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Apollo Group Inc. Reports Fiscal 2004 Fourth Quarter and Year End Results.

PHOENIX -- Apollo Group Inc. (Nasdaq:APOL) today reported fiscal 2004 financial results for the fourth quarter and year ended Aug. 31, 2004.

Todd S. Nelson, CEO and chairman, said, "I am pleased to announce another strong quarter of earnings and enrollment growth with diluted earnings per share of $.52 (excluding non-cash expenses associated with the conversion of the UOPX tracking stock and the United States Department of Education settlement) and degree enrollment growth of 28% (including 14% growth at University of Phoenix local campuses and 50% growth at the University of Phoenix Online campus)." Nelson further commented, "During the fourth quarter we opened four new University of Phoenix campuses, which brings the total number of new campuses opened in fiscal 2004 to nine. Additionally, the board of directors recently authorized an additional $500 million in company funds to repurchase shares of APOL stock."

During the fourth quarter of fiscal 2004, we converted all outstanding shares of University of Phoenix Online common stock into shares of Apollo Education Group Class A common stock. The conversion resulted in a $114.2 million reduction to net income related to the premium paid to convert outstanding shares of University of Phoenix Online common stock to Apollo Education Group Class A common stock and a non-cash stock-based compensation charge of $123.5 million related to the conversion of University of Phoenix Online stock options into Apollo Education Group Class A stock options. In addition, we accrued $9.8 million related to the resolution of a United States Department of Education (ED) program review. Excluding these charges, net income attributed to Apollo Education Group common stock for the three months and year ended Aug. 31, 2004, was $93.1 million, or $.52 per diluted share, and $335.6 million, or $1.88 per diluted share, respectively.

Net income (loss) attributed to Apollo Education Group common stock (including the conversion of the UOPX tracking stock and the ED settlement referenced above) for the three months and year ended Aug. 31, 2004, was ($104.7 million), or ($.59) per diluted share and $137.8 million, or $.77 per diluted share, respectively, compared to $65.5 million, or $.37 per diluted share and $231.7 million, or $1.30 per diluted share, respectively, reported for the same periods last year.

Total consolidated revenues for Apollo Group Inc. for the three months ended Aug. 31, 2004, rose 32.7% to $492.8 million, compared with $371.3 million in the fourth quarter of fiscal 2003. The University of Phoenix accounted for 95.7% of the $457.9 million in net tuition revenues from students enrolled in degree programs for the quarter ended Aug. 31, 2004.

Total consolidated revenues for Apollo Group Inc. for the year ended Aug. 31, 2004, rose 34.3% to $1.80 billion, compared with $1.34 billion in the same period last year. The University of Phoenix accounted for 95.5% of the $1.68 billion in net tuition revenues from students enrolled in degree programs for the year ended Aug. 31, 2004.

Net cash provided by operating activities for Apollo Group Inc. for the three months ended Aug. 31, 2004, was $127.0 million, compared to $94.4 million for the three months ended Aug. 31, 2003. Net additions to property and equipment for Apollo Group Inc. (excluding the purchase and sale of land and buildings related to future Online expansion) for the three months ended Aug. 31, 2004, were $28.7 million, compared to $14.7 million for the three months ended Aug. 31, 2003.

Net cash provided by operating activities for Apollo Group Inc. for the year ended Aug. 31, 2004, was $513.4 million, compared to $343.0 million for the year ended Aug. 31, 2003. Net additions to property and equipment for Apollo Group Inc. (excluding the purchase and sale of land and buildings related to future Online expansion) for the year ended Aug. 31, 2004, were $80.3 million, compared to $55.8 million for the year ended Aug. 31, 2003.

Consolidated degree enrollments for all of the Apollo Group Inc. institutions at Aug. 31, 2004, increased by 28% to 255,600 students compared to 200,100 students at Aug. 31, 2003. Degree enrollments at The University of Phoenix (excluding University of Phoenix Online) were 108,900 students at Aug. 31, 2004, compared to 95,600 students at Aug. 31, 2003, representing a 14% increase. Degree enrollments for University of Phoenix Online at Aug. 31, 2004, increased by 50% to 118,900 students compared to 79,400 students at Aug. 31, 2003.

Business Outlook

Apollo Group Inc.

--We expect revenue for the quarter ending Nov. 30, 2004, to be between $529 million and $532 million and to be between $2.285 billion and $2.288 billion for fiscal 2005.

--Operating margin is expected to be between 32.5% and 33.0% for the quarter ending Nov. 30, 2004, and to be between 32.5% and 33.0% for fiscal 2005.

Diluted earnings per share are expected to be $.56 for the quarter ending Nov. 30, 2004. Excluding non-cash stock-based compensation charges related to the conversion in 2004 of University of Phoenix Online stock options into Apollo Education Group Class A stock options anticipated to occur when the options vest in the fourth quarter of fiscal 2005, diluted earnings per share are expected to be $2.40 for fiscal 2005.

We expect degree enrollments at local campuses to grow between 12% and 13% over the prior year at the end of the first quarter of fiscal 2005. In addition, we expect online degree enrollments to grow in excess of 40% over the prior year at the end of the first quarter of fiscal 2005.

The company will hold a conference call to discuss these earnings results at 4:30 p.m. Eastern time, 1:30 p.m. Phoenix time, on Tuesday, Oct. 5, 2004. The call may be accessed by dialing 877-292-6888 (domestic) or 706-634-1393 (internationally). The conference ID number is 210973. A live webcast of this event may be accessed by visiting the company Web site at www.apollogrp.edu. A replay of the call will be available on our Web site or at 706-645-9291 (conf. ID #210973) until Oct. 29, 2004.

Apollo Group Inc. has been providing higher education programs to working adults for more than 25 years. Apollo Group Inc. operates through its subsidiaries The University of Phoenix Inc., Institute for Professional Development, The College for Financial Planning Institutes Corp., and Western International University Inc. The consolidated enrollment in its educational programs makes it the largest private institution of higher education in the United States. It offers educational programs and services at 82 campuses and 137 learning centers in 39 states, Puerto Rico and Vancouver, British Columbia. Combined degree enrollment was 255,600 students as of Aug. 31, 2004.

For more information about Apollo Group Inc. and its subsidiaries, call 800-990-APOL or visit Apollo on the company Web site at www.apollogrp.edu.

This press release includes statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Apollo Group Inc. claims the protection of the safe-harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are often characterized by the terms "may," "believes," "projects," "expects," or "anticipates," and do not reflect historical facts. Specific forward-looking statements contained in this press release relate, among other matters, to the business outlook of Apollo Group Inc. and University of Phoenix Online.

Forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of Apollo Group Inc. and University of Phoenix Online to be materially different from those expressed or implied by such forward-looking statements. Factors that could affect Apollo Group Inc.'s or University of Phoenix Online's results and cause them to materially differ from those contained in the forward-looking statements include:

--the failure to maintain or renew required regulatory approvals, accreditation or state authorizations;

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

--the failure to obtain the Higher Learning Commission's approval for University of Phoenix to operate in new states;

--any adverse changes in student enrollment;

--risk factors and cautionary statements made in Apollo Group Inc.'s Annual Report on Form 10-K for the period ended Aug. 31, 2003; and

--other factors that Apollo Group is currently unable to identify or quantify, but may arise or become known in the future.

These forward-looking statements are based on estimates, projections, beliefs, and assumptions of Apollo Group Inc. and its management and speak only as of the date made and are not guarantees of future performance. Apollo Group Inc. undertakes no obligation to publicly update or revise any forward-looking statements, or any facts, events or circumstances after the date hereof that may bear upon forward-looking statements. You are advised, however, to consult any further disclosures Apollo Group Inc. makes in its reports filed with the Securities and Exchange Commission.
APOLLO GROUP INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENT OF OPERATIONS AND OPERATING DATA
 (Dollars in thousands, except per share amounts)


 For the Three Months Ended For the Year Ended
 Aug. 31, Aug. 31,
 2004 2003 2004 2003
 -------------------- -----------------------
 (Unaudited)
Revenues:
 Tuition and other, net $492,753 $371,273 $1,798,423 $1,339,517
 ---------- --------- ----------- -----------
Costs and expenses:
 Instructional costs and
 services 213,478 168,243 765,495 612,940
 Selling and promotional 110,762 76,547 383,078 272,348
 General and
 administrative 24,546 17,106 88,090 66,970
 Stock-based compensation 123,535 123,535
 ---------- --------- ----------- -----------
 472,321 261,896 1,360,198 952,258
 ---------- --------- ----------- -----------
Income from operations 20,432 109,377 438,225 387,259
Interest income and other,
 net 4,646 3,649 18,263 14,545
 ---------- --------- ----------- -----------
Income before income taxes 25,078 113,026 456,488 401,804
Provision for income taxes 9,414 42,648 178,714 154,794
 ---------- --------- ----------- -----------
Net income $15,664 $70,378 $277,774 $247,010
 ========== ========= =========== ===========

Income (loss) attributed to
 Apollo Education Group
 common stock:
Net income $15,664 $70,378 $277,774 $247,010
Stock dividends paid (114,155) (114,155)
Income attributed to
 University of Phoenix
 Online common
 shareholders (6,210) (4,869) (25,819) (15,308)
 ---------- --------- ----------- -----------
Income (loss) attributed
 to Apollo Education Group
 common shareholders $(104,701) $65,509 $137,800 $231,702
 ========== ========= =========== ===========

Income attributed to
 University of Phoenix
 Online common stock:
Net income $6,210 $4,869 $25,819 $15,308
Stock dividends paid 114,155 114,155
 ---------- --------- ----------- -----------
Income attributed to
 University of Phoenix
 Online common
 shareholders $120,365 $4,869 $139,974 $15,308
 ========== ========= =========== ===========

Earnings (loss) per share
 attributed to Apollo
 Education Group common
 stock:

Diluted net income (loss)
 per share $(0.59) $0.37 $0.77 $1.30
 ========== ========= =========== ===========
Diluted weighted average
 shares outstanding 178,577 178,426 178,897 177,637
 ========== ========= =========== ===========

Earnings per share attributed
 to University of Phoenix
 Online common stock:

Diluted net income per
 share $7.18 $0.29 $8.19 $0.93
 ========== ========= =========== ===========
Diluted weighted average
 shares outstanding 16,763 16,949 17,081 16,518
 ========== ========= =========== ===========

 At Aug. 31,
 2004 2003
 --------------------
OPERATING DATA
Students enrolled in
 degree programs 255,600 200,100
 ========== =========
Number of locations:
Campuses 82 71
Learning Centers 137 121
 ---------- ---------
 219 192
 ========== =========


 APOLLO GROUP INC. AND SUBSIDIARIES
 PRO FORMA ADJUSTED EARNINGS PER SHARE
 (Dollars in thousands, except per share amounts)

 For the Three Months For the Year
 Ended Ended
 Aug. 31, Aug. 31,
 2004 2003 2004 2003
 ------------------- -------------------

 Adjusted income available to common
 shareholders

GAAP income (loss) attributed
 to Apollo Education Group
 common shareholders $(104,701) $65,509 $137,800 $231,702
GAAP income attributed to
 University of Phoenix Online
 common shareholders 6,210 4,869 25,819 15,308
Stock dividends paid 114,155 114,155
 ---------- -------- --------- ---------
GAAP net income 15,664 70,378 277,774 247,010
Department of Education
 settlement 9,800 9,800
Stock-based compensation (net
 of tax) 74,379 74,379
 ---------- -------- --------- ---------
Pro forma net income $99,843 $70,378 $361,953 $247,010
 ========== ======== ========= =========

Income available to common
 shareholders attributed to:
Apollo Education Group common
 stock $93,071 $65,509 $335,572 $231,702
 ========== ======== ========= =========
University of Phoenix Online
 common stock $6,772 $4,869 $26,381 $15,308
 ========== ======== ========= =========

 Pro Forma Adjusted Earnings
 Per Share

GAAP diluted net income (loss)
 per share - Apollo Education
 Group common stock $(0.59) $0.37 $0.77 $1.30
Stock dividends paid 0.64 0.64
Department of Education
 settlement 0.05 0.05
Stock-based compensation (net
 of tax) 0.42 0.42
 ---------- -------- --------- ---------
Pro forma diluted net income
 per share - Apollo Education
 Group common stock $0.52 $0.37 $1.88 $1.30
 ========== ======== ========= =========

Diluted weighted average shares
 outstanding 178,577 178,426 178,897 177,637
 ========== ======== ========= =========


To supplement our consolidated financial statements presented in accordance with Generally Accepted Accounting Principles ("GAAP"), the Company used non-GAAP measures of pro forma net income and pro forma diluted earnings per share, which are adjusted from our GAAP results as shown above. These non-GAAP adjustments are provided to enhance the user's overall understanding of our current financial performance. We believe the non-GAAP results provide useful information to both management and investors by excluding certain charges and other amounts that we believe are not indicative of our core operating results. These non-GAAP measures are included to provide investors and management with an alternative method for assessing the Company's operating results in a manner that is focused on the performance of the Company's ongoing operations and to provide a more consistent basis for comparison between quarters. These measures are not in accordance with or an alternative for, GAAP and may be different from pro forma measures used by other companies. The difference between the GAAP amounts and the pro forma amounts is the result of the following special items recorded in the fourth quarter of fiscal 2004:

Stock dividends paid and stock-based compensation - The conversion of University of Phoenix Online common stock on August 27, 2004 required us to adjust GAAP income by the premium paid to convert outstanding shares of University of Phoenix Online common stock to Apollo Education Group Class A common stock and to record a stock-based compensation charge related to the conversion of University of Phoenix Online stock options into Apollo Education Group Class A stock options.

As required by Statement of Financial Accounting Standards No. 128 "Earnings per Share," we reduced net income attributable to Apollo Education Group common stock in the fourth quarter of fiscal 2004 by approximately $114 million related to the non-cash 10% premium paid to redeem the University of Phoenix Online common stock. The amount of the reduction to net income attributable to Apollo Education Group common stock was calculated based on the number of shares of University of Phoenix Online common stock outstanding and converted on August 27, 2004. This non-cash premium is included on the Consolidated Statement of Operations as stock dividends paid.

As required by Emerging Issues Task Force No. 00-23 "Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44," we expect to recognize approximately $147 million of non-cash pre-tax stock-based compensation expense related to the conversion of University of Phoenix Online stock options into Apollo Education Group Class A stock options. We recognized approximately $124 million of the pre-tax stock-based compensation expense in the fourth quarter of fiscal 2004 and will recognize the remaining $23 million as the options vest through 2006.

Department of Education settlement - In the fourth quarter of fiscal 2004 we accrued $9.8 million related to the resolution of a United States Department of Education program review.
APOLLO GROUP INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEET
 (Dollars in thousands)

 Aug. 31, Aug. 31,
 2004 2003
 ----------- -----------
 (Unaudited)
Assets:
Current assets
 Cash and cash equivalents $244,519 $416,452
 Restricted cash 184,463 147,616
 Marketable securities 248,343 235,962
 Receivables, net 146,497 123,728
 Deferred tax assets, net 10,020 9,098
 Income taxes receivable 842
 Other current assets 20,842 16,545
 ----------- -----------
Total current assets 854,684 950,243
Property and equipment, net 169,377 119,057
Marketable securities 316,743 245,772
Cost in excess of fair value of assets
 purchased, net 37,096 37,096
Deferred tax assets, net 47,520 1,155
Other assets 26,853 24,881
 ----------- -----------
Total assets $1,452,273 $1,378,204
 =========== ===========
Liabilities and Shareholders' Equity:
Current liabilities
 Current portion of long-term liabilities $3,186 $3,231
 Accounts payable 50,895 29,314
 Accrued liabilities 69,481 49,525
 Income taxes payable 11,856
 Student deposits and current portion of
 deferred revenue 330,020 253,153
 ----------- -----------
Total current liabilities 465,438 335,223
Deferred tuition revenue, less current portion 528 942
Long-term liabilities, less current portion 29,166 15,114
 ----------- -----------
Total liabilities 495,132 351,279
 ----------- -----------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par value, 1,000,000
 shares authorized; none issued
Apollo Education Group Class A nonvoting
 common stock, no par value, 400,000,000
 shares authorized; 187,567,000 and
 175,286,000 issued and outstanding at
 August 31, 2004 and 2003, respectively 103 103
Apollo Education Group Class B voting common
 stock, no par value, 3,000,000 shares
 authorized; 477,000 issued and outstanding
 at Aug. 31, 2004 and 2003 1 1
University of Phoenix Online nonvoting common
 stock, no par value, 400,000,000 shares
 authorized; 15,659,000 issued and outstanding
 at Aug. 31, 2003
Additional paid-in capital 28,787 293,650
Apollo Education Group Class A treasury stock,
 at cost, 2,103,000 shares at Aug. 31, 2003 (27,100)
University of Phoenix Online treasury stock,
 at cost, 86,000 shares at Aug. 31, 2003 (4,601)
Retained earnings 928,815 765,196
Accumulated other comprehensive loss (565) (324)
 ----------- -----------
Total shareholders' equity 957,141 1,026,925
 ----------- -----------
Total liabilities and shareholders' equity $1,452,273 $1,378,204
 =========== ===========


 APOLLO GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENT OF CASH FLOWS
 (in thousands)

 Year Ended Aug. 31,
 2004 2003
 --------- ---------
 (Unaudited)
Cash flows provided by (used for) operating
 activities:
Net income $277,774 $247,010
Adjustments to reconcile net income to net cash
 provided by operating activities:
 Stock-based compensation expense 123,535
 Depreciation and amortization 41,641 40,305
 Amortization of investment premiums 6,121 5,192
 Provision for uncollectible accounts 26,877 20,746
 Deferred income taxes (47,287) 2,224
 Tax benefits of stock options exercised 39,590 46,374
 Increase in assets:
 Restricted cash (36,847) (47,364)
 Receivables (49,646) (45,192)
 Other assets (3,822) (4,246)
 Increase in liabilities:
 Accounts payable and accrued liabilities 53,393 8,532
 Student deposits and deferred revenue 76,453 66,771
 Other liabilities 5,571 2,685
 --------- ---------
Net cash provided by operating activities 513,353 343,037
 --------- ---------
Cash flows provided by (used for) investing
 activities:
 Net additions to property and equipment (80,324) (55,812)
 Purchase of land and buildings related to future
 Online expansion (33,003)
 Proceeds from sale-leaseback of Online buildings 31,278
 Purchase of marketable securities (457,185) (525,101)
 Maturities of marketable securities 367,712 331,341
 Purchase of other assets (3,081) (2,198)
 --------- ---------
Net cash used for investing activities (174,603) (251,770)
 --------- ---------
Cash flows provided by (used for) financing
 activities:
 Purchase of Apollo Education Group Class A
 common stock (443,500) (6,185)
 Issuance of Apollo Education Group Class A
 common stock 36,183 31,649
 Purchase of University of Phoenix Online
 common stock (117,996) (6,613)
 Issuance of University of Phoenix Online
 common stock 14,871 16,124
 Payments on long-term debt (4,600)
 --------- ---------
Net cash provided by (used for) financing
 activities (510,442) 30,375
 --------- ---------
Currency translation gain (loss) (241) (427)
 --------- ---------
Net increase (decrease) in cash and cash
 equivalents (171,933) 121,215
Cash and cash equivalents at beginning of year 416,452 295,237
 --------- ---------
Cash and cash equivalents at end of year $244,519 $416,452
 ========= =========


 APOLLO GROUP, INC. AND SUBSIDIARIES
 DEGREE ENROLLMENTS

 Aug. 31,
 2004 2003
 -----------------
University of Phoenix:
 Campuses established prior to August 1999 205,757 160,681
 Campuses established after August 1999 22,003 14,258
 -------- --------
Total University of Phoenix 227,760 174,939
 -------- --------

Institute for Professional Development 24,123 22,348
Western International University 2,269 2,035
College for Financial Planning 1,491 730
 -------- --------
Total Degree Enrollment 255,643 200,052
 ======== ========


This press release includes statements which may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This information may involve risk and uncertainties that could cause actual results to differ materially from the forward-looking statements.
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