APOLLO GROUP INC - 10-K Annual Report

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

No shares of the Company’s Apollo Education Group Class B Common Stock, its voting stock, are held by non-affiliates. The holders of the Company’s Apollo Education Group Class A Common Stock are not entitled to any voting rights. Aggregate market value of Apollo Education Group Class A Common Stock held by non-affiliates as of November 15, 2000, was approximately $1.9 billion. The holders of the Company’s University of Phoenix Online Common Stock are not entitled to any voting rights. Aggregate market value of University of Phoenix Online Common Stock held by non-affiliates as of November 15, 2000, was approximately $167 million. The number of shares outstanding for each of the registrant’s classes of common stock, as of November 15, 2000, is as follows:

Portions of the registrant’s Annual Report to Shareholders for the year ended August 31, 2000 are incorporated herein by reference into Part II. With the exception of those portions which are expressly incorporated by reference in this Annual Report on Form 10-K, the Apollo Group, Inc. 2000 Annual Report is not deemed filed as part of this report.

Apollo Group, Inc. has been providing higher education to working adults for over 25 years. We operate through our subsidiaries, the University of Phoenix, Inc., the Institute for Professional Development, the College for Financial Planning Institutes Corporation, Western International University, Inc., and Apollo Learning Group, Inc. The consolidated enrollment in our educational programs would make us the largest private institution of higher education in the United States. We currently offer our programs and services at 55 campuses and 98 learning centers in 35 states, Puerto Rico, and Vancouver, British Columbia. Our combined degree enrollment increased to approximately 100,900 at August 31, 2000 from approximately 46,900 at August 31, 1996.

University of Phoenix had degree enrollments of over 80,000 adult students at August 31, 2000, has been accredited by the Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools since 1978 and has successfully replicated its teaching/ learning model while maintaining educational quality at 30 physical campuses and 69 learning centers in Arizona, California, Colorado, Florida, Hawaii, Louisiana, Maryland, Michigan, Missouri, Nevada, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, Utah, Washington, Puerto Rico, and Vancouver, British Columbia. University of Phoenix also offers its educational programs worldwide through University of Phoenix Online, its computerized educational delivery system. University of Phoenix has customized computer programs for student tracking, marketing, faculty recruitment and training, and academic quality management. These computer programs are intended to provide uniformity among University of Phoenix’s campuses and learning centers which enhances University of Phoenix’s ability to expand into new markets while still maintaining academic quality. Currently, approximately 54% of University of Phoenix’s students receive some level of tuition assistance from their employers.

Apollo Learning Group was established in 1997 to focus on education opportunities in information technology for enhancing the skills of information technology professionals. Apollo Learning Group curriculum includes courses for the administration of computer networks, internetworking, and customized technical training. Apollo Learning Group’s curriculum is currently available at 25 University of Phoenix locations, with a total of 44 computer labs, offering Authorized Academic Training Programs to deliver Microsoft Official Curriculum. These campuses offer lab-based computer courses to prepare students for Microsoft Certified Systems Engineer exams.

The Institute for Professional Development provides program development and management services to regionally accredited private colleges and universities (client institutions) who are interested in expanding or developing their programs for working adults. These services typically include degree program development, curriculum development, market research, student recruitment, and performing accounting and administrative services. The Institute for Professional Development provides these services to regionally accredited private colleges and universities at 22 campuses and 27 learning centers in 22 states in exchange for a contractual share of the tuition revenues generated from these programs. The Institute for Professional Development’s contracts with its client institutions generally range in length from five to ten years with provisions for renewal. The Institute for Professional Development places a priority on institutions that:


	•	are interested in developing or expanding off-campus degree programs for working adults;

	•	recognize that working adults require a different teaching/learning model than the 18 to 24 year old student;

	•	desire to increase enrollments with a limited investment in institutional capital; and

	•	recognize the unmet educational needs of the working adult students in their market.

Approximately 18,600 degree-seeking students are currently enrolled in Institute for Professional Development assisted programs.

The College for Financial Planning provides financial planning education programs, including the Certified Financial Planner Professional Education Program. The College for Financial Planning began offering some of its non-degree programs at University of Phoenix campuses in 1999.

Western International University currently offers graduate and undergraduate degree programs to approximately 1,400 students in Phoenix, Fort Huachuca, and Chandler, Arizona.

We incorporated in Arizona in 1981 and maintain our principal executive offices at 4615 East Elwood Street, Phoenix, Arizona 85040. Our telephone number is (480) 966-5394. Our Internet Web Site addresses are as follows:

Our fiscal year is from September 1 to August 31. Unless otherwise stated, references to the years 2000, 1999, and 1998 relate to the fiscal years ended August 31, 2000, 1999, and 1998, respectively.

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relating to future plans, expectations, events, or performances involve risks and uncertainties and a number of factors could affect the validity of such forward-looking statements, including those set forth in Item 1 of this Form 10-K under the sections “Regulatory Environment,” “Accreditation,” “Federal Financial Aid Programs”, and “State Authorization.”

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 $200 billion industry. The U.S. Department of Education estimated that for 1998, adults over the age of 24 comprised approximately 6.1 million, or 39.2%, of the students enrolled in higher education programs. The U.S. Census Bureau estimates that approximately 76% of students over the age of 24 work while attending school. The market for adult education should continue to increase as working adults seek additional education and training to update and improve their skills, to enhance their earnings potential, and to keep pace with the rapidly expanding knowledge-based economy.

Many working adults are seeking accredited degree programs that provide flexibility to accommodate the fixed schedules and time commitments associated with their professional and personal obligations. Our format enables working adult students to attend classes and complete coursework on a more convenient schedule. Many universities and emerging technology-based education and training companies currently do not effectively address the unique requirements of working adult students due to the following specific constraints:


	•	Traditional universities and colleges were designed to fulfill the educational needs of conventional, full-time students aged 18 to 24, who remain the primary focus of these universities and colleges. This focus has resulted in a capital-intensive teaching/learning model that may be characterized by:


	•	a high percentage of full-time tenured faculty with doctoral degrees;

	•	fully-configured library facilities and related full-time staff;

	•	dormitories, student unions, and other significant plant assets to support the needs of younger students; and

	•	an emphasis on research and the related staff and facilities.


	•	The majority of accredited colleges and universities continue to provide the bulk of their educational programming from September to mid-December and from mid-January to May. As a result, most full-time faculty members only teach during that limited period of time. While this structure serves the needs of the full-time 18 to 24 year old student, it limits the educational opportunity for working adults who must delay their education for up to five months during these spring, summer, and winter breaks.

	•	Traditional universities and colleges are also limited in their ability to market to or provide the necessary customer service for working adult students because it requires the development of additional administrative and enrollment infrastructure. University of Phoenix maintains a single-minded focus on serving the needs of working adult students.

We believe that our track record for enrollment and revenue growth is attributable to our offering a comprehensive service combining educational content, teaching resources, and customer service with a format that is accessible and easy to use for students and corporate clients.

We believe that our more than 25-year history as a provider of higher education for working adults enables us to provide our students with an effective education and responsive customer service. Our expertise in designing curriculum, recruiting and training faculty, monitoring academic quality, and providing a high level of support services to students allows us to offer the following:


	•	Accredited Degree Programs. We currently offer 15 degree programs in business, education, information technology, and nursing that are accredited by the Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools or the regional accrediting associations of the Institute for Professional Development client institutions. This accreditation enables us to grant Associates, Bachelors, Masters, and Doctoral degrees, while also providing students with access to federal financial aid programs.

	•	Experienced Faculty Resources. While substantially all of our faculty are working professionals, we require each member of our faculty to possess either a Masters or Doctoral degree and to have five years of recent professional experience in a field related to the subject they teach. We have well-developed methods for hiring and training our faculty, which include peer reviews of newly hired instructors by other members of the faculty, training in grading and instructing students, and a teaching internship with a more experienced faculty member. Our classes are designed to be small, with an average of one instructor for every fifteen students. Faculty members are also required to be accessible to students by maintaining office hours.

	•	Current and Relevant Standardized Programs. We use content experts selected from our over 11,700 faculty to design our curriculum. This enables us to offer current and relevant standardized programs to our students. We also utilize an institution-wide system to assess the educational outcomes of our students and improve the quality of our curriculum and instructional model. This system evaluates the cognitive and affective skills of our students upon registration and upon conclusion of the program and also surveys students two years after graduation in order to assess the quality of the education they received.

	•	Benefits to Employers. The employers of our students often provide input to faculty members in designing curriculum, and class projects are typically based on issues relevant to the companies that employ our students. Our classes are taught by a practitioner faculty that emphasizes the skills desired by employers. In addition, the time flexibility provided by our classes further benefits employers since it avoids conflict with their employees’ work schedules. A recent survey by University of Phoenix showed that approximately 54% of its students receive some level of tuition assistance from their employers.

Our objective is to become the leading provider of accessible, high quality education for working adults and a preferred provider of workplace training to their employers. We are managed as a for-profit corporation

in a higher education industry served principally by not-for-profit providers. By design, we treat our adult students as our primary customers and the employers that provide tuition assistance to their employees through tuition reimbursement plans or direct bill arrangements as our secondary customers. We will implement the following strategic initiatives to accomplish this objective:

Establish New University of Phoenix Campuses and Learning Centers. University of Phoenix plans to continue the addition of campuses and learning centers throughout the United States and Canada. New locations are selected based on an analysis of various factors, including the population of working adults in the area, the number of local employers and their educational reimbursement policies, and the availability of similar programs offered by other institutions. Campuses consist of classroom and administrative facilities with full student and administrative services. Learning centers differ from campuses in that they consist primarily of classroom facilities with limited on-site administrative staff.

The timing related to the establishment of new locations and the expansion of programs may vary depending on regulatory requirements and market conditions.

Establish New Institute for Professional Development Relationships. The 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. University of Phoenix has recently added the Bachelor of Science in Business Management to its degree offerings. 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 over 48 persons involved in our centralized curriculum development process. Potential additions to our current offerings include:


	•	new degree programs, such as Criminal Justice;

	•	certificate programs, such as Psychopharmacology and e-Education;

	•	continuing education targeted at working professionals, such as Certified Public Accountants;

	•	professional certification, such as Leadership & Supervision and Certified in Web; and

	•	training programs, such as information technology and general management training.

Expand Access to Programs. We plan to continue expanding our distance education programs and services. Enrollments in distance education degree programs, primarily University of Phoenix Online, have increased to approximately 16,000 in 2000 from approximately 3,700 in 1996. University of Phoenix Online courses and programs are available via the Internet 24 hours a day, 7 days a week and can be accessed using basic technology, such as a Pentium-class personal computer, a 28.8K modem, and an Internet service provider, which enhances the accessibility of and the potential market for University of Phoenix Online programs.

International Expansion. We believe that the international market for our services is a major growth opportunity. The U.S. is the most common destination for international students studying abroad. We believe that more working adult students would opt for a U.S. education that does not involve living in the U.S. because they could do so without leaving their employment and incurring the high travel and living costs and stringent visa requirements associated with studying abroad. Our belief is supported by the fact that University of Phoenix Online has students located in over 70 countries despite having used only limited advertising. In addition, many U.S. residents live and work in foreign countries and would benefit from the opportunity to continue their education while abroad. We will continue to conduct market and operations research in various foreign countries where we believe there might be a demand for our programs. Additionally, we plan to offer the University of Phoenix educational model at physical campuses in international markets pursuant to agreements with Apollo International, Inc. as described in Item 13. The first offering under these agreements was started in the Netherlands in September 1999, where we are currently servicing 45 students. We will

continue to monitor and assess the feasibility of expanding our educational programs to other international markets through similar licensing agreements. Currently we do not plan to independently open facilities outside of North America.

Our teaching/learning model used by University of Phoenix and Institute for Professional Development client institutions was designed for working adults. This model is structured to enable students who are employed full-time to earn their degrees and still meet their personal and professional responsibilities. Students attend weekly classes, averaging 15 students in size, and also meet weekly as part of a three to five person study group. The study group sessions, an integral part of each course, are used for in-depth discussion and review of class materials, work on assigned group projects, and work on communication and teamwork skills. Courses are designed to facilitate the application of knowledge and skills to the workplace and are taught by faculty members who possess advanced degrees and have professional experience in business, industry, government, or the professions. In this way, faculty members are able to share their professional knowledge and skills with the students.

While adults over the age of 25 comprise approximately 40% of all higher education enrollments in the United States, the mission of most accredited four-year colleges and universities is to serve 18 to 24 year-old students and conduct research. University of Phoenix and Institute for Professional Development client institutions acknowledge the differences in educational needs between older and younger students and provide programs and services that allow working adults to earn their degrees without major disruption to their personal and professional lives.

The educational literature suggests that working adults require a different teaching/learning model than that designed for traditional, younger students. We have found that working adults seek accessibility, curriculum consistency, time and cost effectiveness, and learning that has an immediate application to the workplace.

The College for Financial Planning currently offers text-based self-study programs for students preparing for the Certified Financial Planner designation and other financial-related designations, including a Master of

Science in Financial Planning. The College for Financial Planning recently modularized the learning content for these programs to position them for alternative delivery formats, including but not limited to classroom and online modalities. These same programs are offered in a classroom-based format through University of Phoenix campuses and we also plan to offer them through Internet or online-based formats. Most of the College for Financial Planning’s students are employed, and over 77% have four or more years of college education. The College for Financial Planning’s programs are developed internally by approximately 14 full-time faculty. These programs are primarily self-study, non-degree programs that require little or no faculty involvement in the actual delivery of the programs.

Western International University’s teaching/learning model has similar characteristics to the teaching/learning model used by University of Phoenix and Institute for Professional Development client institutions, including the use of part-time practitioner faculty, standardized curriculum, computerized learning resources, and leased facilities. However, Western International University provides educational programs in two-month sessions and does not focus exclusively on working adult students. Western International University’s faculty consists of approximately 8 full-time faculty and 200 part-time faculty. Western International University’s practitioner 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.

University of Phoenix Programs. The following is a list of the degree programs and related areas of specialization that University of Phoenix offers:


	•	Associate of Arts in General Studies

	•	Bachelor of Arts in Management

	•	Bachelor of Science in Business


	•	Bachelor of Science in Business Administration

	•	Bachelor of Science in Nursing

	•	Bachelor of Science in Human Services

	•	Bachelor of Science in Health Care Services


	•	Bachelor of Science in Information Technology

	•	Master of Arts in Education


	•	Master of Arts in Organizational Management

	•	Master of Business Administration

University of Phoenix also offers professional education programs, including continuing education for teachers, custom training, environmental training, and many programs leading to certification in the areas of business, technology, and nursing.

Undergraduate students may demonstrate and document college level learning gained from experience through an assessment by faculty members, according to the guidelines of the Council for Adult and Experiential Learning, for the potential award of credit. The average number of credits awarded to the approximately 2,700 University of Phoenix undergraduate students who utilized the process in 2000 was approximately 10 credits of the 120 required to graduate. The Council for Adult and Experiential Learning reports that over 1,100 regionally accredited colleges and universities currently accept credits awarded for college level learning gained through experience.

Institute for Professional Development Services. The Institute for Professional Development’s contracts with its client institutions are individually negotiated and the actual services may vary from one client institution to another. Services to its client institutions may include:


	•	conducting market research;

	•	assisting with curriculum development;

	•	developing and executing marketing strategies;

	•	marketing and recruiting of students;

	•	establishing operational and administrative infrastructures;

	•	training of faculty;

	•	developing and implementing financial accounting and academic quality management systems;

	•	assessing the future needs of adult students;

	•	assisting in developing additional degree programs suitable for the adult higher education market;

	•	assisting in seeking approval from the respective regional accrediting association for new programs; and

	•	training of adult program staff.

In consideration for its services, the Institute for Professional Development receives a contractual share of tuition revenues, which are negotiated with each client institution, from students enrolled in Institute for Professional Development assisted programs.

In order to facilitate the sharing of information related to the operations of their respective programs, the Institute for Professional Development, its client institutions, and University of Phoenix formed the Consortium for the Advancement of Adult Higher Education. This consortium meets annually to address issues such as the recruitment and training of part-time, professionally employed faculty, employer input in the curriculum development process, assessment of the learning outcomes of adult students, and regulatory issues affecting the operation of programs for working adult students.

Institute for Professional Development client institutions offer the following programs with our assistance:

The Institute for Professional Development assisted programs also include a limited number of general education courses, certificate programs, and areas of specialization.

College for Financial Planning Programs. The College for Financial Planning currently offers a Master of Science degree with a concentration in Financial Planning and the following non-degree programs:


	•	Accredited Asset Management Specialist

	•	Certified Financial Planner Professional Education Program

	•	Chartered Mutual Fund Counselor

	•	Foundations in Financial Planning

	•	Chartered Retirement Plans Specialist

	•	Chartered Retirement Planning Counselor

	•	Accredited Tax Advisor

	•	Accredited Tax Preparer

Western International University Programs. Western International University currently offers the following degree programs:


	•	Accounting

	•	Business Administration

	•	Finance

	•	Information Technology

	•	International Business

	•	Management

	•	Marketing


	•	Finance

	•	Information Technology

	•	International Business

	•	Management

	•	Marketing

Western International University also offers a limited number of business-related certificate programs.

At August 31, 2000, there were approximately 16,400 degree seeking students utilizing our distance education delivery systems, approximately 98% of whom are enrolled at University of Phoenix Online. Our distance education components consist primarily of the following:

University of Phoenix Online. University of Phoenix Online has developed its system to be easily accessible and familiar to most students. All the student needs to participate in University of Phoenix Online’s classes is a Pentium-class personal computer, a 28.8K modem, and an Internet service provider.

Each student orders textbooks online from a third party prior to the beginning of each class. The student logs into his or her particular class using a password. Prior to the class starting, the instructor posts a syllabus that the student can download and use as a guide. In addition, the student can download the biographies of the other students and the instructor.

Each week, the instructor posts a lecture on the classroom discussion board. Students log on and read the lecture or print the lecture to read at their convenience. On average, University of Phoenix Online has nine students per class, who are divided into learning teams of three or four students to work on projects together. Throughout the week, students participate in a group discussion, based on the class content for that week, which is facilitated by the instructor. There are separate conferences set up for learning team projects and individual submission of class assignments. Instructors log on and read comments posted by students, respond to them, and assign grades for their learning team projects. Instructors also give students weekly feedback on class participation. Both students and instructors are required to log on at least five days a week to participate in the classes. In addition, faculty members are required to maintain online office hours. Students are graded on a combination of participation, work product, and examinations.

College for Financial Planning. Business and investment professionals that require continuing professional education (CPE) as part of their professional certification or for employment requirements may complete individual CPE courses through the Internet utilizing most Internet browsers. These programs are short, interactive courses designed to focus on relevant topics to the students’ trade or profession. The students interact primarily with our Web-based software programs with little or no faculty involvement.

Distance education is currently subject to certain regulatory constraints. See “Business — Federal Financial Aid Programs — Restrictions on Distance Education Programs” and “Business — State Authorization.”

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.

The following is a breakdown of our students by the level of program they are seeking, at August 31, 2000:

We consider the employers that provide tuition assistance to their employees through tuition reimbursement plans or direct bill arrangements our secondary customers.

Based on student surveys of incoming students in the first half of fiscal 2000, the average age of University of Phoenix’s students is in the mid-thirties, approximately 54% are women and 46% are men, and the average annual household income is $61,000. Approximately 69% of University of Phoenix’s students have been employed on a full-time basis for nine years or more. We believe that the demographics of students enrolled in Institute for Professional Development assisted programs are similar to those of University of

Based on student surveys, the average age of students at the College for Financial Planning is in the mid-thirties, approximately 31% are women and 69% are men. Most of the College for Financial Planning’s students are employed, and over 77% have four or more years of college education.

Institute for Professional Development client institutions have historically consisted of small private colleges; however, the Institute for Professional Development also targets larger institutions of higher education that are in need of marketing, prior learning assessment, and curriculum consulting. The Institute for Professional Development understands that to develop and manage educational programs for working adult students effectively, these potential client institutions require both capital and operational expertise. In response to these requirements, the Institute for Professional Development provides the start-up capital, the curriculum development expertise, and the ongoing management in support of the client institutions’ provision of quality programs for working adult students.

We work closely with businesses and governmental agencies to meet their specific needs either by modifying existing programs or, in some cases, by developing customized programs. These programs are often held at the employers’ offices or on-site at military bases. University of Phoenix has also formed educational partnerships with various corporations to provide programs specifically designed for their employees.

To generate interest among potential students, we engage in a broad range of activities to inform the public about our teaching/learning model and the programs offered. These activities include:

Direct Mail. Direct mail is effective at reaching the working adult population that expresses interest in training, education, and self-improvement. Direct mail also enables us to target specific career fields, such as Accounting, Business, Education, Information Technology, 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:


	•	mailing a business reply card;

	•	faxing a business reply card;

	•	calling us at a specific 1-800 number; or

	•	directing the potential student to one of our specific URL addresses on the Internet that are used to track individual marketing campaigns for reach and effectiveness.

Internet Marketing. We advertise extensively on the Internet using purchased banner advertisements on targeted sites, as well as paying other Web sites, such as education portals, a fee on a per lead basis. We also benefit from non-paid Internet referrals, including leads directed to our domain names as a result of Web search using Internet search engines and browsers. We believe these prospective students are likely to enroll in our programs because these prospects are actively seeking information about degree programs.

Re-Marketing. Re-marketing efforts include both direct mail post cards and e-mail sent to existing leads. Re-marketing is a very successful part of our marketing campaign because of our growing database of “qualified” prospects.

Referrals. Based on our recent estimates, approximately 55% of our new students are referred by their employers, co-workers, current students, alumni, family, and friends.

Print and Broadcast. We rely on print and broadcast advertising primarily to build brand recognition. We plan to begin advertising in trade magazines, particularly in those that specialize in fields that require skills taught by us.

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 and some have greater financial and personnel resources than us. 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:


	•	the ability to provide easy access to programs and classes;

	•	reliable and high-quality products and services;

	•	qualified and experienced faculty;

	•	cost of the program;

	•	reputation of programs, classes, and services; and

	•	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, longer-term relationships with key vendors, and, in some cases, more financial resources.

The Institute for Professional Development faces competition from other entities offering higher education curriculum development and management services for adult education programs. The majority of the Institute for Professional Development’s current competitors provide pre-packaged curriculum or turn-key programs.


(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.

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:


	•	the accrediting agencies recognized by the U.S. Department of Education;

	•	the federal government through the U.S. Department of Education; and

	•	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 us. In addition, changes in or new interpretations of other applicable laws, rules, or regulations could have a material adverse effect on the accreditation, authorization to operate in various states, permissible activities, and costs of doing business of University of Phoenix, Western International University, and one or more of the Institute for Professional Development client institutions. The failure to maintain or renew any required regulatory approvals, accreditation or state authorizations by University of Phoenix or certain of the Institute for Professional Development client institutions could have a material adverse effect on us.

University of Phoenix, Western International University, the College for Financial Planning, and the Institute for Professional Development client institutions are covered by regional accreditation which provides the following:


	•	recognition and acceptance by employers, other higher education institutions, and governmental entities of the degrees and credits earned by students;

	•	qualification to participate in Title IV programs; and

	•	qualification for authorization in certain states.

University of Phoenix was granted accreditation by the North Central Association of Colleges and Schools in 1978. University of Phoenix’s accreditation was reaffirmed in 1982, 1987, 1992, and 1997. The next North Central Association of Colleges and Schools reaffirmation visit is expected to begin in 2002.

Institute for Professional Development assisted programs offered by its client institutions are evaluated by the client institutions’ respective regional accrediting associations either as part of a reaffirmation visit or focused evaluation visit. Current Institute for Professional Development client institutions are accredited by the North Central Association of Colleges and Schools, Middle States, New England, or Southern regional accrediting associations.

The College for Financial Planning graduate degree program is accredited by the North Central Association of Colleges and Schools and the Accrediting Commission of the Distance Education and Training Council. The North Central Association of Colleges and Schools reaffirmed the accreditation of the graduate degree program in August 1999, and their next reaffirmation visit is expected in 2003-04. The Accrediting

Western International University was accredited by the North Central Association of Colleges and Schools prior to the acquisition by us, and the accreditation was reaffirmed in 1998. Western International University’s next reaffirmation visit is expected to begin in 2004-05.

The withdrawal of accreditation from University of Phoenix or certain Institute for Professional Development client institutions would have a material, adverse effect on us.

All accrediting agencies recognized by the U.S. Department of Education are required to include the monitoring of Title IV program compliance in their evaluations of accredited institutions. As a result, all regionally accredited institutions, including University of Phoenix, Western International University, and the Institute for Professional Development client institutions, will be subject to a Title IV program compliance review as part of accreditation visits.

Regional accreditation is accepted nationally as the basis for the recognition of earned credit and degrees for academic purposes, employment, professional licensure, and, in some states, for authorization to operate as a degree-granting institution. Under the terms of a reciprocity agreement among the six regional accrediting associations, representatives of each region in which a regionally accredited institution operates participate in the evaluations for reaffirmation of accreditation. The achievement of University of Phoenix and Western International University missions require them to employ academically qualified practitioner faculty that are able to integrate academic theory with current workplace practice.

University of Phoenix’s Bachelor of Science in Nursing program received program accreditation from the National League for Nursing Accrediting Commission in 1989. The accreditation was reaffirmed in October 1995. The Master of Science in Nursing program earned the National League for Nursing Accrediting Commission accreditation in 1996. In July 2000, both the Bachelor of Science in Nursing and the Master of Science in Nursing programs received eight year accreditation status from the National League for Nursing Accreditation Commission.

University of Phoenix’s Community Counseling program, Master of Counseling in Community Counseling degree, received initial accreditation for its Phoenix and Tucson campuses from the Council for Accreditation of Counseling and Related Educational Programs in 1995, and the next reaffirmation visit is expected to begin in 2002.

University of Phoenix received approval from the North Central Association of Colleges and Schools to offer its first doctoral level program in 1998. The first students were enrolled in the Doctor of Management degree beginning in 1999. The Doctor of Management degree is offered via distance learning technology with annual two-week residencies in Phoenix throughout the program. The program is limited to a total of 60 new students per year.


	North Central Association of Colleges and Schools Commission on Institutions of Higher Education
	30 North LaSalle Street, Suite 2400
	Chicago, IL 60602-2504
	(312) 263-0456

	National League for Nursing Accrediting Commission
	61 Broadway, 33rd Floor
	New York, NY 10006
	(800) 669-1656


	American Counseling Association Council for Accreditation of Counseling and
	Related Educational Programs
	5999 Stevenson Avenue
	Alexandria, VA 22304
	(703) 823-9800

	Accrediting Commission of the Dis


Apollo Education Group Class A common stock, no par		75,561,000 Shares
Apollo Education Group Class B common stock, no par		512,000 Shares
University of Phoenix Online common stock, no par		5,750,000 Shares


		Page

PART I




Item 1.	Business		1




Item 2.	Properties		21




Item 3.	Legal Proceedings		21




Item 4.	Submission of Matters to a Vote of Security Holders		21
PART II




Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		22




Item 6.	Selected Consolidated Financial Data		22




Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		23




Item 7a.	Quantitative and Qualitative Disclosures about Market Risk		23




Item 8.	Financial Statements and Supplementary Data		23




Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		23
PART III




Item 10.	Directors and Executive Officers of the Registrant		24




Item 11.	Executive Compensation		27




Item 12.	Security Ownership of Certain Beneficial Owners and Management		33




Item 13.	Certain Relationships and Related Transactions		34
PART IV




Item 14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		35




SIGNATURES			38


• Apollo Group		http://www.apollogrp.edu
• University of Phoenix		http://www.phoenix.edu
• University of Phoenix Online		http://www.online.phoenix.edu
• Institute for Professional Development		http://www.ipd.org
• Western International University		http://www.wintu.edu
• College for Financial Planning		http://www.fp.edu
• Apollo Learning Group		http://www.mcse.com


*Curriculum*		The curriculum is designed to integrate academic theory and professional practice and their application to the workplace. The curriculum provides for the achievement of specified educational outcomes that are based on the input from faculty, students, and students’ employers. The standardized curriculum for each degree program is also designed to provide students with specified levels of knowledge and skills.

*Faculty*		Faculty applicants must possess an earned Masters or Doctoral degree from a regionally accredited institution, and have a minimum of five years recent professional experience in a field related to the subject matter in which they seek to instruct. To help promote quality delivery of the curriculum, all faculty members are required to:

		• complete an initial assessment conducted by staff and faculty;

		• receive training in grading, facilitation of the teaching/learning model, and oversight of study group activities;

		• serve an internship with an experienced faculty mentor; and

		• receive ongoing performance evaluations by students, peer faculty, and staff, which are used to establish developmental plans to improve individual faculty performance and to determine continued eligibility of faculty members to provide instruction.

*Interactive Learning*		Classes are designed to combine individual and group interaction between and among students and the instructor. The curriculum requires a high level of student participation for purposes of increasing the student’s ability to work as part of a team.

*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 LRS research librarian.

*Sequential Enrollment*		Students enroll in and complete classes sequentially, rather than concurrently, thereby allowing full-time working adults to focus their attention and resources on one subject at a time. This provides a better balance between learning and ongoing personal and professional responsibilities.


*Accessibility*		Professional programs that can be accessed through a variety of delivery modes (e.g., campus-based or electronically delivered) that make the educational programs accessible regardless of where the students work and live.

*Instructional Costs*		While the majority of the faculty at most accredited colleges and universities are employed full-time, most of the University of Phoenix and Institute for Professional Development client institutions’ faculty are part-time. All faculty are academically qualified, are professionally employed, and are contracted for instructional services on a course-by-course basis.

*Facility Costs*		We lease our campus and learning center facilities and rent additional classroom space on a short-term basis to accommodate growth in enrollments.

*Employed Students*		Substantially all of University of Phoenix’s students are employed full-time. The average student has been employed for 12 years. This 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*		We develop relationships with key employers for purposes of recruiting students and responding to specific employer needs. This allows us to remain sensitive to the needs and perceptions of employers, while helping both to generate and sustain diverse sources of revenues. Approximately 54% of University of Phoenix’s students currently receive some level of tuition assistance from their employers; approximately 44% receive at least half of their tuition and approximately 21% receive full tuition assistance. These percentages are higher for students in the business, management, and information technology programs.


[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE






Arizona (State or other jurisdiction of incorporation or organization)		86-0419443 (I.R.S. Employer Identification No.)






None (Title of each class)		None (Name of each exchange on which registered)


*Academic Quality*		We have an Academic Quality Management System designed to maintain and improve the quality of programs and academic and student services. This system includes the Adult Learning Outcomes Assessment, which seeks to measure student growth in both the cognitive (subject matter) and affective (educational, personal, and professional values) skills.


	•	Master of Science in Computer Information Systems

	•	Doctor of Management


	Number of
Degree Programs	Client Institutions

Associate in Business Management		1
Associate of Arts		1
Associate of Arts in Business		4
Associate of Arts in Leadership Studies		1
Associate of Arts in Liberal Arts — Business Emphasis		1
Associate of Science		1
Associate of Science in Business		10
Bachelor of Arts in Business		2
Bachelor of Arts in Management		1
Bachelor of Business Administration		8
Bachelor of Science in Accounting		2
Bachelor of Science in Business Administration		10
Bachelor of Science in Business Information Systems		1
Bachelor of Science in Management		10
Bachelor of Science in Management Information Systems		2
Bachelor of Science in Management of Information Technology		1
Bachelor of Science in Nursing		2
Master of Business Administration		12
Master of Business Administration — Health Care Executives		1
Master of Business Administration — Online		1
Master of Management		2
Master of Science in Management		6
Master of Science in Management — Information Technology		1
Master of Science in Management — Leadership		1
Master of Science in Management — Marketing		1
Master of Science in Nursing		1


		Number of		Percentage of
		Students		Students

Degree Programs




	Bachelors		65,500		64.9	%




	Masters		29,300		29.0




	Associates		6,000		6.0




	Doctoral		100		0.1

Total Degree Students			100,900		100.0	%


	Percentage of
Age	Students

25 and under		11	%




26 to 33		39




34 to 45		38




46 and over		12

		100	%


	Full-Time		Part-Time		Faculty			Total

Apollo		325		13		—			338	(1)




University of Phoenix		3,039		105		11,386	(2)		14,530




Institute for Professional Development		292		12		—	(3)		304




College for Financial Planning		87		5		23	(4)		115




Western International University		66		12		329	(2)		407




Apollo Learning Group		16		—		—			16

Total		3,825		147		11,738			15,710


	—	Areas of Specialization


	—	Areas of Specialization


	—	Areas of Specialization


	—	Areas of Specialization


(1)	Consists primarily of employees in executive administration, information systems, corporate accounting, financial aid, and human resources.

(2)	Consists primarily of part-time faculty contracted on a course-by-course basis.