Case 2:06-cv-02674-RCB Document 112 Filed 04/30/2009 Page 1 of 78
1 BUCKLEY KING MICHAEL SALCIDO 2 2020 North Central Avenue, Suite 1120 Phoenix, AZ 85004 3 Telephone: 602/424-2550 602/424-2566 (fax) 4 [email protected] 5 Liaison Counsel 6 COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 7 JEFFREY W. LAWRENCE CHRISTOPHER M. WOOD 8 100 Pine Street, Suite 2600 San Francisco, CA 94111 9 Telephone: 415/288-4545 415/288-4534 (fax) 10 [email protected] [email protected] 11 Lead Counsel for Lead Plaintiff 12 UNITED STATES DISTRICT COURT 13 DISTRICT OF ARIZONA 14 TEAMSTERS LOCAL 617 PENSION ) No. 2:06-cv-02674-RCB 15 AND WELFARE FUNDS, on behalf of ) itself and all other similarly situated, ) CLASS ACTION 16 ) Plaintiff, ) LEAD PLAINTIFF’S SECOND 17 ) AMENDED COMPLAINT FOR vs. ) VIOLATIONS OF THE FEDERAL 18 ) SECURITIES LAWS APOLLO GROUP, INC., et al., ) 19 ) Defendants. ) 20 )
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Case 2:06-cv-02674-RCB Document 112 Filed 04/30/2009 Page 2 of 78
1 TABLE OF CONTENTS 2 Page
3 I. INTRODUCTION...... 1 4 II. JURISDICTION AND VENUE...... 5 5 III. PARTIES...... 6 6 IV. DEFENDANTS’ DUTIES WITH RESPECT TO GRANTING AND APPROVING STOCK OPTION GRANTS ...... 10 7 A. Apollo’s Stock Option Plans...... 11 8 V. BACKDATED STOCK OPTION GRANTS AT APOLLO ...... 13 9 A. 1998 Option Grants ...... 13 10 B. 1999 Option Grants ...... 14 11 C. 2000 Option Grants ...... 15 12 D. 2001 Option Grants ...... 17 13 E. 2003 Stock Options ...... 19 14 VI. DEFENDANTS’ FALSE AND MISLEADING STATEMENTS ISSUED 15 DURING THE CLASS PERIOD...... 20 16 False and Misleading Earnings Releases and Financial Filings...... 21 17 False and Misleading Statements Regarding Compliance with APB 25 and IRS Code §162(m) ...... 32 18 False Sarbanes-Oxley Act of 2002 (“SOX”) Certifications...... 35 19 VII. THE TRUTH BEGINS TO EMERGE...... 37 20 A. The Restatement...... 43 21 VIII. ADDITIONAL ALLEGATIONS OF SCIENTER...... 52 22 A. The Company’s Admissions and Recent Actions Establish 23 Defendants’ Scienter ...... 53 24 B. Defendants’ Specific Participation in the Backdating Establishes Their Scienter ...... 54 25 C. Defendants’ Personal Enrichment Through Lucrative Stock Option 26 Grants and Insider Trading Supports a Finding of Scienter...... 59 27 D. The Fact that Failing to Report Compensation Expenses from Backdated Options Was Essential to Maintaining Apollo’s Profitable 28 Performance Supports a Strong Inference of Scienter ...... 60
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3 E. The Mass “Retirements” of Apollo Directors and Executives Supports a Strong Inference of Scienter...... 60 4 IX. LOSS CAUSATION ...... 60 5 X. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON- 6 THE-MARKET DOCTRINE...... 62 7 XI. APPLICABILITY OF THE AFFILIATED UTE PRESUMPTION OF RELIANCE ...... 63 8 XII. NO SAFE HARBOR...... 64 9 XIII. LEAD PLAINTIFF’S CLASS ACTION ALLEGATIONS ...... 64 10 FIRST CLAIM FOR RELIEF 11 For Violation of §10(b) of the Exchange Act and Rule 10b-5 Against Defendants Apollo, Nelson, Norton, Gonzales and Blair ...... 66 12 SECOND CLAIM FOR RELIEF 13 For Violation of §20A of the Exchange Act Against Defendant Blair...... 69 14 THIRD CLAIM FOR RELIEF For Violation of §20(a) of the Exchange Act Against All Defendants...... 70 15 PRAYER FOR RELIEF...... 71 16 JURY DEMAND...... 72 17
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1 I. INTRODUCTION 2 1. Lead Plaintiff, the Pension Trust Fund For Operating Engineers (“Operating 3 Engineers” or “Lead Plaintiff”), brings this federal securities law class action on behalf of 4 itself and all persons who purchased or otherwise acquired the publicly traded securities of 5 Apollo Group Inc. (“Apollo” or the “Company”) between November 28, 2001 and 6 October 18, 2006 (the “Class Period”), against Apollo and certain of its officers and/or 7 directors for violations of the Securities Exchange Act of 1934 (the “Exchange Act”). 8 2. This action involves an admitted fraudulent scheme that spanned nearly five 9 years. At the crux of the fraudulent scheme was a practice whereby defendants overstated 10 Apollo’s earnings and income by failing to report compensation expenses associated with 11 granting in-the-money stock options, which had been intentionally manipulated in order to 12 provide the recipients with a more profitable exercise price. As a result of this scheme, 13 Apollo was forced to restate its previously filed financial statements for fiscal years 2001 14 through the second quarter of 2006 by over $59 million (the “restatement”). Defendants’ 15 scheme caused the Company’s financial statements issued during the Class Period to be 16 materially false and misleading, resulting in an artificial inflation of the Company’s stock 17 price, the disclosure of which caused investors to lose hundreds of millions of dollars. By 18 engaging in this scheme, defendants, among other things, concealed that Apollo was not 19 recording material compensation expenses and was materially overstating its net income and 20 earnings per share, in violation of the Generally Accepted Accounting Principles (“GAAP”). 21 3. A stock option granted to an employee of a corporation allows the employee to 22 purchase a specified number of shares of company stock at a specified price – referred to as 23 the “exercise price” or “strike price” – for a specified period of time. To qualify for 24 favorable accounting and tax treatment, options are often required to be priced at the market 25 price on the date of the grant, as Apollo’s were required to be, in order to incentivize 26 corporate performance and profitability by good, honest management efforts. When the 27 employee exercises the option, he or she purchases the stock from the company at the 28 exercise price, regardless of the stock’s market price at the time the option is exercised. If
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1 the Company has grown and prospered, the share price will have increased from the strike 2 price and the option grantee will pocket the difference. Stock options are granted by public 3 companies as part of compensation packages for employees and executives to align their 4 interests with those of the shareholders. 5 4. Where, however, the system is abused by backdating the options, that is, 6 picking an option-grant date earlier and at a lower price than the actual date the option was 7 granted – or by “spring-loading,” i.e. , granting the stock option just before the company is 8 going to issue positive news which will likely push the stock price up, the executive gets an 9 instant, unearned profit and the incentive to grow the company is gone because the executive 10 has already made a profit without doing anything. Further, the company is hurt as the spread 11 between the true grant exercise price and the market price is required by law to be treated as 12 compensation expense, which reduces profits, results in the corporate stock option plan 13 losing its tax protection and the corporation’s internal non-public information is 14 misappropriated by the executives for their personal profit. Shareholders and share 15 purchasers are also hurt, as the reported corporate profits are improperly inflated, as is the 16 trading price of the stock (at least until the truth comes out), and their ownership interest in 17 the corporation is unfairly diluted. 18 5. Stock option manipulation and, in particular, the practice of granting an option 19 with an exercise price tied to a date prior to the actual grant date is fraudulent where: (a) the 20 backdating of grant dates violates the terms of the company’s stock option plan; (b) the 21 company misrepresents how the options are priced; or (c) the company fails to properly 22 record expenses associated with these option grants under GAAP. All three of these 23 circumstances existed here. 24 6. Defendants’ manipulation of – and, in particular, the backdating of – stock 25 option grants was not permitted under the contractual terms of the Company’s stock option 26 plans. Instead, defendants’ manipulation of Apollo’s stock option grants was the linchpin of 27 a broader fraudulent scheme to personally profit from increases in the Company’s stock price 28 with the benefit of hindsight, and to misrepresent and hide material information from the
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1 public about defendants’ scheme. In furtherance of this fraudulent scheme, defendants 2 engaged in the following misconduct: 3 (a) In direct contravention of fundamental GAAP principles, defendants 4 failed to report expenses associated with the backdated options and thereby materially 5 understated Apollo’s expenses and materially overstated its net income and earning per 6 share. If options are priced below a stock’s fair market value when they are awarded, there is 7 an instant gain. Pursuant to Accounting Principles Board Opinion No. 25, Accounting for 8 Stock Issued to Employees (“APB 25”), which was in effect through June 2005, the 9 Company was obligated to recognize this gain as compensation expense over the vesting 10 period of the option. After June 2005, Statement of Financial Accounting Standards 123, 11 Accounting for Stock-Based Compensation (“SFAS 123”), required that the Company 12 recognize the entire value of all option grants on the grant date amortized over the vesting 13 period of the option. However, as the Company has now admitted, it did not properly 14 account for its backdated option grants. 15 (b) By retroactively pricing the options, defendants caused the Company to 16 issue options with terms that violated the express requirements of the Company’s stock 17 option plans, which rendered the Company’s public representations that options were issued 18 in compliance with the Company’s stock option plans materially false and misleading. 19 Specifically, the Company’s stock option plans expressly state that the exercise price of 20 incentive stock options shall not be less than 100% of the fair market value of the stock on 21 the date of the grant. However, where, as here, options are backdated, the exercise price of 22 the stock options is lower than the fair market value on the true date of the grant. 23 (c) Defendants repeatedly misled investors by affirmatively representing in 24 the Company’s Securities and Exchange Commission (“SEC”) filings that the purpose of its 25 stock option plans and stock option grants was to align the personal interests of its directors, 26 employees and officers with those of the Company and its shareholders by providing such 27 individuals with an incentive for outstanding performance in order to generate superior 28 returns.
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1 (d) Defendants expressly misrepresented the value of officer compensation 2 in various Company filings. Specifically, in identifying specific options granted to officers, 3 defendants falsely stated that such options were granted with an exercise price equal to the 4 fair market value of the stock on the grant date when, in fact, the options granted were 5 backdated and “in-the-money” when granted. 6 7. Apollo’s restatement of May 22, 2007 effectively acknowledges that its 7 previously reported financial results were materially false and misleading when made 8 because such statements omitted material facts regarding, and failed to take account of, the 9 financial effect of the backdated option grants. Indeed, the restatement laid out an extensive, 10 if not breathtaking scope of fraudulent conduct: the Company not only admitted that 57% of 11 all option grants used improper measurement dates and that 73% of the total Management 12 Grants (24 out of 33) were improper, but the restatement confirmed that the Company 13 falsified documents to make it appear that the grants were completed and approved on dates 14 when that was simply not true. 1 15 8. Apollo’s restatement further admits that, as a result of defendants’ backdating 16 and failure to properly account for in-the-money stock options, the Company’s net income 17 was overstated. For example, in fiscal 2001, the Restatement reduced Apollo’s net income 18 by $20.6 million, or 23.6%. Similarly, in 2002, the restatement reduced Apollo’s net income 19 by $17.3 million, or 12%. Indeed, for the Class Period as a whole, Apollo’s statement 20 revealed that the Company’s net income was overstated by 5.6% primarily due to the 21 Company’s backdating, falsification of financial statements, as well as the Company’s 22 associated tax liability. 23
24 25 1 The Company disclosed that there were 100 option grants during the restatement period. With regard to the creation of false documents, the Company in its 2006 Form 10-K 26 (filed with the SEC on May 22, 2007) stated, “[t]he Company prepared and maintained inaccurate documentation concerning the date that grant award lists were completed and 27 approved.” 28
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1 9. The backdating at Apollo has led to windfall profits for the Company’s 2 executives and directors. Indeed, John G. Sperling (“John Sperling”) has admitted that all of 3 Apollo’s Section 16 officers, including himself, received backdated options. John Sperling, 4 and his son, Peter V. Sperling (“Peter Sperling”), who control over 99% of the voting stock 5 of the Company, have pocketed over $1 billion by selling shares of Apollo stock, some of 6 which was the result of exercising and selling illegally backdated stock options. 7 10. As the backdating scheme at Apollo was disclosed through a series of 8 disclosures in 2006, investors lost hundreds of millions of dollars between June and October 9 2006, as Apollo’s stock price steadily declined as more and more of the scheme was 10 disclosed, despite Apollo’s denials that backdating had occurred. On October 18, 2006, the 11 day that Apollo effectively admitted to backdating option grants and falsifying its financial 12 results to cover up the scheme, the stock plummeted 22.9% to a 4-year low of $37.55, on 13 trading volume of over 28 million shares – over 14 times the average daily trading volume 14 during the Class Period . 15 11. Once the backdating scheme was uncovered, it led to widespread house- 16 cleaning of many of the co-schemers. Apollo’s longtime Chief Financial Officer (“CFO”), 17 Kenda B. Gonzales (“Gonzales”), and Apollo’s Chief Accounting Officer (“CAO”), Daniel 18 E. Bachus (“Bachus”), were fired, or forced to resign, for their involvement in the backdating 19 of stock options. In addition, both members of Apollo’s Compensation Committee during 20 the period in which backdating was occurring at the Company, John R. Norton III (“Norton”) 21 and John Blair (“Blair”) resigned from Apollo’s Board of Directors (or “Board”), along with 22 both original members of the Apollo Board of Director’s Special Committee (“SC”) which 23 was charged with investigating the options misconduct at the Company, Daniel Diethelm 24 (“Diethelm”) and Hedy Govenar (“Govenar”). 25 II. JURISDICTION AND VENUE 26 12. The claims asserted herein arise under §§10(b), 20(a) and 20A of the Exchange 27 Act, 15 U.S.C. §§78j(b), 78t(a) and 78t-1, and SEC Rule 10b-5, 17 C.F.R. §240.10b-5, 28 promulgated thereunder. In connection with the acts, conducts and other wrongs complained
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1 of herein, defendants, directly or indirectly, used the means and instrumentalities of interstate 2 commerce, the United States mail and the facilities of a national securities market. 3 13. Jurisdiction exists pursuant to §22 of the Securities Act of 1933 (“Securities 4 Act”), 15 U.S.C. §77v. 5 14. Venue is proper in this District pursuant to §22 of the Securities Act, 15 U.S.C. 6 §77v and 28 U.S.C. §1391(b). Many of the acts charged herein, including the preparation 7 and dissemination of materially false and misleading information, occurred in substantial 8 part in this District. Apollo’s principal executive offices are located in Phoenix, Arizona. 9 Further, the individual defendants conduct business in this District. 10 III. PARTIES 11 15. Lead Plaintiff Pension Trust Fund for Operating Engineers is a $3.17 billion 12 pension fund providing benefits to members of Operating Engineers Local Union No. 3, the 13 largest of the 182 unions within the International Union of Operating Engineers and the 14 largest construction trades local in the United States. The members work in both the public 15 and private sectors, with the majority of the fund’s participants working in private 16 construction as heavy equipment operators, mechanics, drillers, concrete pumpers and soil 17 testors and inspector surveyors and dredgers. Operating Engineers purchased Apollo 18 publicly-traded securities during the Class Period at artificially inflated prices and suffered 19 economic loss and damages as a result of the violation of the securities laws alleged herein. 20 16. Defendant Apollo is an Arizona corporation with its principal executive offices 21 located at 4615 East Elwood Street, Phoenix, Arizona. The Company purports to be a 22 leading provider of higher education programs for working adults. 23 17. Defendant John Sperling is the founder of Apollo and is currently Executive 24 Chairman of the Board of the Company. John Sperling was the Chairman of the Board from 25 the Company’s inception through June 2004, was President until February 1998 and Chief 26 Executive Officer (“CEO”) until August 2001. At all times, John Sperling has been a 27 director of the Company. He was appointed Acting Executive Chairman in January 2006 28 upon the resignation of Todd S. Nelson (“Nelson”) as Chairman, CEO and President of
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1 Apollo. Sperling exercised actual control over the defendants in this action, including 2 personally recommending that Apollo’s Board terminate Nelson because “he was 3 preoccupied primarily with the stock price and not with the functioning of the company.” 4 John Sperling admits to having received stock options while CEO of Apollo. Based on his 5 knowledge of material non-public information regarding the Company, defendant John 6 Sperling sold 3.5 million shares of Apollo stock for proceeds of $157.1 million during the 7 Class Period. John Sperling is a citizen of Arizona. 8 18. Defendant Nelson was until 2006 Chairman, CEO and President of the 9 Company. Nelson was President from February 1998, CEO from August 2001 and 10 Chairman from June 2004. Nelson joined Apollo in 1987 serving in a variety of positions, 11 including a variety of executive positions since 1989. Apollo announced that Nelson 12 unexpectedly “resigned” from the Company in January 2006. Nelson was subsequently 13 found by the SC to have been responsible for granting many of the backdated stock options 14 at Apollo. Further, Nelson received backdated options while he was employed at Apollo. 15 Based on his knowledge of material non-public information regarding the Company, 16 defendant Nelson sold 1.9 million shares of Apollo stock for proceeds of $82.8 million 17 during the Class Period. Nelson is a citizen of Arizona. 18 19. Defendant Gonzales was CFO, Secretary and Treasurer of the Company from 19 October 1998 until she was forced to resign in November 2006 because of her involvement 20 in the stock option backdating at Apollo. Based on her knowledge of material non-public 21 information regarding the Company, defendant Gonzales sold 136,389 shares of Apollo 22 stock for proceeds of $5.3 million during the Class Period. Gonzales is a citizen of Arizona. 23 20. Defendant Bachus was CAO and Controller from the time he joined the 24 Company in August 2000 until he was forced to resign because of his involvement in the 25 stock option backdating at Apollo. Based on his knowledge of material non-public 26 information regarding the Company, defendant Bachus sold 30,554 shares of Apollo stock 27 for proceeds of $1.7 million during the Class Period. Bachus is a citizen of Arizona. 28
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1 21. Defendant Blair was director of Apollo from September 2000 until he 2 announced his resignation in May 2007. Blair served as a director of Western International 3 University Inc., a wholly-owned subsidiary of Apollo, from 1982 to September 2000. As the 4 Chairman of the Audit Committee, defendant Blair exercised actual control over the 5 dissemination of improper public statements described herein. As a member of the 6 Compensation Committee, defendant Blair exercised actual control over the other 7 defendants’ stock option awards. Based on his knowledge of material non-public 8 information regarding the Company, defendant Blair sold 60,185 shares of Apollo stock for 9 proceeds of $3.6 million during the Class Period. Blair is a citizen of Arizona. 10 22. Defendant Norton was director of Apollo from March 1997 until he announced 11 his resignation from the Board in December 2006. As a member of the Audit Committee, 12 defendant Norton exercised actual control over Apollo’s public financial statements. As the 13 Chairman of the Compensation Committee, defendant Norton exercised actual control over 14 the other defendants’ backdated stock option awards. Based on his knowledge of material 15 non-public information regarding the Company, defendant Norton sold 184,498 shares of 16 Apollo stock for proceeds of $7.9 million during the Class Period. Norton is a citizen of 17 Arizona. 18 23. Defendant Govenar was a director of Apollo from March 1997 until she 19 announced her resignation from the Board in May 2007. Govenar was a director of the 20 University of Phoenix, Inc. (“University of Phoenix”), Apollo’s most important and well 21 known subsidiary, from 1992 to February 1997. Based on her knowledge of material non- 22 public information regarding the Company, defendant Govenar sold 78,343 shares of Apollo 23 stock for proceeds of $3.4 million during the Class Period. Govenar is a citizen of 24 California. 25 24. Defendant Brian E. Mueller (“Mueller”) was President of Apollo from January 26 2006 until his resignation in June 2008. Mueller joined the Company in 1987, serving in a 27 variety of positions, including a variety of executive positions since 1993. Most recently, 28
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1 Mueller held the title of Chief Operating Officer (“COO”) prior to his appointment as 2 President of the Company. Mueller is a citizen of Arizona. 3 25. Defendant Dino J. DeConcini (“DeConcini”) has been a director of Apollo 4 since 1981. As a member of the Audit Committee, defendant DeConcini exercised actual 5 control over the dissemination of the improper public statements described herein. Based on 6 his knowledge of material non-public information regarding the Company, defendant 7 DeConcini sold 115,611 shares of Apollo stock for proceeds of $5.7 million during the Class 8 Period. DeConcini is a citizen of California. 9 26. Defendant Peter Sperling is Senior Vice President and a director of Apollo. He 10 has been with the Company since 1983. Peter Sperling is the son of defendant John 11 Sperling. Based on his knowledge of material non-public information regarding the 12 Company, defendant Peter Sperling sold 9.9 million shares of Apollo stock for proceeds of 13 $472.5 million during the Class Period. Peter Sperling is a citizen of Arizona and California. 14 27. Defendant Laura Palmer Noone (“Noone”) was President of the University of 15 Phoenix from September 2000 until May 2006. Noone was with the University of Phoenix 16 since 1987. Because of Noone’s position, she knew the adverse non-public information 17 about the business of Apollo, as well as its finances, markets and present and future business 18 prospects, via access to internal corporate documents, conversations and connections with 19 other corporate officers and employees, attendance at management meetings and via reports 20 and other information provided to her in connection therewith. During the Class Period, 21 Noone participated in the issuance of false and/or misleading statements, including the 22 preparation of false and/or misleading press releases and SEC filings. Based on her 23 knowledge of material non-public information regarding the Company, defendant Noone 24 sold 245,854 shares of Apollo stock for proceeds of $15.3 million during the Class Period. 25 Noone is a citizen of Arizona. 26 27 28
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1 IV. DEFENDANTS’ DUTIES WITH RESPECT TO GRANTING AND APPROVING STOCK OPTION GRANTS 2 28. The individual defendants, because of their positions with the Company, 3 possessed and exercised the actual power and authority to control the contents of Apollo’s 4 quarterly reports, press releases, SEC filings, and presentations to securities analysts, money 5 and portfolio managers and institutional investors, i.e ., the market. They were provided with 6 copies of the Company’s reports, SEC filings, registration statements and press releases 7 alleged herein to be misleading prior to or shortly after their issuance and had the ability and 8 opportunity to prevent their issuance or cause them to be corrected. 9 29. Defendants, as corporate officers and/or directors, were keenly aware of their 10 obligations to comply with applicable laws and to disclose the truth about Apollo’s stock 11 option backdating, particularly with respect to the director defendants who served on the 12 Compensation and Audit Committees. 13 30. Defendants Norton and Blair served on Apollo’s Compensation Committee 14 throughout the Class Period, and were responsible for “review[ing] all aspects of 15 compensation of executive officers and determin[ing] or mak[ing] recommendations on such 16 matters to the full Board of Directors.” 2 Further, according to Apollo’s Form 10-K for the 17 fiscal year ended August 31, 2002, the Compensation Committee: 18 [R]eviews and approves each of the elements of our executive compensation 19 program related to our executive officers, including, John G. Sperling and Todd S. Nelson (the “Senior Executives”), and periodically assesses the 20 effectiveness and competitiveness of the program in total. In addition, the committee administers the key provisions of the executive compensation 21 program and reviews with our Board of Directors in detail all aspects of compensation for our Senior Executives . 22 * * * 23 Stock option grants are intended to provide substantial rewards to executives 24 based on stock price appreciation and improved overall financial performance. 25 * * * 26 2 Thomas Wier served as the Chairman of Apollo’s Compensation and Audit 27 Committees until FY01. Mr. Wier passed away in 2003. 28
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1 Options. We believe that it is important for executive officers to have an equity stake in us, and, toward this end, we make option grants to key 2 executive officers from time to time under the Apollo Group, Inc. 2000 Stock Incentive Plan. In making option awards, the Compensation Committee 3 reviews our financial performance during the past fiscal year, the awards granted to other executives, and the individual officer’s specific role. 4 31. Defendants DeConcini and Norton served on Apollo’s Audit Committee 5 throughout the Class Period, and were responsible for: (i) reviewing and discussing the 6 audited financial statements of the Company with management; (ii) discussing with the 7 Company’s independent accountants the matters required to be discussed by the Statement of 8 Accounting Standards (“SAS”) No. 61, Communications with Audit Committees , and SAS 9 No. 90, Audit Committee Communications ; (iii) receiving and reviewing the written 10 disclosures and letters from its independent accountants required by Independence Standards 11 Board No. 1, Independence Discussions with Audit Committees ; (iv) discussing with its 12 independent accountants the independent accountants’ independence; and (v) recommending 13 to the Board of Directors that the audited financial statements be incorporated by reference 14 into the Company’s Annual Reports. 15 A. Apollo’s Stock Option Plans 16 32. During the relevant period, Apollo issued stock options to Apollo executives 17 and employees under two separate plans. 18 33. From June 1994 to March 24, 2000, Apollo issued stock option grants to 19 Section 16 officers pursuant to the Long Term Incentive Plan dated May 13, 1994, as 20 amended on September 22, 1995 (“LTIP”). The LTIP required approval of all grants by both 21 members of the Compensation Committee. Under the terms of the LTIP, the exercise price 22 of an Incentive Stock Option was required to be equal to the market price of the Company 23 stock at the time of the grant. Specifically, Section 7.1 of the LTIP states that the exercise 24 price of an Incentive Stock Option “may not be less than the Fair Market Value of a share of 25 [s]tock on the date of [the] grant. . . .” Fair Market Value is defined as “the fair market value 26 27 28
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1 of such stock . . . determined by such methods or procedures established from time to time 2 by the Committee.” Ex. 36. 3 3 34. After March 24, 2000, Apollo awarded Management Grants pursuant to the 4 2000 Stock Incentive Plan (“2000 Plan”). The 2000 Plan required the approval of all grants 5 by the Compensation Committee or by both the President and CEO. Nelson became 6 President of the Company in 1998 and was promoted to President and CEO in August 2001, 7 and he retained both offices until he resigned in January 2006. Nelson had authority to 8 approve the option grants for employees other than himself. Backdated grants under the 9 2000 Plan were approved by both Nelson and the Compensation Committee during the 10 relevant period. 11 35. Under the 2000 Plan, the exercise price of Incentive Stock Option was 12 supposed to be tied to the market price of the Company stock at the time of the grant. 13 Section 7.2 of the 2000 Plan states that “the exercise price for any Incentive Stock Option 14 may not be less than the Fair Market Value [of Company stock] as of the date of the grant.” 15 Fair market value is defined as “the closing price for the [s]tock . . . for that date or, if no 16 closing price is reported for that date, the closing price on the next preceding date for which 17 a closing price was reported.” Ex. 37. 18 36. Both the LTIP Plan and the 2000 Plan require that the Plans be administered by 19 a “Committee” that also had authority to designate plan participants, determine types and 20 number of option awards and make all other necessary administrative decisions. The 21 “Compensation Committee Report” in the Form 10-K for each relevant year (the “Report”) 22 identifies the “Committee” as the Board’s Compensation Committee. Per each Report, the 23 Compensation Committee “administers the key provisions of the executive compensation 24 program and reviews with our Board of Directors in detail all aspects of [executive] 25 compensation. . . .” Each Report states that the executive compensation program primarily
26 27 3 “Ex.” refers to the Exhibits attached hereto. 28
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1 comprises of “base salary, annual bonus, and long-term incentives in the form of stock 2 option grants.” Each Report was signed by the members of the Compensation Committee 3 (during the Class Period, Norton and Blair), and as such, the members of the Compensation 4 Committee as well as the Board as a whole, reviewed, approved, and had direct personal 5 knowledge of the stock option grants under the 1994 LTIP Plan and the 2000 Plan. 6 V. BACKDATED STOCK OPTION GRANTS AT APOLLO 7 37. Apollo has admitted in its Form 10-K for the year ending August 31, 2006 that 8 “57 of the 100 total grants made [between FY94 and September 2006] used incorrect 9 measurement dates for accounting purposes.” 10 38. While many of these grants were not publicly reported, several grants reported 11 in Apollo’s Forms 10-K had purported grant dates so improbable that backdating is the only 12 plausible explanation. 13 A. 1998 Option Grants 14 39. Defendants dated certain of Apollo’s 1998 option grants on December 18, 15 1998 at $11.39 per share (split adjusted). This was nearly the low for the month of 16 December when Apollo’s stock traded between $10.22 and $15.06 per share. Defendants 17 John Sperling, Nelson, Peter Sperling, Gonzales and Noone received 125,000, 100,000, 18 50,000, 22,000 and 20,000 options, respectively, at this price. 19 20 21 22 23 24 25 26 27 28
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1 2 3 4 5 6 7 8 9 10 11 12 13 14
15 Date Executive No. of Total Grant Total Grant 10 Day Securities Value at Value 10 Return 16 Options Date of Trading Days Granted Grant After Grant 17 12/18/1998 John G. Sperling 125,000 $3,203,750 $4,148,750 $945,000 18 12/18/1998 Todd S. Nelson 100,000 $2,563,000 $3,319,000 $756,000 19 12/18/1998 Peter V. Sperling 50,000 $1,281,500 $1,659,500 $378,000 12/18/1998 Kenda B. Gonzales 22,000 $563,860 $730,180 $166,320 20 12/18/1998 Laura Palmer Noone 20,000 $512,600 $663,800 $151,200 21 TOTAL 317,000 $8,124,710 $10,521,230 $2,396,520 22 B. 1999 Option Grants 23 40. Defendants dated Apollo’s 1999 option grants on April 19, 1999 at $10.22 per 24 share (split adjusted) – the low of the month. Defendant Gonzales received 20,000 options at 25 this price. 26 27 28
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1 2 3 4 5 6 7 8 9 10 11 12 13
14 Date Executive No. of Total Grant Total Grant 5 Day 15 Securities Value at Date Value 5 Return Options of Grant Trading Days 16 Granted After Grant 17 4/19/1999 Kendra B. Gonzales 20,000 $460,000 $495,000 $35,000
18 C. 2000 Option Grants 19 41. Defendants dated many of Apollo’s 2000 grants as of January 12, 2000 at 20 $8.39 per share (split adjusted) – not only the low of the month but also the low of the year . 21 The stock traded as high as $11.33 per share in January and as high as $22.14 per share 22 during the year. Defendants John Sperling, Nelson, Gonzales, Peter Sperling and Noone 23 received 125,000, 100,000, 25,000, 25,000 and 10,000 options, respectively, at this price. 24 25 26 27 28
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1 2 3 4 5 6 7 8 9 10 11 12 13
14 Total Grant 15 No. of Total Grant Value 5 Securities Value at Trading 16 Options Date of Days After 5 Day Date Executive Granted Grant Grant Return 17 1/12/2000 John G. Sperling 125,000 $2,360,000 $2,985,000 $625,000 18 1/12/2000 Todd S. Nelson 100,000 $1,888,000 $2,388,000 $500,000 19 1/12/2000 Kenda B. Gonzales 25,000 $472,000 $597,000 $125,000 20 1/12/2000 Peter V. Sperling 25,000 $472,000 $597,000 $125,000 1/12/2000 Laura Palmer Noone 10,000 $188,800 $238,800 $50,000 21 TOTAL 285,000 $5,380,800 $6,805,800 $1,425,000 22 42. Defendants also dated many of Apollo’s grants as of December 15, 2000 at 23 $14.84 per share (split adjusted) – not only the low of the month but also the low for the 24 fourth quarter of 2000 . This stock grant involved suspicious timing, as two days later, 25 Apollo issued better than expected results which caused a dramatic and immediate climb in 26 the Company’s stock. By December 20, 2000 – a day after the earnings release – Apollo’s 27 stock closed at $20.89 per share. The stock hit its high for the year at $22.14 per share a few 28
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1 days later on December 28, 2000 – a 49% increase in eight trading days . Defendants John 2 Sperling, Nelson, Peter Sperling, Gonzales and Noone received 125,000, 100,000, 25,000, 3 10,000 and 10,000 options, respectively, at this price. 4 5 6 7 8 9 10 11 12 13 14 15 16 17
18 Date Executive No. of Total Grant Total Grant 5 Day Securities Value at Value 5 Return 19 Options Date of Trading Days Granted Grant After Grant 20 12/15/2000 John G. Sperling 125,000 $4,173,750 $5,968,750 $1,795,000 21 12/15/2000 Todd S. Nelson 100,000 $3,339,000 $4,775,000 $1,436,000 12/15/2000 Peter V. Sperling 25,000 $834,750 $1,193,750 $359,000 22 12/15/2000 Kenda B. Gonzales 10,000 $333,900 $477,500 $143,600 23 12/15/2000 Laura Palmer Noone 10,000 $333,900 $477,500 $143,600 24 TOTAL 270,000 $9,015,300 $12,892,500 $3,877,200
25 D. 2001 Option Grants 26 43. Defendants dated Apollo’s 2001 option grants on September 21, 2001 at 27 $23.33 per share – not only the low of the month but also the low for the second half of 28
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1 2001 . The stock traded as high as $28.02 per share in September and as high as $32.03 per 2 share in the second half of the year. Defendants John Sperling, Nelson, Peter Sperling, 3 Gonzales, Noone and Bachus received 150,000, 150,000, 25,000, 25,000, 25,000 and 10,000 4 options, respectively, at this price. 5 6 7 8 9 10 11 12 13 14 15 16 17
18 Date Executive No. of Total Grant Total Grant 5 Day 19 Securities Value at Value 5 Return Options Date of Trading 20 Granted Grant Days After Grant 21 9/21/2001 John G. Sperling 150,000 $5,250,000 $6,304,500 $1,054,500 22 9/21/2001 Todd S. Nelson 150,000 $5,250,000 $6,304,500 $1,054,500 23 9/21/2001 Peter V. Sperling 25,000 $875,000 $1,050,750 $175,750 9/21/2001 Kenda B. Gonzales 25,000 $875,000 $1,050,750 $175,750 24 9/21/2001 Laura Palmer Noone 25,000 $875,000 $1,050,750 $175,750 25 9/21/2001 Daniel E. Bachus 10,000 $350,000 $420,300 $70,300 26 TOTAL 385,000 $13,475,000 $16,181,550 $2,706,550 27 28
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1 E. 2003 Stock Options 2 44. Defendants dated certain of Apollo’s 2003 option grants on October 20, 2003 3 at $60.90 per share – not only the low of the month but also the low for the entire year. 4 The stock traded as high as $68.51 per share in October and as high as $97.93 per share in 5 the 2003. Defendants John Sperling, Nelson, Gonzales, Noone and Carroll received 6 100,000, 300,000, 50,000, 25,000 and 20,000 options, respectively, at this price. 7 8 9 10 11 12 13 14 15 16 17 18 19 20
21 Date of Executive No. Of Total Grant Total Grant 2 Day Filing Securities Value At Value 2 Return 22 Options Date Of Trading Granted Grant Days After 23 Grant 24 10/22/03 Bachus 15,000 $913,500 $959,250 $45,750 10/22/03 Carroll 20,000 $1,218,000 $1,279,000 $61,000 25 10/22/03 Gonzales 50,000 $3,045,000 $3,197,500 $152,500 26 10/22/03 Nelson 300,000 $18,270,000 $19,185,000 $915,000 27 10/22/03 Noone 25,000 $1,522,500 $1,598,750 $76,250 28 10/22/03 Sperling, J 100,000 $6,090,000 $6,395,000 $305,000
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1 10/22/03 Sperling, P 50,000 $3,045,000 $3,197,500 $152,500 2 TOTAL 560,000 $34,104,000 $35,812,000 $1,708,000
3 VI. DEFENDANTS’ FALSE AND MISLEADING STATEMENTS ISSUED DURING THE CLASS PERIOD 4 45. Defendants caused Apollo to fail to account for compensation expenses 5 incurred as a result of granting stock options below the fair market value of Apollo’s 6 common stock on the date of the grant, and caused the issuance of false and misleading 7 statements throughout the Class Period. 8 46. Apollo’s stock options typically vested over a four year period. Because 9 Apollo was required to take a compensation charge for in-the-money options during each 10 quarter in which such stock options vested, each of Apollo’s financial statements detailed 11 herein were false and misleading because of defendants’ failure to recognize compensation 12 expenses associated with in-the-money stock options which vested during a given quarter, 13 and which were granted in the four years preceding the quarter of the financial statement. 14 During a conference call on December 16, 2004, with Nelson and Gonzales, Gonzales 15 acknowledged that she was aware that Apollo was required to record compensation expenses 16 for stock options in the quarter in which they vested. 17 47. During the Class Period, defendants issued a series of false and misleading 18 statements in violation of §§10(b), 20(a) and 20A of the Exchange Act and Rule 10b-5. 19 Defendants issued false and misleading statements regarding: (i) the Company’s earnings 20 and financial results; (ii) the Company’s compliance with APB 25 and IRS Code 162(m); 21 (iii) the internal controls relating to stock option grants and related financial reporting; and 22 (iv) denials of backdating when the truth regarding defendants’ fraud began to leak into the 23 market. 24 48. Apollo’s May 22, 2007 restatement is an admission that the Company’s 25 previously filed and announced financial statements alleged herein were materially false and 26 misleading. A restatement admits that previously filed financial statements were materially 27 false when they were issued. The restatement means that facts existed and were known to 28
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1 the Company at the time the financial statements were issued that rendered them false. 2 Because restatements are not required for changes that are immaterial, the discrepancy 3 between the Company’s financial results reported during the Class Period and the true 4 (restated) financial results was by definition material. 5 False and Misleading Earnings Releases and Financial Filings 4 6 49. FY01 Earnings and Financial Statements 7 (a) False Statement No. 1: FY01 Form 10-K: On November 28, 2001, 8 Apollo filed their annual report with the SEC on Form 10-K. The Company’s Form 10-K 9 was signed by J. Sperling, Nelson, P. Sperling, Gonzales, Bachus, DeConcini, Norton, 10 Govenar and Blair. For the year, net income was reported as $107.8 million, or $0.90 per 11 diluted share, compared to net income of $71.2 million, or $0.62 per diluted share, in the 12 corresponding prior year. Ex. 1 at 67. 13 (b) Reasons Why the Statement Was False and Misleading: Statement 14 No. 1 was materially false and misleading because it overstated Apollo’s net income and 15 earnings per share and understated Apollo’s compensation expenses as a result of Apollo’s 16 failure to account for compensation and tax expenses associated with stock options priced 17 below the fair market value of Apollo’s common stock on the date of the grant. As Apollo’s 18 restatement admits, Apollo’s net income was overstated by $20.5 million, or 23.6%, during 19 FY01 due to Apollo’s failure to properly account for in-the-money stock option grants. 20 50. 1Q02 Earnings and Financial Statements 21 (a) False Statement No. 2: Q1 Earnings Announcement : On December 22 18, 2001, Apollo announced financial results for its first quarter ended November 30, 2001.
23 24 4 In accordance with the Court’s March 31, 2009 Order, Lead Plaintiff has “‘streamline[d] and reorganize[d] the complaint,” in order to be “clear and concise in 25 identifying the false statements and articulating the factual allegations supporting an inference that the statement[s are] false and misleading.” Order at 37-38. Lead Plaintiff has 26 also included relevant excerpts of the alleged false and misleading statements in the Exhibits attached hereto in order to provide a complete record, and such documents are incorporated 27 by reference herein. 28
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1 For the quarter, net income was reported as $32.9 million, or $0.27 per diluted share, 2 compared to net income of $24.8 million, or $0.21 per diluted share, in the corresponding 3 prior year’s quarter. Ex. 2 at 686. 4 (b) False Statement No. 3: Q1 Form 10-Q: On January 14, 2002, Apollo 5 filed their quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 6 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus 7 and Nelson. Ex. 3 at 5, 23. 8 (c) Reasons Why the Statements Were False and Misleading : Statement 9 Nos. 2 and 3 were false and misleading because they overstated Apollo’s net income and 10 earnings per share and Apollo’s compensation expenses as a result of Apollo’s failure to 11 account for the compensation and tax expenses associated with stock options granted at a 12 price below the fair market value of Apollo’s common stock on the date of the grant. 13 51. 2Q02 Earnings and Financial Statements 14 (a) False Statement No. 4: Q2 Earnings Announcement : On March 26, 15 2002, Apollo announced financial results for its second quarter ended February 28, 2002. 16 For the quarter, net income was reported as $28 million, or $0.23 per diluted share, 17 compared to net income of $16.3 million, or $0.14 per diluted share, in the corresponding 18 prior year’s quarter. Ex. 4 at 633. 19 (b) False Statement No. 5: Q2 Form 10-Q: On April 12, 2002, Apollo 20 filed their quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 21 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 22 and Nelson. Ex. 5 at 5, 29-30. 23 (c) Reasons Why the Statements Were False and Misleading : Statement 24 Nos. 4 and 5 were false and misleading because they overstated Apollo’s net income and 25 earnings per share and understated Apollo’s compensation expenses as a result of Apollo’s 26 failure to account for the compensation and tax expenses associated with stock options 27 granted at a price below the fair market value of Apollo’s common stock on the date of the 28 grant.
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1 52. 3Q02 Earning and Financial Statements 2 (a) False Statement No. 6: Q3 Earnings Announcement : On June 25, 3 2002, Apollo announced financial results for its third quarter ended May 31, 2002. For the 4 quarter, net income was reported as $50.8 million, or $0.27 per diluted share, compared to 5 net income of $35.4 million, or $0.20 per diluted share, in the corresponding prior year’s 6 quarter. Ex. 6 at 550. 7 (b) False Statement No. 7: Q3 Form 10-Q: On July 12, 2002, Apollo 8 filed its quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 9 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 10 and Nelson. Ex. 7 at 5, 27. 11 (c) Reasons Why the Statements Were False and Misleading : Statement 12 Nos. 6 and 7 were false and misleading because they overstated Apollo’s net income and 13 earnings per share and understated Apollo’s compensation expenses as a result of Apollo’s 14 failure to account for the compensation and tax expenses associated with stock options 15 granted at a price below the fair market value of Apollo’s common stock on the date of the 16 grant. 17 53. FY02 Earnings and Financial Statements 18 (a) False Statement No. 8: Q4 and FY02 Earnings Announcement : On 19 October 8, 2002, Apollo announced financial results for its fourth quarter ended August 31, 20 2002 and fiscal 2002. For the quarter, net income was reported as $49.3 million, or $0.26 21 per diluted share, compared to net income of $31.2 million, or $0.17 per diluted share, in the 22 corresponding prior year’s quarter. For the year, net income was reported as $161.1 million, 23 or $0.87 per diluted share, compared to net income of $107.8 million, or $0.60 per diluted 24 share, in the corresponding prior year. Ex. 8 at 486-487. 25 (b) False Statement No. 9: FY02 Form 10-K: On November 27, 2002, 26 Apollo filed their annual report with the SEC on Form 10-K. The Company’s Form 10-K 27 reaffirmed the previously announced financial results, and was signed by J. Sperling, Nelson, 28
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1 P. Sperling, Gonzales, Bachus, DeConcini, Norton III, Govenar, and Blair . Ex. 9 at 37-38, 1, 2 33. 3 (c) Reasons Why the Statements Were False and Misleading : Statement 4 Nos. 8 and 9 were false and misleading because they overstated Apollo’s net income and 5 earnings per share and understated Apollo’s compensation expenses as a result of Apollo’s 6 failure to account for compensation and tax expenses associated with stock options priced 7 below the fair market value of Apollo’s common stock on the date of the grant. As Apollo’s 8 restatement admits, Apollo’s net income was overstated by $17.2 million, or 12%, during 9 FY02 due to Apollo’s failure to properly account for in-the-money stock option grants. 10 54. 1Q03 Earnings and Financial Statements 11 (a) False Statement No. 10: Q1 Earnings Announcement : On December 12 18, 2002, Apollo announced financial results for its first quarter ended November 30, 2002. 13 For the quarter, net income was reported as $56.7 million, or $0.30 per diluted share, 14 compared to net income of $32.9 million, or $0.18 per diluted share, in the corresponding 15 prior year’s quarter. Ex. 10 at 458. 16 (b) False Statement No. 11: Q1 Form 10-Q: On January 14, 2003, Apollo 17 filed its quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 18 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 19 and Nelson. Ex. 11 at 2, 20. 20 (c) Reasons Why the Statements Were False and Misleading : Statement 21 Nos. 10 and 11 were false and misleading because they overstated Apollo’s net income and 22 earnings per share and understated Apollo’s compensation expenses as a result of Apollo’s 23 failure to account for the compensation and tax expenses associated with stock options 24 granted at a price below the fair market value of Apollo’s common stock on the date of the 25 grant. 26 55. 2Q03 Earnings and Financial Statements 27 (a) False Statement No. 12: Q2 Earnings Announcement : On March 25, 28 2003, Apollo announced financial results for its second quarter ended February 28, 2003.
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1 For the quarter, net income was reported as $45.7 million, or $0.24 per diluted share, 2 compared to net income of $28.1 million, or $0.15 per diluted share, in the corresponding 3 prior year’s quarter. Ex. 12 at 390. 4 (b) False Statement No. 13: Q2 Form 10-Q: On April 14, 2003, Apollo 5 filed their quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 6 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 7 and Nelson. Ex. 13 at 2, 22. 8 (c) Reasons Why the Statements Were False and Misleading : Statement 9 Nos. 12 and 13 were false and misleading because they overstated Apollo’s net income and 10 earnings per share and understated Apollo’s compensation expenses as a result of Apollo’s 11 failure to account for the compensation and tax expenses associated with stock options 12 granted at a price below the fair market value of Apollo’s common stock on the date of the 13 grant. 14 56. 3Q03 Earnings and Financial Statements 15 (a) False Statement No. 14: Q3 Earnings Announcement : On June 23, 16 2003, Apollo announced financial results for its third quarter ended May 31, 2003. For the 17 quarter, net income was reported as $74.3 million, or $0.39 per diluted share, compared to 18 net income of $50.8 million, or $0.27 per diluted share, in the corresponding prior year’s 19 quarter. Ex. 14 at 4. 20 (b) False Statement No. 15: Q3 Form 10-Q: On July 15, 2003, Apollo 21 filed its quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 22 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 23 and Nelson. Ex. 15 at 2, 29. 24 (c) Reasons Why the Statements Were False and Misleading : Statement 25 Nos. 14 and 15 were false and misleading because they overstated Apollo’s net income and 26 earnings per share and understated Apollo’s compensation expenses as a result of Apollo’s 27 failure to account for the compensation and tax expenses associated with stock options 28
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1 granted at a price below the fair market value of Apollo’s common stock on the date of the 2 grant. 3 57. FY03 Earnings and Financial Statements 4 (a) False Statement No. 16: Q4 and FY03 Earnings Announcement : On 5 October 7, 2003, Apollo announced financial results for its fourth quarter and fiscal year 6 ended August 31, 2003. For the quarter, net income was reported as $70.4 million, or $0.37 7 per diluted share, compared to net income of $49.3 million, or $0.26 per diluted share, in the 8 corresponding prior year’s quarter. For the year, net income was reported as $247 million, or 9 $1.30 per diluted share, compared to net income of $161.1 million, or $0.87 per diluted 10 share, in the corresponding prior year. Ex. 16 at 4. 11 (b) False Statement No. 17: FY03 Form 10-K: On November 26, 2003, 12 Apollo filed their annual report with the SEC on Form 10-K. The Company’s Form 10-K 13 reaffirmed the previously announced financial results, and was signed by J. Sperling, Nelson, 14 Gonzales, P. Sperling, Bachus, DeConcini, Norton III, Govenar, and Blair. Ex. 17 at 47, 1, 15 21, 34. 16 (c) Reasons Why the Statements Were False and Misleading : Statement 17 Nos. 16 and 17 were false and misleading because they overstated Apollo’s net income and 18 earnings per share and understated Apollo’s compensation expenses as a result of Apollo’s 19 failure to account for compensation and tax expenses associated with stock options priced 20 below the fair market value of Apollo’s common stock on the date of the grant. As Apollo’s 21 restatement admits, Apollo’s net income was overstated by $11.1 million, or 4.7%, during 22 FY03 due to Apollo’s failure to properly account for in-the-money stock option grants. 23 58. 1Q04 Earnings and Financial Statements 24 (a) False Statement No. 18: Q1 Earnings Announcement : On December 25 18, 2003, Apollo announced financial results for its first quarter ended November 30, 2003. 26 For the quarter, net income was reported as $84.3 million, or $0.44 per diluted share, 27 compared to net income of $56.7 million, or $0.30 per diluted share, in the corresponding 28 prior year’s quarter. Ex. 18 at 4.
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1 (b) False Statement No. 19: Q1 Form 10-Q: On January 13, 2004, Apollo 2 filed its quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 3 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 4 and Nelson. Ex. 19 at 2, 27. 5 (c) Reasons Why the Statements Were False and Misleading : Statement 6 Nos. 18 &19 were false and misleading because they misstated Apollo’s net income and 7 earnings per share and Apollo’s compensation expenses as a result of Apollo’s failure to 8 account for the compensation and tax expenses associated with stock options granted at a 9 price below the fair market value of Apollo’s common stock on the date of the grant. 10 59. 2Q04 Earnings and Financial Statements 11 (a) False Statement No. 20: Q2 Earnings Announcement : On March 12, 12 2004, Apollo announced financial results for its second quarter ended February 29, 2004. 13 For the quarter, net income was reported as $68.5 million, or $0.35 per diluted share, 14 compared to net income of $45.7 million, or $0.24 per diluted share, in the corresponding 15 prior year’s quarter. Ex. 20 at 3-4. 16 (b) False Statement No. 21: Q2 Form 10-Q: On April 13, 2004, Apollo 17 filed their quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 18 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 19 and Nelson. Ex. 21 at 2, 31. 20 (c) Reasons Why the Statements Were False and Misleading : 21 Statements 20 and 21 were false and misleading because they misstated Apollo’s net income 22 and earnings per share and Apollo’s compensation expenses as a result of Apollo’s failure to 23 account for the compensation and tax expenses associated with stock options granted at a 24 price below the fair market value of Apollo’s common stock on the date of the grant. 25 60. 3Q04 Earnings and Financial Statements 26 (a) False Statement No. 22: Q3 Earnings Announcement : On June 24, 27 2004, Apollo announced financial results for its third quarter ended May 31, 2004. For the 28 quarter, net income was reported as $109.3 million, or $0.56 per diluted share, compared to
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1 net income of $74.3 million, or $0.39 per diluted share, in the corresponding prior year’s 2 quarter. Ex. 22 at 3-4. 3 (b) False Statement No. 23: Q3 Form 10-Q: On July 15, 2004, Apollo 4 filed its quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 5 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 6 and Nelson. Ex. 23 at 2, 32. 7 (c) Reasons Why the Statements Were False and Misleading : Statement 8 Nos. 22 and 23 were false and misleading because they misstated Apollo’s net income and 9 earnings per share and Apollo’s compensation expenses as a result of Apollo’s failure to 10 account for the compensation and tax expenses associated with stock options granted at a 11 price below the fair market value of Apollo’s common stock on the date of the grant. 12 61. FY04 Earnings and Financial Statements 13 (a) False Statement No. 24: Q4 and FY04 Earnings Announcement : On 14 October 5, 2004, Apollo announced financial results for its fourth quarter and fiscal year 15 ended August 31, 2004. For the quarter, net income was reported as $15.7 million, or a loss 16 of $0.59 per diluted share, compared to net income of $70.4 million, or $0.37 per diluted 17 share, in the corresponding prior year’s quarter. For the year, net income was reported as 18 $277.8 million, or $0.77 per diluted share, compared to net income of $247 million, or $1.30 19 per diluted share, in the corresponding prior year. Ex. 24 at 3-4. 20 (b) False Statement No. 25: FY04 Form 10-K: On November 15, 2004, 21 Apollo filed their annual report with the SEC on Form 10-K. The Company’s Form 10-K 22 reaffirmed the previously announced financial results, and was signed by J. Sperling, Nelson, 23 Gonzales, P. Sperling, Bachus, DeConcini, Norton III, Govenar, and Blair. Ex. 25 at 48, 1, 24 42. 25 (c) Reasons Why the Statements Were False and Misleading : Statement 26 Nos. 24 and 25 were false and misleading because they misstated Apollo’s net income and 27 earnings per share and Apollo’s compensation expenses as a result of Apollo’s failure to 28 account for compensation and tax expenses associated with stock options priced below the
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1 fair market value of Apollo’s common stock on the date of the grant. As Apollo’s 2 restatement admits, Apollo’s net income was understated by $2.3 million, or 0.8%, during 3 FY04 due to Apollo’s failure to properly account for in-the-money stock option grants. 4 62. 1Q05 Earnings and Financial Statements 5 (a) False Statement No. 26: Q1 Earnings Announcement : On December 6 16, 2004, Apollo announced financial results for its first quarter ended November 30, 2004. 7 For the quarter, net income was reported as $109.5 million, or $0.58 per diluted share, 8 compared to net income of $84.3 million, or $0.44 per diluted share, in the corresponding 9 prior year’s quarter. Ex. 26 at 3. 10 (b) False Statement No. 27: Q1 Form 10-Q: On January 10, 2005, Apollo 11 filed its quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 12 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 13 and Nelson. Ex. 27 at 2, 31. 14 (c) Reasons Why the Statements Are False and Misleading: Statement 15 Nos. 26 and 27 were false and misleading because they overstated Apollo’s net income and 16 earnings per share and understated Apollo’s compensation expenses as a result of Apollo’s 17 failure to account for the compensation and tax expenses associated with stock options 18 granted at a price below the fair market value of Apollo’s common stock on the date of the 19 grant. As Apollo’s restatement admits, Apollo’s net income was overstated by $8.7 million, 20 or 8.7%, during 1Q05 due to Apollo’s failure to properly account for in-the-money stock 21 option grants. 22 63. 2Q05 Earnings and Financial Statements 23 (a) False Statement No. 28: Q2 Earnings Announcement : On March 29, 24 2005, Apollo announced financial results for its second quarter ended February 28, 2005. 25 For the quarter, net income was reported as $87.1 million, or $0.47 per diluted share, 26 compared to net income of $68.5 million, or $0.35 per diluted share, in the corresponding 27 prior year’s quarter. Ex. 28 at 3. 28
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1 (b) False Statement No. 29: Q2 Form 10-Q: On April 11, 2005, Apollo 2 filed its quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 3 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 4 and Nelson. Ex. 29 at 2, 34. 5 (c) Reasons Why the Statements Were False and Misleading : Statement 6 Nos. 28 and 29 were false and misleading because they overstated Apollo’s net income and 7 earnings per share and understated Apollo’s compensation expenses as a result of Apollo’s 8 failure to account for the compensation and tax expenses associated with stock options 9 granted at a price below the fair market value of Apollo’s common stock on the date of the 10 grant. As Apollo’s restatement admits, Apollo’s net income was overstated by $3.2 million, 11 or 3.8%, during 2Q05 due to Apollo’s failure to properly account for in-the-money stock 12 option grants. 13 64. 3Q05 Earning and Financial Statements 14 (a) False Statement No. 30: Q3 Earnings Announcement : On June 28, 15 2005, Apollo announced financial results for its third quarter ended May 31, 2005. For the 16 quarter, net income was reported as $141.9 million, or $0.77 per diluted share, compared to 17 net income of $109.3 million, or $0.56 per diluted share, in the corresponding prior year’s 18 quarter. Ex. 30 at 3. 19 (b) Statement No. 31: Q3 Form 10-Q: On July 11, 2005, Apollo filed its 20 quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q reaffirmed the 21 previously announced financial results, and was signed by Gonzales, Bachus, and Nelson. 22 Ex. 31 at 2, 33. 23 (c) False Reasons Why the Statements Were False and Misleading : 24 Statement Nos. 30 and 31 were false and misleading because they overstated Apollo’s net 25 income and earnings per share and understated Apollo’s compensation expenses as a result 26 of Apollo’s failure to account for the compensation and tax expenses associated with stock 27 options granted at a price below the fair market value of Apollo’s common stock on the date 28 of the grant. As Apollo’s restatement admits, Apollo’s net income was overstated by $3.1
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1 million, or 2.3%, during 3Q05 due to Apollo’s failure to properly account for in-the-money 2 stock option grants. 3 65. FY05 Earnings and Financial Statements 4 (a) False Statement No. 32: Q4 and FY05 Earnings Announcement : On 5 October 12, 2005, Apollo announced financial results for its fourth quarter and fiscal year 6 ended August 31, 2005. For the quarter, net income was reported as $106.2 million, or $0.58 7 per diluted share, compared to net income of $15.7 million, or a loss of $0.59 per diluted 8 share, in the corresponding prior year’s quarter. For the year, net income was reported as 9 $444.7 million, or $2.39 per diluted share, compared to net income of $277.7 million, or 10 $0.77 per diluted share, in the corresponding prior year’s quarter. Ex. 32 at 3, 4. 11 (b) False Statement No. 33: FY05 Form 10-K: On November 14, 2005, 12 Apollo filed their annual report with the SEC on Form 10-K. The Company’s Form 10-K 13 reaffirmed the previously announced financial results, and was signed by J. Sperling, Nelson, 14 Gonzales, P. Sperling, Bachus, DeConcini, Norton III, Govenar, and Blair. Ex. 33 at 46, 1, 15 41. 16 (c) Reasons Why the Statements Were False and Misleading : Statement 17 Nos. 32 and 33 were false and misleading because they overstated Apollo’s net income and 18 earnings per share and Apollo’s compensation expenses as a result of Apollo’s failure to 19 account for the compensation and tax expenses associated with stock options granted at a 20 price below the fair market value of Apollo’s common stock on the date of the grant. As 21 Apollo’s restatement admits, Apollo’s net income was overstated by $6.4 million, or 1.5%, 22 during FY05 due to Apollo’s failure to properly account for in-the-money stock option 23 grants. 24 66. 1Q06 Earning and Financial Statements 25 (a) False Statement No. 34: Q1 Earnings Announcement : On December 26 15, 2005, Apollo announced financial results for its first quarter ended November 30, 2005. 27 For the quarter, net income was reported as $130.7 million, or $0.73 per diluted share, 28
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1 compared to net income of $109.5 million, or $0.58 per diluted share, in the corresponding 2 prior year’s quarter. Ex. 34 at 3. 3 (b) False Statement No. 35: Q1 Form 10-Q: On January 9, 2006, Apollo 4 filed its quarterly report with the SEC on Form 10-Q. The Company’s Form 10-Q 5 reaffirmed the previously announced financial results, and was signed by Gonzales, Bachus, 6 and Nelson. Ex. 35 at 2, 37. 7 (c) Reasons Why the Statements Are False and Misleading: Statement 8 Nos. 34 and 35 were false and misleading because they misstated Apollo’s net income and 9 earnings per share and Apollo’s compensation expenses as a result of Apollo’s failure to 10 account for the compensation and tax expenses associated with stock options granted at a 11 price below the fair market value of Apollo’s common stock on the date of the grant. 12 False and Misleading Statements Regarding Compliance with APB 25 and IRS Code §162(m) 13 67. Statements Regarding Apollo’s Compliance with IRS Code §162(m) 14 (a) False Statement No. 36: 2002 10-K: On November 27, 2002, Apollo 15 filed their Form 10-K for FY02. The Form 10-K was signed by J. Sperling, Nelson, P. 16 Sperling, Gonzales, Bachus, DeConcini, Norton III, Govenar and Blair. In the FY02 Form 17 10-K, Apollo stated that “The Company’s policy is to comply with the requirements of 18 Section 162(m) and maintain deductibility for all executive compensation, except in 19 circumstances where we conclude on an informed basis that it is in the best interest of the 20 Company and the shareholders to take actions with regard to the payment of executive 21 compensation which do not qualify for tax deductibility.” Ex. 9 at 27, 37. 22 (b) False Statement No. 37: 2003 10-K: On November 26, 2003, Apollo 23 filed their Form 10-K for FY03. The Form 10-K was signed by J. Sperling, Nelson, 24 Gonzales, P. Sperling, Bachus, DeConcini, Norton III, Govenar, and Blair. The FY03 Form 25 10-K, contained the same statement regarding Apollo’s compliance with 162(m) as set forth 26 above in ¶67(a). Ex. 17 at 34, 47. 27 28
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1 (c) False Statement No. 38: 2004 10-K: On November 15, 2004, Apollo 2 filed their Form 10-K for FY04. The Form 10-K was signed by J. Sperling, Nelson, 3 Gonzales, P. Sperling, Bachus, DeConcini, Norton III, Govenar, and Blair. The FY04 Form 4 10-K, contained the same statement regarding Apollo’s compliance with 162(m) as set forth 5 above in ¶67(a). Ex. 25 at 37, 48. 6 (d) False Statement No. 39: 2005 10-K: On November 14, 2005, Apollo 7 filed their Form 10-K for FY05. The Form 10-K was signed by J. Sperling, Nelson, 8 Gonzales, P. Sperling, Bachus, DeConcini, Norton III, Govenar, and Blair. The FY05 Form 9 10-K, contained the same statement regarding Apollo’s compliance with 162(m) as set forth 10 above in ¶67(a). Ex. 33 at 36, 46. 11 (e) Reasons Why the Statements Were False and Misleading: Statement 12 Nos. 36, 37, 38 and 39 were false and misleading because Apollo did not comply with the 13 requirements of Section 162(m) and maintain deductibility for executive compensation. Nor 14 were Apollo’s failures to comply with 162(m) made on an informed basis or the best 15 interests of Apollo’s shareholders. As Apollo’s restatement admits: (i) “The Company 16 misapplied Internal Revenue Code Section 162(m) with respect to the contemporaneous tax 17 treatment of certain stock option grants”; (ii) “the Company did not maintain effective 18 control over . . . the deduction of compensation expenses under Section 162(m)”; (iii) “the 19 Company may have claimed deductions with respect to compensation attributable to the 20 exercise of certain stock options, which may not qualify as performance-based compensation 21 under IRC Section 162(m)”; and (iv) “the Company may have claimed deductions with 22 respect to those exercised options that were in excess of the limit imposed under IRC Section 23 162(m).” Defendant J. Sperling further admits the Company administered an option plan 24 that did not meet the standards of 162(m). As a result, Apollo was forced to record a pre-tax 25 compensation expense of $59.9 million after-tax. Apollo’s disallowed deductions pursuant 26 to IRS Section 162(m) and related penalties and interest resulted in a cumulative decrease to 27 pre-tax income of $21.1 million ($34.2 million after-tax) for the years ended August 31, 28
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1 2002 through 2005, in addition to the increased compensation expenses associated with 2 Apollo’s granting of in-the-money stock options. 3 68. Statements Regarding Apollo’s Compliance with APB 25 4 (a) False Statement No. 40: 2001 10-K: On November 28, 2001, Apollo 5 filed their Form 10-K for FY01. The Form 10-K was signed by J. Sperling, Nelson, P. 6 Sperling, Gonzales, Bachus, DeConcini, Norton, Govenar, and Blair. In Exhibit 13 to the 7 FY01 Form 10-K, Apollo stated that “The Company applies APB No. 25 and related 8 interpretations in accounting for its stock-based compensation, and has adopted the 9 disclosure-only provisions of SFAS No. 123. Accordingly, no compensation cost has been 10 recognized for these plans.” Ex. 1 at 53, 107. 11 (b) False Statement No. 41: 2002 10-K: On November 27, 2002, Apollo 12 filed their Form 10-K for FY02. The Form 10-K was signed by J. Sperling, Nelson, P. 13 Sperling, Gonzales, Bachus, DeConcini, Norton III, Govenar, and Blair. Exhibit 13 to the 14 FY02 Form 10-K stated that “The Company applies the recognition and measurement 15 principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to 16 Employees, and related interpretations in accounting for those plans. Stock-based employee 17 compensation expense is not reflected in the Consolidated Statement of Operations as all 18 options granted under those plans had an exercise price equal to the market value of the 19 underlying common stock on the date of grant.” Ex. 9 at 37-38, 18. 20 (c) False Statement No. 42: 2003 10-K: On November 26, 2003, Apollo 21 filed their Form 10-K for FY03. The Form 10-K was signed by J. Sperling, Nelson, 22 Gonzales, P. Sperling, Bachus, DeConcini, Norton III, Govenar, and Blair. Exhibit 13 to the 23 FY02 Form 10-K contained the same statement regarding Apollo’s compliance with APB 25 24 as set forth above in ¶68(b). Ex. 17 at 47, 21. 25 (d) False Statement No. 43: 2004 10-K: On November 15, 2004, Apollo 26 filed their Form 10-K for FY04. The Form 10-K was signed by J. Sperling, Nelson, 27 Gonzales, P. Sperling, Bachus, DeConcini, Norton III, Govenar, and Blair. Exhibit 13 to the 28
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1 FY02 Form 10-K contained the same statement regarding Apollo’s compliance with APB 25 2 as set forth above in ¶68(b). Ex. 25 at 48, 27. 3 (e) False Statement No. 44: 2005 10-K: On November 14, 2005, Apollo 4 filed their Form 10-K for FY05. The Form 10-K was signed by J. Sperling, Nelson, 5 Gonzales, P. Sperling, Bachus, DeConcini, Norton III, Govenar, and Blair. Exhibit 13 to the 6 FY02 Form 10-K contained the same statement regarding Apollo’s compliance with APB 25 7 as set forth above in ¶68(b). Ex. 33 at 46, 28. 8 (f) Reasons Why the Statements Were False and Misleading: Statement 9 Nos. 40, 41, 42, 43 and 44 were false and misleading because Apollo did not apply the 10 recognition and measurement principles of APB 25 in accounting for stock options, and 11 stock options under Apollo’s stock option plans did not have an exercise price equal to the 12 market value of the underlying common stock on the date of grant. As Apollo’s restatement 13 admits: (i) “the Company did not maintain effective control over the granting of stock 14 options and the related recording and disclosure of compensation expense under APB 25”; 15 and (ii) “the Company did not correctly apply the requirements of APB 25.” As a result of 16 Apollo’s failures to comply with APB 25, the Company was forced to record a $49.3 million 17 pre-tax compensation expense for FY01-FY06 to account for in-the-money stock option 18 grants. 19 False Sarbanes-Oxley Act of 2002 (“SOX”) Certifications 20 69. False Sarbanes-Oxley Certifications 21 (a) False Statement No. 45: FY02 False SOX Certification : Apollo’s 22 FY02 Form 10-K filed with the SEC on November 27, 2002 contained SOX certifications 23 signed by Nelson and Gonzales. In the SOX certifications, Nelson and Gonzales certified 24 that: 25 1. I have reviewed this annual report on Form 10-K of Apollo Group, Inc. (the “registrant”); 26 2. Based on my knowledge, this annual report does not contain any untrue 27 statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such 28
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1 statements were made, not misleading with respect to the period covered by this annual report; 2 3. Based on my knowledge, the financial statements, and other financial 3 information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the 4 registrant as of, and for, the periods presented in this annual report; 5 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in 6 Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: 7 a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated 8 subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; 9 b) evaluated the effectiveness of the registrant’s disclosure controls and 10 procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and 11 c) presented in this annual report our conclusions about the 12 effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date . . . . 13 Ex. 9 at 39-40. 14 (b) False Statement No. 46: FY03 False SOX Certification : Exhibits 15 31.1 and 31.2 to Apollo’s FY03 Form 10-K filed with the SEC on November 26, 2003, 16 contained SOX certifications signed by Nelson and Gonzales. In the SOX certifications, 17 Nelson and Gonzales made the same representations as set quoted above in ¶69(a). Ex. 17 at 18 41-42. 19 (c) False Statement No. 47: FY04 False SOX Certification : Exhibits 20 31.1 and 31.2 to Apollo’s FY04 Form 10-K filed with the SEC on November 15, 2004 21 contained SOX certifications signed by Nelson and Gonzales. In the SOX certifications, 22 Nelson and Gonzales made the same representations as set quoted above in ¶69(a). Ex. 25 at 23 31.1, 31.2. 24 (d) False Statement No. 48: FY05 False SOX Certification : Exhibits 25 31.1 and 31.2 to Apollo’s FY05 Form 10-K filed with the SEC on November 14, 2005 26 contained SOX certifications signed by Nelson and Gonzales. In the SOX certifications, 27 28
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1 Nelson and Gonzales made the same representations as set quoted above in ¶69(a). Ex. 33 at 2 31.1, 31.2. 3 (e) Reasons Why the Statements Were False and Misleading : Statement 4 Nos. 45, 46, 47 and 48 were false and misleading because, at the time such statements were 5 made, Nelson and Gonzales knew, or were deliberately reckless in not knowing, that (i) 6 Apollo’s financial statements did not accurately account for stock options granted at less 7 than fair market value on the date of the grant; (ii) Apollo’s internal controls had not been 8 designed to, nor were they effective in, preventing Apollo from failing to account for 9 compensation expenses incurred as a result of granting stock options at less than fair market 10 value on the date of the grant. As Apollo’s restatement admits: (i) “effective controls, 11 including monitoring, were not designed and in place to provide reasonable assurance 12 regarding the existence, completeness, accuracy, valuation and presentation of activity 13 related to the Company’s granting of stock options in the financial statements”; (ii) Apollo 14 “did not maintain effective controls over the implementation, documentation and the 15 administration of its share based compensation plans”; and (iii) Apollo “did not historically 16 maintain effective controls over our activities related to accounting for tax liability under 17 IRC Section 162(m).” The restatement also admits that the Company “did not maintain 18 effective controls over its accounting for bad debt expense and the related allowance for 19 doubtful accounts,” resulting in a $24 million increase in bad debt expense. 20 VII. THE TRUTH BEGINS TO EMERGE 21 70. In late 2005 and early 2006, a number of incidents involving stock option 22 backdating and “spring loading” by public companies began to surface, including SEC 23 investigations, executive resignations and financial restatements. On March 18, 2006, The 24 Wall Street Journal published an article titled, “The Perfect Payday” raising questions over 25 whether several public companies had been manipulating stock option grants to enrich 26 executives by backdating these grants to lower prices or granting options to executives ahead 27 of the release of positive corporate news. While Apollo was not implicated in the growing 28 backdating scandal at the time, this was soon to change. In June and July 2006, Apollo’s
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1 stock price began to decline as the truth about backdating at Apollo began to leak out, 2 notwithstanding the fact that, throughout this period, and throughout the remainder of 3 calendar 2006, Apollo continued to issue false statements and half-truths about the 4 backdating at the Company. 5 71. On June 8, 2006, Gary Bisbee, an analyst at Lehman Brothers, published a 6 report titled, “Did Apollo Backdate Options?” The report stated that, “While it is impossible 7 to tell definitively from a company’s proxy and other SEC filings whether or not it is guilty 8 of backdating, Apollo Group’s option grant history looks highly questionable . . . .” The 9 report then presented tables showing that Apollo’s option grant prices occurred almost 10 miraculously at the lowest price of the year in 2000, 2001, 2002 and 2004. On this news, 11 Apollo’s stock price fell 2.7% to close at $53.88 on June 8, 2006, from a close of $55.47 on 12 June 7, 2006. 13 72. False Statement 49: On June 7, 2006, in response to an analyst report which 14 questioned the timing of Apollo’s stock option grants, Norton, the Chairman of Apollo’s 15 Compensation Committee stated that “Our option policies are clean and straightforward. We 16 never backdated options. Never once.” 17 73. Reason Why Statement No. 49 Was False and Misleading : Statement No. 18 49 was false and misleading because Norton knew, or was deliberately reckless in not 19 knowing, that Apollo had in fact backdated stock options in violation of Apollo’s stock 20 option plans, that Apollo’s options policies did not comply with APB 25 or 162(m), and that 21 Apollo’s internal controls were not designed to provide reasonable assurances regarding the 22 propriety of Apollo’s stock option granting practices. 23 74. False Statement No. 50 : Just one day later, on June 9, 2006, in a continued 24 effort to conceal its misconduct, the Company issued a news release denying that it had 25 backdated stock options. Apollo claimed that it had reviewed its stock option practices 26 “including reviewing documents and interviewing employees,” and that Apollo’s 27 management believed that Apollo had “complied with all applicable laws . . . in granting 28 options to officers and it has not backdated options.”
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1 75. Reason Why Statement No. 50 Was False and Misleading : Statement No. 2 50 was false and misleading because Apollo’s management knew, or was deliberately 3 reckless in not knowing, that Apollo had in fact backdated stock options to Apollo’s officers 4 and had not complied with all applicable laws by failing to disclose such backdating or 5 report the appropriate compensation expenses in Apollo’s financial statements. 6 76. False Statement No. 51: On June 19, 2006, the Company issued a press 7 release disclosing that it received a subpoena from the U.S. Attorney for the Southern 8 District of New York requesting documents relating to Apollo’s stock option grants. Apollo 9 again denied any impropriety, stating that “Apollo’s board of directors has hired an outside 10 firm to review and confirm the company’s initial conclusions that the Company acted 11 appropriately regarding its stock option practices.” 12 77. False Statement No. 52 : On June 20, 2006, Apollo filed a Form 8-K signed 13 by Gonzales, Bachus, and Mueller which repeated False Statement No. 51 and attached the 14 June 19, 2006 press release. 15 78. Reasons Why Statement Nos. 51 & 52 Were False and Misleading : 16 Statement Nos. 51 & 52 were false and misleading because Apollo, Gonzales, Bachus, and 17 Mueller knew, or were deliberately reckless in not knowing, that Apollo had not “acted 18 appropriately regarding its stock option practices,” but rather, as detailed herein, had failed to 19 account for in-the-money stock option grants, failed to comply with APB 25, and maintained 20 ineffective internal controls which were not designed to prevent the granting of, and failing 21 to account for, backdated stock options. 22 79. The disclosures referenced in ¶¶76-78 caused Apollo’s stock price to drop 23 5.3% on the next trading day to close at $51.91 on June 20, 2006 from a close of $54.82 on 24 June 18, 2006. 25 80. On June 28, 2006, defendants John and Peter Sperling appointed a special 26 committee (the SC) of the Board to oversee a review of the Company’s practices related to 27 stock option grants. The SC was comprised of only two Board members – Diethelm and 28
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1 Govenar. Both of these Board members were subsequently removed from the SC due to 2 their conflicts of interest, and ultimately resigned from the Apollo Board. 3 81. On June 30, 2006, the Company received a letter from the SEC announcing an 4 informal investigation and requesting documents. 5 5 82. On July 13, 2006, Apollo announced that the Company was unable to timely 6 file with the SEC its Form 10-Q for the fiscal quarter ended May 31, 2006, because of the 7 “ongoing investigation by the company’s board of directors in response to a report that 8 questioned whether the company has backdated four stock option grants during fiscal 2000- 9 2004.” 10 83. In the two months after the first disclosures about the backdating at Apollo 11 began to leak out and the truth about Apollo’s option granting practices became known, 12 Apollo’s stock had dropped 23.5% from a close of $55.47 on June 8, 2006, to a close of 13 $43.51 on August 8, 2006, in significant part due to the disclosures of backdating. 14 84. The drop was not due to conditions in the market generally, or to industry- 15 specific factors. During this same time period, the S&P 500 rose 1.4%, and Apollo’s peer 16 group declined only 12%. 6 17 85. On October 18, 2006, Apollo issued a news release and disappointing earnings 18 announcement which stated, for the first time, and in contrast to Apollo’s previous denials, 19 that “ various deficiencies in the process of granting and documenting stock options have 20 been identified to date . The accounting impact of these matters has not been quantified. 21 5 On July 3, 2007, Apollo announced that the SEC had ended its investigation into 22 stock option awards practices at the Company, and that it did not intend to recommend any enforcement action. Of course, according to the SEC “Procedures Relating to . . . . 23 Termination of Staff Investigations” (1972 SEC LEXIS 238) the SEC’s decision not to take action can “in no way be construed as indicating that the party has been exonerated” and any 24 “attempted use . . . as a purported defense in any action . . . would be clearly inappropriate and improper” since it may be based on SEC’s “workload considerations,” amongst other 25 factors. 26 6 The peer group utilized for purposes of this analysis includes the following education- related companies: ITT Educational Services, Inc., DeVry Inc., Career Education 27 Corporation, Corinthian Colleges, Inc., and Learning Tree International, Inc. 28
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1 There can be no assurances that the results of the investigation will not require a possible 2 restatement of the Company’s financial statements when the potential errors are quantified 3 and assessed.” Following this announcement, Apollo’s stock price dropped dramatically, 4 falling 22.9% in one day to a 4-year low of $37.55, on a trading volume of over 28 million 5 shares, over 14 times the average trading volume during the Class Period. 6 86. False and Misleading Statement No. 53: On November 3, 2006, Apollo 7 announced that CFO and Treasurer Gonzales resigned on November 1. Continuing the 8 Company’s attempts to conceal the backdating which took place, defendant Mueller stated in 9 a conference call that Gonzales resigned to “spend more time with her family.” 10 87. Reasons Why Statement No. 53 Was False and Misleading : Statement No. 11 53 was false and misleading because Apollo and Mueller knew, or were deliberately reckless 12 in not knowing, that, as Peter Sperling testified less than two weeks later, Gonzales was 13 asked to leave due to the backdating at Apollo, and she would have been fired had she not 14 resigned. 15 88. Also on November 3, 2006, Apollo announced the interim factual findings of 16 the SC in their 8-K filing, which stated in part: 17 [T]he review has identified various deficiencies in the process of granting and documenting stock options. As a result of the deficiencies, certain 18 measurement dates related to stock option grants will need to be revised and adjustments to historical financial statements will be required. These 19 deficiencies include the following: 20 • In the accounting of certain stock option grants, the Company did not correctly apply the requirements of Accounting Principles Board (APB) 21 Opinion No. 25, Accounting for Stock Issued to Employees. . . . 22 • The Company misapplied Internal Revenue Code Section 162(m) with 23 respect to the contemporaneous tax treatment of certain stock option grants and may face significant tax liability for prior years. 24 • 25 The Company prepared and maintained inaccurate documentation concerning the date that grant award lists were completed and 26 approved. 27 28
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1 89. Following this announcement, Apollo’s stock price dropped another 2.72% to 2 close at $35.02 on November 3, 2006, from a close of $36.00 on November 2, 2006, on 3 approximately four times the average volume of shares traded. 4 90. False and Misleading Statement No. 54: During a conference call on 5 November 3, 2006, Mueller continued to deny that any backdating had occurred at Apollo, 6 stating that “to date there has been no indication that there has been any backdating.” 7 91. Reasons Why Statement No. 54 Was False and Misleading : Statement No. 8 54 was false and misleading because Mueller knew or was deliberately reckless in not 9 knowing that Apollo had found evidence indicating backdating during their review. Apollo 10 was forced to retract Mueller’s November 3, 2006 statement in a Form 8-K filed 11 November 6, 2006, which stated that in fact, with respect to some options grants, “there is 12 little contemporaneous evidence to establish that the grant was made on the grant date.” 13 Indeed, contrary to Mueller’s statement just three days earlier, Apollo stated that there was in 14 fact “a possibility that the grant date was retroactively selected.” In other words, backdating 15 indeed occurred. 16 92. On November 9, 2006, Apollo announced that Bachus had resigned as CAO 17 and Controller on November 5, 2006. While Apollo gave no reason for Bachus’s 18 resignation, John Sperling testified that Bachus resigned as a result of his involvement in the 19 backdating at Apollo shortly before Sperling had a chance to ask for Bachus’s resignation. 20 Ex. 38 at 56-57. 21 93. During the seven days that Apollo was leaking this information about its 22 backdating investigation into the market, the stock price declined 6.2% from a close of $36 23 on November 2, 2006, to a close of $33.70 on November 10, 2006. Again, these declines 24 were not due to market or industry-specific events. In this period, the S&P 500 gained 1%, 25 and Apollo’s peer group gained 2.7%. 26 94. On December 15, 2006, Mueller’s November 3, 2006 statements were again 27 contradicted when Apollo filed a Form 8-K stating that former Apollo officers had likely 28
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1 falsified or altered documents in connection with the backdating at Apollo, and that addition 2 grants were likely backdated: 3 [T]he Special Committee, in connection with its final factual findings, reported to the Board that certain former officers took steps that may have 4 been intended to mask failures in the grant approval process with respect to the Company’s financial reporting and payment of taxes . The Special 5 Committee also recently discovered additional evidence that raises questions whether another grant date (in addition to the two grants referenced in the 6 Form 8-K dated November 6, 2006) may have been retroactively selected . . . . 7 95. The December 15, 2006 Form 8-K also called in question another of Mueller’s 8 November 3, 2006 statements. When asked by Greg Cappelli, an analyst at Credit Suisse, on 9 a November 3, 2006 conference call, whether the Company’s investigation was broader than 10 just stock option backdating, Mueller responded, “No. Absolutely not. The problems that 11 we’re having from an accounting standpoint are strictly related to the stock option plan.” 12 Yet the December 15, 2006 Form 8-K went on to state that Apollo had understated its 13 allowance for doubtful accounts and bad debt expenses by an estimated $34 million, and 14 would be taking a charge to account for this error. The next trading day after this 15 announcement, December 18, 2006, Apollo’s shares again declined by 3.59% to close at 16 $38.60 from a close of $40.04 on December 14, 2006. 17 A. The Restatement 18 96. Over six months later, on May 22, 2007, Apollo finally filed its belated Form 19 10-K containing restated financial results. The 2006 Form 10-K describes an option granting 20 process conducted with a staggering degree of deliberate recklessness, and evidence of 21 intentional fraud, as well as attempts to deliberately cover-up and suppress the grant approval 22 process. Indeed, defendants’ complete and utter abandonment of their stated grant approval 23 process resulted in the Company’s investigation being unable to conclusively determine 24 correct measurement dates for stock option grants in many cases: 25 On December 15, 2006, we announced in a Form 8-K that the Special Committee presented the final factual findings of the Independent Review to 26 the Board disclosing, among other things, that: 27 • “In the accounting of certain stock option grants, the Company did not correctly apply the requirements of APB 25. In certain instances, the 28
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1 Company used a measurement date for option awards that corresponded with the [stated] grant date even though the approvals for 2 those grants as set forth in the operative plans were not obtained until 3 after the reported grant date and the final lists of grantees and award amounts were incomplete at the time of the reported grant date.” 4 • “The Company misapplied Internal Revenue Code Section 162(m) with 5 respect to the contemporaneous tax treatment of certain stock option 6 grants and may face significant tax liability for prior years.” 7 • “The Company prepared and maintained inaccurate documentation concerning the date that grant award lists were completed and 8 approved.” 9 • “The Special Committee has found no direct evidence that the grant 10 date for any of the large Management Grants was selected with the benefit of hindsight. In two instances, though, the price on the grant 11 date is at a relative low point for the Company’s stock, and there is 12 little contemporaneous evidence to establish that the grant was made on the grant date. While there is a possibility that the grant date was 13 retroactively selected, there is insufficient evidence to reach such a 14 conclusion.” 15 • ‘‘[T]he Special Committee, in connection with its factual findings, reported to the Board that certain former officers took steps that may 16 have been intended to mask failures in the grant approval process with 17 respect to the Company’s financial reporting and payment of taxes. The Special Committee also recently discovered additional evidence 18 that raises questions whether another grant (in addition to the two grants referenced in a previous Form 8-K dated November 6, 2006) 19 may have been retroactively selected by a day, although there is 20 insufficient evidence to reach such a conclusion.”
21 Based on the Independent Review and the Internal Review, we determined that 57 of the 100 total grants made during this time period used 22 incorrect measurement dates for accounting purposes. Of these 100 grants, 33 grants were Management Grants. We determined that incorrect measurement 23 dates were used for accounting purposes for 24 of the 33 Management Grants. As a result, revised measurement dates were selected for many grants and 24 resulted in exercise prices that were less than the fair market value of the stock on the most likely measurement dates. We recorded pre-tax compensation 25 expense of $52.9 million ($59.9 million after-tax) in the aggregate over the fiscal years 1994 through 2005. The after-tax amount is higher due primarily 26 to disallowed deductions pursuant to IRS Section 162(m) and related penalties and interest. This incremental share based compensation expense results in a 27 cumulative decrease to pre-tax income of $21.1 million ($34.2 million after- tax) for the years ended August 31, 2002 through 2005. 28
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1 Based on the available documentation and evidence, the following summarizes our understanding of our historical granting process and 2 determination of the most likely measurement dates for our stock option grants. 3 Historically, we made annual grants of APOL and UPX Online options. 4 We have historically granted stock options to the following groups: 5 • Management and other employees (annual grants), including those officers covered by Section 16 of the Securities and Exchange Act of 6 1934 (“Section 16 Officers”) and other employees; 7 • Non-employee directors (the “Director Grants”); 8 • Faculty (full- and part-time employees) (the “Faculty Grants”); and 9 • 10 Individual employees (new hires, promotions, transfers, etc.) (the “Individual Grants”). 11 Employee Stock Option Plans 12 We typically awarded stock options to certain employees (including the 13 Section 16 Officers) on an annual basis. From June 1994 to March 24, 2000, we issued Management Grants pursuant to the Long Term Incentive Plan 14 dated May 13, 1994, as amended on September 22, 1995 (“LTIP”). The LTIP required approval of all grants by the majority of the members of the 15 Compensation Committee. Subsequent to March 24, 2000, we awarded Management Grants pursuant to the 2000 Stock Incentive Plan (“2SIP”). The 16 2SIP required the approval of all grants by the Compensation Committee or by both the President and CEO. Our former CEO became President of the 17 Company in 1998 and was promoted to President and CEO in August 2001, and he retained both offices until he resigned in January 2006 (the “Former 18 CEO”). The Former CEO had authority to approve the option grants for employees other than himself. Grant approval memoranda (“Approval 19 Memoranda” or “Approval Memorandum”) were signed by the Former CEO or the Compensation Committee for a number of grants to employees. 20 Our Process for Granting Stock Options 21 Management Grants 22 Our annual Management Grant process followed a similar pattern each 23 year. Generally, near the end of each fiscal year (before the grant date), we began developing a list of grantees. Over a period of time the list was 24 finalized. Once the total number of shares to be issued to each grantee was known, the list was submitted to the Stock Option Manager (“Manager”) in 25 our accounting department. 26 Over the next few weeks to a few months, changes were made to the list: names were added, shares were adjusted, and underlying vesting goals 27 were developed. We understand that prior to August 2001, most grant dates were selected at Board or Compensation Committee meetings. We understand 28 that beginning in August 2001, the Former CEO generally selected the grant
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1 date. The majority of the Management Grants have a 10-year term with 4-year standard vesting. The grants typically contained vesting acceleration 2 provisions based upon meeting certain financial performance goals ( e.g ., earnings per share, stock price, net income, etc.). Once the list was finalized 3 by the accounting department, the Former CEO communicated his approval; however, no contemporaneous evidence exists to support on what date this 4 occurred. It was then communicated to the Manager that the list could be entered into Equity Edge, our stock option plan administration software. 5 Our Use of Equity Edge 6 We began using Equity Edge in approximately May 1997 and still use 7 it today. Data relating to pre-May 1997 grants was also entered into the system in 1997 for recordkeeping purposes. The date a grant is first entered in 8 Equity Edge is referred to as the “Equity Edge Record Added Date.” After February 2000, the Equity Edge data was then uploaded to an external third- 9 party broker-dealer firm. On each day that activity occurred in Equity Edge, the third-party broker-dealer’s system would automatically download the 10 option grant information into the individual employee brokerage accounts that night. The grantees could then view the options in their brokerage accounts 11 online. 12 Approval of Management Grants 13 Management Grants issued from June 1994 to August 2001 under both the LTIP and the 2SIP required approval by both members of the 14 Compensation Committee. Such approval was mostly documented by Compensation Committee minutes. However, often no list was attached to the 15 minutes. We believe that most grant dates were set at Board or Compensation Committee meetings. Based on a review of past granting practices, the 16 Compensation Committee did not and has not invalidated any grants and we have honored all grants. In 2000, instead of using Compensation Committee 17 minutes, we began using Approval Memoranda to memorialize grants to employees. Beginning in August 2001, an Approval Memorandum was 18 prepared for grants to the Former CEO. At this time, the Former CEO also had the authority to approve the option grants for employees other than 19 himself. 20 In the course of the Independent Review and the Internal Review, two types of Approval Memoranda were found. We found Approval Memoranda 21 signed by either the Compensation Committee or, beginning in August 2001, signed by the Former CEO approving grants to all employees. These 22 Approval Memoranda, in limited instances, indicate the specific number of shares to be received by each grantee. We also found Approval Memoranda 23 signed by the Compensation Committee for grants to the Former CEO. These Approval Memoranda typically stated the number of shares being granted to 24 the Former CEO. 25 Although there exists a general lack of documentation surrounding the creation and execution of Approval Memoranda, we understand that Approval 26 Memoranda were created at some point in the grant-making process, and in certain cases, the Approval Memoranda were dated “as of” the date of the 27 grant it was approving, such that in certain cases, the date on the Memorandum contained a date before the actual creation date of the 28 Memorandum. In many instances, the Approval Memorandum was signed by
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1 only the Chairman of the Compensation Committee and we lack evidence as to whether all of the grants issued were, in fact, approved by a majority of the 2 members of the Compensation Committee. As a result of the Independent Review and Internal Review, we understand that the Approval Memoranda are 3 not conclusive as to the actual date of approval, but they do reflect that the approval was given and that the grant was authorized. As a result of the 4 review of our past granting practices, we determined the Equity Edge Record Added Date represents the most likely measurement date as to when the terms 5 of the awards were finalized and approved. After the Former CEO resigned in January 2006, to the extent evidence exists of Compensation Committee 6 approval of the final terms of the grant on the original grant date, we used the original grant date. 7 Section 16 Officer Grants (Except the Former CEO) 8 Section 16 Officers received Management Grants according to the same 9 general Management Grant process described above. After August 2002, we filed timely Forms 4 for the Section 16 Officers within two days of a grant. 10 When the list was finalized, grant information was provided to the Manager, who would enter the grant into Equity Edge, which was used to prepare and 11 file the Forms 4. The Section 16 Officers typically took up to but no longer than two days to file the Forms 4. Beginning in August 2001, the Former 12 CEO had the authority to approve the grants to Section 16 Officers. We generally determined the original stated grant date is the most likely 13 measurement date for Section 16 Officer grants after August 2002. 14 Former CEO Grants 15 Under the LTIP and the 2SIP, only the Compensation Committee could approve grants to the Former CEO. While Compensation Committee minutes 16 generally stated approvals for grants, these minutes did not always specify the shares the Former CEO was to receive in the grant. The Former CEO was 17 typically in attendance at the Compensation Committee meetings where the minutes reflect that option grants were discussed and approved. The minutes 18 reflect the Former CEO was excused prior to his compensation being discussed. 19 The number of APOL options granted to the Former CEO remained the 20 same from 1998 through 2001. From 2001, specific approval for grants to the Former CEO was documented using Approval Memoranda signed by the 21 Chairman of the Compensation Committee. By early 2001, approval was obtained verbally by the Former CEO and was typically later memorialized in 22 an Approval Memorandum. Prior to August 2002, to the extent we were able to determine that evidence of Board or Compensation Committee approval 23 existed, we concluded the original grant date was the most likely measurement date. If we were unable to determine that evidence of approval existed for a 24 grant, we used the Equity Edge Record Added Date as the measurement date. 25 As discussed above for the Section 16 Officers, after August 2002, the Former CEO began filing Forms 4 with the SEC within two days of a grant. 26 We generally concluded the original stated grant date is the most likely measurement date after August 2002, based on the history of the filing process 27 for Forms 4 after a grant. 28
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1 Director Grants 2 We grant options to non-employee directors on an annual basis. From December 6, 1994 through September 1, 2003, we granted annual Director 3 Grants pursuant to the Apollo Director Stock Plan (“DSP”), which was approved on and effective as of August 5, 1994. The DSP provisions stated 4 that each director received a defined number of stock options on a defined date and price on the date of grant. As a result, we generally concluded that the 5 original stated grant date was the most likely measurement date for Director Grants made under the DSP. 6 Subsequent to September 1, 2003, the Director Grants were made 7 pursuant to the 2SIP. Forms 4 were prepared in the same manner as the Section 16 Officers discussed above, except that the forms were emailed to the 8 Directors for signatures. As a result, after September 2003, we concluded the original stated grant date is the most likely measurement date based on the 9 history of our granting process for Forms 4. 10 Faculty Grants 11 Each qualifying faculty member was eligible to receive one Faculty Grant per calendar year. Starting in fiscal year 1999, each qualifying faculty 12 member received a fixed number of shares annually. The Faculty Grants were issued to eligible faculty that met certain previously communicated criteria. 13 Faculty Grants were awarded under both the LTIP and 2SIP; however, provisions do not specifically address Faculty Grants. Detailed Faculty Grant 14 information was posted to the Company website and in the Faculty Handbook, including the frequency and timing of the grants for the upcoming year. The 15 strike price per share was to be equal to the closing price on the grant date or the nearest day before the grant date if it fell on a weekend or holiday, 16 pursuant to the plan. 17 In most cases, grants were entered into Equity Edge by the Manager and then a few days later Human Resources sent a grant email to faculty. 18 After 2000, Faculty Grants are also uploaded nightly to an external third-party broker-dealer’s system and automatically downloaded into the individual 19 employee brokerage accounts that same night. 20 As a result of the pre-defined criteria, we determined that the original stated grant date was generally the most likely measurement date. In certain 21 instances, we noted that certain faculty met the pre-established criteria but were not included in the appropriate quarterly/semi-annual stated grant. 22 Because they met all the criteria at the stated grant date and had completed an Eligibility Checklist, they should have received an award on that date but were 23 left off due to administrative delay. Therefore, we determined the most likely measurement date was the date of the quarterly/semi-annual grant date in 24 which the award should have been included. 25 Individual Grants 26 We also granted options to certain employees on an ad hoc basis throughout the year for various reasons such as new hire, transfer, promotion, 27 etc. These options were granted pursuant to the LTIP or the 2SIP, and the terms normally matched all terms in the grant agreements used for the 28 Management Grant issued during that same fiscal year. Prior to 2001, all of
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1 the information and approvals required to establish a proper measurement date for certain grants were either not documented or we lacked sufficient evidence 2 as to whether such information and approvals were obtained by the originally selected grant date. Beginning in August 2001, the Former CEO picked the 3 grant date and determined the number of shares. We normally did not document these types of option grants in a letter or in the employee’s 4 personnel file. The individuals were notified of their grants either verbally or via an email from Human Resources. Certain grants were documented via an 5 Approval Memorandum signed by the Former CEO after August 2001, as discussed in the Management Grants discussion above. 6 The grant was entered into Equity Edge following the process described 7 above for Management Grants. We similarly concluded that the Equity Edge Record Added Date is the most likely measurement date for Individual Grants. 8 Income Tax Related Matters 9 Section 162(m) 10 In relation to the Restatement, certain tax deductions in prior years with 11 respect to compensation attributable to the exercise of certain stock options by executive officers may be in question. Under IRC Section 162(m), the amount 12 of such deduction per covered executive officer is limited to $1.0 million per year, except to the extent the compensation qualifies as performance-based. 13 Compensation attributable to options with revised measurement dates may not have qualified as performance-based compensation. Accordingly, we may 14 have claimed deductions with respect to those exercised options that were in excess of the limit imposed under IRC Section 162(m). As a result, we have 15 accrued our best estimate with respect to potential tax liabilities, including interest and penalties for the taxable years 2003 through 2005 (which are 16 currently our only open years subject to adjustment for federal tax purposes), of approximately $41.1 million as of August 31, 2006. These accruals have 17 been recorded because we believe it is more likely than not that the deductions will be disallowed by the IRS. For prior periods where a liability existed and 18 where the statute of limitations has expired, the accrual relating to that period has been reversed in the appropriate period. 19 Section 409A 20 The revised measurement dates for certain stock options discussed 21 above may result in adverse tax consequences to holders of those options under IRC Section 409A. Section 409A was enacted in 2004 to impose 22 certain restrictions on deferred compensation arrangements, including limitations on the subsequent distribution of deferred amounts. Deferred 23 compensation for this purpose is defined very broadly and, as a result, includes in that definition, options granted at a discounted exercise price, to the extent 24 those options vest after December 31, 2004 (“409A Affected Options”). Therefore, the revised measurement dates for the options discussed above 25 could subject the options that vest after calendar year 2004 to treatment as 409A Affected Options. Each holder of a 409A Affected Option would 26 recognize taxable income on the option spread at the time of vesting (or, for 409A Affected Options exercised in calendar years 2006 or 2007, at the time 27 of exercise) and would incur, in addition to regular income taxes, an additional 20% penalty tax on such spread and interest. Similar penalty taxes could 28 apply under state tax laws. We are subject to certain reporting and
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1 withholding obligations with respect to the taxable income on the option spread. 2 (1) Unexercised 409A Affected Options 3 Section 16 Officers : In December 2006, we entered into irrevocable 4 written agreements with each of our Section 16 Officers and certain Former Section 16 Officers, holding 409A Affected Options pursuant to which those 5 options were to be brought into compliance with Section 409A, and thereby would avoid the adverse tax consequences summarized above, through either 6 of the following alternatives: (a) amendment of the option to increase the exercise price to the market price per share of our Class A common stock on 7 the revised measurement date or (b) the optionee’s commitment to exercise the option (to the extent in the money) during the 2007 calendar year prior to its 8 contractual expiration date. Generally, these amendments will be treated as a modification of the option under SFAS 123(R). However, in this 9 circumstance, there are no accounting consequences under SFAS 123(R). 10 Non-Section 16 Officers : An offer to amend the 409A Affected Options held by non-Section 16 Officers to increase the exercise price to the 11 market price per share of the underlying Class A common stock on the revised measurement date cannot be made until after this Annual Report on Form 10- 12 K and all other delinquent filings are filed with the SEC. In order to avoid adverse taxation under Section 409A, this amendment must be made on or 13 before the earlier of (i) December 31, 2007 or (ii) the exercise of the 409A Affected Options during the 2007 calendar year. We anticipate that we will 14 commence such an offer after the filing of this Annual Report and all other delinquent filings. 15 As part of the offer and amendment process under IRC Section 409A, 16 we may provide bonuses to the holders of the amended options to compensate them for the resulting increase in their stock option exercise price. However, 17 we have not yet made a decision to implement a bonus program to compensate either the Section 16 Officers or the non-Section 16 Officers resulting from the 18 increased exercise prices. A decision to compensate for increased prices through a bonus would represent a modification to the grant and would result 19 in accounting consequences under SFAS 123(R). 20 (2) Exercised 409A Affected Options 21 In February 2007, we elected to participate in a program announced by the Internal Revenue Service in Notice 2007-30, which pertains to 409A 22 Affected Options exercised by non-Section 16 Officers during the calendar year 2006 and which allows us to pay the penalty tax and interest due to the 23 related measurement date changes that would otherwise be payable by the option holders who exercised the 409A Affected Options. The payment of the 24 tax penalty and interest on behalf of the option holders in 2007 will result in additional taxable income to the option holders. As such, we will pay on 25 behalf of or reimburse the option holders for applicable payroll and income taxes related to the additional income, as well as provide a gross up for any tax 26 consequences of the penalty tax and interest reimbursement we make. We recorded a pre-tax liability in the second quarter of 2007 for compensation 27 expense under this program totaling approximately $2.6 million. 28
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1 Restatement Adjustments 2 (1) Share Based Compensation – As discussed above, we have restated our financial results to record additional share based compensation expense. 3 (2) Allowance for Doubtful Accounts – During the year ended August 31, 4 2006, we concluded that a significant increase in our allowance for doubtful accounts was required. A portion of the increase has been determined to be 5 the correction of an error from prior periods and is included in the accompanying financial statements as an element of the Restatement. This 6 error related to the fact that in prior years we did not properly consider available information related to (a) the cumulative differences between actual 7 write-offs and our allowance for doubtful accounts and (b) significant increases in the “Return to Lender” dollars for Title IV recipients who 8 withdraw from UPX or WIU. When a student with Title IV loans withdraws from UPX or WIU, we are sometimes required to return a portion of Title IV 9 funds to the lenders. We are generally entitled to collect these funds from the students, but the collection of these receivables is significantly lower than our 10 collection of receivables from students who remain in our educational programs. Accordingly, we have restated our allowances for doubtful 11 accounts for all prior periods presented. This error resulted in adjustments to pre-tax bad debt expense in the amounts of $11.7 million ($7.1 million after- 12 tax) and $4.1 million ($2.5 million after-tax) for the fiscal years ended 2005 and 2004, respectively. 13 (3) Other Adjustments – We concluded that the accounting for various 14 accounts such as cash, revenue, property and equipment, lease accounting and other investments was not properly recorded in accordance with GAAP. 15 Specifically, the impairment in a venture capital fund investment should have been recorded in an earlier period; cash related to scholarships, grants, and 16 refunds should have been classified as restricted cash and student deposits; different assumptions should have been used in determining the fair value of 17 options; certain share based compensation was improperly amortized amongst quarters; auction rate securities were improperly classified as cash and cash 18 equivalents in certain periods; and certain revenue under tuition discount programs were not properly recorded. Certain of these errors resulted in 19 adjustments to pre-tax expense shown in other adjustments in the table below. 20 Adjustments to our lease accounting resulted in a net increase in expense of $2.6 million and $0.7 million for the years ended August 31, 2005 21 and 2004, respectively, and adjustments to the balance sheet of $2.6 million as of August 31, 2005. Specifically, we determined that the accounting for our 22 tenant improvement allowances was not in accordance with GAAP. As part of the Restatement, the errors in our accounting for the tenant improvement 23 allowances were corrected and certain of our operating leases now have been properly accounted for as capital leases. These adjustment amounts are 24 included in Other Adjustments in the table below. 25 (Brackets and emphasis in original.) 26 97. While the restatement avoided using the word “backdating,” it nevertheless 27 described the practice and its consequences, stating for example that “the Company did not 28 correctly apply the requirements of APB 25.” Further, Apollo and defendants have
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1 elsewhere admitted that the restatement was not due to innocent errors, but rather backdating, 2 which by definition is a deliberate act. 3 98. For example, in a November 17, 2006 deposition in Sekuk Global Ent., et al. v. 4 Apollo Group Inc., et al ., No. 04-cv-02147-JAT (D. Ariz.), John Sperling admitted that he 5 and all other Apollo Section 16 officers received backdated options: 6 Q: Do you know whether you received options on the dates when they were possibly backdating? 7 A: I don’t know, but I think that there were – that all of the Section 16 8 officers received back[dated] options on the same day. So if they were Section 16 officers, I would have been among them, up until the time I 9 resigned as chairman. 10 Q: If backdating had occurred, . . . it would have been uniformly issued to the Section 16 officers? 11 A: Yes. As I recall, Mr. Rubin said that such backdating applied only to 12 Section 16 officers, that no one below Section 16 was involved in that at all . . . . 13 Ex. 38 at 56:1-15. 14 99. Further, in a motion in limine to exclude Apollo’s restatement from the same 15 case as in the above deposition, Apollo acknowledged that backdated options were the 16 principal reason for its massive restatement: “Apollo restated its SEC filings with regards, 17 primarily, to backdating of stock option grants.” Ex. 39 at 3. 18 100. It is impossible to “backdate” an option by mistake. Indeed, determining the 19 measurement date for an option date is clear, simple and unambiguous, as the SEC Chief 20 Accountant has stated on September 19, 2006: 21 The guidance in APB 25 turns on the determination of the measurement date 22 for a stock option, which is defined as “the first date on which are known both (1) the number of shares that an individual employee is entitled to receive and 23 (2) the option or purchase price, if any. 24 (Emphasis in original.) As Apollo has now admitted, this was clearly not done. 25 VIII. ADDITIONAL ALLEGATIONS OF SCIENTER 26 101. As alleged herein, defendants acted with scienter in that they: (a) had access to 27 all internal data concerning the Company’s stock option plans; (b) directed and/or 28 participated in establishing the terms of the option grants, including the choice of grant dates
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1 and exercise price; (c) knew or with deliberate recklessness disregarded that the public 2 documents and statements issued or disseminated in the name of the Company were 3 materially false, incomplete or misleading; (d) knew or with deliberate recklessness 4 disregarded that such statements or documents would be issued or disseminated to the 5 investing public; and (e) knowingly or with deliberate recklessness participated or 6 acquiesced in the issuance or dissemination of such statements or documents. 7 102. Additional facts provide actual and strong circumstantial evidence of 8 defendants’ scienter including: (a) the Company’s concessions and admissions; (b) 9 defendants’ roles, responsibilities, and specifically articulated duties for granting and 10 administering option grants; (c) defendants’ desire to personally obtain greater compensation 11 without public scrutiny; and (d) the pervasiveness and nature of the fraud. 12 A. The Company’s Admissions and Recent Actions Establish Defendants’ Scienter 13 103. The Company has made admissions and taken actions that establish 14 defendants’ scienter. The evasive nature of these admissions, which at times conflict with 15 the contemporaneous statements of John Sperling, were solely designed to further 16 defendants’ efforts to avoid taking responsibility for their egregious misconduct: 17 (a) Apollo’s public statements, for example, in its 2006 Form 10-K, admit 18 that “certain former officers took steps that may have been intended to mask failures in the 19 grant approval process with respect to the Company’s financial reporting and payment of 20 taxes[,]” and that “[i]n the accounting of certain stock option grants, the Company did not 21 correctly apply the requirements of APB 25.” While Apollo’s public statements avoid using 22 the word “backdating” in furtherance of defendants’ efforts to avoid responsibility for their 23 misconduct, Apollo has elsewhere been forced to admit that such “failures in the grant 24 approval process,” and misapplications of APB 25 were, in fact, due to “backdating of stock 25 option grants.” 26 (b) In the wake of the Company’s backdating investigation, at least six 27 executives and directors “resigned” from the Company, including the CFO, COO, the 28
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1 entirety of the Company’s Compensation Committee, and the two directors who made up the 2 original Special Committee. Further, Mueller deliberately misled Apollo’s investors about 3 the nature of at least certain of these “resignations” in furtherance of his efforts to downplay 4 the significance of the deliberate misconduct which took place at Apollo. For example, 5 Mueller’s statement that Gonzales resigned to spend more time with her family is directly 6 contradicted by John Sperling, who stated that he asked for her resignation because of her 7 involvement in the backdating at Apollo, and who stated that he would have fired her if she 8 had not resigned. The only plausible inference to be drawn from such inconsistencies is a 9 deliberate and concerted effort to mislead Apollo’s investors regarding the nature of the 10 Company’s options misconduct. 11 B. Defendants’ Specific Participation in the Backdating Establishes Their Scienter 12 104. Apollo’s “investigation” details the role of the Compensation Committee, 13 which included defendants Norton and Blair during the majority of the relevant period, in the 14 backdating at Apollo, as well as the deficiencies in the conduct of the Compensation 15 Committee with respect to the options granting process, including: 16 (a) “The Company prepared and maintained inaccurate documentation 17 concerning the date that grant award lists were completed and approved.” (In other words, 18 the falsification of documents.); 19 (b) “[P]rior to August 2001, most grant dates were selected at Board or 20 Compensation Committee meetings.” 21 (c) “Management Grants issued from June 1994 to August 2001 under both 22 the LTIP and the [2000 Plan] required approval by both members of the Compensation 23 Committee.” 24 (d) “We also found Approval Memoranda signed by the Compensation 25 Committee for grants to the Former CEO.” 26 (e) “In many instances, the Approval Memorandum was signed by only the 27 Chairman of the Compensation Committee and we lack evidence as to whether all of the 28
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1 grants issued were, in fact, approved by a majority of the members of the Compensation 2 Committee.”; 3 (f) “Under the LTIP and the [2000 Plan], only the Compensation 4 Committee could approve grants to the Former CEO.” 5 105. As described above, defendants Blair and Norton, as members of the 6 Compensation Committee during the relevant period, were responsible for approving the 7 grant dates and exercise prices of the vast majority of option grants during the Class Period. 8 Both Norton and Blair subsequently resigned from Apollo’s Board. 9 106. Defendant Nelson, the “Former CEO” who is so frequently discussed in the 10 Company’s restatement, was instrumental in the Company’s backdating scheme. Further, 11 Nelson personally benefited from the backdating at Apollo by receiving at least 450,000 12 shares of backdated Apollo stock. The Company’s restatement reveals that: 13 (a) “The Former CEO had authority to approve the option grants for 14 employees other than himself. Grant approval memoranda (“Approval Memoranda” or 15 “Approval Memorandum”) were signed by the Former CEO or the Compensation 16 Committee for a number of grants to employees.” 17 (b) “We understand that beginning in August 2001, the Former CEO 18 generally selected the grant date.” 19 (c) “We found Approval Memoranda signed by either the Compensation 20 Committee or, beginning in August 2001, signed by the Former CEO approving grants to all 21 employees.” 22 (d) “[T]he Former CEO had the authority to approve the grants to 23 Section 16 Officers.” 24 (e) “The Former CEO was typically in attendance at the Compensation 25 Committee meetings where the minutes reflect that option grants were discussed and 26 approved.” 27 28
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1 107. Defendant Nelson’s involvement in the grant approval process is powerful 2 evidence of his scienter. In addition to the Company’s admissions in the 2006 Form 10-K, 3 the testimony of John Sperling leaves no doubt whatsoever regarding Nelson’s scienter. 4 108. First, John Sperling testified that Nelson “was preoccupied primarily with the 5 stock price and not with the functioning of the company.” Ex. 38 at 59:17-19. Second, John 6 Sperling also testified that all Section 16 officers received backdated stock options, and, 7 according to the 2006 Form 10-K, Nelson was the individual who “had the authority to 8 approve the grants to Section 16 Officers.” Thus, there can be no question that Nelson, who 9 was so intimately involved in the grant approval process, who received at least 450,000 10 backdated stock options, who Apollo has admitted was responsible for granting backdated 11 options to the Company’s Section 16 officers, and who was “preoccupied primarily with the 12 stock price” of the Company, was not wholly aware that he was granting backdated options, 13 and was not at least deliberately reckless in his administration of the Company’s stock option 14 plans. 15 109. Nelson also signed false and misleading SOX certifications which falsely 16 attested to the adequacy of the Company’s internal controls, and the accuracy of the 17 Company’s reported financial statements. In fact, as Apollo’s restatement makes clear, it 18 appears that Apollo did not have any internal controls whatsoever with respect to the 19 granting of stock options, and Apollo’s financial statements were knowingly overstated for 20 the entirety of the Class Period. 21 110. Further, John Sperling testified that Norton and Blair, the chairs of the 22 Compensation and Audit Committees since 2001, had the “closest working relationship” 23 with Nelson at Apollo. Their close working relationship, coupled with their responsibilities 24 to administer the Company’s stock option programs as well as oversee the accuracy of the 25 Company’s financial accounting, shows a concerted effort to conceal the backdating from 26 Apollo’s shareholders. These defendants completely abdicated their fiduciary duties to 27 Apollo’s shareholders in pursuit of their own personal profits. 28
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1 111. Defendant Gonzales, as CFO at Apollo for the entirety of the period in which 2 Lead Plaintiff alleges that backdating was occurring and Apollo’s false financial reports were 3 issued, was also at least deliberately reckless with respect to her administration of the 4 Company’s option granting process, and her oversight of the Company’s accounting. 5 112. Gonzales received at least 102,000 shares of backdated stock options before 6 she was forced to resign due to her involvement in the backdating at Apollo. 7 113. Further, as detailed in ¶69, every year since 2002, in Apollo’s Forms 10-K 8 filed with the SEC, Gonzales signed false SOX certifications. 9 114. Gonzales was at least deliberately reckless with respect to the options granting 10 process at Apollo because, contrary to the SOX certifications, which each year affirmed the 11 adequacy of the Company’s internal controls and the accuracy of the Company’s financial 12 results, Gonzales wholly failed to monitor the granting of stock options, or account for the 13 backdated stock options at Apollo. According to John Sperling, the SC determined that 14 Gonzales was “unaware of APB 25, and, therefore, administered an option plan that did not 15 meet the standards of 162M. Consequently, she caused – will be causing – will cause – or 16 has caused – helped to cause. Let me put it that way. Helped to cause the necessity to 17 restate financials and to pay the IRS, return to the IRS the funds or the amounts that were 18 taken had the options been compliant with APB 25.” Ex. 38 at 57:11-19. 19 115. APB 25 is an accounting rule which was originally published in 1972 – 27 20 years ago. APB is simple and unambiguous. It requires that compensation expense be 21 determined as the excess of the stock price at the measurement date over the option exercise 22 price. In turn, the measurement date is defined as “the first date on which are known both 23 (1) the number of shares that an individual employee is entitled to receive and (2) the option 24 or purchase price, if any.” 25 116. Gonzales has a Bachelor of Accountancy degree from the University of 26 Oklahoma, was a Certified Public Accountant with Peat Marwick, Mitchell and Company, 27 and has been serving as a CFO since 1985 – almost 25 years. Gonzales started work at 28 Apollo in 1998. Peter Sperling’s testimony that Gonzales was “unaware of APB 25” shows
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1 that either Gonzales was deliberately reckless in her failure to comprehend the most basic of 2 accounting rules, or that she misled the SC regarding her knowledge of APB 25. In either 3 case, the evidence supports an overwhelming inference of scienter with respect to Gonzales, 4 and shows that Apollo was well deserving of their title, the “poster child of poor [corporate] 5 governance.” 7 6 117. Mueller has been President of Apollo since January 2006. Mueller joined the 7 Company in 1987, serving in a variety of positions, including a variety of executive positions 8 since 1993. 9 118. From at least June 2006, Mueller issued a series of knowingly false statements 10 regarding the backdating at Apollo, which were specifically designed to mislead Apollo’s 11 investors. 12 119. On November 3, 2006, Mueller stated that Gonzales resigned to “spend more 13 time with her family.” This statement was false. John Sperling directly contradicted this 14 statement less than two weeks later, and testified that Gonzales was asked to leave due to the 15 backdating at Apollo, and that she would have been fired had she not resigned. It is simply 16 inconceivable that Mueller, as President of Apollo, would not know why his CFO resigned. 17 Rather, Mueller deliberately misled investors to avoid having to tell them the truth – that 18 Gonzales was forced to resign because of the backdating at Apollo. 19 120. Mueller’s deception continued on November 3, 2006 when he stated that “to 20 date there has been no indication that there has been any backdating.” This statement too 21 was knowingly false. Indeed, one of the Company’s analysts, Chris Gutek with Morgan 22 Stanley, questioned Mueller on this statement during the call, asking, “you said there was no 23 evidence of backdating yet. I guess I’m confused, based on the language in the 8-K, which 24 says in certain circumstances the Company used [the incorrect measurement date] . . . . Can 25 7 This dubious title was coined by Gavin Anderson, chairman and co-founder of 26 GovernanceMetrics International, a New York research firm that grades 4,000 companies on governance issues, and appeared on Marketwatch article titled “Corporate governance as a 27 ‘risk-factor’” by Herb Greenberg, dated May 29, 2007. 28
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1 you reconcile the language in the 8-K with the comment that you just made, that there was 2 no evidence of backdating?” Mueller could provide no explanation for his inconsistencies, 3 and merely answered, “The investigation is ongoing, and to say more than what I have said 4 to this point would not be – I just shouldn’t do that.” 5 121. Apollo was forced to issue a clarification of Mueller’s statement in a Form 10- 6 K dated November 6, 2006, stating that, in fact, with respect to some options grants, “there is 7 little contemporaneous evidence to establish that the grant was made on the grant date.” 8 Indeed, contrary to Mueller’s statement just three days earlier, Apollo stated that there was in 9 fact “a possibility that the grant date was retroactively selected.” In other words, backdating 10 indeed occurred. 11 C. Defendants’ Personal Enrichment Through Lucrative Stock Option Grants and Insider Trading Supports a Finding of 12 Scienter 13 122. Defendants were motivated to commit the fraudulent scheme in order to reap 14 significant personal profits. According to John Sperling, all of Apollo’s Section 16 officers 15 received backdated options. This is confirmed by Apollo’s restatement, which states that 16 “24 of the 33 Management Grants” during the relevant period required restating. Defendants 17 cashed in on their backdated stock options, and the artificial inflation in Apollo’s stock price 18 by selling millions of shares of Apollo stock for more insider trading proceeds. Ex. 48. 19 123. Since this fraudulent scheme had commenced by at least 1998, no meaningful 20 comparison of prior trading patterns can be performed. However, it is clear that defendants 21 were motivated to perpetrate the backdating fraud due to the fact that the vast majority of 22 their overall compensation was through stock option grants. Defendants were also motivated 23 to falsify the Company’s financial statements by failing to record the additional 24 compensation expenses in order to meet their projected earnings goals and receive lucrative 25 bonus awards. 26 27 28
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1 D. The Fact that Failing to Report Compensation Expenses from Backdated Options Was Essential to Maintaining Apollo’s 2 Profitable Performance Supports a Strong Inference of Scienter 3 124. Given the enormous amount of stock options issued as compensation to Apollo 4 executives, defendants were keenly aware of the negative impact on Apollo’s financial 5 condition that would result if the Company did not comply with APB 25 and was required to 6 report compensation expenses for gains incurred in connection with misdated option grants. 7 For example, in fiscal 2001, the restatement reduced Apollo’s net income by $20.6 million, 8 or 23.6%. Similarly, in 2002, the restatement reduced Apollo’s net income by $17.3 million, 9 or 12%. 10 125. Accordingly, it was of enormous significance to Apollo’s earnings and 11 business model that the Company qualify for favorable tax treatment under APB 25 and 12 162(m). By disguising backdated options by manipulating their grant dates, defendants were 13 able to receive additional immediate value for their options, which sometimes vested in as 14 little as six months, while Apollo continued to claim favorable account treatment, under- 15 report compensation expenses and inflate its earnings. 16 E. The Mass “Retirements” of Apollo Directors and Executives Supports a Strong Inference of Scienter 17 126. Apollo’s knowledge and intent with respect to backdating and improper 18 accounting for stock options is further supported by the fact that defendants Gonzales, 19 Bachus, Norton, Blair, Govenar and Diethelm all “retired” during or shortly after the SC’s 20 investigation regarding options backdating and the issuance of the Company’s restatement. 21 These defendants’ involvement in the backdating at Apollo, as demonstrated above, and the 22 fact that Mueller misled Apollo’s investors regarding the nature of these “retirements,” 23 further supports a strong inference of scienter. 24 IX. LOSS CAUSATION 25 127. During the Class Period, as detailed herein, defendants engaged in a scheme to 26 deceive the market and a course of conduct that artificially inflated Apollo’s securities prices 27 and operated as a fraud or deceit on Class Period purchasers of Apollo securities by 28
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1 misrepresenting the Company’s business success and future business prospects. Defendants 2 achieved this façade of success, growth and strong future business prospects by 3 misrepresenting the Company’s financial results and compensation practices. Later 4 however, when defendants’ prior misrepresentations and fraudulent conduct began to be 5 disclosed and became apparent to the market, Apollo’s stock fell precipitously as the prior 6 artificial inflation came out of Apollo’s securities prices. As a result of their purchases of 7 Apollo securities during the Class Period, Lead Plaintiff and other members of the class 8 suffered economic loss. 9 128. During the Class Period, defendants presented a misleading picture of Apollo’s 10 business and prospects. Thus, instead of truthfully disclosing during the Class Period that 11 Apollo’s business was not as healthy as represented, defendants caused Apollo to 12 misrepresent the Company’s earnings and compensation and tax expenses, among other 13 important financial metrics. During the Class Period, defendants also repeatedly but falsely 14 emphasized that Apollo’s compensation practices aligned the interests of management with 15 the shareholders, and that Apollo’s compensation and accounting practices were overseen by 16 independent, competent directors. 17 129. These false and misleading representations concerning Apollo’s financial 18 results and management compensation – plus defendants’ non-disclosure of material facts 19 concerning the Company’s compensation practices, which facts demonstrated defendants 20 were not acting in the best interests of shareholders but, rather, were acting dishonestly and 21 in violation of Company, New York Stock Exchange and SEC policies and regulations – 22 caused and maintained the artificial inflation of Apollo’s securities prices throughout the 23 Class Period, until the truth was slowly revealed to the market. 24 130. Defendants’ false and misleading statements had the intended effect and 25 caused Apollo’s common stock to trade at artificially inflated levels throughout the Class 26 Period. 27 131. Starting in June 2006 through the end of the Class Period on October 18, 2006, 28 investors began to learn the truth upon a number of disclosures, including defendants’ own
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1 admissions, revealing, among other things: (1) defendants had caused Apollo to engage in 2 substantial backdating of stock option grants issued to, among others, senior management; 3 (2) Apollo’s published financial statements during and prior to the Class Period were 4 materially misleading for failure to properly account for these stock option grants; (3) senior 5 management and directors had not conducted themselves with integrity nor in the best 6 interest of the Company’s shareholders; (4) the Company’s Board of Directors had been 7 derelict in performing its duties; and (5) defendants sold shares of Apollo based on material, 8 non-public information. These revelations did not happen all at once, but rather were the 9 result of an investigation by one of Apollo’s analysts. Further, the revelations of backdating 10 were dragged-out and deliberately obfuscated by Mueller and the other defendants in an 11 attempt to continue to artificially prop-up Apollo’s inflated stock price. As investors and the 12 market became aware of the true facts, the prior artificial inflation came out of Apollo’s 13 securities prices, damaging investors. 14 132. As a direct result of these disclosures and the public revelations regarding 15 Apollo’s issuance of stock options, and the falsity about Apollo’s previous Class Period 16 representations and its actual business prospects going forward, Apollo’s stock price dropped 17 from its trading range between $50-$60 in the first half of 2006, to as low as $37.55 on 18 October 18, 2006. This drop removed the inflation from Apollo’s stock price, causing real 19 economic loss to investors who had purchased the securities during the Class Period. In 20 sum, as the truth about defendants’ fraud and Apollo’s business performance was revealed, 21 the Company’s stock price plummeted, the artificial inflation came out of the stock, and 22 Lead Plaintiff and other members of the class were damaged. 23 X. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE 24 133. At all relevant times, the market for Apollo’s securities was an efficient market 25 for the following reasons, among others: 26 27 28
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1 (a) Apollo’s stock met the requirements for listing, and was listed and 2 actively traded on the National Association of Securities Dealers Automated Quotations 3 (“NASDAQ”), a highly efficient and automated market; 4 (b) As a regulated issuer, Apollo filed periodic public reports with the SEC 5 and NASDAQ; 6 (c) Apollo regularly communicated with public investors via established 7 market communication mechanisms, including through regular dissemination of press 8 releases on the national circuits of major newswire services and through other wide-ranging 9 public disclosures, such as communications with the financial press and other similar 10 reporting services; and 11 (d) Apollo was followed by numerous securities analysts employed by 12 major brokerage firms who wrote reports which were distributed to the sales force and 13 certain customers of their respective brokerage firms. Each of these reports was publicly 14 available and entered the public marketplace. 15 134. As a result of the foregoing, the market for Apollo’s securities efficiently 16 digested current information regarding Apollo from all publicly available sources and 17 reflected such information in Apollo’s stock price. Under these circumstances, all 18 purchasers of Apollo’s securities during the Class Period suffered similar injury through their 19 purchase of Apollo securities at artificially inflated prices and a presumption of reliance 20 applies. 21 XI. APPLICABILITY OF THE AFFILIATED UTE PRESUMPTION OF RELIANCE 22 135. Lead Plaintiff is also entitled to the Affiliated Ute presumption of reliance 8 23 because defendants’ fraudulent scheme primarily involved a failure to disclose and/or 24 concealment of material facts concerning defendants’ backdating of options grants, which 25 26 8 A U.S. Supreme Court precedent relating to presumed reliance held in Affiliated Ute 27 Citizens v. United States , 406 U.S. 128 (1972). 28
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1 information Lead Plaintiff would have wanted to have known and which would have caused 2 investors not to have purchased shares of Apollo at the prices they traded at during the Class 3 Period. 4 XII. NO SAFE HARBOR 5 136. The statutory safe harbor provided for forward-looking statements under 6 certain circumstances does not apply to any of the allegedly false statements pleaded in this 7 Complaint. Many of the specific statements pleaded herein were not identified as “forward- 8 looking statements” when made. To the extent there were any forward-looking statements, 9 there were no meaningful cautionary statements identifying important factors that could 10 cause actual results to differ materially from those in the purportedly forward-looking 11 statements. Alternatively, to the extent that the statutory safe harbor does apply to any 12 forward-looking statements pleaded herein, defendants are liable for those false forward- 13 looking statements because at the time each of those forward-looking statements was made, 14 the particular speaker knew that the particular forward-looking statement was false, and/or 15 the forward-looking statement was authorized and/or approved by an executive officer of 16 Apollo who knew that those statements were false when made. 17 XIII. LEAD PLAINTIFF’S CLASS ACTION ALLEGATIONS 18 137. Lead Plaintiff brings this action as a class action pursuant to Federal Rule of 19 Civil Procedure 23(a) and (b)(3) on behalf of a class consisting of all those who purchased or 20 otherwise acquired the publicly traded securities of Apollo during the Class Period and who 21 were damaged thereby (the “Class”). Excluded from the Class are defendants, the officers 22 and directors of the Company, at all relevant times, members of their immediate families and 23 their legal representatives, heirs, successors or assigns and any entity in which defendants 24 have or had a controlling interest. 25 138. The members of the Class are so numerous that joinder of all members is 26 impracticable. Disposition of their claims in a class action will provide substantial benefits 27 to the parties and the Court. 28
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1 139. Throughout the Class Period, Apollo’s common stock was actively traded on 2 the NASDAQ, an active and efficient market. While the exact number of Class members is 3 unknown to Lead Plaintiff at this time and can only be ascertained through appropriate 4 discovery, Lead Plaintiff believes that there are hundreds or thousands of members in the 5 proposed Class. Record owners and other members of the Class may be identified from 6 records maintained by Apollo or its transfer agent and may be notified of the pendency of 7 this action by mail, using the form of notice similar to that customarily used in securities 8 class actions. 9 140. Lead Plaintiff’s claims are typical of the claims of the members of the Class as 10 all members of the Class are similarly affected by defendants’ wrongful conduct in violation 11 of federal law complained of herein. 12 141. Lead Plaintiff will fairly and adequately protect the interests of the members of 13 the Class and have retained counsel competent and experienced in class and securities 14 litigation. 15 142. Common questions of law and fact exist as to all members of the Class and 16 predominate over any questions solely affecting individual members of the Class. Among 17 the questions of law and fact common to the Class are: 18 (a) whether federal securities laws were violated by defendants’ acts as 19 alleged herein; 20 (b) whether defendants acted with negligence or with scienter; 21 (c) whether the prices of Apollo common stock and other publicly traded 22 securities were artificially inflated during the Class Period; 23 (d) whether the ownership share of public stockholders in Apollo stock was 24 improperly diluted as a result of Apollo’s stock option grants; 25 (e) whether equitable remedies are available to remedy defendants’ 26 allegedly negligent, improper and/or fraudulent conduct, and to what extent these equitable 27 remedies should be applied and how they should be fashioned; 28
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1 (f) to what extent the members of the Class have sustained economic loss 2 and/or damages and the proper measure of damages; 3 (g) whether defendants should be required to disgorge their trading profits 4 to contemporaneous purchasers of Apollo stock; and 5 (h) how to define contemporaneous purchasers for purposes of the 6 Exchange Act. 7 143. A class action is superior to all other available methods for the fair and 8 efficient adjudication of this controversy since joinder of all members is impracticable. 9 Furthermore, as the damages suffered by individual Class members may be relatively small, 10 the expense and burden of individual litigation make it impossible for members of the Class 11 to individually redress the wrongs done to them. There will be no difficulty in the 12 management of this action as a class action. 13 FIRST CLAIM FOR RELIEF 14 For Violation of §10(b) of the Exchange Act and Rule 10b-5 Against Defendants Apollo, Nelson, Norton, Gonzales and Blair 15 144. Lead Plaintiff repeats and realleges each and every allegation contained above 16 as if fully set forth herein. 17 145. During the Class Period, Apollo, Nelson, Norton, Gonzales and Blair carried 18 out a plan, scheme and course of conduct which was intended to and, throughout the Class 19 Period, did deceive the investing public regarding Apollo’s financial results, compensation 20 practices, internal controls, compliance with GAAP, as well as the integrity of Apollo’s 21 management and executives and the intrinsic value of Apollo’s publicly traded securities. 22 146. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made 23 untrue statements of material fact and/or omitted to state material facts necessary to make the 24 statements made not misleading; and (c) engaged in acts, practices, and a course of business 25 which operated as a fraud and deceit upon the purchasers of the Company’s publicly traded 26 securities in an effort to maintain artificially high market prices for Apollo’s publicly traded 27 securities in violation of §10(b) of the Exchange Act and Rule 10b-5. 28
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1 147. Defendants, individually and in concert, directly and indirectly, by the use, 2 means or instrumentalities of interstate commerce and/or of the mails, engaged and 3 participated in a course of conduct to conceal and misrepresent adverse material information 4 about the business, operations and future prospects of Apollo as specified herein. 5 148. These defendants employed devices, schemes and artifices to defraud, while in 6 possession of material, adverse, non-public information and engaged in acts, practices, and a 7 course of conduct as alleged herein in an effort to assure investors of Apollo’s value and 8 performance and continued substantial growth, which included the making of, or the 9 participation in the making of, untrue statements of material fact and omitting to state 10 material facts necessary in order to make the statements made about Apollo and its business 11 operations and future prospects in the light of the circumstances under which they were 12 made, not misleading, as set forth more particularly herein, and engaged in transactions, 13 practices and a course of business which operated as a fraud and deceit upon the purchasers 14 of Apollo’s publicly traded securities during the Class Period. 15 149. The defendants had actual knowledge of the misrepresentations and omissions 16 of material facts set forth herein, or acted with deliberate recklessness for the truth in that 17 they failed to ascertain and to disclose such facts, even though such facts were available to 18 them. Such defendants’ material misrepresentations and/or omissions were made knowingly 19 or with a deliberate recklessness for the truth and for the purpose and effect of concealing 20 Apollo’s true financial condition and stock option granting practices from the investing 21 public and supporting the artificially inflated prices of its publicly traded securities. As 22 demonstrated by defendants’ overstatements and misstatements of the Company’s business, 23 operations and earnings throughout the Class Period, defendants, if they did not have actual 24 knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain 25 such knowledge by deliberately refraining from taking those steps necessary to discover 26 whether those statements were false or misleading. 27 150. As a result of the dissemination of the materially false and misleading 28 information and failure to disclose material facts, as set forth above, the market prices of
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1 Apollo’s publicly traded securities were artificially inflated during the Class Period. In 2 ignorance of the fact that the market prices of Apollo’s publicly traded securities were 3 artificially inflated, and relying directly or indirectly on the false and misleading statements 4 made by defendants, or upon the integrity of the markets in which the securities trade, and/or 5 on the absence of material adverse information that was known to or recklessly disregarded 6 by defendants but not disclosed in public statements by defendants during the Class Period, 7 Lead Plaintiff and the other members of the Class acquired Apollo’s publicly traded 8 securities during the Class Period at artificially high prices and were damaged when the truth 9 became known. 10 151. At the time of said misrepresentations and omissions, Lead Plaintiff and other 11 members of the Class were ignorant of their falsity, and believed them to be true. Had Lead 12 Plaintiff, the other members of the Class and the marketplace known the truth regarding 13 Apollo’s financial condition and their stock option granting practices, which were not 14 disclosed by defendants, Lead Plaintiff and other members of the Class would not have 15 purchased or otherwise acquired their Apollo publicly traded securities, or, if they had 16 acquired such securities during the Class Period, they would not have done so at the 17 artificially inflated prices which they paid. 18 152. By virtue of the foregoing, defendants have violated §10(b) of the Exchange 19 Act, and Rule 10b-5 promulgated thereunder. 20 153. As a direct and proximate result of defendants’ wrongful conduct, Lead 21 Plaintiff and the other members of the Class suffered damages, i.e. , real economic loss as set 22 forth above in connection with their respective purchases and sales of the Company’s 23 publicly traded securities during the Class Period. 24 25 26 27 28
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1 SECOND CLAIM FOR RELIEF 2 For Violation of §20A of the Exchange Act Against Defendant Blair 3 154. Lead Plaintiff incorporates by reference and realleges each and every 4 allegation set forth above, as though fully set forth herein, in order to plead defendant Blair’s 5 predicate violation of §10(b) for purposes of this claim. 6 155. While Apollo securities traded at artificially inflated and distorted prices, Blair 7 personally profited by selling over 60,000 shares of Apollo securities while in possession of 8 adverse, material non-public information about Apollo, pocketing over $3.5 million in illegal 9 insider trading proceeds. 10 156. Lead Plaintiff purchased Apollo securities contemporaneously with Blair. 11 Blair sold 4,000 shares of Apollo stock on January 3, 2005. Lead Plaintiff purchased 12 177,554 shares of Apollo stock between January 6, 2005 and January 7, 2005. 13 157. By virtue of Blair’s participation in the scheme to defraud investors described 14 herein, and/or Blair’s sales of stock while in possession of material, non-public information 15 about the adverse information detailed herein, Blair violated the Exchange Act and 16 applicable rules and regulations thereunder. 17 158. Lead Plaintiff and all other members of the Class who purchased shares of 18 Apollo stock contemporaneously with the sales of Apollo stock by Blair: (i) have suffered 19 substantial damages in that they paid artificially inflated prices for Apollo stock as a result of 20 the violations of §§10(b) and 20A and Rule 10b-5 herein described; and (ii) would not have 21 purchased Apollo stock at the prices they paid, or at all, if they had been aware that the 22 market prices had been artificially inflated by defendants’ false and misleading statements. 23 24 25 26 27 28
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1 THIRD CLAIM FOR RELIEF 2 For Violation of §20(a) of the Exchange Act Against All Defendants 9 3 159. Lead Plaintiff incorporates by reference and realleges each and every 4 allegation set forth above, as though fully set forth herein, in order to plead defendants 5 Apollo, Nelson, Norton, Gonzales, and Blair’s predicate violation of §10(b) for purposes of 6 this claim. 7 160. Defendants acted as controlling persons of Apollo within the meaning of 8 §20(a) of the Exchange Act. By reason of their positions with the Company and their 9 ownership of Apollo stock, defendants had the power, and exercised such power, either 10 directly or indirectly, to direct or cause the direction of the management and policies of 11 Apollo, Nelson, Gonzales, Blair and Norton. 12 161. Any question about the Sperlings’ control was laid to rest in a August 31, 2000, Form 13 S-3/A, announcing the sale of 5,000,000 shares of common stock which were designed to track the 14 economic performance of University of Phoenix Online, an Apollo subsidiary division. The risk 15 factors disclosed in the Form S-3/A highlighted the fact that the Sperlings had a high degree of 16 control over Apollo’s operations and business. The Form S-3/A stated that “Our Chairman and 17 Chief Executive Officer, John G. Sperling, Ph.D., and his son, Peter V. Sperling, who is also one of 18 our directors as well as our Senior Vice President, Secretary, and Treasurer, own 92.9% of our Class 19 B common stock, which is our only series of voting stock. By controlling 92.9% of our voting 20 power, John and Peter Sperling are able to elect all members of our board of directors and control 21 substantially all actions to be taken by our shareholders. As a result, they are able to maintain 22 23 9 This Court’s March 31, 2009 Order granted certain defendants’ motions to dismiss Lead Plaintiff’s §20(a) claim, and directed the clerk to enter judgment in favor of defendants 24 Bachus, Govenar, Mueller, DeConcini and Noone. Lead Plaintiff filed a motion for reconsideration on April 2, 2009, and the Court ordered defendants to respond. The motion 25 has now been fully briefed and submitted. Because this Amended Complaint is due to be filed before the motion for reconsideration has been decided, Lead Plaintiff has included 26 these defendants in the operative version of the Complaint. Should the Court reaffirm its March 31, 2009 Order, the action against these defendants will be dismissed in accordance 27 with that ruling. 28
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1 control over our operations and business.” The Form S-3/A was signed by J. Sperling, Nelson, 2 Noble, P. Sperling, Gonzales, DeConcini, Norton and Govenar. Subsequent to this statement, and 3 throughout the Class Period, the Sperlings continued to maintain actual control over Apollo, Nelson, 4 Gonzales, Norton and Blair, through their control of Apollo’s voting stock. 5 162. Defendants P. Sperling and J. Sperling controlled over 99% of Apollo’s voting 6 stock, and thus exercised actual power and control over Apollo and defendants Nelson, 7 Gonzales, Blair and Norton. P. Sterling and J. Sperling also signed, and had actual power 8 over the making of numerous financial statements containing materially false and misleading 9 statements, as alleged in ¶¶45-66, which are incorporated by reference and realleged herein, 10 thus qualifying them as control persons under §20(a). 11 163. As alleged in ¶¶17-27, which are incorporated by reference and realleged 12 herein, defendants S. Sperling, P. Sperling, Nelson, Gonzales, Bachus, Blair, Norton, 13 Govenar, Mueller, and DeConcini were all officers and directors of Apollo. 14 164. As alleged in ¶¶45-66, which are incorporated by reference and realleged 15 herein, defendants Nelson, Gonzales, Bachus, Blair, Norton, Govenar, Mueller, and 16 DeConcini all signed false financial statements containing materially false and misleading 17 statements, thus qualifying them as control person under §20(a). 18 165. By reason of such conduct, defendants named herein are liable pursuant to 19 §20(a) of the Exchange Act. 20 PRAYER FOR RELIEF 21 WHEREFORE, Lead Plaintiff prays for judgment as follows: 22 A. Declaring this action to be a proper class action pursuant to Fed. R. Civ. P. 23; 23 B. Awarding compensatory and punitive money damages against all defendants, 24 jointly and severally, for all losses and damages suffered as a result of the acts and 25 transactions complained of herein, together with pre-judgment interest, to ensure defendants 26 do not participate therein or benefit thereby; 27 C. Directing all defendants to account for all damages caused by them and all 28 profits and special benefits and unjust enrichment they have obtained as a result of their
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1 unlawful conduct, including all salaries, bonuses, fees, stock awards, options and common 2 stock sale proceeds, and imposing a constructive trust thereon; 3 D. Ordering that defendants personally bear their own legal fees in defending any 4 and all claims arising out of these matters, whether asserted by stockholders or the 5 government, and not be indemnified by the corporation or any insurance; 6 E. Awarding Lead Plaintiff reasonable costs and attorneys’ fees; and 7 F. Awarding such other equitable, injunctive and/or other relief as the Court may 8 deem just and proper. 9 JURY DEMAND 10 Lead Plaintiff demands a trial by jury. 11 DATED: April 30, 2009 COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 12 JEFFREY W. LAWRENCE CHRISTOPHER M. WOOD 13 14 s/ Jeffrey W. Lawrence 15 JEFFREY W. LAWRENCE 16 100 Pine Street, Suite 2600 San Francisco, CA 94111 17 Telephone: 415/288-4545 415/288-4534 (fax) 18 [email protected] 19 Lead Counsel for Lead Plaintiff 20 BUCKLEY KING MICHAEL SALCIDO 21 2020 North Central Avenue, Suite 1120 Phoenix, AZ 85004 22 Telephone: 602/424-2550 602/424-2566 (fax) 23 [email protected] 24 Liaison Counsel
25 S:\CasesSD\Apollo Group 06\CPT00059134 2nd Amended.doc
26 27 28
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1 CERTIFICATE OF SERVICE 2 I hereby certify that on April 30, 2009, I electronically filed the foregoing with the 3 Clerk of the Court using the CM/ECF system which will send notification of such filing to 4 the e-mail addresses denoted on the attached Electronic Mail Notice List, and I hereby certify 5 that I have mailed the foregoing document or paper via the United States Postal Service to 6 the non-CM/ECF participants indicated on the attached Manual Notice List. 7 I certify under penalty of perjury under the laws of the United States of America that 8 the foregoing is true and correct. Executed on April 30, 2009. 9 s/ Jeffrey W. Lawrence 10 JEFFREY W. LAWRENCE
11 COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 12 100 Pine Street, 26th Floor San Francisco, CA 94111 13 Telephone: 415/288-4545 14 415/288-4534 (fax) E-mail: [email protected] 15
16 17 18 19 20 21 22 23 24 25 26 27 28
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Christopher M Wood [email protected]
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2 of 2 4/30/2009 2:29 PM Case 2:06-cv-02674-RCB Document 112-2 Filed 04/30/2009 Page 1 of 3
Index of Exhibits Filed with Lead Plaintiff’s Second Amended Complaint
Exhibit Description
1 Excerpts of Apollo Group, Inc.’s (“Apollo”) Form 10-K for the fiscal year 2001, filed with the Securities and Exchange Commission (“SEC”) on November 28, 2001
2 Apollo press release dated December 18, 2001
3 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended November 30, 2001, filed with the SEC on January 14, 2002
4 Apollo press release dated March 26, 2002
5 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended February 28, 2002, filed with the SEC on April 12, 2002
6 Apollo press release dated June 25, 2002
7 Excerpts of Apollo’s Form 10-K for the fiscal year ended May 31, 2002, filed with the SEC on July 12, 2002
8 Apollo press release dated October 8, 2002
9 Excerpts of Apollo’s Form 10-K for the fiscal year ended August 31, 2002, filed with the SEC on November 27, 2002
10 Apollo press release dated December 18, 2002
11 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended November 30, 2002, filed with the SEC on January 14, 2003
12 Apollo press release dated March 25, 2003
13 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended February 28, 2003, filed with the SEC on April 14, 2003
14 Apollo press release dated June 23, 2003
15 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended May 31, 2003, filed with the SEC on July 15, 2003
16 Apollo press release dated October 7, 2003 Case 2:06-cv-02674-RCB Document 112-2 Filed 04/30/2009 Page 2 of 3
Exhibit Description
17 Excerpts of Apollo’s Form 10-K for the fiscal year ended August 31, 2003, filed with the SEC on November 26, 2003
18 Apollo press release dated December 18, 2003
19 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended November 30, 2003, filed with the SEC on January 13, 2004
20 Apollo press release dated March 12, 2004
21 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended February 29, 2004, filed with the SEC on April 13, 2004
22 Apollo press release dated June 24, 2004
23 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended May 31, 2004, filed with the SEC on July 15, 2004
24 Apollo press release dated October 5, 2004
25 Excerpts of Apollo’s Form 10-K for the fiscal year ended August 31, 2004, filed with the SEC on November 15, 2004
26 Apollo press release dated December 16, 2004
27 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended November 30, 2004, filed with the SEC on January 10, 2005
28 Apollo press release dated March 29, 2005
29 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended February 28, 2005, filed with the SEC on April 11, 2005
30 Apollo press release dated June 28, 2005
31 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended May 31, 2005, filed with the SEC on July 11, 2005
32 Apollo press release dated October 12, 2005
33 Excerpts of Apollo’s Form 10-K for the fiscal year ended August 31, 2005, filed with the SEC on November 14, 2005
34 Apollo press release dated December 15, 2005 Case 2:06-cv-02674-RCB Document 112-2 Filed 04/30/2009 Page 3 of 3
Exhibit Description
35 Excerpts of Apollo’s Form 10-Q for the fiscal quarter ended November 30, 2005, filed with the SEC on January 9, 2006
36 Apollo’s “Long-Term Incentive Plan”
37 Apollo’s “2000 Stock Incentive Plan”
38 Excerpts of deposition transcript of John Sperling, dated November 17, 2006, from In re Apollo Group, Inc. Sec. Litig. , No. CV-04-2147-PHX-JAT (D. Ariz.)
39 Defendants’ Motion in Limine No 9: To Exclude the Restatement of SEC Filings, from In re Apollo Group, Inc Sec. Litig. , No. CV-04-2147-PHX-JAT (D. Ariz. Oct 9, 2007)
40 Spreadsheet of insider sales in Apollo Group, Inc. between November 28, 2001 and October 18, 2006, retrieved from Thomson Research
Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 1 of 12
EXHIBIT 1 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 2 of 12 APOLLO GROUP INC Filing Date: 08/31/01 ------ ------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------ FORM 10-K (Mark One) {X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: August 31, 2001 OR { }TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-25232 APOLLO GROUP, INC. (Exact name of registrant as specified in its charter) Arizona 86-0419443 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4615 East Elwood Street, Phoenix, Arizona 85040 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (480) 966-5394 Securities registered pursuant to Section 12(b) of the Act: None None (Title of each class) (Name of each exchange on which registered)
1 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 3 of 12 APOLLO GROUP INC Filing Date: 08/31/01 Securities registered pursuant to Section 12(g) of the Act: Apollo Education Group Class A common stock, no par value University of Phoenix Online common stock, no par value (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: Apollo Education Group Class A common 114,387,000 Shares stock, no par value Apollo Education Group Class B common 484,000 Shares stock, no par value University of Phoenix Online common 9,517,000 Shares stock, no par value 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
2 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 4 of 12 APOLLO GROUP INC Filing Date: 08/31/01 Page ---- PART I Item 1. Business 1 Item 2. Properties 22 Item 3. Legal Proceedings 22 Item 4. Submission of Matters to a Vote of Security Holders 22 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 23 Item 6. Selected Consolidated Financial Data 24 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24 Item 7a. Quantitative and Qualitative Disclosures about Market Risk 24 Item 8. Financial Statements and Supplementary Data 24 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 24 PART III Item 10. Directors and Executive Officers of the Registrant 25 Item 11. Executive Compensation 28 Item 12. Security Ownership of Certain Beneficial Owners and Management 36 Item 13. Certain Relationships and Related Transactions 38 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 39 SIGNATURES 42 ------ 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
3 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 5 of 12 APOLLO GROUP INC Filing Date: 08/31/01 Compensation Committee for 2001 is set forth in Item 11. Audit Committee. The Audit Committee, which met on four occasions in 2001, represents the Board of Directors in evaluating the quality of our financial reporting process and internal financial controls through consultations with our independent accountants, internal management, and the Board of Directors. The report of the Audit Committee for 2001 is set forth in Item 11. Other Committees. We do not maintain a standing nominating committee or other committee performing similar functions. Item 11 -- Executive Compensation Director Compensation Fees. In 2001, our non-employee directors received a $24,000 annual retainer, $2,000 for each board meeting attended, and $1,000 for each committee meeting attended. In addition, committee chairmen received an additional $500 for each committee meeting. Non-employee directors are also reimbursed for out-of-pocket expenses. Apollo Group, Inc. Amended and Restated Director Stock Plan. The Board of Directors has adopted the Apollo Group, Inc. Amended and Restated Director Stock Plan ("Director Plan") to attract and retain independent directors. Under the amended Director Plan, up to 925,000 shares of Apollo Education Group Class A common stock and up to 100,000 shares of University of Phoenix Online common stock may be available for grant of awards. Options granted under the amended Director Plan are fully vested six months and one day after the date of grant and are exercisable in full thereafter until the date that is ten years after the date of grant. The exercise price per share under the amended Director Plan is equal to the fair market value of such shares upon the date of grant. Under the amended Director Plan, each non-employee director automatically receives a grant of options to purchase 20,250 shares of Apollo Education Group Class A common stock on September 1 of each year through 2003. In addition, under the amended Director Plan each non-employee director who was on the Board of Directors on the date of the offering of University of Phoenix Online common stock received a grant of stock options to purchase 10,000 shares of University of Phoenix Online common stock on the date of such offering at the initial public offering price of $14.00 per share, which became exercisable six months and one day after the date University of Phoenix Online common stock options were granted. 28 ------ Executive Compensation The following table discloses the annual and long-term compensation earned for services rendered in all capacities by our Chief Executive Officer, the four other most highly compensated executive officers for 2001, and one individual who would have been one of the most highly compensated except that he was not serving as an executive officer as of August 31, 2001: SUMMARY COMPENSATION TABLE Long-Term Compensation
37 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 6 of 12 APOLLO GROUP INC Filing Date: 08/31/01
Awards Annual ------ Compensation ------Securities Other Underlying Annual Restricted Options All Other Compensation Stock ------LTIP Compensation Name and Principal Position Year Salary Bonus (1) Awards APOL UOPX Payouts (3) ------ John G. Sperling 2001 $450,000 $ -- $ 31,280 $ -- 187,500 900,000 $ -- $ -- Chairman of the Board 2000 400,000 -- 73,293 -- 187,500 -- -- 1999 400,000 -- 64,141 -- 187,500 -- -- Todd S. Nelson 2001 $400,010 $262,500 $ -- $ -- 150,000 750,000 $ -- $ -- President and Chief 2000 350,000 262,500 -- -- 150,000 -- -- Executive Officer 1999 350,000 262,500 -- -- 150,000 -- -- Anthony Digiovanni 2001 $295,000 $164,000 $ -- $ -- 15,000 375,000 $ -- $ 3,165 Chief Executive Officer, 2000 272,500 144,500 -- -- 37,500 -- 3,165 University of Phoenix 1999 250,000 126,613 -- -- 75,000 -- 3,073 Online Jerry F. Noble 2001 $250,000 $187,500 $ -- $ -- -- 22,500 $ -- $ 208 Former Senior Vice 2000 250,000 187,500 -- -- 15,000 -- 3,165 President and President of Institute 1999 250,000 161,752 -- -- 75,000 -- 3,072 for Professional Development(2) Kenda B. Gonzales 2001 $244,000 $150,000 $ -- $ -- 15,000 225,000 $ -- $ 3,165 Chief Financial Officer 2000 200,000 142,500 -- -- 37,500 -- 3,165 1999 174,359 90,000 -- -- 63,000 -- -- Laura Palmer Noone 2001 $190,000 $ 67,420 $ -- $ -- 15,000 150,000 $ -- $ 3,165 President, The University 2000 140,939 43,260 -- -- 15,000 -- 3,165 of Phoenix, Inc. 1999 128,400 42,000 -- -- 30,000 -- 3,073 ------ (1) Messrs. Nelson, Digiovanni, and Noble and Ms. Palmer Noone also received certain perquisites, the value of which did not exceed the lesser of $50,000 for each person or 10% of their cash compensation. Dr. John Sperling received perquisites primarily in the form of a company provided car, available for business and personal use, and tax consulting services. (2) Effective January 15, 2001, Mr. Noble resigned as a Director and Senior Vice President of Apollo Group, Inc. and as President of Institute for Professional Development. He was retained by us a consultant until October 31, 2001. (3) Amounts shown consist of contributions made by us to Apollo Group, Inc.'s Savings and Investment Plan paid in 2001, 2000, and 1999. 29 ------ The following tables disclose options granted by us to our Chief Executive Officer, the four other most highly compensated executive officers for 2001, and one individual who would have been one of the most highly compensated except that he was not serving as an executive officer
38 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 7 of 12 APOLLO GROUP INC Filing Date: 08/31/01 Education Group Class B Common Stock 10.10b Amendment to Filed herewith Shareholder Agreement between the Company and each holder of the Company's Apollo Education Class B Common Stock, dated May 25, 2001 10.11 Agreement of Purchase Incorporated by reference to Exhibit 10.11 of and Sale of Assets of the August 31, 1995 Form 10-K Western International University dated June 30, 1995 (without schedules and exhibits) 10.12 Purchase and Sale Incorporated by reference to Exhibit 10.12 of Agreement dated the August 31, 1996 Form 10-K October 10, 1995 10.13 Independent Contractor Filed herewith Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2001 13 Pages 15 through 57 of Filed herewith Apollo Group, Inc. 2001 Annual Report to Shareholders for the year ended August 31, 2001 21 List of Subsidiaries Filed herewith 23 Consent of Independent Filed herewith Accountants 99.1 Form of Agreement of Incorporated by reference to Exhibit 99.1 of Institute for Form S-1 No. 33-83804 Professional Development 99.2 Audit Committee Filed herewith Charter (b) Reports on Form 8-K During the last quarter of the 2001 fiscal year, we filed no reports on Form 8-K. 41 ------ SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Phoenix, State of Arizona, on November 26, 2001. APOLLO GROUP, INC. An Arizona Corporation
52 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 8 of 12 APOLLO GROUP INC Filing Date: 08/31/01 By: /s/ TODD S. NELSON ------ Todd S. Nelson President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date ------ /s/ JOHN G. SPERLING Chairman of the Board of November 26, 2001 ------Directors John G. Sperling /s/ TODD S. NELSON President, Chief Executive November 26, 2001 ------Officer, and Director (Principal Todd S. Nelson Executive Officer) /s/ PETER V. SPERLING Senior Vice President, November 26, 2001 ------Secretary, Treasurer, and Peter V. Sperling Director /s/ KENDA B. GONZALES Chief Financial Officer November 26, 2001 ------(Principal Financial Officer) Kenda B. Gonzales /s/ DANIEL E. BACHUS Chief Accounting Officer and November 26, 2001 ------Controller Daniel E. Bachus /s/ DINO J. DECONCINI Director November 26, 2001 ------ Dino J. DeConcini /s/ J. JORGE KLOR DE Director November 26, 2001 ALVA ------ J. Jorge Klor de Alva /s/ THOMAS C. WEIR Director November 26, 2001 ------ Thomas C. Weir /s/ JOHN R. NORTON Director November 26, 2001 III ------ John R. Norton III
53 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 9 of 12 APOLLO GROUP INC Filing Date: 08/31/01 42 ------ Signature Title Date ------ /s/ HEDY F. GOVENAR Director November 26, 2001 ------ Hedy F. Govenar /s/ JOHN BLAIR Director November 26, 2001 ------ John Blair 43 ------ EXHIBIT INDEX Exhibit Number Description of Exhibit Sequentially Numbered Page or Method of Filing ------ 2.1 Asset Purchase Incorporated by reference to Exhibit 10.1 of Agreement by and among our Registration Statement No. 333-35465 on National Endowment for Form S-3 filed September 11, 1997 Financial Education, (r) College for Financial Planning, Inc., as assignee of Apollo Online, Inc., as Buyer, and Apollo Group, Inc. dated August 21, 1997 2.2 Assignment and Incorporated by reference to Exhibit 10.2 of Amendment of Asset our Registration Statement No. 333-35465 on Purchase Agreement by Form S-3 filed September 11, 1997 and among National Endowment for Financial Education, Inc. the College for Financial Planning, Inc., Apollo Online, Inc., and Apollo Group, Inc., dated September 23, 1997 3.1 Amended Articles of Incorporated by reference to Exhibit 3.1 of Incorporation of the our Registration Statement No. 333-33370 on Company Form S-3, dated August 31, 2000 3.2 Amended Bylaws of the Incorporated by reference to Exhibit 3.2 of Company (As Amended the August 31, 1996 Form 10-K Through June 1996) 10.1a Business Loan Incorporated by reference to Exhibit 10.1a of
54 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 10 of 12 APOLLO GROUP INC Filing Date: 08/31/01 Exhibit 13 SELECTED CONSOLIDATED FINANCIAL INFORMATION OF APOLLO GROUP, INC. The following selected consolidated financial and operating data of Apollo Group, Inc. are qualified by reference to and should be read in conjunction with the consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Apollo Group, Inc." The statement of operations data for the years ended August 31, 2001, 2000, and 1999 and the balance sheet data as of August 31, 2001 and 2000 are derived from the audited consolidated financial statements of Apollo Group, Inc. Diluted net income per share and diluted weighted average shares outstanding have been retroactively restated for stock splits. YEAR ENDED AUGUST 31, 2001 2000 1999 1998 1997 ------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: REVENUES: Tuition and other, net $769,474 $609,997 $498,846 $384,877 $279,195 ------ COSTS AND EXPENSES: Instructional costs and services 410,084 352,874 287,582 223,525 161,996 Selling and promotional 150,311 96,491 79,143 57,458 42,097 General and administrative 48,076 46,555 39,368 33,708 24,295 ------ 608,471 495,920 406,093 314,691 228,388 ------ INCOME FROM OPERATIONS 161,003 114,077 92,753 70,186 50,807 Interest income, net 14,106 6,228 5,229 6,086 4,174 ------ INCOME BEFORE INCOME TAXES 175,109 120,305 97,982 76,272 54,981 Provision for income taxes 67,292 49,114 38,977 29,975 21,602 ------ NET INCOME $107,817 $ 71,191 $ 59,005 $ 46,297 $ 33,379 ====== NET INCOME ATTRIBUTED TO: APOLLO EDUCATION GROUP COMMON STOCK $104,513 $ 71,191 $ 59,005 $ 46,297 $ 33,379 ====== UNIVERSITY OF PHOENIX ONLINE COMMON STOCK $ 3,304 $- $- $- $- ====== EARNINGS PER SHARE ATTRIBUTED TO: APOLLO EDUCATION GROUP COMMON STOCK: DILUTED NET INCOME PER SHARE $ 0.90 $ 0.62 $ 0.50 $ 0.39 $ 0.29 ====== DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 115,999 114,964 118,257 118,630 115,538 ====== UNIVERSITY OF PHOENIX ONLINE COMMON STOCK: DILUTED NET INCOME PER SHARE $ 0.32 ====== DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 10,242 ====== AUGUST 31, 2001 2000 1999 1998 1997 ------
67 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 11 of 12 APOLLO GROUP INC Filing Date: 08/31/01 the respective periods. Diluted earnings per share was calculated similarly, except that it included the dilutive effect of the assumed exercise of options with respect to University of Phoenix Online common stock. NOTE 9. EMPLOYEE AND DIRECTOR BENEFIT PLANS The Company provides various health, welfare, and disability benefits to its full-time, salaried employees which are funded primarily by Company contributions. The Company does not provide post-employment or post-retirement health care and life insurance benefits to its employees. 401(k) Plan The Company sponsors a 401(k) plan which is available to all employees who have completed one year and at least 1,000 hours of continuous service. The Company matches 100% of the contributions from the first $10,000 of a participant's annual pre-tax earnings. Contributions from the participant's earnings in excess of $10,000 are matched by the Company at 18.5%. Participant contributions are subject to certain restrictions as set forth in the Internal Revenue Code. The Company's matching contributions totaled $2.6 million, $2.3 million, and $2.2 million for 2001, 2000, and 1999, respectively. Stock-Based Compensation Plans The Company has four stock-based compensation plans: the Apollo Group, Inc., Amended and Restated Director Stock Plan ("Director Stock Plan"), the Apollo Group, Inc., Long-Term Incentive Plan ("LTIP"), the Apollo Group, Inc., 2000 Incentive Plan ("2000 Incentive Plan"), and the Apollo Group, Inc., Amended and Restated 1994 Employee Stock Purchase Plan ("Purchase Plan"). The Director Stock Plan currently provides for an annual grant to the Company's non-employee directors of options to purchase shares of the Company's Apollo Education Group Class A common stock on September 1 of each year through 2003. In addition, each non-employee director who was on the Board of Directors on the date of the public offering of University of Phoenix Online common stock received a grant of stock options to purchase 10,000 shares of University of Phoenix Online common stock on the date of such offering at the initial public offering price of $14.00 per share. These options have vested as of August 31, 2001. Under the LTIP, the Company may grant options, incentive stock options, stock appreciation rights, and other stock-based awards in the Company's Apollo Education Group Class A common stock to certain officers, key employees, or directors of the Company. Many of the options granted under the LTIP vest 25% per year starting at the end of 2002. The vesting may be accelerated for individual employees if the stock price reaches defined goals for at least three trading days, and if certain profit goals, defined for groups of individuals, are also achieved. Under the 2000 Incentive Plan, the Company may grant options, incentive stock options, stock appreciation rights, and other stock-based awards in the Company's Apollo Education Group Class A and University of Phoenix Online common stock to certain officers, key employees, or directors of the Company. Many of the options granted under the 2000 Incentive Plan vest over a four year period. The vesting may be accelerated for individual employees if certain operational goals are met. The Purchase Plan allows employees of the Company to purchase shares of the Company's Apollo Education Group Class A common stock and University of Phoenix Online common stock at quarterly intervals through periodic payroll deductions. The purchase price per share, in general, is 85% of the lower of 1) the fair market value (as defined in the Purchase Plan) on the enrollment date into the respective quarterly offering period or 2) the fair market value on the purchase date. The Company applies APB No. 25 and related interpretations in accounting for its stock-based compensation, and has adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation cost has been recognized for these plans. Had compensation cost for the plans been determined based on the fair value at the grant date consistent with SFAS No. 123, the Company's net income, income per share, and weighted average shares outstanding would have been as follows,
107 Case 2:06-cv-02674-RCB Document 112-3 Filed 04/30/2009 Page 12 of 12 APOLLO GROUP INC Filing Date: 08/31/01 in thousands, except per share amounts: 23
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EXHIBIT 2 Case 2:06-cv-02674-RCB Document 112-4 Filed 04/30/2009 Page 2 of 5 Page 684
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Copyright 2001 Business Wire, Inc. Business Wire
December 18, 2001, Tuesday
DISTRIBUTION: Business Editors
LENGTH: 1831 words
HEADLINE: Apollo Group Inc. Reports Fiscal 2002 First Quarter Results
DATELINE: PHOENIX, Dec. 18, 2001
BODY:
Apollo Group, Inc. today reported financial results for Apollo Education Group (Nasdaq:APOL) and University of Phoenix Online (Nasdaq:UOPX) for the first quarter of fiscal 2002 ended Nov. 30, 2001. Net income attributed to Apollo Education Group for the three months ended Nov. 30, 2001 was $31.7 million, or $.27 per diluted share, compared to $24.4 million, or $.21 per diluted share, reported for the same period last year. Net income attributed to University of Phoenix Online for the three months ended Nov. 30, 2001, was $1.3 million, or $.12 per diluted share, compared to $0.4 million or $.04 per diluted share, reported for the same period last year. Todd S. Nelson, president and CEO, said, "We are pleased with our strong performance during the first quarter of fiscal 2002. During the first quarter, the University of Phoenix opened a new campus in Boise, Idaho and two new learning centers; Cypress Creek in Ft. Lauderdale, Fla. and Executive Towers in Colorado Springs, Colo. "Additionally, the Institute for Professional Development entered into a new contract with Hope International Uni- versity in Fullerton, Calif." Nelson continued, "We are also pleased that the Apollo Group has been added to the Nasdaq-100 Index(R), which was effective at the beginning of trading on Dec. 17, 2001." Total consolidated revenues for Apollo Group Inc. for the three months ended Nov. 30, 2001 rose 28.9% to $228.2 million, compared with$177.1 million in the first quarter of fiscal 2001. The University of Phoenix accounted for 93.1% of the $215.6 million in net tuition revenues from students enrolled in degree programs for the quarter ended Nov. 30, 2001. Total revenues for University of Phoenix Online for the three months ended Nov. 30, 2001 rose 88.8% to $64.3 million, compared with$34.1 million in the first quarter of fiscal 2001. Consolidated net income for Apollo Group Inc. for the three months ended Nov. 30, 2001 increased 32.7% to $33.0 million, compared to$24.8 million for the same period last year. Net income for University of Phoenix Online for the three months ended Nov. 30, 2001 increased 96.3% to $10.9 million, compared to $5.6 million for the same period last year. Consolidated degree enrollments for all of the Apollo Group Inc. institutions at Nov. 30, 2001 increased by 23.7% to 129,200 students compared to 104,400 students at Nov. 30, 2000. Degree enrollments at The University of Phoenix (excluding University of Phoenix Online) were 74,200 students at Nov. 30, 2001 compared to 65,500 students at Nov. 30, 2000 representing a 13.3% increase. Degree enrollments for University of Phoenix Online at Nov. 30, 2001 increased by 81.7% to 33,700 students com- pared to 18,500 students at Nov. 30, 2000. Business Outlook Case 2:06-cv-02674-RCB Document 112-4 Filed 04/30/2009 Page 3 of 5 Page 685 Apollo Group Inc. Reports Fiscal 2002 First Quarter Results Business Wire December 18, 2001, Tuesday
Apollo Group Inc. -- We expect revenue for the quarter ending Feb. 28, 2002 to be between $211 million and $213 million and to be between $963 million and $966 million for fiscal 2002. -- Operating margin is expected to be between 15.0% and 15.5% for the quarter ended Feb. 28, 2002 and to be be- tween 21.0% and 21.5% for fiscal 2002. University of Phoenix Online -- We expect revenue for the quarter ending Feb. 28, 2002 to be between $62 million and $63 million and to be be- tween $291 million and $292 million for fiscal 2002. -- Operating margin is expected to be between 23.0% and 23.5% for the quarter ended Feb. 28, 2002 and to be be- tween 26.5% and 27.0% for fiscal 2002. Diluted earnings per share attributed to Apollo Education Group are expected to be $0.18 for the quarter ending Feb. 28, 2002 and to be $1.10 for fiscal 2002. Diluted earnings per share attributed to University of Phoenix Online are expected to be $0.10 for the quarter ending Feb. 28, 2002 and to be $0.52 for fiscal 2002. Based on the lead flow, we expect degree enrollments at The University of Phoenix (excluding University of Phoe- nix Online) to continue to grow between 12% and 14% over the prior year at the end of the second quarter of fiscal 2002. We expect University of Phoenix Online degree enrollments to continue to grow in excess of 50% over the prior year at the end of the second quarter of fiscal 2002. 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 Corp., 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 60 campuses and 104 learning centers in 37 states, Puerto Rico and Vancouver, British Columbia. Combined degree enrollment was 129,200 students as of Nov. 30, 2001. For more information about Apollo Group Inc. and its subsidiaries, call 800/990-APOL or visit Apollo on the World Wide Web at http://www.apollogrp.edu. This press release includes statements that constitute "forward-looking statements" within the meaning of the Pri- vate 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 re- late, 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, perform- ance 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: -- 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; -- any adverse changes in student enrollment; -- risk factors and cautionary statements made in Apollo Group Inc.'s Annual Report on Form 10-K for the period ended Aug. 31, 2001; 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 us and our man- agement and speak only as of the date made and are not guarantees of future performance. We undertake 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 we make in our reports filed with the Securities and Exchange Commission.
Case 2:06-cv-02674-RCB Document 112-4 Filed 04/30/2009 Page 4 of 5 Page 686 Apollo Group Inc. Reports Fiscal 2002 First Quarter Results Business Wire December 18, 2001, Tuesday
APOLLO GROUP INC. AND SUBSIDIARIES SELECTED FINANCIAL AND OPERATING DATA (Dollars in thousands, except per share amounts)
For the Three Months Ended November 30, 2001 2000 Revenues: Tuition and other, net $ 228,179 $ 177,073 Costs and expenses: Instructional costs and services 116,760 95,235 Selling and promotional 45,419 31,008 General and administrative 14,654 11,986 176,833 138,229 Income from operations 51,346 38,844 Interest income, net 3,043 3,168 Income before income taxes 54,389 42,012 Provision for income taxes 21,430 17,183 Net income $ 32,959 $ 24,829
Net income attributed to: Apollo Education Group Common Stock $ 31,668 $ 24,439 University of Phoenix Online Common Stock $ 1,291 $ 390 Earnings per share attributed to: Apollo Education Group Common Stock: Diluted net income per share $ 0.27 $ 0.21 Diluted weighted average shares outstanding 116,604 115,209 University of Phoenix Online Common Stock Group: Diluted net income per share $ 0.12 $ 0.04 Diluted weighted average shares outstanding 10,936 9,720
At November 30, 2001 2000 OPERATING DATA Students enrolled in degree programs 129,200 104,400 Number of locations: Campuses 60 55 Learning Centers 104 98 164 153
APOLLO GROUP INC. AND SUBSIDIARIES DEGREE ENROLLMENTS
November 31, 2001 2000 University of Phoenix: Campuses established prior to November 1996 92,472 73,447 Campuses established after November 1996 15,370 10,532 Total University of Phoenix 107,842 83,979 Institute for Professional Development 19,678 18,906 Case 2:06-cv-02674-RCB Document 112-4 Filed 04/30/2009 Page 5 of 5 Page 687 Apollo Group Inc. Reports Fiscal 2002 First Quarter Results Business Wire December 18, 2001, Tuesday
Western International University 1,456 1,382 College for Financial Planning 236 156 Total Degree Enrollment 129,212 104,423
UNIVERSITY OF PHOENIX ONLINE SELECTED FINANCIAL DATA (in thousands)
For the Three Months Ended November 30, 2001 2000 Revenues: Tuition and other, net $ 64,340 $ 34,087
Costs and expenses: Instructional costs and services 27,548 15,646
Selling and promotional 15,640 7,602 General and administrative 3,831 2,099
47,019 25,347
Income from operations 17,321 8,740 Interest income, net 850 694 Income before income taxes 18,171 9,434 Provision for income taxes 7,223 3,858 Net income $ 10,948 $ 5,576 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 uncer- tainties that could cause actual results to differ materially from the forward-looking statements. CONTACT: Apollo Group Inc., Phoenix Kenda B. Gonzales, 800/990-APOL E-mail: [email protected] or Janess Pasinski, 800/990-APOL (Investor Relations) E-mail: [email protected] www.apollogrp.edu www.phoenix.edu www.online.phoenix.edu www.ipd.org www.fp.edu www.wintu.edu or Morgen-Walke Associates Inc. Christopher Katis, 415/296-7383 (Media) URL: http://www.businesswire.com
LOAD-DATE: December 19, 2001
Case 2:06-cv-02674-RCB Document 112-5 Filed 04/30/2009 Page 1 of 8
EXHIBIT 3 Case 2:06-cv-02674-RCB Document 112-5 Filed 04/30/2009 Page 2 of 8 APOLLO GROUP INC Filing Date: 11/30/01 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) {(CHECK BOX)} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 2001 OR {(BOX)} TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-25232 APOLLO GROUP, INC. (Exact name of registrant as specified in its charter) ARIZONA 86-0419443 (State or other (I.R.S. Employer jurisdiction of Identification incorporation or No.) organization) 4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040 (Address of principal executive offices, including zip code) (480) 966-5394 (Registrant's telephone number, including area code) 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. {(CHECK BOX)} Yes {(BOX)} No AT JANUARY 7, 2002, THE FOLLOWING SHARES OF STOCK WERE OUTSTANDING: Apollo Education Group Class A common 114,642,000 Shares stock, no par 484,000 Shares Apollo Education Group Class B common 9,647,000 Shares stock, no par University of Phoenix Online common stock, no par
1 Case 2:06-cv-02674-RCB Document 112-5 Filed 04/30/2009 Page 3 of 8 APOLLO GROUP INC Filing Date: 11/30/01 ------ TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures about Market Risk PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES EXHIBIT INDEX EX-10.4 EX-15.1 EX-99 ------ Table of Contents APOLLO GROUP, INC. AND SUBSIDIARIES FORM 10-Q INDEX PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 EXHIBIT INDEX 17 EXHIBIT 10.4 - Amended and Restated Apollo Group, Inc. Savings and Investment Plan
2 Case 2:06-cv-02674-RCB Document 112-5 Filed 04/30/2009 Page 4 of 8 APOLLO GROUP INC Filing Date: 11/30/01 EXHIBIT 15.1 - Letter on Unaudited Interim Financial Information EXHIBIT 99 - University of Phoenix Online Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations ------ Table of Contents PART I - FINANCIAL INFORMATION Item 1 - Financial Statements -- Apollo Group, Inc. APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET November 30, August 31, 2001 2001 ------ (Unaudited) (Dollars in thousands) Assets: Current assets Cash and cash equivalents $ 166,394 $ 145,933 Restricted cash 74,708 57,896 Marketable securities 179,028 170,866 Receivables, net 93,624 92,179 Deferred tax assets, net 8,371 7,822 Other current assets 12,956 12,355 ------ Total current assets 535,081 487,051 Property and equipment, net 100,499 102,624 Marketable securities 37,494 27,239 Cost in excess of fair value of assets purchased, net 37,096 37,096 Deferred tax assets, net 3,587 3,180 Other assets 22,659 23,153 ------ Total assets $ 736,416 $ 680,343 ------ Liabilities and Shareholders' Equity: Current liabilities Current portion of long-term liabilities $ 388 $ 408 Accounts payable 13,633 16,846 Accrued liabilities 32,407 30,524 Income taxes payable 16,432 7,096 Student deposits and current portion of deferred revenue 138,734 127,326 ------ Total current liabilities 201,594 182,200 Deferred tuition revenue, less current portion 1,345 1,409 Long-term liabilities, less current portion 15,226 14,849 ------ Total liabilities 218,165 198,458 ------ Commitments and contingencies Shareholders' equity
3 Case 2:06-cv-02674-RCB Document 112-5 Filed 04/30/2009 Page 5 of 8 APOLLO GROUP INC Filing Date: 11/30/01 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; 114,398,000 and 114,237,000 issued and outstanding at November 30, 2001 and August 31, 2001, respectively 103 103 Apollo Education Group Class B voting common stock, no par value, 3,000,000 shares authorized; 484,000 issued and outstanding at November 30, 2001 and August 31, 2001 1 1 University of Phoenix Online nonvoting common stock, no par value, 400,000,000 shares authorized; 9,531,000 and 9,447,000 issued and outstanding at November 30, 2001 and August 31, 2001, respectively Additional paid-in capital 194,017 185,424 Apollo Education Group Class A treasury stock, at cost, 3,698,000 and 3,859,000 shares at November 30, 2001 and August 31, 2001, respectively (59,531) (60,761) University of Phoenix Online treasury stock, at cost, 260,000 shares at November 30, 2001 (6,460) Retained earnings 389,995 357,036 Accumulated other comprehensive income 126 82 ------ Total shareholders' equity 518,251 481,885 ------ Total liabilities and shareholders' equity $ 736,416 $ 680,343 ------ The accompanying notes are an integral part of these consolidated financial statements. 1 ------ Table of Contents APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS For the Three Months Ended November 30, 2001 2000 ------ (Unaudited) (In thousands, except per share amounts) Revenues: Tuition and other, net $ 228,179 $ 177,073 ------ Costs and expenses: Instructional costs and services 116,760 95,235 Selling and promotional 45,419 31,008 General and administrative 14,654 11,986 ------ 176,833 138,229 ------ Income from operations 51,346 38,844
4 Case 2:06-cv-02674-RCB Document 112-5 Filed 04/30/2009 Page 6 of 8 APOLLO GROUP INC Filing Date: 11/30/01 Interest income, net 3,043 3,168 ------ Income before income taxes 54,389 42,012 Provision for income taxes 21,430 17,183 ------ Net income $ 32,959 $ 24,829 ------ Net income attributed to: Apollo Education Group common stock $ 31,668 $ 24,439 ------ University of Phoenix Online common stock $ 1,291 $ 390 ------ Earnings per share attributed to: Apollo Education Group common stock: Basic net income per share $ 0.28 $ 0.22 ------ Diluted net income per share $ 0.27 $ 0.21 ------ Basic weighted average shares outstanding 114,765 113,634 ------ Diluted weighted average shares outstanding 116,604 115,209 ------ University of Phoenix Online common stock: Basic net income per share $ 0.14 $ 0.05 ------ Diluted net income per share $ 0.12 $ 0.04 ------ Basic weighted average shares outstanding 9,556 8,625 ------ Diluted weighted average shares outstanding 10,936 9,720 ------ The accompanying notes are an integral part of these consolidated financial statements. 2 ------ Table of Contents APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Three Months Ended November 30, 2001 2000 ------ (Unaudited) (In thousands) Net income $ 32,959 $ 24,829 Other comprehensive income, net of income taxes: Currency translation gain 44 90 ------
5 Case 2:06-cv-02674-RCB Document 112-5 Filed 04/30/2009 Page 7 of 8 APOLLO GROUP INC Filing Date: 11/30/01 securities would not be significantly impacted by either a 100 basis point increase or decrease in interest rates due primarily to the short-term nature of the portfolio. We do not hold or issue derivative financial instruments. 14 ------ Table of Contents PART II - OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities and Use of Proceeds Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 10.4 Amended and Restated Apollo Group, Inc. Savings and Investment Plan Exhibit 15.1 Letter on Unaudited Interim Financial Information Exhibit 99 University of Phoenix Online Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended November 30, 2001. 15 ------ Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
22 Case 2:06-cv-02674-RCB Document 112-5 Filed 04/30/2009 Page 8 of 8 APOLLO GROUP INC Filing Date: 11/30/01 APOLLO GROUP, INC. (Registrant) Date: January 14, 2002 By: /s/ Kenda B. Gonzales ------ Kenda B. Gonzales Chief Financial Officer By: /s/ Daniel E. Bachus ------ Daniel E. Bachus Chief Accounting Officer and Controller By: /s/ Todd S. Nelson ------ Todd S. Nelson President and Chief Executive Officer 16 ------ Table of Contents APOLLO GROUP, INC. AND SUBSIDIARIES EXHIBIT INDEX PAGE ------ 10.4 Amended and Restated Apollo Group, Inc. Savings Filed herewith and Investment Plan 15.1 Letter on Unaudited Interim Financial Filed herewith Information 99 University of Phoenix Online Financial Filed herewith Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 17
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EXHIBIT 4 Case 2:06-cv-02674-RCB Document 112-6 Filed 04/30/2009 Page 2 of 6 Page 631
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Copyright 2002 Business Wire, Inc. Business Wire
March 26, 2002, Tuesday
DISTRIBUTION: Business Editors & Education Writers
LENGTH: 2196 words
HEADLINE: Apollo Group Inc. Reports Fiscal 2002 Second Quarter Results
DATELINE: PHOENIX, March 26, 2002
BODY:
Apollo Group Inc. today reported financial results for Apollo Education Group (Nasdaq:APOL) and University of Phoenix Online (Nasdaq:UOPX) for the second quarter of fiscal 2002 ended Feb. 28, 2002. Net income attributed to Apollo Education Group for the three months ended Feb. 28, 2002 was $26.6 million, or $.23 per diluted share, compared to $15.7 million, or $.14 per diluted share, reported for the same period last year. Net income attributed to University of Phoenix Online for the three months ended Feb. 28, 2002, was $1.5 million, or $.14 per diluted share, compared to $0.7 million or $.06 per diluted share, reported for the same period last year. Net income attributed to Apollo Education Group for the six months ended Feb. 28, 2002 was $58.2 million, or $.50 per diluted share, compared to $40.1 million, or $.35 per diluted share, reported for the same period last year. Net income attributed to University of Phoenix Online for the six months ended Feb. 28, 2002, was $2.8 million, or $.26 per diluted share, compared to $1.0 million or $.10 per diluted share, reported for the same period last year. Todd S. Nelson, president and CEO, said, "We are pleased to report this outstanding quarter. Both our on-ground and online results for University of Phoenix exceeded our expectations. During the second quarter, the University of Phoenix opened two new campuses in Atlanta, Ga. and Kansas City, Mo.; and four new learning centers in Maitland, Fla.; Norman, Okla.; Kapolei, Hawaii and Kaneohe, Hawaii. "The Institute for Professional Development opened two learning centers in Rochester, N.Y. and Dublin, Ohio. Western International University opened a new learning center in Scottsdale, Ariz." Total consolidated revenues for Apollo Group Inc. for the three months ended Feb. 28, 2002 rose 36.6% to $222.6 million, compared with$163.0 million in the second quarter of fiscal 2001. The University of Phoenix accounted for 93.7% of the $210.7 million in net tuition revenues from students enrolled in degree programs for the quarter ended Feb. 28, 2002. Total revenues for University of Phoenix Online for the three months ended Feb. 28, 2002 rose 99.7% to $72.2 mil- lion, compared with$36.1 million in the second quarter of fiscal 2001. Total consolidated revenues for Apollo Group Inc. for the six months ended Feb. 28, 2002 rose 32.6% to $450.8 million, compared with$340.1 million for the same period last year. The University of Phoenix accounted for 93.4% of the $426.3 million in net tuition revenues from students enrolled in degree programs for the six months ended Feb. 28, 2002. Total revenues for University of Phoenix Online for the six months ended Feb. 28, 2002 rose 94.4% to $136.5 mil- lion, compared with $70.2 million for the same period last year. Consolidated net income for Apollo Group Inc. for the three months ended Feb. 28, 2002 increased 71.8% to $28.1 million, compared to$16.3 million for the same period last year. Net income for University of Phoenix Online for the Case 2:06-cv-02674-RCB Document 112-6 Filed 04/30/2009 Page 3 of 6 Page 632 Apollo Group Inc. Reports Fiscal 2002 Second Quarter Results Business Wire March 26, 2002, Tuesday
three months ended Feb. 28, 2002 increased 110.5% to $12.7 million, compared to $6.0 million for the same period last year. Consolidated net income for Apollo Group Inc. for the six months ended Feb. 28, 2002 increased 48.3% to $61.1 million, compared to$41.2 million for the same period last year. Net income for University of Phoenix Online for the six months ended Feb. 28, 2002 increased 103.7% to $23.7 million, compared to $11.6 million for the same period last year. Consolidated degree enrollments for all of the Apollo Group Inc. institutions at Feb. 28, 2002 increased by 25.1% to 139,300 students compared to 111,300 students at Feb. 28, 2001. Degree enrollments at The University of Phoenix (excluding University of Phoenix Online) were 78,700 students at Feb. 28, 2002 compared to 69,400 students at Feb. 28, 2001 representing a 13.4% increase. Degree enrollments for University of Phoenix Online at Feb. 28, 2002 increased by 83.8% to 37,600 students com- pared to 20,400 students at Feb. 28, 2001. Business Outlook Apollo Group Inc. -- We expect revenue for the quarter ending May 31, 2002 to be between $264 million and $266 million and to be between $986 million and $988 million for fiscal 2002. -- Operating margin is expected to be between 25.5% and 26.0% for the quarter ended May 31, 2002 and to be be- tween 23.0% and 23.5% for fiscal 2002. University of Phoenix Online -- We expect revenue for the quarter ending May 31, 2002 to be between $84 million and $85 million and to be be- tween $311 million and $312 million for fiscal 2002. -- Operating margin is expected to be between 31.0% and 31.5% for the quarter ended May 31, 2002 and to be be- tween 28.5% and 29.0% for fiscal 2002. Diluted earnings per share attributed to Apollo Education Group are expected to be $0.35 for the quarter ending May 31, 2002 and to be$1.17 fiscal 2002. Diluted earnings per share attributed to University of Phoenix Online are ex- pected to be $0.17 for the quarter ending May 31, 2002 and to be $0.59 for fiscal 2002. Based on the lead flow, we expect degree enrollments at The University of Phoenix (excluding University of Phoe- nix Online) to continue to grow between 12% and 14% over the prior year at the end of the third quarter of fiscal 2002. We expect University of Phoenix Online degree enrollments to continue to grow in excess of 50% over the prior year at the end of the third quarter of fiscal 2002. 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 Corp., 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 62 campuses and 110 learning centers in 37 states, Puerto Rico and Vancouver, British Columbia. Combined degree enrollment was 139,300 students as of Feb. 28, 2002. For more information about Apollo Group Inc. and its subsidiaries, call 800/990-APOL or visit Apollo on the World Wide Web at http://www.apollogrp.edu. This press release includes statements that constitute "forward-looking statements" within the meaning of the Pri- vate 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 re- late, 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, perform- ance or achievements of Apollo Group Inc. to be materially different from those expressed or implied by such forward- Case 2:06-cv-02674-RCB Document 112-6 Filed 04/30/2009 Page 4 of 6 Page 633 Apollo Group Inc. Reports Fiscal 2002 Second Quarter Results Business Wire March 26, 2002, Tuesday
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: -- 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; -- any adverse changes in student enrollment; -- risk factors and cautionary statements made in Apollo Group Inc.'s Annual Report on Form 10-K for the period ended Aug. 31, 2001; 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 us and our man- agement and speak only as of the date made and are not guarantees of future performance. We undertake 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 we make in our reports filed with the Securities and Exchange Commission.
APOLLO GROUP INC. AND SUBSIDIARIES SELECTED FINANCIAL AND OPERATING DATA (Dollars in thousands, except per share amounts)
For the Three For the Six Months Ended Months Ended Feb. 28, Feb. 28, 2002 2001 2002 2001 (Unaudited) Revenues: Tuition and other, net $222,618 $162,980 $450,797 $340,053 Costs and expenses: Instructional costs and services 118,778 94,237 235,538 189,472 Selling and promotional 46,886 32,991 92,305 63,999 General and administrative 13,333 11,723 27,987 23,709 ------178,997 138,951 355,830 277,180 Income from operations 43,621 24,029 94,967 62,873 Interest income, net 2,736 3,661 5,779 6,829 Income before income taxes 46,357 27,690 100,746 69,702 Provision for income taxes 18,264 11,341 39,694 28,524 Net income $ 28,093 $ 16,349 $ 61,052 $ 41,178 Net income attributed to: Apollo Education Group Common Stock $ 26,562 $ 15,695 $ 58,230 $ 40,134 University of Phoenix Online Common Stock $ 1,531 $ 654 $ 2,822 $ 1,044 Earnings per share attributed to: Apollo Education Group Common Stock: Diluted net income per share $ 0.23 $ 0.14 $ 0.50 $ 0.35 Diluted weighted average shares Case 2:06-cv-02674-RCB Document 112-6 Filed 04/30/2009 Page 5 of 6 Page 634 Apollo Group Inc. Reports Fiscal 2002 Second Quarter Results Business Wire March 26, 2002, Tuesday
outstanding 116,950 116,008 116,777 115,608 University of Phoenix Online Common Stock: Diluted net income per share $ 0.14 $ 0.06 $ 0.26 $ 0.10 Diluted weighted average shares outstanding 11,180 10,180 11,058 9,970
At Feb. 28, 2002 2001 OPERATING DATA Students enrolled in degree programs 139,300 111,300 Number of locations: Campuses 62 56 Learning Centers 110 101 ------172 157
APOLLO GROUP INC. AND SUBSIDIARIES DEGREE ENROLLMENTS
Feb. 28, 2002 2001 University of Phoenix: Campuses established prior to February 1997 98,749 78,050 Campuses established after February 1997 17,551 11,828 Total University of Phoenix 116,300 89,878 Institute for Professional Development 20,793 19,669 Western International University 1,718 1,574 College for Financial Planning 439 182 Total Degree Enrollment 139,250 111,303
UNIVERSITY OF PHOENIX ONLINE SELECTED FINANCIAL DATA (in thousands)
For the Three For the Six Months Ended Months Ended Feb. 28, Feb. 28, 2002 2001 2002 2001 (Unaudited) Revenues: Tuition and other, net $ 72,157 $ 36,125 $ 136,497 $ 70,212 Costs and expenses: Instructional costs and services 30,570 15,687 58,118 31,333 Selling and promotional 16,991 8,719 32,631 16,321 General and administrative 4,206 2,574 8,037 4,673 ------51,767 26,980 98,786 52,327 Income from operations 20,390 9,145 37,711 17,885 Interest income, net 711 1,010 1,561 1,704 Income before income taxes 21,101 10,155 39,272 19,589 Provision for income taxes 8,388 4,115 15,611 7,973 Net income $ 12,713 $ 6,040 $ 23,661 $ 11,616 Case 2:06-cv-02674-RCB Document 112-6 Filed 04/30/2009 Page 6 of 6 Page 635 Apollo Group Inc. Reports Fiscal 2002 Second Quarter Results Business Wire March 26, 2002, Tuesday
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 uncer- tainties that could cause actual results to differ materially from the forward-looking statements. CONTACT: Apollo Group Inc. Kenda B. Gonzales, 800/990-APOL E-mail: [email protected] or Janess Pasinski (investor relations), 800/990-APOL E-mail: [email protected] www.apollogrp.edu www.phoenix.edu www.online.phoenix.edu www.ipd.org www.fp.edu www.wintu.edu or Morgen-Walke Associates Inc. Christopher Katis (media), 415/439-4518 URL: http://www.businesswire.com
LOAD-DATE: March 27, 2002
Case 2:06-cv-02674-RCB Document 112-7 Filed 04/30/2009 Page 1 of 8
EXHIBIT 5 Case 2:06-cv-02674-RCB Document 112-7 Filed 04/30/2009 Page 2 of 8 APOLLO GROUP INC Filing Date: 02/28/02 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) {CHECKBOX} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 2002 OR {BOX} TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-25232 APOLLO GROUP, INC. (Exact name of registrant as specified in its charter) ARIZONA 86-0419443 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040 (Address of principal executive offices, including zip code) (480) 966-5394 (Registrant's telephone number, including area code) 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. {CHECKBOX} Yes {BOX} No AT APRIL 9, 2002, THE FOLLOWING SHARES OF STOCK WERE OUTSTANDING: Apollo Education Group Class A common stock, no par value 114,971,000 Shares Apollo Education Group Class B common
1 Case 2:06-cv-02674-RCB Document 112-7 Filed 04/30/2009 Page 3 of 8 APOLLO GROUP INC Filing Date: 02/28/02 stock, no par value 484,000 Shares University of Phoenix Online common stock, no par value 9,859,000 Shares ------ TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1 - Financial Statements -- Apollo Group, Inc. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations of Apollo Group, Inc. Item 3 - Quantitative and Qualitative Disclosures about Market Risk PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES APOLLO GROUP, INC. AND SUBSIDIARIES EXHIBIT INDEX EX-10.1j EX-10.14 EX-15.1 EX-99 ------ Table of Contents APOLLO GROUP, INC. AND SUBSIDIARIES FORM 10-Q INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 20
2 Case 2:06-cv-02674-RCB Document 112-7 Filed 04/30/2009 Page 4 of 8 APOLLO GROUP INC Filing Date: 02/28/02 EXHIBIT INDEX 21 EXHIBIT 10.1j - Eighth Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated January 15, 2002 EXHIBIT 10.14- Promissory Note from Hermes Onetouch, L.L.C. EXHIBIT 15.1 - Letter on Unaudited Interim Financial Information EXHIBIT 99 - University of Phoenix Online Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations ------ Table of Contents PART I - FINANCIAL INFORMATION Item 1 - Financial Statements -- Apollo Group, Inc. APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET February 28, August 31, 2002 2001 ------ (Unaudited) (Dollars in thousands) Assets: Current assets Cash and cash equivalents $ 196,622 $ 145,933 Restricted cash 82,793 57,896 Marketable securities 175,214 170,866 Receivables, net 95,680 92,179 Deferred tax assets, net 9,067 7,822 Other current assets 11,904 12,355 ------ Total current assets 571,280 487,051 Property and equipment, net 101,789 102,624 Marketable securities 47,337 27,239 Cost in excess of fair value of assets purchased, net 37,096 37,096 Deferred tax assets, net 3,886 3,180 Other assets 22,769 23,153 ------ Total assets $ 784,157 $ 680,343 ------ Liabilities and Shareholders' Equity: Current liabilities Current portion of long-term liabilities $ 394 $ 408 Accounts payable 12,812 16,846 Accrued liabilities 37,228 30,524 Income taxes payable 3,409 7,096 Student deposits and current portion of deferred revenue 153,945 127,326 ------ Total current liabilities 207,788 182,200 Deferred tuition revenue, less current portion 1,298 1,409 Long-term liabilities, less current portion 15,637 14,849
3 Case 2:06-cv-02674-RCB Document 112-7 Filed 04/30/2009 Page 5 of 8 APOLLO GROUP INC Filing Date: 02/28/02 ------ Total liabilities 224,723 198,458 ------ 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; 114,725,000 and 114,237,000 issued and outstanding at February 28, 2002 and August 31, 2001, respectively 103 103 Apollo Education Group Class B voting common stock, no par value, 3,000,000 shares authorized; 484,000 issued and outstanding at February 28, 2002 and August 31, 2001 1 1 University of Phoenix Online nonvoting common stock, no par value, 400,000,000 shares authorized; 9,756,000 and 9,447,000 issued and outstanding at February 28, 2002 and August 31, 2001, respectively Additional paid-in capital 196,290 185,424 Apollo Education Group Class A treasury stock, at cost, 3,371,000 and 3,859,000 shares at February 28, 2002 and August 31, 2001, respectively (54,344) (60,761) University of Phoenix Online treasury stock, at cost, 36,000 shares at February 28, 2002 (889) Retained earnings 418,088 357,036 Accumulated other comprehensive income 185 82 ------ Total shareholders' equity 559,434 481,885 ------ Total liabilities and shareholders' equity $ 784,157 $ 680,343 ------ The accompanying notes are an integral part of these consolidated financial statements. 1 ------ Table of Contents APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS For the Three Months Ended For the Six Months Ended February 28, February 28, 2002 2001 2002 2001 ------ (Unaudited) (In thousands, except per share amounts) Revenues:
4 Case 2:06-cv-02674-RCB Document 112-7 Filed 04/30/2009 Page 6 of 8 APOLLO GROUP INC Filing Date: 02/28/02 Tuition and other, net $ 222,618 $ 162,980 $ 450,797 $ 340,053 ------ Costs and expenses: Instructional costs and services 118,778 94,237 235,538 189,472 Selling and promotional 46,886 32,991 92,305 63,999 General and administrative 13,333 11,723 27,987 23,709 ------ 178,997 138,951 355,830 277,180 ------ Income from operations 43,621 24,029 94,967 62,873 Interest income, net 2,736 3,661 5,779 6,829 ------ Income before income taxes 46,357 27,690 100,746 69,702 Provision for income taxes 18,264 11,341 39,694 28,524 ------ Net income $ 28,093 $ 16,349 $ 61,052 $ 41,178 ------ Net income attributed to: Apollo Education Group common stock $ 26,562 $ 15,695 $ 58,230 $ 40,134 ------ University of Phoenix Online common stock $ 1,531 $ 654 $ 2,822 $ 1,044 ------ Earnings per share attributed to: Apollo Education Group common stock: Basic net income per share $ 0.23 $ 0.14 $ 0.51 $ 0.35 ------ Diluted net income per share $ 0.23 $ 0.14 $ 0.50 $ 0.35 ------ Basic weighted average shares outstanding 115,096 114,310 114,931 113,972 ------ Diluted weighted average shares outstanding 116,950 116,008 116,777 115,608 ------ University of Phoenix Online common stock: Basic net income per share $ 0.16 $ 0.08 $ 0.29 $ 0.12 ------ Diluted net income per share $ 0.14 $ 0.06 $ 0.26 $ 0.10 ------ Basic weighted average shares outstanding 9,672 8,664 9,614 8,645 ------ Diluted weighted average shares
5 Case 2:06-cv-02674-RCB Document 112-7 Filed 04/30/2009 Page 7 of 8 APOLLO GROUP INC Filing Date: 02/28/02 Apollo's other incumbent directors (John G. Sperling, Ph.D., Dino J. DeConcini, Thomas Weir, John R. Norton III, Hedy F. Govenar, and J. Jorge Klor de Alva) had terms that continued after the 2002 annual meeting. Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 10.1j Eighth Modification Agreement between Apollo Group, Inc. and Wells Fargo Bank, National Association dated January 15, 2002 Exhibit 10.14 Promissory Note from Hermes Onetouch, L.L.C. Exhibit 15.1 Letter on Unaudited Interim Financial Information Exhibit 99 University of Phoenix Online Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended February 28, 2002. 19 ------ Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APOLLO GROUP, INC. (Registrant) Date: April 12, 2002 By: /s/ Kenda B. Gonzales ------ Kenda B. Gonzales Chief Financial Officer
29 Case 2:06-cv-02674-RCB Document 112-7 Filed 04/30/2009 Page 8 of 8 APOLLO GROUP INC Filing Date: 02/28/02 By: /s/ Daniel E. Bachus ------ Daniel E. Bachus Chief Accounting Officer and Controller By: /s/ Todd S. Nelson ------ Todd S. Nelson President and Chief Executive Officer 20 ------ Table of Contents APOLLO GROUP, INC. AND SUBSIDIARIES EXHIBIT INDEX PAGE 10.1j Eighth Modification Agreement between Apollo Filed herewith Group, Inc. and Wells Fargo Bank, National Association dated January 15, 2002 10.14 Promissory Note from Hermes Onetouch, L.L.C. Filed herewith 15.1 Letter on Unaudited Interim Financial Information Filed herewith 99 University of Phoenix Online Financial Statements Filed herewith and Management's Discussion and Analysis of Financial Condition and Results of Operations 21
30 Case 2:06-cv-02674-RCB Document 112-8 Filed 04/30/2009 Page 1 of 6
EXHIBIT 6 Case 2:06-cv-02674-RCB Document 112-8 Filed 04/30/2009 Page 2 of 6 Page 548
326 of 364 DOCUMENTS
Copyright 2002 Business Wire, Inc. Business Wire
June 25, 2002, Tuesday
DISTRIBUTION: Business Editors
LENGTH: 2148 words
HEADLINE: Apollo Group Inc. Reports Fiscal 2002 Third Quarter Results
DATELINE: PHOENIX, June 25, 2002
BODY:
Apollo Group Inc. today reported financial results for Apollo Education Group (Nasdaq:APOL) and University of Phoenix Online (Nasdaq:UOPX) for the third quarter of fiscal 2002 ended May 31, 2002. Net income attributed to Apollo Education Group for the three months ended May 31, 2002, was $48.4 million, or $.27 per diluted share, compared to $34.2 million, or $.20 per diluted share, reported for the same period last year. Net income attributed to University of Phoenix Online for the three months ended May 31, 2002, was $2.4 million, or $.16 per diluted share, compared to $1.2 million or $.09 per diluted share, reported for the same period last year. Net income attributed to Apollo Education Group for the nine months ended May 31, 2002, was $106.6 million, or $.61 per diluted share, compared to $74.4 million, or $.43 per diluted share, reported for the same period last year. Net income attributed to University of Phoenix Online for the nine months ended May 31, 2002, was $5.3 million, or $.35 per diluted share, compared to $2.2 million or $.16 per diluted share, reported for the same period last year. Todd S. Nelson, president and CEO, said, "We are pleased to report another quarter with strong enrollment and earnings growth. In May, the Apollo Group was moved to the S&P 500 from the S&P MidCap 400. We are honored to be added to this index. During the third quarter, the University of Phoenix entered into the state of Illinois with a new campus in Schaumburg, Ill." Total consolidated revenues for Apollo Group Inc. for the three months ended May 31, 2002 rose 29.0% to $276.3 million, compared with$214.3 million in the third quarter of fiscal 2001. The University of Phoenix accounted for 93.8% of the $261.7 million in net tuition revenues from students enrolled in degree programs for the quarter ended May 31, 2002. Total revenues for University of Phoenix Online for the three months ended May 31, 2002 rose 68.4% to $91.0 mil- lion, compared with$54.1 million in the third quarter of fiscal 2001. Total consolidated revenues for Apollo Group Inc. for the nine months ended May 31, 2002 rose 31.2% to $727.1 million, compared with$554.4 million for the same period last year. The University of Phoenix accounted for 93.5% of the $688.0 million in net tuition revenues from students enrolled in degree programs for the nine months ended May 31, 2002. Total revenues for University of Phoenix Online for the nine months ended May 31, 2002 rose 83.1% to $227.5 million, compared with$124.3 million for the same period last year. Consolidated net income for Apollo Group Inc. for the three months ended May 31, 2002 increased 43.5% to $50.8 million, compared to $35.4 million for the same period last year. Net income for University of Phoenix Online for the three months ended May 31, 2002 increased 84.7% to $19.7 million, compared to $10.6 million for the same period last year. Case 2:06-cv-02674-RCB Document 112-8 Filed 04/30/2009 Page 3 of 6 Page 549 Apollo Group Inc. Reports Fiscal 2002 Third Quarter Results Business Wire June 25, 2002, Tuesday
Consolidated net income for Apollo Group Inc. for the nine months ended May 31, 2002 increased 46.1% to $111.9 million, compared to$76.6 million for the same period last year. Net income for University of Phoenix Online for the nine months ended May 31, 2002 increased 94.6% to $43.3 million, compared to $22.3 million for the same period last year. Consolidated degree enrollments for all of the Apollo Group Inc. institutions at May 31, 2002 increased by 26.8% to 148,100 students compared to 116,800 students at May 31, 2001. Degree enrollments at The University of Phoenix (excluding University of Phoenix Online) were 80,200 students at May 31, 2002 compared to 70,000 students at May 31, 2001 representing a 14.5% increase. Degree enrollments for University of Phoenix Online at May 31, 2002 increased by 76.0% to 45,200 students com- pared to 25,700 students at May 31, 2001. Business Outlook Apollo Group Inc. -- We expect revenue for the quarter ending Aug. 31, 2002 to be between $273 million and $275 million and to be approximately $1 billion for fiscal 2002. -- Operating margin is expected to be between 23.0% and 23.5% for the quarter ended Aug. 31, 2002 and to be be- tween 23.5% and 24.0% for fiscal 2002. University of Phoenix Online -- We expect revenue for the quarter ending Aug. 31, 2002 to be between $92 million and $93 million and to be be- tween $320 million and $321 million for fiscal 2002. -- Operating margin is expected to be between 29.0% and 29.5% for the quarter ended Aug. 31, 2002 and to be be- tween 30.0% and 30.5% for fiscal 2002. Diluted earnings per share attributed to Apollo Education Group are expected to be $0.22 for the quarter ending Aug. 31, 2002 and to be $0.82 for fiscal 2002. Diluted earnings per share attributed to University of Phoenix Online are expected to be $0.13 for the quarter ending Aug. 31, 2002 and to be $0.49 for fiscal 2002. Based on the lead flow, we expect degree enrollments at The University of Phoenix (excluding University of Phoe- nix Online) to continue to grow between 12% and 14% over the prior year at the end of the fourth quarter of fiscal 2002. We expect University of Phoenix Online degree enrollments to continue to grow in excess of 50% over the prior year at the end of the fourth quarter of fiscal 2002. 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 Corp., 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 63 campuses and 109 learning centers in 37 states, Puerto Rico and Vancouver, British Columbia. Combined degree enrollment was 148,100 students as of May 31, 2002. For more information about Apollo Group Inc. and its subsidiaries, call 800/990-APOL or visit Apollo on the World Wide Web at http://www.apollogrp.edu. This press release includes statements that constitute "forward-looking statements" within the meaning of the Pri- vate 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 re- late, 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, perform- ance 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: Case 2:06-cv-02674-RCB Document 112-8 Filed 04/30/2009 Page 4 of 6 Page 550 Apollo Group Inc. Reports Fiscal 2002 Third Quarter Results Business Wire June 25, 2002, Tuesday
-- 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; -- any adverse changes in student enrollment; -- risk factors and cautionary statements made in Apollo Group Inc.'s Annual Report on Form 10-K for the period ended Aug. 31, 2001; 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 us and our man- agement and speak only as of the date made and are not guarantees of future performance. We undertake no obligation to publicly update or revise any forward-looking statements, or any facts, events or cir- cumstances after the date hereof that may bear upon forward-looking statements. You are advised, however, to consult any further disclosures we make in our reports filed with the Securities and Exchange Commission.
Apollo Group Inc. and Subsidiaries Selected Financial and Operating Data (Dollars in thousands, except per share amounts)
For the Three For the Nine Months Ended Months Ended May 31, May 31, 2002 2001 2002 2001 (Unaudited) Revenues: Tuition and other, net $ 276,349 $ 214,305 $ 727,146 $ 554,358 Costs and expenses: Instructional costs and services 129,764 107,871 365,302 297,343 Selling and promotional 50,546 40,127 142,851 104,126 General and administrative 15,260 13,600 43,247 37,309 195,570 161,598 551,400 438,778 Income from operations 80,779 52,707 175,746 115,580 Interest income, net 3,068 3,755 8,847 10,584 Income before income taxes 83,847 56,462 184,593 126,164 Provision for income taxes 33,048 21,074 72,742 49,598 Net income $ 50,799 $ 35,388 $ 111,851 $ 76,566 Net income attributed to: Apollo Education Group common stock $ 48,369 $ 34,224 $ 106,599 $ 74,358 University of Phoenix Online common stock $ 2,430 $ 1,164 $ 5,252 $ 2,208 Earnings per share attributed to: Apollo Education Group Common Stock: Diluted net income per share $ 0.27 $ 0.20 $ 0.61 $ 0.43 Diluted weighted average shares outstanding 176,040 174,366 175,462 173,731 University of Phoenix Online Common Stock: Diluted net income per share $ 0.16 $ 0.09 $ 0.35 $ 0.16 Case 2:06-cv-02674-RCB Document 112-8 Filed 04/30/2009 Page 5 of 6 Page 551 Apollo Group Inc. Reports Fiscal 2002 Third Quarter Results Business Wire June 25, 2002, Tuesday
Diluted weighted average shares outstanding 15,291 13,586 14,928 13,391
At May 31, 2002 2001 OPERATING DATA Students enrolled in degree programs 148,111 116,806 Number of locations: Campuses 63 58 Learning Centers 109 102 172 160
Apollo Group Inc. and Subsidiaries Degree Enrollments
May 31, 2002 2001 University of Phoenix: Campuses established prior to May 1997 106,888 83,285 Campuses established after May 1997 18,476 12,402 Total University of Phoenix 125,364 95,687 Institute for Professional Development 20,578 19,515 Western International University 1,668 1,423 College for Financial Planning 501 181 Total Degree Enrollment 148,111 116,806
University of Phoenix Online Selected Financial Data (in thousands)
For the Three For the Nine Months Ended Months Ended May 31, May 31, 2002 2001 2002 2001 (Unaudited) Revenues: Tuition and other, net $ 91,048 $ 54,071 $ 227,545 $ 124,283 Costs and expenses: Instructional costs and services 35,348 20,783 93,466 52,116 Selling and promotional 19,133 13,449 51,764 29,770 General and administrative 4,675 3,200 12,712 7,873 59,156 37,432 157,942 89,759 Income from operations 31,892 16,639 69,603 34,524 Interest income, net 752 1,008 2,313 2,712 Income before income taxes 32,644 17,647 71,916 37,236 Provision for income taxes 12,976 6,999 28,587 14,972 Net income $ 19,668 $ 10,648 $ 43,329 $ 22,264 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 uncer- tainties that could cause actual results to differ materially from the forward-looking statements. CONTACT: Apollo Group Inc. Kenda B. Gonzales, 800/990-APOL E-mail: [email protected] Case 2:06-cv-02674-RCB Document 112-8 Filed 04/30/2009 Page 6 of 6 Page 552 Apollo Group Inc. Reports Fiscal 2002 Third Quarter Results Business Wire June 25, 2002, Tuesday or Janess Pasinski (investor relations), 800/990-APOL E-mail: [email protected] or Ayla Guvenoz (media), 480/557-2952 E-mail: [email protected] www.apollogrp.edu www.phoenix.edu www.online.phoenix.edu www.ipd.org www.fp.edu www.wintu.edu URL: http://www.businesswire.com
LOAD-DATE: June 26, 2002
Case 2:06-cv-02674-RCB Document 112-9 Filed 04/30/2009 Page 1 of 7
EXHIBIT 7 Case 2:06-cv-02674-RCB Document 112-9 Filed 04/30/2009 Page 2 of 7 APOLLO GROUP INC Filing Date: 05/31/02 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) {xbox} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2002 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES {box} EXCHANGE ACT OF 1934 Commission file number: 0-25232 APOLLO GROUP, INC. (Exact name of registrant as specified in its charter) ARIZONA 86-0419443 (State or other jurisdiction (I.R.S. Employer of Identification No.) incorporation or organization) 4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040 (Address of principal executive offices, including zip code) (480) 966-5394 (Registrant's telephone number, including area code) 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. {xbox} Yes {box} No AT JULY 9, 2002, THE FOLLOWING SHARES OF STOCK WERE OUTSTANDING: Apollo Education Group Class A 173,020,000 Shares common stock, no par value
1 Case 2:06-cv-02674-RCB Document 112-9 Filed 04/30/2009 Page 3 of 7 APOLLO GROUP INC Filing Date: 05/31/02 Apollo Education Group Class B 484,000 Shares common stock, no par value University of Phoenix Online common 14,099,000 Shares stock, no par value ------ TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1 - Financial Statements -- Apollo Group, Inc. PART I - FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations of Apollo Group, Inc. Item 3 - Quantitative and Qualitative Disclosures about Market Risk PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES EX-15.1 Exhibit 99 ------ Table of Contents APOLLO GROUP, INC. AND SUBSIDIARIES FORM 10-Q INDEX PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 20 EXHIBIT INDEX 21
2 Case 2:06-cv-02674-RCB Document 112-9 Filed 04/30/2009 Page 4 of 7 APOLLO GROUP INC Filing Date: 05/31/02 EXHIBIT 15.1- Letter on Unaudited Interim Financial Information EXHIBIT 99 - University of Phoenix Online Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations ------ Table of Contents PART I - FINANCIAL INFORMATION Item 1 - Financial Statements -- Apollo Group, Inc. APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET May 31, August 31, 2002 2001 ------ (Unaudited) (Dollars in thousands) Assets: Current assets Cash and cash equivalents $ 238,655 $ 145,933 Restricted cash 88,755 57,896 Marketable securities 207,238 170,866 Receivables, net 94,543 92,179 Deferred tax assets, net 10,863 7,822 Other current assets 12,630 12,355 ------ Total current assets 652,684 487,051 Property and equipment, net 104,383 102,624 Marketable securities 64,197 27,239 Cost in excess of fair value of assets purchased, net 37,096 37,096 Deferred tax assets, net 4,655 3,180 Other assets 23,310 23,153 ------ Total assets $ 886,325 $ 680,343 ------ Liabilities and Shareholders' Equity: Current liabilities Current portion of long-term liabilities $ 3,003 $ 408 Accounts payable 15,401 16,846 Accrued liabilities 37,470 30,524 Income taxes payable 14,168 7,096 Student deposits and current portion of deferred revenue 164,777 127,326 ------ Total current liabilities 234,819 182,200 Deferred tuition revenue, less current portion 1,157 1,409 Long-term liabilities, less current portion 20,216 14,849
3 Case 2:06-cv-02674-RCB Document 112-9 Filed 04/30/2009 Page 5 of 7 APOLLO GROUP INC Filing Date: 05/31/02
------ Total liabilities 256,192 198,458 ------ 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; 172,843,000 and 171,597,000 issued and outstanding at May 31, 2002 and August 31, 2001, respectively 103 103 Apollo Education Group Class B voting common stock, no par value, 3,000,000 shares authorized; 484,000 issued and outstanding at May 31, 2002 and August 31, 2001 1 1 University of Phoenix Online nonvoting common stock, no par value, 400,000,000 shares authorized; 13,550,000 and 12,596,000 issued and outstanding at May 31, 2002 and August 31, 2001, respectively Additional paid-in capital 210,037 185,424 Apollo Education Group Class A treasury stock, at cost, 4,540,000 and 5,789,000 shares at May 31, 2002 and August 31, 2001, respectively (48,878) (60,761) University of Phoenix Online treasury stock, at cost, 3,000 shares at May 31, 2002 (50) Retained earnings 468,887 357,036 Accumulated other comprehensive income 33 82 ------ Total shareholders' equity 630,133 481,885 ------ Total liabilities and shareholders' equity $ 886,325 $ 680,343 ------ The accompanying notes are an integral part of these consolidated financial statements. 1 ------ Table of Contents APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS For the Three Months Ended For the Nine Months Ended May 31, May 31, 2002 2001 2002 2001 ------ (Unaudited) (In thousands, except per share amounts) Revenues: Tuition and other, net $ 276,349 $ 214,305 $ 727,146 $ 554,358 ------ Costs and expenses: Instructional costs and services 129,764 107,871 365,302 297,343 Selling and promotional 50,546 40,127 142,851 104,126 General and administrative 15,260 13,600 43,247 37,309
4 Case 2:06-cv-02674-RCB Document 112-9 Filed 04/30/2009 Page 6 of 7 APOLLO GROUP INC Filing Date: 05/31/02
------ 195,570 161,598 551,400 438,778 ------ Income from operations 80,779 52,707 175,746 115,580 Interest income, net 3,068 3,755 8,847 10,584 ------ Income before income taxes 83,847 56,462 184,593 126,164 Provision for income taxes 33,048 21,074 72,742 49,598 ------ Net income $ 50,799 $ 35,388 $ 111,851 $ 76,566 ------ Net income attributed to: Apollo Education Group common stock $ 48,369 $ 34,224 $ 106,599 $ 74,358 ------ University of Phoenix Online common stock $ 2,430 $ 1,164 $ 5,252 $ 2,208 ------ Earnings per share attributed to: Apollo Education Group common stock: Basic net income per share $ 0.28 $ 0.20 $ 0.62 $ 0.43 ------ Diluted net income per share $ 0.27 $ 0.20 $ 0.61 $ 0.43 ------ Basic weighted average shares outstanding 173,112 171,758 172,635 171,224 ------ Diluted weighted average shares outstanding 176,040 174,366 175,462 173,731 ------ University of Phoenix Online common stock: Basic net income per share $ 0.18 $ 0.10 $ 0.40 $ 0.19 ------ Diluted net income per share $ 0.16 $ 0.09 $ 0.35 $ 0.16 ------ Basic weighted average shares outstanding 13,283 11,664 12,974 11,572 ------ Diluted weighted average shares outstanding 15,291 13,586 14,928 13,391 ------ The accompanying notes are an integral part of these consolidated financial statements. 2 ------ Table of Contents APOLLO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Three Months Ended For the Nine Months Ended May 31, May 31, 2002 2001 2002 2001 ------ (Unaudited) (In thousands) Net income $ 50,799 $ 35,388 $ 111,851 $ 76,566
5 Case 2:06-cv-02674-RCB Document 112-9 Filed 04/30/2009 Page 7 of 7 APOLLO GROUP INC Filing Date: 05/31/02 Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 15.1 Letter on Unaudited Interim Financial Information Exhibit 99 University of Phoenix Online Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended May 31, 2002. 19 ------ Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APOLLO GROUP, INC. (Registrant) Date: July 11, 2002 By: /s/ Kenda B. Gonzales ------ Kenda B. Gonzales Chief Financial Officer By: /s/ Daniel E. Bachus ------ Daniel E. Bachus Chief Accounting Officer and Controller By: /s/ Todd S. Nelson ------ Todd S. Nelson President and Chief Executive Officer
27 Case 2:06-cv-02674-RCB Document 112-10 Filed 04/30/2009 Page 1 of 6
EXHIBIT 8 Case 2:06-cv-02674-RCB Document 112-10 Filed 04/30/2009 Page 2 of 6 Page 484
313 of 364 DOCUMENTS
Copyright 2002 Business Wire, Inc. Business Wire
October 8, 2002, Tuesday
DISTRIBUTION: Business Editors
LENGTH: 2253 words
HEADLINE: Apollo Group Inc. Reports Fiscal 2002 Fourth Quarter and Year End Results
DATELINE: PHOENIX, Oct. 8, 2002
BODY:
Apollo Group Inc. today reported fiscal 2002 financial results for Apollo Education Group (Nasdaq:APOL) and University of Phoenix Online (Nasdaq:UOPX) for the fourth quarter and year ended Aug. 31, 2002. Net income attributed to Apollo Education Group for the year ended Aug. 31, 2002 was $153.2 million, or $.87 per diluted share, compared to $104.5 million, or $.60 per diluted share, reported for the same period last year. Net income attributed to University of Phoenix Online for the year ended Aug. 31, 2002 was $8.0 million, or $.53 per diluted share, compared to $3.3 million or $.24 per diluted share, reported for the same period last year. Net income attributed to Apollo Education Group for the three months ended Aug. 31, 2002 was $46.6 million, or $.26 per diluted share, compared to $30.2 million, or $.17 per diluted share, reported for the same period last year. Net income attributed to University of Phoenix Online for the three months ended Aug. 31, 2002, was $2.7 million, or $.18 per diluted share, compared to $1.1 million or $.08 per diluted share, reported for the same period last year. Todd S. Nelson, president and CEO, said, "We are pleased to report another strong quarter in both enrollment and earnings. During the fourth quarter we opened campuses in two new states: Tennessee and Virginia. These additions bring our total on-campus locations for University of Phoenix to 40." Total consolidated revenues for Apollo Group Inc. for the year ended Aug. 31, 2002 rose 31.2% to $1.0 billion, compared with $769.5 million for the same period last year. The University of Phoenix accounted for 93.7% of the $951.9 million in net tuition revenues from students enrolled in degree programs for the year ended Aug. 31, 2002. To- tal revenues for University of Phoenix Online for the year ended Aug. 31, 2002 rose 81.4% to $327.5 million, compared with $180.5 million for the same period last year. Total consolidated revenues for Apollo Group Inc. for the three months ended Aug. 31, 2002 rose 31.2% to $282.3 million, compared with$215.1 million in the fourth quarter of fiscal 2001. The University of Phoenix accounted for 94.1% of the $263.9 million in net tuition revenues from students enrolled in degree programs for the quarter ended Aug. 31, 2002. Total revenues for University of Phoenix Online for the three months ended Aug. 31, 2002 rose 77.7% to $99.9 million, compared with $56.2 million in the fourth quarter of fiscal 2001. Consolidated net income for Apollo Group Inc. for the year ended Aug. 31, 2002 increased 49.5% to $161.2 mil- lion, compared to $107.8 million for the same period last year. Net income for University of Phoenix Online for the year ended Aug. 31, 2002 increased 102.7% to$64.4 million, compared to $31.8 million for the same period last year. Consolidated net income for Apollo Group Inc. for the three months ended Aug. 31, 2002 increased 57.8% to $49.3 million, compared to$31.3 million for the same period last year. Net income for University of Phoenix Online for the three months ended Aug. 31, 2002 increased 121.8% to $21.1 million, compared to $9.5 million for the same period last year. Consolidated degree enrollments for all of the Apollo Group Inc. institutions at Aug. 31, 2002 increased by 26.4% to 157,800 students compared to 124,800 students at Aug. 31, 2001. Degree enrollments at The University of Phoenix Case 2:06-cv-02674-RCB Document 112-10 Filed 04/30/2009 Page 3 of 6 Page 485 Apollo Group Inc. Reports Fiscal 2002 Fourth Quarter and Year End Results Business Wire October 8, 2002, Tuesday
(excluding University of Phoenix Online) were 84,300 students at Aug. 31, 2002 compared to 74,200 students at Aug. 31, 2001 representing a 13.6% increase. Degree enrollments for University of Phoenix Online at Aug. 31, 2002 in- creased by 70.2% to 49,400 students compared to 29,000 students at Aug. 31, 2001. Business Outlook Apollo Group Inc. -- We expect revenue for the quarter ending Nov. 30, 2002 to be between $290 million and $292 million and to be between $1.290 billion and $1.295 billion for fiscal 2003. -- Operating margin is expected to be between 23.0% and 23.5% for the quarter ending Nov. 30, 2002 and to be be- tween 25.0% and 25.5% for fiscal 2003. University of Phoenix Online -- We expect revenue for the quarter ending Nov. 30, 2002 to be between $100 million and $101 million and to be between $500 million and $505 million for fiscal 2003. -- Operating margin is expected to be between 27.0% and 27.5% for the quarter ending Nov. 30, 2002 and to be be- tween 31.5% and 32.0% for fiscal 2003. Diluted earnings per share attributed to Apollo Education Group are expected to be $0.23 for the quarter ending Nov. 30, 2002 and to be $1.08 for fiscal 2003. Diluted earnings per share attributed to University of Phoenix Online are expected to be $0.13 for the quarter ending Nov. 30, 2002 and to be $0.76 for fiscal 2003. These diluted earnings per share numbers for the quarter ending Nov. 30, 2002 are consistent with the current First Call consensus estimates. Based on lead flow, we expect degree enrollments at The University of Phoenix (excluding University of Phoenix Online) to continue to grow between 12% and 14% over the prior year at the end of the first quarter of fiscal 2003. We expect University of Phoenix Online degree enrollments to continue to grow in excess of 50% over the prior year at the end of the first quarter of fiscal 2003. 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 Corp., and Western International University Inc. The consolidated enroll- ment in its educational programs makes it the largest private institution of higher education in the United States. It of- fers educational programs and services at 65 campuses and 111 learning centers in 37 states, Puerto Rico and Vancou- ver, British Columbia. Combined degree enrollment was 157,800 students as of Aug. 31, 2002. For more information about Apollo Group Inc. and its subsidiaries, call 800/990-APOL or visit Apollo on the World Wide Web at http://www.apollogrp.edu. This press release includes statements that constitute "forward-looking statements" within the meaning of the Pri- vate 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 charac- terized 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, perform- ance 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: -- 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; -- any adverse changes in student enrollment; Case 2:06-cv-02674-RCB Document 112-10 Filed 04/30/2009 Page 4 of 6 Page 486 Apollo Group Inc. Reports Fiscal 2002 Fourth Quarter and Year End Results Business Wire October 8, 2002, Tuesday
-- risk factors and cautionary statements made in Apollo Group Inc.'s Annual Report on Form 10-K for the period ended Aug. 31, 2001; 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 us and our man- agement and speak only as of the date made and are not guarantees of future performance. We undertake 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 we make in our reports filed with the Securities and Exchange Commission.
APOLLO GROUP INC. AND SUBSIDIARIES SELECTED FINANCIAL AND OPERATING DATA (Dollars in thousands, except per share amounts)
For the Three Months Ended Aug. 31, 2002 2001 Revenues: Tuition and other, net $ 282,309 $ 215,116 Costs and expenses: Instructional costs and services 133,152 112,741 Selling and promotional 56,038 46,185 General and administrative 15,013 10,767 204,203 169,693 Income from operations 78,106 45,423 Interest income, net 3,225 3,522 Income before income taxes 81,331 48,945 Provision for income taxes 32,032 17,694 Net income $ 49,299 $ 31,251 Net income attributed to: Apollo Education Group common stock $ 46,562 $ 30,155 University of Phoenix Online common stock $ 2,737 $ 1,096 Earnings per share attributed to: Apollo Education Group common stock: Diluted net income per share $ 0.26 $ 0.17 Diluted weighted average shares outstanding 176,401 174,810 University of Phoenix Online common stock: Diluted net income per share $ 0.18 $ 0.08 Diluted weighted average shares outstanding 15,608 14,455
For the Year Ended Aug. 31, 2002 2001 Revenues: Tuition and other, net $ 1,009,455 $ 769,474 Costs and expenses: Instructional costs and services 498,454 410,084 Selling and promotional 198,889 150,311 General and administrative 58,260 48,076 755,603 608,471 Income from operations 253,852 161,003 Interest income, net 12,072 14,106 Income before income taxes 265,924 175,109 Case 2:06-cv-02674-RCB Document 112-10 Filed 04/30/2009 Page 5 of 6 Page 487 Apollo Group Inc. Reports Fiscal 2002 Fourth Quarter and Year End Results Business Wire October 8, 2002, Tuesday
Provision for income taxes 104,774 67,292 Net income $ 161,150 $ 107,817 Net income attributed to: Apollo Education Group common stock $ 153,161 $ 104,513 University of Phoenix Online common stock $ 7,989 $ 3,304 Earnings per share attributed to: Apollo Education Group common stock: Diluted net income per share $ 0.87 $ 0.60 Diluted weighted average shares outstanding 175,697 174,001 University of Phoenix Online common stock: Diluted net income per share $ 0.53 $ 0.24 Diluted weighted average shares outstanding 15,098 13,657
At Aug. 31, 2002 2001 OPERATING DATA Students enrolled in degree programs 157,800 124,800 Number of locations: Campuses 65 58 Learning Centers 111 102 176 160
APOLLO GROUP INC. AND SUBSIDIARIES DEGREE ENROLLMENTS
Aug. 31, 2002 2001 University of Phoenix: Campuses established prior to August 1997 112,893 89,202 Campuses established after August 1997 20,767 14,043 Total University of Phoenix 133,660 103,245 Institute for Professional Development 21,724 19,889 Western International University 1,822 1,487 College for Financial Planning 556 196 Total Degree Enrollment 157,762 124,817
UNIVERSITY OF PHOENIX ONLINE SELECTED FINANCIAL DATA (in thousands)
For the Three For the Year Months Ended Ended Aug. 31, Aug. 31, 2002 2001 2002 2001 Revenues: Tuition and other, net $ 99,938 $ 56,244 $ 327,483 $ 180,527 Costs and expenses: Instructional costs and services 38,578 23,211 132,044 75,327 Selling and promotional 21,991 16,176 73,755 45,946 General and administrative 5,220 2,681 17,932 10,554 65,789 42,068 223,731 131,827 Income from operations 34,149 14,176 103,752 48,700 Interest income, net 813 917 3,126 3,629 Case 2:06-cv-02674-RCB Document 112-10 Filed 04/30/2009 Page 6 of 6 Page 488 Apollo Group Inc. Reports Fiscal 2002 Fourth Quarter and Year End Results Business Wire October 8, 2002, Tuesday
Income before income taxes 34,962 15,093 106,878 52,329 Provision for income taxes 13,897 5,594 42,484 20,566 Net income $ 21,065 $ 9,499 $ 64,394 $ 31,763 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 uncer- tainties that could cause actual results to differ materially from the forward-looking statements. CONTACT: Apollo Group Inc. Kenda B. Gonzales, 800/990-APOL E-mail: [email protected] or Janess Pasinski (investor relations), 800/990-APOL E-mail: [email protected] or Ayla Guvenoz (press), 480/557-2952 E-mail: [email protected] URL: http://www.businesswire.com
LOAD-DATE: October 9, 2002
Case 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 1 of 14
EXHIBIT 9 Case 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 2 of 14 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K
(Mark One) [] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: August 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to Commission file number : 0-25232
APOLLO GROUP, INC. (Exact name of registrant as specified in its charter)
ARIZONA 86-0419443
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization) 4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040 (Address of principal executive offices, including zip code) Registrant’s telephone number, including area code: (480) 966-5394 Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: Apollo Education Group Class A common stock, no par value University of Phoenix Online common stock, no par value (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 [ ] 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 11, 2002, was approximately $5.3 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 11, 2002, was approximately $426.7 million. The number of shares outstanding for each of the registrant’s classes of common stock, as of November 11, 2002, is as follows:
Apollo Education Group Class A common stock, no par value 173,969,000 Shares
Apollo Education Group Class B common stock, no par value 484,000 Shares
University of Phoenix Online common stock, no par value 14,712,000 Shares
Documents Incorporated By Reference Portions of the registrant's Annual Report to Shareholders for the year ended August 31, 2002 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. 2002 Annual Report is not deemed filed as part of this report.
Case 2:06-cv-02674-RCB DocumentTABLE OF 112-11 CONTENTS Filed 04/30/2009 Page 3 of 14
PART I Item 1 — Business Item 2 — Properties Item 3 — Legal Proceedings Item 4 — Submission of Matters to a Vote of Security Holders PART II Item 5 — Market for Registrant’s Common Equity and Related Stockholder Matters Item 6 — Selected Consolidated Financial Data Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7a — Quantitative and Qualitative Disclosures about Market Risk Item 8 — Financial Statements and Supplementary Data Item 9 — Changes in and Disagreements With Accountants on Accounting and Financial Disclosure PART III Item 10 — Directors and Executive Officers of the Registrant Item 11 — Executive Compensation Item 12 — Security Ownership of Certain Beneficial Owners and Management Item 13 — Certain Relationships and Related Transactions Item 14 — Controls and Procedures PART IV Item 15 — Exhibits, Financial Statement Schedules, and Reports on Form 8-K SIGNATURES EX-10.13.A EX-13 EX-21 EX-23 EX-99.2 EX-99.3 EX-99.4
Table of ContentsCase 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 4 of 14 APOLLO GROUP, INC. AND SUBSIDIARIES FORM 10-K INDEX
PAGE
PART I
Item 1. Business 1
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 18
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters 19
Item 6. Selected Consolidated Financial Data 20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 20
PART III
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and Management 29
Item 13. Certain Relationships and Related Transactions 32
Item 14. Controls and Procedures 33
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 34
SIGNATURES 37
Table of ContentsCase 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 5 of 14 PART I Item 1 — Business Overview This Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Apollo Group, Inc.,” and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations of University of Phoenix Online” which are incorporated by reference from our 2002 Annual Report, contain forward-looking statements regarding future events and future results of Apollo Group that are based on current expectations, estimates, forecasts, and the beliefs and assumptions of us and our management, and speak only as of the date made and are not guarantees of future performance. Words such as “believes,” “expects,” “anticipates,” “estimates,” “targets,” “goals,” “projects,” “intends,” “plans,” and other similar statements of expectations identify forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Future events and actual results could differ materially from those set forth in the forward-looking statements as a result of many factors. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-K, including those set forth in Item 1 under the sections titled “Regulatory Environment,” “Accreditation,” “Federal Financial Aid Programs,” and “State Authorization,” and those factors set forth in other reports that we file with the Securities and Exchange Commission. We undertake 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. 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 65 campuses and 111 learning centers in 37 states, Puerto Rico, and Vancouver, British Columbia. Our combined degree enrollment increased to approximately 157,800 at August 31, 2002 from approximately 71,400 at August 31, 1998. University of Phoenix had degree enrollments of approximately 133,700 adult students at August 31, 2002, 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 40 physical campuses and 80 learning centers in Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, 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 22 campuses and 28 learning centers in 23 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 21,700 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 1,800 students in Phoenix, Chandler, Scottsdale, and Fort Huachuca, Arizona. 1
Table of ContentsCase 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 6 of 14 The following tables disclose options granted by us to our Chief Executive Officer and the four other most highly compensated executive officers for 2002: Option Grants to Purchase Apollo Education Group Class A Common Stock In the Last Fiscal Year
Option Grants in Fiscal Year 2002 Potential Realizable
Value at Assumed
Percent of Annual Rates of
Number of Total Options Stock Price
Securities Granted To Exercise Appreciation for
Underlying Employees Price Per Option Term
Options in Fiscal Share Expiration
Name Granted Year ($/Share) Date 5% 10%
John G. Sperling 225,000 11.23 % $ 23.333 9/21/11 $ 3,301,692 $ 8,367,136
Todd S. Nelson 225,000 11.23% 23.333 9/21/11 3,301,692 8,367,136
Anthony Digiovanni 11,250 0.56 % 23.333 9/21/11 165,085 418,357
Kenda B. Gonzales 37,500 1.87% 23.333 9/21/11 550,282 1,394,523
Laura Palmer Noone 37,500 1.87 % 23.333 9/21/11 550,282 1,394,523
All employees of the Company, including the five most highly compensated executive officers, received an option grant in 2002 for 150 shares of Apollo Education Group Class A common stock. The exercise price per share for this grant is $29.327 and the expiration date is January 12, 2012. The potential realizable value of these shares assumed annual rates of stock price appreciation of 5% for the option term is $2,767 and 10% for the option term is $7,011. Option Grants to Purchase University of Phoenix Online Common Stock In the Last Fiscal Year
Option Grants in Fiscal Year 2002 Potential Realizable
Value at Assumed
Percent of Annual Rates of
Number of Total Options Stock Price
Securities Granted To Exercise Appreciation for
Underlying Employees Price Per Option Term
Options in Fiscal Share Expiration
Name Granted Year ($/Share) Date 5% 10%
John G. Sperling 200,000 22.69 % $ 18.998 9/21/11 $ 2,389,485 $ 6,055,424
Todd S. Nelson 200,000 22.69% 18.998 9/21/11 2,389,485 6,055,424
Anthony Digiovanni 73,333 8.32 % 18.998 9/21/11 876,141 2,220,312
Kenda B. Gonzales 33,333 3.78% 18.998 9/21/11 398,244 1,009,227
Laura Palmer Noone 6,666 0.76 % 18.998 9/21/11 79,642 201,827
Aggregated Option Exercises in Fiscal Year 2002 and Option Values at August 31, 2002 The following tables disclose the number of shares received from the exercise of our options, the value received therefrom, and the number and value of in-the-money and out-of-the-money options held by our Chief Executive Officer and the four other most highly compensated officers for 2002: Apollo Education Group Class A Common Stock
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at Fiscal Year-End Fiscal Year-End
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
John G. Sperling 198,750 $ 5,363,428 989,108 112,650 $ 28,903,059 $ 2,082,754
Todd S. Nelson 187,498 3,119,651 525,001 112,650 14,474,583 2,082,754
Anthony Digiovanni 136,874 3,465,041 74,999 5,776 2,194,470 105,938
Kenda B. Gonzales 192,000 18,900 5,764,329 348,689
Laura Palmer Noone 93,720 39,525 2,814,625 825,729
25
Table of ContentsCase 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 7 of 14 Annual Bonus Program. In addition to a base salary, executive officers were eligible to receive a bonus. Bonus amounts for executive officers are determined annually based on a review of the competitive data described above. We target bonuses at the level required to attract and retain highly qualified executives. Bonus amounts are paid if certain goals are achieved. Options. We believe that it is important for executive officers to have an equity stake in us, and, toward this end, we make option grants to key executive officers from time to time under the Apollo Group, Inc. 2000 Stock Incentive Plan. In making option awards, the Compensation Committee reviews our financial performance during the past fiscal year, the awards granted to other executives, and the individual officer’s specific role. Other Benefits. Executive officers are eligible to participate in benefit programs designed for all of our full-time employees and certain of our executive officers also received certain perquisites, primarily including company cars and company paid tax consulting. These programs include medical, disability and life insurance, and a qualified retirement program allowed under Section 401(k) of the Internal Revenue Code. Chairman of the Board and Chief Executive Officer Compensation. Dr. John G. Sperling is the founder and Chairman of our Board of Directors. In December 1993, we entered into an employment agreement (the “Employment Agreement”) and deferred compensation agreement (the “Deferred Compensation Agreement”) with Dr. Sperling. The Employment Agreement terminated on December 31, 1997. The Employment Agreement has automatically renewed for four additional one-year periods through December 31, 2002, and will automatically renew for additional one-year periods thereafter. The Deferred Compensation Agreement provides that upon Dr. Sperling’s termination of employment with us and until his death, Dr. Sperling shall receive monthly payments equal to one-twelfth of his highest annual base salary paid by us during any one of the three calendar years preceding the calendar year in which Dr. Sperling’s employment is terminated. In addition, upon Dr. Sperling’s death, his designated beneficiary shall be paid an amount equal to three times his highest annual base salary in 36 equal monthly installments with the first installment due on the first day of the month following the month of Dr. Sperling’s death. Dr. Sperling’s base salary is determined annually on the same basis discussed above for the executive officers. During fiscal year 2002, Dr. Sperling received an annual base salary of $450,000. Dr. Sperling’s bonus is tied solely to our earnings per share. At the beginning of each fiscal year, the Compensation Committee establishes an earnings per share goal for us. If that goal is achieved, Dr. Sperling earns a bonus up to seventy-five percent (75%) of his respective annual salary. Because the earnings per share goal for us was exceeded, Dr. Sperling was eligible for a bonus for 2002. Dr. Sperling has elected to forego this bonus in exchange for options in our Apollo Education Group Class A common stock. The amount of options to be granted will be determined at the discretion of the Compensation Committee and will be granted at fair market value and expire ten years after the grant date. The Compensation Committee does not apply a mathematical formula to determine the number of options granted, but will consider Dr. Sperling’s contribution to our performance during fiscal year 2002. Todd S. Nelson is our President and Chief Executive Officer. Mr. Nelson’s base salary and bonus are determined annually on the same basis discussed above for Dr. Sperling except that in addition to a bonus equal to seventy-five (75%) of his annual salary, Mr. Nelson is entitled to an additional amount for every cent we are over our earnings per share goal. During 2002, Mr. Nelson received an annual base salary of $500,000. Because the earnings per share goal for us was exceeded, Mr. Nelson earned a bonus for 2002 of $2,575,000. As a result of Mr. Nelson’s performance during 2002, the Compensation Committee also granted Mr. Nelson options to acquire 225,000 shares of Apollo Education Group Class A common stock and 200,000 shares of University of Phoenix Online common stock, at an exercise price based on the fair market value on the date of grant. These options vest twenty-five (25%) per year for four years, unless future earnings per share goals established by the Compensation Committee are achieved, in which case the vesting schedule for these options will accelerate. Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the Code limits the deductibility of executive compensation paid by publicly held corporations to $1 million for each executive officer named in this report. The $1 million limitation generally does not apply to compensation that is pursuant to a performance-based plan approved by shareholders. The Company’s policy is to comply with the requirements of Section 162(m) and maintain deductibility for all executive compensation, except in circumstances where we conclude on an informed basis that it is in the best interest of the Company and the shareholders to take actions with regard to the payment of executive compensation which do not qualify for tax deductibility. Based on our understanding of the regulations under Section 162(m), we believe that the full amount of compensation for each executive officer named in this report will be deductible. 27
Table of ContentsCase 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 8 of 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Phoenix, State of Arizona, on November 27, 2002.
APOLLO GROUP, INC.
An Arizona Corporation
By: /s/ Todd S. Nelson
Todd S. Nelson
President, Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ John G. Sperling Chairman of the Board of Directors November 27, 2002
John G. Sperling
/s/ Todd S. Nelson President, Chief Executive Officer, and Director November 27, 2002
Todd S. Nelson (Principal Executive Officer)
/s/ Peter V. Sperling Senior Vice President, Secretary, Treasurer, and Director November 27, 2002
Peter V. Sperling
/s/ Kenda B. Gonzales Chief Financial Officer (Principal Financial Officer) November 27, 2002
Kenda B. Gonzales
/s/ Daniel E. Bachus Chief Accounting Officer and Controller November 27, 2002
Daniel E. Bachus
/s/ Dino J. DeConcini Director November 27, 2002
Dino J. DeConcini
37
Table of ContentsCase 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 9 of 14
/s/ J. Jorge Klor de Alva Director November 27, 2002
J. Jorge Klor de Alva
/s/ Thomas C. Weir Director November 27, 2002
Thomas C. Weir
/s/ John R. Norton III Director November 27, 2002
John R. Norton III
/s/ Hedy F. Govenar Director November 27, 2002
Hedy F. Govenar
/s/ John Blair Director November 27, 2002
John Blair
38
Table of ContentsCase 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 10 of 14 CERTIFICATIONS I, Todd S. Nelson, certify that: 1. I have reviewed this annual report on Form 10-K of Apollo Group, Inc. (the “registrant”); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and 6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 27, 2002
/s/ Todd S. Nelson
Todd S. Nelson
President and Chief Executive Officer
39
Table of ContentsCase 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 11 of 14 CERTIFICATIONS — (Continued) I, Kenda B. Gonzales, certify that: 1. I have reviewed this annual report on Form 10-K of Apollo Group, Inc. (the “registrant”); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and 6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 27, 2002
/s/ Kenda B. Gonzales
Kenda B. Gonzales
Chief Financial Officer
40
Case 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 12 of 14 EXHIBIT 13 SELECTED CONSOLIDATED FINANCIAL INFORMATION OF APOLLO GROUP, INC. The following selected consolidated financial and operating data of Apollo Group, Inc. are qualified by reference to and should be read in conjunction with the consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Apollo Group, Inc.” The statement of operations data for the years ended August 31, 2002, 2001, and 2000 and the balance sheet data as of August 31, 2002 and 2001 were derived from the audited consolidated financial statements of Apollo Group, Inc. Diluted net income per share and diluted weighted average shares outstanding have been retroactively restated for stock splits.
Year Ended August 31,
2002 2001 2000 1999 1998
(In thousands, except per share amounts)
Statement of Operations Data: Revenues:
Tuition and other, net $ 1,009,455 $ 769,474 $ 609,997 $ 498,846 $ 384,877
Costs and expenses:
Instructional costs and services 498,454 410,084 352,874 287,582 223,525
Selling and promotional 198,889 150,311 96,491 79,143 57,458
General and administrative 58,260 48,076 46,555 39,368 33,708
755,603 608,471 495,920 406,093 314,691
Income from operations 253,852 161,003 114,077 92,753 70,186
Interest income, net 12,072 14,106 6,228 5,229 6,086
265,924 175,109 120,305 97,982 76,272 Income before income taxes Provision for income taxes 104,774 67,292 49,114 38,977 29,975
Net income $ 161,150 $ 107,817 $ 71,191 $ 59,005 $ 46,297
Net income attributed to:
$ 153,161 $ 104,513 $ 71,191 $ 59,005 $ 46,297 Apollo Education Group common stock
University of Phoenix Online common stock $ 7,989 $ 3,304
Earnings per share attributed to:
Apollo Education Group common stock: $ 0.87 $ 0.60 $ 0.41 $ 0.33 $ 0.26 Diluted net income per share
Diluted weighted average shares outstanding 175,697 174,001 172,447 177,387 177,949
University of Phoenix Online common stock:
$ 0.53 $ 0.24 Diluted net income per share
Diluted weighted average shares outstanding 15,098 13,657
August 31,
2002 2001 2000 1999 1998
(Dollars in thousands)
Balance Sheet Data:
Cash, cash equivalents, and restricted cash $ 395,489 $ 203,829 $ 95,593 $ 77,332 $ 75,039
Marketable securities 293,166 198,105 64,246 39,571 45,467
Total cash, cash equivalents, and marketable securities $ 688,655 $ 401,934 $ 159,839 $ 116,903 $ 120,506
Total assets $ 979,642 $ 680,343 $ 404,790 $ 348,342 $ 305,160
Current liabilities $ 264,314 $ 182,200 $ 131,089 $ 108,787 $ 95,574
Long-term liabilities 16,335 16,258 12,493 8,435 9,778
Shareholders’ equity 698,993 481,885 261,208 231,120 199,808
Total liabilities and shareholders’ equity $ 979,642 $ 680,343 $ 404,790 $ 348,342 $ 305,160
Operating Statistics:
Degree enrollments at end of year 157,800 124,800 100,900 86,800 71,400
Number of locations:
Campuses 65 58 54 49 42
Learning centers 111 102 96 80 71
Total number of locations 176 160 150 129 113
We did not pay any cash dividends on our common stock during any of the periods set forth in the table above. 1
Case 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 13 of 14 Prior to 2000, basic net income per share was computed using the weighted average number of Apollo Education Group Class A and Class B common shares outstanding during the period. Diluted net income per share was computed using the weighted average number of Apollo Education Group Class A and Class B common and common equivalent shares outstanding during the period. Both basic and diluted weighted average shares have been retroactively restated for stock splits effected in the form of stock dividends. The amount of any tax benefit to be credited to additional paid-in capital related to the exercise of options was included when applying the treasury stock method to stock options in the computation of earnings per share. In the first quarter of 2001, the Company began presenting basic and diluted earnings per share for Apollo Education Group common stock and University of Phoenix Online common stock using the two-class method. The two-class method is an earnings allocation formula that determines the earnings per share for Apollo Education Group common stock and University of Phoenix Online common stock according to participation rights in undistributed earnings. Basic earnings per share for Apollo Education Group common stock is calculated by dividing Apollo Education Group earnings (including its retained interest in University of Phoenix Online earnings) by the weighted average number of shares of Apollo Education Group common stock outstanding. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed exercise of options issuable under Apollo Group, Inc. incentive plans, exclusive of options granted with respect to University of Phoenix Online common stock. Basic earnings per share for University of Phoenix Online common stock is calculated by dividing University of Phoenix Online earnings (excluding Apollo Education Group’s retained interest in University of Phoenix Online earnings) by the weighted average number of shares of University of Phoenix Online common stock outstanding. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed exercise of options with respect to University of Phoenix Online common stock. Deferred rental payments and deposits The Company records rent expense using the straight-line method over the term of the lease agreement. Accordingly, deferred rental liabilities are provided for lease agreements that specify scheduled rent increases over the lease term. Rental deposits are provided for lease agreements that specify payments in advance or scheduled rent decreases over the lease term. Selling and promotional costs Selling and promotional costs consist primarily of compensation for enrollment advisors and corporate marketing, advertising costs, production of marketing materials, and other costs related to selling and promotional functions. The Company expenses selling and promotional costs as incurred. Start-up costs Costs related to the start-up of new campuses and learning centers are expensed as incurred. Stock-based compensation At August 31, 2002, the Company has four stock-based employee compensation plans, which are described more fully in Note 10. The Company applies the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for those plans. Stock-based employee compensation expense is not reflected in the Consolidated Statement of Operations as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), to stock-based employee compensation is as follows, in thousands, except per share amounts: 18
Case 2:06-cv-02674-RCB Document 112-11 Filed 04/30/2009 Page 14 of 14
2002
Aug. 31, May 31, Feb. 28, Nov. 30,
2002 2002 2002 2001
(In thousands, except per share amounts)
Revenues: Tuition and other, net $ 282,309 $ 276,349 $ 222,618 $ 228,179
Costs and expenses: Instructional costs and services(1) 133,152 129,764 118,778 116,760
Selling and promotional 56,038 50,546 46,886 45,419
General and administrative 15,013 15,260 13,333 14,654
204,203 195,570 178,997 176,833
Income from operations 78,106 80,779 43,621 51,346
Interest income, net 3,225 3,068 2,736 3,043
Income before income taxes 81,331 83,847 46,357 54,389
Provision for income taxes 32,032 33,048 18,264 21,430
Net income $ 49,299 $ 50,799 $ 28,093 $ 32,959
Net income attributed to:
$ 46,562 $ 48,369 $ 26,562 $ 31,668 Apollo Education Group common stock
University of Phoenix Online common stock $ 2,737 $ 2,430 $ 1,531 $ 1,291
Earnings per share attributed to:
Apollo Education Group common stock: $ 0.26 $ 0.27 $ 0.15 $ 0.18 Diluted net income per share
Diluted weighted average shares outstanding 176,401 176,040 175,425 174,922
University of Phoenix Online common stock:
$ 0.18 $ 0.16 $ 0.10 $ 0.09 Diluted net income per share
Diluted weighted average shares outstanding 15,608 15,291 14,909 14,583
[Additional columns below] [Continued from above table, first column(s) repeated]
2001
Aug. 31, May 31, Feb. 28, Nov. 30,
2001 2001 2001 2000
(In thousands, except per share amounts)
Revenues: Tuition and other, net $ 215,116 $ 214,305 $ 162,980 $ 177,073
Costs and expenses: Instructional costs and services(1) 112,741 107,871 94,237 95,235
Selling and promotional 46,185 40,127 32,991 31,008
General and administrative 10,767 13,600 11,723 11,986
169,693 161,598 138,951 138,229
Income from operations 45,423 52,707 24,029 38,844
Interest income, net 3,522 3,755 3,661 3,168
Income before income taxes 48,945 56,462 27,690 42,012
Provision for income taxes 17,694 21,074 11,341 17,183
Net income $ 31,251 $ 35,388 $ 16,349 $ 24,829
Net income attributed to:
$ 30,155 $ 34,224 $ 15,695 $ 24,439 Apollo Education Group common stock
University of Phoenix Online common stock $ 1,096 $ 1,164 $ 654 $ 390
Earnings per share attributed to:
Apollo Education Group common stock: $ 0.17 $ 0.20 $ 0.09 $ 0.14 Diluted net income per share
Diluted weighted average shares outstanding 174,810 174,366 174,013 172,813
University of Phoenix Online common stock:
$ 0.08 $ 0.09 $ 0.05 $ 0.03 Diluted net income per share
Diluted weighted average shares outstanding 14,455 13,586 13,573 13,013
(1) Includes the $1.4 million, $2.7 million, and $1.0 million charges recorded in the November 30, 2000, May 31, 2001, and August 31, 2001 quarters, respectively, related to the OIG’s audit of certain IPD client institutions. 33
Case 2:06-cv-02674-RCB Document 112-12 Filed 04/30/2009 Page 1 of 6
EXHIBIT 10 Case 2:06-cv-02674-RCB Document 112-12 Filed 04/30/2009 Page 2 of 6 Page 456
307 of 364 DOCUMENTS
Copyright 2002 Business Wire, Inc. Business Wire
December 18, 2002, Wednesday
DISTRIBUTION: Business Editors/Education Writers
LENGTH: 1896 words
HEADLINE: Apollo Group, Inc. Reports Fiscal 2003 First Quarter Results
DATELINE: PHOENIX, Dec. 18, 2002
BODY:
Apollo Group, Inc. today reported fiscal 2003 financial results for Apollo Education Group (Nasdaq:APOL) and University of Phoenix Online (Nasdaq:UOPX) for the first quarter ended November 30, 2002. Net income attributed to Apollo Education Group for the three months ended November 30, 2002 was $53.8 mil- lion, or $.30 per diluted share, compared to $31.7 million, or $.18 per diluted share, reported for the same period last year. Net income attributed to University of Phoenix Online for the three months ended November 30, 2002, was $2.9 million, or $.18 per diluted share, compared to $1.3 million or $.09 per diluted share, reported for the same period last year. Todd S. Nelson, President and CEO, said, "We are pleased to see continued growth in enrollments, both on-campus and online. We are also encouraged by the strength of our on-campus and online leads. During the first quarter of fiscal 2003 we opened four new learning centers in the following locations: Orange Park, FL; Renton, WA; Kalamazoo, MI; and Lansing, MI." Total consolidated revenues for Apollo Group, Inc. for the three months ended November 30, 2002 rose 35.4% to $308.9 million, compared with $228.2 million in the first quarter of fiscal 2002. The University of Phoenix accounted for 93.8% of the $291.4 million in net tuition revenues from students enrolled in degree programs for the quarter ended November 30, 2002. Total revenues for University of Phoenix Online for the three months ended November 30, 2002 rose 71.3% to $110.2 million, compared with $64.3 million in the first quarter of fiscal 2002. Consolidated net income for Apollo Group, Inc. for the three months ended November 30, 2002 increased 72.0% to $56.7 million, compared to $33.0 million for the same period last year. Net income for University of Phoenix Online for the three months ended November 30, 2002 increased 100.9% to $22.0 million, compared to $10.9 million for the same period last year. Consolidated degree enrollments for all of the Apollo Group, Inc. institutions at November 30, 2002 increased by 27.5% to 164,700 students compared to 129,200 students at November 30, 2001. Degree enrollments at The University of Phoenix (excluding University of Phoenix Online) were 84,300 students at November 30, 2002 compared to 74,200 students at November 30, 2001 representing a 13.6% increase. Degree enrollments for University of Phoenix Online at November 30, 2002 increased by 69.3% to 57,000 students compared to 33,700 students at November 30, 2001. Business Outlook Apollo Group, Inc. -- We expect revenue for the quarter ending February 28, 2003 to be between $286 million and $288 million and to be between $1.310 billion and $1.315 billion for fiscal 2003. -- Operating margin is expected to be between 20.5% and 21.0% for the quarter ending February 28, 2003 and to be between 26.5% and 27.0% for fiscal 2003. Case 2:06-cv-02674-RCB Document 112-12 Filed 04/30/2009 Page 3 of 6 Page 457 Apollo Group, Inc. Reports Fiscal 2003 First Quarter Results Business Wire December 18, 2002, Wednesday
University of Phoenix Online -- We expect revenue for the quarter ending February 28, 2003 to be between $112 million and $113 million and to be between $510 million and $515 million for fiscal 2003. -- Operating margin is expected to be between 29.0% and 29.5% for the quarter ending February 28, 2003 and to be between 32.5% and 33.0% for fiscal 2003. Diluted earnings per share attributed to Apollo Education Group are expected to be $.20 for the quarter ending Feb- ruary 28, 2003 and to be $1.16 for fiscal 2003. Diluted earnings per share attributed to University of Phoenix Online are expected to be $.17 for the quarter ending February 28, 2003 and to be $.84 for fiscal 2003. Based on lead flow, we expect degree enrollments at The University of Phoenix (excluding University of Phoenix Online) to continue to grow between 12% and 14% over the prior year at the end of the second quarter of fiscal 2003. We expect University of Phoenix Online degree enrollments to continue to grow in excess of 50% over the prior year at the end of the second quarter of fiscal 2003. 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 64 campuses and 116 learning centers in 37 states, Puerto Rico and Vancouver, British Columbia. Combined degree enrollment was 164,700 students as of November 30, 2002. For more information about Apollo Group, Inc. and its subsidiaries, call 800/990-APOL or visit Apollo on the World Wide Web at http://www.apollogrp.edu. This press release includes statements that constitute "forward-looking statements" within the meaning of the Pri- vate 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 charac- terized 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, perform- ance 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: -- 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; -- any adverse changes in student enrollment; -- risk factors and cautionary statements made in Apollo Group, Inc.'s Annual Report on Form 10-K for the period ended August 31, 2002; 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 us and our man- agement and speak only as of the date made and are not guarantees of future performance. We undertake 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 we make in our reports filed with the Securities and Exchange Commission. Case 2:06-cv-02674-RCB Document 112-12 Filed 04/30/2009 Page 4 of 6 Page 458 Apollo Group, Inc. Reports Fiscal 2003 First Quarter Results Business Wire December 18, 2002, Wednesday
-Table to Follow-
APOLLO GROUP, INC. AND SUBSIDIARIES SELECTED FINANCIAL AND OPERATING DATA
(Dollars in thousands, except per share amounts)
For the Three Months Ended November 30, 2002 2001 ------Revenues: Tuition and other, net $308,897 $228,179 ------Costs and expenses: Instructional costs and services 142,103 116,760 Selling and promotional 60,326 45,419 General and administrative 16,147 14,654 ------218,576 176,833 ------Income from operations 90,321 51,346 Interest income, net 3,534 3,043 ------Income before income taxes 93,855 54,389 Provision for income taxes 37,166 21,430 ------Net income $56,689 $32,959 ======Net income attributed to: Apollo Education Group common stock $53,770 $31,668 ======University of Phoenix Online common stock $2,919 $1,291 ======Earnings per share attributed to: Apollo Education Group common stock: Diluted net income per share $0.30 $0.18 ======Diluted weighted average shares outstanding 176,884 174,922 ======University of Phoenix Online common stock: Diluted net income per share $0.18 $0.09 ======Diluted weighted average shares outstanding 15,985 14,583 ======
At November 30, 2002 2001 ------OPERATING DATA Students enrolled in degree programs 164,700 129,200 Number of locations: Campuses 64 60 Case 2:06-cv-02674-RCB Document 112-12 Filed 04/30/2009 Page 5 of 6 Page 459 Apollo Group, Inc. Reports Fiscal 2003 First Quarter Results Business Wire December 18, 2002, Wednesday
Learning Centers 116 104 ------180 164 ======
APOLLO GROUP, INC. AND SUBSIDIARIES DEGREE ENROLLMENTS
November 30, 2002 2001 ------University of Phoenix: Campuses established prior to November 1997 120,520 93,931 Campuses established after November 1997 20,726 13,911 ------Total University of Phoenix 141,246 107,842 ------Institute for Professional Development 21,078 19,678 Western International University 1,777 1,456 College for Financial Planning 598 236 ------Total Degree Enrollment 164,699 129,212 ======
UNIVERSITY OF PHOENIX ONLINE SELECTED FINANCIAL DATA (in thousands)
For the Three Months Ended November 30, 2002 2001 ------Revenues: Tuition and other, net $110,191 $64,340 ------Costs and expenses: Instructional costs and services 42,951 27,548 Selling and promotional 26,225 15,640 General and administrative 5,507 3,831 ------74,683 47,019 ------Income from operations 35,508 17,321 Interest income, net 1,022 850 ------Income before income taxes 36,530 18,171 Provision for income taxes 14,539 7,223 ------Net income $21,991 $10,948 ======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 uncer- tainties that could cause actual results to differ materially from the forward-looking statements. CONTACT: Case 2:06-cv-02674-RCB Document 112-12 Filed 04/30/2009 Page 6 of 6 Page 460 Apollo Group, Inc. Reports Fiscal 2003 First Quarter Results Business Wire December 18, 2002, Wednesday
Ayla Guvenoz, 480/557-2952 Email: [email protected] URL: http://www.businesswire.com
LOAD-DATE: December 19, 2002