Apollo Group's 2Q profit down 24 percent

Apollo Group Inc., a for-profit education provider that runs the University of Phoenix, said Monday its earnings slumped 24 percent in the second quarter as the company released its first official earnings statement in more than a year.

The company's net income dropped to $60.3 million, or 35 cents per share, for the three month period that ended Feb. 28 compared with $79 million, or 45 cents per share, in the same period a year ago. Stripping out stock-based compensation expenses and other items, the company earned 44 cents per share in the quarter.

Revenue rose 7 percent to $609 million from $571 million for the same period in 2006.

The earnings failed to meet analysts' expectations of $81.2 million, or 47 cents per share.

Apollo released its earnings report after the stock market closed. The company's shares fell $2.29, or 4.7 percent, to $46.70 in aftermarket activity, after closing the regular session at $48.99.

Apollo has struggled to inform shareholders about the company's finances following a report last year that questioned whether the company backdated stock option grants to employees.

During the previous two quarters, the company released earnings reports to shareholders based on unaudited numbers that did not take into account stock-based compensation charges or costs related to finalizing its bad debt reserves.

Meanwhile, Apollo replaced its treasurer and chief financial officer while an internal investigation showed former officers may have hidden deficiencies in options accounting. The company has since reconstituted its compensation committee, and in February, Apollo appointed Brian L. Swartz as its new vice president, corporate controller and chief accounting officer.

"From a governance standpoint, Apollo is now a much stronger company," company President Brian Mueller said in a statement. "We have significantly strengthened the governance and internal controls of the company, including the implementation of a new process for granting stock options."

Apollo said Monday it incorrectly reported stock options grants dating back to 1994 and would adjust its previous financial reports to include a cumulative pretax non-cash compensation expense of $52.9 million covering 1994 through 2005. The company also would include an accrual of $42.8 million, as of February 2007, for its best estimate of potential tax liabilities, including interest and penalties.

Apollo said that 57 of 100 total grants from 1994 to September 2006 used incorrect measurement dates. However, an independent review also found no direct evidence that any of the large management grants were selected with the benefit of hindsight.

For the second quarter, Apollo's instructional costs increased $33.8 million, or 13 percent, to $296 million, compared with the year-ago period. The company said the increase was due to higher enrollment numbers and associated increases in employee-related expenses. Selling and promotional expenses increased by $42.7 million, or 34 percent, to $167 million in the second quarter, compared with the same period in 2006.

Apollo is paying the Arizona Cardinals $154.5 million over the next 20 years to put the University of Phoenix name on the team's stadium in Glendale.

The Nasdaq Listing and Hearing Review Council gave Apollo until May 25 to file official reports for the first quarter of 2007, the fourth quarter of 2006, as well as its report for the 2006 fiscal year. The company planned to release those reports late Monday or early Tuesday.

Other adjustments to the company's previous financial reports include:

_An increase in the allowance for doubtful accounts of $38 million, $24 million of which relates to years before fiscal 2006.

_A goodwill impairment charge of $20.2 million related to the company's September 1997 acquisition of the College for Financial Planning.

The adjustments will cut the company's earnings per share by 14 cents for fiscal 2006 and by 1 cent for the first quarter of 2007, the company said.

Apollo offers educational programs and services at 100 campuses and 162 learning centers in 39 states, Puerto Rico, Washington, D.C., Canada, the Netherlands and Mexico. In addition to the University of Phoenix, Apollo Group operates the Institute for Professional Development, The College for Financial Planning Institutes Corp. and Western International University Inc.

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On the Net:

Apollo Group Inc.: http://www.apollogrp.edu