10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended: August 31, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission file number: 0-25232

APOLLO GROUP, INC.

(Exact name of Registrant as specified in its charter)

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

4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

(480) 966-5394

Securities registered pursuant to Section 12(b) of the Act:

None	None
(Title of each class)	(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

Apollo Education Group Class A common stock, no par value

(Title of class)

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).     YES þ          NO o

      Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).     YES o          NO þ

      No shares of the Company’s Apollo Education Group Class B common stock, its voting stock, are held by non-affiliates. The holders of the Company’s Apollo Education Group Class A common stock are not entitled to any voting rights. The aggregate market value of Apollo Education Group Class A common stock held by non-affiliates as of February 28, 2005 (last day of the Registrant’s most recently completed second quarter), was approximately $10.6 billion.

      The number of shares outstanding for each of the Registrant’s classes of common stock, as of November 4, 2005, is as follows:

Apollo Education Group Class A common stock, no par value	175,917,000 Shares
Apollo Education Group Class B common stock, no par value	477,000 Shares

Documents Incorporated By Reference

      Portions of the Registrant’s Annual Report to Shareholders for the year ended August 31, 2005, are incorporated herein by reference into Part II. With the exception of those portions which are expressly incorporated by reference in this Annual Report on Form 10-K, the Apollo Group, Inc. 2005 Annual Report is not deemed filed as part of this report.

APOLLO GROUP, INC. AND SUBSIDIARIES

FORM 10-K

INDEX

		Page
PART I
Item 1.	Business		1
Item 2.	Properties		25
Item 3.	Legal Proceedings		25
Item 4.	Submission of Matters to a Vote of Security Holders		26
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		27
Item 6.	Selected Consolidated Financial Data		28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		29
Item 8.	Financial Statements and Supplementary Data		29
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		29
Item 9A.	Controls and Procedures		29
Item 9B.	Other Information		29
PART III
Item 10.	Directors and Executive Officers of the Registrant		29
Item 11.	Executive Compensation		33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		39
Item 13.	Certain Relationships and Related Transactions		41
Item 14.	Principal Accounting Fees and Services		42
PART IV
Item 15.	Exhibits and Financial Statement Schedules		43
SIGNATURES			46
EX-10.5
EX-13
EX-14
EX-21
EX-23.1
EX-23.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.2
EX-99.3

PART I

Item 1 — Business

Overview

      This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which is incorporated by reference from our 2005 Annual Report, contain forward-looking statements regarding future events and future results of Apollo Group, Inc. (“Apollo Group”) 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. The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” and other similar statements of expectations identify forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Future events and actual results could differ materially from those set forth in the forward-looking statements as a result of many factors. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-K, including those set forth in Item 1 under the sections titled “Regulatory Environment,” “Accreditation,” “Federal Financial Aid Programs,” and “State Authorization,” and those factors set forth in other reports that we file with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, or any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements.

      Apollo Group, Inc. has been providing higher education to working adults for almost 30 years. We operate through our subsidiaries: The University of Phoenix, Inc. (“University of Phoenix”), Western International University, Inc. (“Western International University”), Institute for Professional Development, and The College for Financial Planning, Inc. (the “College for Financial Planning”). The consolidated enrollment in our educational programs makes us the largest private institution of higher education in the United States. We currently offer our programs and services at 90 campuses and 154 learning centers in 39 states, Puerto Rico, Alberta, and British Columbia. Our combined degree enrollment at August 31, 2005, was approximately 307,400.

      University of Phoenix is accredited by The Higher Learning Commission, and has been a member of the North Central Association of Colleges and Schools since 1978. University of Phoenix has successfully replicated its teaching/learning model while maintaining educational quality at 63 local campuses and 112 learning centers in 34 states, Puerto Rico, Alberta, and British Columbia. University of Phoenix also offers its educational programs worldwide through its computerized educational delivery system. University of Phoenix has customized computer programs for student tracking, marketing, faculty recruitment and training, and academic quality management. These computer programs are intended to provide uniformity among University of Phoenix’s campuses and learning centers, which enhances University of Phoenix’s ability to expand into new markets while still maintaining academic quality. Currently, approximately 45% of University of Phoenix’s students receive some level of tuition assistance from their employers. University of Phoenix is our largest subsidiary, with its tuition revenues currently representing approximately 89.4% of consolidated tuition revenues.

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

      Institute for Professional Development provides program development and management consulting services to regionally accredited private colleges and universities (client institutions) who are interested in expanding or developing their programs for working adults. These services typically include degree program design, curriculum development, market research, student recruitment, accounting, and administrative

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services. Institute for Professional Development provides these services at 23 campuses and 39 learning centers in 25 states in exchange for a contractual share of the tuition revenues generated from these programs. Institute for Professional Development’s contracts with its client institutions generally range in length from five to ten years with provisions for renewal. Institute for Professional Development typically works with institutions that:

•  are interested in developing or expanding off-campus degree programs for working adults;

•  recognize that working adults require a different teaching/learning model than the 18 to 24 year-old student;

•  desire to increase enrollments with a limited investment in institutional capital; and

•  recognize the unmet educational needs of the working adult students in their market.

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

      We incorporated in Arizona in 1981 and maintain our principal executive offices at 4615 East Elwood Street, Phoenix, Arizona 85040. Our telephone number is (480) 966-5394. Our website addresses are as follows:

•	Apollo Group	www.apollogrp.edu
•	University of Phoenix	www.phoenix.edu
•	Institute for Professional Development	www.ipd.org
•	Western International University	www.wintu.edu
•	Axia College of Western International University	www.axiacollege.com
•	College for Financial Planning	www.fp.edu

      Our fiscal year is from September 1 to August 31. Unless otherwise stated, references to the years 2005, 2004, and 2003 relate to the fiscal years ended August 31, 2005, 2004, and 2003, respectively.

      From October 3, 2000, to August 27, 2004, we had a class of stock, University of Phoenix Online common stock, outstanding, that reflected the separate performance of University of Phoenix Online, a campus within University of Phoenix. On August 6, 2004, our Board of Directors authorized the conversion of each share of University of Phoenix Online common stock to shares of Apollo Education Group Class A common stock effective August 27, 2004. In accordance with the terms of our Articles of Incorporation, each outstanding share of University of Phoenix Online common stock was converted into 1.11527 shares of Apollo Education Group Class A common stock as of August 27, 2004. The conversion resulted in the issuance of approximately 16.6 million new shares of Apollo Education Group Class A common stock. In addition, each unexercised option to purchase University of Phoenix Online common stock at August 27, 2004, was converted to 1.0766 options to purchase Apollo Education Group Class A common stock. The conversion ratio was based upon the relative market values of Apollo Education Group Class A common stock and University of Phoenix Online common stock at the close of the market on August 12, 2004, prior to the announcement. The conversion resulted in a $114.2 million reduction to income available to Apollo Education Group common stock related to the premium paid to convert outstanding shares of University of Phoenix Online common stock to Apollo Education Group Class A common stock. We recognized a non-cash stock-based compensation charge of $123.5 million related to the conversion of University of Phoenix Online stock options into Apollo Education Group Class A stock options in the fourth quarter of 2004 and a $19.8 million charge in the fourth quarter of 2005, and expect to recognize an additional $2 million compensation charge as the remaining options vest in 2006 and 2007. We have delisted the University of Phoenix Online common stock and no longer report separate financial statements for University of Phoenix Online.

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Industry Background

      The adult 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 $250 billion industry. According to the U.S. Department of Education, National Center for Education Statistics, over six million, or 37%, of all students enrolled in higher education programs are over the age of 24. A large percentage of these students would not be classified as traditional: 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 current careers. The market for adult education should continue to increase to keep pace with the rapidly expanding knowledge-based economy.

      Many students seek accredited degree programs that provide flexibility to accommodate the fixed schedules and time commitments associated with their professional and personal obligations. The education formats offered by our subsidiaries enable working adult students to attend classes and complete coursework on a more convenient schedule. Many universities and institutions offering technology-based education do not effectively address the unique requirements of working adult students due to the following specific constraints:

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

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

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

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

•  an emphasis on research and related laboratories, staff, and other facilities.

•  The majority of accredited colleges and universities continue to provide the bulk of their educational programming on an agrarian calendar with time off for traditional holiday breaks. The academic year generally runs from September to mid-December and from mid-January to May. As a result, most full-time faculty members only teach during that limited period of time. While this structure may serve the needs of the full-time 18 to 24 year old student, it limits the educational opportunity for those working adults who must delay their education for up to five months during these spring, summer, and winter breaks.

•  Traditional universities and colleges are also limited in their ability to market to or provide the necessary customer service for working adult students because it requires the development of additional administrative and enrollment infrastructure.

•  Diminishing financial support for public colleges and universities has required them to focus more tightly on their existing student populations and missions. Additionally, in the last ten years, American universities have decreased the percentage of money spent on instruction for teaching undergraduates. Both factors have combined to make access to public education more restrictive than ever.

      We believe that our track record for enrollment and revenue growth is attributable to our offering comprehensive services combining educational content, teaching resources, and customer service with formats that are accessible and easy to use for students as well as corporate clients.

Our Offerings

      Our nearly 30-year history as a provider of higher education for working adult students enables us to provide students with quality education and responsive customer service. Our subsidiaries have gained

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expertise in designing curriculum, recruiting and training faculty, monitoring academic quality, and providing a high level of support services to students that allows them to offer the following:

•  Accredited Degree Programs. University of Phoenix, Western International University, and the graduate programs at the College for Financial Planning are accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools. This regional accreditor or one of the other regional accrediting associations accredit the client institutions of Institute for Professional Development. This accreditation enables us to grant associates, bachelors, masters, and doctoral degrees, while also providing students with access to federal financial aid programs.

•  Experienced Faculty Resources. A large portion of the faculty teaching at our subsidiaries are working professionals and are required to possess either a masters or doctoral degree. In addition, University of Phoenix requires faculty (other than those teaching in general education or related subjects where the requirement would not apply) to have five years of recent professional experience in a field related to the subject they teach. Our subsidiaries have well-developed methods for hiring and training faculty, which include peer reviews of newly-hired instructors by other members of the faculty, training in grading and instructing students, and a teaching mentorship with a more experienced faculty member. Classes are designed to be small and engaging. Faculty members are also required to be accessible to students by maintaining office hours.

•  Current and Relevant Standardized Programs. Faculty content experts design curriculum for the majority of programs at our subsidiaries. This enables us to offer current and relevant standardized programs to our students. We also utilize institution-wide systems to assess the educational outcomes of our students and improve the quality of our curriculum and instructional model. These systems evaluate the cognitive and affective skills of our students upon registration and upon conclusion of the program and also survey students two years after graduation in order to assess the quality of the education they received.

•  Benefits to Employers. The employers of students enrolled at our subsidiaries often provide input to faculty members in designing curriculum, and class projects are typically based on issues relevant to the companies that employ our students. Classes are taught by faculty members who emphasize the skills desired by employers. In addition, the class time flexibility further benefits employers since it avoids conflict with their employees’ work schedules. A recent survey by University of Phoenix showed that approximately 45% of its students receive some level of tuition assistance from their employers.

Strategy

      One of our objectives is to be the leading provider of accessible, high quality education for working adult students and a preferred provider of workplace training to their employers. We are dedicated to improving the nation’s workforce by delivering measurable results, providing accessible programs, and developing efficient and effective education programs and solutions. We are managed as a for-profit corporation in a higher education industry served principally by not-for-profit providers. By design, we treat our students as our primary customers and the employers that provide tuition assistance to their employees through tuition reimbursement plans or direct bill arrangements as our secondary customers. We are implementing the following strategic initiatives to accomplish this objective:

      Establish New University of Phoenix Campuses and Learning Centers. University of Phoenix plans to continue the addition of campuses and learning centers throughout the United States, Canada, and Mexico. University of Phoenix currently plans on opening seven to nine new campuses during 2006. In 2005, seven new University of Phoenix campuses were opened. New locations are selected based on an analysis of various factors, including the population of working adults in the area, the number of local employers and their educational reimbursement policies, and the availability of similar programs offered by other institutions. Campuses consist of classroom and administrative facilities with full student and administrative services. Learning centers differ from campuses in that they consist primarily of classroom facilities with limited on-site administrative staff.

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      The timing related to the establishment of new locations and the expansion of programs may vary depending on regulatory requirements and market conditions.

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

      Establish New Institute for Professional Development Relationships. Institute for Professional Development plans to enter into additional long-term contracts with private colleges and universities in proximity to metropolitan areas throughout the United States.

      Expand Educational Programs. We will continue to respond to the changing educational needs of working adults and their employers by introducing new undergraduate and graduate degree programs as well as training programs. To its degree offerings, University of Phoenix has recently added:

•  Bachelor of Science in Education

•  Master of Science in Administration of Justice and Security

•  Specialization in Global Business Management to Bachelor of Science in Business

•  Specialization in Visual Communication to Bachelor of Science in Information Technology

•  Specialization in Public Administration to both Master of Business Administration and Master of Management

•  Specialization in Curriculum and Instruction to Doctor of Education in Educational Leadership

•  Specialization in Information Systems and Technology to Doctor of Management in Organizational Leadership

We believe that expanding our program offerings will help us improve our market position as a provider of higher education and training for working adults. We currently have a full-time staff of approximately 51 people involved in our centralized curriculum development process. Potential additions to our current offerings include:

•  new degree programs, such as Bachelor of Science in Communication, Bachelor of Science in Psychology, and Masters of Science in Psychology;

•  new specializations in Hospitality Management and Integrated Supply Chain & Operations Management to Bachelor of Science in Business, specialization in Reading and Literacy to Masters of Arts in Education;

      Expand Access to Programs. We plan to continue expanding our distance education programs and services. Online courses and programs are available via the Internet 24 hours a day, 7 days a week.

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

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and Technology (CIBT). We will continue to conduct market and operations research in various foreign countries where we believe there might be a demand for our programs.

Teaching/ Learning Model-Degree Programs

      The teaching/learning models used by University of Phoenix, the Institute for Professional Development client institutions, and Western International University were designed specifically to meet the educational needs of working adults. The models are structured to enable students who are employed full-time to earn their degrees and still meet their personal and professional responsibilities. Students attend weekly classes. In addition, at University of Phoenix, students also meet weekly as part of a three to five-person learning team. Learning team sessions are an integral part of each University of Phoenix course. They facilitate in-depth review of and reflection on course materials. Members work together to complete assigned group projects, and develop communication and teamwork skills. Courses are designed to facilitate the application of knowledge and skills to the workplace and are taught by faculty members who possess advanced degrees and have professional experience in business, industry, government, or other professions. In this way, faculty members are able to share their professional knowledge and skills with the students.

      Components of our teaching/learning models include:

Curriculum	Curriculum is designed to integrate academic theory and professional practice and their application to the workplace. The curriculum provides for the achievement of specified educational outcomes that are based on the input from faculty, students, and students’ employers. The standardized curriculum for each degree program is also designed to provide students with specified levels of knowledge and skills.
Faculty	Faculty applicants must possess an earned masters or doctoral degree from a regionally accredited institution and, in order to teach at University of Phoenix, faculty must have a minimum of five years’ recent professional experience in a field related to the subject matter in which they seek to instruct (other than those teaching in general education or related subjects).
An Active Learning Environment	Courses are designed to encourage and facilitate collaboration between students and interaction with the instructor. The curriculum requires a high level of student participation for purposes of enhancing learning and increasing the student’s ability to work as part of a team.
Library and Other Learning Resource Services	Students and faculty members are provided with electronic and other learning resources for their information and research needs. Students can access these services directly through the Internet or with the help of a Learning Resource Services research librarian.
Sequential Enrollment	University of Phoenix and Western International University students are enrolled year round and complete classes sequentially, rather than concurrently. This permits students to focus their attentions and resources on one subject at a time and creates a better balance between learning and ongoing personal and professional responsibilities. Axia College students are enrolled in courses that are nine weeks in length and are offered in pairs to complement each other. One week will emphasize reading and discussion, while the following week will emphasize a work project; the

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	assignments alternate so that during each week the student will be reading in one class and completing a project in the other.
Academic Quality	The Academic Quality Management System at University of Phoenix was designed to maintain and improve the quality of programs and academic and student services. This system includes the Adult Learning Outcomes Assessment, which seeks to measure student growth in both the cognitive (subject matter) and affective (educational, personal, and professional values) skills.

Structural Components of Teaching/ Learning Model

      While adults over the age of 24 comprise approximately 37% of all higher education enrollments in the United States, the mission of most accredited four-year colleges and universities is to serve 18 to 24 year-old students and conduct research. University of Phoenix, Western International University, and Institute for Professional Development client institutions acknowledge the differences in educational needs between working adult students and traditional students and provide programs and services that allow students to earn their degrees without major disruption to their personal and professional lives.

      The educational literature suggests that working adult students require a different teaching/learning model than that designed for traditional students. Working adult students seek accessibility, curriculum consistency, time and cost effectiveness, and learning that has an immediate application to the workplace.

      The facilitating elements of our teaching/learning models include:

Accessibility	Academic programs that may be accessed through a variety of delivery modes (e.g., campus-based, electronically delivered, or a blend of both) that make the educational programs accessible and even portable, regardless of where the students work and live.
Instructional Costs	While the majority of the faculty members at most accredited colleges and universities are employed full-time, the faculty at our subsidiaries is made up of both full-time and associate members. Many faculty members work full-time in the fields in which they teach.
Facility Costs	We lease our campus and learning center facilities and rent additional classroom space on a short-term basis to accommodate growth in enrollments.
Employed Students	Substantially all of University of Phoenix’s students are employed full-time. The average University of Phoenix student has been employed full-time for 13 years. The focus on working, non-residential students minimizes the need for capital-intensive facilities and services like dormitories, student unions, food services, personal and employment counseling, health care, sports, and entertainment.
Employer Support	Relationships are fostered with key employers for purposes of recruiting students and responding to specific employer needs. This facilitates sensitivity to the needs and perceptions of employers. It also helps to generate and sustain diverse sources of revenues. Approximately 45% of University of Phoenix students receive some level of tuition assistance from their employers; approximately 35% receive at least half of their tuition; and approximately 15% receive full tuition assistance. These percentages are higher for students in the business, management, and information technology programs.

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      The College for Financial Planning currently offers text-based self-study programs for students preparing for the Certified Financial Planner certification and for students seeking further education in financial services, including masters of science degrees in financial planning, financial analysis, and finance. The College for Financial Planning has modularized the learning content for these programs to position them for alternative delivery formats, including but not limited to classroom and online modalities. With the exception of the masters degrees, these same programs are offered in a classroom-based format through University of Phoenix campuses as well as independent classroom providers and online-based formats. Most of the College for Financial Planning’s students are employed, and approximately 91% have a bachelors degree or higher. The College for Financial Planning’s programs are developed internally by 9 full-time faculty members. With the exception of the masters programs, these programs are primarily self-study, non-degree programs that require only moderate faculty involvement in the actual delivery of the programs.

      Western International University’s teaching/learning model has similar characteristics to the teaching/ learning model used by University of Phoenix and Institute for Professional Development client institutions, including the use of part-time practitioner faculty, standardized curriculum, computerized learning resources, and leased facilities. Western International University’s faculty consists of 13 full-time department chairs and 1,018 part-time faculty. Western International University’s faculty are working professionals and possess earned masters or doctoral degrees and participate in a selection and training process that is similar to that at University of Phoenix.

Degree Programs and Services

      University of Phoenix Programs. The following is a list of the degree programs and related areas of specialization that University of Phoenix offers:

•  Associate of Arts in General Studies

•  Bachelor of Science in Business

•  Areas of Specialization

•  Accounting

•  Administration

•  E-business

•  Finance

•  Global Business Management

•  Information Systems

•  Management

•  Marketing

•  Public Administration

•  Retail Management

•  Bachelor of Science in Criminal Justice Administration

•  Bachelor of Science in Education

•  Bachelor of Science in Human Services

•  Bachelor of Science in Health Administration

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•  Bachelor of Science in Information Technology

•  Areas of Specialization

•  Software Engineering

•  Visual Communication

•  Bachelor of Science in Management

•  Bachelor of Science in Nursing

•  Master of Arts in Education

•  Areas of Specialization

•  Administration and Supervision

•  Adult Education and Distance Learning

•  Curriculum and Instruction

•  Computer Education

•  Adult Education and Distance Learning

•  Curriculum and Technology

•  Early Childhood

•  Elementary Teacher Education

•  Secondary Teacher Education

•  Special Education

•  Master of Business Administration

•  Areas of Specialization

•  Accounting

•  E-business

•  Global Management

•  Health Care Management

•  Human Resource Management

•  Marketing

•  Public Administration

•  Technology Management

•  Master of Counseling

•  Areas of Specialization

•  Community Counseling

•  Marriage and Family Counseling

•  Mental Health Counseling

•  School Counseling

•  Master of Health Administration

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•  Master of Management

•  Areas of Specialization

•  Human Resource Management

•  International Management

•  Public Administration

•  Master of Science in Administration of Justice and Security

•  Master of Science in Nursing

•  Areas of Specialization

•  Family Nurse Practitioner

•  Integrative Health

•  Health Care Education

•  Master of Information Systems

•  Area of Specialization

•  Management

•  Doctor of Business Administration

•  Doctor of Education in Educational Leadership

•  Area of Specialization

•  Curriculum and Instruction

•  Doctor of Health Administration

•  Doctor of Management in Organizational Leadership

•  Area of Specialization

•  Information Systems and Technology

      University of Phoenix also offers professional education programs, including continuing education for teachers, custom training, environmental training, and many programs leading to certification in the areas of business, technology, and nursing.

      Undergraduate students may demonstrate and document college level learning gained from experience through an assessment by faculty members, according to the guidelines of the Council for Adult and Experiential Learning (“CAEL”), for the potential award of credit. The average number of credits awarded to the approximately 4,450 University of Phoenix undergraduate students who utilized the process in 2005 was approximately 4 credits of the 120 required to graduate. CAEL reports that over 1,500 regionally accredited colleges and universities are members of CAEL and currently accept credits awarded for college level learning gained through experience.

      Institute for Professional Development Services. Institute for Professional Development’s contracts with its client institutions are individually negotiated and the actual services may vary from one client institution to another. Services to its client institutions may include:

•  conducting market research;

•  assisting with curriculum development;

•  developing and executing marketing strategies;

•  marketing and recruiting of students;

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•  performing student accounting and account receivable management;

•  recommending operational and administrative infrastructures;

•  offering faculty development and training;

•  developing and implementing financial accounting and management systems;

•  assessing the future needs of adult students;

•  assisting in developing additional degree programs suitable for the adult higher education market;

•  assisting in seeking approval from the respective regional accrediting association for new programs;

•  training of adult program staff;

•  conducting systems reviews for program quality improvements; and

•  consulting in areas related to regional and state accreditation.

      In consideration for its services, Institute for Professional Development receives a contractual share of revenues, which are negotiated with each client institution.

      In order to facilitate the sharing of information related to the operations of their respective programs, Institute for Professional Development, its client institutions, and University of Phoenix formed the Consortium for the Advancement of Adult Higher Education. This consortium shares best practices in adult higher education. Conference topics include outcomes assessment, educational technology, leadership, and continuous process improvement.

      Institute for Professional Development client institutions offer the following programs with our assistance:

•  Associate of Business Management

•  Associate of Arts

•  Areas of Specialization

•  Biblical Studies

•  Business

•  Business Administration

•  Christian Ministry

•  Computer Information Systems

•  Leadership Studies

•  Organizational Dynamics

•  Social Services

•  Associate of Science

•  Areas of Specialization

•  Business

•  Business Management

•  Computer Information Systems

•  Education

•  Management Information Systems

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•  Bachelor of Arts

•  Areas of Specialization

•  Business

•  Management

•  Public Administration

•  Bachelor of Business Administration

•  Bachelor of Business in Information Systems

•  Bachelor of Health Administration

•  Bachelor of Science

•  Areas of Specialization

•  Accounting

•  Business Administration

•  Business Information Systems

•  Christian Ministry

•  Human Development

•  Human Services

•  Human Services Management

•  Management

•  Management of Information Systems

•  Marketing

•  Ministry Leadership

•  Ministry Studies

•  Nursing

•  Strategic Management of Information Systems

•  Master of Arts in Leadership

•  Master of Arts in Organizational Leadership

•  Master of Arts in Teaching

•  Master of Business Administration

•  Area of Specialization

•  Health Care Executives

•  Master of Education

•  Master of Science in Management

      Institute for Professional Development assisted programs also include a limited number of general education courses and certificate programs.

      College for Financial Planning Programs. The College for Financial Planning currently offers master of science degree programs with majors in financial planning, financial analysis, and finance. The financial

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planning major focuses on the fundamentals of financial planning and meets the educational requirement of the CFP Board of Standards, Inc. for taking the CFP® Certification Examination. The financial analysis major incorporates the CFA Body of Knowledge learning objectives offered by the CFA Institute and helps prepare students for the CFA examinations.

      The College for Financial Planning currently offers the following designation programs:

•  Accredited Asset Management Specialist

•  Accredited Wealth Management Advisor

•  Registered Paraplanner

•  Chartered Mutual Fund Counselor

•  Chartered Retirement Plans Specialist

•  Chartered Retirement Planning Counselor

      Western International University Programs. Western International University currently offers the following degree programs:

•  Associate of Arts

•  Areas of Specialization

•  Accounting

•  Business

•  Criminal Justice

•  General Studies

•  Health Administration

•  Information Technology

•  Bachelor of Arts in Behavioral Science

•  Bachelor of Arts in Human Resource Management

•  Bachelor of Arts in Administration of Justice

•  Bachelor of Science in Accounting

•  Bachelor of Science in Business

•  Areas of Specialization

•  E-Commerce

•  Finance

•  Human Resources Management

•  Marketing

•  Bachelor of Science in Business Administration

•  Bachelor of Science in General Business

•  Areas of Specialization

•  Criminal Justice

•  Financial Services

•  Health and Human Services

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•  Hospitality, Travel, and Tourism

•  Real Estate Administration

•  Retail Management

•  Sales and Services

•  Technology Management

•  Bachelor of Science in Information Technology

•  Bachelor of Science in International Business

•  Bachelor of Science in Management

•  Master of Business Administration

•  Areas of Specialization

•  Finance

•  International Business

•  Information Technology

•  Management

•  Marketing

•  Master of Science in Information Technology

•  Master of Science in Information Systems Engineering

•  Master of Public Administration

      Western International University also offers professional studies programs in Accountancy and the Certified Financial Planner Certification Education Program.

Distance Education

      Our distance education components consist primarily of the following:

      University of Phoenix Online. University of Phoenix Online has developed its system to be easily accessible and familiar to most students. All the student needs to participate in University of Phoenix Online’s classes is a Pentium-class personal computer, a 56.6K modem, and an Internet service provider.

      Each University of Phoenix Online class adheres to a set framework thus providing procedural instructional consistency. Prior to the beginning of each class, each student pays a fee to access rEsource®, our online delivery method for course materials. Every class consists of a series of eight newsgroups. The main newsgroup is designated for class discussion, and there is an assignments newsgroup to which students submit their assignments, a chat newsgroup for students to discuss non-content related topics, a course materials newsgroup that houses the syllabus and lectures for the class, and four newsgroups which function as forums for the Learning Team assignments.

      Each week, the instructor posts a lecture to the classroom course materials newsgroup. Students log on and read the lecture or print the lecture to read at their convenience. Throughout the week, students participate in class discussions, based on the class content for that week, which is actively facilitated by the instructor. Both the instructor and students are expected to substantively engage in content discussions five out of seven days each class week. In addition to the class participation requirement, students are also expected to complete individual assignments and to work within a small group of 3-5 students on a specific Learning Team assignment. The Learning Team component of the University of Phoenix model not only emphasizes the content focus for the course, but also the importance for successful professionals to acquire team process skills. Students receive weekly feedback on all facets of

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their performance in the class such as participation and contributions to class discussions, individual assignments, exams/quizzes, and Learning Team work product.

      Axia College of Western International University. Like University of Phoenix Online, Axia College has developed a system to be easily accessible and familiar to most students. All the student needs to participate in Axia College’s classes is a Pentium-class personal computer, a 56.6K modem, and an Internet service provider.

      Each Axia College class adheres to a set framework thus providing procedural instructional consistency. Every class consists of a series of newsgroups. The main newsgroup is designated for class discussion, and there is an assignments newsgroup to which students submit their assignments, a chat newsgroup for students to discuss non-content related topics, a course materials newsgroup that houses the syllabus and lectures for the class. Students complete two nine-week courses at a time. The learning objectives in each set of courses are designed to complement each other throughout the program. Currently Associates of Arts degrees in business, criminal justice, general studies, health administration, and information technology are offered at Axia College.

      College for Financial Planning. Business and investment professionals who require continuing professional education as part of their professional certification or for employment requirements may complete individual courses online utilizing most Internet browsers. These programs are mostly short courses designed to focus on important and emerging topics relevant to the students’ trades or professions. The students interact primarily with our Web-based software programs with little or no faculty involvement.

      Distance education is currently subject to certain regulatory constraints. See “Business — Federal Financial Aid Programs — Restrictions on Distance Education Programs” and “Business — State Authorization.”

Acquisition Strategy

      We periodically evaluate opportunities to acquire businesses and facilities. In evaluating such opportunities, management considers, among other factors, location, demographics, price, the availability of financing on acceptable terms, competitive factors, and the opportunity to improve operating performance through the implementation of our operating strategies. We have no current commitments with regard to potential acquisitions.

Customers/ Students

      The following is a breakdown of our students by the level of program they are seeking, at August 31, 2005:

		Number of		Percentage of
Degree Programs		Students		Students
	Associates		50,300		16.4	%
	Bachelors		175,600		57.1	%
	Masters		78,700		25.6	%
	Doctoral		2,800		0.9	%
Total Degree Students			307,400		100.0	%

      We consider the employers that provide tuition assistance to their employees through tuition reimbursement plans or direct bill arrangements our secondary customers.

      Based on student surveys of incoming students during 2005, the average age of University of Phoenix’s students is in the mid-thirties, approximately 58% are women and 42% are men. We believe that the demographics of students enrolled in Institute for Professional Development assisted programs are similar to

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those of University of Phoenix. The approximate age percentage distribution of incoming University of Phoenix students is as follows:

Age	Percentage of Students
22 and under		9.4	%
23 to 29		33.6	%
30 to 39		32.8	%
40 to 49		18.2	%
50 and over		6.0	%
		100.0	%

      Based on student surveys, 65% of students at the College for Financial Planning are under the age of 45 and approximately 23% are women and 77% are men. Most of the College for Financial Planning’s students are employed, and approximately 96% have obtained a bachelors degree or higher.

      Institute for Professional Development client institutions have historically consisted of small private colleges; however, Institute for Professional Development also targets larger institutions of higher education that are in need of marketing, prior learning assessment, and curriculum consulting. Institute for Professional Development understands that to develop and manage educational programs for working adult students effectively, these potential client institutions require both capital and operational expertise. In response to these requirements, Institute for Professional Development provides the start-up capital, the curriculum development expertise, and the ongoing management in support of the client institutions’ provision of quality programs for working adult students.

      We work closely with businesses and governmental agencies to meet their specific needs either by modifying existing programs or, in some cases, by developing customized programs. These programs are often held at the employers’ offices or on-site at military bases. University of Phoenix has also formed educational partnerships with various corporations to provide programs specifically designed for their employees.

      University of Phoenix Online was granted two overseas military contracts in 2003. They allow University of Phoenix Online to offer graduate degree programs to U.S. military personnel on-site at military bases in Europe, Asia, and the Pacific Rim.

Marketing

      To generate interest among potential students, we engage in a broad range of activities to inform the public about our teaching/learning model and the programs offered. These activities include:

      Internet Marketing. We advertise extensively on the Internet using banner advertisements on targeted sites, as well as paying other Web sites, such as education portals, a fee on a per-lead basis. We also benefit from non-paid Internet referrals, including leads directed to our domain names as a result of Web search using Internet search engines. We believe these prospective students are more likely to enroll in our programs because these prospects are actively seeking information about degree programs.

      Direct Mail. Direct mail is effective at reaching the working population that expresses interest in training, education, and self-improvement. Direct mail also enables us to target specific career fields, such as Accounting, Business, Education, Information Technology, Criminal Justice, and Nursing. We currently purchase education-related mailing lists from numerous suppliers who specialize in this area. In addition, we track leads for every direct mail campaign by allowing potential students the opportunity to respond using the following methods:

•  mailing a postage-paid reply card or envelope;

•  calling us at a specific toll-free number; or

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•  directing the potential student to one of our specific URL addresses on the Internet that are used to track individual marketing campaigns for reach and effectiveness.

      Re-Marketing. Re-marketing efforts include both direct mail and e-mail sent to existing leads in our database. Re-marketing is a very successful part of our marketing campaign because of our growing database of qualified prospects.

      Referrals. Referrals continue to be an important source of new students; including those from employers, co-workers, current students, alumni, family members, and other friends.

      Print and Broadcast. We rely on print and broadcast advertising to target new prospects and to assist with building brand recognition.

Competition

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

      We believe that the competitive factors in the higher education market include the following:

•  the ability to provide easy and convenient access to programs and classes;

•  reliable and high-quality products and services;

•  qualified and experienced faculty;

•  cost of the program;

•  reputation of programs, classes, and services; and

•  the time necessary to earn a degree.

      In terms of non-degree programs offered by us, we compete with a variety of business and information technology providers, primarily those in the for-profit training sector. Many of these competitors have significantly more market share and longer-term relationships with key vendors.

      Institute for Professional Development faces competition from other entities offering higher education curriculum development and management services for adult education programs. The majority of Institute for Professional Development’s current competitors provide short-term, pre-packaged curriculum or turn-key programs.

Employees

      At August 31, 2005, we had the following numbers of employees:

	Full-Time		Part-Time		Faculty			Total
Apollo		624		18					642	(1)
University of Phoenix		10,053		142		20,154	(2)		30,349
Institute for Professional Development		430		7			(3)		437
College for Financial Planning		71		1		9	(4)		81
Western International University		124		2		1,031	(2)		1,157
Total		11,302		170		21,194			32,666

(1)  Consists primarily of employees in executive management, information systems, corporate accounting, financial aid, and human resources.

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(2)	Consists primarily of part-time faculty contracted on a course-by-course basis who are classified as active by the campus.
(3)	Faculty teaching Institute for Professional Development assisted programs are employed by Institute for Professional Development client institutions.
(4)	Consists primarily of faculty involved in curriculum development and the instructional design process.

      We consider our relations with our employees to be good.

Regulatory Environment

      The Higher Education Act of 1965 and the related regulations govern all higher education institutions participating in Title IV programs. The Higher Education Act mandates specific additional regulatory responsibilities for each of the following components:

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

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

•  state higher education regulatory bodies.

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

      New or revised interpretations of regulatory requirements could have a material adverse effect on us. In addition, changes in or new interpretations of applicable laws, rules, or regulations could have a material adverse effect on the accreditation, authorization to operate in various states, permissible activities, and costs of doing business of University of Phoenix, Western International University, and one or more of the Institute for Professional Development client institutions. The failure to maintain or renew any required regulatory approvals, accreditation, or state authorizations by University of Phoenix could have a material adverse effect on us.

      From time to time as part of the normal course of business, the Apollo Group subsidiaries are subject to periodic program reviews and audits by regulating bodies. The U.S. Department of Education, Office of Inspector General, conducted an audit of University of Phoenix for the period September 1, 2002, through March 31, 2004. On August 24, 2004, the Office of Inspector General issued a final audit report with recommendations to U.S. Department of Education. Except for two areas, the Office of Inspector General concluded that University of Phoenix had policies and procedures that provide reasonable assurances that the institution properly makes initial and subsequent disbursements to students enrolled in Title IV eligible programs. The U.S. Department of Education will ultimately issue a final audit determination letter on the two exceptions regarding disbursing funds to student accounts for allowable institutional charges and disbursing funds to students who were not in eligible programs. The Office of the Inspector General expects to issue a separate audit report on their review of our policies and procedures for the calculation and return of Title IV funds. While the outcome of this audit proceeding is uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from this action.

Accreditation

      University of Phoenix, Western International University, the College for Financial Planning, and Institute for Professional Development client institutions are covered by regional accreditation which provides the following:

•  recognition and acceptance by employers, other higher education institutions, and governmental entities of the degrees and credits earned by students;

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•  qualification to participate in Title IV programs; and

•  qualification for authorization in certain states.

      Regional accreditation is accepted nationally as the basis for the recognition of earned credit and degrees for academic purposes, employment, professional licensure, and, in some states, for authorization to operate as a degree-granting institution. Under the terms of a reciprocity agreement among the six senior regional accrediting associations, representatives of each region in which a regionally accredited institution operates participate in the evaluations for reaffirmation of accreditation.

      University of Phoenix was granted accreditation by The Higher Learning Commission in 1978. University of Phoenix’s accreditation was reaffirmed in 1982, 1987, 1992, 1997, and 2002. The next comprehensive evaluation visit by The Higher Learning Commission will be conducted in 2012. The withdrawal of accreditation from University of Phoenix would have a material adverse effect on us.

      Programs offered by Institute for Professional Development client institutions are evaluated by the client institutions’ respective regional accrediting associations either as part of a reaffirmation visit or a focused evaluation visit. Current Institute for Professional Development client institutions are accredited by The Higher Learning Commission, Middle States, New England, Northwest, Southern, or Western regional accrediting associations.

      The College for Financial Planning graduate degree program is accredited by The Higher Learning Commission. The Higher Learning Commission reaffirmed the accreditation of the graduate degree program in 2004 and the next reaffirmation visit is scheduled for 2011.

      Western International University was accredited by The Higher Learning Commission prior to the acquisition by us, and the accreditation was reaffirmed in 1998 and 2005. Western International University’s next reaffirmation visit will occur in Spring 2012.

      All accrediting agencies recognized by the U.S. Department of Education are required to include the monitoring of Title IV program compliance in their evaluations of accredited institutions. As a result, all regionally accredited institutions, including University of Phoenix, Western International University, and Institute for Professional Development client institutions, will be subject to a Title IV program compliance review as part of accreditation visits.

      University of Phoenix’s Bachelor of Science in Nursing program received program accreditation from the National League for Nursing Accrediting Commission in 1989. The Master of Science in Nursing program earned the National League for Nursing Accrediting Commission accreditation in 1996. In 2000, both the Bachelor of Science in Nursing and the Master of Science in Nursing programs received reaccredidation status from the National League for Nursing Accreditation Commission. In September 2005, both nursing degree programs received the full five-year initial accreditation status from the Commission on Collegiate Nursing Education.

      University of Phoenix’s Community Counseling program, Master of Counseling in Community Counseling degree, received initial accreditation for its Phoenix and Tucson campuses from the Council for Accreditation of Counseling and Related Educational Programs in 1995, and the accreditation was reaffirmed in 2002. The next reaffirmation visit is expected in 2010. University of Phoenix’s Utah campus received the same accreditation in 2001, and the next reaffirmation visit is expected in 2008.

      University of Phoenix received approval from The Higher Learning Commission to offer its first doctoral level program in 1998. The first students were enrolled in the Doctor of Management in Organizational Leadership program beginning in 1999. Additionally, in 2002, University of Phoenix received approval from The Higher Learning Commission to offer three new doctoral programs: Doctor of Business Administration, Doctor of Education in Educational Leadership, and Doctor of Health Administration. All of the Doctorate programs are offered via distance learning technology with annual two-week residencies in Phoenix throughout the program.

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      The address and phone number for the accrediting bodies are as follows:

The Higher Learning Commission

30 North LaSalle Street, Suite 2400

Chicago, IL 60602-2504

(312) 263-0456

Commission on Collegiate Nursing Education

One Dupont Circle, NW, Suite 530

Washington, DC 20036

(202) 887-6791

National League for Nursing Accrediting Commission

61 Broadway

New York, NY 10006

(800) 669-1656

Council for Accreditation of Counseling and Related Educational Programs

5999 Stevenson Avenue, 4th floor

Alexandria, VA 22304

(800) 347-6647

Federal Financial Aid Programs

      The U.S. Department of Education issues regulations based on the laws included in the Higher Education Act of 1965, as amended (“Higher Education Act”). The Higher Education Act has been extended to December 31, 2005. Changes in the law occur during the Congressional reauthorization process, with final regulations issued after that time. The reauthorization process could amend existing requirements, or implement new requirements.

      Students at University of Phoenix, Western International University, and Institute for Professional Development client institutions may receive federal financial aid under the Title IV programs. The College for Financial Planning does not participate in Title IV programs because most of its students are enrolled in non-degree programs. In the year ended August 31, 2005, University of Phoenix and Western International University derived approximately 63% and 72%, respectively, of their net revenues from students who participated in Title IV programs. The respective Institute for Professional Development client institutions administer their own Title IV programs. Our students may receive Title IV funds because:

•  University of Phoenix, Western International University, and Institute for Professional Development client institutions are accredited by an accrediting agency recognized by the U.S. Department of Education;

•  the U.S. Department of Education has certified University of Phoenix’s, Western International University’s, and Institute for Professional Development client institutions’ eligibility to participate in the Title IV programs; and

•  University of Phoenix, Western International University, and Institute for Professional Development client institutions have applicable state authorization to operate.

      Students at University of Phoenix and Western International University may receive grants and loans to fund their education under several of the Title IV programs, of which the two largest are the Federal Family Education Loan (“FFEL”) program and the Federal Pell Grant (“Pell”) program. Our institutions also participate in the Federal Supplemental Educational Opportunity Grant (“FSEOG”) program and the Federal Perkins Loan (“Perkins”) campus-based aid (“CBA”) programs. CBA funds are comprised of federal and institutional capital contributions and the institution selects the recipients for these limited fund amounts. For administrative purposes, the institution has some transferability between these CBA programs and is allowed to take an administrative cost allowance from these funds. Additionally, the institution is paid a nominal administrative cost allowance for each Pell Grant recipient.

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      University of Phoenix participates as a FFEL lender for students enrolled in graduate degree programs at the University of Phoenix. University of Phoenix entered into agreements with third parties to administer the program and to purchase the government-guaranteed loans through a secondary market. Interest benefits and special allowance payments from these loans will be made available as need-based grants to students, except some of these proceeds may be used for reimbursement of reasonable direct administrative expenses.

      FSEOG awards are designed to supplement Pell grants for the neediest students. The availability of FSEOG awards is limited by the amount of those funds allocated to the institution under a federal formula that takes into account the number of students at the institution, its costs, and the income levels of its students. We are required to make a 25% contribution to students for all FSEOG awards disbursed. Resources for this institutional contribution may include institutional grants, scholarships, and other eligible funds and, in certain states, portions of state-funded student assistance programs. Amounts received by our students under the FSEOG programs in the 2004-2005 award year equaled approximately $3.5 million, and the vast majority of the institutional contribution was met by funds from state-funded student assistance programs.

      Perkins loans are made available to those students who demonstrate the greatest financial need. The availability of initial Perkins funds is limited by the amount of those funds allocated to the institution under a federal formula that takes into account the number of students at the institution, its costs, and the income levels of its students. Perkins loans are made from a revolving account, with 75% of new funding contributed by the U.S. Department of Education and the remainder by the institution. Subsequent federal capital contributions, which must be matched by institution funds, may be received if the institution meets certain requirements. Each institution collects payments on Perkins loans from its former students and re-lends those funds to currently enrolled students. Collection and disbursement of Perkins loans is the responsibility of each participating institution. Perkins loans disbursed to our students in the 2004-2005 award year equaled approximately $580,000, and the institutional contribution was approximately $286,000.

      Aid under the Title IV programs is awarded on the basis of financial need, generally defined under the Higher Education Act as the difference between the cost of attending an educational institution and the amount the family can reasonably expect to contribute to that cost. Recipients can replace their expected family contribution with non-need based aid. All recipients of Title IV program funds must maintain satisfactory academic progress within the guidelines published by the U.S. Department of Education.

      The following material provisions of the Title IV regulations, and their related calculations, apply to University of Phoenix, Western International University, and Institute for Professional Development client institutions:

      Limits on Title IV Program Funds. The Title IV regulations define the types of educational programs offered by an institution that qualify for Title IV program funds. For students enrolled in qualified programs, the Title IV regulations place limits on the amount of Title IV program funds that a student is eligible to receive in any one academic year as defined by the U.S. Department of Education.

      An academic year must consist of at least 30 weeks of instructional time and a minimum of 24 credit hours. Most of our degree programs meet the academic year minimum definition of 30 weeks of instructional time and 24 credit hours and, therefore, qualify for Title IV program funds. The programs that do not qualify for Title IV program funds consist primarily of certificate, corporate training, and continuing professional education programs. These programs are paid for directly by the students or their employers.

      Authorizations for New Locations. University of Phoenix, Western International University, the College for Financial Planning, and Institute for Professional Development client institutions are required to have authorization to operate as degree-granting institutions in each state where they physically provide educational programs. Certain states accept accreditation as evidence of meeting minimum state standards for authorization. Other states require separate evaluations for authorization. Depending on the state, the addition of a degree program not offered previously or the addition of a new location must be included in the institution’s accreditation and be approved by the appropriate state authorization agency. University of Phoenix, Western International University, the College for Financial Planning, and Institute

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for Professional Development client institutions are currently authorized to operate in all states in which they have physical locations. If University of Phoenix is unable to obtain authorization to operate in certain new states, it may have a material adverse effect on our ability to expand University of Phoenix’s business.

      Although The Higher Learning Commission does not require University of Phoenix to obtain their prior approval before they are permitted to expand into new areas in North America and the Netherlands, they do, however, require prior approval before they can expand into foreign countries outside of North America and the Netherlands. If University of Phoenix is unable to obtain The Higher Learning Commission’s approval for future geographic expansion, it may have a material adverse effect on our ability to expand University of Phoenix’s business. In addition, The Higher Learning Commission requires Western International University and the College for Financial Planning to obtain their prior approval before they are permitted to expand into new states or foreign countries.

      Restricted Cash. The U.S. Department of Education places restrictions on excess Title IV program funds collected for unbilled tuition and fees transferred to us through electronic funds transfer. If an institution holds excess Title IV program funds the institution must maintain, at all times, cash in its bank account in an amount at least equal to the amount of funds the institution holds for students.

      Standards of Financial Responsibility. Pursuant to the Title IV regulations, as revised, each eligible higher education institution must satisfy the minimum standard established for three tests which assess the financial condition of the institution at the end of the institution’s fiscal year. The tests provide three individual scores which must then satisfy a composite score standard. The maximum composite score is 3.0. If the institution achieves a composite score of at least 1.5, it is considered financially responsible. A composite score from 1.0 to 1.4 is considered financially responsible, subject to additional monitoring, and the institution may continue to participate as a financially responsible institution for up to three years. An institution that does not achieve a satisfactory composite score will fall under alternative standards. At August 31, 2005, University of Phoenix’s and Western International University’s composite scores were 3.0 and 2.8, respectively.

      Branching and Classroom Locations. The Title IV regulations contain specific requirements governing the establishment of new main campuses, branch campuses, and classroom locations at which the eligible institution offers, or could offer, 50% or more of an educational program. In addition to classrooms at campuses and learning centers, locations affected by these requirements include the business facilities of client companies, military bases, and conference facilities used by University of Phoenix and Western International University. The U.S. Department of Education requires that the institution notify the U.S. Department of Education of each location prior to disbursing Title IV program funds to students at that location. University of Phoenix and Western International University have procedures in place to ensure timely notification and acquisition of all necessary location approvals prior to disbursing Title IV aid to students attending any new location.

      The “90/10 Rule”. A requirement of the Higher Education Act, commonly referred to as the “90/10 Rule,” applies only to for-profit institutions of higher education, which includes University of Phoenix and Western International University but not Institute for Professional Development client institutions. Under this rule, for-profit institutions will be ineligible to participate in Title IV programs if the amount of Title IV program funds used by the students or institution to satisfy tuition, fees, and other costs incurred by the students exceeds 90% of the institution’s cash-basis revenues from eligible programs. University of Phoenix’s and Western International University’s percentages were below 90% for the year ended August 31, 2005. University of Phoenix and Western International University are required to calculate this percentage at the end of each fiscal year.

      Student Loan Defaults. Eligible institutions must maintain a student loan cohort default rate of less than 25% for three consecutive years. In 2003, the most recent U.S. Department of Education cohort default rate reporting period, the national cohort default rate average for all proprietary higher education institutions was 7.3%. University of Phoenix and Western International University students’ cohort default rates for the Federal Family Education Loans for 2003 as reported by the U.S. Department of

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Education were 6.5% and 2.4%, respectively. Institute for Professional Development client institutions cohort default rates for 2003 ranged from 0.6% to 8.8% with a median cohort default rate of 3.0%.

      Compensation of Representatives. Title IV regulations prohibit an institution from providing any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any student recruitment, admission, or financial aid awarding activity. We believe that our current method of compensating enrollment advisors and financial aid staff complies with the Title IV regulations.

      Eligibility and Certification Procedures. 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. University of Phoenix was recertified in June 2003 and its current certification for the Title IV programs expires in June 2007. Western International University was recertified in October 2003 and its current certification for the Title IV programs expires in June 2009.

      Administrative Capability. The Higher Education Act directs the U.S. Department of Education to assess the administrative capability of each institution to participate in Title IV programs. The failure of an institution to satisfy any of the criteria used to assess administrative capability may allow the U.S. Department of Education to determine that the institution lacks administrative capability and, therefore, may be subject to additional scrutiny or denied eligibility for Title IV programs.

      Restrictions on Distance Education Programs. The Title IV regulations provide for differing restrictions on the number of course offerings and students that can be enrolled via distance education depending on the nature of the institution’s program offerings. For institutions whose eligible degree offerings equal or exceed their eligible certificate offerings, the Title IV regulations stipulate that an institution is not eligible to participate in the Title IV programs if: 1) more than 50% of its courses are offered via correspondence courses, or 2) 50% of its courses are offered via distance education (the combination of correspondence and telecommunication offerings). University of Phoenix and Western International University provide more degree programs than certificate programs thus the volume of students enrolled via distance education will not impact eligibility status as long as the institution maintains more residential courses than distance education courses. University of Phoenix’s and Western International University’s percentage of courses offered through distance education were both below 50% during 2005.

      Change of Ownership or Control. A change of our ownership or control, depending on the type of change, may have significant regulatory consequences for University of Phoenix and Western International University. Such a change of ownership or control could trigger recertification by the U.S. Department of Education, reauthorization by state licensing agencies, or the evaluation of the accreditation by The Higher Learning Commission.

      The U.S. Department of Education has adopted the change of ownership and control standards used by the federal securities laws for institutions owned by publicly-held corporations. Upon a change of ownership and control sufficient to require us to file a Form 8-K with the Securities and Exchange Commission, University of Phoenix and Western International University would cease to be eligible to participate in Title IV programs until recertified by the U.S. Department of Education. Under some circumstances, the U.S. Department of Education may continue the institution’s participation in the Title IV programs on a temporary basis pending completion of the change in ownership approval process. This recertification would not be required, however, if the transfer of ownership and control was made upon a person’s retirement or death and was made either to a member of the person’s immediate family or to a person with an ownership interest in us who had been involved in our management for at least two years preceding the transfer. In addition, some states where we are presently licensed have requirements governing change of ownership or control.

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      Moreover, we are required to report any material change in stock ownership. In the event of a material change in stock ownership, The Higher Learning Commission may seek to evaluate the effect of such a change of stock ownership on University of Phoenix’s, the College for Financial Planning’s, and Western International University’s continuing operations.

      If University of Phoenix or Western International University is not re-certified by the U.S. Department of Education, does not obtain reauthorization from the necessary state agencies, or has its accreditation withdrawn as a consequence of any change in ownership or control, it would have a material adverse effect on us.

State Authorization

      University of Phoenix is authorized to operate in all 34 states where it has a physical presence. University of Phoenix has held these authorizations for periods ranging from less than one year to over twenty-five years. We have also been approved to operate in the states of Connecticut, Montana, Nebraska, and South Carolina, but do not yet have a physical presence. Applications for approval to operate in Delaware and New York have been submitted and are awaiting approval.

      All regionally accredited institutions, including University of Phoenix, are required to be evaluated separately for authorization to operate in Puerto Rico. University of Phoenix obtained authorization from the Puerto Rico Commission on Higher Education, and that authorization remains in effect.

      University of Phoenix is registered and accredited by British Columbia’s Private Career Training Institutions Agency, the successor to the Private Post-Secondary Education Commission, which originally granted accreditation. University of Phoenix operates in Alberta, Canada pursuant to approval granted by Alberta Advanced Education.

      The Instituto de Estudios Superiores de Phoenix has received provisional accreditation from the Ministry of Education and Culture for the State of Chihuahua, Mexico to open a campus in Juarez, Mexico.

      Institute for Professional Development client institutions possess authorization to operate in all states in which they maintain a physical presence, which are subject to renewal. The College for Financial Planning is currently authorized to operate in Colorado and does not require authorization for its self-study programs that are offered worldwide. Western International University is currently authorized to operate in Arizona.

      Some states assert authority to regulate all degree-granting institutions if their educational programs are available to their residents, whether or not the institutions maintain a physical presence within those states. University of Phoenix has obtained licensure in these states.

Admissions Standards

      To gain admission to undergraduate programs at University of Phoenix, Western International University, and Institute for Professional Development client institutions, students generally must have a high school diploma or General Equivalency Diploma and satisfy certain minimum grade point average and employment requirements. Additional requirements may apply to individual programs. Students already in undergraduate programs may petition to be admitted on provisional status if they do not meet certain admission requirements.

      To gain admission to graduate programs at University of Phoenix, Western International University, and Institute for Professional Development client institutions, students generally must have an undergraduate degree from a regionally accredited college or university and satisfy minimum grade point average, work experience, and employment requirements. Additional requirements may apply to individual programs. Students in graduate programs may petition to be admitted on provisional status if they do not meet certain admission requirements.

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Employer Tuition Assistance

      Many of our students receive some form of tuition assistance from their employers. The Internal Revenue Code defines situations where this tuition assistance qualifies as a deductible business expense when adequately documented by the employer and employee. The Internal Revenue Code also provides a safe-harbor provision for an exclusion from wages of up to $5,250 of tuition reimbursement per year per student under the Educational Assistance Program. The percentage of University of Phoenix students with access to employer tuition assistance was approximately 45% in 2005.

Locations

      University of Phoenix currently has 63 local campuses and 112 learning centers located in Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, Wyoming, Puerto Rico, Alberta, and British Columbia. University of Phoenix also offers its educational programs worldwide through its computerized educational delivery system.

      Institute for Professional Development currently has contracts with 23 client institutions at 23 campuses and 39 learning centers in California, Connecticut, Delaware, Florida, Georgia, Iowa, Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and Wisconsin.

      The College for Financial Planning’s operations are located near Denver, Colorado.

      Western International University’s main campus is located in Phoenix, Arizona. Additionally, Western International University also operates in Chandler, Scottsdale, Fort Huachuca, and Mesa, Arizona. Western International University also offers its educational programs worldwide through its computerized educational delivery system.

Other Matters

      The Company will make available free of charge on its website its Annual Report on Form 10-K, Quarterly Reports of Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission. The Company’s website address is www.apollogrp.edu.

Item 2 — Properties

      We lease all of our administrative and educational facilities. In some cases, classes are held in the facilities of the students’ employers at no charge to us. Leases generally range from five to ten years with one to two renewal options for extended terms. We also lease space from time-to-time on a short-term basis in order to provide specific courses or programs. The lease on our corporate headquarters, which includes the University of Phoenix, Phoenix Main Campus, was renewed in 2001 for 10 years and will expire on December 31, 2011. As of August 31, 2005, we leased approximately six million square feet.

      We evaluate current utilization of the educational facilities and projected enrollment growth to determine facility needs. We anticipate that an additional 600,000 square feet will be leased in 2006.

Item 3 — Legal Proceedings

      On approximately October 12, 2004, a class action complaint was filed in the United States District Court for the District of Arizona, captioned Sekuk Global Enterprises et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2147 PHX NVW. A second class action complaint making similar allegations was filed on or about October 18, 2004, in the United States District Court for the District of Arizona, captioned Christopher Carmona et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2204 PHX EHC. A third class action complaint

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

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

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

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

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

      None.

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PART II

Item 5 —  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

      There is no established public trading market for our Apollo Education Group Class B common stock, and all shares of our Apollo Education Group Class B common stock are beneficially owned by affiliates. Our Apollo Education Group Class A common stock trades on the Nasdaq National Market under the symbol “APOL” and our University of Phoenix Online common stock traded on the Nasdaq National Market under the symbol “UOPX,” until it was converted on August 27, 2004, to Apollo Education Group Class A common stock. The holders of our Apollo Education Group Class A common stock are not entitled to any voting rights.

      The table below sets forth the high and low bid prices for our Apollo Education Group Class A common stock as reported by the Nasdaq National Market.

	High		Low
2004
First Quarter	$	69.96	$	60.60
Second Quarter		79.55		62.70
Third Quarter		96.41		76.52
Fourth Quarter		98.01		69.35
2005
First Quarter	$	85.28	$	62.55
Second Quarter		87.45		72.73
Third Quarter		78.91		65.96
Fourth Quarter		82.54		71.28

      The table below sets forth the high and low bid prices for our University of Phoenix Online common stock as reported by the Nasdaq National Market, until it was converted on August 27, 2004, to Apollo Education Group Class A common stock.

	High		Low
2004
First Quarter	$	75.90	$	62.02
Second Quarter		84.15		62.80
Third Quarter		94.00		77.52
The Period from June 1, 2004, to August 27, 2004		94.46		72.38

      These over-the-counter market quotations may reflect inter-dealer prices without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.

      At November 4, 2005, there were approximately 307 holders of record of Apollo Education Group Class A and 5 holders of record of Apollo Education Group Class B common stock. We estimate that, when you include shareholders whose shares are held in nominee accounts by brokers, there were approximately 122,000 holders of our Apollo Education Group Class A common stock.

      Although we are permitted to pay dividends on our Apollo Education Group Class A and Apollo Education Group Class B common stock, we have never paid cash dividends on our common stock. Holders of our Apollo Education Group Class A common stock and Apollo Education Group Class B common stock are entitled to equal per share cash dividends to the extent declared by the Board of Directors.

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      Purchases of Apollo Education Group Class A common stock made by the company during the three months ended August 31, 2005, are as follows:

					Total Number of		Approximate Dollar
					Shares Purchased		Value of Shares
	Total Number				as Part of Publicly		That May yet be
	of Shares		Average Price Paid		Announced		Purchased Under the
Period	Purchased		per Share		Plans or Programs		Plans or Programs
June 1, 2005 — June 30, 2005
July 1, 2005 — July 31, 2005		1,286,292	$	73.77		1,286,292
August 1, 2005 — August 31, 2005		197,000	$	73.39		197,000
Total		1,483,292	$	73.72		1,483,292	$	51,022,585

      The Board of Directors of Apollo initially authorized a program allocating $40 million in Company funds to repurchase shares of Apollo Education Group Class A common stock on September 25, 1998, on May 13, 1999, an additional $20 million was approved, on October 25, 1999, an additional $40 million was approved and on March 24, 2000, an additional $50 million was approved. The Board of Directors of Apollo authorized a program allocating an additional $150 million in Company funds to repurchase shares of Apollo Education Group Class A common stock and, during the period it was outstanding, University of Phoenix Online common stock on March 28, 2003, and on June 25, 2004, an additional $500 million was approved. The Board of Directors of Apollo authorized programs allocating an additional $500 million and $250 million in our funds to repurchase shares of Apollo Education Group Class A common stock on October 1, 2004 and March 25, 2005, respectively, bringing the total funds authorized for repurchase to $1.55 billion as of August 31, 2005. On October 7, 2005, the Board of Directors of Apollo authorized a program allocating an additional $300 million in Company funds to repurchase shares of Apollo Education Group Class A common stock.

      As of August 31, 2005, the Company had repurchased approximately 26,983,000 shares of Apollo Education Group Class A common stock at a total cost of approximately $1.4 billion, including 141,000 Apollo Education Group Class A shares at a cost of $6.2 million in 2003, 5.7 million shares at a cost of $443.5 million in 2004, and 11.1 million shares at a cost of $808.2 million in 2005. While it was outstanding, the Company repurchased 2,025,000 shares of University of Phoenix Online common stock at a total cost of approximately $132.0 million. An additional 3,751,000 shares of Apollo Education Group Class A common stock were repurchased between September 1, 2005 and October 31, 2005 at a cost of approximately $231.0 million. There is no expiration date on the authorization of these funds and repurchases occur at the Company’s discretion.

      As of August 31, 2005, 1,899,000 shares of the Company’s treasury stock have been used to secure receivables between the Company and two of its subsidiaries.

Item 6 —  Selected Consolidated Financial Data

      Information relating to this item appears under the captions “Selected Consolidated Financial Information” on page 13 of the 2005 Annual Report for Apollo Group, Inc., and such information is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Consolidated Financial Statements, and related Notes.

Item 7 —  Management’s Discussion and Analysis of Financial Condition and Results of Operations

      Information relating to this item appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 13 through 24 of the 2005 Annual Report for Apollo Group, Inc., and such information is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. This information should be read in conjunction with the Consolidated Financial Statements and related Notes.

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Item 7A —  Quantitative and Qualitative Disclosures about Market Risk

      Information relating to this item appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 24 of the 2005 Annual Report for Apollo Group, Inc., and such information is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K.

Item 8 —  Financial Statements and Supplementary Data

      Information relating to this item appears on pages 27 through 41 of the 2005 Annual Report for Apollo Group, Inc., and such information is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. Other financial statements and schedules required under Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”), are identified in Item 15 hereof and are incorporated herein by reference.

Item 9 —  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

      None

Item 9A —  Controls and Procedures

      Information relating to this item appears on pages 24 through 25 of the 2005 Annual Report for Apollo Group, Inc., and such information is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. Other financial statements and schedules required under Regulation S-X promulgated under the Securities Act are identified in Item 15 hereof and are incorporated herein by reference.

Item 9B —  Other Information

      None.

PART III

Item 10 —  Directors and Executive Officers of the Registrant

      Our Board of Directors is currently divided into three classes, having staggered terms of three years each and are elected by the holders of our Apollo Education Group Class B common stock.

      Our Class I directors, consisting of John G. Sperling, Ph.D. and Dino J. DeConcini, will stand for reelection at our 2006 Annual Meeting. Our Class II directors, consisting of John R. Norton III and Hedy F. Govenar will stand for reelection at our 2007 Annual Meeting. Our Class III directors, consisting of Todd S. Nelson, Peter V. Sperling, and John Blair will stand for reelection at our 2008 Annual Meeting.

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      The following sets forth information as of October 31, 2005, concerning our directors and executive officers:

Name	Age		Position
John G. Sperling, Ph.D.		84	Founder and Director
Todd S. Nelson		46	Chairman of the Board, Chief Executive Officer, and President
Peter V. Sperling		46	Senior Vice President and Director
Laura Palmer Noone, J.D., Ph.D.		46	President, The University of Phoenix, Inc.
Kenda B. Gonzales		48	Chief Financial Officer, Secretary, and Treasurer
Daniel E. Bachus		35	Chief Accounting Officer and Controller
Robert A. Carroll		40	Chief Information Officer
John Blair		67	Director
Dino J. DeConcini		71	Director
Hedy F. Govenar		61	Director
John R. Norton III		76	Director

      JOHN G. SPERLING, Ph.D., is the founder and a director of Apollo Group, Inc. Dr. Sperling was also President of Apollo Group, Inc. from its inception until February 1998, Chief Executive Officer of Apollo Group, Inc. until August 2001, and Chairman of the Board until June 2004. Prior to his involvement with Apollo Group, Inc., from 1961 to 1973, Dr. Sperling was a professor of Humanities at San Jose State University where he was the Director of the Right to Read Project and the Director of the NSF Cooperative College-School Science Program in Economics. At various times from 1955 to 1961, Dr. Sperling was a member of the faculty at the University of Maryland, Ohio State University, and Northern Illinois University. Dr. Sperling received his Ph.D. from Cambridge University, a Master of Arts from the University of California at Berkeley, and a Bachelor of Arts from Reed College. Dr. Sperling is the father of Peter V. Sperling.

      TODD S. NELSON has been with Apollo Group, Inc. since 1987. Mr. Nelson has been the President of Apollo Group, Inc. since February 1998, the Chief Executive Officer of Apollo Group, Inc. since August 2001, and the Chairman of the Board since June 2004. Mr. Nelson was Vice President of Apollo Group, Inc. from 1994 to February 1998 and the Executive Vice President of University of Phoenix from 1989 to February 1998. From 1987 to 1989, Mr. Nelson was the Director of University of Phoenix’s Utah campus. From 1985 to 1987, Mr. Nelson was the General Manager at Amembal and Isom, a management training company. From 1984 to 1985, Mr. Nelson was a General Manager for Vickers & Company, a diversified holding company. From 1983 to 1984, Mr. Nelson was a Marketing Director at Summa Corporation, a recreational properties company. Mr. Nelson received a Master of Business Administration from the University of Nevada at Las Vegas and a Bachelor of Science from Brigham Young University. Mr. Nelson was a member of the faculty at University of Nevada at Las Vegas from 1983 to 1984.

      PETER V. SPERLING has been with Apollo Group, Inc. since 1983. Mr. Sperling has been a Senior Vice President since June 1998. Mr. Sperling was the Vice President of Administration from 1992 to June 1998 and was the Secretary and Treasurer of Apollo Group, Inc. from 1988 to January 2003. From 1987 to 1992, Mr. Sperling was the Director of Operations at Apollo Education Corporation. From 1983 to 1987, Mr. Sperling was Director of Management Information Services of Apollo Group, Inc. Mr. Sperling received his Master of Business Administration from University of Phoenix and his Bachelor of Arts from the University of California at Santa Barbara. Mr. Sperling is also the Chairman and co-founder of CallWave, Inc., a telecommunications services corporation. Mr. Sperling is the son of John G. Sperling.

      LAURA PALMER NOONE, J.D., Ph.D., has been with University of Phoenix since 1987. Dr. Palmer Noone has served as President of University of Phoenix since September 2000. From 1994 to 2000, she was the Provost and Senior Vice President for Academic Affairs, and from 1991 to 1994, she was Director of Academic Affairs at University of Phoenix, Phoenix campus. Prior to that, she was Judge Pro Tem at the City

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of Chandler, Arizona, and an Attorney at Law in general civil practice emphasizing business representation and civil litigation. She has also served as adjunct faculty at Grand Canyon University and Chandler-Gilbert Community College. Dr. Palmer Noone currently serves as a member of the Arizona State Board for Private Postsecondary Education and as a Board Member for the American Council on Education. Dr. Palmer Noone also serves on the National Advisory Committee on Institutional Quality and Integrity and as a member of the Regional Board of Trustees for the Phoenix International School of Law. Dr. Palmer Noone received her Ph.D. from the Union Institute, her J.D. and her Master of Business Administration from the University of Iowa, and her B.B.A. from the University of Dubuque.

      KENDA B. GONZALES has been with Apollo Group, Inc. since October 1998. Ms. Gonzales has been the Chief Financial Officer of Apollo Group, Inc. since October 1998 and the Secretary and Treasurer of Apollo Group, Inc. since January 2003. Prior to joining Apollo Group, Inc., Ms. Gonzales was the Senior Executive Vice President and Chief Financial Officer of UDC Homes, Inc., a home building corporation. From 1985 to 1996, Ms. Gonzales was the Senior Vice President and Chief Financial Officer of Continental Homes Holding Corp., a home building corporation. Ms. Gonzales began her career as a Certified Public Accountant with Peat, Marwick, Mitchell and Company and is a graduate of the University of Oklahoma with a Bachelor of Accountancy. Ms. Gonzales serves on the Board of Directors of Main Street Restaurant Group, Inc. (formerly Main Street & Main, Inc.), a restaurant franchisee corporation.

      DANIEL E. BACHUS has been with Apollo Group, Inc. since August 2000. Mr. Bachus is the Chief Accounting Officer and Controller of Apollo Group, Inc. From 1992 to 2000, Mr. Bachus was employed by Deloitte & Touche LLP, most recently as an Audit Senior Manager. Mr. Bachus received his Bachelor of Science in Accountancy from the University of Arizona and is a Certified Public Accountant.

      ROBERT A. CARROLL has been serving as Chief Information Officer for Apollo Group, Inc. since July 1998. Prior to joining Apollo Group, Inc., Mr. Carroll was the Director of Systems Engineering for North America Sales at Informix Software, Inc., a provider of relational database management software. Mr. Carroll worked at Informix from 1993 to 1998, in roles of increasing responsibility within the Systems Engineering organization. Mr. Carroll worked for Golden Coast Environmental Services in Irvine, CA from 1987 to 1993. Mr. Carroll served as Vice President of Sales and Information Technology, delivering management software and consulting to municipalities throughout the United States and Canada. Mr. Carroll received his bachelor’s degree in Information and Computer Science from the University of California, Irvine and a Master of Business Administration from University of Phoenix.

      JOHN BLAIR has been a director of Apollo Group, Inc. since September 2000 and is Chairman of the Audit Committee and a member of the Compensation Committee of the Board of Directors of Apollo Group, Inc. In addition, Mr. Blair served from 1982 to September 2000 as a director of Western International University, Inc., a wholly-owned subsidiary of Apollo Group, Inc. Mr. Blair was the Chief Operating Officer of Integrated Information Systems, Inc., a provider of integrated Internet solutions, from May 1999 through December 2000, and a director from January 2001 through March 2004. In 1984, Mr. Blair founded J. Blair Consulting, an independent consulting business that provides management counsel to individuals and organizations and continues to be active in this professional services firm. Mr. Blair earned a Bachelor of Science in Engineering from Purdue University and a Master of Arts in Organizational Management from University of Phoenix.

      DINO J. DECONCINI has been a director of Apollo Group, Inc. since 1981 and is currently a member of the Audit Committee of the Board of Directors of Apollo Group, Inc. From 1993 to 1995 and from 2002 to date, Mr. DeConcini is a Vice President and Senior Associate of Project International, Inc., an international business consulting firm. From 2001 to 2002, Mr. DeConcini was the Director of Financial Education at Consumer Federation of America. From 1995 to 2000, Mr. DeConcini was the Executive Director, Savings Bonds Marketing Office, U.S. Department of the Treasury. From 1979 to 1995, Mr. DeConcini was a shareholder and employee in DeConcini, McDonald, Brammer, Yetwin and Lacy, P.C., Attorneys at Law. From 1991 to 1993 and 1980 to 1990, Mr. DeConcini was a Vice President and partner of Paul R. Gibson & Associates, an international business consulting firm.

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      HEDY F. GOVENAR has been a director of Apollo Group, Inc. since March 1997, and chairs the meetings of the independent directors. Ms. Govenar was a director of University of Phoenix from 1992 to February 1997. Ms. Govenar is founder and Chairwoman of the Board of Governmental Advocates, Inc., a lobbying and political consulting firm in Sacramento, California. As one of the lobbyists in the firm, she has represented a variety of corporate and trade association clients since 1979. From 1989 to 1999, Ms. Govenar served as a commissioner on the California State Film Commission as an appointee of the California State Assembly. Currently, she is a member of the California Education Master Plan Alliance Advisory Committee whose mission is to improve public and private education from pre-kindergarten through university. Ms. Govenar received a Master of Arts in Education from California State University, Northridge and a Bachelor of Arts in English from UCLA.

      JOHN R. NORTON III has been a director of Apollo Group, Inc. since March 1997, is the Chairman of the Compensation Committee, and a member of the Audit Committee of the Board of Directors of Apollo Group, Inc. Mr. Norton founded the J. R. Norton Company, an agricultural producer, in 1955, and engaged in diversified agriculture including crop production and cattle feeding. He served as the Deputy Secretary of the U.S. Department of Agriculture in 1985 and 1986. Mr. Norton is also on the Board of Directors of Shamrock Foods, Inc., a foodservice distributor and dairy. He attended Stanford University and the University of Arizona where he received a Bachelor of Science in Agriculture in 1950.

Committees of the Board of Directors

      The Board of Directors has two principal committees: (1) an Audit Committee comprised of John Blair (Chairperson), Dino J. DeConcini, and John R. Norton III and (2) a Compensation Committee comprised of John R. Norton III (Chairperson) and John Blair.

Meetings of the Board of Directors and its Committees

      During the year ended August 31, 2005, the Board of Directors met on four occasions. All of the directors attended 100% of the Board of Directors meetings and meetings of each of the committees on which he or she served.

      Compensation Committee. The Compensation Committee of our Board of Directors, which met four times during 2005, reviews all aspects of compensation of executive officers and determines or makes recommendations on such matters to the full Board of Directors. Each of the members of this committee is an “independent director” as defined in Rule 4200 of the Marketplace Rules of the National Association of Securities Dealers, Inc., and an “outside director” as defined in Section 162(m) of the Internal Revenue Code. The report of the Compensation Committee for 2005 is set forth in Item 11.

      Audit Committee. The Company has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. John Blair, Dino J. DeConcini, and John R. Norton III are the members of our audit committee. The Audit Committee is responsible for reviewing the financial information which will be provided to shareholders and others, the systems of internal controls, which management and the Board of Directors have established, the performance and selection of independent registered public accounting firm, and our audit and financial reporting processes. This committee held four meetings during 2005. The Board of Directors has determined that Mr. Blair and Mr. Norton are “audit committee financial experts” as defined in Item 401(h) of Regulation S-K. Each of the members of this committee is an “independent director” as defined in Rule 4200 of the Marketplace Rules of the National Association of Securities Dealers, Inc. The report of the Audit Committee for 2005 is set forth in Item 11.

      Other Committees. We are a “Controlled Company” as defined in Rule 4350(c) of the Marketplace Rules of the National Association of Securities Dealers, Inc., since more than 50% of the voting power of us is held by the John Sperling Voting Stock Trust dated January 31, 1995. Therefore, we do not maintain a standing nominating committee or other committee performing similar functions.

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      Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, as well as persons who own more than 10% of a registered class of our equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in beneficial ownership. Directors, executive officers, and greater than 10% shareholders are required by Securities and Exchange Commission regulation to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of the copies of such forms furnished to us, or written representations that no Forms 5 were required, we believe that during the fiscal year ended August 31, 2005, our directors and officers complied with all Section 16(a) filing requirements.

      Code of Ethics. We have adopted a code of ethics that applies to our directors, principal executive officers, and all members of our finance department, including the principal financial officer and principal accounting officer. This code of ethics is filed herewith as Exhibit 14.

Item 11 —  Executive Compensation

Director Compensation

      Fees. In 2005, our non-employee directors received a $24,000 annual retainer and $2,000 for each board meeting attended. In addition, members of the Audit Committee received $2,000 for each Audit Committee meeting attended and members of the Compensation Committee received $1,000 for each Compensation Committee meeting attended. The Audit Committee chairman also received an additional $5,000 for each meeting he chaired, and the Compensation Committee chairman also received $4,500 for each meeting he chaired. Non-employee directors are also reimbursed for out-of-pocket expenses.

      Apollo Group, Inc. Stock-Based Compensation Plans. Through 2003, the Director Stock Plan provided for an annual grant to the Company’s non-employee directors of options to purchase shares of the Company’s Apollo Education Group Class A common stock on September 1 of each year. The Company currently has two stock-based compensation plans in which non-employee directors can be issued options: the Apollo Group, Inc. Long-Term Incentive Plan (“LTIP”) and the Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan (“2000 Incentive Plan”). Under both the LTIP and the 2000 Incentive Plan, the Company may grant non-qualified stock options, incentive stock options, stock appreciation rights, and other stock-based awards in the Company’s Apollo Education Group Class A common stock to certain officers, key employees, or directors of the Company.

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Executive Compensation

      The following table discloses the annual and long-term compensation earned for services rendered in all capacities by our Chief Executive Officer and the four other most highly compensated executive officers for 2005, 2004, and 2003:

SUMMARY COMPENSATION TABLE

										Long-Term Compensation
				Annual Compensation						Awards
												Securities
												Underlying
										Restricted		Options(3)
								Other Annual		Stock						LTIP		All Other
Name and Principal Position		Year		Salary		Bonus(1)		Compensation(2)		Awards		APOL		UOPX		Payouts		Compensation(4)
John G. Sperling			2005	$	450,000	$	—	$	69,249	$	—		—		—	$	—	$	—
	Founder and Director		2004		450,000		—		108,511		—		120,250		—		—		—
			2003		450,000		—		91,637		—		100,000		100,000		—		—
Todd S. Nelson			2005	$	750,000	$	599,000	$	181,217	$	—		—		—	$	—	$	—
	Chairman of the Board,		2004		750,000		4,462,500		176,855		—		700,000		100,000		—		—
	Chief Executive		2003		500,000		3,975,000		53,897		—		200,000		200,000		—		—
	Officer, and President
Kenda B. Gonzales			2005	$	326,000	$	197,000	$	—	$	—		—		—	$	—	$	4,200
	Chief Financial Officer,		2004		280,000		200,000		—		—		100,000		—		—		3,900
	Secretary, and		2003		256,000		192,000		—		—		50,000		—		—		3,600
	Treasurer
Laura Palmer Noone			2005	$	255,444	$	113,000	$	—	$	—		—		—	$	—	$	4,200
	President, The		2004		250,000		120,000		—		—		45,000		—		—		3,900
	University of		2003		220,000		100,000		—		—		25,000		—		—		3,600
	Phoenix, Inc.
Robert A. Carroll			2005	$	237,930	$	74,320	$	—	$	—		—		—	$	—	$	4,200
	Chief Information		2004		225,000		83,500		—		—		35,000		—		—		3,900
	Officer		2003		202,707		76,875		—		—		25,000		—		—		1,448

(1)	Represents cash bonuses earned for the indicated fiscal years.
(2)	Dr. Palmer Noone and Mr. Carroll also received certain perquisites, the value of which did not exceed the lesser of $50,000 or 10% of their annual salary and bonus. Dr. John G. Sperling and Mr. Nelson received perquisites primarily in the form of company provided cars, available for business and personal use, and tax consulting services. In addition, the Company paid, on Mr. Nelson’s behalf, for personal use of an aircraft.
(3)	Effective August 27, 2004, as part of the conversion of University of Phoenix Online common stock to Apollo Education Group Class A common stock, we converted each option to purchase University of Phoenix Online common stock into an option to purchase 1.0766 shares of Apollo Education Group common stock. The shares listed for University of Phoenix Online common stock are as granted prior to the conversion.
(4)	Amounts shown consist of matching contributions made by us to Apollo Group, Inc.’s Savings and Investment Plan paid in the indicated fiscal years.

      The following tables disclose options granted by us to our Chief Executive Officer and the four other most highly compensated executive officers for 2005:

Option Grants to Purchase Apollo Education Group Class A Common Stock In the Last Fiscal Year

	Option Grants in Fiscal Year 2005				Potential Realizable
					Value at Assumed
	Number of	Percent of			Annual Rates of Stock
	Securities	Total Options	Exercise		Price Appreciation for
	Underlying	Granted to	Price per		Option Term
	Options	Employees in	Share	Expiration
Name	Granted	Fiscal Year	($/Share)	Date	5%	10%

No options were granted in the last fiscal year to our Chief Executive Officer and the four other most highly compensated executive officers.

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Aggregated Option Exercises in Fiscal Year 2005 and Option Values at August 31, 2005

      The following tables disclose the number of shares received from the exercise of our options, the value received therefrom, and the number and value of in-the-money and out-of-the-money options held by our Chief Executive Officer and the four other most highly compensated officers for 2005:

Apollo Education Group Class A Common Stock

					Number of Securities				Value of Unexercised
					Underlying Unexercised				In-the-Money Options at
	Shares				Options at Fiscal Year-End				Fiscal Year-End
	Acquired		Value
Name	on Exercise		Realized		Exercisable		Unexercisable		Exercisable		Unexercisable
John G. Sperling		355,825	$	23,896,892		1,612,117		—	$	93,234,484	$	—
Todd S. Nelson						815,312		200,000		17,884,409		1,486,000
Kenda B. Gonzales						418,435		25,000		22,346,845		185,750
Laura Palmer Noone		20,000		1,270,214		319,085		10,000		19,065,017		74,300
Robert A. Carroll		71,624		4,333,458		198,068		7,500		11,798,310		55,725

      The number of securities underlying unexercised options and the value of unexercised in-the-money options includes options to purchase Apollo Education Group Class A common stock issued in conjunction with the conversion of University of Phoenix Online common stock to Apollo Education Group Class A common stock.

      Employment and Deferred Compensation Agreements. In December 1993, we entered into an employment agreement and deferred compensation agreement with Dr. John G. Sperling, our founder. The term of the employment agreement was for five years and expired on December 31, 1997. The employment agreement has automatically renewed for eight additional one-year periods through December 31, 2005, and will automatically renew for additional one-year periods thereafter. Under the terms of the employment agreement, Dr. Sperling received an annual salary of $450,000 for 2005, 2004, and 2003. This salary is subject to annual review by the Compensation Committee. We may terminate the employment agreement only for cause, and Dr. Sperling may terminate the employment agreement at any time upon 30 days written notice.

      The deferred compensation agreement provides that upon his termination of employment with us and until his death, Dr. Sperling shall receive monthly payments equal to one-twelfth of his highest annual base salary paid by us during any one of the three calendar years preceding the calendar year in which Dr. Sperling’s employment is terminated. In addition, upon Dr. Sperling’s death, his designated beneficiary shall be paid an amount equal to three times his highest annual base salary in 36 equal monthly installments with the first such installment due on the first day of the month following the month of Dr. Sperling’s death.

      We do not have employment agreements with any of our other executive officers.

Board Compensation Committee Report on Executive Compensation

      Our Compensation Committee (the “Committee”) is composed entirely of independent outside members of our Board of Directors. The committee reviews each of the elements of our executive compensation program related to our executive officers, including, Todd S. Nelson (the “Senior Executive”), and periodically assesses the effectiveness and competitiveness of the program in total. In addition, the Committee administers the key provisions of the executive compensation program and determines all aspects of compensation for our Senior Executive. The Committee has furnished the following report on executive compensation:

      Overview and Philosophy. Our compensation program for executive officers is primarily comprised of base salary, annual bonus, and long-term incentives in the form of stock option grants. Executive officers also participate in various other benefit plans, including medical and retirement plans, generally available to all of our full-time employees.

      Each of the executive officers receive a base salary, which when aggregated with their maximum bonus amount, is intended to be competitive with similarly situated executives in comparable industries,

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including those companies in the peer group contained in the Stock Performance Graph. The companies surveyed had annual revenues ranging from approximately $183.2 million to $1.7 billion, with an average of $848.8 million and a median of $781.3 million. This data was used to target annual cash compensation for the executive officers at the higher end of companies surveyed.

      Our philosophy is to pay base salaries to the executive officers that enable us to attract, motivate, and retain highly qualified executives. The annual bonus program is designed to reward for performance based on financial results. Stock option grants are intended to provide substantial rewards to executives based on stock price appreciation and improved overall financial performance. The vesting of the options can be accelerated if certain profit goals are achieved.

      Base Salary. Salary increases for the executive officers are based on a review of the competitive data described above. We target base pay at the level required to attract and retain highly qualified executives. In determining salaries, the Committee also takes into account their position with us, individual experience and performance, our revenue size compared to the companies surveyed, and our specific needs.

      Annual Bonus Program. In addition to a base salary, executive officers were eligible to receive a bonus. Bonus amounts for executive officers are determined annually based on a review of the competitive data described above. We target bonuses at the level required to attract and retain highly qualified executives. Bonus amounts are paid if certain goals are achieved.

      Options. We believe that it is important for executive officers to have an equity stake in us, and, toward this end, we make option grants to key executive officers from time to time under the 2000 Stock Incentive Plan. In making option awards, the Committee reviews our financial performance during the past fiscal year, the awards granted to other executives, and the individual officer’s specific role.

      Other Benefits. Executive officers are eligible to participate in benefit programs designed for all of our full-time employees and certain of our executive officers also received certain perquisites, primarily including company cars, company paid tax consulting, and the use of an aircraft which we lease. These programs include medical, disability and life insurance, and a qualified retirement program allowed under Section 401(k) of the Internal Revenue Code.

      Chairman of the Board and Chief Executive Officer Compensation. Todd S. Nelson is our Chairman of the Board, Chief Executive Officer, and President. Mr. Nelson’s base salary is determined annually on the same basis discussed above for the executive officers. Mr. Nelson’s bonus is tied solely to our net income (excluding non-reoccurring items); at the beginning of each fiscal year, the Committee establishes a net income goal for us. If that goal is achieved, Mr. Nelson earns a bonus up to 75% of his annual salary. Mr. Nelson is entitled to additional amounts if we exceed our net income goal. During 2005, Mr. Nelson received an annual base salary of $750,000. Because the net income goal for us was exceeded, Mr. Nelson earned a bonus for 2005 of $599,000.

      Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the Code limits the deductibility of executive compensation paid by publicly held corporations to $1 million for each executive officer named in this report. The $1 million limitation generally does not apply to compensation that is pursuant to a performance-based plan approved by shareholders. The Company’s policy is to comply with the requirements of Section 162(m) and maintain deductibility for all executive compensation, except in circumstances where we conclude on an informed basis that it is in the best interest of the Company and the shareholders to take actions with regard to the payment of executive compensation which do not qualify for tax deductibility.

      Based on our understanding of the regulations under Section 162(m), we believe that the full amount of compensation for each executive officer named in this report will be deductible.

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Compensation and Management Committee Interlocks and Insider Participation

      No member of our Compensation Committee during the year ended August 31, 2005, was an officer or employee of us.

Compensation Committee

John R. Norton III, Chairman

John Blair

Audit Committee Report

      The Audit Committee, operating under its written charter, has (1) reviewed and discussed the audited financial statements of the Company as of and for the year ended August 31, 2005, with management of the Company; (2) discussed with the Company’s independent accountants the matters required to be discussed by Statement on Auditing Standards (“SAS”) No. 61, Communications with Audit Committees, and SAS No. 90, Audit Committee Communications; (3) received and reviewed the written disclosures and the letter from its independent accountants required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees; and (4) discussed with its independent registered public accounting firm, the independent registered public accounting firm’s independence. Based on its review and discussions listed above, the Audit Committee recommended to the Board of Directors that the audited financial statements be incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended August 31, 2005, for filing with the Securities and Exchange Commission.

This report is submitted by the Audit Committee.

John Blair, Chairman

Dino J. DeConcini

John R. Norton III

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Stock Performance Graph

      The line graph below compares the cumulative total shareholder return on our Apollo Education Group Class A common stock and University of Phoenix Online common stock (while it was outstanding) with the cumulative total return for the Standard & Poor’s 500 Index and an index of peer group companies selected by us for the period from August 31, 2000, through August 31, 2005. The graph assumes that the value of the investment in our Apollo Education Group Class A common stock, University of Phoenix Online common stock, and each index was $100 at August 31, 2000, and that all dividends paid by those companies included in the indexes were reinvested. The value shown for University of Phoenix Online common stock is as of August 27, 2004, the date of its conversion to Apollo Education Group Class A common stock, rather than August 31, 2004.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

AMONG APOLLO GROUP, INC., UNIVERSITY OF PHOENIX ONLINE,

THE S & P 500 INDEX AND A PEER GROUP

	Aug. 31		Aug. 31		Aug. 31		Aug. 31		Aug. 31		Aug. 31
	2000		2001		2002		2003		2004		2005
Apollo Education Group Class A common stock	$	100.00	$	144.70	$	230.61	$	353.21	$	430.01	$	433.65
University of Phoenix Online common stock		100.00		300.01		411.16		968.75		1,256.04
S&P 500		100.00		75.61		62.01		69.49		77.45		87.17
Education Peer Group		100.00		128.48		131.74		233.10		178.35		212.19

* $100 invested on 8/31/00 in stock or index-including reinvesting of dividends. Fiscal year ending August 31.

      The education peer group is composed of the publicly-traded common stock of seven education-related companies that include Career Education Corporation (CECO), Corinthian Colleges, Inc. (COCO), DeVry Inc. (DV), Education Management Corporation (EDMC), ITT Educational Services, Inc. (ESI), Laureate Education, Inc. (LAUR) (formerly Sylvan Learning Systems, Inc.), and Strayer Education, Inc. (STRA).

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      We believe that the education peer group is representative of the education industry in which we operate. Similar to us, all of the companies in the education peer group participate in the for-profit, post-secondary education market.

Item 12 —  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      The following table sets forth certain information regarding the beneficial ownership of our common stock as of October 31, 2005. Except as otherwise indicated, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares, except to the extent that authority is shared by spouses under applicable law or as otherwise noted below.

	Apollo					Apollo
	Education					Education
	Group Class A		Percent			Group Class B		Percent
Name and Address of Beneficial Owner(1)	Common Stock		Owned			Common Stock		Owned
John G. Sperling		22,537,180		12.7%	(4- 11)		1			*
John Sperling Voting Stock Trust dated January 31, 1995		585,974		*	(2)		243,080		50.9	%(2)
Peter V. Sperling		13,685,272		7.8%	(4,12- 19)		1			*
Peter Sperling Voting Stock Trust dated January 31, 1995							232,067		48.6	%(3)
Todd S. Nelson		815,312		*	(20)		2,085			*
Kenda B. Gonzales		418,435		*	(21)
Laura Palmer Noone		322,923		*	(22)
Robert A. Carroll		202,344		*	(23)
Hedy F. Govenar		105,018		*	(24)
John R. Norton III		112,656		*	(25)
Dino J. DeConcini		87,828		*	(26)
John Blair		49,500		*	(27)
Total for All Directors and Executive Officers as a Group (11 persons)		37,646,574		20.9%	(28)		477,234		100.0	%

* Represents beneficial ownership of less than 1%.

(1)	The address of each of the listed shareholders, unless noted otherwise, is in care of Apollo Group, Inc., 4615 East Elwood Street, Phoenix, Arizona 85040.
(2)	Todd S. Nelson, Peter V. Sperling, and Jon S. Cohen serve as co-trustees of the John Sperling Voting Stock Trust dated January 31, 1995. Dr. Sperling disclaims beneficial ownership with respect to these shares. The address for Jon S. Cohen is in care of Snell & Wilmer LLP, One Arizona Center, Phoenix, Arizona 85004.
(3)	Peter V. Sperling serves as trustee of the Peter Sperling Voting Stock Trust dated January 31, 1995.
(4)	Includes 1,357,339 shares held by the John Sperling 1994 Irrevocable Trust dated April 27, 1994, for which Messrs. John and Peter Sperling are the co-trustees.
(5)	Includes 2,185,886 shares held by The Aurora Foundation, for which Dr. John G. Sperling is the trustee.
(6)	Includes 1,330,867 shares that Dr. John Sperling has the right to acquire within 60 days of the date of the table set forth above.
(7)	Includes 250,000 shares that Dr. John Sperling has subject to a forward sale agreement maturing January 3, 2006.
(8)	Includes 250,000 shares that Dr. John Sperling has subject to a forward sale agreement maturing April 4, 2006.

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(9)  Includes 250,000 shares that Dr. John Sperling has subject to a forward sale agreement maturing June 30, 2006.

(10)	Includes 250,000 shares that Dr. John Sperling has subject to a forward sale agreement maturing January 12, 2007.
(11)	Includes 250,000 shares that Dr. John Sperling has subject to a forward sale agreement maturing February 2, 2007.
(12)	Includes 578,211 shares that Mr. Peter Sperling has the right to acquire within 60 days of the date of the table set forth above.
(13)	Includes 250,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing November 5, 2007.
(14)	Includes 500,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing January 2, 2008.
(15)	Includes 250,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing January 31, 2008.
(16)	Includes 500,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing April 11, 2008.
(17)	Includes 500,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing April 27, 2008.
(18)	Includes 500,000 shares that Mr. Peter Sperling has subject to a forward sale agreement maturing July 25, 2008.
(19)	Includes 551,156 shares held by the Mr. Peter Sperling Revocable Trust dated January 31, 1995.
(20)	Includes 815,312 shares that Mr. Nelson has the right to acquire within 60 days of the date of the table set forth above.
(21)	Includes 418,435 shares that Ms. Gonzales has the right to acquire within 60 days of the date of the table set forth above.
(22)	Includes 319,085 shares that Ms. Palmer Noone has the right to acquire within 60 days of the date of the table set forth above.
(23)	Includes 198,068 shares that Mr. Carroll has the right to acquire within 60 days of the date of the table set forth above.
(24)	Includes 102,656 shares that Ms. Govenar has the right to acquire within 60 days of the date of the table set forth above.
(25)	Includes 112,656 shares that Mr. Norton has the right to acquire within 60 days of the date of the table set forth above.
(26)	Includes 82,771 shares that Mr. DeConcini has the right to acquire within 60 days of the date of the table set forth above.
(27)	Includes 49,500 shares that Mr. Blair has the right to acquire within 60 days of the date of the table set forth above.
(28)	Includes 4,088,387 shares that all Directors and Executive Officers as a group have the right to acquire within 60 days of the date of the table set forth above.

Equity Compensation Plan Information

Equity Compensation Plans Approved by Shareholders

      We have four stock-based compensation plans: the Apollo Group, Inc. Second Amended and Restated Director Stock Plan (“Director Stock Plan”), the Apollo Group, Inc. Long-Term Incentive Plan (“LTIP”), the Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan (“2000 Incentive Plan”), and the Apollo Group, Inc. Second Amended and Restated 1994 Employee Stock Purchase Plan (“Purchase Plan”). The necessary shareholders have approved all four of these plans.

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

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

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

      The Purchase Plan allowed for our employees to purchase shares of our Apollo Education Group Class A common stock and, during the period it was outstanding, University of Phoenix Online common stock, at quarterly intervals through periodic payroll deductions. The purchase price per share during 2005, 2004, and 2003, in general, was 85% of the lower of 1) the fair market value (as defined in the Purchase Plan) on the enrollment date into the respective quarterly offering period or 2) the fair market value on the purchase date. Effective October 1, 2005, the Purchase Plan was amended and restated. The Apollo Group, Inc. Third Amended and Restated 1994 Employee Stock Purchase Plan allows our employees to purchase shares of Apollo Education Group Class A common stock at a price per share equal to 95% of the fair market value on the purchase date.

Equity Compensation Plans Not Approved by Shareholders

      We currently have no equity compensation plans that have not been approved by the necessary shareholders.

      The following table sets forth, for each of our equity compensation plans, the number of outstanding option grants and the number of shares remaining available for issuance as of August 31, 2005, for our Apollo Education Group Class A common stock, in thousands, except weighted-average exercise price:

	(a)		(b)		(c)
	Number of Securities				Number of Securities Remaining
	to be Issued Upon		Weighted-Average		Available for Future Issuance
	Exercise of		Exercise Price of		Under Equity Compensation Plans
	Outstanding Options,		Outstanding Options,		(Excluding Securities Reflected in
Plan category	Warrants, and Rights		Warrants, and Rights		Column(a))
Equity compensation plans approved by security holders		8,712	$	38.167		4,737
Equity compensation plans not approved by security holders		—		—		—
Total		8,712	$	38.167		4,737

Item 13 —  Certain Relationships and Related Transactions

      In August 1998, we together with Hughes Network Systems and Hermes Onetouch, LLC (“Hermes”) formed Interactive Distance Learning, Inc. (“IDL”), a new corporation, to acquire One Touch Systems, a leading provider of interactive distance learning solutions. We contributed $10.7 million in October 1999 and $1.2 million in December 1999, in exchange for a 19% interest in the newly formed corporation. We accounted

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for our investment in IDL under the cost method. Hermes is currently owned by Dr. John G. Sperling, our founder and a director of us.

      On December 14, 2001, Hermes acquired our investment in IDL in exchange for a promissory note in the principal amount of $11.9 million, which represented the related carrying value and approximated the related fair value as of that date. The promissory note accrues interest at an annual rate of six percent and is due at the earlier of December 14, 2021 or nine months after Dr. Sperling’s death. The promissory note is included in other assets in the Consolidated Balance Sheets as of August 31, 2005 and 2004. The carrying value of this receivable reasonably approximates its fair value as the stated interest rate approximates current market interest rates.

      Effective July 15, 1999, we entered into contracts with Apollo International, Inc. to provide educational products and services in certain locations outside of the United States, Canada, and Puerto Rico. Dr. John G. Sperling is a director of Apollo International, Inc. Shares of Apollo International, Inc. stock are beneficially owned by us (2.6% for which we have paid $999,989) and by an investment entity controlled by Dr. John G. Sperling (30%). The first educational offering under these agreements commenced in the Netherlands in September 1999. During the years ended August 31, 2005, 2004, and 2003, we received no revenue from Apollo International, Inc. for services rendered in connection with these contracts. Effective October 1, 2005, we have taken over operations at the Netherlands campus from Apollo International, Inc.

      Effective September 2002, Western International University entered into an agreement with Apollo International, Inc. that allows for Western International University’s educational offerings to be made available in India. Apollo International, Inc. manages the relationship with the entities in India that are offering the Western International University programs while Western International University maintains the educational content of the programs. Western International University received revenue of $89,000, $37,000, and $8,000 during the years ended August 31, 2005, 2004, and 2003, respectively, for services rendered in connection with this agreement.

      Effective June 1, 1999, we entered into an agreement with Governmental Advocates, Inc. to provide consulting services to the Company with respect to matters concerning legislation, regulations, public policy, electoral politics, and any other topics of concern to it relating to state government in the state of California. Hedy Govenar, one of our directors, is the founder and Chairwoman of Governmental Advocates, Inc. On June 1, 2005, we renewed this agreement for an additional one year. Pursuant to the agreement, we paid consulting fees to Governmental Advocates, Inc. of $120,000 in 2005, 2004, and 2003.

      On occasion, we lease an airplane from Yo Pegasus, LLC, an entity controlled by Dr. John G. Sperling. Payments to this entity during the years ended August 31, 2005, 2004, and 2003, were $421,000, $573,000, and $225,000, respectively.

Item 14 — Principal Accounting Fees and Services

      The following is a summary of the fees billed to us by Deloitte & Touche LLP (“Deloitte”) for professional services rendered for the years ended August 31, 2005 and 2004:

Fee Category		2005		2004
Audit fees		$	1,382,000	$	464,000
Audit-related fees			34,000		63,000
Tax fees			274,000		270,000
All other fees					2,000
	Total fees	$	1,690,000	$	799,000

      Audit Fees. 2005 fees consist of fees billed for professional services rendered for the integrated audit of Apollo’s consolidated financial statements and of its internal control over financial reporting, review of the interim consolidated financial statements included in quarterly reports, and services performed in connection with statutory and regulatory filings or engagements. 2004 fees consist of fees billed for professional services

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rendered for the audit of our consolidated financial statements, review of our interim consolidated financial statements and the financial statements of University of Phoenix Online included in quarterly reports, and services performed in connection with statutory and regulatory filings or engagements.

      Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include employee benefit plan audits, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.

      Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice, and tax planning. These services include assistance regarding federal, state, and international tax compliance, tax audit defense, mergers and acquisitions, and international tax planning.

      All Other Fees. Consists of fees paid to Deloitte in 2004 for continuing education.

      Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors. The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

      The Audit Committee has determined that the provision of the foregoing services and the related fees are compatible with maintaining Deloitte’s independence.

PART IV

Item 15 — Exhibits and Financial Statement Schedules

1. Financial Statements

      The following consolidated financial statements and related items of Apollo Group, Inc. and subsidiaries, included in the Annual Report to Shareholders for the year ended August 31, 2005, are incorporated by reference from our 2005 Annual Report to Shareholders:

•  Reports of Registered Public Accounting Firms

•  Consolidated Balance Sheets as of August 31, 2005 and 2004

•  Consolidated Statements of Income for the Years Ended August 31, 2005, 2004, and 2003

•  Consolidated Statements of Comprehensive Income for the Years Ended August 31, 2005, 2004, and 2003

•  Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended August 31, 2005, 2004, and 2003

•  Consolidated Statements of Cash Flows for the Years Ended August 31, 2005, 2004, and 2003

•  Notes to Consolidated Financial Statements

2. Financial Statement Schedules:

      All schedules are omitted because they are not applicable or the required information is shown in the financial statements or related notes.

43

3. Exhibits

Exhibit
Number			Description of Exhibit	Sequentially Numbered Page or Method of Filing
	2	.1	Asset Purchase Agreement by and among National Endowment for Financial Education,(R) College for Financial Planning, Inc., as assignee of Apollo Online, Inc., as Buyer, and Apollo Group, Inc. dated August 21, 1997	Incorporated by reference to Exhibit 10 of our Registration Statement No. 333-35465 on Form S-3 filed September 11, 1997
	2	.2	Assignment and Amendment of Asset Purchase Agreement by and among National Endowment for Financial Education, Inc., the College for Financial Planning, Inc., Apollo Online, Inc., and Apollo Group, Inc., dated September 23, 1997	Incorporated by reference to Exhibit 10.2 of our Registration Statement No. 333-35465 on Form S-3/A filed September 23, 1997
	3	.1	Amended and Restated Articles of Incorporation of the Company	Incorporated by reference to Exhibit 3.1 of our Registration Statement No. 333-33370 on Form S-3/A, dated August 31, 2000
	3	.2	Amended and Restated Bylaws of the Company (As Amended Through June 1996)	Incorporated by reference to Exhibit 3.2 of the August 31, 1996 Form 10-K
	10	.2	Apollo Group, Inc. Second Amended and Restated Director Stock Plan*	Incorporated by reference to Exhibit 10.2 of the August 31, 2004 Form 10-K
	10	.3	Apollo Group, Inc. Long-Term Incentive Plan*	Incorporated by reference to Exhibit 10.3 of Form S-1 No. 33-83804
	10	.4	Amended and Restated Apollo Group, Inc. Savings and Investment Plan*	Incorporated by reference to Exhibit 10.4 of the November 30, 2001 Form 10-Q
	10	.5	Apollo Group, Inc. Third Amended and Restated 1994 Employee Stock Purchase Plan*	Filed herewith
	10	.7	Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan*	Incorporated by reference to Exhibit 10.7 of the August 31, 2004 Form 10-K
	10	.8	Employment Agreement between Apollo Group, Inc. and John G. Sperling*	Incorporated by reference to Exhibit 10.6 of Form S-1 No. 33-83804
	10	.9	Deferred Compensation Agreement between John G. Sperling and Apollo Group, Inc.*	Incorporated by reference to Exhibit 10.7 of Form S-1 No. 33-83804
	10	.10a	Shareholder Agreement dated September 7, 1994, by and between the Company and each holder of the Company’s Apollo Education Group Class B Common Stock	Incorporated by reference to Exhibit 10.10 of Form S-1/A No. 33-83804
	10	.10b	Amendment to Shareholder Agreement between the Company and each holder of the Company’s Apollo Education Class B Common Stock, dated May 25, 2001	Incorporated by reference to Exhibit 10.10b of the August 31, 2001 Form 10-K
	10	.11	Agreement of Purchase and Sale of Assets of Western International University dated June 30, 1995 (without schedules and exhibits)	Incorporated by reference to Exhibit 10.11 of the August 31, 1995 Form 10-K
	10	.12	Purchase and Sale Agreement dated October 10, 1995	Incorporated by reference to Exhibit 10.12 of the August 31, 1996 Form 10-K
	10	.13	Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2001	Incorporated by reference to Exhibit 10.13 of the August 31, 2001 Form 10-K

44

Exhibit
Number			Description of Exhibit	Sequentially Numbered Page or Method of Filing
	10	.13a	Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2002	Incorporated by reference to Exhibit 10.13a of the August 31, 2002 Form 10-K
	10	.13b	Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2003	Incorporated by reference to Exhibit 10.13b of the August 31, 2003 Form 10-K
	10	.13c	Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2004	Incorporated by reference to Exhibit 10.13c of the August 31, 2004 Form 10-K
	10	.13d	Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2005	Incorporated by reference to Exhibit 10.13d of the May 31, 2005 Form 10-Q
	10	.14	Promissory Note from Hermes Onetouch, L.L.C	Incorporated by reference to Exhibit 10.14 of the February 28, 2002 Form 10-Q
	13		Pages 13 through 41 of Apollo Group, Inc. 2005 Annual Report to Shareholders for the year ended August 31, 2005	Filed herewith
	14		Code of Ethics	Filed herewith
	16		Letter of PricewaterhouseCoopers LLP to the Securities and Exchange Commission dated January 21, 2004	Incorporated by reference to Exhibit 16 of the January 21, 2004 Form 8-K
	21		List of Subsidiaries	Filed herewith
	23	.1	Consent of Independent Registered Public Accounting Firm	Filed herewith
	23	.2	Consent of Independent Registered Public Accounting Firm	Filed herewith
	31	.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
	31	.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
	32	.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
	32	.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
	99	.2	Audit Committee Charter	Filed herewith
	99	.3	Compensation Committee Charter	Filed herewith

*  Indicates a management contract or compensation plan.

45

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Phoenix, State of Arizona, on November 14, 2005.

APOLLO GROUP, INC.

An Arizona Corporation

By:  /s/ Todd S. Nelson

Todd S. Nelson

Chairman of the Board,

Chief Executive Officer, and President

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Signature	Title	Date
/s/ John G. Sperling John G. Sperling	Founder and Director	November 14, 2005
/s/ Todd S. Nelson Todd S. Nelson	Chairman of the Board, Chief Executive Officer, and President (Principal Executive Officer)	November 14, 2005
/s/ Kenda B. Gonzales Kenda B. Gonzales	Chief Financial Officer, Secretary, and Treasurer (Principal Financial Officer)	November 14, 2005
/s/ Peter V. Sperling Peter V. Sperling	Senior Vice President and Director	November 14, 2005
/s/ Daniel E. Bachus Daniel E. Bachus	Chief Accounting Officer and Controller	November 14, 2005
/s/ Dino J. DeConcini Dino J. DeConcini	Director	November 14, 2005
/s/ John R. Norton III John R. Norton III	Director	November 14, 2005
/s/ Hedy F. Govenar Hedy F. Govenar	Director	November 14, 2005
/s/ John Blair John Blair	Director	November 14, 2005

46

EXHIBIT INDEX

Exhibit
Number			Description of Exhibit	Sequentially Numbered Page or Method of Filing
	2	.1	Asset Purchase Agreement by and among National Endowment for Financial Education,(R) College for Financial Planning, Inc., as assignee of Apollo Online, Inc., as Buyer, and Apollo Group, Inc. dated August 21, 1997	Incorporated by reference to Exhibit 10 of our Registration Statement No. 333-35465 on Form S-3 filed September 11, 1997
	2	.2	Assignment and Amendment of Asset Purchase Agreement by and among National Endowment for Financial Education, Inc., the College for Financial Planning, Inc., Apollo Online, Inc., and Apollo Group, Inc., dated September 23, 1997	Incorporated by reference to Exhibit 10.2 of our Registration Statement No. 333-35465 on Form S-3/A filed September 23, 1997
	3	.1	Amended and Restated Articles of Incorporation of the Company	Incorporated by reference to Exhibit 3.1 of our Registration Statement No. 333-33370 on Form S-3/A, dated August 31, 2000
	3	.2	Amended and Restated Bylaws of the Company (As Amended Through June 1996)	Incorporated by reference to Exhibit 3.2 of the August 31, 1996 Form 10-K
	10	.2	Apollo Group, Inc. Second Amended and Restated Director Stock Plan*	Incorporated by reference to Exhibit 10.2 of the August 31, 2004 Form 10-K
	10	.3	Apollo Group, Inc. Long-Term Incentive Plan*	Incorporated by reference to Exhibit 10.3 of Form S-1 No. 33-83804
	10	.4	Amended and Restated Apollo Group, Inc. Savings and Investment Plan*	Incorporated by reference to Exhibit 10.4 of the November 30, 2001 Form 10-Q
	10	.5	Apollo Group, Inc. Third Amended and Restated 1994 Employee Stock Purchase Plan*	Filed herewith
	10	.7	Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan*	Incorporated by reference to Exhibit 10.7 of the August 31, 2004 Form 10-K
	10	.8	Employment Agreement between Apollo Group, Inc. and John G. Sperling*	Incorporated by reference to Exhibit 10.6 of Form S-1 No. 33-83804
	10	.9	Deferred Compensation Agreement between John G. Sperling and Apollo Group, Inc.*	Incorporated by reference to Exhibit 10.7 of Form S-1 No. 33-83804
	10	.10a	Shareholder Agreement dated September 7, 1994, by and between the Company and each holder of the Company’s Apollo Education Group Class B Common Stock	Incorporated by reference to Exhibit 10.10 of Form S-1/A No. 33-83804
	10	.10b	Amendment to Shareholder Agreement between the Company and each holder of the Company’s Apollo Education Class B Common Stock, dated May 25, 2001	Incorporated by reference to Exhibit 10.10b of the August 31, 2001 Form 10-K
	10	.11	Agreement of Purchase and Sale of Assets of Western International University dated June 30, 1995 (without schedules and exhibits)	Incorporated by reference to Exhibit 10.11 of the August 31, 1995 Form 10-K
	10	.12	Purchase and Sale Agreement dated October 10, 1995	Incorporated by reference to Exhibit 10.12 of the August 31, 1996 Form 10-K
	10	.13	Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2001	Incorporated by reference to Exhibit 10.13 of the August 31, 2001 Form 10-K

47

Exhibit
Number			Description of Exhibit	Sequentially Numbered Page or Method of Filing
	10	.13a	Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2002	Incorporated by reference to Exhibit 10.13a of the August 31, 2002 Form 10-K
	10	.13b	Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2003	Incorporated by reference to Exhibit 10.13b of the August 31, 2003 Form 10-K
	10	.13c	Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2004	Incorporated by reference to Exhibit 10.13c of the August 31, 2004 Form 10-K
	10	.13d	Independent Contractor Agreement between Apollo Group, Inc. and Governmental Advocates, Inc. dated June 1, 2005	Incorporated by reference to Exhibit 10.13d of the May 31, 2005 Form 10-Q
	10	.14	Promissory Note from Hermes Onetouch, L.L.C	Incorporated by reference to Exhibit 10.14 of the February 28, 2002 Form 10-Q
	13		Pages 13 through 41 of Apollo Group, Inc. 2005 Annual Report to Shareholders for the year ended August 31, 2005	Filed herewith
	14		Code of Ethics	Filed herewith
	16		Letter of PricewaterhouseCoopers LLP to the Securities and Exchange Commission dated January 21, 2004	Incorporated by reference to Exhibit 16 of the January 21, 2004 Form 8-K
	21		List of Subsidiaries	Filed herewith
	23	.1	Consent of Independent Registered Public Accounting Firm	Filed herewith
	23	.2	Consent of Independent Registered Public Accounting Firm	Filed herewith
	31	.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
	31	.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
	32	.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
	32	.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
	99	.2	Audit Committee Charter	Filed herewith
	99	.3	Compensation Committee Charter	Filed herewith

*  Indicates a management contract or compensation plan.

48 EX-10.5 2 p71469exv10w5.txt EX-10.5 EXHIBIT 10.5 APOLLO GROUP, INC. THIRD AMENDED AND RESTATED 1994 EMPLOYEE STOCK PURCHASE PLAN WHEREAS, Apollo Group, Inc. (the "Company") previously adopted the Apollo Group, Inc. 1994 Employee Stock Purchase Plan ("Prior Plan"); WHEREAS, the Plan has subsequently been amended on three separate occasions; WHEREAS, the Company wishes to amend and restate the Prior Plan because of changes to the financial accounting reporting requirements applicable to employee stock purchase plans that offer employer stock at more than a five percent discount and provide a look-back feature in which the purchase price of the stock is determined by reference to the stock's market value as of the first or last day of an offering period, whichever is less; NOW THEREFORE, the Company hereby adopts the Apollo Group, Inc. Amended and Restated 1994 Employee Stock Purchase Plan (the "Plan") effective as of the Offering Period beginning on October 1, 2005 ("Effective Date"), as set forth below. 1. Purpose. The purpose of the Plan is to encourage stock ownership by employees of the Company and its Subsidiaries and thereby provide employees with an incentive to contribute to the profitability and success of the Company. The Plan, which is intended to qualify as an "employee stock purchase plan" meeting the requirements of Section 423 of the Code, is for the exclusive benefit of eligible employees of the Company and its Subsidiaries. 2. Definitions. For purposes of the Plan, in addition to the terms defined in Section 1, terms are defined as set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cash Account" means the account which shall be a subaccount in the Company's general cash account, maintained on behalf of a Participant by the Company for the purpose of holding cash contributions withheld from payroll pending investment in Stock (c) "Code" means the Internal Revenue Code of 1986, as amended from time to time. References to any provision of the Code will be deemed to include successor provisions thereto and regulations thereunder. (d) "Custodian" means Smith Barney Inc., or such successor thereto as may be appointed by the Board or its delegate under Section 3(a). (e) "Earnings" means that portion of a Participant's salary or wages which is designated as "regular pay" under the payroll system of the Company and its Subsidiaries and received by a Participant for services rendered during a specified pay period during which time the Participant participated in the Plan. (f) "Enrollment Date" means the first business day of each Offering Period. (g) "Fair Market Value" means the closing sale price of Stock reported in the table entitled "Nasdaq National Market Issues" or any successor table in the Wall Street Journal (or, if Stock is then principally traded on a national securities exchange, in the table reporting composite transactions for such exchange) for such date or, if no shares of Stock were traded on that date, on the next preceding day on which there was such a trade. (h) "Offering Period" means the three-month period beginning on January 1, April 1, July 1, or October 1 of each year, with the first Offering Period to begin on the first such date after the Company's Stock is publicly traded on the Nasdaq National Market or a national securities exchange. (i) "Participant" means an employee of the Company or a Subsidiary who is participating in the Plan. (j) "Purchase Date" means the fifth business day after the end of each Offering Period. (k) "Purchase Right" means a Participant's option to purchase shares which is deemed to be outstanding during an Offering Period. A Purchase Right represents an "option" as such term is used under Section 423 of the Code. (l) "Stock" means the Company's Apollo Education Group Class A common stock, no par value per share, and such other securities as may be substituted or resubstituted for Stock under Section 4. (m) "Stock Account" means the account maintained on behalf of the Participant by the Custodian for the purpose of holding Stock acquired upon investment under the Plan. (n) "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. 3. Administration. (a) Board Administration. The Plan will be administered by the Board; provided, however, that the Board may delegate any administrative duties and authority (other than authority to amend or terminate the Plan) to any Board committee or to any officers or employees or committee thereof as the Board may designate (in which case references herein to the Board will be deemed to refer to the administrator to which such duties and authority have been delegated). The Board will have full authority to adopt, amend, suspend, waive, and rescind such rules and regulations and appoint such agents as it may deem necessary or advisable - 2 - to administer the Plan, to correct any defect or supply any omission or reconcile any inconsistency in the Plan and to construe and interpret the Plan and rules and regulations thereunder, to furnish to the Custodian such information as the Custodian may require, and to make all other decisions and determinations under the Plan (including determinations relating to eligibility). No person acting in connection with the administration of the Plan will, in that capacity, participate in deciding any matter relating to his or her participation in the Plan. (b) The Custodian. The Custodian will act as custodian under the Plan, and will perform such duties as are set forth in the Plan and in any agreement between the Company and the Custodian. The Custodian will establish and maintain, as agent for Participants, Participant Stock accounts and any other subaccounts as may be necessary or desirable for the administration of the Plan. (c) Waivers. The Board may waive or modify any requirement that a notice or election be made or filed under the Plan a specified period in advance in an individual case or by adoption of a rule or regulation under the Plan, without the necessity of an amendment to the Plan. (d) Other Administrative Provisions. The Company will furnish information from its records as directed by the Board, and such records, including as to a Participant's Earnings, will be conclusive on all persons unless determined by the Board to be incorrect. Each Participant and other person claiming benefits under the Plan must furnish to the Company in writing a current mailing address and any other information as the Board or Custodian may reasonably request. Any communication, statement, or notice mailed with postage prepaid to any such Participant or other person at the last mailing address filed with the Company will be deemed sufficiently given when mailed and will be binding upon the named recipient. The Plan will be administered on a reasonable and nondiscriminatory basis and will apply uniform rules to all persons similarly situated. All Participants will have equal rights and privileges (subject to the terms of the Plan) with respect to Purchase Right outstanding during any given Offering Period in accordance with Code Section 423(b)(5). 4. Stock Subject to Plan. Subject to adjustment as hereinafter provided, the aggregate number of shares of Stock reserved and available for issuance or which may be otherwise acquired upon exercise of Purchase Rights under the Plan shall be 7,593,750. Any shares of Stock delivered by the Company under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. The number and kind of such shares of Stock subject to the Plan will be proportionately adjusted, as determined by the Board, in the event of any extraordinary dividend or other distribution, recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event affecting the Stock. If at the end of any Offering Period, the number of shares of Stock with respect to which Purchase Rights are to be exercised exceeds the number of shares of Stock then available under the Plan, the Board shall make a pro rata allocation of the shares of Stock remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. - 3 - 5. Enrollment and Contributions. (a) Eligibility. An employee of the Company or a Subsidiary may be enrolled in the Plan for any Offering Period if such employee was continuously so employed during the 90 days preceding the Enrollment Date, unless one of the following applies to the employee: (i) Such person has been employed for less than one year with the Company or a Subsidiary; (ii) Such person is a "highly compensated employee" of the Company within the meaning of Section 414(q) of the Code and was a participant in the Apollo Group, Inc. Long-Term Incentive Plan on September 1, 1994; (iii) Such person would, immediately upon enrollment, be deemed to own, for purposes of Section 423(b)(3) of the Code, an aggregate of five percent or more of the total combined voting power or value of all outstanding shares of all classes of the Company or any Subsidiary; or (iv) Such person is no longer employed by the Company or a Subsidiary. The Company will notify an employee of the date as of which he or she is eligible to enroll in the Plan, and will make available to each eligible employee the necessary enrollment forms. Notwithstanding the above, any individual who is employed by the Company or a Subsidiary designated by the Board and who is working outside of the United States shall not be eligible to participate in the Plan if the laws of the country in which the employee is working makes the offer of the Purchase Right or the delivery of Stock under the Plan impractical. Additionally, the offer of the Purchase Right and the delivery of Stock under the Plan shall be effective for any individual who is employed by the Company or a Subsidiary and who is working outside of the United States only after the Company has complied with the applicable laws of the country in which the employee is working. (b) Initial Enrollment. An employee who is eligible under Section 5(a) (or who will become eligible on or before a given Enrollment Date) may, after receiving current information about the Plan, initially enroll in the Plan by executing and filing with the Company's Human Resources Office a properly completed enrollment form, including thereon the employee's election as to the rate of payroll contributions for the Offering Period. To be effective for any Offering Period, such properly executed enrollment form must be filed at least 15 days (or such other period determined by the Board, or its delegate under Section (3a)) before the Enrollment Date for the Offering Period. (c) Automatic Re-enrollment for Subsequent Offering Periods. A Participant whose enrollment in and payroll contributions under the Plan continues throughout an Offering Period will automatically be reenrolled in the Plan for the next Offering Period unless (i) the - 4 - Participant terminates enrollment before the Enrollment Date for the next Offering Period in accordance with Section 7(a) or (ii) on such Enrollment Date he or she is ineligible to participate under Section 5(a). The rate of payroll contributions for a Participant who is automatically re-enrolled for an Offering Period will be the same as the rate of payroll contribution in effect at the end of the preceding Offering Period, unless the Participant files a new properly executed enrollment form at least 15 days (or such other period determined by the Board, or its delegate under Section (3a)) before the Enrollment Date for the Offering Period designating a different rate of payroll contribution. (d) Payroll Contributions. A Participant will make contributions under the Plan only by means of payroll deductions from Earnings for each payroll period that ends during the Offering Period, at the rate elected by the Participant in his or her enrollment form in effect for that Offering Period (except that such rate may be changed during the Offering Period to the extent permitted below). The rate of payroll contributions elected by a Participant may not be less than one percent of the Participant's Earnings for each payroll period ending during an Offering Period, nor more than the greater of (A) 10 percent of the Participant's year-to-date Earnings, or (B) $3,000 during any full or partial calendar year during which an individual is eligible to participate in the Plan, and only whole percentages may be elected; provided, however, that the Board may specify a lower minimum rate and higher maximum rate or dollar amount, subject to Section 8(c). Notwithstanding the above, a Participant's payroll contributions will be adjusted downward by the Company as necessary to ensure that the limit on the amount of Stock purchased with respect to an Offering Period set forth in Section 6(a)(iii) is not exceeded. A Participant may elect to increase, decrease, or discontinue payroll contributions for a future Offering Period by filing a new properly executed enrollment form at least 15 days (or such other period determined by the Board, or its delegate under Section (3a)) before the Enrollment Date for the Offering Period designating a different rate of payroll contributions. In addition, a Participant may elect to decrease or discontinue payroll contributions during an Offering Period by filing a new properly executed enrollment form, such change to be effective for the next payroll period beginning at least 15 days after such filing. (e) Crediting Payroll Contributions to Cash Accounts. All payroll contributions by a Participant under the Plan will be credited to a Cash Account maintained by the Company on behalf of the Participant. The Company will credit payroll contributions to each Participant's Cash Account as soon as practicable after the contributions are withheld from the Participant's Earnings.. (f) No Interest on Cash Accounts. No amounts of interest will be credited or payable by the Company on payroll contributions or by the Custodian on cash balances in Participant's Cash Accounts pending investment in Stock. (g) Effect of Rehiring. If an individual terminates employment with, or ceases to perform services for, the Company and is later rehired by, or again commences performing services for, the Company, the individual will be eligible to participate in the Plan as of the Offering Period next following the date the individual is rehired by, or again commences providing services for, the Company if the period that the individual was separated from employment with, or ceased providing services for, the Company is less than one full calendar year. If the period that the individual was separated from employment with, or ceased providing - 5 - services for, the Company is equal to or greater than one full calendar year, the individual will be eligible to participate in the Plan only after the individual has again satisfied the eligibility requirements set forth in Section 5(a). 6. Purchases of Stock (a) Purchase Rights. Enrollment in the Plan for any Offering Period by a Participant will constitute a grant by the Company of a Purchase Right to such Participant for such Offering Period. Each Purchase Right will be subject to the following terms: (i) The Purchase prices at which Stock will be purchased under a Purchase Right will be as specified in Section 6(c). (ii) Except as limited in (iii) below, the number of shares of Stock that may be purchased upon exercise of the Purchase Right for an Offering Period will equal the number of shares (including fractional shares) that can be purchased at the purchase price specified in Section 6(c) with the aggregate amount credited to the Participant's Cash Account as of the Purchase Date. (iii) The number of shares of Stock subject to a Participant's Purchase Right for any Offering Period will not exceed the number derived by dividing $6,250 by 100% of the Fair Market Value of one share of Stock on the Enrollment Date for the Offering Period. (iv) The Purchase Right will be automatically exercised on the Purchase Date for the Offering Period. (v) Payments by a Participant for Stock purchased under a Purchase Right will be made only through payroll deduction in accordance with Section 5(d) and (e). (vi) The Purchase Right will expire on the earlier of the Purchase Date for the Offering Period or the date on which the Participant's enrollment in the Plan terminates. (b) Purchase of Stock. At or as promptly as practicable after the Purchase Date for an Offering Period, amounts credited to each Participant's Cash Account as of such Purchase Date will be applied by the Custodian to the purchase of shares of Stock, in accordance with the terms of the Plan. Shares of Stock will be purchased by the Custodian from the Company. The Shares sold by the Company to the Custodian may be authorized but unissued shares or treasury shares, as permitted under Section 4 hereof. The Custodian will aggregate the amounts in all Cash Accounts when purchasing Stock, and shares so purchased will be allocated to each Participant's Stock Account in proportion to the cash amounts withdrawn from such Participant's Cash Account. Upon completion of purchases in respect of a Purchase Date (which will be completed in not more than 30 days after the Purchase Date), all shares of Stock so purchased for a Participant will be credited to the Participant's Stock Account. - 6 - (c) Purchase Price. The purchase price of each share of Stock purchased in respect of a Purchase Date will equal 95% of the Fair Market Value of a share of Stock on the Purchase Date. (d) Dividend Reinvestment; Other Distributions. Cash dividends on any Stock credited to a Participant's Stock Account will be automatically reinvested in additional shares of Stock; such amounts will not be available in the form of cash to Participants. All cash dividends paid on Stock credited to Participants' Stock Accounts will be paid over by the Company to the Custodian at the dividend payment date. The Custodian will aggregate all purchase of Stock in connection with dividend reinvestment for a given dividend payment date. Purchases of Stock for purposes of dividend reinvestment will be made as promptly as practicable (but not more than 30 days) after a dividend payment date. The Custodian will make such purchases, as directed by the Board, either (i) in transactions on the Nasdaq National Market System, any securities exchange upon which Stock is traded, otherwise in the over-the-counter market, or in negotiated transactions, or (ii) directly from the Company at 100% of the Fair Market Value of a share of Stock on the dividend payment date. Any shares of Stock distributed as a dividend or other distribution in respect of shares of Stock or in connection with a split of the Stock credited to a Participant's Stock Account will be credited to such Account. (e) Withdrawals and Transfers. Shares of Stock may be withdrawn from a Participant's Stock Account, in which case one or more certificates for whole shares may be issued in the name of, and delivered to, the Participant, with such Participant receiving cash in lieu of fractional shares based on the Fair Market Value of a share of Stock on the date of withdrawal. Alternatively, whole shares of Stock may be withdrawn from a Participant's Stock Account by means of a transfer to a broker-dealer or financial institution that maintains an account for the Participant, together with the transfer of cash in lieu of fractional shares based on the Fair Market Value of a share of Stock on the date of withdrawal. Participants may not designate any other person to receive shares of Stock withdrawn or transferred under the Plan. A Participant seeking to withdraw or transfer shares of Stock must give instructions to the Custodian in such manner and form as may be prescribed by the Custodian, which instructions will be acted upon as promptly as practicable. Withdrawals and transfers will be subject to any fees imposed in accordance with Section 8(a) hereof. (f) Excess Account Balances. If any amounts remain in a Cash Account following a Purchase Date as a result of the limitation set forth in Section 6(a)(iii), or for any other reason, such amounts which resulted from payroll contributions will be returned to the Participant as promptly as practicable. 7. Termination and Distributions. (a) Termination of Enrollment. A Participant's enrollment in the Plan will terminate upon (i) the beginning of any payroll period or Offering Period that begins after he or she files a written notice of termination of enrollment with the Company, provided that such Participant will continue to be deemed to be enrolled with respect to any completed Offering Period for which purchases have not been completed; or (ii) such time as the Participant becomes ineligible to participate under Section 5(a) of the Plan. An employee who files a written notice of termination of enrollment with the Company may again enroll in the Plan as of any - 7 - subsequent Enrollment Date that is at least 90 days after such termination of enrollment if he or she satisfies the eligibility requirements of Section 5(a) as of such Enrollment Date. A Participant's election to discontinue payroll contributions will not constitute a termination of enrollment. (b) Distribution. As soon as practicable after a Participant's enrollment in the Plan terminates, amounts in the Participant's Cash Account which resulted from payroll contributions will be repaid to the Participant. If amounts credited to the Participant's Cash Account have not yet been deposited by the Company with the Custodian, the Company rather than the Custodian will make the repayment to the Participant. The Custodian will continue to maintain the Participant's Stock Account for the Participant until the earlier of such time as the Participant directs the sale of all Stock in the Account, withdraws, or transfers all Stock in the Account, or one year after the Participant ceases to be employed by the Company and its Subsidiaries. If a Participant's termination of enrollment results from his or her death, all amounts payable will be paid to his or her estate. 8. General. (a) Costs. Costs and expenses incurred in the administration of the Plan and maintenance of Accounts will be paid by the Company, to the extent provided in this Section 8(a). Any brokerage fees and commissions for the purchase of Stock under the Plan (including Stock purchased upon reinvestment of dividends and distributions) will be paid by the Company, but any brokerage fees and commissions for the sale of Stock under the Plan by a Participant will be borne by such Participant. The rate at which such fees and commissions will be charged to Participants will be determined by the Custodian or any broker-dealer used by the Custodian (including an affiliate of the Custodian), and communicated from time to time to Participants. In addition, the Custodian may impose or pass through a reasonable fee for the withdrawal of Stock in the form of stock certificates (as permitted under Section 6(f)), and reasonable fees for other services unrelated to the purchase of Stock under the Plan, to the extent approved in writing by the Company and communicated to Participants. (b) Statements to Participants. The Custodian will reflect payroll contributions, matching allocations (if any), purchases, sales, and withdrawals and transfers of shares of Common Stock and other Plan transactions by appropriate adjustments to the Participant's Accounts. The Custodian will, not less frequently than quarterly, provide or cause to be provided a written statement to the Participant showing the transactions in his or her Accounts and the date thereof, the number of shares of Stock purchased or sold, the aggregate purchase price paid or sales price received, the purchase or sales price per share, the brokerage fees and commissions paid (if any), the total shares held for the Participant's Stock Account (computed to at least three decimal places), and other information. (c) Compliance with Section 423. It is the intent of the Company that this Plan comply in all respects with applicable requirements of Section 423 of the Code and regulations thereunder. Accordingly, if any provision of this Plan does not comply with such requirements, such provision will be construed or deemed amended to the extent necessary to conform to such requirements. - 8 - 9. General Provisions. (a) Compliance With Legal and Other Requirements. The Plan, the granting and exercising of Purchase Rights hereunder, and the other obligations of the Company and the Custodian under the Plan will be subject to all applicable federal and state laws, rules, and regulations, and to such approvals by any regulatory or governmental agency as may be required. The Company may, in its discretion, postpone the issuance or delivery of Stock upon exercise of Purchase Rights until completion of such registration or qualification of such Stock or other required action under any federal or state law, rule, or regulation, or the listing or other required action with respect to any automated quotation system or stock exchange upon which the Stock or other Company securities are designated or listed, or compliance with any other contractual obligation of the Company, as the Company may consider appropriate, and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Stock in compliance with applicable laws, rules, and regulations, designation or listing requirements, or other contractual obligations. The Company may, in its discretion, postpone the issuance or delivery of Stock upon exercise of Purchase Rights until completion of such registration or qualification of such Stock or other required action under any federal or state law, rule, or regulation, or the laws of any country in which employees of the Company and a Subsidiary who are nonresident aliens and who arc eligible to participate reside, or other required action with respect to any automated quotation system or stock exchange upon which the Stock or other Company securities are designated or listed, or compliance with any other contractual obligation of the Company, as the Company may consider appropriate. (b) Limits on Encumbering Rights. No right or interest of a Participant under the Plan, including any Purchase Right, may be pledged, encumbered, or hypothecated to or in favor of any party, subject to any lien, obligation, or liability of such Participant, or otherwise assigned, transferred, or disposed of except pursuant to the laws of descent or distribution, and any right of a Participant under the Plan will be exercisable during the Participant's lifetime only by the Participant. (c) No Right to Continued Employment. Neither the Plan nor any action taken hereunder, including the grant of a Purchase Right, will be construed as giving any employee the right to be retained in the employ of the Company or any of its Subsidiaries, nor will it interfere in any way with the right of the Company or any of its Subsidiaries to terminate any employee's employment at any time. (d) Taxes. The Company or any Subsidiary is authorized to withhold from any payment to be made to a Participant, including any payroll and other payments not related to the Plan, amounts of withholding and other taxes due in connection with any transaction under the Plan, and a Participant's enrollment in the Plan will be deemed to constitute his or her consent to such withholding. In addition, Participants may be required to advise the Company of sales and other dispositions of Stock acquired under the plan in order to permit the Company to comply with tax laws and to claim any tax deductions to which the Company may be entitled with respect to the Plan. (This provision and other Plan provisions do not set forth an explanation of the tax consequences to Participants under the Plan.) - 9 - (e) Changes to the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan without the consent of shareholders or Participants, except that any such action will be subject to the approval of the Company's shareholders within one year after such Board action if such shareholder approval is required by any federal or state law or regulation or the rules of any automated quotation system or stock exchange on which the Stock may then be quoted or listed, or if such shareholder approval is necessary in order for the Plan to continue to meet the requirements of Section 423 of the Code, and the Board may otherwise, in its discretion, determine to submit other such actions to shareholders for approval; provided, however, that, without the consent of an affected Participant, no amendment, alteration, suspension, discontinuation, or termination of the Plan may materially and adversely affect the rights of such Participant with respect to outstanding Purchase Rights relating to any Offering Period that has been completed prior to such Board action. The foregoing notwithstanding, upon termination of the Plan the Board may (i) elect to terminate all outstanding Purchase Rights at such time as the Board may designate; in the event of such termination of any Purchase Right prior to its exercise, all amounts contributed to the Plan which remain in a Participant's Cash Account will be returned to the Participant (without interest) as promptly as practicable, or (ii) shorten the Offering Period to such period determined by the Board and use amounts credited to a Participant Cash Account to purchase Stock. (f) No Rights to Participate; No Shareholder Rights. No Participant or employee will have any claim to participate in the Plan with respect to Offering Periods that have not commenced, and the Company will have no obligation to continue the Plan. No Purchase Right will confer on any Participant any of the rights of a shareholder of the Company unless and until Stock is duly issued or transferred and delivered to the Participant (or credited to the Participant's Stock Account). (g) Fractional Shares. Unless otherwise determined by the Board, purchases of Stock under the Plan executed by the Custodian may result in the crediting of fractional shares of Stock to the Participant's Stock Account. Such fractional shares will be computed to at least three decimal places. Fractional shares will not, however, be issued by the Company, and certificates representing fractional shares will not be delivered to Participants under any circumstances. (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor its submission to the shareholders of the Company for approval will be construed as creating any limitations on the power of the Board to adopt such other compensatory arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. (i) Plan Year. The Plan will operate on a plan year which ends December 31 in each year. (j) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan will be determined in accordance with the laws of the State of Arizona, without giving effect to principles of conflicts of laws, and applicable federal law. - 10 - (k) Effective Date. The Plan, as amended and restated, is effective as of the Effective Date, which is the Offering Period beginning on October 1, 2005. - 11 - EX-13 3 p71469exv13.htm EX-13

EXHIBIT 13

APOLLO GROUP, INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL INFORMATION

     The following selected consolidated financial and operating data are qualified by reference to and should be read in conjunction with the consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The statement of income data for the years ended August 31, 2005, 2004, and 2003, and the balance sheet data as of August 31, 2005 and 2004, were derived from the audited consolidated financial statements, included herein. Diluted income per share and diluted weighted average shares outstanding have been retroactively restated for stock splits.

	Year Ended August 31 ,
(In thousands, except per share amounts)	2005		2004			2003			2002			2001
Revenues:
Tuition and other, net	$	2,251,472	$	1,798,423		$	1,339,517		$	1,009,455		$	769,474
Costs and expenses:
Instructional costs and services		935,743		765,495			612,940			498,454			410,084
Selling and promotional		484,770		383,078			272,348			198,889			150,311
General and administrative		98,286		88,090			66,970			58,260			48,076
Stock-based compensation (1)		19,824		123,535
		1,538,623		1,360,198			952,258			755,603			608,471
Income from operations		712,849		438,225			387,259			253,852			161,003
Interest income and other, net		16,993		18,263			14,545			12,072			14,106
Income before income taxes		729,842		456,488			401,804			265,924			175,109
Provision for income taxes		285,111		178,714			154,794			104,774			67,292
Net income	$	444,731	$	277,774		$	247,010		$	161,150		$	107,817
Income attributed to Apollo Education Group common stock:
Net income	$	444,731	$	277,774		$	247,010		$	161,150		$	107,817
Stock dividends paid				(114,155	)
Income attributed to University of Phoenix Online common shareholders				(25,819	)		(15,308	)		(7,989	)		(3,304	)
Income attributed to Apollo Education Group common shareholders	$	444,731	$	137,800		$	231,702		$	153,161		$	104,513
Income attributed to University of Phoenix Online common stock:
Net income			$	25,819		$	15,308		$	7,989		$	3,304
Stock dividends paid				114,155
Income attributed to University of Phoenix Online common shareholders			$	139,974		$	15,308		$	7,989		$	3,304
Earnings per share attributed to Apollo Education Group common stock:
Diluted income per share	$	2.39	$	0.77		$	1.30		$	0.87		$	0.60
Diluted weighted average shares outstanding		186,015		178,897			177,637			175,697			174,001
Earnings per share attributed to University of Phoenix Online common stock:
Diluted income per share			$	8.19		$	0.93		$	0.53		$	0.24
Diluted weighted average shares outstanding				17,081			16,518			15,098			13,657

	August 31,
(Dollars in thousands)	2005		2004(2)		2003(2)		2002(2)		2001(2)
Balance Sheet Data :
Total cash, cash equivalents, restricted cash and securities, and marketable securities	$	692,775	$	994,068	$	1,045,802	$	688,655	$	401,934
Total assets	$	1,302,945	$	1,495,101	$	1,408,317	$	1,008,008	$	705,064
Current liabilities	$	517,972	$	469,782	$	342,299	$	270,067	$	185,457
Long-term liabilities		78,099		68,178		39,093		38,948		37,722
Total shareholders’ equity		706,874		957,141		1,026,925		698,993		481,885
Total liabilities and shareholders’ equity	$	1,302,945	$	1,495,101	$	1,408,317	$	1,008,008	$	705,064
Operating Statistics:
Degree enrollments at end of year		307,400		255,600		200,100		157,800		124,800
Number of locations at end of year :
Campuses		90		82		71		65		58
Learning centers		154		137		121		111		102
Total number of locations		244		219		192		176		160

(1) Stock-based compensation in 2005 and 2004 is related to the conversion in 2004 of University of Phoenix Online stock options into Apollo Education Group Class A stock options.

(2) Total assets, current liabilities, long-term liabilities, and total liabilities and shareholders’ equity amounts have been adjusted to record additional leasehold improvements and deferred rent to reflect the unamortized portion of tenant improvements and deferred rent liabilities for existing leases. See Note 2 in the consolidated financial statements.

We did not pay any cash dividends on our common stock during any of the periods set forth in the table above.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

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

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

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

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

• Controls and Procedures—an analysis of the effectiveness of our internal controls and procedures, changes in internal control over financial reporting, management’s report on internal control over financial reporting, and the independent auditors’ report on our assessment of our internal control over financial reporting.

Forward-Looking Statements

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

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

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

• as a result of the provisions of SFAS 123(R) and SAB 107, we expect the compensation charges under SFAS 123(R) to reduce diluted income per share by approximately $0.10 per share for fiscal 2006. However, our assessment of the estimated compensation charges is affected by our stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact;

• we expect near-term effects from these hurricanes will impact 2006 earnings;

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

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

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

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

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

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

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

• our ability to continue to attract and retain students;

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• our ability to successfully defend litigation claims;

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

• our ability to recruit and retain key personnel;

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

• other factors set forth in this Annual Report.

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

Our Business

General

     Apollo Group, Inc. has been providing higher education to working adults for almost 30 years. We operate through our subsidiaries: The University of Phoenix, Inc. (“University of Phoenix”), Institute for Professional Development, The College for Financial Planning, Inc. (the “College for Financial Planning”), and Western International University, Inc. (“Western International University”). We currently offer our programs and services at 90 campuses and 154 learning centers in 39 states, Puerto Rico, Alberta, and British Columbia. Our combined degree enrollment at August 31, 2005, was approximately 307,400. University of Phoenix is our largest subsidiary, with its tuition revenues representing approximately 89.4% of our consolidated tuition revenues.

     Our operations are aggregated into two reportable operating segments: the University of Phoenix segment and the Other Schools segment. Both segments are comprised of educational operations conducted in similar markets and produce similar economic results. Our operations are also subject to a similar regulatory environment, which includes licensing and accreditation. The Other Schools segment includes our other subsidiaries: Western International University, Institute for Professional Development, and the College for Financial Planning, which are currently not material to our overall results.

     University of Phoenix is accredited by The Higher Learning Commission, and has been a member of the North Central Association of Colleges and Schools since 1978. University of Phoenix has successfully replicated its teaching/learning model while maintaining educational quality at 63 local campuses and 112 learning centers in 34 states, Puerto Rico, Alberta, and British Columbia. University of Phoenix also offers its educational programs worldwide through its computerized educational delivery system. University of Phoenix has customized computer programs for student tracking, marketing, faculty recruitment and training, and academic quality management. These computer programs are intended to provide uniformity among University of Phoenix’s campuses and learning centers which enhances University of Phoenix’s ability to expand into new markets while still maintaining academic quality.

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

     Institute for Professional Development provides program development and management consulting services to regionally accredited private colleges and universities (client institutions) who are interested in expanding or developing their programs for working adults. These services typically include degree program design, curriculum development, market research, student recruitment, accounting, and administrative services. Institute for Professional Development provides these services at 23 campuses and 39 learning centers in 25 states in exchange for a contractual share of the tuition revenues generated from these programs. Institute for Professional Development’s contracts with its client institutions generally range in length from five to ten years with provisions for renewal.

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

     The Education Industry

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

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

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

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

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

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

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

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

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

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

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

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

• state higher education regulatory bodies.

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

          Regional accreditation provides the following:

• recognition and acceptance by employers, other higher education institutions, and governmental entities of the degrees and credits earned by students;

• qualification to participate in Title IV programs; and

• qualification for authorization in certain states.

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

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

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students are enrolled in non-degree programs. Institute for Professional Development client institutions administer their own Title IV programs.

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

Opportunities

     University of Phoenix expansion. University of Phoenix plans to continue increasing its student base by growing existing locations and by opening new campuses and learning centers throughout the United States, Canada, and Mexico. New locations are selected based on an analysis of various factors, including the population of working adults in the area, the number of local employers and their educational reimbursement policies, and the availability of similar programs offered by other institutions. University of Phoenix currently plans on opening seven to nine new campuses during 2006. In 2005, seven new University of Phoenix campuses were opened. The University of Phoenix Online campus plans to continue expanding its distance education programs and services. We will also continue to respond to the changing educational needs of working adults and their employers by introducing new undergraduate and graduate degree programs, as well as training programs.

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

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

Challenges and Risks

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

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

     Higher Education Act reauthorization. The U.S. Department of Education issues regulations based on the laws included in the Higher Education Act. The Higher Education Act has been extended to December 31, 2005. Changes in the law occur during the

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Congressional reauthorization process, with final regulations issued after that time. The reauthorization process could amend existing requirements or implement new requirements. Any action by Congress that significantly reduces funding for the federal student financial aid programs or the ability of our schools or students to participate in these programs could harm our business. Legislative action may also increase our administrative costs and burdens and require us to modify our practices in order for our schools to comply fully with applicable requirements, which could have a material adverse effect on our business.

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

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

Conversion of Tracking Stock

     From October 3, 2000, to August 27, 2004, we had a class of stock, University of Phoenix Online common stock, outstanding, that reflected the separate performance of University of Phoenix Online, a campus within University of Phoenix. On August 6, 2004, our Board of Directors authorized the conversion of each share of University of Phoenix Online common stock to shares of Apollo Education Group Class A common stock effective August 27, 2004. In accordance with the terms of our Articles of Incorporation, each outstanding share of University of Phoenix Online common stock was converted into 1.11527 shares of Apollo Education Group Class A common stock as of August 27, 2004. The conversion resulted in the issuance of approximately 16.6 million new shares of Apollo Education Group Class A common stock. In addition, each unexercised option to purchase University of Phoenix Online common stock at August 27, 2004, was converted to 1.0766 options to purchase Apollo Education Group Class A common stock. The conversion ratio was based upon the relative market values of Apollo Education Group Class A common stock and University of Phoenix Online common stock at the close of the market on August 12, 2004, prior to the announcement. The conversion resulted in a $114.2 million reduction to income available to Apollo Education Group common stock related to the premium paid to convert outstanding shares of University of Phoenix Online common stock to Apollo Education Group Class A common stock. We recognized a non-cash stock-based compensation charge of $123.5 million related to the conversion of University of Phoenix Online stock options into Apollo Education Group Class A stock options in the fourth quarter of 2004 and a $19.8 million charge in the fourth quarter of 2005, and expect to recognize an additional $2 million compensation charge as the remaining options vest in 2006 and 2007. We have delisted the University of Phoenix Online common stock and no longer report separate financial statements for University of Phoenix Online.

Application of Critical Accounting Policies and Estimates

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

Basis of Presentation and Consolidation

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

Revenue Recognition

     Approximately 93.2% of our tuition and other net revenues during 2005 consist of tuition revenues. Tuition revenue is recognized on a weekly basis, pro rata over the period of instruction. Our tuition and other net revenues also include rEsource^® fees, application fees, commissions from the sale of education-related products, other student fees, and other income. Our tuition and other net revenues vary from period to period based on several factors that include: 1) the aggregate number of students attending classes; 2) the number of classes held during the period; and 3) the weighted average tuition price per credit hour (weighted by program and

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location). University of Phoenix tuition revenues currently represent approximately 89.4% of consolidated tuition revenues. Institute for Professional Development tuition revenues consist of the contractual share of tuition revenues from students enrolled in related programs at its client institutions. Institute for Professional Development’s contracts with its respective client institutions generally have terms of five to ten years with provisions for renewal.

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

     Tuition and other revenues are shown net of discounts relating to a variety of promotional programs. Such discounts totaled $107.6 million (4.6% of gross revenues), $62.3 million (3.3% of gross revenues), and $38.9 million (2.8% of gross revenues) in 2005, 2004, and 2003, respectively.

Allowance for Doubtful Accounts

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

Income Taxes

     Our effective tax rate differs from the statutory rate primarily due to state taxes and the tax impact of tax-exempt interest income. The effective tax rate was 39.1%, 39.2%, and 38.5% in 2005, 2004, and 2003, respectively. Our future effective tax rates could be adversely affected by changes in the valuation of our deferred tax assets or liabilities or changes in tax laws or interpretations thereof. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Loss Contingencies

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

Impairment of Intangible Assets

     Our intangible assets primarily consist of approximately $37.1 million in unamortized cost in excess of fair value of assets purchased (i.e. goodwill) resulting from our acquisitions of Western International University and the College for Financial Planning. Intangible assets, including cost in excess of fair value of assets purchased, are reviewed for impairment on an annual basis or whenever events or circumstances indicate that the estimated fair value is less than the related carrying value. The carrying value of cost in excess of fair value of assets purchased is assessed for any permanent impairment by evaluating the operating performance and using valuation techniques such as future discounted cash flows of the underlying businesses. In assessing the recoverability of our goodwill and other intangibles we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record

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non-cash impairment charges for these assets not previously recorded. We have selected August 31 as the date on which we will perform our annual goodwill impairment test. We performed our annual impairment test as of August 31, 2005, and concluded that no impairment charge was required.

Recent Accounting Pronouncements

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

     In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all stock-based compensation payments and supersedes our current accounting under Accounting Principles Board (“APB”) Opinion No. 25. SFAS 123(R) is effective for all annual periods beginning after June 15, 2005. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to the adoption of SFAS 123(R).

     We adopted SFAS 123(R) in the first quarter of 2006 and will continue to evaluate the impact of SFAS 123(R) on our operating results and financial condition. The pro forma information in Note 2 presents the estimated compensation charges under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.” As a result of the provisions of SFAS 123(R) and SAB 107, we expect the compensation charges under SFAS 123(R) to reduce diluted income per share by approximately $0.10 per share for fiscal 2006. However, our assessment of the estimated compensation charges is affected by our stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the volatility of our stock price and employee stock option exercise behaviors. We will recognize compensation cost for stock-based awards issued after August 31, 2005, on a straight-line basis over the requisite service period for the entire award.

     In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (“SFAS 153”). SFAS 153 requires that exchanges of nonmonetary assets are to be measured based on fair value and eliminates the exception for exchanges of nonmonetary, similar productive assets, and adds an exemption for nonmonetary exchanges that do not have commercial substance. We adopted SFAS 153 on September 1, 2005. The adoption of SFAS 153 is expected to have no material impact on our financial condition or results of operations.

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

Results of Operations

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

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services, and classroom lease expense. Most of the other instructional costs for Institute for Professional Development-assisted programs, including faculty, financial aid processing, and other administrative salaries, are the responsibility of its client institutions. Costs related to the start-up of new campuses and learning centers are expensed as incurred.

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

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

     The following table sets forth an analysis of our Consolidated Statements of Income for 2005, 2004, and 2003:

							Percent of Revenues
	Year Ended August 31,						Year Ended August 31,									Percent Change
(In thousands, except percentages)	2005		2004		2003		2005			2004			2003			2005 vs. 2004			2004 vs. 2003
Revenues:
Tuition and other, net	$	2,251,472	$	1,798,423	$	1,339,517		100.0	%		100.0	%		100.0	%		25.2	%		34.3	%
Costs and expenses:
Instructional costs and services		935,743		765,495		612,940		41.6			42.5			45.8			22.2			24.9
Selling and promotional		484,770		383,078		272,348		21.5			21.3			20.3			26.5			40.7
General and administrative		98,286		88,090		66,970		4.3			4.9			5.0			11.6			31.5
Stock-based compensation		19,824		123,535				0.9			6.9						-84.0
		1,538,623		1,360,198		952,258		68.3			75.6			71.1			13.1			42.8
Income from operations		712,849		438,225		387,259		31.7			24.4			28.9			62.7			13.2
Interest income and other, net		16,993		18,263		14,545		0.7			1.0			1.1			-7.0			25.6
Income before income taxes		729,842		456,488		401,804		32.4			25.4			30.0			59.9			13.6
Provision for income taxes		285,111		178,714		154,794		12.6			10.0			11.6			59.5			15.5
Net income	$	444,731	$	277,774	$	247,010		19.8	%		15.4	%		18.4	%		60.1	%		12.5	%

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

Tuition and Other, Net

     Our tuition and other net revenues increased by 25.2% in 2005 primarily due to a 23.6% increase in average degree student enrollments and tuition price increases averaging four to six percent (depending on the geographic area and program), partially offset by an increase in tuition and other discounts of $45.3 million between periods. Most of our campuses, which include their respective learning centers, had increases in net revenues and degree student enrollments from 2004 to 2005. The increase in discounts between years is primarily due to an increase in military students and a promotional discount offered by University of Phoenix during 2005.

     Our tuition and other net revenues increased by 34.3% in 2004 primarily due to a 27.4% increase in average degree student enrollments and tuition price increases averaging four to six percent (depending on the geographic area and program), partially offset by an increase in tuition and other discounts of $23.4 million between periods. Most of our campuses, which include their respective learning centers, had increases in net revenues and degree student enrollments from 2003 to 2004. The increase in discounts between years is primarily due to an increase in military students.

     Tuition and other net revenues for 2005, 2004, and 2003 consist primarily of $2.088 billion, $1.682 billion, and $1.261 billion, respectively, of net tuition revenues from students enrolled in degree programs and $10.0 million, $9.9 million, and $10.9 million, respectively, of net tuition revenues from students enrolled in non-degree programs.

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

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	Year Ended August 31,
	2005			2004			2003
University of Phoenix		89.4	%		94.4	%		93.4	%
Other Schools		10.5			5.4			6.5
Corporate		0.1			0.2			0.1
Tuition and other, net		100.0	%		100.0	%		100.0	%

     Tuition and other net revenues at Other Schools increased as a percentage of total revenues due to enrollment in associates degree programs at Axia College of Western International University during 2005. Axia College began offering these programs in September 2004.

Instructional Costs and Services

     Instructional costs and services increased by $170.2 million in 2005 versus 2004. Instructional costs and services increased by $152.6 million in 2004 versus 2003. The following table sets forth the increases in significant components of instructional costs and services, in millions:

							Percent of Revenues
	Year Ended August 31,						Year Ended August 31,									Percent Change
	2005		2004		2003		2005			2004			2003			2005 vs. 2004			2004 vs. 2003
Employee compensation and related expenses	$	338.4	$	277.5	$	218.8		15.0	%		15.4	%		16.3	%		21.9	%		26.8	%
Faculty compensation		195.1		154.2		128.7		8.7	%		8.6	%		9.6	%		26.5	%		19.8	%
Classroom lease expenses and depreciation		172.5		143.4		126.5		7.7	%		8.0	%		9.5	%		20.3	%		13.4	%
Financial aid processing costs		43.3		32.4		19.3		1.9	%		1.8	%		1.5	%		33.6	%		67.9	%
Bad debt expense		45.5		27.0		20.7		2.0	%		1.5	%		1.5	%		68.5	%		30.4	%
U.S. Department of Education settlement				9.8							0.5	%					-100.0	%
Other instructional costs and services		140.9		121.2		98.9		6.3	%		6.7	%		7.4	%		16.3	%		22.5	%
Instructional costs and services	$	935.7	$	765.5	$	612.9		41.6	%		42.5	%		45.8	%		22.2	%		24.9	%

     Instructional costs and services as a percentage of tuition and other net revenues decreased in 2005 versus 2004 and in 2004 versus 2003 due primarily to greater tuition and other net revenues being spread over the fixed costs related to centralized student services, partially offset by the U.S. Department of Education settlement in 2004 related to the Department’s program review. We may not be able to leverage our recurring costs to the same extent as we face increased costs related to our expansion into new geographic markets. The increase in bad debt expense as a percentage of revenue between 2004 and 2005 is the result of increased days sales outstanding (“DSO”) in receivables during 2005. DSO were 33 days and 30 days, as of August 31, 2005 and 2004, respectively.

Selling and Promotional Expenses

     Selling and promotional expenses increased by $101.7 million in 2005 versus 2004. Selling and promotional expenses increased by $110.7 million in 2004 versus 2003. The following table sets forth the increases in significant components of selling and promotional expenses, in millions:

							Percent of Revenues
	Year Ended August 31,						Year Ended August 31,									Percent Change
	2005		2004		2003		2005			2004			2003			2005 vs. 2004			2004 vs. 2003
Enrollment advisors’ compensation and related expenses	$	206.5	$	157.4	$	107.4		9.2	%		8.8	%		8.0	%		31.2	%		46.6	%
Advertising		224.0		174.6		126.5		9.9	%		9.7	%		9.4	%		28.3	%		38.0	%
Other selling and promotional expenses		54.3		51.1		38.4		2.4	%		2.8	%		2.9	%		6.3	%		33.1	%
Selling and promotional expenses	$	484.8	$	383.1	$	272.3		21.5	%		21.3	%		20.3	%		26.5	%		40.7	%

     Selling and promotional expenses increased as a percentage of revenue in 2005 versus 2004 and in 2004 versus 2003 due principally to an increase in the number of enrollment advisors and increased advertising as a percentage of revenue, partially offset by a decrease in other selling and promotional expenses as a percentage of revenue between periods.

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General and Administrative Expenses

     General and administrative expenses increased by $10.2 million in 2005 versus 2004. General and administrative expenses increased by $21.1 million in 2004 versus 2003. The following table sets forth the increases in significant components of general and administrative expenses, in millions:

							Percent of Revenues
	Year Ended August 31,						Year Ended August 31,									Percent Change
																2005 vs.			2004 vs.
	2005		2004		2003		2005			2004			2003			2004			2003
Employee compensation and related expenses	$	45.6	$	46.8	$	36.1		2.0	%		2.6	%		2.7	%		-2.6	%		29.6	%
Administrative space and depreciation		20.2		13.1		10.4		0.9	%		0.7	%		0.8	%		54.2	%		26.0	%
Other general and administrative expenses		32.5		28.2		20.5		1.4	%		1.6	%		1.5	%		15.2	%		37.6	%
General and administrative expenses	$	98.3	$	88.1	$	67.0		4.3	%		4.9	%		5.0	%		11.6	%		31.5	%

     General and administrative expenses as a percentage of tuition and other net revenues decreased in 2005 versus 2004 and in 2004 versus 2003, due primarily to greater tuition and other net revenues being spread over the fixed costs related to various centralized functions such as information services, corporate accounting, and human resources. The decrease in employee compensation and related expenses as a percentage of revenue between 2004 and 2005 is primarily due to a decrease in management bonuses. The increase in administrative space and depreciation as a percentage of revenue between 2004 and 2005 is primarily due to the new data center that was completed in the third quarter of 2005 and non-cash early occupancy expenses of $2.9 million recorded in the third quarter of 2005.

Stock-Based Compensation Expense

     The conversion of University of Phoenix Online common stock on August 27, 2004, required us to record a stock-based compensation charge related to the conversion of University of Phoenix Online stock options into Apollo Education Group Class A stock options. As required by Emerging Issues Task Force No. 00-23 “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44,” we recognized approximately $123.5 million of non-cash pre-tax stock-based compensation expense in the fourth quarter of 2004 and an additional $19.8 million in the fourth quarter of 2005 as additional options vested.

Interest Income and Other, Net

     Net interest income and other decreased $1.3 million in 2005 versus 2004. Net interest income and other increased $3.7 million in 2004 versus 2003. The decrease in 2005 was primarily attributable to the decrease in cash equivalents and marketable securities between periods primarily as a result of stock repurchases, partially offset by cash flows from operations. The increase in 2004 was primarily attributable to the increase in cash equivalents and marketable securities between periods primarily as a result of the investment of cash flows from operations. Interest expense was $116,000, $79,000, and $273,000 in 2005, 2004, and 2003, respectively.

Effective Income Tax Rate

     Our effective income tax rate decreased to 39.1% in 2005 from 39.2% in 2004, primarily as a result of a refund during 2005 of state taxes previously paid and fully reserved. Our effective income tax rate increased to 39.2% in 2004, from 38.5% in 2003, primarily as a result of a refund of state income taxes received during 2003.

Effect of Hurricanes

     During the period from August to October 2005, various hurricanes devastated certain portions of the Gulf Coast region as well as Florida where both University of Phoenix and Institute for Professional Development have physical locations. In addition, both University of Phoenix Online and Axia College have students that live in these regions and attend classes online. Because only three business days in the quarter were affected by Hurricane Katrina, our results of operations for the fourth quarter were not significantly impacted.

     We expect near-term effects from these hurricanes will impact 2006 earnings. All but our main campuses in New Orleans, LA and Plantation, FL are now open and fully operational. At this time, we are unable to predict when the New Orleans, LA and Plantation, FL campuses may reopen, and whether or not

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the students living in this region will return. Furthermore, the timeframe for the reconstruction of the devastated areas of New Orleans and the re-establishment of its local population and their livelihoods cannot yet be predicted. In addition, the other hurricanes caused temporary closures at several of our locations in Texas and Florida.

Liquidity, Capital Resources, and Financial Position

Liquidity and Capital Resources

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

     Cash and cash equivalents and marketable securities. Cash and cash equivalents and marketable securities were $467.1 million as of August 31, 2005, a decrease from $809.6 million at August 31, 2004. The decrease was primarily a result of the repurchase of Apollo Education Group Class A common stock of $808.2 million, capital expenditures of $103.8 million, and net purchases of restricted securities of $41.2 million, partially offset by cash provided by operating activities of $565.7 million and cash provided by the issuance of Apollo Education Group Class A common stock of $52.8 million, related to employee stock option exercises and employee stock purchases during the period.

     Restricted cash and auction-rate securities. The U.S. Department of Education requires that Title IV Program funds collected in advance of student billings be kept in a separate cash or cash equivalent account until the students are billed for that portion of their program. In addition, all Title IV Program funds received by us through electronic funds transfer are subject to certain holding period restrictions. These funds generally remain in these separate accounts for an average of 60 to 75 days from receipt. As of August 31, 2005, we had approximately $225.7 million in this separate account, which is reflected in the Consolidated Balance Sheets as restricted cash to comply with these requirements. These restrictions on cash have not affected our ability to fund daily operations.

     Capital expenditures. Capital expenditures decreased to $103.8 million during 2005, from $107.7 million during 2004, primarily due to the purchase of land, two buildings, and the capital improvements to the buildings totaling $33.0 million for future University of Phoenix Online expansion during the first nine months of 2004. In June 2004, the two buildings were sold for $31.3 million and are being leased back under a ten-year lease agreement. Excluding the costs related to the land and buildings for future University of Phoenix Online expansion, capital expenditures increased to $103.8 million in 2005 from $74.7 million in 2004, due to costs incurred related to the construction of a new data center and normal recurring capital expenditures due to the overall increase in student and employee levels resulting from the growth in the business. Total purchases of property and equipment for the year ended August 31, 2006, are expected to range from $100 to $120 million. These expenditures will primarily be related to new campuses and learning centers and increases in normal recurring capital expenditures due to the overall increase in student and employee levels resulting from the growth in the business.

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

     Letter of credit. An unsecured letter of credit for Western International University, in the amount of $492,500, expiring in March 2006, is outstanding.

     Financial responsibility. The Title IV Regulations, as revised, require all higher education institutions to meet a minimum composite score to be deemed financially responsible by the U.S. Department of Education. If the minimum composite score of 1.0 is not met, an institution would fall under alternative standards and may lose its eligibility to participate in Title IV Programs. The maximum composite score is 3.0. As of August 31, 2005, University of Phoenix’s and Western International University’s composite scores were 3.0 and 2.8, respectively. These requirements apply separately to University of Phoenix and Western International University and to each of the respective Institute for Professional Development client institutions, but not to us on a consolidated basis.

     Accounts receivable, net. Accounts receivable, net was $201.6 million and $146.5 million as of August 31, 2005 and 2004, respectively. Days sales outstanding (“DSO”) in receivables, net as of August 31, 2005 and 2004, were 33 days and 30 days,

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respectively. Our accounts receivable and DSO are primarily affected by collections performance. Improved collections performance will result in reduced DSO.

Commitments and Contingencies

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

     On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease accounting issues and their application under GAAP. In light of this letter, we initiated a review of our lease-related accounting and determined that our previous method of accounting for leasehold improvements funded by landlord incentives or allowances under operating leases (“tenant improvement allowances”) was not in accordance with GAAP. We have historically accounted for tenant improvement allowances as reductions to the related leasehold improvement asset on the Consolidated Balance Sheets and capital expenditures in investing activities on the Consolidated Statements of Cash Flows. Management determined that the appropriate interpretation of FASB Technical Bulletin No. 88-1, “Issues Relating to Accounting for Leases,” requires these allowances to be recorded as a leasehold improvement asset and deferred rent liability on the Consolidated Balance Sheets and as both an investing activity (addition to property and equipment) and a component of operating activities on the Consolidated Statements of Cash Flows. In the second quarter of 2005, we recorded additional leasehold improvements and deferred rent in our Consolidated Balance Sheets to reflect the unamortized portion of tenant improvement allowances and deferred rent liabilities for existing leases. We also revised the presentation of the Consolidated Statements of Cash Flows to reflect cash reimbursements received for tenant improvement allowances during the periods presented as additions to property and equipment and an increase in operating activities. These changes had no material effect on prior period operations and, thus, did not require a restatement of the Consolidated Statements of Income and the Consolidated Statements of Cash Flows. As of August 31, 2005, we have unamortized tenant improvement allowances of $49.1 million.

     Contractual obligations and other long-term liabilities. As of August 31, 2005, future minimum cash payments due under contractual obligations, including our non-cancelable operating lease agreements, are as follows, in thousands:

		Payments Due by Period
		Less Than 1						More Than 5
Contractual Obligations		Year		1-3 Years		3-5 Years		Years		Total
Operating lease obligations		$	122,863	$	230,311	$	180,030	$	135,059	$	668,263
Contractual obligations			1,035		270						1,305
Purchase obligations	1		83,500		19,850						103,350
Other long-term obligations	2		3		34				1,613		1,650
Total		$	207,401	$	250,465	$	180,030	$	136,672	$	774,568

1)	Amounts primarily consist of purchase obligations for construction of building for future Online expansion.
2)	Amounts primarily consist of a deferred compensation payment due to John G. Sperling, our Founder.

     Contingencies. On approximately October 12, 2004, a class action complaint was filed in the United States District Court for the District of Arizona, captioned Sekuk Global Enterprises et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2147 PHX NVW. A second class action complaint making similar allegations was filed on or about October 18, 2004, in the United States District Court for the District of Arizona, captioned Christopher Carmona et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2204 PHX EHC. A third class action complaint making similar allegations was filed on or about October 28, 2004, in the United States District Court for the District of Arizona, captioned Jack B. McBride et. al. v. Apollo Group, Inc. et. al., Case No. CV 04-2334 PHX LOA. The Court

13

consolidated the three pending class action complaints and a consolidated class action complaint was filed on May 16, 2005 by the Lead Plaintiff. Lead Plaintiff purports to represent a class of our shareholders who acquired their shares between February 27, 2004, and September 14, 2004, and seeks certification as a class and monetary damages in unspecified amounts. Lead Plaintiff alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated under the Exchange Act, by us for our issuance of allegedly materially false and misleading statements in connection with our failure to publicly disclose the contents of the U.S. Department of Education’s program review report. A motion to dismiss the consolidated class action complaint was filed on June 15, 2005, on behalf of Apollo Group, Inc. and the individual named defendants. The Court denied the motion to dismiss on October 18, 2005. While the outcomes of these legal proceedings are uncertain, management does not expect a material adverse effect on our business, financial position, results of operations, or cash flows to result from these actions.

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

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

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

Stock Repurchase Program

     Our Board of Directors has previously authorized a program allocating up to $1.55 billion of our funds to repurchase shares of Apollo Education Group Class A common stock and University of Phoenix Online common stock. While it was outstanding, we repurchased approximately 2,025,000 shares of University of Phoenix Online common stock at a total cost of approximately $132.0 million. As of August 31, 2005, we had repurchased approximately 26,983,000 shares of Apollo Education Group Class A common stock at a total cost of approximately $1.4 billion, including 141,000 shares at a cost of $6.2 million in 2003, 5.7 million shares at a cost of $443.5 million in 2004, and 11.1 million shares at a cost of $808.2 million in 2005. On October 7, 2005, our Board of Directors authorized a program allocating up to an additional $300 million of our funds to repurchase shares of Apollo Education Group Class A common stock. An additional 3,751,000 shares of Apollo Education Group Class A common stock were repurchased between September 1, 2005 and October 31, 2005 at a cost of approximately $231.0 million.

     As of August 31, 2005, 1,899,000 shares of our treasury stock have been used to secure receivables between Apollo Group and two of its subsidiaries.

Seasonality in Results of Operations

14

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

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

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

Impact of Inflation

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

Quantitative and Qualitative Disclosures about Market Risk

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

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Change in Internal Control Over Financial Reporting

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

Management’s Report on Internal Control Over Financial Reporting

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.

     All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

     Our management assessed the effectiveness of our internal control over financial reporting as of August 31, 2005. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of August 31, 2005, our internal control over financial reporting is effective based on those criteria.

     Deloitte & Touche, LLP has audited this assessment of our internal control over financial reporting; their report follows.

15

Independent Auditors’ Report on Our Assessment of Our Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

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

     We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Apollo Group, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of August 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

     A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of August 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

     We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended August 31, 2005, of the Company and our reports dated November 10, 2005 expressed an unqualified opinion on those financial statements.

DELOITTE & TOUCHE LLP
Phoenix, Arizona
November 10, 2005

16

Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying consolidated balance sheets of Apollo Group, Inc. and subsidiaries (the “Company”) as of August 31, 2005 and 2004, and the related consolidated statements of income, other comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended August 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Apollo Group, Inc. and subsidiaries as of August 31, 2005 and 2004, and the results of their operations and their cash flows for each of the two years in the period ended August 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of August 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 10, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

DELOITTE & TOUCHE LLP
Phoenix, Arizona
November 10, 2005

17

Report of Independent Registered Public Accounting Firm

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

In our opinion, the consolidated statements of income, of comprehensive income, of changes in shareholders’ equity and of cash flows for the year ended August 31, 2003 (appearing on pages 27 through 41) of Apollo Group, Inc.’s 2005 Annual Report to Shareholders present fairly, in all material respects, the results of operations and cash flows of Apollo Group, Inc. and its subsidiaries for the year ended August 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Phoenix, Arizona
September 30, 2003, except as to paragraphs 3 and 4 of Note 2, which is as of November 10, 2005

18

APOLLO GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	August 31,
(Dollars in thousands)	2005			2004
Assets:
Current assets
Cash and cash equivalents	$	145,607		$	156,669
Restricted cash		225,706			78,413
Auction-rate securities—restricted					106,050
Marketable securities		224,112			336,193
Receivables, net		201,615			146,497
Deferred tax assets, net		14,991			10,020
Other current assets		23,058			20,842
Total current assets		835,089			854,684
Property and equipment, net		268,661			212,205
Marketable securities		97,350			316,743
Cost in excess of fair value of assets purchased, net		37,096			37,096
Deferred tax assets, net		35,756			47,520
Other assets (includes receivable from related party of $14,843 in 2005 and $13,820 in 2004)		28,993			26,853
Total assets	$	1,302,945		$	1,495,101
Liabilities and Shareholders’ Equity:
Current liabilities
Current portion of long-term liabilities	$	18,878		$	14,218
Accounts payable		40,129			50,895
Accrued liabilities		61,315			69,481
Income taxes payable		9,740			11,856
Student deposits and current portion of deferred revenue		387,910			323,332
Total current liabilities		517,972			469,782
Deferred tuition revenue, less current portion		351			528
Long-term liabilities, less current portion		77,748			67,650
Total liabilities		596,071			537,960
Commitments and contingencies
Shareholders’ equity
Preferred stock, no par value, 1,000,000 shares authorized; none issued
Apollo Education Group Class A nonvoting common stock, no par value, 400,000,000 shares authorized; 188,002,000 and 187,567,000 issued at August 31, 2005 and 2004, respectively, and 179,184,000 and 187,567,000 outstanding at August 31, 2005 and 2004, respectively		103			103
Apollo Education Group Class B voting common stock, no par value, 3,000,000 shares authorized; 477,000 issued and outstanding at August 31, 2005 and 2004		1			1
Additional paid-in capital					28,787
Apollo Education Group Class A treasury stock, at cost, 8,818,000 shares at August 31, 2005		(645,742	)
Retained earnings		1,353,650			928,815
Accumulated other comprehensive loss		(1,138	)		(565	)
Total shareholders’ equity		706,874			957,141
Total liabilities and shareholders’ equity	$	1,302,945		$	1,495,101

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

19

APOLLO GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended August 31,
(In thousands, except per share amounts)	2005		2004			2003
Revenues:
Tuition and other, net	$	2,251,472	$	1,798,423		$	1,339,517
Costs and expenses:
Instructional costs and services		935,743		765,495			612,940
Selling and promotional		484,770		383,078			272,348
General and administrative		98,286		88,090			66,970
Stock-based compensation		19,824		123,535
		1,538,623		1,360,198			952,258
Income from operations		712,849		438,225			387,259
Interest income and other, net		16,993		18,263			14,545
Income before income taxes		729,842		456,488			401,804
Provision for income taxes		285,111		178,714			154,794
Net income	$	444,731	$	277,774		$	247,010
Income attributed to Apollo Education Group common stock:
Net income	$	444,731	$	277,774		$	247,010
Stock dividends paid				(114,155	)
Income attributed to University of Phoenix Online common shareholders				(25,819	)		(15,308	)
Income attributed to Apollo Education Group common shareholders	$	444,731	$	137,800		$	231,702
Income attributed to University of Phoenix Online common stock:
Net income			$	25,819		$	15,308
Stock dividends paid				114,155
Income attributed to University of Phoenix Online common shareholders			$	139,974		$	15,308
Earnings per share attributed to Apollo Education Group common stock:
Basic income per share	$	2.43	$	0.78		$	1.32
Diluted income per share	$	2.39	$	0.77		$	1.30
Basic weighted average shares outstanding		182,928		176,175			174,985
Diluted weighted average shares outstanding		186,015		178,897			177,637
Earnings per share attributed to University of Phoenix Online common stock:
Basic income per share			$	8.85		$	1.01
Diluted income per share			$	8.19		$	0.93
Basic weighted average shares outstanding				15,825			15,154
Diluted weighted average shares outstanding				17,081			16,518

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

20

APOLLO GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Year Ended August 31,
(In thousands)	2005			2004			2003
Net income	$	444,731		$	277,774		$	247,010
Other comprehensive income:
Currency translation loss		(573	)		(241	)		(427	)
Comprehensive income	$	444,158		$	277,533		$	246,583

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

21

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

	Common Stock
										University of														University of
	Apollo Education Group									Phoenix Online								Apollo Education Group						Phoenix Online									Accumulated
	Class A Nonvoting				Class B Voting					Nonvoting					Additional			Class A Treasury Stock						Treasury Stock									Other			Total
			Stated					Stated					Stated		Paid-in						Stated						Stated			Retained			Comprehensive			Shareholders’
(In thousands)	Shares		Value		Shares			Value		Shares			Value		Capital			Shares			Value			Shares			Value			Earnings			Income			Equity
Balance at August 31, 2002		177,383	$	103		484		$	1		14,256		$	0	$	227,155			4,162			($46,029	)		24			($526	)	$	518,186		$	103		$	698,993
Treasury stock purchases											(151	)							141			(6,185	)		151			(6,613	)								(12,798	)
Stock issued under stock purchase plans											118					6,008			(94	)		1,106															7,114
Stock issued under stock option plans											1,436					14,113			(2,106	)		24,008			(89	)		2,538									40,659
Tax benefits of stock options exercised																46,374																					46,374
Conversion of Apollo Education Group Class B common stock to Apollo Education Group Class A common stock		6				(7	)																														—
Currency translation adjustment																																		(427	)		(427	)
Net income																															247,010						247,010
Balance at August 31, 2003		177,389		103		477			1		15,659			—		293,650			2,103			(27,100	)		86			(4,601	)		765,196			(324	)		1,026,925
Treasury stock purchases											(1,484	)							5,674			(443,500	)		1,484			(117,996	)								(561,496	)
Stock issued under stock purchase plans											77					4,154			(73	)		2,057			(37	)		2,746									8,957
Stock issued under stock option plans											616					3,098			(1,300	)		27,264			(187	)		11,735									42,097
Tax benefits of stock options exercised																39,590																					39,590
Conversion of University of Phoenix Online common stock to Apollo Education Group Class A common stock		10,178									(14,868	)				(549,395	)		(6,404	)		441,279			(1,346	)		108,116									—
Stock dividends paid																114,155															(114,155	)					—
Stock-based compensation																123,535																					123,535
Currency translation adjustment																																		(241	)		(241	)
Net income																															277,774						277,774
Balance at August 31, 2004		187,567		103		477			1		—			—		28,787			—			—			—			—			928,815			(565	)		957,141
Treasury stock purchases																			11,051			(808,192	)														(808,192	)
Stock issued under stock purchase plans		41														1,317			(122	)		8,928															10,245
Stock issued under stock option plans		394														(91,111	)		(2,111	)		153,522									(19,896	)					42,515
Tax benefits of stock options exercised																41,183																					41,183
Stock-based compensation																19,824																					19,824
Currency translation adjustment																																		(573	)		(573	)
Net income																															444,731						444,731
Balance at August 31, 2005		188,002	$	103		477		$	1		—		$	0	$	0			8,818			($645,742	)		—		$	0		$	1,353,650			($1,138	)	$	706,874

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

22

APOLLO GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended August 31,
(In thousands)	2005			2004			2003
Cash flows provided by (used for) operating activities:
Net income	$	444,731		$	277,774		$	247,010
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense		19,824			123,535
Depreciation and amortization		54,498			43,196			40,305
Amortization of investment premiums		3,586			6,121			5,192
Provision for uncollectible accounts		45,412			26,877			20,746
Deferred income taxes		6,793			(47,287	)		2,224
Tax benefits of stock options exercised		41,183			39,590			46,374
Cash received for tenant improvements		1,429			1,818			887
Non-cash early occupancy expense		2,935
Changes in assets and liabilities:
Receivables		(100,530	)		(49,646	)		(45,192	)
Other assets		(3,814	)		(4,664	)		(3,404	)
Accounts payable and accrued liabilities		(20,078	)		34,122			16,506
Income taxes		(2,116	)		12,698			(8,816	)
Student deposits and deferred revenue		64,022			76,453			66,771
Other liabilities		7,870			4,016			2,685
Net cash provided by operating activities		565,745			544,603			391,288
Cash flows provided by (used for) investing activities:
Net additions to property and equipment		(103,790	)		(74,727	)		(56,699	)
Purchase of land and buildings related to future Online expansion					(33,003	)
Proceeds from sale-leaseback of Online buildings					31,278
Purchase of marketable securities		(124,235	)		(900,706	)		(1,100,709	)
Maturities of marketable securities		452,123			1,087,452			798,906
Purchase of auction-rate securities—restricted		(350,774	)		(232,095	)		(187,360	)
Maturities of auction-rate securities—restricted		309,531			195,248			139,996
Purchase of other assets		(3,657	)		(3,081	)		(2,198	)
Net cash provided by (used for) investing activities		179,198			70,366			(408,064	)
Cash flows provided by (used for) financing activities:
Purchase of Apollo Education Group Class A common stock		(808,192	)		(443,500	)		(6,185	)
Issuance of Apollo Education Group Class A common stock		52,760			36,183			31,649
Purchase of University of Phoenix Online common stock					(117,996	)		(6,613	)
Issuance of University of Phoenix Online common stock					14,871			16,124
Payments on long-term debt								(4,600	)
Net cash provided by (used for) financing activities		(755,432	)		(510,442	)		30,375
Currency translation loss		(573	)		(241	)		(427	)
Net increase (decrease) in cash and cash equivalents		(11,062	)		104,286			13,172
Cash and cash equivalents at beginning of year		156,669			52,383			39,211
Cash and cash equivalents at end of year	$	145,607		$	156,669		$	52,383
Supplemental disclosure of cash flow information
Cash paid during the year for:
Income taxes	$	239,327		$	173,715		$	115,067
Supplemental disclosure of non-cash investing activities
Deferred gain on sale-leaseback				$	12,967
Tenant improvement allowances	$	16,429		$	19,372		$	7,554
Purchases of property and equipment included in accounts payable	$	2,352		$	7,415

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

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APOLLO GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Operations

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

University of Phoenix is a regionally accredited, private institution of higher education offering associates, bachelors, masters, and doctoral degree programs in business, criminal justice, education, health care, human services, information technology, management, and nursing. University of Phoenix has 63 local campuses and 112 learning centers located in 34 states, Puerto Rico, Alberta, and British Columbia. University of Phoenix also offers its educational programs worldwide through its computerized educational delivery system. University of Phoenix is accredited by The Higher Learning Commission (“HLC”) and is a member of the North Central Association of Colleges and Schools.

IPD provides program development and management services under long-term contracts to 23 regionally accredited private colleges and universities at 23 campuses and 39 learning centers in 25 states.

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

WIU is accredited by HLC, and currently offers undergraduate and graduate degree programs at local campuses in Arizona and through joint ventures in China and India. Axia College of Western International University offers associate degrees in business, criminal justice, general studies, health administration, and information technology worldwide through its computerized educational delivery system.

The Company’s fiscal year is from September 1 to August 31. Unless otherwise stated, references to the years 2005, 2004, and 2003 relate to the fiscal years ended August 31, 2005, 2004, and 2003, respectively.

Recombination of Tracking Stock

On March 24, 2000, our Board of Directors authorized the issuance of a new class of stock called University of Phoenix Online common stock, to reflect the separate performance of University of Phoenix Online, a campus within University of Phoenix. Our other businesses and our retained interest in University of Phoenix Online were subsequently referred to as “Apollo Education Group.” On October 3, 2000, an offering of 5,750,000 shares of University of Phoenix Online common stock was completed at a price of $14.00 per share.

Apollo Group, Inc.’s Articles of Incorporation (“Articles”) gave us the right, at any time, to convert shares of University of Phoenix Online common stock to shares of Apollo Education Group Class A common stock. On August 6, 2004, our Board of Directors authorized the conversion of each share of University of Phoenix Online common stock to shares of Apollo Education Group Class A common stock effective August 27, 2004. In accordance with the terms of the Articles, each outstanding share of University of Phoenix Online common stock was converted into 1.11527 shares of Apollo Education Group Class A common stock as of August 27, 2004. The conversion ratio was based upon the relative market values of Apollo Education Group Class A common stock and University of Phoenix Online common stock averaged over the 20 trading days (July 9, 2004 through August 5, 2004) ending 5 trading days prior to August 12, 2004, the announcement date, and included a 10% premium on the value of University of Phoenix Online common stock, all as required by the terms of the Articles. The conversion resulted in the issuance of approximately 16.6 million new shares of Apollo Education Group Class A common stock. In addition, each unexercised option to purchase University of Phoenix Online common stock at August 27, 2004, was converted to 1.0766 options to purchase Apollo Education Group Class A common stock. The conversion ratio was based upon the relative market values of Apollo Education Group Class A common stock and University of Phoenix Online common stock at the close of the market on August 12, 2004, prior to the announcement. As a result of the conversion of University of Phoenix Online common stock to Apollo Education Group Class A common stock, Apollo Group, Inc. no longer reports separate financial statements for University of Phoenix Online.

The conversion of University of Phoenix Online common stock required us to adjust net income attributable to Apollo Education Group common stock and University of Phoenix Online common stock by the premium paid to convert outstanding shares of

24

University of Phoenix Online common stock to Apollo Education Group Class A common stock and to record a stock-based compensation charge related to the conversion of University of Phoenix Online stock options into Apollo Education Group Class A stock options.

As required by Statement of Financial Accounting Standards No. 128 Earnings per Share, the Company reduced income attributable to Apollo Education Group common stock in the fourth quarter of 2004 by $114.2 million related to the non-cash 10% premium paid to redeem the University of Phoenix Online common stock, as this premium is considered a benefit that constitutes an additional contractual return to University of Phoenix Online shareholders. The amount of the reduction to income attributable to Apollo Education Group common stock was calculated based on the number of University of Phoenix Online common stock shares outstanding and converted on August 27, 2004. This non-cash premium is included on the Consolidated Statements of Changes in Shareholders’ Equity and in the reconciliation of income attributable to Apollo Education Group common stock on the Consolidated Statements of Income as stock dividends paid.

As required by Emerging Issues Task Force No. 00-23, Issues Related to the Accounting for Stock Compensation under Accounting Principles Board (“APB”) Opinion No. 25 and Financial Accounting Standards Board (“FASB”) Interpretation No. 44, the Company recognized approximately $123.5 million of the pre-tax stock-based compensation expense in the fourth quarter of 2004 and an additional $19.8 million in the fourth quarter of 2005 as additional options vested. The Company expects to recognize an additional $2 million as the options vest through 2007.

Note 2. Significant Accounting Policies

Principles of consolidation

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

Cash and cash equivalents

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

Auction-rate securities

Auction-rate securities are securities with an underlying component of a long-term debt or an equity instrument. Auction-rate securities trade or mature on a shorter term than the underlying instrument based on an auction bid that resets the interest rate of the security. The auction or reset dates occur at intervals that are generally between 7 and 90 days of the purchase. These securities provide a higher interest rate than similar securities and provide high liquidity to otherwise longer term investments. Prior to the second quarter of 2005, the Company had classified its auction-rate securities as held-to-maturity and as cash equivalents, restricted cash, short-term marketable securities, or long-term marketable securities based on the period from the purchase date to the first reset date. Beginning in the second quarter of 2005, the Company began classifying auction-rate securities that had previously been classified as cash equivalents and restricted cash as short-term marketable securities because the underlying instruments have maturity dates exceeding three months. Additionally, the Company began classifying these securities as available-for-sale as the securities are not held to the maturity date of the underlying security. The Company also revised the presentation of the Consolidated Statements of Cash Flows to reflect the gross purchases and sales of these securities as investing activities for the auction-rate securities previously classified as cash equivalents and restricted cash. Prior periods have been reclassified to provide consistent presentation. This revision in classification had no impact on the total assets, current assets, or net income of the Company.

Restricted cash

The U.S. Department of Education requires that Title IV Program funds collected in advance of student billings be kept in a separate cash or cash equivalent account until the students are billed for that portion of their program. In addition, all Title IV Program funds received by the Company through electronic funds transfer are subject to certain holding period restrictions. These funds generally remain in these separate accounts for an average of 60 to 75 days from date of receipt. Restricted cash is excluded from cash and cash equivalents in the Consolidated Statements of Cash Flows until the cash is transferred from these restricted accounts to the Company’s operating accounts. The Company’s restricted cash is invested primarily in municipal bonds and U.S. government-sponsored enterprises with maturities of 90 days or less. In addition, until the end of the second quarter of 2005, the Company’s restricted cash was also invested in auction-rate securities with auction or reset dates of between 7 and 90 days of the purchase. The auction-rate securities that would have been included in restricted cash at August 31, 2004, are instead included in auction-rate securities—restricted. In 2005 the Company also concluded that it was appropriate to reflect gross purchases and sales of these securities as

25

investing activities in the Consolidated Statements of Cash Flows rather than reflecting the net change in restricted cash as an operating activity. Prior periods have been reclassified to provide consistent presentation. This revision in classification had no impact on the total assets, current assets, or net income of the Company. This revision along with the auction-rate securities revision discussed above had the effect of increasing net cash provided by operating activities by $36.8 million in 2004 and $47.4 million in 2003.

Investments

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

Property and equipment

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

Revenues, receivables, and related liabilities

Approximately 93.2%, 94.1%, and 95.0% of the Company’s tuition and other net revenues during the years ended August 31, 2005, 2004, and 2003, respectively, consist of tuition revenues. Tuition revenue is recognized on a weekly basis, pro rata over the period of instruction. Tuition and other net revenues also include rEsource® fees, application fees, commissions from the sale of education-related products, other student fees, and other income. Tuition and other net revenues vary from period to period based on several factors that include: 1) the aggregate number of students attending classes; 2) the number of classes held during the period; and 3) the weighted average tuition price per credit hour (weighted by program and location). University of Phoenix tuition revenues represented approximately 89.4%, 95.2%, and 94.2% of consolidated tuition revenues during the years ended August 31, 2005, 2004, and 2003, respectively. IPD tuition revenues consist of the contractual share of tuition revenues from students enrolled in related programs at its client institutions. IPD’s contracts with its respective client institutions generally have terms of five to ten years with provisions for renewal.

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

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

Tuition and other revenues are shown net of discounts relating to a variety of promotional programs. Such discounts totaled $107.6 million (4.6% of gross revenues), $62.3 million (3.3% of gross revenues), and $38.9 million (2.8% of gross revenues) in 2005, 2004, and 2003, respectively.

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

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

Cost in excess of fair value of assets purchased

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

Fair value of financial instruments

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

Earnings per share

For the year ended August 31, 2003, and the period between September 1, 2003 and August 27, 2004, the Company presented basic and diluted earnings per share for Apollo Education Group common stock and University of Phoenix Online common stock using the two-class method. The two-class method is an earnings allocation formula that determines the earnings per share for Apollo Education Group common stock and University of Phoenix Online common stock according to participation rights in undistributed earnings.

Basic earnings per share for Apollo Education Group common stock for these periods was calculated by dividing Apollo Education Group earnings (including its retained interest in University of Phoenix Online earnings) by the weighted average number of shares of Apollo Education Group Class A and Class B common stock outstanding. Diluted earnings per share was calculated similarly, except that it included the dilutive effect of the assumed exercise of options issuable under Apollo Group, Inc. incentive plans, exclusive of options granted with respect to University of Phoenix Online common stock.

Basic earnings per share for University of Phoenix Online common stock for these periods was calculated by dividing University of Phoenix Online earnings (excluding Apollo Education Group’s retained interest in University of Phoenix Online earnings) by the weighted average number of shares of University of Phoenix Online common stock outstanding. Diluted earnings per share was calculated similarly, except that it included the dilutive effect of the assumed exercise of options with respect to University of Phoenix Online common stock.

Beginning on August 28, 2004, including the year ended August 31, 2005, the financial results of the Apollo Education Group common stock reflect the consolidated operations of the Apollo Group, Inc. Basic earnings per share is calculated using the weighted average number of Apollo Education Group Class A and Class B common shares outstanding during the period. Diluted income per share is calculated similarly except that it includes the dilutive effect of the assumed exercise of options issuable under Apollo Group, Inc. incentive plans.

Both basic and diluted weighted average shares have been retroactively restated for stock splits effected in the form of stock dividends. The amount of any tax benefit to be credited to additional paid-in capital related to the exercise of options is included when applying the treasury stock method to stock options in the computation of earnings per share.

Leases

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

On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease accounting issues and their application under generally accepted accounting principles in the United States of America (“GAAP”). In light of this letter, the Company initiated a review of its lease-related accounting and determined that its previous method of accounting for leasehold improvements funded by landlord incentives or allowances under operating leases (“tenant improvement allowances”) was not in accordance with GAAP. The Company has historically accounted for tenant improvement allowances as reductions to the related leasehold improvement asset on the Consolidated Balance Sheets and capital expenditures in investing activities on the Consolidated Statements of Cash Flows. Management determined that the appropriate interpretation of FASB Technical Bulletin No. 88-1, “Issues Relating to Accounting for Leases,” requires these allowances to be recorded as a leasehold improvement asset and deferred rent liability on the Consolidated Balance Sheets and as both an investing activity (addition to property and equipment) and a component of operating activities on the Consolidated Statements of Cash Flows. In the second quarter of 2005, the Company recorded additional leasehold improvements and deferred rent in its Consolidated Balance Sheets to reflect the unamortized portion of tenant improvement allowances and deferred rent liabilities for existing leases. The Company also revised the presentation of the Consolidated Statements of Cash Flows to reflect cash reimbursements received for tenant improvement allowances during the periods presented as additions to property and equipment and an increase in operating activities. These changes had no material effect on prior period operations and, thus, did not require a restatement of the Consolidated Statements of Income and the Consolidated Statements of Cash Flows. As of August 31, 2005, the Company has unamortized tenant improvement allowances of $49.1 million.

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

Selling and promotional costs

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

Start-up costs

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

Stock-based compensation

The Company has four stock-based employee compensation plans, which are described more fully in Note 9. The Company applies the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for those plans. Stock-based employee compensation expense is not reflected in the Consolidated Statements of Income as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), to stock-based employee compensation is as follows, in thousands, except per share amounts:

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	Year Ended August 31,
	2005			2004			2003
Apollo Education Group
Net income, as reported	$	444,731		$	137,800		$	231,702
Add: Stock-based compensation included in determination of net income, net of related tax effects		11,936			74,379
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(29,340	)		(91,405	)		(14,130	)
Pro forma net income	$	427,327		$	120,774		$	217,572
Earnings per share:
Basic — as reported	$	2.43		$	0.78		$	1.32
Basic — pro forma	$	2.34		$	0.69		$	1.24
Diluted — as reported	$	2.39		$	0.77		$	1.30
Diluted — pro forma	$	2.30		$	0.67		$	1.22

	The Period from
	September 1, 2003 to			Year Ended
	August 27,			August 31,
	2004 1			2003
University of Phoenix Online
Net income, as reported	$	139,974		$	15,308
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(568	)		(514	)
Pro forma net income	$	139,406		$	14,794
Earnings per share:
Basic — as reported	$	8.85		$	1.01
Basic — pro forma	$	8.81		$	0.98
Diluted — as reported	$	8.19		$	0.93
Diluted — pro forma	$	8.16		$	0.89

(1) The University of Phoenix Online common stock was converted to Apollo Education Group Class A common stock effective August 27, 2004.

The effects of applying SFAS 123 in the above pro forma disclosures are not necessarily indicative of future amounts. The fair value of each option grant was estimated on the date of grant using the Black-Scholes method with the following weighted-average assumptions for grants for Apollo Education Group:

	Year Ended August 31,
	2005			2004			2003
Apollo Education Group
Dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		32.2	%		32.4	%		43.8	%
Risk-free interest rate		3.4	%		3.3	%		3.2	%
Expected lives (in years)		3.2			3.6			3.1
Weighted average fair value of options granted	$	20.38		$	18.88		$	13.92

The fair value of each option grant was estimated on the date of grant using the Black-Scholes method with the following weighted-average assumptions for grants for University of Phoenix Online:

29

	The Period from
	September 1, 2003 to			Year Ended
	August 27,			August 31,
	2004 1			2003
University of Phoenix Online
Dividend yield		0.0	%		0.0	%
Expected volatility		40.0	%		56.0	%
Risk-free interest rate		3.3	%		3.2	%
Expected lives (in years)		3.4			2.7
Weighted average fair value of options granted	$	20.79		$	11.29

(1) The University of Phoenix Online common stock was converted into Apollo Education Group Class A common stock effective August 27, 2004.

Use of estimates

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

Recent accounting pronouncements

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

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all stock-based compensation payments and supersedes our current accounting under APB Opinion No. 25. SFAS 123(R) is effective for all annual periods beginning after June 15, 2005. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to the adoption of SFAS 123(R).

The Company adopted SFAS 123(R) in the first quarter of 2006 and will continue to evaluate the impact of SFAS 123(R) on its operating results and financial condition. The pro forma information in Note 2 presents the estimated compensation charges under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.” As a result of the provisions of SFAS 123(R) and SAB 107, the Company expects the compensation charges under SFAS 123(R) to reduce diluted income per share by approximately $0.10 per share for fiscal 2006. However, the Company’s assessment of the estimated compensation charges is affected by its stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the volatility of its stock price and employee stock option exercise behaviors. The Company will recognize compensation cost for stock-based awards issued after August 31, 2005, on a straight-line basis over the requisite service period for the entire award.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of Accounting Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions (“SFAS 153”). SFAS 153 requires that exchanges of nonmonetary assets are to be measured based on fair value and eliminates the exception for exchanges of nonmonetary, similar productive assets, and adds an exemption for nonmonetary exchanges that do not have commercial substance. The Company adopted SFAS 153 on September 1, 2005. The adoption of SFAS 153 is expected to have no material impact on its financial condition or results of operations.

In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154, Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”). SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in

30

nondiscretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. The Company plans to adopt SFAS 154 beginning in the first quarter of fiscal 2007.

Note 3. Balance Sheet Components

Marketable securities consist of the following, in thousands:

	August 31,
	2005				2004
	Estimated		Amortized		Estimated		Amortized
Type	Market Value		Cost		Market Value		Cost
Classified as current:
Municipal bonds	$	120,822	$	121,310	$	186,383	$	186,380
U.S. government-sponsored enterprises		38,135		38,449
Auction rate preferred stock		57,421		57,445		142,225		142,224
Corporate obligations		6,862		6,908		7,610		7,589
Total current marketable securities		223,240		224,112		336,218		336,193
Classified as noncurrent:
Municipal bonds due in 1-5 years		41,932		42,384		180,887		180,731
U.S. government-sponsored enterprises		46,199		47,994		96,523		97,452
Auction rate preferred stock						25,300		25,300
Corporate obligations		6,086		6,972		13,294		13,260
Total noncurrent marketable securities		94,217		97,350		316,004		316,743
Total marketable securities	$	317,457	$	321,462	$	652,222	$	652,936

Receivables consist of the following, in thousands:

	August 31,
	2005			2004
Trade receivables	$	220,753		$	153,895
Interest receivable		2,666			4,231
		223,419			158,126
Less allowance for doubtful accounts		(21,804	)		(11,629	)
Total receivables, net	$	201,615		$	146,497

Bad debt expense was $45.4 million, $26.9 million, and $20.7 million for 2005, 2004, and 2003, respectively. Write-offs, net of recoveries, were $35.2 million, $26.1 million, and $17.4 million for 2005, 2004, and 2003, respectively.

Property and equipment consist of the following, in thousands:

	August 31,
	2005			2004
Furniture and equipment	$	277,471		$	229,221
Software		78,136			60,801
Leasehold improvements		99,847			61,068
Tenant improvement allowances		85,871			72,075
Land and buildings		15,113			14,798
		556,438			437,963
Less accumulated depreciation and amortization		(287,777	)		(225,758	)
Property and equipment, net	$	268,661		$	212,205

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Depreciation and amortization expense was $66.1 million, $53.2 million, and $47.7 million for 2005, 2004, and 2003, respectively.

Accrued liabilities consist of the following, in thousands:

	August 31,
	2005		2004
Salaries, wages, and benefits	$	23,441	$	29,841
Accrued advertising		15,631		15,560
Other accrued liabilities		22,243		24,080
Total accrued liabilities	$	61,315	$	69,481

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

	August 31,
	2005		2004
Student deposits	$	249,696	$	211,861
Current portion of deferred tuition revenue		131,900		101,992
Application fee revenue		6,314		9,479
Total student deposits and current portion of deferred revenue	$	387,910	$	323,332

Note 4. Related Party Transactions

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

On December 14, 2001, Hermes acquired the Company’s investment in IDL in exchange for a promissory note in the principal amount of $11.9 million, which represented the related carrying value and approximated the related fair value as of that date. The promissory note accrues interest at an annual rate of six percent and is due at the earlier of December 14, 2021 or nine months after Dr. Sperling’s death. The promissory note is included in other assets in the Consolidated Balance Sheets as of August 31, 2005 and 2004. The carrying value of this receivable reasonably approximates its fair value as the stated interest rate approximates current market interest rates.

Effective July 15, 1999, the Company entered into contracts with Apollo International, Inc. to provide educational products and services in certain locations outside of the United States, Canada, and Puerto Rico. Dr. John G. Sperling is a director of Apollo International, Inc. Shares of Apollo International, Inc. stock are beneficially owned by the Company (2.6% for which we have paid $999,989) and by an investment entity controlled by Dr. John G. Sperling (30%). The first educational offering under these agreements commenced in the Netherlands in September 1999. During the years ended August 31, 2005, 2004, and 2003, the Company received no revenue from Apollo International, Inc. for services rendered in connection with these contracts. Effective October 1, 2005, the Company has taken over operations at the Netherlands campus from Apollo International, Inc.

Effective September 2002, WIU entered into an agreement with Apollo International, Inc. that allows for WIU’s educational offerings to be made available in India. Apollo International, Inc. manages the relationship with the entities in India that are offering the WIU programs while WIU maintains the educational content of the programs. WIU received revenue of $89,000, $37,000, and $8,000 during the years ended August 31, 2005, 2004, and 2003, respectively, for services rendered in connection with this agreement.

Effective June 1, 1999, the Company entered into an agreement with Governmental Advocates, Inc. to provide consulting services to the Company with respect to matters concerning legislation, regulations, public policy, electoral politics, and any other topics of concern to it relating to state government in the state of California. Hedy Govenar, one of the Company’s directors, is the founder and Chairwoman of Governmental Advocates, Inc. On June 1, 2005, the Company renewed this agreement for an additional one year. Pursuant to the agreement, the Company paid consulting fees to Governmental Advocates, Inc. of $120,000 in 2005, 2004, and 2003.

The Company on occasion leases an airplane from Yo Pegasus, LLC, an entity controlled by Dr. John G. Sperling. Payments to this entity during the years ended August 31, 2005, 2004, and 2003, were $421,000, $573,000, and $225,000, respectively.

32

Note 5. Long-Term Liabilities

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

	August 31,
	2005			2004
Deferred compensation discounted at 7.5%	$	1,413		$	1,351
Deferred rent and other lease rebates		79,803			63,190
Deferred gain on sale-leasebacks and other contracts		13,757			17,060
Other long-term liabilities		1,653			267
Total long-term liabilities		96,626			81,868
Less current portion		(18,878	)		(14,218	)
Total long-term liabilities, net	$	77,748		$	67,650

The undiscounted deferred compensation liability was $1.6 million at August 31, 2005 and 2004, and relates to the deferred compensation agreement between the Company and Dr. John G. Sperling executed in December 1993. The discount rate for this agreement was determined based on the estimated long-term rate of return on high-quality fixed income investments with cash flows similar to the agreement.

Note 6. Income Taxes

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

	Year Ended August 31,
	2005		2004			2003
Current:
Federal	$	231,720	$	188,740		$	128,793
State and other		46,598		37,261			23,777
Total current		278,318		226,001			152,570
Deferred:
Federal		5,949		(41,612	)		1,883
State and other		844		(5,675	)		341
Total deferred		6,793		(47,287	)		2,224
Total provision for income taxes	$	285,111	$	178,714		$	154,794

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

	Year Ended August 31,
	2005			2004			2003
Statutory U.S. federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		4.5	%		4.4	%		5.0	%
Other, net		-0.4	%		-0.2	%		-1.5	%
Effective income tax rate		39.1	%		39.2	%		38.5	%

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

33

	August 31,
	2005		2004
Gross deferred tax assets:
Allowance for doubtful accounts	$	8,839	$	4,805
Deferred tuition revenue		882		379
Reserves		1,873		4,083
Stock-based compensation		39,139		49,157
Sale-leaseback		4,545		5,074
Deferred tenant improvement allowances		19,514		17,571
Other		6,143		6,305
Total gross deferred tax assets		80,935		87,374
Gross deferred tax liabilities:
Amortization of cost in excess of fair value of assets purchased		6,876		6,134
Depreciation of fixed assets		21,480		21,713
Other		1,832		1,987
Total gross deferred tax liabilities		30,188		29,834
Net deferred tax assets	$	50,747	$	57,540

The conversion of University of Phoenix Online stock options into Apollo Education Group Class A stock options resulted in non-cash stock-based compensation charges of $19.8 million and $123.5 million in 2005 and 2004, respectively. This deferred compensation is not currently deductible for income tax purposes. Therefore, a deferred tax asset was established based on the value of the vested, but unexercised options existing at August 31, 2004. During 2005, the net decrease in the deferred tax asset was $10.0 million, as a result of some of these options being exercised during the year offset by the additional stock-based compensation charge during the year. The remaining deferred tax asset will be realized over subsequent periods as the remaining options are exercised.

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

	August 31,
	2005		2004
Current deferred tax assets, net	$	14,991	$	10,020
Noncurrent deferred tax assets, net		35,756		47,520
Net deferred tax assets	$	50,747	$	57,540

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

Note 7. Common Stock

The Board of Directors of Apollo has previously authorized a program allocating up to $1.55 billion in Company funds to repurchase shares of Apollo Education Group Class A common stock and, during the period it was outstanding, University of Phoenix Online common stock. While it was outstanding, the Company repurchased approximately 2,025,000 shares of University of Phoenix Online common stock at a total cost of $132.0 million. As of August 31, 2005, the Company had repurchased approximately 26,983,000 shares of Apollo Education Group Class A common stock at a total cost of approximately $1.4 billion, including 141,000 shares at a cost of $6.2 million in 2003, 5.7 million shares at a cost of $443.5 million in 2004, and 11.1 million shares at a cost of $808.2 million in 2005. On October 7, 2005, the Board of Directors authorized a program allocating up to an additional $300 million of our funds to repurchase shares of Apollo Education Group Class A common stock. An additional 3,751,000 shares of Apollo Education Group Class A common stock were repurchased between September 1, 2005 and October 31, 2005 at a cost of approximately $231.0 million.

As of August 31, 2005, 1,899,000 shares of our treasury stock have been used to secure receivables between Apollo and two of its subsidiaries.

Note 8. Earnings Per Share

Earnings attributable to different classes of the Company’s common stock are as follows, in thousands:

34

	Year Ended August 31,
	2005		2004		2003
Apollo Education Group	$	444,731	$	137,800	$	231,702
University of Phoenix Online				139,974		15,308
Net income	$	444,731	$	277,774	$	247,010

For the years ended August 31, 2004 and 2003, the earnings attributable to University of Phoenix Online common stock represent the portion of the earnings of University of Phoenix Online attributed to the shares of University of Phoenix Online common stock outstanding excluding Apollo Education Group’s retained interest in University of Phoenix Online.

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

							Year Ended August 31,
	2005						2004						2003
			Weighted						Weighted						Weighted
			Average		Per Share				Average		Per Share				Average		Per Share
	Income		Shares		Amount		Income		Shares		Amount		Income		Shares		Amount
Basic income per share	$	444,731		182,928	$	2.43	$	137,800		176,175	$	0.78	$	231,702		174,985	$	1.32
Effect of dilutive securities:
Stock options				3,087						2,722						2,652
Diluted income per share	$	444,731		186,015	$	2.39	$	137,800		178,897	$	0.77	$	231,702		177,637	$	1.30

Basic earnings per share for Apollo Education Group common stock for the years ended August 31, 2005, 2004, and 2003, were computed by dividing Apollo Education Group earnings (including its retained interest in University of Phoenix Online earnings in 2004 and 2003) by the weighted average number of Apollo Education Group common stock shares outstanding during the respective periods. Diluted earnings per share were calculated similarly, except that the dilutive effect of the assumed exercise of options issued under Apollo Group, Inc. incentive plans, exclusive of options granted and shares issued with respect to University of Phoenix Online common stock, is included.

Weighted average common shares outstanding, assuming dilution, includes the incremental effect of shares that would be issued upon the assumed exercise of stock options. For the year ended August 31, 2005, approximately 97,000 of the Company’s stock options outstanding were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average share price for the quarter, and, therefore, their inclusion would have been anti-dilutive. These options could be dilutive in the future if the average share price increases and is greater than the exercise price of these options. For the years ended August 31, 2004 and 2003, all stock options were included in the calculation as the exercise price of all stock options was less than the average share price for the quarter.

A reconciliation of the basic and diluted earnings per share computations for University of Phoenix Online common stock is as follows, in thousands, except per share amounts:

	The Period from
	September 1, 2003 to August 27,						Year Ended August 31,
			2004				2003
			Weighted						Weighted
			Average		Per Share				Average		Per Share
	Income		Shares		Amount		Income		Shares		Amount
Basic income per share	$	139,974		15,825	$	8.85	$	15,308		15,154	$	1.01
Effect of dilutive securities:
Stock options				1,256						1,364
Diluted income per share	$	139,974		17,081	$	8.19	$	15,308		16,518	$	0.93

Basic earnings per share of University of Phoenix Online common stock for the period from September 1, 2003, to August 27, 2004, and the year ended August 31, 2003, were computed by dividing University of Phoenix Online earnings (excluding Apollo Education Group’s retained interest in University of Phoenix Online earnings) by the number of shares of University of Phoenix Online common stock outstanding during the respective periods. Diluted earnings per share were calculated similarly, except that the dilutive effect of

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the assumed exercise of options issued under Apollo Group, Inc. incentive plans with respect to University of Phoenix Online common stock, is included.

Note 9. Employee and Director Benefit Plans

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

401(k) plan

The Company sponsors a 401(k) plan for its employees which provides for salary reduction contributions by qualifying employees. Participant contributions are subject to certain restrictions as set forth in the Internal Revenue Code. Upon completion of one year of service and 1,000 hours worked, the Company matches 30% of the eligible participant’s contributions up to 15% of the participant’s gross compensation per paycheck. The Company’s matching contributions totaled $4.6 million, $4.0 million, and $3.2 million for 2005, 2004, and 2003, respectively.

Stock-based compensation plans

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

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

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

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

The Purchase Plan allowed for the Company’s employees to purchase shares of the Company’s Apollo Education Group Class A common stock and, during the period it was outstanding, University of Phoenix Online common stock, at quarterly intervals through periodic payroll deductions. The purchase price per share during 2005, 2004, and 2003, in general, was 85% of the lower of 1) the fair market value (as defined in the Purchase Plan) on the enrollment date into the respective quarterly offering period or 2) the fair market value on the purchase date. Effective October 1, 2005, the Purchase Plan was amended and restated. The Apollo Group, Inc. Third Amended and Restated 1994 Employee Stock Purchase Plan allows the Company’s employees to purchase shares of Apollo Education Group Class A common stock at a price per share equal to 95% of the fair market value on the purchase date.

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

36

													Weighted
													Average
				Director			2000						Exercise Price
	LTIP			Stock Plan			Incentive Plan			Total			per Share
Outstanding at August 31, 2002		4,160			378			2,993			7,531		$	14.383
Granted					121			1,510			1,631			42.558
Exercised		(1,235	)		(197	)		(674	)		(2,106	)		13.355
Canceled		(48	)		(20	)		(237	)		(305	)		25.356
Outstanding at August 31, 2003		2,877			282			3,592			6,751			21.015
Granted					81			3,042			3,123			67.435
Exercised		(364	)		(104	)		(832	)		(1,300	)		24.417
Canceled		(28	)					(96	)		(124	)		30.929
Converted from University of Phoenix Online common stock					52			2,829			2,881			20.413
Outstanding at August 31, 2004		2,485			311			8,535			11,331			33.158
Granted								145			145			77.679
Exercised		(1,069	)		(45	)		(1,391	)		(2,505	)		16.969
Canceled		(52	)					(207	)		(259	)		46.241
Outstanding at August 31, 2005		1,364			266			7,082			8,712			38.167
Exercisable at August 31, 2005		1,150			266			5,722			7,138
Available for issuance at August 31, 2005		899						3,838			4,737

As part of the Company’s conversion of University of Phoenix Online common stock to Apollo Education Group Class A common stock, each unexercised option to purchase University of Phoenix Online common stock at August 27, 2004, was converted to 1.0766 options to purchase Apollo Education Group Class A common stock. The conversion ratio was based upon the relative market values of Apollo Education Group Class A common stock and University of Phoenix Online common stock at the close of the market on August 12, 2004, prior to the announcement. The issuance of these shares is shown in the table above as Converted from University of Phoenix Online common stock.

A summary of the activity related to stock options to purchase University of Phoenix Online common stock granted under the Director Stock Plan and the 2000 Incentive Plan is as follows, in thousands, except per share amounts:

										Weighted
										Average
	Director			2000						Exercise Price
	Stock Plan			Incentive Plan			Total			per Share
Outstanding at August 31, 2002		91			3,790			3,881		$	9.714
Granted					504			504			30.897
Exercised		(9	)		(1,425	)		(1,434	)		8.763
Canceled					(78	)		(78	)		15.813
Outstanding at August 31, 2003		82			2,791			2,873			13.736
Granted					485			485			64.800
Exercised		(34	)		(578	)		(612	)		16.926
Canceled					(70	)		(70	)		24.771
Converted to Apollo Education Group common stock		(48	)		(2,628	)		(2,676	)		21.976
Outstanding at August 27, 2004		—			—			—

The following table summarizes information about the stock options to purchase Apollo Education Group Class A common stock at August 31, 2005:

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	Options Outstanding						Options Exercisable
			Weighted Avg.		Weighted Avg.				Weighted Avg.
			Contractual		Exercise				Exercise
Range of	Number		Years		Price		Number		Price
Exercise Prices	Outstanding		Remaining		per Share		Exercisable		per Share
	(In thousands)						(In thousands)
$3.348 to $11.389		2,297		4.30	$	8.433		2,139	$	8.548
$11.630 to $28.424		1,907		5.90	$	20.325		1,849	$	20.467
$29.327 to $60.900		2,472		7.62	$	51.951		2,181	$	48.049
$61.800 to $71.230		1,854		8.68	$	70.686		854	$	67.697
$72.000 to $91.000		182		5.17	$	80.672		115	$	83.776
$3.348 to $91.000		8,712		6.54	$	38.167		7,138	$	28.062

Note 10. Commitments and Contingencies

The Company is obligated under facility and equipment leases that are classified as operating leases. The following is a schedule of future minimum lease commitments as of August 31, 2005, in thousands:

	Operating Leases
	Facilities		Equipment
2006	$	121,630	$	1,233
2007		119,131		810
2008		110,099		271
2009		98,075
2010		81,955
Thereafter		135,059
	$	665,949	$	2,314

Facility and equipment rent expense totaled $131.7 million, $108.4 million, and $93.1 million for 2005, 2004, and 2003, respectively.

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

On August 29, 2003, the Company was notified that a qui tam action had been filed against it on March 7, 2003, in the United States District Court for the Eastern District of California by two current employees on behalf of themselves and the federal government. When the Government declines to intervene in a qui tam action, as it has done in this case, the relators may elect to pursue the litigation on behalf of the Government and, if they are successful, receive a portion of the federal government’s recovery. The qui tam action alleges, among other things, violations of the False Claims Act 31 U.S.C. § 3729(a)(1) and (2), by University of Phoenix for submission of a knowingly false or fraudulent claim for payment or approval, and knowingly false records or statements to get a false or fraudulent claim paid or approved in connection with federal student aid programs, and asserts that University of Phoenix improperly compensates its employees. On or about October 20, 2003, a motion to dismiss the action was filed and was subsequently granted with leave to amend the complaint. Subsequently, a second amended complaint was filed on or about March 3, 2004. A motion to dismiss this amended complaint was filed on or about March 22, 2004, and the case was subsequently dismissed with

38

prejudice. On June 11, 2004, an appeal was filed with the United States Ninth Circuit Court of Appeals. While the outcome of this legal proceeding is uncertain, management does not expect a material adverse effect on the Company’s business, financial position, results of operations, or cash flows to result from this action.

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

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

An unsecured letter of credit for Western International University, in the amount of $492,500, expiring in March 2006, is outstanding.

Note 11. Segment Reporting

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

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

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

Our principal operations are located in the United States, and our results of operations and long-lived assets in geographic regions outside of the United States are not significant. During the years ended August 31, 2005, 2004, and 2003, no individual customer accounted for more than 10% of our consolidated revenues.

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

39

	Year Ended August 31,
	2005			2004			2003
Tuition and other, net
University of Phoenix	$	2,013,693		$	1,697,381		$	1,251,405
Other Schools		235,972			96,982			87,005
Corporate		1,807			4,060			1,107
Total tuition and other, net	$	2,251,472		$	1,798,423		$	1,339,517
Income from operations:
University of Phoenix	$	651,736		$	492,985		$	372,228
Other Schools		64,129			16,809			15,758
Corporate		(3,016	)		(71,569	)		(727	)
		712,849			438,225			387,259
Reconciling items:
Interest income and other, net		16,993			18,263			14,545
Income before income taxes	$	729,842		$	456,488		$	401,804

	Year Ended August 31,
	2005		2004		2003
Depreciation and Amortization:
University of Phoenix	$	35,130	$	30,489	$	28,132
Other Schools		4,686		2,955		3,130
Corporate		14,682		9,752		9,043
	$	54,498	$	43,196	$	40,305
Capital Expenditures:
University of Phoenix	$	62,980	$	77,382	$	34,718
Other Schools		4,211		2,889		1,725
Corporate		36,599		27,459		20,256
	$	103,790	$	107,730	$	56,699
Assets:
University of Phoenix	$	887,912	$	792,853
Other Schools		159,902		70,467
Corporate		255,131		631,781
	$	1,302,945	$	1,495,101

Note 12. Quarterly Results of Operations (Unaudited)

The following table sets forth selected unaudited quarterly financial information for each of the Company’s last eight quarters.

40

	2005								2004
	Aug. 31,		May 31,		Feb. 28,		Nov. 30,		Aug. 31,			May 31,			Feb. 29,			Nov. 30,
(In thousands, except per share amounts)	2005		2005		2005		2004		2004			2004			2004			2003
Revenues:
Tuition and other, net	$	591,842	$	619,011	$	505,693	$	534,926	$	492,753		$	496,999		$	396,862		$	411,809
Costs and expenses:
Instructional costs and services		253,459		243,232		221,635		217,417		213,478			196,026			181,104			174,887
Selling and promotional		125,016		118,153		121,016		120,585		110,762			103,287			87,390			81,639
General and administrative		24,276		29,323		23,499		21,188		24,546			22,849			20,087			20,608
Stock-based compensation		19,824								123,535
		422,575		390,708		366,150		359,190		472,321			322,162			288,581			277,134
Income from operations		169,267		228,303		139,543		175,736		20,432			174,837			108,281			134,675
Interest income and other, net		4,592		3,984		3,855		4,562		4,646			4,886			4,574			4,157
Income before income taxes		173,859		232,287		143,398		180,298		25,078			179,723			112,855			138,832
Provision for income taxes		67,611		90,449		56,284		70,767		9,414			70,387			44,352			54,561
Net income	$	106,248	$	141,838	$	87,114	$	109,531	$	15,664		$	109,336		$	68,503		$	84,271
Income (loss) attributed to Apollo Education Group common stock:
Net income	$	106,248	$	141,838	$	87,114	$	109,531	$	15,664		$	109,336		$	68,503		$	84,271
Stock dividends paid										(114,155	)
Income attributed to University of Phoenix Online common shareholders										(6,210	)		(8,233	)		(5,459	)		(5,916	)
Income (loss) attributed to Apollo Education Group common shareholders	$	106,248	$	141,838	$	87,114	$	109,531	$	(104,701	)	$	101,103		$	63,044		$	78,355
Income attributed to University of Phoenix Online common stock:
Net income									$	6,210		$	8,233		$	5,459		$	5,916
Stock dividends paid										114,155
Income attributed to University of Phoenix Online common shareholders									$	120,365		$	8,233		$	5,459		$	5,916
Earnings (loss) per share attributed to Apollo Education Group common stock:
Diluted income (loss) per share (1)	$	0.58	$	0.77	$	0.47	$	0.58	$	(0.59	)	$	0.56		$	0.35		$	0.44
Diluted weighted average shares outstanding(2)		182,903		184,322		187,007		189,831		178,577			179,360			178,924			178,726
Earnings per share attributed to University of Phoenix Online common stock:
Diluted income per share									$	7.18		$	0.48		$	0.32		$	0.34
Diluted weighted average shares outstanding										16,763			17,226			17,149			17,186

(1)

The sum of quarterly income per share may not equal annual income per share due to rounding.

(2)

For the quarters ended August 31, 2005, May 31, 2005, February 28, 2005, and November 30, 2004, approximately 141,000, 109,000, 98,000, and 52,000, respectively, of the Company’s 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 quarter, and, therefore, their inclusion would have been anti-dilutive.

41

EX-10.5

                                                                    EXHIBIT 10.5

                               APOLLO GROUP, INC.

                           THIRD AMENDED AND RESTATED

                        1994 EMPLOYEE STOCK PURCHASE PLAN

      WHEREAS, Apollo Group, Inc. (the "Company") previously adopted the Apollo
Group, Inc. 1994 Employee Stock Purchase Plan ("Prior Plan");

      WHEREAS, the Plan has subsequently been amended on three separate
occasions;

      WHEREAS, the Company wishes to amend and restate the Prior Plan because of
changes to the financial accounting reporting requirements applicable to
employee stock purchase plans that offer employer stock at more than a five
percent discount and provide a look-back feature in which the purchase price of
the stock is determined by reference to the stock's market value as of the first
or last day of an offering period, whichever is less;

      NOW THEREFORE, the Company hereby adopts the Apollo Group, Inc. Amended
and Restated 1994 Employee Stock Purchase Plan (the "Plan") effective as of the
Offering Period beginning on October 1, 2005 ("Effective Date"), as set forth
below.

      1. Purpose. The purpose of the Plan is to encourage stock ownership by
employees of the Company and its Subsidiaries and thereby provide employees with
an incentive to contribute to the profitability and success of the Company. The
Plan, which is intended to qualify as an "employee stock purchase plan" meeting
the requirements of Section 423 of the Code, is for the exclusive benefit of
eligible employees of the Company and its Subsidiaries.

      2. Definitions. For purposes of the Plan, in addition to the terms defined
in Section 1, terms are defined as set forth below:

         (a) "Board" means the Board of Directors of the Company.

         (b) "Cash Account" means the account which shall be a subaccount in the
Company's general cash account, maintained on behalf of a Participant by the
Company for the purpose of holding cash contributions withheld from payroll
pending investment in Stock

         (c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code will be deemed to include
successor provisions thereto and regulations thereunder.

         (d) "Custodian" means Smith Barney Inc., or such successor thereto as
may be appointed by the Board or its delegate under Section 3(a).

         (e) "Earnings" means that portion of a Participant's salary or wages
which is designated as "regular pay" under the payroll system of the Company and
its Subsidiaries and



received by a Participant for services rendered during a specified pay period
during which time the Participant participated in the Plan.

         (f) "Enrollment Date" means the first business day of each Offering
Period.

         (g) "Fair Market Value" means the closing sale price of Stock reported
in the table entitled "Nasdaq National Market Issues" or any successor table in
the Wall Street Journal (or, if Stock is then principally traded on a national
securities exchange, in the table reporting composite transactions for such
exchange) for such date or, if no shares of Stock were traded on that date, on
the next preceding day on which there was such a trade.

         (h) "Offering Period" means the three-month period beginning on January
1, April 1, July 1, or October 1 of each year, with the first Offering Period to
begin on the first such date after the Company's Stock is publicly traded on the
Nasdaq National Market or a national securities exchange.

         (i) "Participant" means an employee of the Company or a Subsidiary who
is participating in the Plan.

         (j) "Purchase Date" means the fifth business day after the end of each
Offering Period.

         (k) "Purchase Right" means a Participant's option to purchase shares
which is deemed to be outstanding during an Offering Period. A Purchase Right
represents an "option" as such term is used under Section 423 of the Code.

         (l) "Stock" means the Company's Apollo Education Group Class A common
stock, no par value per share, and such other securities as may be substituted
or resubstituted for Stock under Section 4.

         (m) "Stock Account" means the account maintained on behalf of the
Participant by the Custodian for the purpose of holding Stock acquired upon
investment under the Plan.

         (n) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.

      3. Administration.

         (a) Board Administration. The Plan will be administered by the Board;
provided, however, that the Board may delegate any administrative duties and
authority (other than authority to amend or terminate the Plan) to any Board
committee or to any officers or employees or committee thereof as the Board may
designate (in which case references herein to the Board will be deemed to refer
to the administrator to which such duties and authority have been delegated).
The Board will have full authority to adopt, amend, suspend, waive, and rescind
such rules and regulations and appoint such agents as it may deem necessary or
advisable

                                     - 2 -


to administer the Plan, to correct any defect or supply any omission or
reconcile any inconsistency in the Plan and to construe and interpret the Plan
and rules and regulations thereunder, to furnish to the Custodian such
information as the Custodian may require, and to make all other decisions and
determinations under the Plan (including determinations relating to
eligibility). No person acting in connection with the administration of the Plan
will, in that capacity, participate in deciding any matter relating to his or
her participation in the Plan.

         (b) The Custodian. The Custodian will act as custodian under the Plan,
and will perform such duties as are set forth in the Plan and in any agreement
between the Company and the Custodian. The Custodian will establish and
maintain, as agent for Participants, Participant Stock accounts and any other
subaccounts as may be necessary or desirable for the administration of the Plan.

         (c) Waivers. The Board may waive or modify any requirement that a
notice or election be made or filed under the Plan a specified period in advance
in an individual case or by adoption of a rule or regulation under the Plan,
without the necessity of an amendment to the Plan.

         (d) Other Administrative Provisions. The Company will furnish
information from its records as directed by the Board, and such records,
including as to a Participant's Earnings, will be conclusive on all persons
unless determined by the Board to be incorrect. Each Participant and other
person claiming benefits under the Plan must furnish to the Company in writing a
current mailing address and any other information as the Board or Custodian may
reasonably request. Any communication, statement, or notice mailed with postage
prepaid to any such Participant or other person at the last mailing address
filed with the Company will be deemed sufficiently given when mailed and will be
binding upon the named recipient. The Plan will be administered on a reasonable
and nondiscriminatory basis and will apply uniform rules to all persons
similarly situated. All Participants will have equal rights and privileges
(subject to the terms of the Plan) with respect to Purchase Right outstanding
during any given Offering Period in accordance with Code Section 423(b)(5).

      4. Stock Subject to Plan. Subject to adjustment as hereinafter provided,
the aggregate number of shares of Stock reserved and available for issuance or
which may be otherwise acquired upon exercise of Purchase Rights under the Plan
shall be 7,593,750. Any shares of Stock delivered by the Company under the Plan
may consist, in whole or in part, of authorized and unissued shares or treasury
shares. The number and kind of such shares of Stock subject to the Plan will be
proportionately adjusted, as determined by the Board, in the event of any
extraordinary dividend or other distribution, recapitalization, forward or
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction or event
affecting the Stock. If at the end of any Offering Period, the number of shares
of Stock with respect to which Purchase Rights are to be exercised exceeds the
number of shares of Stock then available under the Plan, the Board shall make a
pro rata allocation of the shares of Stock remaining available for purchase in
as uniform a manner as shall be practicable and as it shall determine to be
equitable.

                                      - 3 -


      5. Enrollment and Contributions.

         (a) Eligibility. An employee of the Company or a Subsidiary may be
enrolled in the Plan for any Offering Period if such employee was continuously
so employed during the 90 days preceding the Enrollment Date, unless one of the
following applies to the employee:

            (i)   Such person has been employed for less than one year with the
                  Company or a Subsidiary;

            (ii)  Such person is a "highly compensated employee" of the Company
                  within the meaning of Section 414(q) of the Code and was a
                  participant in the Apollo Group, Inc. Long-Term Incentive Plan
                  on September 1, 1994;

            (iii) Such person would, immediately upon enrollment, be deemed to
                  own, for purposes of Section 423(b)(3) of the Code, an
                  aggregate of five percent or more of the total combined voting
                  power or value of all outstanding shares of all classes of the
                  Company or any Subsidiary; or

            (iv)  Such person is no longer employed by the Company or a
                  Subsidiary.

      The Company will notify an employee of the date as of which he or she is
eligible to enroll in the Plan, and will make available to each eligible
employee the necessary enrollment forms.

      Notwithstanding the above, any individual who is employed by the Company
or a Subsidiary designated by the Board and who is working outside of the United
States shall not be eligible to participate in the Plan if the laws of the
country in which the employee is working makes the offer of the Purchase Right
or the delivery of Stock under the Plan impractical. Additionally, the offer of
the Purchase Right and the delivery of Stock under the Plan shall be effective
for any individual who is employed by the Company or a Subsidiary and who is
working outside of the United States only after the Company has complied with
the applicable laws of the country in which the employee is working.

         (b) Initial Enrollment. An employee who is eligible under Section 5(a)
(or who will become eligible on or before a given Enrollment Date) may, after
receiving current information about the Plan, initially enroll in the Plan by
executing and filing with the Company's Human Resources Office a properly
completed enrollment form, including thereon the employee's election as to the
rate of payroll contributions for the Offering Period. To be effective for any
Offering Period, such properly executed enrollment form must be filed at least
15 days (or such other period determined by the Board, or its delegate under
Section (3a)) before the Enrollment Date for the Offering Period.

         (c) Automatic Re-enrollment for Subsequent Offering Periods. A
Participant whose enrollment in and payroll contributions under the Plan
continues throughout an Offering Period will automatically be reenrolled in the
Plan for the next Offering Period unless (i) the

                                     - 4 -


Participant terminates enrollment before the Enrollment Date for the next
Offering Period in accordance with Section 7(a) or (ii) on such Enrollment Date
he or she is ineligible to participate under Section 5(a). The rate of payroll
contributions for a Participant who is automatically re-enrolled for an Offering
Period will be the same as the rate of payroll contribution in effect at the end
of the preceding Offering Period, unless the Participant files a new properly
executed enrollment form at least 15 days (or such other period determined by
the Board, or its delegate under Section (3a)) before the Enrollment Date for
the Offering Period designating a different rate of payroll contribution.

         (d) Payroll Contributions. A Participant will make contributions under
the Plan only by means of payroll deductions from Earnings for each payroll
period that ends during the Offering Period, at the rate elected by the
Participant in his or her enrollment form in effect for that Offering Period
(except that such rate may be changed during the Offering Period to the extent
permitted below). The rate of payroll contributions elected by a Participant may
not be less than one percent of the Participant's Earnings for each payroll
period ending during an Offering Period, nor more than the greater of (A) 10
percent of the Participant's year-to-date Earnings, or (B) $3,000 during any
full or partial calendar year during which an individual is eligible to
participate in the Plan, and only whole percentages may be elected; provided,
however, that the Board may specify a lower minimum rate and higher maximum rate
or dollar amount, subject to Section 8(c). Notwithstanding the above, a
Participant's payroll contributions will be adjusted downward by the Company as
necessary to ensure that the limit on the amount of Stock purchased with respect
to an Offering Period set forth in Section 6(a)(iii) is not exceeded. A
Participant may elect to increase, decrease, or discontinue payroll
contributions for a future Offering Period by filing a new properly executed
enrollment form at least 15 days (or such other period determined by the Board,
or its delegate under Section (3a)) before the Enrollment Date for the Offering
Period designating a different rate of payroll contributions. In addition, a
Participant may elect to decrease or discontinue payroll contributions during an
Offering Period by filing a new properly executed enrollment form, such change
to be effective for the next payroll period beginning at least 15 days after
such filing.

         (e) Crediting Payroll Contributions to Cash Accounts. All payroll
contributions by a Participant under the Plan will be credited to a Cash Account
maintained by the Company on behalf of the Participant. The Company will credit
payroll contributions to each Participant's Cash Account as soon as practicable
after the contributions are withheld from the Participant's Earnings..

         (f) No Interest on Cash Accounts. No amounts of interest will be
credited or payable by the Company on payroll contributions or by the Custodian
on cash balances in Participant's Cash Accounts pending investment in Stock.

         (g) Effect of Rehiring. If an individual terminates employment with, or
ceases to perform services for, the Company and is later rehired by, or again
commences performing services for, the Company, the individual will be eligible
to participate in the Plan as of the Offering Period next following the date the
individual is rehired by, or again commences providing services for, the Company
if the period that the individual was separated from employment with, or ceased
providing services for, the Company is less than one full calendar year. If the
period that the individual was separated from employment with, or ceased
providing

                                     - 5 -


services for, the Company is equal to or greater than one full calendar year,
the individual will be eligible to participate in the Plan only after the
individual has again satisfied the eligibility requirements set forth in Section
5(a).

      6. Purchases of Stock

         (a) Purchase Rights. Enrollment in the Plan for any Offering Period by
a Participant will constitute a grant by the Company of a Purchase Right to such
Participant for such Offering Period. Each Purchase Right will be subject to the
following terms:

            (i)   The Purchase prices at which Stock will be purchased under a
                  Purchase Right will be as specified in Section 6(c).

            (ii)  Except as limited in (iii) below, the number of shares of
                  Stock that may be purchased upon exercise of the Purchase
                  Right for an Offering Period will equal the number of shares
                  (including fractional shares) that can be purchased at the
                  purchase price specified in Section 6(c) with the aggregate
                  amount credited to the Participant's Cash Account as of the
                  Purchase Date.

            (iii) The number of shares of Stock subject to a Participant's
                  Purchase Right for any Offering Period will not exceed the
                  number derived by dividing $6,250 by 100% of the Fair Market
                  Value of one share of Stock on the Enrollment Date for the
                  Offering Period.

            (iv)  The Purchase Right will be automatically exercised on the
                  Purchase Date for the Offering Period.

            (v)   Payments by a Participant for Stock purchased under a Purchase
                  Right will be made only through payroll deduction in
                  accordance with Section 5(d) and (e).

            (vi)  The Purchase Right will expire on the earlier of the Purchase
                  Date for the Offering Period or the date on which the
                  Participant's enrollment in the Plan terminates.

         (b) Purchase of Stock. At or as promptly as practicable after the
Purchase Date for an Offering Period, amounts credited to each Participant's
Cash Account as of such Purchase Date will be applied by the Custodian to the
purchase of shares of Stock, in accordance with the terms of the Plan. Shares of
Stock will be purchased by the Custodian from the Company. The Shares sold by
the Company to the Custodian may be authorized but unissued shares or treasury
shares, as permitted under Section 4 hereof. The Custodian will aggregate the
amounts in all Cash Accounts when purchasing Stock, and shares so purchased will
be allocated to each Participant's Stock Account in proportion to the cash
amounts withdrawn from such Participant's Cash Account. Upon completion of
purchases in respect of a Purchase Date (which will be completed in not more
than 30 days after the Purchase Date), all shares of Stock so purchased for a
Participant will be credited to the Participant's Stock Account.

                                     - 6 -


         (c) Purchase Price. The purchase price of each share of Stock purchased
in respect of a Purchase Date will equal 95% of the Fair Market Value of a share
of Stock on the Purchase Date.

         (d) Dividend Reinvestment; Other Distributions. Cash dividends on any
Stock credited to a Participant's Stock Account will be automatically reinvested
in additional shares of Stock; such amounts will not be available in the form of
cash to Participants. All cash dividends paid on Stock credited to Participants'
Stock Accounts will be paid over by the Company to the Custodian at the dividend
payment date. The Custodian will aggregate all purchase of Stock in connection
with dividend reinvestment for a given dividend payment date. Purchases of Stock
for purposes of dividend reinvestment will be made as promptly as practicable
(but not more than 30 days) after a dividend payment date. The Custodian will
make such purchases, as directed by the Board, either (i) in transactions on the
Nasdaq National Market System, any securities exchange upon which Stock is
traded, otherwise in the over-the-counter market, or in negotiated transactions,
or (ii) directly from the Company at 100% of the Fair Market Value of a share of
Stock on the dividend payment date. Any shares of Stock distributed as a
dividend or other distribution in respect of shares of Stock or in connection
with a split of the Stock credited to a Participant's Stock Account will be
credited to such Account.

         (e) Withdrawals and Transfers. Shares of Stock may be withdrawn from a
Participant's Stock Account, in which case one or more certificates for whole
shares may be issued in the name of, and delivered to, the Participant, with
such Participant receiving cash in lieu of fractional shares based on the Fair
Market Value of a share of Stock on the date of withdrawal. Alternatively, whole
shares of Stock may be withdrawn from a Participant's Stock Account by means of
a transfer to a broker-dealer or financial institution that maintains an account
for the Participant, together with the transfer of cash in lieu of fractional
shares based on the Fair Market Value of a share of Stock on the date of
withdrawal. Participants may not designate any other person to receive shares of
Stock withdrawn or transferred under the Plan. A Participant seeking to withdraw
or transfer shares of Stock must give instructions to the Custodian in such
manner and form as may be prescribed by the Custodian, which instructions will
be acted upon as promptly as practicable. Withdrawals and transfers will be
subject to any fees imposed in accordance with Section 8(a) hereof.

         (f) Excess Account Balances. If any amounts remain in a Cash Account
following a Purchase Date as a result of the limitation set forth in Section
6(a)(iii), or for any other reason, such amounts which resulted from payroll
contributions will be returned to the Participant as promptly as practicable.

      7. Termination and Distributions.

         (a) Termination of Enrollment. A Participant's enrollment in the Plan
will terminate upon (i) the beginning of any payroll period or Offering Period
that begins after he or she files a written notice of termination of enrollment
with the Company, provided that such Participant will continue to be deemed to
be enrolled with respect to any completed Offering Period for which purchases
have not been completed; or (ii) such time as the Participant becomes ineligible
to participate under Section 5(a) of the Plan. An employee who files a written
notice of termination of enrollment with the Company may again enroll in the
Plan as of any

                                     - 7 -


subsequent Enrollment Date that is at least 90 days after such termination of
enrollment if he or she satisfies the eligibility requirements of Section 5(a)
as of such Enrollment Date. A Participant's election to discontinue payroll
contributions will not constitute a termination of enrollment.

         (b) Distribution. As soon as practicable after a Participant's
enrollment in the Plan terminates, amounts in the Participant's Cash Account
which resulted from payroll contributions will be repaid to the Participant. If
amounts credited to the Participant's Cash Account have not yet been deposited
by the Company with the Custodian, the Company rather than the Custodian will
make the repayment to the Participant. The Custodian will continue to maintain
the Participant's Stock Account for the Participant until the earlier of such
time as the Participant directs the sale of all Stock in the Account, withdraws,
or transfers all Stock in the Account, or one year after the Participant ceases
to be employed by the Company and its Subsidiaries. If a Participant's
termination of enrollment results from his or her death, all amounts payable
will be paid to his or her estate.

      8. General.

         (a) Costs. Costs and expenses incurred in the administration of the
Plan and maintenance of Accounts will be paid by the Company, to the extent
provided in this Section 8(a). Any brokerage fees and commissions for the
purchase of Stock under the Plan (including Stock purchased upon reinvestment of
dividends and distributions) will be paid by the Company, but any brokerage fees
and commissions for the sale of Stock under the Plan by a Participant will be
borne by such Participant. The rate at which such fees and commissions will be
charged to Participants will be determined by the Custodian or any broker-dealer
used by the Custodian (including an affiliate of the Custodian), and
communicated from time to time to Participants. In addition, the Custodian may
impose or pass through a reasonable fee for the withdrawal of Stock in the form
of stock certificates (as permitted under Section 6(f)), and reasonable fees for
other services unrelated to the purchase of Stock under the Plan, to the extent
approved in writing by the Company and communicated to Participants.

         (b) Statements to Participants. The Custodian will reflect payroll
contributions, matching allocations (if any), purchases, sales, and withdrawals
and transfers of shares of Common Stock and other Plan transactions by
appropriate adjustments to the Participant's Accounts. The Custodian will, not
less frequently than quarterly, provide or cause to be provided a written
statement to the Participant showing the transactions in his or her Accounts and
the date thereof, the number of shares of Stock purchased or sold, the aggregate
purchase price paid or sales price received, the purchase or sales price per
share, the brokerage fees and commissions paid (if any), the total shares held
for the Participant's Stock Account (computed to at least three decimal places),
and other information.

         (c) Compliance with Section 423. It is the intent of the Company that
this Plan comply in all respects with applicable requirements of Section 423 of
the Code and regulations thereunder. Accordingly, if any provision of this Plan
does not comply with such requirements, such provision will be construed or
deemed amended to the extent necessary to conform to such requirements.

                                     - 8 -


      9. General Provisions.

         (a) Compliance With Legal and Other Requirements. The Plan, the
granting and exercising of Purchase Rights hereunder, and the other obligations
of the Company and the Custodian under the Plan will be subject to all
applicable federal and state laws, rules, and regulations, and to such approvals
by any regulatory or governmental agency as may be required. The Company may, in
its discretion, postpone the issuance or delivery of Stock upon exercise of
Purchase Rights until completion of such registration or qualification of such
Stock or other required action under any federal or state law, rule, or
regulation, or the listing or other required action with respect to any
automated quotation system or stock exchange upon which the Stock or other
Company securities are designated or listed, or compliance with any other
contractual obligation of the Company, as the Company may consider appropriate,
and may require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Stock in compliance with applicable laws, rules, and regulations,
designation or listing requirements, or other contractual obligations. The
Company may, in its discretion, postpone the issuance or delivery of Stock upon
exercise of Purchase Rights until completion of such registration or
qualification of such Stock or other required action under any federal or state
law, rule, or regulation, or the laws of any country in which employees of the
Company and a Subsidiary who are nonresident aliens and who arc eligible to
participate reside, or other required action with respect to any automated
quotation system or stock exchange upon which the Stock or other Company
securities are designated or listed, or compliance with any other contractual
obligation of the Company, as the Company may consider appropriate.

         (b) Limits on Encumbering Rights. No right or interest of a Participant
under the Plan, including any Purchase Right, may be pledged, encumbered, or
hypothecated to or in favor of any party, subject to any lien, obligation, or
liability of such Participant, or otherwise assigned, transferred, or disposed
of except pursuant to the laws of descent or distribution, and any right of a
Participant under the Plan will be exercisable during the Participant's lifetime
only by the Participant.

         (c) No Right to Continued Employment. Neither the Plan nor any action
taken hereunder, including the grant of a Purchase Right, will be construed as
giving any employee the right to be retained in the employ of the Company or any
of its Subsidiaries, nor will it interfere in any way with the right of the
Company or any of its Subsidiaries to terminate any employee's employment at any
time.

         (d) Taxes. The Company or any Subsidiary is authorized to withhold from
any payment to be made to a Participant, including any payroll and other
payments not related to the Plan, amounts of withholding and other taxes due in
connection with any transaction under the Plan, and a Participant's enrollment
in the Plan will be deemed to constitute his or her consent to such withholding.
In addition, Participants may be required to advise the Company of sales and
other dispositions of Stock acquired under the plan in order to permit the
Company to comply with tax laws and to claim any tax deductions to which the
Company may be entitled with respect to the Plan. (This provision and other Plan
provisions do not set forth an explanation of the tax consequences to
Participants under the Plan.)

                                     - 9 -


         (e) Changes to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of shareholders or
Participants, except that any such action will be subject to the approval of the
Company's shareholders within one year after such Board action if such
shareholder approval is required by any federal or state law or regulation or
the rules of any automated quotation system or stock exchange on which the Stock
may then be quoted or listed, or if such shareholder approval is necessary in
order for the Plan to continue to meet the requirements of Section 423 of the
Code, and the Board may otherwise, in its discretion, determine to submit other
such actions to shareholders for approval; provided, however, that, without the
consent of an affected Participant, no amendment, alteration, suspension,
discontinuation, or termination of the Plan may materially and adversely affect
the rights of such Participant with respect to outstanding Purchase Rights
relating to any Offering Period that has been completed prior to such Board
action. The foregoing notwithstanding, upon termination of the Plan the Board
may (i) elect to terminate all outstanding Purchase Rights at such time as the
Board may designate; in the event of such termination of any Purchase Right
prior to its exercise, all amounts contributed to the Plan which remain in a
Participant's Cash Account will be returned to the Participant (without
interest) as promptly as practicable, or (ii) shorten the Offering Period to
such period determined by the Board and use amounts credited to a Participant
Cash Account to purchase Stock.

         (f) No Rights to Participate; No Shareholder Rights. No Participant or
employee will have any claim to participate in the Plan with respect to Offering
Periods that have not commenced, and the Company will have no obligation to
continue the Plan. No Purchase Right will confer on any Participant any of the
rights of a shareholder of the Company unless and until Stock is duly issued or
transferred and delivered to the Participant (or credited to the Participant's
Stock Account).

         (g) Fractional Shares. Unless otherwise determined by the Board,
purchases of Stock under the Plan executed by the Custodian may result in the
crediting of fractional shares of Stock to the Participant's Stock Account. Such
fractional shares will be computed to at least three decimal places. Fractional
shares will not, however, be issued by the Company, and certificates
representing fractional shares will not be delivered to Participants under any
circumstances.

         (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for approval will be
construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.

         (i) Plan Year. The Plan will operate on a plan year which ends December
31 in each year.

         (j) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan will be determined in
accordance with the laws of the State of Arizona, without giving effect to
principles of conflicts of laws, and applicable federal law.

                                     - 10 -


         (k) Effective Date. The Plan, as amended and restated, is effective as
of the Effective Date, which is the Offering Period beginning on October 1,
2005.

                                     - 11 -

EX-13

exv13

EX-14

                                                                      EXHIBIT 14

      CODE OF ETHICAL CONDUCT

                                                                    INTRODUCTION

It is the Company's belief that a strong commitment to principles of ethical
      conduct is essential for its success. Accordingly, Apollo has adopted the
      Code of Ethical Conduct to outline expectations and provide standards for
      all employees, directors, and officers, regardless of the position he or
      she holds. The Code promotes:

            -     Honest and ethical conduct;

            -     Full, fair, accurate, timely, and understandable disclosure in
                  reports and public communications;

            -     Compliance with applicable laws, rules and regulations;

            -     The prompt reporting of violations of this Code to appropriate
                  individuals identified in this Code; and

            -     Accountability for adherence to this Code.

     While this Code cannot address every issue that may arise, it is designed
      to establish basic principles that every individual is expected to observe
      in the performance of his or her role as an employee, director, or officer
      of Apollo Group, Inc. In the event an employee, director, or officer is
      unsure about a proper course of conduct, he or she should consult a Human
      Resources representative, or company vice-president or president or access
      the confidential Hotline referenced on the Internal Audit page on the
      Source, which is available on a 24 hour basis. If an employee, director,
      or officer is aware of a violation of this code, he or she should consult
      the procedures described in the section titled "Reporting a Violation or
      Suspected Violation". Violation of this code may result in disciplinary
      action up to and including termination.

                                   LAWS, RULES, REGULATIONS AND COMPANY POLICIES

It is the Company's philosophy that being informed about the legal
      environment in which Apollo does business and conducting business in a
      manner that is lawful is vital to continued success. Every employee,
      director, and officer of the Company is expected to comply with all
      applicable local, state and federal laws and regulations, in the cities,
      states and countries in which Apollo or one of its subsidiaries operates.
      While an employee, director, or officer is not expected to be on familiar
      terms with every law or regulation, such person is expected to utilize
      reasonable judgment when determining when it is appropriate to seek advice
      or clarification on laws, rules and regulations. Further, the employee,
      officer or director is expected to follow both the letter and spirit of
      these laws, rules and regulations. Employees, directors, and officers are
      expected to be familiar with and comply with the terms, conditions and
      policies set forth in the Apollo Group, Inc. Employee Handbook.



                               BUSINESS INFORMATION AND DISCLOSURES TO INVESTORS

As a public company, it is critical that Apollo's filings with the Securities
      and Exchange Commission as well as other public communications be full,
      fair, accurate, complete, timely and understandable. To assist in meeting
      the reporting standards detailed above, for all material information,
      including information relating to the Company's financial records and
      reports, an internal system of controls and procedures, as well as a
      Disclosure Committee has been established. Each individual is expected to
      follow these controls and procedures to the extent they apply to his or
      her role.

Employees, directors, and officers are expected to always record information
      accurately, honestly and in accordance with all applicable legal
      requirements as well as the Company's internal system of controls. An
      employee, director, or officer of the Company will never be granted
      authorization to knowingly enter into or maintain any false or misleading
      information in the corporate books, records, accounts or financial
      statements.

If an employee is aware that public disclosures are not accurate, complete or
      timely, or if an employee becomes aware of a transaction or development
      that he or she believes may require disclosure, that employee should
      report the information immediately to a member of the Disclosure
      Committee. The Disclosure Committee includes the President and Chief
      Executive Officer, Chief Financial Officer, Chief Accounting Officer,
      Director of Internal Audit, and the Financial Reporting Manager.

In the event the President and Chief Executive Officer and/or one of the senior
      financial officers or any other officer becomes aware of information that
      has been filed or disclosed regarding the Company's business and/or
      financial condition that does not meet the standards set forth above, he
      or she is expected to promptly report the violation to the Audit Committee
      of the Board of Directors.

                                                                RECORD RETENTION

Records should always be retained or destroyed as outlined in the Integrity,
      Security, and Confidentiality of Institutional Records Policy (Employee
      Handbook, Section 9.9) as well as the Record Retention Policies
      (http://source.apollogrp.edu/ corpacctg/963517.pdf). In accordance with
      those policies, in the event of litigation or governmental investigation,
      each employee, director and officer is expected to preserve all possibly
      relevant documents.

                                                           CONFLICTS OF INTEREST

The Company respects all individuals' rights to engage in activities outside
      their employment that are private in nature (social, community, political,
      or religious). However, each employee, director, and officer is expected
      to avoid situations and relationships that involve the appearance of a
      conflict of interest or actual or potential conflicts of interest. A
      "conflict of interest" exists when private interests interfere in any way
      with the interests of Apollo or when an employee, director, or officer
      takes actions or has interests that may make it difficult to perform his
      or her work objectively and effectively.



                                              PERSONAL OR BUSINESS OPPORTUNITIES

Employees, directors, and officers are prohibited from taking advantage of
      personal opportunities that are discovered through use of company
      property, access to company information or as a result of their position
      with Apollo without the consent of the Board of Directors. No employee,
      director, or officer may use corporate property, information, or position
      for improper personal gain, and no employee, director, or officer may
      compete with Apollo directly or indirectly. Employees, directors, and
      officers have a duty to the Company to advance its legitimate interests
      when the opportunity to do so arises.

                                             SECURITIES LAWS AND INSIDER TRADING

Employees, directors, and officers are not allowed to purchase or sell Apollo
      stock, including Apollo Class A common stock and University of Phoenix
      Online common stock, while in the possession of material, non-public
      information concerning Apollo. In general, information will be considered
      "material" if a reasonable investor would consider it important in making
      his or her investment decision. This information includes but is not
      limited to, earnings results, acquisitions, divestitures, or pending
      changes in management or control. In addition, to use any material
      non-public information to "tip" others who might make an investment
      decision on the basis of this information is not only unethical, but also
      illegal.

These rules also apply to the use of material, non-public information about
      other companies including but not limited to clients, competitors and
      potential business partners. These rules also apply to an employee's,
      director's, or officer's spouse, children, parents and siblings, as well
      as any other family members living in his or her household.

The Company also maintains a separate Insider Trading Policy (Employee
      Handbook, Section 9.14) that employees, directors, and officers are
      expected to become familiar with and comply with at all times. Questions
      regarding this policy should be directed to the Chief Financial Officer.

                                                                  ANTITRUST LAWS

      The antitrust laws of the United States are intended to protect and
      promote vigorous and fair competition. Employees, directors, and officers
      are expected to adhere to applicable antitrust laws. A violation of these
      laws may give rise to civil or criminal prosecution. Because the antitrust
      laws are broad and far-reaching, employees should always obtain the advice
      from a member of management before engaging in any conduct or practice
      that may involve antitrust laws.

                                                         ENTERTAINMENT AND GIFTS

The purpose of business entertainment and gifts is to create good will and
      sound working relationships. The purpose is not to gain unfair advantage
      with customers, suppliers or personnel who work for the government or an
      organization that regulates the Company's business or business operations.
      No gift or entertainment should ever be offered, given,



      provided or accepted by any employee, officer, or director, or family
      member of such person unless it:

            -     Is not a cash gift;

            -     Is consistent with customary business practices;

            -     Is of nominal value;

            -     Cannot be construed as a bribe or payoff;

            -     Does not violate any laws or regulations; and

            -     Does not imply that additional business opportunities are
                  contingent upon the gift/gratuity.

The promise, offer or delivery to an official or employee of the United States
      government of a gift, favor or other gratuity in violation of any federal
      laws, rules or regulations would not only violate the Code but could also
      be a criminal offense. State and local governments or other regulating
      agencies may have similar rules.

                                                               EQUAL OPPORTUNITY

The Apollo Group, Inc. is guided by the principle of equal opportunity and
      respect for others. The Company is firmly committed to providing equal
      opportunity in all aspects of employment and will not tolerate any
      discrimination or harassment of any kind with regard to race, color,
      religion, sex, age, national origin, disability, veteran status or any
      other category protected by federal, state or local law.

                        CONFIDENTIALITY, PROTECTION AND PROPER USE AND TREATMENT
                                                          OF COMPANY INFORMATION

Confidentiality, protection and the appropriate treatment of information is
      critical to the Company's ability to grow and compete. Every employee,
      director, and officer is expected to take measures to protect or assist in
      the protection of all confidential and proprietary information, including
      technical, financial, marketing and other business information, which, if
      made available to our competitors or the public, would be advantageous to
      such competitors and detrimental to Apollo. Each individual is expected to
      maintain the confidentiality of information entrusted to him or her by the
      Company or its customers, suppliers and competitors, except when
      disclosure is authorized by management or legally mandated. The obligation
      to preserve confidential information continues even after employment with
      Apollo ends.

                                AMENDMENTS AND WAIVERS TO THE CODE FOR DIRECTORS
                                                          AND EXECUTIVE OFFICERS

The Company will promptly disclose, in the manner required by law or NASDAQ
      regulation, any of the following:



            -     The nature of any amendment to the Code that applies to any of
                  our directors or executive officers; and

            -     The nature of any waiver, including an implicit waiver, from a
                  provision of the Code that is granted by the Board of
                  Directors to any director or officer.

                                    REPORTING A VIOLATION OR SUSPECTED VIOLATION

Any employee, director, or officer, regardless of his or her position, that
      suspects a violation of the Code or has knowledge of a suspected violation
      of the Code is expected to bring forward any pertinent information,
      regardless of the identity or position of the suspected offender. To
      report a suspected violation of the Code, contact a Human Resources
      representative, or company vice-president or president or access the
      confidential Hotline referenced in the Internal Audit page on the Source,
      which is available on a 24 hour basis.

All information regarding a suspected violation will be treated with the
      utmost privacy and in a confidential manner, consistent with the
      appropriate evaluation and investigation. If it is determined, upon the
      appropriate evaluation and investigation, that a provision the Code has
      been violated, the person(s) violating the Code, disciplinary action will
      be taken, up to and including termination of employment.

      The Company has a zero tolerance policy for retaliation or retribution
      against any person who reports a suspected violation of the Code (even if
      the report is mistaken but was submitted in the good faith belief it was
      correct) or against any person who participates in the investigation of a
      violation of the Code. Any person who has been found to have engaged in an
      act(s) of retaliation will be subject to disciplinary action, up to and
      including termination.

EX-21

                                                                      EXHIBIT 21

                              LIST OF SUBSIDIARIES

The Company holds 100% of the outstanding capital stock of:

      The University of Phoenix, Inc.
      Institute for Professional Development
      Western International University, Inc.
      The College for Financial Planning Institutes Corporation

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-46834, 33-87844, 33-88984 and 33-63429 on Form S-8 of our reports dated November 10, 2005, relating to the financial statements of Apollo Group, Inc. and subsidiaries, and management’s report on the effectiveness of internal control over financial reporting appearing in the Annual Report to Shareholders, which is incorporated by reference in the Annual Report on Form 10-K of Apollo Group, Inc. and subsidiaries for the year ended August 31, 2005.

DELOITTE & TOUCHE LLP

Phoenix, Arizona
November 10, 2005

EX-23.2

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-46834, 33-87844, 33-88984 and 33-63429) of Apollo Group, Inc. of our report dated September 30, 2003, except as to paragraphs 3 and 4 of Note 2, which is as of November 10, 2005 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K.

PricewaterhouseCoopers LLP
Phoenix, Arizona
November 10, 2005

EX-31.1

EXHIBIT 31.1

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

I, Todd S. Nelson, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: November 14, 2005

/s/ Todd S. Nelson  

Todd S. Nelson 

Chairman of the Board,
Chief Executive Officer, and President 

42

EX-31.2

EXHIBIT 31.2

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

I, Kenda B. Gonzales, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: November 14, 2005

/s/ Kenda B. Gonzales  

Kenda B. Gonzales 

Chief Financial Officer, Secretary, and Treasurer 

43

EX-32.1

Exhibit 32.1

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

     In connection with the Annual Report of Apollo Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended August 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Todd S. Nelson, Chairman of the Board, Chief Executive Officer, and President of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), 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: November 14, 2005

/s/ Todd S. Nelson  

Todd S. Nelson 

Chairman of the Board,
Chief Executive Officer, and President 

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

44

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)

     In connection with the Annual Report of Apollo Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended August 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kenda B. Gonzales, Chief Financial Officer, Secretary, and Treasurer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), 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: November 14, 2005

/s/ Kenda B. Gonzales  

Kenda B. Gonzales 

Chief Financial Officer, Secretary, and Treasurer 

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

45

EX-99.2

                                                                    EXHIBIT 99.2

                               APOLLO GROUP, INC.
                    AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

                                     CHARTER

I.    PURPOSE

      The purpose of the Audit Committee (the "Committee") is to assist the
Board of Directors in fulfilling its oversight responsibilities with respect to
the Company's accounting and financial reporting processes, audit process,
systems of internal control over financial reporting, compliance with laws and
regulations, and Code of Ethical Conduct. The Committee will maintain effective
working relationships with management, the Company's internal audit department
and the Company's outside auditors and will promote continuous improvement in
the Company's accounting and financial reporting policies and procedures at all
levels.

II.   AUTHORITY

      The Committee may conduct or authorize investigations into any matters
within its scope of responsibility and to seek any information it requires from
employees or external parties. The Committee has the authority to appoint and
obtain advice and assistance from outside legal, accounting, or other advisors
as deemed appropriate to fully execute its duties and responsibilities. The
Company shall provide appropriate funding, as determined by the Committee, for
compensation to the outside auditor and to any advisers that the Committee
chooses to engage. The Committee may form and delegate authority to
subcommittees when appropriate.

III.  COMPOSITION AND MEMBER QUALIFICATIONS

      The Committee will be comprised of at least three qualified independent
directors, all of whom meet the independence and experience requirements of
Rules 4200(a)(15) and 4350(d)(2) of The NASDAQ Stock Market, Inc. Marketplace
Rules (the "NASDAQ Rules") and the criteria for independence under Rule
10A-3(b)(1) of the Securities Exchange Act of 1934 (the "Exchange Act"), as such
requirements may change from time to time. The members of the Committee will be
elected by the Board of Directors who will also designate the Committee's
Chairman.

      Each member of the Committee shall have a basic understanding of finance
and accounting and be able to read and understand fundamental financial
statements, at the time of appointment to the Committee, and at least one member
of the Committee shall either (i) qualify as an "audit committee financial
expert," as defined in Regulation S-K, Item 401(h)(2) of the Exchange Act, or
(ii) have past employment experience in financing or accounting, requisite
professional certification in accounting, or any other comparable experience or
background which results in the individual's financial sophistication,

                                       1


including being or having been a chief executive officer, chief financial
officer or other senior officer with financial oversight responsibilities.

IV.   MEETINGS

      The Committee will meet at least four times a year, or more frequently as
circumstances dictate. In connection therewith, the Committee will meet
regularly with management, the director of the internal audit department and the
Company's outside auditors in separate executive sessions to discuss any matters
that the Committee deems appropriate. Minutes of each Committee meeting will be
kept, and the Committee's Chairman will provide periodic reports on its
activities to the Board of Directors.

V.    CHARTER

      The Committee will review this charter on a periodic basis, at least
annually, and revise it as necessary.

VI.   RESPONSIBILITIES

      The Committee's primary responsibilities are summarized below:

      Financial Statements

      -     The Committee will review significant accounting and reporting
            issues and understand their impact on the Company's financial
            statements, including complex or unusual transactions and highly
            judgmental areas, major issues regarding accounting principles and
            financial statement presentations, and the effect of regulatory and
            accounting initiatives on the financial statements of the Company.

      -     The Committee will review the Company's quarterly and annual
            financial statements and related press releases and filings with the
            SEC and discuss such items with management and the Company's outside
            auditors prior to issuance.

      -     The Committee will meet with the Company's outside auditors to
            discuss the planned scope of their audit of the Company's annual
            financial statements as well as the nature of procedures to be
            performed in connection with their limited reviews of the Company's
            interim financial information.

      -     The Committee will meet with the Company's outside auditors at the
            conclusion of their audit of the Company's annual financial
            statements as well as at the conclusion of their limited reviews of
            the Company's interim financial information to discuss the related
            results of such audit or limited

                                       2


            reviews and to receive communications from the outside auditors
            which are required in connection with such engagements.

      -     The Committee will review all significant changes in the Company's
            financial accounting and reporting policies and discuss such changes
            with management and the Company's outside auditors prior to
            implementation.

      Title IV Programs

      -     The Committee will meet with management, the internal audit director
            and the Company's outside auditors to discuss the Company's
            participation in Title IV Student Financial Assistance Programs of
            the Higher Education Act of 1965, as amended ("Title IV Programs").

      -     The Committee will meet with the Company's outside auditors to
            discuss the planned scope of their attestation engagement relating
            to the Company's compliance with the requirements of the Title IV
            Programs.

      -     The Committee will meet with the Company's outside auditors at the
            conclusion of their attestation engagement relating to the Company's
            compliance with the requirements of the Title IV Programs to discuss
            the related results including any findings noted as well as
            management's related corrective action plans.

      Internal Audit

      -     The Committee will meet regularly with the director of the Company's
            internal audit department to review the department's organizational
            structure, staffing levels, planned activities and other related
            information. The Committee will also receive periodic reports from
            the internal audit director on the results of its activities.

      -     The Committee will review hiring decisions regarding the director of
            internal audit.

      Internal Controls

      -     The Committee will review reports prepared by management, the
            internal audit department and the Company's outside auditors with
            respect to the Company's system of internal controls over financial
            reporting, including controls relating to the Company's information
            systems, and monitor the implementation of any related
            recommendations for improvements.

                                       3


      Income Tax Matters

      -     The Committee will meet at least annually with management and the
            Company's tax advisors to discuss the Company's position with
            respect to federal, state and foreign income tax matters.

      Legal Matters

      -     The Committee will meet at least annually with management and the
            Company's general counsel to discuss the Company's compliance with
            all relevant laws and regulations, including any related internal
            control systems to facilitate such compliance, as well as the status
            of any legal matters affecting the Company.

      Corporate Governance

      -     The Committee will review on an ongoing basis, but no less
            frequently than annually, all directors' and officers' related party
            transactions for potential conflict of interest situations, and all
            such transactions shall be approved by the Committee, if
            appropriate, as required by Rule 4350(h) of the NASDAQ Rules.

      -     The Committee will establish and maintain procedures for the
            receipt, retention, and treatment of complaints received by the
            Company regarding accounting, internal accounting controls, or
            auditing matters.

      -     The Committee will establish and maintain procedures for the
            confidential, anonymous submission by employees of the Company of
            concerns regarding questionable accounting or auditing matters.

      Code  of Ethics

      -     The Committee will annually review the Company's Code of Ethical
            Conduct.

      -     The Committee will receive reports from management and the director
            of internal audit concerning any related violations noted during the
            year.

      Independent Accountants

      -     The Committee shall approve, in advance, the provision by the
            outside auditors of all audit services and permissible non-audit
            services.

      -     The Committee shall have sole authority to appoint, determine
            funding for and

                                       4


            oversee the work of the Company's outside audit firm, which shall be
            a registered public accounting firm as defined by the Sarbanes-Oxley
            Act of 2002, based upon the Committee's judgment of the independence
            of the auditors (taking into account the standards and rules
            established by the Public Company Accounting Oversight Board, and
            fees charged both for pre-approved audit and pre-approved,
            permissible non-audit services) and the quality of its audit work.
            The Committee will evaluate the performance of the Company's outside
            auditors on an annual basis and determine whether the outside
            auditors should either be retained or discharged. The outside
            auditors shall report directly to the Committee, and the Committee
            shall oversee the resolution of disagreements between management and
            the outside auditors in the event that they arise. The Committee
            will also review and approve the fees paid to the outside auditors
            in connection with the annual audit of the Company's financial
            statements as well as the limited reviews of the Company's interim
            financial information.

      -     The Committee will review and confirm the independence of the
            Company's outside auditors by reviewing non-audit services provided
            as well as the independent accountants' assertion of their
            independence in accordance with professional standards or other
            requirements. The Committee will be responsible for ensuring that it
            receives a formal written statement delineating all relationships
            between the outside auditors and the Company, consistent with
            Independence Standards Board Standard 1. The Committee will actively
            engage in a dialogue with the outside auditors with respect to any
            disclosed relationships or services that may impact the objectivity
            and independence of the outside auditors.

      Funding

      -     The Committee shall determine the amount of funding appropriate for
            the Committee to carry out its responsibilities and obligations as a
            committee of the Board of Directors, which funding the Company shall
            provide to the Committee, for the payment of:

            a.    Compensation to any registered public accounting firm engaged
                  for the purpose of preparing or issuing an audit report or
                  performing other audit, review or attest services for the
                  Company;

            b.    Compensation to any independent counsel or other advisors
                  engaged by the Committee; and

            c.    Ordinary administrative expenses of the Committee that are
                  necessary or appropriate in carrying out the Committee's
                  duties.

                                       5

EX-99.3

                                                                    EXHIBIT 99.3

                               APOLLO GROUP, INC.
                    AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

                                     CHARTER

I.    PURPOSE

      The purpose of the Audit Committee (the "Committee") is to assist the
Board of Directors in fulfilling its oversight responsibilities with respect to
the Company's accounting and financial reporting processes, audit process,
systems of internal control over financial reporting, compliance with laws and
regulations, and Code of Ethical Conduct. The Committee will maintain effective
working relationships with management, the Company's internal audit department
and the Company's outside auditors and will promote continuous improvement in
the Company's accounting and financial reporting policies and procedures at all
levels. The preparation of financial statements and disclosures and the planning
and conduct of audits are the responsibility of Apollo management and its
independent auditor.

II.   AUTHORITY

      The Committee may conduct or authorize investigations into any matters
within its scope of responsibility and to seek any information it requires from
employees or external parties. The Committee has the authority to appoint and
obtain advice and assistance from outside legal, accounting, or other advisors
as deemed appropriate to fully execute its duties and responsibilities. The
Company shall provide appropriate funding, as determined by the Committee, for
compensation to the outside auditor and to any advisers that the Committee
chooses to engage. The Committee may form and delegate authority to
subcommittees when appropriate.

III.  COMPOSITION AND MEMBER QUALIFICATIONS

      The members of the Audit Committee shall be appointed and may be replaced
by the Board of Directors. The members of the Audit Committee shall meet the
applicable requirements of the NASDAQ Exchange and SEC mandates. The
requirements shall be reviewed annually to assure compliance.

IV.   MEETINGS

      The Committee will meet at least four times a year, or more frequently as
circumstances dictate. The Committee will meet regularly with management, the
director of the internal audit department and the Company's outside auditors in
separate executive sessions to discuss any matters that the Committee deems
appropriate. Minutes of each Committee meeting will be kept, and the Committee's
Chairman will provide periodic reports on its activities to the Board of
Directors.

                                       1


V.    CHARTER

      The Committee will review this charter on a periodic basis, at least
annually, and revise it as necessary.

VI.   RESPONSIBILITIES

      The Committee's primary responsibilities are summarized below:

      Financial Statements

      -     The Committee will review significant accounting and reporting
            issues and understand their impact on the Company's financial
            statements, including complex or unusual transactions and highly
            judgmental areas, major issues regarding accounting principles and
            financial statement presentations, the effect of regulatory and
            accounting initiatives on the financial statements of the Company
            and all material written communications between the Company's
            auditors and management, such as any management letter or schedule
            of unadjusted differences.

      -     The Committee will review the Company's quarterly and annual
            financial statements and related press releases and filings with the
            SEC and discuss such items with management and the Company's outside
            auditors prior to issuance and filing with the SEC.

      -     The Committee will ensure that a public announcement of the
            Company's receipt of an audit opinion that contains a going concern
            qualification is made promptly if such situation occurs.

      -     The Committee will meet with the Company's outside auditors to
            discuss the planned scope of their audit of the Company's annual
            financial statements as well as the nature of procedures to be
            performed in connection with their limited reviews of the Company's
            interim financial information.

      -     The Committee will meet with the Company's outside auditors at the
            conclusion of their audit of the Company's annual financial
            statements as well as at the conclusion of their limited reviews of
            the Company's interim financial information to discuss the related
            results of such audit or limited reviews and to receive
            communications from the outside auditors which are required in
            connection with such engagements.

      -     The Committee will review all significant changes in the Company's
            financial

                                       2


            accounting and reporting policies and judgments and discuss such
            changes with management and the Company's outside auditors prior to
            implementation.

      Title IV Programs

      -     The Committee will meet with management, the internal audit director
            and the Company's outside auditors to discuss the Company's
            participation in Title IV Student Financial Assistance Programs of
            the Higher Education Act of 1965, as amended ("Title IV Programs").

      -     The Committee will meet with the Company's outside auditors to
            discuss the planned scope of their attestation engagement relating
            to the Company's compliance with the requirements of the Title IV
            Programs.

      -     The Committee will meet with the Company's outside auditors at the
            conclusion of their attestation engagement relating to the Company's
            compliance with the requirements of the Title IV Programs to discuss
            the related results including any findings noted as well as
            management's related corrective action plans.

      Internal Audit

      -     The Committee will meet regularly with the director of the Company's
            internal audit department to review the department's organizational
            structure, staffing levels, planned activities and other related
            information. The Committee will also receive periodic reports from
            the internal audit director on the results of its activities.

      -     The Committee will review hiring decisions regarding the director of
            internal audit.

      Internal Controls

      -     The Committee will review reports prepared by management, the
            internal audit department and the Company's outside auditors with
            respect to the Company's system of internal control over financial
            reporting, including controls relating to the Company's information
            systems, and monitor the implementation of any related
            recommendations for improvements.

      -     The Committee will review and discuss with management and the
            Company's outside auditors any major issues as to the adequacy of
            the Company's internal control over financial reporting, any special
            steps adopted in light of material

                                       3


            control deficiencies and the adequacy of disclosures in the
            Company's periodic SEC filings about changes in internal control
            over financial reporting.

      -     The Committee will review disclosures made to the Audit Committee by
            the Company's Chief Executive Officer and Chief Financial Officer,
            or persons performing similar functions, during their certification
            process for the Form 10-K and Form 10-Q about any significant
            deficiencies in the design or operation of internal controls or
            material weaknesses therein and any fraud involving management or
            other employees who have a significant role in the Company's
            internal controls.

      Income Tax Matters

      -     The Committee will meet at least annually with management and the
            Company's tax advisors to discuss the Company's position with
            respect to federal, state and foreign income tax matters.

      Legal Matters

      -     The Committee will meet at least annually with management and the
            Company's general counsel to discuss the Company's compliance with
            all relevant laws and regulations, including any related internal
            control systems to facilitate such compliance, as well as the status
            of any legal matters affecting the Company.

      Corporate Governance

      -     The Committee will review on an ongoing basis, but no less
            frequently than annually, all directors' and officers' related party
            transactions for potential conflict of interest situations, and all
            such transactions shall be approved by the Committee, if
            appropriate, as required by Rule 4350(h) of the NASDAQ Rules.

      -     The Committee will establish and maintain procedures for the
            receipt, retention, and treatment of complaints received by the
            Company regarding accounting, internal accounting controls, or
            auditing matters.

      -     The Committee will establish and maintain procedures for the
            confidential, anonymous submission by employees of the Company of
            concerns regarding questionable accounting or auditing matters.

      -     The Committee will obtain assurance from the Company's independent
            auditors; pursuant to Section 10A(b) of the Exchange Act, stating
            that such

                                       4


            independent auditors (i) have not detected, or become aware of, any
            illegal act of which the Committee is not adequately informed and
            (ii) have provided, or are not required to provide, a written report
            with respect to specific conclusions reached by the independent
            auditors in connection with any such illegal acts.

      Code  of Ethics

      -     The Committee will annually review the Company's Code of Ethical
            Conduct.

      -     The Committee will receive reports from management and the director
            of internal audit concerning any related violations noted during the
            year.

      Independent Accountants

      -     The Committee shall approve, in advance, the provision by the
            outside auditors of all audit services and permissible non-audit
            services (including the fees) as required by Sections 10A(h) and
            10A(i) of the Exchange Act and as required by the Sarbanes-Oxley Act
            of 2002. If the Committee delegates the pre-approval of audit and
            permitted non-audit services to a subcommittee such subcommittee
            shall present such grants of pre-approval to the full Audit
            Committee at its next scheduled meeting.

      -     The Committee shall have sole authority to appoint, determine
            funding for and oversee the work of the Company's outside audit
            firm, which shall be a registered public accounting firm as defined
            by the Sarbanes-Oxley Act of 2002, based upon the Committee's
            judgment of the independence of the auditors (taking into account
            the standards and rules established by the Public Company Accounting
            Oversight Board, and fees charged both for pre-approved audit and
            pre-approved, permissible non-audit services) and the quality of its
            audit work. The Committee will evaluate the performance of the
            Company's outside auditors on an annual basis and determine whether
            the outside auditors should either be retained or discharged. The
            outside auditors shall report directly to the Committee, and the
            Committee shall oversee the resolution of disagreements between
            management and the outside auditors in the event that they arise.
            The Committee will also review and approve the fees paid to the
            outside auditors in connection with the annual audit of the
            Company's financial statements as well as the limited reviews of the
            Company's interim financial information.

      -     The Committee will review and confirm the independence of the
            Company's outside auditors by reviewing non-audit services provided
            as well as the independent accountants' assertion of their
            independence in accordance with

                                       5


            professional standards or other requirements. The Committee will be
            responsible for ensuring that it receives a formal written statement
            delineating all relationships between the outside auditors and the
            Company, consistent with Independence Standards Board Standard 1.
            The Committee will actively engage in a dialogue with the outside
            auditors with respect to any disclosed relationships or services
            that may impact the objectivity and independence of the outside
            auditors. The Committee shall present its conclusions with respect
            to the independence of its outside auditors to the Board of
            Directors.

            The Committee shall review and evaluate the lead partner of the
            independent auditor team and shall ensure the rotation of the lead
            audit partner having primary responsibility for reviewing the audit
            as required by law.

      Funding

      -     The Committee shall determine the amount of funding appropriate for
            the Committee to carry out its responsibilities and obligations as a
            committee of the Board of Directors, which funding the Company shall
            provide to the Committee, for the payment of:

            a.    Compensation to any registered public accounting firm engaged
                  for the purpose of preparing or issuing an audit report or
                  performing other audit, review or attest services for the
                  Company;

            b.    Compensation to any independent counsel or other advisors
                  engaged by the Committee; and

            c.    Ordinary administrative expenses of the Committee that are
                  necessary or appropriate in carrying out the Committee's
                  duties.

                                       6