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 May 31, 2008

OR

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

Commission file number: 0-25232

APOLLO GROUP, INC.

(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.)

4025 S. RIVERPOINT PARKWAY, PHOENIX, ARIZONA 85040
(Address of principal executive offices, including zip code)

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

4615 East Elwood Street, Phoenix, Arizona, 85040
(Former name, former address and former fiscal year, if changed since last report)

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

AS OF JUNE 25, 2008, THE FOLLOWING SHARES OF STOCK WERE OUTSTANDING:

Apollo Group Class A common stock, no par value	158,036,000 Shares
Apollo Group Class B common stock, no par value	475,000 Shares

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

	PAGE
PART I — FINANCIAL INFORMATION
Special Note Regarding Forward-Looking Statements		3
Item 1. Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3. Quantitative and Qualitative Disclosures About Market Risk		44
Item 4. Controls and Procedures		44
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		46
Item 1A. Risk Factors		46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46
Item 3. Defaults Upon Senior Securities		46
Item 4. Submission of Matters to a Vote of Security Holders		46
Item 5. Other Information		46
Item 6. Exhibits		47
SIGNATURES		48
EX-10.1
EX-10.2
EX-31.1
EX-32.1

Page 2 of 48

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact may be forward-looking statements. Such forward-looking statements include, among others, those statements regarding future events and future results of Apollo Group, Inc. (“the Company,” “Apollo Group,” “Apollo,” “APOL,” “we,” “us” or “our”) that are based on current expectations, estimates, forecasts, and the beliefs and assumptions of us and our management, and speak only as of the date made and are not guarantees of future performance. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “predict,” “target,” “potential,” “continue,” “objectives,” or the negative of these terms or other comparable terminology. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties. Such statements should be viewed with caution. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include but are not limited to:

• changes in the regulation of the education industry, including those items set forth in Item 1 of our Annual Report on Form 10-K for the year ended August 31, 2007, under the sections titled “Regulatory Environment,” “Accreditation,” “Federal Financial Aid Programs,” and “State Authorization;”

• each of the factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended August 31, 2007, Risk Factors;

• those factors set forth in Item 7 of our Annual Report on Form 10-K for the year ended August 31, 2007; and

• changes in the requirements surrounding the reports that we file with the Securities and Exchange Commission (“SEC”).

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, for any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.

Page 3 of 48

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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

	As of
	May 31,			August 31,
($ in thousands)	2008			2007
Assets:
Current assets
Cash and cash equivalents	$	237,072		$	339,319
Restricted cash and cash equivalents		360,929			296,469
Marketable securities, current portion		28,366			31,278
Accounts receivable, net		184,183			190,912
Deferred tax assets, current portion		46,814			50,885
Other current assets		24,683			16,515
Total current assets		882,047			925,378
Property and equipment, net		421,588			364,207
Restricted cash for bond collateralization (Note 6)		95,000			—
Marketable securities, less current portion		37,035			22,084
Goodwill		66,017			29,633
Intangible assets, net		21,656			2,214
Deferred tax assets, less current portion		161,583			80,077
Other assets		27,295			26,270
Total assets	$	1,712,221		$	1,449,863
Liabilities and Shareholders’ Equity:
Current liabilities
Accounts payable	$	42,234		$	80,729
Accrued liabilities		116,637			103,651
Current portion of long-term liabilities		80,808			21,093
Income taxes payable		30,753			43,351
Student deposits		386,755			328,008
Current portion of deferred revenue		205,795			167,003
Total current liabilities		862,982			743,835
Deferred revenue, less current portion		210			295
Long-term liabilities, less current portion		253,037			71,893
Total liabilities		1,116,229			816,023
Commitments and contingencies (Note 13)
Minority interest		6,599			—
Shareholders’ equity
Preferred stock, no par value		—			—
Apollo Group Class A nonvoting common stock, no par value		103			103
Apollo Group Class B voting common stock, no par value		1			1
Additional paid-in capital		7,923			—
Apollo Group Class A treasury stock, at cost		(1,783,570	)		(1,461,368	)
Retained earnings		2,367,131			2,096,385
Accumulated other comprehensive loss		(2,195	)		(1,281	)
Total shareholders’ equity		589,393			633,840
Total liabilities and shareholders’ equity	$	1,712,221		$	1,449,863

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

Page 4 of 48

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

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

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

Page 5 of 48

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

	Three Months						Nine Months
	Ended May 31,						Ended May 31,
($ in thousands)	2008			2007			2008			2007
Net income	$	139,106		$	131,438		$	246,932		$	305,650
Other comprehensive income (loss) (net of tax):
Currency translation gain (loss)		97			(822	)		(432	)		(564	)
Unrealized loss on auction-rate securities		(482	)		—			(482	)		—
Comprehensive income	$	138,721		$	130,616		$	246,018		$	305,086

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

Page 6 of 48

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

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

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

Page 7 of 48

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

Note 1. Basis of Presentation

The unaudited interim consolidated financial statements include the accounts of Apollo Group, Inc. and its wholly-owned subsidiaries and consolidated joint venture, collectively referred to herein as “the Company,” “Apollo Group,” “Apollo,” “APOL,” “we,” “us” or “our.” These unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and, in the opinion of management, contain all adjustments, consisting of normal, recurring adjustments, necessary to fairly present the financial condition, results of operations and cash flows for the periods presented.

Certain information and note disclosures normally included in these unaudited interim consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in our 2007 Annual Report on Form 10-K as filed with the SEC on October 29, 2007, in preparing these unaudited interim consolidated financial statements. For a discussion of our critical accounting policies, please refer to Note 2, Significant Accounting Policies, of our audited consolidated financial statements included in our 2007 Annual Report on Form 10-K. These unaudited interim consolidated financial statements and accompanying notes should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this filing and the audited consolidated financial statements and notes thereto contained in our 2007 Annual Report on Form 10-K.

Our fiscal year is from September 1 to August 31. Unless otherwise noted, references to particular years or quarters refer to our fiscal years and the associated quarters of those fiscal years.

Because of the seasonal nature of our business, the results of operations for the three and nine months ended May 31, 2008 are not necessarily indicative of results to be expected for the entire fiscal year.

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent 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 such estimates.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB No. 109,” (“FIN 48”). This interpretation, among other things, creates a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions, and it has expanded disclosure requirements. We adopted FIN 48 on September 1, 2007, and did not recognize an adjustment to our liability for unrecognized income tax benefits as of August 31, 2007.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”), which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 establishes a common definition of fair value, provides a framework for measuring fair value under GAAP and expands disclosure requirements about fair value measurements. SFAS 157 is effective for financial statements issued in fiscal years beginning after November 15, 2007, and interim periods within those years. On February 12, 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2 “Effective Date of FASB Statement No. 157,” which partially delays the effective date of SFAS 157 for non-financial assets or liabilities that are not required or permitted to be measured at fair value on a recurring basis to fiscal years beginning after November 15, 2008, and interim periods within those years. The provisions of SFAS 157 for fair valuing financial assets and liabilities are effective for us on September 1, 2008. The provisions of SFAS 157 for fair valuing non-financial assets and liabilities are effective for us on September 1, 2009. We are currently evaluating the impact that the adoption of SFAS 157 will have on our financial condition, results of operations, and disclosures.

In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS 159”). Under SFAS 159, companies have an opportunity to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. If elected, SFAS 159 is effective for fiscal years beginning after November 15, 2007. SFAS 159 is effective for us on September

Page 8 of 48

1, 2008. We are currently evaluating whether we will elect to adopt the provisions of SFAS 159 and the impact it would have on our financial condition, results of operations and disclosures.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141(R)”), “Business Combinations,” which is a revision of SFAS 141, “Business Combinations” (“SFAS 141”). The primary requirements of SFAS 141(R) are as follows: (a) upon initially obtaining control, the acquiring entity in a business combination must recognize 100% of the fair values of the acquired assets, including goodwill, and assumed liabilities, with only limited exceptions even if the acquirer has not acquired 100% of its target—as a consequence, the current step acquisition model will be eliminated; (b) contingent consideration arrangements will be fair valued at the acquisition date and included in the purchase price consideration—the concept of recognizing contingent consideration at a later date when the amount of that consideration is determinable beyond a reasonable doubt, will no longer be applicable; and (c) all transaction costs will be expensed as incurred. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141(R) is effective for us on September 1, 2009. We are currently evaluating the impact that the adoption of SFAS 141(R) will have on our financial condition, results of operations, and disclosures.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 requires non-controlling interests or minority interests to be treated as a separate component of equity and any changes in the parent’s ownership interest (in which control is retained) are to be accounted for as equity transactions. However, a change in ownership of a consolidated subsidiary that results in deconsolidation triggers gain or loss recognition, with the establishment of a new fair value basis in any remaining non-controlling ownership interests. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the non-controlling interests. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. SFAS 160 is effective for us on September 1, 2009. We are currently evaluating the impact that the adoption of SFAS 160 will have on our financial condition, results of operations, and disclosures.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), and other GAAP. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. FSP FAS 142-3 is effective for us on September 1, 2009. We are currently evaluating the impact that the adoption of FSP FAS 142-3 will have on our financial condition, results of operations, and disclosures.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement shall be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” We do not expect the adoption of SFAS 162 to have a material impact on our financial condition, results of operations, and disclosures.

Note 2. Nature of Operations

Apollo Group, Inc. has been an education provider for more than 30 years, operating University of Phoenix, Inc. (“UPX”), Institute for Professional Development, Inc. (“IPD”), The College for Financial Planning Institutes Corporation (“CFP”), Western International University, Inc. (“WIU”) and Insight Schools, Inc. (“Insight”), all of which are our wholly-owned subsidiaries. In addition to these wholly-owned subsidiaries, on October 22, 2007, we formed a joint venture with The Carlyle Group (“Carlyle”), called Apollo Global, Inc. (“Apollo Global”), of which we own 80.1% and which we consolidate in our financial statements, net of minority interest, to pursue investments in the international education services sector. On March 28, 2008, Apollo Global completed its first transaction with the acquisition of Universidad de Artes, Ciencias y Comunicación (“UNIACC”), an accredited, private arts and communications university in Chile, as well as its related entities. Please refer to Note 3, Acquisitions and Joint Venture, for further discussion. We also recently announced our plans to establish a new Canadian institution, Meritus University, which we expect to be operational by December 31, 2008. Through these subsidiaries we are able to offer innovative and distinctive educational programs and services at the high school, undergraduate, and graduate levels, at our campuses and learning centers, as well as online throughout the world.

In addition to our education-based offerings, on October 29, 2007, we completed the acquisition of Aptimus, Inc. (“Aptimus”), an online advertising network. The acquisition enables us to more effectively monitor, manage and control our marketing investments and brands. Please refer to Note 3, Acquisitions and Joint Venture, for further discussion.

Our operations are generally subject to seasonal trends. We experience, and expect to continue to experience, seasonal fluctuations in the results of operations as a result of changes in the level of student enrollment. While we enroll students throughout the year, second

Page 9 of 48

quarter (December through February) enrollment and related revenues generally are lower than other quarters due to holiday breaks in December and January.

Note 3. Acquisitions and Joint Venture

Apollo Global

On October 22, 2007, we formed a joint venture with Carlyle, called Apollo Global, to pursue investments in the international education services sector. Carlyle, based in Washington D.C., is one of the world’s largest private equity firms. Through Apollo Global, we intend to capitalize on the significant global demand for education services.

We have agreed to commit up to $801 million in cash or contributed assets and own 80.1% of Apollo Global. Carlyle has agreed to commit up to $199 million in cash or contributed assets and own the remaining 19.9%. Apollo Global is consolidated in our financial statements. As of May 31, 2008, total cash contributions made to Apollo Global approximated $35.0 million, of which $28.0 million was funded by Apollo.

Aptimus

On October 29, 2007, we completed the acquisition of all outstanding common stock of online advertising network Aptimus, Inc. for approximately $48.1 million. Prior to the acquisition, Aptimus operated as a results-based advertising network that distributed advertisements for direct marketing advertisers across a network of third-party web sites. The acquisition enables us to more effectively monitor, manage and control our marketing investments and brands, with the goal of increasing awareness of and access to affordable quality education. Our current operating strategy is to integrate Aptimus as an integral part of our corporate marketing function. Aptimus’ operating results are included in the unaudited interim consolidated financial statements from the date of acquisition.

The acquisition has been accounted for pursuant to SFAS 141. To value the acquired assets and assumed liabilities, we used the income approach using the relief-from-royalty method for trademarks, which represents the benefit of owning this intangible asset rather than paying royalties for its use and a discounted cash flow approach, based on estimated future cash flows for the other identified intangible assets. The carrying value for all other net assets approximated fair value at the time of the acquisition. In connection with the acquisition, the excess of the purchase price over the estimated fair value of the net assets acquired resulted in recording $36.4 million of goodwill, which is not expected to be deductible for tax purposes. For goodwill impairment testing purposes, we assigned the goodwill balance to our UPX segment as Aptimus’ primary function is to monitor, manage, and control UPX’s marketing investments. Goodwill is primarily attributable to potential strategic benefits expected to be realized associated with managing and controlling our marketing investments while reducing future advertising costs. The results of operations of Aptimus are not significant to our consolidated results of operations and therefore, pro forma information for the three and nine months ended May 31, 2007 has not been provided.

A summary of the purchase price is as follows:

($ in thousands)
Cash paid for the outstanding common stock of Aptimus	$	41,486
Cash paid for certain common stock equivalents of Aptimus		4,672
Transaction-related costs		1,919
Total purchase price	$	48,077

Page 10 of 48

A summary of the purchase price allocation is as follows:

($ in thousands)
Net working capital	$	(1,920	)
Property and equipment		654
Intangibles		7,600
Deferred tax assets		7,141
Goodwill		36,384
Employee stock options assumed		(1,782	)
Total allocated purchase price		48,077
Less: Cash acquired		(1,022	)
Acquisition, net of cash acquired	$	47,055

A summary of the identifiable intangible assets acquired is as follows:

			Weighted
	Estimated		Average
($ in thousands)	Fair Value		Useful Life
Technology	$	3,600	4 years
Trademarks		1,300	5 years
Customer relationships		1,900	5 years
Non-compete agreement		800	2 years
Total acquired intangible assets	$	7,600

The purchase price allocation for the Aptimus acquisition is preliminary and subject to revision as we finalize the valuation of intangible assets and as more detailed analyses are completed and additional information about the fair value of assets and liabilities becomes available.

UNIACC

On March 28, 2008, Apollo Global completed its first transaction with the acquisition of UNIACC, an accredited, private arts and communications university in Chile, as well as its related entities. UNIACC offers bachelors and masters degree programs and is accredited by the Chilean Council of Higher Education. In 2004, UNIACC became the first university in Chile to teach a fully online undergraduate program. Apollo Global purchased 100% of UNIAAC for $44.5 million composed of cash and assumed debt, excluding an earn-out payment denominated in U.S. Dollars based on a multiple of earnings to be paid four years from the closing date. UNIACC’s operating results are included in the unaudited interim consolidated financial statements from the date of acquisition.

The acquisition has been accounted for pursuant to SFAS 141. To value the acquired assets and assumed liabilities, we used the following valuation methodologies: (i) the income approach using the relief-from-royalty method for trademarks, which represents the benefit of owning this intangible asset rather than paying royalties for its use, (ii) the combination of discounted cash flow and replacement cost approaches with respect to the other identified intangible assets and (iii) a combination of the market and replacement cost approaches with respect to the property and equipment. The carrying value of all other net assets approximated fair value at the time of the acquisition. As of the acquisition date, pursuant to SFAS 141, we have accrued for a portion of the contingent consideration equal to the excess by which the fair value of acquired net assets exceeded the purchase price, resulting in no goodwill recorded in connection with the acquisition. At the time the contingent consideration is resolved, we will account for any difference between the excess of fair value over the amount of the accrued contingent consideration liability recorded at the time of the acquisition as an additional cost of the acquisition. If the accrued contingent consideration liability exceeds fair value, the excess will first be allocated on a pro-rata basis to the acquired long-lived assets, with any remaining amount recognized as an extraordinary gain. The results of operations of UNIACC are not significant to our consolidated results of operations and therefore, pro forma information for the three and nine months ended May 31, 2007 has not been provided.

Page 11 of 48

A summary of the purchase price is as follows:

($ in thousands)
Cash paid for UNIACC	$	23,650
Debt assumed		19,910
Transaction-related costs		900
Total purchase price	$	44,460

A summary of the purchase price allocation is as follows:

($ in thousands)
Net working capital	$	2,274
Property and equipment		28,185
Intangibles		14,607
Deferred taxes, net		294
Accrued contingent consideration		(900	)
Total allocated purchase price		44,460
Less: Debt assumed		(19,910	)
Less: Cash acquired		(1,303	)
Cash paid for acquisition	$	23,247

The purchase price allocation for the UNIACC acquisition is preliminary and subject to revision as we finalize the valuation of intangible assets and as more detailed analyses are completed and additional information about the fair value of assets and liabilities becomes available.

A summary of the identifiable intangible assets acquired, based on our preliminary purchase price allocation, is as follows:

	Estimated Fair		Weighted Average
($ in thousands)	Value		Useful Life
Trademarks	$	4,200	indefinite
Accreditations and designations		1,287	indefinite
Student relationships		4,600	2 years
Non-compete agreement		2,300	5 years
Broadcast rights and license		1,500	15 years
Technology		151	4 years
Other		569	5 years
Total acquired intangible assets	$	14,607

We assigned indefinite lives to the acquired trademarks and accreditations and designations as we believe that each of these intangible assets has the continued ability to generate cash flows indefinitely. In addition, there are no legal, regulatory, contractual, economic or other factors to limit the useful life of these intangible assets and we intend to renew trademarks and accreditations and designations, which can be accomplished at little cost.

Page 12 of 48

Note 4. Marketable Securities

Marketable securities consist of the following as of May 31, 2008 and August 31, 2007:

	May 31,		August 31,
($ in thousands)	2008		2007
Current marketable securities:
Auction-rate securities	$	11,850	$	—
Municipal bonds		7,275		16,278
U.S. government-sponsored enterprises		—		15,000
Corporate obligations		6,993		—
Other, current		2,248		—
Total current marketable securities		28,366		31,278
Noncurrent marketable securities:
Auction-rate securities		36,022		—
Municipal bonds due 1-3 years		1,013		3,096
U.S. government-sponsored enterprises		—		12,000
Corporate obligations		—		6,988
Total noncurrent marketable securities		37,035		22,084
Total marketable securities	$	65,401	$	53,362

Marketable securities classified as available-for-sale as of May 31, 2008 consist of the following:

	May 31, 2008
Available-for-sale securities	Amortized		Gross Unrealized			Fair Market
($ in thousands)	Cost		Gains (Losses)			Value
Auction-rate securities
Current	$	11,850	$	—		$	11,850
Noncurrent		36,825		(803	)		36,022
Total auction-rate securities		48,675		(803	)		47,872
Other, current		2,248		—			2,248
Total available-for-sale securities	$	50,923	$	(803	)	$	50,120

Auction-Rate Securities: We have a long history of investing excess cash under a conservative corporate policy that only allows investments in highly rated securities, with preservation of capital and liquidity as the primary objectives. Our investment policy also limits the amount of our credit exposure to any one issue or issuer. We have historically invested a portion of our unrestricted investment portfolio in high quality (A rated and above) tax-exempt municipal securities, preferred stock and other auction-rate securities (“ARS”). ARS have historically traded on a shorter term than the underlying debt based on an auction bid that resets the interest rate of the security. The auction or reset dates occur at intervals established at the time of issuance that are generally between 7 and 35 days.

ARS “fail” when there are not enough buyers to absorb the amount of securities available for sale for that particular auction period. Historically, ARS auctions have rarely failed since the investment banks and broker dealers have been willing to purchase the security when investor demand was weak. However, beginning in mid-February 2008, due to uncertainty in the global credit and capital markets and other factors, investment banks and broker dealers have been less willing to support ARS and many ARS auctions have failed.

As of May 31, 2008, we had $48.7 million of principal invested in ARS that experienced failed auctions. Approximately $38.7 million of our ARS are invested in tax-exempt municipal bond funds, which carry triple-A credit ratings for the underlying issuer and A credit ratings or higher for the insurers from one or more of the major credit rating agencies. The remaining $10 million is invested in securities collateralized by student loans, which carry triple-A credit ratings for the underlying issuer, the highest rating issued by a rating agency, and are guaranteed by the U.S. government under the Federal Family Education Loan Program. None of the ARS held by us are mortgage-backed securities.

Page 13 of 48

Due to the continued lack of liquidity for these investments and based on observable and unobservable market data, we determined that the estimated fair value of our ARS exceeded the carrying value during the third quarter of fiscal 2008. As a result, we recorded an unrealized loss of $0.8 million ($0.5 million after-tax) on our ARS as of May 31, 2008, with the offset included in accumulated other comprehensive loss. We assessed this decline in value to be temporary due to the following: (i) we believe that we have the ability and the intent to hold these securities until the market stabilizes in order to sell the securities at par, (ii) the quality of the underlying collateral, (iii) the credit quality of the issuers, and (iv) the issuers continue to pay interest in a timely manner according to their stated terms and there have been no defaults in the underlying debt.

From June 1, 2008 through June 19, 2008, approximately $11.9 million of the $47.9 million, net of the unrealized loss of $0.8 million, of previously failed ARS as of May 31, 2008 have been called by the issuers at par. Therefore, we have classified $11.9 million as current marketable securities and the remaining balance of $36.0 million has been classified as noncurrent marketable securities.

We will continue to monitor our investment portfolio, and given the uncertainties in the global credit and capital markets, we are no longer investing in ARS instruments at this time, which will likely continue to reduce our investment income. We will also continue to evaluate any changes in the market value of the failed ARS that have not been liquidated subsequent to quarter-end and, depending upon existing market conditions, we may be required to record other-than-temporary impairment charges if the ratings of any of these securities are reduced or if any of the issuers default on their obligations.

Amortized cost and estimated fair market value for marketable securities classified as held-to-maturity as of May 31, 2008 and August 31, 2007 are as follows:

	May 31, 2008				August 31, 2007
Held-to-maturity securities	Amortized		Fair Market		Amortized		Fair Market
($ in thousands)	Cost		Value		Cost		Value
Municipal bonds	$	7,275	$	7,282	$	16,278	$	16,193
Municipal bonds due 1-3 years		1,013		1,026		3,096		3,060
U.S. government-sponsored enterprises		—		—		27,000		26,621
Corporate obligations		6,993		7,039		6,988		6,397
Total held-to-maturity securities	$	15,281	$	15,347	$	53,362	$	52,271

Municipal Bonds: Municipal bonds represent debt obligations issued by states, cities, counties, and other governmental entities, which earn federally tax-exempt interest. We have the ability and intent to hold municipal bonds until maturity and therefore classify these investments as held-to-maturity, reported at amortized cost.

U.S. Government-Sponsored Enterprises: U.S. government-sponsored enterprises are fixed-income investments that include the Federal Farm Credit Note, Federal Home Loan Banks, and Federal National Mortgage Association (“Fannie Mae”).

Corporate Obligations: Corporate obligations include secured commercial paper with the Royal Bank of Canada. We have the ability and intent to hold corporate obligations until maturity and therefore classify these investments as held-to-maturity, reported at amortized cost.

Note 5. Accounts Receivable, net

Accounts receivable, net consist of the following as of May 31, 2008 and August 31, 2007:

				August 31,
($ in thousands)	May 31, 2008			2007
Student accounts receivable	$	250,661		$	281,834
Less allowance for doubtful accounts		(85,264	)		(99,818	)
Net student accounts receivable		165,397			182,016
Other receivables		18,786			8,896
Total accounts receivable, net	$	184,183		$	190,912

Page 14 of 48

Bad debt expense is included in instructional costs and services in our Consolidated Statements of Income. The following table summarizes the activity in the related allowance for doubtful accounts for the three and nine months ended May 31, 2008 and 2007:

	Three Months						Nine Months
	Ended May 31,						Ended May 31,
($ in thousands)	2008			2007			2008			2007
Beginning allowance for doubtful accounts	$	93,418		$	75,961		$	99,818		$	65,184
Provision for uncollectible accounts receivable		20,269			34,368			79,255			83,303
Write-offs, net of recoveries		(28,423	)		(18,200	)		(93,809	)		(56,358	)
Ending allowance for doubtful accounts	$	85,264		$	92,129		$	85,264		$	92,129

Note 6. Restricted Cash for Bond Collateralization

In connection with the securities litigation matter described in Note 13, Commitments and Contingencies, we posted a bond in the amount of $95.0 million in the second quarter of fiscal 2008 as part of our motion to stay execution of the judgment pending resolution of our motions for post-trial relief. This bond had been fully cash collateralized by us and is reported as long-term restricted cash for bond collateralization on our Consolidated Balance Sheets as of May 31, 2008.

Note 7. Goodwill and Intangible Assets

Changes in the carrying amount of goodwill from August 31, 2007 through May 31, 2008 by reportable segment are as follows:

	August 31, 2007		Goodwill		Impairment		Other		May 31, 2008
($ in thousands)	Balance		Acquired		Charges		Adjustments		Balance
UPX	$	—	$	36,384	$	—	$	—	$	36,384
Other Schools		29,633		—		—		—		29,633
Apollo Global		—		—		—		—		—
Corporate		—		—		—		—		—
Total Goodwill	$	29,633	$	36,384	$	—	$	—	$	66,017

Any changes in the fair value of the net assets of the acquired companies will change the amount of the purchase price allocable to goodwill. Please refer to Note 3, Acquisitions and Joint Venture, for further discussion.

As of May 31, 2008, we performed annual goodwill impairment tests for the Aptimus, Insight and WIU goodwill balances. Please refer to Note 2, Significant Accounting Policies, of our audited consolidated financial statements included in our 2007 Annual Report on Form 10-K for our policy for evaluating potential impairment of goodwill. Based on the results of our annual goodwill impairment tests, no impairment charges for goodwill were recorded for the three and nine months ended May 31, 2008.

Page 15 of 48

Intangible assets consist of the following as of May 31, 2008 and August 31, 2007:

	May 31, 2008								August 31, 2007
	Gross				Effect of Foreign		Net		Gross				Net
	Carrying		Accumulated		Currency		Carrying		Carrying		Accumulated		Carrying
($ in thousands)	Amount		Amortization		Translation Loss		Amount		Amount		Amortization		Amount
Amortizable intangible assets
Student and customer relationships	$	6,500	$	563	$	217	$	5,720	$	—	$	—	$	—
Technology		3,751		288		7		3,456		—		—		—
Non-compete agreements		5,082		906		114		4,062		1,982		297		1,685
Broadcast rights and license		1,500		8		75		1,417		—		—		—
Trademarks		1,722		558		—		1,164		422		63		359
Other		806		138		45		623		237		67		170
Total amortizable intangible assets		19,361		2,461		458		16,442		2,641		427		2,214
Unamortizable intangible assets
Accreditations and designations		1,287		—		63		1,224		—		—		—
Trademarks		4,200		—		210		3,990		—		—		—
Total unamortizable intangible assets		5,487		—		273		5,214		—		—		—
Total intangible assets, net	$	24,848	$	2,461	$	731	$	21,656	$	2,641	$	427	$	2,214

Amortizable intangible assets are generally amortized on a straight-line basis over their weighted average useful lives ranging from 2 to 15 years. Amortization expense for intangibles for the three and nine months ended May 31, 2008 was $1.1 million and $2.3 million, respectively. Amortization expense for intangibles for the three and nine months ended May 31, 2007 was $0.1 million and $2.0 million, respectively.

Estimated future amortization expense of intangible assets is as follows:

($ in thousands)	Amount
2008 (three months)	$	1,688
2009		5,033
2010		3,611
2011		3,215
2012		1,540
2013		519
Thereafter		836
Total estimated amortization expense	$	16,442

Estimated future amortization expense may vary as acquisitions and dispositions occur in the future and as purchase price allocations are finalized.

Page 16 of 48

Note 8. Long-Term Liabilities

Long-term liabilities consist of the following as of May 31, 2008 and August 31, 2007:

	May 31,			August 31,
($ in thousands)	2008			2007
Deferred rent and other lease incentives	$	74,546		$	77,755
Deferred gains on sale-leasebacks		9,955			10,602
Deferred vendor incentive		6,317			—
Deferred compensation agreement with Dr. John G. Sperling		2,349			2,197
Unrecognized tax benefit (see Note 9)		54,436			—
Accrual for estimated securities litigation loss (see Note 13)		165,748			—
Contingent consideration (see Note 3)		859			—
Other long-term liabilities		19,635			2,432
Total liabilities		333,845			92,986
Less current portion		(80,808	)		(21,093	)
Total long-term liabilities	$	253,037		$	71,893

Note 9. Income Taxes

In June 2006, the FASB issued FIN 48. This interpretation, among other things, creates a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions, and it has expanded disclosure requirements.

We adopted FIN 48 on September 1, 2007, and did not recognize an adjustment to our liability for unrecognized income tax benefits upon adoption. It is our policy to recognize interest and penalties related to uncertain tax positions in income tax expense. At the date of adoption, we reclassified $53.0 million of unrecognized tax benefits, including penalties and interest, from current income taxes payable to long-term liabilities, as these contingencies were not expected to be paid within the next year. As of May 31, 2008, we reclassified $52.5 million of our liability for unrecognized tax benefits from long-term liabilities to current portion of long-term liabilities, as we believe that it is now probable that the corresponding contingency will be resolved within the next 12 months. Each quarter, we accrue for any additional interest and penalties, as necessary. In addition, for prior periods where a liability existed and where the statute of limitations has expired, any accruals relating to that period have been reversed in the period in which the statute expired. The total amount of unrecognized tax benefits, including penalties and interest, would impact our effective tax rate if recognized. We are continually under audit by various taxing jurisdictions, and as a result, it is possible that the amount of unrecognized tax benefits could change within the next twelve months. An estimate of the range of the possible change cannot be made unless or until tax positions are further developed or examinations closed. At the adoption date, our U.S. federal tax filings are subject to examination for years ending on or after August 31, 2003, and our other tax filings are generally subject to examination in state and foreign jurisdictions for years ending on or after August 31, 2001.

An Internal Revenue Service (“IRS”) audit relating to our U.S. federal income tax returns for the fiscal years ended August 31, 2003 through 2005 commenced in September 2006. The audit relates to income and deductions previously claimed by us, including deductions potentially limited by IRC Section 162(m). Certain tax deductions in prior years with respect to compensation attributable to the exercise of certain stock options by executive officers are in question. Under IRC Section 162(m), the amount of such deduction per covered executive officer is limited to $1.0 million per year, except to the extent the compensation qualifies as performance-based. Compensation attributable to options with revised measurement dates may not have qualified as performance-based compensation. Accordingly, we may have claimed deductions with respect to those exercised options that were in excess of the limit imposed under IRC Section 162(m). As a result, we expensed an additional $0.8 million and $2.5 million in the three and nine months ended May 31, 2008, respectively, related to interest and penalties, for a total accrual of $47.0 million as of May 31, 2008 with respect to this uncertain tax position for the taxable years 2003 through 2007 (which are currently our only open years subject to adjustment for federal tax purposes). For prior periods where a liability existed and where the statute of limitations has expired, any accruals relating to that period have been reversed in the period in which the statute expired. In addition, the IRS audit may result in additional tax, penalties and interest, the amount of which may or may not be material, but this will not be known until the IRS audit is complete.

The increase in deferred tax assets is primarily attributable to the timing of deductibility for the expense related to the charge for the estimated securities litigation loss described in Note 13, Commitments and Contingencies.

Page 17 of 48

Note 10. Stockholders’ Equity

Share Reissuances

During the three and nine months ended May 31, 2008, we issued approximately 0.1 million and 2.0 million shares of our Class A common stock, respectively, as a result of stock option exercises and our employee stock purchase plan.

Share Repurchases

On October 5, 2007, the Board of Directors authorized a stock repurchase program of up to $500 million of Apollo Group Class A common stock. There is no expiration date on the repurchase authorizations and repurchases occur at our discretion. Repurchases may be made on the open market or in privately negotiated transactions, pursuant to the applicable SEC rules, and may include repurchases pursuant to SEC Rule 10b5-1 nondiscretionary trading programs. As of May 31, 2008, approximately $45.6 million remained available under our share repurchase authorization. During the three months ended May 31, 2008, we repurchased approximately 9.8 million shares of our Class A common stock at a total cost of approximately $454.4 million, representing a weighted average purchase price of $46.37 per share. The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant. On June 27, 2008, the Board of Directors authorized an increase in the amount available under our stock repurchase program of up to an aggregate amount of $500 million of Apollo Group Class A common stock.

Note 11. Earnings Per Share

Apollo Group Class A Common Stock

A reconciliation of the basic and diluted earnings per share computations for our common stock is as follows:

	Three Months Ended May 31,
	2008						2007
			Weighted						Weighted
			Average		Per Share				Average		Per Share
($ in thousands, except per share amounts)	Income		Shares		Amount		Income		Shares		Amount
Basic income	$	139,106		162,751	$	0.85	$	131,438		173,188	$	0.76
Effect of dilutive securities:
Stock options		—		915		—		—		1,432		(0.01	)
Restricted stock units		—		175		—		—		—		—
Diluted income	$	139,106		163,841	$	0.85	$	131,438		174,620	$	0.75

	Nine Months Ended May 31,
	2008							2007
			Weighted							Weighted
			Average		Per Share					Average		Per Share
($ in thousands, except per share amounts)	Income		Shares		Amount			Income		Shares		Amount
Basic income	$	246,932		165,919	$	1.49		$	305,650		173,165	$	1.77
Effect of dilutive securities:
Stock options		—		1,671		(0.02	)		—		1,423		(0.02	)
Restricted stock units		—		147		—			—		—		—
Diluted income	$	246,932		167,737	$	1.47		$	305,650		174,588	$	1.75

Page 18 of 48

Diluted weighted average shares outstanding include the incremental effect of shares that would be issued upon the assumed exercise of stock options and the vesting of restricted stock unit awards (“RSUs”). For the three months ended May 31, 2008 and 2007, approximately 8,572,000 and 5,878,000, respectively, and for the nine months ended May 31, 2008 and 2007, approximately 2,113,000 and 5,601,000, respectively, of our stock options 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 respective periods; therefore, their inclusion would have been anti-dilutive. These stock options could be dilutive in the future if the average share price increases and is greater than the exercise price of these options.

Note 12. Share-Based Compensation Plans

Stock Option Modifications

On January 12, 2007, our Compensation Committee of the Board of Directors approved a resolution to modify the terms of the stock option grants for approximately 50 individuals. These modifications allowed former employees, including officers, terminated on or after November 3, 2006, to exercise options that were “in the money” as of the end of the 90-day post-termination period provided under our Amended and Restated 2000 Stock Incentive Plan (“2SIP”) and their option agreements thereunder, beyond this 90-day period. We extended the exercise periods of these options because we were unable, during the financial statement restatement process as described in our 2007 Annual Report on Form 10-K, to issue shares of our Class A common stock to such individuals, in compliance with the applicable registration requirements of the Securities Act of 1933, as amended. Absent the extension, the options would have expired prior to the former employees having the opportunity to exercise, since the 90-day post-termination exercise period would have expired prior to us completing our financial statement restatement process.

As a result of these modifications, we recorded a non-cash charge to share-based compensation of $12.1 million during the second quarter of fiscal 2007. In addition, the modified awards held by former employees who terminated prior to the January 12, 2007 modification are subject to the provisions of EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). Of the $12.1 million in expense recognized upon modification of the awards, $11.8 million related to awards subject to the provisions of EITF 00-19. EITF 00-19 requires that we report the awards classified as liabilities at their fair value as of each balance sheet date. Any increase or decrease in this fair value is recorded in general and administrative expense in our Consolidated Statements of Income. During the three months ended May 31, 2008, we recorded no fair value adjustments as all awards that were subject to the above modification had been exercised as of November 30, 2007. The fair value adjustments recorded as expense for the nine months ended May 31, 2008 totaled $2.7 million. As all awards have been exercised, there are no liabilities in our Consolidated Balance Sheets as of May 31, 2008 associated with these modifications.

Acceleration of Vesting

During 2008, we recorded a charge of $3.3 million related to the acceleration of vesting for certain options granted during 2006. This charge was in connection with a performance condition, which, if met, allowed for vesting acceleration on February 29, 2008, as outlined in the respective grant agreements.

Share-Based Compensation Expense

The table below outlines the effects of share-based compensation included in the following costs and expenses in the Consolidated Statements of Income for the three and nine months ended May 31, 2008 and 2007:

	Three Months						Nine Months
	Ended May 31,						Ended May 31,
($ in thousands)	2008			2007			2008			2007
Instructional costs and services	$	4,925		$	5,089		$	16,742		$	12,944
Selling and promotional		829			889			2,816			2,957
General and administrative		8,667			2,908			29,893			24,865
Share-based compensation expense included in operating expenses		14,421			8,886			49,451			40,766
Tax effect on share-based compensation		(5,657	)		(3,520	)		(19,397	)		(16,147	)
Share-based compensation expense, net of tax	$	8,764		$	5,366		$	30,054		$	24,619

Page 19 of 48

2000 Stock Incentive Plan

In March 2008, holders of our Class B common stock increased the number of Class A shares reserved for issuance under our 2SIP by 5.0 million shares.

Note 13. Commitments and Contingencies

We are subject to various claims and contingencies in the ordinary course of business, including those related to regulation, litigation, business transactions, employee-related matters, and taxes, among others. In accordance with SFAS No. 5, “Accounting for Contingencies” (“SFAS 5”), when we become aware of a claim or potential claim, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we record a liability for the loss. The liability recorded includes probable and estimable legal costs incurred to date and future legal costs to the point in the legal matter where we believe a conclusion to the matter will be reached. If the loss is not probable or the amount of the loss cannot be reasonably estimated, we disclose the claim if the likelihood of a potential loss is reasonably possible and the amount of the potential loss is material. For matters where no loss contingency is recorded, our policy is to expense legal fees as incurred.

Internal Revenue Service Audit

An IRS audit relating to our U.S. federal income tax returns for the fiscal years ended August 31, 2003 through 2005 commenced in September 2006. The audit relates to income and deductions previously claimed by us, including deductions potentially limited by IRC Section 162(m). Certain tax deductions in prior years with respect to compensation attributable to the exercise of certain stock options by executive officers are in question. Under IRC Section 162(m), the amount of such deduction per covered executive officer is limited to $1.0 million per year, except to the extent the compensation qualifies as performance-based. Compensation attributable to options with revised measurement dates may not have qualified as performance-based compensation. Accordingly, we may have claimed deductions with respect to those exercised options that were in excess of the limit imposed under IRC Section 162(m). As a result, we expensed an additional $0.8 million and $2.5 million in the three and nine months ended May 31, 2008, respectively, related to interest and penalties, for a total accrual of $47.0 million as of May 31, 2008 with respect to this uncertain tax position for the taxable years 2003 through 2007 (which are currently our only open years subject to adjustment for federal tax purposes). For prior periods where a liability existed and where the statute of limitations has expired, any accruals relating to that period have been reversed in the period in which the statute expired. In addition, the IRS audit may result in additional tax, penalties and interest, the amount of which may or may not be material, but this will not be known until the IRS audit is complete.

Sale-Leaseback Option

All interests in our new headquarters land and buildings are held by wholly-owned subsidiaries formed as limited liability entities. On June 20, 2006, we entered into an option agreement (which was amended on March 7, 2007) with Macquarie Riverpoint AZ, LLC (“Macquarie”). The option agreement grants Macquarie the option to purchase all membership interests in the consolidated subsidiaries that own our new headquarters land and buildings for approximately $170.0 million and simultaneously have the owning entities enter into a 12-year lease of these facilities with us. Macquarie made a deposit of $9.0 million in connection with this option. On March 6, 2008, we provided the final completion notices to Macquarie. In March 2008, we agreed to extend the option until May 1, 2008 for additional consideration of approximately $0.3 million. With our approval, Macquarie assigned its interest under the option agreement to a third party and the option agreement was further amended to extend the exercise date to June 6, 2008. The third party did not exercise the option. As a result, the option agreement has expired and we have retained the $9.0 million option payment plus interest of $0.5 million, recorded in restricted cash and cash equivalents, with the gain deferred in accrued liabilities as of May 31, 2008. We plan to market the membership interests that own the land and buildings to other parties, but cannot predict the timing or the amount of proceeds of any such sale.

Contingencies Related to Litigation and Other Proceedings

The following is a description of pending litigation and other proceedings that fall outside the scope of ordinary and routine litigation incidental to our business.

Pending Litigation

Incentive Compensation False Claims Act Lawsuit

On August 29, 2003, we were notified that a qui tam action had been filed against us on March 7, 2003, in the U.S. District Court for the Eastern District of California by two then-current employees on behalf of themselves and the federal government. When the federal 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 federal 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 UPX 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

Page 20 of 48

in connection with federal student aid programs, and asserts that UPX improperly compensates its employees. Specifically, plaintiffs allege that our entry into Program Participation Agreements with the DOE under Title IV of the Higher Education Act constitutes a false claim because we did not intend to comply with the employee compensation requirements applicable to us as a result of such participation. 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 U.S. Court of Appeals for the Ninth Circuit. On September 5, 2006, the Ninth Circuit reversed the ruling of the District Court and held that the relators had adequately alleged the elements of a False Claims Act cause of action. On January 22, 2007, UPX filed a Petition for Writ of Certiorari with the U.S. Supreme Court. On April 23, 2007, the U.S. Supreme Court denied UPX’s petition. As a result, the case has been remanded to the District Court in accordance with the order of the Ninth Circuit. In addition, on March 23, 2007, UPX filed a motion in the District Court to dismiss the complaint on the grounds that the September 7, 2004, settlement agreement between UPX and the DOE constituted an alternate remedy under the False Claims Act. That motion was denied on August 20, 2007. On January 7, 2008, the Court denied a UPX motion to certify the Court’s order regarding the motion to dismiss for purposes of bringing an interlocutory appeal. The District Court has issued a Scheduling Order pursuant to which trial is set for September 2009. Initial disclosures have been made and discovery is proceeding. We believe that our compensation programs and practices at all relevant times were in compliance with the requirements imposed in our Program Participation Agreements and that, in any event, a failure to comply would not give rise to a false claim under the False Claims Act. Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, our management does not expect a material adverse effect on our business to result from this action. In addition, we cannot reasonably estimate a range of loss for this action and accordingly have not accrued any liability associated with this action.

Axia False Claims Act Lawsuit

On August 15, 2005, a relator filed a qui tam complaint under seal in the U.S. District Court for the District of Columbia. On April 12, 2006, the U.S. Department of Justice filed The Government’s Notice of Election to Decline Intervention in this qui tam lawsuit and on June 15, 2006, the Court entered an order unsealing the complaint. An amended complaint was served on or about November 1, 2006. The qui tam action alleges violations of the False Claims Act by UPX in connection with federal student aid programs, and asserts that UPX improperly compensates its employees. On November 15, 2006, the relator filed a Voluntary Notice of Dismissal. On November 17, 2006, the Court ordered that the relator comply with the statutory requirements for dismissal of a qui tam False Claims Act action by December 1, 2006. On December 1, 2006, the United States consented to the dismissal of the action with prejudice as to the relator, so long as the dismissal is without prejudice as to the United States. On February 2, 2007, the Court ordered the United States to articulate its reasons for consenting to the dismissal of the action. On February 21, 2007, the United States filed a Statement of Reasons for Consenting to Dismissal. Management does not expect a material adverse effect on our business to result from this action.

Alaska Electrical Pension Fund Derivative Action

On September 5, 2006, the Alaska Electrical Pension Fund filed a shareholder derivative suit in the U.S. District Court for the District of Arizona, alleging on behalf of us that certain of our current and former officers and directors engaged in misconduct regarding stock option grants. Similar derivative complaints were filed in the same Court on or about September 19, 2006 and November 11, 2006 by other of our purported shareholders, and the three cases were consolidated by the Court under the caption Alaska Electrical Pension Fund v. Sperling, Case No. CV06-02124-PHX-ROS, on January 9, 2007. The defendants in the consolidated case are Apollo, J. Jorge Klor de Alva, Daniel E. Bachus, John M. Blair, Dino J. DeConcini, Anthony F. Digiovanni, Kenda B. Gonzales, Hedy F. Govenar, Brian E. Mueller, Todd S. Nelson, Jerry F. Noble, Laura Palmer Noone, John R. Norton III, John G. Sperling, and Peter V. Sperling. An independent committee of our Board of Directors (“Special Committee”) was appointed and authorized to determine whether it is in our best interest to pursue the allegations made on our behalf. Effective December 8, 2006, in response to an order by the Court on December 4, 2006, K. Sue Redman, who is not a party to the case, replaced Hedy F. Govenar on the Special Committee. As of March 13, 2007, James R. Reis joined the Special Committee in place of Daniel D. Diethelm. On July 2, 2007, all defendants and Apollo filed Motions to Dismiss the case, and the Special Committee filed notice of its intent to terminate the action. On August 1, 2007, the Court appointed as lead plaintiff Louisiana Municipal Police Employees’ Retirement System, and lead plaintiff filed a Second Amended Complaint on August 15, 2007. On August 17, 2007, the Special Committee filed a Motion to Terminate the action, based in part upon its conclusion that pursuit of the claims is not in our best interest. Through mediation, the parties reached an agreement to resolve this action. Notices of the proposed settlement were filed with the Court on April 7, 2008. The Court granted preliminary approval to the settlement on April 18, 2008, and a final settlement hearing has been scheduled for August 1, 2008. The settlement is subject to Court approval. Management does not expect a material adverse effect on our business to result from the proposed settlement. We have accrued for the expected liability associated with the proposed settlement in our consolidated financial statements as of May 31, 2008, which is not material for separate disclosure.

Page 21 of 48

Securities Class Action

In October 2004, three class action complaints were filed in the U.S. District Court for the District of Arizona. The Court consolidated the three pending class action complaints under the caption In re Apollo Group, Inc. Securities Litigation, Case No. CV04-2147-PHX- JAT and a consolidated class action complaint was filed on May 16, 2005 by the lead plaintiff. The consolidated complaint named us, Todd S. Nelson, Kenda B. Gonzales and Daniel E. Bachus as defendants. On March 1, 2007, by stipulation and order of the Court, Daniel E. Bachus was dismissed as a defendant from the case. Lead plaintiff represents a class of our shareholders who acquired their shares between February 27, 2004 and September 14, 2004. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated under the Act by us for defendants’ allegedly material false and misleading statements in connection with our failure to publicly disclose the contents of a preliminary DOE program review report. The case proceeded to trial on November 14, 2007. On January 16, 2008, the jury returned a verdict in favor of the plaintiffs awarding damages of up to $5.55 for each share of common stock in the class suit, plus pre-judgment and post-judgment interest. The class shares are those purchased after February 27, 2004 and still owned on September 14, 2004. The judgment was entered on January 30, 2008, subject to an automatic stay until February 13, 2008. On February 13, 2008, the Court granted our motion to stay execution of the judgment pending resolution of our motions for post-trial relief, which were also filed on February 13, 2008, provided that we post a bond in the amount of $95.0 million. On February 19, 2008, we posted the $95.0 million bond with the Court. Oral arguments have been scheduled for August 4, 2008 on our post-trial motions. If our motions are denied, in whole or in part, we intend to pursue any and all remedies that may be available, including, if necessary, appealing the judgment. If an appeal is necessary, the Court may require that we post a bond in order to stay enforcement of the judgment during the appeal, and the bond could be in a different amount from the present bond. We believe we have adequate liquidity to fund any likely bond amount.

Liability in the case is joint and several, which means that each defendant, including us, is liable for the entire amount of the judgment. As a result, we will be responsible for payment of the full amount of damages as ultimately determined. We do not expect to receive material amounts of insurance proceeds from our insurers to satisfy any amounts ultimately payable to the plaintiff class.

The actual amount of damages will not be known until all Court proceedings, including post trial motions and any appeal, have been completed. We have estimated for financial reporting purposes, using statistically valid models and a 60% confidence interval, that the damages could range from $120.5 million to $216.4 million, which includes (a) our estimate of damages based on the verdict; (b) our estimate of potential amounts we expect to reimburse our insurance carriers; (c) estimated future defense costs; and (d) legal and other professional fees incurred during the second quarter of fiscal 2008. In the second quarter of fiscal 2008, we recorded a charge for estimated damages at the mid-point of this range, or $168.4 million. We elected to record the mid-point of this range because under statistically valid modeling techniques the mid-point of the range is in fact a more likely estimate than other points in the range, and the point at which there is an equal probability that the ultimate loss could be toward the lower end or the higher end of the range. In the third quarter of fiscal 2008, we recorded an additional charge of $1.6 million for interest on the estimated damages.

EEOC v. UPX

On September 25, 2006, the Equal Employment Opportunity Commission (“EEOC”) filed a Title VII action against UPX captioned Equal Employment Opportunity Commission v. University of Phoenix, Inc., No. CV-06-2303-PHX-MHM, in the U.S. District Court for the District of Arizona on behalf of four identified former employees and an asserted class of unidentified former and current employees who were allegedly discriminated against because they were not members of the Church of Jesus Christ of Latter-day Saints. The Complaint also alleges that some of the employees were retaliated against after complaining about the alleged discrimination. The EEOC did not serve its Complaint on UPX until November 21, 2006. UPX answered the Complaint on December 8, 2006, denying the material allegations asserted. An initial Scheduling Conference was held on February 15, 2007. During the course of discovery, the EEOC identified approximately 45 additional class members on whose behalf it was seeking relief. UPX filed motions to strike almost all of these additional class members on the basis that they failed to timely exhaust their administrative remedies and/or meet other statutory prerequisites to filing suit under Title VII. The Court denied UPX’s motions to strike on May 2, 2008 and UPX subsequently filed a motion for certification to file an interlocutory appeal with the Ninth Circuit. On May 20, 2008, the Court granted UPX’s motion for certification and stayed discovery regarding the additional class members pending the Ninth Circuit’s ruling. The parties are currently engaged in discovery regarding the four identified former employees and several of the class members whose status in the lawsuit is not affected by the interlocutory appeal. Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Management does not expect a material adverse effect on our business to result from this action. We have accrued for our estimated liability associated with this action in our consolidated financial statements as of May 31, 2008, which is not material for separate disclosure.

Barnett Derivative Action

On April 24, 2006, Larry Barnett, one of our shareholders, filed a shareholder derivative complaint on behalf of Apollo. The allegations in the complaint pertain to the matters that were the subject of the investigation performed by the DOE that led to the issuance of the DOE’s February 5, 2004 Program Review Report. The complaint was filed in the Superior Court for the State of Arizona, Maricopa County and is entitled Barnett v. John Blair et al, Case Number CV2006-051558. In the complaint, plaintiff asserts a derivative claim, on our behalf, for breach of fiduciary duty against the following nine of our current or former officers and directors: John M. Blair, Dino J. DeConcini, Hedy F. Govenar, Kenda B. Gonzales, Todd S. Nelson, Laura Palmer Noone, John R. Norton III, John G. Sperling and

Page 22 of 48

Peter V. Sperling. Plaintiff contends that we are entitled to recover from these individuals the amount of the settlement that we paid to the DOE and our losses (both litigation expenses and any damages awarded) stemming from the parallel federal securities class actions pending against us in Federal District Court as described above under “Securities Class Action.” On August 21, 2006, we filed a Motion to Stay the case arguing that it is not in our best interest to prosecute plaintiffs’ purported derivative claims prior to resolution of the parallel federal securities class action.

On October 10, 2006, plaintiff amended his complaint to include new allegations pertaining to our alleged backdating of stock option grants to Todd S. Nelson, Kenda B. Gonzales, Laura Palmer Noone, John G. Sperling and three additional defendants: J. Jorge Klor de Alva, Jerry F. Noble and Anthony F. Digiovanni. This First Amended Complaint alleges, among other things, that the individual defendants breached their fiduciary duties to us and that certain of them were unjustly enriched by their receipt of backdated stock option grants. The plaintiff seeks, among other things, an award of unspecified damages and reasonable costs and expenses, including attorneys’ fees.

On November 10, 2006, after plaintiff filed the First Amended Complaint and added allegations of stock option backdating, we filed an Amended Motion to Stay arguing that the action should be stayed pending resolution of the parallel federal securities class action and pending the Special Committee’s investigation into the allegations of stock option backdating. On January 29, 2007, the Court granted the Amended Motion to Stay and stayed the case for a period of six months. The Court subsequently extended the stay to November 5, 2007, and then through February 2008 pending the resolution of the trial in the federal securities class action.

On March 7, 2008, following the entry of judgment in the federal securities class action, we filed a motion to stay discovery regarding the DOE claims pending the disposition of post-trial motions in the federal securities class action and informed the Court of an imminent settlement regarding the stock option claims. On March 10, 2008, the Court stayed the stock option claims pending submission of a stipulation of settlement in a related federal derivative action that also raised stock option claims, the approval of the settlement by the Federal Court, and dismissal of the federal derivative action. On April 22, 2008, the plaintiff filed a request for preliminary approval of the settlement regarding stock option claims. On April 28, 2008, the Court granted preliminary approval of the settlement. After the final judgment and order in the related federal derivative action is entered, we will apply to the State Court for an entry of the order dismissing the stock option backdating claims. The settlement does not apply to the DOE claims.

With respect to the DOE claims, the Court stayed all discovery until a pre-trial conference scheduled for August 11, 2008. The Court also permitted plaintiffs to file a Second Amended Complaint. On April 10, 2008, the plaintiff filed his Second Amended Complaint. On May 9, 2008, we moved to dismiss Counts 3-5 of the amended complaint on the ground that the plaintiff failed to make a pre-suit demand regarding these derivative claims, as required by Arizona law. We also moved to stay Counts 1-2 on the ground that the new claims relate to a pending qui tam lawsuit that we are also defending, and that it would not be in Apollo’s best interests to prosecute such claims while it is defending the qui tam suit. In addition, we moved to continue the pre-trial conference until the Court hearing the parallel federal securities class action has ruled on the post-trial motions pending in that case, and in the alternative, for appointment of an independent panel of outside directors to review any claims that survive motions to dismiss. Also on May 9, 2008, the individual defendants moved to dismiss the complaint on the ground that it failed to state a claim upon which relief may be granted. Plaintiffs filed their responses to these motions on June 12, 2008, and defendants filed their replies on June 27, 2008. Oral argument on all motions to dismiss filed by the defendants is scheduled for July 15, 2008. In an order filed on June 5, 2008, the Court, on its own motion, rescheduled the pre-trial conference to August 18, 2008. Based on information available to us at present, our management does not expect a material adverse effect on our business to result from this action.

Bamboo Partners Derivative Action

On August 15, 2006, Bamboo Partners, one of our shareholders, filed a shareholder derivative complaint on our behalf and on behalf of the University of Phoenix, Inc. The lawsuit was filed in the U.S. District Court, District of Arizona and is entitled Bamboo Partners v. Nelson et al., Case Number 2:06-at-10858. The complaint names as defendants Apollo Group, Inc., University of Phoenix, Inc., Todd S. Nelson, Kenda B. Gonzales, Daniel E. Bachus, John G. Sperling, Peter V. Sperling, Laura Palmer Noone, John M. Blair, Dino J. DeConcini, Hedy F. Govenar and John Norton III. The complaint seeks contribution from defendants Nelson, Gonzales and Bachus pursuant to Sections 10(b) and 21D of the Exchange Act for damages incurred by Apollo and UPX in connection with the federal securities class action described above under “Securities Class Action”, and also alleges that all defendants committed numerous breaches of fiduciary duties associated with the facts underlying the federal securities class action. In addition, the complaint asserts claims relating to Laura Palmer Noone’s sale of our stock and Todd S. Nelson’s separation agreement executed with us in January 2006. In addition to damages, the complaint seeks attorneys’ fees, reasonable costs and disbursements.

On November 13, 2006, we filed a Motion to Stay the case arguing that it is not in our best interest to prosecute plaintiffs’ purported derivative claims prior to resolution of the parallel federal securities class action. The individual defendants joined in the Motion to Stay. The Court granted our motion to stay on May 18, 2007. Following entry of judgment in the parallel federal securities class action, on January 31, 2008, the Court issued an order to show cause why the stay should not be dissolved. On February 13, 2008, we filed a motion to extend the stay until the Court in the federal securities class action rules on defendants’ post-trial motions. On March 3, 2008, the plaintiff filed a motion to lift the stay in order to file an amended complaint. The proposed amended complaint, among other things,

Page 23 of 48

does not include two defendants named in the initial complaint (Daniel E. Bachus and Hedy F. Govenar) and adds new jurisdictional allegations based on the parties’ diversity of citizenship. On April 11, 2008, the Court granted our motion to stay the case pending disposition of the post-trial motions and ordered that defendants file a status report within 10 days following the resolution of the post-trial motions in the parallel federal securities class action. In addition, the Court granted plaintiff’s motion to file an amended complaint, but ordered that no responsive pleading be filed while the stay remains in place. Discovery in this case has not yet begun. Based on information available to us at present, our management does not expect a material adverse effect on our business to result from this action.

Teamsters Local Union Putative Class Action

On November 2, 2006, the Teamsters Local 617 Pension and Welfare Funds filed a class action complaint purporting to represent a class of shareholders who purchased our stock between November 28, 2001 and October 18, 2006. The complaint alleges that we and certain of our current and former directors and officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by purportedly making misrepresentations concerning our stock option granting policies and practices and related accounting. The defendants are Apollo Group, Inc., J. Jorge Klor de Alva, Daniel E. Bachus, John M. Blair, Dino J. DeConcini, Kenda B. Gonzales, Hedy F. Govenar, Brian E. Mueller, Todd S. Nelson, Laura Palmer Noone, John R. Norton III, John G. Sperling and Peter V. Sperling. Plaintiff seeks unstated compensatory damages and other relief. On January 3, 2007, other shareholders, through their separate attorneys, filed motions seeking appointment as lead plaintiff and approval of their designated counsel as lead counsel to pursue this action. On September 11, 2007, the Court appointed The Pension Trust Fund for Operating Engineers as lead plaintiff and approved lead plaintiff’s selection of lead counsel and liaison counsel. Lead plaintiff filed an amended complaint on November 23, 2007, asserting the same legal claims as the original complaint and adding claims for violations of Section 20A of the Securities Exchange Act of 1934 and allegations of breach of fiduciary duties and civil conspiracy. All defendants filed motions to dismiss the case on January 22, 2008, which are now pending before the Court. Discovery in this case has not yet begun. We intend to vigorously oppose plaintiffs’ allegations. Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, our management does not expect a material adverse effect on our business to result from this action. In addition, we cannot reasonably estimate a range of loss for this action and accordingly have not accrued any liability associated with this action.

Patent Infringement Litigation

On March 3, 2008, Digital-Vending Services International Inc. (“DVSI”) filed a complaint against The University of Phoenix, Inc. and Apollo Group Inc., as well as Capella Education Company, Laureate Education Inc., and Walden University Inc. in the United States District Court for the Eastern District of Texas. The complaint alleges that we and the other defendants have infringed and are infringing various patents relating to managing courseware in a shared use operating environment. We filed an answer to the complaint on May 27, 2008, in which we denied that DVSI’s patents were duly and lawfully issued, and asserted defenses of non-infringement and patent invalidity, among others. We also asserted a counterclaim seeking a declaratory judgment that the patents are invalid, unenforceable, and not infringed by us. Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, our management does not expect a material adverse effect on our business to result from this action. In addition, we cannot reasonably estimate a range of loss for this action and accordingly have not accrued any liability associated with this action.

Regulatory and Other Legal Matters

Student Financial Aid

All federal financial aid programs are established by the Higher Education Act and regulations promulgated thereunder. The Higher Education Act has an expiration date; in the past, if Congress did not reauthorize the Higher Education Act before its expiration date, it extended the authorization. The Higher Education Act has been extended again through July 31, 2008.

The Higher Education Act specifies the manner in which the U.S. Department of Education reviews institutions for eligibility and certification to participate in Title IV programs. Every educational institution involved in Title IV programs must be certified to participate and is required to periodically renew this certification. UPX was recertified in June 2003 and its current certification for the Title IV programs expired in June 2007. However, in March 2007, UPX submitted its Title IV program participation recertification application to the U.S. Department of Education. We have been collaborating with the U.S. Department of Education regarding the UPX recertification application. Although we have submitted our application for renewal, we are continuing to supply additional follow-up information based on requests from the U.S. Department of Education. Our eligibility continues on a month-to-month basis until the U.S. Department of Education issues its decision on the application. A month-to-month status is not unusual considering the process is multi-faceted and iterative. We have no reason to believe that the application will not be renewed and expect that the renewal process will be completed satisfactorily. WIU was recertified in October 2003 and its current certification for the Title IV programs expires in June 2009.

Page 24 of 48

U.S. Department of Education Audits

From time to time as part of the normal course of business, UPX and WIU are subject to periodic program reviews and audits by regulating bodies as a result of their participation in Title IV programs. On December 22, 2005, the U.S. Department of Education, Office of Inspector General (“OIG”), issued an audit report on their review of UPX’s policies and procedures for the calculation and return of Title IV funds. The OIG concluded that UPX had policies and procedures that provided reasonable assurance that it properly identified withdrawn students, appropriately determined whether a return of Title IV funds was required, returned Title IV funds for withdrawn students in a timely manner and used appropriate methodologies for most aspects of calculating the return of Title IV funds. The OIG did conclude, however, that UPX did not use appropriate methodologies for calculating the percentage of Title IV financial aid earned from September 1, 2002 through December 7, 2004. Since December 8, 2004, UPX has adopted the methodologies deemed appropriate by the U.S. Department of Education. On November 3, 2006, the U.S. Department of Education issued a preliminary audit determination letter (“PADL”) concerning UPX’s administration of the Title IV federal student aid programs regarding this matter and requested UPX to conduct a file review of all students who received Title IV funds and for whom a return of funds calculation was performed, or should have been performed, during the period from March 1, 2004 through December 7, 2004. On June 7, 2007, UPX responded to the PADL request with results of the file review. On January 10, 2008, the U.S. Department of Education issued a final audit determination letter (“FADL”) regarding the return of Title IV funds. As of August 31, 2007, UPX had accrued $3.7 million related to the refund liability and in the second quarter of fiscal 2008 recorded an additional charge of $0.5 million. Under the FADL, UPX returned approximately $4.2 million for the recalculated Title IV funds, which included the repayment of interest and special allowance of approximately $0.5 million, as calculated by the U.S. Department of Education, as of February 29, 2008, which satisfied our obligation under the FADL.

Federal regulations require institutions and third-party servicers to submit annually to the Secretary their student financial aid (“SFA”) compliance audit, prepared by an independent auditor, no later than six months after the last day of the institution’s or third-party servicer’s fiscal year. UPX and WIU have timely submitted their respective fiscal year 2007 annual SFA compliance audits. The IPD SFA compliance audit for fiscal year 2007 was submitted late in June 2008. We do not expect this late submission to have a material adverse effect on our business, financial position, results of operations, or cash flows.

SEC Informal Inquiry and Department of Justice Investigation

In June 2006, we were notified by letter from the SEC of an informal inquiry and the SEC’s request for the production of documents relating to our stock option grants. In July 2007, the SEC notified us that it had closed its inquiry into our stock option grants, without recommending any enforcement action. Also in June 2006, we received a grand jury subpoena from the U.S. Attorney’s Office for the Southern District of New York requesting that we provide documents relating to our stock option grants. We have cooperated fully with this request. We have not received any additional requests for information from any representative of the Department of Justice since that time.

Note 14. Financing

On January 4, 2008, we entered into a syndicated $500 million Credit Agreement (the “Bank Facility”). The Bank Facility is an unsecured revolving credit facility that will be used for general corporate purposes including acquisitions and stock buybacks. The Bank Facility has an expansion feature for an aggregate principal amount of up to $250 million. The term is five years and will expire on January 4, 2013. The Bank Facility provides a multi-currency sub-limit facility for borrowings in certain specified foreign currencies up to $300 million. The Bank Facility fees are determined based on a pricing grid that varies according to our leverage ratio. The facility fee ranges from 12.5 to 17.5 basis points and the incremental fees for borrowings under the facility range from LIBOR + 50.0 to 82.5 basis points. There were no outstanding borrowings under the Bank Facility as of May 31, 2008.

The Bank Facility contains affirmative and negative covenants, including the following financial covenants: maximum leverage ratio, minimum coverage interest and rent expense ratio, and a U.S. Department of Education financial responsibility composite score. In addition, there are covenants restricting indebtedness, liens, investments, asset transfers and distributions. We are in compliance with the aforementioned covenants as of May 31, 2008 and through June 30, 2008. Our obligations under the Bank Facility are guaranteed by our material domestic subsidiaries.

Page 25 of 48

Note 15. Segment Reporting

We operate primarily in the education industry. Our seven operating segments are aggregated into four reportable segments for financial reporting purposes: UPX, Other Schools, Apollo Global and Corporate. The Other Schools segment includes IPD, WIU, CFP and Insight. In March 2006, we began enrolling new students in Axia College of UPX. From September 2004 through February 2006, we enrolled new Axia students in WIU. During the third quarter of 2008, as a result of Apollo Global receiving capital contributions and acquiring UNIACC, we began reporting it as a separate reportable segment. Please refer to Note 3, Acquisitions and Joint Venture, for further discussion. The Apollo Global segment will include our investments in international educational services and costs incurred related to our global expansion. Our Corporate segment includes the operating results for Aptimus, acquired on October 29, 2007, which operates as an integral part of our corporate marketing function. Please refer to Note 3, Acquisitions and Joint Venture, for further discussion.

Consistent with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”), our reportable segments have been determined based on the method by which management evaluates performance and allocates resources. Management evaluates performance based on reportable segment profit. This measure of profit includes allocating corporate support costs to each segment as part of a general allocation, but excludes interest income and certain revenue and unallocated corporate charges. At the discretion of management, certain corporate costs are not allocated to the subsidiaries due to their designation as special charges because of their infrequency of occurrence, the non-cash nature of the expense, and/or the determination that the allocation of these costs to the subsidiaries will not result in an appropriate measure of the subsidiaries’ results. These costs include such items as unscheduled or significant management bonuses, unusual severance pay, and stock-based compensation expense attributed to corporate management and administrative employees. The revenue and corporate charges which are not allocated to UPX, Other Schools and Apollo Global segments are included in the Corporate segment. The estimated securities litigation loss is included in our Corporate segment.

The accounting policies of each segment are consistent with those described in the summary of significant accounting policies in Note 2, Significant Accounting Policies, of our audited consolidated financial statements included in our 2007 Annual Report on Form 10-K. 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 in consolidation.

Our principal operations are located in the United States, and the results of operations and long-lived assets in geographic regions outside of the United States are not significant. During the three and nine months ended May 31, 2008 and 2007, no individual customer accounted for more than 10% of our consolidated revenues.

A summary of financial information by reportable segment is as follows:

	Three Months						Nine Months
	Ended May 31,						Ended May 31,
($ in thousands)	2008			2007			2008			2007
Tuition and other revenue, net:
UPX	$	794,471		$	689,549		$	2,195,832		$	1,862,155
Other Schools		32,972			42,670			101,106			146,453
Apollo Global		4,446			—			4,446			—
Corporate		3,328			1,173			8,150			1,263
	$	835,217		$	733,392		$	2,309,534		$	2,009,871
Income (loss) from operations:
UPX	$	245,668		$	205,962		$	605,669		$	490,004
Other Schools		(481	)		7,771			5,034			26,940
Apollo Global		61			—			61			—
Corporate		(23,749	)		(10,361	)		(229,265	)		(41,791	)
	$	221,499		$	203,372		$	381,499		$	475,153

Note 16. Subsequent Events

On June 24, 2008, Brian E. Mueller resigned from his position as President and Director. Also on June 24, 2008, our Board of Directors appointed Joseph L. D’Amico interim President, in addition to serving as our Chief Financial Officer and Treasurer.

Page 26 of 48

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help investors understand Apollo Group, Inc. (“the Company,” “Apollo Group,” “Apollo,” “APOL,” “we,” “us,” or “our”), our operations, and our present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, the audited consolidated financial statements and notes thereto contained in our 2007 Annual Report on Form 10-K as filed with the SEC on October 29, 2007. The following overview provides a summary of the sections included in our MD&A:

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

• Executive Summary—a general description of our business and the education industry, as well as key highlights of the current year.

• Critical Accounting Policies and Estimates—a discussion of our accounting policies that require critical judgments and estimates.

• Results of Operations—an analysis of our results of operations in our consolidated financial statements. We operate primarily in one business sector: education. Except to the extent that differences between our reportable segments are material to an understanding of our business as a whole, we present the discussion in our MD&A on a consolidated basis.

• Liquidity, Capital Resources, and Financial Position—an analysis of cash flows, sources and uses of cash, commitments and contingencies, seasonality in the results of our operations, the impact of inflation, and quantitative and qualitative disclosures about market risk.

Forward-Looking Statements

This MD&A contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact may be forward-looking statements. Such forward-looking statements include, among others, those statements regarding future events and future results of Apollo that are based on current expectations, estimates, forecasts, and the beliefs and assumptions of us and our management, and speak only as of the date made and are not guarantees of future performance. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “predict,” “target,” “potential,” “continue,” “objectives,” or the negative of these terms or other comparable terminology. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties. Such statements should be viewed with caution. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include but are not limited to:

• changes in the regulations of the education industry, including those items set forth in Item 1 of our 2007 Annual Report on Form 10-K, under the sections titled “Regulatory Environment,” “Accreditation,” “Federal Financial Aid Programs,” and “State Authorization;”

• each of the factors discussed in Item 1A of our 2007 Annual Report on Form 10-K, Risk Factors;

• those factors set forth in Item 7 of our 2007 Annual Report on Form 10-K for the year ended August 31, 2007; and

• changes in the requirements surrounding the reports that we file with the Securities and Exchange Commission (“SEC”).

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, for any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.

Executive Summary

Apollo Group, Inc. has been an education provider for more than 30 years, operating University of Phoenix, Inc. (“UPX”), Institute for Professional Development, Inc. (“IPD”), The College for Financial Planning Institutes Corporation (“CFP”), Western International University, Inc. (“WIU”) and Insight Schools, Inc. (“Insight”), all of which are our wholly-owned subsidiaries, and Apollo Global, Inc. (“Apollo Global”), a consolidated joint venture. We also recently announced our plans to establish a new Canadian institution, Meritus University, which we expect to be operational by December 31, 2008. Through these subsidiaries we are able to offer innovative and distinctive educational programs and services at high school, undergraduate, and graduate levels in 40 states and the District of

Page 27 of 48

Columbia; Puerto Rico; Alberta and British Columbia, Canada; Mexico; Chile; and the Netherlands; as well as online throughout the world.

Our combined Degreed Enrollment as of May 31, 2008, was approximately 345,300. Degreed Enrollment represents individual students enrolled in UPX and Axia College who attended a course during the quarter and did not graduate as of the end of the quarter (in March 2006, we began enrolling new students in Axia College of UPX; from September 2004 through February 2006, we enrolled Axia students in WIU). Degreed Enrollments include any student who graduated from one degree program and started a new degree program (for example, a graduate of the associates degree program returns for a bachelors degree or a bachelors degree graduate returns for a masters degree, etc.). Degreed Enrollments also include students participating in certificate programs of at least 18 credit hours in length with some course applicability into a related degree program. In addition, students enrolled in WIU, CFP, IPD Client Institutions, UNIACC, Insight, and additional non-degreed students enrolled in UPX are excluded from Degreed Enrollment.

The non-traditional education market is a significant and growing component of the post-secondary education market, which is estimated by the U.S. Department of Education to be a more than $373.0 billion industry. According to the U.S. Department of Education, National Center for Education Statistics, based on data from 2005, over 6.8 million, or 39%, of all students enrolled in higher education programs are over the age of 24, and this number is expected to increase by 21% from 2005 through 2016. A large percentage of these students would not be classified as traditional (i.e., living on campus, supported by parents and not working). The non-traditional students typically are looking to improve their skills and enhance their earnings potential within the context of their careers. From 2005 through 2016, the percentage of 18- to 24-year-old students in the U.S. is expected to increase 15%. The market for non-traditional education should continue to increase, reflecting the rapidly expanding knowledge-based economy.

Our operations are generally subject to seasonal trends. We experience, and expect to continue to experience, seasonal fluctuations in the results of operations as a result of changes in the level of student enrollment. While we enroll students throughout the year, second quarter (December through February) enrollment and related revenues generally are lower than other quarters due to holiday breaks in December and January.

During the first nine months of fiscal 2008, we experienced the following significant events:

1.	Enrollment and Revenue Growth While Investing in our Business for the Future - We achieved 11.0% growth in average Degreed Enrollment for the nine months ended May 31, 2008 as compared to the nine months ended May 31, 2007, which, coupled with previously implemented selective tuition price increases, depending on geographic area and program, resulted in a 14.9% increase in revenue over the same period. These increases helped fund a significant portion of our investment in product development and marketing and lead generation during the first nine months of fiscal 2008 to ensure our continued growth in the future.
2.	Apollo Global - On October 22, 2007, we formed a joint venture with The Carlyle Group (“Carlyle”), called Apollo Global, to pursue investments in the international education services sector. Carlyle, based in Washington D.C., is one of the world’s largest private equity firms. Through Apollo Global, we intend to capitalize on the significant global demand for education services. Apollo Global will provide education services through two primary strategies. First, Apollo Global will facilitate delivery of a wide range of our U.S. accredited degrees to foreign students outside the U.S. Within approximately 18 months from formation, we expect to transfer assets that are dedicated to recruiting and servicing international students at fair value to Apollo Global. Following such transfer, Apollo Global, under a service agreement with us, will perform enrollment activities directed toward students who live outside the U.S. and who are not citizens of the U.S. or members of the U.S. military. Second, Apollo Global will acquire or invest in companies that provide local education services, including post-secondary degrees, in the countries it seeks to enter. These investments will be achieved through both a disciplined acquisition process and organic growth.
	We have agreed to commit up to $801 million in cash or contributed assets and own 80.1% of Apollo Global. Carlyle has agreed to commit up to $199 million in cash or contributed assets and own the remaining 19.9%. Apollo Global is consolidated in our financial statements. As of May 31, 2008, total cash contributions made to Apollo Global approximated $35.0 million, of which $28.0 million was funded by Apollo.
3.	Bank Facility - On January 4, 2008, we entered into a syndicated $500 million Credit Agreement (the “Bank Facility”). The Bank Facility is an unsecured revolving credit facility that will be used for general corporate purposes including acquisitions and stock buybacks. The Bank Facility has an expansion feature for an aggregate principal amount of up to $250 million. The term is five years and will expire on January 4, 2013. The Bank Facility provides a multi-currency sub-limit facility for borrowings in certain specified foreign currencies up to $300 million. The Bank Facility fees are determined based on a pricing grid that varies according to our leverage ratio. The facility fee ranges from 12.5 to 17.5 basis points and the incremental fees for borrowings under the facility range from LIBOR + 50.0 to 82.5 basis points. There were no outstanding borrowings under the Bank Facility as of May 31, 2008.

Page 28 of 48

4.	Aptimus, Inc. (“Aptimus”) - On October 29, 2007, we completed the acquisition of all outstanding common stock of online advertising network Aptimus for approximately $48.1 million. Prior to the acquisition, Aptimus operated as a results-based advertising network that distributed advertisements for direct marketing advertisers across a network of third-party web sites. The acquisition enables us to more effectively monitor, manage and control our marketing investments and brands, with the goal of increasing awareness of and access to quality and affordable education. Our current operating strategy is to integrate Aptimus as an integral part of our corporate marketing function.
5.	Universidad de Artes, Ciencias y Comunicación (“UNIACC”) - On March 28, 2008, Apollo Global completed its first transaction with the acquisition of UNIACC, an accredited, private arts and communications university in Chile, as well as its related entities. UNIACC offers bachelors and masters degree programs and is accredited by the Chilean Council of Higher Education. In 2004, UNIACC became the first university in Chile to teach a fully online undergraduate program. Apollo Global purchased 100% of UNIAAC for $44.5 million composed of cash and assumed debt, excluding an earn-out payment denominated in U.S. Dollars based on a multiple of earnings to be paid four years from the closing date. If the earn-out were based on current earnings, it would approximate $9.0 million. The UNIACC acquisition enables Apollo Global to provide local education services, including post-secondary degrees, while establishing a presence in the Chilean market. This is our first investment in South America and expands our delivery of local education services to that region.
6.	Securities Class Action - In October 2004, three class action complaints were filed in the U.S. District Court for the District of Arizona. The Court consolidated the three pending class action complaints under the caption In re Apollo Group, Inc. Securities Litigation, Case No. CV04-2147-PHX-JAT and a consolidated class action complaint was filed on May 16, 2005 by the lead plaintiff. The consolidated complaint named us, Todd S. Nelson, Kenda B. Gonzales and Daniel E. Bachus as defendants. On March 1, 2007, by stipulation and order of the Court, Daniel E. Bachus was dismissed as a defendant from the case. Lead plaintiff represents a class of our shareholders who acquired their shares between February 27, 2004 and September 14, 2004. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated under the Act by us for defendants’ allegedly material false and misleading statements in connection with our failure to publicly disclose the contents of a preliminary DOE program review report. The case proceeded to trial on November 14, 2007. On January 16, 2008, the jury returned a verdict in favor of the plaintiffs awarding damages of up to $5.55 for each share of common stock in the class suit, plus pre-judgment and post-judgment interest. The class shares are those purchased after February 27, 2004 and still owned on September 14, 2004. The judgment was entered on January 30, 2008, subject to an automatic stay until February 13, 2008. On February 13, 2008, the Court granted our motion to stay execution of the judgment pending resolution of our motions for post-trial relief, which were also filed on February 13, 2008, provided that we post a bond in the amount of $95.0 million. On February 19, 2008, we posted the $95.0 million bond with the Court. Oral arguments have been scheduled for August 4, 2008 on our post-trial motions. If our motions are denied, in whole or in part, we intend to pursue any and all remedies that may be available, including, if necessary, appealing the judgment. If an appeal is necessary, the Court may require that we post a bond in order to stay enforcement of the judgment during the appeal, and the bond could be in a different amount from the present bond. We believe we have adequate liquidity to fund any likely bond amount.
	Liability in the case is joint and several, which means that each defendant, including us, is liable for the entire amount of the judgment. As a result, we will be responsible for payment of the full amount of damages as ultimately determined. We do not expect to receive material amounts of insurance proceeds from our insurers to satisfy any amounts ultimately payable to the plaintiff class.
	The actual amount of damages will not be known until all Court proceedings, including post trial motions and any appeal, have been completed. We have estimated for financial reporting purposes, using statistically valid models and a 60% confidence interval, that the damages could range from $120.5 million to $216.4 million, which includes (a) our estimate of damages based on the verdict; (b) our estimate of potential amounts we expect to reimburse our insurance carriers; (c) estimated future defense costs; and (d) legal and other professional fees incurred during the second quarter of fiscal 2008. In the second quarter of fiscal 2008, we recorded a charge for estimated damages at the mid-point of this range, or $168.4 million. We elected to record the mid-point of this range because under statistically valid modeling techniques the mid-point of the range is in fact a more likely estimate than other points in the range, and the point at which there is an equal probability that the ultimate loss could be toward the lower end or the higher end of the range. In the third quarter of fiscal 2008, we recorded an additional charge of $1.6 million for interest on the estimated damages.
7.	Meritus University - On May 13, 2008, we announced our plans to establish a new Canadian institution, Meritus University. Meritus University has received approval to offer three programs from the New Brunswick Department of Post-Secondary Education, Training and Labour (the “Department”), thereby establishing degree-granting status. The three programs approved by the Department are Master of Business Administration, Bachelor of Business Administration and Bachelor of Information Technology Management. Meritus University will not seek U.S. accreditation and will be based in Fredericton, New Brunswick, offering complete degree programs online to working professionals throughout Canada and abroad. Meritus University is expected to be operational by December 31, 2008.

Page 29 of 48

8.

UPX Operating Realignment - During the third quarter of fiscal 2008, we announced a management and reporting realignment within UPX. Historically, UPX on-campus operations have been managed by region and then by campus within each region. The global online operation was managed centrally. This realignment takes our online operation and shifts reporting responsibility to our regional management. UPX will retain an independently operating online campus under this new reporting structure. We believe this realignment will allow us to promote the sharing of common goals and best practices while maximizing efficiencies, and most importantly help us remain student focused.

9.

Changes in Management - On June 24, 2008, Brian E. Mueller resigned from his position as President and Director. Also on June 24, 2008, our Board of Directors appointed Joseph L. D’Amico interim President, in addition to serving as our Chief Financial Officer and Treasurer.

Critical Accounting Policies and Estimates

Please refer to our Annual Report filed on Form 10-K for the fiscal year ended August 31, 2007 filed on October 29, 2007.

Results of Operations

We have included below a discussion of our operating results and significant items which explain the material changes in our operating results during the last three and nine months ended May 31, 2008.

We categorize our expenses as instructional costs and services, selling and promotional, and general and administrative.

Instructional costs and services at UPX, WIU, CFP, UNIACC and Insight consist primarily of costs related to the delivery and administration of our educational programs and include faculty compensation, administrative compensation for departments that provide service directly to students, financial aid processing costs, the costs of educational materials sold, facility leases and other occupancy costs, bad debt expense, technology spending in support of student systems and depreciation and amortization of property and equipment. UPX and WIU 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 IPD consist primarily of program administration, student services, and classroom lease expense. Most of the other instructional costs for IPD-assisted programs, including faculty, financial aid processing, and other administrative salaries, are the responsibility of IPD’s Client Institutions.

Selling and promotional costs consist primarily of compensation for enrollment counselors, management and support staff, corporate marketing, advertising, production of marketing materials, and other costs related to selling and promotional functions. All operating expenses related to Aptimus are classified as selling and promotional costs. We expense selling and promotional costs as incurred.

General and administrative costs consist primarily of administrative compensation, occupancy costs, depreciation and amortization, and other related costs for departments such as executive management, information technology, 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.

Page 30 of 48

Three Months Ended May 31, 2008 Compared to the Three Months Ended May 31, 2007

All references to fiscal 2008 and fiscal 2007 in this section refer to the three months ended May 31, 2008 and 2007, respectively. The following table sets forth an analysis of our Consolidated Statements of Income for the periods indicated:

Analysis of Consolidated Statements of Income

	Three Months
	Ended May 31,					% of Revenues						% Change
($ in millions)	2008			2007		2008			2007			2008 vs 2007
Revenues:
Tuition and other, net	$	835.2		$	733.4		100.0	%		100.0	%		13.9	%
Costs and expenses:
Instructional costs and services		347.6			321.0		41.6	%		43.8	%		8.3	%
Selling and promotional		203.6			162.9		24.4	%		22.2	%		25.0	%
General and administrative		60.9			46.1		7.3	%		6.3	%		32.1	%
Estimated securities litigation loss		1.6			—		0.2	%		0.0	%		—
Total costs and expenses		613.7			530.0		73.5	%		72.3	%		15.8	%
Income from operations		221.5			203.4		26.5	%		27.7	%		8.9	%
Interest income and other, net		3.3			8.5		0.4	%		1.2	%		-61.2	%
Income before income taxes and minority interest		224.8			211.9		26.9	%		28.9	%		6.1	%
Provision for income taxes		85.9			80.5		10.3	%		11.0	%		6.7	%
Minority interest, net of tax		(0.2	)		—		-0.1	%		0.0	%		—
Net income	$	139.1		$	131.4		16.7	%		17.9	%		5.9	%

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

Tuition and Other Revenue, Net

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

	Three Months
	Ended May 31,				% of Revenues
($ in millions)	2008		2007		2008			2007
UPX	$	794.5	$	689.5		95.1	%		94.0	%
Other Schools		33.0		42.7		4.0	%		5.8	%
Apollo Global		4.4		—		0.5	%		—
Corporate		3.3		1.2		0.4	%		0.2	%
Tuition and other revenue, net	$	835.2	$	733.4		100.0	%		100.0	%

Our tuition and other revenue, net increased by 13.9% in the third quarter of fiscal 2008 versus fiscal 2007 primarily due to our (a) 11.0% increase in Degreed Enrollment and (b) selective tuition price increases, depending on geographic area and program, which were partially offset by (a) a continued shift in our student body mix to a higher percentage of students attending associates degree programs with lower tuition prices and (b) an increase in scholarship and grant programs. The primary tuition price increase by program type was in our associates degree programs. In May 2007, we increased our associates degree tuition price by approximately 9%. Notwithstanding this tuition price increase, our associates degree programs have a lower tuition price than our other programs. Accordingly, we continued to experience a shift in our student body mix during the third quarter of fiscal 2008 as our associates Degreed Enrollment increased 36.2% from the third quarter of fiscal 2007 and represented 38.9% of our Degreed Enrollment at May 31, 2008, compared to 31.7% at May 31, 2007.

Effective March 1, 2008, UPX changed its refund policy whereby students who attend 60% or less of a course are eligible for a refund for the portion of the course they did not attend. Under our prior refund policy, if a student attended one class of a course, UPX earned 25% of the tuition for the course, and if they attended two classes of a course, UPX earned 100% of the tuition for the course. This new refund policy applies to students in most states, as some states have their own mandated policies. UPX elected to change its refund policy because we believe it is a more reasonable policy from our students’ perspective.

Page 31 of 48

In June 2008, UPX announced that it will increase tuition prices effective July 1, 2008. UPX will increase tuition approximately 10% for its associate programs and implement selective tuition increases averaging 4% to 5%, depending on geographic area and program, for bachelors and masters degree programs. There is currently no planned tuition increase for doctoral programs. The impact of these price changes on future revenue and operating income will depend on several factors including, but not limited to, changes in enrollment, changes in student mix within programs and degree levels, and discounts. We do not expect these tuition price increases to have a significant impact on tuition and other revenue, net during the fourth quarter of fiscal 2008, as we provide our students the option to prepay tuition in advance of price increases at the lower rate.

Tuition and other revenue, net at our Other Schools segment decreased both in dollars and as a percentage of consolidated tuition and other revenue, net in the third quarter of fiscal 2008 versus fiscal 2007, as WIU Axia College students graduate or withdraw from the program. Axia College began offering their associates degree programs in September 2004 at WIU; however, in March 2006 (our third quarter of fiscal 2006), we began offering all new enrollments in Axia College programs at UPX instead of WIU.

Revenue increased in our Apollo Global segment as a result of our acquisition of UNIACC in March 2008.

Revenue increased in our Corporate segment as a result of our acquisition of Aptimus, as discussed in Note 3, Acquisitions and Joint Venture, in Part I, Item 1. Aptimus is an integral part of our corporate marketing function and therefore is included in our Corporate segment. Through the Aptimus network, our corporate marketing function generates revenue from Internet-based advertising activities performed for third-party customers.

Instructional Costs and Services

Instructional costs and services increased by 8.3% in the third quarter of fiscal 2008 versus fiscal 2007. The following table sets forth the changes in the significant components of instructional costs and services:

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

Instructional costs and services decreased 220 basis points as a percentage of tuition and other revenue, net in the third quarter of fiscal 2008 versus fiscal 2007 primarily due to decreases as a percentage of tuition and other revenue, net in classroom lease expenses and depreciation, and bad debt expense, which were partially offset by increases as a percentage of tuition and other revenue, net in employee compensation.

Employee compensation and related expenses increased 60 basis points as a percentage of tuition and other revenue, net in the third quarter of fiscal 2008 versus fiscal 2007 primarily due to increases in compensation rates for the academic and financial counselors to reduce turnover of our employees and focus additional resources on retention of students, as well as the hiring of additional academic and financial counselors to support our growth.

Classroom lease expenses and depreciation decreased 60 basis points as a percentage of tuition and other revenue, net in the third quarter of fiscal 2008 versus fiscal 2007 due to a larger percentage of our student body choosing to enroll in our online modality.

Other instructional costs and services increased 10 basis points as a percentage of tuition and other revenue, net in the third quarter of fiscal 2008 versus fiscal 2007 primarily due to our continued investment in Insight, which was partially offset by lower negotiated contract costs from third-party vendors.

Bad debt expense decreased 230 basis points as a percentage of tuition and other revenue, net in the third quarter of fiscal 2008 versus fiscal 2007 primarily due to a continued focus on front end collections efforts and improved retention rates for our students. Additionally, in the first quarter of fiscal 2008, we performed a review of the components of bad debt expense and identified certain items that should have been classified as discounts or refunds (reduction of tuition and other revenue, net) as opposed to bad debt expense. No reclassification was made for prior periods as the amounts were not material to prior period financial statements and had no effect on

Page 32 of 48

reported net income. For the first, second, third and fourth quarters of fiscal 2007, our reported bad debt expense as a percentage of tuition and other revenue, net would have been lower by 59, 82, 65 and 87 basis points, respectively, as a result of this reclassification. Excluding the reclassification discussed above, we experienced a decrease in bad debt expense as a percentage of tuition and other revenue, net of 160 basis points in the third quarter of fiscal 2008 versus fiscal 2007.

Selling and Promotional

Selling and promotional expenses increased by 25.0% in the third quarter of fiscal 2008 versus fiscal 2007. The following table sets forth the changes in the significant components of selling and promotional expenses:

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

Selling and promotional expenses increased 220 basis points as a percentage of tuition and other revenue, net in the third quarter of fiscal 2008 versus fiscal 2007 primarily due to an increase as a percentage of tuition and other revenue, net in enrollment counselors’ compensation and related expenses, advertising and other selling and promotional expenses.

Enrollment counselors’ compensation and related expenses increased 90 basis points as a percentage of tuition and revenue, net in the third quarter of fiscal 2008 versus fiscal 2007 primarily due to the hiring of additional enrollment counselors during the third quarter of fiscal 2008 compared to the third quarter of fiscal 2007. Additionally, we have a larger percentage of more experienced enrollment counselors which is contributing to higher enrollment counselor compensation per enrollment counselor.

Our advertising costs increased 30 basis points as a percentage of tuition and other revenue, net in the third quarter of fiscal 2008 versus fiscal 2007 primarily due to an increase in Internet-based advertising. In the second quarter of fiscal 2008, we transitioned the affiliate management to our newly acquired subsidiary, Aptimus, which is now part of our corporate marketing function.

Other selling and promotional expenses increased 100 basis points in the third quarter of fiscal 2008 versus fiscal 2007 as a percentage of tuition and other revenue, net primarily due to the acquisition of Aptimus that closed on October 29, 2007. We believe this acquisition, as discussed in Note 3, Acquisitions and Joint Venture, in Part I, Item 1, will help us, over time, increase the effectiveness and efficiency of our advertising and branding efforts.

The increase in total selling and promotional expenses in the third quarter of fiscal 2008 versus fiscal 2007 represents investments made to drive and support future growth of new Degreed Enrollments. In order to support future growth, we hired additional enrollment counselors in markets and segments where there is strong demand. We believe these additional hires are an investment in growing new Degreed Enrollments, over time. Selling and promotional expenses per new Degreed Enrollment has increased as a result of a decrease in enrollment counselor effectiveness, due to newly hired enrollment counselors. This trend of decreased effectiveness may continue into the near future; however, we believe our efforts and investments will help us reduce these costs as a percent of tuition and other revenue, net over the long-term. Additionally, we are seeing some improvement in enrollment counselor turnover.

Page 33 of 48

General and Administrative

General and administrative expenses increased by 32.1% in the third quarter of fiscal 2008 versus fiscal 2007. The following table sets forth the changes in the significant components of general and administrative expenses:

	Three Months
	Ended May 31,				% of Revenues						% Change
($ in millions)	2008		2007		2008			2007			2008 vs. 2007
Employee compensation and related expenses	$	26.0	$	18.6		3.1	%		2.5	%		39.8	%
Share-based compensation		8.7		2.9		1.0	%		0.4	%		200.0	%
Legal, audit, and corporate insurance		8.8		3.1		1.1	%		0.4	%		183.9	%
Administrative space and depreciation		6.8		5.2		0.8	%		0.7	%		30.8	%
Other general and administrative expenses		10.6		16.3		1.3	%		2.3	%		(35.0	%)
General and administrative	$	60.9	$	46.1		7.3	%		6.3	%		32.1	%

The following items, which are included in the above table, are unusual in nature:

	Three Months
	Ended May 31,
($ in millions)	2008		2007			Line item included in above
Fair value adjustment for former employee stock options	$	—	$	(0.1	)	Other general and administrative expenses
Stock option investigation / financial statement restatement		—		7.7		Other general and administrative expenses
Subtotal	$	—	$	7.6

For comparison purposes, the following table presents the significant components of general and administrative expenses excluding the unusual items listed in the table above:

	Three Months
	Ended May 31,				% of Revenues						% Change
($ in millions)	2008		2007		2008			2007			2008 vs. 2007
Employee compensation and related expenses	$	26.0	$	18.6		3.1	%		2.5	%		39.8	%
Share-based compensation		8.7		2.9		1.0	%		0.4	%		200.0	%
Legal, audit, and corporate insurance		8.8		3.1		1.1	%		0.4	%		183.9	%
Administrative space and depreciation		6.8		5.2		0.8	%		0.7	%		30.8	%
Other general and administrative expenses		10.6		8.7		1.3	%		1.2	%		21.8	%
General and administrative	$	60.9	$	38.5		7.3	%		5.2	%		58.2	%

Excluding the unusual items above, general and administrative expenses increased 210 basis points as a percentage of tuition and other revenue, net in the third quarter of fiscal 2008 versus fiscal 2007. This increase as a percentage of tuition and other revenue, net is primarily due to (a) salary and related payroll costs due to the hiring of additional employees in our information technology, corporate development, legal, and finance functions to support our strategic growth initiatives and enhance corporate governance; (b) higher share-based compensation expense principally as a result of the fiscal 2007 stock option and RSU grant to officers; (c) increased legal costs in connection with defending ourselves in the legal matters described elsewhere in this report; and (d) increased other general and administrative expenses to support our strategic growth initiatives.

Estimated Securities Litigation Loss

In the third quarter of fiscal 2008, we recorded additional post-trial interest of $1.6 million related to our securities class action verdict. See discussion for the nine months ended May 31, 2008 compared to the nine months ended May 31, 2007 included elsewhere in this section for a more detailed discussion of this legal matter.

Page 34 of 48

Interest Income and Other, Net

The following table sets forth the changes in the significant components of interest income and other, net:

	Three Months
	Ended May 31,
($ in millions)	2008			2007
Interest income	$	7.0		$	8.7
Interest expense		(2.0	)		(0.1	)
Other income (expense), net		0.2			(0.1	)
Foreign currency transaction loss, net		(1.9	)		—
Interest income and other, net	$	3.3		$	8.5

Interest income and other, net decreased by $5.2 million in the third quarter of fiscal 2008 versus fiscal 2007. This decrease was primarily attributable to (a) a $1.7 million foreign currency transaction loss at our newly acquired Chilean school UNIACC; (b) $1.2 million of interest expense on borrowings under our Bank Facility, which were repaid prior to the end of the quarter; and (c) lower average balances and lower yields on our cash and cash equivalents, restricted cash and cash equivalents, and marketable securities.

Provision for Income Taxes

Our 2008 effective income tax rate remained essentially the same at 38.2% for the three months ended May 31, 2008 compared to 38.0% for the three months ended May 31, 2007.

Nine Months Ended May 31, 2008 Compared to the Nine Months Ended May 31, 2007

All references to fiscal 2008 and fiscal 2007 in this section refer to the nine months ended May 31, 2008 and 2007, respectively. The following table sets forth an analysis of our Consolidated Statements of Income for the periods indicated:

Analysis of Consolidated Statements of Income

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

Page 35 of 48

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

Tuition and Other Revenue, Net

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

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

Our tuition and other revenue, net increased by 14.9% in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to our (a) 11.0% increase in our average Degreed Enrollment and (b) selective tuition price increases, depending on geographic area and program, which were partially offset by (a) continued shift in our student body mix to a higher percentage of students attending associates degree programs with lower tuition prices and (b) an increase in scholarship and grant programs. The primary tuition price increase by program type was in our associates degree programs. In May 2007, we increased our associates degree tuition price by approximately 9%. Notwithstanding this tuition price increase, our associates degree programs have a lower tuition price than our other programs. Accordingly, we continued to experience a shift in our student body mix during the first nine months of fiscal 2008 as our associates average Degreed Enrollment increased 37.0% from the first nine months of fiscal 2007 and represented 37.0% of our average Degreed Enrollment at May 31, 2008, compared to 29.9% at May 31, 2007.

Effective March 1, 2008, UPX changed its refund policy whereby students who attend 60% or less of a course are eligible for a refund for the portion of the course they did not attend. Under our prior refund policy, if a student attended one class of a course, UPX earned 25% of the tuition for the course, and if they attended two classes of a course, UPX earned 100% of the tuition for the course. This new refund policy applies to students in most states, as some states have their own mandated policies. UPX elected to change its refund policy because we believe it is a more reasonable policy from our students’ perspective.

In June 2008, UPX announced that it will increase tuition prices effective July 1, 2008. UPX will increase tuition approximately 10% for its associate programs and implement selective tuition increases averaging 4% to 5%, depending on geographic area and program, for bachelors and masters degree programs. There is currently no planned tuition increase for doctoral programs. The impact of these price changes on future revenue and operating income will depend on several factors including, but not limited to, changes in enrollment, changes in student mix within programs and degree levels, and discounts. We do not expect these tuition price increases to have a significant impact on tuition and other revenues, net during the fourth quarter of fiscal 2008, as we provide our students the option to prepay tuition in advance of price increases at the lower rate.

Tuition and other revenue, net at our Other Schools segment decreased both in dollars and as a percentage of consolidated tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007, as WIU Axia College students graduate or withdraw from the program. Axia College began offering their associates degree programs in September 2004 at WIU; however, in March 2006 (our third quarter of fiscal 2006), we began offering all new enrollments in Axia College programs at UPX instead of WIU.

Revenue increased in our Apollo Global segment as a result of our acquisition of UNIACC in March 2008.

Revenue increased in our Corporate segment as a result of our acquisition of Aptimus, as discussed in Note 3, Acquisitions and Joint Venture, in Part I, Item 1. Aptimus is an integral part of our corporate marketing function and therefore is included in our Corporate segment. Through the Aptimus network, our corporate marketing function generates revenue from Internet-based advertising activities performed for third-party customers.

Page 36 of 48

Instructional Costs and Services

Instructional costs and services increased by 10.8% in the first nine months of fiscal 2008 versus fiscal 2007. The following table sets forth the changes in the significant components of instructional costs and services:

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

Instructional costs and services decreased 160 basis points as a percentage of tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to decreases as a percentage of tuition and other revenue, net in employee compensation, classroom lease expenses and depreciation, and bad debt expense, which were partially offset by increases as a percentage of tuition and other revenue, net in financial aid processing costs.

Employee compensation and related expenses decreased 20 basis points as a percentage of tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to the improved efficiency with which we provided our student support services (finance and academic counseling, etc.) in the current year as compared with prior years, which was partially offset by increases in compensation rates for the academic and financial counselors.

Classroom lease expenses and depreciation decreased 80 basis points as a percentage of tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to a larger percentage of our student body choosing to enroll in our online modality.

Other instructional costs and services decreased 10 basis points as a percentage of tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to lower negotiated contract costs from third-party vendors, which was partially offset by our continued investment in Insight.

Bad debt expense decreased 70 basis points as a percentage of tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to the reclassification of certain items from bad debt expense to discounts. In the first quarter of fiscal 2008, we performed a review of the components of bad debt expense and identified certain items that should have been classified as discounts or refunds (reduction of tuition and other revenue, net) as opposed to bad debt expense. No reclassification was made for prior periods as the amounts were not material to prior period financial statements and had no effect on reported net income. For the first, second, third and fourth quarters of fiscal 2007, our reported bad debt expense as a percentage of tuition and other revenue, net would have been lower by 59, 82, 65 and 87 basis points, respectively, as a result of this reclassification. Excluding the reclassification discussed above, our bad debt expense as a percentage of tuition and other revenue, net was 3.4% in the first nine months of fiscal 2008 and fiscal 2007.

Page 37 of 48

Financial aid processing costs increased 20 basis points as a percentage of tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to increased processing volume.

Selling and Promotional

Selling and promotional expenses increased by 20.0% in the first nine months of fiscal 2008 versus fiscal 2007. The following table sets forth the changes in the significant components of selling and promotional expenses:

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

Selling and promotional expenses increased 110 basis points as a percentage of tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to an increase as a percentage of tuition and other revenue, net in enrollment counselors’ compensation and related expenses and other selling and promotional expenses, which were partially offset by a decrease as a percentage of tuition and other revenue, net in advertising costs.

Enrollment counselors’ compensation and related expenses increased 60 basis points as a percentage of tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to the hiring of additional enrollment counselors during the first nine months of fiscal 2008 versus fiscal 2007. Additionally, we have a larger percentage of more experienced enrollment counselors, which is contributing to higher enrollment counselor compensation per enrollment counselor.

Our advertising costs increased in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to an increase in Internet-based advertising. In the second quarter of fiscal 2008, we transitioned the affiliate management to our newly acquired subsidiary, Aptimus, which is part of our corporate marketing function.

Other selling and promotional expenses increased 70 basis points as a percentage of tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007 primarily due to the acquisition of Aptimus that closed on October 29, 2007. We believe this acquisition, as discussed in Note 3, Acquisitions and Joint Venture, in Part I, Item 1, will help us, over time, increase the effectiveness and efficiency of our advertising and branding efforts.

The increase in total selling and promotional expenses in the first nine months of fiscal 2008 versus fiscal 2007 represents investments made to drive and support future growth of new Degreed Enrollments. In order to support future growth, we hired additional enrollment counselors in markets and segments where there is strong demand. We believe these additional hires are an investment in growing new Degreed Enrollments, over time. Selling and promotional expenses per new Degreed Enrollment has increased as a result of a decrease in enrollment counselor effectiveness, due to newly hired enrollment counselors. This trend of decreased effectiveness may continue into the near future; however, we believe our efforts and investments will help us reduce these costs as a percent of tuition and other revenue, net over the long-term. Additionally, we are seeing some improvement in enrollment counselor turnover.

Page 38 of 48

General and Administrative

General and administrative expenses increased by 20.1% in the first nine months of fiscal 2008 versus fiscal 2007. The following table sets forth the changes in the significant components of general and administrative expenses:

	Nine Months
	Ended May 31,				% of Revenues						% Change
($ in millions)	2008		2007		2008			2007			2008 vs. 2007
Employee compensation and related expenses	$	68.9	$	50.4		3.0	%		2.5	%		36.7	%
Share-based compensation		30.0		24.9		1.3	%		1.2	%		20.5	%
Legal, audit, and corporate insurance		19.0		9.1		0.8	%		0.5	%		108.8	%
Administrative space and depreciation		18.6		15.6		0.8	%		0.8	%		19.2	%
Other general and administrative expenses		30.7		39.2		1.3	%		2.0	%		(21.7	%)
General and administrative	$	167.2	$	139.2		7.2	%		7.0	%		20.1	%

The following items, which are included in the above table, are unusual in nature:

	Nine Months
	Ended May 31,
($ in millions)	2008		2007		Line item included in above
Stock option modifications	$	—	$	12.1	Share-based compensation
Fair value adjustment for former employee stock options		—		2.7	Other general and administrative expenses
Stock option investigation / financial statement restatement		—		13.0	Other general and administrative expenses
Subtotal	$	—	$	27.8

For comparison purposes, the following table presents the significant components of general and administrative expenses excluding the unusual items listed in the table above:

	Nine Months
	Ended May 31,				% of Revenues						% Change
($ in millions)	2008		2007		2008			2007			2008 vs. 2007
Employee compensation and related expenses	$	68.9	$	50.4		3.0	%		2.5	%		36.7	%
Share-based compensation		30.0		12.8		1.3	%		0.6	%		134.4	%
Legal, audit, and corporate insurance		19.0		9.1		0.8	%		0.5	%		108.8	%
Administrative space and depreciation		18.6		15.6		0.8	%		0.8	%		19.2	%
Other general and administrative expenses		30.7		23.5		1.3	%		1.1	%		30.6	%
General and administrative	$	167.2	$	111.4		7.2	%		5.5	%		50.1	%

Excluding the unusual items above, general and administrative expenses increased 170 basis points as a percentage of tuition and other revenue, net in the first nine months of fiscal 2008 versus fiscal 2007. This increase as a percentage of tuition and other revenue, net is primarily due to (a) salary and related payroll costs due to the hiring of additional employees in our information technology, corporate development, legal, and finance functions to support our strategic growth initiatives and enhance corporate governance; (b) higher share-based compensation expense principally as a result of the fiscal 2007 stock option and RSU grant to officers, as well as the acceleration of vesting for certain option grants; (c) increased legal costs in connection with defending ourselves in the legal matters described elsewhere in this report; and (d) increased other general and administrative expenses to support our strategic growth initiatives.

Estimated Securities Litigation Loss

In connection with the securities class action verdict, we recorded our estimate of anticipated damages in the second quarter of fiscal 2008. The actual amount of damages will not be known until all post trial motions and appeals are heard and adjudicated, which is likely to take years. We have estimated for financial reporting purposes, using statistically valid models and a 60% confidence interval, that the damages could range from $120.5 million to $216.4 million, which includes (a) our estimate of damages based on the verdict; (b) our estimate of potential amounts we expect to reimburse our insurance carriers; (c) estimated future defense costs through the next phase of the litigation; and (d) legal and other professional fees incurred during the third quarter of 2008. In the second quarter of 2008, we recorded the mid-point of this range, or $168.4 million. We elected to record the mid-point of this range because under statistically

Page 39 of 48

valid modeling techniques the mid-point of the range is in fact a more likely estimate than other points in the range, and the point at which there is an equal probability that the ultimate loss could be toward the lower end or the higher end of the range. In the third quarter of fiscal 2008, we recorded an additional charge of $1.6 million for interest on the estimated damages.

Interest Income and Other, Net

	Nine Months
	Ended May 31,
($ in millions)	2008			2007
Interest income	$	24.8		$	22.4
Interest expense		(2.6	)		(0.4	)
Other expense, net		—			(0.1	)
Foreign currency transaction loss, net		(1.2	)		—
Interest income and other, net	$	21.0		$	21.9

Interest income and other, net decreased by $0.9 million in the first nine months of fiscal 2008 versus fiscal 2007. This decrease was primarily attributable to (a) a $1.7 million foreign currency transaction loss, net at our newly acquired Chilean school UNIACC; (b) $1.2 million of interest expense on borrowings under our Bank Facility, which were repaid prior to the end of the quarter; and (c) lower interest rate yields offset by increased average balances on our cash and cash equivalents, restricted cash and cash equivalents, and marketable securities.

Provision for Income Taxes

Our 2008 effective income tax rate remained essentially the same at 38.7% in the nine months ended May 31, 2008, compared to 38.5% in the nine months ended May 31, 2007.

Liquidity, Capital Resources, and Financial Position

Based on past performance and current expectations, we believe that our cash and cash equivalents, short-term marketable securities, cash generated from operations plus available borrowings under our Bank Facility and our capacity for additional borrowings will be adequate to satisfy our working capital needs, capital expenditures, marketing and advertising program expenditures, any additional requirements for a supersedeas bond to stay enforcement of the judgment in our securities class action litigation or the payment of damages awarded in that action, share repurchases, interest and principal payments under our Bank Facility, commitments, acquisitions, discretionary investments under our investment policy 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 potential acquisition opportunities, including over time our commitment to Apollo Global, possible repurchase of shares, investments in continuing enhancement of our student offerings, and start-up costs associated with new campuses.

Cash and Cash Equivalents and Marketable Securities

Cash and cash equivalents and marketable securities decreased $90.2 million, or 23.0%, to $302.5 million as of May 31, 2008, from $392.7 million as of August 31, 2007. Cash and cash equivalents and marketable securities represented 17.7% and 27.1% of our total assets as of May 31, 2008, and August 31, 2007, respectively. The decrease was primarily due to $454.4 million used for the repurchase of 9.8 million shares of our Class A common stock, an increase of $64.5 million in restricted cash and cash equivalents and the cash collateralization related to posting the supersedeas bond in connection with our securities class action litigation verdict of $95.0 million, $80.2 million used for capital expenditures (including $12.4 million for our new corporate headquarters), and $70.3 million used for our purchase of Aptimus and Apollo Global’s purchase of UNIACC, partially offset by $568.4 million of cash generated from operations and $80.7 million of cash from the exercise of stock options.

We have a long history of investing excess cash under a conservative corporate policy that only allows investments in highly rated securities, with preservation of capital and liquidity as the primary objectives. Our investment policy also limits the amount of our credit exposure to any one issue or issuer. We have historically invested a portion of our unrestricted investment portfolio in high quality (A rated and above) tax-exempt municipal securities, preferred stock and other auction-rate securities (“ARS”). ARS have historically traded on a shorter term than the underlying debt based on an auction bid that resets the interest rate of the security. The auction or reset dates occur at intervals established at the time of issuance that are generally between 7 and 35 days.

ARS “fail” when there are not enough buyers to absorb the amount of securities available for sale for that particular auction period. Historically, ARS auctions have rarely failed since the investment banks and broker dealers have been willing to purchase the security

Page 40 of 48

when investor demand was weak. However, beginning in mid-February 2008, due to uncertainty in the global credit and capital markets and other factors, investment banks and broker dealers have been less willing to support ARS and many ARS auctions have failed.

As of May 31, 2008, we had $48.7 million of principal invested in ARS that experienced failed auctions. Approximately $38.7 million of our ARS are invested in tax-exempt municipal bond funds, which carry triple-A credit ratings for the underlying issuer and A credit ratings or higher for the insurers from one or more of the major credit rating agencies. The remaining $10 million is invested in securities collateralized by student loans, which carry triple-A credit ratings for the underlying issuer, the highest rating issued by a rating agency, and are guaranteed by the U.S. government under the Federal Family Education Loan Program. None of the ARS held by us are mortgage-backed securities.

Due to the continued lack of liquidity for these investments and based on observable and unobservable market data, we determined that the estimated fair value of our ARS exceeded the carrying value during the third quarter of fiscal 2008. As a result, we recorded an unrealized loss of $0.8 million ($0.5 million after-tax) on our ARS as of May 31, 2008, with the offset included in accumulated other comprehensive loss. We assessed this decline in value to be temporary due to the following: (i) we believe that we have the ability and the intent to hold these securities until the market stabilizes in order to sell the securities at par, (ii) the quality of the underlying collateral, (iii) the credit quality of the issuers, and (iv) the issuers continue to pay interest in a timely manner according to their stated terms and there have been no defaults in the underlying debt.

From June 1, 2008 through June 19, 2008, approximately $11.9 million of the $47.9 million, net of the unrealized loss of $0.8 million, of previously failed ARS as of May 31, 2008 have been called by the issuers at par. Therefore, we have classified $11.9 million as current marketable securities and the remaining balance of $36.0 million has been classified as noncurrent marketable securities.

We will continue to monitor our investment portfolio, and given the uncertainties in the global credit and capital markets, we are no longer investing in ARS instruments at this time, which will likely continue to reduce our investment income. We will also continue to evaluate any changes in the market value of the failed ARS that have not been liquidated subsequent to quarter-end and, depending upon existing market conditions, we may be required to record other-than-temporary impairment charges if the ratings of any of these securities are reduced or if any of the issuers default on their obligations.

Cash Flows

Operating Activities

Operating activities provided $568.4 million in cash for the first nine months of fiscal 2008 compared to providing $406.5 million for the first nine months of fiscal 2007. Included below is a summary of operating cash flows:

	Nine Months
	Ended May 31,
($ in millions)	2008		2007
Net income	$	246.9	$	305.7
Non-cash items		264.7		141.1
Changes in certain operating assets and liabilities		56.8		(40.3	)
Net cash from operating activities	$	568.4	$	406.5

For the first nine months of fiscal 2008, our non-cash items primarily consisted of a $165.7 million accrual for the estimated securities litigation loss, a $79.3 million provision for uncollectible accounts receivable, $59.1 million for depreciation and amortization, and $49.5 million for share-based compensation, partially offset by a $69.4 million increase in deferred taxes, primarily a result of the timing of deductibility related to the securities litigation matter, and $17.9 million of excess tax benefits from share-based compensation. For the first nine months of fiscal 2007, our non-cash items primarily consisted of an $83.3 million provision for uncollectible accounts receivable, $55.3 million for depreciation and amortization, and $40.8 million for share-based compensation; partially offset by a $34.8 million increase in deferred taxes.

For the first nine months of fiscal 2008, changes in certain operating assets and liabilities primarily consisted of a $58.7 million increase in student deposits, principally due to higher enrollment and a higher percentage of students receiving financial aid, and a $57.3 million increase in income taxes payable, principally due to the timing of quarterly estimated tax payments. These increases were partially offset by a $21.9 million decrease in accounts payable and accrued liabilities, primarily due to timing of payments for Internet-based advertising, and a $39.5 million increase in accounts receivable, as discussed below. For the first nine months of fiscal 2007, changes in

Page 41 of 48

certain operating assets and liabilities primarily consisted of a $102.3 million increase in accounts receivable, partially offset by a $43.2 million increase in student deposits and a $29.0 million increase in income taxes payable.

Accounts receivable is a significant component of our working capital. We monitor our accounts receivable through a variety of metrics, including days sales outstanding (“DSO”). We calculate our DSO by determining average daily student revenue based on a rolling twelve month analysis and divide it into the gross student accounts receivable balance as of the end of the period. As of May 31, 2008, our DSO was 26 days as compared to 36 days as of May 31, 2007, and 38 days as of August 31, 2007. The decrease in DSO is primarily due to improvements in our processing time for the receipt of student financial aid, the write-off of approximately $28.4 million in previously reserved uncollectible accounts receivable during the third quarter of fiscal 2008, and the seasonality we experienced in our third quarter. As a result of this seasonality, our DSO may increase in the future.

Investing Activities

Investing activities used $320.6 million in cash during the first nine months of fiscal 2008 compared to using $94.8 million in the first nine months of fiscal 2007. The fiscal 2008 amount primarily consisted of $95.0 million used to collateralize the supersedeas bond in connection with our securities class action litigation verdict, $10.5 million used for the net purchase of marketable securities, $70.3 million used for our purchase of Aptimus and Apollo Global’s purchase of UNIACC, as well as $80.2 million used for capital expenditures, of which $12.4 million related to the build-out of our new corporate headquarters building, and an increase in restricted cash and cash equivalents of $64.5 million. The fiscal 2007 amount primarily consisted of $70.4 million for capital expenditures, of which $32.1 million is related to the build-out of our new corporate headquarters building, $15.1 million used for the purchase of Insight Schools, and an increase in restricted cash and cash equivalents of $48.7 million, partially offset by net maturities of marketable securities of $39.4 million. We expect to spend $100.0 million to $110.0 million on capital expenditures in fiscal 2008.

Sale-Leaseback Option: All interests in our new headquarters land and buildings are held by wholly-owned subsidiaries formed as limited liability entities. On June 20, 2006, we entered into an option agreement (which was amended on March 7, 2007) with Macquarie Riverpoint AZ, LLC (“Macquarie”). The option agreement grants Macquarie the option to purchase all membership interests in the consolidated subsidiaries that own our new headquarters land and buildings for approximately $170.0 million and simultaneously have the owning entities enter into a 12-year lease of these facilities with us. Macquarie made a deposit of $9.0 million in connection with this option. On March 6, 2008, we provided the final completion notices to Macquarie. In March 2008, we agreed to extend the option until May 1, 2008 for additional consideration of approximately $0.3 million. With our approval, Macquarie assigned its interest under the option agreement to a third party and the option agreement was further amended to extend the exercise date to June 6, 2008. The third party did not exercise the option. As a result, the option agreement has expired and we have retained the $9.0 million option payment plus interest of $0.5 million, recorded in restricted cash and cash equivalents, with the gain deferred in accrued liabilities as of May 31, 2008. We plan to market the membership interests that own the land and buildings to other parties, but cannot predict the timing or the amount of proceeds of any such sale.

Financing Activities

Financing activities used $349.4 million of cash during the first nine months of fiscal 2008, compared to providing $7.6 million in the first nine months of fiscal 2007. The fiscal 2008 amount primarily consisted of $454.4 million used for the repurchase of 9.8 million shares of our Class A common stock, partially offset by $80.7 million received primarily for stock issued to employees related to the exercise of stock options and $17.9 million related to excess tax benefits from share-based compensation. The fiscal 2007 amount primarily consisted of $5.3 million received primarily for stock issued to employees and $2.3 million related to excess tax benefits from share-based compensation.

Contractual Obligations and Other Commercial Commitments

In addition to our previously disclosed contractual obligations and other commercial commitments at the end of fiscal 2007, unrecognized tax benefits were $54.4 million as of May 31, 2008. Based on the uncertainties associated with the settlement of these items, we are unable to make estimates of potential cash settlements, if any, with taxing authorities.

There have been no other material changes in our contractual obligations and other commercial commitments other than in the ordinary course of business since the end of fiscal year 2007, except as discussed in Item 2 of this report related to the securities litigation matter. Information regarding our contractual obligations and commercial commitments is provided in our 2007 Annual Report on Form 10-K.

Page 42 of 48

Federal Family Education Loan Program and Private Student Loans

Recently, there have been reports of various educational entities experiencing interruption of Title IV student loan funding, which includes Federal Family Education Loan Program (“FFELP”) loans guaranteed by the government. We have not experienced any significant interruptions. Recent legislation called Ensuring Continued Access to Student Loans Act (the “Act”) was signed into law in May 2008. This Act gives the U.S. Department of Education temporary authority to purchase student loans when there is inadequate capital to meet borrower demand. Additionally, the Act requires the Department of Education to implement a Lender of Last Resort (“LLR”) program to be administered by the state designated guarantor. Another alternative of Title IV loan funds would be the ability for our students to borrow from the Federal Direct Loan Program (“FDLP”) which essentially eliminates the lender and the guarantor. Under the FDLP, the federal government makes the loans directly to the students in partnership with the schools.

Private student loan funding is less than four percent of our revenue and is declining. Student eligibility is based on creditworthiness. The current credit market conditions make it more difficult for our students to obtain financing for direct costs beyond the Title IV annual loan limits established by Congress (which increased by $2,000 per academic year for undergraduate students as a result of the passage of the Act). Third-party private loans are generally utilized by students in the UPX bachelors degree programs. The fastest growing sector of our student body, UPX associates degree students, do not require private loans to cover the cost of their program as the tuition levels are below Title IV loan limits. To meet any shortfall in financing, we have been exploring the utilization of institutional grant and scholarship programs as necessary to ensure that our students who may need private loans and cannot obtain them have a method to remain enrolled.

Management does not expect a material adverse effect on our business, financial position, results of operations or cash flows to result from student access to private loans.

Recent Accounting Pronouncements

Please refer to Note 1, Basis of Presentation, in Part I, Item 1 for recent accounting pronouncements.

Page 43 of 48

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We have a long history of investing excess cash under a conservative corporate policy that only allows investments in highly rated securities, with preservation of capital and liquidity as the primary objectives. Our investment policy also limits the amount of our credit exposure to any one issue or issuer. We have historically invested a portion of our unrestricted investment portfolio in high quality (A rated and above) tax-exempt municipal securities, preferred stock and other auction-rate securities (“ARS”). ARS have historically traded on a shorter term than the underlying debt based on an auction bid that resets the interest rate of the security. The auction or reset dates occur at intervals established at the time of issuance that are generally between 7 and 35 days.

ARS “fail” when there are not enough buyers to absorb the amount of securities available for sale for that particular auction period. Historically, ARS auctions have rarely failed since the investment banks and broker dealers have been willing to purchase the security when investor demand was weak. However, beginning in mid-February 2008, due to uncertainty in the global credit and capital markets and other factors, investment banks and broker dealers have been less willing to support ARS and many ARS auctions have failed.

As of May 31, 2008, we had $48.7 million of principal invested in ARS that experienced failed auctions. Approximately $38.7 million of our ARS are invested in tax-exempt municipal bond funds, which carry triple-A credit ratings for the underlying issuer and A credit ratings or higher for the insurers from one or more of the major credit rating agencies. The remaining $10 million is invested in securities collateralized by student loans, which carry triple-A credit ratings for the underlying issuer, the highest rating issued by a rating agency, and are guaranteed by the U.S. government under the Federal Family Education Loan Program. None of the ARS held by us are mortgage-backed securities.

Due to the continued lack of liquidity for these investments and based on observable and unobservable market data, we determined that the estimated fair value of our ARS exceeded the carrying value during the third quarter of fiscal 2008. As a result, we recorded an unrealized loss of $0.8 million ($0.5 million after-tax) on our ARS as of May 31, 2008, with the offset included in accumulated other comprehensive loss. We assessed this decline in value to be temporary due to the following: (i) we believe that we have the ability and the intent to hold these securities until the market stabilizes in order to sell the securities at par, (ii) the quality of the underlying collateral, (iii) the credit quality of the issuers, and (iv) the issuers continue to pay interest in a timely manner according to their stated terms and there have been no defaults in the underlying debt.

From June 1, 2008 through June 19, 2008, approximately $11.9 million of the $47.9 million, net of the unrealized loss of $0.8 million, of previously failed ARS as of May 31, 2008 have been called by the issuers at par. Therefore, we have classified $11.9 million as current marketable securities and the remaining balance of $36.0 million has been classified as noncurrent marketable securities.

We will continue to monitor our investment portfolio, and given the uncertainties in the global credit and capital markets, we are no longer investing in ARS instruments at this time, which will likely continue to reduce our investment income. We will also continue to evaluate any changes in the market value of the failed ARS that have not been liquidated subsequent to quarter-end and, depending upon existing market conditions, we may be required to record other-than-temporary impairment charges if the ratings of any of these securities are reduced or if any of the issuers default on their obligations.

We have no significant short-term or long-term debt; therefore, we do not currently face any other significant interest rate risk.

There have been no material changes associated with the impact of inflation and concentration of credit risk from that previously disclosed in our 2007 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (the “Act”) is recorded, processed, summarized and reported within the specified time periods, and accumulated and communicated to management, including our President (Principal Executive Officer) and CFO (Principal Financial Officer), as appropriate, to allow timely decisions regarding required disclosure.

Management, under the supervision and with the participation of our President (Principal Executive Officer) and CFO (Principal Financial Officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Act), as of the end of the period covered by this report. Based on that evaluation, management concluded that, as of that date, our disclosure controls and procedures were effective at the reasonable assurance level.

Page 44 of 48

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting during the quarter ended May 31, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Page 45 of 48

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Please refer to Note 13 in Part I, Item 1 for legal proceedings.

Item 1A. Risk Factors

There have been no material changes in the risk factors previously disclosed in our 2007 Annual Report on Form 10-K.

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

We purchased approximately 9.8 million shares of our Class A common stock for a total cost of approximately $454.4 million during the three months ended May 31, 2008, as shown in the table below:

						Total Number
						of Shares
						Repurchased
						as Part of
						Publicly			Maximum Value
	Total # of			Average Price		Announced			of Shares
	Shares			Paid per		Plans or			Available for
(Numbers in thousands, except per share amounts)	Repurchased			Share		Programs			Repurchase
Treasury stock as of February 29, 2008		20,210		$	65.94		20,210		$	500,000
New authorizations		—			—		—			—
Shares repurchased		—			—		—			—
Shares reissued		(2	)		65.94		(2	)		—
Treasury stock as of March 31, 2008		20,208			65.94		20,208			500,000
New authorizations		—			—		—			—
Shares repurchased		9,665			46.31		9,665			447,534
Shares reissued		(52	)		59.58		(52	)		—
Treasury stock as of April 30, 2008		29,821			59.58		29,821			52,466
New authorizations		—			—		—			—
Shares repurchased		159			42.99		159			6,828
Shares reissued		(2	)		59.50		(2	)		—
Treasury stock as of May 31, 2008		29,978		$	59.50		29,978		$	45,638

All share repurchases were made pursuant to the publicly announced repurchase program of October 25, 2007, in which the Board of Directors authorized a stock repurchase program of up to $500 million of Apollo Group Class A common stock. There is no expiration date on our repurchase authorizations and repurchases occur at our discretion. On June 27, 2008, the Board of Directors authorized an increase in the amount available under our stock repurchase program of up to an aggregate amount of $500 million of Apollo Group Class A common stock.

We did not have any sales of unregistered equity securities during the three months ended May 31, 2008.

Item 3. Defaults Upon Senior Securities

Not Applicable.

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

None.

Item 5. Other Information

None.

Page 46 of 48

Item 6. Exhibits

APOLLO GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX

Exhibit Number		Description of Exhibit
	3.1	Amended and Restated Articles of Incorporation of Apollo Group, Inc. incorporated by reference to Annex B of Apollo Group, Inc’s Proxy Statement filed with the Securities and Exchange Commission on August 1, 2000.
	3.1a	Articles of Amendment to the Articles of Incorporation of Apollo Group, Inc., incorporated by reference to Exhibit 99.1 of Apollo Group, Inc.’s Form 8-K filed with the Securities and Exchange Commission on June 27, 2007.
	3.2	Amended and Restated Bylaws of Apollo Group, Inc. incorporated by reference to Exhibit 3.2 of Apollo Group, Inc’s Form 10-Q filed with the Securities and Exchange Commission on April 10, 2006.
	10.1	Third Amendment to Option Agreement and Joint Order to Title Company by and between Apollo Group, Inc. and Macquarie Riverpoint AZ, LLC, dated April 28, 2008.
	10.2	Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan, effective March 25, 2008 (as corrected).
	31.1	Certification of Principal Executive and Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Principal Executive and Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

Page 47 of 48

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: July 1, 2008
	By:	/s/ Joseph L. D’Amico Joseph L. D’Amico
		President, Chief Financial Officer and Treasurer
		(Principal Financial Officer and Duly Authorized Signatory)
	By:	/s/ Brian L. Swartz Brian L. Swartz
		Senior Vice President of Finance and Chief Accounting Officer
		(Principal Accounting Officer and Duly Authorized Signatory)

Page 48 of 48

EX-10.1

EXHIBIT 10.1

THIRD AMENDMENT TO OPTION AGREEMENT
AND JOINT ORDER TO TITLE COMPANY

     THIS THIRD AMENDMENT TO OPTION AGREEMENT AND JOINT ORDER TO TITLE COMPANY (the “Amendment”) is entered into this 28^th day of April, 2008 (the “Effective Date”), by and between APOLLO GROUP, INC., an Arizona corporation (“Option Grantor”) and MACQUARIE RIVERPOINT AZ, LLC, a Delaware limited liability company (the “Option Holder”).

RECITALS:

     A. Option Grantor and Option Holder are parties to that certain Option Agreement dated June 20, 2006, as amended by that certain First Amendment to Option Agreement dated March 7, 2007 and further amended by that certain Second Amendment to Option Agreement dated March 17, 2008 (as amended, the “Agreement”).

     B. Option Grantor and Option Holder have agreed to order the Title Company to release the Option Payment to Option Grantor.

     C. Option Grantor and Option Holder now desire to amend the Agreement to extend the Option Exercise Date and the Closing Date as set forth in this Amendment.

AGREEMENT:

     NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

     1. Recitals. Each of the recitals set forth above are incorporated herein as covenants and agreements of the parties hereto.

     2. Definitions. All initial capitalized terms used herein shall have the meanings ascribed thereto in the Agreement, unless otherwise specifically defined herein.

     3. Option Payment. Option Grantor and Option Holder hereby jointly order the Title Company to release the Option Payment to Option Grantor, together with any interest earned thereon accrued to the date of this Amendment (the “Accrued Interest”). The Accrued Interest shall be applied to the Purchase Price if the Option is exercised and the transaction under the Purchase and Sale Agreement is consummated in accordance with the terms thereof. Option Holder hereby waives any defenses to the release of the Option Payment existing as of the date of this Amendment, but will continue to have the right to a return of the Option Payment as the result of any Option Grantor’s default under the Agreement or the Purchase and Sale Agreement following the date of this Amendment or the failure of a condition precedent to Option Holder’s performance under the Agreement or the Purchase and Sale Agreement, which failure of the relevant condition is within the sole control of, or caused solely by Option Grantor, including, without limitation, under Section 4(d)(2), Section 4(d)(3) and Section 4(d)(5) of the Agreement and Section 5(b), Section 5(d), Section 5(f) and Section 5(g) of the Purchase and Sale Agreement.

     4. Option Exercise Date. Section 3(b)(iii) of the Agreement is hereby amended in its entirety to read as follows:

“If Option Grantor approves the assignment of the Agreement to Third Party Buyer (defined below) as evidenced by execution of the Option Assignment (defined below), Option Holder may exercise the Option by giving written notice (the “Option Exercise Notice”) of the exercise thereof to Option Grantor on or before the date that is not more than thirty (30) days following the execution of the Option Assignment, but in no event later than June 2, 2008 (the “Option Exercise Date”). Notwithstanding anything contained in the Agreement to the contrary, in no event will the Option Exercise Date be extended beyond June 2, 2008.”

     5. Closing Date. The first sentence of Section 7 of the Agreement is hereby amended in its entirety as follows:

“Upon the exercise of the Option as provided in Section 3, the closing of the transaction (the “Closing”) shall be held and delivery of all items shall be made under the terms and conditions of the Purchase and Sale Agreement through an escrow with the Title Company, on the date that is not more than ten (10) calendar days after the Option Exercise Date (the “Closing Date”).”

     6. Third Party Buyer. Not later than one (1) business day following the mutual execution and delivery of this Amendment, Option Holder shall disclose to Option Grantor in writing the identity of a party (the “Third Party Buyer”) to which Option Holder intends assign its right, title and interest under the Agreement (the “Replacement Transaction”). The written notice shall be accompanied by an organizational chart for the Third Party Buyer, a list of all affiliates (the “Third Party Affiliates”) and the name and contact information of a representative of the Third Party Buyer who Option Grantor can contact about the Replacement Transaction. Within two (2) business days following such disclosure (the “Consent Period”), Option Grantor shall determine (which determination shall be set forth in a written notice to Option Holder) whether Option Grantor consents to the assignment of the Agreement to the Third Party Buyer and which, if granted, shall constitute Option Grantor’s consent pursuant to Section 10(c) of the Agreement. Option Holder acknowledges that such consent may be given or withheld in Option Grantor’s sole discretion, and if Option Grantor fails to notify Option Holder of its approval within such two (2) business day period, Option Grantor will be deemed to have not consented to the proposed assignment to Third Party Buyer. If Option Grantor consents to the Replacement Transaction, then on or before May 2, 2008, Option Holder and Third Party Buyer shall enter into a written assignment agreement (the “Option Assignment”), evidencing the assignment by Option Holder and assumption by Third Party Buyer of the Agreement, and Option Grantor shall execute the Option Assignment for purposes of evidencing its consent to the assignment and the fact that the Agreement (as amended by this Amendment) remains in full force and effect. If (i) Option Holder fails to notify Option Grantor of the name of Third Party Buyer within one (1) business day following the execution of this Amendment, (ii) Option Grantor does not consent (or is deemed not to have consented) to the Replacement Transaction for whatever reason within two (2) business days following disclosure of the Third Party Buyer, or (iii) the Option Assignment is not executed by May 2, 2008, the Option shall be deemed to have lapsed in accordance with the terms of the Agreement and Option Holder shall have no further right to exercise the Option and Option Grantor shall have the right to retain the Option Payment. If Option Grantor does not consent (or is deemed not to have consented) to the Replacement Transaction for whatever reason, or if Option Grantor fails to consummate the Replacement Transaction on or before the date that is ten (10) days after the Option Exercise Date, Option Grantor shall be prohibited from selling, conveying or otherwise disposing of the Membership Interests or the Property to the Third Party Buyer or any of its Third Party Affiliates until January 1, 2009. The provisions of this Section 6 shall survive the release of the Option Payment to Option Grantor and the provisions relating to the prohibition on sales to the Third Party Buyer any Third Party Affiliates until January 1, 2009 shall survive the expiration of the Option.

     7. Certificated Membership Interests. At the Closing, in addition to the deliveries required by Section 7(b) of the Purchase and Sale Agreement, Option Grantor hereby agrees to deliver an amendment to each of the operating agreements for the each of the Companies that contain provisions suitable for, and allowing for, the issuance of certificated Membership Interests in each respective Company, and a copy of the certificate evidencing the Membership Interest in each Company. The Third Party Buyer wishes to obtain an Eagle 9 UCC Insurance Policy issued by the Title Company (the “UCC Policy”) for the Third Party Buyer’s ownership of the Membership Interests in form and substance reasonably satisfactory to Third Party Buyer, in the full amount of the Purchase Price, containing such endorsements as Third Party Buyer may reasonably require, and insuring that the Membership Interests are owned by Buyer and are not subject to any liens, encumbrances or other adverse interests. Option Grantor hereby agrees to cooperate with any reasonable requirements imposed by the Title Company in connection with the issuance of such a UCC Policy, provide that as the result of such cooperation, Option Grantor shall not be required to incur any costs, assume or incur any liabilities or obligations, make any representations or warranties, or fulfill any requirement that are capable of being satisfied by the Third Party Buyer. The costs of obtaining the UCC Policy shall be paid for by Third Party Buyer.

     8. Option Holder Covenants. Option Holder hereby agrees and covenants to reimburse, within thirty (30) days of Option Grantor’s receipt of invoices therefor or at the Closing, the reasonable attorneys’ fees and costs incurred by Option Grantor incurred by Option Grantor from and after April 25, 2008 in connection with the Option or the Replacement Transaction. Option Grantor shall deliver the final invoice within ninety (90) days after the Closing or termination of the Agreement. If no demand is made by such date, Option Holder’s payment obligations hereunder shall be waived and of no further force and effect.

     9. Management Fee. Section 4.3 in each Lease shall be modified to provide that the Management Fee is ¹/₂ percent (.50%) of the Fixed Rent.

     10. Miscellaneous. The parties hereto acknowledge that the Agreement remains in full force and effect, and to the extent the Option has lapsed due to the failure to exercise the Option, the same is hereby reinstated. Except as expressly modified hereby, the Agreement remains unmodified and in full force and effect. In the event of any conflict or inconsistency between the terms of this Amendment and the Agreement, the terms of this Amendment shall control. This Amendment may be executed simultaneously or in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.

     11. Counterparts. This Amendment may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by telecopy to the other party shall be effective as delivery of a manually executed counterpart of this Amendment.

[remainder of page intentionally left blank; signature page follows]

     IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

OPTION GRANTOR:

APOLLO GROUP, INC., an Arizona corporation

/s/ Joseph L. D’Amico

Joseph L. D’Amico

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

/s/ Robert Moya

Robert Moya

Secretary

OPTION HOLDER:

MACQUARIE RIVERPOINT AZ, L.L.C., a Delaware limited liability company

By: Macquarie Office (US) No. 2 Corporation, a

       Minnesota corporation, its sole member and manager

/s/ Paul Sorensen

Paul Sorensen

Vice President

ACCEPTED AND APPROVED:
Riverpoint 1/3/5 and Riverpoint 2, as signatories to the Agreement, hereby accept and approve this Amendment
RIVERPOINT LOTS 1/3/5, LLC, an Arizona limited liability company
By:	Apollo Group, Inc., its sole member and manager

/s/ Joseph L. D’Amico

Joseph L. D’Amico

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

/s/ Robert Moya

Robert Moya

Secretary

RIVERPOINT LOT 2, LLC, an Arizona limited liability company

/s/ Joseph L. D’Amico

Joseph L. D’Amico

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

/s/ Robert Moya

Robert Moya

Secretary

EX-10.2

EXHIBIT 10.2

APOLLO GROUP, INC.

AMENDED AND RESTATED
2000 STOCK INCENTIVE PLAN

ARTICLE 1

PURPOSE

     1.1 GENERAL. The Apollo Group, Inc. 2000 Stock Incentive Plan (the “Plan”) was previously approved by the Board and the Company’s shareholders. The Plan’s purpose is to promote the success and enhance the value of Apollo Group, Inc. (the “Company”) by linking the personal interests of its directors, employees, officers, and executives of, and consultants and advisors to, the Company to those of Company shareholders and by providing such individuals with an incentive for outstanding performance in order to generate superior returns to shareholders of the Company. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of directors, employees, officers, and executives of, and consultants and advisors to, the Company upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.

ARTICLE 2

EFFECTIVE DATE

     2.1 EFFECTIVE DATE. The Plan was originally effective as of August 29, 2000 (the “Effective Date”). The Plan has been amended and restated on several occasions since the Effective Date. The effective date of this amended and restated Plan is March 25, 2008.

ARTICLE 3

DEFINITIONS AND CONSTRUCTION

     3.1 DEFINITIONS. When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section or in Sections 1.1 or 2.1 unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings:

          (a) “Award” means any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Performance Share Award, or Performance-Based Award granted to a Participant under the Plan.

          (b) “Award Agreement” means any written agreement, contract, or other instrument or document evidencing an Award.

          (c) “Board” means the Board of Directors of the Company.

          (d) “Cause” means (except as otherwise provided in an Award Agreement) if the Committee, in its reasonable and good faith discretion, determines that the employee, consultant, or advisor (i) fails to substantially perform his duties (other than as a result of Disability), after the Board or the executive to which the

Participant reports delivers to the Participant a written demand for substantial performance that specifically identifies the manner in which the Participant has not substantially performed his duties; (ii) engages in willful misconduct or gross negligence that is materially injurious to the Company or a Subsidiary; (iii) breaches his duty of loyalty to the Company or a Subsidiary; (iv) unauthorized removal from the premises of the Company or a Subsidiary of a document (of any media or form) relating to the Company or a Subsidiary or the customers of the Company or a Subsidiary; or (v) has committed a felony or a serious crime involving moral turpitude.

          (e) “Change of Control” means and includes each of the following (except as otherwise provided in an Award Agreement):

               (1) there shall be consummated any consolidation or merger of the Company in which the Company is not the continuing or surviving entity, or pursuant to which Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company’s Stock immediately prior to the merger have the same proportionate ownership of beneficial interest of common stock or interests of the surviving entity immediately after the merger;

               (2) there shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets aggregating more than 80% of the assets of the Company;

               (3) the shareholders of the Company shall approve any plan or proposal for liquidation or dissolution of the Company;

               (4) any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act), other than (A) an employee benefit plan of the Company or any Subsidiary or any entity holding shares of capital stock of the Company for or pursuant to the terms of any such employee benefit plan in its role as an agent or trustee for such plan, or (B) any affiliate of the Company as of the Effective Date becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the Stock; or

               (5) during any two-year period, individuals who at the beginning of the period do not constitute a majority of the Board at the end of such period, unless the appointment or the nomination for election by the Company’s shareholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.

          (f) “Code” means the Internal Revenue Code of 1986, as amended.

          (g) “Committee” means the committee of the Board described in Article 4.

          (h) “Covered Employee” means an Employee who is a “covered employee” within the meaning of Section 162(m) of the Code.

          (i) “Disability” shall mean any illness or other physical or mental condition of a Participant which renders the Participant incapable of performing his customary and usual duties for the Company, or any medically determinable illness or other physical or mental condition resulting from a bodily injury, disease, or mental disorder that in the judgment of the Committee is permanent and continuous in nature. The Committee may require such medical or other evidence as it deems necessary to judge the nature and permanency of the Participant’s condition.

          (j) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          (k) “Fair Market Value” means, as of any relevant date, the closing price of the Stock on that date as reported on the Nasdaq Global Market (or on any other national securities exchange on which the Stock is at the time listed for trading) or, if no closing price is reported for that date, the closing price per share of Stock on the next preceding date for which a closing price was reported.

-2-

          (l) “Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

          (m) “Non-Employee Director” means a member of the Board who qualifies as a “NonEmployee Director” as defined in Rule 16b-3 (b)(3) of the Exchange Act, or any successor definition adopted by the Board.

          (n) “Non-Qualified Stock Option” means an Option that is not intended to be an Incentive Stock Option.

          (o) “Option” means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.

          (p) “Participant” means a person who, as a director, employee, officer, or executive of, or consultant or advisor providing services to, the Company or any Subsidiary, has been granted an Award under the Plan.

          (q) “Performance-Based Awards” means the Performance Share Awards, Restricted Stock Awards and Restricted Stock Unit Awards granted to selected Covered Employees pursuant to Articles 9, 10 and 11, but which are subject to the terms and conditions set forth in Article 12. All Performance-Based Awards are intended to qualify as “performance-based compensation” under Section 162(m) of the Code.

          (r) “Performance Criteria” means the criteria that the Committee selects for purposes of establishing the Performance Goals for a Participant for a Performance Period. The Performance Criteria that will be used to establish Performance Goals are limited to the following: pre-tax or after-tax net earnings or net income, sales or revenue growth, operating earnings, operating cash flows, return on net assets, return on stockholders’ equity, return on assets, return on capital, Stock price growth, stockholder returns, gross or net profit margin, earnings per share, price per share of Stock, market share, operating income, net operating income or net operating income after tax, operating profit or net operating profit, operating margin, earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, economic value-added models, cash flow objectives, cost reductions or budget objectives, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. The Committee shall, within the time prescribed by Section 162(m) of the Code, define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period for such Participant.

          (s) “Performance Goals” means, for a Performance Period, the goals established in writing by the Committee for the Performance Period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. The Committee, in its discretion, may, within the time prescribed by Section 162(m) of the Code, adjust or modify the calculation of Performance Goals for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (i) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development or (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles or business conditions.

          (t) “Performance Period” means the one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance-Based Award.

-3-

          (u) “Performance Share” means a right granted to a Participant under Article 9, to receive cash, Stock, or other Awards, the payment of which is contingent upon achieving certain Performance Goals established by the Committee.

          (v) “Plan” means the Apollo Group, Inc. 2000 Stock Incentive Plan, as amended and restated.

          (w) “Restricted Stock Award” means Stock granted to a Participant under Article 10 that is subject to certain restrictions and to risk of forfeiture.

          (x) “Restricted Stock Unit Award” means restricted stock units awarded to a Participant under Article 11 which will entitle the Participant to receive the shares of Stock underlying such Award upon the attainment of designated performance objectives (which may, but need not, include one or more Performance Goals) or the satisfaction of specified employment or service requirements or upon the expiration of a designated time period following the vesting of such Award.

          (y) “Stock” means Apollo Education Group Class A common stock and such other securities of the Company that may be substituted for such stock, pursuant to Article 14.

          (z) “Stock Appreciation Right” or “SAR” means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a share of Stock as of the date of exercise of the SAR over the grant price of the SAR, all as determined pursuant to Article 8.

          (aa) “Subsidiary” means any corporation or other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company.

ARTICLE 4

ADMINISTRATION

     4.1 COMMITTEE. The Plan shall be administered solely and exclusively by a Committee appointed by, and serving at the discretion of, the Board. The Committee shall consist of at least three (3) members, each of whom shall qualify as (i) a Non-Employee Director) and (ii) an “outside director” under Code Section 162(m) and the regulations issued thereunder.

     4.2 ACTION BY THE COMMITTEE. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

     4.3 AUTHORITY OF COMMITTEE. Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to:

          (a) Designate Participants to receive Awards;

          (b) Determine the type or types of Awards to be granted to each Participant;

          (c) Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate;

-4-

          (d) Determine the terms and conditions of any Award granted under the Plan including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines; provided, however, that the Committee shall not have the authority to accelerate the vesting or waive the forfeiture of any Performance-Based Awards;

          (e) Amend, modify, or terminate any outstanding Award, with the Participant’s consent unless the Committee has the authority to amend, modify, or terminate an Award without the Participant’s consent under any other provision of the Plan.

          (f) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

          (g) Prescribe the form of each Award Agreement, which need not be identical for each Participant;

          (h) Decide all other matters that must be determined in connection with an Award;

          (i) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan; and

          (j) Make all other decisions and determinations that may be required under the Plan or as the Committee deems necessary or advisable to administer the Plan.

     4.4 DECISIONS BINDING. The Committee’s interpretation of the Plan, any Awards granted under the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.

ARTICLE 5

SHARES SUBJECT TO THE PLAN

     5.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 14.1, the aggregate number of shares of Stock reserved and available for grant under the Plan shall be 24,079,228 (which number takes into account all stock splits from the Effective Date through January 30, 2008 and after the conversion of the University of Phoenix Online common stock into the Stock). Such authorized share reserve includes an increase of 5,000,000 shares authorized by the Board on March 24, 2008 and approved by the holders of the Company’s Class B common stock, the Company’s only outstanding voting stock, on March 25, 2008.

     5.2 LAPSED AWARDS. To the extent that an Award terminates, expires, or lapses for any reason, any shares of Stock subject to the Award will again be available for the grant of an Award under the Plan.

     5.3 STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market.

     5.4 LIMITATION ON NUMBER OF SHARES SUBJECT TO AWARDS. Notwithstanding any provision in the Plan to the contrary, and subject to adjustment as provided in Section 14.1, the maximum aggregate number of shares of Stock with respect to one or more Awards that may be granted to any one Participant during the Company’s fiscal year shall be one million (1,000,000).

-5-

ARTICLE 6

ELIGIBILITY AND PARTICIPATION

     6.1 ELIGIBILITY.

          (a) GENERAL. Persons eligible to participate in this Plan include all directors, employees, officers, and executives of, and consultants and advisors to, the Company or a Subsidiary, as determined by the Committee.

          (b) FOREIGN PARTICIPANTS. In order to assure the viability of Awards granted to Participants employed in foreign countries, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements, or alternative versions of the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such supplements, amendments, restatements, or alternative versions shall increase the share limitations contained in Section 5.1 of the Plan.

     6.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from among all eligible individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual shall have any right to be granted an Award under this Plan.

ARTICLE 7

STOCK OPTIONS

     7.1 GENERAL. The Committee is authorized to grant Options to Participants on the following terms and conditions:

          (a) EXERCISE PRICE. The exercise price per share of Stock under an Option shall be determined by the Committee and set forth in the Award Agreement; provided, however, that in no event shall the exercise price per share for any Option be less than the Fair Market Value per share of Stock on the actual grant date of that Option.

          (b) TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part. The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised. Unless otherwise provided in an Award Agreement, an Option will lapse immediately if a Participant’s employment or services are terminated for Cause.

          (c) PAYMENT. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, cash, promissory note, shares of Stock (through actual tender or by attestation), or other property (including broker-assisted “cashless exercise” arrangements), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants.

          (d) EVIDENCE OF GRANT. All Options shall be evidenced by a written Award Agreement between the Company and the Participant. The Award Agreement shall include such additional provisions as may be specified by the Committee.

     7.2 INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be granted only to employees and the terms of any Incentive Stock Options granted under the Plan must comply with the following additional rules:

-6-

          (a) EXERCISE PRICE. The exercise price per share of Stock shall be set by the Committee, provided that the exercise price for any Incentive Stock Option may not be less than the Fair Market Value as of the date of the grant.

          (b) EXERCISE. In no event may any Incentive Stock Option be exercisable for more than ten years from the date of its grant.

          (c) LAPSE OF OPTION. An Incentive Stock Option shall lapse under the following circumstances.

               (1) The Incentive Stock Option shall lapse ten years from the date it is granted, unless an earlier time is set in the Award Agreement.

               (2) The Incentive Stock Option shall lapse upon termination of employment for Cause or for any other reason, other than the Participant’s death or Disability, unless otherwise provided in the Award Agreement.

               (3) If the Participant terminates employment on account of Disability or death before the Option lapses pursuant to paragraph (1) or (2) above, the Incentive Stock Option shall lapse, unless it is previously exercised, on the earlier of (i) the date on which the Option would have lapsed had the Participant not become Disabled or lived and had his employment status (i.e., whether the Participant was employed by the Company on the date of his Disability or death or had previously terminated employment) remained unchanged; or (ii) 12 months after the date of the Participant’s termination of employment on account of Disability or death. Upon the Participant’s Disability or death, any Incentive Stock Options exercisable at the Participant’s Disability or death may be exercised by the Participant’s legal representative or representatives, by the person or persons entitled to do so under the Participant’s last will and testament, or, if the Participant fails to make testamentary disposition of such Incentive Stock Option or dies intestate, by the person or persons entitled to receive the Incentive Stock Option under the applicable laws of descent and distribution.

          (d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of the time an Award is made) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000.00 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options.

          (e) TEN PERCENT OWNERS. An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of Stock of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant.

          (f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an Incentive Stock Option may be made pursuant to this Plan after the tenth anniversary of the Effective Date.

          (g) RIGHT TO EXERCISE. During a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant.

ARTICLE 8

STOCK APPRECIATION RIGHTS

     8.1 GRANT OF SARS. The Committee is authorized to grant SARs to Participants on the following terms and conditions:

-7-

          (a) RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation Right, the Participant to whom it is granted has the right to receive the excess, if any, of:

               (1) The Fair Market Value of a share of Stock on the date of exercise; over

               (2) The exercise price per share of the Stock Appreciation Right as determined by the Committee, which shall in no event be less than the Fair Market Value per share of Stock on the actual grant date of that Stock Appreciation Right.

          (b) OTHER TERMS. All awards of Stock Appreciation Rights shall be evidenced by an Award Agreement. The terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of any Stock Appreciation Right shall be determined by the Committee at the time of the grant of the Award and shall be reflected in the Award Agreement.

ARTICLE 9

PERFORMANCE SHARES

     9.1 GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant Performance Shares to Participants on such terms and conditions as may be selected by the Committee. The Committee shall have the complete discretion to determine the number of Performance Shares granted to each Participant. All Awards of Performance Shares shall be evidenced by an Award Agreement.

-8-

     9.2 RIGHT TO PAYMENT. A grant of Performance Shares gives the Participant rights, valued as determined by the Committee, and payable to, or exercisable by, the Participant to whom the Performance Shares are granted, in whole or in part, as the Committee shall establish at grant or thereafter. The Committee shall set performance goals and other terms or conditions to payment of the Performance Shares in its discretion which, depending on the extent to which they are met, will determine the number and value of Performance Shares that will be paid to the Participant.

     9.3 OTHER TERMS. Performance Shares may be payable in cash, Stock, or other property, and have such other terms and conditions as determined by the Committee and reflected in the Award Agreement.

ARTICLE 10

RESTRICTED STOCK AWARDS

     10.1 GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards of Restricted Stock to Participants in such amounts and subject to such terms and conditions as determined by the Committee. All Awards of Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.

     10.2 ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.

     10.3 FORFEITURE. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited, provided, however, that the Committee may provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.

     10.4 CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine, if certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.

ARTICLE 11

RESTRICTED STOCK UNIT AWARDS

     11.1 GRANT OF RESTRICTED STOCK UNIT AWARDS. The Committee is authorized to grant Restricted Stock Unit Awards to Participants on such terms and conditions as may be selected by the Committee. The Committee shall have the complete discretion to determine the number of restricted stock units subject to each such Award. All Restricted Stock Unit Awards shall be evidenced by an Award Agreement.

     11.2 VESTING AND ISSUANCE PROVISIONS.

          (a) Shares of Stock issued pursuant to Restricted Stock Unit Awards may, in the discretion of the Committee, entitle the Participants to receive the shares of Stock underlying those Awards upon the attainment of designated performance objectives (which may, but need not, include one or more Performance Goals) or the satisfaction of specified employment or service requirements or upon the expiration of a designated time period or the occurrence of a designated event following the vesting of the Award , including (without limitation) a deferred

-9-

distribution date following the termination of the Participant’s employment or service. The vesting and issuance provisions applicable to each Restricted Stock Unit Award shall be set forth in the Award Agreement.

          (b) The Committee shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more Restricted Stock Unit Awards so that the shares of Common Stock subject to those Awards shall vest upon the achievement of pre-established corporate performance objectives based on one or more Performance Goals and measured over the performance period specified by the Committee at the time of the Award.

          (c) The Participant shall not have any stockholder rights with respect to the shares of Stock subject to a Restricted Stock Unit Award until that Award vests and the shares of Stock are actually issued thereunder. However, dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of Stock, on outstanding Restricted Stock Unit Awards, subject to such terms and conditions as the Committee may deem appropriate.

          (d) Outstanding Restricted Stock Unit Awards shall automatically terminate, and no shares of Stock shall actually be issued in satisfaction of those Awards, if the performance goals or employment or service requirements established for those Awards are not attained or satisfied. The Committee, however, shall have the discretionary authority to issue vested shares of Common Stock under one or more outstanding Restricted Stock Unit Awards as to which the designated performance goals or employment or service requirements have not been attained or satisfied. However, no vesting requirements tied to the attainment of Performance Goals may be waived with respect to Awards which were intended, at the time those Awards were made, to qualify as performance-based compensation under Code Section 162(m), except as otherwise provided in Section 11.2(e) or Section 13.8.

-10-

          (e) Each Restricted Stock Unit Award outstanding at the time of a Change in Control shall vest at that time, and the shares of Stock subject to those restricted stock units shall be issued as soon as administratively practicable following the closing of the Change in Control transaction, subject to the Company’s collection of all applicable withholding taxes, or shall otherwise be converted into the right to receive the same consideration per share of Stock payable to the actual holders of the Stock in consummation of the Changer in Control and distributed at the same time as those stockholder payments. Such automatic vesting of the Restricted Stock Unit Awards shall occur pursuant to this Section 11.(e), even though such acceleration may result in their loss of performance-based status under Code Section 162(m).

ARTICLE 12

PERFORMANCE-BASED AWARDS

     12.1 PURPOSE. The purpose of this Article 12 is to provide the Committee the ability to qualify the Performance Share Awards under Article 9, the Restricted Stock Awards under Article 10 and the Restricted Stock Unit Awards under Article 11 as “performance-based compensation” under Section 162(m) of the Code. If the Committee, in its discretion, decides to grant a Performance-Based Award to a Covered Employee, the provisions of this Article 12 shall control over any contrary provision contained in Articles 9, 10 or 11.

     12.2 APPLICABILITY. This Article 12 shall apply only to those Covered Employees selected by the Committee to receive Performance-Based Awards. The Committee may, in its discretion, grant Restricted Stock Awards, Performance Share Awards or Restricted Stock Unit Awards to Covered Employees that do not satisfy the requirements of this Article 12. The designation of a Covered Employee as a Participant for a Performance Period shall not in any manner entitle the Participant to receive an Award for the period. Moreover, designation of a Covered Employee as a Participant for a particular Performance Period shall not require designation of such Covered Employee as a Participant in any subsequent Performance Period and designation of one Covered Employee as a Participant shall not require designation of any other Covered Employees as a Participant in such period or in any other period.

     12.3 DISCRETION OF COMMITTEE WITH RESPECT TO PERFORMANCE AWARDS. With regard to a particular Performance Period, the Committee shall have full discretion to select the length of such Performance Period, the type of Performance-Based Awards to be issued, the kind and/or level of the Performance Goal, and whether the Performance Goal is to apply to the Company, a Subsidiary or any division or business unit thereof.

     12.4 PAYMENT OF PERFORMANCE AWARDS. Unless otherwise provided in the relevant Award Agreement, a Participant must be employed by the Company or a Subsidiary on the last day of the Performance Period to be eligible for a Performance Award for such Performance Period. Furthermore, a Participant shall be eligible to receive payment under a Performance-Based Award for a Performance Period only if the Performance Goals for such

-11-

period are achieved. In determining the actual size of an individual Performance-Based Award, the Committee may reduce or eliminate the amount of the Performance-Based Award earned for the Performance Period, if in its sole and absolute discretion, such reduction or elimination is appropriate.

     12.5 MAXIMUM AWARD PAYABLE. The aggregate maximum Performance-Based Award payable to any one Participant under the Plan for Performance Period is one million (1,000,000) shares of Stock, subject to adjustment as provided in Section 14.1. In the event the Performance-Based Award is paid in cash, such maximum Performance-Based Award shall be determined by multiplying one million (1,000,000), subject to adjustment as provided in Section 14.1, by the Fair Market Value of one share of the applicable Stock as of the date of grant of the Performance-Based Award.

ARTICLE 13

PROVISIONS APPLICABLE TO AWARDS

     13.1 STAND-ALONE AND TANDEM AWARDS. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other Award granted under the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

     13.2 EXCHANGE PROVISIONS. The Committee may at any time offer to exchange or buy out any previously granted Award for a payment in cash, Stock, or another Award, based on the terms and conditions the Committee determines and communicates to the Participant at the time the offer is made.

     13.3 TERM OF AWARD. The term of each Award shall be for the period as determined by the Committee, provided that in no event shall the term of any Incentive Stock Option or a Stock Appreciation Right granted in tandem with the Incentive Stock Option exceed a period of ten years from the date of its grant.

     13.4 FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any applicable law or Award Agreement, payments or transfers to be made by the Company or a Subsidiary on the grant or exercise of an Award may be made in such forms as the Committee determines at or after the time of grant, including without limitation, cash, promissory note, Stock, other Awards, or other property, or any combination, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case determined in accordance with rules adopted by and at the discretion of, the Committee.

     13.5 LIMITS ON TRANSFER. No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary. Except as otherwise provided by the Committee, no Award shall be assignable or transferable by a Participant other than by will or the laws of descent and distribution.

     13.6 BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married, a designation of a person other than the Participant’s spouse as his beneficiary with respect to more than 50% of the Participant’s interest in the Award shall not be effective without the written consent of the Participant’s spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto under the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.

-12-

     13.7 STOCK CERTIFICATES. All Stock certificates delivered under the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with Federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on with the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock.

     13.8 ACCELERATION UPON A CHANGE OF CONTROL. If a Change of Control occurs, all outstanding Options, Stock Appreciation Rights, and other Awards that relate to the grant of Stock shall become fully exercisable and all restrictions on such outstanding Awards shall lapse. Shares subject to outstanding Restricted Stock Unit Awards or Performance Share Awards shall vest and become immediately issuable at the closing of such Change in Control (or shall otherwise be converted into the right to receive the same consideration per share of Stock payable to the actual holders of the Stock in consummation of the Changer in Control and distributed at the same time as those stockholder payments). To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options. Upon, or in anticipation of, such an event, the Committee may cause every Award outstanding hereunder to terminate at a specific time in the future and shall give each Participant the right to exercise such Awards during a period of time as the Committee, in its sole and absolute discretion, shall determine.

ARTICLE 14

CHANGES IN CAPITAL STRUCTURE

     14.1 GENERAL. In the event stock dividend is declared upon the Stock, the number of shares of Stock subject to the Plan and subject to each outstanding Award shall be increased proportionately, and the exercise price or issue price per share (if any) in effect for that Award shall also be equitably adjusted to reflect such stock dividend: provided, however, that that the aggregate exercise price or issue price shall remain the same. Should any change be made to the outstanding Stock by reason of any stock split or split-up, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the outstanding Stock as a class effected without the Company’s receipt of consideration, or should the value of outstanding shares of Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the Committee to the number and/or class of securities issuable under the Plan, the maximum number and/or class of securities for which Awards may be made to any one Participant and the number and/or class of securities subject to each outstanding Award and the exercise price or issue per share (if any) in effect for that Award in such manner as the Committee deems appropriate to preclude the dilution or enlargement of rights under such Award, and such adjustments shall be final, binding and conclusive; provided, however, that in the event of a Change of Control, the adjustments (if any) shall be made in accordance with the applicable provisions of Section 13.8 governing Change of Control transactions. Notwithstanding the above, the conversion of any convertible securities of the Company shall not be deemed to have been “effected without the Company’s receipt of consideration.

ARTICLE 15

AMENDMENT, MODIFICATION, AND TERMINATION

     15.1 AMENDMENT, MODIFICATION, AND TERMINATION. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required.

     15.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant.

-13-

ARTICLE 16

GENERAL PROVISIONS

     16.1 NO RIGHTS TO AWARDS. No Participant, employee, or other person shall have any claim to be granted any Award under the Plan, and neither the Company nor the Committee is obligated to treat Participants, employees, and other persons uniformly.

     16.2 NO SHAREHOLDER RIGHTS. No Award gives the Participant any of the rights of a shareholder of the Company unless and until shares of Stock are in fact issued to such person in connection with such Award.

     16.3 WITHHOLDING. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any taxable event arising as a result of this Plan. With the Committee’s consent, a Participant may elect to have the Company withhold from the

-14-

Stock that would otherwise be received upon the exercise of any Option or Stock Appreciation Right or the issuance of Stock pursuant to any vested Restricted Stock Unit Award, a number of shares of Stock having a Fair Market Value equal to the minimum statutory amount necessary to satisfy the Participant’s applicable federal, state, local and foreign income and employment tax withholding obligations with respect to such exercise or issuance.

     16.4 NO RIGHT TO EMPLOYMENT OR SERVICES. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary.

     16.5 UNFUNDED STATUS OF AWARDS. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.

     16.6 INDEMNIFICATION. To the extent allowable under applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act under the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

     16.7 RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary.

     16.8 EXPENSES. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.

     16.9 TITLES AND HEADINGS. The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

     16.10 FRACTIONAL SHARES. No fractional shares of stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.

     16.11 SECURITIES LAW COMPLIANCE. With respect to any person who is, on the relevant date, obligated to file reports under Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be void to the extent permitted by law and voidable as deemed advisable by the Committee.

     16.12 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register under the Securities Act of 1933, as amended, any of the shares of Stock paid under the Plan. If the shares paid under the Plan may in certain circumstances be exempt from registration under the Securities Act of 1933, as amended, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption.

-15-

     16.13 GOVERNING LAW. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Arizona.

-16-

EX-31.1

EXHIBIT 31.1

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

I, Joseph L. D’Amico, 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(s) 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(s) 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 the 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: July 1, 2008

/s/ Joseph L. D’Amico Joseph L. D’Amico

President, Chief Financial Officer and Treasurer

(Principal Executive and Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

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 May 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph L. D’Amico, President, Chief Financial Officer 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: July 1, 2008

/s/ Joseph L. D’Amico Joseph L. D’Amico

President, Chief Financial Officer and Treasurer

(Principal Executive and Principal Financial Officer)

     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.