UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: August 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________
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)
Registrant's telephone number, including area code: (602) 966-5394
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE NONE
(Title of each class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, NO PAR
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required tobe 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405\
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The holders of the Company's Class A Common stock are not entitled to any voting
rights. No shares of the Company's Class B Common Stock, its voting stock, are
held by non-affiliates. The number of shares outstanding for each of the
registrant's classes of common stock, as of October 18, 1995, is as follows:
Class A Common Stock, no par 21,523,149 Shares
Class B Common Stock, no par 575,769 Shares
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE> 2
APOLLO GROUP, INC. AND SUBSIDIARIES
FORM 10-K
INDEX
PAGE
PART I ----
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 29
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 6. Selected Consolidated Financial Data. . . . . . . . . . . . . . . . 31
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . 33
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 42
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . 61
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . . 62
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 66
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . 74
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . . 75
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 76
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
<PAGE> 3
PART I
Item 1 -- Business
OVERVIEW
Apollo Group, Inc. ("Apollo" or the "Company"), through its subsidiaries,
the University of Phoenix, Inc. ("UOP"), the Institute for Professional
Development ("IPD") and Western International University, Inc. ("WIU"), is a
leading provider of higher education programs for working adults based on the
number of working adults enrolled in its programs. The consolidated
enrollment in the Company's educational programs would make it the largest
private institution of higher education in the United States. The Company
currently offers its programs and services at 75 campuses and learning
centers in 25 states, Puerto Rico and London, England. The Company's
enrollment has increased to 36,848 at August 31, 1995 from 17,571 at
August 31, 1991.
Based on its enrollment of over 25,100 adult students, UOP is currently
the sixth largest regionally accredited private university in the United
States and has one of the nation's largest private business schools. UOP has
been accredited by the Commission on Institutions of Higher Education of the
North Central Association of Colleges and Schools ("NCA") since 1978 and has
successfully replicated its teaching/learning model while maintaining
educational quality at its 42 campuses and learning centers in Arizona,
California, Colorado, Hawaii, Louisiana, Michigan, Nevada, New Mexico, Utah
and Puerto Rico. UOP has developed specialized information systems for
student tracking, marketing, faculty recruitment and training, financial aid,
accounting and academic quality management. These systems enhance UOP's
ability to expand into new markets while still maintaining academic quality.
Currently, approximately 80% of UOP's students receive some level of tuition
reimbursement from their employers, many of which are Fortune 500 companies.
In 1989, UOP established Online (trademark), a computerized educational
delivery system, which currently serves approximately 1,300 degree-seeking
students. Online (trademark) provides campus-based courses that have been
modified for computer delivery. Online (trademark) enables the Company to
deliver educational programs and services internationally wherever there is
access to adequate telephone service, CompuServe (registered trademark) or
the Internet. The Online (trademark) faculty receive specialized training to
enable them to teach effectively in the electronic learning environment. The
same academic quality management standards applied to campus-based programs,
including the assessment of student learning outcomes, are applied to
programs delivered through Online (trademark).
IPD provides program development and management services under long-term
contracts (five to ten years) that meet the guidelines of the client
institutions' respective regional accrediting associations. IPD provides
these services to 15 regionally accredited private colleges and universities
at 29 campuses and learning centers in 16 states and shares in the tuition
revenues generated from these programs. IPD is able to assist these colleges
and universities in expanding and diversifying their programs for working
adults. IPD places a priority on institutions that: (1) are interested in
developing or expanding off-campus degree programs for working adults;
(2) recognize that working adults require a different teaching/learning model
than the 18 to 24 year old student; (3) desire to increase enrollments with a
<PAGE> 4
limited investment in institutional capital and (4) recognize the unmet
educational needs of the working adult students in their market.
Approximately 11,700 students are currently enrolled in IPD-assisted
programs.
On June 30, 1995, the Company executed an agreement to purchase certain
assets of Western International University ("Western"). Western was a
private non-profit educational institution incorporated in 1978 and was
accredited by the NCA. The acquisition was completed on September 1, 1995
and accounted for under the purchase method. The Company formed a new
wholly-owned subsidiary named Western International University, Inc. ("WIU")
as the holding company for the net assets acquired from Western. WIU
acquired accounts receivable, notes receivable, furniture, fixtures,
equipment, certain contracts and student agreements, copyrights, trademarks,
securities, cash, goodwill and certain other assets of Western. In exchange,
WIU paid Western $237,000 in cash and assumed an additional $1.8 million in
liabilities. See "Business -- Federal Financial Aid Programs -- Western
International University, Inc." WIU currently offers certificate,
undergraduate and graduate degree programs to approximately 900 students and
has campuses in Phoenix, Fort Huachuca and Douglas, Arizona and London,
England.
The Company was incorporated in Arizona in 1981 and maintains its
principal executive offices at 4615 East Elwood Street, Phoenix, Arizona
85040. The Company's telephone number is (602) 966-5394. The Company's
Internet Web Site address is "http://www.uophx.edu."
MARKET
The United States education market may be divided into three distinct
segments: kindergarten through twelfth grade schools, vocational and
technical training schools, and degree-granting colleges and universities
("higher education"). The Company currently operates in the higher education
segment. The U.S. Department of Education National Center for Education
Statistics ("NCES") estimated that for 1993 (the most recent historical year
reported), adults over 24 years of age comprised approximately 6.5 million,
or 44%, of the 14.8 million students enrolled in higher education programs.
Currently, the U.S. Bureau of Census estimates that 70-75% of students over
the age of 24 work while attending school. The NCES estimates that by the
year 2000 the number of adult students over the age of 24 will increase to
6.8 million, or 44%, of the 15.5 million students projected to be enrolled in
higher education programs. The increase in demand for higher education from
working adults results from the increasing skills required by employers and
from a recognition by working adults of the value of an earned degree for
career advancement and change.
The Company believes that the unique needs of working adults include the
following:
- Convenient access to a learning environment (including both
location and delivery system)
- Degree programs offered by regionally accredited institutions that
can be completed in a reasonable amount of time
- Programs that provide knowledge and skills with immediate practical
value in the workplace
<PAGE> 5
- Education provided by academically qualified faculty with current
practical experience in fields related to the subjects they
instruct
- Administrative services designed to accommodate the full-time
working adult's schedule
- Recognition of adult students as critical consumers of educational
programs and services
- A learning environment characterized by a low student-to-faculty
ratio
- Learning resources available electronically to all students
regardless of geographical location
The Company also believes that the increasing demand from and the unique
requirements of the adult working population represent a significant market
opportunity to regionally accredited higher education institutions that can
offer programs that meet these unique needs.
Most regionally accredited colleges and universities are focused on
serving the 18 to 24 year old student market. This focus has resulted in a
capital-intensive teaching/learning model that may be characterized by: (1) a
high percentage of full-time tenured faculty with doctoral degrees;
(2) fully-configured library facilities and related full-time staff;
(3) dormitories, student unions and other significant plant assets to support
the needs of younger students and (4) an emphasis on research and the related
staff and facilities.
In addition, the majority of accredited colleges and universities
continue to provide the bulk of their educational programming from September
to mid-December and from mid-January to May. As a result, most full-time
faculty members only teach during that limited period of time. While this
structure serves the needs of the full-time 18 to 24 year old student, it
limits the educational opportunity for working adults who must delay their
education for up to five months during these spring, summer and winter
breaks. In addition, this structure generally requires working adults to
attend one course three times a week, commute to a central site, take work
time to complete administrative requirements and, in undergraduate programs,
participate passively in an almost exclusively lecture-based learning format
primarily focused on a theoretical presentation of the subject matter. For
the majority of working adults, earning an undergraduate degree in this
manner would take seven to ten years.
BUSINESS STRATEGY
The Company's strategic goal is to become the preferred provider of
higher education programs for working adult students. The Company is managed
as a for-profit corporation in an industry served principally by
not-for-profit providers. By design, the Company treats both its adult
students and their employers as customers. Key elements of the Company's
business strategy include the following:
<PAGE> 6
Establish New UOP Campuses and Learning Centers -----------------------------
UOP plans to add campuses and learning centers throughout the United
States. New locations are selected based on an analysis of various factors,
including the population of working adults in the area, the number of local
employers and their educational reimbursement policies and the availability
of similar programs offered by other institutions. Campuses consist of
classroom and administrative facilities with full student and administrative
services. Learning centers differ from campuses in that they consist
primarily of classroom facilities with limited on-site administrative staff.
Establish New IPD Relationships ---------------------------------------------
IPD plans to enter into additional long-term contracts with private
colleges and universities in proximity to metropolitan areas throughout the
United States. In general, IPD seeks to establish relationships with
colleges and universities located in states where it is difficult for out-of-
state accredited institutions to obtain state authorizations. In this way,
the Company is able to optimize its campus-based penetration of potential new
markets.
Expand Degree Programs ------------------------------------------------------
The Company expects to continue to respond to the changing educational
needs of working adults through the introduction of new undergraduate and
graduate degree programs. The Company also is investigating the market
potential for professional doctoral degree programs and specializations. The
Company currently has a full-time staff of over 20 persons involved in its
centralized curriculum development process.
Expand Access to Programs ---------------------------------------------------
The Company plans to expand its distance education programs and
services. In 1994, the Company successfully completed its connection to the
Internet, thereby making the Company's programs more readily available
throughout the United States and worldwide. The Company also plans to
enhance its distance education delivery systems as new technologies become
cost-effective.
International Expansion -----------------------------------------------------
The Company has conducted market research in various foreign countries,
including Hungary, Japan, Costa Rica and Mexico. The Company will continue
to monitor and assess the feasibility of providing its educational programs
internationally. In addition, the Company plans to leverage WIU's
international contacts and related operations acquired as a result of the
acquisition of the assets of Western.
The timing related to the establishment of new locations and the
expansion of programs may vary depending on regulatory requirements and
market conditions.
<PAGE> 7
TEACHING/LEARNING MODEL
The Company's teaching/learning model used by UOP and IPD client
institutions was designed for working adults. This model is structured to
enable students who are employed full-time to earn their degrees and still
meet their personal and professional responsibilities. Students attend
weekly classes, averaging 15 students in size, and also meet weekly as part
of a three to five person study group. The study group meetings are used for
review, work on assigned group projects and preparation for in-class
presentations. Courses are designed to facilitate the application of
knowledge and skills to the workplace and are taught by faculty members who
possess advanced degrees and have an average of 16 years of professional
experience in business, industry, government and the professions. In this
way, faculty members are able to share their professional knowledge and
skills with the students.
The Company's teaching/learning model has the following major
characteristics:
Curriculum The curriculum provides for the achievement of
specific educational outcomes that are based on the
input from faculty, students and student employers.
The curriculum is designed to integrate academic
theory and professional practice and the
application to the workplace. The standardized
curriculum for each degree program is also designed
to provide students with specified levels of
knowledge and skills regardless of delivery method
or location.
Faculty Faculty applicants must possess an earned masters
or doctoral degree, and have a minimum of five
years recent professional experience in a field
related to the subject matter in which they seek to
instruct. To help promote quality delivery of the
curriculum, UOP faculty members are required to:
(1) complete an initial assessment conducted by
staff and faculty; (2) receive training in grading,
facilitation of the teaching/learning model and
oversight of study group activities; (3) serve an
internship with an experienced faculty mentor and
(4) receive ongoing performance evaluations by
students, peer faculty and staff. The results of
these evaluations are used to establish
developmental plans to improve individual faculty
performance and to determine continued eligibility
of faculty members to provide instruction.
Interactive Learning Courses are designed to combine individual and
group activity with interaction between and among
students and the instructor. The curriculum
requires a high level of student participation for
purposes of increasing the student's ability to
work as part of a team.
<PAGE> 8
Learning Resources Students and faculty members are provided with
electronic and other learning resources for their
information needs. During 1995, the Company
expanded these services and provided additional
access through a connection to the Internet. This
minimizes the need for capital-intensive library
facilities and holdings.
Sequential Enrollment Students enroll in and complete courses
sequentially, rather than concurrently, thereby
allowing full-time working adults to focus their
attention and resources on one subject at a time,
thus balancing learning with ongoing personal and
professional responsibilities.
Academic Quality The Company has developed and operationalized an
Academic Quality Management System ("AQMS") that is
designed to maintain and improve the quality of
programs and academic and student services
regardless of the delivery method or location.
Included in the AQMS is the Adult Learning Outcomes
Assessment which seeks to measure student growth in
both the cognitive (subject matter) and affective
(educational, personal and professional values)
domains.
STRUCTURAL COMPONENTS OF TEACHING/LEARNING MODEL
Although adults over 24 currently comprise approximately 44% of all
higher education enrollments in the United States, the mission of many
accredited colleges and universities is to serve 18 to 24 year old students
and conduct research. UOP and IPD client institutions acknowledge the
differences in educational needs between older and younger students and
provide programs and services that allow working adult students to earn their
degrees while integrating the process with both their personal and
professional lives.
The Company believes that working adults require a different
teaching/learning model than that designed for the 18 to 24 year old student.
The Company has found that working adults seek accessibility, curriculum
consistency, time and cost effectiveness and learning that has an immediate
application to the workplace. The Company's teaching/learning model differs
from the models used by most regionally accredited colleges and universities
because it is designed to enable adults to complete an undergraduate degree
in four years and a graduate degree in two years while working full-time.
The structural components of the Company's teaching/learning model
include:
Accessibility Centrally developed standardized curricula that can
be accessed through a variety of delivery methods
(e.g., campus-based or electronically delivered),
that make the educational programs accessible
regardless of where the students work and live.
<PAGE> 9
Instructional Costs While the faculty at most accredited colleges and
universities are employed full-time, UOP's and IPD
client institutions' part-time faculty are
academically qualified, professionally employed and
are contracted for instructional services on a
course-by-course basis. This policy keeps a
portion of the cost of instruction variable.
Facility Costs The Company leases its campus and learning center
facilities and rents additional classroom space on
a short-term basis to accommodate growth in
enrollments, thus keeping a portion of its
instructional costs variable.
Employed Students UOP's students are employed full-time and
approximately 74% have been employed for nine years
or more. This minimizes the need for
capital-intensive facilities and services (e.g.,
dormitories, student unions, food services,
personal and employment counseling, health care,
sports and entertainment).
Employer Support Approximately 80% of UOP's students currently
receive some level of tuition reimbursement from
their employers, many of which are Fortune 500
companies. The Company develops relationships with
key employers for purposes of recruiting students
and responding to specific employer needs. This
allows the Company to remain sensitive to the needs
and perceptions of employers, while helping both to
generate and sustain diverse sources of revenues.
WIU's teaching/learning model has similar characteristics to the
teaching/learning model used by UOP and IPD client institutions, including
the use of part-time practitioner faculty, standardized curriculum,
computerized learning resources and leased facilities. WIU provides
educational programs in a semester-based format and does not focus
exclusively on working adult students.
<PAGE> 10
PROGRAMS AND SERVICES
UOP Programs ----------------------------------------------------------------
UOP currently offers the following degree programs, areas of
specialization and certificate programs at one or more campuses and learning
centers or through its distance education delivery systems:
DEGREE PROGRAMS AREAS OF SPECIALIZATION AVAILABLE
- ---------------------------------- IN CERTAIN DEGREE PROGRAMS
Associate of Arts in Business ----------------------------------
Bachelor of Arts in Management
Bachelor of Science in Business UNDERGRADUATE
Bachelor of Science in Nursing -------------
Master of Arts in Education Business:
Master of Arts in Organizational - Accounting
Management - Administration
Master of Business Administration - Environmental Management
Master of Counseling - Finance
Master of Nursing - Industrial Relations
Master of Science in Computer - Marketing
Information Systems - Operations Management
Computer Information Systems:
CERTIFICATE PROGRAMS - Information Systems
- ---------------------------------- - Technical Management
Alternative Dispute Resolution
Art of Negotiation
Authorized Certified Novell GRADUATE
Administrator (CNA) --------
Authorized Certified Novell Business:
Engineer (CNE) - Finance
Business and the Environment - Marketing
Configuration Management
Conflict Resolution Computer Information Systems:
Export Management - Technology Management
Foreign Languages
Global Management Education:
Government Contract Management - Administration and Supervision
Human Resource Management - Bilingual-Bicultural
Human Resources Professional - Curriculum
Development - Diverse Learner
International Management - Educational Counseling
Introduction to the Internet - Elementary Education
Management and Leadership - English as a Second Language
Marketing Management - Multidisciplinary Studies
Materials Management - Professional Development for
OB/GYN Nurse Practitioner Educators
OSHA Regulatory Compliance - Secondary Methodology
Post Baccalaureate Teacher Education - Special Education
Professional Sales Skills
Purchasing Nursing:
Risk Management - Management
Sales Management - Education
School Guidance Counselor - Women's Health Nurse Practitioner
School Nurse
TQM for Manufacturing Counseling:
TQM for Service - Marriage, Family and Child Therapy
<PAGE> 11
Graduate level courses are also offered for students' continuing
professional education requirements, including state teacher certification
and state teacher renewal. Undergraduate students may demonstrate and
document college level learning gained from experience through the assessment
by faculty members (according to the guidelines of the Council for Adult and
Experiential Education ("CAEL")) for the potential award of credit. The
average number of credits awarded to UOP undergraduate students who utilized
the process between 1991 and 1995 was six credits of the 120 required to
graduate. Approximately 70% of these credits were attributable to
professional and nonregionally accredited course work. CAEL reports that
over 1,300 regionally accredited colleges and universities currently provide
for the assessment mechanism of college level learning gained through
experience for the award of credit.
IPD Services ----------------------------------------------------------------
IPD offers services to its client institutions including: (1) assisting
with curriculum development; (2) conducting market research; (3) developing
and executing marketing strategies; (4) training faculty; (5) establishing
administrative infrastructures; (6) developing and implementing financial
accounting and academic quality management systems; (7) assessing the future
needs of adult students and (8) helping develop additional degree programs
suitable for the adult higher education market. In consideration for its
services, IPD receives a contractual share of tuition revenues from students
enrolled in IPD-assisted programs.
IPD also assists its client institutions in identifying and developing
new degree programs and in seeking the required approvals from their
respective regional accrediting associations. In order to facilitate the
sharing of information related to the operations of their respective
programs, UOP and the IPD client institutions formed the Consortium for the
Advancement of Adult Higher Education ("CAAHE"). CAAHE meets semiannually to
address issues such as the recruitment and training of part-time,
professionally employed faculty, employer input in the curriculum development
process, assessment of the learning outcomes of adult students and regulatory
issues affecting the operation of programs for working adult students.
IPD client institutions offer the following programs with IPD
assistance:
No. of IPD
Degree Programs Client Institutions
- -------------------------------------------------- --------------------
Associate of Arts in General Studies 1
Associate of Arts in Liberal Arts 1
Associate of Science in Business 5
Bachelor of Business Administration 8
Bachelor of Science in Business Administration 4
Bachelor of Science in Nursing 1
Bachelor of Science in Management 7
Bachelor of Science in Organizational Leadership 1
Bachelor of Science in Human Resources Management 1
Master of Business Administration 7
Master of Science in Management 4
Master of Science in Health 1
Master of Arts in Education 1
The IPD-assisted programs also include a limited number of general
education courses, certificate programs and areas of specialization.
<PAGE> 12
WIU Programs ----------------------------------------------------------------
WIU currently offers the following degree and certificate programs:
DEGREE PROGRAMS WITH RELATED MAJORS
- ---------------------------------------------
ASSOCIATE OF ARTS IN GENERAL STUDIES
BACHELOR OF SCIENCE
- - Accounting
- - Aviation Management
- - Finance
- - General Business
- - Information Systems
- - International Business
- - Management
- - Marketing
BACHELOR OF ARTS
- - Behavioral Science
- - General Studies
- - International Studies
MASTER OF BUSINESS ADMINISTRATION
- - Finance
- - Healthcare Management
- - International Business
- - Management
- - Management Information Services
- - Marketing
MASTER OF PUBLIC ADMINISTRATION
MASTER OF SCIENCE
- - Accounting
- - Healthcare Information Resources Management
- - Information Services
- - Information Systems Engineering
CERTIFICATE PROGRAMS
- ---------------------------------------------
Corporate Management
Finance
International Business
Management Information Systems
Marketing
<PAGE> 13
Faculty ---------------------------------------------------------------------
UOP's faculty is comprised of approximately 2,800 working professionals
with earned masters or doctoral degrees and an average of 16 years of
experience in business, industry, government or the professions. To help
promote quality delivery of the curriculum, UOP faculty members are required
to: (1) complete an initial assessment conducted by staff and faculty;
(2) receive training in grading, facilitation of the teaching/learning model
and oversight of study group activities; (3) serve an internship with an
experienced faculty mentor and (4) receive ongoing performance evaluations by
students, peer faculty and staff. The results of these evaluations are used
to establish developmental plans to improve individual faculty performance
and to determine continued eligibility of faculty members to provide
instruction. Most faculty members are recruited as the result of referrals
from faculty, students and corporate contacts. All faculty are contracted on
a course-by-course basis (generally a five to ten week period).
The faculty teaching in IPD-assisted programs are comprised of full-time
faculty from the client institution as well as qualified part-time faculty
who instruct only in these adult programs. The part-time faculty must be
approved by each client institution. IPD makes the AQMS available to its
client institutions to evaluate faculty and academic and administrative
quality. Both UOP and IPD have been successful in recruiting faculty members
who meet these academic and professional requirements.
WIU's faculty consists of approximately 60 working professionals. WIU's
practitioner faculty possess earned masters or doctoral degrees and
participate in a selection and training process that is similar to that at
UOP.
Academic Accountability -----------------------------------------------------
UOP is one of the first regionally accredited universities in the nation
to create and utilize an institution-wide system for the assessment of the
educational outcomes of its students. The information generated is employed
by UOP to improve the quality of the curriculum, instruction and the
Company's teaching/learning model. UOP's undergraduate and graduate students
complete a comprehensive cognitive (core degree subject matter) and affective
(educational, personal and professional values) assessment prior to and upon
the completion of their core degree requirements.
Students at UOP and IPD client institutions evaluate both academic and
administrative quality. This evaluation begins with a registration survey
and continues with the evaluation of the curriculum, faculty, delivery
method, instruction and administrative services upon the conclusion of each
course. The evaluation also includes both a graduation survey and a survey
of a random selection of graduates two years after their graduation. The
results provide an ongoing basis for improving the teaching/learning model,
selection of educational programs and instructional quality. The Company
plans to implement similar quality control systems at WIU over the next year.
Admissions Standards --------------------------------------------------------
To gain admission to the undergraduate programs of UOP, WIU and the IPD
client institutions, students generally must have a high school diploma or
General Equivalency Degree ("G.E.D.") and satisfy certain minimum grade point
average, employment and age requirements. Additional requirements may apply
<PAGE> 14
to individual programs. Students in undergraduate programs may petition to
be admitted on provisional status if they do not meet certain admission
requirements.
To gain admission to the graduate programs of UOP, WIU and the IPD
client institutions, students generally must have an undergraduate degree
from a regionally accredited college or university and satisfy minimum grade
point average, work experience and employment requirements. Additional
requirements may apply to individual programs. Students in graduate programs
may petition to be admitted on provisional status if they do not meet certain
admission requirements.
DISTANCE EDUCATION COMPONENTS
Online Computer Conferencing ------------------------------------------------
UOP established Online (trademark), its computer-based educational
delivery system, in 1989 by modifying its classroom courses for delivery at
the same level of quality through the use of computers. Online (trademark)
is currently accessible both nationally and internationally wherever there is
adequate phone service or access to CompuServe (registered trademark) or the
Internet. Online (trademark) utilizes a computer conferencing system that
enables students and faculty to participate in a learning group of 10 to 12
students. Online (trademark) students can complete their course requirements
at any time of the day, from locations where they have access to a computer
and a modem. Students and faculty interact daily in an electronic classroom
without having to be online at the same time. As required in campus-based
courses, Online (trademark) students also participate in weekly study groups.
Two-Way Voice and Data ------------------------------------------------------
UOP established its audiographic delivery system in 1989 in response to
requests from employers with operations in remote areas of the United States.
Students completing their degree requirements utilizing this system meet
weekly in a remote classroom and interact simultaneously with an instructor
in a centralized instructional studio through a two-way voice and data
communications system. These students can complete all their coursework in
this manner. They are required to achieve the same course outcomes, attend
weekly study groups and participate in the AQMS.
Directed Study --------------------------------------------------------------
Working adult students may also complete individual courses under the
direct weekly instructional supervision of a member of the faculty.
At August 31, 1995, there were approximately 2,400 students utilizing
the Company's distance education delivery systems, approximately 57% of whom
are enrolled in Online (trademark). Distance education is currently subject
to certain regulatory constraints. See "Business -- Federal Financial Aid
Programs --Restrictions on Distance Education Programs" and "Business --
State Authorization."
<PAGE> 15
ACQUISITION STRATEGY
The Company periodically evaluates opportunities to acquire businesses
and facilities, such as Western, that complement the Company's business
strategy. In evaluating such opportunities, management considers, among
other factors, location, demographics, price, the availability of financing
on acceptable terms, competitive factors and the opportunity to improve
operating performance through the implementation of the Company's operating
strategies. The Company has no current commitments with regard to potential
acquisitions.
CUSTOMERS
The Company's customers consist of working adult students, colleges and
universities, governmental agencies and employers. Based on recent student
surveys, the average age of UOP students is in the mid-thirties,
approximately 54% are women and 46% are men, and the average annual household
income is $53,000. Approximately 74% of UOP students have been employed on a
full-time basis for nine years or more. Currently, 67% of UOP students are
seeking undergraduate degrees. The Company believes that the demographics of
students enrolled in IPD-assisted programs are similar to that of UOP. The
approximate age distribution of current UOP students is as follows:
Age Percentage of Students
------------------------ -----------------------
Under 25 12%
26 to 33 35%
34 to 45 42%
46 and over 11%
-------
100%
=======
IPD client institutions have historically consisted of small private
colleges; however, IPD also targets larger institutions of higher education
that are in need of marketing and curriculum consulting. The Company
believes that to develop and manage educational programs for working adult
students effectively, these potential client institutions require both
capital and operational expertise. In response to these requirements, IPD
provides the startup capital, the curriculum development expertise and the
ongoing management in support of the client institutions' provision of
quality programs for working adult students.
The Company also considers the employers of its students as customers.
Many of these employers provide tuition reimbursement programs in order to
educate and provide degree opportunities to their employees. Currently,
approximately 80% of UOP's students receive some level of tuition
reimbursement from their employers, many of which are Fortune 500 companies.
Of these students receiving reimbursement, approximately 83% receive at least
one-half tuition reimbursement and approximately 42% receive full tuition
reimbursement.
<PAGE> 16
CORPORATE PARTNERSHIPS
The Company cooperates and interacts with businesses and governmental
agencies in offering programs designed to meet their specific needs either by
modifying existing programs or, in some cases, by developing customized
programs. These programs are often held at the employers' offices or on-site
at military bases.
In the fourth quarter of 1995, UOP formed an educational partnership
with Ingram Micro, Inc., a leading distributor of computer and software
products, to provide training and certification for Novell and Microsoft
software. These programs began in June 1995 at UOP's Northern and Southern
California campuses. UOP computer labs, equipped and maintained by Ingram
Micro, will serve as training sites for technical professionals who wish to
obtain or enhance skills as network administrators.
In addition, UOP recently formed an educational partnership with AT&T to
provide graduate and undergraduate degree and certificated learning programs
to AT&T's 200,000 employees worldwide. A significant aspect of the alliance
is an articulation agreement between UOP and the AT&T School of Business that
enables UOP to award undergraduate and graduate program credit for certain
course work completed through the AT&T School of Business. The partnership
will provide AT&T managers with a variety of ways to participate in UOP's
programs, depending on their individual schedules and availability, including
course work delivered on campus, at AT&T sites or through one or more of
UOP's distance education delivery systems.
MARKETING
To generate interest among potential UOP, WIU and IPD client institution
students, UOP, WIU and IPD engage in a broad range of activities to inform
potential students about the Company's teaching/learning model and the
programs offered. These activities include print and broadcast advertising,
advertising on services such as CompuServe (registered trademark), Prodigy
(registered trademark) and the Microsoft Network (registered servicemark),
direct mail and information meetings at targeted organizations (CompuServe is
a registered trademark of CompuServe Incorporated, Columbus, Ohio, Prodigy is
a registered trademark of Trintex, White Plains, New York, and Microsoft
Network is a registered servicemark of Microsoft Corporation, Redmond,
Washington). The Company also attempts to locate its campuses and learning
centers near major highways to provide high visibility and easy access. A
substantial portion of new UOP and IPD client institution students are
referred by alumni, employers and currently enrolled students. The Company
is currently implementing its proprietary marketing systems at WIU to help it
identify and manage lead sources and referral data.
The Company also has a "Web Site" on the Internet World Wide Web
(http://www.uophx.edu) that allows electronic access to Company information,
product information, research, etc. The Company's Web Site is accessible
from major online networks such as Prodigy (registered trademark), CompuServe
(registered trademark) and America OnLine (America OnLine is a registered
trademark of America Online, Inc.). The Company recently completed an
agreement to provide direct access to the Company's Web Site from the
Microsoft Network (registered servicemark).
<PAGE> 17
UOP and WIU advertising is centrally monitored and is directed primarily
at local markets in which a campus is located. IPD client institutions
approve and monitor all advertising provided by IPD on their behalf. Direct
responses to advertising and direct mail are received, tracked and forwarded
promptly to the appropriate representatives. In addition, all responses are
analyzed to provide data for future marketing efforts.
The Company employs over 200 enrollment representatives in its marketing
system who make visits and presentations at various organizations and who
follow up on leads generated from the Company's advertising efforts and
referrals. These individuals also pursue direct responses to interest from
potential individual students by arranging for interviews either at a UOP,
WIU or IPD location or at a prospective student's place of employment.
Interviews are designed to establish a prospective student's qualifications,
academic background, course interests and professional goals. Student
recruiting policies and standards and procedures for hiring and training
university representatives are established centrally, but are implemented at
the local level through a director of enrollment or marketing at each location.
COMPETITION
The higher education market is highly fragmented and competitive with no
private or public institution enjoying a significant market share. The
Company competes primarily with four-year and two-year degree-granting public
and private regionally accredited colleges and universities. Many of these
colleges and universities enroll working adults in addition to the
traditional 18 to 24 year old students and some have greater financial and
personnel resources than the Company. The Company expects that these
colleges and universities will continue to modify their existing programs to
serve working adults more effectively.
The Company competes primarily at a local and regional level with other
regionally accredited colleges and universities based on the quality of
academic programs, the accessibility of programs and learning resources
available to working adults, the cost of the program, the quality of
instruction and the time necessary to earn a degree. Although adult students
currently comprise approximately 44% of all college and university
enrollments, few of these institutions have modified their educational
delivery systems to meet the unique needs of working adult students.
Institutions providing programs designed for working adults typically target
executives or other subsets of the working adult population and tend to
provide those programs at only a few sites.
IPD faces competition from other entities offering higher education
curriculum development and management services for adult education programs.
The majority of IPD's current competitors provide pre-packaged curricula or
turn-key programs. IPD client institutions, however, face competition from
both private and public institutions offering degree and non-degree programs
to working adults.
<PAGE> 18
EMPLOYEES
At September 30, 1995, the Company had the following numbers of
employees:
Full-Time Part-Time Faculty Total
--------- --------- --------- ---------
Apollo 180 3 -- 183 (1)
UOP 964 98 2,775 (2) 3,837
IPD 180 9 -- (3) 189
WIU 33 13 60 (2) 106
------ ------ ------ ------
Total 1,357 123 2,835 4,315
====== ====== ====== ======
(1) Consists primarily of employees in corporate accounting, payroll and
human resources, information systems, financial aid and Apollo Press.
(2) Consists primarily of part-time professional faculty contracted on a
course-by-course basis.
(3) Faculty teaching IPD-assisted programs are employed by IPD client
institutions.
The Company considers its relations with its employees to be good.
REGULATORY ENVIRONMENT
The Higher Education Act of 1965, as amended (the "HEA") and the
regulations promulgated thereunder (the "Regulations") subject all higher
education institutions eligible to participate in Federal Financial Aid
programs under Title IV of the HEA ("Title IV Programs") to increased
regulatory scrutiny. The HEA mandates specific additional regulatory
responsibilities for each of the following components of the higher education
regulatory triad: (1) the accrediting agencies recognized by the United
States Department of Education (the "DOE"); (2) the federal government
through the DOE and (3) state higher education regulatory bodies, including,
if applicable, a State Postsecondary Review Entity ("SPRE"). All higher
education institutions participating in Title IV Programs must first be
accredited by an association recognized by the DOE. The DOE reviews all such
participating institutions for compliance with all applicable HEA standards
and regulations. Under the HEA, accrediting associations are required to
include the monitoring of certain aspects of Title IV Program compliance as
part of their accreditation evaluations.
New or revised interpretations of regulatory requirements could have a
material adverse effect on the Company. In addition, changes in or new
interpretations of other applicable laws, rules or regulations could have a
material adverse effect on the accreditation, authorization to operate in
various states, permissible activities and costs of doing business of UOP,
WIU and one or more of the IPD client institutions. The failure to maintain
or renew any required regulatory approvals, accreditation or state
authorizations by UOP or certain of the IPD client institutions could have a
material adverse effect on the Company.
<PAGE> 19
ACCREDITATION
UOP and the IPD client institutions are accredited by regional
accrediting associations recognized by the DOE. Accreditation provides the
basis for: (1) the recognition and acceptance by employers, other higher
education institutions and governmental entities of the degrees and credits
earned by students; (2) the qualification to participate in Title IV Programs
and (3) the qualification for authorization in certain states.
UOP was granted accreditation by NCA in 1978. UOP's accreditation was
reaffirmed in 1982, 1987 and 1992. The next NCA reaffirmation visit is
scheduled for 1996-97. IPD-assisted programs offered by the IPD client
institutions are evaluated by the client institutions' respective regional
accrediting associations either as part of a reaffirmation or focused
evaluation visits. Current IPD client institutions are accredited by NCA,
New England or Southern regional accrediting associations. UOP is required
to receive approval from NCA for the addition of new degree programs and the
addition of any campuses or learning centers in new states or countries.
Most IPD client institutions are subject to similar policies. In addition,
all IPD contracts must meet the guidelines of the client institutions'
respective regional accrediting associations. The withdrawal of
accreditation from UOP or certain IPD client institutions would have a
material adverse effect on the Company.
WIU has applied for approval of the transfer of NCA accreditation from
Western and expects to receive the approval in the next few months (see
"Business -- Federal Financial Aid Programs -- Western International
University, Inc.").
All accrediting agencies recognized by the DOE are required to include
certain aspects of Title IV Program compliance in their evaluations of
accredited institutions. As a result, all regionally accredited
institutions, including UOP, WIU (if approved) and IPD client institutions,
will be subject to a Title IV Program compliance review as part of
accreditation visits.
Regional accreditation is accepted nationally as the basis for the
recognition of earned credit and degrees for academic purposes, employment,
professional licensure and, in some states, for authorization to operate as a
degree-granting institution. Under the terms of a reciprocity agreement
among the six regional accrediting associations, representatives of each
region in which a regionally accredited institution operates participate in
the evaluations for reaffirmation of accreditation. The achievement of UOP's
and WIU's missions require them to employ academically qualified practitioner
faculty that are able to integrate academic theory with current workplace
practice. Because of UOP's and WIU's choice to utilize all practitioner
faculty, they have not sought business school program accreditation of the
type found at many institutions whose primary missions are to serve the 18 to
24 year old student and to conduct research.
UOP's Bachelor of Science in Nursing ("BSN") program received program
accreditation from the National League for Nursing ("NLN") in 1989. The
accreditation was reaffirmed in October 1995 and the next NLN reaffirmation
is scheduled for 2003. The Company believes that the BSN program
accreditation is in good standing. If the NLN accreditation is not
reaffirmed, UOP's BSN program could be adversely affected.
<PAGE> 20
UOP's Master of Counseling ("MC") degree received program accreditation
from the Council for Accreditation of Counseling and Related Educational
Programs ("CACREP") in May 1995. The next CACREP reaffirmation is scheduled
for 1997.
FEDERAL FINANCIAL AID PROGRAMS
UOP and IPD client institution students participate in Title IV
Programs. UOP derives approximately 68% of its net revenues from students
who participate in Title IV Programs. The Company believes that IPD derives
a similar percentage of its net revenues from students who participate in
Title IV Programs administered by the respective IPD client institutions.
These students are eligible for Title IV financial aid because: (1) UOP and
IPD client institutions are accredited by an accrediting association
recognized by the DOE; (2) the DOE has certified UOP's and IPD client
institutions' Title IV Program eligibility and (3) UOP and IPD client
institutions have applicable state authorization to operate and their
operating sites have been approved by the DOE. As a result of the Company's
acquisition of certain assets of Western, WIU currently is not eligible to
participate in Title IV Programs. Upon approval of the transfer of NCA
accreditation from Western to WIU, WIU will apply for DOE approval to resume
participation in Title IV Programs. See "Business -- Federal Financial Aid
Programs -- Western International University, Inc."
The DOE has promulgated regulations, the most recent of which became
effective on July 1, 1995, that amend certain provisions of the Title IV
Programs and the regulations promulgated thereunder. Some of the more
important provisions of these regulations include the following:
The "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. The new Regulations define an
equivalent "week of instruction" as 12 hours of regularly scheduled
instruction, examinations or preparation for examinations (the "12-Hour
Rule"). The Company believes that, under the 12-Hour Rule, a calendar week
of UOP or WIU instruction time would be equivalent to 8/12ths (67%) of a DOE
week of instruction, because the programs offered by UOP and WIU consist of a
minimum of eight hours per week of regularly scheduled instruction,
examinations and preparations for examinations.
To comply with the new 12-Hour Rule, UOP and WIU have increased the
length of their undergraduate academic years 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 has in some cases reduced the maximum amount of
Title IV funding available to the applicable students for their 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 change in the length of the academic years to 45
calendar weeks has had no significant effect on the Company's operations to
date.
<PAGE> 21
Restricted Cash -------------------------------------------------------------
The DOE places certain restrictions on Title IV Program funds collected
for unbilled tuition and funds transferred to the Company through electronic
funds transfer. Prior to July 1, 1995, higher education institutions were
also 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. Effective July 1, 1995, an institution is
required to submit an irrevocable letter of credit to the DOE, rather than
maintain the cash reserve. However, the letter of credit requirement is
waived if an institution meets the DOE's standards related to timeliness of
refunds, financial responsibility, and other criteria. The Company believes
that it meets these applicable DOE standards and will not need to supply the
letter of credit.
Standards of Financial Responsibility ---------------------------------------
Pursuant to the Regulations, all eligible higher education institutions
must meet an acid test ratio (defined as the ratio of cash, cash equivalents,
restricted cash and current accounts receivable to total current liabilities)
of at least 1 to 1 at the end of the institution's fiscal year. At
August 31, 1995, UOP's acid test ratio was 1.31 to 1. On September 1, 1995,
WIU's acid test ratio was 2.73 to 1.
Branching and Classroom Locations -------------------------------------------
The Regulations contain specific requirements governing the
establishment of new main campuses, branch campuses and classroom locations
at which any student receives more than 50% of his or her instruction. In
addition to classrooms at campuses and learning centers, locations affected
by these requirements include the business facilities of client companies,
military bases and conference facilities used by UOP and WIU. The Company
has obtained approval for all UOP locations required to be approved by the
Regulations and is seeking reaffirmation of approval for WIU's locations.
Should the DOE change its regulations with respect to this approval process
or delay approvals of new locations beyond the current approval time rate,
the Company's business strategy may be impacted negatively.
The "85/15 Rule" ------------------------------------------------------------
A new requirement of the HEA, commonly referred to as the "85/15 Rule,"
applies only to for-profit institutions of higher education, which includes
UOP and WIU but not IPD client institutions. Under this rule, for-profit
institutions will be ineligible to participate in Title IV Programs if the
amount of Title IV Program funds used by the students or institution to
satisfy tuition, fees and other costs incurred by the students exceed 85% of
the institution's cash-basis revenues from eligible programs (UOP's and
Western's percentage was 72% and 66% at August 31, 1995, respectively). UOP
and WIU are required to calculate this percentage at the end of each fiscal
year.
Student Loan Defaults -------------------------------------------------------
Eligible institutions must maintain a student loan cohort default rate
of less than 35% for each of the federal fiscal years 1991 and 1992, 30% for
fiscal year 1993 and 25% for fiscal year 1994 and all subsequent fiscal
years. In 1992, the most recent DOE cohort default rate reporting period,
the national cohort default rate average for all higher education
<PAGE> 22
institutions was 15%. UOP and WIU students' cohort default rates for the
Federal Family Education Loans as reported by the DOE were 5% and 4.7%,
respectively, and IPD client institution students' cohort default rates
averaged 5% over that same period.
State Postsecondary Review Entities ("SPREs") -------------------------------
The Regulations mandate that each state establish a SPRE to review
institutions referred by the DOE and eligible institutions the SPRE believes
are engaged in Title IV Program fraud and abuse. Each institution will be
reviewed against standards developed by the applicable SPRE to determine
whether it is eligible to continue to participate in Title IV Programs. The
states are required to implement the SPRE portion of the HEA only to the
extent to which their costs are covered through Congressional appropriation.
On July 27, 1995, President Clinton signed into law a package of spending
cuts that rescinded the funding of the SPREs for fiscal year 1995. The HEA
specifies that the states are not required to operate the SPREs without
Federal funding.
Compensation of Representatives ---------------------------------------------
The Regulations prohibit an institution from providing any commission,
bonus, or other incentive payment based directly or indirectly on success in
securing enrollments or financial aid to any person or entity engaged in any
student recruitment, admission or financial aid awarding activity. The
Company believes that its current method of compensating representatives
complies with the Regulations.
Administrative Capability ---------------------------------------------------
The HEA directs the DOE to assess the administrative capability of each
institution to participate in Title IV Programs. The failure of an
institution to satisfy any of the criteria used to assess administrative
capability may allow the DOE to determine that the institution lacks
administrative capability and, therefore, may be subject to additional
scrutiny or denied eligibility for Title IV Programs.
Eligibility and Certification Procedures ------------------------------------
The HEA specifies the manner in which the DOE reviews institutions for
eligibility and certification to participate in Title IV Programs and the
Regulations include detailed new standards. Under the HEA and the
Regulations, the eligibility to participate in Title IV Programs of each
currently participating institution will expire in 1997 or earlier and each
institution will be required to reapply for continued eligibility every four
years thereafter. The DOE will assess each institution's compliance with the
HEA and the Regulations. UOP's eligibility to participate in Title IV
Programs expires in 1997. If the DOE does not renew UOP's eligibility, it
will have a material adverse effect on the Company.
Restrictions on Distance Education Programs ---------------------------------
The Regulations specify that an institution is not eligible to
participate in Title IV Programs funding if 50% or more of its courses are
correspondence courses, or if 50% or more of its regular students are
enrolled in the institution's correspondence courses. Although the Company
does not offer correspondence courses, the Regulations currently consider
most distance education courses to be correspondence courses if the number of
<PAGE> 23
distance education courses exceeds 50% of the sum of courses offered in
campus-based delivery systems and courses offered through distance education.
The Company does not plan to exceed this 50% level and believes that this
restriction will have no impact on its business strategy.
Direct Lending Programs -----------------------------------------------------
The DOE has instituted a new direct lending program and various
institutions have been invited to participate in the initial phases of the
program. The direct lending program, as currently defined by the DOE, would
have the effect of eliminating third-party lending institutions and guarantee
agencies from the loan disbursement process. The goal of the DOE is to
streamline the financial aid lending process, but there is uncertainty as to
when this goal will be fully attained. Recently, certain members of Congress
have proposed to limit and/or eliminate the direct lending program. The
Company has not yet been required to implement the new direct lending process
and it is uncertain as to what effect this new process, if implemented, will
have on its cash flow.
Change of Ownership or Control ----------------------------------------------
A change of ownership or control of the Company, depending on the type
of change, may have significant regulatory consequences for UOP and WIU.
Such a change of ownership or control could trigger recertification by the
DOE, reauthorization by certain state licensing agencies or the evaluation of
the accreditation by NCA.
For institutions owned by publicly-held corporations, the DOE has
adopted the change of ownership and control standards used by the federal
securities laws. Upon a change of ownership and control sufficient to
require the Company to file a Form 8-K with the Securities and Exchange
Commission, UOP and WIU would cease to be eligible to participate in Title IV
Programs until recertified by the DOE. This recertification would not be
required, however, if the transfer of ownership and control was made upon a
person's retirement or death and was made either to a member of the person's
immediate family or to a person with an ownership interest in the Company who
had been involved in its management for at least two years preceding the
transfer.
In addition, certain states where the Company is presently licensed have
requirements governing change of ownership or control. Currently, Arizona
and California would require UOP and WIU, as applicable, to be reauthorized
upon a 20% and 25% change of ownership or control of the Company,
respectively. These states require a new application to be filed for state
licensing if such a change of ownership or control occurs. Moreover, the
Company is required to report any change in stock ownership of UOP, WIU or
Apollo to NCA. At that time, NCA may seek to evaluate the effect of such a
change of stock ownership on the continuing operations of UOP and WIU.
If UOP is not recertified by the DOE, or does not obtain reauthorization
from the necessary state agencies or has its accreditation withdrawn as a
consequence of any change in ownership or control, there would be a material
adverse effect on the Company.
<PAGE> 24
Western International University, Inc. --------------------------------------
Prior to its acquisition by the Company, Western participated in Title
IV Programs. However, the acquisition of Western by the Company is
considered a change in ownership and control which results in the termination
of Western's participation in the Title IV Programs. Under the HEA, and the
Regulations, WIU (the newly formed subsidiary of Apollo) can resume
participation in the Title IV Programs if the DOE certifies its eligibility
to participate. This certification process consists primarily of: (1)
notifying the DOE, the state licensing agency and the accrediting agency of
the change in ownership, (2) filing an application for certification with the
DOE and supplying required financial statements and information to the DOE
evidencing compliance with the DOE's standards of financial responsibility
and (3) signing a new Title IV Program participation agreement with the DOE.
In addition, as part of the application process, WIU must provide to the DOE
proof that its accreditation is continued under the new ownership or control
and that it has legal authorization from the state licensing agency. WIU has
received approval to operate under new ownership by the Arizona State Board
for Post-Secondary Education. WIU expects the approval of the transfer of
NCA accreditation to WIU to occur in the next few months and DOE approval is
expected shortly thereafter. Prior to obtaining approval from the DOE, WIU
will not be able to disburse funds awarded by Western or process new Title IV
financial aid. The Company has arranged for a temporary alternative lender
to provide non-recourse financing to credit-qualifying students during this
interim period. If the DOE does not certify that WIU is eligible to
participate in Title IV Programs, it would have a material adverse effect on
WIU.
STATE AUTHORIZATION
UOP currently is authorized to operate in nine states and Puerto Rico.
UOP has held these authorizations for periods ranging from one month to
seventeen years. UOP's NCA accreditation is accepted as evidence of
compliance with applicable state regulations in Arizona, Colorado, New
Mexico, Nevada and Utah. Hawaii does not have authorization provisions for
regionally accredited degree-granting institutions. California law, enacted
in 1985, requires an on-site visit to all out-of-state accredited
institutions of higher education every five years to determine if the
institution is in compliance with the State of California regulations. All
institutions, including UOP, that operate in California and are accredited by
a regional accrediting association other than the Western Association of
Schools and Colleges are required to be evaluated separately for
authorization to operate. UOP was granted its most recent California
authorization in 1989 and expects to renew its license by February 1996. All
regionally accredited institutions, including UOP, are required to be
evaluated separately for authorization to operate in Puerto Rico. UOP was
granted its most recent authorization in Puerto Rico in 1990 and expects to
renew its authorization by November 1995. IPD client institutions possess
authorization to operate in all states in which they offer educational
programs, which are subject to renewal. WIU is currently authorized to
operate in Arizona and London, England.
Certain states assert authority to regulate all degree-granting
institutions if their educational programs are available to their residents,
whether or not the institutions maintain a physical presence within those
states. If a state were to establish grounds for asserting authority over
<PAGE> 25
telecommunicated learning, UOP may be required to obtain authorization for,
or restrict access to, its programs available through Online (trademark) in
those states.
EMPLOYER TUITION REIMBURSEMENT
Many of the Company's students receive some form of tuition
reimbursement from their employers. In certain situations, as defined by the
Internal Revenue Code (the "Code"), this tuition assistance qualifies as a
deductible business expense when adequately documented by the employer and
employee. 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> 26
LOCATIONS
UOP currently has campuses and learning centers located throughout nine
states and Puerto Rico. The following is a current list of UOP main
campuses, divisions and learning centers and the respective opening dates and
enrollments as of August 31, 1995:
Fiscal Enroll-
Main Campuses, Divisions and Year ment at
Respective Learning Centers Opened 8/31/95
- -----------------------------------------------------------------------------
ARIZONA: Phoenix Campus 1978 3,896
Mesa 1986
Northwest Phoenix 1990
Scottsdale 1994
Tucson Campus 1983 1,663
East Tucson 1993
Fort Huachuca 1993
CALIFORNIA: Orange County (Fountain Valley Campus) 1981 5,063
Diamond Bar 1992
Edwards Air Force Base 1992
Lawndale 1992
Van Nuys 1990
Pasadena 1995
Ontario 1995
Gardena(1) 1996
San Jose Campus 1980 2,907
San Ramon 1985
San Francisco 1994
Pleasanton 1995
Fresno Campus 1995 20
San Diego Campus 1989 1,403
Vista 1994
Sacramento Campus 1993 659
COLORADO: Denver Campus 1982 2,661
Aurora 1988
Colorado Springs 1993
Northglenn 1995
HAWAII: Honolulu Campus 1993 365
LOUISIANA: New Orleans(1) 1996 --
MICHIGAN: Detroit(1) 1996 --
NEVADA: Las Vegas Campus 1994 380
Nellis Air Force Base 1993
NEW MEXICO: Albuquerque Campus 1985 1,307
Kirtland Air Force Base 1993
Santa Fe 1994
Santa Teresa - Las Cruces 1995
UTAH: Salt Lake City Campus 1984 1,658
Ogden 1992
Orem 1988
PUERTO RICO: Guaynabo Campus 1980 817
DISTANCE EDUCATION: Online (trademark), San Francisco, CA(2) 1989 1,346
Center for Distance Education, 1989 1,020
Phoenix, AZ(3)
------
TOTAL UOP ENROLLMENT AT AUGUST 31, 1995: 25,165
======
<PAGE> 27
(1) Opened in September 1995.
(2) Programs are offered throughout the United States and internationally.
(3) Programs are offered in various states throughout the United States.
IPD currently has contracts with 15 institutions that offer programs at
29 campuses and learning centers in Connecticut, Georgia, Illinois, Indiana,
Kansas, Kentucky, Massachusetts, Minnesota, Mississippi, Missouri, North
Carolina, Ohio, South Carolina, Texas, Virginia and Wisconsin.
WIU currently has four campuses and learning centers located in Phoenix,
Fort Huachuca and Douglas, Arizona and London, England.
<PAGE> 28
Item 2 -- Properties
The Company leases all of its administrative and educational facilities.
In some cases, classes are held in the facilities of the students' employers
at no charge to the Company. Leases generally range from five to seven
years; however, the Company attempts to secure longer leases if it is
advantageous to do so. The Company also leases space from time-to-time on a
short-term basis in order to provide specific courses or programs. The table
below sets forth certain information as of September 30, 1995, with respect
to properties leased by the Company in excess of 5,000 square feet:
LOCATION (CITY/STATE) SQUARE FEET
---------------------- -------------
Phoenix, AZ 124,552
Phoenix, AZ 38,086
San Jose, CA 37,876
Fountain Valley, CA 34,545
San Diego, CA 33,097
Englewood, CO 32,000
Tucson, AZ 30,000
Murray, UT 30,000
Albuquerque, NM 23,400
Gardena, CA 23,077
Marietta, GA 21,634
Pleasanton, CA 18,560
Van Nuys, CA 18,467
Sacramento, CA 18,419
Costa Mesa, CA 18,397
Mesa, AZ 18,088
Aurora, CO 16,807
Diamond Bar, CA 15,280
Ontario, CA 14,899
Colorado Springs, CO 14,775
Overland Park, KS 14,120
Lawndale, CA 14,041
Quincy, MA 12,863
Northglenn, CO 11,971
San Francisco, CA 10,414
Crestview Hills, KY 10,303
Phoenix, AZ 10,066
Charlotte, NC 9,898
Scottsdale, AZ 9,588
Pasadena, CA 9,376
Richmond, VA 9,229
Vista, CA 9,224
New Haven, CT 9,131
Guaynabo, PR 9,000
Ogden, UT 7,765
Tucson, AZ 7,708
Phoenix, AZ 7,617
San Francisco, CA 6,183
Phoenix, AZ 6,120
Fresno, CA 5,944
Las Vegas, NV 5,647
Overland Park, KS 5,625
San Ramon, CA 5,526
Vienna, VA 5,508
Murray, UT 5,340
<PAGE> 29
The lease on the Company's corporate headquarters, which includes the
UOP Phoenix Main Campus, expires in August 1996. The Company currently has
the option to renew the lease for two additional five-year terms at a market
rate to be determined at the beginning of each of these respective five-year
terms. Depending on the market rate, the Company may consider other options
for relocation, including separate or additional leased facilities or the
construction of a new building.
Item 3 -- Legal Proceedings
The Company is not a party to any legal proceedings, the adverse outcome
of which, in management's opinion, would have a material averse effect on the
Company's operating results.
Item 4 -- Submission of Matters to a Vote of Security Holders
None.
<PAGE> 30
PART II
Item 5 -- Market for Registrant's Common Equity and Related Stockholder
Matters
<TABLE>
There is no established public trading market for the Company's Class B
Common Stock, and all shares of the Company's Class B Common Stock are
beneficially owned by the Company's executive officers. The Company's Class
A Common Stock began trading on the Nasdaq National Market ("Nasdaq") under
the symbol "APOL" during the second quarter of 1995 on December 6, 1994. The
holders of the Company's Class A Common Stock are not entitled to any voting
rights. Prior to December 6, 1994, the Company's Class A Common Stock was
not listed or traded on any organized market system. The table below sets
forth the high and low bid prices, adjusted for stock splits effected in the
form of stock dividends, for the Company's Class A Common Stock as reported
by Nasdaq.
<CAPTION>
1995 High Low
--------------------- -------- -------
<S> <C> <C>
Second Quarter $11.31 $ 5.50
Third Quarter 19.08 9.63
Fourth Quarter 23.00 16.17
</TABLE>
These over-the-counter market quotations may reflect inter-dealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
At September 30, 1995, there were approximately 73 and 10 holders of
record of shares of Class A and Class B Common Stock, respectively. The
Company estimates that, when you include shareholders whose shares are held
in nominee accounts by brokers, there were approximately 3,000 total holders
of its Class A Common Stock.
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the near future. It is the current
policy of the Company's Board of Directors to retain earnings to finance the
operations and expansion of the Company's business. Holders of Class A
Common Stock and Class B Common Stock are entitled to equal per share cash
dividends to the extent declared by the Board.
<PAGE> 31
Item 6 -- Selected Consolidated Financial Data
<TABLE>
The following selected financial and operating data is qualified by
reference to and should be read in conjunction with the financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Items 7 and 8 of this form
10-K. The Consolidated Statement of Operations for each of the three years
in the period ended August 31, 1995 and the Consolidated Balance Sheet as of
August 31, 1995 and 1994, and the independent auditors' report thereon are
included in Item 8 of this Form 10-K.
<CAPTION>
Year Ended August 31,
---------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net revenues $163,429 $124,720 $ 97,545 $ 81,865 $ 68,782
-------- -------- -------- -------- --------
Costs and expenses:
Instruction costs and services 102,122 81,313 65,319 54,296 44,398
Selling and promotional 21,016 17,918 15,812 14,442 13,251
General and administrative 18,462 17,194 14,402 12,630 10,232
-------- -------- -------- -------- --------
Total costs and expenses 141,600 116,425 95,533 81,368 67,881
-------- -------- -------- -------- --------
Income before income taxes<F1> 21,829 8,295 2,012 497 901
Less provision for income taxes 9,229 3,383 869 240 390
-------- -------- -------- -------- --------
Income before extraordinary
item and cumulative effect of
change in accounting principle 12,600 4,912 1,143 257 511
Extraordinary item<F2> 351
Change in accounting principle<F3> 389
-------- -------- -------- -------- --------
Net income $ 12,600 $ 4,912 $ 1,143 $ 646 $ 862
======== ======== ======== ======== ========
Net income per share $ .62 $ .32 $ .08 $ .04 $ .06
Weighted average shares outstanding 20,485 15,281 15,136 14,845 14,845
<FN>
<F1> In March 1992, the Company discontinued the operations of Apollo
Education Corporation ("AEC"), its technical training school subsidiary,
which was phased out over the period from March 1992 until October 1992.
All assets related to this subsidiary were disposed of by August 1993.
Pretax losses related to the operations of the technical training
schools were $265,000, $837,000 and $1.3 million in 1993, 1992 and 1991,
respectively.
<F2> Realization of prior years' U.S. operating losses related to the
operations of the technical training schools.
<F3> The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes," effective September 1, 1991.
</FN>
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
August 31,
---------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(Dollars in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 50,726 $ 4,722 $ 2,843 $ 1,302 $ 671
Restricted cash 11,875 8,094 1,996 89
Total assets $102,132 $ 43,638 $ 28,909 $ 22,369 $ 18,215
======== ======== ======== ======== ========
Current liabilities $ 45,065 $ 34,890 $ 27,086 $ 20,819 $ 17,804
Long-term liabilities 1,715 1,347 1,203 2,154 1,661
Shareholders' equity (deficit) 55,352 7,401 620 (604) (1,250)
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity $102,132 $ 43,638 $ 28,909 $ 22,369 $ 18,215
-------- -------- -------- -------- --------
Operating Statistics:
Enrollments at end of period<F1> 36,848 30,236 24,987 21,163 17,571
Number of locations at end
of period<F2> 68 60 51 42 35
<FN>
<F1> Enrollments are defined as full-time equivalent students in attendance
in a program at the end of a period. Average enrollments represent the
average of the ending enrollments for each month in the period. Average
enrollments were 34,021, 27,469, 23,663, 20,087 and 17,071 for the years
ended 1995, 1994, 1993, 1992 and 1991, respectively. Ending and average
enrollments for 1991 include approximately 400 students enrolled at
AEC's technical training schools that were closed in 1992. Average
enrollments for 1992 include approximately 200 AEC students.
<F2> Includes UOP campuses and learning centers and IPD contract sites. Also
includes two AEC sites in 1991. As of September 30, 1995, the number of
locations, including WIU locations, was 75.
</FN>
</TABLE>
The Company did not pay any cash dividends on its Common Stock during
any of the periods set forth in the table above.
<PAGE> 33
Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
BACKGROUND AND OVERVIEW
The Company's revenues, net of student discounts, have increased to
$163.4 million in 1995 from $68.8 million in 1991. Average annual student
enrollments have increased to 34,021 students in 1995 from 17,071 in 1991.
Net income has increased to $12.6 million in 1995 from $862,000 in 1991. At
August 31, 1995, 36,848 students were enrolled in UOP and in IPD-assisted
programs at IPD client institutions.
From September 1990 to August 1995, UOP opened 24 campuses and learning
centers and IPD established operations at 15 campuses and learning centers
with its client institutions. Startup costs in new markets for UOP campuses
and learning centers have averaged from $200,000 to $400,000 per site over a
15-18 month period. These costs have been substantially less in new markets
where UOP established an enrollment base through contracts with the military
or through its distance education delivery systems. Costs for establishing
new sites in existing markets have been minimal where UOP previously
developed an enrollment base. UOP has established this enrollment base prior
to opening a new campus by holding classes in employers' offices and
conference facilities, or through its distance education delivery systems.
Startup costs for IPD contract sites have averaged from $400,000 to $500,000
per site over a 15-24 month period, and consist primarily of administrative
salaries, marketing and advertising. Startup costs are expensed as incurred.
Approximately 90% of the Company's net revenues in 1995 consist of
tuition revenues from UOP students and IPD's contractual share of tuition
revenues from students enrolled in IPD-assisted programs at IPD client
institutions. UOP tuition revenues currently represent approximately 85% of
consolidated tuition revenues. The Company's net revenues also include sales
of textbooks, computers and other education-related products, application
fees, other student fees and other income. The Company's net revenues vary
from period to period based on several factors that include: (1) the
aggregate number of students attending classes; (2) the number of classes
held during the period and (3) the weighted average tuition price per credit
hour (weighted by program and location). IPD's contracts with its respective
client institutions generally have terms of five to ten years with provisions
for renewal.
Instruction costs and services at UOP consist primarily of costs related
to the delivery and administration of the Company's educational programs that
include faculty compensation, administrative salaries for departments that
provide service directly to the students, the costs of educational materials
sold, facility leases and other occupancy costs, amortization of educational
program production costs, bad debt expense and depreciation and amortization
of property and equipment. UOP faculty members are contracted with and paid
for one course offering at a time. All classroom facilities are leased or,
in some cases, are provided by the students' employers at no charge to the
Company. Instruction costs and services at IPD consist primarily of program
administration, student services and classroom lease expense. Most of the
other instruction costs for IPD-assisted programs, including faculty,
financial aid processing and other administrative salaries, are the
responsibility of the IPD client institutions.
<PAGE> 34
Selling and promotional costs for UOP and IPD consist primarily of
advertising, marketing salaries and other costs related to the selling and
promotional functions. These costs are expensed as incurred. General and
administrative costs consist primarily of administrative salaries, occupancy
costs, depreciation and amortization and other related costs for departments
such as executive management, information systems, corporate accounting,
human resources and other departments that do not provide direct services to
the Company's students. To the extent possible, the Company centralizes
these services to avoid duplication of effort.
In September 1995, the Company, through WIU, acquired certain assets of
Western for $2.1 million. WIU acquired accounts receivable, notes
receivable, furniture, fixtures, equipment, certain contracts and student
agreements, copyrights, trademarks, securities, cash, goodwill and certain
other assets of Western. In exchange, WIU paid Western $237,000 in cash and
assumed $1.8 million in liabilities. The acquisition was accounted for as a
purchase. As a result of the change in control of Western precipitated by
its acquisition by WIU, WIU currently is not eligible to participate in Title
IV Program funding. See "Business -- Federal Financial Aid Programs --
Western International University, Inc." The Company has applied with the DOE
for WIU to participate in Title IV Program funding and is awaiting DOE
certification. The Company has arranged for a temporary alternative lender
to provide non-recourse financing. If the Company is not successful in
getting the DOE's approval in a timely fashion, the Company may need to
provide additional short-term financing to WIU students. The Company does
not anticipate that this will have any significant effect on its liquidity.
In 1992, the Company adopted a plan to discontinue the operations of its
technical training schools. These operations were phased out over the period
from 1992 to 1993 and all related assets were disposed of by August 1993.
Pretax losses related to the operations of the technical training schools
were $265,000, $837,000 and $1.3 million in 1993, 1992 and 1991,
respectively. In 1991, the Company realized an extraordinary gain from the
realization of tax benefits resulting from the net operating losses of the
technical training schools.
In 1992, the Company recorded a $389,000 gain representing the
cumulative effect of the adoption of Statement of Financial Accounting
Standard ("SFAS") No. 109, "Accounting for Income Taxes."
<PAGE> 35
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth consolidated income statement data of the
Company expressed as a percentage of net revenues for the periods indicated:
<CAPTION>
Year Ended August 31,
------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
------ ------ ------
Costs and expenses:
Instruction costs and services 62.5 65.2 67.0
Selling and promotional 12.9 14.4 16.2
General and administrative 11.3 13.8 14.7
------ ------ ------
Total costs and expenses 86.7 93.4 97.9
------ ------ ------
Income before income taxes 13.3 6.6 2.1
Less provision for income taxes 5.6 2.7 .9
------ ------ ------
Net income 7.7% 3.9% 1.2%
====== ====== ======
</TABLE>
Year Ended August 31, 1995 Compared with Year Ended August 31, 1994 ---------
Net revenues increased by 31.0% to $163.4 million in 1995 from $124.7
million in 1994 due primarily to a 23.9% increase in average student
enrollments from 1994 to 1995 and tuition price increases averaging four to
six percent, depending on the geographic area and program. All UOP campuses,
which include their respective learning centers, and most of the IPD contract
sites had increases in net revenues and average student enrollments from 1994
to 1995. Average student enrollments increased to 34,021 in 1995 from 27,469
in 1994. Interest income, which is included in net revenues, increased to
$2.4 million in 1995 from $280,000 in 1994 due primarily to increased cash
generated from the Company's initial public offering of its Class A Common
Stock and from $22.3 million in cash generated from operations in 1995.
Instruction costs and services increased by 25.6% to $102.1 million in
1995 from $81.3 million in 1994 due primarily to the direct costs necessary
to support the increase in average student enrollments, consisting 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 62.5% in 1995 from 65.2% in 1994 due to greater net revenues
being spread over the fixed costs related to centralized student services.
Selling and promotional expenses increased by 17.3% to $21.0 million in
1995 from $17.9 million in 1994 due primarily to increased marketing and
advertising at UOP and IPD campuses and learning centers, including $1.2
million related to locations opened in new markets during the past two years.
These expenses as a percentage of net revenues decreased to 12.9% in 1995
from 14.4% 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.
<PAGE> 36
General and administrative expenses increased by 7.4% to $18.5 million
in 1995 from $17.2 million in 1994 due primarily to costs required to support
the increased number of UOP and IPD campuses and learning centers and
increases in general and administrative salaries. This increase was offset
in part by $1.9 million in nonrecurring compensation expense in 1994 related
to the issuance of stock options and a $750,000 accrual of compensation
expense in 1994 related to a deferred compensation agreement with the
Company's President. See "Executive Compensation." General and
administrative expenses include a $105,000 and $135,000 writedown of land
held for sale in 1995 and 1994, respectively. Although the Company does not
expect any significant writedowns in the near future, it cannot predict what
impact the changing economic conditions in California will have on future
real estate values. General and administrative expenses as a percentage of
net revenues decreased to 11.3% in 1995 from 13.8% 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 start up of new UOP and IPD campuses and learning
centers are expensed as incurred and totaled approximately $1.1 million and
$1.0 million in 1995 and 1994, respectively. Interest expense, which is
allocated among all categories of costs and expenses, was $96,000 and
$153,000 in 1995 and 1994, respectively.
The Company's effective tax rate increased to 42.3% in 1995 from 40.8%
in 1994 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 $12.6 million in 1995 from $4.9 million in 1994
due to increased enrollments, increased tuition rates, improved utilization
of fixed instructional and administrative costs, $2.7 million (pretax) of
nonrecurring compensation expense in 1994, improved utilization of selling
and promotional expenses in existing markets and increased interest income
resulting from higher cash levels.
Year Ended August 31, 1994 Compared with Year Ended August 31, 1993 ---------
Net revenues increased by 27.9% to $124.7 million in 1994 from $97.5
million in 1993 due primarily to a 16.1% increase in average student
enrollments from 1993 to 1994, a higher concentration of enrollments at
locations that charge a higher rate per credit hour, and tuition price
increases averaging four to six 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 1993 to 1994. Average student
enrollments increased to 27,469 in 1994 from 23,663 in 1993.
Instruction costs and services increased by 24.5% to $81.3 million in
1994 from $65.3 million in 1993 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 65.2% in 1994 from 67.0% in 1993 due
to greater net revenues being spread over the fixed costs related to
centralized student services and, to a lesser degree, due to efficiencies
resulting from improvements to the Company's information systems.
<PAGE> 37
Selling and promotional expenses increased by 13.3% to $17.9 million in
1994 from $15.8 million in 1993 due primarily to increased marketing and
advertising at UOP and IPD campuses and learning centers, including $678,000
related to locations opened in new markets during the past two years. These
expenses as a percentage of net revenues decreased to 14.4% in 1994 from
16.2% in 1993 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.
General and administrative expenses increased by 19.4% to $17.2 million
in 1994 from $14.4 million in 1993 due primarily to increases in general and
administrative salaries, including $1.9 million in compensation expense
related to the grant of stock options and a $750,000 accrual of compensation
expense related to the deferred compensation agreement with the Company's
President. These expenses as a percentage of net revenues decreased to 13.8%
in 1994 from 14.7% in 1993 due to larger net revenues being spread over the
fixed costs related to various centralized functions such as information
services, corporate accounting and human resources. In 1993, the Company
recorded a $638,000 writedown related to land held for sale. As a result of
further declines in Northern California real estate values, the Company
recorded an additional $135,000 writedown in 1994. The Company began
disposing of portions of this land in July 1991 and currently is holding the
remaining portion of the land for sale. The Company does not intend to incur
significant costs related to further development prior to sale.
Interest expense, which is allocated among all categories of costs and
expenses, decreased to $153,000 in 1994 from $255,000 in 1993 primarily as a
result of improved cash flow resulting in a reduction of long-term debt and
lower seasonal borrowings on the Company's line of credit.
Costs related to the start up of new UOP and IPD campuses and learning
centers totaled approximately $1.0 million and $742,000 in 1994 and 1993,
respectively. The Company's effective tax rate decreased to 40.8% in 1994
from 43.2% in 1993 due primarily to the relative impact of expenses that are
non-deductible for tax purposes.
Net income increased to $4.9 million in 1994 from $1.1 million in 1993
due to increased enrollments, increased tuition rates (weighted by location),
improved utilization of fixed instructional and administrative costs and
improved utilization of selling and promotional expenses in existing markets.
<PAGE> 38
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
The following tables set forth selected unaudited quarterly financial
information for each of the Company's last eight quarters. The Company
believes that this information includes all adjustments (including normal
recurring adjustments) necessary for a fair presentation of such quarterly
information when read in conjunction with the consolidated financial
statements included in Item 8 of this Form 10-K. The operating results for
any quarter are not necessarily indicative of the results for any future
period.
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------
FY 1995 FY 1994
------------------------------------- -----------------------------------------
Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30,
1995 1995 1995 1994 1994 1994 1994 1993
-------- ------- -------- -------- -------- -------- -------- --------
(In thousands, except per share amounts)
In dollars:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $45,433 $45,502 $36,029 $36,465 $35,673 $34,278 $26,953 $27,816
-------- ------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Instruction costs and services 28,292 26,188 24,224 23,418 23,575 21,163 18,502 18,073
Selling and promotional 5,406 5,518 5,105 4,987 5,027 4,311 4,468 4,112
General and administrative 4,797 4,856 4,954 3,855 4,179 4,921<F1> 4,910<F2> 3,184
-------- ------- -------- -------- -------- -------- -------- --------
Total costs and expenses 38,495 36,562 34,283 32,260 32,781 30,395 27,880 25,369
-------- ------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes 6,938 8,940 1,746 4,205 2,892 3,883 (927) 2,447
Provision (credit) for
income taxes 2,780 3,892 896 1,661 1,190 1,572 (381) 1,002
-------- ------- -------- -------- -------- -------- -------- --------
Net income (loss) $4,158 $5,048 $850 $2,544 $1,702 $2,311 $(546) $1,445
======== ======= ======== ======== ======== ======== ======== ========
Net income (loss) per share $.19 $.22 $.04 $.17 $.11 $.15 $(.04) $.10
======== ======= ======== ======== ======== ======== ======== ========
As a percentage of net revenues:
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
-------- ------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Instruction costs and services 62.3 57.6<F3> 67.2 64.2 66.1 61.7<F3> 68.6 65.0
Selling and promotional 12.0 12.1 14.1 13.7 14.1 12.6 16.6 14.8
General and administrative 10.4 10.7 13.8 10.6 11.7 14.4<F1> 18.2<F2> 11.4
-------- ------- -------- -------- -------- -------- -------- --------
Total costs and expenses 84.7 80.4 95.1 88.5 91.9 88.7 103.4 91.2
-------- ------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes 15.3 19.6 4.9 11.5 8.1 11.3 (3.4) 8.8
Provision (credit) for
income taxes 6.1 8.6 2.5 4.6 3.3 4.6 (1.4) 3.6
-------- ------- -------- -------- -------- -------- -------- --------
Net income (loss) 9.2% 11.0% 2.4% 6.9% 4.8% 6.7% (2.0)% 5.2%
======== ======= ======== ======== ======== ======== ======== ========
<FN>
<F1> Includes $1.9 million in compensation expense related to the grant of
stock options.
<F2> Includes a $750,000 accrual of compensation expense related to the
December 1993 deferred compensation agreement with the Company's
President.
<F3> The favorable margin realized in the third quarter of 1995 and 1994 is
due primarily to a significant increase in revenues with no significant
increase in the fixed costs related to centralized student services.
The favorable margin did not continue to the same extent in the fourth
quarter of 1995 and 1994 because of the normal increase in instructional
costs and services in preparation for the August peak enrollments. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Seasonality."
</FN>
</TABLE>
<PAGE> 39
SEASONALITY AND OTHER FACTORS AFFECTING QUARTERLY RESULTS
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 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 have historically
been higher than other quarters. In addition, fourth quarter revenues are
supplemented by a significant increase in UOP continuing professional
education students enrolled each summer. In the fourth quarter of 1995,
however, revenues were slightly lower than the third quarter primarily as a
result of enrollment declines in July caused by a higher number of student
graduations and vacation breaks. This decline in enrollments in July was
temporary and enrollments rebounded in August 1995. Instructional costs and
services and selling and promotional expenses generally increase as a
percentage of net revenues in the fourth quarter due to increased costs in
preparation for the August peak enrollments.
The Company anticipates that these seasonal trends in the second and
fourth quarters will continue in the future.
There was an increase in net income and net income per share from the
first quarter of 1994 to the first quarter of 1995. Although the Company
does not expect a decrease in net income from the first quarter of 1995 to
the first quarter of 1996, net income per share may be lower due to the
increase in weighted average shares outstanding resulting primarily from the
December 1994 initial public offering. Weighted average shares outstanding
are expected to exceed 22.5 million shares in the first quarter of 1996, as
compared to 15.3 million shares in the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $39.0 million of working capital at August 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 $34.9 million
increase in cash and cash equivalents related to the Company's initial public
offering in December 1994 and to $22.3 million in cash generated from
operations during the year, offset in part by capital expenditures during the
year. At August 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. The Company expects to renew this line of credit.
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 $34.9 million. As of August 31, 1995, approximately $16.0
million of the proceeds have been used for normal recurring capital
expenditures, start up costs of new locations and general corporate purposes.
<PAGE> 40
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.
Net cash flow received from operating activities increased by $15.8
million from 1994 to 1995 due primarily to the $7.7 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 $11.5 million for 1995 from $6.1 million for 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, 1996 are
expected to total approximately $12.0 million. Additions to educational
program production costs are not expected to exceed $2.5 million for the year
ended August 31, 1996. Start up costs for 1996 are expected to increase $3.5
million due to planned expansion into new geographic markets.
The Company is currently negotiating the renewal of its lease for its
corporate headquarters located in Phoenix, Arizona. Depending on the outcome
of those negotiations, the Company may consider relocating its corporate
headquarters, including the UOP Phoenix Main Campus, to additional or
alternative leased facilities or may consider the construction of a new
facility. Such a facility is estimated to cost between $20 to $25 million.
The Company does not currently have any material commitments for any capital
expenditures in 1996. The Company currently leases all of its educational
and administrative facilities.
The Company's net receivables as a percent of net revenues decreased to
9.7% in 1995 from 11.4% in 1994 and bad debt expense as a percent of net
revenues decreased to 1.1% in 1995 from 1.5% in 1994. These decreases are
due primarily to an increased focus on accounts receivable collections in
1995.
The DOE requires that Title IV Program funds collected by an institution
for unbilled tuition be kept in a separate cash or cash equivalent account
until the students are billed for the portion of their program related to
these Title IV Program funds. In addition, all funds transferred to the
Company through electronic funds transfer programs are held in a separate
cash account until certain conditions are satisfied. As of August 31, 1995,
the Company had approximately $11.9 million in these separate accounts, which
are reflected as restricted cash, to comply with these requirements. These
funds generally remain in these separate accounts for an average of 60-75
days from the date of collection. These restrictions on cash have not
significantly affected the Company's ability to fund daily operations.
The Regulations require all higher education institutions to meet an
acid test ratio (defined as the ratio of cash, cash equivalents, restricted
cash and current accounts receivable to total current liabilities) of at
least 1 to 1, which is calculated at the end of the institution's fiscal
year. If an institution, including UOP or WIU, fails to meet the acid test
ratio, it may be deemed not financially responsible by the DOE, which could
result in a loss of its eligibility to participate in Title IV Programs.
UOP's acid test ratio was 1.31 at August 31, 1995 and 1.16 to 1 at August 31,
1994. WIU's acid test ratio was 2.73 to 1 on September 1, 1995. These
requirements apply to the separate financial statements of UOP, WIU and to
each of the respective IPD client institutions, but not to the Company's
consolidated financial statements.
<PAGE> 41
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's historical
operations.
<PAGE> 42
Item 8 -- Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . .43
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . . .44
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . .45
Consolidated Statement of Changes in Shareholders' Equity. . . . . . . . . . .46
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . .47
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . .48
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Apollo Group, Inc.:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of changes in shareholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Apollo Group, Inc. and its subsidiaries at August 31,
1995 and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended August 31, 1995, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of Apollo Group, Inc.'s management; our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Phoenix, Arizona
October 12, 1995
<PAGE> 44
<TABLE>
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except per share amounts)
<CAPTION>
Year Ended August 31,
------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Net revenues $163,429 $124,720 $ 97,545
--------- --------- --------
Costs and expenses:
Instruction costs and services 102,122 81,313 65,319
Selling and promotional 21,016 17,918 15,812
General and administrative 18,462 17,194 14,402
--------- --------- --------
141,600 116,425 95,533
--------- --------- --------
Income before income taxes 21,829 8,295 2,012
Less provision for income taxes 9,229 3,383 869
--------- --------- --------
Net income $ 12,600 $ 4,912 $ 1,143
========= ========= ========
Net income per share $ .62 $ .32 $ .08
========= ========= ========
Weighted average shares outstanding 20,485 15,281 15,136
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 45
<TABLE>
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollars in thousands)
<CAPTION>
August 31,
------------------------
1995 1994
-------- --------
Assets:
Current assets-
<S> <C> <C>
Cash and cash equivalents $ 50,726 $ 4,722
Restricted cash 11,875 8,094
Receivables, net 15,883 14,236
Inventory 2,723 2,656
Deferred tax asset, net 2,352 1,321
Prepaids and other current assets 485 864
-------- --------
Total current assets 84,044 31,893
Property and equipment, net 13,390 6,799
Educational program production costs, net 1,963 1,914
Deferred tax asset, net 306
Other assets 2,735 2,726
-------- --------
Total assets $102,132 $ 43,638
======== ========
Liabilities and Shareholders' Equity:
Current liabilities-
Current portion of long-term liabilities $ 118 $ 183
Accounts payable 6,261 5,325
Other accrued liabilities 9,962 6,840
Income taxes payable 96 310
Student deposits and deferred tuition 28,628 22,232
-------- --------
Total current liabilities 45,065 34,890
-------- --------
Long-term liabilities, less current portion 1,201 1,347
-------- --------
Deferred tax liability, net 514 --
-------- --------
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; 14,136,000 and 6,909,000 issued and outstanding
in 1995 and 1994, respectively 18 9
Class B voting common stock, no par value, 3,000,000
shares authorized; 576,000 issued and outstanding 1 1
Additional paid-in capital 37,378 1,982
Retained earnings 17,955 5,409
-------- --------
Total shareholders' equity 55,352 7,401
-------- --------
Total liabilities and shareholders' equity $102,132 $ 43,638
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 46
<TABLE>
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(In thousands)
<CAPTION>
Common Stock
--------------------------------------------------------------
Class A Class B
Common Nonvoting Voting
------------------- ------------------- ------------------- Additional Retained
Stated Stated Stated Paid-In Earnings
Shares Value Shares Value Shares Value Capital (Deficit)
-------- -------- --------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1992 1,118 $ 10 -- $ -- -- $ -- $ 32 $ (646)
New issue 34 81
Net income 1,143
-------- -------- --------- -------- --------- -------- -------- ---------
Balance at August 31, 1993 1,152 10 -- -- -- -- 113 497
Recapitalization:
6,909,000 shares of Class
A Common Stock and 576,000
shares of Class B Common
Stock issued in exchange for
1,152,000 shares of common
stock (1,152) (10) 6,909 9 576 1
Grant of stock options 1,869
Net income 4,912
-------- -------- --------- -------- --------- -------- -------- ---------
Balance at August 31, 1994 -- -- 6,909 9 576 1 1,982 5,409
Stock issued by public offering 3,516 4 34,854
Stock issued under stock
purchase plans 29 388
Stock issued under stock
option plans 12 97
Stock canceled under stock
option plans (3) (22) (54)
4-for-3 stock split 3,673 5 (5)
Tax benefit related to stock
options exercised 84
Net income 12,600
-------- -------- --------- -------- --------- -------- -------- ---------
Balance at August 31, 1995 - $ -- 14,136 $ 18 576 $ 1 $37,378 $17,955
======== ======== ========= ======== ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 47
<TABLE>
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(In thousands)
<CAPTION>
Year Ended August 31,
------------------------------
1995 1994 1993
-------- --------- ---------
Net cash received from (used for)
operating activities:
<S> <C> <C> <C>
Cash received from customers $159,349 $117,187 $ 96,787
Cash paid to employees and suppliers (129,442) (105,858) (90,460)
Interest received 2,207 280 95
Interest paid (96) (153) (279)
Net income taxes received (paid) (9,692) (4,962) 78
-------- --------- ---------
Net cash received from operating activities 22,326 6,494 6,221
-------- --------- ---------
Net cash received from (used for)
investing activities:
Purchase of property and equipment (9,944) (4,724) (2,547)
Additions to educational program
production costs (1,548) (1,380) (1,527)
Decrease in notes receivable 145
-------- --------- ---------
Net cash used for investing activities (11,492) (6,104) (3,929)
-------- --------- ---------
Net cash received from (used for)
financing activities:
Borrowings on line of credit 11,190 12,875
Repayments of borrowings on line of credit (11,190) (13,075)
Proceeds from sale-leaseback of assets 2,401
Principal payments on long-term debt (181) (912) (632)
Issuance of stock 35,321 81
Retirement of stock (54)
Tax benefits related to exercise of options 84
-------- --------- ---------
Net cash received from (used for)
financing activities 35,170 1,489 (751)
-------- --------- ---------
Net increase in cash and cash equivalents 46,004 1,879 1,541
Cash and cash equivalents, beginning
of period 4,722 2,843 1,302
-------- --------- ---------
Cash and cash equivalents, end of period $ 50,726 $ 4,722 $ 2,843
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 48
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Apollo Group, Inc. ("Apollo" or the "Company"), through its subsidiaries
The University of Phoenix, Inc. ("UOP"), the Institute for Professional
Development ("IPD") and Western International University, Inc. ("WIU"), is a
leading provider of higher education programs for working adults. The
Company's fiscal year is from September 1 to August 31. Unless otherwise
stated, references to the years 1995, 1994 and 1993 relate to the fiscal
years ended August 31, 1995, 1994 and 1993, respectively.
UOP is a regionally accredited, private institution of higher education
offering bachelor's and master's degree programs in business, management,
computer information systems, education and health care. UOP currently has
42 campuses and learning centers located in Arizona, California, Colorado,
Hawaii, Louisiana, Michigan, Nevada, New Mexico, Utah and Puerto Rico. UOP
also offers its educational programs worldwide through Online (trademark),
its computerized educational delivery system. UOP is accredited by the
Commission on Institutions of Higher Education of the North Central
Association of Colleges and Schools ("NCA").
IPD provides program development and management services under long-term
contracts to 15 regionally accredited private colleges and universities. IPD
is currently operating in 16 states.
WIU was acquired on September 1, 1995. See Note 3.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -------------------------------------------------
The consolidated financial statements include the accounts of Apollo and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Use of Estimates ------------------------------------------------------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Cash and Cash Equivalents ---------------------------------------------------
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
carrying value of cash, cash equivalents and restricted cash approximates
fair value due to the short-term maturities of these instruments.
<PAGE> 49
Restricted Cash -------------------------------------------------------------
The U.S. Department of Education (the "DOE") requires that Title IV
Program funds collected for unbilled tuition be kept in a separate cash or
cash equivalent account until the students are billed for that portion of
their program. In addition, all Title IV Program funds transferred to the
Company through electronic funds transfer are subject to certain holding
period restrictions. These funds generally remain in these separate accounts
for an average of 60-75 days from date of collection. Restricted cash is
excluded from cash received from operating activities in the Consolidated
Statement of Cash Flows until the cash is transferred from these restricted
accounts to the Company's operating accounts. The Company's restricted cash
is invested in U.S. Treasury backed securities with maturities of ninety days
or less.
Revenues, Receivables and Related Liabilities -------------------------------
The Company's educational programs range in length from one-day seminars
to degree programs lasting up to 46 months. Long-term programs are billed in
blocks of time ranging in length from five weeks to three months. Seminars
and other shorter term programs are usually billed in one installment.
Billings occur when the student first attends a session resulting in the
recording of a receivable and a deferred tuition revenue liability for the
amount billed. The deferred tuition revenue liability is recognized into
income pro rata over the period of instruction. If a student withdraws from
a course or program, the unearned portion of the program that the student has
paid for is refunded, generally on a pro rata basis. Because most of the
Company's educational programs are billed in short blocks of time ranging
from five to six weeks, most of the deferred tuition revenue liability at the
end of each period will be recognized into income within five to six weeks
following the end of that period.
Student deposits consist of payments made in advance of billings. As
the student is billed, the student deposit is applied against the resulting
student receivable.
The Company does not record the unbilled portion of educational programs
for existing students because the students are not usually financially
obligated for the unbilled portion. A majority of these students do,
however, remain in their programs until completion.
<TABLE>
Receivables consist of the following, in thousands:
<CAPTION>
August 31,
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Trade receivables $17,991 $15,678
Interest Receivable 208
Income tax receivable 137 15
--------- ---------
18,336 15,693
Less allowance for doubtful accounts (2,453) (1,457)
--------- ---------
Total receivables, net $15,883 $14,236
========= =========
</TABLE>
<PAGE> 50
Bad debt expense was $1.8 million, $1.8 million and $1.1 million for
1995, 1994 and 1993, respectively.
<TABLE>
Student deposits and deferred tuition consist of the following, in
thousands:
<CAPTION> August 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Student deposits $17,756 $12,689
Deferred tuition revenue 10,872 9,543
--------- ---------
Total student deposits and deferred tuition $28,628 $22,232
========= =========
</TABLE>
The carrying value of the student deposit liabilities approximates fair
value due to the short-term nature of these instruments.
Inventory -------------------------------------------------------------------
Inventory consists primarily of curriculum materials. Inventories are
stated at the lower of cost, determined using the FIFO (first-in, first-out)
method, or market.
Property and Equipment ------------------------------------------------------
Property and equipment is recorded at cost less accumulated
depreciation. The Company capitalizes the cost of software used for internal
operations once technological feasibility of the software has been
demonstrated. Such costs consist primarily of custom-developed and packaged
software and the direct labor costs of internally developed software.
Depreciation is provided on all buildings, furniture, equipment and related
software using the straight-line method over the estimated useful lives of
the related assets which range from three to seven years, except software
which is depreciated over three to five years and buildings which are
depreciated over 30 years. Leasehold improvements and capital lease assets
are amortized using the straight-line method over the shorter of the lease
term or the estimated useful lives of the related assets. Depreciation and
amortization expense was $2.8 million, $2.0 million and $1.8 million for
1995, 1994 and 1993, respectively. Maintenance and repairs are expensed as
incurred.
Educational Program Production Costs ----------------------------------------
Direct costs incurred in the original production of, and improvements
to, educational courses are capitalized, then recognized as expense using the
150% declining balance method over a three year period beginning in the month
the courses are placed in service. Courses are generally placed in service
within four to six months after the program production commences. These
direct costs primarily include contract-based curriculum development,
salaries and wages for staff directly engaged in the development process and
the costs of royalties and reprint permissions. Any unamortized cost is
charged to expense whenever a course or program is discontinued. From 1993
through 1995, less than 4% of these courses were discontinued within three
years of being placed in service. Indirect costs related to the curriculum
development process, such as space rent and supplies, are expensed as
incurred. Amortization expense was $1.4 million, $1.4 million and $1.1
million for 1995, 1994 and 1993, respectively.
<PAGE> 51
Deferred Rental Payments and Deposits ---------------------------------------
The Company records rent expense using the straight-line method over the
term of the lease agreement. Accordingly, deferred rental payment
liabilities are provided for lease agreements that specify scheduled rent
increases over the lease term and rental deposits are provided for lease
agreements that specify payments in advance or scheduled rent decreases over
the lease term.
Deferred Compensation Agreements --------------------------------------------
The Company has various deferred compensation agreements with
individuals that are accounted for individually on an accrual basis in
accordance with the terms of the underlying contract. The expected future
benefits are accrued over the period of service required to be rendered in
exchange for the benefits. All individuals covered by deferred compensation
agreements were fully eligible to receive the benefits at the contract date
and as a result, the deferred compensation liability reflects the present
value of all future benefits expected to be paid, as determined at the
contract date.
Selling and Promotional Costs -----------------------------------------------
The Company expenses selling and promotional costs as incurred. Selling
and promotional costs include marketing salaries, direct-response and other
advertising, promotional materials and related marketing costs.
Direct-response advertising is not presently capitalized because all the
criteria of Statement of Position 93-7, "Reporting on Advertising Costs,"
were not satisfied.
Startup Costs ---------------------------------------------------------------
Costs related to the startup of new campuses and learning centers are
expensed as incurred.
Non-Operating Income and Expense --------------------------------------------
Interest income is included in net revenues and totaled $2.4 million,
$280,000 and $84,000 for 1995, 1994 and 1993, respectively. Interest
expense, including the imputed interest on deferred compensation agreements,
is expensed as incurred. Interest expense totaled $96,000, $153,000 and
$255,000 for 1995, 1994 and 1993, respectively.
Income Taxes ----------------------------------------------------------------
Deferred income taxes have been provided for all significant temporary
differences. These temporary differences arise principally from compensation
not yet deductible for tax purposes, limitations on bad debt deductions for
tax purposes, capitalization of educational program production costs for
financial reporting purposes, loss reserves not deductible for tax purposes
and the use of accelerated depreciation methods.
When options granted under the Company's stock option plans are
exercised, the Company receives a tax deduction related to the difference
between the market value of its Class A Common Stock at the date of exercise
and the sum of the exercise price and any compensation expense recognized for
financial reporting purposes. The tax benefit resulting from this tax
deduction is reflected as a decrease in the Company's income tax liability
and an increase to additional paid-in capital.
<PAGE> 52
Recapitalization and Stock Splits -------------------------------------------
In June 1994, the Company issued six shares of Class A Common Stock and
.5 shares of Class B Common Stock in exchange for each share of common stock
outstanding at that date. In September 1994, the Company's Class A and
Class B Common Stock underwent a 1.118 to 1 stock split. On March 24, 1995,
the Board of Directors authorized a 4-for-3 stock split, effected in the form
of a stock dividend of 1/3 additional shares of Class A Common Stock for each
share of Class A or Class B Common Stock owned by shareholders of record on
April 7, 1995, to be distributed on April 28, 1995. On August 25, 1995, the
Board of Directors authorized a 3-for-2 stock split, effected in the form of
a stock dividend of 1/2 additional shares of Class A Common Stock for each
share of Class A or Class B Common Stock owned by shareholders of record on
September 8, 1995, to be distributed on September 22, 1995.
The June 1994 recapitalization and the three subsequent stock splits
have been given retroactive recognition in each period presented in the
accompanying consolidated financial statements, except that the number of
shares outstanding on the Consolidated Balance Sheet and the Consolidated
Statement of Shareholders' Equity have not been restated to show the effect
of the September 1995 stock split effected in the form of a stock dividend,
as this occurred subsequent to year end.
Earnings Per Share ----------------------------------------------------------
Net income per share is computed using the weighted average number of
Class A and Class B common and common equivalent shares outstanding during
the period after giving retroactive effect to the recapitalization and stock
splits described above. Shares subject to stock options issued during the
12-month period prior to the initial public offering are considered common
equivalent shares for all periods prior to the initial public offering,
pursuant to the requirements of the Securities and Exchange Commission (the
"SEC"). The amount of any tax benefit to be credited to capital related to
the exercise of options is included when applying the treasury stock method
to stock options in the computation of earnings per share. The exercise of
outstanding stock options would not result in a material dilution of earnings
per share.
Reclassifications -----------------------------------------------------------
Certain amounts reported for the year ended August 31, 1994 have been
reclassified to conform to the 1995 presentation, having no effect on net
income.
NOTE 3. ACQUISITION OF CERTAIN ASSETS OF WESTERN INTERNATIONAL UNIVERSITY
Effective September 1, 1995, the Company completed the acquisition of
certain assets of Western International University ("Western"). Western was
a private non-profit educational institution incorporated in 1978 that was
accredited by NCA. The Company formed a new wholly-owned subsidiary called
Western International University, Inc. ("WIU") as the holding company for the
net assets acquired from Western. WIU acquired accounts receivable, notes
receivable, furniture, fixtures, equipment, certain contracts and student
agreements, copyrights, trademarks, securities, cash, goodwill and certain
other assets of Western. In exchange, WIU paid Western $237,000 in cash,
including amounts advanced to Western prior to the closing, and assumed an
<PAGE> 53
additional $1.8 million in liabilities. The excess of costs over the fair
value of the assets acquired was $1.6 million and will be amortized on a
straight-line basis over fifteen years.
The acquisition was accounted for under the purchase method and,
accordingly, the results of operations related to this new subsidiary will be
included with those of the Company for periods subsequent to the date of
acquisition. Results of operations for periods prior to the acquisition were
immaterial. Western had consolidated net revenues of $4.3 million and pretax
income of $216,000 for the year ended August 31, 1995.
NOTE 4. DISCONTINUED TECHNICAL TRAINING SCHOOLS
In March 1992, the Company adopted a plan to discontinue the operations
of its technical training schools. The operations of these schools were
phased out over the period from March 1992 through October 1992. Pretax
losses related to the operations of the technical training schools were
$265,000 in 1993.
NOTE 5. FINANCIAL AID PROGRAMS
Approximately 50%-60% of the Company's net revenues was received from
students who participated in government sponsored financial aid programs
under Title IV of the Higher Education Act of 1965, as amended. These
financial aid programs consist generally of: (1) guaranteed student loans
that are issued directly to the students and are non-recourse to the Company
and (2) direct grants to students. Annually, the DOE publishes the default
rates of students participating in the FFEL programs.
<TABLE>
The latest student default rates as reported by the DOE for these
guaranteed student loans are as follows:
<CAPTION>
For Loans Entering
Repayment During the
DOE Fiscal Year Ended
September 30,
---------------------------
1992 1991 1990
------- ------- -------
<S> <C> <C> <C>
Students attending:
UOP campuses 5.0% 3.5% 2.6%
IPD client institutions 5.3% 5.6% 4.1%
Western campuses 4.7% 7.4% 7.0%
National average 15.0% 17.8% 22.4%
</TABLE>
<PAGE> 54
NOTE 6. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consist of the following, in thousands:
<CAPTION>
August 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Land $ 125 $ 125
Buildings 225 225
Furniture and equipment 16,494 9,088
Software 3,196 3,084
Capitalized equipment leases 377
Leasehold improvements 1,032 1,188
-------- --------
21,072 14,087
Less accumulated depreciation (7,682) (7,059)
Less accumulated amortization of capitalized
equipment leases (229)
-------- --------
Property and equipment, net $13,390 $ 6,799
======== ========
</TABLE>
During 1994, the Company sold furniture and equipment under a
sale-leaseback arrangement. The assets were sold for $2.4 million in cash,
resulting in a $351,000 gain that is being recognized pro rata over the term
of the related operating lease. In 1995 and 1994, the Company recognized a
gain of $117,000 and $88,000, respectively. In addition, the Company sold a
house located on leased land to the Company's Secretary and Treasurer for
$140,000 in 1994. The book value of the building and related improvements,
net of accumulated depreciation, was $148,000. The Company believes that the
terms of this sale were as favorable as could have been obtained from an
unaffiliated party.
NOTE 7. EDUCATIONAL PROGRAM PRODUCTION COSTS
<TABLE>
Educational program production costs consist of the following, in
thousands:
<CAPTION> August 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Educational program production costs $ 7,722 $ 6,823
Less accumulated amortization (5,759) (4,909)
-------- --------
Educational program production costs, net $ 1,963 $ 1,914
======== ========
</TABLE>
The net effect on pre-tax income of the capitalization and amortization
of educational program production costs amounts to an increase of $49,000 in
1995, a decrease of $36,000 in 1994 and an increase of $429,000 in 1993.
<PAGE> 55
NOTE 8. DEPOSITS AND OTHER ASSETS
<TABLE>
Deposits and other assets consist of the following, in thousands:
<CAPTION>
August 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Land held for sale $ 1,310 $ 1,414
Rental deposits 493 540
Other deposits 438 515
Other 494 257
-------- --------
Total other assets $ 2,735 $ 2,726
======== ========
</TABLE>
Land held for sale consists of approximately 105 acres of undeveloped
land located in Santa Cruz County, California, a substantial portion of which
was acquired from a related party in 1991. As a result of poor market
conditions in Northern California, the Company recorded a $104,000 writedown
in 1995 ($60,000 after related tax benefit), a $135,000 writedown in 1994
($80,000 after related tax benefit) and a $638,000 writedown in 1993
($359,000 after related tax benefit), based on independent appraisals dated
May 1995, August 1994 and June 1993, respectively.
NOTE 9. SHORT-TERM BORROWINGS
At August 31, 1995, the Company had no amounts borrowed against its $4.0
million line of credit. The line of credit is secured by receivables,
inventory, land held for sale and property and equipment and bears interest
at prime (7.87% at August 31, 1995). The line of credit is renewable
annually and is payable upon its termination in February 1996. The Company
expects to renew this credit line. The Company is in compliance with the
restrictive covenants contained in its line of credit agreement. The
Company's line of credit agreement prohibits the Company from paying cash
dividends or making other cash distributions without the lender's consent.
NOTE 10. OTHER ACCRUED LIABILITIES
<TABLE>
Other accrued liabilities consist of the following, in thousands:
<CAPTION>
August 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Salaries and wages $ 4,252 $ 3,186
Employee benefits and payroll withholdings 1,856 1,166
Other accruals 3,854 2,488
-------- --------
Total other accrued liabilities $ 9,962 $ 6,840
======== ========
</TABLE>
<PAGE> 56
NOTE 11. EMPLOYEE AND DIRECTOR BENEFIT PLANS
The Company provides various health, welfare and disability benefits to
its full-time salaried employees which are funded primarily by Company
contributions. The Company does not provide postemployment or postretirement
health care and life insurance benefits to its employees.
The Company sponsors a 401(k) plan which is available to all employees
of the Company who have completed one year and at least 1,000 hours of
continuous service. The Company matches 100% of the contributions from the
first $10,000 of a participant's annual pre-tax earnings. Contributions from
the participant's earnings in excess of $10,000 are matched by the Company at
18.5%. Participant contributions are subject to certain restrictions as set
forth in the Internal Revenue Code. The Company's matching contributions
totaled $848,000, $745,000 and $668,000 for 1995, 1994 and 1993,
respectively.
In addition, the Company has three stock-based compensation plans that
were adopted in 1994: the Apollo Group, Inc. Director Stock Plan ("Director
Stock Plan"), the Apollo Group, Inc. Long-Term Incentive Plan ("LTIP") and
the Apollo Group, Inc. 1994 Employee Stock Purchase Plan ("Purchase Plan").
The Director Stock Plan provides for an annual grant of options to the
Company's nonemployee directors to purchase 6,000 shares, adjusted for stock
splits, of the Company's Class A Common Stock on September 1 of each year.
Under the LTIP, the Company may grant options, incentive stock options, stock
appreciation rights and other stock based awards to certain officers or key
employees of the Company. At August 31, 1995, there were 140,000 and 493,000
shares available for issuance under the Director Stock Plan and LTIP,
respectively, and, to date, only non-qualified stock options have been
granted. A summary of the activity related to the stock options granted
under the Director Stock Plan and LTIP follows, in thousands:
<TABLE>
<CAPTION>
<S> <C>
Outstanding at August 31, 1993 --
June 2, 1994 grant at $.935 per share 369
---------
Outstanding at August 31, 1994 369
December 6, 1994 grant at $5.50 per share 402
Exercised at $5.50 per share (18)
Canceled at $5.50 per share (4)
---------
Outstanding at August 31, 1995 749
=========
Exercisable at August 31, 1993 and 1994 --
Exercisable at August 31, 1995 749
=========
Available for issuance at August 31, 1994 1,400
Less options granted (771)
Plus options canceled 4
----------
Available for issuance at August 31, 1995 633
==========
</TABLE>
<PAGE> 57
The June 2, 1994 grant to certain key employees was based on the fair
value of such options at the date of grant as determined by an independent
valuation. Pursuant to SEC requirements, the Company recorded $1.9 million
in compensation expense and additional paid-in capital in 1994 related to
these options, representing the difference between the exercise price per
share and the assumed initial public offering price multiplied by the total
number of shares granted.
In September 1995, the Company increased the number of shares of Class A
Common Stock available for issuance under the LTIP from 493,000 to 1.5
million. At the same time, the Company granted an additional 924,000 options
to purchase shares of Class A Common Stock, at $25.42 per share, to officers
and certain key employees under the LTIP. The options vest 25% at the end of
seven years and ratably thereafter over the eighth to approximate tenth year.
This vesting period may be accelerated for individual employees if the stock
price reaches defined goals for at least three trading days and if certain
profit goals, defined for groups of individuals, are also achieved.
The Purchase Plan allows employees of the Company to purchase up to 1.0
million shares of the Company's Class A Common Stock at quarterly intervals
through periodic payroll deductions. The purchase price per share, in
general, is 85% of the lower of: (1) the fair market value (as defined in
the Purchase Plan) of a share of Class A Common Stock on the participant's
enrollment date into the respective quarterly offering period or (2) the fair
market value of a share of Class A Common Stock on the purchase date. During
the year ended August 31, 1995, 53,000 shares were purchased by eligible
employees at prices ranging from $5.58 to $11.32 per share. At August 31,
1995, there are 947,000 shares available for purchase under the Purchase
Plan.
NOTE 12. LONG-TERM LIABILITIES
<TABLE>
Long-term liabilities consist of the following, in thousands:
<CAPTION>
August 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Deferred compensation agreements, discounted
at 7.5% to 12% $ 1,004 $ 998
Deferred rental payments 315 351
Mortgage notes and capital lease obligations
paid in full in 1995 181
-------- --------
Total long-term liabilities 1,319 1,530
Less current portion (118) (183)
-------- --------
Total long-term liabilities, net $ 1,201 $ 1,347
======== ========
</TABLE>
The aggregate maturities of all long-term liabilities for each of the
five fiscal years subsequent to August 31, 1995 are: 1996--$118,000;
1997--$126,000; 1998--$95,000; 1999--$49,000; 2000--$50,000.
<PAGE> 58
The undiscounted deferred compensation liability was $1.8 million at
both August 31, 1995 and 1994. The discount rate for deferred compensation
agreements was determined at the date of each respective agreement based on
the estimated long-term rate of return on high-quality fixed income
investments with cash flows similar to the respective agreements.
NOTE 13. LEASES
<TABLE>
The Company is obligated under facility and equipment leases that are
classified as operating leases. Following is a schedule of future minimum
lease commitments as of August 31, 1995, in thousands:
<CAPTION>
Operating Leases
-----------------------------
Equipment
Buildings & Other
--------- ----------
<S> <C> <C>
1996 $11,704 $1,611
1997 9,770 670
1998 8,667 119
1999 7,260 4
2000 6,115 1
Thereafter 7,906
-------- --------
$51,422 $2,405
======== ========
</TABLE>
Facility and equipment rent expense totaled $16.5 million, $13.8 million
and $11.5 million for 1995, 1994 and 1993, respectively.
NOTE 14. INCOME TAXES
<TABLE>
Pre-tax earnings (loss) and the related components of the income tax
provision are as follows, in thousands:
<CAPTION> Year Ended August 31,
-----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Pre-tax earnings (loss):
United States $21,401 $8,104 $2,091
Puerto Rico 428 191 (79)
-------- -------- --------
Total pre-tax earnings $21,829 $8,295 $2,012
======== ======== ========
Income tax provision (credit):
Current -- state $ 2,550 $1,072 $ 244
Current -- federal 7,103 3,399 559
Deferred (424) (1,088) 66
-------- -------- --------
Total provision for income taxes $ 9,229 $3,383 $ 869
======== ======== ========
</TABLE>
<PAGE> 59
<TABLE>
The income tax provision differs from the tax that would result from
application of the statutory federal corporate tax rate. The reasons for the
differences are as follows, in thousands:
<CAPTION>
Year Ended August 31,
-----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income tax provision at expected rate of 35%
for 1995 and 34% for 1994 and 1993 $7,640 $2,820 $684
Nondeductible business meals 172 46 37
Non-taxable interest income (193)
State taxes, net of federal benefit 1,518 536 141
Other, net 92 (19) 7
-------- -------- --------
Total provision for income taxes $9,229 $3,383 $869
======== ======== ========
</TABLE>
<TABLE>
The current and non-current deferred tax assets and liabilities consist
of the following, in thousands:
<CAPTION>
August 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Gross deferred tax assets:
Compensation not yet deductible for tax purposes $1,455 $1,353
Difference in bad debt deductions for
financial reporting purposes 981 583
Loss reserves not deductible for tax purposes 554 567
Difference in lease expense deductions 272 318
Other 66
-------- --------
Total gross deferred tax assets 3,328 2,821
-------- --------
Gross deferred tax liabilities:
Deduction of educational program production
costs for tax purposes 785 786
Depreciation and amortization of property
and equipment 547 349
State taxes 158
Other 59
-------- --------
Total gross deferred tax liabilities 1,490 1,194
-------- --------
Net deferred tax asset $1,838 $1,627
======== ========
</TABLE>
<PAGE> 60
<TABLE>
The net tax asset is reflected in the accompanying balance sheet as
follows:
<CAPTION>
<S> <C> <C>
Current deferred tax asset, net $2,352 $1,321
Noncurrent deferred tax asset (liability), net (514) 306
-------- --------
Net deferred tax asset $1,838 $1,627
======== ========
</TABLE>
In light of the Company's history of profitable operations, management
has concluded that it is more likely than not that the Company will
ultimately realize the full benefit of its deferred tax assets related to
future deductible items. Accordingly, the Company believes that no valuation
allowance is required for deferred tax assets in excess of deferred tax
liabilities.
NOTE 15. CASH RECEIVED FROM OPERATING ACTIVITIES
<TABLE>
Following is a reconciliation of net income to net cash received from
operating activities, as shown on the consolidated statement of cash flows,
in thousands:
<CAPTION> August 31,
-----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net income $12,600 $ 4,912 $ 1,143
Asset write down 104 135 638
Depreciation and amortization of:
Property and equipment 2,751 1,997 1,819
Educational program production costs 1,375 1,365 1,098
Writeoff of unamortized cost of discontinued
educational courses 124 51
Bad debt expense 1,849 1,822 1,116
Compensation expense related to
grant of options 1,869
Net loss (gain) on disposal of assets 602 (141) (30)
Change in assets and liabilities:
Increase in restricted cash (3,781) (6,098) (1,907)
Increase in receivables, net of write-offs (3,496) (5,894) (4,128)
Decrease (increase) in deferred tax asset (725) (757) 157
Decrease (increase) in other current assets 312 (940) 26
Decrease (increase) in other assets (113) (687) 186
Increase (decrease) in deferred rent (36) 10 (269)
Increase (decrease) in deferred compensation
contracts 6 753 (46)
Increase in accounts payable and accrued
liabilities 4,058 2,727 468
Increase in student deposits and deferred
tuition 6,396 6,192 5,329
Increase (decrease) in deferred taxes 514 (331) (170)
Increase (decrease) in taxes payable (214) (491) 791
-------- -------- --------
Net cash received from operating
activities $22,326 $ 6,494 $ 6,221
======== ======== ========
</TABLE>
<PAGE> 61
Item 9 -- Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
<PAGE> 62
PART III
Item 10 -- Directors and Executive Officers of the Registrant
<TABLE>
The Company's directors serve one year terms and are elected each year
by the holders of the Company's Class B Common Stock. The following sets
forth information as of August 31, 1995 concerning the Company's directors
and executive officers:
<CAPTION>
<S> <C> <C>
Name Age Position
- ----------------------------- ---- ---------------------------------------------
John G. Sperling, Ph.D. 74 Chairman of the Board and President
William H. Gibbs 45 Senior Vice President and Director
Jerry F. Noble 53 Senior Vice President and Director
John D. Murphy 49 Senior Vice President-Institutional Affairs
and Director
Peter V. Sperling 35 Vice President of Administration, Secretary
and Treasurer and Director
James W. Hoggatt 38 Vice President of Finance and Chief Financial
Officer
Todd S. Nelson 36 Vice President
Dino D. DeConcini 61 Director
J. Jorge Klor de Alva, Ph.D. 47 Director
Thomas C. Weir 61 Director
</TABLE>
JOHN G. SPERLING, Ph.D., is the founder, President and Chairman of the
Board of Directors of the Company. Prior to his involvement with the
Company, from 1961 to 1973, Dr. Sperling was a professor of Humanities at
San Jose State University where he was the Director of the Right to Read
Project and the Director of the NSF Cooperative College-School Science
Program in Economics. At various times from 1955 to 1961, Dr. Sperling was
a member of the faculty at the University of Maryland, Ohio State University
and Northern Illinois University. Dr. Sperling received his Ph.D. from
Cambridge University, an M.A. from the University of California at Berkeley
and a B.A. from Reed College. Dr. Sperling is the father of Peter
V. Sperling.
WILLIAM H. GIBBS has been with the Company since 1980. Mr. Gibbs has
been the President of UOP and a Senior Vice President of the Company since
1987. From 1985 to 1987, Mr. Gibbs was the President of Apollo Education
Corporation ("AEC"). From 1980 to 1985, Mr. Gibbs held various positions
with the Company, including Chief Financial Officer and faculty member. From
1975 to 1984, Mr. Gibbs was with the accounting firm of Price Waterhouse and,
from 1982 to 1984, served as a management advisory manager. Mr. Gibbs
currently serves as a director of the Arizona State Board of Private
Post-Secondary Education and the Arizona Commission for Post-Secondary
Education. Mr. Gibbs received his M.B.A. from the University of Illinois
and his B.A. from Arizona State University. Mr. Gibbs is a Certified Public
Accountant in the State of Arizona.
JERRY F. NOBLE has been with the Company since 1981. Mr. Noble has been
a Senior Vice President of the Company since 1987 and the President of IPD
since 1984. From 1981 to 1987, Mr. Noble also was the controller of the
Company. From 1977 to 1981, Mr. Noble was the corporate accounting manager
for Southwest Forest Industries, a forest products company. Mr. Noble
received his M.B.A. from UOP and his B.A. from the University of Montana.
Mr. Noble is a Certified Public Accountant in the Commonwealth of Virginia.
<PAGE> 63
JOHN D. MURPHY has been with the Company since 1976. Mr. Murphy has
been the Senior Vice President-Institutional Affairs since 1987. From 1981
to 1987, Mr. Murphy was the Vice President of Public Affairs of the Company.
From 1991 to 1994 Mr. Murphy also served as Vice President-Academic Affairs
of UOP. From 1972 to 1976, Mr. Murphy was an instructor at San Jose State
University. Mr. Murphy is the founder and current Vice President of the
Independent Colleges and Universities of Arizona and the founder and current
Chairman of the Accredited Out-of-State Colleges and Universities of
California. Mr. Murphy is a member of the Council for Private Post-Secondary
and Vocational Education in California. Mr. Murphy received an M.A. from the
University of San Francisco and a B.A. from San Jose State University.
PETER V. SPERLING has been with the Company since 1983. Mr. Sperling
has been the Vice President of Administration since 1992 and the Secretary
and Treasurer of the Company since 1988. From 1987 to 1992, Mr. Sperling was
the Director of Operations at AEC. From 1983 to 1987, Mr. Sperling was
Director of Management Information Services of the Company. Mr. Sperling
received his B.A. from the University of California at Santa Barbara.
Mr. Sperling is the son of John G. Sperling.
JAMES W. HOGGATT has been with the Company since 1986. Mr. Hoggatt has
been the Vice President of Finance and Chief Financial Officer of the Company
since 1990. From 1987 to 1990, Mr. Hoggatt was the Vice President-Controller
of the Company. From 1986 to 1987, Mr. Hoggatt was the Director of Financial
Reporting of the Company. From 1979 to 1986, Mr. Hoggatt was with the
accounting firm of Price Waterhouse and, from 1984 to 1986, served as an
audit manager. Mr. Hoggatt received a B.S. from Abilene Christian
University. Mr. Hoggatt is a Certified Public Accountant in the State of
Arizona.
TODD S. NELSON has been with the Company since 1987. Mr. Nelson has
been a Vice President of the Company since 1994 and the Executive Vice
President of UOP since 1989. From 1987 to 1989, Mr. Nelson was the Director
of UOP's Utah campus. From 1985 to 1987, Mr. Nelson was the General Manager
at Amembal and Isom, a management training company. From 1984 to 1985,
Mr. Nelson was a General Manager for Vickers & Company, a diversified holding
company. From 1983 to 1984, Mr. Nelson was a Marketing Director at Summa
Corporation, a recreational properties company. Mr. Nelson received an
M.B.A. from the University of Nevada at Las Vegas and a B.S. from Brigham
Young University. Mr. Nelson was a member of the faculty at University of
Nevada at Las Vegas from 1983 to 1984.
DINO J. DECONCINI has been a director of the Company since 1981.
Mr. DeConcini is currently Executive Director, Savings Bonds Marketing
Office, U.S. Department of the Treasury. From 1979 to 1995, Mr. DeConcini
was a shareholder in DeConcini, McDonald, Brammer, Yetwin and Lacy, P.C.,
Attorneys at Law. From 1993 to 1995, Mr. DeConcini was a Vice President and
Senior Associate of Project International Associates, Inc., an international
business consulting firm. From 1991 to 1993 and 1980 to 1990, Mr. DeConcini
was a Vice President and partner of Paul R. Gibson & Associates, an
international business consulting firm.
J. JORGE KLOR DE ALVA, Ph.D., has been a director of the Company since
1991 and is a member of the Audit and Compensation Committees of the Board of
Directors of the Company. Dr. Klor de Alva has been a Professor of
Comparative Ethnic Studies and Anthropology at the University of California
at Berkeley since July 1994. From 1989 to 1994, Dr. Klor de Alva was a
<PAGE> 64
Professor of Anthropology at Princeton University. From 1984 to 1989, Dr.
Klor de Alva was the Director of the Institute for Mesoamerican Studies at
the State University of New York at Albany. From 1982 to 1989, Dr. Klor
de Alva was also an Associate Professor of Anthropology and Latin American
Studies at the State University of New York at Albany. From 1971 to 1982,
Dr. Klor de Alva served at various times as associate professor, assistant
professor or lecturer at San Jose State University, the University of
California at Santa Cruz, Instituto de Investigaciones Historicas,
Universidad Nacional Autonoma de Mexico and the University of California at
Berkeley.
THOMAS C. WEIR has been a director of the Company since 1983 and is a
member of the Audit and Compensation Committees of the Board of Directors of
the Company. During 1994, Mr. Weir became the President of Dependable
Nurses, Inc., a provider of temporary nursing services, W.D. Enterprises,
Inc., a financial services company and Dependable Personnel, Inc., a provider
of temporary clerical personnel. In addition, Mr. Weir has been an
independent financial consultant since 1990. From 1989 to 1990, Mr. Weir was
President of Tucson Electric Power Company. From 1979 to 1987, Mr. Weir was
Chairman and Chief Executive Officer of Home Federal Savings & Loan
Association, Tucson, Arizona.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of a registered class of the Company's equity securities, to
file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and reports of changes in ownership. Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based solely upon
a review of the copies of such forms furnished to the Company, or written
representations that no Forms 5 were required, the Company believes that
during the fiscal year ended August 31, 1995, its officers and directors
complied with all Section 16(a) filing requirements with the following
exception: William H. Gibbs filed a late Form 3 relating to a transaction
involving a transfer of Class A Common Stock into a family trust on March 1,
1995.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two principal committees: (1) an Audit
Committee comprised of J. Jorge Klor de Alva (Chairperson) and Thomas C. Weir
and (2) a Compensation Committee comprised of Thomas C. Weir (Chairperson)
and J. Jorge Klor de Alva.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended August 31, 1995, the Board of Directors of the
company met or acted by written consent on eight occasions. Each of the
Company's directors attended more than 75% of the meetings of the Board of
Directors and of meetings held by committees of the Board on which such
director served.
<PAGE> 65
Compensation Committee ------------------------------------------------------
The Compensation Committee of the Board of Directors, which met or acted
by written consent once during the fiscal year 1995, reviews all aspects of
compensation of executive officers of the Company and determines or makes
recommendations on such matters to the full Board of Directors. The report
of the Compensation Committee for 1995 is set forth below.
Audit Committee -------------------------------------------------------------
The Audit Committee, which met or acted by written consent two times in
fiscal year 1995, represents the Board of Directors in evaluating the quality
of the Company's financial reporting process and internal financial controls
through consultations with the independent auditors, internal management and
the Board of Directors.
Other Committees ------------------------------------------------------------
The Company does not maintain a standing nominating committee or other
committee performing similar functions.
<PAGE> 66
Item 11 -- Executive Compensation
DIRECTOR COMPENSATION
Fees ------------------------------------------------------------------------
Nonemployee directors of the Company currently receive a $12,000 annual
retainer, $1,000 for each board meeting attended and $500 for each committee
meeting attended. In addition, such nonemployee directors are reimbursed for
out-of-pocket expenses. In addition, Mr. DeConcini and Dr. Klor de Alva were
retained by the Company as consultants and received consulting fees of
$11,000 and $5,600, respectively, in 1995.
Apollo Group, Inc. Director Stock Plan --------------------------------------
In August 1994, the Board of Directors of the Company adopted the Apollo
Group, Inc. Director Stock Plan (the "Director Plan") to attract and retain
independent directors for the Company. The Director Plan is administered by
a committee appointed by the Board. The aggregate number of shares of
Class A Common Stock subject to the Director Plan may not exceed 200,000,
subject to adjustment. Options granted under the Director Plan are fully
vested six months and one day after the date of grant and are exercisable in
full thereafter until the date that is ten years after the date of grant.
The exercise price per share under the Director Plan is equal to the fair
market value of such shares upon the date of grant. On December 6, 1994, an
option to purchase 20,000 shares of the Company's Class A Common Stock at an
exercise price of $5.50 per share was granted to each Nonemployee Director
(as defined in the Director Plan). In addition, on September 1 of each year,
Nonemployee Directors receive an annual grant of options to purchase 6,000
shares, adjusted by stock splits, of the Company's Class A Common Stock. The
following table sets forth the options granted to the Nonemployee Directors
pursuant to the Director Plan.
EXECUTIVE COMPENSATION
The following table discloses the annual and long-term compensation
earned for services rendered in all capacities by the Company's Chairman of
the Board and President together with the Company's four other most highly
compensated executive officers for the fiscal years ended August 31, 1995 and
1994:
<PAGE> 67
<TABLE>
-- SUMMARY COMPENSATION TABLE --
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
--------------------------------- ---------------------
Other Restric- Securities All Other
Annual ted Stock Underlying LTIP Compen-
Name and Principal Salary<F1> Bonus Compensation Awards Options Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------------ ------ --------- --------- ------------ --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John G. Sperling
Chairman of the Board
and President 1995 $310,000 $186,000 -- -- 50,000 -- $ --
1994 268,750 120,837 -- -- 71,552<F2> -- 750,000<F3>
William H. Gibbs
Senior Vice President
and President of UOP 1995 180,000 108,000 -- -- 30,000 -- 2,361<F4>
1994 161,250 125,954 -- -- 42,484<F2> -- 2,496<F4>
Jerry F. Noble
Senior Vice President
and President of IPD 1995 180,000 108,000 -- -- 30,000 -- 2,932<F4>
1994 161,250 60,469 -- -- 49,192<F2> -- 2,932<F4>
John D. Murphy
Senior Vice President-
Institutional Affairs 1995 180,000 108,000 -- -- 30,000 -- 2,932<F4>
1994 161,250 60,469 -- -- 55,900<F2> -- 2,932<F4>
Peter V. Sperling
Vice President Adminis-
tration, Secretary and
Treasurer 1995 170,000 102,000 -- -- 20,000 -- 45,982<F4>
1994 148,840 121,381 -- -- 53,664<F2> -- 45,982<F4>
<FN>
<F1> Messrs. John Sperling, Gibbs, Noble, Murphy and Peter Sperling also
received certain perquisites, the value of which did not exceed the
lesser of $50,000 or 10% of their cash compensation.
<F2> These options were issued on June 2, 1994, have a current exercise price
of $.935 per share and expire on June 1, 2004. Pursuant to SEC
requirements, the Company recorded $1.9 million in compensation expense
in 1994 related to these options, representing the difference between
the current exercise price and an assumed initial public offering price
of $6 per share multiplied by the 368,940 total shares granted to
certain key employees.
<F3> In 1994, the Company accrued $750,000 in compensation expense pursuant
to a deferred compensation agreement with Dr. Sperling that represents
the present value of all benefits expected to be paid in the future by
the Company pursuant to such plan. See "Executive Compensation--Employmen
and Deferred Compensation Agreements."
<PAGE>68
<F4> Amounts shown consist of: (1) contributions made by the Company to the
Company's Savings and Investment Plan (as described herein) paid in
fiscal years 1995 and 1994, respectively as follows: $2,361 and $2,496
on behalf of Mr. Gibbs; and $2,932 and $2,932 on behalf of Messrs.
Noble, Murphy and Peter Sperling and (2) premiums of $43,050 paid in
1995 and 1994 attributable to collateral split dollar life insurance
premiums for Mr. Peter Sperling, $10 million face value, the
beneficiaries of which are designated by Mr. Peter Sperling. Under this
policy the Company is entitled to receive, upon the occurrence of
certain events, any premiums the Company paid for the policy. Mr. Peter
Sperling is entitled to the excess of the cash value over the amount of
the premiums paid by the Company.
</FN>
</TABLE>
<PAGE> 69
The following table discloses options granted by the Company to the
Chairman of the Board and President and the four other most highly
compensated executive officers of the Company for the fiscal year ended
August 31, 1995:
<TABLE>
-- OPTION GRANTS IN THE LAST FISCAL YEAR --
<CAPTION>
Option Grants in Fiscal Year 1995 Potential Realizable
---------------------------------------------- Value at Assumed
% of Total Annual Rates of
Number of Options/SARs Stock Price
Securities Granted to Exercise Appreciation for
Underlying Employees or Base Option Term
Options/SARs in Fiscal Price Expiration ------------------------------
Name Granted<F1> Year ($/Share) Date 0% 5% 10%
- ------------------ ---------- ---------- -------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John G. Sperling 50,000 14.6 $5.50 12/06/04 $21,875 $208,578 $495,017
William H. Gibbs 30,000 8.8 5.50 12/06/04 13,125 125,147 297,010
Jerry F. Noble 30,000 8.8 5.50 12/06/04 13,125 125,147 297,010
John D. Murphy 30,000 8.8 5.50 12/06/04 13,125 125,147 297,010
Peter V. Sperling 20,000 5.9 5.50 12/06/04 8,750 83,431 198,007
<FN>
<F1> Options granted in 1995 are pursuant to the Apollo Group, Inc. Long-Term
Incentive Plan and may be exercised at any time six months and one day
after the date of grant. Such options are exercisable for a period not
to exceed ten years from the date of grant.
</FN>
</TABLE>
The following table discloses the number of shares received from the
exercise of Company options, the value received therefrom and the number and
value of in-the-money and out-of-the-money options held by the Company's
Chairman of the Board and President and the four other most highly
compensated officers of the Company for the fiscal year ended August 31,
1995:
<TABLE>
-- AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 --
AND OPTION VALUES AT AUGUST 31, 1995
<CAPTION>
Value of Unexercised
Shares Number of Unexercised Money Options at Fiscal
Acquired Value Options at Fiscal Year-End Year-End
on Exercise Realized --------------------------- ---------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- --------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
John G. Sperling -- -- 121,551 -- $2,089,139 --
William H. Gibbs -- -- 72,484 -- 1,244,957 --
Jerry F. Noble -- -- 79,192 -- 1,372,846 --
John D. Murphy -- -- 85,900 -- 1,500,733 --
Peter V. Sperling -- -- 73,664 -- 1,313,104 --
</TABLE>
Employment and Deferred Compensation Agreements ----------------------------
In December 1993, the Company entered into an employment agreement (the
"Employment Agreement") and deferred compensation agreement (the "Deferred
Compensation Agreement") with Dr. John G. Sperling, the Chairman of the Board
and President of the Company. The term of the Employment Agreement is for a
four-year term, and expires in December 31, 1997. Thereafter, it is
automatically renewable for additional one-year periods. Effective September
1, 1994, under the Employment Agreement to Dr. Sperling receives an annual
base salary of $310,000. This salary may be adjusted annually by the
Compensation Committee of the Board of Directors. The Company may terminate
the Employment Agreement only for cause and Dr. Sperling may terminate the
Employment Agreement at any time upon 30 days written notice.
<PAGE> 70
The Deferred Compensation Agreement provides that upon his termination
of employment with the Company and until his death, Dr. Sperling shall
receive monthly payments equal to one-twelfth of his highest annual base
salary paid by the Company during any one of the three calendar years
preceding the calendar year in which Dr. Sperling's employment is terminated.
In addition, upon Dr. Sperling's death, his designated beneficiary shall be
paid an amount equal to three times his highest annual base salary in 36
equal monthly installments with the first such installment due on the first
day of the month following the month of Dr. Sperling's death.
The Company does not have employment agreements with any of its other
executive officers.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is composed
entirely of independent outside members of the Company's Board of Directors.
The Committee reviews and approves each of the elements of the executive
compensation program of the Company and periodically assesses the
effectiveness and competitiveness of the program in total. In addition, the
Committee administers the key provisions of the executive compensation
program and reviews with the Board of Directors in detail all aspects of
compensation for the Company's executives. The Committee has furnished the
following report on executive compensation:
Overview and Philosophy -----------------------------------------------------
The Company's compensation program for executive officers is primarily
comprised of base salary, annual bonus and long-term incentives in the form
of stock option grants. Executives also participate in various other benefit
plans, including medical and retirement plans, generally available to all
employees of the Company.
The Company's philosophy is to pay base salaries to executives that
enable the Company to attract, motivate and retain highly qualified
executives. The annual bonus program is designed to reward for performance
based on financial results. Stock option grants are intended to result in no
reward if the stock price does not appreciate, but may provide substantial
rewards to executives as shareholders benefit from stock price appreciation.
Base Salary -----------------------------------------------------------------
Each of the Company's executives receives a base salary, which when
aggregated with their maximum bonus amount, is intended to be competitive
with similarly situated executives in comparable industries. The current
base salaries were effective in September 1994 and will be effective through
August 1996. In setting the current base salaries, the Committee reviewed
and considered compensation information provided by an independent
compensation consulting firm. The Company targets base pay at the level
required to attract and retain highly qualified executives. In determining
salaries, the Committee also takes into account individual experience and
performance and specific needs particular to the Company.
Annual Bonus Program --------------------------------------------------------
In addition to a base salary, in fiscal year 1995 executives were
eligible to receive a bonus of up to sixty percent (60%) of their respective
base salaries, and in fiscal year 1996 are eligible to receive a bonus of up
<PAGE> 71
to seventy-five percent (75%) of their respective base salaries. All annual
bonuses are tied to the Company's financial performance.
At the beginning of each fiscal year, the Committee establishes an
after-tax net income goal for the Company and operating profit goals for the
Company's subsidiaries. The annual bonuses are calculated differently for
(i) executives who also serve as executive officers of either The University
of Phoenix, Inc. ("UOP") or the Institute for Professional Development
("IPD") (collectively, the "Division Executives") and (ii) executives who do
not serve as executive officers of either UOP or IPD (collectively, the
"Company Executives").
The annual bonuses for Division Executives are tied to both the after-tax
net income goal for the Company and the operating profit goal for either
UOP or IPD, as applicable. If the applicable operating profit goal is
achieved, the Division Executives earn fifty percent (50%) of their
respective annual bonuses. The remaining fifty percent (50%) is earned only
if the after-tax net income goal for the Company is achieved or exceeded. If
the after-tax net income goal for the Company is achieved, the Division
Executives are entitled to twenty-five percent (25%) of their respective
annual bonuses.
The remaining twenty-five percent (25%) of the annual bonuses can be
earned by the Division Executives only if the after-tax net income goal for
the Company is exceeded. In particular, the Division Executives are entitled
to receive an additional one-and-one-quarter percent (1.25%) for each
$100,000 by which the after-tax net income goal is exceeded.
The annual bonuses for the Company Executives are tied solely to the
after-tax net income goal for the Company. If the after-tax net income goal
for the Company is achieved, the Company Executives earn fifty percent (50%)
of their respective annual bonuses. If the after-tax net income goal is
exceeded, the Company Executives earn a larger percentage of their annual
bonus depending on the amount by which the after-tax net income goal is
exceeded. The remaining fifty percent (50%) of the annual bonuses can be
earned by the Company Executives only if the after-tax net income goal for
the Company is exceeded. In particular, the Company Executives are entitled
to receive an additional two-and-one-half percent (2.5%) for each $100,000 by
which the after-tax net income goal is exceeded.
Options ---------------------------------------------------------------------
The Company believes that it is important for executives to have an
equity stake in the Company and, toward this end, makes option grants to key
executives from time to time. In making option awards, the Committee reviews
the level of awards granted to executives at other comparably-sized
companies, the Company's financial performance during the past fiscal year,
the awards granted to other executives within the Company and the individual
officer's specific role at the Company.
In fiscal year 1995, the Committee approved stock option grants to
several executive officers. These options were granted at fair market value
and expire 10 years after the grant date.
In September 1995, the Committee approved a substantial number of stock
option grants to the executive officers as part of the Company's 1995
Performance Incentive Grants. To accommodate the 1995 Performance Incentive
Grants, the Company's Long-Term Incentive Plan has been amended to increase
the number of shares subject to the Plan to 2.2 million shares. These
<PAGE> 72
options were granted at fair market value, begin to vest seven years after
the grant date and expire 10 years after the grant date. The vesting of the
options can be accelerated if certain profit and stock price goals are
achieved. The 1995 Performance Incentive Grants are intended to be one-time
grants under the Company's Long-Term Incentive Plan. Except for promotions
or new hires, the Committee does not currently anticipate granting any
additional stock options to the Company's executive officers for the next
three years.
Other Benefits --------------------------------------------------------------
Executive officers are eligible to participate in benefit programs
designed for all full-time employees of the Company. These programs include
medical, disability and life insurance and a qualified retirement program
allowed under Section 401(k) of the Internal Revenue Code, as amended (the
"Code").
Chief Executive Officer Compensation ----------------------------------------
Dr. John G. Sperling is the founder, President and Chairman of the Board
of Directors of the Company. In December 1993, the Company entered into an
employment agreement (the "Employment Agreement") and deferred compensation
agreement (the "Deferred Compensation Agreement") with Dr. Sperling. The
Employment Agreement terminates on December 31, 1997, but is automotically
renewable for additional one-year terms. The Deferred Compensation Agreement
provides that upon Dr. Sperling's termination of employment with the Company
and until his death, Dr. Sperling shall receive monthly payments equal to
1/12 of his highest annual base salary paid by the Company during any one of
the three calendar years preceding the calendar year in which Dr. Sperling's
employment is terminated. In addition, upon Dr. Sperling's death, his
designated beneficiary shall be paid an amount equal to three times his
highest annual base salary in 36 equal monthly installments with the first
installment due on the first day of the month following the month of Dr.
Sperling's death.
During fiscal year 1995, Dr. Sperling received an annual base salary of
$310,000. In addition, because the after-tax net income goal for the Company
was exceeded, Dr. Sperling was paid a bonus of $186,000 for 1995. Dr.
Sperling also was granted options to purchase a total of 50,000 shares of the
Company's Class A Common Stock during fiscal year 1995, and in September 1995
was granted an option to purchase an additional 61,000 shares of Class A
Common Stock in connection with the 1995 Performance Incentive Grants. All
options were granted at fair market value and expire ten years after the
grant date. These options have exercise prices ranging from $5.50 per share
to $25.42 per share with various vesting periods.
Under Dr. Sperling's leadership, the Company's net revenues increased
31%, from $124.7 million in 1994 to $163.4 million in 1995. In addition,
earnings per share increased from $.32 in 1994 to $.62 in 1995. Shareholder
value also has increased over this same period. For example, the initial
public offering price for the Company's Class A Common Stock was $5.50 per
share. The closing price for the Company's Class A Common Stock on August
31, 1995, as reported on the Nasdaq National Market, was $20.00 per share.
All share numbers and prices contained in this report have been adjusted
for the 4-for-3 stock split approved by the Company's Board of Directors on
March 24, 1995, and the 3-for-2 stock split approved by the Company's Board
of Directors on August 25, 1995.
<PAGE> 73
-- COMPENSATION COMMITTEE --
Thomas C. Weir
J. Jorge Klor de Alva, Ph.D.
STOCK PERFORMANCE GRAPH
<TABLE>
The line graph below compares the cumulative total shareholder return on
the Company's Class A Common Stock with the cumulative total return for the
Standard & Poor's 400 Index and an index of Company-selected peer group
companies for the period from December 6, 1994 (the effective date of the
Company's initial public offering) through August 31, 1995. The graph
assumes that the value of the investment in the Company's Class A Common
Stock and each index was $100 at December 6, 1994, and that all dividends
paid by those companies included in the indexes were reinvested.
<CAPTION>
Dec. 6 Feb. 28 May 31 Aug. 31
1994 1995 1995 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Apollo Group, Inc. Class A
Common Stock $100.00 $175.80 $314.40 $336.80
S&P 400 100.00 107.10 117.70 123.40
Education Peer Group 100.00 109.10 117.60 128.90
The education peer group is composed of the publicly-traded common stock
of 18 education-related companies that include Berlitz International, Inc.,
California Culinary Academy, Inc., Canterbury Corporate Services Inc.,
Children's Discovery Centers of America, Inc., DeVry Inc., Education
Alternatives, Inc., Flightsafety International, Industrial Training Corp.,
ITT Educational Services, Inc., KinderCare Learning Centers, Inc., National
Education Corporation, Nobel Education Dynamics, Inc., Quantum Learning
Systems, Inc., Sandy Corp., Sylvan Learning Systems, Inc., TRO Learning,
Inc., Wave Technologies International, Inc. and Whitman Medical Corp.
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee reviews and acts on matters
relating to compensation levels and benefit plans for the Company's executive
officers. The Compensation Committee currently consists of Thomas C. Weir
and J. Jorge Klor de Alva.
<PAGE> 74
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
<TABLE>
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of September 30,
1995. Except as otherwise indicated, to the knowledge of the Company, all
persons listed below have sole voting and investment power with respect to
their shares, except to the extent that authority is shared by spouses under
applicable law or as otherwise noted below.
<CAPTION>
Class A Class B
Shares Shares of
of Common Common
Name and Address of Beneficial Owner<F1> Stock % Owned Stock % Owned
- --------------------------------------- ---------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
John G. Sperling 6,198,575<F2><F3> 27.9% 243,081<F11> 42.2%
Peter V. Sperling 6,492,081<F2><F4> 29.2 232,068<F12> 40.3
William H. Gibbs 722,857<F5> 3.3 27,950<F13> 4.9
Jerry F. Noble 705,189<F6> 3.2 27,950 4.9
John D. Murphy 732,147<F7> 3.3 27,950 4.9
Dino J. DeConcini 18,700<F8> .1 -- --
J. Jorge Klor de Alva 20,000<F9> .1 -- --
Thomas C. Weir 20,000<F9> .1 -- --
Total for All Directors and Executive
Officers as a Group (10 persons) 14,523,174<F10> 65.3% 575,769 100.0%
<FN>
<F1> The address of each of the listed shareholders, unless noted otherwise,
is in care of Apollo Group, Inc., 4615 East Elwood Street, Phoenix,
Arizona 85040.
<F2> Includes 828,438 shares held by the John Sperling 1994 Irrevocable Trust
dated April 27, 1994 for which Messrs. John and Peter Sperling are the
co-trustees.
<F3> Includes 121,551 shares that Mr. John Sperling has the right to acquire
within 60 days of the date of the table set forth above.
<F4> Includes 73,664 shares that Mr. Peter Sperling has the right to acquire
within 60 days of the date of the table set forth above.
<F5> Includes 72,484 shares that Mr. Gibbs has the right to acquire within 60
days of the date of the table set forth above.
<F6> Includes 79,192 shares that Mr. Noble has the right to acquire within 60
days of the date of the table set forth above.
<F7> Includes 85,900 shares that Mr. Murphy has the right to acquire within
60 days of the date of the table set forth above.
<F8> Includes 18,500 shares that Mr. DeConcini has the right to acquire
within 60 days of the date of the table set forth above.
<F9> These are shares that Mr. Klor de Alva and Mr. Weir have the right to
acquire within 60 days of the date of the table set forth above.
<F10>Includes 627,438 shares that all Directors and Executive Officers as a
group have the right to acquire within 60 days of the date of the table
set forth.
<PAGE> 75
<F11>Includes 243,080 shares held by the John G. Sperling Revocable Trust
dated January 31, 1995.
<F12>Includes 232,067 shares held by the Peter V. Sperling Revocable Trust
dated January 31, 1995.
<F13>Includes 27,949 shares held by the William H. Gibbs Revocable Trust
dated March 8, 1995.
</FN>
</TABLE>
Item 13 -- Certain Relationships and Related Transactions
The Company believes that all transactions it has entered into with
affiliates were at arm's length and on terms as favorable as could have been
obtained from unaffiliated parties.
<PAGE> 76
PART IV
Item 14 -- Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Sequentially
Numbered
Page or Method
of Filing
----------------
A. Financial Statements
(1) Report of Price Waterhouse LLP Page 43
(2) Consolidated Financial Statements
(a) Statement of Operations for the Years
Ended August 31, 1995, 1994 and 1993 Page 44
(b) Balance Sheet as of August 31, 1995
and 1994 Page 45
(c) Statement of Changes in Shareholders'
Equity for the Years Ended August 31,
1995, 1994 and 1993 Page 46
(d) Statement of Cash Flows for the Years
Ended August 31, 1995, 1994 and 1993 Page 47
(e) Notes to Consolidated Financial Statements Page 48
B. Financial Statement Schedule:
(1) Exhibit 27, Financial Data Schedule Page 106
C. Exhibits
Sequentially
Numbered Page
Exhibit or Method
Number Description of Exhibit of Filing
------- ----------------------------- -----------------------
3.1 Articles of Incorporation Incorporated by
of the Registrant reference to Exhibit
3.1 of Form S-1
Registration Statement
No. 33-83804 ("Form S-1
No. 33-83804")
3.2 Bylaws of the Registrant Incorporated by
reference to Exhibit
3.2 of Form S-1
No. 33-83804
<PAGE> 77
Sequentially
Numbered Page
Exhibit or Method
Number Description of Exhibit of Filing
------- ----------------------------- -----------------------
4 Articles of Incorporation Incorporated by
of the Registrant filed as reference to Exhibit 4
Exhibit 3.1 of Form S-1
No. 33-83804
10.1 Business Loan Agreement Incorporated by
between Apollo Group, Inc. reference to Exhibit
and First Interstate Bank 10.1 of Form S-1
No. 33-83804
10.2 Apollo Group, Inc. Director Page 81
Stock Plan
10.3 Apollo Group, Inc. Long-Term Incorporated by
Incentive Plan reference to Exhibit
10.3 of Form S-1
No. 33-83804
10.4 Apollo Group, Inc. Savings Incorporated by
and Investment Plan reference to Exhibit
10.4 of Form S-1
No. 33-83804
10.5 Apollo Group, Inc. 1994 Incorporated by
Employee Stock Purchase Plan reference to Exhibit
10.5 of Form S-1
No. 33-83804
10.6 Employment Agreement between Incorporated by
Apollo Group, Inc. and reference to Exhibit
John G. Sperling 10.6 of Form S-1
No. 33-83804
10.7 Deferred Compensation Agreement Incorporated by
between John G. Sperling reference to Exhibit
and Apollo Group, Inc. 10.7 of Form S-1
No. 33-83804
10.8 Deferred Compensation Agreement Incorporated by
between Apollo Group, Inc. and reference to Exhibit
Carole A. Crawford 10.8 of Form S-1
No. 33-83804
10.9 Lease Agreement between Apollo Incorporated by
Group Inc. and Kaiser Center reference to Exhibit
Partners 10.9 of Form S-1
No. 33-83804
10.10 Shareholder Agreement Dated Incorporated by
September 7, 1994 reference to Exhibit
10.10 of Form S-1
No. 33-83804
<PAGE> 78
Sequentially
Numbered Page
Exhibit or Method
Number Description of Exhibit of Filing
------- ----------------------------- -----------------------
10.11 Agreement of Purchase and Sale Page 89
of Assets of Western International
University Dated June 30, 1995
(without schedules and exhibits)
21 List of Subsidiaries Incorporated by
reference to Exhibit
21 of Form S-1
No. 33-83804
23.1 Consent of Independent Page 105
Accountants
24 Power of Attorney See Signature Page
27 Financial Data Schedule Page 106
99.1 Form of Agreement of Institute Incorporated by
for Professional Development reference to Exhibit
99.1 of Form S-1
No. 33-83804
D. Reports on Form 8-K
During the last quarter of the 1995 fiscal year, the Company filed no
reports on Form 8-K.
<PAGE> 79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Phoenix, State of Arizona, on October 26, 1995.
APOLLO GROUP, INC.
An Arizona Corporation
By: /s/ John G. Sperling
--------------------------------
John G. Sperling
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John G. Sperling and James W. Hoggatt, and
each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Form
10-K Annual Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person hereby ratifying
and confirming all that said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date
- -----------------------------------------------------------------------------
/s/ John G. Sperling Chairman of the Board October 26, 1995
- ------------------------- of Directors and President
John G. Sperling (Principal Executive Officer)
/s/ William H. Gibbs Senior Vice President and October 26, 1995
- ------------------------- Director
William H. Gibbs
/s/ Jerry F. Noble Senior Vice President and October 26, 1995
- ------------------------- Director
Jerry F. Noble
<PAGE> 80
Signature Title Date
- -----------------------------------------------------------------------------
/s/ John D. Murphy Senior Vice President of October 26, 1995
- ------------------------- Institutional Affairs and
John D. Murphy Director
/s/ Peter V. Sperling Vice President of October 26, 1995
- ------------------------- Administration, Secretary,
Peter V. Sperling Treasurer and Director
/s/ James W. Hoggatt Vice President of Finance October 26, 1995
- ------------------------- and Chief Financial Officer
James W. Hoggatt (Principal Financial and
Accounting Officer)
/s/ Dino J. DeConcini Director October 26, 1995
- -------------------------
Dino J. DeConcini
/s/ J. Jorge Klor de Alva Director October 26, 1995
- -------------------------
J. Jorge Klor de Alva
/s/ Thomas C. Weir Director October 26, 1995
- -------------------------
Thomas C. Weir
EXHIBIT 10.2
APOLLO GROUP, INC. DIRECTOR STOCK PLAN
(As amended through September 22, 1995)
ARTICLE 1 - ESTABLISHMENT, PURPOSE, AND DURATION
1.1 Establishment of the Plan ----------------------------------------------
Apollo Group, Inc., an Arizona corporation, hereby establishes the
"Apollo Group, Inc. Director Stock Plan" (the "Plan") for the benefit of its
Nonemployee Directors. The Plan sets forth the terms of initial and annual
grants of Stock Options to Nonemployee Directors, and such grants are subject
to the terms and provisions in this Plan.
1.2 Purpose of the Plan ----------------------------------------------------
The purpose of the Plan is to encourage ownership in the Company by
Nonemployee Directors and to strengthen the ability of the Company to attract
and retain the services of experienced and knowledgeable individuals as
Nonemployee Directors of the Company and to provide those individuals with a
further incentive to work for the best interests of the Company and its
shareholders.
1.3 Effective Date ---------------------------------------------------------
The Plan is effective as of August 5, 1994 (the "Effective Date").
Within one year after the Effective Date, the Plan shall be submitted to the
shareholders of the Company for their approval. The Plan will be deemed to
be approved by the shareholders if it receives the affirmative vote of the
holders of a majority of the shares of stock of the Company present, or
represented, and entitled to vote at a meeting duly held (or by the written
consent of the holders of a majority of the shares of stock of the Company
entitled to vote) in accordance with the applicable provisions of the Arizona
General Corporation Law and the Company's Bylaws and Articles of
Incorporation. Any Awards granted under the Plan prior to shareholder
approval are effective when made (unless the Committee specifies otherwise at
the time of grant), but no Award may be exercised or settled and no
restrictions relating to any Award may lapse before shareholder approval. If
the shareholders fail to approve the Plan, any Award previously made shall be
automatically canceled without any further act.
1.4 Duration of the Plan ---------------------------------------------------
The Plan shall remain in effect until all Shares subject to it shall
have been purchased or acquired according to the Plan's provisions, subject
to the right of the Board of Directors to terminate the Plan at any time
pursuant to Article 8 or Section 9.4. However, no Award may be granted under
the Plan after the tenth anniversary date of the Effective Date of the Plan.
ARTICLE 2 - DEFINITIONS AND CONSTRUCTION
2.1 Definitions ------------------------------------------------------------
For purposes of the Plan, the following terms will have the meanings set
forth below:
<PAGE>
(a) "Award" means a grant of Nonqualified Stock Options under the Plan.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company, and includes any committee of the Board of Directors
designated by the Board to administer this Plan.
(c) "Change in Control" means and includes each of the following:
(1) Any consolidation or liquidation of the Company in which the
Company is not the continuing or surviving corporation or
pursuant to which Shares would be converted into cash,
securities or other property, other than a merger of the
Company in which the holders of the Shares immediately before
the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the
merger;
(2) The shareholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company; or
(3) Substantially all of the assets of the Company are sold or
otherwise transferred to parties that are not within a
"controlled group of corporations" (as defined in Section 1563
of the Code) in which the Company is a member.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" means the committee appointed by the Board to
administer the Plan.
(f) "Company" means Apollo Group, Inc., an Arizona corporation, or any
successor as provided in Section 9.3.
(g) "Disability" means a permanent and total disability, within the
meaning of Code Section 22(e)(3). To the extent permitted pursuant
to Section 16 of the Exchange Act, Disability shall be determined
by the Board in good faith, upon receipt of sufficient competent
medical advice from one or more individuals, selected by the Board,
who are qualified to give professional medical advice.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor provision.
(i) "Fair Market Value" means the closing price for the Shares on the
relevant date, or (if there were no sales on such date) the closing
price on the nearest day before the relevant date, as reported on
the Nasdaq National Market System (or on any national securities
exchange on which the Shares are then listed).
(j) "Grant Date" means September 1, 1994 and each anniversary of that
date through September 1, 2003.
(k) "Nonemployee Director" means any individual who is a member of the
Board of Directors of the Company, but who is not otherwise an
employee of the Company and is not an officer or employee of any of
the Company's subsidiaries.
<PAGE>
(l) "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares, granted under Article 6, that is not intended to be an
incentive stock option qualifying under Code Section 422.
(m) "Option" means a Nonqualified Stock Option granted under the Plan.
(n) "Participant" means a Nonemployee Director of the Company who has
been granted an Award under the Plan.
(o) "Person" shall have the meaning in Section 3(a)(9) of the Exchange
Act and used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d).
(p) "Shares" means the shares of Class A Common Stock of the Company.
2.2 Gender and Number ------------------------------------------------------
Except as indicated by the context, any masculine term also shall
include the feminine, the plural shall include the singular and the singular
shall include the plural.
2.3 Severability -----------------------------------------------------------
If any provision of the Plan is determined to be invalid for any reason,
the remaining portion of the Plan shall be construed and enforced as if the
invalid provision had not been included.
ARTICLE 3 - ADMINISTRATION
3.1 The Committee ----------------------------------------------------------
The Plan will be administered by the Committee, subject to the
restrictions set forth in the Plan.
3.2 Administration by the Committee ----------------------------------------
The Committee has the full power, discretion, and authority to interpret
and administer the Plan in a manner that is consistent with the Plan's
provisions. However, the Committee does not have the power to determine Plan
eligibility, or to determine the number, the price, the vesting period, or
the timing of Awards to be made under the Plan to any Participant.
3.3 Decisions Binding ------------------------------------------------------
The Committee's determinations and decisions under the Plan, and all
related orders or resolutions of the Board shall be final, conclusive, and
binding on all persons, including the Company, its stockholders, employees,
Participants, and their estates and beneficiaries.
ARTICLE 4 - SHARES SUBJECT TO THE PLAN
4.1 Number of Shares -------------------------------------------------------
The total number of Shares available for grant under the Plan may not
exceed 100,000, subject to adjustment as provided in Section 4.3. The Shares
issued pursuant to Options exercised under the Plan may be authorized and
<PAGE>unissued Shares or Shares reacquired by the Company, as determined by the
Committee.
4.2 Lapsed Awards ----------------------------------------------------------
If any Option or Share of Restricted Stock granted under the Plan
terminates, expires, or lapses for any reason, any Shares subject to purchase
pursuant to such Option and any such Shares of Restricted Stock again will be
available for grant under the Plan.
4.3 Adjustments in Authorized Shares ---------------------------------------
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, Share
combination, or other change in the corporate structure of the Company
affecting the Shares, the number and/or type of Shares subject to any
outstanding Award and the number and/or type of Shares to be granted annually
pursuant to Section 6.2, and the Option exercise price per Share under any
outstanding Option will be automatically adjusted so that the proportionate
interests of the Participants will be maintained as before the occurrence of
such event. Any adjustment pursuant to this Section 4.3 will be conclusive
and binding for all purposes of the Plan.
ARTICLE 5 - ELIGIBILITY AND PARTICIPATION
5.1 Eligibility ------------------------------------------------------------
Persons eligible to participate in the Plan are limited to Nonemployee
Directors.
5.2 Actual Participation ---------------------------------------------------
All eligible Nonemployee Directors will receive grants of Options
pursuant to Article 6.
ARTICLE 6 - ANNUAL OPTION GRANTS
6.1 Initial Grant of Options -----------------------------------------------
Immediately following the Company's initial public offering of the
Shares, each individual who is a Nonemployee Director on such date shall be
granted an Option to purchase 10,000 Shares at an exercise price per Share
that is equal to the initial public offering price. With the exception of
Section 6.4 hereof, the specific terms of the Option are subject to the
provisions of this Article 6 and the Option Agreement executed pursuant to
Section 6.3.
6.2 Annual Grant of Options ------------------------------------------------
Each individual who is a Nonemployee Director on the relevant Grant Date
after the effective date of the Company's initial public offering of the
Shares shall be granted an Option to purchase 3,000 Shares on each September
1 of each year following 1994 through September 1, 2003, subject to the
limitation on the number of Shares that may be awarded under this Plan.
<PAGE>6.3 Option Agreement ----------------------------------------------------
Each Option grant will be evidenced by an Option Agreement that will not
include any terms or conditions that are inconsistent with the terms and
conditions of this Plan.
6.4 Option Price -----------------------------------------------------------
Except as otherwise provided herein, the exercise price per Share under
an Option granted pursuant to this Article 6 shall be equal to the Fair
Market Value of such Share on the Grant Date ("Option Price").
6.5 Duration of Options ----------------------------------------------------
Each Option granted under this Article 6 shall expire on the tenth
(10th) anniversary date of its grant unless the Option is earlier terminated,
forfeited, or surrendered pursuant to a provision of this Plan.
6.6 Vesting of Shares Subject to Option ------------------------------------
Participants shall be entitled to exercise Options granted under this
Article 6 at any time within the time period beginning six (6) months and one
day after grant of the Option, and ending ten (10) years after grant of the
Option.
6.7 Payment ----------------------------------------------------------------
Options are exercised by delivering a written notice of exercise to the
Secretary of the Company, setting forth the number of Shares to be exercised,
accompanied by full payment for the Shares. The Option Price is payable:
(a) in cash or its equivalent;
(b) by tendering previously acquired Shares having a Fair Market Value
at the time of exercise equal to the total Option Price (provided
that the Shares tendered upon Option exercise have been held by the
Participant for at least six (6) months prior to their tender to
satisfy the Option Price); or
(c) by a combination of (a) and (b).
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in
the Participant's name, Share certificates in an appropriate amount based
upon the number of Shares purchased pursuant to the exercise of the Option.
6.8 Restrictions on Share Transferability ----------------------------------
To the extent necessary to ensure that Options granted under this
Article 6 comply with applicable law, the Board shall impose restrictions on
any Shares acquired pursuant to the exercise of an Option under this Article
6, including, without limitation, restrictions under applicable Federal
securities laws, under the requirements of any Stock exchange or market upon
which such Shares are then listed and/or traded, and under any blue sky or
state securities laws applicable to such Shares.
<PAGE>
6.9 Termination of Service on Board of Directors Due to Death or Disability
If a Participant's service on the Board is terminated by reason of death
or Disability, and a portion of the Participant's Award is not fully vested
as of that date, the portion of the Participant's Award that is exercisable
and fully vested will remain exercisable. The portion of the Award that is
not fully vested is forfeited and returned to the Company (and shall once
again be available for grant under the Plan).
To the extent an Option is exercisable as of the date of death or
Disability, it will remain exercisable at any time prior to its expiration
date, or for one (1) year after the date of death or Disability, whichever
period is shorter, by the Participant or such person or persons as shall have
been named as the Participant's legal representative or beneficiary, or by
such persons that have acquired the Participant's rights under the Option by
will or by the laws of descent and distribution.
6.10 Termination of Service on Board of Directors For Other Reasons ---------
If the Participant's service on the Board is terminated for any reason
other than for death or Disability, any outstanding Options held by the
Participant that are not fully vested as of the date of termination are
immediately forfeited to the Company (and shall once again become available
for grant under the Plan). To the extent an Option is exercisable as of such
date, it will remain exercisable for one (1) year after the date the
Participant's service on the Board terminates.
6.11 Nontransferability of Options ------------------------------------------
No Option granted under this Article 6 may be sold, transferred,
pledged, assigned, or otherwise alienated, other than by will, or by the laws
of descent and distribution. Further, all Options granted to a Participant
under this Article 6 shall be exercisable during his or her lifetime only by
such Participant.
ARTICLE 7 - CHANGE IN CONTROL
7.1 Change in Control ------------------------------------------------------
If a Change in Control of the Company occurs without the prior approval
of the Board, all Awards granted under the Plan that are still outstanding
and not yet vested or are subject to restrictions, shall become immediately
one hundred percent (100%) vested in each Participant or shall be free of any
restrictions, as of the first date that the definition of Change in Control
has been fulfilled, and shall exercisable for the remaining duration of the
Award. All Options that are exercisable as of the effective date of the
Change in Control will remain exercisable for the remaining duration of the
Options.
ARTICLE 8 - AMENDMENT, MODIFICATION, AND TERMINATION
8.1 Amendment, Modification, and Termination -------------------------------
Subject to the terms set forth in this Section 8.1, the Committee may
terminate, amend, or modify the Plan at any time; provided, however, that
shareholder approval is required for any Plan amendment that would materially
<PAGE>
increase the benefits to Participants or the number of securities that may be
issued, or materially modify the eligibility requirements in the Plan.
Further, Plan provisions relating to the amount, price, and timing of
securities to be awarded under the Plan may not be amended more than once
every six (6) months.
8.2 Awards Previously Granted ----------------------------------------------
Unless required by law, no termination, amendment, or modification of
the Plan shall in any manner adversely affect any Award previously granted
under the Plan, without the written consent of the Participant holding the
Award.
ARTICLE 9 - MISCELLANEOUS
9.1 Indemnification --------------------------------------------------------
Each individual who is or shall have been a member of the Board shall be
indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him
or her in connection with or resulting from any claim, action, suit, or
proceeding to which he or she may be a party or in which he or she may be
involved by reason of any action taken or failure to act under this Plan and
against and from any and all amounts paid by him or her in settlement
thereof, with the Company's approval, or paid by him or her in satisfaction
of any judgment in any such action, suit, or proceeding against him or her,
provided he or she shall give the Company an opportunity, at its own expense,
to assume and defend the same before he or she undertakes to defend it on his
or her own behalf.
The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such individuals may be entitled
under the Company's Certificate of Incorporation or Bylaws, as a matter of
law, or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
9.2 Beneficiary Designation ------------------------------------------------
Each Participant under the Plan may name any beneficiary or
beneficiaries to whom any benefit under the Plan is to be paid in the event
of his or her death. Each designation will revoke all prior designations by
the same Participant, shall be in a form prescribed by the Committee, and
will be effective only when filed by the Participant in writing with the
Committee during his or her lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be
paid to the Participant's estate.
9.3 Successors -------------------------------------------------------------
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
<PAGE>
9.4 Requirements of Law ----------------------------------------------------
The granting of Awards under the Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required.
Notwithstanding any other provision of the Plan, the Committee may, at its
sole discretion, terminate, amend, or modify the Plan in any way necessary to
comply with applicable requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission as interpreted pursuant to no-action
letters and interpretive releases.
9.5 Governing Law ----------------------------------------------------------
To the extent not preempted by Federal law, the Plan, and all agreements
hereunder, shall be construed in accordance with and governed by the laws of
the State of Arizona.
<PAGE>
EXHIBIT 10.11
AGREEMENT OF PURCHASE AND SALE OF ASSETS
OF WESTERN INTERNATIONAL UNIVERSITY
THIS AGREEMENT is entered into on June 30, 1995, by and between WESTERN
INTERNATIONAL UNIVERSITY, an Arizona non-profit corporation ("Seller"); and
APOLLO INTERNATIONAL EDUCATION CORPORATION, an Arizona corporation
("Purchaser").
In consideration of the terms and conditions contained herein,
Purchaser and Seller each hereby agree as follows:
ARTICLE 1 - PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of Assets --------------------------------------------
Subject to the terms and conditions of this Agreement, Seller shall
sell, transfer, assign, and deliver to Purchaser, and Purchaser shall
purchase from Seller all of Seller's right, title, and interest in and to the
assets and property of Seller described herein that relate to or are used
directly or indirectly in the operation of Western International University
(the "Business"), whether tangible, intangible, real, personal, or mixed and
wherever located including, but not limited to, those items described on
Schedule 1.1 hereto, but only the contracts listed on Schedule 1.1:
(a) All accounts receivable, notes, and evidences of indebtedness,
including accounts no longer carried on Seller's balance sheet;
(b) The furniture, fixtures, equipment, and other goods;
(c) The inventory, including but not limited to, supplies and
materials;
(d) The fixtures contained in the buildings used in the Business;
(e) All title, claims, and rights under contracts, including agreements
with students, but only as specified in Schedule 1.1 hereto;
(f) All copyrights, service marks, trademarks, trade names, trade
secrets, patents, patent applications, licenses, permits, royalty
rights, deposits, and rights and claims to refunds and adjustments
of any kind;
(g) All securities, notes, bank accounts (including the Barclays bank
account), certificates of deposit, and bonds;
(h) Goodwill;
(i) All prepaid items and deposits, including but not limited to,
insurance (except for Seller's rights under the Educators Legal
Liability Policy No. 524-213137-8 and Policy No. 524-186996-4),
including any cash surrender value thereof, prepaid expenses
(except for up to $17,079.43 in Seller's trust account at Ryley,
Carlock & Applewhite), and prepaid rent;
<PAGE>
(j) The books, files, records, and accounting systems, including but
not limited to, computer hardware and related software or
embodiments;
(k) All learning resources, library, curriculum, and other educational
program materials and resources ("Learning Resources");
(l) Any additional items of tangible property used or owned by Seller
which are not included above and the items of property listed on
Schedule 2.6;
(m) The accreditation of Seller by the Commission on Institutions of
Higher Education of the North Central Association of Colleges and
Schools; and
(n) The name "Western International University."
For purposes of this Agreement, all of the property and assets described
in this Section 1.1 shall be referred to collectively as "Purchased Assets."
Such sale shall be made free and clear of all liabilities, obligations,
and encumbrances except those liabilities obligations, and encumbrances
specifically assumed by Purchaser under Section 1.2 hereof.
1.2 Liabilities ------------------------------------------------------------
On the Closing Date (as hereinafter defined), in partial consideration
of the transfer to the Purchaser of the Purchased Assets, Purchaser shall
assume and pay or discharge only those liabilities (the "Assumed
Liabilities") of Seller described on Schedule 1.2 hereto as they exist on the
Closing Date and only up to the amounts indicated on Schedule 1.2. Except
for the Assumed Liabilities, which include liabilities that may be
established to have arisen out of Seller's administration of student
financial assistance programs under Title IV of the Higher Education Act, as
amended, prior to the Closing Date, Purchaser does not assume and shall not
be liable for any of the obligations or liabilities of Seller of any kind or
nature, including, but not limited to, any liability under those certain
leases with Glengall Bridge Limited and with Rank Leasing.
1.3 Purchase Price ---------------------------------------------------------
The total purchase price for the Purchased Assets is the total of (a)
the Assumed Liabilities, (b) $101,600, satisfaction of Seller's obligations
to World Universities, Inc., and (d) satisfaction of Seller's secured
obligations to Apollo Group, Inc. pursuant to one or more promissory notes in
the aggregate principal amount of $125,000, plus accrued interest.
1.4 Payment of Purchase Price ----------------------------------------------
Subject to the terms hereof, the total purchase price for the Purchased
Assets shall be paid by Purchaser at the Closing as follows:
(a) A certified or bank cashier's check, payable to the order of
Seller, in the amount of $101,600;
(b) Assumption of the Assumed Liabilities pursuant to Section 1.2;
(c) Satisfaction of Seller's obligations to World Universities, Inc.;
and
<PAGE>
(d) Satisfaction of Seller's secured obligations to Apollo Group, Inc.
pursuant to one or more promissory notes in the aggregate principal
amount of $125,000, plus accrued interest.
Immediately after the Closing, Seller shall pay approximately $40,308 of
the amount provided to Seller pursuant to Section 1.4(a) to TIAA-CREF as a
contribution for the benefit of Seller's employees.
1.5 Allocation of Purchase Price -------------------------------------------
Each of the parties agrees to report this transaction for federal tax
purposes in accordance with the purchase price calculation of Section 1.3 and
in accordance with the Form 8594, Asset Acquisition Statement, to be provided
by Purchaser to Seller after the Closing Date. The $101,600 paid in cash and
any excess of Assumed Liabilities over the net book value of the Purchased
Assets, on the Closing Date of the Purchased Assets, calculated in accordance
with generally accepted accounting principles, shall be treated as goodwill
value.
1.6 Taxes ------------------------------------------------------------------
Seller shall pay all sales and use taxes arising out of the transfer of
the assets and shall pay its portion, prorated as of the Closing Date, of
state and local real and personal property taxes, except as may be
specifically listed on Schedule 1.2. Purchaser shall not be responsible for
any payroll, excise, income, business, occupation, withholding, or similar
tax, or any taxes of any kind related to any period before the Closing Date,
except as may be specifically listed on Schedule 1.2.
1.7 Transfer Fees ----------------------------------------------------------
Seller shall pay any and all transfer and assumption fees and expenses
relating to the sale of the assets by Seller to Purchaser.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF SELLER
2.1 Representations and Warranties of Seller -------------------------------
Seller represents, warrants, and agrees as follows:
2.2 Organization and Existence ---------------------------------------------
Seller is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Arizona with all requisite corporate
power to carry on its business as now conducted. The Seller is not qualified
to do business as a foreign corporation in any other jurisdiction, and the
character and location of its assets and the nature of the Business do not
require any such qualification.
2.3 Financial Statements ---------------------------------------------------
Seller has delivered to Purchaser the audited balance sheets of Seller
at August 31, 1994, and the related statements of income for the period then
ended, together with the related notes thereto, as certified by the
independent accountants for the Seller and the unaudited balance sheets of
Seller at June 30, 1995, and the related statements of income for the period
then ended (the "Financial Statements"). Except as set forth in Schedule
<PAGE>
2.3 Seller's Financial Statements are complete and correct and in accordance
with the books of account and records of Seller, and present fairly Seller's
financial position. The aforementioned Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied.
2.4 Subsidiaries -----------------------------------------------------------
Except as disclosed on Schedule 2.4, Seller does not own, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, trust, or other entity.
2.5 Absence of Certain Changes or Events -----------------------------------
Except as disclosed on Schedule 2.5 attached hereto, since August 31,
1994, there has not been any:
(a) Transaction by Seller except in the ordinary course of business as
conducted on that date;
(b) Material adverse change in the financial condition, liabilities,
assets, business, or prospects of Seller;
(c) Destruction, damage to, or loss of any material asset of Seller
(whether or not covered by insurance);
(d) Labor dispute or other event or condition of any character
materially and adversely affecting the financial condition,
Business, assets, or prospects of Seller;
(e) Change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or
rates) by Seller;
(f) Increase in the salary or other compensation payable or to become
payable by Seller to any of its officers, trustees, or employees,
or the declaration, payment, or commitment or obligation of any
kind for the payment, by Seller, of a bonus or other additional
salary or compensation to any such person;
(g) Amendment or termination of any contract, agreement, or license to
which Seller is a party, or by which it or any of its assets or
properties are subject, except in the ordinary course of business;
(h) Waiver or release of any right or claim of Seller, except in the
ordinary course of business;
(i) Declaration of or agreement to make any distribution of any assets
of any kind whatsoever;
(j) Citations, notices, or communications received for any violations
of the Federal Occupational Safety and Health Act of 1970 or any
rules or regulations promulgated thereunder, or any other act, law,
rule or regulation of any other governmental agency;
(k) Claim incurred for damages or alleged damages for actual or alleged
negligence or other tort or breach of contract which is not fully
covered by insurance underwritten by responsible insurers;
<PAGE> (l) Sales, transfers, disposals of or agreements to sell, transfer or
otherwise dispose of any of the assets, properties or rights of
Seller, except as incurred in the ordinary course of business
consistent with the past practices of Seller;
(m) Agreements entered into granting any preferential rights to
purchase any of the assets, properties or rights (including
management and control thereof), or requiring the consent of any
party to the transfer and assignment of any such assets, properties
or rights (including management and control thereof);
(n) Sales or disposals of any capital assets; or
(o) Agreement by Seller to do any of the things described in the
preceding clauses (a) through (n).
2.6 Other Property ---------------------------------------------------------
Attached hereto as Schedule 2.6 is a list describing and specifying the
location of all of the Purchased Assets and such list constitutes all
tangible personal property necessary for the conduct by Seller of the
Business as it is now conducted, and such property is in good working order.
Seller is the owner, beneficially and of record, of all of the Purchased
Assets free and clear of all liens, encumbrances, security agreements,
equities, options, claims, charges, and restrictions, except as described in
Schedule 2.6 hereto.
2.7 Absence of Undisclosed Liabilities -------------------------------------
Except as set forth in the Financial Statements or in any Schedule
attached to this Agreement, Seller has not incurred, and none of its assets
or properties are subject to, any liabilities or obligations (accrued,
absolute, contingent, or otherwise including but not limited to accrued but
not yet payable tax liabilities), whether or not such liabilities are
normally shown or reflected on a balance sheet prepared in a manner
consistent with generally accepted accounting principles, and Seller is not
in default in respect of any term or condition of any indebtedness or
liability. There are no facts in existence on the date hereof and known to
Seller that might reasonably serve as the basis for any material liabilities
or obligations of Seller not disclosed in this Agreement, the Financial
Statements, or the Schedules attached to this Agreement.
2.8 Tax Matters ------------------------------------------------------------
All federal, state, county, local and other taxes, including without
limitation, income taxes, excise taxes, payroll taxes, corporate franchise
taxes, sales, and ad valorem taxes, due and payable by Seller on or before
the date of this Agreement have been paid, and Seller has filed on a timely
basis all tax returns and reports required to be filed by it with all
applicable taxing authorities and Seller does not expect any penalties to be
assessed against it with respect to such returns and reports. Seller is
responsible for filing all post-closing tax returns of Seller and for
complying with all tax related audits and inquiries relating to Seller. No
assessments or deficiencies have been made against Seller and no extensions
of time are in effect for the assessment of deficiencies. Seller will not
cause or voluntarily permit a change in any method of accounting for tax
purposes during or applicable to its current tax year which would render
inaccurate, misleading, or incomplete the information concerning taxes set
<PAGE>
forth in or referred to in this Section 2.8, or which would have an adverse
effect on Seller for any period ending on or before the Closing Date.
2.9 Notes and Accounts Receivable ------------------------------------------
Except to the extent collected since August 31, 1994, all notes and
accounts receivable reflected on the Financial Statements are and will be (i)
bona fide claims against debtors, and (ii) subject to no defenses, set-offs,
or counterclaims. Additionally, Seller will provide to Purchaser at the
Closing, a list of all notes and accounts receivable owed to Seller at such
date.
2.10 Patents and Trademarks ------------------------------------------------
Attached hereto as Schedule 2.10 is a complete list of all trademarks,
trademark registrations or applications, service marks, patents, trade names,
copyrights, or copyright registrations or applications used by Seller. No
person owns any trademark, trademark registration or application, service
mark, patent, trade name, copyright, or copyright registration or
application, the use of which is necessary or contemplated in connection with
the operation of the Business or in connection with the performance of any
contract to which Seller is a party.
2.11 Litigation ------------------------------------------------------------
Except as set forth in Schedule 2.11 attached hereto, there are no
claims, actions, lawsuits, proceedings, arbitration issues, unsettled
worker's compensation claims, or investigations pending or threatened against
or affecting Seller, the Business, or any of its assets or properties, at law
or in equity or before or by any court or federal, state, municipal or other
governmental department, commission, board, agency, instrumentality, or unit.
Seller is not subject to any continuing court or administrative order, writ,
injunction, or decree applicable to it or to the Business, property, or its
employees, and Seller is not in default with respect to any order, writ,
injunction, or decree of any court or federal, state, municipal or other
governmental department, commission, board, agency, instrumentality, or unit.
2.12 Compliance with Laws --------------------------------------------------
Except as set forth in Schedule 2.12, Seller has complied in all
respects with all applicable federal, state, municipal, and other political
subdivision or governmental agency statutes, ordinances, and regulations.
Performance of this Agreement will not (i) result in any breach of,
constitute a default under, or result in the imposition of any lien or
encumbrance on any of the Purchased Assets under any arrangement, agreement,
or other instrument to which the Seller is a party or by which Seller is
bound or affected; or (ii) violate the Articles of Incorporation or the
Bylaws of the Seller. The Seller is not in violation of its Articles of
Incorporation or Bylaws.
2.13 Employees -------------------------------------------------------------
Attached hereto as Schedule 2.13 is a list of names, current annual
rates of salary, bonus, employee benefits, accrued vacation times, sick pay,
and other compensation of all the present officers, trustees, employees, and
agents of Seller. The Seller has no employment agreements currently in
effect.
<PAGE>
2.14 Employee Benefit Plans ------------------------------------------------
Except as set forth on Schedule 2.14 attached hereto, there are no
pension, bonus, profit sharing, or employee benefit plans maintained by
Seller or to which Seller contributes or is required to contribute. All such
plans set forth on Schedule 2.14 hereto, and their related trusts, if any,
comply with and have been administered in compliance with any applicable
provisions of the Employee Retirement Income Security Act of 1974 as amended
("ERISA"), and all other applicable laws, rules, and regulations, and any
necessary governmental approvals of the plans set forth on Schedule 2.14
hereto have been obtained. True and complete copies of the plans set forth
on Schedule 2.14 hereto and reports filed with any governmental agency with
respect thereto and the amount of contributions made by Seller to any such
plans for the last three (3) fiscal years of Seller have been furnished to
Purchaser by Seller.
2.15 Labor Matters ---------------------------------------------------------
Seller is not a party to any collective bargaining agreement with any
labor union or association. There are no discussions, negotiations, demands,
or proposals that are pending or that have been conducted or made with or by
any labor union or association, and there are no pending or threatened labor
disputes, strikes, or work stoppages that may have a material or adverse
effect upon Seller or the Business. Seller is in compliance with all federal
and state laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and is not engaged in any
unfair labor practices.
2.16 Brokers ---------------------------------------------------------------
Seller is not a party to or in any way obligated under any contract or
other agreement, and there are no outstanding claims against Seller for the
payment of any broker's or finder's fee in connection with the origin,
negotiation, execution, or performance of this Agreement.
2.17 No Default ------------------------------------------------------------
Except as may exist with respect to the items set forth on Schedule
2.17, there has been no default in any material respect, in any obligation to
be performed by Seller under any contract, lease, agreement, commitment, or
undertaking to which it is a party or by which it or its assets or properties
are bound, nor has Seller waived any material right under any such contract,
lease, agreement, commitment, or undertaking.
2.18 Transactions with Affiliated Parties ----------------------------------
Attached hereto as Schedule 2.18 is a list and description of all
transactions engaged in between Seller and any employee, officer, or trustee
of Seller or any of their spouses or children, any employee, officer, or
trustee (all such person being herein referred to collectively as "Affiliated
Parties" and individually as "Affiliated Party").
2.19 Books and Records -----------------------------------------------------
The books and records of account of the Seller are complete and correct
and reflect a true record of all financial affairs of the Seller as prepared
in the normal course of business through the date hereof, and the minute
books and other records of Seller fairly reflect the meetings and proceedings
of the Seller and its Board of Trustees.
<PAGE>
2.20 Authority of Seller ---------------------------------------------------
The execution, delivery, and performance by Seller of this Agreement has
been fully authorized by the Board of Trustees of Seller, and no further
corporate action is necessary on the part of Seller to make this Agreement
valid and binding upon Seller in accordance with its terms, and Purchaser has
received certified copies of all resolutions pertaining to such
authorization.
2.21 Disclosure ------------------------------------------------------------
Seller has not knowingly withheld from Purchaser any material facts
relating to the Business or the Seller. No representation or warranty in
this Agreement contains any untrue statement of a material fact required to
make the statements herein contained not misleading or omits to state any
material fact required to be stated herein or necessary to make the
statements herein not misleading.
2.22 Insurance -------------------------------------------------------------
Attached hereto as Schedule 2.22 is a list of all insurance policies
currently in force with respect to the Seller, its assets and business. Such
policies are in amounts and covering such losses and risks as set forth in
Schedule 2.22.
2.23 Students --------------------------------------------------------------
Attached hereto as Schedule 2.23 is an accurate list setting forth for
each student then enrolled and matriculated the name, matriculation date, and
the net amount of tuition (if any) then owing (if tuition earned exceeds
tuition paid) or prepaid (if tuition paid exceeds tuition earned).
2.24 Title to Purchased Assets ---------------------------------------------
Except as set forth in Section 1.2, the Seller has good and marketable
title to all of the Purchased Assets and all such Purchased Assets will be
conveyed to Purchaser at the Closing free and clear of all liens and
encumbrances.
2.25 Consents and Approvals ------------------------------------------------
Except as set forth on Schedule 2.25, no authorizations, consents, or
approvals of any third parties, including regulatory agencies, are required
for the consummation of the transactions contemplated by this Agreement.
2.26 Contracts -------------------------------------------------------------
Attached hereto as Schedule 2.26 is an accurate list of all material
contracts and agreements to which the Seller is a party, or by which it, or
any of its property is bound, which affect the Purchased Assets. Schedule
2.26 includes but is not limited to, leases, both real estate and equipment,
joint venture or partnership agreements, student agreements, tuition pre-payment
plans, escrow agreements, bonds, liens, pledges or other security
agreements, employment or consulting contracts, bonus, pension, group
insurance or similar employee benefit plans, advertising or public relations
contracts, or license agreements. Except as disclosed on Schedule 2.26, all
such contracts and agreements are in full force and effect. Except as
<PAGE>
disclosed on Schedule 2.26, the execution of this Agreement and the
performance of the obligations hereunder will not violate or result in the
breach or constitute a default under any of the terms or provisions of the
agreements listed on Schedule 2.26.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
3.1 Representations and Warranties of Purchaser ----------------------------
Purchaser represents, warrants, and agrees as follows:
3.2 Organization and Existence ---------------------------------------------
Purchaser is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Arizona, and has all requisite
corporate power to enter into and perform this Agreement and the transactions
contemplated hereby.
3.3 Authority of Purchaser -------------------------------------------------
The execution, delivery, and performance by Purchaser of this Agreement
has been duly authorized by the Board of Directors of Purchaser, and no
further corporate action is necessary on the part of Purchaser to make this
Agreement valid and binding upon Purchaser in accordance with its terms, and
Seller has received certified copies of all resolutions pertaining to such
authorization.
3.4 Brokers ----------------------------------------------------------------
Purchaser is not a party to or in any way obligated under any contract
or other agreement and there are no outstanding claims against it for the
payment of any broker's or finder's fee in connection with the origin,
negotiation, execution, or performance of this Agreement.
ARTICLE 4 - CONDITIONS PRECEDENT TO PURCHASER'S PERFORMANCE
4.1 Conditions -------------------------------------------------------------
The obligations of Purchaser to purchase the Purchased Assets under this
Agreement are subject to the satisfaction, at or before the Closing Date, of
all the conditions set out below in this Article 4. Purchaser may waive any
or all of these conditions in whole or in part without prior notice;
provided, however, that no such waiver of a condition shall constitute a
waiver by Purchaser of any of its other rights or remedies, at law or in
equity, if Seller shall be in default of any of its representations,
warranties, or covenants under this Agreement.
4.2 Accuracy of Representations --------------------------------------------
Except as otherwise permitted by this Agreement, all representations and
warranties by Seller in this Agreement, or in any written statement delivered
to Purchaser by Seller under this Agreement, shall be true on and as of the
Closing Date as though made at that time.
<PAGE>
4.3 Performance of Seller --------------------------------------------------
Seller shall have performed, satisfied, and complied with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with by it on or before the Closing Date.
4.4 Title IV Liability -----------------------------------------------------
The audit currently being conducted by the Department of Education shall
have been completed and shall have resulted in liability to the Department of
Education under Title IV, Higher Education Act Programs of an amount not
exceeding five hundred thousand dollars ($500,000).
4.5 Officers' Certificate --------------------------------------------------
Purchaser shall have received a certificate, dated the Closing Date,
signed and verified by Seller's Chairman of the Board of Directors
certifying, in such detail as Purchaser and its counsel may reasonably
request, that the conditions specified in Section 4.2, above, have been
fulfilled.
4.6 Absence of Litigation --------------------------------------------------
No action, suit, or proceeding before any court or any governmental body
or authority, pertaining to the transaction contemplated by this Agreement or
to its consummation, shall have been instituted or threatened on or before
the Closing Date.
4.7 [Intentionally Omitted]
4.8 Consents ---------------------------------------------------------------
All necessary agreements and consents of any parties to the consummation
of the transactions contemplated by this Agreement, or otherwise pertaining
to the matters covered by it, shall have been obtained.
4.9 Approval of Documents --------------------------------------------------
The form and substance of all certificates, instruments, opinions, and
other documents delivered to Purchaser under this Agreement shall be
satisfactory in all respects to Purchaser and its counsel.
4.10 Opinion of Counsel ----------------------------------------------------
Seller shall have delivered to Purchaser an opinion of counsel to
Purchaser, dated as of the Closing Date, in form and substance satisfactory
to Purchaser, which opinion shall include a successor liability opinion.
4.11 Audited Financial Statements ------------------------------------------
[Intentionally Omitted].
4.12 Facilities ------------------------------------------------------------
Purchaser shall have made arrangements satisfactory to it with respect
to the lease of space for the Business in Phoenix, Arizona and with respect
to the operation of the Business at Ft. Huachuca, Arizona.
<PAGE>
4.13 World Universities, Inc. ----------------------------------------------
Purchaser shall have acquired from World Universities, Inc. the
obligation of Seller to World Universities, Inc.
4.14 Corporate Name --------------------------------------------------------
Seller shall have provided Purchaser with all documents required by law
to effect the change of Seller's corporate name to a name not similar to
Western International University and shall have provided Purchaser a consent
to use a similar name executed by Western International University Endowment
Foundation.
ARTICLE 5 - CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
5.1 Conditions -------------------------------------------------------------
The obligations of Seller to sell and transfer the assets under this
Agreement are subject to the satisfaction, at or before the Closing Date, of
all the following conditions of this Article 5. Seller may waive any or all
of these conditions in whole or in part without prior notice; provided,
however, that no such waiver of a condition shall constitute a waiver by
Seller of any of its other rights or remedies, at law or in equity, if
Purchaser shall be in default in any of its representations, warranties, or
covenants under this Agreement.
5.2 Purchaser's Warranties -------------------------------------------------
All representations and warranties by Purchaser contained in this
Agreement or in any written statement delivered by Purchaser under this
Agreement shall be true on and as of the Closing Date as though made as of
that date.
5.3 Performance of Purchaser -----------------------------------------------
Purchaser shall have performed, satisfied, and complied with all
covenants, agreements, and conditions required by this Agreement to be
performed, satisfied, or complied with by it on or before the Closing Date.
5.4 Opinion of Counsel -----------------------------------------------------
Purchaser shall have delivered to Seller an opinion of counsel to
Seller, dated as of the Closing Date, in form and substance satisfactory to
Seller.
5.5 Releases ---------------------------------------------------------------
Purchaser shall have received (a) mutual releases from World
Universities, Inc. and Dr. and Mrs. Ronald Bauer; and (b) a release from NPHP
Investments Limited Partnership. ARTICLE 1
<PAGE> ARTICLE 6 - THE CLOSING
6.1 Closing ----------------------------------------------------------------
The Closing with respect to the transaction contemplated by this
Agreement (the "Closing" or "Closing Date") shall be held on July _____,
1995, at 4:00 p.m. at the offices of Seller, or at such other time and date
as may be mutually agreed to by the parties.
6.2 Seller's Obligations ---------------------------------------------------
At the Closing, Seller shall deliver to Purchaser the following:
(a) Instruments of transfer transferring to Purchaser all of Seller's
rights, title, and interest in and to the Purchased Assets, all in
form and substance satisfactory to Purchaser;
(b) All books, records, and other data relating to the Business (other
than its corporate records);
(c) Instruments of assignment and transfer of all other Purchased
Assets of every kind and description and wherever situated;
(d) Certified resolutions as provided for in Section 2.20 hereof;
(e) Evidence of the satisfaction of all requirements of Section 4;
(f) All documents required by law to effect the change of Seller's name
to a name not similar to Western International University and a
consent to use a similar name executed by Western International
University Endowment Foundation; and
(g) All audited financial statements, tax returns, including sales tax
returns and property tax returns for the past three (3) years.
Seller, at any time before or after the Closing, will execute,
acknowledge, and deliver any further deeds, assignments, conveyances, and
other assurances, documents and instruments of transfer, reasonably requested
by Purchaser, and will take any other action consistent with the terms of
this Agreement that may reasonably be requested by Purchaser, for the purpose
of assigning, transferring, granting, conveying, and confirming to Purchaser,
or reducing to possession, any or all property to be conveyed and transferred
by this Agreement. If requested by Purchaser, Seller further agrees to
prosecute or otherwise enforce in its own name for the benefit of Purchaser,
any claims, rights, or benefits that are transferred to Purchaser by this
Agreement and that require prosecution or enforcement in Seller's name. Any
prosecution or enforcement of claims, rights, or benefits under this Section
shall be solely at Purchaser's expense, unless the prosecution or enforcement
is made necessary by a breach of this Agreement by Seller.
6.3 Purchaser's Obligations ------------------------------------------------
At the Closing, Purchaser shall deliver to Seller the following:
(a) Certified or bank cashiers' checks, aggregating $101,600 payable as
provided in Section 1.4 hereof;
(b) Certified resolutions as provided in Section 3.3 hereof;
<PAGE>
(c) Cancellation of the debt acquired by Purchaser from World
Universities, Inc.; and
(d) Satisfaction of Seller's secured obligations to Apollo Group, Inc.
pursuant to one or more promissory notes in the aggregate principal
amount of $125,000, plus accrued interest.
ARTICLE 7 - POST CLOSING
7.1 Nature of Statements ---------------------------------------------------
All statements contained herein, in any Schedule or Exhibit hereto, or
in any certificate or other written instrument delivered by or on behalf of
Seller or Purchaser pursuant to this Agreement, or in connection with the
transactions contemplated hereby shall be deemed representations and
warranties by Seller or Purchaser, as the case may be.
7.2 Survival of Representations and Warranties -----------------------------
Regardless of any investigation at any time made by or on behalf of any
party hereto, or of any information any party may have in respect thereof,
all covenants, agreements, representations, and warranties made hereunder or
pursuant hereto or in connection with the transactions contemplated hereby
shall survive the Closing.
7.3 Indemnification by Seller ----------------------------------------------
Seller shall indemnify, defend, and hold harmless Purchaser and its
successors and assigns from and against any and all claims, demands,
obligations, liabilities, losses, costs, damages, and expenses, including
interest, penalties, and reasonable attorneys' fees caused by or arising out
of:
(a) Any debt, liability, obligation, or lien of Seller with respect to
any or all Purchased Assets or the Business except for the Assumed
Liabilities set forth in Section 1.2;
(b) Any breach or default in the performance by Seller of any covenant
or agreement of Seller contained in this Agreement;
(c) Any breach of warranty or inaccurate or erroneous representation
made by Seller herein or in any Schedule or Exhibit hereto, or in
any certificate or other instrument delivered by or on behalf of
Seller pursuant hereto; or
(d) Any liability arising out of any and all actions, suits,
proceedings, claims, demands, judgments, costs, and expenses
incident to any of the foregoing.
Purchaser and its successors and assigns shall promptly notify Seller of
any such liability, breach of warranty, inaccuracy, misrepresentation, or any
other claim arising under the foregoing indemnification provision. Seller
may contest and defend in good faith any claim of third parties covered by
this Section, provided such contest is made without cost or prejudice to
Purchaser, and provided that within thirty (30) days of Seller's receipt of
notice of such claim Seller notifies Purchaser of its desire to defend and
contest such claim.
<PAGE>
If Seller does not notify Purchaser of its desire to contest the claim,
Seller shall reimburse Purchaser on demand for any payment actually made by
Purchaser at any time after the Closing Date with respect to any liabilities,
obligations, expenditures, or claims to which the foregoing indemnity
relates.
7.4 Indemnification by Purchaser -------------------------------------------
Purchaser agrees to indemnify and hold harmless Seller against, and in
respect of, any and all claims, losses, expenses, costs, obligations, and
liabilities Seller may incur by reason of Purchaser's breach of or failure to
perform any of its warranties, commitments, or covenants in this Agreement,
or by reason of any act or omission of Purchaser, or any of its successors or
assigns, after the Closing Date, that constitutes a breach or default under,
or a failure to perform any obligation, duty, or liability of Seller under
any loan agreement, lease, contract, order, or other agreement to which it is
a party or by which it is bound at the Closing Date, but only to the extent
to which Purchaser expressly assumes these obligations, duties, and
liabilities under this Agreement.
7.5 Student Records --------------------------------------------------------
After the Closing, Purchaser shall retain and maintain the student
records provided to Purchaser by Seller for a reasonable period of time and
in a manner consistent with Purchaser's current document retention policies.
ARTICLE 8 - MISCELLANEOUS
8.1 Expenses ---------------------------------------------------------------
Seller and Purchaser shall each pay its own expenses incident to the
negotiation, preparation, and carrying out of this Agreement and the
consummation of the transactions contemplated hereby.
8.2 Notices ----------------------------------------------------------------
All notices, requests, consents, and other communications hereunder
shall be in writing and shall be deemed to have been delivered on the date
personally delivered or on the date mailed first class certified mail,
postage prepaid, if addressed as follows:
(a) If to Seller, to:
John Blair
P.O. Box 5008
Carefree, AZ 85377
(b) If to Purchaser, to:
William H. Gibbs
4615 East Elwood Street
P.O. Box 52069
Phoenix, AZ 85072-2069
<PAGE> Any party may change its address for purposes of this Section by giving
the other party written notice of the new address in the manner set forth
above.
8.3 Costs ------------------------------------------------------------------
If any legal action or other proceeding is brought for the enforcement
of this Agreement, or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be
entitled.
8.4 Assignment -------------------------------------------------------------
This Agreement may not be assigned by any party hereto without the
consent of the other party hereto.
8.5 Section and Paragraph Headings -----------------------------------------
The Article and Section headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement.
8.6 Amendment --------------------------------------------------------------
This Agreement may be amended only by an instrument in writing executed
by all parties hereto.
8.7 Entire Agreement -------------------------------------------------------
This Agreement and the Schedules, Exhibits, certificates, and documents
referred to herein constitute the entire agreement of the parties hereto, and
supersede all prior understandings with respect to the subject matter hereof.
All Schedules and Exhibits attached to this Agreement are deemed to be fully
incorporated herein by this reference for all purposes, as though fully set
forth at length herein.
8.8 Counterparts -----------------------------------------------------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall constitute the same
instrument.
8.9 Governing Law ----------------------------------------------------------
This Agreement shall be construed in accordance with, and governed by,
the laws of the State of Arizona.
8.10 Schedules -------------------------------------------------------------
Seller and Purchaser acknowledge that the Schedules originally attached
hereto may not be complete. Accordingly, Seller and Purchaser agree to work
together to supplement and revise the Schedules and to agree on final
Schedules prior to the Closing Date.
<PAGE> IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the 30th day of June, 1995.
SELLER: PURCHASER:
WESTERN INTERNATIONAL UNIVERSITY APOLLO INTERNATIONAL EDUCATION
CORPORATION
By: /s/ John Blair By: /s/ John G. Sperling
- ------------------------------- -------------------------------
Chairman Chairman
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Registration No. 33-87844, Registration No. 33-88982,
Registration No. 33-88984 and Registration No. 33-63429) of Apollo Group,
Inc. of our report dated October 12, 1995 appearing on page 43 of this Form
10-K.
PRICE WATERHOUSE LLP
Phoenix, Arizona
October 25, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This 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> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 62601
<SECURITIES> 0
<RECEIVABLES> 18336
<ALLOWANCES> 2453
<INVENTORY> 2723
<CURRENT-ASSETS> 84044
<PP&E> 21072
<DEPRECIATION> 7682
<TOTAL-ASSETS> 102132
<CURRENT-LIABILITIES> 45065
<BONDS> 0
<COMMON> 19
0
0
<OTHER-SE> 55333
<TOTAL-LIABILITY-AND-EQUITY> 102132
<SALES> 0
<TOTAL-REVENUES> 163429
<CGS> 0
<TOTAL-COSTS> 123138
<OTHER-EXPENSES> 18462
<LOSS-PROVISION> 1849
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 21829
<INCOME-TAX> 9229
<INCOME-CONTINUING> 12600
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 12600
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
</TABLE>
