##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended May 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 0-25232
 APOLLO GROUP, INC.
  ARIZONA
(State or other jurisdiction of 
incorporation or organization)
    
    86-0419443
(I.R.S. Employer
Identification No.)
 
 
 
  þ o
  Large accelerated filer
þ   
    Accelerated filer
o
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
  Apollo Group Class A common stock, no par value
    
    158,036,000 SharesApollo Group Class B common stock, no par value
    
    475,000 Shares




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##### 



APOLLO GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
 PAGEPART I  FINANCIAL INFORMATIONSpecial Note Regarding Forward-Looking Statements
    
    
    3Item 1. Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4. Controls and Procedures
    
    
    44PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    46Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 3. Defaults Upon Senior Securities
    
    
    46Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    47SIGNATURES
    
    
    48EX-10.1EX-10.2EX-31.1EX-32.1
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Special Note Regarding Forward-Looking Statements
  
    
    changes in the regulation of the education industry, including those items set forth in
Item 1 of our Annual Report on Form 10-K for the year ended August 31, 2007, under the
sections titled Regulatory Environment, Accreditation, Federal Financial Aid
Programs, and State Authorization;
    
    each of the factors discussed in Item 1A of our Annual Report on Form 10-K for the year
ended August 31, 2007, Risk Factors;
    
    those factors set forth in Item 7 of our Annual Report on Form 10-K for the year ended
August 31, 2007; and
    
    changes in the requirements surrounding the reports that we file with the Securities and
Exchange Commission (SEC).
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Item 1. Financial Statements
 APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 As ofMay 31,
    
    
    August 31,($ in thousands)
    
    2008
    
    
    2007Assets:Current assetsCash and cash equivalents
    
    $
    237,072
    
    
    $
    339,319Restricted cash and cash equivalents
    
    
    360,929
    
    
    
    296,469Marketable securities, current portion
    
    
    28,366
    
    
    
    31,278Accounts receivable, net
    
    
    184,183
    
    
    
    190,912Deferred tax assets, current portion
    
    
    46,814
    
    
    
    50,885Other current assets
    
    
    24,683
    
    
    
    16,515Total current assets
    
    
    882,047
    
    
    
    925,378Property and equipment, net
    
    
    421,588
    
    
    
    364,207Restricted cash for bond collateralization (Note 6)
    
    
    95,000
    
    
    
    Marketable securities, less current portion
    
    
    37,035
    
    
    
    22,084Goodwill
    
    
    66,017
    
    
    
    29,633Intangible assets, net
    
    
    21,656
    
    
    
    2,214Deferred tax assets, less current portion
    
    
    161,583
    
    
    
    80,077Other assets
    
    
    27,295
    
    
    
    26,270Total assets
    
    $
    1,712,221
    
    
    $
    1,449,863Liabilities and Shareholders Equity:Current liabilitiesAccounts payable
    
    $
    42,234
    
    
    $
    80,729Accrued liabilities
    
    
    116,637
    
    
    
    103,651Current portion of long-term liabilities
    
    
    80,808
    
    
    
    21,093Income taxes payable
    
    
    30,753
    
    
    
    43,351Student deposits
    
    
    386,755
    
    
    
    328,008Current portion of deferred revenue
    
    
    205,795
    
    
    
    167,003Total current liabilities
    
    
    862,982
    
    
    
    743,835Deferred revenue, less current portion
    
    
    210
    
    
    
    295Long-term liabilities, less current portion
    
    
    253,037
    
    
    
    71,893Total liabilities
    
    
    1,116,229
    
    
    
    816,023Commitments and contingencies (Note 13)Minority interest
    
    
    6,599
    
    
    
    Shareholders equityPreferred stock, no par value
    
    
    
    
    
    
    Apollo Group Class A nonvoting common stock, no par
value
    
    
    103
    
    
    
    103Apollo Group Class B voting common stock, no par value
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    7,923
    
    
    
    Apollo Group Class A treasury stock, at cost
    
    
    (1,783,570
    )
    
    
    (1,461,368
    )Retained earnings
    
    
    2,367,131
    
    
    
    2,096,385Accumulated other comprehensive loss
    
    
    (2,195
    )
    
    
    (1,281
    )Total shareholders equity
    
    
    589,393
    
    
    
    633,840Total liabilities and shareholders equity
    
    $
    1,712,221
    
    
    $
    1,449,863
 The accompanying notes are an integral part of these consolidated financial statements.
 Page 4 of 48




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 Three Months
    
    
    Nine MonthsEnded May 31,
    
    
    Ended May 31,(in thousands, except per share amounts)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Tuition and other, net
    
    $
    835,217
    
    
    $
    733,392
    
    
    $
    2,309,534
    
    
    $
    2,009,871Costs and expenses:Instructional costs and services
    
    
    347,598
    
    
    
    321,050
    
    
    
    1,008,609
    
    
    
    910,244Selling and promotional
    
    
    203,644
    
    
    
    162,901
    
    
    
    582,257
    
    
    
    485,276General and administrative
    
    
    60,910
    
    
    
    46,069
    
    
    
    167,203
    
    
    
    139,198Estimated securities litigation loss (Note 13)
    
    
    1,566
    
    
    
    
    
    
    
    169,966
    
    
    
    Total costs and expenses
    
    
    613,718
    
    
    
    530,020
    
    
    
    1,928,035
    
    
    
    1,534,718Income from operations
    
    
    221,499
    
    
    
    203,372
    
    
    
    381,499
    
    
    
    475,153Interest income and other, net
    
    
    3,329
    
    
    
    8,530
    
    
    
    21,037
    
    
    
    21,940Income
before income taxes and minority interest
    
    
    224,828
    
    
    
    211,902
    
    
    
    402,536
    
    
    
    497,093Provision for income taxes
    
    
    85,951
    
    
    
    80,464
    
    
    
    155,833
    
    
    
    191,443Minority interest, net of tax
    
    
    (229
    )
    
    
    
    
    
    
    (229
    )
    
    
    Net income
    
    $
    139,106
    
    
    $
    131,438
    
    
    $
    246,932
    
    
    $
    305,650Earnings per share:Basic income per share
    
    $
    0.85
    
    
    $
    0.76
    
    
    $
    1.49
    
    
    $
    1.77Diluted income per share
    
    $
    0.85
    
    
    $
    0.75
    
    
    $
    1.47
    
    
    $
    1.75Basic weighted average shares outstanding
    
    
    162,751
    
    
    
    173,188
    
    
    
    165,919
    
    
    
    173,165Diluted weighted average shares outstanding
    
    
    163,841
    
    
    
    174,620
    
    
    
    167,737
    
    
    
    174,588
 The accompanying notes are an integral part of these consolidated financial statements.
 Page 5 of 48




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Three Months
    
    
    Nine MonthsEnded May 31,
    
    
    Ended May 31,($ in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    139,106
    
    
    $
    131,438
    
    
    $
    246,932
    
    
    $
    305,650Other comprehensive income (loss) (net of
tax):Currency translation gain (loss)
    
    
    97
    
    
    
    (822
    )
    
    
    (432
    )
    
    
    (564
    )Unrealized loss on auction-rate securities
    
    
    (482
    )
    
    
    
    
    
    
    (482
    )
    
    
    Comprehensive income
    
    $
    138,721
    
    
    $
    130,616
    
    
    $
    246,018
    
    
    $
    305,086
 The accompanying notes are an integral part of these consolidated financial statements.
 Page 6 of 48




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine MonthsEnded May 31,($ in thousands)
    
    2008
    
    
    2007Cash flows provided by (used in) operating activities:Net income
    
    $
    246,932
    
    
    $
    305,650Adjustments to reconcile net income to net cash provided by operating
activities:Share-based compensation
    
    
    49,451
    
    
    
    40,766Excess tax benefits from share-based compensation
    
    
    (17,947
    )
    
    
    (2,290
    )Depreciation and amortization
    
    
    59,073
    
    
    
    55,317Amortization of deferred gain on sale-leaseback
    
    
    (1,339
    )
    
    
    (1,317
    )Amortization of marketable securities discount and premium, net
    
    
    60
    
    
    
    152Provision for uncollectible accounts receivable
    
    
    79,255
    
    
    
    83,303Minority interest
    
    
    (229
    )
    
    
    Estimated securities litigation loss (Note 13)
    
    
    165,748
    
    
    
    Deferred income taxes
    
    
    (69,401
    )
    
    
    (34,843
    )Changes in assets and liabilities excluding the impact of acquisitions:Accounts receivable
    
    
    (39,515
    )
    
    
    (102,271
    )Other assets
    
    
    (9,314
    )
    
    
    (5,276
    )Accounts payable and accrued liabilities
    
    
    (21,907
    )
    
    
    (15,640
    )Income taxes payable
    
    
    57,294
    
    
    
    29,045Student deposits
    
    
    58,747
    
    
    
    43,212Deferred revenue
    
    
    7,701
    
    
    
    13,727Other liabilities
    
    
    3,833
    
    
    
    (3,073
    )Net cash provided by operating activities
    
    
    568,442
    
    
    
    406,462Cash flows provided by (used in) investing activities:Additions to property and equipment
    
    
    (67,834
    )
    
    
    (38,338
    )Additions to land and buildings related to new headquarters
    
    
    (12,408
    )
    
    
    (32,072
    )Acquisitions, net of cash acquired
    
    
    (70,302
    )
    
    
    (15,079
    )Purchase of marketable securities including auction-rate securities
    
    
    (875,098
    )
    
    
    (969,460
    )Maturities of marketable securities including auction-rate securities
    
    
    864,551
    
    
    
    1,008,861Collateralization of bond posted for securities litigation matter (Note 6)
    
    
    (95,000
    )
    
    
    Increase in restricted cash and cash equivalents
    
    
    (64,460
    )
    
    
    (48,697
    )Net cash used in investing activities
    
    
    (320,551
    )
    
    
    (94,785
    )Cash flows provided by (used in) financing activities:Payments on long-term debt
    
    
    (709
    )
    
    
    Borrowings under line of credit
    
    
    250,000
    
    
    
    Repayments of line of credit
    
    
    (250,000
    )
    
    
    Purchase of Apollo Group Class A common stock
    
    
    (454,362
    )
    
    
    Issuance of Apollo Group Class A common stock
    
    
    80,721
    
    
    
    5,278Minority interest contributions
    
    
    6,975
    
    
    
    Excess tax benefits from share-based compensation
    
    
    17,947
    
    
    
    2,290Net cash provided by (used in) financing activities
    
    
    (349,428
    )
    
    
    7,568Effect of foreign currency transaction loss, net
    
    
    (710
    )
    
    
    (329
    )Net increase (decrease) in cash and cash equivalents
    
    
    (102,247
    )
    
    
    318,916Cash and cash equivalents, beginning of period
    
    
    339,319
    
    
    
    309,058Cash and cash equivalents, end of period
    
    $
    237,072
    
    
    $
    627,974Supplemental disclosure of cash flow informationCash paid during the year for income taxes
    
    $
    168,092
    
    
    $
    197,237Supplemental disclosure of non-cash investing and financing activitiesCredits received for tenant improvements
    
    $
    7,843
    
    
    $
    3,406Purchases of property and equipment included in accounts payable
    
    $
    4,630
    
    
    $
    5,772Settlement of liability-classified awards through
the issuance of treasury stock
    
    $
    16,340
    
    
    $
    Unrealized loss on auction-rate securities
    
    $
    803
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements.
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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 Note 1. Basis of Presentation
      Recent Accounting Pronouncements
    Page 8 of 48




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Note 2. Nature of Operations
    Page 9 of 48




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Note 3. Acquisitions and Joint Venture
 Apollo Global
   Aptimus
    ($ in thousands)Cash paid for the outstanding common stock of Aptimus
    
    $
    41,486Cash paid for certain common stock equivalents of Aptimus
    
    
    4,672Transaction-related costs
    
    
    1,919Total purchase price
    
    $
    48,077
 Page 10 of 48




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($ in thousands)Net working capital
    
    $
    (1,920
    )Property and equipment
    
    
    654Intangibles
    
    
    7,600Deferred tax assets
    
    
    7,141Goodwill
    
    
    36,384Employee stock options assumed
    
    
    (1,782
    )Total allocated purchase price
    
    
    48,077Less: Cash acquired
    
    
    (1,022
    )Acquisition, net of cash acquired
    
    $
    47,055
  WeightedEstimated
    
    
    Average($ in thousands)
    
    Fair Value
    
    
    Useful LifeTechnology
    
    $
    3,600
    
    
    4 yearsTrademarks
    
    
    1,300
    
    
    5 yearsCustomer relationships
    
    
    1,900
    
    
    5 yearsNon-compete agreement
    
    
    800
    
    
    2 yearsTotal acquired intangible assets
    
    $
    7,600
  UNIACC
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($ in thousands)Cash paid for UNIACC
    
    $
    23,650Debt assumed
    
    
    19,910Transaction-related costs
    
    
    900Total purchase price
    
    $
    44,460
  ($ in thousands)Net working capital
    
    $
    2,274Property and equipment
    
    
    28,185Intangibles
    
    
    14,607Deferred taxes, net
    
    
    294Accrued contingent consideration
    
    
    (900
    )Total allocated purchase price
    
    
    44,460Less: Debt assumed
    
    
    (19,910
    )Less: Cash acquired
    
    
    (1,303
    )Cash paid for acquisition
    
    $
    23,247
   Estimated Fair
    
    
    Weighted Average($ in thousands)
    
    Value
    
    
    Useful LifeTrademarks
    
    $
    4,200
    
    
    indefiniteAccreditations and designations
    
    
    1,287
    
    
    indefiniteStudent relationships
    
    
    4,600
    
    
    2 yearsNon-compete agreement
    
    
    2,300
    
    
    5 yearsBroadcast rights and license
    
    
    1,500
    
    
    15 yearsTechnology
    
    
    151
    
    
    4 yearsOther
    
    
    569
    
    
    5 yearsTotal acquired intangible assets
    
    $
    14,607
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Note 4. Marketable Securities
  May 31,
    
    
    August 31,($ in thousands)
    
    2008
    
    
    2007Current marketable securities:Auction-rate securities
    
    $
    11,850
    
    
    $
    Municipal bonds
    
    
    7,275
    
    
    
    16,278U.S. government-sponsored enterprises
    
    
    
    
    
    
    15,000Corporate obligations
    
    
    6,993
    
    
    
    Other, current
    
    
    2,248
    
    
    
    Total current marketable securities
    
    
    28,366
    
    
    
    31,278Noncurrent marketable securities:Auction-rate securities
    
    
    36,022
    
    
    
    Municipal bonds due 1-3 years
    
    
    1,013
    
    
    
    3,096U.S. government-sponsored enterprises
    
    
    
    
    
    
    12,000Corporate obligations
    
    
    
    
    
    
    6,988Total noncurrent marketable securities
    
    
    37,035
    
    
    
    22,084Total marketable securities
    
    $
    65,401
    
    
    $
    53,362
  May 31, 2008Available-for-sale securities
    
    Amortized
    
    
    Gross Unrealized
    
    
    Fair Market($ in thousands)
    
    Cost
    
    
    Gains (Losses)
    
    
    ValueAuction-rate securitiesCurrent
    
    $
    11,850
    
    
    $
    
    
    
    $
    11,850Noncurrent
    
    
    36,825
    
    
    
    (803
    )
    
    
    36,022Total auction-rate securities
    
    
    48,675
    
    
    
    (803
    )
    
    
    47,872Other, current
    
    
    2,248
    
    
    
    
    
    
    
    2,248Total available-for-sale securities
    
    $
    50,923
    
    
    $
    (803
    )
    
    $
    50,120
 Auction-Rate Securities:
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May 31, 2008
    
    
    August 31, 2007Held-to-maturity securities
    
    
    
    
    
    Amortized
    
    
    Fair Market
    
    
    Amortized
    
    
    Fair Market($ in thousands)
    
    
    
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueMunicipal bonds
    
    
    
    
    
    $
    7,275
    
    
    $
    7,282
    
    
    $
    16,278
    
    
    $
    16,193Municipal bonds due 1-3 years
    
    
    
    
    
    
    1,013
    
    
    
    1,026
    
    
    
    3,096
    
    
    
    3,060U.S. government-sponsored enterprises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,000
    
    
    
    26,621Corporate obligations
    
    
    
    
    
    
    6,993
    
    
    
    7,039
    
    
    
    6,988
    
    
    
    6,397Total held-to-maturity securities
    
    
    
    
    
    $
    15,281
    
    
    $
    15,347
    
    
    $
    53,362
    
    
    $
    52,271
 Municipal Bonds:
 U.S. Government-Sponsored Enterprises:
 Corporate Obligations:
 Note 5. Accounts Receivable, net
  August 31,($ in thousands)
    
    May 31, 2008
    
    
    2007Student accounts receivable
    
    $
    250,661
    
    
    $
    281,834Less allowance for doubtful accounts
    
    
    (85,264
    )
    
    
    (99,818
    )Net student accounts receivable
    
    
    165,397
    
    
    
    182,016Other receivables
    
    
    18,786
    
    
    
    8,896Total accounts receivable, net
    
    $
    184,183
    
    
    $
    190,912
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Three Months
    
    
    Nine MonthsEnded May 31,
    
    
    Ended May 31,($ in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Beginning allowance for doubtful accounts
    
    $
    93,418
    
    
    $
    75,961
    
    
    $
    99,818
    
    
    $
    65,184Provision for uncollectible accounts receivable
    
    
    20,269
    
    
    
    34,368
    
    
    
    79,255
    
    
    
    83,303Write-offs, net of recoveries
    
    
    (28,423
    )
    
    
    (18,200
    )
    
    
    (93,809
    )
    
    
    (56,358
    )Ending allowance for doubtful accounts
    
    $
    85,264
    
    
    $
    92,129
    
    
    $
    85,264
    
    
    $
    92,129
 Note 6. Restricted Cash for Bond Collateralization
  Note 7. Goodwill and Intangible Assets
  August 31, 2007
    
    
    Goodwill
    
    
    Impairment
    
    
    Other
    
    
    May 31, 2008($ in thousands)
    
    Balance
    
    
    Acquired
    
    
    Charges
    
    
    Adjustments
    
    
    BalanceUPX
    
    $
    
    
    
    $
    36,384
    
    
    $
    
    
    
    $
    
    
    
    $
    36,384Other Schools
    
    
    29,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,633Apollo Global
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Goodwill
    
    $
    29,633
    
    
    $
    36,384
    
    
    $
    
    
    
    $
    
    
    
    $
    66,017
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May 31, 2008
    
    
    August 31, 2007Gross
    
    
    
    
    
    
    Effect of Foreign
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Currency
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying($ in thousands)
    
    Amount
    
    
    Amortization
    
    
    Translation Loss
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortizable intangible assetsStudent and customer relationships
    
    $
    6,500
    
    
    $
    563
    
    
    $
    217
    
    
    $
    5,720
    
    
    $
    
    
    
    $
    
    
    
    $
    Technology
    
    
    3,751
    
    
    
    288
    
    
    
    7
    
    
    
    3,456
    
    
    
    
    
    
    
    
    
    
    
    Non-compete agreements
    
    
    5,082
    
    
    
    906
    
    
    
    114
    
    
    
    4,062
    
    
    
    1,982
    
    
    
    297
    
    
    
    1,685Broadcast rights and license
    
    
    1,500
    
    
    
    8
    
    
    
    75
    
    
    
    1,417
    
    
    
    
    
    
    
    
    
    
    
    Trademarks
    
    
    1,722
    
    
    
    558
    
    
    
    
    
    
    
    1,164
    
    
    
    422
    
    
    
    63
    
    
    
    359Other
    
    
    806
    
    
    
    138
    
    
    
    45
    
    
    
    623
    
    
    
    237
    
    
    
    67
    
    
    
    170Total amortizable intangible
assets
    
    
    19,361
    
    
    
    2,461
    
    
    
    458
    
    
    
    16,442
    
    
    
    2,641
    
    
    
    427
    
    
    
    2,214Unamortizable intangible assetsAccreditations and designations
    
    
    1,287
    
    
    
    
    
    
    
    63
    
    
    
    1,224
    
    
    
    
    
    
    
    
    
    
    
    Trademarks
    
    
    4,200
    
    
    
    
    
    
    
    210
    
    
    
    3,990
    
    
    
    
    
    
    
    
    
    
    
    Total unamortizable intangible
assets
    
    
    5,487
    
    
    
    
    
    
    
    273
    
    
    
    5,214
    
    
    
    
    
    
    
    
    
    
    
    Total intangible assets, net
    
    $
    24,848
    
    
    $
    2,461
    
    
    $
    731
    
    
    $
    21,656
    
    
    $
    2,641
    
    
    $
    427
    
    
    $
    2,214
   ($ in thousands)
    
    Amount2008 (three months)
    
    $
    1,6882009
    
    
    5,0332010
    
    
    3,6112011
    
    
    3,2152012
    
    
    1,5402013
    
    
    519Thereafter
    
    
    836Total estimated amortization expense
    
    $
    16,442
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Note 8. Long-Term Liabilities
  May 31,
    
    
    August 31,($ in thousands)
    
    2008
    
    
    2007Deferred rent and other lease incentives
    
    $
    74,546
    
    
    $
    77,755Deferred gains on sale-leasebacks
    
    
    9,955
    
    
    
    10,602Deferred vendor incentive
    
    
    6,317
    
    
    
    Deferred
compensation agreement with Dr. John G. Sperling
    
    
    2,349
    
    
    
    2,197Unrecognized tax benefit (see Note 9)
    
    
    54,436
    
    
    
    Accrual for estimated securities litigation loss
(see Note 13)
    
    
    165,748
    
    
    
    Contingent consideration (see Note 3)
    
    
    859
    
    
    
    Other long-term liabilities
    
    
    19,635
    
    
    
    2,432Total liabilities
    
    
    333,845
    
    
    
    92,986Less current portion
    
    
    (80,808
    )
    
    
    (21,093
    )Total long-term liabilities
    
    $
    253,037
    
    
    $
    71,893
 Note 9. Income Taxes
     Page 17 of 48




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Note 10. Stockholders Equity
 Share Reissuances
  Share Repurchases
  Note 11. Earnings Per Share
 Apollo Group Class A Common Stock
  Three Months Ended May 31,2008
    
    
    2007Weighted
    
    
    
    
    
    
    
    

    
    

    WeightedAverage
    
    
    Per Share
    
    
    
    
    
    
    Average
    
    
    Per Share($ in thousands, except per share amounts)
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic income
    
    $
    139,106
    
    
    
    162,751
    
    
    $
    0.85
    
    
    $
    131,438
    
    
    
    173,188
    
    
    $
    0.76Effect of dilutive securities:Stock options
    
    
    
    
    
    
    915
    
    
    
    
    
    
    
    
    
    
    
    1,432
    
    
    
    (0.01
    )Restricted stock units
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted income
    
    $
    139,106
    
    
    
    163,841
    
    
    $
    0.85
    
    
    $
    131,438
    
    
    
    174,620
    
    
    $
    0.75
 Nine Months Ended May 31,2008
    
    
    2007Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Per Share
    
    
    
    
    
    
    Average
    
    
    Per Share($ in thousands, except per share amounts)
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic income
    
    $
    246,932
    
    
    
    165,919
    
    
    $
    1.49
    
    
    $
    305,650
    
    
    
    173,165
    
    
    $
    1.77Effect of dilutive securities:Stock options
    
    
    
    
    
    
    1,671
    
    
    
    (0.02
    )
    
    
    
    
    
    
    1,423
    
    
    
    (0.02
    )Restricted stock units
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted income
    
    $
    246,932
    
    
    
    167,737
    
    
    $
    1.47
    
    
    $
    305,650
    
    
    
    174,588
    
    
    $
    1.75
 Page 18 of 48




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Note 12. Share-Based Compensation Plans
 Stock Option Modifications
   Acceleration of Vesting
  Share-Based Compensation Expense
 Three Months
    
    
    Nine MonthsEnded May 31,
    
    
    Ended May 31,($ in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Instructional costs and services
    
    $
    4,925
    
    
    $
    5,089
    
    
    $
    16,742
    
    
    $
    12,944Selling and promotional
    
    
    829
    
    
    
    889
    
    
    
    2,816
    
    
    
    2,957General and administrative
    
    
    8,667
    
    
    
    2,908
    
    
    
    29,893
    
    
    
    24,865Share-based compensation expense included
in operating expenses
    
    
    14,421
    
    
    
    8,886
    
    
    
    49,451
    
    
    
    40,766Tax effect on share-based compensation
    
    
    (5,657
    )
    
    
    (3,520
    )
    
    
    (19,397
    )
    
    
    (16,147
    )Share-based compensation expense, net of tax
    
    $
    8,764
    
    
    $
    5,366
    
    
    $
    30,054
    
    
    $
    24,619
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2000 Stock Incentive Plan
  Note 13. Commitments and Contingencies
  Internal Revenue Service Audit
  Sale-Leaseback Option
  Contingencies Related to Litigation and Other Proceedings
  Pending Litigation
 Incentive Compensation False Claims Act Lawsuit
  Page 20 of 48




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Axia False Claims Act Lawsuit
  Alaska Electrical Pension Fund Derivative Action
  Page 21 of 48




---



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Securities Class Action
 In re Apollo Group, Inc. Securities Litigation
   EEOC v. UPX
 Equal Employment Opportunity Commission v. University of Phoenix,
Inc.
 Barnett Derivative Action
 Barnett v. John Blair et al
 Page 22 of 48




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qui tam qui tam
 Bamboo Partners Derivative Action
   Page 23 of 48




---



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Teamsters Local Union Putative Class Action
  Patent Infringement Litigation
  Regulatory and Other Legal Matters
 Student Financial Aid
   Page 24 of 48




---



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U.S. Department of Education Audits
   SEC Informal Inquiry and Department of Justice Investigation
  Note 14. Financing
   Page 25 of 48




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Note 15. Segment Reporting
      Three Months
    
    
    
    
    
    
    Nine MonthsEnded May 31,
    
    
    
    
    
    
    Ended May 31,($ in thousands)
    
    2008
    
    
    2007
    
    
    
    
    
    
    2008
    
    
    2007Tuition and other
revenue, net:UPX
    
    $
    794,471
    
    
    $
    689,549
    
    
    
    
    
    
    $
    2,195,832
    
    
    $
    1,862,155Other Schools
    
    
    32,972
    
    
    
    42,670
    
    
    
    
    
    
    
    101,106
    
    
    
    146,453Apollo Global
    
    
    4,446
    
    
    
    
    
    
    
    
    
    
    
    4,446
    
    
    
    Corporate
    
    
    3,328
    
    
    
    1,173
    
    
    
    
    
    
    
    8,150
    
    
    
    1,263$
    835,217
    
    
    $
    733,392
    
    
    
    
    
    
    $
    2,309,534
    
    
    $
    2,009,871Income (loss) from
operations:UPX
    
    $
    245,668
    
    
    $
    205,962
    
    
    
    
    
    
    $
    605,669
    
    
    $
    490,004Other Schools
    
    
    (481
    )
    
    
    7,771
    
    
    
    
    
    
    
    5,034
    
    
    
    26,940Apollo Global
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    Corporate
    
    
    (23,749
    )
    
    
    (10,361
    )
    
    
    
    
    
    
    (229,265
    )
    
    
    (41,791
    )$
    221,499
    
    
    $
    203,372
    
    
    
    
    
    
    $
    381,499
    
    
    $
    475,153
 Note 16. Subsequent Events
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    Forward-Looking Statementscautionary information about forward-looking statements
and a description of certain risks and uncertainties that could cause our actual results
to differ materially from our historical results or our current expectations or
projections.
    
    Executive Summarya general description of our business and the education industry,
as well as key highlights of the current year.
    
    Critical Accounting Policies and Estimatesa discussion of our accounting policies
that require critical judgments and estimates.
    
    Results of Operationsan analysis of our results of operations in our consolidated
financial statements. We operate primarily in one business sector: education. Except to
the extent that differences between our reportable segments are material to an
understanding of our business as a whole, we present the discussion in our MD&A on a
consolidated basis.
    
    Liquidity, Capital Resources, and Financial Positionan analysis of cash flows,
sources and uses of cash, commitments and contingencies, seasonality in the results of
our operations, the impact of inflation, and quantitative and qualitative disclosures
about market risk.
 Forward-Looking Statements
  
    
    changes in the regulations of the education industry, including those items set forth in
Item 1 of our 2007 Annual Report on Form 10-K, under the sections titled Regulatory
Environment, Accreditation, Federal Financial Aid Programs, and State Authorization;
    
    each of the factors discussed in Item 1A of our 2007 Annual Report on Form 10-K, Risk
Factors;
    
    those factors set forth in Item 7 of our 2007 Annual Report on Form 10-K for the year
ended August 31, 2007; and
    
    changes in the requirements surrounding the reports that we file with the Securities and
Exchange Commission (SEC).
  Executive Summary
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1.
    
    Enrollment and Revenue Growth While Investing in our Business for the Future - We
achieved 11.0% growth in average Degreed Enrollment for the nine months ended May 31, 2008
as compared to the nine months ended May 31, 2007, which, coupled with previously
implemented selective tuition price increases, depending on geographic area and program,
resulted in a 14.9% increase in revenue over the same period. These increases helped fund a
significant portion of our investment in product development and marketing and lead
generation during the first nine months of fiscal 2008 to ensure our continued growth in the
future.2.
    
    Apollo Global - On October 22, 2007, we formed a joint venture with The Carlyle
Group (Carlyle), called Apollo Global, to pursue investments in the international
education services sector. Carlyle, based in Washington D.C., is one of the worlds largest
private equity firms. Through Apollo Global, we intend to capitalize on the significant
global demand for education services. Apollo Global will provide education services through
two primary strategies. First, Apollo Global will facilitate delivery of a wide range of our
U.S. accredited degrees to foreign students outside the U.S. Within approximately 18 months
from formation, we expect to transfer assets that are dedicated to recruiting and servicing
international students at fair value to Apollo Global. Following such transfer, Apollo
Global, under a service agreement with us, will perform enrollment activities directed
toward students who live outside the U.S. and who are not citizens of the U.S. or members of
the U.S. military. Second, Apollo Global will acquire or invest in companies that provide
local education services, including post-secondary degrees, in the countries it seeks to
enter. These investments will be achieved through both a disciplined acquisition process and
organic growth.We have agreed to commit up to $801 million in cash or contributed assets and own 80.1% of
Apollo Global. Carlyle has agreed to commit up to $199 million in cash or contributed assets
and own the remaining 19.9%. Apollo Global is consolidated in our financial statements. As of
May 31, 2008, total cash contributions made to Apollo Global approximated $35.0 million, of
which $28.0 million was funded by Apollo.3.
    
    Bank Facility - On January 4, 2008, we entered into a syndicated $500 million
Credit Agreement (the Bank Facility). The Bank Facility is an unsecured revolving credit
facility that will be used for general corporate purposes including acquisitions and stock
buybacks. The Bank Facility has an expansion feature for an aggregate principal amount of up
to $250 million. The term is five years and will expire on January 4, 2013. The Bank
Facility provides a multi-currency sub-limit facility for borrowings in certain specified
foreign currencies up to $300 million. The Bank Facility fees are determined based on a
pricing grid that varies according to our leverage ratio. The facility fee ranges from 12.5
to 17.5 basis points and the incremental fees for borrowings under the facility range from
LIBOR + 50.0 to 82.5 basis points. There were no outstanding borrowings under the Bank
Facility as of May 31, 2008.
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4.
    
    Aptimus, Inc. (Aptimus) - On October 29, 2007, we completed the acquisition of
all outstanding common stock of online advertising network Aptimus for approximately $48.1
million. Prior to the acquisition, Aptimus operated as a results-based advertising network
that distributed advertisements for direct marketing advertisers across a network of
third-party web sites. The acquisition enables us to more effectively monitor, manage and
control our marketing investments and brands, with the goal of increasing awareness of and
access to quality and affordable education. Our current operating strategy is to integrate
Aptimus as an integral part of our corporate marketing function.5.
    
    Universidad de Artes, Ciencias y Comunicación (UNIACC) - On March 28, 2008,
Apollo Global completed its first transaction with the acquisition of UNIACC, an accredited,
private arts and communications university in Chile, as well as its related entities. UNIACC
offers bachelors and masters degree programs and is accredited by the Chilean Council of
Higher Education. In 2004, UNIACC became the first university in Chile to teach a fully
online undergraduate program. Apollo Global purchased 100% of UNIAAC for $44.5 million
composed of cash and assumed debt, excluding an earn-out payment denominated in U.S. Dollars
based on a multiple of earnings to be paid four years from the closing date. If the earn-out
were based on current earnings, it would approximate $9.0 million. The UNIACC acquisition
enables Apollo Global to provide local education services, including post-secondary degrees,
while establishing a presence in the Chilean market. This is our first investment in South
America and expands our delivery of local education services to that region.6.
    
    Securities Class Action - In October 2004, three class action complaints were
filed in the U.S. District Court for the District of Arizona. The Court consolidated the
three pending class action complaints under the caption In re Apollo Group, Inc. Securities
Litigation, Case No. CV04-2147-PHX-JAT and a consolidated class action complaint was filed
on May 16, 2005 by the lead plaintiff. The consolidated complaint named us, Todd S. Nelson,
Kenda B. Gonzales and Daniel E. Bachus as defendants. On March 1, 2007, by stipulation and
order of the Court, Daniel E. Bachus was dismissed as a defendant from the case. Lead
plaintiff represents a class of our shareholders who acquired their shares between February
27, 2004 and September 14, 2004. The complaint alleges violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated under the Act by us
for defendants allegedly material false and misleading statements in connection with our
failure to publicly disclose the contents of a preliminary DOE program review report. The
case proceeded to trial on November 14, 2007. On January 16, 2008, the jury returned a
verdict in favor of the plaintiffs awarding damages of up to $5.55 for each share of common
stock in the class suit, plus pre-judgment and post-judgment interest. The class shares are
those purchased after February 27, 2004 and still owned on September 14, 2004. The judgment
was entered on January 30, 2008, subject to an automatic stay until February 13, 2008. On
February 13, 2008, the Court granted our motion to stay execution of the judgment pending
resolution of our motions for post-trial relief, which were also filed on February 13, 2008,
provided that we post a bond in the amount of $95.0 million. On February 19, 2008, we posted
the $95.0 million bond with the Court. Oral arguments have been scheduled for August 4, 2008
on our post-trial motions. If our motions are denied, in whole or in part, we intend to
pursue any and all remedies that may be available, including, if necessary, appealing the
judgment. If an appeal is necessary, the Court may require that we post a bond in order to
stay enforcement of the judgment during the appeal, and the bond could be in a different
amount from the present bond. We believe we have adequate liquidity to fund any likely bond
amount.Liability in the case is joint and several, which means that each defendant, including us, is
liable for the entire amount of the judgment. As a result, we will be responsible for payment
of the full amount of damages as ultimately determined. We do not expect to receive material
amounts of insurance proceeds from our insurers to satisfy any amounts ultimately payable to
the plaintiff class.The actual amount of damages will not be known until all Court proceedings, including post
trial motions and any appeal, have been completed. We have estimated for financial reporting
purposes, using statistically valid models and a 60% confidence interval, that the damages
could range from $120.5 million to $216.4 million, which includes (a) our estimate of damages
based on the verdict; (b) our estimate of potential amounts we expect to reimburse our
insurance carriers; (c) estimated future defense costs; and (d) legal and other professional
fees incurred during the second quarter of fiscal 2008. In the second quarter of fiscal 2008,
we recorded a charge for estimated damages at the mid-point of this range, or $168.4 million.
We elected to record the mid-point of this range because under statistically valid modeling
techniques the mid-point of the range is in fact a more likely estimate than other points in
the range, and the point at which there is an equal probability that the ultimate loss could be
toward the lower end or the higher end of the range. In the third quarter of fiscal 2008, we
recorded an additional charge of $1.6 million for interest on the estimated damages.7.
    
    Meritus University - On May 13, 2008, we announced our plans to establish a new
Canadian institution, Meritus University. Meritus University has received approval to offer
three programs from the New Brunswick Department of Post-Secondary Education, Training and
Labour (the Department), thereby establishing degree-granting status. The three programs
approved by the Department are Master of Business Administration, Bachelor of Business
Administration and Bachelor of Information Technology Management. Meritus University will
not seek U.S. accreditation and will be based in Fredericton, New Brunswick, offering
complete degree programs online to working professionals throughout Canada and abroad.
Meritus University is expected to be operational by December 31, 2008.
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8.
    
    UPX Operating Realignment - During the third quarter of fiscal 2008, we announced
a management and reporting realignment within UPX. Historically, UPX on-campus operations
have been managed by region and then by campus within each region. The global online
operation was managed centrally. This realignment takes our online operation and shifts
reporting responsibility to our regional management. UPX will retain an independently
operating online campus under this new reporting structure. We believe this realignment will
allow us to promote the sharing of common goals and best practices while maximizing
efficiencies, and most importantly help us remain student focused.9.
    
    Changes in Management - On June 24, 2008, Brian E. Mueller resigned from his
position as President and Director. Also on June 24, 2008, our Board of Directors appointed
Joseph L. DAmico interim President, in addition to serving as our Chief Financial Officer
and Treasurer.
 Critical Accounting Policies and Estimates
  Results of Operations
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Three Months Ended May 31, 2008 Compared to the Three Months Ended May 31, 2007
  Analysis of Consolidated Statements of Income
 Three MonthsEnded May 31,
    
    
    % of Revenues
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs 2007Revenues:Tuition and other, net
    
    $
    835.2
    
    
    $
    733.4
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    13.9
    %Costs and expenses:Instructional costs and
services
    
    
    347.6
    
    
    
    321.0
    
    
    
    41.6
    %
    
    
    43.8
    %
    
    
    8.3
    %Selling and promotional
    
    
    203.6
    
    
    
    162.9
    
    
    
    24.4
    %
    
    
    22.2
    %
    
    
    25.0
    %General and administrative
    
    
    60.9
    
    
    
    46.1
    
    
    
    7.3
    %
    
    
    6.3
    %
    
    
    32.1
    %Estimated securities
litigation loss
    
    
    1.6
    
    
    
    
    
    
    
    0.2
    %
    
    
    0.0
    %
    
    
    Total costs and expenses
    
    
    613.7
    
    
    
    530.0
    
    
    
    73.5
    %
    
    
    72.3
    %
    
    
    15.8
    %Income from operations
    
    
    221.5
    
    
    
    203.4
    
    
    
    26.5
    %
    
    
    27.7
    %
    
    
    8.9
    %Interest income and
other, net
    
    
    3.3
    
    
    
    8.5
    
    
    
    0.4
    %
    
    
    1.2
    %
    
    
    -61.2
    %Income before income
taxes and minority
interest
    
    
    224.8
    
    
    
    211.9
    
    
    
    26.9
    %
    
    
    28.9
    %
    
    
    6.1
    %Provision for income taxes
    
    
    85.9
    
    
    
    80.5
    
    
    
    10.3
    %
    
    
    11.0
    %
    
    
    6.7
    %Minority interest, net of
tax
    
    
    (0.2
    )
    
    
    
    
    
    
    -0.1
    %
    
    
    0.0
    %
    
    
    Net income
    
    $
    139.1
    
    
    $
    131.4
    
    
    
    16.7
    %
    
    
    17.9
    %
    
    
    5.9
    %
  Tuition and Other Revenue, Net
  Three MonthsEnded May 31,
    
    
    % of Revenues($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007UPX
    
    $
    794.5
    
    
    $
    689.5
    
    
    
    95.1
    %
    
    
    94.0
    %Other Schools
    
    
    33.0
    
    
    
    42.7
    
    
    
    4.0
    %
    
    
    5.8
    %Apollo Global
    
    
    4.4
    
    
    
    
    
    
    
    0.5
    %
    
    
    Corporate
    
    
    3.3
    
    
    
    1.2
    
    
    
    0.4
    %
    
    
    0.2
    %Tuition and other revenue, net
    
    $
    835.2
    
    
    $
    733.4
    
    
    
    100.0
    %
    
    
    100.0
    %
   Page 31 of 48




---



##### Table of Contents



Instructional Costs and Services
  Three MonthsEnded May 31,
    
    
    % of Revenues
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Employee compensation and related
expenses
    
    $
    126.5
    
    
    $
    106.1
    
    
    
    15.1
    %
    
    
    14.5
    %
    
    
    19.2
    %Faculty compensation
    
    
    71.6
    
    
    
    62.7
    
    
    
    8.6
    %
    
    
    8.5
    %
    
    
    14.2
    %Classroom lease expenses and depreciation
    
    
    52.9
    
    
    
    50.9
    
    
    
    6.3
    %
    
    
    6.9
    %
    
    
    3.9
    %Other instructional costs and services
    
    
    52.5
    
    
    
    45.2
    
    
    
    6.3
    %
    
    
    6.2
    %
    
    
    16.2
    %Bad debt expense
    
    
    20.3
    
    
    
    34.3
    
    
    
    2.4
    %
    
    
    4.7
    %
    
    
    (40.8
    %)Financial aid processing costs
    
    
    18.9
    
    
    
    16.7
    
    
    
    2.3
    %
    
    
    2.3
    %
    
    
    13.2
    %Share-based compensation
    
    
    4.9
    
    
    
    5.1
    
    
    
    0.6
    %
    
    
    0.7
    %
    
    
    (3.9
    %)Instructional costs and services
    
    $
    347.6
    
    
    $
    321.0
    
    
    
    41.6
    %
    
    
    43.8
    %
    
    
    8.3
    %
      Page 32 of 48




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Selling and Promotional
  Three MonthsEnded May 31,
    
    
    % of Revenues
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Enrollment
counselors compensation and related expenses
    
    $
    98.5
    
    
    $
    80.2
    
    
    
    11.8
    %
    
    
    10.9
    %
    
    
    22.8
    %Advertising
    
    
    78.2
    
    
    
    66.7
    
    
    
    9.4
    %
    
    
    9.1
    %
    
    
    17.2
    %Other selling and promotional expenses
    
    
    26.1
    
    
    
    15.1
    
    
    
    3.1
    %
    
    
    2.1
    %
    
    
    72.8
    %Share-based compensation
    
    
    0.8
    
    
    
    0.9
    
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    (11.1
    %)Selling and promotional
    
    $
    203.6
    
    
    $
    162.9
    
    
    
    24.4
    %
    
    
    22.2
    %
    
    
    25.0
    %
      Page 33 of 48




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##### Table of Contents



General and Administrative
  Three MonthsEnded May 31,
    
    
    % of Revenues
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Employee compensation and related expenses
    
    $
    26.0
    
    
    $
    18.6
    
    
    
    3.1
    %
    
    
    2.5
    %
    
    
    39.8
    %Share-based compensation
    
    
    8.7
    
    
    
    2.9
    
    
    
    1.0
    %
    
    
    0.4
    %
    
    
    200.0
    %Legal, audit, and corporate insurance
    
    
    8.8
    
    
    
    3.1
    
    
    
    1.1
    %
    
    
    0.4
    %
    
    
    183.9
    %Administrative space and depreciation
    
    
    6.8
    
    
    
    5.2
    
    
    
    0.8
    %
    
    
    0.7
    %
    
    
    30.8
    %Other general and administrative expenses
    
    
    10.6
    
    
    
    16.3
    
    
    
    1.3
    %
    
    
    2.3
    %
    
    
    (35.0
    %)General and administrative
    
    $
    60.9
    
    
    $
    46.1
    
    
    
    7.3
    %
    
    
    6.3
    %
    
    
    32.1
    %
  Three MonthsEnded May 31,($ in millions)
    
    2008
    
    
    2007
    
    
    Line item included in aboveFair value adjustment for former employee stock options
    
    $
    
    
    
    $
    (0.1
    )
    
    Other general and administrative expensesStock option investigation / financial statement
restatement
    
    
    
    
    
    
    7.7
    
    
    Other general and administrative expensesSubtotal
    
    $
    
    
    
    $
    7.6
  Three MonthsEnded May 31,
    
    
    % of Revenues
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Employee compensation and related
expenses
    
    $
    26.0
    
    
    $
    18.6
    
    
    
    3.1
    %
    
    
    2.5
    %
    
    
    39.8
    %Share-based compensation
    
    
    8.7
    
    
    
    2.9
    
    
    
    1.0
    %
    
    
    0.4
    %
    
    
    200.0
    %Legal, audit, and corporate insurance
    
    
    8.8
    
    
    
    3.1
    
    
    
    1.1
    %
    
    
    0.4
    %
    
    
    183.9
    %Administrative space and depreciation
    
    
    6.8
    
    
    
    5.2
    
    
    
    0.8
    %
    
    
    0.7
    %
    
    
    30.8
    %Other general and administrative expenses
    
    
    10.6
    
    
    
    8.7
    
    
    
    1.3
    %
    
    
    1.2
    %
    
    
    21.8
    %General and administrative
    
    $
    60.9
    
    
    $
    38.5
    
    
    
    7.3
    %
    
    
    5.2
    %
    
    
    58.2
    %
  Estimated Securities Litigation Loss
  Page 34 of 48




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##### Table of Contents



Interest Income and Other, Net
  Three MonthsEnded May 31,($ in millions)
    
    2008
    
    
    2007Interest income
    
    $
    7.0
    
    
    $
    8.7Interest expense
    
    
    (2.0
    )
    
    
    (0.1
    )Other income (expense), net
    
    
    0.2
    
    
    
    (0.1
    )Foreign currency transaction loss, net
    
    
    (1.9
    )
    
    
    Interest income and other, net
    
    $
    3.3
    
    
    $
    8.5
  Provision for Income Taxes
  Nine Months Ended May 31, 2008 Compared to the Nine Months Ended May 31, 2007
  Analysis of Consolidated Statements of Income
 Nine MonthsEnded May 31,
    
    
    % of Revenues
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs 2007Revenues:Tuition and other, net
    
    $
    2,309.5
    
    
    $
    2,009.9
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    14.9
    %Costs and expenses:Instructional costs and services
    
    
    1,008.6
    
    
    
    910.2
    
    
    
    43.7
    %
    
    
    45.3
    %
    
    
    10.8
    %Selling and promotional
    
    
    582.2
    
    
    
    485.3
    
    
    
    25.2
    %
    
    
    24.1
    %
    
    
    20.0
    %General and administrative
    
    
    167.2
    
    
    
    139.2
    
    
    
    7.2
    %
    
    
    7.0
    %
    
    
    20.1
    %Estimated securities litigation loss
    
    
    170.0
    
    
    
    
    
    
    
    7.4
    %
    
    
    0.0
    %
    
    
    Total costs and expenses
    
    
    1,928.0
    
    
    
    1,534.7
    
    
    
    83.5
    %
    
    
    76.4
    %
    
    
    25.6
    %Income from operations
    
    
    381.5
    
    
    
    475.2
    
    
    
    16.5
    %
    
    
    23.6
    %
    
    
    -19.7
    %Interest income and other, net
    
    
    21.0
    
    
    
    21.9
    
    
    
    0.9
    %
    
    
    1.1
    %
    
    
    -4.1
    %Income before income taxes and
minority interest
    
    
    402.5
    
    
    
    497.1
    
    
    
    17.4
    %
    
    
    24.7
    %
    
    
    -19.0
    %Provision for income taxes
    
    
    155.8
    
    
    
    191.4
    
    
    
    6.7
    %
    
    
    9.5
    %
    
    
    -18.6
    %Minority interest, net of tax
    
    
    (0.2
    )
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    Net income
    
    $
    246.9
    
    
    $
    305.7
    
    
    
    10.7
    %
    
    
    15.2
    %
    
    
    -19.2
    %
 Page 35 of 48




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##### Table of Contents



Tuition and Other Revenue, Net
  Nine MonthsEnded May 31,
    
    
    % of Revenues($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007UPX
    
    $
    2,195.8
    
    
    $
    1,862.1
    
    
    
    95.1
    %
    
    
    92.6
    %Other Schools
    
    
    101.1
    
    
    
    146.5
    
    
    
    4.4
    %
    
    
    7.3
    %Apollo Global
    
    
    4.4
    
    
    
    
    
    
    
    0.2
    %
    
    
    Corporate
    
    
    8.2
    
    
    
    1.3
    
    
    
    0.3
    %
    
    
    0.1
    %Tuition and other
revenue, net
    
    $
    2,309.5
    
    
    $
    2,009.9
    
    
    
    100.0
    %
    
    
    100.0
    %
       Page 36 of 48




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##### Table of Contents



Instructional Costs and Services
  Nine MonthsEnded May 31,
    
    
    % of Revenues
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Employee compensation and related expenses
    
    $
    360.1
    
    
    $
    315.2
    
    
    
    15.6
    %
    
    
    15.8
    %
    
    
    14.2
    %Faculty compensation
    
    
    197.4
    
    
    
    173.8
    
    
    
    8.5
    %
    
    
    8.6
    %
    
    
    13.6
    %Classroom lease expenses and depreciation
    
    
    157.7
    
    
    
    152.8
    
    
    
    6.8
    %
    
    
    7.6
    %
    
    
    3.2
    %Other instructional costs and services
    
    
    139.7
    
    
    
    126.3
    
    
    
    6.2
    %
    
    
    6.3
    %
    
    
    10.6
    %Bad debt expense
    
    
    79.3
    
    
    
    83.3
    
    
    
    3.4
    %
    
    
    4.1
    %
    
    
    (4.8
    %)Financial aid processing costs
    
    
    57.7
    
    
    
    45.9
    
    
    
    2.5
    %
    
    
    2.3
    %
    
    
    25.7
    %Share-based compensation
    
    
    16.7
    
    
    
    12.9
    
    
    
    0.7
    %
    
    
    0.6
    %
    
    
    29.5
    %Instructional costs and services
    
    $
    1,008.6
    
    
    $
    910.2
    
    
    
    43.7
    %
    
    
    45.3
    %
    
    
    10.8
    %
      Page 37 of 48




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##### Table of Contents



Selling and Promotional
  Nine MonthsEnded May 31,
    
    
    % of Revenues
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Enrollment counselors compensation
and related expenses
    
    $
    283.6
    
    
    $
    235.1
    
    
    
    12.3
    %
    
    
    11.7
    %
    
    
    20.6
    %Advertising
    
    
    230.4
    
    
    
    204.2
    
    
    
    10.0
    %
    
    
    10.2
    %
    
    
    12.8
    %Other selling and promotional expenses
    
    
    65.4
    
    
    
    43.0
    
    
    
    2.8
    %
    
    
    2.1
    %
    
    
    52.1
    %Share-based compensation
    
    
    2.8
    
    
    
    3.0
    
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    (6.7
    %)Selling and promotional
    
    $
    582.2
    
    
    $
    485.3
    
    
    
    25.2
    %
    
    
    24.1
    %
    
    
    20.0
    %
      Page 38 of 48




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##### Table of Contents



General and Administrative
  Nine MonthsEnded May 31,
    
    
    % of Revenues
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Employee compensation and related expenses
    
    $
    68.9
    
    
    $
    50.4
    
    
    
    3.0
    %
    
    
    2.5
    %
    
    
    36.7
    %Share-based compensation
    
    
    30.0
    
    
    
    24.9
    
    
    
    1.3
    %
    
    
    1.2
    %
    
    
    20.5
    %Legal, audit, and corporate insurance
    
    
    19.0
    
    
    
    9.1
    
    
    
    0.8
    %
    
    
    0.5
    %
    
    
    108.8
    %Administrative space and depreciation
    
    
    18.6
    
    
    
    15.6
    
    
    
    0.8
    %
    
    
    0.8
    %
    
    
    19.2
    %Other general and administrative expenses
    
    
    30.7
    
    
    
    39.2
    
    
    
    1.3
    %
    
    
    2.0
    %
    
    
    (21.7
    %)General and administrative
    
    $
    167.2
    
    
    $
    139.2
    
    
    
    7.2
    %
    
    
    7.0
    %
    
    
    20.1
    %
  Nine MonthsEnded May 31,($ in millions)
    
    2008
    
    
    2007
    
    
    Line item included in aboveStock option modifications
    
    $
    
    
    
    $
    12.1
    
    
    Share-based compensationFair value adjustment for former employee stock options
    
    
    
    
    
    
    2.7
    
    
    Other general and administrative expensesStock option investigation / financial statement
restatement
    
    
    
    
    
    
    13.0
    
    
    Other general and administrative expensesSubtotal
    
    $
    
    
    
    $
    27.8
  Nine MonthsEnded May 31,
    
    
    % of Revenues
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Employee compensation and related
expenses
    
    $
    68.9
    
    
    $
    50.4
    
    
    
    3.0
    %
    
    
    2.5
    %
    
    
    36.7
    %Share-based compensation
    
    
    30.0
    
    
    
    12.8
    
    
    
    1.3
    %
    
    
    0.6
    %
    
    
    134.4
    %Legal, audit, and corporate insurance
    
    
    19.0
    
    
    
    9.1
    
    
    
    0.8
    %
    
    
    0.5
    %
    
    
    108.8
    %Administrative space and depreciation
    
    
    18.6
    
    
    
    15.6
    
    
    
    0.8
    %
    
    
    0.8
    %
    
    
    19.2
    %Other general and administrative expenses
    
    
    30.7
    
    
    
    23.5
    
    
    
    1.3
    %
    
    
    1.1
    %
    
    
    30.6
    %General and administrative
    
    $
    167.2
    
    
    $
    111.4
    
    
    
    7.2
    %
    
    
    5.5
    %
    
    
    50.1
    %
  Estimated Securities Litigation Loss
  Page 39 of 48




---



##### Table of Contents



Interest Income and Other, Net
 Nine MonthsEnded May 31,($ in millions)
    
    2008
    
    
    2007Interest income
    
    $
    24.8
    
    
    $
    22.4Interest expense
    
    
    (2.6
    )
    
    
    (0.4
    )Other expense, net
    
    
    
    
    
    
    (0.1
    )Foreign currency transaction loss, net
    
    
    (1.2
    )
    
    
    Interest income and other, net
    
    $
    21.0
    
    
    $
    21.9
  Provision for Income Taxes
  Liquidity, Capital Resources, and Financial Position
  Cash and Cash Equivalents and Marketable Securities
    Page 40 of 48




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##### Table of Contents



Cash Flows
 Operating Activities
  Nine MonthsEnded May 31,($ in millions)
    
    2008
    
    
    2007Net income
    
    $
    246.9
    
    
    $
    305.7Non-cash items
    
    
    264.7
    
    
    
    141.1Changes in certain operating assets and liabilities
    
    
    56.8
    
    
    
    (40.3
    )Net cash from operating activities
    
    $
    568.4
    
    
    $
    406.5
   Page 41 of 48




---



##### Table of Contents



Investing Activities
  Sale-Leaseback Option
 Financing Activities
  Contractual Obligations and Other Commercial Commitments
   Page 42 of 48




---



##### Table of Contents



Federal Family Education Loan Program and Private Student Loans
    Recent Accounting Pronouncements
  Page 43 of 48




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
         
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Page 44 of 48




---



##### Table of Contents



Changes in Internal Control over Financial Reporting
  Page 45 of 48




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Numberof SharesRepurchasedas Part ofPublicly
    
    
    Maximum ValueTotal # of
    
    
    Average Price
    
    
    Announced
    
    
    of SharesShares
    
    
    Paid per
    
    
    Plans or
    
    
    Available for(Numbers in thousands, except per share amounts)
    
    Repurchased
    
    
    Share
    
    
    Programs
    
    
    RepurchaseTreasury stock as of February 29, 2008
    
    
    20,210
    
    
    $
    65.94
    
    
    
    20,210
    
    
    $
    500,000New authorizations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares reissued
    
    
    (2
    )
    
    
    65.94
    
    
    
    (2
    )
    
    
    Treasury stock as of March 31, 2008
    
    
    20,208
    
    
    
    65.94
    
    
    
    20,208
    
    
    
    500,000New authorizations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares repurchased
    
    
    9,665
    
    
    
    46.31
    
    
    
    9,665
    
    
    
    447,534Shares reissued
    
    
    (52
    )
    
    
    59.58
    
    
    
    (52
    )
    
    
    Treasury stock as of April 30, 2008
    
    
    29,821
    
    
    
    59.58
    
    
    
    29,821
    
    
    
    52,466New authorizations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares repurchased
    
    
    159
    
    
    
    42.99
    
    
    
    159
    
    
    
    6,828Shares reissued
    
    
    (2
    )
    
    
    59.50
    
    
    
    (2
    )
    
    
    Treasury stock as of May 31, 2008
    
    
    29,978
    
    
    $
    59.50
    
    
    
    29,978
    
    
    $
    45,638
   
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  Page 46 of 48




---



##### Table of Contents



Item 6. Exhibits
 APOLLO GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
 Exhibit Number
    
    Description of Exhibit3.1
    
    
    Amended and Restated Articles of Incorporation of Apollo Group, Inc. incorporated by reference to Annex B of Apollo Group, Incs Proxy Statement filed with
the Securities and Exchange Commission on August 1, 2000.3.1a
    
    
    Articles of Amendment to the Articles of Incorporation of Apollo Group, Inc., incorporated by reference to Exhibit 99.1 of Apollo Group, Inc.s Form 8-K
filed with the Securities and Exchange Commission on June 27, 2007.3.2
    
    
    Amended and Restated Bylaws of Apollo Group, Inc. incorporated by reference to Exhibit 3.2 of Apollo Group, Incs Form 10-Q filed with the Securities and
Exchange Commission on April 10, 2006.10.1
    
    
    Third Amendment to Option Agreement and Joint Order to Title Company by and between Apollo Group, Inc. and Macquarie Riverpoint AZ, LLC, dated April 28, 2008.10.2
    
    
    Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan, effective March 25, 2008 (as corrected).31.1
    
    
    Certification of Principal Executive and Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Principal Executive and Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
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##### Table of Contents



APOLLO GROUP, INC.(Registrant)Date: July 1, 2008By:
    
    /s/ Joseph L. DAmico

Joseph L. DAmicoPresident, Chief Financial Officer and Treasurer(Principal Financial Officer and Duly Authorized Signatory)By:
    
    /s/ Brian L. Swartz

Brian L. SwartzSenior Vice President of Finance and Chief Accounting Officer(Principal Accounting Officer and Duly Authorized Signatory)
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