Item 1 - Business
Overview
This Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Apollo Group, Inc.,” and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations of University of Phoenix Online” which are incorporated by reference from our 2002 Annual Report, contain forward-looking statements regarding future events and future results of Apollo Group that are based on current expectations, estimates, forecasts, and the beliefs and assumptions of us and our management, and speak only as of the date made and are not guarantees of future performance. Words such as “believes,” “expects,” “anticipates,” “estimates,” “targets,” “goals,” “projects,” “intends,” “plans,” and other similar statements of expectations identify forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Future events and actual results could differ materially from those set forth in the forward-looking statements as a result of many factors. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-K, including those set forth in Item 1 under the sections titled “Regulatory Environment,” “Accreditation,” “Federal Financial Aid Programs,” and “State Authorization,” and those factors set forth in other reports that we file with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, or any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements.
Apollo Group, Inc. has been providing higher education to working adults for over 25 years. We operate through our subsidiaries, The University of Phoenix, Inc., Institute for Professional Development, The College for Financial Planning Institutes Corporation, and Western International University, Inc. The consolidated enrollment in our educational programs would make us the largest private institution of higher education in the United States. We currently offer our programs and services at 65 campuses and 111 learning centers in 37 states, Puerto Rico, and Vancouver, British Columbia. Our combined degree enrollment increased to approximately 157,800 at August 31, 2002 from approximately 71,400 at August 31, 1998.
University of Phoenix had degree enrollments of approximately 133,700 adult students at August 31, 2002, is accredited by The Higher Learning Commission, and has been a member of the North Central Association of Colleges and Schools since 1978. University of Phoenix has successfully replicated its teaching/learning model while maintaining educational quality at 40 physical campuses and 80 learning centers in Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, Puerto Rico, and Vancouver, British Columbia. University of Phoenix also offers its educational programs worldwide through University of Phoenix Online, its computerized educational delivery system. University of Phoenix has customized computer programs for student tracking, marketing, faculty recruitment and training, and academic quality management. These computer programs are intended to provide uniformity among University of Phoenix’s campuses and learning centers which enhances University of Phoenix’s ability to expand into new markets while still maintaining academic quality. Currently, approximately 60% of University of Phoenix’s students receive some level of tuition assistance from their employers.
Institute for Professional Development provides program development and management services to regionally accredited private colleges and universities (client institutions) who are interested in expanding or developing their programs for working adults. These services typically include degree program development, curriculum development, market research, student recruitment, and performing accounting and administrative services. Institute for Professional Development provides these services to regionally accredited private colleges and universities at 22 campuses and 28 learning centers in 23 states in exchange for a contractual share of the tuition revenues generated from these programs. Institute for Professional Development’s contracts with its client institutions generally range in length from five to ten years with provisions for renewal. Institute for Professional Development places a priority on institutions that:
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are interested in developing or expanding off-campus degree programs for working adults;
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recognize that working adults require a different teaching/learning model than the 18 to 24 year old student;
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desire to increase enrollments with a limited investment in institutional capital; and
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recognize the unmet educational needs of the working adult students in their market.
Approximately 21,700 degree-seeking students are currently enrolled in Institute for Professional Development assisted programs.
The College for Financial Planning provides financial planning education programs, including the Certified Financial Planner Professional Education Program. The College for Financial Planning began offering some of its non-degree programs at University of Phoenix campuses in 1999.
Western International University currently offers graduate and undergraduate degree programs to approximately 1,800 students in Phoenix, Chandler, Scottsdale, and Fort Huachuca, Arizona.
We incorporated in Arizona in 1981 and maintain our principal executive offices at 4615 East Elwood Street, Phoenix, Arizona 85040. Our telephone number is (480) 966-5394. Our Internet Web Site addresses are as follows:
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Apollo Group
http://www.apollogrp.edu
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University of Phoenix
http://www.phoenix.edu
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University of Phoenix Online
http://www.uoponline.com
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Institute for Professional Development
http://www.ipd.org
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Western International University
http://www.wintu.edu
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College for Financial Planning
http://www.fp.edu
Our fiscal year is from September 1 to August 31. Unless otherwise stated, references to the years 2002, 2001, and 2000 relate to the fiscal years ended August 31, 2002, 2001, and 2000, respectively.
Industry Background
The adult education market is a significant and growing component of the post-secondary education market, which is estimated by the U.S. Department of Education to be a more than $260 billion industry. According to the U.S. Department of Education, over 6 million, or 40% of all students enrolled in higher education programs are over the age of 24. This number is projected to reach 6.5 million in 2007 and 6.7 million in 2011. The market for adult education should continue to increase as working adults seek additional education and training to update and improve their skills, to enhance their earnings potential, and to keep pace with the rapidly expanding knowledge-based economy.
Many working adults are seeking accredited degree programs that provide flexibility to accommodate the fixed schedules and time commitments associated with their professional and personal obligations. Our format enables working adult students to attend classes and complete coursework on a more convenient schedule. Many universities and emerging technology-based education and training companies currently do not effectively address the unique requirements of working adult students due to the following specific constraints:
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Traditional universities and colleges were designed to fulfill the educational needs of conventional, full-time students aged 18 to 24, who remain the primary focus of these universities and colleges. This focus has resulted in a capital-intensive teaching/learning model that may be characterized by:
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a high percentage of full-time tenured faculty with doctoral degrees;
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fully-configured library facilities and related full-time staff;
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dormitories, student unions, and other significant plant assets to support the needs of younger students; and
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an emphasis on research and the related staff and facilities.
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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.
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Traditional universities and colleges are also limited in their ability to market to or provide the necessary customer service for working adult students because it requires the development of additional administrative and enrollment infrastructure. University of Phoenix maintains a single-minded focus on serving the needs of working adult students.
We believe that our track record for enrollment and revenue growth is attributable to our offering a comprehensive service combining educational content, teaching resources, and customer service with a format that is accessible and easy to use for students and corporate clients.
Our Offerings
We believe that our more than 25-year history as a provider of higher education for working adults enables us to provide our students with an effective education and responsive customer service. Our expertise in designing curriculum, recruiting and training faculty, monitoring academic quality, and providing a high level of support services to students allows us to offer the following:
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Accredited Degree Programs. We currently offer 15 degree programs in business, education, information technology, and nursing that are accredited by The Higher Learning Commission or the regional accrediting associations of the Institute for
Professional Development client institutions. This accreditation enables us to grant Associates, Bachelors, Masters, and Doctoral degrees, while also providing students with access to federal financial aid programs.
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Experienced Faculty Resources. While substantially all of our faculty are working professionals, we require each member of our faculty to possess either a Masters or Doctoral degree and to have five years of recent professional experience in a field related to the subject they teach. We have well-developed methods for hiring and training our faculty, which include peer reviews of newly hired instructors by other members of the faculty, training in grading and instructing students, and a teaching internship with a more experienced faculty member. Our classes are designed to be small, with an average of one instructor for every fifteen students. Faculty members are also required to be accessible to students by maintaining office hours.
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Current and Relevant Standardized Programs. We use content experts selected from our approximately 17,600 faculty to design our curriculum. This enables us to offer current and relevant standardized programs to our students. We also utilize an institution-wide system to assess the educational outcomes of our students and improve the quality of our curriculum and instructional model. This system evaluates the cognitive and affective skills of our students upon registration and upon conclusion of the program and also surveys students two years after graduation in order to assess the quality of the education they received.
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Benefits to Employers. The employers of our students often provide input to faculty members in designing curriculum, and class projects are typically based on issues relevant to the companies that employ our students. Our classes are taught by a practitioner faculty that emphasizes the skills desired by employers. In addition, the time flexibility provided by our classes further benefits employers since it avoids conflict with their employees’ work schedules. A recent survey by University of Phoenix showed that approximately 60% of its students receive some level of tuition assistance from their employers.
Strategy
Our objective is to be the leading provider of accessible, high quality education for working adults and a preferred provider of workplace training to their employers. We are managed as a for-profit corporation in a higher education industry served principally by not-for-profit providers. By design, we treat our adult students as our primary customers and the employers that provide tuition assistance to their employees through tuition reimbursement plans or direct bill arrangements as our secondary customers. We will implement the following strategic initiatives to accomplish this objective:
Establish New University of Phoenix Campuses and Learning Centers. University of Phoenix plans to continue the addition of campuses and learning centers throughout the United States and Canada. 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.
The timing related to the establishment of new locations and the expansion of programs may vary depending on regulatory requirements and market conditions.
Establish New Institute for Professional Development Relationships. Institute for Professional Development plans to enter into additional long-term contracts with private colleges and universities in proximity to metropolitan areas throughout the United States.
Expand Educational Programs. We will continue to respond to the changing educational needs of working adults and their employers by introducing new undergraduate and graduate degree programs as well as training programs. To its degree offerings, University of Phoenix has recently added the Master of Business Administration in Health Care Management and specializations in Marketing and Human Resource Management to its Master of Business Administration, specializations in Elementary and Secondary Education and Adult Education and Distance Learning to its Master of Arts in Education, and a specialization in Educational Counseling to its Master of Counseling. To its certificate programs, University of Phoenix has recently added graduate certificates in e-Business, Technology Management, and Global Management, as well as a certificate in Operations and Supply Chain Management. We believe that expanding our program offerings will help us improve our market position as a provider of higher education and training for working adults. We currently have a full-time staff of approximately 46 persons involved in our centralized curriculum development process. Potential additions to our current offerings include:
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new degree programs, such as a Bachelor of Science in Education, Master of Science in Criminal Justice, Master of Social Work, Master of Health Administration, Doctor of Health Administration, Doctor of Business Administration, Doctor of Education, and an emphasis in Finance to University of Phoenix’s Bachelor of Science in Business;
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certificate programs, such as Psychopharmocology; and
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professional certification, such as Call Center Professional, Special Education, and English as a Second Language.
Expand Access to Programs. We plan to continue expanding our distance education programs and services. Enrollments in distance education degree programs have increased to approximately 49,900 in 2002 from approximately 4,800 in 1998. University of Phoenix Online courses and programs are available via the Internet 24 hours a day, 7 days a week and can be accessed using basic technology, such as a Pentium-class personal computer, a 56.6K modem, and an Internet service provider, which enhances the accessibility of and the potential market for University of Phoenix Online programs.
International Expansion. We believe that the international market for our services is a major growth opportunity. The U.S. is the most common destination for international students studying abroad. We believe that more working adult students would opt for a U.S. education that does not involve living in the U.S. because they could do so without leaving their employment and incurring the high travel and living costs and stringent visa requirements associated with studying abroad. Our belief is supported by the fact that University of Phoenix Online has students located in approximately 75 countries despite having used only limited advertising. In addition, many U.S. residents live and work in foreign countries and would benefit from the opportunity to continue their education while abroad. We will continue to conduct market and operations research in various foreign countries where we believe there might be a demand for our programs. Additionally, we plan to offer the University of Phoenix educational model at physical campuses in international markets pursuant to agreements with Apollo International, Inc. as described in Item 13. The first offering under these agreements was started in the Netherlands in September 1999, where we are currently servicing approximately 80 students.
Effective September 2002, Western International University entered into an agreement with Apollo International, Inc. that allows for Western International University’s educational offerings to be made available in India. Apollo International, Inc. will manage the relationship with the entities in India that are offering the Western International University programs while Western International University maintains the educational content and the quality of the programs.
We will continue to monitor and assess the feasibility of expanding our educational programs to other international markets through similar licensing agreements. Currently we do not plan to independently open facilities outside of North America.
Teaching/Learning Model-Degree Programs
Our teaching/learning model used by University of Phoenix and Institute for Professional Development client institutions was designed specifically to meet the educational needs of 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 learning team. Learning team sessions are an integral part of each course. They facilitate in-depth review of and reflection on course materials. Members work together to complete assigned group projects, and develop communication and teamwork skills. 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 professional experience in business, industry, government, or the professions. In this way, faculty members are able to share their professional knowledge and skills with the students.
Components of our teaching/learning model include:
Curriculum
The curriculum is designed to integrate academic theory and professional practice and their application to the workplace. The curriculum provides for the achievement of specified educational outcomes that are based on the input from faculty, students, and students’ employers. The standardized curriculum for each degree program is also designed to provide students with specified levels of knowledge and skills.
Faculty
Faculty applicants must possess an earned Masters or Doctoral degree from a regionally accredited institution, 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, all faculty members are required to:
• complete an initial assessment conducted by staff and faculty;
• receive training in grading, facilitation of the teaching/learning model, and oversight of learning team activities;
• serve an internship with an experienced faculty mentor; and
• receive ongoing performance evaluations by students, peer faculty, and staff, which are used to establish developmental plans to improve individual faculty performance and to determine continued eligibility of faculty members to provide instruction.
An Active Learning
Environment
Courses are designed to encourage and facilitate collaboration between students and interaction with the instructor. The curriculum requires a high level of student participation for purposes of enhancing learning and increasing the student’s ability to work as part of a team.
Library and Other Learning Resource Services
Students and faculty members are provided with electronic and other learning resources for their information and research needs. Students can access these services directly through the Internet or with the help of a Learning Resource Services research librarian.
Sequential Enrollment
Students enroll in and complete classes sequentially, rather than concurrently. This permits working adults to focus their attentions and resources on one subject at a time, and creates a better balance between learning and ongoing personal and professional responsibilities.
Academic Quality
We have an Academic Quality Management System designed to maintain and improve the quality of programs and academic and student services. This system includes the Adult Learning Outcomes Assessment, which seeks to measure student growth in both the cognitive (subject matter) and affective (educational, personal, and professional values) skills.
Structural Components of Teaching/Learning Model
While adults over the age of 24 comprise approximately 40% of all higher education enrollments in the United States, the mission of most accredited four-year colleges and universities is to serve 18 to 24 year-old students and conduct research. University of Phoenix and Institute for Professional Development client institutions acknowledge the differences in educational needs between older and younger students and provide programs and services that allow working adults to earn their degrees without major disruption to their personal and professional lives.
The educational literature suggests that working adults require a different teaching/learning model than that designed for traditional, younger students. Working adults seek accessibility, curriculum consistency, time and cost effectiveness, and learning that has an immediate application to the workplace.
The facilitating elements of our teaching/learning model include:
Accessibility
Professional programs that can be accessed through a variety of delivery modes (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 majority of the faculty at most accredited colleges and universities are employed full-time, most of the University of Phoenix’s faculty are part-time. All faculty are academically qualified, are professionally employed, and are contracted for instructional services on a course-by-course basis.
Facility Costs
We lease our campus and learning center facilities and rent additional classroom space on a short-term basis to accommodate growth in enrollments.
Employed Students
Substantially all of University of Phoenix’s students are employed full-time. The average University of Phoenix student has been employed full-time for 14 years. The focus on adult, non-residential students minimizes the need for capital-intensive facilities and services like dormitories, student unions, food services, personal and employment counseling, health care, sports, and entertainment.
Employer Support
Relationships are fostered with key employers for purposes of recruiting students and responding to specific employer needs. This facilitates sensitivity to the needs and perceptions of employers. It also helps to generate and sustain diverse sources of revenues. Approximately 60% of University of Phoenix’s students receive some level of tuition assistance from their employers; approximately 54% receive at least half of their tuition, and approximately 20% receive full tuition assistance. These percentages are higher for students in the business, management, and information technology programs.
The College for Financial Planning currently offers text-based self-study programs for students preparing for the Certified Financial Planner designation and for students seeking further education in financial services, including a Master of Science in Financial Planning. The College for Financial Planning has modularized the learning content for these programs to position them for alternative delivery formats, including but not limited to classroom and online modalities. With the exception of the Masters degree, these same programs are
offered in a classroom-based format through University of Phoenix campuses as well as adjunct faculty groups and we also offer them through Internet online-based formats. Most of the College for Financial Planning’s students are employed, and over 70% have a bachelors degree or higher. The College for Financial Planning’s programs are developed internally by 13 full-time faculty. These programs are primarily self-study, non-degree programs that require only moderate faculty involvement in the actual delivery of the programs.
Western International University’s teaching/learning model has similar characteristics to the teaching/learning model used by University of Phoenix and Institute for Professional Development client institutions, including the use of part-time practitioner faculty, standardized curriculum, computerized learning resources, and leased facilities. However, Western International University provides educational programs in two-month sessions and, while its students are primarily working adults, Western International University also serves international and domestic students who are between the ages of 18 and 24. Western International University’s faculty consists of approximately 13 full-time faculty and 250 part-time faculty. Western International University’s faculty are working professionals and possess earned Masters or Doctoral degrees and participate in a selection and training process that is similar to that at University of Phoenix.
Degree Programs and Services
University of Phoenix Programs. The following is a list of the degree programs and related areas of specialization that University of Phoenix offers:
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Associate of Arts in General Studies
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Bachelor of Science in Business
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Areas of Specialization
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Bachelor of Science in Criminal Justice Administration
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Bachelor of Science in Human Services
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Bachelor of Science in Health Care Services
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Area of Specialization
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Bachelor of Science in Information Technology
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Bachelor of Science in Management
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Bachelor of Science in Nursing
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Master of Arts in Education
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Area of Specialization
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Master of Arts in Organizational Management
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Master of Business Administration
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Areas of Specialization
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Master of Counseling
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Areas of Specialization
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Master of Science in Nursing
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Areas of Specialization
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Family Nurse Practitioner
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Master of Business Administration Health Care Management
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Master of Science in Computer Information Systems
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Doctor of Management in Organizational Leadership
University of Phoenix also offers professional education programs, including continuing education for teachers, custom training, environmental training, and many programs leading to certification in the areas of business, technology, and nursing.
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, for the potential award of credit. The average number of credits awarded to the approximately 5,200 University of Phoenix undergraduate students who utilized the process in 2002 was approximately 9 credits of the 120 required to graduate. The Council for Adult and Experiential Learning reports that over 1,100 regionally accredited colleges and universities currently accept credits awarded for college level learning gained through experience.
Institute for Professional Development Services. The Institute for Professional Development’s contracts with its client institutions are individually negotiated and the actual services may vary from one client institution to another. Services to its client institutions may include:
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conducting market research;
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assisting with curriculum development;
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developing and executing marketing strategies;
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marketing and recruiting of students;
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performing student accounting and account receivable management;
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establishing operational and administrative infrastructures;
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training of faculty;
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developing and implementing financial accounting and academic quality management systems;
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assessing the future needs of adult students;
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assisting in developing additional degree programs suitable for the adult higher education market;
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assisting in seeking approval from the respective regional accrediting association for new programs; and
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training of adult program staff.
In consideration for its services, the Institute for Professional Development receives a contractual share of revenues, which are negotiated with each client institution.
In order to facilitate the sharing of information related to the operations of their respective programs, the Institute for Professional Development, its client institutions, and University of Phoenix formed the Consortium for the Advancement of Adult Higher Education. This consortium meets annually 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.
Institute for Professional Development client institutions offer the following programs with our assistance:
The Institute for Professional Development assisted programs also include a limited number of general education courses, certificate programs, and areas of specialization.
College for Financial Planning Programs. The College for Financial Planning currently offers a Master of Science degree with concentrations in Financial Planning and Financial Analyst. The Financial Planning concentration focuses on the fundamentals of financial planning and meets the educational requirement of the CFP Board of Standards, Inc. for taking the CFP Examination. The Financial Analyst concentration incorporates the CFA Body of Knowledge learning objectives offered by the Association for Investment Management and Research and helps prepare students for the CFA Examination.
The College for Financial Planning currently offers the following certification programs:
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Accredited Asset Management Specialist
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Registered Paraplanner
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Chartered Mutual Fund Counselor
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Chartered Retirement Plans Specialist
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Chartered Retirement Planning Counselor
Western International University Programs. Western International University currently offers the following degree programs:
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Areas of Specialization
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Areas of Specialization
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Master of Business Administration
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Areas of Specialization
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Master of Public Administration
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Master of Science
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Areas of Specialization
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Information Technology
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Information Systems Engineering
Western International University also offers professional studies programs in Accountancy and Certified Financial Planner certification.
Distance Education
At August 31, 2002, there were approximately 49,900 degree seeking students utilizing our distance education delivery systems, approximately 99% of whom are enrolled at University of Phoenix Online. Our distance education components consist primarily of the following:
University of Phoenix Online. University of Phoenix Online has developed its system to be easily accessible and familiar to most students. All the student needs to participate in University of Phoenix Online’s classes is a Pentium-class personal computer, a 56.6K modem, and an Internet service provider.
Each Online class adheres to a set framework thus providing procedural instructional consistency. Prior to the beginning of each class, each student either orders textbooks online from a third party or pays a fee to access resource, our new delivery method for course materials. Every class consists of a series of eight newsgroups. The main newsgroup is designated for class discussion, there is an assignments newsgroup to which students submit their assignments, a chat newsgroup for students to discuss non-content related topics, a course materials newsgroup that houses the syllabus and lectures for the class, and four newsgroups which function as forums for the Learning Team assignments.
Each week, the instructor posts a lecture to the classroom course materials newsgroup. Students log on and read the lecture or print the lecture to read at their convenience. Throughout the week, students participate in class discussions, based on the class content for that week, which is actively facilitated by the instructor. Both the instructor and students are expected to substantively engage in content discussions five out of seven days each class week. In addition to the class participation requirement, students are also expected to complete individual assignments and to work within a small group of 3- 5 students on a specific Learning Team assignment. The Learning Team component of the University of Phoenix model not only emphasizes the content focus for the course, but also the importance for successful professionals to acquire team process skills. Students receive weekly feedback on all facets of their performance in the class such as participation and contributions to class discussions, individual assignments, exams/quizzes, and Learning Team work product.
College for Financial Planning. Business and investment professionals that require continuing professional education as part of their professional certification or for employment requirements may complete individual courses online utilizing most Internet browsers. These programs are mostly short courses designed to focus on important and emerging topics relevant to the students’ trade or profession. The students interact primarily with our Web-based software programs with little or no faculty involvement.
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
We periodically evaluate 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 our operating strategies. We have no current commitments with regard to potential acquisitions.
Customers/Students
The following is a breakdown of our students by the level of program they are seeking, at August 31, 2002:
We consider the employers that provide tuition assistance to their employees through tuition reimbursement plans or direct bill arrangements our secondary customers.
Based on student surveys of incoming students in the first half of 2002, the average age of University of Phoenix’s students is in the mid-thirties, approximately 54% are women and 46% are men. Approximately 67% of University of Phoenix’s students have been employed on a full-time basis for nine years or more. We believe that the demographics of students enrolled in Institute for Professional Development assisted programs are similar to those of University of Phoenix. The approximate age percentage distribution of incoming University of Phoenix students is as follows:
Based on student surveys, the average age of students at the College for Financial Planning is in the early-thirties, approximately 30% are women and 70% are men. Most of the College for Financial Planning’s students are employed, and approximately 90% have obtained a bachelors degree or higher.
Institute for Professional Development client institutions have historically consisted of small private colleges; however, the Institute for Professional Development also targets larger institutions of higher education that are in need of marketing, prior learning assessment, and curriculum consulting. The Institute for Professional Development understands 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, the Institute for Professional Development 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.
We work closely with businesses and governmental agencies 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. University of Phoenix has also formed educational partnerships with various corporations to provide programs specifically designed for their employees.
Marketing
To generate interest among potential students, we engage in a broad range of activities to inform the public about our teaching/learning model and the programs offered. These activities include:
Direct Mail. Direct mail is effective at reaching the working adult population that expresses interest in training, education, and self-improvement. Direct mail also enables us to target specific career fields, such as Accounting, Business, Education, Information Technology, Criminal Justice, and Nursing. We currently purchase education-related mailing lists from numerous suppliers who specialize in this area. In addition, we track leads for every direct mail campaign by allowing potential students the opportunity to respond using the following methods:
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mailing a business reply card;
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calling us at a specific 1-800 number; or
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directing the potential student to one of our specific URL addresses on the Internet that are used to track individual marketing campaigns for reach and effectiveness.
Internet Marketing. We advertise extensively on the Internet using banner advertisements on targeted sites, as well as paying other Web sites, such as education portals, a fee on a per lead basis. We also benefit from non-paid Internet referrals, including leads directed to our domain names as a result of Web search using Internet search engines and browsers. We believe these prospective students are likely to enroll in our programs because these prospects are actively seeking information about degree programs.
Re-Marketing. Re-marketing efforts include both direct mail and e-mail sent to existing leads in our database. Re-marketing is a very successful part of our marketing campaign because of our growing database of “qualified” prospects.
Referrals. Based on our recent estimates, approximately 50% of our new students are referred by their employers, co-workers, current students, alumni, family, and friends.
Print and Broadcast. We rely on print and broadcast advertising to target new prospects and to assist with building brand recognition.
Competition
The higher education market is highly fragmented and competitive with no private or public institution enjoying a significant market share. We compete 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. We expect 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.
We believe that the competitive factors in the higher education market include the following:
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the ability to provide easy access to programs and classes;
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reliable and high-quality products and services;
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qualified and experienced faculty;
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cost of the program;
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reputation of programs, classes, and services; and
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the time necessary to earn a degree.
In terms of non-degree programs offered by us, we compete with a variety of business and information technology providers, primarily those in the for-profit training sector. Many of these competitors have significantly more market share and longer-term relationships with key vendors.
The Institute for Professional Development faces competition from other entities offering higher education curriculum development and management services for adult education programs. The majority of the Institute for Professional Development’s current competitors provide short-term, pre-packaged curriculum or turn-key programs.
Employees
At August 31, 2002, we had the following numbers of employees:
(1) Consists primarily of employees in executive management, information systems, corporate accounting, financial aid, and human resources.
(2) Consists primarily of part-time faculty contracted on a course-by-course basis who are classified as active by the campus.
(3) Faculty teaching Institute for Professional Development assisted programs are employed by Institute for Professional Development client institutions.
(4) Consists primarily of faculty involved in curriculum development and the instructional design process.
We consider our relations with our employees to be good.
Regulatory Environment
The Higher Education Act of 1965 and the related regulations govern all higher education institutions participating in Title IV programs. The Higher Education Act mandates specific additional regulatory responsibilities for each of the following components:
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the accrediting agencies recognized by the U.S. Department of Education;
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the federal government through the U.S. Department of Education; and
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state higher education regulatory bodies.
All higher education institutions participating in Title IV programs must be accredited by an association recognized by the U.S. Department of Education. The U.S. Department of Education reviews all participating institutions for compliance with all applicable standards and regulations under the Higher Education Act. Accrediting associations are required to include the monitoring of Title IV program compliance as part of their accreditation evaluations under the Higher Education Act.
New or revised interpretations of regulatory requirements could have a material adverse effect on us. In addition, changes in or new interpretations of 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 University of Phoenix, Western International University, and one or more of the Institute for Professional Development client institutions. The failure to maintain or renew any required regulatory approvals, accreditation or state authorizations by University of Phoenix or certain of the Institute for Professional Development client institutions could have a material adverse effect on us.
Accreditation
University of Phoenix, Western International University, College for Financial Planning, and the Institute for Professional Development client institutions are covered by regional accreditation which provides the following:
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recognition and acceptance by employers, other higher education institutions, and governmental entities of the degrees and credits earned by students;
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qualification to participate in Title IV programs; and
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qualification for authorization in certain states.
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 University of Phoenix and Western International University missions require them to employ academically qualified practitioner faculty that are able to integrate academic theory with current workplace practice.
University of Phoenix was granted accreditation by The Higher Learning Commission in 1978. University of Phoenix’s accreditation was reaffirmed in 1982, 1987, 1992, and 1997. A comprehensive evaluation visit by The Higher Learning Commission was conducted in 2002. In conjunction with this visit, we requested a continuation of our accreditation for the maximum ten-year period. A final report on the outcome of the visit has not been received, but we expect a favorable recommendation by the evaluation team.
Institute for Professional Development assisted programs offered by its client institutions are evaluated by the client institutions’ respective regional accrediting associations either as part of a reaffirmation visit or focused evaluation visit. Current Institute for Professional Development client institutions are accredited by The Higher Learning Commission, Middle States, New England, Southern, or Western regional accrediting associations.
The College for Financial Planning graduate degree program is accredited by The Higher Learning Commission and the Accrediting Commission of the Distance Education and Training Council. The Higher Learning Commission reaffirmed the accreditation of the graduate degree program in August 1999, and their next reaffirmation visit is expected in 2003-04. The Accrediting Commission of the Distance Education and Training Council reaffirmed the accreditation for the College for Financial Planning in 2001.
Western International University was accredited by The Higher Learning Commission prior to the acquisition by us, and the accreditation was reaffirmed in 1998. Western International University’s next reaffirmation visit is expected to begin in 2004-05.
The withdrawal of accreditation from University of Phoenix would have a material, adverse effect on us.
All accrediting agencies recognized by the U.S. Department of Education are required to include the monitoring of Title IV program compliance in their evaluations of accredited institutions. As a result, all regionally accredited institutions, including University of Phoenix, Western International University, and the Institute for Professional Development client institutions, will be subject to a Title IV program compliance review as part of accreditation visits.
University of Phoenix’s Bachelor of Science in Nursing program received program accreditation from the National League for Nursing Accrediting Commission in 1989. The Master of Science in Nursing program earned the National League for Nursing Accrediting Commission accreditation in 1996. In July 2000, both the Bachelor of Science in Nursing and the Master of Science in Nursing programs received eight year accreditation status from the National League for Nursing Accreditation Commission.
University of Phoenix’s Community Counseling program, Master of Counseling in Community Counseling degree, received initial accreditation for its Phoenix and Tucson campuses from the Council for Accreditation of Counseling and Related Educational Programs in 1995 and 2002. The next reaffirmation visit is expected in 2010.
University of Phoenix received approval from The Higher Learning Commission to offer its first doctoral level program in 1998. The first students were enrolled in the Doctor of Management degree beginning in 1999. The Doctor of Management degree is offered via distance learning technology with annual two-week residencies in Phoenix throughout the program. Additionally, in 2002 University of Phoenix received approval from The Higher Learning Commission to offer three new doctoral programs: Doctor of Business Administration, Doctor of Educational Leadership, and Doctor of Health Administration.
The address and phone number for the accrediting bodies are as follows:
Federal Financial Aid Programs
Students at University of Phoenix, Western International University, and Institute for Professional Development client institutions may receive federal financial aid under the Title IV programs. The College for Financial Planning does not participate in Title IV programs because most of its students are enrolled in non-degree programs. In the fiscal year ended August 31, 2002, University of Phoenix and Western International University derived approximately 52% and 31% of their net revenues from students who participated in Title IV programs, respectively. The Institute for Professional Development percentages are estimated to be similar to those at University of Phoenix. The respective Institute for Professional Development client institutions administer their own Title IV programs. Our students may receive Title IV funds because:
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University of Phoenix, Western International University, and Institute for Professional Development client institutions are accredited by an accrediting agency recognized by the U.S. Department of Education;
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the U.S. Department of Education has certified University of Phoenix’s, Western International University’s, and Institute for Professional Development client institutions’ eligibility to participate in the Title IV programs; and
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University of Phoenix, Western International University, and Institute for Professional Development client institutions have applicable state authorization to operate.
The U.S. Department of Education issues regulations based on the laws included in the Higher Education Act (“HEA”) of 1965. The HEA is scheduled to expire on September 30, 2003 with an automatic one-year extension if Congress needs additional time. Changes in the law occur during the Congressional reauthorization process which is scheduled to start in 2003, with final regulations issued after that time. The reauthorization process could amend existing requirements, or implement new requirements.
The following material provisions of the Title IV regulations, and their related calculations, apply to University of Phoenix, Western International University, and Institute for Professional Development client institutions:
Limits on Title IV Program Funds. The Title IV 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 Title IV regulations place limits on the amount of Title IV program funds that a student is eligible to receive in any one academic year as defined by the U.S. Department of Education.
For undergraduate programs, an academic year must consist of at least 30 weeks of instructional time to include a minimum of 360 hours of instructional time and a minimum of 24 credit hours. For graduate programs, an academic year must consist of at least 30 weeks of instructional time to include a minimum of 360 hours of instruction. The Title IV regulations defined a week of instruction as the equivalent of 12 hours of regularly scheduled instruction, examinations, or preparation for examinations (the “12-hour rule”). Regulations published on November 1, 2002 eliminated the 12-hour rule requirement and replaced the definition of a week with one day of regularly scheduled instruction, examinations, or preparation for examinations. Most of our degree programs meet the academic year minimum definition of 30 weeks of instructional time and 24 credit hours 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.
Authorizations for New Locations. University of Phoenix, Western International University, the College for Financial Planning, and Institute for Professional Development client institutions are required to have authorization to operate as degree-granting institutions in each state where they physically provide educational programs. Certain states accept accreditation as evidence of meeting minimum state standards for authorization. Other states, including California, require separate evaluations for authorization. Depending on the state, the addition of a degree program not offered previously or the addition of a new location must be included in the institution’s accreditation and be approved by the appropriate state authorization agency. University of Phoenix, Western International University, the College for Financial Planning, and Institute for Professional Development client institutions are currently authorized to operate in all states in which they have physical locations. If University of Phoenix is unable to obtain authorization to operate in certain new states, it may have a material adverse effect on our ability to expand University of Phoenix’s business.
In addition, The Higher Learning Commission requires University of Phoenix, Western International University, and the College for Financial Planning to obtain their prior approval before they are permitted to expand into new states or foreign countries. If University of Phoenix is unable to obtain The Higher Learning Commission’s approval for any future geographic expansion, it may have a material, adverse effect on our ability to expand University of Phoenix’s business.
Restricted Cash. The U.S. Department of Education places restrictions on Title IV program funds collected for unbilled tuition and funds transferred to us through electronic funds transfer. In some circumstances, an institution is required to submit an irrevocable letter of credit to the U.S. Department of Education 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. The University of Phoenix established a letter of credit in 2002 in the amount of $8.8 million as a result of nominal late refunds to lenders from a program review conducted in the fall of 2001. The existing letter of credit expires on February 2003 and we do not anticipate any required extension.
Standards of Financial Responsibility. Pursuant to the Title IV regulations, as revised, each eligible higher education institution must satisfy the minimum standard established for three tests which assess the financial condition of the institution at the end of the institution’s fiscal year. The tests provide three individual scores which must then satisfy a composite score standard. The maximum composite score is 3.0. If the institution achieves a composite score of at least 1.5, it is considered financially responsible. A composite score from 1.0 to 1.4 is considered financially responsible, subject to additional monitoring, and the institution may continue to participate as a financially responsible institution for up to three years. An institution that does not achieve a satisfactory composite score will fall under alternative standards. At August 31, 2002, University of Phoenix’s and Western International University’s composite scores were both 3.0.
Branching and Classroom Locations. The Title IV regulations contain specific requirements governing the establishment of new main campuses, branch campuses, and classroom locations at which the eligible institution offers, or could offer, 50% or more of an
educational program. In addition to classrooms at campuses and learning centers, locations affected by these requirements include the business facilities of client companies, military bases, and conference facilities used by University of Phoenix and Western International University. The U.S. Department of Education requires that the institution notify the U.S. Department of Education of each location prior to disbursing Title IV program funds. University of Phoenix and Western International University have procedures in place to ensure timely notification and acquisition of all necessary location approvals prior to disbursing Title IV aid to students attending any new location.
The “90/10 Rule”. A requirement of the Higher Education Act, commonly referred to as the “90/10 Rule,” applies only to for-profit institutions of higher education, which includes University of Phoenix and Western International University but not Institute for Professional Development 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 exceeds 90% of the institution’s cash-basis revenues from eligible programs. University of Phoenix’s and Western International University’s percentages were 52% and 31%, respectively, at August 31, 2002. University of Phoenix and Western International University 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 25% for three consecutive years. In 2000, the most recent U.S. Department of Education cohort default rate reporting period, the national cohort default rate average for all higher education institutions was 5.9%. University of Phoenix and Western International University students’ cohort default rates for the Federal Family Education Loans for 2000 as reported by the U.S. Department of Education were 5.2% and 6.4%, respectively. Institute for Professional Development client institutions cohort default rates for 2000 ranged from 0.5% to 8.9% with a median cohort default rate of 3.3%.
Compensation of Representatives. Title IV 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. Regulations published on November 1, 2002 clarified and defined safe harbors with respect to incentive compensation. We believe that our current method of compensating enrollment advisors and financial aid staff complies with the Title IV regulations.
Eligibility and Certification Procedures. The Higher Education Act specifies the manner in which the U.S. Department of Education reviews institutions for eligibility and certification to participate in Title IV programs. Every educational institution involved in the Title IV programs must be certified to participate, and is required to periodically renew this certification. University of Phoenix will begin the eligibility renewal process in March 2003 as its current certification for the Title IV programs expires in June 2003. Western International University will begin the eligibility renewal process in June 2003 as its current certification for the Title IV programs expires in September 2003.
Administrative Capability. The Higher Education Act directs the U.S. Department of Education 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 U.S. Department of Education to determine that the institution lacks administrative capability and, therefore, may be subject to additional scrutiny or denied eligibility for Title IV programs.
Restrictions on Distance Education Programs. In October 2002, the U.S. Department of Education clarified that institutions whose eligible programs are predominantly (at least 50%) degree programs are subject to different, less restrictive limitations for distance education than institutions that predominantly offer short term certificate programs. As University of Phoenix’s eligible degree offerings exceed their eligible certificate offerings, University of Phoenix is subject to the newly clarified restrictions. Telecommunications courses are deemed to be correspondence courses by the Title IV regulations if 50% or more of the courses offered at the institution are offered through distance education. At the point that University of Phoenix offers 50% of its courses via distance education, University of Phoenix’s telecommunications students would be considered to be correspondence students. At the point that University of Phoenix offers 50% of its courses via distance education, the student count would be considered for the purposes of institutional eligibility. The regulations specify that than an institution is not eligible to participate in Title IV programs if: 1) more than 50% of its courses are correspondence courses, or 2) 50% of its courses are offered via distance education and 50% or more of the enrolled students are enrolled via distance education. The University of Phoenix had 28% of its courses offered through distance education during 2002.
Change of Ownership or Control. A change of our ownership or control, depending on the type of change, may have significant regulatory consequences for University of Phoenix and Western International University. Such a change of ownership or control could trigger recertification by the U.S. Department of Education, reauthorization by state licensing agencies, or the evaluation of the accreditation by The Higher Learning Commission.
The U.S. Department of Education has adopted the change of ownership and control standards used by the federal securities laws for institutions owned by publicly-held corporations. Upon a change of ownership and control sufficient to require us to file a Form 8-K with
the Securities and Exchange Commission, University of Phoenix and Western International University would cease to be eligible to participate in Title IV programs until recertified by the U.S. Department of Education. Under some circumstances, the U.S. Department of Education may continue the institution’s participation in the Title IV programs on a temporary basis pending completion of the change in ownership approval process. This recertification would not be 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 us who had been involved in our management for at least two years preceding the transfer. Regulations published on November 1, 2002 provided additional clarity on change of ownership regulations. In addition, some states where we are presently licensed have requirements governing change of ownership or control.
Moreover, we are required to report any material change in stock ownership. At that time, The Higher Learning Commission may seek to evaluate the effect of such a change of stock ownership on University of Phoenix’s, the College for Financial Planning’s, and Western International University’s continuing operations.
If University of Phoenix is not re-certified by the U.S. Department of Education, does not obtain reauthorization from the necessary state agencies, or has its accreditation withdrawn as a consequence of any change in ownership or control, it would have a material adverse effect on us.
State Authorization
University of Phoenix is authorized to operate in all 25 states where it has a physical presence. University of Phoenix has held these authorizations for periods ranging from less than one year to twenty-four years. We have been approved to operate in the state of Kansas and are scheduled to begin classes in the spring of 2003. Applications for approval to operate in New York, New Jersey, Connecticut, and North Carolina have been submitted and are awaiting approval.
All regionally accredited institutions, including University of Phoenix, are required to be evaluated separately for authorization to operate in Puerto Rico. University of Phoenix obtained authorization from the Puerto Rico Commission on Higher Education, and that authorization remains in effect.
University of Phoenix is registered and accredited by British Columbia’s Private Post-Secondary Education Commission. University of Phoenix has also received approval to operate in Alberta, Canada.
Institute for Professional Development client institutions possess authorization to operate in all states in which they offer educational programs, which are subject to renewal. The College for Financial Planning is currently authorized to operate in Colorado and does not require authorization for its self-study programs that are offered worldwide. Western International University is currently authorized to operate in Arizona.
Some 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. University of Phoenix has obtained or is in the process of obtaining licensure in those states and we do not believe this will materially affect University of Phoenix Online’s operating activities.
Admissions Standards
To gain admission to University of Phoenix’s, Western International University’s, and Institute for Professional Development client institutions’ undergraduate programs, students generally must have a high school diploma or General Equivalency Diploma and satisfy certain minimum grade point average, employment, and age requirements. Additional requirements may apply to individual programs. Students already in undergraduate programs may petition to be admitted on provisional status if they do not meet certain admission requirements.
To gain admission to University of Phoenix’s, Western International University’s, and Institute for Professional Development client institutions’ graduate programs, 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.
Tax Reform Act of 1997 and Tax Relief Act of 2001
In August 1997, Congress passed the Tax Reform Act of 1997 that added several new tax credits and incentives for students and extended benefits associated with the educational assistance program. The Hope Scholarship Credit provides up to a $1,500 tax credit per year per eligible student for tuition expenses in the first two years of postsecondary education in a degree or certificate program. The
Lifetime Learning Credit provides up to a $1,000 tax credit per year per taxpayer return for tuition expenses for all postsecondary education, including graduate studies. Both of these credits are phased out for taxpayers with modified adjusted gross income between $40,000 and $50,000 ($80,000 and $100,000 for joint returns) and are subject to other restrictions and limitations. The Tax Reform Act of 1997 also provides for the deduction of interest from gross income on education loans and limited educational IRAs for children under the age of 18. These deductions are also subject to adjusted gross income limitations and other restrictions. These new provisions became effective for 1998 individual tax returns.
In June 2001, Congress passed the Tax Relief Act of 2001 that provided even more educational tax incentives. The major enhancements include: increased contribution limits to Coverdell Education Savings Accounts (formerly Education IRAs); tax-free withdrawals from Section 529 Qualified Tuition Programs; employer-provided graduate education assistance; and expansion of the student loan interest deduction. In addition, the Lifetime Learning Credit was increased beginning in 2002 to up to $2,000 per year per taxpayer return and a new above-the-line deduction is now allowed for qualified higher education expenses paid by a taxpayer on behalf of the taxpayer, spouse, or dependent. In 2002 and 2003, taxpayers with adjusted gross income that does not exceed $65,000 ($130,000 for joint returns) may claim a maximum deduction of $3,000. Taxpayers may not claim the new deduction and a Hope or Lifetime Learning Credit in the same year with respect to the same student.
Employer Tuition Assistance
Many of our students receive some form of tuition assistance from their employers. The Internal Revenue Code defines situations where this tuition assistance qualifies as a deductible business expense when adequately documented by the employer and employee. The Internal Revenue 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. The percentage of University of Phoenix students with access to employer tuition assistance was approximately 60% in 2002.
Locations
University of Phoenix currently has 40 physical campuses and 80 learning centers located in Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, Puerto Rico, and Vancouver, British Columbia. University of Phoenix also offers its educational programs worldwide through University of Phoenix Online, its computerized delivery system.
The Institute for Professional Development currently operates at 22 campuses and 28 learning centers in California, Connecticut, Delaware, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and Wisconsin.
The College for Financial Planning’s operations are located near Denver, Colorado.
Western International University’s main campus is located in Phoenix, Arizona. Additionally, Western International University operates three learning centers in Arizona.
Item 2
Item 2 - Properties
We lease all of our administrative and educational facilities. In some cases, classes are held in the facilities of the students’ employers at no charge to us. Leases generally range from five to ten years with one to two renewal options for extended terms. We also lease space from time-to-time on a short-term basis in order to provide specific courses or programs. The lease on our corporate headquarters, which includes the University of Phoenix, Phoenix Main Campus, was recently renewed for 10 years and will expire on December 31, 2011. As of August 31, 2002, we leased approximately four million square feet.
We evaluate current utilization of the educational facilities and projected enrollment growth to determine facility needs. We anticipate that an additional 500,000 square feet will be leased in 2003.
Item 3
Item 3 - Legal Proceedings
On approximately December 19, 2001, a class action complaint was filed in the Superior Court of the State of California for the County of Solano, captioned Davis et. al. v. Apollo Group, Inc. et. al., Case No. FCS018663. Plaintiffs, one current and two former enrollment advisors with University of Phoenix, filed this class action on behalf of themselves and current and former enrollment advisors employed by us in the State of California and seek certification as a class, monetary damages in unspecified amounts, and injunctive relief. Plaintiffs allege that during their employment, they and other enrollment advisors worked in excess of 8 hours per day
or 40 hours per week, and contend that we failed to pay overtime. An initial status conference has been held, but no trial date has been set. While the outcome of this legal proceeding is currently not determinable, management does not expect the results of this action to have a material adverse effect on our business, financial position, results of operations, or cash flows.
Item 4
Item 4 - Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5
Item 5 - Market for Registrant’s Common Equity and Related Stockholder Matters
There is no established public trading market for our Apollo Education Group Class B common stock, and all shares of our Apollo Education Group Class B common stock are beneficially owned by affiliates. Our Apollo Education Group Class A common stock trades on the Nasdaq National Market under the symbol “APOL” and our University of Phoenix Online common stock trades on the Nasdaq National Market under the symbol “UOPX.” The holders of our Apollo Education Group Class A common stock and our University of Phoenix Online common stock are not entitled to any voting rights.
The table below sets forth the high and low bid prices for our Apollo Education Group Class A common stock as reported by the Nasdaq National Market. All prices for periods prior to the 3-for-2 stock split in April 2002 and the 3-for-2 stock split in January 2001 have been restated to reflect the effect of the stock splits.
The table below sets forth the high and low bid prices for our University of Phoenix Online common stock between October 3, 2000 (the date of the offering) and August 31, 2002 as reported by the Nasdaq National Market. All prices for periods prior to the 4-for-3 stock split in April 2002 and the 3-for-2 stock split in July 2001 have been restated to reflect the effect of the stock splits.
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 October 28, 2002 there were approximately 278 holders of record of Apollo Education Group Class A and 5 holders of record of Apollo Education Group Class B common stock, and approximately 22 holders of record of shares of University of Phoenix Online common stock. We estimate that, when you include shareholders whose shares are held in nominee accounts by brokers, there were approximately 86,700 holders of our Apollo Education Group Class A common stock and approximately 9,000 holders of University of Phoenix Online common stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the near future. It is the current policy of our Board of Directors to retain earnings to finance the operations and expansion of our business. We are permitted to pay dividends exclusively on our Apollo Education Group Class A and Apollo Education Group Class B common stock, exclusively on
University of Phoenix Online common stock, or on both, in equal or unequal amounts. Holders of our Apollo Education Group Class A common stock and Apollo Education Group Class B common stock are entitled to equal per share cash dividends to the extent declared by the Board of Directors.
Item 6
Item 6 - Selected Consolidated Financial Data
Information relating to this item appears under the captions “Selected Consolidated Financial Information of Apollo Group, Inc.” on page 13 of the 2002 Annual Report for Apollo Group, Inc. and “Selected Financial Information of University of Phoenix Online” on page 37 of that report, and such information is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements and related Notes for Apollo Group, Inc. and University of Phoenix Online.
Item 7
Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
Information relating to this item appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Apollo Group, Inc.” on pages 14 through 19 of the 2002 Annual Report for Apollo Group, Inc. and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of University of Phoenix Online” on pages 37 through 40 of that report, and such information is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. This information should be read in conjunction with the Financial Statements and related Notes for Apollo Group, Inc. and University of Phoenix Online.
Item 7a
Item 7a - Quantitative and Qualitative Disclosures about Market Risk
Information relating to this item appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Apollo Group, Inc.” on page 19 of the 2002 Annual Report for Apollo Group, Inc., and such information is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K.
Item 8
Item 8 - Financial Statements and Supplementary Data
Information relating to this item appears on pages 19 through 34 of the 2002 Annual Report for Apollo Group, Inc. and pages 41 through 47 of that report for University of Phoenix Online, and such information is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. Other financial statements and schedules required under Regulation S-X promulgated under the Securities Act of 1933 are identified in Item 14 hereof and are incorporated herein by reference.
Item 9
Item 9 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10
Item 10 - Directors and Executive Officers of the Registrant
Our Board of Directors is currently divided into three classes, having staggered terms of three years each and are elected by the holders of our Apollo Education Group Class B common stock.
Our Class I directors, consisting of John G. Sperling, Ph.D., Dino J. DeConcini, and Thomas C. Weir, will stand for reelection at our 2003 Annual Meeting. Our Class II directors, consisting of John R. Norton III, Hedy F. Govenar, and J. Jorge Klor de Alva will stand for reelection at our 2004 Annual Meeting. Our Class III directors, consisting of Todd S. Nelson, Peter V. Sperling, and John Blair will stand for reelection at our 2005 Annual Meeting.
The following sets forth information as of October 31, 2002 concerning our directors and executive officers:
JOHN G. SPERLING, Ph.D., is the founder and Chairman of the Board of Directors of Apollo Group, Inc. Dr. Sperling was also President of Apollo Group, Inc. from its inception until February 1998 and Chief Executive Officer of Apollo Group, Inc. until August 2001. Prior to his involvement with Apollo Group, Inc., 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.
TODD S. NELSON has been with Apollo Group, Inc. since 1987. Mr. Nelson has been the Chief Executive Officer of Apollo Group, Inc. since August 2001 and the President of Apollo Group, Inc. since February 1998. Mr. Nelson was Vice President of Apollo Group, Inc. from 1994 to February 1998 and the Executive Vice President of University of Phoenix from 1989 to February 1998. From 1987 to 1989, Mr. Nelson was the Director of University of Phoenix’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.
PETER V. SPERLING has been with Apollo Group, Inc. since 1983. Mr. Sperling has been a Senior Vice President since June 1998. Mr. Sperling was the Vice President of Administration from 1992 to June 1998 and has been the Secretary and Treasurer of Apollo Group, Inc. since 1988. From 1987 to 1992, Mr. Sperling was the Director of Operations at Apollo Education Corporation. From 1983 to 1987, Mr. Sperling was Director of Management Information Services of Apollo Group, Inc. Mr. Sperling received his M.B.A. from University of Phoenix and his B.A. from the University of California at Santa Barbara. Mr. Sperling is the son of John G. Sperling.
LAURA PALMER NOONE, J.D., Ph.D., has been with University of Phoenix since 1987. Dr. Palmer Noone has served as President of University of Phoenix since September 2000. From 1994 to 2000 she was the Provost and Senior Vice President for Academic Affairs, and from 1991 to 1994, she was Director of Academic Affairs at University of Phoenix, Phoenix campus. Prior to that, she was Judge Pro Tem at the City of Chandler, and an Attorney at Law in general civil practice emphasizing business representation and civil litigation. She has also served as adjunct faculty at Grand Canyon University and Chandler-Gilbert Community College. Dr. Palmer Noone currently serves as a member of the Arizona State Board for Private Postsecondary Education and as a Board of Trustee Member for the Florida Coastal School of Law. Dr. Palmer Noone also serves on the National Advisory Committee on Institutional Quality and Integrity. Dr.
Palmer Noone received her Ph.D. from the Union Institute, her J.D. and her M.B.A. from the University of Iowa, and her B.B.A. from the University of Dubuque.
KENDA B. GONZALES has been with Apollo Group, Inc. since October 1998. Ms. Gonzales is the Chief Financial Officer of Apollo Group, Inc. Prior to joining Apollo Group, Inc., Ms. Gonzales was the Senior Executive Vice President and Chief Financial Officer of UDC Homes, Inc., a home building corporation. From 1985 to 1996, Ms. Gonzales was the Senior Vice President and Chief Financial Officer of Continental Homes Holding Corp., a home building corporation. Ms. Gonzales began her career as a Certified Public Accountant with Peat, Marwick, Mitchell and Company and is a graduate of the University of Oklahoma with a Bachelor of Accountancy.
DANIEL E. BACHUS has been with Apollo Group, Inc. since August 2000. Mr. Bachus is the Chief Accounting Officer and Controller of Apollo Group, Inc. From 1992 to 2000, Mr. Bachus was employed by Deloitte & Touche LLP, most recently as an Audit Senior Manager. Mr. Bachus received his B.S. in Accountancy from the University of Arizona and is a Certified Public Accountant.
JOHN BLAIR has been a director of Apollo Group, Inc. since September 2000 and is Chairman of the Audit Committee and a member of the Compensation Committee of the Board of Directors of Apollo Group, Inc. In addition, he served from 1982 to September 2000 as a director of Western International University, Inc., a wholly-owned subsidiary of Apollo Group, Inc. Mr. Blair was the Chief Operating Officer of Integrated Information Systems, Inc., a provider of integrated Internet solutions, from May 1999 through December 2000. In 1984, Mr. Blair founded J. Blair Consulting, an independent consulting business that provides management counsel to individuals and organizations in the areas of strategic planning, product planning, organizational diagnosis, management development, and strategies for leveraging business value through technology and continues to be active in this professional services firm. Mr. Blair earned a B.S. in Engineering from Purdue University and a Master of Arts in Organizational Management from University of Phoenix.
DINO J. DECONCINI has been a director of Apollo Group, Inc. since 1981 and is currently a member of the Audit Committee of the Board of Directors of Apollo Group, Inc. Mr. DeConcini is currently the Director of Financial Education at Consumer Federation of America. From February 1995 to June 2000, Mr. DeConcini was the Executive Director, Savings Bonds Marketing Office, U.S. Department of the Treasury. From 1979 to 1995, Mr. DeConcini was a shareholder and employee 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.
HEDY F. GOVENAR has been a director of Apollo Group, Inc. since March 1997. Ms. Govenar is founder and President of Governmental Advocates, Inc., a lobbying and political consulting firm in Sacramento, California. An active lobbyist with the firm since 1979, she represents a variety of corporate and trade association clients. From 1989 to 1999, Ms. Govenar served as a Commissioner on the California Film Commission as an appointee of the California State Assembly. Ms. Govenar received an M.A. from California State University and a B.A. from University of California at Los Angeles.
J. JORGE KLOR DE ALVA, J.D., Ph.D., has been a director of Apollo Group, Inc. since 1991. Since September 1, 2000, Dr. Klor de Alva has been Chairman of the Board and Chief Executive Officer of Apollo International. Dr. Klor de Alva was President of University of Phoenix and Senior Vice President of Apollo Group, Inc. from February 1998 through August 2000. Dr. Klor de Alva was Vice President of Business Development of Apollo Group, Inc. from 1996 to 1998. Dr. Klor de Alva was a Professor at the University of California at Berkeley from July 1994 until July 1996. From 1989 to 1994, Dr. Klor de Alva was a Professor at Princeton University. From 1984 to 1989, Dr. Klor de Alva was the Director of the Institute for Mesoamerican Studies, and from 1982 to 1989, was an Associate Professor 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.
JOHN R. NORTON III has been a director of Apollo Group, Inc. since March 1997 and is Chairman of the Compensation Committee and a member of the Audit Committee of the Board of Directors of Apollo Group, Inc. Mr. Norton founded the J. R. Norton Company, an agricultural producer, in 1955 engaged in diversified agriculture including crop production and cattle feeding. He served as the Deputy Secretary of the U.S. Department of Agriculture in 1985 and 1986. Mr. Norton is also on the Board of Directors of Terra Industries, Inc., a producer and marketer of nitrogen products and methanol. He attended Stanford University and the University of Arizona where he received a B.S. in Agriculture in 1950.
THOMAS C. WEIR has been a director of Apollo Group, Inc. since 1983. In 1996, Mr. Weir became the President of Dependable Nurses of Phoenix, Inc., a provider of temporary nursing services. 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.
Committees of the Board of Directors
The Board of Directors has two principal committees: (1) an Audit Committee comprised of John Blair (Chairperson), Dino J. DeConcini, and John R. Norton III and (2) a Compensation Committee comprised of John R. Norton III (Chairperson) and John Blair.
Meetings of the Board of Directors and its Committees
During the year ended August 31, 2002, the Board of Directors met on four occasions. All of the directors attended 100% of the Board of Directors meetings and meetings of each of the committees on which he or she served.
Compensation Committee. The Compensation Committee of our Board of Directors, which met two times during 2002, reviews all aspects of compensation of executive officers and determines or makes recommendations on such matters to the full Board of Directors. The report of the Compensation Committee for 2002 is set forth in Item 11.
Item 11.
Other Committees. We do not maintain a standing nominating committee or other committee performing similar functions.
Item 11 - Executive Compensation
Director Compensation
Fees. In 2002, our non-employee directors received a $24,000 annual retainer, $2,000 for each board meeting attended, and $1,000 for each committee meeting attended. In addition, committee chairmen received an additional $500 for each committee meeting. Non-employee directors are also reimbursed for out-of-pocket expenses.
Apollo Group, Inc. Amended and Restated Director Stock Plan. The Board of Directors has adopted the Apollo Group, Inc. Amended and Restated Director Stock Plan (“Director Plan”) to attract and retain independent directors. Under the amended Director Plan, up to 925,000 shares of Apollo Education Group Class A common stock and up to 100,000 shares of University of Phoenix Online common stock may be available for grant of awards. Options granted under the amended 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 amended Director Plan is equal to the fair market value of such shares upon the date of grant. Under the amended Director Plan, each non-employee director automatically receives a grant of options to purchase 20,250 shares of Apollo Education Group Class A common stock on September 1 of each year through 2003.
Executive Compensation
The following table discloses the annual and long-term compensation earned for services rendered in all capacities by our Chief Executive Officer and the four other most highly compensated executive officers for 2002:
SUMMARY COMPENSATION TABLE
The following tables disclose options granted by us to our Chief Executive Officer and the four other most highly compensated executive officers for 2002:
Option Grants to Purchase Apollo Education Group Class A Common Stock In the Last Fiscal Year
All employees of the Company, including the five most highly compensated executive officers, received an option grant in 2002 for 150 shares of Apollo Education Group Class A common stock. The exercise price per share for this grant is $29.327 and the expiration date is January 12, 2012. The potential realizable value of these shares assumed annual rates of stock price appreciation of 5% for the option term is $2,767 and 10% for the option term is $7,011.
Option Grants to Purchase University of Phoenix Online Common Stock In the Last Fiscal Year
Aggregated Option Exercises in Fiscal Year 2002 and Option Values at August 31, 2002
The following tables disclose the number of shares received from the exercise of our options, the value received therefrom, and the number and value of in-the-money and out-of-the-money options held by our Chief Executive Officer and the four other most highly compensated officers for 2002:
Apollo Education Group Class A Common Stock
University of Phoenix Online Common Stock
Employment and Deferred Compensation Agreements. In December 1993, we entered into an employment agreement and deferred compensation agreement with Dr. John G. Sperling, our Chairman of the Board. The term of the employment agreement was for five years and expired on December 31, 1997. The employment agreement has automatically renewed for four additional one-year periods through December 31, 2002, and will automatically renew for additional one-year periods thereafter. Under the terms of the employment agreement, Dr. Sperling received an annual salary of $450,000 for 2002 and 2001 and $400,000 for 2000. This salary is subject to annual review by the Compensation Committee. We 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 us and until his death, Dr. Sperling shall receive monthly payments equal to one-twelfth of his highest annual base salary paid by us 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.
We do not have employment agreements with any of our other executive officers.
Board Compensation Committee Report on Executive Compensation
Our Compensation Committee (the “Committee”) is composed entirely of independent outside members of our Board of Directors. The committee reviews and approves each of the elements of our executive compensation program related to our executive officers, including, John G. Sperling and Todd S. Nelson (the “Senior Executives”), 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 our Board of Directors in detail all aspects of compensation for our Senior Executives. The committee has furnished the following report on executive compensation:
Overview and Philosophy. Our compensation program for executive officers is primarily comprised of base salary, annual bonus, and long-term incentives in the form of stock option grants. Executive officers also participate in various other benefit plans, including medical and retirement plans, generally available to all of our employees.
Each of the executive officers receives a base salary, which when aggregated with their maximum bonus amount, is intended to be competitive with similarly situated executives in comparable industries, including those companies in the peer group contained in the Stock Performance Graph. The companies surveyed had annual revenues ranging from approximately $91.9 million to $647.6 million, with an average of $387.0 million and a median of $447.7 million. This data was used to target annual cash compensation for the executive officers at the higher end of companies surveyed.
Our philosophy is to pay base salaries to the executive officers that enable us 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 provide substantial rewards to executives based on stock price appreciation and improved overall financial performance. The vesting of the options can be accelerated if certain profit goals are achieved.
Base Salary. Salary increases for the executive officers are based on a review of the competitive data described above. We target base pay at the level required to attract and retain highly qualified executives. In determining salaries, the committee also takes into account position within us, individual experience and performance, our revenue size compared to the companies surveyed, and our specific needs particular to us.
Annual Bonus Program. In addition to a base salary, executive officers were eligible to receive a bonus. Bonus amounts for executive officers are determined annually based on a review of the competitive data described above. We target bonuses at the level required to attract and retain highly qualified executives. Bonus amounts are paid if certain goals are achieved.
Options. We believe that it is important for executive officers to have an equity stake in us, and, toward this end, we make option grants to key executive officers from time to time under the Apollo Group, Inc. 2000 Stock Incentive Plan. In making option awards, the Compensation Committee reviews our financial performance during the past fiscal year, the awards granted to other executives, and the individual officer’s specific role.
Other Benefits. Executive officers are eligible to participate in benefit programs designed for all of our full-time employees and certain of our executive officers also received certain perquisites, primarily including company cars and company paid tax consulting. These programs include medical, disability and life insurance, and a qualified retirement program allowed under Section 401(k) of the Internal Revenue Code.
Chairman of the Board and Chief Executive Officer Compensation. Dr. John G. Sperling is the founder and Chairman of our Board of Directors. In December 1993, we entered into an employment agreement (the “Employment Agreement”) and deferred compensation agreement (the “Deferred Compensation Agreement”) with Dr. Sperling. The Employment Agreement terminated on December 31, 1997. The Employment Agreement has automatically renewed for four additional one-year periods through December 31, 2002, and will automatically renew for additional one-year periods thereafter. The Deferred Compensation Agreement provides that upon Dr. Sperling’s termination of employment with us and until his death, Dr. Sperling shall receive monthly payments equal to one-twelfth of his highest annual base salary paid by us 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.
Dr. Sperling’s base salary is determined annually on the same basis discussed above for the executive officers. During fiscal year 2002, Dr. Sperling received an annual base salary of $450,000. Dr. Sperling’s bonus is tied solely to our earnings per share. At the beginning of each fiscal year, the Compensation Committee establishes an earnings per share goal for us. If that goal is achieved, Dr. Sperling earns a bonus up to seventy-five percent (75%) of his respective annual salary. Because the earnings per share goal for us was exceeded, Dr. Sperling was eligible for a bonus for 2002. Dr. Sperling has elected to forego this bonus in exchange for options in our Apollo Education Group Class A common stock. The amount of options to be granted will be determined at the discretion of the Compensation Committee and will be granted at fair market value and expire ten years after the grant date. The Compensation Committee does not apply a mathematical formula to determine the number of options granted, but will consider Dr. Sperling’s contribution to our performance during fiscal year 2002.
Todd S. Nelson is our President and Chief Executive Officer. Mr. Nelson’s base salary and bonus are determined annually on the same basis discussed above for Dr. Sperling except that in addition to a bonus equal to seventy-five (75%) of his annual salary, Mr. Nelson is entitled to an additional amount for every cent we are over our earnings per share goal. During 2002, Mr. Nelson received an annual base salary of $500,000. Because the earnings per share goal for us was exceeded, Mr. Nelson earned a bonus for 2002 of $2,575,000. As a result of Mr. Nelson’s performance during 2002, the Compensation Committee also granted Mr. Nelson options to acquire 225,000 shares of Apollo Education Group Class A common stock and 200,000 shares of University of Phoenix Online common stock, at an exercise price based on the fair market value on the date of grant. These options vest twenty-five (25%) per year for four years, unless future earnings per share goals established by the Compensation Committee are achieved, in which case the vesting schedule for these options will accelerate.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the Code limits the deductibility of executive compensation paid by publicly held corporations to $1 million for each executive officer named in this report. The $1 million limitation generally does not apply to compensation that is pursuant to a performance-based plan approved by shareholders. The Company’s policy is to comply with the requirements of Section 162(m) and maintain deductibility for all executive compensation, except in circumstances where we conclude on an informed basis that it is in the best interest of the Company and the shareholders to take actions with regard to the payment of executive compensation which do not qualify for tax deductibility.
Based on our understanding of the regulations under Section 162(m), we believe that the full amount of compensation for each executive officer named in this report will be deductible.
Compensation and Management Committee Interlocks and Insider Participation
No member of our Compensation Committee during the fiscal year ended August 31, 2002, was an officer or employee of us.
-COMPENSATION COMMITTEE -
John R. Norton III
John Blair
Audit Committee Report
The Audit Committee, operating under its written charter, has (i) reviewed and discussed the audited financial statements of the Company as of and for the year ended August 31, 2002 with management of the Company; (ii) discussed with the Company’s independent accountants the matters required to be discussed by Statement of Financial Accounting Standards (SFAS) No. 61, Communications with Audit Committees, and SFAS No. 90, Audit Committee Communications; (iii) received and reviewed the written disclosures and the letter from its independent accountants required by Independence Standards Board No. 1, Independence Discussions with Audit Committees; and (iv) discussed with its independent accountants, the independent accountants’ independence. Based on its review and discussions listed above, the Audit Committee recommended to the Board of Directors that the audited financial statements be incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended August 31, 2002, for filing with the Securities and Exchange Commission.
This report is submitted by the Audit Committee.
John Blair, Chairman
Dino J. DeConcini
John R. Norton III
Audit and Related Fees
Audit Fees. PricewaterhouseCoopers LLP’s fees for the audit of the Company’s consolidated financial statements for 2002 as well as for limited reviews of the consolidated financial information included in the Company’s quarterly reports on Form 10-Q for 2002 are $186,500, of which an aggregate amount of $140,000 had been billed through August 31, 2002.
Financial Information Systems Design and Implementation Fees. The Company did not engage PricewaterhouseCoopers LLP to provide services with respect to the design or implementation of financial information systems during 2002.
All Other Fees. The aggregate amount of all other fees billed to the Company for all other services rendered by PricewaterhouseCoopers LLP for 2002 were approximately $540,000. Such other services included: federal financial aid compliance audit services, tax planning and advice, preparation of income tax returns, assistance with securities registrations, audits of the financial statements of certain of the Company’s employee benefit plans, and other accounting advice and assistance. The Audit Committee has determined that the provision of the foregoing services and the related fees are compatible with maintaining PricewaterhouseCoopers LLP’s independence.
Stock Performance Graph
The line graph below compares the cumulative total shareholder return on our Apollo Education Group Class A common stock and University of Phoenix Online common stock with the cumulative total return for the Standard & Poor’s MidCap 400 Index, the Standard & Poor’s 500 Index, and an index of peer group companies selected by us for the period from August 31, 1997, through August 31, 2002. The graph assumes that the value of the investment in our Apollo Education Group Class A common stock and each index was $100 at August 31, 1997, and that all dividends paid by those companies included in the indexes were reinvested. It also assumes the value of our University of Phoenix Online common stock was $100 at August 31, 2000.
The education peer group is composed of the publicly-traded common stock of eight education-related companies that include Career Education Corporation (CECO), Corinthian Colleges, Inc. (COCO), DeVry Inc. (DV), Education Management Corporation (EDMC), ITT
Educational Services, Inc. (ESI), Sylvan Learning Systems, Inc. (SLVN), Strayer Education, Inc. (STRA), and Whitman Education Group, Inc. (WIX).
We believe that the education peer group is representative of the education industry in which we operate. Similar to us, all of the companies in the education peer group participate in the for-profit, post-secondary education market.
Item 12
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of our common stock as of October 31, 2002. Except as otherwise indicated, to our knowledge, 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, as well as persons who own more than 10% of a registered class of our equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in beneficial ownership. Directors, executive officers, and greater than 10% shareholders are required by Securities and Exchange Commission regulation to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of the copies of such forms furnished to us, or written representations that no Forms 5 were required, we believe that during the fiscal year ended August 31, 2002, our directors and officers complied with all Section 16(a) filing requirements with the following exceptions:
John Sperling was required to file Forms 4 in July 2002 to report the sale of Apollo Education Group Class A common stock and stock option exercises of Apollo Education Group Class A common stock. This transaction was reported pursuant to Forms 5 filed in September 2002.
Equity Compensation Plan Information
Equity Compensation Plans Approved by Shareholders
We have four stock-based compensation plans: the Apollo Group, Inc., Amended and Restated Director Stock Plan, the Apollo Group, Inc., Long-Term Incentive Plan, the Apollo Group, Inc., 2000 Stock Incentive Plan, and the Apollo Group, Inc., Amended and Restated 1994 Employee Stock Purchase Plan. Our shareholders have approved all four of these plans.
The Director Stock Plan currently provides for an annual grant to our non-employee directors of options to purchase shares of our Apollo Education Group Class A common stock on September 1 of each year through 2003. In addition, each non-employee director who was on the Board of Directors on the date of the public offering of University of Phoenix Online common stock received a grant of stock options to purchase 10,000 shares of University of Phoenix Online common stock on the date of such offering at the public offering price of $14.00 per share. Under the Long-Term Incentive Plan, we may grant options, incentive stock options, stock appreciation rights, and other stock-based awards in our Apollo Education Group Class A common stock to certain officers, key employees, or directors of us. Many of the options granted under the Long-Term Incentive Plan vest 25% per year starting at the end of 2002. The vesting 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. Under the 2000 Incentive Plan, we may grant options, incentive stock options, stock appreciation rights, and other stock-based awards in our Apollo Education Group Class A and University of Phoenix Online common stock to certain officers, key employees, or directors of us. Many of the options granted under the 2000 Incentive Plan vest over a four year period. The vesting may be accelerated for individual employees if certain operational goals are met. The Purchase Plan allows our employees to purchase shares of our Apollo Education Group Class A common stock and University of Phoenix Online 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) on the enrollment date into the respective quarterly offering period or 2) the fair market value on the purchase date.
Equity Compensation Plans Not Approved by Shareholders
We currently have no equity compensation plans that have not been approved by our shareholders.
The following table sets forth, for each of our equity compensation plans, the number of outstanding option grants and the number of shares remaining available for issuance as of August 31, 2002 for our Apollo Education Group Class A common stock, in thousands, except weighted-average exercise price:
The following table sets forth, for each of our equity compensation plans, the number of outstanding option grants and the number of shares remaining available for issuance as of August 31, 2002 for our University of Phoenix Online common stock, in thousands, except weighted-average exercise price:
Item 13
Item 13 - Certain Relationships and Related Transactions
On August 14, 1998, we, together with, Hughes Network Systems and Hermes Onetouch L.L.C. formed Interactive Distance Learning, Inc. for the purpose of acquiring One Touch Systems, Inc. In connection with the transaction, we, Hughes Network Systems, and Hermes Onetouch L.L.C. entered into certain agreements regarding the relationships among the parties. As contemplated in the agreements, it was anticipated that we may from time to time engage in transactions with One Touch Systems, Inc. for the provision of distance learning products and services. Currently, there have been no transactions with One Touch Systems, Inc. Hermes OneTouch L.L.C. is wholly-owned by Dr. John G. Sperling, our Chairman.
On December 14, 2001, Hermes OneTouch L.L.C. acquired our investment in Interactive Distance Learning in exchange for a promissory note in the principal amount of $11.9 million, which represented the related carrying value and approximated the related fair value as of that date. The promissory note accrues interest at an annual rate of six percent and is due at the earlier of December 14, 2021 or nine months after Dr. Sperling’s death. The promissory note is included in other assets in the consolidated balance sheet as of August 31, 2002.
Effective July 15, 1999, we entered into contracts with Apollo International, Inc. to provide educational products and services in certain locations outside of the United States, Canada, and Puerto Rico. John G. Sperling and J. Jorge Klor de Alva are directors of us and also directors of Apollo International, Inc. J. Jorge Klor de Alva, who is also a former Senior Vice President of Apollo Group, Inc., is the President and Chief Executive Officer of Apollo International, Inc. Shares of Apollo International, Inc. stock are beneficially owned by us (2.6% for which we have committed to pay $999,989 and have paid $874,979) and by an investment entity controlled by John G. Sperling and Peter V. Sperling, son of John G. Sperling, and a Senior Vice President and Director of Apollo Group, Inc. (26%). In addition, we have an option to acquire additional shares in Apollo International, Inc. The first offering under these agreements was started in the Netherlands in September 1999, where we are currently servicing approximately 80 students. During the fiscal year ended August 31, 2002, we received no revenue from Apollo International, Inc. for educational products and services.
Effective September 2002, Western International University entered into an Implementation Agreement with Apollo International, Inc. that allows for Western International University’s educational offerings to be made available in India. Apollo International, Inc. will manage the relationship with the entities in India that are offering the Western International University programs while Western International University maintains the educational content and the quality of the programs.
Effective June 1, 1999, we entered into an agreement with Governmental Advocates, Inc. to provide consulting services to us with respect to matters concerning legislation, regulations, public policy, electoral politics and any other topics of concern to us relating to state government in the state of California. Hedy Govenar, one of our directors, is the founder and President of Governmental Advocates, Inc. On June 1, 2002, we renewed this agreement for an additional one year. Pursuant to the agreement, we paid consulting fees to Governmental Advocates, Inc. of $120,000 in both 2002 and 2001.
Item 14
Item 14 - Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control procedures and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the President and Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. There were no significant changes in our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.
PART IV
Item 15
Item 15 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of Apollo Group, Inc. and Subsidiaries, included in the Annual Report to Shareholders for the year ended August 31, 2002, are incorporated by reference from our 2002 Annual Report to Shareholders.
Apollo Group, Inc.
University of Phoenix Online
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or related notes.
3. Exhibits
10.1f
Fourth Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated August 3, 1999
Incorporated by reference to Exhibit 10.1f of the August 31, 1999 Form 10-K
10.1g
Fifth Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated November 1, 1999
Incorporated by reference to Exhibit 10.1g of the August 31, 1999 Form 10-K
10.1h
Sixth Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated March 2, 2000
Incorporated by reference to Exhibit 10.1h of the February 29, 2000 Form 10-Q/A, filed July 20, 2000
10.1i
Seventh Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated February 23, 2001
Incorporated by reference to Exhibit 10.1i of the February 28, 2001 10-Q
10.1j
Eighth Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated January 15, 2002
Incorporated by reference to Exhibit 10.1j of the February 28, 2002 10-Q
10.2
Apollo Group, Inc. Amended and Restated Director Stock Plan*
Incorporated by reference to Exhibit 10.2 of our Registration Statement No. 333-33370 on Form S-3, dated August 31, 2000
10.3
Apollo Group, Inc. Long-Term Incentive Plan*
Incorporated by reference to Exhibit 10.3 of Form S-1 No. 33-83804
10.4
Amended and Restated Apollo Group, Inc. Savings and Investment Plan*
Incorporated by reference to Exhibit 10.4 of the November 30, 2001 10-Q
10.5
Apollo Group, Inc. Amended and Restated 1994 Employee Stock Purchase Plan*
Incorporated by reference to Exhibit 10.2 of our Registration Statement No. 333-33370 on Form S-3, dated August 31, 2000
10.7
Apollo Group, Inc. 2000 Stock Incentive Plan*
Incorporated by reference to Exhibit 10.1 of our Registration Statement No. 333-33370 on Form S-3, dated August 31, 2000
10.8
Employment Agreement between Apollo Group, Inc. and John G. Sperling*
Incorporated by reference to Exhibit 10.6 of Form S-1 No. 33-83804
10.9
Deferred Compensation Agreement between John G. Sperling and Apollo Group, Inc.*
Incorporated by reference to Exhibit 10.7 of Form S-1 No. 33-83804
10.10a
Shareholder Agreement dated September 7, 1994, by and between the Company and each holder of the Company’s Apollo Education Group Class B Common Stock
Incorporated by reference to Exhibit 10.10 of Form S-1 No. 33-83804
10.10b
Amendment to Shareholder Agreement between the Company and each holder of the Company’s Apollo Education Class B Common Stock, dated May 25,
Incorporated by reference to Exhibit 10.10b of the August 31, 2001 Form 10-K
10.11
Agreement of Purchase and Sale of Assets of Western International University dated June 30, 1995 (without schedules and exhibits)
Incorporated by reference to Exhibit 10.11 of the August 31, 1995 Form 10-K
10.12
Purchase and Sale Agreement dated October 10, 1995
Incorporated by reference to Exhibit 10.12 of the August 31, 1996 Form 10-K
10.13
Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2001
Incorporated by reference to Exhibit 10.10b of the August 31, 2001 Form 10-K
10.13a
Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2002
Filed herewith
10.14
Promissory Note from Hermes OneTouch, L.L.C
Incorporated by reference to Exhibit 10.14 of the February 28, 2002 10-Q
Pages 13 through 47 of Apollo Group, Inc. 2002 Annual Report to Shareholders for the year ended August 31, 2002
Filed herewith
List of Subsidiaries
Filed herewith
Consent of Independent Accountants
Filed herewith
99.1
Form of Agreement of Institute for Professional Development
Incorporated by reference to Exhibit 99.1 of Form S-1 No. 33-83804
99.2
Audit Committee Charter
Filed herewith
99.3
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
Filed herewith
99.4
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
Filed herewith
*
Indicates a management contract or compensation plan.
(b) Reports on Form 8-K
During the last quarter of the 2002 fiscal year, we filed no reports on Form 8-K.
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 November 27, 2002.
APOLLO GROUP, INC.
An Arizona Corporation
By: /s/ Todd S. Nelson
Todd S. Nelson
President, Chief Executive Officer, and Director
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.
/s/ J. Jorge Klor de Alva J. Jorge Klor de Alva
Director
November 27, 2002
/s/ Thomas C. Weir Thomas C. Weir
Director
November 27, 2002
/s/ John R. Norton III John R. Norton III
Director
November 27, 2002
/s/ Hedy F. Govenar Hedy F. Govenar
Director
November 27, 2002
/s/ John Blair John Blair
Director
November 27, 2002
CERTIFICATIONS
I, Todd S. Nelson, certify that:
1. I have reviewed this annual report on Form 10-K of Apollo Group, Inc. (the “registrant”);
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 27, 2002
/s/ Todd S. Nelson
Todd S. Nelson
President and Chief Executive Officer
CERTIFICATIONS - (Continued)
I, Kenda B. Gonzales, certify that:
1. I have reviewed this annual report on Form 10-K of Apollo Group, Inc. (the “registrant”);
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 27, 2002
/s/ Kenda B. Gonzales
Kenda B. Gonzales
Chief Financial Officer
Exhibit Index
10.1f
Fourth Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated August 3, 1999
Incorporated by reference to Exhibit 10.1f of the August 31, 1999 Form 10-K
10.1g
Fifth Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated November 1, 1999
Incorporated by reference to Exhibit 10.1g of the August 31, 1999 Form 10-K
10.1h
Sixth Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated March 2, 2000
Incorporated by reference to Exhibit 10.1h of the February 29, 2000 Form 10-Q/A, filed July 20, 2000
10.1i
Seventh Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated February 23, 2001
Incorporated by reference to Exhibit 10.1i of the February 28, 2001 10-Q
10.1j
Eighth Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated January 15, 2002
Incorporated by reference to Exhibit 10.1j of the February 28, 2002 10-Q
10.2
Apollo Group, Inc. Amended and Restated Director Stock Plan*
Incorporated by reference to Exhibit 10.2 of our Registration Statement No. 333-33370 on Form S-3, dated August 31, 2000
10.3
Apollo Group, Inc. Long-Term Incentive Plan*
Incorporated by reference to Exhibit 10.3 of Form S-1 No. 33-83804
10.4
Amended and Restated Apollo Group, Inc. Savings and Investment Plan*
Incorporated by reference to Exhibit 10.4 of the November 30, 2001 10-Q
10.5
Apollo Group, Inc. Amended and Restated 1994 Employee Stock Purchase Plan*
Incorporated by reference to Exhibit 10.2 of our Registration Statement No. 333-33370 on Form S-3, dated August 31, 2000
10.7
Apollo Group, Inc. 2000 Stock Incentive Plan*
Incorporated by reference to Exhibit 10.1 of our Registration Statement No. 333-33370 on Form S-3, dated August 31, 2000
10.8
Employment Agreement between Apollo Group, Inc. and John G. Sperling*
Incorporated by reference to Exhibit 10.6 of Form S-1 No. 33-83804
10.9
Deferred Compensation Agreement between John G. Sperling and Apollo Group, Inc.*
Incorporated by reference to Exhibit 10.7 of Form S-1 No. 33-83804
10.10a
Shareholder Agreement dated September 7, 1994, by and between the Company and each holder of the Company’s Apollo Education Group Class B Common Stock
Incorporated by reference to Exhibit 10.10 of Form S-1 No. 33-83804
10.10b
Amendment to Shareholder Agreement between the Company and each holder of the Company’s Apollo Education Class B Common Stock, dated May 25,
Incorporated by reference to Exhibit 10.10b of the August 31, 2001 Form 10-K
10.11
Agreement of Purchase and Sale of Assets of Western International University dated June 30, 1995 (without schedules and exhibits)
Incorporated by reference to Exhibit 10.11 of the August 31, 1995 Form 10-K
10.12
Purchase and Sale Agreement dated October 10, 1995
Incorporated by reference to Exhibit 10.12 of the August 31, 1996 Form 10-K
10.13
Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2001
Incorporated by reference to Exhibit 10.10b of the August 31, 2001 Form 10-K
10.13a
Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2002
Filed herewith
10.14
Promissory Note from Hermes OneTouch, L.L.C.
Incorporated by reference to Exhibit 10.14 of the February 28, 2002 10-Q
Pages 13 through 47 of Apollo Group, Inc. 2002 Annual Report to Shareholders for the year ended August 31, 2002
Filed herewith
List of Subsidiaries
Filed herewith
Consent of Independent Accountants
Filed herewith
99.1
Form of Agreement of Institute for Professional Development
Incorporated by reference to Exhibit 99.1 of Form S-1 No. 33-83804
99.2
Audit Committee Charter
Filed herewith
99.3
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
Filed herewith
99.4
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
Filed herewith
*
Indicates a management contract or compensation plan.