Restructuring and Other Charges

We have initiated a series of activities to reengineer business processes and refine our educational delivery structure. These activities are designed to increase operating efficiencies and effectiveness, and enhance our students’ educational experience and outcomes. We are focused on aligning our operations with our business strategy, which includes optimizing our cost structure. The following table details the charges incurred for the three and nine months ended May 31, 2012 and 2011, and the cumulative costs associated with these activities, which have all been included in restructuring and other charges on our Condensed Consolidated Statements of Income:



	Three Months Ended May 31,				Nine Months Ended May 31,				Cumulative Costs for Restructuring Activities
($ in thousands)	2012		2011		2012		2011		Cumulative Costs for Restructuring Activities
Non-cancelable lease obligations and related costs, net⁽¹⁾	$	535	$	—	$	22,245	$	—	$	41,312
Employee severance and other benefits	2,681		—		2,681		3,846		6,527
Other restructuring related costs	4,361		—		4,361		—		4,361
Restructuring and other charges	$	7,577	$	—	$	29,287	$	3,846	$	52,200

⁽¹⁾ Non-cancelable lease obligations and related costs, net includes charges associated with the fair value of our future contractual lease obligations and interest accretion on our lease obligation liabilities, and is partially offset by the release of certain liabilities related to the leases such as deferred rent.

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



	Three Months Ended May 31,				Nine Months Ended May 31,				Cumulative Costs for Restructuring Activities
($ in thousands)	2012		2011		2012		2011		Cumulative Costs for Restructuring Activities
University of Phoenix	$	535	$	—	$	22,245	$	3,846	$	45,158
Apollo Global — Other	2,681		—		2,681		—		2,681
Corporate	4,361		—		4,361		—		4,361
Restructuring and other charges	$	7,577	$	—	$	29,287	$	3,846	$	52,200

The following table details the changes in our restructuring liability by type of cost during the nine months ended May 31, 2012:



($ in thousands)	Non-Cancelable Lease Obligations and Related Costs, Net			Employee Severance and Other Benefits			Other Restructuring Related Costs			Total
Balance at August 31, 2011⁽¹⁾	$	17,802		$	—		$	—		$	17,802
Expense incurred	22,692			2,681			4,361			29,734
Interest accretion	1,368			—			—			1,368
Payments	(6,391		)	(2,681		)	(654		)	(9,726		)
Balance at May 31, 2012⁽¹⁾	$	35,471		$	—		$	3,707		$	39,178

⁽¹⁾The current portion of our restructuring liability was $16.2 million and $3.2 million as of May 31, 2012 and August 31, 2011, respectively.

During fiscal year 2011, we initiated a plan to rationalize our real estate portfolio in Phoenix, Arizona through space consolidation and reorganization. The plan consisted of abandoning all, or a portion of, four leased facilities, all of which we are no longer using and have determined we will no longer derive a future economic benefit. The leases on these facilities were classified as operating leases and we recorded $38.7 million of aggregate charges on the respective cease-use dates representing the fair value of our future contractual lease obligations. We measured the lease obligations at fair value using a discounted cash flow approach encompassing significant unobservable inputs (Level 3). 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 considered subleases that we have executed and subleases we expect to execute, current commercial real estate market data and conditions, comparable transaction data and qualitative factors specific to the facilities. The estimates will be subject to adjustment as market conditions change or as new information becomes available, including the execution of additional sublease agreements. Excluding adjustments resulting from changes in estimates and interest accretion charges, we do not expect to incur additional charges associated with the abandoned facilities.

During the third quarter of fiscal year 2012, we implemented a reduction in force at UNIACC to better align its operations with its refined business model and outlook following its loss of institutional accreditation. Refer to Note 7, Goodwill and Intangible Assets, for a discussion of this change in accreditation. In connection with this reduction in force, we incurred $2.7 million of employee severance and other benefit costs principally representing non-direct student servicing personnel. We do not expect to incur additional charges associated with this restructuring activity.

We also incurred $4.4 million of costs during the third quarter of fiscal year 2012 principally attributable to services received from third party consulting firms associated with our initiatives to evaluate and identify operating efficiency and effectiveness opportunities. As these services pertain to all areas of our business, we have not allocated these costs to our reportable segments and they are included in our Corporate caption.

Although we expect to implement additional restructuring activities as we reengineer business processes as discussed above, we have not yet finalized our initiatives or committed to any further specific restructuring activities. Accordingly, while future charges and associated savings related to these activities could be substantial, the nature, timing and amount cannot be estimated at this time.