Apollo Group, Inc. Reports Fiscal 2005 Second Quarter Results

Apollo Group, Inc. Reports Fiscal 2005 Second Quarter Results

    Business Editors/Education Writers

    PHOENIX--(BUSINESS WIRE)--March 29, 2005--Apollo Group, Inc. (Nasdaq:APOL) today reported fiscal 2005 financial results for the second quarter ended February 28, 2005.
    Net income attributed to Apollo Education Group common stock for the three months ended February 28, 2005, was $87.1 million, or $.47 per diluted share, compared to $63.0 million, or $.35 per diluted share reported for the same period last year.
    Net income attributed to Apollo Education Group common stock for the six months ended February 28, 2005, was $196.6 million, or $1.04 per diluted share, compared to $141.4 million, or $.79 per diluted share reported for the same period last year.
    Todd S. Nelson, Chairman and CEO, said, "We are pleased with our financial performance and overall enrollment growth this quarter. While we continue to invest in lead generation, the rate of increase in selling and promotional expenses declined from 48% in the first quarter of fiscal 2005 to 38% in the second quarter of fiscal 2005. During the quarter, we experienced a positive migration from our onground campuses of students with limited previous college experience to our online program designed for these students. Results to date indicate that retention of students in this academic program, which includes more faculty contact hours, is positive. We plan to implement this program at our onground University of Phoenix campuses during the fourth quarter of fiscal 2005. We believe that this migration of students to our online program is why our online enrollment is slightly ahead of our expectations and our onground enrollment is slightly below our expectations. The second quarter proved to be a strong quarter for campus openings. The University of Phoenix entered into a new state with a campus in Des Moines, Iowa and opened three new campuses in existing states; Richmond, VA; Raleigh, NC; and Austin, TX."
    Mr. Nelson continued, "The board of directors authorized a program allocating an additional $250 million in company funds to repurchase shares of Apollo Education Group Class A common stock."
    Total consolidated revenues for Apollo Group, Inc. for the three months ended February 28, 2005, rose 27.4% to $505.7 million, compared with $396.9 million in the second quarter of fiscal 2004. The University of Phoenix accounted for 90.8% of the $467.6 million in net tuition revenues from students enrolled in degree programs for the quarter ended February 28, 2005.
    Total consolidated revenues for Apollo Group, Inc. for the six months ended February 28, 2005, rose 28.7% to $1.041 billion, compared with $808.7 million in the same period last year. The University of Phoenix accounted for 92.5% of the $961.1 million in net tuition revenues from students enrolled in degree programs for the six months ended February 28, 2005.
    Consolidated net income for Apollo Group, Inc. for the three months ended February 28, 2005, increased 27.2% to $87.1 million, compared to $68.5 million for the same period last year.
    Consolidated net income for Apollo Group, Inc. for the six months ended February 28, 2005, increased 28.7% to $196.6 million, compared to $152.8 million for the same period last year.
    Consolidated degree enrollments for all of the Apollo Group, Inc. institutions at February 28, 2005, increased by 25% to 283,800 students compared to 227,800 students at February 29, 2004. Online degree enrollments at February 28, 2005, increased by 45% to 143,900 students compared to 99,500 students at February 29, 2004. Enrollments at onground campuses at February 28, 2005, increased by 9% to 140,000 students compared to 128,400 students at February 29, 2004.

    Business Outlook

    Apollo Group, Inc.

--	We expect revenue for the quarter ending May 31, 2005, to be between $622 million and $626 million and to be between $2.290 billion and $2.294 billion for fiscal 2005.
--	Operating margin is expected to be between 35.5% and 36.0% for the quarter ending May 31, 2005, and to be between 32.5% and 33.0% for fiscal 2005.

    Diluted earnings per share are expected to be $.74 for the quarter ending May 31, 2005. Excluding non-cash stock-based compensation charges related to the conversion in 2004 of University of Phoenix Online stock options into Apollo Education Group Class A stock options anticipated to occur when the options vest in the fourth quarter of fiscal 2005, we are increasing our fiscal 2005 diluted earnings per share expectation from $2.42 to $2.46.
    The company will hold a conference call to discuss these earnings results at 11:00 AM Eastern time, 9:00 AM Phoenix time, on Tuesday, March 29, 2005. The call may be accessed by dialing 877-292-6888 (domestic) or 706-634-1393 (internationally). The conference ID number is 3293327. A live webcast of this event may be accessed by visiting the company website at: www.apollogrp.edu. A replay of the call will be available on our website or at 706-645-9291 (conf. ID #3293327) until April 15, 2005.
    Apollo Group, Inc. has been providing higher education programs to working adults for over 25 years. Apollo Group, Inc., operates through its subsidiaries: The University of Phoenix, Inc., Institute for Professional Development, The College for Financial Planning Institutes Corporation, and Western International University, Inc. The consolidated enrollment in its educational programs makes it the largest private institution of higher education in the United States. It offers educational programs and services at 89 campuses and 150 learning centers in 39 states, Puerto Rico, and Vancouver, British Columbia.
    For more information about Apollo Group, Inc. and its subsidiaries, call 800-990-APOL or visit Apollo on the company website at: www.apollogrp.edu.

    This press release includes statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Apollo Group, Inc. claims the protection of the safe-harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are often characterized by the terms "may," "believes," "projects," "expects," or "anticipates," and do not reflect historical facts. Specific forward-looking statements contained in this press release relate, among other matters, to the business outlook of Apollo Group, Inc.
    Forward-looking statements involve risks, uncertainties, and other factors which may cause actual results, performance, or achievements of Apollo Group, Inc. to be materially different from those expressed or implied by such forward-looking statements. Factors that could affect Apollo Group, Inc.'s results and cause them to materially differ from those contained in the forward-looking statements include, without limitation:

    -- the failure to maintain or renew required regulatory
    approvals, accreditation, or state authorizations;

    -- the failure to obtain authorizations from states in which
    University of Phoenix does not currently provide degree
    programs;

    -- the failure to obtain the Higher Learning Commission's
    approval for University of Phoenix to operate in new states;

    -- our ability to continue to attract and retain students;

    -- our ability to successfully manage economic conditions,
    including stock market volatility;

    -- risk factors and cautionary statements made in Apollo Group,
    Inc.'s Annual Report on Form 10-K for the period ended August
    31, 2004; and

    -- other factors that Apollo Group is currently unable to
    identify or quantify, but may arise or become known in the
    future.

    These forward-looking statements are based on estimates, projections, beliefs, and assumptions of Apollo Group, Inc. and its management and speak only as of the date made and are not guarantees of future performance. Apollo Group, Inc. undertakes 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. You are advised, however, to consult any further disclosures Apollo Group, Inc. makes in its reports filed with the Securities and Exchange Commission.

    -Table to Follow-

APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA (Unaudited)

For the Three Months For the Six Months Ended Ended February February February February 28, 29, 28, 29, 2005 2004 2005 2004 --------- -------- ---------- -------- (In thousands, except per share amounts) Revenues: Tuition and other, net $ 505,693 $396,862 $1,040,619 $808,671 --------- -------- ---------- -------- Costs and expenses: Instructional costs and services 221,635 181,104 439,052 355,991 Selling and promotional 121,016 87,390 241,601 169,029 General and administrative 23,499 20,087 44,687 40,695 --------- -------- ---------- -------- 366,150 288,581 725,340 565,715 --------- -------- ---------- -------- Income from operations 139,543 108,281 315,279 242,956 Interest income and other, net 3,855 4,574 8,417 8,731 --------- -------- ---------- -------- Income before income taxes 143,398 112,855 323,696 251,687 Provision for income taxes 56,284 44,352 127,051 98,913 --------- -------- ---------- -------- Net income $ 87,114 $ 68,503 $ 196,645 $152,774 ========= ======== ========== ========

Net income attributed to: Apollo Education Group common stock $ 87,114 $ 63,044 $ 196,645 $141,399 ========= ======== ========== ======== University of Phoenix Online common stock $ 5,459 $ 11,375 ======== ========

Earnings per share attributed to: Apollo Education Group common stock: Diluted net income per share $ 0.47 $ 0.35 $ 1.04 $ 0.79 ========= ======== ========== ======== Diluted weighted average shares outstanding 187,007 178,924 188,419 178,825 ========= ======== ========== ========

University of Phoenix Online common stock: Diluted net income per share $ 0.32 $ 0.66 ======== ======== Diluted weighted average shares outstanding 17,149 17,167 ======== ========

APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)

February 28, August 31, 2005 2004 ----------- ---------- (Dollars in thousands) Assets: Current assets Cash and cash equivalents $ 7,878 $ 156,669 Restricted cash 142,049 78,413 Auction-rate securities--restricted 85,650 106,050 Marketable securities 255,442 336,193 Receivables, net 171,238 146,497 Deferred tax assets, net 11,198 10,020 Income tax receivable 14,220 Other current assets 22,946 20,842 ----------- ---------- Total current assets 710,621 854,684 Property and equipment, net 234,220 213,535 Marketable securities 176,165 316,743 Cost in excess of fair value of assets purchased, net 37,096 37,096 Deferred tax assets, net 29,296 47,520 Other assets 28,923 26,853 ----------- ---------- Total assets $ 1,216,321 $1,496,431 =========== ========== Liabilities and Shareholders' Equity: Current liabilities Current portion of long-term liabilities $ 13,608 $ 12,703 Accounts payable 38,174 50,895 Accrued liabilities 50,884 69,481 Income taxes payable 11,856 Student deposits and current portion of deferred revenue 376,718 330,020 ----------- ---------- Total current liabilities 479,384 474,955 Deferred tuition revenue, less current portion 470 528 Long-term liabilities, less current portion 67,730 63,807 ----------- ---------- Total liabilities 547,584 539,290 ----------- ---------- Commitments and contingencies Shareholders' equity Preferred stock, no par value, 1,000,000 shares authorized; none issued Apollo Education Group Class A nonvoting common stock, no par value, 400,000,000 shares authorized; 181,944,000 and 187,567,000 issued and outstanding at February 28, 2005 and August 31, 2004, respectively 103 103 Apollo Education Group Class B voting common stock, no par value, 3,000,000 shares authorized; 477,000 issued and outstanding at February 28, 2005 and August 31, 2004 1 1 Additional paid-in capital 28,787 Apollo Education Group Class A treasury stock, at cost, 6,058,000 shares at February 28, 2005 (445,184) Retained earnings 1,114,738 928,815 Accumulated other comprehensive loss (921) (565) ----------- ---------- Total shareholders' equity 668,737 957,141 ----------- ---------- Total liabilities and shareholders' equity $ 1,216,321 $1,496,431 =========== ==========

APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Six Months Ended February February 28, 29, 2005 2004 --------- --------- (In thousands) Cash flows provided by (used for) operating activities: Net income $ 196,645 $ 152,774 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,093 21,241 Amortization of investment premiums 2,196 3,026 Provision for uncollectible accounts 18,919 13,788 Deferred income taxes 17,046 (3,872) Tax benefits of stock options exercised 24,430 28,395 Cash received for tenant improvements 1,263 1,314 Changes in assets and liabilities Restricted cash (63,636) (23,909) Receivables (43,660) (22,259) Other assets (4,132) (2,589) Accounts payable and accrued liabilities (30,112) 10,193 Income taxes (26,076) 4,264 Student deposits and deferred revenue 46,640 49,343 Other liabilities 1,689 1,787 --------- --------- Net cash provided by operating activities 166,305 233,496 --------- --------- Cash flows provided by (used for) investing activities: Net additions to property and equipment (43,897) (29,538) Purchase of land and buildings related to future Online expansion (28,428) Purchase of marketable securities (18,961) (486,145) Maturities of marketable securities 238,094 293,402 Purchase of auction-rate securities--restricted (46,000) (31,000) Maturities of auction-rate securities-- restricted 66,400 24,160 Purchase of other assets (1,253) (1,606) --------- --------- Net cash provided by (used for) investing activities 194,383 (259,155) --------- --------- Cash flows provided by (used for) financing activities: Purchase of Apollo Education Group Class A common stock (542,988) (20,843) Issuance of Apollo Education Group Class A common stock 33,865 26,476 Purchase of University of Phoenix Online common stock (17,175) Issuance of University of Phoenix Online common stock 10,927 --------- --------- Net cash used for financing activities (509,123) (615) --------- --------- Currency translation loss (356) (151) --------- --------- Net decrease in cash and cash equivalents (148,791) (26,425) Cash and cash equivalents at beginning of period 156,669 52,383 --------- --------- Cash and cash equivalents at end of period $ 7,878 $ 25,958 ========= =========

Supplemental disclosure of non-cash investing activities Tenant improvement allowances $ 7,795 $ 9,366

    This press release includes statements which may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This information may involve risk and uncertainties that could cause actual results to differ materially from the forward-looking statements.

--30--BRM/se*

CONTACT: Apollo Group, Inc. Kenda B. Gonzales, 800-990-APOL kenda.gonzales@apollogrp.edu or Investor Relations Janess Pasinski, 800-990-APOL, option 6 janess@apollogrp.edu or Press Contact Ayla Dickey, 480-557-2952 ayla.dickey@apollogrp.edu

KEYWORD: ARIZONA INDUSTRY KEYWORD: EDUCATION EARNINGS CONFERENCE CALLS SOURCE: Apollo Group, Inc.

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