UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended:  May 31, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
Commission File Number:  0-25232
APOLLO EDUCATION GROUP, INC.
(Exact name of registrant as specified in its charter)

ARIZONA
(State or other jurisdiction of incorporation or organization)
86-0419443
(I.R.S. Employer Identification No.)

4025 S. RIVERPOINT PARKWAY, PHOENIX, ARIZONA 85040
(Address of principal executive offices)
(480) 966-5394
(Registrant’s telephone number, including area code)
 
 
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  þ      NO  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  þ      NO  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ
Accelerated filer  o
Non-accelerated filer  o
(Do not check if smaller reporting company)
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES  o      NO  þ
As of July 5, 2016, there were 108,305,152 shares of Apollo’s Class A common stock outstanding and 475,149 shares of Apollo’s Class B common stock outstanding.
 



APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 2016
TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 2


Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact may be forward-looking statements. Such forward-looking statements include, among others, those statements regarding future events and future results of Apollo Education Group, Inc. that are based on current expectations, estimates, forecasts, and the beliefs and assumptions of us and our management, and speak only as of the date made and are not guarantees of future performance or results. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “predict,” “target,” “potential,” “continue,” “objectives,” or the negative of these terms or other comparable terminology. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties. Such statements should be viewed with caution. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to:
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, of our Annual Report on Form 10-K for the year ended August 31, 2015 , under “Accreditation and Jurisdictional Authorizations,” “Financial Aid Programs” and “Regulatory Environment;”
The impact and effectiveness of the initiatives to transform University of Phoenix into a more focused, higher retaining and less complex institution, as discussed in Item 1, Business, of our Annual Report on Form 10-K for the year ended August 31, 2015 , under “University of Phoenix;”
Each of the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended August 31, 2015 and Part II, Item 1A, Risk Factors, in this Form 10-Q; and
Those factors set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended August 31, 2015 and Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Form 10-Q.
The cautionary statements referred to above also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements for any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
In this report, we refer to Apollo Education Group, Inc. as “the Company,” “Apollo Education Group,” “Apollo,” “APOL,” “we,” “us” or “our.”

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 3


Introductory Note Regarding Pending Merger
On February 7, 2016, we entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with AP VIII Queso Holdings, L.P., an affiliate of Apollo Management VIII, L.P., which is a fund managed by an affiliate of Apollo Global Management, LLC, none of which is, or has ever been, affiliated with us. At the effective time of the merger, which is expected to be completed by the end of calendar year 2016, each share of our issued and outstanding Class A and Class B common stock will be converted pursuant to the terms of the Merger Agreement into the right to receive $10.00 per share in cash. On May 6, 2016, the Merger Agreement was approved by the holders of our outstanding Class A and Class B common stock, each voting separately as a class. Consummation of the merger is subject to various regulatory and customary approvals, and operating and other conditions. See Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations , Pending Merger, for additional information on the Merger Agreement and the pending merger.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 4


Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
As of
($ in thousands)
May 31,
2016
 
August 31,
2015
ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
361,526

 
$
503,705

Restricted cash and cash equivalents
185,320

 
198,369

Marketable securities
242,301

 
194,676

Accounts receivable, net
193,477

 
198,459

Prepaid taxes
29,165

 
38,371

Other current assets
53,201

 
48,823

Assets of business held for sale

 
40,897

Total current assets
1,064,990

 
1,223,300

Marketable securities
39,323

 
95,815

Property and equipment, net
343,094

 
370,281

Goodwill
265,765

 
247,190

Intangible assets, net
200,756

 
143,244

Deferred taxes
93,772

 
92,105

Other assets
29,926

 
29,129

Total assets
$
2,037,626

 
$
2,201,064

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
Current liabilities:
 

 
 

Short-term borrowings and current portion of long-term debt
$
19,514

 
$
14,080

Accounts payable
56,297

 
64,100

Student deposits
213,986

 
245,470

Deferred revenue
185,025

 
186,950

Accrued and other current liabilities
248,863

 
280,847

Liabilities of business held for sale

 
40,897

Total current liabilities
723,685

 
832,344

Long-term debt
42,597

 
31,566

Deferred taxes
16,924

 
7,729

Other long-term liabilities
182,491

 
172,452

Total liabilities
965,697

 
1,044,091

Commitments and contingencies


 


Redeemable noncontrolling interests
7,204

 
11,915

Shareholders’ equity:
 

 
 

Preferred stock, no par value

 

Apollo Class A nonvoting common stock, no par value
103

 
103

Apollo Class B voting common stock, no par value
1

 
1

Additional paid-in capital

 

Apollo Class A treasury stock, at cost
(3,915,279
)
 
(3,928,419
)
Retained earnings
5,061,631

 
5,153,452

Accumulated other comprehensive loss
(82,286
)
 
(80,579
)
Total Apollo shareholders’ equity
1,064,170

 
1,144,558

Noncontrolling interests
555

 
500

Total equity
1,064,725

 
1,145,058

Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
2,037,626

 
$
2,201,064

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of this statement.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 5


APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
(In thousands, except per share data)
2016
 
2015
 
2016
 
2015
Net revenue
$
558,002

 
$
676,358

 
$
1,609,371

 
$
1,965,986

Costs and expenses:
 
 
 
 
 
 
 
Instructional and student advisory
274,486

 
294,841

 
836,453

 
907,348

Marketing
87,530

 
116,839

 
279,128

 
369,120

Admissions advisory
30,192

 
52,994

 
94,500

 
167,919

General and administrative
59,066

 
64,437

 
192,300

 
206,215

Depreciation and amortization
28,330

 
29,969

 
82,478

 
95,705

Provision for uncollectible accounts receivable
15,716

 
13,005

 
43,812

 
42,372

Restructuring and impairment charges
22,366

 
11,444

 
149,578

 
52,722

Merger, acquisition and other related costs (credit), net
8,317

 
(455
)
 
25,188

 
4,506

Litigation charge

 

 

 
100

Total costs and expenses
526,003

 
583,074

 
1,703,437

 
1,846,007

Operating income (loss)
31,999

 
93,284

 
(94,066
)
 
119,979

Interest income
1,041

 
762

 
2,883

 
2,091

Interest expense
(1,569
)
 
(1,715
)
 
(4,997
)
 
(5,116
)
Other loss, net
(273
)
 
(2,038
)
 
(2,229
)
 
(4,480
)
Income (loss) from continuing operations before income taxes
31,198

 
90,293

 
(98,409
)
 
112,474

Provision for income taxes
(11,399
)
 
(40,667
)
 
(3,796
)
 
(53,797
)
Income (loss) from continuing operations
19,799

 
49,626

 
(102,205
)
 
58,677

Loss from discontinued operations, net of tax

 
(2,186
)
 
(3,259
)
 
(14,906
)
Net income (loss)
19,799

 
47,440

 
(105,464
)
 
43,771

Net loss attributable to noncontrolling interests
945

 
624

 
5,047

 
4,468

Net income (loss) attributable to Apollo
$
20,744

 
$
48,064

 
$
(100,417
)
 
$
48,239

Earnings (loss) per share - Basic:
 
 
 
 
 
 
 
Continuing operations attributable to Apollo
$
0.19

 
$
0.47

 
$
(0.89
)
 
$
0.59

Discontinued operations attributable to Apollo

 
(0.02
)
 
(0.03
)
 
(0.14
)
Basic income (loss) per share attributable to Apollo
$
0.19

 
$
0.45

 
$
(0.92
)
 
$
0.45

Earnings (loss) per share - Diluted:
 
 
 
 
 
 
 
Continuing operations attributable to Apollo
$
0.19

 
$
0.46

 
$
(0.89
)
 
$
0.58

Discontinued operations attributable to Apollo

 
(0.02
)
 
(0.03
)
 
(0.14
)
Diluted income (loss) per share attributable to Apollo
$
0.19

 
$
0.44

 
$
(0.92
)
 
$
0.44

Basic weighted average shares outstanding
108,658

 
107,678

 
108,567

 
108,140

Diluted weighted average shares outstanding
109,444

 
108,623

 
108,567

 
109,124

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of this statement.


Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 6


APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Net income (loss)
$
19,799

 
$
47,440

 
$
(105,464
)
 
$
43,771

Other comprehensive income (loss) (net of tax):
 
 
 
 
 
 
 
Currency translation adjustment
8,726

 
(6,931
)
 
(2,794
)
 
(44,923
)
Change in fair value of available-for-sale securities (1)
136

 
49

 
89

 
290

Comprehensive income (loss)
28,661

 
40,558

 
(108,169
)
 
(862
)
Comprehensive loss attributable to noncontrolling interests
667

 
2,157

 
6,045

 
16,498

Comprehensive income (loss) attributable to Apollo
$
29,328

 
$
42,715

 
$
(102,124
)
 
$
15,636

(1) The tax effect during the three and nine months ended May 31, 2016 and 2015 , respectively, was not significant.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of this statement.


Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 7


APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Unaudited)

 
Common Stock
 
Additional
Paid-in
Capital
 
Apollo Class A
Treasury Stock
 
Retained
Earnings
 
Accumulated Other
Comprehensive Loss
 
Total Apollo
Shareholders’ Equity
 
Noncontrolling
Interests
 
Total
Equity
 
 
Redeemable Noncontrolling Interests
 
Class A Nonvoting
 
Class B Voting
 
 
 
 
 
 
 
 
 
 
Shares
 
Stated
Value
 
Shares
 
Stated
Value
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
Shares
 
Cost
 
 
 
 
 
 
 
Balance as of August 31, 2015
188,007

 
$
103

 
475

 
$
1

 
$

 
80,082

 
$
(3,928,419
)
 
$
5,153,452

 
$
(80,579
)
 
$
1,144,558

 
$
500

 
$
1,145,058

 
 
$
11,915

Share repurchases

 

 

 

 

 
91

 
(732
)
 

 

 
(732
)
 

 
(732
)
 
 

Share reissuances

 

 

 

 
(23,219
)
 
(359
)
 
13,872

 
9,985

 

 
638

 

 
638

 
 

Net tax effect for stock incentive plans

 

 

 

 
(4,099
)
 

 

 

 

 
(4,099
)
 

 
(4,099
)
 
 

Share-based compensation

 

 

 

 
27,318

 

 

 

 

 
27,318

 

 
27,318

 
 

Currency translation adjustment

 

 

 

 

 

 

 

 
(1,796
)
 
(1,796
)
 
(49
)
 
(1,845
)
 
 
(949
)
Available-for-sale securities adjustment, net of tax

 

 

 

 

 

 

 

 
89

 
89

 

 
89

 
 

Redemption value adjustments

 

 

 

 

 

 

 
(1,389
)
 

 
(1,389
)
 

 
(1,389
)
 
 
1,389

Net (loss) income

 

 

 

 

 

 

 
(100,417
)
 

 
(100,417
)
 
104

 
(100,313
)
 
 
(5,151
)
Balance as of May 31, 2016
188,007

 
$
103

 
475

 
$
1

 
$

 
79,814

 
$
(3,915,279
)
 
$
5,061,631

 
$
(82,286
)
 
$
1,064,170

 
$
555

 
$
1,064,725

 
 
$
7,204

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of August 31, 2014
188,007

 
$
103

 
475

 
$
1

 
$

 
79,585

 
$
(3,936,607
)
 
$
5,143,949

 
$
(27,320
)
 
$
1,180,126

 
$
676

 
$
1,180,802

 
 
$
64,527

Share repurchases

 

 

 

 

 
1,549

 
(40,700
)
 

 

 
(40,700
)
 

 
(40,700
)
 
 

Share reissuances

 

 

 

 
(27,593
)
 
(352
)
 
14,590

 
13,998

 

 
995

 

 
995

 
 

Net tax effect for stock incentive plans

 

 

 

 
(3,839
)
 

 

 

 

 
(3,839
)
 

 
(3,839
)
 
 

Share-based compensation

 

 

 

 
29,768

 

 

 

 

 
29,768

 

 
29,768

 
 

Currency translation adjustment

 

 

 

 

 

 

 

 
(32,893
)
 
(32,893
)
 
(55
)
 
(32,948
)
 
 
(11,975
)
Available-for-sale securities adjustment, net of tax

 

 

 

 

 

 

 

 
290

 
290

 

 
290

 
 

Acquisition

 

 

 

 

 

 

 

 

 

 

 

 
 
3,437

Redemption value adjustments

 

 

 

 

 

 

 
(4,948
)
 

 
(4,948
)
 

 
(4,948
)
 
 
4,948

Net income (loss)

 

 

 

 

 

 

 
48,239

 

 
48,239

 
124

 
48,363

 
 
(4,592
)
Other

 

 

 

 
1,664

 

 

 

 

 
1,664

 

 
1,664

 
 

Balance as of May 31, 2015
188,007

 
$
103

 
475

 
$
1

 
$

 
80,782

 
$
(3,962,717
)
 
$
5,201,238

 
$
(59,923
)
 
$
1,178,702

 
$
745

 
$
1,179,447

 
 
$
56,345

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of this statement.


Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 8


APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
Operating activities:
 

 
 

Net (loss) income
$
(105,464
)
 
$
43,771

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Share-based compensation
27,318

 
29,768

Excess tax benefits from share-based compensation

 
(236
)
Depreciation and amortization
82,478

 
101,779

Accelerated depreciation included in restructuring
12,262

 
7,207

Impairment charges and loss on asset dispositions
76,470

 
22,228

Non-cash foreign currency loss, net
492

 
1,722

Provision for uncollectible accounts receivable
43,812

 
42,372

Deferred income taxes
(6,175
)
 
(12,471
)
Changes in assets and liabilities, excluding the impact of acquisitions:
 
 
 

Restricted cash and cash equivalents
13,567

 
5,529

Accounts receivable
(37,296
)
 
(51,555
)
Prepaid taxes
8,104

 
21,038

Other assets
(684
)
 
(1,974
)
Accounts payable
(8,872
)
 
7,753

Student deposits
(32,002
)
 
(25,918
)
Deferred revenue
(28,564
)
 
22,677

Accrued and other liabilities
(35,813
)
 
(89,987
)
Net cash provided by operating activities
9,633

 
123,703

Investing activities:
 

 
 

Purchases of property and equipment
(51,414
)
 
(74,254
)
Purchases of marketable securities
(203,504
)
 
(156,465
)
Maturities and sales of marketable securities
208,360

 
156,337

Acquisitions, net of cash acquired
(101,196
)
 
(21,166
)
Other investing activities
(727
)
 
(14,216
)
Net cash used in investing activities
(148,481
)
 
(109,764
)
Financing activities:
 

 
 

Payments on borrowings
(63,785
)
 
(605,214
)
Proceeds from borrowings
56,961

 
4,515

Share repurchases
(732
)
 
(40,700
)
Share reissuances
638

 
995

Excess tax benefits from share-based compensation

 
236

Payment for contingent consideration

 
(21,371
)
Net cash used in financing activities
(6,918
)
 
(661,539
)
Exchange rate effect on cash and cash equivalents
3,587

 
(3,991
)
Net decrease in cash and cash equivalents
(142,179
)
 
(651,591
)
Cash and cash equivalents, beginning of period
503,705

 
1,228,813

Cash and cash equivalents, end of period
$
361,526

 
$
577,222

Supplemental disclosure of cash flow and non-cash information (1) :
 

 
 

Cash paid for income taxes, net of refunds
$
1,144

 
$
36,545

Cash paid for interest
5,081

 
5,134

Restricted stock units vested and released
2,083

 
7,407

(1) Refer to Note 4 , Acquisitions , for liabilities assumed in acquisitions.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of this statement.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 9


APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 10

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 . Nature of Operations and Significant Accounting Policies
Apollo Education Group, Inc. is one of the world’s largest private education providers, serving students since 1973. We offer undergraduate, graduate, certificate and nondegree educational programs and services, online and on-campus, principally to working learners in the U.S. and abroad. Refer to Note 17 , Segment Reporting , for further information regarding our institutions and operating segments. Our fiscal year is from September 1 to August 31.
On February 7, 2016, we entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with AP VIII Queso Holdings, L.P., an affiliate of Apollo Management VIII, L.P., which is a fund managed by an affiliate of Apollo Global Management, LLC, none of which is, or has ever been, affiliated with us. At the effective time of the merger, which is expected to be completed by the end of calendar year 2016, each share of our issued and outstanding Class A and Class B common stock will be converted pursuant to the terms of the Merger Agreement into the right to receive $10.00 per share in cash. On May 6, 2016, the Merger Agreement was approved by the holders of our outstanding Class A and Class B common stock, each voting separately as a class.
Consummation of the merger is subject to customary and other conditions, including:
(i)
the receipt of consents or approvals from certain federal, state and foreign educational governing bodies, including the Higher Learning Commission; and
(ii)
the absence of certain conditions or restrictions in the response of the U.S. Department of Education to the pre-acquisition review application filed by University of Phoenix.
In addition, consummation of the merger is subject to our satisfying certain minimum operating metrics, measured as of the first or second month end preceding the closing date, depending on the day of the month on which closing occurs, as follows:
(i)
Our aggregate cash, cash equivalents and marketable securities must not be less than the specified amount for the applicable month end;
(ii)
University of Phoenix fiscal year-to-date new degreed enrollments as of the applicable month end must not have declined by more than certain levels (which are derived from the projections we prepared in December 2015 in connection with the merger, which we refer to as the December forecast);
(iii)
University of Phoenix trailing twelve month net revenue as of the applicable month end shall not have declined by more than certain levels (which are derived from the December forecast); and
(iv)
Our consolidated trailing twelve months adjusted earnings before interest, taxes, depreciation and amortization as of the applicable month end shall not have declined by more than certain levels (which are derived from the December forecast).
We currently expect to satisfy these minimum operating metrics if the closing occurs on or prior to October 9, 2016, which is the latest closing date for which the relevant operating metrics are derived from our fiscal year 2016 financial and operating results. However, our expected fiscal year 2016 enrollment and operating results have declined since our December forecast. If our enrollment or operating results continue to decline, we may not be able to satisfy one or more of these closing conditions, either before or after October 9, 2016. If we fail to satisfy one or more of these closing conditions, Parent would be entitled to terminate the Merger Agreement and elect not to consummate the merger.
The Merger Agreement may be terminated by each of us and Parent under certain circumstances, including if the merger is not consummated by 5:00 pm Eastern time on February 1, 2017. Upon termination of the Merger Agreement under certain specified circumstances, but not including a termination solely due to our failure to satisfy the minimum operating metrics described above, we will be required to pay Parent a termination fee of approximately $27.5 million , and under other specified circumstances, Parent will be required to pay us a reverse termination fee of $25.0 million .
Basis of Presentation
These unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and, in our opinion, reflect all adjustments of a normal, recurring nature that are necessary for the fair presentation of our financial condition, results of operations and cash flows for the periods presented. These unaudited interim condensed consolidated financial statements do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements. Therefore, this information should be read in conjunction with the audited consolidated financial statements and related notes included in our 2015 Annual Report on Form 10-K as filed with the SEC on October 22, 2015. We consistently applied the accounting policies described in the notes to our consolidated financial statements included in our 2015 Annual Report on Form 10-K in preparing these unaudited interim condensed consolidated financial statements.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 11

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Use of Estimates
The preparation of these financial statements in accordance with GAAP requires management to make certain estimates, assumptions and judgments that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Although we believe our estimates, assumptions and judgments are reasonable, actual results may differ materially from our estimates under different assumptions, judgments or conditions.
Principles of Consolidation
These financial statements include the assets, liabilities, revenues and expenses of Apollo Education Group, Inc., our wholly-owned subsidiaries, and other subsidiaries that we control. We eliminate intercompany transactions and balances in consolidation.
Seasonality
Our operations are generally subject to seasonal trends, which vary depending on the subsidiary. We have historically experienced, and expect to continue to experience, fluctuations in our results of operations as a result of seasonal variations in the level of our institutions’ enrollments including, but not limited to, the following:
University of Phoenix - University of Phoenix generally has lower net revenue in our second fiscal quarter (December through February) compared to other quarters due to holiday breaks.
Apollo Global - Our Apollo Global subsidiaries experience seasonality associated with the timing of when courses begin, exam dates, the timing of their respective holidays and other factors. These factors have historically resulted in lower net revenue in our second and fourth fiscal quarters, particularly for BPP, which also results in substantially lower operating results during these quarters due to BPP’s relatively fixed cost structure.
Because of the seasonal nature of our business and other factors, the results of operations for the three and nine months ended May 31, 2016 are not necessarily indicative of the results to be expected for the fiscal year ending August 31, 2016.
Reclassifications
We reclassified prior periods for the following to conform to our current presentation:
During the fourth quarter of fiscal year 2015, we began presenting Carnegie Learning, Inc.’s operating results as discontinued operations on our Condensed Consolidated Statements of Operations. Refer to Note 3 , Discontinued Operations .
During the first quarter of fiscal year 2016, we began presenting all deferred tax assets and liabilities as noncurrent on our Condensed Consolidated Balance Sheets as discussed further in New Accounting Standards below.
During the second quarter of fiscal year 2016, we began presenting expenses incurred associated with our pending merger discussed above in Merger, acquisition and other related costs (credit), net on our Condensed Consolidated Statements of Operations. The associated costs incurred in the first quarter of fiscal year 2016 were included in General and administrative and we have reclassified such costs for the nine months ended May 31, 2016 to conform with our current presentation.
New Accounting Standards
Accounting Standards Recently Adopted
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, “ Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities. We early adopted ASU 2015-17 during our first quarter of fiscal year 2016 on a retrospective basis. Accordingly, we reclassified the current deferred taxes to noncurrent on our August 31, 2015 Condensed Consolidated Balance Sheet, which increased noncurrent deferred tax assets $64.7 million and decreased noncurrent deferred tax liabilities $3.7 million.
In September 2015, the FASB issued ASU No. 2015-16, “ Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). The standard requires that adjustments made to provisional amounts recognized in a business combination be recorded in the period such adjustments are determined, rather than retrospectively adjusting previously reported amounts. ASU 2015-16 is effective for fiscal years, and interim periods within those years,

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 12

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

beginning after December 15, 2015, and early adoption is permitted. We early adopted ASU 2015-16 during our first quarter of fiscal year 2016, which had no impact on our consolidated financial statements, and we will apply the new standard to future adjustments to provisional amounts.
In April 2014, the FASB issued ASU No. 2014-08, “ Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ” (“ASU 2014-08”). The standard raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. We adopted ASU 2014-08 during our first quarter of fiscal year 2016, which had no impact on our consolidated financial statements, and we will apply the new standard to applicable components that are determined to be held for sale or disposed in future periods.
Future Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, “ Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ” (“ASU 2016-13”). The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. Accordingly, the standard is effective for us on September 1, 2020 using a modified retrospective approach. We are currently evaluating the impact that the standard will have on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “ Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ” (“ASU 2016-09”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. We do not plan to early adopt ASU 2016-09, and the standard is effective for us on September 1, 2017. We are currently evaluating the impact that the standard will have on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “ Leases (Topic 842) (“ASU 2016-02”). The standard requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. Accordingly, the standard is effective for us on September 1, 2019 using a modified retrospective approach. We are currently evaluating the impact that the standard will have on our consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “ Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ” (“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted. Accordingly, the standard is effective for us on September 1, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “ Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, “ Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ”, which defers the effective date of ASU 2014-09 by one year to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2016. Accordingly, the new revenue recognition standard is effective for us on September 1, 2018 using either a full retrospective or a modified retrospective approach. The FASB has also issued the following standards which clarify ASU 2014-09 and have the same effective date as the original standard:
ASU No. 2016-08, “ Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ”; and
ASU No. 2016-12, “ Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients ”.
We are currently evaluating which transition approach to use and the impact that the new revenue recognition standards will have on our consolidated financial statements.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 13

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 2 . Restructuring and Impairment Charges
Restructuring and impairment charges include the following for the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Restructuring charges
$
22,366

 
$
11,444

 
$
73,673

 
$
46,772

Goodwill impairments (1)

 

 
73,393

 

Property and equipment impairments

 

 
2,512

 
5,950

Restructuring and impairment charges
$
22,366

 
$
11,444

 
$
149,578

 
$
52,722

(1) Refer to Note 7 , Goodwill and Intangibles , for discussion of the goodwill impairment charges recorded during fiscal year 2016.
Restructuring Charges
We have implemented various restructuring activities during prior fiscal years and remain focused on reengineering our business processes and educational delivery systems to reduce costs to align with our lower enrollment and revenue, and to improve the efficiency and effectiveness of our services to students. The activities initiated in prior years and those initiated in fiscal year 2016 are described below. Additionally, we intend to further reduce costs in future periods to align with our lower enrollment and revenue, and expect to incur material charges associated with other future restructuring activities.
The following summarizes the restructuring charges in our segment reporting format for the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
University of Phoenix
$
15,787

 
$
6,043

 
$
46,380

 
$
28,292

Apollo Global
1,183

 
41

 
1,902

 
142

Other
5,396

 
5,360

 
25,391

 
18,338

Restructuring charges
$
22,366

 
$
11,444

 
$
73,673

 
$
46,772


Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 14

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following details the changes in our restructuring liabilities during the nine months ended May 31, 2016 :
 
Lease and Related
Costs, Net
 
Severance and Other Employee
Separation Costs
 
Other Restructuring
Related Costs
 
Total
($ in thousands)
2016 Restructuring
 
Prior Year Restructuring (1)
 
2016 Restructuring
 
Prior Year Restructuring (1)
 
2016 Restructuring
 
Prior Year Restructuring (1)
 
August 31, 2015
$

 
$
74,990

 
$

 
$
8,210

 
$

 
$
90

 
$
83,290

Expense

 
10,479

 
10,380

 
1,058

 
210

 
2,303

 
24,430

Other

 
(387
)
 
(53
)
 

 

 
(1,211
)
 
(1,651
)
Payments

 
(12,662
)
 
(3,158
)
 
(5,257
)
 

 
(813
)
 
(21,890
)
November 30, 2015

 
72,420

 
7,169

 
4,011

 
210

 
369

 
84,179

Expense

 
16,178

 
7,133

 
696

 
1,058

 
1,812

 
26,877

Other

 
(3,705
)
 
(164
)
 

 

 
(1,543
)
 
(5,412
)
Payments

 
(10,771
)
 
(11,029
)
 
(1,788
)
 
(405
)
 
(522
)
 
(24,515
)
February 29, 2016

 
74,122

 
3,109

 
2,919

 
863

 
116

 
81,129

Expense

 
8,973

 
10,468

 
802

 
444

 
1,679

 
22,366

Other

 
(73
)
 
(303
)
 

 
(141
)
 
(1,338
)
 
(1,855
)
Payments

 
(11,597
)
 
(8,452
)
 
(1,426
)
 
(525
)
 
(298
)
 
(22,298
)
May 31, 2016 (2)
$

 
$
71,425

 
$
4,822

 
$
2,295

 
$
641

 
$
159

 
$
79,342

(1) We have incurred $461 million of cumulative costs associated with restructuring activities initiated prior to fiscal year 2016, which include lease exit, employee separation, and other related costs of $292 million , $116 million and $53 million , respectively. These cumulative costs have been reflected in our segment reporting as follows: $339 million in University of Phoenix, $19 million in Apollo Global, and $103 million in Other.
(2) The gross, undiscounted obligation associated with our restructuring liabilities as of May 31, 2016 was approximately $144 million , which principally represents costs for non-cancelable leases that will be paid over the respective lease terms through fiscal year 2023.
Activities Initiated in Prior Years
Our restructuring activities initiated prior to fiscal year 2016 principally included closing approximately 150 University of Phoenix ground locations, rationalizing our leased administrative office facilities, and workforce reductions. During the nine months ended May 31, 2016 , we incurred $44.0 million of expense for these prior year activities. The majority of the expense represents initial charges for the estimated fair value of future contractual operating lease obligations which are recorded when we cease using the respective facility, and an increase in our estimated future cash payments associated with exiting additional space at other locations included in the rationalization plan. We measure lease obligations at fair value using a discounted cash flow approach encompassing significant unobservable inputs (Level 3). The significant unobservable inputs principally include estimated future cash flows and discount rates which have ranged between  3% - 7%  for our lease obligations. The estimation of future cash flows includes non-cancelable contractual lease costs over the remaining terms of the leases, partially offset by estimated future sublease rental income, which involves significant judgment. Our estimate of the amount and timing of sublease rental income considers subleases that we have executed or expect to execute, current commercial real estate market data and conditions, comparable transaction data and qualitative factors specific to the facilities. The estimates are subject to adjustment as market conditions change or as new information becomes available, including the execution of additional sublease agreements.
As of  May 31, 2016 , we had approximately $51 million of remaining lease obligations associated with the locations that we expect to close as University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations. We will incur lease obligation charges for these locations when we cease using the respective facilities. We will also continue to incur interest accretion, and may record additional adjustments in future periods for the estimated obligations associated with facilities we have already exited.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 15

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Activities Initiated in Fiscal Year 2016
During the nine months ended May 31, 2016 , we incurred $29.7 million of expense for new restructuring activities initiated during fiscal year 2016. Substantially all of the expense represents severance and other employee separation costs associated with the elimination of approximately 1,400 positions. The expense associated with these activities for the nine months ended May 31, 2016 is reflected in our segment reporting as follows: $16.0 million in University of Phoenix, $1.7 million in Apollo Global and $12.0 million in Other.
Note 3 . Discontinued Operations
During the first quarter of fiscal year 2016, we completed the sale of Carnegie Learning for a nominal amount resulting in a $2.8 million loss on sale. We do not have significant continuing involvement with Carnegie Learning after the sale.
During fiscal year 2015, we began presenting Carnegie Learning’s assets and liabilities as held for sale on our Condensed Consolidated Balance Sheets and its operating results as discontinued operations on our Condensed Consolidated Statements of Operations for all periods presented. Carnegie Learning’s operating results were previously included in Other in our segment reporting, and certain additional Carnegie Learning expenses associated with University of Phoenix’s use of Carnegie Learning technology were included in our University of Phoenix reportable segment.
The major components of Carnegie Learning’s assets and liabilities presented separately as held for sale on our Condensed Consolidated Balance Sheets as of August 31, 2015 are as follows:
($ in thousands)
As of
August 31, 2015
Cash
$
10,220

Accounts receivable, net
10,327

Property and equipment, net
15,912

Intangible assets, net
14,100

Other
3,972

Allowance for reduction of assets of business held for sale
(13,634
)
Total assets
$
40,897

 
 
Deferred revenue
$
35,602

Other
5,295

Total liabilities
$
40,897

The following summarizes Carnegie Learning’s operating results for the respective periods, which are presented in Loss from discontinued operations, net of tax on our Condensed Consolidated Statements of Operations:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Net revenue
$

 
$
5,123

 
$
2,993

 
$
13,119

Costs and expenses:
 
 
 
 
 
 
 
Intangibles impairment (1)

 

 

 
12,999

Loss on sale

 

 
2,773

 

Other

 
7,756

 
4,519

 
23,469

Loss from discontinued operations before income taxes

 
(2,633
)
 
(4,299
)
 
(23,349
)
Benefit from income taxes

 
447

 
1,040

 
8,443

Loss from discontinued operations, net of tax
$

 
$
(2,186
)
 
$
(3,259
)
 
$
(14,906
)
(1) Represents an impairment charge to write-off certain Carnegie Learning technology intangibles that were no longer being used. The associated technology had been incorporated into University of Phoenix’s academic platform and as a result of the University ceasing use of the technology, no future cash flows associated with the technology were expected over its remaining useful life. Accordingly, we recorded a $13.0 million impairment charge representing the remaining carrying value.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 16

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The operating results of our discontinued operations only includes revenues and costs directly attributable to the discontinued operations. Accordingly, no interest expense or general corporate overhead has been allocated to Carnegie Learning. Additionally, we ceased depreciation on Carnegie Learning’s property and equipment when we determined it was held for sale.
We determined cash flows from our discontinued operations are not material and are included with cash flows from continuing operations on our Condensed Consolidated Statements of Cash Flows.
Note 4 . Acquisitions
Fiscal Year 2016 Acquisition
On December 10, 2015, we acquired all of the outstanding shares of Career Partner GmbH (“Career Partner”), a provider of education and training programs in Germany. This acquisition supports our strategy to diversify and expand our global operations. We made an initial cash payment of €96 million (equivalent to approximately $105 million on the acquisition date), and the acquisition includes a potential contingent consideration payment in the future of up to €11 million (equivalent to $12.3 million as of May 31, 2016 ). The contingent payment is calculated principally based on Career Partner’s operating results for calendar year 2016, and its estimated fair value on the acquisition date was $10.7 million , which we determined using a discounted cash flow valuation method encompassing significant unobservable inputs. The inputs include estimated operating results for the performance period and the discount rate applied. During the third quarter of fiscal year 2016, we finalized the amount of working capital acquired at closing, which resulted in a $3.5 million reduction in the purchase price.
We incurred approximately $2.0 million of transaction costs in connection with this acquisition and these costs are included in Merger, acquisition and other related costs (credit), net on our Condensed Consolidated Statements of Operations in the nine months ended May 31, 2016 .
We accounted for the acquisition as a business combination and allocated the purchase price, which includes the initial cash payment, the fair value of the contingent consideration and the working capital adjustment, to the assets acquired and liabilities assumed at fair value as summarized below:
($ in thousands)
 
Cash and cash equivalents
$
4,580

Property and equipment
13,682

Intangibles:
 
Trademarks (indefinite useful life)
30,469

Accreditations (indefinite useful life)
27,948

Student and customer relationships (5 year useful life)
9,097

Curriculum (5 year useful life)
3,726

Goodwill
92,840

Other assets
2,092

Deferred revenue
(28,380
)
Capital lease obligations
(22,734
)
Other liabilities
(20,340
)
Total assets acquired and liabilities assumed
$
112,980

We determined the fair value of assets acquired and liabilities assumed based on assumptions that reasonable market participants would use while employing the concept of highest and best use of the respective items. We used the following assumptions, the majority of which include significant unobservable inputs, and valuation methodologies to determine fair value:
Intangibles - We used income approaches to value the substantial majority of the acquired intangibles. The trademarks were valued using the relief-from-royalty method, which represents the benefit of owning these intangible assets rather than paying royalties for their use. The accreditations were valued using the with and with-out method, and the remaining intangibles were valued using the cost savings method or the excess earnings method.
Deferred revenue - We estimated the fair value of deferred revenue using the cost build-up method, which represents the cost to deliver the services, plus a normal profit margin.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 17

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Capital leases - Substantially all of the property and equipment in the above table represents capital lease assets. The fair value of the capital lease assets represents our right to use the respective assets over the remaining lease term, and the fair value of the corresponding obligations represents the future minimum lease payments discounted at a current borrowing rate.
Other assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.
We recorded $92.8 million of goodwill as a result of the Career Partner acquisition, which is not expected to be deductible for tax purposes. The goodwill is principally attributable to the future earnings potential associated with enrollment growth and other intangibles that do not qualify for separate recognition such as the assembled workforce. The goodwill is included in our Apollo Global reportable segment and we have selected a July 1 annual goodwill impairment test date.
We assigned an indefinite useful life to the acquired trademarks and accreditations intangibles as we believe they have the ability to generate cash flows indefinitely. In addition, there are no legal, regulatory, contractual, economic or other factors to limit the intangibles’ useful life and we intend to renew the intangibles, as applicable, and renewal can be accomplished at little cost. We determined all other acquired intangibles are finite-lived and we are amortizing them on either a straight-line basis or using an accelerated method to reflect the pattern in which we expect the economic benefits of the assets to be consumed. The weighted average original useful life of the acquired finite-lived intangibles was 5 years. Refer to Note 7 , Goodwill and Intangibles , for the estimated future amortization of our finite-lived intangibles.
Career Partner’s operating results are included in our condensed consolidated financial statements from the acquisition date. We have not provided pro forma information or the revenue and operating results of Career Partner because its results of operations are not material to our consolidated results of operations.
Fiscal Year 2015 Acquisitions
During fiscal year 2015, we completed the following acquisitions to support our strategy to diversify and expand our professional development offerings and global operations:
The Iron Yard - On June 11, 2015, we acquired a 62% interest in TIY Academy, LLC (“The Iron Yard”), a provider of nondegree information technology bootcamp programs in the United States, for $15.9 million .
FAEL - On December 4, 2014, we acquired a 75% interest in Sociedade Técnica Educacional da Lapa S.A., a provider of postsecondary educational programs in Brazil under the name Faculdade da Educacional da Lapa (“FAEL”). We made an initial cash payment of R$73.8 million (equivalent to $28.9 million on the acquisition date), and the acquisition includes a potential contingent consideration payment in the future that is principally based on FAEL’s calendar year 2018 net revenue. The contingent payment has a maximum of approximately R$34 million (equivalent to $9.5 million as of May 31, 2016 ), and its fair value on the acquisition date was insignificant based on our estimate of FAEL’s future revenue in relation to the contingent payment threshold as defined in the acquisition agreement.
We accounted for these acquisitions as business combinations, and the operating results of The Iron Yard and FAEL are included in our consolidated financial statements from the respective acquisition dates. We have not provided pro forma information or the revenue and operating results of the acquired entities because their results of operations are not material, either individually or in the aggregate, to our consolidated results of operations in the respective periods of acquisition. The purchase price allocations are summarized below:

($ in thousands)
The Iron Yard
 
FAEL
Tangible assets (net of acquired liabilities)
$
5,262

 
$
(2,807
)
Indefinite-lived intangibles

 
15,163

Finite-lived intangibles
4,690

 
5,394

Goodwill
15,888

 
14,538

Total assets acquired and liabilities assumed, net
25,840

 
32,288

Less: Fair value of redeemable noncontrolling interests
(9,900
)
 
(3,437
)
Total fair value of consideration transferred
15,940

 
28,851

Less: Cash acquired
(5,401
)
 
(7,685
)
Cash paid for acquisition, net of cash acquired
$
10,539

 
$
21,166


Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 18

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 5 . Financial Instruments
We invest our excess cash in a variety of marketable securities, which are all classified as available-for-sale. The following summarizes our cash and cash equivalents, restricted cash and cash equivalents and marketable securities by financial instrument category as of the respective period ends:
 
May 31, 2016
($ in thousands)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and Cash
Equivalents (1)
 
Current
Marketable
Securities
 
Noncurrent
Marketable
Securities
Cash
$
408,823

 
$

 
$

 
$
408,823

 
$
408,823

 
$

 
$

Level 1:
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
111,236

 

 

 
111,236

 
111,236

 

 

Level 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
113,004

 
30

 
(155
)
 
112,879

 

 
96,531

 
16,348

Tax-exempt municipal bonds
104,281

 
33

 
(43
)
 
104,271

 
600

 
84,324

 
19,347

Time deposits
50,458

 

 

 
50,458

 
25,187

 
25,271

 

Other
40,797

 
12

 
(6
)
 
40,803

 
1,000

 
36,175

 
3,628

Total
$
828,599

 
$
75

 
$
(204
)
 
$
828,470

 
$
546,846

 
$
242,301

 
$
39,323


 
August 31, 2015
($ in thousands)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and Cash
Equivalents (1)
 
Current
Marketable
Securities
 
Noncurrent
Marketable
Securities
Cash
$
564,225

 
$

 
$

 
$
564,225

 
$
564,225

 
$

 
$

Level 1:
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
107,408

 

 

 
107,408

 
107,408

 

 

Level 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
137,283

 
16

 
(271
)
 
137,028

 
1,823

 
82,047

 
53,158

Tax-exempt municipal bonds
97,022

 
68

 
(60
)
 
97,030

 
2,408

 
61,530

 
33,092

Time deposits
50,267

 

 

 
50,267

 
25,110

 
25,157

 

Other
36,634

 
10

 
(37
)
 
36,607

 
1,100

 
25,942

 
9,565

Total
$
992,839

 
$
94

 
$
(368
)
 
$
992,565

 
$
702,074

 
$
194,676

 
$
95,815

(1) Cash and cash equivalents includes restricted cash and cash equivalents.
We measure our financial instruments at fair value on a recurring basis as follows:
Money market funds - We use Level 1 inputs that primarily consist of real-time quotes for transactions in active exchange markets involving identical assets.
Other financial instruments - We use a market approach with Level 2 observable inputs for all other securities. The Level 2 inputs include quoted prices for similar assets in active markets, or quoted prices for identical or similar assets in markets that are not active.
Our marketable securities have maturities that occur within three years . We may sell certain of our marketable securities prior to their stated maturities for strategic reasons including, but not limited to, investment yield and credit risk management. We have not recognized significant gains or losses related to such sales.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 19

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 6 . Accounts Receivable, Net
Accounts receivable, net consist of the following as of the respective period ends:
($ in thousands)
May 31,
2016
 
August 31,
2015
Student accounts receivable
$
225,379

 
$
234,204

Less allowance for doubtful accounts
(44,871
)
 
(42,259
)
Net student accounts receivable
180,508

 
191,945

Other receivables
12,969

 
6,514

Total accounts receivable, net
$
193,477

 
$
198,459

Student accounts receivable is composed primarily of amounts due related to tuition and educational services. The following summarizes the activity in allowance for doubtful accounts for the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Beginning allowance for doubtful accounts
$
48,125

 
$
49,891

 
$
42,259

 
$
50,145

Provision for uncollectible accounts receivable
15,716

 
13,005

 
43,812

 
42,372

Write-offs, net of recoveries
(19,638
)
 
(15,791
)
 
(41,376
)
 
(43,861
)
Currency translation adjustment
668

 
(214
)
 
176

 
(1,765
)
Ending allowance for doubtful accounts
$
44,871

 
$
46,891

 
$
44,871

 
$
46,891

Note 7 . Goodwill and Intangibles
The following details changes in our goodwill by reportable segment during the nine months ended May 31, 2016 :
($ in thousands)
University of
Phoenix
 
Apollo
Global
 
Other
 
Total
Goodwill as of August 31, 2015
$
71,812

 
$
142,599

 
$
32,779

 
$
247,190

Career Partner acquisition

 
92,840

 

 
92,840

Impairments
(71,812
)
 

 
(1,581
)
 
(73,393
)
Currency translation adjustment

 
(872
)
 

 
(872
)
Goodwill as of May 31, 2016
$

 
$
234,567

 
$
31,198

 
$
265,765

Intangibles consist of the following as of the respective period ends:
 
May 31, 2016
 
August 31, 2015
($ in thousands)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Effect of
Foreign
Currency
Translation
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Effect of
Foreign
Currency
Translation
 
Net
Carrying
Amount
Curriculum (1)
$
22,238

 
$
(9,645
)
 
$
(2,349
)
 
$
10,244

 
$
19,715

 
$
(7,361
)
 
$
(2,470
)
 
$
9,884

Accreditations and designations
21,628

 
(9,648
)
 
(3,024
)
 
8,956

 
21,628

 
(6,972
)
 
(3,153
)
 
11,503

Trademarks
21,019

 
(4,274
)
 
(2,910
)
 
13,835

 
21,019

 
(2,942
)
 
(3,034
)
 
15,043

Student and customer relationships (1)
14,534

 
(4,910
)
 
(1,864
)
 
7,760

 
5,517

 
(2,632
)
 
(1,975
)
 
910

Other
3,577

 
(752
)
 
(662
)
 
2,163

 
3,746

 
(597
)
 
(633
)
 
2,516

Total finite-lived intangibles
82,996

 
(29,229
)
 
(10,809
)
 
42,958

 
71,625

 
(20,504
)
 
(11,265
)
 
39,856

Trademarks (1)
132,106

 

 
(14,067
)
 
118,039

 
101,637

 

 
(9,906
)
 
91,731

Accreditations and designations (1)
42,418

 

 
(2,659
)
 
39,759

 
14,470

 

 
(2,813
)
 
11,657

Total indefinite-lived intangibles
174,524

 

 
(16,726
)
 
157,798

 
116,107

 

 
(12,719
)
 
103,388

Total intangible assets, net
$
257,520

 
$
(29,229
)
 
$
(27,535
)
 
$
200,756

 
$
187,732

 
$
(20,504
)
 
$
(23,984
)
 
$
143,244

(1) We acquired certain intangibles during fiscal year 2016 as a result of our acquisition of Career Partner. Refer to Note 4 , Acquisitions .

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 20

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The estimated future amortization expense of our finite-lived intangibles as of May 31, 2016 is as follows:
($ in thousands)
Remainder of 2016
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total
Estimated future amortization expense (1)
$
3,831

 
$
14,074

 
$
10,103

 
$
4,937

 
$
3,041

 
$
2,127

 
$
4,845

 
$
42,958

(1) Estimated future amortization expense may vary as acquisitions and dispositions occur in the future and as a result of foreign currency translation adjustments.
Goodwill Impairments
Our market capitalization declined significantly during the first quarter of fiscal year 2016 after we reported our fourth quarter fiscal year 2015 results and our business outlook for fiscal year 2016. We believe the decline in the first quarter of fiscal year 2016 was attributable to University of Phoenix’s lower enrollment, increasing risk associated with the proprietary education sector, and uncertainty associated with its strategy to transform into a more focused, higher retaining and less complex institution. Additionally, initiatives associated with the University’s new strategy have accelerated the enrollment decline at the University and negatively impacted its cash flows in the short-term. Based on the decline in market capitalization, we performed an interim goodwill impairment analysis for University of Phoenix in the first quarter of fiscal year 2016.
University of Phoenix represents the substantial majority of our consolidated operating results and, as discussed above, we believe our market capitalization decline in the first quarter of fiscal year 2016 was attributable to the University. Accordingly, we estimated the fair value of our University of Phoenix reporting unit using a market-based valuation approach, which incorporated assumptions that we believe would be a reasonable market participant’s view of the increased risk and uncertainty associated with the University and its expected future cash flows. The market-based approach included multiples derived from comparable companies with consideration of the University’s current operating trends and transformational strategy in relation to the other companies. Our interim step one goodwill impairment analysis resulted in a lower estimated fair value for University of Phoenix compared to its carrying value. Based on the University’s estimated fair value and a hypothetical purchase price allocation, we determined the University had no implied goodwill. Accordingly, we recorded a $71.8 million impairment charge in the first quarter of fiscal year 2016 representing the University’s entire goodwill balance. We did not record an income tax benefit associated with this charge as the University’s goodwill is not deductible for tax purposes.
During the first quarter of fiscal year 2016, we also recorded a $1.6 million goodwill impairment charge representing the entire goodwill balance for our Western International University reporting unit. Western International University operates in the same sector of the U.S. proprietary education industry as University of Phoenix.
The majority of our other reporting units have annual goodwill impairment test dates during our fourth fiscal quarter, and we have not recorded any goodwill impairments for our other reporting units during fiscal year 2016. As part of our goodwill impairment evaluations in fiscal year 2016, we compared the sum of the estimated fair values of our reporting units to our market capitalization, plus an assumed control premium to acquire a controlling interest in Apollo. We considered the purchase price associated with our pending merger in estimating an assumed control premium. Based on our evaluation, the fair values of our reporting units were reasonable in relation to our market capitalization. However, we may be required to record additional goodwill impairment charges in the future if our critical assumptions deteriorate or our market capitalization declines further.
Note 8 . Fair Value Measurements
We measure and disclose certain financial instruments at fair value as described in Note 5 , Financial Instruments . Liabilities measured at fair value on a recurring basis, all of which are included in other liabilities on our Condensed Consolidated Balance Sheets, consist of the following as of May 31, 2016 and August 31, 2015 :
 
 
 
Fair Value Measurements at Reporting Dates Using
 
Fair Value
as of Respective
Reporting Dates
 
Quoted Prices in
Active Markets for
Identical Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
($ in thousands)
 
 
 
Contingent consideration as of May 31, 2016
$
19,326

 
$

 
$

 
$
19,326

Contingent consideration as of August 31, 2015
$
7,499

 
$

 
$

 
$
7,499


Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 21

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following summarizes the changes in liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Beginning balance
$
18,200

 
$
6,416

 
$
7,499

 
$
41,893

Initial contingent consideration at fair value

 

 
10,717

 

Change in fair value included in net income (loss)
973

 
154

 
897

 
(843
)
Payment for contingent consideration (1)

 

 

 
(34,480
)
Currency translation adjustment
153

 

 
213

 

Ending balance
$
19,326

 
$
6,570

 
$
19,326

 
$
6,570

(1) During fiscal year 2015, we paid $34.5 million to settle the contingent consideration for our Open Colleges acquisition.
Our contingent consideration liabilities are valued using discounted cash flow valuation methods encompassing significant unobservable inputs. The inputs include estimated operating results scenarios for the applicable performance periods, probability weightings assigned to operating results scenarios and the discount rates applied. Our contingent consideration liabilities relate to the following:
Career Partner - We acquired Career Partner during the second quarter of fiscal year 2016 and have contingent consideration of up to €11 million . The contingent consideration is principally based on Career Partner’s operating results for calendar year 2016 and we estimated its fair value to be $10.7 million as of the acquisition date. As of May 31, 2016 , the estimated fair value for this contingent consideration was $11.5 million and the associated liability is included in accrued and other current liabilities on our Condensed Consolidated Balance Sheets.
Apollo Global - As a result of our purchase of the noncontrolling interest in Apollo Global during fiscal year 2013, we have contingent consideration that is based on a portion of Apollo Global’s operating results through the fiscal years ending August 31, 2017. As of May 31, 2016 , the estimated fair value for this contingent consideration was $7.8 million and the associated liability is included in other long-term liabilities on our Condensed Consolidated Balance Sheets.
We did not change our valuation techniques associated with recurring fair value measurements from prior periods.
Liabilities measured at fair value on a nonrecurring basis during the nine months ended May 31, 2016 are included in other liabilities on our Condensed Consolidated Balance Sheets and consist of the following:
 
 
 
Fair Value Measurements at Measurement Date Using
 
 
($ in thousands)
Fair Value at
Measurement
Date
 
Quoted Prices in
Active Markets for
Identical Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Losses for
Nine Months Ended
May 31, 2016
Restructuring obligations
$
24,275

 
$

 
$

 
$
24,275

 
$
24,275

During the nine months ended May 31, 2016 , we recorded $24.3 million of aggregate initial lease obligations at fair value associated with our restructuring activities. We recorded obligation liabilities on the dates we ceased using the respective facilities, and we measured the liabilities at fair value using Level 3 inputs included in the valuation method. Refer to Note 2 , Restructuring and Impairment Charges .

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 22

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 9 . Accrued and Other Liabilities
Accrued and other current liabilities consist of the following as of the respective period ends:
($ in thousands)
May 31,
2016
 
August 31,
2015
Salaries, wages and benefits
$
57,103

 
$
74,454

Student discounts, grants and scholarships
43,644

 
44,682

Restructuring obligations
38,352

 
38,921

Legal and other professional obligations
22,009

 
23,961

Contingent consideration
11,500

 

Advertising
9,865

 
21,931

Deferred rent and other lease liabilities
9,855

 
12,181

Curriculum materials
7,360

 
11,690

Other
49,175

 
53,027

Total accrued and other current liabilities
$
248,863

 
$
280,847

Other long-term liabilities consist of the following as of the respective period ends:
($ in thousands)
May 31,
2016
 
August 31,
2015
Deferred rent and other lease liabilities
$
44,845

 
$
49,745

Restructuring obligations
40,990

 
44,369

Deferred revenue
25,230

 
16,687

Deferred gains on sale-leasebacks
19,075

 
20,168

Other
52,351

 
41,483

Total other long-term liabilities
$
182,491

 
$
172,452

Note 10 . Debt
Debt and short-term borrowings consist of the following as of the respective period ends:
($ in thousands)
May 31,
2016
 
August 31,
2015
Revolving Credit Facility
$

 
$

Capital lease obligations
30,804

 
16,863

Other
31,307

 
28,783

Total debt
62,111

 
45,646

Less short-term borrowings and current portion of long-term debt
(19,514
)
 
(14,080
)
Long-term debt
$
42,597

 
$
31,566

In fiscal year 2012, we entered into a syndicated $625 million unsecured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility is used for general corporate purposes, which may include acquisitions and share repurchases. The term is five years and will expire in April 2017. The Revolving Credit Facility may be used for borrowings in certain foreign currencies and letters of credit, in each case up to specified sublimits.
We had no outstanding borrowings under the Revolving Credit Facility as of May 31, 2016 and August 31, 2015 , but we had approximately $39 million and $41 million of outstanding letters of credit as of the respective periods. We also borrowed $50 million under the Revolving Credit Facility during the second quarter of fiscal year 2016, but subsequently repaid the amount later in the same quarter.
The Revolving Credit Facility fees are determined based on a pricing grid that varies according to our leverage ratio. The Revolving Credit Facility fee ranges from 25 to 40 basis points. Incremental fees for borrowings under the facility generally range from Prime + 25 to 85 basis points.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 23

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Revolving Credit Facility contains various customary representations, covenants and other provisions, including a material adverse event clause and the following financial covenants: maximum leverage ratio, minimum interest and rent expense coverage ratio, and U.S. Department of Education financial responsibility composite score requirements. We were in compliance with all applicable covenants related to the Revolving Credit Facility at May 31, 2016 and August 31, 2015 .
Other debt principally includes debt at subsidiaries of Apollo Global and other obligations. The weighted average interest rate on our outstanding other debt at May 31, 2016 and August 31, 2015 was 6.1% and 5.6% , respectively.
The carrying value of our debt, excluding capital leases, approximates fair value based on the nature of our debt, which includes consideration of the portion that is variable-rate.
Note 11 . Income Taxes
We have historically determined our interim income tax provision by applying our estimated effective income tax rate expected to be applicable for the full fiscal year to our income before income taxes for the period. Our effective income tax rate is dependent upon several factors, such as tax rates in state and foreign jurisdictions and the relative amount of income we earn in such jurisdictions. In determining our full year estimate, we do not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes. We exercise significant judgment in determining our income tax provision due to transactions, credits and calculations where the ultimate tax determination is uncertain.
As further discussed in Note 7 , Goodwill and Intangibles , there is significant uncertainty associated with University of Phoenix’s future operating results due to competitive factors and its initiatives to transform itself into a more focused, higher retaining and less complex institution. Based primarily on this uncertainty, we used the discrete method to calculate our interim tax provision for the interim periods in fiscal year 2016. Under the discrete method, we determined our tax expense for the interim periods based on actual results as if the interim periods were an annual period, which we believe provides a more reasonable interim income tax provision than the continued use of the estimated annual effective tax rate method. Our effective income tax rate for continuing operations for the nine months ended May 31, 2016 was also significantly impacted by the goodwill impairment charge for our University of Phoenix reporting unit, which was not deductible for tax purposes.
During fiscal year 2015, the Internal Revenue Service (“IRS”) completed its review of our United States federal income tax return for fiscal year 2014. Our United States federal income tax return for fiscal year 2013 is currently open for review by the IRS and we are also participating in the IRS’s Compliance Assurance Process for fiscal years 2015 and 2016, which is a voluntary program in which taxpayers seek to resolve all or most issues with the IRS prior to or soon after filing their United States federal income tax returns. Additionally, we are subject to numerous ongoing audits by state, local and foreign tax authorities with various tax years as early as 2007 that remain subject to examination.
Although we believe our tax accruals are reasonable, the final determination of tax returns under review or returns that may be reviewed in the future and any related litigation could result in tax liabilities that materially differ from our historical income tax provisions and accruals.
Note 12 . Shareholders’ Equity and Redeemable Noncontrolling Interests
Share Repurchases
Our Board of Directors has authorized us to repurchase outstanding shares of our Class A common stock from time to time depending on market conditions and other considerations. During fiscal year 2013, our Board of Directors authorized an increase in the amount available under our share repurchase program up to an aggregate amount of $250 million , of which $52.2 million remained available as of May 31, 2016 . There is no expiration date on the repurchase authorizations and the amount and timing of future share repurchase authorizations and repurchases, if any, will be made as market and business conditions warrant. Repurchases occur at our discretion and may be made on the open market through various methods including but not limited to accelerated share repurchase programs, or in privately negotiated transactions, pursuant to the applicable Securities and Exchange Commission rules, and may include repurchases pursuant to Securities and Exchange Commission Rule 10b5-1 nondiscretionary trading programs. We are prohibited from repurchasing shares under the agreements associated with our pending merger, as described further in Note 1 , Nature of Operations and Significant Accounting Policies .
We also repurchase shares in connection with tax withholding requirements associated with the release of vested share-based awards, which do not fall under the repurchase program described above.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 24

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following summarizes our share repurchase activity for the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
(In thousands, except per share data)
2016
 
2015
 
2016
 
2015
Share repurchases under share repurchase program:
 
 
 
 
 
 
 
Number of shares repurchased

 

 

 
1,440

Weighted average purchase price per share
$

 
$

 
$

 
$
26.45

Cost of share repurchases
$

 
$

 
$

 
$
38,092

Share repurchases related to vesting of share-based awards:
 
 
 
 
 
 
 
Number of shares repurchased
13

 
22

 
91

 
109

Cost of share repurchases
$
106

 
$
382

 
$
732

 
$
2,608

Share Reissuances
We reissue our Class A common stock from our treasury stock as a result of the release of shares associated with share-based awards and purchases under our employee stock purchase plan. Share reissuances were as follows for the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
(In thousands)
2016
 
2015
 
2016
 
2015
Number of shares reissued
38

 
70

 
359

 
352

Note 13 . Earnings Per Share
Our outstanding shares consist of Apollo Class A and Class B common stock. Our Articles of Incorporation treat the declaration of dividends on the Class A and Class B common stock in an identical manner. As such, both the Class A and Class B common stock are included in the calculation of our earnings per share.
Diluted weighted average shares outstanding includes the incremental effect of shares that would be issued upon the assumed exercise of stock options and the vesting and release of restricted stock units and performance share awards. The components of basic and diluted earnings per share are as follows:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
(In thousands, except per share data)
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to Apollo (basic and diluted)
$
20,744

 
$
48,064

 
$
(100,417
)
 
$
48,239

Denominator:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
108,658

 
107,678

 
108,567

 
108,140

Dilutive effect of restricted stock units and performance share awards (1)
786

 
828

 

 
818

Dilutive effect of stock options (1)

 
117

 

 
166

Diluted weighted average shares outstanding
109,444

 
108,623

 
108,567

 
109,124

Basic income (loss) per share attributable to Apollo
$
0.19

 
$
0.45

 
$
(0.92
)
 
$
0.45

Diluted income (loss) per share attributable to Apollo
$
0.19

 
$
0.44

 
$
(0.92
)
 
$
0.44

 
 
 
 
 
 
 
 
Anti-dilutive securities excluded from diluted income (loss) per share:
 
 
 
 
 
 
 
Anti-dilutive restricted stock units and performance share awards (1)
2,984

 
33

 
4,071

 
21

Anti-dilutive stock options (1)
3,514

 
2,513

 
3,595

 
2,329

  (1) Due to the loss from continuing operations attributable to Apollo during the nine months ended May 31, 2016, no dilutive share-based awards were included in the calculation of diluted loss per share because they would have been anti-dilutive.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 25

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 14 . Share-Based Compensation
The following details share-based compensation expense for the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Instructional and student advisory
$
2,432

 
$
2,812

 
$
7,856

 
$
8,699

Marketing
413

 
705

 
1,771

 
2,324

Admissions advisory
15

 
262

 
341

 
779

General and administrative
5,569

 
3,456

 
16,830

 
15,960

Restructuring and impairment charges
303

 
619

 
520

 
2,006

Share-based compensation expense
$
8,732

 
$
7,854

 
$
27,318

 
$
29,768

In accordance with our Amended and Restated 2000 Stock Incentive Plan, we granted no restricted stock units or performance share awards during the three months ended May 31, 2016 and 575,000 restricted stock units and performance share awards during the nine months ended May 31, 2016 . The granted awards had a weighted average grant date fair value per share of $7.50 . As of May 31, 2016 , we had $39.5 million and $1.8 million of unrecognized share-based compensation expense, net of estimated forfeitures, related to unvested restricted stock units and performance share awards, respectively. This expense is expected to be recognized over a weighted average period of 2.2 years .
In accordance with our Amended and Restated 2000 Stock Incentive Plan, we granted no stock options during the three months ended May 31, 2016 and 4,000 stock options during the nine months ended May 31, 2016 . The weighted average grant date fair value and the weighted average exercise price of the options granted were $4.12 and $10.35 , respectively. As of May 31, 2016 , we had $6.8 million of unrecognized share-based compensation expense, net of estimated forfeitures, related to unvested stock options. This expense is expected to be recognized over a weighted average period of 2.3 years .
Note 15 . Commitments and Contingencies
Surety Bonds
Our insurers issue surety bonds for us that are required by various states where we operate, or that are required for other purposes. We are obligated to reimburse our insurers for any surety bonds that are paid. As of May 31, 2016 , the face amount of these surety bonds was approximately $24 million .
Letters of Credit
As of May 31, 2016 , we had approximately $39 million of outstanding letters of credit, which support certain of our obligations and guarantees provided by our subsidiaries as part of our normal operations for which fair value is not material.
Litigation and Other Matters
We are subject to various claims and contingencies that arise from time to time in the ordinary course of business, including those related to regulation, litigation, business transactions, employee-related matters and taxes, among others. We do not believe any of these are material for separate disclosure.
The following is a description of pending litigation, settlements, and other proceedings that fall outside the scope of ordinary and routine litigation incidental to our business.
Merger-Related Shareholder Suits
In connection with the pending merger described in Note 1 , Nature of Operations and Significant Accounting Policies , the class action lawsuits listed below have been filed in the Superior Court of the State of Arizona, Maricopa County against some or all of the following parties: us, our directors, the Apollo Class B Voting Stock Trust No. 1, AP VIII Queso Holdings, L.P., Socrates Merger Sub, Inc., and Barclays Capital Inc. and Evercore Group L.L.C. (in their capacity as our financial advisors in connection with the merger):
Casey v. Apollo Education Group, Inc., et al. , Case No. CV2016-051605 filed on February 25, 2016;
Miglio v. Apollo Education Group, Inc. , et al. , Case No. CV2016-003718 filed on February 26, 2016;
Blanchfield v. Apollo Education Group, Inc. , et al ., Case No. CV2016-001738 filed on February 29, 2016;
Wagner v. Apollo Education Group, Inc. , et al. , Case No. CV2016-001905 filed on March 9, 2016;
Ladouceur v. Apollo Education Group, Inc. , et al. , Case No. CV2016-002148 filed on March 17, 2016; and
Simkhovich v. Apollo Education Group, Inc. , et al. , Case No. CV2016-002339 filed on March 23, 2016.

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The complaints generally allege that our directors have violated their fiduciary duties by, among other things, failing to properly value us and failing to maximize our value to our shareholders as well as by including purportedly preclusive deal protections in the merger agreement, and that we, AP VIII Queso Holdings, L.P. and Socrates Merger Sub, Inc. aided and abetted such alleged breaches of fiduciary duties. The Miglio , Wagner , Ladouceur and Simkhovich complaints further allege that our directors breached their fiduciary duty of candor by filing a materially incomplete and misleading preliminary proxy statement and also allege that the sale process was negatively impacted by certain conflicts with our financial advisors. The plaintiffs seek various remedies, including a declaration that the action is properly maintainable as a class action, an injunction against the consummation of the merger, an accounting of the damages sustained by the plaintiffs and the class, costs and fees of the action, including attorneys’ fees and expenses, and any other equitable relief the court may deem just and proper.
On March 4, 2016, the action titled Blanchfield v. Apollo Education Group, Inc. , et al . was voluntarily dismissed without prejudice.
On April 12, 2016, the Superior Court of the State of Arizona, Maricopa County consolidated the remaining Casey , Miglio , Wagner , Ladouceur and Simkhovich cases into a single action, In re Apollo Education Group, Inc. Shareholder Litigation , Lead Case No. CV2016-001905 (the “Consolidated Action”). On May 1, 2016, we reached an agreement with the plaintiffs to settle the Consolidated Action in connection with the increase in the merger consideration per share, which agreement is subject to consummation of the merger, certain confirmatory discovery and approval by the court. If the merger is consummated, we anticipate that we will be required to pay the plaintiffs’ expenses and an amount for attorneys’ fees yet to be determined and subject to court approval.
Securities Class Action (Rameses Te Lomingkit et. al.)
On March 14, 2016, a class action complaint was filed in the United States District Court for the District of Arizona, captioned Rameses Te Lomingkit et. al. v. Apollo Education Group, Inc. et. al. , Case Number 2:16-CV-00689-JZB. The plaintiff, who allegedly purchased our shares during the specified class period, filed this putative class action on behalf of the plaintiff and all of our shareholders who acquired Class A shares between June 26, 2013 and October 21, 2015 and seeks certification as a class action and unspecified compensatory damages and costs. The plaintiff alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated under the Exchange Act, by us and certain of our officers for making allegedly false and misleading statements and failing to disclose material facts relating to the nature of our military recruitment activities and the status of our online classroom platform. The Court appointed the Government of Guam Retirement Fund as lead plaintiff on June 16, 2016. The lead plaintiff has until August 15, 2016 to file a consolidated or amended complaint, or to designate the previously filed complaint as the operative complaint.
Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.
Class Action under the Telephone Consumer Protection Act
On June 24, 2016, Twonesha Johnson-Hendricks filed a class action complaint, Johnson-Hendricks v. University of Phoenix , 2:16-cv-01434 (E.D. Cal.) in the United States District Court for the Eastern District of California, alleging that University of Phoenix violated the Telephone Consumer Protection Act by contacting class members without their consent. We are evaluating the complaint, which seeks to recover damages on behalf of plaintiff and other members of the putative class.
Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.
Shareholder Demand Letter
On June 10, 2016, we received a shareholder demand to commence a civil action against each of our directors and certain of our current and former officers on grounds of breach of fiduciary duty and other claims, and to make available for examination certain records. The demand is a condition precedent under applicable Arizona law to the filing of a derivative lawsuit on behalf of the Company seeking damages from directors and officers for breach of fiduciary duty. We are evaluating the demand.
Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.
Class Action Alleging Violations of Kentucky Wage and Hour Laws
On June 9, 2015, two former University of Phoenix employees filed an action in the Circuit Court of Jefferson County Kentucky alleging that they were wrongfully terminated from their positions with the University in violation of Kentucky and federal law. In

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this action, which is captioned Aldrich et al. v. The University of Phoenix, 15-C-2839 (Jefferson Cty. Circuit Court), plaintiffs also allege that the University violated Kentucky wage and hour law by failing to pay plaintiffs overtime and other required wages, and in connection with these wage and hour claims, they seek to represent a class of plaintiffs consisting of all individuals employed by the University within the past five years who performed a substantial part of their job duties in Kentucky. Plaintiffs seek to recover damages on their own behalf in connection with their alleged wrongful termination and past due wages, overtime compensation and other relief on behalf of the class in connection with the wage and hour claims. On March 4, 2016, the Court granted our motion to dismiss and compel arbitration. On March 9, 2016, plaintiffs filed a notice of their intent to appeal with the U.S. Court of Appeals for the Sixth Circuit. The appeal is currently pending.
Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.
Incentive Compensation False Claims Act Lawsuit
On May 25, 2011, we were notified that a qui tam complaint had been filed against us in the U.S. District Court, Eastern District of California, by private relators under the Federal False Claims Act and California False Claims Act, entitled USA and State of California ex rel. Hoggett and Good v. University of Phoenix, et al , Case Number 2:10-CV-02478-MCE-KJN. When the federal government declines to intervene in a qui tam action, as it has done in this case, the relators may elect to pursue the litigation on behalf of the federal government and, if successful, they are entitled to receive a portion of the federal government’s recovery.
The complaint alleges, among other things, that University of Phoenix has violated the Federal False Claims Act since December 12, 2009 and the California False Claims Act for the preceding ten years by falsely certifying to the U.S. Department of Education and the State of California that University of Phoenix was in compliance with various regulations that require compliance with federal rules regarding the payment of incentive compensation to admissions personnel, in connection with University of Phoenix’s participation in student financial aid programs. In addition to injunctive relief and fines, the relators seek significant damages on behalf of the Department of Education and the State of California, including all student financial aid disbursed by the Department to our students since December 2009 and by the State of California to our students during the preceding ten years. On July 24, 2014, the Court granted our motion to dismiss for lack of jurisdiction and dismissed relators’ complaint with prejudice. On December 14, 2014, relators filed a Notice of Appeal with the U.S. Court of Appeals for the Ninth Circuit, and their appeal remains pending before that court.
Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.
Federal False Claims Act Lawsuit
On March 3, 2016, a  qui tam  complaint against us filed by a private relator under the Federal False Claims Act was unsealed. The lawsuit, captioned  United States of America ex rel. Arthur Green v. University of Phoenix, et al , Case Number 1:14 CV 1654, was previously filed under seal in the U.S. District Court for the Northern District of Ohio. It was unsealed by order of the District Court after the federal government notified the District Court of its decision not to intervene in the case.
The complaint alleges, among other things, that since at least July 2008, University of Phoenix has violated the Federal False Claims Act by falsely certifying to the U.S. Department of Education that the University was in compliance with various regulations under the U.S. Higher Education Act relating to preparation of student financial aid forms and other matters, including in connection with employee participation in student financial aid programs. The relator seeks unspecified damages on behalf of the federal government. On June 2, 2016, the District Court granted the motion of the relator’s counsel to withdraw, and the relator had until July 5, 2016 to either obtain new counsel or otherwise show cause why the case should not be dismissed for want of prosecution. In response to the Court’s order, the relator has filed a motion seeking an extension of time to identify new counsel.
Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.
K.K. Modi Investment and Financial Services Pvt. Ltd.
On November 8, 2010, a suit was filed by K.K. Modi Investment and Financial Services Pvt. Ltd. (“Modi”) in the High Court of Delhi at New Delhi against defendants Apollo, Western International University, Inc., University of Phoenix, Inc., Apollo Global, Inc., Modi Apollo International Group Pvt. Ltd., Apollo International, Inc., John G. Sperling, Peter V. Sperling and Jorge Klor De Alva, seeking to permanently enjoin the defendants from making investments in the education industry in the Indian market in breach of an exclusivity and noncompete provision which plaintiff alleges is applicable to Apollo and its subsidiaries. The case is

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entitled, K.K. Modi Investment and Financial Services Pvt. Ltd. v. Apollo International, et. al . We believe that the relevant exclusivity and noncompete provision is inapplicable to us and our affiliates. On October 31, 2014, the Court denied the Apollo defendants’ initial applications to have the case dismissed, concluding that plaintiffs’ complaint raised factual issues that needed to be resolved through the submission of evidence. Defendants appealed that ruling to the Division Bench of the High Court, and that appeal was denied by the Division Bench on August 17, 2015. We then filed a Special Leave Petition before the India Supreme Court on November 21, 2015 seeking leave to appeal the decision of the Division Bench, which was denied on January 15, 2016. On February 15, 2016, we filed a petition for review of the denial of the Special Leave Petition, which was rejected by the India Supreme Court on March 31, 2016. The case will be returned to the Delhi High Court for the taking of evidence. If plaintiff ultimately obtains the requested injunctive relief, our ability to conduct business in India, including through our joint venture with HT Media Limited, may be adversely affected. It is also possible that in the future K.K. Modi may seek to expand existing litigation in India or commence litigation in the U.S. in which it may assert a significant damage claim against us.
Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.
Attorney General Investigations
In August 2015, we received an Investigative Subpoena from the Office of the Attorney General of the State of California. The Subpoena requires us to produce documents and information regarding the business and practices of University of Phoenix relating to members and former members of the U.S. military and California National Guard, including marketing, recruiting, billing, financial aid, accommodation and other services for military personnel, compliance with federal Executive Order 13607 (Establishing Principles of Excellence for Educational Institutions Serving Service Members, Veterans, Spouses, and Other Family Members), and use of U.S. military logos and emblems in marketing, for the time period of July 1, 2010 to the present.
In February 2016, we received a Second Investigative Subpoena from the Office of the Attorney General of the State of California in the Matter of the Investigation of For-Profit Educational Institutions, following the Investigative Subpoena we received in August 2015. The Second Investigative Subpoena, which is not limited to matters involving military students, seeks the production of documents and information regarding a broad spectrum of the business and practices of Apollo and its subsidiaries, including University of Phoenix, relating to marketing, recruiting, compensation of enrollment advisors, complaints, financial aid, compliance, accreditation, other governmental investigations, private litigation and other matters, as well as additional information relating to marketing and services to members and former members of the U.S. military and California National Guard, for the time period of July 1, 2010 to the present.
We are cooperating with the California Attorney General in these investigative proceedings. We cannot predict the eventual scope, duration or outcome of the investigations at this time.
In May 2011 and January 2013, University of Phoenix received Civil Investigative Demands from the State of Massachusetts Office of the Attorney General. The Demands relate to an investigation of possible unfair or deceptive methods, acts, or practices by proprietary educational institutions in connection with the recruitment of students and the financing of education. The Demands seek documents, information and testimony regarding a broad spectrum of the University’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.
In October 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 the University. 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 the University’s business. We are cooperating with the investigation. We cannot predict the eventual scope, duration or outcome of the investigation at this time.
Because of the many questions of fact and law that may arise, the outcome of these state Attorneys General investigative proceedings is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for these matters and, accordingly, we have not accrued any liability associated with these matters.
In addition, from time to time, we receive requests for information from state Attorneys General, accrediting bodies, state higher education regulatory bodies and other federal and state government agencies relating to investigations or inquiries being conducted by other state or federal agencies, pending litigation or specific complaints received from students or former students. These requests can be broad and time consuming to respond to, and there is a risk that they could expand and/or lead to a formal inquiry or investigation into our practices. We received such a request from the Wisconsin Department of Justice for information relating to programs offered by University of Phoenix to Wisconsin residents. On May 2, 2016, we accepted service of a Wisconsin

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Department of Justice subpoena in order to allow the University to lawfully produce student records to the Wisconsin Department of Justice, subject to certain notice requirements, in connection with this inquiry.
Federal Trade Commission Investigation
In July 2015, we received a Civil Investigative Demand from the U.S. Federal Trade Commission (the “FTC”) relating to an investigation to determine if certain unnamed persons, partnerships, corporations, or others have engaged or are engaging in deceptive or unfair acts or practices in or affecting commerce in the advertising, marketing, or sale of secondary or postsecondary educational products or services or educational accreditation products or services. The Demand requires us to produce documents and information regarding a broad spectrum of the business and practices of University of Phoenix, including in respect of marketing, recruiting, enrollment, financial aid, tuition and fees, academic programs, academic advising, student retention, billing and debt collection, complaints, accreditation, training, military recruitment, and other compliance matters, for the time period of January 1, 2011 to the present. We are cooperating with the investigation. We cannot predict the eventual scope, duration or outcome of the investigation at this time.
Because of the many questions of fact and law that may arise, the outcome of the FTC investigation is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this matter and, accordingly, we have not accrued any liability associated with this matter.
Open Colleges Investigations
In September 2015, Open Colleges received a Notice from the Australian Competition and Consumer Commission (“ACCC”) requiring Open Colleges to produce information about student refunds upon withdrawal and related matters for the period of time since July 2014. In addition, Open Colleges receives inquiries and is subject to audits from time to time from governmental regulatory authorities, including an inquiry in October 2015 from the Australian Skills Quality Authority regarding student complaints about marketing practices, refund policies and other matters (since concluded without material findings), and a notice from the Australian Skills Quality Authority in June 2016 of a compliance audit. Open Colleges is cooperating with the relevant authorities in these matters, but we cannot at this time predict their eventual scope, duration or outcome.
Because of the many questions of fact and law that may arise, the outcome of these investigative proceedings is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for these matters and, accordingly, we have not accrued any liability associated with these matters.
Office of the Inspector General of the U.S. Department of Education (“OIG”) Subpoena
On March 21, 2014, University of Phoenix received a subpoena from the Mid-Atlantic Region of the OIG. The subpoena seeks the production by the University of documents and detailed information regarding a broad spectrum of the activities conducted in the University’s Centralized Service Center for the Northeast Region located in Columbia, Maryland, for the time period of January 1, 2007 to the present, including information relating to marketing, recruitment, enrollment, financial aid processing, fraud prevention, student retention, personnel training, attendance, academic grading and other matters. We are cooperating with these requests, but we cannot at this time predict the eventual scope, duration or outcome of this matter.
Because of the many questions of fact and law that may arise, the outcome of this matter is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss and, accordingly, we have not accrued any liability associated with this matter.
UNIACC Investigations
UNIACC was advised by the National Accreditation Commission of Chile in November 2011 that its institutional accreditation would not be renewed and therefore had lapsed. Subsequently, in June 2012, a prosecutor’s office in Santiago, Chile requested that UNIACC provide documents relating to UNIACC’s relationship with a former employee and consultant who served as a member of the National Accreditation Commission (“CNA”) until March 2012, and we received requests for additional information in connection with this investigation. Furthermore, in August 2012, the prosecutor’s office began requesting that UNIACC provide information about UNIACC’s business structure and operations and its relationship with other Apollo entities, in connection with an additional investigation regarding UNIACC’s compliance with applicable laws concerning the generation of profit by universities such as UNIACC. The prosecutor’s office also requested additional information from UNIACC regarding certain government funding received by the institution. On April 7, 2016, the prosecutor closed the investigation related to the CNA matter.
Securities Class Action (Teamsters Local 617 Pension and Welfare Funds)
On November 2, 2006, the Teamsters Local 617 Pension and Welfare Funds filed a class action complaint alleging that we and certain of our current and former directors and officers violated the Securities Exchange Act of 1934. The complaint is entitled

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Teamsters Local 617 Pension & Welfare Funds v. Apollo Group, Inc. et al. , Case Number 06-cv-02674-RCB.
The parties reached an agreement in principle to settle this matter for an immaterial amount and, on July 29, 2015, the district court entered an order approving the settlement and dismissing with prejudice the claims against defendants. Subsequent to the approval, an individual non-class member filed an untimely objection to the settlement with the district court. On December 7, 2015, the district court struck the objection.
Note 16 . Regulatory Matters
All U.S. federal student financial aid programs are established by Title IV of the Higher Education Act and regulations promulgated thereunder. The U.S. Congress must periodically reauthorize the Higher Education Act and annually determine the funding level for each Title IV program. The most recent reauthorization of the Higher Education Act expired September 30, 2013, but Title IV student financial aid programs remain authorized and functioning. Congress continues to engage in discussion and activity regarding Higher Education Act reauthorization, but the timing and terms of any eventual reauthorization cannot be predicted.
The Higher Education Act, as reauthorized, specifies the manner in which the U.S. Department of Education reviews institutions for eligibility and certification to participate in Title IV programs. Every educational institution involved in Title IV programs must be certified to participate and is required to periodically renew this certification, which is granted in a Program Participation Agreement with the institution.
University of Phoenix’s Title IV Program Participation Agreement expired on December 31, 2012. The University has submitted necessary documentation for recertification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application. We believe that the University’s application will be renewed in due course. However, we cannot predict whether or to what extent the continued challenging political and regulatory climate and other recent developments in general relating to the proprietary education sector and our business may have on the timing or outcome of the recertification process.
In February 2016, the Department notified the University that for the duration of the month-to-month continuation of the University’s Program Participation Agreement, University of Phoenix must obtain from the Department prior approval of substantial changes, including (i) the establishment of additional locations, (ii) any increase in the level of academic offering beyond those listed in the Institution’s Eligibility and Certification Approval Report and (iii) the addition of any educational program (including degree, nondegree, or short-term training programs). Some of these substantial changes include changes that previously could be implemented by the University upon notice to the Department and without prior approval.
Additionally, in August 2014, the Department commenced an ordinary course program review of University of Phoenix’s administration of Title IV programs covering federal financial aid years 2012-2013 and 2013-2014, as well as compliance with the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act, the Drug-Free Schools and Communities Act and related regulations. During fiscal year 2015, the University received a Final Program Review Determination Letter with regard to this program review. All administrative matters are deemed by the Department to be resolved and/or closed, with the exception of findings regarding compliance with the Clery Act, which have been referred to the Department’s Clery Team and to the Administrative Action and Appeals Division which is standard protocol in such matters. The outcome of this matter is uncertain at this point and, based on the information available to us at present, we have not accrued any liability associated with this matter.
Financial Responsibility Composite Score
To participate in Title IV programs, the U.S. Department of Education regulations specify that an eligible institution of higher education must satisfy specific measures of financial responsibility prescribed by the Department, or post a letter of credit in favor of the Department and accept other conditions on its participation in Title IV programs. Pursuant to the Title IV program regulations, each eligible institution must satisfy a measure of financial responsibility that is based on a weighted average of the following three annual ratios which assess the financial condition of the institution:
Primary Reserve Ratio - measure of an institution’s financial viability and liquidity;
Equity Ratio - measure of an institution’s capital resources and its ability to borrow; and
Net Income Ratio - measure of an institution’s profitability.
These ratios provide three individual scores which are converted into a single composite score. The maximum composite score is 3.0 . If an institution’s composite score is at least 1.5 , it is considered financially responsible. If an institution’s composite score is less than 1.5 but is 1.0 or higher, it is still considered financially responsible, and the institution may continue to participate as a financially responsible institution for up to three years under the Department’s “zone” alternative. Under the

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zone alternative, the Department may subject the institution to various operating or other requirements, which may include being transferred from the “advance” method of payment of Title IV program funds to the heightened cash monitoring payment method under which the institution is required to make Title IV disbursements to eligible students and parents before it requests or receives funds from the Department for the amount of those disbursements, or being transferred to the more onerous reimbursement payment method under which an institution must submit to the Department documentation demonstrating the eligibility for each Title IV disbursement and wait for the Department’s approval before drawing down Title IV funds.
If an institution does not achieve a composite score of at least 1.0, it is subject to additional requirements in order to continue its participation in the Title IV programs, including submitting to the Department a letter of credit in an amount equal to at least ten percent, and at the Department’s discretion up to 50% , of the Title IV funds received by the institution during its most recently completed fiscal year, and being placed on provisional certification status, under which the institution must receive Department approval before implementing new locations or educational programs and comply with other restrictions, including reduced due process rights in subsequent proceedings before the Department.
In addition, under new regulations that took effect on July 1, 2016, institutions placed on either the heightened cash monitoring payment method or the reimbursement payment method must pay Title IV credit balances to students and parents before requesting Title IV funds from the Department and may not hold Title IV credit balances on behalf of students or parents, even if such balances are expected to be applied to future tuition payments.
The composite scores for Apollo Education Group and University of Phoenix, which are calculated as of the end of our fiscal year, were as follows for the indicated periods:
 
Fiscal Year
 
2015
 
2014
 
2013
Apollo Education Group
2.6
 
2.5
 
2.6
University of Phoenix
2.9
 
2.3
 
2.5
As discussed in Note 7 , Goodwill and Intangibles , we recorded $73.4 million of goodwill impairment charges relating to our University of Phoenix and Western International University reporting units during the first quarter of fiscal year 2016, which was primarily the result of a substantial decline in our market capitalization. These impairment charges increase our fiscal year 2016 total operating expenses, which will negatively impact our fiscal year 2016 composite scores to be calculated as of August 31, 2016. If our profitability declines further than expected, including as a result of additional goodwill impairment charges, which could result from further declines in our market capitalization, higher than expected restructuring charges, our inability to execute on our currently planned cost reduction initiatives, a more than anticipated decline in enrollment, or other unexpected changes or developments, our fiscal year 2016 composite scores could fall below 1.5.
We believe that we may be able to take certain corrective measures to maintain composite scores of 1.5 or greater, if we determine that there is increased risk that our fiscal year 2016 composite scores will fall below that level, depending on the circumstances causing the expected decline. However, such measures, if available, may require material modifications to our business and strategy that would adversely impact our future revenue and profitability and/or may involve the issuance of equity or equity-linked securities under challenging circumstances that could result in material dilution to our existing shareholders.
If our composite score falls below 1.5, our liquidity could be subject to severe stress due to the following factors:
Our principal revolving credit facility, which expires in April 2017, requires that we maintain a composite score of at least 1.5. If our composite score falls below 1.5, it would be an event of default under the facility and any outstanding balance could be declared immediately due and payable.
Although not required solely due to participation in the zone alternative discussed above, we could be required by the Department of Education to submit a letter of credit in an amount of 10% or more of our annual Title IV receipts as a result of factors related to the cause of our composite score decline, which letter of credit likely would need to be cash collateralized and our revolving credit facility would not be available for this purpose.
If the Department places University of Phoenix on the heightened cash monitoring payment method, we would need to deploy additional working capital to conduct our business due to the delay in receipt of Title IV funding. If University of Phoenix is placed on the reimbursement payment method, our working capital needs would increase significantly, the precise amount of which increase cannot be predicted because it would depend on the average length of time required by the Department to evaluate and approve our requests for reimbursement and the amount of any required letter of credit.

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The combined effect of the above factors could cause our business to no longer be sustainable without a significant infusion of equity or other funding. Under current market conditions, there is no assurance that other funding sources would be available in sufficient amounts on terms acceptable to us or at all, and any available equity funding would necessarily involve substantial dilution to our current shareholders.
Gainful Employment
Under the Higher Education Act, as reauthorized, proprietary schools are generally eligible to participate in Title IV programs only in respect of educational programs that lead to “gainful employment in a recognized occupation.” In connection with this requirement, proprietary postsecondary institutions are required to provide information to prospective students about each eligible program, including the relevant recognized occupations, cost, completion rate, job placement rate, and median loan debt of program completers.
In October 2014, the U.S. Department of Education published final regulations, effective July 1, 2015, on the metrics for determining whether an academic program prepares students for gainful employment in a recognized occupation. Under the final regulations, which apply on a program-by-program basis, students enrolled in a program will be eligible for Title IV student financial aid only if that program satisfies at least one of two tests relating to student debt service-to-earnings ratios. The two tests specify minimum debt service-to-earnings ratios calculated on the basis of the average earnings of program graduates; one test measures student loan debt service as a percentage of total earnings, and the other test measures student loan debt service as a percentage of discretionary earnings. If a program fails to meet either minimum ratio for one year, the institution will be required to provide a warning notice to prospective and enrolled students advising that the program may lose Title IV eligibility based on the final student debt service-to-earnings ratios for the next award year. Programs that fail to meet either of the minimum ratios for two out of three consecutive years will immediately cease to be Title IV eligible for a period of at least three years.
The Department has indicated that the official 2014 gainful employment debt service-to-earnings ratios will be issued sometime during calendar year 2016. The expected timing of the issuance of the 2015 ratios has not yet been announced. We believe it is likely that some of University of Phoenix’s programs will be impacted by the regulations. However, the University ceased enrolling new students in many of the programs it believes may be impacted in connection with its initiatives to transform itself into a more focused, higher retaining and less complex institution. As of August 31, 2015, students in these programs that ceased enrolling new students represented approximately 10% of the University’s Degreed Enrollment. Students who were already enrolled in such programs, and who do not elect to enroll in a different University of Phoenix program, will be taught-out in due course.
Changes in student borrowing needs and practices, student loan interest rates, labor markets and other factors outside of our control could adversely impact compliance with these regulations for some of our programs in the future. The Department has not yet announced the protocol for calculating and disseminating the debt service-to-earnings ratios. Because the ratios will be issued by the Department after the measuring period, we may not know of a program’s failure to meet the tests until well after the measuring period, and students enrolled in such a program could lose their access to federal financial aid before completing the program.
Higher Learning Commission Accreditation
University of Phoenix is regionally accredited by The Higher Learning Commission (“HLC”), which provides the following:
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.
In July 2013, the accreditation of University of Phoenix was reaffirmed by HLC through the 2022-2023 academic year. The University is subject to the Standard Pathway reaffirmation process, pursuant to which the University will host a comprehensive evaluation visit in 2017 and will undergo its next reaffirmation process in 2022-2023.
Military Benefit Programs
U.S. Department of Defense Tuition Assistance Program
On January 15, 2016, University of Phoenix was notified by the U.S. Department of Defense (“DoD”) that the University’s probationary status in respect of its participation in the DoD Tuition Assistance Program for active duty military personnel had been lifted, effective immediately. The University had been placed on probation in October 2015 pending a review by the

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(Unaudited)

Department of the University’s compliance with the DoD Voluntary Education Partnership Memorandum of Understanding with the University, which is the basis on which the University’s active duty military students participate in the DoD Tuition Assistance Program.
The University will be subject to a heightened compliance review for a period of one-year following the removal of probationary status. During this period, the University will continue to engage with the Department and complete the production of information and documents previously requested by the Department. In addition, the University will be subject to an enhanced compliance review in fiscal year 2017.
In fiscal year 2015 , funding under the DoD Tuition Assistance Program represented less than 1% of the University’s net revenue.
U.S. Department of Veterans Affairs Educational Benefits
University of Phoenix participates in the Department of Veterans Affairs educational benefits programs (“VA Programs”) for eligible veterans. Under these VA Programs, the educational locations serving veterans are subject to a compliance survey each year. Following the notice of probation in October 2015 from the Department of Defense, which has been subsequently lifted as described above, the Veterans Administration announced the commencement of the annual compliance survey, with an accelerated schedule and increased scope relative to prior years. The annual compliance review was completed with no adverse action imposed on the University. In fiscal year 2015, funding under VA Programs represented approximately 10% of University of Phoenix’s cash basis revenue, calculated on the same basis as for the 90/10 Rule.
Note 17 . Segment Reporting
We operate in the education industry and our operating segments have been determined based on the method by which our chief operating decision maker evaluates performance and allocates resources. We have not aggregated any of our operating segments, which are presented in our segment reporting as follows:
University of Phoenix , which offers undergraduate and graduate degrees through its nine colleges in a wide range of program areas as well as various nondegree programs. A significant majority of the University’s students attend classes exclusively online, and the University also offers its educational programs and services at ground locations throughout the United States.
Apollo Global , which includes our institutions based outside the U.S., and its corporate operations. Apollo Global acquired Career Partner and FAEL during the second quarter of fiscal year 2016 and 2015, respectively. Refer to Note 4 , Acquisitions . The operating results of these entities are included in our Apollo Global operating segment from the date of each respective acquisition.
Other , which includes College for Financial Planning, Western International University, Apollo Professional Development, and Apollo corporate activities. Apollo acquired The Iron Yard during the fourth quarter of fiscal year 2015, and its operating results are included in Other in our segment reporting from the acquisition date.
During the fourth quarter of fiscal year 2015, we classified Carnegie Learning as held for sale and began presenting it as discontinued operations. Carnegie Learning’s operating results were previously included in Other in our segment reporting, and certain additional Carnegie Learning expenses associated with University of Phoenix’s use of Carnegie Learning technology were included in our University of Phoenix reportable segment. As Carnegie Learning’s operating results are presented as discontinued operations on our Condensed Consolidated Statements of Operations for all periods presented, we have revised our segment reporting to exclude Carnegie Learning’s operating results.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 34

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

A summary of financial information by reportable segment is as follows:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Net revenue:
 

 
 

 
 

 
 
University of Phoenix
$
424,479

 
$
560,692

 
$
1,252,052

 
$
1,641,314

Apollo Global
125,007

 
109,622

 
334,135

 
305,862

Other
8,516

 
6,044

 
23,184

 
18,810

Net revenue
$
558,002

 
$
676,358

 
$
1,609,371

 
$
1,965,986

Operating income (loss) (1) :
 
 
 
 
 

 
 
University of Phoenix
$
59,681

 
$
103,395

 
$
33,099

 
$
216,776

Apollo Global (2)
(459
)
 
5,465

 
(29,677
)
 
(26,918
)
Other (3)
(27,223
)
 
(15,576
)
 
(97,488
)
 
(69,879
)
Operating income (loss)
31,999

 
93,284

 
(94,066
)
 
119,979

Reconciling items:
 
 
 
 
 
 
 
Interest income
1,041

 
762

 
2,883

 
2,091

Interest expense
(1,569
)
 
(1,715
)
 
(4,997
)
 
(5,116
)
Other loss, net
(273
)
 
(2,038
)
 
(2,229
)
 
(4,480
)
Income (loss) from continuing operations before income taxes
$
31,198

 
$
90,293

 
$
(98,409
)
 
$
112,474

(1) University of Phoenix, Apollo Global and Other include restructuring and impairment charges during the periods, which includes a $71.8 million goodwill impairment charge during the first quarter of fiscal year 2016 for our University of Phoenix reporting unit. Refer to Note 2 , Restructuring and Impairment Charges , and Note 7 , Goodwill and Intangibles .
(2) During the three and nine months ended May 31, 2016 , Apollo Global had $0.6 million and $3.8 million of expense included in Merger, acquisition and other related costs (credit), net , respectively. During the three and nine months ended May 31, 2015 , Apollo Global had a net credit of $1.0 million and $1.7 million of net expense, respectively.
(3) During the three and nine months ended May 31, 2016 , Other had $7.7 million and $21.4 million of expense included in Merger, acquisition and other related costs (credit), net , respectively, and $0.5 million and $2.8 million during the three and nine months ended May 31, 2015 , respectively.
Our consolidated assets by reportable segment consist of the following as of the respective period ends:
($ in thousands)
May 31,
2016
 
August 31,
2015
University of Phoenix
$
596,440

 
$
648,755

Apollo Global
714,248

 
588,434

Other (1)
726,938

 
963,875

Total assets
$
2,037,626

 
$
2,201,064

(1) The majority of the assets included in Other consists of cash and cash equivalents and marketable securities.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 35


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help provide an understanding of our results of operations, financial condition and present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended August 31, 2015 and our financial statements included in Part I, Item 1, of this Form 10-Q.
Overview
Apollo Education Group, Inc. is one of the world’s largest private education providers, serving students since 1973. We believe that our success depends on providing high quality education and career-focused pathways, tools and services to students to maximize the benefits of their educational experience. We offer undergraduate, graduate, certificate and nondegree educational programs and services, online and on-campus, principally to working learners in the U.S. and abroad.
Substantially all of our net revenue is composed of tuition and fees for educational services. In fiscal year 2015 , University of Phoenix represented 84% of our consolidated net revenue, and generated more than 100% of our consolidated operating income.
Pending Merger
On February 7, 2016, we entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with AP VIII Queso Holdings, L.P., a Delaware limited partnership (“Parent”) and Socrates Merger Sub, Inc., an Arizona corporation and a wholly owned subsidiary of Parent (“Merger Sub”), providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent is an affiliate of Apollo Management, L.P., a fund managed by an affiliate of Apollo Global Management, LLC, neither of which is, or has ever been, affiliated with us. The Vistria Group, LP is a co-investor in Parent. Najafi Companies, LLC is a potential co-investor in Parent. At the effective time of the Merger, which is expected to be completed by the end of calendar year 2016, each share of our issued and outstanding Class A and Class B common stock (other than shares owned by Parent and its subsidiaries and shares owned by us and our subsidiaries) will be converted pursuant to the terms of the Merger Agreement into the right to receive $10.00 per share in cash. On May 6, 2016, the Merger Agreement was approved by the holders of our outstanding Class A and Class B common stock, each voting separately as a class.
Consummation of the Merger is subject to customary and other conditions, including:
(i)
the receipt of consents or approvals from certain federal, state and foreign educational governing bodies, including the Higher Learning Commission; and
(ii)
the absence of certain conditions or restrictions in the response of the U.S. Department of Education to the pre-acquisition review application filed by University of Phoenix.
In addition, consummation of the Merger is subject to our satisfying certain minimum operating metrics, measured as of the first or second month end preceding the closing date, depending on the day of the month on which closing occurs, as follows:
(i)
Our aggregate cash, cash equivalents and marketable securities must not be less than the specified amount for the applicable month end;
(ii)
University of Phoenix fiscal year-to-date new degreed enrollments as of the applicable month end must not have declined by more than 15% from forecasted levels (which are derived from the projections we prepared in December 2015 in connection with the Merger, which we refer to as the December forecast);
(iii)
University of Phoenix trailing twelve month net revenue as of the applicable month end shall not have declined by more than 10% from forecasted levels (which are derived from the December forecast); and
(iv)
Our consolidated trailing twelve months adjusted earnings before interest, taxes, depreciation and amortization as of the applicable month end shall not have declined by more than $75 million from forecasted levels (which are derived from the December forecast).
We currently expect to satisfy these minimum operating metrics if the closing occurs on or prior to October 9, 2016, which is the latest closing date for which the relevant operating metrics are derived from our fiscal year 2016 financial and operating results. However, our expected fiscal year 2016 enrollment and operating results have declined since our December forecast. If our enrollment or operating results continue to decline, we may not be able to satisfy one or more of these closing conditions, either before or after October 9, 2016. If we fail to satisfy one or more of these closing conditions, Parent would be entitled to terminate the Merger Agreement and elect not to consummate the Merger.
There is no assurance that the conditions to the consummation of the Merger will be satisfied in a timely manner or at all.
The Merger Agreement may be terminated by each of us and Parent under certain circumstances, including if the Merger is not consummated by 5:00 pm Eastern time on February 1, 2017. Upon termination of the Merger Agreement under certain

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 36


specified circumstances, but not including a termination solely due to our failure to satisfy the minimum operating metrics described above, we will be required to pay Parent a termination fee of 2.75% of the aggregate per share merger consideration that would have been payable to the Company’s shareholders upon closing of the Merger (approximately $27.5 million), and under other specified circumstances, Parent will be required to pay us a reverse termination fee of $25.0 million. For additional information about some of the consequences that could arise from the failure to consummate the Merger, see Part II, Item 1A, Risk Factors - Our pending merger may not be consummated, which may adversely affect our business, and our business may suffer as a result of uncertainty surrounding the pending merger .
Assuming timely receipt of required regulatory approvals and the satisfaction or waiver of all other closing conditions, we anticipate that the Merger will be completed by the end of calendar year 2016.
On July 7, 2016, HLC formally notified us that the HLC Board of Trustees had voted to defer action on our change of control application until such time as the Department of Education provides us and HLC with a written response to the pre-acquisition applications filed by University of Phoenix and Western International University, and Parent has filed a substantive response to any requirements stipulated in the Department’s response. HLC indicated that it would consider the matter at a special meeting to be convened within 30 days of receiving the specified information, and that should such information not be received before September 28, 2016, the matter would automatically be scheduled for the November 2016 Board of Trustees meeting.
For additional information related to the Merger and the Merger Agreement, please refer to our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 8, 2016, our definitive proxy statement filed with the Commission on March 23, 2016, the supplement to the definitive proxy statement filed with the Commission on May 2, 2016, and the amendments to the Merger Agreement attached to our Current Report on Form 8-K filed with the Commission on May 2, 2016 and this Quarterly Report on Form 10-Q. The foregoing description of the Merger Agreement and the Merger does not purport to be complete and is subject to, and qualified in its entirety by the full text of the Merger Agreement attached as Exhibit 2.1 to our Current Report on Form 8-K filed with the Commission on February 8, 2016, Amendment No. 1 to the Merger Agreement attached as Exhibit 2.1 to our Current Report on Form 8-K filed with the Commission on May 2, 2016, and Amendment No. 2 to the Merger Agreement attached as Exhibit 2.2 to this Quarterly Report on Form 10-Q.
Key Trends, Developments and Challenges
The following developments and trends present opportunities, challenges and risks relating to our business. For a more detailed discussion of our business, industry and risks, refer to our 2015 Annual Report on Form 10-K.
Rapidly Evolving and Highly Competitive Education Industry
The higher education industry is changing at an increasing pace due to technological developments, evolving needs and objectives of students and employers, economic constraints affecting educational institutions and students, price competition, increased focus on affordability and value, uneven quality of secondary education in the U.S. and other factors that challenge many of the core principles underlying the industry. In addition, one of our primary competitive advantages in the U.S. has been materially diminished as a significant and increasing number of traditional four-year and community colleges offer an increasing array of distance learning and other online education programs, including programs that are offered wholly online and geared towards the needs of working learners. In recent years we have not competed successfully with these traditional schools, and this has contributed to the substantial decline in University of Phoenix enrollment that began in late 2010. See further discussion of enrollment in Results of Operations below.
University of Phoenix Transformation
The University’s vision is to be recognized as the most trusted provider of career-relevant higher education for working adults. In furtherance of this, the University offers career focused programs and an instructional model designed specifically to meet the educational needs of working adults. Due in part to the competitive factors described above, University of Phoenix Degreed Enrollment has decreased by approximately 70% since late 2010. The University is working to stabilize enrollment in the longer term by transforming itself into a more focused, higher retaining and less complex institution through several initiatives, including:
Continuing the development of a college-by-college approach to strategy, marketing, admissions, staffing, program development, planning and budgeting to more effectively address the specific needs of the students and employers served by each college;
Piloting diagnostic tools for development of enhanced admissions guidelines expected to be implemented in fiscal year 2017 and tailoring initial course sequences to match the academic capabilities of students when they first enroll;
Eliminating associate degree programs which have lower retention rates and are less career relevant, and adding more career-focused pathways that offer certificates and four-year bachelor’s degrees in key growth areas of the employment market;

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 37


Concentrating on fewer ground locations in selected major metropolitan areas throughout the United States in order to establish a stronger regional presence for both on-ground and online students;
Reducing the number of student cohort start dates from approximately every week to approximately every five weeks for most programs in order to reduce complexity and improve the online classroom experience through more consistent class sizes;
Eliminating the use of third-party operated websites for marketing purposes in November 2015 in order to better manage the University’s marketing message, improve its ability to identify those students more likely to persist in its educational programs, and reduce cost;
Transitioning technology systems from proprietary and legacy systems, including the University’s online classroom, to commercial software and software as a service to reduce costs, improve operations and facilitate future systems upgrades; and
Developing increased student self-service capabilities, including in admissions, financial aid, academic planning and class scheduling.
Due in part to the rapidly changing higher education environment, particularly for proprietary institutions, and the competitive factors described above, we have experienced significant challenges in accurately predicting the effects on enrollment and retention of the various initiatives that we have developed and deployed in recent years. Accordingly, there is no assurance that our current transformation plan will stabilize enrollment, improve retention or achieve the other intended results, and the broad scope and number of simultaneous changes increases the risk of unexpected challenges and unintended consequences. These initiatives have accelerated the enrollment decline at University of Phoenix, and we expect that new and total degreed enrollment will continue declining in the near term as we implement the initiatives, and that total degreed enrollment will not stabilize prior to fiscal year 2018 or 2019.
Cost Reductions
We are intensely focused on reengineering our business processes and educational delivery systems to improve efficiencies and reduce costs to align with our declining enrollment and revenue in a manner that does not adversely impact the quality of our services to students. As discussed above, we expect that our initiative to transform University of Phoenix will accelerate the near term rate of decline in the University’s enrollment and revenue, which will increase the amount of necessary cost reductions. In furtherance of this, we are closing underutilized or unnecessary University of Phoenix campus locations, reducing our workforce as necessary, streamlining and, where appropriate, automating our administrative and student facing services, outsourcing administrative and other services, evaluating the scope of our academic programs and delaying the implementation of certain of University of Phoenix’s transformation initiatives. Also, we have engaged outside advisors to assist us in identifying and effectuating these cost reduction initiatives. We have significantly reduced our operating costs over recent periods and further significant reductions are increasingly challenging. There is no assurance that we will be able to reduce costs to align with University of Phoenix’s reduced enrollment and revenue, especially if the University’s near term enrollment declines more than anticipated. Although we seek to effect these cost reductions in a manner that does not adversely impact the quality of our services to students, given the magnitude of these changes, they could result in near term disruption to our business which may further decrease our enrollment and revenues. Additionally, our fiscal year 2016 Department of Education financial responsibility composite score will be adversely impacted if we are not successful in reducing costs sufficiently during fiscal year 2016, whether due to our inability to effectuate planned cost reductions, greater than anticipated declines in our enrollment and revenue or other factors. See further discussion under Regulatory Environment - Financial Responsibility Composite Score and Results of Operations below.
Regulatory Environment
In recent years, there has been substantial and increasing focus by various members of the U.S. Congress and federal agencies, including the Department of Education, the Consumer Financial Protection Bureau and the Federal Trade Commission, on the role that proprietary educational institutions play in higher education. Congressional hearings and roundtable discussions have been held regarding various aspects of the education industry, and reports have been issued that are highly critical of proprietary institutions and include a number of recommendations to be considered by Congress in connection with the upcoming reauthorization of the Higher Education Act. A group of influential U.S. senators has strongly and repeatedly encouraged the Departments of Education, Defense and Veterans Affairs to take action to limit or terminate the participation of proprietary educational institutions, including University of Phoenix, in existing tuition assistance programs.
In addition, the Department of Education has formed an inter-agency task force focused on the proprietary sector involving multiple federal agencies and departments including the Federal Trade Commission, the U.S. Departments of Justice, Treasury and Veterans Affairs, the Consumer Financial Protection Bureau, the Securities and Exchange Commission, and numerous state Attorneys General, to coordinate activities and share information to protect students from unfair, deceptive and abusive policies and practices. We believe that the recent actions by the Federal Trade Commission, U.S. Department of Defense and the

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 38


California Attorney General’s office described below may be related to, or coordinated with, this task force. We expect that this challenging regulatory environment will continue for proprietary educational institutions, including University of Phoenix, for the foreseeable future, and may intensify.
The following summarizes significant regulatory matters applicable to our business.
Financial Responsibility Composite Score
To participate in Title IV programs, the U.S. Department of Education regulations specify that an eligible institution of higher education must satisfy specific measures of financial responsibility prescribed by the Department, or post a letter of credit in favor of the Department and accept other conditions on its participation in Title IV programs. Pursuant to the Title IV program regulations, each eligible institution must satisfy a measure of financial responsibility that is based on a weighted average of the following three annual ratios which assess the financial condition of the institution:
Primary Reserve Ratio - measure of an institution’s financial viability and liquidity;
Equity Ratio - measure of an institution’s capital resources and its ability to borrow; and
Net Income Ratio - measure of an institution’s profitability.
These ratios provide three individual scores which are converted into a single composite score. The maximum composite score is 3.0. If an institution’s composite score is at least 1.5, it is considered financially responsible. If an institution’s composite score is less than 1.5 but is 1.0 or higher, it is still considered financially responsible, and the institution may continue to participate as a financially responsible institution for up to three years under the Department’s “zone” alternative. Under the zone alternative, the Department may subject the institution to various operating or other requirements, which may include being transferred from the “advance” method of payment of Title IV program funds to the heightened cash monitoring payment method under which the institution is required to make Title IV disbursements to eligible students and parents before it requests or receives funds from the Department for the amount of those disbursements, or being transferred to the more onerous reimbursement payment method under which an institution must submit to the Department documentation demonstrating the eligibility for each Title IV disbursement and wait for the Department’s approval before drawing down Title IV funds.
If an institution does not achieve a composite score of at least 1.0, it is subject to additional requirements in order to continue its participation in the Title IV programs, including submitting to the Department a letter of credit in an amount equal to at least ten percent, and at the Department’s discretion up to 50%, of the Title IV funds received by the institution during its most recently completed fiscal year, and being placed on provisional certification status, under which the institution must receive Department approval before implementing new locations or educational programs and comply with other restrictions, including reduced due process rights in subsequent proceedings before the Department.
In addition, under new regulations that took effect on July 1, 2016, institutions placed on either the heightened cash monitoring payment method or the reimbursement payment method must pay Title IV credit balances to students and parents before requesting Title IV funds from the Department and may not hold Title IV credit balances on behalf of students or parents, even if such balances are expected to be applied to future tuition payments.
The composite scores for Apollo Education Group and University of Phoenix, which are calculated as of the end of our fiscal year, were as follows for the indicated periods:
 
Fiscal Year
 
2015
 
2014
 
2013
Apollo Education Group
2.6
 
2.5
 
2.6
University of Phoenix
2.9
 
2.3
 
2.5
As discussed in Note 7 , Goodwill and Intangibles , in Item 1, Financial Statements , we recorded $73.4 million of goodwill impairment charges relating to our University of Phoenix and Western International University reporting units during the first quarter of fiscal year 2016, which was primarily the result of a substantial decline in our market capitalization. These impairment charges increase our fiscal year 2016 total operating expenses, which will negatively impact our fiscal year 2016 composite scores to be calculated as of August 31, 2016. Currently, we anticipate that our fiscal year 2016 composite scores will be above 1.5. However, if our profitability declines further than expected, including as a result of additional goodwill impairment charges, which could result from further declines in our market capitalization, higher than expected restructuring charges, our inability to execute on our currently planned cost reduction initiatives, a more than anticipated decline in enrollment, or other unexpected changes or developments, our fiscal year 2016 composite scores could fall below 1.5.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 39


We believe that we may be able to take certain corrective measures to maintain composite scores of 1.5 or greater, if we determine that there is increased risk that our fiscal year 2016 composite scores will fall below that level, depending on the circumstances causing the expected decline. However, such measures, if available, may require material modifications to our business and strategy that would adversely impact our future revenue and profitability and/or may involve the issuance of equity or equity-linked securities under challenging circumstances that could result in material dilution to our existing shareholders.
If our composite score falls below 1.5, our liquidity could be subject to severe stress due to the following factors:
Our principal revolving credit facility, which expires in April 2017, requires that we maintain a composite score of at least 1.5. If our composite score falls below 1.5, it would be an event of default under the facility and any outstanding balance could be declared immediately due and payable.
Although not required solely due to participation in the zone alternative discussed above, we could be required by the Department of Education to submit a letter of credit in an amount of 10% or more of our annual Title IV receipts as a result of factors related to the cause of our composite score decline, which letter of credit likely would need to be cash collateralized and our revolving credit facility would not be available for this purpose.
If the Department places University of Phoenix on the heightened cash monitoring payment method, we would need to deploy additional working capital to conduct our business due to the delay in receipt of Title IV funding. If University of Phoenix is placed on the reimbursement payment method, our working capital needs would increase significantly, the precise amount of which increase cannot be predicted because it would depend on the average length of time required by the Department to evaluate and approve our requests for reimbursement and the amount of any required letter of credit.
The combined effect of the above factors could cause our business to no longer be sustainable without a significant infusion of equity or other funding. Under current market conditions, there is no assurance that other funding sources would be available in sufficient amounts on terms acceptable to us or at all, and any available equity funding would necessarily involve substantial dilution to our current shareholders. See further discussion of the composite score requirements in Part II, Item 1A, Risk Factors, A failure to demonstrate “financial responsibility” or “administrative capability” may result in the loss of eligibility to participate in Title IV programs and limit our access to liquidity, which would materially and adversely affect our business .
Gainful Employment
Under the Higher Education Act, as reauthorized, proprietary schools are generally eligible to participate in Title IV programs only in respect of educational programs that lead to “gainful employment in a recognized occupation.” In connection with this requirement, proprietary postsecondary institutions are required to provide information to prospective students about each eligible program, including the relevant recognized occupations, cost, completion rate, job placement rate, and median loan debt of program completers.
In October 2014, the U.S. Department of Education published final regulations, effective July 1, 2015, on the metrics for determining whether an academic program prepares students for gainful employment in a recognized occupation. Under the final regulations, which apply on a program-by-program basis, students enrolled in a program will be eligible for Title IV student financial aid only if that program satisfies at least one of two tests relating to student debt service-to-earnings ratios. The two tests specify minimum debt service-to-earnings ratios calculated on the basis of the average earnings of program graduates; one test measures student loan debt service as a percentage of total earnings, and the other test measures student loan debt service as a percentage of discretionary earnings. If a program fails to meet either minimum ratio for one year, the institution will be required to provide a warning notice to prospective and enrolled students advising that the program may lose Title IV eligibility based on the final student debt service-to-earnings ratios for the next award year. Programs that fail to meet either of the minimum ratios for two out of three consecutive years will immediately cease to be Title IV eligible for a period of at least three years.
The Department has indicated that the official 2014 gainful employment debt service-to-earnings ratios will be issued sometime during calendar year 2016. The expected timing of the issuance of the 2015 ratios has not yet been announced. We believe it is likely that some of University of Phoenix’s programs will be impacted by the regulations. However, the University ceased enrolling new students in many of the programs it believes may be impacted in connection with its initiatives to transform itself into a more focused, higher retaining and less complex institution. As of August 31, 2015, students in these programs that ceased enrolling new students represented approximately 10% of the University’s Degreed Enrollment. Students who were already enrolled in such programs, and who do not elect to enroll in a different University of Phoenix program, will be taught-out in due course.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 40


Changes in student borrowing needs and practices, student loan interest rates, labor markets and other factors outside of our control could adversely impact compliance with these regulations for some of our programs in the future. The Department has not yet announced the protocol for calculating and disseminating the debt service-to-earnings ratios. Because the ratios will be issued by the Department after the measuring period, we may not know of a program’s failure to meet the tests until well after the measuring period, and students enrolled in such a program could lose their access to federal financial aid before completing the program.
U.S. Department of Education Rulemaking
A negotiated rulemaking committee was convened by the Department in January 2016 on the topic of the process and standards for discharge of student loans, commonly known as defense to repayment, and certain other matters. The committee failed to reach consensus. In June 2016, the Department issued a Notice of Proposed Rulemaking to establish a new federal standard and a process for determining whether a borrower has a defense to repayment on federal student loans based on an act or omission of a school.
The proposed regulations would provide repayment relief to students in respect of student loans first disbursed after July 1, 2017 where:
a s chool breaches contractual promises to a student;
certain judgments are entered against a school related to the loan or the educational services after a contested proceeding; or
the sc hool makes substantial misrepresentations about the nature of its educational programs, financial charges or employability of graduates, or insubstantial misrepresentations where other factors are present, such as pressure to enroll quickly or taking advantage of students’ distress or lack of knowledge or sophistication.
The proposed regulations also would allow the Department to identify and grant relief to groups of students where there are common facts, including students who have not requested relief.
As proposed, the Department would be entitled to seek reimbursement from the school in most cases in respect of loans discharged under the new procedure.
In addition, the proposed regulations specify early warning triggers regarding financial distress that would automatically require a school to post a letter of credit in the amount of at least 10% of the school’s annual Title IV disbursements upon the occurrence of specified events such as:
the commencement of a major lawsuit by a state or federal government entity, such as state Attorneys General, the Consumer Financial Protection Bureau or the Federal Trade Commission;
the filing of a substantial number of borrower defense claims;
default by the school on its debt obligations;
failure of the school to satisfy the 90/10 Rule; and/or
action by the school’s accreditor that could result in the school losing its accreditation.
If a school experiences any of these triggers, the school would be required to warn prospective and current students that it has been required to provide enhanced financial protection to the Department.
The proposed regulations also would require disclosure by proprietary institutions to prospective and enrolled students if student loan repayment rates fall below specified levels.
The proposed regulations, if adopted, could result in significant potential risks for our business, since the precise standards for student loan discharge may be unclear or subject to interpretation in a manner that is adverse to us and not fully known or predictable in advance, and certain of the potential adverse consequences could arise from the mere commencement of enforcement actions by state or federal government entities, or the filing of student claims for debt relief, even if these actions and claims ultimately are found to lack merit. Furthermore, the potential significant discretion vested in the Department to administer the regulations, including fact-finding, may result in unexpected outcomes that materially and adversely affect our business. In order to reduce the risk associated with these proposed regulations, if adopted, we may need to modify our administrative and other student-facing practices and procedures in a manner that materially increases our costs and reduces our administrative effectiveness, and our flexibility in responding to state or federal and certain private lawsuits may be materially reduced because of the possible significant ancillary consequences of an adverse judgment or finding.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 41


The effective date of the proposed regulations, if adopted, cannot be determined at this time, but the proposed regulations could be effective as early as July 1, 2017. More information can be found at http://www2.ed.gov/policy/highered/reg/hearulemaking/2016/index.html.
U.S. Department of Education Program Participation Agreement
University of Phoenix’s Title IV Program Participation Agreement expired on December 31, 2012. The University has submitted necessary documentation for recertification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application. We believe that the University’s application will be renewed in due course. However, we cannot predict whether or to what extent the continued challenging political and regulatory climate and other recent developments in general relating to the proprietary education sector and our business may have on the timing or outcome of the recertification process.
In February 2016, the Department notified the University that for the duration of the month-to-month continuation of the University’s Program Participation Agreement, University of Phoenix must obtain from the Department prior approval of substantial changes, including (i) the establishment of additional locations, (ii) any increase in the level of academic offering beyond those listed in the Institution’s Eligibility and Certification Approval Report and (iii) the addition of any educational program (including degree, nondegree, or short-term training programs). Some of these substantial changes include changes that previously could be implemented by the University upon notice to the Department and without prior approval.
Continued Title IV program eligibility is critical to the operation of our business. If University of Phoenix becomes ineligible to participate in Title IV programs, or participation is materially limited, our business would be unsustainable.
Federal Trade Commission Investigation
In July 2015, we received a Civil Investigative Demand from the U.S. Federal Trade Commission (the “FTC”) relating to an investigation to determine if certain unnamed persons, partnerships, corporations, or others have engaged or are engaging in deceptive or unfair acts or practices in or affecting commerce in the advertising, marketing, or sale of secondary or postsecondary educational products or services or educational accreditation products or services. The Demand requires us to produce documents and information regarding a broad spectrum of the business and practices of University of Phoenix, including in respect of marketing, recruiting, enrollment, financial aid, tuition and fees, academic programs, academic advising, student retention, billing and debt collection, complaints, accreditation, training, military recruitment, and other compliance matters, for the time period of January 1, 2011 to the present. We are cooperating with the investigation. We cannot predict the eventual scope, duration or outcome of the investigation at this time.
Military Benefit Programs
U.S. Department of Defense Tuition Assistance Program
On January 15, 2016, University of Phoenix was notified by the U.S. Department of Defense (“DoD”) that the University’s probationary status in respect of its participation in the DoD Tuition Assistance Program for active duty military personnel had been lifted, effective immediately. The University had been placed on probation in October 2015 pending a review by the Department of the University’s compliance with the DoD Voluntary Education Partnership Memorandum of Understanding with the University, which is the basis on which the University’s active duty military students participate in the DoD Tuition Assistance Program.
The University will be subject to a heightened compliance review for a period of one-year following the removal of probationary status. During this period, the University will continue to engage with the Department and complete the production of information and documents previously requested by the Department. In addition, the University will be subject to an enhanced compliance review in fiscal year 2017.
In fiscal year 2015 , funding under the DoD Tuition Assistance Program represented less than 1% of the University’s net revenue.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 42


U.S. Department of Veterans Affairs Educational Benefits
University of Phoenix participates in the Department of Veterans Affairs educational benefits programs (“VA Programs”) for eligible veterans. Under these VA Programs, the educational locations serving veterans are subject to a compliance survey each year. Following the notice of probation in October 2015 from the Department of Defense, which has been subsequently lifted as described above, the Veterans Administration announced the commencement of the annual compliance survey, with an accelerated schedule and increased scope relative to prior years. The annual compliance review was completed with no adverse action imposed on the University. In fiscal year 2015, funding under VA Programs represented approximately 10% of University of Phoenix’s cash basis revenue, calculated on the same basis as for the 90/10 Rule.
California Attorney General Investigations
In August 2015, we received an Investigative Subpoena from the Office of the Attorney General of the State of California. The Subpoena requires us to produce documents and information regarding the business and practices of University of Phoenix relating to members and former members of the U.S. military and California National Guard, including marketing, recruiting, billing, financial aid, accommodation and other services for military personnel, compliance with federal Executive Order 13607 (Establishing Principles of Excellence for Educational Institutions Serving Service Members, Veterans, Spouses, and Other Family Members), and use of U.S. military logos and emblems in marketing, for the time period of July 1, 2010 to the present.
In February 2016, we received a Second Investigative Subpoena from the Office of the Attorney General of the State of California in the Matter of the Investigation of For-Profit Educational Institutions, following the Investigative Subpoena we received in August 2015. The Second Investigative Subpoena, which is not limited to matters involving military students, seeks the production of documents and information regarding a broad spectrum of the business and practices of Apollo and its subsidiaries, including University of Phoenix, relating to marketing, recruiting, compensation of enrollment advisors, complaints, financial aid, compliance, accreditation, other governmental investigations, private litigation and other matters, as well as additional information relating to marketing and services to members and former members of the U.S. military and California National Guard, for the time period of July 1, 2010 to the present.
We are cooperating with the California Attorney General in these investigative proceedings. We cannot predict the eventual scope, duration or outcome of the investigations at this time.
Financial Aid Funding Levels
The most recent reauthorization of the Higher Education Act expired September 30, 2013, but Title IV student financial aid programs remain authorized and functioning. Congress continues to engage in discussion and activity regarding Higher Education Act reauthorization, but the timing and terms of any eventual reauthorization cannot be predicted.
Title IV program funding is a potential target for reduction by Congress. Because the majority of our revenue is derived from Title IV programs, any action by Congress that reduces Title IV program funding, or which alters the eligibility of our institutions or students to participate in Title IV programs could have a material adverse effect on our enrollment and financial condition. Action by Congress or federal agencies could also require us to modify our practices in ways that increase our administrative costs and reduce our operating income.
In addition to possible reductions in Title IV program funding, military benefit programs may be reduced as military branches address decreased funding. Reductions and/or changes in military benefit programs, or changes in our eligibility to participate in such programs, could result in increased student borrowing, decreased enrollment and adverse impacts on our 90/10 Rule percentage.
Expansion of Global Operations
We have operations on six continents and recently expanded our global operations through the acquisition of Career Partner in the second quarter of fiscal year 2016 as discussed below. The integration and operation of acquired businesses in foreign jurisdictions entails substantial regulatory, market and execution risks and, consistent with our experience to date, such acquisitions may not be accretive for an extended period of time.
Professional Development
Although degree programs represent the substantial majority of our revenue, we are increasing our professional development and other nondegree programs, which includes business-to-business product and service offerings. We are expanding these programs both domestically and internationally through our subsidiaries, including through the nondegree bootcamp programs.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 43


Other Events
In addition to the above items, we experienced the following other events during fiscal year 2016:
Executive Management Changes - Gregory J. Iverson was appointed as our Chief Financial Officer effective October 26, 2015 replacing Joseph L. D’Amico, who served as our Interim Chief Financial Officer since May 2015.
Career Partner GmbH Acquisition - On December 10, 2015, we acquired all of the outstanding shares of Career Partner GmbH (“Career Partner”), a provider of education and training programs in Germany. Refer to Note 4 , Acquisitions , in Item 1, Financial Statements .
Critical Accounting Policies and Estimates
Refer to our 2015 Annual Report on Form 10-K for our critical accounting policies and estimates and refer to the following in Item 1, Financial Statements :
Note 7 , Goodwill and Intangibles , for a discussion of goodwill impairment charges recorded during fiscal year 2016; and
Note 11 , Income Taxes , for a discussion of the calculation of our income tax provision for the interim periods in fiscal year 2016.
New Accounting Standards
For discussion of new accounting standards, refer to Note 1 , Nature of Operations and Significant Accounting Policies , in Item 1, Financial Statements .
Results of Operations
We have included below a discussion of our operating results and significant items explaining the material changes in our operating results during the three and nine months ended May 31, 2016 compared to the three and nine months ended May 31, 2015 .
As discussed in the Overview of this MD&A, the U.S. higher education industry continues to experience rapidly developing changes, including significant and increasing competition for the proprietary sector from public and private colleges and universities as these institutions continue to expand their online education programs. These developments have contributed to the substantial decline in University of Phoenix enrollment that began in late 2010.
Our operations are generally subject to seasonal trends, which vary depending on the subsidiary. We have historically experienced, and expect to continue to experience, fluctuations in our results of operations as a result of seasonal variations in the level of our institutions’ enrollments including, but not limited to, the following:
University of Phoenix - University of Phoenix generally has lower net revenue in our second fiscal quarter (December through February) compared to other quarters due to holiday breaks.
Apollo Global - Our Apollo Global subsidiaries experience seasonality associated with the timing of when courses begin, exam dates, the timing of their respective holidays and other factors. These factors have historically resulted in lower net revenue in our second and fourth fiscal quarters, particularly for BPP, which also results in substantially lower operating results during these quarters due to BPP’s relatively fixed cost structure.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 44


Analysis of Condensed Consolidated Statements of Operations
The following details our consolidated results of operations. For a more detailed discussion of our operating results by reportable segment, refer to Analysis of Operating Results by Reportable Segment below.
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
 
2016
 
2015
 
% of Net Revenue
 
2016
 
2015
 
% of Net Revenue
($ in thousands)
 
 
2016
 
2015
 
 
 
2016
 
2015
Net revenue
$
558,002

 
$
676,358

 
100.0
 %
 
100.0
 %
 
$
1,609,371

 
$
1,965,986

 
100.0
 %
 
100.0
 %
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Instructional and student advisory
274,486

 
294,841

 
49.2
 %
 
43.6
 %
 
836,453

 
907,348

 
52.0
 %
 
46.1
 %
Marketing
87,530

 
116,839

 
15.7
 %
 
17.3
 %
 
279,128

 
369,120

 
17.3
 %
 
18.8
 %
Admissions advisory
30,192

 
52,994

 
5.4
 %
 
7.9
 %
 
94,500

 
167,919

 
5.9
 %
 
8.5
 %
General and administrative
59,066

 
64,437

 
10.6
 %
 
9.5
 %
 
192,300

 
206,215

 
11.9
 %
 
10.5
 %
Depreciation and amortization
28,330

 
29,969

 
5.1
 %
 
4.4
 %
 
82,478

 
95,705

 
5.1
 %
 
4.9
 %
Provision for uncollectible accounts receivable
15,716

 
13,005

 
2.8
 %
 
1.9
 %
 
43,812

 
42,372

 
2.7
 %
 
2.2
 %
Restructuring and impairment charges
22,366

 
11,444

 
4.0
 %
 
1.7
 %
 
149,578

 
52,722

 
9.3
 %
 
2.7
 %
Merger, acquisition and other related costs (credit), net
8,317

 
(455
)
 
1.5
 %
 
(0.1
)%
 
25,188

 
4,506

 
1.6
 %
 
0.2
 %
Litigation charge

 

 
 %
 
 %
 

 
100

 
 %
 
 %
Total costs and expenses
526,003

 
583,074

 
94.3
 %
 
86.2
 %
 
1,703,437

 
1,846,007

 
105.8
 %
 
93.9
 %
Operating income (loss)
31,999

 
93,284

 
5.7
 %
 
13.8
 %
 
(94,066
)
 
119,979

 
(5.8
)%
 
6.1
 %
Interest income
1,041

 
762

 
0.2
 %
 
0.1
 %
 
2,883

 
2,091

 
0.2
 %
 
0.1
 %
Interest expense
(1,569
)
 
(1,715
)
 
(0.3
)%
 
(0.3
)%
 
(4,997
)
 
(5,116
)
 
(0.3
)%
 
(0.3
)%
Other loss, net
(273
)
 
(2,038
)
 
 %
 
(0.3
)%
 
(2,229
)
 
(4,480
)
 
(0.2
)%
 
(0.2
)%
Income (loss) from continuing operations before income taxes
31,198

 
90,293

 
5.6
 %
 
13.3
 %
 
(98,409
)
 
112,474

 
(6.1
)%
 
5.7
 %
Provision for income taxes
(11,399
)
 
(40,667
)
 
(2.1
)%
 
(6.0
)%
 
(3,796
)
 
(53,797
)
 
(0.3
)%
 
(2.7
)%
Income (loss) from continuing operations
19,799

 
49,626

 
3.5
 %
 
7.3
 %
 
(102,205
)
 
58,677

 
(6.4
)%
 
3.0
 %
Loss from discontinued operations, net of tax

 
(2,186
)
 
 %
 
(0.3
)%
 
(3,259
)
 
(14,906
)
 
(0.2
)%
 
(0.8
)%
Net income (loss)
19,799

 
47,440

 
3.5
 %
 
7.0
 %
 
(105,464
)
 
43,771

 
(6.6
)%
 
2.2
 %
Net loss attributable to noncontrolling interests
945

 
624

 
0.2
 %
 
0.1
 %
 
5,047

 
4,468

 
0.4
 %
 
0.3
 %
Net income (loss) attributable to Apollo
$
20,744

 
$
48,064

 
3.7
 %
 
7.1
 %
 
$
(100,417
)
 
$
48,239

 
(6.2
)%
 
2.5
 %
Net Revenue
Our net revenue decreased $118.4 million and $356.6 million , or 17.5% and 18.1% , in the three and nine months ended May 31, 2016 , respectively, compared to the prior year periods. The decreases were attributable to net revenue declines at University of Phoenix of 24.3% and 23.7% during the respective periods, principally due to lower enrollment. See discussion of the enrollment decline in Analysis of Operating Results by Reportable Segment - University of Phoenix below. This was partially offset by increases in Apollo Global net revenue.
Instructional and Student Advisory
Instructional and student advisory decreased $20.4 million and $70.9 million , or 6.9% and 7.8% , in the three and nine months ended May 31, 2016 , respectively, compared to the prior year periods. This represented increases as a percentage of net revenue of 560 and 590 basis points, respectively. The decreases in expense were primarily due to lower costs that are more variable in nature such as faculty and curriculum associated with University of Phoenix’s enrollment decline, and lower costs including rent and compensation attributable to our restructuring activities. This was partially offset by costs attributable to our acquisitions, including Career Partner acquired during the second quarter of fiscal year 2016.
Marketing
Marketing decreased $29.3 million and $90.0 million , or 25.1% and 24.4% , in the three and nine months ended May 31, 2016 , respectively, compared to the prior year periods. This represented decreases as a percentage of net revenue of 160 and 150 basis points, respectively. The decreases in expense and declines as a percentage of net revenue were principally attributable to lower advertising and related costs associated with University of Phoenix eliminating the use of third-party operated websites for marketing purposes in November 2015, which is discussed further in the Overview of this MD&A. The decrease was also

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 45


attributable to lower headcount as a result of our restructuring activities.
Admissions Advisory
Admissions advisory decreased $22.8 million and $73.4 million , or 43.0% and 43.7% , in the three and nine months ended May 31, 2016 , respectively, compared to the prior year periods. This represented decreases as a percentage of net revenue of 250 and 260 basis points, respectively. The decreases in expense and declines as a percentage of net revenue were principally attributable to lower University of Phoenix headcount as a result of our restructuring activities.
General and Administrative
General and administrative decreased $5.4 million and $13.9 million , or 8.3% and 6.7% , in the three and nine months ended May 31, 2016 , respectively, compared to the prior year periods. This represented increases as a percentage of net revenue of 110 and 140 basis points, respectively. The decreases in expense were primarily due to lower costs attributable to our restructuring activities. This was partially offset by an increase in expenses in connection with legal and regulatory matters, and costs attributable to our acquisitions, including Career Partner.
Depreciation and Amortization
Depreciation and amortization decreased $1.6 million and $13.2 million , or 5.5% and 13.8% , in the three and nine months ended May 31, 2016 , respectively, compared to the prior year periods. This represented increases as a percentage of net revenue of 70 and 20 basis points, respectively. The decreases in expense were principally attributable to lower depreciation expense resulting from a decline in depreciable assets due in part to our restructuring activities.
Provision for Uncollectible Accounts Receivable
Provision for uncollectible accounts receivable increased $2.7 million and $1.4 million , or 20.8% and 3.4% , in the three and nine months ended May 31, 2016 , respectively, compared to the prior year periods. This represented increases as a percentage of net revenue of 90 and 50 basis points, respectively. The increases in expense reflect our current estimate of receivables that will become uncollectible based on most recent trends.
Restructuring and Impairment Charges
Restructuring and impairment charges include the following for the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Restructuring charges
$
22,366

 
$
11,444

 
$
73,673

 
$
46,772

Goodwill impairments (1)

 

 
73,393

 

Property and equipment impairments

 

 
2,512

 
5,950

Restructuring and impairment charges
$
22,366

 
$
11,444

 
$
149,578

 
$
52,722

(1) Refer to  Note 7 , Goodwill and Intangibles , in Item 1, Financial Statements , for a discussion of goodwill impairment charges recorded during fiscal year 2016.
We have implemented various restructuring activities during prior fiscal years and remain focused on reengineering our business processes and educational delivery systems to reduce costs to align with our lower enrollment and revenue, and to improve the efficiency and effectiveness of our services to students. The activities initiated in prior years and those initiated in fiscal year 2016 are described below. Additionally, we intend to further reduce costs in future periods to align with our lower enrollment and revenue, and expect to incur material charges associated with other future restructuring activities.
The following summarizes the restructuring charges in our segment reporting format for the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
University of Phoenix
$
15,787

 
$
6,043

 
$
46,380

 
$
28,292

Apollo Global
1,183

 
41

 
1,902

 
142

Other
5,396

 
5,360

 
25,391

 
18,338

Restructuring charges
$
22,366

 
$
11,444

 
$
73,673

 
$
46,772


Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 46


Activities Initiated in Prior Years
Our restructuring activities initiated prior to fiscal year 2016 principally included closing approximately 150 University of Phoenix ground locations, rationalizing our leased administrative office facilities, and workforce reductions. During the nine months ended May 31, 2016 , we incurred $44.0 million of expense for these prior year activities. The majority of the expense represents initial charges for the estimated fair value of future contractual operating lease obligations which are recorded when we cease using the respective facility, and an increase in our estimated future cash payments associated with exiting additional space at other locations included in the rationalization plan. We measure lease obligations at fair value using a discounted cash flow approach encompassing significant unobservable inputs (Level 3). The significant unobservable inputs principally include estimated future cash flows and discount rates which have ranged between 3% - 7%  for our lease obligations. The estimation of future cash flows includes non-cancelable contractual lease costs over the remaining terms of the leases, partially offset by estimated future sublease rental income, which involves significant judgment. Our estimate of the amount and timing of sublease rental income considers subleases that we have executed or expect to execute, current commercial real estate market data and conditions, comparable transaction data and qualitative factors specific to the facilities. The estimates are subject to adjustment as market conditions change or as new information becomes available, including the execution of additional sublease agreements.
As of  May 31, 2016 , we had approximately $51 million of remaining lease obligations associated with the locations that we expect to close as University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations. We will incur lease obligation charges for these locations when we cease using the respective facilities. We will also continue to incur interest accretion, and may record additional adjustments in future periods for the estimated obligations associated with facilities we have already exited.
Activities Initiated in Fiscal Year 2016
During the nine months ended May 31, 2016 , we incurred $29.7 million of expense for new restructuring activities initiated during fiscal year 2016. Substantially all of the expense represents severance and other employee separation costs associated with the elimination of approximately 1,400 positions. The expense associated with these activities for the nine months ended May 31, 2016 is reflected in our segment reporting as follows: $16.0 million in University of Phoenix, $1.7 million in Apollo Global and $12.0 million in Other.
Refer to Note 2 , Restructuring and Impairment Charges , in Item 1, Financial Statements , which is incorporated herein by reference, for further information on our restructuring activities.
Merger, Acquisition and Other Related Costs (Credit), Net
We recorded $8.3 million and $25.2 million of expense during the three and nine months ended May 31, 2016 , respectively, which principally represents professional fees associated with our pending merger discussed further in the Overview of this MD&A. We also incurred transaction costs associated with our acquisition of Career Partner completed in December 2015.
We recorded $4.5 million of net expense during the nine months ended May 31, 2015, which includes transaction costs to complete the FAEL acquisition, costs related to other potential acquisitions that were not completed and changes in the fair value of contingent consideration associated with our acquisitions.
Provision for Income Taxes
Our effective income tax rate for continuing operations was 36.5% and 45.0% for the three months ended May 31, 2016 and 2015, respectively. Our lower pre-tax income in the third quarter of fiscal year 2016 causes items included in our tax provision to have a more significant impact on our effective income tax rate. The decrease in our effective income tax rate compared to the prior year period was primarily due to changes in the relative composition of our pre-tax income from domestic and foreign operations.
We generated a pre-tax loss for the nine months ended May 31, 2016, and our corresponding effective income tax rate for continuing operations was significantly impacted by the $71.8 million University of Phoenix goodwill impairment charge. This impairment charge was not deductible for tax purposes.
Loss from Discontinued Operations, Net of Tax
Loss from discontinued operations, net of tax represents Carnegie Learning, Inc., and includes a $13.0 million intangible asset impairment charge recorded during the second quarter of fiscal year 2015. Refer to Note 3 , Discontinued Operations , in Item 1, Financial Statements .

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 47


Analysis of Operating Results by Reportable Segment
The following details our operating results by reportable segment for the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
$
Change
 
%
Change
 
2016
 
2015
 
$
Change
 
%
Change
Net revenue:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

University of Phoenix
$
424,479

 
$
560,692

 
$
(136,213
)
 
(24.3
)%
 
$
1,252,052

 
$
1,641,314

 
$
(389,262
)
 
(23.7
)%
Apollo Global
125,007

 
109,622

 
15,385

 
14.0
 %
 
334,135

 
305,862

 
28,273

 
9.2
 %
Other
8,516

 
6,044

 
2,472

 
40.9
 %
 
23,184

 
18,810

 
4,374

 
23.3
 %
Net revenue
$
558,002

 
$
676,358

 
$
(118,356
)
 
(17.5
)%
 
$
1,609,371

 
$
1,965,986

 
$
(356,615
)
 
(18.1
)%
Operating income (loss):
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

University of Phoenix
$
59,681

 
$
103,395

 
$
(43,714
)
 
(42.3
)%
 
$
33,099

 
$
216,776

 
$
(183,677
)
 
(84.7
)%
Apollo Global
(459
)
 
5,465

 
(5,924
)
 
(108.4
)%
 
(29,677
)
 
(26,918
)
 
(2,759
)
 
(10.2
)%
Other
(27,223
)
 
(15,576
)
 
(11,647
)
 
(74.8
)%
 
(97,488
)
 
(69,879
)
 
(27,609
)
 
(39.5
)%
Operating income (loss)
$
31,999

 
$
93,284

 
$
(61,285
)
 
(65.7
)%
 
$
(94,066
)
 
$
119,979

 
$
(214,045
)
 
*

* Not meaningful
University of Phoenix
University of Phoenix’s net revenue decreased $136.2 million and $389.3 million , or 24.3% and 23.7% , during the three and nine months ended May 31, 2016 compared to the prior year periods. The decreases were principally attributable to lower Average Degreed Enrollment as discussed below. The University’s revenue also decreased due to its transition to a reduced number of student cohort start dates, which resulted in students taking fewer courses during fiscal year 2016 as the new start dates were phased in, and the University’s increased use of discounts, grants and scholarships. Discounts, grants and scholarships increased 20 and 140 basis points as a percentage of the University’s gross revenue in the three and nine months ended May 31, 2016, respectively, compared to the prior year periods.
The University’s future net revenue will be impacted by pricing changes, changes in enrollment and student mix within programs, and discounts, grants and scholarships.
The following details University of Phoenix student enrollment for the respective periods:
 
Three Months Ended
May 31,
 
 
 
Nine Months Ended
May 31,
(Rounded to the nearest hundred)
2016
 
2015
 
% Change
 
 
 
2016
 
2015
 
% Change
Degreed Enrollment (1), (2)
155,600

 
206,900

 
(24.8
)%
 
 
Average Degreed Enrollment (2), (4)
171,400

 
220,400

 
(22.2
)%
New Degreed Enrollment (3)
17,900

 
29,400

 
(39.1
)%
 
 
Aggregate New Degreed Enrollment
59,600

 
97,300

 
(38.7
)%
(1) Represents students enrolled in a 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 (e.g., a graduate of an associate’s degree program returns for a bachelor’s degree); and students participating in certain certificate programs of at least 18 credits with some course applicability into a related degree program.
(2) As described in Footnote 1, Degreed Enrollment includes students who attended a credit bearing course during the quarter and had not graduated as of the end of the quarter. The proportion of students included in Degreed Enrollment who have completed their academic work but not yet formally graduated (“academically complete students”) increased during the third quarter of fiscal year 2016 compared to the prior year period due to changes in the manner in which graduation applications are processed. We estimate that the number of academically complete students reflected in this increase is approximately 2,000 - 3,000.
(3) Represents new students and students who have been out of attendance for more than 12 months who enroll in a 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.
(4) Represents the average of quarterly Degreed Enrollment from the beginning to the end of the respective periods.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 48


University of Phoenix Average Degreed Enrollment decreased 22.2% in the nine months ended May 31, 2016 compared to the prior year period primarily due to the continued decline in New Degreed Enrollment. We believe the following factors, some of which are discussed in more detail in the Overview of this MD&A, contributed to the decrease:
University of Phoenix enrollment continues to be adversely impacted by the rapidly evolving and highly competitive education industry, which includes adverse publicity associated with the challenging regulatory environment, particularly for the proprietary education sector; and
Recently launched initiatives as part of the University’s transformation strategy, including eliminating the use of third-party operated websites for marketing purposes and the discontinuation of a number of lower retaining associate’s degree programs. These initiatives have accelerated the enrollment decline at University of Phoenix, and we expect new and total degreed enrollment to continue declining in the near term.
University of Phoenix had operating income of $59.7 million and $33.1 million during the three and nine months ended May 31, 2016 , respectively, which were impacted by restructuring and impairment charges of $15.8 million and $118.2 million for the respective periods. The University had operating income of $103.4 million and $216.8 million during the three and nine months ended May 31, 2015 , respectively, which were impacted by restructuring and impairment charges of $6.0 million and $34.2 million for the respective periods. The University’s operating results declined compared to the prior year periods due to lower net revenue, which was partially offset by lower costs attributable to our restructuring activities, lower advertising expense, and decreases in costs that are more variable in nature.
Apollo Global
Apollo Global’s net revenue increased $15.4 million and $28.3 million during the three and nine months ended May 31, 2016 compared to the prior year periods. The increases were due to revenue from the Career Partner acquisition and higher enrollment at international institutions, which was partially offset by the impact of foreign exchange rates (approximately $9 million and $32 million for the respective periods).
Apollo Global had an operating loss of $0.5 million in the third quarter of fiscal year 2016 compared to $5.5 million of operating income in the prior year period. Apollo Global had operating losses of $29.7 million and $26.9 million during the nine months ended May 31, 2016 and 2015, respectively. Apollo Global’s operating results include the following during the respective periods:
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Depreciation and amortization
$
10,266

 
$
9,528

 
$
28,467

 
$
29,677

Merger, acquisition and other related costs (credit), net
601

 
(1,040
)
 
3,843

 
1,658

Restructuring and impairment charges
1,183

 
41

 
1,902

 
142

Other
Other net revenue increased $2.5 million and $4.4 million during the three and nine months ended May 31, 2016 , respectively, compared to the prior year periods. The increases were primarily due to revenue from The Iron Yard, which we acquired during the fourth quarter of fiscal year 2015.
Other operating losses increased $11.6 million and $27.6 million during the three and nine months ended May 31, 2016 , respectively, compared to the prior year periods. The increases were principally attributable to costs associated with our pending merger and restructuring charges.
Liquidity, Capital Resources, and Financial Position
We believe that our cash and cash equivalents and available liquidity will be adequate to satisfy our working capital and other liquidity requirements associated with our existing operations through at least the next 12 months, provided that our U.S. Department of Education financial responsibility composite scores calculated as of August 31, 2016 do not fall below 1.5. Our ability to deploy currently available liquidity is constrained by our need to maintain composite scores of at least 1.5 and, if the scores fall below 1.5, to finance the operation of our business, and the fact that our existing $625 million Revolving Credit Facility described below expires in April 2017. If our fiscal year 2016 composite scores fall below 1.5, we would be in default under our Revolving Credit Facility, and we would be subject to heightened cash monitoring by the Department of Education and other requirements, including possibly the requirement to submit to the Department a letter of credit in an amount equal to at least ten percent, and at the Department’s discretion up to 50%, of the Title IV funds we received during our most recently completed fiscal year, as conditions to our continued participation in Title IV student financial aid programs. In addition, under new regulations that took effect on July 1, 2016, institutions placed on heightened cash monitoring must pay Title IV credit balances to students and parents before requesting Title IV funds from the Department and may not hold Title IV credit

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 49


balances on behalf of students or parents, which would require a significant change in the manner in which we process disbursements of Title IV funds. The collective impact of the consequences of a fiscal year 2016 composite score of less than 1.5 could significantly increase the amount of working capital necessary to operate our business at a time when our Revolving Credit Facility is no longer available, and, as a result, could render our business unsustainable without a significant infusion of equity or other funding. Under current market conditions, there is no assurance that other funding sources would be available in sufficient amounts on terms acceptable to us or at all, and any available equity funding would necessarily involve substantial dilution to our current shareholders. See further discussion of the composite score requirements in the Overview of this MD&A and Part II, Item 1A, Risk Factors , A failure to demonstrate “financial responsibility” or “administrative capability” may result in the loss of eligibility to participate in Title IV programs and limit our access to liquidity, which would materially and adversely affect our business .
Furthermore, access to the credit markets and other sources of liquidity, including utilization of our Revolving Credit Facility described below, may be adversely affected if we experience other regulatory compliance challenges, reduced availability of Title IV program funding, or other adverse effects on our business from regulatory or legislative changes. For a detailed discussion of the regulatory environment and related risks, refer to Part I, Item 1A, Risk Factors , in our 2015 Annual Report on Form 10-K.
Our existing syndicated $625 million credit facility expires in April 2017. Due to the current challenging business and regulatory climate for the proprietary education sector and the continued decline in our operating performance, we expect that any subsequent credit facility, if one can be arranged, will be substantially smaller and more expensive than our current facility. We believe that a number of lenders, including certain members of our Revolving Credit Facility syndicate, have made a decision to exit the proprietary education sector, and initial discussions regarding renewal of our credit facility have not been encouraging. Accordingly, if our pending merger is not consummated, there is no assurance that we will be able to arrange a replacement credit facility on terms acceptable to us or at all, and much will depend on near-term developments in our business and the proprietary education sector generally.
Cash and Cash Equivalents, Restricted Cash and Cash Equivalents and Marketable Securities
The substantial majority of our cash and cash equivalents, including restricted cash and cash equivalents, are held by our domestic operations and placed with high-credit-quality financial institutions. The following provides a summary of these financial instruments as of the respective period ends:
 
 
 
 
 
 
 
% of Total Assets at
($ in thousands)
May 31,
2016
 
August 31,
2015
 
% Change
 
May 31,
2016
 
August 31,
2015
Cash and cash equivalents
$
361,526

 
$
503,705

 
(28.2
)%
 
17.8
%
 
22.9
%
Restricted cash and cash equivalents
185,320

 
198,369

 
(6.6
)%
 
9.1
%
 
9.0
%
Current marketable securities
242,301

 
194,676

 
24.5
 %
 
11.9
%
 
8.8
%
Noncurrent marketable securities
39,323

 
95,815

 
(59.0
)%
 
1.9
%
 
4.4
%
Total
$
828,470

 
$
992,565

 
(16.5
)%
 
40.7
%
 
45.1
%
Cash and cash equivalents (excluding restricted cash) decreased $142.2 million primarily due to $101.2 million paid to acquire Career Partner, and $51.4 million for capital expenditures. This was partially offset by $9.6 million of cash provided by operations.
We consider the unremitted earnings attributable to certain of our foreign subsidiaries to be permanently reinvested. As of May 31, 2016 , the unremitted earnings from these operations were not significant.
As of May 31, 2016 , our cash and restricted cash equivalents included $111.2 million of money market funds that we measure at fair value. We determine fair value of these funds using a market approach with Level 1 inputs that primarily consist of real-time quotes for transactions in active exchange markets involving identical assets. Our remaining cash and cash equivalents approximate fair value because of the short-term nature of the financial instruments.
Our marketable securities, which principally include corporate bonds, tax-exempt municipal bonds, and time deposits, have original maturities to us greater than three months, and contractual maturities that will occur within three years. Our marketable securities are classified as available-for-sale and are measured at fair value. We determine the fair value of these investments using a market approach with Level 2 observable inputs including quoted prices for similar assets in active markets, or quoted prices for identical or similar assets in markets that are not active. Refer to Note 5 , Financial Instruments , in Item 1, Financial Statements .

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 50


Debt
In fiscal year 2012, we entered into a syndicated $625 million unsecured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility is used for general corporate purposes, which may include acquisitions and share repurchases. The term is five years and will expire in April 2017. The Revolving Credit Facility may be used for borrowings in certain foreign currencies and letters of credit, in each case up to specified sublimits.
We had no outstanding borrowings under the Revolving Credit Facility as of May 31, 2016 and August 31, 2015 , but we had approximately $39 million and $41 million of outstanding letters of credit as of the respective periods. We also borrowed $50 million under the Revolving Credit Facility during the second quarter of fiscal year 2016, but subsequently repaid the amount later in the same quarter.
The Revolving Credit Facility fees are determined based on a pricing grid that varies according to our leverage ratio. The Revolving Credit Facility fee ranges from 25 to 40 basis points. Incremental fees for borrowings under the facility generally range from Prime + 25 to 85 basis points.
The Revolving Credit Facility contains various customary representations, covenants and other provisions, including a material adverse event clause and the following financial covenants: maximum leverage ratio, minimum interest and rent expense coverage ratio, and U.S. Department of Education financial responsibility composite score requirements. We were in compliance with all applicable covenants related to the Revolving Credit Facility at May 31, 2016 and August 31, 2015 .
Other debt principally includes debt at subsidiaries of Apollo Global and other obligations. The weighted average interest rate on our outstanding other debt at May 31, 2016 and August 31, 2015 was 6.1% and 5.6% , respectively.
The carrying value of our debt, excluding capital leases, approximates fair value based on the nature of our debt, which includes consideration of the portion that is variable-rate.
Cash Flows
Operating Activities
The following provides a summary of our operating cash flows during the respective periods:
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
Net (loss) income
$
(105,464
)
 
$
43,771

Non-cash items
236,657

 
192,369

Changes in assets and liabilities, excluding the impact of acquisitions
(121,560
)
 
(112,437
)
Net cash provided by operating activities
$
9,633

 
$
123,703

Nine Months Ended May 31, 2016 - Our non-cash items primarily consisted of $82.5 million of depreciation and amortization, $76.5 million of impairment charges and losses on asset dispositions, a $43.8 million provision for uncollectible accounts receivable, and $27.3 million of share-based compensation. The changes in assets and liabilities, excluding the impact of acquisitions, primarily consisted of the following:
A $37.3 million use of cash related to the change in accounts receivable, excluding the provision for uncollectible accounts receivable;
A $35.8 million decrease in accrued and other liabilities principally attributable to the timing of our payroll cycle;
A $32.0 million decrease in student deposits principally attributable to the enrollment decline at University of Phoenix and the timing of course starts at BPP; and
A $28.6 million decrease in deferred revenue principally attributable to the enrollment decline at University of Phoenix.
We monitor University of Phoenix accounts receivable through a variety of metrics, including days sales outstanding. We calculate the University’s days sales outstanding by determining average daily student revenue based on a rolling twelve month analysis and divide it into its gross student accounts receivable balance as of the end of the period. As of May 31, 2016 , University of Phoenix’s days sales outstanding was 22 days compared to 20 days as of May 31, 2015 .

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Nine Months Ended May 31, 2015 - Our non-cash items primarily consisted of  $101.8 million  of depreciation and amortization, a  $42.4 million  provision for uncollectible accounts receivable, $29.8 million  of share-based compensation, and $22.2 million for impairment charges and losses on asset dispositions. The changes in assets and liabilities, excluding the impact of acquisitions, primarily consisted of the following:
$90.0 million decrease in accrued and other liabilities principally attributable to the payment of accrued bonuses and payments for our restructuring obligations, the timing of our payroll cycle, and the payment of the Open Colleges contingent consideration;
A $51.6 million use of cash related to the change in accounts receivable, excluding the provision for uncollectible accounts receivable; and
A $25.9 million decrease in student deposits principally attributable to the timing of course starts at BPP.
The above changes were partially offset by a $22.7 million  increase in deferred revenue principally attributable to increased enrollment at Open Colleges, and a $21.0 million decrease in prepaid taxes principally attributable to the timing and method of calculating our quarterly estimated income tax payments.
Investing Activities
The following provides a summary of our investing cash flows during the respective periods:
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
Acquisitions, net of cash acquired
$
(101,196
)
 
$
(21,166
)
Capital expenditures
(51,414
)
 
(74,254
)
Maturities (purchases) of marketable securities, net
4,856

 
(128
)
Other
(727
)
 
(14,216
)
Net cash used in investing activities
$
(148,481
)
 
$
(109,764
)
Cash paid for acquisitions in fiscal year 2016 represents Apollo Global’s acquisition of Career Partner, and the prior year represents Apollo Global’s acquisition of FAEL.
Financing Activities
The following provides a summary of our financing cash flows during the respective periods:
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
Payments on borrowings, net
$
(6,824
)
 
$
(600,699
)
Share repurchases
(732
)
 
(40,700
)
Payment for contingent consideration

 
(21,371
)
Other
638

 
1,231

Net cash used in financing activities
$
(6,918
)
 
$
(661,539
)
Nine Months Ended May 31, 2016  - The share repurchases during fiscal year 2016 related to tax withholding requirements on share-based awards. We did not repurchase shares under our share repurchase program during the nine months ended May 31, 2016 .
As of May 31, 2016 , we had $52.2 million available under our share repurchase authorization. There is no expiration date on the repurchase authorization and the amount and timing of future share repurchase authorizations and repurchases, if any, will be made as market and business conditions warrant. Repurchases occur at our discretion and may be made on the open market through various methods including but not limited to accelerated share repurchase programs, or in privately negotiated transactions, pursuant to the applicable Securities and Exchange Commission rules, and may include repurchases pursuant to Securities and Exchange Commission Rule 10b5-1 nondiscretionary trading programs. We are prohibited from repurchasing shares under the agreements associated with our pending merger, as described in the Overview of this MD&A.
Nine Months Ended May 31, 2015  - Cash used in financing activities primarily consisted of $600.7 million used for payments on borrowings (net of proceeds from borrowings), $40.7 million used for share repurchases, and $21.4 million representing the financing portion of our Open Colleges contingent consideration payment. Share repurchases consisted of $38.1 million used to repurchase 1.4 million shares at a weighted average purchase price of $26.45 per share, and additional repurchases related to tax withholding requirements on share-based awards.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 52


Contractual Obligations and Other Commercial Commitments
On February 7, 2016, we entered into a merger agreement which is expected to be completed by the end of calendar year 2016. Refer to the Overview of this MD&A for additional information.
There have been no other material changes in our contractual obligations and other commercial commitments other than in the ordinary course of business since the end of fiscal year 2015 through May 31, 2016 .
Information regarding our contractual obligations and other commercial commitments is provided in our 2015 Annual Report on Form 10-K.
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes to our market risk since August 31, 2015 . For a discussion of our exposure to market risk, refer to our 2015 Annual Report on Form 10-K.
Item 4.  Controls and Procedures
Disclosure Controls and Procedures
We intend to maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our Chief Executive Officer (“Principal Executive Officer”) and our Chief Financial Officer (“Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. Our Disclosure Committee meets on a quarterly basis and more often if necessary.
Our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act), as of the end of the period covered by this report. Based on that evaluation, management concluded that, as of that date, our disclosure controls and procedures were effective at the reasonable assurance level.
Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of our Principal Executive Officer and Principal Financial Officer, which are required in accordance with Rule 13a-14 of the Securities Exchange Act. This Disclosure Controls and Procedures section includes information concerning management’s evaluation of disclosure controls and procedures referred to in those certifications and, as such, should be read in conjunction with the certifications of our Principal Executive Officer and Principal Financial Officer.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the quarter ended May 31, 2016 , that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 53


PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note 15 , Commitments and Contingencies , in Part I, Item 1, Financial Statements , for legal proceedings, which is incorporated into this Item 1 of Part II by this reference.
Item 1A. Risk Factors
In addition to the risk factors set forth below, see the risk factors included in our 2015 Annual Report on Form 10-K and the discussion in Key Trends, Developments and Challenges in Management’s Discussion and Analysis of Financial Condition and Results of Operations above.
Our pending merger may not be consummated, which may adversely affect our business, and our business may suffer as a result of uncertainty surrounding the pending merger.
As described above in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Pending Merger, on February 7, 2016, we entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with AP VIII Queso Holdings, L.P. (“Parent”), an affiliate of Apollo Management VIII, L.P., which is a fund managed by an affiliate of Apollo Global Management, LLC, none of which is, or has ever been, affiliated with us. At the effective time of the merger, which is expected to be completed by the end of calendar year 2016, each share of our issued and outstanding Class A and Class B common stock will be converted pursuant to the terms of the Merger Agreement into the right to receive $10.00 per share in cash. On May 6, 2016, the Merger Agreement was approved by the holders of our outstanding Class A and Class B common stock, each voting separately as a class.
Consummation of the merger is subject to customary and other conditions, including:
(i)
the receipt of consents or approvals from certain federal, state and foreign educational governing bodies, including the Higher Learning Commission; and
(ii)
the absence of certain conditions or restrictions in the response of the U.S. Department of Education to the pre-acquisition review application filed by University of Phoenix.
In addition, consummation of the merger is subject to our satisfying certain minimum operating metrics, measured as of the first or second month end preceding the closing date, depending on the day of the month on which closing occurs, as follows:
(i)
Our aggregate cash, cash equivalents and marketable securities must not be less than the specified amount for the applicable month end;
(ii)
University of Phoenix fiscal year-to-date new degreed enrollments as of the applicable month end must not have declined by more than 15% from forecasted levels (which are derived from the projections we prepared in December 2015 in connection with the merger, which we refer to as the December forecast);
(iii)
University of Phoenix trailing twelve month net revenue as of the applicable month end shall not have declined by more than 10% from forecasted levels (which are derived from the December forecast); and
(iv)
Our consolidated trailing twelve months adjusted earnings before interest, taxes, depreciation and amortization as of the applicable month end shall not have declined by more than $75 million from forecasted levels (which are derived from the December forecast).
We currently expect to satisfy these minimum operating metrics if the closing occurs on or prior to October 9, 2016, which is the latest closing date for which the relevant operating metrics are derived from our fiscal year 2016 financial and operating results. However, our expected fiscal year 2016 enrollment and operating results have declined since our December forecast. If our enrollment or operating results continue to decline, we may not be able to satisfy one or more of these closing conditions, either before or after October 9, 2016. If we fail to satisfy one or more of these closing conditions, Parent would be entitled to terminate the Merger Agreement and elect not to consummate the merger.
There is no assurance that the conditions to the consummation of the merger will be satisfied in a timely manner or at all.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 54


If the merger is not consummated, our stock price could fall to the extent that the current price reflects an assumption that the merger will be consummated. Furthermore, if the merger is not consummated, we may suffer other consequences that could adversely affect our business and financial condition, including the following:
we could be required to pay a termination fee of 2.75% of the aggregate per share merger consideration that would have been payable to the Company’s shareholders upon closing of the merger (approximately $27.5 million) under certain specified circumstances, but not including a termination solely due to our failure to satisfy the minimum operating metrics described above, as provided in the Merger Agreement;
a fall in our stock price could result in additional goodwill impairment charges causing our U.S. Department of Education financial responsibility composite scores to fall below 1.5, including possibly our fiscal year 2016 composite score whether or not the merger is abandoned prior to the end of our fiscal year, which could severely stress our liquidity due to various regulatory consequences, would be an event of default under our principal revolving credit facility, and could materially and adversely impact our strategy, operations and future profitability, as discussed in more detail in the risk factor below, A failure to demonstrate “financial responsibility” or “administrative capability” may result in the loss of eligibility to participate in Title IV programs and limit our access to liquidity, which would materially and adversely affect our business ;
our ability to enroll and retain new students could be impaired because potential students may perceive the termination of the merger as a sign of financial distress or as otherwise raising questions about the future of University of Phoenix;
we may not be able to take advantage of alternative business opportunities that we may have been able to pursue absent entering into the Merger Agreement;
we may experience a decrease in employee morale and an increase in employee departures; and
the failure of the merger to be consummated may result in negative publicity and may embolden the critics of the proprietary higher education sector generally and University of Phoenix specifically.
We may suffer additional consequences in connection with the announcement and pendency of the merger which could adversely impact our business and financial condition, whether or not the merger is consummated, including the following:
the restrictions imposed on our business and operations pursuant to certain covenants set forth in the merger agreement may prevent us from pursuing certain opportunities without approval of AP VIII Queso Holdings, L.P.;
the challenging regulatory environment we face may intensify;
we may suffer potential adverse effects on our ability to retain and motivate current employees, and attract and recruit prospective employees who may be uncertain about their future roles and relationships with us following the consummation of the merger;
our relationships with current students and employers could be adversely affected due to concern about our future;
due to activities related to the merger, the attention of our employees and management may be diverted from other opportunities that may have been beneficial to us; and
expenses and liability arising from the various legal proceedings related to the merger that have been instituted against us, our directors and others.
In addition, we have incurred, and will continue to incur, significant costs, expenses and fees for professional services, other transaction costs and employee retention costs in connection with the merger, and these fees and costs are payable by us regardless of whether the merger is consummated.
For additional information related to the merger and the Merger Agreement, please refer to our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 8, 2016, our definitive proxy statement filed with the Commission on March 23, 2016, the supplement to the definitive proxy statement filed with the Commission on May 2, 2016, and the amendments to the Merger Agreement attached to our Current Report on Form 8-K filed with the Commission on May 2, 2016 and this Quarterly Report on Form 10-Q. The foregoing description of the Merger Agreement and the merger does not purport to be complete and is subject to, and qualified in its entirety by the full text of the Merger Agreement attached as Exhibit 2.1 to our Current Report on Form 8-K filed with the Commission on February 8, 2016, Amendment No. 1 to the Merger Agreement attached as Exhibit 2.1 to our Current Report on Form 8-K filed with the Commission on May 2, 2016, and Amendment No. 2 to the Merger Agreement attached as Exhibit 2.2 to this Quarterly Report on Form 10-Q.
A failure to demonstrate “financial responsibility” or “administrative capability” may result in the loss of eligibility to participate in Title IV programs and limit our access to liquidity, which would materially and adversely affect our business.
To participate in Title IV programs, the U.S. Department of Education regulations specify that an eligible institution of higher education must satisfy specific measures of financial responsibility prescribed by the Department, or post a letter of credit in favor of the Department and accept other conditions on its participation in Title IV programs. Pursuant to the Title IV program

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 55


regulations, each eligible institution must satisfy a measure of financial responsibility that is based on a weighted average of the following three annual ratios which assess the financial condition of the institution:
Primary Reserve Ratio - measure of an institution’s financial viability and liquidity;
Equity Ratio - measure of an institution’s capital resources and its ability to borrow; and
Net Income Ratio - measure of an institution’s profitability.
These ratios provide three individual scores which are converted into a single composite score. The maximum composite score is 3.0. If an institution’s composite score is at least 1.5, it is considered financially responsible. If an institution’s composite score is less than 1.5 but is 1.0 or higher, it is still considered financially responsible, and the institution may continue to participate as a financially responsible institution for up to three years under the Department’s “zone” alternative. Under the zone alternative, the Department may subject the institution to various operating or other requirements, which may include:
(i)
Being transferred from the “advance” method of payment of Title IV program funds to the heightened cash monitoring payment method under which the institution is required to make Title IV disbursements to eligible students and parents before it requests or receives funds from the Department for the amount of those disbursements, or being transferred to the more onerous reimbursement payment method under which an institution must submit to the Department documentation demonstrating the eligibility for each Title IV disbursement and wait for the Department’s approval before drawing down Title IV funds;
(ii)
The imposition of additional reporting requirements regarding certain oversight and financial events;
(iii)
Being required to submit to the Department its annual financial statements and Title IV compliance audits earlier than would otherwise be required;
(iv)
Being required to submit information about current operations and future plans; and
(v)
The imposition of additional obligations imposed by the Department.
If an institution does not achieve a composite score of at least 1.0, it is subject to additional requirements in order to continue its participation in the Title IV programs, including:
(i)
Submitting to the Department a letter of credit in an amount equal to at least ten percent, and at the Department’s discretion up to 50%, of the Title IV funds received by the institution during its most recently completed fiscal year;
(ii)
Complying with the “zone” alternative requirements described above;
(iii)
Being placed on provisional certification status, under which the institution must receive Department approval before implementing new locations or educational programs and comply with other restrictions, including reduced due process rights in subsequent proceedings before the Department;
(iv)
Demonstrating that it is current on its outstanding debt obligations, as defined by the Department; and
(v)
Complying with other requirements imposed by the Department.
In addition, under new regulations that took effect on July 1, 2016, institutions placed on either the heightened cash monitoring payment method or the reimbursement payment method must pay Title IV credit balances to students and parents before requesting Title IV funds from the Department and may not hold Title IV credit balances on behalf of students or parents, even if such balances are expected to be applied to future tuition payments.
The composite scores for Apollo Education Group and University of Phoenix, which are calculated as of the end of our fiscal year, were as follows for the indicated periods:
 
Fiscal Year
 
2015
 
2014
 
2013
Apollo Education Group
2.6
 
2.5
 
2.6
University of Phoenix
2.9
 
2.3
 
2.5
As discussed in Note 7 , Goodwill and Intangibles , in Item 1, Financial Statements , we recorded $73.4 million of goodwill impairment charges relating to our University of Phoenix and Western International University reporting units during the first quarter of fiscal year 2016, which was primarily the result of a substantial decline in our market capitalization. These impairment charges increase our fiscal year 2016 total operating expenses, which will negatively impact our fiscal year 2016 composite scores to be calculated as of August 31, 2016. Currently, we anticipate that our fiscal year 2016 composite scores will be above 1.5. However, if our profitability declines further than expected, including as a result of additional goodwill impairment charges, which could result from further declines in our market capitalization, higher than expected restructuring charges, our inability to execute on our currently planned cost reduction initiatives, a more than anticipated decline in enrollment, or other unexpected changes or developments, our fiscal year 2016 composite scores could fall below 1.5.
We believe that we may be able to take certain corrective measures to maintain composite scores of 1.5 or greater, if we

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 56


determine that there is increased risk that our fiscal year 2016 composite scores will fall below that level, depending on the circumstances causing the expected decline. However, such measures, if available, may require material modifications to our business and strategy that would adversely impact our future revenue and profitability and/or may involve the issuance of equity or equity-linked securities under challenging circumstances that could result in material dilution to our existing shareholders.
If our composite score falls below 1.5, our liquidity could be subject to severe stress due to the following factors:
Our principal revolving credit facility, which expires in April 2017, requires that we maintain a composite score of at least 1.5. If our composite score falls below 1.5, it would be an event of default under the facility and any outstanding balance could be declared immediately due and payable.
Although not required solely due to participation in the zone alternative discussed above, we could be required by the Department of Education to submit a letter of credit in an amount of 10% or more of our annual Title IV receipts as a result of factors related to the cause of our composite score decline, which letter of credit likely would need to be cash collateralized and our revolving credit facility would not be available for this purpose.
If the Department places University of Phoenix on the heightened cash monitoring payment method, we would need to deploy additional working capital to conduct our business due to the delay in receipt of Title IV funding. If University of Phoenix is placed on the reimbursement payment method, our working capital needs would increase significantly, the precise amount of which increase cannot be predicted because it would depend on the average length of time required by the Department to evaluate and approve our requests for reimbursement and the amount of any required letter of credit. In addition, under the new regulations that became effective July 1, 2016 regarding students’ Title IV fund credit balances, we would be required to significantly alter the manner in which we process and disburse Title IV funds, which would increase our operating costs and could have unexpected and material negative impacts on our operations.
The combined effect of the above factors could cause our business to no longer be sustainable without a significant infusion of equity or other funding. Under current market conditions, there is no assurance that other funding sources would be available in sufficient amounts on terms acceptable to us or at all, and any available equity funding would necessarily involve substantial dilution to our current shareholders.
In addition to the composite score requirements, the Department regulations specify extensive criteria an institution must satisfy to establish that it has the requisite administrative capability to participate in Title IV programs. The failure of an institution to satisfy any of the criteria used to assess administrative capability may cause the Department to determine that the institution lacks administrative capability and, therefore, subject the institution to additional scrutiny or deny eligibility for Title IV programs. These criteria require, among other things, that the institution:
Comply with all applicable Title IV program regulations;
Have capable and sufficient personnel to administer the Title IV programs;
Have acceptable methods of defining and measuring the satisfactory academic progress of its students;
Not have student loan cohort default rates 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.
If we, or our schools eligible to participate in Title IV programs fail to maintain administrative capability or financial responsibility, as defined by the Department, our schools could lose their eligibility to participate in Title IV programs or have that eligibility adversely conditioned, which could significantly reduce the enrollments and revenues of our schools eligible to participate in Title IV programs and materially and adversely affect our business and financial condition.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 57


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchase of Equity Securities
Our Board of Directors has authorized us to repurchase outstanding shares of our Class A common stock from time to time depending on market conditions and other considerations. During fiscal year 2013, our Board of Directors authorized an increase in the amount available under our share repurchase program up to an aggregate amount of $250 million, of which $52.2 million remained available as of May 31, 2016 . There is no expiration date on the repurchase authorizations and repurchases occur at our discretion. We are prohibited from repurchasing shares under the agreements associated with our pending merger, as described further in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations , Pending Merger.
We did not repurchase shares of our Class A common stock during the three months ended May 31, 2016 , and the following details changes in our treasury stock during the three months ended May 31, 2016 :
(In thousands, except per share data)
Total Number
of Shares
Repurchased
 
Average Price
Paid per Share
 
Total Number of
Shares Repurchased
as Part of Publicly
Announced Plans or
Programs
 
Maximum Value of Shares Available for Repurchase Under the Plans or Programs
Treasury stock as of February 29, 2016
79,839

 
$
49.06

 
79,839

 
$
52,224

New authorizations

 

 

 

Share repurchases

 

 

 

Share reissuances

 

 

 

Treasury stock as of March 31, 2016
79,839

 
$
49.06

 
79,839

 
$
52,224

New authorizations

 

 

 

Share repurchases

 

 

 

Share reissuances
(25
)
 
49.06

 
(25
)
 

Treasury stock as of April 30, 2016
79,814

 
$
49.06

 
79,814

 
$
52,224

New authorizations

 

 

 

Share repurchases

 

 

 

Share reissuances

 

 

 

Treasury stock as of May 31, 2016
79,814

 
$
49.06

 
79,814

 
$
52,224

Resales by Directors and Officers
From time to time, our directors and officers enter into written trading plans under Securities and Exchange Commission Rule 10b5-1(c) for the resale of shares of our common stock, including shares to be acquired upon the vesting of restricted stock units and performance share awards, and shares to be acquired pursuant to the exercise of stock options. These plans, which must be entered into during an open trading window and at a time when the director or officer is not in possession of material nonpublic information, provide for sales in accordance with a formula, algorithm or other instructions such that the seller cannot exercise any influence over how, when or whether to effect sales. After adopted, sales may occur in accordance with the plans regardless of whether or not the seller subsequently possesses material nonpublic information or otherwise would then be permitted to trade in our securities. Our insider trading policy permits the adoption of these types of trading plans, and we encourage our directors and officers to utilize such plans, where practical. We do not announce, via Form 8-K or otherwise, the adoption or any termination of such trading plans, if any. Sales under these plans generally must be reported within two business days on Form 4 filed with the SEC, pursuant to Section 16 of the Securities Exchange Act of 1934, as amended.
Sales of Unregistered Securities
We did not have any sales of unregistered equity securities during the three months ended May 31, 2016 .
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 58


Item 6. Exhibits
 
Exhibit
Number
Exhibit Description
 
 
2.1
Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 1, 2016 (1)
 
2.2
Amendment No. 2 to the Agreement and Plan of Merger, dated as of June 17, 2016
 
31.1
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
31.2
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
101.INS
XBRL Instance Document
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
(1) Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 2, 2016.


Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 59


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
APOLLO EDUCATION GROUP, INC.
An Arizona Corporation
Date: July 7, 2016

 
 
 
 
By: 
/s/  Gregory J. Iverson
 
 
Gregory J. Iverson
Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer
(Principal Financial and Accounting Officer)

Apollo Education Group, Inc. | Third Quarter 2016 Form 10-Q | 60
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