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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: August 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________
Commission file number : 0-25232
APOLLO GROUP, INC.
(Exact name of registrant as specified in its charter)
ARIZONA 86-0419443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (602) 966-5394
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE NONE
(Title of each class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, NO PAR
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
No shares of the Company's Class B Common Stock, its voting stock, is held by
non-affiliates. The holders of the Company's Class A Common stock are not
entitled to any voting rights. The number of shares outstanding for each of
the registrant's classes of common stock, as of October 10, 1996, is as
follows:
Class A Common Stock, no par 49,489,219 Shares
Class B Common Stock, no par 575,769 Shares
DOCUMENTS INCORPORATED BY REFERENCE
NONE
1
APOLLO GROUP, INC. AND SUBSIDIARIES
FORM 10-K
INDEX
PAGE
PART I ----
Item 1. Business 3
Item 2. Properties 27
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 28
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 29
Item 6. Selected Consolidated Financial Data 30
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 32
Item 8. Financial Statements and Supplementary Data 40
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 62
PART III
Item 10. Directors and Executive Officers of the Registrant 63
Item 11. Executive Compensation 67
Item 12. Security Ownership of Certain Beneficial
Owners and Management 75
Item 13. Certain Relationships and Related Transactions 76
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 77
SIGNATURES 80
2
PART I
Item 1 -- Business
OVERVIEW
Apollo Group, Inc. ("Apollo" or the "Company"), through its
subsidiaries, the University of Phoenix, Inc. ("UOP"), the Institute for
Professional Development ("IPD") and Western International University, Inc.
("WIU"), is a leading provider of higher education programs for working
adults based on the number of working adults enrolled in its programs. The
consolidated enrollment in the Company's educational programs would make it
the largest private institution of higher education in the United States.
The Company currently offers its programs and services at 85 campuses and
learning centers in 29 states, Puerto Rico and London, England. The
Company's enrollment has increased to 46,935 at August 31, 1996 from 21,163
at August 31, 1992.
Based on its enrollment of over 33,000 adult students, UOP is currently
the second largest regionally accredited private university in the United
States and has one of the nation's largest private business schools. UOP has
been accredited by the Commission on Institutions of Higher Education of the
North Central Association of Colleges and Schools ("NCA") since 1978 and has
successfully replicated its teaching/learning model while maintaining
educational quality at its 47 campuses and learning centers in Arizona,
California, Colorado, Florida, Hawaii, Louisiana, Michigan, Nevada, New
Mexico, Utah and Puerto Rico. UOP has developed specialized systems for
student tracking, marketing, faculty recruitment and training, financial aid,
accounting and academic quality management. These systems enhance UOP's
ability to expand into new markets while still maintaining academic quality.
Currently, approximately 75% of UOP's students receive some level of tuition
reimbursement from their employers, many of which are Fortune 500 companies.
The Online (TM) campus was established by UOP in 1989 to provide
group-based, faculty-led instruction through computer-mediated communications.
The Online (TM) campus currently serves approximately 2,200 degree-seeking
students. Students can access their Online (TM) classes with a computer and
modem from anywhere in the world, on schedules that meet their individual
needs. Online's (TM) degree programs can be accessed though direct-dial,
local Internet providers or CompuServe(R). The Online (TM) faculty receive
specialized training to enable them to teach effectively in the electronic
learning environment. The same academic quality management standards applied
to campus-based programs, including the assessment of student learning
outcomes, are applied to programs delivered through Online (TM).
IPD provides program development and management services under long-term
contracts that meet the guidelines of the client institutions' respective
regional accrediting associations. IPD provides these services to 18
regionally accredited private colleges and universities at 34 campuses and
learning centers in 20 states and shares in the tuition revenues generated
from these programs. IPD is able to assist these colleges and universities
in expanding and diversifying their programs for working adults. IPD places
a priority on institutions that: (1) are interested in developing or
expanding off-campus degree programs for working adults; (2) recognize that
working adults require a different teaching/learning model than the 18 to 24
year old student; (3) desire to increase enrollments with a limited
3
investment in institutional capital and (4) recognize the unmet
educational needs of the working adult students in their market.
Approximately 12,600 students are currently enrolled in IPD-assisted
programs.
WIU currently offers graduate, undergraduate and certificate degree
programs to approximately 1,200 students and has a total of four campuses and
learning centers in Phoenix, Fort Huachuca and Douglas, Arizona and London,
England.
The Company was incorporated in Arizona in 1981 and maintains its
principal executive offices at 4615 East Elwood Street, Phoenix, Arizona
85040. The Company's telephone number is (602) 966-5394. The Company's
Internet Web Site addresses are as follows:
- Apollo and IPD -- http://www.apollogrp.com
- UOP -- http://www.uophx.edu
- WIU -- http://www.wintu.edu
The Company's fiscal year is from September 1 to August 31. Unless
otherwise stated, references to the years 1996, 1995 and 1994 relate to the
fiscal years ended August 31, 1996, 1995 and 1994, respectively.
This Annual Report on Form 10-K contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements relating to future plans, expectations, events or
performances involve risks and uncertainties and a number of factors could
affect the validity of such forward-looking statements, including those set
forth under "Risk Factors" in the Company's Prospectus dated January 18,
1996.
MARKET
The United States education market may be divided into three distinct
segments: kindergarten through twelfth grade schools ("K-12"), vocational and
technical training schools and degree-granting colleges and universities
("higher education"). The Company currently operates in the higher education
segment. The U.S. Department of Education National Center for Education
Statistics ("NCES") estimated that for 1994 (the most recent historical year
reported), adults over 24 years of age comprised approximately 6.3 million,
or 45%, of the 14.1 million students enrolled in higher education programs.
Currently, the U.S. Bureau of Census estimates that 70-75% of students over
the age of 24 work while attending school. The NCES estimates that by the
year 2001 the number of adult students over the age of 24 will increase to
6.6 million, or 42%, of the 15.7 million students projected to be enrolled in
higher education programs. The increase in demand for higher education from
working adults results from the increasing skills required by employers and
from a recognition by working adults of the value of an earned degree for
career advancement and change.
The Company believes that the unique needs of working adults include the
following:
- Convenient access to a learning environment (including both location
and delivery system)
4
- Degree programs offered by regionally accredited institutions that
can be completed in a reasonable amount of time
- Programs that provide knowledge and skills with immediate practical
value in the workplace
- Education provided by academically qualified faculty with current
practical experience in fields related to the subjects they instruct
- Administrative services designed to accommodate the full-time
working adult's schedule
- Recognition of adult students as critical consumers of educational
programs and services
- A learning environment characterized by a low student-to-faculty
ratio
- Learning resources available electronically to all students
regardless of geographical location
The Company also believes that the increasing demand from and the unique
requirements of the adult working population represent a significant market
opportunity to regionally accredited higher education institutions that can
offer programs that meet these unique needs.
Most regionally accredited colleges and universities are focused on
serving the 18 to 24 year old student market. This focus has resulted in a
capital-intensive teaching/learning model that may be characterized by: (1) a
high percentage of full-time tenured faculty with doctoral degrees;
(2) fully-configured library facilities and related full-time staff;
(3) dormitories, student unions and other significant plant assets to support
the needs of younger students and (4) an emphasis on research and the related
staff and facilities. In addition, the majority of accredited colleges and
universities continue to provide the bulk of their educational programming
from September to mid-December and from mid-January to May. As a result,
most full-time faculty members only teach during that limited period of time.
While this structure serves the needs of the full-time 18 to 24 year old
student, it limits the educational opportunity for working adults who must
delay their education for up to five months during these spring, summer and
winter breaks. In addition, this structure generally requires working adults
to attend one course three times a week, commute to a central site, take work
time to complete administrative requirements and, in undergraduate programs,
participate passively in an almost exclusively lecture-based learning format
primarily focused on a theoretical presentation of the subject matter. For
the majority of working adults, earning an undergraduate degree in this
manner would take seven to ten years.
BUSINESS STRATEGY
The Company's strategic goal is to become the preferred provider of
higher education programs for working adult students. The Company is managed
as a for-profit corporation in an industry served principally by
not-for-profit providers. By design, the Company treats both its adult
students and their employers as its primary customers. Key elements of the
Company's business strategy include the following:
5
Establish New UOP Campuses and Learning Centers -----------------------------
UOP plans to add campuses and learning centers throughout the United
States. New locations are selected based on an analysis of various factors,
including the population of working adults in the area, the number of local
employers and their educational reimbursement policies and the availability
of similar programs offered by other institutions. Campuses consist of
classroom and administrative facilities with full student and administrative
services. Learning centers differ from campuses in that they consist
primarily of classroom facilities with limited on-site administrative staff.
Establish New IPD Relationships ---------------------------------------------
IPD plans to enter into additional long-term contracts with private
colleges and universities in proximity to metropolitan areas throughout the
United States. In general, IPD seeks to establish relationships with
colleges and universities located in states where it is difficult for out-of-
state accredited institutions to obtain state authorizations. In this way,
the Company is able to optimize its campus-based penetration of potential new
markets.
Expand Educational Programs -------------------------------------------------
The Company expects to continue to respond to the changing educational
needs of working adults through the introduction of new undergraduate and
graduate degree programs and business and information technology ("IT")
training programs. The Company has also applied with NCA for approval of a
professional doctoral degree program. The Company currently has a full-time
staff of approximately 30 persons involved in its centralized curriculum
development process.
The Company is also exploring other educational areas, such as K-12 and
adult remedial education, where it can leverage its educational expertise
and/or delivery systems in a cost-effective manner.
Expand Access to Programs ---------------------------------------------------
The Company plans to expand its distance education programs and
services. Enrollments in distance education programs, including Online (TM),
have increased from 1,252 in 1991 to 3,691 in 1996. The Company also plans
to enhance its distance education delivery systems as new technologies become
cost-effective.
International Expansion -----------------------------------------------------
The Company is conducting ongoing market research in various foreign
countries. The Company will continue to monitor and assess the feasibility
of expanding its educational programs internationally.
The timing related to the establishment of new locations and the
expansion of programs may vary depending on regulatory requirements and
market conditions.
6
TEACHING/LEARNING MODEL
The Company's teaching/learning model used by UOP and IPD client
institutions was designed for working adults. This model is structured to
enable students who are employed full-time to earn their degrees and still
meet their personal and professional responsibilities. Students attend
weekly classes, averaging 15 students in size, and also meet weekly as part
of a three to five person study group. The study group meetings are used for
review, work on assigned group projects and preparation for in-class
presentations. Courses are designed to facilitate the application of
knowledge and skills to the workplace and are taught by faculty members who
possess advanced degrees and have an average of 15 years of professional
experience in business, industry, government and the professions. In this
way, faculty members are able to share their professional knowledge and
skills with the students.
The Company's teaching/learning model has the following major
characteristics:
Curriculum The curriculum provides for the achievement of
specific educational outcomes that are based on the
input from faculty, students and student employers.
The curriculum is designed to integrate academic
theory and professional practice and the application
to the workplace. The standardized curriculum for
each degree program is also designed to provide
students with specified levels of knowledge and
skills regardless of delivery method or location.
Faculty Faculty applicants must possess an earned master's
or doctoral degree, and have a minimum of five years
recent professional experience in a field related to
the subject matter in which they seek to instruct.
To help promote quality delivery of the curriculum,
UOP faculty members are required to: (1) complete an
initial assessment conducted by staff and faculty;
(2) receive training in grading, facilitation of the
teaching/learning model and oversight of study group
activities; (3) serve an internship with an
experienced faculty mentor and (4) receive ongoing
performance evaluations by students, peer faculty
and staff. The results of these evaluations are
used to establish developmental plans to improve
individual faculty performance and to determine
continued eligibility of faculty members to provide
instruction.
Interactive Learning Courses are designed to combine individual and group
activity with interaction between and among students
and the instructor. The curriculum requires a high
level of student participation for purposes of
increasing the student's ability to work as part of
a team.
Learning Resources Students and faculty members are provided with
electronic and other learning resources for their
information needs. During 1996, the Company
substantially expanded these services including the
7
addition of research tools available on the
Internet. These extensive electronic resources
minimize the Company's need for capital-intensive
library facilities and holdings.
Sequential Enrollment Students enroll in and complete courses
sequentially, rather than concurrently, thereby
allowing full-time working adults to focus their
attention and resources on one subject at a time,
thus balancing learning with ongoing personal and
professional responsibilities.
Academic Quality The Company has developed and operationalized an
Academic Quality Management System ("AQMS") that is
designed to maintain and improve the quality of
programs and academic and student services
regardless of the delivery method or location.
Included in the AQMS is the Adult Learning Outcomes
Assessment which seeks to measure student growth in
both the cognitive (subject matter) and affective
(educational, personal and professional values)
domains.
STRUCTURAL COMPONENTS OF TEACHING/LEARNING MODEL
Although adults over 24 currently comprise approximately 45% of all
higher education enrollments in the United States, the mission of most
accredited colleges and universities is to serve 18 to 24 year old students
and conduct research. UOP and IPD client institutions acknowledge the
differences in educational needs between older and younger students and
provide programs and services that allow working adult students to earn their
degrees while integrating the process with both their personal and
professional lives.
The Company believes that working adults require a different
teaching/learning model than that designed for the 18 to 24 year old student.
The Company has found that working adults seek accessibility, curriculum
consistency, time and cost effectiveness and learning that has an immediate
application to the workplace. The Company's teaching/learning model differs
from the models used by most regionally accredited colleges and universities
because it is designed to enable adults to complete an undergraduate degree
in four years and a graduate degree in two years while working full-time.
The structural components of the Company's teaching/learning model
include:
Accessibility Centrally developed standardized curricula that can
be accessed through a variety of delivery methods
(e.g., campus-based or electronically delivered),
that make the educational programs accessible
regardless of where the students work and live.
Instructional Costs While the faculty at most accredited colleges and
universities are employed full-time, UOP's and IPD
client institutions' part-time faculty are
academically qualified, professionally employed and
are contracted for instructional services on a
8
course-by-course basis. This policy keeps a portion
of the cost of instruction variable.
Facility Costs The Company leases its campus and learning center
facilities and rents additional classroom space on a
short-term basis to accommodate growth in
enrollments, thus keeping a portion of its
instructional costs variable.
Employed Students UOP's students are employed full-time and
approximately 72% have been employed for nine years
or more. This minimizes the need for
capital-intensive facilities and services (e.g.,
dormitories, student unions, food services, personal
and employment counseling, health care, sports and
entertainment).
Employer Support Approximately 75% of UOP's students currently
receive some level of tuition reimbursement from
their employers, many of which are Fortune 500
companies. The Company develops relationships with
key employers for purposes of recruiting students
and responding to specific employer needs. This
allows the Company to remain sensitive to the needs
and perceptions of employers, while helping both to
generate and sustain diverse sources of revenues.
WIU's teaching/learning model has similar characteristics to the
teaching/learning model used by UOP and IPD client institutions, including
the use of part-time practitioner faculty, standardized curriculum,
computerized learning resources and leased facilities. However, WIU provides
educational programs in a semester-based format and does not focus
exclusively on working adult students.
PROGRAMS AND SERVICES
UOP Programs ----------------------------------------------------------------
UOP currently offers the following degree programs and related areas of
specialization at one or more campuses and learning centers or through its
distance education delivery systems:
DEGREE PROGRAMS
- ---------------
Associate of Arts in Business
Bachelor of Arts in Management
Bachelor of Science in Business
Bachelor of Science in Nursing
Master of Arts in Education
Master of Arts in Organizational Management
Master of Business Administration
Master of Counseling
Master of Nursing
Master of Science in Computer Information Systems
9
AREAS OF SPECIALIZATION AVAILABLE IN CERTAIN DEGREE PROGRAMS
- ------------------------------------------------------------
Undergraduate BUSINESS
Accounting
Administration
Environmental Management
Finance
Industrial Relations
Marketing
Operations Management
COMPUTER INFORMATION SYSTEMS
Information Systems
Technical Management
Graduate BUSINESS
Finance
Global Management
Marketing
Organizational Management
COMPUTER INFORMATION SYSTEMS
Technology Management
EDUCATION
Administration and Supervision
Bilingual-Bicultural
Curriculum
Diverse Learner
Educational Counseling
Elementary Education
English as a Second Language
Professional Development for Educators
Secondary Methodology
Special Education
NURSING
Education
Management
Women's Health Nurse Practitioner
COUNSELING
Community Counseling
Marriage and Family Therapy
Mental Health
UOP also offers over 28 certificate programs in the areas of business,
technology, nursing, continuing education for teachers, custom training and
the environment.
10
Graduate level courses are also offered for students' continuing
professional education requirements, including state teacher certification
and state teacher renewal. Undergraduate students may demonstrate and
document college level learning gained from experience through an assessment
by faculty members (according to the guidelines of the Council for Adult and
Experiential Learning ("CAEL")) for the potential award of credit. The
average number of credits awarded to UOP undergraduate students who utilized
the process between 1993 and 1996 was approximately 10 credits of the 120
required to graduate. CAEL reports that over 1,300 regionally accredited
colleges and universities currently provide for the assessment mechanism of
college level learning gained through experience for the award of credit.
IPD Services ----------------------------------------------------------------
IPD offers services to its client institutions including: (1) assisting
with curriculum development; (2) conducting market research; (3) developing
and executing marketing strategies; (4) training faculty; (5) establishing
administrative infrastructures; (6) developing and implementing financial
accounting and academic quality management systems; (7) assessing the future
needs of adult students and (8) helping develop additional degree programs
suitable for the adult higher education market. In consideration for its
services, IPD receives a contractual share of tuition revenues from students
enrolled in IPD-assisted programs.
IPD also assists its client institutions in identifying and developing
new degree programs and in seeking the required approvals from their
respective regional accrediting associations. In order to facilitate the
sharing of information related to the operations of their respective
programs, the IPD client institutions and UOP formed the Consortium for the
Advancement of Adult Higher Education ("CAAHE"). CAAHE meets semiannually to
address issues such as the recruitment and training of part-time,
professionally employed faculty, employer input in the curriculum development
process, assessment of the learning outcomes of adult students and regulatory
issues affecting the operation of programs for working adult students.
IPD client institutions offer the following programs with IPD
assistance:
No. of IPD
Degree Programs Client Institutions
- -------------------------------------------------- --------------------
Associate of Arts in General Studies 1
Associate of Arts 1
Associate of Science in Business 4
Bachelor of Arts in Business Administration 2
Bachelor of Business Administration 7
Bachelor of Science in Business Administration 4
Bachelor of Science in Human Resources Management 1
Bachelor of Science in Management 7
Bachelor of Science in Nursing 1
Bachelor of Science in Organizational Leadership 1
Master of Business Administration 9
Master of Science in Management 5
Master of Science in Health Services Administration 1
11
The IPD-assisted programs also include a limited number of general
education courses, certificate programs and areas of specialization.
WIU Programs ----------------------------------------------------------------
WIU currently offers the following degree and certificate programs:
DEGREE PROGRAMS WITH RELATED MAJORS
- ---------------------------------------------
ASSOCIATE OF ARTS IN GENERAL STUDIES
BACHELOR OF SCIENCE
- - Accounting
- - Aviation Management
- - Finance
- - General Business
- - Information Systems
- - International Business
- - Management
- - Marketing
BACHELOR OF ARTS
- - Behavioral Science
- - General Studies
- - International Studies
MASTER OF BUSINESS ADMINISTRATION
- - Finance
- - Healthcare Management
- - International Business
- - Management
- - Management Information Services
- - Marketing
MASTER OF PUBLIC ADMINISTRATION
MASTER OF SCIENCE
- - Accounting
- - Information Services
- - Information Systems Engineering
WIU also offers a limited number of business-related certificate
programs.
12
Faculty ---------------------------------------------------------------------
UOP's faculty is comprised of approximately 3,400 working professionals
with earned master's or doctoral degrees and an average of 15 years of
experience in business, industry, government or the professions. To help
promote quality delivery of the curriculum, UOP faculty members are required
to: (1) complete an initial assessment conducted by staff and faculty;
(2) receive training in grading, facilitation of the teaching/learning model
and oversight of study group activities and (3) receive ongoing performance
evaluations by students, peer faculty and staff. The results of these
evaluations are used to establish developmental plans to improve individual
faculty performance and to determine continued eligibility of faculty members
to provide instruction. Most faculty members are recruited as the result of
referrals from faculty, students and corporate contacts. All faculty are
contracted on a course-by-course basis (generally a five to ten week period).
The faculty teaching in IPD-assisted programs are comprised of full-time
faculty from the client institution as well as qualified part-time faculty
who instruct only in these adult programs. The part-time faculty must be
approved by each client institution. IPD makes the AQMS available to its
client institutions to evaluate faculty and academic and administrative
quality. Both UOP and IPD have been successful in recruiting faculty members
who meet these academic and professional requirements.
WIU's faculty consists of approximately 120 working professionals.
WIU's practitioner faculty possess earned master's or doctoral degrees and
participate in a selection and training process that is similar to that at
UOP.
Academic Accountability -----------------------------------------------------
UOP is one of the first regionally accredited universities in the nation
to create and utilize an institution-wide system for the assessment of the
educational outcomes of its students. The information generated is employed
by UOP to improve the quality of the curriculum, instruction and the
Company's teaching/learning model. UOP's undergraduate and graduate students
complete a comprehensive cognitive (core degree subject matter) and affective
(educational, personal and professional values) assessment prior to and upon
the completion of their core degree requirements.
Students at UOP and IPD client institutions evaluate both academic and
administrative quality. This evaluation begins with a registration survey
and continues with the evaluation of the curriculum, faculty, delivery
method, instruction and administrative services upon the conclusion of each
course. The evaluation also includes a survey of a random selection of
graduates 2-3 years following their graduation. The results provide an
ongoing basis for improving the teaching/learning model, selection of
educational programs and instructional quality. The Company plans to
implement similar quality control systems at WIU on an ongoing basis.
Admissions Standards --------------------------------------------------------
To gain admission to the undergraduate programs of UOP, WIU and the IPD
client institutions, students generally must have a high school diploma or
General Equivalency Diploma ("G.E.D.") and satisfy certain minimum grade
point average, employment and age requirements. Additional requirements may
13
apply to individual programs. Students in undergraduate programs may
petition to be admitted on provisional status if they do not meet certain
admission requirements.
To gain admission to the graduate programs of UOP, WIU and the IPD
client institutions, students generally must have an undergraduate degree
from a regionally accredited college or university and satisfy minimum grade
point average, work experience and employment requirements. Additional
requirements may apply to individual programs. Students in graduate programs
may petition to be admitted on provisional status if they do not meet certain
admission requirements.
DISTANCE EDUCATION COMPONENTS
At August 31, 1996, there were approximately 3,700 students utilizing
the Company's distance education delivery systems, approximately 60% of whom
are enrolled in Online (TM). The Company's distance education components
consist primarily of the following:
Online Computer Conferencing ------------------------------------------------
The Online (TM) campus was established by UOP in 1989 to provide group-
based, faculty-led instruction through computer-mediated communications.
Students can access their online classes with a computer and modem from
anywhere in the world, on schedules that meet their individual needs. Online
(TM) students work together in small groups of 8 to 13, to engage in class
discussion and study group activities that are focused on the same learning
outcomes and objectives required in UOP's classroom degree programs. This
enables the Online (TM) students to enjoy the benefits of a study group,
where they can share their regional and cultural differences with each other
in the context of their coursework. Since all communication is asynchronous,
students are not required to participate at the same time. Online's (TM)
degree programs can be accessed though direct-dial, local Internet providers
or CompuServe(R).
Two-Way Voice and Data ------------------------------------------------------
UOP established its audiographic delivery system in 1989 in response to
requests from employers with operations in remote areas of the United States.
Students completing their degree requirements utilizing this system meet
weekly in a remote classroom and interact simultaneously with an instructor
in a centralized instructional studio through a two-way voice and data
communications system. These students can complete all their coursework in
this manner. They are required to achieve the same course outcomes, attend
weekly study groups and participate in the AQMS.
Directed Study --------------------------------------------------------------
Working adult students may also complete individual courses under the
direct weekly instructional supervision of a member of the faculty. These
directed study programs utilize the same courses, faculty and resources
available at UOP campuses. Course assignments are completed in a structured
environment that allows flexibility of schedules. Communication with the
faculty member is by telephone, e-mail, fax or mail.
14
Distance education is currently subject to certain regulatory
constraints. See "Business -- Federal Financial Aid Programs -- Restrictions
on Distance Education Programs" and "Business -- State Authorization."
ACQUISITION STRATEGY
The Company periodically evaluates opportunities to acquire businesses
and facilities. In evaluating such opportunities, management considers,
among other factors, location, demographics, price, the availability of
financing on acceptable terms, competitive factors and the opportunity to
improve operating performance through the implementation of the Company's
operating strategies. The Company has no current commitments with regard to
potential acquisitions.
CUSTOMERS
The Company's customers consist of working adult students, colleges and
universities, governmental agencies and employers. Following is a breakdown
of the Company's students by the level of program they are seeking, at August
31:
1996 1995
------ ------
Master's 30.6% 30.5%
Bachelor's 61.1% 60.2%
Associate 4.2% 4.0%
Certificate, corporate training and
continuing professional education 4.1% 5.3%
------ ------
100.0% 100.0%
====== ======
Based on recent student surveys, the average age of UOP students is in
the mid-thirties, approximately 52% are women and 48% are men, and the
average annual household income is $53,000. Approximately 72% of UOP
students have been employed on a full-time basis for nine years or more. The
Company believes that the demographics of students enrolled in IPD-assisted
programs are similar to that of UOP. The approximate age distribution of
current UOP students is as follows:
Age Percentage of Students
------------------------ -----------------------
25 and under 12%
26 to 33 35%
34 to 45 42%
46 and over 11%
-------
100%
=======
15
IPD client institutions have historically consisted of small private
colleges; however, IPD also targets larger institutions of higher education
that are in need of marketing and curriculum consulting. The Company
believes that to develop and manage educational programs for working adult
students effectively, these potential client institutions require both
capital and operational expertise. In response to these requirements, IPD
provides the start-up capital, the curriculum development expertise and the
ongoing management in support of the client institutions' provision of
quality programs for working adult students.
The Company also considers the employers of its students as customers.
Many of these employers provide tuition reimbursement programs in order to
educate and provide degree opportunities to their employees. Currently,
approximately 75% of UOP's students receive some level of tuition
reimbursement from their employers, many of which are Fortune 500 companies.
Of these students receiving reimbursement, approximately 62% receive at least
one-half tuition reimbursement and approximately 28% receive full tuition
reimbursement.
CORPORATE PARTNERSHIPS
The Company cooperates and interacts with businesses and governmental
agencies in offering programs designed to meet their specific needs either by
modifying existing programs or, in some cases, by developing customized
programs. These programs are often held at the employers' offices or on-site
at military bases. UOP has also formed educational partnerships with various
companies, including AT&T and Ingram Micro, to provide programs specifically
designed for their employees.
MARKETING
To generate interest among potential UOP, WIU and IPD client institution
students, the Company engages in a broad range of activities to inform
potential students about the Company's teaching/learning model and the
programs offered. These activities include print and broadcast advertising,
advertising on services such as CompuServe (R), Prodigy (R) and the Microsoft
Network (R), direct mail and information meetings at targeted organizations
(CompuServe (R) is a registered trademark of CompuServe Incorporated,
Columbus, Ohio, Prodigy (R) is a registered trademark of Trintex, White
Plains, New York, and Microsoft Network (R) is a registered servicemark of
Microsoft Corporation, Redmond, Washington). The Company also attempts to
locate its campuses and learning centers near major highways to provide high
visibility and easy access. A substantial portion of new UOP and IPD client
institution students are referred by alumni, employers and currently enrolled
students. The Company recently implemented its proprietary marketing systems
at WIU to help it identify and manage lead sources and referral data.
The Company also has a Web Site on the Internet World Wide Web
(http://www.apollogrp.com) that allows electronic access to Company
information, product information, research, etc. The Company's Web Site is
accessible from major online networks such as Prodigy (R), CompuServe (R),
America OnLine (R) (America OnLine (R) is a registered trademark of America
Online, Inc., Vienna, Virginia) and the Microsoft Network (R).
16
UOP and WIU advertising is centrally monitored and is directed primarily
at local markets in which a campus is located. IPD client institutions
approve and monitor all advertising provided by IPD on their behalf. Direct
responses to advertising and direct mail are received, tracked and forwarded
promptly to the appropriate representatives. In addition, all responses are
analyzed to provide data for future marketing efforts.
The Company employs over 300 enrollment representatives in its marketing
system who make visits and presentations at various organizations and who
follow up on leads generated from the Company's advertising efforts and
referrals. These individuals also pursue direct responses to interest from
potential individual students by arranging for interviews either at a UOP,
WIU or IPD location or at a prospective student's place of employment.
Interviews are designed to establish a prospective student's qualifications,
academic background, course interests and professional goals. Student
recruiting policies and standards and procedures for hiring and training
university representatives are established centrally, but are implemented at
the local level through a director of enrollment or marketing at each
location.
COMPETITION
The higher education market is highly fragmented and competitive with no
private or public institution enjoying a significant market share. The
Company competes primarily with four-year and two-year degree-granting public
and private regionally accredited colleges and universities. Many of these
colleges and universities enroll working adults in addition to the
traditional 18 to 24 year old students and some have greater financial and
personnel resources than the Company. The Company expects that these
colleges and universities will continue to modify their existing programs to
serve working adults more effectively. In addition, many colleges and
universities have announced various distance-education initiatives.
The Company competes primarily at a local and regional level with other
regionally accredited colleges and universities based on the quality of
academic programs, the accessibility of programs and learning resources
available to working adults, the cost of the program, the quality of
instruction and the time necessary to earn a degree.
IPD faces competition from other entities offering higher education
curriculum development and management services for adult education programs.
The majority of IPD's current competitors provide pre-packaged curricula or
turn-key programs. IPD client institutions, however, face competition from
both private and public institutions offering degree and non-degree programs
to working adults.
17
EMPLOYEES
At September 30, 1996, the Company had the following numbers of
employees:
Full-Time Part-Time Faculty Total
--------- --------- --------- ---------
Apollo 223 4 -- 227
UOP 1,185 89 3,418 4,692
IPD 200 15 -- 215
WIU 38 25 122 185
------ ------ ------ ------
Total 1,646 133 3,540 5,319
====== ====== ====== ======
______________
Consists primarily of employees in information systems, corporate
accounting, financial aid, human resources and Apollo Press.
Consists primarily of part-time professional faculty contracted on a
course-by-course basis.
Faculty teaching IPD-assisted programs are employed by IPD client
institutions.
The Company considers its relations with its employees to be good.
REGULATORY ENVIRONMENT
The Higher Education Act of 1965, as amended (the "HEA") and the
regulations promulgated thereunder (the "Regulations") subject all higher
education institutions eligible to participate in Federal Financial Aid
programs under Title IV of the HEA ("Title IV Programs") to increased
regulatory scrutiny. The HEA mandates specific additional regulatory
responsibilities for each of the following components of the higher education
regulatory triad: (1) the accrediting agencies recognized by the United
States Department of Education (the "DOE"); (2) the federal government
through the DOE and (3) state higher education regulatory bodies, including,
if applicable, a State Postsecondary Review Entity ("SPRE"). All higher
education institutions participating in Title IV Programs must first be
accredited by an association recognized by the DOE. The DOE reviews all such
participating institutions for compliance with all applicable HEA standards
and regulations. Under the HEA, accrediting associations are required to
include the monitoring of certain aspects of Title IV Program compliance as
part of their accreditation evaluations.
New or revised interpretations of regulatory requirements could have a
material adverse effect on the Company. In addition, changes in or new
interpretations of other applicable laws, rules or regulations could have a
material adverse effect on the accreditation, authorization to operate in
various states, permissible activities and costs of doing business of UOP,
18
WIU and one or more of the IPD client institutions. The failure to maintain
or renew any required regulatory approvals, accreditation or state
authorizations by UOP or certain of the IPD client institutions could have a
material adverse effect on the Company.
ACCREDITATION
UOP, WIU and the IPD client institutions are accredited by regional
accrediting associations recognized by the DOE. Accreditation provides the
basis for: (1) the recognition and acceptance by employers, other higher
education institutions and governmental entities of the degrees and credits
earned by students; (2) the qualification to participate in Title IV Programs
and (3) the qualification for authorization in certain states.
UOP was granted accreditation by NCA in 1978. UOP's accreditation was
reaffirmed in 1982, 1987 and 1992. The next NCA reaffirmation visit is
scheduled to begin in October 1996. IPD-assisted programs offered by the IPD
client institutions are evaluated by the client institutions' respective
regional accrediting associations either as part of a reaffirmation or
focused evaluation visits. Current IPD client institutions are accredited by
NCA, Middle States, New England or Southern regional accrediting
associations. UOP is required to receive approval from NCA for the addition
of new degree programs and the addition of any campuses or learning centers
in new states or countries. Most IPD client institutions are subject to
similar policies. In addition, all IPD contracts must meet the guidelines of
the client institutions' respective regional accrediting associations. The
withdrawal of accreditation from UOP or certain IPD client institutions would
have a material adverse effect on the Company.
WIU is accredited by NCA and is scheduled to have its next reaffirmation
visit in the spring of 1998.
All accrediting agencies recognized by the DOE are required to include
certain aspects of Title IV Program compliance in their evaluations of
accredited institutions. As a result, all regionally accredited
institutions, including UOP, WIU and IPD client institutions, will be subject
to a Title IV Program compliance review as part of accreditation visits.
Regional accreditation is accepted nationally as the basis for the
recognition of earned credit and degrees for academic purposes, employment,
professional licensure and, in some states, for authorization to operate as a
degree-granting institution. Under the terms of a reciprocity agreement
among the six regional accrediting associations, representatives of each
region in which a regionally accredited institution operates participate in
the evaluations for reaffirmation of accreditation. The achievement of UOP's
and WIU's missions require them to employ academically qualified practitioner
faculty that are able to integrate academic theory with current workplace
practice. Because of UOP's and WIU's choice to utilize all practitioner
faculty, they have not sought business school program accreditation of the
type found at many institutions whose primary missions are to serve the 18 to
24 year old student and to conduct research.
UOP's Bachelor of Science in Nursing ("BSN") program received program
accreditation from the National League for Nursing ("NLN") in 1989. The
accreditation was reaffirmed in October 1995 and the next NLN reaffirmation
is scheduled for 2003. The Company believes that the BSN program
accreditation is in good standing.
19
UOP's Community Counseling program (Master of Counseling degree)
received initial accreditation from the Council for Accreditation of
Counseling and Related Educational Programs in 1995, effective through 2002.
The address and phone number for the accrediting bodies referred to
herein are as follows:
North Central Association of Colleges and Schools
Commission on Institutions of Higher Education
30 North LaSalle Street, Suite 2400
Chicago, Illinois 60602-2504
(312) 263-0456
National League for Nursing
350 Hudson Street
New York, New York 10014
(212) 989-9393
American Counseling Association
Council for Accreditation of Counseling and
Related Educational Programs
5999 Stevenson Avenue
Alexandria, VA 22304
(703) 823-9800
FEDERAL FINANCIAL AID PROGRAMS
Most UOP, WIU and IPD client institution students participate in
Title IV Programs. UOP and WIU derive approximately 44% and 8% of their net
revenues from students who participate in Title IV Programs, respectively.
The IPD percentages are estimated to be similar to those at UOP. The
respective IPD client institutions administer their own Title IV programs.
The Company's students are eligible for Title IV financial aid because:
(1) UOP, WIU and IPD client institutions are accredited by an accrediting
association recognized by the DOE; (2) the DOE has certified UOP's, WIU's and
IPD client institutions' Title IV Program eligibility and (3) UOP, WIU and
IPD client institutions have applicable state authorization to operate and
their operating sites have been approved by the DOE.
The DOE has promulgated Regulations, the most recent of which became
effective on July 1, 1995, that amend certain provisions of the Title IV
Programs and the Regulations promulgated thereunder. Some of the more
important provisions of these Regulations include the following:
Limits on Title IV Program Funds --------------------------------------------
The Regulations define the types of educational programs offered by an
institution that qualify for Title IV Program funds. For students enrolled
in qualified programs, the Regulations also place limits on the amount of
Title IV Program funds that they are eligible to receive in any one academic
year.
For undergraduate programs, an academic year must consist of at least 30
weeks of instruction or a minimum of 24 credit hours. Because the
Regulations define a week of instruction as the equivalent of 12 hours of
regularly scheduled instruction, examinations or preparation for
examinations, an academic year would require a minimum of 360 hours (30 weeks
20
times 12 hours per week). Most of the Company's programs meet this 360 hour
minimum and, therefore, qualify for Title IV Program funds. The programs
that do not qualify for Title IV Program funds consist primarily of
certificate, corporate training and continuing professional education
programs. These programs are paid for directly by the students or their
employers.
Restricted Cash -------------------------------------------------------------
The DOE places certain restrictions on Title IV Program funds collected
for unbilled tuition and funds transferred to the Company through electronic
funds transfer. Effective July 1, 1995, an institution is required to submit
an irrevocable letter of credit to the DOE in an amount equal to at least 25%
of the total dollar amount of refunds paid by the institution in its most
recent fiscal year. However, the letter of credit requirement is waived if
an institution meets the DOE's standards related to timeliness of refunds,
financial responsibility and other criteria. The Company believes that it
meets these applicable DOE standards and will not need to supply the letter
of credit.
Standards of Financial Responsibility ---------------------------------------
Pursuant to the Regulations, all eligible higher education institutions
must meet several factors of financial responsibility including an acid test
ratio (defined as the ratio of cash, cash equivalents, restricted cash and
current accounts receivable to total current liabilities) of at least 1 to 1
at the end of the institution's fiscal year. At August 31, 1996, UOP's acid
test ratio was 1.19 to 1 and WIU's acid test ratio was 1.50 to 1.
The DOE announced in September 1996 that it intends to issue new
regulations by December 1996 with respect to institutional oversight. The
rules, if adopted, will be effective July 1, 1997. The DOE is proposing a
new system of evaluating each institution's audited financial statements for
determining financial stability. Rather than using the current limited ratio
analysis, including the acid test ratio, the DOE is proposing five separate
elements covering liquidity, viability, profitability, ability to borrow and
capital resources. Although it is uncertain whether the new system will be
adopted in its present form, it does not appear at this time that the Company
will be significantly impacted by the proposal.
Additionally, the proposed Regulations contemplate special rules for an
institution that undergoes a change in ownership. The proposal would require
a personal financial guarantee or a letter of credit to be submitted by the
new owners until a financial audit is completed that demonstrates the
institution's compliance with the DOE's financial responsibility
requirements. The DOE is also considering requiring owners to post personal
financial guarantees when institutions add additional locations. These
guarantees would remain in place until the annual audits are submitted
showing that the institution demonstrates financial responsibility under its
expanded operations. It is uncertain at this time what effect these rules,
if adopted in any form, will have on the Company's operations.
Branching and Classroom Locations -------------------------------------------
The Regulations contain specific requirements governing the
establishment of new main campuses, branch campuses and classroom locations
at which any student receives more than 50% of his or her instruction. In
addition to classrooms at campuses and learning centers, locations affected
21
by these requirements include the business facilities of client companies,
military bases and conference facilities used by UOP and WIU. The Company
believes that it has obtained approval for all UOP and WIU locations required
to be approved by the Regulations. Should the DOE change its Regulations
with respect to this approval process or delay approvals of new locations
beyond the current approval time rate, the Company's business strategy may be
impacted negatively.
The "85/15 Rule" ------------------------------------------------------------
A requirement of the HEA, commonly referred to as the "85/15 Rule,"
applies only to for-profit institutions of higher education, which includes
UOP and WIU but not IPD client institutions. Under this rule, for-profit
institutions will be ineligible to participate in Title IV Programs if the
amount of Title IV Program funds used by the students or institution to
satisfy tuition, fees and other costs incurred by the students exceed 85% of
the institution's cash-basis revenues from eligible programs. UOP's and
WIU's percentage was 51% and 8%, respectively, at August 31, 1996. WIU's
rate was low in 1996 due to the loss of Title IV eligibility from September
1995 to February 1996 resulting from the change in ownership. UOP and WIU
are required to calculate this percentage at the end of each fiscal year.
Student Loan Defaults -------------------------------------------------------
Eligible institutions must maintain a student loan cohort default rate
of less than 35% for each of the federal fiscal years 1991 and 1992, 30% for
fiscal year 1993 and 25% for fiscal year 1994 and all subsequent fiscal
years. In 1993, the most recent DOE cohort default rate reporting period,
the national cohort default rate average for all higher education
institutions was 11.6%. UOP and WIU students' cohort default rates for the
Federal Family Education Loans for fiscal 1993 as reported by the DOE were
5.0% and 4.2%, respectively, and IPD client institution students' cohort
default rates averaged 5.9% over that same period.
State Postsecondary Review Entities ("SPREs") -------------------------------
The Regulations mandate that each state establish a SPRE to review
institutions referred by the DOE and eligible institutions the SPRE believes
are engaged in Title IV Program fraud and abuse. Each institution will be
reviewed against standards developed by the applicable SPRE to determine
whether it is eligible to continue to participate in Title IV Programs. The
states are required to implement the SPRE portion of the HEA only to the
extent to which their costs are covered through Congressional appropriation.
On July 27, 1995, President Clinton signed into law a package of spending
cuts that rescinded the funding of the SPREs for fiscal year 1995 and 1996.
The HEA specifies that the states are not required to operate the SPREs
without Federal funding.
Compensation of Representatives ---------------------------------------------
The Regulations prohibit an institution from providing any commission,
bonus, or other incentive payment based directly or indirectly on success in
securing enrollments or financial aid to any person or entity engaged in any
student recruitment, admission or financial aid awarding activity. The
Company believes that its current method of compensating representatives
complies with the Regulations.
22
Administrative Capability ---------------------------------------------------
The HEA directs the DOE to assess the administrative capability of each
institution to participate in Title IV Programs. The failure of an
institution to satisfy any of the criteria used to assess administrative
capability may allow the DOE to determine that the institution lacks
administrative capability and, therefore, may be subject to additional
scrutiny or denied eligibility for Title IV Programs.
Eligibility and Certification Procedures ------------------------------------
The HEA specifies the manner in which the DOE reviews institutions for
eligibility and certification to participate in Title IV Programs and the
Regulations include detailed new standards. UOP's and WIU's eligibility to
participate in Title IV Programs expires in 1999 and 1998, respectively. If
the DOE does not renew UOP's eligibility, it would have a material adverse
effect on the Company.
Restrictions on Distance Education Programs ---------------------------------
The Regulations specify that an institution is not eligible to
participate in Title IV Programs funding if 50% or more of its courses are
correspondence courses, or if 50% or more of its regular students are
enrolled in the institution's correspondence courses. Although the Company
does not offer correspondence courses, the Regulations currently consider
most distance education courses to be correspondence courses if the number of
distance education courses exceeds 50% of the sum of courses offered in
campus-based delivery systems and courses offered through distance education.
The Company does not plan to exceed this 50% level and believes that this
restriction will have no significant impact on its business strategy.
Direct Lending Programs -----------------------------------------------------
The DOE instituted a new direct lending program several years ago and
various institutions are participating in the program. The direct lending
program eliminates third-party lending institutions and guarantee agencies
from the loan disbursement process. The goal of the DOE is to streamline the
financial aid lending process through this program, but there is uncertainty
as to when this goal will be fully attained. Recently, certain members of
Congress have proposed to limit the expansion of the direct lending program.
The Company has not yet been required to implement the new direct lending
process and it is uncertain as to what effect this new process, if
implemented, will have on its cash flow.
Change of Ownership or Control ----------------------------------------------
A change of ownership or control of the Company, depending on the type
of change, may have significant regulatory consequences for UOP and WIU.
Such a change of ownership or control could trigger recertification by the
DOE, reauthorization by certain state licensing agencies or the evaluation of
the accreditation by NCA.
For institutions owned by publicly-held corporations, the DOE has
adopted the change of ownership and control standards used by the federal
securities laws. Upon a change of ownership and control sufficient to
require the Company to file a Form 8-K with the Securities and Exchange
Commission, UOP and WIU would cease to be eligible to participate in Title IV
Programs until recertified by the DOE. This recertification would not be
23
required, however, if the transfer of ownership and control was made upon a
person's retirement or death and was made either to a member of the person's
immediate family or to a person with an ownership interest in the Company who
had been involved in its management for at least two years preceding the
transfer.
In addition, certain states where the Company is presently licensed have
requirements governing change of ownership or control. Currently, Arizona
and California would require UOP and WIU, as applicable, to be reauthorized
upon a 20% and 25% change of ownership or control of the Company,
respectively. These states require a new application to be filed for state
licensing if such a change of ownership or control occurs. Moreover, the
Company is required to report any change in stock ownership of UOP, WIU or
Apollo. At that time, NCA may seek to evaluate the effect of such a change
of stock ownership on the continuing operations of UOP and WIU.
If UOP is not recertified by the DOE, or does not obtain reauthorization
from the necessary state agencies or has its accreditation withdrawn as a
consequence of any change in ownership or control, there would be a material
adverse effect on the Company.
STATE AUTHORIZATION
UOP currently is authorized to operate in 12 states and Puerto Rico.
UOP has held these authorizations for periods ranging from one month to
eighteen years. UOP's NCA accreditation is accepted as evidence of
compliance with applicable state regulations in Arizona, Colorado, Louisiana,
Michigan, New Mexico, Nevada and Utah. Hawaii does not have authorization
provisions for regionally accredited degree-granting institutions.
California law, enacted in 1985, requires an on-site visit to all
out-of-state accredited institutions of higher education every five years to
determine if the institution is in compliance with the State of California
regulations. All institutions, including UOP, that operate in California and
are accredited by a regional accrediting association other than the Western
Association of Schools and Colleges are required to be evaluated separately
for authorization to operate. UOP was granted its most recent California
authorization in 1989 and expects to renew its license by the second quarter
of 1997. All regionally accredited institutions, including UOP, are required
to be evaluated separately for authorization to operate in Puerto Rico. UOP
was granted its most recent authorization in Puerto Rico in December 1995 for
a period of five years. UOP received a provisional license to operate in
Florida in October 1995 and expects to file an application for full licensure
in the second quarter of 1997 following the Florida State Board of
Independent Colleges and Universities' site inspection. There is no
assurance that UOP will receive full licensure in the State of Florida. UOP
is authorized to operate in Washington and Oregon and is seeking approval
from NCA to open campuses in these states. IPD client institutions possess
authorization to operate in all states in which they offer educational
programs, which are subject to renewal. WIU is currently authorized to
operate in Arizona and London, England.
Certain states assert authority to regulate all degree-granting
institutions if their educational programs are available to their residents,
whether or not the institutions maintain a physical presence within those
states. If a state were to establish grounds for asserting authority over
telecommunicated learning, UOP may be required to obtain authorization for,
or restrict access to, its programs available through Online (TM) in those
states.
24
EMPLOYER TUITION REIMBURSEMENT
Many of the Company's students receive some form of tuition
reimbursement from their employers. In certain situations, as defined by the
Internal Revenue Code (the "Code"), this tuition assistance qualifies as a
deductible business expense when adequately documented by the employer and
employee. The Code also provides a safe-harbor provision for an exclusion
from wages of up to $5,250 of tuition reimbursement per year per student
under the Educational Assistance Program ("EAP") provision. Although the EAP
provision of the Code expired in December 1994, in August 1996 it was
extended retroactively from January 1, 1995 through May 31, 1997. The
"safe-harbor" provision does not apply to graduate classes beginning after
June 30, 1996. During 1996, the percentage of students with access to
employer tuition reimbursement declined to 75% from 80% in the prior year,
part of which is attributable to the delay in extending the EAP provision.
The Company is unable to determine what effect, if any, the exemption for
graduate classes under the "safe harbor" will have in the future. Employers
or employees may still continue to deduct such tuition assistance where it
qualifies as a deductible business expense and is adequately documented.
LOCATIONS
UOP currently has campuses and learning centers located throughout 10
states and Puerto Rico. Following is a current list of UOP main campuses and
learning centers, the year the campus was first opened and enrollments as of
August 31, 1996:
Fiscal Enroll-
Year ment at
UOP Main Campuses and Respective Learning Centers Opened 8/31/96
- -----------------------------------------------------------------------------
ARIZONA: Phoenix Campus 1978 5,151
Mesa
Northwest Phoenix
Scottsdale
Tucson Campus 1983 1,947
Fort Huachuca
CALIFORNIA: Orange County (Fountain Valley Campus) 1981 5,749
Diamond Bar
Edwards Air Force Base
Lawndale/South Bay
Van Nuys
Pasadena
Ontario
Gardena*
Ventura*
La Mirada*
Woodland Hills*
San Jose Campus 1980 3,771
San Francisco
Pleasanton/San Ramon
Fresno
Walnut Creek*
San Diego Campus 1989 1,902
Vista
25
Fiscal Enroll-
Year ment at
UOP Main Campuses and Respective Learning Centers Opened 8/31/96
- -----------------------------------------------------------------------------
Chula Vista*
Sacramento Campus 1993 1,044
Fairfield*
COLORADO: Denver Campus 1982 3,309
Aurora
Colorado Springs
Northglenn
FLORIDA: Maitland Campus* 1996 48
HAWAII: Honolulu Campus 1993 574
LOUISIANA: New Orleans* 1996 214
MICHIGAN: Detroit* 1996 610
NEVADA: Las Vegas Campus 1994 646
Nellis Air Force Base
NEW MEXICO: Albuquerque Campus 1985 1,693
Kirtland Air Force Base
Santa Fe
Santa Teresa/Las Cruces
UTAH: Salt Lake City Campus 1984 1,745
Ogden
Provo*/Orem
PUERTO RICO: Guaynabo Campus 1980 1,002
DISTANCE EDUCATION: Online (TM), San Francisco, CA 1989 2,179
Center for Distance Education, 1989 1,512
Phoenix, AZ
------
TOTAL UOP ENROLLMENT AT AUGUST 31, 1996: 33,096
======
______________
Programs are offered throughout the United States and internationally.
Programs are offered in various states throughout the United States.
* Opened in 1996.
During 1996, IPD increased the number of institutional contracts to 18
at August 31, 1996 from 15 at August 31, 1995. IPD-assisted programs are
currently offered at 34 campuses and learning centers (29 at August 31, 1995)
in Connecticut, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New York, North
Carolina, Ohio, South Carolina, Tennessee, Texas, Virginia and Wisconsin.
WIU currently has four campuses and learning centers located in Phoenix,
Fort Huachuca and Douglas, Arizona and London, England.
26
Item 2 -- Properties
The Company leases all of its administrative and educational facilities.
In some cases, classes are held in the facilities of the students' employers
at no charge to the Company. Leases generally range from five to seven
years; however, the Company attempts to secure longer leases if it is
advantageous to do so. The Company also leases space from time-to-time on a
short-term basis in order to provide specific courses or programs. The table
below sets forth certain information as of August 31, 1996, with respect to
properties leased by the Company in excess of 10,000 square feet:
LOCATION (CITY/STATE) SQUARE FEET
---------------------- -------------
Phoenix, AZ 137,259
Tucson, AZ 49,469
Phoenix, AZ 38,086
San Jose, CA 37,876
Fountain Valley, CA 34,545
San Diego, CA 33,097
Englewood, CO 32,000
Marietta, GA 31,274
San Francisco, CA 31,146
Murray, UT 30,000
Mesa, AZ 23,914
Albuquerque, NM 23,400
Gardena, CA 23,077
Overland Park, KS 21,210
Sacramento, CA 20,813
San Francisco, CA 20,324
Colorado Springs, CO 20,138
Pleasanton, CA 18,560
Van Nuys, CA 18,467
Costa Mesa, CA 18,397
Woodland Hills, CA 17,038
Aurora, CO 16,807
Guaynabo, Puerto Rico 16,000
Walnut Creek, CA 15,445
Diamond Bar, CA 15,280
Ontario, CA 14,899
Lawndale, CA 14,041
Southfield, MI 13,467
Lawrenceville, GA 13,320
Northglenn, CO 13,109
Diamond Bar, CA 12,979
Quincy, MA 12,863
Charlotte, NC 11,502
Ogden, UT 11,265
Santa Teresa, NM 10,910
Crestview Hills, KY 10,303
Phoenix, AZ 10,066
27
The lease on the Company's corporate headquarters, which includes the
UOP Phoenix Main Campus, expires on August 31, 2001. The Company acquired
13 acres of land in December 1995 in the Phoenix area for possible relocation
of its corporate headquarters and/or the UOP Phoenix Main Campus at the
expiration of the lease term.
Item 3 -- Legal Proceedings
The Company is not a party to any legal proceedings, the adverse
outcome of which, in management's opinion, would have a material averse
effect on the Company's operating results.
Item 4 -- Submission of Matters to a Vote of Security Holders
None.
28
PART II
Item 5 -- Market for Registrant's Common Equity and Related Stockholder
Matters
There is no established public trading market for the Company's
Class B Common Stock, and all shares of the Company's Class B Common Stock
are beneficially owned by the Company's executive officers. The Company's
Class A Common Stock began trading on the Nasdaq National Market ("Nasdaq")
under the symbol "APOL" during the second quarter of 1995 on December 6,
1994. Prior to that time, the Company's Class A Common Stock was not listed
or traded on any organized market system. The table below sets forth the
high and low bid prices, adjusted for stock splits effected in the form of
stock dividends, for the Company's Class A Common Stock as reported by
Nasdaq.
High Low
------ ------
Fiscal 1995
---------------------
Second quarter $ 5.03 $ 2.45
Third quarter 8.48 4.28
Fourth quarter 10.22 7.19
Fiscal 1996
---------------------
First quarter 13.67 8.89
Second quarter 19.67 13.33
Third quarter 32.33 16.92
Fourth quarter 33.38 23.13
The holders of the Company's Class A Common Stock are not entitled to
any voting rights.
These over-the-counter market quotations may reflect inter-dealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
At September 30, 1996, there were approximately 139 and 7 holders of
record of shares of Class A and Class B Common Stock, respectively. The
Company estimates that, when you include shareholders whose shares are held
in nominee accounts by brokers, there were approximately 11,000 total holders
of its Class A Common Stock.
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the near future. It is the current
policy of the Company's Board of Directors to retain earnings to finance the
operations and expansion of the Company's business. Holders of Class A
Common Stock and Class B Common Stock are entitled to equal per share cash
dividends to the extent declared by the Board.
29
Item 6 -- Selected Consolidated Financial Data
The following selected financial and operating data is qualified by
reference to and should be read in conjunction with the financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Items 7 and 8 of this Form
10-K. The Consolidated Statement of Operations for each of the three years
in the period ended August 31, 1996 and the Consolidated Balance Sheet as of
August 31, 1996 and 1995, and the independent auditors' report thereon are
included in Item 8 of this Form 10-K.
Year Ended August 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
Income Statement Data:
Net revenues $214,275 $163,429 $124,720 $ 97,545 $ 81,865
-------- -------- -------- -------- --------
Costs and expenses:
Instruction costs and services 130,039 102,122 81,313 65,319 54,296
Selling and promotional 27,896 21,016 17,918 15,812 14,442
General and administrative 21,343 18,462 17,194 14,402 12,630
-------- -------- -------- -------- --------
Total costs and expenses 179,278 141,600 116,425 95,533 81,368
-------- -------- -------- -------- --------
Income before income taxes 34,997 21,829 8,295 2,012 497
Less provision for income taxes 13,605 9,229 3,383 869 240
-------- -------- -------- -------- --------
Income before cumulative effect
of change in accounting principle 21,392 12,600 4,912 1,143 257
Change in accounting principle 389
-------- -------- -------- -------- --------
Net income $ 21,392 $ 12,600 $ 4,912 $ 1,143 $ 646
======== ======== ======== ======== ========
Net income per share $ .42 $ .27 $ .14 $ .03 $ .02
Weighted average shares outstanding 51,194 46,090 34,383 34,056 33,402
_______________
In March 1992, the Company discontinued the operations of Apollo
Education Corporation ("AEC"), its technical training school
subsidiary, which was phased out over the period from March 1992 until
October 1992. All assets related to this subsidiary were disposed of
by August 1993. Pretax losses related to the operations of the
technical training schools were $265,000 and $837,000 in 1993 and 1992,
respectively.
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," effective September 1, 1991.
30
August 31,
---------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in thousands)
Balance Sheet Data:
Cash, cash equivalents and
restricted cash $ 63,267 $ 62,601 $ 12,816 $ 4,839 $ 1,391
Short-term investments 13,273
-------- -------- -------- -------- --------
Total cash and investments $ 76,540 $ 62,601 $ 12,816 $ 4,839 $ 1,391
======== ======== ======== ======== ========
Total assets $137,850 $102,132 $ 43,638 $ 28,909 $ 22,369
======== ======== ======== ======== ========
Current liabilities $ 54,804 $ 45,065 $ 34,890 $ 27,086 $ 20,819
Long-term liabilities 2,432 1,715 1,347 1,203 2,154
Shareholders' equity (deficit) 80,614 55,352 7,401 620 (604)
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity $137,850 $102,132 $ 43,638 $ 28,909 $ 22,369
======== ======== ======== ======== ========
Operating Statistics:
Enrollments at end of period 46,935 36,848 30,236 24,987 21,163
Number of locations at end
of period 85 68 60 51 42
_______________
Enrollments are defined as full-time equivalent students in attendance
in a program at the end of a period. Average enrollments represent the
average of the ending enrollments for each month in the period.
Average enrollments were 42,377, 34,021, 27,469, 23,663 and 20,174 for
the years ended 1996, 1995, 1994, 1993 and 1992, respectively. Average
enrollments for 1992 include approximately 200 AEC students.
Includes UOP and WIU campuses and learning centers and IPD contract
sites.
The Company did not pay any cash dividends on its Common Stock during
any of the periods set forth in the table above.
31
Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 performances that involve
risks and uncertainties. The Company's actual results of operations could
differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those set forth under "Risk
Factors" in the Company's Prospectus dated January 18, 1996. The following
discussion should be read in conjunction with the consolidated financial
statements and notes thereto included in this Annual Report on Form 10-K.
BACKGROUND AND OVERVIEW
The Company's revenues, net of student discounts, have increased to
$214.3 million in 1996 from $81.9 million in 1992. Average annual student
enrollments have increased to 42,377 students in 1996 from 20,174 in 1992.
Net income has increased to $21.4 million in 1996 from $646,000 in 1992. At
August 31, 1996, 46,935 students were enrolled in UOP, WIU and IPD-assisted
programs at IPD client institutions.
From September 1991 through August 1996, UOP opened 26 campuses and
learning centers and IPD established operations at 13 campuses and learning
centers with its client institutions. Historically, start-up costs for new
UOP campuses in new markets have averaged $200,000 to $400,000 per site over
a 15-18 month period, at which time the enrollments at these new campuses
averaged 200 to 300 students. However, due to increased demand in Florida,
Michigan and Louisiana, the Company has stepped-up its marketing effort in
these new markets. As a result, the start-up costs for these three campuses
(opened in 1996) are expected to average approximately $900,000 per site over
an 18 month period at which time enrollments are expected to average over 600
students per campus. Start-up costs for campuses in new markets are expected
to range from $400,000 to $1.5 million depending on the individual market's
demand. Costs for establishing a learning center in an existing market are
minimal. Start-up costs for IPD contract sites have averaged from $400,000
to $500,000 per site over a 18-24 month period, and consist primarily of
administrative salaries, marketing and advertising. Start-up
costs are expensed as incurred.
Approximately 90.9% of the Company's net revenues in 1996 consist of
tuition revenues from UOP and WIU students and IPD's contractual share of
tuition revenues from students enrolled in IPD-assisted programs at IPD
client institutions. UOP tuition revenues currently represent approximately
84.8% of consolidated tuition revenues. The Company's net revenues also
include sales of textbooks, computers and other education-related products,
application fees, other student fees, interest and other income. The
Company's net revenues vary from period to period based on several factors
that include: (1) the aggregate number of students attending classes; (2) the
number of classes held during the period and (3) the weighted average tuition
price per credit hour (weighted by program and location). IPD's contracts
with its respective client institutions generally have terms of five to ten
years with provisions for renewal.
32
Instruction costs and services at UOP and WIU consist primarily of costs
related to the delivery and administration of the Company's educational
programs that include faculty compensation, administrative salaries for
departments that provide service directly to the students, the costs of
educational materials sold, facility leases and other occupancy costs,
amortization of educational program production costs, bad debt expense and
depreciation and amortization of property and equipment. UOP and WIU faculty
members are contracted with and paid for one course offering at a time. All
classroom facilities are leased or, in some cases, are provided by the
students' employers at no charge to the Company. Instruction costs and
services at IPD consist primarily of program administration, student services
and classroom lease expense. Most of the other instruction costs for
IPD-assisted programs, including faculty, financial aid processing and other
administrative salaries, are the responsibility of the IPD client
institutions.
Selling and promotional costs consist primarily of advertising,
marketing salaries and other costs related to the selling and promotional
functions. These costs are expensed as incurred. General and administrative
costs consist primarily of administrative salaries, occupancy costs,
depreciation and amortization and other related costs for departments such as
executive management, information systems, corporate accounting, human
resources and other departments that do not provide direct services to the
Company's students. To the extent possible, the Company centralizes these
services to avoid duplication of effort.
In September 1995, the Company, through WIU, acquired certain assets of
Western International University ("Western"), a private non-profit
educational institution. The original acquisition price of $2.1 million,
including $237,000 paid in cash at or prior to closing, was adjusted to $3.0
million due to an increase in the estimated liability to the DOE related to
Western's processing of Title IV financial aid and other liabilities assumed
in the acquisition whose values were subject to adjustment subsequent to the
date of acquisition. The excess of cost over the value of tangible assets
acquired of $2.6 million is being amortized over 15 years.
In 1992, the Company adopted a plan to discontinue the operations of its
technical training schools. These operations were phased out over the period
from 1992 to 1993 and all related assets were disposed of by August 1993.
Pretax losses related to the operations of the technical training schools
were $265,000 and $837,000 in 1993 and 1992, respectively.
In 1992, the Company recorded a $389,000 gain representing the
cumulative effect of the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
33
RESULTS OF OPERATIONS
The following table sets forth consolidated income statement data of the
Company expressed as a percentage of net revenues for the periods indicated:
Year Ended August 31,
---------------------------
1996 1995 1994
------- ------- -------
Net revenues 100.0% 100.0% 100.0%
------- ------- -------
Costs and expenses:
Instruction costs and services 60.7 62.5 65.2
Selling and promotional 13.0 12.9 14.4
General and administrative 10.0 11.3 13.8
------- ------- -------
Total costs and expenses 83.7 86.7 93.4
------- ------- -------
Income before income taxes 16.3 13.3 6.6
Less provision for income taxes 6.3 5.6 2.7
------- ------- -------
Net income 10.0% 7.7% 3.9%
======= ======= =======
Year Ended August 31, 1996 Compared with the Year Ended August 31, 1995 -----
Net revenues increased by 31.1% to $214.3 million in 1996 from $163.4
million in 1995 due primarily to a 24.6% increase in average student
enrollments from 1995 to 1996 and tuition price increases averaging four to
six percent, depending on the geographic area and program. All UOP campuses,
which include their respective learning centers, and most of the IPD contract
sites had increases in net revenues and average student enrollments from 1995
to 1996. Average student enrollments increased to 42,377 in 1996 from 34,021
in 1995. Interest income, which is included in net revenues, increased to
$3.0 million in 1996 from $2.4 million in 1995.
Instruction costs and services increased by 27.3% to $130.0 million in
1996 from $102.1 million in 1995 due primarily to the direct costs necessary
to support the increase in average student enrollments, consisting primarily
of faculty compensation, classroom lease expenses and related staff salaries
at each respective location. These costs as a percentage of net revenues
decreased to 60.7% in 1996 from 62.5% in 1995 due 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
instruction costs and services to the same extent.
Selling and promotional expenses increased by 32.7% to $27.9 million in
1996 from $21.0 million in 1995 due primarily to increased marketing and
advertising at UOP and IPD campuses and learning centers, including $2.2
million related to locations opened in new markets during the past two years.
These expenses as a percentage of net revenues remained relatively the same
at 13.0% in 1996 and 12.9% in 1995.
34
General and administrative expenses increased by 15.6% to $21.3 million
in 1996 from $18.5 million in 1995 due primarily to costs required to support
the increased number of UOP and IPD campuses and learning centers and
increases in general and administrative salaries. General and administrative
expenses as a percentage of net revenues decreased to 10.0% in 1996 from
11.3% in 1995 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.
Costs related to the start-up of new UOP and IPD campuses and learning
centers are expensed as incurred and totaled approximately $3.6 million and
$1.1 million in 1996 and 1995, respectively. Interest expense, which is
allocated among all categories of costs and expenses, was $77,000 and $96,000
in 1996 and 1995, respectively.
The Company's effective tax rate decreased to 38.9% in 1996 from 42.3%
in 1995 due primarily to an increase in tax-exempt interest income.
Net income increased to $21.4 million in 1996 from $12.6 million in 1995
due to increased enrollments, increased tuition rates and improved
utilization of general and administrative costs and fixed instruction costs
and services.
Year Ended August 31, 1995 Compared with the Year Ended August 31, 1994 -----
Net revenues increased by 31.0% to $163.4 million in 1995 from $124.7
million in 1994 due primarily to a 23.9% increase in average student
enrollments from 1994 to 1995 and tuition price increases averaging four to
six percent, depending on the geographic area and program. All UOP campuses,
which include their respective learning centers, and most of the IPD contract
sites had increases in net revenues and average student enrollments from 1994
to 1995. Average student enrollments increased to 34,021 in 1995 from 27,469
in 1994. Interest income, which is included in net revenues, increased to
$2.4 million in 1995 from $280,000 in 1994 due primarily to increased cash
generated from the Company's initial public offering of its Class A Common
Stock and from $22.3 million in cash generated from operations in 1995.
Instruction costs and services increased by 25.6% to $102.1 million in
1995 from $81.3 million in 1994 due primarily to the direct costs necessary
to support the increase in average student enrollments, consisting primarily
of faculty compensation, classroom lease expenses and related staff salaries
at each respective location. These costs as a percentage of net revenues
decreased to 62.5% in 1995 from 65.2% in 1994 due to greater net revenues
being spread over the fixed costs related to centralized student services.
Selling and promotional expenses increased by 17.3% to $21.0 million in
1995 from $17.9 million in 1994 due primarily to increased marketing and
advertising at UOP and IPD campuses and learning centers, including $1.2
million related to locations opened in new markets during the past two years.
These expenses as a percentage of net revenues decreased to 12.9% in 1995
from 14.4% in 1994 due to the Company's ability to increase enrollments and
open new learning centers in existing markets with a proportionately lower
increase in selling and promotional expenses.
General and administrative expenses increased by 7.4% to $18.5 million
in 1995 from $17.2 million in 1994 due primarily to costs required to support
the increased number of UOP and IPD campuses and learning centers and
increases in general and administrative salaries. This increase was offset
in part by $1.9 million in nonrecurring compensation expense in 1994 related
35
to the issuance of stock options and a $750,000 accrual of compensation
expense in 1994 related to a deferred compensation agreement with the
Company's President. See "Executive Compensation." General and
administrative expenses as a percentage of net revenues decreased to 11.3% in
1995 from 13.8% in 1994 due primarily to the nonrecurring compensation
expense recorded in 1994 and higher net revenues being spread over the fixed
costs related to various centralized functions such as information services,
corporate accounting and human resources.
Costs related to the start-up of new UOP and IPD campuses and learning
centers are expensed as incurred and totaled approximately $1.1 million and
$1.0 million in 1995 and 1994, respectively. Interest expense, which is
allocated among all categories of costs and expenses, was $96,000 and
$153,000 in 1995 and 1994, respectively.
The Company's effective tax rate increased to 42.3% in 1995 from 40.8%
in 1994 due primarily to an increase in the federal tax rate from 34% to 35%
as a result of the improved earnings and an increase in the relative impact
of expenses that are nondeductible for tax purposes.
Net income increased to $12.6 million in 1995 from $4.9 million in 1994
due to increased enrollments, increased tuition rates, improved utilization
of fixed instructional and administrative costs, $2.7 million (pretax) of
nonrecurring compensation expense in 1994, improved utilization of selling
and promotional expenses in existing markets and increased interest income
resulting from higher cash levels.
36
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth selected unaudited quarterly financial
information for each of the Company's last eight quarters. The Company
believes that this information includes all normal recurring adjustments
necessary for a fair presentation of such quarterly information when read in
conjunction with the consolidated financial statements included in Item 8 of
this Form 10-K. The operating results for any quarter are not necessarily
indicative of the results for any future period.
Quarter Ended
-------------------------------------------------------------------------------
FY 1996 FY 1995
------------------------------------- ------------------------------------
Aug. 31, May 31, Feb. 29, Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30,
1996 1996 1996 1995 1995 1995 1995 1994
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands, except per share amounts)
Net revenues $59,199 $58,991 $46,358 $49,727 $45,433 $45,502 $36,029 $36,465
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Instruction costs and services 36,808 33,978 29,294 29,959 28,292 26,188 24,224 23,418
Selling and promotional 7,497 7,431 6,640 6,328 5,406 5,518 5,105 4,987
General and administrative 5,402 4,641 5,705 5,595 4,797 4,856 4,954 3,855
------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses 49,707 46,050 41,639 41,882 38,495 36,562 34,283 32,260
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 9,492 12,941 4,719 7,845 6,938 8,940 1,746 4,205
Provision for income taxes 3,275 5,241 1,833 3,256 2,780 3,892 896 1,661
------- ------- ------- ------- ------- ------- ------- -------
Net income $6,217 $7,700 $2,886 $4,589 $4,158 $5,048 $850 $2,544
======= ======= ======= ======= ======= ======= ======= =======
Net income per share $.12 $.15 $.06 $.09 $.08 $.10 $.02 $.07
======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding 51,614 51,457 51,071 50,633 50,557 50,457 48,963 34,383
======= ======= ======= ======= ======= ======= ======= =======
As a percentage of net revenues:
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Instruction costs and services 62.2 57.6 63.2 60.2 62.3 57.6 67.2 64.2
Selling and promotional 12.7 12.6 14.3 12.7 12.0 12.1 14.1 13.7
General and administrative 9.1 7.9 12.3 11.3 10.4 10.7 13.8 10.6
------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses 84.0 78.1 89.8 84.2 84.7 80.4 95.1 88.5
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 16.0 21.9 10.2 15.8 15.3 19.6 4.9 11.5
Provision for income taxes 5.5 8.9 4.0 6.5 6.1 8.6 2.5 4.6
------- ------- ------- ------- ------- ------- ------- -------
Net income 10.5% 13.0% 6.2% 9.3% 9.2% 11.0% 2.4% 6.9%
======= ======= ======= ======= ======= ======= ======= =======
SEASONALITY AND OTHER FACTORS AFFECTING QUARTERLY RESULTS
The Company experiences seasonality in its results of operations
primarily as a result of changes in the level of student enrollments. While
the Company enrolls students throughout the year, second quarter (December to
February) average enrollments and related revenues generally are lower than
other quarters due to the holiday breaks in December and January. Second
quarter costs and expenses historically increase as a percentage of net
revenues as a result of certain fixed costs not significantly affected by the
seasonal second quarter declines in net revenues.
The Company experiences a seasonal increase in new enrollments in August
of each year when most other colleges and universities begin their fall
semesters. Because this buildup in enrollments occurs at the end of the
37
quarter, revenues in the fourth quarter during the past two years were not
significantly impacted. However, instructional costs and services and
selling and promotional expenses generally increase as a percentage of net
revenues in the fourth quarter due to increased costs in preparation for the
August peak enrollments.
The Company anticipates that these seasonal trends in the second and
fourth quarters will continue in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $54.3 million of working capital at August 31, 1996 as
compared to $39.0 million at August 31, 1995. The increase in working
capital is due primarily to $25.8 million in cash generated from operations
during the year, offset in part by capital expenditures during the year. At
August 31, 1996, the Company had no outstanding borrowings on its $4.0
million unsecured line of credit, which bears interest at prime. The line of
credit is renewable annually and any amounts borrowed under the line are
payable upon its termination in December 1997.
Net cash received from operating activities increased to $25.8 million
in 1996 from $22.3 million in 1995 due primarily to the $8.8 million increase
in net income from 1995 to 1996, offset in part by the timing of receipts
from customers and payments to suppliers. Capital expenditures, including
additions to educational program production costs, increased to $14.7 million
in 1996 from $11.5 million in 1995 primarily due to the purchase of $2.9
million of land to be used if and when the corporate headquarters is
relocated (see discussion below). Total purchases of property, equipment and
land for the year ended August 31, 1997 are expected to total approximately
$12 million. Additions to educational program production costs are not
expected to exceed $2 million for the year ended August 31, 1997. Start-up
costs are expected to increase from $3.6 million in 1996 to $5.5 million in
1997 due to recent and planned expansion into new geographic markets.
The lease on the Company's corporate headquarters, which includes the
UOP Phoenix Main Campus, was renewed in December 1995 for a five year term.
During 1996, the Company acquired land for a purchase price of $2.9 million
which it may use in the future for the possible relocation of its corporate
headquarters. Such a facility is estimated to cost between $20 to $25
million. The Company currently has approximately $2.8 million in commitments
for capital expenditures in 1997. The Company currently leases all of its
educational and administrative facilities.
The Company's net receivables as a percent of net revenues increased to
12.1% in 1996 from 9.7% in 1995 due primarily to a $5.8 million increase in
receivables from students who were awaiting financial aid loans. Financial
aid applications in process were backlogged in the fourth quarter of 1996 due
primarily to the substantial growth in new enrollments during that period. A
significant portion of the backlog was eliminated in September and it is
anticipated to be at normal levels by the end of October 1996. Bad debt
expense as a percent of net revenues decreased to .8% in 1996 from 1.1% in
1995 due primarily to improved collection rates on delinquent accounts.
The DOE requires that Title IV Program funds collected by an institution
for unbilled tuition be kept in a separate cash or cash equivalent account
until the students are billed for the portion of their program related to
these Title IV Program funds. In addition, all funds transferred to the
38
Company through electronic funds transfer programs are held in a separate
cash account until certain conditions are satisfied. As of August 31, 1996,
the Company had approximately $11.3 million in these separate accounts, which
are reflected as restricted cash, to comply with these requirements. These
funds generally remain in these separate accounts for an average of 60-75
days from the date of collection. These restrictions on cash have not
significantly affected the Company's ability to fund daily operations.
The Regulations require all higher education institutions to meet an
acid test ratio (defined as the ratio of cash, cash equivalents, restricted
cash and current accounts receivable to total current liabilities) of at
least 1 to 1, which is calculated at the end of the institution's fiscal
year. If an institution, including UOP or WIU, fails to meet the acid test
ratio, it may be deemed not financially responsible by the DOE, which could
result in a loss of its eligibility to participate in Title IV Programs.
UOP's acid test ratio was 1.19 to 1 at August 31, 1996 and 1.31 to 1 at
August 31, 1995. WIU's acid test ratio was 1.50 to 1 at August 31, 1996 and
2.73 to 1 on September 1, 1995. These requirements apply to the separate
financial statements of UOP, WIU and each of the respective IPD client
institutions, but not to the Company's consolidated financial statements.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's historical
operations.
39
Item 8 -- Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . .41
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . . .42
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . .43
Consolidated Statement of Changes in Shareholders' Equity. . . . . . . . . . .44
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . .45
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . .46
40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Apollo Group, Inc.:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of changes in shareholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Apollo Group, Inc. and its subsidiaries at August 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended August 31, 1996, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of Apollo Group, Inc.'s management; our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Phoenix, Arizona
October 14, 1996
41
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except per share amounts)
Year Ended August 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
Net revenues $214,275 $163,429 $124,720
--------- --------- ---------
Costs and expenses:
Instruction costs and services 130,039 102,122 81,313
Selling and promotional 27,896 21,016 17,918
General and administrative 21,343 18,462 17,194
--------- --------- ---------
179,278 141,600 116,425
--------- --------- ---------
Income before income taxes 34,997 21,829 8,295
Less provision for income taxes 13,605 9,229 3,383
--------- --------- ---------
Net income $ 21,392 $ 12,600 $ 4,912
========= ========= =========
Net income per share $ .42 $ .27 $ .14
========= ========= =========
Weighted average shares outstanding 51,194 46,090 34,383
The accompanying notes are an integral part of these consolidated financial
statements.
42
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollars in thousands)
August 31,
-----------------------
1996 1995
-------- --------
Assets:
Current assets-
Cash and cash equivalents $ 51,982 $ 50,726
Restricted cash 11,285 11,875
Short-term investments 13,273
Receivables, net 25,985 15,883
Inventory 3,112 2,723
Deferred tax assets, net 2,972 2,352
Prepaids and other current assets 532 485
-------- --------
Total current assets 109,141 84,044
Property and equipment, net 18,925 13,390
Educational program production costs, net 1,446 1,963
Non-operating property 4,321 1,310
Cost in excess of fair value of assets purchased 2,459
Deposits and other assets 1,558 1,425
-------- --------
Total assets $137,850 $102,132
======== ========
Liabilities and Shareholders' Equity:
Current liabilities-
Current portion of long-term liabilities $ 140 $ 118
Accounts payable 7,742 6,261
Other accrued liabilities 10,925 9,962
Income taxes payable 261 96
Student deposits and deferred tuition 35,736 28,628
-------- --------
Total current liabilities 54,804 45,065
-------- --------
Long-term liabilities, less current portion 1,773 1,201
-------- --------
Deferred tax liabilities, net 659 514
-------- --------
Commitments and contingencies -- --
Shareholders' equity-
Preferred stock, no par value, 1,000,000 shares authorized,
none issued -- --
Class A nonvoting common stock, no par value, 65,000,000
shares authorized; 49,476,000 and 14,136,000 issued and
outstanding at August 31, 1996 and 1995, respectively 65 18
Class B voting common stock, no par value, 3,000,000
shares authorized; 576,000 issued and outstanding 1 1
Additional paid-in capital 41,201 37,378
Retained earnings 39,347 17,955
-------- --------
Total shareholders' equity 80,614 55,352
-------- --------
Total liabilities and shareholders' equity $137,850 $102,132
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
43
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(In thousands)
Common Stock
----------------------------------------------------------
Class A Class B
Common Nonvoting Voting
------------------ ------------------ ------------------ Additional
Stated Stated Stated Paid-In Retained
Shares Value Shares Value Shares Value Capital Earnings
-------- -------- -------- -------- -------- -------- ---------- ---------
Balance at August 31, 1993 1,152 $ 10 -- $ -- -- $ -- $ 113 $ 497
Recapitalization:
6,909,000 shares of Class
A Common Stock and 576,000
shares of Class B Common
Stock issued in exchange for
1,152,000 shares of common
stock (1,152) (10) 6,909 9 576 1
Grant of stock options 1,869
Net income 4,912
-------- -------- -------- -------- -------- -------- ---------- ---------
Balance at August 31, 1994 -- -- 6,909 9 576 1 1,982 5,409
Stock issued in public offering 3,516 4 34,854
Stock issued under stock
purchase plans 29 388
Stock issued under stock
option plans 12 97
Stock canceled under stock
option plans (3) (22) (54)
4-for-3 stock split, April 95 3,673 5 (5)
Tax benefit related to
exercise of options 84
Net income 12,600
-------- -------- -------- -------- -------- -------- ---------- ---------
Balance at August 31, 1995 -- -- 14,136 18 576 1 37,378 17,955
Stock issued under stock
purchase plans 84 912
Stock issued under stock
option plans 315 373
3-for-2 stock split, Sep 95 7,356 10 (10)
3-for-2 stock split, Feb 96 11,034 15 (15)
3-for-2 stock split, May 96 16,551 22 (22)
Tax benefits related to
disqualifying dispositions
and exercise of options 2,585
Net income 21,392
-------- -------- -------- -------- -------- -------- ---------- ---------
Balance at August 31, 1996 -- $ -- 49,476 $ 65 576 $ 1 $41,201 $39,347
======== ======== ======== ======== ======== ======== ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
44
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(In thousands)
Year Ended August 31,
------------------------------
1996 1995 1994
-------- -------- --------
Net cash received from (used for)
operating activities:
Cash received from customers $206,268 $159,349 $117,187
Cash paid to employees and suppliers (169,072) (129,442) (105,858)
Interest received 2,934 2,207 280
Interest paid (77) (96) (153)
Net income taxes paid (14,230) (9,692) (4,962)
-------- -------- --------
Net cash received from operating activities 25,823 22,326 6,494
-------- -------- --------
Net cash received from (used for)
investing activities:
Purchase of short-term investments (18,636)
Proceeds from sale of short-term
investments 5,363
Purchase of property and equipment (10,350) (9,944) (4,724)
Purchase of non-operating property (3,207)
Additions to educational program
production costs (1,096) (1,548) (1,380)
Cash paid at acquisition of Western,
net of cash acquired (585)
Proceeds from sale of assets 75
-------- -------- --------
Net cash used for investing activities (28,436) (11,492) (6,104)
-------- -------- --------
Net cash received from (used for)
financing activities:
Tax benefits related to disqualifying
dispositions and exercise of options 2,585 84
Issuance of stock 1,284 35,321
Principal payments on long-term debt (181) (912)
Retirement of stock (54)
Borrowings on line of credit 11,190
Repayments of borrowings on line of credit (11,190)
Proceeds from sale-leaseback of assets 2,401
-------- -------- --------
Net cash received from financing activities 3,869 35,170 1,489
-------- -------- --------
Net increase in cash and cash equivalents 1,256 46,004 1,879
Cash and cash equivalents, beginning
of period 50,726 4,722 2,843
-------- -------- --------
Cash and cash equivalents, end of period $ 51,982 $ 50,726 $ 4,722
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
45
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Apollo Group, Inc. ("Apollo" or the "Company"), through its wholly-owned
subsidiaries The University of Phoenix, Inc. ("UOP"), the Institute for
Professional Development ("IPD") and Western International University, Inc.
("WIU"), is a leading provider of higher education programs for working
adults.
UOP is a regionally accredited, private institution of higher education
offering bachelor's and master's degree programs in business, management,
computer information systems, education and health care. UOP currently has
47 campuses and learning centers located in Arizona, California, Colorado,
Florida, Hawaii, Louisiana, Michigan, Nevada, New Mexico, Utah and Puerto
Rico. UOP also offers its educational programs worldwide through Online
(TM), its computerized educational delivery system. UOP is accredited by the
Commission on Institutions of Higher Education of the North Central
Association of Colleges and Schools ("NCA").
IPD provides program development and management services under long-term
contracts to 18 regionally accredited private colleges and universities. IPD
is currently operating at 34 campuses and learning centers in 20 states.
WIU currently offers undergraduate and graduate degree programs at four
campuses and learning centers in Phoenix, Fort Huachuca and Douglas, Arizona
and London, England. WIU was acquired on September 1, 1995. See Note 3.
The Company's fiscal year is from September 1 to August 31. Unless
otherwise stated, references to the years 1996, 1995 and 1994 relate to the
fiscal years ended August 31, 1996, 1995 and 1994, respectively.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -------------------------------------------------
The consolidated financial statements include the accounts of Apollo and
its subsidiaries. All significant intercompany transactions and balances
have been eliminated.
Use of Estimates ------------------------------------------------------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
New Accounting Pronouncement ------------------------------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") was issued in October 1995 and is
effective for the Company's 1997 fiscal year. SFAS No. 123 encourages, but
46
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"),
but requires pro forma disclosures of net income and earnings per share as if
the fair value based method of accounting had been applied. While the
Company is still evaluating SFAS No. 123, it currently expects to elect to
continue to measure compensation cost under APB No. 25 and comply with the
pro forma disclosure requirements in 1997. Such an election, if made, would
not change the Company's current accounting treatment for stock-based
compensation.
Cash and Cash Equivalents ---------------------------------------------------
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
carrying value of cash, cash equivalents and restricted cash approximates
fair value due to the short-term maturities of these instruments.
Restricted Cash -------------------------------------------------------------
The U.S. Department of Education (the "DOE") requires that Title IV
Program funds collected for unbilled tuition be kept in a separate cash or
cash equivalent account until the students are billed for that portion of
their program. In addition, all Title IV Program funds transferred to the
Company through electronic funds transfer are subject to certain holding
period restrictions. These funds generally remain in these separate accounts
for an average of 60-75 days from date of collection. Restricted cash is
excluded from cash received from operating activities in the Consolidated
Statement of Cash Flows until the cash is transferred from these restricted
accounts to the Company's operating accounts. The Company's restricted cash
is invested primarily in municipal and U.S. Treasury backed securities with
maturities of ninety days or less.
Short-Term Investments ------------------------------------------------------
Short-term investments consist of $10.3 million of municipal securities
and $3.0 million of U.S. Treasury securities with original maturities greater
than three months but less than one year. Short-term investments are stated
at amortized cost which approximates market value. It is the Company's
intention to hold these investments until maturity. During 1996, the Company
liquidated its entire available-for-sale portfolio and received $571,000 of
proceeds that approximated its carrying value.
Revenues, Receivables and Related Liabilities -------------------------------
The Company's educational programs range in length from one-day seminars
to degree programs lasting up to four years. Long-term programs are billed
in blocks of time ranging in length from five weeks to three months.
Seminars and other shorter term programs are usually billed in one
installment. Billings occur when the student first attends a session
resulting in the recording of a receivable and a deferred tuition revenue
liability for the amount billed. The deferred tuition revenue liability is
recognized into income pro rata over the period of instruction. If a student
withdraws from a course or program, the unearned portion of the program that
the student has paid for is refunded, generally on a pro rata basis. Because
most of the Company's educational programs are billed in short blocks of time
ranging from five to six weeks, most of the deferred tuition revenue
47
liability at the end of each period will be recognized into income within
five to six weeks following the end of that period.
Student deposits consist of payments made in advance of billings. As
the student is billed, the student deposit is applied against the resulting
student receivable.
The Company does not record the unbilled portion of educational programs
for existing students because the students are not usually financially
obligated for the unbilled portion. A majority of these students do,
however, remain in their programs until completion.
Receivables consist of the following, in thousands:
August 31,
--------------------
1996 1995
------- -------
Trade receivables $28,925 $17,991
Interest receivable 302 208
Income taxes receivable 452 137
------- -------
29,679 18,336
Less allowance for doubtful accounts (3,694) (2,453)
------- -------
Total receivables, net $25,985 $15,883
======= =======
Bad debt expense was $1.7 million, $1.8 million and $1.8 million for
1996, 1995 and 1994, respectively.
Student deposits and deferred tuition consist of the following, in
thousands:
August 31,
--------------------
1996 1995
------- -------
Student deposits $21,437 $17,756
Deferred tuition revenue 14,299 10,872
------- -------
Total student deposits and deferred tuition $35,736 $28,628
======= =======
The carrying value of the student deposit liabilities approximates fair
value due to the short-term nature of these instruments.
Inventory -------------------------------------------------------------------
Inventory consists primarily of curriculum materials. Inventories are
stated at the lower of cost, determined using the FIFO (first-in, first-out)
method, or market.
48
Property and Equipment ------------------------------------------------------
Property and equipment is recorded at cost less accumulated
depreciation. The Company capitalizes the cost of software used for internal
operations once technological feasibility of the software has been
demonstrated. Such costs consist primarily of custom-developed and packaged
software and the direct labor costs of internally developed software.
Depreciation is provided on all buildings, furniture, equipment and related
software using the straight-line method over the estimated useful lives of
the related assets which range from three to seven years, except software
which is depreciated over three to five years and buildings which are
depreciated over 30 years. Leasehold improvements and capital lease assets
are amortized using the straight-line method over the shorter of the lease
term or the estimated useful lives of the related assets. Depreciation and
amortization expense was $4.5 million, $2.8 million and $2.0 million for
1996, 1995 and 1994, respectively. Maintenance and repairs are expensed as
incurred.
Educational Program Production Costs ----------------------------------------
Direct costs incurred in the original production of, and improvements
to, educational courses are capitalized, then amortized as expense using the
150% declining balance method over a three year period beginning in the month
the courses are placed in service. Courses are generally placed in service
within four to ten months after the program production commences. These
direct costs primarily include contract-based curriculum development and
salaries and wages for staff directly engaged in the development process.
Any unamortized cost is charged to expense whenever a course or program is
discontinued. From 1994 through 1996, less than 6% of these courses were
discontinued within three years of being placed in service. Indirect costs
related to the curriculum development process, such as space rent and
supplies, are expensed as incurred. Amortization expense was $1.4 million
per year in 1996, 1995 and 1994.
Deferred Rental Payments and Deposits ---------------------------------------
The Company records rent expense using the straight-line method over the
term of the lease agreement. Accordingly, deferred rental payment
liabilities are provided for lease agreements that specify scheduled rent
increases over the lease term. Rental deposits are provided for lease
agreements that specify payments in advance or scheduled rent decreases over
the lease term.
Cost in Excess of Fair Value of Assets Purchased ----------------------------
The Company amortizes costs in excess of fair value of assets purchased
on a straightline method over the estimated useful life. At August 31, 1996,
the Company's cost in excess of fair value of assets purchased relates solely
to the acquisition of certain assets of Western International University,
which is being amortized over a 15-year period. Total amortization in 1996
was $107,000. Recoverability is reviewed to determine if there have been any
events or changes in circumstances that indicate that the carrying value may
exceed fair value.
49
Deferred Compensation Agreements --------------------------------------------
The Company has various deferred compensation agreements with
individuals that are accounted for individually on an accrual basis in
accordance with the terms of the underlying contract. The expected future
benefits are accrued over the period of service required to be rendered in
exchange for the benefits. All individuals covered by deferred compensation
agreements were fully eligible to receive the benefits at the contract date
and as a result, the deferred compensation liability reflects the present
value of all future benefits expected to be paid, as determined at the
contract date.
Selling and Promotional Costs -----------------------------------------------
The Company expenses selling and promotional costs as incurred. Selling
and promotional costs include marketing salaries, direct-response and other
advertising, promotional materials and related marketing costs.
Direct-response advertising is not presently capitalized because all the
criteria of Statement of Position 93-7, "Reporting on Advertising Costs,"
were not satisfied.
Start-up Costs --------------------------------------------------------------
Costs related to the start-up of new campuses and learning centers are
expensed as incurred and totaled $3.6 million in 1996, $1.1 million in 1995
and $1.0 million in 1994.
Non-Operating Income and Expense --------------------------------------------
Interest income is included in net revenues and totaled $3.0 million,
$2.4 million and $280,000 for 1996, 1995 and 1994, respectively. Interest
expense, including the imputed interest on deferred compensation agreements,
is expensed as incurred.
Income Taxes ----------------------------------------------------------------
Deferred income taxes have been provided for all significant temporary
differences. These temporary differences arise principally from compensation
not yet deductible for tax purposes, limitations on bad debt deductions for
tax purposes and the use of accelerated depreciation methods.
When options granted under the Company's stock option plans are
exercised, the Company receives a tax deduction related to the difference
between the market value of its Class A Common Stock at the date of exercise
and the sum of the exercise price and any compensation expense recognized for
financial reporting purposes. The Company receives a similar tax benefit for
disqualifying dispositions of stock acquired by employees under the 1994
Employee Stock Purchase Plan. The tax benefits resulting from these tax
deductions, totaling $2.6 million in 1996 and $84,000 in 1995, are reflected
as a decrease in the Company's income tax liabilities and an increase to
additional paid-in capital.
Stock Splits and Common Stock -----------------------------------------------
In September 1994, the Company's Class A and Class B Common Stock
underwent a 1.118 to 1 stock split. From March 1995 to May 1996, the
Company's Board of Directors authorized four separate stock splits effected
in the form of stock dividends as follows:
50
For Shareholders
Date Authorized Type of Record on Date Distributed
- ----------------- ------- ----------------- ------------------
March 24, 1995 4-for-3 April 7, 1995 April 29, 1995
August 25, 1995 3-for-2 September 8, 1995 September 22, 1995
February 2, 1996 3-for-2 February 16, 1996 February 29, 1996
May 8, 1996 3-for-2 May 21, 1996 May 31, 1996
All Common Stock amounts, Common Stock prices and earnings per share
figures for periods prior to the stock splits effected in the form of stock
dividends have been restated to reflect the effect of all previous stock
splits effected in the form of stock dividends except for the number of
shares outstanding and the related impact on the stated value of Class A
Common Stock and additional paid-in capital on the Consolidated Balance Sheet
and the Consolidated Statement of Changes in Shareholders' Equity.
On January 24, 1996, the Company completed a secondary public offering
of 9,281,000 shares of Class A Common Stock, sold by certain management
shareholders of the Company. On January 26, 1996, the underwriters exercised
their option to purchase an additional 1,393,000 shares from the selling
shareholders. The sale made pursuant to the underwriters' over-allotment
option was completed on January 30, 1996. The Company did not receive any of
the proceeds of the offering.
On October 15, 1996, the Company's shareholders approved an amendment to
the Company's articles of incorporation increasing the number of authorized
shares of Class A Common Stock from 65.0 million to 400.0 million. This
amendment did not effect the number of shares then outstanding.
Earnings Per Share ----------------------------------------------------------
Net income per share is computed using the weighted average number of
Class A and Class B common and common equivalent shares outstanding during
the period after giving retroactive effect to the stock splits effected in
the form of stock dividends described above. Shares subject to stock options
issued during the 12-month period prior to the initial public offering are
considered common equivalent shares for all periods prior to the initial
public offering, pursuant to the requirements of the Securities and Exchange
Commission (the "SEC"). The amount of any tax benefit to be credited to
capital related to the exercise of options and disqualifying dispositions
under the Company's Employee Stock Purchase Plan is included when applying
the treasury stock method to stock options in the computation of earnings per
share. The exercise of outstanding stock options would not result in a
material dilution of earnings per share.
Reclassifications -----------------------------------------------------------
Certain amounts reported for the year ended August 31, 1995 have been
reclassified to conform to the 1996 presentation, having no effect on net
income.
NOTE 3. FINANCIAL AID PROGRAMS
Approximately 40%-50% of the Company's net revenues was received from
students who participated in government sponsored financial aid programs
under Title IV of the Higher Education Act of 1965, as amended. These
51
financial aid programs consist generally of: (1) guaranteed student loans
that are issued directly to the students and are non-recourse to the Company
and (2) direct grants to students. Annually, the DOE publishes the default
rates of students participating in the Federal Family Education Loan ("FFEL")
programs.
The latest student default rates as reported by the DOE for these FFEL
student loans are as follows:
For Loans Entering
Repayment During the
DOE Fiscal Year Ended
September 30,
--------------------------
1993 1992 1991
------ ------ ------
Students attending:
UOP campuses 5.0% 5.0% 3.5%
IPD client institutions 5.9% 5.1% 4.6%
Western campuses 4.2% 4.7% 7.5%
National average 11.6% 15.0% 17.8%
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following, in thousands:
August 31,
--------------------
1996 1995
------- -------
Furniture and equipment $24,041 $16,494
Software 3,467 3,196
Leasehold improvements 1,042 1,032
Land and buildings 350 350
------- -------
28,900 21,072
Less accumulated depreciation (9,975) (7,682)
------- -------
Property and equipment, net $18,925 $13,390
======= =======
52
NOTE 5. EDUCATIONAL PROGRAM PRODUCTION COSTS
Educational program production costs consist of the following, in
thousands:
August 31,
--------------------
1996 1995
------- -------
Educational program production costs $ 8,012 $ 7,722
Less accumulated amortization (6,566) (5,759)
------- -------
Educational program production costs, net $ 1,446 $ 1,963
======= =======
The net effect on pre-tax income of the capitalization and amortization
of educational program production costs amounted to a decrease of $516,000 in
1996, an increase of $49,000 in 1995 and a decrease of $36,000 in 1994.
NOTE 6. NON-OPERATING PROPERTY
Non-operating property consists of approximately 13 acres of land
purchased in December 1995 for the possible relocation of the Company's
corporate headquarters and 105 acres of undeveloped land located in Santa
Cruz County, California, a substantial portion of which was acquired from a
related party in 1991. As a result of poor market conditions in Northern
California, the Company recorded a $196,000 writedown related to the Santa
Cruz land in 1996 ($117,000 after related tax benefit), a $104,000 writedown
in 1995 ($60,000 after related tax benefit) and a $135,000 writedown in 1994
($80,000 after related tax benefit). These writedowns were based on
independent appraisals dated June 1996, May 1995 and August 1994,
respectively.
NOTE 7. COSTS IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED
Effective September 1, 1995, the Company completed the acquisition of
certain assets of Western International University ("Western"). Western was
a private non-profit educational institution incorporated in 1978 that was
accredited by NCA. The Company formed a new wholly-owned subsidiary called
Western International University, Inc. ("WIU") as the holding company for the
net assets acquired from Western. WIU acquired accounts receivable, notes
receivable, furniture, fixtures, equipment, certain contracts and student
agreements, copyrights, trademarks, securities, cash, goodwill and certain
other assets of Western. The original acquisition price of $2.1 million,
including $237,000 paid in cash at or prior to closing, was adjusted to $3.0
million due to an increase in the estimated liability to the DOE related to
Western's processing of Title IV financial aid and other related liabilities.
The acquisition was accounted for under the purchase method and,
accordingly, the results of operations related to this new subsidiary has
been included with those of the Company for periods subsequent to the date of
acquisition. Results of operations for Western prior to the acquisition were
not material in relation to the Company's operation as a whole.
53
NOTE 8. SHORT-TERM BORROWINGS
At August 31, 1996, the Company had no amounts borrowed against its $4.0
million unsecured line of credit. The line of credit bears interest at prime
(8.25% at August 31, 1996). The line of credit is renewable annually and any
amounts borrowed under the line are payable upon its termination in December
1997. The Company is in compliance with the restrictive covenants contained
in its line of credit agreement. The Company's line of credit agreement
prohibits the Company from paying cash dividends or making other cash
distributions without the lender's consent.
NOTE 9. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following, in thousands:
August 31,
--------------------
1996 1995
------- -------
Salaries and wages $ 4,713 $ 4,252
Employee benefits and payroll withholdings 2,201 1,856
Other accruals 4,011 3,854
------- -------
Total other accrued liabilities $10,925 $ 9,962
======= =======
NOTE 10. EMPLOYEE AND DIRECTOR BENEFIT PLANS
The Company provides various health, welfare and disability benefits to
its full-time salaried employees which are funded primarily by Company
contributions. The Company does not provide postemployment or postretirement
health care and life insurance benefits to its employees.
The Company sponsors a 401(k) plan which is available to all employees
of the Company who have completed one year and at least 1,000 hours of
continuous service. The Company matches 100% of the contributions from the
first $10,000 of a participant's annual pre-tax earnings. Contributions from
the participant's earnings in excess of $10,000 are matched by the Company at
18.5%. Participant contributions are subject to certain restrictions as set
forth in the Internal Revenue Code. The Company's matching contributions
totaled $1.1 million, $848,000 and $745,000 for 1996, 1995 and 1994,
respectively.
In addition, the Company has three stock-based compensation plans that
were adopted in 1994: the Apollo Group, Inc. Director Stock Plan ("Director
Stock Plan"), the Apollo Group, Inc. Long-Term Incentive Plan ("LTIP") and
the Apollo Group, Inc. 1994 Employee Stock Purchase Plan ("Purchase Plan").
The Director Stock Plan currently provides for an annual grant of options to
the Company's nonemployee directors to purchase 13,500 shares, adjusted for
stock splits, of the Company's Class A Common Stock on September 1 of each
year. Under the LTIP, the Company may grant options, incentive stock
options, stock appreciation rights and other stock-based awards to certain
officers or key employees of the Company. At August 31, 1996, there were
54
274,000 and 1.3 million shares available for issuance under the Director
Stock Plan and LTIP, respectively, and, to date, only non-qualified stock
options have been granted. A summary of the activity related to the stock
options granted under the Director Stock Plan and LTIP follows, in thousands
of shares:
Outstanding at August 31, 1993 --
June 2, 1994 grant @ $.42 per share 830
------
Outstanding at August 31, 1994 830
December 6, 1994 grant at $2.45 per share 904
Exercised at $2.45 per share (40)
Canceled at $2.45 per share (9)
------
Outstanding at August 31, 1995 1,685
Granted at $8.96 to $11.30 per share 2,120
Exercised at $.42 to $2.46 per share (315)
Canceled at $2.45 to $11.30 per share (48)
------
Outstanding at August 31, 1996 3,442
======
Exercisable at August 31, 1996 1,411
======
Available for issuance at August 31, 1996 1,603
======
The June 2, 1994 grant to certain key employees was based on the fair
value of such options at the date of grant as determined by an independent
valuation. Pursuant to SEC requirements, the Company recorded $1.9 million
in compensation expense and additional paid-in capital in 1994 related to
these options, representing the difference between the exercise price per
share and the assumed initial public offering price multiplied by the total
number of shares granted.
In September 1995, the Company increased the number of shares of Class A
Common Stock available for issuance under the LTIP from 1.4 million to 3.7
million. At the same time, the Company granted an additional 2.1 million
options to purchase shares of Class A Common Stock, at $11.2978 per share, to
officers and certain key employees under the LTIP. The options vest 25% at
the end of seven years from the date of grant and ratably thereafter over the
eighth to approximate tenth year. This vesting period may be accelerated for
individual employees if the stock price reaches defined goals for at least
three trading days and if certain profit goals, defined for groups of
individuals, are also achieved.
The Purchase Plan allows employees of the Company to purchase up to 2.3
million shares of the Company's Class A Common Stock at quarterly intervals
through periodic payroll deductions. The purchase price per share, in
general, is 85% of the lower of: (1) the fair market value (as defined in
the Purchase Plan) of a share of Class A Common Stock on the participant's
enrollment date into the respective quarterly offering period or (2) the fair
55
market value of a share of Class A Common Stock on the purchase date. During
the year ended August 31, 1996, 84,297 shares were purchased by eligible
employees at prices ranging from $6.71 to $21.71 per share. At August 31,
1996, there are 2.0 million shares available for purchase under the Purchase
Plan.
NOTE 11. LONG-TERM LIABILITIES
Long-term liabilities consist of the following, in thousands:
August 31,
--------------------
1996 1995
------- -------
Deferred compensation and note agreements
discounted at 7.5% to 12% $ 1,515 $ 1,004
Deferred rental payments 398 315
------- -------
Total long-term liabilities 1,913 1,319
Less current portion (140) (118)
------- -------
Total long-term liabilities, net $ 1,773 $ 1,201
======= =======
The aggregate maturities of all long-term liabilities for each of the
five fiscal years subsequent to August 31, 1996 are: 1997--$140,000; 1998--
$350,000; 1999--$192,000; 2000--$177,000; 2001--$130,000.
The undiscounted deferred compensation liability was $1.7 million and
$1.8 million at August 31, 1996 and 1995, respectively. The undiscounted
note payable in connection with the WIU acquisition was $700,000 at August
31, 1996. The discount rates for these agreements were determined at the
date of each respective agreement based on the estimated long-term rate of
return on high-quality fixed income investments with cash flows similar to
the respective agreements.
56
NOTE 12. LEASES
The Company is obligated under facility and equipment leases that are
classified as operating leases. Following is a schedule of future minimum
lease commitments as of August 31, 1996, in thousands:
Operating Leases
---------------------------
Equipment
Buildings & Other
--------- ---------
1997 $15,089 $ 897
1998 14,605 368
1999 13,755 141
2000 12,378 1
2001 10,162
Thereafter 14,489
--------- ---------
$80,478 $1,407
========= =========
Facility and equipment rent expense totaled $19.9 million, $16.5 million
and $13.8 million for 1996, 1995 and 1994, respectively.
NOTE 13. INCOME TAXES
Pre-tax earnings and the related components of the income tax provision
are as follows, in thousands:
Year Ended August 31,
---------------------------
1996 1995 1994
------- ------- -------
Pre-tax earnings:
United States $34,322 $21,401 $8,104
Puerto Rico 675 428 191
------- ------- -------
Total pre-tax earnings $34,997 $21,829 $8,295
======= ======= =======
Income tax provision (benefit):
Current -- state and other $ 2,841 $ 2,550 $1,072
Current -- federal 11,239 7,103 3,399
Deferred (475) (424) (1,088)
------- ------- -------
Total provision for income taxes $13,605 $9,229 $3,383
======= ======= =======
57
The income tax provision differs from the tax that would result from
application of the statutory federal corporate tax rate. The reasons for the
differences are as follows, in thousands:
Year Ended August 31,
---------------------------
1996 1995 1994
------- ------- -------
Income tax provision at expected rate
of 35% for 1996 and 1995 and
34% for 1994 $12,249 $7,640 $2,820
State taxes, net of federal benefit 1,777 1,518 536
Nondeductible business meals 383 172 46
Non-taxable interest income (534) (193)
Other, net (270) 92 (19)
------- ------- -------
Total provision for income taxes $13,605 $9,229 $3,383
======= ======= =======
The current and non-current deferred tax assets and liabilities consist
of the following, in thousands:
August 31,
--------------------
1996 1995
------- -------
Gross deferred tax assets:
Compensation not yet deductible for tax purposes $1,376 $1,455
Difference in bad debt deductions for
financial reporting purposes 1,438 981
Loss reserves not deductible for tax purposes 591 554
Difference in lease expense deductions 319 272
Other 85 66
------- -------
Total gross deferred tax assets 3,809 3,328
------- -------
Gross deferred tax liabilities:
Depreciation and amortization of property
and equipment 1,062 547
Deduction of educational program production
costs for tax purposes 391 785
State taxes 43 158
------- -------
Total gross deferred tax liabilities 1,496 1,490
------- -------
Net deferred tax assets $2,313 $1,838
======= =======
58
The net tax assets are reflected in the accompanying balance sheet as
follows, in thousands:
Current deferred tax assets, net $2,972 $2,352
Noncurrent deferred tax liabilities, net (659) (514)
------- -------
Net deferred tax assets $2,313 $1,838
======= =======
In light of the Company's history of profitable operations, management
has concluded that it is more likely than not that the Company will
ultimately realize the full benefit of its deferred tax assets related to
future deductible items. Accordingly, the Company believes that no valuation
allowance is required for deferred tax assets in excess of deferred tax
liabilities.
59
NOTE 14. CASH RECEIVED FROM OPERATING ACTIVITIES
Following is a reconciliation of net income to net cash received from
operating activities, as shown on the consolidated statement of cash flows,
in thousands:
August 31,
---------------------------
1996 1995 1994
------- ------- -------
Net income $21,392 $12,600 $ 4,912
Net loss (gain) on disposal of assets 402 602 (141)
Write-down of non-operating assets 196 104 135
Depreciation and amortization of:
Property and equipment 4,545 2,751 1,997
Educational program production costs 1,441 1,375 1,365
Cost in excess of fair value of
assets purchased 107
Writeoff of unamortized cost of
discontinued educational courses 172 124 51
Bad debt expense 1,704 1,849 1,822
Compensation expense related to
grant of options 1,869
Change in assets and liabilities:
Decrease (increase) in restricted cash 590 (3,781) (6,098)
Increase in receivables, net of write-offs (11,621) (3,496) (5,894)
Increase in deferred tax assets (620) (725) (757)
Decrease (increase) in other current assets (413) 312 (940)
Increase in other assets (133) (113) (687)
Increase (decrease) in deferred rent 83 (36) 10
Increase in deferred compensation contracts 8 6 753
Increase in accounts payable and accrued
liabilities 1,206 4,058 2,727
Increase in student deposits and deferred
tuition 6,454 6,396 6,192
Increase (decrease) in deferred tax
liabilities 145 514 (331)
Increase (decrease) in income taxes
payable 165 (214) (491)
------- ------- -------
Net cash received from operating
activities $25,823 $22,326 $ 6,494
======= ======= =======
60
Supplemental Schedule of Noncash Investing and Financing Activities ---------
The Company purchased certain assets of Western for a total purchase
price of $3.0 million. In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired $3,028
Less cash paid to Western ($237,000) and on behalf of
Western ($393,000) for the assets acquired (630)
------
Net liabilities assumed $2,398
======
61
Item 9 -- Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
62
PART III
Item 10 -- Directors and Executive Officers of the Registrant
The Company's directors serve one year terms and are elected each year
by the holders of the Company's Class B Common Stock. The following sets
forth information as of August 31, 1996 concerning the Company's directors
and executive officers:
Name Age Position
- ---------------------------------- --- -----------------------------------------
John G. Sperling, Ph.D. 75 Chairman of the Board and President
William H. Gibbs 46 Senior Vice President and Director
Jerry F. Noble 54 Senior Vice President and Director
John D. Murphy 50 Senior Vice President-Institutional
Affairs and Director
Peter V. Sperling 36 Vice President of Administration,
Secretary, Treasurer and Director
James W. Hoggatt 39 Vice President of Finance and Chief
Financial Officer
Todd S. Nelson 37 Vice President
J. Jorge Klor de Alva, J.D., Ph.D. 48 Vice President of Business Development
and Director
Dino D. DeConcini 62 Director
Thomas C. Weir 62 Director
JOHN G. SPERLING, Ph.D., is the founder, President and Chairman of the
Board of Directors of the Company. Prior to his involvement with the
Company, from 1961 to 1973, Dr. Sperling was a professor of Humanities at
San Jose State University where he was the Director of the Right to Read
Project and the Director of the NSF Cooperative College-School Science
Program in Economics. At various times from 1955 to 1961, Dr. Sperling was
a member of the faculty at the University of Maryland, Ohio State University
and Northern Illinois University. Dr. Sperling received his Ph.D. from
Cambridge University, an M.A. from the University of California at Berkeley
and a B.A. from Reed College. Dr. Sperling is the father of Peter
V. Sperling.
WILLIAM H. GIBBS has been with the Company since 1980. Mr. Gibbs has
been the President of UOP and a Senior Vice President of the Company since
1987. From 1985 to 1987, Mr. Gibbs was the President of Apollo Education
Corporation ("AEC"). From 1980 to 1985, Mr. Gibbs held various positions
with the Company, including Chief Financial Officer and faculty member. From
1975 to 1984, Mr. Gibbs was with the accounting firm of Price Waterhouse and,
from 1982 to 1984, served as a management advisory manager. Mr. Gibbs
currently serves as a director of the Arizona State Board of Private
Post-Secondary Education and the Arizona Commission for Post-Secondary
Education. Mr. Gibbs received his M.B.A. from the University of Illinois
and his B.A. from Arizona State University. Mr. Gibbs is a Certified Public
Accountant in the State of Arizona.
JERRY F. NOBLE has been with the Company since 1981. Mr. Noble has been
a Senior Vice President of the Company since 1987 and the President of IPD
since 1984. From 1981 to 1987, Mr. Noble also was the controller of the
63
Company. From 1977 to 1981, Mr. Noble was the corporate accounting manager
for Southwest Forest Industries, a forest products company. Mr. Noble
received his M.B.A. from UOP and his B.A. from the University of Montana.
Mr. Noble is a Certified Public Accountant in the Commonwealth of Virginia.
JOHN D. MURPHY has been with the Company since 1976. Mr. Murphy has
been the Senior Vice President-Institutional Affairs since 1987. From 1981
to 1987, Mr. Murphy was the Vice President of Public Affairs of the Company.
From 1991 to 1994 Mr. Murphy also served as Vice President-Academic Affairs
of UOP. From 1972 to 1976, Mr. Murphy was an instructor at San Jose State
University. Mr. Murphy received an M.A. from the University of San Francisco
and a B.A. from San Jose State University.
PETER V. SPERLING has been with the Company since 1983. Mr. Sperling
has been the Vice President of Administration since 1992 and the Secretary
and Treasurer of the Company since 1988. From 1987 to 1992, Mr. Sperling was
the Director of Operations at AEC. From 1983 to 1987, Mr. Sperling was
Director of Management Information Services of the Company. Mr. Sperling
received his M.B.A from UOP and his B.A. from the University of California at
Santa Barbara. Mr. Sperling is the son of John G. Sperling.
JAMES W. HOGGATT has been with the Company since 1986. Mr. Hoggatt has
been the Vice President of Finance and Chief Financial Officer of the Company
since 1990. From 1987 to 1990, Mr. Hoggatt was the Vice President-Controller
of the Company. From 1986 to 1987, Mr. Hoggatt was the Director of Financial
Reporting of the Company. From 1979 to 1986, Mr. Hoggatt was with the
accounting firm of Price Waterhouse and, from 1984 to 1986, served as an
audit manager. Mr. Hoggatt received a B.S. from Abilene Christian
University. Mr. Hoggatt is a Certified Public Accountant in the State of
Arizona.
TODD S. NELSON has been with the Company since 1987. Mr. Nelson has
been a Vice President of the Company since 1994 and the Executive Vice
President of UOP since 1989. From 1987 to 1989, Mr. Nelson was the Director
of UOP's Utah campus. From 1985 to 1987, Mr. Nelson was the General Manager
at Amembal and Isom, a management training company. From 1984 to 1985,
Mr. Nelson was a General Manager for Vickers & Company, a diversified holding
company. From 1983 to 1984, Mr. Nelson was a Marketing Director at Summa
Corporation, a recreational properties company. Mr. Nelson received an
M.B.A. from the University of Nevada at Las Vegas and a B.S. from Brigham
Young University. Mr. Nelson was a member of the faculty at University of
Nevada at Las Vegas from 1983 to 1984.
J. JORGE KLOR DE ALVA, J.D., Ph.D., has been a Vice President of Business
Development of the Company since July 1996, has been a director of the
Company since 1991 and is currently a member of the Audit Committee of the
Board of Directors of the Company. Dr. Klor de Alva was a Professor of
Comparative Ethnic Studies and Anthropology at the University of California
at Berkeley from July 1994 until July 1996. From 1989 to 1994, Dr. Klor
de Alva was a Professor of Anthropology at Princeton University. From 1984
to 1989, Dr. Klor de Alva was the Director of the Institute for Mesoamerican
Studies from 1982 to 1989 and was an Associate Professor of Anthropology and
Latin American Studies at the State University of New York at Albany. From
1971 to 1982, Dr. Klor de Alva served at various times as associate
professor, assistant professor or lecturer at San Jose State University and
the University of California at Santa Cruz. Dr. Klor de Alva received a B.A.
and J.D. from the University of California at Berkeley and a Ph.D. from the
University of California at Santa Cruz.
64
DINO J. DECONCINI has been a director of the Company since 1981 and is
currently a member of the Audit and Compensation Committees of the Board of
Directors of the Company. Mr. DeConcini is currently Executive Director,
Savings Bonds Marketing Office, U.S. Department of the Treasury. From 1979
to 1995, Mr. DeConcini was a shareholder in DeConcini, McDonald, Brammer,
Yetwin and Lacy, P.C., Attorneys at Law. From 1993 to 1995, Mr. DeConcini
was a Vice President and Senior Associate of Project International
Associates, Inc., an international business consulting firm. From 1991 to
1993 and 1980 to 1990, Mr. DeConcini was a Vice President and partner of Paul
R. Gibson & Associates, an international business consulting firm.
THOMAS C. WEIR has been a director of the Company since 1983 and is a
member of the Audit and Compensation Committees of the Board of Directors of
the Company. During 1994, Mr. Weir became the President of Dependable
Nurses, Inc., a provider of temporary nursing services, W.D. Enterprises,
Inc., a financial services company and Dependable Personnel, Inc., a provider
of temporary clerical personnel. In addition, Mr. Weir has been an
independent financial consultant since 1990. From 1989 to 1990, Mr. Weir was
President of Tucson Electric Power Company. From 1979 to 1987, Mr. Weir was
Chairman and Chief Executive Officer of Home Federal Savings & Loan
Association, Tucson, Arizona.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of a registered class of the Company's equity securities, to
file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and reports of changes in ownership. Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based solely upon
a review of the copies of such forms furnished to the Company, or written
representations that no Forms 5 were required, the Company believes that
during the fiscal year ended August 31, 1996, its officers and directors
complied with all Section 16(a) filing requirements with the following
exception: John D. Murphy filed a late Form 3 relating to a transaction
involving a transfer of Class A Common Stock into a revocable trust on
November 15, 1995.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two principal committees: (1) an Audit
Committee comprised of Thomas C. Weir (Chairperson), Dino J. DeConcini and
J. Jorge Klor de Alva and (2) a Compensation Committee comprised of Thomas
C. Weir (Chairperson) and Dino J. DeConcini.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended August 31, 1996, the Board of Directors of the
Company met or acted by written consent on 11 occasions. Each of the
Company's directors attended more than 75% of the meetings of the Board of
Directors and of meetings held by committees of the Board on which such
director served.
65
Compensation Committee ------------------------------------------------------
The Compensation Committee of the Board of Directors, which met or acted
by written consent once during 1996, reviews all aspects of compensation of
executive officers of the Company and determines or makes recommendations on
such matters to the full Board of Directors. The report of the Compensation
Committee for 1996 is set forth below. (See Item 11.)
Audit Committee -------------------------------------------------------------
The Audit Committee, which met or acted by written consent three times
in 1996, represents the Board of Directors in evaluating the quality of the
Company's financial reporting process and internal financial controls through
consultations with the independent auditors, internal management and the
Board of Directors.
Other Committees ------------------------------------------------------------
The Company does not maintain a standing nominating committee or other
committee performing similar functions.
66
Item 11 -- Executive Compensation
DIRECTOR COMPENSATION
Fees ------------------------------------------------------------------------
Nonemployee directors of the Company received in 1996 a $12,000 annual
retainer, $1,000 for each board meeting attended and $500 for each committee
meeting attended. In 1997, these fees have been increased to $15,000, $1,250
and $625, respectively. In addition, such nonemployee directors are
reimbursed for out-of-pocket expenses.
Apollo Group, Inc. Director Stock Plan --------------------------------------
In August 1994, the Board of Directors of the Company adopted the Apollo
Group, Inc. Director Stock Plan (the "Director Plan") to attract and retain
independent directors for the Company. The Director Plan is administered by
a committee appointed by the Board. The aggregate number of shares of
Class A Common Stock subject to the Director Plan may not exceed 450,000,
subject to adjustment. Options granted under the Director Plan are fully
vested six months and one day after the date of grant and are exercisable in
full thereafter until the date that is ten years after the date of grant.
The exercise price per share under the Director Plan is equal to the fair
market value of such shares upon the date of grant. On December 6, 1994, an
option to purchase 45,000 shares of the Company's Class A Common Stock at an
exercise price of $2.445 per share was granted to each Nonemployee Director
(as defined in the Director Plan). In addition, on September 1 of each year,
Nonemployee Directors receive an annual grant of options to purchase 13,500
shares, adjusted by stock splits, of the Company's Class A Common Stock.
EXECUTIVE COMPENSATION
The following table discloses the annual and long-term compensation
earned for services rendered in all capacities by the Company's Chairman of
the Board and President together with the Company's four other most highly
compensated executive officers for the fiscal years ended August 31, 1996,
1995, and 1994:
67
-- SUMMARY COMPENSATION TABLE --
Long-Term
Annual Compensation
Compensation Awards
--------------------------------- ---------------------
Other Restric- Securities All Other
Annual ted Stock Underlying LTIP Compen-
Name and Principal Salary Bonus Compensation Awards Options Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------------ ------- --------- -------- ------------ --------- ---------- -------- -----------
John G. Sperling
Chairman of the Board
and President 1996 $310,000 $232,500 -- -- 137,250 -- $ --
1995 310,000 186,000 -- -- 50,000 -- --
1994 268,750 120,837 -- -- 71,552 -- 750,000
William H. Gibbs
Senior Vice President
and President of UOP 1996 180,000 135,000 -- -- 137,250 -- 2,409
1995 180,000 108,000 -- -- 30,000 -- 2,361
1994 161,250 125,954 -- -- 42,484 -- 2,496
Jerry F. Noble
Senior Vice President
and President of IPD 1996 180,000 135,000 -- -- 137,250 -- 2,980
1995 180,000 108,000 -- -- 30,000 -- 2,932
1994 161,250 60,469 -- -- 49,192 -- 2,932
John D. Murphy
Senior Vice President-
Institutional Affairs 1996 180,000 135,000 -- -- 137,250 -- 2,980
1995 180,000 108,000 -- -- 30,000 -- 2,932
1994 161,250 60,469 -- -- 55,900 -- 2,932
Peter V. Sperling
Vice President Adminis-
tration, Secretary and
Treasurer 1996 170,000 127,000 -- -- 137,250 -- 52,046
1995 170,000 102,000 -- -- 20,000 -- 45,982
1994 148,840 121,381 -- -- 53,664 -- 45,982
_______________
Messrs. John Sperling, Gibbs, Noble, Murphy and Peter Sperling also
received certain perquisites, the value of which did not exceed the
lesser of $50,000 for each person or 10% of their cash compensation.
These options were issued on June 2, 1994, have a current exercise
price of $.416 per share and expire on June 1, 2004. Pursuant to SEC
requirements, the Company recorded $1.9 million in compensation expense
in 1994 related to these and other options, representing the
difference between the current exercise price and an assumed initial
public offering price of $2.67 per share multiplied by the 830,115
total shares granted to certain key employees.
In 1994, the Company accrued $750,000 in compensation expense pursuant
to a deferred compensation agreement with Dr. Sperling that represents
the present value of all benefits expected to be paid in the future by
the Company pursuant to such plan. See "Executive Compensation--
Employment and Deferred Compensation Agreements."
Amounts shown consist of: (1) contributions made by the Company to the
Company's Savings and Investment Plan (as described herein) paid in
fiscal years 1996, 1995 and 1994, respectively as follows: $2,409,
$2,361 and $2,496 on behalf of Mr. Gibbs; and $2,980, $2,932 and $2,932
on behalf of Messrs. Noble, Murphy and Peter Sperling and (2) premiums
of $49,066 paid in 1996 and $43,050 paid in 1995 and 1994 attributable
to collateral split dollar life insurance premiums for Mr. Peter
Sperling, $10 million face value, the beneficiaries of which are
designated by Mr. Peter Sperling. Under this policy the Company is
68
entitled to receive, upon the occurrence of certain events, any
premiums the Company paid for the policy. Mr. Peter Sperling is
entitled to the excess of the cash value over the amount of the
premiums paid by the Company.
The following table discloses options granted by the Company to the
Chairman of the Board and President and the four other most highly
compensated executive officers of the Company for the fiscal year ended
August 31, 1996:
-- OPTION GRANTS IN THE LAST FISCAL YEAR --
Option Grants in Fiscal Year 1996 Potential Realizable
---------------------------------------------- Value at Assumed
% of Total Annual Rates of
Number of Options/SARs Stock Price
Securities Granted to Exercise Appreciation for
Underlying Employees or Base Option Term
Options/SARs in Fiscal Price Expiration ----------------------
Name Granted Year ($/Share) Date 5% 10%
- ------------------ ---------- ----------- --------- --------- -------- ----------
John G. Sperling 137,250 6.6 $11.30 9/21/05 $975,179 $2,471,294
William H. Gibbs 137,250 6.6 11.30 9/21/05 975,179 2,471,294
Jerry F. Noble 137,250 6.6 11.30 9/21/05 975,179 2,471,294
John D. Murphy 137,250 6.6 11.30 9/21/05 975,179 2,471,294
Peter V. Sperling 137,250 6.6 11.30 9/21/05 975,179 2,471,294
_______________
Options granted in 1996 are pursuant to the Apollo Group, Inc.
Long-Term Incentive Plan and vest 25% at the end of seven years and
ratably thereafter over the eighth to approximate tenth year. The
vesting period may be accelerated for individual employees if the stock
price reaches defined goals for at least three trading days and if
certain profit goals are also achieved. Such options are exercisable
for a period not to exceed ten years from the date of grant.
The following table discloses the number of shares received from the
exercise of Company options, the value received therefrom and the number and
value of in-the-money and out-of-the-money options held by the Company's
Chairman of the Board and President and the four other most highly
compensated officers of the Company for the fiscal year ended August 31,
1996:
-- AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 --
AND OPTION VALUES AT AUGUST 31, 1996
Value of Unexercised
Shares Number of Unexercised Money Options at Fiscal
Acquired Value Options at Fiscal Year-End Year-End
on Exercise Realized --------------------------- ---------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- --------- ----------- ------------- ----------- -------------
John G. Sperling -- -- 273,492 137,250 $6,632,148 1,949,252
William H. Gibbs -- -- 163,089 137,250 3,954,049 1,949,252
Jerry F. Noble -- -- 178,182 137,250 4,332,649 1,949,252
John D. Murphy -- -- 193,275 137,250 4,711,249 1,949,252
Peter V. Sperling -- -- 165,744 137,250 4,066,300 1,949,252
69
Employment and Deferred Compensation Agreements ----------------------------
In December 1993, the Company entered into an employment agreement (the
"Employment Agreement") and deferred compensation agreement (the "Deferred
Compensation Agreement") with Dr. John G. Sperling, the Chairman of the Board
and President of the Company. The term of the Employment Agreement is for a
four-year term, and expires in December 31, 1997. Thereafter, it is
automatically renewable for additional one-year periods. Effective September
1, 1994, under the Employment Agreement to Dr. Sperling receives an annual
base salary of $310,000. This salary may be adjusted annually by the
Compensation Committee of the Board of Directors. Effective for 1997 and
1998, Dr. Sperling's salary was increased to $387,500. The Company may
terminate the Employment Agreement only for cause and Dr. Sperling may
terminate the Employment Agreement at any time upon 30 days written notice.
The Deferred Compensation Agreement provides that upon his termination
of employment with the Company and until his death, Dr. Sperling shall
receive monthly payments equal to one-twelfth of his highest annual base
salary paid by the Company during any one of the three calendar years
preceding the calendar year in which Dr. Sperling's employment is terminated.
In addition, upon Dr. Sperling's death, his designated beneficiary shall be
paid an amount equal to three times his highest annual base salary in 36
equal monthly installments with the first such installment due on the first
day of the month following the month of Dr. Sperling's death.
The Company does not have employment agreements with any of its other
executive officers.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is composed
entirely of independent outside members of the Company's Board of Directors.
The Committee reviews and approves each of the elements of the executive
compensation program of the Company and periodically assesses the
effectiveness and competitiveness of the program in total. In addition, the
Committee administers the key provisions of the executive compensation
program and reviews with the Board of Directors in detail all aspects of
compensation for the Company's executives. During 1996, Jorge Klor de Alva
resigned from the Compensation Committee as a result of his employment with
the Company, and was replaced by Dino DeConcini. The Committee has furnished
the following report on executive compensation:
Overview and Philosophy -----------------------------------------------------
The Company's compensation program for executive officers is primarily
comprised of base salary, annual bonus and long-term incentives in the form
of stock option grants. Executives also participate in various other benefit
plans, including medical and retirement plans, generally available to all
employees of the Company.
The Company's philosophy is to pay base salaries to executives that
enable the Company to attract, motivate and retain highly qualified
executives. The annual bonus program is designed to reward for performance
based on financial results. Stock option grants are intended to result in no
reward if the stock price does not appreciate, but may provide substantial
rewards to executives as shareholders benefit from stock price appreciation.
70
Base Salary -----------------------------------------------------------------
Each of the Company's executives receives a base salary, which when
aggregated with their maximum bonus amount, is intended to be competitive
with similarly situated executives in comparable industries. The base
salaries in 1996 were effective for the period from September 1994 and
through August 1996. In setting the base salaries, the Committee reviewed
and considered compensation information provided by an independent
compensation consulting firm. The Company targets base pay at the level
required to attract and retain highly qualified executives. In determining
salaries, the Committee also takes into account individual experience and
performance and specific needs particular to the Company.
Recently, the Committee decided to increase the base salary of each of
the Company's executive officers by approximately 25%. This increase was
effective beginning September 1996. The Committee determined that such an
increase was appropriate in light of the fact that there had been no increase
in the base salaries since 1994.
Annual Bonus Program --------------------------------------------------------
In addition to a base salary, in fiscal year 1995 executives were
eligible to receive a bonus of up to sixty percent (60%) of their respective
base salaries, and in fiscal year 1996 are eligible to receive a bonus of up
to seventy-five percent (75%) of their respective base salaries. All annual
bonuses are tied to the Company's financial performance.
At the beginning of each fiscal year, the Committee establishes an
after-tax net income goal for the Company and operating profit goals for the
Company's subsidiaries. The annual bonuses are calculated differently for
(i) executives who also serve as executive officers of either The University
of Phoenix, Inc. ("UOP") or the Institute for Professional Development
("IPD") (collectively, the "Division Executives") and (ii) executives who do
not serve as executive officers of either UOP or IPD (collectively, the
"Company Executives").
The annual bonuses for Division Executives are tied to both the after-
tax net income goal for the Company and the operating profit goal for either
UOP or IPD, as applicable. If the applicable operating profit goal is
achieved, the Division Executives earn fifty percent (50%) of their
respective annual bonuses. The remaining fifty percent (50%) is earned only
if the after-tax net income goal for the Company is achieved or exceeded. If
the after-tax net income goal for the Company is achieved, the Division
Executives are entitled to an additional twenty-five percent (25%) of their
respective annual bonuses. The remaining twenty-five percent (25%) of the
annual bonuses can be earned by the Division Executives only if the after-tax
net income goal for the Company is exceeded. In particular, the Division
Executives are entitled to receive an additional one-and-one-quarter percent
(1.25%) for each $100,000 by which the after-tax net income goal is exceeded.
The annual bonuses for the Company Executives are tied solely to the
after-tax net income goal for the Company. If the after-tax net income goal
for the Company is achieved, the Company Executives earn fifty percent (50%)
of their respective annual bonuses. If the after-tax net income goal is
exceeded, the Company Executives earn a larger percentage of their annual
bonus depending on the amount by which the after-tax net income goal is
exceeded. The remaining fifty percent (50%) of the annual bonuses can be
earned by the Company Executives only if the after-tax net income goal for
71
the Company is exceeded. In particular, the Company Executives are entitled
to receive an additional two-and-one-half percent (2.5%) for each $100,000 by
which the after-tax net income goal is exceeded.
Options ---------------------------------------------------------------------
The Company believes that it is important for executives to have an
equity stake in the Company and, toward this end, makes option grants to key
executives from time to time. In making option awards, the Committee reviews
the level of awards granted to executives at other comparably-sized
companies, the Company's financial performance during the past fiscal year,
the awards granted to other executives within the Company and the individual
officer's specific role at the Company.
In September 1995, the Committee approved a substantial number of stock
option grants to the executive officers as part of the Company's 1995
Performance Incentive Grants. These options were granted at fair market
value, begin to vest seven years after the grant date and expire 10 years
after the grant date. The vesting of the options can be accelerated if
certain profit and stock price goals are achieved. The 1995 Performance
Incentive Grants are intended to be one-time grants under the Company's Long-
Term Incentive Plan. Except for promotions or new hires, the Committee does
not currently anticipate granting any additional stock options to the
Company's executive officers until 1998.
Other Benefits --------------------------------------------------------------
Executive officers are eligible to participate in benefit programs
designed for all full-time employees of the Company. These programs include
medical, disability and life insurance and a qualified retirement program
allowed under Section 401(k) of the Internal Revenue Code, as amended (the
"Code").
Chief Executive Officer Compensation ----------------------------------------
Dr. John G. Sperling is the founder, President and Chairman of the Board
of Directors of the Company. In December 1993, the Company entered into an
employment agreement (the "Employment Agreement") and deferred compensation
agreement (the "Deferred Compensation Agreement") with Dr. Sperling. The
Employment Agreement terminates on December 31, 1997, but is automatically
renewable for additional one-year terms. The Deferred Compensation Agreement
provides that upon Dr. Sperling's termination of employment with the Company
and until his death, Dr. Sperling shall receive monthly payments equal to
1/12 of his highest annual base salary paid by the Company during any one of
the three calendar years preceding the calendar year in which Dr. Sperling's
employment is terminated. In addition, upon Dr. Sperling's death, his
designated beneficiary shall be paid an amount equal to three times his
highest annual base salary in 36 equal monthly installments with the first
installment due on the first day of the month following the month of Dr.
Sperling's death.
During fiscal year 1996, Dr. Sperling received an annual base salary of
$310,000. In addition, because the after-tax net income goal for the Company
was exceeded, Dr. Sperling was paid a bonus of $232,500 for 1996. Dr.
Sperling also was granted options in September 1995 to purchase a total of
72
137,250 shares of Class A Common Stock in connection with the 1995
Performance Incentive Grants. All options were granted at fair market value
and expire ten years after the grant date. These options have an exercise
price of $11.30 per share with various vesting periods.
Under Dr. Sperling's leadership, the Company's net revenues increased
31.1%, to $214.3 million in 1996 from $163.4 million in 1995. In addition,
earnings per share increased to $.42 in 1996 from $.27 in 1995. Shareholder
value also has increased over this same period. For example, the closing
price at August 31, 1995 was $8.89 per share whereas the closing price for
the Company's Class A Common Stock on August 31, 1996, as reported on the
Nasdaq National Market, was $25.50 per share.
All share numbers and prices contained in this report have been adjusted
for the stock splits effected in the form of stock dividends that were
approved by the Company's Board of Directors.
-- COMPENSATION COMMITTEE --
Thomas C. Weir
Dino J. DeConcini
J. Jorge Klor de Alva, Ph.D.
73
STOCK PERFORMANCE GRAPH
The line graph below compares the cumulative total shareholder return on
the Company's Class A Common Stock with the cumulative total return for the
Standard & Poor's 400 Index and an index of Company-selected peer group
companies for the period from December 6, 1994 (the effective date of the
Company's initial public offering) through August 31, 1996. The graph
assumes that the value of the investment in the Company's Class A Common
Stock and each index was $100 at December 6, 1994, and that all dividends
paid by those companies included in the indexes were reinvested.
Dec. 6 Aug. 31 Aug. 31
1994 1995 1996
-------- -------- --------
Apollo Group, Inc. Class A Common Stock $100.00 $336.80 $966.30
S&P 400 100.00 123.40 143.23
Education Peer Group 100.00 130.82 140.96
The education peer group is composed of the publicly-traded common stock
of 16 education-related companies that include Berlitz International, Inc.,
California Culinary Academy, Inc., Canterbury Corporate Services Inc.,
Children's Discovery Centers of America, Inc., DeVry Inc., Education
Alternatives, Inc., Flightsafety International, Industrial Training Corp.,
ITT Educational Services, Inc., KinderCare Learning Centers, Inc., National
Education Corporation, Nobel Education Dynamics, Inc., Sylvan Learning
Systems, Inc., TRO Learning, Inc., Wave Technologies International, Inc. and
Whitman Medical Corp. Two of the companies included in prior year's
education peer group are not included above as their stock was not
publicly-traded at August 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee reviews and acts on matters
relating to compensation levels and benefit plans for the Company's executive
officers. The Compensation Committee currently consists of Thomas C. Weir
and Dino J. DeConcini.
74
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of October 10,
1996. Except as otherwise indicated, to the knowledge of the Company, all
persons listed below have sole voting and investment power with respect to
their shares, except to the extent that authority is shared by spouses under
applicable law or as otherwise noted below.
Class A Class B
Shares Shares
of Common of Common
Name and Address of Beneficial Owner Stock % Owned Stock % Owned
- --------------------------------------- ---------------- --------- ----------- ----------
John G. Sperling 11,118,364 22.4% 243,081 42.2%
Peter V. Sperling 11,642,594 23.5 232,068 40.3
William H. Gibbs 749,113 1.5 27,950 4.9
Jerry F. Noble 885,797 1.8 27,950 4.9
John D. Murphy 930,467 1.9 27,950 4.9
J. Jorge Klor de Alva 58,500 .1 -- --
Dino J. DeConcini 45,825 .1 -- --
Thomas C. Weir 45,000 .1 -- --
Total for All Directors and Executive
Officers as a Group (10 persons) 24,493,537 48.3 575,769 100.0
_______________
The address of each of the listed shareholders, unless noted
otherwise, is in care of Apollo Group, Inc., 4615 East Elwood Street,
Phoenix, Arizona 85040.
Includes 1,498,360 shares held by the John Sperling 1994 Irrevocable
Trust dated April 27, 1994 for which Messrs. John and Peter Sperling
are the co-trustees.
Includes 273,492 shares that Mr. John Sperling has the right to
acquire within 60 days of the date of the table set forth above.
Includes 165,744 shares that Mr. Peter Sperling has the right to
acquire within 60 days of the date of the table set forth above.
Includes 163,089 shares that Mr. Gibbs has the right to acquire within
60 days of the date of the table set forth above.
Includes 178,182 shares that Mr. Noble has the right to acquire within
60 days of the date of the table set forth above.
Includes 193,275 shares that Mr. Murphy has the right to acquire
within 60 days of the date of the table set forth above.
These are shares that Mr. Klor de Alva has the right to acquire within
60 days of the date of the table set forth above.
Includes 45,375 shares that Mr. DeConcini has the right to acquire
within 60 days of the date of the table set forth above.
Includes 43,500 shares that Mr. Weir has the right to acquire within
60 days of the date of the table set forth above.
75
Includes 1,232,440 shares that all Directors and Executive Officers as
a group have the right to acquire within 60 days of the date of the
table set forth.
Includes 243,080 shares held by the John G. Sperling Revocable Trust
dated January 31, 1995.
Includes 232,067 shares held by the Peter V. Sperling Revocable Trust
dated January 31, 1995.
Includes 27,949 shares held by the William H. Gibbs Revocable Trust
dated March 8, 1995.
Includes 27,949 shares held by the John D. Murphy Revocable Trust
dated February 26, 1993.
Item 13 -- Certain Relationships and Related Transactions
The Company believes that all transactions it has entered into with
affiliates were at arm's length and on terms as favorable as could have been
obtained from unaffiliated parties.
76
PART IV
Item 14 -- Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Sequentially
Numbered
Page or Method
of Filing
----------------
A. Financial Statements
(1) Report of Price Waterhouse LLP Page 41
(2) Consolidated Financial Statements
(a) Statement of Operations for the Years
Ended August 31, 1996, 1995 and 1994 Page 42
(b) Balance Sheet as of August 31, 1996
and 1995 Page 43
(c) Statement of Changes in Shareholders'
Equity for the Years Ended August 31,
1996, 1995 and 1994 Page 44
(d) Statement of Cash Flows for the Years
Ended August 31, 1996, 1995 and 1994 Page 45
(e) Notes to Consolidated Financial Statements Page 46
B. Financial Statement Schedule:
None.
C. Exhibits
Sequentially
Numbered
Exhibit Page or Method
Number Description of Exhibit of Filing
------- --------------------------------------- ----------------
3.1 Restated and Amended Articles of Page 82
Incorporation of the Registrant
(As Amended Through October 15, 1996)
3.2 Amended Bylaws of the Registrant Page 86
(As Amended Through June 1996)
4 Restated and Amended Articles of Page 82
Incorporation of the Registrant
filed as Exhibit 3.1
10.1 Business Loan Agreement between Page 100
Apollo Group, Inc. and First
Interstate Bank
77
Sequentially
Numbered
Exhibit Page or Method
Number Description of Exhibit of Filing
------- --------------------------------------- ----------------
10.2 Apollo Group, Inc. Director Stock Incorporated by
Plan reference to
Exhibit 10.2 of
the August 31,
1995 Form 10-K
10.3 Apollo Group, Inc. Long-Term Incorporated by
Incentive Plan reference to
Exhibit 10.3 of
Form S-1 No.
33-83804
10.4 Apollo Group, Inc. Savings and Page 136
Investment Plan
10.5 Apollo Group, Inc. 1994 Employee Page 194
Stock Purchase Plan (As Amended
Through August 1996)
10.6 Employment Agreement between Apollo Incorporated by
Group, Inc. and John G. Sperling reference to
Exhibit 10.6 of
Form S-1 No.
33-83804
10.7 Deferred Compensation Agreement between Incorporated by
John G. Sperling and Apollo Group, Inc. reference to
Exhibit 10.7 of
Form S-1 No.
33-83804
10.8 Deferred Compensation Agreement between Incorporated by
Apollo Group, Inc. and Carole A. reference to
Crawford Exhibit 10.8 of
Form S-1 No.
33-83804
10.9 Lease Agreement between Apollo Group, Incorporated by
Inc. and Kaiser Center Partners reference to
Exhibit 10.9 of
Form S-1 No.
33-83804
10.10 Shareholder Agreement Dated September Incorporated by
7, 1994 . reference to
Exhibit 10.10 of
Form S-1 No.
33-83804
78
Sequentially
Numbered
Exhibit Page or Method
Number Description of Exhibit of Filing
------- --------------------------------------- ----------------
10.11 Agreement of Purchase and Sale of Incorporated by
Assets of Western International reference to
University Dated June 30, 1995 Exhibit 10.11 of
(without schedules and exhibits) Form 10-K for
Year Ended
August 31, 1995
10.12 Purchase and Sale Agreement Dated Page 204
October 10, 1995
21 List of Subsidiaries Incorporated by
reference to
Exhibit 21 of
Form S-1 No.
33-83804
23.1 Consent of Price Waterhouse LLP Page 230
24 Power of Attorney See Signature
Page
27 Financial Data Schedule Page 231
99.1 Form of Agreement of Institute for Incorporated by
Professional Development reference to
Exhibit 99.1 of
Form S-1 No.
33-83804
D. Reports on Form 8-K
During the last quarter of the 1996 fiscal year, the Company filed no
reports on Form 8-K.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Phoenix, State of Arizona, on October 25, 1996.
APOLLO GROUP, INC.
An Arizona Corporation
By: /s/ John G. Sperling
--------------------------------
John G. Sperling
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John G. Sperling and James W. Hoggatt, and
each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Form
10-K Annual Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person hereby ratifying
and confirming all that said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date
- -----------------------------------------------------------------------------
/s/ John G. Sperling Chairman of the Board October 25, 1996
- ------------------------- of Directors and President
John G. Sperling (Principal Executive Officer)
/s/ William H. Gibbs Senior Vice President and October 25, 1996
- ------------------------- Director
William H. Gibbs
/s/ Jerry F. Noble Senior Vice President and October 25, 1996
- ------------------------- Director
Jerry F. Noble
80
Signature Title Date
- -----------------------------------------------------------------------------
/s/ Peter V. Sperling Vice President of October 25, 1996
- ------------------------- Administration, Secretary,
Peter V. Sperling Treasurer and Director
/s/ J. Jorge Klor de Alva Vice President of Business October 25, 1996
- ------------------------- Development and Director
J. Jorge Klor de Alva
/s/ James W. Hoggatt Vice President of Finance October 25, 1996
- ------------------------- and Chief Financial Officer
James W. Hoggatt (Principal Financial and
Accounting Officer)
/s/ Dino J. DeConcini Director October 25, 1996
- -------------------------
Dino J. DeConcini
/s/ Thomas C. Weir Director October 25, 1996
- -------------------------
Thomas C. Weir
81