10-Q 1 apol-feb28201510q.htm 10-Q APOL - Feb 28 2015 - 10-Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: February 28, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
Commission File Number: 0-25232
APOLLO EDUCATION GROUP, INC.
(Exact name of registrant as specified in its charter)

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

4025 S. RIVERPOINT PARKWAY, PHOENIX, ARIZONA 85040
(Address of principal executive offices)
(480) 966-5394
(Registrant’s telephone number, including area code)
 
 
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES þ     NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES þ     NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
(Do not check if smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o     NO þ
As of March 18, 2015, the following shares of stock were outstanding:
Apollo Education Group, Inc. Class A common stock, no par value
107,178,079 Shares
Apollo Education Group, Inc. Class B common stock, no par value
475,149 Shares
 



APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 2015
INDEX

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact may be forward-looking statements. Such forward-looking statements include, among others, those statements regarding future events and future results of Apollo Education Group, Inc. that are based on current expectations, estimates, forecasts, and the beliefs and assumptions of us and our management, and speak only as of the date made and are not guarantees of future performance or results. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “predict,” “target,” “potential,” “continue,” “objectives,” or the negative of these terms or other comparable terminology. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties. Such statements should be viewed with caution. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to:
Changes in regulation of the U.S. education industry and eligibility of proprietary schools to participate in U.S. federal student financial aid programs, including the factors discussed in Item 1, Business, of our Annual Report on Form 10-K for the year ended August 31, 2014, under “Accreditation and Jurisdictional Authorizations,” “Financial Aid Programs” and “Regulatory Environment;”
Each of the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended August 31, 2014; and
Those factors set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended August 31, 2014 and Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Form 10-Q.
The cautionary statements referred to above also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements for any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
In this report, we refer to Apollo Education Group, Inc. as “the Company,” “Apollo Education Group,” “Apollo,” “APOL,” “we,” “us” or “our.”


3


Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
As of
($ in thousands)
February 28,
2015
 
August 31,
2014
ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
566,078

 
$
1,228,813

Restricted cash and cash equivalents
224,987

 
224,135

Marketable securities
193,745

 
187,472

Accounts receivable, net
235,453

 
225,398

Prepaid taxes
55,113

 
34,006

Deferred tax assets
82,018

 
83,871

Other current assets
55,344

 
58,855

Total current assets
1,412,738

 
2,042,550

Marketable securities
75,096

 
87,811

Property and equipment, net
402,920

 
435,733

Goodwill
248,632

 
259,901

Intangible assets, net
167,768

 
189,365

Deferred tax assets
50,400

 
37,335

Other assets
48,387

 
40,240

Total assets
$
2,405,941

 
$
3,092,935

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

 
 

Short-term borrowings and current portion of long-term debt
$
15,664

 
$
609,506

Accounts payable
72,294

 
63,907

Student deposits
262,387

 
280,562

Deferred revenue
261,428

 
225,818

Accrued and other current liabilities
308,181

 
363,607

Total current liabilities
919,954

 
1,543,400

Long-term debt
45,157

 
47,590

Deferred tax liabilities
25,715

 
22,674

Other long-term liabilities
225,884

 
233,942

Total liabilities
1,216,710

 
1,847,606

Commitments and contingencies


 


Redeemable noncontrolling interests
55,621

 
64,527

Shareholders’ equity:
 

 
 

Preferred stock, no par value

 

Apollo Class A nonvoting common stock, no par value
103

 
103

Apollo Class B voting common stock, no par value
1

 
1

Additional paid-in capital

 

Apollo Class A treasury stock, at cost
(3,965,057
)
 
(3,936,607
)
Retained earnings
5,152,466

 
5,143,949

Accumulated other comprehensive loss
(54,574
)
 
(27,320
)
Total Apollo shareholders’ equity
1,132,939

 
1,180,126

Noncontrolling interests
671

 
676

Total equity
1,133,610

 
1,180,802

Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
2,405,941

 
$
3,092,935

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

4


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

 
Three Months Ended
February 28,
 
Six Months Ended
February 28,
(In thousands, except per share data)
2015
 
2014
 
2015
 
2014
Net revenue
$
578,572

 
$
672,754

 
$
1,297,624

 
$
1,520,902

Costs and expenses:
 
 
 
 
 
 
 
Instructional and student advisory
293,073

 
316,577

 
617,337

 
653,779

Marketing
127,421

 
139,272

 
256,214

 
273,101

Admissions advisory
57,840

 
53,121

 
114,925

 
102,819

General and administrative
70,598

 
67,275

 
142,965

 
142,054

Depreciation and amortization
34,819

 
37,465

 
71,223

 
73,803

Provision for uncollectible accounts receivable
11,969

 
11,534

 
29,367

 
25,512

Restructuring and impairment charges
35,536

 
15,209

 
54,564

 
47,172

Acquisition and other related costs
1,742

 
13,005

 
4,961

 
13,005

Litigation charges
100

 
9,000

 
100

 
9,000

Total costs and expenses
633,098

 
662,458

 
1,291,656

 
1,340,245

Operating (loss) income
(54,526
)
 
10,296

 
5,968

 
180,657

Interest income
740

 
599

 
1,329

 
1,167

Interest expense
(1,739
)
 
(1,983
)
 
(3,401
)
 
(4,069
)
Other (loss) income, net
(1,146
)
 
107

 
(2,431
)
 
914

(Loss) income from continuing operations before income taxes
(56,671
)
 
9,019

 
1,465

 
178,669

Benefit from (provision for) income taxes
20,533

 
5,130

 
(5,134
)
 
(65,088
)
(Loss) income from continuing operations
(36,138
)
 
14,149

 
(3,669
)
 
113,581

Loss from discontinued operations, net of tax

 
(1,972
)
 

 
(2,363
)
Net (loss) income
(36,138
)
 
12,177

 
(3,669
)
 
111,218

Net loss attributable to noncontrolling interests
2,528

 
2,428

 
3,844

 
2,278

Net (loss) income attributable to Apollo
$
(33,610
)
 
$
14,605

 
$
175

 
$
113,496

Earnings (loss) per share - Basic:
 
 
 
 
 
 
 
Continuing operations attributable to Apollo
$
(0.31
)
 
$
0.15

 
$

 
$
1.03

Discontinued operations attributable to Apollo

 
(0.02
)
 

 
(0.02
)
Basic (loss) income per share attributable to Apollo
$
(0.31
)
 
$
0.13

 
$

 
$
1.01

Earnings (loss) per share - Diluted:
 
 
 
 
 
 
 
Continuing operations attributable to Apollo
$
(0.31
)
 
$
0.15

 
$

 
$
1.02

Discontinued operations attributable to Apollo

 
(0.02
)
 

 
(0.02
)
Diluted (loss) income per share attributable to Apollo
$
(0.31
)
 
$
0.13

 
$

 
$
1.00

Basic weighted average shares outstanding
108,166

 
112,151

 
108,375

 
112,742

Diluted weighted average shares outstanding
108,166

 
113,380

 
109,337

 
113,676

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


5


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

 
Three Months Ended
February 28,
 
Six Months Ended
February 28,
($ in thousands)
2015
 
2014
 
2015
 
2014
Net (loss) income
$
(36,138
)
 
$
12,177

 
$
(3,669
)
 
$
111,218

Other comprehensive (loss) income (net of tax):
 
 
 
 
 
 
 
Currency translation (loss) gain(1)
(20,212
)
 
4,483

 
(37,992
)
 
7,318

Change in fair value of available-for-sale securities(1)
315

 

 
241

 

Comprehensive (loss) income
(56,035
)
 
16,660

 
(41,420
)
 
118,536

Comprehensive loss attributable to noncontrolling interests
8,469

 
1,748

 
14,341

 
1,499

Comprehensive (loss) income attributable to Apollo
$
(47,566
)
 
$
18,408

 
$
(27,079
)
 
$
120,035

(1) The tax effect on each component of other comprehensive (loss) income during the three and six months ended February 28, 2015 and 2014, respectively, is not significant.
The accompanying notes are an integral part of these condensed consolidated financial statements.


6


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

 
Common Stock
 
Additional
Paid-in
Capital
 
Apollo Class A
Treasury Stock
 
 
 
Accumulated Other
Comprehensive Loss
 
Total Apollo
Shareholders’ Equity
 
Noncontrolling
Interests
 
 
 
 
 
 
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, 2014
188,007

 
$
103

 
475

 
$
1

 
$

 
79,585

 
$
(3,936,607
)
 
$
5,143,949

 
$
(27,320
)
 
$
1,180,126

 
$
676

 
$
1,180,802

 
 
$
64,527

Share repurchases

 

 

 

 

 
1,527

 
(40,318
)
 

 

 
(40,318
)
 

 
(40,318
)
 
 

Share reissuances

 

 

 

 
(21,208
)
 
(282
)
 
11,868

 
10,335

 

 
995

 

 
995

 
 

Net tax effect for stock incentive plans

 

 

 

 
(2,370
)
 

 

 

 

 
(2,370
)
 

 
(2,370
)
 
 

Share-based compensation

 

 

 

 
21,914

 

 

 

 

 
21,914

 

 
21,914

 
 

Currency translation adjustment, net of tax

 

 

 

 

 

 

 

 
(27,495
)
 
(27,495
)
 
(73
)
 
(27,568
)
 
 
(10,424
)
Available-for-sale securities adjustment, net of tax

 

 

 

 

 

 

 

 
241

 
241

 

 
241

 
 

Acquisition

 

 

 

 

 

 

 

 

 

 

 

 
 
3,437

Redemption value adjustments

 

 

 

 

 

 

 
(1,993
)
 

 
(1,993
)
 

 
(1,993
)
 
 
1,993

Net income (loss)

 

 

 

 

 

 

 
175

 

 
175

 
68

 
243

 
 
(3,912
)
Other

 

 

 

 
1,664

 

 

 

 

 
1,664

 

 
1,664

 
 

Balance as of February 28, 2015
188,007

 
$
103

 
475

 
$
1

 
$

 
80,830

 
$
(3,965,057
)
 
$
5,152,466

 
$
(54,574
)
 
$
1,132,939

 
$
671

 
$
1,133,610

 
 
$
55,621

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 

 

 

 

 
2,403

 
(72,237
)
 

 

 
(72,237
)
 

 
(72,237
)
 
 

Share reissuances

 

 

 

 
(15,008
)
 
(391
)
 
16,601

 
200

 

 
1,793

 

 
1,793

 
 

Net tax effect for stock incentive plans

 

 

 

 
(7,502
)
 

 

 

 

 
(7,502
)
 

 
(7,502
)
 
 

Share-based compensation

 

 

 

 
22,510

 

 

 

 

 
22,510

 

 
22,510

 
 

Currency translation adjustment, net of tax

 

 

 

 

 

 

 

 
6,539

 
6,539

 
103

 
6,642

 
 
676

Acquisition

 

 

 

 

 

 

 

 

 

 

 

 
 
51,197

Net income (loss)

 

 

 

 

 

 

 
113,496

 

 
113,496

 
207

 
113,703

 
 
(2,485
)
Balance as of February 28, 2014
188,007

 
$
103

 
475

 
$
1

 
$

 
77,194

 
$
(3,880,394
)
 
$
5,092,511

 
$
(30,024
)
 
$
1,182,197

 
$
721

 
$
1,182,918

 
 
$
49,388

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


7


APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
February 28,
($ in thousands)
2015
 
2014
Operating activities:
 

 
 

Net (loss) income
$
(3,669
)
 
$
111,218

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Share-based compensation
21,914

 
22,510

Excess tax benefits from share-based compensation
(236
)
 

Depreciation and amortization
71,223

 
73,803

Accelerated depreciation included in restructuring
4,272

 
4,316

Loss (gain) on asset dispositions and impairment charges, net
21,228

 
(1,984
)
Non-cash foreign currency loss, net
1,362

 
596

Provision for uncollectible accounts receivable
29,367

 
25,512

Deferred income taxes
(10,434
)
 
(6,255
)
Changes in assets and liabilities, excluding the impact of acquisitions and disposition:
 
 
 

Restricted cash and cash equivalents
(1,002
)
 
(24,165
)
Accounts receivable
(51,199
)
 
(6,469
)
Prepaid taxes
(21,440
)
 
15,230

Other assets
(3,771
)
 
(11,445
)
Accounts payable
7,870

 
(11,454
)
Student deposits
(15,873
)
 
17,409

Deferred revenue
47,821

 
32,881

Accrued and other liabilities
(42,320
)
 
(48,219
)
Net cash provided by operating activities
55,113

 
193,484

Investing activities:
 

 
 

Purchases of property and equipment
(43,310
)
 
(58,119
)
Purchases of marketable securities
(109,544
)
 
(227,978
)
Maturities and sales of marketable securities
113,651

 
105,237

Acquisitions, net of cash acquired
(21,166
)
 
(94,937
)
Other
467

 
3,446

Net cash used in investing activities
(59,902
)
 
(272,351
)
Financing activities:
 

 
 

Payments on borrowings
(599,925
)
 
(619,268
)
Proceeds from borrowings
4,515

 

Share repurchases
(38,718
)
 
(72,237
)
Share reissuances
995

 
1,793

Excess tax benefits from share-based compensation
236

 

Payment for contingent consideration
(21,371
)
 

Net cash used in financing activities
(654,268
)
 
(689,712
)
Exchange rate effect on cash and cash equivalents
(3,678
)
 
34

Net decrease in cash and cash equivalents
(662,735
)
 
(768,545
)
Cash and cash equivalents, beginning of period
1,228,813

 
1,414,485

Cash and cash equivalents, end of period
$
566,078

 
$
645,940

Supplemental disclosure of cash flow and non-cash information:
 

 
 

Cash paid for income taxes, net of refunds
$
37,346

 
$
70,868

Cash paid for interest
3,514

 
3,911

Restricted stock units vested and released
6,255

 
7,104

Unsettled share repurchases
1,600

 

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

8


APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Nature of Operations and Significant Accounting Policies
Apollo Education Group, Inc. is one of the world’s largest private education providers, serving students since 1973. Through our subsidiaries, we offer undergraduate, graduate, professional development and other nondegree educational programs and services, online and on-campus principally to working learners. Our educational programs and services are offered throughout the United States and in Europe, Australia, Latin America, Africa and Asia, as well as online throughout the world. Refer to Note 17, Segment Reporting, for further information regarding our education platforms.
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 unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission and, in our opinion, contain all adjustments, consisting of normal, recurring adjustments, necessary to fairly present the financial condition, results of operations and cash flows for the periods presented. These unaudited interim condensed consolidated financial statements do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements. Therefore, this information should be read in conjunction with the audited consolidated financial statements and related notes included in our 2014 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on October 21, 2014. We consistently applied the accounting policies described in the notes to our consolidated financial statements included in our 2014 Annual Report on Form 10-K in preparing these unaudited interim condensed consolidated financial statements.
Principles of Consolidation
The unaudited interim condensed 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.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires 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.
Seasonality
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.
Because of the seasonal nature of our business and other factors, the results of operations for the three and six months ended February 28, 2015 are not necessarily indicative of the results to be expected for the entire fiscal year.
Reclassifications
We reclassified certain previously reported amounts to conform to our current presentation as follows:
We began presenting share reissuances in the aggregate on our Condensed 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;

9

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

We began presenting litigation charges as a component of the change in accrued and other liabilities on our Condensed 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 Condensed Consolidated Statements of Operations.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 apply the standard to any disposals that occur after adoption.
Note 2. Restructuring and Impairment Charges
Restructuring and impairment charges includes the following for the respective periods:
 
Three Months Ended
February 28,
 
Six Months Ended
February 28,
($ in thousands)
2015
 
2014
 
2015
 
2014
Restructuring charges
$
16,587

 
$
15,209

 
$
35,615

 
$
47,172

Intangibles impairment
12,999

 

 
12,999

 

Property and equipment impairment
5,950

 

 
5,950

 

Restructuring and impairment charges
$
35,536

 
$
15,209

 
$
54,564

 
$
47,172

The U.S. higher education industry continues to experience unprecedented, rapidly developing changes that challenge many of the core principles underlying the industry. We began initiating restructuring activities in fiscal year 2011 to reengineer our business processes and educational delivery systems to improve the efficiency and effectiveness of our services to students. We have continued restructuring activities in fiscal year 2015 as we further reduce costs to align with our lower enrollment and revenue.
Our restructuring activities initiated prior to fiscal year 2015 principally include rationalizing our administrative real estate facilities, closing 115 University of Phoenix ground locations, and workforce reductions. During the six months ended February 28, 2015, we incurred $23.3 million of expense associated with restructuring activities initiated prior to fiscal year 2015. The substantial majority of the expense represents an increase in our estimated future cash payments associated with certain lease obligations included in the University of Phoenix ground location rationalization discussed above. We do not expect to incur material charges related to the remaining space expected to be vacated. However, we will incur interest accretion and may record additional adjustments associated with the estimated lease obligations, which involves significant judgment, in future periods.
During the six months ended February 28, 2015, we incurred $12.3 million of restructuring expense associated with new restructuring activities initiated after fiscal year 2014. The expense consisted of $8.5 million of severance and other employee separation costs associated with the elimination of approximately 300 positions. The majority of the remaining restructuring expense represents costs associated with termination of a curriculum-based contract. The expense associated with these activities for the six months ended February 28, 2015 is reflected in our segment reporting as follows: $1.1 million in University of Phoenix and $11.2 million in Other.

10

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

The following details the changes in our restructuring liabilities during the six months ended February 28, 2015:
 
Lease and Related
Costs, Net
 
Severance and Other Employee
Separation Costs
 
Other Restructuring
Related Costs
 
Total
($ in thousands)
2015 Restructuring
 
Prior Year Restructuring(1)
 
2015 Restructuring
 
Prior Year Restructuring(1)
 
2015 Restructuring
 
Prior Year Restructuring(1)
 
August 31, 2014
$

 
$
96,204

 
$

 
$
5,687

 
$

 
$
1,192

 
$
103,083

Expense

 
10,094

 
4,643

 
167

 
3,767

 
357

 
19,028

Other

 
(2,605
)
 
(752
)
 

 

 

 
(3,357
)
Payments

 
(13,562
)
 
(346
)
 
(5,687
)
 
(617
)
 
(389
)
 
(20,601
)
November 30, 2014

 
90,131

 
3,545

 
167

 
3,150

 
1,160

 
98,153

Expense

 
12,014

 
3,860

 
426

 

 
287

 
16,587

Other

 
(2,530
)
 
(635
)
 

 

 

 
(3,165
)
Payments

 
(13,290
)
 
(2,801
)
 
(475
)
 

 
(704
)
 
(17,270
)
February 28, 2015(2)
$

 
$
86,325

 
$
3,969

 
$
118

 
$
3,150

 
$
743

 
$
94,305

(1) We have incurred $367 million of cumulative costs associated with prior year restructuring as of February 28, 2015, which includes lease exit, employee separation, and other related costs of $241 million, $84 million and $42 million, respectively. These cumulative costs have been reflected in our segment reporting as follows: $285 million in University of Phoenix, $18 million in Apollo Global, and $64 million in Other.
(2) The gross, undiscounted obligation associated with our restructuring liabilities as of February 28, 2015 was approximately $167 million, which principally represents non-cancelable leases that will be paid over the respective lease terms through fiscal year 2023.
We intend to further reduce costs to align with our lower enrollment and revenue, and expect to incur material charges associated with other future restructuring activities. These efforts include University of Phoenix continuing to actively evaluate the extent, functionality and location of its ground facilities and the potential closure of additional facilities in the future that are determined to be underutilized or unnecessary.
Impairment Charges
In February 2015, University of Phoenix ceased using certain technology that had been incorporated into its academic platform. The University had finite-lived intangibles with a remaining carrying value of $13.0 million associated with this technology. We do not expect any future cash flows associated with this technology over its remaining useful life and, accordingly, we recorded a $13.0 million impairment charge during the second quarter of fiscal year 2015.
Based on developments and trends at University of Phoenix during the second quarter of fiscal year 2015, we evaluated the property and equipment at University of Phoenix’s remaining ground locations for recoverability. Accordingly, we compared the estimated undiscounted cash flows of the locations over the remaining useful lives of their fixed assets to the carrying amount of their fixed assets. Based on our analysis, we recorded $6.0 million of impairment charges during the second quarter of fiscal year 2015. Changes to our business or other circumstances could lead to additional impairments in the future.
Note 3. Discontinued Operations
During 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. 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. We do not have significant continuing involvement with IPD after the sale and, accordingly, IPD’s operating results are presented as discontinued operations on our Condensed Consolidated Statements of Operations. We determined that cash flows from our discontinued operations are not material and are included with cash flows from continuing operations on our Condensed Consolidated Statements of Cash Flows. IPD was previously included in Other in our segment reporting.

11

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

The following summarizes IPD’s operating results for the three and six months ended February 28, 2014, which are presented in loss from discontinued operations, net of tax on our Condensed Consolidated Statements of Operations:
($ in thousands)
Three Months
Ended
February 28,
2014
 
Six Months
Ended
February 28,
2014
Net revenue
$
6,304

 
$
14,491

Costs and expenses
(9,470
)
 
(18,224
)
Loss from discontinued operations before income taxes
(3,166
)
 
(3,733
)
Benefit from income taxes
1,194

 
1,370

Loss from discontinued operations, net of tax
$
(1,972
)
 
$
(2,363
)
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 IPD. IPD did not meet the held for sale criteria until the period it was sold.
Note 4. Acquisitions
Fiscal Year 2015 Acquisition
On December 4, 2014, Apollo Global acquired a 75% interest in Sociedade Técnica Educacional da Lapa S.A., a provider of postsecondary educational programs in Brazil under the name Faculdade da Educacional da Lapa (“FAEL”). This acquisition provides access to a new market and supports our strategy to diversify and expand our global operations. We made an initial cash payment of R$73.8 million (equivalent to $28.9 million on the acquisition date), and the acquisition includes a potential contingent consideration payment in the future that is principally based on FAEL’s calendar year 2018 net revenue. The contingent payment has a maximum of approximately R$34 million (equivalent to $13.3 million on the acquisition date), and its fair value on the acquisition date was insignificant based on our estimate of FAEL’s future revenue in relation to the contingent payment threshold as defined in the acquisition agreement. We incurred $1.2 million of transaction costs in connection with this acquisition and these costs are included in acquisition and other related costs on our Condensed Consolidated Statements of Operations in the six months ended February 28, 2015.
In connection with the acquisition, we also have the option to buy the remaining noncontrolling interests, and the noncontrolling shareholders have the option to sell their shares to us, beginning in the third quarter of our fiscal year 2019, or earlier in limited circumstances. The prices for these options are based on a formula specified at the acquisition date and are principally based on a multiple of FAEL’s operating results as defined in the acquisition agreement. There is no minimum or maximum price for these options. Since the options are embedded in the shares owned by the noncontrolling shareholders and the shareholders have the option to redeem their shares, we have classified the noncontrolling interests as redeemable equity on our Condensed Consolidated Balance Sheets. Subsequent to recording the noncontrolling interests at fair value on the acquisition date, as discussed further below, we record the redeemable noncontrolling interests at the greater of the carrying value or the redemption value because the interests are probable of becoming redeemable. We determine the redemption value using the formula specified at the acquisition date, and by assuming the end of each period is the redemption date. We record redemption value adjustments through retained earnings.

12

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

We accounted for the acquisition as a business combination and the following details our preliminary allocation of the purchase price to the assets acquired and liabilities assumed at fair value:
($ in thousands)
 
Cash and cash equivalents
$
7,685

Intangibles:
 
Trademark (indefinite useful life)
9,223

Accreditation (indefinite useful life)
5,940

Course curriculum (4 year useful life)
1,212

Other (4 year useful life)
4,182

Goodwill
14,538

Other assets
2,877

Liabilities
(13,369
)
Total assets acquired and liabilities assumed
32,288

Less: Fair value of redeemable noncontrolling interests
(3,437
)
Total fair value of consideration transferred
28,851

Less: Cash acquired
(7,685
)
Cash paid for acquisition, net of cash acquired
$
21,166

The above purchase price allocation is preliminary and subject to revision as we finalize the valuation of intangible assets, and as additional information about the fair value of other assets and liabilities becomes available.
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 trademark was valued using the relief-from-royalty method, which represents the benefit of owning the intangible asset rather than paying royalties for its use. We used the excess earnings method or the with and with-out method for the remaining intangibles valued using income approaches.
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 FAEL’s total equity. We reduced the fair value of the noncontrolling interest for certain discounts including lack of control.
We recorded $14.5 million of goodwill as a result of the FAEL acquisition, which may become deductible for tax purposes in the future. The goodwill 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.
We assigned an indefinite useful life to the acquired 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 intangibles 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 4 years. Refer to Note 7, Goodwill and Intangibles, for the estimated future amortization of our finite-lived intangibles.
FAEL’s operating results are included in our consolidated financial statements from date of acquisition. We have not provided pro forma information or FAEL’s revenue and operating results because the results of operations are not material to our consolidated results of operations.

13

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

Fiscal Year 2014 Acquisition
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, which we initially measured at $21.4 million based on information available as of the acquisition date. We settled the contingent consideration during fiscal year 2015 as discussed at Note 8, Fair Value Measurements.
We accounted for the Open Colleges acquisition as a business combination and Open Colleges’ operating results are included in our consolidated financial statements from the date of acquisition. We have not provided pro forma information or Open Colleges’ revenue and operating results because the results of operations are not material to our consolidated results of operations.
The acquisition purchase price allocation is summarized below:
($ in thousands)
 
 
Net working capital deficit(1)
 
$
(10,979
)
Property and equipment
 
2,684

Finite-lived intangibles
 
60,575

Goodwill
 
127,656

Deferred taxes, net(1)
 
(9,279
)
Total assets acquired and liabilities assumed
 
170,657

Less: Fair value of redeemable noncontrolling interests
 
(51,197
)
Total fair value of consideration transferred
 
119,460

Less: Fair value of contingent consideration
 
(21,371
)
Less: Cash acquired
 
(3,152
)
Cash paid for acquisition, net of cash acquired
 
$
94,937

(1) Net working capital deficit and deferred taxes, net include approximately $33 million of assumed liabilities.

14

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

Note 5. Financial Instruments
We invest our excess cash in a variety of marketable securities, which are all classified as available-for-sale. The following summarizes our cash and cash equivalents, restricted cash and cash equivalents and marketable securities by significant financial instrument category as of the respective periods:
 
February 28, 2015
($ in thousands)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and Cash
Equivalents(1)
 
Current
Marketable
Securities
 
Noncurrent
Marketable
Securities
Cash
$
657,122

 
$

 
$

 
$
657,122

 
$
657,122

 
$

 
$

Level 1:
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
108,666

 

 

 
108,666

 
108,666

 

 

Level 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
128,979

 
62

 
(180
)
 
128,861

 

 
80,069

 
48,792

Tax-exempt municipal bonds
76,244

 
79

 
(199
)
 
76,124

 
202

 
63,479

 
12,443

Time deposits
50,180

 

 

 
50,180

 
25,075

 
25,105

 

Other
39,001

 
8

 
(56
)
 
38,953

 

 
25,092

 
13,861

Total
$
1,060,192

 
$
149

 
$
(435
)
 
$
1,059,906

 
$
791,065

 
$
193,745

 
$
75,096


 
August 31, 2014
($ in thousands)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Cash and Cash
Equivalents(1)
 
Current
Marketable
Securities
 
Noncurrent
Marketable
Securities
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(2)
6,850

 

 
(904
)
 
5,946

 

 

 
5,946

Total
$
1,728,919

 
$
280

 
$
(968
)
 
$
1,728,231

 
$
1,452,948

 
$
187,472

 
$
87,811

(1) Cash and cash equivalents includes restricted cash and cash equivalents.
(2) Auction-rate securities were redeemed at par value during the second quarter of fiscal year 2015.
We measure our financial instruments at fair value on a recurring basis as follows:
Money market funds - We use Level 1 inputs that primarily consist of real-time quotes for transactions in active exchange markets involving identical assets.
Other financial instruments - We use a market approach with Level 2 observable inputs for all other securities. The Level 2 inputs include quoted prices for similar assets in active markets, or quoted prices for identical or similar assets in markets that are not active.
Our marketable securities have maturities that occur within three years. We may sell certain of our 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.

15

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

Note 6. Accounts Receivable, Net
Accounts receivable, net consist of the following as of the respective periods:
($ in thousands)
February 28,
2015
 
August 31,
2014
Student accounts receivable
$
274,295

 
$
255,134

Less allowance for doubtful accounts
(49,891
)
 
(50,145
)
Net student accounts receivable
224,404

 
204,989

Other receivables
11,049

 
20,409

Total accounts receivable, net
$
235,453

 
$
225,398

Student accounts receivable is composed primarily of amounts due related to tuition and educational services. The following summarizes the activity in allowance for doubtful accounts for the respective periods:
 
Three Months Ended
February 28,
 
Six Months Ended
February 28,
($ in thousands)
2015
 
2014
 
2015
 
2014
Beginning allowance for doubtful accounts
$
52,682

 
$
55,895

 
$
50,145

 
$
59,744

Provision for uncollectible accounts receivable
11,969

 
11,534

 
29,367

 
25,512

Write-offs, net of recoveries
(14,760
)
 
(14,391
)
 
(29,621
)
 
(32,218
)
Ending allowance for doubtful accounts
$
49,891

 
$
53,038

 
$
49,891

 
$
53,038

Note 7. Goodwill and Intangibles
The following details changes in our goodwill by reportable segment during the six months ended February 28, 2015:
($ in thousands)
University of
Phoenix
 
Apollo
Global
 
Other
 
Total
Goodwill as of August 31, 2014
$
71,812

 
$
171,198

 
$
16,891

 
$
259,901

FAEL acquisition

 
14,538

 

 
14,538

Currency translation adjustment

 
(25,807
)
 

 
(25,807
)
Goodwill as of February 28, 2015
$
71,812

 
$
159,929

 
$
16,891

 
$
248,632


16

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

Intangibles consist of the following as of the respective periods:
 
February 28, 2015
 
August 31, 2014
($ 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
Accreditations and designations
$
21,628

 
$
(5,094
)
 
$
(1,910
)
 
$
14,624

 
$
21,628

 
$
(3,015
)
 
$
1,000

 
$
19,613

Trademarks
17,919

 
(2,093
)
 
(1,771
)
 
14,055

 
17,919

 
(1,238
)
 
907

 
17,588

Curriculum(1)
18,205

 
(5,172
)
 
(1,398
)
 
11,635

 
16,993

 
(2,933
)
 
826

 
14,886

Student and customer relationships(2)
14,437

 
(10,365
)
 
(1,578
)
 
2,494

 
15,934

 
(9,780
)
 
(1,161
)
 
4,993

Software and technology(3) 

 

 

 

 
42,389

 
(25,151
)
 

 
17,238

Other(1), (2)
11,303

 
(5,919
)
 
(1,978
)
 
3,406

 
20,891

 
(19,909
)
 
(611
)
 
371

Total finite-lived intangibles
83,492

 
(28,643
)
 
(8,635
)
 
46,214

 
135,754

 
(62,026
)
 
961

 
74,689

Trademarks(1)
115,737

 

 
(7,189
)
 
108,548

 
106,514

 

 
(68
)
 
106,446

Accreditations and designations(1)
14,470

 

 
(1,464
)
 
13,006

 
8,530

 

 
(300
)
 
8,230

Total indefinite-lived intangibles
130,207

 

 
(8,653
)
 
121,554

 
115,044

 

 
(368
)
 
114,676

Total intangible assets, net
$
213,699

 
$
(28,643
)
 
$
(17,288
)
 
$
167,768

 
$
250,798

 
$
(62,026
)
 
$
593

 
$
189,365

(1) We acquired intangibles during the second quarter of fiscal year 2015 as a result of our acquisition of FAEL. Refer to Note 4, Acquisitions.
(2) The decrease in the gross carrying amount as of February 28, 2015 compared to August 31, 2014 was due to the removal of intangibles that were fully amortized during fiscal year 2015.
(3) We recorded a $13.0 million impairment charge of technology intangibles during the second quarter of fiscal year 2015. Refer to Note 2, Restructuring and Impairment Charges.
The following is the estimated future amortization expense of our finite-lived intangibles as of February 28, 2015:
($ in thousands)
Remainder of 2015
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
Estimated future amortization expense(1)
$
7,006

 
$
11,255

 
$
10,214

 
$
7,543

 
$
3,135

 
$
1,609

 
$
5,452

 
$
46,214

(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.
Note 8. Fair Value Measurements
We measure and disclose certain financial instruments at fair value as described in Note 5, Financial Instruments. Liabilities measured at fair value on a recurring basis, all of which are included in other liabilities on our Condensed Consolidated Balance Sheets, consist of the following as of February 28, 2015 and August 31, 2014:
 
 
 
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 February 28, 2015
$
6,416

 
$

 
$

 
$
6,416

Contingent consideration as of August 31, 2014
$
41,893

 
$

 
$

 
$
41,893


17

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

The following summarizes changes in liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the respective periods:
 
Three Months Ended
February 28,
 
Six Months Ended
February 28,
($ in thousands)
2015
 
2014
 
2015
 
2014
Beginning balance
$
6,292

 
$
5,743

 
$
41,893

 
$
5,277

Initial contingent consideration at fair value

 
21,371

 

 
21,371

Change in fair value included in net income
124

 
8,288

 
(997
)
 
8,754

Payment for contingent consideration

 

 
(34,480
)
 

Currency translation adjustment

 
621

 

 
621

Ending balance
$
6,416

 
$
36,023

 
$
6,416

 
$
36,023

Our contingent consideration liabilities are valued using discounted cash flow valuation methods encompassing significant unobservable inputs. The inputs include estimated operating results scenarios for the applicable performance periods, probability weightings assigned to operating results scenarios and the discount rates applied. Our contingent consideration liabilities relate to the following:
Open Colleges - As a result of our acquisition of Open Colleges during fiscal year 2014, we had contingent consideration that was based on Open Colleges’ operating results through June 2014 as defined in the acquisition agreement. We initially measured the contingent consideration at $21.4 million based on information available as of the acquisition date. We settled the contingent consideration during fiscal year 2015 and paid $34.5 million, which includes $21.4 million in financing activities and the remaining portion is included in operating activities on our Condensed Consolidated Statements of Cash Flows.
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 February 28, 2015, the estimated fair value for this contingent consideration was $6.4 million.
We did not change our valuation techniques associated with recurring fair value measurements from prior periods.
Note 9. Accrued and Other Liabilities
Accrued and other current liabilities consist of the following as of the respective periods:
($ in thousands)
February 28,
2015
 
August 31,
2014
Salaries, wages and benefits
$
81,995

 
$
125,165

Student refunds, grants and scholarships
43,400

 
20,072

Restructuring obligations
43,146

 
43,339

Accrued legal and other professional obligations
35,604

 
33,651

Accrued advertising
29,558

 
33,853

Deferred rent and other lease liabilities
12,982

 
12,384

Curriculum materials
10,904

 
12,069

Contingent consideration

 
35,239

Other
50,592

 
47,835

Total accrued and other current liabilities
$
308,181

 
$
363,607


18

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

Other long-term liabilities consist of the following as of the respective periods:
($ in thousands)
February 28,
2015
 
August 31,
2014
Deferred revenue
$
58,737

 
$
51,831

Deferred rent and other lease liabilities
53,516

 
57,788

Restructuring obligations
51,159

 
59,744

Deferred gains on sale-leasebacks
20,905

 
21,641

Uncertain tax positions
7,187

 
9,770

Other
34,380

 
33,168

Total other long-term liabilities
$
225,884

 
$
233,942

Note 10. Debt
Debt and short-term borrowings consist of the following as of the respective periods:
($ in thousands)
February 28,
2015
 
August 31,
2014
Revolving Credit Facility
$

 
$
585,000

Capital lease obligations
22,707

 
32,806

Other
38,114

 
39,290

Total debt
60,821

 
657,096

Less short-term borrowings and current portion of long-term debt
(15,664
)
 
(609,506
)
Long-term debt
$
45,157

 
$
47,590

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 had approximately $24 million of outstanding letters of credit under the Revolving Credit Facility as of August 31, 2014. We repaid the entire amount borrowed under the Revolving Credit Facility during the first quarter of fiscal year 2015. As of February 28, 2015, we have approximately $44 million of outstanding letters of credit under the Revolving Credit Facility.
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 August 31, 2014 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 February 28, 2015 and August 31, 2014.
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 February 28, 2015 and August 31, 2014 was 5.6% and 5.8%, 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.

19

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

Note 11. Income Taxes
We determine our interim income tax provision by applying our estimated effective income tax rate expected to be applicable for the full fiscal year to our income before income taxes for the period. Our effective income tax rate is dependent upon several factors, such as tax rates in state and foreign jurisdictions and the relative amount of income we earn in such jurisdictions. In determining our full year estimate, we do not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes. We exercise significant judgment in determining our income tax provision due to transactions, credits and calculations where the ultimate tax determination is uncertain.
Our U.S. federal income tax return for fiscal year 2013 is currently open for review by the Internal Revenue Service (“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. We are also subject to numerous ongoing audits by state, local and foreign tax authorities with various tax years as early as 2007 that remain subject to examination. Although we believe our tax accruals are reasonable, the final determination of tax returns under review or returns that may be reviewed in the future and any related litigation could result in tax liabilities that materially differ from our historical income tax provisions and accruals.
Note 12. Shareholders’ Equity and Redeemable Noncontrolling Interests
Share Repurchases
Our Board of Directors has authorized us to repurchase outstanding shares of our Class A common stock from time to time depending on market conditions and other considerations. During fiscal year 2013, our Board of Directors authorized an increase in the amount available under our share repurchase program up to an aggregate amount of $250 million, of which $52.2 million remained available as of February 28, 2015. 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 share-based awards, which do not fall under the repurchase program described above.
The following summarizes our share repurchase activity for the respective periods:
 
Three Months Ended
February 28,
 
Six Months Ended
February 28,
(In thousands, except per share data)
2015
 
2014
 
2015
 
2014
Share repurchases under share repurchase program:
 
 
 
 
 
 
 
Number of shares repurchased
763

 
1,713

 
1,440

 
2,290

Weighted average purchase price per share
$
26.22

 
$
31.93

 
$
26.45

 
$
30.44

Cost of share repurchases(1)
$
20,000

 
$
54,684

 
$
38,092

 
$
69,684

Share repurchases related to vesting of share-based awards:
 
 
 
 
 
 
 
Number of shares repurchased
9

 
25

 
87

 
113

Cost of share repurchases
$
254

 
$
682

 
$
2,226

 
$
2,553

(1) At February 28, 2015, $1.6 million was recorded in accrued and other current liabilities on our Condensed Consolidated Balance Sheets for repurchased shares that settled subsequent to February 28, 2015.

20

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

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, performance share awards, stock option exercises and purchases under our employee stock purchase plan. Share reissuances were as follows for the respective periods:
 
Three Months Ended
February 28,
 
Six Months Ended
February 28,
(In thousands)
2015
 
2014
 
2015
 
2014
Number of shares reissued
55

 
110

 
282

 
391