-----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, RbWozEz/mSMxgkyMothaVYjGawc3b3KOzQ/n1jxymfv7asvzRetyeEgVyrWRpuT/ rEdB9DE418Te9VqBTsYwTA== 0000929887-99-000001.txt : 19990113 0000929887-99-000001.hdr.sgml : 19990113 ACCESSION NUMBER: 0000929887-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APOLLO GROUP INC CENTRAL INDEX KEY: 0000929887 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 860419443 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25232 FILM NUMBER: 99505094 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 1 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 November 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-25232 APOLLO GROUP, INC. ------------------ (Exact name of registrant as specified in its charter) ARIZONA 86-0419443 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040 (Address of principal executive offices, including zip code) (602) 966-5394 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF JANUARY 6, 1999 Class A Common Stock, no par 77,687,670 Shares Class B Common Stock, no par 511,484 Shares 1 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 . . . . . . . . . . . . . . .10 Item 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .16 PART II -- OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .17 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . .17 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . .17 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . .17 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . .17 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .17 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 2 PART I -- FINANCIAL INFORMATION Item 1 -- Financial Statements Apollo Group, Inc. and Subsidiaries Consolidated Statement of Operations (In thousands, except per share amounts)
Three Months Ended November 30, ------------------ 1998 1997 -------- -------- (Unaudited) Revenues: Tuition and other, net $115,698 $ 87,875 Interest income 1,312 1,325 -------- -------- Total net revenues 117,010 89,200 -------- -------- Costs and expenses: Instruction costs and services 67,668 52,623 Selling and promotional 17,932 10,566 General and administrative 9,125 8,446 -------- -------- Total costs and expenses 94,725 71,635 -------- -------- Income before income taxes 22,285 17,565 Less provision for income taxes 8,747 6,956 -------- -------- Net income $ 13,538 $ 10,609 ======== ======== Basic net income per share $ .17 $ .14 ======== ======== Diluted net income per share $ .17 $ .13 ======== ======== Basic weighted average shares outstanding 77,502 76,758 Diluted weighted average shares outstanding 79,159 78,689 The accompanying notes are an integral part of these consolidated financial statements.
3 Apollo Group, Inc. and Subsidiaries Consolidated Balance Sheet (Dollars in thousands)
November 30, August 31, 1998 1998 ------------ ------------ (Unaudited) Assets: Current assets -- Cash and cash equivalents $ 51,839 $ 52,326 Restricted cash 26,140 22,713 Marketable securities 28,529 27,538 Receivables, net 69,102 61,282 Deferred tax assets, net 6,221 6,203 Other current assets 3,645 3,945 --------- --------- Total current assets 185,476 174,007 Property and equipment, net 55,800 46,618 Marketable securities 14,592 17,929 Investment in joint venture 10,701 10,807 Cost in excess of fair value of assets purchased, net 40,943 41,398 Other assets 13,534 14,401 --------- --------- Total assets $321,046 $305,160 ========= ========= Liabilities and Shareholders' Equity: Current liabilities -- Current portion of long-term liabilities $ 333 $ 333 Accounts payable 8,163 9,684 Accrued liabilities 20,121 21,311 Income taxes payable 7,342 1,007 Student deposits and current portion of deferred revenue 66,063 63,239 --------- --------- Total current liabilities 102,022 95,574 --------- --------- Deferred tuition revenue, less current portion 5,163 4,592 --------- --------- Long-term liabilities, less current portion 3,632 3,750 --------- --------- Deferred tax liabilities, net 2,003 1,436 --------- --------- 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; 76,962,000 and 77,112,000 issued and outstanding at November 30, 1998 and August 31, 1998, respectively 101 101 Class B voting common stock, no par value, 3,000,000 shares authorized; 512,000 issued and outstanding at November 30, 1998 and August 31, 1998 1 1 Additional paid-in capital 83,974 80,677 Retained earnings 132,561 119,023 Cumulative translation adjustment 7 6 Treasury stock, at cost, 340,000 shares (8,418) --------- --------- Total shareholders' equity 208,226 199,808 --------- --------- Total liabilities and shareholders' equity $321,046 $305,160 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
4 Apollo Group, Inc. and Subsidiaries Consolidated Statement of Cash Flows (In thousands)
Three Months Ended November 30, --------------------- 1998 1997 --------- --------- (Unaudited) Cash flows from operating activities: Net income $ 13,538 $ 10,609 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,398 3,486 Provision for uncollectible accounts 3,044 2,906 Deferred income taxes 549 (182) Tax benefits of stock options exercised 1,335 2,357 Decrease (increase) in assets: Restricted cash (3,427) (2,457) Receivables, net (10,864) (9,166) Other assets 1,318 325 Increase (decrease) in liabilities: Accounts payable and accrued liabilities 3,624 5,405 Student deposits and deferred revenue 3,395 3,854 Other liabilities 82 (1) -------- -------- Net cash provided by operating activities 16,992 17,136 -------- -------- Cash flows from investing activities: Net additions to property and equipment (12,297) (4,864) Maturities of marketable securities 3,896 2,500 Purchase of marketable securities (1,591) (4,802) Purchase of other assets (832) (318) Cash paid for acquisition (19,378) -------- -------- Net cash used for investing activities (10,824) (26,862) -------- -------- Cash flows from financing activities: Purchase of common stock (8,418) Issuance of common stock 1,962 1,688 Payments on long-term debt (200) (50) -------- -------- Net cash provided by (used for) financing activities (6,656) 1,638 -------- -------- Effect of currency translation 1 3 -------- -------- Net decrease in cash and cash equivalents (487) (8,085) Cash and cash equivalents at beginning of period 52,326 58,928 -------- -------- Cash and cash equivalents at end of period $ 51,839 $ 50,843 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
5 Apollo Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 1. The interim consolidated financial statements include the accounts of Apollo Group, Inc. ("Apollo" or the "Company") and its wholly-owned subsidiaries, which include the University of Phoenix, Inc. ("UOP"), the Institute for Professional Development ("IPD"), Western International University, Inc. ("WIU") and the College for Financial Planning Institutes Corporation (the "College"). 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 1998 and 1997 refer to the periods ended November 30, 1998 and 1997, respectively. 2. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended August 31, 1998 included in the Company's Form 10-K as filed with the Securities and Exchange Commission. The interim financial information for 1998 and 1997 was reviewed by PricewaterhouseCoopers LLP (see "Review by Independent Accountants"). 3. The results of operations for the three-month period ended November 30, 1998 are not necessarily indicative of the results to be expected for the entire fiscal year or any future period. 4. During June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 130, "Reporting Comprehensive Income" ("SFAS 130"), which is effective in the Company's 1999 fiscal year. Under SFAS 130, companies are required to report comprehensive income as a measure of overall performance. Comprehensive income includes all changes in equity during a reporting period, except those resulting from investments by owners and distributions to owners. The Company will be required to report net income and foreign currency translation adjustments as components of comprehensive income. The components of comprehensive income, other than those included in net income, were immaterial for the quarter ended November 30, 1998. 6 5. A reconciliation of the basic and diluted per share computations for 1998 and 1997 are as follows:
For the Three Months Ended November 30, (In thousands, except per share amounts) (Unaudited) ---------------------------------------------------------- 1998 1997 --------------------------- ---------------------------- Weighted Weighted Avg. Per Share Avg. Per Share Income Shares Amount Income Shares Amount -------- -------- --------- -------- -------- ---------- Basic net income per share $13,538 77,502 $ .17 $10,609 76,758 $ .14 ===== ===== Effect of dilutive securities: Stock options 1,657 1,931 ------- ------ ------- ------ Diluted net income per share $13,538 79,159 $ .17 $10,609 78,689 $ .13 ======= ====== ===== ======= ====== =====
6. Certain financial information for the three months ended November 30, 1997 has been reclassified to conform to the 1998 presentation, having no effect on net income. 7 Review by Independent Accountants The financial information as of November 30, 1998, and for the three- month period then ended, included in Part I pursuant to Rule 10-01 of Regulation S-X, has been reviewed by PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), the Company's independent accountants, in accordance with standards established by the American Institute of Certified Public Accountants. PricewaterhouseCoopers's 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. 8 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 November 30, 1998, and the related consolidated statements of operations and of cash flows for the three-month periods ended November 30, 1998 and 1997. These financial statements are the responsibility of Apollo Group, Inc.'s management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of August 31, 1998, and the related consolidated statements of operations, of changes in shareholders' equity and of cash flows for the year then ended (not presented herein), and in our report dated October 19, 1998 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, 1998, 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 December 16, 1998 9 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 Ended November 30, ----------------- 1998 1997 ------ ------ (Unaudited) Revenues: Tuition and other, net 98.9% 98.5% Interest income 1.1 1.5 ------ ------ Total net revenues 100.0 100.0 ------ ------ Costs and expenses: Instruction costs and services 57.8 59.0 Selling and promotional 15.3 11.9 General and administrative 7.8 9.4 ------ ------ Total costs and expenses 80.9 80.3 ------ ------ Income before income taxes 19.1 19.7 Less provision for income taxes 7.5 7.8 ------ ------ Net income 11.6% 11.9% ====== ======
THREE MONTHS ENDED NOVEMBER 30, 1998 (FIRST QUARTER OF 1999) COMPARED WITH THREE MONTHS ENDED NOVEMBER 30, 1997 (FIRST QUARTER OF 1998) Net revenues increased by 31.2% to $117.0 million in 1998 from $89.2 million in 1997 due primarily to a 26.4% increase in average degree student enrollments and tuition price increases averaging four to six percent (depending on the geographic area and program). Most of the Company's campuses, which include their respective learning centers, had increases in net revenues and average degree student enrollments from 1997 to 1998. Tuition and other net revenues for the three months ended November 30, 1998 and 1997 consists primarily of $102.7 million and $77.2 million, respectively, of net tuition revenues from students enrolled in degree programs and $5.7 million and $4.2 million, respectively, of net tuition revenues from students enrolled in non-degree programs. Average degree student enrollments increased to 74,400 in 1998 from approximately 58,800 in 1997. Interest income was $1.3 million in both 1998 and 1997. Interest income did not increase in 1998 due to lower interest rates in effect during 1998. 11 Instruction costs and services increased by 28.6% to $67.7 million in 1998 from $52.6 million in 1997 due primarily to the direct costs necessary to support the increase in average degree 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 57.8% in 1998 from 59.0% in 1997 due primarily to greater net revenues being spread over the fixed costs related to centralized student services. As the Company expands into new markets, it may not be able to leverage its existing instruction costs and services to the same extent. Selling and promotional expenses increased by 69.7% to $17.9 million in 1998 from $10.6 million in 1997 due primarily to an increase in the number of marketing and enrollment staff, additional advertising and marketing related to newly opened campuses and learning centers and increased advertising and marketing for distance education. These expenses as a percentage of net revenues increased to 15.3% in 1998 from 11.9% in 1997 due to an increase in the number of campuses opened in new markets during the last two years and an increase in the number of marketing and enrollment staff. General and administrative expenses increased by 8.0% to $9.1 million in 1998 from $8.4 million in 1997 due primarily to costs required to support the increased number of campuses and learning centers and overall increases in general and administrative salaries. General and administrative expenses as a percentage of net revenues decreased to 7.8% in 1998 from 9.4% in 1997 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. The Company may not be able to leverage its costs to the same extent as it faces increased costs related to the development and implementation of new information systems and expansion into additional markets. Costs related to the start-up of new campuses and learning centers are expensed as incurred and totaled approximately $2.1 million and $1.7 million in 1998 and 1997, respectively. These start-up costs are primarily included in instruction costs and services and selling and promotional expenses. Interest expense, which is allocated among all categories of costs and expenses, was less than $5,000 in both 1998 and 1997. The Company's effective tax rate was 39.3% and 39.6% in 1998 and 1997, respectively. Net income increased to $13.5 million in 1998 from $10.6 million in 1997 due primarily to increased enrollments, increased tuition rates and improved utilization of general and administrative costs. SEASONALITY IN RESULTS OF OPERATIONS 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 12 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, instruction costs and services and selling and promotional expenses historically increase as a percentage of net revenues in the fourth quarter due to increased costs in preparation for the August peak enrollments. These increased costs result in accounts payable levels being higher in August than in any other month during the year. The Company anticipates 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 remained relatively the same at $17.0 million in 1998 and $17.1 million in 1997. This resulted primarily from increased net income offset in part by increases in restricted cash and accounts receivable. The increase in accounts receivable was primarily attributable to the general growth in operations as well as the implementation in the fourth quarter of fiscal year 1998 of new financial aid processing software. Although the Company believes that the new software will ultimately result in processing efficiencies and faster collections, delays in processing were experienced during the transition and training period. The Company expects its accounts receivable balance to return to more normalized levels by mid-1999. Bad debt expense was approximately 3% of tuition revenues in 1998 and 1997. Capital expenditures increased to $12.3 million in 1998 from $4.9 million in 1997 primarily due to the installation of a new phone system at the corporate offices and several campuses, the installation of computer labs related to the expansion of Information Technology programs, continued development of the new financial aid processing software, leasehold improvements at the corporate offices and to support an increase in the number of overall locations. Total purchases of property and equipment for the year ended August 31, 1999 are expected to range from $28.0 to $30.0 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, hardware and software related to the Company's planned conversion to a new human resource system and increases in normal recurring capital expenditures due to the overall increase in student and employee levels resulting from the growth in the business. Start-up costs are expected to range from $8.0 to $10.0 million in 1999, as compared to $7.2 million in 1998, due to recent and planned expansion into new geographic markets. 13 On September 25, 1998, the Company's Board of Directors authorized a program allocating up to $40 million in Company funds to repurchase shares of its Class A Common Stock. As of November 30, 1998, the Company had repurchased approximately 340,000 shares at a total cost of approximately $8.4 million. The Department of Education (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 are held in a separate cash account until certain conditions are satisfied. As of November 30, 1998, the Company had approximately $26.1 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 the Company's ability to fund daily operations. In December 1998, the Company announced a strategic plan to outsource the administration and processing of UOP's and WIU's student financial aid programs to Arthur Andersen Process Solutions. The contract is expected to be finalized during the second quarter of 1999. DEPARTMENT OF EDUCATION REVIEWS UOP's most recent Department of Education program review began in March 1997, and an initial program review report has been received. This report contained six findings in the areas of satisfactory academic progress, refunds and general program administration. UOP submitted its response to these findings in January 1999. The DOE will issue a final program review determination after it completes its review of the response. The Company is uncertain when the final determination will be issued and what the results of the findings will be. Additionally, in January 1998, the Department of Education Office of the Inspector General ("OIG") began performing a routine audit of UOP. The auditors reviewed UOP's cash management policies. Although no draft report has been received from the OIG, the audit team indicated at the exit interview that it had no findings regarding cash management policies. The team did present questions regarding UOP's interpretation of the "12-hour rule", UOP's distance education programs and institutional refund obligations. UOP has supplied the OIG with the information they have requested and is awaiting an initial draft report. Although the Company believes that the program review and OIG audit will be resolved without any material effect, as with any program review or audit, no assurance can be given as to the final outcome since the matters are not yet resolved. As previously disclosed, the Company assumed the Title IV liabilities of Western International University ("Western") which were subject to change based on the results of the DOE's audit of Western's Title IV Programs. Although much of the fieldwork was completed in early 1996, the final audit results and the amount that the Company is responsible for has not been determined by the DOE at the current time. Depending on the interpretation of the various regulatory requirements, the final audit results and the Company's liability may differ materially from the estimates currently 14 recorded. Any difference between the final amount and the estimates currently recorded will be recorded as an increase or decrease, as applicable, to expense. YEAR 2000 COMPLIANCE The Year 2000 computer issue refers to a condition in computer software where a two digit field rather than a four digit field is used to distinguish a calendar year. Unless corrected, some computer programs, hardware ("IT") and non-information technology systems ("non-IT") could be unable to process information containing dates subsequent to December 31, 1999. As a result, such programs and systems could experience miscalculations, malfunctions or disruptions. The Company is currently in the assessment phase of evaluating its core business information systems for Year 2000 readiness and has extended that review to include a wide variety of other IT and non-IT systems. As a result of hardware and software upgrades and computer system purchases over the past few years, many of the Company's computer systems should not have a Year 2000 problem or have been warranted to be Year 2000 compliant by third-party vendors. The Company is continuing the process of updating much of its existing software for Year 2000 compliance by acquiring new and upgraded third party software packages to replace existing software and modifying existing internally developed software. In no case is a system being replaced solely because of Year 2000 issues, although in some cases, the timing of system replacements is being accelerated. Sufficient testing of the Company's IT systems has not been completed to fully validate readiness. Additional testing is planned during 1999 to reasonably ensure Year 2000 compliance. Additionally, while the Company may have incurred an opportunity cost for addressing the Year 2000 issue, it does not believe that any specific IT projects have been deferred as a result of its Year 2000 efforts. The Company's non-IT compliance is focused primarily in the area of facilities leased by the Company. The Company is working with its lessors to ensure compliance on these non-IT systems. The Company has begun to assess the readiness of its significant suppliers, business partners, banking agencies and governmental agencies to determine the extent to which the Company may be vulnerable in the event that those parties fail to properly remediate their own Year 2000 issues. The Company's operations and liquidity largely depend upon the student funding provided by Title IV Programs for its students. Processing of applications for this funding is handled by the U.S. Department of Education's computers systems. The U.S. Department of Education has stated that its systems will be Year 2000 compliant in early calendar year 1999 and that various schools will be able to run tests of the remediated systems during the first half of calendar year 1999; however, the Company is unable to independently assess the U.S. Department of Education's progress to date and no test dates have been announced yet. Similarly, UOP, IPD, WIU, the College and IPD client institutions are licensed by one or more agencies in the states in which they are based and are accredited by accrediting bodies that are recognized by the U.S. Department of Education. Any prolonged interruption would have a 15 material adverse impact upon the education industry and, accordingly, upon the Company's business, results of operations, liquidity and financial condition. The Company is in the process of developing an appropriate contingency plan in the event that a significant exposure is identified relative to the dependencies on third-party systems. The Company believes that the most reasonably likely worst-case scenario for the Year 2000 issue would be that the Company or the third parties with whom it has relationships would cease or not successfully complete their Year 2000 remediation efforts. If this were to occur, the Company would encounter disruptions to its business that could have a material adverse effect on its results of operations. The Company could be materially impacted by widespread economic or financial market disruption or by year 2000 computer system failures at the U.S. Department of Education. The Company has not at this time established a formal Year 2000 contingency plan but will consider and, if necessary, address doing so as part of its Year 2000 activities. Although the Company is unable at this time to assess the possible impact on its results of operations, liquidity or financial condition of any Year 2000 related disruptions to its business caused by the malfunctioning of any IT or non-IT systems and products that it uses or that third parties with which it has material relationships use, management does not believe at the current time that the cost of remediating the Company's internal Year 2000 problems will have a material adverse impact upon its business, results of operations, liquidity or financial condition. IMPACT OF INFLATION Inflation has not had a significant impact on the Company's historical operations. Item 3 -- Quantitative and Qualitative Disclosures about Market Risk The Company's portfolio of marketable securities includes numerous issuers, varying types of securities and maturities. The Company intends to hold these securities to maturity. The fair value of the Company's 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. The Company does not hold or issue derivative financial instruments. 16 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 .Not Applicable Item 5. Other Information . . . . . . . . . . . . . . . . . .Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 15.1 Letter on Unaudited Interim Financial Information Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended November 30, 1998. 17 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: January 11, 1999 By: /s/ Junette C. West --------------------------------- Junette C. West Chief Accounting Officer By: /s/ Kenda B. Gonzales ---------------------------------- Kenda B. Gonzales Chief Financial Officer By: /s/ Todd S. Nelson ---------------------------------- Todd S. Nelson President 18 APOLLO GROUP, INC. AND SUBSIDIARIES EXHIBIT INDEX PAGE 15.1 Letter on Unaudited Interim Financial Information Filed herewith 27 Financial Data Schedule Filed herewith 19 EX-15.1 2 Exhibit 15.1 Letter on Unaudited Interim Financial Information January 11, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Ladies and Gentlemen: We are aware that Apollo Group, Inc. has incorporated by reference our report dated December 16, 1998 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) in its Registration Statements on Form S-8 (Nos. 33-87844, 33-88982, 33-88984 and 33-63429). We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, /s/ PricewaterhouseCoopers LLP EX-27 3
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 3-MOS AUG-31-1999 NOV-30-1998 77,979 28,529 78,703 9,601 2,409 185,476 83,786 27,986 321,046 102,022 0 0 0 102 208,124 321,046 2,415 117,010 2,969 85,600 0 3,044 0 22,285 8,747 13,538 0 0 0 13,538 .17 .17
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