Restructuring and Other Charges

We have initiated a series of activities to reengineer business processes and refine our educational delivery structure. We have also been evaluating various initiatives to adapt our business to the rapidly evolving changes and increasing competition in higher education. The following details the charges incurred for the three and nine months ended May 31, 2013 and 2012, and the cumulative costs associated with these activities, all of which are 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)	2013		2012		2013		2012		Cumulative Costs for Restructuring Activities
Lease and related costs, net	$	55,737	$	535	$	100,489	$	22,245	$	135,537
Severance and other employee separation costs	5,084		2,681		24,244		2,681		40,977
Other restructuring related costs	2,282		4,361		6,562		4,361		16,389
Restructuring and other charges	$	63,103	$	7,577	$	131,295	$	29,287	$	192,903

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



	Three Months Ended May 31,				Nine Months Ended May 31,				Cumulative Costs for Restructuring Activities
($ in thousands)	2013		2012		2013		2012		Cumulative Costs for Restructuring Activities
University of Phoenix	$	56,777	$	535	$	112,118	$	22,245	$	155,033
Apollo Global	1,527		2,681		4,942		2,681		10,860
Other	4,799		4,361		14,235		4,361		27,010
Restructuring and other charges	$	63,103	$	7,577	$	131,295	$	29,287	$	192,903

The following details the changes in our restructuring liability by type of cost during the nine months ended May 31, 2013:



($ in thousands)	Lease and Related Costs, Net			Severance and Other Employee Separation Costs			Other Restructuring Related Costs			Total
Balance at August 31, 2012⁽¹⁾	$	26,024		$	2,998		$	1,411		$	30,433
Restructuring and other charges	100,489			24,244			6,562			131,295
Non-cash adjustments⁽²⁾	(27,010		)	(1,820		)	—			(28,830		)
Payments	(11,341		)	(19,890		)	(7,839		)	(39,070		)
Balance at May 31, 2013⁽¹⁾	$	88,162		$	5,532		$	134		$	93,828

⁽¹⁾The current portion of our restructuring liability was $37.0 million and $11.3 million as of May 31, 2013 and August 31, 2012, respectively. The substantial majority of these balances are included in accrued and other current liabilities on our Condensed Consolidated Balance Sheets. The long-term portion of our restructuring liability is included in other long-term liabilities on our Condensed Consolidated Balance Sheets.

⁽²⁾ Non-cash adjustments for lease and related costs, net represents $41.6 million of accelerated depreciation, partially offset by the release of certain liabilities associated with the leases such as deferred rent. Non-cash adjustments for severance and other employee separation costs represents share-based compensation.

As part of our business processes reengineering, University of Phoenix initiated a plan to realign its ground locations throughout the U.S. during fiscal year 2013. This plan includes closing 115 locations with students directly impacted by the plan being offered support to continue their education either online, through alternative on-ground arrangements or, in limited cases, at existing University of Phoenix locations. Following the finalization and approval of this plan, we performed a recoverability analysis for the fixed assets at the designated facilities the University had not yet closed. We performed this analysis by comparing the estimated undiscounted cash flows of the locations through their expected closure dates to the carrying amount of the locations’ fixed assets. Based on our analysis, we recorded an insignificant impairment charge during the first quarter of fiscal year 2013. We also revised the useful lives of the fixed assets at each of the designated facilities the University had not yet closed through the expected closure dates resulting in $41.6 million of accelerated depreciation during the nine months ended May 31, 2013.

As of May 31, 2013, University of Phoenix has closed nearly half of the locations included in the plan, all of which will no longer provide a future economic benefit to the University. The leases associated with these locations were classified as operating leases and we recorded initial aggregate charges of $57.6 million 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 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.

During fiscal year 2013, we also initiated workforce reductions consisting of approximately 1,000 positions due in part to University of Phoenix’s ground location realignment. We eliminated the majority of these positions during the nine months ended May 31, 2013 and incurred $24.2 million of severance and other employee separation costs. These costs are included in the reportable segments in which the respective eliminated personnel were employed. The remaining positions that have not yet been eliminated are principally located at facilities included in the University’s realignment plan that have not yet closed. These positions will be eliminated and related charges will be incurred as the respective locations close.

We incurred $6.6 million of costs during the nine months ended May 31, 2013 principally attributable to services from a consulting firm associated with our restructuring initiatives. The majority of these costs are included in “Other” in our segment reporting because the respective services pertain to all areas of our business.

Some of the locations in University of Phoenix’s ground location realignment require regulatory approval to close. The University will continue to close the remaining locations and eliminate related positions included in the plan as regulatory approvals are obtained, which will continue into fiscal year 2014. We expect to incur approximately $75 million of additional charges, principally for lease exit and other related costs, as the University closes the respective facilities.