APOL Apollo Education Grp., Inc.

Apollo Group, Inc. (NASDAQ: APOL) (“Apollo Group,” “Apollo” or the “Company”) today reported financial results for the three months and fiscal year ended August 31, 2011.

“We set out at the beginning of 2011 to implement leading-edge student protections, differentiate University of Phoenix, and expand our business,” said Apollo Group Co-Chief Executive Officer Chas Edelstein. “We are pleased with our progress in each of these areas, including enhancing our student-centric approach to admissions, launching University Orientation, investing in our learning platform, and advancing our plans to incorporate adaptive learning and connect education to careers.”

Apollo Group Co-Chief Executive Officer and Apollo Global Chairman Greg Cappelli added, “Through our focus on academic quality and innovation, we are aligning learning outcomes to student and employer needs and helping to bridge the workforce skills gap, one of the biggest issues facing our economy today. Our commitment is to support our students in achieving long-term success.”

Unaudited Fourth Quarter of Fiscal 2011 Results of Operations

Consolidated net revenue for the fourth quarter of fiscal 2011 totaled $1,122.1 million, which represents a 10.9% decrease from the fourth quarter of fiscal 2010, principally due to lower enrollments at University of Phoenix, partially offset by selective tuition price and other fee changes and improving rates of student retention. For the quarter, University of Phoenix Degreed Enrollment decreased 19.1% to 380,800 compared with the prior year fourth quarter, primarily due to decreases in New Degreed Enrollment in recent quarters, including a 33.5% decrease in New Degreed Enrollment in the fourth quarter of fiscal 2011 compared with the prior year period. The Company believes the decline in New Degreed Enrollment was primarily the result of the operational changes and initiatives it has implemented to more effectively support students and improve educational outcomes, as well as the broader competitive environment. The operational changes included the manner in which admissions personnel and other employees are evaluated and compensated, the full implementation of University Orientation, and the Company’s efforts to more effectively identify students who have a greater likelihood to succeed in University of Phoenix’s educational programs.

The Company reported income from continuing operations attributable to Apollo Group for the three months ended August 31, 2011, of $188.6 million, or $1.37 per share (137.3 million weighted average diluted shares outstanding), compared to income from continuing operations attributable to Apollo Group of $47.5 million, or $0.32 per share (148.3 million weighted average diluted shares outstanding) for the three months ended August 31, 2010. Results for the fourth quarters of fiscal 2011 and 2010 included a number of special items that are detailed below.

Results for the fourth quarter of fiscal 2011 included the following:

• Restructuring and other charges of $19.1 million associated with the Company’s real estate rationalization plan.
• Net credit of $16.5 million primarily attributable to an agreement in principle to settle the Policeman’s Annuity and Benefit Fund of Chicago securities class action lawsuit.
• Settlement agreement reached with the Arizona Department of Revenue regarding apportionment of income for Arizona corporate income tax purposes. Based on the settlement, the Company has foregone its refund claims of $51.5 million, and has or will pay a total of $59.8 million through fiscal 2011. The Company recorded appropriate adjustments to its deferred taxes and, as a result, realized a $43 million tax benefit.
• Tax benefit of $7.3 million associated with the closure of Meritus University.

Results for the fourth quarter of fiscal 2010 included the following:

• Goodwill and other intangible asset impairment charges of $175.9 million for the BPP subsidiary of Apollo Global ($150.5 million net of the portion attributable to noncontrolling interests). The Company did not record a tax benefit associated with the goodwill impairment, as it is not deductible for tax purposes.
• A $0.9 million charge representing an accrual for incremental post-judgment interest related to the Policeman’s Annuity and Benefit Fund of Chicago securities class action lawsuit.

Excluding the items noted above, income from continuing operations attributable to Apollo Group for the three months ended August 31, 2011, was $139.6 million, or $1.02 per share, compared to income from continuing operations attributable to Apollo Group of $193.9 million, or $1.31 per share for the three months ended August 31, 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 decreased by $6.8 million, or 1.5%, to $438.5 million for the three months ended August 31, 2011, compared to the three months ended August 31, 2010. The decrease was primarily due to a reduction in faculty costs associated with lower University of Phoenix and Apollo Global enrollment, partially offset by investment in initiatives to more effectively support students and improve their educational outcomes. These initiatives have resulted in increased compensation expense related to certain student advisory and infrastructure support functions.

Marketing expenses decreased by $8.2 million, or 4.6%, to $171.0 million for the three months ended August 31, 2011, compared to the three months ended August 31, 2010. The decrease was primarily a result of a reduction in internet spending, partially offset by investments in non-internet branding.

Admissions advisory expenses decreased by $17.2 million, or 14.7%, to $99.4 million for the three months ended August 31, 2011, compared to the three months ended August 31, 2010. The decrease was a result of lower admissions advisory headcount, partially offset by higher average employee compensation costs.

General and administrative (“G&A”) expenses increased by $12.4 million, or 14.3%, to $98.7 million for the three months ended August 31, 2011, compared to the three months ended August 31, 2010. The increase was primarily attributable to nonrecurring costs to support the formation and independence of Nexus, an educational policy and research organization.

The provision for uncollectible accounts receivable (“bad debt expense”) decreased by $34.4 million, or 46.5%, to $39.6 million for the three months ended August 31, 2011, compared to the three months ended August 31, 2010. The decrease was primarily attributable to reductions in gross accounts receivable as a result of decreases in University of Phoenix enrollment, a shift in the mix of students from Associates to Bachelors degree-level programs, and the full implementation of University Orientation, which has favorably impacted student retention rates. Improved collection rates at University of Phoenix, which were favorably impacted by ongoing business process improvements and an initiative to address the Company’s oldest receivables, also contributed to the decrease.

Depreciation and amortization increased by $2.7 million, or 6.9%, to $41.6 million for the three months ended August 31, 2011, compared to the three months ended August 31, 2010. The increase was primarily due to capital expenditures in fiscal years 2010 and 2011 related to information technology, network infrastructure 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 fourth quarter of fiscal 2011 versus the prior year period.

                      Q4 2011 Q4 2010 Revenues (in thousands) Degree Seeking Gross Revenues(1) $ 1,099,572 $ 1,238,022 Less: Discounts and other (63,486 ) (68,027 ) Degree Seeking Net Revenues(1) 1,036,086 1,169,995 Non-degree Seeking Revenue (2) 12,730 13,445 Other, net of discounts(3) 73,305   75,980   $ 1,122,121   $ 1,259,420     Revenue by Degree Type (in thousands)(1) Associates $ 320,985 $ 449,108 Bachelors 580,588 558,063 Masters 174,451 207,101 Doctoral 23,548 23,750 Less: Discounts and other (63,486 ) (68,027 ) $ 1,036,086   $ 1,169,995     Degreed Enrollment (rounded to hundreds)(4) Associates 136,300 200,800 Bachelors 183,100 193,600 Masters 54,000 68,700 Doctoral 7,400   7,700   380,800   470,800     Degree Seeking Gross Revenues per Degreed Enrollment(1), (4) Associates $ 2,355 $ 2,237 Bachelors 3,171 2,883 Masters 3,231 3,015 Doctoral 3,182 3,084 All degrees (after discounts) $ 2,721 $ 2,485   New Degreed Enrollment (rounded to hundreds)(5) Associates 24,200 42,200 Bachelors 27,200 36,200 Masters 9,000 12,700 Doctoral 800   900   61,200   92,000      

(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 and other.

(4)

Represents:

 

• students enrolled in a University of Phoenix degree program who attended a credit bearing 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 credit bearing 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.

 

2011 Fiscal Year Results of Operations

Consolidated net revenue for the fiscal year ended August 31, 2011, was $4.7 billion, a 3.9% decrease from fiscal year 2010. The decrease in consolidated net revenue was primarily attributable to a 9.2% decrease in University of Phoenix's average Degreed Enrollment in fiscal year 2011 compared to fiscal year 2010, principally due to a 40.3% decrease in aggregate New Degreed Enrollment for the four quarters of fiscal 2011, as compared to fiscal 2010. The decrease was partially offset by selective tuition price and other fee changes at University of Phoenix and improving rates of student retention.

The Company reported income from continuing operations attributable to Apollo Group of $569.9 million, or $4.02 per share (141.8 million weighted average diluted shares outstanding) for the fiscal year ended August 31, 2011, compared to $568.4 million, or $3.72 per share (152.9 million weighted average diluted shares outstanding) for the fiscal year ended August 31, 2010.

Results for the fiscal years 2011 and 2010 contained special items, which are detailed in the reconciliation of GAAP financial information to non-GAAP financial information tables of this press release.

Excluding these special items, income from continuing operations attributable to Apollo Group for the fiscal year ended August 31, 2011, was $700.2 million, or $4.94 per share, compared to income from continuing operations attributable to Apollo Group of $817.7 million, or $5.35 per share for the fiscal year ended August 31, 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 August 31, 2011, the Company’s cash and cash equivalents, excluding restricted cash, totaled $1,571.7 million, compared to $1,284.8 million as of August 31, 2010. The increase was primarily attributable to cash generated from operations, proceeds from the sale-leaseback of the Company’s principal office buildings in Phoenix, Arizona, and the return of funds associated with the release of the Company’s cash-collateralized letter of credit in the amount of approximately $126 million in connection with a previous program review of University of Phoenix by the U.S. Department of Education. The increase was partially offset by share repurchases and capital expenditures.

At August 31, 2011, accounts receivable decreased to $215.6 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 23 days at August 31, 2011, compared to 30 days at August 31, 2010. The decrease in DSO versus a year ago was primarily attributable to reductions in gross accounts receivable as a result of decreases in University of Phoenix enrollment, a shift in the mix of students from Associates to higher degree-level programs, and improvements in student retention rates, partially due to the full implementation of University Orientation. Improved collection rates at University of Phoenix, which were favorably impacted by ongoing process improvements, also contributed to the decrease.

Total debt outstanding (including short-term borrowings and the current portion of long-term debt) increased by $14.6 million to $599.0 million at August 31, 2011, from $584.4 million at August 31, 2010. Subsequent to August 31, 2011, the Company repaid $390.1 million of the amount drawn on its revolving credit facility.

Share Repurchases

The Company repurchased approximately 7.7 million and 18.3 million shares of its Class A common stock at a weighted average purchase price of $46.16 and $42.30 per share for a total expenditure of $357.0 million and $775.8 million during the three months and year ended August 31, 2011, respectively. As of August 31, 2011, approximately $0.7 million remained available under the Company's current share repurchase authorization. Subsequent to quarter end, the Board of Directors increased authorization for management to repurchase Class A common shares to the current total amount of $500 million.

Business Outlook

The Company offers the following commentary regarding the outlook for fiscal 2012 based on the business trends observed during the fourth quarter of fiscal 2011, as well as management’s current expectations of future trends. The outlook reflects the acquisition of Carnegie Learning, Inc.

• Consolidated net revenue of $4.1-$4.3 billion; and
• Operating income, excluding the impact of special items, of $655-$780 million.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 8:00 a.m. Eastern, 5:00 a.m. Phoenix time, today, Wednesday, October 19, 2011. The call may be accessed by dialing (877) 292-6888 (domestic) or (973) 200-3381 (international) and entering the conference ID number 12862966. 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 (855) 859-2056 (domestic) or (404) 537-3406 (international) and entering the conference ID number 12862966 until October 28, 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 or implied by 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 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, (v) changes in the Company's business necessary to remain in compliance with existing, new, or amended 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 the 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, limiting their usefulness as a comparative measure across companies.

              Apollo Group, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)     As of August 31, ($ in thousands) 2011           2010 ASSETS: Current assets Cash and cash equivalents $ 1,571,664 $ 1,284,769 Restricted cash and cash equivalents 379,407 444,132 Accounts receivable, net 215,567 264,377 Deferred tax assets, current portion 124,137 166,549 Prepaid taxes 35,629 39,409 Other current assets 44,382 38,031 Assets held for sale from discontinued operations —   15,945   Total current assets 2,370,786 2,253,212 Property and equipment, net 553,027 619,537 Restricted cash equivalents for collateralization of letter of credit — 126,615 Marketable securities 5,946 15,174 Goodwill 133,297 322,159 Intangible assets, net 121,117 150,593 Deferred tax assets, less current portion 70,949 99,071 Other assets 14,584   15,090   Total assets $ 3,269,706   $ 3,601,451     LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities Short-term borrowings and current portion of long-term debt $ 419,318 $ 416,361 Accounts payable 69,551 90,830 Accrued liabilities 398,806 375,461 Student deposits 424,045 493,245 Deferred revenue 293,436 359,724 Other current liabilities 50,131 53,416 Liabilities held for sale from discontinued operations —   4,474   Total current liabilities 1,655,287 1,793,511 Long-term debt 179,691 168,039 Deferred tax liabilities 26,400 38,875 Other long-term liabilities 164,339   212,286   Total liabilities 2,025,717   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 68,724 46,865 Apollo Group Class A treasury stock, at cost (3,125,175 ) (2,407,788 ) Retained earnings 4,320,472 3,748,045 Accumulated other comprehensive loss (23,761 ) (31,176 ) Total Apollo shareholders' equity 1,240,364   1,356,050   Noncontrolling interests 3,625   32,690   Total equity 1,243,989   1,388,740   Total liabilities and shareholders' equity $ 3,269,706   $ 3,601,451         Apollo Group, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)             Three Months Ended August 31,           % of Revenue 2011       2010 2011       2010 (in thousands, except per share data) Net revenue $ 1,122,121   $ 1,259,420   100.0 % 100.0 % Costs and expenses: Instructional and student advisory 438,486 445,301 39.1 % 35.4 % Marketing 170,970 179,150 15.2 % 14.2 % Admissions advisory 99,428 116,591 8.9 % 9.3 % General and administrative 98,676 86,295 8.8 % 6.8 % Provision for uncollectible accounts receivable 39,631 74,035 3.5 % 5.9 % Depreciation and amortization 41,637 38,939 3.7 % 3.1 % Goodwill and other intangibles impairment — 175,858 — % 14.0 % Restructuring and other charges 19,067 — 1.7 % — % Litigation (credit) charge, net (16,454 ) 882   (1.5 )% — % Total costs and expenses 891,441   1,117,051   79.4 % 88.7 % Operating income 230,680 142,369 20.6 % 11.3 % Interest income 587 636 — % 0.1 % Interest expense (2,724 ) (3,784 ) (0.2 )% (0.3 )% Other, net 15   1,376   — % 0.1 % Income from continuing operations before income taxes 228,558 140,597 20.4 % 11.2 % Provision for income taxes (44,622 ) (122,628 ) (4.0 )% (9.8 )% Income from continuing operations 183,936 17,969 16.4 % 1.4 % Loss from discontinued operations, net of tax —   (6,570 ) — % (0.5 )% Net income 183,936 11,399 16.4 % 0.9 % Net loss attributable to noncontrolling interests 4,676   29,572   0.4 % 2.4 % Net income attributable to Apollo $ 188,612   $ 40,971   16.8 % 3.3 %   Earnings (loss) per share - Basic: Continuing operations attributable to Apollo $ 1.38 $ 0.32 Discontinued operations attributable to Apollo —   (0.04 ) Basic income per share attributable to Apollo $ 1.38   $ 0.28     Earnings (loss) per share - Diluted: Continuing operations attributable to Apollo $ 1.37 $ 0.32 Discontinued operations attributable to Apollo —   (0.04 ) Diluted income per share attributable to Apollo $ 1.37   $ 0.28     Basic weighted average shares outstanding 136,594   147,829   Diluted weighted average shares outstanding 137,295   148,334         Apollo Group, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)             Year Ended August 31,           % of Revenue 2011       2010 2011       2010 (in thousands, except per share data)     Net revenue $ 4,733,022   $ 4,925,819   100.0 % 100.0 % Costs and expenses: Instructional and student advisory 1,774,087 1,733,134 37.5 % 35.2 % Marketing 655,362 623,743 13.9 % 12.7 % Admissions advisory 415,386 466,358 8.8 % 9.5 % General and administrative 355,751 301,116 7.5 % 6.1 % Provision for uncollectible accounts receivable 181,297 282,628 3.8 % 5.7 % Depreciation and amortization 159,006 145,564 3.4 % 3.0 % Goodwill and other intangibles impairment 219,927 184,570 4.6 % 3.7 % Restructuring and other charges 22,913 — 0.5 % — % Litigation (credit) charge, net (11,951 ) 177,982   (0.3 )% 3.6 % Total costs and expenses 3,771,778   3,915,095   79.7 % 79.5 % Operating income 961,244 1,010,724 20.3 % 20.5 % Interest income 3,222 2,920 0.1 % 0.1 % Interest expense (8,931 ) (11,891 ) (0.2 )% (0.3 )% Other, net (1,588 ) (685 ) — % — % Income from continuing operations before income taxes 953,947 1,001,068 20.2 % 20.3 % Provision for income taxes (420,638 ) (464,063 ) (8.9 )% (9.4 )% Income from continuing operations 533,309 537,005 11.3 % 10.9 % Income (loss) from discontinued operations, net of tax 2,487   (15,424 ) — % (0.3 )% Net income 535,796 521,581 11.3 % 10.6 % Net loss attributable to noncontrolling interests 36,631   31,421   0.8 % 0.6 % Net income attributable to Apollo $ 572,427   $ 553,002   12.1 % 11.2 %   Earnings (loss) per share - Basic: Continuing operations attributable to Apollo $ 4.03 $ 3.74 Discontinued operations attributable to Apollo 0.02   (0.10 ) Basic income per share attributable to Apollo $ 4.05   $ 3.64     Earnings (loss) per share - Diluted: Continuing operations attributable to Apollo $ 4.02 $ 3.72 Discontinued operations attributable to Apollo 0.02   (0.10 ) Diluted income per share attributable to Apollo $ 4.04   $ 3.62     Basic weighted average shares outstanding 141,269   151,955   Diluted weighted average shares outstanding 141,750   152,906         Apollo Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows From Continuing and Discontinued Operations (Unaudited)                   Year Ended August 31, 2011           2010 ($ in thousands) Cash flows provided by (used in) operating activities: Net income $ 535,796 $ 521,581 Adjustments to reconcile net income to net cash provided by operating activities: Share-based compensation 70,040 64,305 Excess tax benefits from share-based compensation (4,014 ) (6,648 ) Depreciation and amortization 159,006 147,035 Amortization of lease incentives (18,822 ) (13,358 ) Impairment on discontinued operations — 9,400 Goodwill and other intangibles impairment 219,927 184,570 Amortization of deferred gains on sale-leasebacks (2,221 ) (1,705 ) Non-cash foreign currency loss, net 1,662 643 Provision for uncollectible accounts receivable 181,297 282,628 Litigation (credit) charge, net (11,951 ) 177,982 Restructuring and other charges 22,913 — Deferred income taxes 55,823 (125,399 ) Changes in assets and liabilities, excluding the impact of acquisitions and business disposition: Change in restricted cash and cash equivalents 64,725 (11,828 ) Accounts receivable (121,120 ) (265,996 ) Prepaid taxes (25,241 ) 10,421 Other assets (9,900 ) 2,183 Accounts payable and accrued liabilities 4,851 (44,653 ) Student deposits (70,120 ) 3,445 Deferred revenue (79,488 ) 32,887 Other liabilities (76,041 ) 65,749   Net cash provided by operating activities 897,122   1,033,242   Cash flows provided by (used in) investing activities: Additions to property and equipment (162,573 ) (168,177 ) Acquisitions, net of cash acquired — (5,497 ) Maturities of marketable securities 10,000 5,000 Proceeds from sale-leaseback, net 169,018 — Proceeds from business disposition 21,251 — Collateralization of letter of credit 126,615   (126,615 ) Net cash provided by (used in) investing activities 164,311   (295,289 ) Cash flows provided by (used in) financing activities: Payments on borrowings (437,925 ) (477,568 ) Proceeds from borrowings 410,051 475,454 Apollo Group Class A common stock purchased for treasury (783,168 ) (446,398 ) Issuance of Apollo Group Class A common stock 24,903 19,671 Noncontrolling interest contributions 6,875 2,460 Excess tax benefits from share-based compensation 4,014   6,648   Net cash used in financing activities (775,250 ) (419,733 ) Exchange rate effect on cash and cash equivalents 712   (1,697 ) Net increase in cash and cash equivalents 286,895 316,523 Cash and cash equivalents, beginning of year 1,284,769   968,246   Cash and cash equivalents, end of year $ 1,571,664   $ 1,284,769   Supplemental disclosure of cash flow and non-cash information Cash paid for income taxes, net of refunds $ 464,701 $ 514,532 Cash paid for interest $ 10,972 $ 7,837 Capital lease additions $ 31,818 $ 2,372 Credits received for tenant improvements $ 25,538 $ 17,372 Restricted stock units vested and released $ 21,470 $ 19,868       Apollo Group, Inc. and Subsidiaries Reconciliation of GAAP financial information to non-GAAP financial information (Unaudited)        

Three Months EndedAugust 31,

         

Year EndedAugust 31,

2011       2010 2011       2010 (in thousands, except per share data) Net income attributable to Apollo, as reported $ 188,612 $ 40,971 $ 572,427   $ 553,002 (Loss) income from discontinued operations, net of tax(1) —   (6,570 ) 2,487   (15,424 ) Income from continuing operations attributable to Apollo 188,612 47,541 569,940 568,426 Reconciling items: Goodwill and other intangibles impairment, net of noncontrolling interest(2) — 150,535 188,258 157,992 Restructuring and other charges(3) 19,067 — 22,913 — Litigation (credit) charge, net(4) (16,454 ) 882   (11,951 ) 177,982   2,613 151,417 199,220 335,974 Less: tax effects, net of noncontrolling interest (1,022 ) (5,035 ) (8,737 ) (75,363 ) Tax benefit from sales apportionment resolution(5) (43,319 ) — (43,319 ) — Tax benefit from Meritus University closure(6) (7,306 ) — (7,306 ) — Tax benefit from IRS settlement(7) —   —   (9,646 ) (11,356 ) Income from continuing operations attributable to Apollo, adjusted to exclude special items $ 139,578   $ 193,923   $ 700,152   $ 817,681     Diluted income per share from continuing operations attributable to Apollo, as reported $ 1.37   $ 0.32   $ 4.02   $ 3.72     Diluted income per share from continuing operations attributable to Apollo, adjusted to exclude special items $ 1.02   $ 1.31   $ 4.94   $ 5.35     Diluted weighted average shares outstanding 137,295   148,334   141,750   152,906    

(1)

 

The loss from discontinued operations, net of tax for the year ended August 31, 2010 includes a $9.4 million goodwill impairment charge. The Company did not record an associated tax benefit because the goodwill is not deductible for tax purposes.

(2)

The charges for the year ended August 31, 2011 and the three months ended August 31, 2010 represent impairments of BPP's goodwill and other intangibles, net of noncontrolling interests. The charge for the year ended August 31, 2010 also includes an impairment of ULA's goodwill recorded in the third quarter of fiscal year 2010, net of noncontrolling interest. The Company did not record a tax benefit associated with the goodwill impairments because the goodwill is not deductible for tax purposes.

(3)

Restructuring and other charges for the three months ended August 31, 2011 represents charges associated with a real estate rationalization plan. The charges for the year ended August 31, 2011 also includes costs associated with a strategic reduction in force at University of Phoenix during the first quarter of fiscal year 2011.

(4)

The $16.5 million and $12.0 million credits for the three and twelve months ended August 31, 2011 are principally the result of our agreement in principle to settle the Policeman's Annuity and Benefit Fund of Chicago securities class action lawsuit. This was partially offset in both periods by a charge recorded in the fourth quarter of fiscal year 2011 associated with another legal matter. The charges for the three and twelve months ended August 31, 2010 represent estimated losses associated with the Policeman's Annuity and Benefit Fund of Chicago securities class action lawsuit.

(5)

The $43.3 million tax benefit for the three months and year ended August 31, 2011 resulted from our resolution with the Arizona Department of Revenue regarding the apportionment of income for Arizona corporate income tax purposes.

(6)

The $7.3 million tax benefit for the quarter and fiscal year ended August 31, 2011 represents a benefit associated with the closure of Meritus University.

(7)

The $9.6 million tax benefit for the year ended August 31, 2011 resulted from resolution with the Internal Revenue Service regarding the deductibility of payments made to settle a lawsuit in fiscal year 2010. The $11.4 million tax benefit during the year ended August 31, 2010 resulted from a settlement of disputed tax issues with the Internal Revenue Service during the first quarter of fiscal year 2010.