PHOENIX, Jun 30, 2011 (BUSINESS WIRE) --

Apollo Group, Inc. (NASDAQ: APOL) ("Apollo Group," "Apollo" or the "Company") today reported financial results for the three and nine months ended May 31, 2011.

"During the third quarter, we continued to execute on our key initiatives to improve outcomes, enhance student protections, and elevate the educational experience throughout every touch point of the student lifecycle," said Apollo Group Co-Chief Executive Officer and Apollo Global Chairman Greg Cappelli. "We are encouraged by the progress we are making in improving retention rates and continuing to shift the mix of our students toward higher degree level programs."

Apollo Group Co-Chief Executive Officer Chas Edelstein added, "We are committed to differentiating the University of Phoenix by focusing on academic quality and delivering a world class student experience. Our actions, over time, are intended to elevate the brand and reputation of our institutions, improve student outcomes, reduce enterprise risk, and position us for stable, long-term growth."

Unaudited Third Quarter of Fiscal 2011 Results of Operations

Consolidated net revenue for the third quarter of fiscal 2011 totaled $1,235.8 million, which represents a 7.6% decrease from the third quarter of fiscal 2010, principally due to lower enrollments at University of Phoenix, partially offset by selective tuition price and other fee changes. For the quarter, University of Phoenix Degreed Enrollment decreased 16.4% to 398,400 compared with the prior year third quarter, primarily due to decreases in New Degreed Enrollment in recent quarters, including a 40.5% decrease in New Degreed Enrollment in the third quarter of fiscal 2011 compared with the prior year period. The Company believes the decline in New Degreed Enrollment is primarily the result of the operational changes and initiatives it has implemented to more effectively support students and improve educational outcomes, as well as the broader competitive environment. The operational changes include the manner in which admissions personnel and other employees are evaluated and compensated, the full implementation of University Orientation, and the Company's efforts to more effectively identify students who have a greater likelihood to succeed in University of Phoenix's educational programs.

The Company reported income from continuing operations attributable to Apollo Group for the three months ended May 31, 2011, of $211.9 million, or $1.51 per share (140.3 million diluted weighted average shares outstanding), compared to income from continuing operations attributable to Apollo Group of $177.2 million, or $1.16 per share (152.3 million diluted weighted average shares outstanding) for the three months ended May 31, 2010.

Results for the third quarter of fiscal 2011 contain special items that include a $2.0 million pre-tax charge ($1.2 million net of tax) for accrued incremental post-judgment interest and future estimated legal costs related to a securities class action lawsuit (Policeman's Annuity and Benefit Fund of Chicago) and a tax benefit of $9.6 million resulting from the resolution with the Internal Revenue Service regarding the deductibility of payments made to settle a lawsuit in fiscal 2010. The fiscal 2010 third quarter results contain special items that include a goodwill impairment charge of $8.7 million ($7.5 million net of the portion attributable to noncontrolling interest) and a $132.6 million pre-tax charge ($79.9 million net of tax) representing an accrual related to the securities class action lawsuit mentioned above. The Company did not record a net tax benefit associated with the goodwill impairment, as it is not deductible for tax purposes

Excluding these special items, income from continuing operations attributable to Apollo Group for the three months ended May 31, 2011, was $203.5 million, or $1.45 per share (140.3 million diluted weighted average shares outstanding), compared to income from continuing operations attributable to Apollo Group for the three months ended May 31, 2010 of $264.6 million, or $1.74 per share (152.3 million diluted weighted average shares outstanding). (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release.)

Operating Expenses

Instructional and student advisory expenses increased by $16.4 million, or 3.7%, to $458.1 million for the three months ended May 31, 2011, compared to the three months ended May 31, 2010. The increase was primarily due to various strategic initiatives implemented to more effectively support students and improve their educational outcomes, which have resulted in increased compensation expense related to certain student advisory and infrastructure support functions and increased curriculum development and delivery costs.

Marketing expenses increased by $9.4 million, or 6.2%, to $161.0 million for the three months ended May 31, 2011, compared to the three months ended May 31, 2010. The increase was primarily a result of higher advertising expenditures, driven by the increased costs associated with the Company's efforts to more effectively identify students who have a greater likelihood to succeed in its educational programs and increases in advertising rates for traditional and online media due to increased competition for higher degree level students and improving general economic conditions.

Admissions advisory expenses decreased by $16.4 million, or 14.1%, to $99.9 million for the three months ended May 31, 2011, compared to the three months ended May 31, 2010. The decrease was a result of lower admissions advisory headcount primarily attributable to a strategic reduction in force implemented during the first quarter of fiscal 2011 that eliminated approximately 700 full-time positions, principally among admissions personnel. This decrease was partially offset by higher average employee compensation costs.

General and administrative ("G&A") expenses increased by $12.5 million, or 16.6%, to $87.9 million for the three months ended May 31, 2011, compared to the three months ended May 31, 2010. The increase is primarily attributable to expenses associated with higher employee compensation costs and other expenses associated with the Company's investments in its information technology resources and capabilities.

The provision for uncollectible accounts receivable ("bad debt expense") decreased by $32.8 million, or 45.5%, to $39.2 million for the three months ended May 31, 2011, compared to the three months ended May 31, 2010. The decrease is primarily attributable to reductions in gross accounts receivable as a result of decreases in New Degreed Enrollment, a shift in the mix of students from Associates to higher degree-level programs, and improvements in student retention rates, partially due to the full implementation of University Orientation. Improved collection rates at University of Phoenix, which were favorably impacted by ongoing process improvements and an initiative to address the Company's oldest receivables, also contributed to the decrease.

Depreciation and amortization increased by $4.4 million, or 12.1%, to $41.1 million for the three months ended May 31, 2011, compared to the three months ended May 31, 2010. The increase was primarily due to increased depreciation related to information technology, network infrastructure and software, partially offset by a decrease in amortization of BPP intangible assets and depreciation of principal office buildings in respect of which the Company entered into a sale-leaseback arrangement.

Financial and Operating Metrics

Below are Apollo Group's unaudited financial data and operating metrics for the third quarter of fiscal 2011 versus the prior-year period.

Unaudited First Nine Months of Fiscal 2011 Results of Operations

Consolidated net revenue for the nine months ended May 31, 2011, was $3.6 billion, a 1.5% decrease from the comparable period of fiscal 2010. The decrease in consolidated net revenue was primarily attributable to a 6.6% decrease in University of Phoenix's average Degreed Enrollment in the first nine months of fiscal year 2011 compared to the first nine months of fiscal year 2010, partially offset by selective tuition price and other fee changes at University of Phoenix. The Company reported income from continuing operations attributable to Apollo Group of $381.3 million, or $2.66 per share, (143.2 million diluted weighted average shares outstanding), and $520.9 million, or $3.37 per share, (154.5 million diluted weighted average shares outstanding) for the nine months ended May 31, 2011, and May 31, 2010, respectively.

Results for the nine months ended May 31, 2011 contain special items that include goodwill and other intangibles impairment charges of $219.9 million for the BPP subsidiary of Apollo Global ($188.3 million net of the portion attributable to noncontrolling interests), a $4.5 million charge for accrued incremental post-judgment interest and future estimated legal costs related to a securities class action lawsuit (Policeman's Annuity and Benefit Fund of Chicago), and a $3.8 million restructuring charge associated with a strategic reduction in force, primarily at University of Phoenix. The Company recorded a tax benefit of $7.7 million, net of noncontrolling interests, associated with these charges, along with a tax benefit of $9.6 million resulting from the resolution with the Internal Revenue Service regarding the deductibility of payments made to settle a lawsuit in fiscal 2010. Results for the nine months ended May 31, 2010 included a goodwill impairment charge of $8.7 million ($7.5 million net of the portion attributable to noncontrolling interest), a $177.1 million pre-tax charge ($106.8 million net of tax) representing an accrual related to the securities class action lawsuit mentioned above, and a tax benefit of $11.4 million resulting from the settlement of disputed tax issues with the Internal Revenue Service. The Company did not record a net tax benefit associated with the goodwill impairment in either period, as it is not deductible for tax purposes.

Excluding these special items, income from continuing operations attributable to Apollo Group for the nine months ended May 31, 2011 was $560.6 million, or $3.91 per share, compared to income from continuing operations attributable to Apollo Group of $623.8 million, or $4.04 per share, for the nine months ended May 31, 2010. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release.)

Unaudited Balance Sheet

As of May 31, 2011, the Company's cash and cash equivalents, excluding restricted cash, totaled $1,426.3 million as compared to $1,284.8 million as of August 31, 2010. The increase is attributable to cash generated from operations, a decrease in restricted cash, and proceeds from the sale-leaseback of the Company's principal office buildings in Phoenix, Arizona, partially offset by repayments on borrowings, share repurchases and capital expenditures. Restricted cash and cash equivalents (including long-term) decreased by $194.3 million compared to August 31, 2010, primarily due to the return of funds associated with the release of the Company's cash-collateralized letter of credit in the amount of approximately $126 million in connection with a previous program review of University of Phoenix by the U.S. Department of Education.

At May 31, 2011, accounts receivable decreased to $227.2 million from $264.4 million at August 31, 2010. Excluding accounts receivable and the associated net revenue for Apollo Global, the Company's days sales outstanding ("DSO") was 23 days at May 31, 2011, compared to 30 days at August 31, 2010 and May 31, 2010. The decrease in DSO versus a year ago is primarily attributable to reductions in gross accounts receivable as a result of decreases in New Degreed Enrollment, a shift in the mix of students from associates to higher degree-level programs, and improvements in student retention, partially due to the full implementation of University Orientation. Improved collection rates at University of Phoenix also contributed to the decrease.

Total debt outstanding (including short-term borrowings and the current portion of long-term debt) decreased by $389.1 million to $195.3 million at May 31, 2011, from $584.4 million at August 31, 2010. The decrease is due to the repayment of U.S. denominated borrowings on the Company's $500 million credit facility.

Share Repurchases

The Company repurchased approximately 4.1 million and 10.6 million shares of its common stock at a weighted average purchase price of $40.26 and $39.48 per share for a total expenditure of $167.3 million and $418.7 million during the three and nine months ended May 31, 2011, respectively. At May 31, 2011, $11.8 million was recorded in accrued liabilities in the Condensed Consolidated Balance Sheets for repurchased shares that settled subsequent to May 31, 2011. As of May 31, 2011, approximately $357.7 million remained available under the Company's current share repurchase authorization.

Business Outlook

The Company offers the following commentary regarding the outlook for fiscal 2011 and fiscal 2012 based on the business trends observed during the third quarter of fiscal 2011, as well as management's current expectations of future trends, which could change.

Fiscal 2011:

• Consolidated net revenue of $4.65-$4.75 billion; and
• Operating income, excluding the impact of special items, of $1.15-$1.20 billion.

Fiscal 2012:

• Consolidated net revenue of $4.00-$4.25 billion; and
• Operating income, excluding the impact of special items, of $675-$800 million.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 5:00 p.m. Eastern, 2:00 p.m. Phoenix time, today, Thursday, June 30, 2011. The call may be accessed by dialing (877) 292-6888 (domestic) or (973) 200-3381 (international) and entering the conference ID number 71264066. A live webcast of this event may be accessed by visiting the Company's website at www.apollogrp.edu. A replay of the call will be available on the website or by dialing (800) 642-1687 (domestic) or (706) 645-9291 (international) and entering the conference ID number 71264066 until July 9, 2011.

About Apollo Group, Inc.

Apollo Group, Inc. is one of the world's largest private education providers and has been in the education business for more than 35 years. The Company offers innovative and distinctive educational programs and services both online and on-campus at the undergraduate, master's and doctoral levels through its subsidiaries: University of Phoenix, Apollo Global, Institute for Professional Development and College for Financial Planning. The Company's programs and services are provided in 40 states and the District of Columbia; Puerto Rico; Latin America; and Europe, as well as online throughout the world.

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) changes in the overall U.S. or global economy, (ii) changes in enrollment or student mix, including as a result of the roll-out of the Company's University Orientation program to all eligible students in November 2010, (iii) the impact of recent changes in the manner in which the Company evaluates and compensates its counselors that advise and enroll students, (iv) changes in law or regulation affecting the Company's eligibility to participate in or the manner in which it participates in U.S. federal student financial aid programs, including, specifically, the impact on the Company's business of the operational and other changes necessary to comply with the final program integrity regulations published by the U.S. Department of Education on October 29, 2010, and the final gainful employment regulations published by the Department on June 13, 2011, (v) changes in the Company's business necessary to remain in compliance with 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, and (vi) other regulatory developments. 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 2010 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 http://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.

SOURCE: Apollo Group, Inc.

Apollo Group, Inc.
Investor Relations Contacts:
Beth Coronelli, 312-660-2059
beth.coronelli@apollogrp.edu
Jeremy Davis, 312-660-2071
jeremy.davis@apollogrp.edu
Media Contact:
Media Relations Hotline, 602-254-0086
media@apollogrp.edu