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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended May 31, 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
  o 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
    
    153,215,000 SharesApollo Group Class B common stock, no par value
    
    475,000 Shares




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##### 



APOLLO GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
 PAGEPART I  FINANCIAL INFORMATIONSpecial Note Regarding Forward-Looking Statements
    
    
    3Item 1. Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4. Controls and Procedures
    
    
    45PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    46Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    47Item 3. Defaults Upon Senior Securities
    
    
    48Item 4. Submission of Matters to a Vote of Security Holders
    
    
    48Item 5. Other Information
    
    
    48Item 6. Exhibits
    
    
    49SIGNATURES
    
    
    50EX-10.3EX-31.1EX-31.2EX-31.3EX-32.1EX-32.2EX-32.3
  2




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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:
 
    
    impact of 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 Part II, Item 1A, Risk Factors, in this 10-Q;
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 and Part I, Item 2, Managements Discussion and Analysis of Financial
Condition and Results of Operations, in this 10-Q.
 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.
 3




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Item 1. Financial Statements
 APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 As ofMay 31,
    
    
    August 31,($ in thousands)
    
    2009
    
    
    2008ASSETS:Current assetsCash and cash equivalents
    
    $
    795,699
    
    
    $
    483,195Restricted cash and cash equivalents
    
    
    489,619
    
    
    
    384,155Marketable securities, current portion
    
    
    991
    
    
    
    3,060Accounts receivable, net
    
    
    192,612
    
    
    
    221,919Deferred tax assets, current portion
    
    
    58,771
    
    
    
    55,434Prepaid taxes
    
    
    2,367
    
    
    
    Other current assets
    
    
    29,681
    
    
    
    21,780Total current assets
    
    
    1,569,740
    
    
    
    1,169,543Property and equipment, net
    
    
    467,321
    
    
    
    439,135Marketable securities, less current portion
    
    
    22,401
    
    
    
    25,204Goodwill
    
    
    88,921
    
    
    
    85,968Intangible assets, net
    
    
    14,691
    
    
    
    23,096Deferred tax assets, less current portion
    
    
    80,679
    
    
    
    89,499Other assets
    
    
    32,291
    
    
    
    27,967Total assets
    
    $
    2,276,044
    
    
    $
    1,860,412LIABILITIES AND SHAREHOLDERS EQUITY:Current liabilitiesAccounts payable
    
    $
    56,965
    
    
    $
    46,589Accrued liabilities
    
    
    174,217
    
    
    
    121,200Current portion of long-term liabilities
    
    
    119,922
    
    
    
    47,228Income taxes payable
    
    
    
    
    
    
    6,111Student deposits
    
    
    505,685
    
    
    
    413,302Deferred revenue
    
    
    261,158
    
    
    
    231,179Total current liabilities
    
    
    1,117,947
    
    
    
    865,609Deferred tax liabilities
    
    
    2,012
    
    
    
    2,743Long-term liabilities, less current portion
    
    
    104,802
    
    
    
    145,895Total liabilities
    
    
    1,224,761
    
    
    
    1,014,247Commitments and contingencies (Note 13)Minority interest
    
    
    13,056
    
    
    
    11,956Shareholders equityApollo 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
    
    
    35,505
    
    
    
    Apollo Group Class A treasury stock, at cost
    
    
    (2,086,280
    )
    
    
    (1,757,277
    )Retained earnings
    
    
    3,103,534
    
    
    
    2,595,340Accumulated other comprehensive loss
    
    
    (14,636
    )
    
    
    (3,958
    )Total shareholders equity
    
    
    1,038,227
    
    
    
    834,209Total liabilities and shareholders equity
    
    $
    2,276,044
    
    
    $
    1,860,412
  4




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months Ended May 31,
    
    
    Nine Months Ended May 31,(in thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue
    
    $
    1,051,343
    
    
    $
    835,217
    
    
    $
    2,898,439
    
    
    $
    2,309,534Costs and expenses:Instructional costs and services
    
    
    400,202
    
    
    
    347,598
    
    
    
    1,150,788
    
    
    
    1,008,609Selling and promotional
    
    
    243,633
    
    
    
    203,644
    
    
    
    697,929
    
    
    
    582,257General and administrative
    
    
    71,518
    
    
    
    60,910
    
    
    
    200,839
    
    
    
    167,203Estimated securities litigation loss (Note 13)
    
    
    
    
    
    
    1,566
    
    
    
    
    
    
    
    169,966Total costs and expenses
    
    
    715,353
    
    
    
    613,718
    
    
    
    2,049,556
    
    
    
    1,928,035Income from operations
    
    
    335,990
    
    
    
    221,499
    
    
    
    848,883
    
    
    
    381,499Interest income and other, net
    
    
    3,665
    
    
    
    3,329
    
    
    
    7,158
    
    
    
    21,037Income before income taxes and minority interest
    
    
    339,655
    
    
    
    224,828
    
    
    
    856,041
    
    
    
    402,536Provision for income taxes
    
    
    (139,043
    )
    
    
    (85,951
    )
    
    
    (350,045
    )
    
    
    (155,833
    )Minority interest, net of tax
    
    
    492
    
    
    
    229
    
    
    
    814
    
    
    
    229Net income
    
    $
    201,104
    
    
    $
    139,106
    
    
    $
    506,810
    
    
    $
    246,932Earnings per share:Basic income per share
    
    $
    1.28
    
    
    $
    0.85
    
    
    $
    3.19
    
    
    $
    1.49Diluted income per share
    
    $
    1.26
    
    
    $
    0.85
    
    
    $
    3.15
    
    
    $
    1.47Basic weighted average shares outstanding
    
    
    157,616
    
    
    
    162,751
    
    
    
    158,960
    
    
    
    165,919Diluted weighted average shares outstanding
    
    
    159,305
    
    
    
    163,841
    
    
    
    160,952
    
    
    
    167,737
  5




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Three Months Ended May 31,
    
    
    Nine Months Ended May 31,($ in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    201,104
    
    
    $
    139,106
    
    
    $
    506,810
    
    
    $
    246,932Other comprehensive income (loss) (net of tax):Currency translation gain (loss)
    
    
    551
    
    
    
    97
    
    
    
    (9,356
    )
    
    
    (432
    )Unrealized loss on auction-rate securities
    
    
    
    
    
    
    (482
    )
    
    
    (1,322
    )
    
    
    (482
    )Comprehensive income
    
    $
    201,655
    
    
    $
    138,721
    
    
    $
    496,132
    
    
    $
    246,018
  6




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APOLLO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended May 31,($ in thousands)
    
    2009
    
    
    2008Cash flows provided by (used in) operating activities:Net income
    
    $
    506,810
    
    
    $
    246,932Adjustments to reconcile net income to net cash provided by operating activities:Share-based compensation
    
    
    49,385
    
    
    
    49,451Excess tax benefits from share-based compensation
    
    
    (11,509
    )
    
    
    (17,947
    )Depreciation and amortization
    
    
    72,857
    
    
    
    59,133Amortization of deferred gain on sale-leaseback
    
    
    (1,256
    )
    
    
    (1,339
    )Non-cash foreign currency losses, net
    
    
    693
    
    
    
    Provision for uncollectible accounts receivable
    
    
    106,890
    
    
    
    79,255Estimated securities litigation loss (Note 13)
    
    
    
    
    
    
    165,748Minority interest, net of tax
    
    
    (814
    )
    
    
    (229
    )Deferred income taxes
    
    
    4,017
    
    
    
    (69,401
    )Changes in assets and liabilities, excluding the impact of acquisitions:Accounts receivable
    
    
    (81,663
    )
    
    
    (39,515
    )Other assets
    
    
    (13,077
    )
    
    
    (9,314
    )Accounts payable and accrued liabilities
    
    
    19,715
    
    
    
    (21,907
    )Income taxes payable
    
    
    23,774
    
    
    
    57,294Student deposits
    
    
    92,408
    
    
    
    58,747Deferred revenue
    
    
    33,470
    
    
    
    7,701Other liabilities
    
    
    8,099
    
    
    
    3,833Net cash provided by operating activities
    
    
    809,799
    
    
    
    568,442Cash flows provided by (used in) investing activities:Additions to property and equipment
    
    
    (94,873
    )
    
    
    (80,242
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (70,302
    )Purchase of marketable securities
    
    
    
    
    
    
    (875,098
    )Maturities of marketable securities
    
    
    2,660
    
    
    
    864,551Collateralization of bond posted for securities litigation matter
    
    
    
    
    
    
    (95,000
    )Increase in restricted cash and cash equivalents
    
    
    (105,464
    )
    
    
    (64,460
    )Net cash used in investing activities
    
    
    (197,677
    )
    
    
    (320,551
    )Cash flows provided by (used in) financing activities:Payments on borrowings
    
    
    (16,211
    )
    
    
    (250,709
    )Proceeds from borrowings
    
    
    13,620
    
    
    
    250,000Issuance of Apollo Group Class A common stock
    
    
    98,963
    
    
    
    80,721Class A common stock purchased for treasury
    
    
    (408,768
    )
    
    
    (454,362
    )Minority interest contributions
    
    
    2,000
    
    
    
    6,975Excess tax benefits from share-based compensation
    
    
    11,509
    
    
    
    17,947Net cash used in financing activities
    
    
    (298,887
    )
    
    
    (349,428
    )Exchange rate effect on cash and cash equivalents
    
    
    (731
    )
    
    
    (710
    )Net increase (decrease) in cash and cash equivalents
    
    
    312,504
    
    
    
    (102,247
    )Cash and cash equivalents, beginning of period
    
    
    483,195
    
    
    
    339,319Cash and cash equivalents, end of period
    
    $
    795,699
    
    
    $
    237,072Supplemental disclosure of cash flow informationCash paid during the period for income taxes
    
    $
    314,344
    
    
    $
    168,092Cash paid during the period for interest
    
    $
    1,934
    
    
    $
    1,519Supplemental disclosure of non-cash investing and financing activitiesCredits received for tenant improvements
    
    $
    10,861
    
    
    $
    7,843Purchases of property and equipment included in accounts payable
    
    $
    6,222
    
    
    $
    4,630Settlement and reclassification of liability awards
    
    $
    
    
    
    $
    16,340Restricted stock units vested and released
    
    $
    9,290
    
    
    $
    Unrealized loss on auction-rate securities
    
    $
    2,203
    
    
    $
    803Unsettled purchase of Class A common stock for treasury
    
    $
    38,780
    
    
    $
    UNIACC earn-out consideration (Note 3)
    
    $
    7,135
    
    
    $
    
  7




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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
  8




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
    
    
    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.
    9




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
      
    
    FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly (FSP FAS 157-4), provides additional guidance on measuring the fair value of
financial instruments when market activity has decreased and quoted prices may reflect
distressed transactions;
    
    FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments (FSP FAS 115-2 and 124-2), amends the other-than-temporary impairment
guidance for debt securities. Under FSP FAS 115-2 and 124-2, an other-than-temporary
impairment is now triggered when there is intent to sell the security, it is more likely
than not that the security will be required to be sold before recovery in value, or the
security is not expected to recover the entire amortized cost basis of the security. If an
entity does not intend to sell the security, credit related losses on debt securities that
exist will be considered an other-than-temporary impairment recognized in earnings, and any
other losses due to a decline in fair value relative to the amortized cost deemed not to be
other-than-temporary will be recorded in other comprehensive income; and
    
    FSP No. FAS 107-1 and APB No. 28-1, Interim Disclosures about Fair Value of Financial
Instruments (FSP FAS 107-1 and APB 28-1), expands the fair value disclosures required
for financial instruments to interim reporting periods for publicly traded companies,
including disclosure of the significant assumptions used to estimate the fair value of
those financial instruments.
  10




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
     
 Note 3. Acquisitions
 Apollo Global
   11




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 Note 4. Marketable Securities
  May 31,
    
    
    August 31,($ in thousands)
    
    2009
    
    
    2008Current marketable securities:Municipal bonds
    
    $
    991
    
    
    $
    3,060Total current marketable securities
    
    
    991
    
    
    
    3,060Noncurrent marketable securities:Auction-rate securities
    
    
    22,401
    
    
    
    25,204Total noncurrent marketable securities
    
    
    22,401
    
    
    
    25,204Total marketable securities
    
    $
    23,392
    
    
    $
    28,264
  May 31, 2009
    
    
    August 31, 2008Gross
    
    
    Fair
    
    
    
    
    
    
    Gross
    
    
    FairAmortized
    
    
    Unrealized
    
    
    Market
    
    
    Amortized
    
    
    Unrealized
    
    
    Market($ in thousands)
    
    Cost
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Losses
    
    
    ValueAvailable-for-sale securitiesAuction-rate securities
    
    $
    26,225
    
    
    $
    (3,824
    )
    
    $
    22,401
    
    
    $
    26,825
    
    
    $
    (1,621
    )
    
    $
    25,204Total available-for-sale
securities
    
    $
    26,225
    
    
    $
    (3,824
    )
    
    $
    22,401
    
    
    $
    26,825
    
    
    $
    (1,621
    )
    
    $
    25,204
  May 31, 2009
    
    
    August 31, 2008Fair Market
    
    
    
    
    
    
    Fair Market($ in thousands)
    
    Amortized Cost
    
    
    Value
    
    
    Amortized Cost
    
    
    ValueHeld-to-maturity securitiesMunicipal bonds
    
    $
    991
    
    
    $
    1,000
    
    
    $
    3,060
    
    
    $
    3,071Total held-to-maturity securities
    
    $
    991
    
    
    $
    1,000
    
    
    $
    3,060
    
    
    $
    3,071
 Auction-Rate Securities:
  12




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
   
    
    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 May 31, 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.
    Municipal Bonds:
 
 Note 5. Accounts Receivable, Net
  May 31,
    
    
    August 31,($ in thousands)
    
    2009
    
    
    2008Student accounts receivable
    
    $
    269,937
    
    
    $
    279,841Less allowance for doubtful accounts
    
    
    (99,917
    )
    
    
    (78,362
    )Net student accounts receivable
    
    
    170,020
    
    
    
    201,479Other receivables
    
    
    22,592
    
    
    
    20,440Total accounts receivable, net
    
    $
    192,612
    
    
    $
    221,919
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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
  Managements Discussion and Analysis of Financial
Condition and Results of Operations
 Three Months Ended May 31,
    
    
    Nine Months Ended May 31,($ in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning allowance for doubtful accounts
    
    $
    95,715
    
    
    $
    93,418
    
    
    $
    78,362
    
    
    $
    99,818Provision for uncollectible accounts receivable
    
    
    35,977
    
    
    
    20,269
    
    
    
    106,890
    
    
    
    79,255Write-offs, net of recoveries
    
    
    (31,775
    )
    
    
    (28,423
    )
    
    
    (85,335
    )
    
    
    (93,809
    )Ending allowance for doubtful accounts
    
    $
    99,917
    
    
    $
    85,264
    
    
    $
    99,917
    
    
    $
    85,264
 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
    
    
    
    
    
    
    (4,182
    )
    
    
    
    
    
    
    
    
    
    
    (4,182
    )Goodwill as of May 31, 2009
    
    $
    37,018
    
    
    $
    22,270
    
    
    $
    12,742
    
    
    $
    16,891
    
    
    $
    88,921
   
    
    University of Phoenix,
    
    UNIACC and ULA (included in the Apollo Global reportable segment),
    
    Insight Schools, and
    
    Western International University (included in the Other Schools reportable segment).
 st
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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
   
 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 UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs($ in thousands)
    
    May 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Cash equivalents
(including restricted
cash equivalents):Money market funds
    
    $
    1,285,318
    
    
    $
    1,281,066
    
    
    $
    4,252
    
    
    $
    Marketable securities:Auction-rate securities
    
    
    22,401
    
    
    
    
    
    
    
    
    
    
    
    22,401Total assets:
    
    $
    1,307,719
    
    
    $
    1,281,066
    
    
    $
    4,252
    
    
    $
    22,401
 15




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
    ($ in thousands)Balance at August 31, 2008
    
    $
    25,204Unrealized loss in other comprehensive loss
    
    
    (2,203
    )Redemptions at par value
    
    
    (600
    )Transfers in (out) of Level 3
    
    
    Balance at May 31, 2009
    
    $
    22,401Net unrealized gains (losses) included in earnings related to assets held as of May 31, 2009
    
    $
    
 Note 8. Long-Term Liabilities
  May 31,
    
    
    August 31,($ in thousands)
    
    2009
    
    
    2008Deferred rent and other lease incentives
    
    $
    73,030
    
    
    $
    72,512Reserve for uncertain tax positions (Note 9)
    
    
    85,633
    
    
    
    55,319Credit facilities  UNIACC and ULA
    
    
    17,660
    
    
    
    23,145Deferred vendor incentive
    
    
    9,750
    
    
    
    12,293Deferred gains on sale-leasebacks
    
    
    7,477
    
    
    
    8,739UNIACC earn-out consideration (Note 3)
    
    
    7,257
    
    
    
    Capital lease obligations
    
    
    6,756
    
    
    
    7,771Deferred compensation
    
    
    2,423
    
    
    
    2,326Other long-term liabilities
    
    
    14,738
    
    
    
    11,018Total liabilities
    
    
    224,724
    
    
    
    193,123Less current portion
    
    
    (119,922
    )
    
    
    (47,228
    )Total long-term liabilities
    
    $
    104,802
    
    
    $
    145,895
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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 Note 9. Income Taxes
    Internal Revenue Service Audit
   Note 10. Stockholders Equity
 Share Reissuances
  17




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 Share Repurchases
   
 Note 11. Earnings Per Share
 Apollo Group Common Stock
   Three Months Ended May 31,2009
    
    
    2008Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Per Share
    
    
    
    
    
    
    Average
    
    
    Per Share(in thousands, except per share data)
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic income per share
    
    $
    201,104
    
    
    
    157,616
    
    
    $
    1.28
    
    
    $
    139,106
    
    
    
    162,751
    
    
    $
    0.85Effect of dilutive securities:Stock options(1)
    
    
    
    
    
    
    1,410
    
    
    
    (0.02
    )
    
    
    
    
    
    
    915
    
    
    
    Restricted stock units(2)
    
    
    
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    Diluted income per share
    
    $
    201,104
    
    
    
    159,305
    
    
    $
    1.26
    
    
    $
    139,106
    
    
    
    163,841
    
    
    $
    0.85
 Nine Months Ended May 31,2009
    
    
    2008Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Per Share
    
    
    
    
    
    
    Average
    
    
    Per Share(in thousands, except per share data)
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic income per share
    
    $
    506,810
    
    
    
    158,960
    
    
    $
    3.19
    
    
    $
    246,932
    
    
    
    165,919
    
    
    $
    1.49Effect of dilutive securities:Stock options(1)
    
    
    
    
    
    
    1,741
    
    
    
    (0.04
    )
    
    
    
    
    
    
    1,671
    
    
    
    (0.02
    )Restricted stock units(2)
    
    
    
    
    
    
    251
    
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    Diluted income per share
    
    $
    506,810
    
    
    
    160,952
    
    
    $
    3.15
    
    
    $
    246,932
    
    
    
    167,737
    
    
    $
    1.47
 
 (1)
    
    For the three months ended May 31, 2009 and 2008, approximately 1,543,000 and
8,572,000, respectively, and for the nine months ended May 31, 2009 and 2008, approximately
1,524,000 and 2,113,000, 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 and nine months ended May 31, 2009, approximately 22,000 and 9,000,
respectively, 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. 18




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 Note 12. Share-Based Compensation
    Note 13. Commitments and Contingencies
  Contingencies Related to Litigation and Other Proceedings
  Pending Litigation and Settlements
 Incentive Compensation False Claims Act Lawsuit
  19




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
   Securities Class Action
 In re Apollo Group, Inc. Securities Litigation
   20




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
  Equal Employment Opportunity Commission v. University of Phoenix
  Barnett Derivative Action
 Barnett v. John Blair
et al
    qui tam
 21




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
    Bamboo Partners Derivative Action
 Bamboo Partners v. Nelson et al.
  Teamsters Local Union Putative Class Action
 Teamsters Local 617 Pension & Welfare Funds v. Apollo Group, Inc. et al.
 22




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
    Patent Infringement Litigation
  Student Loan Class Action
   Juric Wage and Hour Class Action
  23




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
  Regulatory and Other Legal Matters
 Student Financial Aid
     U.S. Department of Education Audits and Other Matters
   Internal Revenue Service Audit
 
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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 Note 14. Segment Reporting
 Financial Statements and Supplementary Data,
  Three Months Ended May 31,
    
    
    Nine Months Ended May 31,($ in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue:University of Phoenix
    
    $
    1,005,199
    
    
    $
    794,471
    
    
    $
    2,747,683
    
    
    $
    2,195,832Apollo Global
    
    
    11,048
    
    
    
    4,446
    
    
    
    42,112
    
    
    
    4,446Insight Schools(1)
    
    
    3,769
    
    
    
    2,088
    
    
    
    18,040
    
    
    
    7,237Other Schools(1)
    
    
    30,229
    
    
    
    30,884
    
    
    
    87,836
    
    
    
    93,869Corporate
    
    
    1,098
    
    
    
    3,328
    
    
    
    2,768
    
    
    
    8,150Total net revenue
    
    $
    1,051,343
    
    
    $
    835,217
    
    
    $
    2,898,439
    
    
    $
    2,309,534Income (loss) from operations:University of Phoenix
    
    $
    360,156
    
    
    $
    245,668
    
    
    $
    900,431
    
    
    $
    605,669Apollo Global
    
    
    (3,255
    )
    
    
    61
    
    
    
    (4,526
    )
    
    
    61Insight Schools(1)
    
    
    (9,108
    )
    
    
    (6,250
    )
    
    
    (19,002
    )
    
    
    (11,257
    )Other Schools(1)
    
    
    2,955
    
    
    
    5,769
    
    
    
    6,184
    
    
    
    16,291Corporate(2)
    
    
    (14,758
    )
    
    
    (23,749
    )
    
    
    (34,204
    )
    
    
    (229,265
    )Total income from operations
    
    
    335,990
    
    
    
    221,499
    
    
    
    848,883
    
    
    
    381,499Reconciling items:Interest income and other, net
    
    
    3,665
    
    
    
    3,329
    
    
    
    7,158
    
    
    
    21,037Income before income taxes and minority interest
    
    $
    339,655
    
    
    $
    224,828
    
    
    $
    856,041
    
    
    $
    402,536
 
 (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 the three and nine months ended May 31, 2008
includes $1.6 million and $170.0 million, respectively, in charges associated with the securities
class action matter, subsequently reversed in the fourth quarter of fiscal year 2008. Please refer
to Note 13, Commitments and Contingencies, for further discussion. 25




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APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
  May 31,
    
    
    August 31,($ in thousands)
    
    2009
    
    
    2008Assets:University of Phoenix
    
    $
    889,486
    
    
    $
    833,511Apollo Global
    
    
    122,564
    
    
    
    123,688Insight Schools
    
    
    30,486
    
    
    
    20,294Other Schools
    
    
    46,399
    
    
    
    46,914Corporate
    
    
    1,187,109
    
    
    
    836,005Total assets
    
    $
    2,276,044
    
    
    $
    1,860,412
 Note 15. Subsequent Events
    26




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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 sectors of the education industry in which
we operate;
    
    Key trends, developments and challenges; 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 as reflected 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
    Key Trends, Developments and Challenges
  
    
    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 non-traditional
students who work, are raising a family, or are doing both while trying to earn a college
degree. This trend
 27




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##### Table of Contents



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 learners
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 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 the U.S. 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 and we rely
heavily on our computer systems, compliance with new or changed regulations can
require significant time and effort on our part.
    
    The 90/10 Rule.A requirement of the Higher Education Act, as reauthorized by
the Higher Education Opportunity Act, commonly referred to as the 90/10 Rule,
applies only to proprietary institutions of higher education, which includes
University of Phoenix and Western International University. Under this rule, a
proprietary institution will be ineligible to participate in Title IV programs if
for any two consecutive fiscal years it derives more than 90% of its cash basis
revenue, as defined in the Higher Education Act and the U.S. Department of Education
regulations, from Title IV programs. An institution that derives more than 90% of
its revenue from Title IV programs for any single fiscal year will be placed on
provisional certification for two fiscal years and will be subject to possible
additional sanctions determined to be appropriate under the circumstances by the
U.S. Department of Education in the exercise of its broad discretion. University of
Phoenix and Western International University are required to calculate this
percentage at the end of each fiscal year. University of Phoenixs and Western
International Universitys Rule 90/10 percentages were 82% and 50%, respectively,
for the fiscal year ended August 31, 2008, as compared to 69% and 52% for the fiscal
year ended August 31, 2007.In May 2008, the Ensuring Continued Access to Student Loans Act increased the annual
loan limits on federal unsubsidized student loans by $2,000 for the majority of our
students enrolled in associates and bachelors degree programs, and also increased
the aggregate loan limits (over the course of a students education) on total
federal student loans for certain students. This increase in student loan limits,
together with increases in Pell grants, has increased the amount of Title IV program
funds used by students to satisfy tuition, fees and other costs, which has increased
the proportion of our revenue deemed to be from Title IV programs. Consistent with
this, the unfavorable trend experienced in fiscal 2008 compared to fiscal 2007 in
the proportion of revenue derived from Title IV programs by University of Phoenix
has continued during the first nine months of fiscal 2009. The Higher Education
Opportunity Act provides temporary relief from the impact of these loan limit
increases by allowing any amounts received between July 1, 2008 and July 1, 2011
that are attributable to the increased annual loan limits to be excluded from the
90/10 Rule calculation. The implementing regulations for this temporary relief are
being developed in a negotiated rulemaking process involving the U.S. Department of
Education, industry representatives and other interested parties. The proposed rules
are expected to be published for comment by the U.S. Department of Education in July
2009, and are expected to be published in final form by November 1, 2009.
There remains uncertainty about the manner in which the temporary relief will be
implemented. We continue to monitor the rulemaking process, as the resolution of
interpretive issues will impact the benefit we derive from the temporary relief.Based on information currently available to us, we believe that the 90/10 Rule
calculation for University of Phoenix will approach, but will not exceed 90% for
fiscal year 2009. However, there are many relevant factors that are difficult to
forecast. As a result, there is no assurance that the 90/10 Rule calculation for
University of Phoenix will not exceed 90% for fiscal year 2009.
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##### Table of Contents



University of Phoenix is taking various measures to reduce the percentage of its
cash basis revenue attributable to Title IV funds for our fiscal year ending August
31, 2009 and beyond, including emphasizing employer-paid and other direct-pay
education programs, encouraging students to carefully evaluate the amount of
necessary Title IV borrowing, and increasing the focus on professional development
and continuing education. Although we expect that these measures will favorably
impact the 90/10 Rule calculation, there is no assurance that these initiatives will
be effective in reducing the 90/10 Rule calculation, or that they will be adequate
to prevent the 90/10 Rule calculation from exceeding 90% for our fiscal year 2009
and in subsequent years.If the 90/10 Rule calculation for University of Phoenix exceeds 90% for our fiscal
year 2009, we will need to increase our efforts to reduce the percentage of our
cash-basis revenue that is composed of Title IV funding. These efforts, and our
other long-term initiatives to impact this calculation beyond 2009, may involve
taking measures which increase our operating expenses and/or reduce our revenue and
which, together, may have a materially adverse impact on our results of operations,
cash flows and financial condition.
    
    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 Title IV programs expired
in June 2007. In March 2007, University of Phoenix submitted its Title IV
recertification application to the U.S. Department of Education. We have been
collaborating with the U.S. Department of Education since that date and continue to
supply additional follow-up information based on requests from the U.S. Department
of Education. Our eligibility continues on a month-to-month basis until the U.S.
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.
Western International University was recertified in October 2003 and its current
certification for participation in Title IV programs expires on June 30, 2009. In
March 2009, Western International University submitted its Title IV recertification
application to the U.S. Department of Education. Should the U.S. Department of
Education not act on this application prior to the expiration date, Western
International Universitys eligibility will continue on a month-to-month basis until
the U.S. Department of Education completes it review on the application and issues
its decision. As with University of Phoenix, a month-to-month status is not unusual
and we have no reason to believe that the application will not be renewed in due
course.We believe that the renewal of the University of Phoenix application for
recertification will be approved in due course even if University of Phoenix fails
to meet the 90/10 Rule for fiscal 2009. However, the changes to the 90/10 Rule
enacted by the Higher Education Opportunity Act, and the relevant draft regulations
are not clear as to what impact a provisional status based on exceeding the 90/10
limit might have on the eligibility status of the University of Phoenix. In
addition, the U.S. Department of Education has the discretion to impose time
limitations or other conditions on an institutions participation in Title IV
programs in connection with any recertification and may be more likely to do so if
University of Phoenix fails to meet the 90/10 Rule limits. Accordingly, there is no
assurance that, if University of Phoenix fails to meet the 90/10 Rule for fiscal
year 2009, such failure would not have an adverse effect on its recertification
application. Title IV eligibility is critical to the continued operation of our
business. If University of Phoenix becomes ineligible to participate in Title IV
federal student financial aid programs, we could not conduct our business as it is
currently conducted and it would have a material adverse effect on our business,
financial condition, results of operations and cash flows.
 
    
    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 U.S.
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 U.S.
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 U.S. Department of Education may present opportunities and
challenges for our business, the scope and magnitude of which cannot now be determined.
During our third quarter of fiscal year 2009, we began participating in the FDLP for a
small portion of our Title IV eligible students.
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
    
    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.
 
    
    On June 7, 2009, our 80.1% -owned subsidiary, Apollo Global entered into an
Implementation Agreement to acquire BPP Holdings plc (BPP), a
UK-based provider of education and training to professionals in the legal and
finance industries. Pursuant to the acquisition arrangement, Apollo Global will
acquire all of the outstanding shares of BPP for a cash purchase price of 620 pence
per share, which represents an enterprise value of approximately $540 million based
upon the exchange rate on June 5, 2009.
  Fiscal Year 2009 Highlights
  1.
    
    Degreed Enrollment and New Degreed Enrollment Growth. We achieved 20.3% growth in
average University of Phoenix Degreed Enrollment for the nine months ended May 31, 2009 as
compared to the nine months ended May 31, 2008. University of Phoenix New Degreed Enrollment
during the first nine months of fiscal year 2009 increased 23.7% as compared to the first
nine months of fiscal year 2008. We believe 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.
Enhancements in our marketing capabilities have also contributed to the increases. 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 learners seek to
advance their education to improve their job security or reemployment prospects.2.
    
    Net Revenue Growth. Our net revenue increased 25.5% for the nine months ended May
31, 2009 as compared to the nine months ended May 31, 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 122.5%, or
$467.4 million for the nine months ended May 31, 2009 as compared to the nine months ended
May 31, 2008 primarily as a result of the securities litigation charge of $170.0 million in
the nine months ended May 31, 2008, which was subsequently reversed in the fourth quarter of
fiscal year 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 nine months ended May 31, 2008, our income from
operations grew 53.9% for the nine months ended May 31, 2009 as compared to the nine months
ended May 31, 2008.4.
    
    Changes in Management and Addition of Directors. The following changes in
management and addition of directors occurred during our third quarter of fiscal year 2009:
 
    
    On April 24, 2009, our Board of Directors promoted Gregory W. Cappelli to the
position of Co-Chief Executive Officer. Mr. Cappelli had previously been serving as
the Executive Vice President of Global Strategy and Assistant to the Executive
Chairman. Mr. Cappelli continues to serve as Chairman of Apollo Global and Director
of Apollo Group.
    
    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.
 30




---



##### Table of Contents




    
    On March 25, 2009, Frederick J. Newton commenced employment as Senior Vice
President of Human Resources.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Goodwill
  
    
    University of Phoenix,
    
    UNIACC and ULA (included in the Apollo Global reportable segment),
    
    Insight Schools, and
    
    Western International University (included in the Other Schools reportable segment).
 st
   Allowance for Doubtful Accounts
  RECENT ACCOUNTING PRONOUNCEMENTS
 Financial Statements
 31




---



##### Table of Contents



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 May 31, 2009 compared to the three months ended May 31, 2008
 Analysis of Condensed Consolidated Statements of Income
 Analysis of Operating Results by Segment
 Three Months Ended May 31,% of Net Revenue
    
    
    %(in millions, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    ChangeNet revenue
    
    $
    1,051.3
    
    
    $
    835.2
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    25.9
    %Costs and expenses:Instructional costs and services
    
    
    400.2
    
    
    
    347.6
    
    
    
    38.1
    %
    
    
    41.6
    %
    
    
    15.1
    %Selling and promotional
    
    
    243.6
    
    
    
    203.6
    
    
    
    23.2
    %
    
    
    24.4
    %
    
    
    19.6
    %General and administrative
    
    
    71.5
    
    
    
    60.9
    
    
    
    6.8
    %
    
    
    7.3
    %
    
    
    17.4
    %Estimated securities litigation loss
    
    
    
    
    
    
    1.6
    
    
    
    0.0
    %
    
    
    0.2
    %
    
    
    (100.0
    %)Total costs and expenses
    
    
    715.3
    
    
    
    613.7
    
    
    
    68.1
    %
    
    
    73.5
    %
    
    
    16.6
    %Income from operations
    
    
    336.0
    
    
    
    221.5
    
    
    
    31.9
    %
    
    
    26.5
    %
    
    
    51.7
    %Interest income and other, net
    
    
    3.7
    
    
    
    3.3
    
    
    
    0.4
    %
    
    
    0.4
    %
    
    
    12.1
    %Income before income taxes and minority interest
    
    
    339.7
    
    
    
    224.8
    
    
    
    32.3
    %
    
    
    26.9
    %
    
    
    51.1
    %Provision for income taxes
    
    
    (139.1
    )
    
    
    (85.9
    )
    
    
    (13.2
    %)
    
    
    (10.3
    %)
    
    
    (61.9
    %)Minority interest, net of tax
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    *Net income
    
    $
    201.1
    
    
    $
    139.1
    
    
    
    19.1
    %
    
    
    16.6
    %
    
    
    44.6
    %Diluted income per share
    
    $
    1.26
    
    
    $
    0.85
    
    
    
    *
    
    
    
    *
    
    
    
    48.2
    %
 
 *
    
    not meaningful Net Revenue
  32




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##### Table of Contents



Analysis of Operating Results by Segment
 Instructional Costs and Services
  Selling and Promotional
  General and Administrative
  Estimated Securities Litigation Loss
 Financial Statements
 Interest Income and Other, Net
  Three Months Ended May 31,($ in millions)
    
    2009
    
    
    2008Interest income
    
    $
    2.4
    
    
    $
    7.0Interest expense
    
    
    (0.5
    )
    
    
    (2.0
    )Foreign currency and other, net
    
    
    1.8
    
    
    
    (1.7
    )Interest income and other, net
    
    $
    3.7
    
    
    $
    3.3
  Provision for Income Taxes
  33




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##### Table of Contents



Analysis of Operating Results by Segment
 Three Months Ended May 31,$
    
    
    %($ in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    ChangeNet revenueUniversity of Phoenix
    
    $
    1,005.2
    
    
    $
    794.5
    
    
    $
    210.7
    
    
    
    26.5
    %Apollo Global
    
    
    11.0
    
    
    
    4.4
    
    
    
    6.6
    
    
    
    150.0
    %Insight Schools
    
    
    3.8
    
    
    
    2.1
    
    
    
    1.7
    
    
    
    81.0
    %Other Schools
    
    
    30.2
    
    
    
    30.9
    
    
    
    (0.7
    )
    
    
    (2.3
    %)Corporate(1)
    
    
    1.1
    
    
    
    3.3
    
    
    
    (2.2
    )
    
    
    (66.7
    %)Total net revenue
    
    $
    1,051.3
    
    
    $
    835.2
    
    
    $
    216.1
    
    
    
    25.9
    %Income (loss) from operationsUniversity of Phoenix
    
    $
    360.2
    
    
    $
    245.7
    
    
    $
    114.5
    
    
    
    46.6
    %Apollo Global
    
    
    (3.3
    )
    
    
    0.1
    
    
    
    (3.4
    )
    
    
    *Insight Schools
    
    
    (9.1
    )
    
    
    (6.3
    )
    
    
    (2.8
    )
    
    
    (44.4
    %)Other Schools
    
    
    3.0
    
    
    
    5.7
    
    
    
    (2.7
    )
    
    
    (47.4
    %)Corporate(1)
    
    
    (14.8
    )
    
    
    (23.7
    )
    
    
    8.9
    
    
    
    37.6
    %Total income from operations
    
    $
    336.0
    
    
    $
    221.5
    
    
    $
    114.5
    
    
    
    51.7
    %
 
 *
    
    not meaningful(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. University of Phoenix
  Degreed Enrollment(1)
    
    
    New Degreed Enrollment(2)Q3
    
    %
    
    
    Q3
    
    %(rounded to the nearest hundred)
    
    Fiscal 2009
    
    Fiscal 2008
    
    Change
    
    
    Fiscal 2009
    
    Fiscal 2008
    
    ChangeAssociates
    
    
    186,600
    
    
    
    134,300
    
    
    
    38.9
    %
    
    
    
    48,800
    
    
    
    37,100
    
    
    
    31.5
    %Bachelors
    
    
    156,100
    
    
    
    137,900
    
    
    
    13.2
    %
    
    
    
    26,000
    
    
    
    21,900
    
    
    
    18.7
    %Masters
    
    
    71,200
    
    
    
    67,300
    
    
    
    5.8
    %
    
    
    
    11,900
    
    
    
    11,600
    
    
    
    2.6
    %Doctoral
    
    
    6,800
    
    
    
    5,800
    
    
    
    17.2
    %
    
    
    
    800
    
    
    
    800
    
    
    
    0.0
    %Total
    
    
    420,700
    
    
    
    345,300
    
    
    
    21.8
    %
    
    
    
    87,500
    
    
    
    71,400
    
    
    
    22.5
    %
 
 (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. 34




---



##### Table of Contents




    
    Economies of scale associated with the 26.5% 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 the 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.
  Apollo Global
   
    
    General and administrative expenses 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.
 35




---



##### Table of Contents



Insight Schools
    Other Schools
   For the nine months ended May 31, 2009 compared to the nine months ended May 31, 2008
 Analysis of Condensed Consolidated Statements of Income
 Nine Months Ended May 31,% of Net Revenue
    
    
    %(in millions, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    ChangeNet revenue
    
    $
    2,898.4
    
    
    $
    2,309.5
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    25.5
    %Costs and expenses:Instructional costs and services
    
    
    1,150.8
    
    
    
    1,008.6
    
    
    
    39.7
    %
    
    
    43.7
    %
    
    
    14.1
    %Selling and promotional
    
    
    697.9
    
    
    
    582.2
    
    
    
    24.1
    %
    
    
    25.2
    %
    
    
    19.9
    %General and administrative
    
    
    200.8
    
    
    
    167.2
    
    
    
    6.9
    %
    
    
    7.2
    %
    
    
    20.1
    %Estimated securities litigation loss
    
    
    
    
    
    
    170.0
    
    
    
    0.0
    %
    
    
    7.4
    %
    
    
    (100.0
    %)Total costs and expenses
    
    
    2,049.5
    
    
    
    1,928.0
    
    
    
    70.7
    %
    
    
    83.5
    %
    
    
    6.3
    %Income from operations
    
    
    848.9
    
    
    
    381.5
    
    
    
    29.3
    %
    
    
    16.5
    %
    
    
    122.5
    %Interest income and other, net
    
    
    7.2
    
    
    
    21.0
    
    
    
    0.2
    %
    
    
    0.9
    %
    
    
    (65.7
    %)Income before income taxes and minority interest
    
    
    856.1
    
    
    
    402.5
    
    
    
    29.5
    %
    
    
    17.4
    %
    
    
    112.7
    %Provision for income taxes
    
    
    (350.1
    )
    
    
    (155.8
    )
    
    
    (12.1
    %)
    
    
    (6.7
    %)
    
    
    (124.7
    %)Minority interest, net of tax
    
    
    0.8
    
    
    
    0.2
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    *Net income
    
    $
    506.8
    
    
    $
    246.9
    
    
    
    17.4
    %
    
    
    10.7
    %
    
    
    105.3
    %Diluted income per share
    
    $
    3.15
    
    
    $
    1.47
    
    
    
    *
    
    
    
    *
    
    
    
    114.3
    %
 
 *
    
    not meaningful Net Revenue
 Analysis of Operating
Results by Segment
 36




---



##### Table of Contents



Instructional Costs and Services
  Selling and Promotional
  General and Administrative
 Financial Statements
 Estimated Securities Litigation Loss
 Financial Statements
 Interest Income and Other, Net
  Nine Months Ended May 31,($ in millions)
    
    2009
    
    
    2008Interest income
    
    $
    11.2
    
    
    $
    24.8Interest expense
    
    
    (2.5
    )
    
    
    (2.6
    )Foreign currency and other, net
    
    
    (1.5
    )
    
    
    (1.2
    )Interest income and other, net
    
    $
    7.2
    
    
    $
    21.0
  Provision for Income Taxes
  37




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##### Table of Contents



Analysis of Operating Results by Segment
  Nine Months Ended May 31,$
    
    
    %($ in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    ChangeNet revenueUniversity of Phoenix
    
    $
    2,747.7
    
    
    $
    2,195.8
    
    
    $
    551.9
    
    
    
    25.1
    %Apollo Global
    
    
    42.1
    
    
    
    4.4
    
    
    
    37.7
    
    
    
    *Insight Schools
    
    
    18.0
    
    
    
    7.2
    
    
    
    10.8
    
    
    
    150.0
    %Other Schools
    
    
    87.8
    
    
    
    93.9
    
    
    
    (6.1
    )
    
    
    (6.5
    %)Corporate(1)
    
    
    2.8
    
    
    
    8.2
    
    
    
    (5.4
    )
    
    
    (65.9
    %)Total net revenue
    
    $
    2,898.4
    
    
    $
    2,309.5
    
    
    $
    588.9
    
    
    
    25.5
    %Income from operationsUniversity of Phoenix
    
    $
    900.4
    
    
    $
    605.7
    
    
    $
    294.7
    
    
    
    48.7
    %Apollo Global
    
    
    (4.5
    )
    
    
    0.1
    
    
    
    (4.6
    )
    
    
    *Insight Schools
    
    
    (19.0
    )
    
    
    (11.3
    )
    
    
    (7.7
    )
    
    
    (68.1
    %)Other Schools
    
    
    6.2
    
    
    
    16.3
    
    
    
    (10.1
    )
    
    
    (62.0
    %)Corporate(1)
    
    
    (34.2
    )
    
    
    (229.3
    )
    
    
    195.1
    
    
    
    85.1
    %Total income from operations
    
    $
    848.9
    
    
    $
    381.5
    
    
    $
    467.4
    
    
    
    122.5
    %
 
 *
    
    not meaningful(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 nine
months of fiscal year 2008 includes the $170.0 million charge associated with the securities class
action matter, subsequently reversed in the fourth quarter of fiscal year 2008. University of Phoenix
    38




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##### Table of Contents




    
    Economies of scale associated with the 25.1% 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 the 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.
 Apollo Global
   
    
    General and administrative expenses 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
  
 39




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##### Table of Contents



LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL POSITION
    Acquisition of BPP Holdings plc
    Cash and Cash Equivalents, Restricted Cash and Cash Equivalents and Marketable Securities
  % of Total AssetsMay 31,
    
    
    August 31,

    
    
    May 31,
    
    
    August 31,
    
    
    %($ in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    ChangeCash and cash equivalents
    
    $
    795.7
    
    
    $
    483.2
    
    
    
    35.0
    %
    
    
    26.0
    %
    
    
    64.7
    %Restricted cash and cash equivalents
    
    
    489.6
    
    
    
    384.1
    
    
    
    21.5
    %
    
    
    20.6
    %
    
    
    27.5
    %Marketable securities
    
    
    23.4
    
    
    
    28.3
    
    
    
    1.0
    %
    
    
    1.5
    %
    
    
    (17.3
    %)Total
    
    $
    1,308.7
    
    
    $
    895.6
    
    
    
    57.5
    %
    
    
    48.1
    %
    
    
    46.1
    %
  40




---



##### Table of Contents



Financial Statements
  Cash Flows
 Operating Activities
  Nine Months Ended May 31,($ in millions)
    
    2009
    
    
    2008Net income
    
    $
    506.8
    
    
    $
    246.9Non-cash items
    
    
    220.3
    
    
    
    264.7Changes in certain operating assets and liabilities
    
    
    82.7
    
    
    
    56.8Net cash provided by operating activities
    
    $
    809.8
    
    
    $
    568.4
 Nine Months Ended May 31, 2009
 Nine Months Ended May 31, 2008
 41




---



##### Table of Contents



Investing Activities
  Nine Months Ended May 31,($ in millions)
    
    2009
    
    
    2008Increase in restricted cash and cash equivalents
    
    $
    (105.5
    )
    
    $
    (64.5
    )Capital expenditures
    
    
    (94.9
    )
    
    
    (80.2
    )Collateralization of bond posted for securities litigation matter
    
    
    
    
    
    
    (95.0
    )Other
    
    
    2.7
    
    
    
    (80.9
    )Net cash used in investing activities
    
    $
    (197.7
    )
    
    $
    (320.6
    )
 Nine Months Ended May 31, 2009
 Nine Months Ended May 31, 2008
 Financing Activities
  Nine Months Ended May 31,($ in millions)
    
    2009
    
    
    2008Class A common stock purchased for treasury
    
    $
    (408.8
    )
    
    $
    (454.4
    )Issuance of Apollo Group Class A common stock
    
    
    99.0
    
    
    
    80.7Other
    
    
    10.9
    
    
    
    24.3Net cash used in financing activities
    
    $
    (298.9
    )
    
    $
    (349.4
    )
 Nine Months Ended May 31, 2009
 Nine Months Ended May 31, 2008
 Contractual Obligations and Other Commercial Commitments
  42




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##### Table of Contents



Financial Statements
  Federal and Private Student Loans
     43




---



##### 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
 44




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
    Changes in Internal Control over Financial Reporting
 
 45




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Financial Statements
 
 Item 1A. Risk Factors
  Our schools and programs would lose their eligibility to participate in federal student financial
aid programs if the percentage of our revenues derived from those programs is too high.
       46




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##### Table of Contents



If we are not recertified to participate in Title IV programs by the U.S. Department of Education,
we would lose eligibility to participate in Title IV programs.
   
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Numberof SharesRepurchased asPart of Publicly
    
    
    Maximum ValueTotal # of
    
    
    Average
    
    
    Announced
    
    
    of SharesShares
    
    
    Price Paid
    
    
    Plans or
    
    
    Available for(Numbers in thousands, except per share amounts)
    
    Repurchased
    
    
    per Share
    
    
    Programs
    
    
    RepurchaseTreasury stock as of February 28, 2009
    
    
    27,661
    
    
    $
    59.50
    
    
    
    27,661
    
    
    $
    500,000New authorizations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares reissued
    
    
    (13
    )
    
    
    59.50
    
    
    
    (13
    )
    
    
    Treasury stock as of March 31, 2009
    
    
    27,648
    
    
    
    59.50
    
    
    
    27,648
    
    
    
    500,000New authorizations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares repurchased
    
    
    5,139
    
    
    
    63.26
    
    
    
    5,139
    
    
    
    (325,058
    )Shares reissued
    
    
    (46
    )
    
    
    
    
    
    
    (46
    )
    
    
    Treasury stock as of April 30, 2009
    
    
    32,741
    
    
    
    60.09
    
    
    
    32,741
    
    
    
    174,942New authorizations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares repurchased
    
    
    2,073
    
    
    
    57.55
    
    
    
    2,073
    
    
    
    (119,324
    )Shares reissued
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )
    
    
    Treasury stock as of May 31, 2009
    
    
    34,809
    
    
    $
    59.94
    
    
    
    34,809
    
    
    $
    55,618
 47




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
 
 
 Item 4. Submission of Matters to a Vote of Security Holders
 
 
 Item 5. Other Information
  48




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##### Table of Contents



Item 6. Exhibits
 APOLLO GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit Description10.1
    
    Amendment No. 2 to Employment Agreement between Apollo Group, Inc. and Gregory Cappelli, dated April
24, 2009, incorporated by reference to Exhibit 10.1 of Apollo Group, Inc.s Form 8-K filed with the
Securities and Exchange Commission on April 27, 200910.2
    
    Amendment No. 3 to Employment Agreement between Apollo Group, Inc. and Charles B. Edelstein, dated
April 24, 2009, incorporated by reference to Exhibit 10.2 of Apollo Group, Inc.s Form 8-K filed with
the Securities and Exchange Commission on April 27, 200910.3
    
    Amended and Restated 2000 Stock
Incentive Plan, as further amended, effective June 25, 200931.1
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.3
    
    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 Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.3
    
    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
 49




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##### Table of Contents



SIGNATURES
  APOLLO GROUP, INC.
(Registrant)Date: June 29, 2009By: /s/ Brian L. Swartz

Brian L. Swartz
Senior Vice President, Chief Financial Officer
and Treasurer(Principal Financial Officer and Duly
Authorized Signatory)By: /s/ Gregory J. Iverson

Gregory J. Iverson
Vice President, Chief Accounting Officer and
Controller(Principal Accounting Officer and Duly
Authorized Signatory)
 50