APOLLO Group Inc.

1. APOLLO GROUP, INC. APOLLO Group Inc. Prepared By: Group 5E Michelle Brown Chris Oligee Gareth Rahman Mingyang Xu Lin Yuan Prepared For: Professor Keifer Professor Kiger Professor Martel Professor Tucker

2. To: Professor Keifer • Professor Kiger Professor Martel Professor Tucker From: Team 5E Gareth Rahman Michelle Brown Chris Oligee Mingyang Xu Peter Lin Yuan Date: 2/7/2011 Re: Analysis of Apollo Group Analysis of Apollo Group The purpose of this report is to analyze the Apollo Group, a for profit higher education firm based in Phoenix, Arizona. This report was prepared for the faculty of the PM 101 business cluster. This report was authorized by the Ohio University College of Business, under the authority of administrator Gary Coombs and the PM 101 business cluster faculty. This report contains information on the current state of Apollo Group, along with future prospects of the firm. Through the analysis of the information presented, we were able to detect key issues and recommendations we believe will improve the overall wellbeing of the firm. The key issues of Apollo Group were determined through extensive company research and competitive analysis of Apollo Group’s main competitors. Through our research, we determined there are some key recommendations Apollo Group can follow to be more successful in the future. These recommendations include continuing their newly implemented orientation program, create a new job placement program, increase financial services available to students, and increase international investment. The recommendations are financially forecasted on a five year basis using the income statement and balance sheet approaches. We would like to personally thank the PM 101 business cluster faculty for giving us the opportunity to analyze Apollo Group and the for profit higher education industry. This analysis of Apollo Group was developed solely by the members of Team 5E for the PM101 business cluster faculty. Through the analysis, we developed recommendations we feel will help the firm flourish over the next 5 years. If there are any questions with our report, please contact Gareth Rahman at gr110908@ohio.edu. Memo of Transmittal

3. Executive Summary Apollo Group, a for-profit higher education firm, is currently one of the leading education providers in the United States. As a group we analyzed the current condition of Apollo and focused on their key issues. Through these key issues we have developed a set of recommendations. We believe that these recommendations will increase the value of Apollo Group and therefore increase the shareholder wealth. Key issues that we have identified will affect Apollo Groups profitability are governmental regulations that restrict the amount of funding provided for Apollo subsidiaries.   Another key issue that may decrease Apollo’s profitability is  competition within the industry among other schools.  This issue would pertain to certain factors such as cost, quality of education and more.  Accreditation is another main issue.  Apollo needs to remain accredited if they want to continue to be an elite education provider.  Lastly, international investment is  an area where Apollo Group where there is great risk but also substantial reward. After analyzing both the company and the industry, we have developed the following four recommendations to increase the future success of Apollo Group.  First, we feel the company should increase retention rates by  using orientation and job placement programs  that give the students more of an incentive to complete their program. In addition to retention rates, the improvement of student loan repayments must occur through increasing financial services and reduction of tuition. Next, we recommend improving our competitive advantage by increasing brand value and cooperating with other schools to receive greater recognition. Finally, we recommend enhancing global investment as it will help differentiate Apollo in many markets, allowing profits to increase. After implementing our recommendations Apollo Group will be set to provide the higher education industry with more options to increase revenue in the long run. Apollo has the power to expand their organization through these recommendations, which will ultimately increase shareholder wealth. We feel  that our proposed recommendations  can situate Apollo Group as the main player in the higher education. 

4. Table of Contents Introduction........................................................................................................................................................................5 Company Overview Financial Analysis........................................................................................................................................................8 Competitive Benchmark..............................................................................................................................................9 Current Strategy Orientation Program................................................................................................................................................11 Target Marketing......................................................................................................................................................13 Intelligent Expansion................................................................................................................................................14 Key Issues Regulations..............................................................................................................................................................16 Competition............................................................................................................................................................19 Accreditation ........................................................................................................................................................22 International Investment........................................................................................................................................26 Recommendations Increase Retention Rates........................................................................................................................................30 Increase Student Loan Repayments.......................................................................................................................33 Improve Competitive Advantage............................................................................................................................36 International Investment........................................................................................................................................39 Conclusion.........................................................................................................................................................................42 References.........................................................................................................................................................................44 Appendix Pre- Recommendation Forecast..............................................................................................................................46 Post Recommendation Forecast.............................................................................................................................48 SWOT Analysis ........................................................................................................................................................50

5. Introduction Apollo Group (APOL) derived most of its revenues by providing higher education programs for working adults, with the large majority of its students attending its University of Phoenix (UOP) unit. UOP offers its education programs at numerous campuses, as well as online. They consist mostly of programs in business education, information technology, criminal justice and nursing. At November 30, 2010, APOL offered programs and services in 40 states, the District of Columbia, Puerto Rico, Canada, Latin America and Europe. Enrollment at UOP totaled 470,800 at fiscal year 2010. There have been multiple factors that have influenced the industry such as regulation, competition , accreditation and international investment. Our recommendations will contribute to long-term revenue growth of Apollo Group and are geared towards promoting the companies return to shareholders.

6. Introduction This chart was received from the Standard and Poor 500 report.

7. Apollo Group is one of the largest education providers in the world. Offering educational services through their wholly owned subsidiaries. These subsidiaries include University of Phoenix, IPD (Institute of Professional Development), CFFP (College for Financial Planning Institutes Corp., and Meritus. Also, Apollo Group has a joint venture with The Carlyle Group called Apollo Global. Apollo Global was created to invest in international educational services. They own BPP, Western International University, UNIACC, ULA. Company Overview

8. Financial Analysis

9. Competitive Benchmark

10. Apollo Group has been one of leading education providers in the United States in past years.  One of Apollo’s main goals is to become one of the highest quality education organizations.   Apollo Group demonstrates strategic approaches that help them succeed their existing industry. Currently they have implemented strategies such as their new orientation programs, new target markets, maximize education and quality, and international investment.  This section will shed light on the current strategies showing the impact of their nature, while leading us to our key issues the company is facing. CURRENT STRATEGY

11. Apollo Group is focused on the effects of the Gainful Employment Law. Due to the effects of this law, they have implemented this program to help increase retention rates. Orientation Program

12. Orientation Program

13. Target Marketing

14. Intelligent Expansion

15. Apollo Group has been one of the worlds largest higher education providers in recent decades.  Offering distinctive programs and services more convenient to students, differentiating themselves from traditional schools.  Revenues continued to increase over the years and reached $4,925.8 Million in 2010 in light of their many subsidiaries.  In contrast to Apollo Group becoming a more profitable firm, the company faces key issues that may cripple its performance. The upcoming section will provide an overview of the company’s key related issues and will cover regulatory concerns, competition among existing firms, and accreditation.  From this we were able to draw our recommendations from. Key Issues

16. Key Issue i Regulations

17. Gainful Employment Regulation

18. 90/10 Rule Regulation

19. Key Issue ii Competition

20. Competition EDMC Owner of Art Institute brands, Argosy University, Brown Mackie College, and South University. Over 90 campuses located throughout the United States and Canada, along with online programs • Corinthian Colleges • Owner of Everest brand institutes, colleges, and universities. • Owner of WyoTech, training institutes for the automotive, HVAC, diesel, and auto body industries. • Headquarter located in Santa Ana, California. • Over 120 campuses in the United States and Canada • DeVry • Owner of DeVry brands of universities and institutes of technology • Over 90 campuses in the United States and Canada • Programs including Business, Health services, Technology, Media Arts, and Arts and Sciences Information received from Mechant.com

21. Competition vs. Traditional Schools Competition Cost- A major reason for-profit higher education has been successful in the past decade is due to price related issues. Although traditional colleges and universities may be more expensive, it may lead to a better quality of education. Credibility (Value of Degree)- Graduating from a traditional school tends to have more importance rather than a for-profit. Not to say for-profit degree’s are worthless, but they don’t have recognition that public and private universities receive from employers. Quality of Education- Probably the biggest aspect of traditional schools compared to for-profits is the quality of education. State and private schools have eligibility requirements; not just anyone can get a degree. The workload is much different than for-profit universities, whereas there may be more flexibility. However, traditional schools have day to day class that compares to the real world career aspect. More deadlines, requirements and hands on learning activities can create greater learning environment.

22. Key Issue iii Accreditation

23. Accreditation

24. Accreditation

25. Accreditation

26. Key Issue vi International Investment

27. International Investment Opportunity in global education market

28. Risk in global education market International Investment A example of Risk in global investment In early 2010, fears of a sovereign debt crisis, the 2010 Euro Crisis developed concerning some European states, including European Union members Portugal, Ireland, Italy, Greece, Spain, and Belgium. This led to a crisis of confidence as well as the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany.

29. Recommendations

30. Recommendation i Increase Retention Rates

31. Increase Retention Rates As you can see from the chart below, continuing with the orientation program will increase retention rates over the long term. Although, it will cause enrollment to decrease and operating costs to increase in the short term. Implementing this as a mandatory program will overall help retention rates and students in the long term.

32. Increase Retention Rates

33. Recommendation ii Improvement of Student Loan Repayment

34. Loan defaulting is common for students at for-profit colleges. This threatens Apollo Groups federal funding due to the new laws being implemented. We recommend that Apollo Group should increase financial services, to help students plan how they will repay their loans. This should reduce the amount of students defaulting which will allow Apollo to keep federal funding. • Also, reducing tuition will allow loans to be smaller. This will make it more likely that students can repay loans in a timely manner. Increase Student Loan Repayments

35. Increase Student Loan Repayments Two-Year Cohort Default Rates for Cohort Years Ended September 30. “Annual test.  If the 2011 three-year cohort default rate exceeds 40%, the institution will cease to be eligible to participate in Title IV programs.“ (10K p30) “Three consecutive years test.  If the institution’s three-year cohort default rate exceeds 30% (an increase from the current 25% threshold applicable to the two-year cohort default rates) for three consecutive years, beginning with the 2009 cohort, the institution will cease to be eligible to participate in Title IV programs. “ (10K p30)

36. RECOMMANDATION iii Improvement of competitive advantage

37. A sample of tuition of International students compared with U.S citizen • Foreign Students Growth • We strongly suggest Apollo Group expand their education services to International students base on two factors. • The high growth rate of International student enrollment. There were 671,616 international students in the U.S. in 2009. At the end of 2011, the number will reach one million. • The average tuition of international students is approximately triple that of domestic students. This is a good opportunity for Apollo Group to increase it’s net income. • International students enrollment Become the best choice of International Students in For-profit Industry Improve Competitive Advantage (picture from Ohio University）

38. Promote Brand value in the industry • In a long-term view, we advise Apollo Group to focus on it’s brand value ( especially, the reputation of University of Phoenix). As you know, the brand reputation sometimes need numbers of years to cultivate , so our idea is to persuade Apollo Group crossovers with some prestigious universities to increase it’s brand value and popularity. This idea comes from a cooperation between two fashion companies ( HM & JIMMY CHOO) in the cloth manufacturing industry. HM is a fast-fashion corporation in Europe which serves as cheap and simple clothes for the middle class. JIMMY CHOO is a Hi-End luxury clothes and shoes brand which is well-know n in the world. The price of products of JIMMY CHOO is very expensive and the quality as well. This cooperation attracted millions of people who like fashion trends being reported all around the world. This brand strategy significantly helps HM to increase their brand value to their costumers. • Improve brand by cooperate with Ivy League Universities • Specific recommendation: • We know it is hard to establish business relationship between Apollo and Ivy League. Hence, our first try is to invite or hire some prestigious instructors ( retired or not) to lecture open public courses to students of University of Phoenix. We believe this is a great way to advertise education quality of University of Phoenix. Additionally, the program also promote the students satisfaction. Improve Competitive Advantage ×

39. RECOMMANDATION iv Enhance Global Investment & Cooperation

40. Market share of New Oriental in China • Business Process Model • Investment &Target • The net revenues growth of New Oriental International Investment New Oriental Education & Technology Group Inc. is a provider of private educational services in China based on the number of program offerings, total student enrollments and geographic presence. In the fiscal year ended May 31, 2010 (fiscal 2010), the Company had approximately 1,807,000 student enrollments, including approximately 1,038,000 student enrollments in its language training programs and approximately 769,000 student enrollments in its test preparation courses. According to this report, we strongly suggest Apollo Group directly invest funds to New oriental Co. so that Join the director of board. Becoming a shareholder of New Oriental Co. Apollo Group suppose to obtain many benefits which will show on next slide.

41. Three Beneficial from New Oriental Co. investment plan International Investment

42. Conclusion

43. Apollo Group is one of the leading providers in the post secondary higher education industry. Their group includes many wholly owned subsidiaries, including the University of Phoenix (UOP). This is their largest subsidiary with over 470,000 enrolled students, which makes UOP the largest higher education firm in the United States of America. UOP traditionally markets their programs to nontraditional students, while many other higher education firms do not. Apollo Group subsidiaries offer a wide variety of programs that nontraditional students find very useful in their efforts to fulfill their higher education needs. Apollo Group has a set of current strategies they are implementing to gain a competitive advantage over other firms, and provide the greatest wealth for their shareholders. Apollo group has implemented a new orientation program this past year in order to provide students with knowledge on the college experience. They have also changed their target marketing techniques in order to attract students that have the ability to complete their programs. Apollo group has also expanded their company through numerous acquisitions of other firms, including international firms. We have determined some key issues that the Apollo Group is facing currently. One of the most important issues is abiding by the regulations set by the regulatory agencies. This is very important as if Apollo Group fails to meet the regulations, their income may be substantially damaged. Competing with all of their competition is also another key issue that must be addressed. Apollo Group must have all of their subsidiaries be accredited by the appropriate firms, or their income could be seriously damaged. Since Apollo Group has invested in firms internationally, it must be looked at from both positive and negative aspects of the investment. Based on the key issues determined, our team has developed a set of recommendations that will increase the value of Apollo Group, and therefore increasing the value to its shareholders. One of the recommendations would be to increase their retention rates through continuing their orientation program, and develop a job placement program for students. We also recommended that Apollo Group increase their student loan repayment rates by reducing their tuition and offering financial services to their students. We recommend that Apollo Group’s subsidiaries become the best choice for international students to get an education. We also recommend that Apollo invest more directly into international investments such as the New Oriental Education & Technology Group Inc, located throughout China. Conclusion

44. References • (n.d.). Retrieved January 31, 2011, from apollogrp.edu:http://www.apollogrp.edu/Investor/InvestorFAQ.aspx (2011). Retrieved February 1, 2011, from Merchant.com: http://www.mergentonline.com/company financials.php? pagetype=analysis&compnumber=82046&dataareaA=23 (2011). Retrieved January 30, 2011, from Hoovers.com: http://subscriber.hoovers.com/H/company 360/competitiveLandscape.html?companyId=42338000000000&competitorId=5765700000 0000&competitorId=15303000 000000&competitorId=52186000000000 • (2011). Retrieved February 2, 2011, from finance.yahoo.com:http://finance.yahoo.com/ echarts?s=APOL+Interactive#chart8:symbol=apol;range=5d;indicator=volume;charttype= line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined • Apollo Group: Form 10-K. (2010, August 31). Retrieved January 6, 2011, from sec.gov: http:// sec. gov/Archives/edgar/data/ 929887/000095012310094652/p18193e10vk.htm#104 Criteria for Accreditation. (2011). Retrieved February 1, 2011, from ncahlc.org: http://www.ncahlc.org/ information-for-institutions/criteria-for-accreditation.html Obligations of Affiliation. (2011). Retrieved January 31, 2011, from ncahlc.org:http://www.ncahlc.org/ information-for-institutions/obligations-of-affiliation.html Standardandpoors.com. (2011). Retrieved February 3, 2011, from http://www.standardandpoors.com/ home/en/us • Wikipedia. (2011, February 5). European sovereign debt crisis of 2010–present. Retrieved from http://en.wikipedia.org/wiki/European_sovereign_debt_crisis_of_2010%E 2%80%93present • Baugarther, J, & Chambers, J. (2009, June 9). The economic impact of international students around the world. Retrieved from http://globalhighered.wordpress.com/2010/06/09/the-economic-impact-of-international- students-around-the world/?utmsource=feedburner&utmmedium=email&utmcampaign=Feed%3A+Globalhighered+%28Global HigherEd%29 • Chinese Confidential (2011, January 11). New oriental leads in buoyant English tuition market. Retrieved from http://www.ftchinaconfidential.com/Consumer/ConsumerTrends/Features/ConsumerChina/article/2011011 3/5c7d0c46-1d8e-11e0-a809-00144f2af8e8/New-Oriental-leads-in-buoyant-English-tuition-market • Dominion funds (2010, October 8). Chic monthly update october 2010. Retrieved from http://www.dominion- funds.com/en/News/Product/Chic/CHIC-Monthly-Report-October-2010/ • Ohio university athens campus tuition and fees. Retrieved from http://www.ohio.edu/finance/bursar/athenstuition.cfm • Datamonitor. (2010). Apollo Group, Inc. company Profile. London: Datamonitor Plc Charles House.

45. Appendix

46. Income Statement Pre-Recommendation Forecast

47. Balance Sheet Pre-Recommendation Forecast

48. Income Statement Post Recommendation Forecast

49. Balance Sheet Post Recommendation Forecast