UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-25232
APOLLO GROUP, INC.
------------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0419443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040
(Address of principal executive offices, including zip code)
(480) 966-5394
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK
AS OF MARCH 31, 2000
Class A Common Stock, no par 74,751,156 Shares
Class B Common Stock, no par 511,484 Shares
1 <PAGE>
APOLLO GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE
PART I -- FINANCIAL INFORMATION ----
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . .11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .16
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . .16
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . .16
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . .16
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . .16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
2 <PAGE>
PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements
<TABLE>
Apollo Group, Inc. and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
<CAPTION>
February 29, August 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Assets:
Current assets --
Cash and cash equivalents $ 35,338 $ 51,534
Restricted cash 32,238 25,798
Marketable securities 37,198 31,064
Receivables, net 77,181 75,664
Deferred tax assets, net 8,372 7,346
Other current assets 4,787 6,807
--------- ---------
Total current assets 195,114 198,213
Property and equipment, net 82,207 74,826
Marketable securities 5,874 8,507
Investment in joint venture 11,888 10,701
Cost in excess of fair value of assets purchased, net 39,233 39,917
Other assets 14,127 16,178
--------- ---------
Total assets $348,443 $348,342
========= =========
Liabilities and Shareholders' Equity:
Current liabilities --
Current portion of long-term liabilities $ 300 $ 300
Accounts payable 13,482 12,105
Accrued liabilities 20,792 14,340
Income taxes payable 411 535
Student deposits and current portion of deferred revenue 85,286 81,507
--------- ---------
Total current liabilities 120,271 108,787
--------- ---------
Deferred tuition revenue, less current portion 1,141 2,139
--------- ---------
Long-term liabilities, less current portion 4,953 4,222
--------- ---------
Deferred tax liabilities, net 2,648 2,074
--------- ---------
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, 400,000,000 shares authorized;
74,893,000 and 76,628,000 issued and outstanding at February 29, 2000 and
August 31, 1999, respectively 103 102
Class B voting common stock, no par value, 3,000,000 shares authorized;
512,000 issued and outstanding at February 29, 2000 and August 31, 1999 1 1
Additional paid-in capital 97,536 99,190
Treasury stock, at cost, 3,649,000 and 1,876,000 shares at February 29, 2000
and August 31, 1999, respectively (84,949) (46,197)
Retained earnings 206,768 178,028
Accumulated other comprehensive loss (29) (4)
--------- ---------
Total shareholders' equity 219,430 231,120
--------- ---------
Total liabilities and shareholders' equity $348,443 $348,342
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3 <PAGE>
<TABLE>
Apollo Group, Inc. and Subsidiaries
Consolidated Statement of Operations
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
February 29 and 28, February 29 and 28,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Tuition and other, net $133,980 $109,356 $277,398 $225,054
-------- -------- -------- --------
Costs and expenses:
Instructional costs and services 82,672 65,619 165,651 133,287
Selling and promotional 21,649 18,517 43,408 36,449
General and administrative 10,649 9,507 22,700 18,632
-------- -------- -------- --------
114,970 93,643 231,759 188,368
-------- -------- -------- --------
Operating income 19,010 15,713 45,639 36,686
Interest income, net 1,279 1,275 2,596 2,587
-------- -------- -------- --------
Income before income taxes 20,289 16,988 48,235 39,273
Provision for income taxes 8,376 6,833 19,495 15,580
-------- -------- -------- --------
Net income $ 11,913 $ 10,155 28,740 $ 23,693
======== ======== ======== ========
Basic net income per share $ .16 $ .13 $ .38 $ .30
======== ======== ======== ========
Diluted net income per share $ .16 $ .13 $ .37 $ .30
======== ======== ======== ========
Basic weighted average shares
outstanding 75,782 78,028 76,270 77,765
Diluted weighted average shares
outstanding 76,478 79,195 76,987 79,177
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4 <PAGE>
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Comprehensive Income
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 29 and 28, February 29 and 28,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $11,913 $10,155 $28,740 $23,693
Other comprehensive income:
Currency translation loss (23) (4) (39) (3)
Unrealized gain on security 14 14
------- ------- ------- -------
Comprehensive income $11,904 $10,151 $28,715 $23,690
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5<PAGE>
<TABLE>
Apollo Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(In thousands)
<CAPTION>
Six Months Ended
February 29 and 28,
---------------------
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flows provided by (used for) operating
activities:
Net income $ 28,740 $ 23,693
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,902 8,992
Provision for uncollectible accounts 5,107 6,116
Deferred income taxes (452) 367
Tax benefits of stock options exercised 1,272 9,166
Decrease (increase) in assets:
Restricted cash (6,440) (2,565)
Receivables, net (6,624) (20,787)
Other assets 4,187 (3,316)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 7,705 (6,809)
Student deposits and deferred revenue 2,781 8,910
Other liabilities 831 188
-------- --------
Net cash provided by operating activities 50,009 23,955
-------- --------
Cash flows provided by (used for) investing
activities:
Net additions to property and equipment (19,018) (20,070)
Purchase of marketable securities (16,068) (4,070)
Maturities of marketable securities 12,355 9,025
Purchase of other assets (821) (1,170)
Proceeds from sale of land 350
Investment in joint venture (1,187)
-------- --------
Net cash used for investing activities (24,389) (16,285)
-------- --------
Cash flows provided by (used for) financing
activities:
Purchase of common stock (44,925) (14,472)
Payments on long-term debt (100) (200)
Issuance of common stock 3,248 6,015
-------- --------
Net cash used for financing activities (41,777) (8,657)
-------- --------
Currency translation loss (39) (3)
-------- --------
Net decrease in cash and cash equivalents (16,196) (990)
Cash and cash equivalents at beginning of period 51,534 52,326
-------- --------
Cash and cash equivalents at end of period $ 35,338 $ 51,336
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
6 <PAGE>
Apollo Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. The interim consolidated financial statements include our accounts and
those of our wholly-owned subsidiaries, which include the University of
Phoenix, Inc., the Institute for Professional Development, Western
International University, Inc., the College for Financial Planning Institutes
Corporation, and Apollo Learning Group. This financial information reflects
all adjustments, consisting only of normal recurring adjustments, that are,
in the opinion of management, necessary for a fair statement of the results
for the interim periods presented. Unless otherwise noted, references to
2000 and 1999 refer to the periods ended February 29, 2000 and February 28,
1999, respectively.
2. The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes for
the fiscal year ended August 31, 1999 included in our Form 10-K as filed with
the Securities and Exchange Commission. The interim financial information for
the three months and six months ended February 29, 2000 and February 28, 1999
was reviewed by PricewaterhouseCoopers LLP.
3. The results of operations for the three-month and six-month periods
ended February 29, 2000 are not necessarily indicative of the results to be
expected for the entire fiscal year or any future period.
4. Our operations are aggregated into a single reportable segment based
upon their similar economic and operating characteristics. Our educational
operations are conducted in similar markets and produce similar economic
results. These operations provide higher education programs for working
adults. Our operations are also subject to a similar regulatory environment,
which includes licensing and accreditation.
5. During December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 - Revenue Recognition in Financial
Statements ("SAB No. 101"), which will be effective for us beginning in the
interim period ended November 30, 2000. SAB No. 101 provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements
filed with the Securities and Exchange Commission. Although we have not yet
completed our analysis of how we will comply with SAB No. 101, we do not
expect it to have a material effect on our results of operations.
6. On March 28, 2000, we filed a registration statement with the Securities
and Exchange Commission relating to the initial public offering of University
of Phoenix Online common stock, which is intended to track the performance of
the Online operations of University of Phoenix. This registration statement
has not yet become effective and is subject to approval from our Class A and
Class B shareholders.
7 <PAGE>
7. A reconciliation of the basic and diluted per share computations is as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended February 29 and 28,
(In thousands, except per share amounts)
(Unaudited)
----------------------------------------------------------
2000 1999
--------------------------- ----------------------------
Weighted Weighted
Avg. Per Share Avg. Per Share
Income Shares Amount Income Shares Amount
-------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic net income
per share $11,913 75,782 $ .16 $10,155 78,028 $ .13
===== =====
Effect of dilutive
securities:
Stock options 696 1,167
------- ------ ------- ------
Diluted net income
per share $11,913 76,478 $ .16 $10,155 79,195 $ .13
======= ====== ===== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended February 29 and 28,
(In thousands, except per share amounts)
(Unaudited)
----------------------------------------------------------
2000 1999
--------------------------- ----------------------------
Weighted Weighted
Avg. Per Share Avg. Per Share
Income Shares Amount Income Shares Amount
-------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic net income
per share $28,740 76,270 $ .38 $23,693 77,765 $ .30
===== =====
Effect of dilutive
securities:
Stock options 717 1,412
------- ------ ------- ------
Diluted net income
per share $28,740 76,987 $ .37 $23,693 79,177 $ .30
======= ====== ===== ======= ====== =====
</TABLE>
8. Certain amounts reported for the three months and six months ended
February 28, 1999 have been reclassified to conform to the 2000 presentation,
having no effect on net income.
8<PAGE>
Review by Independent Accountants
The financial information as of February 29, 2000, and for the three-
month and six-month periods then ended, included in Part I pursuant to Rule
10-01 of Regulation S-X, has been reviewed by PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), our independent accountants, in accordance with
standards established by the American Institute of Certified Public
Accountants. PricewaterhouseCoopers' report is included in this quarterly
report.
PricewaterhouseCoopers does not carry out any significant or additional
audit tests beyond those that would have been necessary if its report had not
been included in this quarterly report. Accordingly, such report is not a
"report" or "part of a registration statement" within the meaning of Sections
7 and 11 of the Securities Act of 1933 and the liability provisions of
Section 11 of such Act do not apply.
9<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of Apollo Group, Inc.:
We have reviewed the accompanying consolidated balance sheet of Apollo Group,
Inc. and its subsidiaries as of February 29, 2000, and the related
consolidated statements of operations and of comprehensive income for the
three-month and six-month periods ended February 29, 2000 and February 28,
1999 and the consolidated statement of cash flows for the six-month periods
ended February 29, 2000 and February 28, 1999. These financial statements
are the responsibility of Apollo Group, Inc.'s management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial statements
for them to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of August 31, 1999, and the
related consolidated statements of operations, of comprehensive income, of
changes in shareholders' equity and of cash flows for the year then ended
(not presented herein), and in our report dated September 30, 1999 we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet information as of August 31, 1999, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 2000
10<PAGE
PART I -- FINANCIAL INFORMATION
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and related notes for
the fiscal year ended August 31, 1999 included in our Form 10-K as filed with
the Securities and Exchange Commission, together with the consolidated
financial statements and related notes for the three-month and six-month
periods ended February 29, 2000 included in Item 1.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements
relating to future plans, expectations, events, or performance that involve
risks and uncertainties. Our actual results of operations could differ
materially from those anticipated in these forward-looking statements as a
result of various factors. You should read the following discussion together
with our consolidated financial statements and related notes.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth consolidated statement of operations data
of the Company expressed as a percentage of net revenues for the periods
indicated:
<CAPTION>
Three Months Six Months
Ended February Ended February
29 and 28, 29 and 28,
----------------- ------------------
2000 1999 2000 1999
------ ------ ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Tuition and other, net 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Costs and expenses:
Instructional costs and services 61.7 60.0 59.7 59.2
Selling and promotional 16.2 16.9 15.6 16.2
General and administrative 7.9 8.7 8.2 8.3
------ ------ ------ ------
85.8 85.6 83.5 83.7
------ ------ ------ ------
Operating income 14.2 14.4 16.5 16.3
Interest income, net 1.0 1.1 .9 1.1
------ ------ ------ ------
Income before income taxes 15.2 15.5 17.4 17.4
Provision for income taxes 6.3 6.2 7.0 6.9
------ ------ ------ ------
Net income 8.9% 9.3% 10.4% 10.5%
====== ====== ====== ======
</TABLE>
11<PAGE>
THREE MONTHS ENDED FEBRUARY 29, 2000 (SECOND QUARTER OF 2000) COMPARED
WITH THREE MONTHS ENDED FEBRUARY 28, 1999 (SECOND QUARTER OF 1999)
Tuition and other net revenues increased by 22.5% to $134.0 million in
2000 from $109.4 million in 1999 due primarily to a 17.1% increase in average
degree student enrollments, tuition price increases averaging four to five
percent (depending on the geographic area and program), and a higher
concentration of enrollments at locations that charge a higher rate per
credit hour. Most of our campuses, which include their respective learning
centers, had increases in tuition and other net revenues and average degree
student enrollments from 2000 to 1999.
Tuition and other net revenues for the three months ended February 29,
2000 and February 28, 1999 consists primarily of $120.4 million and $95.5
million, respectively, of net tuition revenues from students enrolled in
degree programs and $4.4 million and $6.2 million, respectively, of net
tuition revenues from students enrolled in non-degree programs. Average
degree student enrollments increased to 89,094 in 2000 from 76,113 in 1999.
Instructional costs and services increased by 26.0% to $82.7 million in
2000 from $65.6 million in 1999 due primarily to the direct costs necessary
to support the increase in degree student enrollments. Direct costs consist
primarily of faculty compensation, related staff salaries at each respective
location, classroom lease expenses, and financial aid processing costs.
These costs as a percentage of tuition and other net revenues increased to
61.7% in 2000 from 60.0% in 1999 due primarily to an increase in space lease
costs as a result of additional classrooms at existing and new locations.
Selling and promotional expenses increased by 16.9% to $21.6 million in
2000 from $18.5 million in 1999 due primarily to additional advertising and
marketing. These expenses as a percentage of tuition and other net revenues
decreased to 16.2% in 2000 from 16.9% in 1999 due to greater net revenues
being spread over a proportionally lower increase in selling and promotional
expenses.
General and administrative expenses increased by 12.0% to $10.6 million
in 2000 from $9.5 million in 1999 due primarily to increased employee
expenses related primarily to information services and depreciation related
to the implementation of information support systems. General and
administrative expenses as a percentage of tuition and other net revenues
decreased to 7.9% in 2000 from 8.7% in 1999 due primarily to higher net
revenues being spread over the fixed costs related to various centralized
functions such as information services, corporate accounting, and human
resources. We may not be able to leverage our costs to the same extent as we
face increased costs related to the development and implementation of new
information systems and expansion into additional markets.
Net interest income was $1.3 million in 2000 and 1999. Interest expense
was less than $30,000 for 2000 and 1999.
Our effective tax rate increased to 41.3% in 2000 from 40.2% in 1999.
The increase is due primarily to decreased tax benefits from the exercise of
stock options, the relative impact of tax-exempt interest income, and of
expenses that are non-deductible for tax purposes.
Net income increased to $11.9 million in 2000 from $10.2 million in 1999
due primarily to increased enrollments, increased tuition rates, and improved
utilization of selling and promotional and general and administrative
expenses.
12<PAGE>
SIX MONTHS ENDED FEBRUARY 29, 2000 COMPARED WITH SIX MONTHS ENDED FEBRUARY
28, 1999
Tuition and other net revenues increased by 23.3% to $277.4 million in
2000 from $225.1 million in 1999 due primarily to a 17.4% increase in average
degree student enrollments, tuition price increases averaging four to five
percent (depending on the geographic area and program), and a higher
concentration of enrollments at locations that charge a higher rate per
credit hour. Most of our campuses, which include their respective learning
centers, had increases in tuition and other net revenues and average degree
student enrollments from 2000 to 1999.
Tuition and other net revenues for the six months ended February 29,
2000 and February 28, 1999 consists primarily of $246.7 million and $198.2
million, respectively, of net tuition revenues from students enrolled in
degree programs and $11.6 million and $11.9 million, respectively, of net
tuition revenues from students enrolled in non-degree programs. Average
degree student enrollments increased to 87,556 in 2000 from 74,604 in 1999.
Instructional costs and services increased by 24.3% to $165.7 million in
2000 from $133.3 million in 1999 due primarily to the direct costs necessary
to support the increase in degree student enrollments. Direct costs consist
primarily of faculty compensation, related staff salaries at each respective
location, classroom lease expenses, and financial aid processing costs.
These costs as a percentage of tuition and other net revenues increased to
59.7% in 2000 from 59.2% in 1999 due primarily to an increase in space lease
costs as a result of additional classrooms at existing and new locations.
Selling and promotional expenses increased by 19.1% to $43.4 million in
2000 from $36.4 million in 1999 due primarily to additional advertising and
marketing. These expenses as a percentage of tuition and other net revenues
decreased to 15.6% in 2000 from 16.2% in 1999 due to greater net revenues
being spread over a proportionally lower increase in selling and promotional
expenses.
General and administrative expenses increased by 21.8% to $22.7 million
in 2000 from $18.6 million in 1999 due primarily to increased employee
expenses related primarily to information services and depreciation related
to the implementation of information support systems. General and
administrative expenses as a percentage of tuition and other net revenues
decreased to 8.2% in 2000 from 8.3% in 1999 due primarily to higher net
revenues being spread over the fixed costs related to various centralized
functions such as information services, corporate accounting, and human
resources. We may not be able to leverage our costs to the same extent as we
face increased costs related to the development and implementation of new
information systems and expansion into additional markets.
Net interest income was $2.6 million in 2000 and 1999. Interest expense
was less than $75,000 for 2000 and 1999.
Our effective tax rate increased to 40.4% in 2000 from 39.7% in 1999.
The increase is due primarily to decreased tax benefits from the exercise of
stock options, the relative impact of tax-exempt interest income, and of
expenses that are non-deductible for tax purposes.
Net income increased to $28.7 million in 2000 from $23.7 million in 1999
due primarily to increased enrollments, increased tuition rates, and improved
utilization of selling and promotional and general and administrative
expenses.
13<PAGE>
SEASONALITY IN RESULTS OF OPERATIONS
We experience seasonality in our results of operations primarily as a
result of changes in the level of student enrollments. While we enroll
students throughout the year, second quarter (December to February) average
enrollments and related revenues generally are lower than other quarters due
to seasonal breaks in December and January. Second quarter costs and expenses
historically increase as a percentage of tuition and other net revenues as a
result of certain fixed costs not significantly affected by the seasonal
second quarter declines in net revenues.
We typically experience an increase in new enrollments in August of each
year when most other colleges and universities begin their fall semesters. As
a result, instructional costs and services and selling and promotional
expenses historically increase as a percentage of tuition and other net
revenues in the fourth quarter due to increased costs in preparation for the
August peak enrollments.
We anticipate that these seasonal trends in the second and fourth
quarters will continue in the future.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased to $50.0 million in
2000 from $24.0 million in 1999. The increase resulted primarily from
increased net income, a smaller increase in accounts receivable, and an
increase in accounts payable and accrued liabilities.
Capital expenditures decreased to $19.0 million in 2000 from $20.1
million in 1999 primarily due to the timing of expenditures related to
software development and leasehold improvements. Total purchases of property
and equipment for the year ended August 31, 2000 are expected to range from
$38.0 to $42.0 million. These expenditures will primarily be related to new
campuses and learning centers, the continued expansion of computer labs
designed to support the information technology programs, and increases in
normal recurring capital expenditures due to the overall increase in student
and employee levels resulting from the growth in the business.
At February 29, 2000, we had no outstanding borrowings on our $10.0
million line of credit. Borrowings under the line of credit bear interest at
LIBOR plus .75% or prime at our selection. At February 29, 2000, availability
under the line of credit was reduced by outstanding letters of credit of $2.7
million. The line of credit is renewable annually, and any amounts borrowed
under the line are payable upon its termination in February 2002.
Our Board of Directors has authorized a program allocating up to $150
million in Company funds to repurchase shares of its Class A Common Stock. As
of February 29, 2000, we had repurchased approximately 3,908,000 shares at a
total cost of approximately $91.1 million.
14<PAGE>
The Department of Education 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 us through electronic funds transfer are held in a
separate cash account until certain conditions are satisfied. As of February
29, 2000, we had approximately $32.2 million in these separate accounts,
which are reflected in the Consolidated Balance Sheet as restricted cash, to
comply with these requirements. These funds generally remain in these
separate accounts for an average of 60 to 75 days from the date of
collection. These restrictions on cash have not affected our ability to fund
daily operations.
In January 1998, the Department of Education Office of the Inspector
General ("OIG") began performing an audit of University of Phoenix's
administration of the Title IV Programs. The team previously presented
questions regarding our interpretation of the "12-hour rule," distance
education programs, and institutional refund obligations. We have reached an
agreement with the Department of Education. The agreement acknowledges no
admission that there were any issues of non-compliance or errors by us. To
bring this audit to closure and settle all outstanding issues prior to the
final OIG audit report, which was issued on March 31, 2000, we agreed to make
a modification to University of Phoenix's study group attendance log. We do
not expect this modification to have a negative impact on either University
of Phoenix or its students. Part of the agreement reached with the
Department of Education requires that we pay the Department of Education
$6,000,000 and will be reflected in instructional costs and services in our
third quarter results.
IMPACT OF INFLATION
Inflation has not had a significant impact on our historical operations.
Item 3 -- Quantitative and Qualitative Disclosures about Market Risk
Our portfolio of marketable securities includes numerous issuers,
varying types of securities and maturities. We intend to hold these
securities to maturity. The fair value of our portfolio of marketable
securities would not be significantly impacted by either a 100 basis point
increase or decrease in interest rates due primarily to the short-term nature
of the portfolio. We do not hold or issue derivative financial instruments.
15<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . .Not Applicable
Item 2. Changes in Securities . . . . . . . . . . . . . . . .Not Applicable
Item 3. Defaults Upon Senior Securities . . . . . . . . . . .Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On February 23, 2000, our Class B Common Stock shareholders acted
by unanimous written consent in place of an annual meeting. Pursuant to
the unanimous written consent, the Class B shareholders elected, as
Class I directors, to hold office until the 2002 annual meeting of
shareholders; John G. Sperling, Dino J. DeConcini, and Thomas C. Weir.
Item 5. Other Information . . . . . . . . . . . . . . . . . .Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.1h Sixth Modification Agreement between Apollo Group, Inc.
and Wells Fargo Bank, National Association dated March 2, 2000
Exhibit 15.1 Letter on Unaudited Interim Financial Information
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended February
29, 2000.
16 <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APOLLO GROUP, INC.
(Registrant)
Date: April 13, 2000 By: /s/ Kenda B. Gonzales
----------------------------------
Kenda B. Gonzales
Chief Financial Officer
and Chief Accounting Officer
By: /s/ Todd S. Nelson
----------------------------------
Todd S. Nelson
President
17 <PAGE>
APOLLO GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
PAGE
10.1h Sixth Modification Agreement between Apollo Group,
Inc. and Wells Fargo Bank, National Association
dated March 2, 2000 Filed herewith
15.1 Letter on Unaudited Interim Financial Information Filed herewith
27 Financial Data Schedule Filed herewith
18 <PAGE>
SIXTH MODIFICATION AGREEMENT
BY THIS SIXTH MODIFICATION AGREEMENT (the "Agreement"), made
and entered into as of the 2nd day of March, 2000, WELLS FARGO
BANK, NATIONAL ASSOCIATION, a national banking association, whose
address is 100 West Washington, Post Office Box 29742, MAC #4101-
251, Phoenix, Arizona 85038-9742 (hereinafter called "Lender"), and
APOLLO GROUP, INC., an Arizona corporation, whose address is 4615
East Elwood Street, Suite 400, Phoenix, Arizona 85040 (hereinafter
called "Company"), in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, hereby confirm and
agree as follows:
SECTION 1. RECITALS.
1.1 Company and Lender entered into a Loan Agreement dated
November 17, 1997 (as amended, the "Loan Agreement"), which
provided for, among other things, a revolving line of credit (the
"RLC") in the amount of $10,000,000.00, evidenced by a Revolving
Promissory Note dated November 17, 1997, executed by the Company
(the "RLC Note"), all upon the terms and conditions contained
therein. The Loan Agreement was previously modified by that
Modification Agreement dated as of February 5, 1998, that Second
Modification Agreement dated as of August 13, 1998, that Third
Modification Agreement dated as of April 30, 1999, that Fourth
Modification Agreement dated as of August 3, 1999 and that Fifth
Modification Agreement dated as of November 1, 1999. All undefined
capitalized terms used herein shall have the meaning given them in
the Loan Agreement.
1.2 As of the date hereof, prior to the effect of the
modifications contained herein, the outstanding principal balance
of the RLC is $ 0.00. Lender has issued for the account of the
Company two (2) standby letters of credit in the amount of
$17,860.00 and $2,742,476.00, that expire on March 31, 2000.
1.3 Company and Lender desire to modify the Loan Agreement
as set forth herein.
SECTION 2. LOAN AGREEMENT.
The modifications provided in this Section 2 shall be
effective as of March 2, 2000 as though entered into as of such
date.
2.1 The following definition in Section 2.1 of the Loan
Agreement is hereby amended to read as follows:
"Maturity Date" means February 1, 2002.
2.2 Section 8.6 of the Loan Agreement is hereby amended to
read as follows:
Section 8.6 Payment of Dividends. Declare or pay any
cash dividends or distribution either in cash, stock or any
other property on Borrower's stock now or hereafter
outstanding; nor redeem, retire, repurchase or otherwise
acquire any shares of any class of Borrower's stock now or
hereafter outstanding. Notwithstanding the foregoing,
Borrower shall be permitted (i) to pay intercompany dividends,
provided said dividend(s) has (have) no effect whatsoever on
Borrower's consolidated stockholder's equity, (ii) to pay non-
cash dividends including but not limited to intercompany non-
cash dividends and non-cash dividends to facilitate stock
splits, and (iii) to repurchase shares of its Class A common
stock up to an aggregate amount of $150,000,000.00, which
amount shall include the approximately $100,000,000.00
repurchased to date.
SECTION 3. OTHER MODIFICATIONS, RATIFICATIONS AND AGREEMENTS.
3.1 All references to the Loan Agreement in the Loan
Agreement, the RLC Note and the other documents delivered with
respect to the RLC (the "Loan Documents") are hereby amended to
refer to the Loan Agreement as hereby amended.
3.2 Company acknowledges that the indebtedness evidenced
by the RLC Note is just and owing, that the balance thereof is
correctly shown in the records of Lender as of the date hereof, and
Company agrees to pay the indebtedness evidenced by the RLC Note
according to the terms thereof, as herein modified.
3.3 Company hereby reaffirms to Lender each of the
representations, warranties, covenants and agreements of Company
set forth in the RLC Note and the Loan Agreement, with the same
force and effect as if each were separately stated herein and made
as of the date hereof.
3.4 Company hereby ratifies, reaffirms, acknowledges, and
agrees that the RLC Note and the Loan Agreement, represent valid,
enforceable and collectible obligations of Company, and that there
are no existing claims, defenses, personal or otherwise, or rights
of setoff whatsoever with respect to any of these documents or
instruments. In addition, Company hereby expressly waives,
releases and absolutely and forever discharges Lender and its
present and former shareholders, directors, officers, employees and
agents, and their separate and respective heirs, personal
-2-
representatives, successors and assigns, from any and all
liabilities, claims, demands, damages, action and causes of action,
whether known or unknown and whether contingent or matured, that
Company may now have, or has had prior to the date hereof, or that
may hereafter arise with respect to acts, omissions or events
occurring prior to the date hereof. To the best of Company's
knowledge, Company further acknowledges and represents that no
event has occurred and no condition exists that, after notice or
lapse of time, or both, would constitute a default under this
Agreement, the RLC Note or the Loan Agreement.
3.5 All terms, conditions and provisions of the RLC Note
and the Loan Agreement are continued in full force and effect and
shall remain unaffected and unchanged except as specifically
amended hereby. The RLC Note and the Loan Agreement, as amended
hereby, are hereby ratified and reaffirmed by Company, and Company
specifically acknowledges the validity and enforceability thereof.
SECTION 4. GENERAL.
4.1 This Agreement in no way acts as a release or
relinquishment of those rights securing payment of the RLC. Such
rights are hereby ratified, confirmed, renewed and extended by
Company in all respects.
4.2 The modifications contained herein shall not be
binding upon Lender until Lender shall have received all of the
following:
(a) An original of this Agreement fully executed by
the Company.
(b) Such resolutions or authorizations and such other
documents as Lender may reasonably require relating to the
existence and good standing of the Company and the authority
of any person executing this Agreement or other documents on
behalf of the Company.
4.3 Company shall execute and deliver such additional
documents and do such other acts as Lender may reasonably require
to fully implement the intent of this Agreement.
4.4 Company shall pay all costs and expenses, including,
but not limited to, reasonable attorneys' fees incurred by Lender
in connection herewith, whether or not all of the conditions
described in Paragraph 4.2 above are satisfied. Lender, at its
option, but without any obligation to do so, may advance funds to
pay any such costs and expenses that are the obligation of the
-3-
Company, and all such funds advanced shall be due and payable upon
demand.
4.5 Notwithstanding anything to the contrary contained
herein or in any other instrument executed by Company or Lender, or
in any other action or conduct undertaken by Company or Lender on
or before the date hereof, the agreements, covenants and provisions
contained herein shall constitute the only evidence of Lender's
consent to modify the terms and provisions of the Loan Agreement.
Accordingly, no express or implied consent to any further
modifications involving any of the matters set forth in this
Agreement or otherwise shall be inferred or implied by Lender's
execution of this Agreement. Further, Lender's execution of this
Agreement shall not constitute a waiver (either express or implied)
of the requirement that any further modification of the RLC or of
the RLC Note or the Loan Agreement, shall require the express
written approval of Lender; no such approval (either express or
implied) has been given as of the date hereof.
4.6 Time is hereby declared to be of the essence hereof of
the RLC, of the RLC Note and of the Loan Agreement, and Lender
requires, and Company agrees to, strict performance of each and
every covenant, condition, provision and agreement hereof, of the
RLC Note and the Loan Agreement.
4.7 This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto and their heirs, personal
representatives, successors and assigns.
4.8 This Agreement is made for the sole protection and
benefit of the parties hereto, and no other person or entity shall
have any right of action hereon.
4.9 This Agreement shall be governed by and construed
according to the laws of the State of Arizona.
IN WITNESS WHEREOF, these presents are executed as of the date
indicated above.
WELLS FARGO BANK, NATIONAL ASSOCIATION,
a national banking association
By: /s/ Jennifer Clack
Name: Jennifer Clack
Its: Associate Vice President
LENDER
-4-
APOLLO GROUP, INC., an Arizona corporation
By: /s/ Kenda B. Gonzales
Name: Kenda B. Gonzales
Its: Chief Financial Officer
COMPANY
-5-
Exhibit 15.1
Letter on Unaudited Interim Financial Information
April 13, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated March 24, 2000 on our
review of interim financial information of Apollo Group,
Inc. (the "Company") as of and for the period ended
February 29, 2000 and included in the Company's quarterly
report on Form 10-Q for the quarter then ended is
incorporated by reference in its Registration Statements on
Form S-3 (No. 333-33370) and Form S-8 (Nos. 33-87844, 33-
88982, 33-88984 and 33-63429).
Yours very truly,
/s/ PricewaterhouseCoopers LLP
<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> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 67,576
<SECURITIES> 37,198
<RECEIVABLES> 86,443
<ALLOWANCES> 9,262
<INVENTORY> 0
<CURRENT-ASSETS> 195,114
<PP&E> 133,636
<DEPRECIATION> 51,429
<TOTAL-ASSETS> 348,443
<CURRENT-LIABILITIES> 120,271
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 219,326
<TOTAL-LIABILITY-AND-EQUITY> 348,443
<SALES> 0
<TOTAL-REVENUES> 277,398
<CGS> 0
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<LOSS-PROVISION> 5,107
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 48,235
<INCOME-TAX> 19,495
<INCOME-CONTINUING> 28,740
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<EPS-BASIC> .38
<EPS-DILUTED> .37
</TABLE>
