10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended: August 31, 2014
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, including zip code)

Registrant’s telephone number, including area code: (480) 966-5394

Securities registered pursuant to Section 12(b) of the Act:

(Title of Each Class)	(Name of Each Exchange on Which Registered)
Apollo Education Group, Inc. Class A common stock, no par value	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES þ    NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES o    NO þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  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 a 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

No shares of Apollo Education Group, Inc. Class B common stock, its voting stock, are held by non-affiliates. The holders of Apollo Education Group, Inc. Class A common stock are not entitled to any voting rights. The aggregate market value of Apollo Education Group Class A common stock held by non-affiliates as of February 28, 2014 (last business day of the registrant’s most recently completed second fiscal quarter), was approximately $3.2 billion.

The number of shares outstanding for each of the registrant’s classes of common stock as of October 14, 2014 is as follows:

Apollo Education Group, Inc. Class A common stock, no par value	108,051,000 Shares
Apollo Education Group, Inc. Class B common stock, no par value	475,000 Shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Information Statement for the 2014 Annual Meeting of Class B Shareholders (Part III)

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

FORM 10-K

FOR THE FISCAL YEAR ENDED AUGUST 31, 2014

INDEX

		Page
Special Note Regarding Forward-Looking Statements		4
	PART I
Item 1.	Business	5
Item 1A.	Risk Factors	23
Item 1B.	Unresolved Staff Comments	38
Item 2.	Properties	39
Item 3.	Legal Proceedings	39
Item 4.	Mine Safety Disclosures	39
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	40
Item 6.	Selected Financial Data	44
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	66
Item 8.	Financial Statements and Supplementary Data	68
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	113
Item 9A.	Controls and Procedures	113
Item 9B.	Other Information	115
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	116
Item 11.	Executive Compensation	116
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	116
Item 13.	Certain Relationships and Related Transactions, and Director Independence	116
Item 14.	Principal Accounting Fees and Services	116
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	117
SIGNATURES		123

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Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K, including Item 7, 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, under “Accreditation and Jurisdictional Authorizations,” “Financial Aid Programs” and “Regulatory Environment;”

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

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

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.”

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PART I

Item 1 - Business

Overview

Apollo Education Group, Inc. is one of the world’s largest private education services providers, serving students since 1973. We seek to improve the lives of millions of learners globally by making unemployed learners job-ready and employed learners more productive in their careers and communities. Through the following education platforms, we offer undergraduate, graduate, professional development and other non-degree educational programs and services, online and on-campus, principally to working learners in the U.S. and abroad:

Domestic

• University of Phoenix, Inc. Founded in 1976, University of Phoenix is one of the largest private universities in the U.S. and has an alumni network of more than 850,000 graduates. The University is composed of eight colleges and offers undergraduate and graduate degrees in a wide range of program areas, including business, education and nursing. The University’s more than 230,000 enrolled students attend classes online and at 110 ground campus locations throughout the U.S. and Puerto Rico. The majority of students attend classes exclusively online. In addition, the University offers a range of non-degree education programs for lifelong learners and students interested in developing skills and knowledge to improve their prospects of employment in their field of choice or advancement within their existing careers. In fiscal year 2014, University of Phoenix represented 87% of our total consolidated net revenue.

• Western International University, Inc. Western International Universityoffers undergraduate and graduate degrees in a variety of program areas, including business, information technology and behavioral science. The majority of Western International University’s students attend classes online, and a limited number of courses are offered at its ground campus in Phoenix, Arizona. Western International University’s programs are designed to provide students with a more self-managed, streamlined and affordable higher education solution as they work to achieve their educational goals and advance their careers.

• The College for Financial Planning Institutes Corporation (“College for Financial Planning”). College for Financial Planning was founded in 1972 and is the creator of the Certified Financial Planner or CFP designation. College for Financial Planning provides online financial services education programs, including graduate degrees in three majors, certificate programs, Financial Industry Regulatory Authority securities license training, and continuing education courses.

• Carnegie Learning, Inc. Carnegie Learning publishes innovative, research-based math curricula and adaptive learning software for middle school and high school students. Carnegie Learning’s solutions are licensed to public and private schools throughout the U.S. Additionally, we have incorporated various adaptive learning tools developed by Carnegie Learning into University of Phoenix’s curricula in selected courses to offer a more individualized approach to learning.

• Apollo Lightspeed. Apollo Lightspeed is focused on developing innovative educational offerings and services that enable motivated learners to acquire in-demand job skills via non-degree learning solutions. Apollo Lightspeed operates SkilledUp, an online career skills and learning marketplace designed to connect individuals to online learning offerings where they can acquire skills valued by technology companies.

International

Our educational programs based outside the U.S. are offered through our Apollo Global, Inc. subsidiary. We are very focused on increasing the extent of our international operations and we believe that our significant experience pioneering and delivering effective, flexible education to working learners can be utilized to successfully offer education in significant and underserved international markets. Our Apollo Global education network includes the following:

• BPP Holdings Limited (“BPP”). BPP is headquartered in London, England and offers professional training and exam preparation programs in a variety of areas and qualification training, undergraduate and graduate degrees through BPP University, which principally includes BPP Law School and BPP Business School. The majority of BPP’s professional training and exam preparation revenue is generated from accounting and law program areas, and the majority of BPP University’s revenue represents law qualifications and law degree programs. BPP delivers most of its programs through a mix of online and on-ground instruction with locations throughout the United Kingdom and various European countries.

• Open Colleges Australia Pty Ltd (“Open Colleges”). Open Colleges is headquartered in Sydney, Australia and offers nationally recognized and government approved certificates, diplomas and other qualifications in a diverse range of disciplines and industries, including health and wellness, business management and services, and community services. The programs are designed for adult learners and provide flexibility through an online, asynchronous delivery model.

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• Universidad Latinoamericana (“ULA”). ULA is headquartered in Mexico City, Mexico and offers graduate and undergraduate degrees, high school and executive education in a variety of program areas and disciplines. ULA delivers instruction through a mix of online and on-ground delivery at its campuses and learning centers, principally in Mexico City.

• Milpark Education (Pty) Ltd. (“Milpark Education”). Milpark Education is headquartered in Cape Town, South Africa and offers postsecondary education designed for adult learners, including undergraduate and graduate degrees primarily in business, and non-degree programs. Milpark Education principally delivers instruction through distance education and, in select instances, through learning in the classroom at campuses in Cape Town and Johannesburg.

• Apollo Global Chile S.A. (“Apollo Global Chile”). Apollo Global Chile includes Universidad de Artes, Ciencias y Comunicación (“UNIACC”) and Instituto Superior de las Artes y Comunicaciones (“IACC”). UNIACC offers undergraduate and graduate degree programs in a variety of program areas principally at its campus in Santiago, Chile. IACC primarily offers degree and non-degree programs that are delivered online.

• India Education Services Private Ltd (“India Education Services”). Apollo Global is developing the Bridge School of Management in India through a 50:50 joint venture with HT Media Limited, an Indian media company. The school offers non-degree management and business programs geared toward adult learners, delivered in a mix of online and on-ground teaching.

Net Revenue

The following presents net revenue for each of our reportable segments for the respective periods:

	Year Ended August 31,
($ in thousands)	2014		2013		2012
University of Phoenix	$	2,632,949	$	3,304,464	$	3,873,098
Apollo Global	338,008		275,768		269,541
Other	53,221		55,692		50,551
Net revenue	$	3,024,178	$	3,635,924	$	4,193,190

University of Phoenix’s net revenue is comprised principally of tuition and related fees. The following table details the University’s student enrollment for the past three years:

	Average Degreed Enrollment(1), (2)			Aggregate New Degreed Enrollment(1), (3)
	Year Ended August 31,			Year Ended August 31,
(Rounded to the nearest hundred)	2014	2013	2012	2014	2013	2012
Students	251,500	301,100	356,900	146,700	172,900	216,700

⁽¹⁾ Refer to University of Phoenix below for a description of the manner in which Degreed Enrollment and New Degreed Enrollment are calculated.

⁽²⁾ Represents the average of quarterly Degreed Enrollment from the beginning to the end of the respective fiscal years.

⁽³⁾ Represents the sum of the four quarters of New Degreed Enrollment in the respective fiscal years.

General

University of Phoenix was founded in 1976 and Apollo was incorporated in Arizona in 1981. Apollo maintains its principal executive offices at 4025 S. Riverpoint Parkway, Phoenix, Arizona 85040 and also maintains senior executive offices at 227 West Monroe Street, Suite 3600, Chicago, Illinois 60606. Our telephone number is (480) 966-5394 and our website address is www.apollo.edu. The website addresses for our principal education platforms are as follows:

Domestic		International
University of Phoenix:	www.phoenix.edu	Apollo Global:	www.apolloglobal.us
Western International University:	www.west.edu	BPP:	www.bpp.com
College for Financial Planning:	www.cffp.edu	Open Colleges:	www.opencolleges.edu.au
Carnegie Learning:	www.carnegielearning.com	ULA:	www.ula.edu.mx
Apollo Lightspeed:	www.skilledup.com	Milpark Education:	www.milpark.ac.za
		Apollo Global Chile:	www.uniacc.cl; www.iacc.cl
		India Education Services:	www.bridgesom.com

Our fiscal year is from September 1 to August 31. Unless otherwise noted, references to particular years or quarters refer to our fiscal years and the associated quarters of those fiscal years.

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Strategy

We seek to improve the lives of millions of learners globally through our educational platforms by making unemployed learners job-ready and employed learners more productive in their careers and communities.

We intend to achieve our strategy and generate attractive returns for our stakeholders by focusing on the following key themes:

• Student Success and Career Outcomes - We believe that maximizing the value our students garner from their education is critical to our success. We focus our resources on continuously improving educational programs and services and providing the support needed to enable students to successfully complete their programs and achieve their career goals.

• Employer Solutions - We intend to continue working with employers, including Fortune 500 companies, to help solve their human capital needs by delivering education that is relevant and impactful for today’s and tomorrow’s workforce and to become a specific source of employees to meet employers’ needs.

• Targeted Growth - We intend to focus on areas of high demand for qualified employees and to tailor our programs to meet the needs of students and employers in these areas, including through the increased offering of professional development and other non-degree programs.

• Diversify Globally - We intend to continue our expansion in international markets where we believe there is significant unmet demand for quality education.

• Operational Excellence - We intend to continue our efforts to streamline operations and improve efficiency, in order to deliver education more effectively and affordably.

Industry

Domestic

The domestic postsecondary degree-granting education industry was estimated to be a $559 billion industry in 2011, according to the U.S. Department of Education, with approximately 21 million students attending institutions that participate in U.S. federal financial aid programs. Additionally, the Department projects that enrollment in postsecondary degree-granting institutions will grow 13% over the ten-year period ending in the fall of 2021 to approximately 23.8 million students. The degree-granting sector is highly fragmented with more than 4,600 domestic colleges and universities that participate in U.S. federal financial aid programs with no single institution having a significant market share. Approximately half of these colleges and universities are private, proprietary institutions that offer varying educational programs and services.

Domestic higher education also includes a variety of non-degree programs including, but not limited to, education certificate programs, continuing education, professional development and test preparation. While the non-degree sector of higher education currently represents a small portion of the total industry, enrollment in non-degree programs is growing at a faster rate compared to enrollment in degree programs.

The majority of students today have non-traditional characteristics (students who delay enrollment, attend part-time, work full-time, are financially independent for purposes of financial aid eligibility, have dependents other than a spouse, are single parents, or do not have a high school diploma). These non-traditional students (whom we generally refer to as working learners) typically are looking to improve their skills and enhance their earnings potential within the context of their careers or in pursuit of new careers. As the industry has shifted to more students with non-traditional characteristics, an increasing proportion of colleges and universities are addressing the needs of working learners. This includes colleges with well-established brand names that were historically focused on traditional students. See further discussion at Competition below.

The higher education industry is also experiencing unprecedented, rapidly developing changes 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 other factors that challenge many of the core principles underlying the industry. Based in part on these changes, we see several factors impacting the higher education market in the near future:

• Increased demand for education offerings, including non-degree programs, that directly connect education with jobs and careers;

• Increased pressure for more affordable education programs;

• Increased focus on programs that require less time to complete; and

• Increased demand for proof of learning outcomes and education effectiveness.

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International

There were approximately 156 million students enrolled in postsecondary education worldwide in 2010, excluding the U.S., according to the U.S. Department of Education. The international higher education market and associated opportunities often vary significantly by country due to a variety of factors including, but not limited to, the political, cultural and regulatory environments. Additionally, higher education is rapidly evolving and private education is playing an important role in advancing the development of education, specifically higher education and lifelong learning, in many countries around the world. Within the last several years, educational groups have been investing in education institutions and consolidating the market in several countries. However, we believe there continues to be significant unmet demand for quality education in several key international markets that provide growth opportunities for private education as a result of the following:

• Insufficient public funding to meet demand for education;

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

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

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

University of Phoenix

University of Phoenix was founded in 1976 to provide access to effective higher education for working learners who wanted to advance their knowledge and achieve their professional goals. The University’s mission, purpose and strategy has driven continuous innovation in higher education and produced an alumni network of more than 850,000 graduates. The University delivers undergraduate and graduate degree programs through its eight colleges and a range of non-degree continuing education programs. The majority of the University’s students attend classes exclusively online and the proportion of the University’s online students has increased over recent years, which allows the University to leverage new and emerging technologies and optimize classroom space. For students who attend classes on-campus, the University has a ground campus network of 110 locations throughout the U.S. and Puerto Rico.

The University’s goal is to continuously improve educational programs that retain students and provide skills in high-growth industries with the purpose of increasing employment opportunities within their field of study or advancement within their existing careers. In furtherance of this, the University offers career focused programs, an instructional model designed specifically to meet the educational needs of working learners, which is discussed further below, and new technologies in its educational programs, including:

• A new online classroom designed to provide more personalized learning to students, improve the overall student experience, and lead to better educational outcomes;

• Leveraging research and technology provided by the acquisition of Carnegie Learning; and

• A new student relationship and communications management platform designed to streamline student support services and assist students who have limited or no higher education experience or otherwise may be unprepared to succeed in the University’s academic programs.

The University has also recently implemented enhancements to its instructional model focused on improving new student retention, including, but not limited to, the increased use of full-time faculty, adjusted course lengths, and additional resources dedicated to assisting new students during their first three courses.

In connecting education to careers, University of Phoenix has launched career-oriented tools and continues to increase career relationships with employers. These relationships provide the University with potential working learners for particular programs, serve to increase our reputation among high-profile employers, and provide the University’s students with available job postings. Employers benefit from the relationships by receiving tuition discounts for their employees and having a direct channel to the University’s students for job placement.

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Colleges and Programs

In fiscal year 2014, the University began emphasizing the distinctiveness of its eight colleges to more effectively address the specific needs of the students and employers they serve. The University’s eight colleges, as detailed below, offer a variety of degree programs. The School of Business, College of Health Sciences and Nursing, and College of Social Sciences represent more than 70% of the University’s Degreed Enrollment, as defined in Students below.

College	Undergraduate Degrees	Master Degrees	Doctoral Degrees
Advanced Studies			X
Business	X	X
Criminal Justice and Security	X	X
Education	X	X
Health Sciences and Nursing	X	X
Humanities and Sciences	X	X
Information Systems and Technology	X	X
Social Sciences	X	X

In addition to degree programs, the University offers a range of non-degree continuing education programs, including:

• Individual, credit bearing courses in a variety of program areas that are typically from the University’s degree programs. These courses often assist students in fulfilling their educational professional goals, maintaining licensures, and earning general elective credits to transfer into a degree program.

• Noncredit bearing professional development programs designed to advance career-specific skills and knowledge for working professionals in a variety of program areas.

• Test-preparation programs designed to help working professionals achieve industry-recognized certifications and successfully complete content-specific tests.

• Certificate programs designed to provide working professionals with relevant knowledge and skills in their applicable field.

Degree seeking students also have the opportunity to benefit from the University’s non-degree programs by earning up to two credentials and/or certificates that can be used in the workplace as they are working toward their ultimate degree goal with no additional tuition or time.

Instructional Model

The instructional models used by University of Phoenix are designed specifically to meet the educational needs of working learners, who seek accessibility, curriculum consistency, time and cost-effectiveness, and learning that has immediate application to the workplace. The models are structured to enable students who are employed full-time or have other commitments to earn their degrees and still meet their personal and professional responsibilities. Our focus on working, non-traditional, non-residential students minimizes the need for capital-intensive facilities and services like dormitories, student unions, food service, health care, sports and entertainment.

University of Phoenix has campus locations and learning centers throughout the U.S. and Puerto Rico, and offers students the flexibility to attend both on-campus and online classes. The University’s online classes employ a proprietary online learning system and have mandatory participation requirements for both faculty and students.

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Components of University of Phoenix’s instructional model for both online and on-campus classes include:

• Curriculum. Faculty content experts design the curriculum for the University’s programs, which enables it to offer current and relevant standardized programs to its students. The curricula are designed to integrate academic theory and professional practice and their application to the workplace. University of Phoenix has incorporated adaptive learning into its curricula in selected courses to offer an individualized approach to learning.

• Faculty. Substantially all University of Phoenix faculty possess either a master’s or doctoral degree. Faculty members typically have many years of experience in the field in which they instruct, and most teach on an adjunct basis.

As part of our strategy to improve student retention, we have recently increased our use of full-time faculty in the initial courses students take at the University.

• Accessibility. Most of the University’s academic programs may be accessed through a choice of delivery mode (online, campus-based or a blend of both), which make its educational programs accessible, regardless of where students work and live.

• Active Learning Environment and Class Schedule.University of Phoenix courses involve collaborative learning activities. Students are enrolled in courses year-round and class schedules generally vary depending on degree level.

• Student Education Services.The University offersstudents and faculty a variety of education services including learning resources for their information and research needs, tutoring, adaptive learning tools, student workshops and PhoenixConnect, the University’s proprietary academic social media network. PhoenixConnect is used to support students in their academic programs and each college has an online community manager who provides oversight and guidance with respect to college-related conversations in the network.

• Phoenix Career Services. Through Phoenix Career Services, we are working to expand the traditional concept of career services to include career exploration and planning during both the pre-enrollment phase and the student’s academic journey.Our Phoenix Career Guidance System allows students to clarify their career aspirations prior to enrollment, and then create personalized career plans upon enrollment that will help them develop the skills and competencies relevant to their desired careers during their academic journeys.

Students and alumni can also access our Phoenix Career Services online portal, which includes career preparation tools such as resume and cover letter development services, interview preparation services and a collection of content to help prepare for a career change or advancement opportunity. Once students are ready to search for a career, Phoenix Career Services also provides personal assistance through a nationwide network of career coaches and an online job board from which students can access current career opportunities.

Marketing and Admissions

University of Phoenix engages in a broad range of advertising and marketing activities to educate students about the options they have in higher learning and convey the University’s value proposition and offerings to connect education to careers. The University is focused on enhancing its brand perception and utilizing different communication channels, which are discussed below, to attract students who are more likely to persist in the University’s programs.

• Internet. Many prospective students identify their education opportunities online through search engines, information and social network sites, various education portals on the Internet and school-specific sites such as the University’s phoenix.edu. The University advertises on the Internet using search engine keywords, banners, and custom advertising placements on targeted sites, such as education portals, career sites, and industry-specific websites. The University has reduced its use of third-party operated sites and increased its use of branded media channels because the University believes this approach will help better identify students who are more likely to persist in its educational programs.

• Brand. Brand advertising is intended to increase potential students’ understanding of the University’s academic quality, commitment to service, academic outcomes, academic community achievements and connection of education to careers. The University’s brand is advertised primarily through national and regional broadcast, radio, online video, social, and print media. Brand advertising also serves to expand the addressable market and establish brand consideration and familiarity with the University’s colleges and programs on both a national and a local basis.

• Relationships with Employers and Community Colleges. As discussed further above, we establish relationships with employers in part to provide the University with a source of potential working learners for particular programs. We also establish relationships with community colleges to connect their graduates with the University’s degree programs and other educational programs.

• Sponsorships, Corporate Social Responsibility and Other. The University builds its presence in communities through sponsorships, advertising and event marketing to support specific activities, including local and national career events, academic lecture series, workshops and symposiums on various current topics of interest and through its corporate social responsibility outreach program.

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After attracting prospective students as described above, the University provides them with access to online tools, information, and resources that answer key questions and concerns prior to admission. This includes assessments of a potential student’s learning style, academic abilities and readiness to pursue higher education, a tuition calculator and information on careers.

Admission to University of Phoenix undergraduate degree programs requires a high school diploma or equivalent, and proficiency in English. Admission to master and doctoral degree programs requires an undergraduate degree, and generally for doctoral programs, a master’s degree, from a regionally or nationally accredited college or university, a minimum grade point average and relevant work experience if applicable for the field of study.

Students

The following details University of Phoenix student enrollment for the respective periods:

	Fiscal Year 2012				Fiscal Year 2013				Fiscal Year 2014
(Rounded to the nearest hundred)	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Degreed Enrollment(1)	373,100	355,800	346,300	328,400	319,700	300,800	287,500	269,000	263,000	250,300	241,900	233,500
New Degreed Enrollment(2)	63,700	48,700	51,500	52,800	54,100	38,900	38,900	41,000	41,700	32,500	33,900	38,600

⁽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 the 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⁾ 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.

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Apollo Global

Our schools outside of the U.S. offer programs ranging from career oriented, non-degree certificate programs to accredited graduate degrees. BPP, based in the U.K., represents our largest international operation and contributed the majority of Apollo Global’s fiscal year 2014 net revenue. Our other international institutions are spread throughout the world with locations in Australia, North America, Africa, South America and Asia. Apollo Global’s educational network is described in more detail below:

Business and Headquarters	Principal Education Offerings	Students and Delivery Method
BPP; London, England	Substantially all of BPP’s revenue is generated by undergraduate and graduate degree programs at BPP University, and its non-degree programs. BPP University includes the BPP Law School and BPP Business School, with the law school generating the substantial majority of BPP University’s revenue. The non-degree programs primarily represent professional training and exam preparation.	Substantially all BPP students reside in the U.K., and fund their education with personal funds, private loans, government financial aid funding and, in some instances, tuition reimbursement or other forms of assistance from their employers. Depending on the program, students are offered flexible learning models through on-campus, online, or blended delivery methods.
Open Colleges; Sydney, Australia	Open Colleges offers non-degree programs that include certificates, diplomas and other qualifications in a diverse range of disciplines and industries. Open Colleges’ revenue is not concentrated in any particular offering and its largest program areas are health and wellness, business management and services, and community services.	Substantially all Open Colleges’ students reside in Australia and fund their education with personal funds. Open Colleges’ programs are delivered in an online, asynchronous format that provides students with the flexibility to complete programs at their convenience.
ULA; Mexico City, Mexico	ULA offers graduate and undergraduate degrees, high school and executive education in medical, dental and communications programs through a mix of online and on-ground delivery at its campuses and learning centers, principally in Mexico City.	Substantially all ULA students reside in Mexico and fund their education with personal funds. Depending on the program, students are offered flexible learning models through on-campus, online or blended delivery methods.
Milpark Education; Cape Town, South Africa	Milpark Education offers postsecondary education including undergraduate and graduate degrees, and non-degree programs. The substantial majority of Milpark Education’s programs are in business and finance.	Substantially all Milpark Education students reside in South Africa and fund their education with personal funds. Depending on the program, students are offered flexible learning models through distance education and on-campus learning.
Apollo Global Chile; Santiago, Chile	Apollo Global Chile includes UNIACC and IACC, which offer degree programs and non-degree programs in a variety of program areas primarily focused on arts and technology.	Substantially all UNIACC and IACC students reside in Chile and fund their education with personal funds. Students are offered flexible learning models through on-campus or online delivery methods.
Bridge School of Management; India	Apollo Global is developing the Bridge School of Management through a 50:50 joint venture with HT Media Limited, an Indian media company. The school offers non-degree management and business programs.	The Bridge School of Management is focused on attracting students that reside in India and offers flexible learning models through on-campus or online delivery methods.

Competition

Domestic

The U.S. higher education industry is highly fragmented with no single private or public institution having a significant market share. We compete primarily with traditional public and private two-year and four-year degree-granting regionally accredited colleges and universities, other proprietary degree-granting regionally accredited schools and alternatives to higher education. In addition, we face increasing competition from various emerging non-traditional, credit-bearing and noncredit-bearing education programs, offered by both proprietary and not-for-profit providers. Some of our competitors have greater financial and nonfinancial resources than we have and are able to offer programs similar to ours at a lower tuition level for a variety of reasons, including the availability of direct and indirect government subsidies, government and foundation grants, large endowments, tax-deductible contributions and other financial resources not available to proprietary institutions, or by providing fewer student services or larger class sizes.

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The higher education industry is also experiencing unprecedented, rapidly developing changes 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 other factors that challenge many of the core principles underlying the industry. Related to this, other education providers are testing and adapting new education and operating models focused on reducing costs, time to education outcomes and operational complexity. These recent innovations include competency based and adaptive learning, intensive skill focused bootcamps and career pathways, tools and services. In addition, an increasing number of traditional four-year and community colleges are offering distance learning and other online education programs, including programs that are geared towards the needs of working learners. This trend has been accelerated by private companies that provide and/or manage online learning platforms for traditional four-year colleges and community colleges. As the proportion of traditional colleges providing alternative learning modalities increases, we continue to face increasing competition from traditional colleges, including those with well-established reputations. Already, this type of competition is significant. As the online and distance learning segment of the postsecondary education market matures, we believe that the intensity of the competition we face will continue to increase.

We are working to accelerate the enhancement of our offerings to remain competitive and to more effectively deliver a quality student experience. In addition, we have increased our use of targeted scholarships and discounts to attract students and reward persistence.

We believe that the primary factors on which we compete are the following:

• Breadth of reliable and high-quality programs and services tied to careers;

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

• Career assessment and planning, and connecting career opportunities at leading companies to our students and alumni;

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

• Comprehensive and differentiated student support services such as academic social networking;

• Reputation of the institution and its programs;

• Qualified and experienced faculty;

• Size and engagement of alumni network;

• The global geographic reach of our network of institutions; and

• Program affordability.

International

In general, we operate in international markets that are highly competitive. Our international schools compete with other proprietary companies and, in certain instances, with government supported schools and institutions. Competitive factors for our international schools vary by country and, in some cases, by program offering. For example, BPP’s qualifications and law program offerings compete with other providers primarily based on reputation and student outcomes, including placement rates and exam pass rates. Competitive factors for all of our international offerings generally include the following:

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

• Breadth of reliable and high-quality programs and classes;

• Reputation of programs and classes;

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

• Program affordability.

Employees

As of August 31, 2014, we had approximately 13,000 non-faculty employees, the substantial majority of which were employed full-time. We also had approximately 26,000 faculty members as of August 31, 2014, which principally represents University of Phoenix faculty who have taught in the last twelve months and are eligible to teach future courses. Most of our faculty are adjunct part-time faculty. We believe that our employee relations are satisfactory.

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Accreditation and Jurisdictional Authorizations

Domestic

Accreditation

University of Phoenix is regionally accredited by the Higher Learning Commission (“HLC”) of the North Central Association of Colleges and Schools. This accreditation 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 student financial aid programs under Title IV of the Higher Education Act (“Title IV”) (in combination with state higher education operating and degree granting authority); and

• Qualification for authority to operate in certain states.

Regional accreditation is accepted nationally as the basis for the recognition of earned credit and degrees for academic purposes, employment, professional licensure and, in some states, as a component of authorization to operate as a degree-granting institution.

In July 2013, the accreditation of University of Phoenix was reaffirmed by the HLC through the 2022-2023 academic year. At the same time, HLC placed the University on Notice status for a two-year period due to concerns regarding governance, student assessment and faculty scholarship/research for doctoral programs. Notice status is a sanction that means that HLC has determined that an institution is on a course of action that, if continued, could lead the institution to be out of compliance with one or more of the HLC Criteria for Accreditation or Core Components. The University was assigned by HLC to the Standard Pathway reaffirmation process, pursuant to which the University will host a comprehensive evaluation visit in 2016-2017 and will undergo its next reaffirmation visit and process in 2022-2023.

The University is required to submit a Notice Report to the HLC by the end of calendar year 2014 providing evidence that the University meets the Criteria for Accreditation, Core Components and Minimum Expectations (Assumed Practices after January 1, 2013) identified as the basis for the Notice sanction and that it has ameliorated the issues that led to the Notice sanction. In addition, in the Notice Report the University is also required to report on its progress in other areas of concern not included in the Notice sanction, including retention and graduation rates, three-year student loan cohort default rates, and credit hour policies and practices relating to learning teams. The University also will be required to host a focused visit by the HLC in January 2015, to validate the contents of the Notice Report. The HLC Board of Trustees will review the University’s Notice Report, together with a report of the focused visit, at a meeting in 2015. During the Notice period, the University is required to disclose its Notice status in connection with any statements regarding its HLC accreditation.

In addition to the above, as a condition of the HLC’s approval of the changes to the voting stock trust which holds approximately 51% of Apollo’s outstanding Class B common shares, the only class of Apollo voting stock, University of Phoenix, Western International University and College for Financial Planning must each host a visit by HLC by January 3, 2015 focused on ascertaining the appropriateness of the approval, implications for succession planning, and the effect, if any, of the change in trust arrangements on Apollo and the respective institution and their ability to continue to meet HLC’s Criteria for Accreditation and Assumed Practices.

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Accreditation information for University of Phoenix and applicable programs is described below:

Institution/Program	Accrediting Body (Year Accredited)(1)	Status(1)
University of Phoenix	• The Higher Learning Commission of the North Central Association of Colleges and Schools (1978, reaffirmed in 1982, 1987, 1992, 1997, 2002 and 2013)	• Refer above for discussion of Notice status and upcoming reports, evaluations and visits
• Business programs	• Accreditation Council for Business Schools and Programs	• Reaffirmation visit expected in 2017
• Bachelor of Science in Nursing	• Commission on Collegiate Nursing Education (2005) • Previously accredited by National League for Nursing Accrediting Commission from 1989 to 2005	• Reaffirmation visit expected in 2020
• Master of Science in Nursing	• Commission on Collegiate Nursing Education (2005) • Previously accredited by National League for Nursing Accrediting Commission from 1996 to 2005	• Reaffirmation visit expected in 2020
• Master of Counseling in Clinical Mental Health (Phoenix and Tucson, Arizona campuses)	• Council for Accreditation of Counseling and Related Educational Programs (2012)	• Reaffirmation visit expected in 2017 or 2018
• Master of Counseling in Mental Health Counseling (Salt Lake City, Utah campus)	• Council for Accreditation of Counseling and Related Educational Programs (2001, reaffirmed in 2010, and in 2012)	• Reaffirmation visit expected in 2015 or 2016
• Master of Arts in Education with options in Elementary Teacher Education and Secondary Teacher Education • Candidate for Accreditation in Utah and Hawaii (mandatory for operation)	• Teacher Education Accreditation Council (“TEAC”) (reaffirmed in 2007) • National Council for Accreditation of Teacher Education (“NCATE”)	• The University’s programmatic accreditation from TEAC expired at the end of 2013. TEAC and NCATE have merged and become the Council for the Accreditation of Educator Preparation (“CAEP”). CAEP is finalizing its new accreditation processes. The University has elected to allow the programmatic accreditation from TEAC to expire, and is pursuing NCATE programmatic accreditation in those states where it is mandatory for operation (Utah and Hawaii), and will consider the new CAEP options when they are finalized.

⁽¹⁾ References to years refer to calendar year.

Western International University has been accredited by HLC since 1984. In fiscal year 2013, the accreditation of Western International University was reaffirmed by the HLC through the 2022-2023 academic year. At the same time, HLC placed Western International University on Notice status for a two-year period.

College for Financial Planning has been accredited by HLC since 1994. During fiscal year 2014, College for Financial Planning was informed in writing by HLC that it had addressed HLC’s findings from its most recent accreditation reaffirmation review. The next comprehensive visit from HLC is scheduled during the 2017-2018 school year.

Jurisdictional Authorizations

In addition to accreditation by independent accrediting bodies, our schools must be authorized to operate by the appropriate regulatory authorities in many of the jurisdictions in which they operate. Institutions that participate in Title IV programs must be authorized to operate by the appropriate postsecondary regulatory authority in each state where the institution has a physical presence. University of Phoenix is specifically authorized to operate in all of the domestic jurisdictions in which it operates. Some states assert authority to regulate all degree-granting institutions if their educational programs are available to their residents, whether or not the institutions maintain a physical presence within those states. University of Phoenix has obtained licensure in states which require such licensure and where students are enrolled. Refer to Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate - If we fail to maintain any of our state authorizations, we would lose our ability to operate in that state and to participate in Title IV programs there.

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Our other domestic institutions maintain the requisite authorizations in the jurisdictions in which they operate.

International

Our international businesses must be authorized by the relevant regulatory authorities under applicable local law, which in some cases requires accreditation, as described below:

• BPP - BPP University Limited has been awarded degree awarding powers by the U.K. Privy Council, and certain of its awards are accredited by professional bodies toward professional qualifications. This designation is expected to require renewal during the 2018-2019 school year. Additionally, BPP Professional Education is an accredited training provider for a number of professional bodies offering training toward those bodies’ professional qualifications. BPP also has additional accreditations by country and/or program as necessary.

• Open Colleges - Open Colleges’ operates three registered training organizations as approved by the Australian Skills Quality Authority. All three registrations were recently renewed for the maximum allowable period of five years with the first expiring and requiring renewal in our fiscal year 2018.

• ULA - ULA is recognized as a University of Excellence, which is the highest level of institutional accreditation from the Mexican Federation of Private Institutions of Higher Education (Federación de Instituciones Mexicanas Particulares de Educación Superior). ULA operates under additional regional or programmatic regulators in Mexico, as applicable.

• Milpark Education - Milpark Education is registered with the South African Department of Higher Education and Training as a Private Higher Education Institution.

• Apollo Global Chile - UNIACC and IACC are regulated by the Chilean Ministry of Education (Ministerio de Educación de Chile) and have programmatic accreditations, as applicable.

• Bridge School of Management - The Bridge School of Management offers non-accredited programs.

Financial Aid Programs

Domestic

The principal source of federal student financial aid in the U.S. is Title IV of the Higher Education Act, as it is amended and reauthorized from time to time by the U.S. Congress, and the related regulations adopted by the U.S. Department of Education. We refer to the financial aid programs under this Act as “Title IV” programs. In 2008, the Higher Education Act was reauthorized through September 30, 2013 by the Higher Education Opportunity Act and an automatic one year extension continued the authorization through September 30, 2014. Congress continues to engage in Higher Education Act reauthorization hearings and although the one year automatic extension has expired, Title IV programs remain authorized and functioning.

Financial aid under Title IV programs is awarded annually to eligible students. Some Title IV programs award financial aid on the basis of financial need, generally defined as the difference between the cost of attending an educational institution and the amount the student and/or the student’s family, as the case may be, can reasonably be expected to contribute to that cost. The amount of financial aid awarded to a student each academic year is based on many factors, including, but not limited to, program of study, grade level, Title IV annual loan limits, and financial need. We have substantially no control over the amount of Title IV student loans or grants sought by or awarded to our students. All recipients of Title IV program funds must maintain satisfactory academic progress within the guidelines published by the U.S. Department of Education to remain eligible. Refer to Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate - Action by the U.S. Congress to revise the laws governing federal student financial aid programs or reduce funding for those programs, including changes applicable only to proprietary educational institutions, could reduce our enrollment and increase our costs of operation.

In addition to Title IV programs, qualifying U.S. active military and veterans and their family members are eligible for federal student aid from various Departments of Defense and Veterans Affairs programs. We refer to the financial aid programs administered by these Departments as “military benefit” programs.

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During fiscal year 2014, 81% of University of Phoenix’s cash basis revenue for eligible tuition and fees was derived from the receipt of Title IV program funds, as calculated under the 90/10 Rule described below. These Title IV program funds are principally comprised of federal student loans and Pell Grants:

• Student loans currently are the most significant component of Title IV program funds and are administered through the Federal Direct Loan Program. Annual and aggregate loan limits apply based on the student’s grade level and other factors. Currently, the maximum annual loan amounts range from $3,500 to $12,500 for undergraduate students and $20,500 for graduate students. There are two types of federal student loans: subsidized loans, which are based on the statutory calculation of student need, and unsubsidized loans, which are not based on student need. Neither type of student loan is based on creditworthiness. Students are not responsible for interest on subsidized loans while enrolled in school. Graduate and professional students are not eligible for subsidized loans. Students are responsible for the interest on unsubsidized loans while enrolled in school, but have the option to defer payment while enrolled. Repayment on federal student loans begins six months after the date the student ceases to be enrolled. The loans are repayable over the course of 10 years and, in some cases, longer. During fiscal year 2014, student loans (both subsidized and unsubsidized) represented approximately 76% of the gross Title IV program funds received by University of Phoenix.

• Federal Pell Grants are awarded based on need and only to undergraduate students who have not earned a bachelor’s or professional degree. Unlike loans, Pell Grants do not have to be repaid. During fiscal year 2014, Pell Grants represented approximately 24% of the gross Title IV program funds received by University of Phoenix. The eligibility for and maximum amount of Pell Grants have increased over recent years. Since the 2006-2007 award year, the maximum annual Pell Grant award has increased from $4,050 to $5,730 for the 2014-2015 award year. Because the federal Pell Grant program is one of the largest non-defense discretionary spending programs in the federal budget, it is a target for reduction as Congress seeks to reduce the U.S. budget deficit. A reduction in the maximum annual Pell Grant amount or changes in eligibility could negatively impact enrollment and could result in increased student borrowing, which would make it more difficult for us to comply with other important regulatory requirements such as maintaining student loan cohort default rates below specified levels.

The remaining funding for tuition and other fees paid by our students primarily consists of state-funded student financial aid, tuition assistance from employers and personal funds.

International

Although students enrolled at certain of our international institutions receive government financial aid funding, such funding is not a material component of our net revenue from international institutions.

Regulatory Environment

Domestic

Our domestic postsecondary institutions are subject to extensive federal and state regulations. The Higher Education Act, as reauthorized, and the related U.S. Department of Education regulations govern all higher education institutions participating in Title IV programs, and provide for a regulatory triad by mandating specific regulatory responsibilities for each of the following:

• The accrediting agencies recognized by the U.S. Department of Education;

• The federal government through the U.S. Department of Education; and

• State higher education regulatory bodies.

To be eligible to participate in Title IV programs, a postsecondary institution must be accredited by an accrediting body recognized by the U.S. Department of Education, must comply with the Higher Education Act, as reauthorized, and all applicable regulations thereunder, and must be authorized to operate by the appropriate regulatory authority in each state where the institution maintains a physical presence. We have summarized below recent material activity in the regulatory environment affecting our business and the most significant regulatory requirements applicable to our domestic postsecondary operations.

Changes in or new interpretations of applicable laws, rules, or regulations could have a material adverse effect on our eligibility to participate in Title IV programs, accreditation, authorization to operate in various states, permissible activities, and operating costs. The failure to maintain or renew any required regulatory approvals, accreditation, or state authorizations could have a material adverse effect on us. Refer to Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate.

Financial Aid Funding. In recent years, there has been increased focus by members of the U.S. Congress and federal agencies such as the Consumer Financial Protection Bureau and the Federal Trade Commission on the role that proprietary educational institutions play in higher education. We expect this focus to increase, particularly during the time leading up to the 2014 mid-term elections. Congressional hearings and roundtable discussions have been held regarding various aspects of the education

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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 federal Higher Education Act. The current reauthorization expired September 30, 2013 and an automatic one year extension continued the authorization through September 30, 2014. Congress continues to engage in Higher Education Act reauthorization hearings and although the one year automatic extension has expired, Title IV programs remain authorized and functioning.

In addition, Title IV program funding is a potential target for reduction as Congress seeks to reduce the U.S. budget deficit. Because a substantial portion of our revenue is derived from Title IV programs, any action by Congress that reduces Title IV program funding, whether through across-the-board funding reductions, sequestration or otherwise, or 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, certain military financial aid may be reduced as military branches address decreased funding. Reductions and/or changes in military financial aid could result in increased student borrowing, decreased enrollment and adverse impacts on our 90/10 Rule percentage, as discussed below.

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 prospective students with specified disclosures, including each eligible program’s recognized occupations, cost, completion rate, job placement rate, and median loan debt of program completers. These reporting requirements could adversely impact student enrollment, persistence and retention if our reported program information compares unfavorably with other reporting educational institutions. In addition, the U.S. Department of Education has proposed new rules that would limit program eligibility for Title IV if certain gainful employment metrics are not satisfied. Refer to U.S. Department of Education Rulemaking Initiative below.

U.S. Department of Education Rulemaking Initiative. In March 2014, the U.S. Department of Education issued a Notice of Proposed Rulemaking (“NPRM”) to establish measures for determining whether certain postsecondary educational programs prepare students for gainful employment in a recognized occupation, and the conditions under which these educational programs remain eligible to participate in Title IV programs. The public comment period on the NPRM ended in May 2014 and the Department has submitted its proposed final rule to the Office of Information and Regulatory Affairs for review and approval before the final regulations are published. The effective date of any such regulations cannot be determined until final regulations are published by the Department. If the Department publishes final regulations by November 1, 2014, such regulations could be effective as early as July 1, 2015. Under the proposed rule, if the students who complete a program have high debt-to-earnings ratios or students who complete or withdraw have high program-level cohort default rates, the program would lose its Title IV eligibility for three years. In general, the proposed debt-to-earnings metric requires that students who complete a program must not, on average, spend more than 8% of their annual income, or 20% of their discretionary income, on their student loan payments. The proposed program cohort default metric requires that the student loan default rate for students who completed or withdrew from a particular program during a given year may not exceed 30% measured during the three years after entering repayment. Under the proposed rule, programs would also be obligated to meet necessary programmatic accreditation requirements as well as applicable state licensure standards for any state in the institution’s regional area. Institutions would be required to attest that their programs meet these requirements as part of the program participation agreement with the Department. Additional details are available at

http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/gainfulemployment.html. These regulations, if promulgated as currently proposed, would impose significant new administrative burdens on our operations and could limit our ability to offer certain programs.

Additionally, the Department announced the creation of a rulemaking committee to focus on other topics, including cash management and state authorization. This committee has held negotiated rulemaking sessions, but the committee failed to reach consensus on all topics. These negotiated rulemaking initiatives are expected to produce new regulations in a variety of areas. In May 2014, prior to the final negotiated rulemaking session, the Department issued its proposal for certain new regulations, including those for state authorization. The proposed regulations, if promulgated as drafted, would impose significant new regulatory burdens on postsecondary institutions which provide distance education, regardless of educational sector, including University of Phoenix. The effective date of any such regulations cannot be determined at this time, but it is likely that the rules, if adopted, would be effective on or after July 1, 2015. While the Department is expected to issue final regulations in a number of these areas, the Department has indicated that it does not expect to promulgate additional regulations for state authorization for distance education programs without further study. Additional details are available at

http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html.

The Department has also conducted listening tours to solicit public feedback building on President Obama’s call for a national college rating system. The Secretary of the Department has publicly stated that a draft ratings system is expected to be issued

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by the end of calendar year 2014, and the Department has been charged with issuing the ratings for use by students and others for the 2015-2016 school year.

Eligibility and Certification Procedures. 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.

University of Phoenix was recertified in November 2009 and entered into a new Title IV Program Participation Agreement which expired on December 31, 2012. The University has submitted necessary documentation for re-certification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application. We have no reason to believe that the University’s application will not be renewed in due course, and it is not unusual to be continued on a month-to-month basis until the Department completes its review. We cannot predict whether, or to what extent, the imposition of the Notice sanction by The Higher Learning Commission might have on this process.

Western International University was recertified in May 2010 and its current certification expired on September 30, 2014. Western International University has submitted necessary documentation for re-certification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application.

90/10 Rule. University of Phoenix and Western International University, and all other proprietary institutions of higher education, are subject to the so-called “90/10 Rule” under the Higher Education Act, as reauthorized. Under this rule, a proprietary institution will be ineligible to participate in Title IV programs for at least two fiscal years if for any two consecutive fiscal years it derives more than 90% of its cash basis revenue, as defined in the rule, from Title IV programs. If an institution is determined to be ineligible, any disbursements of Title IV program funds made after the end of the second fiscal year in the measuring period must be repaid to the U.S. Department of Education. An institution that derives more than 90% of its cash basis revenue from Title IV programs for any single fiscal year will be automatically placed on provisional certification for two fiscal years and will be subject to possible additional sanctions determined to be appropriate under the circumstances by the Department. While the Department has broad discretion to impose additional sanctions on such an institution, there is only limited precedent available to predict what those sanctions might be, particularly in the current regulatory environment. For example, the Department could impose conditions in the provisional certification such as:

• Restrictions on the total amount of Title IV program funds that may be disbursed to students;

• Restrictions on programmatic and geographic expansion;

• Requirements to obtain and post letters of credit;

• Additional reporting requirements such as interim financial reporting; or

• Any other conditions deemed appropriate by the Department.

The 90/10 Rule percentages for University of Phoenix and Western International University were as follows for the respective periods:

	Year Ended August 31,
	2014	2013	2012
University of Phoenix	81%	83%	84%
Western International University	62%	66%	68%

The decrease in the University of Phoenix 90/10 Rule percentage is attributable to changes in student mix and the associated available sources of tuition funding. As the University’s enrollment has declined in recent years, the proportion of its student body that uses a lower percentage of Title IV program funds for eligible tuition and fees, such as students that receive tuition assistance from employers or that participate in military benefit programs, has increased. The University has also implemented various other measures in recent years intended to reduce the percentage of its cash basis revenue attributable to Title IV program funds, including encouraging students to carefully evaluate the amount of necessary Title IV program borrowing and increased focus on non-degree continuing education programs. The University has very little influence over the amount of Title IV program student loans and grants sought by or awarded to eligible students.

Based on recent trends, we do not expect the 90/10 Rule percentage for University of Phoenix to exceed 90% for fiscal year 2015. However, the 90/10 Rule percentage for the University remains high and could exceed 90% in the future depending on the degree to which its various initiatives are effective, the impact of future changes in its enrollment mix, and regulatory and other factors outside our control, including any reduction in military benefit programs or changes in the treatment of such funding for purposes of the 90/10 Rule calculation.

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Various legislative proposals have been introduced in Congress that would heighten the requirements of the 90/10 Rule, including proposals that would reduce the 90% maximum under the rule to the pre-1998 level of 85%, cause tuition derived from military benefit programs to be included in the 85% portion under the rule instead of the 10% portion as is the case today, and impose Title IV program ineligibility after one year of noncompliance rather than two. If these or similar proposals are adopted, University of Phoenix would be required to increase efforts and resources dedicated to reducing the percentage of cash basis revenue attributable to Title IV program funds.

Any necessary efforts to reduce the 90/10 Rule percentage for University of Phoenix, especially if the percentage exceeds 90% for a fiscal year, may involve taking measures which reduce our revenue, increase our operating expenses, or both, in each case perhaps significantly. In addition, we may be required to make structural changes to our business in the future in order to remain in compliance, which changes may materially alter the manner in which we conduct our business and materially and adversely impact our business and financial condition. Furthermore, these required changes could make it more difficult to comply with other important regulatory requirements, such as the student loan cohort default rate regulations, which are discussed below.

Student Loan Cohort Default Rates. To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. Each cohort is the group of students who first enter into student loan repayment during a federal fiscal year (ending September 30). The cohort default rates are published by the U.S. Department of Education approximately 12 months after the end of the applicable measuring period. Thus, in September 2014, the Department published the three-year cohort default rates for the 2011 cohort.

An educational institution loses eligibility to participate in Title IV programs if its three-year cohort default rate equals or exceeds 40% for any given year or 30% for three consecutive years. If an institution’s three-year cohort default rate equals or exceeds 30% for any given year, it must establish a default prevention task force and develop a default prevention plan with measurable objectives for improving the cohort default rate. We believe that our current repayment management efforts would meet these requirements.

Based on information published by the U.S. Department of Education, the three-year cohort default rates for University of Phoenix, Western International University and for all proprietary postsecondary institutions for the applicable federal fiscal years were as follows:

	Three-Year Cohort Default Rates for Cohort Years Ended September 30,
	2011	2010	2009
University of Phoenix	19.0%	26.0%	26.4%
Western International University	12.0%	10.8%	13.7%
All proprietary postsecondary institutions	19.1%	21.8%	22.7%

We believe that our efforts to shift our student mix to a higher proportion of students in higher degree level programs and our investment in student protection initiatives and repayment management services have favorably impacted our rates. As part of our repayment management initiatives, we engage third-party service providers to assist our students who are at risk of default. These service providers contact students and offer assistance, which includes providing students with specific loan repayment information such as repayment options and loan servicer contact information, and they attempt to transfer these students to the relevant loan servicer to resolve their delinquency. In addition, we are focused on improving student retention and on enrolling students who are better able to succeed in our programs, in part because the rate of default is higher among students who do not complete their degree program compared to students who graduate.

Based on our most recent trends, we expect the 2012 three-year cohort default rate for University of Phoenix to be lower than the 2011 three-year cohort default rate. However, if our student loan default rates approach the applicable limits, we may be required to increase efforts and resources dedicated to improving these default rates. This is challenging because most borrowers who are in default or at risk of default are no longer students, and we may have only limited contact with them. Furthermore, continued increased attention has been given by members of Congress and others on default aversion activities of proprietary education institutions. If such attention leads to congressional or regulatory action restricting the types of default aversion assistance that educational institutions are permitted to provide, the default rates of our former students may be negatively impacted. Accordingly, there is no assurance that we would be able to effectively improve our default rates or improve them in a timely manner to meet the requirements for continued participation in Title IV programs if we experience a substantial increase in our student loan default rates.

State Authorization. Institutions that participate in Title IV programs must be authorized to operate by the appropriate postsecondary regulatory authority in each state where the institution has a physical presence. University of Phoenix is specifically authorized to operate in all of the domestic jurisdictions in which it operates. In May 2014, the U.S. Department of

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Education issued a proposal for certain new regulations, including those for state authorization. Refer to U.S. Department of Education Rulemaking Initiative above.

U.S. Department of Education Program Reviews. The U.S. Department of Education periodically reviews institutions participating in Title IV programs for compliance with applicable standards and regulations. 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.

Office of the Inspector General of the U.S. Department of Education (“OIG”) Subpoena. In March 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 cannot at this time predict the eventual scope, duration or outcome of this matter.

Administrative Capability. The Higher Education Act, as reauthorized, directs the U.S. Department of Education to assess the administrative capability of each institution 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.

Standards of Financial Responsibility. Pursuant to the Title IV program regulations, each eligible higher education 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 the institution achieves a composite score of at least 1.5, it is considered financially responsible. A composite score from 1.0 to 1.4 is also considered financially responsible, and the institution may continue to participate as a financially responsible institution for up to three years, subject to additional monitoring and other consequences. If an institution does not achieve a composite score of at least 1.0, it can be transferred from the “advance” system of payment of Title IV program funds to cash monitoring status or to the “reimbursement” system of payment, under which the institution must disburse its own funds to students and document the students’ eligibility for Title IV program funds before receiving such funds from the U.S. Department of Education.

The fiscal year 2014 composite scores for Apollo Education Group, University of Phoenix and Western International University were as follows:

	Fiscal Year 2014 Composite Score
Apollo Education Group	2.5
University of Phoenix	2.3
Western International University	1.8

Limits on Title IV Program Funds. The Title IV regulations place restrictions on the types of programs offered and the amount of Title IV program funds that a student is eligible to receive in any one academic year. Only certain types of educational programs offered by an institution qualify for Title IV program funds. For students enrolled in qualified programs, the Title IV regulations place limits on the amount of Title IV program funds that a student is eligible to receive in any one academic year, as defined by the U.S. Department of Education. An academic year must consist of at least 30 weeks of instructional time and a minimum of 24 credits. University of Phoenix and Western International University’s degree programs meet the academic year minimum definition of 30 weeks of instructional time and 24 credits and qualify for Title IV program funds. Our institutions also have non-degree continuing education programs that do not qualify for Title IV program funds.

Restricted Cash. The U.S. Department of Education places restrictions on Title IV program funds held for students for unbilled educational services. As a trustee of these Title IV program funds, we are required to maintain and restrict these funds pursuant to the terms of our program participation agreement with the Department. These funds are included in restricted cash and cash equivalents in our Consolidated Balance Sheets in Item 8, Financial Statements and Supplementary Data.

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Branching and Classroom Locations. The Title IV regulations contain specific requirements governing the establishment of new locations at which the eligible institution offers, or could offer, 50% or more of an educational program. The U.S. Department of Education requires that the institution notify the Department of each location offering 50% or more of an educational program prior to disbursing Title IV program funds to students at that location. University of Phoenix has procedures in place to ensure timely notification and acquisition of all necessary location approvals prior to disbursing Title IV program funds to students attending any new location. In addition, The Higher Learning Commission and state regulators have requirements for the establishment of new locations.

There are also certain regulatory requirements associated with closing locations. During fiscal year 2013, University of Phoenix initiated a plan to realign its ground locations throughout the U.S., which included closing 115 locations. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Change of Ownership or Control. Approximately 51% of our outstanding Class B voting shares, our only class of voting stock, is held by the Apollo Class B Voting Stock Trust No. 1 (the “Class B Trust”), an irrevocable trust of which the current trustees are Peter V. Sperling, Chairman of our Board of Directors, Ms. Terri Bishop, the Vice Chair of our Board of Directors, and Ms. Darby Shupp, a member of our Board of Directors.

Any change of ownership or control of Apollo Education Group, depending on the type of change, may have significant regulatory consequences for University of Phoenix, Western International University and College for Financial Planning. Such a change of ownership or control could require recertification by the U.S. Department of Education, the reevaluation of accreditation by The Higher Learning Commission and/or reauthorization by state licensing agencies. If we experience a change of ownership or control, then University of Phoenix and Western International University may cease to be eligible to participate in Title IV programs until recertified by the Department. There is no assurance that such recertification would be obtained on a timely basis. Under some circumstances, the Department may continue an institution’s participation in Title IV programs on a provisional basis pending completion of the change in ownership approval process.

In addition, University of Phoenix, Western International University and College for Financial Planning would be required to report any material change in stock ownership to their principal institutional accrediting body, The Higher Learning Commission, and would be required to obtain approval prior to undergoing any transaction that affects, or may affect, their corporate control or governance. In the event of any such change, The Higher Learning Commission may undertake an evaluation of the effect of the change on the continuing operations of University of Phoenix, Western International University and College for Financial Planning for purposes of determining if continued accreditation is appropriate, which evaluation may include a comprehensive review.

Also, some states in which University of Phoenix, Western International University or College for Financial Planning are licensed require approval (in some cases, advance approval) of changes in ownership or control in order to remain authorized to operate in those states, and participation in grant programs in some states may be interrupted or otherwise affected by a change in ownership or control.

In July 2014, the Class B Trust was amended to, among other things, make it irrevocable and appoint the three current trustees. These amendments were previously approved by The Higher Learning Commission as an approved change of control, and found by the U.S. Department of Education to be excluded from the Department’s change of control approval process. The Higher Learning Commission’s approval of the amendments is subject to the condition that each accredited Apollo institution hosts a visit by HLC by January 3, 2015 focused on ascertaining the appropriateness of the approval, implications for succession planning, and the effect, if any, of the change in trust arrangements on Apollo and the relevant institution and their ability to continue to meet HLC’s Criteria for Accreditation and Assumed Practices.

Refer to Part I, Item 1A, Risk Factors - Risks Related to the Control Over Our Voting Stock - If regulators do not approve or delay their approval of transactions involving a change of control of our company, our state licenses, accreditation, and ability to participate in Title IV programs and state grant programs may be impaired, which could materially and adversely affect our business.

U.S. Department of Education Reporting and Disclosure Requirements. Based on the rising cost of postsecondary education and an effort for more transparency, the U.S. Department of Education publishes national lists annually disclosing the top five percent in each of nine institutional categories with the highest college costs and largest percentage cost increases. Institutions published on such lists may receive negative media attention that may cause some prospective students to choose educational alternatives. University of Phoenix and Western International University have not been on these lists.

International

Governmental regulations in foreign countries significantly affect our international operations. New or revised interpretations of regulatory requirements could have a material adverse effect on us. Changes in existing or new interpretations of applicable laws, rules, or regulations in the foreign jurisdictions in which we operate could have a material adverse effect on our accreditation, authorization to operate, permissible activities, and costs of doing business outside of the U.S. The failure to

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maintain or renew any required regulatory approvals, accreditation or state authorizations could have a material adverse effect on our international operations.

Available Information

We file annual, quarterly and current reports with the Securities and Exchange Commission. You may read and copy any document we file at the Securities and Exchange Commission’s Public Reference Room at 100 F Street NE, Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for information on the Public Reference Room. The Securities and Exchange Commission maintains a website that contains annual, quarterly and current reports that issuers file electronically with the Securities and Exchange Commission. The Securities and Exchange Commission’s website is www.sec.gov.

Our website address is www.apollo.edu. We make available free of charge on our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Information Statements on Schedule 14C, Forms 3, 4, and 5 filed on behalf of directors and executive officers, and all amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

Item 1A - Risk Factors

You should carefully consider the risks and uncertainties described below and all other information contained in this Annual Report on Form 10-K. In order to help assess the major risks in our business, we have identified many, but not all, of these risks, categorized as Risks Related to the Highly Regulated Industry in Which We Operate, Risks Related to our Business and Risks Related to the Control Over our Voting Stock. Due to the scope of our operations, a wide range of factors could materially affect future developments and performance.

If any of the following risks are realized, our business, financial condition, cash flows or results of operations could be materially and adversely affected, and as a result, the trading price of our Class A common stock could be materially and adversely impacted. These risk factors should be read in conjunction with other information set forth in this Annual Report, including Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data, including the related Notes to Consolidated Financial Statements.

Risks Related to the Highly Regulated Industry in Which We Operate

If we fail to comply with the extensive regulatory requirements for our business, we could face significant monetary liabilities, fines and penalties, including loss of access to U.S. federal student loans and grants for our students.

We are subject to extensive U.S. federal and state regulation as a provider of postsecondary education. The principal federal regulatory regime is established under the Higher Education Act of 1965, as it is amended and reauthorized from time to time, and the regulations promulgated under the Act by the U.S. Department of Education. Among other matters, these regulations govern the participation by University of Phoenix and Western International University in federal student financial aid programs under Title IV of the Higher Education Act (“Title IV”), which is the principal source of funding for students at these universities. A substantial majority of our fiscal year 2014 total consolidated net revenue was derived from receipt of Title IV program funds disbursed to our students.

The Higher Education Act, as reauthorized, mandates specific regulatory responsibilities for each of the following components of the higher education regulatory triad: (1) the federal government through the U.S. Department of Education; (2) independent accrediting agencies recognized by the Department of Education; and (3) state higher education regulatory bodies.

The applicable regulatory requirements cover virtually all phases of our U.S. operations, including educational program offerings, branching and classroom locations, instructional and administrative staff, administrative procedures, marketing and recruiting, financial operations, payment of refunds to students who withdraw, maintenance of restricted cash, acquisitions or openings of new schools, commencement of new or cessation of existing educational programs and changes in our corporate structure and ownership.

The applicable regulations, standards and policies of the various regulatory agencies frequently change and often are subject to interpretative uncertainty, particularly where they are crafted for traditional, academic term-based schools rather than our non-term academic delivery model. Changes in, or new interpretations of, applicable laws, regulations, standards or policies could have a material adverse effect on our accreditation, authorization to operate in various states, permissible activities, receipt of funds under Title IV programs, costs of doing business and our ability to implement beneficial changes in our academic or business model. We cannot predict how the requirements administered by these agencies will be applied or interpreted in the future, or whether our schools will be able to comply with any future changes in these requirements.

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If we are found to have violated any applicable regulations, standards or policies, we may be subject to the following sanctions imposed by any one or more of the relevant regulatory agencies:

• Monetary fines or penalties;

• Limitation or termination of our operations or ability to grant degrees, diplomas and certificates;

• Restriction or revocation of our accreditation, licensure or other operating authority;

• Limitation, suspension or termination of our eligibility to participate in Title IV programs or state financial aid programs;

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

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

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

• Requirement of heightened cash monitoring by the U.S. Department of Education;

• Other civil or criminal penalties; and/or

• Other forms of censure.

In addition, in some circumstances of noncompliance or alleged noncompliance, we may be subject to qui tam lawsuits under the Federal False Claims Act or various, similar state false claim statutes. In these actions, private plaintiffs seek to enforce remedies under the Act on behalf of the federal government and, if successful, are entitled to recover their costs and to receive a portion of any amounts recovered by the federal government in the lawsuit. These lawsuits can be prosecuted by a private plaintiff, even if the Department does not agree with plaintiff’s theory of liability. In 2009, we settled a qui tam lawsuit relating to alleged payment of incentive compensation to our enrollment counselors for a total payment of $80.5 million, and we currently are subject to a qui tam lawsuit alleging payment of improper incentive compensation in subsequent periods. For more information about the pending qui tam case, refer to Note 16, Commitments and Contingencies, in Part II, Item 8, Financial Statements and Supplementary Data.

In October 2011, the Office of the Inspector General of the U.S. Department of Education (“OIG”) notified us that it was conducting a nationwide audit of the Department’s program requirements, guidance, and monitoring of institutions of higher education offering distance education. In connection with the OIG’s audit of the Department, the OIG examined a sample of University of Phoenix students who enrolled during the period from July 1, 2010 to June 30, 2011. The OIG subsequently notified University of Phoenix that in the course of this review it identified certain conditions that the OIG believed were Title IV program compliance exceptions at University of Phoenix. Although University of Phoenix was not the direct subject of the OIG’s audit of the Department, the OIG asked University of Phoenix to respond so that it could consider University of Phoenix’s views in formulating its audit report of the Department. In September 2013, the OIG provided to University of Phoenix, among other institutions, a draft appendix to its audit report which again identified compliance exceptions at University of Phoenix. University of Phoenix responded to the appendix. In February 2014, the OIG released a final audit report on this subject entitled Title IV of Higher Education Act Programs: Additional Safeguards are Needed to Help Mitigate the Risks that Are Unique to the Distance Education Environment. This report included Appendix J related to University of Phoenix, which identified exceptions based on select student records related principally to the calculation of the amount of Title IV program funds returned after student withdrawals and the process for confirming student eligibility prior to disbursement of Title IV program funds. While the OIG recommended follow-up action with regard to some schools, University of Phoenix was not among them. The Department has indicated that OIG’s recommendations could form the basis for additional Department guidance or rulemaking.

Any of the penalties, funding delays, injunctions, restrictions, lawsuits or other forms of censure listed above could have a material adverse effect on our business and financial condition. If we lose our Title IV program eligibility, we would experience a dramatic decline in revenue and we would be unable to continue our business as it currently is conducted.

Ifwe fail to maintain our institutional accreditation, we could lose our ability to participate in Title IV programs, which would materially and adversely affect our business.

In July 2013, the accreditation of University of Phoenix was reaffirmed by the HLC through the 2022-2023 academic year. At the same time, HLC placed the University on Notice status for a two-year period due to concerns regarding governance, student assessment and faculty scholarship/research for doctoral programs. Notice status is a sanction that means that HLC has determined that an institution is on a course of action that, if continued, could lead the institution to be out of compliance with one or more of the HLC Criteria for Accreditation or Core Components. The University was assigned by HLC to the Standard Pathway reaffirmation process, pursuant to which the University will host a comprehensive evaluation visit in 2016-2017 and will undergo its next reaffirmation visit and process in 2022-2023.

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The University is required to submit a Notice Report to the HLC by the end of calendar year 2014 providing evidence that the University meets the Criteria for Accreditation, Core Components and Minimum Expectations (Assumed Practices after January 1, 2013) identified as the basis for the Notice sanction and that it has ameliorated the issues that led to the Notice sanction. In addition, in the Notice Report the University is also required to report on its progress in other areas of concern not included in the Notice sanction, including retention and graduation rates, three-year student loan cohort default rates, and credit hour policies and practices relating to learning teams. The University also will be required to host a focused visit by HLC in January 2015, to validate the contents of the Notice Report. The HLC Board of Trustees will review the University’s Notice Report, together with a report of the focused visit, at a meeting in 2015. During the Notice period, the University is required to disclose its Notice status in connection with any statements regarding its HLC accreditation.

We believe that the imposition of the sanction of notice has adversely impacted the reputation of University of Phoenix and may have contributed to the University’s continuing decline in enrollment. If, after the Notice period, HLC determines that University of Phoenix is not in compliance with one or more of HLC’s Criteria for Accreditation, HLC may elect to impose probation, which would have further, more significant consequences for the University and our business. In addition, the changes made by University of Phoenix to its corporate governance and administrative structure have increased our operating costs and could decrease our managerial flexibility to address the rapidly evolving and challenging postsecondary education market.

Continued institutional accreditation is critical to University of Phoenix’s business. If the University should lose its institutional accreditation, our business would be substantially impaired and we would not be able to continue our business as it is presently conducted.

The U.S. Department of Education gainful employment regulations may limit the programs we can offer students and increase our cost of operations.

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 disclose to prospective students each eligible program’s recognized occupations, cost, completion rate, job placement rate, and median loan debt of program completers. These reporting requirements increase our costs of operations and could adversely impact student enrollment, persistence and retention if our reported program information compares unfavorably with other reporting educational institutions.

A Notice of Proposed Rulemaking was issued by the U.S. Department of Education in March 2014 specifically on the topic of gainful employment. Under the proposed rule, if the students who complete a program have high debt-to-earnings ratios or students who complete or withdraw have high program-level cohort default rates, the program would lose its Title IV eligibility for three years. In general, the proposed debt-to-earnings metric requires that students who complete a program must not, on average, spend more than 8% of their annual income, or 20% of their discretionary income, on their student loan payments. The proposed program cohort default metric requires that the student loan default rate for students who completed or withdrew from a particular program during a given year may not exceed 30% measured during the three years after entering repayment. Under the proposed rule, programs would also be obligated to meet necessary programmatic accreditation requirements as well as applicable state licensure standards for any state in the institution’s regional area. Institutions would be required to attest that their programs meet these requirements as part of the program participation agreement with the Department.

The precise timing and substance of final regulations dealing with gainful employment cannot be predicted at this time. If final rules regarding gainful employment metrics are published by the Department by November 1, 2014, the regulations could be effective as soon as July 1, 2015.

Under the proposed gainful employment regulations, the continuing eligibility of our educational programs for Title IV program funding would be at risk due to factors beyond our control, such as changes in the actual or deemed income level of our graduates, changes in student borrowing levels, increases in interest rates, changes in the federal poverty income level relevant for calculating discretionary income, changes in the percentage of our former students who are current in repayment of their student loans, and other factors. The exposure to these external factors could reduce our ability to confidently offer or continue certain types of programs for which there is market demand, and therefore would impact our ability to maintain or grow our business.

University of Phoenix’s certification to participate in Title IV programs expired in December 2012 and continues on a month-to-month basis. If University of Phoenix is not recertified to participate in Title IV programs by the U.S. Department of Education, University of Phoenix would not be eligible to participate in Title IV programs and we could not conduct our business as it is currently conducted.

University of Phoenix and Western International University are certified by the U.S. Department of Education to participate in Title IV programs. University of Phoenix was recertified in November 2009 and its current certification expired in December

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2012. University of Phoenix has submitted necessary documentation for re-certification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application. We have no reason to believe that the University’s application will not be renewed in due course, and it is not unusual to be continued on a month-to-month basis until the Department completes its review. We cannot predict whether, or to what extent, the imposition of Notice status on University of Phoenix by The Higher Learning Commission might have on this process.

Western International University was recertified in May 2010 and its current certification expired on September 30, 2014. Western International University has submitted necessary documentation for re-certification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application.

Generally, the recertification process includes a review by the Department of the institution’s educational programs and locations, administrative capability, financial responsibility, and other oversight categories. The Department could limit, suspend or terminate an institution’s participation in Title IV programs for violations of the Higher Education Act, as reauthorized, or Title IV program regulations.

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, we could not conduct our business as it is currently conducted and it would have a material adverse effect on our business and financial condition.

Action by the U.S. Congress to revise the laws governing federal student financial aid programs or reduce funding for these programs, including changes applicable only to proprietary educational institutions, could reduce our enrollment and increase our costs of operation.

The U.S. Congress must periodically reauthorize the Higher Education Act and annually determine the funding level for each Title IV program. In 2008, the Higher Education Act was reauthorized through September 30, 2013 by the Higher Education Opportunity Act and an automatic one year extension continued the authorization through September 30, 2014. Congress continues to engage in Higher Education Act reauthorization hearings and although the one year automatic extension has expired, Title IV programs remain authorized and functioning. Changes to the Higher Education Act, including changes in eligibility and funding for Title IV programs, are likely to occur in connection with the next reauthorization, but we cannot predict the scope or substance of any such changes.

The Pell Grant program is one of the largest non-defense discretionary spending programs in the federal budget. Because of this, it is a target for reduction as Congress addresses the unprecedented U.S. budget deficits. A reduction in the maximum annual Pell Grant amount or changes in eligibility could result in increased student borrowing, which would make more difficult our ability to comply with other important regulatory requirements, such as the student loan cohort default rate regulations, which are discussed below, and could negatively impact enrollment.

In addition to Congress’s focus on the federal government’s funding challenges, in recent years, there has been increased focus by members of the U.S. Congress and federal agencies such as the Consumer Financial Protection Bureau and the Federal Trade Commission on the role that proprietary educational institutions play in higher education. We expect this focus to increase, particularly during the time leading up to the 2014 mid-term elections. 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 federal Higher Education Act as discussed above. In addition, Title IV program funding is a potential target for reduction as Congress seeks to reduce the U.S. budget deficit. Because a substantial portion of our revenue is derived from Title IV programs, any action by Congress that reduces Title IV program funding, whether through across-the-board funding reductions, sequestration or otherwise, or 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, certain military financial aid may be reduced as military branches address decreased funding. Reductions and/or changes in military financial aid could result in increased student borrowing, decreased enrollment and adverse impacts on our 90/10 Rule percentage, as discussed below.

If Congress reduced the eligibility or amount of available Title IV program funding, we would attempt to arrange for alternative sources of financial aid for our students, which may include lending funds directly to our students, but private sources would not be able to provide as much funding to our students or on terms comparable to Title IV programs. In addition, private funding sources could require us to guarantee all or part of this assistance and we might incur other additional costs. For these reasons, private, alternative sources of student financial aid would only partly offset, if at all, the impact on our business of reduced Title IV program eligibility or funding, and would not be a practical alternative in the case of a significant reduction in Title IV program eligibility or funding.

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Our schools and programs would lose their eligibility to participate in federal student financial aid programs if the percentage of revenue derived from those programs is too high, in which event we could not conduct our business as it is currently conducted.

University of Phoenix and Western International University, and all other proprietary institutions of higher education, are subject to the so-called “90/10 Rule” under the Higher Education Act, as reauthorized. Under this rule, a proprietary institution will be ineligible to participate in Title IV programs for at least two fiscal years if for any two consecutive fiscal years it derives more than 90% of its cash basis revenue, as defined in the rule, from Title IV programs. If an institution is determined to be ineligible, any disbursements of Title IV program funds made after the end of the second fiscal year in the measuring period must be repaid to the U.S. Department of Education. An institution that derives more than 90% of its cash basis revenue from Title IV programs for any single fiscal year will be automatically placed on provisional certification for two fiscal years and will be subject to possible additional sanctions determined to be appropriate under the circumstances by the Department. While the Department has broad discretion to impose additional sanctions on such an institution, there is only limited precedent available to predict what those sanctions might be, particularly in the current regulatory environment. For example, the Department could impose conditions in the provisional certification such as:

• Restrictions on the total amount of Title IV program funds that may be disbursed to students;

• Restrictions on programmatic and geographic expansion;

• Requirements to obtain and post letters of credit;

• Additional reporting requirements such as interim financial reporting; or

• Any other conditions deemed appropriate by the Department.

The 90/10 Rule percentages for University of Phoenix and Western International University were as follows for the respective periods:

	Year Ended August 31,
	2014	2013	2012
University of Phoenix	81%	83%	84%
Western International University	62%	66%	68%

See the discussion of the 90/10 Rule in Item 1, Business, Regulatory Environment, above.

Any necessary further efforts to reduce the 90/10 Rule percentage for University of Phoenix, especially if the percentage exceeds 90% for a fiscal year, may involve taking measures which reduce our revenue, increase our operating expenses, or both, in each case perhaps significantly. In addition, we may be required to make structural changes to our business in the future in order to remain in compliance, which changes may materially alter the manner in which we conduct our business and materially and adversely impact our business and financial condition. Furthermore, these required changes could make it more difficult to comply with other important regulatory requirements, such as the student loan cohort default rate regulations, which are discussed below.

An increase in student loan default rates could result in the loss of eligibility to participate in Title IV programs, which would materially and adversely affect our business.

To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. Each cohort is the group of students who first enter into student loan repayment during a federal fiscal year (ending September 30).

An educational institution loses eligibility to participate in Title IV programs if its three-year cohort default rate equals or exceeds 40% for any given year or 30% for three consecutive years. If an institution’s three-year cohort default rate equals or exceeds 30% for any given year, it must establish a default prevention task force and develop a default prevention plan with measurable objectives for improving the cohort default rate.

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Based on information published by the U.S. Department of Education, the three-year cohort default rates for University of Phoenix, Western International University and for all proprietary postsecondary institutions for the applicable federal fiscal years were as follows:

	Three-Year Cohort Default Rates for Cohort Years Ended September 30,
	2011	2010	2009
University of Phoenix	19.0%	26.0%	26.4%
Western International University	12.0%	10.8%	13.7%
All proprietary postsecondary institutions	19.1%	21.8%	22.7%

See the discussion of cohort default rates in Item 1, Business, Regulatory Environment, above.

If our student loan default rates approach the applicable limits, we may be required to increase efforts and resources dedicated to improving these default rates. This is challenging because most borrowers who are in default or at risk of default are no longer students, and we may have only limited contact with them. Furthermore, recently there has been increased attention by members of Congress and others on default aversion activities of proprietary education institutions. If such attention leads to congressional or regulatory action restricting the types of default aversion assistance that educational institutions are permitted to provide, the default rates of our former students may be negatively impacted. Such attention could also lead to Congressional proposals to increase the measuring period, which could negatively impact our default rates. Accordingly, there is no assurance that we would be able to effectively improve our default rates or improve them in a timely manner to meet the requirements for continued participation in Title IV programs if we experience a substantial increase in our student loan default rates.

If we fail to maintain any of our state authorizations, we would lose our ability to operate in that state and to participate in Title IV programs there.

Institutions that participate in Title IV programs must be authorized to operate by the appropriate postsecondary regulatory authority in each state where the institution has a physical presence. Prior to July 1, 2011, such authorization was not specifically required for the institution’s students to become eligible for Title IV programs. Under the program integrity rules adopted by the Department effective July 1, 2011, institutions are required to obtain specific regulatory approval to operate in such states. University of Phoenix is specifically authorized to operate in all of the domestic jurisdictions in which it operates.

If our institutional accrediting body loses recognition by the U.S. Department of Education, we could lose our ability to participate in Title IV programs, which would materially and adversely affect our business.

University of Phoenix and Western International University are institutionally accredited by The Higher Learning Commission (“HLC”) of the North Central Association of Colleges and Schools, one of the six regional accrediting agencies recognized by the U.S. Department of Education. Refer above for discussion of Notice status. Accreditation by an accrediting agency recognized by the Department is required in order for an institution to become and remain eligible to participate in Title IV programs.

If the Department ceased to recognize HLC for any reason, University of Phoenix and Western International University would not be eligible to participate in Title IV programs beginning 18 months after the date such recognition ceased unless HLC was again recognized or our institutions were accredited by another accrediting body recognized by the Department. In June 2013, the National Advisory Committee on Institutional Quality and Integrity, a Committee that advises the Secretary of Education on matters related to postsecondary accreditation and eligibility, recommended to the Secretary that HLC have continuing recognition as an eligible accreditor with certain conditions and required reports.

In the event of a loss of recognition of HLC by the Department, it would, among other things, render our schools and programs ineligible to participate in Title IV programs, affect our authorization to operate and to grant degrees in certain states and decrease student demand. If University of Phoenix became ineligible to participate in Title IV programs, we could not conduct our business as it is currently conducted and it would have a material adverse effect on our business and financial condition.

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A failure to demonstrate “administrative capability” or “financial responsibility” 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.

The U.S. Department of Education 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.

Furthermore, to participate in Title IV programs, an eligible institution must satisfy specific measures of financial responsibility prescribed by the Department, or post a letter of credit in favor of the Department and possibly accept other conditions on its participation in Title IV programs. Pursuant to the Title IV program regulations, each eligible higher education 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 the institution achieves a composite score of at least 1.5, it is considered financially responsible. A composite score from 1.0 to 1.4 is also considered financially responsible, and the institution may continue to participate as a financially responsible institution for up to three years, subject to additional monitoring and other consequences. If an institution does not achieve a composite score of at least 1.0, it can be transferred from the “advance” system of payment of Title IV program funds to cash monitoring status or to the “reimbursement” system of payment, under which the institution must disburse its own funds to students and document the students’ eligibility for Title IV program funds before receiving such funds from the U.S. Department of Education.

The fiscal year 2014 composite scores for Apollo Education Group, University of Phoenix and Western International University were as follows:

	Fiscal Year 2014 Composite Score
Apollo Education Group	2.5
University of Phoenix	2.3
Western International University	1.8

In addition, our principal revolving credit facility 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 the outstanding balance could be declared immediately due and payable. If in connection with a composite score below 1.5 the Department of Education required that we post a letter of credit, our revolving credit facility would not be available for that purpose and there is no assurance that other sources would be available on terms acceptable to us or at all.

If our composite scores approach 1.5 in the future, which could result from acquisitions, declines in our institutions’ profitability or other factors, we may be limited in our ability to deploy capital to effect one or more desirable transactions or initiatives due to the impact on our composite scores, or we may be required to seek additional capital through the issuance of

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equity or equity-linked securities, which would be dilutive to our existing shareholders. There is no assurance that such equity or equity-linked capital would be available on terms acceptable to us or at all.

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 would have a material adverse effect on our business. Limitations on, or termination of, participation in Title IV programs as a result of the failure to demonstrate administrative capability or financial responsibility would limit students’ access to Title IV program funds, 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.

If IPD’s client institutions are sanctioned due to non-compliance with Title IV program requirements, our business could be responsible for any resulting fines and penalties.

Our former subsidiary, Institute for Professional Development, Inc. (“IPD”) provided to its client institutions numerous consulting and administrative services, including services that involve the handling and receipt of Title IV program funds. As a result of this, IPD may be jointly and severally liable for any fines or penalties imposed by the U.S. Department of Education on the client institution for violation of applicable Title IV program regulations, regardless of the degree of fault, if any, on IPD’s part. Subject to various limitations, we agreed to indemnify the buyer of IPD for any such liability, which could have a material adverse impact on our financial condition.

Non-U.S. Operations

Our non-U.S. operations are subject to risks not inherent in our U.S. operations, which could adversely affect our business.

We operate physical and online educational institutions in the United Kingdom, Australia, Mexico, Chile, South Africa and elsewhere, and we are actively seeking further expansion in other countries, including India, where we offer educational programs through a joint venture. Our operations in each of the relevant foreign jurisdictions are subject to regulatory requirements relating to education providers, as well as foreign businesses. Many foreign countries have not fully embraced the proprietary education model, and in other countries, proprietary education remains controversial. As a result, our foreign operations are subject to the political risk that existing regulations will be interpreted unfavorably or new regulations will be adopted that render our business model impractical. In addition, our non-U.S. operations are subject to the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act which require extensive compliance vigilance on our part and, in some cases, puts our foreign operations at a competitive disadvantage with local companies. If one or more of our foreign operations ceases to be economically practical, we may be forced to discontinue such operations or seek a buyer, either of which might result in a substantial loss of value to Apollo Education Group.

Risks Related to Our Business

We face intense and increasing competition in the postsecondary education market from both public and private educational institutions, which could adversely affect our business.

Postsecondary education in our existing and new market areas is highly competitive and is becoming increasingly so as the industry is undergoing profound change at an unprecedented rate. We compete primarily with traditional public and private two-year and four-year degree-granting regionally accredited colleges and universities, other proprietary degree-granting regionally accredited schools and alternatives to higher education. In addition, we face increasing competition from various emerging non-traditional, credit-bearing and noncredit-bearing education programs, offered by both proprietary and not-for-profit providers. Some of our competitors have greater financial and nonfinancial resources than we have and are able to offer programs similar to ours at a lower tuition level for a variety of reasons, including the availability of direct and indirect government subsidies, government and foundation grants, large endowments, tax-deductible contributions and other financial resources not available to proprietary institutions, or by providing fewer student services or larger class sizes. For example, a typical community college is subsidized by local or state government and, as a result, tuition rates for associate’s degree programs are much lower at community colleges than at University of Phoenix. Also, like University of Phoenix, other proprietary educational institutions have begun to deploy pricing incentives to impact demand. We believe that price competition through targeted programs involving student scholarships and otherwise will increase throughout the industry in the future. We have implemented scholarships and discounts which reduce the amount of tuition we receive, and further downward pressure on our tuition rates may cause us to implement further pricing incentives, which will adversely affect our revenue.

In addition, an increasing number of traditional four-year and community colleges are offering distance learning and other online education programs, including programs that are geared towards the needs of working learners. This trend has been accelerated by private companies that provide and/or manage online learning platforms for traditional four-year colleges and community colleges. As the proportion of traditional colleges providing alternative learning modalities increases, we continue to face increasing competition from traditional colleges, including those with well-established reputations. Already, this type of

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competition is significant. As the online and distance learning segment of the postsecondary education market matures, we believe that the intensity of the competition we face will continue to increase.

Furthermore, the total postsecondary student population has recently declined, with the proprietary share disproportionately affected. Enrollment in Title IV program eligible postsecondary degree-granting institutions in spring 2014 decreased 1%, compared to spring 2013, with the largest decrease of 5% taking place among four-year proprietary institutions. Although the U.S. Department of Education projects that enrollment in degree-granting, postsecondary institutions will grow 13% over the ten-year period ending in the fall of 2021 to approximately 23.8 million students, this projected growth compares with a 33.7% increase reported in the prior ten-year period ended in 2011, when enrollment increased from 15.9 million students in 2001 to approximately 21.3 million students in 2011.

The combination of flat or declining postsecondary student population and increased capacity in the postsecondary education sector will further intensify competition.

This intense competition makes it more challenging for us to enroll students who are likely to succeed in our educational programs, which has contributed to the decline in recent years in our enrollment levels and put further downward pressure on our tuition rates. If we are not successful in adapting our business to meet these competitive challenges, our enrollment may continue to decline, which could materially and adversely affect our business and financial condition.

Changes we are making to our business to improve the student experience and more cost-effectively deliver services to our students may adversely affect our enrollment and operating results.

We continue to evaluate and make changes across a broad spectrum of our business and systems to improve the student experience and more cost-effectively deliver services to our students. In furtherance of this, we are implementing several important initiatives, including the following:

• Emphasizing the distinctiveness of University of Phoenix’s eight colleges to more effectively address the specific needs of the students and employers they serve;

• Rationalizing campus locations and streamlining, automating where appropriate, and enhancing our administrative and student facing services;

• Modifying course structure and sequencing;

• Leveraging research and technology provided by the acquisition of Carnegie Learning;

• Implementing a new online classroom designed to provide more personalized learning to students, improve the overall student experience, and lead to better educational outcomes;

• Implementing a new student relationship and communications management platform designed to streamline student support services and assist students who have limited or no higher education experience or otherwise may be unprepared to succeed in University of Phoenix’s academic programs; and

• Reengineering and simplifying processes to improve the student experience and efficiency of our employees.

These initiatives require significant time, energy and resources, and involve many significant interrelated and simultaneous changes in our processes and programs. We may not succeed in achieving our objectives of improving our services to students and reducing the cost of delivering services, due to organizational, operational, regulatory or other constraints. If our efforts are not successful, we may experience reduced enrollment, increased expense or other impacts on our business that materially and adversely impact our financial condition.

Our financial performance depends on our ability to continue to develop awareness among, and enroll and retain students; adverse publicity may negatively impact demand for our programs.

Building awareness of our schools and the programs we offer is critical to our ability to attract prospective students. We expend significant resources on marketing. If our schools are unable to successfully market and advertise their educational programs, our schools’ ability to attract and enroll prospective students in such programs could be adversely affected. It is also critical to our success that we convert these prospective students to enrolled students in a cost-effective manner and that these enrolled students remain active in our programs.

The proprietary postsecondary education sector is under regulatory and other scrutiny which has led to media attention that has portrayed the sector in an unflattering light. This negative media attention may cause some prospective students to choose educational alternatives outside of the proprietary sector or may cause them to choose proprietary alternatives other than University of Phoenix, either of which could negatively impact our new enrollments.

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Some of the additional factors that could prevent us from successfully enrolling and retaining students in our programs include:

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

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

• A decrease in or perceived low student pass rates for professional licenses and other examinations necessary for students to work in their chosen field;

• Regulatory investigations that may damage our reputation;

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

• Litigation that may damage our reputation;

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

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

• Student financial, personal or family constraints;

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

• A decline in the acceptance of online education;

• Unavailability of ground locations where students want to attend; and

• Disruptions to our information technology systems.

If one or more of these factors reduces demand for our programs, our enrollment could be negatively affected or our costs associated with each new enrollment could increase, or both, either of which could have a material adverse impact on our business and financial condition.

Our financial performance depends, in part, on our ability to keep pace with changing education market needs and technology; if we fail to keep pace or fail in implementing or adapting to new educational offerings and technologies, our business may be adversely affected.

Increasingly, employers demand that their new employees possess appropriate technological skills and also appropriate “soft” skills, such as communication, critical thinking and teamwork. The nature of the skills required can evolve rapidly in today’s changing economic and technological environment. Accordingly, it is important for our schools’ educational programs to evolve in response to economic and technological changes. The expansion of existing programs and the development of new programs may not be accepted by current or prospective students or the employers of our graduates. Even if our schools are able to develop acceptable new programs, our schools may not be able to begin offering those new programs as quickly as required by prospective employers or as quickly as our competitors offer similar programs. In addition, we may be unable to obtain specialized accreditations or licensures that may make certain programs desirable to students. To offer a new academic program, we may be required to obtain federal, state and accrediting agency approvals, which may be conditioned or delayed in a manner that could significantly affect our growth plans. In addition, to be eligible for Title IV programs, a new academic program may need to be certified by the U.S. Department of Education. If we are unable to adequately respond to changes in market requirements due to regulatory or financial constraints, unusually rapid technological changes, or other factors, our ability to attract and retain students could be impaired, the rates at which our graduates obtain jobs involving their fields of study could suffer, and our business and financial condition could be adversely affected.

Establishing new academic programs or modifying existing programs requires us to make investments, incur marketing expenses and reallocate other resources. We may have limited experience with the courses in new areas and may need to modify our systems and strategy or enter into arrangements with other educational institutions to provide new programs effectively and profitably. If we are unable to increase the number of students or offer new programs in a cost-effective manner, or are otherwise unable to manage effectively the operations of newly established academic programs, our business, financial condition and results of operations could be adversely affected.

If we do not maintain existing, and develop additional, relationships with employers, our future growth may be impaired.

We currently have relationships with large employers to provide their employees with the opportunity to obtain degrees through us while continuing their employment. These relationships are an important part of our strategy as they provide us with potential working learners for particular programs and also serve to increase our reputation among high-profile employers. In addition, programs in which employers directly pay tuition have a beneficial impact on our 90/10 Rule percentage calculation by reducing the proportion of our cash basis revenues attributable to Title IV program funds. If we are unable to develop new relationships or further develop our existing relationships, if our existing relationships deteriorate or end, or if we are unable to offer programs that teach skills demanded by employers, our efforts to seek these sources of potential working learners may be impaired, and this could materially and adversely affect our business and financial condition and our compliance with applicable regulations.

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Our acquisitions may not be successful and may result in additional debt or dilution to our shareholders, which could adversely affect our business.

As part of our growth strategy, we are actively considering acquisition opportunities worldwide. We have acquired and expect to acquire additional proprietary educational institutions that complement our strategic direction, some of which could be material. Any acquisition involves significant risks and uncertainties, including:

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

• Inability to successfully operate and grow the acquired businesses;

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

• Challenges retaining the key employees of the acquired operation;

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

• Expenses associated with the acquisition;

• Noncontrolling shareholder options that could require us to purchase shares in certain of our businesses that we do not wholly-own;

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

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

Acquisitions are inherently risky. We have experienced many challenges in connection with our previous acquisitions and cannot be certain that any future acquisitions will be successful and will not materially adversely affect our business and financial condition. We may not be able to identify suitable acquisition opportunities, acquire institutions on favorable terms, or successfully integrate or profitably operate acquired institutions. Future transactions may involve use of our cash resources, issuance of equity or debt securities, incurrence of other forms of debt or a significant increase in our financial leverage, which could adversely affect our business and financial condition, especially if the cash flows associated with any acquisition are not sufficient to cover the additional debt service and could negatively impact our compliance with the U.S. Department of Education composite score measure of financial responsibility. If we issue equity securities as consideration in an acquisition, current shareholders’ percentage ownership and earnings per share may be diluted. In addition, our acquisition of an educational institution could be considered a change in ownership and control of the acquired institution under applicable regulatory standards. For such an acquisition in the U.S., we may need approval from the U.S. Department of Education and applicable state agencies and accrediting agencies and possibly other regulatory bodies. Our inability to obtain such approvals with respect to a completed acquisition could have a material adverse effect on our business and financial condition.

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Our expansion into new markets outside the U.S. subjects us to risks inherent in international operations.

As part of our growth strategy, we have acquired schools and universities outside the U.S. and we intend to actively pursue further acquisitions. To the extent that we make such acquisitions, we will face risks that are inherent in international operations, including:

• Complexity of operations across borders;

• Compliance with foreign regulatory environments, including laws and regulations hindering proprietary education enterprises;

• Changes in existing laws to prohibit or restrict proprietary education, whether arising from public discontent or otherwise;

• Currency exchange rate fluctuations and/or price controls or restrictions on exchange of foreign currencies;

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

• Potential political and economic instability in the countries in which we operate;

• Expropriation of assets by local governments;

• Multiple and possibly overlapping and conflicting tax laws;

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

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

• Greater difficulty in utilizing and enforcing any acquired intellectual property and contract rights;

• Investment and execution missteps due to a failure to understand the local culture and market;

• Limitations on the repatriation of funds; and

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

Any one or more of these risks could negatively impact our non-U.S. operations and materially and adversely impact our business and financial condition.

System disruptions to our computer networks or phone systems could have a material adverse effect on our business.

The performance and reliability of our computer network and phone systems infrastructure at our schools, including our online programs, is critical to our operations, reputation and ability to attract and retain students. From time to time we experience intermittent outages of the information technology systems used by our students and by our employees, including system-wide outages. Any computer system error or failure, regardless of cause, could result in a substantial outage that materially disrupts our online and ground operations. Not all of our critical systems are protected by a validated formal disaster recovery plan and redundant disaster recovery infrastructure at a geographically remote data center. We are continuing execution of our plan to implement disaster recovery infrastructure for our remaining critical systems to allow timely recovery from catastrophic failure. For those systems not yet protected, a catastrophic failure or unavailability for any reason of our principal data center may require us to replicate the function of this data center at our existing remote data facility or elsewhere, and could result in the loss of data. An event such as this may require service restoration activities that could take up to several weeks to complete.

We have upgraded or are in the process of upgrading a substantial portion of our key IT systems, including our online student classroom, student relationship and communications management platform, and corporate applications, and retiring the related legacy systems. Although these new systems are expected to improve the productivity, scalability, reliability and sustainability of our IT infrastructure, the transition from the legacy systems entails risk of unanticipated disruption or failure to fully replicate all necessary data processing and reporting functions, including in our core business functions.

Any disruption in our IT systems, including any disruptions and system malfunctions that may arise from our upgrade initiative, could significantly impact our operations, reduce student and prospective student confidence in our educational institutions, adversely affect our compliance with applicable regulations and accrediting body standards and have a material adverse effect on our business and financial condition. Although we maintain insurance in respect of some types of these disruptions, there is no assurance that available insurance proceeds would be adequate to compensate us for damages sustained due to these disruptions.

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Security threats to our computer systems, including breach of the personal information that we collect, could have a material adverse effect on our business.

We face an ever increasing number of threats to our computer systems, including unauthorized activity and access, malicious penetration, system viruses, malicious code and organized cyber-attacks, which could breach our security and disrupt our systems. These risks increase when we are making changes to our IT systems, such as our substantial IT systems upgrade initiative currently underway and our frequent updates to enable instructional innovation and address new student populations. Our size makes us a prominent target for hacking and other cyber attacks within the education industry. From time to time we experience security events and incidents, and these reflect an increasing level of malicious sophistication, organization and innovation. We have devoted and will continue to devote significant resources to the security of our computer systems, but they may still be vulnerable to these threats. A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations, perhaps over an extended period of time prior to detection. As a result, we may be required to expend significant additional resources to protect against the threat of or alleviate problems caused by these system disruptions and security breaches. Any of these events could have a material adverse effect on our business and financial condition. Although we maintain insurance in respect of these types of events, there is no assurance that available insurance proceeds would be adequate to compensate us for damages sustained due to these events.

In addition, possession and use of personal information in our operations subjects us to risks and costs that could harm our business. Our educational institutions collect, use and retain large amounts of personal information regarding our students and their families, including social security numbers, tax return information, personal and family financial data and credit card numbers. We also collect and maintain personal information of our employees in the ordinary course of our business. Some of this personal information is held and managed by certain of our vendors. Although we use security and business controls to limit access and use of personal information, a third-party may be able to circumvent those security and business controls, which could result in a breach of student or employee privacy. In addition, errors in the storage, use or transmission of personal information could result in a breach of student or employee privacy, and the increased availability and use of mobile data devices by our employees and students increases the risk of unintentional disclosure of personal information. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could require notification of data breaches and restrict our use of personal information. We cannot ensure that a breach, loss or theft of personal information will not occur. A breach, theft or loss of personal information regarding our students and their families or our employees that is held by us or our vendors could have a material adverse effect on our reputation and results of operations and result in liability under state and federal privacy statutes and legal actions by state attorneys, general and private litigants, and any of which could have a material adverse effect on our business and financial condition.

If we cannot attract qualified new personnel or retain our existing senior management team, our business could be adversely affected.

Our future performance depends on the continued services and continuing contributions of our senior management to execute on our business plan and to identify and pursue new opportunities. Our future success also depends in large part on our continued ability to attract and retain qualified personnel. The loss of the services of our senior management for any reason could adversely affect our business and results of operations.

In June 2014, a new President of University of Phoenix began serving, and in December 2013, a new Chief Operating Officer of Apollo began serving. Since early in fiscal year 2013, the Provost of University of Phoenix has been filled in an acting capacity. University of Phoenix is in the process of searching to fill this position. Competition for such personnel can be intense, and our ability to attract, select and hire new candidates may prove difficult, take more time than anticipated, and be costly. A lack of management continuity could also result in operational and administrative inefficiencies, make achievement of our strategic and management objectives more challenging and may make recruiting for future management positions more difficult. If we are unable to effectively manage our business through these management transitions our business and results of operation could be adversely affected.

To effectively educate our students, we must continue to attract and retain qualified faculty members.

Our educational institutions employ approximately 26,000 faculty members, a substantial majority of whom are adjunct, part-time faculty. In order to effectively educate our students, we must recruit and train a large number of faculty on an ongoing basis and keep our faculty engaged and focused on the mission of delivering quality education. If we cannot attract and retain sufficient qualified faculty members, or we fail to adequately train new faculty members, or our relations with faculty members deteriorate and lead to work stoppages or other disruptions, our ability to serve our students would be impaired and we may be required to reduce the scope or number of the classes available to our students, any of which could have a material adverse impact our business.

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If we are unable to successfully conclude pending litigation and governmental inquiries, our business and financial condition could be adversely affected.

We, certain of our subsidiaries, and certain of our current and former directors and executive officers have been named as defendants in various lawsuits. Refer to Note 16, Commitments and Contingencies, in Part II, Item 8, Financial Statements and Supplementary Data, which is incorporated herein by reference, for further discussion of pending litigation and other proceedings. In addition, changes in our business and pending actions by regulators and accreditors may increase the risk of claims by our shareholders.

We cannot predict the ultimate outcome of these matters and expect to incur significant defense costs and other expenses in connection with them. Such costs and expenses could have a material adverse effect on our financial conditions and the market price of our common stock. We may be required to pay substantial damages or settlement costs in excess of our insurance coverage related to these matters, or may be required to pay substantial fines or penalties, any of which could have a further material adverse effect on our financial condition. An adverse outcome in any of these matters could also materially and adversely affect our licenses, accreditations and eligibility to participate in Title IV programs.

We rely on proprietary rights and intellectual property that may not be adequately protected under current laws, and we encounter disputes from time to time relating to our use of intellectual property.

Our success depends in part on our ability to protect our proprietary rights and intellectual property. We rely on a combination of copyrights, trademarks, trade secrets, patents, domain names and contractual agreements to protect our proprietary rights. For example, we rely on trademark protection in the U.S. and various foreign jurisdictions to protect our rights to various marks as well as distinctive logos and other marks associated with our services. We also rely on agreements under which we obtain intellectual property to own or license rights to use intellectual property developed by faculty members, content experts and other third-parties. We cannot assure that these measures are adequate, that we have secured, or will be able to secure, appropriate permissions or protections for all of the intellectual property rights we use or claim rights to in the U.S. or various foreign jurisdictions, or that third parties will not terminate our license rights or infringe upon or otherwise violate our intellectual property rights or the intellectual property rights of others. Despite our efforts to protect these rights, unauthorized third parties may attempt to use, duplicate or copy the proprietary aspects of our student recruitment and educational delivery methods and systems, curricula, online resource material or other content. Our management’s attention may be diverted by these attempts and we may need to use funds in litigation to protect our proprietary rights against any infringement or violation, which could have a material adverse affect on our business and financial condition.

We may become party to disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in these disputes. For example, third parties may allege that we have infringed upon or not obtained sufficient rights in the technologies used in our educational delivery systems, the content of our courses or other training materials or in our ownership or uses of other intellectual property claimed by that third-party. Some third-party intellectual property rights may prove to be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid violating those intellectual property rights. Any such intellectual property claim could subject us to costly litigation and impose a significant strain on our financial resources and management personnel regardless of whether such claim has merit. Our various liability insurance coverages, if any, may not cover potential claims of this type adequately or at all, and we may be required to alter the design and operation of our systems or the content of our courses or pay monetary damages or license fees to third parties, which could have a material adverse affect on our business and financial condition. Refer to Note 16, Commitments and Contingencies, in Part II, Item 8, Financial Statements and Supplementary Data, for a description of prior patent litigation.

We may incur liability for the unauthorized duplication, distribution or other use of materials posted online.

In some instances, our employees, including faculty members, or our students may post various articles or other third-party content online in class discussion boards or in other venues including Facebook, PhoenixConnect, University of Phoenix’s proprietary social media network, and other social networks. The laws governing the fair use of these third-party materials are imprecise and adjudicated on a case-by-case basis, which makes it challenging to adopt and implement appropriately balanced institutional policies governing these practices. As a result, we could incur liability to third parties for the unauthorized duplication, distribution or other use of this material. Any such claims could subject us to costly litigation and impose a significant strain on our financial resources and management personnel regardless of whether the claims have merit. Our various liability insurance coverages, if any, may not cover potential claims of this type adequately or at all, and we may be required to alter or cease our uses of such material, which may include changing or removing content from our courses, or pay monetary damages, which could have a material adverse affect on our business and financial condition.

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We may have unanticipated tax liabilities that could adversely impact our results of operations and financial condition.

We are subject to multiple types of taxes in the U.S., United Kingdom and various other foreign jurisdictions. The determination of our worldwide provision for income taxes and other tax accruals involves various judgments, and therefore the ultimate tax determination is subject to uncertainty. In addition, changes in tax laws, regulations, or rules may adversely affect our future reported financial results, may impact the way in which we conduct our business, or may increase the risk of audit by the Internal Revenue Service (“IRS”) or other tax authorities.

Our U.S. federal income tax return for fiscal year 2013 is currently open for review by the IRS, and we are participating in the IRS’s Compliance Assurance Process for fiscal years 2014 and 2015, 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 U.S. federal income tax returns. In addition, our state and foreign jurisdictions have 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.

In addition, an increasing number of states are adopting new laws or changing their interpretation of existing laws regarding the apportionment of service revenues for corporate income tax purposes in a manner that could result in a larger proportion of our income being taxed by the states into which we sell services. These legislative and administrative changes could have a material adverse effect on our business and financial condition.

Risks Related to the Control Over Our Voting Stock

Our Class A common stock has no voting rights. The Apollo Class B Voting Stock Trust No. 1 holds approximately 51% of our voting stock and controls substantially all actions requiring the vote or consent of our shareholders, which may discourage or make impractical a takeover and may have an adverse effect on the trading price of our Class A common stock.

Approximately 51% of our outstanding Class B voting shares, our only class of voting stock, is held by the Apollo Class B Voting Stock Trust No. 1 (the “Class B Trust”), an irrevocable trust of which the current trustees are Peter V. Sperling, Chairman of our Board of Directors, Ms. Terri Bishop, the Vice Chair of our Board of Directors, and Ms. Darby Shupp, a member of our Board of Directors. Mr. Peter Sperling owns the remaining 49% of our outstanding Class B voting stock through a revocable grantor trust. Accordingly, the Class B Trust and Mr. Peter Sperling together control the election of all members of our Board of Directors and substantially all other actions requiring a vote of our shareholders, except in certain limited circumstances. Holders of our outstanding Class A common stock do not have the right to vote for the election of directors or for substantially any other action requiring a vote of shareholders. The trustees of the Class B Trust have the sole power to appoint successor and additional trustees.

The control of a majority of our voting stock by the Class B Trust makes it impossible for a third-party to acquire voting control of us without the approval of a majority of the trustees of the Class B Trust. There is no assurance that the Apollo Education Group Class B shareholders, or the trustees of the Class B Trust, will exercise their control of Apollo Education Group in the same manner that a majority of the outstanding Class A shareholders would if they were entitled to vote on actions currently reserved exclusively for our Class B shareholders.

We are a “Controlled Company” under the NASDAQ Listing Rules and therefore are exempt from certain corporate governance requirements, which could reduce the influence of independent directors on our management and strategic direction.

We are a “Controlled Company” as defined in Rule 5615(c)(1) of the NASDAQ Listing Rules, because more than 50% of the voting power of our outstanding stock is controlled by the Class B Trust. As a consequence, we are exempt from certain requirements of NASDAQ Listing Rule 5605, including that:

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

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

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

However, NASDAQ Listing Rule 5605(b)(2) does require that our independent directors have regularly scheduled meetings at which only independent directors are present (“executive sessions”). In addition, Internal Revenue Code Section 162(m) requires that a compensation committee of outside directors (within the meaning of Section 162(m)) approve stock option grants to executive officers in order for us to be able to claim deductions for the compensation expense attributable to such stock options. Notwithstanding the foregoing exemptions, we do have a majority of independent directors on our Board of

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Directors and we do have an Audit Committee, a Compensation Committee and a Nominating and Governance Committee composed entirely of independent directors.

The charters for the Compensation Committee, Audit Committee and Nominating and Governance Committee have been adopted by the Board of Directors and are available on our website, www.apollo.edu. These charters provide, among other items, that each member must be independent as such term is defined by the rules of the NASDAQ Stock Market LLC and the Securities and Exchange Commission.

If in the future our Board of Directors elects to rely on the exemptions permitted by the NASDAQ Listing Rules and reduce the number or proportion of independent directors on our Board and its key committees, the influence of independent directors on our management and strategy would be reduced and the influence of the holders of our Class B voting common stock on our management and strategy would increase.

If regulators do not approve or delay their approval of transactions involving a change of control of our company, our eligibility to participate in Title IV programs, our accreditation and our state licenses may be impaired in a manner that materially and adversely affects our business.

A change of ownership or control of Apollo Education Group, depending on the type of change, may have significant regulatory consequences for University of Phoenix. Such a change of ownership or control could require recertification by the U.S. Department of Education, the reevaluation of accreditation by The Higher Learning Commission and/or reauthorization by state licensing agencies. If we experience a change of ownership or control, then University of Phoenix may cease to be eligible to participate in Title IV programs until recertified by the Department. There is no assurance that such recertification would be obtained on a timely basis. Under some circumstances, the Department may continue an institution’s participation in Title IV programs on a provisional basis pending completion of the change in ownership approval process. The continuing participation of University of Phoenix in Title IV programs is critical to its business. Any disruption in its eligibility to participate in Title IV programs would materially and adversely impact our business and financial condition.

In addition, University of Phoenix would be required to report any material change in stock ownership to its principal institutional accrediting body, The Higher Learning Commission, and would be required to obtain approval prior to undergoing any transaction that affects, or may affect, its corporate control or governance. In the event of any such change, The Higher Learning Commission may undertake an evaluation of the effect of the change on the continuing operations of University of Phoenix for purposes of determining if continued accreditation is appropriate, which evaluation may include a comprehensive review. If the Commission determines that the change is such that prior approval by the Commission was required, but was not obtained, the Commission’s policies require it to consider withdrawal of accreditation. If accreditation by The Higher Learning Commission is suspended or withdrawn, University of Phoenix would not be eligible to participate in Title IV programs until the accreditation is reinstated by the Commission or is obtained from another appropriate accrediting body. There is no assurance that reinstatement of accreditation could be obtained on a timely basis, if at all, and accreditation from a different qualified accrediting authority, if available, would require a significant amount of time. Any material disruption in accreditation would materially and adversely impact our business and financial condition.

In addition, some states in which University of Phoenix is licensed require approval (in some cases, advance approval) of changes in ownership or control in order to remain authorized to operate in those states, and participation in grant programs in some states may be interrupted or otherwise affected by a change in ownership or control.

As discussed above, approximately 51% of our outstanding Class B voting stock, our only class of voting stock, is held by the Class B Trust, and Mr. Peter Sperling beneficially owns the remaining 49% of such shares. A future change in trustees of the Class B Trust, whether resulting from resignation, death, disability or otherwise, may be considered to be a change of control by the Department of Education, the Higher Learning Commission or other regulatory authorities, depending on the circumstances.

We cannot prevent a change of ownership or control that would arise from a transfer of voting stock by the Class B Trust or Mr. Peter Sperling, including a transfer that may occur or be deemed to occur upon the resignation, death or incompetency of one or more of the trustees of the Class B Trust.

Item 1B - Unresolved Staff Comments

None.

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Item 2 - Properties

Our corporate headquarters are principally located in Phoenix, Arizona. As of August 31, 2014, we used 265 facilities representing 7.7 million square feet as follows:

	Leased(4)		Owned
	Square Feet	# of Properties	Square Feet	# of Properties
University of Phoenix(1)	5,371,970	178	—	—
Apollo Global(2)	512,731	47	547,626	15
Other(3)	1,227,747	24	3,108	1
	7,112,448	249	550,734	16

⁽¹⁾ University of Phoenix has campus locations and learning centers throughout the U.S. and Puerto Rico.

⁽²⁾ Apollo Global’s properties are principally located in the United Kingdom, Mexico, Chile, South Africa and Australia.

⁽³⁾ The substantial majority of Other properties is office space located in the U.S.

⁽⁴⁾ We are rationalizing certain of our real estate facilities and ground locations in connection with our restructuring activities. The properties in the above table include 1.9 million of square feet we are exiting as part of our restructuring activities for which we still have a remaining lease obligation as of August 31, 2014.

Our properties consist of both office and dual purpose space, which includes classroom and office facilities. Leases generally range from five to ten years with one to two renewal options for extended terms. We also lease space from time to time on a short-term basis in order to provide specific courses or programs. We evaluate current utilization of our educational facilities and projected enrollment to determine facility needs.

Item 3 - Legal Proceedings

We are subject to various claims and contingencies which are in the scope of ordinary and routine litigation incidental to our business, including those related to regulation, business transactions, employee-related matters and taxes, among others. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

A description of pending litigation, settlements, and other proceedings that fall outside the scope of ordinary and routine litigation incidental to our business is provided under Note 16, Commitments and Contingencies, in Item 8, Financial Statements and Supplementary Data, which is incorporated herein by reference.

Item 4 - Mine Safety Disclosures

Not applicable.

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PART II

Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our Class A common stock trades on the NASDAQ Global Select Market under the symbol “APOL.” The holders of our Class A common stock are not entitled to any voting rights.

There is no established public trading market for our Class B common stock and all shares of our Class B common stock are beneficially owned by affiliates.

The following sets forth the high and low bid share prices for our Class A common stock as reported by the NASDAQ Global Select Market:

	2014				2013
	High		Low		High		Low
First Quarter	$	29.07	$	18.50	$	30.41	$	18.36
Second Quarter	35.92		24.18		22.48		16.80
Third Quarter	35.23		26.05		21.91		15.98
Fourth Quarter	32.10		26.29		22.91		16.89

Holders

As of August 31, 2014, there were 219 registered holders of record of our Class A common stock and four registered holders of record of our Class B common stock. A substantially greater number of holders of our Class A common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

Dividends

Although we are permitted to pay dividends on our Class A and Class B common stock, we have never paid cash dividends on our common stock. Dividends are payable at the discretion of the Board of Directors, and the Articles of Incorporation treat the declaration of dividends on the Class A and Class B common stock in an identical manner as follows: holders of our Class A and Class B common stock are entitled to receive cash dividends, if and to the extent declared by the Board of Directors, payable to the holders of either class or both classes of common stock in equal or unequal per share amounts, at the discretion of the Board of Directors. We have no current plan to pay dividends in the near-term. The decision of our Board of Directors to pay future dividends will depend on general business conditions, the effect of a dividend payment on our financial condition and other factors the Board of Directors may consider relevant.

Sales of Unregistered Securities

None.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by Item 201(d) of Regulation S-K is provided under Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, which is incorporated herein by reference.

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 $90.3 million remained available as of August 31, 2014. 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.

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The following details changes in our treasury stock during the three months ended August 31, 2014:

(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 May 31, 2014	78,634		$	49.88	78,634		$	135,316
New authorizations	—		—		—		—
Share repurchases	193		28.34		193		(5,477		)
Share reissuances	(4	)	49.83		(4	)	—
Treasury stock as of June 30, 2014	78,823		$	49.83	78,823		$	129,839
New authorizations	—		—		—		—
Share repurchases	1,100		29.10		1,100		(32,019		)
Share reissuances	(300	)	49.54		(300	)	—
Treasury stock as of July 31, 2014	79,623		$	49.54	79,623		$	97,820
New authorizations	—		—		—		—
Share repurchases	273		27.51		273		(7,504		)
Share reissuances	(311	)	49.46		(311	)	—
Treasury stock as of August 31, 2014	79,585		$	49.46	79,585		$	90,316

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Company Stock Performance

The following graph compares the five-year cumulative total return attained by shareholders on our Class A common stock relative to the cumulative total returns of the S&P 500 index and our customized peer group, which we modified in fiscal year 2014 as discussed below.

An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock, in the S&P 500 Index, and in the peer groups on August 31, 2009, and its relative performance is tracked through August 31, 2014. The stock price performance included in this graph is not necessarily indicative of future stock price performance.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*

Among Apollo Education Group, Inc., the S&P 500 Index, and Peer Groups

* $100 invested on August 31, 2009 in stock and index, including reinvestment of dividends.

Source: Standard & Poor’s.

	Fiscal Year Ending August 31,
	2009	2010	2011	2012	2013	2014
Apollo Education Group, Inc.	100	66	72	41	29	43
S&P 500 Index	100	105	124	147	174	218
New Peer Group	100	70	75	42	55	63
Old Peer Group	100	61	63	29	32	38

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We modified our peer group in fiscal year 2014 to better represent the companies included in our industry. We believe the New Peer Group provides a more meaningful comparison to our overall business and operations. Our Old Peer Group and New Peer Group consist of the following:

Old Peer Group	New Peer Group
Career Education Corporation	Career Education Corporation	American Public Education, Inc.
DeVry Inc.	DeVry Education Group Inc.	Bridgepoint Education, Inc.
ITT Educational Services, Inc.	ITT Educational Services, Inc.	Capella Education Company
Strayer Education, Inc.	Strayer Education, Inc.	Grand Canyon Education, Inc.
Corinthian Colleges, Inc.

The information contained in the performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission nor shall such information be deemed incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.

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Item 6 - Selected Financial Data

The following selected financial data is derived from our consolidated financial statements and is qualified by reference to and should be read in conjunction with Item 8, Financial Statements and Supplementary Data, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, to fully understand factors that may affect the comparability of the information. The historical results are not necessarily indicative of the results to be expected in any future period.

We have made certain reclassifications to the selected financial data associated with our presentation of Institute for Professional Development as discontinued operations. Refer to Note 3, Discontinued Operations, in Item 8, Financial Statements and Supplementary Data.

	As of August 31,
($ in thousands)	2014		2013		2012		2011		2010
Cash and cash equivalents	$	1,228,813	$	1,414,485	$	1,276,375	$	1,571,664	$	1,284,769
Restricted cash and cash equivalents	224,135		259,174		318,334		379,407		444,132
Current marketable securities	187,472		105,809		—		—		—
Long-term restricted cash and cash equivalents	—		—		—		—		126,615
Total assets	3,092,935		2,997,947		2,868,322		3,269,706		3,601,451
Current liabilities	1,543,400		1,570,315		1,655,039		1,655,287		1,793,511
Long-term debt	47,590		64,004		81,323		179,691		168,039
Long-term liabilities	256,616		245,619		207,637		190,739		251,161
Redeemable noncontrolling interests	64,527		—		—		—		—
Total equity	1,180,802		1,118,009		924,323		1,243,989		1,388,740

	Year Ended August 31,
(In thousands, except per share data)	2014			2013			2012		2011		2010
Net revenue	$	3,024,178		$	3,635,924		$	4,193,190	$	4,635,031	$	4,823,716
Operating income(1)	338,971			434,392			676,368		936,405		985,106
Income from continuing operations	211,416			253,510			383,507		517,666		521,857
Net income	204,798			248,965			417,006		535,796		521,581
Net income attributable to Apollo	209,304			248,526			422,678		572,427		553,002
Earnings (loss) per share - Basic:
Continuing operations attributable to Apollo	$	1.94		$	2.25		$	3.24	$	3.93	$	3.64
Discontinued operations attributable to Apollo	(0.06		)	(0.05		)	0.24		0.12		—
Basic income per share attributable to Apollo	$	1.88		$	2.20		$	3.48	$	4.05	$	3.64
Earnings (loss) per share - Diluted:
Continuing operations attributable to Apollo	$	1.92		$	2.23		$	3.22	$	3.91	$	3.62
Discontinued operations attributable to Apollo	(0.06		)	(0.04		)	0.23		0.13		—
Diluted income per share attributable to Apollo	$	1.86		$	2.19		$	3.45	$	4.04	$	3.62
Basic weighted average shares outstanding	111,354			112,712			121,607		141,269		151,955
Diluted weighted average shares outstanding	112,610			113,285			122,357		141,750		152,906

⁽¹⁾ Operating income includes:

• Restructuring and other charges of $85.3 million, $197.0 million, $38.7 million and $22.9 million in fiscal years 2014, 2013, 2012 and 2011, respectively;

• Contingent consideration charges and acquisition costs of $19.8 million in fiscal year 2014.

• Litigation charge (credit) of $13.9 million, $(24.6) million, $4.7 million, $(12.0) million, and $178.0 million in fiscal years 2014, 2013, 2012, 2011 and 2010, respectively; and

• Goodwill and other intangibles impairment of $16.8 million, $219.9 million and $184.6 million in fiscal years 2012, 2011 and 2010, respectively.

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Item 7 - 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 consolidated financial statements and related notes included in Item 8, Financial Statements and Supplementary Data.

Overview

Apollo Education Group, Inc. is one of the world’s largest private education services providers, serving students since 1973. We believe that our success depends on providing high quality education and career pathways, tools and services to students to maximize the benefits of their educational experience. Through our subsidiaries, we offer undergraduate, graduate, professional development and other non-degree 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 2014, University of Phoenix represented 87% of our total consolidated net revenue and generated more than 100% of our operating income. Further information regarding our education platforms is included in Note 18, Segment Reporting, in Item 8, Financial Statements and Supplementary Data.

Key Trends, Developments and Challenges

The following developments and trends present opportunities, challenges and risks as we work toward our goal of providing attractive returns for our stakeholders:

• Rapidly Evolving and Highly Competitive Education Industry. The U.S. higher education industry is experiencing unprecedented, rapidly developing changes 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 other factors that challenge many of the core principles underlying the industry. In addition, the sector in which we operate has experienced significant and increasing competition from traditional public and private colleges and universities as these institutions are increasing their distance learning and other online education programs, including programs that are geared towards the needs of working learners. We believe these changes have contributed to the decline in University of Phoenix enrollment since 2010, and the 15.2% decline in Aggregate New Degreed Enrollment in fiscal year 2014 compared to the prior year. See further discussion of enrollment in Results of Operations below.

We are adapting our business to meet these rapidly evolving developments and to stabilize University of Phoenix enrollment. In furtherance of this, we are implementing several initiatives including emphasizing the distinctiveness of University of Phoenix’s eight colleges to more effectively address the specific needs of the students and employers they serve. Additionally, we are working to accelerate the enhancement of our offerings to remain competitive and to more effectively deliver a quality student experience. This includes increased use of targeted scholarships and discounts that attract students and reward persistence. These initiatives, along with some of those described below, could adversely impact our operating results, especially in the short-term.

• Education to Careers Value Proposition. We believe it is critical that we maximize the value our students garner from their education. Our goal is to continuously improve educational programs that retain students and provide skills in high-growth industries with the purpose of increasing employment opportunities within their field of study or advancement within their existing careers. This is our key value proposition to prospective students. We have launched career-oriented tools and continue to increase career connections and relationships to connect students to the careers they want and employers with the talent they need. We also intend to focus on areas of high demand for qualified employees and to tailor our programs to meet the needs of students and employers in these areas, including through the increased offering of professional development and other non-degree programs.

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• Student Retention. We are focused on improving student retention. In furtherance of this, we are implementing several initiatives, including:

• Increasing use of full-time faculty in initial University of Phoenix courses;

• Modifying course structure and sequencing;

• Leveraging research and technology provided by the acquisition of Carnegie Learning;

• Targeted use of scholarships to reward persistence;

• Implementing a new online classroom designed to provide more personalized learning to students, improve the overall student experience, and lead to better educational outcomes; and

• Implementing a new student relationship and communications management platform designed to streamline student support services and assist students who have limited or no higher education experience or otherwise may be unprepared to succeed in University of Phoenix’s academic programs.

• Business Process Reengineering and Simplification. As discussed in Results of Operations below, we remain focused on reengineering and simplifying our business processes and refining our educational delivery systems to improve the effectiveness of our services to students, and on reducing the size of our services infrastructure and associated operating expenses to align with our reduced enrollment and revenue. These activities include rationalizing University of Phoenix campus locations and streamlining, automating where appropriate, and enhancing our administrative and student facing services. Because of the rapidly evolving and transformational changes in higher education, the University continues to evaluate the extent, functionality and location of its ground facilities.

• Expansion into New Markets. We believe that our significant experience pioneering and delivering effective, flexible education to working learners can be utilized to successfully offer education in significant and underserved international markets. We are working to expand our global operations so that they become an increasingly significant portion of our consolidated operating results, and are exploring new opportunities for growth in other areas of non-traditional higher education. To date, we have acquired educational institutions in the United Kingdom, Australia, Mexico, South Africa and Chile and we have a joint venture in India providing non-degree programs. Consistent with our experience to date, the integration and operation of acquired businesses in foreign jurisdictions entails substantial regulatory, market and execution risks and such acquisitions may not be accretive for an extended period of time.

• Information Technology. We have upgraded or are in the process of upgrading a substantial portion of our key IT systems, including our online student classroom, student relationship and communications management platform, and corporate applications, and retiring the related legacy systems. We believe that these new systems will improve the productivity, scalability, reliability and sustainability of our IT infrastructure and improve the student experience. However, the transition from the legacy systems entails risk of unanticipated disruption or failure to fully replicate all necessary data processing and reporting functions, including in our core business functions, that could adversely impact our business. Refer to Part I, Item 1A, Risk Factors - Risks Related to Our Business - System disruptions to our computer networks or phone systems could have a material adverse effect on our business and Security threats to our computer systems, including breach of the personal information that we collect, could have a material adverse effect on our business.

• Regulatory Environment. The following summarizes significant regulatory matters applicable to our business. For a more detailed discussion of the regulatory environment and related risks, refer to Part I, Item 1, Business, and Item 1A, Risk Factors.

• Financial Aid Funding. In recent years, there has been increased focus by members of the U.S. Congress and federal agencies such as the Consumer Financial Protection Bureau and the Federal Trade Commission on the role that proprietary educational institutions play in higher education. We expect this focus to increase, particularly during the time leading up to the 2014 mid-term elections. 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 federal Higher Education Act. The current reauthorization expired September 30, 2013 and an automatic one year extension continued the authorization through September 30, 2014. Congress continues to engage in Higher Education Act reauthorization hearings and although the one year automatic extension has expired, Title IV programs remain authorized and functioning.

In addition, Title IV program funding is a potential target for reduction as Congress seeks to reduce the U.S. budget deficit. Because a substantial portion of our revenue is derived from Title IV programs, any action by Congress that reduces Title IV program funding, whether through across-the-board funding reductions, sequestration or otherwise, or alters the eligibility of our institutions or students to participate in Title IV

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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, certain military financial aid may be reduced as military branches address decreased funding. Reductions and/or changes in military financial aid could result in increased student borrowing, decreased enrollment and adverse impacts on our 90/10 Rule percentage, as discussed below.

• 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 prospective students with each eligible program’s recognized occupations, cost, completion rate, job placement rate, and median loan debt of program completers. These reporting requirements could adversely impact student enrollment, persistence and retention if our reported program information compares unfavorably with other reporting educational institutions. A Notice of Proposed Rulemaking was issued by the U.S. Department of Education in March 2014 specifically on the topic of gainful employment. Refer to U.S. Department of Education Rulemaking Initiative below.

• Program Participation Agreement. University of Phoenix’s Title IV Program Participation Agreement expired December 31, 2012. The University has submitted necessary documentation for re-certification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application. We have no reason to believe that the University’s application will not be renewed in due course, and it is not unusual to be continued on a month-to-month basis until the Department completes its review. We cannot predict whether, or to what extent, the imposition of the Notice sanction by The Higher Learning Commission, discussed below, might have on this process.

• U.S. Department of Education Rulemaking Initiative. In March 2014, the U.S. Department of Education issued a Notice of Proposed Rulemaking (“NPRM”) to establish measures for determining whether certain postsecondary educational programs prepare students for gainful employment in a recognized occupation, and the conditions under which these educational programs remain eligible to participate in Title IV programs. The public comment period on the NPRM ended in May 2014 and the Department has submitted its proposed final rule to the Office of Information and Regulatory Affairs for review and approval before the final regulations are published. The effective date of any such regulations cannot be determined until final regulations are published by the Department. If the Department publishes final regulations by November 1, 2014, such regulations could be effective as early as July 1, 2015. Additional details are available at

http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/gainfulemployment.html.

Additionally, the Department announced the creation of a rulemaking committee to focus on other topics, including cash management and state authorization. This committee has held negotiated rulemaking sessions, but the committee failed to reach consensus on all topics. These negotiated rulemaking initiatives are expected to produce new regulations in a variety of areas. In May 2014, prior to the final negotiated rulemaking session, the Department issued its proposal for certain new regulations, including those for state authorization. The proposed regulations, if promulgated as drafted, would impose significant new regulatory burdens on postsecondary institutions which provide distance education, regardless of educational sector, including University of Phoenix. The effective date of any such regulations cannot be determined at this time, but it is likely that the rules, if adopted, would be effective on or after July 1, 2015. While the Department is expected to issue final regulations in a number of these areas, the Department has indicated that it does not expect to promulgate additional regulations for state authorization for distance education programs without further study. Additional details are available at

http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html.

The Department has also conducted listening tours to solicit public feedback building on President Obama’s call for a national college rating system. The Secretary of the Department has publicly stated that a draft ratings system is expected to be issued by the end of calendar year 2014, and the Department has been charged with issuing the ratings for use by students and others for the 2015-2016 school year.

• The Higher Learning Commission Accreditation Reaffirmation. In July 2013, the accreditation of University of Phoenix was reaffirmed by The Higher Learning Commission, its institutional accreditor (“HLC”), through the 2022-2023 academic year. At the same time, HLC placed the University on Notice status for a two-year period. Notice status is a sanction that means that HLC has determined that an institution is on a course of action that, if continued, could lead the institution to be out of compliance with one or more of the HLC

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Criteria for Accreditation or Core Components. We believe the imposition of the sanction of Notice has adversely impacted the reputation of University of Phoenix, may have contributed to the University’s continuing decline in enrollment and could adversely impact our business in the future. See discussion of these risks in Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate - If we fail to maintain our institutional accreditation, we could lose our ability to participate in Title IV programs, which would materially and adversely affect our business.

• 90/10 Rule. To remain eligible to participate in Title IV programs, proprietary institutions of higher education must comply with the so-called “90/10 Rule” under the Higher Education Act, as reauthorized, and must derive 90% or less of their cash basis revenue, as defined in the rule, from Title IV programs. The 90/10 Rule percentages for University of Phoenix were as follows for the respective periods:

	Year Ended August 31,
	2014	2013	2012
University of Phoenix	81%	83%	84%

Based on recent trends, we do not expect the 90/10 Rule percentage for University of Phoenix to exceed 90% for fiscal year 2015. However, the 90/10 Rule percentage for the University remains high and could exceed 90% in the future depending on the degree to which its various initiatives are effective, the impact of future changes in its enrollment mix, and regulatory and other factors outside our control, including any reduction in military benefit programs or changes in the treatment of such funding for purposes of the 90/10 Rule calculation. Various legislative proposals have been introduced in Congress that would heighten the requirements of the 90/10 rule, including proposals that would, if enacted, reduce the percentage to 85% and adversely change the manner in which military aid is treated for purposes of the rule calculation. Refer to Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate - Our schools and programs would lose their eligibility to participate in federal student financial aid programs if the percentage of revenue derived from those programs is too high, in which event we could not conduct our business as it is currently conducted.

• Student Loan Cohort Default Rates. To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. Educational institutions will lose eligibility to participate in Title IV programs if their three-year cohort default rate equals or exceeds 40% for any given year or 30% for three consecutive years. Based on information published by the U.S. Department of Education, the three-year cohort default rates for University of Phoenix for the applicable federal fiscal years were as follows:

	Three-Year Cohort Default Rates for Cohort Years Ended September 30,
	2011	2010	2009
University of Phoenix	19.0%	26.0%	26.4%

Based on our most recent trends, we expect the 2012 three-year cohort default rate for University of Phoenix to be lower than the 2011 three-year cohort default rate. However, if our student loan default rates approach the applicable limits, we may be required to increase efforts and resources dedicated to improving these default rates. Refer to Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate -An increase in student loan default rates could result in the loss of eligibility to participate in Title IV programs, which would materially and adversely affect our business.

• U.S. Department of Education Program Review. The U.S. Department of Education periodically reviews institutions participating in Title IV programs for compliance with applicable standards and regulations. 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.

• 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

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training, attendance, academic grading and other matters. We are cooperating with these requests but cannot at this time predict the eventual scope, duration or outcome of this matter.

For a more detailed discussion of our business, industry and risks, refer to Item 1, Business, and Item 1A, Risk Factors.

Fiscal Year 2014 Significant Events

In addition to the items mentioned above, we experienced the following significant events during fiscal year 2014 and to date:

1. Passing of Dr. John Sperling. On August 24, 2014, Dr. John Sperling, the founder of Apollo Education Group and University of Phoenix, passed away. Dr. Sperling’s work ethic and passion for the higher education industry drove him to reshape the industry and transform students’ lives, principally through the pioneering of distance education online and electronic textbooks.

2. Corporate Name Change. During the first quarter of fiscal year 2014, we changed our corporate name from Apollo Group, Inc. to Apollo Education Group, Inc. to better and more clearly reflect our mission and our purpose.

3. Executive Management and Board of Directors Changes. We experienced the following executive management and Board of Directors changes:

• J. Mitchell Bowling was appointed as our Chief Operating Officer effective December 2, 2013. Curtis M. Uehlein, who served as our Acting Chief Operating Officer since April 2013, continues to serve in his role as President of Apollo Global;

• Dana H. Born, Ph.D. was appointed to our Board of Directors on March 20, 2014 and serves on the Audit and Compensation Committees of the Board of Directors;

• William J. Pepicello retired from his position as President of University of Phoenix, effective June 20, 2014; and

• Timothy P. Slottow was named as the new President of University of Phoenix, effective June 20, 2014.

4. Apollo Education Group Reports. We issued the following reports that can be found on our website:

• Empowering America: Reinventing Pathways to College and the Workforce, whichfocuses on the current college and career readiness challenges facing the U.S., innovative ways to address students and their needs, and the economic impact of increasing student preparedness.

• Creating the Future American Workforce: Investments and Innovation in Human Capital, which focuses on businesses and educational institutions working together to address today’s growing employment “skills gap” by investing in the future American workforce.

5. Apollo Global Acquisitions. Apollo Global has completed the following acquisitions:

• On December 20, 2013, Apollo Global acquired 70% of the outstanding shares of Open Colleges, which is a provider of education and training to adult learners in Australia. Refer to Note 4, Acquisitions, in Item 8, Financial Statements and Supplementary Data.

• On May 20, 2014, Apollo Global acquired an 81% consolidated interest in Milpark Education, which is a provider of education and training to adult learners in South Africa. Refer to Note 4, Acquisitions, in Item 8, Financial Statements and Supplementary Data.

6. Lightspeed Online Career Skills and Learning Marketplace. Apollo Lightspeed began operating SkilledUp, an online career skills and learning marketplace designed to connect individuals to online learning offerings where they can acquire skills valued by technology companies.

7. Sale of Institute for Professional Development (“IPD”). During the fourth quarter of fiscal year 2014, we sold the assets of IPD for $4 million, which resulted in an immaterial gain on disposition. IPD’s operating results are presented as discontinued operations for all periods presented. Refer to Note 3, Discontinued Operations, in Item 8, Financial Statements and Supplementary Data.

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8. Accreditation and Registration Updates.

• College for Financial Planning - During fiscal year 2014, College for Financial Planning was informed in writing by HLC, its institutional accreditor, that College for Financial Planning had addressed HLC’s findings from its most recent accreditation reaffirmation review. The next comprehensive visit from HLC is scheduled during the 2017-2018 school year.

• ULA - During the first quarter of fiscal year 2014, ULA received the recognition of University of Excellence, which is the highest level of institutional accreditation from the Mexican Federation of Private Institutions of Higher Education.

• Open Colleges - Open Colleges’ operates three registered training organizations as approved by the Australian Skills Quality Authority. All three registrations were recently renewed for the maximum allowable period of five years with the first expiring and requiring renewal in our fiscal year 2018.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements 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. Our critical accounting policies involve a higher degree of subjective or complex judgments and assumptions, often as a result of the need to make estimates about the effect of inherently uncertain matters. Although we believe our estimates, assumptions, and judgments are reasonable, actual results may differ materially from our estimates under different assumptions, judgments, or conditions.

Revenue Recognition

Substantially all of our net revenue is composed of tuition and fees from educational programs that range in length from one-day seminars to degree and non-degree programs lasting multiple years. University of Phoenix represents the substantial majority of our total consolidated net revenue and substantially all of the University’s net revenue is generated from degree programs. University of Phoenix students fund their education through loans and/or grants from U.S. federal financial aid programs established by Title IV of the Higher Education Act and regulations promulgated thereunder (“Title IV”), military benefit programs, tuition assistance from their employers, or personal funds.

Our net revenue generally varies from period to period based on several factors, including the aggregate number of students attending educational programs, the number of programs or classes held during the period, and the tuition price per program. The following summarizes our net revenue for the respective periods:

	Year Ended August 31,
($ in thousands)	2014					2013					2012
Tuition and educational services	$	3,030,064		100	%	$	3,622,767		100	%	$	4,124,629		98	%
Educational materials	219,085			7	%	252,441			7	%	294,499			7	%
Other	50,028			2	%	42,816			1	%	30,026			1	%
Gross revenue	3,299,177			109	%	3,918,024			108	%	4,449,154			106	%
Discounts	(274,999		)	(9	)%	(282,100		)	(8	)%	(255,964		)	(6	)%
Net revenue	$	3,024,178		100	%	$	3,635,924		100	%	$	4,193,190		100	%

We recognize revenue when persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, our fee or price to the customer is fixed or determinable, and collectibility is reasonably assured.

• Tuition and educational services encompasses all educational delivery modalities (i.e., online, on-campus, etc.), and we recognize revenue over the period of instruction as services are delivered to students, which may vary depending on the program structure. Tuition benefits for our employees and their eligible dependents are included in tuition and educational services revenue and instructional and student advisory expenses, and were $32.3 million, $53.4 million and $71.1 million during fiscal years 2014, 2013 and 2012, respectively.

Under University of Phoenix’s non-term academic delivery model, students generally enroll in a program of study encompassing a series of five- to nine-week courses taken consecutively over the length of the program. Students are billed separately for each course when the student first attends a course, resulting in the recording of a receivable from the student and deferred revenue in the amount of the billing. The University generally recognizes revenue evenly over the period of instruction (e.g., five weeks for a five-week course) as services are delivered to the student. For students

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that participate in the University’s risk-free, three-week program during their first credit-bearing course, the University does not recognize revenue for the risk-free period until students decide to continue beyond the risk-free period, which is when the fees become fixed and determinable. Additionally, the University reassesses collectibility throughout the period revenue is recognized when there are changes in facts or circumstances that indicate collectibility is no longer reasonably assured.

University of Phoenix’s refund policy permits students who attend 60% or less of a course to be eligible for a refund for the portion of the course they did not attend. Accordingly, the University ceases revenue recognition for the remainder of a course if a student withdraws prior to the tuition refund period elapsing, and refunds result in a reduction of deferred revenue in the period that a student withdraws. This refund policy applies to students in most, but not all states, as some states require different policies.

For our Apollo Global operations, tuition revenue is generally recognized over the length of the course and/or program. However, we recognize revenue associated with Open Colleges’ educational offerings over the contract period that students are provided access to complete their online, asynchronous program or the period of time it takes students to complete their program, as applicable. As a result, revenue recognition for Open Colleges’ educational offerings generally extends beyond one year.

• Educational materials encompasses online course materials delivered to students over the period of instruction and the sale of various books, study texts, course notes, and CDs. We recognize revenue associated with online materials over the period of the related course to correspond with delivery of the materials to students. We recognize revenue for the sale of other educational materials when they have been delivered to and accepted by students or other customers.

• Other includes net revenue generated by Carnegie Learning, fees students pay when submitting an enrollment application and non-tuition generating revenues such as renting classroom space.

• Discounts reflect reductions in charges for tuition or other fees from our standard rates and include military, corporate, and other employer discounts, along with institutional scholarships, grants and promotions. Discounts are generally recognized over the period of instruction in the same manner as the related revenue to which the discount relates.

During fiscal year 2014, we began presenting Institute of Professional Development’s (“IPD”) operating results as discontinued operations. Accordingly, IPD’s net revenue is included in discontinued operations on our Consolidated Statements of Income for all periods presented. IPD’s revenue was generated based on fixed fee contracts with IPD client institutions and was recognized in accordance with the terms of the respective agreements as services were provided.

Sales tax collected from students is excluded from net revenue. Collected but unremitted sales tax is included as a liability on our Consolidated Balance Sheets and is not material to our consolidated financial statements.

Allowance for Doubtful Accounts

We reduce our accounts receivable by an allowance for amounts that we expect to be uncollectible. We use estimates that are subjective and require judgment in determining the allowance for doubtful accounts, and estimates may vary depending on the institution or educational program that generated the accounts receivable. In general, our estimates are based on historical collection experience and write-offs, the aging of our receivables, and current trends. Our accounts receivable are written off once the account is deemed to be uncollectible, which typically occurs after outside collection agencies have pursued collection for approximately six months.

For our Title IV eligible institutions, program participation rules determine if we are required to return a portion of the funds to the U.S. Department of Education when a student with Title IV program loans withdraws. We are then entitled to collect these funds from the students, but collection rates for these types of receivables are significantly lower than our collection rates for receivables from students who remain in our educational programs.

We estimate our allowance for doubtful accounts for University of Phoenix’s receivables using a statistical model that considers a number of factors that we believe impact whether receivables will become uncollectible based on our collections experience. These factors include, but are not limited to, the student’s academic performance and previous college experience as well as other student characteristics such as credit hours earned and method of payment. We also monitor and consider external factors such as changes in the economic and regulatory environment.

We routinely evaluate our estimation methodologies for all our institutions and educational programs for adequacy and modify them as necessary. In doing so, we believe our allowance for doubtful accounts reflects the amount of receivables that will become uncollectible by considering our most recent collections experience, changes in trends and other relevant facts.

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We recorded bad debt expense of $53.8 million, $83.8 million and $146.7 million during fiscal years 2014, 2013 and 2013, respectively. Our allowance for doubtful accounts was $50.1 million and $59.7 million as of August 31, 2014 and 2013, respectively, which approximated 20% and 25% of gross student receivables as of the respective dates. For the purpose of sensitivity:

• a one percent change in our allowance for doubtful accounts as a percentage of gross student receivables as of August 31, 2014 would have resulted in a pre-tax change in income of $2.6 million; and

• if our bad debt expense were to change by one percent of net revenue for the fiscal year ended August 31, 2014, we would have recorded a pre-tax change in income of approximately $30.2 million.

For a discussion of the decrease in bad debt expense in recent years, refer to Results of Operations below.

Goodwill and Intangibles

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. We allocate assets acquired, including goodwill, and liabilities assumed in business combinations to our respective reporting units. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.

Our intangibles principally include trademarks, technology, regulatory accreditations and designations, course curriculum and customer relationships. We assign indefinite lives to intangibles that we believe have the continued ability to generate cash flows indefinitely; have no legal, regulatory, contractual, economic or other factors limiting the useful life of the respective intangible; and we intend to renew the respective intangible, if applicable, and renewal can be accomplished at little cost. Finite-lived intangibles are amortized on either a straight-line basis or using an accelerated method to reflect the pattern in which the economic benefits of the asset are consumed. The weighted average original useful life of our $74.7 million of finite-lived intangibles as of August 31, 2014 was 5.8 years.

We assess goodwill and indefinite-lived intangibles at least annually for impairment or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit or indefinite-lived intangible below its carrying amount. We perform our annual indefinite-lived intangibles impairment tests on the same dates that we perform our annual goodwill impairment tests for the respective reporting units. In performing our impairment tests, we first consider the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or intangible, as applicable, is less than its carrying amount. If we conclude that it is more likely than not that the fair value is less than the carrying amount based on our qualitative assessment, or that a qualitative assessment should not be performed, we proceed with the following quantitative impairment tests:

• Goodwill - We compare the estimated fair value of the reporting unit to the carrying value of its net assets. If the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired. If the carrying value of the net assets of the reporting unit exceeds the fair value of the reporting unit, we perform a hypothetical purchase price allocation to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. An impairment loss is recognized to the extent the implied fair value of the goodwill is less than the carrying amount of the goodwill.

• Indefinite-lived intangibles - We compare the estimated fair value of the intangible with its carrying value. If the carrying value of the intangible exceeds its fair value, an impairment loss is recognized in the amount of that excess.

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Our goodwill and indefinite-lived intangibles for our reporting units within our reportable segments are summarized below:

($ in thousands)	Annual Impairment Test Date	Goodwill as of August 31,				Indefinite-lived Intangibles as of August 31,
		2014		2013		2014		2013
University of Phoenix	May 31	$	71,812	$	71,812	$	—	$	—
Apollo Global
Open Colleges	July 1	134,561		—		—		—
BPP	July 1	—		—		90,461		84,739
Milpark Education	July 1	21,828		—		6,930		—
ULA	May 31	14,809		14,917		2,377		2,342
UNIACC	May 31	—		—		808		951
Other
College for Financial Planning	August 31	15,310		15,310		—		—
Western International University	May 31	1,581		1,581		—		—
Carnegie Learning	May 31	—		—		14,100		14,100
Total		$	259,901	$	103,620	$	114,676	$	102,132

The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgment at many points during the analysis. If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry and market conditions, our market capitalization, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the most recent fair value analysis for either the reporting unit or respective intangible.

When performing a quantitative goodwill or indefinite-lived intangibles impairment test, we determine fair value using an income-based approach, a market-based approach or a combination of both methods. The fair value determination consists primarily of using unobservable inputs under the fair value measurement standards. We believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units or indefinite-lived intangibles include, but are not limited to, the amounts and timing of expected future cash flows, the discount rate applied to those cash flows, terminal growth rates, selection of comparable market multiples and applying weighting factors when multiple valuation methods are used. The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends and long-term operating strategies and initiatives. The discount rate used by each reporting unit is based on our assumption of a prudent investor’s required rate of return of assuming the risk of investing in a particular company in a specific country. The terminal growth rate reflects the sustainable operating income a reporting unit could generate in a perpetual state as a function of revenue growth, inflation and future margin expectations.

Fiscal Year 2014 Impairment Testing

We completed our fiscal year 2014 annual goodwill and indefinite-lived intangibles impairment tests and determined there was no impairment. We elected to perform qualitative assessments for certain of our reporting units and indefinite-lived intangibles. For reporting units that we tested using a quantitative approach, the fair values exceeded the respective carrying values by significant margins representing at least 20% of their respective fair values.

If the critical assumptions used in our impairment testing deteriorate or are otherwise adversely impacted, a lower fair value estimate may result. In particular, the goodwill acquired in our recent acquisitions of Open Colleges and Milpark Education was principally attributable to future earnings potential associated with student growth. If these acquired entities do not achieve our forecasts, the goodwill could be impaired in the future.

Other Long-Lived Asset Impairments

We evaluate the carrying amount of our other long-lived assets, including property and equipment and finite-lived intangibles, whenever changes in circumstances or events indicate that the value of such assets may not be recoverable. During fiscal year 2013, we recorded $20.4 million of long-lived asset impairments, which includes $12.2 million resulting from our restructuring activities.

As of August 31, 2014, we believe the carrying amounts of our remaining other long-lived assets are recoverable and no impairment exists. However, we are continuing to adapt our business to the rapidly developing changes in our industry, and changes to our business or other circumstances could lead to potential impairments in the future.

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Restructuring and Other Charges

Restructuring and other charges principally consist of non-cancelable lease obligations, severance and other employee separation costs, and other related costs. We recognize restructuring obligations and liabilities for other exit and disposal activities at fair value in the period the liability is incurred. The process of measuring fair value and recognizing the associated liabilities is subjective and requires significant judgment. For our non-cancelable lease obligations, we record the obligation when we terminate the contract in accordance with the contract terms or when we cease using the right conveyed by the contract. Our employee severance costs are expensed on the date we notify the employee, unless the employee must provide future service, in which case the benefits are expensed over the future service period.

We generally estimate the fair value of restructuring obligations using significant unobservable inputs (Level 3) based on the best available information. For non-cancelable lease obligations, the fair value estimate is based on the contractual lease costs over the remaining terms of the leases, partially offset by estimated future sublease rental income. Our estimate of the amount and timing of sublease rental income considers subleases we 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 sublease agreements.

Changes to restructuring obligations in periods subsequent to the initial fair value measurement are not measured at fair value. We record a cumulative adjustment resulting from changes in the estimated timing or amount of cash flows associated with restructuring obligations in the period of change using the same discount rate that was initially used to measure the obligation’s fair value. Changes in restructuring obligations resulting from the passage of time are recorded as accretion expense. The adjustments to restructuring obligations, including accretion expense, are included in restructuring and other charges on our Consolidated Statements of Income.

The following details the changes in our restructuring obligations by type of cost during fiscal year 2014:

($ in thousands)	Lease and Related Costs, Net			Severance and Other Employee Separation Costs			Other Restructuring Related Costs			Total
Balance at August 31, 2013	$	104,048		$	7,623		$	8,130		$	119,801
Expense incurred	47,279			33,215			4,849			85,343
Other	(3,251		)	(4,281		)	—			(7,532		)
Payments	(51,872		)	(30,870		)	(11,787		)	(94,529		)
Balance at August 31, 2014	$	96,204		$	5,687		$	1,192		$	103,083

Loss Contingencies

We are subject to various claims and contingencies including those related to regulation, litigation, business transactions, employee-related matters and taxes, among others. When we become aware of a claim or potential claim, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount of the loss or range of loss can be reasonably estimated, we record a liability for the loss. The liability recorded includes probable and estimable legal costs incurred to date and future legal costs to the point in the legal matter where we believe a conclusion to the matter will be reached. The liability excludes any anticipated loss recoveries from third parties such as insurers, which we record as a receivable if we determine recovery is probable. If the loss is not probable or the amount of the loss or range of loss cannot be reasonably estimated, we disclose the claim if the likelihood of a potential loss is reasonably possible and the amount of the potential loss could be material. For matters where no loss contingency is recorded, we expense legal fees as incurred. The assessment of the likelihood of a potential loss and the estimation of the amount of a loss or range of loss are subjective and require judgment.

Income Taxes

We are subject to the income tax laws of the U.S. and the foreign jurisdictions in which we have significant business operations. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. As a result, significant judgments and interpretations are required in determining our provision for income taxes and evaluating our uncertain tax positions.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the new rate is enacted. We record a valuation allowance to reduce deferred tax assets to the amount that we believe is more likely than not to be realized.

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We have not provided deferred taxes on unremitted earnings attributable to international subsidiaries that have been considered permanently reinvested. As of August 31, 2014, the earnings from these operations are not significant, but they are expected to increase in the future due to our focus on international expansion, which includes two acquisitions by Apollo Global during fiscal year 2014.

We evaluate and account for uncertain tax positions using a two-step approach. Recognition (step one) occurs when we conclude that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when we subsequently determine that a tax position no longer meets the more likely than not threshold of being sustained. We classify interest and penalties accrued in connection with unrecognized tax benefits as income tax expense on our Consolidated Statements of Income. Our total unrecognized tax benefits, excluding interest and penalties, were $18.4 million and $44.1 million as of August 31, 2014 and 2013, respectively.

Recent Accounting Pronouncements

For discussion of recent accounting pronouncements, refer to Note 1, Nature of Operations and Significant Accounting Policies, in Item 8, Financial Statements and Supplementary Data.

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 fiscal years 2014, 2013 and 2012.

As discussed in the Overview of this MD&A, the U.S. higher education industry is experiencing unprecedented, rapidly developing changes. We believe University of Phoenix enrollment has been adversely impacted by these changes, and we are working to accelerate the enhancement of our offerings to remain competitive and to more effectively deliver a quality student experience. Certain of our initiatives under consideration could adversely impact our operating results, especially in the short-term.

Our operations are generally subject to seasonal trends, which vary depending on 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.

• University of Phoenix - Although University of Phoenix enrolls students throughout the year, its net revenue is generally lower in our second fiscal quarter (December through February) than the 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.

We categorize our operating expenses principally as follows:

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

• Marketing - the substantial majority of costs consist of advertising expenses, compensation for marketing personnel, including personnel responsible for establishing relationships with selected employers, and production of marketing materials. The category also includes other costs directly related to marketing functions.

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

• General and administrative - consist primarily of corporate compensation, rent expense, legal and professional fees, information technology infrastructure costs and other related costs.

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

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

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Analysis of Consolidated Statements of Income

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.

	Year Ended August 31,															Percentage Change 2014 versus 2013		Percentage Change 2013 versus 2012
										Percent of Net Revenue
($ in thousands)	2014			2013			2012			2014		2013		2012
Net revenue	$	3,024,178		$	3,635,924		$	4,193,190		100.0	%	100.0	%	100.0	%	(16.8	)%	(13.3	)%
Costs and expenses:
Instructional and student advisory	1,301,004			1,561,568			1,776,596			43.0	%	43.0	%	42.4	%	(16.7	)%	(12.1	)%
Marketing	557,649			641,784			641,699			18.4	%	17.7	%	15.3	%	(13.1	)%	—	%
Admissions advisory	215,196			253,319			371,901			7.1	%	7.0	%	8.9	%	(15.0	)%	(31.9	)%
General and administrative	287,884			326,908			341,872			9.5	%	9.0	%	8.2	%	(11.9	)%	(4.4	)%
Depreciation and amortization	150,575			161,733			177,804			5.0	%	4.4	%	4.2	%	(6.9	)%	(9.0	)%
Provision for uncollectible accounts receivable	53,819			83,798			146,742			1.8	%	2.3	%	3.5	%	(35.8	)%	(42.9	)%
Restructuring and other charges	85,343			197,022			38,695			2.8	%	5.4	%	0.9	%	*		*
Contingent consideration charges and acquisition costs	19,837			—			—			0.7	%	—	%	—	%	*		*
Litigation charge (credit)	13,900			(24,600		)	4,725			0.5	%	(0.7	)%	0.1	%	*		*
Goodwill and other intangibles impairment	—			—			16,788			—	%	—	%	0.4	%	*		*
Total costs and expenses	2,685,207			3,201,532			3,516,822			88.8	%	88.1	%	83.9	%	(16.1	)%	(9.0	)%
Operating income	338,971			434,392			676,368			11.2	%	11.9	%	16.1	%	(22.0	)%	(35.8	)%
Interest income	2,230			1,913			1,187			0.1	%	—	%	—	%	16.6	%	61.2	%
Interest expense	(7,914		)	(8,745		)	(11,745		)	(0.3	)%	(0.2	)%	(0.2	)%	(9.5	)%	(25.5	)%
Other (loss) income, net	(547		)	2,407			476			—	%	0.1	%	—	%	*		*
Income from continuing operations before income taxes	332,740			429,967			666,286			11.0	%	11.8	%	15.9	%	(22.6	)%	(35.5	)%
Provision for income taxes	(121,324		)	(176,457		)	(282,779		)	(4.0	)%	(4.8	)%	(6.8	)%	(31.2	)%	(37.6	)%
Income from continuing operations	211,416			253,510			383,507			7.0	%	7.0	%	9.1	%	(16.6	)%	(33.9	)%
(Loss) income from discontinued operations, net of tax	(6,618		)	(4,545		)	33,499			(0.2	)%	(0.2	)%	0.8	%	*		*
Net income	204,798			248,965			417,006			6.8	%	6.8	%	9.9	%	(17.7	)%	(40.3	)%
Net loss (income) attributable to noncontrolling interests	4,506			(439		)	5,672			0.1	%	—	%	0.2	%	*		*
Net income attributable to Apollo	$	209,304		$	248,526		$	422,678		6.9	%	6.8	%	10.1	%	(15.8	)%	(41.2	)%

*Not meaningful

Net Revenue

Our net revenue decreased$611.7 million and $557.3 million, or 16.8% and 13.3%, in fiscal years 2014 and 2013 compared to the respective prior years. The decreases were primarily attributable to net revenue declines at University of Phoenix of 20.3% and 14.7% during the respective periods principally due to lower enrollment. This was partially offset by increases in Apollo Global net revenue. Refer to further discussion of net revenue by reportable segment below at Analysis of Operating Results by Reportable Segment.

Instructional and Student Advisory

Instructional and student advisory decreased$260.6 million and $215.0 million, or 16.7% and 12.1%, in fiscal years 2014 and 2013 compared to the respective prior years. As a percentage of net revenue, instructional and student advisory was consistent in fiscal year 2014 compared to the prior year, and increased 60 basis points in fiscal year 2013 compared to the prior year. The decreases in expense were primarily due to lower costs including rent and compensation attributable to our restructuring activities (refer to Restructuring and Other Charges below) and lower costs from the enrollment decline at University of Phoenix. Fiscal years 2014 and 2013 were also impacted by approximately $11 million of foreign indirect taxes related to instructional materials that were originally assessed in fiscal year 2013, and were subsequently reversed in fiscal year 2014 following resolution with the taxing authority.

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Marketing

Marketing decreased$84.1 million, or 13.1%, in fiscal year 2014 compared to the prior year, which represented a 70 basis point increase as a percentage of net revenue. The decrease in expense was principally attributable to lower advertising costs, and lower headcount due in part to our restructuring activities. This was partially offset by advertising costs attributable to Open Colleges, which was acquired in the second quarter of fiscal year 2014.

Marketing was essentially flat in fiscal year 2013 compared to the prior year, which represented a 240 basis point increase as a percentage of net revenue. Our marketing costs in fiscal year 2013 included lower advertising expense compared to fiscal year 2012 from the reduced use of third-party operated Internet sites, which was offset by increased costs in fiscal year 2013 associated with investments in non-Internet branding.

Admissions Advisory

Admissions advisory decreased$38.1 million and $118.6 million, or 15.0% and 31.9%, in fiscal years 2014 and 2013 compared to the respective prior years. This represented an increase as a percentage of net revenue of 10 basis points for fiscal year 2014 compared to the prior year, and a decrease of 190 basis points for fiscal year 2013 compared to the prior year. The decreases in expense were principally attributable to lower headcount due in part to our restructuring activities. During fiscal year 2014, the decrease in expense was partially offset by employee costs attributable to Open Colleges.

General and Administrative

General and administrative decreased$39.0 million, or 11.9%, in fiscal year 2014 compared to the prior year, which represented a 50 basis point increase as a percentage of net revenue. The decrease in expense was primarily attributable to lower costs including rent and compensation due in part to our restructuring activities.

General and administrative decreased $15.0 million, or 4.4%, in fiscal year 2013 compared to the prior year, which represented an 80 basis point increase as a percentage of net revenue. The decrease in expense was principally attributable to lower share-based compensation expense, and a decline in headcount due in part to our restructuring activities. This was partially offset by a $5.0 million retirement bonus in fiscal year 2013.

Depreciation and Amortization

Depreciation and amortization decreased$11.2 million and $16.1 million, or 6.9% and 9.0%, in fiscal years 2014 and 2013 compared to the respective prior years. This represented increases as a percent of net revenue of 60 and 20 basis points, respectively. The decreases in expense were principally attributable to lower depreciation due in part to the decline in depreciable assets resulting from our restructuring activities. During fiscal year 2014, the decrease in expense was partially offset by $10.6 million of intangibles amortization as a result of the Open Colleges and Milpark Education acquisitions.

Provision for Uncollectible Accounts Receivable

Provision for uncollectible accounts receivable decreased$30.0 million and $62.9 million, or 35.8% and 42.9%, in fiscal years 2014 and 2013 compared to the respective prior years. This represented decreases as a percentage of net revenue of 50 and 120 basis points, respectively. The decreases were primarily due to reductions in University of Phoenix gross student receivables from its revenue decline, and process improvements that significantly contributed to lowering the University’s gross student receivables associated with students no longer enrolled in its programs. Additionally, the University’s collection rates have increased due in part to changes in the relative composition of its student receivables including a higher proportion attributable to students in higher degree level programs.

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Restructuring and Other Charges

The U.S. higher education industry is experiencing unprecedented, rapidly developing changes that challenge many of the core principles underlying the industry. We are reengineering and simplifying our business processes and refining our educational delivery systems to improve the effectiveness of our services to students, and reducing the size of our services infrastructure and associated operating expenses to align with our reduced enrollment and revenue. We have incurred restructuring and other charges associated with these activities beginning in fiscal year 2011 as summarized below:

	Year Ended August 31,						Cumulative Costs as of August 31, 2014
($ in thousands)	2014		2013		2012
Lease and related costs, net	$	47,279	$	137,263	$	15,981	$	219,590
Severance and other employee separation costs	33,215		32,690		12,887		82,638
Other restructuring related costs	4,849		27,069		9,827		41,745
Restructuring and other charges	$	85,343	$	197,022	$	38,695	$	343,973

The following summarizes the restructuring and other charges in our segment reporting format:

	Year Ended August 31,						Cumulative Costs as of August 31, 2014
($ in thousands)	2014		2013		2012
University of Phoenix	$	61,899	$	158,757	$	20,002	$	263,571
Apollo Global	6,091		6,053		5,712		17,856
Other	17,353		32,212		12,981		62,546
Restructuring and other charges	$	85,343	$	197,022	$	38,695	$	343,973

• Lease and Related Costs, Net - Beginning in fiscal year 2011, University of Phoenix began rationalizing its administrative real estate facilities. In addition to continuing to rationalize its administrative facilities, University of Phoenix began closing 115 of its ground locations during fiscal year 2013. After these closures, the University operates 110 ground campus locations throughout the U.S. and Puerto Rico. However, the University continues to evaluate the extent, functionality and location of its ground facilities because of the rapidly evolving and transformational changes in higher education.

As of August 31, 2014, University of Phoenix has closed the substantial majority of the total square feet included in the above plan and has recorded $158.3 million of initial aggregate charges representing the estimated fair value of future contractual operating lease obligations. These charges were recorded in the periods we ceased using the respective facilities. 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%-6% 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 and subleases we expect to execute, current commercial real estate market data and conditions, comparable transaction data and qualitative factors specific to the facilities. The estimates will be subject to adjustment as market conditions change or as new information becomes available, including the execution of additional sublease agreements. As of August 31, 2014, we have recorded adjustments to our initial lease obligation liabilities for interest accretion and immaterial adjustments for changes in estimated sublease income.

Lease and related costs, net also includes $7.6 million and $50.1 million of accelerated depreciation during fiscal years 2014 and 2013, respectively, associated with revising the useful lives of the fixed assets at the facilities we are closing through their expected closure dates. Prior to revising the useful lives, we perform a recoverability analysis for the facilities’ fixed assets by comparing the estimated undiscounted cash flows of the locations through their expected closure dates to the carrying amount of the locations’ fixed assets. Based on such analyses, we recorded no impairment charges during fiscal year 2014 and immaterial impairment charges during fiscal year 2013.

• Severance and Other Employee Separation Costs -Beginning in fiscal year 2011 and continuing through fiscal year 2014, we have implemented workforce reductions as we reengineer and simplify our business processes, refine our educational delivery systems and reduce our operating costs to align with our reduced enrollment and revenue. We incurred severance and other employee separation costs of $33.2 million, $32.7 million and $12.9 million in fiscal years 2014, 2013 and 2012, respectively. These costs are included in the reportable segments in which the respective personnel were employed.

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• Other Restructuring Related Costs - We incurred other restructuring related costs that principally include services from a consulting firm associated with our restructuring activities and fixed asset impairment charges related to software and equipment we are no longer using. The majority of our other restructuring related costs are included in “Other” in our segment reporting because they pertain to all areas of our business.

Because University of Phoenix has closed the substantial majority of the total square feet included in the above plan as of August 31, 2014, we do not expect to incur material charges related to the remaining square feet to be vacated under the above plan. However, we will incur interest accretion associated with the lease obligations in future periods, and we may incur material charges associated with future restructuring activities as we intend to continue our efforts to streamline operations and improve efficiency.

Due principally to our cost optimization and restructuring activities in recent years, our fiscal year 2014 operating costs decreased by approximately $900 million compared to fiscal year 2012. Approximately 80% of this decrease represents costs that were more fixed in nature, and the remaining decrease represents costs that are more variable in nature resulting from our net revenue decline.

Contingent Consideration Charges and Acquisition Costs

During fiscal year 2014, we recorded $19.8 million of charges associated with changes in the fair value of contingent consideration, and costs associated with our acquisitions. The majority of this expense is attributable to the increase in our estimated Open Colleges’ contingent consideration liability subsequent to the acquisition.

Litigation Charge (Credit)

During fiscal year 2014, we recorded $13.9 million of charges associated with our legal matters. Refer to Note 16, Commitments and Contingencies, in Item 8, Financial Statements and Supplementary Data.

During fiscal year 2013, we recorded a credit of $24.6 million principally resulting from resolution of certain of our legal matters.

During fiscal year 2012, we recorded a $4.7 million charge principally reflecting a rejected settlement offer we made in connection with one of our legal matters.

Goodwill and Other Intangibles Impairment

During fiscal year 2012, we recorded impairment charges of UNIACC’s goodwill and other intangibles of $11.9 million and $4.9 million, respectively.

Provision for Income Taxes

Our effective income tax rate for continuing operations was 36.5%, 41.0% and 42.4% for fiscal years 2014, 2013 and 2012, respectively. For a reconciliation of our effective income tax rate for continuing operations for each fiscal year to the statutory U.S. federal income tax rate, refer to Note 12, Income Taxes, in Item 8, Financial Statements and Supplementary Data.

The decrease in our fiscal year 2014 effective tax rate compared to the prior year was principally attributable to a $10.2 million benefit in fiscal year 2014 from resolution with the Internal Revenue Service related to the deductibility of certain costs for our foreign subsidiaries, and a $2.8 million tax benefit resulting from tax reform in Mexico.

The decrease in our fiscal year 2013 effective tax rate compared to the prior year was principally attributable to the nondeductible UNIACC goodwill and other intangibles impairment recorded in fiscal year 2012 and the recognition of $4.9 million of previously unrecognized tax benefits in fiscal year 2013. This was partially offset by an increase in the impact of foreign losses for which we cannot take a tax benefit on our effective tax rate.

(Loss) Income from Discontinued Operations, Net of Tax

Discontinued operations, net of tax for all fiscal years includes the operating results of IPD through the date we sold its assets in the fourth quarter of fiscal year 2014. In addition to IPD’s operating results, fiscal year 2012 includes a $26.7 million gain on sale of BPP’s subsidiary Mander Portman Woodward and its operating results through the date of sale in fiscal year 2012. Refer to Note 3, Discontinued Operations, in Item 8, Financial Statements and Supplementary Data.

Net Loss (Income) Attributable to Noncontrolling Interests

The change during fiscal year 2014 compared to the prior year was principally attributable to the noncontrolling interest in Open Colleges’ operating results. The change in fiscal year 2013 compared to the prior year was attributable to our purchase of the noncontrolling interest in Apollo Global during fiscal year 2013.

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Analysis of Operating Results by Reportable Segment

The following details our operating results by reportable segment for the respective periods:

	Year Ended August 31,									2014 versus 2013					2013 versus 2012
($ in thousands)	2014			2013			2012			$ Change			% Change		$ Change			% Change
Net revenue
University of Phoenix	$	2,632,949		$	3,304,464		$	3,873,098		$	(671,515	)	(20.3	)%	$	(568,634	)	(14.7	)%
Apollo Global	338,008			275,768			269,541			62,240			22.6	%	6,227			2.3	%
Other	53,221			55,692			50,551			(2,471		)	(4.4	)%	5,141			10.2	%
Net revenue	$	3,024,178		$	3,635,924		$	4,193,190		$	(611,746	)	(16.8	)%	$	(557,266	)	(13.3	)%
Operating income (loss)
University of Phoenix	$	488,217		$	579,670		$	846,840		$	(91,453	)	(15.8	)%	$	(267,170	)	(31.5	)%
Apollo Global	(74,189		)	(59,936		)	(66,964		)	(14,253		)	(23.8	)%	7,028			10.5	%
Other	(75,057		)	(85,342		)	(103,508		)	10,285			12.1	%	18,166			17.6	%
Operating income	$	338,971		$	434,392		$	676,368		$	(95,421	)	(22.0	)%	$	(241,976	)	(35.8	)%

University of Phoenix

University of Phoenix’s net revenue decreased $671.5 million and $568.6 million, or 20.3% and 14.7%, in fiscal years 2014 and 2013 compared to the respective prior years. The decreases were principally attributable to lower enrollment. During fiscal years 2014 and 2013, we increased our use of discounts, grants and scholarships to attract students and reward persistence, which reduced net revenue compared to the respective prior years. The revenue decline in fiscal year 2013 compared to the prior year was partially offset by selective tuition price and other fee increases implemented in July 2012 that were generally in the range of 3-5%.

As discussed in the Overview of this MD&A, University of Phoenix began emphasizing the distinctiveness of its eight colleges to more effectively address the specific needs of the students and employers they serve. As one result of this transition, the University is evaluating pricing on a programmatic basis and determined changes were appropriate for a number of its programs. Accordingly, the University announced selective changes, including increasing and decreasing prices on a program by program basis, effective during the first quarter of fiscal year 2015. Future net revenue will be impacted by these and other pricing changes, enrollment and student mix within programs, and discounts, grants and scholarships.

The following details University of Phoenix student enrollment for the respective periods:

	Average Degreed Enrollment(1), (2)							Aggregate New Degreed Enrollment(1), (3)
(Rounded to the nearest hundred)	Year Ended August 31,			% Change				Year Ended August 31,			% Change
	2014	2013	2012	2014-2013		2013-2012		2014	2013	2012	2014-2013		2013-2012
Students	251,500	301,100	356,900	(16.5	)%	(15.6	)%	146,700	172,900	216,700	(15.2	)%	(20.2	)%

⁽¹⁾ Refer to Item 1, Business, for definitions of Degreed Enrollment and New Degreed Enrollment.

⁽²⁾ Represents the average of quarterly Degreed Enrollment from the beginning to the end of the respective fiscal years.

⁽³⁾ Represents the sum of the four quarters of New Degreed Enrollment in the respective fiscal years.

University of Phoenix Average Degreed Enrollment decreased 16.5% and 15.6%, in fiscal years 2014 and 2013 compared to the respective prior periods. We believe University of Phoenix enrollment has been adversely impacted by unprecedented, rapidly developing changes and increasing competition in the U.S. higher education industry as further discussed in the Overview of this MD&A. We are working to accelerate the enhancement of our offerings to remain competitive and to more effectively deliver a quality student experience at the right value. Certain of our initiatives under consideration could adversely impact our operating results, especially in the short-term.

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University of Phoenix’s operating income decreased $91.5 million, or 15.8%, in fiscal year 2014 compared to the prior year, and decreased $267.2 million, or 31.5%, in fiscal year 2013 compared to the prior year. The University’s operating margin was 18.5%, 17.5% and 21.9% in the respective fiscal years, and its operating results were impacted by the following:

	Year Ended August 31,
($ in thousands)	2014		2013			2012
Restructuring and other charges	$	61,899	$	158,757		$	20,002
Litigation (credit) charge	—		(2,751		)	4,725

The decreased operating income in fiscal year 2014 compared to the prior year was principally attributable tolower net revenue. This was partially offset by lower costs including rent and compensation attributable to our restructuring activities, decreases in restructuring charges, lower advertising costs, decreases in faculty and curriculum costs associated with lower enrollment, and a decrease in bad debt expense.

The decreased operating income in fiscal year 2013 compared to the prior year was principally attributable to lower net revenue and increases in restructuring charges. This was partially offset by a decrease in faculty and curriculum costs associated with lower enrollment, a decrease in bad debt expense, and lower costs attributable to our restructuring activities.

Apollo Global

Apollo Global’s net revenue increased $62.2 million and $6.2 million, or 22.6% and 2.3%, in fiscal years 2014 and 2013 compared to the respective prior years. The increase in fiscal year 2014 compared to the prior year was primarily due to Open Colleges and Milpark Education revenue, an increase in enrollment at our other international institutions and the favorable impact of foreign exchange rates. The increase in fiscal year 2013 compared to the prior year was principally due to increased enrollment at ULA.

Apollo Global’s operating loss increased $14.3 million in fiscal year 2014 compared to the prior year, and decreased $7.0 million in fiscal year 2013 compared to the prior year. Apollo Global’s operating results include the following during the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013		2012
Depreciation and amortization	$	38,168		$	25,982	$	24,297
Contingent consideration charges and acquisition costs	18,990			—		—
Restructuring and other charges	6,091			6,053		5,712
Foreign indirect tax assessment (reversal) charge(1)	(11,173		)	10,683		—
Goodwill and other intangibles impairment	—			—		16,788

⁽¹⁾ This is included in instructional and student advisory on our Consolidated Statements of Income.

The increased operating loss in fiscal year 2014 compared to the prior year was principally due to costs associated with Apollo Global’s recent acquisitions and the negative near term impact of Open Colleges discussed below. The decreased operating loss in fiscal year 2013 compared to the prior year was primarily due to the goodwill and other intangibles impairment charge in fiscal year 2012, and reduced operating expenses resulting from our restructuring activities.

Open Colleges’ educational offerings generally extend beyond one year and the associated revenue is recognized over the contractual period that students are provided access to complete their program, or the time period it takes students to complete their program, as applicable. However, Open Colleges’ operating costs are period costs that are expensed as incurred and a substantial portion are incurred before, or soon after, the students begin their programs. Accordingly, as a result of Open Colleges’ rapid growth, service model, and cost structure, Apollo Global’s operating results are negatively impacted in the near term. However, these factors do not have the same adverse impact on cash flows generated from Open Colleges. Additionally, Apollo Global’s deferred revenue has increased substantially from approximately $50 million as of August 31, 2013 to $127 million as of August 31, 2014, and we expect this amount to continue to increase, perhaps rapidly, as Open Colleges continues to grow.

Other

Other net revenue decreased $2.5 million and increased $5.1 million in fiscal years 2014 and 2013 compared to the respective prior years. The decrease in fiscal year 2014 was due to lower enrollment at Western International University in part due to the launch of its new strategy at the end of fiscal year 2013. The new strategy has reduced Western International University’s revenue in fiscal year 2014 due to a revised pricing structure that allows prospective students to test the academic experience

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for a significantly reduced price in their initial courses. The net revenue decrease was partially offset by an increase in Carnegie Learning revenue. The increase in fiscal year 2013 was primarily due to an increase in Carnegie Learning revenue.

Other operating losses decreased $10.3 million in fiscal year 2014 compared to the prior year. The decrease was primarily attributable to reduced operating costs resulting from our restructuring activities and a decrease in restructuring charges. This was partially offset by $23.2 million of litigation credits recorded during the prior year period, and the $13.9 million of litigation charges recorded in fiscal year 2014.

Other operating losses decreased $18.2 million in fiscal year 2013 compared to the prior year. The decrease was principally attributable to the litigation credits in fiscal year 2013 discussed above and reduced operating costs resulting from our restructuring activities. This was partially offset by higher restructuring charges in fiscal year 2013.

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. We believe that the most strategic uses of our cash resources include investments in initiatives to achieve improvements in student outcomes through the delivery of education that meets employers’ needs, investments in opportunities for targeted growth through new education offerings or programs, expansion of our global operations through acquisitions or other initiatives, and share repurchases.

Although we currently have substantial available liquidity, our ability to access the credit markets and other sources of liquidity, including utilization of our Revolving Credit Facility described below, may be adversely affected if we experience regulatory compliance challenges, including, but not limited to, maintaining a U.S. Department of Education financial responsibility composite score of at least 1.5, reduced availability of Title IV program funding, or other adverse effects on our business from regulatory or legislative changes. Additionally, we believe that due to recent developments in the proprietary education industry, capital has become less accessible to, and more expensive for, proprietary education providers like us. Refer to Part I, Item 1A, Risk Factors - Risks Related to the Highly Regulated Industry in Which We Operate.

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 our cash and cash equivalents, restricted cash and cash equivalents and current marketable securities as of the respective periods:

							% of Total Assets at August 31,
	August 31,				% Change
($ in thousands)	2014		2013				2014		2013
Cash and cash equivalents	$	1,228,813	$	1,414,485	(13.1	)%	39.7	%	47.2	%
Restricted cash and cash equivalents	224,135		259,174		(13.5	)%	7.2	%	8.7	%
Marketable securities(1)	187,472		105,809		77.2	%	6.1	%	3.5	%
Total	$	1,640,420	$	1,779,468	(7.8	)%	53.0	%	59.4	%

⁽¹⁾ Represents current marketable securities. We also have $87.8 million and $43.9 million of long-term marketable securities as of August 31, 2014 and 2013, respectively, that principally includes securities maturing in less than three years.

Cash and cash equivalents (excluding restricted cash) decreased $185.7 million primarily due to $172.7 million of share repurchases, $130.8 million of marketable securities purchases (net of maturities), $119.5 million for acquisitions, $100.7 million of capital expenditures, and $36.7 million of payments on borrowings (net of proceeds from borrowings). These items were partially offset by $375.9 million of cash provided by operations.

We consider the unremitted earnings attributable to certain of our foreign subsidiaries to be permanently reinvested. As of August 31, 2014, the earnings from these operations were not significant.

As of August 31, 2014, we had $132.5 million of money market funds included in cash and restricted cash equivalents that we measure at fair value. Our remaining cash and cash equivalents included in the above table approximate fair value because of the short-term nature of the financial instruments.

Our current marketable securities, which principally include tax-exempt municipal bonds, corporate bonds, time deposits and commercial paper, have original maturities to us greater than three months, and contractual maturities that will occur within one year. During fiscal year 2014, we changed the designation of our marketable securities from held-to-maturity to available-for-sale primarily to provide liquidity flexibility, which represented a change in our intent to hold the securities until maturity. Accordingly, our current marketable securities are measured at fair value as of August 31, 2014, and we have recorded immaterial adjustments in other comprehensive income for the changes in fair value. We determine the fair value of our

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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 8, Financial Statements and Supplementary Data.

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 borrowed $585.0 million and $605.0 million under the Revolving Credit Facility as of August 31, 2014 and 2013, respectively. We also had approximately $24 million and $14 million of outstanding letters of credit under the Revolving Credit Facility as of the respective dates. We repaid the entire amount borrowed under the Revolving Credit Facility subsequent to the respective fiscal year ends. We have classified these borrowings as short-term borrowings and the current portion of long-term debt on our Consolidated Balance Sheets because they were repaid subsequent to the respective fiscal year-ends.

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 LIBOR + 125 to 185 basis points. The weighted average interest rate on outstanding short-term borrowings under the Revolving Credit Facility at both August 31, 2014 and 2013 was 3.5%.

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 August 31, 2014 and 2013.

Other debt principally includes debt at subsidiaries of Apollo Global and the present value of an obligation payable over a 10-year period associated with our purchase of technology in fiscal year 2012. The weighted average interest rate on our outstanding other debt at August 31, 2014 and 2013 was 5.8% and 5.3%, 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 fiscal years:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Net income	$	204,798		$	248,965		$	417,006
Non-cash items	241,109			336,136			413,994
Changes in assets and liabilities, excluding the impact of acquisitions and business dispositions	(70,000		)	(107,053		)	(279,700		)
Net cash provided by operating activities	$	375,907		$	478,048		$	551,300

Fiscal Year 2014 - Our non-cash items primarily consisted of $150.6 million of depreciation and amortization, a $53.8 million provision for uncollectible accounts receivable, and $42.8 million of share-based compensation. These items were partially offset by $13.9 million of deferred income taxes. The changes in assets and liabilities, excluding the impact of acquisitions and business dispositions, primarily consisted of a $61.4 million use of cash related to the change in accounts receivable, excluding the provision for uncollectible accounts receivable (see further discussion of accounts receivable below), and a $30.7 million decrease in student deposits principally due to the enrollment decline at University of Phoenix. This was partially offset by a $37.2 million decrease in restricted cash and cash equivalents primarily due to the enrollment decline at University of Phoenix.

We monitor our accounts receivable through a variety of metrics, including days sales outstanding. We calculate our days sales outstanding by determining average daily student revenue based on a rolling twelve month analysis and divide it into the gross student accounts receivable balance as of the end of the period. Excluding accounts receivable and the related net revenue for Apollo Global, our days sales outstanding was flat at 21 days as of August 31, 2014 and 2013, respectively.

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Fiscal Year 2013 - Our non-cash items primarily consisted of $161.7 million of depreciation and amortization, an $83.8 million provision for uncollectible accounts receivable, $62.3 million of restructuring accelerated depreciation and impairments, and $49.5 million of share-based compensation. These items were partially offset by $29.5 million of deferred income taxes.

The changes in assets and liabilities primarily consisted of a $103.4 million use of cash related to the change in accounts receivable, excluding the provision for uncollectible accounts receivable, and decreases in student deposits and deferred revenue of $52.6 million and $39.1 million, respectively, principally attributable to the enrollment decline at University of Phoenix. This was partially offset by a $59.2 million decrease in restricted cash and cash equivalents primarily due to the enrollment decline at University of Phoenix, and a $54.1 million increase in accrued and other liabilities principally attributable to an increase in our restructuring liabilities.

Fiscal Year 2012 - Our non-cash items primarily consisted of $178.2 million of depreciation and amortization, a $146.7 million provision for uncollectible accounts receivable, $78.7 million of share-based compensation, $21.9 million of deferred income taxes and $16.8 million of goodwill and other intangibles impairments. These items were partially offset by a $26.7 million gain on the sale of BPP’s subsidiary Mander Portman Woodward. The changes in assets and liabilities primarily consisted of the following:

• a $129.8 million use of cash related to the change in accounts receivable, excluding the provision for uncollectible accounts receivable;

• a $123.4 million decrease in accrued and other liabilities principally attributable to our $145.0 million payment to settle a legal matter, which was partially offset by an increase in our restructuring liabilities; and

• decreases in student deposits and deferred revenue of $58.7 million and $39.2 million, respectively, principally attributable to the enrollment decline at University of Phoenix.

The above changes were partially offset by a $61.1 million decrease in restricted cash and cash equivalents principally attributable to the enrollment decline at University of Phoenix.

Investing Activities

The following provides a summary of our investing cash flows during the respective fiscal years:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Purchases of marketable securities, net	$	(130,803	)	$	(143,804	)	$	—
Acquisitions, net of cash acquired	(119,454		)	—			(73,736		)
Capital expenditures	(100,666		)	(119,348		)	(115,187		)
Proceeds from dispositions, net	—			—			76,434
Other	606			(1,500		)	(1,694		)
Net cash used in investing activities	$	(350,317	)	$	(264,652	)	$	(114,183	)

Fiscal Year 2014 - Cash used in investing activities primarily consisted of $130.8 million of marketable securities purchases (net of maturities), $119.5 million used to acquire Open Colleges and Milpark Education, and $100.7 million used for capital expenditures.

We expect our fiscal year 2015 capital expenditures to be materially consistent with fiscal year 2014.

Fiscal Year 2013 - Cash used in investing activities primarily consisted of $143.8 million used for marketable securities purchases (net of maturities) and $119.3 million used for capital expenditures.

Fiscal Year 2012 - Cash used in investing activities primarily consisted of $115.2 million used for capital expenditures and $73.7 million used to acquire Carnegie Learning. This was partially offset by $76.4 million of proceeds from dispositions, the substantial majority of which relates to our sale of MPW.

64

Financing Activities

The following provides a summary of our financing cash flows during the respective fiscal years:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Share repurchases	$	(172,709	)	$	(9,537	)	$	(811,913	)
(Payments) proceeds related to borrowings, net	(36,691		)	(26,151		)	66,876
Purchase of noncontrolling interests	(893		)	(42,500		)	—
Share reissuances	1,793			3,867			11,949
Other	(2,858		)	17			1,150
Net cash used in financing activities	$	(211,358	)	$	(74,304	)	$	(731,938	)

Fiscal Year 2014 - Cash used in financing activities primarily consisted of $172.7 million used for share repurchases and $36.7 million used for payments on borrowings (net of proceeds from borrowings). Share repurchases consisted of $159.7 million used to repurchase 5.4 million shares at a weighted average purchase price of $29.78 per share, and additional repurchases related to tax withholding requirements on restricted stock units.

As of August 31, 2014, $90.3 million remained 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.

Fiscal Year 2013 - Cash used in financing activities primarily consisted of $42.5 million used for the purchase of the noncontrolling ownership interest in Apollo Global, $26.2 million used for payments on borrowings (net of proceeds from borrowings), and $9.5 million used for share repurchases related to tax withholding requirements on restricted stock units.

Fiscal Year 2012 - Cash used in financing activities primarily consisted of $811.9 million used for share repurchases. This was partially offset by $66.9 million of proceeds from borrowings (net of payments on borrowings) and $11.9 million of cash received from share reissuances.

Contractual Obligations and Other Commercial Commitments

The following summarizes our contractual obligations and other commercial commitments as of August 31, 2014:

	Payments Due by Fiscal Year
($ in thousands)	2015		2016-2017		2018-2019		Thereafter		Total
Debt(1)	$	594,313	$	23,193	$	7,405	$	5,781	$	630,692
Operating lease obligations	171,875		273,191		178,005		296,334		919,405
Capital lease obligations	17,963		15,050		1,277		611		34,901
Stadium naming rights(2)	7,339		15,344		16,279		62,458		101,420
Uncertain tax positions(3)	5,715		—		—		9,770		15,485
Other obligations(4)	46,693		62,223		3,338		3,665		115,919
Total	$	843,898	$	389,001	$	206,304	$	378,619	$	1,817,822

⁽¹⁾ Amounts include expected future interest payments.

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

⁽³⁾ Represents our liability for unrecognized tax positions, including interest and penalties, with the fiscal year 2015 amount representing the portion we have classified as a current liability as of August 31, 2014. However, we are uncertain as to if or when such amounts may be settled. Refer to Note 12, Income Taxes, in Item 8, Financial Statements and Supplementary Data.

⁽⁴⁾ Represents obligations to purchase goods and services that are enforceable and legally binding and principally includes amounts relating to information technology services, marketing and administration services.

In addition to the commitments included in the above table, we have contingent consideration and redeemable noncontrolling interests associated with our our acquisitions. Refer to Note 9, Fair Value Measurements, and Note 13, Shareholders’ Equity and Redeemable Noncontrolling Interests,in Item 8, Financial Statements and Supplementary Data.

We have no other material commercial commitments not described above.

65

Off-Balance Sheet Arrangements

As part of our normal operations, our insurers issue surety bonds for us that are required by various states where we operate. We are obligated to reimburse our insurers for any surety bonds that are paid. As of August 31, 2014, the total face amount of these surety bonds was approximately $36 million. We also had approximately $24 million of outstanding letters of credit as of August 31, 2014, which principally support certain guarantees provided by our subsidiaries as part of our normal operations for which the fair value is not material.

Certain other off-balance sheet obligations, such as operating leases, are included in the Contractual Obligations and Other Commercial Commitments table above.

Item 7A - Quantitative and Qualitative Disclosures about Market Risk

We are exposed to economic risk from inflation, foreign currency exchange rates, and interest rates.

Inflation

Inflation has not had a significant impact on our historical operations.

Foreign Currency Exchange Risk

The substantial majority of our revenue, expense and capital expenditure activities are transacted in U.S. dollars. However, because a portion of our operations consists of activities outside of the U.S., we have transactions in other currencies, primarily the British pound, Australian dollar, South African rand and Mexican peso.

We use the U.S. dollar as our reporting currency. The functional currencies of our foreign subsidiaries are generally the local currencies. Accordingly, our foreign currency exchange risk is related to the following exposure areas:

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

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

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

In fiscal year 2014, we recorded $11.7 million of net foreign currency translation gains, net of tax, that are included in other comprehensive income. These gains are primarily the result of the weakening of the U.S. dollar relative to the British pound and Australian dollar. The following outlines our net asset exposure by foreign currency (defined as foreign currency assets less foreign currency liabilities and excluding intercompany balances) denominated in U.S. dollars for foreign currencies in which we have significant assets and/or liabilities as of August 31:

($ in thousands)	2014		2013
Australian dollar	$	124,262	$	—
British pound sterling	102,909		87,784
South African rand	29,629		—
Mexican peso	23,172		22,034

We generally have not used derivative contracts to hedge foreign currency exchange rate fluctuations.

Interest Rate Risk

Our interest income and interest expense is sensitive to fluctuations in interest rates in the U.S. and certain international countries. Changes in interest rates affect the interest earned on our cash and cash equivalents, restricted cash and cash equivalents, and marketable securities, and the cost associated with our debt.

Interest Income

As of August 31, 2014, we had $1.7 billion of cash and cash equivalents, restricted cash and cash equivalents, and current and noncurrent marketable securities. During fiscal year 2014, our interest rate yields were less than 1%, and we earned interest income of $2.2 million. A reduction in interest rates would not have a material impact on our interest income.

66

Interest Expense

We have exposure to changing interest rates primarily associated with our variable rate debt. As of August 31, 2014, we had $657.1 million of outstanding debt that matures as follows:

($ in thousands)	2015		2016		2017		2018		2019		Thereafter		Total
Fixed-rate debt(1)	$	20,613	$	17,348	$	6,430	$	3,684	$	3,551	$	5,845	$	57,471
Variable-rate debt(1)	588,893		10,732		—		—		—		—		599,625
Total	$	609,506	$	28,080	$	6,430	$	3,684	$	3,551	$	5,845	$	657,096

⁽¹⁾ The weighted-average interest rates on our fixed-rate debt and variable-rate debt at August 31, 2014 were 5.1% and 3.6%, respectively.

Subsequent to August 31, 2014, we repaid $585.0 million of our variable rate debt borrowed under the Revolving Credit Facility. Accordingly, we do not believe a change in interest rates would have a material impact on our interest expense.

67

Item 8 - Financial Statements and Supplementary Data

	Page
Report of Independent Registered Public Accounting Firm	69
Consolidated Balance Sheets	70
Consolidated Statements of Income	71
Consolidated Statements of Comprehensive Income	72
Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interests	73
Consolidated Statements of Cash Flows	74
Notes to Consolidated Financial Statements	75

68

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Apollo Education Group, Inc. and Subsidiaries

Phoenix, Arizona

We have audited the accompanying consolidated balance sheets of Apollo Education Group, Inc. and subsidiaries (the “Company”) as of August 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, shareholders’ equity and redeemable noncontrolling interests, and cash flows for each of the three years in the period ended August 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Apollo Education Group, Inc. and subsidiaries as of August 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of August 31, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 21, 2014 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

October 21, 2014

69

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of August 31,
(In thousands)	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	1,228,813		$	1,414,485
Restricted cash and cash equivalents	224,135			259,174
Marketable securities	187,472			105,809
Accounts receivable, net	225,398			215,401
Prepaid taxes	34,006			30,359
Deferred tax assets	83,871			60,294
Other current assets	58,855			64,134
Total current assets	2,042,550			2,149,656
Marketable securities	87,811			43,941
Property and equipment, net	435,733			472,614
Goodwill	259,901			103,620
Intangible assets, net	189,365			132,192
Deferred tax assets	37,335			63,894
Other assets	40,240			32,030
Total assets	$	3,092,935		$	2,997,947
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	609,506		$	628,050
Accounts payable	63,907			73,123
Student deposits	280,562			309,176
Deferred revenue	225,818			213,260
Accrued and other current liabilities	363,607			346,706
Total current liabilities	1,543,400			1,570,315
Long-term debt	47,590			64,004
Deferred tax liabilities	22,674			12,177
Other long-term liabilities	233,942			233,442
Total liabilities	1,847,606			1,879,938
Commitments and contingencies
Redeemable noncontrolling interests	64,527			—
Shareholders’ equity:
Preferred stock, no par value, 1,000 shares authorized; none issued	—			—
Apollo Class A nonvoting common stock, no par value, 400,000 shares authorized; 188,007 issued as of August 31, 2014 and 2013, and 108,422 and 112,825 outstanding as of August 31, 2014 and 2013, respectively	103			103
Apollo Class B voting common stock, no par value, 3,000 shares authorized; 475 issued and outstanding as of August 31, 2014 and 2013	1			1
Additional paid-in capital	—			—
Apollo Class A treasury stock, at cost, 79,585 and 75,182 shares as of August 31, 2014 and 2013, respectively	(3,936,607		)	(3,824,758		)
Retained earnings	5,143,949			4,978,815
Accumulated other comprehensive loss	(27,320		)	(36,563		)
Total Apollo shareholders’ equity	1,180,126			1,117,598
Noncontrolling interests	676			411
Total equity	1,180,802			1,118,009
Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	3,092,935		$	2,997,947

The accompanying notes are an integral part of these consolidated financial statements.

70

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended August 31,
(In thousands, except per share data)	2014			2013			2012
Net revenue	$	3,024,178		$	3,635,924		$	4,193,190
Costs and expenses:
Instructional and student advisory	1,301,004			1,561,568			1,776,596
Marketing	557,649			641,784			641,699
Admissions advisory	215,196			253,319			371,901
General and administrative	287,884			326,908			341,872
Depreciation and amortization	150,575			161,733			177,804
Provision for uncollectible accounts receivable	53,819			83,798			146,742
Restructuring and other charges	85,343			197,022			38,695
Contingent consideration charges and acquisition costs	19,837			—			—
Litigation charge (credit)	13,900			(24,600		)	4,725
Goodwill and other intangibles impairment	—			—			16,788
Total costs and expenses	2,685,207			3,201,532			3,516,822
Operating income	338,971			434,392			676,368
Interest income	2,230			1,913			1,187
Interest expense	(7,914		)	(8,745		)	(11,745		)
Other (loss) income, net	(547		)	2,407			476
Income from continuing operations before income taxes	332,740			429,967			666,286
Provision for income taxes	(121,324		)	(176,457		)	(282,779		)
Income from continuing operations	211,416			253,510			383,507
(Loss) income from discontinued operations, net of tax	(6,618		)	(4,545		)	33,499
Net income	204,798			248,965			417,006
Net loss (income) attributable to noncontrolling interests	4,506			(439		)	5,672
Net income attributable to Apollo	$	209,304		$	248,526		$	422,678
Earnings (loss) per share - Basic:
Continuing operations attributable to Apollo	$	1.94		$	2.25		$	3.24
Discontinued operations attributable to Apollo	(0.06		)	(0.05		)	0.24
Basic income per share attributable to Apollo	$	1.88		$	2.20		$	3.48
Earnings (loss) per share - Diluted:
Continuing operations attributable to Apollo	$	1.92		$	2.23		$	3.22
Discontinued operations attributable to Apollo	(0.06		)	(0.04		)	0.23
Diluted income per share attributable to Apollo	$	1.86		$	2.19		$	3.45
Basic weighted average shares outstanding	111,354			112,712			121,607
Diluted weighted average shares outstanding	112,610			113,285			122,357

The accompanying notes are an integral part of these consolidated financial statements.

71

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended August 31,
($ in thousands)	2014		2013			2012
Net income	$	204,798	$	248,965		$	417,006
Other comprehensive income (loss) (net of tax):
Currency translation gain (loss)(1)	11,652		(2,545		)	(8,281		)
Unrealized gain on available-for-sale securities(1)	130		—			—
Comprehensive income	216,580		246,420			408,725
Comprehensive loss attributable to noncontrolling interests	1,967		463			7,680
Comprehensive income attributable to Apollo	$	218,547	$	246,883		$	416,405

⁽¹⁾ The tax effect on each component of other comprehensive income (loss) during fiscal years 2014, 2013 and 2012 is not significant.

The accompanying notes are an integral part of these consolidated financial statements.

72

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

	Common Stock						Additional Paid-in Capital			Apollo Class A Treasury Stock								Accumulated Other Comprehensive Loss			Total Apollo Shareholders’ Equity			Noncontrolling Interests (Deficit)
	Class A Nonvoting			Class B Voting											Retained Earnings												Total Equity			Redeemable Noncontrolling Interests
(In thousands)	Shares	Stated Value		Shares	Stated Value					Shares		Cost
Balance as of August 31, 2011	188,007	$	103	475	$	1	$	68,724		58,003		$	(3,125,175	)	$	4,320,472		$	(23,761	)	$	1,240,364		$	3,625		$	1,243,989		$	—
Share repurchases	—	—		—	—		—			19,420		(811,913		)	—			—			(811,913		)	—			(811,913		)	—
Share reissuances	—	—		—	—		(46,527		)	(1,184	)	58,476			—			—			11,949			—			11,949			—
Net tax effect for stock incentive plans	—	—		—	—		(7,132		)	—		—			—			—			(7,132		)	—			(7,132		)	—
Share-based compensation	—	—		—	—		78,705			—		—			—			—			78,705			—			78,705			—
Currency translation adjustment, net of tax	—	—		—	—		—			—		—			—			(6,273		)	(6,273		)	(2,008		)	(8,281		)	—
Net income (loss)	—	—		—	—		—			—		—			422,678			—			422,678			(5,672		)	417,006			—
Balance as of August 31, 2012	188,007	$	103	475	$	1	$	93,770		76,239		$	(3,878,612	)	$	4,743,150		$	(30,034	)	$	928,378		$	(4,055	)	$	924,323		$	—
Share repurchases	—	—		—	—		—			475		(9,537		)	—			—			(9,537		)	—			(9,537		)	—
Share reissuances	—	—		—	—		(46,663		)	(1,532	)	63,391			(12,861		)	—			3,867			—			3,867			—
Net tax effect for stock incentive plans	—	—		—	—		(48,026		)	—		—			—			—			(48,026		)	—			(48,026		)	—
Share-based compensation	—	—		—	—		49,462			—		—			—			—			49,462			—			49,462			—
Currency translation adjustment, net of tax	—	—		—	—		—			—		—			—			(1,643		)	(1,643		)	(902		)	(2,545		)	—
Purchase of noncontrolling interests	—	—		—	—		(48,543		)	—		—			—			(4,886		)	(53,429		)	4,929			(48,500		)	—
Net income	—	—		—	—		—			—		—			248,526			—			248,526			439			248,965			—
Balance as of August 31, 2013	188,007	$	103	475	$	1	$	—		75,182		$	(3,824,758	)	$	4,978,815		$	(36,563	)	$	1,117,598		$	411		$	1,118,009		$	—
Share repurchases	—	—		—	—		—			5,834		(172,709		)	—			—			(172,709		)	—			(172,709		)	—
Share reissuances	—	—		—	—		(28,683		)	(1,431	)	60,860			(30,384		)	—			1,793			—			1,793			—
Net tax effect for stock incentive plans	—	—		—	—		(14,136		)	—		—			—			—			(14,136		)	—			(14,136		)	—
Share-based compensation	—	—		—	—		42,819			—		—			—			—			42,819			—			42,819			—
Acquisitions	—	—		—	—		—			—		—			—			—			—			—			—			53,866
Currency translation adjustment, net of tax	—	—		—	—		—			—		—			—			9,113			9,113			106			9,219			2,433
Unrealized gain on available-for-sale securities	—	—		—	—		—			—		—			—			130			130			—			130			—
Redemption value adjustments	—	—		—	—		—			—		—			(13,786		)	—			(13,786		)	—			(13,786		)	13,786
Purchase of noncontrolling interests	—	—		—	—		—			—		—			—			—			—			(893		)	(893		)	—
Net income (loss)	—	—		—	—		—			—		—			209,304			—			209,304			1,052			210,356			(5,558		)
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

The accompanying notes are an integral part of these consolidated financial statements.

73

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Operating activities:
Net income	$	204,798		$	248,965		$	417,006
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation	42,819			49,462			78,705
Excess tax benefits from share-based compensation	(1,285		)	(17		)	(1,150		)
Depreciation and amortization	150,575			161,733			178,234
Accelerated depreciation and impairments included in restructuring	7,580			62,267			—
Loss (gain) on asset dispositions and write-offs, net	556			8,190			(26,678		)
Goodwill and other intangibles impairment	—			—			16,788
Non-cash foreign currency loss (gain), net	957			220			(497		)
Provision for uncollectible accounts receivable	53,819			83,798			146,742
Deferred income taxes	(13,912		)	(29,517		)	21,850
Changes in assets and liabilities, excluding the impact of acquisitions and business dispositions:
Restricted cash and cash equivalents	37,233			59,160			61,073
Accounts receivable	(61,435		)	(103,369		)	(129,773		)
Prepaid taxes	(2,890		)	(3,985		)	9,303
Other assets	6,072			(19,514		)	(11,568		)
Accounts payable	(11,950		)	(1,775		)	12,525
Student deposits	(30,738		)	(52,587		)	(58,740		)
Deferred revenue	657			(39,091		)	(39,154		)
Accrued and other liabilities	(6,949		)	54,108			(123,366		)
Net cash provided by operating activities	375,907			478,048			551,300
Investing activities:
Purchases of property and equipment	(100,666		)	(119,348		)	(115,187		)
Purchases of marketable securities	(319,079		)	(208,878		)	—
Maturities of marketable securities	188,276			65,074			—
Acquisitions, net of cash acquired	(119,454		)	—			(73,736		)
Proceeds from dispositions, net	—			—			76,434
Other investing activities	606			(1,500		)	(1,694		)
Net cash used in investing activities	(350,317		)	(264,652		)	(114,183		)
Financing activities:
Payments on borrowings	(627,822		)	(636,387		)	(562,269		)
Proceeds from borrowings	591,131			610,236			629,145
Share repurchases	(172,709		)	(9,537		)	(811,913		)
Share reissuances	1,793			3,867			11,949
Purchase of noncontrolling interests	(893		)	(42,500		)	—
Excess tax benefits from share-based compensation	1,285			17			1,150
Other financing activities	(4,143		)	—			—
Net cash used in financing activities	(211,358		)	(74,304		)	(731,938		)
Exchange rate effect on cash and cash equivalents	96			(982		)	(468		)
Net (decrease) increase in cash and cash equivalents	(185,672		)	138,110			(295,289		)
Cash and cash equivalents, beginning of year	1,414,485			1,276,375			1,571,664
Cash and cash equivalents, end of year	$	1,228,813		$	1,414,485		$	1,276,375
Supplemental disclosure of cash flow and non-cash information:
Cash paid for income taxes, net of refunds	$	161,163		$	201,055		$	246,824
Cash paid for interest	7,657			7,869			9,794
Restricted stock units vested and released	37,430			27,054			36,182
Credits received for tenant improvements	1,131			6,049			27,009
Capital lease additions	—			3,500			44,145
Debt incurred for acquired technology	—			—			14,389

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Operations and Significant Accounting Policies

Apollo Education Group, Inc. is one of the world’s largest private education services providers, serving students since 1973. Through our subsidiaries, we offer undergraduate, graduate, professional development and other non-degree educational programs and services, online and on-campus, principally to working learners in the U.S. and abroad. Refer to Note 18, Segment Reporting, for further information regarding our education platforms.

During fiscal year 2014, Apollo changed its name from Apollo Group, Inc. to Apollo Education Group, Inc.

Our fiscal year is from September 1 to August 31. Unless otherwise stated, references to particular years or quarters refer to our fiscal years and the associated quarters of those fiscal years.

Basis of Presentation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions 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. Actual results may differ from these estimates.

Principles of Consolidation

The consolidated 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.

We record noncontrolling interests in our consolidated financial statements to recognize the noncontrolling ownership interest in our consolidated subsidiaries. A portion of the net income (loss) of such subsidiaries is allocated to our noncontrolling interests generally based on the respective noncontrolling shareholder’s ownership interest in the consolidated subsidiary. Depending on the nature of the noncontrolling interest and the associated rights of the noncontrolling shareholders, we present noncontrolling interests either as a component of equity or separately as redeemable noncontrolling interests on our Consolidated Balance Sheets.

For redeemable noncontrolling interests that are either redeemable or probable of becoming redeemable, we record the noncontrolling interests at the greater of the carrying value or the redemption value at the end of each reporting period. We determine the redemption value by assuming the end of each reporting period is the redemption date. Redemption value adjustments are recorded through retained earnings. Refer to Note 13, Shareholders’ Equity and Redeemable Noncontrolling Interests.

Revenue Recognition

Substantially all of our net revenue is composed of tuition and fees from educational programs that range in length from one-day seminars to degree and non-degree programs lasting multiple years. University of Phoenix represents the substantial majority of our total consolidated net revenue and substantially all of the University’s net revenue is generated from degree programs. University of Phoenix students fund their education through loans and/or grants from U.S. federal financial aid programs established by Title IV of the Higher Education Act and regulations promulgated thereunder (“Title IV”), military benefit programs, tuition assistance from their employers, or personal funds.

Our net revenue generally varies from period to period based on several factors, including the aggregate number of students attending educational programs, the number of programs or classes held during the period, and the tuition price per program. We recognize revenue when persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, our fee or price to the customer is fixed or determinable, and collectibility is reasonably assured. The following summarizes the components of our net revenue, which are generally consistent on a percentage basis for all periods presented:

• Tuition and educational services represents approximately 92% of our gross consolidated revenue, and encompasses all educational delivery modalities (i.e., online, on-campus, etc.). We recognize tuition and educational services revenue over the period of instruction as services are delivered to students, which may vary depending on the program structure. Tuition benefits for our employees and their eligible dependents are included in tuition and educational

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

services revenue and instructional and student advisory expenses, and were $32.3 million, $53.4 million and $71.1 million during fiscal years 2014, 2013 and 2012, respectively.

Under University of Phoenix’s non-term academic delivery model, students generally enroll in a program of study encompassing a series of five- to nine-week courses taken consecutively over the length of the program. Students are billed separately for each course when the student first attends a course, resulting in the recording of a receivable from the student and deferred revenue in the amount of the billing. The University generally recognizes revenue evenly over the period of instruction (e.g., five weeks for a five-week course) as services are delivered to the student. For students that participate in the University’s risk-free, three-week program during their first credit-bearing course, the University does not recognize revenue for the risk-free period until students decide to continue beyond the risk-free period, which is when the fees become fixed and determinable. Additionally, the University reassesses collectibility throughout the period revenue is recognized when there are changes in facts or circumstances that indicate collectibility is no longer reasonably assured.

University of Phoenix’s refund policy permits students who attend 60% or less of a course to be eligible for a refund for the portion of the course they did not attend. Accordingly, the University ceases revenue recognition for the remainder of a course if a student withdraws prior to the tuition refund period elapsing, and refunds result in a reduction of deferred revenue in the period that a student withdraws. This refund policy applies to students in most, but not all states, as some states require different policies.

For our Apollo Global operations, tuition revenue is generally recognized over the length of the course and/or program. However, we recognize revenue associated with Open Colleges’ educational offerings over the contract period that students are provided access to complete their online, asynchronous program or the period of time it takes students to complete their program, as applicable. As a result, revenue recognition for Open Colleges’ educational offerings generally extends beyond one year.

• Educational materials represents approximately 7% of our gross consolidated revenue, and encompasses online course materials delivered to students over the period of instruction and the sale of various books, study texts, course notes, and CDs. We recognize revenue associated with online materials over the period of the related course to correspond with delivery of the materials to students. We recognize revenue for the sale of other educational materials when they have been delivered to and accepted by students or other customers.

• Other represents approximately 1% of our gross consolidated revenue, andincludes net revenue generated by Carnegie Learning, fees students pay when submitting an enrollment application and non-tuition generating revenues such as renting classroom space.

• Discounts reflect reductions in charges for tuition or other fees from our standard rates and include military, corporate, and other employer discounts, along with institutional scholarships, grants and promotions. Discounts are generally recognized over the period of instruction in the same manner as the related revenue to which the discount relates.

During fiscal year 2014, we began presenting Institute of Professional Development’s (“IPD”) operating results as discontinued operations. Accordingly, IPD’s net revenue is included in discontinued operations on our Consolidated Statements of Income for all periods presented. IPD’s revenue was generated based on fixed fee contracts with IPD client institutions and was recognized in accordance with the terms of the respective agreements as services were provided.

Sales tax collected from students is excluded from net revenue. Collected but unremitted sales tax is included as a liability on our Consolidated Balance Sheets and is not material to our consolidated financial statements.

Allowance for Doubtful Accounts

We reduce our accounts receivable by an allowance for amounts that we expect to be uncollectible. We use estimates that are subjective and require judgment in determining the allowance for doubtful accounts, and estimates may vary depending on the institution or educational program that generated the accounts receivable. In general, our estimates are based on historical collection experience and write-offs, the aging of our receivables, and current trends. Our accounts receivable are written off once the account is deemed to be uncollectible, which typically occurs after outside collection agencies have pursued collection for approximately six months.

For our Title IV eligible institutions, program participation rules determine if we are required to return a portion of the funds to the U.S. Department of Education when a student with Title IV program loans withdraws. We are then entitled to collect these funds from the students, but collection rates for these types of receivables are significantly lower than our collection rates for receivables from students who remain in our educational programs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We estimate our allowance for doubtful accounts for University of Phoenix’s receivables using a statistical model that considers a number of factors that we believe impact whether receivables will become uncollectible based on our collections experience. These factors include, but are not limited to, the student’s academic performance and previous college experience as well as other student characteristics such as credit hours earned and method of payment. We also monitor and consider external factors such as changes in the economic and regulatory environment.

We routinely evaluate our estimation methodologies for all our institutions and educational programs for adequacy and modify them as necessary. In doing so, we believe our allowance for doubtful accounts reflects the amount of receivables that will become uncollectible by considering our most recent collections experience, changes in trends and other relevant facts. Refer to Note 6, Accounts Receivable, Net.

Cash and Cash Equivalents

We consider all highly liquid investments with stated maturities of three months or less from the date we purchase the investment to be cash equivalents. Cash and cash equivalents generally include money market funds, bank overnight deposits and time deposits, which are all placed with high-credit-quality financial institutions in the U.S. and internationally. Only a negligible portion of these deposits are insured by the Federal Deposit Insurance Corporation. We have not experienced any losses on our cash and cash equivalents.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents primarily represents funds held for students for unbilled educational services that were received from Title IV program funds. As a trustee of these Title IV program funds, we are required to maintain and restrict these funds pursuant to the terms of our program participation agreement with the U.S. Department of Education. Restricted cash and cash equivalents are excluded from cash and cash equivalents on our Consolidated Balance Sheets and Consolidated Statements of Cash Flows. Changes in restricted cash and cash equivalents that represent funds held for students as described above are included in cash flows from operating activities on our Consolidated Statements of Cash Flows because these restricted funds are a core activity of our operations. Our restricted cash and cash equivalents are primarily held in money market funds.

Marketable Securities

We invest our excess cash in instruments that may include tax-exempt municipal bonds, corporate bonds, time deposits, commercial paper, agency bonds and other marketable securities. We present such instruments with original maturities to us greater than three months as marketable securities on our Consolidated Balance Sheets, and we classify our marketable securities as either current or noncurrent based on each instrument’s contractual maturity. Securities with maturities of twelve months or less are classified as current, and securities with maturities greater than twelve months are classified as noncurrent.

We determine the designation of our marketable securities as held-to-maturity or available-for-sale at the time of purchase and reevaluate such designation at the end of each period. Securities are designated as held-to-maturity if we have intent and ability to hold them until maturity, and such securities are reported at amortized cost. If we do not have the intent or ability to hold securities until maturity, they are designated as available-for-sale. Available-for-sale securities are reported at fair value with changes in fair value reflected in shareholders’ equity as a component of accumulated other comprehensive loss. We determine any realized gains or losses on the sale of marketable securities using the specific identification method, and they are included in other (loss) income, net on our Consolidated Statements of Income. Refer to Note 5, Financial Instruments.

Property and Equipment, Net

Property and equipment is recorded at cost less accumulated depreciation. Property and equipment under capital leases, and the related obligation, is recorded at an amount equal to the present value of future minimum lease payments. Buildings, furniture, equipment, and software, including internally developed software, are depreciated using the straight-line method over the estimated useful lives of the related assets, which range from 3 to 40 years. Capital leases, leasehold improvements and tenant improvement allowances are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the related assets. Construction in progress, excluding software, is recorded at cost until the corresponding asset is placed into service and depreciation begins. Software is recorded at cost and is amortized once the related asset is ready for its intended use. Maintenance and repairs are expensed as incurred.

We capitalize certain internal software development costs consisting primarily of the direct labor associated with creating the internally developed software. Capitalized costs are amortized using the straight-line method over the estimated lives of the software. Software development projects generally include three stages: the preliminary project stage (all costs expensed as incurred), the application development stage (certain costs capitalized, certain costs expensed as incurred), and the post-implementation/operation stage (all costs expensed as incurred). The costs we capitalize in the application development stage

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

primarily include the costs of designing the application, coding, installation of hardware, and testing. Refer to Note 7, Property and Equipment, Net.

Business Combinations

We include the results of operations of businesses we acquire from the date of the respective acquisition. We allocate the purchase price of acquisitions to the assets acquired and liabilities assumed at fair value. The excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed is recorded as goodwill. Transaction costs incurred in connection with business combinations are expensed as incurred.

Goodwill and Intangibles

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. We allocate assets acquired, including goodwill, and liabilities assumed in business combinations to our respective reporting units. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.

Our intangibles principally include trademarks, technology, regulatory accreditations and designations, course curriculum and customer relationships. We assign indefinite lives to intangibles that we believe have the continued ability to generate cash flows indefinitely; have no legal, regulatory, contractual, economic or other factors limiting the useful life of the respective intangible; and we intend to renew the respective intangible, if applicable, and renewal can be accomplished at little cost. Finite-lived intangibles are amortized on either a straight-line basis or using an accelerated method to reflect the pattern in which the economic benefits of the asset are consumed. The weighted average original useful life of our $74.7 million of finite-lived intangibles as of August 31, 2014 was 5.8 years.

We assess goodwill and indefinite-lived intangibles at least annually for impairment or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit or indefinite-lived intangible below its carrying amount. We perform our annual indefinite-lived intangibles impairment tests on the same dates that we perform our annual goodwill impairment tests for the respective reporting units. In performing our impairment tests, we first consider the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or intangible, as applicable, is less than its carrying amount. If we conclude that it is more likely than not that the fair value is less than the carrying amount based on our qualitative assessment, or that a qualitative assessment should not be performed, we proceed with the following quantitative impairment tests:

• Goodwill - We compare the estimated fair value of the reporting unit to the carrying value of its net assets. If the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired. If the carrying value of the net assets of the reporting unit exceeds the fair value of the reporting unit, we perform a hypothetical purchase price allocation to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. An impairment loss is recognized to the extent the implied fair value of the goodwill is less than the carrying amount of the goodwill.

• Indefinite-lived intangibles - We compare the estimated fair value of the intangible with its carrying value. If the carrying value of the intangible exceeds its fair value, an impairment loss is recognized in the amount of that excess.

The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgment at many points during the analysis. If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry and market conditions, our market capitalization, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the most recent fair value analysis for either the reporting unit or respective intangible.

When performing a quantitative goodwill or indefinite-lived intangibles impairment test, we determine fair value using an income-based approach, a market-based approach or a combination of both methods. The fair value determination consists primarily of using unobservable inputs under the fair value measurement standards.

If the critical assumptions used in our impairment testing deteriorate or are otherwise adversely impacted, a lower fair value estimate may result. In particular, the goodwill acquired in our recent acquisitions of Open Colleges and Milpark Education was principally attributable to future earnings potential associated with student growth. If these acquired entities do not achieve our forecasts, the goodwill could be impaired in the future.

Refer toNote 8, Goodwill and Intangibles.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Long-Lived Asset Impairments

We evaluate the carrying amount of our other long-lived assets, including property and equipment and finite-lived intangibles, whenever changes in circumstances or events indicate that the value of such assets may not be recoverable. During fiscal year 2013, we recorded $20.4 million of long-lived asset impairments, which includes $12.2 million resulting from our restructuring activities. Refer to Note 2, Restructuring and Other Charges, and Note 7, Property and Equipment, Net.

As of August 31, 2014, we believe the carrying amounts of our remaining other long-lived assets are recoverable and no impairment exists. However, we are continuing to adapt our business to the rapidly developing changes in our industry, and changes to our business or other circumstances could lead to potential impairments in the future.

Leases

We enter into various lease agreements in conducting our business. We evaluate the lease agreement at the inception of the lease to determine whether the lease is an operating or capital lease. Additionally, our lease agreements may contain renewal options, tenant improvement allowances, rent holidays, and/or rent escalation clauses. When such items are included in a lease agreement, we record a deferred rent asset or liability on our Consolidated Balance Sheets and record the rent expense evenly over the term of the lease. Leasehold improvements are reflected under investing activities as purchases of property and equipment on our Consolidated Statements of Cash Flows. Credits received against rent for tenant improvement allowances are reflected as a component of non-cash investing activities on our Consolidated Statements of Cash Flows. For leases with renewal options, we generally record rent expense on a straight-line basis over the initial non-cancelable lease term (in instances where renewal is not reasonably assured). Refer to Note 16, Commitments and Contingencies.

We are also required to make additional payments under lease terms for taxes, insurance, and other operating expenses incurred during the lease period, which are expensed as incurred. Rental deposits are provided for lease agreements that specify payments in advance or deposits held in security that are refundable, less any damages at lease end.

Restructuring and Other Charges

Restructuring and other charges principally consist of non-cancelable lease obligations, severance and other employee separation costs, and other related costs. We recognize restructuring obligations and liabilities for other exit and disposal activities at fair value in the period the liability is incurred. The process of measuring fair value and recognizing the associated liabilities is subjective and requires significant judgment. For our non-cancelable lease obligations, we record the obligation when we terminate the contract in accordance with the contract terms or when we cease using the right conveyed by the contract. Our employee severance costs are expensed on the date we notify the employee, unless the employee must provide future service, in which case the benefits are expensed over the future service period.

We generally estimate the fair value of restructuring obligations using significant unobservable inputs (Level 3) based on the best available information. For non-cancelable lease obligations, the fair value estimate is based on the contractual lease costs over the remaining terms of the leases, partially offset by estimated future sublease rental income. Our estimate of the amount and timing of sublease rental income considers subleases we 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 sublease agreements.

Changes to restructuring obligations in periods subsequent to the initial fair value measurement are not measured at fair value. We record a cumulative adjustment resulting from changes in the estimated timing or amount of cash flows associated with restructuring obligations in the period of change using the same discount rate that was initially used to measure the obligation’s fair value. Changes in restructuring obligations resulting from the passage of time are recorded as accretion expense. The adjustments to restructuring obligations, including accretion expense, are included in restructuring and other charges on our Consolidated Statements of Income. Refer to Note 2, Restructuring and Other Charges.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loss Contingencies

We are subject to various claims and contingencies including those related to regulation, litigation, business transactions, employee-related matters and taxes, among others. When we become aware of a claim or potential claim, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount of the loss or range of loss can be reasonably estimated, we record a liability for the loss. The liability recorded includes probable and estimable legal costs incurred to date and future legal costs to the point in the legal matter where we believe a conclusion to the matter will be reached. The liability excludes any anticipated loss recoveries from third parties such as insurers, which we record as a receivable if we determine recovery is probable. If the loss is not probable or the amount of the loss or range of loss cannot be reasonably estimated, we disclose the claim if the likelihood of a potential loss is reasonably possible and the amount of the potential loss could be material. For matters where no loss contingency is recorded, we expense legal fees as incurred. The assessment of the likelihood of a potential loss and the estimation of the amount of a loss or range of loss are subjective and require judgment. Refer to Note 16, Commitments and Contingencies.

Share-Based Compensation

Our outstanding share-based awards principally consist of restricted stock units, performance share awards and stock options, and restricted stock units represent the majority of our share-based compensation expense in recent years. We measure and recognize compensation expense for all share-based awards based on their estimated fair values on the grant date. We record compensation expense, net of forfeitures, for all share-based awards over the requisite service period using the straight-line method for awards with only a service condition, and the graded vesting attribution method for awards with service and performance conditions.

For share-based awards with performance conditions, we measure the fair value of such awards as of the grant date and record expense for our estimate of the number of shares expected to vest. Our estimate of the number of shares that will vest is based on our determination of the probable outcome of the performance condition, which may require considerable judgment. We record a cumulative adjustment to share-based compensation expense in periods that we change our estimate of the number of shares expected to vest. Additionally, we ultimately adjust the expense recognized to reflect the actual vested shares following the resolution of the performance conditions.

We estimate expected forfeitures of share-based awards at the grant date and recognize expense only for those awards expected to vest. We estimate our forfeiture rate based on several factors including historical forfeiture activity, expected future employee turnover, and other qualitative factors. We ultimately adjust this forfeiture assumption to actual forfeitures. Therefore, changes in the forfeiture assumptions do not impact the total amount of expense ultimately recognized over the requisite service period. Rather, different forfeiture assumptions only impact the timing of expense recognition over the requisite service period.

We typically use the Black-Scholes-Merton option pricing model to estimate the fair value of stock options. The Black-Scholes-Merton option pricing model requires us to estimate key assumptions based on both historical information and management judgment regarding market factors and trends. The following represents our key weighted average assumptions for stock options granted in the respective fiscal years:

	Year Ended August 31,
	2014			2013			2012
Weighted average fair value	$	10.24		$	5.84		$	14.10
Expected volatility	44.3		%	44.4		%	46.6		%
Expected term	4.5			3.4			4.3
Risk-free interest rate	1.4		%	0.7		%	0.6		%
Dividend yield	0.0		%	0.0		%	0.0		%

We estimate expected volatility based on a weighted average of our historical volatility and the implied volatility of long-lived call options. We estimate the expected term of our stock options based primarily on the vesting period of the awards and historical exercise behavior. For the risk-free interest rate, we use the U.S. constant maturity treasury rates interpolated between the years commensurate with the expected life assumptions. Our dividend yield assumption considers that we have not historically paid dividends and we have no current plan to pay dividends in the near-term.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

We are subject to the income tax laws of the U.S. and the foreign jurisdictions in which we have significant business operations. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. As a result, significant judgments and interpretations are required in determining our provision for income taxes and evaluating our uncertain tax positions.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the new rate is enacted. We record a valuation allowance to reduce deferred tax assets to the amount that we believe is more likely than not to be realized.

We have not provided deferred taxes on unremitted earnings attributable to international subsidiaries that have been considered permanently reinvested. As of August 31, 2014, the earnings from these operations are not significant, but they are expected to increase in the future due to our focus on international expansion, which includes two acquisitions by Apollo Global during fiscal year 2014.

We evaluate and account for uncertain tax positions using a two-step approach. Recognition (step one) occurs when we conclude that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when we subsequently determine that a tax position no longer meets the more likely than not threshold of being sustained. We classify interest and penalties accrued in connection with unrecognized tax benefits as income tax expense on our Consolidated Statements of Income. Our total unrecognized tax benefits, excluding interest and penalties, were $18.4 million and $44.1 million as of August 31, 2014 and 2013, respectively. Refer to Note 12, Income Taxes.

Marketing Costs

We expense marketing costs, the substantial majority of which represents advertising, as incurred.

Earnings per Share

Our outstanding shares consist of Apollo Class A and Class B common stock issued, net of shares held in treasury. 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. Basic income per share is calculated using the weighted average number of Class A and Class B common shares outstanding during the period.

Diluted income per share is calculated similarly except that it includes the dilutive effect of share-based awards under our stock compensation plans by applying the treasury stock method. Our share-based awards with performance conditions are contingently issuable and are included in the calculation of diluted income per share based on our evaluation of the performance criteria as of the end of the respective period. The amount of any tax benefit to be credited to additional paid-in capital related to our share-based awards, and unrecognized share-based compensation expense is included when applying the treasury stock method in the computation of diluted income per share. Refer to Note 14, Earnings Per Share.

Foreign Currency Translation

We use the U.S. dollar as our reporting currency. The functional currency of our entities operating outside the U.S. is the currency of the primary economic environment in which the entity primarily generates and expends cash, which is generally the local currency. The assets and liabilities of these operations are translated to U.S. dollars using exchange rates in effect at the balance sheet dates. Income and expense items are translated monthly at the average exchange rate for that period. The resulting translation adjustments and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are included in shareholders’ equity as a component of accumulated other comprehensive loss, noncontrolling interests or redeemable noncontrolling interests, as applicable. We report gains and losses from foreign exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from foreign currency transactions in other (loss) income, net on our Consolidated Statements of Income. These items represented a net $1.0 million loss, net $0.2 million loss and net $0.5 million gain in fiscal years 2014, 2013 and 2012, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value

The carrying amount of financial assets and liabilities reported on our Consolidated Balance Sheets, including accounts receivable and accounts payable, approximate fair value because of the short-term nature of these financial instruments.

For fair value measurements of assets and liabilities that are recognized or disclosed at fair value, we consider fair value to be an exit price, which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. We use valuation techniques to determine fair value consistent with either the market approach, income approach and/or cost approach, and we prioritize the inputs used in our valuation techniques using the following three-tier fair value hierarchy:

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

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

• Level 3 - Unobservable inputs that are supported by little or no market activity.

We categorize each of our fair value measurements for disclosure purposes in one of the above three levels based on the lowest level input that is significant to the fair value measurement in its entirety. In measuring fair value, our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. We use prices and inputs that are current as of the measurement date, including during periods of market volatility. Therefore, classification of inputs within the hierarchy may change from period to period depending upon the observability of those prices and inputs. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the fair value of certain assets and liabilities and their placement within the fair value hierarchy. Refer to Note 9, Fair Value Measurements.

Discontinued Operations

If we determine we will not have significant continuing involvement with components that are classified as held for sale or otherwise sold or disposed, the results of operations of these components are presented separately on our Consolidated Statements of Income as (loss) income from discontinued operations, net of tax, in the current and prior periods. The operating results of our discontinued operations only include revenues and costs directly attributable to discontinued operations. Refer to Note 3, Discontinued Operations.

Reclassifications

We reclassified the following during fiscal year 2014 for prior periods to conform to our current presentation:

• We began presenting share reissuances in the aggregate on our Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interests, which consists of reissuances attributable to our employee stock purchase plan and our equity compensation plans that were previously reported separately;

• We began presenting litigation charge (credit) as a component of the change in accrued and other liabilities on our Consolidated Statements of Cash Flows, which did not impact total cash provided by operating activities; and

• As discussed in Note 3, Discontinued Operations, we began presenting Institute for Professional Development’s operating results as discontinued operations on our Consolidated Statements of Income.

Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”(“ASU 2014-15”). The standard requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter, and early adoption is permitted. We do not expect to early adopt ASU 2014-15, which will be effective for us for our fiscal year ending August 31, 2017, and we do not believe the standard will have a material impact on our 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. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. Accordingly, the standard is effective for us on September 1, 2017

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using either a full retrospective or a modified retrospective approach. We are currently evaluating which transition approach to use and the impact that the standard will have on our financial statements.

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. ASU 2014-08 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2014, and early adoption is permitted. We do not expect to early adopt ASU 2014-08, which will be effective for us on September 1, 2015 and will apply to disposals that have not yet been reported in our financial statements as of the adoption date. Accordingly, the standard will not impact our previously reported disposals, and we will evaluate the impact of the standard on any disposals that occur after adoption.

Note 2. Restructuring and Other Charges

The U.S. higher education industry is experiencing unprecedented, rapidly developing changes that challenge many of the core principles underlying the industry. We are reengineering and simplifying our business processes and refining our educational delivery systems to improve the effectiveness of our services to students, and reducing the size of our services infrastructure and associated operating expenses to align with our reduced enrollment and revenue. We have incurred restructuring and other charges associated with these activities beginning in fiscal year 2011 as summarized below:

	Year Ended August 31,						Cumulative Costs as of August 31, 2014
($ in thousands)	2014		2013		2012
Lease and related costs, net	$	47,279	$	137,263	$	15,981	$	219,590
Severance and other employee separation costs	33,215		32,690		12,887		82,638
Other restructuring related costs	4,849		27,069		9,827		41,745
Restructuring and other charges	$	85,343	$	197,022	$	38,695	$	343,973

The following summarizes the restructuring and other charges in our segment reporting format:

	Year Ended August 31,						Cumulative Costs as of August 31, 2014
($ in thousands)	2014		2013		2012
University of Phoenix	$	61,899	$	158,757	$	20,002	$	263,571
Apollo Global	6,091		6,053		5,712		17,856
Other	17,353		32,212		12,981		62,546
Restructuring and other charges	$	85,343	$	197,022	$	38,695	$	343,973

The following details the changes in our restructuring liabilities by type of cost during fiscal years 2014 and 2013:

($ in thousands)	Lease and Related Costs, Net			Severance and Other Employee Separation Costs			Other Restructuring Related Costs			Total
Balance at August 31, 2012	$	26,024		$	2,998		$	1,411		$	30,433
Restructuring and other charges	137,263			32,690			27,069			197,022
Other(1)	(31,114		)	(405		)	(12,221		)	(43,740		)
Payments	(28,125		)	(27,660		)	(8,129		)	(63,914		)
Balance at August 31, 2013(2)	104,048			7,623			8,130			119,801
Restructuring and other charges	47,279			33,215			4,849			85,343
Other(1)	(3,251		)	(4,281		)	—			(7,532		)
Payments	(51,872		)	(30,870		)	(11,787		)	(94,529		)
Balance at August 31, 2014(2)	$	96,204		$	5,687		$	1,192		$	103,083

⁽¹⁾ Other for lease and related costs, net represents $7.6 million and $50.1 million of accelerated depreciation in fiscal years 2014 and 2013, respectively, partially offset by the release of certain associated liabilities such as deferred rent. Other for severance and other employee separation costs primarily represents share-based compensation.

⁽²⁾ The current portion of our restructuring liabilities was $43.3 million and $55.2 million as of August 31, 2014 and 2013, respectively. These balances are included in accrued and other current liabilities on our Consolidated Balance Sheets and the long-term portion is included in other long-term liabilities. The gross, undiscounted obligation associated with our restructuring liabilities as of August 31, 2014 was approximately $170 million, which principally represents non-cancelable leases that will be paid over the respective lease terms through fiscal year 2023.

• Lease and Related Costs, Net - Beginning in fiscal year 2011, University of Phoenix began rationalizing its administrative real estate facilities. In addition to continuing to rationalize its administrative facilities, University of Phoenix began closing 115 of its ground locations during fiscal year 2013. After these closures, the University operates 110 ground campus locations throughout the U.S. and Puerto Rico. However, the University continues to evaluate the extent, functionality and location of its ground facilities because of the rapidly evolving and transformational changes in higher education.

As of August 31, 2014, University of Phoenix has closed the substantial majority of the total square feet included in the above plan and has recorded $158.3 million of initial aggregate charges representing the estimated fair value of future contractual operating lease obligations. These charges were recorded in the periods we ceased using the respective facilities. 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%-6% 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 and subleases we 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 August 31, 2014, we have recorded adjustments to our initial lease obligation liabilities for interest accretion and immaterial adjustments for changes in estimated sublease income.

Lease and related costs, net also includes $7.6 million and $50.1 million of accelerated depreciation during fiscal years 2014 and 2013, respectively, associated with revising the useful lives of the fixed assets at the facilities we are closing through their expected closure dates. Prior to revising the useful lives, we perform a recoverability analysis for the facilities’ fixed assets by comparing the estimated undiscounted cash flows of the locations through their expected closure dates to the carrying amount of the locations’ fixed assets. Based on such analyses, we recorded no impairment charges during fiscal year 2014 and immaterial impairment charges during fiscal year 2013.

• Severance and Other Employee Separation Costs -Beginning in fiscal year 2011 and continuing through fiscal year 2014, we have implemented workforce reductions as we reengineer and simplify our business processes, refine our educational delivery systems and reduce our operating costs to align with our reduced enrollment and revenue. We incurred severance and other employee separation costs of $33.2 million, $32.7 million and $12.9 million in fiscal years 2014, 2013 and 2012, respectively. These costs are included in the reportable segments in which the respective personnel were employed.

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• Other Restructuring Related Costs - We incurred other restructuring related costs that principally include services from a consulting firm associated with our restructuring activities and fixed asset impairment charges related to software and equipment we are no longer using. The majority of our other restructuring related costs are included in “Other” in our segment reporting because they pertain to all areas of our business.

Because University of Phoenix has closed the substantial majority of the total square feet included in the above plan as of August 31, 2014, we do not expect to incur material charges related to the remaining square feet to be vacated under the above plan. However, we will incur interest accretion associated with the lease obligations in future periods, and we may incur material charges associated with future restructuring activities as we intend to continue our efforts to streamline operations and improve efficiency.

Note 3. Discontinued Operations

During the fourth quarter of fiscal year 2014, we sold the assets of our subsidiary Institute for Professional Development (“IPD”) for $4 million. IPD had insignificant assets and liabilities as of the date of sale and as a result, we realized an immaterial gain on sale during the fourth quarter of fiscal year 2014. We sold IPD because its business was no longer consistent with our long-term strategic objectives due to recent operating losses and limitations on our ability to further develop and expand the domestic business.

During fiscal year 2012, BPP completed the sale of its subsidiary Mander Portman Woodward (“MPW”), a U.K.-based secondary education institution for £54.8 million (equivalent to $85.3 million as of the date of sale). We realized a $26.7 million gain on the sale, net of transaction costs, in fiscal year 2012, with no tax expense associated with the gain because it was not taxable under U.K. tax law. The sale of MPW reflects our strategy to focus on the postsecondary education market.

We do not have significant continuing involvement with IPD or MPW after the respective sales. The operating results of the sold businesses and associated gains on sale are presented as discontinued operations on our Consolidated Statements of Income. We determined cash flows from our discontinued operations individually and in the aggregate are not material and are included with cash flows from continuing operations on our Consolidated Statements of Cash Flows. IPD was included in Other in our segment reporting and MPW was included in our Apollo Global reportable segment.

The following summarizes the operating results for our discontinued operations for the respective periods, which are presented in (loss) income from discontinued operations, net of tax on our Consolidated Statements of Income:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Net revenue	$	22,901		$	45,386		$	84,356
Gain on sale	809			—			26,678
Costs and other	(35,163		)	(52,364		)	(74,772		)
(Loss) income from discontinued operations before income taxes	(11,453		)	(6,978		)	36,262
Benefit from (provision for) income taxes(1)	4,835			2,433			(2,763		)
(Loss) income from discontinued operations, net of tax	(6,618		)	(4,545		)	33,499
Income from discontinued operations, net of tax, attributable to noncontrolling interests(2)	—			—			(4,871		)
(Loss) income from discontinued operations, net of tax, attributable to Apollo	$	(6,618	)	$	(4,545	)	$	28,628

⁽¹⁾ There was no tax expense associated with the gain on sale of MPW as discussed above.

⁽²⁾ The noncontrolling interest represents the portion of MPW’s operating results attributable to Apollo Global’s former noncontrolling shareholder.

The operating results of our discontinued operations only include revenues and costs directly attributable to the discontinued operations. Accordingly, no interest expense or general corporate overhead have been allocated to our discontinued operations. IPD and MPW did not meet the held for sale criteria until the respective periods they were sold.

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Note 4. Acquisitions

Fiscal Year 2014 Acquisitions

On May 20, 2014, Apollo Global acquired an 81% consolidated interest in Milpark Education, a provider of education and training to adult learners in South Africa, for approximately ZAR 265 million (approximated $26 million on the transaction date). This acquisition, along with the Open Colleges acquisition described below, provides access to new markets and supports our strategy to diversify and expand our global operations.

On December 20, 2013, Apollo Global acquired 70% of the outstanding shares of Open Colleges, a provider of education and training to adult learners in Australia. We paid A$110.3 million (equivalent to $98.1 million on the transaction date), plus contingent consideration of up to A$52.5 million (equivalent to $49.0 million as of August 31, 2014) that was principally based on Open Colleges’ operating results for its fiscal year ended June 30, 2014 as defined in the acquisition agreement. On the acquisition date, we estimated the fair value of the contingent consideration to be $21.4 million using a discounted cash flow valuation method encompassing significant unobservable inputs. The inputs included estimated operating results for the performance period, probability weightings assigned to the operating results scenarios and the discount rate applied. Based on Open Colleges’ operating results for the performance period, we paid A$37.8 million (equivalent to $35.2 million as of August 31, 2014) in the first quarter of fiscal year 2015 to settle the contingent consideration. For further discussion of the contingent consideration, refer to Note 9, Fair Value Measurements.

We also have the option to buy the remaining noncontrolling interests associated with the above acquisitions, and the noncontrolling shareholders have the option to sell their shares to us. The options are exercisable in the third quarter of our fiscal year 2016 for Milpark Education and in early calendar 2017 for Open Colleges, or earlier in limited circumstances for both acquisitions. The price for the options is based on a formula specified at the respective acquisition dates and is principally based on a multiple of the respective acquired entity’s operating results as defined in the acquisition agreements. There is no minimum or maximum price for these options. Since the options are embedded in the shares owned by the respective noncontrolling shareholders and the shareholders have the option to redeem their shares, we have classified both of the noncontrolling interests as redeemable equity on our Consolidated Balance Sheets. Refer to Note 13, Shareholders’ Equity and Redeemable Noncontrolling Interests.

We incurred transaction costs of $0.7 million and $3.6 million for the Milpark Education and Open Colleges acquisitions, respectively, and these costs are included in contingent consideration charges and acquisition costs on our Consolidated Statements of Income. We accounted for the acquisitions as business combinations and allocated the purchase price to the assets acquired and liabilities assumed at fair value as summarized below:

	Milpark Education				Open Colleges
	Purchase Price Allocation ($ in thousands)			Weighted Average Useful Life (Years)	Purchase Price Allocation ($ in thousands)			Weighted Average Useful Life (Years)
Net working capital deficit(1)	$	(307	)		$	(10,979	)
Property and equipment	518				2,684
Intangibles:
Course designations	—				20,652			5.0
Trademarks	5,778			Indefinite	17,919			10.0
Course curriculum	1,203			2.0	15,790			4.0
Customer relationships	2,149			2.5	5,238			1.0
Accreditation	1,270			Indefinite	976			4.0
Goodwill	22,227				127,656
Deferred taxes, net(1)	(2,818		)		(9,279		)
Total assets acquired and liabilities assumed	30,020				170,657
Less: Fair value of redeemable noncontrolling interests	(2,669		)		(51,197		)
Total fair value of consideration transferred	27,351				119,460
Less: Fair value of contingent consideration	—				(21,371		)
Less: Cash acquired	(2,834		)		(3,152		)
Cash paid for acquisition, net of cash acquired	$	24,517			$	94,937

⁽¹⁾ Net working capital deficit and deferred taxes, net include approximately $6 million and $33 million of assumed liabilities related to the Milpark Education and Open Colleges acquisitions, respectively.

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We determined the fair value of assets acquired, liabilities assumed and the redeemable noncontrolling interests 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 course designations and trademarks for both acquisitions and the course curriculum for Open Colleges 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 remaining intangibles were valued using the excess earnings method, cost savings method, or replacement cost approach.

• Deferred revenue - Deferred revenue is included in net working capital deficit in the above table. 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.

• Other assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.

• Redeemable noncontrolling interests - We estimated the fair value of the redeemable noncontrolling interests principally as the noncontrolling ownership percentage of the implied fair value of each acquired entity as a whole. We reduced the fair value of the Milpark Education noncontrolling interest for certain discounts including lack of control. Based on the terms of the Open Colleges acquisition, including the structure of the redemption options held by the noncontrolling shareholders and our future operating plans for the entity, we did not apply a discount to the fair value of the noncontrolling interest.

We recorded $22.2 million and $127.7 million of goodwill as a result of the Milpark Education and Open Colleges acquisitions, respectively, both of which are not expected to be deductible for tax purposes. The goodwill for both acquisitions is principally attributable to the future earnings potential associated with student 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 for both reporting units.

We assigned an indefinite useful life to the acquired Milpark Education trademark and accreditation 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, as applicable, we intend to renew the intangible and renewal can be accomplished at little cost. We determined all of the other acquired intangibles are finite-lived and we are amortizing them on either a straight-line or an accelerated basis that reflects 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 2.3 years and 5.9 years for Milpark Education and Open Colleges, respectively. Refer to Note 8, Goodwill and Intangibles, for the estimated future amortization of our finite-lived intangibles.

The operating results of Milpark Education and Open Colleges are included in our consolidated financial statements from the date of each respective acquisition. 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, both individually and in the aggregate, to our consolidated results of operations.

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Fiscal Year 2012 Acquisition

On September 12, 2011, we acquired all of the outstanding stock of Carnegie Learning, a publisher of research-based math curricula and adaptive learning software for a cash purchase price of $75.0 million. We accounted for the Carnegie Learning acquisition as a business combination and Carnegie Learning’s operating results are included in our consolidated financial statements from the date of acquisition. We have not provided pro forma information or the revenue and operating results of Carnegie Learning because its results of operations are not significant to our consolidated results of operations.

The acquisition purchase price allocation is summarized below:

($ in thousands)
Tangible assets (net of acquired liabilities)	$	(10,894	)
Finite-lived intangibles	37,000
Indefinite-lived intangibles	14,100
Goodwill	34,794
Allocated purchase price	75,000
Less: Cash acquired	(1,264		)
Acquisition, net of cash acquired	$	73,736

In a separate transaction completed on the same date, we acquired related technology from Carnegie Mellon University for $21.5 million payable over a 10-year period. We accounted for the technology acquired as an asset purchase. Accordingly, we recorded a $14.4 million asset and corresponding liability representing the present value of the future cash payments on the acquisition date using our incremental borrowing rate. The asset is included in intangible assets, net on our Consolidated Balance Sheets and is being amortized on a straight-line basis over a five-year useful life. The liability is included in debt on our Consolidated Balance Sheets and is being accreted over the 10-year period, with the accretion recorded in interest expense on our Consolidated Statements of Income.

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Note 5. Financial Instruments

We invest our excess cash in a variety of marketable securities. During fiscal year 2014, we changed the designation of our marketable securities from held-to-maturity to available-for-sale primarily to provide liquidity flexibility, which represented a change in our intent to hold the securities until maturity. Accordingly, we recorded a $0.2 million gain through other comprehensive income to adjust the securities from amortized cost to fair value. Unrealized gains and losses have been insignificant for all periods presented principally because of the short term nature of our debt securities.

The following summarizes our cash and cash equivalents, restricted cash and cash equivalents and marketable securities by significant financial instrument category as of the respective periods:

	August 31, 2014
($ in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents(1)		Current Marketable Securities(2)		Noncurrent Marketable Securities(2)
Cash	$	1,295,395	$	—	$	—		$	1,295,395	$	1,295,395	$	—	$	—
Level 1:
Money market funds	132,508		—		—			132,508		132,508		—		—
Level 2:
Tax-exempt municipal bonds	106,543		155		(11		)	106,687		—		78,443		28,244
Corporate bonds	106,575		123		(52		)	106,646		—		56,837		49,809
Time deposits	50,100		—		—			50,100		25,041		25,059		—
Commercial paper	11,793		1		—			11,794		—		11,794		—
Other	19,155		1		(1		)	19,155		4		15,339		3,812
Level 3:
Auction-rate securities	5,946		—		—			5,946		—		—		5,946
Total	$	1,728,015	$	280	$	(64	)	$	1,728,231	$	1,452,948	$	187,472	$	87,811

	August 31, 2013
($ in thousands)	Cash and Cash Equivalents(1)		Current Marketable Securities(2)		Noncurrent Marketable Securities(2)		Total Carrying Value		Unrealized Gains		Unrealized Losses			Fair Value
Cash	$	874,074	$	—	$	—	$	874,074	$	—	$	—		$	874,074
Level 1:
Money market funds	732,530		—		—		732,530		—		—			732,530
Level 2:
Tax-exempt municipal bonds	2,055		69,621		24,070		95,746		19		(54		)	95,711
Certificates of deposit	65,000		1,200		—		66,200		—		—			66,200
Corporate bonds	—		24,503		13,925		38,428		6		(40		)	38,394
Commercial paper	—		9,828		—		9,828		—		—			9,828
Other	—		657		—		657		—		—			657
Level 3:
Auction-rate securities	—		—		5,946		5,946
Total	$	1,673,659	$	105,809	$	43,941	$	1,823,409

⁽¹⁾ Cash and cash equivalents includes restricted cash and cash equivalents.

⁽²⁾ As described above, we changed the designation of our marketable securities to available-for-sale as of August 31, 2014 and they are reported at fair value. Our held-to-maturity securities at August 31, 2013 are recorded at amortized cost.

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We measure our marketable securities 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.

• Auction-rate securities - We use a discounted cash flow model encompassing Level 3 significant unobservable inputs such as estimated interest rates, credit spreads, timing and amount of cash flows, credit quality of the underlying securities and illiquidity considerations. There were no changes in the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during fiscal year 2014.

• All other securities - We use 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.

Substantially all of our marketable securities have maturities that occur within three years. We may sell certain of our available-for-sale 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.

Note 6. Accounts Receivable, Net

Accounts receivable, net consist of the following as of August 31:

($ in thousands)	2014			2013
Student accounts receivable	$	255,134		$	243,660
Less allowance for doubtful accounts	(50,145		)	(59,744		)
Net student accounts receivable	204,989			183,916
Other receivables	20,409			31,485
Total accounts receivable, net	$	225,398		$	215,401

Student accounts receivable is composed primarily of amounts due related to tuition and educational services. Our student receivables are not collateralized; however, credit risk is reduced as the amount owed by any individual student is small relative to the total student receivables and the customer base is geographically diverse.

The following summarizes the activity in allowance for doubtful accounts for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Beginning allowance for doubtful accounts	$	59,744		$	107,230		$	128,897
Provision for uncollectible accounts receivable	53,819			83,798			146,742
Write-offs, net of recoveries	(63,418		)	(131,284		)	(168,409		)
Ending allowance for doubtful accounts	$	50,145		$	59,744		$	107,230

Note 7. Property and Equipment, Net

Property and equipment, net consist of the following as of August 31:

($ in thousands)	2014			2013
Land	$	30,540		$	30,562
Buildings	62,970			62,852
Furniture and equipment	388,397			428,441
Leasehold improvements (includes tenant improvement allowances)	357,645			353,548
Software	139,376			128,746
Internally developed software	139,325			121,137
Construction in progress	40,502			52,097
Gross property and equipment	1,158,755			1,177,383
Accumulated depreciation and amortization	(723,022		)	(704,769		)
Property and equipment, net	$	435,733		$	472,614

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The following amounts, which are included in the above table, represent capital leases as of August 31:

($ in thousands)	2014			2013
Buildings and land	$	4,510		$	5,307
Furniture and equipment	48,024			53,826
Software	14,264			14,264
Accumulated depreciation and amortization	(42,401		)	(33,301		)
Capital lease assets, net	$	24,397		$	40,096

Depreciation expense was $135.8 million, $196.7 million and $158.0 million for fiscal years 2014, 2013 and 2012, respectively. For fiscal years 2014 and 2013, depreciation expense includes $7.6 million and $50.1 million, respectively, of accelerated depreciation associated with our restructuring activities that is included in restructuring and other charges on our Consolidated Statements of Income. The remaining depreciation expense in fiscal year 2014 and 2013 and all of the depreciation expense in fiscal year 2012 is included in depreciation and amortization on our Consolidated Statements of Income. Depreciation expense also includes internally developed software depreciation of $20.1 million, $12.1 million and $10.1 million for fiscal years 2014, 2013 and 2012, respectively.

During fiscal year 2013, we recorded $20.4 million of fixed asset impairment charges, which includes $12.2 million resulting from our restructuring activities. Refer to Note 2, Restructuring and Other Charges.

Note 8. Goodwill and Intangibles

The following details changes in the carrying amount of our goodwill by reportable segment during fiscal years 2014 and 2013:

	University of Phoenix		Apollo Global		Other		Total
($ in thousands)
Goodwill as of August 31, 2012	$	71,812	$	14,642	$	16,891	$	103,345
Currency translation adjustment	—		275		—		275
Goodwill as of August 31, 2013	71,812		14,917		16,891		103,620
Acquisitions(1)	—		149,883		—		149,883
Currency translation adjustment	—		6,398		—		6,398
Goodwill as of August 31, 2014	$	71,812	$	171,198	$	16,891	$	259,901

⁽¹⁾ Represents goodwill acquired in the Milpark Education and Open Colleges acquisitions. Refer to Note 4, Acquisitions.

The following presents the components of the net carrying amount of our goodwill by reportable segment as of August 31, 2014 and 2013:

	University of Phoenix		Apollo Global(1)			Other			Total
($ in thousands)
Gross carrying amount(1)	$	71,812	$	177,068		$	37,096		$	285,976
Accumulated impairments(1)	—		(8,712		)	(20,205		)	(28,917		)
Foreign currency translation	—		2,842			—			2,842
Net carrying amount at August 31, 2014	$	71,812	$	171,198		$	16,891		$	259,901

	University of Phoenix		Apollo Global(1)			Other			Total
($ in thousands)
Gross carrying amount(1)	$	71,812	$	27,185		$	37,096		$	136,093
Accumulated impairments(1)	—		(8,712		)	(20,205		)	(28,917		)
Foreign currency translation	—		(3,556		)	—			(3,556		)
Net carrying amount at August 31, 2013	$	71,812	$	14,917		$	16,891		$	103,620

⁽¹⁾ We have also recorded $366 million of accumulated impairments associated with our BPP and UNIACC reporting units, both of which did not have any goodwill as of August 31, 2014 and 2013.

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Intangible assets consist of the following as of August 31:

	2014										2013
($ 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
Software and technology	$	42,389	$	(25,151	)	$	—		$	17,238	$	42,389	$	(16,673	)	$	—		$	25,716
Accreditations and designations(1)	21,628		(3,015		)	1,000			19,613		—		—			—			—
Trademarks(1)	17,919		(1,238		)	907			17,588		—		—			—			—
Curriculum(1)	16,993		(2,933		)	826			14,886		—		—			—			—
Student and customer relationships(1)	15,934		(9,780		)	(1,161		)	4,993		12,026		(7,727		)	(1,363		)	2,936
Other(1)	20,891		(19,909		)	(611		)	371		20,891		(18,706		)	(777		)	1,408
Total finite-lived intangibles	135,754		(62,026		)	961			74,689		75,306		(43,106		)	(2,140		)	30,060
Trademarks(1)	106,514		—			(68		)	106,446		100,736		—			(5,347		)	95,389
Accreditations and designations(1)	8,530		—			(300		)	8,230		7,260		—			(517		)	6,743
Total indefinite-lived intangibles	115,044		—			(368		)	114,676		107,996		—			(5,864		)	102,132
Total intangible assets, net	$	250,798	$	(62,026	)	$	593		$	189,365	$	183,302	$	(43,106	)	$	(8,004	)	$	132,192

⁽¹⁾ We acquired certain intangibles during fiscal year 2014 as a result of our acquisitions. Refer to Note 4, Acquisitions.

Finite-lived intangibles are amortized on either a straight-line basis or using an accelerated method to reflect the pattern in which the benefits of the asset are consumed. Amortization expense for intangibles for fiscal years 2014, 2013 and 2012 was $22.4 million, $15.1 million and $20.2 million, respectively. The weighted average original useful life of our finite-lived intangibles as of August 31, 2014 was 5.8 years and the estimated future amortization expense of our finite-lived intangibles is as follows:

($ in thousands)	2015		2016		2017		2018		2019		Thereafter		Total
University of Phoenix	$	8,478	$	8,478	$	282	$	—	$	—	$	—	$	17,238
Apollo Global	14,765		11,923		10,793		7,689		3,327		8,166		56,663
Other	764		24		—		—		—		—		788
Total estimated future amortization expense(1)	$	24,007	$	20,425	$	11,075	$	7,689	$	3,327	$	8,166	$	74,689

⁽¹⁾ The estimated future amortization expense may vary as acquisitions and dispositions occur in the future and as a result of foreign currency translation adjustments.

We completed our fiscal year 2014 annual goodwill and indefinite-lived intangibles impairment tests, as applicable, for our reporting units on the following annual test dates and determined there was no impairment:

• May 31: University of Phoenix, ULA, UNIACC, Carnegie Learning and Western International University;

• July 1: Open Colleges, BPP and Milpark Education; and

• August 31: College for Financial Planning.

During fiscal year 2012, UNIACC was advised by the National Accreditation Commission of Chile that its institutional accreditation would not be renewed and therefore had lapsed. The loss of accreditation reduced new enrollment in UNIACC’s degree programs. Accordingly, we revised our cash flow estimates and UNIACC’s $11.9 million of goodwill and $4.9 million of its intangibles were impaired. We did not record an income tax benefit associated with these charges as UNIACC’s goodwill and other intangibles are not deductible for tax purposes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. 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 Consolidated Balance Sheets, consist of the following as of August 31, 2014 and 2013:

			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 August 31, 2014	$	41,893	$	—	$	—	$	41,893
Contingent consideration as of August 31, 2013	$	5,277	$	—	$	—	$	5,277

Our contingent consideration liabilities are classified within Level 3 and 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:

• Open Colleges - As a result of our acquisition of Open Colleges during the second quarter of fiscal year 2014, we had contingent consideration that was principally based on Open Colleges’ operating results for its fiscal year ended June 30, 2014 as defined in the acquisition agreement. Based on information available as of the acquisition date, we initially estimated the fair value of the contingent consideration to be $21.4 million using a discounted cash flow valuation method encompassing significant unobservable inputs. The inputs included estimated operating results for the performance period, probability weightings assigned to the operating results scenarios and the discount rate applied. Based on Open Colleges’ operating results for the performance period, we paid A$37.8 million (equivalent to $35.2 million as of August 31, 2014) in the first quarter of fiscal year 2015 to settle the contingent consideration, which also represents the fair value of the liability as of August 31, 2014. The increase in fair value of the contingent consideration was included in Contingent consideration charges and acquisition costs on our Consolidated Statements of Income during fiscal year 2014.

• 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 August 31, 2014, the estimated fair value for this contingent consideration was $6.7 million.

We did not change our valuation techniques associated with recurring fair value measurements from prior periods. 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:

	Year Ended August 31,
($ in thousands)	2014		2013
Beginning balance	$	5,277	$	—
Initial contingent consideration at fair value	21,371		6,000
Change in fair value included in net income	13,907		(723		)
Currency translation adjustment	1,338		—
Ending balance	$	41,893	$	5,277

Liabilities measured at fair value on a nonrecurring basis during fiscal years 2014 and 2013, all of which are included in other liabilities on our Consolidated Balance Sheets, consist of the following:

			Fair Value Measurements at Measurement Dates Using
($ in thousands)	Fair Value at Measurement Dates		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses for Respective Fiscal Years
Fiscal year 2014 restructuring obligations	$	34,701	$	—	$	—	$	34,701	$	34,701
Fiscal year 2013 restructuring obligations	$	92,151	$	—	$	—	$	92,151	$	92,151

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During fiscal years 2014 and 2013, we recorded $34.7 million and $92.2 million, respectively, of aggregate initial lease and other contract obligations at fair value associated with our restructuring activities. We recorded obligation liabilities on the dates we ceased using the right conveyed by the respective contracts, and we measured the liabilities at fair value using Level 3 inputs included in the valuation method. Refer to Note 2, Restructuring and Other Charges.

Note 10. Accrued and Other Liabilities

Accrued and other current liabilities consist of the following as of August 31:

($ in thousands)	2014		2013
Salaries, wages and benefits	$	125,165	$	135,553
Restructuring obligations	43,339		55,191
Contingent consideration	35,239		—
Accrued advertising	33,853		45,850
Accrued legal and other professional obligations	33,651		31,310
Student refunds, grants and scholarships	20,072		7,180
Deferred rent and other lease liabilities	12,384		14,001
Curriculum materials	12,069		10,764
Other	47,835		46,857
Total accrued and other current liabilities	$	363,607	$	346,706

Other long-term liabilities consist of the following as of August 31:

($ in thousands)	2014		2013
Restructuring obligations	$	59,744	$	64,610
Deferred rent and other lease liabilities	57,788		67,641
Deferred revenue	51,831		21,080
Deferred gains on sale-leasebacks	21,641		22,894
Uncertain tax positions	9,770		33,637
Other	33,168		23,580
Total other long-term liabilities	$	233,942	$	233,442

Note 11. Debt

Debt and short-term borrowings consist of the following as of August 31:

($ in thousands)	2014			2013
Revolving Credit Facility, see terms below	$	585,000		$	605,000
Capital lease obligations	32,806			49,628
Other, see terms below	39,290			37,426
Total debt	657,096			692,054
Less short-term borrowings and current portion of long-term debt	(609,506		)	(628,050		)
Long-term debt	$	47,590		$	64,004

Aggregate debt maturities for each of the years ended August 31 are as follows:

($ in thousands)	2015		2016		2017		2018		2019		Thereafter		Total
Debt maturities	$	609,506	$	28,080	$	6,430	$	3,684	$	3,551	$	5,845	$	657,096

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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 borrowed $585.0 million and $605.0 million under the Revolving Credit Facility as of August 31, 2014 and 2013, respectively. We also had approximately $24 million and $14 million of outstanding letters of credit under the Revolving Credit Facility as of the respective dates. We repaid the entire amount borrowed under the Revolving Credit Facility subsequent to the respective fiscal year ends. We have classified these borrowings as short-term borrowings and the current portion of long-term debt on our Consolidated Balance Sheets because they were repaid subsequent to the respective fiscal year-ends.

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 LIBOR + 125 to 185 basis points. The weighted average interest rate on outstanding short-term borrowings under the Revolving Credit Facility at both August 31, 2014 and 2013 was 3.5%.

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 August 31, 2014 and 2013.

Other debt principally includes debt at subsidiaries of Apollo Global and the present value of an obligation payable over a 10-year period associated with our purchase of technology in fiscal year 2012. The weighted average interest rate on our outstanding other debt at August 31, 2014 and 2013 was 5.8% and 5.3%, 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 12. Income Taxes

Geographic sources of income (loss) from continuing operations before income taxes are as follows for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
United States	$	384,146		$	468,738		$	727,965
Foreign	(51,406		)	(38,771		)	(61,679		)
Income from continuing operations before income taxes	$	332,740		$	429,967		$	666,286

Income tax (expense) benefit consists of the following for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Current:
U.S. Federal	$	(114,997	)	$	(174,020	)	$	(212,113	)
State and local	(17,664		)	(30,250		)	(46,676		)
Foreign	(2,575		)	(1,704		)	(2,140		)
Total current	(135,236		)	(205,974		)	(260,929		)
Deferred:
U.S. Federal	(3,154		)	20,420			(28,999		)
State and local	240			3,132			(1,039		)
Foreign	16,826			5,965			8,188
Total deferred	13,912			29,517			(21,850		)
Provision for income taxes	$	(121,324	)	$	(176,457	)	$	(282,779	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision for income taxes differs from the tax computed using the statutory U.S. federal income tax rate as a result of the following items for the respective periods:

	Year Ended August 31,
	2014		2013		2012
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	4.8	%	4.3	%	4.2	%
Foreign taxes	0.9	%	2.2	%	1.4	%
Goodwill impairments	—	%	—	%	0.9	%
Internal Revenue Service settlement	(3.1	)%	—	%	—	%
Mexico tax reform	(0.8	)%	—	%	—	%
Contingent consideration	1.0	%	—	%	—	%
Other, net	(1.3	)%	(0.5	)%	0.9	%
Effective income tax rate	36.5	%	41.0	%	42.4	%

Deferred tax assets and liabilities consist of the following as of August 31:

($ in thousands)	2014			2013
Deferred tax assets:
Allowance for doubtful accounts	$	13,100		$	16,479
Leasing transactions	74,528			86,946
Net operating loss carry-forward	16,938			25,055
Share-based compensation	23,796			35,123
Deferred revenue	18,539			4,698
Other	62,436			47,231
Gross deferred tax assets	209,337			215,532
Valuation allowance	(21,048		)	(17,998		)
Deferred tax assets, net of valuation allowance	188,289			197,534
Deferred tax liabilities:
Fixed assets	36,149			42,485
Intangibles	47,344			35,109
Other	6,264			7,929
Gross deferred tax liabilities	89,757			85,523
Net deferred income taxes	$	98,532		$	112,011

The net operating loss carry-forward in the above table represents $23.2 million of U.S. net operating losses that will begin to expire August 31, 2028. We also have $59.6 million of net operating losses in various foreign jurisdictions that do not expire.

As of August 31, 2014 and 2013, we have recorded a valuation allowance related to a portion of our net operating losses and other deferred tax assets of certain of our foreign subsidiaries because it is more likely than not that these deferred tax assets will not be utilized. We have concluded that it is more likely than not that we will ultimately realize the full benefit of our other deferred tax assets principally based on our history of profitable operations.

We have not provided deferred taxes on unremitted earnings attributable to international subsidiaries that have been considered permanently reinvested. As of August 31, 2014, the earnings from these operations are not significant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Uncertain Tax Positions

The following summarizes the activity in our unrecognized tax benefits, excluding interest and penalties, for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Beginning unrecognized tax benefits	$	44,057		$	32,207		$	25,811
Increases for tax positions taken in the current year	—			13,095			7,708
Increases for tax positions taken in prior years	2,214			5,953			813
Decreases for settlements with tax authorities	(7,184		)	(197		)	(733		)
Decreases for tax positions of prior years(1)	(10,541		)	(2,635		)	—
Decreases due to lapse of applicable statutes of limitations	(10,148		)	(4,366		)	(1,392		)
Ending unrecognized tax benefits	$	18,398		$	44,057		$	32,207

⁽¹⁾ Fiscal year 2014 includes the $10.2 million tax benefit discussed in Income Tax Audits below.

Our liabilities for unrecognized tax benefits are primarily included in accrued and other current liabilities and other long-term liabilities on our Consolidated Balance Sheets, which also includes $2.2 million and $4.2 million of interest and penalties associated with our unrecognized tax benefits as of August 31, 2014 and 2013, respectively.

We classify interest and penalties related to uncertain tax positions as a component of provision for income taxes on our Consolidated Statements of Income. We recognized a $1.9 million benefit in fiscal year 2014, and expense of $0.1 million and $0.4 million in fiscal years 2013 and 2012, respectively, related to interest and penalties.

Although we cannot predict the timing of resolution with taxing authorities, if any, we believe it is reasonably possible that $13.8 million of our unrecognized tax benefits will be reduced in the next twelve months due to settlement with tax authorities or expiration of the applicable statute of limitations. These unrecognized tax benefits primarily relate to apportionment of service revenues for corporate income tax purposes and deductibility of certain costs of our foreign subsidiaries.

As of August 31, 2014, $10.0 million of our total unrecognized tax benefits would favorably affect our effective tax rate if recognized. If amounts accrued are less than amounts ultimately assessed by the taxing authorities, we would record additional income tax expense.

Income Tax Audits

Our U.S. federal income tax return for fiscal year 2013 is currently open for review by the Internal Revenue Service (“IRS”). During fiscal year 2014, the IRS completed its review of our federal income tax return for fiscal year 2012. In addition, we are participating in the IRS’s Compliance Assurance Process for fiscal years 2014 and 2015, 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 U.S. federal income tax returns.

In fiscal year 2014, we settled a matter with the IRS related to the deductibility of certain costs for our foreign subsidiaries in fiscal years 2011 through 2013, which resulted in a $10.2 million tax benefit during fiscal year 2014. In addition, our fiscal year 2011 federal income tax return was closed in connection with this settlement.

In addition to the IRS audits discussed above, 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 13. 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 $90.3 million remained available as of August 31, 2014. 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We also repurchase shares in connection with tax withholding requirements associated with the release of vested shares of restricted stock units, which do not fall under the repurchase program described above.

The following summarizes our share repurchase activity for the respective periods:

	Year Ended August 31,
(In thousands, except per share data)	2014		2013		2012
Share repurchases under share repurchase program:
Number of shares repurchased	5,363		—		19,117
Weighted average purchase price per share	$	29.78	$	—	$	41.82
Cost of share repurchases	$	159,684	$	—	$	799,506
Share repurchases related to vesting of restricted stock units:
Number of shares repurchased	471		475		303
Cost of share repurchases	$	13,025	$	9,537	$	12,407

Share Reissuances

We reissue our Class A common stock from our treasury stock as a result of the release of shares covered by vested restricted stock units, stock option exercises and purchases under our employee stock purchase plan. Share reissuances were as follows for the respective periods:

	Year Ended August 31,
(In thousands)	2014	2013	2012
Number of shares reissued	1,431	1,532	1,184

Purchase of Noncontrolling Interest in Apollo Global

During fiscal year 2013, we purchased the 14.4% noncontrolling ownership interest in Apollo Global. We paid $42.5 million cash, plus a contingent payment based on a portion of Apollo Global’s operating results through the fiscal years ending August 31, 2017. On the purchase date, we estimated the fair value of the contingent payment to be $6.0 million. Refer to Note 9, Fair Value Measurements, for further discussion of the valuation and subsequent changes in the estimated fair value. We accounted for the purchase as an equity transaction and the following details net income attributable to Apollo and transfers to noncontrolling interest during the respective periods:

	Year Ended August 31,
($ in thousands)	2014		2013			2012
Net income attributable to Apollo	$	209,304	$	248,526		$	422,678
Transfer to noncontrolling interest:
Decrease in equity for purchase of noncontrolling interest in Apollo Global(1)	—		(48,543		)	—
Change from net income attributable to Apollo and transfer to noncontrolling interest	$	209,304	$	199,983		$	422,678

⁽¹⁾ Represents the difference between the fair value of the consideration paid to purchase the noncontrolling ownership interest in Apollo Global and the carrying amount of the noncontrolling interest acquired, and an adjustment to accumulated other comprehensive loss to reflect the change in Apollo’s proportionate interest.

Redeemable Noncontrolling Interests

During fiscal year 2014, Apollo Global acquired an 81% consolidated interest in Milpark Education and 70% of the outstanding shares of Open Colleges. We also have the option to buy the remaining noncontrolling interests associated with these acquisitions, and the noncontrolling shareholders have the option to sell their shares to us. The options are exercisable in the third quarter of our fiscal year 2016 for Milpark Education and in early calendar year 2017 for Open Colleges, or earlier in limited circumstances for both acquisitions. The price for the options is based on a formula specified at the respective acquisition dates and is principally based on a multiple of the respective acquired entity’s operating results as defined in the acquisition agreements. There is no minimum or maximum price for these options. Since the options are embedded in the shares owned by the respective noncontrolling shareholders and the shareholders have the option to redeem their shares, we have classified both of the noncontrolling interests as redeemable equity on our Consolidated Balance Sheets.

Both of the redeemable noncontrolling interests are probable of becoming redeemable. Accordingly, we record both redeemable noncontrolling interests at the greater of the carrying value or the redemption value at the end of each reporting period. We

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

determine the redemption value using the formula specified at each respective acquisition date, and by assuming the end of each reporting period is the redemption date. We record redemption value adjustments through retained earnings.

Accumulated Other Comprehensive Loss

The following summarizes the components of accumulated other comprehensive loss at August 31:

($ in thousands)	2014			2013
Foreign currency translation losses	$	(26,919	)	$	(36,032	)
Unrealized loss on available-for-sale securities	(401		)	(531		)
Accumulated other comprehensive loss(1)	$	(27,320	)	$	(36,563	)

⁽¹⁾ Accumulated other comprehensive loss is net of insignificant taxes as of August 31, 2014 and 2013.

Note 14. Earnings Per Share

The components of basic and diluted earnings per share are as follows for the respective periods:

	Year Ended August 31,
(In thousands, except per share data)	2014		2013		2012
Numerator:
Net income attributable to Apollo (basic and diluted)	$	209,304	$	248,526	$	422,678
Denominator:
Basic weighted average shares outstanding	111,354		112,712		121,607
Dilutive effect of restricted stock units and performance share awards	1,116		573		746
Dilutive effect of stock options	140		—		4
Diluted weighted average shares outstanding	112,610		113,285		122,357
Basic income per share attributable to Apollo	$	1.88	$	2.20	$	3.48
Diluted income per share attributable to Apollo	$	1.86	$	2.19	$	3.45
Anti-dilutive securities excluded from diluted earnings per share calculation:
Anti-dilutive restricted stock units and performance share awards outstanding	39		1,449		15
Anti-dilutive stock options outstanding	2,532		7,040		8,785

Note 15. Stock and Savings Plans

401(k) Plan

We sponsor a 401(k) plan for eligible employees which provides them the opportunity to make pre-tax contributions subject to certain restrictions as set forth in the Internal Revenue Code. Upon a participating employee’s completion of one year of service and 1,000 hours worked, we will match, at our discretion, 30% of such employee’s contributions up to the lesser of 15% of their gross compensation or the maximum participant contribution permitted under the Internal Revenue Code. We are also permitted to make additional discretionary contributions for certain eligible employees. Our contributions were $22.9 million, $20.0 million and $13.6 million for fiscal years 2014, 2013 and 2012, respectively.

Employee Stock Purchase Plan

At our discretion, our Third Amended and Restated 1994 Employee Stock Purchase Plan allows eligible employees to purchase shares of our Class A common stock at quarterly intervals through periodic payroll deductions at a price per share equal to 95% of the fair market value on the purchase date. This plan is deemed to be non-compensatory, and accordingly, we do not recognize any share-based compensation expense for shares purchased under the plan.

Share-Based Awards

We currently have outstanding awards under our Amended and Restated 2000 Stock Incentive Plan (“Plan”). Under this Plan, we may grant non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock units, performance share awards (“PSAs”), and other share-based awards covering shares of our Class A common stock to officers, certain employees, and the non-employee members of our Board of Directors. In general, the awards granted under the Plan vest over periods ranging from one to four years and stock options have contractual terms of 10 years or less. Restricted stock units issued under the Plan

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may have both performance-vesting and service-vesting components or service-vesting only. PSAs have both performance-vesting and service-vesting components tied to a defined performance period. The majority of our restricted stock units and PSAs contain rights to receive dividends or dividend equivalents, but these rights are forfeitable and Apollo has not historically issued dividends.

Approximately 28.6 million shares of our Class A common stock have been reserved for issuance over the term of the Plan. The shares may be issued from treasury shares or from authorized but unissued shares of our Class A common stock. As of August 31, 2014, approximately 14.1 million authorized and unissued shares of our Class A common stock were available for issuance under the Plan, including the shares subject to outstanding equity awards.

Under the Plan, the exercise price for stock options may not be less than 100% of the fair market value of our Class A common stock on the date of the grant. The requisite service period for all awards is generally equal to the vesting period.

Restricted Stock Units and PSAs

We granted restricted stock units during fiscal years 2014, 2013 and 2012 with both service-vesting and performance-vesting conditions, and with only service vesting. The vesting period of the restricted stock units granted generally ranges from one to four years. We also granted PSAs during fiscal years 2014, 2013 and 2012 that vest based on performance and service vesting conditions. The level at which the performance condition is attained will determine the actual number of shares of our Class A common stock into which the PSAs will be converted. The conversion percentage generally ranges from 0% up to 300% of the target level based on the performance condition attainment. The award holder will vest in one-third of the shares of our Class A common stock into which their PSAs are so converted for each fiscal year the award holder remains employed during the three year performance period. However, the PSAs will immediately convert into fully-vested shares of our Class A common stock at target level or above upon certain changes in control or ownership. The shares of our Class A common stock into which the PSAs are converted will be issued upon the completion of the applicable performance period.

The following provides a summary of activity for our restricted stock units and PSAs (granted PSAs are assumed to convert into shares of our Class A common stock at the target level):

	Restricted Stock Units				Performance Share Awards(1)
	Number of Shares (in thousands)		Weighted Average Grant Date Fair Value		Number of Shares (in thousands)		Weighted Average Grant Date Fair Value
Nonvested at August 31, 2011	2,932		$	45.78	260		$	45.74
Granted	1,692		36.81		145		37.50
Vested and released	(905	)	46.97		—		—
Forfeited	(193	)	47.12		(6	)	44.89
Nonvested at August 31, 2012	3,526		$	41.10	399		$	42.76
Granted	2,301		20.10		47		19.80
Vested and released	(1,334	)	42.25		—		—
Forfeited	(527	)	39.99		(81	)	37.45
Nonvested at August 31, 2013	3,966		$	28.68	365		$	40.97
Granted	2,022		26.71		41		26.63
Vested and released	(1,353	)	33.38		—		—
Forfeited	(592	)	26.15		(93	)	38.35
Nonvested at August 31, 2014	4,043		$	26.49	313		$	39.88

⁽¹⁾ The vesting of PSAs is subject to the achievement of the specified performance goals and the number of common shares that will ultimately be issued is calculated by multiplying the number of performance shares by a payout percentage that generally ranges from 0% up to 300%.

As of August 31, 2014, we have $79.4 million and $1.7 million of total unrecognized share-based compensation cost, net of forfeitures, related to unvested restricted stock units and PSAs, respectively. These costs are expected to be recognized over a weighted average period of 2.9 years. The fair value of restricted stock units that vested during fiscal years 2014, 2013 and 2012 was $45.2 million, $56.4 million and $42.5 million, respectively.

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Stock Options

We have granted stock options during fiscal years 2014, 2013 and 2012 with a service vesting condition that generally ranges from one to four years. The following provides a summary of our stock option activity:

	Options Outstanding
	Number of Shares (in thousands)		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($)(1) (in thousands)
Balance at August 31, 2011	9,276		$	57.18
Granted	176		36.89
Exercised	(157	)	43.57
Forfeited, canceled or expired	(736	)	58.53
Balance at August 31, 2012	8,559		$	56.90
Granted	945		17.95
Exercised	—		—
Forfeited, canceled or expired	(5,381	)	57.69
Balance at August 31, 2013	4,123		$	46.94
Granted	713		26.70
Exercised	(5	)	19.62
Forfeited, canceled or expired	(1,327	)	60.07
Balance at August 31, 2014	3,504		$	37.89	3.06	$	9,926
Vested and expected to vest as of August 31, 2014	3,398		$	38.29	2.99	$	9,581
Exercisable as of August 31, 2014	2,186		$	45.74	1.98	$	4,585
Available for future grant as of August 31, 2014	5,361

⁽¹⁾ Aggregate intrinsic value represents the sum of the differences between our closing stock price of $27.77 on August 31, 2014 and the exercise prices of all of our options with an exercise price less than $27.77.

As of August 31, 2014, we have $10.1 million of total unrecognized share-based compensation cost, net of forfeitures, related to unvested stock options. These costs are expected to be recognized over a weighted average period of 2.6 years. The fair value of stock options that vested during fiscal years 2014, 2013 and 2012 was $7.3 million, $10.6 million, and $22.8 million, respectively.

The following summarizes information related to outstanding and exercisable options at August 31, 2014:

	Outstanding				Exercisable
Range of Exercise Prices	Number of Shares (in thousands)	Weighted Average Contractual Life Remaining (Years)	Weighted Average Exercise Price per Share		Number of Shares (in thousands)	Weighted Average Exercise Price per Share
$16.75	600	2.53	$	16.75	360	$	16.75
$19.62 to $25.79	361	4.91	$	20.54	81	$	20.11
$26.74	682	5.95	$	26.74	—	$	—
$33.12 to $42.27	778	2.27	$	40.29	699	$	40.57
$42.41 to $63.79	613	1.87	$	53.10	576	$	53.46
$65.26 to $91.20	468	1.01	$	70.08	468	$	70.08
$169.47	2	0.66	$	169.47	2	$	169.47
	3,504				2,186

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The following summarizes information related to stock options exercised during the respective periods:

	Year Ended August 31,
($ in thousands)	2014		2013		2012
Intrinsic value realized	$	79	$	—	$	1,498
Actual tax benefit realized by Apollo for tax deductions	$	30	$	—	$	573
Cash received by Apollo	$	101	$	—	$	6,754

Refer to Note 1, Nature of Operations and Significant Accounting Policies, for discussion of stock option valuation and related assumptions.

Share-based Compensation Expense

The following details share-based compensation expense for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Instructional and student advisory	$	10,727		$	20,060		$	27,731
Marketing	3,702			5,182			6,807
Admissions advisory	813			849			1,691
General and administrative	23,296			21,363			41,153
Restructuring and other charges	4,281			2,008			1,323
Share-based compensation expense	42,819			49,462			78,705
Tax effect of share-based compensation	(16,754		)	(18,986		)	(29,874		)
Share-based compensation expense, net of tax	$	26,065		$	30,476		$	48,831

Note 16. Commitments and Contingencies

Guarantees

We have agreed to indemnify our officers and directors for certain events or occurrences. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer liability insurance policies that mitigate our exposure and enable us to recover a portion of any future amounts paid. Based on the significant uncertainty associated with our pending as well as possible future litigation, settlements and other proceedings relative to our insurance policy coverage, the fair value of these indemnification agreements, if any, cannot be estimated.

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Lease Commitments

The following details our future minimum commitments for operating and capital leases as of August 31, 2014:

($ in thousands)	Capital Leases			Operating Leases(1)
2015	$	17,963		$	171,875
2016	10,957			149,902
2017	4,093			123,289
2018	947			103,134
2019	330			74,871
Thereafter	611			296,334
Total future minimum lease obligation(1), (2)	$	34,901		$	919,405
Less: imputed interest on capital leases	(2,095		)
Net present value of capital lease obligations	$	32,806

⁽¹⁾ The total future minimum lease obligation excludes non-cancelable sublease rental income of $25.7 million.

⁽²⁾ We have initiated restructuring activities that include ceasing use of a significant number of our operating leases. Refer to Note 2, Restructuring and Other Charges. The total future minimum operating lease obligation includes approximately $163 million of future contractual lease payments associated with locations for which we no longer expect to receive an economic benefit. The total future minimum operating lease obligation also includes approximately $6 million of future contractual lease payments associated with locations that we expect to close as University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations.

Rent expense was $144.9 million, $184.6 million and $207.5 million for fiscal years 2014, 2013 and 2012, respectively.

We have entered into sale-leaseback agreements in prior fiscal years for properties that we currently use to support our operations. As of August 31, 2014 and 2013, our total deferred gains included on our Consolidated Balance Sheets was $23.1 million and $25.7 million, respectively. We recognized gain amortization associated with these sale-leasebacks of $2.0 million, $2.8 million and $2.8 million in fiscal years 2014, 2013 and 2012, respectively.

Naming Rights to Glendale, Arizona Sports Complex

In September 2006, we entered into an agreement for naming and sponsorship rights on a stadium in Glendale, Arizona, which is home to the Arizona Cardinals team in the National Football League. The agreement includes naming, sponsorship, signage, advertising and other promotional rights and benefits. The initial agreement term is in effect until 2026 with options to extend. Pursuant to the agreement, we were required to pay a total of $5.8 million for the 2006 contract year, which increases 3% per year until 2026. As of August 31, 2014, our remaining contractual obligation pursuant to this agreement is $101.4 million. Other payments apply if certain events occur, such as if the Cardinals play in the Super Bowl or if all of the Cardinals’ regular season home games are sold-out.

Surety Bonds

As part of our normal operations, our insurers issue surety bonds for us that are required by various states where we operate. We are obligated to reimburse our insurers for any surety bonds that are paid. As of August 31, 2014, the face amount of these surety bonds was approximately $36 million.

Letters of Credit

As of August 31, 2014, we had approximately $24 million of outstanding letters of credit, which principally support certain guarantees provided by our subsidiaries as part of our normal operations for which the 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.

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Securities Class Action (Apollo Institutional Investors Group)

On August 13, 2010, a securities class action complaint was filed in the U.S. District Court for the District of Arizona by Douglas N. Gaer naming us, John G. Sperling, Gregory W. Cappelli, Charles B. Edelstein, Joseph L. D’Amico, Brian L. Swartz and Gregory J. Iverson as defendants for allegedly making false and misleading statements regarding our business practices and prospects for growth. That complaint asserted a putative class period stemming from December 7, 2009 to August 3, 2010. A substantially similar complaint was also filed in the same Court by John T. Fitch on September 23, 2010 making similar allegations against the same defendants for the same purported class period. Finally, on October 4, 2010, another purported securities class action complaint was filed in the same Court by Robert Roth against the same defendants as well as Brian Mueller, Terri C. Bishop and Peter V. Sperling based upon the same general set of allegations, but with a defined class period of February 12, 2007 to August 3, 2010. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On October 15, 2010, three additional parties filed motions to consolidate the related actions and be appointed the lead plaintiff.

On November 23, 2010, the Fitch and Roth actions were consolidated with Gaer and the Court appointed the “Apollo Institutional Investors Group” consisting of the Oregon Public Employees Retirement Fund, the Mineworkers’ Pension Scheme, and Amalgamated Bank as lead plaintiffs. The case is now entitled, In re Apollo Group, Inc. Securities Litigation, Lead Case Number CV-10-1735-PHX-JAT. On February 18, 2011, the lead plaintiffs filed a consolidated complaint naming Apollo, John G. Sperling, Peter V. Sperling, Joseph L. D’Amico, Gregory W. Cappelli, Charles B. Edelstein, Brian L. Swartz, Brian E. Mueller, Gregory J. Iverson, and William J. Pepicello as defendants. The consolidated complaint asserts a putative class period of May 21, 2007 to October 13, 2010. On April 19, 2011, we filed a motion to dismiss and oral argument on the motion was held before the Court on October 17, 2011. On October 27, 2011, the Court granted our motion to dismiss and granted plaintiffs leave to amend. On December 6, 2011, the lead plaintiffs filed an Amended Consolidated Class Action Complaint, which alleges similar claims against the same defendants. On January 9, 2012, we filed a motion to dismiss the Amended Consolidated Class Action Complaint. On June 22, 2012, the Court granted our motion to dismiss and entered a judgment in our favor. On July 20, 2012, the plaintiffs filed a Notice of Appeal with the U.S. Court of Appeals for the Ninth Circuit, and their appeal remains pending before that Court. If the plaintiffs are successful in their appeal, we anticipate they will seek substantial damages.

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.

Securities Class Action (Teamsters Local 617 Pensions and Welfare Funds)

On November 2, 2006, the Teamsters Local 617 Pension and Welfare Funds filed a class action complaint purporting to represent a class of shareholders who purchased our stock between November 28, 2001 and October 18, 2006. The complaint, filed in the U.S. District Court for the District of Arizona, is entitled Teamsters Local 617 Pension & Welfare Funds v. Apollo Group, Inc. et al., Case Number 06-cv-02674-RCB, and alleges that we and certain of our current and former directors and officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by purportedly making misrepresentations concerning our stock option granting policies and practices and related accounting. The defendants are Apollo, J. Jorge Klor de Alva, Daniel E. Bachus, John M. Blair, Dino J. DeConcini, Kenda B. Gonzales, Hedy F. Govenar, Brian E. Mueller, Todd S. Nelson, Laura Palmer Noone, John R. Norton III, John G. Sperling and Peter V. Sperling. On September 11, 2007, the Court appointed The Pension Trust Fund for Operating Engineers as lead plaintiff. Lead plaintiff filed an amended complaint on November 23, 2007, asserting the same legal claims as the original complaint and adding claims for violations of Section 20A of the Securities Exchange Act of 1934 and allegations of breach of fiduciary duties and civil conspiracy. On April 30, 2009, plaintiffs filed their Second Amended Complaint, which alleges similar claims for alleged securities fraud against the same defendants.

On March 31, 2011, the U.S. District Court for the District of Arizona dismissed the case with prejudice and entered judgment in our favor. Plaintiffs filed a motion for reconsideration of this ruling, and the Court denied this motion on April 2, 2012. On April 27, 2012, the plaintiffs filed a Notice of Appeal with the U.S. Court of Appeals for the Ninth Circuit. During the pendency of this appeal, the parties reached an agreement in principle to settle this matter and, at the request of the parties, the Ninth Circuit issued an order staying the appeal on April 30, 2014. The parties plan to present a stipulation of settlement to the district court for approval in the near term.

As of August 31, 2014, we have accrued an immaterial amount reflecting the agreed-upon settlement. We intend to pursue reimbursement of the settlement amount from our insurance carriers, although the outcome of any such recovery efforts is uncertain at this point.

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Securities Class Action (Nader Saleh)

On April 24, 2014, a securities class action complaint was filed in the U.S. District Court for the District of Arizona by Nader Saleh naming Apollo Education Group, Inc., Gregory W. Cappelli, and Brian L. Swartz as defendants and asserting a putative class period stemming from October 19, 2011 to April 1, 2014. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and contends that defendants made false and/or misleading statements by misrepresenting and failing to disclose that: (i) defendants manipulated federal student loan and grant programs to appear to be in compliance with federal regulations; (ii) defendants’ predatory and deceptive recruiting and enrollment practices violated federal regulations; and (iii) Apollo engaged in a number of practices, including loan forbearance programs, to create the appearance that it was in compliance with federal regulations. The complaint further contends that the truth emerged regarding these statements when Apollo announced on April 1, 2014 it had received a subpoena from the U.S. Department of Education. The matter is entitled Saleh v. Apollo Education Group, Inc., 2:14-cv-00877-SRB. Per the scheduling order entered by the district court, defendants shall have 60 days to respond to plaintiff’s amended complaint, which is due to be filed on or before November 12, 2014.

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 September 25, 2014, Mundy Gonzalez filed a class action complaint against University of Phoenix alleging violations of the Telephone Consumer Protection Act (“TCPA”). The complaint, which is captioned Gonzalez v. The University of Phoenix, 3:14-cv-02279 and which was filed in U.S. District Court for the Southern District of California, alleges that University of Phoenix violated the TCPA by using automatic dialing systems to place unsolicited telephone calls to the cellular telephones of plaintiff and other individuals. The complaint seeks to recover damages on behalf of plaintiff and other similarly situated individuals.

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 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 August 21, 2014, relators filed a motion to stay the dismissal order and final judgment pending the appeal of another False Claims Act case not involving Apollo or University of Phoenix, and that motion remains pending before the district 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.

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Himmel Derivative Action

On November 12, 2010, we received a shareholder demand to investigate, address and commence proceedings against each of our directors and certain of our officers for violation of any applicable laws, including in connection with the subject matter of the report of the Government Accountability Office prepared for the U.S. Senate in August 2010, our withdrawal of the outlook we previously provided for our fiscal year 2011, the investigation into possible unfair and deceptive trade practices associated with certain alleged practices of University of Phoenix by the State of Florida Office of the Attorney General in Fort Lauderdale, Florida, the participation by the State of Oregon Office of the Attorney General in the Securities Class Action (Apollo Institutional Investors Group), and the informal inquiry by the Enforcement Division of the Securities and Exchange Commission that commenced in October 2009.

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

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 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, we have sought to dismiss this action on those grounds, and our application for such relief remains pending before the Court. 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

On October 22, 2010, University of Phoenix received notice that the State of Florida Office of the Attorney General in Fort Lauderdale, Florida had commenced an investigation into possible unfair and deceptive trade practices associated with certain alleged practices of 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, but also filed a suit to quash or limit the subpoena and to protect information sought that constitutes proprietary or trade secret information. We cannot predict the eventual scope, duration or outcome of the investigation 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.

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.

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In addition, from time to time, we receive informal requests from state Attorneys General and other government agencies relating to specific complaints they have received from students or former students and seeking information about the student, our programs, and other matters relating to our activities in the relevant state. 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 in a particular state.

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 until March 2012, and we have since 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 is also requesting additional information from UNIACC regarding certain government funding received by the institution. UNIACC is cooperating with these investigations. At this time, we cannot predict the eventual scope, duration or outcome of these investigations.

In November 2012, UNIACC learned that the Ministry of Education was commencing a formal investigation into profit related issues and concerning the official recognition of UNIACC as a university under Chilean law. On November 18, 2013, we were notified by the Ministry of Education that it declined to pursue any charges against UNIACC and closed its investigation without imposing any sanction on UNIACC. In closing its investigation, the Ministry forwarded certain of its files for review by the Chilean tax authorities and the criminal prosecutor conducting the profit investigation referenced above.

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 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.

Patent Infringement Litigation

On March 3, 2008, Digital-Vending Services International Inc. filed a complaint against University of Phoenix and Apollo, as well as Capella Education Company, Laureate Education Inc., and Walden University Inc. in the U.S. District Court for the Eastern District of Texas, since transferred on plaintiff’s motion to the Eastern District of Virginia. The case is entitled, Digital Vending Services International, LLC vs. The University of Phoenix, et al, Case Number 2:09cv555 (JBF-TEM). The complaint alleges that we and the other defendants have infringed and are infringing various patents relating to managing courseware in a shared use operating environment and seeks injunctive relief and substantial damages, including royalties as a percentage of our net revenue over a multi-year period. We filed an answer to the complaint on May 27, 2008, in which we denied that Digital-Vending Services International’s patents were duly and lawfully issued, and asserted defenses of non-infringement and patent invalidity, among others. We also asserted a counterclaim seeking a declaratory judgment that the patents are invalid, unenforceable, and not infringed by us.

On January 7, 2011, the Court granted our motion for summary judgment and dismissed the case with prejudice, citing plaintiff’s failure to point to admissible evidence that could support a finding of infringement. Plaintiff appealed the order granting summary judgment to the United States Court of Appeals for the Federal Circuit, which held oral argument on December 5, 2011. On March 7, 2012, a divided three-judge panel of the Federal Circuit issued an opinion affirming in part and reversing in part the order granting summary judgment, and it remanded a portion of the plaintiff’s claims to the district court for further proceedings. We filed a Petition for Rehearing with the Federal Circuit regarding the portion of the decision reversing the grant of summary judgment, which the Federal Circuit denied on May 25, 2012. Accordingly, the case was

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

remanded to the U.S. District Court for the Eastern District of Virginia for further proceedings. In July 2013, we filed another motion for summary judgment based on non-infringement, and on October 4, 2013, the Court granted our motion and dismissed each of plaintiff’s remaining claims with prejudice. On November 1, 2013, plaintiff filed a Notice of Appeal of the District Court’s order. The parties subsequently entered into a settlement agreement for an immaterial amount pursuant to which plaintiff agreed to dismiss its appeal. Plaintiff’s appeal was dismissed on November 21, 2013, which resolved the litigation.

Note 17. Regulatory Matters

All U.S. federal 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. In 2008, the Higher Education Act was reauthorized through September 30, 2013 by the Higher Education Opportunity Act and an automatic one year extension continued the authorization through September 30, 2014. Congress continues to engage in Higher Education Act reauthorization hearings and although the one year automatic extension has expired, Title IV programs remain authorized and functioning. Changes to the Higher Education Act, including changes in eligibility and funding for Title IV programs, are likely to occur in connection with the next reauthorization, but we cannot predict the scope or substance of any such changes.

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.

University of Phoenix was recertified in November 2009 and entered into a new Title IV Program Participation Agreement which expired on December 31, 2012. University of Phoenix has submitted necessary documentation for re-certification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application. We have no reason to believe that the University’s application will not be renewed in due course, and it is not unusual to be continued on a month-to-month basis until the Department completes its review. We cannot predict whether, or to what extent, the imposition of the Notice sanction by The Higher Learning Commission might have on this process.

Western International University was recertified in May 2010 and its current certification expired on September 30, 2014. Western International University has submitted necessary documentation for re-certification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application.

Higher Learning Commission Accreditation

University of Phoenix and Western International University are accredited by The Higher Learning Commission (“HLC”) of the North Central Association of Colleges and Schools. This accreditation 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 accreditations of University of Phoenix and Western International University were reaffirmed by HLC through the 2022-2023 academic year. At the same time, HLC placed both universities on Notice status for a two-year period. Notice status is a sanction that means that HLC has determined that an institution is on a course of action that, if continued, could lead the institution to be out of compliance with one or more of the HLC Criteria for Accreditation or Core Components. The University was assigned by HLC to the Standard Pathway reaffirmation process, pursuant to which the University will host a comprehensive evaluation visit in 2016-2017 and will undergo its next reaffirmation visit and process in 2022-2023.

The University is required to submit a Notice Report to the HLC by the end of calendar year 2014 providing evidence that the University meets the Criteria for Accreditation, Core Components and Minimum Expectations (Assumed Practices after January 1, 2013) identified as the basis for the Notice sanction and that it has ameliorated the issues that led to the Notice sanction. In addition, in the Notice Report the University is also required to report on its progress in other areas of concern not included in the Notice sanction, including retention and graduation rates, three-year student loan cohort default rates, and credit hour policies and practices relating to learning teams. The University also will be required to host a focused visit by the HLC in January 2015, to validate the contents of the Notice Report. The HLC Board of Trustees will review the University’s Notice Report, together with a report of the focused visit, at a meeting in 2015. During the Notice period, the University is required to disclose its Notice status in connection with any statements regarding its HLC accreditation. If, after the Notice period, HLC determines that University of Phoenix is not in compliance with one or more of HLC’s Criteria for Accreditation, HLC may elect to impose probation, which would have further, more significant consequences for the University and our business.

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90/10 Rule

To remain eligible to participate in Title IV programs, proprietary institutions of higher education must comply with the so-called “90/10 Rule” under the Higher Education Act, as reauthorized, and must derive 90% or less of their cash basis revenue, as defined in the rule, from Title IV programs. The 90/10 Rule percentage for University of Phoenix was 81% for fiscal year 2014. Based on recent trends, we do not expect the 90/10 Rule percentage for University of Phoenix to exceed 90% for fiscal year 2015. The 90/10 Rule percentage for the University remains high and could exceed 90% in the future depending on the degree to which its various initiatives are effective, the impact of future changes in its enrollment mix, and regulatory and other factors outside our control, including any reduction in military benefit programs or changes in the treatment of such funding for purposes of the 90/10 Rule calculation.

Student Loan Cohort Default Rates

To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. Educational institutions will lose eligibility to participate in Title IV programs if their three-year cohort default rate equals or exceeds 40% for any given year or 30% for three consecutive years. The University of Phoenix three-year cohort default rates for the 2011 and 2010 federal fiscal years were 19.0% and 26.0%, respectively. If our student loan default rates approach the applicable limits, we may be required to increase efforts and resources dedicated to improving these default rates.

OIG Audit of the U.S. Department of Education

In October 2011, the Office of the Inspector General of the U.S. Department of Education (“OIG”) notified us that it was conducting a nationwide audit of the Department’s program requirements, guidance, and monitoring of institutions of higher education offering distance education. In connection with the OIG’s audit of the Department, the OIG examined a sample of University of Phoenix students who enrolled during the period from July 1, 2010 to June 30, 2011. The OIG subsequently notified University of Phoenix that in the course of this review it identified certain conditions that the OIG believed were Title IV program compliance exceptions at University of Phoenix. In February 2014, the OIG released a final audit report on this subject, which identified exceptions based on select student records related principally to the calculation of the amount of Title IV program funds returned after student withdrawals and the process for confirming student eligibility prior to disbursement of Title IV program funds. While the OIG recommended follow-up action with regard to some schools, University of Phoenix was not among them. We were not the direct subject of the OIG’s audit of the Department, and we have not accrued any liability associated with this matter.

U.S. Department of Education Program Reviews

The U.S. Department of Education periodically reviews institutions participating in Title IV programs for compliance with applicable standards and regulations. 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.

Note 18. Segment Reporting

We operate in the education industry and our reportable segments have been determined based on the method by which our chief operating decision maker evaluates performance and allocates resources. Our operating segments are presented in the following reportable segments:

• University of Phoenix;

• Apollo Global; and

• Other.

University of Phoenix is composed of eight colleges and offers undergraduate and graduate degrees in a wide range of program areas including business, education and nursing. The University’s students attend classes online and at 110 ground campus locations throughout the U.S. and Puerto Rico. The majority of students attend classes exclusively online. In addition, the University offers a range of non-degree education programs for lifelong learners and students interested in developing skills and knowledge to improve their prospects of employment in their field of choice or advancement within their existing careers.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Apollo Global includes:

• BPP Holdings Limited (“BPP”), which is headquartered in London, England and offers professional training and exam preparation programs in a variety of areas and qualification training, undergraduate and graduate degrees through BPP University, which principally includes BPP Law School and BPP Business School;

• Open Colleges Australia Pty Ltd (“Open Colleges”), which is headquartered in Sydney, Australia and offers nationally recognized and government approved certificates, diplomas and other qualifications in a diverse range of disciplines and industries, including health and wellness, business management and services, and community services;

• Universidad Latinoamericana (“ULA”), which is headquartered in Mexico City, Mexico and offers graduate and undergraduate degrees, high school and executive education in a variety of program areas and disciplines;

• Milpark Education (Pty) Ltd. (“Milpark Education”), which is headquartered in Cape Town, South Africa and offers postsecondary education, including undergraduate and graduate degrees primarily in business, and non-degree programs;

• Apollo Global Chile S.A. (“Apollo Global Chile”), which includes Universidad de Artes, Ciencias y Comunicación (“UNIACC”) and Instituto Superior de las Artes y Comunicaciones (“IACC”). UNIACC offers undergraduate and graduate degree programs in a variety of program areas principally at its campus in Santiago, Chile. IACC primarily offers degree and non-degree programs that are delivered online;

• India Education Services Private Ltd (“India Education Services”), which is a joint venture that offers non-degree management and business programs delivered in a mix of online and on-ground teaching; and

• Apollo Global corporate operations.

Apollo Global acquired Open Colleges and Milpark Education during the second and third quarters of fiscal year 2014, respectively. The operating results of Open Colleges and Milpark Education are included in our Apollo Global operating segment from the date of each respective acquisition. Refer to Note 4, Acquisitions.

Other includes:

• Western International University, Inc., which offers undergraduate and graduate degrees in a variety of program areas, including business, information technology and behavioral science;

• The College for Financial Planning Institutes Corporation (“College for Financial Planning”), which provides online financial services education programs, including graduate degrees in three majors, certificate programs, Financial Industry Regulatory Authority securities license training, and continuing education courses.

• Carnegie Learning, Inc. publishes innovative, research-based math curricula and adaptive learning software for middle school and high school students;

• Apollo Lightspeed, which is focused on developing innovative educational offerings and services that enable motivated learners to acquire in-demand job skills via non-degree learning solutions; and

• Apollo Corporate activities.

During the fourth quarter of fiscal year 2014, we sold the assets of IPD and began presenting it as discontinued operations. IPD was previously included in Other in our segment reporting. As IPD’s operating results are presented as discontinued operations on our Consolidated Statements of Income for all periods presented, we have revised our financial information by segment to exclude IPD’s operating results.

Management evaluates performance based on reportable segment profit. This measure of profit includes allocating corporate support costs to each segment as part of transfer pricing arrangements and/or a general allocation, but excludes taxes, interest income and expense, and certain revenue and unallocated corporate charges. At the discretion of management, certain corporate costs are not allocated to the subsidiaries due to their designation as special charges because of their infrequency of occurrence, the non-cash nature of the expense and/or the determination that the allocation of these costs to the subsidiaries will not result in an appropriate measure of the subsidiaries’ results.

No individual customer accounted for more than 10% of our consolidated net revenue in fiscal years 2014, 2013 and 2012.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of financial information by reportable segment is as follows:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Net revenue:
University of Phoenix	$	2,632,949		$	3,304,464		$	3,873,098
Apollo Global	338,008			275,768			269,541
Other	53,221			55,692			50,551
Net revenue	$	3,024,178		$	3,635,924		$	4,193,190
Operating income (loss)(1):
University of Phoenix	$	488,217		$	579,670		$	846,840
Apollo Global(2)	(74,189		)	(59,936		)	(66,964		)
Other(3)	(75,057		)	(85,342		)	(103,508		)
Operating income	338,971			434,392			676,368
Reconciling items:
Interest income	2,230			1,913			1,187
Interest expense	(7,914		)	(8,745		)	(11,745		)
Other (loss) income, net	(547		)	2,407			476
Income from continuing operations before income taxes	$	332,740		$	429,967		$	666,286
Depreciation and amortization(4):
University of Phoenix(4)	$	35,261		$	53,562		$	64,643
Apollo Global	38,168			25,982			24,297
Other	77,146			82,189			89,294
Depreciation and amortization(4)	$	150,575		$	161,733		$	178,234
Capital expenditures:
University of Phoenix	$	8,280		$	6,992		$	20,133
Apollo Global	22,231			33,627			36,523
Other	70,155			78,729			58,531
Capital expenditures	$	100,666		$	119,348		$	115,187

⁽¹⁾ University of Phoenix, Apollo Global and Other include charges associated with our restructuring activities. Refer to Note 2, Restructuring and Other Charges.

⁽²⁾ The operating loss for Apollo Global in fiscal year 2014 includes contingent consideration charges and acquisition costs. Refer to Note 4, Acquisitions, and Note 9, Fair Value Measurements. The operating loss also includes the reversal of approximately $11 million of foreign indirect taxes following resolution with the taxing authority. These taxes were originally assessed in fiscal year 2013. The operating loss in fiscal year 2012 includes goodwill and other intangibles impairment charges of $16.8 million. Refer to Note 8, Goodwill and Intangibles.

⁽³⁾ The operating loss for Other in fiscal year 2014 includes $13.9 million of charges associated with our legal matters. The operating loss in fiscal year 2013 includes credits of $23.2 million associated with our legal matters.

⁽⁴⁾ Depreciation and amortization in fiscal years 2014 and 2013 excludes $7.6 million and $50.1 million, respectively, of accelerated depreciation associated with our restructuring activities. Refer to Note 2, Restructuring and Other Charges.

A summary of our consolidated assets by reportable segment is as follows:

	As of August 31,
($ in thousands)	2014		2013		2012
University of Phoenix	$	824,895	$	790,537	$	901,180
Apollo Global	680,363		359,903		376,071
Other(1)	1,587,677		1,847,507		1,591,071
Total assets	$	3,092,935	$	2,997,947	$	2,868,322

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of financial information by geographical area based on country of domicile for our respective operating locations is as follows:

	Year Ended August 31,
($ in thousands)	2014		2013		2012
Net revenue:
United States	$	2,686,571	$	3,360,316	$	3,923,649
United Kingdom	229,508		205,662		198,408
Other	108,099		69,946		71,133
Net revenue	$	3,024,178	$	3,635,924	$	4,193,190

	As of August 31,
($ in thousands)	2014		2013		2012
Long-lived assets(1):
United States	$	430,641	$	472,811	$	580,457
United Kingdom	172,485		169,371		174,229
Australia	191,393		—		—
Other	90,480		66,244		69,322
Long-lived assets	$	884,999	$	708,426	$	824,008

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

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Note 19. Quarterly Results of Operations (Unaudited)

Our operations are generally subject to seasonal trends, which vary depending on 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.

• University of Phoenix - Although University of Phoenix enrolls students throughout the year, its net revenue is generally lower in our second fiscal quarter (December through February) than the 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.

The following unaudited consolidated quarterly financial information should be read in conjunction with other information included in our consolidated financial statements, and reflects all adjustments, consisting of normal, recurring adjustments, necessary for the fair presentation of the results of interim periods. We have made certain reclassifications to the unaudited consolidated quarterly financial information associated with our presentation of IPD as discontinued operations. Refer to Note 3, Discontinued Operations.

	(Unaudited)
	2014												2013
	Q1 Nov. 30			Q2 Feb. 28			Q3 May 31			Q4 Aug. 31			Q1 Nov. 30		Q2 Feb. 28		Q3 May 31			Q4 Aug. 31
(In thousands, except per share data)
Net revenue	$	848,148		$	672,754		$	793,610		$	709,666		$	1,040,534	$	821,861	$	937,171		$	836,358
Operating income(1), (2)	170,361			10,296			116,324			41,990			230,927		30,118		134,797			38,550
Income from continuing operations	99,432			14,149			67,039			30,796			133,823		13,932		82,029			23,726
Net income	99,041			12,177			65,010			28,570			133,740		13,659		80,170			21,396
Net income attributable to Apollo	98,891			14,605			66,025			29,783			133,495		13,527		79,953			21,551
Earnings (loss) per share - Basic:(3)
Continuing operations attributable to Apollo	$	0.88		$	0.15		$	0.62		$	0.29		$	1.19	$	0.12	$	0.73		$	0.21
Discontinued operations attributable to Apollo	(0.01		)	(0.02		)	(0.02		)	(0.02		)	—		—		(0.02		)	(0.02		)
Basic income per share attributable to Apollo	$	0.87		$	0.13		$	0.60		$	0.27		$	1.19	$	0.12	$	0.71		$	0.19
Earnings (loss) per share - Diluted:(3)
Continuing operations attributable to Apollo	$	0.87		$	0.15		$	0.61		$	0.29		$	1.18	$	0.12	$	0.72		$	0.21
Discontinued operations attributable to Apollo	—			(0.02		)	(0.02		)	(0.02		)	—		—		(0.01		)	(0.02		)
Diluted income per share attributable to Apollo	$	0.87		$	0.13		$	0.59		$	0.27		$	1.18	$	0.12	$	0.71		$	0.19
Basic weighted average shares outstanding	113,326			112,151			110,613			109,364			112,420		112,573		112,742			113,105
Diluted weighted average shares outstanding	113,960			113,380			112,082			110,839			112,849		113,068		113,372			113,740

⁽¹⁾ Operating income includes the following for fiscal year 2014:

• Restructuring and other charges of $32.0 million, $15.2 million, $14.9 million and $23.2 million in the first, second, third and fourth quarters, respectively;

• Contingent consideration charges and acquisition costs of $13.0 million and $16.1 million in the second and third quarters, respectively, and a $9.3 million credit in the fourth quarter principally due to a decrease in estimated contingent consideration; and

• Litigation charges of $9.0 million, $4.1 million and $0.8 million in the second, third and fourth quarters, respectively.

⁽²⁾ Operating income includes the following for fiscal year 2013:

• Restructuring and other charges of $24.1 million, $44.1 million, $61.5 million and $67.3 million in the first, second, third and fourth quarters, respectively; and

• Litigation net credits of $16.9 million, $6.3 million, and $1.4 million in the first, second and fourth quarters, respectively.

⁽³⁾ Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted income per share may not equal annual basic and diluted income per share.

112

Item 9 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A - 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 Senior Vice President and 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 Annual Report on Form 10-K 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.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining effective internal control over financial reporting. Management’s intent is to design a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP in the United States of America.

Our internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Management performed an assessment of the effectiveness of our internal control over financial reporting as of August 31, 2014, utilizing the criteria described in the “Internal Control - Integrated Framework (1992)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control over financial reporting was effective as of August 31, 2014. Based on our assessment, management believes that, as of August 31, 2014, the Company’s internal control over financial reporting is effective.

Our independent registered public accounting firm, Deloitte & Touche LLP, independently assessed the effectiveness of the Company’s internal control over financial reporting. Deloitte & Touche LLP has issued a report, which is included at the end of Part II, Item 9A of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting during the quarter ended August 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

113

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Apollo Education Group, Inc. and Subsidiaries

Phoenix, Arizona

We have audited the internal control over financial reporting of Apollo Education Group, Inc. and subsidiaries (the “Company”) as of August 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended August 31, 2014 of the Company, and our report dated October 21, 2014 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

October 21, 2014

114

Item 9B - Other Information

None.

115

PART III

Item 10 - Directors, Executive Officers and Corporate Governance

Information relating to our Board of Directors, Executive Officers, and Corporate Governance required by this item appears in the Information Statement for Apollo Education Group, Inc., to be filed within 120 days of our fiscal year end (August 31, 2014) and such information is incorporated herein by reference.

Our employees must act ethically at all times and in accordance with the policies in our Code of Business Ethics. We require full compliance with this policy from all designated employees including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer. We publish the policy, and any amendments or waivers to the policy, on our website located at www.apollo.edu.

Item 11 - Executive Compensation

Information relating to this item appears in the Information Statement for Apollo Education Group, Inc., to be filed within 120 days of our fiscal year end (August 31, 2014) and such information is incorporated herein by reference.

Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information relating to this item appears in the Information Statement for Apollo Education Group, Inc., to be filed within 120 days of our fiscal year end (August 31, 2014) and such information is incorporated herein by reference.

Item 13 - Certain Relationships and Related Transactions, and Director Independence

Information relating to this item appears in the Information Statement for Apollo Education Group, Inc., to be filed within 120 days of our fiscal year end (August 31, 2014) and such information is incorporated herein by reference.

Item 14 - Principal Accounting Fees and Services

Information relating to this item appears in the Information Statement for Apollo Education Group, Inc., to be filed within 120 days of our fiscal year end (August 31, 2014) and such information is incorporated herein by reference.

116

PART IV

Item 15 - Exhibits, Financial Statement Schedules

(a) The following documents are filed as part of this Annual Report on Form 10-K:

1. Financial Statements filed as part of this report

Index to Consolidated Financial Statements	Page
Report of Independent Registered Public Accounting Firm	69
Consolidated Balance Sheets	70
Consolidated Statements of Income	71
Consolidated Statements of Comprehensive Income	72
Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interests	73
Consolidated Statements of Cash Flows	74
Notes to Consolidated Financial Statements	75

2. Financial Statement Schedules

All financial statement schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included on the Consolidated Financial Statements and Notes thereto.

117

3. Exhibits

Index to Exhibits

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit Number	Filing Date	Filed Herewith
2.1	Agreement and Plan of Merger by and among Carnegie Learning, Inc., Apollo Group, Inc.,† BHCL Acquisition Co. and CLI Shareholder Representative, LLC, dated August 2, 2011					X
2.2	First Amendment to Agreement and Plan of Merger by and among Carnegie Learning, Inc., Apollo Group, Inc., BHCL Acquisition Co. and CLI Shareholder Representative, LLC, dated August 31, 2011	10-K	No. 000-25232	2.2	October 20, 2011
2.3	Technology Assignment and License Agreement by and between Apollo Group, Inc., Carnegie Mellon University and Carnegie Learning, Inc., dated August 2, 2011					X
2.4	Stock Purchase Agreement by and among Apollo Group, Inc., an Arizona corporation, Apollo Global, Inc., a Delaware corporation, Carlyle U.S. Growth Fund III, L.P. /f/k/a Carlyle Venture Partners III, L.P., a Delaware limited partnership and CVP III Coinvestments, L.P., dated October 12, 2012	10-Q	No. 000-25232	2.1	January 8, 2013
2.5	Share Sale Agreement by and among the Sellers and Restrained Persons party thereto, ACN 149 902 330 Pty Limited, Apollo Global Asia-Pacific Pty Ltd and Apollo Education Group, Inc., dated December 16, 2013(1)	10-Q	No. 000-25232	2.1	April 1, 2014
3.1	Amended and Restated Articles of Incorporation of Apollo Education Group, Inc., as amended effective November 15, 2013	10-Q	No. 000-25232	3.1	January 7, 2014
3.2	Amended and Restated Bylaws of Apollo Education Group, Inc.	10-Q	No. 000-25232	3.2	January 7, 2014
10.1	Apollo Group, Inc. Long-Term Incentive Plan*	S-1	No. 33-83804	10.3	September 9, 1994
10.2	Apollo Group, Inc. Plan Amendment to Long-Term Incentive Plan*	10-Q	No. 000-25232	10.5	June 28, 2007
10.3	Apollo Group, Inc. Plan Amendment to Long-Term Incentive Plan*	10-K	No. 000-25232	10.3	October 27, 2009
10.4	Apollo Group, Inc. Amended and Restated Savings and Investment Plan*	10-Q	No. 000-25232	10.4	January 14, 2002
10.5	Apollo Group, Inc. Third Amended and Restated 1994 Employee Stock Purchase Plan*	10-K	No. 000-25232	10.5	November 14, 2005
10.6	Apollo Group, Inc. 2000 Stock Incentive Plan (as amended and restated June 25, 2009)*	10-Q	No. 000-25232	10.3	June 29, 2009
10.7	Apollo Group, Inc. 2000 Stock Incentive Plan Amendment (effective June 24, 2010)*	8-K	No. 000-25232	10.3	June 30, 2010
10.8	Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan Amendment (effective October 6, 2011)*	10-K	No. 000-25232	10.8	October 20, 2011
10.9	Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan Amendment (effective December 8, 2011)*	10-Q	No. 000-25232	10.2	March 26, 2012
10.10	Apollo Group, Inc. Amended and Restated 2000 Stock Incentive Plan Amendment (effective December 13, 2012)*	10-K	No. 000-25232	10.10	October 22, 2013

118

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit Number	Filing Date	Filed Herewith
10.11	Form of Performance Share Award Agreement (Apollo Global Metrics)* (used for awards from 2011-2012)	10-K	No. 000-25232	10.21	October 20, 2011
10.12	Form of Performance Share Award Agreement (Apollo Global Metrics) (revised June 25, 2013)* (used for awards in and after August 2013)	10-Q	No. 000-25232	10.4	June 25, 2013
10.13	Form of Performance Share Award Agreement (Apollo Group Metrics)* (used for awards from 2011-2012)	10-K	No. 000-25232	10.22	October 20, 2011
10.14	Form of Performance Share Award Agreement (Apollo Group Metrics) (revised June 25, 2013)* (used for awards in and after August 2013)	10-Q	No. 000-25232	10.5	June 25, 2013
10.15	Form of Cash Retention Award Agreement*	10-Q	No. 000-25232	10.1	January 8, 2013
10.16	Form of Special Cash Retention Award Agreement*	10-Q	No. 000-25232	10.6	June 25, 2013
10.17	Form of Apollo Group, Inc. Non-Employee Director Stock Option Agreement* (used for awards prior to July 2011)	10-Q	No. 000-25232	10.6	June 28, 2007
10.18	Form of Apollo Group, Inc. Non-Employee Director Stock Option Agreement With Limited Transferability* (used for awards in and after July 2011)	10-K	No. 000-25232	10.10	October 20, 2011
10.19	Form of Apollo Group, Inc. Non-Employee Director Restricted Stock Unit Award Agreement*	10-Q	No. 000-25232	10.7	June 28, 2007
10.20	Form of Apollo Group, Inc. Stock Option Agreement (for officers with an employment agreement)* (used for awards prior to July 2011 and for July 2012 award)	10-Q	No. 000-25232	10.3	January 8, 2009
10.21	Form of Apollo Group, Inc. Stock Option Agreement With Limited Transferability (for officers with an employment agreement)* (used for July 2011 and March 2013 awards)	10-K	No. 000-25232	10.15	October 20, 2011
10.22	Form of Apollo Group, Inc. Stock Option Agreement With Limited Transferability (for officers with an employment agreement) (revised June 25, 2013)* (used for awards from August 2013 to July 2014)	10-Q	No. 000-25232	10.2	June 25, 2013
10.23	Form of Apollo Education Group, Inc. Stock Option Agreement With Limited Transferability* (used for awards to Gregory W. Cappelli in and after August 2014)					X
10.24	Form of Non-Statutory Stock Option Agreement (for officers without an employment agreement)* (used for awards prior to July 2011)	10-Q	No. 000-25232	10.4	January 8, 2009
10.25	Form of Non-Statutory Stock Option Agreement With Limited Transferability (for officers without an employment agreement)* (used for awards from July 2011 to July 2013)	10-K	No. 000-25232	10.14	October 20, 2011
10.26	Form of Apollo Group, Inc. Stock Option Agreement With Limited Transferability (for officers without an employment agreement) (revised June 25, 2013)* (used for awards from August 2013 to July 2014)	10-Q	No. 000-25232	10.1	June 25, 2013

119

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit Number	Filing Date	Filed Herewith
10.27	Form of Apollo Education Group, Inc. Stock Option Agreement with Limited Transferability* (used for awards to officers other than Gregory W. Cappelli in and after August 2014)					X
10.28	Form of Apollo Group, Inc. Restricted Stock Unit Award Agreement (for officers with an employment agreement)* (used for awards in July 2009)	10-Q	No. 000-25232	10.1	January 8, 2009
10.29	Form of Apollo Group, Inc. Restricted Stock Unit Award Agreement (for officers without an employment agreement)* (used for awards in July 2009)	10-Q	No. 000-25232	10.2	January 8, 2009
10.30	Form of Restricted Stock Unit Award Agreement (Special Retention Award - Form A)*	10-Q	No. 000-25232	10.1	March 29, 2011
10.31	Form of Restricted Stock Unit Award Agreement (Special Retention Award - Form B)*	10-Q	No. 000-25232	10.2	March 29, 2011
10.32	Form of Restricted Stock Unit Award Agreement With Performance Condition and Partial Service Vesting Acceleration* (used for awards from 2010 to July 2013)	10-K	No. 000-25232	10.20	October 20, 2011
10.33	Form of Restricted Stock Unit Award Agreement With Performance Condition and Partial Service Vesting Acceleration (revised June 25, 2013)* (used for awards from August 2013 to July 2014)	10-Q	No. 000-25232	10.3	June 25, 2013
10.34	Form of Restricted Stock Unit Award Agreement With Performance Condition and Partial Service Vesting Acceleration* (used for awards to officers other than Gregory W. Cappelli in and after August 2014)					X
10.35	Form of Restricted Stock Unit Award Agreement With Performance Condition and Partial Service Vesting Acceleration* (used for awards to Gregory W. Cappelli in and after August 2014)					X
10.36	Aptimus, Inc. 2001 Stock Plan*	S-8	No. 333-147151	99.1	November 5, 2007
10.37	Apollo Group, Inc. Stock Option Assumption Agreement Aptimus, Inc. 2001 Stock Plan*	S-8	No. 333-147151	99.2	November 5, 2007
10.38	Apollo Group, Inc. Stock Appreciation Right Assumption Agreement Aptimus, Inc. 2001 Stock Plan*	S-8	No. 333-147151	99.3	November 5, 2007
10.39	Aptimus, Inc. 1997 Stock Option Plan, as amended*	S-8	No. 333-147151	99.4	November 5, 2007
10.40	Apollo Group, Inc. Stock Option Assumption Agreement Aptimus, Inc. 1997 Stock Option Plan, as amended*	S-8	No. 333-147151	99.5	November 5, 2007
10.41	Apollo Group, Inc. Executive Officer Performance Incentive Plan (as amended and restated effective as of October 6, 2011)*	10-K	No. 000-25232	10.28	October 20, 2011
10.42	Amendment to Apollo Group, Inc. Executive Officer Performance Incentive Plan (as amended and restated effective as of October 6, 2011) (effective December 8, 2011)*	10-Q	No. 000-25232	10.2	January 5, 2012
10.43	Amendment to Apollo Group, Inc. Executive Officer Performance Incentive Plan (as amended and restated effective as of October 6, 2011) (effective December 13, 2012)*	10-K	No. 000-25232	10.40	October 22, 2013

120

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit Number	Filing Date	Filed Herewith
10.44	Apollo Group, Inc. Deferral Election Program for Non-Employee Board Members*	10-K	No. 000-25232	10.20	October 27, 2009
10.45	Apollo Group, Inc. Deferred Compensation Plan (effective February 1, 2012) (as amended and restated November 15, 2013)*	10-Q	No. 000-25232	10.1	January 7, 2014
10.46	Apollo Group, Inc. Senior Executive Severance Pay Plan (as amended and restated effective as of September 1, 2013)*	10-K	No. 000-25232	10.43	October 22, 2013
10.47	Form of Indemnification Agreement - Employee Director*	10-K	No. 000-25232	10.23	October 21, 2010
10.48	Form of Indemnification Agreement - Outside Director*	10-K	No. 000-25232	10.24	October 21, 2010
10.49	Shareholder Agreement among Apollo Group, Inc. and holders of Apollo Group Class B common stock, dated September 7, 1994	S-1	No. 33-83804	10.1	September 9, 1994
10.50	Amendment to Shareholder Agreement among Apollo Group, Inc. and holders of Apollo Group Class B common stock, dated May 25, 2001	10-K	No. 000-25232	10.10b	November 28, 2001
10.51	Amendment to Shareholder Agreement among Apollo Group, Inc. and holders of Apollo Group Class B common stock, dated June 23, 2006	10-K	No. 000-25232	10.23c	October 27, 2009
10.52	Amendment to Shareholder Agreement among Apollo Group, Inc. and holders of Apollo Group Class B common stock, dated May 19, 2009	10-K	No. 000-25232	10.23d	October 27, 2009
10.53	Amended and Restated Employment Agreement between Apollo Group, Inc. and Gregory W. Cappelli, dated June 5, 2014*					X
10.57	Offer letter between Apollo Group, Inc. and Sean Martin, dated August 23, 2010*	10-Q	No. 000-25232	10.1	January 10, 2011
10.58	Clarification letter between Apollo Group, Inc. and Sean Martin, dated September 20, 2010*	10-Q	No. 000-25232	10.2	January 10, 2011
10.59	Credit Agreement among Apollo Group, Inc., the Lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Wells Fargo Bank, National Association, as Syndication Agents and U.S. Bank National Association, National Bank of Arizona, Morgan Stanley Bank, N.A. and Barclays Bank PLC, as Documentation Agents, dated as of April 18, 2012	10-Q	No. 000-25232	10.1	June 25, 2012
10.60	Commercial Lease between Cole of Phoenix AZ, LLC and Apollo Group, Inc., dated March 24, 2011	8-K	No. 000-25232	10.2	March 24, 2011
10.61	Offer Letter dated October 18, 2013 from Apollo Group, Inc. to J. Mitchell Bowling*	8-K	No. 000-25232	10.1	October 30, 2013
10.62	Offer letter between University of Phoenix and Timothy Slottow dated March 18, 2014*	10-Q	No. 000-25232	10.1	June 25, 2014
21	List of Subsidiaries					X
23.1	Consent of Independent Registered Public Accounting Firm					X
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X

121

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit Number	Filing Date	Filed Herewith
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
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					X
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					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

† References in this exhibit index to Apollo Group, Inc. shall be deemed to refer to Apollo Education Group, Inc., formerly known as Apollo Group, Inc.

* Indicates a management contract or compensation plan.

⁽¹⁾ Portions of this exhibit have been omitted pursuant to a request for confidential treatment from the Securities and Exchange Commission.

122

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

By:	/s/ Brian L. Swartz
	Brian L. Swartz Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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

Date: October 21, 2014

123

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Peter V. Sperling	Chairman and Director	October 21, 2014
Peter V. Sperling
/s/ Terri C. Bishop	Vice Chairman and Director	October 21, 2014
Terri C. Bishop
/s/ Gregory W. Cappelli	Chief Executive Officer and Director (Principal Executive Officer)	October 21, 2014
Gregory W. Cappelli
/s/ Brian L. Swartz	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	October 21, 2014
Brian L. Swartz
/s/ Gregory J. Iverson	Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)	October 21, 2014
Gregory J. Iverson
/s/ Dana H. Born	Director	October 21, 2014
Dana H. Born
/s/ Matthew Carter, Jr.	Director	October 21, 2014
Matthew Carter, Jr.
/s/ Richard H. Dozer	Director	October 21, 2014
Richard H. Dozer
/s/ Roy A. Herberger, Jr.	Director	October 21, 2014
Roy A. Herberger, Jr.
/s/ Ann Kirschner	Director	October 21, 2014
Ann Kirschner
/s/ Robert S. Murley	Director	October 21, 2014
Robert S. Murley
/s/ Manuel F. Rivelo	Director	October 21, 2014
Manuel F. Rivelo
/s/ Darby E. Shupp	Director	October 21, 2014
Darby E. Shupp
/s/ Allen R. Weiss	Director	October 21, 2014
Allen R. Weiss

124

EX-2.1

Exhibit 2.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

CARNEGIE LEARNING, INC.,

BHCL ACQUISITION CO.

APOLLO GROUP, INC.

AND

SOLELY IN ITS CAPACITY AS REPRESENTATIVE OF THE COMPANY’S

STOCKHOLDERS AND OPTIONHOLDERS,

CLI SHAREHOLDER REPRESENTATIVE, LLC

DATED AS OF AUGUST 2, 2011

TABLE OF CONTENTS

	Page
ARTICLE I DEFINITIONS	2
1.1 Definitions	2
1.2 Cross Reference of Other Definitions	8
ARTICLE II THE MERGER; THE CLOSING	10
2.1 The Merger	10
2.2 Conversion of Capital Stock	11
2.3 Exchange of Certificates; Lost Certificates	13
2.4 Options	14
2.5 Escrow	15
2.6 Certificates of Incorporation	15
2.7 Bylaws	15
2.8 Directors and Officers	15
2.9 Dissenting Shares	15
2.10 Estimated Indebtedness and Transaction Expenses	16
2.11 Post-Closing Adjustment	16
2.12 Post-Closing Adjustment Payment	17
2.13 Closing Transactions	18
2.14 Tax Withholding	19
ARTICLE III CONDITIONS TO CLOSING	19
3.1 Conditions to Buyer’s and Merger Sub’s Obligations	19
3.2 Conditions to Company’s Obligations	22
ARTICLE IV COVENANTS PRIOR TO CLOSING	23
4.1 Affirmative Covenants of the Company	23
4.2 Negative Covenants of the Company	24
4.3 Consents and Governmental Authorizations; HSR Filings; Notice to Non-Consenting Stockholders	26
4.4 Buyer Efforts to Close	27
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY	27
5.1 Organization and Corporate Power	27
5.2 Authorization of Transactions	28
5.3 Capitalization	28
5.4 Subsidiaries; Investments	29
5.5 Absence of Conflicts	29
5.6 Financial Statements	29
5.7 Absence of Undisclosed Liabilities	30
5.8 Absence of Certain Developments	30
5.9 Title to Properties	32
5.10 Inventory	33

i

5.11 Accounts Receivable	33
5.12 Taxes	33
5.13 Contracts and Commitments	34
5.14 Customers	36
5.15 Suppliers	37
5.16 Intellectual Property	37
5.17 Litigation; Proceedings	41
5.18 Brokerage	41
5.19 Governmental Licenses and Permits	41
5.20 Employees	41
5.21 Employee Benefit Plans	42
5.22 Insurance	43
5.23 Affiliate Transactions	43
5.24 Compliance with Laws	44
5.25 Environmental Matters	44
5.26 Product Warranty	44
5.27 FERPA	44
5.28 Title IV Compliance	44
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER	45
6.1 Organization and Corporate Power	45
6.2 Authorization of Transaction	45
6.3 No Violation	45
6.4 Governmental Authorities and Consents	45
6.5 Litigation	45
6.6 Brokerage	46
6.7 Purpose	46
6.8 Financing	46
ARTICLE VII TERMINATION	46
7.1 Termination	46
7.2 Effect of Termination	47
ARTICLE VIII INDEMNIFICATION AND RELATED MATTERS	47
8.1 Survival	47
8.2 Indemnification	48
8.3 Tax Matters	53
ARTICLE IX ADDITIONAL AGREEMENTS	55
9.1 Transfer Taxes	55
9.2 Updating Schedules	55
9.3 Press Releases and Announcements	55
9.4 Further Assurances	55
9.5 Specific Performance	55
9.6 Expenses	56
9.7 Exclusivity	56

ii

9.8 Confidentiality	57
9.9 Officers’ and Directors’ Indemnification	58
ARTICLE X MISCELLANEOUS	59
10.1 Amendment and Waiver	59
10.2 Notices	59
10.3 Binding Agreement; Assignment	61
10.4 Severability	61
10.5 Construction	61
10.6 Captions	62
10.7 Entire Agreement	62
10.8 Counterparts	62
10.9 Governing Law	62
10.10 No Third-Party Beneficiaries	62
10.11 CONSENT TO JURISDICTION	62
10.12 WAIVER OF TRIAL BY JURY	63
10.13 Electronic Delivery	63
10.14 Appointment of Stockholder Representative	63

iii

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made as of August 2, 2011, by and among Carnegie Learning, Inc., a Pennsylvania corporation (the “Company”), Apollo Group, Inc., an Arizona corporation (“Buyer”), BHCL Acquisition Co., a Delaware corporation and wholly owned Subsidiary of Buyer (“Merger Sub”), and CLI Shareholder Representative, LLC, a Delaware limited liability company, solely with respect to ARTICLE II, ARTICLE VIII, Sections 9.1, 9.4 and 9.6 and ARTICLE X in its capacity as representative for the Company’s Stockholders and Optionholders (the “Representative”). Capitalized terms used and not otherwise defined herein have the meanings set forth in ARTICLE I below

WHEREAS, Buyer desires to acquire 100% of the issued and outstanding capital stock of the Company in a reverse subsidiary merger transaction on the terms and subject to the conditions set forth herein.

WHEREAS, the respective boards of directors of Buyer, Merger Sub and the Company have approved this Agreement, the Merger and the related transactions contemplated hereby, upon the terms and subject to the conditions set forth herein.

WHEREAS, simultaneously with the execution of this Agreement, and as a condition of the willingness of Buyer to enter into this Agreement, Collier Investments, LLC (f/k/a Collier Investments, Ltd.) (“Collier”), who holds, and will hold immediately prior to the Effective Time of the Merger, 33.0% of the Company Common Stock on an as-converted basis, has delivered to Buyer a written consent, pursuant to which Collier has approved this Agreement and the transactions contemplated hereby, including the Merger, which consent shall also constitute approval of the transaction for purposes of Section 6.05(h) of that certain Stock Purchase Agreement between Collier and the Company dated as of October 7, 1999.

WHEREAS, simultaneously with the execution of this Agreement, and as a condition of the willingness of Buyer to enter into this Agreement, Stockholders of the Company representing not less than 92% of the outstanding shares of Company Common Stock (on an as-converted basis) have delivered to the Company and to Buyer a written consent, pursuant to which such Stockholders have irrevocably voted in favor of, approved and consented to, and otherwise waived any other consent required by them regarding the consummation of, this Agreement and the transactions contemplated hereby, including the Merger (the “Stockholder Approval”).

WHEREAS, simultaneously with the execution of this Agreement, and as a condition of the willingness of Buyer to enter into this Agreement, certain Stockholders of the Company have executed and delivered to Buyer non-competition, non-solicitation and confidentiality agreements (the “Non-Compete Agreements”).

WHEREAS, simultaneously with the execution of this Agreement, and as a condition of the willingness of Buyer to enter into this Agreement, each PSLC Researcher that has received TRE Code has executed and delivered to the Company a present assignment from such PSLC Researcher to the Company of all Intellectual Property rights arising under any and all agreements between such PSLC Researcher and the Company (the “IP Assignments”).

WHEREAS, simultaneously with the execution of this Agreement, and as a condition of the willingness of Buyer to enter into this Agreement, certain employees of the Company have executed and delivered to Buyer retention agreements (the “Retention Agreements”).

WHEREAS, simultaneously with the execution of this Agreement, and as a condition of the willingness of Buyer to enter into this Agreement, certain employees of the Company have executed and delivered to Buyer agreements pursuant to which such employee has agreed to terminate his or her existing employment agreement with the Company upon and subject to the Closing (the “Employment Agreement Termination Agreements”).

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE IDEFINITIONS

1.1Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below:

“Affiliate” of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities or otherwise.

“Affiliated Group” means an affiliated group as defined in Section 1504 of the Code (or any similar combined, consolidated or unitary group defined under state, local or foreign income Tax law).

“Aggregate Liquidation Preference” means an amount equal to the sum of (i) the product of the Series A Liquidation Preference multiplied by the number of shares of Series A Preferred Stock outstanding immediately prior to the Effective Time, plus (ii) the product of the Series B Liquidation Preference multiplied by the number of shares of Series B Preferred Stock outstanding immediately prior to the Effective Time, plus (iii) the product of the Series C Liquidation Preference multiplied by the number of shares of Series C Preferred Stock outstanding immediately prior to the Effective Time, plus (iv) the product of the Series D Liquidation Preference multiplied by the number of shares of Series D Preferred Stock outstanding immediately prior to the Effective Time, plus (v) the product of the Series E Liquidation Preference multiplied by the number of shares of Series E Preferred Stock outstanding immediately prior to the Effective Time.

“Closing Indebtedness” means (as finally determined under Section 2.11) the outstanding balance of Indebtedness of the Company as of immediately prior to the Effective Time (including the amount of Estimated Indebtedness paid pursuant to Section 2.13(b)(ii)(D)); provided that, for purposes of such calculation, all interest, prepayment penalties, premiums, fees and expenses (if any) which would be payable if such Indebtedness was paid in full at the Closing shall be treated as Indebtedness.

2

“CMU Licenses” means, collectively: (i) the License Agreement between the Company (f/k/a Carnegie Learning Partners, Inc.) and Carnegie Mellon University, dated as of June 30, 1998 and as amended on October 1, 1999, October 24, 2000, November 6, 2001 and March 31, 2005; (ii) the License Agreement between the Company and Carnegie Mellon University, dated as of November 6, 2001 and as amended on March 31, 2005; and (iii) the License Agreement between the Company and Carnegie Mellon University, dated as of June 4, 2003 and as amended on March 31, 2005.

“CMU Patent” means U.S. Patent Number 6,634,887 and any reissue, continuation, continuation-in-part, division, revision, extension or reexamination thereof.

“CMU Technology Purchase Agreement” means that certain Technology Assignment and License Agreement by and among Buyer, the Company and Carnegie Mellon University, dated as of the date hereof.

“COBRA” means the requirements of Part 6 of Subtitle B of Title I of ERISA, Section 4980B of the Code and of any similar state law.

“Code” means the Internal Revenue Code of 1986, as amended.

“Common Percentage” means, with respect to each Stockholder and Optionholder, the amount expressed as a percentage equal to the number of shares of Common Stock (on an as-converted and as-exercised basis) held by such Stockholder or Optionholder entitled to receive Merger Consideration pursuant to Sections 2.2(a) and 2.4 of this Agreement divided by the aggregate amount of all shares of Common Stock (on an as-converted and as-exercised basis) entitled to receive Merger Consideration pursuant to Sections 2.2(a) and 2.4 of this Agreement.

“Confidentiality Agreement” means that certain Mutual Nondisclosure Agreement by and between Buyer and the Company, dated as of August 10, 2009.

“Current Products” means products that are sold, licensed, offered for license, offered for sale, or are under any maintenance obligations by the Company as of the date hereof.

“Employee Benefit Plan” means each “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) and each other benefit or compensation plan, program, agreement or arrangement of any kind that is maintained, sponsored or contributed to by the Company or with respect to which the Company has any obligation or liability.

“Environmental and Safety Requirements” means all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law in each case concerning public health and safety, worker health and safety, and pollution or protection of the environment, as the foregoing are in effect as of the Closing Date.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

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“GAAP” means United States generally accepted accounting principles in effect from time to time.

“Indebtedness” means with respect to the Company, without duplication, (i) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, (ii) any indebtedness evidenced by any note, bond, debenture or other debt security, other than the performance bonds entered into in connection with a customer contract, (iii) any indebtedness for the deferred purchase price of property or services with respect to which the Company is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the Ordinary Course of Business), (iv) any indebtedness guaranteed in any manner by the Company (including guarantees in the form of an agreement to repurchase or reimburse) other than obligations of the Company to repurchase products from customers if certain performance criteria are not met, (v) any indebtedness secured by a Lien on the Company’s assets, (vi) any unsatisfied obligation for “withdrawal liability” to a “multiemployer plan” as such terms are defined under ERISA, (vii) the Company’s share of employment Taxes attributable to payments made pursuant to Section 2.4 or clause (ii) of Transaction Expenses, and (viii) any accrued interest, prepayment penalties and premiums on any of the foregoing; provided, however, that “Indebtedness” shall not include any amount of deferred revenue for products or services of the Company.

“Inherit” means incorporates by reference, dynamically links to or makes function calls, at compile time or run-time.

“Intellectual Property” means all of the following in any jurisdiction throughout the world: (i) patents, patent applications, patent disclosures, invention disclosures and inventions (whether or not patentable and whether or not reduced to practice) and any reissue, continuation, continuation-in-part, division, revision, extension or reexamination thereof; (ii) trademarks, service marks, trade dress, trade names, corporate names, logos and slogans (and all translations, adaptations, derivations and combinations of the foregoing) and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights, copyrightable works and mask works; (iv) registrations and applications for registration for any of the foregoing; (v) trade secrets and confidential information (including ideas, formulae, compositions, know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial, business and marketing plans, and customer and supplier lists and related information); (vi) Software; and (vii) all other proprietary rights.

“Knowledge” means, with respect to the Company, the actual knowledge after reasonable inquiry (including the reasonable inquiry of Ken Koedinger as to Intellectual Property matters) under the circumstances ofDennis Ciccone, David Hart, Steven Ritter, and Stephen Grieco.

“Letter of Intent” means that certain letter agreement, dated March 4, 2011, by and among Buyer, the Company, Carnegie Mellon University, Collier, TLV Ventures, L.P. and Draper Triangle Ventures, L.P.

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“Liens” means any mortgage, pledge, security interest, encumbrance, claim, Tax, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against the Company or any of its Affiliates, or any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute.

“Material Adverse Effect” means, with respect to the Company, any effect, development, event or change that is materially adverse to the business, assets, liabilities, results of operations, or financial condition, taken as a whole; provided, that none of the following shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect: any adverse change, event, development or effect arising from or relating to: (i) general business, regulatory, political or economic conditions affecting the U.S. economy as a whole or the financial, banking, or capital markets in general, including the engagement of the United States in hostilities, terrorist attack upon the Unites States or any of its territories, possessions, military installations, equipment or personnel; (ii) the announcement of this Agreement and the transactions contemplated hereby; (iii) changes in GAAP; or (iv) changes in or issuance of any new laws, rules, regulations, orders, or other binding directives of a general nature and not directed at the Company specifically issued by any governmental entity after the date hereof.

“Net Series C Preferred Price” means the weighted average price per share of Series C Preferred Stock paid by a holder calculated based on (i) the discounted price of $0.65 paid per share of Series C Preferred Stock in connection with the conversion of any convertible promissory notes made by the Company to such holder and (ii) $1.00 for any other shares of Series C Preferred Stock by such holder.

“Open Source Software” means any Software that is subject to any open source license including the GNU General Public License (GPL), the Lesser GNU Public License (LGPL), any “copyleft” license or any other license that requires as a condition of use, modification or distribution of such Software that such Software or other Software combined or distributed with it be: (i) disclosed or distributed in source code form; (ii) licensed for the purpose of making derivative works; (iii) redistributable at no charge; or (iv) licensed subject to a patent non-assert or royalty-free patent license.

“Option Exercise Price” means the exercise price of the options as set forth in the applicable stock option agreement entered into between the Company and the Optionholder.

“Permitted Liens” means collectively, (i) statutory liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings by the Company and for which appropriate reserves have been established in accordance with GAAP; (ii) mechanics’, carriers’, workers’, repairers’ and similar statutory liens arising or incurred in the Ordinary Course of Business for amounts which are not delinquent; (iii) zoning, entitlement, building and other land use regulations imposed by governmental agencies having jurisdiction over the Leased Property which are not violated by the current use and operation of the Leased Property; (iv) covenants, conditions, restrictions, easements and other similar matters of record affecting title to the Leased Property which do not materially

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impair the occupancy or use of the Leased Property for the purposes for which it is currently used in connection with the Company’s businesses; (v) public roads and highways; (vi) liens arising under worker’s compensation, unemployment insurance, social security, retirement and similar legislation; (vii) those Liens identified on Schedule 1.1B; and (viii) purchase money liens and liens securing rental payments under capital lease arrangements.

“Person” means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

“PSLC” means the Pittsburgh Science of Learning Center and does not include any PSLC Researcher or any agent, employee or contractor of a PSLC Researcher.

“PSLC Researcher” means a researcher who has entered into any agreement (including any Research & Development agreement or non-disclosure agreement) with the Company under the auspices of the PSLC to conduct research or academic studies.

“Representative Administrative Amount” means the amount of cash held back from the Stockholders and Optionholders from the portion of the Merger Consideration to be paid to the Stockholders and Optionholders promptly following the Closing (as determined by the Representative in its discretion and subject to Section 2.10) pursuant to the authority granted pursuant to Section 10.14 hereof that will be available for use by the Representative following the Closing (i) for the payment of all costs and expenses incurred by the Representative in connection with the exercise by it of the authority granted to it herein (including reasonable attorneys’ fees and expenses), including with respect to the indemnification obligations of the Stockholders and Optionholders under ARTICLE VIII of this Agreement, and/or (ii) the payment of any other obligations of the Stockholders and Optionholders, entered into by the Representative on their behalf as authorized pursuant to Section 10.14.

“Schedules” means the disclosure schedules attached to this Agreement.

“Series A Liquidation Preference” means $1.10 per share of Series A Preferred Stock.

“Series B Liquidation Preference” means $1.10 per share of Series B Preferred Stock.

“Series C Liquidation Preference” means the Net Series C Preferred Price per share of Series C Preferred Stock.

“Series D Liquidation Preference” means $0.1743 per share of Series D Preferred Stock.

“Series E Liquidation Preference” means $0.0872 per share of Series E Preferred Stock.

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“Software” means any and all: (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code; (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise; (iii) descriptions, schematics, flow‑charts and other work product used to design, plan, organize and develop any of the foregoing; and (iv) all documentation, including user documentation, user manuals and training materials, relating to any of the foregoing.

“Source Code” means one or more statements in human readable form, including comments and definitions, which are generally formed and organized according to the syntax of a computer or programmable logic programming language (including such statements in batch or scripting languages), together with any and all text, diagrams, graphs, charts, presentations, manuals and other information that describe the foregoing.

“Special IP Representations” means the representations and warranties contained in Section 5.16(b), Section 5.16(c), the second and fourth sentences of Section 5.16(d), the second sentence of Section 5.16(e), Section 5.16(f), Section 5.16(h), Section 5.16(j), Section 5.16(k), Section 5.16(m), Section 5.16(n), Section 5.16(o), Section 5.16(p), Section 5.16(q) and the representations and warranties in the Company Closing Certificate with respect to each of the foregoing.

“Subsidiary” means, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, limited liability company, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such partnership, association or other business entity.

“Tax” or “Taxes” means any federal, state, local or foreign income, gross receipts, franchise, alternative or add-on minimum, estimated, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing.

“Tax Returns” means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting schedules, statements or information, and including any amendment thereof) filed or required to be filed in connection with the determination, assessment or collection of Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes.

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“Transaction Documents” means this Agreement, the Escrow Agreement and all other agreements, documents, instruments and certificates contemplated by this Agreement.

“Transaction Expenses” shall mean, whether paid at or subsequent to the Closing, all (i) fees and expenses of the Company, and, to the extent the Company is liable thereof, the Stockholders and Optionholders (including fees and expenses of legal counsel, accountants, investment bankers (including East Wind Securities LLC), brokers, finders or other representatives and consultants retained by any of them) with respect to this Agreement, each of the other Transaction Documents and the transactions contemplated hereby and thereby and (ii) change of control or retention payments or fees or transaction-related bonuses paid or payable to any Person as a result of the transactions contemplated by this Agreement (for the avoidance of doubt, excluding (a) the acceleration of Options or vesting of restricted stock as a result of the consummation of the transactions contemplated by this Agreement, (b) any payments made pursuant to the Retention Agreements, and (c) any payments made as a result of the termination of any existing employment agreements that are terminated at the request of Buyer in connection with this Agreement).

“TRE Code” means the Source Code for the Company’s Software platform referred to generally by the Company as the “Tutor Runtime Environment” or “TRE”.

1.2Cross Reference of Other Definitions. Each capitalized term listed below is defined in the corresponding Section of this Agreement:

Term	Section No.
2011 Budget	4.2(m)
Agreement	Preface
Base Consideration	2.2(b)(i)
Buyer	Preface
Buyer Closing Certificate	3.2(e)(i)
Buyer Indemnified Parties	8.2(a)
Buyer’s Transaction Expenses	9.6(b)
Certificates of Merger	2.1(b)
Closing	2.13(a)
Closing Consideration	2.2(b)(i)
Closing Date	2.13(a)
Closing Estimates	2.10
Closing Transactions	2.13(b)
Collier	Recitals
Company	Preface
Company Closing Certificate	3.1(n)(i)
Company Common Stock	2.2(a)(vi)
Company Intellectual Property	5.16(b)
Confidential Information	9.8(a)
Data Servers	5.16(m)
DGCL	2.1(a)

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Term	Section No.
Director Indemnified Parties	9.9(c)
Dispute Resolution Auditor	2.11(a)
Dissenting Shares	2.9
DOJ	4.3(b)
Effective Time	2.1(b)
Electronic Delivery	10.13
Employment Agreement Termination Agreements	Recitals
Escrow Agent	2.5
Escrow Agreement	2.5
Escrow Amount	2.5
Estimated Indebtedness	2.10
Exclusivity Period	9.7
Final Consideration	2.2(b)(ii)
Financial Statements	5.6
FERPA	5.27
FTC	4.3(b)
Fully Indemnified Representations	8.2(c)(i)
General Cap	8.2(c)(iv)
General Deductible	8.2(c)(i)
Governmental Approvals	3.1(d)
HSR Act	3.1(d)
Indemnifying Equityholder	8.2(a)
Indemnitee	8.2(e)
Indemnitor	8.2(e)
Information Systems	5.16(i)
IP Assignments	Recitals
Latest Balance Sheet	5.6
Leased Property	5.9(b)
Letter of Transmittal	2.3
Licenses	5.19
Loss or Losses	8.2(a)
Merger	2.1(a)
Merger Consideration	2.2(b)(v)
Merger Sub	Preface
Mini-Basket	8.2(c)(iii)
Non-Compete Agreements	Recitals
Non-Consenting Stockholder Notice	4.3(c)
Notice of Disagreement	2.11(a)
Option Cancellation Agreement	2.4
Optionholder	2.4
Option Merger Consideration	2.4

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Term	Section No.
Options	2.2(b)(vi)
Ordinary Course of Business	4.1(a)
Owned Company Intellectual Property	5.16(d)
Participation Agreement	5.16(p)
Payoff Letters	3.1(g)
PBCL	2.1(a)
Per Share Portion	2.2(b)(iii)
Pre-Closing Tax Period	8.3(a)
Preferred Stock	5.3
Preliminary Closing Statement	2.11(a)
PSLC-owned IP	5.16(p)
Released Claims	8.2(h)
Released Parties	8.2(h)
Representative	Preface
Representative Parties	10.14
Retention Agreements	Recitals
Sale Transaction	9.7
Seller Indemnified Parties	8.2(b)
Series A Preferred Stock	2.2(a)(i)
Series B Preferred Stock	2.2(a)(ii)
Series C Preferred Stock	2.2(a)(iii)
Series D Preferred Stock	2.2(a)(iv)
Series E Preferred Stock	2.2(a)(v)
Special IP Cap	8.2(c)(iv)
Special IP Deductible	8.2(c)(ii)
Stock Merger Consideration	2.2(b)(iv)
Stockholder	2.3
Stockholder Approval	Recitals
Straddle Period	8.3(b)
Surviving Corporation	2.1(a)
Termination Date	7.1(d)
Third Party Approvals	3.1(c)
Update Period	9.2

ARTICLE IITHE MERGER; THE CLOSING

2.1The Merger.

(a)Subject to the terms and conditions hereof, at the Effective Time, Merger Sub shall merge (the “Merger”) with and into the Company in accordance with the Delaware General Corporation Law (the “DGCL”) and the Pennsylvania Business Corporation Law (the “PBCL”),

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whereupon the separate existence of Merger Sub shall cease, and the Company shall be the surviving corporation (the “Surviving Corporation”).

(b)At the Closing, the Company and Merger Sub shall cause a certificate of merger to be executed, acknowledged and filed with each of the Secretary of State of the State of Delaware and the Secretary of State of the Commonwealth of Pennsylvania (the “Certificates of Merger”) and make all other filings or recordings required by the DGCL and the PBCL in connection with the Merger. The Merger shall become effective at such time as the Certificates of Merger are duly filed with the Secretary of State of the State of Delaware and the Secretary of State of the Commonwealth of Pennsylvania or at such other time as Buyer and the Company shall agree and specify in the Certificates of Merger (the “Effective Time”).

(c)From and after the Effective Time, the Surviving Corporation shall succeed to all the assets, rights, privileges, powers and franchises and be subject to all of the liabilities, restrictions, disabilities and duties of the Company and Merger Sub, all as provided under the DGCL and the PBCL.

2.2Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof:

(a)Except as otherwise provided in Sections 2.2(c) and 2.9:

(i)each share of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”), issued and outstanding immediately prior to the Effective Time shall be cancelled and converted into the right to receive in the aggregate (A) payment of an amount of cash equal to the Series A Liquidation Preference plus (B) the Per Share Portion of the Closing Consideration and the Escrow Amount to be distributed to Stockholders and Optionholders pursuant to the terms of the Escrow Agreement as though such share of Series A Preferred Stock had been converted to Company Common Stock in accordance with the Company’s Second Amended and Restated Articles of Incorporation;

(ii)each share of the Company’s Series B Convertible Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”), issued and outstanding immediately prior to the Effective Time shall be cancelled and converted into the right to receive in the aggregate (A) payment of an amount of cash equal to the Series B Liquidation Preference plus (B) the Per Share Portion of the Closing Consideration and the Escrow Amount to be distributed to Stockholders and Optionholders pursuant to the terms of the Escrow Agreement as though such share of Series B Preferred Stock had been converted to Company Common Stock in accordance with the Company’s Second Amended and Restated Articles of Incorporation;

(iii)each share of the Company’s Series C Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”), issued and outstanding immediately prior to the Effective Time shall be cancelled and converted into the right to receive in the aggregate (A) payment of an amount of cash equal to the Series C Liquidation Preference plus (B) the Per Share Portion of the Closing Consideration and the Escrow Amount to be distributed to Stockholders and Optionholders pursuant to the terms of the Escrow Agreement as though

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such share of Series C Preferred Stock had been converted to Company Common Stock in accordance with the Company’s Second Amended and Restated Articles of Incorporation;

(iv)each share of the Company’s Series D Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”), issued and outstanding immediately prior to the Effective Time shall be cancelled and converted into the right to receive in the aggregate (A) payment of an amount of cash equal to the Series D Liquidation Preference plus (B) the Per Share Portion of the Closing Consideration and the Escrow Amount to be distributed to Stockholders and Optionholders pursuant to the terms of the Escrow Agreement as though such share of Series D Preferred Stock had been converted to Company Common Stock in accordance with the Company’s Second Amended and Restated Articles of Incorporation;

(v)each share of the Company’s Series E Convertible Preferred Stock, par value $0.001 per share (“Series E Preferred Stock”), issued and outstanding immediately prior to the Effective Time shall be cancelled and converted into the right to receive in the aggregate (A) payment of an amount of cash equal to the Series E Liquidation Preference plus (B) the Per Share Portion of the Closing Consideration and the Escrow Amount to be distributed to Stockholders and Optionholders pursuant to the terms of the Escrow Agreement as though such share of Series E Preferred Stock had been converted to Company Common Stock in accordance with the Company’s Second Amended and Restated Articles of Incorporation; and

(vi)each share of Company’s Common Stock, par value $0.001 per share (“Company Common Stock”), issued and outstanding immediately prior to the Effective Time shall be cancelled and converted into the right to receive payment of an aggregate amount of cash equal to the Per Share Portion of the Closing Consideration and the Escrow Amount to be distributed to Stockholders and Optionholders pursuant to the terms of the Escrow Agreement.

Each share of Preferred Stock and Company Common Stock, when so cancelled, shall no longer be outstanding and shall automatically cease to exist, and each holder of a certificate representing any such shares of Preferred Stock or Company Common Stock shall cease to have any rights with respect thereto, except the right to receive payment for each such share pursuant to Section 2.2(a), without interest.

(b)For purposes of this Agreement:

(i)the term “Closing Consideration” means (A) $75,000,000.00 (the “Base Consideration”), minus (B) the Aggregate Liquidation Preference, minus (C) the amount of Estimated Indebtedness, minus (D) the Escrow Amount, minus (E) the amount of any Transaction Expenses to be paid pursuant to Section 2.13(b)(ii)(E), plus (F) the aggregate exercise price of the Options (excluding Options cancelled for no consideration pursuant to Section 2.4);

(ii)the term “Final Consideration” means (A) the Base Consideration, minus (B) the Aggregate Liquidation Preference, minus (C) the amount of Closing Indebtedness,

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minus (D) the Escrow Amount, minus (E)  the amount of any unpaid Transaction Expenses as of the Closing (including the amount of any Transaction Expenses paid pursuant to Section 2.13(b)(ii)(E)), plus (F) the aggregate exercise price of the Options (excluding Options cancelled for no consideration pursuant to Section 2.4);

(iii)the term “Per Share Portion” means a fraction, the numerator of which is one, and the denominator of which is the sum of (A) the number of shares of Company Common Stock issued and outstanding immediately prior to the Effective Time (including any shares of restricted Company Common Stock which vest by virtue of the Merger but not including any Company Common Stock held by the Company as treasury stock or held by Merger Sub), plus (B) the number of shares of Company Common Stock attributable to the deemed conversion of all of the issued and outstanding shares of the Preferred Stock, plus (C) the number of shares of Company Common Stock issuable upon exercise of all Options (not including Options which are cancelled for no consideration pursuant to Section 2.4);

(iv)the term “Stock Merger Consideration” means the aggregate consideration to which holders of Company Common Stock and Preferred Stock (not including the Aggregate Liquidation Preference) become entitled pursuant to Section 2.2(a);

(v)the term “Merger Consideration” means the sum of the Stock Merger Consideration plus the Option Merger Consideration (defined in Section 2.4); and

(vi)the term “Options” means all options to acquire shares of Company Common Stock which are exercisable (or will become exercisable as a result of the transactions contemplated hereby (whether pursuant to the terms of such options or at the election of the Company’s board of directors)), as of immediately prior to the Effective Time.

(c)Each share of Company Common Stock held immediately prior to the Effective Time by the Company as treasury stock or by Merger Sub shall be cancelled and no payment shall be made with respect thereto.

(d)Each share of Merger Sub’s Common Stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and non‑assessable share of Common Stock, par value $.001 per share, of the Surviving Corporation.

2.3Exchange of Certificates; Lost Certificates. The Representative shall act as paying agent in effecting the exchange of Closing Consideration for certificates which, immediately prior to the Effective Time, represented shares of Company Common Stock or Preferred Stock entitled to payment pursuant to Section 2.2. Promptly after the Closing Date, the Representative shall pay each holder of certificates representing Company Common Stock or Preferred Stock (each, a “Stockholder”) who has surrendered his or its certificates, duly endorsed in blank or accompanied by duly executed stock powers and a duly executed and completed letter of transmittal substantially in the form of Exhibit A attached hereto (the “Letter of Transmittal”), representing the number of shares of Company Common Stock and/or Preferred Stock held by such holder, the amount of cash

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to which he, she or it is entitled under Section 2.2. Surrendered certificates shall forthwith be cancelled. Until so surrendered and exchanged, each such certificate shall represent solely the right to receive the Merger Consideration into which the shares it theretofore represented shall have been converted pursuant to Section 2.2. Notwithstanding the foregoing, if any such certificate shall have been lost, stolen or destroyed, then, upon the making of an affidavit of such fact in favor of the Company and in a form acceptable to Buyer by the Person claiming such certificate to be lost, stolen or destroyed, the Representative shall issue, in exchange for such lost, stolen or destroyed certificate, the Merger Consideration to be paid in respect of the shares of Company Common Stock and/or Preferred Stock represented by such certificate, as contemplated by this Section 2.3. After the Closing Date, there will be no transfers on the stock transfer books of the Surviving Corporation of shares that were outstanding immediately prior to the Closing Date. If, after the Closing Date, certificates representing such shares are presented to the Surviving Corporation, they will be cancelled and exchanged as provided in this Section 2.3. No interest shall accrue or be paid on the cash payable upon the delivery of the stock certificates or Letters of Transmittal contemplated by this Section 2.3. No party hereto shall be liable to any Stockholder in respect of any amount delivered to a public official as required by and pursuant to any applicable abandoned property, escheat or similar law. Subject to this Section 2.3, if any stock certificate representing Company Common Stock or Preferred Stock shall not have been surrendered prior to the date on which payment of the Merger Consideration into which the shares it theretofore represented would otherwise escheat to or become the property of any public official, any such portion of the Merger Consideration shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interests of any Person previously entitled thereto.

2.4Options. Immediately prior to the Effective Time, the Company shall cause all outstanding Options, whether or not fully vested or exercisable, to become fully vested and exercisable, and to be terminated and cancelled, at which time each holder of an Option (an “Optionholder”) who has delivered to the Company a duly executed option cancellation agreement, substantially in the form of Exhibit B attached hereto (the “Option Cancellation Agreement”), shall be entitled to receive from the Surviving Corporation an amount in cash equal to the sum of (a) the Per Share Portion of the Closing Consideration less (i) the Option Exercise Price pertaining to such share, less (ii) the amount of any applicable Taxes withheld, and less (iii) the Per Share Portion of the Representative Administrative Amount, plus (b) the Per Share Portion of the Escrow Amount to be distributed to Stockholders and Optionholders pursuant to the terms of the Escrow Agreement (less the amount of any applicable Taxes withheld),with no payment of any amount being required when the difference is not a positive number, but such negative amount shall be reduced from such Optionholder’s Per Share Portion in the Escrow Amount, less the amount of any applicable Tax withheld. Buyer shall cause the Surviving Corporation (x) to make timely payment to the appropriate taxing authority or authorities of any amounts withheld from payment to the Optionholders under this Section 2.4 and (y) to forward to the Representative the aggregate amount of the portion of the Representative Administrative Amount attributable to the Optionholders. For any Options for which the Option Exercise Price of such Option is greater than or equal to the Per Share Portion of the Closing Consideration and Escrow Amount to be distributed to Stockholders and Optionholders pursuant to the terms of the Escrow Agreement allocable to such Option, such Option shall be terminated for no consideration. The aggregate consideration to which Optionholders become entitled pursuant to this Section 2.4 is collectively referred to herein as the “Option Merger

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Consideration.” Notwithstanding anything herein to the contrary, all payments to Optionholders hereunder (including any amounts to be paid to the Representative on behalf of Optionholders) shall be made by the Surviving Corporation through its payroll system in accordance with the Surviving Corporation’s regular payroll practices then in effect. All payments to Optionholders hereunder shall be treated as compensation by the Company and shall be net of any applicable federal, state and local withholding Taxes.

2.5Escrow. As of the Closing, Buyer shall deposit in escrow cash in the amount of $11,000,000 (the “Escrow Amount”), to be held to fund in part the indemnification obligations of the Stockholders and Optionholders under ARTICLE VIII of this Agreement; provided that, in the event of any adjustment owed by the Stockholders and Optionholders pursuant to Section 2.11, Buyer shall be entitled to recover such amounts out of the Escrow Amount or from the Stockholders and Optionholders directly. Buyer and the Representative (on behalf of the Stockholders and Optionholders) shall enter into an escrow agreement in the form attached hereto as Exhibit C (the “Escrow Agreement”) with Wells Fargo Bank, National Association (the “Escrow Agent”) to govern the terms and conditions of the release of the Escrow Amount. As more fully set forth in the Escrow Agreement, twenty-five percent (25%) of the Escrow Amount, less (i) the amount of any claims made by Buyer in good faith against the Escrow Amount which are pending as of such date, and (ii) any amounts paid to Buyer from the Escrow Amount prior to such date, shall be released to the Representative (on behalf of the Stockholders and Optionholders) on the date which is twelve (12) months following the Closing Date and the remaining Escrow Amount, including any interest earned thereon from the Closing Date, less (x) the amount of any claims made by Buyer in good faith against the Escrow Amount that are pending as of such date, and (y) and amounts paid to Buyer from the Escrow Amount prior to such date, shall be released to the Representative (on behalf of the Stockholders and Optionholders) on the date which is twenty-four (24) months following the Closing Date.

2.6Certificate of Incorporation. The certificate of incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be amended at the Effective Time to change the corporate name set forth therein to “Carnegie Learning, Inc.” and, as so amended, shall be the certificate of incorporation of the Surviving Corporation until amended in accordance with applicable law.

2.7Bylaws. The Bylaws of Merger Sub in effect at the Effective Time shall be the Bylaws of the Surviving Corporation until amended in accordance with the provisions thereof and the provisions of the certificate of incorporation of the Surviving Corporation and in accordance with applicable law.

2.8Directors and Officers. From and after the Effective Time, until successors are duly elected or appointed in accordance with applicable law, the directors and officers of Merger Sub at the Effective Time shall be the directors and officers, respectively, of the Surviving Corporation.

2.9Dissenting Shares. Notwithstanding any other provision of this Agreement to the contrary, shares of Company Common Stock or Preferred Stock that are outstanding immediately prior to the Effective Time and that are held by Stockholders who shall not have voted in favor of the Merger or consented thereto in writing and who shall have properly demanded appraisal for

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such shares in accordance with Section 1574 of the PBCL (collectively, the “Dissenting Shares”) shall not be converted into or represent the right to receive a portion of the Stock Merger Consideration. Such Stockholders instead shall be entitled to receive payment from the Company of the “fair value” of such shares of Company Common Stock and/or Preferred Stock held by them in accordance with the provisions of Subchapter D of Chapter 15 of the PBCL, except that all Dissenting Shares held by Stockholders who shall have failed to perfect or who effectively shall have withdrawn or otherwise lost their rights to appraisal of such shares of Company Common Stock and/or Preferred Stock under Section 1576(a) of the PBCL shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, a portion of the Stock Merger Consideration determined in accordance with the provisions of the PBCL and this Agreement. The Company shall give Buyer prompt written notice of any demand for appraisal received pursuant to the PBCL.

2.10Estimated Indebtedness and Transaction Expenses. Not less than three business days prior to the anticipated Closing Date, the Company shall deliver to Buyer a written statement setting forth (a) its good faith calculation of its estimate (the “Closing Estimates”) of (i) the amount of Indebtedness of the Company which will be outstanding immediately prior to the Effective Time (“Estimated Indebtedness”) and (ii) Transaction Expenses, and (b) the Representative Administrative Amount, which Closing Estimates and Representative Administrative Amount shall be reasonably acceptable to Buyer.

2.11Post-Closing Adjustment.

(a)Within forty-five (45) days after the Closing Date, Buyer shall deliver to the Representative a statement setting forth its calculation of the Final Consideration, including the Closing Indebtedness and Transaction Expenses (the “Preliminary Closing Statement”). During the period following the Representative’s receipt of the Preliminary Closing Statement and until the Final Consideration is finally determined pursuant to this Section 2.11, the Representative and its accountants shall be permitted to review Buyer’s books and records and working papers related to Buyer’s preparation of the Preliminary Closing Statement. The Preliminary Closing Statement shall become final and binding upon Buyer, the Stockholders and the Optionholders thirty (30) days after the Representative’s receipt thereof, unless the Representative gives written notice of its disagreement (the “Notice of Disagreement”) to Buyer prior to such date, specifying in reasonable detail the nature of any disagreement so asserted and shall only include disagreements based upon mathematical errors or based upon the Preliminary Closing Statement not being prepared in accordance with this Section 2.11 and the related definitions contained herein. If a timely Notice of Disagreement is received by Buyer, then all amounts that are not in dispute shall be paid by the party owing such amount by wire transfer of immediately available funds no later than five business days after the time period in which the Representative delivers such Notice of Disagreement pursuant to Section 2.12 hereof. The determination of Closing Indebtedness, Transaction Expenses and Final Consideration (as revised in accordance with clause (x) or (y) below) shall become final and binding upon the Stockholders and the Optionholders on the earliest of (x) the date Buyer and the Representative resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement or (y) the date all matters in dispute are finally resolved in writing by the Dispute Resolution Auditor specified below. The Representative and Buyer shall negotiate in

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good faith to resolve any objections specified in the Notice of Disagreement, but if they do not reach a final resolution within thirty (30) days after the delivery of the Notice of Disagreement, the Representative and Buyer shall submit such dispute to Grant Thornton LLP (the “Dispute Resolution Auditor”). The Dispute Resolution Auditor shall consider only those items and amounts which are identified in the Notice of Disagreement as being items which the Representative and Buyer are unable to resolve. The Representative and Buyer shall use their commercially reasonable efforts to cause the Dispute Resolution Auditor to resolve all disagreements as soon as practicable. Further, the Dispute Resolution Auditor’s determination shall be based solely on the presentations by Buyer and the Representative which are in accordance with the terms and procedures set forth in this Agreement, the provisions of this Section 2.11 and the related definitions contained herein (i.e., not on the basis of an independent review). The resolution of the dispute by the Dispute Resolution Auditor shall be final, binding and non‑appealable on Buyer, the Stockholders and the Optionholders for purposes of this Section 2.11. The fees and expenses of the Dispute Resolution Auditor shall be allocated between Buyer, on the one hand, and the Stockholders and the Optionholders, on the other hand, based upon the percentage which the portion of the contested amount not awarded to each party bears to the amount actually contested by such party (with each Stockholder and Optionholder responsible for its portion of such costs and expenses (determined on a pro rata basis according to each Person’s Common Percentage)).

(b)If the Final Consideration as finally determined pursuant to Section 2.11(a) above is greater than the Closing Consideration, Buyer shall pay to the Representative (on behalf of the Stockholders and the Optionholders to the extent of each Person’s Common Percentage) such excess. If the Final Consideration as finally determined pursuant to Section 2.11(a) above is less than the Closing Consideration, each Stockholder and Optionholder (to the extent of each Person’s Common Percentage), shall pay to Buyer such shortfall; provided, that, at Buyer’s sole option, the Representative (on behalf of the Stockholders and the Optionholders) shall provide instructions to the Escrow Agent to deliver to Buyer from the Escrow Amount such shortfall. Payments to be made pursuant to this Section 2.11 shall be made in accordance with Section 2.12.

2.12Post-Closing Adjustment Payment. Buyer shall promptly (but in any event within five business days after the final determination of the Final Consideration pursuant to Section 2.11) deliver to the Representative (on behalf of the Stockholders and the Optionholders to the extent of each Person’s Common Percentage) any amounts determined pursuant to Section 2.11 to be due from Buyer by wire transfer of immediately available funds to an account designated by the Representative. The Representative shall promptly deliver such amounts to the Stockholders and the Optionholders according to each Stockholder’s and Optionholder’s Common Percentage. In the event any amounts are due from the Stockholders and Optionholders pursuant to Section 2.11, within two business days after the final determination of the Final Consideration pursuant to Section 2.11, Buyer shall deliver to the Representative a written notice indicating Buyer’s election either (i) to receive the amounts due to Buyer from the Stockholders and Optionholders directly or (ii) to have the Escrow Agent deliver to Buyer such amounts from the Escrow Amount. If Buyer elects to receive the amounts due to Buyer from the Stockholders and Optionholders directly, each Stockholder and Optionholder (to the extent of each Person’s Common Percentage), shall promptly (but in any event within five business days after the final determination of the Final Consideration pursuant to Section 2.11) deliver to Buyer any amounts determined pursuant to Section 2.11 to be

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due from the Stockholders and the Optionholders by wire transfer of immediately available funds to an account designated by Buyer. If Buyer elects to receive the amounts due to Buyer from the Escrow Amount, the Representative (on behalf of the Stockholders and the Optionholders to the extent of each Person’s Common Percentage) and Buyer shall promptly (but in any event within five business days after the final determination of the Final Consideration pursuant to Section 2.11) execute and deliver to the Escrow Agent a joint written instruction, instructing the Escrow Agent to disburse from the Escrow Amount any amounts determined pursuant to Section 2.11 to be due from the Stockholders and the Optionholders by wire transfer of immediately available funds to an account designated by Buyer.

2.13Closing Transactions.

(a)The Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Kirkland & Ellis LLP, 300 N. LaSalle Street, Chicago, Illinois, commencing at 10:00 a.m. local time on September 1, 2011, subject to the satisfaction or waiver of the conditions to Closing set forth in ARTICLE III (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions by the party entitled to the benefit thereof), or, if such conditions are not satisfied or waived by such date, on the third business day following the satisfaction or waiver of the conditions to Closing set forth in ARTICLE III (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions by the party entitled to the benefit thereof) or at such other time and place as is mutually agreeable to the Company and Buyer; provided that any party may participate remotely in the Closing by electronic delivery of documents and/or funds. The date and time of the Closing are referred to herein as the “Closing Date.”

(b)The Closing Transactions; Closing Payments. Subject to the terms and conditions set forth in this Agreement, Buyer, Merger Sub and the Company shall consummate the following transactions (the “Closing Transactions”) on the Closing Date:

(i)the Company and Merger Sub shall cause the Certificates of Merger to be executed and filed with the Secretary of State of the State of Delaware and the Secretary of State of the Commonwealth of Pennsylvania;

(ii)the Buyer shall make the following payments at Closing:

(A)in accordance with Section 2.3, Buyer shall deliver to the Representative (on behalf of each Stockholder) the aggregate amount to be paid to all Stockholders at the Closing pursuant to Section 2.2(a), by wire transfer of immediately available funds to the account designated by the Representative in writing;

(B)in accordance with Section 2.4, Buyer shall deliver to the Company (on behalf of each Optionholder) the aggregate amount to be paid to all Optionholders at the Closing pursuant to Section 2.4), by wire transfer of immediately available funds to the account designated by the Company in writing, for payment by the Company promptly following the Closing

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Date to each Optionholder that has delivered to the Company a duly executed Option Cancellation Agreement;

(C)Buyer shall deliver the Escrow Amount to the Escrow Agent pursuant to the terms and conditions of the Escrow Agreement by and among Buyer, the Representative and the Escrow Agent;

(D)Buyer shall repay, or cause to be repaid, on behalf of the Company, the amount of Estimated Indebtedness set forth on Schedule 2.13(b)(ii)(D), by wire transfer of immediately available funds to the account(s) designated by the holders of such Indebtedness; and

(E)simultaneously with the Closing, Buyer shall pay, or cause to be paid, on behalf of the Stockholders, Optionholders and the Company (as applicable), the Transaction Expenses set forth in the Closing Estimates by wire transfer of immediately available funds as directed by the Representative; and

(iii)Buyer, the Company and the Representative (on behalf of the Stockholders and the Optionholders) shall make such other deliveries as are required by ARTICLE III hereof.

2.14Tax Withholding. Notwithstanding anything in this Agreement to the contrary, Buyer, Merger Sub and/or the Company (or the Representative on their behalf) shall be entitled to deduct and withhold, or cause to be deducted or withheld, from the consideration otherwise payable pursuant to this Agreement to any Person such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code and the rules and regulations promulgated thereunder, or any provision of state, local or non-U.S. Tax law. To the extent that amounts are so withheld, or caused to be withheld, by Buyer, Merger Sub, the Company and/or the Representative, as applicable, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to such Person in respect of which such deduction and withholding was made by Buyer, Merger Sub or the Company, as applicable.

ARTICLE IIICONDITIONS TO CLOSING

3.1Conditions to Buyer’s and Merger Sub’s Obligations. The obligations of Buyer and Merger Sub to consummate the transactions contemplated by this Agreement is subject to the fulfillment of the following conditions as of the Closing:

(a)The representations and warranties set forth in ARTICLE V hereof which are not qualified as to materiality shall be true and correct in all material respects and the representations and warranties which are qualified as to materiality shall be true and correct in all respects, in each case as of the date hereof and at and as of the Closing Date as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties;

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(b)The Company shall have performed and complied in all material respects with all of the covenants and agreements required to be performed by it under this Agreement on or prior to the Closing;

(c)Those consents by third parties identified on Schedule 3.1(c) that are required for the consummation of the transactions contemplated hereby or that are required in order to prevent a breach of or a default under or a termination or modification of or any right of acceleration of any obligations under any contract or agreement (including the Leased Property) (“Third Party Approvals”) shall have been obtained, in form and substance reasonably satisfactory to Buyer and originals or copies of executed counterparts thereof shall have been made available for inspection by Buyer prior to the Closing;

(d)All governmental filings, authorizations and approvals that are required for the consummation of the transactions contemplated hereby (“Governmental Approvals”) shall have been duly made and obtained, and all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), shall have expired or been terminated;

(e)No suit, action or other proceeding, or injunction or final judgment, order or decree relating thereto, shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator in which it is sought to restrain or prohibit or to obtain damages or other relief (including rescission) in connection with the transactions contemplated hereby, or that has had, or would reasonably be expected to have, a Material Adverse Effect, or that would adversely affect the right of Buyer to own, operate or control the Company; no investigation that would result in any such suit, action or proceeding shall be pending nor threatened and no such judgment, order or decree has been entered and not subsequently dismissed with prejudice;

(f)From the date of this Agreement, there shall have been no event, transaction, condition or change, either individually or in the aggregate,which has had or would reasonably be expected to have a Material Adverse Effect;

(g)The Company shall have delivered to Buyer payoff letters with respect to all Indebtedness covered by clauses (i) and (ii) of the definition of Indebtedness herein which is outstanding as of the Closing, and documentation evidencing the release of any and all Liens securing such Indebtedness shall have been delivered, all on terms reasonably satisfactory to Buyer (the “Payoff Letters”);

(h)The CMU Licenses shall have been terminated and the transactions contemplated by the CMU Technology Purchase Agreement among Buyer, the Company and Carnegie Mellon University shall have been consummated;

(i)Each of the Retention Agreements shall not have been amended, altered or repealed and shall be effective as of the Closing in accordance with the terms of such agreement existing as of the date hereof;

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(j)The Representative and the Escrow Agent shall have executed and delivered to Buyer a counterpart of the Escrow Agreement;

(k)The Company shall have delivered to Buyer written evidence, in form and substance reasonably satisfactory to Buyer, that the agreements set forth on Schedule 3.1(k) have been terminated prior to the Closing;

(l)Each of the Non-Compete Agreements shall not have been amended, altered or repealed and shall be effective as of the Closing in accordance with the terms of such agreement existing as of the date hereof;

(m)Each of the Employment Agreement Termination Agreements shall not have been amended, altered or repealed and shall be effective as of the Closing in accordance with the terms of such agreement existing as of the date hereof;

(n)On or prior to the Closing Date, the Company shall have delivered to Buyer all of the following:

(i)a certificate from a duly authorized officer of the Company, in form and substance reasonably satisfactory to Buyer, dated the Closing Date, stating that the preconditions specified in Sections 3.1(a), (b), (e) and (f) have been satisfied (the “Company Closing Certificate”);

(ii)copies of the Third Party Approvals, Governmental Approvals and Payoff Letters;

(iii)evidence of termination of the CMU Licenses;

(iv)certified copies of (A) the articles of incorporation and by-laws of the Company, (B) the resolutions of the Company’s board of directors authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated hereby, and the consummation of all transactions contemplated hereby and thereby and (C) the Stockholder Approval;

(v)certificates of the Secretary of State of the Commonwealth of Pennsylvania and each state where it is qualified to do business (including the states listed on Schedule 5.1) stating that the Company is in good standing, dated not more than ten days prior to Closing;

(vi)a certificate in compliance with Treas. Reg. §§1.897-2(h) and 1.1445-2(c)(3) that the Company is not a “United States real property holding corporation” as defined under Section 897 of the Code;

(vii)copies of resignations from each director of the Company effective as of the Effective Time; and

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(viii)such other documents or instruments as Buyer may reasonably request to effect the transactions contemplated hereby.

Any condition specified in this Section 3.1 may be waived by Buyer; provided that no such waiver shall be effective unless it is set forth in a writing executed by Buyer.

3.2Conditions to Company’s Obligations. The obligation of the Company to consummate the transactions contemplated by this Agreement is subject to the fulfillment of the following conditions as of the Closing:

(a)The representations and warranties set forth in ARTICLE VI hereof which are not qualified as to materiality shall be true and correct in all material respects and the representations and warranties which are qualified as to materiality shall be true and correct in all respects, in each case as of the date hereof and at and as of the Closing Date as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties;

(b)Buyer shall have performed and complied in all material respects with all of the covenants and agreements required to be performed by it under this Agreement on or prior to the Closing;

(c)All Governmental Approvals shall have been duly made and obtained, and all applicable waiting periods (and any extensions thereof) under the HSR Act shall have expired or been terminated;

(d)Buyer shall have delivered the payments required by Section 2.13(b)(ii);

(e)On or prior to the Closing Date, Buyer shall have delivered to the Company all of the following:

(i)a certificate from a duly authorized officer of Buyer, in form and substance reasonably satisfactory to the Company, dated the Closing Date, stating that the preconditions specified in Sections 3.2(a) and 3.2(b) have been satisfied (the “Buyer Closing Certificate”);

(ii)certified copies of (A) the certificate of incorporation and by-laws of Buyer and Merger Sub and (B) the resolutions of the respective boards of directors of Buyer and Merger Sub authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated hereby, and the consummation of all transactions contemplated hereby and thereby;

(iii)certificates of good standing from the Secretary of State of the State of Delaware with respect to Merger Sub, and from the Secretary of State of the State of Arizona with respect to Buyer, each dated not more than ten days prior to Closing; and

(iv)such other documents or instruments as the Company may reasonably request to effect the transactions contemplated hereby;

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(f)Buyer and the Escrow Agent shall have executed and delivered to the Company a counterpart of the Escrow Agreement; and

(g)No suit, action or other proceeding, or injunction or final judgment, order or decree relating thereto, shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator in which it is sought to restrain or prohibit or to obtain damages or other relief (including rescission) in connection with the transactions contemplated hereby, or that has had, or would reasonably be expected to have, a Material Adverse Effect, or that would adversely affect the right of Buyer to own, operate or control the Company; no investigation that would result in any such suit, action or proceeding shall be pending nor threatened and no such judgment, order or decree has been entered and not subsequently dismissed with prejudice.

Any condition specified in this Section 3.2 may be waived by the Company; provided that no such waiver shall be effective against the Company unless it is set forth in a writing executed by the Company.

ARTICLE IVCOVENANTS PRIOR TO CLOSING

4.1Affirmative Covenants of the Company. Prior to the Closing, the Company shall:

(a)conduct its business and its operations only in the ordinary course of business consistent with past custom and practice (“Ordinary Course of Business”), including with respect to maintenance of working capital balances, collection of accounts receivable, payment of employee compensation, payment of accounts payable and cash management practices generally;

(b)use its reasonable efforts to cause its current insurance (or reinsurance) policies not to be cancelled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies providing coverage equal to or greater than the coverage under the cancelled, terminated or lapsed policies for substantially similar premiums are in full force and effect;

(c)keep in full force and effect its corporate existence and all rights and franchises relating or pertaining to its business and use commercially reasonable efforts to maintain in full force and effect the existence of, and protect, all Company Intellectual Property;

(d)use its reasonable efforts to keep its organization and properties intact in all material respects, including its present business operations, physical facilities, working conditions and employees and its present relationships with lessors, licensors, suppliers and customers, and encourage employees to continue their employment with the Company, as applicable, after the Closing;

(e)maintain the books, accounts and records of the Company in accordance with past custom and practice as used in the preparation of the Financial Statements;

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(f)promptly (once the Company obtains Knowledge thereof) inform Buyer in writing of any breach of the representations and warranties contained in ARTICLE V hereof or any breach of any covenant hereunder by the Company;

(g)comply with applicable legal requirements and material contractual obligations applicable to the operations and business of the Company in all material respects and pay all applicable Taxes when due and payable other than Taxes already being contested in good faith on the date of this Agreement, which contests are set forth on Schedule 4.2(s);

(h)cooperate with Buyer and use reasonable best efforts to cause the conditions to Buyer’s obligation to close to be satisfied (including the execution and delivery of all agreements contemplated hereunder to be so executed and delivered and the making and obtaining of all third party and governmental notices, filings, authorizations, approvals, consents, releases and terminations);

(i)provide, and cause its Affiliates, officers, directors, employees, attorneys, accountants and other agents to provide, Buyer and its attorneys, accountants and other agents reasonable access during normal business hours to the Company’s directors, officers, personnel, customers, suppliers, consultants, attorneys, accountants and facilities and to business, operational, financial, legal, regulatory, tax, compensation and other data and information concerning the Company and its business; provided that Buyer shall not contact customers or suppliers of the Company without the prior consent of the Company, which consent shall not be unreasonably withheld or delayed. Effective upon the Closing, the Confidentiality Agreement shall terminate without any further action on the part of the parties hereto; and

(j)use commercially reasonable efforts to have each PSLC researcher that did not execute an IP Assignment execute a present assignment from such PSLC Researcher to the Company of all Intellectual Property rights arising under any and all agreements between such PSLC Researcher and the Company, in form and substance reasonably acceptable to the Company and Buyer.

4.2Negative Covenants of the Company. Prior to the Closing, the Company shall not, without the prior written consent of Buyer or as otherwise expressly contemplated by this Agreement or as set forth in Schedule 4.2:

(a)issue, sell or deliver any shares of its capital stock (other than with respect to the exercise of options outstanding as of the date hereof) or issue or sell any securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe for, any shares of its capital stock;

(b)effect any recapitalization, reclassification, stock dividend, stock split or like change in its capitalization;

(c)amend its articles of incorporation or bylaws;

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(d)make any redemption or purchase of any shares of its capital stock (other than with respect to the repurchase of shares of Company Common Stock from former employees of the Company pursuant to existing agreements) or declare or pay any dividends or distributions with respect thereto;

(e)enter into, amend or modify any employment or severance agreement or other agreement or arrangement with any of its employees, or grant any increase in salary or bonus or otherwise increase the compensation payable to any director, officer, employee, consultant, advisor or agent employed in connection with or rendering services to the Company, except wage or salary increases required by existing contracts or made in the Ordinary Course of Business;

(f)enter into, establish, amend, terminate or (except as required by the express terms thereof) make any contribution to any employment or labor agreement or any benefit compensation plan, program, agreement or arrangement which covers employees of the Company, other than as required by applicable law;

(g)sell, assign, transfer, lease, license or otherwise dispose of any interest in any of its assets (other than sales of inventory or services in the Ordinary Course of Business), or permit, allow or suffer any of its assets to be subjected to any Lien, other than any Lien which exists as of the date of this Agreement or arises under any contract to which the Company is a party as of the date of this Agreement (all of which shall be released, satisfied or otherwise discharged as of the Closing Date, other than Permitted Liens);

(h)abandon or fail to take commercially reasonable actions to maintain or protect, or take (or fail to take) any other action that impairs or is reasonably likely to impair the value of, any of the Company Intellectual Property;

(i)engage in any promotional sales or discount or other activity with customers that has or would reasonably be expected to have the effect of accelerating to pre-Closing periods sales that would otherwise be expected to occur in post-Closing periods other than in the Ordinary Course of Business;

(j)make any capital investment in, or any loan to, any other Person;

(k)terminate or modify any government license, permit or other authorization;

(l)enter into any new, or amend or terminate any existing, contract, agreement or commitment involving more than $50,000 or that is otherwise material to the Company’s business or outside the Ordinary Course of Business, provided that the Company shall not be restricted from entering into any contract, agreement or commitment for the sale of Company products to customers in the Ordinary Course of Business (subject to Section 4.2(m) below);

(m)enter into any new contract, agreement or commitment containing an obligation of the Company to repurchase or reimburse a customer for any products or services;

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(n)make any capital expenditure greater than $50,000 individually or the aggregate or that is otherwise material to the Company’s business, in either case, that is not contemplated in the Company’s annual budget for the 2011 fiscal year as originally approved by the Company’s board of directors (the “2011 Budget”), or fail to make any material capital expenditure contemplated in the 2011 Budget;

(o)amend, modify, extend, renew or terminate any real property lease, or enter into any new lease, sublease, license or other agreement for the use or occupancy of any real property;

(p)institute any material change in the conduct of its business other than the restriction on entering into new contracts as expressly contemplated by Section 4.2(m) of this Agreement;

(q)take or omit to take any action which would be reasonably anticipated to have a Material Adverse Effect;

(r)enter into any transaction with or distribute any assets or property to any of the Company’s officers, directors, partners, stockholders or Affiliates;

(s)make or change any Tax election, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment relating to the Company, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company, take any other similar action relating to the filing of any Tax return or the payment of any Tax, or fail to pay any Taxes as they become due and payable (other than Taxes already being contested in good faith on the date of this Agreement, which contests are set forth on Schedule 4.2(s));

(t)(i) from the date hereof through August 15, 2011, use the Company’s cash to repay or otherwise discharge any Indebtedness existing as of the date hereof, and (ii) after August 15, 2011, use the Company’s cash to repay or otherwise discharge any Indebtedness existing as of the date hereof to the extent that doing so would cause (A) the amount of the Company’s cash balance, after giving effect to such repayment, to be less than $1,200,596 (including $750,000 of restricted cash with respect to the Next Generation Learning Challenges Grant Agreement, dated March 31, 2011, by and between the Company and EDUCAUSE) or (B) the aggregate amount of Closing Indebtedness and Transaction Expenses to be less than or equal to $9,000,000; or

(u)authorize or enter into an agreement to take any actions prohibited by this Section 4.2.

4.3Consents and Governmental Authorizations; HSR Filings; Notice to Non-Consenting Stockholders.

(a)Promptly after the date hereof, the Company shall (i) give, at its sole cost and expense, all notices required to be given to third parties in connection with the transactions contemplated hereby, and (ii) use reasonable best efforts to obtain prior to the Closing all consents and governmental authorizations identified or required to be identified on Schedule 5.5.

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(b)If applicable, Buyer and the Company shall each as promptly as practicable file with the United States Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”) the Notification and Report Form if required for the transactions contemplated by this Agreement and any supplemental information requested in connection therewith pursuant to the HSR Act. Each of Buyer and the Company shall be responsible for paying one-half of the applicable filing fee pursuant to the HSR Act with respect to the transactions contemplated by this Agreement. Any such Notification and Report Form and supplemental information will be in compliance with the requirements of the HSR Act. The Company and Buyer shall furnish to the other such necessary information and reasonable assistance as the other may required in connection with its preparation of any filing or submission which is necessary under the HSR Act. The Company and Buyer shall keep each other apprised of the status of any communications with, and inquiries or requests for additional information from, the FTC and the DOJ and shall comply promptly with any such inquiry or request. The Company and Buyer will use all commercially reasonable efforts to obtain early termination of the waiting period under the HSR Act and any other clearance required under the HSR Act for the transactions contemplated by this Agreement. Notwithstanding anything herein to the contrary, nothing in this Section 4.3 shall require Buyer, the Surviving Corporation or any of their Affiliates to, or agree to, divest, sell, dispose of, hold separate or otherwise take actions that limit its freedom of action with respect to its businesses or assets or the Company’s businesses or assets.

(c)Within one business day after the execution of this Agreement, the Company shall provide each Stockholder that has not executed the Stockholder Approval written notice of the Stockholder Approval and the actions taken thereby (the “Non-Consenting Stockholder Notice”), which shall indicate that the Stockholder Approval shall be effective ten days after the date of the Non-Consenting Stockholder Notice and comply with all applicable provisions of the PBCL.

4.4Buyer Efforts to Close. Buyer shall, and shall cause Merger Sub to, cooperate with the Company and use reasonable best efforts to cause the conditions to Buyer’s and Merger Subs’ obligations to close to be satisfied (including the execution and delivery of all agreements contemplated hereunder to be so executed and delivered and the making and obtaining of all third party and governmental notices, filings, authorizations, approvals, consents, releases and terminations).

ARTICLE VREPRESENTATIONS AND WARRANTIES OF THE COMPANY

As a material inducement to Buyer and Merger Sub to enter into this Agreement, the Company hereby represents and warrants to Buyer and Merger Sub that:

5.1Organization and Corporate Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and is qualified to do business as a foreign corporation in every jurisdiction in which the character of the Company’s properties or the nature of the Company’s activities require it to be so qualified, except where the failure to so qualify has not had or would not reasonably be expected to have a Material Adverse Effect. All such jurisdictions in which the Company is qualified are set forth on Schedule 5.1. The Company has full corporate power and authority and all licenses, permits

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and authorizations necessary to own and operate its properties, to carry on its business as now conducted and as presently proposed to be conducted. The copies of the Company’s articles of incorporation and by-laws which have been furnished to Buyer reflect all amendments made thereto at any time prior to the date of this Agreement and are correct and complete. The minute books containing the records of meetings of the stockholders and board of directors, the stock certificate books and the stock record books of the Company which have been furnished to Buyer are correct and complete in all material respects (excluding minutes of board of directors meetings regarding the consideration of the transactions contemplated by this Agreement). Except as set forth on Schedule 5.1, the Company is not in default under or in violation of any provision of its articles of incorporation or by-laws.

5.2Authorization of Transactions. The Company has full corporate power and authority to execute and deliver this Agreement and the other Transaction Documents to which the Company is a party and to consummate the transactions contemplated hereby and thereby. The board of directors of the Company has duly approved this Agreement and all other Transaction Documents to which the Company is a party and has duly authorized the execution and delivery of this Agreement and all other Transaction Documents to which the Company is a party and the consummation of the transactions contemplated hereby and thereby. No other corporate proceedings on the part of the Company are necessary to approve and authorize the execution and delivery of this Agreement or the other Transaction Documents to which the Company is a party and the consummation of the transactions contemplated hereby and thereby. The Stockholder Approval has been duly obtained and is the only vote, approval or other corporate action of the holders of the Company’s securities necessary to approve this Agreement, the other Transaction Documents to which the Company is a party and the transactions contemplated hereby and thereby. This Agreement and all other Transaction Documents to which the Company is a party have been duly executed and delivered by the Company and constitute the valid and binding agreements of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by bankruptcy laws, other similar laws affecting creditors’ rights and general principles of equity affecting the availability of specific performance and other equitable remedies.

5.3Capitalization. As of the date of this Agreement, the authorized, issued and outstanding capital stock of the Company consists of 113,500,000 shares of Company Common Stock and 91,919,597 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”), of which 3,192,324 shares of Preferred Stock have been designated Series A Preferred Stock, 2,727,273 shares of Preferred Stock have been designated Series B Preferred Stock, 11,000,000 shares of Preferred Stock have been designated Series C Preferred Stock, 2,000,000 shares of Preferred Stock have been designated Series D Preferred Stock, and 35,000,000 shares of the Preferred Stock have been designated Series E Preferred Stock. As of the date of this Agreement, 13,164,906 shares of Company Common Stock (including 3,449,486 shares of restricted Company Common Stock), 3,192,324 shares of Series A Preferred Stock, 2,727,272 shares of Series B Preferred Stock, 10,842,763 shares of Series C Preferred Stock, 1,882,756 shares of Series D Preferred Stock and 34,403,670 shares of Series E Preferred Stock are issued and outstanding and are owned of record and beneficially by the Stockholders in the amounts set forth opposite such Stockholder’s name on Schedule 5.3, and 10,421,500 shares of Company Common Stock are reserved for issuance upon exercise of the Options. Schedule 5.3 sets forth a complete and correct

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list of all outstanding Options, and with respect to each such Option, identifies (i) the name of the Optionholder that holds such Option, (ii) the date of grant of such Option and (iii) the portion of such Option that has vested. As of the Effective Time, after giving effect to the deemed conversion of all of the issued and outstanding shares of Preferred Stock, 101,986,045 shares of Company Common Stock (including 3,449,486 shares of restricted Company Common Stock) will be deemed issued and outstanding and owned of record and beneficially by the Stockholders in the amounts set forth opposite such Stockholder’s name on Schedule 5.3. All of the issued and outstanding shares of Preferred Stock and Company Common Stock have been duly authorized, are validly issued, fully paid and nonassessable, are not subject to, nor were they issued in violation of, any preemptive rights or rights of first refusal, and are owned of record and beneficially by the Stockholders in the amounts set forth on Schedule 5.3, free and clear of all Liens. Except as set forth on Schedule 5.3, the Company does not have any other capital stock, equity securities or securities containing any equity features authorized or outstanding. Other than the Options, there are no outstanding or authorized options, warrants, rights, contracts, calls, puts, rights to subscribe, conversion rights or other agreements or commitments to which the Company is a party or which are binding upon the Company providing for the issuance, disposition or acquisition of any of its capital stock or other equity securities of the Company of any kind (other than this Agreement). There are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the Company. Except as set forth on Schedule 5.3, there are no voting trusts, proxies or any other agreements or understandings with respect to the voting of the capital stock of the Company. Except as set forth in the Company’s articles of incorporation, the Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock. The Company has not violated any applicable federal or state securities laws in connection with the offer, sale or issuance of any of its capital stock. The Company has never declared or paid any dividends or distributions with respect to the Company Common Stock.

5.4Subsidiaries; Investments. The Company does not own, hold or control any shares of stock or any other security or interest (including any partnership, joint venture, debt or equity interest) in any other Person or any rights to acquire any such stock or other security or interest, or have any obligation to make an investment (whether by loan, capital contribution or purchase of securities) in any Person.

5.5Absence of Conflicts. Except as set forth in Schedule 5.5, the execution, delivery and performance of this Agreement and the other Transaction Documents to which the Company is a party and the consummation of the transactions contemplated hereby and thereby by the Company does not and shall not conflict with or result in any breach of, constitute a default under, result in a violation of, give any third party the right to modify, terminate or accelerate any obligation under, result in the creation of any Lien upon any capital stock or any assets of the Company under, or require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any court or administrative or other governmental body or agency under, the provisions of the articles of incorporation or by-laws of the Company or any indenture, mortgage, lease, loan agreement or other agreement or instrument to which the Company is bound or affected, or any law, statute, rule or regulation or order, judgment or decree to which the Company is subject, except such filings and notices as may be required under the HSR Act.

5.6Financial Statements. The Company has furnished Buyer with copies of (i) the Company’s unaudited balance sheet as of May 31, 2011 (the “Latest Balance Sheet”) and the related

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statement of income for the five-month period then ended and (ii) the Company’s audited balance sheets and statements of income, stockholders’ equity and cash flows for the fiscal years ended December 31, 2010 and 2009. Each of the foregoing financial statements (including in all cases the notes thereto, if any) (the “Financial Statements”) is accurate and complete in all material respects, is consistent with the Company’s books and records (which books and records are accurate and complete in all material respects), present fairly in all material respects the Company’s financial condition and results of operations as of the times and for the periods referred to therein, and has been prepared in accordance with GAAP, consistently applied, subject in the case of the unaudited financial statements to changes resulting from normal year-end adjustments for recurring accruals (which shall not be material individually or in the aggregate) and to the absence of footnote disclosure.

5.7Absence of Undisclosed Liabilities. The Company has no material obligations or liabilities (whether accrued, absolute, contingent, unliquidated or otherwise, whether or not known, whether due or to become due and regardless of when asserted) arising out of transactions entered into at or prior to the Closing, or any action or inaction at or prior to the Closing, or any state of facts existing at or prior to the Closing, except (i) obligations under contracts or commitments described in Schedule 5.13 or under contracts and commitments entered into in the Ordinary Course of Business which are not required to be disclosed thereon due to specified dollar thresholds or other limitations (but not liabilities for breaches thereof), (ii) liabilities reflected on the liabilities side of the Latest Balance Sheet, (iii) liabilities which have arisen after the date of the Latest Balance Sheet in the Ordinary Course of Business or otherwise in accordance with the terms and conditions of this Agreement (none of which is a liability for breach of contract, breach of warranty, tort or infringement or a claim or lawsuit or an environmental liability), and (iv) liabilities set forth on Schedule 5.7.

5.8Absence of Certain Developments. Since December 31, 2010, there has been no Material Adverse Effect. Without limiting the generality of the foregoing, except as set forth on Schedule 5.8 or as taken after the date hereof in accordance with Section 4.1 and subject to the restrictions set forth in Section 4.2, since December 31, 2010, the Company has not:

(a)redeemed or purchased, directly or indirectly, any of its capital stock or other equity interests or declared or paid any dividends or distributions with respect thereto or permitted any other withdrawal or distribution of funds or other assets from the Company to any of its Affiliates other than normal and reasonable salaries of employees and the payments of the Company’s normal expenses in the Ordinary Course of Business consistent with past practices;

(b)issued, sold or transferred any of its capital stock or other equity securities, securities convertible into its capital stock or other equity securities or warrants, options or other rights to acquire its capital stock or other equity securities, or any bonds or debt securities, other than with respect to the exercise of options in the Ordinary Course of Business;

(c)sold, leased, transferred, or assigned any of its tangible assets, other than for fair consideration in the Ordinary Course of Business;

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(d)entered into any agreement, contract, lease or license (or series of related agreements, contracts, leases or licenses) either involving a Company obligation of more than $50,000 or outside the Ordinary Course of Business;

(e)accelerated, terminated, modified, or cancelled any agreement, contract, lease or license (or series of related agreements, contracts, leases or licenses) to which the Company is a party or by which it is bound involving more than $50,000 or that is otherwise material to the Company’s businesses or outside the Ordinary Course of Business;

(f)mortgaged, pledged or subjected to any Lien any of its assets or capital stock, except for Permitted Liens;

(g)made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans or acquisitions), other than the acquisition of inventory in the Ordinary Course of Business;

(h)issued any note, bond or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation;

(i)delayed or postponed the payment of accounts payable and other liabilities outside the Ordinary Course of Business;

(j)cancelled, compromised, waived, or released any right or claim (or series of related rights or claims) either (i) involving more than $25,000, (ii) without having received fair consideration or (iii) outside the Ordinary Course of Business;

(k)sold, assigned, licensed, transferred or encumbered, or abandoned or failed to maintain or protect, or taken (or failed to take) any other action that impairs or is reasonably likely to impair the value of, any of the Company Intellectual Property or other intangible assets of the Company;

(l)experienced any material damage, destruction, or loss (whether or not covered by insurance) to its tangible assets;

(m)made any capital expenditures or commitments therefor greater than $50,000 individually or in the aggregate or that is otherwise material to the Company’s business that were not contemplated in the 2011 Budget, or failed to make any material capital expenditurescontemplated in the 2011 Budget;

(n)made any loan to, or entered into any other transaction with, any of its directors, officers or employees outside the Ordinary Course of Business;

(o)entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any such existing contract or agreement;

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(p)granted any increase in the base salary compensation of, or made any other change in employment terms for, any of its directors, officers or employees outside the Ordinary Course of Business;

(q)adopted, amended, modified, or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract or commitment for the benefit of any of its directors, officers, or employees (or taken any such action with respect to any other Employee Benefit Plan), other than as required by applicable law;

(r)made or changed any Tax election, changed an annual accounting period, adopted or changed any accounting method, filed any amended Tax Return, entered into any closing agreement, settled any Tax claim or assessment relating to the Company, surrendered any right to claim a refund of Taxes, consented to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company, took any other similar action relating to the filing of any Tax return or the payment of any Tax, or failed to pay any Taxes as they became due and payable; or

(s)committed or agreed to do any of the foregoing.

5.9Title to Properties.

(a)Owned Real Property. The Company does not own any real property.

(b)Leased Real Property. The real property lease described on Schedule 5.9(b) (the “Leased Property”) is valid, binding, enforceable and in full force and effect in all material respects and has not been modified (except to the extent disclosed in the documents delivered to Buyer), and the Company holds a valid and existing leasehold interest under such lease for the term set forth in Schedule 5.9(b). The Leased Property constitutes all of the leases and subleases under which the Company holds leasehold or subleasehold interests in real property. The Company has delivered to Buyer complete and accurate copies of the lease described in Schedule 5.9(b). With respect to the Leased Property:

(i)the lease shall continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Closing, except as enforceability may be limited by bankruptcy laws, other similar laws affecting creditors’ rights and general principles of equity affecting the availability of specific performance and other equitable remedies;

(ii)neither the Company nor, to the Company’s Knowledge, any other party to the lease is in breach or default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a breach or default or permit termination, modification or acceleration under the lease;

(iii)no party to the lease has provided written notice of its repudiation or its intention to repudiate any provision thereof and there are no material disputes, oral agreements or forbearance programs in effect as to the lease; and

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(iv)the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold.

(c)Except with respect to Intellectual Property (which is covered under Section 5.16), the Company owns good and marketable title to, or a valid leasehold interest in, free and clear of all Liens (other than Permitted Liens or Liens that will be discharged as of the Closing), all of the personal property and assets which are shown on the Latest Balance Sheet or acquired thereafter or used by the Company.

5.10Inventory. All inventory of the Company, including any inventory held in consignment by any third party, is of a quantity and quality usable (in the case of inventory held for use) and saleable (in the case of inventory held for sale) in the Ordinary Course of Business without discount (outside the Ordinary Course of Business) and is not damaged, defective, slow-moving or obsolete, subject only to the reserves identified for obsolescence accrued on the Latest Balance Sheet or which, consistent with GAAP, was to be booked following the date of the Latest Balance Sheet in the Ordinary Course of Business.

5.11Accounts Receivable. All of the accounts receivable of the Company reflected on the Latest Balance Sheet are good and valid receivables (subject to no valid counterclaims or offset), net of allowances for doubtful accounts as reflected thereon. As of the date hereof, there are no individual accounts receivable which are over $25,000 and ninety (90) days past due, except as set forth on Schedule 5.11(a). As of the Closing Date, no Person shall have any Lien (which, for the avoidance of doubt, shall not include any obligation of the Company to reimburse a customer pursuant to a product warranty provided to such customer by the Company) on such receivables or any part thereof, other than Liens expressly reflected on the Latest Balance Sheet or except as set forth on Schedule 5.11(b). No agreement for deduction, free goods, discount or other deferred price or quantity adjustment shall have been made with respect to any such receivables other than in the Ordinary Course of Business.

5.12Taxes.

(a)The Company has filed all Tax Returns that it was required to file under applicable laws and regulations. All such Tax Returns were correct and complete in all material respects and were prepared in substantial compliance with all applicable laws and regulations. All Taxes due and owing by the Company (whether or not shown on any Tax Return) have been paid. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of the Company.

(b)The Company has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.

(c)Except as set forth on Schedule 5.12(c), no federal, state, local or non-U.S. Tax audits or administrative or judicial Tax proceedings are pending or being conducted with respect to the Company. Except as set forth on Schedule 5.12(c), the Company has not received from any federal,

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state, local or non-U.S. taxing authority (including jurisdictions where the Company has not filed Tax Returns) any written (i) notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted or assessed by any taxing authority against the Company. Schedule 5.12(c) lists all federal, state, local and non-U.S. income Tax Returns filed with respect to the Company that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Company has delivered to Buyer correct and complete copies of all federal income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by the Company filed or received since December 31, 2006.

(d)The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

(e)The Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii). The Company is not a party to or bound by any Tax allocation or sharing agreement. The Company (i) has not been a member of an Affiliated Group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company) and (ii) has no Liability for the Taxes of any Person (other than the Company) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or non-U.S. law), as a transferee or successor, by contract, or otherwise.

(f)The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or non-U.S. income Tax law) executed on or prior to the Closing Date; (iii) intercompany transaction or excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local or non-U.S. income Tax law); (iv) installment sale or open transaction disposition made on or prior to the Closing Date; (v) prepaid amount received on or prior to the Closing Date; or (vi) election under Section 108(i) of the Code.

(g)The Company has not distributed stock of another Person, or had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Sections 355 or 361 of the Code. The Company is not and has not been a party to any “reportable transaction,” as defined in Section 6707A(c)(1) and Treasury Regulation Section 1.6011-4(b).

(h) The Company does not have a permanent establishment (within the meaning of an applicable Tax treaty) or otherwise have an office or fixed place of business in a country other than the country in which it is organized.

5.13Contracts and Commitments.

(a)Schedule 5.13 lists the following written contracts or other material oral agreements to which the Company is a party or is otherwise bound (other than contracts or agreements that

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have expired by their terms and for which no party thereto has any rights or obligations after the date of this Agreement):

(i)all contracts with any labor union or any bonus, pension, profit sharing, retirement or any other form of deferred compensation plan or any stock purchase, stock option or similar plan, or any severance agreement or arrangement that would require payments to any Person after the date of this Agreement;

(ii)all written agreements for the employment of any individual by the Company on a full time, part-time, consulting, or other basis (not including offer letters for at-will employment);

(iii)all agreements or indentures relating to the borrowing of money or to mortgaging, pledging or otherwise placing a Lien on any of its assets or its capital stock or any letter of credit arrangements;

(iv)all agreements relating to the licensing of Company Intellectual Property by the Company to a third party or by a third party to the Company (other than licenses of unmodified, off-the-shelf software that is not used in the Company’s products and has an aggregate purchase price of less than $25,000 and licenses of Company Intellectual Property to customers and end users entered into in the Ordinary Course of Business for the Company’s commercial Software products), or pertaining to any funding (including funding from any governmental authority) for any Company Intellectual Property;

(v)all nondisclosure or confidentiality agreements limiting the disclosure by the Company of material non-public information;

(vi)any guaranty of any obligation for borrowed money, contractual or otherwise, and any performance bonds;

(vii)all leases or agreements under which the Company is a lessee of or holds or operates any personal property owned by any other party for which the rental exceeds $25,000 per annum;

(viii)all leases or agreements under which the Company is lessor of or permits any third party to hold or operate any property, real or personal, controlled by the Company;

(ix)all contracts or group of related contracts with the same party for the furnishing or receipt of services or the purchase or sale of products or other personal property under which the undelivered balance of such products and services has a selling price in excess of $25,000 per annum (other than licenses of unmodified, off-the-shelf software that is not used in the Company’s products and has an aggregate purchase price of less than $25,000 and licenses of Company Intellectual Property to customers and end users entered into in the Ordinary Course of Business for the Company’s commercial Software products);

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(x)all contracts or group of related contracts with the same party (and, in the case of any customer contract, in excess of $25,000 per annum): (A) continuing over a period of more than six months from the date or dates thereof; or (B) not terminable by the Company upon sixty (60) days’ or less notice without penalty;

(xi)all contracts which prohibit the Company from freely engaging in business anywhere in the world;

(xii)all contracts with third parties for the distribution, marketing, sale, advertising or promotion of the Company’s products or services (not including purchase orders for the sale of goods in an amount less than $25,000 and entered into in the Ordinary Course of Business);

(xiii)all franchise agreements, agency agreements or powers of attorney;

(xiv)all agreements with respect to the lending or investing of funds by the Company in or to, or ownership by the Company of, other Persons (including investments in joint ventures and minority equity investments);

(xv)all agreements with the PSLC or any PSLC Researcher; and

(xvi)all other agreements material to the Company, whether or not entered into in the Ordinary Course of Business.

(b)With respect to each agreement required to be listed on Schedule 5.13, the Company has made available to Buyer a correct and complete copy of each written agreement listed thereon (as amended to date). With respect to each such agreement: (i) the agreement is legal, valid, binding, enforceable, and in full force and effect, except as enforceability may be limited by bankruptcy laws, other similar laws affecting creditors’ rights and general principles of equity affecting the availability of specific performance and other equitable remedies; (ii) the Company is not in breach or default in any material respect, nor has the Company taken any action which with notice or lapse of time or both would constitute a breach or default in any material respect, or permit termination, modification, or acceleration, under the agreement; (iii) to the Company’s Knowledge, (A) no other party is in breach or default in any material respect, and (B) no event has occurred which with notice or lapse of time or both would constitute a breach or default in any material respect, or permit termination, modification, or acceleration, under the agreement; and (iv) the Company has not received written notice of any other party’s repudiation or intention to repudiate any provision of the agreement.

5.14Customers.

(a)Schedule 5.14(a) lists all of the customers of the Company that purchased more than $100,000 of goods or services from the Company during the trailing twelve (12)-month period ended March 31, 2011. Except as set forth on Schedule 5.14(a), no customer required to be identified on Schedule 5.14(a) has terminated, or has provided the Company with written notice that it intends to terminate or not renew, its business relationship with the Company.

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(b)Except as set forth on Schedule 5.14(b), during the past three years the Company has not received notice of an event of default or breach under any written agreement with any customer required to be identified on Schedule 5.14(a), and the Company has not been required to pay any penalty or issue any credit to, or satisfy any warranty claims in respect of, any such customer related to the failure of the Company to meet any specified performance standards or similar requirements under such agreement, except for such penalties, credits or warranty claims which did not, individually or in the aggregate, exceed $100,000.

5.15Suppliers. Except as set forth on Schedule 5.15, there are no suppliers of products or services to the Company that are material to its business with respect to which practical alternative sources of supply are not generally available on comparable terms and conditions in the marketplace. No supplier of products or services to the Company has provided the Company with written notice of its intention to terminate its business relationship with the Company and the Company does not have Knowledge of any dispute with any material supplier of products or services to the Company.

5.16Intellectual Property.

(a)Schedule 5.16(a) contains a complete and accurate list of all of the following that are owned by the Company anywhere in the world: (i) patents, patent applications, patent disclosures, and invention disclosures and any reissue, continuation, continuation-in-part, division, revision, extension or reexamination thereof; (ii) registered or applications for registration of trademarks, service marks, trade dress, trade names, corporate names, logos and slogans; (iii) Internet domain names; (iv) registrations or applications for registration of copyrights, copyrightable works and mask works; and (v) Software and Software systems currently used in the Company’s business as presently conducted or under development, including any such software in which Company has partial or shared ownership with another Person. With respect to each patent application set forth in Schedule 5.16(a), (A) the Company has diligently prosecuted such patent application in a timely manner, (B) the Company has not made any intentional misrepresentations or misstatements and has not intentionally failed to disclose information during the prosecution of such patent application, (C) neither the Company nor its employees or agents have made any public disclosure, sale or offer for sale, prior to such patent application being filed with a patent office, (D) the Company has not sought or received a written opinion of patent counsel specifically opining as to the likelihood of obtaining or not obtaining patent rights under such patent application, and (E) such patent application was filed in the name of the proper inventor(s), and each inventor shown on such patent application has assigned to the Company such inventor’s right, title and interest in and to the invention covered by such patent application.

(b)Except as set forth on Schedule 5.16(b),the Company owns, free and clear of all Liens (and without restriction as to use or disclosure other than pursuant to a written license set forth on Schedule 5.13), the entire right, title and interest to, or has the right to use pursuant to a valid and enforceable written license set forth on Schedule 5.13, all Intellectual Property used in or necessary for the operation of its business as presently conducted, including all Intellectual Property identified on Schedule 5.16(a) but excluding (i) off-the-shelf software that is not incorporated in the Company’s products and has an aggregate purchase price of less than $100,000

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or (ii) any Open Source Software (which is separately addressed in Section 5.16(h)) (collectively, the “Company Intellectual Property”).

(c)The Company owns and possesses the entire right, title and interest in (or has the right to use pursuant to a license) all Company Intellectual Property created or developed by, for or under the direction or supervision of the Company, and all Persons who have participated in the creation or development of any such Company Intellectual Property, including the Company Intellectual Property set forth on Schedule 5.16(a), have executed and delivered to the Company a valid and enforceable agreement (i) providing for the non-disclosure by such Person of any confidential information of the Company, and (ii) providing for the present assignment by such Person to the Company of any Intellectual Property arising out of such Person’s employment by, engagement by or contract with the Company; provided, however, the Company makes no representation that employees or affiliates of Carnegie Mellon University have executed or delivered such a valid and enforceable agreement for Intellectual Property licensed to the Company pursuant to the CMU Licenses.

(d)No loss or expiration of any Company Intellectual Property is pending or threatened. The Company has taken reasonable actions to maintain and protect the Company Intellectual Property owned by the Company (“Owned Company Intellectual Property”) since its creation or acquisition by Company, whichever is later. The parties hereby acknowledge that the CMU Licenses contain certain grant-back rights to Carnegie Mellon University. The Tutor Development Kit is not incorporated or used in the Current Products.

(e)The Owned Company Intellectual Property is valid and enforceable and to the Company’s Knowledge, no claim by any third party contesting the validity, enforceability, use or ownership of any of the Company Intellectual Property has been made, is currently outstanding or is threatened, and there are no grounds for the same. Except as set forth on Schedule 5.16(e)(i), the Company has not infringed, misappropriated or otherwise conflicted with, and the operation of its business as currently conducted or as currently proposed to be conducted in its current business plan will not infringe, misappropriate or otherwise conflict with, any Intellectual Property of any third party, the Company is not aware of any facts that indicate a likelihood of any of the foregoing and the Company has not received any written notices regarding any of the foregoing (including any demands or offers to license any Intellectual Property from any third party).To the Company’s Knowledge, except with respect to potential infringements and potential misappropriations as set forth on Schedule 5.16(e)(ii), no third party has infringed, misappropriated or otherwise conflicted with any of the Owned Company Intellectual Property and the Company is not aware of any facts that indicate a likelihood of any of the foregoing. Immediately subsequent to the Closing, the Company Intellectual Property will be owned by or available for use by Company on terms and conditions identical to those under which Company owned or used the Company Intellectual Property immediately prior to the Closing, except to the extent that any right terminates or expires pursuant to its terms, or in accordance with the CMU Technology Purchase Agreement.

(f)Except as expressly contemplated by this Agreement or as set forth on Schedule 5.16(f), the Company is not a party to or bound by any agreement pursuant to which the Company has granted, or is obligated to grant in the future, to any party a Source Code license or option or other

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right to use or acquire Source Code owned or possessed by the Company, including any agreements that provide for Source Code escrow arrangements for Source Code owned or possessed by the Company. Except for Source Code that has been approved for release by Dennis Ciccone and as set forth on Schedule 5.16(f), no Source Code owned or possessed by the Company has been released or provided by the Company to anyPerson in connection with the PSLC. All Source Code set forth on Schedule 5.16(f) with respect to TRE Code has been tracked and is recorded in the Company’s subversion revision control system. Except as provided in the preceding two sentences, the Company has not disclosed any Source Code owned or properly licensed by the Company to any third party, except through a properly executed license agreement set forth on Schedule 5.13.

(g)Except as expressly contemplated by this Agreement or as set forth on Schedule 5.16(g), the Company has not agreed to indemnify any third party for or against any interference, infringement, misappropriation or other conflict with respect to any Company Intellectual Property.

(h)Schedule 5.16(h) lists all Open Source Software that is incorporated into, combined with, distributed with, or made available with, any Company product whether distributed or provided on a software-as-a-service, web-based application, or other service basis. Except as disclosed on Schedule 5.16(h), the Company has not used Open Source Software in a manner that would create obligations for the Company with respect to, or grant, or purport to (i) grant, to any third party, any rights or immunities under, any Company Intellectual Property; (ii) to disclose Source Code to any of the Company products (other than Source Code for components identified onSchedule 5.16(h)); (iii) grant rights to redistribute the Company products; (iv) grant patent non-asserts or patent licenses; or (v) otherwise grant any Intellectual Property rights not specifically granted in the Company’s license agreement with such third party.

(i)The computer software, computer firmware, computer hardware (whether general purpose or special purpose), electronic data processing, information, record keeping, communications, telecommunications, third party software, networks, peripherals and computer systems, including any outsourced systems and processes, and other similar or related items of automated, computerized and/or software systems that are used or relied on by the Company (excluding Company products, collectively, “Information Systems”) are adequate for the operation of its businesses as currently conducted, and the Company has purchased or licensed a sufficient number of license seats for all software currently used by the Company in such operations. With respect to the Information Systems; (i) the Company has taken reasonable steps and implemented reasonable procedures to ensure that information technology systems used in connection with the operation of businesses are free from contaminants in all material respects, including the use of commercially available antivirus software with the intention of protecting the Company’s products from becoming infected by viruses and other harmful code; (ii) to the Company’s Knowledge, there have been no successful unauthorized intrusions or breaches of the security of the information technology systems; (iii) there has not been any material malfunction that has not been remedied or replaced, or any material unplanned downtime or service interruption; (iv) the Company has implemented or is in the process of implementing (or in the exercise of reasonable business judgment has determined that implementation is not yet in the best interest of the Company) in a timely manner any and all security patches or security upgrades that are generally available for the Company’s

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Information Systems; and (v) to the Company’s Knowledge, no third party providing services to the Company has failed to meet any material service obligations.

(j)Except as set forth on Schedule 5.16(j): (i) no government funding, facilities or resources of a university, college, other educational institution or research center or funding from third parties was used in the development of the Owned Company Intellectual Property; (ii) no governmental entity, university, college, other educational institution or research center has any claim or right in or to such Owned Company Intellectual Property; and (iii) no current or former employee, consultant or independent contractor of the Company who was involved in, or who contributed to, the creation of Owned Company Intellectual Property, has performed services for the government, a university, college or other educational institution, or a research center (other than Carnegie Mellon University), during a period of time during which such employee, consultant or independent contractor was also performing services for the Company.

(k)Except as set forth onSchedule 5.16(k) no Company product contains, incorporates, or Inherits any third party proprietary software that cannot be readily replaced with commercially available alternative software at a cost of no more than $150,000 so that such product will retain its present functionality.

(l)The Company complies, in all material respects, with all relevant laws and its own policies with respect to the privacy of all users and customers and any of their personally identifiable information, and no claims have been asserted in writing to the Company or, to the Company’s Knowledge, threatened against the Company by any Person alleging a violation of any of the foregoing.

(m)Except as set forth on Schedule 5.16(m), the Company has not disclosed any customer data to any third party other than such party’s own data, whether for commercial, research or other purposes. The Company maintains one or more data servers on which certain customer data is stored (the “Data Servers”). No individual, other than the Company employees or contractors set forth on Schedule 5.16(m), has had access to the Data Servers since release of any of the Current Products.

(n)The Company has not donated, licensed, assigned, made available or otherwise transferred any Owned Company Intellectual Property (including any Source Code that is Owned Company Intellectual Property) to the PSLC. Other than as set forth on Schedule 5.16(n), the Company has not agreed to, or is otherwise obligated to, donate, license, assign, make available, or otherwise transfer any Owned Company Intellectual Property (including any Source Code that is Owned Company Intellectual Property) to the PSLC. None of the Owned Company Intellectual Property (including any Source Code that is Owned Company Intellectual Property) set forth on Schedule 5.16(n) has been, is, or will be used in any of the Company’s commercial product or service offerings.

(o)Except as set forth on Schedule 5.16(o), none of the Owned Company Intellectual Property (including any Source Code that is Owned Company Intellectual Property) used in any of the Company’s commercial product or service offerings has been made available by the Company to any PSLC Researcher.

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(p)Except as set forth on Schedule 5.16(p) no PSLC Researcher has been provided access to any Source Code that incorporates or is based on the Company’s Tutor Runtime Environment. No material Owned Company Intellectual Property (including any Source Code) has been donated, licensed, assigned, made available or otherwise transferred to any PSLC Researcher. The Company has not developed, conceived or reduced to practice any Intellectual Property that qualifies as PSLC Intellectual Property as such term is defined in the Pittsburgh Science of Learning Center Participation Agreement between the Company, Carnegie Mellon University, the University of Pittsburgh, any and all member universities to the PSLC and any and all Members (as that term is defined in the Participation Agreement) of the PSLC dated August 10, 2010 (“Participation Agreement”). To the Company’s Knowledge, no PSLC industrial affiliate or any other party that entered into any agreement with the PSLC that is equivalent to the Participation Agreement, has developed, conceived or reduced to practice any Intellectual Property that qualifies as PSLC Intellectual Property as such term is defined in the Participation Agreement or such equivalent agreement (collectively, “PSLC-owned IP”). To the Company’s Knowledge, the PSLC has not granted any licenses or otherwise assigned, transferred or made available to any third party any PSLC-owned IP.

(q)None of the Company’s products, services, software or the operation of the Company’s business use or infringe, or have ever used or infringed, any of the systems, methods or techniques disclosed, described, claimed or otherwise contemplated in the CMU Patent.

5.17Litigation; Proceedings. Except as set forth in Schedule 5.17, there are no, and during the past three years there have not been any, actions, suits, proceedings, orders or investigations pending or, to the Company’s Knowledge, threatened by or against the Company or affecting its business, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and the Company is not subject to any outstanding injunction, order, judgment, decree, ruling or charge.

5.18Brokerage. Except as set forth in Schedule 5.18, there are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of the Company, any Stockholder, any Optionholder or any of their respective Affiliates.

5.19Governmental Licenses and Permits.Schedule 5.19 contains a complete listing and summary description of all material permits, licenses, franchises, certificates, approvals and other authorizations of foreign, federal, state and local governments or other similar rights (collectively, the “Licenses”) owned or possessed by the Company, or used by the Company, in the conduct of its business. The Company owns or possesses all right, title and interest in and to all Licenses which are necessary to conduct its business as currently conducted. No loss or involuntary termination of any License is pending or, to the Company’s Knowledge, threatened.

5.20Employees. To the Company’s Knowledge, no executive officer, developer, cognitive scientist, researcher or information technology architect and no group of employees or independent contractors of the Company has any plans to terminate his, her or its employment or relationship as an independent contractor with the Company. The Company has complied and is in compliance in all material respects with all applicable laws relating to the employment of personnel and labor, including provisions thereof relating to wages, hours, equal opportunity,

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collective bargaining and the payment of social security and other Taxes, the Worker Adjustment and Retraining Notification Act, and the Immigration Reform and Control Act of 1986. The Company is not a party to or bound by any collective bargaining agreement, nor has it experienced any strikes, grievances, unfair labor practices claims or other material employee or labor disputes. The Company has not engaged in any unfair labor practice. To the Company’s Knowledge, there is no organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of the Company.

5.21Employee Benefit Plans.

(a)Schedule 5.21(a) contains a complete and correct list of all Employee Benefit Plans.

(b)Except as set forth on Schedule 5.21(b), each Employee Benefit Plan (and each related trust, insurance contract or fund) has been maintained, funded and administered in all material respects in accordance with its terms and complies in all material respects in form and in operation with the applicable requirements of ERISA, the Code and other applicable laws.

(c)All contributions (including all employer contributions and employee salary reduction contributions) and premium payments that are due with respect to each Employee Benefit Plan have been made, and all contributions and premium payments for any period ending on or before the Closing Date that are not yet due have been made or properly accrued.

(d)Each Employee Benefit Plan that is intended to meet the requirements of a “qualified plan” under Section 401(a) of the Code has received a determination or opinion letter from the Internal Revenue Service that such Employee Benefit Plan is so qualified, and there are no facts or circumstances that could reasonably be expected to adversely affect the qualification of any such Employee Benefit Plan.

(e)There has been no non-exempt prohibited transaction (as defined in Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary duty (as determined under ERISA) with respect to any Employee Benefit Plan for which the Company has or would reasonably be expected to have any material liability. With respect to each Employee Benefit Plan, no action, complaint, suit, proceeding, hearing, examination, litigation, claim audit or investigation is pending or, to Company’s Knowledge, threatened (other than claims for benefits in the Ordinary Course of Business).

(f)With respect to each Employee Benefit Plan, the Company has made available to Buyer, to the extent applicable, correct and complete copies of: the plan documents (with any amendments thereto) and summary plan descriptions; the most recent determination or opinion letter received from the Internal Revenue Service; the three (3) most recent annual reports (Form 5500, with all applicable attachments) as filed; all related trust agreements, insurance contracts and other funding arrangements; and all other material documents pursuant to which the Employee Benefit Plan is maintained, funded or administered.

(g)Except as set forth on Schedule 5.21(g),no Employee Benefit Plan provides, and the Company does not otherwise have any obligation to provide, health or life insurance or other welfare-type benefits for current or future retired or terminated employees (or any spouse or other dependent thereof) or other service providers other than during the periods required by COBRA.The Company has complied and is in compliance with the requirements of COBRA in all material respects.

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(h)The Company does not have any current or potential liability or obligation under or with respect to: (i) any “employee benefit plan” (as defined in Section 3(3) of ERISA) that is or was subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code; (ii) any “multiemployer plan” (as defined in Section 3(37) of ERISA); (iii) any “multiple employer plan” (within the meaning of Section 413 of the Code); or (iv) any “multiple employer welfare arrangement” (within the meaning of Section 3(40) of ERISA). The Company does not have any current or potential liability or obligation solely by reason of at any time being treated as a single employer under Section 414 of the Code with any other Person.

(i)Except as otherwise provided in Schedule 5.21(i), the transactions contemplated by this Agreement will not result in (i) any payment of, or increase in, compensation or benefits to any Person, or (ii) the acceleration of the vesting, funding or time of payment of any compensation or benefit to any Person.

(j)Except as otherwise provided in Schedule 5.21(j), the Company is not a party to any agreement, contract, arrangement or plan that has resulted or would reasonably be expected to result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of Section 280G of the Code (or any corresponding provision of state, local or non-U.S. Tax law), as a result of the transactions contemplated by this Agreement.

(k)Each contract, arrangement or plan of the Company that is a “nonqualified deferred compensation plan” (as defined for purposes of Section 409A(d)(1) of the Code) has been maintained in good-faith compliance with Section 409A of the Code and the applicable guidance issued thereunder. The Company does not have any obligation to indemnify any Person for any Taxes imposed under Section 409A of the Code.

5.22Insurance.Schedule 5.22 contains a description of each insurance policy maintained by the Company with respect to its properties, assets, businesses, employees, directors and officers, setting forth the type of coverage, the annual premiums, deductibles and coverage amounts therefor and an indication whether such policy is on a “claims made” or “incurrence” basis. Each such policy is in full force and effect and the Company is not in default with respect to its obligations under any insurance policy maintained by it, and has not been denied insurance coverage. All premiums with respect to the insurance policies of the Company which are due and payable have been paid, there are no retroactive premiums with respect to such policies and no written notice of cancellation or termination has been received by the Company with respect to such insurance policies. Except as set forth on Schedule 5.22, the Company does not have any self-insurance or co-insurance programs, and the reserves set forth on the Latest Balance Sheet are adequate to cover all currently anticipated liabilities with respect to any such self-insurance or co-insurance programs.

5.23Affiliate Transactions. Except as disclosed on Schedule 5.23, no officer, director, employee, stockholder, or Affiliate of the Company or any individual in such Person’s immediate family (including any such Persons related by marriage or adoption) in which any such Person owns any beneficial interest, is a party to any agreement, contract, commitment or transaction with the Company or has any interest in any property, real or personal or mixed, tangible or intangible, used in or pertaining to the Company’s business. Schedule 5.23 hereto describes all intercompany or

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affiliated services provided to or on behalf of the Company by its Affiliates and to or on behalf of such Affiliates by the Company.

5.24Compliance with Laws. The Company has complied and is in compliance in all material respects with all applicable laws, ordinances, rules, requirements and regulations of foreign, federal, state and local governments and all agencies thereof relating to the operation of its business, and the Company has no Knowledge of and no written notice has been received by, and no claims have been filed against (for which the Company has received written notice), the Company alleging a violation of any such laws, ordinances, rules, requirements or regulations.

5.25Environmental Matters. The Company has complied and is in compliance in all material respects with all Environmental and Safety Requirements (including all permits and licenses required thereunder). The Company has not received any oral or written notice of any violation of, or any liability (contingent or otherwise), including any investigatory, corrective or remedial obligation under, any Environmental and Safety Requirements. To the Company’s Knowledge, no facts or circumstances with respect to the past or current operations or facilities of the Company or any of its predecessors or Affiliates (including any on‑site or off‑site disposal or release of, or contamination by, hazardous materials, substances or wastes) would give rise to any liability or investigatory, corrective or remedial obligation under any Environmental and Safety Requirements. The Company has not assumed, become subject to or provided an indemnity with respect to any liability of any other Person relating to any Environmental and Safety Requirements. The Company has made available to Buyer all environmental site assessments and environmental audit reports relating to the Company or any of its facilities, to the extent such documents are in the possession or reasonable control of the Company.

5.26Product Warranty. Each product sold or delivered and each service rendered by the Company has been in conformity in all material respects with all applicable contractual commitments and all express and implied warranties, and the Company has no liability or obligation for replacement or repair thereof or other damages in connection therewith, subject only to the reserve for product and service warranty claims accrued on the Latest Balance Sheet or which, consistent with GAAP, was to be booked following the date of the Latest Balance Sheet in the Ordinary Course of Business. No product sold or delivered or service rendered by the Company is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions with respect thereto or otherwise contained in the applicable license agreement or written contract relating to such product or service. Prior to the date hereof, the Company has delivered to Buyer copies of the standard terms and conditions of sale for products delivered and services rendered by the Company (containing all applicable guaranty, warranty, and indemnity provisions).

5.27FERPA. The Company has complied in all material respects and is in compliance with the applicable provisions of the Family Educational Rights and Privacy Act, 20 U.S.C. s. 1232g; 34 C.F.R. Part 99 (“FERPA”), including with respect to the handling, nondisclosure and use of any student information protected by FERPA that the Company has received.

5.28Title IV Compliance. The Company has never participated as an institution or third-party servicer in any federal student aid program authorized under the Higher Education Act of 1965, as amended. Neither the Company, nor to its Knowledge, any of its employees, directors, officers or subcontractors, has been: (a) convicted of, or pled nolo contendere or guilty to, a crime

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involving the acquisition, use, or expenditure of federal, state, or local government funds; or (b) administratively or judicially determined to have committed fraud or any other material violation of law involving federal, state, or local government funds.

ARTICLE VIREPRESENTATIONS AND WARRANTIES OF BUYER

As a material inducement to the Company to enter into this Agreement, Buyer hereby represents and warrants to the Company that:

6.1Organization and Corporate Power. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona, with full corporate power and authority to enter into this Agreement and the other agreements contemplated hereby to which Buyer is a party and perform its obligations hereunder and thereunder. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full corporate power and authority to enter into this Agreement and perform its obligations hereunder.

6.2Authorization of Transaction. The execution, delivery and performance of this Agreement and the other agreements contemplated hereby to which Buyer or Merger Sub is a party have been duly and validly authorized by all requisite corporate action on the part of Buyer and Merger Sub, and no other corporate proceedings on its part are necessary to authorize the execution, delivery or performance of this Agreement. This Agreement constitutes, and each of the other agreements contemplated hereby to which Buyer or Merger Sub is a party shall when executed constitute, a valid and binding obligation of Buyer and Merger Sub, as applicable, enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy laws, other similar laws affecting creditors’ rights and general principles of equity affecting the availability of specific performance and other equitable remedies.

6.3No Violation. Neither Buyer nor Merger Sub is subject to or obligated under its certificate or articles of incorporation, its by-laws (or similar organizational documents), any applicable law, or rule or regulation of any governmental authority, or any agreement or instrument, or any license, franchise or permit, or subject to any order, writ, injunction or decree, which would be breached or violated by its execution, delivery or performance of this Agreement and the other agreements contemplated hereby to which it is a party.

6.4Governmental Authorities and Consents. Except for such filings and notices as may be required under the HSR Act, (i) neither Buyer nor Merger Sub is required to submit any notice, report or other filing with any governmental authority in connection with the execution or delivery by it of this Agreement or the consummation of the transactions contemplated hereby, and (ii) no consent, approval or authorization of any governmental or regulatory authority or any other Person is required to be obtained by Buyer or Merger Sub in connection with its execution, delivery and performance of this Agreement or the transactions contemplated hereby.

6.5Litigation. There are no actions, suits, proceedings or orders pending or, to Buyer’s knowledge, threatened against or affecting Buyer or Merger Sub at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which would adversely affect Buyer’s or Merger

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Sub’s performance under this Agreement or the consummation of the transactions contemplated hereby.

6.6Brokerage. There are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of Buyer, Merger Sub or any of their respective Affiliates.

6.7Purpose. Merger Sub is a newly organized corporation, formed solely for the purpose of engaging in the transactions contemplated by this Agreement. Prior to the date hereof, Merger Sub has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated by this Agreement. Merger Sub is a wholly owned Subsidiary of Buyer.

6.8Financing. Buyer has sufficient cash on hand or available credit facilities to pay the aggregate Merger Consideration hereunder and to pay all of its related fees and expenses.

ARTICLE VIITERMINATION

7.1Termination. This Agreement may be terminated at any time prior to the Closing:

(a)by mutual written consent of Buyer and the Company;

(b)by Buyer if there has been a material misrepresentation or breach on the part of the Company of any representation, warranty or covenant set forth in this Agreement and such breach shall not have been cured within ten days after notice thereof has been delivered to the Company (or in any event prior to the date of Closing), or if events have occurred which have made it impossible to satisfy a condition precedent to Buyer’s obligation to consummate the transactions contemplated hereby unless Buyer’s or Merger Sub’s breach of this Agreement has caused the condition to be unsatisfied;

(c)by the Company if there has been a material misrepresentation or breach on the part of Buyer or Merger Sub of any representation, warranty or covenant set forth in this Agreement and such breach shall not have been cured within ten days after notice thereof has been delivered to Buyer (or in any event prior to the date of Closing), or if events have occurred which have made it impossible to satisfy a condition precedent to the Company’s obligation to consummate the transactions contemplated hereby unless the Company’s breach of this Agreement has caused the condition to be unsatisfied; or

(d)by Buyer or the Company if the Closing has not occurred on or prior to September 15, 2011 (the “Termination Date”); provided, however, no Person shall be entitled to terminate this Agreement pursuant to this Section 7.1(d) if such Person’s breach of this Agreement has prevented the consummation of the transactions contemplated hereby at or prior to such time.

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7.2Effect of Termination. In the event of termination of this Agreement by either Buyer or the Company as provided in Section 7.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto to any other party hereto or its stockholders, optionholders, directors or officers under this Agreement, except for the provisions of Sections 9.3, 9.5 and 9.6 and ARTICLE X which shall continue in full force and effect following any termination and except that nothing herein shall relieve any party hereto from liability for any breach of this Agreement prior to such termination.

ARTICLE VIIIINDEMNIFICATION AND RELATED MATTERS

8.1Survival. The representations and warranties in this Agreement, the Schedules hereto, the Company Closing Certificate and the Buyer Closing Certificate shall survive the Closing as follows:

(a)the representations and warranties in Sections 5.12 (Tax Matters) and 5.21 (Employee Benefit Plans), and in the Company Closing Certificate with respect to Sections 5.12 and 5.21, shall terminate when the applicable statutes of limitations with respect to the liabilities in question expire (giving effect to any extensions or waivers thereof), plus thirty (30) days;

(b)the representations and warranties in Sections 5.1 (Organization), 5.2 (Authorization), 5.3 (Capitalization), 5.4 (Subsidiaries), 5.18 (Brokerage), 6.1 (Organization), 6.2 (Authorization) and 6.6 (Brokerage), and in the Company Closing Certificate with respect to Sections 5.1, 5.2, 5.3, 5.4, 5.18, and in the Buyer Closing Certificate with respect to Sections 6.1, 6.2 and 6.6, shall not terminate;

(c)the representations and warranties in Section 5.16 (Intellectual Property), and in the Company Closing Certificate with respect to Section 5.16, shall terminate on the date which is thirty (30) months following the Closing Date; and

(d)all other representations and warranties in this Agreement, the Schedules hereto, the Company Closing Certificate and the Buyer Closing Certificate shall terminate on the date which is eighteen (18) months following the Closing Date.

The representations and warranties in this Agreement, the Schedules hereto, the Company Closing Certificate and the Buyer Closing Certificate, shall survive for the periods set forth in this Section 8.1 and shall in no event be affected by any investigation, inquiry or examination made for or on behalf of Buyer or the Company or the knowledge of any of Buyer’s or the Company’s officers, directors, shareholders, employees or agents or the acceptance by Buyer or the Company of any certificate hereunder. Notwithstanding the foregoing, any representation or warranty in respect of which indemnity may be sought under Section 8.2 below, and the indemnity with respect thereto, shall survive the time at which it would otherwise terminate pursuant to this Section 8.1 if written notice pursuant to Section 8.2(e) of the inaccuracy or breach or potential inaccuracy or breach thereof giving rise to such right or potential right of indemnity (made in good faith and with reasonable specificity under the circumstances) shall have been given to the party against whom such indemnity may be sought prior to such time (regardless of when the Losses in respect thereof may actually be

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incurred). The covenants and agreements contained herein shall remain in full force and effect pursuant to their terms (or if no survival period is specified herein, such covenant and agreements shall survive until performed or fulfilled). The obligation of the Indemnifying Equityholders under Section 8.2(a)(vi) shall terminate on the date which is thirty (30) months following the Closing Date; provided, however, that obligation of the Indemnifying Equityholders under Section 8.2(a)(vi) shall survive the time at which it would otherwise terminate pursuant to this Section 8.1 if written notice pursuant to Section 8.2(e) of the matter giving rise to such right or potential right of indemnity (made in good faith and with reasonable specificity under the circumstances) shall have been given to the party against whom such indemnity may be sought prior to such time (regardless of when the Losses in respect thereof may actually be incurred).

8.2Indemnification.

(a)Indemnification by Stockholders and Optionholders. Subject to Sections 8.2(c) and 8.2(f), from and after the Closing, each Stockholder and Optionholder (each, an “Indemnifying Equityholder”) shall, severally and not jointly, based on their respective Common Percentages, indemnify Buyer and the Company and each of their respective officers, directors, employees, agents, representatives, affiliates, successors and permitted assigns (collectively, the “Buyer Indemnified Parties”) and hold each of them harmless from and against and pay on behalf of or reimburse such Buyer Indemnified Parties in respect of any loss, liability, obligation, demand, claim, action, cause of action, cost, damage, deficiency, Tax, penalty, fine or expense, whether or not arising out of third party claims (including interest, penalties, reasonable attorneys’ fees and expenses, court costs and all amounts paid in investigation, defense or settlement of any of the foregoing) (collectively, “Losses” and individually, a “Loss”) which any such Buyer Indemnified Party may suffer, sustain or become subject to, as a result of, in connection with, or relating to:

(i)the breach of any representation or warranty made by the Company contained in this Agreement, any Schedule hereto or any certificate delivered by the Company to Buyer with respect hereto in connection with the Closing;

(ii)the nonfullfillment or breach of any covenant or agreement made by the Company contained in this Agreement, any Schedule hereto or any certificate delivered by the Company to Buyer with respect hereto in connection with the Closing;

(iii)any Indebtedness of the Company existing on or prior to the Closing or the Transaction Expenses, in each case only to the extent such items were not taken into account in adjusting the Closing Consideration or the Final Consideration;

(iv)any amounts required to be paid with respect to any Dissenting Share in excess of the Per Share Portion of the Stock Merger Consideration;

(v)any of the matters set forth on Schedule 8.2 attached hereto; or

(vi)a breach by any of the PSLC Researchers of any agreement between such PSLC Researcher and the Company.

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Notwithstanding anything to the contrary contained herein, for purposes of determining whether there has been a breach of a representation or warranty and the amount of any Losses that are the subject matter of a claim for indemnification hereunder, each representation, warranty and other provision contained in this Agreement and each certificate delivered pursuant hereto shall be read without regard and without giving effect to any materiality, Material Adverse Effect standard or qualification contained in such representation or warranty (as if such standard or qualification were deleted from such representation and warranty).

(b)Buyer Indemnification. From and after the Closing, Buyer shall indemnify the Stockholders and Optionholders and each of their respective officers, directors, employees, agents, representatives, Affiliates, heirs, successors and permitted assigns (collectively, the “Seller Indemnified Parties”) and hold each of them harmless from and against and pay on behalf of or reimburse such Seller Indemnified Parties in respect of any Loss which any such Seller Indemnified Party may suffer, sustain or become subject to, as the result of, in connection with, or relating to:

(i)the breach by Buyer of any representation, warranty or covenant made by Buyer contained in this Agreement, any Schedule hereto or any certificate delivered by Buyer to the Company with respect hereto in connection with the Closing; or

(ii)the nonfullfillment or breach of any covenant or agreement made by Buyer contained in this Agreement, any Schedule hereto or any certificate delivered by Buyer with respect hereto in connection with the Closing.

(c)Limitations on Indemnity. The indemnification provided for in Sections 8.2(a)(i) and 8.2(a)(vi) above is subject to the following limitations:

(i)The Indemnifying Equityholders shall not be liable to the Buyer Indemnified Parties for any Loss arising under Section 8.2(a)(i) (other than with respect to (A) the representations and warranties contained in Sections 5.1 (Organization), 5.2 (Authorization), 5.3 (Capitalization), 5.4 (Subsidiaries), 5.12 (Taxes), 5.18 (Brokerage), 5.21(j) and (k) (Employee Benefit Plans), and in the Company Closing Certificate with respect to Sections 5.1, 5.2, 5.3, 5.4, 5.12,5.18, 5.21(j) and 5.21(k) (collectively, the “Fully Indemnified Representations”) and (B) the Special IP Representations, which are addressed in Section 8.2(c)(ii) below) unless the aggregate of all Losses relating thereto for which the Indemnifying Equityholders would, but for this Section 8.2(c)(i), be liable exceeds an amount equal to $500,000 (the “General Deductible”), in which case the Indemnifying Equityholders shall be liable only for the amount by which such Losses exceed the General Deductible;

(ii)The Indemnifying Equityholders shall not be liable to the Buyer Indemnified Parties for any Loss arising under Section 8.2(a)(i) with respect to any Special IP Representation or arising under Section 8.2(a)(vi) unless the aggregate of all Losses relating thereto for which the Indemnifying Equityholders would, but for this Section 8.2(c)(ii), be liable exceeds an amount equal to $1,000,000 (the “Special IP Deductible”), in which case the Indemnifying Equityholders shall be liable only for the amount by which such Losses exceed the Special IP Deductible;

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(iii)The Indemnifying Equityholders shall not be liable to the Buyer Indemnified Parties for any Loss arising under Section 8.2(a)(i) or 8.2(a)(vi) unless and until the aggregate amount of Losses that would be payable pursuant to such claim (or series of related claims) exceeds an amount equal to $10,000 (the “Mini‑Basket”); provided, however, that all such individual claims (or series of related claims) for amounts less than the Mini‑Basket shall be counted in determining whether the General Deductible has been exceeded, in the case of Losses arising under Section 8.2(a)(i) with respect to any representations and warranties other than the Special IP Representations, or the Special IP Deductible has been exceeded, in the case of Losses arising under Section 8.2(a)(i) with respect to any Special IP Representation or arising under Section 8.2(a)(vi);

(iv)the Indemnifying Equityholders’ aggregate liability under Section 8.2(a)(i) above (other than with respect to (A) the Fully Indemnified Representations, which are uncapped, and (B) the Special IP Representations, which are addressed in Section 8.2(c)(v) below) shall in no event exceed $11,000,000 (the “General Cap”); and

(v)the Indemnifying Equityholders’ aggregate liability under Section 8.2(a)(i) above with respect to the Special IP Representations and under Section 8.2(a)(vi) above shall in no event exceed $19,000,000 (the “Special IP Cap”) (it being understood that any Losses indemnified pursuant to Section 8.2(a)(i) that are subject to the General Cap shall count toward the Special IP Cap).

For the for the avoidance of doubt, and except with respect to the Fully Indemnified Representations (which are uncapped), the Indemnifying Equityholders’ aggregate liability under Section 8.2(a)(i) above and under Section 8.2(a)(vi) above shall in no event exceed $19,000,000.

(d)Additional Indemnification by Stockholders and Optionholders. From and after the Closing, each Indemnifying Equityholder shall, severally and not jointly, indemnify the Buyer Indemnified Parties and hold each of them harmless from and against and pay on behalf of or reimburse such Buyer Indemnified Parties in respect of any Loss which any such Buyer Indemnified Party may suffer, sustain or become subject to, as the result of, in connection with, relating to or incidental to or by virtue of (i) the nonfullfillment or breach of any covenant or agreement made by such Indemnifying Equityholder in this Agreement or (ii) any breach of any representation or warranty, or the nonfullfillment or breach of any covenant or agreement, made by such Indemnifying Equityholder in his or its Letter of Transmittal and/or Option Termination Agreement, as applicable.

(e)Defense of Third Party Claims.  Any party making a claim for indemnification under this Section 8.2, or under Section 8.3 below (an “Indemnitee”), shall notify the indemnifying party (an “Indemnitor”) of the claim in writing promptly after receiving written notice of any action, lawsuit, proceeding, investigation or other claim against it (if by a third party) or discovering the liability, obligation or facts giving rise to such claim for indemnification, describing the claim, the amount thereof (if known and quantifiable) and the basis thereof; provided that the failure to so notify an Indemnitor shall not relieve the Indemnitor of its obligations hereunder except to the extent that (and only to the extent that) such failure shall have caused the damages for which the Indemnitor is obligated to be greater than such damages would have been had the Indemnitee given the Indemnitor prompt notice hereunder. Any Indemnitor shall be entitled to participate in the defense

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of such action, lawsuit, proceeding, investigation or other claim giving rise to an Indemnitee’s claim for indemnification at such Indemnitor’s expense, and at its option (subject to the limitations set forth below) shall be entitled to appoint a recognized and reputable counsel reasonably acceptable to the Indemnitee to be the lead counsel in connection with such defense; providedfurther that, prior to the Indemnitor assuming control of such defense, it shall first verify to the Indemnitee in writing that such Indemnitor shall be fully responsible (with no reservation of any rights) for all liabilities and obligations relating to such claim for indemnification and that it shall provide full indemnification to the Indemnitee with respect to such action, lawsuit, proceeding, investigation or other claim giving rise to such claim for indemnification hereunder, and providedfurther that:

(i)the Indemnitee shall be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose; provided that the fees and expenses of such separate counsel shall be borne by the Indemnitee (other than any fees and expenses of such separate counsel that are incurred prior to the date the Indemnitor effectively assumes control of such defense which, notwithstanding the foregoing, shall be borne by the Indemnitor) unless (A) the employment thereof has been specifically authorized by the Indemnitor in writing, or (B) the Indemnitor has been advised by counsel that a reasonable likelihood exists of a conflict of interest between the Indemnitor and the Indemnitee;

(ii)the Indemnitor shall not be entitled to assume control of such defense and shall pay the fees and expenses of counsel retained by the Indemnitee if (A) the claim for indemnification relates to or arises in connection with any criminal proceeding, action, indictment, allegation or investigation; (B) the claim seeks an injunction or equitable relief against the Indemnitee as its principal remedy; (C) the claim is with respect to Taxes; or (D) upon petition by the Indemnitee, the appropriate court rules that the Indemnitor failed or is failing to vigorously prosecute or defend such claim; and

(iii)if the Indemnitor shall control the defense of any such claim, the Indemnitor shall obtain the prior written consent of the Indemnitee (which shall not be unreasonably withheld) before entering into any settlement of a claim or ceasing to defend such claim if, pursuant to or as a result of such settlement or cessation, injunctive or other equitable relief shall be imposed against the Indemnitee or if such settlement does not expressly and unconditionally release the Indemnitee from all liabilities and obligations with respect to such claim, without prejudice.

During the period that the Escrow Agreement is in effect, the Representative (on behalf of the Stockholders and the Optionholders) shall act on behalf of all Indemnitors in the case of all third party claims with respect to which Buyer is seeking indemnification from the Stockholders or the Optionholders under Section 8.2 or 8.3 (with each Stockholder and Optionholder responsible for its portion of Representative’s costs and expenses in undertaking such representation (based on their respective Common Percentages)).

(f)Manner of Payment. Any amounts owing from the Indemnifying Equityholders to the Buyer Indemnified Parties pursuant to Section 8.2(a) shall first be made to the extent available from the Escrow Amount and thereafter shall be made directly by the Indemnifying Equityholders,

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severally and not jointly, based on their respective Common Percentages,by wire transfer of immediately available funds.

(g)Merger Consideration Adjustments. Amounts paid to or on behalf of Buyer or the Representative (on behalf of the Stockholders and Optionholders) as indemnification shall be treated as adjustments to the Merger Consideration.

(h)Waiver, Release and Discharge. Effective upon the Closing, each Indemnifying Equityholder, on behalf of himself or itself and such Person’s successors and assigns, hereby forever fully and irrevocably waives, releases and discharges the Company, Buyer and their respective predecessors, successors, direct or indirect subsidiaries, affiliates and past and present stockholders, directors, officers, employees, agents, and representatives (collectively, the “Released Parties”) from any and all liabilities and obligations to such Indemnifying Equityholder of any kind or nature whatsoever (including in respect of rights of contribution or indemnification), in each case whether absolute or contingent, liquidated or unliquidated, known or unknown, and whether arising hereunder or under any other agreement or understanding or otherwise at law or equity, which arise out of or relate to the Company or such Indemnifying Equityholder’s ownership of the Company’s equity securities (including Options) (collectively, the “Released Claims”), and each Indemnifying Equityholder shall not seek to recover any amounts in connection with any Released Claim from any of the Released Parties. Notwithstanding the preceding sentence of this Section 8.2(h), “Released Claims” does not include, and the provisions of this Section 8.2(h) shall not release or otherwise diminish the obligations of Buyer or the Company expressly set forth in (i) any provisions of this Agreement or the other agreements contemplated hereby, (ii) any employment, severance, change-in-control or similar agreement between the Company and any Indemnifying Equityholder or any Employee Benefit Plan; provided that a true, correct and complete copy of such agreement or Employee Benefit Plan has been made available to Buyer, or (iii) subject to Section 8.2(i), the provisions of the Company’s articles of incorporation or by-laws as of the date hereof with respect to the indemnification of directors, officers and employees.

(i)Limitations on Claims by Stockholders and Optionholders. Each Stockholder and Optionholder hereby agrees that he, she or it will not make any claim for indemnification or reimbursement against the Surviving Company by reason of the fact that, on or prior to the Effective Time, he or she was a director, officer, employee, or agent of the Company or was serving at the request of the Company as a partner, trustee, director, officer, employee, or agent of another entity (whether such claim is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses, or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement, or otherwise) with respect to any action, suit, proceeding, complaint, claim, or demand brought by the Surviving Company against such Stockholder or Optionholder (whether such action, suit, proceeding, complaint, claim, or demand is pursuant to this Agreement, applicable law, or otherwise).

(j)No Waiver of Contractual Representations and Warranties. Each Stockholder and Optionholder has agreed that Buyer’s rights to indemnification for the express representations and warranties set forth herein are part of the basis of the bargain contemplated by this Agreement; and Buyer’s rights to indemnification shall not be affected or waived by virtue of (and Buyer shall be

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deemed to have relied upon the express representations and warranties set forth herein notwithstanding) any knowledge on the part of Buyer of any untruth of any such representation or warranty of the Company expressly set forth in this Agreement, regardless of whether such knowledge was obtained through Buyer’s own investigation or through disclosure by the Company or another person, and regardless of whether such knowledge was obtained before or after the execution and delivery of this Agreement.

(k)Losses Net of Insurance Proceeds. Notwithstanding anything to the contrary contained herein, all Losses for which any Buyer Indemnified Party would otherwise be entitled to indemnification under this Article VIII shall be reduced by the amount of insurance proceeds which such Buyer Indemnified Party actually receives (less the amount of any direct collection expenses) in respect of such Losses incurred by such Buyer Indemnified Party; provided that this Section 8.2(k) shall not require any Buyer Indemnified Party to file or institute a claim against, or otherwise seek recovery from, any of its insurance carriers. In the event that any such insurance proceeds are received by a Buyer Indemnified Party subsequent to receipt by such Buyer Indemnified Party of any indemnification payment hereunder in respect of the claims to which such insurance proceeds relate, then a refund equal to the amount of such recovery (less the amount of any direct collection expenses) shall be made promptly to Representative (on behalf of the Indemnifying Equityholders in accordance with their respective Common Percentages).

(l)Exclusive Remedy. Following Closing, except (i) in the case of fraud or intentional misrepresentation (for which no limitations set forth herein shall be applicable), (ii) for injunctive or other equitable relief or (iii) as contemplated by Section 2.11: (A) the indemnification obligations of the parties contained in this ARTICLE VIII shall be the exclusive remedies of the parties hereto and their successors and assigns for monetary damages in respect of any claim for breach of any covenant, agreement, representation or warranty set forth in this Agreement, any Schedule hereto or any certificate delivered by a party with respect hereto, and (B) Buyer shall not be entitled to rely on, and Buyer hereby waives, any representation or warranty (express or implied) not set forth in this Agreement, any Schedule or Exhibit hereto or any certificate delivered by a party with respect hereto.

8.3Tax Matters.

(a)The Indemnifying Equityholders shall remain liable and indemnify, severally and not jointly, based on their respective Common Percentages,the Buyer Indemnified Parties and hold each of them harmless from and against any loss, claim, liability, expense or other damage attributable to (i) all Taxes (or the non-payment thereof) of the Company for all taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date (“Pre-Closing Tax Period”), (ii) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of any of the foregoing) is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation Section 1.1502-6 or any analogous or similar state, local or non-U.S. law or regulation, (iii) any and all Taxes of any Person (other than the Company) imposed on the Company as a transferee or successor, by contract or pursuant to any law, rule or

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regulation, which Taxes relate to an event or transaction occurring before the Closing, and (iv) all taxes attributable to an election under Section 108(i) of the Code.

(b)In the case of any taxable period that includes (but does not end on) the Closing Date (a “Straddle Period”), the amount of any Taxes based on or measured by income, receipts or payroll of the Company for the Pre-Closing Tax Period shall be determined based on an interim closing of the books as of the close of business on the Closing Date (and for such purpose, the taxable period of any partnership or other pass-through entity in which the Company holds a beneficial interest shall be deemed to terminate at such time) and the amount of other Taxes of the Company for a Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period.

(c)Buyer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company that are filed after the Closing Date.

(d)Buyer and the Representative shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Section 8.3(d) and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Buyer and the Representative agree (i) to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Buyer or the Representative, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records, and, if the other party so requests, the Representative and Buyer, as the case may be, shall allow the other party to take possession of such books and records.

(e)Buyer and Representative further agree, upon request, to use their reasonable efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated hereby).

(f)Buyer and Representative further agree, upon request, to provide the other party with all information that either party may be required to report pursuant to Sections 6043 or 6043A of the Code and all Treasury Regulations promulgated thereunder.

(g)All Tax sharing agreements or similar agreements with respect to or involving the Company shall be terminated as of the Closing Date and, after the Closing Date, the Company shall not be bound thereby or have any liability thereunder.

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ARTICLE IXADDITIONAL AGREEMENTS

9.1Transfer Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest thereon) incurred in connection with this Agreement shall be shared equally by Buyer, on the one hand, and the Stockholders and Optionholders, on the other hand, and the Person required under applicable law to file any necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees shall file any such Tax Returns and other documentation at its own expense, and if required by applicable law, Buyer, the Company and/or the Representative (on behalf of the Stockholders and Optionholders), as applicable, shall, and shall cause their respective Affiliates to, join in the execution of any such Tax Returns and other documentation.

9.2Updating Schedules. The Company shall be entitled to update, amend or modify the Schedules to this Agreement after the date hereof until the Closing Date (the “Update Period”) to reflect factors, circumstances or events first arising or, in the case of representations given to the Company’s Knowledge, becoming known to the Company during the Update Period by providing Buyer with written notice setting forth the proposed update and specifying the Schedule or Schedules to be updated thereby; provided, however, such updates, amendments or modifications shall only modify the Schedules to this Agreement for purposes of post-Closing indemnification pursuant to Section 8.2 hereof and shall not modify the Schedules to this Agreement for purposes of determining whether Buyer’s obligations to consummate the transactions contemplated hereby are satisfied pursuant to Section 3.1.

9.3Press Releases and Announcements. At and prior to the Closing Date, no press releases or public announcement related to this Agreement or the transactions contemplated herein, or other announcements to the employees, customers or suppliers of the Company, shall be issued without the mutual approval of Buyer and the Company, except for any public disclosure which is required by law or regulation (in which case the Company and Buyer shall have the right to review and a reasonable opportunity to comment upon such press release, announcement or communication prior to issuance, distribution or publication). After the Closing Date, no press releases or public announcement related to this Agreement or the transactions contemplated herein, or other announcements to the employees, customers or suppliers of the Company, shall be issued without Buyer’s prior written consent.

9.4Further Assurances. From time to time, as and when requested by any party hereto and at such party’s expense, any other party hereto shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such requesting party may reasonably deem necessary or desirable to evidence and effectuate the transactions contemplated by this Agreement.

9.5Specific Performance. The Company acknowledges that its business is unique and recognizes and affirms that in the event of a breach of this Agreement by it, money damages may be inadequate and Buyer may have no adequate remedy at law. Accordingly, the Company agrees that Buyer shall have the right, in addition to any other rights and remedies existing in its favor, to enforce its rights and the Company’s obligations hereunder not only by an action or actions for

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damages but also by an action or actions for specific performance, injunctive and/or other equitable relief, without posting any bond.

9.6Expenses.

(a)Subject to Sections 4.3 and 9.6(b) and except as otherwise expressly provided herein, the Company, Stockholders and Optionholders, on the one hand, and Buyer and Merger Sub, on the other hand, shall pay all of their own fees, costs and expenses (including fees, costs and expenses of legal counsel, investment bankers, brokers or other representatives and consultants and appraisal fees, costs and expenses) incurred in connection with the negotiation of the Letter of Intent, this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated hereby.

(b)In the event that (i) the Closing does not occur for any reason other than as a result of the failure of any condition to the Company’s obligation to consummate the transactions contemplated hereby to be satisfied prior to the Termination Date as a result of any breach by Buyer of a representation, warranty, covenant or agreement made by Buyer in this Agreement, and (ii) the Company or any Stockholder enters into a definitive agreement for a Sale Transaction resulting in the sale of the Company to a Stockholder or member of the Company’s board of directors, or an Affiliate thereof, prior to December 4, 2011, then the Company shall reimburse Buyer for its reasonable out-of-pocket costs and expenses incurred with third party advisors in connection with the transactions contemplated by this Agreement, not to exceed $750,000 in the aggregate (“Buyer’s Transaction Expenses”). For the avoidance of doubt, participation by any member of the Company’s existing management team as of the date of this Agreement in either the ownership of the Company or a purchaser of the Company, by way of a rollover of existing capital stock or options or through other nominal ownership, shall not be considered a Sale Transaction for purposes of this Section 9.6(b). The Company shall make any payment required by this Section 9.6(b) by wire transfer to Buyer of immediately available funds within thirty (30) days following written notice from Buyer as to the amount due.

9.7Exclusivity. Commencing on the date of this Agreement and until the earlier of the Closing or the date on which this Agreement has been terminated by its terms (the “Exclusivity Period”), the Company agrees that it shall not, and shall not permit any of its officers, directors, Affiliates, Stockholders, Optionholders, employees, agents, or other Persons acting on its behalf to, directly or indirectly (i) solicit, initiate, encourage or discuss a Sale Transaction with any third party (other than Buyer and its agents), or (ii) respond to or accept any inquiry, proposal, or offer, relating to a Sale Transaction from any third party (other than Buyer and its agents). A “Sale Transaction” means: (A) an acquisition, lease, or license of all or substantially all of the assets or business of the Company; (B) an acquisition of, or tender offer or exchange offer for, any shares of capital stock, any share capital, or any equity of the Company; (C) a merger, consolidation, or other business combination involving the Company; (D) the liquidation, dissolution, or winding-up of the Company; or (E) any other transaction or series of transactions having an effect or purpose comparable to any of the foregoing. For the purposes of this Section 9.7, a third party shall include any Stockholder; provided that, for the avoidance of doubt, a third party shall not include a member of the Company’s board of directors acting in their capacity as a board member even though such

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director is also affiliated with a Stockholder. The Company represents and warrants that it has terminated (and has caused its officers, directors, Affiliates, Stockholders, Optionholders, employees, agents, or other Persons acting on its behalf to terminate), all current discussions and negotiations with any third party (other than Buyer) with respect to any such inquiry, proposal, or offer. During the Exclusivity Period, the Company shall (1) notify Buyer in the event that the Company, or any of its officers, directors, Affiliates, Stockholders, Optionholders, employees, agents or other Persons acting on its behalf receives any such inquiry, proposal, or offer, including any amendments, revisions or changes to any proposal or offer received prior to the date of this Agreement; (2) disclose to Buyer the terms and conditions of such inquiry, proposal, or offer (including the identity of each third party); and (3) take all actions with respect to such inquiry, proposal, or offer as Buyer may request.

9.8Confidentiality.

(a)Confidentiality. Following the Closing, each Stockholder and Optionholder shall treat and hold as confidential any information concerning the business and affairs of the Company that is not already generally available to the public (the “Confidential Information”), refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to Buyer, at the request and option of Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in his or its possession or under his or its control; provided, however, that each Stockholder shall be entitled to retain one copy of the Confidential Information for legal and compliance purposes (if applicable) in a manner consistent with such Stockholder’s customary document archiving procedures. In the event that any Stockholder or Optionholder is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, such Person shall notify Buyer promptly of the request or requirement so that Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 9.8(a). If, in the absence of a protective order or the receipt of a waiver hereunder, any Stockholder or Optionholder is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, such Person may disclose the Confidential Information to the tribunal; provided that such disclosing Stockholder or Optionholder shall use his or its best efforts to obtain, at the request of Buyer, an order or other assurance that confidential treatment shall be accorded to such portion of the Confidential Information required to be disclosed as Buyer shall designate.

(b)Remedy for Breach. Each Stockholder and Optionholder acknowledges and agrees that in the event of a breach by any Stockholder or Optionholder of any of the provisions of this Section 9.8, monetary damages shall not constitute a sufficient remedy. Consequently, in the event of any such breach or potential breach, the Company, Buyer and/or their respective successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions of this Section 9.8, in each case without the requirement of posting a bond or proving actual damages.

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(c)Enforcement. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 9.8 is invalid or unenforceable, the parties hereto agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified.

(d)Non-Assert. Each of the Stockholders and Optionholders shall not at any time, either during the term of or after the expiration of this Agreement, make any claim challenging the scope, validity or enforceability of any of the Company Intellectual Property or the Company’s rights therein. Each of the Stockholders and Optionholders shall not at any time make any claim that any of the products designed, developed, produced or sold by the Company after the Closing, or the operation of the Company’s business after the Closing, infringes or misappropriates the intellectual property rights of such Person or any of its Affiliates to the extent that such products or such operation after the Closing are the same as the products and operation of the Company’s business prior to the Closing.

9.9Officers’ and Directors’ Indemnification.

(a)Subject to Section 8.2(i), from and after the Effective Time, the Surviving Corporation shall, and Buyer shall cause the Surviving Corporation to, indemnify and hold harmless the present and former officers and directors of the Company in respect of acts or omissions occurring prior to the Effective Time to the extent provided in, and in accordance with (including subject to any limitations contained therein), the articles of incorporation and the by-laws of the Company as in effect on the date hereof. The indemnification provided in this Section 9.9 shall apply only to each individual in his or her capacity as an officer or director of the Company, and not in any other capacity.

(b)As of the Effective Time, Buyer shall purchase or cause the Surviving Corporation to purchase directors’ and officers’ liability insurance coverage for the Company’s directors and officers currently covered by the Company’s existing director’s and officer’s liability insurance policy that shall provide such directors and officers with “tail” coverage for two years following the Effective Time of not less than the existing coverage on the date hereof and have other terms not materially less favorable to, the insured Persons than the directors’ and officers’ liability insurance coverage presently maintained by the Company to the extent such liability insurance can be maintained at a cost to Buyer not greater than $28,000; provided, however, that if such insurance cannot be maintained or obtained at such cost, Buyer shall cause the Surviving Corporation to maintain or obtain the maximum amount of insurance coverage that can be maintained or obtained at a cost equal to $28,000.

(c)The parties hereto agree that any Person that is now, or has been at any time prior to the date hereof, or that becomes prior to the Effective Time, a director or officer of the Company to whom this Section 9.9 applies, shall be a third party beneficiary of this Section 9.9 and shall be entitled to enforce the covenants contained herein.

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ARTICLE XMISCELLANEOUS

10.1Amendment and Waiver. Any provision of this Agreement may be amended or waived only in a writing signed by Buyer, the Company and the Representative. No waiver of any provision hereunder or any breach or default thereof shall extend to or affect in any way any other provision or prior or subsequent breach or default. No course of dealing between or among any Persons having any interest in this Agreement shall be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any party under or by reason of this Agreement.

10.2Notices. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (a) when personally delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set out below if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), (c) the day following the day (except if not a business day then the next business day) on which the same has been delivered prepaid to a reputable national overnight air courier service or (d) the third business day following the day on which the same is sent by certified or registered mail, postage prepaid. Notices, demands and communications, in each case to the respective parties, shall be sent to the applicable address set forth below, unless another address has been previously specified in writing:

Notices to Buyer
and/or Merger Sub:

Apollo Group, Inc.
4025 S. Riverpoint Parkway
Phoenix, AZ 85040
Attn: Joseph L. D’Amico, President and Chief Operating Officer

Facsimile: (602) 383-5159

Apollo Group, Inc.

4025 S. Riverpoint Parkway
Phoenix, AZ 85040

Attn: Laura Eichelsderfer, Senior Corporate Counsel

Facsimile: (602) 366-2943

with a copy (which shall not constitute notice) to:
Kirkland & Ellis LLP
300 N. LaSalle Street
Chicago, IL 60654
Attn:    Michael D. Paley, P.C.    E. Terry Platis
Facsimile: (312) 862‑2200

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Notices to the Representative:CLI Shareholder Representative, LLCc/o Draper Triangle Ventures, L.P.2 Gateway Center, 20^th Floor
Pittsburgh, PA 15222
Attn:     J. A. Katarincic, Jr., Manager
Facsimile: (412) 288-9799

CLI Shareholder Representative, LLC

c/o Carnegie Mellon University5000 Forbes AvenuePittsburgh, PA 15213
Attn:    Mark Kamlet, ManagerFacsimile: (412) 268-2330

CLI Shareholder Representative, LLCc/o Collier Investments, LLC3495 Peachtree Pkwy. Ste. 114-218
Suwanee, GA  30024Attn:    John O’Connor, ManagerFacsimile: (831) 302-7720with copies (which shall not constitute notice) to:

Carnegie Mellon University    5000 Forbes AvenuePittsburgh, PA 15213Attn:    Mary Jo Dively, Vice President and General CounselFacsimile: (412) 268-2330

Collier Investments, LLC
2550 Goodlette Road North, Suite 100
Naples, FL 34103
Attn:    Ronald M. Mahan, Vice President
Facsimile: (239) 263-2977

McGuireWoods LLP
EQT plaza
625 Liberty Avenue, 23rd Floor
Pittsburgh, PA 15222Attn:Scott E. Westwood
Facsimile: (412) 667-6050

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Notices to the Company (prior to the Effective Time):
Carnegie Learning, Inc.
Frick Building, 20th Floor
437 Grant Street
Pittsburgh, PA 15219
Attn: Chief Executive Officer
Facsimile: (412) 690-2444

with a copy (which shall not constitute notice) to:
McGuireWoods LLP
EQT plaza
625 Liberty Avenue, 23rd Floor
Pittsburgh, PA 15222Attn:Scott E. Westwood
Facsimile: (412) 667-6050

10.3Binding Agreement; Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided that neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any of the parties hereto without the prior written consent of the other parties hereto. Notwithstanding the foregoing, without the prior written consent of any other Person, Buyer may at any time, in its sole discretion, assign, in whole or in part, (a) its rights and obligations under this Agreement to one or more of its Affiliates (provided that any such assignment shall not relieve Buyer of any of its obligations hereunder); and (b) its rights and obligations under this Agreement to any subsequent purchaser of the Company or any of its divisions or any material portion of its assets (whether such sale is structured as a sale of stock, sale of assets, merger, recapitalization or otherwise).

10.4Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.

10.5Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any Person. The parties hereto intend that each representation, warranty, and covenant contained herein shall have independent significance. If any party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the party has not breached shall not detract from or mitigate the fact that the party is in breach of the first representation, warranty, or covenant. Whenever the context requires, the singular number will include the plural, and vice versa, the masculine gender

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will include the feminine and neuter genders, the feminine gender will include the masculine and neuter genders, and the neuter gender will include masculine and feminine genders. The words “include” and “including,” and variations thereof, will not be deemed to be terms of limitation, but rather will be deemed to be followed by the words “without limitation.” Except as otherwise indicated, all references in this Agreement to “Schedules,” “Sections” and “Exhibits” are intended to refer to Schedules, Sections and Exhibits to this Agreement. The terms “hereof,” “hereunder,” “herein” and words of similar import will refer to this Agreement as a whole and not to any particular provision of this Agreement. Documents shall be deemed to have been “made available” to Buyer if such documents (i) have been posted to the on-line data room hosted by the Company and located at https://carnegielearning.sharefile.com as of July 31, 2011 or (ii) with respect to the documents set forth on Schedule 10.5, have been sent to Buyer’s counsel by email prior to the date hereof.

10.6Captions. The captions used in this Agreement are for convenience of reference only and do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no caption had been used in this Agreement.

10.7Entire Agreement. The Schedules identified in this Agreement are incorporated herein by reference. This Agreement and the documents referred to herein contain the entire agreement between the parties hereto and supersede any prior understandings, agreements or representations by or between the parties hereto, written or oral, which may have related to the subject matter hereof in any way, including the Letter of Intent.

10.8Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument.

10.9Governing Law. All questions concerning the construction, validity and interpretation of this Agreement (including with respect to an obligation to mitigate damages, if any, and nothing contained in this Agreement shall constitute a waiver or limitation of any such obligation) shall be governed by and construed in accordance with the domestic laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State ofDelaware.

10.10No Third-Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto and their respective successors and permitted assigns any rights or remedies under or by virtue of this Agreement.

10.11CONSENT TO JURISDICTION. THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY PURSUANT TO THIS AGREEMENT SHALL EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF DELAWARE. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN

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SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.

10.12WAIVER OF TRIAL BY JURY.

EACH OF THE PARTIES HERETO EXPRESSLY WAIVES ITS RIGHTS TO A TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY. EACH OF THE PARTIES ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN FUTURE DEALINGS. EACH OF THE PARTIES FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

10.13Electronic Delivery. This Agreement and any other Transaction Document, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine or electronic mail (any such delivery, an “Electronic Delivery”), shall be treated in all manner and respects as an original contract and shall be considered to have the same binding legal effects as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such contract, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties hereto or thereto. No party hereto or to any such contract shall raise the use of Electronic Delivery to deliver a signature or the fact that any signature or contract was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract and each such party forever waives any such defense.

10.14Appointment of Stockholder Representative.

(a)In order to, among other things, administer efficiently the determination and payment of the Merger Consideration and the defense and/or settlement of any claims for Losses for which the Stockholders and the Optionholders may be required to indemnify Buyer and its Affiliates pursuant to Sections 8.2 and 8.3 hereof, the Stockholders and the Optionholders, by their adoption and approval of this Agreement, as well as, in certain cases, through separate instruments, irrevocably appoint the Representative as their agent, attorney in fact and representative (with full power of substitution in the premises), and, by its execution hereof, the Representative hereby accepts such appointment.

(b)The Representative is hereby authorized (i) to take all action necessary in connection with the acceptance, rejection, determination and payment of the Merger Consideration and the defense and/or settlement of any claims for Losses (including the power to compromise any

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indemnity claim on behalf of the Stockholders and the Optionholders and to transact matters of litigation) for which the Stockholders and the Optionholders may be required to indemnify Buyer and its Affiliates pursuant to Sections 8.2 and 8.3 hereof, (ii) to give and receive all notices required to be given under this Agreement, the Escrow Agreement and the other agreements contemplated hereby to which all of the Stockholders and Optionholders are subject, and (iii) to do or refrain from doing all such further acts and things, and to execute all such documents as the Representative shall deem necessary or appropriate in connection with the transactions contemplated by this Agreement, including the power:

(A)to execute and deliver the Escrow Agreement and any amendments thereto as the representative of the Stockholders and the Optionholders; to execute any instructions or directions to the Escrow Agent with respect to disbursements or other matters thereunder; and to take such further actions under the Escrow Agreement as the Representative deems to be necessary or appropriate;

(B)to execute and deliver all amendments, waivers, ancillary agreements, stock powers, certificates and documents that the Representative deems necessary or appropriate in connection with the consummation of the transactions contemplated by this Agreement, whether prior to, at or after the Closing;

(C)to execute and deliver all amendments and waivers to this Agreement that the Representative deems necessary or appropriate, whether prior to, at or after the Closing; provided that any such amendment, if material to the rights and obligations of such Stockholders or Optionholders in the reasonable judgment of the Representative, shall be taken in the same manner with respect to all such Stockholders and Optionholders, unless otherwise agreed by each such Stockholder or Optionholder who is subject to any disparate treatment of a potentially adverse nature;

(D)to receive funds, make payments of funds, and give receipts for funds;

(E)to receive funds for the payment of expenses of the Stockholders and the Optionholders, to deposit such funds in such accounts as the Representative deems appropriate and apply or reserve such funds in payment for such expenses, including holding the Representative Administrative Amount.

(F)to do or refrain from doing any further act or deed on behalf of the Stockholders and the Optionholders that the Representative deems necessary or appropriate in its sole discretion relating to the subject matter of this Agreement as fully and completely as the Stockholders and the Optionholders could do if personally present; and

(G)to receive service of process in connection with any claims under this Agreement.

(c)In the event that the Representative becomes unable to perform its responsibilities hereunder or resigns from such position, the Stockholders and the Optionholders (or, if applicable,

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their respective heirs, legal representatives, successors and assigns) who held a majority of the voting power represented by the shares of Company Common Stock issued and outstanding immediately prior to the Effective Time (on an as-converted, as exercised basis), shall select another representative to fill such vacancy and such substituted representative shall be deemed to be the Representative for all purposes of this Agreement.

(d)All decisions and actions by the Representative, including the defense or settlement of any claims for Losses for which the Stockholders and Optionholders may be required to indemnify Buyer and its Affiliates pursuant to Sections 8.2 and 8.3 hereof, shall be binding upon all of the Stockholders and Optionholders, and no Stockholder or Optionholder shall have the right to object, dissent, protest or otherwise contest the same.

(e)Buyer shall be able to rely conclusively on the instructions and decisions of the Representative as to the determination and payment of the Closing Consideration and the Final Consideration, amounts to be paid from the Escrow Amount and the settlement of any claims for Losses for which the Stockholders and Optionholders may be required to indemnify Buyer and its Affiliates pursuant to Sections 8.2 and 8.3 hereof and any other actions required to be taken by the Representative hereunder, and no party hereunder or Stockholder or Optionholder shall have any cause of action against Buyer or Merger Sub for any action taken by Buyer or Merger Sub in reliance upon the instructions or decisions of the Representative.

(f)All actions, decisions and instructions of the Representative shall be conclusive and binding upon all of the Stockholders and Optionholders, and no Stockholder or Optionholder shall have any cause of action against the Representative for any action taken or not taken, decision made or instruction given by the Representative under this Agreement, except for fraud, gross negligence or willful misconduct by the Representative.

(g)The provisions of this Section 10.14 are independent and severable, are irrevocable and coupled with an interest and shall be enforceable notwithstanding any rights or remedies that any Stockholder or Optionholder may have in connection with the transactions contemplated by this Agreement.

(h)The provisions of this Section 10.14 shall be binding upon the heirs, legal representatives, successors and assigns of each Stockholder and Optionholder, and any references in this Agreement to a Stockholder or an Optionholder or the Stockholders or Optionholders shall mean and include the successors to the rights of the Stockholders and Optionholders hereunder, whether pursuant to testamentary disposition, the laws of descent and distribution or otherwise.

(i)All reasonable fees and expenses incurred by the Representative in connection with this Agreement shall be paid by the Stockholders and Optionholders on a pro‑rata basis based on their respective Common Percentages. Representative shall first pay any such fees and expenses from the Representative Administrative Amount. The amount of the Representative Administrative Amount or other amounts (if any) held by the Representative after the final resolution of all Claims asserted hereunder, shall be distributed by the Representative to the Stockholders and Optionholders in accordance with their respective Common Percentages; provided that the portion of any such distribution allocable to the Optionholders shall be remitted by the Representative to the Surviving

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Corporation and shall be made by the Surviving Corporation to each of the Optionholders through the Surviving Corporation’s payroll system in accordance with the Surviving Corporation’s regular payroll practices then in effect. For the avoidance of doubt, under no circumstances shall the Representative Administrative Amount be deemed to comprise part of the Escrow Amount.

(j)The Representative shall be indemnified by the Indemnifying Equityholders for, and shall be held harmless against, any loss, liability or expense incurred by the Representative or any of its Affiliates and any of their respective directors, officers, employees, agents, stockholders, members, consultants, attorneys, accountants, advisors, brokers, representatives or controlling persons, in each case relating to the Representative’s conduct as Representative (collectively, the “Representative Parties”), other than losses, liabilities or expenses resulting from the Representative’s gross negligence or willful misconduct in connection with its performance under this Agreement and the Escrow Agreement. This indemnification shall survive the termination of this Agreement and the Escrow Agreement. The Indemnifying Equityholders agree that the Representative may, in all questions arising under this Agreement and the other Transaction Documents, rely on the advice of counsel and for anything done, omitted or suffered in good faith by the Representative in accordance with such advice of counsel, the Representative shall not be liable to the Indemnifying Equityholders. The Indemnifying Equityholders, by approval of this Agreement, agree that in no event shall the Representative Parties be liable under this Agreement and the other Transaction Documents to the Indemnifying Equityholders for (i) any indirect, punitive, special or consequential damages or (ii) any amounts other than those that are satisfied out of the Escrow Fund. Nothing in this Section 10.14(j) shall in any way terminate, amend, modify, alter, limit or otherwise affect the obligations of the Indemnifying Equityholders under any provision of this Agreement or any of the other Transaction Documents to any Person other than the Indemnifying Equityholders’ obligations to the Representative Parties relating to the Representative’s conduct as Representative.

* * * *

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

COMPANY:

CARNEGIE LEARNING, INC.

By: /s/ Dennis Ciccone

Name: Dennis Ciccone

Its:     Chief Executive Officer

BUYER:

APOLLO GROUP, INC.

By: /s/ Joseph L. D’Amico

Name: Joseph L. D’Amico

Its:    President & Chief Operating Officer

MERGER SUB:

BHCL ACQUISITION CO.

By: /s/ Joseph L. D’Amico

Name: Joseph L. D’Amico

Its: Vice President & Asst. Secretary

REPRESENTATIVE:

CLI SHAREHOLDER REPRESENTATIVE, LLC

By: /s/ J.A. Katarincic, Jr._____________

Name: J. A. Katarincic, Jr.

Its:    Manager

[Signature Page to Agreement and Plan of Merger]

EX-2.3

Exhibit 2.3

TECHNOLOGY ASSIGNMENT AND LICENSE AGREEMENT

This Technology Assignment and License Agreement (the “Agreement”) dated as of August 2, 2011 (“Effective Date”), is entered into by and between Apollo Group, Inc., an Arizona corporation with principal offices located at 4025 South Riverpoint Parkway, Phoenix, Arizona 85040 (“Apollo”), Carnegie Mellon University, a Pennsylvania not-for-profit corporation, with principal offices located at 5000 Forbes Avenue, Pittsburgh, Pennsylvania 15213 (“CMU”), and Carnegie Learning, Inc., a Pennsylvania corporation, with principal offices located at 1200 Penn Avenue, Suite 150, Pittsburgh, Pennsylvania 15222 (“CL”) (each of Apollo, CMU and CL, a “Party” and, collectively, the “Parties”).

RECITALS

WHEREAS, CMU owns certain technology related to the Adaptive Learning Field (as defined below) and wishes to sell such technology to Apollo, and Apollo wishes to purchase such technology from CMU; and    

WHEREAS, CMU and CL are parties to the CMU-CL Agreements (as defined below), pursuant to which the Transferred Assets (as defined below) were licensed by CMU to CL, and CMU and CL desire to terminate the CMU-CL Agreements (as defined below).

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:

1.DEFINITIONS

1.1“Adaptive Learning Field” means the field of adaptive and cognitive learning.

1.2“Adverse Proceeding” has the meaning set forth in Section 2.5.

1.3“Affiliate” means (i) with respect to Apollo, any Person in which Apollo has an equity interest; and (ii) with respect to CMU, any Person which is controlled by, controls, or is under common control with, CMU. For purposes of this definition, “control” when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of at least fifty percent (50%) of voting securities, by contract or otherwise; the term “controlled” has a meaning correlative to the foregoing. A Person will cease to be an Affiliate of CMU if such control relationship no longer exists.

1.4“Agreement” has the meaning set forth in the preamble.

1.5“Apollo” has the meaning set forth in the preamble.

1.6“Apollo Group” has the meaning set forth in Section 11.2.

1.7“CL” has the meaning set forth in the preamble.

1.8“Claims” has the meaning set forth in Section 4.5.

1.9“Claim Notice” means written notification pursuant to Section 11.4 of a Third Party Claim as to which indemnify is sought by an Indemnified Party, enclosing a copy of all papers served, if any, and specifying the nature of and the basis for such Third Party Claim and for the Indemnified Party’s claim against the Indemnifying Party, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third Party Claim.

1.10“CL Mark” means U.S. Registration No. 2,491,747 for Cognitive Tutor.

1.11“Closing Event” means the closing of the transaction contemplated by the Merger Agreement.

1.12 “CL Technology” means (i) all Technology developed by CL pursuant to the CMU-CL Agreements and (ii) the Transferred Assets.

1.13“CMU” has the meaning set forth in the preamble.

1.14“CMU-CL Agreements” means, collectively, the CMU-CL First Agreement, CMU-CL Second Agreement, and CMU-CL Third Agreement, and all amendments, side letters, and other agreements modifying or amending any of the foregoing, if any.

1.15“CMU-CL First Agreement” means that certain License Agreement between CMU and CL, dated June 30, 1999 (as amended on October 1, 1999, October 24, 2000, November 6, 2001, and March 31, 2005).

1.16“CMU-CL Second Agreement” means that certain License Agreement between CMU and CL, dated November 6, 2001 (as amended on March 31, 2005).

1.17“CMU-CL Third Agreement” means that certain License Agreement between CMU and CL, dated June 4, 2003 (as amended on March 31, 2005).

1.18“CMU Trademark” means the CMU trademark set forth on Exhibit B.

1.19“CMU Trademark License” has the meaning set forth in Section 3.4(a).

1.20“Confidential Information” has the meaning set forth in Section 8.1.

1.21“Conveyed Intellectual Property Rights” means the following intellectual property rights throughout the world in and to the Transferred Assets, all: (i) rights associated with patentable inventions, patents, patent applications, provisional applications and other patent rights; (ii) rights associated with works of authorship, including, without limitation, source code, object code, executable code, registered and common law copyrights, copyright applications and copyright registrations; (iii) rights relating to the protection of trade secrets; (iv) divisions, substitutions, continuations, continuations-in-part, reexaminations, renewals, reissues, extensions and foreign counterparts of the foregoing (i), (ii) and (iii) as and to the extent applicable; and (v) all claims known and unknown, past and future, against any third party relating thereto.

1.22“CTAT” means the CMU software known as the “Cognitive Tutor Authoring Tool”, internally identified at CMU as “CMU File #2010-017” as the same may be modified or supplemented from time to time. By way of clarification, “CTAT” does not include the tutors created using CTAT.

1.23“CTAT Discussion Period” has the meaning set forth in Section 7.2.

1.24“Derivatives” means Technology developed by or for Apollo or CMU, which includes, or is based in whole or in part on, the Transferred Assets, including, but not limited to, translations of the Transferred Assets to other foreign or computer languages, adaptation of the Transferred Assets to other hardware platforms, abridgments, condensations, revisions, and software incorporating all or any part of the Transferred Assets which may also include Apollo-created and/or CMU-created modifications, enhancements or other software.

1.25“Disclosing Party” has the meaning set forth in Section 8.1.

1.26“Dispute Notice” means a written notice provided by any Party against which indemnification is sought under this Agreement to the effect that such Party disputes its indemnification obligation under this Agreement.

1.27“Dispute Period” means the period ending thirty (30) calendar days following receipt by an Indemnifying Party of either a Claim Notice or an Indemnity Notice.

1.28“Documentation” means programmer’s notes, materials and documentation for the Source Code of all software included in the Transferred Assets.

1.29“Effective Date” has the meaning set forth in the preamble.

1.30“Encumbrance” means any charge, claim, limitation, condition, equitable interest, mortgage, lien, option, pledge, security interest, easement, encroachment, right of first refusal, adverse claim or restriction of any kind, including any restriction on or transfer or other assignment, as security or otherwise, of or relating to use, quiet enjoyment, voting, transfer, receipt of income or exercise of any other attribute of ownership. “Encumbrances” do not include licenses or third party rights of use.

1.31“Escrow Agent” has the meaning set forth in Section 4.5(a).

1.32“Escrowed Amounts” has the meaning set forth in Section 4.5(a).

1.33“Event of Default” has the meaning set forth in Section 4.4(a).

1.34“Exclusive Field” means the field of cognitive tutors employing systems for tutoring students in solving a problem in the form of a dialog with a student, computer-readable media containing instructions for tutoring students in solving a problem in the form of a dialog with a student, and computer assisted methods for tutoring students in solving a problem in the form of a dialog with a student, using, in each case, the explicitly represented tutorial dialog planning strategies and an adaptive agenda for capturing changes in tutorial strategies both implemented in a production

rule system falling within the scope of the claims of the Funded Patent for converting story problems into mathematical symbols in the areas of math, test preparation, and math-based disciplines, such as statistics and economics but excluding biology, chemistry and genetics.

1.35“Exclusive License Exclusivity Period” has the meaning set forth in Section 7.1(a).

1.36“Exclusive License Negotiation Election” has the meaning set forth in Section 7.1(a).

1.37“Exclusive License Notice Period” has the meaning set forth in Section 7.1(a).

1.38“Exclusive License Third Party Period” has the meaning set forth in Section 7.1(a).

1.39“Exclusive ROFN Term” has the meaning set forth in Section 7.1(a).

1.40“Exploit” and “Exploitation” mean to use, manufacture, develop, sell or offer for sale, make, have made, distribute, reproduce, import, promote, commercialize, create derivative works based on, create improvements on, or otherwise exploit.

1.41“Fees” has the meaning set forth in Section 4.1.

1.42“Final Determination That CMU is Responsible” has the meaning set forth in Section 4.5(a).

1.43“Final Resolution” has the meaning set forth in Section 4.5(a).

1.44“Founder” means Vincent Aleven, Albert T. Corbett and Kenneth R. Koedinger.

1.45“Founder Exclusivity Period” has the meaning set forth in Section 7.1(c).

1.46“Founder Negotiation Election” has the meaning set forth in Section 7.3.

1.47“Founder Negotiation Period” has the meaning set forth in Section 7.1(c).

1.48“Founder Notice Period” has the meaning set forth in Section 7.1(c).

1.49“Founder ROFN Term” has the meaning set forth in Section 7.1(c).

1.50“Founder Technology” means any invention in the areas of math-based products, test preparation products and adaptive learning math products (excluding CTAT and Genetics Cognitive Tutor): (i) of which one Founder is, or more than one Founder collectively are, the Principal Inventors; and (ii) for which CMU has the right to license to Apollo, including without limitation, taking into account CMU’s Intellectual Property Policy (as the same is applied by CMU substantially in conformance with CMU’s past practices).

1.51“Founder Third Party Period” has the meaning set forth in Section 7.1(c).

1.52“Funded Patent” means the patent set forth on Exhibit C, and all divisions, substitutions, continuations, continuations-in-part, reexaminations, renewals, reissues, extensions thereof throughout the world.

1.53“Genetics Cognitive Tutor” means the genetic cognitive tutor owned or controlled by CMU as of the Effective Date, as the same may be modified, including Mendelian Transmission, Pedigree Analysis, Recombination and Gene Mapping, Gene Regulation and Population Genetics.

1.54“Government Entity” means The National Science Foundation and The National Institutes of Health.

1.55“Initial Founder” means each of the following: Vincent Aleven, Albert T. Corbett, Kenneth R. Koedinger, John R. Anderson, Jaclyn Snyder, Alecsandr I. Lisovich, William S. Hadley and Mary A. Mark.

1.56“Indemnified Party” means any Person claiming indemnification under any provision of Section 11.

1.57“Indemnifying Party” means any Person obligated to indemnify an Indemnified Party under any provision of Section 11.

1.58“Indemnity Notice” means written notification of a claim for indemnity under Section 11 by an Indemnified Party, specifying the nature of and basis for such claim, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such claim.

1.59“Intellectual Property Rights” means all intellectual property rights throughout the world, including without limitation, all (i) rights associated with inventions (whether patentable or not), including, without limitation, patents, patent applications, provisional applications and other patent rights; (ii) rights associated with works of authorship, including, without limitation, source code, object code, executable code, registered and common law copyrights, copyright applications and copyright registrations; (iii) rights associated with trademarks, including, without limitation, intent to use registrations, trademark applications, trademark registrations, common law trademarks, trademark rights and all associated good will; (iv) rights relating to the protection of trade secrets, know-how and similar confidential and proprietary information; (v) derivative works, divisions, substitutions, continuations, continuations-in-part, reexaminations, renewals, reissues, extensions and foreign counterparts of all of the foregoing (i), (ii), (iii) and (iv), as and to the extent applicable; (vi) internet domain name registrations and associated rights; (vii) all claims known and unknown, past and future, against any third party relating thereto; and (viii) any right similar to those set forth above and any other proprietary rights relating to intangible property.

1.60“Know-How” means all know-how, if any, that is (i) not expressed in the Transferred Assets; (ii) not covered by any Conveyed Intellectual Property Right; and (iii) in non-tangible form and retained in the unaided memories of CMU employees who have rightfully had access to the Transferred Assets. For purposes of this definition, a person’s memory is unaided if the person has

not intentionally memorized know how for the purpose of retaining and subsequently using or disclosing it.

1.61“Merger Agreement” means the Agreement and Plan of Merger among CL, Apollo and certain other parties identified therein, dated as of the same date herewith.

1.62“Moral Rights” has the meaning set forth in Section 2.2.

1.63“Non-Exclusive License Exclusivity Period” has the meaning set forth in Section 7.1(b).

1.64“Non-Exclusive License Negotiation Period” has the meaning set forth in Section 7.1(b).

1.65“Non-Exclusive License Notice Period” has the meaning set forth in Section 7.1(b).

1.66“Non-Exclusive License Third Party Period” has the meaning set forth in Section 7.1(b).

1.67“Non-Exclusive ROFN Term” has the meaning set forth in Section 7.1(b).

1.68“Object Code” means the fully compiled executable form of software.

1.69“Parties” has the meaning set forth in the preamble.

1.70“Party” has the meaning set forth in the preamble.

1.71“Permitted Encumbrance” means (i) any rights of, or requirements imposed by, the Government Entity under U.S.C. Title 35 Sections 201-212 and all enabling regulations (the “Bayh-Dole Act”); and (ii) all rights, conveyances and/or other Encumbrances created and/or permitted by or on behalf of CL in favor of any third party.

1.72“Person” means any individual, corporation, limited liability company, partnership, limited partnership, association, trust or other entity or organization.

1.73“Principal Inventors” means, with respect to any invention, the inventors claiming fifty percent (50%) or more of the inventorship credit in the invention disclosure to the Center for Technology Transfer and Enterprise Creation of CMU (or any successor thereto).

1.74“Receiving Party” has the meaning set forth in Section 8.1.

1.75“ROFN Technology” has the meaning set forth in Section 7.1.

1.76“Source Code” means the human readable source code form of software.

1.77“TALA Closing” has the meaning set forth in Section 12.4.

1.78“TALA Closing Date” has the meaning set forth in Section 12.4.

1.79“TDK” has the meaning set forth in the definition of Transferred Assets.

1.80“Technology” means inventions, technology, discoveries, software, improvements, content, programs, processes, designs, ideas, know-how, notes, memoranda and documentation.

1.81“Term” has the meaning set forth in Section 12.1.

1.82“Third Party Claim” has the meaning set forth in Section 11.4(a).

1.83“Trademark Term” has the meaning set forth in Section 3.4(a).

1.84“Transferred Assets” means (i) the items set forth on Exhibits A-1, A-2 and A-3, and subject to Section 4.7 and Section 9.2, on an “as is” basis as of the date of the CMU-CL First Agreement, CMU-CL Second Agreement and the CMU-CL Third Agreement, respectively, and (ii) any Updates. “Transferred Assets” shall not include the Funded Patent unless and until the Funded Patent is transferred to Apollo in accordance with Section 3.1 below. To the extent Updates were developed by or on behalf of CL, for purposes of Sections 4.5(a), 4.7(d), 4.7(e) and 4.7(f), “Transferred Assets” shall not include Updates. For avoidance of doubt, “Transferred Assets” shall include the Tutor Development Kit delivered by CMU to CL prior to the Effective Date (the “TDK”).

1.85“Updates” means all updates, upgrades, bug-fixes, patches, versions, releases, enhancements and improvements to the Transferred Assets owned by CMU pursuant to Section 9.5 of each of the CMU-CL Agreements, on, subject to Section 4.7 and Section 9.2, an “as is” basis on the Effective Date.

2.ASSIGNMENT OF TRANSFERRED TECHNOLOGY

2.1Assignment of Transferred Assets. As of the TALA Closing Date, CMU hereby assigns, transfers and conveys to Apollo free and clear of any Encumbrances (other than (a) with respect to the Funded Patent, the Permitted Encumbrances in Section 1.71(i); and (b) with respect to all other Transferred Assets, the Permitted Encumbrances in Section 1.71(ii)), subject to the rights reserved in Section 3.1(b), and Apollo, in reliance on the representations, warranties and covenants of CMU contained herein, accepts, all of CMU’s right, title and interest throughout the world to the Transferred Assets (excluding the Funded Patent and Know-How) (including, without limitation, all of CMU’s Conveyed Intellectual Property Rights in and to such Transferred Assets), including, without limitation, all rights of action against third parties CMU had, has or may have in the future based thereon.

2.2Moral Rights. Any assignment of copyright hereunder includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as “moral rights” (collectively “Moral Rights”). To the extent that such Moral Rights cannot be assigned under applicable law and to the extent the following is allowed by the laws in the various countries where Moral Rights exist, CMU hereby waives and agrees not to assert such Moral Rights and consents to any action of Apollo that would violate such Moral Rights in the absence of such consent. CMU hereby agrees to confirm any such waivers or consents from time to time as requested by Apollo.

2.3Delivery. As soon as reasonably practicable, but in no event more than ten (10) days after to the Effective Date, CMU will deliver the Transferred Assets (other than the Funded Patent) (in Object Code form and Source Code form), including the Documentation, to Apollo and to the extent not delivered by CMU to Apollo, evidence satisfactory to Apollo that the remaining Transferred Assets are in the possession of CL. Such evidence shall include, but is not limited to, a detailed listing of such remaining Transferred Assets. Notwithstanding the foregoing, if Apollo discovers that not all of the Transferred Assets have been delivered to Apollo, CMU agrees to work with Apollo in good faith to identify such Transferred Assets and deliver such Transferred Assets to Apollo. CL consents to the deliveries provided for herein, and such information shall constitute Confidential Information of CMU prior to the assignment set forth in Section 2.1, and shall constitute Confidential Information of Apollo after such assignment.

2.4Further Assurances. CMU agrees to perform, during and after the Term, all reasonable and lawful acts deemed necessary by Apollo to permit and assist Apollo in evidencing, perfecting, obtaining, maintaining, defending and enforcing Apollo’s rights in the Transferred Assets (other than the Know-How). Such acts may include, but are not limited to, execution of documents and assistance or cooperation in legal proceedings. If Apollo is unable after reasonable attempts during normal business hours to secure CMU’s signature to any such document in sufficient time to avoid loss of Apollo’s rights in the Transferred Assets where CMU’s signature is necessary to avoid such loss of rights, CMU hereby designates and appoints, for a period of ten (10) years from the Effective Date, Apollo and its duly authorized officers and agents, as CMU’s agents and attorneys-in-fact to act for and on behalf and instead of CMU, to execute and file those documents necessary to record assignments of, and evidence, perfect, obtain and maintain title and interest in, the Transferred Assets, with the same legal force and effect as if executed by CMU (it being acknowledged that such appointment is a power coupled with an interest), provided, however, that prior to executing any such documents as CMU’s agent or attorney-in-fact, and as a condition to the effectiveness thereto, Apollo shall provide CMU not less than twenty (20) days written notice with sufficient detail of the document to be executed and the reason therefor and Apollo may not execute any such document if CMU objects thereto because CMU reasonably believes Apollo does not have the right (pursuant to this Section 2.4) to execute such document. Apollo shall immediately notify CMU of the use of the power granted herein and provide CMU with copies of all documents executed and filed for and on behalf and instead of CMU.

2.5Adverse Proceedings. CMU shall not initiate, participate or assist in (unless required pursuant to a subpoena), formally or informally, directly or indirectly, any challenge, litigation, reissue, reexamination, cancellation or other opposition in any country (“Adverse Proceeding”) to the extent such Adverse Proceeding challenges the scope, enforceability, validity, ownership, or other right pertaining to the Transferred Assets.

3.LICENSE GRANTS AND ACKNOWLEDGEMENT

3.1Funded Patent.

(a)License Grant. As of the TALA Closing Date, CMU hereby grants Apollo a royalty-free, fully paid-up, non-exclusive, worldwide, irrevocable, assignable, unlimited, fully-transferable, sublicensable license under the Funded Patent to Exploit products and services

thereunder (with no limitation on the number of tiers of sublicenses) for the life of the Funded Patent. Notwithstanding the foregoing, and subject to CMU’s rights under Section 3.5(a), the license to the Funded Patent in this Section 3.1(a) shall be exclusive in the Exclusive Field.

(b)Reservations. Subject to the exclusive license to the Funded Patent in the Exclusive Field as set forth in Section 3.1(a), and subject to Section 3.1(c) and Section 3.1(d), CMU maintains all rights under the Funded Patent outside of the Exclusive Field, including without limitation, the right to Exploit products and services thereunder, and sublicense all or any such rights thereunder at any time and from time to time to one or more parties (with no limitation on the number of tiers of sublicenses).

(c)Covenant to Obtain Consent to Assign Funded Patents. CMU and Apollo, acknowledge that CMU is unable to assign the Funded Patent to Apollo without obtaining consent from the Government Entity. CMU hereby covenants that (i) such consent is required from the Government Entity for CMU to assign the Funded Patent to Apollo; and (ii) it will submit the required transfer application and documentation, and comply with applicable requirements, to obtain such consent from the Government Entity to assign the Funded Patent to Apollo, with no assurance that such consent will be granted. Each Party will comply with all legal requirements of the transfer of the Funded Patent, including agreeing to be subject to the terms and provision of 37 CFR 401 and will provide the other Party and the Government Entity with all information necessary or appropriate to support such transfer application, upon which CMU will rely in submitting such transfer application and documentation. Without limitation of the foregoing, Apollo shall be responsible for preparing the business justification for the transfer of the Funded Patent, upon which CMU will rely.

(d)Effect of Obtaining Consent to Assign Funded Patent. Upon receiving the consent described in Section 3.1(c), CMU will promptly execute the patent assignment attached hereto as Exhibit E and deliver such patent assignment to Apollo. After assignment of the Funded Patent to Apollo, the following modifications will be deemed to have been made to this Agreement as of the effective date of such assignment:

(i)Section 3.1(a) through 3.1(c) will be deemed to be deleted from this Agreement; and

(ii)Apollo shall and hereby does grant CMU a royalty-free, fully paid-up, non-exclusive, worldwide, irrevocable, unlimited, sublicensable license under the Funded Patent to Exploit products and services thereunder outside of the Exclusive Field (with no limitation on the number of tiers of sublicenses) for the life of the Funded Patent. Such license is assignable and fully-transferable only upon the prior written consent of Apollo (such consent not to be unreasonably withheld, conditioned or delayed). Apollo shall execute and deliver to CMU all documents and agreements requested from time to time evidencing the license granted hereby.

(e)Each Party shall comply in all respects with the Bayh-Dole Act as it relates to the Funded Patent.

3.2Know-How.

(a)License Grant. As of the TALA Closing Date, CMU hereby grants Apollo a royalty-free, fully paid-up, non-exclusive, worldwide, irrevocable, perpetual, assignable, unlimited, fully-transferable, sublicensable license under the Know-How for Exploitation of the Transferred Assets (with no limitation on the number of tiers of sublicenses).

(b)Reservations. CMU maintains all rights in and to the Know-How, without any restrictions or limitations whatsoever, including without limitation, the right to Exploit products and services thereunder, and to sublicense and assign all or any rights thereunder at any time and from time to time to one or more parties (with no limitation on the number of tiers of sublicenses).

(c)Sublicense/Assignment. As a condition of the sublicense or assignment of any rights of Apollo under this Section 3.2, Apollo shall require such sublicensee or assignee, as applicable, to agree in writing to the terms of this Section 3.2, to which agreement CMU shall be an express, intended third party beneficiary.

3.3CMU CNTS For Transferred Assets. As of the TALA Closing Date, CMU covenants not to sue, or bring suit, prosecute, assist or participate in any judicial, administrative or other proceeding of any kind against Apollo or its licensees (including customers, distributors and end users) for infringement of CMU’s Intellectual Property Rights on account of the Exploitation of the Transferred Assets. This Section shall not apply to any Derivative created by Apollo, CL or any Affiliate thereof.

3.4CMU Trademark License.

(a)License Grant. As of the TALA Closing Date, CMU hereby grants Apollo a royalty-free, fully paid-up, non-exclusive, worldwide, license during the Trademark Term, to use the CMU Trademark solely in the manner set forth in Exhibit B solely for the purpose of giving CMU attribution in connection with Apollo’s use and exploitation of the Transferred Assets (the rights licensed to Apollo in this Section 3.4(a) are referred to herein as the “CMU Trademark License”). The “Trademark Term” means the period commencing on the Effective Date and ending on the earliest of (i) twenty (20) years after the Effective Date, (ii) termination pursuant to Section 3.4(e) below or (iii) an Event of Default. Neither the CMU Trademark License, nor any rights therein, is assignable, transferable or sublicenseable, without the prior written consent of CMU, which consent may be granted or withheld in CMU’s sole and absolute discretion.

(b)Rights Retained by CMU. CMU retains all rights in the CMU Trademark, including but not limited to, the right to use, and to license others to use, the CMU Trademark, including without limitation, any modification or derivation thereof, alone or in conjunction with any other word, mark, symbol, logo or name. Apollo acknowledges that all use of the CMU Trademark by or on behalf of Apollo and all goodwill associated with such use inures to the benefit of CMU and creates no rights in Apollo.

(c)Use and Conduct. During the Trademark Term, Apollo shall comply with CMU’s trademark guidelines (hppt://www.cmu.edu/policies/documents/Trademark.html), as

amended from time to time. During the Trademark Term, all documents and advertising and other materials on which the CMU Trademark appears shall be consistent with the standards promulgated from time to time by CMU.  During the Trademark Term, Apollo shall provide one or more persons identified by CMU from time to time with samples of labels, promotional and advertising materials on which the CMU Trademark is utilized and CMU shall have the right to inspect Apollo’s goods and to monitor the use of CMU’s Trademarks in order to ascertain whether Apollo is in compliance with the obligations of use and quality control set forth herein. CMU’s expenses of such monitoring shall be borne by CMU. Apollo agrees that the CMU Trademark shall be used solely in such a manner so as to at all times constitute legal and authorized use of the same and Apollo will not do any act, or omit to do any act, except as expressly contemplated in this Agreement, that will in any way impair or affect CMU’s interest therein or the terms and intent of this Section 3.4.

(d)No Challenge. Except as expressly provided herein, Apollo shall not use CMU Trademarks or apply for registration of the CMU Trademarks (or any mark confusingly similar thereto) anywhere in the world and Apollo shall not challenge CMU’s ownership or use of the CMU Trademark.

(e)Right to Terminate. If Apollo breaches any of its obligations in this Section 3.4, either through commission or omission, CMUmay provide notice of such breach to Apollo. If Apollo does not cure such breach within fifteen (15) days from the date of such notice, then CMU may, in addition to and not in lieu of all other remedies available to CMU, terminate the CMU Trademark License.

3.5Retained Rights.

(a)CMU and its Affiliates shall have, and Apollo hereby grants to CMU and its Affiliates, a royalty-free, fully paid up, non-exclusive, irrevocable, worldwide, perpetual, non-sublicensable, non-transferable, license to use the Transferred Assets and the Conveyed Intellectual Property Rights, and to create and/or use CMU-created Derivatives, solely for internal research, academic, or administrative purposes. For avoidance of doubt, neither CMU nor its Affiliates shall have any right to use the Transferred Assets or the Conveyed Intellectual Property Rights for any commercial venture or use without the prior written consent of Apollo (except as provided in Sections 3.1(b) and 3.1(d)(ii) relating to the Funded Patent above and Section 3.2(b) relating to Know-How above). Without limiting the generality of the foregoing, CMU shall not use the Transferred Assets or the Conveyed Intellectual Property Rights in any entity that is not CMU or an Affiliate thereof (except as provided in Sections 3.1(b) and 3.1(d)(ii) relating to the Funded Patent above and Section 3.2(b) relating to Know-How above). Notwithstanding the foregoing, CMU and its Affiliates shall have and Apollo hereby grants to CMU and its Affiliates, a royalty free, fully paid up, non-exclusive, irrevocable, worldwide, perpetual, unlimited, sublicensable license to use the Limited TDK Software (as defined in Schedule 4.7(b)) (and the Conveyed Intellectual Property Rights in the Limited TDK Software) solely as embedded in the Genetics Cognitive Tutor (as identified in Schedule 4.7(b)), provided that such Limited TDK Software is not provided to any third party on a standalone basis or in source code form (with no limitation on the number of tiers of sublicenses).

(b)No provision of this Agreement shall restrict CMU’s ability to conduct further research and development in the general areas of the Transferred Assets or other areas, including

government and/or privately sponsored activities, and/or to collaborate with other universities regarding the general areas of the Transferred Assets or other areas. For the avoidance of doubt, this Section 3.5(b) does not grant CMU any right or license under any Apollo or CL Technology or Intellectual Property Rights (including, without limitation, the Transferred Assets and/or Conveyed Intellectual Property Rights).

3.6Acknowledgement and Consent. CMU acknowledges that CL owns all right, title and interest in and to the CARNEGIE LEARNING mark and name, worldwide. Notwithstanding the provisions of the Agreement and Consent, dated August 13, 1999, between CMU and CL, CMU hereby agrees that CL (and any successor of CL or of CL’s assets) shall not be limited to any field of business or prohibited from engaging in any type of business, and may use and exploit the CARNEGIE LEARNING mark and name worldwide in connection with any business, products or services, without limitation.

4.CONSIDERATION AND COVENANTS

4.1Fees. In consideration of the rights granted to Apollo under this Agreement, Apollo will pay to CMU the fees set forth on Exhibit D on the dates set forth on Exhibit D (collectively, the “Fees”).

4.2Taxes. The Parties acknowledge and agree that no portion of the consideration payable pursuant to this Agreement to CMU shall be deducted or withheld from payment by Apollo. CMU shall defend, indemnify, and hold harmless Apollo from and against any liability, damage, loss or expense incurred by or imposed on Apollo by reason of any requirement of Apollo to withhold and pay to the appropriate taxing authorities pursuant to any applicable tax laws of the United States, any state, or any other country, any portion of the consideration payable pursuant to this Agreement to CMU.

4.3Payment Terms. CMU shall send Apollo written invoices for all Fees at least sixty (60) days prior to the applicable payment dates referenced on Exhibit D, and Apollo shall make such payments on such payment dates. A failure by CMU to submit one or more invoices shall not be deemed to be a waiver of the right to receive all or any portion of the Fees. All payments to be made by Apollo hereunder shall be payable prior to 1:00 p.m. Eastern Time on the date when due, without presentment, demand, protest or, except for the foregoing written invoices, notice of any kind, all of which are hereby expressly waived by Apollo, and without set-off, counterclaim or other deduction of any nature (subject to Section 4.5), and an action therefor shall immediately accrue.

4.4Obligation to Pay Fees.

(a)Event of Default. Subject to Section 4.5, an “Event of Default” shall be deemed to occur if Apollo fails to make any payment of the Fees on the date on which such payment becomes due and such default continues unremedied for a period of thirty (30) days after CMU provides Apollo written notice of such failure.

(b)Consequences of Event of Default. If Apollo has failed to make the payment that is the subject of an Event of Default within one hundred twenty (120) days of the occurrence

of such Event of Default, CMU may declare the entire balance of all unpaid Fees immediately due and payable in full at which time all Fees shall become immediately due and payable. Interest shall accrue as of the date of an Event of Default and be payable on all Fees that are the subject of such Event of Default at an interest rate of five percent (5%), per, annum. The rights of CMU under this Section are in addition to any other rights and remedies that CMU may have under this Agreement, applicable law, at law and in equity. Apollo shall pay all reasonable costs and expenses, including without limitation, reasonable attorneys’ fees and court costs, incurred by CMU in the enforcement of its rights under this Section and collection of the Fees. All remedies hereunder shall be cumulative and shall be available to CMU at all times until the Fees and interest, as applicable, have been paid in full. No delay or omission of CMU to exercise any right or power under this Agreement shall impair such right or power or be construed to be a waiver of any Event of Default and any single or partial exercise of any such right or power shall not preclude any other or further exercise thereof or the exercise of any other right or power, and no waiver whatsoever shall be valid unless it is in writing signed by CMU and then only to the extent specifically set forth in such writing.

(c)Subsidiary Guarantee. As security for Apollo’s payment obligations hereunder, Apollo shall cause The University of Phoenix, Inc., to provide a guarantee in favor of CMU in the form attached as Exhibit F.

4.5Escrow and Offset of Fees.

(a)In the event that a suit is filed by any third party, not involved with the ownership or operation of Apollo or CL, alleging that the Transferred Assets violated such third party’s Intellectual Property Rights, Fees then due but unpaid and those later coming due while such allegations are pending, to the extent necessary to cover the claims in such suit that Transferred Assets violated such third party’s Intellectual Property Rights (hereinafter the “Claims”) may be deposited by Apollo in escrow (the “Infringement Escrowed Amounts”) with a mutually agreeable third party (the “Escrow Agent”) pursuant to the terms of an escrow agreement which shall be mutually agreed upon by CMU and Apollo (it being understood that CMU and Apollo shall act reasonably and not arbitrarily whenever mutual agreement is required under the preceding sentence). CMU may participate in, but not control, such suit to protect its interests. The Infringement Escrowed Amounts shall be released within thirty (30) days after the earlier of the execution of an agreement, executed by CMU, Apollo and the third party, finally resolving the Claims or the issuance of a final non-appealable order of the court or arbitrator finally resolving the Claims (the “Final Resolution”). If the Final Resolution finally determines that the Transferred Assets violated such third party’s Intellectual Property Rights (“Final Determination That CMU is Responsible”), the Infringement Escrowed Amounts shall be paid to the following persons or entities in the following priority: (i) to any third party which, in connection with the Final Resolution, is entitled to the payment of a royalty or license fee regarding the Claims but only for such amounts owed for the time period beginning with the date the Claims are made and ending on the date of the Final Resolution; (ii) to Apollo for any expenses and fees (including reasonable attorneys’ fees) incurred by the Apollo in connection with the Claims; and (iii) the balance to CMU; amounts paid under the foregoing parts (i), (ii), and (iii) of this sentence shall be credited toward Apollo’s obligations to pay any Fees to CMU under this Agreement. If the Final Resolution does not contain a Final Determination That CMU is Responsible, then the entire Infringement Escrowed Amounts shall be paid to CMU.

Notwithstanding the foregoing, the aggregate Infringement Escrowed Amounts together with any amounts paid by CMU pursuant to Section 11.1, shall in no event exceed $4,500,000 in the aggregate (it being understood that CMU’s aggregate liability under this Section 4.5 and Section 11.1 shall in no event exceed $4,500,000 in the aggregate). If at any time the aggregate amounts paid or payable by CMU pursuant to Section 11.1 and the aggregate amounts of the Infringement Escrowed Amounts (including amounts paid previously paid from the Infringement Escrowed Amounts) exceed $4,500,000, CMU shall pay to Apollo the amounts due pursuant to Section 11.1, and upon receipt of such payment by Apollo, and an amount equal to such excess shall be immediately released by the Escrow Agent from the Infringement Escrowed Amounts and each Party shall take all actions necessary or appropriate to effect such release.

(b)In the event that Apollo obtains a final, non-appealable judgment against CMU arising from a breach of Section 3.1(b), Section 3.1(d)(ii) or Section 3.5, Apollo may offset the next succeeding payable Fees in an amount not to exceed the amount of such judgment.

4.6Covenants. CMU hereby covenants that:

(a)CMU shall not use any CL Marks or apply for registration of any CL Marks (or any mark confusingly similar thereto) anywhere in the world; and

(b)CMU shall not challenge Apollo’s or CL’s ownership or use of the CL Marks.

4.7Representations. CMU hereby represents and warrants that:

(a)Except as set forth on Schedule 4.7(a), CMU has not disclosed, licensed or granted any third party rights of use of or to the Transferred Assets to any entity (other than to CL);

(b)Except as set forth on Schedule 4.7(b), CMU’s products or services do not use any Transferred Assets;

(c)Except as set forth in Schedule 4.7(c), CMU’s use of any CL Technology disclosed to CMU by CL pursuant to the CMU-CL Agreements has been strictly as permitted under the CMU-CL Agreements;

(d)the Transferred Assets do not contain or use any third party Technology;

(e)the Transferred Assets do not contain or use any open source software; and

(f)Except as set forth on Schedule 4.7(f) , to CMU’s knowledge, CMU does not own any United States or foreign patents or patent applications (other than the Funded Patent) that contain claims expressly directed toward cognitive tutors.

The Parties acknowledge and agree that the representations and warranties set forth in this Section 4.7 shall survive for a period of thirty (30) months commencing on the Effective Date.

5.FUNDED PATENTS PROSECUTION AND ENFORCEMENT

5.1Prosecution.

(a)Responsibility. Apollo shall have the sole right and responsibility for preparing, filing, prosecuting and maintaining the Funded Patent and for paying all associated costs. For purposes of this Agreement, patent prosecution includes, without limitation, ex parte prosecution, interference proceedings, reissues, reexaminations, oppositions, patent term extensions and supplemental protection certificates.

(b)Cooperation. CMU shall cooperate with Apollo in preparing, filing, prosecuting and maintaining the Funded Patent, including without limitation executing documents pertaining to the Funded Patent and seeking the cooperation of the inventor(s) of the Funded Patent. CMU shall provide Apollo with prompt written notice of any matter that comes to CMU’s attention that may affect the patentability, validity or enforceability of the Funded Patent.

(c)Covenant Not To Prosecute. CMU hereby covenants and agrees not to prosecute any invention disclosed by the Funded Patent.

5.2Enforcement.

(a)Notice. If at any time during the term of this Agreement, CMU becomes aware of an apparent infringement in a particular country of the Funded Patent, it must promptly notify Apollo in writing.

(b)Action by Apollo. Apollo has the sole right, but not the obligation, to enforce the Funded Patent and prosecuting apparent infringers at its expense and in its own name when, in its judgment, such action may be reasonably necessary. Apollo has the right to join CMU as a party-plaintiff in connection with such rights, at Apollo’s expense.

(c)Cooperation. If Apollo initiates legal proceedings to enforce the Funded Patent, CMU shall cooperate with and supply all assistance reasonably requested by Apollo, at Apollo’s request and expense.

(d)No Distribution of Amounts Paid by Third Parties. In any legal proceeding brought by Apollo, Apollo shall recover any and all damages or other amounts recovered as a result of the proceeding, without any obligation to provide any amounts to CMU.

(e)Declaratory Judgment Actions. If any third party initiates a declaratory judgment action alleging the invalidity or unenforceability of the Funded Patent, then Apollo shall have the right to defend and settle such action under its own control and at its own expense, and CMU and Apollo shall cooperate in good faith to defend such action. Any recovery associated with this Section 5.2(e) shall belong solely to Apollo.

6.CMU-CL AGREEMENTS

6.1Certain Acknowledgements and Agreements.

(a)Termination of CMU-CL Agreements. The Parties hereby acknowledge and agree that, as of the TALA Closing Date, the CMU-CL Agreements are terminated in their entirety and, no rights, obligations or claims under the CMU-CL Agreements will survive such termination.

(b)Satisfaction of Royalties. The Parties hereby acknowledge and agree that, (i) CL will pay to CMU $106,281 on or before August 8, 2011 and (ii) immediately prior to the Closing Event, CL is paying to CMU $382,180, all in full satisfaction of all royalties owed by CL to CMU under the CMU-CL Agreements.

(c)Dispute Moratorium. The Parties acknowledge that certain disputes have arisen between CL and CMU arising under the CMU-CL Agreements, including whether or not the CMU-CL Third Agreement remains in effect. CMU and CL shall not initiate or pursue any claims relating to any such disputes or any other dispute during the period commencing on the Effective Date and ending on the earlier to occur of the TALA Closing and the termination of this Agreement. For the avoidance of doubt, as of the TALA Closing Date, all such claims are released pursuant to Section 6.2 and Section 6.3.

6.2CMU Release of Apollo and CL. As of the TALA Closing Date, CMU hereby releases Apollo and CL from any and all claims, liability, obligations, fees, and any other claims or allegations of any kind or nature whatsoever, known or unknown, suspected or unsuspected, fixed or contingent, in equity or in law or otherwise, that CMU ever had or now has, for, upon, or by reason of any matter, cause or thing whatsoever against Apollo and CL, to the extent arising out of or related to the CMU-CL Agreements. CMU represents that it has read and understood California Civil Code 1542 and hereby waives the provisions of California Civil Code 1542, which states: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially effected his settlement with the debtor.” In addition, each party hereby knowingly and voluntarily waives any protection that may exist under any comparable or similar statutes and principles of common law as it pertains to the enforcement of the releases provided by this section. By way of clarification, the release set forth in this Section 6.2 is not intended to release Apollo or CL from paying the amounts provided in Section 6.1(b).

6.3Apollo and CL Release of CMU. As of the TALA Closing Date, except as provided in Section 4.7(c) and Section 6.4, Apollo and CL hereby release CMU from any and all claims, liability, obligations, fees, and any other claims or allegations of any kind or nature whatsoever, known or unknown, suspected or unsuspected, fixed or contingent, in equity or in law or otherwise, that Apollo and CL ever had or now has, for, upon, or by reason of any matter, cause or thing whatsoever against CMU, to the extent arising out of or related to the CMU-CL Agreements. Apollo and CL represent that they have read and understood California Civil Code 1542 and hereby waive the provisions of California Civil Code 1542, which states: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially effected his settlement with the debtor.” In

addition, Apollo and CL hereby knowingly and voluntarily waive any protection that may exist under any comparable or similar statutes and principles of common law as it pertains to the enforcement of the releases provided by this section. By way of clarification, the release set forth in this Section 6.3 is not intended to release CMU from liability arising under Section 11.1 from a breach of the representation set forth in Section 4.7(c) or under Section 6.4.

6.4Initial Founders Release of Apollo and CL. CMU may, at its election, obtain from each Initial Founder a signed release for the benefit of Apollo and CL of substantially the same scope as the release set forth in Section 6.2, and send a copy of each such release to Apollo. In the absence of obtaining and delivering such a release by an Initial Founder, CMU agrees to defend, indemnify, and hold harmless Apollo and CL from and against any liability, damage, loss or expense (including attorneys’ fees and expenses) incurred by or imposed on Apollo or CL by reason of any claim made by an Initial Founder against Apollo or CL under the CMU-CL Agreements.

6.5No Further Payments. Without limiting the generality of the foregoing, and except as set forth in 6.1(b), the Parties hereby acknowledge and agree that effective as of the TALA Closing: (a) CL has no further payment obligations under the CMU-CL Agreements; and (b) neither Apollo, nor CL, has any obligation to make any payments to CMU for any Exploitation of any CL Technology.

7.RIGHT OF FIRST NEGOTIATION

7.1CTAT/Genetics Right of First Negotiation.

(a)Exclusive License. During the period commencing on the Effective Date and ending on the fifth (5^th) anniversary thereof (the “Exclusive ROFN Term”), each time CMU decides to explore an arrangement pursuant to which CMU would sell or exclusively license in all fields of use all or a portion of CMU’s right, title and interest in and to CTAT or the Genetics Cognitive Tutor (“ROFN Technology”) for commercial purposes, CMU shall, at any time but prior to entering into a written agreement or license effecting such sale or exclusive license, notify Apollo in writing of such intention and provide to Apollo copies of CMU’s information related to such ROFN Technology relevant to Apollo’s evaluation (other than Source Code and other than information that is confidential to third parties). All such information disclosed by CMU shall be deemed to be CMU Confidential Information. If Apollo elects in writing within thirty (30) days (the “Exclusive License Notice Period”) after receipt of such notice (the “Exclusive License Negotiation Election”), Apollo and CMU shall thereafter negotiate a purchase or exclusive license (as applicable) of such ROFN Technology for ninety (90) days after Apollo’s notice of such election (such ninety (90) day period is referred to as the “Exclusive License Exclusivity Period”). If Apollo fails to make the Exclusive License Negotiation Election, or if Apollo and CMU do not enter into a binding agreement within the Exclusive License Exclusivity Period, in each Party’s sole and absolute discretion, then CMU shall thereafter have the right to enter into any agreement or arrangement regarding such ROFN Technology with one or more third parties during the two hundred and seventy (270) day period commencing on the expiration of the Exclusive License Notice Period (if Apollo does not make the Exclusive License Negotiation Election) or the expiration of the Exclusive License Exclusivity Period (if Apollo does make the Exclusive License Negotiation Election) (such two hundred and seventy (270) day period is referred to as the “Exclusive License

Third Party Period”) (without any further rights by, or notice to, Apollo during the Exclusive License Third Party Period). Notwithstanding the foregoing, if Apollo made the Exclusive License Negotiation Election and CMU subsequently proposes to sell or exclusively license the ROFN Technology during the Exclusive License Third Party Period to a for-profit educational institution or any Person who owns, controls, is under common control, or is controlled by a for-profit educational institution on terms that are materially more favorable to such entity than were offered by CMU to Apollo during the Exclusive License Exclusivity Period, then, before CMU enters into such agreement, CMU shall once again comply with this Section. For purposes of this Article 7, “controls,” “control” and “controlled” shall have the corresponding meaning given to the term “control” within Section 1.3 of this Agreement. If CMU does not enter into a sale or exclusive license for such ROFN Technology during an Exclusive License Third Party Period, then any future sale or exclusive license of the ROFN Technology shall again be subject to this Section (provided that such subsequent sale or exclusive license is within the Exclusive ROFN Term). This Section shall terminate and be of no further force or effect at the expiration of the Exclusive ROFN Term.

(b)Non-Exclusive License. During the period commencing on the Effective Date and ending on the third (3^rd) anniversary thereof (the “Non-Exclusive ROFN Term”), each time CMU decides to explore an arrangement pursuant to which CMU would non-exclusively license ROFN Technology for commercial purposes, CMU shall, at any time but in any event prior to entering into a written agreement or license effecting such license, notify Apollo in writing of such intention and provide to Apollo copies of CMU’s information related to such ROFN Technology relevant to Apollo’s evaluation (other than Source Code and other than information that is confidential to third parties). All such information disclosed by CMU shall be deemed to be CMU Confidential Information. If Apollo elects in writing within thirty (30) days (the “Non-Exclusive License Notice Period”) after receipt of such notice (the “Non-Exclusive License Negotiation Election”), Apollo and CMU shall thereafter negotiate a license of such ROFN Technology for ninety (90) days after Apollo’s notice of such election (such ninety (90) day period is referred to as the “Non-Exclusive License Exclusivity Period”). If Apollo fails to make the Non-Exclusive License Negotiation Election, or if Apollo and CMU do not enter into a binding agreement which would prohibit CMU from granting non-exclusive licenses within the Non-Exclusive License Exclusivity Period, in each Party’s sole and absolute discretion, then CMU shall thereafter have the right to enter into any non-exclusive license regarding such ROFN Technology with one or more third parties during the two hundred and seventy (270) day period commencing on the expiration of the Non-Exclusive License Notice Period (if Apollo does not make the Non-Exclusive License Negotiation Election) or the expiration of the Non-Exclusive License Exclusivity Period (if Apollo does make the Non-Exclusive License Negotiation Election) (such two hundred and seventy (270) day period is referred to as the “Non-Exclusive License Third Party Period”) (without any further rights by, or notice to, Apollo during the Non-Exclusive License Third Party Period). Notwithstanding the foregoing, if Apollo made the Non-Exclusive License Negotiation Election and CMU subsequently proposes to non-exclusively license the ROFN Technology during the Non-Exclusive License Third Party Period to a for-profit educational institution or any Person who owns, controls, is under common control, or is controlled by a for-profit educational institution on terms that are materially more favorable to such entity than were offered by CMU to Apollo during the Non-Exclusive License Exclusivity Period, then, before CMU enters into such agreement, CMU shall once again comply with this Section (except that such requirement shall not apply to a form

object-code non-exclusive license (including, without limitation, click-through licenses)). Any non-exclusive license of the ROFN Technology after the expiration of a Non-Exclusive License Third Party Period shall again be subject to this Section (provided that such subsequent license is within the Non-Exclusive ROFN Term). This Section shall terminate and be of no further force or effect at the expiration of the Non-Exclusive ROFN Term.

7.2CTAT Research Collaboration. CMU and Apollo will discuss a sponsored research project during the sixty (60) day period following the Effective Date (the “CTAT Discussion Period”) pursuant to which Apollo would sponsor a project to research and develop a material improvement to CTAT as agreed-upon by CMU and Apollo. During the CTAT Discussion Period, CMU will not enter into any commercial license of CTAT. If Apollo and CMU do not enter into a sponsorship agreement during the CTAT Discussion Period, then this Section 7.2 shall be of no further force or effect.

7.3Founder Technology Right of First Negotiation. During the period commencing on the Effective Date and ending on the third (3^rd) anniversary thereof (the “Founder ROFN Term”), each time CMU decides to explore an arrangement pursuant to which CMU would sell or license all or a portion of CMU’s right, title and interest in and to Founder Technology for commercial purposes, CMU shall, at any time but in any event prior to entering into a written agreement or license effecting such sale or license, notify Apollo in writing of such intention and provide to Apollo copies of CMU’s information related to such Founder Technology relevant to Apollo’s evaluation (other than Source Code and other than information that is confidential to third parties). All such information disclosed by CMU shall be deemed to be CMU Confidential Information. If Apollo elects in writing within thirty (30) days (the “Founder Notice Period”) after receipt of such notice (the “Founder Negotiation Election”), Apollo and CMU shall thereafter negotiate a purchase or license (as applicable) of such Founder Technology for ninety (90) days after Apollo’s notice of such election (such ninety (90) day period is referred to as the “Founder Exclusivity Period”). If Apollo fails to make the Founder Negotiation Election, or if Apollo and CMU do not enter into a binding agreement within the Founder Exclusivity Period which would preclude licenses of the Founder Technology, in each Party’s sole and absolute discretion, then CMU shall thereafter have the right to enter into any agreement or arrangement regarding such Founder Technology with one or more third parties during the two hundred and seventy (270) day period commencing on the expiration of the Founder Notice Period (if Apollo does not make the Founder Negotiation Election) or the expiration of the Founder Exclusivity Period (if Apollo does make the Founder Negotiation Election) (such two hundred and seventy (270) day period is referred to as the “Founder Third Party Period”) (without any further rights by, or notice to, Apollo during the Founder Third Party Period). Notwithstanding the foregoing, if Apollo made the Founder Negotiation Election and CMU subsequently proposes to sell or license the Founder Technology during the Founder Third Party Period to a for-profit educational institution or any Person who owns, controls, is under common control, or is controlled by a for-profit educational institution on terms that are materially more favorable to such entity than were offered by CMU to Apollo during the Founder Exclusivity Period, then, before CMU enters into such agreement, CMU shall once again comply with this Section. Any sale or license of the Founder Technology after the expiration of a Founder Third Party Period shall again be subject to this Section (provided that such subsequent sale or exclusive license is

within the Founder ROFN Term). This Section shall terminate and be of no further force or effect at the expiration of the Founder ROFN Term.

7.4Apollo’s rights under this Section 7 are not assignable, in whole or in part.

8.CONFIDENTIALITY

8.1“Confidential Information” means any and all technical and non-technical information disclosed by one Party (“Disclosing Party”) to another (“Receiving Party”) under this Agreement and related to the past, present or future Adaptive Learning Field or technology of the Disclosing Party, including without limitation information constituting or concerning research, development, processes and methodologies; product architecture, designs and specifications; software, whether human-readable or machine-readable; product, marketing, sales and Adaptive Learning Field development plans and strategies; competitive analyses; financial analyses and forecasts; cost and pricing data; procurement requirements and vendor information; customers and prospects; licensing and distribution arrangements; the identity, skills and compensation of employees, contractors and consultants; and third party information that the Disclosing Party is obligated to maintain in confidence. In order for information to be deemed to be Confidential Information, it must be clearly marked as confidential. Notwithstanding the forgoing, all of the Transferred Assets (other than the Know-How) will be considered Apollo Confidential Information. Further, each Party agrees to treat the terms and conditions of this Agreement as the Confidential Information of each of the other Parties.

8.2Confidentiality Obligations. Each Party will hold in confidence and shall not use or disclose to any third party any Confidential Information of another Party. Each Party shall only use the other Party’s Confidential Information as necessary to perform its obligations, or as otherwise permitted, under this Agreement and for no other purpose.

8.3Exclusions. Notwithstanding the foregoing, neither the Disclosing Party nor the Receiving Party shall have any obligation under this Section 8 with respect to any information that it can prove is: (i) now or hereafter, through no unauthorized act or failure to act on the Receiving Party’s part, generally known to the public; (ii) known to the Receiving Party without an obligation of confidentiality effective at the time the Receiving Party received the same from the Disclosing Party, as evidenced by written records; (iii) hereafter furnished to the Receiving Party by a third party as a matter of right and without restriction on disclosure to the Disclosing Party; or (iv) independently developed by the Receiving Party without use of or access to the Disclosing Party’s Confidential Information. Nothing in this Agreement shall prevent the Receiving Party from disclosing information to the extent the Receiving Party is legally compelled to do so by any governmental investigative or judicial agency pursuant to proceedings over which such agency has jurisdiction; provided, however, that prior to any such disclosure, the Receiving Party will: (a) assert the confidential nature of the information to the agency; (b) immediately notify the Disclosing Party in writing of the agency’s order or request to disclose; and (c) cooperate fully with the Disclosing Party in protecting against any such disclosure and/or obtaining a protective order narrowing the scope of the compelled disclosure and protecting its confidentiality.

8.4Injunctive Relief. Each Party agrees that it would be impossible or inadequate to measure and calculate the other Party’s damages from any breach of this Section 8. Accordingly, each Party agrees that if such Party breaches such provisions, the other Party will have available, in addition to any other right or remedy available, the right to seek from any court of competent jurisdiction an injunction restraining such breach or threatened breach and to seek specific performance of any such provisions. Each Party further agrees that no bond or other security will be required in obtaining such equitable relief.

9.WARRANTIES

9.1Mutual Warranties. Each Party represents and warrants to the other that: (i) it has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder; and (ii) the execution and delivery of this Agreement and the performance of its obligations hereunder do not conflict with or constitute a default under any of its contractual obligations.

9.2CMU Warranties. CMU represents and warrants that: (i) it owns full and undiminished right, title and interest in and to all Transferred Assets, and has all rights necessary to make the assignment herein; and (ii) the Transferred Assets are free of any Encumbrances (other than (a) with respect to the Funded Patent, the Permitted Encumbrances in Section 1.71(i); and (b) with respect to all other Transferred Assets, the Permitted Encumbrances in Section 1.71(ii)).

9.3WARRANTY DISCLAIMER. THE EXPRESS TERMS OF THIS AGREEMENT ARE IN LIEU OF ALL WARRANTIES, CONDITIONS, TERMS, UNDERTAKINGS AND OBLIGATIONS IMPLIED BY STATUTE, COMMON LAW, CUSTOM, TRADE USAGE, COURSE OF DEALING OR OTHERWISE, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED TO THE FULLEST EXTENT PERMITTED BY LAW.

10.LIMITATION OF LIABILITY

EXCEPT FOR OBLIGATIONS UNDER BREACHES OF SECTION 8 (CONFIDENTIALITY) AND OBLIGATIONS UNDER SECTION 11 (INDEMNIFICATION) UNDER NO CIRCUMSTANCES WILL ANY PARTY BE LIABLE TO THE OTHER PARTIES, UNDER ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE OR OTHER LEGAL OR EQUITABLE THEORY, FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY, INCLUDING BUT NOT LIMITED TO CONTRACT OR TORT AND WHETHER OR NOT SUCH PARTY WAS OR SHOULD HAVE BEEN AWARE OR ADVISED OF THE POSSIBILITY OF SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY STATED HEREIN. EXCEPT FOR OBLIGATIONS UNDER SECTION 6.4 (FOUNDERS RELEASE OF APOLLO AND CL), BREACHES OF SECTION 8 (CONFIDENTIALITY), BREACHES OF SECTION 9.1 (MUTUAL WARRANTIES),

BREACHES OF SECTION 9.2 (CMU WARRANTIES), AND LOST PROFITS RESULTING FROM ANY BREACH OF SECTION 3.5 (RETAINED RIGHTS), IN NO EVENT SHALL EACH PARTY’S LIABILITY ARISING OUT OF THIS AGREEMENT EXCEED THE FEES PAID OR PAYABLE UNDER THIS AGREEMENT. THE PARTIES AGREE THAT THIS SECTION REPRESENTS A REASONABLE ALLOCATION OF RISK.

11.INDEMNIFICATION

11.1Indemnification by CMU. CMU and its successors and assigns shall defend, indemnify, and hold harmless Apollo and its officers, employees and attorneys from and against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses) incurred by or imposed upon Apollo and/or its officers, employees and attorneys in connection with any claim, suit, action or demand arising out of any misrepresentation by CMU under Sections (i) 4.7; (ii) 9.1; and (iii) 9.2 of this Agreement.

11.2Indemnification by Apollo. Apollo and its successors and assigns (collectively, the “Apollo Group”) shall defend, indemnify, and hold harmless CMU and its trustees, officers, employees and attorneys from and against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses) incurred by or imposed upon any of CMU and/or its trustees, officers, employees and attorneys in connection with any claim, suit, action or demand arising out of or relating to any misrepresentation by Apollo under (i) Section 9.1 or (ii) Apollo Group’s use of, disposition of, or conduct regarding the Transferred Assets and/or the Funded Patent and/or the CMU Trademark, including but not limited to, any claims of product liability, personal injury (including, but not limited to, death), damage to property or violation of any laws or regulations including, but not limited to, claims of active or passive negligence.

11.3Limit on Indemnification under Section 11. Notwithstanding Section 10, Section 11.1 and Section 11.2 above, (a) the aggregate liability of CMU and Apollo relating to all claims for indemnification under Section 11.1(i) or Section 11.2(i) (and in the case of CMU, the aggregate liability of CMU relating to claims under Section 11.1(i) together with amounts paid or payable pursuant to Section 4.5(a)), respectively, shall not exceed $4,500,000 for each of CMU and Apollo; (b) CMU and Apollo shall not be required to indemnify, defend or hold harmless the other Party with respect to any claim for indemnification pursuant to Section 11.1 or Section 11.2, respectively, unless and until the aggregate losses with respect to all such claims exceed $50,000 in which case the indemnifying Party shall be liable only for those losses that exceed such minimum threshold; and (c) in no event may any claims for indemnification under Section 11.1 be made more than thirty (30) months after the Effective Date. For purposes of Section 11.3(a) above, Infringement Escrow Amounts remaining in escrow shall not be included as amounts paid or payable pursuant to Section 4.5(a) unless and until payable from the Escrow, so long as the Escrow Agent and Apollo shall have complied in all respects with the last sentence of Section 4.5(a). Upon a direct or indirect assignment of the rights of indemnification under the Merger Agreement (including, without limitation, in connection with a merger or disposition of a subsidiary, division or assets of Apollo), the amounts payable under Section 11.1 shall be reduced by Losses for which indemnification is sought from the Indemnifying Equityholders by or on behalf of the successor or purchaser, as applicable (or its assigns or successors), arising under the facts giving rise to the applicable misrepresentation.

11.4Method of Asserting Claims. Claims for indemnification by any Indemnified Party will be asserted and resolved as follows.

(a)In the event any claim or demand in respect of which an Indemnified Party might seek indemnity is asserted against or sought to be collected from such Indemnified Party by a Person other than the Parties (a “Third Party Claim”), the Indemnified Party shall deliver a Claim Notice with reasonable promptness to the Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice with reasonable promptness after the Indemnified Party receives notice of such Third Party Claim, the Indemnifying Party will not be obligated to indemnify the Indemnified Party with respect to such Third Party Claim to the extent that the Indemnifying Party’s ability to defend is prejudiced by such failure of the Indemnified Party. The Indemnifying Party will notify the Indemnified Party as soon as practicable within the Dispute Period whether the Indemnifying Party accepts or disputes its liability to the Indemnified Party and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim.

(i)    If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Indemnified Party with respect to the Third Party Claim, then the Indemnifying Party will have the right to defend, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings will be vigorously and diligently prosecuted or defended by the Indemnifying Party to a final conclusion or will be settled at the reasonable discretion of the Indemnifying Party (but only with the consent of the Indemnified Party in its sole discretion in the case of any settlement that provides for any relief other than the payment of monetary damages or that provides for the payment of monetary damages as to which the Indemnified Party will not be indemnified in full). Subject to the foregoing, the Indemnifying Party will have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that the Indemnified Party may, at the cost and expense of the Indemnifying Party, at any time prior to the Indemnifying Party’s delivery of the notice referred to in the first sentence of this Section (i), file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests; and provided, further, that if requested by the Indemnifying Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section and, except as provided in the preceding sentence, the Indemnified Party will bear its own costs and expenses with respect to such participation. Notwithstanding the foregoing, the Indemnified Party may take over the control of the defense or settlement of a Third Party Claim at any time if it irrevocably waives its right to indemnity under Section with respect to such Third Party Claim.

(ii)    If the Indemnifying Party fails to notify the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Third Party Claim, or if the Indemnifying Party gives such notice but any time thereafter fails to prosecute or

defend vigorously and diligently or settle the Third Party Claim, or if the Indemnifying Party fails to give any notice whatsoever within the Dispute Period, then the Indemnified Party will have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings will be prosecuted by the Indemnified Party in good faith or will be settled at the reasonable discretion of the Indemnified Party (provided that the Indemnified Party shall give the Indemnifying Party prior notice of such settlement). The Indemnified Party will have full control of such defense and proceedings, including any compromise or settlement thereof subject to the foregoing sentence; provided, however, that if requested by the Indemnified Party, the Indemnifying Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting. Notwithstanding the foregoing provisions of this Section, if the Indemnifying Party has notified the Indemnified Party within the Dispute Period that the Indemnifying Party disputes its liability hereunder to the Indemnified Party with respect to such Third Party Claim and if such dispute is resolved in favor of the Indemnifying Party in the manner provided in Subsection (iii) below, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party’s defense pursuant to this Section or of the Indemnifying Party’s participation therein at the Indemnified Party’s request, and the Indemnified Party will reimburse the Indemnifying Party in full for all reasonable costs and expenses incurred by the Indemnifying Party in connection with such litigation. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this Section, and the Indemnifying Party will bear its own costs and expenses with respect to such participation.

(iii)    If the Indemnifying Party notifies the Indemnified Party that it accepts its indemnification liability to the Indemnified Party with respect to the Third Party Claim or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes its liability to the Indemnified Party with respect to such Third Party Claim, the loss identified in the Claim Notice, as finally determined, will be conclusively deemed a liability of the Indemnifying Party and the Indemnifying Party shall pay the amount of such loss to the Indemnified Party on demand. If the Indemnifying Party timely disputes its liability with respect to such Third Party Claim, the Indemnifying Party and the Indemnified Party will proceed in good faith to negotiate a resolution of such dispute, and if not resolved through negotiations within the Resolution Period, such dispute shall be resolved by litigation in a court of competent jurisdiction.

(b)In the event any Indemnified Party should have a claim for indemnification against any Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver an Indemnity Notice with reasonable promptness to the Indemnifying Party. The failure or delay by any Indemnified Party to give the Indemnity Notice shall not impair such party’s rights hereunder except to the extent that an Indemnifying Party is prejudiced by such failure or delay. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim described in such Indemnity Notice or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes the claim described in such Indemnity Notice, the loss indemnified in the Indemnity Notice will be conclusively deemed a liability of the Indemnifying Party and the

Indemnifying Party shall pay the amount of such Loss to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability with respect to such claim, the Indemnifying Party and the Indemnified Party will proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations within the Resolution Period, such dispute shall be resolved by litigation in a court of competent jurisdiction.

11.5Exclusivity as to Representations and Warranties. The representations and warranties (and the related schedules) set forth herein are the sole and exclusive representations and warranties made by the Parties. No Party shall be deemed to have made any representation or warranty other than as expressly made herein.

12.TERM AND TERMINATION; CLOSING

12.1Term. The term of this Agreement will commence on the Effective Date and continue indefinitely, and may not be terminated by any Party except as expressly provided in Section 12.2 below (the “Term”), except that certain rights and obligations may be terminated as expressly provided in this Agreement.

12.2Termination For No Closing Event. This Agreement will automatically terminate if the Closing Event does not occur in accordance with the Merger Agreement.

12.3Effect of Termination. Upon termination of this Agreement pursuant to Section 12.1 or Section 12.2, this Agreement will be of no force and effect, and no Sections of this Agreement will survive such termination. Notwithstanding the foregoing, the Parties will return all materials received under this Agreement to the Party providing such materials.

12.4Closing.

(a)    The obligations of Apollo to consummate the closing of the transactions contemplated by this Agreement (the “TALA Closing”) is subject to the fulfillment of the following conditions of the TALA Closing:

(i)    The representations and warranties of set forth in Section 9.1 with respect to CL and CMU, and in Sections 4.7 and 9.2 with respect to CMU, shall be true and correct in all material respects, in each case as of the Effective Date and at and as of the TALA Closing Date as though then made and as though the TALA Closing Date were substituted for the Effective Date throughout such representations and warranties;

(ii)    Each of CMU and CL shall have performed and complied in all material respects with all of the covenants and agreements required to be performed by it under this Agreement on or prior to the TALA Closing Date;

(iii)    CMU shall have fulfilled (in Apollo’s sole discretion) its delivery and evidence obligations under Section 2.3; and

(iv)    the Closing Event shall have occurred.

(b)    The obligations of CMU to consummate the TALA Closing is subject to the fulfillment of the following conditions of the TALA Closing:

(i)    The representations and warranties of set forth in Section 9.1 with respect to Apollo and CL shall be true and correct in all material respects, in each case as of the Effective Date and at and as of the TALA Closing Date as though then made and as though the TALA Closing Date were substituted for the Effective Date throughout such representations and warranties;

(ii)    Each of Apollo and CL shall have performed and complied in all material respects with all of the covenants and agreements required to be performed by it under this Agreement on or prior to the TALA Closing Date; and

(iii)    the Closing Event shall have occurred.

(c)    The obligations of CL to consummate the TALA Closing is subject to the fulfillment of the following conditions of the TALA Closing:

(i)    The representations and warranties of set forth in Section 9.1 with respect to Apollo and CMU shall be true and correct in all material respects, in each case as of the Effective Date and at and as of the TALA Closing Date as though then made and as though the TALA Closing Date were substituted for the Effective Date throughout such representations and warranties;

(ii)    Each of Apollo and CMU shall have performed and complied in all material respects with all of the covenants and agreements required to be performed by it under this Agreement on or prior to the TALA Closing Date; and

(iii)    the Closing Event shall have occurred.

(d)    The TALA Closing shall take place at the offices of Morgan Lewis, One Oxford Centre, Thirty-Second Floor, Pittsburgh, PA 15219, simultaneously with the Closing Event; provided that any Party may participate remotely in the TALA Closing by electronic delivery of documents and/or funds. The date and time of the TALA Closing are referred to herein as the “TALA Closing Date”.

13.GENERAL

13.1Government Approvals. Each Party agrees to comply with all applicable laws and regulations, and to obtain any government approvals which are necessary to obtain for the Party to perform hereunder.

13.2Relationship of The Parties. Each Party is an independent contractor of the other Party. Nothing in this Agreement will constitute a partnership between or joint venture by the Parties, or constitute any Party the agent of the other Parties.

13.3Governing Law. This Agreement, and any and all disputes arising out of or relating to this Agreement, will be governed by and construed under the laws of Delaware, without reference to its conflicts of law principles. Without limitation of the foregoing, Delaware law relating to obligations to mitigate damages, if any, shall govern (and this Agreement shall not constitute a waiver thereof).

13.4Resolution of Disputes. Any dispute, claim or controversy that may arise in connection with this Agreement shall be first negotiated in good faith by the Parties, and if such negotiations do not result in a mutually agreeable resolution, any Party may bring a claim against the other Parties, provided that such claim shall be exclusively brought in the state or federal courts located in Delaware. Each Party hereby irrevocably submits to the exclusive jurisdiction of such courts for any such claims, and waives any objections to such courts based on venue or the doctrine of forum non conveniens.

13.5Publicity. CMU and Apollo will mutually agree to any public disclosure regarding the subject matter of this Agreement, including press releases and disclosure on each other’s website, and CMU and Apollo must review and approve in writing proposed press releases and disclosures; provided neither CMU nor Apollo may unilaterally issue any press release, or make any public disclosure, without such other Party’s prior written approval, except as necessary to comply with applicable law.

13.6Assignment. Except as otherwise provided herein, this Agreement may not be assigned, in whole or in part, by any Party without the other Parties’ prior written consent, and any such assignment shall be void. Notwithstanding the foregoing, Apollo may assign this Agreement and any of its rights and/or obligations hereunder (other than its rights under Section 3.4) upon written notice to the other Parties, to any of its Affiliates or to an entity with or into which it is merged or consolidated or to which it sells all or substantially all its capital stock or assets associated with the operations related to this Agreement, without the consent of the other Parties subject to the condition precedent that such assignee expressly agrees in writing to assume Apollo’s obligations under this Agreement and executes and delivers to CMU such agreement in writing to CMU.

13.7Successors and Assigns; Third Party Beneficiaries. Subject to Section 13.6, this Agreement and all respective Intellectual Property Rights set forth herein, shall bind and inure to the benefit of each Party and their respective permitted successors or assigns. Nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement.

13.8Entire Agreement. This Agreement sets forth the entire agreement and understanding of the Parties relating to the subject matter hereof and merges all discussions, representations, covenants, promises, discussions, negotiations, and exchanges between them with respect thereto.

13.9Modification and Waiver. No modification of or amendment to this Agreement will be effective unless in writing signed by authorized representatives of each Party. No waiver of any rights is to be charged against any Party unless such waiver is in writing signed by an authorized representative of the Party so charged.

13.10Notices. All notices and other communications hereunder will be in writing and will be deemed effective when delivered by hand or by facsimile transmission, or upon receipt when mailed by registered or certified mail (return receipt requested), postage prepaid, or by bonded overnight courier, to the Parties at the addresses listed below (or at such other address for a Party as shall be specified by written notice):

If to Apollo:                

4025 South Riverpoint Parkway    

        Phoenix, Arizona 85040        

        Attention: General Counsel    

If to CMU:    

Carnegie Mellon University

4615 Forbes Avenue, Suite 302

Pittsburgh, PA 15213

Attention: Director, Center for Technology Transfer and Enterprise Creation

Facsimile: 412-268-7395

With a copy to:

Mary Jo Dively, Esq.

Vice President and General Counsel

Carnegie Mellon University

5000 Forbes Avenue

Pittsburgh, PA 15213

Facsimile: (412) 268-2330

If to CL:    

Carnegie Learning, Inc.

Frick Building, 20^th Floor

437 Grant Street

Pittsburgh, PA 15219

Attn: Chief Executive Officer

Facsimile: (412) 690-2444

With a copy to:

McGuireWoods LLP

EQT plaza

625 Liberty Avenue, 23^rd Floor

Pittsburgh, PA 15222

Attn: Scott E. Westwood

Facsimile: (412) 667-6050

13.11Unenforceable Provisions. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect, and, if legally permitted, such offending provision shall be replaced with an enforceable provision that as nearly as possible gives effect to the Parties’ intent.

13.12Counterparts. This Agreement may be executed in multiple counterparts (which may be exchanged by facsimile), each of which will be deemed an original and all of which together will constitute one instrument.

SIGNATURE PAGE NEXT PAGE

INTENDING TO BE LEGALLY BOUND, the Parties through their duly authorized officers have executed this Agreement as of the Effective Date.

APOLLO GROUP, INC.		CARNEGIE MELLON UNIVERSITY
By:	/s/ Joseph L. D’Amico	By:	/s/ Mark Scott Kamlet
Name:	Joseph L. D’Amico	Name:	Mark Scott Kamlet
Title:	President and COO	Title:	Provost and Executive Vice President

CARNEGIE LEARNING, INC.            

By: /s/ Dennis Ciccone        

Name: Dennis Ciccone

Title: CEO

SIGNATURE PAGE TO TECHNOLOGY ASSIGNMENT AND LICENSE AGREEMENT

EX-10.23

Exhibit 10.23

APOLLO EDUCATION GROUP, INC.

STOCK OPTION AGREEMENT

RECITALS

A.    The Corporation has implemented the Incentive Plan for the purpose of providing eligible persons in the Corporation’s service with the opportunity to receive one or more equity incentive awards designed to encourage them to continue their service relationship with the Corporation.

B.    Optionee is to render valuable services to the Corporation, and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Incentive Plan in connection with the Corporation’s grant of an Option to Optionee as an additional inducement to perform those services.

C.All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix.

NOW, THEREFORE, it is hereby agreed as follows:

1.    Grant of Option. The Corporation hereby grants to ____________________ (“Optionee”) on _________ (the “Grant Date”) a Non-Statutory Option to purchase [ ] shares of the Corporation’s Class A Common Stock (the “Option Shares”) at an exercise price of $[ ] per share (the “Exercise Price”), the closing price per share of such Class A Common Stock on the Nasdaq Global Select Market on the Grant Date.

2.    Option Term. The term of this Option shall commence on the Grant Date and continue in effect until the close of business on _________ (the “Expiration Date”), unless sooner terminated in accordance with Paragraph 5 or 6.

3.    Limited Transferability.

(a)    Except for the limited transferability provided under this Paragraph 3(a), this Option shall be neither transferable nor assignable by Optionee other than by will or the laws of inheritance following Optionee’s death and may be exercised, during Optionee’s lifetime, only by Optionee. However, this Option may be assigned in whole or in part during Optionee’s lifetime to a Living Trust, and the assigned portion may only be exercised by that Living Trust. The terms applicable to the assigned portion shall be the same as those in effect for this Option immediately prior to such assignment and shall be evidenced by an assignment agreement in form reasonably satisfactory to the Corporation. For purposes of this Paragraph 3(a), a Living Trust shall mean a revocable living trust established by Optionee or by Optionee and his spouse of which Optionee is the sole trustee (or sole co-trustee with his spouse) and sole beneficiary (or sole co-beneficiary with his spouse) during Optionee’s lifetime.

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(b)    Optionee may also designate one or more persons as the beneficiary or beneficiaries of this Option, and this Option shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding this Option. Such beneficiary or beneficiaries shall take the transferred Option subject to all the terms and conditions of this Agreement, including (without limitation) the limited time period during which this Option may, pursuant to Paragraph 5, be exercised following Optionee’s death.

4.Dates of Exercise. This Option shall vest and become exercisable for the Option Shares as follows:____________________________, provided Optionee continues in the Company’s employ through each such vesting date. The foregoing vesting schedule shall constitute the “Vesting Schedule” for the Option. However, this Option may vest and become exercisable in whole or in part on an accelerated basis in accordance with the special vesting acceleration provisions of Paragraph 5(b) or Paragraph 6 of this Agreement. As the Option becomes exercisable for one or more installments, those installments shall accumulate, and the Option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the Option term under Paragraph 5 or 6.

5.Cessation of Service. The Option term specified in Paragraph 2 shall terminate (and this Option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable:

(a)    Except as otherwise expressly provided in subparagraphs (d) and (f) of this Paragraph 5 or Paragraph 6(b), should Optionee cease to remain in Service for any reason while this Option is outstanding, then Optionee (or other permitted transferee of this Option in accordance with Paragraph 3(a)) shall have a twelve (12)-month period measured from the date of such cessation of Service during which to exercise this Option for any or all of the Option Shares for which this Option is, pursuant to the Vesting Schedule specified in Paragraph 4 or the special vesting acceleration provisions of Paragraph 5(b) or Paragraph 6 below, vested and exercisable at the time of Optionee’s cessation of Service, but in no event shall this Option be exercisable at any time after the Expiration Date.

(b)    Should (A) Optionee’s Service terminate prior to the completion of the Vesting Schedule by reason of (i) an involuntary termination of his employment by the Corporation other than for Cause, (ii) Optionee’s death or Disability, or (iii) Optionee’s resignation for Good Reason, (B) except in the case of Optionee’s Service terminating due to death or Disability, Optionee execute and deliver on a timely basis the general release required pursuant to Section 7 of the Employment Agreement, and (C) such release become effective and enforceable following the expiration of any applicable revocation period, then this option, to the extent outstanding at that time but not otherwise vested and exercisable for all the Option Shares, shall thereupon immediately vest and become exercisable for that number of additional Option Shares equal to the number of additional Option Shares for which this option would have otherwise been vested and exercisable in accordance with the Vesting Schedule had Optionee completed an additional twelve (12) months of Service prior to such termination of Service.

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(c)    Should Optionee’s Service terminate by reason of his death or Disability, then this Option, to the extent vested and outstanding at that time, pursuant to the Vesting Schedule specified in Paragraph 4 and any special vesting acceleration provisions that may have become applicable under Paragraph 5(b) above or Paragraph 6 below, may be exercised by (i) the personal representative of Optionee’s estate, (ii) the Living Trust to which this Option is transferred pursuant to Paragraph 3(a) of this Agreement or (iii) the person or persons to whom the Option is transferred pursuant to Optionee’s will or the laws of inheritance following Optionee’s death, as the case may be. However, if Optionee dies while holding this Option and has an effective beneficiary designation in effect for this Option at the time of his death, then the designated beneficiary or beneficiaries shall have the exclusive right to exercise this Option following Optionee’s death. Any right to exercise this Option pursuant to this Paragraph 5(c) shall lapse, and this Option shall cease to be outstanding, upon the earlier of (i) the expiration of the twelve (12)-month period measured from the date of Optionee’s death or (ii) the Expiration Date.

(d)    Should (A) Optionee’s Service terminate by reason of (i) an involuntary termination of his employment by the Corporation other than for Cause or (ii) Optionee’s resignation for Good Reason, (B) Optionee execute and deliver on a timely basis the general release required pursuant to Section 7 of the Employment Agreement, and (C) such release become effective and enforceable following the expiration of any applicable revocation period, then Optionee (or other permitted transferee of this Option in accordance with Paragraph 3(a)) shall have a twenty-four (24)-month period measured from the date of such cessation of Service during which to exercise this Option for any or all of the Option Shares for which this Option is, pursuant to the Vesting Schedule specified in Paragraph 4 and any special vesting acceleration provisions that may have become applicable under Paragraph 5(b) above or Paragraph 6 below, vested and exercisable at the time of such termination of Service. In no event, however, shall this Option be exercisable at any time after the Expiration Date. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this Option shall terminate and cease to be outstanding for any exercisable Option Shares for which the Option has not otherwise been exercised.

(e)    The applicable period of post-Service exercisability in effect pursuant to the foregoing provisions of this Paragraph 5 shall automatically be extended by an additional period of time equal in duration to any interval within such post-Service exercise period during which the exercise of this Option or the immediate sale of the Option Shares acquired under this Option cannot be effected in compliance with the applicable registration requirements of federal and state securities laws, but in no event shall such an extension result in the continuation of this Option beyond the Expiration Date.

(f)    Should Optionee’s Service be terminated for Cause, then this Option, whether or not vested and exercisable, shall terminate immediately and cease to be outstanding.

(g)    During the limited period of post-Service exercisability provided pursuant to the foregoing provisions of this Paragraph 5, this Option may not be exercised in the aggregate for more than the number of Option Shares for which this Option is at the time vested and exercisable pursuant to the Vesting Schedule specified in Paragraph 4 or the special vesting acceleration provisions of Paragraph 5(b) above or Paragraph 6 below. Except as otherwise expressly provided

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in Paragraph 5(b) above, this Option shall not vest or become exercisable for any additional Option Shares following the Optionee’s cessation of Service. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this Option shall terminate and cease to be outstanding for any exercisable Option Shares for which the Option has not otherwise been exercised.

6.    Special Acceleration of Option.

(a)    Should a Change in Control be effected during Optionee’s period of Service but at a time when this Option is not otherwise fully vested and exercisable, then this Option shall automatically vest on an accelerated basis so that this Option shall, immediately prior to the effective date of such Change in Control, vest and become exercisable for all of the Option Shares at the time subject to this Option and may be exercised for any or all of those Option Shares as fully vested shares of Class A Common Stock.

(b)    Notwithstanding any provision to the contrary in this Agreement, the Option shall, immediately following consummation of a Change in Control, terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in effect pursuant to the terms of the Change in Control transaction.

(c)    If the Option is assumed in connection with a Change in Control or otherwise continued in effect, then the Option shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities into which the shares of Class A common stock subject to the Option would have been converted in consummation of such Change in Control had those shares actually been outstanding at the time. Appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same.  To the extent the actual holders of the Company’s outstanding Class A common stock receive cash consideration for their Class A common stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of this Option, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Class A common stock in such Change in Control, provided such common stock is readily tradable on an established U.S. securities exchange or market.

(d)    The term “Change in Control” shall have the meaning assigned to such term in Section 3.1 (e) of the Plan.  For the avoidance of doubt, for purposes of this Section, a Change in Control shall only be considered effected, closed or consummated when the underlying transaction or event is completed and not when shareholder approval or another intermediate step relating to the Change in Control occurs.

(e)    This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

7.    Adjustment in Option Shares. Should any change be made to the Class A Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the

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outstanding Class A Common Stock as a class without the Corporation’s receipt of consideration, or should the value of outstanding shares of Class A Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the Plan Administrator to (i) the total number and/or class of securities subject to this Option and (ii) the Exercise Price. The adjustments shall be made in such manner as the Plan Administrator deems appropriate in order to reflect such change, and those adjustments shall be final, binding and conclusive upon Optionee and any other person or persons having an interest in the Option. In the event of any Change in Control transaction, the adjustment provisions of Paragraph 6(c) shall be controlling.

8.    Stockholder Rights. The holder of this Option shall not have any stockholder rights with respect to the Option Shares until such person shall have exercised the Option, paid the Exercise Price and become a holder of record of the purchased shares.

9.    Manner of Exercising Option.

(a)    In order to exercise this Option with respect to all or any part of the Option Shares for which this Option is at the time exercisable, Optionee (or any other person or persons exercising the Option) must take the following actions:

(i)    Execute and deliver to the Corporation a Notice of Exercise as to the Option Shares for which the Option is exercised or comply with such other procedures as the Corporation may establish for notifying the Corporation of the exercise of this Option for one or more Option Shares.

(ii)    Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms:

(A)    cash or check made payable to the Corporation;

(B)    shares of Class A Common Stock (whether delivered in the form of actual stock certificates or through attestation of ownership in a manner reasonably satisfactory to the Corporation) held for the requisite period (if any) necessary to avoid any incremental charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or

(C)    through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons exercising the Option) shall concurrently provide irrevocable instructions (i) to a brokerage firm (reasonably satisfactory to the Corporation for purposes of administering such procedure in accordance with the Corporation’s pre-clearance/pre-notification policies) to effect the immediate sale of the purchased shares and

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remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable Withholding Taxes required to be withheld by the Corporation by reason of such exercise and (ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm on such settlement date in order to complete the sale.

Except to the extent the sale and remittance procedure is utilized in connection with the Option exercise, payment of the Exercise Price must accompany the Notice of Exercise (or other notification procedure).

(iii)    Furnish to the Corporation appropriate documentation that the person or persons exercising the Option (if other than Optionee) have the right to exercise this Option.

(iv)    Make appropriate arrangements with the Corporation (or Parent or Subsidiary employing Optionee) for the satisfaction of all Withholding Taxes applicable to the Option exercise.

(b)    As soon as practical after the Exercise Date and the Corporation’s collection of the applicable Withholding Taxes, the Corporation shall issue to or on behalf of Optionee (or any other person or persons exercising this Option) a certificate for the purchased Option Shares.

(c)    In no event may this Option be exercised for any fractional shares.

10.    Withholding Taxes. Optionee may satisfy the Withholding Taxes applicable to each exercise of this Option by (i) delivering to the Corporation that number of shares of Class A Common Stock at the time owned by Optionee (exclusive of the shares purchased at that time under this Option), duly endorsed for transfer to the Corporation and free and clear of any liens, claims, security interests or other encumbrances, with an aggregate Fair Market Value equal of the dollar amount of such Withholding Taxes, (ii) delivering to the Corporation cash, a check payable to the Corporation or such other form of payment permitted by the Plan Administrator in the aggregate dollar amount required to satisfy such Withholding Taxes or (iii) using a portion of the sale proceeds of the purchased Option Shares to satisfy such tax withholding amount, to the extent Optionee exercises the Option pursuant to the sale and remittance procedure set forth in paragraph 9(a)(ii)(C) hereof.

11.    Compliance with Laws and Regulations. The exercise of this Option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any Stock Exchange on which the Class A Common Stock may be listed for trading at the time of such exercise and issuance. All shares of Class A Common Stock issued pursuant to the exercise of this Option shall be registered on a Form S-8 registration statement under the Securities Act of 1933, as amended.

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12.    Successors and Assigns. Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee’s assigns, the legal representatives, heirs and legatees of Optionee’s estate and any beneficiaries of this Option designated by Optionee.

13.    Notices. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices or shall be effected by properly addressed electronic mail delivery. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the most recent address then on file for Optionee in the Corporation’s Human Resources Department. All notices shall be deemed effective upon personal or electronic delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

14.    Construction. This Agreement and the Option evidenced hereby are made and granted pursuant to the Incentive Plan and are in all respects limited by and subject to the terms of the Incentive Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Incentive Plan or this Agreement shall be conclusive and binding on all persons having an interest in this Option.

15.    Conflicting Provisions. This Option has been granted pursuant to the provisions of Section __ of the Employment Agreement, and this Agreement and the Option evidenced by such Agreement are subject to the terms of the Employment Agreement. In the event of any conflict between the provisions of the Employment Agreement and this Agreement or the Incentive Plan, the provisions of the Employment Agreement shall be controlling.

16.    Benefit Limitation. Notwithstanding any provision to the contrary in this Agreement, should any accelerated vesting of this Option in connection with a Change in Control transaction constitute a parachute payment under Code Section 280G, then such vesting acceleration shall be subject to the benefit limitation provisions of Section __ of the Employment Agreement.

17.    Proprietary Information and Intellectual Property Agreement. Optionee accepts and agrees to comply with the terms of his Proprietary Information and Intellectual Property Agreement (“PIIPA”), attached as Appendix A to Optionee’s 2014 Employment Agreement and incorporated herein by reference.

18.    Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Arizona without resort to that State’s conflict-of-laws rules.

19.    Optionee Acceptance. Optionee must accept the terms and conditions of this Agreement, either electronically through the electronic acceptance procedure established by the Company or through a written acceptance delivered to the Company in a form satisfactory to the Company. In no event shall any Option Shares be exercisable under this Agreement in the absence of such acceptance.

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IN WITNESS WHEREOF, Apollo Education Group, Inc. has caused this Agreement to be executed on its behalf by its duly-authorized officer on the date indicated below its signature line, and Optionee has executed this Agreement on the date below his signature line.

APOLLO EDUCATION GROUP, INC.

BY: ________________________________

TITLE: ____________________________

OPTIONEE

____________________________________

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APPENDIX

The following definitions shall be in effect under the Agreement:

A.Agreement shall mean this Stock Option Agreement.

B.    Board shall mean the Corporation’s Board of Directors.

C.Cause shall have the meaning assigned to such term in the Employment Agreement, as in effect on the Grant Date.

D.Change in Control shall have the meaning assigned to such term in Section 3.1 of the Incentive Plan.

E.Class A Common Stock shall mean shares of the Corporation’s Class A common stock.

F.Code shall mean the Internal Revenue Code of 1986, as amended.

G.Corporation shall mean Apollo Education Group, Inc., an Arizona corporation, and any successor corporation to all or substantially all of the assets or voting stock of Apollo Education Group, Inc. which shall by appropriate action adopt the Incentive Plan.

H.    Disability shall have the meaning assigned to such term in the Employment Agreement, as in effect on the Grant Date.

I.Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

J.Exercise Date shall mean the date on which the Option shall have been exercised in accordance with Paragraph 9 of this Agreement.

K.Exercise Price shall mean the exercise price per Option Share as specified in Paragraph 1 of this Agreement.

L.Expiration Date shall mean the date on which the Option expires as specified in Paragraph 2 of this Agreement.

M.Employment Agreement shall mean the Amended and Restated Employment Agreement between the Corporation and Optionee dated June 5, 2014.

N.Fair Market Value per share of Class A Common Stock on any relevant date shall be the closing price per share of Class A Common Stock on the date in question on the Stock Exchange serving as the primary market for the Common Stock, as such price is reported by the National Association of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite tape of transactions on any other Stock

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Exchange on which the Common Stock is then primarily traded. If there is no closing price for the Common Stock on the date in question, then the Fair Market Value shall be the closing price on the last preceding date for which such quotation exists.

O.Good Reason shall have the meaning assigned to such term in the Employment Agreement, as in effect on the Grant Date

P.Grant Date shall mean the grant date of the Option as specified in Paragraph 1 of this Agreement.

Q.Incentive Plan shall mean the Corporation’s 2000 Stock Incentive Plan, as amended and restated from time to time.

R.Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422.

S.Notice of Exercise shall mean the notice of Option exercise in the form prescribed by the Corporation.

T.Option shall mean the option granted under the Incentive Plan and evidenced by this Agreement.

U.Option Shares shall mean the number of shares of Class A Common Stock subject to the Option as specified in Paragraph 1 of this Agreement.

V.Optionee shall mean the person to whom the Option is granted.

W.Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

X.Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

Y.Service shall mean Optionee’s performance of services for the Corporation (or any Parent or Subsidiary, whether now existing or subsequently established) in the capacity of an Employee. For purposes of this Agreement, Optionee shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) Optionee no longer performs services in an Employee capacity for the Corporation (or any Parent or Subsidiary) or (ii) the entity for which Optionee renders services in an Employee capacity ceases to remain a Parent or Subsidiary of the Corporation, even though Optionee may subsequently continue to perform services for that entity. Service shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation. However, except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written

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policy on leaves of absence, no Service credit shall be given for vesting purposes for any period the Optionee is on a leave of absence.

Z.Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global Market or Global Select Market or the New York Stock Exchange.

AA.Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

BB.Vesting Schedule shall mean the schedule set forth in Paragraph 4 of this Agreement pursuant to which the Option is to become exercisable for the Option Shares in installments over the Optionee’s period of Service.

CC.Withholding Taxes shall mean the federal, state and local income taxes and the employee portion of the federal, state and local employment taxes required by applicable laws and regulations to be withheld by the Corporation in connection with the exercise of the Option.

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EX-10.27

Exhibit 10.27

NON-STATUTORY STOCK OPTION AGREEMENT

This Option Agreement is made and entered into by and between APOLLO EDUCATION GROUP, INC., an Arizona corporation (hereinafter referred to as the “Company”), and <NAME> (hereinafter referred to as “Employee”), as of <GRANT_DT> (which date is hereinafter referred to as the “Date of Grant”). If Employee is presently or subsequently becomes employed by a subsidiary of the Company, the term “Company” shall be deemed to refer collectively to Apollo Education Group, Inc. and the subsidiary or subsidiaries which employ the Employee.

RECITALS

A.    The Company has implemented the Apollo Group, Inc. 2000 Stock Incentive Plan, as amended and restated from time to time (the “Plan”), as an equity incentive program to encourage key employees and officers of the Company to remain in its employ and to enhance the ability of the Company to attract new employees whose services are considered valuable by providing them with an opportunity to acquire a proprietary interest in the success of the Company.

B.    The Compensation Committee of the Company’s Board of Directors (the “Committee”) has the authority to grant options pursuant to the Plan to certain officers and key employees of the Company in order to provide such individuals with an incentive to continue in the Company’s service.

C.    The Committee did authorize the grant of the Option evidenced by this Agreement to Employee on the Date of Grant in order to carry out the intent and purpose of the Plan in providing a substantial equity incentive to encourage the Employee to continue in the Company’s service and to contribute to its financial success.

NOW, THEREFORE, in consideration of the mutual covenants and conditions hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Employee agree as follows:

1.    Grant of Option. Employee is hereby granted the right and option (the “Option”) to purchase an aggregate of <OPTIONS> shares of the Company’s Class A common stock (the “Option Shares”) under the Plan upon the terms and conditions set forth in this Agreement. The Option is a non-statutory option under the federal income tax laws and is not intended to be an incentive stock option subject to Section 422 of the Internal Revenue Code.

2.    Exercise Price. The price per share at which Employee shall be entitled to purchase the Option Shares pursuant to this Option shall be $<PRICE> (the “Exercise Price”). Such Exercise Price is equal to the Fair Market Value per share of the Company’s Class A common stock on the Date of Grant.

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3.    Option Term. The Option hereby granted shall have a maximum term of __________ (___) years measured from the Date of Grant and shall accordingly expire at the close of business on ____________________ (the “Expiration Date”), unless sooner terminated in accordance with Paragraph 5(b), 8 or 9 of this Agreement.

4.    Vesting Schedule.

(a)    The Option shall vest and become exercisable for the Option Shares as follows: ____________________________, provided Employee continues in the Company’s employ through each such vesting date. The foregoing vesting schedule shall constitute the Normal Vesting Schedule for the Option. However, the Option may vest and become exercisable for the Option Shares on an accelerated basis in accordance with the special vesting acceleration provisions of Paragraph 5 or on a limited pro-rata basis in accordance with Paragraph 8(b).

(b)    As the Option vests and becomes exercisable for one or more installments of the Option Shares, those installments shall accumulate, and the Option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5(b), 8 or 9 of this Agreement.

5.    Change in Control.

(a)    Should a Change in Control be effected during Employee’s period of employment with the Company but at a time when the Option is not otherwise fully vested and exercisable, then the Option shall automatically vest on an accelerated basis so that the Option shall, immediately prior to the effective date of such Change in Control, vest and become exercisable for all of the Option Shares at the time subject to the Option and may be exercised for any or all of those Option Shares as fully vested shares of Class A common stock.

(b)    Notwithstanding any provision to the contrary in this Agreement, the Option shall, immediately following consummation of a Change in Control, terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in effect pursuant to the terms of the Change in Control transaction.

(c)    If the Option is assumed in connection with a Change in Control or otherwise continued in effect, then the Option shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities into which the shares of Class A common stock subject to the Option would have been converted in consummation of such Change in Control had those shares actually been outstanding at the time. Appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same.  To the extent the actual holders of the Company’s outstanding Class A common stock receive cash consideration for their Class A common stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of this Option, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Class A common stock in such Change in Control, provided such common stock is readily tradable on an established U.S. securities exchange or market.

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(d)    The term “Change in Control” shall have the meaning assigned to such term in Section 3.1 (e) of the Plan.  For the avoidance of doubt, for purposes of this Section, a Change in Control shall only be considered effected, closed or consummated when the underlying transaction or event is completed and not when shareholder approval or another intermediate step relating to the Change in Control occurs.

(e)    This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

6.    Method of Exercising Option. Subject to the terms and conditions of this Agreement, the Option may be exercised by timely delivery to the Company of a written notice of exercise that shall become effective on the date received by the Company. The notice shall state Employee’s election to exercise the Option, the number of Option Shares for which the election to exercise has been made, the method of payment elected pursuant to Paragraph 7 hereof, and the exact name or names in which the purchased Option Shares are to be registered. Such notice shall be signed by the Employee and shall be accompanied by payment of the Exercise Price for the purchased Option Shares, except to the extent payment is to be made pursuant to the same day exercise and sale procedure set forth in clause (ii) of Paragraph 7. In the event the Option shall be exercised by a person or persons other than Employee pursuant to Paragraph 9(a) hereof, such notice shall be signed by such other person or persons and shall be accompanied by proof acceptable to the Company of the legal right of such person or persons to exercise the Option. All shares delivered by the Company upon exercise of the Option as provided herein shall be fully paid and non-assessable upon delivery.

7.    Method of Payment. Payment of the Exercise Price for the Option Shares purchased upon the exercise of this Option shall be made by Employee (i) in cash, (ii) through a broker-assisted same day exercise and sale procedure pursuant to which the broker shall immediately sell, on behalf of the Employee or such other person exercising the Option, all or a portion of the Option Shares acquired upon exercise of the Option and remit to the Company, on the settlement date for such sale, a sufficient amount of the sale proceeds to cover the Exercise Price payable for all the Option Shares purchased through such exercise and the applicable withholding taxes, (iii) through such other method permitted by the Committee or (iv) through any combination of the above.

8.    Termination of Employment.

(a)    Should Employee’s employment with the Company terminate for any reason other than for Cause or death or Disability, then Employee may, at any time within the three (3)-month period measured from the effective date of such termination of employment, exercise the Option for any or all of the Option Shares for which this Option is exercisable, in accordance with the Normal Vesting Schedule, the special vesting acceleration provisions of Paragraph 5 and/or the pro-rata vesting provisions of Paragraph 8(b), on the date of such termination of employment; provided, however, that in no event shall the Option, or any part thereof, be

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exercisable after the Expiration Date. Upon the expiration of such limited post-employment exercise period, this Option shall terminate and cease to be exercisable for any Option Shares.

(b)    Should Employee’s employment with the Company cease prior to the completion of the Normal Vesting Schedule by reason of an Involuntary Termination during one of the _____________ (__) applicable installment vesting periods comprising that schedule and Employee deliver an effective and enforceable general release to the Company in accordance with the requirements of the Senior Executive Severance Pay Plan (“Severance Plan”), then Employee shall thereupon vest in a portion of the Option Shares for which this Option would have otherwise vested and become exercisable upon the completion of the particular installment vesting period under Paragraph 4(a) in which such Involuntary Termination occurs had Employee in fact continued in the Company’s employ through the completion of that installment vesting period (the “Option Share Installment”). Such pro-ration shall be applied by multiplying the Option Share Installment by a fraction, the numerator of which is the number of months of employment with the Company actually completed by Employee during that installment vesting period (rounded up to the next whole month), and the denominator of which is twelve (12). For purposes of this Agreement, the term “Involuntary Termination” shall have the meaning assigned to such term in Article I(l) of the Severance Plan.

(c)    Should Employee’s employment with the Company cease by reason of a Termination for Cause or should Employee engage in any act or omission that would constitute grounds for a Termination for Cause, then the Option shall immediately terminate and cease to be exercisable for any of the Option Shares. For purposes of this Agreement, the term “Termination for Cause” shall mean the Company’s termination of Employee’s employment for one or more of the following reasons:

(i)    repeated dereliction of the material duties and responsibilities of his or her position with the Company;

(ii)    misconduct, insubordination or failure to comply with the policies of the Company governing employee conduct and procedures;

(iii)    excessive lateness or absenteeism;

(iv)    conviction of or pleading guilty or nolo contendere to any felony involving theft, embezzlement, dishonesty or moral turpitude;

(v)    commission of any act of fraud against, or the misappropriation of property belonging to, the Company;

(vi)    commission of any act of dishonesty in connection with his or her responsibilities as an Employee that is intended to result in his or her personal enrichment or the personal enrichment of his or her family or others;

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(vii)    any other misconduct adversely affecting the business or affairs of the Company; or

(viii)    a material breach of any agreement Employee may have at the time with the Company, including (without limitation) any proprietary information, non-disclosure or confidentiality agreement.

(d)    If Employee is employed on the Date of Grant in a capacity other than a faculty member, then Employee shall be deemed for purposes of this Paragraph 8 to have terminated employment upon the earlier of (i) the date he or she ceases for any reason to be employed by the Company or any Subsidiary or (ii) the first date on which Employee is employed by the Company or any Subsidiary solely in the capacity of a faculty member.

9.    Employee’s Death or Disability.

(a)    In the event of the Employee’s death while this Option is outstanding, this Option shall remain exercisable until the earlier of (i) the expiration of the twelve (12)-month period measured from the date of Employee’s death or (ii) the Expiration Date. During such limited exercise period, this Option may be exercised by (A) the representative or representatives of the Employee’s estate or by the person or persons entitled to do so under Employee’s last will and testament, (B) the Living Trust to which this Option is assigned in accordance with Paragraph 11 or, if Employee fails to make such a testamentary disposition or assignment of this Option and dies intestate, (C) the person or persons entitled to receive this Option under the applicable laws of descent and distribution, as the case may be. However, during such period this Option may not be exercised in the aggregate for more than the number of the Option Shares (if any) for which this Option is exercisable, in accordance with the Normal Vesting Schedule, the special vesting acceleration provisions of Paragraph 5 and/or the pro-rata vesting provisions of Paragraph 8(b), at the time of Employee’s termination of employment with the Company. Upon the expiration of such limited exercise period, this Option shall terminate and cease to be exercisable for any Option Shares. The Company shall have the right to require evidence satisfactory to it of the rights of any person or persons seeking to exercise the Option under this Paragraph 9(a).

(b)    In the event Employee’s employment terminates by reason of his or her Disability, then this Option may, at any time within the twelve (12)-month period measured from the date of such termination of employment, be exercised for any or all of the Option Shares for which this Option is exercisable, in accordance with the Normal Vesting Schedule, the special vesting acceleration provisions of Paragraph 5 and/or the pro-rata vesting provisions of Paragraph 8(b), on the date of such termination of employment; provided, however, that in no event shall the Option, or any part thereof, be exercisable after the Expiration Date. Upon the expiration of such limited exercise period, this Option shall terminate and cease to be exercisable for any Option Shares. For purposes of this Agreement, the term “Disability” shall have the meaning assigned to such term in Section 3.1(i) of the Plan.

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10.    Cessation of Employment/Transfer of Employee.

(a)    Except to the extent (if any) specifically authorized by the Committee pursuant to an express written agreement with the Employee, this Option shall not vest or become exercisable for any additional Option Shares, whether pursuant to the Normal Vesting Schedule, the special vesting acceleration provisions of Paragraph 5 or the pro-rata vesting provisions of Paragraph 8(b), following the Employee’s termination of employment.

(b)    Except as otherwise provided in Paragraph 8(d) hereof, in the event Employee ceases to be an employee of the Company and becomes an employee of one of the Company’s subsidiaries as the result of a transfer, promotion or otherwise, the terms and provisions of this Option shall remain unchanged.

11.    Nontransferability. Except for the limited transferability provided under this Paragraph 11, this Option shall be neither transferable nor assignable by Employee other than by will or the laws of inheritance following Employee’s death and may be exercised, during Employee’s lifetime, only by Employee. However, this Option may be assigned in whole or in part during Employee’s lifetime to a Living Trust, and the assigned portion may only be exercised by that Living Trust. The terms applicable to the assigned portion shall be the same as those in effect for this option immediately prior to such assignment and shall be evidenced by an assignment agreement in form reasonably satisfactory to the Company. For purposes of this Paragraph 11, a Living Trust shall mean a revocable living trust established by Employee or by Employee and his or her spouse of which Employee is the sole trustee (or sole co-trustee with his or her spouse) and sole beneficiary (or sole co-beneficiary with his or her spouse) during Employee’s lifetime.

12.    Stockholder Rights. The holder of this Option shall not have any stockholder rights with respect to the Option Shares until such person shall have exercised the Option, paid the Exercise Price and become a holder of record of the purchased shares.

13.    Adjustments in Number of Option Shares and Exercise Price. In the event a stock dividend is declared upon the outstanding Class A common stock after the Date of Grant, the number of Option Shares then subject to this Option shall be increased proportionately and the Exercise Price per share shall be equitably adjusted by the Committee to reflect such stock dividend without any change in the aggregate Exercise Price therefor. Should any change be made to the Class A common stock by reason of any stock split, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the outstanding Class A common stock as a class without the Company’s receipt of consideration, or should the value of the outstanding shares of Class A common stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the Committee to (i) the total number and/or class of securities subject to this Option and (ii) the Exercise Price payable per share, but without any change in the aggregate Exercise Price therefor. The adjustments shall be made in such manner as the Committee deems appropriate, and those adjustments shall be final, binding and conclusive upon Employee and any other person or persons having an interest in this Option. However, in the event of a Change of Control, the

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adjustments (if any) shall be made in accordance with the applicable provisions of Section 13.8 of the Plan governing Change of Control transactions and Paragraph 5 of this Agreement. Notwithstanding the above, the conversion of any convertible securities of the Company shall not be deemed to have been effected without the Company’s receipt of consideration. No adjustment shall be made under this Section 13 that would result in taxation under Code Section 409A.

14.    Delivery of Shares. No shares shall be delivered upon exercise of the Option until (i) the Exercise Price for those shares shall have been paid in full in the manner herein provided and (ii) all applicable taxes required to be withheld shall have been paid or withheld in full.

15.    Compliance with Laws and Regulations.

(a)    The exercise of this Option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Company and Employee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange on which the Class A common stock may be listed for trading at the time of such exercise and issuance.

(b)    The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of any Class A common stock pursuant to this Option shall relieve the Company of any liability with respect to the non-issuance or sale of the Class A common stock as to which such approval shall not have been obtained. The Company, however, shall use its best efforts to obtain all such approvals.

(c)    The Company shall not be required to deliver any shares of the Company’s Class A common stock pursuant to the exercise of all or any part of the Option if, in the opinion of counsel for the Company, such issuance would violate the Securities Act of 1933 or any other applicable federal or state securities laws or regulations.

(d)    The applicable period of post-employment exercisability in effect pursuant to the provisions of Paragraph 8 or 9 of this Agreement shall automatically be extended by an additional period of time equal in duration to any interval within such post-employment exercise period during which the exercise of this Option or the immediate sale of the Option Shares acquired under this Option cannot be effected in compliance with the applicable registration requirements of federal and state securities laws, but in no event shall such an extension result in the continuation of this Option beyond the Expiration Date.

16.    Federal and State Taxes. Upon exercise of this Option, or any part thereof, Employee may incur certain liabilities for federal, state or local taxes, and the Company may be required by law to withhold such taxes for payment to the applicable taxing authorities. Employee may satisfy the payment of any federal, state, or local tax withholding amounts due as a result of the exercise of this Option by (i) delivering to the Company cash, a check or other form of payment permitted by the Committee in the aggregate amount required to satisfy such tax withholding amount or (ii) using a portion of the sale proceeds of the purchased Option Shares to satisfy such tax withholding amount, to the extent Employee exercises the Option pursuant to the sale and remittance procedure set forth in Paragraph 7 hereof.

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17.    Definitions; Copy of Plan. To the extent not specifically provided herein, all capitalized terms used in this Agreement shall have the same meanings ascribed to them in the Plan is granted. By the execution of this Agreement, Employee acknowledges receipt of a copy of the Plan and the official prospectus for the Plan.

18.    Administration. This Agreement shall at all times be subject to the terms and conditions of the Plan and such Plan shall in all respects be administered by the Committee in accordance with the terms and provisions of the Plan. The Committee shall have the sole and complete discretion with respect to all matters reserved to it by the Plan and decisions of the Committee with respect thereto and to this Agreement shall be final and binding upon Employee (or any other person with an interest in this Option) and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.

19.    Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company at its principal corporate offices. Any notice required to be given or delivered to Employee shall be in writing and addressed to Employee at the most recent address then on file for Employee in the Company’s Human Resources Department. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

20.    Successors and Assigns. Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and Employee and the legal representatives, heirs and legatees of Employee’s estate.

21.    Continuation of Employment. This Agreement shall not be construed to confer upon Employee any right to continue in the employ of the Company (or any subsidiary) and shall not limit the right of the Company (or any employer subsidiary), in its sole discretion, to terminate the employment of Employee at any time.

22.    Obligation to Exercise. Employee shall have no obligation to exercise this Option in whole or in part.

23.    Proprietary Information and Intellectual Property Agreement. Employee accepts and agrees to comply with the terms of the Corporation’s Proprietary Information and Intellectual Property Agreement (“PIIPA”), attached hereto as Appendix A and incorporated herein by reference.

24.    Governing Law. This Agreement shall be interpreted and administered under the laws of the State of Arizona without resort to that State’s conflict-of-laws rules.

25.    Amendments. This Agreement may be amended only by a written agreement executed by the Company and Employee. The Company and Employee acknowledge that changes

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in federal tax laws enacted subsequent to the Date of Grant, and applicable to stock options, may provide for tax benefits to the Company or Employee. In any such event, the Company and Employee agree that this Agreement may be amended as necessary to secure for the Company and Employee any benefits that may result from such legislation. Any such amendment shall be made only upon the mutual consent of the parties, which consent (of either party) may be withheld for any reason.

26.    Employee Acceptance. Employee must accept the terms and conditions of this Agreement, including the PIIPA, either electronically through the electronic acceptance procedure established by the Company or through a written acceptance delivered to the Company in a form satisfactory to the Company. In no event shall any Option Shares be exercisable under this Agreement in the absence of such acceptance.

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its officers thereunto duly authorized and Employee has executed this Agreement as of the date first written above.

APOLLO EDUCATION GROUP, INC.	EMPLOYEE
By:_______________________________	________________________________
Title:______________________________

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APPENDIX A

PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY AGREEMENT

This Proprietary Information and Intellectual Property Agreement (“PIIPA”) confirms certain terms of my employment with Apollo Education Group, Inc., is a condition of my employment, and is a material part of the consideration for my employment by the Company. The headings contained in this PIIPA are for convenience only, have no legal significance, and are not intended to change or limit this PIIPA in any matter whatsoever. Capitalized terms not defined in this PIIPA have the meanings ascribed to them in the Company’s Intellectual Property Policy. I have read and agree to comply with such policy. I understand that the Intellectual Property Policy may be amended from time to time by the Company. I further understand and agree that I am obligated to comply with such amendments and will review this policy periodically to ensure that I am aware of such amendments. If there is any conflict between the terms of such policy and this PIIPA, the terms of this PIIPA will prevail.

I. Definitions

A. The “Company”

As used in this PIIPA, the “Company” refers to Apollo Education Group, Inc., each of its subsidiaries, parent companies, and successors and assigns. A subsidiary is any company that is directly or indirectly, wholly or partially, owned by Apollo Education Group, Inc. I recognize and agree that my obligations under this PIIPA and all terms of this PIIPA apply to me regardless of whether I am employed by or provide services to Apollo Education Group, Inc. or any subsidiary, parent company, successor or assign of Apollo Education Group, Inc.

B. “Proprietary Information”

I understand that the Company possesses and will possess Proprietary Information which is important to its business. For purposes of this PIIPA, “Proprietary Information” is information that was or will be developed, created, or discovered by or on behalf of the Company, or which became or will become known by, or was or is conveyed to the Company. “Proprietary Information” includes information concerning the organization, business and finances of the Company or of any third party which the Company is under an obligation to keep confidential or that is maintained by the Company as confidential, including (without limitation):

1. the Company’s Lead List which is comprised of prospective students;

2. data and information on current and prospective corporate accounts, including, but not limited to, the identity of the corporate accounts, the decision makers or decision influencers, the buying criteria of the accounts and programs for those accounts;

3. information with respect to past, current and prospective merger, acquisition, disposition, joint venture and other transactions and opportunities, including, but

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not limited to, the identity of the transaction targets or prospects, the decision makers or decision influencers with respect to the transactions, the proposed terms and conditions of any such past, current or prospective transactions or opportunities, including the status thereof;

4. the management process, training materials, scripts, programs and preferred responses to questions from current, former or prospective students pertaining to features and benefits of the Company’s educational courses, offerings, and programs provided to enrollment counselors, academic counselors and finance counselors;

5. the certification training materials and processes for the certification of the Company’s student advisors (known as the ACU online learning system program), including, but not limited to, the tests taken, materials provided and course work;

6. the information and data contained in the Company’s enrollment data system, including all monthly enrollment reports;

7. all business models and financial information, data and materials of the Company not otherwise available to the general public through the Company’s Annual Report or otherwise;

8. all market research or works for hire materials, including, but not limited to, industry data, demographics, company profiles and/or specific consumer behavior information,

9. all monthly financial, statistical and operational information and reports, and all other information concerning enrollment by campus, profit and loss per campus and the terms of any lease;

10. all monthly financial statements, including, but not limited to, any materials prepared for the Board of Directors;

11. all internally developed source code and the techniques and processes embodied therein, including, but not limited to, modifications to existing source codes for student information systems (such as Galaxy, Campus Tracking, OSIRIS and eCampus), academic systems (such as rEsource and OnLine Learning System (OLS), proprietary modifications to packaged applications (such as PeopleSoft, Oracle Financials and ADP HRizon) and all future internally developed source code;

12. information provided to the Company from a third party under a non-disclosure agreement;

13. the “Personally Identifiable Information” and other student information records protected by the Family Educational Rights and Privacy Act of 1974, as amended,

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that is known or accessible as a result of employment with the Company. “Personally Identifiable Information” includes, but is not limited to information that is directly associated with a specific person such as a name, address, telephone number, e-mail address, or information about activities directly linked to that person. It also includes, but is not limited to, “Education Records” as that term is defined in the Family Educational Rights and Privacy Act of 1974, as amended.

I understand and agree that my employment creates a relationship of confidence and trust between the Company and me with respect to Proprietary Information.

C. “Company Documents and Materials”

I understand that the Company possesses or will possess “Company Documents and Materials” which are important to its business. For purposes of this PIIPA, “Company Documents and Materials” are documents or other media or tangible items that contain or embody Proprietary Information or any other information concerning the business, operations or plans of the Company, whether such documents, media or items have been prepared by me or by others.

“Company Documents and Materials” include (without limitation) blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, tapes, computer hard drives, floppy disks, CD ROMS, or printouts, sound recordings and other printed, typewritten or handwritten documents, sample products, prototypes and models and any information recorded in any other form whatsoever. “Company Documents and Materials” also include copies of any of the foregoing.

II. Assignment of Rights and Confidentiality Requirements

All Proprietary Information is and shall be the sole property of the Company. I hereby grant and assign, and agree to grant and assign, to the Company entity that employs me any and all rights, title and interest I may have or acquire in such Proprietary Information.

At all times, both during my employment by the Company and after its termination, I will keep in confidence and trust and will not use or disclose any Proprietary Information or anything relating to it without the prior written consent of an officer of the Company as specified in the Company’s Schedule of Executive Authority (“SEA”), except as may be necessary in the ordinary course of performing my duties to the Company. I acknowledge that, without prejudice to any and all rights of the Company, an injunction is the only effective remedy to protect the Company’s rights and property as set out herein.

III. Maintenance and Return of Company Documents and Materials

I agree to make and maintain adequate and current written records, in a form specified by the Company, of all inventions, trade secrets and works of authorship assigned or to be assigned to the Company pursuant to this PIIPA. All Company Documents and Materials are and shall be the sole property of the Company.

I agree that during my employment by the Company, I will not remove any Company Documents and Materials from the business premises of the Company or deliver any Company

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Documents and Materials to any person or entity outside the Company, except in connection with performing the duties of my employment. I further agree that, immediately upon the termination of my employment by me or by the Company for any reason, or during my employment if so requested by the Company, I will return all Company Documents and Materials, apparatus, equipment and other physical property, or any reproduction of such property, excepting only (i) my personal copies of records relating to my compensation; (ii) my personal copies of any materials previously distributed generally to stockholders of the Company; and (iii) my copy of this PIIPA.

IV. Disclosure of Intellectual Property to the Company

I will promptly disclose in accordance with the Company’s Intellectual Property Policy, all Company Intellectual Property (as defined below) which includes (without limitation) all software programs or subroutines, source or object code, algorithms, improvements, inventions, works of authorship, trade secrets, technology, designs, formulas, ideas, processes, techniques, know-how and data, whether or not patentable, and any other property subject to legal protection by patents, copyrights, trademarks, and/or trade secrets, or which may become subject to legal protection hereafter, whether or not they were, are, or will be so protected, which are made or discovered or conceived or reduced to practice or developed by me, either alone or jointly with others, during the term of my employment.

I will also disclose in accordance with the Company’s Intellectual Property Policy, all Company Intellectual Property made, discovered, conceived, reduced to practice, or developed by me within six (6) months after the termination of my employment with the Company which resulted, in whole or in part, from my prior employment by the Company. Such disclosures shall be received by the Company in confidence (to the extent such Company Intellectual Property are not assigned to the Company pursuant to Section V below) and do not extend the assignment made in Section V below.

I agree to disclose Company Intellectual Property to the Company upon the first to occur of:

-- Creation;

-- A request by Intellectual Property (“IP”) Counsel, as appointed by the Company’s General Counsel, or a designee of IP Counsel;

-- As required by any applicable External Sponsor contract, by this Agreement, or by any other Company policy;

-- A determination is made by me that the Company or an External Sponsor may have an interest in the Intellectual Property.

I understand and agree that my disclosure of the creation of Company Intellectual Property must occur prior to any discussions or actions involving the Commercial Application of Company Intellectual Property and prior to any non-confidential presentation or other public release of the Company Intellectual Property. “Commercial Application of Intellectual Property” means any application of Intellectual Property in which an Employee or the Company intends to obtain, or is likely to receive, economic gain from the use or disposition of the Intellectual Property.

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I further agree to disclose promptly to IP Counsel any potentially unauthorized use of Company Intellectual Property by a third party.

Notwithstanding any other provision of this Agreement to the contrary, this Agreement does not obligate me to assign to the Company any of my rights in Intellectual Property that does not qualify as Company Intellectual Property. “Company Intellectual Property” is Intellectual Property that: (a) is created in the scope of my employment; (b) is developed, in whole or in part, by the use of Company Resources (excluding resources accessed and used entirely as part of a student or faculty academic endeavor at any subsidiary); (c) relates to the business of the Company or to the Company’s actual or demonstrably anticipated strategies, plans or research and development; or (d) contains Company Proprietary Information. Company Resources include, but are not limited to the following resources owned or controlled by Apollo Education Group, Inc., or a subsidiary: facilities, computers, research funding, resources for asynchronous or distance learning programs, paid time within the employment period, assistance of support staff, telecommunication services, central computing resources, instructional or graphic design or other production services, Company trade secret information, and any other equipment, technologies or facilities.

V. Right to New Ideas

A. Assignment of Company Intellectual Property to the Company

I agree that all Company Intellectual Property that I make, discover, conceive, reduce to practice or develop (in whole or in part, either alone or jointly with others) during my employment shall be the sole property of the Company entity that employs me to the maximum extent permitted by applicable law. However, any Intellectual Property that I make, discover, conceive, reduce to practice or develop (in whole or in part, either alone or jointly with others) during my employment shall not be the sole property of the Company so long as such Intellectual Property does not qualify as Company Intellectual Property.

The Company shall be the sole owner of all patents, patent rights, copyrights, trade secret rights, trademark rights and all other intellectual property or other rights in connection with Company Intellectual Property. I hereby assign and agree to assign to the Company any and all rights, title and interest I may have or acquire in Company Intellectual Property.

I agree to receive written approval from IP Counsel prior to incorporating, in any manner or fashion, any Intellectual Property not fully-owned by the Company into Company Intellectual Property.

If I incorporate any Intellectual Property in which I have an interest into Company Intellectual Property or any Company product, service, or process, I hereby grant and agree to grant to the Company a royalty-free, fully paid-up, irrevocable, perpetual, sublicensable, worldwide license to make, have made, modify, use, market, sell and distribute any such Intellectual Property as part of or in connection with Company

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Intellectual Property or Company product, service or process in any media now known or later developed.

Furthermore, if I incorporate, without prior written approval, any Intellectual Property in which any party other than the Company has an interest into Company Intellectual Property or any Company product, service, or process, I agree to indemnify the Company for any consequences of such incorporation.

B. Works Made for Hire

I further acknowledge and agree that Company Intellectual Property, including (without limitation) any computer programs, programming documentation, and other works of authorship, are “works made for hire” for purposes of the Company’s rights under copyright laws. I hereby assign and agree to assign to the Company any and all rights, title and interest I may have or acquire in such works made for hire.

C. Cooperation

I agree to perform, during and after my employment, all acts deemed necessary or desirable by the Company to permit and assist it, at the Company’s expense, in further evidencing and perfecting the assignments made to the Company under this PIIPA and in obtaining, maintaining, defending and enforcing patents, patent rights, copyrights, trademark rights, trade secret rights or any other rights in connection with Company Intellectual Property and improvements thereto in any and all jurisdictions. Such acts may include (without limitation) execution of documents and assistance or cooperation in legal proceedings. I hereby irrevocably designate and appoint and agree to appoint the Company and its duly authorized officers and agents, as my agents and attorneys to act for and on my behalf and instead of me, to execute and file any documents, applications or related findings and to do all other lawfully permitted acts in the same manner as I could do to further the purposes set forth above in this Section V.C., including (without limitation) the perfection of assignment and the prosecution and issuance of patents, patent applications, copyright applications and registrations, trademark applications and registrations or other rights in connection with Company Intellectual Property and improvements thereto with the same legal force and effect as if executed by me.

D. Assignment or Waiver of Moral Rights

Any assignment of copyright hereunder (and any ownership of a copyright as a work made for hire) includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as “moral rights” in applicable copyright or other legislation (collectively “Moral Rights”). To the extent such Moral Rights cannot be assigned under applicable law of a jurisdiction, and to the extent the following is allowed by the laws in the various jurisdictions where Moral Rights exist, I hereby waive the whole of my Moral Rights in any work and warrant that any work created by me is original.

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E. List of Intellectual Property

I have attached hereto as Exhibit A a complete list of all Intellectual Property or improvements to which I claim ownership and that I desire to remove from the operation of this PIIPA (except for the license granted in Section V.A. above), and I acknowledge and agree that such list is complete. If no such list is attached to this PIIPA, I represent that I have no such Intellectual Property at the time of signing this PIIPA.

VI. Company Authorization for Publication

Prior to my submitting or disclosing for possible non-confidential publication or dissemination outside the Company any material prepared by me that incorporates information that concerns the Company’s Intellectual Property or its business or anticipated research, I agree to deliver a copy of such material to an officer of the Company as specified in the DOA for his or her review and written consent. I agree to make such deletions and revisions as are reasonably requested by the Company to protect its Proprietary Information and Intellectual Property.

VII. Former Employer’s and Others’ Information

I represent that my performance of all the terms of this PIIPA does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired or developed by me in confidence or in trust prior to my employment by the Company.

I agree that I will not disclose to the Company, or use in the performance of my duties and responsibilities as an employee of the Company, any trade secrets or confidential or proprietary information or material belonging to any previous employers or other person or entity.

VIII. Competition

I agree that during the term of my employment by the Company, I will not engage in any employment or business activity that is competitive with, or which could conflict with my employment by the Company without first disclosing such activity to the Company and obtaining its express written approval, which may be denied in the Company’s sole discretion. If there is a conflict between this provision and any restrictive covenants contained in any employment agreement executed by me and the Company, the provisions of the employment agreement will govern.

IX. Non-Solicitation of Employees

For the period of my employment by the Company and for one (1) year thereafter, I will not, either directly or indirectly, solicit, attempt to solicit, or assist in the solicitation of any employee, independent contractor, or consultant of the Company for whom I had managerial responsibility, to whom I reported, with whom I participated on Company teams or projects, to terminate his or her relationship with the Company. If there is a conflict between this provision and any restrictive covenants contained in any employment agreement executed by me and the Company, the provisions of the employment agreement will govern.

X. At-Will Employment

I understand that my employment with the Company is not for a definite term and either I or the Company can terminate the employment relationship at any time, with or without cause

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or advance notice, subject to any severance benefits to which I may become entitled to pursuant to the provisions of any employment agreement in effect at the time between me and the Company. The terms of this Agreement survive the termination of employment as provided for herein. If there is a conflict between this provision and any term contained in any employment agreement executed by me and the Company, the provisions of the employment agreement will govern.

XI. Reformation and Severability

I agree that if any provision, or portion of a provision, of this Agreement is deemed unenforceable by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable. Should any provision, or portion of a provision, of this Agreement be deemed unenforceable for any other reason, such unenforceability will not affect any other provision, or portion of a provision, of this Agreement and this Agreement shall be construed as if such unenforceable provision, or portion of provision, had never been contained herein.

XII. Authorization for Post-Termination Notification of Obligations under PIIPA

I hereby authorize the Company to notify any person or entity with whom I become employed, or to whom I provide services, following the termination of my employment with the Company of my ongoing obligations under this PIIPA.

XIII. Entire Agreement

This PIIPA sets forth the entire agreement and understanding between the Company and me relating to the subject matters covered herein, and this PIIPA merges, cancels, supersedes and replaces all prior discussions between us, including (without limitation) any and all statements, representations, negotiations, promises or agreements relating to the subject matters covered by this PIIPA that may have been made by any officer, employee or representative of the Company. Furthermore, any subsequent change(s) to my job duties, responsibilities, title, reporting level or relationship, compensation, benefits, regular place of employment or any other term or condition of my employment with the Company shall not affect the validity or scope of this Agreement which shall remain in full force and effect notwithstanding any such change(s).

XIV. Effective Date

This Agreement shall be effective as of the first day of my employment with the Company and shall be binding upon me, my heirs, executors, assigns and administrators and shall inure to the benefit of the Company.

XV. Governing Law

Although I may work for the Company outside of Arizona or the United States, I understand and agree that this Agreement will be interpreted and enforced in accordance with the laws of the State of Arizona.

I HAVE READ THIS PIIPA CAREFULLY, AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS THAT IT IMPOSES UPON ME WITHOUT RESERVATION.

A-8

I SIGN THIS PIIPA FREELY AND VOLUNTARILY, WITHOUT COERCION OR DURESS.

Employee Signature	Date
Employee Name [Please print]

APOLLO EDUCATION GROUP, INC.

By:

Title:

A-9

EXHIBIT A TO APPENDIX A

1. The following is a complete list of all Intellectual Property relevant to the subject matter of my employment by the Company that have been made or discovered or conceived or first reduced to practice by me or jointly with others prior to my employment by the Company that I desire to remove from the operation of the Company’s Proprietary Information and Intellectual Property Agreement (“PIIPA”), except for the license granted in Section V.A. of the PIIPA:

No Intellectual Property.

See below:

See _____ (#) additional sheets attached.

1. I propose to bring to my employment the following materials and documents of a former employer or other person/entity:

No materials or documents

See below:

See ____ (#) additional sheet(s) attached:

Date:
	Employee Signature

A-10

EX-10.34

Exhibit 10.34

RESTRICTED STOCK UNIT AWARD AGREEMENT

RECITALS

A.    The Corporation has implemented the Plan as an equity incentive program to encourage key employees and officers of the Corporation and the non-employee members of the Board to remain in the employ or service of the Corporation by providing them with an opportunity to acquire a proprietary interest in the success of the Corporation.

B.    Participant is to render valuable services to the Corporation (or any Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s issuance of shares of Class A Common Stock to Participant under the Plan.

C.    All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A.

NOW, THEREFORE, it is hereby agreed as follows:

1.    Grant of Restricted Stock Units. The Corporation hereby awards to Participant, as of the Award Date, restricted stock units under the Plan. The number of shares of Class A Common Stock underlying the awarded restricted stock units and the applicable performance vesting requirement for those units and the underlying shares are set forth in the Award Summary below. The remaining terms and conditions governing the Award, including the applicable service vesting requirements, are set forth in the remainder of this Agreement.

AWARD SUMMARY

Participant:	<NAME>
Award Date:	<AWARD_DATE>
Number of Shares Subject to Award:	<SHARES> shares of Class A Common Stock (the “Shares”)

Vesting Provisions: Performance Vesting: None of the Shares subject to this Award shall vest, and this Award shall terminate in its entirety, should the Corporation fail to attain the Performance Goal specified in attached Schedule I for the applicable Performance Period.

Service Vesting: If such Performance Goal is attained, then the number of Shares in which Participant may vest hereunder shall be determined in accordance with the service vesting provisions of Paragraph 3.

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Accelerated Vesting: The Shares subject to this Award shall be subject to accelerated vesting pursuant to the provisions of Paragraph 5.

2.    Limited Transferability. Prior to the actual issuance of the Shares which vest hereunder, Participant may not transfer any interest in the restricted stock units subject to the Award or the underlying Shares or pledge or otherwise hedge the sale of those units or Shares, including (without limitation) any short sale or any acquisition or disposition of any put or call option or other instrument tied to the value of those Shares. However, any Shares which vest hereunder but otherwise remain unissued at the time of Participant’s death shall be transferred to Participant’s designated beneficiary or beneficiaries of this Award to the extent such designation is valid under applicable law or, in the absence of such designated beneficiaries (including by reason of their death), pursuant to the provisions of Participant’s will or the laws of inheritance. Participant may make a beneficiary designation with respect to this Award at any time by filing the appropriate form with the Plan Administrator or its designee in a form and manner acceptable to the Company and permitted by the Company. Any transferee must furnish the Company with (i) written notice of his or her status as a transferee, and (ii) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to the transfer.

3.    Vesting Requirements. The Shares subject to the Award shall initially be unvested and shall vest only in accordance with the vesting provisions of this Paragraph 3 or the special vesting acceleration provisions of Paragraph 5. The actual number of Shares in which Participant shall vest under this Paragraph 3 shall be determined as follows:

(a)    Performance Vesting: Within seventy-five (75) days following the completion of the Performance Period, the Plan Administrator shall, on the basis of the Corporation’s audited financial statements for the fiscal year coincident with such Performance Period, determine whether the Performance Goal for that period has been attained. If the Performance Goal has not been attained, then the restricted stock units hereby awarded shall be immediately cancelled, and Participant shall thereupon cease to have any right or entitlement to receive any of the Shares underlying those cancelled units. Should the Plan Administrator determine and certify, on the basis of such audited financial statements, that the Performance Goal for the Performance Period has been attained, then the Shares subject to this Award shall be re-designated as Performance Shares, and the number of those Performance Shares in which Participant may vest shall be dependent upon his or her completion of the Service vesting requirements set forth below.

(b)    Service Vesting: Participant shall vest in the Performance Shares in ___________ (___) separate installments as follows: ________________________________.

(c)    Involuntary Termination. Should Participant cease Service after the start of the Performance Period and prior to the completion of the Service-vesting schedule set forth in Paragraph 3(b) by reason of an Involuntary Termination during one of the ___________ (___) applicable installment vesting periods comprising that schedule (each, an “Annual Installment Vesting Period”) and Participant deliver an effective and enforceable general release to the Corporation in accordance with the requirements of the Senior Executive Severance Pay Plan, then

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Participant shall thereupon vest in a portion of the Performance Shares (if any) in which Participant would have vested upon the completion of the particular Annual Installment Vesting Period under Paragraph 3(b) in which such Involuntary Termination occurs had Participant in fact continued in Service through the completion of that Annual Installment Vesting Period (the “Performance Share Installment”). Such pro-ration shall be applied by multiplying the Performance Share Installment by a fraction, the numerator of which is the number of months of Service actually completed by Participant during that Annual Installment Vesting Period (rounded up to the next whole month), and the denominator of which is the total number of calendar months in that Annual Installment Vesting Period. In no event, however, shall Participant vest in any Performance Shares prior to the completion of the Performance Period and the Plan Administrator’s certification of the level at which the Performance Goal has been attained. For the avoidance of doubt, the calculation of the pro-rata vesting under this paragraph shall use the number of months in the Performance Period as the denominator for the first Annual Installment Vesting Period under this Award and the numerator for such first installment shall in that case be the number of months of Service actually completed by Participant during the Performance Period (rounded up to the next whole month). Notwithstanding anything in this Paragraph 3(c), if Participant becomes entitled to greater acceleration benefits under the Senior Executive Severance Pay Plan, this Paragraph 3(c) shall be of no force or effect.

(d)    Other Cessation of Service. Except as otherwise provided in Paragraph 3(c) above, Participant shall not vest in any additional Performance Shares following his or her cessation of Service. Accordingly, upon such cessation of Service, the Award will, except to the extent otherwise provided in Paragraph 3(c), be immediately cancelled with respect to those unvested Shares, and the number of restricted stock units will be reduced accordingly. Participant shall thereupon cease to have any right or entitlement to receive any Shares under those cancelled units and those Shares shall cease to be subject to this Award.

4.    Stockholder Rights and Dividend Equivalents

(a)    The holder of this Award shall not have any stockholder rights, including voting, dividend or liquidation rights, with respect to the Shares subject to the Award until Participant becomes the record holder of those Shares following their actual issuance upon the Corporation’s collection of the applicable Withholding Taxes.

(b)    Notwithstanding the foregoing, should any dividend or other distribution, whether regular or extraordinary, payable other than in shares of Class A Common Stock, be declared and paid on the Corporation’s outstanding Class A Common Stock in one or more calendar years during which Shares remain subject to this Award (i.e., those Shares are not otherwise issued and outstanding for purposes of entitlement to the dividend or distribution), then a special book account shall be established for Participant and credited with a phantom dividend equivalent to the actual dividend or distribution which would have been paid on the Shares had such Shares been issued and outstanding and entitled to that dividend or distribution. As the Shares subsequently vest in one or more installments hereunder, the phantom dividend equivalents credited to those Shares in the book account shall vest, and those vested phantom dividend equivalents shall be distributed to Participant (in cash or such other form as the Plan Administrator may deem

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appropriate in its sole discretion) concurrently with the issuance of the vested Shares to which they relate. However, each such distribution shall be subject to the Corporation’s collection of the Withholding Taxes applicable to that distribution. In no event shall any phantom dividend equivalents vest or become distributable unless the Shares to which they relate vest in accordance with the terms of this Agreement.

5.    Change in Control. Should a Change in Control be effected during the period of Participant’s Service and at a time when one or more unvested Shares remain subject to this Award, then Participant shall, immediately prior to the closing of that Change in Control transaction, vest in all those unvested Shares. The Shares that so vest shall be converted into the right to receive for each such Share the same consideration per share of Class A Common Stock payable to the other holders of such Class A Common Stock in consummation of the Change in Control and distributed at the same time as such stockholder payments, but in no event shall such distribution to Participant be completed later than seventy-four (74) days following the effective date of that Change in Control. Each distribution made under this Paragraph 5 shall be subject to the Corporation’s collection of the applicable Withholding Taxes.  This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. For the avoidance of doubt, a Change in Control shall only be considered effected, closed or consummated when the underlying transaction or event is completed and not when shareholder approval or another intermediate step relating to the Change in Control occurs.

6.    Adjustment in Shares. Should any change be made to the Class A Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the outstanding Class A Common Stock as a class without the Corporation’s receipt of consideration, or should the value of outstanding shares of Class A Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the Plan Administrator to the total number and/or class of securities issuable pursuant to this Award in order to reflect such change and thereby prevent a dilution or enlargement of benefits hereunder. In making such equitable adjustments, the Plan Administrator shall take into account any amounts credited to Participant’s book account under Paragraph 4(b) in connection with the transaction, and the determination of the Plan Administrator shall be final, binding and conclusive. However, in the event of a Change of Control, the adjustments (if any) shall be made in accordance with the applicable provisions of Section 13.8 of the Plan governing Change of Control transactions. Notwithstanding the above, the conversion of any convertible securities of the Corporation shall not be deemed to have been effected without the Corporation’s receipt of consideration.

7.    Issuance of Shares of Common Stock.

(a)    The Performance Shares in which Participant vests pursuant to the provisions of Paragraph 3 shall be issued in accordance with the following provisions:

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(i)    Except as otherwise provided in subparagraph (iii) below, the first ____________ (___) of the Performance Shares shall be issued as soon as administratively practicable following the Plan Administrator’s determination and certification, based on the Corporation’s audited financial statements for the fiscal year coincident with the Performance Period, that the Performance Goal for that period has been attained, but such issuance shall in no event be effected later than the fifteenth (15^th) day of the 3^rd month after the completion of the Performance Period.

(ii)    Except as otherwise provided in subparagraph (iv) below, the Performance Shares subject to each subsequent installment in which Participant vests on the basis of his or her continued Service shall be issued on the applicable vesting date for that installment or as soon thereafter as administratively practicable. In no event shall any Performance Shares which so vest be issued later than seventy-four (74) days after the particular vesting date for those shares.

(iii)    Should Participant’s Service terminate prior to the completion date of the Performance Period under circumstances entitling Participant to a pro-rated Service-vesting credit under Paragraph 3(c) of this Agreement, then the pro-rated number of Performance Shares in which Participant subsequently vests upon the attainment of the Performance Goal for that period and such pro-rated Service-vesting credit shall be issued to Participant, subject to his or her timely satisfaction of the applicable general release requirements of the Senior Executive Severance Pay Plan, as soon as reasonably practicable after the completion date of the Performance Period, but in no event later than the fifteenth (15^th) day of the 3^rd month after the completion of the Performance Period.

(iv)    Should Participant vest on a pro-rated basis with respect to any subsequent installment of the Performance Shares pursuant to the Involuntary Termination provisions of Paragraph 3(c), then those pro-rated Performance Shares shall be issued on the third business day, within the seventy (70)-day period measured from the date of Participant’s Involuntary Termination, on which the general release required of Participant in accordance with the provisions of the Senior Executive Severance Pay Plan is effective and enforceable following the expiration of the applicable maximum review/delivery/return and revocation periods to which Participant is entitled under such plan.

(v)    The phantom dividend equivalents credited to Participant’s book account under Paragraph 4(b) shall be distributed concurrently with the issuance of the vested Performance Shares to which they relate.

(vi)    Except as otherwise provided in Paragraph 5, no Shares shall be issued prior to the completion of the Performance Period.

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(b)    The Corporation shall collect the Withholding Taxes with respect to each distribution of phantom dividend equivalents by withholding a portion of that distribution equal to the amount of the applicable Withholding Taxes, with the cash portion of the distribution to be the first portion so withheld.

(c)    The Corporation shall collect the applicable Withholding Taxes with respect to all Shares which vest pursuant to the provisions of this Agreement through the following automatic share withholding method.

-    On the applicable issuance date, the Corporation shall withhold, from the vested Shares otherwise issuable to Participant at that time, a portion of those Shares with a Fair Market Value (measured as of the issuance date) equal to the applicable Withholding Taxes; provided, however, that the number of Shares which the Corporation shall be required to so withhold shall not exceed in Fair Market Value (other than by reason of the rounding up of any fractional share to the next whole share) the amount necessary to satisfy the Corporation’s required tax withholding obligations using the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to supplemental taxable income. Participant hereby expressly authorizes the Corporation to withhold any such additional fractional share that is needed to round up the share withholding to the next whole Share, with the Fair Market Value of that additional fractional share to be added to the amount of taxes withheld by the Corporation from his or her wages for the calendar year in which the issuance date occurs, and to report that additional tax withholding as part of his or her W-2 tax withholdings for such year.

(d)    Except as otherwise provided in Paragraph 5 or this Paragraph 7, the settlement of all restricted stock units which vest under the Award shall be made solely in shares of Class A Common Stock. No fractional share of Class A Common Stock shall be issued pursuant to this Award, and any fractional share resulting from any calculation made in accordance with the terms of this Agreement shall be rounded down to the next whole share of Class A Common Stock.

8.    Compliance with Laws and Regulations. The issuance of shares of Class A Common Stock pursuant to the Award shall be subject to compliance by the Corporation and Participant with all applicable requirements of law relating thereto and with all applicable regulations of any Stock Exchange on which the Common Stock may be listed for trading at the time of such issuance.

9.    Notices. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the most recent address then on file for Participant in the Corporation’s Human Resources Department. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

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10.    Successors and Assigns. Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Participant and the legal representatives, heirs and legatees of Participant’s estate and any beneficiaries of the Award designated by Participant.

11.    Code Section 409A

(a)    It is the intention of the parties that the provisions of this Agreement shall comply, to the maximum extent possible, with the requirements of the short-term deferral exception to Section 409A of the Code and Treasury Regulations Section 1.409A-1(b)(4) and the requirements of the involuntary separation pay plan exception of Treasury Regulations Section 1.409A-1(b)(9). Accordingly, to the extent there is any ambiguity as to whether one or more provisions of this Agreement would otherwise contravene the requirements or limitations of Code Section 409A and the Treasury Regulations applicable to such exceptions, then those provisions shall be interpreted and applied in a manner that does not result in a violation of the requirements or limitations of Code Section 409A and the Treasury Regulations thereunder that apply to those exceptions.

(b)    However, to the extent this Agreement should be deemed to create a deferred compensation arrangement subject to the requirements of Code Section 409A, then the following provisions shall apply, notwithstanding anything to the contrary set forth herein:

-    No shares of Class A Common Stock or other amounts which become issuable or distributable under this Agreement by reason of Participant’s cessation of Service shall actually be issued or distributed to Participant until the date of Participant’s Separation from Service and otherwise subject to the timing rules set forth in Paragraph 7(a)(iv), but instead measured from the date of such Separation from Service rather than Involuntary Termination, unless a delayed commencement date is otherwise required pursuant to the following paragraph.

-    No shares of Class A Common Stock or other amounts which become issuable or distributable under this Agreement by reason of Participant’s Separation from Service shall actually be issued or distributed to Participant prior to the earlier of (i) the first day of the seventh (7th) month following the date of such Separation from Service or (ii) the date of Participant’s death, if Participant is deemed at the time of such Separation from Service to be a specified employee under Section 1.409A-1(i) of the Treasury Regulations issued under Code Section 409A, as determined by the Plan Administrator in accordance with consistent and uniform standards applied to all other Code Section 409A arrangements of the Corporation, and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). The deferred shares or other distributable amount shall be issued or distributed in a lump sum on the first day of the seventh (7th) month following the date of Participant’s Separation from Service or, if earlier, the first day of the month immediately following the date the Corporation receives proof of Participant’s death.

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-    No amounts that vest and become payable under Paragraph 5 of this Agreement by reason of a Change in Control shall be distributed to the Participant at the time of such Change in Control, unless that transaction also qualifies as a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation under Code Section 409A (“Qualifying Change in Control”). In the absence of such a Qualifying Change in Control, the distribution of those amounts shall be made upon the earlier of (i) the date of Participant’s Separation from Service (payable within seventy (70) days thereafter) or (ii) the date on which each Share installment to which those amounts relate would have been issued in accordance with the provisions of Paragraph 7(a)(i) or 7(a)(ii) of this Agreement, as applicable, subject, however, to any delayed commencement date otherwise required pursuant to the preceding paragraph.

-    In no event shall Participant have the right to determine the calendar year in which any such issuance or distribution is to occur.

-    Participant’s right to a series of Share installments pursuant to the terms of this Award or a series of installment distributions of any other amounts to which Participant may become entitled hereunder shall in each instance be treated as a right to a series of separate payments.

12.    Construction. This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award.

13.    Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Arizona without resort to that State’s conflict-of-laws rules.

14.    Employment at Will. Nothing in this Agreement or in the Plan shall confer upon Participant any right to remain in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation or of Participant, which rights are hereby expressly reserved by each, to terminate Participant’s Service at any time for any reason, with or without cause.

15.    Proprietary Information and Intellectual Property Agreement. Participant accepts and agrees to comply with the terms of the Corporation’s Proprietary Information and Intellectual Property Agreement (“PIIPA”), attached hereto as Appendix B and incorporated herein by reference.

16.    Participant Acceptance. Participant must accept the terms and conditions of this Agreement, including the PIIPA, either electronically through the electronic acceptance

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procedure established by the Corporation or through a written acceptance delivered to the Corporation in a form satisfactory to the Corporation. In no event shall any shares of Class A Common Stock be issued under this Agreement in the absence of such acceptance.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above.

APOLLO EDUCATION GROUP, INC.

By:

Title:

PARTICIPANT:

_____________________________________

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APPENDIX A

DEFINITIONS

The following definitions shall be in effect under the Agreement:

A.    Agreement shall mean this Restricted Stock Unit Issuance Agreement.

B.    Award shall mean the award of restricted stock units made to Participant pursuant to the terms of this Agreement.

C.    Award Date shall mean the date the restricted stock units are awarded to Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of the Agreement.

D.    Board shall mean the Corporation’s Board of Directors.

E.    Change in Control shall have the meaning assigned to such term in Section 3.1(e) of the Plan.

F.    Code shall mean the Internal Revenue Code of 1986, as amended.

G.    Class A Common Stock shall mean shares of the Corporation’s Class A common stock.

H.    Corporation shall mean Apollo Education Group, Inc., an Arizona corporation, and any successor corporation to Apollo Education Group, Inc. which shall by appropriate action adopt the Plan.

I.    Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

J.    Fair Market Value per share of Class A Common Stock on any relevant date shall be the closing price per share of such Class A Common Stock on the date in question on the Stock Exchange serving as the primary market for the Class A Common Stock, as such price is reported by the National Association of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite tape of transactions on any other Stock Exchange on which the Class A Common Stock is then primarily traded. If there is no closing selling price for the Class A Common Stock on the date in question, then the Fair Market Value shall be the closing price on the last preceding date for which such quotation exists.

K.    Involuntary Terminationshall have the same meaning as assigned to such term in the Senior Executive Severance Pay Plan.

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L.    1934 Act shall mean the Securities Exchange Act of 1934, as amended from time to time.

M.    Participant shall mean the person to whom the Award is made pursuant to the Agreement.

N.    Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

O.    Performance Goal shall mean the performance goal specified in Schedule I to this Agreement.

P.    Performance Period shall mean the period specified on attached Schedule I to this Agreement over which the attainment of the Performance Goal is to be measured.

Q.    Performance Shares shall mean the Shares in which Participant can vest under this Agreement if the Performance Goal is attained.

R.    Plan shall mean the Corporation’s 2000 Stock Incentive Plan, as amended or restated from time to time.

S.    Plan Administrator shall mean the Compensation Committee of the Board acting in its capacity as administrator of the Plan.

T.    Separation from Service shall mean Participant’s cessation of Employee status by reason of death, retirement or termination of employment. Participant shall be deemed to have terminated employment for such purpose at such time as the level of his or her bona fide services to be performed as an Employee (or as a consultant or independent contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he or she rendered as an Employee during the immediately preceding thirty-six (36) months. Any such determination as to Separation from Service shall be made in accordance with the applicable standards of the Treasury Regulations issued under Section 409A of the Code.

U.    Service shall mean Participant’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee. For purposes of this Agreement, Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) Participant no longer performs services in an Employee capacity for the Corporation (or any Parent or Subsidiary) or (ii) the entity for which Participant renders services in an Employee capacity ceases to remain a Parent or Subsidiary of the Corporation, even though Participant may subsequently continue to perform services for that entity. Service as an Employee shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however, that except to the extent otherwise required by

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law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves of absence, no Service credit shall be given for vesting purposes for any period Participant is on a leave of absence.

V.    Shares shall mean the shares of Class A Common Stock which may vest and become issuable under the Award pursuant to the terms of this Agreement.

W.    Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York Stock Exchange.

X.    Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Y.    Termination for Cause shall mean the termination of Participant’s Service by the Corporation (or any Parent or Subsidiary employing Participant) for one or more of the following reasons:

(i)    repeated dereliction of the material duties and responsibilities of his or her position with the Corporation (or any Parent or Subsidiary);

(ii)    misconduct, insubordination or failure to comply with the policies of the Corporation (or any Parent or Subsidiary employing the Participant) governing employee conduct and procedures;

(iii)    excessive lateness or absenteeism;

(iv)    conviction of or pleading guilty or nolo contendere to any felony involving theft, embezzlement, dishonesty or moral turpitude;

(v)    commission of any act of fraud against, or the misappropriation of property belonging to, the Corporation (or any Parent or Subsidiary);

(vi)    commission of any act of dishonesty in connection with his or her responsibilities as an Employee that is intended to result in his or her personal enrichment or the personal enrichment of his or her family or others;

(vii)    any other misconduct adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary); or

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(viii)    a material breach of any agreement Participant may have at the time with the Corporation (or any Parent or Subsidiary employing Participant), including (without limitation) any proprietary information, non-disclosure or confidentiality agreement.

Z.    Withholding Taxes shall mean the federal, state and local income taxes and the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the vesting and issuance of the shares of Common Stock which vest under of the Award and any phantom dividend equivalents distributed with respect to those shares.

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APPENDIX B

PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY AGREEMENT

This Proprietary Information and Intellectual Property Agreement (“PIIPA”) confirms certain terms of my employment with Apollo Education Group, Inc., is a condition of my employment, and is a material part of the consideration for my employment by the Company. The headings contained in this PIIPA are for convenience only, have no legal significance, and are not intended to change or limit this PIIPA in any matter whatsoever. Capitalized terms not defined in this PIIPA have the meanings ascribed to them in the Company’s Intellectual Property Policy. I have read and agree to comply with such policy. I understand that the Intellectual Property Policy may be amended from time to time by the Company. I further understand and agree that I am obligated to comply with such amendments and will review this policy periodically to ensure that I am aware of such amendments. If there is any conflict between the terms of such policy and this PIIPA, the terms of this PIIPA will prevail.

I. Definitions

A. The “Company”

As used in this PIIPA, the “Company” refers to Apollo Education Group, Inc., each of its subsidiaries, parent companies, and successors and assigns. A subsidiary is any company that is directly or indirectly, wholly or partially, owned by Apollo Education Group, Inc. I recognize and agree that my obligations under this PIIPA and all terms of this PIIPA apply to me regardless of whether I am employed by or provide services to Apollo Education Group, Inc. or any subsidiary, parent company, successor or assign of Apollo Education Group, Inc.

B. “Proprietary Information”

I understand that the Company possesses and will possess Proprietary Information which is important to its business. For purposes of this PIIPA, “Proprietary Information” is information that was or will be developed, created, or discovered by or on behalf of the Company, or which became or will become known by, or was or is conveyed to the Company. “Proprietary Information” includes information concerning the organization, business and finances of the Company or of any third party which the Company is under an obligation to keep confidential or that is maintained by the Company as confidential, including (without limitation):

1. the Company’s Lead List which is comprised of prospective students;

2. data and information on current and prospective corporate accounts, including, but not limited to, the identity of the corporate accounts, the decision makers or decision influencers, the buying criteria of the accounts and programs for those accounts;

3. information with respect to past, current and prospective merger, acquisition, disposition, joint venture and other transactions and opportunities, including, but

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not limited to, the identity of the transaction targets or prospects, the decision makers or decision influencers with respect to the transactions, the proposed terms and conditions of any such past, current or prospective transactions or opportunities, including the status thereof;

4. the management process, training materials, scripts, programs and preferred responses to questions from current, former or prospective students pertaining to features and benefits of the Company’s educational courses, offerings, and programs provided to enrollment counselors, academic counselors and finance counselors;

5. the certification training materials and processes for the certification of the Company’s student advisors (known as the ACU online learning system program), including, but not limited to, the tests taken, materials provided and course work;

6. the information and data contained in the Company’s enrollment data system, including all monthly enrollment reports;

7. all business models and financial information, data and materials of the Company not otherwise available to the general public through the Company’s Annual Report or otherwise;

8. all market research or works for hire materials, including, but not limited to, industry data, demographics, company profiles and/or specific consumer behavior information,

9. all monthly financial, statistical and operational information and reports, and all other information concerning enrollment by campus, profit and loss per campus and the terms of any lease;

10. all monthly financial statements, including, but not limited to, any materials prepared for the Board of Directors;

11. all internally developed source code and the techniques and processes embodied therein, including, but not limited to, modifications to existing source codes for student information systems (such as Galaxy, Campus Tracking, OSIRIS and eCampus), academic systems (such as rEsource and OnLine Learning System (OLS), proprietary modifications to packaged applications (such as PeopleSoft, Oracle Financials and ADP HRizon) and all future internally developed source code;

12. information provided to the Company from a third party under a non-disclosure agreement;

13. the “Personally Identifiable Information” and other student information records protected by the Family Educational Rights and Privacy Act of 1974, as amended,

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that is known or accessible as a result of employment with the Company. “Personally Identifiable Information” includes, but is not limited to information that is directly associated with a specific person such as a name, address, telephone number, e-mail address, or information about activities directly linked to that person. It also includes, but is not limited to, “Education Records” as that term is defined in the Family Educational Rights and Privacy Act of 1974, as amended.

I understand and agree that my employment creates a relationship of confidence and trust between the Company and me with respect to Proprietary Information.

C. “Company Documents and Materials”

I understand that the Company possesses or will possess “Company Documents and Materials” which are important to its business. For purposes of this PIIPA, “Company Documents and Materials” are documents or other media or tangible items that contain or embody Proprietary Information or any other information concerning the business, operations or plans of the Company, whether such documents, media or items have been prepared by me or by others.

“Company Documents and Materials” include (without limitation) blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, tapes, computer hard drives, floppy disks, CD ROMS, or printouts, sound recordings and other printed, typewritten or handwritten documents, sample products, prototypes and models and any information recorded in any other form whatsoever. “Company Documents and Materials” also include copies of any of the foregoing.

II. Assignment of Rights and Confidentiality Requirements

All Proprietary Information is and shall be the sole property of the Company. I hereby grant and assign, and agree to grant and assign, to the Company entity that employs me any and all rights, title and interest I may have or acquire in such Proprietary Information.

At all times, both during my employment by the Company and after its termination, I will keep in confidence and trust and will not use or disclose any Proprietary Information or anything relating to it without the prior written consent of an officer of the Company as specified in the Company’s Schedule of Executive Authority (“SEA”), except as may be necessary in the ordinary course of performing my duties to the Company. I acknowledge that, without prejudice to any and all rights of the Company, an injunction is the only effective remedy to protect the Company’s rights and property as set out herein.

III. Maintenance and Return of Company Documents and Materials

I agree to make and maintain adequate and current written records, in a form specified by the Company, of all inventions, trade secrets and works of authorship assigned or to be assigned to the Company pursuant to this PIIPA. All Company Documents and Materials are and shall be the sole property of the Company.

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I agree that during my employment by the Company, I will not remove any Company Documents and Materials from the business premises of the Company or deliver any Company Documents and Materials to any person or entity outside the Company, except in connection with performing the duties of my employment. I further agree that, immediately upon the termination of my employment by me or by the Company for any reason, or during my employment if so requested by the Company, I will return all Company Documents and Materials, apparatus, equipment and other physical property, or any reproduction of such property, excepting only (i) my personal copies of records relating to my compensation; (ii) my personal copies of any materials previously distributed generally to stockholders of the Company; and (iii) my copy of this PIIPA.

IV. Disclosure of Intellectual Property to the Company

I will promptly disclose in accordance with the Company’s Intellectual Property Policy, all Company Intellectual Property (as defined below) which includes (without limitation) all software programs or subroutines, source or object code, algorithms, improvements, inventions, works of authorship, trade secrets, technology, designs, formulas, ideas, processes, techniques, know-how and data, whether or not patentable, and any other property subject to legal protection by patents, copyrights, trademarks, and/or trade secrets, or which may become subject to legal protection hereafter, whether or not they were, are, or will be so protected, which are made or discovered or conceived or reduced to practice or developed by me, either alone or jointly with others, during the term of my employment.

I will also disclose in accordance with the Company’s Intellectual Property Policy, all Company Intellectual Property made, discovered, conceived, reduced to practice, or developed by me within six (6) months after the termination of my employment with the Company which resulted, in whole or in part, from my prior employment by the Company. Such disclosures shall be received by the Company in confidence (to the extent such Company Intellectual Property are not assigned to the Company pursuant to Section V below) and do not extend the assignment made in Section V below.

I agree to disclose Company Intellectual Property to the Company upon the first to occur of:

-- Creation;

-- A request by Intellectual Property (“IP”) Counsel, as appointed by the Company’s General Counsel, or a designee of IP Counsel;

-- As required by any applicable External Sponsor contract, by this Agreement, or by any other Company policy;

-- A determination is made by me that the Company or an External Sponsor may have an interest in the Intellectual Property.

I understand and agree that my disclosure of the creation of Company Intellectual Property must occur prior to any discussions or actions involving the Commercial Application of Company Intellectual Property and prior to any non-confidential presentation or other public release of the Company Intellectual Property. “Commercial Application of Intellectual Property” means any application of Intellectual Property in which an Employee or the

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Company intends to obtain, or is likely to receive, economic gain from the use or disposition of the Intellectual Property.

I further agree to disclose promptly to IP Counsel any potentially unauthorized use of Company Intellectual Property by a third party.

Notwithstanding any other provision of this Agreement to the contrary, this Agreement does not obligate me to assign to the Company any of my rights in Intellectual Property that does not qualify as Company Intellectual Property. “Company Intellectual Property” is Intellectual Property that: (a) is created in the scope of my employment; (b) is developed, in whole or in part, by the use of Company Resources (excluding resources accessed and used entirely as part of a student or faculty academic endeavor at any subsidiary); (c) relates to the business of the Company or to the Company’s actual or demonstrably anticipated strategies, plans or research and development; or (d) contains Company Proprietary Information. Company Resources include, but are not limited to the following resources owned or controlled by Apollo Education Group, Inc., or a subsidiary: facilities, computers, research funding, resources for asynchronous or distance learning programs, paid time within the employment period, assistance of support staff, telecommunication services, central computing resources, instructional or graphic design or other production services, Company trade secret information, and any other equipment, technologies or facilities.

V. Right to New Ideas

A. Assignment of Company Intellectual Property to the Company

I agree that all Company Intellectual Property that I make, discover, conceive, reduce to practice or develop (in whole or in part, either alone or jointly with others) during my employment shall be the sole property of the Company entity that employs me to the maximum extent permitted by applicable law. However, any Intellectual Property that I make, discover, conceive, reduce to practice or develop (in whole or in part, either alone or jointly with others) during my employment shall not be the sole property of the Company so long as such Intellectual Property does not qualify as Company Intellectual Property.

The Company shall be the sole owner of all patents, patent rights, copyrights, trade secret rights, trademark rights and all other intellectual property or other rights in connection with Company Intellectual Property. I hereby assign and agree to assign to the Company any and all rights, title and interest I may have or acquire in Company Intellectual Property.

I agree to receive written approval from IP Counsel prior to incorporating, in any manner or fashion, any Intellectual Property not fully-owned by the Company into Company Intellectual Property.

If I incorporate any Intellectual Property in which I have an interest into Company Intellectual Property or any Company product, service, or process, I hereby grant and agree to grant to the Company a royalty-free, fully paid-up, irrevocable, perpetual,

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sublicensable, worldwide license to make, have made, modify, use, market, sell and distribute any such Intellectual Property as part of or in connection with Company Intellectual Property or Company product, service or process in any media now known or later developed.

Furthermore, if I incorporate, without prior written approval, any Intellectual Property in which any party other than the Company has an interest into Company Intellectual Property or any Company product, service, or process, I agree to indemnify the Company for any consequences of such incorporation.

B. Works Made for Hire

I further acknowledge and agree that Company Intellectual Property, including (without limitation) any computer programs, programming documentation, and other works of authorship, are “works made for hire” for purposes of the Company’s rights under copyright laws. I hereby assign and agree to assign to the Company any and all rights, title and interest I may have or acquire in such works made for hire.

C. Cooperation

I agree to perform, during and after my employment, all acts deemed necessary or desirable by the Company to permit and assist it, at the Company’s expense, in further evidencing and perfecting the assignments made to the Company under this PIIPA and in obtaining, maintaining, defending and enforcing patents, patent rights, copyrights, trademark rights, trade secret rights or any other rights in connection with Company Intellectual Property and improvements thereto in any and all jurisdictions. Such acts may include (without limitation) execution of documents and assistance or cooperation in legal proceedings. I hereby irrevocably designate and appoint and agree to appoint the Company and its duly authorized officers and agents, as my agents and attorneys to act for and on my behalf and instead of me, to execute and file any documents, applications or related findings and to do all other lawfully permitted acts in the same manner as I could do to further the purposes set forth above in this Section V.C., including (without limitation) the perfection of assignment and the prosecution and issuance of patents, patent applications, copyright applications and registrations, trademark applications and registrations or other rights in connection with Company Intellectual Property and improvements thereto with the same legal force and effect as if executed by me.

D. Assignment or Waiver of Moral Rights

Any assignment of copyright hereunder (and any ownership of a copyright as a work made for hire) includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as “moral rights” in applicable copyright or other legislation (collectively “Moral Rights”). To the extent such Moral Rights cannot be assigned under applicable law of a jurisdiction, and to the extent the following is allowed by the laws in the various jurisdictions where Moral Rights exist, I hereby waive the whole of my Moral Rights in any work and warrant that any work created by me is original.

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E. List of Intellectual Property

I have attached hereto as Exhibit A a complete list of all Intellectual Property or improvements to which I claim ownership and that I desire to remove from the operation of this PIIPA (except for the license granted in Section V.A. above), and I acknowledge and agree that such list is complete. If no such list is attached to this PIIPA, I represent that I have no such Intellectual Property at the time of signing this PIIPA.

VI. Company Authorization for Publication

Prior to my submitting or disclosing for possible non-confidential publication or dissemination outside the Company any material prepared by me that incorporates information that concerns the Company’s Intellectual Property or its business or anticipated research, I agree to deliver a copy of such material to an officer of the Company as specified in the DOA for his or her review and written consent. I agree to make such deletions and revisions as are reasonably requested by the Company to protect its Proprietary Information and Intellectual Property.

VII. Former Employer’s and Others’ Information

I represent that my performance of all the terms of this PIIPA does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired or developed by me in confidence or in trust prior to my employment by the Company.

I agree that I will not disclose to the Company, or use in the performance of my duties and responsibilities as an employee of the Company, any trade secrets or confidential or proprietary information or material belonging to any previous employers or other person or entity.

VIII. Competition

I agree that during the term of my employment by the Company, I will not engage in any employment or business activity that is competitive with, or which could conflict with my employment by the Company without first disclosing such activity to the Company and obtaining its express written approval, which may be denied in the Company’s sole discretion. If there is a conflict between this provision and any restrictive covenants contained in any employment agreement executed by me and the Company, the provisions of the employment agreement will govern.

IX. Non-Solicitation of Employees

For the period of my employment by the Company and for one (1) year thereafter, I will not, either directly or indirectly, solicit, attempt to solicit, or assist in the solicitation of any employee, independent contractor, or consultant of the Company for whom I had managerial responsibility, to whom I reported, with whom I participated on Company teams or projects, , to terminate his or her relationship with the Company. If there is a conflict between this provision and any restrictive covenants contained in any employment agreement executed by me and the Company, the provisions of the employment agreement will govern.

X. At-Will Employment

I understand that my employment with the Company is not for a definite term and either I or the Company can terminate the employment relationship at any time, with or without cause

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or advance notice, subject to any severance benefits to which I may become entitled to pursuant to the provisions of any employment agreement in effect at the time between me and the Company. The terms of this Agreement survive the termination of employment as provided for herein. If there is a conflict between this provision and any term contained in any employment agreement executed by me and the Company, the provisions of the employment agreement will govern.

XI. Reformation and Severability

I agree that if any provision, or portion of a provision, of this Agreement is deemed unenforceable by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable. Should any provision, or portion of a provision, of this Agreement be deemed unenforceable for any other reason, such unenforceability will not affect any other provision, or portion of a provision, of this Agreement and this Agreement shall be construed as if such unenforceable provision, or portion of provision, had never been contained herein.

XII. Authorization for Post-Termination Notification of Obligations under PIIPA

I hereby authorize the Company to notify any person or entity with whom I become employed, or to whom I provide services, following the termination of my employment with the Company of my ongoing obligations under this PIIPA.

XIII. Entire Agreement

This PIIPA sets forth the entire agreement and understanding between the Company and me relating to the subject matters covered herein, and this PIIPA merges, cancels, supersedes and replaces all prior discussions between us, including (without limitation) any and all statements, representations, negotiations, promises or agreements relating to the subject matters covered by this PIIPA that may have been made by any officer, employee or representative of the Company. Furthermore, any subsequent change(s) to my job duties, responsibilities, title, reporting level or relationship, compensation, benefits, regular place of employment or any other term or condition of my employment with the Company shall not affect the validity or scope of this Agreement which shall remain in full force and effect notwithstanding any such change(s).

XIV. Effective Date

This Agreement shall be effective as of the first day of my employment with the Company and shall be binding upon me, my heirs, executors, assigns and administrators and shall inure to the benefit of the Company.

XV. Governing Law

Although I may work for the Company outside of Arizona or the United States, I understand and agree that this Agreement will be interpreted and enforced in accordance with the laws of the State of Arizona.

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I HAVE READ THIS PIIPA CAREFULLY, AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS THAT IT IMPOSES UPON ME WITHOUT RESERVATION.

I SIGN THIS PIIPA FREELY AND VOLUNTARILY, WITHOUT COERCION OR DURESS.

Employee Signature	Date
Employee Name [Please print]

FOR APOLLO EDUCATION GROUP, INC.

Fred Newton

Senior Vice President – Human Resources

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EXHIBIT A TO APPENDIX B

1. The following is a complete list of all Intellectual Property relevant to the subject matter of my employment by the Company that have been made or discovered or conceived or first reduced to practice by me or jointly with others prior to my employment by the Company that I desire to remove from the operation of the Company’s Proprietary Information and Intellectual Property Agreement (“PIIPA”), except for the license granted in Section V.A. of the PIIPA:

No Intellectual Property.

See below:

See _____ (#) additional sheets attached.

1. I propose to bring to my employment the following materials and documents of a former employer or other person/entity:

No materials or documents

See below:

See ____ (#) additional sheet(s) attached:

Date:
	Employee Signature

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SCHEDULE I

PERFORMANCE PERIOD AND PERFORMANCE GOAL

The Performance Period shall be coincident with the Corporation’s ____ fiscal year and shall accordingly commence on ________________and end on ________________.

SPECIFY PERFORMANCE GOAL

Schedule I-1

EX-10.35

Exhibit 10.35

RESTRICTED STOCK UNIT AWARD AGREEMENT

RECITALS

A.    The Corporation has implemented the Plan as an equity incentive program to encourage key employees and officers of the Corporation and the non-employee members of the Board to remain in the employ or service of the Corporation by providing them with an opportunity to acquire a proprietary interest in the success of the Corporation.

B.    Participant is to render valuable services to the Corporation (or any Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s issuance of shares of Class A Common Stock to Participant under the Plan.

C.    All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A.

NOW, THEREFORE, it is hereby agreed as follows:

1.    Grant of Restricted Stock Units. The Corporation hereby awards to Participant, as of the Award Date, restricted stock units under the Plan. The number of shares of Class A Common Stock underlying the awarded restricted stock units and the applicable performance vesting requirement for those units and the underlying shares are set forth in the Award Summary below. The remaining terms and conditions governing the Award, including the applicable service vesting requirements, are set forth in the remainder of this Agreement.

AWARD SUMMARY

Participant:	<NAME>
Award Date:	<AWARD_DATE>
Number of Shares Subject to Award:	<SHARES> shares of Class A Common Stock (the “Shares”)

Vesting Provisions: Performance Vesting: None of the Shares subject to this Award shall vest, and this Award shall terminate in its entirety, should the Corporation fail to attain the Performance Goal specified in attached Schedule I for the applicable Performance Period.

Service Vesting: If such Performance Goal is attained, then the number of Shares in which Participant may vest hereunder shall be determined in accordance with the service vesting provisions of Paragraph 3.

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Accelerated Vesting: The Shares subject to this Award shall be subject to accelerated vesting pursuant to the provisions of Paragraph 5.

2.    Limited Transferability. Prior to the actual issuance of the Shares which vest hereunder, Participant may not transfer any interest in the restricted stock units subject to the Award or the underlying Shares or pledge or otherwise hedge the sale of those units or Shares, including (without limitation) any short sale or any acquisition or disposition of any put or call option or other instrument tied to the value of those Shares. However, any Shares which vest hereunder but otherwise remain unissued at the time of Participant’s death shall be transferred to Participant’s designated beneficiary or beneficiaries of this Award to the extent such designation is valid under applicable law or, in the absence of such designated beneficiaries (including by reason of their death), pursuant to the provisions of Participant’s will or the laws of inheritance. Participant may make a beneficiary designation with respect to this Award at any time by filing the appropriate form with the Plan Administrator or its designee in a form and manner acceptable to the Company and permitted by the Company. Any transferee must furnish the Company with (i) written notice of his or her status as a transferee, and (ii) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to the transfer.

3.    Vesting Requirements. The Shares subject to the Award shall initially be unvested and shall vest only in accordance with the vesting provisions of this Paragraph 3 or the special vesting acceleration provisions of Paragraph 5. The actual number of Shares in which Participant shall vest under this Paragraph 3 shall be determined as follows:

(a)    Performance Vesting: Within seventy-five (75) days following the completion of the Performance Period, the Plan Administrator shall, on the basis of the Corporation’s audited financial statements for the fiscal year coincident with such Performance Period, determine whether the Performance Goal for that period has been attained. If the Performance Goal has not been attained, then the restricted stock units hereby awarded shall be immediately cancelled, and Participant shall thereupon cease to have any right or entitlement to receive any of the Shares underlying those cancelled units. Should the Plan Administrator determine and certify, on the basis of such audited financial statements, that the Performance Goal for the Performance Period has been attained, then the Shares subject to this Award shall be re-designated as Performance Shares, and the number of those Performance Shares in which Participant may vest shall be dependent upon his or her completion of the Service vesting requirements set forth below.

(b)    Service Vesting: Participant shall vest in the Performance Shares as follows: ____________________________________________________________________.

(c)    Service-Vesting Credit. Should (A) Participant’s Service terminate prior to the completion of the Service-vesting schedule set forth in Paragraph 3(b) by reason of (i) an involuntary termination of his employment by the Corporation other than for Cause, (ii) Participant’s death or Disability or (iii) Participant’s resignation for Good Reason, (B) except in the case of Participant’s Service terminating due to death or Disability, Participant execute and deliver on a timely basis the general release required pursuant to Section 7 of the 2014 Employment

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Agreement, and (C) such release become effective and enforceable following the expiration of any applicable revocation period, then Participant shall receive additional Service-vesting credit upon such termination. Such Service-vesting credit shall be twelve (12) months. The Performance Shares that vest by reason of such Service-vesting credit shall be issued in accordance with the applicable provisions of Paragraph 7 of this Agreement. In no event, however, shall Participant vest in any of the Shares subject to this Award, if the Corporation fails to attain the Performance Goal specified in attached Schedule I for the applicable Performance Period.

(d)    Other Cessation of Service. Except as otherwise provided in Paragraph 3(c) above, Participant shall not vest in any additional Performance Shares following his or her cessation of Service. Accordingly, upon such cessation of Service, the Award will, except to the extent otherwise provided in Paragraph 3(c), be immediately cancelled with respect to those unvested Shares, and the number of restricted stock units will be reduced accordingly. Participant shall thereupon cease to have any right or entitlement to receive any Shares under those cancelled units and those Shares shall cease to be subject to this Award.

4.    Stockholder Rights and Dividend Equivalents

(a)    The holder of this Award shall not have any stockholder rights, including voting, dividend or liquidation rights, with respect to the Shares subject to the Award until Participant becomes the record holder of those Shares following their actual issuance upon the Corporation’s collection of the applicable Withholding Taxes.

(b)    Notwithstanding the foregoing, should any dividend or other distribution, whether regular or extraordinary, payable other than in shares of Class A Common Stock, be declared and paid on the Corporation’s outstanding Class A Common Stock in one or more calendar years during which Shares remain subject to this Award (i.e., those Shares are not otherwise issued and outstanding for purposes of entitlement to the dividend or distribution), then a special book account shall be established for Participant and credited with a phantom dividend equivalent to the actual dividend or distribution which would have been paid on the Shares had such Shares been issued and outstanding and entitled to that dividend or distribution. As the Shares subsequently vest in one or more installments hereunder, the phantom dividend equivalents credited to those Shares in the book account shall vest, and those vested phantom dividend equivalents shall be distributed to Participant (in cash or such other form as the Plan Administrator may deem appropriate in its sole discretion) concurrently with the issuance of the vested Shares to which they relate. However, each such distribution shall be subject to the Corporation’s collection of the Withholding Taxes applicable to that distribution. In no event shall any phantom dividend equivalents vest or become distributable unless the Shares to which they relate vest in accordance with the terms of this Agreement.

5.    Change in Control. Should a Change in Control be effected during the period of Participant’s Service and at a time when one or more unvested Shares remain subject to this Award, then Participant shall, immediately prior to the closing of that Change in Control transaction, vest in all those unvested Shares. The Shares that so vest shall be converted into the right to receive for each such Share the same consideration per share of Class A Common Stock

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payable to the other holders of such Class A Common Stock in consummation of the Change in Control and distributed at the same time as such stockholder payments, but in no event shall such distribution to Participant be completed later than seventy-four (74) days following the effective date of that Change in Control. Each distribution made under this Paragraph 5 shall be subject to the Corporation’s collection of the applicable Withholding Taxes. This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. For the avoidance of doubt, a Change in Control shall only be considered effected, closed or consummated when the underlying transaction or event is completed and not when shareholder approval or another intermediate step relating to the Change in Control occurs.

6.    Adjustment in Shares. Should any change be made to the Class A Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the outstanding Class A Common Stock as a class without the Corporation’s receipt of consideration, or should the value of outstanding shares of Class A Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the Plan Administrator to the total number and/or class of securities issuable pursuant to this Award in order to reflect such change and thereby prevent a dilution or enlargement of benefits hereunder. In making such equitable adjustments, the Plan Administrator shall take into account any amounts credited to Participant’s book account under Paragraph 4(b) in connection with the transaction, and the determination of the Plan Administrator shall be final, binding and conclusive. However, in the event of a Change of Control, the adjustments (if any) shall be made in accordance with the applicable provisions of Section 13.8 of the Plan governing Change of Control transactions. Notwithstanding the above, the conversion of any convertible securities of the Corporation shall not be deemed to have been effected without the Corporation’s receipt of consideration.

7.    Issuance of Shares of Common Stock.

(a)    The Performance Shares in which Participant vests pursuant to the provisions of Paragraph 3 shall be issued in accordance with the following provisions:

(i)    Except as otherwise provided in subparagraph (iii) below, the first _____________ (___) of the Performance Shares shall be issued following the completion of the Performance Period as soon as administratively practicable following the Plan Administrator’s determination and certification, based on the Corporation’s audited financial statements for the fiscal year coincident with the Performance Period, that the Performance Goal for that period has been attained, but such issuance shall in no event be effected later than the fifteenth (15^th) day of the 3^rd month after the completion of the Performance Period.

(ii)    Except as otherwise provided in subparagraph (iv) below, the Performance Shares subject to each subsequent installment in which Participant vests on the basis of his or her continued Service shall be issued on the

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applicable vesting date for that installment or as soon thereafter as administratively practicable. In no event shall any Performance Shares which so vest be issued later than seventy-four (74) days after the particular vesting date for those shares.

(iii)    Should Participant’s Service terminate under circumstances entitling Participant to a Service-vesting credit under Paragraph 3(c) of this Agreement, with respect to the first _____________ (___) of the Performance Shares, then any such Performance Shares in which Participant subsequently vests upon the attainment of the Performance Goal shall be issued to Participant, subject to Participant’s timely satisfaction of the applicable general release requirements of the 2014 Employment Agreement and not revoking such general release, as soon as reasonably practicable after the completion date of the Performance Period, but in no event later than the fifteenth (15^th) day of the 3^rd month after the completion of the Performance Period.

(iv)    Should Participant’s Service terminate under circumstances entitling Participant to a Service-vesting credit under Paragraph 3(c) of this Agreement with respect to a subsequent installment of Performance Shares, then those Performance Shares shall be issued on the third business day, within the seventy (70)-day period measured from the date of Participant’s termination from Service, on which the general release required of Participant under Participant’s 2014 Employment Agreement is effective and enforceable following the expiration of the applicable maximum review/delivery/return and revocation periods to which Participant is entitled under the 2014 Employment Agreement and the terms of the general release attached thereto. Should Participant be entitled to such service-vesting credit under Paragraph 3(c) due to termination on account of death or Disability, the Performance Shares shall be issued within the seventy (70)-day period measured from the date of Participant’s termination of Service and, in the case of Disability, to the extent required by Code Section 409A, at the same time as they would have been issued for an involuntary termination of his employment by the Corporation other than for Cause in accordance with the immediately preceding sentence.

(v)    The phantom dividend equivalents credited to Participant’s book account under Paragraph 4(b) shall be distributed concurrently with the issuance of the vested Performance Shares to which they relate.

(vi)    Except as otherwise provided in Paragraph 5, no Shares shall be issued prior to the completion of the Performance Period.

(b)    The Corporation shall collect the Withholding Taxes with respect to each distribution of phantom dividend equivalents by withholding a portion of that distribution equal to the amount of the applicable Withholding Taxes, with the cash portion of the distribution to be the first portion so withheld.

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(c)    The Corporation shall collect the applicable Withholding Taxes with respect to all Shares which vest pursuant to the provisions of this Agreement through the following automatic share withholding method.

-    On the applicable issuance date, the Corporation shall withhold, from the vested Shares otherwise issuable to Participant at that time, a portion of those Shares with a Fair Market Value (measured as of the issuance date) equal to the applicable Withholding Taxes; provided, however, that the number of Shares which the Corporation shall be required to so withhold shall not exceed in Fair Market Value (other than by reason of the rounding up of any fractional share to the next whole share) the amount necessary to satisfy the Corporation’s required tax withholding obligations using the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to supplemental taxable income. Participant hereby expressly authorizes the Corporation to withhold any such additional fractional share that is needed to round up the share withholding to the next whole Share, with the Fair Market Value of that additional fractional share to be added to the amount of taxes withheld by the Corporation from his or her wages for the calendar year in which the issuance date occurs, and to report that additional tax withholding as part of his or her W-2 tax withholdings for such year.

(d)    Except as otherwise provided in Paragraph 5 or this Paragraph 7, the settlement of all restricted stock units which vest under the Award shall be made solely in shares of Class A Common Stock. No fractional share of Class A Common Stock shall be issued pursuant to this Award, and any fractional share resulting from any calculation made in accordance with the terms of this Agreement shall be rounded down to the next whole share of Class A Common Stock.

8.    Compliance with Laws and Regulations. The issuance of shares of Class A Common Stock pursuant to the Award shall be subject to compliance by the Corporation and Participant with all applicable requirements of law relating thereto and with all applicable regulations of any Stock Exchange on which the Common Stock may be listed for trading at the time of such issuance.

9.    Notices. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the most recent address then on file for Participant in the Corporation’s Human Resources Department. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

10.    Successors and Assigns. Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Participant and the legal representatives, heirs and legatees of Participant’s estate and any beneficiaries of the Award designated by Participant.

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11.    Code Section 409A

(a)    It is the intention of the parties that the provisions of this Agreement shall comply, to the maximum extent possible, with the requirements of the short-term deferral exception to Section 409A of the Code and Treasury Regulations Section 1.409A-1(b)(4) and the requirements of the involuntary separation pay plan exception of Treasury Regulations Section 1.409A-1(b)(9). Accordingly, to the extent there is any ambiguity as to whether one or more provisions of this Agreement would otherwise contravene the requirements or limitations of Code Section 409A and the Treasury Regulations applicable to such exceptions, then those provisions shall be interpreted and applied in a manner that does not result in a violation of the requirements or limitations of Code Section 409A and the Treasury Regulations thereunder that apply to those exceptions.

(b)    However, to the extent this Agreement should be deemed to create a deferred compensation arrangement subject to the requirements of Code Section 409A, then the following provisions shall apply, notwithstanding anything to the contrary set forth herein:

-    No shares of Class A Common Stock or other amounts which become issuable or distributable under this Agreement by reason of Participant’s cessation of Service shall actually be issued or distributed to Participant until the date of Participant’s Separation from Service and otherwise subject to the timing rules set forth in Paragraph 7(a)(iv), but instead measured from the date of such Separation from Service rather than termination of Service, unless a delayed commencement date is otherwise required pursuant to the following paragraph.

-    No shares of Class A Common Stock or other amounts which become issuable or distributable under this Agreement by reason of Participant’s Separation from Service shall actually be issued or distributed to Participant prior to the earlier of (i) the first day of the seventh (7th) month following the date of such Separation from Service or (ii) the date of Participant’s death, if Participant is deemed at the time of such Separation from Service to be a specified employee under Section 1.409A-1(i) of the Treasury Regulations issued under Code Section 409A, as determined by the Plan Administrator in accordance with consistent and uniform standards applied to all other Code Section 409A arrangements of the Corporation, and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). The deferred shares or other distributable amount shall be issued or distributed in a lump sum on the first day of the seventh (7th) month following the date of Participant’s Separation from Service or, if earlier, the first day of the month immediately following the date the Corporation receives proof of Participant’s death.

-    No amounts that vest and become payable under Paragraph 5 of this Agreement by reason of a Change in Control shall be distributed to the Participant at the time of such Change in Control, unless that transaction also qualifies as a change in the ownership or effective control of the corporation, or in the ownership

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of a substantial portion of the assets of the corporation under Code Section 409A (“Qualifying Change in Control”). In the absence of such a Qualifying Change in Control, the distribution of those amounts shall be made upon the date set forth in Paragraph 7(a)(i) with respect to the first _____________ (___) of the Performance Shares and, with respect to subsequent installments, upon the earlier of (i) the date of Participant’s Separation from Service (payable within seventy (70) days thereafter) or (ii) the date on which each Share installment to which those amounts relate would have been issued in accordance with the provisions of Paragraph 7(a)(ii) of this Agreement, as applicable, subject, however, to any delayed commencement date otherwise required pursuant to the preceding paragraph.

-    In no event shall Participant have the right to determine the calendar year in which any such issuance or distribution is to occur.

-    Participant’s right to a series of Share installments pursuant to the terms of this Award or a series of installment distributions of any other amounts to which Participant may become entitled hereunder shall in each instance be treated as a right to a series of separate payments.

12.    Construction. This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award.

13.    Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Arizona without resort to that State’s conflict-of-laws rules.

14.    Proprietary Information and Intellectual Property Agreement. Participant accepts and agrees to comply with the terms of his Proprietary Information and Intellectual Property Agreement (“PIIPA”), attached as Appendix A to Participant’s 2014 Employment Agreement and incorporated herein by reference.

15.    Participant Acceptance. Participant must accept the terms and conditions of this Agreement either electronically through the electronic acceptance procedure established by the Corporation or through a written acceptance delivered to the Corporation in a form satisfactory to the Corporation. In no event shall any shares of Class A Common Stock be issued under this Agreement in the absence of such acceptance.

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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above.

APOLLO EDUCATION GROUP, INC.

By:

Title:

PARTICIPANT:

_____________________________________

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APPENDIX A

DEFINITIONS

The following definitions shall be in effect under the Agreement:

A.    Agreement shall mean this Restricted Stock Unit Issuance Agreement.

B.    Award shall mean the award of restricted stock units made to Participant pursuant to the terms of this Agreement.

C.    Award Date shall mean the date the restricted stock units are awarded to Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of the Agreement.

D.    Board shall mean the Corporation’s Board of Directors.

E.    Cause shall have the meaning assigned to such term in Section 6(b) of Participant’s 2014 Employment Agreement, as in effect on the Award Date.

F.    Change in Control shall have the meaning assigned to such term in Section 3.1(e) of the Plan.

G.    Code shall mean the Internal Revenue Code of 1986, as amended.

H.    Class A Common Stock shall mean shares of the Corporation’s Class A common stock.

I.    Corporation shall mean Apollo Education Group, Inc., an Arizona corporation, and any successor corporation to Apollo Education Group, Inc. which shall by appropriate action adopt the Plan.

J.    Disability shall have the meaning assigned to such term in Section 6(d) of Participant’s 2014 Employment Agreement, as in effect on the Award Date.

K.    Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

L.    Fair Market Value per share of Class A Common Stock on any relevant date shall be the closing price per share of such Class A Common Stock on the date in question on the Stock Exchange serving as the primary market for the Class A Common Stock, as such price is reported by the National Association of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite tape of transactions on any other Stock Exchange on which the Class A Common Stock is then primarily traded. If there is no closing

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selling price for the Class A Common Stock on the date in question, then the Fair Market Value shall be the closing price on the last preceding date for which such quotation exists.

M.    Good Reason shall have the meaning assigned to such term in Section 6(c) of Participant’s 2014 Employment Agreement, as in effect on the Award Date.

N.    1934 Act shall mean the Securities Exchange Act of 1934, as amended from time to time.

O.    Participant shall mean the person to whom the Award is made pursuant to the Agreement.

P.    Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Q.    Performance Goal shall mean the performance goal specified in Schedule I to this Agreement.

R.    Performance Period shall mean the period specified on attached Schedule I to this Agreement over which the attainment of the Performance Goal is to be measured.

S.    Performance Shares shall mean the Shares in which Participant can vest under this Agreement if the Performance Goal is attained.

T.    Plan shall mean the Corporation’s 2000 Stock Incentive Plan, as amended or restated from time to time.

U.    Plan Administrator shall mean the Compensation Committee of the Board acting in its capacity as administrator of the Plan.

V.    Separation from Service shall mean Participant’s cessation of Employee status by reason of death, retirement or termination of employment. Participant shall be deemed to have terminated employment for such purpose at such time as the level of his or her bona fide services to be performed as an Employee (or as a consultant or independent contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he or she rendered as an Employee during the immediately preceding thirty-six (36) months. Any such determination as to Separation from Service shall be made in accordance with the applicable standards of the Treasury Regulations issued under Section 409A of the Code.

W.    Service shall mean Participant’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee. For purposes of this Agreement, Participant shall be deemed to cease Service immediately upon the occurrence of the either of the

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following events: (i) Participant no longer performs services in an Employee capacity for the Corporation (or any Parent or Subsidiary) or (ii) the entity for which Participant renders services in an Employee capacity ceases to remain a Parent or Subsidiary of the Corporation, even though Participant may subsequently continue to perform services for that entity. Service as an Employee shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however, that except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves of absence, no Service credit shall be given for vesting purposes for any period Participant is on a leave of absence.

X.    Shares shall mean the shares of Class A Common Stock which may vest and become issuable under the Award pursuant to the terms of this Agreement.

Y.    Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York Stock Exchange.

Z.    Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

AA.    2014 Employment Agreementshall mean the Amended and Restated Employment Agreement between the Corporation and Participant dated June 5, 2014.

BB.    Withholding Taxes shall mean the federal, state and local income taxes and the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the vesting and issuance of the shares of Common Stock which vest under of the Award and any phantom dividend equivalents distributed with respect to those shares.

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SCHEDULE I

PERFORMANCE PERIOD AND PERFORMANCE GOAL

The Performance Period shall be coincident with the Corporation’s ____ fiscal year and shall accordingly commence on _________________and end on __________________.

SPECIFY PERFORMANCE GOAL

Schedule I-1

EX-10.53

Exhibit 10.53

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED AGREEMENT is entered into, effective as of June 5, 2014 (the “Effective Date”), by and between Apollo Education Group, Inc. (the “Company”), and Gregory W. Cappelli (the “Executive”) (hereinafter collectively referred to as “the parties”).

WHEREAS, the Company currently has in effect an employment agreement with the Executive dated April 2, 2011 that has an initial term scheduled to expire on August 31, 2014, subject to automatic one–year renewals unless either the Company or the Executive provides notice of non-renewal on a timely basis;

WHEREAS, the Company has determined that it is in the best interests of the Company and its shareholders to continue to employ the Executive upon the terms and conditions set forth herein for an additional term ending August 31, 2017, and the Executive is willing to continue his employment with the Company on such terms and conditions through August 31, 2017; and

WHEREAS, the Company and the Executive desire to consolidate the Executive’s existing employment agreement with the Company into a new amended and restated agreement that extends the contract term and includes additional modifications that will be in effect during the extended term.

NOW, THEREFORE, in consideration of the foregoing and the respective agreements of the parties contained herein, the parties hereby agree as follows:

1.Term. The Executive shall be employed for the term of this Agreement, which term shall begin on the Effective Date and expire on August 31, 2017 (the “Extended Term”), unless renewed as set forth below or terminated earlier pursuant to Section 6. This Agreement will automatically be renewed from year to year (each a “Renewal Year”), unless either the Company or the Executive will have given written notice to the other at least ninety (90) calendar days prior to the end of the Extended Term or any Renewal Year that the term of this Agreement will not be so renewed (a “Notice of Non-Renewal”). The period of time beginning on the Effective Date and ending on the Executive’s last day of employment with the Company shall be known as the “Term.”

2.Employment.

(a)Position.

(i)    The Executive will continue to be employed as, and hold the title of, the Company’s Chief Executive Officer (“CEO”). The Executive shall have primary responsibility for the implementation and execution of the Company’s strategic business plans and objectives as approved from time to time by the Company’s Board of Directors (the “Board”). The Executive shall have duties and responsibilities customary for a CEO. Executive shall also have such additional duties and responsibilities as directed and approved from time to time by the Board. The Executive shall report directly to the Board and shall have all the authority needed to perform the duties and undertake the responsibilities of his position. The Executive shall be involved in all the Company’s major strategic decisions relating to the scope of his responsibilities. The Executive will have the authority to hire appropriate personnel as may be needed to carry out his duties.

(ii)    For so long as Executive is serving as CEO, the Executive shall be deemed to be a Principal Executive Officer for purposes of the Company’s filings with the Securities and Exchange Commission, including periodic reports and other filings under the Securities Exchange Act of 1934, as amended.

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(b)Board Membership. The Company acknowledges that the Executive currently serves as a member of the Board. The Company shall, during the remainder of the Term, use its best efforts to have the Executive nominated for election and re-election as a Board member at all meetings of the Company’s Class B shareholders held during the Term at which Board members are to be elected.

(c)Obligations. The Executive shall devote his full business time and attention to the business and affairs of the Company. During the Term, the Executive shall not engage in any other employment, service or consulting activity without the Board’s prior written approval. The foregoing, however, shall not preclude the Executive from (i) serving on any corporate, civic or charitable boards or committees on which he is serving on the Effective Date or on which he commences service following the Effective Date with the Board’s prior written approval or (ii) managing personal investments, so long as such clause (i) and (ii) activities do not interfere with the performance of the Executive’s responsibilities hereunder.

3.Compensation Terms.

(a)    Compensation Components.

(i)    Annual Base Salary. The Executive’s annual rate of base salary, as in effect from time to time during the Term will be hereinafter referred to as the “Base Salary.” Such Base Salary will be payable in accordance with the Company’s customary payroll practices applicable to its executives and will be subject to the Company’s collection of all applicable withholding taxes.

(ii)    Annual Bonus. For each fiscal year completed during the Term, the Executive will be eligible to receive an annual cash bonus (“Annual Bonus”) based upon individual and Company performance goals that are established in good faith by the Compensation Committee of the Board (“Compensation Committee”) and that are reasonable in comparison to the individual and Company performance goals the Compensation Committee sets for the Company’s other executive officers (the “Target Bonus”). The Annual Bonus for each fiscal year shall be paid in accordance with the Company’s customary payroll practices during the first two and one-half (2½) months of the Company’s next following fiscal year, and will be subject to the Company’s collection of all applicable withholding taxes.

(iii)    Annual Equity Award. For each fiscal year of the Term, Executive shall be entitled to receive an annual equity award (“LTI Award”). The LTI Award may be provided to the Executive in the form of restricted stock units, performance share units, stock options, or such other method determined by the Compensation Committee in its discretion. The methodology for determining the percentage allocation for each LTI Award granted to Executive will be the same as the methodology used by the Compensation Committee for all other Section 16 officers. The LTI Awards granted during the Extended Term shall have the following vesting schedule:

	Vesting Schedule
	1st Anniversary of Grant Date	2nd Anniversary of Grant Date	3rd Anniversary of Grant Date
FY2015 Award (to be granted in August 2014)	33.3%	33.3%	33.3%
FY2016 Award (to be granted in August 2015)	33.3%	33.3%	33.3%
FY2017 Award (to be granted in August 2016)	50%	25%	25%

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(b) Compensation Arrangements for the 2015 Fiscal Year

(i)    Effective September 1, 2014 and continuing through the Company’s 2015 fiscal year, the Executive’s Base Salary, Target Bonus, and LTI Award grant date value shall be as follows:

Base Salary	$1,000,000
Target Bonus (as a percentage of Base Salary)	150%
LTI Award Grant Date Value	$7,000,000

The Executive’s Base Salary and Target Bonus shall not be reduced below the levels stated above during the Term.

(ii)    The Executive’s compensation package for the 2015 fiscal year described above, including Base Salary, target total cash compensation (Base Salary plus Target Bonus), and target total direct compensation (target total cash compensation plus annualized value of LTI Awards) were established by the Compensation Committee based on a review that included a comparison of the Executive’s compensation package to compensation data from a comparator group of companies determined by the Compensation Committee for its executive officers (the “Comparator Group”) and that used the Company’s compensation percentile objectives versus the Comparator Group (currently, these objectives are 50^th percentile for target total cash compensation and 75^th percentile for target total direct compensation) (the “Compensation Objectives”).

(c)    Compensation Arrangements for Fiscal Years after the 2015 Fiscal Year. With respect to the Executive’s compensation arrangements for services performed during the Company’s fiscal year commencing September 1, 2015, and with respect to each year of the Term, the Compensation Committee shall conduct an annual review of the Executive’s annual compensation arrangements in accordance with the process set forth in Section 3(b)(ii) above, provided that, and subject to the limitations set forth in Section 3(b)(i), the Compensation Committee has discretion to adjust the Executive’s compensation package as it deems appropriate based on the then-current Compensation Objectives (as set by the Compensation Committee from time to time), taking into account the Executive’s performance, the Company’s financial performance, total stockholder return and other factors that the Compensation Committee determines to be appropriate. For the avoidance of doubt, the Company agrees that the Executive’s compensation arrangements for the fiscal year commencing September 1, 2015 and thereafter during the Term shall be determined (subject to the limitations set forth in Section 3(b)(i)) by using (i) the same Comparator Group used for determining the compensation arrangements for the other Section 16 officers who report to the Executive, and (ii) target percentile objectives for target total cash compensation and for target total direct compensation that are no less than the target percentile objectives used for the other Section 16 officers who report to the Executive.

4.Employee Benefits. Provided he otherwise satisfies any applicable eligibility requirements for participation, the Executive will be entitled to participate in the welfare, retirement, perquisite and fringe benefit plans, practices, and programs maintained by the Company and made available to senior executives generally and as may be in effect from time to time. The Executive’s participation in any such plans, practices and programs for which he satisfies the applicable eligibility requirements will be on the same basis and terms as are applicable to senior executives of the Company generally.

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5.Other Benefits.

(a)Expenses. Subject to applicable Company policies, including (without limitation) the timely submission of appropriate documentation and expense reports, the Executive will be entitled to receive prompt reimbursement of all expenses reasonably incurred by him in connection with the performance of his duties hereunder or for promoting, pursuing, or otherwise furthering the business or interests of the Company. Accordingly, the Executive shall submit appropriate evidence of each such expense within sixty (60) days after the later of (i) his incurrence of that expense or (ii) his receipt of the invoice or billing statement for such expense, and the Company shall provide the Executive with the requisite reimbursement within ten (10) business days thereafter; provided, however, that (i) no expense shall be reimbursed later than the close of the calendar year following the calendar year in which that expense is incurred, (ii) the amounts eligible for reimbursement in any one calendar year shall not affect the amounts reimbursable in any other calendar year and (iii) the right to such reimbursement may not be liquidated or exchanged for any other benefit.

(b)Office and Facilities. The Executive will be provided with appropriate offices in Chicago, Illinois and with such secretarial and other support facilities as are commensurate with the Executive’s status with the Company and adequate for the performance of his duties hereunder.

(c)Vacation. During the Term, the Executive will be eligible for paid vacation in accordance with the Company’s policies, as may be in effect from time to time, for its senior executives generally; provided, however, that the Executive will be eligible for no less than four weeks of paid vacation per year.

6.Termination. Except for a Notice of Non-Renewal, as described in Section 1, or a voluntary resignation by the Executive without Good Reason, the Executive’s employment hereunder may only be terminated in accordance with the following terms and conditions:

(a)Termination by the Company without Cause. The Company will be entitled to terminate the Executive’s employment at any time by delivering a Notice of Termination to the Executive pursuant to Section 6(e); provided, however, that any termination of the Executive’s employment for Cause shall be governed by the provisions of Section 6(b).

(b)Termination by the Company for Cause.

(i)The Company may terminate the Executive’s employment hereunder for “Cause” (as defined below) by delivering to him a Notice of Termination. For purposes of the foregoing, any of the following shall constitute grounds for terminating the Executive’s employment for Cause: (A) the Executive’s pleading “guilty” or “no contest” to, or his conviction of, a felony or any crime involving moral turpitude, (B) his commission of any act of fraud or any act of personal dishonesty involving the property or assets of the Company intended to result in substantial financial enrichment to the Executive, (C) a material breach by the Executive of one or more of his obligations under Section 8 of this Agreement or under his Proprietary Information and Inventions Agreement with the Company, (D) a material breach by the Executive of any of his other obligations under this Agreement or any other agreement with the Company, (E) the Executive’s commission of a material violation of Company policy which would result in an employment termination if committed by any other employee of the Company or his gross misconduct, (F) the Executive’s material dereliction of the major duties, functions and responsibilities of his executive position (other than a failure resulting from the Executive’s incapacity due to physical or mental illness), (G) a material breach by the Executive of any of the Executive’s fiduciary obligations as an officer of the Company or (H) the Executive’s willful and knowing participation in the preparation or release of false or materially misleading financial statements relating to the Company’s operations and financial condition or his willful and knowing submission of any false or erroneous certification required of him under the Sarbanes-

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Oxley Act of 2002 or any securities exchange on which shares of the Company’s Class A common stock are at the time listed for trading. However, prior to any termination of the Executive’s employment for Cause based on any of the reasons specified in clauses (C) through (F) and the delivery of a Notice of Termination in connection therewith, the Company shall give written notice to the Executive of the actions or omissions deemed to constitute the grounds for such a termination for Cause, and the Executive shall have a period of not less than sixty (60) calendar days after the receipt of such notice in which to cure the specified default in his performance and thereby avoid a Notice of Termination under this subsection (b)(i).

(ii)In the event the Executive is provided with a Notice of Termination under subsection (b)(i), the Notice of Termination shall specify a Termination Date that is no earlier than the third business day, and no later than the thirtieth business day, following the date of the Notice of Termination, and the Executive will have three (3) business days following the date of such Notice of Termination to submit a written request to the Board for a meeting to review the circumstances of his termination. If the Executive timely submits such a written request to the Board, the Board or a committee of the Board shall set a meeting whereby the Executive, together with his counsel, shall be permitted to present any mitigating circumstances or other information as to why he should not be terminated for Cause, and the Executive’s Termination Date shall be delayed until such meeting has occurred. Such meeting will be held, at the Executive’s option, either on a mutually agreeable date prior to the Termination Date specified in the Notice of Termination or on a mutually agreeable date within fifteen (15) calendar days after his timely written notice to the Company requesting such a meeting. Within five (5) business days after such meeting, the Board or committee of the Board, as applicable, shall deliver written notice to the Executive of its final determination and, if the termination decision is upheld, the final actual Termination Date. The specified Termination Date shall in no event be more than ten (10) business days after the date of such meeting. During the period following the date of the Notice of Termination until the Termination Date or other resolution of the matter, the Company shall have the option to place the Executive on an unpaid leave of absence. The rights under this subsection will not be deemed to prejudice the Executive’s other rights and remedies in any way or give rise to any waiver, estoppel, or other defense or bar. Without limiting the foregoing sentence and for purposes of clarification, the failure by the Executive to request a meeting under this subsection, to participate in a meeting that has been requested, or to present any evidence or argument will not prevent the Executive from making any claim against the Company, from seeking any legal or equitable remedy, or from putting forward any evidence or argument at any judicial or arbitral hearing.

(c)Termination by the Executive. The Executive may terminate his employment hereunder for “Good Reason” by delivering to the Company (1) a Preliminary Notice of Good Reason (as defined below) no later than one hundred and twenty (120) calendar days following the act or omission which the Executive sets forth in such notice as grounds for a Good Reason termination, and (2) a Notice of Termination no later than the third business day following the Company’s failure to take appropriate remedial action within the applicable sixty (60)-day cure period provided below to the Company following the receipt of such Preliminary Notice. The Notice of Termination must specify a Termination Date that is within sixty (60) days following the expiration of the applicable sixty (60)-day cure period below in which the Company fails to take appropriate remedial action. For purposes of this Agreement, “Good Reason” means:

(i)a material reduction in the scope of the Executive’s duties, responsibilities or authority;

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(ii)the repeated assignment to the Executive of duties materially inconsistent with the Executive’s position, duties, authority or responsibilities, or a materially adverse change in Executive’s reporting requirements as set forth in Section 2(a) hereof or an adverse change to his title set forth in Section 2(a) hereof: provided, however, that none of the following shall constitute Good Reason: (A) the occasional assignment of duties that are inconsistent with Section 2(a) hereof or (B) a ten percent (10%) or less aggregate reduction in the Executive’s Base Salary and Target Bonus if substantially all of the other executive officers of the Company are subject to the same aggregate reduction to their base salary and target bonuses;

(iii)a relocation of the Executive’s principal place of employment other than in Chicago, Illinois; provided, however that travel to other locations as reasonably required to carry out the Executive’s duties and responsibilities hereunder and travel from time to time to the Company’s headquarters in Phoenix. AZ as reasonably requested by the Company shall not be a basis for a termination for Good Reason; or

(iv)a material breach by the Company of any of its obligations under this Agreement.

In no event will any acts or omissions of the Company which are cured within sixty (60) days after receipt of written notice from the Executive identifying in reasonable detail the acts or omissions constituting “Good Reason” (a “Preliminary Notice of Good Reason”) be deemed to constitute grounds for a Good Reason resignation. A Preliminary Notice of Good Reason will not, by itself, constitute a Notice of Termination.

(d)Termination due to the Executive’s Death or Disability. This Agreement will terminate upon the death of the Executive. The Company may terminate the Executive’s employment hereunder if he is unable to perform, with or without reasonable accommodation, the principal duties and responsibilities of his position with the Company for a period of six (6) consecutive months or more by reason of any physical or mental injury or impairment; provided, however, that in the event the Executive is at the time covered under any long-term disability benefit program in effect for the Company’s executive officers or employees, such termination of the Executive’s employment shall not occur until the earlier of (i) the date he first becomes eligible to receive benefits under such program or (ii) the date the Executive is deemed to have a Separation from Service (as defined below) by reason of such disability. The termination of the Executive’s employment under such circumstances shall, for purposes of this Agreement, constitute a termination for “Disability.”

(e)Notice of Termination. Any purported termination for Cause by the Company or for Good Reason by the Executive will be communicated by a written Notice of Termination to the other at least three (3) business days prior to the Termination Date (as defined below). For purposes of this Agreement, a “Notice of Termination” will mean a notice which indicates the specific termination provision in this Agreement relied upon and will, with respect to a termination for Cause or Good Reason, set forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination of the Executive’s employment under the provision so indicated. Any termination by the Company under this Section 6 other than for Cause or by the Executive without Good Reason will be communicated by a written Notice of Termination to the other party fourteen (14) calendar days prior to the Termination Date specified in such notice. However, the Company may elect to pay the Executive in lieu of fourteen (14) calendar days’ written notice. For purposes of this Agreement, no such purported termination of employment pursuant to this Section 6 will be effective without such Notice of Termination.

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(f)Termination Date. “Termination Date” will mean in the case of the Executive’s death, the date of death; in the case of non-renewal of this Agreement pursuant to Section 1, the date that the Extended Term or a Renewal Year, as the case may be, expires; and in all other cases, the date specified in the Notice of Termination, subject to the applicable time limitations for such Termination Date as set forth above.

7.Compensation Upon Termination.

(a)If the Executive’s employment is terminated by the Company for Cause or by reason of the Executive’s death or Disability, or if the Executive provides a Notice of Non-Renewal or gives a written notice of resignation without Good Reason, the Company’s sole obligations hereunder will be to pay the Executive or his estate the following amounts that the Executive earned pursuant to the provisions of this Agreement but that were not paid as of the Termination Date: (i) Base Salary, (ii) reimbursement for any and all monies advanced or expenses incurred pursuant to Section 5(a) through the Termination Date, provided the Executive has submitted appropriate documentation for such expenses, and (iii) the amount of the Executive’s accrued but unpaid vacation time, if any, in accordance with the Company’s policies, as may be in effect from time to time, for its senior executives generally; (these amounts will collectively be referred to as the “Accrued Cash Obligations”). In addition to the Accrued Cash Obligations, in the event the Executive’s employment terminates by reason of his death or Disability, the Executive or his estate will be paid his Target Bonus, pro-rated for his actual period of service during the fiscal year in which such termination of employment occurs. Such pro-rated Target Bonus shall be paid to the Executive or his estate by the fifteenth day of the third calendar month following the date of the Executive’s termination of employment, subject to any required holdback under Section 12(b). Furthermore, if the Executive’s employment terminates as a result of death or Disability, then the Executive or his estate shall, solely for purposes of satisfying the service-vesting requirement of any unvested portion of any such equity award, receive an additional twelve (12) months of service-vesting credit. In addition, any stock option grant, to the extent vested (including the additional service vesting credit described above) and outstanding at the time of the termination of the Executive’s employment by reason of death or Disability, will remain exercisable for a twelve (12)-month period measured from the date of that termination event, but in no event beyond the expiration of the maximum stock option term. Notwithstanding the foregoing, in no event shall the Executive vest in any portion of any equity award, unless the applicable performance goal for that award, if any, is attained. The Executive’s entitlement to any other benefits will be determined in accordance with the Company’s employee benefit plans then in effect.

(b)If the Executive’s employment is terminated: (i) by the Company for any reason other than for Cause or Disability; (ii) by the Executive for Good Reason; or (iii) pursuant to a Notice of Non-Renewal delivered by the Company, the Executive will, in addition to the Accrued Cash Obligations, be entitled to the following compensation and benefits from the Company, provided and only if (x) the Executive executes and delivers to the Company a general release substantially in the form attached as Appendix B (the “Required Release”) within twenty-one (21) days (or forty-five (45) days if such longer period is required under applicable law) after such termination of employment, (y) the Required Release becomes effective and enforceable in accordance with applicable law and (z) the Executive complies with the restrictive covenants set forth in Section 9:

(i)a separation payment equal to (A) two times the Executive’s Base Salary in effect at the time of the Notice of Termination and (B) two times the average of his actual Annual Bonuses for the three fiscal years immediately preceding the fiscal year in which such termination of employment occurs, with such payment to be made in successive equal increments, in accordance with the Company’s normal payroll practices for salaried employees, over the one-year period measured from the date of the Executive’s Separation from Service due to such termination of employment, beginning on the first regular pay day

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within the sixty (60)-day period following the date of such Separation from Service on which the Required Release under this Section 7(b) is effective and enforceable following the expiration of any applicable revocation period in effect for that Release. However, should such sixty (60)-day period span two taxable years, then the first such installment shall not be paid until the end of such sixty (60)-day period. The remaining installments shall be paid on successive regular pay days for the Company’s salaried employees, beginning with the first such regular payday following the payment of the initial installment hereunder. For purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), the Executive’s right to receive such installments shall be deemed a right to receive a series of separate individual payments and not a right to single payment.

(ii)an additional twelve (12) months of service-vesting credit solely for purposes of satisfying the service-vesting requirement of any unvested portion of any equity award whose vesting schedule has not been completed at the time of such termination; provided that in no event shall the executive vest in any portion of any equity award subject to a performance goal unless the applicable performance goal for that award is attained;

(iii)an extended exercise period of twenty-four (24) months following the termination event to exercise any stock options that are vested (including the additional service vesting provided in Section 7(b)(ii) above) and outstanding at the time of such termination event, but in no event beyond the expiration of the maximum term of such stock option;

(iv)the Company will make a lump sum cash payment (the “Lump Sum Health Care Payment”) to the Executive in the dollar amount determined by multiplying (A) the monthly cost that would be payable by the Executive, as measured as of his Termination Date, to obtain continued medical care coverage for himself and his spouse and eligible dependents under the Company’s employee group health plan, pursuant to their COBRA rights, at the level in effect for each of them on such Termination Date by (B) eighteen (18). The Company shall pay the Lump Sum Health Care Payment to the Executive concurrently with the first installment of the separation payment made to the Executive in accordance with Section 7(b)(i) of this Agreement. Notwithstanding the foregoing, the Lump Sum Health Care Payment shall not be subject to any holdback under Section 12(b), to the extent such payment does not exceed the applicable dollar amount under section 402(g)(1) of the Code for the year in which the Executive’s Separation from Service occurs. The Lump Sum Health Care Payment shall constitute taxable income to the Executive and shall be subject to the Company’s collection of all applicable withholding taxes, and the Executive shall receive only the portion of the Lump Sum Health Care Payment remaining after such withholding taxes have been collected. It shall be the sole responsibility of the Executive and his or her spouse and eligible dependents to obtain actual COBRA coverage under the Company’s group health care plan; and

(v)the Executive’s entitlement to any other benefits will be determined in accordance with the Company’s employee benefit plans then in effect.

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(c)The Executive shall have the right to resign, for any reason or no reason, at any time within the thirty (30) day period beginning six (6) months after the closing of a Change in Control (as defined in Section 10) and to receive, in connection with such resignation, the same severance benefits to which he would be entitled under Section 7(b) above had such resignation been for Good Reason and payable at the same time as provided under Section 7(b); provided, however, that the Executive’s entitlement to severance benefits under this Section 7(c) shall be conditioned upon the satisfaction of each of the following requirements: (i) the Executive executes and delivers to the Company the Required Release within twenty-one (21) days (or forty-five (45) days if such longer period is required under applicable law) after such resignation, (ii) the Required Release becomes effective and enforceable in accordance with applicable law and (iii) the Executive complies with the restrictive covenants set forth in Section 9 of this Agreement.

(d)Except as otherwise provided in Section 7(b)(iv) above with respect to the Lump Sum Health Care Payment, all payments and benefits under this Section 7 shall be subject to the applicable holdback provisions of Section 12(b).

(e)The Executive will not be required to mitigate the amount of any payment provided for in this Section 7 by seeking other employment or otherwise, and no such payment or benefit will be eliminated, offset or reduced by the amount of any compensation provided to the Executive in any subsequent employment.

8.Confidentiality.

(a)The Executive hereby acknowledges that the Company may, from time to time during the Term, disclose to the Executive confidential information pertaining to the Company’s business, strategic plans, technology or financial affairs. All information, data and know-how, whether or not in writing, of a private or confidential nature concerning the Company’s trade secrets, processes, systems, marketing strategies and future marketing plans, student enrollment lists, prospective course offerings, finances and financial reports, employee and faculty member information and other organizational information (collectively, “Proprietary Information”) is and shall remain the sole and exclusive property of the Company and shall not be used or disclosed by the Executive except to the extent necessary to perform his duties and responsibilities under this Agreement. All tangible manifestations of such Proprietary Information (whether written, printed or otherwise reproduced) shall be returned by the Executive upon the termination of his employment hereunder, and the Executive shall not retain any copies or excerpts of the returned items. The foregoing restrictions on the use, disclosure and disposition of the Company’s Proprietary Information shall also apply to the Executive’s use, disclosure and disposition of any confidential information relating to the business or affairs of the Company’s faculty, students and employees.

(b)The Executive shall, throughout the term of this Agreement and thereafter, remain subject to the terms and conditions of the attached Proprietary Information and Intellectual Property Agreement with the Company, attached hereto as Appendix A.

(c)The Executive shall not, in connection with his duties and responsibilities hereunder, improperly use or disclose any trade secrets or proprietary and confidential information of any former employer or other person or entity.

9.Restrictive Covenants. At all times during the Executive’s employment with the Company, and for a period of one (1) year after the termination of his employment with the Company (the “Restriction Period”), regardless of the reason or cause for such termination, the Executive shall comply with each of the following restrictions:

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(a)The Executive shall not directly or indirectly encourage or solicit any employee, faculty member, consultant or independent contractor to leave the employment or service of the Company (or any affiliated company) for any reason or interfere in any other manner with any employment or service relationships at the time existing between the Company (or any affiliated company) and its employees, faculty members, consultants and independent contractors.

(b)The Executive shall not directly or indirectly solicit any vendor, supplier, licensor, licensee or other business affiliate of the Company (or any affiliated company) or directly or indirectly induce any such person to terminate its existing business relationship with the Company (or affiliated company) or interfere in any other manner with any existing business relationship between the Company (or any affiliated company) and any such vendor, supplier, licensor, licensee or other business affiliate.

(c)The Executive shall not, on his own or as an employee, agent, promoter, consultant, advisor, independent contractor, general partner, officer, director, investor, lender or guarantor or in any other capacity, directly or indirectly:

(i)conduct, engage in, be connected with, have any interest in, or assist any person or entity engaged in, any business, whether in the United States, any possession of the United States or any foreign country or territory, that competes with any of the businesses or programs conducted by the Company in the education industry during the period of his employment with the Company (hereafter collectively referred to as the “Businesses”); or

(ii)permit his name to be used in connection with a business which is competitive or substantially similar to the Businesses.

Notwithstanding the foregoing: (i) the Executive may own, directly or indirectly, solely as an investment, up to one percent (1%) of any class of publicly traded securities of any business that is competitive or substantially similar to the Business and (ii) the Executive’s employment with any investment banking firm, private equity fund, hedge fund or similar investment fund following the termination of his employment with the Company shall not be deemed a breach of his restrictive covenant under this Section 9(c), even though the Executive may be engaged in investment decisions pertaining to the education industry.

10.Change in Control.

(a)For purposes of this Agreement, the term “Change in Control” shall have the same meaning assigned to such term under the 2000 Stock Incentive Plan, as amended and restated from time to time, or any successor plan thereto (“the “Stock Incentive Plan”). Upon the occurrence of such Change in Control, any unvested stock options, restricted stock units, performance share units or other equity awards granted to the Executive and outstanding at that time, shall vest on an accelerated basis to the same extent as all other outstanding awards of the same type under the Stock Incentive Plan that are held by individuals who are executive officers of the Company at that time. However, the shares of the Company’s Class A common stock subject to restricted stock unit or performance share unit awards that vest upon the occurrence of such Change in Control shall not, to the extent they are subject to Code Section 409A, be issued at that time unless the Change in Control also constitutes a Qualifying Change in Control as defined in Section 10(b) below. In the absence of such Qualifying Change in Control, such shares shall be issued on each applicable date on which they would have otherwise vested and become issuable, in accordance with the terms of the applicable award agreements, had there been no Change in Control.

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(b)    The term “Qualifying Change in Control” shall mean a change in control of ownership of the Company effected by one or more of the following transactions:

(i)    a merger or consolidation in which the Company is not the surviving entity and in which one person or a group of related persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) acquires ownership of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities or constituting more than fifty percent (50%) of the total fair market value of the Company’s outstanding securities;

(ii)    the sale, transfer or other disposition of all or substantially all of the assets of the Company in complete liquidation or dissolution of the Company;

(iii)    any reverse merger in which the Company is the surviving entity but in which one person or a group of related persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) acquires ownership of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities or constituting more than fifty percent (50%) of the total fair market value of the Company’s outstanding securities;

(iv)    the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities or constituting more than fifty percent (50%) of the total fair market value of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders; or

(v)    a change in the composition of the Board over a period of twelve (12) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.

11.Benefit Limitation.

(a)In the event it is determined that the Total Payments (as defined below) to be made to the Executive would otherwise exceed the amount that could be received by the Executive without the imposition of an excise tax under Section 4999 of the Code (the “Safe Harbor Amount”), then those Total Payments shall be reduced to the extent, and only to the extent, necessary to assure that their aggregate present value, as determined in accordance with the applicable provisions of Code Section 280G and the Treasury Regulations thereunder, does not exceed the greater of the following dollar amounts (the “Benefit Limit”):

(A)The Safe Harbor Amount, or

(B) the greatest after-tax amount payable to the Executive after taking into account any excise tax imposed under Code Section 4999 on the Total Payments.

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For purposes of this Section 11(a), the term “Total Payments” shall mean any payment or distribution of any type to or for the benefit of the Executive made by the Company, any of its affiliates, any person who acquires ownership or effective control of the Company or ownership of a substantial portion of the Company’s assets (within the meaning of Code Section 280G) or any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, that would be subject to the excise tax imposed by Code Section 4999 or any interest or penalties with respect to such excise tax

All determinations under this Section 11 shall be made by an independent registered public accounting firm (the “Accounting Firm”); provided, however,such Accounting Firm shall not have an ongoing audit or consulting relationship with the Company at the time of its selection. In determining whether such Benefit Limit is exceeded, the Accounting Firm shall make a reasonable determination of the value to be assigned to the restrictive covenants in effect for the Executive pursuant to Section 9 of the Agreement, and the amount of his potential parachute payment under Code Section 280G shall be reduced by the value of those restrictive covenants to the extent consistent with Code Section 280G and the Treasury Regulations thereunder. To the extent a reduction to the Total Payments is required to be made in accordance with this Section 11, the Total Payments attributable to any cash severance payments otherwise due the Executive under Section 7 of this Agreement shall be reduced first (with such reduction to be applied pro-rata to each such severance payment and without any change in the applicable payment dates), then the accelerated vesting of any restricted stock unit or performance share unit awards made to him by the Company, shall be reduced as follows: first the accelerated vesting of the performance share unit award shall be reduced and then the accelerated vesting of the restricted stock unit awards shall be reduced in the reverse chronological order in which those awards would have vested in the absence of such acceleration, and finally the accelerated vesting of the Executive’s stock options shall be reduced (based on the amount of the parachute payment calculated for each such option in accordance with the Treasury Regulations under Code Section 280G), with such reduction to occur in the same reverse chronological order of the dates on in which those options were granted.

12.Section 409A. Certain payments contemplated by this Agreement may be “deferred compensation” for purposes of Section 409A of the Code. Accordingly, the following provisions shall be in effect for purposes of avoiding or mitigating any adverse tax consequences to the Executive under Code Section 409A.

(a)It is the intent of the parties that the provisions of this Agreement comply with all applicable requirements of Code Section 409A. Accordingly, to the extent any provisions of this Agreement would otherwise contravene one or more requirements or limitations of Code Section 409A, such provisions shall be construed, interpreted and applied in a manner that does not result in a violation of the applicable requirements or limitations of Code Section 409A and the Treasury Regulations thereunder.

(b)Notwithstanding any provision to the contrary in this Agreement, no payments or benefits to which the Executive becomes entitled under this Agreement in connection with the termination of his employment with the Company (other than the portion of the Lump Sum Health Care Payment that is not in excess of the applicable dollar amount under Section 402(g)(1) of the Code for the year in which the Executive’s Separation from Service occurs) shall be made or paid to the Executive prior to the earlier of (i) the first day of the seventh (7th) month following the date of his Separation from Service due to such termination of employment or (ii) the date of his death, if the Executive is deemed, pursuant to the procedures established by the Compensation Committee in accordance with the applicable standards of Code Section 409A and the Treasury Regulations thereunder and applied on a consistent basis for all for all non-qualified deferred compensation plans of the Employer Group subject to Code Section 409A, to be at the time of such

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separation from service a “specified employee” within the meaning of that term under Code Section 416(i) and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments deferred pursuant to this Section 12(b) shall be paid in a lump sum to the Executive, and any remaining payments due under this Agreement shall be paid in accordance with the normal payment dates specified for them herein. The specified employees subject to such a delayed commencement date shall be identified on December 31 of each calendar year. If the Executive is so identified on any such December 31, he shall have specified employee status for the twelve (12)-month period beginning on April 1 of the following calendar year. For purposes of this Agreement, including (without limitation) this Section 12(b), the following definitions shall be in effect:

(i)“Separation from Service” shall mean the date on which the level of the Executive’s bona fide services as an Employee (or non-employee consultant) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services the Executive rendered as an Employee during the immediately preceding thirty-six (36) months. Any such determination, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Code Section 409A. In addition to the foregoing, a Separation from Service will not be deemed to have occurred while the Executive is on a sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or any longer period for which the Executive’s right to reemployment with the Company is provided either by statute or contract; provided, however, that in the event of a leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and that causes the Executive to be unable to perform his duties as an Employee, no Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave. If the period of the leave exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and the Executive’s right to reemployment is not provided either by statute or contract, then the Executive will be deemed to have Separated from Service on the first day immediately following the expiration of the applicable six (6)-month or twenty-nine (29)-month period.

(ii)The Executive shall be deemed to remain an “Employee” for so long he remains in the employ of at least one member of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

(iii)“Employer Group” shall mean the Company and each member of the group of commonly controlled corporations or other businesses that include the Company, as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(1), (2) and (3) of the Code for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section 1.414(c)-2 of the Treasury Regulations.

(c)Should the Executive incur the 20% penalty tax imposed under Section 409A (the “Section 409A Penalty Tax”) with respect to one or more payments or benefits provided to him under this Agreement, then the Executive will be entitled to receive an additional payment (the “409A Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any tax imposed upon the 409A Gross-Up Payment, the Executive retains an amount of the 409A Gross-Up Payment equal to the Section 409A Penalty Tax imposed upon the Executive’s deferred compensation. The amount of the 409A Gross-Up Payment shall be calculated, by an

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Accounting Firm mutually agreeable to the Company and the Executive, within ten (10) business days after it is first determined that the Executive is subject to the Section 409A Penalty Tax, and the 409A Gross-Up Payment so calculated shall be paid to or on behalf of the Executive within five (5) business days after the completion of such determination or (if later) at the time the related Section 409A Penalty Tax is remitted to the appropriate tax authorities. In the event that the Executive’s actual Section 409A Penalty Tax liability is determined by a Final Determination to be greater than the Section 409A Penalty Tax liability taken into account for purposes of the 409A Gross-Up Payment initially made to the Executive pursuant to the provisions of this Section 12(c), then within thirty (30) days following that Final Determination, the Executive shall notify the Company of such determination, and the Accounting Firm shall, within thirty (30) days thereafter, make a new calculation of the 409A Gross-Up Payment based upon that Final Determination and provide the Company and the Executive with the supporting calculations for any supplemental 409A Gross-Up Payment attributable to that excess Section 409A Penalty Tax liability. The Company shall make the supplemental 409A Gross-Up payment to the Executive within five (5) business days following the completion of the applicable calculations or (if later) at the time such excess Section 409A Penalty Tax liability is remitted to the appropriate tax authorities. In the event that the Executive’s actual Section 409A Penalty Tax liability is determined by a Final Determination to be less than the Section 409A Penalty Tax liability taken into account for purposes of the 409A Gross-Up Payment initially made to the Executive pursuant to the provisions of this Section 12(c), then the Executive shall refund to the Company, within five (5) business days after receipt, any federal or state tax refund attributable to the overpayment of his Section 409A Penalty Tax. In no event shall any 409A Gross-Up Payment to which the Executive becomes entitled hereunder be made later than the later of (i) the end of the calendar year in which the related Section 409A Penalty Tax is remitted to the appropriate tax authorities or (ii) the end of the sixty (60)-day period measured from the date such tax is so remitted.

(d)For purposes of Section 12(c), the term “Final Determination” shall mean an audit adjustment by the Internal Revenue Service that is either (i) agreed to by both the Executive and the Company (such agreement by the Company to be not unreasonably withheld) or (ii) sustained by a court of competent jurisdiction in a decision with which the Executive and the Company concur or with respect to which the period within which an appeal may be filed has lapsed without a notice of appeal being filed.

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13.Legal Fees. Within fourteen (14) calendar days after the date this Agreement becomes effective, the Company will reimburse the Executive for his legal fees incurred in connection with the preparation and negotiation of this Agreement, up to a maximum dollar amount of $35,000.00.

14.Indemnification. The Executive shall be covered by any policy of liability insurance which the Company maintains during the Term for its officers and directors (“D&O Insurance”), to the maximum extent of such coverage provided any other executive officer of the Company. The Company agrees to provide the Executive with information about all D&O Insurance maintained during the Term, including proof that such insurance is in place and the terms of coverage, upon the Executive’s reasonable request. In addition to any rights the Executive may have under such D&O Insurance, applicable law, or the articles of incorporation and bylaws of the Company and except as may be prohibited by applicable law, the Company agrees to indemnify, defend, and hold the Executive harmless from and against any and all claims and/or liability arising from, as a result of, or in connection with the Executive’s employment by the Company or any outside appointments and offices held at the Company’s request, except to the extent such claims or liability are attributable to the Executive’s gross negligence or willful misconduct.

15.Injunctive Relief. The Executive expressly agrees that the covenants set forth in Sections 8 and 9 of this Agreement are reasonable and necessary to protect the Company and its legitimate business interests, and to prevent the unauthorized dissemination of Proprietary Information to competitors of the Company. The Executive also agrees that the Company will be irreparably harmed and that damages alone cannot adequately compensate the Company if there is a violation of Section 8 or 9 of this Agreement by the Executive, and that injunctive relief against the Executive is essential for the protection of the Company. Therefore, in the event of any such breach, it is agreed that, in addition to any other remedies available, the Company shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction, plus attorneys’ fees actually incurred for the securing of such relief.

16.Survival of Certain Provisions. The provisions of Sections 7, 8, 9, 11, 12, 14, 15, 16, 17, 18, 19, 20, 23 and 24 will survive any termination of this Agreement.

17.Withholdings. Any compensation and/or benefits provided to the Executive by the Company shall be subject to the Company’s collection of all applicable payroll deductions and applicable withholding and payroll taxes.

18.Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the Company, its successors and assigns, and the Company will require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. The term “Company” as used herein will include any such successors and assigns to the Company’s business and/or assets. The term “successors and assigns” as used herein will mean a corporation or other entity acquiring or otherwise succeeding to, directly or indirectly, all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. This Agreement will inure to the benefit of and be enforceable by the Executive’s legal personal representative.

19.Arbitration. Except as otherwise provided in Section 15, any controversy or claim between the Company or any of its affiliates and the Executive arising out of or relating to this Agreement or its termination or any other dispute between the parties, whether arising in tort, contract, or pursuant to a statute, regulation, or ordinance now in existence or which may in the future be enacted or recognized will be settled and determined by a single arbitrator whose award will be accepted as final and binding upon the parties. The arbitration shall be conducted in Chicago, Illinois and in accordance with the American Arbitration

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Association (“AAA”) Employment Arbitration Rules in effect at the time such arbitration is properly initiated. To the extent that any of the AAA rules or anything in the Agreement conflicts with any arbitration procedures required by applicable law, the arbitration procedures required by applicable law shall govern. The costs of the arbitration, including administrative fees and fees charged by the arbitrator, will be borne by the Company. Each party will bear its or his own travel expenses and attorneys’ fees: provided, however that the arbitrator (i) shall award attorneys’ fees to the Executive with respect to any claim for breach of this Agreement on which he is the prevailing party and may award attorneys’ fees to the Executive as otherwise allowed by law and (ii) shall award attorneys’ fees to the Company with respect to any claim brought under Section 15 on which it is the prevailing party and may award attorneys’ fees to the Company with respect to any other claim on which it is the prevailing party and it is determined by the arbitrator that such claim by the Executive was frivolous in that it presented no colorable arguments for recovery; but the maximum amount of attorneys’ fees that may be awarded to the Company other than with respect to any claim brought under Section 15 shall not exceed one hundred thousand dollars ($100,000). The arbitration shall be instead of any civil litigation; and the Executive hereby waives any right to a jury trial. The arbitrator’s decision shall be final and binding to the fullest extent permitted by law and enforceable by any court having jurisdiction thereof. In any situation in which emergency injunctive relief may be necessary, either party may seek such relief from a court until such time as the arbitrator is able to address the matter covered by this Section 19. Both parties agree that the state and federal courts located in Chicago, Illinois, will be the sole venue for any such action involving emergency injunctive relief, and the parties submit to personal jurisdiction in these courts for this purpose. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

20.Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement (including the Notice of Termination) will be in writing and will be deemed to have been given when personally delivered or on the third business day following mailing if sent by registered or certified mail, return receipt requested, postage prepaid, or upon receipt if overnight delivery service is used, addressed as follows:

To the Executive:

Gregory Cappelli

[At the most recent home address for the Executive on file with the Company in its personnel records]

With a copy to:

Peter Donati

Levenfeld Pearlstein, LLC

2 N. LaSalle, Suite 1300

Chicago, Illinois 60602

To the Company:

Apollo Education Group, Inc.

4025 South Riverpoint Parkway

Phoenix, AZ 85040

Attention: General Counsel

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21.Waiver. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this d Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representation, oral or otherwise, express or implied, with respect to the subject matter hereof has been made by either party which is not expressly set forth in this Agreement.

22.Counterparts. This Agreement may be executed in several counterparts, each of which will be deemed an original and all of which will constitute but one and the same instrument. An electronic facsimile of a signature, when delivered by the signing party to the non-signing party, will have the same force and effect as an original.

23.Governing Law. This Agreement will be governed by and construed and enforced in accordance with the laws of the State of Arizona without giving effect to the conflict of law principles thereof.

24.Severability. If any provision of this Agreement as applied to any party or to any circumstance should be adjudged by a court of competent jurisdiction (or determined by the arbitrator) to be void or unenforceable for any reason, the invalidity of that provision shall in no way affect (to the maximum extent permissible by law) the application of such provision under circumstances different from those adjudicated by the court or determined by the arbitrator, the application of any other provision of this Agreement, or the enforceability or invalidity of this Agreement as a whole. Should any provision of this Agreement become or be deemed invalid, illegal or unenforceable in any jurisdiction by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable or, if such provision cannot be so amended without materially altering the intention of the parties, then such provision will be stricken, and the remainder of this Agreement shall continue in full force and effect.

25.Entire Agreement. This Agreement, together with the Proprietary Information and Inventions Agreement referred to in Section 8, the documentation for past equity grants that may still be applicable to the Executive, and the documentation for the equity grants referred to in Section 3, shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede all prior agreements, including but not limited to the Amended and Restated Employment Agreement dated April 2, 2011, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof.

17

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written.

GREGORY W. CAPPELLI	APOLLO EDUCATION GROUP, INC.
/s/ Greg Cappelli	By:/s/ Fred Newton
	Fred Newton SVP Chief Human Resources Officer

18

APPENDIX A

PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY AGREEMENT

This Proprietary Information and Intellectual Property Agreement (“PIIPA”) confirms certain terms of my employment with Apollo Education Group, Inc., is a condition of my employment, and is a material part of the consideration for my employment by the Company. The headings contained in this PIIPA are for convenience only, have no legal significance, and are not intended to change or limit this PIIPA in any matter whatsoever. Capitalized terms not defined in this PIIPA have the meanings ascribed to them in the Company’s Intellectual Property Policy, except as otherwise noted in the Definitions section of this PIIPA. I have read and agree to comply with such policy. I understand that the Intellectual Property Policy may be amended from time to time by the Company. I further understand and agree that I am obligated to comply with such amendments and will review this policy periodically to ensure that I am aware of such amendments. If there is any conflict between the terms of such policy and this PIIPA, the terms of this PIIPA will prevail.

A.    Definitions

1.    The “Company”

As used in this PIIPA, the “Company” refers to Apollo Education Group, Inc., each of its subsidiaries, parent companies, and successors and assigns. A subsidiary is any company that is directly or indirectly, wholly or partially, owned by Apollo Education Group, Inc. I recognize and agree that my obligations under this PIIPA and all terms of this PIIPA apply to me regardless of whether I am employed by or provide services to Apollo Education Group, Inc. or any subsidiary, parent company, successor or assign of Apollo Education Group, Inc.

2.    “Proprietary Information”

For purposes of this PIIPA, the term “Proprietary Information” will have the same meaning as it does under my Amended and Restated Employment Agreement with Apollo Education Group, Inc. dated June 5, 2014. I understand and agree that my employment creates a relationship of confidence and trust between the Company and me with respect to Proprietary Information.

B.    Assignment of Rights and Confidentiality Requirements

All Proprietary Information is and shall be the sole property of the Company. I hereby grant and assign, and agree to grant and assign, to the Company any and all rights, title and interest I may have or acquire in such Proprietary Information.

At all times, both during my employment by the Company and after its termination, I will keep in confidence and trust and will not use or disclose any Proprietary Information or anything relating to it without the prior written consent of an officer of the Company as specified in the Company’s Delegation of Authority (“DOA”), except as may be necessary in the ordinary course of performing my duties to the Company. I acknowledge that, without prejudice to any and all rights of the Company, an injunction is the only effective remedy to protect the Company’s rights and property as set out herein.

A-1

C.    Maintenance and Return of Company Documents and Materials

I agree to make and maintain adequate and current written records, in a form specified by the Company, of all inventions, trade secrets and works of authorship assigned or to be assigned to the Company pursuant to this PIIPA. All Company Documents and Materials are and shall be the sole property of the Company.

I agree that during my employment by the Company, I will not remove any Company Documents and Materials from the business premises of the Company or deliver any Company Documents and Materials to any person or entity outside the Company, except in connection with performing the duties of my employment. I further agree that, immediately upon the termination of my employment by me or by the Company for any reason, or during my employment if so requested by the Company, I will return all Company Documents and Materials, apparatus, equipment and other physical property, or any reproduction of such property, excepting only (i) my personal copies of records relating to my compensation; (ii) my personal copies of any materials previously distributed generally to stockholders of the Company; and (iii) my copy of this PIIPA.

D.    Disclosure of Intellectual Property to the Company

I will promptly disclose in accordance with the Company’s Intellectual Property Policy, all Company Intellectual Property (as defined below) which includes (without limitation) all software programs or subroutines, source or object code, algorithms, improvements, inventions, works of authorship, trade secrets, technology, designs, formulas, ideas, processes, techniques, know-how and data, whether or not patentable, and any other property subject to legal protection by patents, copyrights, trademarks, and/or trade secrets, or which may become subject to legal protection hereafter, whether or not they were, are, or will be so protected, which are made or discovered or conceived or reduced to practice or developed by me, either alone or jointly with others, during the term of my employment.

I will also disclose in accordance with the Company’s Intellectual Property Policy, all Company Intellectual Property made, discovered, conceived, reduced to practice, or developed by me within six (6) months after the termination of my employment with the Company which resulted, in whole or in part, from my prior employment by the Company. Such disclosures shall be received by the Company in confidence (to the extent such Company Intellectual Property are not assigned to the Company pursuant to Section (E) below) and do not extend the assignment made in Section (E) below.

I agree to disclose Company Intellectual Property to the Company upon the first to occur of:

1.    Creation;

2.    A request by Intellectual Property (“IP”) Counsel, as appointed by the Company’s General Counsel, or a designee of IP Counsel;

3.    As required by any applicable External Sponsor contract, by this Agreement, or by any other Company policy;

4.    A determination is made by me that the Company or an External Sponsor may have an interest in the Intellectual Property.

A-2

I understand and agree that my disclosure of the creation of Company Intellectual Property must occur prior to any discussions or actions involving the Commercial Application of Company Intellectual Property and prior to any non-confidential presentation or other public release of the Company Intellectual Property. “Commercial Application of Intellectual Property” means any application of Intellectual Property in which an Employee or the Company intends to obtain, or is likely to receive, economic gain from the use or disposition of the Intellectual Property.

I further agree to disclose promptly to IP Counsel any potentially unauthorized use of Company Intellectual Property by a third party.

Notwithstanding any other provision of this Agreement to the contrary, this Agreement does not obligate me to assign to the Company any of my rights in Intellectual Property that does not qualify as Company Intellectual Property. “Company Intellectual Property” is Intellectual Property that: (a) is created in the scope of my employment; (b) is developed, in whole or in part, by the use of Company Resources (excluding resources accessed and used entirely as part of a student or faculty academic endeavor at any subsidiary); (c) relates to the business of the Company or to the Company’s actual or demonstrably anticipated strategies, plans or research and development; or (d) contains Company Proprietary Information. Company Resources include, but are not limited to the following resources owned or controlled by Apollo Education Group, Inc., or a subsidiary: facilities, computers, research funding, resources for asynchronous or distance learning programs, paid time within the employment period, assistance of support staff, telecommunication services, central computing resources, instructional or graphic design or other production services, Company trade secret information, and any other equipment, technologies or facilities.

E.    Right to New Ideas

1.    Assignment of Company Intellectual Property to the Company

I agree that all Company Intellectual Property that I make, discover, conceive, reduce to practice or develop (in whole or in part, either alone or jointly with others) during my employment shall be the sole property of the Company to the maximum extent permitted by applicable law. However, any Intellectual Property that I make, discover, conceive, reduce to practice or develop (in whole or in part, either alone or jointly with others) during my employment shall not be the sole property of the Company so long as such Intellectual Property does not qualify as Company Intellectual Property.

The Company shall be the sole owner of all patents, patent rights, copyrights, trade secret rights, trademark rights and all other intellectual property or other rights in connection with Company Intellectual Property. I hereby assign and agree to assign to the Company any and all rights, title and interest I may have or acquire in Company Intellectual Property.

I agree to receive written approval from IP Counsel prior to incorporating, in any manner or fashion, any Intellectual Property not fully-owned by the Company into Company Intellectual Property.

If I incorporate any Intellectual Property in which I have an interest into Company Intellectual Property or any Company product, service, or process, I hereby grant and agree to grant to the Company a royalty-free, fully paid-up, irrevocable, perpetual, sublicensable, worldwide license to make, have made, modify, use, market, sell and distribute any such Intellectual Property as part of or in connection with Company Intellectual Property or Company product, service or process in any media now known or later developed.

A-3

Furthermore, if I incorporate, without prior written approval, any Intellectual Property in which any party other than the Company has an interest into Company Intellectual Property or any Company product, service, or process, I agree to indemnify the Company for any consequences of such incorporation.

2.    Works Made for Hire

I further acknowledge and agree that Company Intellectual Property, including (without limitation) any computer programs, programming documentation, and other works of authorship, are “works made for hire” for purposes of the Company’s rights under copyright laws. I hereby assign and agree to assign to the Company any and all rights, title and interest I may have or acquire in such works made for hire.

3.    Cooperation

I agree to perform, during and after my employment, all acts deemed necessary or desirable by the Company to permit and assist it, at the Company’s expense, in further evidencing and perfecting the assignments made to the Company under this PIIPA and in obtaining, maintaining, defending and enforcing patents, patent rights, copyrights, trademark rights, trade secret rights or any other rights in connection with Company Intellectual Property and improvements thereto in any and all jurisdictions. Such acts may include (without limitation) execution of documents and assistance or cooperation in legal proceedings. I hereby irrevocably designate and appoint and agree to appoint the Company and its duly authorized officers and agents, as my agents and attorneys to act for and on my behalf and instead of me, to execute and file any documents, applications or related findings and to do all other lawfully permitted acts in the same manner as I could do to further the purposes set forth above in this Subsection 3, including (without limitation) the perfection of assignment and the prosecution and issuance of patents, patent applications, copyright applications and registrations, trademark applications and registrations or other rights in connection with Company Intellectual Property and improvements thereto with the same legal force and effect as if executed by me.

4.    Assignment or Waiver of Moral Rights

Any assignment of copyright hereunder (and any ownership of a copyright as a work made for hire) includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as “moral rights” in applicable copyright or other legislation (collectively “Moral Rights”). To the extent such Moral Rights cannot be assigned under applicable law of a jurisdiction, and to the extent the following is allowed by the laws in the various jurisdictions where Moral Rights exist, I hereby waive the whole of my Moral Rights in any work and warrant that any work created by me is original.

5.    List of Intellectual Property

I have attached hereto as Attachment 1 a complete list of all Intellectual Property or improvements to which I claim ownership and that I desire to remove from the operation of this PIIPA (except for the license granted in Section (E)(1) above), and I acknowledge and agree that such list is complete. If no such list is attached to this PIIPA, I represent that I have no such Intellectual Property at the time of signing this PIIPA.

A-4

F.    Company Authorization for Publication

Prior to my submitting or disclosing for possible non-confidential publication or dissemination outside the Company any material prepared by me that incorporates information that concerns the Company’s Intellectual Property or its business or anticipated research, I agree to deliver a copy of such material to an officer of the Company as specified in the DOA for his or her review and written consent. I agree to make such deletions and revisions as are reasonably requested by the Company to protect its Proprietary Information and Intellectual Property.

G.    Reformation and Severability

I agree that if any provision, or portion of a provision, of this Agreement is deemed unenforceable by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable. Should any provision, or portion of a provision, of this Agreement be deemed unenforceable for any other reason, such unenforceability will not affect any other provision, or portion of a provision, of this Agreement and this Agreement shall be construed as if such unenforceable provision, or portion of provision, had never been contained herein.

H.    Authorization for Post-Termination Notification of Obligations under PIIPA

I hereby authorize the Company to notify any person or entity with whom I become employed, or to whom I provide services, following the termination of my employment with the Company of my ongoing obligations under this PIIPA.

I.    Effective Date

This Agreement shall be effective as of the first day of my employment with the Company and shall be binding upon me, my heirs, executors, assigns and administrators and shall inure to the benefit of the Company.

J.    Governing Law

Although I may work for the Company outside of Arizona or the United States, I understand and agree that this Agreement will be interpreted and enforced in accordance with the laws of the State of Arizona.

I HAVE READ THIS PIIPA CAREFULLY, AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS THAT IT IMPOSES UPON ME WITHOUT RESERVATION.

I SIGN THIS PIIPA FREELY AND VOLUNTARILY, WITHOUT COERCION OR DURESS.

Date:__________________________        _______________________________________

Gregory W. Cappelli

A-5

ATTACHMENT 1 TO APPENDIX A

The following is a complete list of all Intellectual Property relevant to the subject matter of my employment by the Company that have been made or discovered or conceived or first reduced to practice by me or jointly with others prior to my employment by the Company that I desire to remove from the operation of the Company’s Proprietary Information and Intellectual Property Agreement (“PIIPA”), except for the license granted in Section (E)(2) of the PIIPA:

No Intellectual Property.

See below:

See _____ (#) additional sheets attached.

1. I propose to bring to my employment the following materials and documents of a former employer or other person/entity:

No materials or documents

See below:

See ____ (#) additional sheet(s) attached:

Date:__________________________        _______________________________________

Gregory W. Cappelli

A-6

APPENDIX B

FORM OF GENERAL RELEASE

GENERAL RELEASE

This AGREEMENT is made as of ______________, 20____, by and between Gregory W. Cappelli (“Executive”), and Apollo Group, Inc. (the “Company”).

In consideration for the severance benefits offered by the Company to Executive pursuant to Section 7 of his Amended and Restated Employment Agreement with the Company dated _________, 2014 (the “Employment Agreement”), Executive agree as follows:

1.Termination of Employment. Executive acknowledges that his employment with the Company is terminated effective ______________ (the “Termination Date”). Executive agrees that he has received and reviewed his final paycheck and he has received all wages and accrued but unpaid vacation pay earned by him through the Termination Date.

2.Waiver and Release.

(a)Except as set forth in Section 2(b), which identifies claims expressly excluded from this release, Executive hereby releases the Company, all affiliated companies, and their respective officers, directors, agents, employees, stockholders, successors and assigns from any and all claims, liabilities, demands, causes of action, costs, expenses, attorney fees, damages, indemnities and obligations of every kind and nature, in law, equity or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising from or relating to Executive’s employment with the Company and the termination of that employment, including (without limitation): claims of wrongful discharge, emotional distress, defamation, fraud, breach of contract, breach of the covenant of good faith and fair dealing, discrimination claims based on sex, age, race, national origin, disability or any other basis under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, as amended (“ADEA”), the Americans with Disability Act, the Employee Retirement Income Security Act, as amended, the Equal Pay Act of 1963, as amended, and any similar law of any state or governmental entity, any contract claims, tort claims and wage or benefit claims, including (without limitation) claims for salary, bonuses, commissions, equity awards (including stock grants, stock options and restricted stock units), vesting acceleration, vacation pay, fringe benefits, severance pay or any other form of compensation.

B-1

(b)The only claims that Executive is not waiving and releasing under this Agreement are claims he may have for (1) unemployment, state disability, worker’s compensation, and/or paid family leave insurance benefits pursuant to the terms of applicable state law; (2) continuation of existing participation in Company-sponsored group health benefit plans under the federal law known as “COBRA” and/or under an applicable state law counterpart(s); (3) any benefits entitlements that are vested and unpaid as of his termination date pursuant to the terms of a Company-sponsored benefit plan; (4) any benefits to which he is entitled pursuant to Sections 7 and Section 12(c) of the Employment Agreement or his rights to indemnification pursuant to Section 14 of the Employment Agreement, (5) violation of any federal state or local statutory and/or public policy right or entitlement that, by applicable law, is not waivable; and (6) any wrongful act or omission occurring after the date he executes this Agreement. In addition, nothing in this Agreement prevents or prohibits Executive from filing a claim with the Equal Employment Opportunity Commission (EEOC) or any other government agency that is responsible for enforcing a law on behalf of the government and deems such claims not waivable. However, because Executive is hereby waiving and releasing all claims “for monetary damages and any other form of personal relief” (per Section 2(a) above), he may only seek and receive non-personal forms of relief from the EEOC and similar government agencies.

(c)Executive represents that he has not filed any complaints, charges, claims, grievances, or lawsuits against the Company and/or any related persons with any local, state or federal agency or court, or with any other forum.

(d)Executive acknowledges that he may discover facts different from or in addition to those he now knows or believes to be true with respect to the claims, demands, causes of action, obligations, damages, and liabilities of any nature whatsoever that are the subject of this Agreement, and he expressly agrees to assume the risk of the possible discovery of additional or different facts, and agrees that this Agreement shall be and remain in effect in all respects regardless of such additional or different facts. Executive expressly acknowledges that this Agreement is intended to include, and does include in its effect, without limitation, all claims which Executive does not know or suspect to exist in his favor against the Company and/or any related persons at the moment of execution thereof, and that this Agreement expressly contemplates extinguishing all such claims.

(e)Executive understands and agrees that the Company has no obligation to provide him with any severance benefits under the Employment Agreement unless he executes this Agreement. Executive also understands that he has received or will receive, regardless of the execution of this Agreement, all wages owed to him, together with any accrued but unpaid vacation pay, less applicable withholdings and deductions, earned through the Termination Date.

(f)This Agreement is binding on Executive, his heirs, legal representatives and assigns.

3.Entire Agreement. This Agreement and the Employment Agreement constitute the entire understanding and agreement between Executive and the Company in connection with the matters described, and replaces and cancels all previous agreements and commitments, whether spoken or written, with respect to such matters. Nothing in this Agreement supersedes or replaces any of Executive’s obligations under his Employment Agreement that survive termination, including, but not limited to (i) his (and the Company’s) agreement to arbitrate disputes, (ii) his restrictive covenants under Section 9 of the Employment Agreement and (iii) his obligations under Section 8 of the Employment Agreement, his existing Proprietary Information Inventions Agreement with the Company and any other obligations not to use or disclose Company confidential and/or proprietary information.

B-2

4.Modification in Writing. No oral agreement, statement, promise, commitment or representation shall alter or terminate the provisions of this Agreement. This Agreement cannot be changed or modified except by written agreement signed by Executive and authorized representatives of the Company.

5.Governing Law; Jurisdiction. This Agreement shall be governed by and enforced in accordance with the laws of the State of Arizona.

6.Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

7.No Admission of Liability. This Agreement does not constitute an admission of any unlawful discriminatory acts or liability of any kind by the Company or anyone acting under their supervision or on their behalf. This Agreement may not be used or introduced as evidence in any legal proceeding, except to enforce or challenge its terms.

8.Acknowledgements. Executive is advised to consult with an attorney of his choice prior to executing this Agreement. By signing below, Executive acknowledges and certifies that he:

(a)has read and understands all of the terms of this Agreement and is not relying on any representations or statements, written or oral, not set forth in this Agreement;

(b)has been provided a consideration period of twenty-one calendar days within which to decide whether he will execute this Agreement and that no one hurried him into executing this Agreement;

(c)is signing this Agreement knowingly and voluntarily; and

(d)has the right to revoke this Agreement within seven (7) days after signing it, by providing written notice of revocation via certified mail to the Company to the address specified in the Employment Agreement. Executive’s written notice of revocation must be postmarked on or before the end of the eighth (8th) calendar day after he has timely signed this Agreement. This deadline will be extended to the next business day should it fall on a Saturday, Sunday or holiday recognized by the U.S. Postal Service.

Because of the revocation period, the Company’s obligations under this Agreement shall not become effective or enforceable until the eighth (8th) calendar day after the date Executive signs this Agreement provided he has delivered it to the Company without modification and not revoked it (the “Effective Date”).

I HAVE READ, UNDERSTAND AND VOLUNTARILY ACCEPT AND AGREE TO THE ABOVE TERMS

GREGORY W. CAPPELLI    

______________________________         Date:________________________, 20____

B-3

EX-21

Exhibit 21

Subsidiaries of Apollo Education Group, Inc.
Entity	Jurisdiction of Incorporation or Formation
Apollo Development Corp.	Arizona
Apollo Global, Inc.	Delaware
Apollo Group China, LLC	Arizona
Apollo Investments, Inc.	Arizona
Apollo NB Holding Company	Arizona
Aptimus, Inc.	Washington
The College for Financial Planning Institutes Corporation	Arizona
The University of Phoenix, Inc.	Arizona
Apollo Education Services, LLC	Delaware
Carnegie Learning, Inc.	Pennsylvania
Apollo Lightspeed LLC	Delaware
Apollo Education Ventures, LLC	Delaware

Subsidiaries of College for Financial Planning Institutes Corporation
Entity	Jurisdiction of Incorporation or Formation
College for Financial Planning, Inc.	Arizona

Subsidiaries of Apollo Global, Inc.
Entity	Jurisdiction of Incorporation or Formation
Western International University, Inc	Arizona, USA
Apollo Global Dutch GP, LLC	Delaware, USA
Helios International (Netherlands) C.V.	Netherlands

Subsidiaries of Helios International (Netherlands) C.V.
Entity	Jurisdiction of Incorporation or Formation
Coöperatieve Apollo Global Netherlands U.A.	Netherlands
Apollo Global Dutch Coop, LLC	Delaware, USA

Subsidiaries of Coöperatieve Apollo Global Netherlands U.A.
Entity	Jurisdiction of Incorporation or Formation
Apollo Global Chile, S.A.	Chile
Apollo Global Mexico, S. de R.L. de C.V.	Mexico
Apollo Global Singapore Holdings Pte. Ltd.	Singapore
Apollo UK Acquisition Company Limited	United Kingdom
Encosolve Proprietary Limited1	South Africa
MBS Education Investments Proprietary Limited2	South Africa
Apollo Global Asia-Pacific Pty Ltd	Australia

Subsidiaries of Apollo Global Singapore Holdings Pte. Ltd.
Entity	Jurisdiction of Incorporation or Formation
India Education Services Pte Ltd.3	India

______________________________

¹ CoöperatieveApollo Global Netherlands holds 24.5% of Encosolve Proprietary Limited.

² Coöperatieve Apollo Global Netherlands holds 74.9% of MBS Education Investments Proprietary Limited and Encosolve Proprietary Limited holds 25.1% of MBS Education Investments Proprietary Limited.

³ Apollo Global Singapore Holdings Pte. Ltd. holds 50% of India Education Services Pte. Ltd.

Subsidiaries of Apollo UK Acquisition Company Limited
Entity	Jurisdiction of Incorporation or Formation
BPP Holdings Limited	United Kingdom

Subsidiaries of Apollo Global Chile, S.A.
Entity	Jurisdiction of Incorporation or Formation
Apollo Chile Comunicaciones, Limitada	Chile
Universidad de Artes, Ciencias y Comunicación4	Chile
Instituto Superior de Artes y Ciencias de la Comunicación S.A. (“I.A.C.C”)	Chile
Sociedad de Transportes Trans-Guil Limitada (“Trans-Guil”)	Chile

Subsidiaries of Apollo Global Mexico, S. de R.L. de C.V.
Entity	Jurisdiction of Incorporation or Formation
Apollo Global Mexico Sub, S. de R.L. de C.V.	Mexico

Subsidiaries of Apollo Global Mexico Sub, S. de R.L. de C.V.
Entity	Jurisdiction of Incorporation or Formation
Universidad Latinoamericana, S.C. (“ULA”)	Mexico

Subsidiaries of BPP Holdings Limited
Entity	Jurisdiction of Incorporation or Formation
BPP Services Limited	United Kingdom
BPP University Limited	United Kingdom
BPP Dublin Limited	Ireland
BPP International Limited	United Kingdom
BPP Actuarial Education Limited5	United Kingdom
BPP China Limited	Hong Kong
BPP Offshore Group Limited	Jersey

______________________________

⁴ UNIACC is a non-profit entity; its members are I.A.C.C. and Apollo Global Chile, S.A.

⁵ BPP Holdings Limited holds 91.63% of BPP Actuarial Education Limited.

Subsidiaries of BPP Services Limited
Entity	Jurisdiction of Incorporation or Formation
BPP Learning Media Limited	United Kingdom
BPP Professional Education Limited	United Kingdom

Subsidiaries of BPP Actuarial Education Limited
Entity	Jurisdiction of Incorporation or Formation
BPP Professional Education, Inc.	Delaware, USA
Actuarial Education Company Limited	United Kingdom

Subsidiaries of BPP Dublin Limited
Entity	Jurisdiction of Incorporation or Formation
BPP Publishing (Ireland) Limited	Ireland

Subsidiaries of BPP Offshore Group Limited
Entity	Jurisdiction of Incorporation or Formation
BPP (CI) Limited	Jersey

Subsidiaries of BPP International Limited
Entity	Jurisdiction of Incorporation or Formation
BPP Professional Education EOOD	Bulgaria
BPP Ceska Republica SRO	Czech Republic
BPP International Investments Limited	United Kingdom
BPP Professional Education SP Z.O.O.	Poland
Business Training Romania SRL	Romania

Subsidiaries of MBS Education Investments Proprietary Limited
Entity	Jurisdiction of Incorporation or Formation
Milpark Education Proprietary Limited	South Africa

Subsidiaries of Apollo Global Asia-Pacific Pty Ltd.
Entity	Jurisdiction of Incorporation or Formation
Open Colleges Australia Pty Ltd.6	Australia

Subsidiaries of Open Colleges Australia Pty Ltd.
Entity	Jurisdiction of Incorporation or Formation
Open Colleges Pty Ltd	Australia
College of Fashion Design Pty Ltd	Australia
Integrated Care & Management Training Pty Ltd.	Australia

______________________________

⁶Apollo Global Asia-Pacific Pty Ltd. Holds 70% of Open Colleges Australia Pty Ltd.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-160301, 333-149933, 333-147151, 333-144129, 333-46834, 33-63429, and 333-180355 on Form S-8 of our reports dated October 21, 2014, relating to the consolidated financial statements of Apollo Education Group, Inc. and subsidiaries and the effectiveness of Apollo Education Group, Inc. and subsidiaries’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of Apollo Education Group, Inc. for the year ended August 31, 2014.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

October 21, 2014

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory W. Cappelli, certify that:

1. I have reviewed this Form 10-K of Apollo Education Group, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 21, 2014

/s/ Gregory W. Cappelli  

Gregory W. Cappelli 

Chief Executive Officer and Director

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Brian L. Swartz, certify that:

1. I have reviewed this Form 10-K of Apollo Education Group, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 21, 2014

/s/ Brian L. Swartz

Brian L. Swartz

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

EX-32.1

EXHIBIT 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

In connection with the Annual Report of Apollo Education Group, Inc. (the “Company”) on Form 10-K for the year ended August 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory W. Cappelli, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 21, 2014

/s/ Gregory W. Cappelli  

Gregory W. Cappelli 

Chief Executive Officer and Director

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Apollo Education Group, Inc. and will be retained by Apollo Education Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 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

In connection with the Annual Report of Apollo Education Group, Inc. (the “Company”) on Form 10-K for the year ended August 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian L. Swartz, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 21, 2014

/s/ Brian L. Swartz  

Brian L. Swartz 

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to Apollo Education Group, Inc. and will be retained by Apollo Education Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Income Taxes (Tables)

12 Months Ended

Aug. 31, 2014

Income Tax Disclosure [Abstract]

Pretax income by geographical source

Geographic sources of income (loss) from continuing operations before income taxes are as follows for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
United States	$	384,146		$	468,738		$	727,965
Foreign	(51,406		)	(38,771		)	(61,679		)
Income from continuing operations before income taxes	$	332,740		$	429,967		$	666,286

Income tax (expense) benefit

Income tax (expense) benefit consists of the following for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Current:
U.S. Federal	$	(114,997	)	$	(174,020	)	$	(212,113	)
State and local	(17,664		)	(30,250		)	(46,676		)
Foreign	(2,575		)	(1,704		)	(2,140		)
Total current	(135,236		)	(205,974		)	(260,929		)
Deferred:
U.S. Federal	(3,154		)	20,420			(28,999		)
State and local	240			3,132			(1,039		)
Foreign	16,826			5,965			8,188
Total deferred	13,912			29,517			(21,850		)
Provision for income taxes	$	(121,324	)	$	(176,457	)	$	(282,779	)

Income tax rate reconciliation

The provision for income taxes differs from the tax computed using the statutory U.S. federal income tax rate as a result of the following items for the respective periods:

	Year Ended August 31,
	2014		2013		2012
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	4.8	%	4.3	%	4.2	%
Foreign taxes	0.9	%	2.2	%	1.4	%
Goodwill impairments	—	%	—	%	0.9	%
Internal Revenue Service settlement	(3.1	)%	—	%	—	%
Mexico tax reform	(0.8	)%	—	%	—	%
Contingent consideration	1.0	%	—	%	—	%
Other, net	(1.3	)%	(0.5	)%	0.9	%
Effective income tax rate	36.5	%	41.0	%	42.4	%

Deferred tax assets and liabilities

Deferred tax assets and liabilities consist of the following as of August 31:

($ in thousands)	2014			2013
Deferred tax assets:
Allowance for doubtful accounts	$	13,100		$	16,479
Leasing transactions	74,528			86,946
Net operating loss carry-forward	16,938			25,055
Share-based compensation	23,796			35,123
Deferred revenue	18,539			4,698
Other	62,436			47,231
Gross deferred tax assets	209,337			215,532
Valuation allowance	(21,048		)	(17,998		)
Deferred tax assets, net of valuation allowance	188,289			197,534
Deferred tax liabilities:
Fixed assets	36,149			42,485
Intangibles	47,344			35,109
Other	6,264			7,929
Gross deferred tax liabilities	89,757			85,523
Net deferred income taxes	$	98,532		$	112,011

Unrecognized tax benefits

The following summarizes the activity in our unrecognized tax benefits, excluding interest and penalties, for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Beginning unrecognized tax benefits	$	44,057		$	32,207		$	25,811
Increases for tax positions taken in the current year	—			13,095			7,708
Increases for tax positions taken in prior years	2,214			5,953			813
Decreases for settlements with tax authorities	(7,184		)	(197		)	(733		)
Decreases for tax positions of prior years(1)	(10,541		)	(2,635		)	—
Decreases due to lapse of applicable statutes of limitations	(10,148		)	(4,366		)	(1,392		)
Ending unrecognized tax benefits	$	18,398		$	44,057		$	32,207

⁽¹⁾ Fiscal year 2014 includes the $10.2 million tax benefit discussed in Income Tax Audits below.

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Goodwill and Intangibles (Details) (USD $)	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Goodwill [Line Items]
Goodwill beginning balance	$ 103,620,000	$ 103,345,000
Acquisitions	149,883,000
Currency translation adjustment	6,398,000	275,000
Goodwill ending balance	259,901,000	103,620,000	103,345,000
Goodwill net carrying amount [Abstract]
Gross carrying amount	285,976,000	136,093,000
Accumulated impairments	(28,917,000)	(28,917,000)
Foreign currency translation	2,842,000	(3,556,000)
Goodwill	259,901,000	103,620,000	103,345,000
Goodwill and other intangibles impairment	0	0	16,788,000
Intangible assets, net	189,365,000	132,192,000
Future intangible amortization [Abstract]
2015	24,007,000
2016	20,425,000
2017	11,075,000
2018	7,689,000
2019	3,327,000
Thereafter	8,166,000
Total estimated amortization expense	74,689,000
Amortization expense	22,400,000	15,100,000	20,200,000
Finite-lived intangibles weighted-average useful life	5 years 9 months 18 days
University Of Phoenix [Member]
Goodwill [Line Items]
Goodwill beginning balance	71,812,000	71,812,000
Acquisitions	0
Currency translation adjustment	0	0
Goodwill ending balance	71,812,000	71,812,000
Goodwill net carrying amount [Abstract]
Gross carrying amount	71,812,000	71,812,000
Accumulated impairments	0	0
Foreign currency translation	0	0
Goodwill	71,812,000	71,812,000
Goodwill and other intangibles impairment	0
Future intangible amortization [Abstract]
2015	8,478,000
2016	8,478,000
2017	282,000
2018	0
2019	0
Thereafter	0
Total estimated amortization expense	17,238,000
Apollo Global [Member]
Goodwill [Line Items]
Goodwill beginning balance	14,917,000	14,642,000
Acquisitions	149,883,000
Currency translation adjustment	6,398,000	275,000
Goodwill ending balance	171,198,000	14,917,000	14,642,000
Goodwill net carrying amount [Abstract]
Gross carrying amount	177,068,000	27,185,000
Accumulated impairments	(8,712,000)	(8,712,000)
Foreign currency translation	2,842,000	(3,556,000)
Goodwill	171,198,000	14,917,000	14,642,000
Goodwill and other intangibles impairment			16,788,000
Future intangible amortization [Abstract]
2015	14,765,000
2016	11,923,000
2017	10,793,000
2018	7,689,000
2019	3,327,000
Thereafter	8,166,000
Total estimated amortization expense	56,663,000
Ula [Member]
Goodwill net carrying amount [Abstract]
Goodwill and other intangibles impairment	0
Uniacc [Member]
Goodwill [Line Items]
Goodwill beginning balance	0
Goodwill ending balance	0
UNIACC impairment			(11,900,000)
Goodwill net carrying amount [Abstract]
Goodwill	0
Intangible assets impairment			4,900,000
Goodwill and other intangibles impairment	0
Tax benefit on goodwill and intangibles impairment			0
Open Colleges [Member]
Goodwill net carrying amount [Abstract]
Goodwill and other intangibles impairment	0
Bpp [Member]
Goodwill [Line Items]
Goodwill beginning balance	0
Goodwill ending balance	0
Goodwill net carrying amount [Abstract]
Goodwill	0
Goodwill and other intangibles impairment	0
Milpark Education [Member]
Goodwill net carrying amount [Abstract]
Goodwill and other intangibles impairment	0
BPP and UNIACC [Member]
Goodwill net carrying amount [Abstract]
Accumulated impairments	(366,000,000)
Other [Member]
Goodwill [Line Items]
Goodwill beginning balance	16,891,000	16,891,000
Acquisitions	0
Currency translation adjustment	0	0
Goodwill ending balance	16,891,000	16,891,000
Goodwill net carrying amount [Abstract]
Gross carrying amount	37,096,000	37,096,000
Accumulated impairments	(20,205,000)	(20,205,000)
Foreign currency translation	0	0
Goodwill	16,891,000	16,891,000
Future intangible amortization [Abstract]
2015	764,000
2016	24,000
2017	0
2018	0
2019	0
Thereafter	0
Total estimated amortization expense	788,000
Western International University [Member]
Goodwill net carrying amount [Abstract]
Goodwill and other intangibles impairment	0
Carnegie Learning [Member]
Goodwill net carrying amount [Abstract]
Goodwill and other intangibles impairment	0
Cffp [Member]
Goodwill net carrying amount [Abstract]
Goodwill and other intangibles impairment	$ 0

XML

Restructuring and Other Charges (Details) (USD $)	3 Months Ended								12 Months Ended
	Aug. 31, 2014	May 31, 2014	Feb. 28, 2014	Nov. 30, 2013	Aug. 31, 2013	May 31, 2013	Feb. 28, 2013	Nov. 30, 2012	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Restructuring [Line Items]
Restructuring and other charges	$ 23,200,000	$ 14,900,000	$ 15,200,000	$ 32,000,000	$ 67,300,000	$ 61,500,000	$ 44,100,000	$ 24,100,000	$ 85,343,000	$ 197,022,000	$ 38,695,000
Cumulative costs for restructuring activities	343,973,000								343,973,000
Balance	103,083,000				119,801,000				103,083,000	119,801,000	30,433,000
Non-cash adjustments									(7,532,000)	(43,740,000)
Payments									(94,529,000)	(63,914,000)
Balance	103,083,000				119,801,000				103,083,000	119,801,000	30,433,000
Restructuring liability, current	43,339,000				55,191,000				43,339,000	55,191,000
Restructuring gross obligation	170,000,000								170,000,000
Minimum [Member]
Restructuring [Line Items]
Discount rate									3.00%
Maximum [Member]
Restructuring [Line Items]
Discount rate									6.00%
University Of Phoenix [Member]
Restructuring [Line Items]
Restructuring and other charges									61,899,000	158,757,000	20,002,000
Cumulative costs for restructuring activities	263,571,000								263,571,000
Number of facilities									110
University Of Phoenix [Member] | FY13 campus closure [Member]
Restructuring [Line Items]
Number of facilities									115
Apollo Global [Member]
Restructuring [Line Items]
Restructuring and other charges									6,091,000	6,053,000	5,712,000
Cumulative costs for restructuring activities	17,856,000								17,856,000
Other [Member]
Restructuring [Line Items]
Restructuring and other charges									17,353,000	32,212,000	12,981,000
Cumulative costs for restructuring activities	62,546,000								62,546,000
Lease and related costs, net [Member]
Restructuring [Line Items]
Restructuring and other charges									47,279,000	137,263,000	15,981,000
Cumulative costs for restructuring activities	219,590,000								219,590,000
Balance	96,204,000				104,048,000				96,204,000	104,048,000	26,024,000
Non-cash adjustments									(3,251,000)	(31,114,000)
Payments									(51,872,000)	(28,125,000)
Balance	96,204,000				104,048,000				96,204,000	104,048,000	26,024,000
Lease and related costs, net [Member] | University Of Phoenix [Member]
Restructuring [Line Items]
Accelerated depreciation									7,600,000	50,100,000
Lease Abandonment Obligation [Member] | University Of Phoenix [Member]
Restructuring [Line Items]
Cumulative costs for restructuring activities	158,300,000								158,300,000
Severance and other employee separation costs [Member]
Restructuring [Line Items]
Restructuring and other charges									33,215,000	32,690,000	12,887,000
Cumulative costs for restructuring activities	82,638,000								82,638,000
Balance	5,687,000				7,623,000				5,687,000	7,623,000	2,998,000
Non-cash adjustments									(4,281,000)	(405,000)
Payments									(30,870,000)	(27,660,000)
Balance	5,687,000				7,623,000				5,687,000	7,623,000	2,998,000
Other restructuring related costs [Member]
Restructuring [Line Items]
Restructuring and other charges									4,849,000	27,069,000	9,827,000
Cumulative costs for restructuring activities	41,745,000								41,745,000
Balance	1,192,000				8,130,000				1,192,000	8,130,000	1,411,000
Non-cash adjustments									0	(12,221,000)
Payments									(11,787,000)	(8,129,000)
Balance	$ 1,192,000				$ 8,130,000				$ 1,192,000	$ 8,130,000	$ 1,411,000

XML

Segment Reporting (Details) (USD $)	3 Months Ended								12 Months Ended
	Aug. 31, 2014	May 31, 2014	Feb. 28, 2014	Nov. 30, 2013	Aug. 31, 2013	May 31, 2013	Feb. 28, 2013	Nov. 30, 2012	Aug. 31, 2014 Customers	Aug. 31, 2013 Customers	Aug. 31, 2012 Customers
Segment Reporting [Abstract]
Customers accounting for more than 10% of revenue									0	0	0
Segment reporting [Line Items]
Net revenue	$ 709,666,000	$ 793,610,000	$ 672,754,000	$ 848,148,000	$ 836,358,000	$ 937,171,000	$ 821,861,000	$ 1,040,534,000	$ 3,024,178,000	$ 3,635,924,000	$ 4,193,190,000
Operating income	41,990,000	116,324,000	10,296,000	170,361,000	38,550,000	134,797,000	30,118,000	230,927,000	338,971,000	434,392,000	676,368,000
Interest income									2,230,000	1,913,000	1,187,000
Interest expense									(7,914,000)	(8,745,000)	(11,745,000)
Other (loss) income, net									(547,000)	2,407,000	476,000
Income from continuing operations before income taxes									332,740,000	429,967,000	666,286,000
Depreciation and amortization									150,575,000	161,733,000	178,234,000
Capital expenditures									100,666,000	119,348,000	115,187,000
Goodwill and other intangibles impairment									0	0	16,788,000
Litigation credit, net	(800,000)	(4,100,000)	(9,000,000)		1,400,000		6,300,000	16,900,000	(13,900,000)	24,600,000	(4,725,000)
Assets	3,092,935,000				2,997,947,000				3,092,935,000	2,997,947,000	2,868,322,000
University Of Phoenix [Member]
Segment reporting [Line Items]
Net revenue									2,632,949,000	3,304,464,000	3,873,098,000
Operating income									488,217,000	579,670,000	846,840,000
Depreciation and amortization									35,261,000	53,562,000	64,643,000
Capital expenditures									8,280,000	6,992,000	20,133,000
Goodwill and other intangibles impairment									0
Assets	824,895,000				790,537,000				824,895,000	790,537,000	901,180,000
Number of facilities									110
University Of Phoenix [Member] | Lease and related costs, net [Member]
Segment reporting [Line Items]
Accelerated depreciation									7,600,000	50,100,000
Apollo Global [Member]
Segment reporting [Line Items]
Net revenue									338,008,000	275,768,000	269,541,000
Operating income									(74,189,000)	(59,936,000)	(66,964,000)
Depreciation and amortization									38,168,000	25,982,000	24,297,000
Capital expenditures									22,231,000	33,627,000	36,523,000
Foreign indirect taxes charge credit net									(11,000,000)
Goodwill and other intangibles impairment											16,788,000
Assets	680,363,000				359,903,000				680,363,000	359,903,000	376,071,000
Other [Member]
Segment reporting [Line Items]
Net revenue									53,221,000	55,692,000	50,551,000
Operating income									(75,057,000)	(85,342,000)	(103,508,000)
Depreciation and amortization									77,146,000	82,189,000	89,294,000
Capital expenditures									70,155,000	78,729,000	58,531,000
Litigation credit, net									(13,900,000)	23,200,000
Assets	$ 1,587,677,000				$ 1,847,507,000				$ 1,587,677,000	$ 1,847,507,000	$ 1,591,071,000

XML

Goodwill and Intangibles (Details 2) (USD $) In Thousands, unless otherwise specified	Aug. 31, 2014	Aug. 31, 2013
Intangible Assets [Line Items]
Gross carrying amount	$ 250,798	$ 183,302
Accumulated amortization	(62,026)	(43,106)
Intangible Assets Translation Adjustments	593	(8,004)
Intangible assets, net	189,365	132,192
Finite-Lived Intangible Assets [Member]
Intangible Assets [Line Items]
Gross carrying amount	135,754	75,306
Accumulated amortization	(62,026)	(43,106)
Intangible Assets Translation Adjustments	961	(2,140)
Intangible assets, net	74,689	30,060
Finite-Lived Intangible Assets [Member] | Software and technology [Member]
Intangible Assets [Line Items]
Gross carrying amount	42,389	42,389
Accumulated amortization	(25,151)	(16,673)
Intangible Assets Translation Adjustments	0	0
Intangible assets, net	17,238	25,716
Finite-Lived Intangible Assets [Member] | Accreditations and designations [Member]
Intangible Assets [Line Items]
Gross carrying amount	21,628	0
Accumulated amortization	(3,015)	0
Intangible Assets Translation Adjustments	1,000	0
Intangible assets, net	19,613	0
Finite-Lived Intangible Assets [Member] | Trademarks [Member]
Intangible Assets [Line Items]
Gross carrying amount	17,919	0
Accumulated amortization	(1,238)	0
Intangible Assets Translation Adjustments	907	0
Intangible assets, net	17,588	0
Finite-Lived Intangible Assets [Member] | Curriculum [Member]
Intangible Assets [Line Items]
Gross carrying amount	16,993	0
Accumulated amortization	(2,933)	0
Intangible Assets Translation Adjustments	826	0
Intangible assets, net	14,886	0
Finite-Lived Intangible Assets [Member] | Student and customer relationships [Member]
Intangible Assets [Line Items]
Gross carrying amount	15,934	12,026
Accumulated amortization	(9,780)	(7,727)
Intangible Assets Translation Adjustments	(1,161)	(1,363)
Intangible assets, net	4,993	2,936
Finite-Lived Intangible Assets [Member] | Other [Member]
Intangible Assets [Line Items]
Gross carrying amount	20,891	20,891
Accumulated amortization	(19,909)	(18,706)
Intangible Assets Translation Adjustments	(611)	(777)
Intangible assets, net	371	1,408
Indefinite-lived Intangible Assets [Member]
Intangible Assets [Line Items]
Gross carrying amount	115,044	107,996
Accumulated amortization	0	0
Intangible Assets Translation Adjustments	(368)	(5,864)
Intangible assets, net	114,676	102,132
Indefinite-lived Intangible Assets [Member] | Accreditations and designations [Member]
Intangible Assets [Line Items]
Gross carrying amount	8,530	7,260
Accumulated amortization	0	0
Intangible Assets Translation Adjustments	(300)	(517)
Intangible assets, net	8,230	6,743
Indefinite-lived Intangible Assets [Member] | Trademarks [Member]
Intangible Assets [Line Items]
Gross carrying amount	106,514	100,736
Accumulated amortization	0	0
Intangible Assets Translation Adjustments	(68)	(5,347)
Intangible assets, net	$ 106,446	$ 95,389

XML

Nature of Operations and Significant Accounting Policies (Details) (USD $)	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012	Aug. 31, 2011
Significant Accounting Policies [Line Items]
Long-lived asset impairments		$ 20,400,000
Employee tuition benefits	32,300,000	53,400,000	71,100,000
Finite-lived intangibles weighted-average useful life	5 years 9 months 18 days
Weighted average fair value	$ 10.24	$ 5.84	$ 14.10
Expected volatility	44.30%	44.40%	46.60%
Expected term	4 years 5 months 24 days	3 years 4 months 24 days	4 years 3 months 18 days
Risk-free interest rate	1.40%	0.70%	0.60%
Dividend yield	0.00%	0.00%	0.00%
Unrecognized tax benefits	18,398,000	44,057,000	32,207,000	25,811,000
Foreign currency (loss) gain, net	(957,000)	(220,000)	497,000
Restructuring Charges [Member]
Significant Accounting Policies [Line Items]
Long-lived asset impairments		$ 12,200,000
Minimum [Member]
Significant Accounting Policies [Line Items]
Property and equipment useful life	3 years
Maximum [Member]
Significant Accounting Policies [Line Items]
Percentage completion of course with refund eligibility	60.00%
Property and equipment useful life	40 years
Tuition And Educational Services Revenue [Member]
Significant Accounting Policies [Line Items]
Percent of total gross consolidated revenue before discounts	92.00%
Educational Materials Revenue [Member]
Significant Accounting Policies [Line Items]
Percent of total gross consolidated revenue before discounts	7.00%
Other Revenue [Member]
Significant Accounting Policies [Line Items]
Percent of total gross consolidated revenue before discounts	1.00%

XML

Accounts Receivable, Net (Tables)

12 Months Ended

Aug. 31, 2014

Receivables [Abstract]

Accounts receivable, net

Accounts receivable, net consist of the following as of August 31:

($ in thousands)	2014			2013
Student accounts receivable	$	255,134		$	243,660
Less allowance for doubtful accounts	(50,145		)	(59,744		)
Net student accounts receivable	204,989			183,916
Other receivables	20,409			31,485
Total accounts receivable, net	$	225,398		$	215,401

Allowance for doubtful accounts

The following summarizes the activity in allowance for doubtful accounts for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Beginning allowance for doubtful accounts	$	59,744		$	107,230		$	128,897
Provision for uncollectible accounts receivable	53,819			83,798			146,742
Write-offs, net of recoveries	(63,418		)	(131,284		)	(168,409		)
Ending allowance for doubtful accounts	$	50,145		$	59,744		$	107,230

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Accrued and Other Liabilities (Details) (USD $)	Aug. 31, 2014	Aug. 31, 2013
Salaries, wages and benefits	$ 125,165,000	$ 135,553,000
Restructuring obligations	43,339,000	55,191,000
Accrued advertising	33,853,000	45,850,000
Accrued legal and other professional obligations	33,651,000	31,310,000
Student refunds, grants and scholarships	20,072,000	7,180,000
Deferred rent and other lease liabilities	12,384,000	14,001,000
Curriculum materials	12,069,000	10,764,000
Other	47,835,000	46,857,000
Total accrued and other current liabilities	363,607,000	346,706,000
Other Long Term Liabilities [Abstract]
Restructuring obligations	59,744,000	64,610,000
Deferred rent and other lease liabilities	57,788,000	67,641,000
Deferred Revenue	51,831,000	21,080,000
Deferred gains on sale-leasebacks	21,641,000	22,894,000
Uncertain tax positions	9,770,000	33,637,000
Other	33,168,000	23,580,000
Total other long-term liabilities	233,942,000	233,442,000
Current Portion [Member]
Contingent consideration		0
Open Colleges [Member] | Current Portion [Member]
Contingent consideration	$ 35,239,000

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Segment Reporting (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Aug. 31, 2014	May 31, 2014	Feb. 28, 2014	Nov. 30, 2013	Aug. 31, 2013	May 31, 2013	Feb. 28, 2013	Nov. 30, 2012	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenue	$ 709,666	$ 793,610	$ 672,754	$ 848,148	$ 836,358	$ 937,171	$ 821,861	$ 1,040,534	$ 3,024,178	$ 3,635,924	$ 4,193,190
Long-lived assets	884,999				708,426				884,999	708,426	824,008
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenue									2,686,571	3,360,316	3,923,649
Long-lived assets	430,641				472,811				430,641	472,811	580,457
United Kingdom [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenue									229,508	205,662	198,408
Long-lived assets	172,485				169,371				172,485	169,371	174,229
Australia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	191,393				0				191,393	0	0
Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenue									108,099	69,946	71,133
Long-lived assets	$ 90,480				$ 66,244				$ 90,480	$ 66,244	$ 69,322

XML

Segment Reporting

12 Months Ended

Aug. 31, 2014

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

We operate in the education industry and our reportable segments have been determined based on the method by which our chief operating decision maker evaluates performance and allocates resources. Our operating segments are presented in the following reportable segments:

• University of Phoenix;

• Apollo Global; and

• Other.

University of Phoenix is composed of eight colleges and offers undergraduate and graduate degrees in a wide range of program areas including business, education and nursing. The University’s students attend classes online and at 110 ground campus locations throughout the U.S. and Puerto Rico. The majority of students attend classes exclusively online. In addition, the University offers a range of non-degree education programs for lifelong learners and students interested in developing skills and knowledge to improve their prospects of employment in their field of choice or advancement within their existing careers.

Apollo Global includes:

• BPP Holdings Limited (“BPP”), which is headquartered in London, England and offers professional training and exam preparation programs in a variety of areas and qualification training, undergraduate and graduate degrees through BPP University, which principally includes BPP Law School and BPP Business School;

• Open Colleges Australia Pty Ltd (“Open Colleges”), which is headquartered in Sydney, Australia and offers nationally recognized and government approved certificates, diplomas and other qualifications in a diverse range of disciplines and industries, including health and wellness, business management and services, and community services;

• Universidad Latinoamericana (“ULA”), which is headquartered in Mexico City, Mexico and offers graduate and undergraduate degrees, high school and executive education in a variety of program areas and disciplines;

• Milpark Education (Pty) Ltd. (“Milpark Education”), which is headquartered in Cape Town, South Africa and offers postsecondary education, including undergraduate and graduate degrees primarily in business, and non-degree programs;

• Apollo Global Chile S.A. (“Apollo Global Chile”), which includes Universidad de Artes, Ciencias y Comunicación (“UNIACC”) and Instituto Superior de las Artes y Comunicaciones (“IACC”). UNIACC offers undergraduate and graduate degree programs in a variety of program areas principally at its campus in Santiago, Chile. IACC primarily offers degree and non-degree programs that are delivered online;

• India Education Services Private Ltd (“India Education Services”), which is a joint venture that offers non-degree management and business programs delivered in a mix of online and on-ground teaching; and

• Apollo Global corporate operations.

Apollo Global acquired Open Colleges and Milpark Education during the second and third quarters of fiscal year 2014, respectively. The operating results of Open Colleges and Milpark Education are included in our Apollo Global operating segment from the date of each respective acquisition. Refer to Note 4, Acquisitions.

Other includes:

• Western International University, Inc., which offers undergraduate and graduate degrees in a variety of program areas, including business, information technology and behavioral science;

• The College for Financial Planning Institutes Corporation (“College for Financial Planning”), which provides online financial services education programs, including graduate degrees in three majors, certificate programs, Financial Industry Regulatory Authority securities license training, and continuing education courses.

• Carnegie Learning, Inc. publishes innovative, research-based math curricula and adaptive learning software for middle school and high school students;

• Apollo Lightspeed, which is focused on developing innovative educational offerings and services that enable motivated learners to acquire in-demand job skills via non-degree learning solutions; and

• Apollo Corporate activities.

During the fourth quarter of fiscal year 2014, we sold the assets of IPD and began presenting it as discontinued operations. IPD was previously included in Other in our segment reporting. As IPD’s operating results are presented as discontinued operations on our Consolidated Statements of Income for all periods presented, we have revised our financial information by segment to exclude IPD’s operating results.

Management evaluates performance based on reportable segment profit. This measure of profit includes allocating corporate support costs to each segment as part of transfer pricing arrangements and/or a general allocation, but excludes taxes, interest income and expense, and certain revenue and unallocated corporate charges. At the discretion of management, certain corporate costs are not allocated to the subsidiaries due to their designation as special charges because of their infrequency of occurrence, the non-cash nature of the expense and/or the determination that the allocation of these costs to the subsidiaries will not result in an appropriate measure of the subsidiaries’ results.

No individual customer accounted for more than 10% of our consolidated net revenue in fiscal years 2014, 2013 and 2012.

A summary of financial information by reportable segment is as follows:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Net revenue:
University of Phoenix	$	2,632,949		$	3,304,464		$	3,873,098
Apollo Global	338,008			275,768			269,541
Other	53,221			55,692			50,551
Net revenue	$	3,024,178		$	3,635,924		$	4,193,190
Operating income (loss)(1):
University of Phoenix	$	488,217		$	579,670		$	846,840
Apollo Global(2)	(74,189		)	(59,936		)	(66,964		)
Other(3)	(75,057		)	(85,342		)	(103,508		)
Operating income	338,971			434,392			676,368
Reconciling items:
Interest income	2,230			1,913			1,187
Interest expense	(7,914		)	(8,745		)	(11,745		)
Other (loss) income, net	(547		)	2,407			476
Income from continuing operations before income taxes	$	332,740		$	429,967		$	666,286
Depreciation and amortization(4):
University of Phoenix(4)	$	35,261		$	53,562		$	64,643
Apollo Global	38,168			25,982			24,297
Other	77,146			82,189			89,294
Depreciation and amortization(4)	$	150,575		$	161,733		$	178,234
Capital expenditures:
University of Phoenix	$	8,280		$	6,992		$	20,133
Apollo Global	22,231			33,627			36,523
Other	70,155			78,729			58,531
Capital expenditures	$	100,666		$	119,348		$	115,187

⁽¹⁾ University of Phoenix, Apollo Global and Other include charges associated with our restructuring activities. Refer to Note 2, Restructuring and Other Charges.

⁽²⁾ The operating loss for Apollo Global in fiscal year 2014 includes contingent consideration charges and acquisition costs. Refer to Note 4, Acquisitions, and Note 9, Fair Value Measurements. The operating loss also includes the reversal of approximately $11 million of foreign indirect taxes following resolution with the taxing authority. These taxes were originally assessed in fiscal year 2013. The operating loss in fiscal year 2012 includes goodwill and other intangibles impairment charges of $16.8 million. Refer to Note 8, Goodwill and Intangibles.

⁽³⁾ The operating loss for Other in fiscal year 2014 includes $13.9 million of charges associated with our legal matters. The operating loss in fiscal year 2013 includes credits of $23.2 million associated with our legal matters.

⁽⁴⁾ Depreciation and amortization in fiscal years 2014 and 2013 excludes $7.6 million and $50.1 million, respectively, of accelerated depreciation associated with our restructuring activities. Refer to Note 2, Restructuring and Other Charges.

A summary of our consolidated assets by reportable segment is as follows:

	As of August 31,
($ in thousands)	2014		2013		2012
University of Phoenix	$	824,895	$	790,537	$	901,180
Apollo Global	680,363		359,903		376,071
Other(1)	1,587,677		1,847,507		1,591,071
Total assets	$	3,092,935	$	2,997,947	$	2,868,322

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

A summary of financial information by geographical area based on country of domicile for our respective operating locations is as follows:

	Year Ended August 31,
($ in thousands)	2014		2013		2012
Net revenue:
United States	$	2,686,571	$	3,360,316	$	3,923,649
United Kingdom	229,508		205,662		198,408
Other	108,099		69,946		71,133
Net revenue	$	3,024,178	$	3,635,924	$	4,193,190

	As of August 31,
($ in thousands)	2014		2013		2012
Long-lived assets(1):
United States	$	430,641	$	472,811	$	580,457
United Kingdom	172,485		169,371		174,229
Australia	191,393		—		—
Other	90,480		66,244		69,322
Long-lived assets	$	884,999	$	708,426	$	824,008

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

XML

Acquisitions (Details)	12 Months Ended				0 Months Ended					1 Months Ended		1 Months Ended			1 Months Ended		12 Months Ended			1 Months Ended		1 Months Ended		1 Months Ended		1 Months Ended		1 Months Ended			2 Months Ended	3 Months Ended		3 Months Ended	12 Months Ended
	Aug. 31, 2014 USD ($)	Aug. 31, 2013 USD ($)	Aug. 31, 2012 USD ($)	Aug. 31, 2013 Current Portion [Member] USD ($)	May 31, 2014 Milpark Education [Member] USD ($)	May 31, 2014 Milpark Education [Member] ZAR	May 20, 2014 Milpark Education [Member] USD ($)	May 20, 2014 Milpark Education [Member] Designations [Member] USD ($)	May 20, 2014 Milpark Education [Member] Trademarks [Member] USD ($)	May 31, 2014 Milpark Education [Member] Curriculum [Member]	May 20, 2014 Milpark Education [Member] Curriculum [Member] USD ($)	May 31, 2014 Milpark Education [Member] Customer relationships [Member]	May 20, 2014 Milpark Education [Member] Customer relationships [Member] USD ($)	May 20, 2014 Milpark Education [Member] Accreditation [Member] USD ($)	Dec. 31, 2013 Open Colleges [Member] USD ($)	Dec. 31, 2013 Open Colleges [Member] AUD	Aug. 31, 2014 Open Colleges [Member] USD ($)	Dec. 20, 2013 Open Colleges [Member] USD ($)	Dec. 20, 2013 Open Colleges [Member] AUD	Dec. 31, 2013 Open Colleges [Member] Designations [Member]	Dec. 20, 2013 Open Colleges [Member] Designations [Member] USD ($)	Dec. 31, 2013 Open Colleges [Member] Trademarks [Member]	Dec. 20, 2013 Open Colleges [Member] Trademarks [Member] USD ($)	Dec. 31, 2013 Open Colleges [Member] Curriculum [Member]	Dec. 20, 2013 Open Colleges [Member] Curriculum [Member] USD ($)	Dec. 31, 2013 Open Colleges [Member] Customer relationships [Member]	Dec. 20, 2013 Open Colleges [Member] Customer relationships [Member] USD ($)	Dec. 31, 2013 Open Colleges [Member] Accreditation [Member]	Dec. 20, 2013 Open Colleges [Member] Accreditation [Member] USD ($)	Aug. 31, 2014 Open Colleges [Member] Current Portion [Member] USD ($)	Oct. 20, 2014 Open Colleges [Member] Subsequent Event [Member] AUD	Nov. 30, 2011 Carnegie Learning Aquisition [Member] USD ($)	Sep. 12, 2011 Carnegie Learning Aquisition [Member] USD ($)	Nov. 30, 2011 Carnegie Mellon Technology Aquisition [Member] USD ($)	Aug. 31, 2014 Carnegie Mellon Technology Aquisition [Member] Other [Member]
Purchase price allocation [Line Items]
Percentage of shares acquired							81.00%											70.00%	70.00%
Initial cash payment					$ 26,000,000	265,000,000									$ 98,100,000	110,300,000
Contingent consideration maximum																	49,000,000		52,500,000.0
Fair value of contingent consideration					0										(21,371,000)		(21,371,000)
Contingent consideration paid																															37,800,000
Contingent consideration				0																										35,239,000
Transaction costs							700,000											3,600,000
Net working capital deficit							(307,000)											(10,979,000)
Property and equipment							518,000											2,684,000
Finite-lived intangibles								0			1,203,000		2,149,000								20,652,000		17,919,000		15,790,000		5,238,000		976,000				37,000,000
Finite-lived intangible assets, useful life	5 years 9 months 18 days									2 years		2 years 6 months 11 days								5 years		10 years		4 years		1 year		4 years
Finite-lived Intangible Assets Acquired																																14,400,000
Indefinite-lived intangibles									5,778,000					1,270,000																			14,100,000
Tangible assets (net of acquired liabilities)																																	(10,894,000)
Goodwill	259,901,000	103,620,000	103,345,000				22,227,000											127,656,000															34,794,000
Deferred taxes, net							(2,818,000)											(9,279,000)
Total assets acquired and liabilities assumed							30,020,000											170,657,000															75,000,000
Fair value of redeemable noncontrolling interests							(2,669,000)											(51,197,000)
Fair value of consideration transferred							27,351,000											119,460,000
Less: Cash acquired							(2,834,000)											(3,152,000)															(1,264,000)
Cash paid for acquisition, net of cash acquired	119,454,000	0	73,736,000		24,517,000										94,937,000																	73,736,000
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life					2 years 3 months 18 days	2 years 3 months 18 days									5 years 10 months 24 days	5 years 10 months 24 days																5 years
Assumed liabilities							6,000,000											33,000,000
Debt term																																			10 years
Amount payable for acquired technology																																		$ 21,500,000

XML

Stock and Savings Plans (Tables)

12 Months Ended

Aug. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of restricted stock units and performance share awards activity

The following provides a summary of activity for our restricted stock units and PSAs (granted PSAs are assumed to convert into shares of our Class A common stock at the target level):

	Restricted Stock Units				Performance Share Awards(1)
	Number of Shares (in thousands)		Weighted Average Grant Date Fair Value		Number of Shares (in thousands)		Weighted Average Grant Date Fair Value
Nonvested at August 31, 2011	2,932		$	45.78	260		$	45.74
Granted	1,692		36.81		145		37.50
Vested and released	(905	)	46.97		—		—
Forfeited	(193	)	47.12		(6	)	44.89
Nonvested at August 31, 2012	3,526		$	41.10	399		$	42.76
Granted	2,301		20.10		47		19.80
Vested and released	(1,334	)	42.25		—		—
Forfeited	(527	)	39.99		(81	)	37.45
Nonvested at August 31, 2013	3,966		$	28.68	365		$	40.97
Granted	2,022		26.71		41		26.63
Vested and released	(1,353	)	33.38		—		—
Forfeited	(592	)	26.15		(93	)	38.35
Nonvested at August 31, 2014	4,043		$	26.49	313		$	39.88

⁽¹⁾ The vesting of PSAs is subject to the achievement of the specified performance goals and the number of common shares that will ultimately be issued is calculated by multiplying the number of performance shares by a payout percentage that generally ranges from 0% up to 300%.

Summary of stock options

The following provides a summary of our stock option activity:

	Options Outstanding
	Number of Shares (in thousands)		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($)(1) (in thousands)
Balance at August 31, 2011	9,276		$	57.18
Granted	176		36.89
Exercised	(157	)	43.57
Forfeited, canceled or expired	(736	)	58.53
Balance at August 31, 2012	8,559		$	56.90
Granted	945		17.95
Exercised	—		—
Forfeited, canceled or expired	(5,381	)	57.69
Balance at August 31, 2013	4,123		$	46.94
Granted	713		26.70
Exercised	(5	)	19.62
Forfeited, canceled or expired	(1,327	)	60.07
Balance at August 31, 2014	3,504		$	37.89	3.06	$	9,926
Vested and expected to vest as of August 31, 2014	3,398		$	38.29	2.99	$	9,581
Exercisable as of August 31, 2014	2,186		$	45.74	1.98	$	4,585
Available for future grant as of August 31, 2014	5,361

⁽¹⁾ Aggregate intrinsic value represents the sum of the differences between our closing stock price of $27.77 on August 31, 2014 and the exercise prices of all of our options with an exercise price less than $27.77.

Stock options by exercise price range

The following summarizes information related to outstanding and exercisable options at August 31, 2014:

	Outstanding				Exercisable
Range of Exercise Prices	Number of Shares (in thousands)	Weighted Average Contractual Life Remaining (Years)	Weighted Average Exercise Price per Share		Number of Shares (in thousands)	Weighted Average Exercise Price per Share
$16.75	600	2.53	$	16.75	360	$	16.75
$19.62 to $25.79	361	4.91	$	20.54	81	$	20.11
$26.74	682	5.95	$	26.74	—	$	—
$33.12 to $42.27	778	2.27	$	40.29	699	$	40.57
$42.41 to $63.79	613	1.87	$	53.10	576	$	53.46
$65.26 to $91.20	468	1.01	$	70.08	468	$	70.08
$169.47	2	0.66	$	169.47	2	$	169.47
	3,504				2,186

Information related to options exercised

The following summarizes information related to stock options exercised during the respective periods:

	Year Ended August 31,
($ in thousands)	2014		2013		2012
Intrinsic value realized	$	79	$	—	$	1,498
Actual tax benefit realized by Apollo for tax deductions	$	30	$	—	$	573
Cash received by Apollo	$	101	$	—	$	6,754

Share-based compensation expense

The following details share-based compensation expense for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Instructional and student advisory	$	10,727		$	20,060		$	27,731
Marketing	3,702			5,182			6,807
Admissions advisory	813			849			1,691
General and administrative	23,296			21,363			41,153
Restructuring and other charges	4,281			2,008			1,323
Share-based compensation expense	42,819			49,462			78,705
Tax effect of share-based compensation	(16,754		)	(18,986		)	(29,874		)
Share-based compensation expense, net of tax	$	26,065		$	30,476		$	48,831

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Accrued and Other Liabilities (Tables)

12 Months Ended

Aug. 31, 2014

Payables and Accruals [Abstract]

Accrued and other current liabilities

Accrued and other current liabilities consist of the following as of August 31:

($ in thousands)	2014		2013
Salaries, wages and benefits	$	125,165	$	135,553
Restructuring obligations	43,339		55,191
Contingent consideration	35,239		—
Accrued advertising	33,853		45,850
Accrued legal and other professional obligations	33,651		31,310
Student refunds, grants and scholarships	20,072		7,180
Deferred rent and other lease liabilities	12,384		14,001
Curriculum materials	12,069		10,764
Other	47,835		46,857
Total accrued and other current liabilities	$	363,607	$	346,706

Other long-term liabilities

Other long-term liabilities consist of the following as of August 31:

($ in thousands)	2014		2013
Restructuring obligations	$	59,744	$	64,610
Deferred rent and other lease liabilities	57,788		67,641
Deferred revenue	51,831		21,080
Deferred gains on sale-leasebacks	21,641		22,894
Uncertain tax positions	9,770		33,637
Other	33,168		23,580
Total other long-term liabilities	$	233,942	$	233,442

XML

Accounts Receivable, Net (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Accounts receivable, net [Abstract]
Student accounts receivable	$ 255,134	$ 243,660
Less allowance for doubtful accounts	(50,145)	(59,744)	(107,230)
Net student accounts receivable	204,989	183,916
Other receivables	20,409	31,485
Total accounts receivable, net	225,398	215,401
Allowance for doubtful accounts [Abstract]
Allowance for doubtful accounts	59,744	107,230	128,897
Provision for uncollectible accounts receivable	53,819	83,798	146,742
Write-offs, net of recoveries	(63,418)	(131,284)	(168,409)
Allowance for doubtful accounts	$ 50,145	$ 59,744	$ 107,230

XML

Commitments and Contingencies (Details) (USD $)	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Future minimum lease commitments [Abstract]
2015 Operating Leases	$ 171,875,000
2016 Operating Leases	149,902,000
2017 Operating Leases	123,289,000
2018 Operating Leases	103,134,000
2019 Operating Leases	74,871,000
Thereafter Operating Leases	296,334,000
2015 Capital Leases	17,963,000
2016 Capital Leases	10,957,000
2017 Capital Leases	4,093,000
2018 Capital Leases	947,000
2019 Capital Leases	330,000
Thereafter Capital Leases	611,000
Future minimum lease obligation	34,901,000
Future minimum lease obligation	919,405,000
Imputed interest on capital leases	(2,095,000)
Net present value of lease obligations	32,806,000
Restructuring [Line Items]
Future contractual lease payments	919,405,000
Noncancelable sublease rental income	25,700,000
Rent expense	144,900,000	184,600,000	207,500,000
Deferred gains on sale leasebacks	23,100,000	25,700,000
Sale leaseback gains recognized	2,000,000	2,800,000	2,800,000
Glendale, Arizona Sports Complex naming and sponsorship rights	5,800,000.0
Annual percentage increase for naming and sponsorship rights	3.00%
Remaining contractual obligation	101,400,000
Outstanding surety bonds	36,000,000
Letters of credit outstanding	24,000,000	14,000,000
Leased Facilities Abandoned [Member]
Future minimum lease commitments [Abstract]
Future minimum lease obligation	163,000,000
Restructuring [Line Items]
Future contractual lease payments	163,000,000
Leased Facilities We Expect to Abandon [Member]
Future minimum lease commitments [Abstract]
Future minimum lease obligation	6,000,000
Restructuring [Line Items]
Future contractual lease payments	$ 6,000,000

XML

Shareholders' Equity and Redeemable Noncontrolling Interests (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Aug. 31, 2014	May 31, 2014	Feb. 28, 2014	Nov. 30, 2013	Aug. 31, 2013	May 31, 2013	Feb. 28, 2013	Nov. 30, 2012	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Net income attributable to Apollo	$ 29,783	$ 66,025	$ 14,605	$ 98,891	$ 21,551	$ 79,953	$ 13,527	$ 133,495	$ 209,304	$ 248,526	$ 422,678
Purchase of noncontrolling interest									(893)	(48,500)
Change from net income attributable to Apollo and transfer to noncontrolling interest									209,304	199,983	422,678
Additional paid-in capital [Member]
Purchase of noncontrolling interest									$ 0	$ (48,543)	$ 0

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Nature of Operations and Significant Accounting Policies (Details 2) (USD $) In Thousands, unless otherwise specified	Aug. 31, 2014	Aug. 31, 2013
Intangible Assets [Line Items]
Intangible assets, net	$ 189,365	$ 132,192
Finite-Lived Intangible Assets [Member]
Intangible Assets [Line Items]
Intangible assets, net	$ 74,689	$ 30,060

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Restructuring and Other Charges

12 Months Ended

Aug. 31, 2014

Restructuring and Related Activities [Abstract]

Restructuring and Other Charges

Restructuring and Other Charges

The U.S. higher education industry is experiencing unprecedented, rapidly developing changes that challenge many of the core principles underlying the industry. We are reengineering and simplifying our business processes and refining our educational delivery systems to improve the effectiveness of our services to students, and reducing the size of our services infrastructure and associated operating expenses to align with our reduced enrollment and revenue. We have incurred restructuring and other charges associated with these activities beginning in fiscal year 2011 as summarized below:

	Year Ended August 31,						Cumulative Costs as of August 31, 2014
($ in thousands)	2014		2013		2012
Lease and related costs, net	$	47,279	$	137,263	$	15,981	$	219,590
Severance and other employee separation costs	33,215		32,690		12,887		82,638
Other restructuring related costs	4,849		27,069		9,827		41,745
Restructuring and other charges	$	85,343	$	197,022	$	38,695	$	343,973

The following summarizes the restructuring and other charges in our segment reporting format:

	Year Ended August 31,						Cumulative Costs as of August 31, 2014
($ in thousands)	2014		2013		2012
University of Phoenix	$	61,899	$	158,757	$	20,002	$	263,571
Apollo Global	6,091		6,053		5,712		17,856
Other	17,353		32,212		12,981		62,546
Restructuring and other charges	$	85,343	$	197,022	$	38,695	$	343,973

The following details the changes in our restructuring liabilities by type of cost during fiscal years 2014 and 2013:

($ in thousands)	Lease and Related Costs, Net			Severance and Other Employee Separation Costs			Other Restructuring Related Costs			Total
Balance at August 31, 2012	$	26,024		$	2,998		$	1,411		$	30,433
Restructuring and other charges	137,263			32,690			27,069			197,022
Other(1)	(31,114		)	(405		)	(12,221		)	(43,740		)
Payments	(28,125		)	(27,660		)	(8,129		)	(63,914		)
Balance at August 31, 2013(2)	104,048			7,623			8,130			119,801
Restructuring and other charges	47,279			33,215			4,849			85,343
Other(1)	(3,251		)	(4,281		)	—			(7,532		)
Payments	(51,872		)	(30,870		)	(11,787		)	(94,529		)
Balance at August 31, 2014(2)	$	96,204		$	5,687		$	1,192		$	103,083

⁽¹⁾ Other for lease and related costs, net represents $7.6 million and $50.1 million of accelerated depreciation in fiscal years 2014 and 2013, respectively, partially offset by the release of certain associated liabilities such as deferred rent. Other for severance and other employee separation costs primarily represents share-based compensation.

⁽²⁾ The current portion of our restructuring liabilities was $43.3 million and $55.2 million as of August 31, 2014 and 2013, respectively. These balances are included in accrued and other current liabilities on our Consolidated Balance Sheets and the long-term portion is included in other long-term liabilities. The gross, undiscounted obligation associated with our restructuring liabilities as of August 31, 2014 was approximately $170 million, which principally represents non-cancelable leases that will be paid over the respective lease terms through fiscal year 2023.

• Lease and Related Costs, Net - Beginning in fiscal year 2011, University of Phoenix began rationalizing its administrative real estate facilities. In addition to continuing to rationalize its administrative facilities, University of Phoenix began closing 115 of its ground locations during fiscal year 2013. After these closures, the University operates 110 ground campus locations throughout the U.S. and Puerto Rico. However, the University continues to evaluate the extent, functionality and location of its ground facilities because of the rapidly evolving and transformational changes in higher education.

As of August 31, 2014, University of Phoenix has closed the substantial majority of the total square feet included in the above plan and has recorded $158.3 million of initial aggregate charges representing the estimated fair value of future contractual operating lease obligations. These charges were recorded in the periods we ceased using the respective facilities. 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%-6% 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 and subleases we 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 August 31, 2014, we have recorded adjustments to our initial lease obligation liabilities for interest accretion and immaterial adjustments for changes in estimated sublease income.

Lease and related costs, net also includes $7.6 million and $50.1 million of accelerated depreciation during fiscal years 2014 and 2013, respectively, associated with revising the useful lives of the fixed assets at the facilities we are closing through their expected closure dates. Prior to revising the useful lives, we perform a recoverability analysis for the facilities’ fixed assets by comparing the estimated undiscounted cash flows of the locations through their expected closure dates to the carrying amount of the locations’ fixed assets. Based on such analyses, we recorded no impairment charges during fiscal year 2014 and immaterial impairment charges during fiscal year 2013.

• Severance and Other Employee Separation Costs -Beginning in fiscal year 2011 and continuing through fiscal year 2014, we have implemented workforce reductions as we reengineer and simplify our business processes, refine our educational delivery systems and reduce our operating costs to align with our reduced enrollment and revenue. We incurred severance and other employee separation costs of $33.2 million, $32.7 million and $12.9 million in fiscal years 2014, 2013 and 2012, respectively. These costs are included in the reportable segments in which the respective personnel were employed.

• Other Restructuring Related Costs - We incurred other restructuring related costs that principally include services from a consulting firm associated with our restructuring activities and fixed asset impairment charges related to software and equipment we are no longer using. The majority of our other restructuring related costs are included in “Other” in our segment reporting because they pertain to all areas of our business.

Because University of Phoenix has closed the substantial majority of the total square feet included in the above plan as of August 31, 2014, we do not expect to incur material charges related to the remaining square feet to be vacated under the above plan. However, we will incur interest accretion associated with the lease obligations in future periods, and we may incur material charges associated with future restructuring activities as we intend to continue our efforts to streamline operations and improve efficiency.

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Shareholders' Equity and Redeemable Noncontrolling Interests (Details 3)	May 20, 2014 Milpark Education [Member]	Dec. 20, 2013 Open Colleges [Member]
Business Acquisition [Line Items]
Percentage of shares acquired	81.00%	70.00%

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Commitments and Contingencies (Tables)

12 Months Ended

Aug. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Operating lease commitments

The following details our future minimum commitments for operating and capital leases as of August 31, 2014:

($ in thousands)	Capital Leases			Operating Leases(1)
2015	$	17,963		$	171,875
2016	10,957			149,902
2017	4,093			123,289
2018	947			103,134
2019	330			74,871
Thereafter	611			296,334
Total future minimum lease obligation(1), (2)	$	34,901		$	919,405
Less: imputed interest on capital leases	(2,095		)
Net present value of capital lease obligations	$	32,806

⁽¹⁾ The total future minimum lease obligation excludes non-cancelable sublease rental income of $25.7 million.

⁽²⁾ We have initiated restructuring activities that include ceasing use of a significant number of our operating leases. Refer to Note 2, Restructuring and Other Charges. The total future minimum operating lease obligation includes approximately $163 million of future contractual lease payments associated with locations for which we no longer expect to receive an economic benefit. The total future minimum operating lease obligation also includes approximately $6 million of future contractual lease payments associated with locations that we expect to close as University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations.

Capital lease commitments

The following details our future minimum commitments for operating and capital leases as of August 31, 2014:

($ in thousands)	Capital Leases			Operating Leases(1)
2015	$	17,963		$	171,875
2016	10,957			149,902
2017	4,093			123,289
2018	947			103,134
2019	330			74,871
Thereafter	611			296,334
Total future minimum lease obligation(1), (2)	$	34,901		$	919,405
Less: imputed interest on capital leases	(2,095		)
Net present value of capital lease obligations	$	32,806

⁽¹⁾ The total future minimum lease obligation excludes non-cancelable sublease rental income of $25.7 million.

⁽²⁾ We have initiated restructuring activities that include ceasing use of a significant number of our operating leases. Refer to Note 2, Restructuring and Other Charges. The total future minimum operating lease obligation includes approximately $163 million of future contractual lease payments associated with locations for which we no longer expect to receive an economic benefit. The total future minimum operating lease obligation also includes approximately $6 million of future contractual lease payments associated with locations that we expect to close as University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations.

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Restructuring and Other Charges (Tables)

12 Months Ended

Aug. 31, 2014

Restructuring and Related Activities [Abstract]

Restructuring and other charges

We have incurred restructuring and other charges associated with these activities beginning in fiscal year 2011 as summarized below:

	Year Ended August 31,						Cumulative Costs as of August 31, 2014
($ in thousands)	2014		2013		2012
Lease and related costs, net	$	47,279	$	137,263	$	15,981	$	219,590
Severance and other employee separation costs	33,215		32,690		12,887		82,638
Other restructuring related costs	4,849		27,069		9,827		41,745
Restructuring and other charges	$	85,343	$	197,022	$	38,695	$	343,973

The following summarizes the restructuring and other charges in our segment reporting format:

	Year Ended August 31,						Cumulative Costs as of August 31, 2014
($ in thousands)	2014		2013		2012
University of Phoenix	$	61,899	$	158,757	$	20,002	$	263,571
Apollo Global	6,091		6,053		5,712		17,856
Other	17,353		32,212		12,981		62,546
Restructuring and other charges	$	85,343	$	197,022	$	38,695	$	343,973

The following details the changes in our restructuring liabilities by type of cost during fiscal years 2014 and 2013:

($ in thousands)	Lease and Related Costs, Net			Severance and Other Employee Separation Costs			Other Restructuring Related Costs			Total
Balance at August 31, 2012	$	26,024		$	2,998		$	1,411		$	30,433
Restructuring and other charges	137,263			32,690			27,069			197,022
Other(1)	(31,114		)	(405		)	(12,221		)	(43,740		)
Payments	(28,125		)	(27,660		)	(8,129		)	(63,914		)
Balance at August 31, 2013(2)	104,048			7,623			8,130			119,801
Restructuring and other charges	47,279			33,215			4,849			85,343
Other(1)	(3,251		)	(4,281		)	—			(7,532		)
Payments	(51,872		)	(30,870		)	(11,787		)	(94,529		)
Balance at August 31, 2014(2)	$	96,204		$	5,687		$	1,192		$	103,083

⁽¹⁾ Other for lease and related costs, net represents $7.6 million and $50.1 million of accelerated depreciation in fiscal years 2014 and 2013, respectively, partially offset by the release of certain associated liabilities such as deferred rent. Other for severance and other employee separation costs primarily represents share-based compensation.

⁽²⁾ The current portion of our restructuring liabilities was $43.3 million and $55.2 million as of August 31, 2014 and 2013, respectively. These balances are included in accrued and other current liabilities on our Consolidated Balance Sheets and the long-term portion is included in other long-term liabilities. The gross, undiscounted obligation associated with our restructuring liabilities as of August 31, 2014 was approximately $170 million, which principally represents non-cancelable leases that will be paid over the respective lease terms through fiscal year 2023.

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Nature of Operations and Significant Accounting Policies (Tables)

12 Months Ended

Aug. 31, 2014

Accounting Policies [Abstract]

Stock option valuation assumptions

The following represents our key weighted average assumptions for stock options granted in the respective fiscal years:

	Year Ended August 31,
	2014			2013			2012
Weighted average fair value	$	10.24		$	5.84		$	14.10
Expected volatility	44.3		%	44.4		%	46.6		%
Expected term	4.5			3.4			4.3
Risk-free interest rate	1.4		%	0.7		%	0.6		%
Dividend yield	0.0		%	0.0		%	0.0		%

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Fair Value Measurements (Details)	3 Months Ended								12 Months Ended			1 Months Ended	12 Months Ended	2 Months Ended							12 Months Ended
	Aug. 31, 2014 USD ($)	May 31, 2014 USD ($)	Feb. 28, 2014 USD ($)	Nov. 30, 2013 USD ($)	Aug. 31, 2013 USD ($)	May 31, 2013 USD ($)	Feb. 28, 2013 USD ($)	Nov. 30, 2012 USD ($)	Aug. 31, 2014 USD ($)	Aug. 31, 2013 USD ($)	Aug. 31, 2012 USD ($)	Dec. 31, 2013 Open Colleges [Member] USD ($)	Aug. 31, 2014 Open Colleges [Member] USD ($)	Oct. 20, 2014 Open Colleges [Member] Subsequent Event [Member] AUD	Aug. 31, 2013 Current Portion [Member] USD ($)	Aug. 31, 2014 Current Portion [Member] Open Colleges [Member] USD ($)	Aug. 31, 2014 Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2014 Recurring Fair Value Measurement [Member] Noncontrolling Interest in Apollo Global [Member] USD ($)	Nov. 30, 2012 Recurring Fair Value Measurement [Member] Noncontrolling Interest in Apollo Global [Member] USD ($)	Aug. 31, 2014 Nonrecurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Nonrecurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2014 Level 1 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Level 1 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2014 Level 1 [Member] Nonrecurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Level 1 [Member] Nonrecurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2014 Level 2 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Level 2 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2014 Level 2 [Member] Nonrecurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Level 2 [Member] Nonrecurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2014 Level 3 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Level 3 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2012 Level 3 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2014 Level 3 [Member] Nonrecurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Level 3 [Member] Nonrecurring Fair Value Measurement [Member] USD ($)
Assets and liabilities measured on a recurring and nonrecurring basis [Line Items]
Contingent consideration															$ 0	$ 35,239,000	$ 41,893,000	$ 5,277,000	$ 6,700,000	$ 6,000,000			$ 0	$ 0			$ 0	$ 0			$ 41,893,000	$ 5,277,000	$ 0
Balance															0	35,239,000	41,893,000	5,277,000	6,700,000	6,000,000			0	0			0	0			41,893,000	5,277,000	0
Initial contingent consideration at fair value												21,371,000	21,371,000
Contingent consideration paid														37,800,000
Initial contingent consideration at fair value										6,000,000
Change in fair value included in net income									13,907,000	(723,000)
Currency translation adjustment									1,338,000	0
Balance															0	35,239,000	41,893,000	5,277,000	6,700,000	6,000,000			0	0			0	0			41,893,000	5,277,000	0
Initial lease obligations																					34,701,000	92,151,000			0	0			0	0				34,701,000	92,151,000
Losses for period	$ 23,200,000	$ 14,900,000	$ 15,200,000	$ 32,000,000	$ 67,300,000	$ 61,500,000	$ 44,100,000	$ 24,100,000	$ 85,343,000	$ 197,022,000	$ 38,695,000										$ 34,701,000	$ 92,151,000

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Segment Reporting (Tables)

12 Months Ended

Aug. 31, 2014

Segment Reporting [Abstract]

Segment reporting information

A summary of financial information by reportable segment is as follows:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Net revenue:
University of Phoenix	$	2,632,949		$	3,304,464		$	3,873,098
Apollo Global	338,008			275,768			269,541
Other	53,221			55,692			50,551
Net revenue	$	3,024,178		$	3,635,924		$	4,193,190
Operating income (loss)(1):
University of Phoenix	$	488,217		$	579,670		$	846,840
Apollo Global(2)	(74,189		)	(59,936		)	(66,964		)
Other(3)	(75,057		)	(85,342		)	(103,508		)
Operating income	338,971			434,392			676,368
Reconciling items:
Interest income	2,230			1,913			1,187
Interest expense	(7,914		)	(8,745		)	(11,745		)
Other (loss) income, net	(547		)	2,407			476
Income from continuing operations before income taxes	$	332,740		$	429,967		$	666,286
Depreciation and amortization(4):
University of Phoenix(4)	$	35,261		$	53,562		$	64,643
Apollo Global	38,168			25,982			24,297
Other	77,146			82,189			89,294
Depreciation and amortization(4)	$	150,575		$	161,733		$	178,234
Capital expenditures:
University of Phoenix	$	8,280		$	6,992		$	20,133
Apollo Global	22,231			33,627			36,523
Other	70,155			78,729			58,531
Capital expenditures	$	100,666		$	119,348		$	115,187

⁽¹⁾ University of Phoenix, Apollo Global and Other include charges associated with our restructuring activities. Refer to Note 2, Restructuring and Other Charges.

⁽²⁾ The operating loss for Apollo Global in fiscal year 2014 includes contingent consideration charges and acquisition costs. Refer to Note 4, Acquisitions, and Note 9, Fair Value Measurements. The operating loss also includes the reversal of approximately $11 million of foreign indirect taxes following resolution with the taxing authority. These taxes were originally assessed in fiscal year 2013. The operating loss in fiscal year 2012 includes goodwill and other intangibles impairment charges of $16.8 million. Refer to Note 8, Goodwill and Intangibles.

⁽³⁾ The operating loss for Other in fiscal year 2014 includes $13.9 million of charges associated with our legal matters. The operating loss in fiscal year 2013 includes credits of $23.2 million associated with our legal matters.

⁽⁴⁾ Depreciation and amortization in fiscal years 2014 and 2013 excludes $7.6 million and $50.1 million, respectively, of accelerated depreciation associated with our restructuring activities. Refer to Note 2, Restructuring and Other Charges.

A summary of our consolidated assets by reportable segment is as follows:

	As of August 31,
($ in thousands)	2014		2013		2012
University of Phoenix	$	824,895	$	790,537	$	901,180
Apollo Global	680,363		359,903		376,071
Other(1)	1,587,677		1,847,507		1,591,071
Total assets	$	3,092,935	$	2,997,947	$	2,868,322

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

Revenue by geographical area

A summary of financial information by geographical area based on country of domicile for our respective operating locations is as follows:

	Year Ended August 31,
($ in thousands)	2014		2013		2012
Net revenue:
United States	$	2,686,571	$	3,360,316	$	3,923,649
United Kingdom	229,508		205,662		198,408
Other	108,099		69,946		71,133
Net revenue	$	3,024,178	$	3,635,924	$	4,193,190

Long-lived assets by geographical area

	As of August 31,
($ in thousands)	2014		2013		2012
Long-lived assets(1):
United States	$	430,641	$	472,811	$	580,457
United Kingdom	172,485		169,371		174,229
Australia	191,393		—		—
Other	90,480		66,244		69,322
Long-lived assets	$	884,999	$	708,426	$	824,008

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

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Discontinued Operations (Tables)

12 Months Ended

Aug. 31, 2014

Discontinued Operations and Disposal Groups [Abstract]

Discontinued operations

The following summarizes the operating results for our discontinued operations for the respective periods, which are presented in (loss) income from discontinued operations, net of tax on our Consolidated Statements of Income:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Net revenue	$	22,901		$	45,386		$	84,356
Gain on sale	809			—			26,678
Costs and other	(35,163		)	(52,364		)	(74,772		)
(Loss) income from discontinued operations before income taxes	(11,453		)	(6,978		)	36,262
Benefit from (provision for) income taxes(1)	4,835			2,433			(2,763		)
(Loss) income from discontinued operations, net of tax	(6,618		)	(4,545		)	33,499
Income from discontinued operations, net of tax, attributable to noncontrolling interests(2)	—			—			(4,871		)
(Loss) income from discontinued operations, net of tax, attributable to Apollo	$	(6,618	)	$	(4,545	)	$	28,628

⁽¹⁾ There was no tax expense associated with the gain on sale of MPW as discussed above.

⁽²⁾ The noncontrolling interest represents the portion of MPW’s operating results attributable to Apollo Global’s former noncontrolling shareholder.

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Acquisitions (Tables)

12 Months Ended

Aug. 31, 2014

Open Colleges [Member]

Purchase price allocation [Line Items]

Purchase price allocation

We accounted for the acquisitions as business combinations and allocated the purchase price to the assets acquired and liabilities assumed at fair value as summarized below:

	Milpark Education				Open Colleges
	Purchase Price Allocation ($ in thousands)			Weighted Average Useful Life (Years)	Purchase Price Allocation ($ in thousands)			Weighted Average Useful Life (Years)
Net working capital deficit(1)	$	(307	)		$	(10,979	)
Property and equipment	518				2,684
Intangibles:
Course designations	—				20,652			5.0
Trademarks	5,778			Indefinite	17,919			10.0
Course curriculum	1,203			2.0	15,790			4.0
Customer relationships	2,149			2.5	5,238			1.0
Accreditation	1,270			Indefinite	976			4.0
Goodwill	22,227				127,656
Deferred taxes, net(1)	(2,818		)		(9,279		)
Total assets acquired and liabilities assumed	30,020				170,657
Less: Fair value of redeemable noncontrolling interests	(2,669		)		(51,197		)
Total fair value of consideration transferred	27,351				119,460
Less: Fair value of contingent consideration	—				(21,371		)
Less: Cash acquired	(2,834		)		(3,152		)
Cash paid for acquisition, net of cash acquired	$	24,517			$	94,937

⁽¹⁾ Net working capital deficit and deferred taxes, net include approximately $6 million and $33 million of assumed liabilities related to the Milpark Education and Open Colleges acquisitions, respectively.

Milpark Education [Member]

Purchase price allocation [Line Items]

Purchase price allocation

We accounted for the acquisitions as business combinations and allocated the purchase price to the assets acquired and liabilities assumed at fair value as summarized below:

	Milpark Education				Open Colleges
	Purchase Price Allocation ($ in thousands)			Weighted Average Useful Life (Years)	Purchase Price Allocation ($ in thousands)			Weighted Average Useful Life (Years)
Net working capital deficit(1)	$	(307	)		$	(10,979	)
Property and equipment	518				2,684
Intangibles:
Course designations	—				20,652			5.0
Trademarks	5,778			Indefinite	17,919			10.0
Course curriculum	1,203			2.0	15,790			4.0
Customer relationships	2,149			2.5	5,238			1.0
Accreditation	1,270			Indefinite	976			4.0
Goodwill	22,227				127,656
Deferred taxes, net(1)	(2,818		)		(9,279		)
Total assets acquired and liabilities assumed	30,020				170,657
Less: Fair value of redeemable noncontrolling interests	(2,669		)		(51,197		)
Total fair value of consideration transferred	27,351				119,460
Less: Fair value of contingent consideration	—				(21,371		)
Less: Cash acquired	(2,834		)		(3,152		)
Cash paid for acquisition, net of cash acquired	$	24,517			$	94,937

⁽¹⁾ Net working capital deficit and deferred taxes, net include approximately $6 million and $33 million of assumed liabilities related to the Milpark Education and Open Colleges acquisitions, respectively.

Carnegie Learning Aquisition [Member]

Purchase price allocation [Line Items]

Purchase price allocation

The acquisition purchase price allocation is summarized below:

($ in thousands)
Tangible assets (net of acquired liabilities)	$	(10,894	)
Finite-lived intangibles	37,000
Indefinite-lived intangibles	14,100
Goodwill	34,794
Allocated purchase price	75,000
Less: Cash acquired	(1,264		)
Acquisition, net of cash acquired	$	73,736

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Nature of Operations and Significant Accounting Policies

12 Months Ended

Aug. 31, 2014

Accounting Policies [Abstract]

Nature of Operations and Significant Accounting Policies

Nature of Operations and Significant Accounting Policies

Apollo Education Group, Inc. is one of the world’s largest private education services providers, serving students since 1973. Through our subsidiaries, we offer undergraduate, graduate, professional development and other non-degree educational programs and services, online and on-campus, principally to working learners in the U.S. and abroad. Refer to Note 18, Segment Reporting, for further information regarding our education platforms.

During fiscal year 2014, Apollo changed its name from Apollo Group, Inc. to Apollo Education Group, Inc.

Our fiscal year is from September 1 to August 31. Unless otherwise stated, references to particular years or quarters refer to our fiscal years and the associated quarters of those fiscal years.

Basis of Presentation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions 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. Actual results may differ from these estimates.

Principles of Consolidation

The consolidated 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.

We record noncontrolling interests in our consolidated financial statements to recognize the noncontrolling ownership interest in our consolidated subsidiaries. A portion of the net income (loss) of such subsidiaries is allocated to our noncontrolling interests generally based on the respective noncontrolling shareholder’s ownership interest in the consolidated subsidiary. Depending on the nature of the noncontrolling interest and the associated rights of the noncontrolling shareholders, we present noncontrolling interests either as a component of equity or separately as redeemable noncontrolling interests on our Consolidated Balance Sheets.

For redeemable noncontrolling interests that are either redeemable or probable of becoming redeemable, we record the noncontrolling interests at the greater of the carrying value or the redemption value at the end of each reporting period. We determine the redemption value by assuming the end of each reporting period is the redemption date. Redemption value adjustments are recorded through retained earnings. Refer to Note 13, Shareholders’ Equity and Redeemable Noncontrolling Interests.

Revenue Recognition

Substantially all of our net revenue is composed of tuition and fees from educational programs that range in length from one-day seminars to degree and non-degree programs lasting multiple years. University of Phoenix represents the substantial majority of our total consolidated net revenue and substantially all of the University’s net revenue is generated from degree programs. University of Phoenix students fund their education through loans and/or grants from U.S. federal financial aid programs established by Title IV of the Higher Education Act and regulations promulgated thereunder (“Title IV”), military benefit programs, tuition assistance from their employers, or personal funds.

Our net revenue generally varies from period to period based on several factors, including the aggregate number of students attending educational programs, the number of programs or classes held during the period, and the tuition price per program. We recognize revenue when persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, our fee or price to the customer is fixed or determinable, and collectibility is reasonably assured. The following summarizes the components of our net revenue, which are generally consistent on a percentage basis for all periods presented:

• Tuition and educational services represents approximately 92% of our gross consolidated revenue, and encompasses all educational delivery modalities (i.e., online, on-campus, etc.). We recognize tuition and educational services revenue over the period of instruction as services are delivered to students, which may vary depending on the program structure. Tuition benefits for our employees and their eligible dependents are included in tuition and educational services revenue and instructional and student advisory expenses, and were $32.3 million, $53.4 million and $71.1 million during fiscal years 2014, 2013 and 2012, respectively.

Under University of Phoenix’s non-term academic delivery model, students generally enroll in a program of study encompassing a series of five- to nine-week courses taken consecutively over the length of the program. Students are billed separately for each course when the student first attends a course, resulting in the recording of a receivable from the student and deferred revenue in the amount of the billing. The University generally recognizes revenue evenly over the period of instruction (e.g., five weeks for a five-week course) as services are delivered to the student. For students that participate in the University’s risk-free, three-week program during their first credit-bearing course, the University does not recognize revenue for the risk-free period until students decide to continue beyond the risk-free period, which is when the fees become fixed and determinable. Additionally, the University reassesses collectibility throughout the period revenue is recognized when there are changes in facts or circumstances that indicate collectibility is no longer reasonably assured.

University of Phoenix’s refund policy permits students who attend 60% or less of a course to be eligible for a refund for the portion of the course they did not attend. Accordingly, the University ceases revenue recognition for the remainder of a course if a student withdraws prior to the tuition refund period elapsing, and refunds result in a reduction of deferred revenue in the period that a student withdraws. This refund policy applies to students in most, but not all states, as some states require different policies.

For our Apollo Global operations, tuition revenue is generally recognized over the length of the course and/or program. However, we recognize revenue associated with Open Colleges’ educational offerings over the contract period that students are provided access to complete their online, asynchronous program or the period of time it takes students to complete their program, as applicable. As a result, revenue recognition for Open Colleges’ educational offerings generally extends beyond one year.

• Educational materials represents approximately 7% of our gross consolidated revenue, and encompasses online course materials delivered to students over the period of instruction and the sale of various books, study texts, course notes, and CDs. We recognize revenue associated with online materials over the period of the related course to correspond with delivery of the materials to students. We recognize revenue for the sale of other educational materials when they have been delivered to and accepted by students or other customers.

• Other represents approximately 1% of our gross consolidated revenue, andincludes net revenue generated by Carnegie Learning, fees students pay when submitting an enrollment application and non-tuition generating revenues such as renting classroom space.

• Discounts reflect reductions in charges for tuition or other fees from our standard rates and include military, corporate, and other employer discounts, along with institutional scholarships, grants and promotions. Discounts are generally recognized over the period of instruction in the same manner as the related revenue to which the discount relates.

During fiscal year 2014, we began presenting Institute of Professional Development’s (“IPD”) operating results as discontinued operations. Accordingly, IPD’s net revenue is included in discontinued operations on our Consolidated Statements of Income for all periods presented. IPD’s revenue was generated based on fixed fee contracts with IPD client institutions and was recognized in accordance with the terms of the respective agreements as services were provided.

Sales tax collected from students is excluded from net revenue. Collected but unremitted sales tax is included as a liability on our Consolidated Balance Sheets and is not material to our consolidated financial statements.

Allowance for Doubtful Accounts

We reduce our accounts receivable by an allowance for amounts that we expect to be uncollectible. We use estimates that are subjective and require judgment in determining the allowance for doubtful accounts, and estimates may vary depending on the institution or educational program that generated the accounts receivable. In general, our estimates are based on historical collection experience and write-offs, the aging of our receivables, and current trends. Our accounts receivable are written off once the account is deemed to be uncollectible, which typically occurs after outside collection agencies have pursued collection for approximately six months.

For our Title IV eligible institutions, program participation rules determine if we are required to return a portion of the funds to the U.S. Department of Education when a student with Title IV program loans withdraws. We are then entitled to collect these funds from the students, but collection rates for these types of receivables are significantly lower than our collection rates for receivables from students who remain in our educational programs.

We estimate our allowance for doubtful accounts for University of Phoenix’s receivables using a statistical model that considers a number of factors that we believe impact whether receivables will become uncollectible based on our collections experience. These factors include, but are not limited to, the student’s academic performance and previous college experience as well as other student characteristics such as credit hours earned and method of payment. We also monitor and consider external factors such as changes in the economic and regulatory environment.

We routinely evaluate our estimation methodologies for all our institutions and educational programs for adequacy and modify them as necessary. In doing so, we believe our allowance for doubtful accounts reflects the amount of receivables that will become uncollectible by considering our most recent collections experience, changes in trends and other relevant facts. Refer to Note 6, Accounts Receivable, Net.

Cash and Cash Equivalents

We consider all highly liquid investments with stated maturities of three months or less from the date we purchase the investment to be cash equivalents. Cash and cash equivalents generally include money market funds, bank overnight deposits and time deposits, which are all placed with high-credit-quality financial institutions in the U.S. and internationally. Only a negligible portion of these deposits are insured by the Federal Deposit Insurance Corporation. We have not experienced any losses on our cash and cash equivalents.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents primarily represents funds held for students for unbilled educational services that were received from Title IV program funds. As a trustee of these Title IV program funds, we are required to maintain and restrict these funds pursuant to the terms of our program participation agreement with the U.S. Department of Education. Restricted cash and cash equivalents are excluded from cash and cash equivalents on our Consolidated Balance Sheets and Consolidated Statements of Cash Flows. Changes in restricted cash and cash equivalents that represent funds held for students as described above are included in cash flows from operating activities on our Consolidated Statements of Cash Flows because these restricted funds are a core activity of our operations. Our restricted cash and cash equivalents are primarily held in money market funds.

Marketable Securities

We invest our excess cash in instruments that may include tax-exempt municipal bonds, corporate bonds, time deposits, commercial paper, agency bonds and other marketable securities. We present such instruments with original maturities to us greater than three months as marketable securities on our Consolidated Balance Sheets, and we classify our marketable securities as either current or noncurrent based on each instrument’s contractual maturity. Securities with maturities of twelve months or less are classified as current, and securities with maturities greater than twelve months are classified as noncurrent.

We determine the designation of our marketable securities as held-to-maturity or available-for-sale at the time of purchase and reevaluate such designation at the end of each period. Securities are designated as held-to-maturity if we have intent and ability to hold them until maturity, and such securities are reported at amortized cost. If we do not have the intent or ability to hold securities until maturity, they are designated as available-for-sale. Available-for-sale securities are reported at fair value with changes in fair value reflected in shareholders’ equity as a component of accumulated other comprehensive loss. We determine any realized gains or losses on the sale of marketable securities using the specific identification method, and they are included in other (loss) income, net on our Consolidated Statements of Income. Refer to Note 5, Financial Instruments.

Property and Equipment, Net

Property and equipment is recorded at cost less accumulated depreciation. Property and equipment under capital leases, and the related obligation, is recorded at an amount equal to the present value of future minimum lease payments. Buildings, furniture, equipment, and software, including internally developed software, are depreciated using the straight-line method over the estimated useful lives of the related assets, which range from 3 to 40 years. Capital leases, leasehold improvements and tenant improvement allowances are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the related assets. Construction in progress, excluding software, is recorded at cost until the corresponding asset is placed into service and depreciation begins. Software is recorded at cost and is amortized once the related asset is ready for its intended use. Maintenance and repairs are expensed as incurred.

We capitalize certain internal software development costs consisting primarily of the direct labor associated with creating the internally developed software. Capitalized costs are amortized using the straight-line method over the estimated lives of the software. Software development projects generally include three stages: the preliminary project stage (all costs expensed as incurred), the application development stage (certain costs capitalized, certain costs expensed as incurred), and the post-implementation/operation stage (all costs expensed as incurred). The costs we capitalize in the application development stage primarily include the costs of designing the application, coding, installation of hardware, and testing. Refer to Note 7, Property and Equipment, Net.

Business Combinations

We include the results of operations of businesses we acquire from the date of the respective acquisition. We allocate the purchase price of acquisitions to the assets acquired and liabilities assumed at fair value. The excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed is recorded as goodwill. Transaction costs incurred in connection with business combinations are expensed as incurred.

Goodwill and Intangibles

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. We allocate assets acquired, including goodwill, and liabilities assumed in business combinations to our respective reporting units. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.

Our intangibles principally include trademarks, technology, regulatory accreditations and designations, course curriculum and customer relationships. We assign indefinite lives to intangibles that we believe have the continued ability to generate cash flows indefinitely; have no legal, regulatory, contractual, economic or other factors limiting the useful life of the respective intangible; and we intend to renew the respective intangible, if applicable, and renewal can be accomplished at little cost. Finite-lived intangibles are amortized on either a straight-line basis or using an accelerated method to reflect the pattern in which the economic benefits of the asset are consumed. The weighted average original useful life of our $74.7 million of finite-lived intangibles as of August 31, 2014 was 5.8 years.

We assess goodwill and indefinite-lived intangibles at least annually for impairment or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit or indefinite-lived intangible below its carrying amount. We perform our annual indefinite-lived intangibles impairment tests on the same dates that we perform our annual goodwill impairment tests for the respective reporting units. In performing our impairment tests, we first consider the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or intangible, as applicable, is less than its carrying amount. If we conclude that it is more likely than not that the fair value is less than the carrying amount based on our qualitative assessment, or that a qualitative assessment should not be performed, we proceed with the following quantitative impairment tests:

• Goodwill - We compare the estimated fair value of the reporting unit to the carrying value of its net assets. If the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired. If the carrying value of the net assets of the reporting unit exceeds the fair value of the reporting unit, we perform a hypothetical purchase price allocation to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. An impairment loss is recognized to the extent the implied fair value of the goodwill is less than the carrying amount of the goodwill.

• Indefinite-lived intangibles - We compare the estimated fair value of the intangible with its carrying value. If the carrying value of the intangible exceeds its fair value, an impairment loss is recognized in the amount of that excess.

The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgment at many points during the analysis. If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry and market conditions, our market capitalization, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the most recent fair value analysis for either the reporting unit or respective intangible.

When performing a quantitative goodwill or indefinite-lived intangibles impairment test, we determine fair value using an income-based approach, a market-based approach or a combination of both methods. The fair value determination consists primarily of using unobservable inputs under the fair value measurement standards.

If the critical assumptions used in our impairment testing deteriorate or are otherwise adversely impacted, a lower fair value estimate may result. In particular, the goodwill acquired in our recent acquisitions of Open Colleges and Milpark Education was principally attributable to future earnings potential associated with student growth. If these acquired entities do not achieve our forecasts, the goodwill could be impaired in the future.

Refer toNote 8, Goodwill and Intangibles.

Other Long-Lived Asset Impairments

We evaluate the carrying amount of our other long-lived assets, including property and equipment and finite-lived intangibles, whenever changes in circumstances or events indicate that the value of such assets may not be recoverable. During fiscal year 2013, we recorded $20.4 million of long-lived asset impairments, which includes $12.2 million resulting from our restructuring activities. Refer to Note 2, Restructuring and Other Charges, and Note 7, Property and Equipment, Net.

As of August 31, 2014, we believe the carrying amounts of our remaining other long-lived assets are recoverable and no impairment exists. However, we are continuing to adapt our business to the rapidly developing changes in our industry, and changes to our business or other circumstances could lead to potential impairments in the future.

Leases

We enter into various lease agreements in conducting our business. We evaluate the lease agreement at the inception of the lease to determine whether the lease is an operating or capital lease. Additionally, our lease agreements may contain renewal options, tenant improvement allowances, rent holidays, and/or rent escalation clauses. When such items are included in a lease agreement, we record a deferred rent asset or liability on our Consolidated Balance Sheets and record the rent expense evenly over the term of the lease. Leasehold improvements are reflected under investing activities as purchases of property and equipment on our Consolidated Statements of Cash Flows. Credits received against rent for tenant improvement allowances are reflected as a component of non-cash investing activities on our Consolidated Statements of Cash Flows. For leases with renewal options, we generally record rent expense on a straight-line basis over the initial non-cancelable lease term (in instances where renewal is not reasonably assured). Refer to Note 16, Commitments and Contingencies.

We are also required to make additional payments under lease terms for taxes, insurance, and other operating expenses incurred during the lease period, which are expensed as incurred. Rental deposits are provided for lease agreements that specify payments in advance or deposits held in security that are refundable, less any damages at lease end.

Restructuring and Other Charges

Restructuring and other charges principally consist of non-cancelable lease obligations, severance and other employee separation costs, and other related costs. We recognize restructuring obligations and liabilities for other exit and disposal activities at fair value in the period the liability is incurred. The process of measuring fair value and recognizing the associated liabilities is subjective and requires significant judgment. For our non-cancelable lease obligations, we record the obligation when we terminate the contract in accordance with the contract terms or when we cease using the right conveyed by the contract. Our employee severance costs are expensed on the date we notify the employee, unless the employee must provide future service, in which case the benefits are expensed over the future service period.

We generally estimate the fair value of restructuring obligations using significant unobservable inputs (Level 3) based on the best available information. For non-cancelable lease obligations, the fair value estimate is based on the contractual lease costs over the remaining terms of the leases, partially offset by estimated future sublease rental income. Our estimate of the amount and timing of sublease rental income considers subleases we 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 sublease agreements.

Changes to restructuring obligations in periods subsequent to the initial fair value measurement are not measured at fair value. We record a cumulative adjustment resulting from changes in the estimated timing or amount of cash flows associated with restructuring obligations in the period of change using the same discount rate that was initially used to measure the obligation’s fair value. Changes in restructuring obligations resulting from the passage of time are recorded as accretion expense. The adjustments to restructuring obligations, including accretion expense, are included in restructuring and other charges on our Consolidated Statements of Income. Refer to Note 2, Restructuring and Other Charges.

Loss Contingencies

We are subject to various claims and contingencies including those related to regulation, litigation, business transactions, employee-related matters and taxes, among others. When we become aware of a claim or potential claim, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount of the loss or range of loss can be reasonably estimated, we record a liability for the loss. The liability recorded includes probable and estimable legal costs incurred to date and future legal costs to the point in the legal matter where we believe a conclusion to the matter will be reached. The liability excludes any anticipated loss recoveries from third parties such as insurers, which we record as a receivable if we determine recovery is probable. If the loss is not probable or the amount of the loss or range of loss cannot be reasonably estimated, we disclose the claim if the likelihood of a potential loss is reasonably possible and the amount of the potential loss could be material. For matters where no loss contingency is recorded, we expense legal fees as incurred. The assessment of the likelihood of a potential loss and the estimation of the amount of a loss or range of loss are subjective and require judgment. Refer to Note 16, Commitments and Contingencies.

Share-Based Compensation

Our outstanding share-based awards principally consist of restricted stock units, performance share awards and stock options, and restricted stock units represent the majority of our share-based compensation expense in recent years. We measure and recognize compensation expense for all share-based awards based on their estimated fair values on the grant date. We record compensation expense, net of forfeitures, for all share-based awards over the requisite service period using the straight-line method for awards with only a service condition, and the graded vesting attribution method for awards with service and performance conditions.

For share-based awards with performance conditions, we measure the fair value of such awards as of the grant date and record expense for our estimate of the number of shares expected to vest. Our estimate of the number of shares that will vest is based on our determination of the probable outcome of the performance condition, which may require considerable judgment. We record a cumulative adjustment to share-based compensation expense in periods that we change our estimate of the number of shares expected to vest. Additionally, we ultimately adjust the expense recognized to reflect the actual vested shares following the resolution of the performance conditions.

We estimate expected forfeitures of share-based awards at the grant date and recognize expense only for those awards expected to vest. We estimate our forfeiture rate based on several factors including historical forfeiture activity, expected future employee turnover, and other qualitative factors. We ultimately adjust this forfeiture assumption to actual forfeitures. Therefore, changes in the forfeiture assumptions do not impact the total amount of expense ultimately recognized over the requisite service period. Rather, different forfeiture assumptions only impact the timing of expense recognition over the requisite service period.

We typically use the Black-Scholes-Merton option pricing model to estimate the fair value of stock options. The Black-Scholes-Merton option pricing model requires us to estimate key assumptions based on both historical information and management judgment regarding market factors and trends. The following represents our key weighted average assumptions for stock options granted in the respective fiscal years:

	Year Ended August 31,
	2014			2013			2012
Weighted average fair value	$	10.24		$	5.84		$	14.10
Expected volatility	44.3		%	44.4		%	46.6		%
Expected term	4.5			3.4			4.3
Risk-free interest rate	1.4		%	0.7		%	0.6		%
Dividend yield	0.0		%	0.0		%	0.0		%

We estimate expected volatility based on a weighted average of our historical volatility and the implied volatility of long-lived call options. We estimate the expected term of our stock options based primarily on the vesting period of the awards and historical exercise behavior. For the risk-free interest rate, we use the U.S. constant maturity treasury rates interpolated between the years commensurate with the expected life assumptions. Our dividend yield assumption considers that we have not historically paid dividends and we have no current plan to pay dividends in the near-term.

Income Taxes

We are subject to the income tax laws of the U.S. and the foreign jurisdictions in which we have significant business operations. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. As a result, significant judgments and interpretations are required in determining our provision for income taxes and evaluating our uncertain tax positions.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the new rate is enacted. We record a valuation allowance to reduce deferred tax assets to the amount that we believe is more likely than not to be realized.

We have not provided deferred taxes on unremitted earnings attributable to international subsidiaries that have been considered permanently reinvested. As of August 31, 2014, the earnings from these operations are not significant, but they are expected to increase in the future due to our focus on international expansion, which includes two acquisitions by Apollo Global during fiscal year 2014.

We evaluate and account for uncertain tax positions using a two-step approach. Recognition (step one) occurs when we conclude that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when we subsequently determine that a tax position no longer meets the more likely than not threshold of being sustained. We classify interest and penalties accrued in connection with unrecognized tax benefits as income tax expense on our Consolidated Statements of Income. Our total unrecognized tax benefits, excluding interest and penalties, were $18.4 million and $44.1 million as of August 31, 2014 and 2013, respectively. Refer to Note 12, Income Taxes.

Marketing Costs

We expense marketing costs, the substantial majority of which represents advertising, as incurred.

Earnings per Share

Our outstanding shares consist of Apollo Class A and Class B common stock issued, net of shares held in treasury. 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. Basic income per share is calculated using the weighted average number of Class A and Class B common shares outstanding during the period.

Diluted income per share is calculated similarly except that it includes the dilutive effect of share-based awards under our stock compensation plans by applying the treasury stock method. Our share-based awards with performance conditions are contingently issuable and are included in the calculation of diluted income per share based on our evaluation of the performance criteria as of the end of the respective period. The amount of any tax benefit to be credited to additional paid-in capital related to our share-based awards, and unrecognized share-based compensation expense is included when applying the treasury stock method in the computation of diluted income per share. Refer to Note 14, Earnings Per Share.

Foreign Currency Translation

We use the U.S. dollar as our reporting currency. The functional currency of our entities operating outside the U.S. is the currency of the primary economic environment in which the entity primarily generates and expends cash, which is generally the local currency. The assets and liabilities of these operations are translated to U.S. dollars using exchange rates in effect at the balance sheet dates. Income and expense items are translated monthly at the average exchange rate for that period. The resulting translation adjustments and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are included in shareholders’ equity as a component of accumulated other comprehensive loss, noncontrolling interests or redeemable noncontrolling interests, as applicable. We report gains and losses from foreign exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from foreign currency transactions in other (loss) income, net on our Consolidated Statements of Income. These items represented a net $1.0 million loss, net $0.2 million loss and net $0.5 million gain in fiscal years 2014, 2013 and 2012, respectively.

Fair Value

The carrying amount of financial assets and liabilities reported on our Consolidated Balance Sheets, including accounts receivable and accounts payable, approximate fair value because of the short-term nature of these financial instruments.

For fair value measurements of assets and liabilities that are recognized or disclosed at fair value, we consider fair value to be an exit price, which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. We use valuation techniques to determine fair value consistent with either the market approach, income approach and/or cost approach, and we prioritize the inputs used in our valuation techniques using the following three-tier fair value hierarchy:

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

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

• Level 3 - Unobservable inputs that are supported by little or no market activity.

We categorize each of our fair value measurements for disclosure purposes in one of the above three levels based on the lowest level input that is significant to the fair value measurement in its entirety. In measuring fair value, our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. We use prices and inputs that are current as of the measurement date, including during periods of market volatility. Therefore, classification of inputs within the hierarchy may change from period to period depending upon the observability of those prices and inputs. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the fair value of certain assets and liabilities and their placement within the fair value hierarchy. Refer to Note 9, Fair Value Measurements.

Discontinued Operations

If we determine we will not have significant continuing involvement with components that are classified as held for sale or otherwise sold or disposed, the results of operations of these components are presented separately on our Consolidated Statements of Income as (loss) income from discontinued operations, net of tax, in the current and prior periods. The operating results of our discontinued operations only include revenues and costs directly attributable to discontinued operations. Refer to Note 3, Discontinued Operations.

Reclassifications

We reclassified the following during fiscal year 2014 for prior periods to conform to our current presentation:

• We began presenting share reissuances in the aggregate on our Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interests, which consists of reissuances attributable to our employee stock purchase plan and our equity compensation plans that were previously reported separately;

• We began presenting litigation charge (credit) as a component of the change in accrued and other liabilities on our Consolidated Statements of Cash Flows, which did not impact total cash provided by operating activities; and

• As discussed in Note 3, Discontinued Operations, we began presenting Institute for Professional Development’s operating results as discontinued operations on our Consolidated Statements of Income.

Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”(“ASU 2014-15”). The standard requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter, and early adoption is permitted. We do not expect to early adopt ASU 2014-15, which will be effective for us for our fiscal year ending August 31, 2017, and we do not believe the standard will have a material impact on our 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. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. Accordingly, the standard is effective for us on September 1, 2017 using either a full retrospective or a modified retrospective approach. We are currently evaluating which transition approach to use and the impact that the standard will have on our financial statements.

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. ASU 2014-08 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2014, and early adoption is permitted. We do not expect to early adopt ASU 2014-08, which will be effective for us on September 1, 2015 and will apply to disposals that have not yet been reported in our financial statements as of the adoption date. Accordingly, the standard will not impact our previously reported disposals, and we will evaluate the impact of the standard on any disposals that occur after adoption.

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Financial Instruments (Tables)

12 Months Ended

Aug. 31, 2014

Financial Instruments [Abstract]

Financial instruments

The following summarizes our cash and cash equivalents, restricted cash and cash equivalents and marketable securities by significant financial instrument category as of the respective periods:

	August 31, 2014
($ in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents(1)		Current Marketable Securities(2)		Noncurrent Marketable Securities(2)
Cash	$	1,295,395	$	—	$	—		$	1,295,395	$	1,295,395	$	—	$	—
Level 1:
Money market funds	132,508		—		—			132,508		132,508		—		—
Level 2:
Tax-exempt municipal bonds	106,543		155		(11		)	106,687		—		78,443		28,244
Corporate bonds	106,575		123		(52		)	106,646		—		56,837		49,809
Time deposits	50,100		—		—			50,100		25,041		25,059		—
Commercial paper	11,793		1		—			11,794		—		11,794		—
Other	19,155		1		(1		)	19,155		4		15,339		3,812
Level 3:
Auction-rate securities	5,946		—		—			5,946		—		—		5,946
Total	$	1,728,015	$	280	$	(64	)	$	1,728,231	$	1,452,948	$	187,472	$	87,811

	August 31, 2013
($ in thousands)	Cash and Cash Equivalents(1)		Current Marketable Securities(2)		Noncurrent Marketable Securities(2)		Total Carrying Value		Unrealized Gains		Unrealized Losses			Fair Value
Cash	$	874,074	$	—	$	—	$	874,074	$	—	$	—		$	874,074
Level 1:
Money market funds	732,530		—		—		732,530		—		—			732,530
Level 2:
Tax-exempt municipal bonds	2,055		69,621		24,070		95,746		19		(54		)	95,711
Certificates of deposit	65,000		1,200		—		66,200		—		—			66,200
Corporate bonds	—		24,503		13,925		38,428		6		(40		)	38,394
Commercial paper	—		9,828		—		9,828		—		—			9,828
Other	—		657		—		657		—		—			657
Level 3:
Auction-rate securities	—		—		5,946		5,946
Total	$	1,673,659	$	105,809	$	43,941	$	1,823,409

⁽¹⁾ Cash and cash equivalents includes restricted cash and cash equivalents.

⁽²⁾ As described above, we changed the designation of our marketable securities to available-for-sale as of August 31, 2014 and they are reported at fair value. Our held-to-maturity securities at August 31, 2013 are recorded at amortized cost.

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Shareholders' Equity and Redeemable Noncontrolling Interests (Tables)

12 Months Ended

Aug. 31, 2014

Equity [Abstract]

Share repurchases [Table Text Block]

The following summarizes our share repurchase activity for the respective periods:

	Year Ended August 31,
(In thousands, except per share data)	2014		2013		2012
Share repurchases under share repurchase program:
Number of shares repurchased	5,363		—		19,117
Weighted average purchase price per share	$	29.78	$	—	$	41.82
Cost of share repurchases	$	159,684	$	—	$	799,506
Share repurchases related to vesting of restricted stock units:
Number of shares repurchased	471		475		303
Cost of share repurchases	$	13,025	$	9,537	$	12,407

Number of shares reissued [Table Text Block]

Share reissuances were as follows for the respective periods:

	Year Ended August 31,
(In thousands)	2014	2013	2012
Number of shares reissued	1,431	1,532	1,184

Change from net income attributable to Apollo and transfer to noncontrolling interest

We accounted for the purchase as an equity transaction and the following details net income attributable to Apollo and transfers to noncontrolling interest during the respective periods:

	Year Ended August 31,
($ in thousands)	2014		2013			2012
Net income attributable to Apollo	$	209,304	$	248,526		$	422,678
Transfer to noncontrolling interest:
Decrease in equity for purchase of noncontrolling interest in Apollo Global(1)	—		(48,543		)	—
Change from net income attributable to Apollo and transfer to noncontrolling interest	$	209,304	$	199,983		$	422,678

⁽¹⁾ Represents the difference between the fair value of the consideration paid to purchase the noncontrolling ownership interest in Apollo Global and the carrying amount of the noncontrolling interest acquired, and an adjustment to accumulated other comprehensive loss to reflect the change in Apollo’s proportionate interest.

Accumulated other comprehensive loss

The following summarizes the components of accumulated other comprehensive loss at August 31:

($ in thousands)	2014			2013
Foreign currency translation losses	$	(26,919	)	$	(36,032	)
Unrealized loss on available-for-sale securities	(401		)	(531		)
Accumulated other comprehensive loss(1)	$	(27,320	)	$	(36,563	)

⁽¹⁾ Accumulated other comprehensive loss is net of insignificant taxes as of August 31, 2014 and 2013

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Property and Equipment, Net (Details) (USD $)	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Property and equipment [Line Items]
Gross property and equipment	$ 1,158,755,000	$ 1,177,383,000
Accumulated depreciation and amortization	(723,022,000)	(704,769,000)
Property and equipment, net	435,733,000	472,614,000
Accumulated depreciation and amortization	(42,401,000)	(33,301,000)
Capital lease assets, net	24,397,000	40,096,000
Depreciation expense	135,800,000	196,700,000	158,000,000
Long-lived asset impairments		20,400,000
Restructuring Charges [Member]
Property and equipment [Line Items]
Long-lived asset impairments		12,200,000
Land [Member]
Property and equipment [Line Items]
Gross property and equipment	30,540,000	30,562,000
Buildings [Member]
Property and equipment [Line Items]
Gross property and equipment	62,970,000	62,852,000
Furniture and equipment [Member]
Property and equipment [Line Items]
Gross property and equipment	388,397,000	428,441,000
Capital lease assets	48,024,000	53,826,000
Leasehold improvements (includes tenant improvement allowances) [Member]
Property and equipment [Line Items]
Gross property and equipment	357,645,000	353,548,000
Software [Member]
Property and equipment [Line Items]
Gross property and equipment	139,376,000	128,746,000
Capital lease assets	14,264,000	14,264,000
Internally developed software [Member]
Property and equipment [Line Items]
Gross property and equipment	139,325,000	121,137,000
Depreciation expense	20,100,000	12,100,000	10,100,000
Construction in progress [Member]
Property and equipment [Line Items]
Gross property and equipment	40,502,000	52,097,000
Building and land [Member]
Property and equipment [Line Items]
Capital lease assets	4,510,000	5,307,000
Lease and related costs, net [Member] | University Of Phoenix [Member]
Property and equipment [Line Items]
Accelerated depreciation	$ 7,600,000	$ 50,100,000

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Quarterly Results of Operations (Unaudited) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Aug. 31, 2014	May 31, 2014	Feb. 28, 2014	Nov. 30, 2013	Aug. 31, 2013	May 31, 2013	Feb. 28, 2013	Nov. 30, 2012	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Quarterly Financial Information Disclosure [Abstract]
Net revenue	$ 709,666	$ 793,610	$ 672,754	$ 848,148	$ 836,358	$ 937,171	$ 821,861	$ 1,040,534	$ 3,024,178	$ 3,635,924	$ 4,193,190
Operating income	41,990	116,324	10,296	170,361	38,550	134,797	30,118	230,927	338,971	434,392	676,368
Income from continuing operations	30,796	67,039	14,149	99,432	23,726	82,029	13,932	133,823	211,416	253,510	383,507
Net income	28,570	65,010	12,177	99,041	21,396	80,170	13,659	133,740	204,798	248,965	417,006
Net income attributable to Apollo	29,783	66,025	14,605	98,891	21,551	79,953	13,527	133,495	209,304	248,526	422,678
Earnings (loss) per share - Basic:
Continuing operations attributable to Apollo (in dollars per share)	$ 0.29	$ 0.62	$ 0.15	$ 0.88	$ 0.21	$ 0.73	$ 0.12	$ 1.19	$ 1.94	$ 2.25	$ 3.24
Discontinued operations attributable to Apollo (in dollars per share)	$ (0.02)	$ (0.02)	$ (0.02)	$ (0.01)	$ (0.02)	$ (0.02)	$ 0.00	$ 0.00	$ (0.06)	$ (0.05)	$ 0.24
Basic income per share attributable to Apollo (in dollars per share)	$ 0.27	$ 0.60	$ 0.13	$ 0.87	$ 0.19	$ 0.71	$ 0.12	$ 1.19	$ 1.88	$ 2.20	$ 3.48
Earnings (loss) per share - Diluted:
Continuing operations attributable to Apollo (in dollars per share)	$ 0.29	$ 0.61	$ 0.15	$ 0.87	$ 0.21	$ 0.72	$ 0.12	$ 1.18	$ 1.92	$ 2.23	$ 3.22
Discontinued operations attributable to Apollo (in dollars per share)	$ (0.02)	$ (0.02)	$ (0.02)	$ 0.00	$ (0.02)	$ (0.01)	$ 0.00	$ 0.00	$ (0.06)	$ (0.04)	$ 0.23
Diluted income per share attributable to Apollo (in dollars per share)	$ 0.27	$ 0.59	$ 0.13	$ 0.87	$ 0.19	$ 0.71	$ 0.12	$ 1.18	$ 1.86	$ 2.19	$ 3.45
Costs and expenses:
Restructuring and other charges	23,200	14,900	15,200	32,000	67,300	61,500	44,100	24,100	85,343	197,022	38,695
Contingent consideration charges and acquisition costs	(9,300)	16,100	13,000						19,837	0	0
Litigation charge (credit)	$ 800	$ 4,100	$ 9,000		$ (1,400)		$ (6,300)	$ (16,900)	$ 13,900	$ (24,600)	$ 4,725
Basic weighted average shares outstanding (in shares)	109,364	110,613	112,151	113,326	113,105	112,742	112,573	112,420	111,354	112,712	121,607
Diluted weighted average shares outstanding (in shares)	110,839	112,082	113,380	113,960	113,740	113,372	113,068	112,849	112,610	113,285	122,357

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Consolidated Balance Sheets (USD $)	Aug. 31, 2014	Aug. 31, 2013
Current assets
Cash and cash equivalents	$ 1,228,813,000	$ 1,414,485,000
Restricted cash and cash equivalents	224,135,000	259,174,000
Marketable securities	187,472,000	105,809,000
Accounts receivable, net	225,398,000	215,401,000
Prepaid taxes	34,006,000	30,359,000
Deferred tax assets	83,871,000	60,294,000
Other current assets	58,855,000	64,134,000
Total current assets	2,042,550,000	2,149,656,000
Marketable securities	87,811,000	43,941,000
Property and equipment, net	435,733,000	472,614,000
Goodwill	259,901,000	103,620,000
Intangible assets, net	189,365,000	132,192,000
Deferred tax assets	37,335,000	63,894,000
Other assets	40,240,000	32,030,000
Total assets	3,092,935,000	2,997,947,000
Current liabilities
Short-term borrowings and current portion of long-term debt	609,506,000	628,050,000
Accounts payable	63,907,000	73,123,000
Student deposits	280,562,000	309,176,000
Deferred revenue	225,818,000	213,260,000
Accrued and other current liabilities	363,607,000	346,706,000
Total current liabilities	1,543,400,000	1,570,315,000
Long-term debt	47,590,000	64,004,000
Deferred tax liabilities	22,674,000	12,177,000
Other long-term liabilities	233,942,000	233,442,000
Total liabilities	1,847,606,000	1,879,938,000
Commitments and contingencies
Redeemable noncontrolling interests	64,527,000	0
Shareholders' equity
Preferred stock, no par value, 1,000 shares authorized; none issued
Additional paid-in capital	0	0
Apollo Class A treasury stock, at cost, 79,585 and 75,182 shares as of August 31, 2014 and 2013, respectively	(3,936,607,000)	(3,824,758,000)
Retained earnings	5,143,949,000	4,978,815,000
Accumulated other comprehensive loss	(27,320,000)	(36,563,000)
Total Apollo shareholders' equity	1,180,126,000	1,117,598,000
Noncontrolling interests	676,000	411,000
Total equity	1,180,802,000	1,118,009,000
Total liabilities, redeemable noncontrolling interests and shareholders' equity	3,092,935,000	2,997,947,000
Common stock [Member] | Apollo Class A nonvoting common stock [Member]
Shareholders' equity
Apollo common stock	103,000	103,000
Total equity	103,000	103,000
Common stock [Member] | Apollo Class B voting common stock [Member]
Shareholders' equity
Apollo common stock	1,000	1,000
Total equity	$ 1,000	$ 1,000

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Quarterly Results of Operations (Unaudited) (Tables)

12 Months Ended

Aug. 31, 2014

Quarterly Financial Information Disclosure [Abstract]

Quarterly results of operations

The following unaudited consolidated quarterly financial information should be read in conjunction with other information included in our consolidated financial statements, and reflects all adjustments, consisting of normal, recurring adjustments, necessary for the fair presentation of the results of interim periods. We have made certain reclassifications to the unaudited consolidated quarterly financial information associated with our presentation of IPD as discontinued operations. Refer to Note 3, Discontinued Operations.

	(Unaudited)
	2014												2013
	Q1 Nov. 30			Q2 Feb. 28			Q3 May 31			Q4 Aug. 31			Q1 Nov. 30		Q2 Feb. 28		Q3 May 31			Q4 Aug. 31
(In thousands, except per share data)
Net revenue	$	848,148		$	672,754		$	793,610		$	709,666		$	1,040,534	$	821,861	$	937,171		$	836,358
Operating income(1), (2)	170,361			10,296			116,324			41,990			230,927		30,118		134,797			38,550
Income from continuing operations	99,432			14,149			67,039			30,796			133,823		13,932		82,029			23,726
Net income	99,041			12,177			65,010			28,570			133,740		13,659		80,170			21,396
Net income attributable to Apollo	98,891			14,605			66,025			29,783			133,495		13,527		79,953			21,551
Earnings (loss) per share - Basic:(3)
Continuing operations attributable to Apollo	$	0.88		$	0.15		$	0.62		$	0.29		$	1.19	$	0.12	$	0.73		$	0.21
Discontinued operations attributable to Apollo	(0.01		)	(0.02		)	(0.02		)	(0.02		)	—		—		(0.02		)	(0.02		)
Basic income per share attributable to Apollo	$	0.87		$	0.13		$	0.60		$	0.27		$	1.19	$	0.12	$	0.71		$	0.19
Earnings (loss) per share - Diluted:(3)
Continuing operations attributable to Apollo	$	0.87		$	0.15		$	0.61		$	0.29		$	1.18	$	0.12	$	0.72		$	0.21
Discontinued operations attributable to Apollo	—			(0.02		)	(0.02		)	(0.02		)	—		—		(0.01		)	(0.02		)
Diluted income per share attributable to Apollo	$	0.87		$	0.13		$	0.59		$	0.27		$	1.18	$	0.12	$	0.71		$	0.19
Basic weighted average shares outstanding	113,326			112,151			110,613			109,364			112,420		112,573		112,742			113,105
Diluted weighted average shares outstanding	113,960			113,380			112,082			110,839			112,849		113,068		113,372			113,740

⁽¹⁾ Operating income includes the following for fiscal year 2014:

• Restructuring and other charges of $32.0 million, $15.2 million, $14.9 million and $23.2 million in the first, second, third and fourth quarters, respectively;

• Contingent consideration charges and acquisition costs of $13.0 million and $16.1 million in the second and third quarters, respectively, and a $9.3 million credit in the fourth quarter principally due to a decrease in estimated contingent consideration; and

• Litigation charges of $9.0 million, $4.1 million and $0.8 million in the second, third and fourth quarters, respectively.

⁽²⁾ Operating income includes the following for fiscal year 2013:

• Restructuring and other charges of $24.1 million, $44.1 million, $61.5 million and $67.3 million in the first, second, third and fourth quarters, respectively; and

• Litigation net credits of $16.9 million, $6.3 million, and $1.4 million in the first, second and fourth quarters, respectively.

⁽³⁾ Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted income per share may not equal annual basic and diluted income per share.

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Consolidated Statements of Changes in Shareholders' Equity and Redeemable Noncontrolling Interests (USD $) In Thousands		Total USD ($)		Redeemable Noncontrolling Interests [Member] USD ($)	Apollo Class A nonvoting common stock [Member]	Apollo Class B voting common stock [Member]	Permanent Equity [Member] USD ($)	Common stock [Member] Apollo Class A nonvoting common stock [Member] USD ($)	Common stock [Member] Apollo Class B voting common stock [Member] USD ($)	Additional paid-in capital [Member] USD ($)	Apollo Class A treasury stock [Member] USD ($)	Retained earnings [Member] USD ($)	Accumulated other comprehensive loss [Member] USD ($)	Total Apollo shareholders' equity [Member] USD ($)	Noncontrolling interests (deficit) [Member] USD ($)
Balance at Aug. 31, 2011		$ 1,243,989						$ 103	$ 1	$ 68,724	$ (3,125,175)	$ 4,320,472	$ (23,761)	$ 1,240,364	$ 3,625
Treasury stock outstanding (in shares) at Aug. 31, 2011											58,003
Common stock (in shares) at Aug. 31, 2011					188,007	475
Redeemable noncontrolling interests				0
Share repurchases (in shares)											19,420
Share repurchases		(811,913)									(811,913)			(811,913)
Share reissuances (in shares)											(1,184)
Share reissuances		(11,949)								(46,527)	(58,476)			(11,949)
Net tax effect for stock incentive plans		(7,132)								(7,132)				(7,132)
Share-based compensation		78,705								78,705				78,705
Currency translation adjustment, net of tax		(8,281)	[1]										(6,273)	(6,273)	(2,008)
Unrealized gain on available-for-sale securities	[1]	0
Purchase of noncontrolling interest										0
Net income (loss)		417,006										422,678		422,678	(5,672)
Balance at Aug. 31, 2012		924,323						103	1	93,770	(3,878,612)	4,743,150	(30,034)	928,378	(4,055)
Treasury stock outstanding (in shares) at Aug. 31, 2012											76,239
Common stock (in shares) at Aug. 31, 2012					188,007	475
Redeemable noncontrolling interests		0		0
Share repurchases (in shares)											475
Share repurchases		(9,537)									(9,537)			(9,537)
Share reissuances (in shares)											(1,532)
Share reissuances		(3,867)								(46,663)	(63,391)	12,861		(3,867)
Net tax effect for stock incentive plans		(48,026)								(48,026)				(48,026)
Share-based compensation		49,462								49,462				49,462
Currency translation adjustment, net of tax		(2,545)	[1]										(1,643)	(1,643)	(902)
Unrealized gain on available-for-sale securities	[1]	0
Purchase of noncontrolling interest		(48,500)								(48,543)			(4,886)	(53,429)	(4,929)
Net income (loss)		248,965										248,526		248,526	439
Balance at Aug. 31, 2013		1,118,009						103	1	0	(3,824,758)	4,978,815	(36,563)	1,117,598	411
Treasury stock outstanding (in shares) at Aug. 31, 2013		75,182									75,182
Common stock (in shares) at Aug. 31, 2013					188,007	475
Balance at May. 31, 2013
Redeemable noncontrolling interests		0		0
Net income (loss)		21,396
Balance at Aug. 31, 2013		1,118,009						103	1	0	(3,824,758)	4,978,815	(36,563)	1,117,598	411
Treasury stock outstanding (in shares) at Aug. 31, 2013		75,182									75,182
Common stock (in shares) at Aug. 31, 2013					188,007	475
Redeemable noncontrolling interests		64,527		64,527
Share repurchases (in shares)											5,834
Share repurchases		(172,709)									(172,709)			(172,709)
Share reissuances (in shares)											(1,431)
Share reissuances		(1,793)								(28,683)	(60,860)	30,384		(1,793)
Net tax effect for stock incentive plans		(14,136)								(14,136)				(14,136)
Share-based compensation		42,819								42,819				42,819
Acquisitions				53,866
Currency translation adjustment, net of tax		11,652	[1]	2,433			9,219						9,113	9,113	106
Unrealized gain on available-for-sale securities	[1]	130											130	130
Redemption value adjustments				(13,786)			(13,786)					(13,786)		(13,786)
Purchase of noncontrolling interest		(893)								0					(893)
Net income (loss)		204,798
Net Income (loss)		210,356										209,304		209,304	1,052
Net Income (loss)				(5,558)
Balance at Aug. 31, 2014		$ 1,180,802						$ 103	$ 1	$ 0	$ (3,936,607)	$ 5,143,949	$ (27,320)	$ 1,180,126	$ 676
Treasury stock outstanding (in shares) at Aug. 31, 2014		79,585									79,585
Common stock (in shares) at Aug. 31, 2014					188,007	475

[1] The tax effect on each component of other comprehensive income (loss) during fiscal years 2014, 2013 and 2012 is not significant.

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Income Taxes (Details) (USD $)	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Geographical sources of income from continuing operations [Abstract]
United States	$ 384,146,000	$ 468,738,000	$ 727,965,000
Foreign	(51,406,000)	(38,771,000)	(61,679,000)
Income from continuing operations before income taxes	332,740,000	429,967,000	666,286,000
Current:
U.S. Federal	(114,997,000)	(174,020,000)	(212,113,000)
State and local	(17,664,000)	(30,250,000)	(46,676,000)
Foreign	(2,575,000)	(1,704,000)	(2,140,000)
Total current	(135,236,000)	(205,974,000)	(260,929,000)
Deferred:
U.S. Federal	(3,154,000)	20,420,000	(28,999,000)
State and local	240,000	3,132,000	(1,039,000)
Foreign	16,826,000	5,965,000	8,188,000
Total deferred	13,912,000	29,517,000	(21,850,000)
Provision for income taxes	(121,324,000)	(176,457,000)	(282,779,000)
Effective income tax rate reconciliation [Abstract]
Statutory U.S. federal income tax rate	35.00%	35.00%	35.00%
State income taxes, net of federal benefit	4.80%	4.30%	4.20%
Foreign taxes	0.90%	2.20%	1.40%
Goodwill impairments	0.00%	0.00%	0.90%
Internal Revenue Service settlement	(3.10%)	0.00%	0.00%
Mexico tax reform	(0.80%)	0.00%	0.00%
Contingent consideration	1.00%	0.00%	0.00%
Other, net	(1.30%)	(0.50%)	0.90%
Effective income tax rate	36.50%	41.00%	42.40%
Deferred tax assets:
Allowance for doubtful accounts	13,100,000	16,479,000
Leasing transactions	74,528,000	86,946,000
Net operating loss carry-forward	16,938,000	25,055,000
Share-based compensation	23,796,000	35,123,000
Deferred revenue	18,539,000	4,698,000
Other	62,436,000	47,231,000
Gross deferred tax assets	209,337,000	215,532,000
Valuation allowance	(21,048,000)	(17,998,000)
Deferred tax assets, net of valuation allowance	188,289,000	197,534,000
Deferred tax liabilities:
Fixed assets	36,149,000	42,485,000
Intangibles	47,344,000	35,109,000
Other	6,264,000	7,929,000
Gross deferred tax liabilities	89,757,000	85,523,000
Net deferred income taxes	98,532,000	112,011,000
Net operating loss carry-forwards [Line Items]
Income Tax Expense (Benefit)	121,324,000	176,457,000	282,779,000
Unrecognized tax benefits rollforward [Abstract]
Beginning balance	44,057,000	32,207,000	25,811,000
Additions based on tax positions taken in the current year	0	13,095,000	7,708,000
Additions for tax positions taken in prior years	2,214,000	5,953,000	813,000
Settlement with tax authorities	(7,184,000)	(197,000)	(733,000)
Reductions for tax positions of prior years	(10,541,000)	(2,635,000)	0
Reductions due to lapse of applicable statute of limitations	(10,148,000)	(4,366,000)	(1,392,000)
Ending balance	18,398,000	44,057,000	32,207,000
Uncertain tax position interest and penalties expense	1,900,000	(100,000)	(400,000)
Uncertain tax position interest and penalties accrued	2,200,000	4,200,000
Reasonably possible change in unrecognized tax benefits	13,800,000
Unrecognized tax benefits that would impact tax rate	10,000,000
United States [Member]
Net operating loss carry-forwards [Line Items]
Net operating loss carry-forwards	23,200,000
Foreign [Member]
Net operating loss carry-forwards [Line Items]
Net operating loss carry-forwards	59,600,000
Internal Revenue Service (IRS) [Member]
Deferred:
Provision for income taxes	10,200,000
Net operating loss carry-forwards [Line Items]
Income Tax Expense (Benefit)	$ (10,200,000)

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Goodwill and Intangibles (Tables)

12 Months Ended

Aug. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in goodwill and goodwill carrying value

The following details changes in the carrying amount of our goodwill by reportable segment during fiscal years 2014 and 2013:

	University of Phoenix		Apollo Global		Other		Total
($ in thousands)
Goodwill as of August 31, 2012	$	71,812	$	14,642	$	16,891	$	103,345
Currency translation adjustment	—		275		—		275
Goodwill as of August 31, 2013	71,812		14,917		16,891		103,620
Acquisitions(1)	—		149,883		—		149,883
Currency translation adjustment	—		6,398		—		6,398
Goodwill as of August 31, 2014	$	71,812	$	171,198	$	16,891	$	259,901

⁽¹⁾ Represents goodwill acquired in the Milpark Education and Open Colleges acquisitions. Refer to Note 4, Acquisitions.

The following presents the components of the net carrying amount of our goodwill by reportable segment as of August 31, 2014 and 2013:

	University of Phoenix		Apollo Global(1)			Other			Total
($ in thousands)
Gross carrying amount(1)	$	71,812	$	177,068		$	37,096		$	285,976
Accumulated impairments(1)	—		(8,712		)	(20,205		)	(28,917		)
Foreign currency translation	—		2,842			—			2,842
Net carrying amount at August 31, 2014	$	71,812	$	171,198		$	16,891		$	259,901

	University of Phoenix		Apollo Global(1)			Other			Total
($ in thousands)
Gross carrying amount(1)	$	71,812	$	27,185		$	37,096		$	136,093
Accumulated impairments(1)	—		(8,712		)	(20,205		)	(28,917		)
Foreign currency translation	—		(3,556		)	—			(3,556		)
Net carrying amount at August 31, 2013	$	71,812	$	14,917		$	16,891		$	103,620

⁽¹⁾ We have also recorded $366 million of accumulated impairments associated with our BPP and UNIACC reporting units, both of which did not have any goodwill as of August 31, 2014 and 2013.

Intangible assets

Intangible assets consist of the following as of August 31:

	2014										2013
($ 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
Software and technology	$	42,389	$	(25,151	)	$	—		$	17,238	$	42,389	$	(16,673	)	$	—		$	25,716
Accreditations and designations(1)	21,628		(3,015		)	1,000			19,613		—		—			—			—
Trademarks(1)	17,919		(1,238		)	907			17,588		—		—			—			—
Curriculum(1)	16,993		(2,933		)	826			14,886		—		—			—			—
Student and customer relationships(1)	15,934		(9,780		)	(1,161		)	4,993		12,026		(7,727		)	(1,363		)	2,936
Other(1)	20,891		(19,909		)	(611		)	371		20,891		(18,706		)	(777		)	1,408
Total finite-lived intangibles	135,754		(62,026		)	961			74,689		75,306		(43,106		)	(2,140		)	30,060
Trademarks(1)	106,514		—			(68		)	106,446		100,736		—			(5,347		)	95,389
Accreditations and designations(1)	8,530		—			(300		)	8,230		7,260		—			(517		)	6,743
Total indefinite-lived intangibles	115,044		—			(368		)	114,676		107,996		—			(5,864		)	102,132
Total intangible assets, net	$	250,798	$	(62,026	)	$	593		$	189,365	$	183,302	$	(43,106	)	$	(8,004	)	$	132,192

⁽¹⁾ We acquired certain intangibles during fiscal year 2014 as a result of our acquisitions.

Future intangibles amortization

The weighted average original useful life of our finite-lived intangibles as of August 31, 2014 was 5.8 years and the estimated future amortization expense of our finite-lived intangibles is as follows:

($ in thousands)	2015		2016		2017		2018		2019		Thereafter		Total
University of Phoenix	$	8,478	$	8,478	$	282	$	—	$	—	$	—	$	17,238
Apollo Global	14,765		11,923		10,793		7,689		3,327		8,166		56,663
Other	764		24		—		—		—		—		788
Total estimated future amortization expense(1)	$	24,007	$	20,425	$	11,075	$	7,689	$	3,327	$	8,166	$	74,689

⁽¹⁾ The estimated future amortization expense may vary as acquisitions and dispositions occur in the future and as a result of foreign currency translation adjustments.

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Stock and Savings Plans (Details 2) (USD $)	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
401(K) plan eligibility, employee years service	1 year
401(K) plan eligibility, employee hours service	0 years 0 months 0 days 1000 hours
401(K) plan employer matching percent	30.00%
401(K) plan maximum annual contribution percent	15.00%
401(K) plan matching contributions	$ 22,900,000	$ 20,000,000	$ 13,600,000
Employee stock purchase plan percentage of fair value purchase price	95.00%
Shares available for future grant	5,361,000
Percentage of award vesting each year	33.30%
Outstanding shares beginning balance	4,123,000	8,559,000	9,276,000
Shares granted	713,000	945,000	176,000
Shares exercised	(5,000)	0	(157,000)
Shares forfeited, canceled or expired	(1,327,000)	(5,381,000)	(736,000)
Outstanding shares ending balance	3,504,000	4,123,000	8,559,000
Weighted average exercise price of options outstanding beginning balance	$ 46.94	$ 56.90	$ 57.18
Weighted average exercise price of options granted	$ 26.70	$ 17.95	$ 36.89
Weighted average exercise price of options exercised	$ 19.62	$ 0.00	$ 43.57
Weighted average exercise price of options forfeited, canceled or expired	$ 60.07	$ 57.69	$ 58.53
Weighted average exercise price of options outstanding ending balance	$ 37.89	$ 46.94	$ 56.90
Weighted average remaining contractual term of options outstanding (years)	3 years 0 months 22 days
Aggregate intrinsic value of options outstanding ($)	9,926,000
Options vested and expected to vest	3,398,000
Weighted average exercise price per share of options vested and expected to vest	$ 38.29
Weighted average remaining contractual term of options vested and expected to vest (years)	2 years 11 months 27 days
Aggregate intrinsic value of options vested and expected to vest ($)	9,581,000
Exercisable options	2,186,000
Weighted average exercise price per exercisable options	$ 45.74
Weighted average remaining contractual term, exercisable options (years)	1 year 11 months 23 days
Aggregate intrinsic value, exercisable options ($)	4,585,000
Closing share price	$ 27.77
Intrinsic value realized	79,000	0	1,498,000
Actual tax benefit realized by Apollo for tax deductions	30,000	0	573,000
Cash received from stock option exercises	101,000	0	6,754,000
Amended And Restated 2000 Stock Incentive Plan [Member] | Apollo Class A nonvoting common stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized	28,600,000
Shares available for future grant	14,100,000
Minimum [Member] | Amended And Restated 2000 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	1 year
Minimum [Member] | Amended And Restated 2000 Stock Incentive Plan [Member] | Apollo Class A nonvoting common stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price percentage of fair value	100.00%
Maximum [Member] | Amended And Restated 2000 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	4 years
Stock options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized shared-based compensation cost	10,100,000
Weighted average period unrecognized share-based compensation expected to be recognized	2 years 7 months 6 days
Fair value of options vested	7,300,000	10,600,000	22,800,000
Stock options [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	1 year
Stock options [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	4 years
Stock options [Member] | Maximum [Member] | Amended And Restated 2000 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Contractual term of awards	10 years
Restricted stock units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awards nonvested, beginning balance	3,966,000	3,526,000	2,932,000
Awards granted	2,022,000	2,301,000	1,692,000
Awards vested and released	(1,353,000)	(1,334,000)	(905,000)
Awards forfeited	(592,000)	(527,000)	(193,000)
Awards nonvested, ending balance	4,043,000	3,966,000	3,526,000
Weighted average fair value of nonvested awards, beginning balance	$ 28.68	$ 41.10	$ 45.78
Weighted average fair value of granted awards	$ 26.71	$ 20.10	$ 36.81
Weighted average fair value of vested and released awards	$ 33.38	$ 42.25	$ 46.97
Weighted average fair value of forfeited awards	$ 26.15	$ 39.99	$ 47.12
Weighted average fair value of nonvested awards, ending balance	$ 26.49	$ 28.68	$ 41.10
Unrecognized shared-based compensation cost	79,400,000
Fair value of restricted stock units vested	45,200,000	56,400,000	42,500,000
Restricted stock units [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	1 year
Restricted stock units [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	4 years
Performance share awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awards nonvested, beginning balance	365,000	399,000	260,000
Awards granted	41,000	47,000	145,000
Awards vested and released	0	0	0
Awards forfeited	(93,000)	(81,000)	(6,000)
Awards nonvested, ending balance	313,000	365,000	399,000
Weighted average fair value of nonvested awards, beginning balance	$ 40.97	$ 42.76	$ 45.74
Weighted average fair value of granted awards	$ 26.63	$ 19.80	$ 37.50
Weighted average fair value of vested and released awards	$ 0.00	$ 0.00	$ 0.00
Weighted average fair value of forfeited awards	$ 38.35	$ 37.45	$ 44.89
Weighted average fair value of nonvested awards, ending balance	$ 39.88	$ 40.97	$ 42.76
Unrecognized shared-based compensation cost	$ 1,700,000
Performance share awards [Member] | Apollo Class A nonvoting common stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Contractual term of awards	3 years
Performance share awards [Member] | Minimum [Member] | Apollo Class A nonvoting common stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage range performance shares could convert	0.00%
Performance share awards [Member] | Maximum [Member] | Apollo Class A nonvoting common stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage range performance shares could convert	300.00%
Restricted stock units and performance share awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average period unrecognized share-based compensation expected to be recognized	2 years 10 months 24 days

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Stock and Savings Plans

12 Months Ended

Aug. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock and Savings Plans

Stock and Savings Plans

401(k) Plan

We sponsor a 401(k) plan for eligible employees which provides them the opportunity to make pre-tax contributions subject to certain restrictions as set forth in the Internal Revenue Code. Upon a participating employee’s completion of one year of service and 1,000 hours worked, we will match, at our discretion, 30% of such employee’s contributions up to the lesser of 15% of their gross compensation or the maximum participant contribution permitted under the Internal Revenue Code. We are also permitted to make additional discretionary contributions for certain eligible employees. Our contributions were $22.9 million, $20.0 million and $13.6 million for fiscal years 2014, 2013 and 2012, respectively.

Employee Stock Purchase Plan

At our discretion, our Third Amended and Restated 1994 Employee Stock Purchase Plan allows eligible employees to purchase shares of our Class A common stock at quarterly intervals through periodic payroll deductions at a price per share equal to 95% of the fair market value on the purchase date. This plan is deemed to be non-compensatory, and accordingly, we do not recognize any share-based compensation expense for shares purchased under the plan.

Share-Based Awards

We currently have outstanding awards under our Amended and Restated 2000 Stock Incentive Plan (“Plan”). Under this Plan, we may grant non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock units, performance share awards (“PSAs”), and other share-based awards covering shares of our Class A common stock to officers, certain employees, and the non-employee members of our Board of Directors. In general, the awards granted under the Plan vest over periods ranging from one to four years and stock options have contractual terms of 10 years or less. Restricted stock units issued under the Plan may have both performance-vesting and service-vesting components or service-vesting only. PSAs have both performance-vesting and service-vesting components tied to a defined performance period. The majority of our restricted stock units and PSAs contain rights to receive dividends or dividend equivalents, but these rights are forfeitable and Apollo has not historically issued dividends.

Approximately 28.6 million shares of our Class A common stock have been reserved for issuance over the term of the Plan. The shares may be issued from treasury shares or from authorized but unissued shares of our Class A common stock. As of August 31, 2014, approximately 14.1 million authorized and unissued shares of our Class A common stock were available for issuance under the Plan, including the shares subject to outstanding equity awards.

Under the Plan, the exercise price for stock options may not be less than 100% of the fair market value of our Class A common stock on the date of the grant. The requisite service period for all awards is generally equal to the vesting period.

Restricted Stock Units and PSAs

We granted restricted stock units during fiscal years 2014, 2013 and 2012 with both service-vesting and performance-vesting conditions, and with only service vesting. The vesting period of the restricted stock units granted generally ranges from one to four years. We also granted PSAs during fiscal years 2014, 2013 and 2012 that vest based on performance and service vesting conditions. The level at which the performance condition is attained will determine the actual number of shares of our Class A common stock into which the PSAs will be converted. The conversion percentage generally ranges from 0% up to 300% of the target level based on the performance condition attainment. The award holder will vest in one-third of the shares of our Class A common stock into which their PSAs are so converted for each fiscal year the award holder remains employed during the three year performance period. However, the PSAs will immediately convert into fully-vested shares of our Class A common stock at target level or above upon certain changes in control or ownership. The shares of our Class A common stock into which the PSAs are converted will be issued upon the completion of the applicable performance period.

The following provides a summary of activity for our restricted stock units and PSAs (granted PSAs are assumed to convert into shares of our Class A common stock at the target level):

	Restricted Stock Units				Performance Share Awards(1)
	Number of Shares (in thousands)		Weighted Average Grant Date Fair Value		Number of Shares (in thousands)		Weighted Average Grant Date Fair Value
Nonvested at August 31, 2011	2,932		$	45.78	260		$	45.74
Granted	1,692		36.81		145		37.50
Vested and released	(905	)	46.97		—		—
Forfeited	(193	)	47.12		(6	)	44.89
Nonvested at August 31, 2012	3,526		$	41.10	399		$	42.76
Granted	2,301		20.10		47		19.80
Vested and released	(1,334	)	42.25		—		—
Forfeited	(527	)	39.99		(81	)	37.45
Nonvested at August 31, 2013	3,966		$	28.68	365		$	40.97
Granted	2,022		26.71		41		26.63
Vested and released	(1,353	)	33.38		—		—
Forfeited	(592	)	26.15		(93	)	38.35
Nonvested at August 31, 2014	4,043		$	26.49	313		$	39.88

⁽¹⁾ The vesting of PSAs is subject to the achievement of the specified performance goals and the number of common shares that will ultimately be issued is calculated by multiplying the number of performance shares by a payout percentage that generally ranges from 0% up to 300%.

As of August 31, 2014, we have $79.4 million and $1.7 million of total unrecognized share-based compensation cost, net of forfeitures, related to unvested restricted stock units and PSAs, respectively. These costs are expected to be recognized over a weighted average period of 2.9 years. The fair value of restricted stock units that vested during fiscal years 2014, 2013 and 2012 was $45.2 million, $56.4 million and $42.5 million, respectively.

Stock Options

We have granted stock options during fiscal years 2014, 2013 and 2012 with a service vesting condition that generally ranges from one to four years. The following provides a summary of our stock option activity:

	Options Outstanding
	Number of Shares (in thousands)		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($)(1) (in thousands)
Balance at August 31, 2011	9,276		$	57.18
Granted	176		36.89
Exercised	(157	)	43.57
Forfeited, canceled or expired	(736	)	58.53
Balance at August 31, 2012	8,559		$	56.90
Granted	945		17.95
Exercised	—		—
Forfeited, canceled or expired	(5,381	)	57.69
Balance at August 31, 2013	4,123		$	46.94
Granted	713		26.70
Exercised	(5	)	19.62
Forfeited, canceled or expired	(1,327	)	60.07
Balance at August 31, 2014	3,504		$	37.89	3.06	$	9,926
Vested and expected to vest as of August 31, 2014	3,398		$	38.29	2.99	$	9,581
Exercisable as of August 31, 2014	2,186		$	45.74	1.98	$	4,585
Available for future grant as of August 31, 2014	5,361

⁽¹⁾ Aggregate intrinsic value represents the sum of the differences between our closing stock price of $27.77 on August 31, 2014 and the exercise prices of all of our options with an exercise price less than $27.77.

As of August 31, 2014, we have $10.1 million of total unrecognized share-based compensation cost, net of forfeitures, related to unvested stock options. These costs are expected to be recognized over a weighted average period of 2.6 years. The fair value of stock options that vested during fiscal years 2014, 2013 and 2012 was $7.3 million, $10.6 million, and $22.8 million, respectively.

The following summarizes information related to outstanding and exercisable options at August 31, 2014:

	Outstanding				Exercisable
Range of Exercise Prices	Number of Shares (in thousands)	Weighted Average Contractual Life Remaining (Years)	Weighted Average Exercise Price per Share		Number of Shares (in thousands)	Weighted Average Exercise Price per Share
$16.75	600	2.53	$	16.75	360	$	16.75
$19.62 to $25.79	361	4.91	$	20.54	81	$	20.11
$26.74	682	5.95	$	26.74	—	$	—
$33.12 to $42.27	778	2.27	$	40.29	699	$	40.57
$42.41 to $63.79	613	1.87	$	53.10	576	$	53.46
$65.26 to $91.20	468	1.01	$	70.08	468	$	70.08
$169.47	2	0.66	$	169.47	2	$	169.47
	3,504				2,186

The following summarizes information related to stock options exercised during the respective periods:

	Year Ended August 31,
($ in thousands)	2014		2013		2012
Intrinsic value realized	$	79	$	—	$	1,498
Actual tax benefit realized by Apollo for tax deductions	$	30	$	—	$	573
Cash received by Apollo	$	101	$	—	$	6,754

Refer to Note 1, Nature of Operations and Significant Accounting Policies, for discussion of stock option valuation and related assumptions.

Share-based Compensation Expense

The following details share-based compensation expense for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Instructional and student advisory	$	10,727		$	20,060		$	27,731
Marketing	3,702			5,182			6,807
Admissions advisory	813			849			1,691
General and administrative	23,296			21,363			41,153
Restructuring and other charges	4,281			2,008			1,323
Share-based compensation expense	42,819			49,462			78,705
Tax effect of share-based compensation	(16,754		)	(18,986		)	(29,874		)
Share-based compensation expense, net of tax	$	26,065		$	30,476		$	48,831

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Fair Value Measurements (Tables)

12 Months Ended

Aug. 31, 2014

Fair Value Disclosures [Abstract]

Fair value liabilities measured on recurring basis

Liabilities measured at fair value on a recurring basis, all of which are included in other liabilities on our Consolidated Balance Sheets, consist of the following as of August 31, 2014 and 2013:

			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 August 31, 2014	$	41,893	$	—	$	—	$	41,893
Contingent consideration as of August 31, 2013	$	5,277	$	—	$	—	$	5,277

Fair value liabilities measured on recurring basis, unobservable input reconciliation

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:

	Year Ended August 31,
($ in thousands)	2014		2013
Beginning balance	$	5,277	$	—
Initial contingent consideration at fair value	21,371		6,000
Change in fair value included in net income	13,907		(723		)
Currency translation adjustment	1,338		—
Ending balance	$	41,893	$	5,277

Fair value liabilities measured on non-recurring basis

Liabilities measured at fair value on a nonrecurring basis during fiscal years 2014 and 2013, all of which are included in other liabilities on our Consolidated Balance Sheets, consist of the following:

			Fair Value Measurements at Measurement Dates Using
($ in thousands)	Fair Value at Measurement Dates		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses for Respective Fiscal Years
Fiscal year 2014 restructuring obligations	$	34,701	$	—	$	—	$	34,701	$	34,701
Fiscal year 2013 restructuring obligations	$	92,151	$	—	$	—	$	92,151	$	92,151

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Regulatory Matters

12 Months Ended

Aug. 31, 2014

Regulatory Matters (Details) [Abstract]

Regulatory Matters

Regulatory Matters

All U.S. federal 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. In 2008, the Higher Education Act was reauthorized through September 30, 2013 by the Higher Education Opportunity Act and an automatic one year extension continued the authorization through September 30, 2014. Congress continues to engage in Higher Education Act reauthorization hearings and although the one year automatic extension has expired, Title IV programs remain authorized and functioning. Changes to the Higher Education Act, including changes in eligibility and funding for Title IV programs, are likely to occur in connection with the next reauthorization, but we cannot predict the scope or substance of any such changes.

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.

University of Phoenix was recertified in November 2009 and entered into a new Title IV Program Participation Agreement which expired on December 31, 2012. University of Phoenix has submitted necessary documentation for re-certification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application. We have no reason to believe that the University’s application will not be renewed in due course, and it is not unusual to be continued on a month-to-month basis until the Department completes its review. We cannot predict whether, or to what extent, the imposition of the Notice sanction by The Higher Learning Commission might have on this process.

Western International University was recertified in May 2010 and its current certification expired on September 30, 2014. Western International University has submitted necessary documentation for re-certification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application.

Higher Learning Commission Accreditation

University of Phoenix and Western International University are accredited by The Higher Learning Commission (“HLC”) of the North Central Association of Colleges and Schools. This accreditation 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 accreditations of University of Phoenix and Western International University were reaffirmed by HLC through the 2022-2023 academic year. At the same time, HLC placed both universities on Notice status for a two-year period. Notice status is a sanction that means that HLC has determined that an institution is on a course of action that, if continued, could lead the institution to be out of compliance with one or more of the HLC Criteria for Accreditation or Core Components. The University was assigned by HLC to the Standard Pathway reaffirmation process, pursuant to which the University will host a comprehensive evaluation visit in 2016-2017 and will undergo its next reaffirmation visit and process in 2022-2023.

The University is required to submit a Notice Report to the HLC by the end of calendar year 2014 providing evidence that the University meets the Criteria for Accreditation, Core Components and Minimum Expectations (Assumed Practices after January 1, 2013) identified as the basis for the Notice sanction and that it has ameliorated the issues that led to the Notice sanction. In addition, in the Notice Report the University is also required to report on its progress in other areas of concern not included in the Notice sanction, including retention and graduation rates, three-year student loan cohort default rates, and credit hour policies and practices relating to learning teams. The University also will be required to host a focused visit by the HLC in January 2015, to validate the contents of the Notice Report. The HLC Board of Trustees will review the University’s Notice Report, together with a report of the focused visit, at a meeting in 2015. During the Notice period, the University is required to disclose its Notice status in connection with any statements regarding its HLC accreditation. If, after the Notice period, HLC determines that University of Phoenix is not in compliance with one or more of HLC’s Criteria for Accreditation, HLC may elect to impose probation, which would have further, more significant consequences for the University and our business.

90/10 Rule

To remain eligible to participate in Title IV programs, proprietary institutions of higher education must comply with the so-called “90/10 Rule” under the Higher Education Act, as reauthorized, and must derive 90% or less of their cash basis revenue, as defined in the rule, from Title IV programs. The 90/10 Rule percentage for University of Phoenix was 81% for fiscal year 2014. Based on recent trends, we do not expect the 90/10 Rule percentage for University of Phoenix to exceed 90% for fiscal year 2015. The 90/10 Rule percentage for the University remains high and could exceed 90% in the future depending on the degree to which its various initiatives are effective, the impact of future changes in its enrollment mix, and regulatory and other factors outside our control, including any reduction in military benefit programs or changes in the treatment of such funding for purposes of the 90/10 Rule calculation.

Student Loan Cohort Default Rates

To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. Educational institutions will lose eligibility to participate in Title IV programs if their three-year cohort default rate equals or exceeds 40% for any given year or 30% for three consecutive years. The University of Phoenix three-year cohort default rates for the 2011 and 2010 federal fiscal years were 19.0% and 26.0%, respectively. If our student loan default rates approach the applicable limits, we may be required to increase efforts and resources dedicated to improving these default rates.

OIG Audit of the U.S. Department of Education

In October 2011, the Office of the Inspector General of the U.S. Department of Education (“OIG”) notified us that it was conducting a nationwide audit of the Department’s program requirements, guidance, and monitoring of institutions of higher education offering distance education. In connection with the OIG’s audit of the Department, the OIG examined a sample of University of Phoenix students who enrolled during the period from July 1, 2010 to June 30, 2011. The OIG subsequently notified University of Phoenix that in the course of this review it identified certain conditions that the OIG believed were Title IV program compliance exceptions at University of Phoenix. In February 2014, the OIG released a final audit report on this subject, which identified exceptions based on select student records related principally to the calculation of the amount of Title IV program funds returned after student withdrawals and the process for confirming student eligibility prior to disbursement of Title IV program funds. While the OIG recommended follow-up action with regard to some schools, University of Phoenix was not among them. We were not the direct subject of the OIG’s audit of the Department, and we have not accrued any liability associated with this matter.

U.S. Department of Education Program Reviews

The U.S. Department of Education periodically reviews institutions participating in Title IV programs for compliance with applicable standards and regulations. 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.

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Commitments and Contingencies (Details 2) (Securities Class Action (Apollo Institutional Investors Group) [Member])	1 Months Ended
	Oct. 31, 2010 Plaintiffs
Securities Class Action (Apollo Institutional Investors Group) [Member]
Loss Contingencies [Line Items]
Number of plaintiffs	3

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Operating activities:
Net income	$ 204,798	$ 248,965	$ 417,006
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation	42,819	49,462	78,705
Excess tax benefits from share-based compensation	(1,285)	(17)	(1,150)
Depreciation and amortization	150,575	161,733	178,234
Accelerated depreciation and impairments included in restructuring	7,580	62,267	0
Loss (gain) on asset dispositions and write-offs, net	556	8,190	(26,678)
Goodwill and other intangibles impairment	0	0	16,788
Non-cash foreign currency loss (gain), net	957	220	(497)
Provision for uncollectible accounts receivable	53,819	83,798	146,742
Deferred income taxes	(13,912)	(29,517)	21,850
Changes in assets and liabilities, excluding the impact of acquisitions and business dispositions:
Restricted cash and cash equivalents	37,233	59,160	61,073
Accounts receivable	(61,435)	(103,369)	(129,773)
Prepaid taxes	(2,890)	(3,985)	9,303
Other assets	6,072	(19,514)	(11,568)
Accounts payable	(11,950)	(1,775)	12,525
Student deposits	(30,738)	(52,587)	(58,740)
Deferred revenue	657	(39,091)	(39,154)
Accrued and other liabilities	(6,949)	54,108	(123,366)
Net cash provided by operating activities	375,907	478,048	551,300
Investing activities:
Purchases of property and equipment	(100,666)	(119,348)	(115,187)
Purchases of marketable securities	(319,079)	(208,878)	0
Maturities of marketable securities	188,276	65,074	0
Acquisitions, net of cash acquired	(119,454)	0	(73,736)
Proceeds from dispositions, net	0	0	76,434
Other investing activities	606	(1,500)	(1,694)
Net cash used in investing activities	(350,317)	(264,652)	(114,183)
Financing activities:
Payments on borrowings	(627,822)	(636,387)	(562,269)
Proceeds from borrowings	591,131	610,236	629,145
Share repurchases	(172,709)	(9,537)	(811,913)
Share reissuances	1,793	3,867	11,949
Purchase of noncontrolling interests	(893)	(42,500)	0
Excess tax benefits from share-based compensation	1,285	17	1,150
Other financing activities	(4,143)	0	0
Net cash used in financing activities	(211,358)	(74,304)	(731,938)
Exchange rate effect on cash and cash equivalents	96	(982)	(468)
Net (decrease) increase in cash and cash equivalents	(185,672)	138,110	(295,289)
Cash and cash equivalents, beginning of year	1,414,485	1,276,375	1,571,664
Cash and cash equivalents, end of year	1,228,813	1,414,485	1,276,375
Supplemental disclosure of cash flow and non-cash information
Cash paid for income taxes, net of refunds	161,163	201,055	246,824
Cash paid for interest	7,657	7,869	9,794
Restricted stock units vested and released	37,430	27,054	36,182
Credits received for tenant improvements	1,131	6,049	27,009
Capital lease additions	0	3,500	44,145
Debt incurred for acquired technology	$ 0	$ 0	$ 14,389

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Consolidated Balance Sheets (Parentheticals)	Aug. 31, 2014	Aug. 31, 2013
Preferred stock authorized (in shares)	1,000,000	1,000,000
Preferred stock issued (in shares)	0	0
Apollo Class A treasury stock (in shares)	79,585,000	75,182,000
Apollo Class A nonvoting common stock [Member]
Common stock authorized (in shares)	400,000,000	400,000,000
Common stock issued (in shares)	188,007,000	188,007,000
Common stock outstanding (in shares)	108,422,000	112,825,000
Apollo Class B voting common stock [Member]
Common stock authorized (in shares)	3,000,000	3,000,000
Common stock issued (in shares)	475,000	475,000
Common stock outstanding (in shares)	475,000	475,000

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Accrued and Other Liabilities

12 Months Ended

Aug. 31, 2014

Payables and Accruals [Abstract]

Accrued and other liabilities

Accrued and Other Liabilities

Accrued and other current liabilities consist of the following as of August 31:

($ in thousands)	2014		2013
Salaries, wages and benefits	$	125,165	$	135,553
Restructuring obligations	43,339		55,191
Contingent consideration	35,239		—
Accrued advertising	33,853		45,850
Accrued legal and other professional obligations	33,651		31,310
Student refunds, grants and scholarships	20,072		7,180
Deferred rent and other lease liabilities	12,384		14,001
Curriculum materials	12,069		10,764
Other	47,835		46,857
Total accrued and other current liabilities	$	363,607	$	346,706

Other long-term liabilities consist of the following as of August 31:

($ in thousands)	2014		2013
Restructuring obligations	$	59,744	$	64,610
Deferred rent and other lease liabilities	57,788		67,641
Deferred revenue	51,831		21,080
Deferred gains on sale-leasebacks	21,641		22,894
Uncertain tax positions	9,770		33,637
Other	33,168		23,580
Total other long-term liabilities	$	233,942	$	233,442

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Document and Entity Information (USD $) In Billions, except Share data in Thousands, unless otherwise specified	12 Months Ended
	Aug. 31, 2014	Feb. 28, 2014	Oct. 14, 2014 Apollo Class A nonvoting common stock [Member]	Oct. 14, 2014 Apollo Class B voting common stock [Member]
Document Information [Line Items]
Document Type	10-K
Document Period End Date	Aug. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Registrant Name	Apollo Education Group Inc
Entity Central Index Key	0000929887
Current Fiscal Year End Date	--08-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float		$ 3.2
Entity Common Stock, Shares Outstanding (in shares)			108,051	475

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Debt

12 Months Ended

Aug. 31, 2014

Debt Disclosure [Abstract]

Debt

Debt

Debt and short-term borrowings consist of the following as of August 31:

($ in thousands)	2014			2013
Revolving Credit Facility, see terms below	$	585,000		$	605,000
Capital lease obligations	32,806			49,628
Other, see terms below	39,290			37,426
Total debt	657,096			692,054
Less short-term borrowings and current portion of long-term debt	(609,506		)	(628,050		)
Long-term debt	$	47,590		$	64,004

Aggregate debt maturities for each of the years ended August 31 are as follows:

($ in thousands)	2015		2016		2017		2018		2019		Thereafter		Total
Debt maturities	$	609,506	$	28,080	$	6,430	$	3,684	$	3,551	$	5,845	$	657,096

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 borrowed $585.0 million and $605.0 million under the Revolving Credit Facility as of August 31, 2014 and 2013, respectively. We also had approximately $24 million and $14 million of outstanding letters of credit under the Revolving Credit Facility as of the respective dates. We repaid the entire amount borrowed under the Revolving Credit Facility subsequent to the respective fiscal year ends. We have classified these borrowings as short-term borrowings and the current portion of long-term debt on our Consolidated Balance Sheets because they were repaid subsequent to the respective fiscal year-ends.

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 LIBOR + 125 to 185 basis points. The weighted average interest rate on outstanding short-term borrowings under the Revolving Credit Facility at both August 31, 2014 and 2013 was 3.5%.

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 August 31, 2014 and 2013.

Other debt principally includes debt at subsidiaries of Apollo Global and the present value of an obligation payable over a 10-year period associated with our purchase of technology in fiscal year 2012. The weighted average interest rate on our outstanding other debt at August 31, 2014 and 2013 was 5.8% and 5.3%, 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.

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Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Income Statement [Abstract]
Net revenue	$ 3,024,178	$ 3,635,924	$ 4,193,190
Instructional and student advisory	1,301,004	1,561,568	1,776,596
Marketing	557,649	641,784	641,699
Admissions advisory	215,196	253,319	371,901
General and administrative	287,884	326,908	341,872
Depreciation and amortization	150,575	161,733	177,804
Provision for uncollectible accounts receivable	53,819	83,798	146,742
Restructuring and other charges	85,343	197,022	38,695
Contingent consideration charges and acquisition costs	19,837	0	0
Litigation charge (credit)	13,900	(24,600)	4,725
Goodwill and other intangibles impairment	0	0	16,788
Total costs and expenses	2,685,207	3,201,532	3,516,822
Operating income	338,971	434,392	676,368
Interest income	2,230	1,913	1,187
Interest expense	(7,914)	(8,745)	(11,745)
Other (loss) income, net	(547)	2,407	476
Income from continuing operations before income taxes	332,740	429,967	666,286
Provision for income taxes	(121,324)	(176,457)	(282,779)
Income from continuing operations	211,416	253,510	383,507
(Loss) income from discontinued operations, net of tax	(6,618)	(4,545)	33,499
Net income	204,798	248,965	417,006
Net loss (income) attributable to noncontrolling interests	4,506	(439)	5,672
Net income attributable to Apollo	$ 209,304	$ 248,526	$ 422,678
Earnings (loss) per share - Basic:
Continuing operations attributable to Apollo (in dollars per share)	$ 1.94	$ 2.25	$ 3.24
Discontinued operations attributable to Apollo (in dollars per share)	$ (0.06)	$ (0.05)	$ 0.24
Basic income per share attributable to Apollo (in dollars per share)	$ 1.88	$ 2.20	$ 3.48
Earnings (loss) per share - Diluted:
Continuing operations attributable to Apollo (in dollars per share)	$ 1.92	$ 2.23	$ 3.22
Discontinued operations attributable to Apollo (in dollars per share)	$ (0.06)	$ (0.04)	$ 0.23
Diluted income per share attributable to Apollo (in dollars per share)	$ 1.86	$ 2.19	$ 3.45
Basic weighted average shares outstanding (in shares)	111,354	112,712	121,607
Diluted weighted average shares outstanding (in shares)	112,610	113,285	122,357

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Financial Instruments

12 Months Ended

Aug. 31, 2014

Financial Instruments [Abstract]

Financial Instruments

Financial Instruments

We invest our excess cash in a variety of marketable securities. During fiscal year 2014, we changed the designation of our marketable securities from held-to-maturity to available-for-sale primarily to provide liquidity flexibility, which represented a change in our intent to hold the securities until maturity. Accordingly, we recorded a $0.2 million gain through other comprehensive income to adjust the securities from amortized cost to fair value. Unrealized gains and losses have been insignificant for all periods presented principally because of the short term nature of our debt securities.

The following summarizes our cash and cash equivalents, restricted cash and cash equivalents and marketable securities by significant financial instrument category as of the respective periods:

	August 31, 2014
($ in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents(1)		Current Marketable Securities(2)		Noncurrent Marketable Securities(2)
Cash	$	1,295,395	$	—	$	—		$	1,295,395	$	1,295,395	$	—	$	—
Level 1:
Money market funds	132,508		—		—			132,508		132,508		—		—
Level 2:
Tax-exempt municipal bonds	106,543		155		(11		)	106,687		—		78,443		28,244
Corporate bonds	106,575		123		(52		)	106,646		—		56,837		49,809
Time deposits	50,100		—		—			50,100		25,041		25,059		—
Commercial paper	11,793		1		—			11,794		—		11,794		—
Other	19,155		1		(1		)	19,155		4		15,339		3,812
Level 3:
Auction-rate securities	5,946		—		—			5,946		—		—		5,946
Total	$	1,728,015	$	280	$	(64	)	$	1,728,231	$	1,452,948	$	187,472	$	87,811

	August 31, 2013
($ in thousands)	Cash and Cash Equivalents(1)		Current Marketable Securities(2)		Noncurrent Marketable Securities(2)		Total Carrying Value		Unrealized Gains		Unrealized Losses			Fair Value
Cash	$	874,074	$	—	$	—	$	874,074	$	—	$	—		$	874,074
Level 1:
Money market funds	732,530		—		—		732,530		—		—			732,530
Level 2:
Tax-exempt municipal bonds	2,055		69,621		24,070		95,746		19		(54		)	95,711
Certificates of deposit	65,000		1,200		—		66,200		—		—			66,200
Corporate bonds	—		24,503		13,925		38,428		6		(40		)	38,394
Commercial paper	—		9,828		—		9,828		—		—			9,828
Other	—		657		—		657		—		—			657
Level 3:
Auction-rate securities	—		—		5,946		5,946
Total	$	1,673,659	$	105,809	$	43,941	$	1,823,409

⁽¹⁾ Cash and cash equivalents includes restricted cash and cash equivalents.

⁽²⁾ As described above, we changed the designation of our marketable securities to available-for-sale as of August 31, 2014 and they are reported at fair value. Our held-to-maturity securities at August 31, 2013 are recorded at amortized cost.

We measure our marketable securities 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.

• Auction-rate securities - We use a discounted cash flow model encompassing Level 3 significant unobservable inputs such as estimated interest rates, credit spreads, timing and amount of cash flows, credit quality of the underlying securities and illiquidity considerations. There were no changes in the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during fiscal year 2014.

• All other securities - We use 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.

Substantially all of our marketable securities have maturities that occur within three years. We may sell certain of our available-for-sale 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.

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Acquisitions

12 Months Ended

Aug. 31, 2014

Business Combinations [Abstract]

Acquisitions

Acquisitions

Fiscal Year 2014 Acquisitions

On May 20, 2014, Apollo Global acquired an 81% consolidated interest in Milpark Education, a provider of education and training to adult learners in South Africa, for approximately ZAR 265 million (approximated $26 million on the transaction date). This acquisition, along with the Open Colleges acquisition described below, provides access to new markets and supports our strategy to diversify and expand our global operations.

On December 20, 2013, Apollo Global acquired 70% of the outstanding shares of Open Colleges, a provider of education and training to adult learners in Australia. We paid A$110.3 million (equivalent to $98.1 million on the transaction date), plus contingent consideration of up to A$52.5 million (equivalent to $49.0 million as of August 31, 2014) that was principally based on Open Colleges’ operating results for its fiscal year ended June 30, 2014 as defined in the acquisition agreement. On the acquisition date, we estimated the fair value of the contingent consideration to be $21.4 million using a discounted cash flow valuation method encompassing significant unobservable inputs. The inputs included estimated operating results for the performance period, probability weightings assigned to the operating results scenarios and the discount rate applied. Based on Open Colleges’ operating results for the performance period, we paid A$37.8 million (equivalent to $35.2 million as of August 31, 2014) in the first quarter of fiscal year 2015 to settle the contingent consideration. For further discussion of the contingent consideration, refer to Note 9, Fair Value Measurements.

We also have the option to buy the remaining noncontrolling interests associated with the above acquisitions, and the noncontrolling shareholders have the option to sell their shares to us. The options are exercisable in the third quarter of our fiscal year 2016 for Milpark Education and in early calendar 2017 for Open Colleges, or earlier in limited circumstances for both acquisitions. The price for the options is based on a formula specified at the respective acquisition dates and is principally based on a multiple of the respective acquired entity’s operating results as defined in the acquisition agreements. There is no minimum or maximum price for these options. Since the options are embedded in the shares owned by the respective noncontrolling shareholders and the shareholders have the option to redeem their shares, we have classified both of the noncontrolling interests as redeemable equity on our Consolidated Balance Sheets. Refer to Note 13, Shareholders’ Equity and Redeemable Noncontrolling Interests.

We incurred transaction costs of $0.7 million and $3.6 million for the Milpark Education and Open Colleges acquisitions, respectively, and these costs are included in contingent consideration charges and acquisition costs on our Consolidated Statements of Income. We accounted for the acquisitions as business combinations and allocated the purchase price to the assets acquired and liabilities assumed at fair value as summarized below:

	Milpark Education				Open Colleges
	Purchase Price Allocation ($ in thousands)			Weighted Average Useful Life (Years)	Purchase Price Allocation ($ in thousands)			Weighted Average Useful Life (Years)
Net working capital deficit(1)	$	(307	)		$	(10,979	)
Property and equipment	518				2,684
Intangibles:
Course designations	—				20,652			5.0
Trademarks	5,778			Indefinite	17,919			10.0
Course curriculum	1,203			2.0	15,790			4.0
Customer relationships	2,149			2.5	5,238			1.0
Accreditation	1,270			Indefinite	976			4.0
Goodwill	22,227				127,656
Deferred taxes, net(1)	(2,818		)		(9,279		)
Total assets acquired and liabilities assumed	30,020				170,657
Less: Fair value of redeemable noncontrolling interests	(2,669		)		(51,197		)
Total fair value of consideration transferred	27,351				119,460
Less: Fair value of contingent consideration	—				(21,371		)
Less: Cash acquired	(2,834		)		(3,152		)
Cash paid for acquisition, net of cash acquired	$	24,517			$	94,937

⁽¹⁾ Net working capital deficit and deferred taxes, net include approximately $6 million and $33 million of assumed liabilities related to the Milpark Education and Open Colleges acquisitions, respectively.

We determined the fair value of assets acquired, liabilities assumed and the redeemable noncontrolling interests 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 course designations and trademarks for both acquisitions and the course curriculum for Open Colleges 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 remaining intangibles were valued using the excess earnings method, cost savings method, or replacement cost approach.

• Deferred revenue - Deferred revenue is included in net working capital deficit in the above table. 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.

• Other assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.

• Redeemable noncontrolling interests - We estimated the fair value of the redeemable noncontrolling interests principally as the noncontrolling ownership percentage of the implied fair value of each acquired entity as a whole. We reduced the fair value of the Milpark Education noncontrolling interest for certain discounts including lack of control. Based on the terms of the Open Colleges acquisition, including the structure of the redemption options held by the noncontrolling shareholders and our future operating plans for the entity, we did not apply a discount to the fair value of the noncontrolling interest.

We recorded $22.2 million and $127.7 million of goodwill as a result of the Milpark Education and Open Colleges acquisitions, respectively, both of which are not expected to be deductible for tax purposes. The goodwill for both acquisitions is principally attributable to the future earnings potential associated with student 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 for both reporting units.

We assigned an indefinite useful life to the acquired Milpark Education trademark and accreditation 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, as applicable, we intend to renew the intangible and renewal can be accomplished at little cost. We determined all of the other acquired intangibles are finite-lived and we are amortizing them on either a straight-line or an accelerated basis that reflects 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 2.3 years and 5.9 years for Milpark Education and Open Colleges, respectively. Refer to Note 8, Goodwill and Intangibles, for the estimated future amortization of our finite-lived intangibles.

The operating results of Milpark Education and Open Colleges are included in our consolidated financial statements from the date of each respective acquisition. 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, both individually and in the aggregate, to our consolidated results of operations.

Fiscal Year 2012 Acquisition

On September 12, 2011, we acquired all of the outstanding stock of Carnegie Learning, a publisher of research-based math curricula and adaptive learning software for a cash purchase price of $75.0 million. We accounted for the Carnegie Learning acquisition as a business combination and Carnegie Learning’s operating results are included in our consolidated financial statements from the date of acquisition. We have not provided pro forma information or the revenue and operating results of Carnegie Learning because its results of operations are not significant to our consolidated results of operations.

The acquisition purchase price allocation is summarized below:

($ in thousands)
Tangible assets (net of acquired liabilities)	$	(10,894	)
Finite-lived intangibles	37,000
Indefinite-lived intangibles	14,100
Goodwill	34,794
Allocated purchase price	75,000
Less: Cash acquired	(1,264		)
Acquisition, net of cash acquired	$	73,736

In a separate transaction completed on the same date, we acquired related technology from Carnegie Mellon University for $21.5 million payable over a 10-year period. We accounted for the technology acquired as an asset purchase. Accordingly, we recorded a $14.4 million asset and corresponding liability representing the present value of the future cash payments on the acquisition date using our incremental borrowing rate. The asset is included in intangible assets, net on our Consolidated Balance Sheets and is being amortized on a straight-line basis over a five-year useful life. The liability is included in debt on our Consolidated Balance Sheets and is being accreted over the 10-year period, with the accretion recorded in interest expense on our Consolidated Statements of Income.

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Commitments and Contingencies

12 Months Ended

Aug. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Guarantees

We have agreed to indemnify our officers and directors for certain events or occurrences. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer liability insurance policies that mitigate our exposure and enable us to recover a portion of any future amounts paid. Based on the significant uncertainty associated with our pending as well as possible future litigation, settlements and other proceedings relative to our insurance policy coverage, the fair value of these indemnification agreements, if any, cannot be estimated.

Lease Commitments

The following details our future minimum commitments for operating and capital leases as of August 31, 2014:

($ in thousands)	Capital Leases			Operating Leases(1)
2015	$	17,963		$	171,875
2016	10,957			149,902
2017	4,093			123,289
2018	947			103,134
2019	330			74,871
Thereafter	611			296,334
Total future minimum lease obligation(1), (2)	$	34,901		$	919,405
Less: imputed interest on capital leases	(2,095		)
Net present value of capital lease obligations	$	32,806

⁽¹⁾ The total future minimum lease obligation excludes non-cancelable sublease rental income of $25.7 million.

⁽²⁾ We have initiated restructuring activities that include ceasing use of a significant number of our operating leases. Refer to Note 2, Restructuring and Other Charges. The total future minimum operating lease obligation includes approximately $163 million of future contractual lease payments associated with locations for which we no longer expect to receive an economic benefit. The total future minimum operating lease obligation also includes approximately $6 million of future contractual lease payments associated with locations that we expect to close as University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations.

Rent expense was $144.9 million, $184.6 million and $207.5 million for fiscal years 2014, 2013 and 2012, respectively.

We have entered into sale-leaseback agreements in prior fiscal years for properties that we currently use to support our operations. As of August 31, 2014 and 2013, our total deferred gains included on our Consolidated Balance Sheets was $23.1 million and $25.7 million, respectively. We recognized gain amortization associated with these sale-leasebacks of $2.0 million, $2.8 million and $2.8 million in fiscal years 2014, 2013 and 2012, respectively.

Naming Rights to Glendale, Arizona Sports Complex

In September 2006, we entered into an agreement for naming and sponsorship rights on a stadium in Glendale, Arizona, which is home to the Arizona Cardinals team in the National Football League. The agreement includes naming, sponsorship, signage, advertising and other promotional rights and benefits. The initial agreement term is in effect until 2026 with options to extend. Pursuant to the agreement, we were required to pay a total of $5.8 million for the 2006 contract year, which increases 3% per year until 2026. As of August 31, 2014, our remaining contractual obligation pursuant to this agreement is $101.4 million. Other payments apply if certain events occur, such as if the Cardinals play in the Super Bowl or if all of the Cardinals’ regular season home games are sold-out.

Surety Bonds

As part of our normal operations, our insurers issue surety bonds for us that are required by various states where we operate. We are obligated to reimburse our insurers for any surety bonds that are paid. As of August 31, 2014, the face amount of these surety bonds was approximately $36 million.

Letters of Credit

As of August 31, 2014, we had approximately $24 million of outstanding letters of credit, which principally support certain guarantees provided by our subsidiaries as part of our normal operations for which the 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.

Securities Class Action (Apollo Institutional Investors Group)

On August 13, 2010, a securities class action complaint was filed in the U.S. District Court for the District of Arizona by Douglas N. Gaer naming us, John G. Sperling, Gregory W. Cappelli, Charles B. Edelstein, Joseph L. D’Amico, Brian L. Swartz and Gregory J. Iverson as defendants for allegedly making false and misleading statements regarding our business practices and prospects for growth. That complaint asserted a putative class period stemming from December 7, 2009 to August 3, 2010. A substantially similar complaint was also filed in the same Court by John T. Fitch on September 23, 2010 making similar allegations against the same defendants for the same purported class period. Finally, on October 4, 2010, another purported securities class action complaint was filed in the same Court by Robert Roth against the same defendants as well as Brian Mueller, Terri C. Bishop and Peter V. Sperling based upon the same general set of allegations, but with a defined class period of February 12, 2007 to August 3, 2010. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On October 15, 2010, three additional parties filed motions to consolidate the related actions and be appointed the lead plaintiff.

On November 23, 2010, the Fitch and Roth actions were consolidated with Gaer and the Court appointed the “Apollo Institutional Investors Group” consisting of the Oregon Public Employees Retirement Fund, the Mineworkers’ Pension Scheme, and Amalgamated Bank as lead plaintiffs. The case is now entitled, In re Apollo Group, Inc. Securities Litigation, Lead Case Number CV-10-1735-PHX-JAT. On February 18, 2011, the lead plaintiffs filed a consolidated complaint naming Apollo, John G. Sperling, Peter V. Sperling, Joseph L. D’Amico, Gregory W. Cappelli, Charles B. Edelstein, Brian L. Swartz, Brian E. Mueller, Gregory J. Iverson, and William J. Pepicello as defendants. The consolidated complaint asserts a putative class period of May 21, 2007 to October 13, 2010. On April 19, 2011, we filed a motion to dismiss and oral argument on the motion was held before the Court on October 17, 2011. On October 27, 2011, the Court granted our motion to dismiss and granted plaintiffs leave to amend. On December 6, 2011, the lead plaintiffs filed an Amended Consolidated Class Action Complaint, which alleges similar claims against the same defendants. On January 9, 2012, we filed a motion to dismiss the Amended Consolidated Class Action Complaint. On June 22, 2012, the Court granted our motion to dismiss and entered a judgment in our favor. On July 20, 2012, the plaintiffs filed a Notice of Appeal with the U.S. Court of Appeals for the Ninth Circuit, and their appeal remains pending before that Court. If the plaintiffs are successful in their appeal, we anticipate they will seek substantial damages.

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.

Securities Class Action (Teamsters Local 617 Pensions and Welfare Funds)

On November 2, 2006, the Teamsters Local 617 Pension and Welfare Funds filed a class action complaint purporting to represent a class of shareholders who purchased our stock between November 28, 2001 and October 18, 2006. The complaint, filed in the U.S. District Court for the District of Arizona, is entitled Teamsters Local 617 Pension & Welfare Funds v. Apollo Group, Inc. et al., Case Number 06-cv-02674-RCB, and alleges that we and certain of our current and former directors and officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by purportedly making misrepresentations concerning our stock option granting policies and practices and related accounting. The defendants are Apollo, J. Jorge Klor de Alva, Daniel E. Bachus, John M. Blair, Dino J. DeConcini, Kenda B. Gonzales, Hedy F. Govenar, Brian E. Mueller, Todd S. Nelson, Laura Palmer Noone, John R. Norton III, John G. Sperling and Peter V. Sperling. On September 11, 2007, the Court appointed The Pension Trust Fund for Operating Engineers as lead plaintiff. Lead plaintiff filed an amended complaint on November 23, 2007, asserting the same legal claims as the original complaint and adding claims for violations of Section 20A of the Securities Exchange Act of 1934 and allegations of breach of fiduciary duties and civil conspiracy. On April 30, 2009, plaintiffs filed their Second Amended Complaint, which alleges similar claims for alleged securities fraud against the same defendants.

On March 31, 2011, the U.S. District Court for the District of Arizona dismissed the case with prejudice and entered judgment in our favor. Plaintiffs filed a motion for reconsideration of this ruling, and the Court denied this motion on April 2, 2012. On April 27, 2012, the plaintiffs filed a Notice of Appeal with the U.S. Court of Appeals for the Ninth Circuit. During the pendency of this appeal, the parties reached an agreement in principle to settle this matter and, at the request of the parties, the Ninth Circuit issued an order staying the appeal on April 30, 2014. The parties plan to present a stipulation of settlement to the district court for approval in the near term.

As of August 31, 2014, we have accrued an immaterial amount reflecting the agreed-upon settlement. We intend to pursue reimbursement of the settlement amount from our insurance carriers, although the outcome of any such recovery efforts is uncertain at this point.

Securities Class Action (Nader Saleh)

On April 24, 2014, a securities class action complaint was filed in the U.S. District Court for the District of Arizona by Nader Saleh naming Apollo Education Group, Inc., Gregory W. Cappelli, and Brian L. Swartz as defendants and asserting a putative class period stemming from October 19, 2011 to April 1, 2014. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and contends that defendants made false and/or misleading statements by misrepresenting and failing to disclose that: (i) defendants manipulated federal student loan and grant programs to appear to be in compliance with federal regulations; (ii) defendants’ predatory and deceptive recruiting and enrollment practices violated federal regulations; and (iii) Apollo engaged in a number of practices, including loan forbearance programs, to create the appearance that it was in compliance with federal regulations. The complaint further contends that the truth emerged regarding these statements when Apollo announced on April 1, 2014 it had received a subpoena from the U.S. Department of Education. The matter is entitled Saleh v. Apollo Education Group, Inc., 2:14-cv-00877-SRB. Per the scheduling order entered by the district court, defendants shall have 60 days to respond to plaintiff’s amended complaint, which is due to be filed on or before November 12, 2014.

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 September 25, 2014, Mundy Gonzalez filed a class action complaint against University of Phoenix alleging violations of the Telephone Consumer Protection Act (“TCPA”). The complaint, which is captioned Gonzalez v. The University of Phoenix, 3:14-cv-02279 and which was filed in U.S. District Court for the Southern District of California, alleges that University of Phoenix violated the TCPA by using automatic dialing systems to place unsolicited telephone calls to the cellular telephones of plaintiff and other individuals. The complaint seeks to recover damages on behalf of plaintiff and other similarly situated individuals.

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 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 August 21, 2014, relators filed a motion to stay the dismissal order and final judgment pending the appeal of another False Claims Act case not involving Apollo or University of Phoenix, and that motion remains pending before the district 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.

Himmel Derivative Action

On November 12, 2010, we received a shareholder demand to investigate, address and commence proceedings against each of our directors and certain of our officers for violation of any applicable laws, including in connection with the subject matter of the report of the Government Accountability Office prepared for the U.S. Senate in August 2010, our withdrawal of the outlook we previously provided for our fiscal year 2011, the investigation into possible unfair and deceptive trade practices associated with certain alleged practices of University of Phoenix by the State of Florida Office of the Attorney General in Fort Lauderdale, Florida, the participation by the State of Oregon Office of the Attorney General in the Securities Class Action (Apollo Institutional Investors Group), and the informal inquiry by the Enforcement Division of the Securities and Exchange Commission that commenced in October 2009.

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

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 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, we have sought to dismiss this action on those grounds, and our application for such relief remains pending before the Court. 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

On October 22, 2010, University of Phoenix received notice that the State of Florida Office of the Attorney General in Fort Lauderdale, Florida had commenced an investigation into possible unfair and deceptive trade practices associated with certain alleged practices of 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, but also filed a suit to quash or limit the subpoena and to protect information sought that constitutes proprietary or trade secret information. We cannot predict the eventual scope, duration or outcome of the investigation 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.

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.

In addition, from time to time, we receive informal requests from state Attorneys General and other government agencies relating to specific complaints they have received from students or former students and seeking information about the student, our programs, and other matters relating to our activities in the relevant state. 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 in a particular state.

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 until March 2012, and we have since 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 is also requesting additional information from UNIACC regarding certain government funding received by the institution. UNIACC is cooperating with these investigations. At this time, we cannot predict the eventual scope, duration or outcome of these investigations.

In November 2012, UNIACC learned that the Ministry of Education was commencing a formal investigation into profit related issues and concerning the official recognition of UNIACC as a university under Chilean law. On November 18, 2013, we were notified by the Ministry of Education that it declined to pursue any charges against UNIACC and closed its investigation without imposing any sanction on UNIACC. In closing its investigation, the Ministry forwarded certain of its files for review by the Chilean tax authorities and the criminal prosecutor conducting the profit investigation referenced above.

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 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.

Patent Infringement Litigation

On March 3, 2008, Digital-Vending Services International Inc. filed a complaint against University of Phoenix and Apollo, as well as Capella Education Company, Laureate Education Inc., and Walden University Inc. in the U.S. District Court for the Eastern District of Texas, since transferred on plaintiff’s motion to the Eastern District of Virginia. The case is entitled, Digital Vending Services International, LLC vs. The University of Phoenix, et al, Case Number 2:09cv555 (JBF-TEM). The complaint alleges that we and the other defendants have infringed and are infringing various patents relating to managing courseware in a shared use operating environment and seeks injunctive relief and substantial damages, including royalties as a percentage of our net revenue over a multi-year period. We filed an answer to the complaint on May 27, 2008, in which we denied that Digital-Vending Services International’s patents were duly and lawfully issued, and asserted defenses of non-infringement and patent invalidity, among others. We also asserted a counterclaim seeking a declaratory judgment that the patents are invalid, unenforceable, and not infringed by us.

On January 7, 2011, the Court granted our motion for summary judgment and dismissed the case with prejudice, citing plaintiff’s failure to point to admissible evidence that could support a finding of infringement. Plaintiff appealed the order granting summary judgment to the United States Court of Appeals for the Federal Circuit, which held oral argument on December 5, 2011. On March 7, 2012, a divided three-judge panel of the Federal Circuit issued an opinion affirming in part and reversing in part the order granting summary judgment, and it remanded a portion of the plaintiff’s claims to the district court for further proceedings. We filed a Petition for Rehearing with the Federal Circuit regarding the portion of the decision reversing the grant of summary judgment, which the Federal Circuit denied on May 25, 2012. Accordingly, the case was remanded to the U.S. District Court for the Eastern District of Virginia for further proceedings. In July 2013, we filed another motion for summary judgment based on non-infringement, and on October 4, 2013, the Court granted our motion and dismissed each of plaintiff’s remaining claims with prejudice. On November 1, 2013, plaintiff filed a Notice of Appeal of the District Court’s order. The parties subsequently entered into a settlement agreement for an immaterial amount pursuant to which plaintiff agreed to dismiss its appeal. Plaintiff’s appeal was dismissed on November 21, 2013, which resolved the litigation.

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Income Taxes

12 Months Ended

Aug. 31, 2014

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Geographic sources of income (loss) from continuing operations before income taxes are as follows for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
United States	$	384,146		$	468,738		$	727,965
Foreign	(51,406		)	(38,771		)	(61,679		)
Income from continuing operations before income taxes	$	332,740		$	429,967		$	666,286

Income tax (expense) benefit consists of the following for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Current:
U.S. Federal	$	(114,997	)	$	(174,020	)	$	(212,113	)
State and local	(17,664		)	(30,250		)	(46,676		)
Foreign	(2,575		)	(1,704		)	(2,140		)
Total current	(135,236		)	(205,974		)	(260,929		)
Deferred:
U.S. Federal	(3,154		)	20,420			(28,999		)
State and local	240			3,132			(1,039		)
Foreign	16,826			5,965			8,188
Total deferred	13,912			29,517			(21,850		)
Provision for income taxes	$	(121,324	)	$	(176,457	)	$	(282,779	)

The provision for income taxes differs from the tax computed using the statutory U.S. federal income tax rate as a result of the following items for the respective periods:

	Year Ended August 31,
	2014		2013		2012
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	4.8	%	4.3	%	4.2	%
Foreign taxes	0.9	%	2.2	%	1.4	%
Goodwill impairments	—	%	—	%	0.9	%
Internal Revenue Service settlement	(3.1	)%	—	%	—	%
Mexico tax reform	(0.8	)%	—	%	—	%
Contingent consideration	1.0	%	—	%	—	%
Other, net	(1.3	)%	(0.5	)%	0.9	%
Effective income tax rate	36.5	%	41.0	%	42.4	%

Deferred tax assets and liabilities consist of the following as of August 31:

($ in thousands)	2014			2013
Deferred tax assets:
Allowance for doubtful accounts	$	13,100		$	16,479
Leasing transactions	74,528			86,946
Net operating loss carry-forward	16,938			25,055
Share-based compensation	23,796			35,123
Deferred revenue	18,539			4,698
Other	62,436			47,231
Gross deferred tax assets	209,337			215,532
Valuation allowance	(21,048		)	(17,998		)
Deferred tax assets, net of valuation allowance	188,289			197,534
Deferred tax liabilities:
Fixed assets	36,149			42,485
Intangibles	47,344			35,109
Other	6,264			7,929
Gross deferred tax liabilities	89,757			85,523
Net deferred income taxes	$	98,532		$	112,011

The net operating loss carry-forward in the above table represents $23.2 million of U.S. net operating losses that will begin to expire August 31, 2028. We also have $59.6 million of net operating losses in various foreign jurisdictions that do not expire.

As of August 31, 2014 and 2013, we have recorded a valuation allowance related to a portion of our net operating losses and other deferred tax assets of certain of our foreign subsidiaries because it is more likely than not that these deferred tax assets will not be utilized. We have concluded that it is more likely than not that we will ultimately realize the full benefit of our other deferred tax assets principally based on our history of profitable operations.

We have not provided deferred taxes on unremitted earnings attributable to international subsidiaries that have been considered permanently reinvested. As of August 31, 2014, the earnings from these operations are not significant.

Uncertain Tax Positions

The following summarizes the activity in our unrecognized tax benefits, excluding interest and penalties, for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Beginning unrecognized tax benefits	$	44,057		$	32,207		$	25,811
Increases for tax positions taken in the current year	—			13,095			7,708
Increases for tax positions taken in prior years	2,214			5,953			813
Decreases for settlements with tax authorities	(7,184		)	(197		)	(733		)
Decreases for tax positions of prior years(1)	(10,541		)	(2,635		)	—
Decreases due to lapse of applicable statutes of limitations	(10,148		)	(4,366		)	(1,392		)
Ending unrecognized tax benefits	$	18,398		$	44,057		$	32,207

⁽¹⁾ Fiscal year 2014 includes the $10.2 million tax benefit discussed in Income Tax Audits below.

Our liabilities for unrecognized tax benefits are primarily included in accrued and other current liabilities and other long-term liabilities on our Consolidated Balance Sheets, which also includes $2.2 million and $4.2 million of interest and penalties associated with our unrecognized tax benefits as of August 31, 2014 and 2013, respectively.

We classify interest and penalties related to uncertain tax positions as a component of provision for income taxes on our Consolidated Statements of Income. We recognized a $1.9 million benefit in fiscal year 2014, and expense of $0.1 million and $0.4 million in fiscal years 2013 and 2012, respectively, related to interest and penalties.

Although we cannot predict the timing of resolution with taxing authorities, if any, we believe it is reasonably possible that $13.8 million of our unrecognized tax benefits will be reduced in the next twelve months due to settlement with tax authorities or expiration of the applicable statute of limitations. These unrecognized tax benefits primarily relate to apportionment of service revenues for corporate income tax purposes and deductibility of certain costs of our foreign subsidiaries.

As of August 31, 2014, $10.0 million of our total unrecognized tax benefits would favorably affect our effective tax rate if recognized. If amounts accrued are less than amounts ultimately assessed by the taxing authorities, we would record additional income tax expense.

Income Tax Audits

Our U.S. federal income tax return for fiscal year 2013 is currently open for review by the Internal Revenue Service (“IRS”). During fiscal year 2014, the IRS completed its review of our federal income tax return for fiscal year 2012. In addition, we are participating in the IRS’s Compliance Assurance Process for fiscal years 2014 and 2015, 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 U.S. federal income tax returns.

In fiscal year 2014, we settled a matter with the IRS related to the deductibility of certain costs for our foreign subsidiaries in fiscal years 2011 through 2013, which resulted in a $10.2 million tax benefit during fiscal year 2014. In addition, our fiscal year 2011 federal income tax return was closed in connection with this settlement.

In addition to the IRS audits discussed above, 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.

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Goodwill and Intangibles

12 Months Ended

Aug. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangibles

Goodwill and Intangibles

The following details changes in the carrying amount of our goodwill by reportable segment during fiscal years 2014 and 2013:

	University of Phoenix		Apollo Global		Other		Total
($ in thousands)
Goodwill as of August 31, 2012	$	71,812	$	14,642	$	16,891	$	103,345
Currency translation adjustment	—		275		—		275
Goodwill as of August 31, 2013	71,812		14,917		16,891		103,620
Acquisitions(1)	—		149,883		—		149,883
Currency translation adjustment	—		6,398		—		6,398
Goodwill as of August 31, 2014	$	71,812	$	171,198	$	16,891	$	259,901

⁽¹⁾ Represents goodwill acquired in the Milpark Education and Open Colleges acquisitions. Refer to Note 4, Acquisitions.

The following presents the components of the net carrying amount of our goodwill by reportable segment as of August 31, 2014 and 2013:

	University of Phoenix		Apollo Global(1)			Other			Total
($ in thousands)
Gross carrying amount(1)	$	71,812	$	177,068		$	37,096		$	285,976
Accumulated impairments(1)	—		(8,712		)	(20,205		)	(28,917		)
Foreign currency translation	—		2,842			—			2,842
Net carrying amount at August 31, 2014	$	71,812	$	171,198		$	16,891		$	259,901

	University of Phoenix		Apollo Global(1)			Other			Total
($ in thousands)
Gross carrying amount(1)	$	71,812	$	27,185		$	37,096		$	136,093
Accumulated impairments(1)	—		(8,712		)	(20,205		)	(28,917		)
Foreign currency translation	—		(3,556		)	—			(3,556		)
Net carrying amount at August 31, 2013	$	71,812	$	14,917		$	16,891		$	103,620

⁽¹⁾ We have also recorded $366 million of accumulated impairments associated with our BPP and UNIACC reporting units, both of which did not have any goodwill as of August 31, 2014 and 2013.

Intangible assets consist of the following as of August 31:

	2014										2013
($ 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
Software and technology	$	42,389	$	(25,151	)	$	—		$	17,238	$	42,389	$	(16,673	)	$	—		$	25,716
Accreditations and designations(1)	21,628		(3,015		)	1,000			19,613		—		—			—			—
Trademarks(1)	17,919		(1,238		)	907			17,588		—		—			—			—
Curriculum(1)	16,993		(2,933		)	826			14,886		—		—			—			—
Student and customer relationships(1)	15,934		(9,780		)	(1,161		)	4,993		12,026		(7,727		)	(1,363		)	2,936
Other(1)	20,891		(19,909		)	(611		)	371		20,891		(18,706		)	(777		)	1,408
Total finite-lived intangibles	135,754		(62,026		)	961			74,689		75,306		(43,106		)	(2,140		)	30,060
Trademarks(1)	106,514		—			(68		)	106,446		100,736		—			(5,347		)	95,389
Accreditations and designations(1)	8,530		—			(300		)	8,230		7,260		—			(517		)	6,743
Total indefinite-lived intangibles	115,044		—			(368		)	114,676		107,996		—			(5,864		)	102,132
Total intangible assets, net	$	250,798	$	(62,026	)	$	593		$	189,365	$	183,302	$	(43,106	)	$	(8,004	)	$	132,192

⁽¹⁾ We acquired certain intangibles during fiscal year 2014 as a result of our acquisitions. Refer to Note 4, Acquisitions.

Finite-lived intangibles are amortized on either a straight-line basis or using an accelerated method to reflect the pattern in which the benefits of the asset are consumed. Amortization expense for intangibles for fiscal years 2014, 2013 and 2012 was $22.4 million, $15.1 million and $20.2 million, respectively. The weighted average original useful life of our finite-lived intangibles as of August 31, 2014 was 5.8 years and the estimated future amortization expense of our finite-lived intangibles is as follows:

($ in thousands)	2015		2016		2017		2018		2019		Thereafter		Total
University of Phoenix	$	8,478	$	8,478	$	282	$	—	$	—	$	—	$	17,238
Apollo Global	14,765		11,923		10,793		7,689		3,327		8,166		56,663
Other	764		24		—		—		—		—		788
Total estimated future amortization expense(1)	$	24,007	$	20,425	$	11,075	$	7,689	$	3,327	$	8,166	$	74,689

⁽¹⁾ The estimated future amortization expense may vary as acquisitions and dispositions occur in the future and as a result of foreign currency translation adjustments.

We completed our fiscal year 2014 annual goodwill and indefinite-lived intangibles impairment tests, as applicable, for our reporting units on the following annual test dates and determined there was no impairment:

• May 31: University of Phoenix, ULA, UNIACC, Carnegie Learning and Western International University;

• July 1: Open Colleges, BPP and Milpark Education; and

• August 31: College for Financial Planning.

During fiscal year 2012, UNIACC was advised by the National Accreditation Commission of Chile that its institutional accreditation would not be renewed and therefore had lapsed. The loss of accreditation reduced new enrollment in UNIACC’s degree programs. Accordingly, we revised our cash flow estimates and UNIACC’s $11.9 million of goodwill and $4.9 million of its intangibles were impaired. We did not record an income tax benefit associated with these charges as UNIACC’s goodwill and other intangibles are not deductible for tax purposes.

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Shareholders' Equity and Redeemable Noncontrolling Interests (Details) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	3 Months Ended	12 Months Ended
	Nov. 30, 2012	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Share repurchases [Line Items]
Share repurchases		$ 172,709,000	$ 9,537,000	$ 811,913,000
Treasury stock reissued, shares		1,431	1,532	1,184
Purchase of noncontrolling interests	42,500,000	893,000	42,500,000	0
Accumulated other comprehensive loss [Abstract]
Foreign currency translation losses		(26,919,000)	(36,032,000)
Unrealized loss on marketable securities		(401,000)	(531,000)
Accumulated other comprehensive loss		(27,320,000)	(36,563,000)
Apollo Class A nonvoting common stock [Member]
Share repurchases [Line Items]
Aggregate share repurchase program			250,000,000
Amount remaining on repurchase authorization		90,300,000
Apollo Class A nonvoting common stock [Member] | Share Repurchases [Member]
Share repurchases [Line Items]
Share repurchases (in shares)		5,363	0	19,117
Treasury stock purchases, average price per share		$ 29.78	$ 0.00	$ 41.82
Share repurchases		159,684,000	0	799,506,000
Apollo Class A nonvoting common stock [Member] | Repurchases Related To Restricted Stock Units [Member]
Share repurchases [Line Items]
Share repurchases (in shares)		471	475	303
Share repurchases		13,025,000	9,537,000	12,407,000
Noncontrolling Interest in Apollo Global [Member]
Share repurchases [Line Items]
Noncontrolling ownership interest				14.40%
Recurring Fair Value Measurement [Member]
Share repurchases [Line Items]
Initial fair value of contingent payment		41,893,000	5,277,000
Recurring Fair Value Measurement [Member] | Noncontrolling Interest in Apollo Global [Member]
Share repurchases [Line Items]
Initial fair value of contingent payment	$ 6,000,000	$ 6,700,000

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Accounts Receivable, Net

12 Months Ended

Aug. 31, 2014

Receivables [Abstract]

Accounts Receivable, Net

Accounts Receivable, Net

Accounts receivable, net consist of the following as of August 31:

($ in thousands)	2014			2013
Student accounts receivable	$	255,134		$	243,660
Less allowance for doubtful accounts	(50,145		)	(59,744		)
Net student accounts receivable	204,989			183,916
Other receivables	20,409			31,485
Total accounts receivable, net	$	225,398		$	215,401

Student accounts receivable is composed primarily of amounts due related to tuition and educational services. Our student receivables are not collateralized; however, credit risk is reduced as the amount owed by any individual student is small relative to the total student receivables and the customer base is geographically diverse.

The following summarizes the activity in allowance for doubtful accounts for the respective periods:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Beginning allowance for doubtful accounts	$	59,744		$	107,230		$	128,897
Provision for uncollectible accounts receivable	53,819			83,798			146,742
Write-offs, net of recoveries	(63,418		)	(131,284		)	(168,409		)
Ending allowance for doubtful accounts	$	50,145		$	59,744		$	107,230

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Property and Equipment, Net

12 Months Ended

Aug. 31, 2014

Property, Plant and Equipment [Abstract]

Property and Equipment, Net

Property and Equipment, Net

Property and equipment, net consist of the following as of August 31:

($ in thousands)	2014			2013
Land	$	30,540		$	30,562
Buildings	62,970			62,852
Furniture and equipment	388,397			428,441
Leasehold improvements (includes tenant improvement allowances)	357,645			353,548
Software	139,376			128,746
Internally developed software	139,325			121,137
Construction in progress	40,502			52,097
Gross property and equipment	1,158,755			1,177,383
Accumulated depreciation and amortization	(723,022		)	(704,769		)
Property and equipment, net	$	435,733		$	472,614

The following amounts, which are included in the above table, represent capital leases as of August 31:

($ in thousands)	2014			2013
Buildings and land	$	4,510		$	5,307
Furniture and equipment	48,024			53,826
Software	14,264			14,264
Accumulated depreciation and amortization	(42,401		)	(33,301		)
Capital lease assets, net	$	24,397		$	40,096

Depreciation expense was $135.8 million, $196.7 million and $158.0 million for fiscal years 2014, 2013 and 2012, respectively. For fiscal years 2014 and 2013, depreciation expense includes $7.6 million and $50.1 million, respectively, of accelerated depreciation associated with our restructuring activities that is included in restructuring and other charges on our Consolidated Statements of Income. The remaining depreciation expense in fiscal year 2014 and 2013 and all of the depreciation expense in fiscal year 2012 is included in depreciation and amortization on our Consolidated Statements of Income. Depreciation expense also includes internally developed software depreciation of $20.1 million, $12.1 million and $10.1 million for fiscal years 2014, 2013 and 2012, respectively.

During fiscal year 2013, we recorded $20.4 million of fixed asset impairment charges, which includes $12.2 million resulting from our restructuring activities. Refer to Note 2, Restructuring and Other Charges.

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Fair Value Measurements

12 Months Ended

Aug. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

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 Consolidated Balance Sheets, consist of the following as of August 31, 2014 and 2013:

			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 August 31, 2014	$	41,893	$	—	$	—	$	41,893
Contingent consideration as of August 31, 2013	$	5,277	$	—	$	—	$	5,277

Our contingent consideration liabilities are classified within Level 3 and 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:

• Open Colleges - As a result of our acquisition of Open Colleges during the second quarter of fiscal year 2014, we had contingent consideration that was principally based on Open Colleges’ operating results for its fiscal year ended June 30, 2014 as defined in the acquisition agreement. Based on information available as of the acquisition date, we initially estimated the fair value of the contingent consideration to be $21.4 million using a discounted cash flow valuation method encompassing significant unobservable inputs. The inputs included estimated operating results for the performance period, probability weightings assigned to the operating results scenarios and the discount rate applied. Based on Open Colleges’ operating results for the performance period, we paid A$37.8 million (equivalent to $35.2 million as of August 31, 2014) in the first quarter of fiscal year 2015 to settle the contingent consideration, which also represents the fair value of the liability as of August 31, 2014. The increase in fair value of the contingent consideration was included in Contingent consideration charges and acquisition costs on our Consolidated Statements of Income during fiscal year 2014.

• 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 August 31, 2014, the estimated fair value for this contingent consideration was $6.7 million.

We did not change our valuation techniques associated with recurring fair value measurements from prior periods. 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:

	Year Ended August 31,
($ in thousands)	2014		2013
Beginning balance	$	5,277	$	—
Initial contingent consideration at fair value	21,371		6,000
Change in fair value included in net income	13,907		(723		)
Currency translation adjustment	1,338		—
Ending balance	$	41,893	$	5,277

Liabilities measured at fair value on a nonrecurring basis during fiscal years 2014 and 2013, all of which are included in other liabilities on our Consolidated Balance Sheets, consist of the following:

			Fair Value Measurements at Measurement Dates Using
($ in thousands)	Fair Value at Measurement Dates		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses for Respective Fiscal Years
Fiscal year 2014 restructuring obligations	$	34,701	$	—	$	—	$	34,701	$	34,701
Fiscal year 2013 restructuring obligations	$	92,151	$	—	$	—	$	92,151	$	92,151

During fiscal years 2014 and 2013, we recorded $34.7 million and $92.2 million, respectively, of aggregate initial lease and other contract obligations at fair value associated with our restructuring activities. We recorded obligation liabilities on the dates we ceased using the right conveyed by the respective contracts, and we measured the liabilities at fair value using Level 3 inputs included in the valuation method. Refer to Note 2, Restructuring and Other Charges.

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Stock and Savings Plans (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Aug. 31, 2014
Exercise price range [Line Items]
Outstanding options	3,504
Exercisable options	2,186
Exercise price 1 [Member]
Exercise price range [Line Items]
Option exercise price range (low)	$ 16.75
Option exercise price range (high)	$ 16.75
Outstanding options	600
Outstanding options weighted average contractual life remaining	2 years 6 months 11 days
Outstanding options weighted average exercise price	$ 16.75
Exercisable options	360
Exercisable options weighted average exercise price	$ 16.75
Exercise price 2 [Member]
Exercise price range [Line Items]
Option exercise price range (low)	$ 19.62
Option exercise price range (high)	$ 25.79
Outstanding options	361
Outstanding options weighted average contractual life remaining	4 years 10 months 28 days
Outstanding options weighted average exercise price	$ 20.54
Exercisable options	81
Exercisable options weighted average exercise price	$ 20.11
Exercise price 3 [Member]
Exercise price range [Line Items]
Option exercise price range (low)	$ 26.74
Option exercise price range (high)	$ 26.74
Outstanding options	682
Outstanding options weighted average contractual life remaining	5 years 11 months 12 days
Outstanding options weighted average exercise price	$ 26.74
Exercisable options	0
Exercisable options weighted average exercise price	$ 0.00
Exercise price 4 [Member]
Exercise price range [Line Items]
Option exercise price range (low)	$ 33.12
Option exercise price range (high)	$ 42.27
Outstanding options	778
Outstanding options weighted average contractual life remaining	2 years 3 months 7 days
Outstanding options weighted average exercise price	$ 40.29
Exercisable options	699
Exercisable options weighted average exercise price	$ 40.57
Exercise price 5 [Member]
Exercise price range [Line Items]
Option exercise price range (low)	$ 42.41
Option exercise price range (high)	$ 63.79
Outstanding options	613
Outstanding options weighted average contractual life remaining	1 year 10 months 13 days
Outstanding options weighted average exercise price	$ 53.10
Exercisable options	576
Exercisable options weighted average exercise price	$ 53.46
Exercise price 6 [Member]
Exercise price range [Line Items]
Option exercise price range (low)	$ 65.26
Option exercise price range (high)	$ 91.20
Outstanding options	468
Outstanding options weighted average contractual life remaining	1 year 0 months 4 days
Outstanding options weighted average exercise price	$ 70.08
Exercisable options	468
Exercisable options weighted average exercise price	$ 70.08
Exercise price 7 [Member]
Exercise price range [Line Items]
Option exercise price range (low)	$ 169.47
Option exercise price range (high)	$ 169.47
Outstanding options	2
Outstanding options weighted average contractual life remaining	7 months 28 days
Outstanding options weighted average exercise price	$ 169.47
Exercisable options	2
Exercisable options weighted average exercise price	$ 169.47

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Stock and Savings Plans (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Share-based compensation expense [Line Items]
Share-based compensation	$ 42,819	$ 49,462	$ 78,705
Tax effect of share-based compensation	(16,754)	(18,986)	(29,874)
Share-based compensation expense, net of tax	26,065	30,476	48,831
Instructional and student advisory [Member]
Share-based compensation expense [Line Items]
Share-based compensation	10,727	20,060	27,731
Marketing [Member]
Share-based compensation expense [Line Items]
Share-based compensation	3,702	5,182	6,807
Admissions advisory [Member]
Share-based compensation expense [Line Items]
Share-based compensation	813	849	1,691
General and administrative [Member]
Share-based compensation expense [Line Items]
Share-based compensation	23,296	21,363	41,153
Restructuring and other charges [Member]
Share-based compensation expense [Line Items]
Share-based compensation	$ 4,281	$ 2,008	$ 1,323

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Earnings Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Aug. 31, 2014	May 31, 2014	Feb. 28, 2014	Nov. 30, 2013	Aug. 31, 2013	May 31, 2013	Feb. 28, 2013	Nov. 30, 2012	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2012
Earnings Per Share [Abstract]
Net income attributable to Apollo (basic and diluted)	$ 29,783	$ 66,025	$ 14,605	$ 98,891	$ 21,551	$ 79,953	$ 13,527	$ 133,495	$ 209,304	$ 248,526	$ 422,678
Basic weighted average shares outstanding (in shares)	109,364	110,613	112,151	113,326	113,105	112,742	112,573	112,420	111,354	112,712	121,607
Anti-dilutive securities [Line Items]
Diluted weighted average shares outstanding (in shares)	110,839	112,082	113,380	113,960	113,740	113,372	113,068	112,849	112,610	113,285	122,357
Basic income per share attributable to Apollo (in dollars per share)	$ 0.27	$ 0.60	$ 0.13	$ 0.87	$ 0.19	$ 0.71	$ 0.12	$ 1.19	$ 1.88	$ 2.20	$ 3.48
Diluted income per share attributable to Apollo (in dollars per share)	$ 0.27	$ 0.59	$ 0.13	$ 0.87	$ 0.19	$ 0.71	$ 0.12	$ 1.18	$ 1.86	$ 2.19	$ 3.45
Restricted stock units and performance share awards [Member]
Anti-dilutive securities [Line Items]
Dilutive effect of share-based awards (in shares)									1,116	573	746
Anti-dilutive securities excluded from earnings per share computation (in shares)									39	1,449	15
Stock options [Member]
Anti-dilutive securities [Line Items]
Dilutive effect of share-based awards (in shares)									140	0	4
Anti-dilutive securities excluded from earnings per share computation (in shares)									2,532	7,040	8,785

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Property and Equipment, Net (Tables)

12 Months Ended

Aug. 31, 2014

Property, Plant and Equipment [Abstract]

Property and equipment, net

Property and equipment, net consist of the following as of August 31:

($ in thousands)	2014			2013
Land	$	30,540		$	30,562
Buildings	62,970			62,852
Furniture and equipment	388,397			428,441
Leasehold improvements (includes tenant improvement allowances)	357,645			353,548
Software	139,376			128,746
Internally developed software	139,325			121,137
Construction in progress	40,502			52,097
Gross property and equipment	1,158,755			1,177,383
Accumulated depreciation and amortization	(723,022		)	(704,769		)
Property and equipment, net	$	435,733		$	472,614

Property and equipment capital leases

The following amounts, which are included in the above table, represent capital leases as of August 31:

($ in thousands)	2014			2013
Buildings and land	$	4,510		$	5,307
Furniture and equipment	48,024			53,826
Software	14,264			14,264
Accumulated depreciation and amortization	(42,401		)	(33,301		)
Capital lease assets, net	$	24,397		$	40,096

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Financial Instruments (Details) (USD $)	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013
Financial Instruments [Abstract]
Gain through other comprehensive income	$ 200,000
Financial Instruments [Line Items]
Amortized cost	1,728,015,000	1,823,409,000
Unrealized gains	280,000
Unrealized losses	(64,000)
Fair value	1,728,231,000
Cash and cash equivalents	1,452,948,000	1,673,659,000
Current marketable securities	187,472,000	105,809,000
Noncurrent marketable securities	87,811,000	43,941,000
Maximum [Member]
Financial Instruments [Line Items]
Contractual maturity held-to-maturity securities	3 years
Cash [Member]
Financial Instruments [Line Items]
Amortized cost	1,295,395,000	874,074,000
Unrealized gains	0
Unrealized losses	0
Unrealized gains		0
Unrealized losses		0
Fair value	1,295,395,000	874,074,000
Cash and cash equivalents	1,295,395,000	874,074,000
Current marketable securities	0	0
Noncurrent marketable securities	0	0
Money Market Funds [Member]
Financial Instruments [Line Items]
Amortized cost	132,508,000	732,530,000
Unrealized gains	0
Unrealized losses	0
Unrealized gains		0
Unrealized losses		0
Cash and cash equivalents	132,508,000	732,530,000
Current marketable securities	0	0
Noncurrent marketable securities	0	0
Tax-exempt municipal bonds [Member]
Financial Instruments [Line Items]
Amortized cost	106,543,000	95,746,000
Unrealized gains	155,000
Unrealized losses	(11,000)
Unrealized gains		19,000
Unrealized losses		(54,000)
Cash and cash equivalents	0	2,055,000
Current marketable securities	78,443,000	69,621,000
Noncurrent marketable securities	28,244,000	24,070,000
Corporate bonds [Member]
Financial Instruments [Line Items]
Amortized cost	106,575,000	38,428,000
Unrealized gains	123,000
Unrealized losses	(52,000)
Unrealized gains		6,000
Unrealized losses		(40,000)
Cash and cash equivalents	0	0
Current marketable securities	56,837,000	24,503,000
Noncurrent marketable securities	49,809,000	13,925,000
Time deposits [Member]
Financial Instruments [Line Items]
Amortized cost	50,100,000
Unrealized gains	0
Unrealized losses	0
Cash and cash equivalents	25,041,000
Current marketable securities	25,059,000
Noncurrent marketable securities	0
Commercial Paper [Member]
Financial Instruments [Line Items]
Amortized cost	11,793,000	9,828,000
Unrealized gains	1,000
Unrealized losses	0
Unrealized gains		0
Unrealized losses		0
Cash and cash equivalents	0	0
Current marketable securities	11,794,000	9,828,000
Noncurrent marketable securities	0	0
Other [Member]
Financial Instruments [Line Items]
Amortized cost	19,155,000	657,000
Unrealized gains	1,000
Unrealized losses	(1,000)
Unrealized gains		0
Unrealized losses		0
Cash and cash equivalents	4,000	0
Current marketable securities	15,339,000	657,000
Noncurrent marketable securities	3,812,000	0
Certificates of Deposit [Member]
Financial Instruments [Line Items]
Amortized cost		66,200,000
Unrealized gains		0
Unrealized losses		0
Cash and cash equivalents		65,000,000
Current marketable securities		1,200,000
Noncurrent marketable securities		0
Auction-rate securities [Member]
Financial Instruments [Line Items]
Amortized cost	5,946,000
Unrealized gains	0
Unrealized losses	0
Cash and cash equivalents	0	0
Current marketable securities	0	0
Noncurrent marketable securities	5,946,000	5,946,000
Level 1 [Member] | Money Market Funds [Member]
Financial Instruments [Line Items]
Fair value	132,508,000	732,530,000
Level 2 [Member] | Tax-exempt municipal bonds [Member]
Financial Instruments [Line Items]
Fair value	106,687,000
Fair value		95,711,000
Level 2 [Member] | Corporate bonds [Member]
Financial Instruments [Line Items]
Fair value	106,646,000
Fair value		38,394,000
Level 2 [Member] | Time deposits [Member]
Financial Instruments [Line Items]
Fair value	50,100,000
Level 2 [Member] | Commercial Paper [Member]
Financial Instruments [Line Items]
Fair value	11,794,000
Fair value		9,828,000
Level 2 [Member] | Other [Member]
Financial Instruments [Line Items]
Fair value	19,155,000
Fair value		657,000
Level 2 [Member] | Certificates of Deposit [Member]
Financial Instruments [Line Items]
Fair value		66,200,000
Level 3 [Member] | Auction-rate securities [Member]
Financial Instruments [Line Items]
Amortized cost		5,946,000
Fair value	$ 5,946,000

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Earnings Per Share

12 Months Ended

Aug. 31, 2014

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

The components of basic and diluted earnings per share are as follows for the respective periods:

	Year Ended August 31,
(In thousands, except per share data)	2014		2013		2012
Numerator:
Net income attributable to Apollo (basic and diluted)	$	209,304	$	248,526	$	422,678
Denominator:
Basic weighted average shares outstanding	111,354		112,712		121,607
Dilutive effect of restricted stock units and performance share awards	1,116		573		746
Dilutive effect of stock options	140		—		4
Diluted weighted average shares outstanding	112,610		113,285		122,357
Basic income per share attributable to Apollo	$	1.88	$	2.20	$	3.48
Diluted income per share attributable to Apollo	$	1.86	$	2.19	$	3.45
Anti-dilutive securities excluded from diluted earnings per share calculation:
Anti-dilutive restricted stock units and performance share awards outstanding	39		1,449		15
Anti-dilutive stock options outstanding	2,532		7,040		8,785

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Quarterly Results of Operations (Unaudited)

12 Months Ended

Aug. 31, 2014

Quarterly Financial Information Disclosure [Abstract]

Quarterly Results of Operations (Unaudited)

Quarterly Results of Operations (Unaudited)

Our operations are generally subject to seasonal trends, which vary depending on 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.

• University of Phoenix - Although University of Phoenix enrolls students throughout the year, its net revenue is generally lower in our second fiscal quarter (December through February) than the 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.

The following unaudited consolidated quarterly financial information should be read in conjunction with other information included in our consolidated financial statements, and reflects all adjustments, consisting of normal, recurring adjustments, necessary for the fair presentation of the results of interim periods. We have made certain reclassifications to the unaudited consolidated quarterly financial information associated with our presentation of IPD as discontinued operations. Refer to Note 3, Discontinued Operations.

	(Unaudited)
	2014												2013
	Q1 Nov. 30			Q2 Feb. 28			Q3 May 31			Q4 Aug. 31			Q1 Nov. 30		Q2 Feb. 28		Q3 May 31			Q4 Aug. 31
(In thousands, except per share data)
Net revenue	$	848,148		$	672,754		$	793,610		$	709,666		$	1,040,534	$	821,861	$	937,171		$	836,358
Operating income(1), (2)	170,361			10,296			116,324			41,990			230,927		30,118		134,797			38,550
Income from continuing operations	99,432			14,149			67,039			30,796			133,823		13,932		82,029			23,726
Net income	99,041			12,177			65,010			28,570			133,740		13,659		80,170			21,396
Net income attributable to Apollo	98,891			14,605			66,025			29,783			133,495		13,527		79,953			21,551
Earnings (loss) per share - Basic:(3)
Continuing operations attributable to Apollo	$	0.88		$	0.15		$	0.62		$	0.29		$	1.19	$	0.12	$	0.73		$	0.21
Discontinued operations attributable to Apollo	(0.01		)	(0.02		)	(0.02		)	(0.02		)	—		—		(0.02		)	(0.02		)
Basic income per share attributable to Apollo	$	0.87		$	0.13		$	0.60		$	0.27		$	1.19	$	0.12	$	0.71		$	0.19
Earnings (loss) per share - Diluted:(3)
Continuing operations attributable to Apollo	$	0.87		$	0.15		$	0.61		$	0.29		$	1.18	$	0.12	$	0.72		$	0.21
Discontinued operations attributable to Apollo	—			(0.02		)	(0.02		)	(0.02		)	—		—		(0.01		)	(0.02		)
Diluted income per share attributable to Apollo	$	0.87		$	0.13		$	0.59		$	0.27		$	1.18	$	0.12	$	0.71		$	0.19
Basic weighted average shares outstanding	113,326			112,151			110,613			109,364			112,420		112,573		112,742			113,105
Diluted weighted average shares outstanding	113,960			113,380			112,082			110,839			112,849		113,068		113,372			113,740

⁽¹⁾ Operating income includes the following for fiscal year 2014:

• Restructuring and other charges of $32.0 million, $15.2 million, $14.9 million and $23.2 million in the first, second, third and fourth quarters, respectively;

• Contingent consideration charges and acquisition costs of $13.0 million and $16.1 million in the second and third quarters, respectively, and a $9.3 million credit in the fourth quarter principally due to a decrease in estimated contingent consideration; and

• Litigation charges of $9.0 million, $4.1 million and $0.8 million in the second, third and fourth quarters, respectively.

⁽²⁾ Operating income includes the following for fiscal year 2013:

• Restructuring and other charges of $24.1 million, $44.1 million, $61.5 million and $67.3 million in the first, second, third and fourth quarters, respectively; and

• Litigation net credits of $16.9 million, $6.3 million, and $1.4 million in the first, second and fourth quarters, respectively.

⁽³⁾ Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted income per share may not equal annual basic and diluted income per share.

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Discontinued Operations (Details)	12 Months Ended
	Aug. 31, 2014 USD ($)	Aug. 31, 2013 USD ($)	Aug. 31, 2012 USD ($)	Aug. 31, 2014 Institute for Professional Development [Member] USD ($)	Aug. 31, 2013 Mander Portman Woodward [Member] USD ($)	Aug. 31, 2012 Mander Portman Woodward [Member] USD ($)	Aug. 31, 2012 Mander Portman Woodward [Member] GBP (£)
Discontinued Operations [Line Items]
Proceeds from disposition				$ 4,000,000		$ 85,300,000	£ 54,800,000
Gain (loss) on sale	809,000				0	26,678,000
Net revenue	22,901,000	45,386,000	84,356,000
Costs and other	(35,163,000)	(52,364,000)	(74,772,000)
(Loss) income from discontinued operations before income taxes	(11,453,000)	(6,978,000)	36,262,000
Benefit from (provision for) income taxes	4,835,000	2,433,000	(2,763,000)
(Loss) income from discontinued operations, net of tax	(6,618,000)	(4,545,000)	33,499,000
Income from discontinued operations, net of tax, attributable to noncontrolling interests	0	0	(4,871,000)
(Loss) income from discontinued operations, net of tax, attributable to Apollo	(6,618,000)	(4,545,000)	28,628,000
Tax expense from sale						$ 0

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Earnings Per Share (Tables)

12 Months Ended

Aug. 31, 2014

Earnings Per Share [Abstract]

Earnings per share

The components of basic and diluted earnings per share are as follows for the respective periods:

	Year Ended August 31,
(In thousands, except per share data)	2014		2013		2012
Numerator:
Net income attributable to Apollo (basic and diluted)	$	209,304	$	248,526	$	422,678
Denominator:
Basic weighted average shares outstanding	111,354		112,712		121,607
Dilutive effect of restricted stock units and performance share awards	1,116		573		746
Dilutive effect of stock options	140		—		4
Diluted weighted average shares outstanding	112,610		113,285		122,357
Basic income per share attributable to Apollo	$	1.88	$	2.20	$	3.48
Diluted income per share attributable to Apollo	$	1.86	$	2.19	$	3.45
Anti-dilutive securities excluded from diluted earnings per share calculation:
Anti-dilutive restricted stock units and performance share awards outstanding	39		1,449		15
Anti-dilutive stock options outstanding	2,532		7,040		8,785

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Aug. 31, 2014		Aug. 31, 2013		Aug. 31, 2012
Statement of Comprehensive Income [Abstract]
Net income	$ 204,798		$ 248,965		$ 417,006
Other comprehensive income (loss) (net of tax):
Currency translation gain (loss)	11,652	[1]	(2,545)	[1]	(8,281)	[1]
Unrealized gain on available-for-sale securities	130	[1]	0	[1]	0	[1]
Comprehensive income	216,580		246,420		408,725
Comprehensive loss attributable to noncontrolling interests	1,967		463		7,680
Comprehensive income attributable to Apollo	$ 218,547		$ 246,883		$ 416,405

[1] The tax effect on each component of other comprehensive income (loss) during fiscal years 2014, 2013 and 2012 is not significant.

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Discontinued Operations

12 Months Ended

Aug. 31, 2014

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

During the fourth quarter of fiscal year 2014, we sold the assets of our subsidiary Institute for Professional Development (“IPD”) for $4 million. IPD had insignificant assets and liabilities as of the date of sale and as a result, we realized an immaterial gain on sale during the fourth quarter of fiscal year 2014. We sold IPD because its business was no longer consistent with our long-term strategic objectives due to recent operating losses and limitations on our ability to further develop and expand the domestic business.

During fiscal year 2012, BPP completed the sale of its subsidiary Mander Portman Woodward (“MPW”), a U.K.-based secondary education institution for £54.8 million (equivalent to $85.3 million as of the date of sale). We realized a $26.7 million gain on the sale, net of transaction costs, in fiscal year 2012, with no tax expense associated with the gain because it was not taxable under U.K. tax law. The sale of MPW reflects our strategy to focus on the postsecondary education market.

We do not have significant continuing involvement with IPD or MPW after the respective sales. The operating results of the sold businesses and associated gains on sale are presented as discontinued operations on our Consolidated Statements of Income. We determined cash flows from our discontinued operations individually and in the aggregate are not material and are included with cash flows from continuing operations on our Consolidated Statements of Cash Flows. IPD was included in Other in our segment reporting and MPW was included in our Apollo Global reportable segment.

The following summarizes the operating results for our discontinued operations for the respective periods, which are presented in (loss) income from discontinued operations, net of tax on our Consolidated Statements of Income:

	Year Ended August 31,
($ in thousands)	2014			2013			2012
Net revenue	$	22,901		$	45,386		$	84,356
Gain on sale	809			—			26,678
Costs and other	(35,163		)	(52,364		)	(74,772		)
(Loss) income from discontinued operations before income taxes	(11,453		)	(6,978		)	36,262
Benefit from (provision for) income taxes(1)	4,835			2,433			(2,763		)
(Loss) income from discontinued operations, net of tax	(6,618		)	(4,545		)	33,499
Income from discontinued operations, net of tax, attributable to noncontrolling interests(2)	—			—			(4,871		)
(Loss) income from discontinued operations, net of tax, attributable to Apollo	$	(6,618	)	$	(4,545	)	$	28,628

⁽¹⁾ There was no tax expense associated with the gain on sale of MPW as discussed above.

⁽²⁾ The noncontrolling interest represents the portion of MPW’s operating results attributable to Apollo Global’s former noncontrolling shareholder.

The operating results of our discontinued operations only include revenues and costs directly attributable to the discontinued operations. Accordingly, no interest expense or general corporate overhead have been allocated to our discontinued operations. IPD and MPW did not meet the held for sale criteria until the respective periods they were sold.

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Debt (Details) (USD $)			2 Months Ended	12 Months Ended		12 Months Ended				2 Months Ended					12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Oct. 21, 2013 Revolving Credit Facility [Member]	Aug. 31, 2014 Revolving Credit Facility [Member]	Aug. 31, 2013 Revolving Credit Facility [Member]	Aug. 31, 2014 Revolving Credit Facility [Member] Minimum [Member]	Aug. 31, 2014 Revolving Credit Facility [Member] Minimum [Member] London Interbank Offered Rate (LIBOR) [Member]	Aug. 31, 2014 Revolving Credit Facility [Member] Maximum [Member]	Aug. 31, 2014 Revolving Credit Facility [Member] Maximum [Member] London Interbank Offered Rate (LIBOR) [Member]	Oct. 20, 2014 Revolving Credit Facility [Member] Subsequent Event [Member]	Aug. 31, 2014 Capital lease obligations [Member]	Aug. 31, 2013 Capital lease obligations [Member]	Aug. 31, 2014 Other [Member]	Aug. 31, 2013 Other [Member]	Aug. 31, 2014 Technology Purchase Obligation [Member]
Debt [Line Items]
Total debt	$ 657,096,000	$ 692,054,000		$ 585,000,000	$ 605,000,000						$ 32,806,000	$ 49,628,000	$ 39,290,000	$ 37,426,000
Less short-term borrowings and current portion of long-term debt	(609,506,000)	(628,050,000)
Long-term debt	47,590,000	64,004,000
Aggregate debt maturities [Abstract]
2015	609,506,000
2016	28,080,000
2017	6,430,000
2018	3,684,000
2019	3,551,000
Thereafter	5,845,000
Total debt	657,096,000	692,054,000		585,000,000	605,000,000						32,806,000	49,628,000	39,290,000	37,426,000
Borrowing capacity				625,000,000
Debt term				5 years											10 years
Letters of credit outstanding	24,000,000	14,000,000
Debt repaid			$ 605,000,000							$ 585,000,000
Fees						0.25%		0.40%
Fees for borrowings							1.25%		1.85%
Weighted average interest rate				3.50%	3.50%								5.80%	5.30%

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Regulatory Matters (Details)	12 Months Ended
	Aug. 31, 2014	Aug. 31, 2013
Three Year Measuring Period [Member]
Cohort default rate measuring period	3 years
Maximum [Member]
Title IV percentage	90.00%
Maximum [Member] | Three Year Measuring Period [Member] | Title IV Ineligibility [Member] | Three Consecutive Cohorts [Member]
Cohort default rate	30.00%
Maximum [Member] | Three Year Measuring Period [Member] | Title IV Ineligibility [Member] | One Cohort [Member]
Cohort default rate	40.00%
University Of Phoenix [Member]
Title IV percentage	81.00%
University Of Phoenix [Member] | Three Year Measuring Period [Member]
Cohort default rate	19.00%	26.00%

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Nature of Operations and Significant Accounting Policies (Policies)

12 Months Ended

Aug. 31, 2014

Accounting Policies [Abstract]

Basis of Presentation Policy

Basis of Presentation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Use of Estimates Policy

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions 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. Actual results may differ from these estimates.

Principles of Consolidation Policy

Principles of Consolidation

The consolidated 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.

We record noncontrolling interests in our consolidated financial statements to recognize the noncontrolling ownership interest in our consolidated subsidiaries. A portion of the net income (loss) of such subsidiaries is allocated to our noncontrolling interests generally based on the respective noncontrolling shareholder’s ownership interest in the consolidated subsidiary. Depending on the nature of the noncontrolling interest and the associated rights of the noncontrolling shareholders, we present noncontrolling interests either as a component of equity or separately as redeemable noncontrolling interests on our Consolidated Balance Sheets.

For redeemable noncontrolling interests that are either redeemable or probable of becoming redeemable, we record the noncontrolling interests at the greater of the carrying value or the redemption value at the end of each reporting period. We determine the redemption value by assuming the end of each reporting period is the redemption date. Redemption value adjustments are recorded through retained earnings. Refer to Note 13, Shareholders’ Equity and Redeemable Noncontrolling Interests.

Revenue Recognition Policy

Revenue Recognition

Substantially all of our net revenue is composed of tuition and fees from educational programs that range in length from one-day seminars to degree and non-degree programs lasting multiple years. University of Phoenix represents the substantial majority of our total consolidated net revenue and substantially all of the University’s net revenue is generated from degree programs. University of Phoenix students fund their education through loans and/or grants from U.S. federal financial aid programs established by Title IV of the Higher Education Act and regulations promulgated thereunder (“Title IV”), military benefit programs, tuition assistance from their employers, or personal funds.

Our net revenue generally varies from period to period based on several factors, including the aggregate number of students attending educational programs, the number of programs or classes held during the period, and the tuition price per program. We recognize revenue when persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, our fee or price to the customer is fixed or determinable, and collectibility is reasonably assured. The following summarizes the components of our net revenue, which are generally consistent on a percentage basis for all periods presented:

• Tuition and educational services represents approximately 92% of our gross consolidated revenue, and encompasses all educational delivery modalities (i.e., online, on-campus, etc.). We recognize tuition and educational services revenue over the period of instruction as services are delivered to students, which may vary depending on the program structure. Tuition benefits for our employees and their eligible dependents are included in tuition and educational services revenue and instructional and student advisory expenses, and were $32.3 million, $53.4 million and $71.1 million during fiscal years 2014, 2013 and 2012, respectively.

Under University of Phoenix’s non-term academic delivery model, students generally enroll in a program of study encompassing a series of five- to nine-week courses taken consecutively over the length of the program. Students are billed separately for each course when the student first attends a course, resulting in the recording of a receivable from the student and deferred revenue in the amount of the billing. The University generally recognizes revenue evenly over the period of instruction (e.g., five weeks for a five-week course) as services are delivered to the student. For students that participate in the University’s risk-free, three-week program during their first credit-bearing course, the University does not recognize revenue for the risk-free period until students decide to continue beyond the risk-free period, which is when the fees become fixed and determinable. Additionally, the University reassesses collectibility throughout the period revenue is recognized when there are changes in facts or circumstances that indicate collectibility is no longer reasonably assured.

University of Phoenix’s refund policy permits students who attend 60% or less of a course to be eligible for a refund for the portion of the course they did not attend. Accordingly, the University ceases revenue recognition for the remainder of a course if a student withdraws prior to the tuition refund period elapsing, and refunds result in a reduction of deferred revenue in the period that a student withdraws. This refund policy applies to students in most, but not all states, as some states require different policies.

For our Apollo Global operations, tuition revenue is generally recognized over the length of the course and/or program. However, we recognize revenue associated with Open Colleges’ educational offerings over the contract period that students are provided access to complete their online, asynchronous program or the period of time it takes students to complete their program, as applicable. As a result, revenue recognition for Open Colleges’ educational offerings generally extends beyond one year.

• Educational materials represents approximately 7% of our gross consolidated revenue, and encompasses online course materials delivered to students over the period of instruction and the sale of various books, study texts, course notes, and CDs. We recognize revenue associated with online materials over the period of the related course to correspond with delivery of the materials to students. We recognize revenue for the sale of other educational materials when they have been delivered to and accepted by students or other customers.

• Other represents approximately 1% of our gross consolidated revenue, andincludes net revenue generated by Carnegie Learning, fees students pay when submitting an enrollment application and non-tuition generating revenues such as renting classroom space.

• Discounts reflect reductions in charges for tuition or other fees from our standard rates and include military, corporate, and other employer discounts, along with institutional scholarships, grants and promotions. Discounts are generally recognized over the period of instruction in the same manner as the related revenue to which the discount relates.

During fiscal year 2014, we began presenting Institute of Professional Development’s (“IPD”) operating results as discontinued operations. Accordingly, IPD’s net revenue is included in discontinued operations on our Consolidated Statements of Income for all periods presented. IPD’s revenue was generated based on fixed fee contracts with IPD client institutions and was recognized in accordance with the terms of the respective agreements as services were provided.

Sales tax collected from students is excluded from net revenue. Collected but unremitted sales tax is included as a liability on our Consolidated Balance Sheets and is not material to our consolidated financial statements.

Allowance for Doubtful Accounts Policy

Allowance for Doubtful Accounts

We reduce our accounts receivable by an allowance for amounts that we expect to be uncollectible. We use estimates that are subjective and require judgment in determining the allowance for doubtful accounts, and estimates may vary depending on the institution or educational program that generated the accounts receivable. In general, our estimates are based on historical collection experience and write-offs, the aging of our receivables, and current trends. Our accounts receivable are written off once the account is deemed to be uncollectible, which typically occurs after outside collection agencies have pursued collection for approximately six months.

For our Title IV eligible institutions, program participation rules determine if we are required to return a portion of the funds to the U.S. Department of Education when a student with Title IV program loans withdraws. We are then entitled to collect these funds from the students, but collection rates for these types of receivables are significantly lower than our collection rates for receivables from students who remain in our educational programs.

We estimate our allowance for doubtful accounts for University of Phoenix’s receivables using a statistical model that considers a number of factors that we believe impact whether receivables will become uncollectible based on our collections experience. These factors include, but are not limited to, the student’s academic performance and previous college experience as well as other student characteristics such as credit hours earned and method of payment. We also monitor and consider external factors such as changes in the economic and regulatory environment.

We routinely evaluate our estimation methodologies for all our institutions and educational programs for adequacy and modify them as necessary. In doing so, we believe our allowance for doubtful accounts reflects the amount of receivables that will become uncollectible by considering our most recent collections experience, changes in trends and other relevant facts. Refer to Note 6, Accounts Receivable, Net.

Cash and Cash Equivalents Policy

Cash and Cash Equivalents

We consider all highly liquid investments with stated maturities of three months or less from the date we purchase the investment to be cash equivalents. Cash and cash equivalents generally include money market funds, bank overnight deposits and time deposits, which are all placed with high-credit-quality financial institutions in the U.S. and internationally. Only a negligible portion of these deposits are insured by the Federal Deposit Insurance Corporation. We have not experienced any losses on our cash and cash equivalents.

Restricted Cash and Cash Equivalents Policy

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents primarily represents funds held for students for unbilled educational services that were received from Title IV program funds. As a trustee of these Title IV program funds, we are required to maintain and restrict these funds pursuant to the terms of our program participation agreement with the U.S. Department of Education. Restricted cash and cash equivalents are excluded from cash and cash equivalents on our Consolidated Balance Sheets and Consolidated Statements of Cash Flows. Changes in restricted cash and cash equivalents that represent funds held for students as described above are included in cash flows from operating activities on our Consolidated Statements of Cash Flows because these restricted funds are a core activity of our operations. Our restricted cash and cash equivalents are primarily held in money market funds.

Marketable Securities Policy

Marketable Securities

We invest our excess cash in instruments that may include tax-exempt municipal bonds, corporate bonds, time deposits, commercial paper, agency bonds and other marketable securities. We present such instruments with original maturities to us greater than three months as marketable securities on our Consolidated Balance Sheets, and we classify our marketable securities as either current or noncurrent based on each instrument’s contractual maturity. Securities with maturities of twelve months or less are classified as current, and securities with maturities greater than twelve months are classified as noncurrent.

We determine the designation of our marketable securities as held-to-maturity or available-for-sale at the time of purchase and reevaluate such designation at the end of each period. Securities are designated as held-to-maturity if we have intent and ability to hold them until maturity, and such securities are reported at amortized cost. If we do not have the intent or ability to hold securities until maturity, they are designated as available-for-sale. Available-for-sale securities are reported at fair value with changes in fair value reflected in shareholders’ equity as a component of accumulated other comprehensive loss. We determine any realized gains or losses on the sale of marketable securities using the specific identification method, and they are included in other (loss) income, net on our Consolidated Statements of Income. Refer to Note 5, Financial Instruments.

Property and Equipment, Net Policy

Property and Equipment, Net

Property and equipment is recorded at cost less accumulated depreciation. Property and equipment under capital leases, and the related obligation, is recorded at an amount equal to the present value of future minimum lease payments. Buildings, furniture, equipment, and software, including internally developed software, are depreciated using the straight-line method over the estimated useful lives of the related assets, which range from 3 to 40 years. Capital leases, leasehold improvements and tenant improvement allowances are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the related assets. Construction in progress, excluding software, is recorded at cost until the corresponding asset is placed into service and depreciation begins. Software is recorded at cost and is amortized once the related asset is ready for its intended use. Maintenance and repairs are expensed as incurred.

Software Development Costs Policy

We capitalize certain internal software development costs consisting primarily of the direct labor associated with creating the internally developed software. Capitalized costs are amortized using the straight-line method over the estimated lives of the software. Software development projects generally include three stages: the preliminary project stage (all costs expensed as incurred), the application development stage (certain costs capitalized, certain costs expensed as incurred), and the post-implementation/operation stage (all costs expensed as incurred). The costs we capitalize in the application development stage primarily include the costs of designing the application, coding, installation of hardware, and testing. Refer to Note 7, Property and Equipment, Net.

Business Combinations Policy

Business Combinations

We include the results of operations of businesses we acquire from the date of the respective acquisition. We allocate the purchase price of acquisitions to the assets acquired and liabilities assumed at fair value. The excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed is recorded as goodwill. Transaction costs incurred in connection with business combinations are expensed as incurred

Goodwill and Intangibles Policy

Goodwill and Intangibles

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. We allocate assets acquired, including goodwill, and liabilities assumed in business combinations to our respective reporting units. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.

Our intangibles principally include trademarks, technology, regulatory accreditations and designations, course curriculum and customer relationships. We assign indefinite lives to intangibles that we believe have the continued ability to generate cash flows indefinitely; have no legal, regulatory, contractual, economic or other factors limiting the useful life of the respective intangible; and we intend to renew the respective intangible, if applicable, and renewal can be accomplished at little cost. Finite-lived intangibles are amortized on either a straight-line basis or using an accelerated method to reflect the pattern in which the economic benefits of the asset are consumed. The weighted average original useful life of our $74.7 million of finite-lived intangibles as of August 31, 2014 was 5.8 years.

We assess goodwill and indefinite-lived intangibles at least annually for impairment or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit or indefinite-lived intangible below its carrying amount. We perform our annual indefinite-lived intangibles impairment tests on the same dates that we perform our annual goodwill impairment tests for the respective reporting units. In performing our impairment tests, we first consider the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or intangible, as applicable, is less than its carrying amount. If we conclude that it is more likely than not that the fair value is less than the carrying amount based on our qualitative assessment, or that a qualitative assessment should not be performed, we proceed with the following quantitative impairment tests:

• Goodwill - We compare the estimated fair value of the reporting unit to the carrying value of its net assets. If the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired. If the carrying value of the net assets of the reporting unit exceeds the fair value of the reporting unit, we perform a hypothetical purchase price allocation to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. An impairment loss is recognized to the extent the implied fair value of the goodwill is less than the carrying amount of the goodwill.

• Indefinite-lived intangibles - We compare the estimated fair value of the intangible with its carrying value. If the carrying value of the intangible exceeds its fair value, an impairment loss is recognized in the amount of that excess.

The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgment at many points during the analysis. If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry and market conditions, our market capitalization, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the most recent fair value analysis for either the reporting unit or respective intangible.

When performing a quantitative goodwill or indefinite-lived intangibles impairment test, we determine fair value using an income-based approach, a market-based approach or a combination of both methods. The fair value determination consists primarily of using unobservable inputs under the fair value measurement standards.

If the critical assumptions used in our impairment testing deteriorate or are otherwise adversely impacted, a lower fair value estimate may result. In particular, the goodwill acquired in our recent acquisitions of Open Colleges and Milpark Education was principally attributable to future earnings potential associated with student growth. If these acquired entities do not achieve our forecasts, the goodwill could be impaired in the future.

Refer toNote 8, Goodwill and Intangibles.

Other Long-Lived Asset Impairments Policy

Other Long-Lived Asset Impairments

We evaluate the carrying amount of our other long-lived assets, including property and equipment and finite-lived intangibles, whenever changes in circumstances or events indicate that the value of such assets may not be recoverable. During fiscal year 2013, we recorded $20.4 million of long-lived asset impairments, which includes $12.2 million resulting from our restructuring activities. Refer to Note 2, Restructuring and Other Charges, and Note 7, Property and Equipment, Net.

As of August 31, 2014, we believe the carrying amounts of our remaining other long-lived assets are recoverable and no impairment exists. However, we are continuing to adapt our business to the rapidly developing changes in our industry, and changes to our business or other circumstances could lead to potential impairments in the future.

Leases Policy

Leases

We enter into various lease agreements in conducting our business. We evaluate the lease agreement at the inception of the lease to determine whether the lease is an operating or capital lease. Additionally, our lease agreements may contain renewal options, tenant improvement allowances, rent holidays, and/or rent escalation clauses. When such items are included in a lease agreement, we record a deferred rent asset or liability on our Consolidated Balance Sheets and record the rent expense evenly over the term of the lease. Leasehold improvements are reflected under investing activities as purchases of property and equipment on our Consolidated Statements of Cash Flows. Credits received against rent for tenant improvement allowances are reflected as a component of non-cash investing activities on our Consolidated Statements of Cash Flows. For leases with renewal options, we generally record rent expense on a straight-line basis over the initial non-cancelable lease term (in instances where renewal is not reasonably assured). Refer to Note 16, Commitments and Contingencies.

We are also required to make additional payments under lease terms for taxes, insurance, and other operating expenses incurred during the lease period, which are expensed as incurred. Rental deposits are provided for lease agreements that specify payments in advance or deposits held in security that are refundable, less any damages at lease end.

Restructuring and Other Charges Policy

Restructuring and Other Charges

Restructuring and other charges principally consist of non-cancelable lease obligations, severance and other employee separation costs, and other related costs. We recognize restructuring obligations and liabilities for other exit and disposal activities at fair value in the period the liability is incurred. The process of measuring fair value and recognizing the associated liabilities is subjective and requires significant judgment. For our non-cancelable lease obligations, we record the obligation when we terminate the contract in accordance with the contract terms or when we cease using the right conveyed by the contract. Our employee severance costs are expensed on the date we notify the employee, unless the employee must provide future service, in which case the benefits are expensed over the future service period.

We generally estimate the fair value of restructuring obligations using significant unobservable inputs (Level 3) based on the best available information. For non-cancelable lease obligations, the fair value estimate is based on the contractual lease costs over the remaining terms of the leases, partially offset by estimated future sublease rental income. Our estimate of the amount and timing of sublease rental income considers subleases we 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 sublease agreements.

Changes to restructuring obligations in periods subsequent to the initial fair value measurement are not measured at fair value. We record a cumulative adjustment resulting from changes in the estimated timing or amount of cash flows associated with restructuring obligations in the period of change using the same discount rate that was initially used to measure the obligation’s fair value. Changes in restructuring obligations resulting from the passage of time are recorded as accretion expense. The adjustments to restructuring obligations, including accretion expense, are included in restructuring and other charges on our Consolidated Statements of Income. Refer to Note 2, Restructuring and Other Charges.

Loss Contingencies Policy

Loss Contingencies

We are subject to various claims and contingencies including those related to regulation, litigation, business transactions, employee-related matters and taxes, among others. When we become aware of a claim or potential claim, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount of the loss or range of loss can be reasonably estimated, we record a liability for the loss. The liability recorded includes probable and estimable legal costs incurred to date and future legal costs to the point in the legal matter where we believe a conclusion to the matter will be reached. The liability excludes any anticipated loss recoveries from third parties such as insurers, which we record as a receivable if we determine recovery is probable. If the loss is not probable or the amount of the loss or range of loss cannot be reasonably estimated, we disclose the claim if the likelihood of a potential loss is reasonably possible and the amount of the potential loss could be material. For matters where no loss contingency is recorded, we expense legal fees as incurred. The assessment of the likelihood of a potential loss and the estimation of the amount of a loss or range of loss are subjective and require judgment. Refer to Note 16, Commitments and Contingencies.

Share-Based Compensation Policy

Share-Based Compensation

Our outstanding share-based awards principally consist of restricted stock units, performance share awards and stock options, and restricted stock units represent the majority of our share-based compensation expense in recent years. We measure and recognize compensation expense for all share-based awards based on their estimated fair values on the grant date. We record compensation expense, net of forfeitures, for all share-based awards over the requisite service period using the straight-line method for awards with only a service condition, and the graded vesting attribution method for awards with service and performance conditions.

For share-based awards with performance conditions, we measure the fair value of such awards as of the grant date and record expense for our estimate of the number of shares expected to vest. Our estimate of the number of shares that will vest is based on our determination of the probable outcome of the performance condition, which may require considerable judgment. We record a cumulative adjustment to share-based compensation expense in periods that we change our estimate of the number of shares expected to vest. Additionally, we ultimately adjust the expense recognized to reflect the actual vested shares following the resolution of the performance conditions.

We estimate expected forfeitures of share-based awards at the grant date and recognize expense only for those awards expected to vest. We estimate our forfeiture rate based on several factors including historical forfeiture activity, expected future employee turnover, and other qualitative factors. We ultimately adjust this forfeiture assumption to actual forfeitures. Therefore, changes in the forfeiture assumptions do not impact the total amount of expense ultimately recognized over the requisite service period. Rather, different forfeiture assumptions only impact the timing of expense recognition over the requisite service period.

We typically use the Black-Scholes-Merton option pricing model to estimate the fair value of stock options. The Black-Scholes-Merton option pricing model requires us to estimate key assumptions based on both historical information and management judgment regarding market factors and trends. The following represents our key weighted average assumptions for stock options granted in the respective fiscal years:

	Year Ended August 31,
	2014			2013			2012
Weighted average fair value	$	10.24		$	5.84		$	14.10
Expected volatility	44.3		%	44.4		%	46.6		%
Expected term	4.5			3.4			4.3
Risk-free interest rate	1.4		%	0.7		%	0.6		%
Dividend yield	0.0		%	0.0		%	0.0		%

We estimate expected volatility based on a weighted average of our historical volatility and the implied volatility of long-lived call options. We estimate the expected term of our stock options based primarily on the vesting period of the awards and historical exercise behavior. For the risk-free interest rate, we use the U.S. constant maturity treasury rates interpolated between the years commensurate with the expected life assumptions. Our dividend yield assumption considers that we have not historically paid dividends and we have no current plan to pay dividends in the near-term.

Income Taxes Policy

Income Taxes

We are subject to the income tax laws of the U.S. and the foreign jurisdictions in which we have significant business operations. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. As a result, significant judgments and interpretations are required in determining our provision for income taxes and evaluating our uncertain tax positions.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the new rate is enacted. We record a valuation allowance to reduce deferred tax assets to the amount that we believe is more likely than not to be realized.

We have not provided deferred taxes on unremitted earnings attributable to international subsidiaries that have been considered permanently reinvested. As of August 31, 2014, the earnings from these operations are not significant, but they are expected to increase in the future due to our focus on international expansion, which includes two acquisitions by Apollo Global during fiscal year 2014.

We evaluate and account for uncertain tax positions using a two-step approach. Recognition (step one) occurs when we conclude that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when we subsequently determine that a tax position no longer meets the more likely than not threshold of being sustained. We classify interest and penalties accrued in connection with unrecognized tax benefits as income tax expense on our Consolidated Statements of Income. Our total unrecognized tax benefits, excluding interest and penalties, were $18.4 million and $44.1 million as of August 31, 2014 and 2013, respectively. Refer to Note 12, Income Taxes.

Marketing Costs Policy

Marketing Costs

We expense marketing costs, the substantial majority of which represents advertising, as incurred.

Earnings per Share Policy

Earnings per Share

Our outstanding shares consist of Apollo Class A and Class B common stock issued, net of shares held in treasury. 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. Basic income per share is calculated using the weighted average number of Class A and Class B common shares outstanding during the period.

Diluted income per share is calculated similarly except that it includes the dilutive effect of share-based awards under our stock compensation plans by applying the treasury stock method. Our share-based awards with performance conditions are contingently issuable and are included in the calculation of diluted income per share based on our evaluation of the performance criteria as of the end of the respective period. The amount of any tax benefit to be credited to additional paid-in capital related to our share-based awards, and unrecognized share-based compensation expense is included when applying the treasury stock method in the computation of diluted income per share. Refer to Note 14, Earnings Per Share.

Foreign Currency Translation Policy

Foreign Currency Translation

We use the U.S. dollar as our reporting currency. The functional currency of our entities operating outside the U.S. is the currency of the primary economic environment in which the entity primarily generates and expends cash, which is generally the local currency. The assets and liabilities of these operations are translated to U.S. dollars using exchange rates in effect at the balance sheet dates. Income and expense items are translated monthly at the average exchange rate for that period. The resulting translation adjustments and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are included in shareholders’ equity as a component of accumulated other comprehensive loss, noncontrolling interests or redeemable noncontrolling interests, as applicable. We report gains and losses from foreign exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from foreign currency transactions in other (loss) income, net on our Consolidated Statements of Income. These items represented a net $1.0 million loss, net $0.2 million loss and net $0.5 million gain in fiscal years 2014, 2013 and 2012, respectively.

Fair Value Policy

Fair Value

The carrying amount of financial assets and liabilities reported on our Consolidated Balance Sheets, including accounts receivable and accounts payable, approximate fair value because of the short-term nature of these financial instruments.

For fair value measurements of assets and liabilities that are recognized or disclosed at fair value, we consider fair value to be an exit price, which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. We use valuation techniques to determine fair value consistent with either the market approach, income approach and/or cost approach, and we prioritize the inputs used in our valuation techniques using the following three-tier fair value hierarchy:

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

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

• Level 3 - Unobservable inputs that are supported by little or no market activity.

We categorize each of our fair value measurements for disclosure purposes in one of the above three levels based on the lowest level input that is significant to the fair value measurement in its entirety. In measuring fair value, our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. We use prices and inputs that are current as of the measurement date, including during periods of market volatility. Therefore, classification of inputs within the hierarchy may change from period to period depending upon the observability of those prices and inputs. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the fair value of certain assets and liabilities and their placement within the fair value hierarchy. Refer to Note 9, Fair Value Measurements.

Discontinued Operations Policy

Discontinued Operations

If we determine we will not have significant continuing involvement with components that are classified as held for sale or otherwise sold or disposed, the results of operations of these components are presented separately on our Consolidated Statements of Income as (loss) income from discontinued operations, net of tax, in the current and prior periods. The operating results of our discontinued operations only include revenues and costs directly attributable to discontinued operations. Refer to Note 3, Discontinued Operations.

Reclassifications Policy

Reclassifications

We reclassified the following during fiscal year 2014 for prior periods to conform to our current presentation:

• We began presenting share reissuances in the aggregate on our Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interests, which consists of reissuances attributable to our employee stock purchase plan and our equity compensation plans that were previously reported separately;

• We began presenting litigation charge (credit) as a component of the change in accrued and other liabilities on our Consolidated Statements of Cash Flows, which did not impact total cash provided by operating activities; and

• As discussed in Note 3, Discontinued Operations, we began presenting Institute for Professional Development’s operating results as discontinued operations on our Consolidated Statements of Income.

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Debt (Tables)

12 Months Ended

Aug. 31, 2014

Debt Disclosure [Abstract]

Debt

Debt and short-term borrowings consist of the following as of August 31:

($ in thousands)	2014			2013
Revolving Credit Facility, see terms below	$	585,000		$	605,000
Capital lease obligations	32,806			49,628
Other, see terms below	39,290			37,426
Total debt	657,096			692,054
Less short-term borrowings and current portion of long-term debt	(609,506		)	(628,050		)
Long-term debt	$	47,590		$	64,004

Aggregate debt maturities

Aggregate debt maturities for each of the years ended August 31 are as follows:

($ in thousands)	2015		2016		2017		2018		2019		Thereafter		Total
Debt maturities	$	609,506	$	28,080	$	6,430	$	3,684	$	3,551	$	5,845	$	657,096

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Shareholders' Equity and Redeemable Noncontrolling Interests

12 Months Ended

Aug. 31, 2014

Equity [Abstract]

Shareholders' Equity

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 $90.3 million remained available as of August 31, 2014. 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 also repurchase shares in connection with tax withholding requirements associated with the release of vested shares of restricted stock units, which do not fall under the repurchase program described above.

The following summarizes our share repurchase activity for the respective periods:

	Year Ended August 31,
(In thousands, except per share data)	2014		2013		2012
Share repurchases under share repurchase program:
Number of shares repurchased	5,363		—		19,117
Weighted average purchase price per share	$	29.78	$	—	$	41.82
Cost of share repurchases	$	159,684	$	—	$	799,506
Share repurchases related to vesting of restricted stock units:
Number of shares repurchased	471		475		303
Cost of share repurchases	$	13,025	$	9,537	$	12,407

Share Reissuances

We reissue our Class A common stock from our treasury stock as a result of the release of shares covered by vested restricted stock units, stock option exercises and purchases under our employee stock purchase plan. Share reissuances were as follows for the respective periods:

	Year Ended August 31,
(In thousands)	2014	2013	2012
Number of shares reissued	1,431	1,532	1,184

Purchase of Noncontrolling Interest in Apollo Global

During fiscal year 2013, we purchased the 14.4% noncontrolling ownership interest in Apollo Global. We paid $42.5 million cash, plus a contingent payment based on a portion of Apollo Global’s operating results through the fiscal years ending August 31, 2017. On the purchase date, we estimated the fair value of the contingent payment to be $6.0 million. Refer to Note 9, Fair Value Measurements, for further discussion of the valuation and subsequent changes in the estimated fair value. We accounted for the purchase as an equity transaction and the following details net income attributable to Apollo and transfers to noncontrolling interest during the respective periods:

	Year Ended August 31,
($ in thousands)	2014		2013			2012
Net income attributable to Apollo	$	209,304	$	248,526		$	422,678
Transfer to noncontrolling interest:
Decrease in equity for purchase of noncontrolling interest in Apollo Global(1)	—		(48,543		)	—
Change from net income attributable to Apollo and transfer to noncontrolling interest	$	209,304	$	199,983		$	422,678

⁽¹⁾ Represents the difference between the fair value of the consideration paid to purchase the noncontrolling ownership interest in Apollo Global and the carrying amount of the noncontrolling interest acquired, and an adjustment to accumulated other comprehensive loss to reflect the change in Apollo’s proportionate interest.

Redeemable Noncontrolling Interests

During fiscal year 2014, Apollo Global acquired an 81% consolidated interest in Milpark Education and 70% of the outstanding shares of Open Colleges. We also have the option to buy the remaining noncontrolling interests associated with these acquisitions, and the noncontrolling shareholders have the option to sell their shares to us. The options are exercisable in the third quarter of our fiscal year 2016 for Milpark Education and in early calendar year 2017 for Open Colleges, or earlier in limited circumstances for both acquisitions. The price for the options is based on a formula specified at the respective acquisition dates and is principally based on a multiple of the respective acquired entity’s operating results as defined in the acquisition agreements. There is no minimum or maximum price for these options. Since the options are embedded in the shares owned by the respective noncontrolling shareholders and the shareholders have the option to redeem their shares, we have classified both of the noncontrolling interests as redeemable equity on our Consolidated Balance Sheets.

Both of the redeemable noncontrolling interests are probable of becoming redeemable. Accordingly, we record both redeemable noncontrolling interests at the greater of the carrying value or the redemption value at the end of each reporting period. We determine the redemption value using the formula specified at each respective acquisition date, and by assuming the end of each reporting period is the redemption date. We record redemption value adjustments through retained earnings.

Accumulated Other Comprehensive Loss

The following summarizes the components of accumulated other comprehensive loss at August 31:

($ in thousands)	2014			2013
Foreign currency translation losses	$	(26,919	)	$	(36,032	)
Unrealized loss on available-for-sale securities	(401		)	(531		)
Accumulated other comprehensive loss(1)	$	(27,320	)	$	(36,563	)

⁽¹⁾ Accumulated other comprehensive loss is net of insignificant taxes as of August 31, 2014 and 2013.