APOL Apollo Education Grp., Inc.

Apollo Group, Inc. (NASDAQ:APOL) (“Apollo Group,” “Apollo” or the “Company”) today reported financial results for the three and six months ended February 28, 2010.

“We are pleased with our second quarter results, particularly with respect to the continued mix shift in student enrollments towards bachelor degree level students,” said Apollo Group Co-Chief Executive Officer Chas Edelstein. “We have set forth a strategy to transition the University of Phoenix to focus on better identifying and enrolling students who have a reasonable chance to succeed in our rigorous programs, and we are delivering on that plan.”

Apollo Group Co-Chief Executive Officer and Apollo Global Chairman Greg Cappelli added, “Through our refined marketing efforts focused on identifying students who are better prepared for our programs, as well as the positive early results we are seeing from our University Orientation pilot, we are beginning to see the shift in student mix that we have been targeting, which we believe over time will result in more consistent, higher quality growth and profitability and will positively impact a number of our key metrics.”

Unaudited Second Quarter of Fiscal 2010 Results of Operations

Consolidated net revenue for the three months ended February 28, 2010, totaled $1,070.3 million, which represents a 23.1% increase over the second quarter of fiscal 2009. Contributing to the growth in the second quarter was a 15.3% year-over-year increase in University of Phoenix total Degreed Enrollment to 458,600 as well as $53.6 million in revenue from recently acquired BPP Holdings. The Company reported income from continuing operations attributable to Apollo Group for the three months ended February 28, 2010, of $103.2 million, or $0.67 per share (155.2 million weighted average diluted shares outstanding), compared to income from continuing operations attributable to Apollo Group of $128.8 million, or $0.79 per share (162.8 million weighted average diluted shares outstanding) for the three months ended February 28, 2009.

The second quarter of fiscal 2010 results contain a pre-tax charge of $44.5 million ($26.9 million net of tax), which represents an accrual related to a securities class action lawsuit. Excluding this special item, income from continuing operations attributable to Apollo Group for the three months ended February 28, 2010, was $130.1 million, or $0.84 per share, compared to income from continuing operations attributable to Apollo Group of $128.8 million, or $0.79 per share for the three months ended February 28, 2009. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release.) In the second quarter of fiscal 2010, BPP’s operations contributed $53.6 million to revenue and due to the seasonality of its business, decreased Apollo Group’s diluted earnings per share from continuing operations by approximately $0.06. (See the supplemental schedule detailing BPP’s financial results in the tables section of this press release.)

Excluded from continuing operations are the operating results for Insight Schools, which is now presented as discontinued operations, for all periods presented because the business is not longer consistent with the Company’s long-term strategic objectives. The loss from discontinued operations, net of tax, associated with Insight Schools was $10.6 million for the second quarter of fiscal 2010 compared to a loss from discontinued operations, net of tax, of $3.5 million for the second quarter of fiscal 2009. Included in the $10.6 million loss for the second quarter of fiscal 2010 is a goodwill impairment charge of $9.4 million. The Company recorded this charge to reduce the carrying value of Insight Schools based on inputs from advisors which includes consideration of non-binding offers the Company recently received from third parties to purchase Insight Schools.

Instructional costs and services increased by $152.9 million, or 42.0% to $517.3 million for the three months ended February 28, 2010, compared to the three months ended February 28, 2009. As a percentage of net revenue, instructional costs and services increased 640 basis points to 48.3% versus 41.9% in the prior year’s second quarter. The increase, as a percentage of revenue, was primarily due to the addition of BPP, as its cost structure is more heavily weighted towards instructional costs and services, as well as higher bad debt expense for University of Phoenix. Bad debt expense, as a percentage of revenue, increased 280 basis points to 6.9% in the second quarter of fiscal 2010 versus 4.1% in the prior year’s second quarter. BPP’s operations favorably impacted overall bad debt expense as a percentage of revenue by 40 basis points in the second quarter of fiscal 2010. The higher bad debt expense, as a percentage of revenue, is due to lower collection rates. Collection rates have declined as a result of the economic downturn, the effects of certain operational changes and increases in receivables from students enrolled in associate’s degree programs. Students enrolled in associate’s degree programs generally persist at lower rates than those in bachelor’s and graduate level programs, resulting in higher bad debts when these students withdraw.

Selling and promotional expenses increased by $38.9 million, or 17.3%, to $263.5 million for the three months ended February 28, 2010, compared to the three months ended February 28, 2009. The increase was due in part to greater investments in the University of Phoenix’s non-internet long-term branding initiatives. As a percentage of net revenue, selling and promotional expenses declined 120 basis points to 24.6% versus 25.8% in the prior year’s second quarter. The decrease, as a percentage of revenue, was driven by the impact of BPP’s operations in the second quarter of fiscal 2010 as BPP incurs lower selling and promotional costs as a percentage of revenue compared to the Company’s other businesses. The remaining decrease as a percentage of revenue was a result of continued improvement in enrollment counselor effectiveness at University of Phoenix.

General and administrative (“G&A”) expenses increased by $2.6 million, or 3.7%, to $72.0 million, for the three months ended February 28, 2010, compared to the three months ended February 28, 2009. As a percentage of net revenue, G&A expenses declined 130 basis points to 6.7% versus 8.0% in the prior year’s second quarter. The decrease, as a percentage of revenue, is primarily attributable to expense in the second quarter of fiscal 2009 resulting from an internal review of certain Satisfactory Academic Progress calculations, as well as lower share-based compensation expense, as a percentage of revenue, in the second quarter of fiscal 2010 as compared with the prior year period. BPP’s operations had little impact on G&A expenses as a percentage of net revenue in the second quarter of fiscal 2010.

Financial and Operating Metrics

Below are Apollo Group’s unaudited financial data and operating metrics for the second quarter of fiscal 2010 versus the prior year period.

 

    Q2 2010 Q2 2009

Revenues (in thousands)

Degree Seeking Gross Revenues (1) $ 1,022,817 $ 854,771 Less: Discounts and other   (55,893 )   (38,949 ) Degree Seeking Net Revenues (1) 966,924 815,822 Non-degree Seeking Revenues (2) 9,589 9,184 Other, net of discounts (3)   93,823     44,537   $ 1,070,336   $ 869,543      

Revenue by Degree Type (in thousands) (1)

Associates $ 379,932 $ 302,278 Bachelors 436,565 361,195 Masters 186,104 174,080 Doctoral 20,216 17,218 Less: Discounts and other   (55,893 )   (38,949 ) $ 966,924   $ 815,822      

Degreed Enrollment (rounded to hundreds)(4)

Associates 201,300 170,500 Bachelors 178,000 150,200 Masters 71,800 70,500 Doctoral   7,500     6,500     458,600     397,700      

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

Associates $ 1,887 $ 1,773 Bachelors 2,453 2,405 Masters 2,592 2,469 Doctoral 2,695 2,649 All degrees (after discounts) 2,108 2,051    

New Degreed Enrollment (rounded to hundreds)(5)

Associates 43,100 41,700 Bachelors 31,300 25,100 Masters 12,200 12,500 Doctoral   900     700     87,500     80,000      

(1)

Represents revenue from tuition and other fees for students enrolled in University of Phoenix degree programs. Also includes revenue from tuition and other fees for students participating in University of Phoenix certificate programs of at least 18 credit hours in length with some course applicability into a related degree program.  

(2)

Represents revenue from tuition and other fees for students participating in University of Phoenix certificate programs less than 18 hours in length, certificate programs with no applicability into a related degree program, single course and continuing education courses.  

(3)

Represents revenues from IPD, CFFP, Western International University (excluding associates degree students), Apollo Global - BPP (acquired in July 2009), Apollo Global - Other and other.  

(4)

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

(5)

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

Unaudited Six Months of Fiscal 2010 Results of Operations

Consolidated net revenue for the six months ended February 28, 2010, was $2.3 billion, a 27.1% increase over the comparable period of fiscal 2009. Contributing to this increase was a 16.8% increase in University of Phoenix’s average Degreed Enrollment during the six months ended February 28, 2010, as compared to the six months ended February 28, 2009. The Company reported income from continuing operations attributable to Apollo Group of $343.7 million, or $2.21 per share, (155.6 million weighted average diluted shares outstanding), and $311.1 million, or $1.92 per share, (161.8 million weighted average diluted shares outstanding) for the six months ended February 28, 2010, and February 28, 2009, respectively.

Results for the six months ended February 28, 2010, contain a pre-tax charge of $44.5 million ($26.9 million net of tax), which represents an accrual for a potential settlement of a securities class action lawsuit and a previously announced tax benefit of $11.4 million resulting from the settlement of disputed tax issues with the Internal Revenue Service. Excluding these special items, income from continuing operations attributable to Apollo Group for the six months ended February 28, 2010, was $359.2 million, or $2.31 per share, compared to income from continuing operations attributable to Apollo Group of $311.1 million, or $1.92 per share for the six months ended February 28, 2009. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release.)

BPP’s operations contributed $142.3 million to revenue and decreased earnings per share by approximately $0.02 for the six months ended February 28, 2010. (See the supplemental schedule detailing BPP’s financial results in the tables section of this press release.)

Unaudited Balance Sheet

As of February 28, 2010, the Company’s cash and cash equivalents, excluding restricted cash, totaled $660.8 million as compared to $968.2 million as of August 31, 2009. The decrease is primarily attributable to repayments on the Company’s outstanding debt and share repurchases, as well as settlement payments of the Company’s False Claims Act case and an IRS tax dispute. Restricted cash increased by $74.8 million compared to August 31, 2009, primarily due to increased student deposits at University of Phoenix.

At February 28, 2010, accounts receivable decreased to $261.2 million from $298.3 million at August 31, 2009. Excluding accounts receivable and the associated revenue for Apollo Global, the Company’s days sales outstanding (“DSO”) was 30 days at February 28, 2010, compared to 32 days at August 31, 2009, and to 25 days at February 28, 2009. The increase in DSO versus a year ago is due to increases in gross accounts receivable due to lower collection rates at University of Phoenix. Collection rates have declined as a result of the economic downturn, the effects of certain operational changes and increases in receivables from students enrolled in associate degree programs.

Total debt outstanding (including short-term borrowings and the current portion of long-term debt) decreased by $413.0 million to $176.1 million at February 28, 2010, from $589.1 million at August 31, 2009. The decrease is primarily due to the repayment of US denominated borrowings on the Company’s $500 million credit facility.

Share Repurchase Authorization

On February 18, 2010, the Board of Directors authorized a $500.0 million increase of the share repurchase program to an aggregate of $1.0 billion. During the second quarter of fiscal 2010, the Company repurchased approximately 3.4 million shares of its common stock at a weighted average purchase price of $59.61 per share for a total expenditure of $200.0 million. As of February 28, 2010, approximately $800.0 million remained available under the share repurchase authorization.

Business Outlook

Given the transition it is undertaking in its business, the Company offers the following commentary regarding the outlook for the third quarter of fiscal 2010 based on current business trends, which could change:

• Consolidated net revenue, including BPP, of approximately $1.3 billion;
• Diluted earnings per share from continuing operations of approximately $1.55 excluding the impact of special items or additional share repurchases but including a contribution from BPP;
• Effective tax rate of approximately 41.0%; and
• Diluted shares outstanding of approximately 153 million.

Based on current business trends, for the fiscal year 2010, the Company should achieve its long-term target of mid-teens operating income growth, excluding the impact of special items and discontinued operations.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 8:00 AM Eastern, 5:00 AM Phoenix time, today, Monday, March 29, 2010. The call may be accessed by dialing (877) 292-6888 (domestic) or (973) 200-3381 (international) and entering the conference ID number 56178523. 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 by dialing (800) 642-1687 (domestic) or (706) 645-9291 (international) and entering the conference ID number 56178523 until April 9, 2010.

About Apollo Group, Inc.

Apollo Group, Inc. is one of the world's largest private education providers and has been in the education business for more than 35 years. The Company offers innovative and distinctive educational programs and services both online and on-campus at the high school, undergraduate, masters and doctoral levels through its subsidiaries: University of Phoenix, Institute for Professional Development, College for Financial Planning, Western International University, Meritus University and Apollo Global. The Company's programs and services are provided in 40 states and the District of Columbia; Puerto Rico; Canada; Latin America; and Europe, as well as online throughout the world (data as of February 28, 2010).

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

Forward-Looking Statements Safe Harbor

Statements in this press release which are not statements of historical fact, including statements regarding Apollo Group’s business outlook, future financial and operating results, future enrollment, and overall future strategy and plans, are forward-looking statements, and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual results may differ materially from those projected in such statements due to various factors, including changes in the overall global economy, changes in enrollment or student mix, changes in the collectability of receivables, regulatory and litigation developments and the effectiveness of the Company’s integration of its acquired businesses. 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 Form 10-K for fiscal year 2009 and subsequent Forms 10-Q, and other filings with the Securities and Exchange Commission, all of which are available on the Company’s website at apollogrp.edu.

Use of Non-GAAP Financial Information

This press release and the related conference call contain non-GAAP financial measures, which are intended to supplement, but not substitute for, the most directly comparable GAAP measures. Management uses, and chooses to disclose to investors, these non-GAAP financial measures because (i) such measures provide an additional analytical tool to clarify the Company’s results from operations and help to identify underlying trends in its results of operations; (ii) as to the non-GAAP earnings measures, such measures help compare the Company’s performance on a consistent basis across time periods; and (iii) these non-GAAP measures are employed by the Company’s management in its own evaluation of performance and are utilized in financial and operational decision-making processes, such as budgeting and forecasting. Exclusion of items in our non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate non-GAAP financial measures differently than we do, limiting their usefulness as a comparative measure across companies.

Apollo Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited)   As of February 28,   August 31, 2010 2009 ($ in thousands) ASSETS: Current assets Cash and cash equivalents $ 660,844 $ 968,246 Restricted cash and cash equivalents 507,151 432,304 Accounts receivable, net 261,205 298,270 Deferred tax assets, current portion 102,078 88,022 Prepaid taxes 47,983 57,658 Other current assets 38,926 35,517 Assets held for sale from discontinued operations   24,750   - Total current assets 1,642,937 1,880,017 Property and equipment, net 573,740 557,507 Marketable securities 19,579 19,579 Goodwill 488,686 522,358 Intangible assets, net 180,155 203,671 Deferred tax assets, less current portion 81,431 66,254 Other assets   14,043   13,991 Total assets $ 3,000,571 $ 3,263,377   LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities Short-term borrowings and current portion of long-term debt $ 54,587 $ 461,365 Accounts payable 71,718 66,928 Accrued liabilities 218,521 268,418 Student deposits 522,548 491,639 Deferred revenue 344,555 333,041 Other current liabilities 98,630 133,887 Liabilities held for sale from discontinued operations   5,734   - Total current liabilities 1,316,293 1,755,278 Long-term debt 121,522 127,701 Deferred tax liabilities 53,659 55,636 Other long-term liabilities   109,518   100,149 Total liabilities   1,600,992   2,038,764   Commitments and contingencies   Shareholders' equity Preferred stock, no par value - - Apollo Class A nonvoting common stock, no par value 103 103 Apollo Class B voting common stock, no par value 1 1 Additional paid-in capital 52,673 1,139 Apollo Class A treasury stock, at cost (2,210,792) (2,022,623) Retained earnings 3,527,791 3,195,043 Accumulated other comprehensive loss   (30,122)   (13,740) Total Apollo shareholders' equity   1,339,654   1,159,923 Noncontrolling interests   59,925   64,690 Total equity   1,399,579   1,224,613 Total liabilities and shareholders' equity $ 3,000,571 $ 3,263,377   Apollo Group, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited)         Three Months Ended February 28, Six Months Ended February 28,   2010     2009     2010     2009   (in thousands, except per share data) Net revenue $ 1,070,336   $ 869,543   $ 2,328,995   $ 1,832,825   Costs and expenses: Instructional costs and services 517,344 364,416 1,036,788 733,392 Selling and promotional 263,549 224,567 537,624 450,930 General and administrative 71,953 69,450 144,034 127,316 Estimated litigation loss   44,500     -     44,500     -   Total costs and expenses   897,346     658,433     1,762,946     1,311,638   Operating income 172,990 211,110 566,049 521,187 Interest income 525 3,430 1,457 8,807 Interest expense (3,220 ) (621 ) (6,128 ) (2,050 ) Other, net   (79 )   (201 )   (749 )   (2,633 ) Income from continuing operations before income taxes 170,216 213,718 560,629 525,311 Provision for income taxes   (69,064 )   (85,190 )   (219,045 )   (214,535 ) Income from continuing operations 101,152 128,528 341,584 310,776 Loss from discontinued operations, net of tax   (10,638 )   (3,452 )   (10,938 )   (5,392 ) Net income 90,514 125,076 330,646 305,384 Net loss attributable to noncontrolling interests   2,092     270     2,102     322   Net income attributable to Apollo $ 92,606   $ 125,346   $ 332,748   $ 305,706     Earnings (loss) per share - Basic: Continuing operations attributable to Apollo $ 0.67 $ 0.80 $ 2.22 $ 1.94 Discontinued operations attributable to Apollo   (0.07 )   (0.02 )   (0.07 )   (0.03 ) Basic income per share attributable to Apollo $ 0.60   $ 0.78   $ 2.15   $ 1.91     Earnings (loss) per share - Diluted: Continuing operations attributable to Apollo $ 0.67 $ 0.79 $ 2.21 $ 1.92 Discontinued operations attributable to Apollo   (0.07 )   (0.02 )   (0.07 )   (0.03 ) Diluted income per share attributable to Apollo $ 0.60   $ 0.77   $ 2.14   $ 1.89     Basic weighted average shares outstanding   154,119     160,153     154,473     159,643   Diluted weighted average shares outstanding   155,168     162,757     155,621     161,806     Apollo Group, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows From Continuing and Discontinued Operations (Unaudited)     Six Months Ended February 28, 2010   2009   ($ in thousands) Cash flows provided by (used in) operating activities: Net income $ 330,646 $ 305,384 Adjustments to reconcile net income to net cash provided by operating activities: Share-based compensation 29,115 31,358 Excess tax benefits from share-based compensation (338 ) (11,181 ) Depreciation and amortization 64,661 46,338 Goodwill impairment on discontinued operations 9,400 - Amortization of deferred gain on sale-leaseback (883 ) (818 ) Non-cash foreign currency losses, net 534 2,599 Provision for uncollectible accounts receivable 136,582 70,913 Securities Class Action 44,500 - Deferred income taxes (19,675 ) (12,583 ) Changes in assets and liabilities: Accounts receivable (116,879 ) (48,272 ) Other assets (5,606 ) (9,112 ) Accounts payable and accrued liabilities (89,675 ) 18,137 Income taxes payable (2,241 ) (51,953 ) Student deposits 31,378 108,216 Deferred revenue 18,443 20,921 Other liabilities   4,902     5,696   Net cash provided by operating activities   434,864     475,643   Cash flows provided by (used in) investing activities: Additions to property and equipment (68,032 ) (64,019 ) Maturities of marketable securities - 1,660 Increase in restricted cash and cash equivalents   (74,847 )   (114,232 ) Net cash used in investing activities   (142,879 )   (176,591 ) Cash flows provided by (used in) financing activities: Payments on borrowings (423,850 ) (15,498 ) Proceeds from borrowings 17,819 13,620 Issuance of Apollo Group Class A common stock 8,567 96,486 Class A common stock purchased for treasury (201,111 ) (2,505 ) Excess tax benefits from share-based compensation   338     11,181   Net cash (used in) provided by financing activities   (598,237 )   103,284   Exchange rate effect on cash and cash equivalents   (1,150 )   (1,107 ) Net (decrease) increase in cash and cash equivalents (307,402 ) 401,229 Cash and cash equivalents, beginning of period   968,246     483,195   Cash and cash equivalents, end of period $ 660,844   $ 884,424   Supplemental disclosure of cash flow information Cash paid during the period for income taxes, net of refunds $ 243,435 $ 269,646 Cash paid during the period for interest $ 3,583 $ 1,263 Supplemental disclosure of non-cash investing and financing activities Credits received for tenant improvements $ 8,756 $ 7,161 Purchases of property and equipment included in accounts payable $ 6,741 $ 5,251 Restricted stock units vested and released $ 2,802 $ 7,362 Unrealized loss on auction-rate securities $ - $ 2,203   Apollo Group, Inc. and Subsidiaries Supplemental Schedule - Combined Condensed Statements of Operations (Unaudited)         Three Months Ended February 28, 2010 Six Months Ended February 28, 2010 Apollo

Excluding BPP

BPP Apollo

Consolidated

Apollo

Excluding BPP

BPP Apollo

Consolidated

(in thousands, except per share data) Net revenue $   1,016,689   $   53,647   $   1,070,336   $   2,186,675   $   142,320   $   2,328,995   Costs and expenses: Instructional costs and services 461,715 55,629 517,344 916,878 119,910 1,036,788 Selling and promotional 259,657 3,892 263,549 528,959 8,665 537,624 General and administrative 67,034 4,919 71,953 135,098 8,936 144,034 Estimated litigation loss     44,500       -       44,500       44,500       -       44,500   Total costs and expenses     832,906       64,440       897,346       1,625,435       137,511       1,762,946   Operating income (loss) 183,783 (10,793 ) 172,990 561,240 4,809 566,049 Interest income 510 15 525 1,360 97 1,457 Interest expense (867 ) (2,353 ) (3,220 ) (2,492 ) (3,636 ) (6,128 ) Other, net     2,386       (2,465 )     (79 )     4,375       (5,124 )     (749 ) Income (loss) from continuing operations before income taxes 185,812 (15,596 ) 170,216 564,483 (3,854 ) 560,629 (Provision for) benefit from income taxes     (73,296 )     4,232       (69,064 )     (218,839 )     (206 )     (219,045 ) Income (loss) from continuing operations 112,516 (11,364 ) 101,152 345,644 (4,060 ) 341,584 Loss from discontinued operations, net of tax     (10,638 )   -     (10,638 )     (10,938 )   -     (10,938 ) Net income (loss) 101,878 (11,364 ) 90,514 334,706 (4,060 ) 330,646 Net loss attributable to noncontrolling interests     846       1,246       2,092       2,084       18       2,102   Net income (loss) attributable to Apollo $   102,724   $   (10,118 ) $   92,606   $   336,790   $   (4,042 ) $   332,748     Earnings (loss) per share - Basic: Continuing operations attributable to Apollo $ 0.74 $ (0.07 ) $ 0.67 $ 2.25 $ (0.03 ) $ 2.22 Discontinued operations attributable to Apollo   (0.07 )   -     (0.07 )   (0.07 )   -     (0.07 ) Basic income (loss) per share attributable to Apollo $ 0.67   $ (0.07 ) $ 0.60   $ 2.18   $ (0.03 ) $ 2.15     Earnings (loss) per share - Diluted: Continuing operations attributable to Apollo $ 0.73 $ (0.06 ) $ 0.67 $ 2.23 $ (0.02 ) $ 2.21 Discontinued operations attributable to Apollo   (0.07 )   -     (0.07 )   (0.07 )   -     (0.07 ) Diluted income (loss) per share attributable to Apollo $ 0.66   $ (0.06 ) $ 0.60   $ 2.16   $ (0.02 ) $ 2.14     Basic weighted average shares outstanding   154,119     154,119     154,119     154,473     154,473     154,473   Diluted weighted average shares outstanding   155,168     155,168     155,168     155,621     155,621     155,621     Apollo Group, Inc. and Subsidiaries Reconciliation of GAAP financial information to non-GAAP financial information (Unaudited)     Three Months Ended February 28,   Six Months Ended February 28,   2010       2009     2010       2009   (in thousands, except per share data) Net income attributable to Apollo, as reported $ 92,606 $ 125,346 $ 332,748 $ 305,706 Loss from discontinued operations, net of tax (1)   (10,638 )   (3,452 )   (10,938 )   (5,392 ) Income from continuing operations attributable to Apollo 103,244 128,798 343,686 311,098   Reconciling item: Estimated litigation loss (2)   44,500     -     44,500     -   44,500 - 44,500 - Less: tax effects (17,628 ) - (17,628 ) - Tax benefit from IRS settlement (3)   -     -     (11,356 )   -   Income from continuing operations attributable to Apollo

adjusted to exclude special items

$ 130,116   $ 128,798   $ 359,202   $ 311,098     Diluted income per share from continuing operations attributable to

Apollo, as reported

$ 0.67   $ 0.79   $ 2.21   $ 1.92     Diluted income per share from continuing operations attributable to

Apollo, adjusted to exclude special items

$ 0.84   $ 0.79   $ 2.31   $ 1.92     Diluted weighted average shares outstanding   155,168     162,757     155,621     161,806      

(1) The loss from discontinued operations, net of tax includes a $9.4 million charge for goodwill impairment. As Insight Schools’ goodwill is not deductible for tax purposes, the Company did not record a tax benefit associated with the goodwill impairment

(2) Special item for the three and six months ended February 28, 2010 consisted of a $44.5 million estimated charge related to a securities litigation matter.

(3) The $11.4 million tax benefit during the six months ended February 28, 2010 resulted from our settlement of disputed tax issues with the Internal Revenue Service.