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UNITED STATES

FORM 10-K

(Mark One)

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

For the fiscal year ended: August 31, 2001

OR

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

For the transition period from           to                     

Commission file number: 0-25232

APOLLO GROUP, INC.

4615 East Elwood Street, Phoenix, Arizona 85040

Registrant’s telephone number, including area code: (480) 966-5394

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

(Title of class)

     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 o 

     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.     o

     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 9, 2001, was approximately $3.4 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 9, 2001, was approximately $234.2 million. The number of shares outstanding for each of the registrant’s classes of common stock, as of November 9, 2001, is as follows:

Documents Incorporated by Reference

     Portions of the registrant’s Annual Report to Shareholders for the year ended August 31, 2001 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. 2001 Annual Report is not deemed filed as part of this report.

APOLLO GROUP, INC. AND SUBSIDIARIES

FORM 10-K

INDEX

PART I

Item 1 — Business

Overview

      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., Institute for Professional Development, The College for Financial Planning Institutes Corporation, and Western International University, 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 58 campuses and 102 learning centers in 36 states, Puerto Rico, and Vancouver, British Columbia. Our combined degree enrollment increased to approximately 124,800 at August 31, 2001 from approximately 56,200 at August 31, 1997.

      University of Phoenix had degree enrollments of over 103,200 adult students at August 31, 2001, is accredited by The Higher Learning Commission, and has been a member of the North Central Association of Colleges and Schools since 1978. University of Phoenix has successfully replicated its teaching/learning model while maintaining educational quality at 35 physical campuses and 72 learning centers in Arizona, California, Colorado, Florida, Hawaii, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Utah, Washington, Wisconsin, 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 60% of University of Phoenix’s students receive some level of tuition assistance from their employers.

      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. Institute for Professional Development provides these services to regionally accredited private colleges and universities at 21 campuses and 28 learning centers in 22 states in exchange for a contractual share of the tuition revenues generated from these programs. Institute for Professional Development’s contracts with its client institutions generally range in length from five to ten years with provisions for renewal. Institute for Professional Development 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 19,900 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 1,500 students in Phoenix, Fort Huachuca, and Chandler, Arizona.

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      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 2001, 2000, and 1999 relate to the fiscal years ended August 31, 2001, 2000, and 1999, 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 performance 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.”

Industry Background

      The adult education market is a significant and growing component of the post-secondary education market, which is estimated by the U.S. Department of Education to be a more than $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.

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	•	Traditional universities and colleges are also limited in their ability to market to or provide the necessary customer service for working adult students because it requires the development of additional administrative and enrollment infrastructure. 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.

Our Offerings

      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 Higher Learning Commission 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 10,000 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 60% of its students receive some level of tuition assistance from their employers.

Strategy

      Our objective is to be 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

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      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. Institute for Professional Development plans to enter into additional long-term contracts with private colleges and universities in proximity to metropolitan areas throughout the United States.

      Expand Educational Programs. We will continue to respond to the changing educational needs of working adults and their employers by introducing new undergraduate and graduate degree programs as well as training programs. To its degree offerings University of Phoenix has recently added the Bachelor of Science in Criminal Justice Administration and specializations in Teacher Education and E-Education to its Master of Arts in Education, as well as, specializations in Marketing and Human Resources to its Master of Business Administration. We believe that expanding our program offerings will help us improve our market position as a provider of higher education and training for working adults. We currently have a full-time staff of approximately 50 persons involved in our centralized curriculum development process. Potential additions to our current offerings include:

	•	new degree programs, such as a Masters in Health Administration and an emphasis in Software Engineering to University of Phoenix’s Bachelor of Science in Information Technology;
	•	certificate programs, such as Risk Management and Communication Industry Fundamentals;
	•	continuing education targeted at working professionals, such as Certified Public Accountants;
	•	professional certification, such as Operations and Supply Chain Management and Certified Web; and
	•	training programs, such as information technology and quality management training.

      Expand Access to Programs. We plan to continue expanding our distance education programs and services. Enrollments in distance education degree programs have increased to approximately 29,000 in 2001 from approximately 4,700 in 1997. 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 approximately 100 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.

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Teaching/Learning Model-Degree Programs

      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 learning team. The learning team 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.

      Our teaching/learning model consists of:

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Structural Components of Teaching/Learning Model

      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 structural components of our teaching/learning model include:

      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 has modularized the learning content for these programs to position them for alternative delivery formats, including but not limited to classroom and online modalities. With the exception of the Masters degree, these same programs are offered in a classroom-based format through University of Phoenix campuses as well as adjunct faculty groups and we also offer them through Internet online-based formats. Most of the College for Financial Planning’s students are employed, and over 95% have a bachelors degree or higher. The College for Financial Planning’s programs are developed

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      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 6 full-time faculty and 236 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.

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Degree Programs and Services

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

	•	Associate of Arts in General Studies

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      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 2,000 University of Phoenix undergraduate students who utilized the process in 2001 was approximately 9 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.

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      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 revenues, which are negotiated with each client institution.

      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.

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      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 specializations in Financial Planning, Investments, and Financial Analysis 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

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

	•	Associate of Arts

•	Bachelor of Science

•	Areas of Specialization

•	Accounting
•	Business
•	Business Administration
•	Finance
•	Information Technology
•	International Business
•	Management
•	Marketing

•	Bachelor of Arts

•	Areas of Specialization

•	Administration of Justice
•	Behavioral Science

•	Master of Business Administration

•	Areas of Specialization

•	Finance
•	Information Technology
•	International Business
•	Management
•	Marketing

•	Master of Public Administration
•	Master of Science

•	Areas of Specialization

•	Information Technology
•	Information Systems Engineering

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

Distance Education

      At August 31, 2001, there were approximately 29,200 degree seeking students utilizing our distance education delivery systems, approximately 99% 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.

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      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 to the classroom newsgroup. Students log on and read the lecture or print the lecture to read at their convenience. On average, University of Phoenix Online has 9 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 mostly short 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.”

Acquisition Strategy

      We periodically evaluate opportunities to acquire businesses and facilities. In evaluating such opportunities, management considers, among other factors, location, demographics, price, the availability of financing on acceptable terms, competitive factors, and the opportunity to improve operating performance through the implementation of our operating strategies. We have no current commitments with regard to potential acquisitions.

Customers/ Students

      The following is a breakdown of our students by the level of program they are seeking, at August 31, 2001:

      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 2001, the average age of University of Phoenix’s students is in the mid-thirties, approximately 54% are women and 46% are men. Approximately 70% 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

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      Based on student surveys, the average age of students at the College for Financial Planning is in the late-thirties, approximately 31% are women and 69% are men. Most of the College for Financial Planning’s students are employed, and over 95% have obtained a bachelors degree or higher.

      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.

Marketing

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

      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.

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      Referrals. Based on our recent estimates, approximately 53% 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.

Competition

      The higher education market is highly fragmented and competitive with no private or public institution enjoying a significant market share. We compete primarily with four-year and two-year degree-granting public and private regionally accredited colleges and universities. Many of these colleges and universities enroll working adults in addition to the traditional 18 to 24 year old students. We expect that these colleges and universities will continue to modify their existing programs to serve working adults more effectively. In addition, many colleges and universities have announced various distance education initiatives.

      We believe that the competitive factors in the higher education market include the following:

	•	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 and longer-term relationships with key vendors.

      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.

Employees

      At August 31, 2001, we had the following numbers of employees:

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      We consider our relations with our employees to be good.

Regulatory Environment

      The Higher Education Act of 1965 and the related regulations govern all higher education institutions participating in Title IV programs. The Higher Education Act mandates specific additional regulatory responsibilities for each of the following components:

	•	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.

Accreditation

      University of Phoenix, Western International University, 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
	•