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

• Current economic and industry-wide trends and developments, opportunities, challenges and risks that impact our business; and

• Key highlights 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 in our condensed consolidated financial statements.

• Liquidity, Capital Resources, and Financial Position: An analysis of cash flows, contractual obligations and other commercial commitments, and discussion regarding federal and private student loans.

OVERVIEW
Apollo is one of the world's largest private education providers and has been a provider of education services for more than 30 years. We offer innovative and distinctive educational programs and services at the high school, undergraduate and graduate levels through doctorate at our various campuses and learning centers, and online throughout the world. Our North America-based operations focus principally on adult working students and include the following universities, colleges and institutions:
• University of Phoenix

• Institute for Professional Development (IPD)

• College for Financial Planning Institutes (CFP)

• Western International University

• Insight Schools

• Meritus University

Our international operations, which are conducted through our 80.1% owned subsidiary, Apollo Global, Inc., currently include Universidad de Artes, Ciencias y Comunicaciσn ("UNIACC") in Chile, and Universidad Latinoamericana ("ULA") in Mexico.
Substantially all of our net revenue is composed of tuition and fees for educational services. In fiscal year 2008, University of Phoenix accounted for 95.2% of our total net revenue. Additionally, approximately 77% of our fiscal year 2008 total net revenue was derived from receipt of U.S. Title IV financial aid program funds, principally student loans and Pell grants.
We believe that a critical element of generating successful long-term growth and attractive returns for our stakeholders is to provide the highest quality educational products and services for our students in order for them to maximize the benefits of their educational experience. Accordingly, we are intensely focused on student success. We are continuously enhancing and expanding our current service offerings and investing in academic quality. We have developed customized computer programs for academic quality management, faculty recruitment and training, student tracking, and marketing to help us more effectively manage toward this objective. We believe we utilize one of the most comprehensive learning assessment programs in the U.S., and in 2008 University of Phoenix published its first Academic Annual Report. We are also focused on improving student retention by enhancing student services, promoting instructional innovation and improving academic support. All of these efforts are designed to help our students stay in school and succeed.
Current Economic and Industry-wide Trends and Developments, Opportunities, Challenges and Risks
Our management team is focused on the following circumstances and trends that present opportunities, challenges and risks as we work toward our goal of providing attractive returns for all of our stakeholders:
• Evolving Domestic Postsecondary Education Market. We believe domestic postsecondary education continues to experience a profound shift from traditional undergraduate students (those students living on campus and attending classes full-time) to

non-traditional students who work, are raising a family, or are doing both while trying to earn a college degree. This trend continues to provide an opportunity for education providers such as University of Phoenix to provide quality academic programs and services that appeal to non-traditional students. We believe we are well positioned to capitalize on this trend.

• Economic Downturn. The U.S. and much of the world economy are in the midst of an economic downturn. Although not quantifiable, we believe these conditions have contributed to a portion of our recent enrollment growth as an increased number of working adults seek to advance their education to improve their job security or reemployment prospects. One of our primary challenges will be to adequately and effectively service our increased student population without over-building our infrastructure and delivery platform in a manner that might result in excess capacity when the portion of our growth that may be related to the economic downturn subsides. Additionally, see below under Critical Accounting Policies and Estimates a discussion of the impact of the economic downturn on our allowance for doubtful accounts.

• Regulatory Environment:

• Compliance. Our domestic business is highly regulated by the U.S. Department of Education, the applicable academic accreditation agencies and state education regulatory authorities. Compliance with these regulatory requirements is a significant part of our administrative effort. In August 2008, the U.S. Congress reauthorized the Higher Education Act through 2013 by enacting the Higher Education Opportunity Act, which resulted in a large number of new and modified requirements that ultimately will be implemented through Department of Education rulemaking. Little formal or informal guidance is available for many of these requirements, and we are focused on evaluating their implications and developing appropriate compliance procedures. Because our student body is large, new regulations, or changes in existing regulations, can require significant time and effort on our part.

• Certification. As part of our eligibility to participate in Title IV programs, our institutions involved in Title IV programs must be certified to participate and are required to periodically renew their certification. University of Phoenix was recertified in June 2003 and its current certification for the Title IV programs expired in June 2007. In March 2007, University of Phoenix submitted its Title IV recertification application to the Department of Education. We have been collaborating with the Department of Education since that date and continue to supply additional follow-up information based on requests from the Department. Our eligibility continues on a month-to-month basis until the Department of Education issues its decision on the application. A month-to-month status is not unusual considering the process is multi-faceted and iterative. We have no reason to believe that the application will not be renewed.

• New U.S. Administration. In January 2009, Barack Obama was sworn in as the 44th U.S. President. It is too soon to predict the changes in higher education public policy that the Obama Administration may propose, or the effect of the current U.S. economic downturn on the Administration's ability to implement significant changes. However, in the Administration's 2010 budget request delivered to Congress on February 26, 2009, the Department of Education proposed to eliminate the Federal Family Education Loan Program (FFELP) and instead require all Title IV student loans to be administered through the Federal Direct Loan Program (FDLP) commencing July 1, 2010. We expect to be able to fully transition from the FFELP program to the FDLP by the proposed July 1, 2010 phase-out date, if necessary. If this proposal is adopted, the transition would require us to develop and implement administrative capabilities and procedures for volume processing of loans under the FDLP. If we experience a disruption in our ability to process student loans through the FDLP, either because of administrative challenges on our part or the inability of the Department of Education to process the substantial increase in direct loans, our results of operations and cash flows could be adversely and materially affected. Other policy and program changes in the Department of Education may present opportunities and challenges for our business, the scope and magnitude of which cannot now be determined.

• Opportunities to Expand into New Markets. We believe that there is a growing demand for high quality education outside the U.S. and that we have capabilities and expertise that can be useful in providing these services beyond our current reach. We believe we can deploy our key capabilities in student services, technology and marketing to expand into new markets to further our mission of providing high quality, accessible education. We intend to actively pursue quality opportunities to partner with and/or acquire existing institutions of higher learning where we believe we can achieve long-term attractive growth and value creation.

For a more detailed discussion of trends, risks and uncertainties, and our strategic plan, please refer to our 2008 Annual Report on Form 10-K.

Fiscal Year 2009 Highlights
During the first six months of fiscal year 2009, we experienced the following significant events:
1. Degreed Enrollment and New Degreed Enrollment Growth. We achieved 19.4% growth in average University of Phoenix Degreed Enrollment for the six months ended February 28, 2009 as compared to the six months ended February 29, 2008. University of Phoenix New Degreed Enrollment during the first six months of fiscal year 2009 increased 24.4% as compared to the first six months of fiscal year 2008. The enrollment growth is primarily attributable to continued investments in enhancing and expanding University of Phoenix service offerings and academic quality, which has attracted new students and increased student retention. We also believe that a portion of the increase in University of Phoenix Degreed Enrollment and New Degreed Enrollment is due to the current economic downturn, as working adults seek to advance their education to improve their job security or reemployment prospects.

2. Net Revenue Growth. Our net revenue increased 25.3% for the six months ended February 28, 2009 as compared to the six months ended February 29, 2008 primarily as a result of University of Phoenix Degreed Enrollment growth and selective tuition price increases.

3. Income from Operations Growth. Our income from operations increased 220.6%, or $352.9 million for the six months ended February 28, 2009 as compared to the six months ended February 29, 2008 primarily as a result of the securities litigation charge of $168.4 million in the six months ended February 29, 2008 and University of Phoenix net revenue growth described above and associated economies of scale for certain costs that remain relatively fixed. Excluding the securities litigation charge in the first six months ended February 29, 2008, our income from operations grew 56.2% for the six months ended February 28, 2009 as compared to the six months ended February 29, 2008.

4. Changes in Management and Addition of Directors. The following changes in management and addition of directors occurred during our second quarter of fiscal year 2009:

• On March 26, 2009, our Board of Directors promoted Joseph L. D'Amico to President and Chief Operating Officer, Brian L. Swartz to Senior Vice President, Chief Financial Officer and Treasurer, and Gregory J. Iverson to Vice President, Chief Accounting Officer and Controller. Mr. D'Amico had previously been serving as President and Chief Financial Officer, Mr. Swartz had previously been serving as Senior Vice President of Finance and Chief Accounting Officer, and Mr. Iverson had previously been serving as Vice President and Corporate Controller.

• On March 11, 2009, our Class B Shareholders reelected our existing ten incumbent directors to the Board of Directors and elected three additional directors: Terri C. Bishop, our Executive Vice President of External Affairs, and independent directors, Stephen J. Giusto and Manuel F. Rivelo.

• In December 2008, Diane Thompson resigned as Chief Human Resources Officer. On March 25, 2009, Frederick J. Newton commenced employment as Senior Vice President of Human Resources.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a detailed discussion of our critical accounting policies and estimates, please refer to our 2008 Annual Report on Form 10-K. Included below is an update for certain of our Critical Accounting Policies and Estimates as of February 28, 2009.
Goodwill
At February 28, 2009, our CFP reporting unit had goodwill of approximately $15.3 million, which is included in the Other Schools reportable segment. We perform our annual goodwill impairment test of CFP as of August 31. However, the current economic downturn has caused the demand for CFP's financial planning education programs and materials to diminish. As of February 28, 2009, given the current business climate and in accordance with our related accounting policy under Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," we evaluated and determined that the goodwill balance is not impaired. However, as more information becomes available we will further assess the carrying value of CFP's goodwill and may record an impairment charge in the future. We do not believe that the current economic downturn has had a significant long-term adverse impact on our other reporting units.

Allowance for Doubtful Accounts
The U.S. and much of the world economy are in the midst of an economic downturn. In accordance with our related accounting policy, we periodically evaluate our standard allowance estimation methodology for propriety and modify as necessary. As of February 28, 2009, we have considered the current credit and economic environment in our evaluation of our accounts receivable and related allowance for doubtful accounts. Accordingly, in accordance with our related accounting policy, we have recorded our best estimate of bad debt expense for the three and six months ended February 28, 2009, which includes consideration of the risk of collecting aged receivables given the current economic downturn.
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer to Note 2, Basis of Presentation, in Item 1, Financial Statements, for recent accounting pronouncements.
RESULTS OF OPERATIONS
We have included below a discussion of our operating results and significant items which explain the material changes in our operating results during the three and six months ended February 28, 2009 and February 29, 2008. Our operations are generally subject to seasonal trends. We experience, and expect to continue to experience, seasonal fluctuations in our results of operations as a result of changes in the level of student enrollments. While University of Phoenix enrolls students throughout the year, our net revenue generally is lower in the second quarter (December through February) than the other quarters due to holiday breaks in December and January. Certain other subsidiaries experience more significant seasonality, as they have limited enrollment during their respective summer breaks.
We categorize our operating expenses as instructional costs and services, selling and promotional, and general and administrative.
• Instructional costs and services - consist primarily of costs related to the delivery and administration of our educational programs and include costs related to faculty and administrative compensation, classroom lease expenses and depreciation, bad debt expense, financial aid processing costs and other related costs. Tuition costs for all employees and their eligible family members are recorded as an expense within instructional costs and services.

• Selling and promotional costs - consist primarily of compensation for enrollment counselors, management and support staff and corporate marketing, advertising expenses, production of marketing materials, and other costs directly related to selling and promotional functions. Selling and promotional costs are expensed when incurred.

• General and administrative costs - consist primarily of corporate compensation, occupancy costs, depreciation and amortization of property and equipment, legal and professional fees, and other related costs.

For the three months ended February 28, 2009 compared to the three months ended February 29, 2008
Analysis of Condensed Consolidated Statements of Operations The table below details our consolidated results of operations. For a more detailed discussion by reportable segment, refer to our Analysis of Operating Results by Segment.

Total costs and expenses 670.1 752.8 76.5 % 108.5 % (11.0 %)

Income (loss) from operations 206.0 (59.2 ) 23.5 % (8.5 %) 448.0 % Interest income and other, net 2.0 8.1 0.2 % 1.2 % (75.3 %)

Income (loss) before income taxes and
minority interest 208.0 (51.1 ) 23.7 % (7.3 %) 507.0 % (Provision for) benefit from income
taxes (83.0 ) 19.1 (9.5 %) 2.8 % (534.6 %) Minority interest, net of tax 0.3 - 0.0 % 0.0 % *

Net income (loss) $ 125.3 $ (32.0 ) 14.2 % (4.5 %) 491.6 %

Diluted income (loss) per share $ 0.77 $ (0.19 ) * * 505.3 %

* not meaningful

Net Revenue
Our net revenue increased $182.5 million, or 26.3%, in the second quarter of fiscal year 2009 compared to the second quarter of fiscal year 2008. University of Phoenix represented approximately 95% of our net revenue during this period, and contributed the majority of the increase primarily due to growth in Degreed Enrollment and selective tuition price increases. Net revenue also increased due to acquisitions by Apollo Global, which contributed $14.1 million in net revenue in the second quarter of fiscal year 2009. Instructional Costs and Services
Instructional costs and services increased $45.6 million, or 13.9%, in the second quarter of fiscal year 2009 compared to the second quarter of fiscal year 2008, which represented a 460 basis point decrease as a percentage of net revenue. The decrease as a percentage of net revenue is primarily due to University of Phoenix continuing to leverage its fixed costs, such as certain employee wages, classroom space and depreciation expense. This was partially offset by increases as a percentage of net revenue at Apollo Global and Insight Schools associated with their start-up, development and other infrastructure and support costs, as well as an increase as a percentage of net revenue in bad debt expense. Our bad debt expense was 4.1% of net revenue in the second quarter of fiscal year 2009 compared to 3.8% of net revenue in the second quarter of fiscal year 2008.
Selling and Promotional
Selling and promotional expenses increased $24.0 million, or 11.9%, in the second quarter of fiscal year 2009 compared to the second quarter of fiscal year 2008, which represented a 330 basis point decrease as a percentage of net revenue. The decrease as a percentage of net revenue is primarily due to University of Phoenix improved enrollment counselor effectiveness and improved employee retention. Additionally, investments we have made in our corporate marketing function have resulted in more effective advertising. General and Administrative
General and administrative expenses increased $16.1 million, or 29.3%, in the second quarter of fiscal year 2009 compared to the second quarter of fiscal year 2008, which represented a 20 basis point increase as a percentage of net revenue. The increase as a percentage of net revenue is primarily due to the expense resulting from our internal review of certain Satisfactory Academic Progress calculations. Please refer to Note 13, Commitments and Contingencies, in Item 1, Financial Statements, for further discussion of this matter.

Estimated Securities Litigation Loss
In connection with the securities class action matter, we recorded a charge for estimated damages of $168.4 million as a result of the jury verdict awarded in favor of the plaintiffs in the second quarter of fiscal year 2008. The original charge was recorded at the mid-point of the range of $120.5 million to $216.4 million. In the fourth quarter of fiscal year 2008, we reversed the estimated charge because the U.S. District Court for the District of Arizona vacated the earlier judgment and entered judgment in favor of Apollo. Please refer to Note 13, Commitments and Contingencies, in Item 1, Financial Statements, for further discussion of this matter. Interest Income and Other, Net
Interest income and other, net, consisted of the following in the periods indicated:

                                                  Three Months Ended
                                           February 28,        February 29,
                                               2009                2008
         ($ in millions)
         Interest income                   $         3.4       $         8.5
         Interest expense                           (0.6 )              (0.6 )
         Foreign currency and other, net            (0.8 )               0.2

         Interest income and other, net    $         2.0       $         8.1

The $5.1 million decrease in interest income was primarily due to lower interest rate yields, which was partially offset by increases in average cash and cash equivalents balances (including restricted) during the respective periods. (Provision for) Benefit from Income Taxes Our provision for income taxes for the three months ended February 28, 2009 was $83.0 million, or an effective tax rate of 39.9%. Our benefit from income taxes for the three months ended February 29, 2008 was $19.1 million, or an effective tax rate of 37.3%. The increase in our effective tax rate was primarily attributable to a reduction in tax-exempt interest income, an increase in certain non-deductible losses and an increase in state taxes.

Analysis of Operating Results by Segment The table below details our operating results by segment for the periods indicated:

                                                                      Three Months Ended
                                              February 28,          February 29,            $              %
($ in millions)                                   2009                  2008             Change          Change
Net revenue
University of Phoenix                         $       829.3        $        658.0        $ 171.3            26.0 %
Apollo Global                                          14.1                     -           14.1           100.0 %
Insight Schools                                         6.6                   3.0            3.6           120.0 %
Other Schools                                          25.6                  28.4           (2.8 )          (9.9 %)
Corporate(1)                                            0.5                   4.2           (3.7 )         (88.1 %)

Total net revenue                             $       876.1        $        693.6        $ 182.5            26.3 %


Income (loss) from operations
University of Phoenix                         $       230.1        $        129.2        $ 100.9            78.1 %
Apollo Global                                          (2.0 )                   -           (2.0 )        (100.0 %)
Insight Schools                                        (6.0 )                (2.7 )         (3.3 )        (122.2 %)
Other Schools                                          (1.3 )                 2.8           (4.1 )        (146.4 %)
Corporate(1)                                          (14.8 )              (188.5 )        173.7            92.1 %

Total income (loss) from operations           $       206.0        $        (59.2 )      $ 265.2           448.0 %

(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 the second quarter of fiscal year 2008 includes the $168.4 million charge associated with the securities class action matter.

University of Phoenix
The $171.3 million, or 26.0%, increase in net revenue in our University of Phoenix segment was primarily due to growth in its Degreed Enrollment as detailed below: