Item 1 - Business
Overview
This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which is incorporated by reference from our 2005 Annual Report, contain forward-looking statements regarding future events and future results of Apollo Group, Inc. (“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. The words “believes,” “expects,” “anticipates,” “estimates,” “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 almost 30 years. We operate through our subsidiaries: The University of Phoenix, Inc. (“University of Phoenix”), Western International University, Inc. (“Western International University”), Institute for Professional Development, and The College for Financial Planning, Inc. (the “College for Financial Planning”). The consolidated enrollment in our educational programs makes us the largest private institution of higher education in the United States. We currently offer our programs and services at 90 campuses and 154 learning centers in 39 states, Puerto Rico, Alberta, and British Columbia. Our combined degree enrollment at August 31, 2005, was approximately 307,400.
University of Phoenix 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 63 local campuses and 112 learning centers in 34 states, Puerto Rico, Alberta, and British Columbia. University of Phoenix also offers its educational programs worldwide through 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 45% of University of Phoenix’s students receive some level of tuition assistance from their employers. University of Phoenix is our largest subsidiary, with its tuition revenues currently representing approximately 89.4% of consolidated tuition revenues.
Western International University is accredited by The Higher Learning Commission, and currently offers undergraduate and graduate degree programs at local campuses in Arizona and through joint ventures in China and India. Axia College of Western International University offers associate degrees in business, criminal justice, general studies, health administration, and information technology worldwide through its computerized educational delivery system. The Axia College program is designed for students with little or no college experience and offers small classes of less than 20 students and dedicated faculty who are specially trained in facilitating the online learning experience.
Institute for Professional Development provides program development and management consulting 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 design, curriculum development, market research, student recruitment, accounting, and administrative
services. Institute for Professional Development provides these services at 23 campuses and 39 learning centers in 25 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 typically works with 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.
The College for Financial Planning, located near Denver, Colorado, provides financial planning education programs, including the Certified Financial Planner Professional Education Programtm certification, as well as regionally accredited graduate degree programs in financial planning, financial analysis, and finance. The College for Financial Planning also offers some of its non-degree programs at University of Phoenix campuses.
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 website addresses are as follows:
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Apollo Group
www.apollogrp.edu
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University of Phoenix
www.phoenix.edu
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Institute for Professional Development
www.ipd.org
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Western International University
www.wintu.edu
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Axia College of Western International University
www.axiacollege.com
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College for Financial Planning
www.fp.edu
Our fiscal year is from September 1 to August 31. Unless otherwise stated, references to the years 2005, 2004, and 2003 relate to the fiscal years ended August 31, 2005, 2004, and 2003, respectively.
From October 3, 2000, to August 27, 2004, we had a class of stock, University of Phoenix Online common stock, outstanding, that reflected the separate performance of University of Phoenix Online, a campus within University of Phoenix. On August 6, 2004, our Board of Directors authorized the conversion of each share of University of Phoenix Online common stock to shares of Apollo Education Group Class A common stock effective August 27, 2004. In accordance with the terms of our Articles of Incorporation, each outstanding share of University of Phoenix Online common stock was converted into 1.11527 shares of Apollo Education Group Class A common stock as of August 27, 2004. The conversion resulted in the issuance of approximately 16.6 million new shares of Apollo Education Group Class A common stock. In addition, each unexercised option to purchase University of Phoenix Online common stock at August 27, 2004, was converted to 1.0766 options to purchase Apollo Education Group Class A common stock. The conversion ratio was based upon the relative market values of Apollo Education Group Class A common stock and University of Phoenix Online common stock at the close of the market on August 12, 2004, prior to the announcement. The conversion resulted in a $114.2 million reduction to income available to Apollo Education Group common stock related to the premium paid to convert outstanding shares of University of Phoenix Online common stock to Apollo Education Group Class A common stock. We recognized a non-cash stock-based compensation charge of $123.5 million related to the conversion of University of Phoenix Online stock options into Apollo Education Group Class A stock options in the fourth quarter of 2004 and a $19.8 million charge in the fourth quarter of 2005, and expect to recognize an additional $2 million compensation charge as the remaining options vest in 2006 and 2007. We have delisted the University of Phoenix Online common stock and no longer report separate financial statements for University of Phoenix Online.
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 $250 billion industry. According to the U.S. Department of Education, National Center for Education Statistics, over six million, or 37%, of all students enrolled in higher education programs are over the age of 24. A large percentage of these students would not be classified as traditional: living on campus, supported by parents, and not working. The non-traditional students typically are looking to improve their skills and enhance their earnings potential within the context of their current careers. The market for adult education should continue to increase to keep pace with the rapidly expanding knowledge-based economy.
Many students seek accredited degree programs that provide flexibility to accommodate the fixed schedules and time commitments associated with their professional and personal obligations. The education formats offered by our subsidiaries enable working adult students to attend classes and complete coursework on a more convenient schedule. Many universities and institutions offering technology-based education 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 ages 18 to 24, who remain the primary focus of these institutions. 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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physically-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 related laboratories, staff, and other facilities.
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The majority of accredited colleges and universities continue to provide the bulk of their educational programming on an agrarian calendar with time off for traditional holiday breaks. The academic year generally runs 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 may serve the needs of the full-time 18 to 24 year old student, it limits the educational opportunity for those 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.
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Diminishing financial support for public colleges and universities has required them to focus more tightly on their existing student populations and missions. Additionally, in the last ten years, American universities have decreased the percentage of money spent on instruction for teaching undergraduates. Both factors have combined to make access to public education more restrictive than ever.
We believe that our track record for enrollment and revenue growth is attributable to our offering comprehensive services combining educational content, teaching resources, and customer service with formats that are accessible and easy to use for students as well as corporate clients.
Our Offerings
Our nearly 30-year history as a provider of higher education for working adult students enables us to provide students with quality education and responsive customer service. Our subsidiaries have gained
expertise in designing curriculum, recruiting and training faculty, monitoring academic quality, and providing a high level of support services to students that allows them to offer the following:
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Accredited Degree Programs. University of Phoenix, Western International University, and the graduate programs at the College for Financial Planning are accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools. This regional accreditor or one of the other regional accrediting associations accredit the client institutions of Institute for Professional Development. 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. A large portion of the faculty teaching at our subsidiaries are working professionals and are required to possess either a masters or doctoral degree. In addition, University of Phoenix requires faculty (other than those teaching in general education or related subjects where the requirement would not apply) to have five years of recent professional experience in a field related to the subject they teach. Our subsidiaries have well-developed methods for hiring and training faculty, which include peer reviews of newly-hired instructors by other members of the faculty, training in grading and instructing students, and a teaching mentorship with a more experienced faculty member. Classes are designed to be small and engaging. Faculty members are also required to be accessible to students by maintaining office hours.
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Current and Relevant Standardized Programs. Faculty content experts design curriculum for the majority of programs at our subsidiaries. This enables us to offer current and relevant standardized programs to our students. We also utilize institution-wide systems to assess the educational outcomes of our students and improve the quality of our curriculum and instructional model. These systems evaluate the cognitive and affective skills of our students upon registration and upon conclusion of the program and also survey 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 students enrolled at our subsidiaries 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. Classes are taught by faculty members who emphasize the skills desired by employers. In addition, the class time flexibility further benefits employers since it avoids conflict with their employees’ work schedules. A recent survey by University of Phoenix showed that approximately 45% of its students receive some level of tuition assistance from their employers.
Strategy
One of our objectives is to be the leading provider of accessible, high quality education for working adult students and a preferred provider of workplace training to their employers. We are dedicated to improving the nation’s workforce by delivering measurable results, providing accessible programs, and developing efficient and effective education programs and solutions. 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 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 are implementing 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, Canada, and Mexico. University of Phoenix currently plans on opening seven to nine new campuses during 2006. In 2005, seven new University of Phoenix campuses were opened. 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.
Expand Student Base in Associates Degree Programs. We plan to continue increasing the number of online students in our associate degree programs through the growth of Axia College of Western International University. Axia College has been specifically designed to meet the special needs of low-credit working adults. We believe that the number of Axia College students will continue to increase significantly as we believe we are best positioned to meet the needs of these students through small class sizes and highly qualified staff.
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:
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Bachelor of Science in Education
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Master of Science in Administration of Justice and Security
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Specialization in Global Business Management to Bachelor of Science in Business
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Specialization in Visual Communication to Bachelor of Science in Information Technology
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Specialization in Public Administration to both Master of Business Administration and Master of Management
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Specialization in Curriculum and Instruction to Doctor of Education in Educational Leadership
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Specialization in Information Systems and Technology to Doctor of Management in Organizational Leadership
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 51 people involved in our centralized curriculum development process. Potential additions to our current offerings include:
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new degree programs, such as Bachelor of Science in Communication, Bachelor of Science in Psychology, and Masters of Science in Psychology;
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new specializations in Hospitality Management and Integrated Supply Chain & Operations Management to Bachelor of Science in Business, specialization in Reading and Literacy to Masters of Arts in Education;
Expand Access to Programs. We plan to continue expanding our distance education programs and services. Online courses and programs are available via the Internet 24 hours a day, 7 days a week.
International Expansion. We believe that the international market for our services is a major growth opportunity. The United States 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 our online programs have students located in more than 130 countries. In addition, many U.S. residents live and work in foreign countries and could benefit from the opportunity to continue their education while abroad. In addition, we have entered into a number of joint educational agreements to provide educational content to degree programs located outside the United States. These agreements include an agreement with Apollo International, Inc. that allows for Western International University’s educational offerings to be made available in India and an educational program that was initiated in China as part of a joint educational agreement with Canadian Institute of Business
and Technology (CIBT). We will continue to conduct market and operations research in various foreign countries where we believe there might be a demand for our programs.
Teaching/ Learning Model-Degree Programs
The teaching/learning models used by University of Phoenix, the Institute for Professional Development client institutions, and Western International University were designed specifically to meet the educational needs of working adults. The models are 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. In addition, at University of Phoenix, students also meet weekly as part of a three to five-person learning team. Learning team sessions are an integral part of each University of Phoenix 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 other professions. In this way, faculty members are able to share their professional knowledge and skills with the students.
Components of our teaching/learning models include:
Curriculum
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, in order to teach at University of Phoenix, faculty must have a minimum of five years’ recent professional experience in a field related to the subject matter in which they seek to instruct (other than those teaching in general education or related subjects).
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
University of Phoenix and Western International University students are enrolled year round and complete classes sequentially, rather than concurrently. This permits students 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. Axia College students are enrolled in courses that are nine weeks in length and are offered in pairs to complement each other. One week will emphasize reading and discussion, while the following week will emphasize a work project; the
assignments alternate so that during each week the student will be reading in one class and completing a project in the other.
Academic Quality
The Academic Quality Management System at University of Phoenix was 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 37% 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, Western International University, and Institute for Professional Development client institutions acknowledge the differences in educational needs between working adult students and traditional students and provide programs and services that allow students to earn their degrees without major disruption to their personal and professional lives.
The educational literature suggests that working adult students require a different teaching/learning model than that designed for traditional students. Working adult students 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 models include:
Accessibility
Academic programs that may be accessed through a variety of delivery modes (e.g., campus-based, electronically delivered, or a blend of both) that make the educational programs accessible and even portable, regardless of where the students work and live.
Instructional Costs
While the majority of the faculty members at most accredited colleges and universities are employed full-time, the faculty at our subsidiaries is made up of both full-time and associate members. Many faculty members work full-time in the fields in which they teach.
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 13 years. The focus on working, 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 45% of University of Phoenix students receive some level of tuition assistance from their employers; approximately 35% receive at least half of their tuition; and approximately 15% 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 certification and for students seeking further education in financial services, including masters of science degrees in financial planning, financial analysis, and finance. 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 degrees, these same programs are offered in a classroom-based format through University of Phoenix campuses as well as independent classroom providers and online-based formats. Most of the College for Financial Planning’s students are employed, and approximately 91% have a bachelors degree or higher. The College for Financial Planning’s programs are developed internally by 9 full-time faculty members. With the exception of the masters programs, 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. Western International University’s faculty consists of 13 full-time department chairs and 1,018 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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Accounting
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Administration
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E-business
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Finance
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Global Business Management
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Information Systems
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Management
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Marketing
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Public Administration
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Retail Management
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Bachelor of Science in Criminal Justice Administration
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Bachelor of Science in Education
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Bachelor of Science in Human Services
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Bachelor of Science in Health Administration
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Bachelor of Science in Information Technology
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Areas of Specialization
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Software Engineering
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Visual Communication
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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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Areas of Specialization
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Administration and Supervision
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Adult Education and Distance Learning
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Curriculum and Instruction
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Computer Education
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Adult Education and Distance Learning
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Curriculum and Technology
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Early Childhood
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Elementary Teacher Education
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Secondary Teacher Education
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Special Education
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Master of Business Administration
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Areas of Specialization
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Accounting
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E-business
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Global Management
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Health Care Management
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Human Resource Management
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Marketing
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Public Administration
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Technology Management
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Master of Counseling
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Areas of Specialization
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Community Counseling
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Marriage and Family Counseling
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Mental Health Counseling
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School Counseling
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Master of Health Administration
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Master of Management
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Areas of Specialization
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Human Resource Management
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International Management
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Public Administration
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Master of Science in Administration of Justice and Security
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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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Integrative Health
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Health Care Education
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Master of Information Systems
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Area of Specialization
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Management
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Doctor of Business Administration
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Doctor of Education in Educational Leadership
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Area of Specialization
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Curriculum and Instruction
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Doctor of Health Administration
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Doctor of Management in Organizational Leadership
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Area of Specialization
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Information Systems and Technology
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 (“CAEL”), for the potential award of credit. The average number of credits awarded to the approximately 4,450 University of Phoenix undergraduate students who utilized the process in 2005 was approximately 4 credits of the 120 required to graduate. CAEL reports that over 1,500 regionally accredited colleges and universities are members of CAEL and currently accept credits awarded for college level learning gained through experience.
Institute for Professional Development Services. 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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recommending operational and administrative infrastructures;
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offering faculty development and training;
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developing and implementing financial accounting and 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;
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training of adult program staff;
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conducting systems reviews for program quality improvements; and
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consulting in areas related to regional and state accreditation.
In consideration for its services, 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, Institute for Professional Development, its client institutions, and University of Phoenix formed the Consortium for the Advancement of Adult Higher Education. This consortium shares best practices in adult higher education. Conference topics include outcomes assessment, educational technology, leadership, and continuous process improvement.
Institute for Professional Development client institutions offer the following programs with our assistance:
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Associate of Business Management
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Associate of Arts
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Areas of Specialization
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Biblical Studies
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Business
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Business Administration
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Christian Ministry
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Computer Information Systems
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Leadership Studies
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Organizational Dynamics
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Social Services
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Associate of Science
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Areas of Specialization
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Business
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Business Management
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Computer Information Systems
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Education
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Management Information Systems
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Bachelor of Arts
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Areas of Specialization
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Business
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Management
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Public Administration
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Bachelor of Business Administration
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Bachelor of Business in Information Systems
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Bachelor of Health Administration
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Bachelor of Science
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Areas of Specialization
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Accounting
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Business Administration
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Business Information Systems
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Christian Ministry
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Human Development
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Human Services
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Human Services Management
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Management
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Management of Information Systems
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Marketing
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Ministry Leadership
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Ministry Studies
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Nursing
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Strategic Management of Information Systems
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Master of Arts in Leadership
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Master of Arts in Organizational Leadership
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Master of Arts in Teaching
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Master of Business Administration
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Area of Specialization
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Health Care Executives
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Master of Education
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Master of Science in Management
Institute for Professional Development assisted programs also include a limited number of general education courses and certificate programs.
College for Financial Planning Programs. The College for Financial Planning currently offers master of science degree programs with majors in financial planning, financial analysis, and finance. The financial
planning major focuses on the fundamentals of financial planning and meets the educational requirement of the CFP Board of Standards, Inc. for taking the CFP® Certification Examination. The financial analysis major incorporates the CFA Body of Knowledge learning objectives offered by the CFA Institute and helps prepare students for the CFA examinations.
The College for Financial Planning currently offers the following designation programs:
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Accredited Asset Management Specialist
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Accredited Wealth Management Advisor
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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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Associate of Arts
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Areas of Specialization
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Accounting
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Business
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Criminal Justice
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General Studies
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Health Administration
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Information Technology
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Bachelor of Arts in Behavioral Science
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Bachelor of Arts in Human Resource Management
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Bachelor of Arts in Administration of Justice
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Bachelor of Science in Accounting
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Bachelor of Science in Business
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Areas of Specialization
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E-Commerce
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Finance
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Human Resources Management
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Marketing
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Bachelor of Science in Business Administration
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Bachelor of Science in General Business
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Areas of Specialization
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Criminal Justice
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Financial Services
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Health and Human Services
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Hospitality, Travel, and Tourism
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Real Estate Administration
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Retail Management
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Sales and Services
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Technology Management
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Bachelor of Science in Information Technology
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Bachelor of Science in International Business
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Bachelor of Science in Management
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Master of Business Administration
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Areas of Specialization
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Finance
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International Business
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Information Technology
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Management
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Marketing
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Master of Science in Information Technology
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Master of Science in Information Systems Engineering
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Master of Public Administration
Western International University also offers professional studies programs in Accountancy and the Certified Financial Planner Certification Education Program.
Distance Education
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 University of Phoenix Online class adheres to a set framework thus providing procedural instructional consistency. Prior to the beginning of each class, each student pays a fee to access rEsource®, our online delivery method for course materials. Every class consists of a series of eight newsgroups. The main newsgroup is designated for class discussion, and 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.
Axia College of Western International University. Like University of Phoenix Online, Axia College has developed a system to be easily accessible and familiar to most students. All the student needs to participate in Axia College’s classes is a Pentium-class personal computer, a 56.6K modem, and an Internet service provider.
Each Axia College class adheres to a set framework thus providing procedural instructional consistency. Every class consists of a series of newsgroups. The main newsgroup is designated for class discussion, and 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. Students complete two nine-week courses at a time. The learning objectives in each set of courses are designed to complement each other throughout the program. Currently Associates of Arts degrees in business, criminal justice, general studies, health administration, and information technology are offered at Axia College.
College for Financial Planning. Business and investment professionals who 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’ trades or professions. 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, 2005:
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 during 2005, the average age of University of Phoenix’s students is in the mid-thirties, approximately 58% are women and 42% are men. 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, 65% of students at the College for Financial Planning are under the age of 45 and approximately 23% are women and 77% are men. Most of the College for Financial Planning’s students are employed, and approximately 96% have obtained a bachelors degree or higher.
Institute for Professional Development client institutions have historically consisted of small private colleges; however, Institute for Professional Development also targets larger institutions of higher education that are in need of marketing, prior learning assessment, and curriculum consulting. 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, 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.
University of Phoenix Online was granted two overseas military contracts in 2003. They allow University of Phoenix Online to offer graduate degree programs to U.S. military personnel on-site at military bases in Europe, Asia, and the Pacific Rim.
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:
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. We believe these prospective students are more likely to enroll in our programs because these prospects are actively seeking information about degree programs.
Direct Mail. Direct mail is effective at reaching the working 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 postage-paid reply card or envelope;
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calling us at a specific toll-free 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.
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. Referrals continue to be an important source of new students; including those from employers, co-workers, current students, alumni, family members, and other 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 and convenient 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.
Institute for Professional Development faces competition from other entities offering higher education curriculum development and management services for adult education programs. The majority of Institute for Professional Development’s current competitors provide short-term, pre-packaged curriculum or turn-key programs.
Employees
At August 31, 2005, 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 could have a material adverse effect on us.
From time to time as part of the normal course of business, the Apollo Group subsidiaries are subject to periodic program reviews and audits by regulating bodies. The U.S. Department of Education, Office of Inspector General, conducted an audit of University of Phoenix for the period September 1, 2002, through March 31, 2004. On August 24, 2004, the Office of Inspector General issued a final audit report with recommendations to U.S. Department of Education. Except for two areas, the Office of Inspector General concluded that University of Phoenix had policies and procedures that provide reasonable assurances that the institution properly makes initial and subsequent disbursements to students enrolled in Title IV eligible programs. The U.S. Department of Education will ultimately issue a final audit determination letter on the two exceptions regarding disbursing funds to student accounts for allowable institutional charges and disbursing funds to students who were not in eligible programs. The Office of the Inspector General expects to issue a separate audit report on their review of our policies and procedures for the calculation and return of Title IV funds. While the outcome of this audit proceeding is uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from this action.
Accreditation
University of Phoenix, Western International University, the College for Financial Planning, and 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 senior regional accrediting associations, representatives of each region in which a regionally accredited institution operates participate in the evaluations for reaffirmation of accreditation.
University of Phoenix was granted accreditation by The Higher Learning Commission in 1978. University of Phoenix’s accreditation was reaffirmed in 1982, 1987, 1992, 1997, and 2002. The next comprehensive evaluation visit by The Higher Learning Commission will be conducted in 2012. The withdrawal of accreditation from University of Phoenix would have a material adverse effect on us.
Programs offered by Institute for Professional Development client institutions are evaluated by the client institutions’ respective regional accrediting associations either as part of a reaffirmation visit or a focused evaluation visit. Current Institute for Professional Development client institutions are accredited by The Higher Learning Commission, Middle States, New England, Northwest, Southern, or Western regional accrediting associations.
The College for Financial Planning graduate degree program is accredited by The Higher Learning Commission. The Higher Learning Commission reaffirmed the accreditation of the graduate degree program in 2004 and the next reaffirmation visit is scheduled for 2011.
Western International University was accredited by The Higher Learning Commission prior to the acquisition by us, and the accreditation was reaffirmed in 1998 and 2005. Western International University’s next reaffirmation visit will occur in Spring 2012.
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 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 2000, both the Bachelor of Science in Nursing and the Master of Science in Nursing programs received reaccredidation status from the National League for Nursing Accreditation Commission. In September 2005, both nursing degree programs received the full five-year initial accreditation status from the Commission on Collegiate Nursing Education.
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 the accreditation was reaffirmed in 2002. The next reaffirmation visit is expected in 2010. University of Phoenix’s Utah campus received the same accreditation in 2001, and the next reaffirmation visit is expected in 2008.
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 in Organizational Leadership program beginning in 1999. 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 Education in Educational Leadership, and Doctor of Health Administration. All of the Doctorate programs are offered via distance learning technology with annual two-week residencies in Phoenix throughout the program.
The address and phone number for the accrediting bodies are as follows:
The Higher Learning Commission
30 North LaSalle Street, Suite 2400
Chicago, IL 60602-2504
(312) 263-0456
Commission on Collegiate Nursing Education
One Dupont Circle, NW, Suite 530
Washington, DC 20036
(202) 887-6791
National League for Nursing Accrediting Commission
61 Broadway
New York, NY 10006
(800) 669-1656
Council for Accreditation of Counseling and Related Educational Programs
5999 Stevenson Avenue, 4th floor
Alexandria, VA 22304
(800) 347-6647
Federal Financial Aid Programs
The U.S. Department of Education issues regulations based on the laws included in the Higher Education Act of 1965, as amended (“Higher Education Act”). The Higher Education Act has been extended to December 31, 2005. Changes in the law occur during the Congressional reauthorization process, with final regulations issued after that time. The reauthorization process could amend existing requirements, or implement new requirements.
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 year ended August 31, 2005, University of Phoenix and Western International University derived approximately 63% and 72%, respectively, of their net revenues from students who participated in Title IV programs. 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.
Students at University of Phoenix and Western International University may receive grants and loans to fund their education under several of the Title IV programs, of which the two largest are the Federal Family Education Loan (“FFEL”) program and the Federal Pell Grant (“Pell”) program. Our institutions also participate in the Federal Supplemental Educational Opportunity Grant (“FSEOG”) program and the Federal Perkins Loan (“Perkins”) campus-based aid (“CBA”) programs. CBA funds are comprised of federal and institutional capital contributions and the institution selects the recipients for these limited fund amounts. For administrative purposes, the institution has some transferability between these CBA programs and is allowed to take an administrative cost allowance from these funds. Additionally, the institution is paid a nominal administrative cost allowance for each Pell Grant recipient.
University of Phoenix participates as a FFEL lender for students enrolled in graduate degree programs at the University of Phoenix. University of Phoenix entered into agreements with third parties to administer the program and to purchase the government-guaranteed loans through a secondary market. Interest benefits and special allowance payments from these loans will be made available as need-based grants to students, except some of these proceeds may be used for reimbursement of reasonable direct administrative expenses.
FSEOG awards are designed to supplement Pell grants for the neediest students. The availability of FSEOG awards is limited by the amount of those funds allocated to the institution under a federal formula that takes into account the number of students at the institution, its costs, and the income levels of its students. We are required to make a 25% contribution to students for all FSEOG awards disbursed. Resources for this institutional contribution may include institutional grants, scholarships, and other eligible funds and, in certain states, portions of state-funded student assistance programs. Amounts received by our students under the FSEOG programs in the 2004-2005 award year equaled approximately $3.5 million, and the vast majority of the institutional contribution was met by funds from state-funded student assistance programs.
Perkins loans are made available to those students who demonstrate the greatest financial need. The availability of initial Perkins funds is limited by the amount of those funds allocated to the institution under a federal formula that takes into account the number of students at the institution, its costs, and the income levels of its students. Perkins loans are made from a revolving account, with 75% of new funding contributed by the U.S. Department of Education and the remainder by the institution. Subsequent federal capital contributions, which must be matched by institution funds, may be received if the institution meets certain requirements. Each institution collects payments on Perkins loans from its former students and re-lends those funds to currently enrolled students. Collection and disbursement of Perkins loans is the responsibility of each participating institution. Perkins loans disbursed to our students in the 2004-2005 award year equaled approximately $580,000, and the institutional contribution was approximately $286,000.
Aid under the Title IV programs is awarded on the basis of financial need, generally defined under the Higher Education Act as the difference between the cost of attending an educational institution and the amount the family can reasonably expect to contribute to that cost. Recipients can replace their expected family contribution with non-need based aid. All recipients of Title IV program funds must maintain satisfactory academic progress within the guidelines published by the U.S. Department of Education.
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.
An academic year must consist of at least 30 weeks of instructional time and a minimum of 24 credit hours. 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 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.
Although The Higher Learning Commission does not require University of Phoenix to obtain their prior approval before they are permitted to expand into new areas in North America and the Netherlands, they do, however, require prior approval before they can expand into foreign countries outside of North America and the Netherlands. If University of Phoenix is unable to obtain The Higher Learning Commission’s approval for future geographic expansion, it may have a material adverse effect on our ability to expand University of Phoenix’s business. In addition, The Higher Learning Commission requires 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.
Restricted Cash. The U.S. Department of Education places restrictions on excess Title IV program funds collected for unbilled tuition and fees transferred to us through electronic funds transfer. If an institution holds excess Title IV program funds the institution must maintain, at all times, cash in its bank account in an amount at least equal to the amount of funds the institution holds for students.
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, 2005, University of Phoenix’s and Western International University’s composite scores were 3.0 and 2.8, respectively.
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 to students at that location. 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 below 90% for the year ended August 31, 2005. 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 2003, the most recent U.S. Department of Education cohort default rate reporting period, the national cohort default rate average for all proprietary higher education institutions was 7.3%. University of Phoenix and Western International University students’ cohort default rates for the Federal Family Education Loans for 2003 as reported by the U.S. Department of
Education were 6.5% and 2.4%, respectively. Institute for Professional Development client institutions cohort default rates for 2003 ranged from 0.6% to 8.8% with a median cohort default rate of 3.0%.
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. 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 Title IV programs must be certified to participate and is required to periodically renew this certification. University of Phoenix was recertified in June 2003 and its current certification for the Title IV programs expires in June 2007. Western International University was recertified in October 2003 and its current certification for the Title IV programs expires in June 2009.
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. The Title IV regulations provide for differing restrictions on the number of course offerings and students that can be enrolled via distance education depending on the nature of the institution’s program offerings. For institutions whose eligible degree offerings equal or exceed their eligible certificate offerings, the Title IV regulations stipulate that an institution is not eligible to participate in the Title IV programs if: 1) more than 50% of its courses are offered via correspondence courses, or 2) 50% of its courses are offered via distance education (the combination of correspondence and telecommunication offerings). University of Phoenix and Western International University provide more degree programs than certificate programs thus the volume of students enrolled via distance education will not impact eligibility status as long as the institution maintains more residential courses than distance education courses. University of Phoenix’s and Western International University’s percentage of courses offered through distance education were both below 50% during 2005.
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. 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. In the event of a material change in stock ownership, 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 or Western International University 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 34 states where it has a physical presence. University of Phoenix has held these authorizations for periods ranging from less than one year to over twenty-five years. We have also been approved to operate in the states of Connecticut, Montana, Nebraska, and South Carolina, but do not yet have a physical presence. Applications for approval to operate in Delaware and New York 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 Career Training Institutions Agency, the successor to the Private Post-Secondary Education Commission, which originally granted accreditation. University of Phoenix operates in Alberta, Canada pursuant to approval granted by Alberta Advanced Education.
The Instituto de Estudios Superiores de Phoenix has received provisional accreditation from the Ministry of Education and Culture for the State of Chihuahua, Mexico to open a campus in Juarez, Mexico.
Institute for Professional Development client institutions possess authorization to operate in all states in which they maintain a physical presence, 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 licensure in these states.
Admissions Standards
To gain admission to undergraduate programs at University of Phoenix, Western International University, and Institute for Professional Development client institutions, students generally must have a high school diploma or General Equivalency Diploma and satisfy certain minimum grade point average and employment 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 graduate programs at University of Phoenix, Western International University, and Institute for Professional Development client institutions, students generally must have an undergraduate degree from a regionally accredited college or university and satisfy minimum grade point average, work experience, and employment requirements. Additional requirements may apply to individual programs. Students in graduate programs may petition to be admitted on provisional status if they do not meet certain admission requirements.
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 45% in 2005.
Locations
University of Phoenix currently has 63 local campuses and 112 learning centers located in Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, Wyoming, Puerto Rico, Alberta, and British Columbia. University of Phoenix also offers its educational programs worldwide through its computerized educational delivery system.
Institute for Professional Development currently has contracts with 23 client institutions at 23 campuses and 39 learning centers in California, Connecticut, Delaware, Florida, Georgia, Iowa, Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, 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 also operates in Chandler, Scottsdale, Fort Huachuca, and Mesa, Arizona. Western International University also offers its educational programs worldwide through its computerized educational delivery system.
Other Matters
The Company will make available free of charge on its website its Annual Report on Form 10-K, Quarterly Reports of Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission. The Company’s website address is www.apollogrp.edu.
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 renewed in 2001 for 10 years and will expire on December 31, 2011. As of August 31, 2005, we leased approximately six million square feet.
We evaluate current utilization of the educational facilities and projected enrollment growth to determine facility needs. We anticipate that an additional 600,000 square feet will be leased in 2006.
Item 3
Item 3 - Legal Proceedings
On approximately October 12, 2004, a class action complaint was filed in the United States District Court for the District of Arizona, captioned Sekuk Global Enterprises et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2147 PHX NVW. A second class action complaint making similar allegations was filed on or about October 18, 2004, in the United States District Court for the District of Arizona, captioned Christopher Carmona et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2204 PHX EHC. A third class action complaint
making similar allegations was filed on or about October 28, 2004, in the United States District Court for the District of Arizona, captioned Jack B. McBride et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2334 PHX LOA. The Court consolidated the three pending class action complaints and a consolidated class action complaint was filed on May 16, 2005 by the Lead Plaintiff. Lead Plaintiff purports to represent a class of our shareholders who acquired their shares between February 27, 2004, and September 14, 2004, and seeks certification as a class and monetary damages in unspecified amounts. Lead Plaintiff alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated under the Exchange Act, by us for our issuance of allegedly materially false and misleading statements in connection with our failure to publicly disclose the contents of the U.S. Department of Education’s program review report. A motion to dismiss the consolidated class action complaint was filed on June 15, 2005, on behalf of Apollo Group, Inc. and the individual named defendants. The Court denied the motion to dismiss on October 18, 2005. While the outcomes of these legal proceedings are uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from these actions.
On August 29, 2003, we were notified that a qui tam action had been filed against us on March 7, 2003, in the United States District Court for the Eastern District of California by two current employees on behalf of themselves and the federal government. When the Government declines to intervene in a qui tam action, as it has done in this case, the relators may elect to pursue the litigation on behalf of the Government and, if they are successful, receive a portion of the federal government’s recovery. The qui tam action alleges, among other things, violations of the False Claims Act 31 U.S.C. § 3729(a)(1) and (2), by University of Phoenix for submission of a knowingly false or fraudulent claim for payment or approval, and knowingly false records or statements to get a false or fraudulent claim paid or approved in connection with federal student aid programs, and asserts that University of Phoenix improperly compensates its employees. On or about October 20, 2003, a motion to dismiss the action was filed and was subsequently granted with leave to amend the complaint. Subsequently, a second amended complaint was filed on or about March 3, 2004. A motion to dismiss this amended complaint was filed on or about March 22, 2004, and the case was subsequently dismissed with prejudice. On June 11, 2004, an appeal was filed with the United States Ninth Circuit Court of Appeals. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from this action.
On approximately September 26, 2003, a class action complaint was filed in the Superior Court of the State of California for the County of Orange, captioned Bryan Sanders et. al. v. University of Phoenix, Inc. et. al., Case No. 03CC00430. Plaintiff, a former academic advisor with University of Phoenix, filed this class action on behalf of himself and current and former academic advisors employed by us in the State of California and seeks certification as a class, monetary damages in unspecified amounts, and injunctive relief. Plaintiff alleges that during his employment, he and other academic advisors worked in excess of 8 hours per day or 40 hours per week, and contends that we failed to pay overtime. On June 6, 2005, the court granted plaintiffs’ motion to remove Bryan Sanders as the named plaintiff and replace him with Deryl Clark and Romero Ontiveros. Plaintiff’s counsel has advised defendants and the court that Mr. Ontiveros no longer intends to serve as a named plaintiff. Five status conferences have occurred and the parties are now in the process of discovery. The court has granted defendants’ motion to transfer venue to the Superior Court of the State of California for the County of Solano. Plaintiff’s previously filed motion to certify the class now will be decided by the Solano County Superior Court. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from this action.
We are subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated 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, Related Stockholder Matters and Issuer Purchases of Equity Securities
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 traded on the Nasdaq National Market under the symbol “UOPX,” until it was converted on August 27, 2004, to Apollo Education Group Class A common stock. The holders of our Apollo Education Group Class A 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.
The table below sets forth the high and low bid prices for our University of Phoenix Online common stock as reported by the Nasdaq National Market, until it was converted on August 27, 2004, to Apollo Education Group Class A common stock.
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 November 4, 2005, there were approximately 307 holders of record of Apollo Education Group Class A and 5 holders of record of Apollo Education Group Class B common stock. We estimate that, when you include shareholders whose shares are held in nominee accounts by brokers, there were approximately 122,000 holders of our Apollo Education Group Class A common stock.
Although we are permitted to pay dividends on our Apollo Education Group Class A and Apollo Education Group Class B common stock, we have never paid cash dividends on our common stock. 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.
Purchases of Apollo Education Group Class A common stock made by the company during the three months ended August 31, 2005, are as follows:
The Board of Directors of Apollo initially authorized a program allocating $40 million in Company funds to repurchase shares of Apollo Education Group Class A common stock on September 25, 1998, on May 13, 1999, an additional $20 million was approved, on October 25, 1999, an additional $40 million was approved and on March 24, 2000, an additional $50 million was approved. The Board of Directors of Apollo authorized a program allocating an additional $150 million in Company funds to repurchase shares of Apollo Education Group Class A common stock and, during the period it was outstanding, University of Phoenix Online common stock on March 28, 2003, and on June 25, 2004, an additional $500 million was approved. The Board of Directors of Apollo authorized programs allocating an additional $500 million and $250 million in our funds to repurchase shares of Apollo Education Group Class A common stock on October 1, 2004 and March 25, 2005, respectively, bringing the total funds authorized for repurchase to $1.55 billion as of August 31, 2005. On October 7, 2005, the Board of Directors of Apollo authorized a program allocating an additional $300 million in Company funds to repurchase shares of Apollo Education Group Class A common stock.
As of August 31, 2005, the Company had repurchased approximately 26,983,000 shares of Apollo Education Group Class A common stock at a total cost of approximately $1.4 billion, including 141,000 Apollo Education Group Class A shares at a cost of $6.2 million in 2003, 5.7 million shares at a cost of $443.5 million in 2004, and 11.1 million shares at a cost of $808.2 million in 2005. While it was outstanding, the Company repurchased 2,025,000 shares of University of Phoenix Online common stock at a total cost of approximately $132.0 million. An additional 3,751,000 shares of Apollo Education Group Class A common stock were repurchased between September 1, 2005 and October 31, 2005 at a cost of approximately $231.0 million. There is no expiration date on the authorization of these funds and repurchases occur at the Company’s discretion.
As of August 31, 2005, 1,899,000 shares of the Company’s treasury stock have been used to secure receivables between the Company and two of its subsidiaries.
Item 6
Item 6 -
Selected Consolidated Financial Data
Information relating to this item appears under the captions “Selected Consolidated Financial Information” on page 13 of the 2005 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. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Consolidated Financial Statements, and related Notes.
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” on pages 13 through 24 of the 2005 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. This information should be read in conjunction with the Consolidated Financial Statements and related Notes.
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” on page 24 of the 2005 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 27 through 41 of the 2005 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. Other financial statements and schedules required under Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”), are identified in Item 15 hereof and are incorporated herein by reference.
Item 9
Item 9 -
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None
Item 9A
Item 9A -
Controls and Procedures
Information relating to this item appears on pages 24 through 25 of the 2005 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. Other financial statements and schedules required under Regulation S-X promulgated under the Securities Act are identified in Item 15 hereof and are incorporated herein by reference.
Item 9B
Item 9B -
Other Information
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. and Dino J. DeConcini, will stand for reelection at our 2006 Annual Meeting. Our Class II directors, consisting of John R. Norton III and Hedy F. Govenar will stand for reelection at our 2007 Annual Meeting. Our Class III directors, consisting of Todd S. Nelson, Peter V. Sperling, and John Blair will stand for reelection at our 2008 Annual Meeting.
The following sets forth information as of October 31, 2005, concerning our directors and executive officers:
JOHN G. SPERLING, Ph.D., is the founder and a director of Apollo Group, Inc. Dr. Sperling was also President of Apollo Group, Inc. from its inception until February 1998, Chief Executive Officer of Apollo Group, Inc. until August 2001, and Chairman of the Board until June 2004. 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, a Master of Arts from the University of California at Berkeley, and a Bachelor of Arts 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 President of Apollo Group, Inc. since February 1998, the Chief Executive Officer of Apollo Group, Inc. since August 2001, and the Chairman of the Board since June 2004. 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 a Master of Business Administration from the University of Nevada at Las Vegas and a Bachelor of Science 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 was the Secretary and Treasurer of Apollo Group, Inc. from 1988 to January 2003. 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 Master of Business Administration from University of Phoenix and his Bachelor of Arts from the University of California at Santa Barbara. Mr. Sperling is also the Chairman and co-founder of CallWave, Inc., a telecommunications services corporation. 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, Arizona, 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 Member for the American Council on Education. Dr. Palmer Noone also serves on the National Advisory Committee on Institutional Quality and Integrity and as a member of the Regional Board of Trustees for the Phoenix International School of Law. Dr. Palmer Noone received her Ph.D. from the Union Institute, her J.D. and her Master of Business Administration 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 has been the Chief Financial Officer of Apollo Group, Inc. since October 1998 and the Secretary and Treasurer of Apollo Group, Inc. since January 2003. 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. Ms. Gonzales serves on the Board of Directors of Main Street Restaurant Group, Inc. (formerly Main Street & Main, Inc.), a restaurant franchisee corporation.
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 Bachelor of Science in Accountancy from the University of Arizona and is a Certified Public Accountant.
ROBERT A. CARROLL has been serving as Chief Information Officer for Apollo Group, Inc. since July 1998. Prior to joining Apollo Group, Inc., Mr. Carroll was the Director of Systems Engineering for North America Sales at Informix Software, Inc., a provider of relational database management software. Mr. Carroll worked at Informix from 1993 to 1998, in roles of increasing responsibility within the Systems Engineering organization. Mr. Carroll worked for Golden Coast Environmental Services in Irvine, CA from 1987 to 1993. Mr. Carroll served as Vice President of Sales and Information Technology, delivering management software and consulting to municipalities throughout the United States and Canada. Mr. Carroll received his bachelor’s degree in Information and Computer Science from the University of California, Irvine and a Master of Business Administration from University of Phoenix.
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, Mr. Blair 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, and a director from January 2001 through March 2004. In 1984, Mr. Blair founded J. Blair Consulting, an independent consulting business that provides management counsel to individuals and organizations and continues to be active in this professional services firm. Mr. Blair earned a Bachelor of Science 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. From 1993 to 1995 and from 2002 to date, Mr. DeConcini is a Vice President and Senior Associate of Project International, Inc., an international business consulting firm. From 2001 to 2002, Mr. DeConcini was the Director of Financial Education at Consumer Federation of America. From 1995 to 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 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, and chairs the meetings of the independent directors. Ms. Govenar was a director of University of Phoenix from 1992 to February 1997. Ms. Govenar is founder and Chairwoman of the Board of Governmental Advocates, Inc., a lobbying and political consulting firm in Sacramento, California. As one of the lobbyists in the firm, she has represented a variety of corporate and trade association clients since 1979. From 1989 to 1999, Ms. Govenar served as a commissioner on the California State Film Commission as an appointee of the California State Assembly. Currently, she is a member of the California Education Master Plan Alliance Advisory Committee whose mission is to improve public and private education from pre-kindergarten through university. Ms. Govenar received a Master of Arts in Education from California State University, Northridge and a Bachelor of Arts in English from UCLA.
JOHN R. NORTON III has been a director of Apollo Group, Inc. since March 1997, is the 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, and 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 Shamrock Foods, Inc., a foodservice distributor and dairy. He attended Stanford University and the University of Arizona where he received a Bachelor of Science in Agriculture in 1950.
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, 2005, 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 four times during 2005, reviews all aspects of compensation of executive officers and determines or makes recommendations on such matters to the full Board of Directors. Each of the members of this committee is an “independent director” as defined in Rule 4200 of the Marketplace Rules of the National Association of Securities Dealers, Inc., and an “outside director” as defined in Section 162(m) of the Internal Revenue Code. The report of the Compensation Committee for 2005 is set forth in Item 11.
Item 11 -
Executive Compensation
Director Compensation
Fees. In 2005, our non-employee directors received a $24,000 annual retainer and $2,000 for each board meeting attended. In addition, members of the Audit Committee received $2,000 for each Audit Committee meeting attended and members of the Compensation Committee received $1,000 for each Compensation Committee meeting attended. The Audit Committee chairman also received an additional $5,000 for each meeting he chaired, and the Compensation Committee chairman also received $4,500 for each meeting he chaired. Non-employee directors are also reimbursed for out-of-pocket expenses.
Apollo Group, Inc. Stock-Based Compensation Plans. Through 2003, the Director Stock Plan provided for an annual grant to the Company’s non-employee directors of options to purchase shares of the Company’s Apollo Education Group Class A common stock on September 1 of each year. The Company currently has two stock-based compensation plans in which non-employee directors can be issued options: the Apollo Group, Inc. Long-Term Incentive Plan (“LTIP”) and the Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan (“2000 Incentive Plan”). Under both the LTIP and the 2000 Incentive Plan, the Company may grant non-qualified stock options, incentive stock options, stock appreciation rights, and other stock-based awards in the Company’s Apollo Education Group Class A common stock to certain officers, key employees, or directors of the Company.
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 2005, 2004, and 2003:
SUMMARY COMPENSATION TABLE
(1)
Represents cash bonuses earned for the indicated fiscal years.
(2)
Dr. Palmer Noone and Mr. Carroll also received certain perquisites, the value of which did not exceed the lesser of $50,000 or 10% of their annual salary and bonus. Dr. John G. Sperling and Mr. Nelson received perquisites primarily in the form of company provided cars, available for business and personal use, and tax consulting services. In addition, the Company paid, on Mr. Nelson’s behalf, for personal use of an aircraft.
(3)
Effective August 27, 2004, as part of the conversion of University of Phoenix Online common stock to Apollo Education Group Class A common stock, we converted each option to purchase University of Phoenix Online common stock into an option to purchase 1.0766 shares of Apollo Education Group common stock. The shares listed for University of Phoenix Online common stock are as granted prior to the conversion.
(4)
Amounts shown consist of matching contributions made by us to Apollo Group, Inc.’s Savings and Investment Plan paid in the indicated fiscal years.
The following tables disclose options granted by us to our Chief Executive Officer and the four other most highly compensated executive officers for 2005:
Option Grants to Purchase Apollo Education Group Class A Common Stock In the Last Fiscal Year
No options were granted in the last fiscal year to our Chief Executive Officer and the four other most highly compensated executive officers.
Aggregated Option Exercises in Fiscal Year 2005 and Option Values at August 31, 2005
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 2005:
Apollo Education Group Class A Common Stock
The number of securities underlying unexercised options and the value of unexercised in-the-money options includes options to purchase Apollo Education Group Class A common stock issued in conjunction with the conversion of University of Phoenix Online common stock to Apollo Education Group Class A 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 founder. The term of the employment agreement was for five years and expired on December 31, 1997. The employment agreement has automatically renewed for eight additional one-year periods through December 31, 2005, 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 2005, 2004, and 2003. 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 each of the elements of our executive compensation program related to our executive officers, including, Todd S. Nelson (the “Senior Executive”), 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 determines all aspects of compensation for our Senior Executive. 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 full-time employees.
Each of the executive officers receive 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 $183.2 million to $1.7 billion, with an average of $848.8 million and a median of $781.3 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 their position with us, individual experience and performance, our revenue size compared to the companies surveyed, and our specific needs.
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 2000 Stock Incentive Plan. In making option awards, the 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, company paid tax consulting, and the use of an aircraft which we lease. 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. Todd S. Nelson is our Chairman of the Board, Chief Executive Officer, and President. Mr. Nelson’s base salary is determined annually on the same basis discussed above for the executive officers. Mr. Nelson’s bonus is tied solely to our net income (excluding non-reoccurring items); at the beginning of each fiscal year, the Committee establishes a net income goal for us. If that goal is achieved, Mr. Nelson earns a bonus up to 75% of his annual salary. Mr. Nelson is entitled to additional amounts if we exceed our net income goal. During 2005, Mr. Nelson received an annual base salary of $750,000. Because the net income goal for us was exceeded, Mr. Nelson earned a bonus for 2005 of $599,000.
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 year ended August 31, 2005, was an officer or employee of us.
Compensation Committee
John R. Norton III, Chairman
John Blair
Audit Committee Report
The Audit Committee, operating under its written charter, has (1) reviewed and discussed the audited financial statements of the Company as of and for the year ended August 31, 2005, with management of the Company; (2) discussed with the Company’s independent accountants the matters required to be discussed by Statement on Auditing Standards (“SAS”) No. 61, Communications with Audit Committees, and SAS No. 90, Audit Committee Communications; (3) received and reviewed the written disclosures and the letter from its independent accountants required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees; and (4) discussed with its independent registered public accounting firm, the independent registered public accounting firm’s 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, 2005, 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
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 (while it was outstanding) with the cumulative total return for the Standard & Poor’s 500 Index and an index of peer group companies selected by us for the period from August 31, 2000, through August 31, 2005. The graph assumes that the value of the investment in our Apollo Education Group Class A common stock, University of Phoenix Online common stock, and each index was $100 at August 31, 2000, and that all dividends paid by those companies included in the indexes were reinvested. The value shown for University of Phoenix Online common stock is as of August 27, 2004, the date of its conversion to Apollo Education Group Class A common stock, rather than August 31, 2004.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG APOLLO GROUP, INC., UNIVERSITY OF PHOENIX ONLINE,
THE S & P 500 INDEX AND A PEER GROUP
* $100 invested on 8/31/00 in stock or index-including reinvesting of dividends. Fiscal year ending August 31.
The education peer group is composed of the publicly-traded common stock of seven 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), Laureate Education, Inc. (LAUR) (formerly Sylvan Learning Systems, Inc.), and Strayer Education, Inc. (STRA).
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 and Related Stockholder Matters
The following table sets forth certain information regarding the beneficial ownership of our common stock as of October 31, 2005. 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.
*
Represents beneficial ownership of less than 1%.
(1)
The address of each of the listed shareholders, unless noted otherwise, is in care of Apollo Group, Inc., 4615 East Elwood Street, Phoenix, Arizona 85040.
(2)
Todd S. Nelson, Peter V. Sperling, and Jon S. Cohen serve as co-trustees of the John Sperling Voting Stock Trust dated January 31, 1995. Dr. Sperling disclaims beneficial ownership with respect to these shares. The address for Jon S. Cohen is in care of Snell & Wilmer LLP, One Arizona Center, Phoenix, Arizona 85004.
(3)
Peter V. Sperling serves as trustee of the Peter Sperling Voting Stock Trust dated January 31, 1995.
(4)
Includes 1,357,339 shares held by the John Sperling 1994 Irrevocable Trust dated April 27, 1994, for which Messrs. John and Peter Sperling are the co-trustees.
(5)
Includes 2,185,886 shares held by The Aurora Foundation, for which Dr. John G. Sperling is the trustee.
(6)
Includes 1,330,867 shares that Dr. John Sperling has the right to acquire within 60 days of the date of the table set forth above.
(7)
Includes 250,000 shares that Dr. John Sperling has subject to a forward sale agreement maturing January 3, 2006.
(8)
Includes 250,000 shares that Dr. John Sperling has subject to a forward sale agreement maturing April 4, 2006.
(9)
Includes 250,000 shares that Dr. John Sperling has subject to a forward sale agreement maturing June 30, 2006.
(10)
Includes 250,000 shares that Dr. John Sperling has subject to a forward sale agreement maturing January 12, 2007.
(11)
Includes 250,000 shares that Dr. John Sperling has subject to a forward sale agreement maturing February 2, 2007.
(12)
Includes 578,211 shares that Mr. Peter Sperling has the right to acquire within 60 days of the date of the table set forth above.
(13)
Includes 250,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing November 5, 2007.
(14)
Includes 500,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing January 2, 2008.
(15)
Includes 250,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing January 31, 2008.
(16)
Includes 500,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing April 11, 2008.
(17)
Includes 500,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing April 27, 2008.
(18)
Includes 500,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing July 25, 2008.
(19)
Includes 551,156 shares held by the Mr. Peter Sperling Revocable Trust dated January 31, 1995.
(20)
Includes 815,312 shares that Mr. Nelson has the right to acquire within 60 days of the date of the table set forth above.
(21)
Includes 418,435 shares that Ms. Gonzales has the right to acquire within 60 days of the date of the table set forth above.
(22)
Includes 319,085 shares that Ms. Palmer Noone has the right to acquire within 60 days of the date of the table set forth above.
(23)
Includes 198,068 shares that Mr. Carroll has the right to acquire within 60 days of the date of the table set forth above.
(24)
Includes 102,656 shares that Ms. Govenar has the right to acquire within 60 days of the date of the table set forth above.
(25)
Includes 112,656 shares that Mr. Norton has the right to acquire within 60 days of the date of the table set forth above.
(26)
Includes 82,771 shares that Mr. DeConcini has the right to acquire within 60 days of the date of the table set forth above.
(27)
Includes 49,500 shares that Mr. Blair has the right to acquire within 60 days of the date of the table set forth above.
(28)
Includes 4,088,387 shares that all Directors and Executive Officers as a group have the right to acquire within 60 days of the date of the table set forth above.
Equity Compensation Plan Information
Equity Compensation Plans Approved by Shareholders
We have four stock-based compensation plans: the Apollo Group, Inc. Second Amended and Restated Director Stock Plan (“Director Stock Plan”), the Apollo Group, Inc. Long-Term Incentive Plan (“LTIP”), the Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan (“2000 Incentive Plan”), and the Apollo Group, Inc. Second Amended and Restated 1994 Employee Stock Purchase Plan (“Purchase Plan”). The necessary shareholders have approved all four of these plans.
The Director Stock Plan provided 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. No additional options are available for issuance under this plan.
Under the LTIP, we could grant non-qualified stock 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 LTIP vested 25% per year. The vesting could be accelerated for individual employees if certain operational goals are met.
Under the 2000 Incentive Plan, we may grant non-qualified stock 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. Prior to the conversion of University of Phoenix Online common stock to Apollo Education Group Class A common stock we had the ability to also grant non-qualified stock options, incentive stock options, stock appreciation rights, and other stock-based awards for University of Phoenix Online common stock under the 2000 Incentive Plan. Any unexercised University of Phoenix Online options outstanding at August 27, 2004, were converted to options to purchase Apollo Education Group Class A common stock. 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 allowed for our employees to purchase shares of our Apollo Education Group Class A common stock and, during the period it was outstanding, University of Phoenix Online common stock, at quarterly intervals through periodic payroll deductions. The purchase price per share during 2005, 2004, and 2003, in general, was 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. Effective October 1, 2005, the Purchase Plan was amended and restated. The Apollo Group, Inc. Third Amended and Restated 1994 Employee Stock Purchase Plan allows our employees to purchase shares of Apollo Education Group Class A common stock at a price per share equal to 95% of 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 the necessary 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, 2005, for our Apollo Education Group Class A common stock, in thousands, except weighted-average exercise price:
Item 13
Item 13 -
Certain Relationships and Related Transactions
In August 1998, we together with Hughes Network Systems and Hermes Onetouch, LLC (“Hermes”) formed Interactive Distance Learning, Inc. (“IDL”), a new corporation, to acquire One Touch Systems, a leading provider of interactive distance learning solutions. We contributed $10.7 million in October 1999 and $1.2 million in December 1999, in exchange for a 19% interest in the newly formed corporation. We accounted
for our investment in IDL under the cost method. Hermes is currently owned by Dr. John G. Sperling, our founder and a director of us.
On December 14, 2001, Hermes acquired our investment in IDL 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 Sheets as of August 31, 2005 and 2004. The carrying value of this receivable reasonably approximates its fair value as the stated interest rate approximates current market interest rates.
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. Dr. John G. Sperling is a director of Apollo International, Inc. Shares of Apollo International, Inc. stock are beneficially owned by us (2.6% for which we have paid $999,989) and by an investment entity controlled by Dr. John G. Sperling (30%). The first educational offering under these agreements commenced in the Netherlands in September 1999. During the years ended August 31, 2005, 2004, and 2003, we received no revenue from Apollo International, Inc. for services rendered in connection with these contracts. Effective October 1, 2005, we have taken over operations at the Netherlands campus from Apollo International, Inc.
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. manages the relationship with the entities in India that are offering the Western International University programs while Western International University maintains the educational content of the programs. Western International University received revenue of $89,000, $37,000, and $8,000 during the years ended August 31, 2005, 2004, and 2003, respectively, for services rendered in connection with this agreement.
Effective June 1, 1999, we entered into an agreement with Governmental Advocates, Inc. to provide consulting services to the Company with respect to matters concerning legislation, regulations, public policy, electoral politics, and any other topics of concern to it relating to state government in the state of California. Hedy Govenar, one of our directors, is the founder and Chairwoman of Governmental Advocates, Inc. On June 1, 2005, 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 2005, 2004, and 2003.
On occasion, we lease an airplane from Yo Pegasus, LLC, an entity controlled by Dr. John G. Sperling. Payments to this entity during the years ended August 31, 2005, 2004, and 2003, were $421,000, $573,000, and $225,000, respectively.
Item 14
Item 14 -
Principal Accounting Fees and Services
The following is a summary of the fees billed to us by Deloitte & Touche LLP (“Deloitte”) for professional services rendered for the years ended August 31, 2005 and 2004:
Audit Fees. 2005 fees consist of fees billed for professional services rendered for the integrated audit of Apollo’s consolidated financial statements and of its internal control over financial reporting, review of the interim consolidated financial statements included in quarterly reports, and services performed in connection with statutory and regulatory filings or engagements. 2004 fees consist of fees billed for professional services
rendered for the audit of our consolidated financial statements, review of our interim consolidated financial statements and the financial statements of University of Phoenix Online included in quarterly reports, and services performed in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include employee benefit plan audits, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.
Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice, and tax planning. These services include assistance regarding federal, state, and international tax compliance, tax audit defense, mergers and acquisitions, and international tax planning.
All Other Fees. Consists of fees paid to Deloitte in 2004 for continuing education.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors. The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.
The Audit Committee has determined that the provision of the foregoing services and the related fees are compatible with maintaining Deloitte’s independence.
PART IV
Item 15
Item 15 -
Exhibits and Financial Statement Schedules
1.
Financial Statements
The following consolidated financial statements and related items of Apollo Group, Inc. and subsidiaries, included in the Annual Report to Shareholders for the year ended August 31, 2005, are incorporated by reference from our 2005 Annual Report to Shareholders:
•
Reports of Registered Public Accounting Firms
•
Consolidated Balance Sheets as of August 31, 2005 and 2004
•
Consolidated Statements of Income for the Years Ended August 31, 2005, 2004, and 2003
•
Consolidated Statements of Comprehensive Income for the Years Ended August 31, 2005, 2004, and 2003
•
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended August 31, 2005, 2004, and 2003
•
Consolidated Statements of Cash Flows for the Years Ended August 31, 2005, 2004, and 2003
•
Notes to Consolidated Financial Statements
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
*
Indicates a management contract or compensation plan.
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 14, 2005.
APOLLO GROUP, INC.
An Arizona Corporation
By:
/s/ Todd S. Nelson
Todd S. Nelson
Chairman of the Board,
Chief Executive Officer, and President
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.
EXHIBIT INDEX
*
Indicates a management contract or compensation plan.