10-Q 1 apol-may31201610q.htm 10-Q Document

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

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

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



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

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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


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

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


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

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


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

 
 

Cash and cash equivalents
$
361,526

 
$
503,705

Restricted cash and cash equivalents
185,320

 
198,369

Marketable securities
242,301

 
194,676

Accounts receivable, net
193,477

 
198,459

Prepaid taxes
29,165

 
38,371

Other current assets
53,201

 
48,823

Assets of business held for sale

 
40,897

Total current assets
1,064,990

 
1,223,300

Marketable securities
39,323

 
95,815

Property and equipment, net
343,094

 
370,281

Goodwill
265,765

 
247,190

Intangible assets, net
200,756

 
143,244

Deferred taxes
93,772

 
92,105

Other assets
29,926

 
29,129

Total assets
$
2,037,626

 
$
2,201,064

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

 
 

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

 
$
14,080

Accounts payable
56,297

 
64,100

Student deposits
213,986

 
245,470

Deferred revenue
185,025

 
186,950

Accrued and other current liabilities
248,863

 
280,847

Liabilities of business held for sale

 
40,897

Total current liabilities
723,685

 
832,344

Long-term debt
42,597

 
31,566

Deferred taxes
16,924

 
7,729

Other long-term liabilities
182,491

 
172,452

Total liabilities
965,697

 
1,044,091

Commitments and contingencies


 


Redeemable noncontrolling interests
7,204

 
11,915

Shareholders’ equity:
 

 
 

Preferred stock, no par value

 

Apollo Class A nonvoting common stock, no par value
103

 
103

Apollo Class B voting common stock, no par value
1

 
1

Additional paid-in capital

 

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

 
5,153,452

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

 
1,144,558

Noncontrolling interests
555

 
500

Total equity
1,064,725

 
1,145,058

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

 
$
2,201,064

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

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


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

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

 
$
676,358

 
$
1,609,371

 
$
1,965,986

Costs and expenses:
 
 
 
 
 
 
 
Instructional and student advisory
274,486

 
294,841

 
836,453

 
907,348

Marketing
87,530

 
116,839

 
279,128

 
369,120

Admissions advisory
30,192

 
52,994

 
94,500

 
167,919

General and administrative
59,066

 
64,437

 
192,300

 
206,215

Depreciation and amortization
28,330

 
29,969

 
82,478

 
95,705

Provision for uncollectible accounts receivable
15,716

 
13,005

 
43,812

 
42,372

Restructuring and impairment charges
22,366

 
11,444

 
149,578

 
52,722

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

 
(455
)
 
25,188

 
4,506

Litigation charge

 

 

 
100

Total costs and expenses
526,003

 
583,074

 
1,703,437

 
1,846,007

Operating income (loss)
31,999

 
93,284

 
(94,066
)
 
119,979

Interest income
1,041

 
762

 
2,883

 
2,091

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

 
90,293

 
(98,409
)
 
112,474

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

 
49,626

 
(102,205
)
 
58,677

Loss from discontinued operations, net of tax

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

 
47,440

 
(105,464
)
 
43,771

Net loss attributable to noncontrolling interests
945

 
624

 
5,047

 
4,468

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

 
$
48,064

 
$
(100,417
)
 
$
48,239

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

 
$
0.47

 
$
(0.89
)
 
$
0.59

Discontinued operations attributable to Apollo

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

 
$
0.45

 
$
(0.92
)
 
$
0.45

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

 
$
0.46

 
$
(0.89
)
 
$
0.58

Discontinued operations attributable to Apollo

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

 
$
0.44

 
$
(0.92
)
 
$
0.44

Basic weighted average shares outstanding
108,658

 
107,678

 
108,567

 
108,140

Diluted weighted average shares outstanding
109,444

 
108,623

 
108,567

 
109,124

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


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


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

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

 
$
47,440

 
$
(105,464
)
 
$
43,771

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

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

 
49

 
89

 
290

Comprehensive income (loss)
28,661

 
40,558

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

 
2,157

 
6,045

 
16,498

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

 
$
42,715

 
$
(102,124
)
 
$
15,636

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


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


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

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

 
$
103

 
475

 
$
1

 
$

 
80,082

 
$
(3,928,419
)
 
$
5,153,452

 
$
(80,579
)
 
$
1,144,558

 
$
500

 
$
1,145,058

 
 
$
11,915

Share repurchases

 

 

 

 

 
91

 
(732
)
 

 

 
(732
)
 

 
(732
)
 
 

Share reissuances

 

 

 

 
(23,219
)
 
(359
)
 
13,872

 
9,985

 

 
638

 

 
638

 
 

Net tax effect for stock incentive plans

 

 

 

 
(4,099
)
 

 

 

 

 
(4,099
)
 

 
(4,099
)
 
 

Share-based compensation

 

 

 

 
27,318

 

 

 

 

 
27,318

 

 
27,318

 
 

Currency translation adjustment

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 
89

 
89

 

 
89

 
 

Redemption value adjustments

 

 

 

 

 

 

 
(1,389
)
 

 
(1,389
)
 

 
(1,389
)
 
 
1,389

Net (loss) income

 

 

 

 

 

 

 
(100,417
)
 

 
(100,417
)
 
104

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

 
$
103

 
475

 
$
1

 
$

 
79,814

 
$
(3,915,279
)
 
$
5,061,631

 
$
(82,286
)
 
$
1,064,170

 
$
555

 
$
1,064,725

 
 
$
7,204

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of August 31, 2014
188,007

 
$
103

 
475

 
$
1

 
$

 
79,585

 
$
(3,936,607
)
 
$
5,143,949

 
$
(27,320
)
 
$
1,180,126

 
$
676

 
$
1,180,802

 
 
$
64,527

Share repurchases

 

 

 

 

 
1,549

 
(40,700
)
 

 

 
(40,700
)
 

 
(40,700
)
 
 

Share reissuances

 

 

 

 
(27,593
)
 
(352
)
 
14,590

 
13,998

 

 
995

 

 
995

 
 

Net tax effect for stock incentive plans

 

 

 

 
(3,839
)
 

 

 

 

 
(3,839
)
 

 
(3,839
)
 
 

Share-based compensation

 

 

 

 
29,768

 

 

 

 

 
29,768

 

 
29,768

 
 

Currency translation adjustment

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 
290

 
290

 

 
290

 
 

Acquisition

 

 

 

 

 

 

 

 

 

 

 

 
 
3,437

Redemption value adjustments

 

 

 

 

 

 

 
(4,948
)
 

 
(4,948
)
 

 
(4,948
)
 
 
4,948

Net income (loss)

 

 

 

 

 

 

 
48,239

 

 
48,239

 
124

 
48,363

 
 
(4,592
)
Other

 

 

 

 
1,664

 

 

 

 

 
1,664

 

 
1,664

 
 

Balance as of May 31, 2015
188,007

 
$
103

 
475

 
$
1

 
$

 
80,782

 
$
(3,962,717
)
 
$
5,201,238

 
$
(59,923
)
 
$
1,178,702

 
$
745

 
$
1,179,447

 
 
$
56,345

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


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


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

 
 

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

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

 
29,768

Excess tax benefits from share-based compensation

 
(236
)
Depreciation and amortization
82,478

 
101,779

Accelerated depreciation included in restructuring
12,262

 
7,207

Impairment charges and loss on asset dispositions
76,470

 
22,228

Non-cash foreign currency loss, net
492

 
1,722

Provision for uncollectible accounts receivable
43,812

 
42,372

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

Restricted cash and cash equivalents
13,567

 
5,529

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

 
21,038

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

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

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

 
123,703

Investing activities:
 

 
 

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

 
156,337

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

 
 

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

 
4,515

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

 
995

Excess tax benefits from share-based compensation

 
236

Payment for contingent consideration

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

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

 
1,228,813

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

 
$
577,222

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

 
 

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

 
$
36,545

Cash paid for interest
5,081

 
5,134

Restricted stock units vested and released
2,083

 
7,407

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

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


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


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

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

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

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

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

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

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

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

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

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

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

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

 
$
11,444

 
$
73,673

 
$
46,772

Goodwill impairments(1)

 

 
73,393

 

Property and equipment impairments

 

 
2,512

 
5,950

Restructuring and impairment charges
$
22,366

 
$
11,444

 
$
149,578

 
$
52,722

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

 
$
6,043

 
$
46,380

 
$
28,292

Apollo Global
1,183

 
41

 
1,902

 
142

Other
5,396

 
5,360

 
25,391

 
18,338

Restructuring charges
$
22,366

 
$
11,444

 
$
73,673

 
$
46,772


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

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

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

 
$
74,990

 
$

 
$
8,210

 
$

 
$
90

 
$
83,290

Expense

 
10,479

 
10,380

 
1,058

 
210

 
2,303

 
24,430

Other

 
(387
)
 
(53
)
 

 

 
(1,211
)
 
(1,651
)
Payments

 
(12,662
)
 
(3,158
)
 
(5,257
)
 

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

 
72,420

 
7,169

 
4,011

 
210

 
369

 
84,179

Expense

 
16,178

 
7,133

 
696

 
1,058

 
1,812

 
26,877

Other

 
(3,705
)
 
(164
)
 

 

 
(1,543
)
 
(5,412
)
Payments

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

 
74,122

 
3,109

 
2,919

 
863

 
116

 
81,129

Expense

 
8,973

 
10,468

 
802

 
444

 
1,679

 
22,366

Other

 
(73
)
 
(303
)
 

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

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

 
$
71,425

 
$
4,822

 
$
2,295

 
$
641

 
$
159

 
$
79,342

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

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

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

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

Accounts receivable, net
10,327

Property and equipment, net
15,912

Intangible assets, net
14,100

Other
3,972

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

 
 
Deferred revenue
$
35,602

Other
5,295

Total liabilities
$
40,897

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

 
$
5,123

 
$
2,993

 
$
13,119

Costs and expenses:
 
 
 
 
 
 
 
Intangibles impairment(1)

 

 

 
12,999

Loss on sale

 

 
2,773

 

Other

 
7,756

 
4,519

 
23,469

Loss from discontinued operations before income taxes

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

 
447

 
1,040

 
8,443

Loss from discontinued operations, net of tax
$

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

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

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

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

Property and equipment
13,682

Intangibles:
 
Trademarks (indefinite useful life)
30,469

Accreditations (indefinite useful life)
27,948

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

Curriculum (5 year useful life)
3,726

Goodwill
92,840

Other assets
2,092

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

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

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

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

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

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

 
$
(2,807
)
Indefinite-lived intangibles

 
15,163

Finite-lived intangibles
4,690

 
5,394

Goodwill
15,888

 
14,538

Total assets acquired and liabilities assumed, net
25,840

 
32,288

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

 
28,851

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

 
$
21,166


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

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

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

 
$

 
$

 
$
408,823

 
$
408,823

 
$

 
$

Level 1:
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
111,236

 

 

 
111,236

 
111,236

 

 

Level 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
113,004

 
30

 
(155
)
 
112,879

 

 
96,531

 
16,348

Tax-exempt municipal bonds
104,281

 
33

 
(43
)
 
104,271

 
600

 
84,324

 
19,347

Time deposits
50,458

 

 

 
50,458

 
25,187

 
25,271

 

Other
40,797

 
12

 
(6
)
 
40,803

 
1,000

 
36,175

 
3,628

Total
$
828,599

 
$
75

 
$
(204
)
 
$
828,470

 
$
546,846

 
$
242,301

 
$
39,323


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

 
$

 
$

 
$
564,225

 
$
564,225

 
$

 
$

Level 1:
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
107,408

 

 

 
107,408

 
107,408

 

 

Level 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
137,283

 
16

 
(271
)
 
137,028

 
1,823

 
82,047

 
53,158

Tax-exempt municipal bonds
97,022

 
68

 
(60
)
 
97,030

 
2,408

 
61,530

 
33,092

Time deposits
50,267

 

 

 
50,267

 
25,110

 
25,157

 

Other
36,634

 
10

 
(37
)
 
36,607

 
1,100

 
25,942

 
9,565

Total
$
992,839

 
$
94

 
$
(368
)
 
$
992,565

 
$
702,074

 
$
194,676

 
$
95,815

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

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

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

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

 
$
234,204

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

 
191,945

Other receivables
12,969

 
6,514

Total accounts receivable, net
$
193,477

 
$
198,459

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

 
$
49,891

 
$
42,259

 
$
50,145

Provision for uncollectible accounts receivable
15,716

 
13,005

 
43,812

 
42,372

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

 
(214
)
 
176

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

 
$
46,891

 
$
44,871

 
$
46,891

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

 
$
142,599

 
$
32,779

 
$
247,190

Career Partner acquisition

 
92,840

 

 
92,840

Impairments
(71,812
)
 

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

 
(872
)
 

 
(872
)
Goodwill as of May 31, 2016
$

 
$
234,567

 
$
31,198

 
$
265,765

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

 
$
(9,645
)
 
$
(2,349
)
 
$
10,244

 
$
19,715

 
$
(7,361
)
 
$
(2,470
)
 
$
9,884

Accreditations and designations
21,628

 
(9,648
)
 
(3,024
)
 
8,956

 
21,628

 
(6,972
)
 
(3,153
)
 
11,503

Trademarks
21,019

 
(4,274
)
 
(2,910
)
 
13,835

 
21,019

 
(2,942
)
 
(3,034
)
 
15,043

Student and customer relationships(1)
14,534

 
(4,910
)
 
(1,864
)
 
7,760

 
5,517

 
(2,632
)
 
(1,975
)
 
910

Other
3,577

 
(752
)
 
(662
)
 
2,163

 
3,746

 
(597
)
 
(633
)
 
2,516

Total finite-lived intangibles
82,996

 
(29,229
)
 
(10,809
)
 
42,958

 
71,625

 
(20,504
)
 
(11,265
)
 
39,856

Trademarks(1)
132,106

 

 
(14,067
)
 
118,039

 
101,637

 

 
(9,906
)
 
91,731

Accreditations and designations(1)
42,418

 

 
(2,659
)
 
39,759

 
14,470

 

 
(2,813
)
 
11,657

Total indefinite-lived intangibles
174,524

 

 
(16,726
)
 
157,798

 
116,107

 

 
(12,719
)
 
103,388

Total intangible assets, net
$
257,520

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

 
$
187,732

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

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

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

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

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

 
$
14,074

 
$
10,103

 
$
4,937

 
$
3,041

 
$
2,127

 
$
4,845

 
$
42,958

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

 
$

 
$