Apollo Group, the parent company of the University of Phoenix, said Friday it will restate past financial reports to refl ect additional charges related to its stock option practices.
Also the for-profi t education company said its chief fi nancial officer and treasurer, Kenda Gonzales, resigned on Wednesday, and its chief accounting officer, Dan Bachus, is on administrative leave.
Shares of Apollo Group, a once high-fl ying, high-growth company that has fallen on hard times, dropped on the news, falling 98 cents, or 2.7 percent, to close at $35.02 on the NASDAQ stock market. Earlier in the day the share hit a 12-month low of $33.50. Volume was more than four times the average.
The actions were announced in a company statement Friday that said an internal investigation has discovered “various deficiencies” in its stock option program.
“Apollo Group therefore will need to restate its historical fi nancial statements to record additional charges for compensation expenses relating to past stock option grants,” the company said.
“The company has not determined the amount of such charges, the resulting tax and accounting impact, or which periods may require restatement.”
But in a report fi led with the Securities and Exchange Commission Friday, the company said it expects to restate fi nancial reports it fi led from 2001 to 2005 as well as the fi rst two quarters of 2006.
“We are committed to resolving these issues as quickly as possible, and we are in the process of putting the appropriate processes in place to ensure this does not happen again,” said Brian Mueller, who was appointed president of Apollo Group in January to try to turn the company around.
In a conference call Friday, Mueller said Gonzales resigned for personal reasons. “Kenda indicated this has been a diffi cult year for her, and she wanted to spend more time with her family,” he said.
FTI Consulting, Inc., the company’s forensic accountants, will provide a temporary CFO until a permanent replacement is found, he said.
The board of directors appointed a special committee of outside directors to investigate the company’s stock option grant practices.
Mueller said the company hopes to complete the investigation by the end of this calendar year.
Mueller said he remains committed to his growth plan, which includes international growth through online programs. “Our primary focus is making sure the stock options granting investigation will not impact the operations of our business . . . and staying committed to a strong instructional environment,” he said.
Many analysts saw the latest announcement as more bad news for the company following disappointing fiscal fourth-quarter financial results, which showed profits slipping 12 percent from a year ago.
“We still believe Apollo has the potential to turn things around, but as management pointed out on the fourthquarter call, it’s going to take some time to see the results from these efforts,” Credit Suisse analyst Gregory W. Cappelli wrote in a client note.
Baird analyst Amy W. Junker urged caution, writing in a client note that “we would remain on the sidelines until we have more clarity on the impact of the restatements.”
Signal Hill analyst Trace Urdan questioned the company’s growth plan, specifically its emphasis on a twoyear online associates degree, which Urdan said already is a well-served market.
“We sense that their action plan for restarting growth is unlikely to work,” Urdan said. “Apollo is so large that maintaining growth amid more competition has become too big a challenge.”
Apollo Group is one of at least 152 companies that have launched internal investigations or are under scrutiny by federal regulators for possibly backdating stock option grants.
At issue is whether companies changed the grant dates of stock option awards to make the options worth more.