(Mark One) | |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: November 30, 2012 | |
OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from [ ] to [ ] |
ARIZONA (State or other jurisdiction of incorporation or organization) | 86-0419443 (I.R.S. Employer Identification No.) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company) |
Apollo Group, Inc. Class A common stock, no par value | 112,064,000 Shares |
Apollo Group, Inc. Class B common stock, no par value | 475,000 Shares |
Page | ||
• | changes in the regulation of the U.S. education industry and eligibility of proprietary schools to participate in U.S. federal student financial aid programs, including the regulatory and other requirements discussed in Item 1, Business, of our Annual Report on Form 10-K for the year ended August 31, 2012, under “Accreditation and Jurisdictional Authorizations,” “Financial Aid Programs,” and “Regulatory Environment”; |
• | each of the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended August 31, 2012; and |
• | those factors set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended August 31, 2012 and Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Form 10-Q. |
As of | |||||||
($ in thousands) | November 30, 2012 | August 31, 2012 | |||||
ASSETS: | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 776,009 | $ | 1,276,375 | |||
Restricted cash and cash equivalents | 351,575 | 318,334 | |||||
Accounts receivable, net | 201,456 | 198,279 | |||||
Prepaid taxes | 5,041 | 26,341 | |||||
Deferred tax assets, current portion | 55,489 | 69,052 | |||||
Other current assets | 64,513 | 49,609 | |||||
Total current assets | 1,454,083 | 1,937,990 | |||||
Property and equipment, net | 546,520 | 571,629 | |||||
Goodwill | 103,558 | 103,345 | |||||
Intangible assets, net | 145,789 | 149,034 | |||||
Deferred tax assets, less current portion | 80,446 | 77,628 | |||||
Other assets | 38,521 | 28,696 | |||||
Total assets | $ | 2,368,917 | $ | 2,868,322 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY: | |||||||
Current liabilities | |||||||
Short-term borrowings and current portion of long-term debt | $ | 22,236 | $ | 638,588 | |||
Accounts payable | 63,202 | 74,872 | |||||
Income taxes payable | 60,717 | — | |||||
Student deposits | 381,124 | 362,143 | |||||
Deferred revenue | 262,813 | 254,555 | |||||
Accrued and other current liabilities | 263,433 | 324,881 | |||||
Total current liabilities | 1,053,525 | 1,655,039 | |||||
Long-term debt | 75,562 | 81,323 | |||||
Deferred tax liabilities | 16,096 | 15,881 | |||||
Other long-term liabilities | 203,705 | 191,756 | |||||
Total liabilities | 1,348,888 | 1,943,999 | |||||
Commitments and contingencies | |||||||
Shareholders’ equity | |||||||
Preferred stock, no par value | — | — | |||||
Apollo Group Class A nonvoting common stock, no par value | 103 | 103 | |||||
Apollo Group Class B voting common stock, no par value | 1 | 1 | |||||
Additional paid-in capital | 41,311 | 93,770 | |||||
Apollo Group Class A treasury stock, at cost | (3,864,989 | ) | (3,878,612 | ) | |||
Retained earnings | 4,876,645 | 4,743,150 | |||||
Accumulated other comprehensive loss | (34,188 | ) | (30,034 | ) | |||
Total Apollo shareholders’ equity | 1,018,883 | 928,378 | |||||
Noncontrolling interests (deficit) | 1,146 | (4,055 | ) | ||||
Total equity | 1,020,029 | 924,323 | |||||
Total liabilities and shareholders’ equity | $ | 2,368,917 | $ | 2,868,322 |
Three Months Ended November 30, | |||||||
(In thousands, except per share data) | 2012 | 2011 | |||||
Net revenue | $ | 1,055,183 | $ | 1,171,900 | |||
Costs and expenses: | |||||||
Instructional and student advisory | 432,150 | 453,281 | |||||
Marketing | 162,873 | 165,564 | |||||
Admissions advisory | 71,308 | 101,388 | |||||
General and administrative | 73,539 | 79,899 | |||||
Depreciation and amortization | 43,695 | 46,167 | |||||
Provision for uncollectible accounts receivable | 33,406 | 41,583 | |||||
Restructuring and other charges | 24,116 | 5,562 | |||||
Litigation credit | (16,850 | ) | — | ||||
Goodwill and other intangibles impairment | — | 16,788 | |||||
Total costs and expenses | 824,237 | 910,232 | |||||
Operating income | 230,946 | 261,668 | |||||
Interest income | 549 | 506 | |||||
Interest expense | (2,042 | ) | (1,999 | ) | |||
Other, net | 1,799 | 140 | |||||
Income from continuing operations before income taxes | 231,252 | 260,315 | |||||
Provision for income taxes | (97,512 | ) | (115,179 | ) | |||
Income from continuing operations | 133,740 | 145,136 | |||||
Income from discontinued operations, net of tax | — | 2,148 | |||||
Net income | 133,740 | 147,284 | |||||
Net (income) loss attributable to noncontrolling interests | (245 | ) | 2,030 | ||||
Net income attributable to Apollo | $ | 133,495 | $ | 149,314 | |||
Earnings per share – Basic: | |||||||
Continuing operations attributable to Apollo | $ | 1.19 | $ | 1.13 | |||
Discontinued operations attributable to Apollo | — | 0.02 | |||||
Basic income per share attributable to Apollo | $ | 1.19 | $ | 1.15 | |||
Earnings per share – Diluted: | |||||||
Continuing operations attributable to Apollo | $ | 1.18 | $ | 1.13 | |||
Discontinued operations attributable to Apollo | — | 0.01 | |||||
Diluted income per share attributable to Apollo | $ | 1.18 | $ | 1.14 | |||
Basic weighted average shares outstanding | 112,420 | 130,318 | |||||
Diluted weighted average shares outstanding | 112,849 | 130,874 |
Three Months Ended November 30, | |||||||
($ in thousands) | 2012 | 2011 | |||||
Net income | $ | 133,740 | $ | 147,284 | |||
Other comprehensive income (loss) (net of tax): | |||||||
Currency translation gain (loss) | 759 | (8,357 | ) | ||||
Comprehensive income | 134,499 | 138,927 | |||||
Comprehensive (income) loss attributable to noncontrolling interests | (272 | ) | 3,024 | ||||
Comprehensive income attributable to Apollo | $ | 134,227 | $ | 141,951 |
Three Months Ended November 30, | |||||||
($ in thousands) | 2012 | 2011 | |||||
Cash flows provided by (used in) operating activities: | |||||||
Net income | $ | 133,740 | $ | 147,284 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Share-based compensation | 16,889 | 20,892 | |||||
Excess tax benefits from share-based compensation | — | (372 | ) | ||||
Depreciation and amortization | 43,695 | 46,298 | |||||
Accelerated depreciation included in restructuring | 9,326 | — | |||||
Amortization of lease incentives | (3,740 | ) | (3,789 | ) | |||
Amortization of deferred gains on sale-leasebacks | (700 | ) | (700 | ) | |||
Goodwill and other intangibles impairment | — | 16,788 | |||||
Non-cash foreign currency gain, net | (607 | ) | (397 | ) | |||
Provision for uncollectible accounts receivable | 33,406 | 41,583 | |||||
Litigation credit | (16,850 | ) | — | ||||
Deferred income taxes | 6,064 | (1,747 | ) | ||||
Changes in assets and liabilities, excluding the impact of acquisition: | |||||||
Restricted cash and cash equivalents | (33,241 | ) | 2,315 | ||||
Accounts receivable | (36,349 | ) | (75,698 | ) | |||
Other assets | (6,432 | ) | (6,105 | ) | |||
Accounts payable | (11,771 | ) | 858 | ||||
Income taxes payable | 82,032 | 115,412 | |||||
Student deposits | 18,522 | (22,272 | ) | ||||
Deferred revenue | 8,075 | 22,340 | |||||
Accrued and other liabilities | (31,928 | ) | (1,448 | ) | |||
Net cash provided by operating activities | 210,131 | 301,242 | |||||
Cash flows provided by (used in) investing activities: | |||||||
Additions to property and equipment | (27,539 | ) | (23,585 | ) | |||
Acquisition, net of cash acquired | — | (73,736 | ) | ||||
Other investing activities | (14,819 | ) | — | ||||
Net cash used in investing activities | (42,358 | ) | (97,321 | ) | |||
Cash flows provided by (used in) financing activities: | |||||||
Payments on borrowings | (625,762 | ) | (496,322 | ) | |||
Proceeds from borrowings | 2,176 | — | |||||
Purchase of noncontrolling interest | (42,500 | ) | — | ||||
Apollo Group Class A common stock purchased for treasury | (3,472 | ) | (80,682 | ) | |||
Issuance of Apollo Group Class A common stock | 1,113 | 2,575 | |||||
Excess tax benefits from share-based compensation | — | 372 | |||||
Net cash used in financing activities | (668,445 | ) | (574,057 | ) | |||
Exchange rate effect on cash and cash equivalents | 306 | (491 | ) | ||||
Net decrease in cash and cash equivalents | (500,366 | ) | (370,627 | ) | |||
Cash and cash equivalents, beginning of period | 1,276,375 | 1,571,664 | |||||
Cash and cash equivalents, end of period | $ | 776,009 | $ | 1,201,037 | |||
Supplemental disclosure of cash flow and non-cash information | |||||||
Cash paid for income taxes, net of refunds | $ | 10,243 | $ | 1,316 | |||
Cash paid for interest | $ | 1,906 | $ | 2,344 | |||
Restricted stock units vested and released | $ | 9,496 | $ | 7,125 | |||
Capital lease additions | $ | — | $ | 6,668 | |||
Credits received for tenant improvements | $ | — | $ | 19,941 | |||
Debt incurred for acquired technology | $ | — | $ | 14,389 |
• | The University of Phoenix, Inc. (“University of Phoenix”) |
• | Apollo Global, Inc. (“Apollo Global”): |
• | BPP Holdings Limited (“BPP”) |
• | Western International University, Inc. (“Western International University”) |
• | Universidad Latinoamericana (“ULA”) |
• | Universidad de Artes, Ciencias y Comunicación (“UNIACC”) |
• | Institute for Professional Development (“IPD”) |
• | The College for Financial Planning Institutes Corporation (“CFFP”). |
Three Months Ended November 30, | Cumulative Costs for Restructuring Activities | ||||||||||
($ in thousands) | 2012 | 2011 | |||||||||
Non-cancelable lease obligations and related costs, net | $ | 10,112 | $ | 5,562 | $ | 45,160 | |||||
Severance and other employee separation costs | 10,943 | — | 27,676 | ||||||||
Other restructuring related costs | 3,061 | — | 12,888 | ||||||||
Restructuring and other charges | $ | 24,116 | $ | 5,562 | $ | 85,724 |
Three Months Ended November 30, | Cumulative Costs for Restructuring Activities | ||||||||||
($ in thousands) | 2012 | 2011 | |||||||||
University of Phoenix | $ | 16,896 | $ | 5,562 | $ | 59,811 | |||||
Apollo Global | 79 | — | 5,997 | ||||||||
Other | 7,141 | — | 19,916 | ||||||||
Restructuring and other charges | $ | 24,116 | $ | 5,562 | $ | 85,724 |
($ in thousands) | Lease and Related Costs, Net | Severance and Other Employee Separation Costs | Other Restructuring Related Costs | Total | |||||||||||
Balance at August 31, 2012(1) | $ | 26,024 | $ | 2,998 | $ | 1,411 | $ | 30,433 | |||||||
Restructuring and other charges(2) | 10,112 | 10,943 | 3,061 | 24,116 | |||||||||||
Non-cash adjustments(3) | (9,326 | ) | (1,065 | ) | — | (10,391 | ) | ||||||||
Payments | (2,994 | ) | (9,111 | ) | (2,450 | ) | (14,555 | ) | |||||||
Balance at November 30, 2012(1) | $ | 23,816 | $ | 3,765 | $ | 2,022 | $ | 29,603 |
($ in thousands) | |||
Net revenue | $ | 6,790 | |
Costs and expenses | 3,889 | ||
Income from discontinued operations before income taxes | 2,901 | ||
Provision for income taxes | (753 | ) | |
Income from discontinued operations, net of tax | 2,148 | ||
Income from discontinued operations, net of tax, attributable to noncontrolling interests | (309 | ) | |
Income from discontinued operations, net of tax, attributable to Apollo | $ | 1,839 |
($ in thousands) | November 30, 2012 | August 31, 2012 | |||||
Student accounts receivable | $ | 283,424 | $ | 287,619 | |||
Less allowance for doubtful accounts | (101,793 | ) | (107,230 | ) | |||
Net student accounts receivable | 181,631 | 180,389 | |||||
Other receivables | 19,825 | 17,890 | |||||
Total accounts receivable, net | $ | 201,456 | $ | 198,279 |
Three Months Ended November 30, | |||||||
($ in thousands) | 2012 | 2011 | |||||
Beginning allowance for doubtful accounts | $ | 107,230 | $ | 128,897 | |||
Provision for uncollectible accounts receivable | 33,406 | 41,583 | |||||
Write-offs, net of recoveries | (38,843 | ) | (47,890 | ) | |||
Ending allowance for doubtful accounts | $ | 101,793 | $ | 122,590 |
Fair Value Measurements at Reporting Date Using | |||||||||||||||
November 30, 2012 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
($ in thousands) | |||||||||||||||
Assets: | |||||||||||||||
Cash equivalents (including restricted cash equivalents): | |||||||||||||||
Money market funds | $ | 900,056 | $ | 900,056 | $ | — | $ | — | |||||||
Other assets: | |||||||||||||||
Auction-rate securities | 5,946 | — | — | 5,946 | |||||||||||
Total assets at fair value on a recurring basis | $ | 906,002 | $ | 900,056 | $ | — | $ | 5,946 | |||||||
Liabilities: | |||||||||||||||
Other long-term liabilities: | |||||||||||||||
Contingent payment | $ | 6,000 | $ | — | $ | — | $ | 6,000 | |||||||
Total liabilities at fair value on a recurring basis | $ | 6,000 | $ | — | $ | — | $ | 6,000 |
Fair Value Measurements at Reporting Date Using | |||||||||||||||
August 31, 2012 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
($ in thousands) | |||||||||||||||
Cash equivalents (including restricted cash equivalents): | |||||||||||||||
Money market funds | $ | 629,166 | $ | 629,166 | $ | — | $ | — | |||||||
Other assets: | |||||||||||||||
Auction-rate securities | 5,946 | — | — | 5,946 | |||||||||||
Total assets at fair value on a recurring basis | $ | 635,112 | $ | 629,166 | $ | — | $ | 5,946 |
• | Money market funds – Classified within Level 1 and valued primarily using real-time quotes for transactions in active exchange markets involving identical assets. As of November 30, 2012 and August 31, 2012, our remaining cash and cash equivalents not disclosed in the above tables approximate fair value because of the short-term nature of the financial instruments. |
• | Auction-rate securities – Classified within Level 3 due to the illiquidity of the market and valued using a discounted cash flow model encompassing significant unobservable inputs such as estimated interest rates, credit spreads, timing and amount of cash flows, credit quality of the underlying securities and illiquidity considerations. We include auction-rate securities in other assets on our Condensed Consolidated Balance Sheets for all periods presented. |
• | Contingent payment – As a result of our purchase of the noncontrolling interest in Apollo Global, we have a contingent payment based on a portion of Apollo Global’s operating results through the fiscal years ending August 31, 2017. This contingent payment is classified within Level 3 and valued using a discounted cash flow valuation method encompassing significant unobservable inputs. The inputs include estimated operating results for the applicable performance period, probability weightings assigned to operating results scenarios and the discount rate applied. |
Fair Value Measurements at Measurement Date Using | |||||||||||||||||||
($ in thousands) | Fair Value at Measurement Date | Quoted Prices in Active Markets for Identical Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Losses for Three Months Ended November 30, 2012 | ||||||||||||||
Other liabilities: | |||||||||||||||||||
Initial lease obligation included in restructuring | $ | 422 | $ | — | $ | — | $ | 422 | $ | 422 | |||||||||
Total liabilities at fair value on a nonrecurring basis | $ | 422 | $ | — | $ | — | $ | 422 | $ | 422 |
($ in thousands) | November 30, 2012 | August 31, 2012 | |||||
Salaries, wages and benefits | $ | 77,695 | $ | 117,432 | |||
Accrued legal and other professional obligations | 40,226 | 57,476 | |||||
Accrued advertising | 31,056 | 45,737 | |||||
Deferred rent and other lease liabilities | 18,734 | 19,868 | |||||
Student refunds, grants and scholarships | 13,987 | 11,181 | |||||
Curriculum materials | 12,900 | 13,004 | |||||
Other | 68,835 | 60,183 | |||||
Total accrued and other current liabilities | $ | 263,433 | $ | 324,881 |
($ in thousands) | November 30, 2012 | August 31, 2012 | |||||
Deferred rent and other lease liabilities | $ | 87,197 | $ | 88,164 | |||
Uncertain tax positions | 26,770 | 27,223 | |||||
Deferred gains on sale-leasebacks | 24,993 | 25,692 | |||||
Restructuring lease obligations | 18,028 | 19,122 | |||||
Other | 46,717 | 31,555 | |||||
Total other long-term liabilities | $ | 203,705 | $ | 191,756 |
($ in thousands) | November 30, 2012 | August 31, 2012 | |||||
Revolving Credit Facility, see terms below | $ | — | $ | 615,000 | |||
Capital lease obligations | 60,045 | 70,215 | |||||
BPP Credit Facility, see terms below | — | 2,421 | |||||
Other, see terms below | 37,753 | 32,275 | |||||
Total debt | 97,798 | 719,911 | |||||
Less short-term borrowings and current portion of long-term debt | (22,236 | ) | (638,588 | ) | |||
Long-term debt | $ | 75,562 | $ | 81,323 |
• | Revolving Credit Facility – In fiscal year 2012, we entered into a syndicated $625 million unsecured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility is used for general corporate purposes including acquisitions and share repurchases. The term is five years and will expire in April 2017. The Revolving Credit Facility may be used for borrowings in certain foreign currencies and letters of credit, in each case up to specified sublimits. |
• | BPP Credit Facility – In fiscal year 2012, we entered into a £39.0 million (equivalent to $62.4 million as of November 30, 2012) secured credit agreement (the “BPP Credit Facility”). We did not have any borrowings on the BPP Credit Facility as of November 30, 2012 and subsequent to November 30, 2012, we terminated the BPP Credit Facility. |
• | Other – As of November 30, 2012 and August 31, 2012, Other principally includes debt at subsidiaries of Apollo Global and the present value of an obligation payable over a 10-year period associated with our purchase of technology in fiscal year 2012. The weighted average interest rate on our other debt at November 30, 2012 and August 31, 2012 was 5.4% and 6.0%, respectively. |
Common Stock | Additional Paid-in Capital | Treasury Stock Class A | Accumulated Other Comprehensive Loss | Total Apollo Shareholders’ Equity | Non-Controlling Interests (Deficit) | ||||||||||||||||||||||||||||||
Class A | Class B | Retained Earnings | Total Equity | ||||||||||||||||||||||||||||||||
($ in thousands) | Stated Value | Stated Value | Cost | ||||||||||||||||||||||||||||||||
Balance as of August 31, 2012 | $ | 103 | $ | 1 | $ | 93,770 | $ | (3,878,612 | ) | $ | 4,743,150 | $ | (30,034 | ) | $ | 928,378 | $ | (4,055 | ) | $ | 924,323 | ||||||||||||||
Treasury stock purchases | — | — | — | (3,472 | ) | — | — | (3,472 | ) | — | (3,472 | ) | |||||||||||||||||||||||
Treasury stock issued under stock purchase plans | — | — | (936 | ) | 2,049 | — | — | 1,113 | — | 1,113 | |||||||||||||||||||||||||
Treasury stock issued under stock incentive plans | — | — | (15,046 | ) | 15,046 | — | — | — | — | — | |||||||||||||||||||||||||
Net tax effect for stock incentive plans | — | — | (4,823 | ) | — | — | — | (4,823 | ) | — | (4,823 | ) | |||||||||||||||||||||||
Share-based compensation | — | — | 16,889 | — | — | — | 16,889 | — | 16,889 | ||||||||||||||||||||||||||
Currency translation adjustment, net of tax | — | — | — | — | — | 732 | 732 | 27 | 759 | ||||||||||||||||||||||||||
Purchase of noncontrolling interest | — | — | (48,543 | ) | — | — | (4,886 | ) | (53,429 | ) | 4,929 | (48,500 | ) | ||||||||||||||||||||||
Net income | — | — | — | — | 133,495 | — | 133,495 | 245 | 133,740 | ||||||||||||||||||||||||||
Balance as of November 30, 2012 | $ | 103 | $ | 1 | $ | 41,311 | $ | (3,864,989 | ) | $ | 4,876,645 | $ | (34,188 | ) | $ | 1,018,883 | $ | 1,146 | $ | 1,020,029 |
Common Stock | Additional Paid-in Capital | Treasury Stock Class A | Accumulated Other Comprehensive Loss | Total Apollo Shareholders’ Equity | Non-Controlling Interests | ||||||||||||||||||||||||||||||
Class A | Class B | Retained Earnings | Total Equity | ||||||||||||||||||||||||||||||||
($ in thousands) | Stated Value | Stated Value | Cost | ||||||||||||||||||||||||||||||||
Balance as of August 31, 2011 | $ | 103 | $ | 1 | $ | 68,724 | $ | (3,125,175 | ) | $ | 4,320,472 | $ | (23,761 | ) | $ | 1,240,364 | $ | 3,625 | $ | 1,243,989 | |||||||||||||||
Treasury stock purchases | — | — | — | (80,682 | ) | — | — | (80,682 | ) | — | (80,682 | ) | |||||||||||||||||||||||
Treasury stock issued under stock purchase plans | — | — | (441 | ) | 1,787 | — | — | 1,346 | — | 1,346 | |||||||||||||||||||||||||
Treasury stock issued under stock incentive plans | — | — | (8,435 | ) | 9,664 | — | — | 1,229 | — | 1,229 | |||||||||||||||||||||||||
Net tax effect for stock incentive plans | — | — | (1,384 | ) | — | — | — | (1,384 | ) | — | (1,384 | ) | |||||||||||||||||||||||
Share-based compensation | — | — | 20,892 | — | — | — | 20,892 | — | 20,892 | ||||||||||||||||||||||||||
Currency translation adjustment, net of tax | — | — | — | — | — | (7,363 | ) | (7,363 | ) | (994 | ) | (8,357 | ) | ||||||||||||||||||||||
Net income (loss) | — | — | — | — | 149,314 | — | 149,314 | (2,030 | ) | 147,284 | |||||||||||||||||||||||||
Balance as of November 30, 2011 | $ | 103 | $ | 1 | $ | 79,356 | $ | (3,194,406 | ) | $ | 4,469,786 | $ | (31,124 | ) | $ | 1,323,716 | $ | 601 | $ | 1,324,317 |
($ in thousands) | November 30, 2012 | November 30, 2011 | |||||
Net income attributable to Apollo | $ | 133,495 | $ | 149,314 | |||
Transfer to noncontrolling interest: | |||||||
Decrease in equity for purchase of Carlyle interest | (48,543 | ) | — | ||||
Change from net income attributable to Apollo and transfer to noncontrolling interest | $ | 84,952 | $ | 149,314 |
Three months ended November 30, | |||||||
($ in thousands) | 2012 | 2011 | |||||
Net income attributable to Apollo (basic and diluted) | $ | 133,495 | $ | 149,314 | |||
Basic weighted average shares outstanding | 112,420 | 130,318 | |||||
Dilutive effect of stock options | — | 32 | |||||
Dilutive effect of restricted stock units and performance share awards | 429 | 524 | |||||
Diluted weighted average shares outstanding | 112,849 | 130,874 | |||||
Earnings per share: | |||||||
Basic income per share attributable to Apollo | $ | 1.19 | $ | 1.15 | |||
Diluted income per share attributable to Apollo | $ | 1.18 | $ | 1.14 |
Three Months Ended November 30, | |||||||
($ in thousands) | 2012 | 2011 | |||||
Instructional and student advisory | $ | 7,588 | $ | 7,422 | |||
Marketing | 2,043 | 2,234 | |||||
Admissions advisory | 170 | 447 | |||||
General and administrative | 6,023 | 10,789 | |||||
Restructuring and other charges | 1,065 | — | |||||
Share-based compensation expense | $ | 16,889 | $ | 20,892 |
• | State of Florida. On October 22, 2010, University of Phoenix received notice that the State of Florida Office of the Attorney General in Fort Lauderdale, Florida had commenced an investigation into possible unfair and deceptive trade practices associated with certain alleged practices of University of Phoenix. The notice included a subpoena to produce documents and detailed information for the time period of January 1, 2006 to the present about a broad spectrum of University of Phoenix’s business. We are cooperating with the investigation, but also filed a suit to quash or limit the subpoena and to protect information sought that constitutes propriety or trade secret information. We cannot predict the eventual scope, duration or outcome of the investigation at this time. |
• | State of Massachusetts. On May 13, 2011, University of Phoenix received a Civil Investigative Demand from the State of Massachusetts Office of the Attorney General. The Demand relates to an investigation of possible unfair or deceptive methods, acts, or practices by for-profit educational institutions in connection with the recruitment of students and the financing of education. The Demand requires us to produce documents and detailed information and to give testimony regarding a broad spectrum of University of Phoenix’s business for the time period of January 1, 2002 to the present. We are cooperating with the investigation. We cannot predict the eventual scope, duration or outcome of the investigation at this time. |
• | State of Delaware. On August 3, 2011, University of Phoenix received a subpoena from the Attorney General of the State of Delaware to produce detailed information regarding University of Phoenix students residing in Delaware. The time period covered by the subpoena is January 1, 2006 to the present. We are cooperating with the investigation. We cannot predict the eventual scope, duration or outcome of the investigation at this time. |
• | recognition and acceptance by employers, other higher education institutions and governmental entities of the degrees and credits earned by students; |
• | qualification to participate in Title IV programs (in combination with state higher education operating and degree granting authority); and |
• | qualification for authority to operate in certain states. |
• | University of Phoenix; |
• | Apollo Global; and |
• | Other. |
Three Months Ended November 30, | |||||||
($ in thousands) | 2012 | 2011 | |||||
Net revenue | |||||||
University of Phoenix | $ | 939,890 | $ | 1,057,069 | |||
Apollo Global | 96,791 | 95,967 | |||||
Other | 18,502 | 18,864 | |||||
Net revenue | $ | 1,055,183 | $ | 1,171,900 | |||
Operating income (loss)(1): | |||||||
University of Phoenix | $ | 242,319 | $ | 292,038 | |||
Apollo Global(2) | (9,143 | ) | (14,953 | ) | |||
Other(3) | (2,230 | ) | (15,417 | ) | |||
Total operating income | 230,946 | 261,668 | |||||
Reconciling items: | |||||||
Interest income | 549 | 506 | |||||
Interest expense | (2,042 | ) | (1,999 | ) | |||
Other, net | 1,799 | 140 | |||||
Income from continuing operations before income taxes | $ | 231,252 | $ | 260,315 |
($ in thousands) | November 30, 2012 | August 31, 2012 | |||||
University of Phoenix | $ | 877,612 | $ | 938,104 | |||
Apollo Global | 410,343 | 389,509 | |||||
Other(1) | 1,080,962 | 1,540,709 | |||||
Total assets | $ | 2,368,917 | $ | 2,868,322 |
• | Overview: From management’s point of view, we discuss the following: |
• | An overview of our business and the sectors of the education industry in which we operate; |
• | Key trends, developments and challenges; and |
• | Significant events from the current period. |
• | Critical Accounting Policies and Estimates: A discussion of our accounting policies that require critical judgments and estimates. |
• | Recent Accounting Pronouncements: A discussion of recently issued accounting pronouncements. |
• | Results of Operations: An analysis of our results of operations as reflected on our condensed consolidated financial statements. |
• | Liquidity, Capital Resources, and Financial Position: An analysis of our cash flows and contractual obligations and other commercial commitments. |
• | The University of Phoenix, Inc. (“University of Phoenix”) |
• | Apollo Global, Inc. (“Apollo Global”): |
• | BPP Holdings Limited (“BPP”) |
• | Western International University, Inc. (“Western International University”) |
• | Universidad Latinoamericana (“ULA”) |
• | Universidad de Artes, Ciencias y Comunicación (“UNIACC”) |
• | Institute for Professional Development (“IPD”) |
• | The College for Financial Planning Institutes Corporation (“CFFP”). |
• | Changing Education Industry. The U.S. higher education industry, including the proprietary sector, is experiencing unprecedented, rapidly developing changes due to technological developments, evolving needs and objectives of students and employers, economic constraints affecting educational institutions and students, and other factors that challenge many of the core principles underlying the industry. Additionally, an increasing number of traditional colleges and universities and community colleges are offering distance learning and other online education programs, including programs that are geared towards the needs of working learners. As the proportion of traditional colleges providing alternative learning modalities increases, we will face increasing competition for students from traditional colleges, including colleges with well-established brand names. We must adapt our business to meet these rapidly evolving developments, and many of the initiatives described below are driven by our focus on this imperative. |
• | Education to Careers. We believe it is critical that we demonstrate a clear connection between our students’ education goals and career goals. Accordingly, we are focused on providing a compelling relationship between our degree programs and improvements in our graduates’ prospects for employment in their field of choice or advancement within their existing careers. We are enhancing this element of our value proposition through various initiatives, including connecting our educational offerings directly with employers, providing an interactive online portal that allows employers to directly recruit our students, and incorporating career resources such as career planning tools directly into the learning experience. |
• | Student Experience. We remain focused on more effectively identifying students who can succeed in our educational programs, ensuring they are adequately prepared, and improving the overall student experience. In furtherance of this: |
• | we are actively working on major enhancements to our learning and student service platforms, and we are in the process of incorporating adaptive learning into our curricula to offer an individualized approach to learning; |
• | we require substantially all incoming students with less than 24 credits to attend our free three-week University Orientation Program, which is designed to help inexperienced prospective students better understand the time commitments and rigors of higher education prior to enrollment; |
• | we have modified our marketing content and channels to better identify potential students that we believe are more likely to succeed at University of Phoenix; and |
• | we have eliminated all enrollment factors in evaluating the performance of our admissions personnel in order to better align our admissions personnel with our students’ success. |
• | Business Process Reengineering. Beginning in fiscal year 2011 and continuing through the first quarter of fiscal year 2013, we initiated a series of activities to reengineer business processes and refine our educational delivery structure. These activities are designed to increase operating efficiencies and effectiveness, and enhance our students’ educational experience and outcomes. We have incurred $85.7 million of cumulative restructuring and other charges associated with these activities since we initiated these activities in fiscal year 2011. In connection with these activities, in the first quarter of fiscal year 2013 we initiated the following: |
• | A plan to realign University of Phoenix’s ground locations throughout the U.S. This plan includes closing 115 locations and students directly impacted by the plan will be offered support to continue their education at University of Phoenix either online, through alternative on-ground arrangements or, in limited cases, at existing University of Phoenix locations. We incurred $10.1 million of expense associated with this plan during the first quarter of fiscal year 2013, the substantial majority of which is accelerated depreciation for fixed assets at the designated facilities we have not yet closed. Subject to regulatory approvals, we expect to substantially complete this realignment in fiscal year 2013. We expect to incur approximately $165 million of additional charges, principally for lease exit and other related costs, with most of these costs incurred in fiscal year 2013. We also plan to continue investing in our remaining ground locations to create state-of-the art, technologically-integrated facilities offering academic and career support and increased mobile connectivity, while continuing to advance our leading-edge online learning platform. |
• | A workforce reduction consisting of approximately 800 positions due in part to University of Phoenix’s ground location realignment. We eliminated a portion of these positions during the first quarter of fiscal year 2013 and incurred $10.9 million of severance and other employee separation costs. We expect to incur approximately $15 million of additional charges associated with this reduction as the remaining positions are eliminated. |
• | Regulatory Environment. Our domestic postsecondary institutions are subject to extensive federal and state regulations and to the requirements of our academic accrediting bodies. |
• | Higher Learning Commission. University of Phoenix is undergoing the scheduled comprehensive reaffirmation evaluation by its principal accreditor, the Higher Learning Commission (“HLC”), which began in March 2012. The HLC accreditation of University of Phoenix was last reaffirmed by HLC in 2002. Prior to this reaffirmation evaluation, in August 2010, HLC requested supplemental evidence of compliance with the HLC accreditation standards following an August 2010 report by the Government Accountability Office of its undercover investigation into the enrollment and recruiting practices of a number of proprietary institutions, including University of Phoenix. In July 2011, the Special Committee formed by HLC to review this matter reported that, based on its limited review, it found no apparent evidence of systematic misrepresentations to students or that University of Phoenix’s procedures in the areas of recruiting, financial aid and admissions were significantly inadequate or inappropriate. However, HLC also stated that there remained significant questions and areas that University of Phoenix should work on improving, and HLC is reviewing these areas of concern as part of its current reaffirmation evaluation. In addition, HLC has requested that University of Phoenix provide an explanation, to be reviewed in connection with the reaffirmation evaluation, of three non-financial indicators identified by HLC that warrant further inquiry, namely: |
• | Increase or decrease in full-time faculty of 25% or more from the prior year’s report; |
• | Ratio of undergraduate full-time equivalent students to undergraduate full-time equivalent faculty of greater than 35 in the period reported; and |
• | Three-year student loan default rate of 25% or more. |
• | U.S. Congressional Activity and Financial Aid Funding. In recent years, there has been increased focus by members of the U.S. Congress on the role that proprietary educational institutions play in higher education and we expect this focus to continue. Various Congressional hearings and roundtable discussions have been held, beginning in June 2010, by the U.S. Senate Committee on Health, Education, Labor and Pensions (“HELP Committee”) and other Congressional members and committees regarding various aspects of the education industry. We have voluntarily provided substantial amounts of information about our business at the request of various Congressional committees, and we intend to continue being responsive to Congress in this regard. In July 2012, the HELP Committee majority staff issued their final report which was unfavorable to proprietary institutions. We expect that other Congressional hearings and roundtable discussions will be held regarding various aspects of the education industry. In addition, over the past two years, a number of proposed bills and amendments have been introduced in the Senate and House of Representatives that if adopted, would affect our business. We cannot predict what legislation, if any, will result from these hearings and legislative proposals or what impact any such legislation might have on the proprietary education sector and our business in particular. As Congress addresses the historic U.S. budget deficit, financial aid programs are a potential target for reduction. Any action by Congress that significantly reduces Title IV program funding, whether through across-the-board funding reductions, sequestration or otherwise, or materially impacts the eligibility of our institutions or students to participate in Title IV programs would have a material adverse effect on our enrollment, financial condition, results of operations and cash flows. Congressional action could also require us to modify our practices in ways that could increase our administrative costs and reduce our operating income. |
• | Program Participation Agreement. University of Phoenix’s Title IV Program Participation Agreement expired December 31, 2012. University of Phoenix has submitted necessary documentation for re-certification. University of Phoenix’s eligibility continues on a month-to-month basis until the Department issues its decision on the application. We have no reason to believe that our application will not be renewed in due course, and it is not unusual to be continued on a month-to-month basis until the Department completes its review. |
• | Increased Attention to Issues Surrounding Marketing. At both the state and federal level, there are a growing number of efforts to evaluate and restrict the manner in which educational institutions market their services to potential students. For example, several state Attorneys General recently reached a settlement with a third-party lead generation provider relating to alleged misleading marketing practices. In addition, various members of Congress have commented publicly about allegedly deceptive marketing practices by some for-profit educational institutions based on review of the materials released by Senator Tom Harkin, and on September 21, 2012, a group of Senators and Representatives sent a letter to the Federal Trade Commission encouraging the Commission to evaluate these practices. Other members of Congress have introduced legislation to limit the use of federal |
• | 90/10 Rule. One requirement of the Higher Education Act, as reauthorized, commonly referred to as the “90/10 Rule,” provides that a proprietary institution will be ineligible to participate in Title IV programs if for any two consecutive fiscal years it derives more than 90% of its cash basis revenue, as defined in the rule, from Title IV programs. The University of Phoenix 90/10 Rule percentage for fiscal year 2012 was 84%. Based on our most recent trends, we do not expect the 90/10 Rule percentage for University of Phoenix to exceed 90% for fiscal year 2013. However, the 90/10 Rule percentage for University of Phoenix remains high and could exceed 90% in the future. |
• | Student Loan Cohort Default Rates. To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. An educational institution will lose its eligibility to participate in Title IV programs if its two-year student loan cohort default rates exceed 25% for three consecutive cohort years, or 40% for any given cohort year. The 2010 and 2009 two-year cohort default rates for University of Phoenix were 17.9% and 18.8%, respectively. |
• | Information Technology. We are upgrading a substantial portion of our key IT systems, including our student learning system, student services platform and corporate applications, and retiring the related legacy systems. We believe that these new systems will improve the productivity, scalability, reliability and sustainability of our IT infrastructure. However, the transition from our legacy systems entails risk of unanticipated disruption, including disruptions in our core business functions that could adversely impact our business. |
• | Expansion into New Markets. We intend to continue pursuing opportunities to utilize our core expertise and organizational capabilities, both domestically and internationally. In particular, we are actively pursuing quality opportunities to acquire or develop institutions of higher learning through Apollo Global and to provide educational services to other higher education institutions through our Apollo Education Services business. To date, Apollo Global has acquired educational institutions in the United Kingdom, Mexico and Chile, and has also established a joint venture to develop and provide educational services and programs in India. The integration and operation of acquired businesses in foreign jurisdictions entails substantial regulatory, market and execution risks and such acquisitions may not be accretive for an extended period of time, if at all, depending on the circumstances. |
1. | Purchase of Noncontrolling Interest. During the first quarter of fiscal year 2013, we purchased the 14.4% noncontrolling ownership interest in Apollo Global from The Carlyle Group. We paid $42.5 million cash, plus a contingent payment based on a portion of Apollo Global’s operating results through the fiscal years ending August 31, 2017. As a result of the transaction, Apollo Group owns 100% of Apollo Global. Refer to Note 10, Shareholders’ Equity in Item 8, Financial Statements and Supplementary Data. |
2. | Changes in Directors and Executive Officers. We have experienced the following changes in directors and executive officers: |
• | During fiscal year 2012, K. Sue Redman, a member of our Board of Directors and Audit Committee Chair, informed the Board of Directors that she has decided not to stand for reelection as a director when her term expires at the 2013 annual meeting of our Class B shareholders. |
• | On December 13, 2012: |
• | Dr. John Sperling, our founder and Executive Chairman, announced his retirement as Executive Chairman and a director effective December 31, 2012; |
• | Our Board of Directors elected Peter Sperling, formerly Vice Chairman of the Board of Directors, to succeed Dr. John Sperling as Chairman of our Board of Directors, effective December 31, 2012; |
• | Our Board of Directors elected Terri Bishop, a member of the Board of Directors and Executive Vice President, Integrated Academic Strategies and Senior Advisor to the Chief Executive Officer, to succeed Peter Sperling as Vice Chair of the Board of Directors, effective December 31, 2012; and |
• | Matthew Carter, Jr. was appointed to our Board of Directors, effective December 13, 2012, and will sit on the audit and finance committees of the Board of Directors. |
• | Instructional and student advisory – consist primarily of costs related to the delivery and administration of our educational programs and include costs related to faculty, student advisory and administrative compensation, classroom and administration lease expenses (including facilities that are shared and support both instructional and admissions functions), financial aid processing costs, costs related to the development of our educational programs and other related costs. Tuition costs for all employees and their eligible family members are recorded as an expense within instructional and student advisory. |
• | Marketing – the substantial majority of costs consist of advertising expenses, compensation for marketing personnel including personnel responsible for establishing relationships with selected employers, which we refer to as our Workforce Solutions team, and production of marketing materials. The category also includes other costs directly related to marketing functions. |
• | Admissions advisory – the substantial majority of costs consist of compensation for admissions personnel. The category also includes other costs directly related to admissions advisory functions. |
• | General and administrative – consist primarily of corporate compensation, occupancy costs, legal and professional fees, and other related costs. |
• | Depreciation and amortization – consist of depreciation expense on our property and equipment and amortization of our finite-lived intangibles. |
• | Provision for uncollectible accounts receivable – consist of expense charged to reduce our accounts receivable to our estimate of the amount we expect to collect. |
Three Months Ended November 30, | % Change | |||||||||||||||
% of Net Revenue | ||||||||||||||||
($ in thousands) | 2012 | 2011 | 2012 | 2011 | ||||||||||||
Net revenue | $ | 1,055,183 | $ | 1,171,900 | 100.0 | % | 100.0 | % | (10.0 | )% | ||||||
Costs and expenses: | ||||||||||||||||
Instructional and student advisory | 432,150 | 453,281 | 40.9 | % | 38.7 | % | (4.7 | )% | ||||||||
Marketing | 162,873 | 165,564 | 15.4 | % | 14.1 | % | (1.6 | )% | ||||||||
Admissions advisory | 71,308 | 101,388 | 6.8 | % | 8.7 | % | (29.7 | )% | ||||||||
General and administrative | 73,539 | 79,899 | 7.0 | % | 6.8 | % | (8.0 | )% | ||||||||
Depreciation and amortization | 43,695 | 46,167 | 4.1 | % | 3.9 | % | (5.4 | )% | ||||||||
Provision for uncollectible accounts receivable | 33,406 | 41,583 | 3.2 | % | 3.6 | % | (19.7 | )% | ||||||||
Restructuring and other charges | 24,116 | 5,562 | 2.3 | % | 0.5 | % | * | |||||||||
Litigation credit | (16,850 | ) | — | (1.6 | )% | — | % | * | ||||||||
Goodwill and other intangibles impairment | — | 16,788 | — | % | 1.4 | % | * | |||||||||
Total costs and expenses | 824,237 | 910,232 | 78.1 | % | 77.7 | % | (9.4 | )% | ||||||||
Operating income | 230,946 | 261,668 | 21.9 | % | 22.3 | % | (11.7 | )% | ||||||||
Interest income | 549 | 506 | — | % | 0.1 | % | 8.5 | % | ||||||||
Interest expense | (2,042 | ) | (1,999 | ) | (0.2 | )% | (0.2 | )% | (2.2 | )% | ||||||
Other, net | 1,799 | 140 | 0.2 | % | — | % | * | |||||||||
Income from continuing operations before income taxes | 231,252 | 260,315 | 21.9 | % | 22.2 | % | (11.2 | )% | ||||||||
Provision for income taxes | (97,512 | ) | (115,179 | ) | (9.2 | )% | (9.8 | )% | 15.3 | % | ||||||
Income from continuing operations | 133,740 | 145,136 | 12.7 | % | 12.4 | % | (7.9 | )% | ||||||||
Income from discontinued operations, net of tax | — | 2,148 | — | % | 0.2 | % | * | |||||||||
Net income | 133,740 | 147,284 | 12.7 | % | 12.6 | % | (9.2 | )% | ||||||||
Net (income) loss attributable to noncontrolling interests | (245 | ) | 2,030 | — | % | 0.1 | % | * | ||||||||
Net income attributable to Apollo | $ | 133,495 | $ | 149,314 | 12.7 | % | 12.7 | % | (10.6 | )% |
Three Months Ended November 30, | Cumulative Costs for Restructuring Activities | ||||||||||
($ in thousands) | 2012 | 2011 | |||||||||
Non-cancelable lease obligations and related costs, net | $ | 10,112 | $ | 5,562 | $ | 45,160 | |||||
Severance and other employee separation costs | 10,943 | — | 27,676 | ||||||||
Other restructuring related costs | 3,061 | — | 12,888 | ||||||||
Restructuring and other charges | $ | 24,116 | $ | 5,562 | $ | 85,724 |
Three Months Ended November 30, | Cumulative Costs for Restructuring Activities | ||||||||||
($ in thousands) | 2012 | 2011 | |||||||||
University of Phoenix | $ | 16,896 | $ | 5,562 | $ | 59,811 | |||||
Apollo Global | 79 | — | 5,997 | ||||||||
Other | 7,141 | — | 19,916 | ||||||||
Restructuring and other charges | $ | 24,116 | $ | 5,562 | $ | 85,724 |
• | Lease obligations and related costs – During the first quarter of fiscal year 2013, we initiated a plan to realign University of Phoenix’s ground locations throughout the U.S. This plan includes closing 115 locations with students directly impacted by the plan being offered support to continue their education at University of Phoenix either online, through alternative on-ground arrangements or, in limited cases, at existing University of Phoenix locations. Following the finalization and approval of this plan, we performed a recoverability analysis for the fixed assets at the designated facilities we have not yet closed. We performed this analysis by comparing the estimated undiscounted cash flows of the locations through their expected closure dates to the carrying amount of the locations’ fixed assets. Based on our analysis, we recorded an insignificant impairment charge. We also revised the useful lives of the fixed assets at each of the designated facilities we have not yet closed through the expected closure dates resulting in $9.3 million of accelerated depreciation during the first quarter of fiscal year 2013. Subject to regulatory approvals, we expect to substantially complete this realignment in fiscal year 2013. We expect to incur approximately $165 million of additional charges, principally for lease exit and other related costs, with most of these costs incurred in fiscal year 2013. We also plan to continue investing in our remaining ground locations to create state-of-the art, technologically-integrated facilities offering academic and career support and increased mobile connectivity, while continuing to advance our leading-edge online learning platform. |
• | Severance and other employee separation costs – During the first quarter of fiscal year 2013, we also initiated a workforce reduction consisting of approximately 800 positions due in part to University of Phoenix’s ground location realignment. We eliminated a portion of these positions during the first quarter of fiscal year 2013 and incurred $10.9 million of severance and other employee separation costs. These costs are included in the reportable segments in which the respective eliminated personnel were employed. We expect to incur approximately $15 million of additional charges associated with this reduction as the remaining positions are eliminated. |
• | Other – We incurred $3.1 million of costs during the first quarter of fiscal year 2013 principally attributable to services from consulting firms associated with our initiatives to evaluate and identify operating efficiency and effectiveness opportunities. As these services pertain to all areas of our business, we have not allocated these costs to our reportable segments and they are included in “Other” in our segment reporting. |
Net Revenue | Operating Income (Loss) | |||||||||||||||||||||||||||||
($ in thousands) | 2012 | 2011 | $ Change | % Change | 2012 | 2011 | $ Change | % Change | ||||||||||||||||||||||
University of Phoenix | $ | 939,890 | $ | 1,057,069 | $ | (117,179 | ) | (11.1 | )% | $ | 242,319 | $ | 292,038 | $ | (49,719 | ) | (17.0 | )% | ||||||||||||
Apollo Global | 96,791 | 95,967 | 824 | 0.9 | % | (9,143 | ) | (14,953 | ) | 5,810 | 38.9 | % | ||||||||||||||||||
Other | 18,502 | 18,864 | (362 | ) | (1.9 | )% | (2,230 | ) | (15,417 | ) | 13,187 | 85.5 | % | |||||||||||||||||
Total | $ | 1,055,183 | $ | 1,171,900 | $ | (116,717 | ) | (10.0 | )% | $ | 230,946 | $ | 261,668 | $ | (30,722 | ) | (11.7 | )% |
Degreed Enrollment(1) | New Degreed Enrollment(2) | Average Degreed Enrollment | ||||||||||||||||||||||||||
Quarter Ended November 30, | % Change | Quarter Ended November 30, | % Change | Quarter Ended November 30, | % Change | |||||||||||||||||||||||
(Rounded to the nearest hundred) | 2012 | 2011 | 2012 | 2011 | 2012(3) | 2011(4) | ||||||||||||||||||||||
Associate’s | 99,100 | 130,300 | (23.9 | )% | 22,900 | 27,800 | (17.6 | )% | 100,900 | 133,300 | (24.3 | )% | ||||||||||||||||
Bachelor’s | 168,000 | 182,500 | (7.9 | )% | 22,500 | 26,100 | (13.8 | )% | 170,300 | 182,800 | (6.8 | )% | ||||||||||||||||
Master’s | 46,000 | 52,900 | (13.0 | )% | 8,000 | 8,900 | (10.1 | )% | 46,200 | 53,500 | (13.6 | )% | ||||||||||||||||
Doctoral | 6,600 | 7,400 | (10.8 | )% | 700 | 900 | (22.2 | )% | 6,700 | 7,400 | (9.5 | )% | ||||||||||||||||
Total | 319,700 | 373,100 | (14.3 | )% | 54,100 | 63,700 | (15.1 | )% | 324,100 | 377,000 | (14.0 | )% |
• | students enrolled in a University of Phoenix degree program who attended a credit bearing course during the quarter and had not graduated as of the end of the quarter; |
• | students who previously graduated from one degree program and started a new degree program in the quarter (for example, a graduate of the associate’s degree program returns for a bachelor’s degree); and |
• | students participating in certain certificate programs of at least 18 credits with some course applicability into a related degree program. |
• | new students and students who have been out of attendance for more than 12 months who enroll in a University of Phoenix degree program and start a credit bearing course in the quarter; |
• | students who have previously graduated from a degree program and start a new degree program in the quarter; and |
• | students who commence participation in certain certificate programs of at least 18 credits with some course applicability into a related degree program. |
% of Total Assets at | ||||||||||||||||
November 30, 2012 | August 31, 2012 | November 30, 2012 | August 31, 2012 | % Change | ||||||||||||
($ in thousands) | ||||||||||||||||
Cash and cash equivalents | $ | 776,009 | $ | 1,276,375 | 32.8 | % | 44.5 | % | (39.2 | )% | ||||||
Restricted cash and cash equivalents | 351,575 | 318,334 | 14.8 | % | 11.1 | % | 10.4 | % | ||||||||
Total | $ | 1,127,584 | $ | 1,594,709 | 47.6 | % | 55.6 | % | (29.3 | )% |
Three Months Ended November 30, | |||||||
($ in thousands) | 2012 | 2011 | |||||
Net income | $ | 133,740 | $ | 147,284 | |||
Non-cash items | 87,483 | 118,556 | |||||
Changes in assets and liabilities, excluding the impact of acquisition | (11,092 | ) | 35,402 | ||||
Net cash provided by operating activities | $ | 210,131 | $ | 301,242 |
• | a $36.3 million use of cash related to the change in accounts receivable, excluding the provision for uncollectible accounts receivable; |
• | a $33.2 million increase in restricted cash and cash equivalents; and |
• | a $31.9 million decrease in accrued and other liabilities principally attributable to the timing of our payroll cycle and accrued bonus payments. |
• | an $82.0 million increase in income taxes payable principally attributable to the timing of our quarterly tax payments; and |
• | an $18.5 million increase in student deposits. |
• | a $115.4 million increase in income taxes payable principally attributable to the timing of our quarterly tax payments; and |
• | a $22.3 million increase in deferred revenue principally attributable to the timing of course starts at BPP. |
• | a $75.7 million use of cash related to the change in accounts receivable, excluding the provision for uncollectible accounts receivable; and |
• | a $22.3 million decrease in student deposits. |
Three Months Ended November 30, | |||||||
($ in thousands) | 2012 | 2011 | |||||
Capital expenditures | $ | (27,539 | ) | $ | (23,585 | ) | |
Acquisition, net of cash acquired | — | (73,736 | ) | ||||
Other investing activities | (14,819 | ) | — | ||||
Net cash used in investing activities | $ | (42,358 | ) | $ | (97,321 | ) |
Three Months Ended November 30, | |||||||
($ in thousands) | 2012 | 2011 | |||||
Payments on borrowings, net | $ | (623,586 | ) | $ | (496,322 | ) | |
Purchase of noncontrolling interest | (42,500 | ) | — | ||||
Apollo Group Class A common stock purchased for treasury | (3,472 | ) | (80,682 | ) | |||
Other | 1,113 | 2,947 | |||||
Net cash used in financing activities | $ | (668,445 | ) | $ | (574,057 | ) |
(In thousands, except per share data) | Total Number of Shares Repurchased | Average Price Paid per Share | Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs | Maximum Value of Shares Available for Repurchase | |||||||||
Treasury stock as of August 31, 2012 | 76,239 | $ | 50.87 | 76,239 | $ | — | |||||||
New authorizations | — | — | — | — | |||||||||
Shares repurchased | — | — | — | — | |||||||||
Shares reissued | (125 | ) | 50.87 | (125 | ) | — | |||||||
Treasury stock as of September 30, 2012 | 76,114 | $ | 50.87 | 76,114 | $ | — | |||||||
New authorizations | — | — | — | — | |||||||||
Shares repurchased | — | — | — | — | |||||||||
Shares reissued | (134 | ) | 50.87 | (134 | ) | — | |||||||
Treasury stock as of October 31, 2012 | 75,980 | $ | 50.87 | 75,980 | $ | — | |||||||
New authorizations | — | — | — | — | |||||||||
Shares repurchased | — | — | — | — | |||||||||
Shares reissued | (9 | ) | 50.87 | (9 | ) | — | |||||||
Treasury stock as of November 30, 2012 | 75,971 | $ | 50.87 | 75,971 | $ | — |
Exhibit Number | Exhibit Description | |
2.1 | Stock Purchase Agreement by and among Apollo Group, Inc., an Arizona corporation, Apollo Global, Inc., a Delaware corporation, Carlyle U.S. Growth Fund III, L.P. /f/k/a Carlyle Venture Partners III, L.P., a Delaware limited partnership and CVP III Coinvestments, L.P., dated October 12, 2012. | |
10.1 | Form of Cash Retention Award Agreement | |
31.1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
APOLLO GROUP, INC. | ||
An Arizona Corporation |
By: | /s/ Brian L. Swartz | |
Brian L. Swartz | ||
Senior Vice President and Chief Financial Officer | ||
(Principal Financial Officer) |
By: | /s/ Gregory J. Iverson | |
Gregory J. Iverson | ||
Vice President, Chief Accounting Officer and Controller | ||
(Principal Accounting Officer) |
APOLLO GROUP, INC. | ||
By: | /s/ Greg Cappelli | |
Name: Greg Cappelli | ||
Title: Chief Executive Officer |
APOLLO GLOBAL, INC. | ||
By: | /s/ Timothy F. Daniels | |
Name: Timothy F. Daniels | ||
Title: President |
CARLYLE U.S. GROWTH FUND III, L.P. | ||
By: | TCG Ventures III, L.P. | |
Its: | General Partner | |
By: | TCG Ventures III, L.L.C. | |
Its: | General Partner |
By: | /s/ Brooke Coburn |
Name: Brooke Coburn | |
Title: Managing Director |
CVP III COINVESTMENT, L.P. | ||
By: | TCG Ventures III, L.P. | |
Its: | General Partner | |
By: | TCG Ventures III, L.L.C. | |
Its: | General Partner |
By: | /s/ Brooke Coburn |
Name: Brooke Coburn | |
Title: Managing Director |
A. | Apollo Group, Inc. is implementing this special cash retention award to encourage key employees and officers of the Apollo Group, Inc. or one or more of its Subsidiaries (collectively “the Company”) to remain in the employ of the Company by providing Participants with the opportunity to earn a cash amount pursuant to the terms of this Cash Retention Award Agreement (“Agreement”) by remaining employed with the Company through the retention dates set forth in the Agreement. |
B. | All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A. |
Participant: | NAME OF EXECUTIVE |
Award Date: | October XX, 2012 |
Retention Bonus Amount: | The total cash amount of the Award that may become payable pursuant to this Agreement shall be $XXXXXX |
Vesting Schedule: | The Award shall vest in two (2) successive equal annual installments. Fifty percent (50%) of the Award shall vest on September 15, 2013 and the remaining fifty percent (50%) on September 15, 2014, provided that the Participant remains continuously in Service with the Company through each such annual vesting date. There will be no pro-rata vesting of the Award. |
1. | Limited Transferability. Prior to the actual payment of the Award, the Participant may not assign, transfer, pledge or otherwise encumber any interest in this Award or any cash amount that may become payable hereunder, and the Participant shall at all times remain a general creditor of the Company with respect to any amount that becomes payable pursuant to this Agreement. However, the Participant’s right to any portion of the Award that vests but otherwise remains unpaid at the time of the Participant’s death may be transferred pursuant to the provisions of the Participant’s will or the laws of inheritance or to the Participant’s designated beneficiary or beneficiaries of this Award. The Participant may make such a beneficiary designation at any time by filing the appropriate form with the Company. |
2. | Payment of Bonus Amount. |
(a) | Each installment of the Award that vests and becomes payable to the Participant under this Agreement shall be paid within thirty (30) days following the applicable vesting date. The payment shall be subject to the Company’s collection of the applicable Withholding Taxes, and the |
(b) | Except as otherwise provided in Paragraphs 3 and 4, no portion of the Award shall be paid prior to the applicable vesting date for that portion of the Award. |
3. | Change in Control. Should a Change in Control of the Company occur prior to September 15, 2014, any unvested portion of the Award will vest in full on an accelerated basis on the date the Change in Control is consummated and shall be paid to Participant on the effective date of the Change in Control, or as soon thereafter as administratively practicable, but in no event later than the fifteenth (15th) day of the third (3rd) calendar month following the effective date of that Change in Control. The payment shall be subject to the Company’s collection of the applicable Withholding Taxes, and the Participant shall only receive the net amount of the Award remaining after such Withholding Taxes have been collected. |
4. | Termination of Service |
(a) | If the Participant’s Service with the Company is terminated as a result of an Involuntary Termination, then the Participant shall, upon satisfaction of the Release Condition set forth in Paragraph 4(b) below, vest in any unvested portion of the Award. The portion of the Award that vests on such accelerated basis will be paid to the Participant within the sixty (60)-day period following the date of Participant’s Involuntary Termination; provided, however, that should such sixty (60)-day period span two taxable years, the issuance shall be effected during the portion of that period that occurs in the second taxable year. |
(b) | The accelerated vesting of the unvested portion of the Award at the time of Participant’s Involuntary Termination shall be contingent upon Participant’s satisfaction of the following requirements (collectively the “Release Condition”): (i) Participant must execute and deliver to the Company, within twenty-one (21) days (or forty-five (45) days to the extent such longer period is required under applicable law) after the effective date of such Involuntary Termination, a comprehensive general release (in the form provided by the Company at the time of such Involuntary Termination) releasing the Company and its officers, directors, employees, stockholders, subsidiaries, affiliates, representatives and other related parties from all claims that the Participant may have with respect to such parties relating to or arising from Participant’s employment with the Company and the termination of that employment relationship and containing such confidentiality, non-solicitation, non-disparagement and non-competition covenants as the Company deems satisfactory under the circumstances and (ii) such release must become effective and enforceable under applicable law after the expiration of any applicable revocation periods under federal or state law. |
(c) | If the Participant’s Service with the Company terminates for any reason other than an Involuntary Termination, any portion of the Award that is unvested as of the date of such termination of Service will be forfeited. |
5. | Code Section 409A |
(a) | It is the intention of the parties that the provisions of this Agreement shall comply with the requirements of the short-term deferral exception to Section 409A of the Code and Treasury Regulations Section 1.409A-1(b)(4). Accordingly, to the extent there is any ambiguity as to |
(b) | If and to the extent this Agreement may be deemed to create an arrangement subject to the requirements of Code Section 409A, then the following provisions shall apply: |
(i) | No amount which becomes payable under this Agreement by reason of Participant’s cessation of Service shall actually be paid to the Participant until the date of the Participant’s Separation from Service or as soon thereafter as administratively practicable, but in no event later than the later of (i) the last day of the calendar year in which such Separation from Service occurs or (ii) the fifteenth day of the third calendar month following the date of such Separation from Service. |
(ii) | No amount which becomes payable under this Agreement by reason of the Participant’s Separation from Service shall actually be paid or distributed to the Participant prior to the earlier of: (A) the first day of the seventh (7th) month following the date of such Separation from Service or (B) the date of the Participant’s death, if the Participant is deemed at the time of such Separation from Service to be a specified employee under Section 1.409A-1(i) of the Treasury Regulations issued under Code Section 409A, as determined by the Company in accordance with consistent and uniform standards applied to all other Code Section 409A arrangements of the Company, and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). The deferred amount shall be paid in a lump sum on the first day of the seventh (7th) month following the date of the Participant’s Separation from Service or, if earlier, the first day of the month immediately following the date the Company receives proof of the Participant’s death. |
(iii) | No amount to which the Participant becomes entitled under Paragraph 3 of this Agreement by reason of a Change in Control of the Company shall be paid to the Participant at the time of the applicable Change in Control event unless that transaction also as to the Participant qualifies as a change in control event under Code Section 409A and the Treasury Regulations thereunder. In the absence of such a qualifying change in control, the payment or distribution of such amount shall not be made until the effective date of a Change in Control that constitutes, as to the Participant, a qualifying a change in control event under Code Section 409A and the Treasury Regulations thereunder, or as soon as administratively practicable following the applicable event, but in no event later than the fifteenth (15th) day of the third (3rd) calendar month following the date of that event. |
6. | Compliance with Laws and Regulations. The payment of any portion of the Award to which the Participant becomes entitled under this Agreement shall be subject to compliance by the Company and Participant with all applicable requirements of law relating thereto. |
7. | Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company at its principal corporate offices or shall be effected by properly addressed electronic mail delivery. Any notice required to be given or delivered to Participant shall be in writing and addressed to the Participant at the most recent address then on file |
8. | Successors and Assigns. Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and Participant and the legal representatives, heirs and legatees of Participant’s estate and any beneficiaries of the Award designated by Participant. |
9. | Construction. All decisions of the Company with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award. |
10. | Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Arizona without resort to that State’s conflict-of-laws rules. |
11. | Employment at Will. Nothing in this Agreement shall confer upon the Participant any right to remain in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or Participant, which rights are hereby expressly reserved by each, to terminate Participant’s Service at any time for any reason, with or without cause, subject to applicable law and the terms of any employment agreement. |
12. | Nature of Award; No Entitlement; No Claim for Compensation. In accepting this Award, Participant acknowledges the following: |
(a) | The grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future grants of awards, or benefits in lieu of awards, even if awards have been granted repeatedly in the past. |
(b) | The amount of the Award paid to the Participant in any year will not create any contractual or other right for the Participant to receive the same or similar amounts in any future years under the Plan. |
(c) | All decisions with respect to future awards, if any, will be at the sole discretion of the Compensation Committee of the Board. |
(d) | Participant is voluntarily participating in the Award. |
(e) | This Award and any amount paid pursuant to this Award shall not be treated as part of the Participant’s normal or expected compensation or salary for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments. |
13. | Entire Agreement. Except as otherwise specifically referenced herein, this Agreement constitutes the sole and entire agreement between the parties hereto with regard to the Award and supersedes any and all understandings and agreements made prior hereto, if any. No provision of this Agreement shall be amended, waived or modified except by an instrument in writing, signed by the parties hereto. |
14. | Participant Acceptance. The Participant must accept the terms and conditions of this Agreement either electronically through the electronic acceptance procedure established by the Company or through |
APOLLO GROUP, INC. | |
By: | |
Title: | |
PARTICIPANT | |
A. | Agreement shall mean this Cash Retention Award Agreement. |
B. | Apollo Group, Inc. shall mean Apollo Group, Inc., an Arizona corporation, and any successor corporation to Apollo Group, Inc. which shall by appropriate action adopt this Agreement. |
C. | Award shall mean the cash amount that the Participant is eligible to earn under the terms of this Agreement through his or her continued Service. |
D. | Change in Control shall, with respect to a Change in Control of the Company, have the meaning assigned to such term in Section 3.1(e) of the Apollo Group, Inc. 2000 Stock Incentive Plan. |
E. | Code shall mean the Internal Revenue Code of 1986, as amended. |
F. | Disability shall mean any illness or other physical or mental condition of the Participant that is permanent and continuous in nature and renders the Participant incapable of performing his or her customary and usual duties for the Company. The Company may require such medical or other evidence as it may deem necessary in order to judge the nature and permanency of Participant’s condition. |
G. | Employee shall mean an individual who is in the employ of the Company, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. |
H. | Involuntary Termination shall mean the unilateral termination of the Participant’s employment by the Company for any reason other than a Termination for Cause; provided, however, in no event shall an Involuntary Termination be deemed to incur in the event the Participant’s employment terminates by reason of his or her death or Disability. In addition, an Involuntary Termination shall not be deemed to occur if a Participant’s employment is terminated by the Company by reason of the Participant’s failure to accept an alternate position offered by the Company if (i) the principal place of employment for such alternate position is less than 25 miles from his former principal place of employment with the Company; (ii) the Participant’s base pay in the alternate position is not less than ninety (90%) of the Participant’s base pay in the former position; or (iii) the Company has determined, in its sole discretion prior to the time the Participant is offered the alternate position, that the alternate position will not result in a material reduction in the Participant’s duties and responsibilities. The Company shall determine, in its sole discretion, all of the terms and conditions of a Participant’s alternate position, the time at which the alternate position is offered (which may be after the Participant’s employment has been severed), and the period the Participant has to consider the alternate position. |
I. | Participant shall mean the person to whom the Award is made pursuant to the Agreement. |
J. | Service shall mean the Participant’s performance of services for Apollo Group, Inc. (or any Subsidiary) in the capacity of an Employee. For purposes of this Agreement, the Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) the Participant no longer performs services in an Employee capacity for Apollo Group, Inc. (or any Subsidiary) or (ii) |
K. | Separation from Service shall mean Participant’s cessation of Employee status by reason of death, retirement or termination of employment. Participant shall be deemed to have terminated employment for such purpose at such time as the level of his or her bona fide services to be performed as an Employee (or as a consultant or independent contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he or she rendered as an Employee during the immediately preceding thirty-six (36) months. Any such determination as to Separation from Service shall be made in accordance with the applicable standards of the Treasury Regulations issued under Section 409A of the Code. |
L. | Subsidiary shall, with respect to Apollo Group, Inc., mean any corporation (other than Apollo Group, Inc.) in an unbroken chain of corporations beginning with Apollo Group, Inc., provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. |
M. | Termination for Cause shall mean the termination of the Participant’s Service by the Company (or any Subsidiary employing the Participant) for one or more of the following reasons: |
(i) | repeated dereliction of the material duties and responsibilities of his or her position with the Company (or any Subsidiary); |
(ii) | misconduct, insubordination or failure to comply with the policies of the Company (or any Subsidiary employing the Participant) governing employee conduct and procedures; |
(iii) | excessive lateness or absenteeism; |
(iv) | conviction of or pleading guilty or nolo contendere to any felony involving theft, embezzlement, dishonesty or moral turpitude; |
(v) | commission of any act of fraud against, or the misappropriation of property belonging to, the Company (or any Subsidiary); |
(vi) | commission of any act of dishonesty in connection with his or her responsibilities as an Employee that is intended to result in his or her personal enrichment or the personal enrichment of his or her family or others; |
(vii) | any other misconduct adversely affecting the business or affairs of the Company (or any Subsidiary); or |
(viii) | a material breach of any agreement Participant may have at the time with the Company (or any Subsidiary employing Participant), including (without limitation) any proprietary information, non-disclosure or confidentiality agreement. |
N. | Withholding Taxes shall mean income taxes, employment taxes, social insurance, payroll taxes, contributions, payment on account obligations or other amounts required to be withheld by the Company in connection with the vesting and payment of the Award. |
/s/ Gregory W. Cappelli | |
Gregory W. Cappelli | |
Chief Executive Officer and Director (Principal Executive Officer) |
/s/ Brian L. Swartz | |
Brian L. Swartz | |
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Gregory W. Cappelli | |
Gregory W. Cappelli | |
Chief Executive Officer and Director (Principal Executive Officer) |
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Brian L. Swartz | |
Brian L. Swartz | |
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
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