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 1934For the quarterly period ended November 30, 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
    
    86-0419443(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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
    
    159,066,000 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
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 5. Other Information
    
    
    36Item 6. Exhibits
    
    
    37SIGNATURES
    
    
    38
  Page 2 of 38




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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 facts, events, or circumstances after the date hereof that may bear upon
forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of
activity, performance, or achievements.
 Page 3 of 38




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Item 1. Financial Statements
 APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 As ofNovember 30,
    
    
    August 31,($ in thousands)
    
    2008
    
    
    2008ASSETS:Current assetsCash and cash equivalents
    
    $
    796,902
    
    
    $
    483,195Restricted cash and cash equivalents
    
    
    442,762
    
    
    
    384,155Marketable securities, current portion
    
    
    1,397
    
    
    
    3,060Accounts receivable, net
    
    
    200,695
    
    
    
    221,919Deferred tax assets, current portion
    
    
    51,696
    
    
    
    55,434Other current assets
    
    
    26,446
    
    
    
    21,780Total current assets
    
    
    1,519,898
    
    
    
    1,169,543Property and equipment, net
    
    
    442,477
    
    
    
    439,135Marketable securities, less current portion
    
    
    23,001
    
    
    
    25,204Goodwill
    
    
    81,757
    
    
    
    85,968Intangible assets, net
    
    
    17,625
    
    
    
    23,096Deferred tax assets, less current portion
    
    
    102,145
    
    
    
    89,499Other assets
    
    
    29,691
    
    
    
    27,967Total assets
    
    $
    2,216,594
    
    
    $
    1,860,412LIABILITIES AND SHAREHOLDERS EQUITY:Current liabilitiesAccounts payable
    
    $
    54,796
    
    
    $
    46,589Accrued liabilities
    
    
    131,182
    
    
    
    121,200Current portion of long-term liabilities
    
    
    45,178
    
    
    
    47,228Income taxes payable
    
    
    116,721
    
    
    
    6,111Student deposits
    
    
    455,438
    
    
    
    413,302Current portion of deferred revenue
    
    
    217,710
    
    
    
    231,179Total current liabilities
    
    
    1,021,025
    
    
    
    865,609Deferred revenue, less current portion
    
    
    7
    
    
    
    104Deferred tax liabilities
    
    
    2,139
    
    
    
    2,743Long-term liabilities, less current portion
    
    
    144,831
    
    
    
    145,791Total liabilities
    
    
    1,168,002
    
    
    
    1,014,247Commitments and contingencies (Note 13)Minority interest
    
    
    11,851
    
    
    
    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
    
    
    559
    
    
    
    Apollo Group Class A treasury stock, at cost
    
    
    (1,725,408
    )
    
    
    (1,757,277
    )Retained earnings
    
    
    2,777,084
    
    
    
    2,595,340Accumulated other comprehensive loss
    
    
    (15,598
    )
    
    
    (3,958
    )Total shareholders equity
    
    
    1,036,741
    
    
    
    834,209Total liabilities and shareholders equity
    
    $
    2,216,594
    
    
    $
    1,860,412
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 Page 4 of 38




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three MonthsEnded November 30,(in thousands, except per share data)
    
    2008
    
    
    2007Net revenue
    
    $
    970,967
    
    
    $
    780,674Costs and expenses:Instructional costs and services
    
    
    377,296
    
    
    
    333,289Selling and promotional
    
    
    228,585
    
    
    
    176,909General and administrative
    
    
    58,221
    
    
    
    51,281Total costs and expenses
    
    
    664,102
    
    
    
    561,479Income from operations
    
    
    306,865
    
    
    
    219,195Interest income and other, net
    
    
    1,516
    
    
    
    9,650Income before income taxes and minority interest
    
    
    308,381
    
    
    
    228,845Provision for income taxes
    
    
    (128,073
    )
    
    
    (88,980
    )Minority interest, net of tax
    
    
    52
    
    
    
    Net income
    
    $
    180,360
    
    
    $
    139,865Earnings per share:Basic income per share
    
    $
    1.13
    
    
    $
    0.84Diluted income per share
    
    $
    1.12
    
    
    $
    0.83Basic weighted average shares outstanding
    
    
    159,138
    
    
    
    167,036Diluted weighted average shares outstanding
    
    
    160,762
    
    
    
    169,289
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 Page 5 of 38




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Three MonthsEnded November 30,($ in thousands)
    
    2008
    
    
    2007Net income
    
    $
    180,360
    
    
    $
    139,865Other comprehensive loss (net of tax):Currency translation loss
    
    
    (10,318
    )
    
    
    (381
    )Unrealized loss on auction-rate securities
    
    
    (1,322
    )
    
    
    Comprehensive income
    
    $
    168,720
    
    
    $
    139,484
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 Page 6 of 38




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three MonthsEnded November 30,($ in thousands)
    
    2008
    
    
    2007Cash flows provided by (used in) operating activities:Net income
    
    $
    180,360
    
    
    $
    139,865Adjustments to reconcile net income to net cash provided by operating
activities:Share-based compensation
    
    
    15,119
    
    
    
    14,924Excess tax benefits from share-based compensation
    
    
    (3,950
    )
    
    
    (13,165
    )Depreciation and amortization
    
    
    22,897
    
    
    
    18,134Amortization of deferred gain on sale-leaseback
    
    
    (397
    )
    
    
    (446
    )Non-cash foreign currency losses, net
    
    
    2,467
    
    
    
    Provision for uncollectible accounts receivable
    
    
    34,857
    
    
    
    32,385Minority interest, net of tax
    
    
    (52
    )
    
    
    Deferred income taxes
    
    
    (8,776
    )
    
    
    (2,665
    )Changes in assets and liabilities, excluding the impact of acquisitions:Accounts receivable
    
    
    (21,142
    )
    
    
    (26,760
    )Other assets
    
    
    (6,998
    )
    
    
    (4,229
    )Accounts payable and accrued liabilities
    
    
    14,666
    
    
    
    (29,657
    )Income taxes payable
    
    
    113,475
    
    
    
    84,791Student deposits
    
    
    42,136
    
    
    
    1,854Deferred revenue
    
    
    (8,182
    )
    
    
    (7,368
    )Other liabilities
    
    
    4,316
    
    
    
    175Net cash provided by operating activities
    
    
    380,796
    
    
    
    207,838Cash flows provided by (used in) investing activities:Additions to property and equipment
    
    
    (30,646
    )
    
    
    (18,873
    )Additions to land and buildings related to new headquarters
    
    
    
    
    
    
    (5,241
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (47,033
    )Purchase of marketable securities
    
    
    
    
    
    
    (396,660
    )Maturities of marketable securities
    
    
    1,660
    
    
    
    401,660Increase in restricted cash and cash equivalents
    
    
    (58,607
    )
    
    
    (2,285
    )Net cash used in investing activities
    
    
    (87,593
    )
    
    
    (68,432
    )Cash flows provided by (used in) financing activities:Payments on borrowings
    
    
    (11,564
    )
    
    
    Proceeds from borrowings
    
    
    13,126
    
    
    
    Issuance of Apollo Group Class A common stock
    
    
    18,333
    
    
    
    50,848Class A common stock purchased for treasury
    
    
    (2,505
    )
    
    
    Excess tax benefits from share-based compensation
    
    
    3,950
    
    
    
    13,165Net cash provided by financing activities
    
    
    21,340
    
    
    
    64,013Exchange rate effect on cash and cash equivalents
    
    
    (836
    )
    
    
    (610
    )Net increase in cash and cash equivalents
    
    
    313,707
    
    
    
    202,809Cash and cash equivalents, beginning of period
    
    
    483,195
    
    
    
    339,319Cash and cash equivalents, end of period
    
    $
    796,902
    
    
    $
    542,128Supplemental disclosure of cash flow informationCash paid during the period for income taxes
    
    $
    19,270
    
    
    $
    6,870Cash paid during the period for interest
    
    $
    734
    
    
    $
    77Supplemental disclosure of non-cash investing and financing activitiesCredits received for tenant improvements
    
    $
    2,117
    
    
    $
    1,634Purchases of property and equipment included in accounts payable
    
    $
    4,838
    
    
    $
    6,207Settlement 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.
 Page 7 of 38




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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
  Managements Discussion and Analysis of Financial
Condition and Results of Operations
    Certain Reclassifications
  Page 8 of 38




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Recent Accounting Pronouncements
    
    
    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.
    Page 9 of 38




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Note 3. Acquisitions
 Apollo Global
  Page 10 of 38




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Note 4. Marketable Securities
  November 30,
    
    
    August 31,($ in thousands)
    
    2008
    
    
    2008Current marketable securities:Municipal bonds
    
    $
    1,397
    
    
    $
    3,060Total current marketable securities
    
    
    1,397
    
    
    
    3,060Noncurrent marketable securities:Auction-rate securities
    
    
    23,001
    
    
    
    25,204Total noncurrent marketable securities
    
    
    23,001
    
    
    
    25,204Total marketable securities
    
    $
    24,398
    
    
    $
    28,264
  November 30, 2008
    
    
    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
  November 30, 2008
    
    August 31, 2008Amortized
    
    Fair Market
    
    Amortized
    
    Fair Market($ in thousands)
    
    Cost
    
    Value
    
    Cost
    
    ValueHeld-to-maturity securitiesMunicipal bonds
    
    $
    1,397
    
    
    $
    1,510
    
    
    $
    3,060
    
    
    $
    3,071Total held-to-maturity securities
    
    $
    1,397
    
    
    $
    1,510
    
    
    $
    3,060
    
    
    $
    3,071
 Auction-Rate Securities:
    Page 11 of 38




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
    
    our belief that we have the ability and the 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 November 30, 2008, 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.
    Municipal Bonds:
  Note 5. Accounts Receivable, net
  November 30,
    
    
    August 31,($ in thousands)
    
    2008
    
    
    2008Student accounts receivable
    
    $
    263,294
    
    
    $
    279,841Less allowance for doubtful accounts
    
    
    (88,274
    )
    
    
    (78,362
    )Net student accounts receivable
    
    
    175,020
    
    
    
    201,479Other receivables
    
    
    25,675
    
    
    
    20,440Total accounts receivable, net
    
    $
    200,695
    
    
    $
    221,919
  Managements Discussion and Analysis of Financial
Condition and Results of Operations
 Page 12 of 38




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Three MonthsEnded November 30,($ in thousands)
    
    2008
    
    
    2007Beginning allowance for doubtful accounts
    
    $
    78,362
    
    
    $
    99,818Provision for uncollectible accounts receivable
    
    
    34,857
    
    
    
    32,385Write-offs, net of recoveries
    
    
    (24,945
    )
    
    
    (27,551
    )Ending allowance for doubtful accounts
    
    $
    88,274
    
    
    $
    104,652
 Note 6. Goodwill
  University
    
    Apollo
    
    
    
    
    
    Other
    
    Total($ in thousands)
    
    of Phoenix
    
    Global
    
    Insight
    
    Schools
    
    GoodwillGoodwill as of August 31, 2008
    
    $
    37,018
    
    
    $
    19,317
    
    
    $
    12,742
    
    
    $
    16,891
    
    
    $
    85,968Currency translation adjustment
    
    
    
    
    
    
    (4,211
    )
    
    
    
    
    
    
    
    
    
    
    (4,211
    )Goodwill as of November 30, 2008
    
    $
    37,018
    
    
    $
    15,106
    
    
    $
    12,742
    
    
    $
    16,891
    
    
    $
    81,757
   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.
 Page 13 of 38




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Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableNovember 30,
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Inputs($ in thousands)
    
    2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Cash equivalents (including
restricted cash equivalents):Money market funds
    
    $
    1,178,818
    
    
    $
    1,178,818
    
    
    $
    
    
    
    $
    U.S government agency notes
    
    
    15,000
    
    
    
    
    
    
    
    15,000
    
    
    
    Marketable securities:Auction-rate securities
    
    
    23,001
    
    
    
    
    
    
    
    
    
    
    
    23,001Total assets:
    
    $
    1,216,819
    
    
    $
    1,178,818
    
    
    $
    15,000
    
    
    $
    23,001
   Page 14 of 38




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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 November 30, 2008
    
    $
    23,001Net unrealized gains (losses) included in earnings related to
assets held as of November 30, 2008
    
    $
    
 Note 8. Long-Term Liabilities
  November 30,
    
    
    August 31,($ in thousands)
    
    2008
    
    
    2008Deferred rent and other lease incentives
    
    $
    70,882
    
    
    $
    72,512Reserve for uncertain tax positions
    
    
    59,587
    
    
    
    55,319Credit facilities  UNIACC and ULA
    
    
    19,253
    
    
    
    23,145Deferred vendor incentive
    
    
    11,268
    
    
    
    12,293Deferred gains on sale-leasebacks
    
    
    8,342
    
    
    
    8,739Capital lease obligations
    
    
    6,543
    
    
    
    7,771Deferred compensation
    
    
    2,359
    
    
    
    2,326Other long-term liabilities
    
    
    11,775
    
    
    
    10,914Total liabilities
    
    
    190,009
    
    
    
    193,019Less current portion
    
    
    (45,178
    )
    
    
    (47,228
    )Total long-term liabilities
    
    $
    144,831
    
    
    $
    145,791
 Note 9. Income Taxes
     Note 10. Stockholders Equity
 Share Reissuances
  Page 15 of 38




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Share Repurchases
   Note 11. Earnings Per Share
 Apollo Group Common Stock
   Three Months Ended November 30,2008
    
    
    2007Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Per Share
    
    
    
    
    
    
    Average
    
    
    Per Share(in thousands, except per share data)
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic income per share
    
    $
    180,360
    
    
    
    159,138
    
    
    $
    1.13
    
    
    $
    139,865
    
    
    
    167,036
    
    
    $
    0.84Effect of dilutive securities:Stock options
    
    
    
    
    
    
    1,433
    
    
    
    (0.01
    )
    
    
    
    
    
    
    2,140
    
    
    
    (0.01
    )Restricted stock units
    
    
    
    
    
    
    191
    
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    Diluted income per share
    
    $
    180,360
    
    
    
    160,762
    
    
    $
    1.12
    
    
    $
    139,865
    
    
    
    169,289
    
    
    $
    0.83
  Note 12. Share-Based Compensation
  Three MonthsEnded November 30,($ in thousands)
    
    2008
    
    
    2007Instructional costs and services
    
    $
    4,028
    
    
    $
    5,105Selling and promotional
    
    
    1,453
    
    
    
    733General and administrative
    
    
    9,638
    
    
    
    9,086Share-based compensation expense included in operating expenses
    
    
    15,119
    
    
    
    14,924Tax effect on share-based compensation
    
    
    (5,930
    )
    
    
    (5,807
    )Share-based compensation expense, net of tax
    
    $
    9,189
    
    
    $
    9,117
 Page 16 of 38




---



##### 



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 38




---



##### 



Equal Employment Opportunity Commission v. University of Phoenix
  Barnett Derivative Action
 Barnett v. John Blair et
al
  Page 18 of 38




---



##### 



qui tam
 Bamboo Partners Derivative Action
 Bamboo Partners v. Nelson et
al.
  Teamsters Local Union Putative Class Action
  Page 19 of 38




---



##### 



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 38




---



##### 



Department of Education Audits and Other Matters
   Internal Revenue Service Audit
  Page 21 of 38




---



##### 



Note 14. Segment Reporting
   Three MonthsEnded November 30,($ in thousands)
    
    2008
    
    
    2007Net revenueUniversity of Phoenix
    
    $
    913,208
    
    
    $
    743,390Apollo Global
    
    
    17,002
    
    
    
    Insight Schools (1)
    
    
    7,685
    
    
    
    2,089Other Schools (1)
    
    
    31,989
    
    
    
    34,576Corporate
    
    
    1,083
    
    
    
    619Net revenue
    
    $
    970,967
    
    
    $
    780,674Income (loss) from operations:University of Phoenix
    
    $
    310,213
    
    
    $
    229,402Apollo Global
    
    
    739
    
    
    
    Insight Schools (1)
    
    
    (3,923
    )
    
    
    (2,346
    )Other Schools (1)
    
    
    4,526
    
    
    
    7,692Corporate
    
    
    (4,690
    )
    
    
    (15,553
    )306,865
    
    
    
    219,195Reconciling items:Interest income and other, net
    
    
    1,516
    
    
    
    9,650Income before income taxes and minority interest
    
    $
    308,381
    
    
    $
    228,845
 
 (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 the first quarter of fiscal year 2008 has been revised to conform to our current presentation.
Please refer to our 2008 Annual Report on Form 10-K for further discussion.  November 30,
    
    
    August 31,($ in thousands)
    
    2008
    
    
    2008Assets:University of Phoenix
    
    $
    803,041
    
    
    $
    833,511Apollo Global
    
    
    91,600
    
    
    
    123,688Insight Schools
    
    
    29,154
    
    
    
    20,294Other Schools
    
    
    48,784
    
    
    
    46,914Corporate
    
    
    1,244,015
    
    
    
    836,005Total assets
    
    $
    2,216,594
    
    
    $
    1,860,412
 Page 22 of 38




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    Executive Summarya general description of our business and the education industry,
as well as key highlights of the current period.
    
    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 condensed
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.
 Executive Summary
  Domestic Postsecondary Education
  International Education
   Page 23 of 38




---



##### 



Domestic High School Education
   Student Enrollment
 Degreed Enrollment
   Degreed EnrollmentQuarter Ended:
    
    Associates
    
    Bachelors
    
    Masters
    
    Doctoral
    
    TotalAugust 31, 2007
    
    
    104,500
    
    
    
    33.3
    %
    
    
    138,700
    
    
    
    44.2
    %
    
    
    65,300
    
    
    
    20.8
    %
    
    
    5,200
    
    
    
    1.7
    %
    
    
    313,700
    
    
    
    100.0
    %November 30, 2007
    
    
    114,300
    
    
    
    35.2
    %
    
    
    137,800
    
    
    
    42.4
    %
    
    
    67,300
    
    
    
    20.7
    %
    
    
    5,600
    
    
    
    1.7
    %
    
    
    325,000
    
    
    
    100.0
    %February 29, 2008
    
    
    121,200
    
    
    
    36.7
    %
    
    
    136,400
    
    
    
    41.3
    %
    
    
    67,000
    
    
    
    20.3
    %
    
    
    5,600
    
    
    
    1.7
    %
    
    
    330,200
    
    
    
    100.0
    %May 31, 2008
    
    
    134,300
    
    
    
    38.9
    %
    
    
    137,900
    
    
    
    39.9
    %
    
    
    67,300
    
    
    
    19.5
    %
    
    
    5,800
    
    
    
    1.7
    %
    
    
    345,300
    
    
    
    100.0
    %August 31, 2008
    
    
    146,500
    
    
    
    40.5
    %
    
    
    141,800
    
    
    
    39.1
    %
    
    
    67,700
    
    
    
    18.7
    %
    
    
    6,100
    
    
    
    1.7
    %
    
    
    362,100
    
    
    
    100.0
    %November 30, 2008
    
    
    161,800
    
    
    
    42.0
    %
    
    
    146,800
    
    
    
    38.2
    %
    
    
    69,800
    
    
    
    18.1
    %
    
    
    6,500
    
    
    
    1.7
    %
    
    
    384,900
    
    
    
    100.0
    %
 New Degreed Enrollment
  Page 24 of 38




---



##### 



New Degreed EnrollmentQuarter Ended:
    
    Associates
    
    Bachelors
    
    Masters
    
    Doctoral
    
    TotalNovember 30, 2007
    
    
    33,700
    
    
    
    49.1
    %
    
    
    21,800
    
    
    
    31.7
    %
    
    
    12,400
    
    
    
    18.0
    %
    
    
    800
    
    
    
    1.2
    %
    
    
    68,700
    
    
    
    100.0
    %February 29, 2008
    
    
    31,100
    
    
    
    47.8
    %
    
    
    21,500
    
    
    
    33.1
    %
    
    
    11,800
    
    
    
    18.2
    %
    
    
    600
    
    
    
    0.9
    %
    
    
    65,000
    
    
    
    100.0
    %May 31, 2008
    
    
    37,100
    
    
    
    52.0
    %
    
    
    21,900
    
    
    
    30.7
    %
    
    
    11,600
    
    
    
    16.2
    %
    
    
    800
    
    
    
    1.1
    %
    
    
    71,400
    
    
    
    100.0
    %August 31, 2008
    
    
    41,500
    
    
    
    49.9
    %
    
    
    27,200
    
    
    
    32.7
    %
    
    
    13,600
    
    
    
    16.4
    %
    
    
    800
    
    
    
    1.0
    %
    
    
    83,100
    
    
    
    100.0
    %November 30, 2008
    
    
    45,800
    
    
    
    53.1
    %
    
    
    26,100
    
    
    
    30.2
    %
    
    
    13,300
    
    
    
    15.4
    %
    
    
    1,100
    
    
    
    1.3
    %
    
    
    86,300
    
    
    
    100.0
    %
  1.
    
    Enrollment and Start Growth  We achieved 18.4% growth in Degreed Enrollment as
of November 30, 2008 as compared to November 30, 2007. Our New Degreed Enrollment increased
25.6% in the first quarter of fiscal year 2009 as compared to the first quarter of fiscal
year 2008. We believe that a portion of this increased enrollment is due to the current
global financial crisis and economic uncertainty, as working adults seek to advance their
education to improve their job security or reemployment prospects.2.
    
    Revenue Growth  Our net revenue increased 24.4% for the three months ended
November 30, 2008 as compared to the three months ended November 30, 2007 primarily as a
result of our enrollment growth and selective tuition price increases.
 Critical Accounting Policies and Estimates
  Goodwill
  Allowance for Doubtful Accounts
 Goodwill
 Page 25 of 38




---



##### 



Results of Operations
 Financial Statements
 Three MonthsEnded November 30,
    
    
    % of Net Revenue
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Net revenue
    
    $
    971.0
    
    
    $
    780.7
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    24.4
    %Costs and expenses:Instructional costs and services
    
    
    377.3
    
    
    
    333.3
    
    
    
    38.9
    %
    
    
    42.7
    %
    
    
    13.2
    %Selling and promotional
    
    
    228.6
    
    
    
    176.9
    
    
    
    23.5
    %
    
    
    22.6
    %
    
    
    29.2
    %General and administrative
    
    
    58.2
    
    
    
    51.3
    
    
    
    6.0
    %
    
    
    6.6
    %
    
    
    13.5
    %Total costs and expenses
    
    
    664.1
    
    
    
    561.5
    
    
    
    68.4
    %
    
    
    71.9
    %
    
    
    18.3
    %Income from operations
    
    
    306.9
    
    
    
    219.2
    
    
    
    31.6
    %
    
    
    28.1
    %
    
    
    40.0
    %Interest income and other, net
    
    
    1.5
    
    
    
    9.7
    
    
    
    0.2
    %
    
    
    1.2
    %
    
    
    *Income before income taxes and
minority interest
    
    
    308.4
    
    
    
    228.9
    
    
    
    31.8
    %
    
    
    29.3
    %
    
    
    34.7
    %Provision for income taxes
    
    
    (128.1
    )
    
    
    (89.0
    )
    
    
    (13.2
    %)
    
    
    (11.4
    %)
    
    
    43.9
    %Minority interest, net of tax
    
    
    0.1
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    *Net income
    
    $
    180.4
    
    
    $
    139.9
    
    
    
    18.6
    %
    
    
    17.9
    %
    
    
    28.9
    %
 
 *
    
    not meaningful     Page 26 of 38




---



##### 



Net Revenue
  Three MonthsEnded November 30,
    
    
    % of Net Revenue
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007University of Phoenix
    
    $
    913.2
    
    
    $
    743.4
    
    
    
    94.0
    %
    
    
    95.2
    %
    
    
    22.8
    %Apollo Global
    
    
    17.0
    
    
    
    
    
    
    
    1.8
    %
    
    
    0.0
    %
    
    
    100.0
    %Insight Schools
    
    
    7.7
    
    
    
    2.1
    
    
    
    0.8
    %
    
    
    0.3
    %
    
    
    266.7
    %Other Schools
    
    
    32.0
    
    
    
    34.6
    
    
    
    3.3
    %
    
    
    4.4
    %
    
    
    (7.5
    %)Corporate
    
    
    1.1
    
    
    
    0.6
    
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    83.3
    %Net revenue
    
    $
    971.0
    
    
    $
    780.7
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    24.4
    %
      Page 27 of 38




---



##### 



Instructional Costs and Services
  Three MonthsEnded November 30,
    
    
    % of Net Revenue
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Employee compensation and related expenses
    
    $
    133.5
    
    
    $
    113.8
    
    
    
    13.7
    %
    
    
    14.6
    %
    
    
    17.3
    %Faculty compensation
    
    
    87.7
    
    
    
    65.7
    
    
    
    9.0
    %
    
    
    8.4
    %
    
    
    33.5
    %Classroom lease expenses and depreciation
    
    
    59.5
    
    
    
    52.0
    
    
    
    6.1
    %
    
    
    6.7
    %
    
    
    14.4
    %Other instructional costs and services
    
    
    47.5
    
    
    
    44.7
    
    
    
    5.0
    %
    
    
    5.6
    %
    
    
    6.3
    %Bad debt expense
    
    
    34.9
    
    
    
    32.4
    
    
    
    3.6
    %
    
    
    4.2
    %
    
    
    7.7
    %Financial aid processing costs
    
    
    10.2
    
    
    
    19.6
    
    
    
    1.1
    %
    
    
    2.5
    %
    
    
    (48.0
    %)Share-based compensation
    
    
    4.0
    
    
    
    5.1
    
    
    
    0.4
    %
    
    
    0.7
    %
    
    
    (21.6
    %)Instructional costs and services
    
    $
    377.3
    
    
    $
    333.3
    
    
    
    38.9
    %
    
    
    42.7
    %
    
    
    13.2
    %
      Selling and Promotional Expenses
  Three MonthsEnded November 30,
    
    
    % of Net Revenue
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Enrollment
counselors compensation and related expenses
    
    $
    112.0
    
    
    $
    89.0
    
    
    
    11.5
    %
    
    
    11.4
    %
    
    
    25.8
    %Advertising
    
    
    87.9
    
    
    
    71.1
    
    
    
    9.0
    %
    
    
    9.1
    %
    
    
    23.6
    %Other selling and promotional expenses
    
    
    27.2
    
    
    
    16.1
    
    
    
    2.8
    %
    
    
    2.0
    %
    
    
    68.9
    %Share-based compensation
    
    
    1.5
    
    
    
    0.7
    
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    114.3
    %Selling and promotional
    
    $
    228.6
    
    
    $
    176.9
    
    
    
    23.5
    %
    
    
    22.6
    %
    
    
    29.2
    %
   

Other selling and promotional expenses increased 80 basis points as a percentage of net revenue
principally driven by increases in our corporate marketing function, including additional employees.

Enrollment counselors compensation and related expenses was
relatively flat as  a percentage of revenue, increasing 10 basis points.  Furthermore, due, in part, to improved tenure, we experienced improved enrollment counselor effectiveness in the first quarter of fiscal year 2009 compared to the first quarter of fiscal year 2008.

Advertising costs decreased 10 basis points as a percentage of revenue. We believe we have seen significant progress in all areas of marketing driven by investment in our corporate marketing function, including the initiatives we implemented as a result of marketing expertise and improved technology gained through our acquisition of Aptimus.
 Page 28 of 38




---



##### 



General and Administrative Expenses
  Three MonthsEnded November 30,
    
    
    % of Net Revenue
    
    
    % Change($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008 vs. 2007Employee compensation and related expenses
    
    $
    26.0
    
    
    $
    19.9
    
    
    
    2.7
    %
    
    
    2.5
    %
    
    
    30.7
    %Share-based compensation
    
    
    9.6
    
    
    
    9.1
    
    
    
    1.0
    %
    
    
    1.2
    %
    
    
    5.5
    %Legal, audit, and corporate insurance
    
    
    5.0
    
    
    
    5.7
    
    
    
    0.5
    %
    
    
    0.7
    %
    
    
    (12.3
    %)Administrative space and depreciation
    
    
    7.2
    
    
    
    5.9
    
    
    
    0.7
    %
    
    
    0.8
    %
    
    
    22.0
    %Other general and administrative expenses
    
    
    10.4
    
    
    
    10.7
    
    
    
    1.1
    %
    
    
    1.4
    %
    
    
    (2.8
    %)General and administrative
    
    $
    58.2
    
    
    $
    51.3
    
    
    
    6.0
    %
    
    
    6.6
    %
    
    
    13.5
    %
  
    
    decreased legal costs in connection with defending ourselves in the legal matters
described elsewhere in this report; and
    
    decreased other general and administrative expenses as a result of lower outside
services costs.
  Interest Income and Other, Net
  Three MonthsEnded November 30,($ in millions)
    
    2008
    
    
    2007Interest income
    
    $
    5.4
    
    
    $
    9.2Interest expense
    
    
    (1.4
    )
    
    
    (0.1
    )Other income (expense), net
    
    
    
    
    
    
    (0.1
    )Foreign currency (loss) gain, net
    
    
    (2.5
    )
    
    
    0.7Interest income and other, net
    
    $
    1.5
    
    
    $
    9.7
 Page 29 of 38




---



##### 




    
    a $3.8 million decrease in interest income due to lower interest rate yields, which was
partially offset by increases in average cash and cash equivalents (including restricted)
during the respective periods. The decrease in interest rate yields is primarily due to our
transition to a more conservative investment strategy based on liquidity concerns and other
uncertainty stemming from the global credit and capital markets crisis.
    
    a $3.2 million net increase in foreign currency losses related to our international
operations. Refer to Item 3, Quantitative and Qualitative Disclosures About Market Risk,
for further discussion.
    
    a $1.3 million increase in interest expense primarily due to capital lease obligations
and other borrowings in our Apollo Global segment.
 Provision for Income Taxes
  Liquidity, Capital Resources, and Financial Position
   Cash and Cash Equivalents, Restricted Cash and Cash Equivalents and Marketable Securities
  % of Total AssetsNovember 30,
    
    
    August 31,
    
    
    November 30,
    
    
    August 31,($ in millions)
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    % ChangeCash and cash equivalents
    
    $
    796.9
    
    
    $
    483.2
    
    
    
    36.0
    %
    
    
    26.0
    %
    
    
    64.9
    %Restricted cash and cash
equivalents
    
    
    442.8
    
    
    
    384.2
    
    
    
    20.0
    %
    
    
    20.7
    %
    
    
    15.3
    %Marketable securities
    
    
    24.4
    
    
    
    28.3
    
    
    
    1.1
    %
    
    
    1.5
    %
    
    
    (13.8
    %)Total
    
    $
    1,264.1
    
    
    $
    895.7
    
    
    
    57.1
    %
    
    
    48.2
    %
    
    
    41.1
    %
   Page 30 of 38




---



##### 



Financial Statements
  Cash Flows
 Operating Activities
  Three MonthsEnded November 30,($ in millions)
    
    2008
    
    
    2007Net income
    
    $
    180.4
    
    
    $
    139.9Non-cash items
    
    
    62.2
    
    
    
    49.1Changes in certain operating assets and
liabilities
    
    
    138.2
    
    
    
    18.8Net cash provided by operating activities
    
    $
    380.8
    
    
    $
    207.8
 First Quarter Fiscal Year 2009
 First Quarter Fiscal Year 2008
  Page 31 of 38




---



##### 



Investing Activities
  Three MonthsEnded November 30,($ in millions)
    
    2008
    
    
    2007Increase in restricted cash and cash equivalents
    
    $
    (58.6
    )
    
    $
    (2.3
    )Capital expenditures
    
    
    (30.6
    )
    
    
    (24.1
    )Other
    
    
    1.6
    
    
    
    (42.0
    )Net cash used in investing activities
    
    $
    (87.6
    )
    
    $
    (68.4
    )
 First Quarter Fiscal Year 2009
 First Quarter Fiscal Year 2008
 Financing Activities
  Three MonthsEnded November 30,($ in millions)
    
    2008
    
    
    2007Issuance of Apollo Group Class A common stock
    
    $
    18.3
    
    
    $
    50.8Other
    
    
    3.0
    
    
    
    13.2Net cash provided by financing activities
    
    $
    21.3
    
    
    $
    64.0
 First Quarter Fiscal Year 2009
 First Quarter Fiscal Year 2008
 Contractual Obligations and Other Commercial Commitments
  Federal and Private Student Loans
  Page 32 of 38




---



##### 



Recent Accounting Pronouncements
 Financial Statements
 Page 33 of 38




---



##### 



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
 Page 34 of 38




---



##### 



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
    Changes in Internal Control over Financial Reporting
  Page 35 of 38




---



##### 



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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Item 6. Exhibits
 APOLLO GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit Description10.1
    
    Form of Apollo Group, Inc. Restricted Stock Unit Award Agreement (for officers with an employment
agreement)10.2
    
    Form of Apollo Group, Inc. Restricted Stock Unit Award Agreement (for officers without an employment
agreement)10.3
    
    Form of Apollo Group, Inc. Non-Statutory Stock Option Agreement (for officers with an employment
agreement)10.4
    
    Form of Apollo Group, Inc. Non-Statutory Stock Option Agreement (for officers without an employment
agreement)10.5
    
    Amendment to Employment Agreement between Apollo Group, Inc. and Rob Wrubel, dated October 31, 200810.6
    
    Amendment to Employment Agreement between Apollo Group, Inc. and Gregory Cappelli, dated December 12,
200810.7
    
    Amendment No. 2 to Employment Agreement between Apollo Group, Inc. and Joseph L. DAmico, dated
December 12, 200810.8
    
    Amendment to Employment Agreement between Apollo Group, Inc. and Charles B. Edelstein, dated December
12, 200810.9
    
    Amendment to Employment Agreement between Apollo Group, Inc. and P. Robert Moya, dated December 12,
200810.10
    
    Amended and Restated Employment Agreement between Apollo Group, Inc. and John G. Sperling, dated
December 31, 200810.11
    
    Amended and Restated Deferred Compensation Agreement between Apollo Group, Inc. and John G. Sperling,
dated December 31, 200831.1
    
    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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SIGNATURES
  APOLLO GROUP, INC.
(Registrant)Date: January 8, 2009By: /s/ Joseph L. DAmicoJoseph L. DAmicoPresident, Chief Financial Officer and Treasurer(Principal Financial Officer and Duly
Authorized Signatory)By: /s/ Brian L. SwartzBrian L. SwartzSenior Vice President of Finance and Chief Accounting
Officer(Principal Accounting Officer and Duly
Authorized Signatory)
 Page 38 of 38