10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2006

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.

(Exact name of registrant as specified in its charter)

ARIZONA
(State or other jurisdiction of
incorporation or organization) 86-0419443
(I.R.S. Employer
Identification No.)

4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040
(Address of principal executive offices, including zip code)

(480) 966-5394
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities Exchange Act.

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).

YES o NO þ

AT APRIL 3, 2006, THE FOLLOWING SHARES OF STOCK WERE OUTSTANDING:

Apollo Education Group Class A common stock, no par value	172,295,000 Shares
Apollo Education Group Class B common stock, no par value	477,000 Shares

APOLLO GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX

		PAGE
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures about Market Risk			36
Item 4. Controls and Procedures			36
PART II – OTHER INFORMATION
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3. Defaults Upon Senior Securities			38
Item 4. Submission of Matters to a Vote of Security Holders			38
Item 5. Other Information			38
Item 6. Exhibits			38
SIGNATURES			39
EXHIBIT INDEX			40
EXHIBIT 3.1 –	Amended and Restated Articles of Incorporation of Apollo Group, Inc.
EXHIBIT 3.2 –	Amended and Restated Bylaws (as amended through March 2006) of Apollo Group, Inc.
EXHIBIT 15.1 –	Letter in Lieu of Consent
EXHIBIT 31.1 –	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.2 –	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.1 –	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.2 –	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
EX-3.2
EX-15.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

	February 28,			August 31,
(Dollars in thousands)	2006			2005
Assets:
Current assets
Cash and cash equivalents	$	20,539		$	145,607
Restricted cash		238,351			225,706
Marketable securities		97,801			224,112
Receivables, net		200,719			201,615
Deferred tax assets, net		17,565			14,991
Other current assets		19,738			23,058
Total current assets		594,713			835,089
Property and equipment, net		287,068			268,661
Marketable securities		76,079			97,350
Cost in excess of fair value of assets purchased, net		37,096			37,096
Deferred tax assets, net		32,193			35,756
Other assets (includes receivable from related party of $15,294 and $14,843 at February 28, 2006 and August 31, 2005, respectively)		28,003			28,993
Total assets	$	1,055,152		$	1,302,945
Liabilities and Shareholders’ Equity:
Current liabilities
Current portion of long-term liabilities	$	20,432		$	18,878
Accounts payable		44,879			40,129
Accrued liabilities		62,428			61,315
Income taxes payable		9,185			9,740
Student deposits and current portion of deferred revenue		391,914			387,910
Total current liabilities		528,838			517,972
Deferred tuition revenue, less current portion		359			351
Long-term liabilities, less current portion		84,537			77,748
Total liabilities		613,734			596,071
Commitments and contingencies
Shareholders’ equity
Preferred stock, no par value, 1,000,000 shares authorized; none issued
Apollo Education Group Class A nonvoting common stock, no par value, 400,000,000 shares authorized; 188,002,000 issued at February 28, 2006 and August 31, 2005, and 172,205,000 and 179,184,000 outstanding at February 28, 2006 and August 31, 2005, respectively		103			103
Apollo Education Group Class B voting common stock, no par value, 3,000,000 shares authorized; 477,000 issued and outstanding at February 28, 2006 and August 31, 2005		1			1
Additional paid-in capital
Apollo Education Group Class A treasury stock, at cost, 15,797,000 and 8,818,000 shares at February 28, 2006 and August 31, 2005, respectively		(1,079,274	)		(645,742	)
Retained earnings		1,522,022			1,353,650
Accumulated other comprehensive loss		(1,434	)		(1,138	)
Total shareholders’ equity		441,418			706,874
Total liabilities and shareholders’ equity	$	1,055,152		$	1,302,945

The accompanying notes are an integral part of these consolidated financial statements.

1

APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	For the Three Months Ended				For the Six Months Ended
	February 28,				February 28,
(In thousands, except per share amounts)	2006		2005		2006		2005
Revenues:
Tuition and other, net	$	569,551	$	505,693	$	1,198,435	$	1,040,619
Costs and expenses:
Instructional costs and services		258,447		221,635		518,332		439,052
Selling and promotional		124,426		121,016		252,546		241,601
General and administrative		57,205		23,499		87,285		44,687
		440,078		366,150		858,163		725,340
Income from operations		129,473		139,543		340,272		315,279
Interest income and other, net		3,567		3,855		8,070		8,417
Income before income taxes		133,040		143,398		348,342		323,696
Provision for income taxes		52,405		56,284		136,933		127,051
Net income	$	80,635	$	87,114	$	211,409	$	196,645
Earnings per share attributed to Apollo Education Group common stock:
Basic income per share	$	0.46	$	0.47	$	1.20	$	1.06
Diluted income per share	$	0.46	$	0.47	$	1.19	$	1.04
Basic weighted average shares outstanding		173,496		183,742		175,800		185,056
Diluted weighted average shares outstanding		175,235		187,007		177,783		188,419

The accompanying notes are an integral part of these consolidated financial statements.

2

APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

	For the Three Months Ended					For the Six Months Ended
	February 28,					February 28,
(In thousands)	2006			2005		2006			2005
Net income	$	80,635		$	87,114	$	211,409		$	196,645
Other comprehensive income:
Currency translation gain (loss)		(175	)		190		(296	)		(356	)
Comprehensive income	$	80,460		$	87,304	$	211,113		$	196,289

The accompanying notes are an integral part of these consolidated financial statements.

3

APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

	Apollo Education Group Common Stock
												Apollo Education Group
	Class A Nonvoting				Class B Voting				Additional			Class A Treasury Stock									Accumulated Other			Total
			Stated				Stated		Paid-in						Stated			Retained			Comprehensive			Shareholders’
(In thousands)	Shares		Value		Shares		Value		Capital			Shares			Value			Earnings			Income			Equity
Six Months Ended February 28, 2005
Balance at August 31, 2004		187,567	$	103		477	$	1	$	28,787			—		$	—		$	928,815		$	(565	)	$	957,141
Treasury stock purchases													7,409			(542,988	)								(542,988	)
Stock issued under stock purchase plans		41								4,920			(38	)		2,757									7,677
Stock issued under stock option plans		394								(58,137	)		(1,313	)		95,047			(10,722	)					26,188
Tax benefits of stock options exercised										24,430															24,430
Currency translation adjustment																						(356	)		(356	)
Net income																			196,645						196,645
Balance at February 28, 2005		188,002	$	103		477	$	1	$	—			6,058		$	(445,184	)	$	1,114,738		$	(921	)	$	668,737
Six Months Ended February 28, 2006
Balance at August 31, 2005		188,002	$	103		477	$	1	$	—			8,818		$	(645,742	)	$	1,353,650		$	(1,138	)	$	706,874
Treasury stock purchases													8,092			(510,882	)								(510,882	)
Stock issued under stock purchase plans										(987	)		(75	)		5,187									4,200
Stock issued under stock option plans										(14,207	)		(1,038	)		72,163			(43,037	)					14,919
Tax benefits of stock options exercised										10,452															10,452
Stock-based compensation										18,529															18,529
Cancellation of former CEO’s stock options										(13,787	)														(13,787	)
Currency translation adjustment																						(296	)		(296	)
Net income																			211,409						211,409
Balance at February 28, 2006		188,002	$	103		477	$	1	$	—			15,797		$	(1,079,274	)	$	1,522,022		$	(1,434	)	$	441,418

The accompanying notes are an integral part of these consolidated financial statements.

4

APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Six Months Ended
	February 28,
(In thousands)	2006			2005
Cash flows provided by (used for) operating activities:
Net income	$	211,409		$	196,645
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense		10,983
Depreciation and amortization		32,100			25,093
Amortization of investment premiums		673			2,196
Provision for uncollectible accounts		39,883			18,919
Deferred income taxes		989			17,046
Tax benefits of stock options exercised					24,430
Excess tax benefits from stock-based compensation		(9,533	)
Cash received for tenant improvements		1,594			1,263
Changes in assets and liabilities
Receivables		(38,987	)		(43,660	)
Other assets		3,408			(4,132	)
Accounts payable and accrued liabilities		(9,647	)		(30,112	)
Income taxes		9,896			(26,076	)
Student deposits and deferred revenue		4,440			46,640
Other liabilities		3,058			1,689
Net cash provided by operating activities		260,266			229,941
Cash flows provided by (used for) investing activities:
Net additions to property and equipment		(15,350	)		(43,897	)
Development of land and buildings related to future Online expansion		(14,761	)
Purchase of marketable securities		(187,156	)		(18,961	)
Maturities of marketable securities		334,065			238,094
Purchase of restricted securities		(460,664	)		(173,731	)
Maturities of restricted securities		448,019			130,495
Purchase of other assets		(721	)		(1,253	)
Net cash provided by investing activities		103,432			130,747
Cash flows provided by (used for) financing activities:
Purchase of Apollo Education Group Class A common stock		(510,882	)		(542,988	)
Issuance of Apollo Education Group Class A common stock		19,119			33,865
Cash paid for cancellation of vested options		(6,240	)
Excess tax benefits from stock-based compensation		9,533
Net cash used for financing activities		(488,470	)		(509,123	)
Currency translation loss		(296	)		(356	)
Net decrease in cash and cash equivalents		(125,068	)		(148,791	)
Cash and cash equivalents at beginning of period		145,607			156,669
Cash and cash equivalents at end of period	$	20,539		$	7,878
Supplemental disclosure of non-cash investing activities
Tenant improvement allowances	$	10,777		$	7,795
Purchases of property and equipment included in accounts payable	$	15,510		$	4,960

The accompanying notes are an integral part of these consolidated financial statements.

5

APOLLO GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Note 1. Nature of Operations

Apollo Group, Inc. (“Apollo” or the “Company”), through its wholly-owned subsidiaries: The University of Phoenix, Inc. (“University of Phoenix”), Institute for Professional Development (“IPD”), The College for Financial Planning Institutes Corporation (the “College”), and Western International University, Inc. (“WIU”), has been providing higher education to working adults for almost 30 years.

University of Phoenix is a regionally accredited, private institution of higher education offering associates, bachelors, masters, and doctoral degree programs in business, criminal justice, education, health care, human services, information technology, management, and nursing. University of Phoenix has 68 local campuses and 117 learning centers located in 34 states, Puerto Rico, Alberta, British Columbia, Netherlands, and Mexico. University of Phoenix also offers its educational programs worldwide through its computerized educational delivery system. University of Phoenix is accredited by The Higher Learning Commission (“HLC”) and is a member of the North Central Association of Colleges and Schools.

IPD provides program development and management services under long-term contracts to 23 regionally accredited private colleges and universities at 23 campuses and 38 learning centers in 25 states.

The College, located near Denver, Colorado, provides financial planning education programs, as well as regionally accredited graduate degree programs in financial planning, financial analysis, and finance.

WIU is accredited by HLC, and currently offers undergraduate and graduate degree programs at local campuses in Arizona and through joint educational agreements in China and India. Axia College of Western International University offers associate degrees in business, criminal justice, general studies, health administration, and information technology worldwide through its computerized educational delivery system. The University of Phoenix board of directors and the Western International University board of directors have approved the transfer of Axia College from Western International University to University of Phoenix. On March 23, 2006, the Arizona State Board for Private Postsecondary Education confirmed that University of Phoenix had completed all necessary actions to transfer the Axia College programs, previously run by Western International University, to University of Phoenix, effective April 1, 2006.

This financial information reflects all adjustments, consisting only of normal recurring adjustments, that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Unless otherwise noted, references to 2006 and 2005 refer to the periods ended February 28, 2006 and 2005, respectively.

Note 2. Significant Accounting Policies

Basis of presentation

The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the fiscal year ended August 31, 2005, included in the Company’s Form 10-K as filed with the Securities and Exchange Commission. The results of operations for the three-month and six-month periods ended February 28, 2006, are not necessarily indicative of the results to be expected for the entire fiscal year or any future period.

Principles of consolidation

The consolidated financial statements include the accounts of Apollo and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted cash

The U.S. Department of Education requires that Title IV Program funds collected in advance of student billings be kept in a separate cash or cash equivalent account until the students are billed for that portion of their program. In addition, all Title IV Program funds

6

received by the Company through electronic funds transfer are subject to certain holding period restrictions. These funds generally remain in these separate accounts for an average of 60 to 75 days from date of receipt. Restricted cash is excluded from cash and cash equivalents in the Consolidated Statements of Cash Flows until the cash is transferred from these restricted accounts to the Company’s operating accounts. The Company’s restricted cash is invested primarily in municipal bonds and U.S. government-sponsored enterprises with maturities of 90 days or less. In 2005, the Company concluded that it was appropriate to reflect gross purchases and sales of these securities as investing activities in the Consolidated Statements of Cash Flows rather than reflecting the net change in restricted cash as an operating activity. Prior periods have been reclassified to provide consistent presentation. This revision in classification had no impact on the total assets, current assets, or net income of the Company.

Investments

Investments in marketable securities, such as municipal bonds and U.S. government-sponsored enterprises, are stated at amortized cost, which approximates fair value. It is the Company’s intention to hold its marketable securities, other than auction-rate securities with auction or reset dates prior to the maturity date of the underlying security, until maturity. Investments in other long-term investments are carried at cost and are included in other assets in the Consolidated Balance Sheets.

Property and equipment

Property and equipment is recorded at cost less accumulated depreciation. The Company capitalizes the cost of software used for internal operations once technological feasibility of the software has been demonstrated. Such costs consist primarily of custom-developed and packaged software and the direct labor costs of internally-developed software. Depreciation is provided on all furniture, equipment, and related software using the straight-line method over the estimated useful lives of the related assets which range from three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the related assets. Maintenance and repairs are expensed as incurred.

Revenues, receivables, and related liabilities

Approximately 92.9% of the Company’s tuition and other net revenues during each of the six months ended February 28, 2006 and 2005, consist of tuition revenues. Tuition revenue is recognized on a weekly basis, pro rata over the period of instruction. Tuition and other net revenues also include fees for online delivery of course materials, application fees, commissions from the sale of education-related products, other student fees, and other income. Tuition and other net revenues vary from period to period based on several factors that include: 1) the aggregate number of students attending classes; 2) the number of classes held during the period; and 3) the weighted average tuition price per credit hour (weighted by program and location). University of Phoenix tuition revenues represented approximately 83.1% and 92.2% of consolidated tuition revenues during the six months ended February 28, 2006 and 2005, respectively. This decrease of University of Phoenix revenue as a percentage of total revenues is due to the significant increase in enrollment in associates degree programs at Axia College of Western International University between periods. Axia College began offering these programs in September 2004. IPD tuition revenues consist of the contractual share of tuition revenues from students enrolled in related programs at its client institutions. IPD’s contracts with its respective client institutions generally have terms of five to ten years with provisions for renewal.

The Company’s educational programs range in length from one-day seminars to degree programs lasting up to four years. Students in the Company’s degree programs generally enroll in a program of study that encompasses a series of five to nine-week courses that are taken consecutively over the length of the program. Students are billed on a course-by-course basis when the student first attends a session, resulting in the recording of a receivable from the student and deferred tuition revenue in the amount of the billing. The related revenue for each course, including that portion of tuition revenues to which the Company is entitled under the terms of its revenue-sharing contracts with IPD client institutions, is recognized on a pro-rata basis over the period of instruction for each course. Fees for the Company’s online delivery of course materials are also recognized on a pro-rata basis over the period of instruction. Application fee revenue and related costs are deferred and recognized on a pro-rata basis over the period of the program. Seminars, continuing education programs, and many of the College’s non-degree programs are usually billed in one installment with the related revenue also recognized on a pro-rata basis over the period of instruction.

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Estimates are used in determining the allowance for doubtful accounts and are based on the Company’s historical collection experience, current trends, and a percentage of the Company’s accounts receivable by aging category. In determining these percentages, the Company looks at historical write-offs of its receivables. A significant change in the aging of the Company’s accounts receivable balances would have an effect on the allowance for doubtful accounts balance. The Company’s accounts receivable are written-off once the account is deemed to be uncollectible. This typically occurs once it has exhausted all efforts to collect the account which includes collection attempts by company employees and outside collection agencies.

Tuition and other revenues are shown net of discounts relating to a variety of promotional programs. Such discounts totaled $25.9 million (4.3% of gross revenues) and $30.7 million (5.7% of gross revenues) in the three months ended February 28, 2006 and

7

2005, respectively, and $55.3 million (4.4% of gross revenues) and $49.0 million (4.5% of gross revenues) in the six months ended February 28, 2006 and 2005, respectively.

Many of the Company’s students participate in government-sponsored financial aid programs under Title IV of the Higher Education Act of 1965, as amended. These financial aid programs generally consist of guaranteed student loans and direct grants to students. Guaranteed student loans are issued to the student by external financial institutions, to whom the student is obligated, and are non-recourse to the Company.

Student deposits consist of payments made in advance of billings. As the student is billed, the student deposit is applied against the resulting student receivable.

Cost in excess of fair value of assets purchased

The Company’s cost in excess of fair value of assets purchased (i.e. goodwill) relates primarily to the acquisitions of the College and WIU. Intangible assets, including cost in excess of fair value of assets purchased, are reviewed for impairment on an annual basis or whenever events or circumstances indicate that the estimated fair value is less than the related carrying value. The carrying value of cost in excess of fair value of assets purchased is assessed for any permanent impairment by evaluating the operating performance and using valuation techniques such as future discounted cash flows of the underlying businesses. In assessing the recoverability of the Company’s goodwill and other intangibles the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to record non-cash impairment charges for these assets not previously recorded. The Company has selected August 31 as the date on which it will perform its annual goodwill impairment test. The Company performed its annual impairment test as of August 31, 2005, and concluded that no impairment charge was required.

Fair value of financial instruments

The carrying amount reported in the Consolidated Balance Sheets for cash and cash equivalents, restricted cash, marketable securities, accounts receivable, accounts payable, accrued liabilities, and student deposits and deferred revenue approximate fair value because of the short-term nature of these financial instruments. The carrying value of the receivable from related party reasonably approximates its fair value as the stated interest rate approximates current market interest rates.

Leases

The Company currently leases almost all of its administrative and educational facilities under operating lease agreements. Most lease agreements contain tenant improvement allowances, rent holidays, and/or rent escalation clauses. In instances where one or more of these items are included in a lease agreement, the Company records a deferred rent liability on the Consolidated Balance Sheets and amortizes the items on a straight-line basis over the term of the lease as additions or deductions to rent expense. Lease terms generally range from five to ten years with one to two renewal options for extended terms. Management expects that as these leases expire, they will be renewed or replaced by other leases in the normal course of business. For leases with renewal options, the Company records rent expense and amortizes the leasehold improvements on a straight-line basis over the initial non-cancelable lease term (in instances where the lease term is shorter than the economic life of the asset) as the Company does not believe that the renewal of the option is reasonably assured. The Company is also required to make additional payments under operating lease terms for taxes, insurance, and other operating expenses incurred during the operating lease period. We also lease space from time to time on a short-term basis in order to provide specific courses or programs.

The Company records leasehold improvements funded by landlord incentives or allowances under operating leases (“tenant improvement allowances”) as a leasehold improvement asset and deferred rent liability on the Consolidated Balance Sheets and as both an investing activity (addition to property and equipment) and a component of operating activities on the Consolidated Statements of Cash Flows. The Company also reflects cash reimbursements received for tenant improvement allowances during the periods presented as additions to property and equipment and an increase in operating activities in the Consolidated Statements of Cash Flows.

Rental deposits are provided for lease agreements that specify payments in advance or scheduled rent decreases over the lease term.

Selling and promotional costs

Selling and promotional costs consist primarily of compensation for enrollment advisors and corporate marketing, advertising costs, production of marketing materials, and other costs related to selling and promotional functions. The Company expenses selling and promotional costs as incurred.

8

Start-up costs

Costs related to the start-up of new campuses and learning centers are expensed as incurred.

Stock-based compensation

On September 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”), based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of September 1, 2005, the first day of the Company’s fiscal year 2006. The Company’s Consolidated Financial Statements as of and for the three and six months ended February 28, 2006, reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS 123(R) for the three and six months ended February 28, 2006, was $12.7 million and $18.5 million, respectively. There was no stock-based compensation expense related to employee stock options and employee stock purchases recognized during the three and six months ended February 28, 2005. See Note 9 for additional information.

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statement of Operations. Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Consolidated Statement of Operations, other than as related to the conversion of University of Phoenix Online stock options into Apollo Education Group stock options, because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.

Stock-based compensation expense recognized in the Company’s Consolidated Statement of Operations for the first and second quarters of fiscal 2006 included compensation expense for share-based payment awards granted prior to, but not yet vested as of August 31, 2005, based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123 and compensation expense for the share-based payment awards granted subsequent to August 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), the Company changed its method of attributing the value of stock-based compensation to expense from the accelerated multiple-option approach to the straight-line single option method. Compensation expense for all share-based payment awards granted on or prior to August 31, 2005, will continue to be recognized using the accelerated multiple-option approach while compensation expense for all share-based payment awards granted subsequent to August 31, 2005, is recognized using the straight-line single-option method. As stock-based compensation expense recognized in the Consolidated Statement of Operations for the first and second quarters of fiscal 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the Company’s pro forma information required under SFAS 123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.

The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors.

Use of estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Recent accounting pronouncements

9

In March 2004, the FASB issued Emerging Issues Task Force Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“EITF 03-1”). EITF 03-1 includes new guidance for evaluating and recording impairment losses on debt and equity investments, as well as new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB issued Staff Position EITF No. 03-1-1, which delays the effective date until additional guidance is issued for the application of the recognition and measurement provisions of EITF 03-1 to investments in securities that are impaired. The Company does not believe that the adoption of EITF 03-1 will have a material impact on its financial condition or results of operations.

In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154, Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”). SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in nondiscretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. The Company plans to adopt SFAS 154 beginning in the first quarter of fiscal 2007.

Note 3. Balance Sheet Components

Marketable securities consist of the following, in thousands:

	February 28,				August 31,
	2006				2005
	Estimated		Amortized		Estimated		Amortized
Type	Market Value		Cost		Market Value		Cost
Classified as current:
Municipal bonds	$	59,600	$	59,845	$	120,822	$	121,310
U.S. government-sponsored enterprises		28,758		28,996		38,135		38,449
Auction-rate preferred stock		2,000		2,000		57,421		57,445
Corporate obligations		6,930		6,960		6,862		6,908
Total current marketable securities		97,288		97,801		223,240		224,112
Classified as noncurrent:
Municipal bonds due in 1-4 years		30,605		31,102		41,932		42,384
U.S. government-sponsored enterprises		36,047		38,000		46,199		47,994
Corporate obligations		6,083		6,977		6,086		6,972
Total noncurrent marketable securities		72,735		76,079		94,217		97,350
Total marketable securities	$	170,023	$	173,880	$	317,457	$	321,462

Receivables consist of the following, in thousands:

	February 28,			August 31,
	2006			2005
Trade receivables	$	227,377		$	220,753
Interest receivable		1,853			2,666
		229,230			223,419
Less allowance for doubtful accounts		(28,511	)		(21,804	)
Total receivables, net	$	200,719		$	201,615

Bad debt expense was $19.8 million and $9.9 million for the three months ended February 28, 2006 and 2005, respectively, and $39.9 million and $19.0 million for the six months ended February 28, 2006 and 2005, respectively. Write-offs, net of recoveries, were $17.4 million and $7.9 million for the three months ended February 28, 2006 and 2005, respectively, and $33.2 million and $14.9 million for the six months ended February 28, 2006 and 2005, respectively.

Property and equipment consist of the following, in thousands:

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	February 28,			August 31,
	2006			2005
Furniture and equipment	$	291,273		$	277,471
Software		83,879			78,136
Leasehold improvements		101,509			99,847
Tenant improvement allowances		100,727			85,871
Land and buildings		34,329			15,113
		611,717			556,438
Less accumulated depreciation and amortization		(324,649	)		(287,777	)
Property and equipment, net	$	287,068		$	268,661

Depreciation and amortization expense was $18.6 million and $15.9 million for the three months ended February 28, 2006 and 2005, respectively, and $38.0 million and $31.0 million for the six months ended February 28, 2006 and 2005, respectively.

Accrued liabilities consist of the following, in thousands:

	February 28,		August 31,
	2006		2005
Faculty pay, bonuses, and employee related benefits	$	21,518	$	23,441
Accrued advertising		21,728		15,631
Other accrued liabilities		19,182		22,243
Total accrued liabilities	$	62,428	$	61,315

Student deposits and current portion of deferred revenue consist of the following, in thousands:

	February 28,		August 31,
	2006		2005
Student deposits	$	261,138	$	249,696
Current portion of deferred tuition revenue		125,549		131,900
Application fee revenue		5,227		6,314
Total student deposits and current portion of deferred revenue	$	391,914	$	387,910

Note 4. Related Party Transactions

In August 1998, the Company together with Hughes Network Systems and Hermes Onetouch, LLC (“Hermes”) formed Interactive Distance Learning, Inc. (“IDL”), a new corporation, to acquire One Touch Systems, a leading provider of interactive distance learning solutions. The Company contributed $10.7 million in October 1999 and $1.2 million in December 1999, in exchange for a 19% interest in the newly formed corporation. The Company accounted for its investment in IDL under the cost method. Hermes is currently owned by Dr. John G. Sperling, the founder and acting Chairman of the Board of the Company.

On December 14, 2001, Hermes acquired the Company’s investment in IDL in exchange for a promissory note in the principal amount of $11.9 million, which represented the related carrying value and approximated the related fair value as of that date. The promissory note accrues interest at an annual rate of six percent and is due at the earlier of December 14, 2021 or nine months after Dr. Sperling’s death. The promissory note is included in other assets in the Consolidated Balance Sheets as of February 28, 2006, and August 31, 2005. The carrying value of this receivable reasonably approximates its fair value as the stated interest rate approximates current market interest rates.

Effective September 2002, WIU entered into an agreement with Apollo International, Inc. that allows for WIU’s educational offerings to be made available in India. Dr. John G. Sperling is a director of Apollo International, Inc. Shares of Apollo International, Inc. stock are beneficially owned by the Company (2.6% for which we have paid $999,989) and by an investment entity controlled by Dr. John G. Sperling (30%). Apollo International, Inc. manages the relationship with the entities in India that are offering the WIU programs while WIU maintains the educational content of the programs. WIU received revenue of $18,000 and $16,000 during the three months ended February 28, 2006 and 2005, respectively, and $65,000 and $43,000 during the six months ended February 28, 2006 and 2005, respectively, for services rendered in connection with this agreement.

Effective June 1, 1999, the Company entered into an agreement with Governmental Advocates, Inc. to provide consulting services to the Company with respect to matters concerning legislation, regulations, public policy, electoral politics, and any other topics of

11

concern to it relating to state government in the state of California. Hedy Govenar, one of the Company’s directors, is the founder and Chairwoman of Governmental Advocates, Inc. On June 1, 2005, the Company renewed this agreement for an additional one year. Pursuant to the agreement, the Company paid consulting fees to Governmental Advocates, Inc. of $30,000 during the three-month periods ended February 28, 2006 and 2005, and $60,000 during the six-month periods ended February 28, 2006 and 2005.

The Company, on occasion, leases an airplane from Yo Pegasus, LLC, an entity controlled by Dr. John G. Sperling. Payments to this entity were $105,000 and $81,000 during the three-month periods ended February 28, 2006 and 2005, respectively, and $252,000 and $237,000 during the six-month periods ended February 28, 2006 and 2005, respectively.

Note 5. Long-Term Liabilities

Long-term liabilities consist of the following, in thousands:

	February 28,			August 31,
	2006			2005
Deferred compensation discounted at 7.5%	$	1,438		$	1,413
Deferred rent and other lease rebates		89,007			79,803
Deferred gain on sale-leasebacks and other contracts		12,896			13,757
Other long-term liabilities		1,628			1,653
Total long-term liabilities		104,969			96,626
Less current portion		(20,432	)		(18,878	)
Total long-term liabilities, net	$	84,537		$	77,748

The undiscounted deferred compensation liability was $1.6 million at February 28, 2006, and August 31, 2005, and relates to the deferred compensation agreement between the Company and Dr. John G. Sperling executed in December 1993. The discount rate for this agreement was determined based on the estimated long-term rate of return on high-quality fixed income investments with cash flows similar to the agreement.

Note 6. Income Taxes

The related components of the income tax provision are as follows, in thousands:

	For the Three Months Ended				For the Six Months Ended
	February 28,				February 28,
	2006		2005		2006		2005
Current:
Federal	$	36,652	$	43,342	$	111,225	$	90,917
State and other		8,385		8,693		24,719		19,088
Total current		45,037		52,035		135,944		110,005
Deferred:
Federal		6,484		3,737		870		14,993
State and other		884		512		119		2,053
Total deferred		7,368		4,249		989		17,046
Total provision for income taxes	$	52,405	$	56,284	$	136,933	$	127,051

The income tax provision differs from the tax that would result from application of the statutory U.S. federal income tax rate as follows:

	For the Three Months Ended						For the Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
Statutory U.S. federal income tax rate		35.0	%		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		4.8	%		4.8	%		4.8	%		4.8	%
Other, net		-0.4	%		-0.5	%		-0.5	%		-0.5	%
Effective income tax rate		39.4	%		39.3	%		39.3	%		39.3	%

Deferred tax assets and liabilities consist of the following, in thousands:

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	February 28,		August 31,
	2006		2005
Gross deferred tax assets:
Allowance for doubtful accounts	$	11,504	$	8,839
Deferred tuition revenue		677		882
Reserves		1,958		1,873
Stock-based compensation		30,798		39,139
Sale-leaseback		4,287		4,545
Deferred tenant improvement allowances		26,785		19,514
Other		8,605		6,143
Total gross deferred tax assets		84,614		80,935
Gross deferred tax liabilities:
Amortization of cost in excess of fair value of assets purchased		7,445		6,876
Depreciation of fixed assets		25,454		21,480
Other		1,957		1,832
Total gross deferred tax liabilities		34,856		30,188
Net deferred tax assets	$	49,758	$	50,747

The conversion of University of Phoenix Online stock options into Apollo Education Group Class A stock options resulted in non-cash stock-based compensation charges of $19.8 million and $123.5 million in 2005 and 2004, respectively. This deferred compensation is not currently deductible for income tax purposes. Therefore, a deferred tax asset was established based on the value of the vested, but unexercised, options existing at August 31, 2004. During the first six months of 2006, the net decrease in the deferred tax asset related to stock-based compensation was $8.3 million, as a result of the effect of options that were exercised or cancelled during the period that had previously been converted from University of Phoenix Online common stock options to Apollo Education Group common stock options, partially offset by the tax impact of SFAS 123(R). The remaining deferred tax asset will be realized over subsequent periods as options are exercised.

Net deferred tax assets are reflected in the accompanying Consolidated Balance Sheets as follows, in thousands:

	February 28,		August 31,
	2006		2005
Current deferred tax assets, net	$	17,565	$	14,991
Noncurrent deferred tax assets, net		32,193		35,756
Net deferred tax assets	$	49,758	$	50,747

In light of the Company’s history of profitable operations, management has concluded that it is more likely than not that the Company will ultimately realize the full benefit of its deferred tax assets related to future deductible items. Accordingly, the Company believes that a valuation allowance is not required for its net deferred tax assets.

Note 7. Common Stock

The Board of Directors of Apollo has previously authorized a program allocating up to $1.85 billion in Company funds to repurchase shares of Apollo Education Group Class A common stock and, during the period it was outstanding, University of Phoenix Online common stock. While it was outstanding, the Company repurchased approximately 2,025,000 shares of University of Phoenix Online common stock at a total cost of $132.0 million. On December 9, 2005, the Board of Directors authorized a program allocating up to an additional $300 million of our funds to repurchase shares of Apollo Education Group Class A common stock. As of February 28, 2006, the Company had repurchased approximately 35,075,000 shares of Apollo Education Group Class A common stock at a total cost of approximately $1.9 billion. An additional 81,000 shares of Apollo Education Group Class A common stock were repurchased in March 2006 at a cost of approximately $4.0 million.

As of February 28, 2006, 3,025,000 shares of the Company’s treasury stock have been used to secure receivables between the Company and two of its subsidiaries.

Note 8. Earnings Per Share

A reconciliation of the basic and diluted earnings per share computations for Apollo Education Group Class A and Class B common stock is as follows, in thousands, except per share amounts:

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	For the Three Months Ended
	February 28,
	2006						2005
			Weighted						Weighted
			Average		Per Share				Average		Per Share
	Income		Shares		Amount		Income		Shares		Amount
Basic net income per share	$	80,635		173,496	$	0.46	$	87,114		183,742	$	0.47
Effect of dilutive securities:
Stock options				1,739						3,265
Diluted net income per share	$	80,635		175,235	$	0.46	$	87,114		187,007	$	0.47

	For the Six Months Ended
	February 28,
	2006						2005
			Weighted						Weighted
			Average		Per Share				Average		Per Share
	Income		Shares		Amount		Income		Shares		Amount
Basic net income per share	$	211,409		175,800	$	1.20	$	196,645		185,056	$	1.06
Effect of dilutive securities:
Stock options				1,983						3,363
Diluted net income per share	$	211,409		177,783	$	1.19	$	196,645		188,419	$	1.04

Basic earnings per share for Apollo Education Group common stock for the three and six months ended February 28, 2006 and 2005, were computed by dividing Apollo Education Group earnings by the weighted average number of Apollo Education Group common stock shares outstanding during the respective periods. Diluted earnings per share were calculated similarly, except that the dilutive effect of the assumed exercise of options issued under Apollo Group, Inc. incentive plans is included.

Weighted average common shares outstanding, assuming dilution, includes the incremental effect of shares that would be issued upon the assumed exercise of stock options. For the three months ended February 28, 2006 and 2005, approximately 4,157,000 and 98,000, respectively, and for the six months ended February 28, 2006 and 2005, approximately 1,893,000 and 75,000, respectively, of the Company’s stock options outstanding were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average share price for the quarter, and, therefore, their inclusion would have been anti-dilutive. These options could be dilutive in the future if the average share price increases and is greater than the exercise price of these options.

Note 9. Employee and Director Benefit Plans

The Company provides various health, welfare, and disability benefits to its full-time, salaried employees which are funded primarily by Company contributions. The Company does not provide post-employment or post-retirement health care and life insurance benefits to its employees.

401(k) plan

The Company sponsors a 401(k) plan for its employees which provides for salary reduction contributions by qualifying employees. Participant contributions are subject to certain restrictions as set forth in the Internal Revenue Code. Upon completion of one year of service and 1,000 hours worked, the Company matches 30% of the eligible participant’s contributions up to 15% of the participant’s gross compensation per paycheck. The Company’s matching contributions totaled $1.4 million and $1.1 million for the three months ended February 28, 2006 and 2005, respectively, and $2.6 million and $2.1 million for the six months ended February 28, 2006 and 2005, respectively.

Stock-based compensation plans

The Company has four stock-based compensation plans: the Apollo Group, Inc. Second Amended and Restated Director Stock Plan (“Director Stock Plan”), the Apollo Group, Inc. Long-Term Incentive Plan (“LTIP”), the Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan (“2000 Incentive Plan”), and the Apollo Group, Inc. Third Amended and Restated 1994 Employee Stock Purchase Plan (“Purchase Plan”).

The Director Stock Plan provided for an annual grant to the Company’s non-employee directors of options to purchase shares of the Company’s Apollo Education Group Class A common stock on September 1 of each year through 2003. No additional options are available for issuance under this plan.

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Under the LTIP, the Company may grant non-qualified stock options, stock appreciation rights, and other stock-based awards in the Company’s Apollo Education Group Class A common stock to certain officers, key employees, or directors of the Company. Many of the options granted under the LTIP vest 25% per year. The vesting may be accelerated for individual employees if certain operational goals are met.

Under the 2000 Incentive Plan, the Company may grant non-qualified stock options, incentive stock options, stock appreciation rights, and other stock-based awards in the Company’s Apollo Education Group Class A common stock to certain officers, key employees, or directors of the Company. Prior to the conversion of University of Phoenix Online common stock to Apollo Education Group Class A common stock, the Company had the ability to also grant non-qualified stock options, incentive stock options, stock appreciation rights, and other stock-based awards for University of Phoenix Online common stock. Any unexercised University of Phoenix Online common stock options outstanding at August 27, 2004, were converted to options to purchase Apollo Education Group Class A common stock. Many of the options granted under the 2000 Incentive Plan vest over a four-year period. The vesting may be accelerated for individual employees if certain operational goals are met.

The Purchase Plan allows the Company’s employees to purchase shares of Apollo Education Group Class A common stock at quarterly intervals through periodic payroll deductions at a price per share equal to 95% of the fair market value on the purchase date. Prior to the amendment and restatement of the Purchase Plan on October 1, 2005, the Apollo Group, Inc. Second Amended and Restated 1994 Employee Stock Purchase Plan (“Second Purchase Plan”) allowed the Company’s employees to purchase shares of the Company’s Apollo Education Group Class A common stock and, during the period it was outstanding, University of Phoenix Online common stock, at a purchase price per share, in general, that was 85% of the lower of 1) the fair market value (as defined in the Second Purchase Plan) on the enrollment date into the respective quarterly offering period or 2) the fair market value on the purchase date.

A summary of the activity related to stock options to purchase Apollo Education Group Class A common stock granted under the Director Stock Plan, the LTIP, and the 2000 Incentive Plan is as follows, in thousands, except per share amounts:

													Weighted
													Average
				Director			2000						Exercise Price
	LTIP			Stock Plan			Incentive Plan			Total			per Share
Outstanding at August 31, 2004		2,485			311			8,535			11,331		$	33.158
Granted								145			145			77.679
Exercised		(1,069	)		(45	)		(1,391	)		(2,505	)		16.969
Canceled		(52	)					(207	)		(259	)		46.241
Outstanding at August 31, 2005		1,364			266			7,082			8,712			38.167
Granted								1,835			1,835			64.056
Exercised		(431	)					(603	)		(1,034	)		14.437
Canceled		(6	)					(1,511	)		(1,517	)		60.728
Outstanding at February 28, 2006		927			266			6,803			7,996			42.903
Exercisable at February 28, 2006		749			266			4,331			5,346
Available for issuance at February 28, 2006		957						3,513			4,470

The following table summarizes information about the stock options to purchase Apollo Education Group Class A common stock at February 28, 2006:

15

	Options Outstanding						Options Exercisable
			Weighted Avg.		Weighted Avg.				Weighted Avg.
			Contractual		Exercise				Exercise
Range of	Number		Years		Price		Number		Price
Exercise Prices	Outstanding		Remaining		per Share		Exercisable		per Share
	(In thousands)						(In thousands)
$6.502-$14.840		2,049		4.13	$	10.035		1,872	$	9.946
$17.647-$41.920		1,951		6.00	$	29.756		1,922	$	29.578
$43.430-$63.790		2,343		8.33	$	62.087		768	$	60.510
$64.070-$80.710		1,609		7.99	$	71.501		740	$	71.337
$81.290-$91.000		44		3.38	$	88.243		44	$	88.243
$6.502-$91.000		7,996		6.59	$	42.903		5,346	$	33.412

Valuation and expense information under SFAS 123(R) and pro forma information under SFAS 123 for periods prior to fiscal 2006

On September 1, 2005, the Company adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors including employee stock options and employee stock purchases related to the Purchase Plan based on estimated fair values. The following table summarizes stock-based compensation expense related to employee stock options and employee stock purchases under SFAS 123(R) for the time periods indicated, which was allocated as follows, in thousands:

	For the Three Months Ended		For the Six Months Ended
	February 28, 2006		February 28, 2006
Instructional costs and services	$	3,466	$	6,283
Selling and promotional		411		915
General and administrative		8,839		11,331
Stock-based compensation expense included in operating expenses		12,716		18,529
Tax benefit		5,010		7,284
Stock-based compensation expense related to employee stock options and employee stock purchases, net of tax	$	7,706	$	11,245

On January 11, 2006, Todd S. Nelson resigned as a director and an officer of the Company. As part of his Separation Agreement, the Company paid Mr. Nelson $32.7 million, a portion of which was in exchange for all of his outstanding vested and unvested options to purchase Company stock. This was accounted for as a cancellation of Mr. Nelson’s stock options under SFAS 123(R). The intrinsic value of the vested stock options ($6.2 million) and the acceleration of the stock-based compensation related to the non-vested stock options ($7.5 million) were accounted for as reductions in additional paid-in capital. Included in the general and administrative expense category during the three and six months ended February 28, 2006, is the stock-based compensation expense of $7.5 million related to the cancellation of Mr. Nelson’s stock options.

The table below reflects net income and basic and diluted net income per share for the three and six months ended February 28, 2006, compared with the pro forma information for the three and six months ended February 28, 2005, in thousands, except per share amounts:

16

	For the Three Months Ended						For the Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
Net income(1)		N/A		$	87,114			N/A		$	196,645
Stock-based compensation expense related to employee stock options and employee stock purchases		(12,716	)		(6,856	)		(18,529	)		(13,868	)
Tax benefit		5,010			2,691			7,284			5,443
Stock-based compensation expense related to employee stock options and employee stock purchases, net of tax(2)		(7,706	)		(4,165	)		(11,245	)		(8,425	)
Net income, including the effect of stock-based compensation expense(1)	$	80,635		$	82,949		$	211,409		$	188,220
Basic net income per share(1)	$	0.46		$	0.47		$	1.20		$	1.06
Basic net income per share, including the effect of stock-based compensation expense(1)	$	0.46		$	0.45		$	1.20		$	1.02
Diluted net income per share(1)	$	0.46		$	0.47		$	1.19		$	1.04
Diluted net income per share, including the effect of stock-based compensation expense(1)	$	0.46		$	0.44		$	1.19		$	1.00

(1)  Net income and net income per share prior to fiscal 2006 represents pro forma information based on SFAS 123 which does not include stock-based compensation expense for employee stock options and employee stock purchases because the Company did not adopt the recognition provisions of SFAS 123.

(2)  Stock-based compensation expense prior to fiscal 2006 is calculated based on the pro forma application of SFAS 123.

As of February 28, 2006, total compensation cost related to nonvested stock options not yet recognized was $25.3 million, which is expected to be recognized over the next 15 months on a weighted-average basis.

The fair value of each option grant made during 2006 was estimated on the date of grant using the Black-Scholes method with the following weighted-average assumptions for grants for Apollo Education Group:

	For the Three Months Ended			For the Six Months Ended
	February 28, 2006			February 28, 2006
Dividend yield		0.0	%		0.0	%
Expected volatility		28.7	%		30.6	%
Risk-free interest rate		4.4	%		4.4	%
Expected lives (in years)		2.0			2.9
Weighted average fair value of options granted	$	11.92		$	16.49

The Company analyzed both its historical volatility and the implied volatility for two-year traded options on the Company’s stock to estimate the expected volatility consistent with SFAS 123(R) and SAB 107. Prior to the first quarter of fiscal 2006, the Company had used its historical stock price volatility in accordance with SFAS 123 for purposes of its pro forma information.

The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of the Company’s employee stock options. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding and has been determined based on an analysis of historical exercise behavior.

As stock-based compensation expense recognized in the Consolidated Statement of Operations for the first and second quarters of fiscal 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. In the Company’s pro forma information required under SFAS 123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.

The fair value of each option grant made prior to 2006 was estimated on the date of grant using the Black-Scholes method with the following weighted-average assumptions for grants for Apollo Education Group:

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	For the Three Months Ended			For the Six Months Ended
	February 28, 2005			February 28, 2005
Apollo Education Group
Dividend yield		0.0	%		0.0	%
Expected volatility		32.7	%		32.2	%
Risk-free interest rate		3.2	%		3.3	%
Expected lives (in years)		2.5			3.5
Weighted average fair value of options granted	$	19.22		$	21.21

The expected life and expected volatility of the stock options were based upon historical and other economic data trended into the future. Forfeitures of employee stock options were accounted for on an as-incurred basis.

Note 10. Commitments and Contingencies

On approximately October 12, 2004, a class action complaint was filed in the United States District Court for the District of Arizona, captioned Sekuk Global Enterprises et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2147 PHX NVW. A second class action complaint making similar allegations was filed on or about October 18, 2004, in the United States District Court for the District of Arizona, captioned Christopher Carmona et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2204 PHX EHC. A third class action complaint making similar allegations was filed on or about October 28, 2004, in the United States District Court for the District of Arizona, captioned Jack B. McBride et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2334 PHX LOA. The Court consolidated the three pending class action complaints and a consolidated class action complaint was filed on May 16, 2005 by the Lead Plaintiff. Lead Plaintiff purports to represent a class of the Company’s shareholders who acquired their shares between February 27, 2004, and September 14, 2004, and seeks monetary damages in unspecified amounts. Lead Plaintiff alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated under the Exchange Act, by the Company for their issuance of allegedly materially false and misleading statements in connection with their failure to publicly disclose the contents of the U.S. Department of Education’s program review report. A motion to dismiss the consolidated class action complaint was filed on June 15, 2005, on behalf of Apollo Group, Inc. and the individual named defendants. The Court denied the motion to dismiss on October 18, 2005. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on the Company’s business, financial position, results of operations, or cash flows to result from this action.

On August 29, 2003, the Company was notified that a qui tam action had been filed against it on March 7, 2003, in the United States District Court for the Eastern District of California by two current employees on behalf of themselves and the federal government. When the Government declines to intervene in a qui tam action, as it has done in this case, the relators may elect to pursue the litigation on behalf of the Government and, if they are successful, receive a portion of the federal government’s recovery. The qui tam action alleges, among other things, violations of the False Claims Act 31 U.S.C. § 3729(a)(1) and (2), by University of Phoenix for submission of a knowingly false or fraudulent claim for payment or approval, and knowingly false records or statements to get a false or fraudulent claim paid or approved in connection with federal student aid programs, and asserts that University of Phoenix improperly compensates its employees. On or about October 20, 2003, a motion to dismiss the action was filed and was subsequently granted with leave to amend the complaint. Subsequently, a second amended complaint was filed on or about March 3, 2004. A motion to dismiss this amended complaint was filed on or about March 22, 2004, and the case was subsequently dismissed with prejudice. On June 11, 2004, an appeal was filed with the United States Ninth Circuit Court of Appeals. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on the Company’s business, financial position, results of operations, or cash flows to result from this action.

On approximately September 26, 2003, a class action complaint was filed in the Superior Court of the State of California for the County of Orange, captioned Bryan Sanders et. al. v. University of Phoenix, Inc. et. al., Case No. 03CC00430. Plaintiff, a former academic advisor with University of Phoenix, filed this class action on behalf of himself and current and former academic advisors employed by the Company in the State of California and seeks certification as a class, monetary damages in unspecified amounts, and injunctive relief. Plaintiff alleges that during his employment, he and other academic advisors worked in excess of 8 hours per day or 40 hours per week, and contends that the Company failed to pay overtime. On June 6, 2005, the court granted plaintiffs’ motion to remove Bryan Sanders as the named plaintiff and replace him with Deryl Clark and Romero Ontiveros. Plaintiff’s counsel has advised defendants and the court that Mr. Ontiveros no longer intends to serve as a named plaintiff. Five status conferences have occurred and the parties are now in the process of discovery. The court has granted defendants’ motion to transfer venue to the Superior Court of the State of California for the County of Solano. A management conference has been set for April 2006, and the Plaintiff’s motion to certify the class will be heard by the Court in May 2006. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on the Company’s business, financial position, results of operations, or cash flows to result from this action.

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The Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

An unsecured letter of credit for Western International University, in the amount of $5.3 million, expiring in March 2007, is outstanding.

Note 11. Segment Reporting

The Company operates exclusively in the educational industry providing higher education to working adults. The Company’s operations are aggregated into two reportable operating segments: the University of Phoenix segment and the Other Schools segment. Both segments are comprised of educational operations conducted in similar markets and produce similar economic results. The Company’s operations are also subject to a similar regulatory environment, which includes licensing and accreditation. The Other Schools segment includes its other subsidiaries: Institute for Professional Development, Western International University, and the College for Financial Planning, which are not material to the Company’s overall results.

The Company’s reportable segments have been determined based on the method by which management evaluates performance and allocates resources. Management evaluates performance based on subsidiary profit. This measure of profit includes charges allocating all corporate support costs to each segment, as part of a general allocation, but excludes interest income and certain revenue and unallocated corporate charges. The revenue and corporate charges which are not allocated to individual segments are included in the Corporate segment.

The accounting policies of each segment are consistent with those described in the summary of significant accounting policies in Note 2. Transactions between segments, which are not significant, are consummated on a basis intended to reflect the market value of the underlying services and are eliminated upon consolidation.

Our principal operations are located in the United States, and our results of operations and long-lived assets in geographic regions outside of the United States are not significant. During the three and six months ended February 28, 2006 and 2005, no individual customer accounted for more than 10% of our consolidated revenues.

Summary financial information by reportable segment is as follows, in thousands:

	For the Three Months Ended					For the Six Months Ended
	February 28,					February 28,
	2006			2005		2006			2005
Tuition and other, net
University of Phoenix	$	463,239		$	455,967	$	993,167		$	954,443
Other Schools		106,245			49,357		204,929			85,124
Corporate		67			369		339			1,052
Total tuition and other, net	$	569,551		$	505,693	$	1,198,435		$	1,040,619
Income from operations:
University of Phoenix	$	112,329		$	131,014	$	295,299		$	299,671
Other Schools		26,031			8,228		56,031			14,668
Corporate		(8,887	)		301		(11,058	)		940
		129,473			139,543		340,272			315,279
Reconciling items:
Interest income and other, net		3,567			3,855		8,070			8,417
Income before income taxes	$	133,040		$	143,398	$	348,342		$	323,696

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	For the Three Months Ended				For the Six Months Ended
	February 28,				February 28,
	2006		2005		2006			2005
Depreciation and Amortization:
University of Phoenix	$	9,161	$	8,697	$	19,513		$	17,306
Other Schools		1,276		995		2,421			1,811
Corporate		5,016		3,095		10,166			5,976
	$	15,453	$	12,787	$	32,100		$	25,093
Capital Expenditures:
University of Phoenix	$	18,786	$	13,458	$	32,083		$	27,607
Other Schools		919		896		1,117			1,497
Corporate		4,487		6,414		(3,089	)		14,793
	$	24,192	$	20,768	$	30,111		$	43,897

	February 28,		August 31,
	2006		2005
Assets:
University of Phoenix	$	642,663	$	739,420
Other Schools		140,310		122,107
Corporate		272,179		441,418
	$	1,055,152	$	1,302,945

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Apollo Group, Inc.
Phoenix, Arizona

We have reviewed the accompanying consolidated balance sheet of Apollo Group, Inc. and subsidiaries (the “Company”) as of February 28, 2006, and the related consolidated statements of income and of comprehensive income for the three-month and six-month periods ended February 28, 2006 and 2005, and of changes in shareholders’ equity and cash flows for the six-month periods ended February 28, 2006 and 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Apollo Group, Inc. and subsidiaries as of August 31, 2005, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated November 10, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of August 31, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP
Phoenix, Arizona
April 7, 2006

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

          The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Apollo Group, Inc., our operations, and our present business environment. MD&A is provided as a supplement to—and should be read in conjunction with—our consolidated financial statements and the accompanying notes (“Notes”). This overview summarizes the MD&A, which includes the following sections:

• Forward-Looking Statements—cautionary information about forward-looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from our historical results or our current expectations or projections.

• Our Business—a general description of our business and the education industry; our opportunities; and the challenges and risks of our business.

• Application of Critical Accounting Policies and Estimates—a discussion of accounting policies that require critical judgments and estimates and a summary of recent accounting pronouncements.

• Results of Operations—an analysis of our consolidated results of operations for the three-month and six-month periods presented in our consolidated financial statements. We operate in one business sector—education. Except to the extent that differences between our operating segments are material to an understanding of our business as a whole, we present the discussion in the 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, and the impact of inflation.

Forward-Looking Statements

          This Form 10-Q, including MD&A, contains forward-looking statements. The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” and other similar statements of expectations identify forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Forward-looking statements in this Form 10-Q and MD&A include, but are not limited to, statements such as:

• University of Phoenix currently plans on opening seven to nine new campuses during 2006;

• tuition and other net revenues at University of Phoenix should begin to increase as a percentage of total revenues during the third quarter of 2006 as Axia College is transferred from Western International University to University of Phoenix;

• we anticipate that advertising spending will increase through the remainder of 2006 as we plan to spend more on lead generation;

• we anticipate the trend of higher information technology costs to continue during the remainder of 2006;

• total purchases of property and equipment for the year ended August 31, 2006, are expected to range from $100 to $120 million;

• we anticipate spending $103.0 million during 2006 and 2007 for the construction of a building for future Online expansion;

• while the outcomes of these audit proceedings are uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from these actions;

• we anticipate that these seasonal trends in the second and fourth quarters will continue in the future; and

• while the outcomes of these legal proceedings are uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from these actions.

          These forward-looking statements are based on our estimates, projections, beliefs, and assumptions and speak only as of the date made and are not guarantees of future performance. Future events and actual results could differ materially from those set forth in the forward-looking statements as a result of many factors. Statements in this Form 10-Q, including the Notes and MD&A, describe factors, among others, that could contribute to or cause such differences. Additional factors that could cause actual results to differ materially from those expressed in such forward-looking statements include, without limitation:

• new or revised interpretations of regulatory requirements that are or may become applicable to us;

• changes in, or new interpretations of, applicable laws, rules, and regulations;

• failure to maintain or renew any required regulatory approvals, accreditation, or state authorizations by University of Phoenix;

• failure to obtain authorizations from states in which University of Phoenix does not currently provide degree programs;

• our ability to continue to attract and retain students;

• our ability to successfully defend litigation claims;

• our ability to protect our intellectual property and proprietary rights;

• our ability to recruit and retain key personnel;

• our ability to successfully manage economic conditions, including stock market volatility; and

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• other factors set forth in this Form 10-Q.

          In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Form 10-Q will prove to be accurate. We undertake no obligation to publicly update or revise any forward-looking statements, or any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. You are advised, however, to consult any further disclosures we make in our reports filed with the Securities and Exchange Commission.

Our Business

General

          Apollo Group, Inc. has been providing higher education to working adults for almost 30 years. We operate through our subsidiaries: The University of Phoenix, Inc. (“University of Phoenix”), Institute for Professional Development, The College for Financial Planning Institutes Corporation (the “College for Financial Planning”), and Western International University, Inc. (“Western International University”). We currently offer our programs and services at 95 campuses and 159 learning centers in 39 states, Puerto Rico, Alberta, British Columbia, Netherlands, and Mexico. Our combined degree enrollment at February 28, 2006, was approximately 310,800. University of Phoenix is our largest subsidiary, with its tuition revenues representing approximately 83.1% of our consolidated tuition revenues during the six months ended February 28, 2006.

          Our operations are aggregated into two reportable operating segments: the University of Phoenix segment and the Other Schools segment. Both segments are comprised of educational operations conducted in similar markets and produce similar economic results. Our operations are also subject to a similar regulatory environment, which includes licensing and accreditation. The Other Schools segment includes our other subsidiaries: Western International University, Institute for Professional Development, and the College for Financial Planning.

          University of Phoenix is accredited by The Higher Learning Commission, and has been a member of the North Central Association of Colleges and Schools since 1978. University of Phoenix has successfully replicated its teaching/learning model while maintaining educational quality at 68 local campuses and 117 learning centers in 34 states, Puerto Rico, Alberta, British Columbia, Netherlands, and Mexico. University of Phoenix also offers its educational programs worldwide through its computerized educational delivery system. University of Phoenix has customized computer programs for student tracking, marketing, faculty recruitment and training, and academic quality management. These computer programs are intended to provide uniformity among University of Phoenix’s campuses and learning centers, which enhances University of Phoenix’s ability to expand into new markets while still maintaining academic quality.

          Western International University is accredited by The Higher Learning Commission and currently offers undergraduate and graduate degree programs at local campuses in Arizona and through joint educational agreements in China and India. Axia College of Western International University offers associate degrees in business, criminal justice, general studies, health administration, and information technology worldwide through its computerized educational delivery system. The Axia College program is designed for students with little or no college experience and offers small classes of less than 20 students and dedicated faculty who are specially trained in facilitating the online learning experience.

          The University of Phoenix board of directors and the Western International University board of directors have approved the transfer of Axia College from Western International University to University of Phoenix. On March 23, 2006, the Arizona State Board for Private Postsecondary Education confirmed that University of Phoenix had completed all necessary actions to transfer the Axia College programs, previously run by Western International University, to University of Phoenix, effective April 1, 2006.

          Institute for Professional Development provides program development and management consulting services to regionally accredited private colleges and universities (“client institutions”) who are interested in expanding or developing their programs for working adults. These services typically include degree program design, curriculum development, market research, student recruitment, accounting, and administrative services. Institute for Professional Development provides these services at 23 campuses and 38 learning centers in 25 states in exchange for a contractual share of the tuition revenues generated from these programs. Institute for Professional Development’s contracts with its client institutions generally range in length from five to ten years with provisions for renewal.

          The College for Financial Planning, located near Denver, Colorado, provides financial planning education programs, including the Certified Financial Planner Professional Education Program^™ certification, as well as regionally accredited graduate degree programs in financial planning, financial analysis, and finance. The College for Financial Planning also offers some of its non-degree programs at University of Phoenix campuses.

The Education Industry

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          We operate exclusively in the educational industry providing higher education to working adults. Working adults are a significant and growing component of the post-secondary education market. The market for adult education should continue to increase as working adults seek additional education and training to update and improve their skills, to enhance their earnings potential, and to keep pace with the rapidly expanding, knowledge-based economy.

          Many working adults seek accredited degree programs that provide flexibility to accommodate the fixed schedules and time commitments associated with their professional and personal obligations. Our format enables working adults to attend classes and complete coursework on a more convenient schedule. Many universities currently do not effectively address the unique requirements of working adults due to the following specific constraints:

• Traditional universities and colleges were designed to fulfill the educational needs of conventional, full-time students ages 18 to 24, who remain the primary focus of these universities and colleges. This focus has resulted in a capital-intensive teaching/learning model that may be characterized by:

• a high percentage of full-time, tenured faculty with doctoral degrees;

• fully-configured library facilities and related full-time staff;

• dormitories, student unions, and other significant plant assets to support the needs of younger students; and

• an emphasis on research and the related staff and facilities.

• The majority of accredited colleges and universities continue to provide the bulk of their educational programming from September to mid-December and from mid-January to May. As a result, most full-time faculty members only teach during that limited period of time. While this structure serves the needs of the full-time student, it limits the educational opportunity for working adults who must delay their education for up to five months during these spring, summer, and winter breaks.

• Traditional universities and colleges are also limited in their ability to market to, or provide the necessary customer service for, working adults because they require the development of additional administrative and enrollment infrastructure. We maintain a single-minded focus on serving the needs of working adults.

     Higher education institutions such as us are subject to extensive private, federal, and state regulation. The Higher Education Act of 1965, as amended (“Higher Education Act”), and the related regulations govern all higher education institutions participating in Title IV programs. The Higher Education Act mandates specific additional regulatory responsibilities for each of the following components:

• the accrediting agencies recognized by the U.S. Department of Education;

• the federal government through the U.S. Department of Education; and

• state higher education regulatory bodies.

          All higher education institutions participating in Title IV programs must be accredited by an association recognized by the U.S. Department of Education. The U.S. Department of Education reviews all participating institutions for compliance with all applicable standards and regulations under the Higher Education Act. Accrediting associations are required to include the monitoring of Title IV programs compliance as part of their accreditation evaluations under the Higher Education Act.

	Regional accreditation provides the following:
•	recognition and acceptance by employers, other higher education institutions, and governmental entities of the degrees and credits earned by students;
•	qualification to participate in Title IV programs; and
•	qualification for authorization in certain states.

          Regional accreditation is accepted nationally as the basis for the recognition of earned credit and degrees for academic purposes, employment, professional licensure, and, in some states, for authorization to operate as a degree-granting institution.

          The Higher Education Act and the related regulations adopted by the U.S. Department of Education also impose numerous requirements with which institutions participating in the Title IV programs must comply. Students at institutions such as University of Phoenix, Western International University, and Institute for Professional Development client institutions may receive federal financial aid under the Title IV programs. The College for Financial Planning does not participate in Title IV programs because most of its students are enrolled in non-degree programs. Institute for Professional Development client institutions administer their own Title IV programs.

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          From time to time as part of the normal course of business, our subsidiaries are subject to periodic program reviews and audits by regulating bodies. The U.S. Department of Education, Office of Inspector General, conducted an audit of University of Phoenix for the period September 1, 2002, through March 31, 2004. On August 24, 2005, the Office of Inspector General issued a final audit report with recommendations to U.S. Department of Education. Except for two areas, the Office of Inspector General concluded that University of Phoenix had policies and procedures that provide reasonable assurances that the institution properly makes initial and subsequent disbursements to students enrolled in Title IV eligible programs. The U.S. Department of Education will ultimately issue a final audit determination letter on the two exceptions regarding disbursing funds to student accounts for allowable institutional charges and disbursing funds to students who were not in eligible programs. On December 22, 2005, the Office of Inspector General issued a separate audit report on their review of our policies and procedures for the calculation and return of Title IV funds. Except for one area, the Office of Inspector General concluded that University of Phoenix had policies and procedures that provide reasonable assurances that the institution properly identified withdrawn students, appropriately determined whether a return of Title IV calculation was required, returned Title IV for withdrawn students in a timely manner, and used appropriate methodologies for most aspects of calculating the return of Title IV aid. The U.S. Department of Education will ultimately issue a final audit determination letter on the one exception regarding the return of Title IV funds. While the outcomes of these audit proceedings are uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from these actions.

          Institutions are required to have authorization to operate as degree-granting institutions in each state where they physically provide education programs. Depending on the state, the addition of a degree program not offered previously or the addition of a new location must be included in the institution’s accreditation and be approved by the appropriate state authorization agency.

Opportunities

          University of Phoenix expansion. University of Phoenix plans to continue increasing its student base by growing existing locations and by opening new campuses and learning centers throughout the United States, Canada, and Mexico. New locations are selected based on an analysis of various factors, including the population of working adults in the area, the number of local employers and their educational reimbursement policies, and the availability of similar programs offered by other institutions. University of Phoenix currently plans on opening seven to nine new campuses during 2006. In the first six months of 2006, two new University of Phoenix campuses were opened. Effective October 1, 2005, we took over operations of the Netherlands campus from Apollo International, Inc. In addition, during the first quarter of 2006, University of Phoenix entered into an agreement with Iowa Central Community College (“ICCC”) to provide ICCC with services in the areas of educational consulting and training, program development, faculty recruitment and screening, and student recruitment with respect to ICCC’s Associate of Applied Science Degree in Computer Networking. The University of Phoenix Online campus plans to continue expanding its distance education programs and services. We will also continue to respond to the changing educational needs of working adults and their employers by introducing new undergraduate and graduate degree programs, as well as training programs.

          Expand student base in associate degree programs. We plan to continue increasing the number of online students in our associate degree programs through the growth of Axia College. Axia College has been specifically designed to meet the special needs of low-credit working adults. We believe that the number of Axia College students will continue to increase significantly as we believe we are best positioned to meet the needs of these students through small class sizes and highly qualified staff.

          International expansion. We believe that the international market for our services is a major growth opportunity. The United States is the most common destination for international students studying abroad. We believe that more working students would opt for a U.S. education that does not involve living in the U.S. because they could do so without leaving their employment and incurring the high travel and living costs and stringent visa requirements associated with studying abroad. Our belief is supported by the fact that University of Phoenix Online has students located in more than 130 countries. In addition, many U.S. residents live and work in foreign countries and could benefit from the opportunity to continue their education while abroad. In addition, we have entered into a number of joint educational agreements to provide educational content to degree programs located outside the United States. These agreements include an agreement with Apollo International, Inc. that allows for Western International University’s educational offerings to be made available in India and an educational program that was initiated in China as part of a joint educational agreement with Canadian Institute of Business and Technology (CIBT). We will continue to conduct market and operations research in various foreign countries where we believe there might be a demand for our programs.

Challenges and Risks

          Competitive market. The higher education market is highly fragmented and competitive with no private or public institution enjoying a significant market share. We compete primarily with four-year and two-year degree-granting public and private regionally accredited colleges and universities. Many of these colleges and universities enroll working students in addition to the traditional 18 to 24 year-old students. We expect that these colleges and universities will continue to modify their existing programs

25

to serve working students more effectively. In addition, many colleges and universities have announced various distance education initiatives.

          Regulatory, accreditation, and state authorization risks. Our future success is highly dependent on our ability to obtain, maintain, or renew required regulatory approvals, accreditation, and state authorizations. The loss of accreditation would significantly reduce demand for our programs, as it would prohibit us from offering degrees and credits that are recognized and accepted by employers, other higher education institutions, and governmental entities. It would also render us ineligible to participate in federal financial aid programs. The failure to comply with any of the Title IV requirements could result in adverse action by the U.S. Department of Education against us, including the termination of Title IV eligibility, the imposition of fines, or the imposition of liabilities by the U.S. Department of Education. The loss of Title IV eligibility would significantly reduce demand for our programs. The failure to obtain authorization to operate in new states, to add new programs, or to add new locations would adversely effect our ability to expand our business.

          Higher Education Act reauthorization. The U.S. Department of Education issues regulations based on the laws included in the Higher Education Act. The Higher Education Act has been extended to June 30, 2006. Changes in the law occur during the Congressional reauthorization process, with final regulations issued after that time. The reauthorization process could amend existing requirements or implement new requirements. Any action by Congress that significantly reduces funding for the federal student financial aid programs or the ability of our schools or students to participate in these programs could harm our business. Legislative action may also increase our administrative costs and burdens and require us to modify our practices in order for our schools to comply fully with applicable requirements, which could have a material adverse effect on our business.

          Litigation. Regulatory agencies or third parties may commence investigations, bring claims, or institute litigation against us. Because we operate in a highly regulated industry, we may be subject from time to time to investigations, claims of non-compliance, or lawsuits by governmental agencies or third parties, which may allege statutory violations, regulatory infractions, or common law causes of action. If the results of the investigations are unfavorable to us or if we are unable to successfully defend against third-party lawsuits, we may be required to pay money damages or be subject to fines, penalties, injunctions or other censure that could have a materially adverse effect on our business. Even if we adequately address the issues raised by an agency investigation or successfully defend a third-party lawsuit, we may have to devote significant money and management resources to address these issues, which could harm our business. Adverse publicity regarding litigation against us could also negatively affect our business.

          All of these challenges and risks have the potential to have a material adverse effect on the education industry and on us; however, we believe we are well positioned to appropriately address these challenges and risks.

Application of Critical Accounting Policies and Estimates

          Management discussed with our Audit Committee the development, selection, and disclosure of our critical accounting policies and estimates and the application of these policies and estimates. The following is a brief discussion of the more critical accounting policies and methods used by us.

Basis of presentation and consolidation

          Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The consolidated financial statements include the accounts of Apollo Group, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Revenue recognition

          Approximately 92.9% of our tuition and other net revenues during the first six months of 2006 consist of tuition revenues. Tuition revenue is recognized on a weekly basis, pro rata over the period of instruction. Our tuition and other net revenues also include fees for our online delivery of course materials, application fees, commissions from the sale of education-related products, other student fees, and other income. Our tuition and other net revenues vary from period to period based on several factors that include: 1) the aggregate number of students attending classes; 2) the number of classes held during the period; and 3) the weighted average tuition price per credit hour (weighted by program and location). University of Phoenix tuition revenues represent 83.1% of consolidated tuition revenues during the six months ended February 28, 2006. Institute for Professional Development tuition revenues consist of the contractual share of tuition revenues from students enrolled in related programs at its client institutions. Institute for Professional Development’s contracts with its respective client institutions generally have terms of five to ten years with provisions for renewal.

          Our educational programs range in length from one-day seminars to degree programs lasting up to four years. Students in our degree programs generally enroll in a program of study that encompasses a series of five to nine-week courses that are taken

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consecutively over the length of the program. Students are billed on a course-by-course basis when the student first attends a session, resulting in the recording of a receivable from the student and deferred tuition revenue in the amount of the billing. The related revenue for each course, including that portion of tuition revenues to which we are entitled under the terms of our revenue-sharing contracts with Institute for Professional Development client institutions, is recognized on a pro-rata basis over the period of instruction for each course. Fees for our online delivery of course materials are also recognized on a pro-rata basis over the period of instruction. Application fee revenue and related costs are deferred and recognized on a pro-rata basis over the period of the program. Seminars, continuing education programs, and many of the College for Financial Planning’s non-degree programs are usually billed in one installment with the related revenue also recognized on a pro-rata basis over the period of instruction.

          Tuition and other revenues are shown net of discounts relating to a variety of promotional programs. Such discounts totaled $25.9 million (4.3% of gross revenues) and $30.7 million (5.7% of gross revenues) in the three months ended February 28, 2006 and 2005, respectively, and $55.3 million (4.4% of gross revenues) and $49.0 million (4.5% of gross revenues) in the six months ended February 28, 2006 and 2005, respectively.

Allowance for doubtful accounts

          Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Estimates are used in determining our allowance for doubtful accounts and are based on our historical collection experience, current trends, and a percentage of our accounts receivable by aging category. In determining these percentages, we look at historical write-offs of our receivables. A significant change in the aging of our accounts receivable balances would have an effect on the allowance for doubtful accounts balance. Our accounts receivable are written-off once the account is deemed to be uncollectible. This typically occurs once we have exhausted all efforts to collect the account, which includes collection attempts by company employees and outside collection agencies.

Income taxes

          Our effective tax rates differ from the statutory rate primarily due to state taxes and the tax impact of tax-exempt interest income. The effective tax rate was 39.4% and 39.3% in the three months ended February 28, 2006 and 2005, respectively, and 39.3% in both the six months ended February 28, 2006 and 2005. Our future effective tax rates could be adversely affected by changes in the valuation of our deferred tax assets or liabilities or changes in tax laws or interpretations thereof. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Loss contingencies

          We are subject to the possibility of various loss contingencies arising in the ordinary course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted and whether new accruals are required.

Impairment of intangible assets

          Our intangible assets primarily consist of approximately $37.1 million in unamortized cost in excess of fair value of assets purchased (i.e. goodwill) resulting from our acquisitions of Western International University and the College for Financial Planning. Intangible assets, including cost in excess of fair value of assets purchased, are reviewed for impairment on an annual basis or whenever events or circumstances indicate that the estimated fair value is less than the related carrying value. The carrying value of cost in excess of fair value of assets purchased is assessed for any permanent impairment by evaluating the operating performance and using valuation techniques such as future discounted cash flows of the underlying businesses. In assessing the recoverability of our goodwill and other intangibles we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record non-cash impairment charges for these assets not previously recorded. We have selected August 31 as the date on which we will perform our annual goodwill impairment test. We performed our annual impairment test as of August 31, 2005, and concluded that no impairment charge was required.

Stock-based compensation expense

          On September 1, 2005, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”) based on estimated fair values. Stock-based compensation expense recognized

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under SFAS 123(R) for the three and six months ended February 28, 2006, was $12.7 million and $18.5 million, respectively. There was no stock-based compensation expense related to employee stock options and employee stock purchases recognized during the three and six months ended February 28, 2005, because we did not adopt the recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). See Note 9 for additional information.

          The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The use of an option-pricing model requires the use of extensive actual employee exercise behavior data and the use of a number of complex assumptions including expected volatility, risk-free interest rate, expected dividends, and expected term. The weighted-average estimated value of employee stock options granted during the three and six months ended February 28, 2006, was $11.92 per share and $16.49 per share, respectively, with the following weighted-average assumptions:

	For the Three Months Ended			For the Six Months Ended
	February 28, 2006			February 28, 2006
Dividend yield		0.0	%		0.0	%
Expected volatility		28.7	%		30.6	%
Risk-free interest rate		4.4	%		4.4	%
Expected lives (in years)		2.0			2.9

          We have analyzed both our historical volatility and the implied volatility for two-year traded options of our Apollo Education Group Class A common stock to estimate the expected volatility consistent with SFAS 123(R) and Staff Accounting Bulletin No. 107 (“SAB 107”). Prior to the first quarter of fiscal 2006, we had used our historical stock price volatility in accordance with SFAS 123 for purposes of our pro forma information.

          The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The dividend yield assumption is based on the history and expectation of dividend payouts. The estimated expected life represents the weighted-average period the stock options are expected to remain outstanding and has been determined based on an analysis of historical exercise behavior.

          As stock-based compensation expense recognized in the Consolidated Statement of Operations for the first and second quarters of fiscal 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

          If factors change and we employ different assumptions in the application of SFAS 123(R) in future periods, the compensation expense that we record under SFAS 123(R) may differ significantly from what we have recorded in the current period.

Recent accounting pronouncements

          In March 2004, the Financial Accounting Standards Board (“FASB”) issued Emerging Issues Task Force Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“EITF 03-1”). EITF 03-1 includes new guidance for evaluating and recording impairment losses on debt and equity investments, as well as new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB issued Staff Position EITF No. 03-1-1, which delays the effective date until additional guidance is issued for the application of the recognition and measurement provisions of EITF 03-1 to investments in securities that are impaired. We do not believe that the adoption of EITF 03-1 will have a material impact on our financial condition or results of operations.

          In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154, Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”). SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in nondiscretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. We plan to adopt SFAS 154 beginning in the first quarter of fiscal 2007.

Results of Operations

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     We categorize our expenses as instructional costs and services, selling and promotional, and general and administrative. Instructional costs and services at University of Phoenix, Western International University, and the College for Financial Planning consist primarily of costs related to the delivery and administration of our educational programs and include faculty compensation, administrative salaries for departments that provide service directly to the students, financial aid processing costs, the costs of educational materials sold, facility leases and other occupancy costs, bad debt expense, and depreciation and amortization of property and equipment. University of Phoenix and Western International University faculty members are primarily contracted for one course offering at a time. All classroom facilities are leased or, in some cases, are provided by the students’ employers at no charge to us. Instructional costs and services at Institute for Professional Development consist primarily of program administration, student services, and classroom lease expense. Most of the other instructional costs for Institute for Professional Development-assisted programs, including faculty, financial aid processing, and other administrative salaries, are the responsibility of its client institutions. Costs related to the start-up of new campuses and learning centers are expensed as incurred.

     Selling and promotional costs consist primarily of compensation for enrollment advisors and corporate marketing, advertising costs, production of marketing materials, and other costs related to selling and promotional functions. We expense selling and promotional costs as incurred.

     General and administrative costs consist primarily of administrative salaries, occupancy costs, depreciation and amortization, and other related costs for departments such as executive management, information systems, corporate accounting, human resources, and other departments that do not provide direct services to our students. To the extent possible, we centralize these services to avoid duplication of effort.

     The following table sets forth an analysis of our Consolidated Statements of Income for the periods indicated:

					Percent of Revenues
	For the Three Months Ended				For the Three Months Ended
	February 28,				February 28,						Percent Change
(In thousands, except percentages)	2006		2005		2006			2005			2006 vs. 2005
Revenues:
Tuition and other, net	$	569,551	$	505,693		100.0	%		100.0	%		12.6	%
Costs and expenses:
Instructional costs and services		258,447		221,635		45.4			43.8			16.6
Selling and promotional		124,426		121,016		21.8			23.9			2.8
General and administrative		57,205		23,499		10.1			4.7			143.4
		440,078		366,150		77.3			72.4			20.2
Income from operations		129,473		139,543		22.7			27.6			-7.2
Interest income and other, net		3,567		3,855		0.7			0.8			-7.5
Income before income taxes		133,040		143,398		23.4			28.4			-7.2
Provision for income taxes		52,405		56,284		9.2			11.2			-6.9
Net income	$	80,635	$	87,114		14.2	%		17.2	%		-7.4	%

     Refer to the above Analysis of Consolidated Statements of Income when reading the results of operations discussion below.

THREE MONTHS ENDED FEBRUARY 28, 2006, COMPARED WITH THREE MONTHS ENDED FEBRUARY 28, 2005

Tuition and Other, Net

     Our tuition and other net revenues increased by 12.6% in the three months ended February 28, 2006, from the three months ended February 28, 2005, primarily due to a 13.5% increase in average degree student enrollments and tuition price increases averaging four to six percent (depending on the geographic area and program), partially offset by an increase in our lower-tuition associates degree programs as a percentage of total degree student enrollments. As of February 28, 2006, 19.7% of our students are enrolled in associates degree programs compared with 10.6% of our students at February 28, 2005.

     Tuition and other net revenues for the three months ended February 28, 2006 and 2005, consist primarily of $526.7 million and $467.6 million, respectively, of net tuition revenues from students enrolled in degree programs and $2.6 million and $2.7 million, respectively, of net tuition revenues from students enrolled in non-degree programs.

     Information about our tuition and other net revenues by reportable segment on a percentage basis is as follows:

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	For the Three Months Ended
	February 28,
	2006			2005
University of Phoenix		81.3	%		90.2	%
Other Schools		18.7			9.7
Corporate		0.0			0.1
Tuition and other, net		100.0	%		100.0	%

     Tuition and other net revenues at Other Schools increased as a percentage of total revenues due to the significant increase in enrollment in associates degree programs at Axia College of Western International University between periods. Axia College began offering these programs in September 2004. Tuition and other net revenues at University of Phoenix should begin to increase as a percentage of total revenues during the third quarter of 2006 as Axia College is transferred from Western International University to University of Phoenix.

Instructional Costs and Services

     Instructional costs and services increased by $36.8 million in the three months ended February 28, 2006, from the three months ended February 28, 2005. The following table sets forth the changes in significant components of instructional costs and services, in millions:

					Percent of Revenues
	For the Three Months Ended				For the Three Months Ended
	February 28,				February 28,						Percent Change
	2006		2005		2006			2005			2006 vs. 2005
Employee compensation and related expenses	$	90.1	$	81.3		15.9	%		16.1	%		10.8	%
Stock-based compensation		3.5				0.6	%
Faculty compensation		49.1		43.4		8.6	%		8.6	%		13.1	%
Classroom lease expenses and depreciation		46.3		41.7		8.1	%		8.2	%		11.0	%
Financial aid processing costs		12.7		10.4		2.2	%		2.1	%		22.1	%
Bad debt expense		19.8		9.9		3.5	%		1.9	%		100.0	%
Other instructional costs and services		36.9		34.9		6.5	%		6.9	%		5.7	%
Instructional costs and services	$	258.4	$	221.6		45.4	%		43.8	%		16.6	%

     Instructional costs and services as a percentage of tuition and other net revenues increased in the three months ended February 28, 2006, versus the three months ended February 28, 2005, due primarily to an increase in bad debt expense and stock-based compensation charges, partially offset by greater tuition and other net revenues being spread over the fixed costs related to centralized student services. We may not be able to leverage our recurring costs to the same extent as we face increased costs related to our expansion into new geographic markets. The increase in bad debt expense as a percentage of revenue between 2005 and 2006 is the result of increased aged accounts receivable and write-offs between periods as a result of an increase in financial aid students that withdrew from class prior to their financial aid disbursement.

Selling and Promotional Expenses

     Selling and promotional expenses increased by $3.4 million in the three months ended February 28, 2006, from the three months ended February 28, 2005. The following table sets forth the changes in significant components of selling and promotional expenses, in millions:

					Percent of Revenues
	For the Three Months Ended				For the Three Months Ended
	February 28,				February 28,						Percent Change
	2006		2005		2006			2005			2006 vs. 2005
Enrollment advisors’ compensation and related expenses	$	62.7	$	51.7		11.0	%		10.2	%		21.3	%
Stock-based compensation		0.4				0.0	%
Advertising		49.4		56.1		8.7	%		11.1	%		-11.9	%
Other selling and promotional expenses		11.9		13.2		2.1	%		2.6	%		-9.8	%
Selling and promotional expenses	$	124.4	$	121.0		21.8	%		23.9	%		2.8	%

     Selling and promotional expenses as a percentage of tuition and other net revenues decreased in the three months ended February 28, 2006, versus the three months ended February 28, 2005, due principally to a decrease in advertising expense due to reduced advertising spending during the month of December, partially offset by an increase in enrollment advisors compensation and related expenses. We anticipate that advertising spending will increase through the remainder of 2006 as we plan to spend more on lead generation.

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General and Administrative Expenses

     General and administrative expenses increased by $33.7 million in the three months ended February 28, 2006, from the three months ended February 28, 2005. The following table sets forth the changes in significant components of general and administrative expenses, in millions:

					Percent of Revenues
	For the Three Months Ended				For the Three Months Ended
	February 28,				February 28,						Percent Change
	2006		2005		2006			2005			2006 vs. 2005
Employee compensation and related expenses	$	32.7	$	11.9		5.7	%		2.4	%		174.8	%
Stock-based compensation		8.8				1.6	%
Administrative space and depreciation		5.7		4.0		1.0	%		0.8	%		42.5	%
Other general and administrative expenses		10.0		7.6		1.8	%		1.5	%		31.6	%
General and administrative expenses	$	57.2	$	23.5		10.1	%		4.7	%		143.4	%

     Included in the above employee compensation and related expenses and stock-based compensation are $19.0 million and $7.5 million, respectively, related to our former CEO’s Separation Agreement. Excluding these amounts, general and administrative expenses as a percentage of tuition and other net revenues increased from 4.7% in the three months ended February 28, 2005, to 5.4% in the three months ended February 28, 2006, due primarily to stock-based compensation charges and increases in employee compensation and related expenses and administrative space and depreciation costs due to higher information technology spending principally as a result of the opening of a redundant data center in August 2005. We anticipate the trend of higher information technology costs to continue during the remainder of 2006.

Interest Income and Other, Net

     Net interest income and other decreased by $288,000 in the three months ended February 28, 2006, from the three months ended February 28, 2005. This decrease was attributable to the decrease in cash equivalents and marketable securities between periods, partially offset by higher yields earned on these securities as a result of interest rate increases. Interest expense was $69,000 and $37,000 in the three months ended February 28, 2006 and 2005, respectively.

Effective Income Tax Rate

     Our effective income tax rate increased slightly to 39.4% in the three months ended February 28, 2006, from 39.3% in the three months ended February 28, 2005, due to lower tax-exempt interest income as a percentage of total income.

     The following table sets forth an analysis of our Consolidated Statements of Income for the periods indicated:

					Percent of Revenues
	For the Six Months Ended				For the Six Months Ended
	February 28,				February 28,						Percent Change
(In thousands, except percentages)	2006		2005		2006			2005			2006 vs. 2005
Revenues:
Tuition and other, net	$	1,198,435	$	1,040,619		100.0	%		100.0	%		15.2	%
Costs and expenses:
Instructional costs and services		518,332		439,052		43.3			42.2			18.1
Selling and promotional		252,546		241,601		21.1			23.2			4.5
General and administrative		87,285		44,687		7.3			4.3			95.3
		858,163		725,340		71.7			69.7			18.3
Income from operations		340,272		315,279		28.3			30.3			7.9
Interest income and other, net		8,070		8,417		0.7			0.8			-4.1
Income before income taxes		348,342		323,696		29.0			31.1			7.6
Provision for income taxes		136,933		127,051		11.4			12.2			7.8
Net income	$	211,409	$	196,645		17.6	%		18.9	%		7.5	%

     Refer to the above Analysis of Consolidated Statements of Income when reading the results of operations discussion below.

SIX MONTHS ENDED FEBRUARY 28, 2006, COMPARED WITH SIX MONTHS ENDED FEBRUARY 28, 2005

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Tuition and Other, Net

     Our tuition and other net revenues increased by 15.2% in the six months ended February 28, 2006, from the six months ended February 28, 2005, primarily due to a 14.6% increase in average degree student enrollments and tuition price increases averaging four to six percent (depending on the geographic area and program), partially offset by an increase in our lower-tuition associates degree programs as a percentage of total degree student enrollments.

     Tuition and other net revenues for the six months ended February 28, 2006 and 2005, consist primarily of $1.1 billion and $961.1 million, respectively, of net tuition revenues from students enrolled in degree programs and $4.7 million and $5.4 million, respectively, of net tuition revenues from students enrolled in non-degree programs.

     Information about our tuition and other net revenues by reportable segment on a percentage basis is as follows:

	For the Six Months Ended
	February 28,
	2006			2005
University of Phoenix		82.9	%		91.7	%
Other Schools		17.1			8.2
Corporate		0.0			0.1
Tuition and other, net		100.0	%		100.0	%

     Tuition and other net revenues at Other Schools increased as a percentage of total revenues due to the significant increase in enrollment in associates degree programs at Axia College of Western International University between periods. Axia College began offering these programs in September 2004. Tuition and other net revenues at University of Phoenix should begin to increase as a percentage of total revenues during the third quarter of 2006 as Axia College is transferred from Western International University to University of Phoenix.

Instructional Costs and Services

     Instructional costs and services increased by $79.3 million in the six months ended February 28, 2006, from the six months ended February 28, 2005. The following table sets forth the changes in significant components of instructional costs and services, in millions:

					Percent of Revenues
	For the Six Months Ended				For the Six Months Ended
	February 28,				February 28,						Percent Change
	2006		2005		2006			2005			2006 vs. 2005
Employee compensation and related expenses	$	178.3	$	161.8		14.9	%		15.6	%		10.2	%
Stock-based compensation		6.3				0.6	%
Faculty compensation		102.4		87.9		8.6	%		8.4	%		16.5	%
Classroom lease expenses and depreciation		92.7		82.0		7.7	%		7.9	%		13.0	%
Financial aid processing costs		25.5		20.7		2.1	%		2.0	%		23.2	%
Bad debt expense		39.9		19.0		3.3	%		1.8	%		110.0	%
Other instructional costs and services		73.2		67.7		6.1	%		6.5	%		8.1	%
Instructional costs and services	$	518.3	$	439.1		43.3	%		42.2	%		18.1	%

     Instructional costs and services as a percentage of tuition and other net revenues increased in the six months ended February 28, 2006, versus the six months ended February 28, 2005, due primarily to an increase in bad debt expense and stock-based compensation charges, partially offset by greater tuition and other net revenues being spread over the fixed costs related to centralized student services. We may not be able to leverage our recurring costs to the same extent as we face increased costs related to our expansion into new geographic markets. The increase in bad debt expense as a percentage of revenue between 2005 and 2006 is the result of increased aged accounts receivable and write-offs between periods as a result of an increase in financial aid students that withdrew from class prior to their financial aid disbursement.

Selling and Promotional Expenses

     Selling and promotional expenses increased by $10.9 million in the six months ended February 28, 2006, from the six months ended February 28, 2005. The following table sets forth the changes in significant components of selling and promotional expenses, in millions:

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					Percent of Revenues
	For the Six Months Ended				For the Six Months Ended
	February 28,				February 28,						Percent Change
	2006		2005		2006			2005			2006 vs. 2005
Enrollment advisors’ compensation and related expenses	$	119.5	$	99.9		10.0	%		9.6	%		19.6	%
Stock-based compensation		0.9				0.1	%
Advertising		105.9		115.9		8.8	%		11.1	%		-8.6	%
Other selling and promotional expenses		26.2		25.8		2.2	%		2.5	%		1.6	%
Selling and promotional expenses	$	252.5	$	241.6		21.1	%		23.2	%		4.5	%

     Selling and promotional expenses as a percentage of tuition and other net revenues decreased in the six months ended February 28, 2006, versus the six months ended February 28, 2005, due principally to a decrease in advertising expense due to reduced advertising spending, partially offset by an increase in enrollment advisors compensation and related expenses. We anticipate that advertising spending will increase through the remainder of 2006 as we plan to spend more on lead generation.

General and Administrative Expenses

     General and administrative expenses increased by $42.6 million in the six months ended February 28, 2006, from the six months ended February 28, 2005. The following table sets forth the changes in significant components of general and administrative expenses, in millions:

					Percent of Revenues
	For the Six Months Ended				For the Six Months Ended
	February 28,				February 28,						Percent Change
	2006		2005		2006			2005			2006 vs. 2005
Employee compensation and related expenses	$	44.9	$	21.9		3.7	%		2.1	%		105.0	%
Stock-based compensation		11.3				0.9	%
Administrative space and depreciation		11.6		7.8		1.0	%		0.8	%		48.7	%
Other general and administrative expenses		19.5		15.0		1.6	%		1.4	%		30.0	%
General and administrative expenses	$	87.3	$	44.7		7.3	%		4.3	%		95.3	%

     Included in the above employee compensation and related expenses and stock-based compensation are $19.0 million and $7.5 million, respectively, related to our former CEO’s Separation Agreement. Excluding these amounts, general and administrative expenses as a percentage of tuition and other net revenues increased from 4.3% in the six months ended February 28, 2005, to 5.1% the six months ended February 28, 2006, due primarily to stock-based compensation charges and increases in employee compensation and related expenses and administrative space and depreciation costs due to higher information technology spending principally as a result of the opening of a redundant data center in August 2005. We anticipate the trend of higher information technology costs to continue during the remainder of 2006.

Interest Income and Other, Net

     Net interest income and other decreased by $347,000 in the six months ended February 28, 2006, from the six months ended February 28, 2005. This decrease was attributable to the decrease in cash equivalents and marketable securities between periods, partially offset by higher yields earned on these securities as a result of interest rate increases. Interest expense was $102,000 and $59,000 in the six months ended February 28, 2006 and 2005, respectively.

Effective Income Tax Rate

     Our effective income tax rate remained consistent between periods at 39.3%.

Liquidity, Capital Resources, and Financial Position

Liquidity and Capital Resources

     The following sections discuss the effects of changes in our balance sheets, cash flows, and commitments and contingencies on our liquidity and capital resources.

     Cash and cash equivalents and marketable securities. Cash and cash equivalents and marketable securities were $194.4 million as of February 28, 2006, a decrease from $467.1 million at August 31, 2005. The decrease was primarily a result of the repurchase of Apollo Education Group Class A common stock of $510.9 million, and capital expenditures of $30.1 million partially

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offset by cash provided by operating activities of $260.3 million and cash provided by the issuance of Apollo Education Group Class A common stock of $19.1 million, related to employee stock option exercises and employee stock purchases during the period.

     Restricted cash. The U.S. Department of Education requires that Title IV Program funds collected in advance of student billings be kept in a separate cash or cash equivalent account until the students are billed for that portion of their program. In addition, all Title IV Program funds received by us through electronic funds transfer are subject to certain holding period restrictions. These funds generally remain in these separate accounts for an average of 60 to 75 days from receipt. As of February 28, 2006, we had approximately $238.4 million in this separate account, which is reflected in the Consolidated Balance Sheets as restricted cash to comply with these requirements. These restrictions on cash have not affected our ability to fund daily operations.

     Capital expenditures. Capital expenditures decreased to $30.1 million during the six months ended February 28, 2006, from $43.9 million during the six months ended February 28, 2005, primarily due to reduced spending on furniture and equipment and leasehold improvements between periods. Total purchases of property and equipment for the year ended August 31, 2006, are expected to range from $100 to $120 million. These expenditures will primarily be related to new campuses and learning centers and increases in normal recurring capital expenditures due to the overall increase in student and employee levels resulting from the growth in the business. In addition, we anticipate spending $103.0 million during 2006 and 2007 for the construction of a building for future Online expansion, of which $14.8 million had been incurred as of February 28, 2006. Upon completion, it is our intention to sell the building to a third party and lease it back.

     Future cash flows. We expect that cash provided by operating activities may fluctuate in future periods as a result of several factors, including fluctuations in our operating results, accounts receivable collections, and the timing of tax and other payments. Based on past performance and current expectations, we believe that our cash and cash equivalents, marketable securities, and cash generated from operations will satisfy our working capital needs, capital expenditures, stock repurchases, commitments, and other liquidity requirements associated with our existing operations through at least the next 12 months and the foreseeable future. We believe that the most strategic uses of our cash resources include repurchase of shares and start-up costs associated with new campuses. There are no transactions, arrangements, and other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of our requirements for capital.

     Letter of credit. An unsecured letter of credit for Western International University, in the amount of $5.3 million, expiring in March 2007, is outstanding.

     Accounts receivable, net. Accounts receivable, net was $200.7 million and $201.6 million as of February 28, 2006, and August 31, 2005, respectively. Days sales outstanding (“DSO”) in receivables, net as of February 28, 2006, and August 31, 2005, were 30 days and 33 days, respectively. Our accounts receivable and DSO are primarily affected by collections performance. Improved collections performance will result in reduced DSO.

Commitments and Contingencies

     Leases. We currently lease the majority of our administrative and educational facilities under operating lease agreements. Most lease agreements contain tenant improvement allowances, rent holidays, and/or rent escalation clauses. In instances where one or more of these items are included in a lease agreement, we record a deferred rent liability on the Consolidated Balance Sheet and amortize the items on a straight-line basis over the term of the lease as additions or deductions to rent expense. Lease terms generally range from five to ten years with one to two renewal options for extended terms. Management expects that as these leases expire, they will be renewed or replaced by other leases in the normal course of business. For leases with renewal options, we record rent expense and amortize the leasehold improvements on a straight-line basis over the initial non-cancelable lease term (in instances where the lease term is shorter than the economic life of the asset) as we do not believe that the renewal of the option is reasonably assured. We are required to make additional payments under operating lease terms for taxes, insurance, and other operating expenses incurred during the operating lease period. We also lease space from time to time on a short-term basis in order to provide specific courses or programs.

     We record leasehold improvements funded by landlord incentives or allowances under operating leases (“tenant improvement allowances”) as a leasehold improvement asset and deferred rent liability on the Consolidated Balance Sheets and as both an investing activity (addition to property and equipment) and a component of operating activities on the Consolidated Statements of Cash Flows. We also reflect cash reimbursements received for tenant improvement allowances during the periods presented as additions to property and equipment and an increase in operating activities in the Consolidated Statements of Cash Flows.

     A tabular presentation of our contractual obligations at August 31, 2005, is provided in the “Liquidity and Capital Resources” portion of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K as filed with the Securities and Exchange Commission. There were no material changes in our contractual obligations during the first six months of 2006.

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     Contingencies. On approximately October 12, 2004, a class action complaint was filed in the United States District Court for the District of Arizona, captioned Sekuk Global Enterprises et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2147 PHX NVW. A second class action complaint making similar allegations was filed on or about October 18, 2004, in the United States District Court for the District of Arizona, captioned Christopher Carmona et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2204 PHX EHC. A third class action complaint making similar allegations was filed on or about October 28, 2004, in the United States District Court for the District of Arizona, captioned Jack B. McBride et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2334 PHX LOA. The Court consolidated the three pending class action complaints and a consolidated class action complaint was filed on May 16, 2005 by the Lead Plaintiff. Lead Plaintiff purports to represent a class of our shareholders who acquired their shares between February 27, 2004, and September 14, 2004, and seeks monetary damages in unspecified amounts. Lead Plaintiff alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated under the Exchange Act, by us for our issuance of allegedly materially false and misleading statements in connection with our failure to publicly disclose the contents of the U.S. Department of Education’s program review report. A motion to dismiss the consolidated class action complaint was filed on June 15, 2005, on behalf of Apollo Group, Inc. and the individual named defendants. The Court denied the motion to dismiss on October 18, 2005. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from this action.

     On August 29, 2003, we were notified that a qui tam action had been filed against us on March 7, 2003, in the United States District Court for the Eastern District of California by two current employees on behalf of themselves and the federal government. When the Government declines to intervene in a qui tam action, as it has done in this case, the relators may elect to pursue the litigation on behalf of the Government and, if they are successful, receive a portion of the federal government’s recovery. The qui tam action alleges, among other things, violations of the False Claims Act 31 U.S.C. § 3729(a)(1) and (2), by University of Phoenix for submission of a knowingly false or fraudulent claim for payment or approval, and knowingly false records or statements to get a false or fraudulent claim paid or approved in connection with federal student aid programs, and asserts that University of Phoenix improperly compensates its employees. On or about October 20, 2003, a motion to dismiss the action was filed and was subsequently granted with leave to amend the complaint. Subsequently, a second amended complaint was filed on or about March 3, 2004. A motion to dismiss this amended complaint was filed on or about March 22, 2004, and the case was subsequently dismissed with prejudice. On June 11, 2004, an appeal was filed with the United States Ninth Circuit Court of Appeals. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from this action.

     On approximately September 26, 2003, a class action complaint was filed in the Superior Court of the State of California for the County of Orange, captioned Bryan Sanders et. al. v. University of Phoenix, Inc. et. al., Case No. 03CC00430. Plaintiff, a former academic advisor with University of Phoenix, filed this class action on behalf of himself and current and former academic advisors employed by us in the State of California and seeks certification as a class, monetary damages in unspecified amounts, and injunctive relief. Plaintiff alleges that during his employment, he and other academic advisors worked in excess of 8 hours per day or 40 hours per week, and contends that we failed to pay overtime. On June 6, 2005, the court granted plaintiffs’ motion to remove Bryan Sanders as the named plaintiff and replace him with Deryl Clark and Romero Ontiveros. Plaintiff’s counsel has advised defendants and the court that Mr. Ontiveros no longer intends to serve as a named plaintiff. Five status conferences have occurred and the parties are now in the process of discovery. The court has granted defendants’ motion to transfer venue to the Superior Court of the State of California for the County of Solano. A management conference has been set for April 2006, and the Plaintiff’s motion to certify the class will be heard by the Court in May 2006. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from this action.

     We are subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Stock Repurchase Program

     Our Board of Directors has previously authorized a program allocating up to $1.85 billion of our funds to repurchase shares of Apollo Education Group Class A common stock and University of Phoenix Online common stock. While it was outstanding, we repurchased approximately 2,025,000 shares of University of Phoenix Online common stock at a total cost of approximately $132.0 million. On December 9, 2005, our Board of Directors authorized a program allocating up to an additional $300 million of our funds to repurchase shares of Apollo Education Group Class A common stock. As of February 28, 2006, we had repurchased approximately 35,075,000 shares of Apollo Education Group Class A common stock at a total cost of approximately $1.9 billion. An additional 81,000 shares of Apollo Education Group Class A common stock were repurchased in March 2006 at a cost of approximately $4.0 million.

     As of February 28, 2006, 3,025,000 shares of our treasury stock have been used to secure receivables between Apollo Group and two of its subsidiaries.

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Seasonality in Results of Operations

     We experience seasonality in our results of operations primarily as a result of changes in the level of student enrollments. While we enroll students throughout the year, second quarter (December through February) degree student enrollments and related revenues generally are lower than other quarters due to seasonal breaks in December and January. Second quarter costs and expenses historically increase as a percentage of tuition and other net revenues as a result of certain fixed costs not significantly affected by the seasonal second quarter declines in net revenues.

     We experience a seasonal increase in new enrollments in August of each year when most other colleges and universities begin their fall semesters. As a result, instructional costs and services and selling and promotional expenses historically increase as a percentage of tuition and other net revenues in the fourth quarter due to increased costs in preparation for the August peak enrollments. Therefore, we analyze our expenses as a percentage of tuition and other net revenues in comparison to the percentages in the same period of the prior year.

     We anticipate that these seasonal trends in the second and fourth quarters will continue in the future.

Impact of Inflation

     Inflation has not had a significant impact on our historical operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     Our portfolio of marketable securities includes numerous issuers, varying types of securities, and varying maturities. We intend to hold all securities, other than auction-rate securities, to maturity. The fair value of our portfolio of marketable securities would not be significantly impacted by either a 100 basis point increase or decrease in interest rates due primarily to the short-term nature of the portfolio. We do not hold or issue derivative financial instruments.

Item 4. Controls and Procedures

     Under the supervision and with the participation of our management, including our Principal Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e), promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Chief Financial Officer concluded that, as of the end of our most recently completed fiscal quarter, our disclosure controls and procedures were effective to ensure that information is recorded, processed, summarized, and reported on a timely basis.

     There were no significant changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within Apollo to disclose material information otherwise required to be set forth in our periodic reports.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

     On approximately October 12, 2004, a class action complaint was filed in the United States District Court for the District of Arizona, captioned Sekuk Global Enterprises et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2147 PHX NVW. A second class action complaint making similar allegations was filed on or about October 18, 2004, in the United States District Court for the District of Arizona, captioned Christopher Carmona et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2204 PHX EHC. A third class action complaint making similar allegations was filed on or about October 28, 2004, in the United States District Court for the District of Arizona, captioned Jack B. McBride et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2334 PHX LOA. The Court consolidated the three pending class action complaints and a consolidated class action complaint was filed on May 16, 2005 by the Lead Plaintiff. Lead Plaintiff purports to represent a class of our shareholders who acquired their shares between February 27, 2004, and September 14, 2004, and seeks monetary damages in unspecified amounts. Lead Plaintiff alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated under the Exchange Act, by us for our issuance of allegedly materially false and misleading statements in connection with our failure to publicly disclose the contents of the U.S. Department of Education’s program review report. A motion to dismiss the consolidated class action complaint was filed on June 15, 2005, on behalf of Apollo Group, Inc. and the individual named defendants. The Court denied the motion to dismiss on October 18, 2005. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from this action.

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     On August 29, 2003, we were notified that a qui tam action had been filed against us on March 7, 2003, in the United States District Court for the Eastern District of California by two current employees on behalf of themselves and the federal government. When the Government declines to intervene in a qui tam action, as it has done in this case, the relators may elect to pursue the litigation on behalf of the Government and, if they are successful, receive a portion of the federal government’s recovery. The qui tam action alleges, among other things, violations of the False Claims Act 31 U.S.C. § 3729(a)(1) and (2), by University of Phoenix for submission of a knowingly false or fraudulent claim for payment or approval, and knowingly false records or statements to get a false or fraudulent claim paid or approved in connection with federal student aid programs, and asserts that University of Phoenix improperly compensates its employees. On or about October 20, 2003, a motion to dismiss the action was filed and was subsequently granted with leave to amend the complaint. Subsequently, a second amended complaint was filed on or about March 3, 2004. A motion to dismiss this amended complaint was filed on or about March 22, 2004, and the case was subsequently dismissed with prejudice. On June 11, 2004, an appeal was filed with the United States Ninth Circuit Court of Appeals. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from this action.

     On approximately September 26, 2003, a class action complaint was filed in the Superior Court of the State of California for the County of Orange, captioned Bryan Sanders et. al. v. University of Phoenix, Inc. et. al., Case No. 03CC00430. Plaintiff, a former academic advisor with University of Phoenix, filed this class action on behalf of himself and current and former academic advisors employed by us in the State of California and seeks certification as a class, monetary damages in unspecified amounts, and injunctive relief. Plaintiff alleges that during his employment, he and other academic advisors worked in excess of 8 hours per day or 40 hours per week, and contends that we failed to pay overtime. On June 6, 2005, the court granted plaintiffs’ motion to remove Bryan Sanders as the named plaintiff and replace him with Deryl Clark and Romero Ontiveros. Plaintiff’s counsel has advised defendants and the court that Mr. Ontiveros no longer intends to serve as a named plaintiff. Five status conferences have occurred and the parties are now in the process of discovery. The court has granted defendants’ motion to transfer venue to the Superior Court of the State of California for the County of Solano. A management conference has been set for April 2006, and the Plaintiff’s motion to certify the class will be heard by the Court in May 2006. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from this action.

     We are subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Item 1A. Risk Factors

     No Change

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     Purchases of Apollo Education Group Class A common stock made by Apollo during the three months ended February 28, 2006, are as follows:

							Approximate Dollar
					Total Number of Shares		Value
					Purchased as Part of		of Shares that May
	Total Number				Publicly Announced		Yet be
	of Shares		Average Price		Plans		Purchased Under the
Period	Purchased		Paid per Share		or Programs		Plans or Programs
December 1, 2005 - December 31, 2005		2,363,066	$	65.44		2,363,066
January 1, 2006 - January 31, 2006		1,184,976	$	59.36		1,184,976
February 1, 2006 - February 28, 2006		0				0
Total		3,548,042	$	63.41		3,548,042	$	140,140,435

     Our Board of Directors authorized the following programs to repurchase shares of Apollo Education Group Class A common stock and, during the periods it was outstanding, University of Phoenix Online common stock:

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	Amount
Date of Authorization	Authorized
	(in thousands)
September 25, 1998	$	40,000
May 13, 1999		20,000
October 25, 1999		40,000
March 24, 2000		50,000
March 28, 2003		150,000
June 25, 2004		500,000
October 1, 2004		500,000
March 25, 2005		250,000
October 7, 2005		300,000
December 9, 2005		300,000
	$	2,150,000

     As of February 28, 2006, we had repurchased approximately 35,075,000 shares of Apollo Education Group Class A common stock at a total cost of approximately $1.9 billion. While it was outstanding, we repurchased approximately 2,025,000 shares of University of Phoenix Online common stock at a total cost of $132.0 million. There is no expiration date on the authorization of these funds and repurchases occur at our discretion. An additional 81,000 shares of Apollo Education Group Class A common stock were repurchased in March 2006 at a cost of approximately $4.0 million.

     As of February 28, 2006, 3,025,000 shares of our treasury stock have been used to secure receivables between Apollo Group and two of its subsidiaries.

Item 3. Defaults Upon Senior Securities

     Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

     Not Applicable

Item 5. Other Information

     Effective March 31, 2006, our Bylaws were amended and restated to provide for indemnification for our current and former officers and directors.

Item 6. Exhibits

Exhibits:

EXHIBIT 3.1	Amended and Restated Articles of Incorporation of Apollo Group, Inc. (1)
EXHIBIT 3.2	Amended and Restated Bylaws (as amended through March 2006) of Apollo Group, Inc.*
EXHIBIT 15.1	Letter in Lieu of Consent*
EXHIBIT 31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
EXHIBIT 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
EXHIBIT 32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
EXHIBIT 32.2	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*

*	Filed herewith
(1)	Incorporated by reference to Exhibit 3.1 of Registration Statement No. 333-33370 on Form S-3/A, dated August 31, 2000

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	APOLLO GROUP, INC. (Registrant)
Date: April 10, 2006
	By: /s/ Kenda B. Gonzales
	Kenda B. Gonzales
	Chief Financial Officer, Secretary, and Treasurer
	By: /s/ Daniel E. Bachus
	Daniel E. Bachus
	Chief Accounting Officer and Controller
	By: /s/ Brian Mueller
	Brian Mueller
	President

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APOLLO GROUP, INC. AND SUBSIDIARIES

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
3.1	Amended and Restated Articles of Incorporation of Apollo Group, Inc.(1)
3.2	Amended and Restated Bylaws (as amended through March 2006) of Apollo Group, Inc.*
15.1	Letter in Lieu of Consent*
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	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*

*	Filed herewith
(1)	Incorporated by reference to Exhibit 3.1 of Registration Statement No. 333-33370 on Form S-3/A, dated August 31, 2000

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EX-3.2

EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
APOLLO GROUP, INC.

(As amended through March 2006)

I. REFERENCES TO CERTAIN TERMS AND CONSTRUCTION

1.01.	Certain References. Any reference herein made to law will be deemed to refer to the law of the State of Arizona, including any applicable provision of Chapters 1 through 17 of Title 10 of the Arizona Revised Statutes, or any successor statute, as from time to time amended and in effect (sometimes referred to herein as the “Arizona Business Corporation Act”). Any reference herein made to the corporation’s Articles will be deemed to refer to its Articles of Incorporation and all amendments thereto as at any given time on file with the Arizona Corporation Commission. Except as otherwise required by law and subject to any procedures established by the corporation pursuant to Arizona Revised Statutes Section 723, the term “shareholder” as used herein shall mean one who is a holder of record of shares of the corporation. References to specific sections of law herein made shall be deemed to refer to such sections, or any comparable successor provisions, as from time to time amended and in effect.
1.02.	Seniority. The law and the Articles (in that order of precedence) will in all respects be considered senior and superior to these Bylaws, with any inconsistency to be resolved in favor of the law and such Articles (in that order of precedence), and with these Bylaws to be deemed automatically amended from time to time to eliminate any such inconsistency which may then exist.
1.03.	Computation of Time. The time during which an act is required to be done, including the time for the giving of any required notice herein, shall be computed by excluding the first day or hour, as the case may be, and including the last day or hour.

II. OFFICES

2.01.

Principal Office. The principal office of the corporation shall be located at any place either within or outside the State of Arizona as designated in the corporation’s most current Annual Report filed with the Arizona Corporation Commission or in any other document executed and delivered to the Arizona Corporation Commission for filing. If a principal office is not so designated, the principal office of the corporation shall mean the known place of business of the corporation. The corporation may have such other offices, either within or without the State of Arizona, as the Board of Directors may designate or as the business of the corporation may require from time to time.

2.02.

Known Place of Business. A known place of business of the corporation shall be located within the State of Arizona and may be, but need not be, the address of the statutory agent of the corporation. The corporation may change its known place of business from time to time in accordance with the relevant provisions of the Arizona Business Corporation Act.

III. SHAREHOLDERS

3.01.	Annual Meetings of Class A Shareholders. Each annual meeting of the Class A shareholders is to be held on the third Wednesday in the month of January of each year (unless that day be a legal holiday, in which event the annual meeting will be held on the next succeeding business day) at a time and place as determined by the Board of Directors or, in the absence of action by the Board, as set forth in the notice given, or waiver signed, with respect to such meeting pursuant to Section 3.03 below. At the annual meeting, the Board of Directors shall report on the corporation’s financial results for the past year and other matters. If any annual meeting is for any reason not held on the date determined as aforesaid, a deferred annual meeting may thereafter be called and held in lieu thereof, at which the same proceedings may be conducted.
3.02.	Annual Meetings of Class B Shareholders. Each annual meeting of the Class B shareholders is to be held on the first Wednesday in the month of December of each year (unless that day be a legal holiday, in which event the annual meeting will be held on the next succeeding business day) at a time and place as determined by the Board of Directors or, in the absence of action by the Board, as set forth in the notice given, or waiver signed, with respect to such meeting pursuant to Section 3.03 below. At the annual meeting, the Class B shareholders shall elect a Board of Directors and transact such other business as may be properly brought before the meeting. If any annual meeting is for any reason not held on the date determined as aforesaid, a deferred annual meeting may thereafter be called and held in lieu thereof, at which the same proceedings may be conducted. Any Director elected at any annual meeting, deferred annual meeting, or special meeting will continue in office until the election of his or her successor, subject to his or her earlier resignation pursuant to Section 7.01 below.
3.03.	Special Shareholder Meetings. Special meetings of the shareholders may be held whenever and wherever, either within or without the State of Arizona, called for by or at the direction of the Chairman of the Board, the President, or the Board of Directors. A special meeting of shareholders shall also be called by the President or the Secretary at the written request of the holder or holders of not less than 50% of all outstanding votes entitled to be cast on any matter to be voted on at the meeting. Any such written request by shareholders shall state the purpose or purposes of the proposed meeting, and business to be transacted at any such meeting shall be confined to the purposes stated in the notice thereof and to such additional matters as the chairman of the meeting may rule to be germane to such purposes.
3.04.	Notice of Shareholders Meetings.

(a) Required Notice. Notice stating the place, day and hour of any annual or special shareholders meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting by or at the direction of the person or persons calling the meeting, to each shareholder entitled to vote at such meeting and to any other shareholder entitled to receive notice of the meeting by law or the Articles. Notices to shareholders shall be given in accordance with, and shall be deemed to be effective at the time and in the manner described in, Arizona

Revised Statutes Section 10-141. If no designation is made of the place at which an annual or special meeting will be held in the notice for such meeting, the place of the meeting will be at the principal place of business of the corporation.

(b)	Adjourned Meeting. If any shareholders meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, and place, if the new date, time, and place are announced at the meeting before adjournment. But if a new record date for the adjourned meeting is fixed or must be fixed in accordance with law or these Bylaws, then notice of the adjourned meeting shall be given to those persons who are shareholders as of the new record date and who are entitled to such notice pursuant to Section 3.03(a) above.
(c)	Waiver of Notice. Any shareholder may waive notice of a meeting (or any notice of any other action required to be given by the Arizona Business Corporation Act, the corporation’s Articles, or these Bylaws), at any time before, during, or after the meeting or other action, by a writing signed by the shareholder entitled to the notice. Each such waiver shall be delivered to the corporation for inclusion in the minutes or filing with the corporate records. Under certain circumstances, a shareholder’s attendance at a meeting may constitute a waiver of notice, unless the shareholder takes certain actions to preserve his/her objections as described in the Arizona Business Corporation Act.
(d)	Contents of Notice. The notice of each special shareholders meeting shall include a description of the purpose or purposes for which the meeting is called. Except as required by law or the corporation’s Articles, the notice of an annual shareholders meeting need not include a description of the purpose or purposes for which the meeting is called.

3.05.	Fixing of Record Date. For the purpose of determining shareholders of
	any voting group entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive any distribution or dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date. Such record date shall not be more than seventy (70) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is so fixed by the Board of Directors, the record date for the determination of shareholders shall be as provided in the Arizona Business Corporation Act.
	When a determination of shareholders entitled to notice of or to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting.
3.06.	Shareholder List. The corporation shall make a complete record of the shareholders entitled to notice of each meeting of shareholders thereof, arranged in alphabetical order, listing the address and the number of shares held by each. The list shall be arranged by voting group and within each voting group by class or series of shares. The shareholder list shall be available for inspection by any shareholder,

beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting. The list shall be available at the corporation’s principal office or at another place identified in the meeting notice in the city where the meeting is to be held. Failure to comply with this section shall not affect the validity of any action taken at the meeting.

3.07. Shareholder Quorum and Voting Requirements.

(a)	If the Articles or the Arizona Business Corporation Act provide for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group.
(b)	If the Articles or the Arizona Business Corporation Act provide for voting by two (2) or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately.
(c)	Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the Articles or the Arizona Business Corporation Act provide otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.
(d)	Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting, unless a new record date is or must be set for that adjourned meeting.
(e)	If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles or the Arizona Business Corporation Act require a greater number of affirmative votes.
(f)	Voting will be by ballot on any question as to which a ballot vote is demanded prior to the time the voting begins by any person entitled to vote on such question; otherwise, a voice vote will suffice. No ballot or change of vote will be accepted after the polls have been declared closed following the ending of the announced time for voting.

3.08. Proxies. At all meetings of shareholders, a shareholder may vote in person or by proxy duly executed in writing by the shareholder or the shareholder’s duly authorized attorney-in-fact. Such proxy shall comply with law and shall be filed with the Secretary of the corporation or other person authorized to tabulate votes before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. The burden of proving the validity of any undated, irrevocable, or otherwise contested proxy at a meeting of the shareholders will rest with the person seeking to exercise the same. A facsimile appearing to have been transmitted by a shareholder or by such shareholder’s duly authorized attorney-in-fact may be accepted as a sufficiently written and executed proxy.

3.09.	Voting of Shares. Unless otherwise provided in the Articles or the Arizona Business Corporation Act, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareholders.
3.10.	Voting for Directors. Unless otherwise provided in the Articles, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present at the time of such vote. As provided by law, shareholders shall be entitled to cumulative voting in the election of directors.
3.11.	Election Inspectors. The Board of Directors, in advance of any meeting of the shareholders, may appoint an election inspector or inspectors to act at such meeting (and at any adjournment thereof). If an election inspector or inspectors are not so appointed, the chairman of the meeting may, or upon request of any person entitled to vote at the meeting will, make such appointment. If any person appointed as an inspector fails to appear or to act, a substitute may be appointed by the chairman of the meeting. If appointed, the election inspector or inspectors (acting through a majority of them if there be more than one) will determine the number of shares outstanding, the authenticity, validity, and effect of proxies, the credentials of persons purporting to be shareholders or persons named or referred to in proxies, and the number of shares represented at the meeting in person and by proxy; will receive and count votes, ballots, and consents and announce the results thereof; will hear and determine all challenges and questions pertaining to proxies and voting; and, in general, will perform such acts as may be proper to conduct elections and voting with complete fairness to all shareholders. No such election inspector need be a shareholder of the corporation.
3.12.	Organization and Conduct of Meetings. Each meeting of the shareholders will be called to order and thereafter chaired by the Chairman of the Board of Directors if there is one, or, if not, or if the Chairman of the Board is absent or so requests, then by the President, or if both the Chairman of the Board and the President are unavailable, then by such other officer of the corporation or such shareholder as may be appointed by the Board of Directors. The corporation’s Secretary or in his or her absence, an Assistant Secretary will act as secretary of each meeting of the shareholders. If neither the Secretary nor an Assistant Secretary is in attendance, the chairman of the meeting may appoint any person (whether a shareholder or not) to act as secretary for the meeting. After calling a meeting to order, the chairman thereof may require the registration of all shareholders intending to vote in person and the filing of all proxies with the election inspector or inspectors, if one or more have been appointed (or, if not, with the secretary of the meeting). After the announced time for such filing of proxies has ended, no further proxies or changes, substitutions, or revocations of proxies will be accepted. If directors are to be elected, a tabulation of the proxies so filed will, if any person entitled to vote in such election so requests, be announced at the meeting (or adjournment thereof) prior to the closing of the election polls. Absent a showing of bad faith on his or her part, the chairman of a meeting will, among other things, have absolute authority to fix the period of time allowed for the registration of shareholders and the filing of proxies, to determine the order of business to be conducted at such meeting, and to establish reasonable rules for expediting the business of the meeting and preserving the orderly conduct thereof

(including any informal, or question and answer portions thereof).

3.13.	Shareholder Approval or Ratification. The Board of Directors may submit any contract or act for approval or ratification of the shareholders at a duly constituted meeting of the shareholders. Except as otherwise required by law, if any contract or act so submitted is approved or ratified by a majority of the votes cast thereon at such meeting, the same will be valid and as binding upon the corporation and all of its shareholders as it would be if it were the act of its shareholders.
3.14.	Informalities and Irregularities. All informalities or irregularities in any call or notice of a meeting of the shareholders or in the areas of credentials, proxies, quorums, voting, and similar matters, will be deemed waived if no objection is made at the meeting.
3.15.	Shareholder Action by Written Consent. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if one (1) or more consents in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. The consents shall be delivered to the corporation for inclusion in the minutes or filing with the corporate record. Action taken by consent is effective when the last shareholder signs the consent, unless the consent specifies a different effective date, except that if, by law, the action to be taken requires that notice be given to shareholders who are not entitled to vote on the matter, the effective date shall not be prior to ten (10) days after the corporation shall give such shareholders written notice of the proposed action, which notice shall contain or be accompanied by the same material that would have been required if a formal meeting had been called to consider the action. A consent signed under this section has the effect of a meeting vote and may be described as such in any document.

IV. BOARD OF DIRECTORS

4.01.

General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board of Directors.

4.02.

Number, Tenure, and Qualification of Directors. Unless otherwise provided in the Articles of Incorporation, the authorized number of directors shall be not less than one nor more than fifteen. The number of directors in office from time to time shall be within the limits specified above, as prescribed from time to time by resolution adopted by either the shareholders or the Board of Directors. The directors will regularly be elected at each annual meeting of the Class B shareholders, but directors may be elected at any other meeting of the shareholders. Each director shall hold office until the annual meeting of Class B shareholders following his/her election, subject to his/her earlier resignation or removal. However, if a director’s term expires, he/she shall continue to serve until his/her successor shall have been elected and qualified, until his/her resignation or removal, or until there is a decrease in the number of directors. Unless required by the Articles, directors do not need to be residents of the State of Arizona or shareholders of the corporation.

4.03.	Regular Meetings of the Board of Directors. A regular annual meeting of the Board of Directors is to be held as soon as practicable after the adjournment of each annual meeting of the Class B shareholders, either at the place of the Class B shareholders meeting or at such other place as the directors elected at the shareholders meeting may have been informed of at or prior to the time of their election. Additional regular meetings may be held at regular intervals at such places and at such times as the Board of Directors may determine.
4.04.	Special Meetings of the Board of Directors. Special meetings of the Board of Directors may be held whenever and wherever called for by the Chairman of the Board, the President, or the number of directors that would be required to constitute a quorum.
4.05.	Notice of, and Waiver of Notice for, Directors Meetings. No notice need be given of regular meetings of the Board of Directors. Notice of the time and place of any special directors meeting shall be given at least 48 hours prior thereto. Notice shall be given in accordance with and shall be deemed to be effective at the time and in the manner described in Arizona Revised Statutes Section 10-141. Any director may waive notice of any meeting and any adjournment thereof at any time before, during, or after it is held. Except as provided in the next sentence below, the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records. The attendance of a director at or participation of a director in a meeting shall constitute a waiver of notice of such meeting, unless the director at the beginning of the meeting (or promptly upon his/her arrival) objects to holding the meeting or transacting business at the meeting, and does not thereafter vote for or assent to action taken at the meeting.
4.06.	Director Quorum. A majority of the number of directors prescribed according to Section 4.02 above, or if no number is so prescribed, the number in office immediately before the meeting begins, shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, unless the Articles require a greater number.
4.07.	Directors, Manner of Acting.

(a)	If a quorum is present when a vote is taken, the affirmative vote of a majority of the directors present shall be the act of the Board of Directors unless the Articles require a greater percentage.
(b)	Unless the Articles provide otherwise, any or all directors may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting, in which case, any required notice of the meeting may generally describe the arrangements (rather than or in addition to the place) for the holding thereof. A director participating in a meeting by this means is deemed to be present in person at the meeting.
(c)	A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless: (1) the director objects at the beginning of the meeting (or promptly upon his/her arrival) to holding it or transacting business at

the meeting; or (2) his/her dissent or abstention from the action taken is entered in the minutes of the meeting; or (3) he/she delivers written notice of his/her dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation before 5:00 p.m. on the next business day after the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.

4.08.	Director Action Without a Meeting. Unless the Articles provide otherwise, any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if the action is taken by unanimous written consent of the Board of Directors as evidenced by one (1) or more written consents describing the action taken, signed by each director and filed with the minutes or corporate records. Action taken by consent is effective when the last director signs the consent, unless the consent specifies a different effective date. A signed consent has the effect of a meeting vote and may be described as such in any document.
4.09.	Removal of Directors by Class B Shareholders. The Class B shareholders may remove one (1) or more directors at a meeting called for that purpose if notice has been given that a purpose of the meeting is such removal. The removal may be with or without cause unless the Articles provide that directors may only be removed with cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in a shareholder vote to remove him. If less than the entire Board of Directors is to be removed, a director may not be removed if the number of votes sufficient to elect the director under cumulative voting is voted against the director’s removal.
4.10.	Board of Director Vacancies.

(a)	Unless the Articles provide otherwise, if a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors, either the shareholders or the Board of Directors may fill the vacancy.
(b)	If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders.
(c)	A vacancy that will occur at a specific later date (by reason of resignation effective at a later date) may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs.
(d)	The term of a director elected to fill a vacancy expires at the next shareholders meeting at which directors are elected.

4.11. Director Compensation. Unless otherwise provided in the Articles by resolution of the Board of Directors, each director may be paid his/her expenses, if any, of attendance at each meeting of the Board of Directors or any committee thereof, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the Board of Directors or any committee thereof, or both. No such payment shall preclude any director from serving the corporation in any capacity and receiving compensation therefor.

4.12. Director Committees.

(a)	Creation of Committees. Unless the Articles provide otherwise, the Board of Directors may create one (1) or more committees and appoint members of the Board of Directors to serve on them. Each committee shall have one (1) or more members, who serve at the pleasure of the Board of Directors.
(b)	Selection of Members. The creation of a committee and appointment of members to it shall be approved by the greater of (1) a majority of all the directors in office when the action is taken or (2) the number of directors required by the Articles to take such action.
(c)	Required Procedures. Sections 4.03 through 4.08 of this Article IV, which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors, apply to committees and their members.
(d)	Authority. Unless limited by the Articles, each committee may exercise those aspects of the authority of the Board of Directors which the Board of Directors confers upon such committee in the resolution creating the committee, provided, however, that a committee may not: (1) authorize distributions; (2) approve or propose to shareholders action that requires shareholder approval under the Arizona Business Corporation Act; (3) fill vacancies on the Board of Directors or on any of its committees; (4) amend the Articles of Incorporation without shareholder action as provided by law; (5) adopt, amend or repeal these Bylaws; (6) approve a plan of merger not requiring shareholder approval; (7) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; (8) authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except within limits specifically prescribed by the Board of Directors; or (9) fix the compensation of directors for serving on the Board of Directors or any committee of the Board of Directors.

4.13.

Director Resignations. Any director or committee member may resign from his or her office at any time by written notice delivered to the Board of Directors, the Chairman of the Board, or the corporation at its known place of business. Any such resignation will be effective upon its receipt unless some later time is therein fixed, and then from that time. The acceptance of a resignation will not be required to make it effective.

4.14

Indemnification. Each director, and any former director, shall be indemnified to the maximum extent permitted by law from any liability related to such service to the corporation, and shall be entitled to advances for expenses as permitted by law.

V. OFFICERS

5.01. Number of Officers. The officers of the corporation shall be a President, a Secretary, and a Treasurer, each of whom shall be appointed by the Board of Directors. Such other officers and

assistant officers as may be deemed necessary, including any Vice Presidents, may be appointed by the Board of Directors. If specifically authorized by the Board of Directors, an officer may appoint one (1) or more other officers or assistant officers. The same individual may simultaneously hold more than one (1) office in the corporation.

5.02.	Appointment and Term of Office. The officers of the corporation shall be appointed by the Board of Directors for a term as determined by the Board of Directors. The designation of a specified term grants to the officer no contract rights, and the Board of Directors can remove the officer at any time prior to the termination of such term. If no term is specified, an officer of the corporation shall hold office until he or she resigns, dies, or until he or she is removed in the manner provided by law or in Section 5.03 of this Article V. The regular election or appointment of officers will take place at each annual meeting of the Board of Directors, but elections of officers may be held at any other meeting of the Board.
5.03.	Resignation and Removal of Officers. An officer may resign at any time by delivering written notice to the corporation at its known place of business. A resignation is effective when the notice is delivered unless the notice specifies a later effective date or event. Any officer may be removed by the Board of Directors at any time, with or without cause. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Appointment of an officer shall not of itself create contract rights.
5.04.	Duties of Officers. Officers of the corporation shall have authority to perform such duties as may be prescribed from time to time by law, in these Bylaws, or by the Board of Directors, the President, or the superior officer of any such officer. Each officer of the corporation (in the order designated herein or by the Board) will be vested with all of the powers and charged with all of the duties of his or her superior officer in the event of such superior officer’s absence, death, or disability.
5.05.	Bonds and Other Requirements. The Board of Directors may require any officer to give bond to the corporation (with sufficient surety and conditioned for the faithful performance of the duties of his or her office) and to comply with such other conditions as may from time to time be required of him or her by the Board of Directors.
5.06.	President. Unless otherwise specified by resolution of the Board of Directors, the President shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall supervise and control all of the business and affairs of the corporation and the performance by all of its other officers of their respective duties and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. The President shall, when present, and in the absence of a Chairman of the Board, preside at all meetings of the shareholders and of the Board of Directors. The President will be a proper officer to sign on behalf of the corporation any deed, bill of sale, assignment, option, mortgage, pledge, note, bond, evidence of indebtedness, application, consent (to service of process or otherwise), agreement, indenture, contract, or other instrument, except in each such case where the signing and execution thereof shall be expressly delegated by the Board of

Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed. The President may represent the corporation at any meeting of the shareholders or members of any other corporation, association, partnership, joint venture, or other entity in which the corporation then holds shares of capital stock or has an interest, and may vote such shares of capital stock or other interest in person or by proxy appointed by him or her, provided that the Board of Directors may from time to time confer the foregoing authority upon any other person or persons.

5.07.

The Vice-President. If appointed, in the absence of the President or in the event of his/her death or disability, the Vice-President (or in the event there be more than one Vice-President, the Vice-Presidents in the order designated at the time of their election, or in the absence of any such designation, then in the order of their appointment) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. If there is no Vice-President or in the event of the death or disability of all Vice-Presidents, then the Treasurer shall perform such duties of the President in the event of his or her absence, death, or disability. Each Vice-President will be a proper officer to sign on behalf of the corporation any deed, bill of sale, assignment, option, mortgage, pledge, note, bond, evidence of indebtedness, application, consent (to service of process or otherwise), agreement, indenture, contract, or other instrument, except in each such case where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed. Any Vice-President may represent the corporation at any meeting of the shareholders or members of any other corporation, association, partnership, joint venture, or other entity in which the corporation then holds shares of capital stock or has an interest, and may vote such shares of capital stock or other interest in person or by proxy appointed by him or her, provided that the Board of Directors may from time to time confer the foregoing authority upon any other person or persons. A Vice- President shall perform such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors.

5.08.

The Secretary. The Secretary shall: (a) keep the minutes of the proceedings of the shareholders and of the Board of Directors and any committee of the Board of Directors and all unanimous written consents of the shareholders, Board of Directors, and any committee of the Board of Directors in one (1) or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of any seal of the corporation; (d) when requested or required, authenticate any records of the corporation; (e) keep a register of the address of each shareholder which shall be furnished to the Secretary by such shareholder; and (f) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. Except as may otherwise be specifically provided in a resolution of the Board of Directors, the Secretary will be a proper officer to take charge of the corporation’s stock transfer books and to compile the voting record pursuant to Section 3.05 above, and to impress the corporation’s seal, if any, on any instrument signed by the President, any Vice President, or any

other duly authorized person, and to attest to the same. In the absence of the Secretary, a secretary pro tempore may be chosen by the directors or shareholders as appropriate to perform the duties of the Secretary.

5.09.	The Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such bank, trust companies, or other depositories as shall be selected by the Board of Directors or any proper officer; (c) keep full and accurate accounts of receipts and disbursements in books and records of the corporation; and (d) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. The Treasurer will render to the President, the directors, and the shareholders at proper times an account of all his or her transactions as Treasurer and of the financial condition of the corporation. The Treasurer shall be responsible for preparing and filing such financial reports, financial statements, and returns as may be required by law.
5.10.	Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries and the Assistant Treasurers, when authorized by the Board of Directors, may sign with the President or a Vice-President certificates for shares of the corporation, the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors.
5.11.	Chairman of the Board. The Board of Directors may elect a Chairman to serve as a general executive officer of the corporation, and, if specifically designated as such by the Board of Directors, as the chief executive officer of the corporation. If elected, the Chairman will preside at all meetings of the Board of Directors and be vested with such other powers and duties as the Board of Directors may from time to time delegate to him or her.
5.12.	Salaries. The salaries of the officers of the corporation may be fixed from time to time by the Board of Directors or (except as to the President’s own) left to the discretion of the President. No officer will be prevented from receiving a salary by reason of the fact that he or she is also a director of the corporation.
5.13.	Additional Appointments. In addition to the officers contemplated in this Article V, the Board of Directors may appoint other agents of the corporation with such authority to perform such duties as may be prescribed from time to time by the Board of Directors.
5.14	Indemnification. Each officer, and any former officer, shall be indemnified to the maximum extent permitted by law from any liability related to such service to the corporation, and shall be entitled to advances for expenses as permitted by law.

VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER

6.01. Certificates for Shares.

(a)	Content. Certificates representing shares of the corporation shall, at a minimum, state on their face the name of the issuing corporation and that it is formed under the laws of the State of Arizona, the name of the person to whom issued, and the number and class of shares and the designation of the series, if any, the certificate represents. Such certificates shall be signed (either manually or by facsimile to the extent allowable by law) by one or more officers of the corporation, as determined by the Board of Directors, or, if no such determination is made, by any of the Chairman of the Board (if any), the President, any Vice- President, the Secretary, or the Treasurer of the corporation, and may be sealed with a corporate seal or a facsimile thereof. Each certificate for shares shall be consecutively numbered or otherwise identified and will exhibit such information as may be required by law. If a supply of unissued certificates bearing the facsimile signature of a person remains when that person ceases to hold the office of the corporation indicated on such certificates or ceases to be the transfer agent or registrar of the corporation, they may still be issued by the corporation and countersigned, registered, issued, and delivered by the corporation’s transfer agent and/or registrar thereafter, as though such person had continued to hold the office indicated on such certificate.
(b)	Legend as to Class or Series. If the corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the Board of Directors to determine variations for future series) shall be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish a shareholder this information on request in writing and without charge.
(c)	Shareholder List. The name and address of the person to whom shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation.
(d)	Lost Certificates. In the event of the loss, theft, or destruction of any certificate representing shares of the corporation or of any predecessor corporation, the corporation may issue (or, in the case of any such shares as to which a transfer agent and/or registrar have been appointed, may direct such transfer agent and/or registrar to countersign, register, and issue) a new certificate, and cause the same to be delivered to the registered owner of the shares represented thereby; provided that such owner shall have submitted such evidence showing the circumstances of the alleged loss, theft, or destruction, and his, her, or its ownership of the certificate, as the corporation considers satisfactory, together with any other facts that the corporation considers pertinent; and further provided that, if so required by the corporation, the owner shall

provide a bond or other indemnity in form and amount satisfactory to the corporation (and to its transfer agent and/or registrar, if applicable).

6.02.

Registration of the Transfer of Shares. Registration of the transfer of shares of the corporation shall be made only on the stock transfer books of the corporation. In order to register a transfer, the record owner shall surrender the shares to the corporation for cancellation, properly endorsed by the appropriate person or persons with reasonable assurances that the endorsements are genuine and effective. Unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the owner, the corporation will be entitled to treat the registered owner of any share of the capital stock of the corporation as the absolute owner thereof and, accordingly, will not be bound to recognize any beneficial, equitable, or other claim to, or interest in, such share on the part of any other person, whether or not it has notice thereof, except as may expressly be provided by applicable law.

6.03.

Shares Without Certificates. The Board of Directors may authorize the issuance of uncertificated shares by the corporation and may prescribe procedures for the issuance and registration of transfer thereof and with respect to such other matters as the Board of Directors shall deem necessary or appropriate.

VII. DISTRIBUTIONS

7.01. Distributions. Subject to such restrictions or requirements as may be imposed by applicable law or the corporation’s Articles or as may otherwise be binding upon the corporation, the Board of Directors may from time to time declare, and the corporation may pay or make, dividends or other distributions to its shareholders.

VIII. CORPORATE SEAL

8.01. Corporate Seal. The Board of Directors may provide for a corporate seal of the corporation that will have inscribed thereon any designation including the name of the corporation, Arizona as the state of incorporation, the year of incorporation, and the words “Corporate Seal.”

IX. AMENDMENTS

9.01. Amendments. The corporation’s Board of Directors may amend or repeal the corporation’s Bylaws unless:

(1)	the Articles or the Arizona Business Corporation Act reserve this power exclusively to the shareholders in whole or part; or
(2)	the shareholders in adopting, amending, or repealing a particular Bylaw provide expressly that the Board of Directors may not amend or repeal that Bylaw.

     The corporation’s shareholders may amend or repeal the corporation’s Bylaws even though the Bylaws may also be amended or repealed by its Board of Directors.

EX-15.1

Exhibit 15.1

April 7, 2006

Apollo Group, Inc.
4615 East Elwood Street
Phoenix, Arizona

We have made a review, in accordance with standards of the Public Company Accounting Oversight Board (United States), of the unaudited interim financial information of Apollo Group, Inc. and subsidiaries for the three-month and six-months periods ended February 28, 2006 and 2005, and have issued our report dated April 7, 2006. As indicated in such report, because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which was included in your Quarterly Reports on Form 10-Q for the quarter ended February 28, 2006, is incorporated by reference in Registration Statement Nos. 333-46834, 33-87844, 33-88982, 33-88984, and 33-63429 on Form S-8 and Registration Statement Nos. 333-35465 and 333-33370 on Form S-3.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Deloitte & Touche LLP
Phoenix, Arizona

41

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Brian Mueller, certify that:

     1. I have reviewed this Form 10-Q of Apollo Group, Inc. (the “registrant”);

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

          a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

          a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 10, 2006
	/s/ Brian Mueller
	Brian Mueller
	President

42

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Kenda B. Gonzales, certify that:

     1. I have reviewed this Form 10-Q of Apollo Group, Inc. (the “registrant”);

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

          a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

          a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 10, 2006
	/s/ Kenda B. Gonzales
	Kenda B. Gonzales
	Chief Financial Officer, Secretary, and
	Treasurer

43

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Apollo Group, Inc. (the “Company”) on Form 10-Q for the three months ended February 28, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian Mueller, President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 10, 2006
	/s/ Brian Mueller
	Brian Mueller
	President

     A signed original of this written statement required by Section 906 has been provided to Apollo Group, Inc. and will be retained by Apollo Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

44

EX-32.2

EXHIBIT 32.2

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

     In connection with the Quarterly Report of Apollo Group, Inc. (the “Company”) on Form 10-Q for the three months ended February 28, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kenda B. Gonzales, Chief Financial Officer, Secretary, and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 10, 2006
	/s/ Kenda B. Gonzales
	Kenda B. Gonzales
	Chief Financial Officer, Secretary, and
	Treasurer

     A signed original of this written statement required by Section 906 has been provided to Apollo Group, Inc. and will be retained by Apollo Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

45