APOL Apollo Education Grp., Inc.

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•	changes in regulation of the U.S. education industry and eligibility of proprietary schools to participate in U.S. federal student financial aid programs, including the factors discussed in Item 1, Business, under “Accreditation and Jurisdictional Authorizations,” “Financial Aid Programs,” and “Regulatory Environment;”

•	each of the factors discussed in Item 1A, Risk Factors; and

•	those factors set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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•	The University of Phoenix, Inc. (“University of Phoenix”);

•	Institute for Professional Development (“IPD”); and

•	The College for Financial Planning Institutes Corporation (“CFFP”).

•	BPP Holdings plc (“BPP”) in the United Kingdom;

•	Western International University, Inc. (“Western International University”) in the U.S.;

•	Universidad de Artes, Ciencias y Comunicación (“UNIACC”) in Chile; and

•	Universidad Latinoamericana (“ULA”) in Mexico.

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•	students enrolled in a University of Phoenix degree program who attended a credit bearing course during the quarter and had not graduated as of the end of the quarter;

•	students who previously graduated from one degree program and started a new 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

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•	students participating in certain certificate programs of at least 18 credits with some course applicability into a related degree program.

•	new students and students who have been out of attendance for more than 12 months who enroll in a University of Phoenix degree program and start a credit bearing course in the quarter;

•	students who have previously graduated from a degree program and start a new degree program in the quarter; and

•	students who commence participation in certain certificate programs of at least 18 credits with some course applicability into a related degree program.

•

Maximize the value of our University of Phoenix business . This is our highest priority. We will continue to focus on academic quality and the student experience that differentiate University of Phoenix, and also concentrate on responsible growth and improving operational effectiveness. We will work to align more closely with the outcomes that students, alumni and employers want and need in accordance with today’s educational and job markets. We believe that we can strengthen our position, responsibly grow our net revenue and cash flow and increase our ability to invest in initiatives to support our students and enhance our brand by continuing to deliver quality educational experiences and outcomes to our students, expanding access in certain markets, establishing and sustaining relationships with employers, enhancing our brand and improving our operating efficiency.

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Intelligently expand access into new markets . We believe we can capitalize on opportunities to utilize our core expertise and organizational capabilities, both domestically and internationally. In particular, we have observed a growing demand for high quality postsecondary and other education services both within and outside the U.S. We intend to actively pursue quality opportunities to partner with or acquire existing institutions of higher learning where we believe we can achieve attractive long-term growth and value creation.

•	Upgrading our learning and data platforms;

•	Building key career services capabilities and connecting education more directly to jobs or careers with our employer partners;

•	Creating, acquiring, developing and implementing new learning methods across our institutions;

•	Implementing tools to facilitate learning and use of other support services, tailored to varying levels of student preparedness and ability;

•	Streamlining core processes to more efficiently deliver critical services; and

•	Organizing our operations to more effectively leverage our core expertise, including shared services resources.

•	Traditional universities and colleges were designed to fulfill the educational needs of conventional, full-time students aged 18 to 24, and that industry sector remains the primary focus of these universities and institutions. This focus has resulted in a capital-intensive teaching/learning model that often is characterized by:

•	a high percentage of full-time, tenured faculty;

•	physical classrooms, library facilities and related full-time staff;

•	dormitories, student unions, and other significant physical assets to support the needs of conventional, full-time 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 breaks. The traditional academic year 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 conventional, full-time students, it limits the educational opportunity for working learners who must delay their education for up to four months during these traditional breaks.

•	Traditional universities and colleges may also be limited in their ability to provide the necessary customer service for working learners because they lack the necessary administrative infrastructure.

•	Diminishing financial support for public colleges and universities has required them to focus more tightly on their existing student populations and missions, which in some cases has reduced access to traditional education.

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•	unmet demand for education;

•	insufficient public funding to meet demand for education;

•	shortcomings in the quality of higher education offerings, resulting in the rise of supplemental training to meet industry demands in the developing world;

•	worldwide appreciation of the importance that knowledge plays in economic progress; and

•	increased availability and role of technology in education, broadening the accessibility and reach of education.

•

Accredited Degree Programs.   University of Phoenix, Western International University and CFFP are accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools. BPP’s University College has been granted degree-awarding powers by the United Kingdom’s Privy Council. Additionally, certain programs offered at our institutions and our other educational institutions are accredited by appropriate accrediting entities. See Accreditation and Jurisdictional Authorizations , below.

•

Professional Examinations Training and Professional Development. BPP provides training and published materials for qualifications in accountancy (including tax), financial services, actuarial science, and insolvency. BPP also provides professional development through continuing education training and supplemental skills courses to post-qualification markets in finance, law, and general management. University of Phoenix and certain of our other institutions, including CFFP, also provide various training and professional development education.

•	Faculty.

•

Domestic Postsecondary:   Substantially all University of Phoenix faculty possess either a master’s or doctoral degree. Faculty members typically have many years of experience in the field in which they instruct. Our institutions 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 student instruction and grading, and teaching mentorships with more experienced faculty members.

•	International:   Our recruitment standards and processes for international faculty are appropriate for the respective markets in which we operate and are consistent with and in compliance with local accreditation and regulatory requirements in these markets.

•	Standardized Programs.

•

Domestic Postsecondary:   Faculty content experts design curriculum for the majority of programs at our domestic postsecondary institutions. This enables us to offer current and relevant standardized programs to our students. We also utilize standardized tests and 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 (subject matter) and affective (educational, personal and professional values) 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. Classes are designed to be small and engaging.

•	International:   Our international institutions typically follow a course development process in which faculty members who are subject matter experts work with instructional designers to develop curriculum materials based on learning objectives provided by school academic officers. Curriculum is tailored to the relevant standards

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Benefits to Employers.   The employers of students enrolled in our programs often provide input to faculty members in designing curriculum, and class projects are based on issues relevant to the companies that employ our students. Classes are taught by faculty members, many of whom, in our domestic postsecondary institutions, are practitioners and employers who emphasize the skills desired by employers. We conduct focus groups with business professionals, students, and faculty members who provide feedback on the relevancy of course work. Our objective is to gain insight from these groups so that we can develop new courses and offer relevant subject matter that reflect the changing needs of the marketplace and prepare our students for today’s workplace. In addition, the class time flexibility further benefits employers since it minimizes conflict with their employees’ work schedules.

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(1)	Based on students included in New Degreed Enrollment.

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•	active and relevant curriculum development that considers the needs of employers;

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

•	reliable and high-quality products and services;

•	comprehensive student support services;

•	differentiation of student services such as University Orientation and academic social networking;

•	breadth of programs offered;

•	the time necessary to earn a degree;

•	qualified and experienced faculty;

•	reputation of the institution and its programs;

•	relationships with employers and community colleges;

•	the variety of geographic locations of campuses;

•	cost of programs; and

•	size of alumni network.

•	breadth of programs offered;

•	active and relevant curriculum development that considers the needs of employers; and

•	reputation of programs and classes.

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(1)	Includes both Full-Time and Part-Time faculty. Also includes 1,208 employees included in Non-Faculty who serve in both roles.

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

•	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 (in combination with state higher education operating and degree granting authority); and

•	qualification for authority to operate in certain states.

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•	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.

•	Modification of the standards relating to the payment of incentive compensation to employees involved in student recruitment and enrollment;

•	Implementation of standards for state authorization of institutions of higher education;

•	Adoption of a definition of “gainful employment” for purposes of the requirement for Title IV student financial aid that a program of study offered by a proprietary institution prepare students for gainful employment in a recognized occupation; and

•

Expansion of the definition of misrepresentation, relating to the Department’s authority under the Higher Education Act, as reauthorized, to suspend or terminate an institution’s participation in Title IV programs if the institution engages in substantial misrepresentation of the nature of its educational program, its financial charges, or the employability of graduates, and expansion of the sanctions that the Department may impose for engaging in a substantial misrepresentation.

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•	10 years for programs that lead to an undergraduate or post-baccalaureate certificate or to an associate’s degree;

•	15 years for programs that lead to a bachelor’s or master’s degree;

•	20 years for programs that lead to a doctoral or first-professional degree.

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(1)	Based on information published by the U.S. Department of Education.

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•	Annual test.   If the three-year cohort default rate for the 2011 cohort exceeds 40%, the institution will cease to be eligible to participate in Title IV programs; and

•	Three consecutive years test.   If the institution’s three-year cohort default rate for any given year exceeds 30% (an increase from the current 25% threshold applicable to the two-year cohort default rates) for three consecutive years, beginning with the 2009 cohort, the institution will cease to be eligible to participate in Title IV programs.

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•	our Board be composed of a majority of Independent Directors (as defined in NASDAQ Listing Rule 5605(a)(2));

•	the compensation of our officers be determined by a majority of the independent directors or a compensation committee composed solely of independent directors; and

•	nominations to the Board of Directors be made by a majority of the independent directors or a nominations committee composed solely of independent directors.

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•	impose monetary fines or penalties;

•	limit or terminate our operations or ability to grant degrees and diplomas;

•	restrict or revoke our accreditation, licensure or other approval to operate;

•	limit, suspend or terminate our eligibility to participate in Title IV programs or state financial aid programs;

•	require repayment of funds received under Title IV programs or state financial aid programs;

•	require us to post a letter of credit with the U.S. Department of Education;

•	subject our schools to heightened cash monitoring by the U.S. Department of Education;

•	transfer us from the U.S. Department of Education’s advance system of receiving Title IV program funds to its reimbursement system, under which a school must disburse its own funds to students and document the students’ eligibility for Title IV program funds before receiving such funds from the U.S. Department of Education;

•	subject us to other civil or criminal penalties; and/or

•	subject us to other forms of censure.

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•	Modification of the standards relating to the payment of incentive compensation to employees involved in student recruitment and enrollment;

•	Implementation of standards for state authorization of institutions of higher education;

•	Adoption of a definition of “gainful employment” for purposes of the requirement of Title IV student financial aid that a program of study offered by a proprietary institution prepare students for gainful employment in a recognized occupation; and

•

Expansion of the definition of misrepresentation, relating to the Department’s authority under the Higher Education Act, as reauthorized, to suspend or terminate an institution’s participation in Title IV programs if the institution engages in substantial misrepresentation of the nature of its educational program, its financial charges, or the employability of graduates, and expansion of the sanctions that the Department may impose for engaging in a substantial misrepresentation.

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1.

Annual loan repayment rate, which assesses whether the federal student loan debt incurred by the applicable cohort of borrowers to attend the program is being repaid at a rate that implies gainful employment. Generally, the annual loan repayment rate for an academic program is the percentage of student loans incurred to fund the costs of a program that are in satisfactory repayment status three to four years after entering repayment. Rates are calculated on a federal fiscal year basis. The repayment rate must be at least 35%. Institutions can challenge the repayment rate data using a process similar to one used to challenge cohort default rates.

2.

Discretionary income threshold, which determines whether the annual repayment required on total student loan debt of students who completed an academic program is reasonable compared to their discretionary income. For purposes of determining the annual loan repayment, the Department will use the lesser of the amount of student loan debt incurred by the student or the total amount of tuition and fees the institution charged the student for enrollment in all programs at the institution, if tuition and fee information is provided by the institution. The median annual loan payment amount for the applicable cohort of students (calculated as described below) may not be greater than 30% of the greater of their average or median discretionary income. Discretionary income is the annual earnings of a program completer minus 150% of the U.S. Department of Health and Human Services (HHS) poverty guideline for a single person. Like the repayment rate, the debt-to-discretionary income ratio examines students in their third or fourth year after graduation, calculated on a federal fiscal year basis.

3.

Actual earnings threshold, which determines whether the annual repayment required on total student loan debt of students who completed an academic program is reasonable when compared to their actual annual earnings. For purposes of determining the annual loan repayment, the Department will use the lesser of the amount of student loan debt incurred by the student or the total amount of tuition and fees the institution charged the student for enrollment in all programs at the institution, if tuition and fee information is provided by the institution. The median annual loan payment amount for the applicable cohort of students (calculated as described below) may not be greater than 12% of the greater of their average or median annual earnings. Like the repayment rate, the debt-to-total earnings ratio examines students in their third or fourth year after graduation, calculated on a federal fiscal year basis.

•	10 years for programs that lead to an undergraduate or post-baccalaureate certificate or to an associate’s degree;

•	15 years for programs that lead to a bachelor’s or master’s degree;

•	20 years for programs that lead to a doctoral or first-professional degree.

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Increased student loan limits . The Ensuring Continued Access to Student Loans Act of 2008 increased the annual loan limits on federal unsubsidized student loans by $2,000 for the majority of our students enrolled in associate’s and bachelor’s degree programs, and also increased the aggregate loan limits (over the course of a student’s education) on total federal student loans for certain students. This increase in student loan limits increased the amount of Title IV program funds available to and used by our students to pay tuition, fees and other costs, which increased the proportion of our revenue deemed to be from Title IV programs.

•

Increase in Pell Grants . The eligibility for and maximum amount of Pell Grants have increased in recent years. Since the 2006-2007 award year, the maximum annual Pell Grant award has increased from $4,050 to $5,550. In addition, the Higher Education Opportunity Act of 2008 further increased the availability of Pell Grants by permitting additional disbursements for students who are continuously enrolled, which will be eliminated with the 2011-2012 award year. These changes further increased the amount of Title IV program funds available to and used by our students to pay tuition, fees and other costs, which, in turn, further increased the proportion of our revenue deemed to be from Title IV programs.

(1)	Calculated excluding the temporary relief from the impact of loan limit increases.

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•	Annual test . If the three-year cohort default rate for any given year exceeds 40%, the institution will cease to be eligible to participate in Title IV programs; and

•	Three consecutive years test . If the institution’s three-year cohort default rate exceeds 30% (an increase from the current 25% threshold applicable to the two-year cohort default rates) for three consecutive years, beginning with the 2009 cohort, the institution will cease to be eligible to participate in Title IV programs.

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•	comply with all applicable Title IV program regulations;

•	have capable and sufficient personnel to administer the federal student financial aid programs;

•	have acceptable methods of defining and measuring the satisfactory academic progress of its students;

•	not have a student loan cohort default rate above specified levels;

•	have procedures in place for safeguarding federal funds;

•	not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension;

•	provide financial aid counseling to its students;

•	refer to the Office of Inspector General any credible information indicating that any applicant, student, employee or agent of the institution has been engaged in any fraud or other illegal conduct involving Title IV programs;

•	submit in a timely manner all reports and financial statements required by the regulations; and

•	not otherwise appear to lack administrative capability.

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•	Upgrading our learning and data platforms;

•	Adopting new tools to better support students’ education financing decisions, such as our Responsible Borrowing Calculator, which is designed to help students calculate the amount of student borrowing necessary to achieve their educational objectives and to motivate them to not incur unnecessary student loan debt;

•	Refining our marketing approaches to more effectively identify students who have a greater likelihood to succeed in our educational programs, including reduced emphasis on the utilization of third parties for lead generation;

•

Requiring all associate’s and bachelor’s students who enroll in University of Phoenix with fewer than 24 credits (one year of college credit) to first attend a free, three-week University Orientation program which is designed to help inexperienced prospective students understand the rigors of higher education prior to enrollment. After piloting the program for a year, we implemented this policy university-wide in November 2010; and

•

Better aligning our admissions personnel and other employees with our students’ success, including eliminating all enrollment factors in evaluating the performance and any related compensation adjustments for our admissions personnel effective September 1, 2010. See Risks Related to the Highly Regulated Industry in Which We Operate - Rulemaking by the U.S. Department of Education could materially and adversely affect our business , above.

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•	regulatory investigations that may damage our reputation;

•	increased regulation of online education, including in states in which we do not have a physical presence;

•	a decrease in the perceived or actual economic benefits that students derive from our programs or education in general;

•	increased competition from schools offering distance learning and other online educational programs;

•	litigation that may damage our reputation;

•	inability to continue to recruit, train and retain quality faculty;

•	student or employer dissatisfaction with the quality of our services and programs;

•	inability of graduates to obtain employment, professional licensure, or certification in their fields of study;

•	student financial, personal or family constraints;

•	tuition rate reductions by competitors that we are unwilling or unable to match; and

•	a decline in the acceptance of online education.

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•	inability to successfully integrate the acquired operations, including the information technology systems, into our institutions and maintain uniform standards, controls, policies and procedures;

•	inability to successfully operate and grow the acquired businesses, including, with respect to BPP, risks related to:

•	damage to BPP’s reputation, including as a result of unfavorable public opinion in the United Kingdom regarding proprietary schools and ownership of BPP by a U.S. company;

•	uncertainty of future enrollment relating to BPP’s newly established Business School, reduced demand for professional degrees, increased competition for professional examinations training, changes in the content of or procedures for professional examinations or other factors;

•	BPP’s large fixed cost base; and

•	uncertainty regarding reauthorization criteria for BPP University College’s degree awarding powers;

•	distraction of management’s attention from normal business operations;

•	challenges retaining the key employees of the acquired operation;

•	operating, market or other challenges causing operating results to be less than projected;

•	expenses associated with the acquisition;

•	challenges relating to conforming non-compliant financial reporting procedures to those required of a subsidiary of a U.S. reporting company, including procedures required by the Sarbanes-Oxley Act; and

•	unidentified issues not discovered in our due diligence process, including commitments and/or contingencies.

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•	complexity of operations across borders;

•	compliance with foreign regulatory environments;

•	changes in existing laws to prohibit or restrict for-profit education, whether arising from public discontent or otherwise;

•	currency exchange rate fluctuations;

•	monetary policy risks, such as inflation, hyperinflation and deflation;

•	price controls or restrictions on exchange of foreign currencies;

•	potential political and economic instability in the countries in which we operate, including potential student uprisings such as the recent student protests in London against tuition increases and the ongoing student protests in Chile against for-profit education;

•	expropriation of assets by local governments;

•	multiple and possibly overlapping and conflicting tax laws;

•	compliance with anti-corruption regulations such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010;

•	potential unionization of employees under local labor laws and local labor laws that make it more expensive and complex to negotiate with, retain or terminate employees;

•	greater difficulty in utilizing and enforcing our intellectual property and contract rights;

•	failure to understand the local culture and market;

•	limitations on the repatriation of funds; and

•	acts of terrorism and war, epidemics and natural disasters.

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(1)

Shares repurchased in the above table exclude approximately 131,000 shares repurchased for $6.1 million during the three months ended August 31, 2011 related to tax withholding requirements on restricted stock units. These repurchases do not fall under the repurchase program described below, and therefore do not reduce the amount that is available for repurchase under that program. Please refer to Note 16 , Shareholders’ Equity , in Item 8, Financial Statements and Supplementary Data , for additional information.

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•	Overview: From management’s point of view, we discuss the following:

•	An overview of our business and the sectors of the education industry in which we operate;

•	Key trends, developments and challenges; and

•	Significant events from the current period.

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

•	Recent Accounting Pronouncements: A discussion of recently issued accounting pronouncements.

•	Results of Operations: An analysis of our results of operations as reflected on our consolidated financial statements.

•	Liquidity, Capital Resources, and Financial Position: An analysis of cash flows and contractual obligations and other commercial commitments.

•	The University of Phoenix, Inc. (“University of Phoenix”),

•	Apollo Global, Inc. (“Apollo Global”):

•	BPP Holdings, plc (“BPP”),

•	Western International University, Inc. (“Western International University”),

•	Universidad de Artes, Ciencias y Comunicación (“UNIACC”),

•	Universidad Latinoamericana (“ULA”),

•	Institute for Professional Development (“IPD”), and

•	The College for Financial Planning Institutes Corporation (“CFFP”).

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Initiative to Enhance Student Experience and Outcomes.   We are intensely focused on improving student experiences and outcomes. In furtherance of this focus, in fiscal year 2010 we began to implement a number of important changes and initiatives to transition our business to more effectively support our students and improve their educational outcomes, which efforts have continued in fiscal year 2011. These initiatives include, but are not limited to, the

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•	Upgrading our learning and data platforms;

•	Adopting new tools to better support students’ financing decisions for educational costs, such as our Responsible Borrowing Calculator, which is designed to help students calculate the amount of student borrowing necessary to achieve their educational objectives and to motivate them to not incur unnecessary student loan debt;

•	Refining our marketing approaches to more effectively identify students who have a greater likelihood to succeed in our educational programs, including reduced emphasis on the utilization of third parties for lead generation;

•

Requiring all associate’s and bachelor’s students who enroll in University of Phoenix with fewer than 24 credits (one year of college credit) to first attend a free, three-week University Orientation program which is designed to help inexperienced prospective students better understand the time commitments and rigors of higher education prior to enrollment. After piloting the program for a year, we implemented this policy university-wide in November 2010; and

•

Better aligning our admissions personnel and other employees with our students’ success, including eliminating all enrollment factors in evaluating the performance and any related compensation adjustments for our admissions personnel effective September 1, 2010. See Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate - Rulemaking by the U.S. Department of Education could materially and adversely affect our business .

•	Regulatory Environment

•	Rulemaking Initiative.   In November 2009, the U.S. Department of Education convened two negotiated rulemaking teams related to Title IV program integrity issues and foreign school issues. The resulting program integrity rules promulgated in October 2010 and June 2011 address numerous topics. The most significant for our business are the following:

•	Modification of the standards relating to the payment of incentive compensation to employees involved in student recruitment and enrollment;

•	Implementation of standards for state authorization of institutions of higher education;

•	Adoption of a definition of “gainful employment” for purposes of the requirement of Title IV student financial aid that a program of study offered by a proprietary institution prepare students for gainful employment in a recognized occupation; and

•

Expansion of the definition of misrepresentation, relating to the Department’s authority under the Higher Education Act, as reauthorized, to suspend or terminate an institution’s participation in Title IV programs if the institution engages in substantial misrepresentation of the nature of its educational program, its financial charges, or the employability of graduates, and expansion of the sanctions that the Department may impose for engaging in a substantial misrepresentation.

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U.S. Congressional Hearings.   Beginning last year, there has been increased focus by members of the U.S. Congress on the role that proprietary educational institutions play in higher education. In June 2010, the U.S. Senate Committee on Health, Education, Labor and Pensions (“HELP Committee”) held the first in a series of hearings to examine the proprietary education sector. At a subsequent hearing in August 2010, the Government Accountability Office (“GAO”) presented a report of its review of various aspects of the proprietary sector, including recruitment practices and the degree to which proprietary institutions’ revenue is composed of Title IV funding. Following the August hearing, Sen. Tom Harkin, the Chairman of the HELP Committee, requested a broad range of detailed information from 30 proprietary institutions, including University of Phoenix and other subsidiaries of Apollo Group. We have been and intend to continue being responsive to the requests of the HELP Committee. Sen. Harkin has held subsequent hearings and roundtable discussions, most recently on July 21, 2011, and we believe that future hearings may be held. On September 22, 2011, Sen. Tom Carper, the Chairman of the Senate Homeland Security and Government Affairs Subcommittee on Federal Financial Management, Government Information, Federal Services and International Security, held a hearing on “Improving Educational Outcomes for Our Military and Veterans,” focusing on the quality of education for the military and veterans population and the treatment of such funding for purposes of the 90/10 Rule calculation that, if enacted, would adversely impact our 90/10 Rule percentage. Sen. Carper suggested a follow-up roundtable discussion. In addition, other Congressional hearings or roundtable discussions are expected to be held regarding various aspects of the education industry that may affect our business. See Part I, Item 1A, Risk Factors  - Risks Related to the Highly Regulated Industry in Which We Operate - Action by the U.S. Congress to revise the laws governing the federal student financial aid programs or reduce funding for those programs could reduce our student population and increase our costs of operation .

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90/10 Rule .  One requirement of the Higher Education Act, as reauthorized, commonly referred to as the “90/10 Rule,” applies to proprietary institutions such as University of Phoenix and Western International University. Under this rule, a proprietary institution will be ineligible to participate in Title IV programs if for any two consecutive fiscal years it derives more than 90% of its cash basis revenue, as defined in the rule, from Title IV programs. An institution that exceeds this limit for any single fiscal year will be automatically placed on provisional certification for two fiscal years and will be subject to possible additional sanctions determined to be appropriate under the circumstances by the U.S. Department of Education. While the Department has broad discretion to impose additional sanctions on such an institution, there is only limited precedent available to

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Student Loan Cohort Default Rates .  To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. Each cohort is the group of students who first enter into student loan repayment during a federal fiscal year (ending September 30). The currently applicable cohort default rate for each cohort is the percentage of the students in the cohort who default on their student loans prior to the end of the following federal fiscal year, which represents a two-year measuring period. An educational institution will lose its eligibility to participate in some or all Title IV programs if its student loan cohort default rate equals or exceeds 25% for three consecutive cohorts or 40% for any given cohort. If our student loan default rates approach these limits, we may be required to increase efforts and resources dedicated to improving these default rates.

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Federal and State Financial Aid Funding. In April 2011, President Obama signed the fiscal year 2011 spending bill, also known as the Continuing Resolution, which permanently eliminated year-round Pell Grant awards beginning with the 2011-2012 award year. The Continuing Resolution maintains the $5,550 maximum annual Pell Grant for the 2011-2012 award year. However, because the federal Pell Grant program is one of the largest non-defense discretionary spending programs in the federal budget, it is a target for reduction as Congress addresses the budget deficit. A reduction in the maximum annual Pell Grant amount or changes in eligibility could result in increased student borrowing, which would make it more difficult for us to comply with other important regulatory requirements, and could negatively impact enrollment. Any action by Congress that significantly reduces Title IV program funding, whether through across-the-board funding reductions, sequestration or otherwise, or materially impacts the eligibility of our institutions or students to participate in Title IV programs would have a material adverse effect on our enrollment, financial condition, results of operations and cash flows. Further, a reduction in government tuition assistance for military personnel, including veterans, or a change in the way such funding is treated for purposes of the 90/10 Rule may adversely impact our 90/10 Rule percentage, and may negatively impact enrollment. In addition to possible reductions in federal student financial aid, economic uncertainty over recent years has reduced the availability of state-funded student financial aid as many states face historic budget shortfalls. These reductions may reduce our enrollment and, to the extent that Title IV funds replace any state funding sources for our students, may adversely impact our 90/10 Rule percentage. See Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate - Action by the U.S. Congress to revise the laws governing the federal student financial aid programs or reduce funding for those programs could reduce our student population and increase our costs of operation and Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate - Risks Related to the Highly Regulated Industry in Which We Operate - Budget constraints in states that provide state financial aid to our students could reduce the amount of such financial aid that is available to our students, which could reduce our enrollment and adversely affect our 90/10 Rule percentage .

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Higher Learning Commission (“HLC”) . In August 2010, University of Phoenix received a letter from HLC requiring University of Phoenix to provide certain information and evidence of compliance with HLC accreditation standards. The letter related to the August 2010 report published by the GAO of its undercover investigation into the enrollment and recruiting practices of a number of proprietary institutions of higher education, including University of Phoenix. We submitted the response to HLC in September 2010 and subsequently responded to further requests for information. In July 2011, HLC informed University of Phoenix that the Special Committee formed to review this matter had completed its work, concluding that based on its limited review, it found no apparent evidence of systematic misrepresentations to students or that University of Phoenix’s procedures in the areas of recruiting, financial aid and admissions are significantly inadequate or inappropriate. These were the areas on which HLC’s review was focused. HLC also stated that there remain significant questions as well as areas that University of Phoenix should work on improving. HLC indicated that these will be reviewed by the comprehensive evaluation team at its previously scheduled visit beginning in March 2012, which is its next comprehensive evaluation visit. See Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate - If we fail to maintain our institutional accreditation or if our institutional accrediting body loses recognition by the U.S. Department of Education, we could lose our ability to participate in Title IV programs, which would materially and adversely affect our business .

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Intelligently Expand Access into New Markets.   We believe we can capitalize on opportunities to utilize our core expertise and organizational capabilities, both domestically and internationally. In particular, we have observed a growing demand for high quality postsecondary and other education services outside of the U.S. We intend to actively pursue quality opportunities to partner with or acquire existing institutions of higher learning where we believe we can achieve attractive long-term growth and value creation.

1.	University of Phoenix Academic Annual Report . In December 2010, University of Phoenix published its third Academic Annual Report which contains a variety of comparative performance measures related to student outcomes and university initiatives related to quality and accountability.

2.	University of Phoenix Program Review . In February 2011, University of Phoenix received an Expedited Final Program Review Determination Letter from the Department in respect of the Department’s December 2010

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3.	Changes in Directors . The following changes in directors have occurred during fiscal year 2011 :

•	During the second quarter of fiscal year 2011, Stephen J. Giusto resigned from the Board of Directors in connection with his acceptance of employment with Apollo in a senior management position to manage, expand and grow Apollo’s educational services offerings;

•	During the second quarter of fiscal year 2011, James R. Reis ceased to serve as a director of Apollo when his term expired upon the annual meeting of our Class B shareholders;

•	During the third quarter of fiscal year 2011, Darby Shupp was appointed to our Board of Directors; and

•	During the fourth quarter of fiscal year 2011, Robert S. Murley was appointed to our Board of Directors.

4.	BPP Goodwill and Other Intangibles Impairment . During the second quarter of fiscal year 2011, we recorded impairment charges of BPP’s goodwill and other intangibles totaling $219.9 million. Refer to Note 10 , Goodwill and Intangible Assets , in Item 8, Financial Statements and Supplementary Data, for additional information.

5.

Securities Class Action (Policeman’s Annuity and Benefit Fund of Chicago) . In January 2008, a jury returned an adverse verdict against us and two remaining individual co-defendants in a securities class action lawsuit entitled, In re Apollo Group, Inc. Securities Litigation , Case No. CV04-2147-PHX-JAT, filed in the U.S. District Court for the District of Arizona, relating to alleged false and misleading statements in connection with our failure to publicly disclose the contents of a preliminary U.S. Department of Education program review report. After various post-trial challenges, the case was returned to the trial court in March 2011 to administer the shareholder claims process. In September 2011, we entered into an agreement in principle with the plaintiffs to settle the litigation for a payment of $145.0 million. The outcome of this legal proceeding remains uncertain including, but not limited to, the requirement that any settlement agreement must be approved by the court. Refer to Note 20 , Commitments and Contingencies , in Item 8, Financial Statements and Supplementary Data , for additional information.

6.

Sale-Leaseback . On March 24, 2011, we entered into an agreement to sell our principal office buildings in Phoenix, Arizona plus the related land and parking facilities comprising approximately 600,000 square feet of office space for $169 million net of transaction fees. Pursuant to the agreement, we have simultaneously leased back the facilities for an initial term of 20 years, with four five-year renewal options. We are required to pay rent of $12 million for the initial year, which is increased 2% per year until the end of the initial lease term. We generated a gain on sale of $27.5 million, which has been deferred and is being recognized on a straight-line basis over the initial lease term. Based on the terms of the agreement, we have classified and are accounting for the lease as an operating lease. The classification as an operating lease required judgment and estimates in developing key assumptions that include, but are not limited to, the lease term, the discount rate used in discounting future lease payments and the economic useful life of the asset.

7.	Apollo Global Change in Management . During the second quarter of fiscal year 2011, Timothy F. Daniels was hired to serve as President of Apollo Global, succeeding Jeff Langenbach who accepted a new assignment with Apollo Group as both Chief of Staff for the Office of the CEO and Chief Administration Officer.

8.

Restructuring and Other Charges. During fiscal year 2011, we recorded restructuring and other charges totaling $22.9 million associated with a real estate rationalization plan and a strategic reduction in force. These initiatives were designed to streamline our operations and better align our operations with our business strategy, refined business model and outlook. Refer to Note 4 , Restructuring and Other Charges , in Item 8, Financial Statements and Supplementary Data , for additional information.

9.

Arizona Department of Revenue. During the fourth quarter of fiscal year 2011, we executed a Closing Agreement with the Arizona Department of Revenue to settle a matter regarding apportionment of our income for state income tax purposes. Based on the settlement, we have foregone our refund claims of $51.5 million, paid or will pay $59.8 million, and realized a $43.3 million benefit. Refer to Note 15 , Income Taxes , in Item 8, Financial Statements and Supplementary Data , for additional information.

10.	Carnegie Learning, Inc. Acquisition . During the fourth quarter of fiscal year 2011, we entered into an agreement to acquire all of the stock of Carnegie Learning, Inc., a publisher of research-based math curricula and adaptive

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•	Tuition and educational services revenue encompasses both online and on-campus classroom-based learning. For our University of Phoenix operations, tuition revenue is recognized pro rata over the period of instruction as services are delivered to students.

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Educational materials revenue relates to online course materials delivered to students over the period of instruction. Revenue associated with these materials is recognized pro rata over the period of the related course to correspond with delivery of the materials to students. Educational materials also includes the sale of various books, study texts, course notes, and CDs for which we recognize revenue when the materials have been delivered to and accepted by students or other customers.

•	Services revenue represents net revenue generated by IPD, which provides program development, administration and

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Other revenue consists of the fees students pay when submitting an enrollment application, which, along with the related application costs associated with processing the applications, are deferred and recognized over the average length of time a student remains enrolled in a program of study. Other revenue also includes non-tuition generating revenues, such as renting classroom space and other student support services. Revenue from these sources is recognized as the services are provided.

•	Discounts reflect reductions in charges for tuition or other fees from our standard rates and include military, corporate, and other employer discounts, along with institutional scholarships, grants and promotions.

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Goodwill and Indefinite-Lived Intangible Assets — Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. At the time of an acquisition, we allocate the goodwill and related assets and liabilities to our respective reporting units. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.

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Goodwill — We test for goodwill impairment at the reporting unit level by applying a two-step test. In the first step, we compare the fair value of the reporting unit to the carrying value of its net assets. If the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired and no further testing is required. If the carrying value of the net assets of the reporting unit exceeds the fair value of the reporting unit, we perform a second step which involves using a hypothetical purchase price allocation to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. An impairment loss is recognized to the extent the implied fair value of the goodwill is less than the carrying amount of the goodwill. Effective September 1, 2011, we early adopted Accounting Standards Update (“ASU”) No. 2011-08, “ Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment ,” which allows, but does not require, us to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test discussed above. Refer to Recent Accounting Pronouncements in Note 2 , Significant Accounting Policies , in Item 8, Financial Statements and Supplementary Data .

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Indefinite-lived intangible assets — The annual impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We perform our annual indefinite-lived intangible asset impairment tests on the same dates that we perform our annual goodwill impairment tests for the respective reporting units.

(1)	We recorded impairment charges during the second quarter of fiscal year 2011 for BPP's goodwill and other intangible assets of $197.7 million and $22.2 million, respectively. During fiscal year 2010, we recorded impairment charges of $156.3 million and $19.6 million for BPP's goodwill and other intangible assets, respectively, and an $8.7 million impairment charge for ULA's goodwill.

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Projected net revenue growth at UNIACC through its established online and working learner educational programs, and projected net revenue growth at ULA through its working learner educational programs offered through a blend of on-campus and online modalities. If the projected revenue growth from these programs does not materialize, we may be required in the future to record impairment charges for our goodwill and intangible assets.

•	Discount rates for UNIACC and ULA of 15.5% and 16.5%, respectively, and a terminal growth rate of 5% for both reporting units. For sensitivity purposes, a 100 basis point change in either of these assumptions

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•	the markets in which BPP’s professional training programs operate in will experience further declines in the near term, and a recovery in the market for such programs will take longer than previously expected,

•	decreased our pricing assumptions for degree programs at BPP’s University college, given the emerging competitive landscape and the implementation of the U.K. government’s review of funding for higher education, and

•	a significant increase in revenues over a long-term horizon at BPP’s University College, and

•	a 13.5% discount rate and 3.0% terminal growth rate.

•	Adjusting the carrying value of land and buildings included in property and equipment to estimated fair value using the market approach and based on appraisals.

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Adjusting the carrying value of the trademark and accreditations and designation indefinite-lived intangible assets to estimated fair value using the valuation methods discussed above. Our interim impairment tests for these indefinite-lived intangible assets utilized the same assumptions used in the BPP reporting unit goodwill impairment analysis which resulted in a lower fair value estimate for BPP’s trademark.

•	Adjusting all other finite-lived intangible assets to estimated fair value using a variety of methods under the income approach. As a result of this analysis, we determined that all significant finite-lived intangible assets were not impaired in the second quarter of fiscal year 2011 .

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Finite-Lived Intangible Assets — Finite-lived intangible assets that are acquired in business combinations are recorded at fair market value on their acquisition date and are amortized on either a straight-line basis or using an accelerated method to reflect the pattern in which the economic benefits of the asset are consumed. The weighted average useful life of our finite-lived intangible assets that are not fully amortized as of August 31, 2011 is 5.2 years.

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Instructional and student advisory –  consist primarily of costs related to the delivery and administration of our educational programs and include costs related to faculty, student advisory and administrative compensation, classroom and administration lease expenses (including facilities that are shared and support both instructional and admissions functions), financial aid processing costs, costs related to the development of our educational programs and other related costs. Tuition costs for all employees and their eligible family members are recorded as an expense within instructional and student advisory.

•	Marketing –  the substantial majority of costs consist of advertising expenses, compensation for marketing personnel including personnel responsible for establishing relationships with selected employers, which we refer to as our Workforce Solutions team, and production of marketing materials. The category also includes other costs directly related to marketing functions.

•	Admissions advisory  – the substantial majority of costs consist of compensation for admissions personnel. The category also includes other costs directly related to admissions advisory functions.

•	General and administrative  – consist primarily of corporate compensation, occupancy costs, legal and professional fees, and other related costs.

•	Provisions for uncollectible accounts receivable  – consist of expense charged to reduce our accounts receivable to our estimate of the amount we expect to collect.

•	Depreciation and amortization  – consist of depreciation expense on our property and equipment and amortization of our finite-lived intangible assets.

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•	reductions in gross accounts receivable principally resulting from decreases in University of Phoenix enrollment;

•	a decrease in the proportion of our receivables that are attributable to students enrolled in associate’s degree programs. Our collection rates for such students are generally lower compared to students enrolled in bachelor’s and graduate level programs; and

•	requiring all students who enroll in University of Phoenix with fewer than 24 credits to first attend University Orientation, which we believe has improved student retention. See  Overview  in this MD&A for further discussion of University Orientation.

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Real Estate Rationalization - During the fourth quarter of fiscal year 2011, we initiated a plan to rationalize our real estate portfolio in Phoenix, Arizona through space consolidation and reorganization. The plan consists of abandoning all, or a portion of, four leased facilities, all of which are classified as operating leases. As of August 31, 2011, we were not using one of the facilities and we determined will no longer derive a future economic benefit from the facility. Accordingly, we accrued $13.1 million representing the fair value of our future contractual lease obligation under the respective operating lease. We measured the lease obligation at fair value using a discounted cash flow approach encompassing significant unobservable inputs. The estimation of future cash flows includes non-cancelable contractual lease costs over the remaining term of the lease, partially offset by estimated future sublease rental income, which involves significant judgment. Our estimate of the amount and timing of sublease rental income considered current commercial real estate market data and conditions, comparable transaction data and qualitative factors specific to the facility. We also wrote-off $6.0 million of certain assets, including leasehold improvements, at the facility for which we do not expect a future economic benefit. The lease obligation and asset impairment charges are included in our University of Phoenix reportable segment. With respect to this facility, we estimate we will incur approximately $5 million of additional restructuring costs associated with future accretion of the discounted liability over the remaining lease term. Our estimates of our net lease obligation and future accretion expense could be subject to adjustment as market conditions change or as new information becomes available, including the execution of sublease agreements.

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Reduction in Force - We implemented a strategic reduction in force primarily at University of Phoenix in November 2010 that eliminated approximately 700 full-time positions, principally among admissions personnel. In connection with this reduction in force, we incurred a $3.8 million charge consisting of severance and other fringe benefit costs. This charge is included in our University of Phoenix reportable segment and was paid in the second quarter of fiscal year 2011.We began realizing related employee compensation expense reductions of approximately $8 million per quarter beginning in the second quarter of fiscal year 2011.

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Our state effective rate for fiscal year 2011 was 1.8% compared to 6.3% in fiscal year 2010. Prior to fiscal year 2011, our state effective rate was adversely affected by uncertainty related to the apportionment of income for Arizona corporate income tax purposes. During the fourth quarter of fiscal year 2011, we executed a Closing Agreement with the Arizona Department of Revenue to settle a matter regarding apportionment of our income for state income tax purposes. Based on the settlement, we have foregone our refund claims of $51.5 million, paid or will pay $59.8 million, and realized a $43.3 million benefit. The realized benefit encompassed prior years and fiscal year 2011. The settlement also provides an agreed upon sales factor sourcing methodology through 2020. Our state effective rate for fiscal years 2011 and 2010 would have been approximately 4.7% using an apportionment methodology consistent with our agreement with the Arizona Department of Revenue. See Note 15 , Income Taxes , in Item 8, Financial Statements and Supplementary Data ;

•	A $9.6 million tax benefit recorded in fiscal year 2011 associated with resolution with the Internal Revenue Service regarding the deductibility of payments made to settle a lawsuit in fiscal year 2010; and

•	A $7.3 million tax benefit related to the closure of Meritus in fiscal year 2011.

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(1)

The Corporate caption in our segment reporting includes adjustments to reconcile segment results to consolidated results, which primarily consist of net revenue and corporate charges that are not allocated to our segments. The operating loss for Corporate in fiscal years 2011 and 2010 includes a net credit of $16.2 million and charges of $178.0 million, respectively, associated with the Securities Class Action (Policeman’s Annuity and Benefit Fund of Chicago) . See Note 20 , Commitments and Contingencies , in Item 8, Financial Statements and Supplementary Data .

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•	changes in the evaluation and compensation structure for our admissions personnel and other employees, including eliminating all enrollment factors in evaluating the performance and any related compensation adjustments for our admissions personnel effective September 1, 2010;

•	the full implementation of University Orientation in November 2010; and

•	our efforts to more effectively identify students who have a greater likelihood to succeed in our educational programs.

•	The 3.9% decrease in University of Phoenix net revenue;

•	An increase in expense associated with our various strategic initiatives to more effectively support our students and improve their educational outcomes. These initiatives have increased compensation related to many student advisory and infrastructure support functions, depreciation related to computer equipment and software, and curriculum development and delivery costs;

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An increase in marketing costs due to higher advertising expenditure resulting from increased investment in non-Internet branding, and increased costs associated with our efforts to more effectively identify students who have a greater likelihood to succeed in our educational programs. Additionally, advertising rates for traditional and online media increased due to more competition in the education sector and increases in advertising rates from improving general media market conditions; and

•	$22.9 million of restructuring and other charges as discussed above.

•	A decrease in bad debt expense primarily attributable to the following:

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•	reductions in gross accounts receivable principally resulting from decreases in University of Phoenix enrollment;

•	a decrease in the proportion of our receivables that are attributable to students enrolled in associate’s degree programs. Our collection rates for such students are generally lower compared to students enrolled in bachelor’s and graduate level programs; and

•	requiring all students who enroll in University of Phoenix with fewer than 24 credits to first attend University Orientation, which we believe has improved student retention. See Overview in this MD&A for further discussion of University Orientation;

•	Lower headcount in admissions advisory and certain marketing functions partially attributable to a strategic reduction in force implemented during the first quarter of fiscal year 2011 that eliminated approximately 700 full-time positions, principally among admissions personnel; and

•	Lower faculty costs resulting from lower enrollment.

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•	a reduction in share-based compensation;

•	a reduction in legal costs in connection with defending ourselves in various legal matters;

•	the write-off in fiscal year 2009 of $9.4 million of information technology fixed assets that resulted primarily from our rationalization of software; and

•	expense in fiscal year 2009 resulting from our internal review of certain Satisfactory Academic Progress calculations.

•	a $156.3 million charge for BPP’s goodwill;

•	a $19.6 million charge for BPP’s other intangibles; and

•	an $8.7 million charge for ULA’s goodwill.

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•	The BPP and ULA goodwill impairments, discussed above, for which we do not receive a tax benefit;

•	An increase in other foreign losses for which we do not receive a tax benefit; and

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An increase in our state effective rate principally due to the decrease in pre-tax income associated with the BPP and ULA goodwill impairment charges noted above. Our state effective rate was also adversely impacted by a number of state law changes or interpretations that resulted in a larger portion of our income being taxed by two or more states. Refer to Note 15 , Income Taxes , in Item 8, Financial Statements and Supplementary Data .

•	A tax benefit recorded in fiscal year 2010 associated with our settlement of a dispute with the Internal Revenue Service relating to the deduction of certain stock option compensation on our U.S. federal income tax returns beginning in fiscal year 2003;

•	The estimated tax impact on the litigation charge recorded in fiscal year 2009 associated with a qui tam lawsuit discussed above for which the tax benefit was uncertain; and

•	Certain compensation in fiscal year 2009 for which the tax benefit was uncertain under Internal Revenue Code Section 162(m).

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(1)

The Corporate caption in our segment reporting includes adjustments to reconcile segment results to consolidated results, which primarily consist of net revenue and corporate charges that are not allocated to our segments. The operating loss for Corporate in fiscal year 2010 includes $178.0 million of charges associated with the Securities Class Action (Policeman’s Annuity and Benefit Fund of Chicago) .

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•	Enhancements in our marketing capabilities, along with continued investments in enhancing and expanding University of Phoenix academic quality and service offerings; and

•	Economic uncertainties, as working learners seek to advance their education to improve their job security or reemployment prospects.

•	The 19.4% increase in University of Phoenix net revenue;

•	Employee headcount has grown at a lower rate than the increase in net revenue; and

•	The $80.5 million charge recorded in fiscal year 2009 associated with a qui tam lawsuit discussed above.

•	Goodwill and other intangible impairments in fiscal year 2010 of $175.9 million and $8.7 million at BPP and ULA, respectively;

•	Amortization of BPP intangible assets, certain expenditures at BPP associated with the integration process, and an adverse impact on BPP’s operations from the global economic uncertainty; and

•	Expenditures at Western International University, UNIACC and ULA including, but not limited to, initiatives to enhance academic quality and the respective brands.

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•	reductions in gross accounts receivable principally resulting from decreases in University of Phoenix enrollment;

•	a decrease in the proportion of our receivables that are attributable to students enrolled in associate’s degree programs. Our collection rates for such students are generally lower compared to students enrolled in bachelor’s and graduate level programs; and

•	requiring all students who enroll in University of Phoenix with fewer than 24 credits to first attend University Orientation, which we believe has improved student retention. See Overview in this MD&A for further discussion of University Orientation.

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(1)	Amounts include expected future interest payments. Refer to Note 13 , Debt , in Item 8, Financial Statements and Supplementary Data , for additional information on our outstanding debt.

(2)	Amounts consist of an agreement for naming rights to the Glendale, Arizona Sports Complex until 2026.

(3)	Amounts consist of our reserve for unrecognized tax positions, including interest and penalties, that are included in other current and other long-term liabilities in our August 31, 2011 Consolidated Balance Sheets. We are uncertain as to if or when such amounts may be settled.

(4)	Amount consists of unconditional purchase obligations and undiscounted deferred compensation payments due to Dr. John G. Sperling, our founder.

•	Adjustments resulting from the translation of assets and liabilities of the foreign subsidiaries into U.S. dollars using exchange rates in effect at the balance sheet dates. These translation adjustments are recorded in accumulated other comprehensive income (loss);

•	Earnings volatility from the translation of income and expense items of the foreign subsidiaries using an average monthly exchange rate for the respective periods; and

•	Gains and losses resulting from foreign currency exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from foreign currency transactions. These items are recorded in Other, net in our Consolidated Statements of Income.

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•	The University of Phoenix, Inc. (“University of Phoenix”);

•	Institute for Professional Development (“IPD”); and

•	The College for Financial Planning Institutes Corporation (“CFFP”).

•	BPP Holdings plc (“BPP”) in the United Kingdom;

•	Western International University, Inc. (“Western International University”) in the U.S.;

•	Universidad de Artes, Ciencias y Comunicación (“UNIACC”) in Chile; and

•	Universidad Latinoamericana (“ULA”) in Mexico.

•	Tuition and educational services revenue represents approximately 92% of our gross consolidated revenue before discounts, and encompasses both online and on-campus classroom-based learning. For our University of Phoenix operations, tuition revenue is recognized pro rata over the period of instruction as services are delivered to students.

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Educational materials revenue represents approximately 6% of our gross consolidated revenue before discounts, and relates to online course materials delivered to students over the period of instruction. Revenue associated with these materials is recognized pro rata over the period of the related course to correspond with delivery of the materials to students. Educational materials also includes the sale of various books, study texts, course notes, and CDs for which we recognize revenue when the materials have been delivered to and accepted by students or other customers.

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Services revenue represents approximately 2% of our gross consolidated revenue before discounts. Services revenue represents net revenue generated by IPD, which provides program development, administration and management consulting services to private colleges and universities (“Client Institutions”) to establish or expand their programs for working learners. These services typically include degree program design, curriculum development, market research, certain student admissions services, accounting, and administrative services. Prior to July 1, 2011, IPD was typically paid a portion of the tuition revenue generated from these programs, and the portion of service revenue to which IPD was entitled under the terms of the contract was recognized as the services were provided. Under new U.S. Department of Education regulations, subsequent to July 1, 2011, IPD’s revenue is generated based on fixed fee contracts with Client Institutions and is recognized on a straight line basis over the term of the contract as the services are provided. The term for these fixed fee contracts range from one to five years with provisions for renewal thereafter.

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Other revenue represents less than 1% of our gross consolidated revenue before discounts. Other revenue consists of the fees students pay when submitting an enrollment application, which, along with the related application costs associated with processing the applications, are deferred and recognized over the average length of time a student remains enrolled in a program of study. Other revenue also includes non-tuition generating revenues, such as renting classroom space and other student support services. Revenue from these sources is recognized as the services are provided.

•	Discounts represent approximately 5% of our gross consolidated revenue. Discounts reflect reductions in charges for tuition or other fees from our standard rates and include military, corporate, and other employer discounts, along with institutional scholarships, grants and promotions.

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Goodwill and Indefinite-Lived Intangible Assets — Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. At the time of an acquisition, we allocate the goodwill and related assets and liabilities to our respective reporting units. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.

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Goodwill - We test for goodwill impairment at the reporting unit level by applying a two-step test. In the first step, we compare the fair value of the reporting unit to the carrying value of its net assets. If the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired and no further testing is required. If the carrying value of the net assets of the reporting unit exceeds the fair value of the reporting unit, we perform a second step which involves using a hypothetical purchase price allocation to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. An impairment loss is recognized to the extent the implied fair value of the goodwill is less than the carrying amount of the goodwill. As discussed in Recent Accounting Pronouncements below, effective September 1, 2011, we early adopted Accounting Standards Update (“ASU”) No. 2011-08, “ Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment ,” which allows, but does not require, us to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test discussed above.

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Indefinite-lived intangible assets - The annual impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We perform our annual indefinite-lived intangible asset impairment tests on the same dates that we perform our annual goodwill impairment tests for the respective reporting units.

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Finite-Lived Intangible Assets — Finite-lived intangible assets that are acquired in business combinations are recorded at fair market value on their acquisition date and are amortized on either a straight-line basis or using an accelerated method to reflect the pattern in which the economic benefits of the asset are consumed. The weighted average useful life of our finite-lived intangible assets that are not fully amortized as of August 31, 2011 is 5.2  years.

•	Level 1 — Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active markets;

•	Level 2 — Observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace for identical or similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities; and

•	Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to the fair value of assets or liabilities.

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Instructional and student advisory  - We previously reported our provision for uncollectible accounts receivable and a portion of our depreciation and amortization in “instructional costs and services” on our Consolidated Statements of Income. We have disaggregated and are presenting separately our provision for uncollectible accounts receivable and depreciation and amortization, which are discussed in more detail below. Effective during the first quarter of fiscal year 2011, we have renamed the remaining costs “instructional and student advisory.” This category primarily consists of costs related to the delivery and administration of our educational programs and include costs related to faculty, student advisory and administrative compensation, classroom and administration lease expenses (including facilities that are shared and support both instructional and admissions functions), financial aid processing costs, costs related to the development of our educational programs and other related costs. Tuition costs for all employees and their eligible family members are recorded as an expense within instructional and student advisory.

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Admissions advisory - We previously reported costs related to our admissions advisory personnel in “selling and promotional” on our Consolidated Statements of Income. Effective during the first quarter of fiscal year 2011, we began separately stating such costs on our Consolidated Statements of Income as “admissions advisory.” Based on the strategic initiative discussed above, we believe the disaggregation of admissions personnel costs better represents our admissions advisory function and provides a more transparent view of our operations. The substantial majority of costs included in this disaggregated presentation consist of compensation for admissions personnel. The category also includes other costs directly related to admissions advisory functions.

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Marketing - The costs associated with admissions personnel represented a significant portion of our previously reported “selling and promotional” expense. As discussed above, we began presenting such costs separately on our Consolidated Statements of Income. Considering the substantial majority of the remaining costs represent advertising and other marketing activities, we believe the disaggregation of our marketing costs provides additional transparency. Specifically, effective during the first quarter of fiscal year 2011, we have renamed the remaining costs “marketing,” which were previously referred to as “selling and promotional.” The substantial majority of costs included in the disaggregated presentation of marketing consist of advertising expenses, compensation for marketing personnel including personnel responsible for establishing relationships with selected employers, which we refer to as our Workforce Solutions team, and production of marketing materials. The category also includes other costs directly related to marketing functions. Based on this disaggregation, we also identified certain costs previously included in “selling and promotional” that we believe are now more appropriately represented as general and administrative in our revised presentation of operating expenses. These costs principally include compensation associated with our External Affairs employees and other costs related to our External Affairs activities.

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General and administrative  - Excluding the change in presentation noted above related to External Affairs and the disaggregation of depreciation and amortization discussed below, there are no additional changes to our presentation of general and administrative expense. General and administrative costs consist primarily of corporate compensation, occupancy costs, legal and professional fees, and other related costs.

•	Provision for uncollectible accounts receivable - We previously reported our provision for uncollectible accounts receivable in “instructional costs and services” on our Consolidated Statements of Income. We believe the disaggregated presentation of our provision for uncollectible accounts receivable is meaningful and provides a more transparent view of our operations.

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Depreciation and amortization - We previously reported depreciation and amortization in a combination of all of our operating expense categories on our Consolidated Statements of Income. The assets associated with our depreciation and amortization often possess characteristics that can be associated with multiple operating expense categories. We expect this trend to continue as we implement various strategic initiatives that enhance our operational efficiencies as well as improve the student experience. Accordingly, we believe the disaggregated presentation of our depreciation and amortization provides a more transparent view of our operations.

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•	University of Phoenix — May 31

•	BPP — July 1

•	UNIACC (included in Apollo Global — Other) — May 31

•	ULA (included in Apollo Global — Other) — May 31

•	Western International University (included in Apollo Global — Other) — May 31

•	CFFP (included in Other Schools) — August 31

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Projected net revenue growth at UNIACC through its established online and working learner educational programs, and projected net revenue growth at ULA through its working learner educational programs offered through a blend of on-campus and online modalities. If the projected revenue growth from these programs does not materialize, we may be required in the future to record impairment charges for our goodwill and intangible assets.

•	Discount rates for UNIACC and ULA of 15.5% and 16.5% , respectively, and a terminal growth rate of 5% for both reporting units. For sensitivity purposes, a 100 basis point change in either of these assumptions would not have resulted in the carrying value exceeding the fair value for either reporting unit as of their May 31, 2011 annual impairment test date.

•	the markets in which BPP’s professional training programs operate in will experience further declines in the near term, and a recovery in the market for such programs will take longer than previously expected,

•	decreased our pricing assumptions for degree programs at BPP’s University college, given the emerging competitive landscape and the implementation of the U.K. government’s review of funding for higher education,

•	a significant increase in revenues over a long-term horizon at BPP’s University College, and

•	a 13.5% discount rate and 3.0% terminal growth rate.

•	Adjusting the carrying value of land and buildings included in property and equipment to estimated fair value using the market approach and based on appraisals.

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Adjusting the carrying value of the trademark and accreditations and designation indefinite-lived intangible assets to estimated fair value using the valuation methods discussed at Note 2 , Significant Accounting Policies . Our interim impairment tests for these indefinite-lived intangible assets utilized the same assumptions used in the BPP reporting unit goodwill impairment analysis which resulted in a lower fair value estimate for BPP’s trademark.

•	Adjusting all other finite-lived intangible assets to estimated fair value using a variety of methods under the income approach. As a result of this analysis, we determined that all significant finite-lived intangible assets were not impaired in the second quarter of fiscal year 2011.

•	Adjusting the carrying value of land and buildings included in property and equipment to estimated fair value using the market approach and based on recent appraisals.

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Adjusting the carrying value of the trademark and accreditations and designation indefinite-lived intangible assets to estimated fair value using the valuation methods discussed at Note 2 , Significant Accounting Policies . Our annual impairment tests for these indefinite-lived intangible assets utilized the same revenue, margin and discount rate assumptions used in the BPP reporting unit goodwill impairment step one analysis which resulted in a lower fair value estimate for BPP’s trademark. Accordingly, we recorded a $17.6 million impairment charge for these indefinite-lived intangible assets in fiscal year 2010.

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Adjusting all other finite-lived intangible assets to estimated fair value using a variety of methods under the income approach specifically the costs savings method, with and without method and excess earnings method, or replacement cost approach. As a result of this analysis, we determined that one of our student relationship intangible assets was not recoverable resulting in recording an impairment charge of $2.0 million in fiscal year 2010.

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•	Money market funds  — Classified within Level 1 and were valued primarily using real-time quotes for transactions in active exchange markets involving identical assets. As of August 31, 2011 and 2010, our remaining cash and cash equivalents not disclosed in the above tables approximate fair value because of the short-term nature of the financial instruments.

•	Auction-rate securities  — Classified within Level 3 due to the illiquidity of the market and were valued using a discounted cash flow model encompassing significant unobservable inputs such as estimated interest rates, credit spreads, timing and amount of cash flows, credit quality of the underlying securities and illiquidity considerations.

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Interest rate swap  — We have an interest rate swap with a notional amount of $47.5 million as of August 31, 2011 used to minimize the interest rate exposure on a portion of BPP’s variable rate debt. The interest rate swap is used to fix the variable interest rate on the associated debt. The swap is classified within Level 2 and is valued using readily available pricing sources which utilize market observable inputs including the current variable interest rate for similar types of instruments.

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Bank Facility - In fiscal year 2008, we entered into a syndicated $500 million credit agreement (the “Bank Facility”). The Bank Facility is an unsecured revolving credit facility used for general corporate purposes including acquisitions and stock buybacks. The Bank Facility has an expansion feature for an aggregate principal amount of up to $250 million . The term is five years and will expire on January 4, 2013 . The Bank Facility provides a multi-currency sub-limit facility for borrowings in certain specified foreign currencies.

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BPP Credit Facility - In fiscal year 2010, we refinanced BPP’s debt by entering into a £52.0 million (equivalent to $85.2 million as of August 31, 2011 ) secured credit agreement (the “BPP Credit Facility”). The BPP Credit Facility contains term debt, which was used to refinance BPP’s existing debt, and revolving credit facilities used for working capital and general corporate purposes. The term of the agreement is three years and will expire on August 31, 2013. The interest rate on borrowings varies according to a financial ratio and range from LIBOR + 250 to 325 basis points . The weighted average interest rate on BPP’s outstanding borrowings at August 31, 2011 and 2010 was 4.0% and 4.0% , respectively.

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Other - Other debt includes $9.1 million of variable rate debt and $12.5 million of fixed rate debt as of August 31, 2011 , and $8.7 million of variable rate debt and $17.0 million of fixed rate debt as of August 31, 2010 . The interest rates on these debt instruments range from 5.0% to 7.3% with various maturities from 2012 to 2019 . The weighted average interest rate on our other debt at August 31, 2011 and 2010 was 6.1% and 6.7% , respectively.

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(1)	Accumulated other comprehensive loss is net of $0.4 million and $1.2 million of taxes as of August 31, 2011 and 2010 , respectively. The tax effect on each component of other comprehensive income during fiscal years 2011 , 2010 and 2009 is not significant.

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(1)	Aggregate intrinsic value represents the total amount obtained by multiplying the portion of our closing stock price of $46.83 on August 31, 2011 in excess of the applicable exercise prices by the number of options outstanding or exercisable with an exercise price less than that closing stock price.

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(1)

The nonvested balance at August 31, 2011 and August 31, 2010 includes approximately 260,000 and 69,000 PSAs, respectively, at the target level. The vesting of these awards are subject to the achievement of the specified performance goals and the actual number of common shares that will ultimately be issued is calculated by multiplying the number of performance shares by a payout percentage range varying from 0% to 200%, and in limited cases may range to 600% .

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(1)

The total future minimum lease obligation associated with operating leases includes lease payments for a lease agreement executed in fiscal year 2009 for a building for which we do not have the right to control the use of the property under the lease at August 31, 2011. The future minimum lease payments associated with this lease are approximately $87 million and we began using the property in the first quarter of fiscal year 2012.

(2)	The total future minimum lease obligation excludes non-cancelable sublease rental income of $1.2 million .

(3)

During the fourth quarter of fiscal year 2011, we initiated a plan to rationalize our real estate portfolio in Phoenix, Arizona through space consolidation and reorganization. The total future minimum operating lease obligation includes $43.8 million of future contractual lease payments associated with a facility for which we no longer expect to receive a future economic benefit as of August 31, 2011. The total future minimum operating lease obligation also includes $34.7 million of future contractual lease payments associated with three facilities that we expect to abandon in fiscal year 2012. See Note 4 , Restructuring and Other Charges , for further discussion.

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Himmel Derivative Action . On March 24, 2011, a shareholder derivative complaint was filed in the Superior Court for the State of Arizona, Maricopa County by Daniel Himmel, one of the foregoing shareholders who previously made a demand for investigation. In the complaint, the plaintiff asserts a derivative claim on our behalf against certain of our current and former officers and directors for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The complaint alleges that the individual defendants made improper statements and engaged in improper business practices that caused our stock price to drop, led to securities class actions against us, and enhanced regulation and scrutiny by various government entities and regulators. The case is entitled, Himmel v. Bishop, et al , Case Number CV2011-005604. Pursuant to a stipulation between all parties, on August 31, 2011, the Court ordered this action stayed during the pendency of the underlying Apollo Institutional Investors Securities Class Action.

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Smith Derivative Action . On April 12, 2011, a shareholder derivative complaint was filed in the U.S. District Court for the District of Arizona by Darlene Smith, one of the foregoing shareholders who previously made a demand for investigation. In the complaint, the plaintiff asserts a derivative claim on our behalf against certain of our current and former officers and directors for violations of federal securities laws, state law claims for breaches of fiduciary duty, abuse of control, gross mismanagement, unjust enrichment, corporate waste, and insider trading. The case is entitled, Smith v. Sperling, et al , Case Number CV-11-0722-PHX-PGR. On July 28, 2011, we filed a motion to stay the case and oral argument on the motion is scheduled before the Court on October 31, 2011.

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State of Florida. On October 22, 2010, University of Phoenix received notice that the State of Florida Office of the Attorney General in Fort Lauderdale, Florida had commenced an investigation into possible unfair and deceptive trade practices associated with certain alleged practices of University of Phoenix. The notice included a subpoena to produce documents and detailed information for the time period of January 1, 2006 to the present about a broad spectrum of University of Phoenix’s business. We are cooperating with the investigation, but have also filed a suit to quash or limit the subpoena and to protect information sought that constitutes propriety or trade secret information. We cannot predict the eventual scope, duration or outcome of the investigation at this time.

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State of Massachusetts. On May 13, 2011, University of Phoenix received a Civil Investigative Demand from the State of Massachusetts Office of the Attorney General. The Demand relates to an investigation of possible unfair or deceptive methods, acts, or practices by for-profit educational institutions in connection with the recruitment of students and the financing of education. The Demand requires us to produce documents and detailed information and to give testimony regarding a broad spectrum of University of Phoenix’s business for the time period of January 1, 2002 to the present. We are cooperating with the investigation. We cannot predict the eventual scope, duration or outcome of the investigation at this time.

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State of Delaware. On August 3, 2011, University of Phoenix received a subpoena from the Attorney General of the State of Delaware to produce detailed information regarding University of Phoenix students residing in Delaware. The time period covered by the subpoena is January 1, 2006 to the present. We are cooperating with the investigation. We cannot predict the eventual scope, duration or outcome of the investigation at this time.

•	Modification of the standards relating to the payment of incentive compensation to employees involved in student recruitment and enrollment;

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Implementation of standards for state authorization of institutions of higher education, which require us to seek and obtain specific regulatory approval by June 30, 2012, or to seek a further annual waiver from the Department through June 30, 2013 to operate in California, Colorado, Hawaii and New Mexico. If we are unable to operate in California in a manner that would preserve Title IV eligibility for our students, our business would be materially and adversely impacted;

•	Adoption of a definition of “gainful employment” for purposes of the requirement of Title IV student financial aid that a program of study offered by a proprietary institution prepare students for gainful employment in a recognized occupation; and

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Expansion of the definition of misrepresentation, relating to the Department’s authority under the Higher Education Act, as reauthorized, to suspend or terminate an institution’s participation in Title IV programs if the institution engages in substantial misrepresentation of the nature of its educational program, its financial charges, or the employability of graduates, and expansion of the sanctions that the Department may impose for engaging in a substantial misrepresentation.

(1)

University of Phoenix’s fiscal year 2011 operating income includes $22.9 million of restructuring and other charges associated with our real estate rationalization plan and a strategic reduction in force. Refer to Note 4 , Restructuring and Other Charges . Operating income for fiscal year 2009 includes an $80.5 million charge resulting from our agreement in principle to settle a qui tam lawsuit pertaining to alleged violations of the False Claims Act. The settlement was finalized by all parties in fiscal year 2010.

(2)	The operating loss for BPP in fiscal years 2011 and 2010 includes a $219.9 million and $175.9 million , respectively, of goodwill and other intangibles impairment charges. Refer to Note 10 , Goodwill and Intangible Assets .

(3)	Apollo Global - Other’s operating loss in fiscal year 2010 includes an $8.7 million goodwill impairment charge for ULA.

(4)	The operating loss for Corporate in fiscal years 2011 and 2010 includes a net credit of $16.2 million and charges of $178.0 million , respectively, associated with the Securities Class Action (Policeman’s Annuity and Benefit Fund of Chicago) . See Note 20 , Commitments and Contingencies .

(1)	We recorded a $219.9 million and a $175.9 million impairment charge for BPP’s goodwill and other intangibles during fiscal years 2011 and 2010, respectively. Refer to Note 10 , Goodwill and Intangible Assets .

(2)	Insight Schools’ assets were held for sale and included in our Corporate caption as of August 31, 2010. Refer to Note 5 , Discontinued Operations .

(1)	Long-lived assets include property and equipment, net, goodwill, and intangible assets, net.

(1)	The effective income tax rate and net loss attributable to noncontrolling interests was significantly affected in the second quarter of fiscal year 2011 by BPP goodwill and other intangibles impairment charges.

(2)	The sum of quarterly income per share may not equal annual income per share due to rounding and the net loss in the second quarter of fiscal year 2011.

(1)	The effective income tax rate and net loss attributable to noncontrolling interests was significantly affected in the fourth quarter of fiscal year 2010 by BPP goodwill and other intangibles impairment charges.

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

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