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TheStreet Open House

Apollo Group, Inc. Reports Fiscal 2012 Fourth Quarter And Year-End Results

For more information about Apollo Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the Company’s website at www.apollogrp.edu.

Forward-Looking Statements Safe Harbor

Statements about Apollo Group and its business in this release which are not statements of historical fact, including statements regarding Apollo Group's future strategy and plans and commentary regarding future results of operations and prospects, are forward-looking statements and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual plans implemented and actual results achieved may differ materially from those set forth in or implied by such statements due to various factors, including without limitation (i) the impact of increased competition from traditional public universities and proprietary educational institutions, (ii) the impact of the Company’s restructuring initiatives to increase operating efficiency and better align operations with student demand and business strategy, including the substantial reduction in University of Phoenix on-ground locations, (iii) the impact of changes in marketing channels and other recruiting practices to better identify students who are more likely to succeed at University of Phoenix, (iv) the impact of the Company’s initiatives to improve the student experience, improve student outcomes and enhance the connection between education and careers, (v) changes in enrollment or student mix, (vi) changes in the overall U.S. or global economy, (vii) changes in law or regulation affecting the Company's eligibility to participate in or the manner in which it participates in U.S. federal and state student financial aid programs, and (viii) changes in the Company's business necessary to remain in compliance with existing, new, or amended U.S. federal student financial aid program regulations, including the so-called 90/10 Rule and the limitations on cohort default rates, and to remain in compliance with the accrediting criteria of the relevant accrediting bodies. For a discussion of the various factors that may cause actual plans implemented and actual results achieved to differ materially from those set forth in the forward-looking statements, please refer to the risk factors and other disclosures contained in Apollo Group's Form 10-K for fiscal year 2011 and subsequent Forms 10-Q, and other filings with the Securities and Exchange Commission, all of which are available on the Company's website at www.apollogrp.edu.

Use of Non-GAAP Financial Information

This press release and the related conference call contain non-GAAP financial measures, which are intended to supplement, but not substitute for, the most directly comparable GAAP measures. Management uses, and chooses to disclose to investors, these non-GAAP financial measures because (i) such measures provide an additional analytical tool to clarify the Company’s results from operations and help to identify underlying trends in its results of operations, (ii) as to the non-GAAP earnings measures, such measures help compare the Company’s performance on a consistent basis across time periods, and (iii) these non-GAAP measures are employed by the Company’s management in its own evaluation of performance and are utilized in financial and operational decision-making processes, such as budgeting and forecasting. Exclusion of items in the non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate non-GAAP financial measures differently, limiting their usefulness as a comparative measure across companies.

 
Apollo Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
    As of August 31,
(In thousands) 2012     2011
ASSETS:
Current assets
Cash and cash equivalents $ 1,276,375 $ 1,571,664
Restricted cash and cash equivalents 318,334 379,407
Accounts receivable, net 198,279 215,567
Prepaid taxes 26,341 35,629
Deferred tax assets, current portion 69,052 124,137
Other current assets 49,609   44,382  
Total current assets 1,937,990 2,370,786
Property and equipment, net 571,629 553,027
Marketable securities 5,946 5,946
Goodwill 103,345 133,297
Intangible assets, net 149,034 121,117
Deferred tax assets, less current portion 77,628 70,949
Other assets 22,750   14,584  
Total assets $ 2,868,322   $ 3,269,706  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities
Short-term borrowings and current portion of long-term debt $ 638,588 $ 419,318
Accounts payable 74,872 69,551
Student deposits 362,143 424,045
Deferred revenue 254,555 293,436
Accrued and other current liabilities 324,881   448,937  
Total current liabilities 1,655,039 1,655,287
Long-term debt 81,323 179,691
Deferred tax liabilities 15,881 26,400
Other long-term liabilities 191,756   164,339  
Total liabilities 1,943,999   2,025,717  
Commitments and contingencies
Shareholders’ equity
Preferred stock, no par value
Apollo Group Class A nonvoting common stock, no par value 103 103
Apollo Group Class B voting common stock, no par value 1 1
Additional paid-in capital 93,770 68,724
Apollo Group Class A treasury stock, at cost (3,878,612 ) (3,125,175 )
Retained earnings 4,743,150 4,320,472
Accumulated other comprehensive loss (30,034 ) (23,761 )
Total Apollo shareholders’ equity 928,378   1,240,364  
Noncontrolling (deficit) interests (4,055 ) 3,625  
Total equity 924,323   1,243,989  
Total liabilities and shareholders’ equity $ 2,868,322   $ 3,269,706  
 
 
 
Apollo Group, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
    Three Months Ended August 31,       % of Revenue
2012     2011 2012     2011
(In thousands, except per share data)
Net revenue $ 996,497   $ 1,120,220   100.0 % 100.0 %
Costs and expenses:
Instructional and student advisory 455,564 435,181 45.7 % 38.9 %
Marketing 180,322 170,660 18.1 % 15.2 %
Admissions advisory 85,852 99,428 8.6 % 8.9 %
General and administrative 92,322 98,473 9.3 % 8.8 %
Depreciation and amortization 44,741 41,529 4.5 % 3.7 %
Provision for uncollectible accounts receivable 38,733 39,631 3.9 % 3.5 %
Restructuring and other charges 9,408 19,067 0.9 % 1.7 %
Litigation credit, net   (16,454 ) % (1.5 )%
Total costs and expenses 906,942   887,515   91.0 % 79.2 %
Operating income 89,555 232,705 9.0 % 20.8 %
Interest income 306 498 % %
Interest expense (5,127 ) (2,724 ) (0.5 )% (0.2 )%
Other, net 520   17   0.1 % %
Income from continuing operations before income taxes 85,254 230,496 8.6 % 20.6 %
Provision for income taxes (37,726 ) (45,303 ) (3.8 )% (4.1 )%
Income from continuing operations 47,528 185,193 4.8 % 16.5 %
Income (loss) from discontinued operations, net of tax 26,641   (1,257 ) 2.6 % (0.1 )%
Net income 74,169 183,936 7.4 % 16.4 %
Net loss attributable to noncontrolling interests 1,279   4,676   0.2 % 0.4 %
Net income attributable to Apollo $ 75,448   $ 188,612   7.6 % 16.8 %
 
Earnings (loss) per share - Basic:
Continuing operations attributable to Apollo $ 0.47 $ 1.39
Discontinued operations attributable to Apollo 0.20   (0.01 )
Basic income per share attributable to Apollo $ 0.67   $ 1.38  
 
Earnings (loss) per share - Diluted:
Continuing operations attributable to Apollo $ 0.46 $ 1.38
Discontinued operations attributable to Apollo 0.20   (0.01 )
Diluted income per share attributable to Apollo $ 0.66   $ 1.37  
 
Basic weighted average shares outstanding 112,815   136,594  
Diluted weighted average shares outstanding 113,539   137,295  
 
 
 
Apollo Group, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
    Year Ended August 31,       % of Revenue
2012     2011 2012     2011
(In thousands, except per share data)    
Net revenue $ 4,253,337   $ 4,711,049   100.0 % 100.0 %
Costs and expenses:
Instructional and student advisory 1,800,569 1,759,986 42.3 % 37.4 %
Marketing 663,442 654,399 15.6 % 13.9 %
Admissions advisory 383,935 415,386 9.0 % 8.8 %
General and administrative 344,300 355,548 8.1 % 7.5 %
Depreciation and amortization 177,804 157,686 4.2 % 3.3 %
Provision for uncollectible accounts receivable 146,742 181,297 3.5 % 3.9 %
Restructuring and other charges 38,695 22,913 0.9 % 0.5 %
Goodwill and other intangibles impairment 16,788 219,927 0.4 % 4.7 %
Litigation charge (credit), net 4,725   (11,951 ) 0.1 % (0.3 )%
Total costs and expenses 3,577,000   3,755,191   84.1 % 79.7 %
Operating income 676,337 955,858 15.9 % 20.3 %
Interest income 1,187 2,884 0.1 % %
Interest expense (11,745 ) (8,931 ) (0.3 )% (0.2 )%
Other, net 476   (1,588 ) % %
Income from continuing operations before income taxes 666,255 948,223 15.7 % 20.1 %
Provision for income taxes (283,072 ) (419,136 ) (6.7 )% (8.9 )%
Income from continuing operations 383,183 529,087 9.0 % 11.2 %
Income from discontinued operations, net of tax 33,823   6,709   0.8 % 0.2 %
Net income 417,006 535,796 9.8 % 11.4 %
Net loss attributable to noncontrolling interests 5,672   36,631   0.1 % 0.8 %
Net income attributable to Apollo $ 422,678   $ 572,427   9.9 % 12.2 %
 
Earnings per share - Basic:
Continuing operations attributable to Apollo $ 3.24 $ 4.01
Discontinued operations attributable to Apollo 0.24   0.04  
Basic income per share attributable to Apollo $ 3.48   $ 4.05  
 
Earnings per share - Diluted:
Continuing operations attributable to Apollo $ 3.22 $ 4.00
Discontinued operations attributable to Apollo 0.23   0.04  
Diluted income per share attributable to Apollo $ 3.45   $ 4.04  
 
Basic weighted average shares outstanding 121,607   141,269  
Diluted weighted average shares outstanding 122,357   141,750  
 
 
Apollo Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
    Year Ended August 31,
2012     2011
($ in thousands)
Cash flows provided by (used in) operating activities:
Net income $ 417,006 $ 535,796
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation 78,705 70,040
Excess tax benefits from share-based compensation (1,150 ) (4,014 )
Depreciation and amortization 178,234 159,006
Amortization of lease incentives (15,510 ) (18,822 )
Amortization of deferred gains on sale-leasebacks (2,798 ) (2,221 )
Goodwill and other intangibles impairment 16,788 219,927
Non-cash foreign currency (gain) loss, net (497 ) 1,662
Gain on sale of discontinued operations (26,678 )
Provision for uncollectible accounts receivable 146,742 181,297
Litigation charge (credit) 4,725 (11,951 )
Deferred income taxes 21,850 55,823
Changes in assets and liabilities, excluding the impact of acquisitions and business dispositions:
Restricted cash and cash equivalents 61,073 64,725
Accounts receivable (129,773 ) (121,120 )
Prepaid taxes 9,303 (25,241 )
Other assets (11,568 ) (9,900 )
Accounts payable 12,525 (3,913 )
Student deposits (58,740 ) (70,120 )
Deferred revenue (39,154 ) (79,488 )
Accrued and other liabilities (109,783 ) (44,364 )
Net cash provided by operating activities 551,300   897,122  
Cash flows provided by (used in) investing activities:
Additions to property and equipment (115,187 ) (162,573 )
Acquisitions, net of cash acquired (73,736 )
Maturities of marketable securities 10,000
Proceeds from sale-leaseback, net 169,018
Proceeds from dispositions, net 76,434 21,251
Collateralization of letter of credit 126,615
Other investing activities (1,694 )  
Net cash (used in) provided by investing activities (114,183 ) 164,311  
Cash flows provided by (used in) financing activities:
Payments on borrowings (562,269 ) (437,925 )
Proceeds from borrowings 629,145 410,051
Apollo Group Class A common stock purchased for treasury (811,913 ) (783,168 )
Issuance of Apollo Group Class A common stock 11,949 24,903
Noncontrolling interest contributions 6,875
Excess tax benefits from share-based compensation 1,150   4,014  
Net cash used in financing activities (731,938 ) (775,250 )
Exchange rate effect on cash and cash equivalents (468 ) 712  
Net (decrease) increase in cash and cash equivalents (295,289 ) 286,895
Cash and cash equivalents, beginning of year 1,571,664   1,284,769  
Cash and cash equivalents, end of year $ 1,276,375   $ 1,571,664  
Supplemental disclosure of cash flow and non-cash information
Cash paid for income taxes, net of refunds $ 246,824 $ 464,701
Cash paid for interest $ 9,794 $ 10,972
Capital lease additions $ 44,145 $ 31,818
Restricted stock units vested and released $ 36,182 $ 21,470
Credits received for tenant improvements $ 27,009 $ 25,538
Debt incurred for acquired technology $ 14,389 $
 
 
 
Apollo Group, Inc. and Subsidiaries
Reconciliation of GAAP financial information to non-GAAP financial information
(Unaudited)
 
    Three Months Ended August 31,       Year Ended August 31,
2012     2011 2012     2011
(In thousands, except per share data)
Net income attributable to Apollo, as reported $ 75,448 $ 188,612 $ 422,678 $ 572,427
Income (loss) from discontinued operations, net of tax and noncontrolling interest 22,805   (1,076 ) 28,952   6,102  
Income from continuing operations attributable to Apollo 52,643 189,688 393,726 566,325
Reconciling items:
Restructuring and other charges, net of noncontrolling interest (1) 8,942 19,067 37,843 22,913
Goodwill and other intangibles impairment, net of noncontrolling interest (2) 14,370 188,258
Litigation (credit) charge, net (3)   (16,454 ) 4,725   (11,951 )
8,942 2,613 56,938 199,220
Less: tax effects, net of noncontrolling interest (2,986 ) (1,022 ) (14,940 ) (8,737 )
Tax benefit from sales apportionment resolution (4) (43,319 ) (43,319 )
Tax benefit from Meritus University closure (5) (7,306 ) (7,306 )
Tax benefit from IRS settlement (6)       (9,646 )
Income from continuing operations attributable to Apollo, adjusted to exclude special items $ 58,599   $ 140,654   $ 435,724   $ 696,537  
 
Diluted income per share from continuing operations attributable to Apollo, as reported $ 0.46   $ 1.38   $ 3.22   $ 4.00  
 
Diluted income per share from continuing operations attributable to Apollo, adjusted to exclude special items $ 0.52   $ 1.02   $ 3.56   $ 4.91  
 
Diluted weighted average shares outstanding 113,539   137,295   122,357   141,750  
 
(1) Restructuring and other charges represent charges associated with the Company’s series of restructuring activities to reengineer business processes and refine its delivery structure, net of noncontrolling interest.
 
(2) The charges for the fiscal year ended August 31, 2012 represent impairments of UNIACC’s goodwill and other intangibles, net of noncontrolling interest, with no income tax benefit as UNIACC’s goodwill and other intangibles are not deductible for tax purposes. The charges for the fiscal year ended August 31, 2011 represent impairments of BPP’s goodwill and other intangibles, net of noncontrolling interest. The Company did not record a tax benefit associated with BPP’s goodwill impairment because the goodwill is not deductible for tax purposes.
 
(3) The charges for the fiscal year ended August 31, 2012 represent a rejected settlement offer the Company made in connection with a legal matter and estimated future legal costs. The credits for the quarter and fiscal year ended August 31, 2011 are principally the result of the Company’s agreement in principle to settle the Policeman’s Annuity and Benefit Fund of Chicago securities class action. This was partially offset in both periods by a charge recorded in the fourth quarter of fiscal year 2011 associated with another legal matter.
 
(4) The $43.3 million tax benefit for the quarter and fiscal year ended August 31, 2011 resulted from the Company’s resolution of an income tax apportionment matter with the Arizona Department of Revenue.
 
(5) The $7.3 million tax benefit for the quarter and fiscal year ended August 31, 2011 represents a benefit associated with the closure of Meritus University.
 
(6) The $9.6 million tax benefit for the year ended August 31, 2011 resulted from resolution with the Internal Revenue Service regarding the deductibility of payments made to settle a lawsuit in fiscal year 2010.




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