##### 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 February 28, 2009
 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
    
    160,351,000 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
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 4. Controls and Procedures
    
    
    42PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    43Item 1A. Risk Factors
    
    
    43Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3. Defaults Upon Senior Securities
    
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    44SIGNATURES
    
    
    45EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  Page 2 of 45




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Special Note Regarding Forward-Looking Statements
 This Quarterly Report on Form 10-Q, including Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A), contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than statements of historical
fact may be forward-looking statements. Such forward-looking statements include, among others,
those statements regarding future events and future results of Apollo Group, Inc. (the Company,
Apollo Group, Apollo, APOL, we, us or our) that are based on current expectations,
estimates, forecasts, and the beliefs and assumptions of us and our management, and speak only as
of the date made and are not guarantees of future performance or results. In some cases,
forward-looking statements can be identified by terminology such as may, will, should,
could, believe, expect, anticipate, estimate, plan, predict, target, potential,
continue, objectives, or the negative of these terms or other comparable terminology. Such
forward-looking statements are necessarily estimates based upon current information and involve a
number of risks and uncertainties. Such statements should be viewed with caution. Actual events or
results may differ materially from the results anticipated in these forward-looking statements as a
result of a variety of factors. While it is impossible to identify all such factors, factors that
could cause actual results to differ materially from those estimated by us include but are not
limited to:
 
    
    changes in the regulation of the education industry, including the regulatory and other
requirements discussed in Item 1, Business, of our Annual Report onForm 10-Kfor the year
ended August 31, 2008, under Accreditation and Jurisdictional Authorizations, Financial
Aid Programs, and Regulatory Environment;
    
    each of the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form
10-K for the year ended August 31, 2008; and
    
    those factors set forth in Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations, of our Annual Report onForm 10-Kfor the year ended
August 31, 2008.
 The cautionary statements referred to in this section also should be considered in connection with
any subsequent written or oral forward-looking statements that may be issued by us or persons
acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking
statements for any changes, events, or circumstances occurring after the date of this report.
Furthermore, we cannot guarantee future results, events, levels of activity, performance, or
achievements.
 Page 3 of 45




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Item 1. Financial Statements
 APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 As ofFebruary 28,
    
    
    August 31,($ in thousands)
    
    2009
    
    
    2008ASSETS:Current assetsCash and cash equivalents
    
    $
    884,424
    
    
    $
    483,195Restricted cash and cash equivalents
    
    
    498,387
    
    
    
    384,155Marketable securities, current portion
    
    
    1,393
    
    
    
    3,060Accounts receivable, net
    
    
    193,953
    
    
    
    221,919Deferred tax assets, current portion
    
    
    55,656
    
    
    
    55,434Prepaid taxes
    
    
    55,376
    
    
    
    Other current assets
    
    
    28,797
    
    
    
    21,780Total current assets
    
    
    1,717,986
    
    
    
    1,169,543Property and equipment, net
    
    
    457,528
    
    
    
    439,135Marketable securities, less current portion
    
    
    23,001
    
    
    
    25,204Goodwill
    
    
    88,261
    
    
    
    85,968Intangible assets, net
    
    
    16,804
    
    
    
    23,096Deferred tax assets, less current portion
    
    
    101,486
    
    
    
    89,499Other assets
    
    
    29,218
    
    
    
    27,967Total assets
    
    $
    2,434,284
    
    
    $
    1,860,412LIABILITIES AND SHAREHOLDERS EQUITY:Current liabilitiesAccounts payable
    
    $
    67,756
    
    
    $
    46,589Accrued liabilities
    
    
    121,784
    
    
    
    121,200Current portion of long-term liabilities
    
    
    40,052
    
    
    
    47,228Income taxes payable
    
    
    
    
    
    
    6,111Student deposits
    
    
    521,468
    
    
    
    413,302Deferred revenue
    
    
    247,466
    
    
    
    231,179Total current liabilities
    
    
    998,526
    
    
    
    865,609Deferred tax liabilities
    
    
    1,943
    
    
    
    2,743Long-term liabilities, less current portion
    
    
    158,749
    
    
    
    145,895Total liabilities
    
    
    1,159,218
    
    
    
    1,014,247Commitments and contingencies (Note 13)Minority interest
    
    
    11,527
    
    
    
    11,956Shareholders 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
    
    
    21,937
    
    
    
    Apollo Group Class A treasury stock, at cost
    
    
    (1,645,745
    )
    
    
    (1,757,277
    )Retained earnings
    
    
    2,902,430
    
    
    
    2,595,340Accumulated other comprehensive loss
    
    
    (15,187
    )
    
    
    (3,958
    )Total shareholders equity
    
    
    1,263,539
    
    
    
    834,209Total liabilities and shareholders equity
    
    $
    2,434,284
    
    
    $
    1,860,412
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 Page 4 of 45




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,(in thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue
    
    $
    876,129
    
    
    $
    693,643
    
    
    $
    1,847,096
    
    
    $
    1,474,317Costs and expenses:Instructional costs and services
    
    
    373,290
    
    
    
    327,723
    
    
    
    750,586
    
    
    
    661,011Selling and promotional
    
    
    225,711
    
    
    
    201,705
    
    
    
    454,296
    
    
    
    378,614General and administrative
    
    
    71,100
    
    
    
    55,011
    
    
    
    129,321
    
    
    
    106,292Estimated securities litigation loss (Note 13)
    
    
    
    
    
    
    168,400
    
    
    
    
    
    
    
    168,400Total costs and expenses
    
    
    670,101
    
    
    
    752,839
    
    
    
    1,334,203
    
    
    
    1,314,317Income (loss) from operations
    
    
    206,028
    
    
    
    (59,196
    )
    
    
    512,893
    
    
    
    160,000Interest income and other, net
    
    
    1,977
    
    
    
    8,059
    
    
    
    3,493
    
    
    
    17,708Income (loss) before income taxes and minority
interest
    
    
    208,005
    
    
    
    (51,137
    )
    
    
    516,386
    
    
    
    177,708(Provision for) benefit from income taxes
    
    
    (82,929
    )
    
    
    19,098
    
    
    
    (211,002
    )
    
    
    (69,882
    )Minority interest, net of tax
    
    
    270
    
    
    
    
    
    
    
    322
    
    
    
    Net income (loss)
    
    $
    125,346
    
    
    $
    (32,039
    )
    
    $
    305,706
    
    
    $
    107,826Earnings (loss) per share:Basic income (loss) per share
    
    $
    0.78
    
    
    $
    (0.19
    )
    
    $
    1.91
    
    
    $
    0.64Diluted income (loss) per share
    
    $
    0.77
    
    
    $
    (0.19
    )
    
    $
    1.89
    
    
    $
    0.63Basic weighted average shares outstanding
    
    
    160,153
    
    
    
    168,005
    
    
    
    159,643
    
    
    
    167,521Diluted weighted average shares outstanding
    
    
    162,757
    
    
    
    168,005
    
    
    
    161,806
    
    
    
    169,876
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 Page 5 of 45




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,($ in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    125,346
    
    
    $
    (32,039
    )
    
    $
    305,706
    
    
    $
    107,826Other comprehensive income (loss) (net of
tax):Currency translation gain (loss)
    
    
    411
    
    
    
    (148
    )
    
    
    (9,907
    )
    
    
    (529
    )Unrealized loss on auction-rate securities
    
    
    
    
    
    
    
    
    
    
    (1,322
    )
    
    
    Comprehensive income (loss)
    
    $
    125,757
    
    
    $
    (32,187
    )
    
    $
    294,477
    
    
    $
    107,297
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 Page 6 of 45




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedFebruary 28,
    
    
    February 29,($ in thousands)
    
    2009
    
    
    2008Cash flows provided by (used in) operating activities:Net income
    
    $
    305,706
    
    
    $
    107,826Adjustments to reconcile net income to net cash provided by operating
activities:Share-based compensation
    
    
    31,358
    
    
    
    35,030Excess tax benefits from share-based compensation
    
    
    (11,181
    )
    
    
    (17,674
    )Depreciation and amortization
    
    
    46,338
    
    
    
    37,545Amortization of deferred gain on sale-leaseback
    
    
    (818
    )
    
    
    (893
    )Non-cash foreign currency losses, net
    
    
    2,599
    
    
    
    Provision for uncollectible accounts receivable
    
    
    70,913
    
    
    
    58,986Estimated securities litigation loss (Note 13)
    
    
    
    
    
    
    168,400Minority interest, net of tax
    
    
    (322
    )
    
    
    Deferred income taxes
    
    
    (12,583
    )
    
    
    (71,977
    )Changes in assets and liabilities, excluding the impact of acquisitions:Accounts receivable
    
    
    (48,272
    )
    
    
    (26,288
    )Other assets
    
    
    (9,112
    )
    
    
    (6,199
    )Accounts payable and accrued liabilities
    
    
    18,137
    
    
    
    (21,072
    )Income taxes payable
    
    
    (51,953
    )
    
    
    (20,796
    )Student deposits
    
    
    108,216
    
    
    
    60,455Deferred revenue
    
    
    20,921
    
    
    
    7,111Other liabilities
    
    
    5,696
    
    
    
    (986
    )Net cash provided by operating activities
    
    
    475,643
    
    
    
    309,468Cash flows provided by (used in) investing activities:Additions to property and equipment
    
    
    (64,019
    )
    
    
    (55,978
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (47,055
    )Purchase of marketable securities
    
    
    
    
    
    
    (875,205
    )Maturities of marketable securities
    
    
    1,660
    
    
    
    803,640Collateralization of bond posted for securities litigation matter
    
    
    
    
    
    
    (95,000
    )Increase in restricted cash and cash equivalents
    
    
    (114,232
    )
    
    
    (63,046
    )Net cash used in investing activities
    
    
    (176,591
    )
    
    
    (332,644
    )Cash flows provided by (used in) financing activities:Payments on borrowings
    
    
    (15,498
    )
    
    
    Proceeds from borrowings
    
    
    13,620
    
    
    
    Issuance of Apollo Group Class A common stock
    
    
    96,486
    
    
    
    79,023Class A common stock purchased for treasury
    
    
    (2,505
    )
    
    
    Excess tax benefits from share-based compensation
    
    
    11,181
    
    
    
    17,674Net cash provided by financing activities
    
    
    103,284
    
    
    
    96,697Exchange rate effect on cash and cash equivalents
    
    
    (1,107
    )
    
    
    (870
    )Net increase in cash and cash equivalents
    
    
    401,229
    
    
    
    72,651Cash and cash equivalents, beginning of period
    
    
    483,195
    
    
    
    339,319Cash and cash equivalents, end of period
    
    $
    884,424
    
    
    $
    411,970Supplemental disclosure of cash flow informationCash paid during the period for income taxes
    
    $
    269,646
    
    
    $
    162,709Cash paid during the period for interest
    
    $
    1,263
    
    
    $
    658Supplemental disclosure of non-cash investing and financing activitiesCredits received for tenant improvements
    
    $
    7,161
    
    
    $
    6,000Purchases of property and equipment included in accounts payable
    
    $
    5,251
    
    
    $
    4,614Settlement and reclassification of liability awards
    
    $
    
    
    
    $
    16,340Restricted stock units vested and released
    
    $
    7,362
    
    
    $
    Unrealized loss on auction-rate securities
    
    $
    2,203
    
    
    $
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 Note 1. Nature of Operations
   Note 2. Basis of Presentation
  Financial Statements and Supplementary Data, Managements Discussion and Analysis of Financial Condition and Results of Operations
    Recent Accounting Pronouncements
  Page 8 of 45




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
    
    upon initially obtaining control, the acquiring entity in a business combination must
recognize 100% of the fair values of the acquired assets, including goodwill, and assumed
liabilities, with only limited exceptions even if the acquirer has not acquired 100% of its
targetas a consequence, the current step acquisition model will be eliminated;
    
    contingent consideration arrangements will be fair valued at the acquisition date and
included in the purchase price considerationthe concept of recognizing contingent
consideration at a later date when the amount of that consideration is determinable beyond
a reasonable doubt, will no longer be applicable;
    
    for prior business combinations, adjustments for recognized changes in acquired tax
uncertainties are to be recognized in accordance with the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  An Interpretation of FASB No. 109,
and adjustments for recognized changes in the valuation allowance for acquired deferred tax
assets are to be recognized in income tax expense in accordance with the provisions of SFAS
No. 109, Accounting for Income Taxes; and
    
    all transaction costs will be expensed as incurred.
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Note 3. Acquisitions
 Apollo Global
  Note 4. Marketable Securities
  February 28,
    
    
    August 31,($ in thousands)
    
    2009
    
    
    2008Current marketable securities:Municipal bonds
    
    $
    1,393
    
    
    $
    3,060Total current marketable securities
    
    
    1,393
    
    
    
    3,060Noncurrent marketable securities:Auction-rate securities
    
    
    23,001
    
    
    
    25,204Total noncurrent marketable
securities
    
    
    23,001
    
    
    
    25,204Total marketable securities
    
    $
    24,394
    
    
    $
    28,264
  February 28, 2009
    
    
    August 31, 2008Amortized
    
    
    Gross Unrealized
    
    
    Fair Market
    
    
    Amortized
    
    
    Gross Unrealized
    
    
    Fair Market($ in thousands)
    
    Cost
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Losses
    
    
    ValueAvailable-for-sale securitiesAuction-rate securities
    
    $
    26,825
    
    
    $
    (3,824
    )
    
    $
    23,001
    
    
    $
    26,825
    
    
    $
    (1,621
    )
    
    $
    25,204Total
available-for-sale
securities
    
    $
    26,825
    
    
    $
    (3,824
    )
    
    $
    23,001
    
    
    $
    26,825
    
    
    $
    (1,621
    )
    
    $
    25,204
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February 28, 2009
    
    August 31, 2008Amortized
    
    Fair Market
    
    Amortized
    
    Fair Market($ in thousands)
    
    Cost
    
    Value
    
    Cost
    
    ValueHeld-to-maturity securitiesMunicipal bonds
    
    $
    1,393
    
    
    $
    1,510
    
    
    $
    3,060
    
    
    $
    3,071Total held-to-maturity securities
    
    $
    1,393
    
    
    $
    1,510
    
    
    $
    3,060
    
    
    $
    3,071
 Auction-Rate Securities:
    
    
    our ability and intent to hold these securities until the market stabilizes in order to
sell the securities at par based on our cash and cash equivalents balance at February 28,
2009, available borrowing under our credit facility, and our operating cash flow;
    
    the high quality of the underlying collateral;
    
    the high credit quality of the issuers;
    
    the fact that the issuers continue to pay interest in a timely manner; and
    
    the lack of defaults in the underlying debt.
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Municipal Bonds:
  Note 5. Accounts Receivable, net
  February 28,
    
    
    August 31,($ in thousands)
    
    2009
    
    
    2008Student accounts receivable
    
    $
    262,854
    
    
    $
    279,841Less allowance for doubtful accounts
    
    
    (95,715
    )
    
    
    (78,362
    )Net student accounts receivable
    
    
    167,139
    
    
    
    201,479Other receivables
    
    
    26,814
    
    
    
    20,440Total accounts receivable, net
    
    $
    193,953
    
    
    $
    221,919
  Managements Discussion and Analysis of Financial
Condition and Results of Operations
 Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,($ in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning allowance for doubtful accounts
    
    $
    88,274
    
    
    $
    104,652
    
    
    $
    78,362
    
    
    $
    99,818Provision for uncollectible accounts receivable
    
    
    36,056
    
    
    
    26,601
    
    
    
    70,913
    
    
    
    58,986Write-offs, net of recoveries
    
    
    (28,615
    )
    
    
    (37,835
    )
    
    
    (53,560
    )
    
    
    (65,386
    )Ending allowance for doubtful accounts
    
    $
    95,715
    
    
    $
    93,418
    
    
    $
    95,715
    
    
    $
    93,418
 Note 6. Goodwill
  University of
    
    Apollo
    
    Insight
    
    Other
    
    Total($ in thousands)
    
    Phoenix
    
    Global
    
    Schools
    
    Schools
    
    GoodwillGoodwill as of August 31, 2008
    
    $
    37,018
    
    
    $
    19,317
    
    
    $
    12,742
    
    
    $
    16,891
    
    
    $
    85,968UNIACC earn-out consideration
    
    
    
    
    
    
    7,135
    
    
    
    
    
    
    
    
    
    
    
    7,135Currency translation adjustment
    
    
    
    
    
    
    (4,842
    )
    
    
    
    
    
    
    
    
    
    
    (4,842
    )Goodwill as of February 28, 2009
    
    $
    37,018
    
    
    $
    21,610
    
    
    $
    12,742
    
    
    $
    16,891
    
    
    $
    88,261
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Note 7. Fair Value Measurements
   
    
    Level 1  Observable inputs that reflect quoted market prices (unadjusted) for identical
assets and liabilities in active markets;
    
    Level 2  Observable inputs, other than quoted market prices, that are either directly
or indirectly observable in the marketplace for identical or similar assets and
liabilities, quoted prices in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data for substantially the full term
of the assets and liabilities; and
    
    Level 3  Unobservable inputs that are supported by little or no market activity that
are significant to the fair value of assets or liabilities.
   Fair Value Measurements at Reporting Date UsingSignificantQuoted Prices in
    
    
    Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableFebruary 28,
    
    
    for Identical
    
    
    Inputs
    
    
    Inputs($ in thousands)
    
    2009
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Cash equivalents (including restricted cash equivalents):Money market funds
    
    $
    1,317,524
    
    
    $
    1,312,222
    
    
    $
    5,302
    
    
    $
    Marketable securities:Auction-rate securities
    
    
    23,001
    
    
    
    
    
    
    
    
    
    
    
    23,001Total assets:
    
    $
    1,340,525
    
    
    $
    1,312,222
    
    
    $
    5,302
    
    
    $
    23,001
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($ in thousands)Balance at August 31, 2008
    
    $
    25,204Unrealized loss in other comprehensive loss
    
    
    (2,203
    )Redemptions at par value
    
    
    Transfers in (out) of Level 3
    
    
    Balance at February 28, 2009
    
    $
    23,001Net unrealized gains (losses) included in
earnings related to assets held as of February
28, 2009
    
    $
    
 Page 14 of 45




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Note 8. Long-Term Liabilities
  February 28,
    
    
    August 31,($ in thousands)
    
    2009
    
    
    2008Deferred rent and other lease incentives
    
    $
    72,796
    
    
    $
    72,512Reserve for uncertain tax positions (Note 9)
    
    
    60,563
    
    
    
    55,319Credit facilities  UNIACC and ULA
    
    
    17,267
    
    
    
    23,145Capital lease obligations
    
    
    7,022
    
    
    
    7,771Deferred vendor incentive
    
    
    10,804
    
    
    
    12,293Deferred gains on sale-leasebacks
    
    
    7,923
    
    
    
    8,739UNIACC earn-out consideration (Note 3)
    
    
    7,135
    
    
    
    Deferred compensation
    
    
    2,391
    
    
    
    2,326Other long-term liabilities
    
    
    12,900
    
    
    
    11,018Total liabilities
    
    
    198,801
    
    
    
    193,123Less current portion
    
    
    (40,052
    )
    
    
    (47,228
    )Total long-term liabilities
    
    $
    158,749
    
    
    $
    145,895
 Note 9. Income Taxes
    Note 10. Stockholders Equity
 Share Reissuances
  Share Repurchases
   Page 15 of 45




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Note 11. Earnings Per Share
 Apollo Group Common Stock
   Three Months EndedFebruary 28, 2009
    
    
    February 29, 2008Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Per Share
    
    
    
    
    
    
    Average
    
    
    Per Share(in thousands, except per share data)
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Loss
    
    
    Shares
    
    
    AmountBasic income (loss) per share
    
    $
    125,346
    
    
    
    160,153
    
    
    $
    0.78
    
    
    $
    (32,039
    )
    
    
    168,005
    
    
    $
    (0.19
    )Effect of dilutive securities:Stock options (1)
    
    
    
    
    
    
    2,356
    
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    Restricted stock units(2)
    
    
    
    
    
    
    248
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted income (loss) per share
    
    $
    125,346
    
    
    
    162,757
    
    
    $
    0.77
    
    
    $
    (32,039
    )
    
    $
    168,005
    
    
    $
    (0.19
    )
 Six Months EndedFebruary 28, 2009
    
    
    February 29, 2008Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Per Share
    
    
    
    
    
    
    Average
    
    
    Per Share(in thousands, except per share data)
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic income per share
    
    $
    305,706
    
    
    
    159,643
    
    
    $
    1.91
    
    
    $
    107,826
    
    
    
    167,521
    
    
    $
    0.64Effect of dilutive securities:Stock options (1)
    
    
    
    
    
    
    1,932
    
    
    
    (0.02
    )
    
    
    
    
    
    
    2,213
    
    
    
    (0.01
    )Restricted stock units(2)
    
    
    
    
    
    
    231
    
    
    
    
    
    
    
    
    
    
    
    142
    
    
    
    Diluted income per share
    
    $
    305,706
    
    
    
    161,806
    
    
    $
    1.89
    
    
    $
    107,826
    
    
    $
    169,876
    
    
    $
    0.63
 
 (1)
    
    For the three months ended February 28, 2009 and February 29,
2008, approximately 324,000 and 2,820,000, respectively, and for the six months
ended February 28, 2009 and February 29, 2008, approximately 1,220,000 and
1,330,000, respectively, of our stock options outstanding were excluded from
the calculation of diluted earnings per share because their inclusion would
have been anti-dilutive. These options could be dilutive in the future.(2)
    
    For the three months ended February 28, 2009 and February 29,
2008, approximately 3,000 and 169,000, respectively, and for the six months
ended February 28, 2009, approximately 3,000 of our restricted stock units were
excluded from the calculation of diluted earnings per share because their
inclusion would have been anti-dilutive. These restricted stock units could be
dilutive in the future. Note 12. Share-Based Compensation
   Page 16 of 45




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Note 13. Commitments and Contingencies
  Contingencies Related to Litigation and Other Proceedings
  Pending Litigation and Settlements
 Incentive Compensation False Claims Act Lawsuit
  Securities Class Action
 In re Apollo Group, Inc. Securities Litigation
 Page 17 of 45




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Equal Employment Opportunity Commission v. University of Phoenix
  Barnett Derivative Action
 Barnett v. John Blair et
al
 Page 18 of 45




---



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qui tam
 Bamboo Partners Derivative Action
 Bamboo Partners v. Nelson et al.
  Page 19 of 45




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Teamsters Local Union Putative Class Action
 Teamsters Local 617 Pension & Welfare Funds v. Apollo Group, Inc. et al.
 Patent Infringement Litigation
  Student Loan Class Action
  Regulatory and Other Legal Matters
 Student Financial Aid
  Page 20 of 45




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Department of Education Audits and Other Matters
   Internal Revenue Service Audit
  Page 21 of 45




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Note 14. Segment Reporting
 Financial Statements and Supplementary Data,
  Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,2009
    
    
    2008
    
    
    2009
    
    
    2008($ in thousands)Net revenue:University of Phoenix
    
    $
    829,276
    
    
    $
    657,971
    
    
    $
    1,742,484
    
    
    $
    1,401,361Apollo Global
    
    
    14,062
    
    
    
    
    
    
    
    31,064
    
    
    
    Insight Schools (1)
    
    
    6,586
    
    
    
    3,060
    
    
    
    14,271
    
    
    
    5,148Other Schools (1)
    
    
    25,618
    
    
    
    28,409
    
    
    
    57,607
    
    
    
    62,986Corporate
    
    
    587
    
    
    
    4,203
    
    
    
    1,670
    
    
    
    4,822Total net revenue
    
    $
    876,129
    
    
    $
    693,643
    
    
    $
    1,847,096
    
    
    $
    1,474,317Income (loss) from operations:University of Phoenix
    
    $
    230,062
    
    
    $
    129,169
    
    
    $
    540,275
    
    
    $
    360,000Apollo Global
    
    
    (2,010
    )
    
    
    
    
    
    
    (1,271
    )
    
    
    Insight Schools (1)
    
    
    (5,971
    )
    
    
    (2,661
    )
    
    
    (9,894
    )
    
    
    (5,007
    )Other Schools (1)
    
    
    (1,297
    )
    
    
    2,759
    
    
    
    3,229
    
    
    
    10,523Corporate (2)
    
    
    (14,756
    )
    
    
    (188,463
    )
    
    
    (19,446
    )
    
    
    (205,516
    )Total income (loss) from operations
    
    
    206,028
    
    
    
    (59,196
    )
    
    
    512,893
    
    
    
    160,000Reconciling items:Interest income and other, net
    
    
    1,977
    
    
    
    8,059
    
    
    
    3,493
    
    
    
    17,708Income (loss) before income taxes
and minority interest
    
    $
    208,005
    
    
    $
    (51,137
    )
    
    $
    516,386
    
    
    $
    177,708
 
 (1)
    
    During fiscal year 2008, we began reporting Insight Schools as a separate
reportable segment, which was previously reported in our Other Schools segment. The above segment
information for fiscal year 2008 has been revised to conform to our current presentation. Please
refer to Item 8, Financial Statements and Supplementary Data, in our 2008 Annual Report on Form
10-K for further discussion of our segment reporting.(2)
    
    The operating loss for Corporate in both the three and six months ended February
29, 2008 includes the $168.4 million charge associated with the securities class action matter.
Please refer to Note 13, Commitments and Contigencies, for further discussion. Page 22 of 45




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February 28,
    
    
    August 31,2009
    
    
    2008($ in thousands)Assets:University of Phoenix
    
    $
    788,548
    
    
    $
    833,511Apollo Global
    
    
    108,644
    
    
    
    123,688Insight Schools
    
    
    32,817
    
    
    
    20,294Other Schools
    
    
    47,817
    
    
    
    46,914Corporate
    
    
    1,456,458
    
    
    
    836,005Total assets
    
    $
    2,434,284
    
    
    $
    1,860,412
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    Overview:From managements point of view, we discuss the following:
 
    
    An overview of our business and the segments of the education industry in which
we operate;
    
    Current economic and industry-wide trends and developments, opportunities,
challenges and risks that impact our business; and
    
    Key highlights from the current period.
 
    
    Critical Accounting Policies and Estimates:A discussion of our accounting policies
that require critical judgments and estimates.
    
    Recent Accounting Pronouncements:A discussion of recently issued accounting
pronouncements.
    
    Results of Operations:An analysis of our results of operations in our condensed
consolidated financial statements.
    
    Liquidity, Capital Resources, and Financial Position:An analysis of cash flows,
contractual obligations and other commercial commitments, and discussion regarding
federal and private student loans.
 OVERVIEW
  
    
    University of Phoenix
    
    Institute for Professional Development (IPD)
    
    College for Financial Planning Institutes (CFP)
    
    Western International University
    
    Insight Schools
    
    Meritus University
    Current Economic and Industry-wide Trends and Developments, Opportunities, Challenges and Risks
  
    
    Evolving Domestic Postsecondary Education Market.We believe domestic postsecondary
education continues to experience a profound shift from traditional undergraduate students
(those students living on campus and attending classes full-time) to
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non-traditional
students who work, are raising a family, or are doing both while trying to earn a college
degree. This trend continues to provide an opportunity for education providers such as
University of Phoenix to provide quality academic programs and services that appeal to
non-traditional students. We believe we are well positioned to capitalize on this trend.
    
    Economic Downturn.The U.S. and much of the world economy are in the midst of an
economic downturn. Although not quantifiable, we believe these conditions have contributed
to a portion of our recent enrollment growth as an increased number of working adults seek
to advance their education to improve their job security or reemployment prospects. One of
our primary challenges will be to adequately and effectively service our increased student
population without over-building our infrastructure and delivery platform in a manner that
might result in excess capacity when the portion of our growth that may be related to the
economic downturn subsides. Additionally, see below under Critical Accounting Policies and
Estimatesa discussion of the impact of the economic downturn on our allowance for doubtful
accounts.
    
    Regulatory Environment:
 
    
    Compliance.Our domestic business is highly regulated by the U.S. Department of
Education, the applicable academic accreditation agencies and state education regulatory
authorities. Compliance with these regulatory requirements is a significant part of our
administrative effort. In August 2008, the U.S. Congress reauthorized the Higher
Education Act through 2013 by enacting the Higher Education Opportunity Act, which
resulted in a large number of new and modified requirements that ultimately will be
implemented through Department of Education rulemaking. Little formal or informal
guidance is available for many of these requirements, and we are focused on evaluating
their implications and developing appropriate compliance procedures. Because our student
body is  large, new regulations, or changes in existing regulations, can require
significant time and effort on our part.
    
    Certification. As part of our eligibility to participate in Title IV programs, our
institutions involved in Title IV programs must be certified to participate and are
required to periodically renew their certification. University of Phoenix was
recertified in June 2003 and its current certification for the Title IV programs expired
in June 2007. In March 2007, University of Phoenix submitted its Title IV
recertification application to the Department of Education. We have been collaborating
with the Department of Education since that date and continue to supply additional
follow-up information based on requests from the Department. Our eligibility continues
on a month-to-month basis until the Department of Education issues its decision on the
application. A month-to-month status is not unusual considering the process is
multi-faceted and iterative. We have no reason to believe that the application will not
be renewed.
 
    
    New U.S. Administration. In January 2009, Barack Obama was sworn in as the 44th U.S.
President. It is too soon to predict the changes in higher education public policy that the
Obama Administration may propose, or the effect of the current U.S. economic downturn on
the Administrations ability to implement significant changes. However, in the
Administrations 2010 budget request delivered to Congress on February 26, 2009, the
Department of Education proposed to eliminate the Federal Family Education Loan Program
(FFELP) and instead require all Title IV student loans to be administered through the
Federal Direct Loan Program (FDLP) commencing July 1, 2010. We expect to be able to fully
transition from the FFELP program to the FDLP by the proposed July 1, 2010 phase-out date,
if necessary. If this proposal is adopted, the transition would require us to develop and
implement administrative capabilities and procedures for volume processing of loans under
the FDLP. If we experience a disruption in our ability to process student loans through the
FDLP, either because of administrative challenges on our part or the inability of the
Department of Education to process the substantial increase in direct loans, our results of
operations and cash flows could be adversely and materially affected. Other policy and
program changes in the Department of Education may present opportunities and challenges for
our business, the scope and magnitude of which cannot now be determined.
    
    Opportunities to Expand into New Markets.We believe that there is a growing demand for
high quality education outside the U.S. and that we have capabilities and expertise that
can be useful in providing these services beyond our current reach. We believe we can
deploy our key capabilities in student services, technology and marketing to expand into
new markets to further our mission of providing high quality, accessible education. We
intend to actively pursue quality opportunities to partner with and/or acquire existing
institutions of higher learning where we believe we can achieve long-term attractive growth
and value creation.
  Page 25 of 45




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Fiscal Year 2009 Highlights
  1.
    
    Degreed Enrollment and New Degreed Enrollment Growth. We achieved 19.4% growth in
average University of Phoenix Degreed Enrollment for the six months ended February 28, 2009
as compared to the six months ended February 29, 2008. University of Phoenix New Degreed
Enrollment during the first six months of fiscal year 2009 increased 24.4% as compared to
the first six months of fiscal year 2008. The enrollment growth is primarily attributable to
continued investments in enhancing and expanding University of Phoenix service offerings and
academic quality, which has attracted new students and increased student retention. We also
believe that a portion of the increase in University of Phoenix Degreed Enrollment and New
Degreed Enrollment is due to the current economic downturn, as working adults seek to
advance their education to improve their job security or reemployment prospects.2.
    
    Net Revenue Growth. Our net revenue increased 25.3% for the six months ended
February 28, 2009 as compared to the six months ended February 29, 2008 primarily as a
result of University of Phoenix Degreed Enrollment growth and selective tuition price
increases.3.
    
    Income from Operations Growth. Our income from operations increased 220.6%, or
$352.9 million for the six months ended February 28, 2009 as compared to the six months
ended February 29, 2008 primarily as a result of the securities litigation charge of $168.4
million in the six months ended February 29, 2008 and University of Phoenix net revenue
growth described above and associated economies of scale for certain costs that remain
relatively fixed. Excluding the securities litigation charge in the first six months ended
February 29, 2008, our income from operations grew 56.2% for the six months ended February
28, 2009 as compared to the six months ended February 29, 2008.4.
    
    Changes in Management and Addition of Directors. The following changes in
management and addition of directors occurred during our second quarter of fiscal year 2009:
 
    
    On March 26, 2009, our Board of Directors promoted Joseph L. DAmico to President
and Chief Operating Officer, Brian L. Swartz to Senior Vice President, Chief
Financial Officer and Treasurer, and Gregory J. Iverson to Vice President, Chief
Accounting Officer and Controller. Mr. DAmico had previously been serving as
President and Chief Financial Officer, Mr. Swartz had previously been serving as
Senior Vice President of Finance and Chief Accounting Officer, and Mr. Iverson had
previously been serving as Vice President and Corporate Controller.
    
    On March 11, 2009, our Class B Shareholders reelected our existing ten incumbent
directors to the Board of Directors and elected three additional directors: Terri C.
Bishop, our Executive Vice President of External Affairs, and independent directors,
Stephen J. Giusto and Manuel F. Rivelo.
    
    In December 2008, Diane Thompson resigned as Chief Human Resources Officer. On
March 25, 2009, Frederick J. Newton commenced employment as Senior Vice President of
Human Resources.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Goodwill
  Page 26 of 45




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Allowance for Doubtful Accounts
  RECENT ACCOUNTING PRONOUNCEMENTS
 Financial Statements
 RESULTS OF OPERATIONS
   
    
    Instructional costs and services consist primarily of costs related to the delivery
and administration of our educational programs and include costs related to faculty and
administrative compensation, classroom lease expenses and depreciation, bad debt expense,
financial aid processing costs and other related costs. Tuition costs for all employees and
their eligible family members are recorded as an expense within instructional costs and
services.
    
    Selling and promotional costs consist primarily of compensation for enrollment
counselors, management and support staff and corporate marketing, advertising expenses,
production of marketing materials, and other costs directly related to selling and
promotional functions. Selling and promotional costs are expensed when incurred.
    
    General and administrative costs consist primarily of corporate compensation,
occupancy costs, depreciation and amortization of property and equipment, legal and
professional fees, and other related costs.
 For the three months ended February 28, 2009 compared to the three months ended February 29, 2008
 Analysis of Condensed Consolidated Statements of Operations
 Analysis of Operating Results by Segment
 Page 27 of 45




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Three Months EndedFebruary 28,
    
    
    February 29,
    
    
    % of Net Revenue
    
    
    %2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    Change(in millions, except per share data)Net revenue
    
    $
    876.1
    
    
    $
    693.6
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    26.3
    %Costs and expenses:Instructional costs and services
    
    
    373.3
    
    
    
    327.7
    
    
    
    42.6
    %
    
    
    47.2
    %
    
    
    13.9
    %Selling and promotional
    
    
    225.7
    
    
    
    201.7
    
    
    
    25.8
    %
    
    
    29.1
    %
    
    
    11.9
    %General and administrative
    
    
    71.1
    
    
    
    55.0
    
    
    
    8.1
    %
    
    
    7.9
    %
    
    
    29.3
    %Estimated securities litigation loss
    
    
    
    
    
    
    168.4
    
    
    
    0.0
    %
    
    
    24.3
    %
    
    
    (100.0
    %)Total costs and expenses
    
    
    670.1
    
    
    
    752.8
    
    
    
    76.5
    %
    
    
    108.5
    %
    
    
    (11.0
    %)Income (loss) from operations
    
    
    206.0
    
    
    
    (59.2
    )
    
    
    23.5
    %
    
    
    (8.5
    %)
    
    
    448.0
    %Interest income and other, net
    
    
    2.0
    
    
    
    8.1
    
    
    
    0.2
    %
    
    
    1.2
    %
    
    
    (75.3
    %)Income (loss) before income taxes and minority interest
    
    
    208.0
    
    
    
    (51.1
    )
    
    
    23.7
    %
    
    
    (7.3
    %)
    
    
    507.0
    %(Provision for) benefit from income taxes
    
    
    (83.0
    )
    
    
    19.1
    
    
    
    (9.5
    %)
    
    
    2.8
    %
    
    
    (534.6
    %)Minority interest, net of tax
    
    
    0.3
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    
    *Net income (loss)
    
    $
    125.3
    
    
    $
    (32.0
    )
    
    
    14.2
    %
    
    
    (4.5
    %)
    
    
    491.6
    %Diluted income (loss) per share
    
    $
    0.77
    
    
    $
    (0.19
    )
    
    
    
    *
    
    
    
    *
    
    
    505.3
    %
 
 *
    
    not meaningful Net Revenue
  Instructional Costs and Services
  Selling and Promotional
  General and Administrative
 Financial
Statements
 Page 28 of 45




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Estimated Securities Litigation Loss
 Financial Statements
 Interest Income and Other, Net
  Three Months EndedFebruary 28,
    
    
    February 29,2009
    
    
    2008($ in millions)Interest income
    
    $
    3.4
    
    
    $
    8.5Interest expense
    
    
    (0.6
    )
    
    
    (0.6
    )Foreign currency and other, net
    
    
    (0.8
    )
    
    
    0.2Interest income and other, net
    
    $
    2.0
    
    
    $
    8.1
  (Provision for) Benefit from Income Taxes
  Page 29 of 45




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Analysis of Operating Results by Segment
  Three Months EndedFebruary 28,
    
    
    February 29,
    
    
    $
    
    
    %($ in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    ChangeNet revenueUniversity of Phoenix
    
    $
    829.3
    
    
    $
    658.0
    
    
    $
    171.3
    
    
    
    26.0
    %Apollo Global
    
    
    14.1
    
    
    
    
    
    
    
    14.1
    
    
    
    100.0
    %Insight Schools
    
    
    6.6
    
    
    
    3.0
    
    
    
    3.6
    
    
    
    120.0
    %Other Schools
    
    
    25.6
    
    
    
    28.4
    
    
    
    (2.8
    )
    
    
    (9.9
    %)Corporate(1)
    
    
    0.5
    
    
    
    4.2
    
    
    
    (3.7
    )
    
    
    (88.1
    %)Total net revenue
    
    $
    876.1
    
    
    $
    693.6
    
    
    $
    182.5
    
    
    
    26.3
    %Income (loss) from operationsUniversity of Phoenix
    
    $
    230.1
    
    
    $
    129.2
    
    
    $
    100.9
    
    
    
    78.1
    %Apollo Global
    
    
    (2.0
    )
    
    
    
    
    
    
    (2.0
    )
    
    
    (100.0
    %)Insight Schools
    
    
    (6.0
    )
    
    
    (2.7
    )
    
    
    (3.3
    )
    
    
    (122.2
    %)Other Schools
    
    
    (1.3
    )
    
    
    2.8
    
    
    
    (4.1
    )
    
    
    (146.4
    %)Corporate(1)
    
    
    (14.8
    )
    
    
    (188.5
    )
    
    
    173.7
    
    
    
    92.1
    %Total income (loss)
from operations
    
    $
    206.0
    
    
    $
    (59.2
    )
    
    $
    265.2
    
    
    
    448.0
    %
 
 (1)
    
    The Corporate caption in our segment reporting includes adjustments to reconcile
segment results to consolidated results, which primarily consist of net revenue and corporate
charges that are not allocated to our segments. The operating loss for Corporate in the second
quarter of fiscal year 2008 includes the $168.4 million charge associated with the securities class
action matter. University of Phoenix
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Degreed Enrollment(1)
    
    
    
    New Degreed Enrollment(2)Q2
    
    
    
    
    
    
    
    Q2%
    
    
    
    
    
    
    
    
    
    
    
    %Fiscal 2009
    
    
    Fiscal 2008
    
    
    Change
    
    
    
    Fiscal 2009
    
    
    Fiscal 2008
    
    
    Change(rounded to the nearest hundred)Associates
    
    
    170,500
    
    
    
    121,200
    
    
    
    40.7
    %
    
    
    
    41,700
    
    
    
    31,100
    
    
    
    34.1
    %Bachelors
    
    
    150,200
    
    
    
    136,400
    
    
    
    10.1
    %
    
    
    
    25,100
    
    
    
    21,500
    
    
    
    16.7
    %Masters
    
    
    70,500
    
    
    
    67,000
    
    
    
    5.2
    %
    
    
    
    12,500
    
    
    
    11,800
    
    
    
    5.9
    %Doctoral
    
    
    6,500
    
    
    
    5,600
    
    
    
    16.1
    %
    
    
    
    700
    
    
    
    600
    
    
    
    16.7
    %Total
    
    
    397,700
    
    
    
    330,200
    
    
    
    20.4
    %
    
    
    
    80,000
    
    
    
    65,000
    
    
    
    23.1
    %
 
 (1)
    
    Degreed Enrollment for a quarter represents individual students enrolled in a
University of Phoenix degree program or Western International University associates degree program
who attended a course during the quarter and did not graduate as of the end of the quarter. Degreed
Enrollment for a quarter also includes any student who previously graduated from one degree program
and started a new University of Phoenix degree program in the quarter (for example, a graduate of
the associates degree program returns for a bachelors degree or a bachelors degree graduate
returns for a masters degree). In addition, Degreed Enrollment includes students participating in
University of Phoenix certificate programs of at least 18 credit hours with some course
applicability into a related degree program. Students enrolled in or serviced by Apollo Global
institutions, Insight Schools and Other Schools (Western International Universitys non-associates
degree programs, IPD, CFP and Meritus University) are not included in Degreed Enrollment.(2)
    
    New Degreed Enrollment for a quarter represents any individual student enrolled in a
University of Phoenix degree program who is a new student and started a course in the quarter, any
individual student who previously graduated from one degree program and started a new degree
program in the quarter (for example, a graduate of an associates degree program returns for a
bachelors degree program, or a graduate of a bachelors degree program returns for a masters
degree), as well as any individual student who started a degree program in the quarter and had been
out of attendance for greater than 12 months. In addition, New Degreed Enrollment includes students
who in the quarter started participating in University of Phoenix certificate programs of at least
18 credit hours in length with some course applicability into a related degree program. Students
enrolled in or serviced by Apollo Global institutions, Insight Schools and Other Schools (Western
International University, IPD, CFP and Meritus University) are not included in New Degreed
Enrollment.    Page 31 of 45




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
    
    Economies of scale associated with the 26.0% increase in University of Phoenix net
revenue as several costs remain relatively fixed such as certain employee wages, classroom
space, and depreciation when University of Phoenix grows its net revenue. Additionally,
variable employee headcount has grown at a lower rate than the increase in net revenue;
    
    A decrease in financial aid processing costs from favorable renegotiation, effective
September 2008, of our contract with our outsourced financial aid processing vendor;
    
    Investments in our corporate marketing function that have produced more effective and
efficient advertising; and
    
    An increase in enrollment counselor effectiveness as a result of internal initiatives to
assist enrollment counselors in their jobs as well as an increase in the average tenure of
enrollment counselors; which was partially offset by
    
    Increased bad debt expense as a percentage of net revenue from the continued economic
downturn and lower collection rates on aged accounts receivable.
 Apollo Global
   
    
    General and administrative expense associated with the pursuit of opportunities to
partner with and/or acquire existing institutions of higher learning where we believe we
can achieve long-term attractive growth and value creation;
    
    Investment in UNIACC and ULA including, but not limited to, initiatives to enhance
academic quality and marketing; and
    
    Seasonality in UNIACCs operations, as UNIACCs operating results will generally be
lower during our second fiscal quarter due to UNIACCs academic calendar and certain
operating costs that remain relatively fixed throughout the fiscal year.
 Insight Schools
    Other Schools
   Page 32 of 45




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For the six months ended February 28, 2009 compared to the six months ended February 29, 2008
 Analysis of Condensed Consolidated Statements of Operations
 Analysis of Operating Results by Segment
 Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    % of Net Revenue
    
    
    %2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    Change(in millions, except per share data)Net revenue
    
    $
    1,847.1
    
    
    $
    1,474.3
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    25.3
    %Costs and expenses:Instructional costs and services
    
    
    750.6
    
    
    
    661.0
    
    
    
    40.6
    %
    
    
    44.8
    %
    
    
    13.6
    %Selling and promotional
    
    
    454.3
    
    
    
    378.6
    
    
    
    24.6
    %
    
    
    25.7
    %
    
    
    20.0
    %General and administrative
    
    
    129.3
    
    
    
    106.3
    
    
    
    7.0
    %
    
    
    7.2
    %
    
    
    21.6
    %Estimated securities litigation loss
    
    
    
    
    
    
    168.4
    
    
    
    0.0
    %
    
    
    11.4
    %
    
    
    (100.0
    %)Total costs and expenses
    
    
    1,334.2
    
    
    
    1,314.3
    
    
    
    72.2
    %
    
    
    89.1
    %
    
    
    1.5
    %Income from operations
    
    
    512.9
    
    
    
    160.0
    
    
    
    27.8
    %
    
    
    10.9
    %
    
    
    220.6
    %Interest income and other, net
    
    
    3.5
    
    
    
    17.7
    
    
    
    0.2
    %
    
    
    1.2
    %
    
    
    (80.2
    %)Income before income taxes and minority interest
    
    
    516.4
    
    
    
    177.7
    
    
    
    28.0
    %
    
    
    12.1
    %
    
    
    190.6
    %Provision for income taxes
    
    
    (211.0
    )
    
    
    (69.9
    )
    
    
    (11.4
    %)
    
    
    (4.8
    %)
    
    
    (201.9
    %)Minority interest, net of tax
    
    
    0.3
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    
    *Net income
    
    $
    305.7
    
    
    $
    107.8
    
    
    
    16.6
    %
    
    
    7.3
    %
    
    
    183.6
    %Diluted income per share
    
    $
    1.89
    
    
    $
    0.63
    
    
    
    
    *
    
    
    
    *
    
    
    200.0
    %
 
 *
    
    not meaningful Net Revenue
 Analysis of Operating
Results by Segment
 Instructional Costs and Services
  Selling and Promotional
  Page 33 of 45




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General and Administrative
 Financial
Statements
 Estimated Securities Litigation Loss
 Financial Statements
 Interest Income and Other, Net
  Six Months EndedFebruary 28,
    
    
    February 29,2009
    
    
    2008($ in millions)Interest income
    
    $
    8.8
    
    
    $
    17.7Interest expense
    
    
    (2.0
    )
    
    
    (0.7
    )Foreign currency and other, net
    
    
    (3.3
    )
    
    
    0.7Interest income and other, net
    
    $
    3.5
    
    
    $
    17.7
  Provision for Income Taxes
  Page 34 of 45




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Analysis of Operating Results by Segment
  Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    $
    
    
    %($ in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    ChangeNet revenueUniversity of Phoenix
    
    $
    1,742.5
    
    
    $
    1,401.4
    
    
    $
    341.1
    
    
    
    24.3
    %Apollo Global
    
    
    31.1
    
    
    
    
    
    
    
    31.1
    
    
    
    100.0
    %Insight Schools
    
    
    14.3
    
    
    
    5.1
    
    
    
    9.2
    
    
    
    180.4
    %Other Schools
    
    
    57.6
    
    
    
    63.0
    
    
    
    (5.4
    )
    
    
    (8.6
    %)Corporate(1)
    
    
    1.6
    
    
    
    4.8
    
    
    
    (3.2
    )
    
    
    (66.7
    %)Total net revenue
    
    $
    1,847.1
    
    
    $
    1,474.3
    
    
    $
    372.8
    
    
    
    25.3
    %Income from operationsUniversity of Phoenix
    
    $
    540.3
    
    
    $
    360.0
    
    
    $
    180.3
    
    
    
    50.1
    %Apollo Global
    
    
    (1.3
    )
    
    
    
    
    
    
    (1.3
    )
    
    
    (100.0
    %)Insight Schools
    
    
    (9.9
    )
    
    
    (5.0
    )
    
    
    (4.9
    )
    
    
    (98.0
    %)Other Schools
    
    
    3.2
    
    
    
    10.5
    
    
    
    (7.3
    )
    
    
    (69.5
    %)Corporate(1)
    
    
    (19.4
    )
    
    
    (205.5
    )
    
    
    186.1
    
    
    
    90.6
    %Total income from operations
    
    $
    512.9
    
    
    $
    160.0
    
    
    $
    352.9
    
    
    
    220.6
    %
 
 (1)
    
    The Corporate caption in our segment reporting includes adjustments to
reconcile segment results to consolidated results, which primarily consist of net revenue
and corporate charges that are not allocated to our segments. The operating loss for
Corporate in the first six months of fiscal year 2008 includes the $168.4 million charge
associated with the securities class action matter. University of Phoenix
    
    
    Economies of scale associated with the 24.3% increase in University of Phoenix net
revenue as several costs remain relatively fixed such as certain employee wages, classroom
space, and depreciation when University of Phoenix grows its net revenue. Additionally,
variable employee headcount has grown at a lower rate than the increase in net revenue;
    
    A decrease in financial aid processing costs from favorable renegotiation, effective
September 2008, of our contract with our outsourced financial aid processing vendor;




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##### Table of Contents




    
    Investments in our corporate marketing function that have produced more effective and
efficient advertising;
    
    An increase in enrollment counselor effectiveness as a result of internal initiatives to
assist enrollment counselors in their jobs as well as an increase in the average tenure of
enrollment counselors; and
    
    A decrease in bad debt as a percentage of net revenue due to continued focus on
collections in the earlier part of our fiscal year, which was partially offset by the
continued economic downturn and lower collection rates on aged accounts receivable.
 Apollo Global
   
    
    General and administrative expense associated with the pursuit of opportunities to
partner with and/or acquire existing institutions of higher learning where we believe we
can achieve long-term attractive growth and value creation; and
    
    Investment in UNIACC and ULA including, but not limited to, initiatives to enhance
academic quality and marketing.
 Insight Schools
    Other Schools
   LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL POSITION




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Cash and Cash Equivalents, Restricted Cash and Cash Equivalents and Marketable Securities
  % of Total AssetsFebruary 28,
    
    
    August 31,
    
    
    February 28,
    
    
    August 31,($ in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    % ChangeCash and cash equivalents
    
    $
    884.4
    
    
    $
    483.2
    
    
    
    36.3
    %
    
    
    26.0
    %
    
    
    83.0
    %Restricted cash and cash
equivalents
    
    
    498.4
    
    
    
    384.1
    
    
    
    20.5
    %
    
    
    20.6
    %
    
    
    29.8
    %Marketable securities
    
    
    24.4
    
    
    
    28.3
    
    
    
    1.0
    %
    
    
    1.5
    %
    
    
    (13.8
    %)Total
    
    $
    1,407.2
    
    
    $
    895.6
    
    
    
    57.8
    %
    
    
    48.1
    %
    
    
    57.1
    %
   Financial Statements




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##### Table of Contents



Cash Flows
 Operating Activities
  Six Months EndedFebruary 28,
    
    
    February 29,($ in millions)
    
    2009
    
    
    2008Net income
    
    $
    305.7
    
    
    $
    107.8Non-cash items
    
    
    126.3
    
    
    
    209.5Changes in certain operating assets and liabilities
    
    
    43.6
    
    
    
    (7.8
    )Net cash provided by operating activities
    
    $
    475.6
    
    
    $
    309.5
 Six months ended February 28, 2009
 Six months ended February 29, 2008
  Investing Activities
  Six Months EndedFebruary 28,
    
    
    February 29,($ in millions)
    
    2009
    
    
    2008Increase in restricted cash and cash equivalents
    
    $
    (114.2
    )
    
    $
    (63.0
    )Capital expenditures
    
    
    (64.0
    )
    
    
    (56.0
    )Collateralization of bond posted for securities litigation matter
    
    
    
    
    
    
    (95.0
    )Other
    
    
    1.6
    
    
    
    (118.6
    )Net cash used in investing activities
    
    $
    (176.6
    )
    
    $
    (332.6
    )




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##### Table of Contents



Six months ended February 28, 2009
 Six months ended February 29, 2008
 Financing Activities
  Six Months EndedFebruary 28,
    
    
    February 29,($ in millions)
    
    2009
    
    
    2008Issuance of Apollo Group Class A common stock
    
    $
    96.5
    
    
    $
    79.0Other
    
    
    6.8
    
    
    
    17.7Net cash provided by financing activities
    
    $
    103.3
    
    
    $
    96.7
 Six months ended February 28, 2009
 Six months ended February 29, 2008
 Contractual Obligations and Other Commercial Commitments
  Federal and Private Student Loans




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Impact of Inflation
  Foreign Currency Exchange Risk
  Interest Rate Risk
   Auction-Rate Securities Risk
 Managements Discussion and Analysis of Financial Condition and
Results of Operations




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
    Changes in Internal Control over Financial Reporting




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Financial Statements
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information




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##### Table of Contents



Item 6. Exhibits
 APOLLO GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit Description10.1
    
    
    Amendment No. 3 to Employment Agreement between Apollo Group, Inc. and Joseph L. DAmico, dated
February 23, 200910.2
    
    
    Amendment No. 2 to Employment Agreement between Apollo Group, Inc. and Charles B. Edelstein, dated
February 23, 200931.1
    
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002




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##### Table of Contents



SIGNATURES
  APOLLO GROUP, INC.
(Registrant)Date: March 31, 2009By:
    /s/ Brian L. SwartzBrian L. SwartzSenior Vice President, Chief Financial
Officer and 
Treasurer

(Principal Financial Officer and Duly
Authorized 
Signatory)By:
    /s/ Gregory J. IversonGregory J. IversonVice President, Chief Accounting Officer
and Controller


(Principal Accounting Officer and Duly
Authorized Signatory)