Apollo Group, Inc. Playing A Vital Role in educAting the World 2010 Annual Report Nearly 100,000 students graduated from University of Phoenix in fiscal 2010 Since 1973, Apollo Group has been creating opportunities for students and employees to reach their full potential, while enriching society as a whole. Today, Apollo Group continues to strengthen and capitalize on its position as a leading provider of high quality, accessible education for individuals around the world. Can the higher education system stand still when the world is changing around it? The economy And job mArkeT Are chAnGinG. STudents’ needS Are chAnGinG. The economy and labor force of today are much different from As job requirements have changed, so too have the needs of those of a century ago when much of the traditional higher students seeking access to higher education. The traditional profile education system was established and when the U.S. was still a of a college student—one who leaves home at age 18 to attend largely agrarian economy, or even several decades ago when it school full time with his or her parents providing financial support was the world’s manufacturing powerhouse. —is no longer the typical situation. Today, knowledge is the backbone of our global information-based According to the U.S. Department of Education National Center for economy, and the jobs of tomorrow increasingly require advanced Education Statistics, 73 percent of U.S. students are classified as skills training and education. If Americans do not have the skills nontraditional, meaning they have risk factors that make it more necessary to compete, jobs can now be more easily transported difficult to reach graduation. Many students today are going back across borders to other markets. As a result, more Americans to school later in life, working full or part time, raising children and than ever need a college degree and are seeking access to higher supporting themselves financially while trying to pursue a degree. education in order to remain competitive and advance in their These nontraditional students have historically been left behind or careers. However, despite this shift, currently only 35 percent of excluded from the traditional higher education system, as they American workers have achieved a four-year degree according to require additional flexibility and support services to successfully the U.S. Bureau of Labor Statistics, leaving over 80 million working complete their educational goals—flexibility and support services Americans who could potentially benefit from higher education. that accredited, degree-granting proprietary institutions can provide. Apollo Group is innovating to meet these changing needs. In today’s world we need on-demand, rapidly deployed, effective education. Today’s working learners need industry-adaptive faculty and curriculum—faculty who are active in their fields of instruction and teach curriculum that can be immediately applied in the workforce. Edu cational programs need to prepare students for today’s economy, not the economy of the past. Accredited, degree-granting proprietary colleges and universities serving nontraditional students, alongside the traditional public and private independent institutions, are essential to expanding capacity within the higher education system. demAndS for publIc reSourceS Are chAnginG. At Apollo Group, we believe that through our technological investment, advanced learning methodologies, and our These factors—a greater number of individuals now wanting to international reach we can dramatically accelerate the pursue a college degree and students having a higher number of innovation that is essential to transform higher education risk factors—are placing burdens on a higher education system throughout the world. We do this by providing flexible that was not built to accommodate the needs of nontraditional scheduling, a choice of online or campus-based classrooms, students. The higher education system must significantly expand small class sizes, degree programs relevant to today’s capacity to reach greater numbers of students and provide a workforce, faculty who have professional experience in higher level of academic and student support services in order their field of instruction, and high levels of student to successfully educate nontraditional students. support to help students succeed. These burdens come at a time when public funding for higher These adaptations and innovations have enabled education is under pressure and budgets and capacity are being Apollo Group to provide strong academic outcomes and cut at traditional schools. Delivering quality education at traditional career enhancement opportunities to students, as well as institutions generally relies upon a high fixed-cost, ground-based helping the global education system evolve from one that system of learning, and whether by design, or due to resource caters to a small, selective elite to one that addresses the constraints, the traditional higher education system is rigid and needs of a wider population in order to produce more inflexible. As such, the economics underlying the traditional broadly educated societies. Apollo Group is committed university system’s asset-intensive, high cost structure have been to leading the way in meeting the evolving needs of essentially unchanged over time. millions of nontraditional learners and producing the graduates necessary to achieve the world’s collective educational goals. Apollo Group is playing a leadership role in higher education, and we are proud of our heritage in helping to pioneer higher education for the working learner over 35 years ago, followed by the introduction of online education over 20 years ago. Apollo Group, Inc. was founded in response to a gradual shift in higher education demographics from a student population dominated by youth to a more diverse population, the majority of which are working adults. It began with the belief that the era of lifelong employment with a single employer was ending, and workers would have to become lifelong learners to stay competitive in the global economy. Lifelong learning requires an institution dedicated to meeting the educational needs of the working learner. Traditional colleges and universities are the backbone of the U.S. higher education system, but they alone cannot meet the country’s needs. This system, which is exclusive by design, was built to meet the needs of a different era when only a small portion of the nation’s workforce needed a college degree. Today’s globally competitive, knowledge-based economy requires a more broadly educated society. We believe innovation and new alternatives are required to adapt to our rapidly changing world. Accredited, degree-granting proprietary institutions play a critical role in the future of education. Apollo Group, Inc. 2010 Annual Report p.1 Letter to Our Shareholders Fiscal 2010 was a year of significant debate in the external environment surrounding the regulatory rulemaking process for the U.S. postsecondary education system, but it was also a year of tremendous progress for Apollo Group and our stakeholders, as we continued to execute on our long-term strategic plan. We are committed to strengthening and capitalizing on Apollo Group’s position as a leading provider of high quality, accessible education for individuals around the world. This means putting the student first as we focus on academic quality and the student experience. To that end, we are intensely focused on leveraging our core capabilities and expertise—developed over our 35-plus year history—to, first and foremost, maximize the long-term value of University of Phoenix, which is our top investment priority for Apollo Group, and then, to expand intelligently beyond University of Phoenix. FoR UnIveRsIty oF PhoenIx, thIs meAns: 1) Growing our business the right way by better identifying and attracting students who are willing to put in the effort to succeed and who we believe can benefit from our programs; 2) Delivering a high-value, energizing and compelling learning experience to our students through quality, convenient and relevant academic programs, engaging instruction, innovative content delivery, and student-centric services and protections; and 3) Increasing the efficiency of our operations through scalability and process innovation. Beyond University of Phoenix, one of our most exciting initiatives is the work we are doing to create a global education network through the educational institutions of Apollo Global. By leveraging the organizational knowledge, capabilities and systems resident at Apollo Group and applying that knowledge to our sister institutions, we have the opportunity to reach a broad population of students across the large and growing global education sector over the years to come. p.2 Apollo Group, Inc. 2010 Annual Report A year in review. In fiscal 2010, Apollo Group delivered consolidated revenue of $4.9 billion, a 25 percent increase over the prior year, and net income from continuing operations As a result of quality academic attributable to Apollo was $568.4 million, or $3.72 per diluted share. Importantly, it was a year programs, qualified faculty, and in which we made several key strategic decisions aimed at enhancing the student experience a comprehensive student and, over time, improving student outcomes. Implementation of several of these initiatives will experience, Apollo Group’s result in a period of transition but should position the Company for more sustainable growth schools