Apollo Group, Inc. (NASDAQ: APOL) (“Apollo Group,” “Apollo” or
the “Company”) today reported financial results for the three and
six months ended February 28, 2011.
“During the second quarter of fiscal 2011, we continued to
execute on the key strategic initiatives that we’ve been developing
and implementing, which are designed to enhance the student
experience, expand student protections and ensure that we enroll
students who we believe have a greater likelihood to succeed in our
programs,” said Apollo Group Co-Chief Executive Officer and Apollo
Global Chairman Greg Cappelli. “While these initiatives are
resulting in a period of transition for our business, we are
pleased that we have recently begun to see signs of improvement in
several of the leading indicators of future activity.”
Apollo Group Co-Chief Executive Officer Chas Edelstein added,
“While we are in the early stage of implementing these initiatives,
we are excited to see some initial positive signs, such as
improving rates of student retention for those who complete
Orientation and subsequently enroll, a continued mix shift toward
our higher degree-level programs, and lower bad debt expense. We
believe these actions are the right things to do for our students,
and importantly, we are confident that over time they will solidify
our leadership role within the industry and put our organization on
a path of more consistently delivering high quality growth.”
Unaudited Second Quarter of Fiscal 2011
Results of Operations
Consolidated net revenue for the second quarter of fiscal 2011
totaled $1,048.6 million, which represents a 2.0% decrease from the
second quarter of fiscal 2010, principally due to lower enrollments
at University of Phoenix, partially offset by selective tuition
price increases, a favorable mix shift toward higher degree-level
programs, and improved student retention rates. University of
Phoenix Degreed Enrollment decreased 11.6% to 405,300 compared with
the prior year’s second quarter, primarily due to a 44.9% decrease
in New Degreed Enrollment compared with the prior year period. The
Company believes the decline in New Degreed Enrollment is primarily
the result of the operational changes and initiatives it has
implemented to more effectively support students and improve
educational outcomes, including changes in the manner in which
admissions and other employees are evaluated and compensated, the
full implementation of University Orientation, and the continued
refinement of the Company’s marketing approaches to more
effectively identify students who have a greater likelihood to
succeed in University of Phoenix’s educational programs. Also
contributing to the decrease in consolidated net revenue was a $6.4
million decrease in net revenue at Apollo Global in the second
quarter compared to the prior year period, due to lower student
enrollment at BPP and UNIACC.
The Company reported a loss from continuing operations
attributable to Apollo Group for the three months ended February
28, 2011, of $66.6 million, or $0.47 per share (142.4 million
diluted weighted average shares outstanding), compared to income
from continuing operations attributable to Apollo Group of $103.2
million, or $0.67 per share (155.2 million diluted weighted average
shares outstanding) for the three months ended February 28,
2010.
Results for the second quarter of fiscal 2011 contain special
items that include goodwill and other intangibles impairment
charges of $219.9 million for the BPP subsidiary of Apollo Global
($188.3 million net of noncontrolling interests) and a $1.6 million
charge for accrued incremental post-judgment interest and other
estimated costs related to a securities class action lawsuit
(Policeman’s Annuity and Benefit Fund of Chicago). The Company
recorded a tax benefit of $5.0 million, net of noncontrolling
interests, associated with these charges. The Company did not
record a net tax benefit associated with the goodwill impairment,
as it is not deductible for tax purposes. The fiscal 2010 second
quarter results included a pre-tax charge of $44.5 million ($26.9
million net of tax) representing an accrual related to the
previously mentioned securities class action lawsuit.
Excluding these special items, income from continuing operations
attributable to Apollo Group for the three months ended February
28, 2011, was $118.2 million, or $0.83 per share (142.7 million
diluted weighted average shares outstanding), compared to income
from continuing operations attributable to Apollo Group of $130.1
million, or $0.84 per share for the three months ended February 28,
2010. (See the reconciliation of GAAP financial information to
non-GAAP financial information in the tables section of this press
release.)
Operating Expenses
Instructional and student advisory expenses increased by $6.2
million, or 1.5%, to $421.6 million for the three months ended
February 28, 2011, compared to the three months ended February 28,
2010. The increase was primarily due to various strategic
initiatives implemented to more effectively support students and
improve their educational outcomes, which has resulted in increased
compensation related to certain student advisory and infrastructure
support functions and increased curriculum development and delivery
costs.
Marketing expenses increased by $15.9 million, or 11.3%, to
$157.2 million for the three months ended February 28, 2011,
compared to the three months ended February 28, 2010. The increase
was primarily a result of higher advertising expenditures, driven
by the increased costs associated with the Company's efforts to
more effectively identify students who have a greater likelihood to
succeed in its educational programs and increases in advertising
rates for traditional and online media due to increased competition
for higher degree level students.
Admissions advisory expenses decreased by $15.9 million, or
13.4%, to $102.3 million for the three months ended February 28,
2011, compared to the three months ended February 28, 2010. The
decrease was a result of lower admissions advisory headcount,
including the strategic reduction in force implemented during the
first quarter of fiscal 2011 that eliminated approximately 700
full-time positions, principally among admissions personnel.
Compensation expense was favorably impacted by a reduction of
approximately $8 million in the second quarter of fiscal 2011
related to this reduction in force, the majority of which was in
admissions advisory. This decrease was partially offset by higher
average employee compensation costs.
General and administrative (“G&A”) expenses increased by
$15.5 million, or 22.6%, to $84.3 million for the three months
ended February 28, 2011, compared to the three months ended
February 28, 2010. The increase is primarily attributable to
expenses associated with the Company’s investments in its
information technology resources and capabilities, as well as
various expenses related to compliance and external affairs
activities.
The provision for uncollectible accounts receivable (“bad debt
expense”) decreased by $28.3 million, or 38.4%, to $45.5 million
for the three months ended February 28, 2011, compared to the three
months ended February 28, 2010. The decrease is primarily
attributable to reductions in gross accounts receivable as a result
of decreases in New Degreed Enrollment and improvements in student
retention rates, partially due to the full implementation of
University Orientation. Improved collection rates at University of
Phoenix also contributed to the decrease.
Depreciation and amortization increased by $3.9 million, or
11.1%, to $39.1 million for the three months ended February 28,
2011, compared to the three months ended February 28, 2010. The
increase was primarily due to increased depreciation related to
computer equipment and software, partially offset by a decrease in
amortization of BPP intangible assets.
Financial and Operating
Metrics
Below are Apollo Group’s unaudited financial data and operating
metrics for the second quarter of fiscal 2011 versus the prior-year
period.
Q2 2011
Q2 2010
Revenues (in
thousands)
Degree Seeking Gross Revenues (1) $ 1,002,854 $ 1,022,817 Less:
Discounts and other (49,908 ) (55,893 ) Degree
Seeking Net Revenues (1) 952,946 966,924 Non-degree Seeking
Revenues (2) 8,783 9,589 Other, net of discounts (3) 86,900
93,823 $ 1,048,629 $ 1,070,336
Revenue by Degree
Type (in thousands) (1)
Associates $ 320,288 $ 379,932 Bachelors 490,076 436,565 Masters
171,379 186,104 Doctoral 21,111 20,216 Less: Discounts and other
(49,908 ) (55,893 ) $ 952,946 $ 966,924
Degreed Enrollment
(rounded to hundreds) (4)
Associates 155,500 201,300 Bachelors 181,200 178,000 Masters 61,200
71,800 Doctoral 7,400 7,500
405,300 458,600
Degree Seeking Gross
Revenues per Degreed Enrollment (1), (4)
Associates $ 2,060 $ 1,887 Bachelors 2,705 2,453 Masters 2,800
2,592 Doctoral 2,853 2,695 All degrees (after discounts) $ 2,351 $
2,108
New Degreed
Enrollment (rounded to hundreds) (5)
Associates 18,900 43,100 Bachelors 20,900 31,300 Masters 7,800
12,200 Doctoral 600 900 48,200
87,500 (1) Represents revenue from
tuition and other fees for students enrolled in University of
Phoenix degree programs. Also includes revenue from tuition and
other fees for students participating in University of Phoenix
certificate programs of at least 18 credits in length with some
course applicability into a related degree program. (2)
Represents revenue from tuition and other fees for students
participating in University of Phoenix certificate programs less
than 18 credits in length, certificate programs with no
applicability into a related degree program, single course and
continuing education courses. (3) Represents revenues from
IPD, CFFP, Apollo Global - BPP, Apollo Global - Other, Meritus and
other.
(4) Represents:
• 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 associate’s degree program returns
for a bachelor’s degree or a bachelor’s degree graduate returns for
a master’s degree); and
• students participating in certain certificate programs of at
least 18 credits with some course applicability into a related
degree program.
(5) Represents:
• 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.
Unaudited First Six Months of Fiscal
2011 Results of Operations
Consolidated net revenue for the six months ended February 28,
2011, was $2.4 billion, a 2.0% increase over the comparable period
of fiscal 2010. The increase in consolidated net revenue was
primarily attributable to selective tuition price increases at
University of Phoenix, partially offset by a 3.2% decrease in
University of Phoenix's average Degreed Enrollment during the six
months ended February 28, 2011, as compared to the six months ended
February 28, 2010. The Company reported income from continuing
operations attributable to Apollo Group of $169.4 million, or $1.17
per share, (144.7 million diluted weighted average shares
outstanding), and $343.7 million, or $2.21 per share, (155.6
million diluted weighted average shares outstanding) for the six
months ended February 28, 2011, and February 28, 2010,
respectively.
Results for the six months ended February 28, 2011 contain
special items that include goodwill and other intangibles
impairment charges of $219.9 million for the BPP subsidiary of
Apollo Global ($188.3 million net of noncontrolling interests), a
$2.5 million charge for accrued incremental post-judgment interest
and other estimated costs related to a securities class action
lawsuit (Policeman’s Annuity and Benefit Fund of Chicago), and a
$3.8 million restructuring charge associated with a strategic
reduction in force, primarily at University of Phoenix. The Company
recorded a tax benefit of $6.9 million, net of noncontrolling
interests, associated with these charges. The Company did not
record a net tax benefit associated with the goodwill impairment,
as it is not deductible for tax purposes. Results for the six
months ended February 28, 2010 contain a pre-tax charge of $44.5
million ($26.9 million net of tax) representing an accrual related
to the previously mentioned securities class action lawsuit and a
tax benefit of $11.4 million resulting from the settlement of
disputed tax issues with the Internal Revenue Service.
Excluding these special items, income from continuing operations
attributable to Apollo Group for the six months ended February 28,
2011 was $357.1 million, or $2.47 per share, compared to income
from continuing operations attributable to Apollo Group of $359.2
million, or $2.31 per share, for the six months ended February 28,
2010. (See the reconciliation of GAAP financial information to
non-GAAP financial information in the tables section of this press
release.)
Unaudited Balance Sheet
As of February 28, 2011, the Company’s cash and cash
equivalents, excluding restricted cash, totaled $1,033.3 million as
compared to $1,284.8 million as of August 31, 2010. The decrease is
attributable to repayments on borrowings, share repurchases,
capital expenditures and an increase in restricted cash, partially
offset by cash generated from operations. Restricted cash and cash
equivalents (including long-term) increased by $21.5 million
compared to August 31, 2010, primarily due to increased student
deposits associated with students receiving financial aid.
At February 28, 2011, accounts receivable decreased to $217.8
million from $264.4 million at August 31, 2010. Excluding accounts
receivable and the associated net revenue for Apollo Global, the
Company’s days sales outstanding (“DSO”) was 22 days at February
28, 2011, compared to 30 days at August 31, 2010 and February 28,
2010. The decrease in DSO versus a year ago is primarily
attributable to reductions in gross accounts receivable as a result
of decreases in New Degreed Enrollment and improvements in student
retention, partially due to the full implementation of University
Orientation. Improved collection rates at University of Phoenix
also contributed to the decrease.
Total debt outstanding (including short-term borrowings and the
current portion of long-term debt) decreased by $393.4 million to
$191.0 million at February 28, 2011, from $584.4 million at August
31, 2010. The decrease is due to the repayment of U.S. denominated
borrowings on the Company’s $500 million credit facility.
Share Repurchases
The Company repurchased approximately 1.8 million and 6.5
million shares of its common stock at a weighted average purchase
price of $42.75 and $38.99 per share for a total expenditure of
$75.0 million and $251.5 million during the three and six months
ended February 28, 2011, respectively. As of February 28, 2011,
approximately $525 million remained available under the Company's
current share repurchase authorization.
Business Outlook
The Company offers the following commentary regarding the
outlook for fiscal 2011 and fiscal 2012 based on the business
trends observed during the second quarter of fiscal 2011, as well
as management’s current expectations of future trends, which could
change.
Fiscal 2011:
- Consolidated net revenue of $4.65-$4.75
billion; and
- Operating income, excluding the impact
of special items, of $1.15-$1.20 billion.
Fiscal 2012:
- Consolidated net revenue of $4.00-$4.25
billion; and
- Operating income, excluding the impact
of special items, of $675-$800 million.
The Company’s outlook does not reflect the unknown impact of
future regulation, including the proposed regulations relating to
"gainful employment."
Conference Call
Information
The Company will hold a conference call to discuss these
earnings results at 8:00 AM Eastern, 5:00 AM Phoenix time, today,
Tuesday, March 29, 2011. The call may be accessed by dialing (877)
292-6888 (domestic) or (973) 200-3381 (international) and entering
the conference ID number 47837838. A live webcast of this event may
be accessed by visiting the Company’s website at www.apollogrp.edu.
A replay of the call will be available on the website or by dialing
(800) 642-1687 (domestic) or (706) 645-9291 (international) and
entering the conference ID number 47837838 until April 8, 2011.
About Apollo Group, Inc.
Apollo Group, Inc. is one of the world's largest private
education providers and has been in the education business for more
than 35 years. The Company offers innovative and distinctive
educational programs and services both online and on-campus at the
undergraduate, master’s and doctoral levels through its
subsidiaries: University of Phoenix, Apollo Global, Institute for
Professional Development and College for Financial Planning. The
Company's programs and services are provided in 40 states and the
District of Columbia; Puerto Rico; Latin America; and Europe, as
well as online throughout the world.
For more information about Apollo Group, Inc. and its
subsidiaries, call (800) 990-APOL or visit the Company’s website at
www.apollogrp.edu.
Forward-Looking Statements Safe
Harbor
Statements about Apollo Group and its business in this release
which are not statements of historical fact, including statements
regarding Apollo Group's future strategy and plans and commentary
regarding future results of operations and prospects, are
forward-looking statements, and are subject to the Safe Harbor
provisions created by the Private Securities Litigation Reform Act
of 1995. These forward-looking statements are based on current
information and expectations and involve a number of risks and
uncertainties. Actual plans implemented and actual results achieved
may differ materially from those set forth in such statements due
to various factors, including without limitation (i) changes in the
overall U.S. or global economy, (ii) changes in enrollment or
student mix, including as a result of the roll-out of the Company's
University Orientation program to all eligible students in November
2010, (iii) the impact of recent changes in the manner in which the
Company evaluates and compensates its counselors that advise and
enroll students, (iv) changes in law or regulation affecting the
Company's eligibility to participate in or the manner in which it
participates in U.S. federal student financial aid programs,
including the final program integrity regulations published by the
U.S. Department of Education on October 29, 2010, and the proposed
regulations relating to "gainful employment" initially published
for comment by the Department on July 26, 2010 and which the
Department previously indicated that it expected to publish in
final form in early 2011, (v) changes in the Company's business
necessary to remain in compliance with U.S. federal student
financial aid program regulations, including the so-called 90/10
Rule and the limitations on cohort default rates, and to remain in
compliance with the accrediting criteria of the relevant
accrediting bodies, and (vi) other regulatory developments. For a
discussion of the various factors that may cause actual plans
implemented and actual results achieved to differ materially from
those set forth in the forward-looking statements, please refer to
the risk factors and other disclosures contained in Apollo Group's
Form 10-K for fiscal year 2010 and subsequent Forms 10-Q, and other
filings with the Securities and Exchange Commission, all of which
are available on the Company's website at
http://www.apollogrp.edu.
Use of Non-GAAP Financial
Information
This press release and the related conference call contain
non-GAAP financial measures, which are intended to supplement, but
not substitute for, the most directly comparable GAAP measures.
Management uses, and chooses to disclose to investors, these
non-GAAP financial measures because (i) such measures provide an
additional analytical tool to clarify the Company’s results from
operations and help to identify underlying trends in its results of
operations; (ii) as to the non-GAAP earnings measures, such
measures help compare the Company’s performance on a consistent
basis across time periods; and (iii) these non-GAAP measures are
employed by the Company’s management in its own evaluation of
performance and are utilized in financial and operational
decision-making processes, such as budgeting and forecasting.
Exclusion of items in our non-GAAP presentation should not be
construed as an inference that these items are unusual, infrequent
or non-recurring. Other companies, including other companies in the
education industry, may calculate non-GAAP financial measures
differently than we do, limiting their usefulness as a comparative
measure across companies.
Apollo Group, Inc. and Subsidiaries Condensed
Consolidated Balance Sheets (Unaudited)
As
of February 28, August 31, ($ in
thousands)
2011 2010 ASSETS: Current
assets Cash and cash equivalents $ 1,033,343 $ 1,284,769
Restricted cash and cash equivalents 465,689 444,132 Accounts
receivable, net 217,800 264,377 Deferred tax assets, current
portion 150,830 166,549 Prepaid taxes 38,702 39,409 Other current
assets 41,576 38,031 Assets held for sale from discontinued
operations - 15,945
Total current
assets 1,947,940 2,253,212 Property and equipment, net 654,465
619,537 Long-term restricted cash and cash equivalents 126,560
126,615 Marketable securities 5,946 15,174 Goodwill 131,285 322,159
Intangible assets, net 125,894 150,593 Deferred tax assets, less
current portion 106,086 99,071 Other assets 17,923
15,090
Total assets $ 3,116,099 $
3,601,451
LIABILITIES AND SHAREHOLDERS'
EQUITY: Current liabilities Short-term borrowings and
current portion of long-term debt $ 23,254 $ 416,361 Accounts
payable 79,300 90,830 Accrued liabilities 388,193 375,461 Student
deposits 496,922 493,245 Deferred revenue 317,278 359,724 Other
current liabilities 51,323 53,416 Liabilities held for sale from
discontinued operations - 4,474
Total current liabilities 1,356,270 1,793,511 Long-term debt
167,708 168,039 Deferred tax liabilities 32,621 38,875 Other
long-term liabilities 237,060 212,286
Total liabilities 1,793,659 2,212,711
Commitments and contingencies
Shareholders'
equity Preferred stock, no par value - - Apollo Group Class A
nonvoting common stock, no par value 103 103 Apollo Group Class B
voting common stock, no par value 1 1 Additional paid-in capital
69,646 46,865 Apollo Group Class A treasury stock, at cost
(2,647,563 ) (2,407,788 ) Retained earnings 3,919,420 3,748,045
Accumulated other comprehensive loss (26,607 )
(31,176 )
Total Apollo shareholders' equity 1,315,000
1,356,050
Noncontrolling interests
7,440 32,690
Total equity
1,322,440 1,388,740
Total liabilities and
shareholders' equity $ 3,116,099 $ 3,601,451
Apollo Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended February 28,
% of Net Revenue 2011 2010
2011 2010 (in thousands, except per
share data)
Net revenue $ 1,048,629 $ 1,070,336
100.0 % 100.0 %
Costs and expenses: Instructional and
student advisory 421,644 415,458 40.2 % 38.8 % Marketing 157,215
141,308 15.0 % 13.2 % Admissions advisory 102,283 118,152 9.8 %
11.0 % General and administrative 84,344 68,800 8.0 % 6.4 %
Provision for uncollectible accounts receivable 45,540 73,884 4.3 %
6.9 % Depreciation and amortization 39,142 35,244 3.7 % 3.3 %
Goodwill and other intangibles impairment 219,927 - 21.0 % -
Estimated litigation loss 1,574 44,500
0.2 % 4.2 %
Total costs and expenses 1,071,669
897,346 102.2 % 83.8 %
Operating (loss) income
(23,040 ) 172,990 (2.2 %) 16.2 % Interest income 785 525 0.1 % -
Interest expense (1,654 ) (3,220 ) (0.2 %) (0.3 %) Other, net
313 (79 ) - -
(Loss) income
from continuing operations before income taxes (23,596 )
170,216 (2.3 %) 15.9 % Provision for income taxes (76,052 )
(69,064 ) (7.2 %) (6.4 %)
(Loss) income from continuing
operations (99,648 ) 101,152 (9.5 %) 9.5 % Income (loss) from
discontinued operations, net of tax 2,575
(10,638 ) 0.2 % (1.0 %)
Net (loss) income (97,073 ) 90,514
(9.3 %) 8.5 %
Net loss attributable to noncontrolling
interests 33,035 2,092 3.2 % 0.2 %
Net (loss) income attributable to Apollo $ (64,038 ) $
92,606 (6.1 %) 8.7 %
Earnings (loss) per share -
Basic: Continuing operations attributable to Apollo $ (0.47 ) $
0.67 Discontinued operations attributable to Apollo 0.02
(0.07 )
Basic (loss) income per share attributable
to Apollo $ (0.45 ) $ 0.60
Earnings
(loss) per share - Diluted: Continuing operations attributable
to Apollo $ (0.47 ) $ 0.67 Discontinued operations attributable to
Apollo 0.02 (0.07 )
Diluted (loss) income
per share attributable to Apollo $ (0.45 ) $ 0.60
Basic weighted average shares outstanding 142,354
154,119
Diluted weighted average shares
outstanding 142,354 155,168
Apollo Group, Inc. and Subsidiaries Condensed
Consolidated Statements of Income (Unaudited)
Six Months Ended
February 28, % of Net Revenue 2011 2010
2011 2010 (in thousands, except per share data)
Net revenue $ 2,375,064 $ 2,328,995 100.0 %
100.0 %
Costs and expenses: Instructional and student
advisory 877,456 846,133 37.0 % 36.3 % Marketing 323,358 292,925
13.6 % 12.6 % Admissions advisory 216,035 233,423 9.1 % 10.0 %
General and administrative 169,218 139,459 7.1 % 6.0 % Provision
for uncollectible accounts receivable 102,449 136,582 4.3 % 5.9 %
Depreciation and amortization 76,244 69,924 3.2 % 3.0 % Goodwill
and other intangibles impairment 219,927 - 9.2 % - Estimated
litigation loss 2,455 44,500 0.1 % 1.9 % Restructuring 3,846
- 0.2 % -
Total costs and
expenses 1,990,988 1,762,946 83.8 %
75.7 %
Operating income 384,076 566,049 16.2 % 24.3 %
Interest income 1,768 1,457 0.1 % 0.1 % Interest expense (3,824 )
(6,128 ) (0.2 %) (0.3 %) Other, net 259 (749 )
- -
Income from continuing operations before
income taxes 382,279 560,629 16.1 % 24.1 % Provision for income
taxes (245,631 ) (219,045 ) (10.3 %) (9.4 %)
Income from continuing operations 136,648 341,584 5.8 % 14.7
% Income (loss) from discontinued operations, net of tax
1,947 (10,938 ) - (0.5 %)
Net income
138,595 330,646 5.8 % 14.2 %
Net loss attributable to
noncontrolling interests 32,780 2,102
1.4 % 0.1 %
Net income attributable to Apollo $
171,375 $ 332,748 7.2 % 14.3 %
Earnings
(loss) per share - Basic: Continuing operations attributable to
Apollo $ 1.17 $ 2.22 Discontinued operations attributable to Apollo
0.02 (0.07 )
Basic income per share
attributable to Apollo $ 1.19 $ 2.15
Earnings (loss) per share - Diluted: Continuing operations
attributable to Apollo $ 1.17 $ 2.21 Discontinued operations
attributable to Apollo 0.01 (0.07 )
Diluted
income per share attributable to Apollo $ 1.18 $ 2.14
Basic weighted average shares outstanding
144,364 154,473
Diluted weighted
average shares outstanding 144,658 155,621
Apollo Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows From
Continuing and Discontinued Operations (Unaudited)
Six Months Ended February 28,
2011 2010 ($ in thousands)
Cash flows provided by
(used in) operating activities: Net income $ 138,595 $ 330,646
Adjustments to reconcile net income to net cash provided by
operating activities: Share-based compensation 30,490 29,115 Excess
tax benefits from share-based compensation (569 ) (338 )
Depreciation and amortization 76,244 71,179 Amortization of lease
incentives (7,023 ) (6,518 ) Impairment of discontinued operations
- 9,400 Goodwill and other intangibles impairment 219,927 -
Amortization of deferred gain on sale-leasebacks (822 ) (883 )
Non-cash foreign currency (gain) loss, net (267 ) 534 Provision for
uncollectible accounts receivable 102,449 136,582 Estimated
litigation loss 2,455 44,500 Deferred income taxes 843 (19,675 )
Changes in assets and liabilities, excluding the impact of
disposition: Accounts receivable (32,443 ) (116,879 ) Prepaid taxes
(856 ) (2,241 ) Other assets (9,399 ) (5,606 ) Accounts payable and
accrued liabilities (6,210 ) (89,675 ) Student deposits 2,831
31,378 Deferred revenue (53,403 ) 18,443 Other liabilities
21,305 4,902
Net cash provided by operating
activities 484,147 434,864
Cash
flows provided by (used in) investing activities: Additions to
property and equipment (81,422 ) (68,032 ) Maturities of marketable
securities 10,000 - Increase in restricted cash and cash
equivalents (21,502 ) (74,847 ) Proceeds from disposition
6,250 -
Net cash used in investing
activities (86,674 ) (142,879 )
Cash flows
provided by (used in) financing activities: Payments on
borrowings (419,454 ) (423,850 ) Proceeds from borrowings 8,129
17,819 Issuance of Apollo Group Class A common stock 6,082 8,567
Apollo Group Class A common stock purchased for treasury (252,003 )
(201,111 ) Noncontrolling interest contributions 6,875 - Excess tax
benefits from share-based compensation 569 338
Net cash used in financing activities (649,802
) (598,237 ) Exchange rate effect on cash and cash
equivalents 903 (1,150 )
Net decrease in
cash and cash equivalents (251,426 ) (307,402 )
Cash and
cash equivalents, beginning of period 1,284,769
968,246
Cash and cash equivalents, end of
period $ 1,033,343 $ 660,844
Supplemental
disclosure of cash flow information Cash paid for income taxes,
net of refunds $ 222,442 $ 243,435 Cash paid for interest $ 5,590 $
3,583
Supplemental disclosure of non-cash investing and
financing activities Accrued purchases of property and
equipment $ 10,608 $ 6,741 Credits received for tenant improvements
$ 8,021 $ 8,756 Restricted stock units vested and released $ 1,602
$ 2,802
Apollo Group, Inc. and Subsidiaries
Reconciliation of GAAP financial information to non-GAAP
financial information (Unaudited)
Three Months Ended February 28,
Six Months Ended February 28,
2011 2010 2011
2010 (in thousands, except per share data) Net (loss) income
attributable to Apollo, as reported $ (64,038 ) $ 92,606 $ 171,375
$ 332,748 Income (loss) from discontinued operations, net of tax
2,575 (10,638 ) 1,947
(10,938 ) (Loss) income from continuing operations attributable to
Apollo (66,613 ) 103,244 169,428 343,686 Reconciling items:
Goodwill and other intangibles impairment, net of noncontrolling
interest (1) 188,258 - 188,258 - Estimated litigation loss (2)
1,574 44,500 2,455 44,500 Restructuring (3) -
- 3,846 - 189,832 44,500 194,559
44,500 Less: tax effects, net of noncontrolling interest (5,043 )
(17,628 ) (6,914 ) (17,628 ) Tax benefit from IRS settlement (4)
- - - (11,356 )
Income from continuing operations attributable to Apollo, adjusted
to exclude special items $ 118,176 $ 130,116 $
357,073 $ 359,202 Diluted income per share
from continuing operations attributable to Apollo, as reported $
(0.47 ) $ 0.67 $ 1.17 $ 2.21 Diluted
income per share from continuing operations attributable to Apollo,
adjusted to exclude special items $ 0.83 $ 0.84 $
2.47 $ 2.31 Diluted weighted average shares
outstanding (5) 142,677 155,168
144,658 155,621 (1) The $188.3 million
charge for the three and six months ended February 28, 2011
represents impairments of BPP’s goodwill and other intangible
assets, net of noncontrolling interest. We did not record a tax
benefit associated with the goodwill impairment because the
goodwill is not deductible for tax purposes. (2) The $1.6
million and $2.5 million charges for the three and six months ended
February 28, 2011, respectively, represent an estimated loss
related to a securities litigation matter (Policeman's Annuity and
Benefit Fund of Chicago). The $44.5 million charge for the three
and six months ended February 28, 2010 represents an estimated loss
associated with the same matter. (3) The $3.8 million charge
for the six months ended February 28, 2011 represents a charge
associated with a strategic reduction in force at University of
Phoenix during the first quarter of fiscal year 2011. (4)
The $11.4 million tax benefit during the six months ended February
28, 2010 resulted from our settlement of disputed tax issues with
the Internal Revenue Service during the first quarter of fiscal
year 2010. (5) Diluted weighted average shares outstanding
for the second quarter of fiscal year 2011 includes the dilutive
effect of share-based awards that are not reflected in the
comparable GAAP reported number due to their anti-dilutive effect
on the net loss from continuing operations attributable to Apollo.
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