Apollo Group (APOL)

 

On March 24, 2000, our Board of Directors authorized the issuance of a new class of stock called UPX Online common stock, to reflect the separate performance of UPX Online, a campus within UPX. On October 3, 2000, an offering of 5,750,000 shares of UPX Online common stock was completed at a price of $14.00 per share.

 

Our Articles of Incorporation (“Articles”) gave us the right, at any time, to convert shares of UPX Online common stock to shares of Apollo Group Class A common stock. On August 6, 2004, our Board of Directors authorized the conversion of each share of UPX Online common stock to shares of Apollo Group Class A common stock effective August 27, 2004. In accordance with the terms of the Articles, each outstanding share of UPX Online common stock was converted into 1.11527 shares of Apollo Group Class A common stock as of August 27, 2004. The conversion resulted in the issuance of approximately 16.6 million new shares of Apollo Group Class A common stock. In addition, each unexercised option to purchase UPX Online common stock as of August 27, 2004, was converted into 1.0766 options to purchase Apollo Group Class A common stock. The conversion ratio was based upon the relative market value of Apollo Group Class A common stock and UPX Online common stock.

 

On March 24, 2000, the Company’s Board of Directors authorized the issuance of a new class of stock called UPX Online common stock, to reflect the separate performance of UPX Online, a campus within UPX. The Company’s other institutions and its retained interest in UPX Online were subsequently referred to as “Apollo Group.” On October 3, 2000, an offering of 5,750,000 shares of UPX Online common stock was completed at a price of $14.00 per share.

 

The Company’s Articles of Incorporation (“Articles”) gave it the right, at any time, to convert shares of UPX Online common stock to shares of Apollo Group Class A common stock. On August 6, 2004, the Company’s Board of Directors authorized the conversion of each share of UPX Online common stock to shares of Apollo Group Class A common stock effective August 27, 2004. In accordance with the terms of the Articles, each outstanding share of UPX Online common stock was converted into 1.11527 shares of Apollo Group Class A common stock as of August 27, 2004. The conversion ratio was based upon the relative market values of Apollo Group Class A common stock and UPX Online common stock averaged over the 20 trading days (July 9, 2004 through August 5, 2004) ending five trading days prior to August 12, 2004, the announcement date, and included a 10% premium on the value of UPX Online common stock, all as required by the terms of the Articles. The conversion resulted in the issuance of approximately 16.6 million new shares of Apollo Group Class A common stock. In addition, each unexercised option to purchase UPX Online common stock as of August 27, 2004, was converted to 1.0766 options to purchase Apollo Group Class A common stock. The conversion ratio was based upon the relative market values of Apollo Group Class A common stock and UPX Online common stock at the close of the market on August 12, 2004, prior to the announcement. As a result of the conversion of UPX Online common stock to Apollo Group Class A common stock, the Company no longer reports separate financial statements for UPX Online.

 

The conversion of UPX Online common stock required the Company to adjust net income attributable to Apollo Group Class A common stock and UPX Online common stock by the premium paid to convert outstanding shares of UPX Online common stock to Apollo Group Class A common stock and to record a share based compensation charge related to the conversion of UPX Online stock options into Apollo Group Class A stock options.

 

As required by SFAS 128, the Company reduced income attributable to Apollo Group Class A common stock in the fourth quarter of 2004 by $114.2 million related to the non-cash 10% premium paid to redeem the UPX Online common stock, as this premium is considered a benefit that constitutes an additional contractual return to UPX Online shareholders. The amount of the reduction to income attributable to Apollo Group Class A common stock was calculated based on the number of UPX Online common stock shares outstanding and converted on August 27, 2004. This non-cash premium is included on the Consolidated Statements of Changes in Shareholders’ Equity and in the reconciliation of income attributable to Apollo Group Class A common stock on the Consolidated Statements of Income as stock dividends paid.

 

As required by Emerging Issues Task Force (“EITF”) Statement No. 00-23 “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44” (“EITF 00-23”), the Company recognized pre-tax share based compensation expenses of $16.9 million, and $100.3 million in 2005 and 2004, respectively, as the options vested.