APOL Apollo Education Grp., Inc.

Apollo Group, Inc. (Nasdaq: APOL) (�Apollo Group� or the �Company�) today reported fiscal 2007 financial results for the third quarter ended May 31, 2007. The Company also announced that its Board of Directors (�Board�) authorized the repurchase of up to $500 million of Apollo Group Class A common stock. Under the program the Company may repurchase shares from time to time on the open market or in privately negotiated transactions. Apollo Group management will determine the timing and number of shares repurchased. Third Quarter Fiscal 2007 Results of Operations Net income was $131.4 million, or $0.75 per diluted share (174.6 million weighted average shares outstanding), compared to $131.5 million, or $0.75 per diluted share (174.5 million weighted average shares outstanding) for three months ended May 31, 2007 and 2006, respectively. Before giving effect to share based compensation expense and special items of $16.5 million in the third quarter of 2007 and $6.8 million in the third quarter of 2006, earnings per fully diluted share were $0.81 in the third quarter of 2007, as compared to $0.78 in the third quarter 2006. (See the reconciliation of Generally Accepted Accounting Principles (�GAAP�) financial information to non-GAAP financial information in the tables section of this press release.) Consolidated revenues for the three months ended May 31, 2007, totaled $733.4 million, which represents a 12.2% increase over the third quarter of fiscal 2006. Total degreed enrollments grew by 12.2% year-over-year to 311,100. Commenting on the quarter, Brian Mueller, president of Apollo Group, Inc., said, �Our fiscal third quarter is showing promising signs that the investments we made over the last 18 months are paying off. We are very pleased with the improvement we are seeing in enrollment and revenue growth, as well as in our operating margin. The continued progress is driven by further productivity improvements from new enrollment hires, enhanced retention strategies, efficiencies in our advertising spend and our branding campaign. New Degreed Enrollments increased 21.2% year-over-year. We are proud to have achieved double-digit revenue growth due to our strong enrollments and continued improvement in retention. As a reminder, over the long-term, we remain committed to our goal of mid-to-high single-digit revenue growth and low double-digit annual operating income and free cash flow growth.� Mueller continued, �Our liquidity and cash flow for the quarter were strong. As a result of this and other value considerations, we have increased the size of our existing share repurchase program to up to $500 million.� Instructional costs and services increased 13.1% or $37.3 million to $321.0 million, in the three months ended May 31, 2007, as compared to the three months ended May 31, 2006, primarily resulting from increases in employee-related expenses due to the higher enrollment numbers as well as an increase in bad debt expense which, as discussed last quarter, is primarily the result of a shift in the Company�s student mix. As a percentage of revenue instructional costs and services were 43.8% versus 43.4% a year ago. Selling and promotional expenses increased by $24.7 million to $162.9 million, a 17.9% increase, in the three months ended May 31, 2007, from the three months ended May 31, 2006, primarily resulting from increases in the number of enrollment counselors and an increase in advertising expenditures for both the Company�s internet-based advertising campaign as well as the launch of a national televised branding campaign. As a percentage of revenue, selling and promotional expenses were 22.2% versus 21.1% a year ago. General and administrative (�G&A�) expenses increased by $15.7 million to $46.1 million, a 51.6% increase, in the three months ended May 31, 2007, from the three months ended May 31, 2006. As a percentage of revenues, G&A was 6.3% as compared to 4.7% in the prior year quarter. Before giving effect to special items primarily related to stock option investigation and restatement costs of $7.6 million, G&A expenses were $38.5 million in the three months ended May 31, 2007, or 5.2% of revenues. Financial and Operating Metrics Apollo Group reported the following financial data and operating metrics for the three months ended May 31, 2007 and 2006. � Selected Financial Data and Operating Metrics � Q3 2007 Q3 2006 Revenues (in thousands) Degree Seeking Gross Revenues (1) $ 717,142� $ 634,288� Less: Discounts (24,693) (22,201) Degree Seeking Net Revenues (1) 692,449� 612,087� Single Course/ Continuing Ed Revenues (1) 6,680� 6,826� Other (2) 34,263� 34,484� $ 733,392� $ 653,397� � Revenue by Degree Type (in thousands) (1) Associates $ 164,807� $ 99,050� Bachelors 367,331� 357,111� Masters 171,715� 167,675� Doctoral 13,289� 10,452� Less: Discounts (24,693) (22,201) $ 692,449� $ 612,087� � Degreed Enrollment (1) (3) Associates 98,600� 63,600� Bachelors 141,400� 145,200� Masters 66,200� 64,500� Doctoral 4,900� 3,900� 311,100� 277,200� � Degree Seeking Gross Revenues per Degreed Enrollment Associates $ 1,671� $ 1,557� Bachelors 2,598� 2,459� Masters 2,594� 2,600� Doctoral 2,712� 2,680� All degrees (after discounts) 2,226� 2,208� � New Degreed Enrollments (1) (4) Associates 31,300� 21,500� Bachelors 20,000� 20,500� Masters 10,500� 9,000� Doctoral 600� 500� 62,400� 51,500� � (1) Represents information for UPX and Axia College only. (2) Represents revenues from IPD, CFP, WIU (excluding Axia college which is included in (1) ), Insight Schools and other. (3) Represents individual students enrolled in our degree seeking programs that attended a course during the quarter and did not graduate as of the end of the quarter (includes Axia students enrolled in WIU or UPX) (rounded to hundreds). (4) Represents individual students enrolled in our degree seeking programs that attended a course during the quarter but did not attend a course in the last 12 months (includes Axia students enrolled in WIU or UPX) (rounded to hundreds). Nine months of Fiscal 2007 Results of Operations Net income attributed to Apollo Group common stock was $305.7 million, or $1.75 per diluted share, (174.6 million weighted average shares outstanding), compared to $339.1 million, or $1.92 per diluted share, (176.8 million weighted average shares outstanding) for the nine months ended May 31, 2007 and 2006, respectively. Total consolidated revenues for Apollo Group for the nine months ended May 31, 2007 were $2.0 billion, an 8.5% increase over the nine months of fiscal 2006. Average quarterly degree enrollments grew by 10.3%. Balance Sheet As of May 31, 2007, the Company�s cash and marketable securities, excluding restricted cash, was $690.1 million as compared to $408.7 million as of August 31, 2006. Days sales outstanding (�DSOs�) decreased from 37 days last quarter to 36 days as of May 31, 2007, yet increased from 32 days at August 31, 2006. Deferred tuition revenue increased 10.1% to $150.0 million between May 31, 2007, and August 31, 2006. Stock Option Grants On June 27, 2007, the Company�s Compensation Committee of the Board of Directors approved a grant of options to purchase approximately 4.1 million shares of the Company�s Class A common stock and approximately 0.3 million restricted stock units to be granted three business days after the release of the Company�s third quarter 2007 financial results. This excludes any option grants made during the third quarter of 2007. Conference Call Information The Company will hold a conference call to discuss these earnings results at 5:00 PM Eastern, 2:00 PM Pacific, today, Thursday, June 28, 2007. The call may be accessed by dialing (877) 292-6888 (domestic) or (706) 634-1393 (international). The conference ID number is 4135730. A live webcast of this event may be accessed by visiting the Company�s website at: www.apollogrp.edu. A replay of the call will be available on the website or at (706) 645-9291 (conf. ID # 4135730) until July 6, 2007. 2007 Annual Shareholder Meeting Apollo Group, Inc. will hold its 2007 Annual Meeting of the holders of Class A Common Stock on August 16, 2007. The meeting will take place from 9:00 AM to 10:00 AM, Arizona time, in the Shaffer Conference Center on the Second Floor of the Company�s principal executive offices located at 4605 East Elwood Street, Phoenix, Arizona. Class A shareholders of record as of the close of business on June 22, 2007 are entitled to receive notice of the Annual Meeting. Forward-Looking Safe Harbor Statements in this press release regarding Apollo Group�s business outlook, future financial and operating results, and overall future prospects, as well as statements regarding the future effect of Apollo Group�s restatement of historical financial statements, the anticipated amount of additional expenses and related matters, are forward-looking statements, and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual results may differ materially from those projected in such statements due to various factors. For a discussion of the various factors that may cause actual results to differ materially from those projected, please refer to the risk factors and other disclosures contained in Apollo Group�s previously filed Form 10-K, Forms 10-Q, and other filings with the Securities and Exchange Commission. About Apollo Group, Inc. Apollo Group, Inc. has been an education provider for more than 30 years, operating the University of Phoenix, the Institute for Professional Development, the College for Financial Planning, Western International University and Insight Schools. The Company offers innovative and distinctive educational programs and services from high school through college level at 260 locations in 40 states, Puerto Rico, Alberta, British Columbia, the Netherlands, and Mexico, as well as online, throughout the world. For more information about Apollo Group, Inc. and its subsidiaries, call (800) 990-APOL or visit Apollo on the company website at: www.apollogrp.edu. Apollo Group, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) � For the Three MonthsEnded May 31, � For the Nine MonthsEnded May 31, 2007� 2006� 2007� 2006� ($ in thousands, except per share amounts) Revenues: Tuition and other, net $ 733,392� $ 653,397� $ 2,009,871� $ 1,852,620� Costs and expenses: Instructional costs and services 321,050� 283,710� 910,244� 809,349� Selling and promotional 162,901� 138,195� 485,276� 390,413� General and administrative 46,069� 30,416� 139,198� 118,816� Total costs and expenses 530,020� 452,321� 1,534,718� 1,318,578� Income from operations 203,372� 201,076� 475,153� 534,042� Interest income and other, net 8,530� 4,437� 21,940� 12,421� Income before income taxes 211,902� 205,513� 497,093� 546,463� Provision for income taxes 80,464� 74,059� 191,443� 207,341� Net income $ 131,438� $ 131,454� $ 305,650� $ 339,122� � Earnings per share attributed to Apollo Group common stock: � Basic income per share $ 0.76� $ 0.76� $ 1.77� $ 1.94� Diluted income per share $ 0.75� $ 0.75� $ 1.75� $ 1.92� Basic weighted average shares outstanding 173,188� 172,817� 173,165� 174,808� Diluted weighted average shares outstanding 174,620� 174,453� 174,588� 176,770� Apollo Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) � As of May 31, August 31, ($ in thousands) 2007� 2006� Assets: Current assets Cash and cash equivalents $ 627,974� $ 309,058� Restricted cash 284,993� 238,267� Marketable securities, current portion 21,443� 45,978� Accounts receivable, net 179,551� 160,583� Deferred tax assets, net, current portion 50,962� 32,622� Other current assets 20,532� 16,424� Total current assets 1,185,455� 802,932� Property and equipment, net 347,722� 328,440� Marketable securities, less current portion 40,645� 53,692� Goodwill 31,029� 16,891� Deferred tax assets, net, less current portion 69,399� 53,131� Other assets 26,074� 27,919� Total assets $ 1,700,324� $ 1,283,005� � Liabilities and Shareholders' Equity: Current liabilities Accounts payable $ 38,088� $ 61,289� Accrued liabilities 98,411� 73,513� Current portion of long-term liabilities 21,818� 23,101� Income taxes payable 76,798� 47,812� Student deposits 297,342� 254,130� Current portion of deferred revenue 149,665� 135,911� Total current liabilities 682,122� 595,756� Deferred revenue, less current portion 357� 384� Long-term liabilities, less current portion 73,413� 82,492� Total liabilities 755,892� 678,632� � Commitments and contingencies � Shareholders' equity Preferred stock, no par value -� -� Apollo Group Class A nonvoting common stock, no par value 103� 103� Apollo Group Class B voting common stock, no par value 1� 1� Additional paid-in capital -� -� Apollo Group Class A treasury stock, at cost (1,040,809) (1,054,046) Retained earnings 1,986,735� 1,659,349� Accumulated other comprehensive loss (1,598) (1,034) Total shareholders' equity 944,432� 604,373� Total liabilities and shareholders' equity $ 1,700,324� $ 1,283,005� Apollo Group, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) � For the Nine Months Ended May 31, 2007� 2006� ($ in thousands) Cash flows provided by (used in) operating activities: Net income $ 305,650� $ 339,122� Adjustments to reconcile net income to net cash provided by operating activities: Share based compensation 40,766� 18,052� Excess tax benefits from share based compensation (2,290) (16,763) Depreciation and amortization 54,000� 48,810� Amortization of marketable securities discounts and premium, net 152� 841� Provision for uncollectible accounts receivable 83,303� 72,238� Deferred income taxes (34,843) (9,478) Changes in assets and liabilities: Accounts receivable, net (102,271) (49,118) Other assets (5,276) 2,431� Accounts payable and accrued liabilities (15,640) 6,553� Income taxes payable 29,045� 16,115� Student deposits 43,212� 12,725� Deferred revenue 13,727� (8,483) Other liabilities (3,073) 4,928� Net cash provided by operating activities 406,462� 437,973� Cash flows provided by (used in) investing activities: Additions to property and equipment (38,338) (43,611) Purchase of land and buildings related to new headquarters building (32,072) (35,266) Purchase of Insight Schools, net of cash (15,079) -� Purchase of marketable securities including auction rate securities (969,460) (921,952) Maturities of marketable securities including auction rate securities 1,008,861� 1,088,052� (Increase)/decrease in restricted cash (48,697) 10,620� Purchase of other assets -� (1,686) Net cash provided by (used in) investing activities (94,785) 96,157� Cash flows provided by (used in) financing activities: Repurchase of Apollo Group Class A common stock -� (514,931) Issuance of Apollo Group Class A common stock 5,278� 25,691� Cash paid for cancellation of vested options -� (6,331) Excess tax benefits from share based compensation 2,290� 16,763� Net cash provided by (used in) financing activities 7,568� (478,808) Currency translation loss (329) (525) Net increase in cash and cash equivalents 318,916� 54,797� Cash and cash equivalents, beginning of period 309,058� 137,184� Cash and cash equivalents, end of period $ 627,974� $ 191,981� � Supplemental disclosure of non-cash investing activities Credits received for tenant improvements $ 3,406� $ 11,639� Purchases of property and equipment included in accounts payable $ 5,772� $ 5,340� Apollo Group, Inc. and Subsidiaries Detailed Expense Tables For the Three Months Ended May 31, 2007 � � % of Revenues Instructional costs and services For the Three MonthsEnded May 31, � For the Three MonthsEnded May 31, � % Change� 2007� 2006� 2007� 2006� 2007 vs. 2006 ($ in millions) Employee compensation and related expenses $106.1� $97.4� 14.5% 14.9% 8.9% Faculty compensation 62.7� 54.8� 8.5% 8.4% 14.4% Classroom lease expenses and depreciation 50.9� 48.9� 6.9% 7.5% 4.1% Other instructional costs and services 45.2� 39.8� 6.2% 6.1% 13.6% Bad debt expense 34.3� 24.5� 4.7% 3.7% 40.0% Financial aid processing costs 16.7� 13.5� 2.3% 2.1% 23.7% Share based compensation 5.1� 4.8� 0.7% 0.7% 6.3% Instructional costs and services $321.0� $283.7� 43.8% 43.4% 13.1% � � % of Revenues Selling and promotional expenses For the Three MonthsEnded May 31, � For the Three MonthsEnded May 31, � % Change� 2007� 2006� 2007� 2006� 2007 vs. 2006 ($ in millions) Enrollment advisors' compensation and related expenses $80.2� $63.7� 10.9% 9.8% 25.9% Advertising 66.7� 56.9� 9.1% 8.7% 17.2% Other selling and promotional expenses 15.1� 16.9� 2.1% 2.5% -10.7% Share based compensation 0.9� 0.7� 0.1% 0.1% 28.6% Selling and promotional expenses $162.9� $138.2� 22.2% 21.1% 17.9% � � % of Revenues General and administrative expenses For the Three MonthsEnded May 31, � For the Three MonthsEnded May 31, � % Change� 2007� 2006� 2007� 2006� 2007 vs. 2006 ($ in millions) Employee compensation and related expenses $18.6� $12.3� 2.6% 2.0% 51.2% Share based compensation 2.9� 1.4� 0.4% 0.2% 107.1% Legal, audit, and corporate insurance 3.1� 4.4� 0.4% 0.7% -29.5% Administrative space and depreciation 5.2� 5.5� 0.7% 0.8% -5.5% Other general and administrative expenses 16.3� (1) 6.8� 2.2% 1.0% 139.7% General and administrative expenses $46.1� $30.4� 6.3% 4.7% 51.6% � � (1) Includes $7.7 million in costs related to the stock option investigation and restatement offset by $0.1 million non-cash fair value adjustment for stock options modified for former employees. Apollo Group, Inc. and Subsidiaries Detailed Expense Tables For the Nine Months Ended May 31, 2007 � % of Revenues Instructional costs and services For the NineMonths EndedMay 31, � For the NineMonths Ended May 31, � % Change� 2007� � 2006� 2007� � 2006� 2007 vs. 2006 ($ in millions) Employee compensation and related expenses $315.2� $275.9� 15.8% 14.9% 14.2% Faculty compensation 173.8� 157.3� 8.6% 8.5% 10.5% Classroom lease expenses and depreciation 152.8� 142.7� 7.6% 7.7% 7.1% Other instructional costs and services 126.3� 113.5� 6.3% 6.1% 11.3% Bad debt expense 83.3� 72.2� 4.1% 3.9% 15.4% Financial aid processing costs 45.9� 39.0� 2.3% 2.1% 17.7% Share based compensation 12.9� 8.7� 0.6% 0.5% 48.3% Instructional costs and services $910.2� $809.3� 45.3% 43.7% 12.5% � � % of Revenues Selling and promotional expenses For the NineMonths Ended May 31, � For the NineMonths Ended May 31, � % Change� 2007� � 2006� 2007� � 2006� 2007 vs. 2006 ($ in millions) Enrollment advisors' compensation and related expenses $235.1� $183.1� 11.7% 9.9% 28.4% Advertising 204.2� 162.8� 10.2% 8.8% 25.4% Other selling and promotional expenses 43.0� 43.2� 2.1% 2.3% -0.5% Share based compensation 3.0� 1.3� 0.1% 0.1% 130.8% Selling and promotional expenses $485.3� $390.4� 24.1% 21.1% 24.3% � � % of Revenues General and administrative expenses For the NineMonths Ended May 31, � For the NineMonths Ended May 31, � % Change� 2007� � 2006� 2007� � 2006� 2007 vs. 2006 ($ in millions) Employee compensation and related expenses $50.4� $64.6� (4) 2.4% 3.5% -22.0% Share based compensation 24.9� (1) 8.1� 1.2% 0.4% 207.4% Legal, audit, and corporate insurance 9.1� 10.0� 0.5% 0.6% -9.0% Administrative space and depreciation 15.6� 16.0� 0.8% 0.9% -2.5% Other general and administrative expenses 39.2� (2)(3) 20.1� 2.0% 1.1% 95.0% General and administrative expenses $139.2� $118.8� 6.9% 6.4% 17.2% � � (1) Includes $12.1 million in stock option modifications for former employees. (2) Includes $13.0 million in costs related to the stock option investigation and financial statement restatement. (3) Includes $2.7 million non-cash fair value adjustment for stock options modified for former employees. (4) Includes $26.0 million in severance paid to former CEO. Reconciliation of GAAP financial information to non-GAAP financial information � For the Three MonthsEnded May 31, For the Nine MonthsEnded May 31, � 2007� 2006� 2007� 2006� (in millions, except per share amounts) Net income as reported $ 131.4� $ 131.5� $ 305.7� $ 339.1� � Reconciling items: Share based compensation 8.9� 6.8� 40.8� 18.1� Special items 7.6� (1) -� 15.7� (2) 26.0� (3) 16.5� 6.8� 56.5� 44.1� Less tax effects (6.5) (2.7) (22.4) (17.5) 10.0� 4.1� 34.1� 26.6� Net income adjusted to exclude share based compensation expense and special items $ 141.4� $ 135.6� $ 339.8� $ 365.7� � Diluted weighted average shares outstanding 174.6� 174.5� 174.6� 176.8� � Diluted income per share adjusted to exclude share based compensation expense and special items $ 0.81� $ 0.78� $ 1.95� $ 2.07� � � (1) The $7.6 million charge for the three months ended May 31, 2007 represents fees related to the stock option investigation and restatement ($7.7 million), partially offset by a non-cash fair value adjustment for stock options modified for former employees ($0.1 million). � (2) The $15.7 million charge for the nine months ended May 31, 2007 represents fees related to the stock option investigation and restatement ($13.0 million) as well as a non-cash fair value adjustment for stock options modified for former employees ($2.7 million). � (3) The $26 million charge for the nine months ended May 31, 2007 represents severance charged in connection with the resignation of the Company's former CEO.