UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending: May 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number : 0-25232
APOLLO GROUP, INC.
------------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0419443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040
(Address of principal executive offices, including zip code)
(602) 966-5394
(Registrant's telephone number, including area code)
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.
[X] Yes [ ] No
SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK
AS OF June 23, 1995
Class A Common Stock, no par 14,116,014 Shares
Class B Common Stock, no par 575,769 Shares
<PAGE>
APOLLO GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE
PART I -- FINANCIAL INFORMATION ----
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . 8
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . .14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . .14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . .14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . .14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements
<TABLE>
Apollo Group, Inc. and Subsidiaries
Consolidated Statement of Operations
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
------------------- ------------------
1995 1994 1995 1994
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 45,502 $ 34,278 $117,996 $ 89,047
-------- -------- -------- --------
Costs and expenses:
Instruction costs and services 26,188 21,163 73,830 57,738
Selling and promotional 5,518 4,311 15,610 12,891
General and administrative 4,856 4,921 13,665 13,015
-------- -------- -------- --------
Total costs and expenses 36,562 30,395 103,105 83,644
-------- -------- -------- --------
Income before income taxes 8,940 3,883 14,891 5,403
Less provision for income taxes 3,892 1,572 6,449 2,193
-------- -------- -------- --------
Net income $ 5,048 $ 2,311 $ 8,442 $ 3,210
======== ======== ======== ========
Income per common and common
equivalent share $ .34 $ .23 $ .64 $ .32
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding 15,063 10,188 13,292 10,188
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE> 1
<TABLE>
Apollo Group, Inc. and Subsidiaries
Consolidated Balance Sheet
(In thousands)
<CAPTION>
May 31, August 31,
1995 1994
--------- ----------
(Unaudited)
<S> <C> <C>
Assets:
Current assets --
Cash and cash equivalents $ 46,349 $ 4,722
Restricted cash 12,214 8,094
Receivables, net 14,980 14,236
Inventory 3,540 2,656
Deferred tax asset, net 2,445 1,321
Prepaids and other current assets 890 864
-------- --------
Total current assets 80,418 31,893
Property and equipment, net 9,744 6,799
Land held for sale 1,310 1,414
Educational program production costs, net 1,747 1,914
Deferred tax asset, net 306
Deposits and other assets 807 1,312
-------- --------
Total assets $ 94,026 $ 43,638
======== ========
Liabilities and Shareholders' Equity:
Current liabilities --
Current portion of long-term liabilities $ 151 $ 183
Accounts payable 2,839 5,325
Other accrued liabilities 10,250 6,840
Income taxes payable 1,533 310
Student deposits and deferred tuition 26,832 22,232
-------- --------
Total current liabilities 41,605 34,890
-------- --------
Long-term liabilities, less current portion 1,121 1,347
-------- --------
Deferred tax liability, net 396 --
-------- --------
Commitments and contingencies -- --
-------- --------
Shareholders' equity --
Preferred stock, no par value, 1,000,000 shares authorized, none issued -- --
Class A nonvoting common stock, no par value, 65,000,000 shares authorized;
14,116,014 issued and outstanding in 1995 and 9,404,230 in 1994 18 9
Class B voting common stock, no par value, 3,000,000 shares authorized;
575,769 issued and outstanding 1 1
Additional paid-in capital 37,034 1,982
Retained earnings 13,851 5,409
-------- --------
Total shareholders' equity 50,904 7,401
-------- --------
Total liabilities and shareholders' equity $ 94,026 $ 43,638
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE> 2
<TABLE>
Apollo Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(In thousands)
<CAPTION>
Nine Months Ended
May 31,
-----------------------
1995 1994
--------- ---------
(Unaudited)
<S> <C> <C>
Net cash received from (used for)
operating activities:
Cash received from customers $114,010 $ 81,932
Cash paid to employees and suppliers (96,708) (78,434)
Interest received 1,410 148
Interest paid (76) (51)
Net income taxes paid (5,633) (3,630)
--------- ---------
Net cash received from (used for) operating activities 13,003 (35)
--------- ---------
Net cash received from (used for) investing activities:
Purchase of property and equipment (5,521) (2,744)
Additions to educational program production costs (734) (892)
Cash received from sale of land 140
--------- ---------
Cash used for investing activities (6,255) (3,496)
--------- ---------
Cash received from (used for) financing activities:
Borrowings on line of credit 11,190
Repayments of borrowings on line of credit (11,190)
Proceeds from sale-leaseback of assets 1,500
Principal payments on long-term debt (181) (549)
Net proceeds from issuance of
common stock 35,060
--------- ---------
Net cash received from financing activities 34,879 951
--------- ---------
Net increase (decrease) in cash and cash equivalents 41,627 (2,580)
Cash and cash equivalents, beginning of period 4,722 2,843
--------- ---------
Cash and cash equivalents, end of period $ 46,349 $ 263
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE> 3
Apollo Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. The interim consolidated financial statements include the accounts of
Apollo Group, Inc. ("Apollo" or the "Company") and its wholly owned
subsidiaries, which include The University of Phoenix, Inc. ("UOP") and the
Institute for Professional Development ("IPD"). This financial information
reflects all adjustments, consisting only of normal recurring adjustments,
that are, in the opinion of management, necessary for a fair statement of the
results for the interim periods presented. Unless otherwise noted,
references to 1995 and 1994 refer to the periods ended May 31, 1995 and 1994,
respectively.
2. The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for
the fiscal year ended August 31, 1994 included in the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission.
The 1995 interim financial information was reviewed by Price Waterhouse LLP
(see "Review by Independent Accountants"). The 1994 interim financial
information was not reviewed by the Company's independent accountants in
accordance with standards established for such reviews.
3. The results of operations for the three months and nine months ended May
31, 1995 and 1994 are not necessarily indicative of the results to be
expected for the entire fiscal year or any future period.
4. On March 24, 1995, the Board of Directors of the Company authorized a
4-for-3 stock split of its common stock to be effected in the form of a stock
dividend which was distributed on April 28, 1995 to shareholders of record at
the close of business on April 7, 1995. The holders of the Company's common
stock received a stock dividend at the rate of 1/3 shares of Class A Common
Stock for each share of Class A or Class B Common Stock owned. All common
stock, common stock prices and earnings per share figures for periods prior
to the stock split have been restated to show the effect of the stock split.
5. On December 6, 1994, the Company completed an initial public offering of
4,266,662 shares of the Company's Class A Common Stock at a price of $8.25
per share. An additional 420,933 shares were sold on January 5, 1995
pursuant to the underwriters' over-allotment option. The Company received
total net proceeds, after deduction of expenses payable by the Company and
underwriting discounts, of approximately $35.0 million. As of May 31, 1995,
approximately $7.0 million of the proceeds have been used for normal
recurring capital expenditures and general corporate purposes. The remaining
proceeds have been invested in short-term (maturities of 90 days or less)
securities backed by the United States government or its agencies, investment
grade commercial paper and similar types of securities.
6. On December 6, 1994, the Company granted options to executive officers,
directors and certain key employees to purchase 268,000 shares of Class A
Common Stock, including 40,000 shares granted under the terms of the Apollo
Group, Inc. Director Stock Plan, at an exercise price of $8.25 per share.
These options expire in December 2004.
7. On December 19, 1994, the Company renewed its $4,000,000 line of credit,
which bears interest at prime. There are no amounts borrowed under this line
of credit at May 31, 1995. The line of credit is renewable annually and is
payable upon its termination in February 1996.
<PAGE> 4
8. On January 5, 1995, the Company signed a non-binding letter of intent to
acquire certain assets of Western International University (WIU) of Phoenix,
Arizona. In fiscal 1994, WIU had revenues of approximately $5.0 million.
Subject to further review and due diligence, the Company currently expects to
complete the acquisition within the fourth fiscal quarter of 1995.
9. Income per common and common equivalent share is computed using the
weighted average number of Class A and Class B common and common equivalent
shares outstanding during the period. Common equivalent shares consist of
stock options issued under various benefit plans. The treasury stock method
was used to measure the dilutive effect and common equivalent shares were
determined using the average market price. Fully diluted earnings per share
have not been presented, as the impact is not material.
<PAGE> 5
Review by Independent Accountants
The financial information as of May 31, 1995, and for the three month
and nine month periods then ended, included in Part I pursuant to Rule 10-01
of Regulation S-X, has been reviewed by Price Waterhouse LLP ("Price
Waterhouse"), the Company's independent accountants, in accordance with
standards established by the American Institute of Certified Public
Accountants. Price Waterhouse's report is included in this quarterly report.
Price Waterhouse does not carry out any significant or additional audit
tests beyond those that would have been necessary if its report had not been
included in this quarterly report. Accordingly, such report is not a
"report" or "part of a registration statement" within the meaning of Sections
7 and 11 of the Securities Act of 1933 and the liability provisions of
Section 11 of such Act do not apply.
<PAGE> 6
Report of Independent Accountants
To the Board of Directors and
Shareholders of Apollo Group, Inc.
We have reviewed the accompanying consolidated balance sheet of Apollo Group,
Inc. and its subsidiaries as of May 31, 1995, and the related consolidated
statement of operations for the three month and nine month periods ended
May 31, 1995 and the consolidated statement of cash flows for the nine month
period ended May 31, 1995. These financial statements are the responsibility
of Apollo Group, Inc.'s management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of August 31, 1994, and the
related consolidated statements of operations, of changes in shareholders'
equity and of cash flows for the year then ended (not presented herein), and
in our report dated October 4, 1994 we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet information as of August
31, 1994 is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
/s/ PRICE WATERHOUSE LLP
June 26, 1995
<PAGE> 7
PART I -- FINANCIAL INFORMATION
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto for
the fiscal year ended August 31, 1994 included in the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission,
as well as in conjunction with the consolidated financial statements for the
three month and nine month periods ended May 31, 1995 included in Item 1.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth consolidated statement of operations data
of the Company expressed as a percentage of net revenues for the periods
indicated:
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
------------------- ------------------
1995 1994 1995 1994
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
------- ------- ------- -------
Costs and expenses:
Instruction costs and services 57.6 61.7 62.6 64.8
Selling and promotional 12.1 12.6 13.2 14.5
General and administrative 10.7 14.4 11.6 14.6
------- ------- ------- -------
Total costs and expenses 80.4 88.7 87.4 93.9
------- ------- ------- -------
Income before income taxes 19.6 11.3 12.6 6.1
Less provision for income taxes 8.6 4.6 5.4 2.5
------- ------- ------- -------
Net income 11.0% 6.7% 7.2% 3.6%
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED MAY 31, 1995 (THIRD QUARTER OF 1995) COMPARED WITH
THE THREE MONTHS ENDED MAY 31, 1994 (THIRD QUARTER OF 1994)
Net revenues increased by 32.7% to $45.5 million in 1995 from $34.3
million in 1994 due primarily to a 24.7% increase in average student
enrollments from 1994 to 1995 and tuition price increases averaging six to
seven percent, depending on the geographic area and program. All UOP
campuses, which include their respective learning centers, and substantially
all of the IPD contract sites had increases in net revenues and average
student enrollments from 1994 to 1995. Average student enrollments increased
to 35,518 in 1995 from 28,486 in 1994. Ending student enrollments at May 31,
1995 and 1994 were 36,136 and 28,111, respectively.
<PAGE> 8
Instruction costs and services increased by 23.7% to $26.2 million in
1995 from $21.2 million in 1994 due primarily to the direct costs necessary
to support the increase in average student enrollments. The direct costs
consist primarily of faculty compensation, classroom lease expenses, and
related staff salaries at each respective location. These costs as a
percentage of net revenues decreased to 57.6% in 1995 from 61.7% in 1994 due
to greater net revenues being spread over the fixed costs related to
centralized student services.
Selling and promotional expenses increased by 28.0% to $5.5 million in
1995 from $4.3 million in 1994 due primarily to increased marketing and
advertising at UOP campuses and IPD contract sites. These expenses as a
percentage of net revenues decreased to 12.1% in 1995 from 12.6% in 1994 due
to the Company's ability to increase enrollments and open new learning
centers in existing markets with a proportionately lower increase in selling
and promotional expenses. As the Company expands into new markets, it may
not be able to leverage its existing selling and promotional expenses to the
same extent.
General and administrative expenses remained approximately the same at
$4.9 million in 1994 and 1995. General and administrative expenses increased
by $1.9 million in 1995 due to costs required to support the increased number
of campuses, learning centers and IPD contract sites and increases in
administrative salaries; however, this increase was offset by $1.9 million of
nonrecurring compensation expense in 1994 related to the issuance of stock
options. General and administrative expenses as a percentage of net revenues
decreased to 10.7% in 1995 from 14.4% in 1994 due primarily to the
nonrecurring compensation expense recorded in 1994 and larger net revenues
being spread over the fixed costs related to various centralized functions
such as information services, corporate accounting and human resources.
Costs related to the startup of new UOP and IPD campuses and learning
centers are expensed as incurred and totaled approximately $201,000 in 1995
and $243,000 in 1994. Interest income, which is included in net revenues,
increased to $769,000 in 1995 from $51,000 in 1994 due primarily to increased
cash generated from the Company's initial public offering of its Class A
Common Stock. Interest expense, which is allocated among all categories of
costs and expenses, was less than $50,000 in both 1995 and 1994.
The Company's effective tax rate increased to 43.5% in 1995 from 40.5%
in 1994. This increase is due primarily to an increase in the federal tax
rate from 34% to 35% as a result of the improved earnings and an increase in
the relative impact of expenses that are nondeductible for tax purposes.
Net income increased to $5.0 million in 1995 from $2.3 million in 1994
due to increased enrollments, increased tuition rates, improved utilization
of fixed instructional and administrative costs, $1.9 million of nonrecurring
compensation expense in the third quarter of 1994 related to the issuance of
stock options, improved utilization of selling and promotional expenses in
existing markets and increased interest income resulting from the investment
of proceeds from the Company's initial public offering. Results for the
quarter are not necessarily indicative of the results to be expected in the
future due to the factors described above and due to seasonal business trends
(see "Seasonality").
<PAGE> 9
NINE MONTHS ENDED MAY 31, 1995 COMPARED WITH THE NINE MONTHS ENDED MAY 31,
1994.
Net revenues increased by 32.5% to $118.0 million in 1995 from $89.0
million in 1994 due primarily to a 24.1% increase in average student
enrollments from 1994 to 1995 and tuition price increases averaging six to
seven percent, depending on the geographic area and program. All UOP
campuses, which include their respective learning centers, and substantially
all of the IPD contract sites had increases in net revenues and average
student enrollments from 1994 to 1995. Average student enrollments during
the nine month period increased to 33,589 in 1995 from 27,074 in 1994.
Instruction costs and services increased by 27.9% to $73.8 million in
1995 from $57.7 million in 1994 due primarily to the direct costs necessary
to support the increase in average student enrollments. These costs as a
percentage of net revenues decreased to 62.6% in 1995 from 64.8% in 1994 due
to greater net revenues being spread over the fixed costs related to
centralized student services.
Selling and promotional expenses increased by 21.1% to $15.6 million in
1995 from $12.9 million in 1994 due primarily to increased marketing and
advertising at UOP campuses and IPD contract sites. These expenses as a
percentage of net revenues decreased to 13.2% in 1995 from 14.5% in 1994 due
to the Company's ability to increase enrollments and open new learning
centers in existing markets with a proportionately lower increase in selling
and promotional expenses. As the Company expands into new markets, it may
not be able to leverage its existing selling and promotional expenses to the
same extent.
General and administrative expenses increased by 5.0% to $13.7 million
in 1995 from $13.0 million in 1994 due primarily to increased costs required
to support the increased number of campuses, learning centers and IPD
contract sites and increases in administrative salaries. This increase is
offset in part by $1.9 million in nonrecurring compensation expense in the
third quarter of 1994 related to the issuance of stock options. General and
administrative expenses as a percentage of net revenues decreased to 11.6% in
1995 from 14.6% in 1994 due to larger net revenues being spread over the
fixed costs related to various centralized functions and the nonrecurring
compensation expense recorded in the third quarter of 1994.
Costs related to the startup of new UOP and IPD campuses and learning
centers are expensed as incurred and totaled approximately $755,000 in 1995
and $635,000 in 1994. Interest income increased to $1.6 million in 1995 from
$148,000 in 1994 due primarily to increased cash generated from the Company's
initial public offering. Interest expense was less than $100,000 in both
1995 and 1994.
The Company's effective tax rate increased to 43.3% in 1995 from 40.6%
in 1994. This increase is due primarily to an increase in the federal tax
rate from 34% to 35% as a result of the improved earnings, an increase in the
relative impact of expenses that are nondeductible for tax purposes and a
reduction in state tax deductions resulting from final adjustments upon
filing of tax returns.
<PAGE> 10
Net income increased to $8.4 million in 1995 from $3.2 million in 1994
due to increased enrollments, increased tuition rates, improved utilization
of fixed instructional and administrative costs, $1.9 million of nonrecurring
compensation expense related to the issuance of stock options in the third
quarter of 1994, improved utilization of selling and promotional expenses in
existing markets and increased interest income resulting from the investment
of proceeds from the Company's initial public offering.
SEASONALITY
The Company experiences seasonality in its results of operations
primarily as a result of changes in the level of student enrollments. While
the Company enrolls students throughout the year, second quarter (December to
February) average enrollments and related revenues generally are lower than
other quarters due to the holiday breaks in December and January. Second
quarter costs and expenses historically increase as a percentage of net
revenues as a result of certain fixed costs not significantly affected by the
seasonal second quarter declines in net revenues.
The Company experiences a significant seasonal increase in new
enrollments in August of each year when most other colleges and universities
begin their fall semesters. As a result, net revenues in the fourth quarter
(June to August) are generally higher than other quarters. In addition,
fourth quarter revenues are supplemented by a significant increase in UOP
continuing professional education students enrolled each summer.
Instructional costs and services and selling and promotional expenses
historically increase as a percentage of net revenues in the fourth quarter
due to increased costs in preparation for the August peak enrollments. These
increased costs result in accounts payable levels being higher in August than
any other month in the year. The Company anticipates that these seasonal
trends will continue in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $38.8 million at May 31, 1995 as
compared to a working capital deficit of $3.0 million at August 31, 1994.
The increase in working capital is due primarily to the increase in cash and
cash equivalents related to the Company's initial public offering in December
1994. At May 31, 1995, the Company had no outstanding borrowings on its $4.0
million line of credit, which bears interest at prime. The line of credit is
renewable annually and is payable upon its termination in February 1996.
On December 6, 1994, the Company completed an initial public offering of
its Class A Common Stock. The Company received total net proceeds, after
deduction of expenses payable by the Company and underwriting discounts, of
approximately $35.0 million. As of May 31, 1995, approximately $7.0 million
of the proceeds have been used for normal recurring capital expenditures,
startup costs for new locations and general corporate purposes. The
remaining proceeds have been invested in short-term (maturities of 90 days or
less) securities backed by the United States government or its agencies,
investment grade commercial paper and similar types of securities.
<PAGE> 11
Net cash flow received from operating activities increased by $13.0
million for the nine months ended May 31, 1995 from the same period in 1994
due primarily to the $5.2 million increase in net income from 1994 to 1995,
improved collections of accounts receivable and the timing of various tax
payments and payments to suppliers. Capital expenditures,including additions
to educational program production costs, increased to $6.3 million for the
nine months ended May 31, 1995 from $3.6 million for the same period in 1994
primarily to support the increase in student enrollments and number
of locations. Total purchases of property and equipment for the year
ended August 31, 1995 are expected to total approximately $8.0 million as
compared to $4.7 million in the prior year. Additions to educational program
production costs are not expected to exceed $1.5 million for the year
ended August 31, 1995 as compared to $1.4 million in the prior year. In
addition, non-capital startup costs related to new locations are not expected
to exceed $1.5 million for the year ended August 31, 1995 as compared to
approximately $1.0 million in the prior year. Startup costs for 1996 are
expected to increase to $2.5 to $3.0 million due to planned expansion into
new geographic markets.
FEDERAL FINANCIAL AID PROGRAMS
The United States Department of Education ("DOE") has issued new rules
and regulations, dated November 29, 1994, which amend certain provisions of
the Federal Family Education Loan Program and other Title IV programs
contained in the Higher Education Act of 1965 and the regulations promulgated
thereunder (the "Regulations"). The new rules and regulations are effective
July 1, 1995. Two of the more important provisions are:
"FIVE-DAY RULE" REPLACED WITH "12-HOUR RULE"
Currently, the Regulations place limits on the amount of Title
IV Program funds that a student is eligible to receive in any one academic
year (as defined by the DOE). The regulations also specify that, for
undergraduate programs, an academic year must consist of at least 30 weeks of
instruction or a minimum of 24 credit hours. UOP's average academic year is
required to be at least 40 calendar weeks in length so that it meets the
24-credit hour minimum. Effective July 1, 1994, the Regulations defined an
equivalent "week of instruction" as five days of regularly scheduled
instruction (the "Five-Day Rule"). UOP received an indication that the DOE
considers UOP's week of instruction to include only two days of regularly
scheduled instruction, which would have required UOP either to (a) increase
the length of its academic year to 75 calendar weeks, or (b) change the
method by which it schedules the courses in its programs to a semester,
trimester or quarter system (programs measured in this manner are not
governed by the Five-Day Rule).
The new regulations eliminate the Five-Day Rule beginning July
1, 1995 and define an equivalent "week of instruction" as 12 hours of
regularly scheduled instruction, examinations or preparation for examinations
("12-Hour Rule"). The Company believes that, under the 12-Hour Rule, a
calendar week of UOP instruction time would be equivalent to 8/12ths (67%) of
a DOE week of instruction, since the programs offered by UOP consist of a
minimum of eight hours per week of regularly scheduled instruction,
examinations and preparations for examinations.
<PAGE> 12
To comply with the new 12-Hour Rule, UOP has increased the length
of its undergraduate academic year from 40 calendar weeks to 45 calendar
weeks to meet the equivalent 30 weeks of instruction (45 weeks times
67% = 30 weeks) required by the DOE. Although this change has not increased
the length of the entire undergraduate program, it may reduce the maximum
amount of Title IV funding available for the entire program (for
undergraduate programs, these limits range from $2,625 to $10,500 per
academic year per student depending primarily on the student's financial
need). The Company believes that increasing the length of its academic year
will not have a significant effect on its operations because (a) the amount
of Title IV funds awarded to the students may still exceed the total cost of
tuition, fees and books paid to UOP, and (b) many of UOP's students, because
they are working adults, have alternative forms of tuition financing
available to them, including employer tuition reimbursement and private
alternative loan programs.
CASH RESERVE REQUIREMENT
Currently, higher education institutions are required to
maintain a minimum cash reserve in an amount equal to at least 25% of the
total dollar amount of refunds paid by the institution in its most recent
fiscal year (UOP currently has $673,000 in restricted cash related to this
requirement). Effective July 1, 1995, an institution is required to submit
an irrevocable letter of credit to the DOE, rather than maintain the cash
reserve. In addition, the letter of credit requirement is waived if an
institution meets the DOE's standards related to timeliness of refunds,
financial responsibility, etc. This should allow UOP to transfer to cash
available for operations the amount currently restricted for this purpose.
EMPLOYER TUITION REIMBURSEMENT
Many of the Company's students receive some form of tuition
reimbursement from their employers. In many cases, this tuition assistance
qualifies as a deductible business expense when adequately documented by the
employer and employee. The Internal Revenue Code (the "Code") also provided
a safe-harbor provision for an exclusion from wages of up to $5,250 of
tuition reimbursement per year per student under the Educational Assistance
Program ("EAP") provision. The EAP provision of the Code expired in December
1994. Since 1979, Congress has retroactively reinstated the EAP provision in
each year that the provision has expired. Although there is no assurance
that Congress will continue to retroactively reinstate this safe-harbor
provision, employers or employees may still continue to deduct tuition
assistance where it qualifies as a deductible business expense and is
adequately documented.
<PAGE> 13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . .Not Applicable
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . .Not Applicable
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . .Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On March 24, 1995, the holders of the Company's Class B Common Stock
voted unanimously to approve a 4-for-3 stock split of its common stock to be
effected in the form of a stock dividend. The stock dividend was distributed
on April 28, 1995 to shareholders of record at the close of business on April
7, 1995. The holders of the Company's common stock received a stock dividend
at the rate of 1/3 shares of Class A Common Stock for each share of Class A
or Class B Common Stock owned.
Item 5. Other Information . . . . . . . . . . . . . . . . . . . .Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 15-1 Letter on Unaudited Interim Financial Information
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the nine months ended
May 31, 1995.
<PAGE> 14
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: June 28, 1995 By: /s/ James W. Hoggatt
----------------------------------
James W. Hoggatt
Vice President of Finance
and Chief Financial Officer
(Duly Authorized Officer
and Principal Financial
and Accounting Officer)
<PAGE> 15
APOLLO GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
PAGE
15-1 Letter on Unaudited Interim Financial Information. . . . . . . . . . . 17
27 Financial Data Schedule. . . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE> 16
Exhibit 15-1
Letter on Unaudited Interim Financial Information
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Apollo Group, Inc. has incorporated by reference our report
dated June 26, 1995 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the Prospectus constituting part of its
Registration Statements on Form S-8 (Registration No. 33-87844, Registration
No. 33-88982 and Registration No. 33-88984). We are also aware of our
responsibilities under the Securities Act of 1933.
Yours very truly,
/s/ PRICE WATERHOUSE LLP
June 26, 1995
<PAGE> 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Statement of Operations and the Consolidated Balance Sheet and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000929887
<NAME> APOLLO GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> MAY-31-1995
<CASH> 58563
<SECURITIES> 0
<RECEIVABLES> 17336
<ALLOWANCES> 2356
<INVENTORY> 3540
<CURRENT-ASSETS> 80418
<PP&E> 16798
<DEPRECIATION> 7054
<TOTAL-ASSETS> 94026
<CURRENT-LIABILITIES> 41605
<BONDS> 0
<COMMON> 19
0
0
<OTHER-SE> 50885
<TOTAL-LIABILITY-AND-EQUITY> 94026
<SALES> 0
<TOTAL-REVENUES> 117996
<CGS> 6077
<TOTAL-COSTS> 73830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1704
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 14891
<INCOME-TAX> 6449
<INCOME-CONTINUING> 8442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8442
<EPS-PRIMARY> .64
<EPS-DILUTED> .63
</TABLE>
