-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BUAwzavcKDGrJAuZDXfQLO1Kd3DdwMxaBBCKGA8hujkV5IDKUvaNgJz2gqq8cyXQ oWR0+cDQ12nrbvtjoKOJAg== /in/edgar/work/20000720/0000929887-00-000006/0000929887-00-000006.txt : 20000920 0000929887-00-000006.hdr.sgml : 20000920 ACCESSION NUMBER: 0000929887-00-000006 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000720 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APOLLO GROUP INC CENTRAL INDEX KEY: 0000929887 STANDARD INDUSTRIAL CLASSIFICATION: [8200 ] IRS NUMBER: 860419443 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-25232 FILM NUMBER: 675959 BUSINESS ADDRESS: STREET 1: 4615 EAST ELWOOD ST CITY: PHOENIX STATE: AZ ZIP: 85040 BUSINESS PHONE: 6029665394 MAIL ADDRESS: STREET 1: 4615 E ELWOOD STREET STREET 2: 4615 E ELWOOD STREET CITY: PHOENIX STATE: AZ ZIP: 85040 10-Q/A 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (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 APOLLO GROUP, INC. AND SUBSIDIARIES FORM 10-Q/A 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 PART I -- FINANCIAL INFORMATION Item 1 -- Financial Statements Apollo Group, Inc. and Subsidiaries Consolidated Balance Sheet (Dollars in thousands)
February 29, August 31, 2000 1999 ------------ ------------ (Unaudited) 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 IDL 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.
3 Apollo Group, Inc. and Subsidiaries Consolidated Statement of Operations (In thousands, except per share amounts)
Three Months Ended Six Months Ended February 29 and 28, February 29 and 28, ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- (Unaudited) (Unaudited) 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.
4 APOLLO GROUP, INC. AND SUBSIDIARIES Consolidated Statement of Comprehensive Income (In thousands)
Three Months Ended Six Months Ended February 29 and 28, February 29 and 28, ------------------ ------------------ 2000 1999 2000 1999 ------- ------- ------- ------- (Unaudited) (Unaudited) Net income $11,913 $10,155 $28,740 $23,693 Other comprehensive income, net of income taxes: Currency translation loss (23) (4) (39) (3) Unrealized gain on security 8 8 ------- ------- ------- ------- Comprehensive income $11,898 $10,151 $28,709 $23,690 ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 5 Apollo Group, Inc. and Subsidiaries Consolidated Statement of Cash Flows (In thousands)
Six Months Ended February 29 and 28, --------------------- 2000 1999 --------- --------- (Unaudited) 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 IDL (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.
6 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/A 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 7. A reconciliation of the basic and diluted per share computations is as follows:
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 -------- -------- --------- -------- -------- ---------- 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 ======= ====== ===== ======= ====== =====
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 -------- -------- --------- -------- -------- ---------- 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 ======= ====== ===== ======= ====== =====
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 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 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 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/A 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 The following table sets forth consolidated statement of operations data of the Company expressed as a percentage of net revenues for the periods indicated:
Three Months Six Months Ended February Ended February 29 and 28, 29 and 28, ----------------- ------------------ 2000 1999 2000 1999 ------ ------ ------ ------ (Unaudited) (Unaudited) 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% ====== ====== ====== ======
11 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 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 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 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 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 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 modify University of Phoenix's study group attendance log to track the sites of study group meetings and record the hours attended. We do not expect this modification to have a negative impact on either University of Phoenix or its students. Part of the agreement, dated March 27, 2000, reached with the Department of Education requires that we pay the Department of Education $6,000,000 as a negotiated settlement in full satisfaction of all monetary findings arising under the final OIG audit report. This amount 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 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 10.11 Independent Contractor Agreement between Apollo Group Inc. and Governmental Advocates, Inc. Dated June 1, 1999 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 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: July 20, 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 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 10.11 Independent Contractor Agreement between Apollo Group, Filed herewith Inc. and Governmental Advocates, Inc. Dated June 1, 1999 15.1 Letter on Unaudited Interim Financial Information Filed herewith 27 Financial Data Schedule Filed herewith 18 EX-10.1H 2 0002.txt 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- EX-10.11 3 0003.txt INDEPENDENT CONTRACTOR AGREEMENT This agreement ("Agreement") is made by and between the University of Phoenix ("Principal") and Governmental Advocates, Inc. ("Lobbyist") for the purpose of setting forth the terms and conditions which the Lobbyist shall provide certain services to the Principal. SCOPE OF SERVICES: Lobbyist shall provide strategic advice on matters concerning legislation, regulations, public policy, electoral politics and any other topic of concern to the Principal related to state government in the state of California. All services performed by the Lobbyist for the Principal under this Agreement shall be timely done. TERM: This Agreement is effective June 1, 1999 and shall continue for twenty four (24) months. Either party shall have the right to terminate this Agreement upon thirty (30) days written notice to the other party. In the event of termination, all fees due and payable pursuant to this Agreement shall be made on a pro-rata basis. NON-COMPETE: For the term of this agreement, the Lobbyist shall not represent any entity that would be in direct economic competition with the Principal, nor shall the Lobbyist represent any entity that would have an interest in conflict with the best interest of the Principal. The Lobbyist shall immediately disclose potential conflicts of interest. CONFIDENTIALITY: Lobbyist acknowledges that any information deemed confidential or proprietary by the Principle shall not be disclosed without permission from the Principal, and further agrees to return any and all information of a propriety or confidential nature to the Principal upon termination of this Agreement. This section shall survive termination of this Agreement. OWNERSHIP OF WORK PRODUCT: Lobbyist acknowledges that any work product of any type generated for the Principal under the terms of this Agreement is and shall remain the sole property of the Principal upon termination of this Agreement. This section shall survive termination of this Agreement. INDEMNIFICATION: Lobbyist indemnifies and hold harmless Principal from any liability, claims, judgments, damages or costs, including reasonable attorney's fees, asserted or awarded against or incurred by Principal as a result of any act or omission of the Lobbyist. DISPUTES: Any dispute between Lobbyist and Principal arising under this Agreement shall be resolved by binding arbitration pursuant to the Commercial Rules of the American Arbitration Association. The arbitrators shall have no power to award any punitive or exemplary damages or to vary or ignore the terms of this Agreement and shall be bound by controlling law. RELATIONSHIP OF PARTIES: The sole relationship of parties is that of independent contractors and nothing in this agreement or otherwise shall be deemed or construed to create any other relationship, including one of employment, joint venture or agency. Lobbyist is solely responsible for any taxes or any type and shall hold Principal harmless. COMPENSATION AND PAYMENT: For the services to be performed under this Agreement, the Principal shall pay the Lobbyist the sum of $10,000.00 (ten thousand dollars) per month for the term of this Agreement, unless terminated, in which case any fees due and payable shall be determined on a pro-rata basis. Payment is to be made on the first of each month for which it is owed. COMPLIANCE: For the term of this agreement, Lobbyist agrees to formally register as a legislative and executive branch lobbyist with the California Secretary of State, and further agrees to at all times abide by the laws of the state of California governing lobbyists and to inform the Principal of any legal obligations the Principal may have under the laws of the state of California. THIS AGREEMENT REPRESENTS THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND IS VALID AND ENFORCEABLE UPON ACCEPTANCE BY BOTH PARTIES SIGNATORY TO THIS AGREEMENT. THIS AGREEMENT SUPERSEDES ANY PREVIOUS WRITTEN AND/OR VERBAL AGREEMENT BETWEEN PRINCIPAL AND LOBBYIST. University of Phoenix ("Principal") 4615 E. Elwood St. Phoenix, AZ 85040 By: /s/ Charles M. Seigel --------------------- Charles M. Seigel Vice President for National Affairs Date: 3/26/99 Governmental Advocates, Inc. ("Lobbyist") 1127 - 11th Street, Suite 400 Sacramento, CA 95814 By: /s/ Hedy Govenar ---------------- Hedy Govenar Tax ID#: 94-2701026 Date: 3/30/99 EX-15.1 4 0004.txt Exhibit 15.1 Letter on Unaudited Interim Financial Information July 19, 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/A 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 EX-27 5 0005.txt
5 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. 0000929887 APOLLO GROUP, INC. 1,000 6-MOS AUG-31-2000 FEB-29-2000 67,576 37,198 86,443 9,262 0 195,114 133,636 51,429 348,443 120,271 0 0 0 104 219,326 348,443 0 277,398 0 209,059 0 5,107 70 48,235 19,495 28,740 0 0 0 28,740 .38 .37
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