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APOLLOGROUP,INC.2001ANNUALREPORTinspirationinnovationeducation:01::::::::::::::::::::::::::::ThelargestprivateinstitutionofhigherlearningintheUnitedStates.Inthefieldofhighereducationforworkingadults,ApolloGroupisarecognizedleaderandinnovator.ApolloGroup,Inc.,operatesthroughitssubsidiaries,theUniversityofPhoenix,Inc.,theInstituteforProfessionalDevelopment,theCollegeforFinancialPlanningInstitutesCorporation,andWesternInternationalUniversity,Inc.TheconsolidatedenrollmentinitseducationalprogramsmakesitthelargestprivateinstitutionofhighereducationintheUnitedStates.Itofferseducationalprogramsandservicesat160campusesandlearningcentersin36states;PuertoRico;andVancouver,BritishColumbia.Combineddegreeenrollmentwas124,800studentsasofAugust31,2001.specialnotefromthechairman.ThehorrendousattacksofSeptember11thshockedanddevastatedallofAmericaandmostoftheworld.Tothefamilyandfriendsofthosemostvictimized,weatApolloGroupexpressourdeepestsympathy.NocompanyisimmunetotheimpactthisterrorismhashadandwillcontinuetohaveonUnitedStatessociety.ItisnotyetclearhowApolloGroupwillbeaffectedinthelongrun,butournear-termperformanceindicatesthattheimpactwillprobablybeminimal.Asofthiswriting,ApolloGroup,especiallyUniversityofPhoenixandUniversityofPhoenixOnline,remainthehighereducationleadersinbothclassroomandonlinedelivery.Overtheyears,hundredsofcollegesanduniversitieshavecompetedwithApollobyofferingprogramsthatincorporatevariousaspectsofApollo’sinstructionalsystems.MostrecentlytheyareofferingcoursesanddegreeprogramsusingInternetandWebtechnologiesthataredesignedtocompetedirectlywithUniversityofPhoenixOnline.Becauseallbutahandfuloftheseonlineprogramsarebeingofferedbypublicandnon-profitinstitutions,theycanoperateataloss.Nevertheless,theyhaveyettoposeaseriouscompetitivethreattoUniversityofPhoenixOnline.Oneofthemoreinterestingofthesenon-profitventuresisMIT’s“OpenCourseWare”initiativeinwhichMITwillplaceallofitscoursesontheWebatnocosttotheuser.Intuitively,onewouldthinkthatfreecoursesofferedbyapremierbrandwouldconstitutealethalthreattoUniversityofPhoenixOnline,butthenonehastoask,“Howmanyofthedot-comsthatbuilttheirbusinessplanongivingawaytheirservicearestillinexistence?”ThisisthequestionaskedbyMichaelSchrageofMIT’sMediaLab,and,inanarticleinMIT’sTechnologyReview,heansweredthequestionwithaquestion:Yes,MIT,HarvardandBerkeleyarefabulousbrands.Butthere’severyreasontobelievethatmarket-orientedentitieslikePhoenixhaveeveryeconomicincentivetobeevenmoreinnovativethananMITincraftingcompellingonlinecurriculaandcontent.Adecadehence,whose“courseware”sensibilitieswillbeeducatingmorepeoplefaster,better,andcheaperaroundtheglobe?MIT’s?OrPhoenix’s?Reframethatquestioninanopen-sourcecontext:wouldyouratherbetonLinux(MIT)oronWindows(Phoenix)astomorrow’sdominantoperatingsystem?AtApolloGroup,weintendtoretainandstrengthenourmarketdominanceandourleadershippositioninhighereducationinordertoensurethat,adecadehence,ourcourseware“willbeeducatingmorepeoplefaster,better,andcheaperaroundtheglobe.”JohnG.Sperling,Ph.D.FounderandChairmanApolloGroup,Inc.1Asapredominantlynon-profitindustry,highereducationhasbeenhistoricallyslowtorespondtoAmerica’schangingsocio-economicneeds,mostparticularly,theeducationalneedsofworkingadults.Rapidchangesintechnologyandeconomicorganizationhavemadelife-longlearninganimperative,animperativethatgivesbothemployeesandtheiremployersacompetitiveadvantage.Itisalsoanimperativethatrewardsinstitutionsprovidingeducationthatiscurrent,relevant,efficient,andaccessible.Forthisreason,ApolloGrouphasbecometheleadingproviderofhighereducationtoworkingadults.Successfulresponsetochangerequirescontinuousinnovation,andApolloGroupcompanieshaverespondedtotheneedsoftheirstudentsbycarefullyadoptingnewtechnologiesandshapingthemtothetaskofdeliveringeducationthatworks.AtApolloGroup,innovationandinspirationhavebecometheveryfoundationofourcorporateculture.Asaresult,ApolloGrouphassurvivedandprosperedforoveraquarterofacenturyofoftenwrenchingchange,andwewillcontinuetodosoforcenturiestocome.leadinghighereducationintothe21stcentury.:Chairman’sLetter::::::::::::::::WearepleasedthatourshareholdershaveinvestedinApolloGroup,andwewillworkhardtomakethatinvestmentagoodoneinthecomingyears.Tothatend,ApolloGroupwillcontinuetoexpanditsmarket,improveitsproducts,andextenditsleadershippositioninclassroom-basedandonlineinstruction.Thisyear,allofourcompaniesanddivisionsmetorexceededtheirgoalsforgrowth,performance,andprofitability.Overall,degreeenrollmentsgrew24%from100,900to124,800.Atthesametime,ouroperatingmarginincreasedfrom19%to21%.OurproductsandourmanagementreceivedanenormousvoteofconfidencefrominvestorsthisyearwhentheUniversityofPhoenixOnlinestockoffering(UOPX)becameoneofthebestperformingstockofferingsin2000.Theofferinggeneratedover$80millionincapital,whichenabledUniversityofPhoenixOnlinetostrengthenitsinfrastructure,increasestaff,andrampupmarketingandsales.Theresultwasan81%increaseinenrollments,a76%increaseinrevenue,andan82%increaseinnetincomeatUniversityofPhoenixOnline.Thisperformancewasrewardedwithastoc