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Apollo Group, Inc. Reports Fiscal 2009 First Quarter Results

First quarter revenue increases approximately 24% year-over-year First quarter operating income grows 40% year-over-year Degreed Enrollment reaches 384,900 during the first quarter, an 18% increase year-over-year First quarter New Degreed Enrollment increases nearly 26% year-over-year

PHOENIX--(BUSINESS WIRE)--Jan. 8, 2009--Apollo Group, Inc. (Nasdaq: APOL) ("Apollo Group," "Apollo" or "the Company") today reported financial results for the three months ended November 30, 2008.

Unaudited First Quarter of Fiscal 2009 Results of Operations

Consolidated revenues for the three months ended November 30, 2008, totaled $971.0 million, which represents a 24.4% increase over the first quarter of fiscal 2008. Total Degreed Enrollment in the first quarter grew by 18.4% year-over-year to 384,900. The Company reported net income for the three months ended November 30, 2008, of $180.4 million, or $1.12 per share (160.8 million weighted average diluted shares outstanding), compared to net income of $139.9 million, or $0.83 per share (169.3 million weighted average diluted shares outstanding) for the three months ended November 30, 2007.

"Our year-end momentum carried into the first quarter of fiscal 2009 as we continue to benefit from the significant investments we have made over the past several years and we are very pleased with our results," said Chas Edelstein, Chief Executive Officer of Apollo Group. "We reported year-over-year operating income growth of approximately 40% on 24% revenue growth, and Degreed Enrollment reached a record 384,900 students during the quarter. While we cannot quantify the significance of the current economy on our growth, we believe we are experiencing a positive impact, and we continue to generate meaningful cash flow. Additionally, our growth is directly impacted by the efforts of our thousands of employees and faculty who are dedicated to providing great academic service and support to our students."

Mr. Edelstein continued, "Our flagship University of Phoenix contributed significantly to our results, and we are very pleased with the continued growth in bachelor degree seeking students, which is an important market for us. In the first quarter, new degreed enrollment of bachelor students grew close to 20% over the prior year. We are making progress in our other investment areas as well including our online high school, Insight Schools and Apollo Global."

In conclusion, Mr. Edelstein stated, "We remain optimistic about Apollo Group's future. We have a strong balance sheet as well as solid operational and academic teams, putting us in a good position to further execute on our strategy and generate long-term shareholder value."

Instructional costs and services increased by $44.0 million, or 13.2% to $377.3 million for the three months ended November 30, 2008, from $333.3 million in the three months ended November 30, 2007. As a percentage of net revenue, instructional costs and services declined 380 basis points to 38.9% versus 42.7% in the prior year quarter. A predominant contributor to the decline was savings from lower negotiated contract costs from third-party vendors, particularly in financial aid processing where costs declined 140 basis points as a percentage of net revenue. Additionally, the Company continues to benefit from lower classroom lease expenses and depreciation as a percentage of net revenue. Bad debt expense declined 60 basis points as a percentage of net revenue, primarily due to a continued focus on front end collection efforts and improved student retention rates. As compared to the fourth quarter of fiscal 2008, bad debt expense increased 60 basis points, as a percentage of net revenue, due, in part, to the risk of collecting aged receivables given the current economic environment.

Selling and promotional expenses increased by $51.7 million, or 29.2%, to $228.6 million for the three months ended November 30, 2008, from $176.9 million in the three months ended November 30, 2007. As a percentage of net revenue, selling and promotional expenses increased 90 basis points to 23.5%, from 22.6% in the prior year's first quarter. This was mainly a result of an 80 basis point increase in other selling and promotional expenses principally driven by increases in the Company's corporate marketing function, including additional employees. The Company continues to invest in marketing to build greater brand identity as well as to drive and support future enrollment growth.

General and administrative ("G&A") expenses for the three months ended November 30, 2008, increased by $6.9 million, or 13.5%, to $58.2 million, from $51.3 million in the three months ended November 30, 2007. G&A, as a percentage of net revenue, decreased to 6.0% in the first quarter of 2009, versus 6.6% in the comparable period a year ago. The 60 basis point decline is mainly attributable to a decrease in legal costs, share-based compensation expense, and other G&A expense, somewhat offset by higher employee compensation expense, as a percentage of net revenue.

Financial and Operating Metrics

Below are Apollo Group's unaudited financial data and operating metrics for the first quarter of fiscal 2009.


                                                              Q1 2009

Revenues (in thousands)

     Degree Seeking Gross Revenues (1)                        $ 944,356

     Less: Discounts and other                                  (42,870 )

     Degree Seeking Net Revenues (1)                            901,486

     Non-degree Seeking Revenues (2)                            9,281

     Other, net of discounts (3)                                60,200

                                                              $ 970,967

Revenue by Degree Type (in thousands) (1)

     Associates                                               $ 327,935

     Bachelors                                                  401,633

     Masters                                                    197,800

     Doctoral                                                   16,988

     Less: Discounts and other                                  (42,870 )

                                                              $ 901,486

Degreed Enrollment (rounded to hundreds)(4)

     Associates                                                 161,800

     Bachelors                                                  146,800

     Masters                                                    69,800

     Doctoral                                                   6,500

                                                                384,900

Degree Seeking Gross Revenues per Degreed Enrollment (1) (4)

     Associates                                               $ 2,027

     Bachelors                                                  2,736

     Masters                                                    2,834

     Doctoral                                                   2,614

     All degrees (after discounts)                              2,342

New Degreed Enrollments (rounded to hundreds)(5)

     Associates                                                 45,800

     Bachelors                                                  26,100

     Masters                                                    13,300

     Doctoral                                                   1,100

                                                                86,300

     Represents revenue from students enrolled in University of Phoenix degree
     programs and Western International University associate's degree programs.
(1)  Also includes revenue from students participating in University of Phoenix
     certificate programs of at least 18 credit hours in length with some
     course applicability into a related degree program.

     Represents revenue from students participating in University of Phoenix
(2)  certificate programs less than 18 hours in length, certificate programs
     with no applicability into a related degree program, single courses and
     continuing education courses.

     Represents revenues from IPD, CFP, Western International University
(3)  (excluding associate's degree students), Insight Schools, Apollo Global
     and other.

     Represents individual students enrolled in a University of Phoenix degree
     program or Western International University associate's degree program who
     attended a course during the quarter and did not graduate as of the end of
     the quarter. Degreed Enrollment for a quarter also includes any student
     who previously graduated from one degree program and started a new
(4)  University of Phoenix degree program in the quarter (for example, a
     graduate of the associate's degree program returns for a bachelor's degree
     or a bachelor's degree graduate returns for a master's degree). In
     addition, Degreed Enrollment includes students participating in University
     certificate programs of at least 18 credit hours in length with some
     course applicability into a related degree program.

     Represents any individual student enrolled in a University of Phoenix
     degree program who is a new student and started a course in the quarter,
     any individual student who previously graduated from one degree program
     and started a new degree program in the quarter (for example, a graduate
     of an associate's degree program returns for a bachelor's degree program,
(5)  or a graduate of a bachelor's degree program returns for a master's degree
     program), as well as any individual student who started a program in the
     quarter and had been out of attendance for greater than 12 months. In
     addition, New Degreed Enrollment includes students who in the quarter
     started participating in University of Phoenix certificate programs of at
     least 18 credit hours in length with some applicability into related
     degree programs.



Unaudited Balance Sheet

As of November 30, 2008, the Company's cash, cash equivalents, and marketable securities, excluding restricted cash, totaled $821.3 million as compared to $511.5 million as of August 31, 2008. Restricted cash and student deposits increased by approximately $58.6 million and $42.1 million since August 31, 2008, respectively. These increases were primarily due to increased student enrollment and to increases in Title IV funds available to students.

At November 30, 2008, accounts receivable declined to $200.7 million from $221.9 million at August 31, 2008. Excluding accounts receivable and the associated revenue for Apollo Global, the Company's days sales outstanding ("DSO") declined to 26 days at November 30, 2008 as compared to 35 days at November 30, 2007, and 29 days at August 31, 2008. The decrease in DSO is primarily due to improvements in processing time for the receipt of student financial aid.

Total deferred revenue at November 30, 2008, decreased to $217.7 million from $231.3 million at August 31, 2008. The decrease is seasonal in nature and consistent with the Company's enrollment growth.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 5:00 PM Eastern, 3:00 PM Phoenix time, today, Thursday, January 8, 2009. The call may be accessed by dialing (877) 292-6888 (domestic) or (973) 200-3381 (international). The conference ID number is 77185340. A live webcast of this event may be accessed by visiting the Company's website at www.apollogrp.edu. A replay of the call will be available on the website or at (706) 645-9291 (conf. ID # 77185340) until January 16, 2009.

About Apollo Group, Inc.

Apollo Group, Inc. has been an education provider for more than 30 years, providing academic access and opportunity to students through its subsidiaries, University of Phoenix, Institute for Professional Development, College for Financial Planning, Western International University, Meritus University, Insight Schools and Apollo Global. The Company's distinctive educational programs and services are provided at the high school, undergraduate, graduate and doctoral levels in 40 states and the District of Columbia; Puerto Rico; Alberta and British Columbia, Canada; Mexico; Chile; and the Netherlands, as well as online throughout the world (data as of November 30, 2008).

For more information about Apollo Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the Company's website at www.apollogrp.edu.

Forward-Looking Safe Harbor

Statements in this press release regarding Apollo Group's business outlook, future financial and operating results, future enrollment, and overall future strategy and plans, are forward-looking statements, and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual results may differ materially from those projected in such statements due to various factors. For a discussion of the various factors that may cause actual results to differ materially from those projected, please refer to the risk factors and other disclosures contained in Apollo Group's previously filed Form 10-K, Forms 10-Q, and other filings with the Securities and Exchange Commission.


Apollo Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

                                                  As of

                                                  November 30,    August 31,

($ in thousands)                                    2008            2008

Assets:

Current assets

Cash and cash equivalents                         $ 796,902       $ 483,195

Restricted cash and cash equivalents                442,762         384,155

Marketable securities, current portion              1,397           3,060

Accounts receivable, net                            200,695         221,919

Deferred tax assets, current portion                51,696          55,434

Other current assets                                26,446          21,780

Total current assets                                1,519,898       1,169,543

Property and equipment, net                         442,477         439,135

Marketable securities, less current portion         23,001          25,204

Goodwill                                            81,757          85,968

Intangible assets, net                              17,625          23,096

Deferred tax assets, less current portion           102,145         89,499

Other assets                                        29,691          27,967

Total assets                                      $ 2,216,594     $ 1,860,412

Liabilities and Shareholders' Equity:

Current liabilities

Accounts payable                                  $ 54,796        $ 46,589

Accrued liabilities                                 131,182         121,200

Current portion of long-term liabilities            45,178          47,228

Income taxes payable                                116,721         6,111

Student deposits                                    455,438         413,302

Current portion of deferred revenue                 217,710         231,179

Total current liabilities                           1,021,025       865,609

Deferred revenue, less current portion              7               104

Deferred tax liabilities                            2,139           2,743

Long-term liabilities, less current portion         144,831         145,791

Total liabilities                                   1,168,002       1,014,247

Commitments and contingencies

Minority Interest                                   11,851          11,956

Shareholders' equity

Preferred stock, no par value                       -               -

Apollo Group Class A nonvoting common stock, no     103             103
par value

Apollo Group Class B voting common stock, no par    1               1
value

Additional paid-in capital                          559             -

Apollo Group Class A treasury stock, at cost        (1,725,408 )    (1,757,277 )

Retained earnings                                   2,777,084       2,595,340

Accumulated other comprehensive loss                (15,598    )    (3,958     )

Total shareholders' equity                          1,036,741       834,209

Total liabilities and shareholders' equity        $ 2,216,594     $ 1,860,412




Apollo Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

                                                  Three Months Ended

                                                  November 30,

(in thousands, except per share data)             2008          2007

Net revenue                                       $ 970,967     $ 780,674

Costs and expenses:

Instructional costs and services                    377,296       333,289

Selling and promotional                             228,585       176,909

General and administrative                          58,221        51,281

Total costs and expenses                            664,102       561,479

Income from operations                              306,865       219,195

Interest income and other, net                      1,516         9,650

Income before income taxes and minority interest    308,381       228,845

Provision for income taxes                          (128,073 )    (88,980 )

Minority interest, net of tax                       52            -

Net income                                        $ 180,360     $ 139,865

Earnings per share:

Basic income per share                            $ 1.13        $ 0.84

Diluted income per share                          $ 1.12        $ 0.83

Basic weighted average shares outstanding           159,138       167,036

Diluted weighted average shares outstanding         160,762       169,289




Apollo Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

                                                     Three Months Ended

                                                     November 30,

                                                     2008         2007

($ in thousands)

Cash flows provided by (used in) operating
activities:

Net income                                           $ 180,360    $ 139,865

Adjustments to reconcile net income to net cash
provided by operating activities:

Share-based compensation                               15,119       14,924

Excess tax benefits from share-based compensation      (3,950  )    (13,165  )

Depreciation and amortization                          22,897       18,134

Amortization of deferred gain on sale-leaseback        (397    )    (446     )

Non-cash foreign currency losses, net                  2,467        -

Provision for uncollectible accounts receivable        34,857       32,385

Minority interest, net of tax                          (52     )    -

Deferred income taxes                                  (8,776  )    (2,665   )

Changes in assets and liabilities, excluding the
impact of acquisitions:

Accounts receivable                                    (21,142 )    (26,760  )

Other assets                                           (6,998  )    (4,229   )

Accounts payable and accrued liabilities               14,666       (29,657  )

Income taxes payable                                   113,475      84,791

Student deposits                                       42,136       1,854

Deferred revenue                                       (8,182  )    (7,368   )

Other liabilities                                      4,316        175

Net cash provided by operating activities              380,796      207,838

Cash flows provided by (used in) investing
activities:

Additions to property and equipment                    (30,646 )    (18,873  )

Additions to land and buildings related to new         -            (5,241   )
headquarters

Acquisitions, net of cash acquired                     -            (47,033  )

Purchase of marketable securities                      -            (396,660 )

Maturities of marketable securities                    1,660        401,660

Increase in restricted cash and cash equivalents       (58,607 )    (2,285   )

Net cash used in investing activities                  (87,593 )    (68,432  )

Cash flows provided by (used in) financing
activities:

Payments on borrowings                                 (11,564 )    -

Proceeds from borrowings                               13,126       -

Issuance of Apollo Group Class A common stock          18,333       50,848

Class A common stock purchased for treasury            (2,505  )    -

Excess tax benefits from share-based compensation      3,950        13,165

Net cash provided by financing activities              21,340       64,013

Exchange rate effect on cash and cash equivalents      (836    )    (610     )

Net increase in cash and cash equivalents              313,707      202,809

Cash and cash equivalents, beginning of period         483,195      339,319

Cash and cash equivalents, end of period             $ 796,902    $ 542,128

Supplemental disclosure of cash flow information

Cash paid during the period for income taxes         $ 19,270     $ 6,870

Cash paid during the period for interest             $ 734        $ 77

Supplemental disclosure of non-cash investing and
financing activities

Credits received for tenant improvements             $ 2,117      $ 1,634

Purchases of property and equipment included in      $ 4,838      $ 6,207
accounts payable

Settlement and reclassification of liability awards  $ -          $ 16,340

Restricted stock units vested and released           $ 7,362      $ -

Unrealized loss on auction-rate securities           $ 2,203      $ -




Apollo Group, Inc. and Subsidiaries

Detailed Expense Tables

(Unaudited)

                             Three Months
                                                 % of Net Revenue  % Change
                             Ended November 30,

                             2008     2007       2008    2007      2008 vs. 2007

($ in millions)

Employee compensation and    $ 133.5  $ 113.8    13.7 %  14.6 %    17.3     %
related expenses

Faculty compensation           87.7     65.7     9.0  %  8.4  %    33.5     %

Classroom lease expenses       59.5     52.0     6.1  %  6.7  %    14.4     %
and depreciation

Other instructional costs      47.5     44.7     5.0  %  5.6  %    6.3      %
and services

Bad debt expense               34.9     32.4     3.6  %  4.2  %    7.7      %

Financial aid processing       10.2     19.6     1.1  %  2.5  %    (48.0    %)
costs

Share-based compensation       4.0      5.1      0.4  %  0.7  %    (21.6    %)

Instructional costs and      $ 377.3  $ 333.3    38.9 %  42.7 %    13.2     %
services

                             Three Months
                                                 % of Net Revenue  % Change
                             Ended November 30,

                             2008     2007       2008    2007      2008 vs. 2007

($ in millions)

Enrollment counselors'
compensation and related     $ 112.0  $ 89.0     11.5 %  11.4 %    25.8     %
expenses

Advertising                    87.9     71.1     9.0  %  9.1  %    23.6     %

Other selling and              27.2     16.1     2.8  %  2.0  %    68.9     %
promotional expenses

Share-based compensation       1.5      0.7      0.2  %  0.1  %    114.3    %

Selling and promotional      $ 228.6  $ 176.9    23.5 %  22.6 %    29.2     %

                             Three Months
                                                 % of Net Revenue  % Change
                             Ended November 30,

                             2008     2007       2008    2007      2008 vs. 2007

($ in millions)

Employee compensation and    $ 26.0   $ 19.9     2.7  %  2.5  %    30.7     %
related expenses

Share-based compensation       9.6      9.1      1.0  %  1.2  %    5.5      %

Legal, audit, and corporate    5.0      5.7      0.5  %  0.7  %    (12.3    %)
insurance

Administrative space and       7.2      5.9      0.7  %  0.8  %    22.0     %
depreciation

Other general and              10.4     10.7     1.1  %  1.4  %    (2.8     %)
administrative expenses

General and administrative   $ 58.2   $ 51.3     6.0  %  6.6  %    13.5     %



CONTACT:
Apollo Group, Inc.
Investor Relations:
Allyson Pooley, 312-660-2025
allyson.pooley@apollogrp.edu
Janess Pasinski, 602-557-1719
janess.pasinski@apollogrp.edu
Media:
Wendy Paul, 866-222-8910
wendy.paul@phoenix.edu

Source: Apollo Group, Inc.