in May 2010 and
entered into a new Title IV Program Participation Agreement
which expires on September 30, 2014.
U.S.
Department of Education New Rulemaking Initiative
In November 2009, the U.S. Department of Education convened
two new negotiated rulemaking teams related to Title IV
program integrity issues and foreign school issues. The team
addressing program integrity issues, which included
representatives of the various higher education constituencies,
was unable to reach consensus on all of the rules addressed by
that team. Accordingly, under the negotiated rulemaking
protocol, the Department was free to propose rules without
regard to the tentative agreement reached regarding certain of
the rules. The final program integrity rules address numerous
topics. The most significant for our business are the following:
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Modification of the standards relating to the payment of
incentive compensation to employees involved in student
recruitment and enrollment, including executive management;
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Implementation of standards for state authorization of
institutions of higher education; and
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Adoption of a definition of gainful employment for
purposes of the requirement of Title IV student financial
aid that a program of study offered by a proprietary institution
prepare students for gainful employment in a recognized
occupation.
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On June 18, 2010, the Department issued a Notice of
Proposed Rulemaking (NPRM) in respect of the program
integrity issues, other than the metrics for determining
compliance with the gainful employment requirement. On
July 26, 2010, the Department published a separate NPRM in
respect of the gainful employment metrics. The Department
published final regulations on October 29, 2010, excluding
significant sections related to gainful employment metrics which
the Department has indicated that it expects to publish in early
calendar year 2011. Most of the October 29, 2010 final
rules, including some reporting and disclosure rules related to
gainful employment, are effective July 1, 2011.
25
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
We cannot predict the form of the rules on gainful employment
metrics that ultimately may be adopted by the Department
following public comment. Compliance with these gainful
employment rules could reduce our enrollment, increase our cost
of doing business, and have a material adverse effect on our
business, financial condition, results of operations and cash
flows. Refer to Part II, Item IA,
Risk Factors
,
for further discussion.
U.S.
Congressional Hearings
In recent months, there has been increased focus by the
U.S. Congress on the role that proprietary educational
institutions play in higher education. On June 24, 2010,
the U.S. Senate Committee on Health, Education, Labor and
Pensions (HELP Committee) held the first in a series
of hearings to examine the proprietary education sector. The
August 4, 2010 hearing included the presentation of a
report by the Government Accountability Office (GAO)
of its review of various aspects of the proprietary sector,
including recruitment practices, educational quality, student
outcomes, the sufficiency of integrity safeguards against waste,
fraud and abuse in federal student aid programs and the degree
to which proprietary institutions revenue is composed of
Title IV and other federal funding sources. Following the
August 4, 2010 hearing, Sen. Tom Harkin, the Chairman of
the HELP Committee, requested a broad range of detailed
information from 30 proprietary institutions, including Apollo
Group. We have been and intend to continue being responsive to
the requests of the HELP Committee. Sen. Harkin has stated that
future hearings may be held.
We cannot predict what legislation, if any, will emanate from
these Congressional committee hearings or what impact any such
legislation might have on the proprietary education sector and
our business in particular. Any action by Congress that
significantly reduces Title IV program funding or the
eligibility of our institutions or students to participate in
Title IV programs would have a material adverse effect on
our financial condition, results of operations and cash flows.
Congressional action could also require us to modify our
practices in ways that could increase our administrative costs
and reduce our operating income, which could have a material
adverse effect on our financial condition, results of operations
and cash flows.
90/10
Rule
One requirement of the Higher Education Act, commonly referred
to as the 90/10 Rule, applies to proprietary
institutions such as University of Phoenix and Western
International University. Under this rule, a proprietary
institution will be ineligible to participate in Title IV
programs if for any two consecutive fiscal years it derives more
than 90% of its cash basis revenue, as defined in the rule, from
Title IV programs. An institution that exceeds this limit
for any single fiscal year will be placed on provisional
certification for two fiscal years and will be subject to
additional sanctions. Please refer to Part I, Item 1,
Business Regulatory Environment Domestic
Postsecondary The 90/10 Rule in our 2010
Annual Report on
Form 10-K
for further discussion.
Cohort
Default Rates
To remain eligible to participate in Title IV programs,
educational institutions must maintain student loan cohort
default rates below specified levels. Each cohort is the group
of students who first enter into student loan repayment during a
federal fiscal year (ending September 30). The currently
applicable cohort default rate for each cohort is the percentage
of the students in the cohort who default on their student loans
prior to the end of the following federal fiscal year, which
represents a two-year measuring period. An educational
institution will lose its eligibility to participate in some or
all Title IV programs if its student loan cohort default
rate equals or exceeds 25% for three consecutive years or 40%
for any given year. If our student loan default rates approach
these limits, we may be required to increase efforts and
resources dedicated to improving these default rates. Please
refer to Part I, Item 1, Business
Regulatory Environment - Domestic Postsecondary
Student Loan Defaults in our 2010 Annual Report on
Form 10-K
for further discussion.
26
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
U.S.
Department of Education Program Review
The U.S. Department of Education periodically reviews
institutions participating in Title IV programs for
compliance with applicable standards and regulations. In
December 2010, the Department commenced a new program review of
policies, procedures and practices of University of Phoenix
relevant to participation in Title IV programs, including
specific procedures relating to distance education. The review
covers federal financial aid years 2009 2010 and
2010 2011 through October 31, 2010. The onsite
component of the Departments review was completed on
December 10, 2010. Based on the discussions with Department
personnel at the exit interview, we do not expect at this time
that there will be any significant adverse findings, although we
have not yet received the Departments report.
Higher
Learning Commission (HLC)
In August 2010, University of Phoenix received a letter from HLC
requiring University of Phoenix to provide certain information
and evidence of compliance with HLC accreditation standards. The
letter related to the August 2010 report published by the GAO of
its undercover investigation into the enrollment and recruiting
practices of a number of proprietary institutions of higher
education, including University of Phoenix. We submitted the
response to HLC on September 10, 2010 and subsequently
received a request for additional information. We have also
responded to the supplemental request. We have been informed
that our response will be evaluated by a special committee in
early calendar year 2011, and that the committee will make
recommendations, if any, to the HLC board. If, after review, HLC
determines that our response is unsatisfactory, HLC has informed
us that it may impose additional unspecified monitoring or
sanctions. In addition, HLC has recently imposed additional
requirements on University of Phoenix with respect to approval
of new or relocated campuses and additional locations. These
requirements may lengthen or make more challenging the approval
process for these sites.
State of
Florida Office of the Attorney General Investigation
On October 22, 2010, University of Phoenix received notice
that the State of Florida Office of the Attorney General in
Fort Lauderdale, Florida had commenced an investigation
into possible unfair and deceptive trade practices associated
with certain alleged practices of University of Phoenix. The
notice included a subpoena to produce documents and detailed
information for the time period of January 1, 2006 to the
present about a broad spectrum of University of Phoenixs
business. We are cooperating with the investigation, but have
also filed a suit to quash or limit the subpoena and to protect
information sought that constitutes propriety or trade secret
information. We cannot predict the eventual scope, duration or
outcome of the investigation at this time.
Securities
and Exchange Commission Informal Inquiry
During October 2009, we received notification from the
Enforcement Division of the Securities and Exchange Commission
indicating that they had commenced an informal inquiry into our
revenue recognition practices. The Securities and Exchange
Commission has requested various information and documents from
us
and/or
our auditors, including information regarding our revenue
recognition practices, our policies and practices relating to
student refunds, the return of Title IV funds to lenders
and bad debt reserves, our insider trading policies and
procedures, a chronology of the internal processing and
availability of information about the U.S. Department of
Education program review of University of Phoenix commenced in
early 2009, certain information relating to non-Title IV
revenue sources and other matters. Based on these requests, the
eventual scope, duration and outcome of the inquiry cannot be
predicted at this time. We are cooperating fully with the
Securities and Exchange Commission in connection with the
inquiry.
27
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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Note 16.
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Segment
Reporting
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We operate primarily in the education industry. We have
organized our segments using a combination of factors primarily
focusing on the type of educational services provided and
products delivered. Our six operating segments are managed in
the following four reportable segments:
1. University of Phoenix;
Apollo Global:
2. BPP;
3. Other; and
4. Other Schools.
The Apollo Global Other reportable segment includes
Western International University, UNIACC, ULA and Apollo Global
corporate operations. The Other Schools reportable segment
includes IPD, CFFP and Meritus. The Corporate caption in our
segment reporting includes adjustments to reconcile segment
results to consolidated results, which primarily consist of net
revenue and corporate charges that are not allocated to our
reportable segments. Please refer to our 2010 Annual Report on
Form 10-K
for further discussion of our segments.
A summary of financial information by reportable segment is as
follows:
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Three Months Ended November 30,
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($ in thousands)
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2010
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2009
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Net revenue:
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University of Phoenix
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$
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1,197,791
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$
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1,122,369
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Apollo Global:
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BPP
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79,738
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88,673
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Other
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23,488
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22,435
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|
|
|
Total Apollo Global
|
|
|
103,226
|
|
|
|
111,108
|
|
Other Schools
|
|
|
25,269
|
|
|
|
25,182
|
|
Corporate
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
1,326,435
|
|
|
$
|
1,258,659
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
University of Phoenix
|
|
$
|
407,434
|
|
|
$
|
391,016
|
|
Apollo Global:
|
|
|
|
|
|
|
|
|
BPP
|
|
|
16,572
|
|
|
|
15,602
|
|
Other
|
|
|
(7,789
|
)
|
|
|
(2,239
|
)
|
|
|
|
|
|
|
|
|
|
Total Apollo Global
|
|
|
8,783
|
|
|
|
13,363
|
|
Other Schools
|
|
|
4,263
|
|
|
|
3,117
|
|
Corporate
|
|
|
(13,364
|
)
|
|
|
(14,437
|
)
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
407,116
|
|
|
|
393,059
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
983
|
|
|
|
932
|
|
Interest expense
|
|
|
(2,170
|
)
|
|
|
(2,908
|
)
|
Other, net
|
|
|
(54
|
)
|
|
|
(670
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
405,875
|
|
|
$
|
390,413
|
|
|
|
|
|
|
|
|
|
|
28
APOLLO
GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
A summary of our consolidated assets by reportable segment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
August 31,
|
|
($ in thousands)
|
|
2010
|
|
|
2010
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
University of Phoenix
|
|
$
|
1,228,834
|
|
|
$
|
1,263,024
|
|
Apollo Global:
|
|
|
|
|
|
|
|
|
BPP
|
|
|
528,062
|
|
|
|
511,124
|
|
Other
|
|
|
120,048
|
|
|
|
116,483
|
|
|
|
|
|
|
|
|
|
|
Total Apollo Global
|
|
|
648,110
|
|
|
|
627,607
|
|
Other Schools
|
|
|
32,057
|
|
|
|
33,114
|
|
Corporate
|
|
|
1,468,662
|
|
|
|
1,677,706
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,377,663
|
|
|
$
|
3,601,451
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) is
intended to help investors understand our results of operations,
financial condition and present business environment. The
MD&A is provided as a supplement to, and should be read in
conjunction with, our unaudited condensed consolidated financial
statements and related notes included elsewhere in this report.
The MD&A is organized as follows:
|
|
|
|
|
Overview:
From managements point of view, we
discuss the following:
|
|
|
|
|
|
An overview of our business and the sectors of the education
industry in which we operate; and
|
|
|
|
Key trends, developments and challenges.
|
|
|
|
|
|
Critical Accounting Policies and Estimates:
A discussion
of our accounting policies that require critical judgments and
estimates.
|
|
|
|
Recent Accounting Pronouncements:
A discussion of
recently issued accounting pronouncements.
|
|
|
|
Results of Operations:
An analysis of our results of
operations as reflected in our condensed consolidated financial
statements.
|
|
|
|
Liquidity, Capital Resources, and Financial Position:
An
analysis of cash flows and contractual obligations and other
commercial commitments.
|
OVERVIEW
Apollo is one of the worlds largest private education
providers and has been a provider of education services for more
than 35 years. We offer innovative and distinctive
educational programs and services at the undergraduate,
masters and doctoral levels at our various campuses and
learning centers, and online throughout the world. Our principal
wholly-owned subsidiaries and subsidiaries that we control
include the following:
|
|
|
|
|
The University of Phoenix, Inc. (University of
Phoenix),
|
|
|
|
Apollo Global, Inc. (Apollo Global):
|
|
|
|
|
|
BPP Holdings, plc (BPP),
|
|
|
|
Western International University, Inc. (Western
International University),
|
|
|
|
Universidad de Artes, Ciencias y Comunicación
(UNIACC), and
|
|
|
|
Universidad Latinoamericana (ULA),
|
|
|
|
|
|
Institute for Professional Development (IPD),
|
|
|
|
The College for Financial Planning Institutes Corporation
(CFFP), and
|
|
|
|
Meritus University, Inc. (Meritus).
|
Substantially all of our net revenue is composed of tuition and
fees for educational services. In fiscal year 2010, University
of Phoenix accounted for approximately 91% of our total
consolidated net revenue. University of Phoenix generated 88% of
its cash basis revenue for eligible tuition and fees during
fiscal year 2010 from receipt of Title IV financial aid
program funds, as calculated under the
90/10
Rule,
excluding the benefit from the permitted temporary exclusion of
revenue associated with the recently increased annual student
loan limits.
We believe that a critical element of generating successful
long-term growth and attractive returns for our stakeholders is
to provide high quality educational products and services for
our students in order for them to maximize the benefits of their
educational experience. Accordingly, we are intensely focused on
student success and more effectively identifying and enrolling
students who have a greater likelihood to succeed in our
educational programs. We are continuously enhancing and
expanding our current service offerings and investing in
academic
30
quality. We have developed customized systems for academic
quality management, faculty recruitment and training, student
tracking, and marketing to help us more effectively manage
toward this objective. We believe we utilize one of the most
comprehensive postsecondary learning assessment programs in the
U.S. We seek to improve student retention by enhancing
student services, promoting instructional innovation and
improving academic support. All of these efforts are designed to
help our students stay in school and succeed.
Key
Trends, Developments and Challenges
The following developments and trends present opportunities,
challenges and risks as we work toward our goal of providing
attractive returns for all of our stakeholders:
|
|
|
|
|
Initiative to Enhance Student Experience and Outcomes.
We
are intensely focused on improving student outcomes. In
furtherance of this focus, in fiscal year 2010 we began to
implement a number of important changes and initiatives to
transition our business to more effectively support our students
and improve their educational outcomes, which efforts have
continued in fiscal year 2011. These initiatives include the
following:
|
|
|
|
|
|
Upgrading our learning and data platforms;
|
|
|
|
Adopting new tools to better support students education
financing decisions, such as our Responsible Borrowing
Calculator, which is designed to help students calculate the
amount of student borrowing necessary to achieve their
educational objectives and to motivate them to not incur
unnecessary student loan debt;
|
|
|
|
Transitioning our marketing approaches to more effectively
identify students who have a greater likelihood to succeed in
our educational programs, including reduced emphasis on the
utilization of third parties for lead generation;
|
|
|
|
Requiring all students who enroll in University of Phoenix with
fewer than 24 credits to first attend a free, three-week
University Orientation program which is designed to help
inexperienced prospective students understand the rigors of
higher education prior to enrollment. After piloting the program
for the past year, we implemented this policy university-wide in
November 2010; and
|
|
|
|
Better aligning our admissions personnel and other employees
with our students success, including eliminating all
enrollment factors in evaluating the performance and any related
compensation adjustments for our admissions personnel effective
September 1, 2010.
|
We believe the 42.4% reduction in University of Phoenix New
Degreed Enrollment in the first quarter of fiscal year 2011
compared to the first quarter of fiscal year 2010 is principally
due to the change in the evaluation and compensation structure
for our admissions personnel, the full implementation of
University Orientation, and the changes in our marketing
approaches. We expect that these initiatives will continue to
adversely impact University of Phoenix enrollment in fiscal year
2011 and net revenue, operating income and cash flow in fiscal
years 2011 and 2012, and potentially beyond. However, we believe
that these efforts are in the best interests of our students
and, over the long-term, will improve student persistence and
completion rates, reduce bad debt expense, reduce the risks to
our business associated with our regulatory environment, and
position us for more stable long-term growth.
|
|
|
|
|
New Rulemaking Initiative.
In November 2009, the
Department convened two new negotiated rulemaking teams related
to Title IV program integrity issues and foreign school
issues. The team addressing program integrity issues, which
included representatives of the various higher education
constituencies, was unable to reach consensus on all of the
rules addressed by that team. Accordingly, under the negotiated
rulemaking protocol, the Department was free to propose rules
without regard to the tentative agreement reached regarding
certain of the rules.
|
31
The final program integrity rules address numerous topics. The
most significant for our business are the following:
|
|
|
|
|
Modification of the standards relating to the payment of
incentive compensation to employees involved in student
recruitment and enrollment, including executive management;
|
|
|
|
Implementation of standards for state authorization of
institutions of higher education; and
|
|
|
|
Adoption of a definition of gainful employment for
purposes of the requirement of Title IV student financial
aid that a program of study offered by a proprietary institution
prepare students for gainful employment in a recognized
occupation.
|
On June 18, 2010, the Department issued a Notice of
Proposed Rulemaking (NPRM) in respect of the program
integrity issues, other than the metrics for determining
compliance with the gainful employment requirement. On
July 26, 2010, the Department published a separate NPRM in
respect of the gainful employment metrics. The Department
published final regulations on October 29, 2010, excluding
significant sections related to gainful employment metrics which
the Department has indicated that it expects to publish in early
calendar year 2011. Most of the October 29, 2010 final
rules, including some reporting and disclosure rules related to
gainful employment, are effective July 1, 2011.
We cannot predict the form of the rules on the gainful
employment metrics that ultimately may be adopted by the
Department following public comment. Compliance with these
gainful employment rules could reduce our enrollment, increase
our cost of doing business, and have a material adverse effect
on our business, financial condition, results of operations and
cash flows. Refer to Item 1A,
Risk Factors
, for
further discussion.
|
|
|
|
|
U.S. Congressional Hearings.
In recent months, there
has been increased focus by the U.S. Congress on the role
that proprietary educational institutions play in higher
education. On June 24, 2010, the U.S. Senate Committee
on Health, Education, Labor and Pensions (HELP
Committee) held the first in a series of hearings to
examine the proprietary education sector. The August 4,
2010 hearing included the presentation of a report by the
Government Accountability Office (GAO) of its review
of various aspects of the proprietary sector, including
recruitment practices, educational quality, student outcomes,
the sufficiency of integrity safeguards against waste, fraud and
abuse in federal student aid programs and the degree to which
proprietary institutions revenue is composed of
Title IV and other federal funding sources. Following the
August 4, 2010 hearing, Sen. Tom Harkin, the Chairman of
the HELP Committee, requested a broad range of detailed
information from 30 proprietary institutions, including Apollo
Group. We have been and intend to continue being responsive to
the requests of the HELP Committee. Sen. Harkin has stated that
future hearings may be held.
|
|
|
|
90/10 Rule
. One requirement of the Higher Education Act,
commonly referred to as the 90/10 Rule, applies to
proprietary institutions such as University of Phoenix and
Western International University. Under this rule, a proprietary
institution will be ineligible to participate in Title IV
programs if for any two consecutive fiscal years it derives more
than 90% of its cash basis revenue, as defined in the rule, from
Title IV programs. An institution that exceeds this limit
for any single fiscal year will be automatically placed on
provisional certification for two fiscal years and will be
subject to possible additional sanctions determined to be
appropriate under the circumstances by the U.S. Department
of Education in the exercise of its broad discretion. While the
Department has broad discretion to impose additional sanctions
on such an institution, there is only limited precedent
available to predict what those sanctions might be, particularly
in the current regulatory environment. The Department could
specify any additional conditions as a part of the provisional
certification and the institutions continued participation
in Title IV programs. These conditions may include, among
other things,
|
32
|
|
|
|
|
restrictions on the total amount of Title IV program funds
that may be distributed to students attending the institution;
restrictions on programmatic and geographic expansion;
requirements to obtain and post letters of credit; additional
reporting requirements to include additional interim financial
reporting; or any other conditions imposed by the Department.
Should an institution be subject to a provisional certification
at the time that its current program participation agreement
expired, the effect on recertification of the institution or
continued eligibility in Title IV programs pending
recertification is uncertain. In recent years, the
90/10
Rule
percentages for University of Phoenix have trended closer to 90%
and for fiscal year 2010, the percentage for University of
Phoenix was 88%, excluding the benefit from the permitted
temporary exclusion of revenue associated with the recently
increased annual student loan limits. This temporary relief
expires in July 2011, and including this relief the percentage
for University of Phoenix was 85%.
|
Based on currently available information, we expect that the
90/10
Rule
percentage for University of Phoenix, net of the temporary
relief, will approach 90% for fiscal year 2011. We have
implemented various measures intended to reduce the percentage
of University of Phoenixs cash basis revenue attributable
to Title IV funds, including emphasizing employer-paid and
other direct-pay education programs, encouraging students to
carefully evaluate the amount of necessary Title IV
borrowing, and continued focus on professional development and
continuing education programs. Although we believe these
measures will favorably impact the
90/10
Rule
calculation, they have had only limited impact to date and there
is no assurance that they will be adequate to prevent the
90/10
Rule
calculation from exceeding 90% in the future. We are considering
other measures to favorably impact the
90/10
Rule
calculation for University of Phoenix, including tuition price
increases; however, we have substantially no control over the
amount of Title IV student loans and grants sought by or
awarded to our students.
Based on currently available information, we do not expect the
90/10
Rule
percentage for University of Phoenix, net of the temporary
relief, to exceed 90% for fiscal year 2011. However, we believe
that, absent a change in recent trends or the implementation of
additional effective measures to reduce the percentage, the
90/10
Rule
percentage for University of Phoenix is likely to exceed 90% in
fiscal year 2012 due to the expiration of the temporary relief
in July 2011.
Our efforts to reduce the
90/10
Rule
percentage for University of Phoenix, especially if the
percentage exceeds 90% for a fiscal year, may involve taking
measures which reduce our revenue, increase our operating
expenses, or both, in each case perhaps significantly. If the
90/10
Rule
is not changed to provide relief for proprietary institutions,
we may be required to make structural changes to our business in
order to remain in compliance, which changes may materially
alter the manner in which we conduct our business and materially
and adversely impact our business, financial condition, results
of operations and cash flows. Furthermore, these required
changes could make more difficult our ability to comply with
other important regulatory requirements.
|
|
|
|
|
Student Loan Cohort Default Rates.
To remain eligible to
participate in Title IV programs, an educational
institutions student loan cohort default rates must remain
below certain specified levels. An educational institution will
lose its eligibility to participate in some or all Title IV
programs if its student loan cohort default rate equals or
exceeds 25% for three consecutive years or 40% for any given
year. If our student loan default rates approach these limits,
we may be required to increase efforts and resources dedicated
to improving these default rates.
|
The cohort default rate for University of Phoenix was 12.9% for
the 2008 federal fiscal year and has been increasing over the
past several years. We expect this upward trend to intensify due
to the current challenging economic climate and the continuing
effect of the historical growth in our associates degree
student population. Consistent with this trend, the available
preliminary
33
data for the University of Phoenix 2009 cohort reflect a
substantially higher default rate than the 2008 cohort, although
we do not expect the rate to exceed 25%.
|
|
|
|
|
Higher Learning Commission (HLC).
In August
2010, University of Phoenix received a letter from HLC requiring
University of Phoenix to provide certain information and
evidence of compliance with HLC accreditation standards. The
letter related to the August 2010 report published by the GAO of
its undercover investigation into the enrollment and recruiting
practices of a number of proprietary institutions of higher
education, including University of Phoenix. We submitted the
response to HLC on September 10, 2010 and subsequently
received a request for additional information. We have also
responded to the supplemental request. We have been informed
that our response will be evaluated by a special committee in
early calendar year 2011, and that the committee will make
recommendations, if any, to the HLC board. If, after review, HLC
determines that our response is unsatisfactory, HLC has informed
us that it may impose additional unspecified monitoring or
sanctions. In addition, HLC has recently imposed additional
requirements on University of Phoenix with respect to approval
of new or relocated campuses and additional locations. These
requirements may lengthen or make more challenging the approval
process for these sites.
|
|
|
|
Securities and Exchange Commission Informal Inquiry.
During October 2009, we received notification from the
Enforcement Division of the Securities and Exchange Commission
indicating that they had commenced an informal inquiry into our
revenue recognition practices. The Securities and Exchange
Commission has requested various information and documents from
us
and/or
our auditors, including information regarding our revenue
recognition practices, our policies and practices relating to
student refunds, the return of Title IV funds to lenders
and bad debt reserves, our insider trading policies and
procedures, a chronology of the internal processing and
availability of information about the U.S. Department of
Education program review of University of Phoenix commenced in
early 2009, and certain information relating to
non-Title IV revenue sources. Based on these requests, the
eventual scope, duration and outcome of the inquiry cannot be
predicted at this time. We are cooperating fully with the
Securities and Exchange Commission in connection with the
inquiry.
|
|
|
|
|
|
Economic Downturn.
The U.S. and much of the world
economy have been in the midst of an economic downturn with
uncertain prospects for recovery. These conditions have
contributed to a portion of our enrollment growth over recent
fiscal years as an increased number of working learners seek to
advance their education to improve their job security or
reemployment prospects. One of our challenges is to adequately
and effectively service our increased student population without
over-building our infrastructure and delivery platform in a
manner that might result in excess capacity. In contrast to this
positive impact, the economic downturn adversely affected our
bad debt expense and allowance for doubtful accounts over recent
fiscal years, and reduced the availability of state-funded
student financial aid as many states face revenue shortfalls. We
believe that the availability of state-funded student financial
aid will continue to decline, which may adversely impact our
enrollment and, to the extent that Title IV funds replace
these state funding sources for our students, may adversely
impact our
90/10
Rule
calculation.
|
|
|
|
Opportunities to Expand into New Markets.
We believe that
there is a growing demand for high quality education outside the
U.S. and that we have capabilities and expertise that can
be useful in providing these services beyond our current reach.
We believe we can deploy our key capabilities in student
services, technology and marketing to expand into new markets to
further our mission of providing high quality, accessible
education. We intend to actively pursue quality opportunities to
acquire
and/or
partner with existing institutions of higher learning where we
believe we can achieve long-term attractive growth and value
creation.
|
|
|
|
University of Phoenix Academic Annual Report.
In December
2010, University of Phoenix published its third Academic Annual
Report which contains a variety of comparative performance
measures related to student outcomes and university initiatives
related to quality and accountability.
|
34
For a more detailed discussion of trends, risks and
uncertainties, and our strategic plan, please refer to our 2010
Annual Report on
Form 10-K,
and Part II, Item 1A,
Risk Factors
, included in
this report.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
For a detailed discussion of our critical accounting policies
and estimates, please refer to our 2010 Annual Report on
Form 10-K.
RECENT
ACCOUNTING PRONOUNCEMENTS
Please refer to Note 2, Significant Accounting Policies, in
Item 1,
Financial Statements
, for recent accounting
pronouncements.
RESULTS
OF OPERATIONS
We have included below a discussion of our operating results and
significant items which explain the material changes in our
operating results during the three months ended
November 30, 2010, compared to the three months ended
November 30, 2009.
Our operations are generally subject to seasonal trends. We
experience, and expect to continue to experience, fluctuations
in our results of operations, principally as a result of
seasonal variations in the level of University of Phoenix
enrollments. Although University of Phoenix enrolls students
throughout the year, its net revenue is generally lower in our
second fiscal quarter (December through February) than the other
quarters due to holiday breaks in December and January.
Effective during the first quarter of fiscal year 2011, we
revised our presentation of operating expenses and reclassified
prior periods to conform to our revised presentation. There were
no changes to total operating expenses or operating income as a
result of these reclassifications. Please refer to Note 3,
Reclassifications, in Item 1,
Financial Statements
,
for further discussion. We categorize our operating expenses as
follows:
|
|
|
|
|
Instructional and student
advisory
consist primarily of costs related
to the delivery and administration of our educational programs
and include costs related to faculty, student advisory and
administrative compensation, classroom and administration lease
expenses (including facilities that are shared and support both
instructional and admissions functions), financial aid
processing costs, costs related to the development of our
educational programs and other related costs. Tuition costs for
all employees and their eligible family members are recorded as
an expense within instructional costs and services.
|
|
|
|
Marketing
the substantial majority of
costs consist of advertising expenses, compensation for
marketing personnel including personnel responsible for
establishing relationships with selected employers, which we
refer to as our Workforce Solutions team, and production of
marketing materials. The category also includes other costs
directly related to marketing functions.
|
|
|
|
Admissions advisory
the substantial
majority of costs consist of compensation for admissions
personnel. The category also includes other costs directly
related to admissions advisory functions.
|
|
|
|
General and administrative
consist
primarily of corporate compensation, occupancy costs, legal and
professional fees, and other related costs.
|
|
|
|
Provisions for uncollectible accounts
receivable
consist of expense charged to
reduce our accounts receivable to our estimate of the amount we
expect to collect.
|
|
|
|
Depreciation and amortization
consist of
depreciation expense on our property and equipment and
amortization of our finite-lived intangible assets.
|
35
For
the three months ended November 30, 2010 compared to the
three months ended November 30, 2009
Analysis
of Condensed Consolidated Statements of Income
The table below details our consolidated results of operations.
For a more detailed discussion by reportable segment, refer to
our
Analysis of Operating Results by Reportable Segment
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net Revenue
|
|
|
%
|
|
($ in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Net revenue
|
|
$
|
1,326.4
|
|
|
$
|
1,258.7
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
5.4
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instructional and student advisory
|
|
|
455.8
|
|
|
|
430.6
|
|
|
|
34.3
|
%
|
|
|
34.2
|
%
|
|
|
5.8
|
%
|
Marketing
|
|
|
166.1
|
|
|
|
151.6
|
|
|
|
12.5
|
%
|
|
|
12.0
|
%
|
|
|
9.6
|
%
|
Admissions advisory
|
|
|
113.8
|
|
|
|
115.3
|
|
|
|
8.6
|
%
|
|
|
9.2
|
%
|
|
|
(1.3
|
%)
|
General and administrative
|
|
|
84.9
|
|
|
|
70.7
|
|
|
|
6.4
|
%
|
|
|
5.6
|
%
|
|
|
20.1
|
%
|
Provision for uncollectible accounts receivable
|
|
|
56.9
|
|
|
|
62.7
|
|
|
|
4.3
|
%
|
|
|
5.0
|
%
|
|
|
(9.3
|
%)
|
Depreciation and amortization
|
|
|
37.1
|
|
|
|
34.7
|
|
|
|
2.8
|
%
|
|
|
2.8
|
%
|
|
|
6.9
|
%
|
Restructuring
|
|
|
3.8
|
|
|
|
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
*
|
|
Estimated litigation loss
|
|
|
0.9
|
|
|
|
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
919.3
|
|
|
|
865.6
|
|
|
|
69.3
|
%
|
|
|
68.8
|
%
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
407.1
|
|
|
|
393.1
|
|
|
|
30.7
|
%
|
|
|
31.2
|
%
|
|
|
3.6
|
%
|
Interest income
|
|
|
1.0
|
|
|
|
0.9
|
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
11.1
|
%
|
Interest expense
|
|
|
(2.2
|
)
|
|
|
(2.9
|
)
|
|
|
(0.2
|
%)
|
|
|
(0.2
|
%)
|
|
|
24.1
|
%
|
Other, net
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(0.1
|
%)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
405.9
|
|
|
|
390.4
|
|
|
|
30.6
|
%
|
|
|
31.0
|
%
|
|
|
4.0
|
%
|
Provision for income taxes
|
|
|
(169.6
|
)
|
|
|
(150.0
|
)
|
|
|
(12.8
|
%)
|
|
|
(11.9
|
%)
|
|
|
(13.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
236.3
|
|
|
|
240.4
|
|
|
|
17.8
|
%
|
|
|
19.1
|
%
|
|
|
(1.7
|
%)
|
Loss from discontinued operations, net of tax
|
|
|
(0.6
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
235.7
|
|
|
|
240.1
|
|
|
|
17.8
|
%
|
|
|
19.1
|
%
|
|
|
(1.8
|
%)
|
Net (income) loss attributable to noncontrolling interests
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.1
|
%)
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Apollo
|
|
$
|
235.4
|
|
|
$
|
240.1
|
|
|
|
17.7
|
%
|
|
|
19.1
|
%
|
|
|
(2.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
Our net revenue increased $67.7 million, or 5.4%, in the
first quarter of fiscal year 2011 compared to the first quarter
of fiscal year 2010. The increase was due to University of
Phoenixs 6.7% net revenue growth principally due to
selective tuition price increases. The net revenue increase at
University of Phoenix was partially offset by a decrease in
BPPs net revenue primarily due to lower student enrollment
and the unfavorable impact of foreign exchange rates. BPPs
student enrollment continues to be adversely impacted by the
economic downturn in the U.K. See further discussion of net
revenue by reportable segment below at
Analysis of Operating
Results by Reportable Segment
.
Instructional
and Student Advisory
Instructional and student advisory increased $25.2 million,
or 5.8%, in the first quarter of fiscal year 2011 compared to
the first quarter of fiscal year 2010, which represents a
10 basis point increase as a percentage of net revenue. The
increase in expense was primarily due to various strategic
initiatives implemented to more effectively support our
36
students and improve their educational outcomes, which has
resulted in increased compensation related to certain student
advisory and infrastructure support functions.
Marketing
Marketing increased $14.5 million, or 9.6%, in the first
quarter of fiscal year 2011 compared to the first quarter of
fiscal year 2010, which represents a 50 basis point
increase as a percentage of net revenue. The increase as a
percentage of net revenue was primarily a result of higher
advertising expenditures driven by the increased costs
associated with transitioning our marketing approaches to more
effectively identify students who have a greater likelihood to
succeed in our educational programs, and increases in
advertising rates for traditional and online media. The increase
was partially offset by lower employee compensation costs as a
percentage of net revenue.
Admissions
Advisory
Admissions advisory decreased $1.5 million, or 1.3%, in the
first quarter of fiscal year 2011 compared to the first quarter
of fiscal year 2010, which represents a 60 basis point
decrease as a percentage of net revenue. The decrease as a
percentage of revenue was a result of lower admissions advisory
headcount during the first quarter of fiscal year 2011 as
compared to the first quarter of fiscal year 2010. In addition,
at the end of the first quarter of fiscal year 2011, we
implemented a strategic reduction in force that eliminated
approximately 700 full-time positions, principally among
admissions personnel. See further discussion at
Restructuring
below. The decrease in admissions advisory was partially
offset by higher average employee compensation costs, as we
elevate the educational profile for admissions personnel.
General
and Administrative
General and administrative increased $14.2 million, or
20.1%, in the first quarter of fiscal year 2011 compared to the
first quarter of fiscal year 2010, which represents an
80 basis point increase as a percentage of net revenue. The
increase as a percentage of net revenue is primarily
attributable to expenses as we invest in our information
technology resources and capabilities, as well as various
expenses related to regulatory and external affairs activities,
partially offset by lower legal expenses.
Provision
for Uncollectible Accounts Receivable
Provision for uncollectible accounts receivable decreased
$5.8 million in the first quarter of fiscal year 2011
compared to the first quarter of fiscal year 2010, which
represents a 70 basis point decrease as a percentage of net
revenue. The decrease was primarily attributable to reductions
in gross accounts receivable as a result of the full
implementation of University Orientation and other recent
operational changes and initiatives to more effectively support
our students and improve their educational outcomes. See
Overview
in this MD&A for further discussion of
those initiatives. Improved collection rates at University of
Phoenix also contributed to the decrease as a result of improved
effectiveness of our collection efforts for aged receivables.
University of Phoenix is in the process of implementing several
initiatives that we believe will further improve the
effectiveness of its collections processes, which should
favorably impact our provision for uncollectible accounts
receivable in the future. The decrease at University of Phoenix
was partially offset by increased bad debt at UNIACC due to
additional uncertainty about the collectability of accounts
receivable during the first quarter of fiscal year 2011 related
to a specific program.
Depreciation
and Amortization
Depreciation and amortization increased $2.4 million in the
first quarter of fiscal year 2011 compared to the first quarter
of fiscal year 2010, but remained flat as a percentage of net
revenue. The increase was primarily due to increased
depreciation related to computer equipment and software. This
was partially offset by a decrease in amortization of BPP
intangible assets.
Restructuring
We recorded a $3.8 million charge in the first quarter of
fiscal year 2011 associated with a strategic reduction in force
that eliminated approximately 700 full-time positions,
principally among admissions personnel. The
37
personnel reductions are designed to streamline our operations
and to better align our operations with our business strategy,
revised business model and outlook. We expect to realize related
employee compensation expense reductions of approximately
$8 million per quarter, commencing in the second quarter of
fiscal year 2011. See Note 4, Restructuring, in
Item 1,
Financial Statements
, for further discussion.
Estimated
Litigation Loss
We recorded a $0.9 million charge in the first quarter of
fiscal year 2011 for incremental post-judgment interest related
to the Securities Class Action (Policemans Annuity
and Benefit Fund of Chicago) matter. See Note 15,
Commitments and Contingencies, in Item 1,
Financial
Statements
, for further discussion.
Interest
Income
Interest income was essentially flat in the first quarter of
fiscal year 2011 compared to the first quarter of fiscal year
2010.
Interest
Expense
Interest expense decreased $0.7 million in the first
quarter of fiscal year 2011 compared to the first quarter of
fiscal year 2010 primarily due to a decrease in average
borrowings.
Other,
Net
Other, net in the first quarters of fiscal years 2011 and 2010
primarily consists of net foreign currency gains and losses
related to our international operations.
Provision
for Income Taxes
Our effective income tax rate for continuing operations for the
first quarter of fiscal year 2011 and 2010 was 41.8% and 38.4%,
respectively. The increase was primarily attributable to an
$11.4 million tax benefit recorded in the first quarter of
fiscal year 2010 associated with our settlement of a dispute
with the Internal Revenue Service relating to the deduction of
certain stock option compensation on our U.S. federal
income tax returns beginning in fiscal year 2003. An increase in
other non-deductible expenses also contributed to the increase
in our effective income tax rate in the first quarter of fiscal
year 2011 compared to the first quarter of fiscal year 2010.
Loss from
Discontinued Operations, Net of Tax
Loss from discontinued operations, net of tax, relates to our
Insight Schools business, which we classified as held for sale
and as discontinued operations in the second quarter of fiscal
year 2010. Please refer to Note 5, Discontinued Operations,
in Item 1,
Financial Statements
, for further
discussion.
38
Analysis
of Operating Results by Reportable Segment
The table below details our operating results by reportable
segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
$
|
|
|
%
|
|
($ in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University of Phoenix
|
|
$
|
1,197.8
|
|
|
$
|
1,122.4
|
|
|
$
|
75.4
|
|
|
|
6.7
|
%
|
Apollo Global:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPP
|
|
|
79.7
|
|
|
|
88.7
|
|
|
|
(9.0
|
)
|
|
|
(10.1
|
%)
|
Other
|
|
|
23.5
|
|
|
|
22.4
|
|
|
|
1.1
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apollo Global
|
|
|
103.2
|
|
|
|
111.1
|
|
|
|
(7.9
|
)
|
|
|
(7.1
|
%)
|
Other Schools
|
|
|
25.3
|
|
|
|
25.2
|
|
|
|
0.1
|
|
|
|
0.4
|
%
|
Corporate
(1)
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
1,326.4
|
|
|
$
|
1,258.7
|
|
|
$
|
67.7
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University of Phoenix
|
|
$
|
407.4
|
|
|
$
|
391.0
|
|
|
$
|
16.4
|
|
|
|
4.2
|
%
|
Apollo Global:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPP
|
|
|
16.6
|
|
|
|
15.6
|
|
|
|
1.0
|
|
|
|
6.4
|
%
|
Other
|
|
|
(7.8
|
)
|
|
|
(2.3
|
)
|
|
|
(5.5
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apollo Global
|
|
|
8.8
|
|
|
|
13.3
|
|
|
|
(4.5
|
)
|
|
|
(33.8
|
%)
|
Other Schools
|
|
|
4.3
|
|
|
|
3.2
|
|
|
|
1.1
|
|
|
|
34.4
|
%
|
Corporate
(1)
|
|
|
(13.4
|
)
|
|
|
(14.4
|
)
|
|
|
1.0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
407.1
|
|
|
$
|
393.1
|
|
|
$
|
14.0
|
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Corporate caption in our segment reporting includes
adjustments to reconcile segment results to consolidated
results, which primarily consist of net revenue and corporate
charges that are not allocated to our segments.
|
University
of Phoenix
The $75.4 million, or 6.7%, increase in net revenue in our
University of Phoenix segment was primarily due to selective
tuition price and other fee changes implemented July 1,
2010, which varied by geographic area, program, and degree
level. In aggregate, these tuition price and other fee changes,
including increased discounts to military and other veteran
students in selective programs, were generally in the range of
4-6%.
The following table details University of Phoenix enrollment in
the first quarter of fiscal year 2011 and the first quarter of
fiscal year 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Degreed
Enrollment
(1)
|
|
|
|
New Degreed
Enrollment
(2)
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
November 30,
|
|
|
%
|
|
|
|
November 30,
|
|
|
%
|
|
(rounded to the nearest hundred)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Associates
|
|
|
177,200
|
|
|
|
205,400
|
|
|
|
(13.7
|
%)
|
|
|
|
24,000
|
|
|
|
52,200
|
|
|
|
(54.0
|
%)
|
Bachelors
|
|
|
187,300
|
|
|
|
171,000
|
|
|
|
9.5
|
%
|
|
|
|
22,800
|
|
|
|
32,100
|
|
|
|
(29.0
|
%)
|
Masters
|
|
|
66,000
|
|
|
|
71,900
|
|
|
|
(8.2
|
%)
|
|
|
|
8,900
|
|
|
|
13,100
|
|
|
|
(32.1
|
%)
|
Doctoral
|
|
|
7,600
|
|
|
|
7,300
|
|
|
|
4.1
|
%
|
|
|
|
800
|
|
|
|
700
|
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
438,100
|
|
|
|
455,600
|
|
|
|
(3.8
|
%)
|
|
|
|
56,500
|
|
|
|
98,100
|
|
|
|
(42.4
|
%)
|
39
|
|
(1)
|
Degreed Enrollment for a quarter is composed of:
|
|
|
|
|
|
students enrolled in a University of Phoenix degree program who
attended a course during the quarter and had not graduated as of
the end of the quarter;
|
|
|
|
students who previously graduated from one degree program and
started a new degree program in the quarter (for example, a
graduate of the associates degree program returns for a
bachelors degree or a bachelors degree graduate
returns for a masters degree); and
|
|
|
|
students participating in certain certificate programs of at
least 18 credits with some course applicability into a related
degree program.
|
|
|
(2)
|
New Degreed Enrollment for each quarter is composed of:
|
|
|
|
|
|
new students and students who have been out of attendance for
more than 12 months who enroll in a University of Phoenix
degree program and start a course in the quarter;
|
|
|
|
students who have previously graduated from a degree program and
start a new degree program in the quarter; and
|
|
|
|
students who commence participation in certain certificate
programs of at least 18 credits with some course applicability
into a related degree program.
|
Although University of Phoenix Degreed Enrollment decreased 3.8%
in the first quarter of fiscal year 2011 compared to the first
quarter of fiscal year 2010, average enrollment during the
quarter increased slightly, resulting in a modest increase to
net revenue. The decrease in University of Phoenix Degreed
Enrollment is in part the result of the 42.4% decrease in New
Degreed Enrollment. We believe the decreases in enrollment are
primarily the result of our operational changes and initiatives
to more effectively support our students and improve their
educational outcomes. These changes and initiatives are
principally the following:
|
|
|
|
|
changes in the evaluation and compensation structure for our
admissions personnel and other employees, including eliminating
all enrollment factors in evaluating the performance and any
related compensation adjustments for our admissions personnel
effective September 1, 2010;
|
|
|
|
the full implementation of University Orientation in November
2010; and
|
|
|
|
transitioning our marketing approaches to more effectively
identify students who have a greater likelihood to succeed in
our educational programs.
|
We expect that these initiatives will continue to adversely
impact University of Phoenix enrollment in fiscal year 2011 and
net revenue, operating income and cash flow in fiscal years 2011
and 2012, and potentially beyond. However, we continue to
believe that these efforts are in the best interest of our
students and, over the long-term, will improve student
persistence and completion rates, reduce bad debt expense,
reduce the risks to our business associated with the regulatory
environment, and position us for more stable long-term growth.
Operating income in our University of Phoenix segment increased
$16.4 million, or 4.2%, during the first quarter of fiscal
year 2011 compared to the first quarter of fiscal year 2010.
This increase was primarily attributable to the following:
|
|
|
|
|
The 6.7% increase in University of Phoenix net revenue;
|
|
|
|
A reduction in bad debt expense primarily attributable to
reductions in gross accounts receivable as a result of the full
implementation of University Orientation and other recent
operational changes and initiatives to more effectively support
our students and improve their educational outcomes. See
Overview
in this MD&A for further discussion of
those initiatives. Improved collection rates at University of
Phoenix also contributed to the decrease as a result of improved
effectiveness of our collection efforts for aged receivables.
University of Phoenix is in the process of implementing several
initiatives that we believe will further improve the
effectiveness of its collections processes, which should
favorably impact our provision for uncollectible accounts
receivable in the future; and
|
|
|
|
Lower headcount in admissions advisory and certain marketing
functions. Additionally, we expect to realize employee
compensation expense reductions of approximately $8 million
per quarter, commencing in the second quarter of fiscal year
2011 related to our November 2010 strategic reduction in force.
See further discussion at
Restructuring
above.
|
40
The above factors were partially offset by the following:
|
|
|
|
|
An increase in expense associated with our various strategic
initiatives to more effectively support our students and improve
their educational outcomes, which has resulted in increased
compensation related to certain student advisory and
infrastructure support functions; and
|
|
|
|
An increase in marketing costs primarily attributable to higher
advertising expenditures due to increased costs associated with
transitioning our marketing approaches to more effectively
identify students who have a greater likelihood to succeed in
our educational programs, and increases in advertising rates for
traditional and online media.
|
Apollo
Global
Net revenue in our Apollo Global segment decreased
$7.9 million during the first quarter of fiscal year 2011
compared to the first quarter of fiscal year 2010. The decrease
primarily occurred at BPP and was principally due to lower
student enrollment and the unfavorable impact of foreign
exchange rates. BPPs student enrollment continues to be
adversely impacted by the economic downturn in the U.K.
Our Apollo Global segment generated $8.8 million of
operating income during the first quarter of fiscal year 2011
compared to $13.3 million during the first quarter of
fiscal year 2010. The decrease was primarily attributable to
increased bad debt at UNIACC due to additional uncertainty about
the collectability of accounts receivable during the first
quarter of fiscal year 2011 related to a specific program. This
was partially offset by a $2.8 million decrease in
intangible asset amortization, and lower operating expenses
related to the rationalization of certain costs as we continue
to integrate BPP.
Other
Schools
Net revenue for our Other Schools segment during the first
quarter of fiscal year 2011 was consistent with the first
quarter of fiscal year 2010. The increase in operating income
was primarily due to decreased expenses at Meritus primarily
attributable to higher expenditures to develop the business in
the first quarter of fiscal year 2010.
LIQUIDITY,
CAPITAL RESOURCES, AND FINANCIAL POSITION
We believe that our cash and cash equivalents and available
liquidity will be adequate to satisfy our working capital and
other liquidity requirements associated with our existing
operations through at least the next 12 months. We believe
that the most strategic uses of our cash resources include
investments in the continued enhancement and expansion of our
student offerings, share repurchases, acquisition opportunities
including our commitment to Apollo Global, investments to
further transition our marketing approaches to more effectively
identify students who have a greater likelihood to succeed in
our educational programs, and investments in information
technology initiatives. Additionally, we may be required to post
a bond to stay enforcement of the judgment in our Securities
Class Action (Policemans Annuity and Benefit Fund of
Chicago) matter or pay damages awarded in that action.
Although we currently have substantial available liquidity, our
ability to access the credit markets and other sources of
liquidity may be adversely affected if we experience regulatory
compliance challenges, reduced availability of Title IV
funding or other adverse effects on our business from regulatory
or legislative changes.
Cash and
Cash Equivalents and Restricted Cash and Cash
Equivalents
The following table provides a summary of our cash and cash
equivalents and restricted cash and cash equivalents at
November 30, 2010 and August 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Assets
|
|
|
|
|
November 30,
|
|
August 31,
|
|
November 30,
|
|
August 31,
|
|
%
|
($ in millions)
|
|
2010
|
|
2010
|
|
2010
|
|
2010
|
|
Change
|
|
Cash and cash equivalents
|
|
$
|
1,040.5
|
|
|
$
|
1,284.8
|
|
|
|
30.8
|
%
|
|
|
35.7
|
%
|
|
|
(19.0
|
%)
|
Restricted cash and cash equivalents
|
|
|
472.5
|
|
|
|
444.1
|
|
|
|
14.0
|
%
|
|
|
12.3
|
%
|
|
|
6.4
|
%
|
Long-term restricted cash and cash equivalents
|
|
|
126.5
|
|
|
|
126.6
|
|
|
|
3.7
|
%
|
|
|
3.5
|
%
|
|
|
(0.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,639.5
|
|
|
$
|
1,855.5
|
|
|
|
48.5
|
%
|
|
|
51.5
|
%
|
|
|
(11.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Cash and cash equivalents (excluding restricted cash) decreased
$244.3 million primarily due to $404.5 million used
for payments on borrowings (net of proceeds from borrowings),
$176.9 million used for share repurchases,
$50.6 million used for capital expenditures, and a
$28.3 million increase in restricted cash, which was
partially offset by $414.0 million of cash provided by
operations.
During fiscal year 2010, we received an unfavorable ruling by
the Ninth Circuit Court of Appeals in the Securities
Class Action (Policemans Annuity and Benefit Fund of
Chicago) matter. We are evaluating our available options and may
be required to post a bond to stay enforcement of the judgment.
We have estimated that the damages for this matter could range
from $127.2 million to $228.0 million. We believe we
have adequate liquidity to fund the amount of any required bond,
or if necessary, the satisfaction of the judgment. Refer to
Note 15, Commitments and Contingencies, in Item 1,
Financial Statements
for further discussion.
We measure our money market funds included in cash and
restricted cash equivalents at fair value. At November 30,
2010, we had money market funds totaling $1,639.5 million
that were valued primarily using real-time quotes for
transactions in active exchange markets involving identical
assets. We did not record any material adjustments to reflect
these instruments at fair value.
Debt
Bank Facility
In fiscal year 2008, we entered
into a syndicated $500 million credit agreement (the
Bank Facility). The Bank Facility is an unsecured
revolving credit facility used for general corporate purposes
including acquisitions and stock buybacks. The Bank Facility has
an expansion feature for an aggregate principal amount of up to
$250 million. The term is five years and will expire on
January 4, 2013. The Bank Facility provides a
multi-currency
sub-limit
facility for borrowings in certain specified foreign currencies.
We borrowed our entire credit line under the Bank Facility as of
August 31, 2010, which included £63.0 million
denominated in British Pounds (equivalent to $97.9 million
as of August 31, 2010). We repaid the U.S. dollar
denominated debt on our Bank Facility of $400.1 million
during the first quarter of fiscal year 2011.
The Bank Facility fees are determined based on a pricing grid
that varies according to our leverage ratio. The Bank Facility
fee ranges from 12.5 to 17.5 basis points and the
incremental fees for borrowings under the facility range from
LIBOR + 50.0 to 82.5 basis points. The weighted average
interest rate on outstanding borrowings under the Bank Facility
at November 30, 2010 was 1.2%.
The Bank Facility contains affirmative and negative covenants,
including the following financial covenants: maximum leverage
ratio, minimum coverage interest and rent expense ratio, and a
U.S. Department of Education financial responsibility
composite score. In addition, there are covenants restricting
indebtedness, liens, investments, asset transfers and
distributions. We were in compliance with all covenants related
to the Bank Facility at November 30, 2010.
BPP Credit Facility
In the fourth quarter of
fiscal year 2010, we refinanced BPPs debt by entering into
a £52.0 million (equivalent to $81.1 and
$80.8 million as of November 30, 2010 and
August 31, 2010, respectively) credit agreement (the
BPP Credit Facility). The BPP Credit Facility
contains term debt, which was used to refinance BPPs
existing debt, and revolving credit facilities used for working
capital and general corporate purposes. The term of the
agreement is three years and will expire on August 31,
2013. The interest rate on borrowings varies according to a
financial ratio and range from LIBOR + 250 to 325 basis
points. The weighted average interest rate on BPPs
outstanding borrowings at November 30, 2010 was 4.0%.
The BPP Credit Facility contains financial covenants that
include minimum cash flow coverage ratio, minimum fixed charge
coverage ratio, maximum leverage ratio, and maximum capital
expenditure ratio. We were in compliance with all covenants
related to the BPP Credit Facility at November 30, 2010.
Other
Other debt includes $9.0 million
of variable rate debt and $18.7 million of fixed rate debt
as of November 30, 2010, and $8.7 million of variable
rate debt and $17.0 million of fixed rate debt as of
August 31, 2010. The weighted average interest rate of
these debt instruments at November 30, 2010 was 6.7%.
42
Cash
Flows
Operating
Activities
The following table provides a summary of our operating cash
flows during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
November 30,
|
|
($ in millions)
|
|
2010
|
|
|
2009
|
|
|
Net income
|
|
$
|
235.7
|
|
|
$
|
240.1
|
|
Non-cash items
|
|
|
103.5
|
|
|
|
92.9
|
|
Changes in certain operating assets and liabilities
|
|
|
74.8
|
|
|
|
72.2
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
414.0
|
|
|
$
|
405.2
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, 2010
Our
non-cash items primarily consisted of a $56.9 million
provision for uncollectible accounts receivable,
$37.1 million of depreciation and amortization, and
$15.0 million of share-based compensation. The changes in
certain operating assets and liabilities primarily consisted of
a $142.2 million increase in income taxes payable
principally due to the timing of our quarterly tax payments, and
a $15.7 million increase in other liabilities principally
due to an increase in our uncertain tax benefits. These items
were partially offset by a $40.3 million increase in gross
accounts receivable, and a $20.7 million decrease in
accounts payable and accrued liabilities.
Three Months Ended November 30, 2009
Our
non-cash items primarily consisted of a $62.7 million
provision for uncollectible accounts receivable,
$35.6 million of depreciation and amortization, and
$14.2 million of share-based compensation, which was
partially offset by $15.9 million of deferred income taxes.
The changes in certain operating assets and liabilities
primarily consisted of a $170.2 million increase in income
taxes payable primarily due to the timing of our quarterly tax
payments, and a $43.2 million increase in deferred revenue
primarily due to increased enrollment. This was partially offset
by a $104.8 million increase in gross accounts receivable
primarily due to increased enrollment and certain operational
changes, a $16.8 million decrease in accounts payable and
accrued liabilities, and an $11.6 million decrease in
student deposits primarily due to the timing of course starts at
BPP.
We monitor our accounts receivable through a variety of metrics,
including days sales outstanding. We calculate our days sales
outstanding by determining average daily student revenue based
on a rolling twelve month analysis and divide it into the gross
student accounts receivable balance as of the end of the period.
As of November 30, 2010, excluding accounts receivable and
the related net revenue for Apollo Global, our days sales
outstanding was 26 days, as compared to 30 days as of
August 31, 2010, and 32 days as of November 30,
2009. The decrease in days sales outstanding is primarily
attributable to reductions in gross accounts receivable as a
result of the full implementation of University Orientation and
other recent operational changes and initiatives to more
effectively support our students and improve their educational
outcomes. See
Overview
in this MD&A for further
discussion of those initiatives. Improved collection rates at
University of Phoenix also contributed to the decrease as a
result of improved effectiveness of our collection efforts for
aged receivables. University of Phoenix is in the process of
implementing several initiatives that we believe will further
improve the effectiveness of its collections processes, which
should favorably impact our days sales outstanding in the future.
Investing
Activities
The following table provides a summary of our investing cash
flows during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
November 30,
|
|
($ in millions)
|
|
2010
|
|
|
2009
|
|
|
Capital expenditures
|
|
$
|
(50.6
|
)
|
|
$
|
(37.6
|
)
|
Increase in restricted cash and cash equivalents
|
|
|
(28.3
|
)
|
|
|
(37.8
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
$
|
(78.9
|
)
|
|
$
|
(75.4
|
)
|
|
|
|
|
|
|
|
|
|
43
Three Months Ended November 30, 2010
Cash used for investing activities primarily consisted of
$50.6 million used for capital expenditures that primarily
related to investments in our information technology, network
infrastructure, and software. Restricted cash and cash
equivalents also increased $28.3 million principally due to
increased student deposits associated with students receiving
financial aid.
We have reduced our capital expenditure plans for 2011 as a
result of the streamlining of our operations and better
alignment with our business strategy and refined business model
and outlook. However, we anticipate that our fiscal year 2011
capital expenditures will still exceed the fiscal year 2010
amount as we continue to invest in our core information
technology and network infrastructure.
Three Months Ended November 30, 2009
Cash used for investing activities primarily consisted of a
$37.8 million increase in restricted cash and cash
equivalents principally due to increased student deposits
associated with students receiving financial aid, and
$37.6 million used for capital expenditures that primarily
relate to investments in our computer equipment and software.
Financing
Activities
The following table provides a summary of our financing cash
flows during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
November 30,
|
|
($ in millions)
|
|
2010
|
|
|
2009
|
|
|
Payments on borrowings, net
|
|
$
|
(404.5
|
)
|
|
$
|
(397.9
|
)
|
Apollo Group Class A common stock purchased for treasury
|
|
|
(176.9
|
)
|
|
|
(1.0
|
)
|
Other
|
|
|
1.9
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
$
|
(579.5
|
)
|
|
$
|
(392.9
|
)
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, 2010
Cash used in financing activities primarily consisted of
$404.5 million used for payments on borrowings (net of
proceeds from borrowings), and $176.9 million used for
share repurchases.
Three Months Ended November 30, 2009
Cash used in financing activities primarily consisted of
$397.9 million used for payments on borrowings (net of
proceeds from borrowings), which was partially offset by
$5.8 million provided by stock option exercises and shares
issued under our employee stock purchase plan.
Contractual
Obligations and Other Commercial Commitments
During the first three months of fiscal year 2011, we repaid the
U.S. dollar denominated debt on our Bank Facility of
$400.1 million. There have been no other material changes
in our contractual obligations and other commercial commitments
other than in the ordinary course of business since the end of
fiscal year 2010 through November 30, 2010. Information
regarding our contractual obligations and commercial commitments
is provided in our 2010 Annual Report on
Form 10-K.
44
Item 3. Quantitative
and Qualitative Disclosures About Market Risk
There have been no significant changes to our market risk since
August 31, 2010. For a discussion of our exposure to market
risk, refer to our 2010 Annual Report on
Form 10-K.
Item 4. Controls
and Procedures
Disclosure
Controls and Procedures
We intend to maintain disclosure controls and procedures
designed to provide reasonable assurance that information
required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the specified time periods and
accumulated and communicated to our management, including our
Co-Chief Executive Officers (Principal Executive
Officers) and our Senior Vice President and Chief
Financial Officer (Principal Financial Officer), as
appropriate, to allow timely decisions regarding required
disclosure. We have established a Disclosure Committee,
consisting of certain members of management, to assist in this
evaluation. Our Disclosure Committee meets on a quarterly basis
and more often if necessary.
Our management, under the supervision and with the participation
of our Principal Executive Officers and Principal Financial
Officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in
Rules 13a-15(e)
or
15d-15(e)
promulgated under the Securities Exchange Act), as of the end of
the period covered by this report. Based on that evaluation,
management concluded that, as of that date, our disclosure
controls and procedures were effective at the reasonable
assurance level.
Attached as exhibits to this Quarterly Report on
Form 10-Q
are certifications of our Principal Executive Officers and
Principal Financial Officer, which are required in accordance
with
Rule 13a-14
of the Securities Exchange Act. This Disclosure Controls and
Procedures section includes information concerning
managements evaluation of disclosure controls and
procedures referred to in those certifications and, as such,
should be read in conjunction with the certifications of our
Principal Executive Officers and Principal Financial Officer.
Changes
in Internal Control over Financial Reporting
There have not been any changes in our internal control over
financial reporting during the quarter ended November 30,
2010, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
45
PART II
OTHER INFORMATION
Item 1. Legal
Proceedings
Please refer to Note 15, Commitments and Contingencies, in
Part I, Item 1,
Financial Statements
, for legal
proceedings, which is incorporated into Item 1 of
Part II by this reference.
Item 1A. Risk
Factors
In addition to the updated risk factors set forth below, please
see the risk factors included in our 2010 Annual Report on
Form 10-K.
Pending
rulemaking by the U.S. Department of Education could result in
regulatory changes that materially and adversely affect our
business.
In November 2009, the U.S. Department of Education convened
two new negotiated rulemaking teams related to Title IV
program integrity issues and foreign school issues. The team
addressing program integrity issues, which included
representatives of the various higher education constituencies,
was unable to reach consensus on all of the rules addressed by
that team. Accordingly, under the negotiated rulemaking
protocol, the Department was free to propose rules without
regard to the tentative agreement reached regarding certain of
the rules. The final program integrity rules address numerous
topics. The most significant for our business are the following:
|
|
|
|
|
Modification of the standards relating to the payment of
incentive compensation to employees involved in student
recruitment and enrollment, including executive management;
|
|
|
|
Implementation of standards for state authorization of
institutions of higher education; and
|
|
|
|
Adoption of a definition of gainful employment for
purposes of the requirement for Title IV student financial
aid that a program of study offered by a proprietary institution
prepare students for gainful employment in a recognized
occupation.
|
On June 18, 2010, the Department issued a Notice of
Proposed Rulemaking (NPRM) in respect of the program
integrity issues, other than the metrics for determining
compliance with the gainful employment requirement. On
July 26, 2010, the Department published a separate NPRM in
respect of the gainful employment metrics. The Department
published final regulations on October 29, 2010, excluding
significant sections related to gainful employment metrics which
the Department has indicated that it expects to publish in early
calendar year 2011. The final regulations, including some
reporting and disclosure rules related to gainful employment
described below will be effective July 1, 2011.
Incentive
Compensation
A school participating in Title IV programs may not pay any
commission, bonus or other incentive payments to any person
involved in student recruitment or admissions or awarding of
Title IV program funds, if such payments are based directly
or indirectly in any part on success in enrolling students or
obtaining student financial aid. The law and regulations
governing this requirement do not establish clear criteria for
compliance in all circumstances, but there currently are twelve
safe harbors that define specific types of compensation that are
deemed to constitute permissible incentive compensation.
Currently, we rely on several of these safe harbors to ensure
that our compensation and recruitment practices comply with the
applicable requirements.
In the final regulations adopted by the Department, these twelve
safe harbors are eliminated and, in lieu of the safe harbors,
some of the relevant concepts relating to the incentive
compensation limitations are defined. These changes increase the
uncertainty about what constitutes incentive compensation and
which employees are covered by the regulation. This makes the
development of effective and compliant performance metrics,
including those applicable to the Companys executive
management, more difficult to establish. In response to the
Departments concern about the impact of compensation
structures that rely on the current safe harbors and in order to
enhance the admissions process for our students, we began
considering an alternative compensation structure for our
admissions personnel in early 2009. We developed this new
structure, which we believe complies with the Departments
new rule, over the past twelve months and implemented it on a
broad scale during the first quarter of fiscal year 2011. In
46
connection with this, we eliminated enrollment results as a
component of compensation for our admissions personnel effective
September 1, 2010.
This change in our approach to recruiting, with reduced emphasis
on enrollment and increased emphasis on improving the student
experience, has adversely impacted our enrollment rates, which
we expect to continue, particularly in the near-term, and
increase our operating costs, perhaps materially. We believe
this change is in the best interests of our students and it is
consistent with our on-going efforts to lead the industry in
addressing the concerns of the Department and others, including
members of Congress, about admissions practices in the
proprietary sector. We anticipate that this increased cost and
the impact on our revenue from reduced enrollment will be offset
partly by the benefits realized from improved student retention.
However, we are not able to precisely predict the impact.
The elimination of the existing twelve safe harbors also could
affect the manner in which we conduct our business in the
following additional ways:
|
|
|
|
|
Our IPD business currently utilizes a revenue sharing model with
its client institutions, which is expressly permitted under one
of the twelve incentive compensation safe harbors. As the final
regulations have made revenue sharing based upon success in
enrollment impermissible, we will need to modify IPDs
business model so as to comply with the new requirements, which
could materially and adversely affect this business. IPDs
net revenue and operating income represent less than 2% of our
consolidated net revenue and operating income.
|
|
|
|
We pay various third parties for Internet-based services related
to lead generation and marketing. Following the revocation of
the safe harbors described above, payments to a third party for
providing student contact information for prospective students
will still be permissible, but only if such payments are not
based on the number of students who apply or enroll. This change
could reduce our ability to manage the quality of our leads and
decrease our marketing efficiency, which could materially
increase our marketing costs and adversely affect our business.
|
State
Authorization
In the U.S., institutions that participate in Title IV
programs must be authorized to operate by the appropriate
postsecondary regulatory authority in each state where the
institution has a physical presence, or be exempt from such
regulatory authorization, usually based on recognized
accreditation. As of November 30, 2010, University of
Phoenix is authorized to operate or has confirmed an exemption
to operate based upon its accreditation and has a physical
presence in 40 states, Puerto Rico and the District of
Columbia. University of Phoenix has held these authorizations or
has confirmed an exemption for specific authority to operate
based upon its accreditation for periods ranging from less than
three years to over 25 years. As of November 30, 2010,
University of Phoenix has also been approved to operate or has
confirmed an exemption to operate based upon its accreditation
in Alaska, Montana and South Dakota, but does not yet have a
physical presence in these states. In five states, including
California, University of Phoenix is qualified to operate
without specific state regulatory approval due to available
state exemptions that permit such operation if certain
programmatic or other accreditation criteria are met. Under new
regulations adopted by the U.S. Department of Education, we
will be required to seek and obtain specific regulatory approval
to operate in four of these states and would not be entitled to
rely on available exemptions based on accreditation. This
includes California, Colorado, Hawaii and Utah. In addition, we
would not be able to operate under previously confirmed
exemptions in Alaska, Montana and South Dakota if and when we
elect to establish a physical presence in those states and we
would be required to seek and obtain specific regulatory
approval. Each of these states now must adopt additional
statutes or regulations in order to comply with the new
regulations adopted by the Department in order for us and other
institutions to remain eligible for Title IV funds in
respect of operations within the states. We have no assurance
that these states will be willing or able to adopt such
additional statutes or regulations or that we will be able to
complete the approval process in those states in order to obtain
specific state regulatory approval before the effective date of
the final regulations on July 1, 2011. While there are
annual waivers available in the final regulations that could
allow us to continue to operate without specific state approval
in these states through July 1, 2013, we have no assurance
that the waivers will be granted. If we experience a delay in
obtaining or cannot obtain these approvals or waivers, our
business could be adversely impacted, particularly in
47
California, the state in which we conduct the most business by
revenue. As a result, the manner in which the Departments
final regulation will apply to our business in these states, and
the impact of such regulation on our business, is uncertain. If
we are unable to operate in California in a manner that would
preserve Title IV eligibility for our students, our
business would be materially and adversely impacted.
Gainful
Employment
Under the Higher Education Act, as reauthorized, proprietary
schools are eligible to participate in Title IV programs
only in respect of educational programs that lead to
gainful employment in a recognized occupation.
Historically, this concept has not been defined in detailed
regulations. On October 29, 2010, the Department published
final regulations covering a portion of the proposed gainful
employment rules with an effective date of July 1, 2011.
These rules would require proprietary institutions of higher
education and public or not-for profit institutions offering
postsecondary non-degree programs to provide prospective
students with each eligible programs occupations, costs,
completion rate, job placement rate, and median loan debt of
program completers. Institutions must annually submit
information to the Department on students who complete a program
leading to gainful employment in a recognized occupation,
including student and program information, amount from private
loans or institutional finance plans, matriculation information,
and end of year enrollment information. Additionally, the final
regulations require institutions to notify the Department at
least 90 days before the first day of class when it intends
to offer new educational programs leading to gainful employment
in recognized occupations. New program notification includes
information on the demand for the program, wage analysis,
institutional program review and approval process, and
demonstration of approval through the schools accreditation.
Unless the Department requires approval for new programs, a
school is not required to get approval after notification is
submitted. If such approval is required, an alert notice will be
sent to the school at least 30 days before the first day of
class with a request for additional information. If a new
program is denied, the Department will explain how the program
failed and provide an opportunity for the school to respond or
request reconsideration.
In its July 26, 2010 NPRM, the U.S. Department of
Education published proposed rules that would define gainful
employment in detail, which rules would apply on a
program-by-program
basis. The Department has indicated that it expects to publish
final regulations related to gainful employment metrics in early
calendar year 2011. Under the July 26, 2010 proposed rules,
gainful employment in respect of a particular program would be
defined by reference to two debt-related tests: one based on
student debt
service-to-income
ratios for program graduates, and the other based on student
loan repayment rates for program enrollees. Based on the
application of these tests, a program may be eligible to
participate in Title IV programs without restriction, may
be eligible to participate with disclosure requirements, may be
on restricted status and only able to participate with material
restrictions (including enrollment limitations), or may be
ineligible to participate.
The proposed debt
service-to-income
test measures the median annual student loan debt service of
graduates of a program, as a percentage of their average annual
earnings
and/or
their
discretionary income (as defined), in each case
measured over the preceding three years or, in some cases, the
three years prior to the preceding three years. The proposed
loan repayment test measures the loan repayment rate for former
enrollees in (and not just graduates of) a program. The
repayment rate is calculated as a percentage of all program
enrollee Title IV loans that entered into repayment during
the preceding four federal fiscal years that are in current
repayment status, determined on a dollar weighted basis by
reference to the original principal amount of such loans. A loan
would be considered to be in current status if it has been fully
repaid or debt service has been paid such that the principal was
reduced during the preceding federal fiscal year.
Under the proposed tests, if a programs median annual
student loan debt service is less than 8% of average annual
earnings or less than 20% of average annual discretionary
income, and the programs loan repayment rate is at least
45%, the program would be eligible to participate in
Title IV programs with no new disclosure requirements. If a
programs median annual student loan debt service is above
12% of average annual earnings and above 30% of average annual
discretionary income based on the preceding three years, and the
programs loan repayment rate is below 35%, the program
would be ineligible to participate in Title IV programs.
Programs with test results between these two extremes would,
depending on the precise test outcomes, either be eligible to
participate with disclosure requirements, or be placed on
restricted status and only eligible to participate with material
restrictions (including enrollment limitations).
48
The proposed rules provide for a two-year phase-in. For the
award year beginning July 1, 2012, only the
lowest-performing programs accounting for 5% of all graduates
during the prior year would be subject to losing eligibility.
The full application of the eligibility rules would commence
with the award year beginning July 1, 2013.
The above descriptions of the proposed gainful employment rules
are qualified in their entirety by the text of the proposed
rules, available at
http://www2.ed.gov/legislation/FedRegister/proprule/2010-3/072610a.pdf
.
These proposed rules are complex and their application involves
many interpretive and other issues, not all of which may be
addressed in any final rulemaking
If these rules are adopted in the form proposed, many of our
programs may be ineligible for Title IV funding or
restricted because they do not meet at least one of the
specified tests. In addition, the continuing eligibility of our
educational programs for Title IV funding would be at risk
due to factors beyond our control, such as changes in the income
level of our graduates, increases in interest rates, changes in
the federal poverty income level relevant for calculating
discretionary income, changes in the percentage of our former
students who are current in repayment of their student loans,
and other factors. The exposure to these external factors would
hinder our ability to effectively manage our business. If a
particular program ceased to be eligible for Title IV
funding, in most cases it would not be practical to continue
offering that program under our current business model. Adoption
of the regulations in the form proposed could result in a
significant realignment of the types of educational programs
that are offered by us and by other proprietary institutions, in
order to comply with the rules or, most prominently, to avoid
the uncertainty associated with compliance over time. This
realignment could reduce our enrollment, perhaps materially.
The Department has not provided access to the income and debt
service information sufficient to determine the impact of these
proposed gainful employment rules on our programs. In August
2010, the Department published estimated loan repayment rates
for all educational institutions participating in Title IV
programs, determined on an institution-wide basis. The reported
estimated rate for University of Phoenix was 44.2%. The actual
application of the proposed loan repayment rate test would be
done on a
program-by-program
basis and, therefore, the estimated rate for the institution is
only a general guide for informational purposes.
We cannot predict the form of the rules on gainful employment
metrics that ultimately may be adopted by the Department
following public comment. Compliance with these gainful
employment rules could reduce our enrollment, increase our cost
of doing business, and have a material adverse effect on our
business, financial condition, results of operations and cash
flows.
49
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
Our Board of Directors has authorized us to repurchase
outstanding shares of Apollo Group Class A common stock,
from time to time, depending on market conditions and other
considerations. There is no expiration date on the repurchase
authorizations and repurchases occur at our discretion.
During the three months ended November 30, 2010, we
repurchased approximately 4.7 million shares of our
Class A common stock at a total cost of approximately
$176.5 million, representing a weighted average purchase
price of $37.58 per share. The table below details our share
repurchases during the three months ended November 30, 2010:
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|
|
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|
Total Number
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|
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|
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|
of Shares
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Repurchased as
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|
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Part of Publicly
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Maximum Value
|
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Total # of
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|
Average
|
|
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Announced
|
|
|
of Shares
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|
|
Shares
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|
Price Paid
|
|
|
Plans or
|
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|
Available for
|
|
(Numbers in thousands, except per share amounts)
|
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Repurchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Repurchase
|
|
|
Treasury stock as of August 31, 2010
|
|
|
40,714
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|
|
$
|
59.14
|
|
|
|
40,714
|
|
|
$
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560,681
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New authorizations
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Shares repurchased
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Shares reissued
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(4
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)
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(4
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)
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|
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|
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|
|
|
|
|
|
Treasury stock as of September 30, 2010
|
|
|
40,710
|
|
|
|
59.14
|
|
|
|
40,710
|
|
|
|
560,681
|
|
New authorizations
|
|
|
|
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|
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Shares repurchased
|
|
|
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|
|
|
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|
|
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Shares reissued
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(62
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)
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(62
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)
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|
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|
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|
|
|
|
|
|
|
|
Treasury stock as of October 31, 2010
|
|
|
40,648
|
|
|
|
59.14
|
|
|
|
40,648
|
|
|
|
560,681
|
|
New authorizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased
|
|
|
4,696
|
|
|
|
37.58
|
|
|
|
4,696
|
|
|
|
(176,459
|
)
|
Shares reissued
|
|
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(4
|
)
|
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56.91
|
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|
|
(4
|
)
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Treasury stock as of November 30, 2010
|
|
|
45,340
|
|
|
$
|
59.14
|
|
|
|
45,340
|
|
|
$
|
384,222
|
|
|
|
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|
|
|
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|
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|
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|
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|
We did not have any sales of unregistered equity securities
during the three months ended November 30, 2010.
Item 3. Defaults
Upon Senior Securities
Not Applicable.
Item 4. (Removed
and Reserved)
Item 5. Other
Information
None.
50
Item 6.
Exhibits
APOLLO
GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
|
|
10.1
|
|
Offer letter between Apollo Group, Inc. and Sean Martin, dated
August 23, 2010
|
|
|
|
10.2
|
|
Clarification letter between Apollo Group, Inc. and Sean Martin,
dated September 20, 2010
|
|
|
|
10.3
|
|
Clarification letter between Apollo Group, Inc. and Charles B.
Edelstein, dated September 29, 2010
|
|
|
|
10.4
|
|
Clarification letter between Apollo Group, Inc. and Gregory W.
Cappelli, dated November 2, 2010
|
|
|
|
10.5
|
|
Apollo Group, Inc. Executive Officer Performance Incentive Plan,
dated December 9, 2010
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.3
|
|
Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.2
|
|
Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.3
|
|
Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
101
|
|
The following financial information from our Quarterly Report on
Form 10-Q
for the first quarter of fiscal 2011, filed with the SEC on
January 10, 2011, formatted in Extensible Business
Reporting Language (XBRL): (i) the Condensed Consolidated
Balance Sheets as of November 30, 2010 and August 31,
2010, (ii) the Condensed Consolidated Statements of Income
for the three months ended November 30, 2010, and
November 30, 2009, (iii) the Condensed Consolidated
Statements of Comprehensive Income for the three months ended
November 30, 2010, and November 30, 2009,
(iv) the Condensed Consolidated Statements of Cash Flows
from Continuing and Discontinued Operations for the three months
ended November 30, 2010, and November 30, 2009, and
(v) Notes to Condensed Consolidated Financial
Statements.(1)
|
|
|
(1)
|
Pursuant to Rule 406T of
Regulation S-T,
the Interactive Data Files on Exhibit 101 hereto are deemed
not filed or part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of
1933, as amended, are deemed not filed for purposes of
Section 18 of the Securities and Exchange Act of 1934, as
amended, and otherwise are not subject to liability under those
sections.
|
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
APOLLO GROUP, INC.
(Registrant)
Date: January 10, 2011
Brian L. Swartz
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Signatory)
|
|
|
|
By:
|
/s/ Gregory
J. Iverson
|
Gregory J. Iverson
Vice President, Chief Accounting Officer and Controller
(Principal Accounting Officer and
Duly Authorized Signatory)
52
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