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, 2014
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______ to ______

Commission file number: 0-25232

APOLLO EDUCATION GROUP, INC.

(Exact name of registrant as specified in its charter)

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

4025 S. RIVERPOINT PARKWAY, PHOENIX, ARIZONA 85040

(Address of principal executive offices)

(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 25, 2014, the following shares of stock were outstanding:

Apollo Education Group, Inc. Class A common stock, no par value	110,819,000 Shares
Apollo Education Group, Inc. Class B common stock, no par value	475,000 Shares

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED FEBRUARY 28, 2014

INDEX

		Page
Special Note Regarding Forward-Looking Statements		3
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Income	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interests	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
SIGNATURES		45

2

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including “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. (“the Company,” “Apollo Education Group,” “Apollo,” “APOL,” “we,” “us” or “our”) 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 the regulation of the U.S. education industry and eligibility of schools, including in particular proprietary schools, to participate in U.S. federal student financial aid programs, including the regulatory and other requirements discussed in Item 1, Business, of our Annual Report on Form 10-K for the year ended August 31, 2013, 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, 2013; 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, 2013 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.

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, 2014			August 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	645,940		$	1,414,485
Restricted cash and cash equivalents	283,929			259,174
Marketable securities	158,243			105,809
Accounts receivable, net	199,102			215,401
Prepaid taxes	15,826			30,359
Deferred tax assets	64,758			60,294
Other current assets	59,283			64,134
Total current assets	1,427,081			2,149,656
Marketable securities	111,709			43,941
Property and equipment, net	457,503			472,614
Goodwill	233,037			103,620
Intangible assets, net	191,343			132,192
Deferred tax assets	60,409			63,894
Other assets	50,348			32,030
Total assets	$	2,531,430		$	2,997,947
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	30,781		$	628,050
Accounts payable	64,290			73,123
Student deposits	328,394			309,176
Deferred revenue	256,899			213,260
Accrued and other current liabilities	328,240			346,706
Total current liabilities	1,008,604			1,570,315
Long-term debt	43,642			64,004
Deferred tax liabilities	24,814			12,177
Other long-term liabilities	222,064			233,442
Total liabilities	1,299,124			1,879,938
Commitments and contingencies
Redeemable noncontrolling interests	49,388			—
Shareholders’ equity:
Preferred stock, no par value	—			—
Apollo Education Group Class A nonvoting common stock, no par value	103			103
Apollo Education Group Class B voting common stock, no par value	1			1
Additional paid-in capital	—			—
Apollo Education Group Class A treasury stock, at cost	(3,880,394		)	(3,824,758		)
Retained earnings	5,092,511			4,978,815
Accumulated other comprehensive loss	(30,024		)	(36,563		)
Total Apollo shareholders’ equity	1,182,197			1,117,598
Noncontrolling interests	721			411
Total equity	1,182,918			1,118,009
Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	2,531,430		$	2,997,947

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

4

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended February 28,						Six Months Ended February 28,
(In thousands, except per share data)	2014			2013			2014			2013
Net revenue	$	679,058		$	834,372		$	1,535,393		$	1,889,555
Costs and expenses:
Instructional and student advisory	319,575			383,702			659,254			815,852
Marketing	143,392			173,313			281,236			336,186
Admissions advisory	55,072			68,232			106,581			139,540
General and administrative	67,676			81,218			142,906			154,757
Depreciation and amortization	37,465			41,499			73,803			85,194
Provision for uncollectible accounts receivable	11,534			18,902			25,512			52,308
Restructuring and other charges	15,209			44,076			47,172			68,192
Acquisition costs and contingent consideration charges	13,005			—			13,005			—
Litigation charge (credit), net	9,000			(6,350		)	9,000			(23,200		)
Total costs and expenses	671,928			804,592			1,358,469			1,628,829
Operating income	7,130			29,780			176,924			260,726
Interest income	599			388			1,167			937
Interest expense	(1,983		)	(2,092		)	(4,069		)	(4,134		)
Other, net	107			(126		)	914			1,673
Income before income taxes	5,853			27,950			174,936			259,202
Benefit from (provision for) income taxes	6,324			(14,291		)	(63,718		)	(111,803		)
Net income	12,177			13,659			111,218			147,399
Net loss (income) attributable to noncontrolling interests	2,428			(132		)	2,278			(377		)
Net income attributable to Apollo	$	14,605		$	13,527		$	113,496		$	147,022
Basic income per share attributable to Apollo	$	0.13		$	0.12		$	1.01		$	1.31
Diluted income per share attributable to Apollo	$	0.13		$	0.12		$	1.00		$	1.30
Basic weighted average shares outstanding	112,151			112,573			112,742			112,496
Diluted weighted average shares outstanding	113,380			113,068			113,676			112,984

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

5

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended February 28,					Six Months Ended February 28,
($ in thousands)	2014		2013			2014		2013
Net income	$	12,177	$	13,659		$	111,218	$	147,399
Other comprehensive income (loss) (net of tax):
Currency translation gain (loss)(1)	4,483		(3,389		)	7,318		(2,630		)
Comprehensive income	16,660		10,270			118,536		144,769
Comprehensive loss (income) attributable to noncontrolling interests	1,748		199			1,499		(73		)
Comprehensive income attributable to Apollo	$	18,408	$	10,469		$	120,035	$	144,696

⁽¹⁾ The tax effect on other comprehensive income during the three and six months ended February 28, 2014 and 2013, respectively, is not significant.

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

6

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

(Unaudited)

	Common Stock
	Apollo Education Group						Additional Paid-in Capital			Treasury Stock							Accumulated Other Comprehensive Loss			Total Apollo Shareholders’ Equity			Noncontrolling Interests
	Class A Nonvoting			Class B Voting						Apollo Education Group Class A					Retained Earnings										Total Equity			Redeemable Noncontrolling Interests
($ in thousands)	Shares	Stated Value		Shares	Stated Value					Shares		Cost
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		$	—
Treasury stock purchases	—	—		—	—		—			2,403		(72,237		)	—		—			(72,237		)	—		(72,237		)	—
Treasury stock issued under stock purchase plans	—	—		—	—		(1,931		)	(72	)	3,623			—		—			1,692			—		1,692			—
Treasury stock issued under stock incentive plans	—	—		—	—		(13,077		)	(319	)	12,978			200		—			101			—		101			—
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

Balance as of August 31, 2012	188,007	$	103	475	$	1	$	93,770		76,239		$	(3,878,612	)	$	4,743,150	$	(30,034	)	$	928,378		$	(4,055	)	$	924,323
Treasury stock purchases	—	—		—	—		—			159		(3,881		)	—		—			(3,881		)	—			(3,881		)
Treasury stock issued under stock purchase plans	—	—		—	—		(2,591		)	(93	)	4,722			—		—			2,131			—			2,131
Treasury stock issued under stock incentive plans	—	—		—	—		(17,735		)	(431	)	17,735			—		—			—			—			—
Net tax effect for stock incentive plans	—	—		—	—		(8,816		)	—		—			—		—			(8,816		)	—			(8,816		)
Share-based compensation	—	—		—	—		27,515			—		—			—		—			27,515			—			27,515
Currency translation adjustment, net of tax	—	—		—	—		—			—		—			—		(2,326		)	(2,326		)	(304		)	(2,630		)
Purchase of noncontrolling interest	—	—		—	—		(48,543		)	—		—			—		(4,886		)	(53,429		)	4,929			(48,500		)
Net income	—	—		—	—		—			—		—			147,022		—			147,022			377			147,399
Balance as of February 28, 2013	188,007	$	103	475	$	1	$	43,600		75,874		$	(3,860,036	)	$	4,890,172	$	(37,246	)	$	1,036,594		$	947		$	1,037,541

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

7

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended February 28,
($ in thousands)	2014			2013
Operating activities:
Net income	$	111,218		$	147,399
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation	22,510			27,515
Depreciation and amortization	73,803			85,194
Accelerated depreciation included in restructuring	4,316			30,641
Gain on disposition	(1,984		)	—
Non-cash foreign currency loss, net	596			146
Provision for uncollectible accounts receivable	25,512			52,308
Litigation charge (credit), net	9,000			(23,200		)
Deferred income taxes	(6,255		)	(4,100		)
Changes in assets and liabilities, excluding the impact of acquisition and disposition:
Restricted cash and cash equivalents	(24,165		)	(11,438		)
Accounts receivable	(6,469		)	(33,919		)
Prepaid taxes	15,230			16,143
Other assets	(11,445		)	(3,939		)
Accounts payable	(11,454		)	1,094
Student deposits	17,409			2,551
Deferred revenue	32,881			8,632
Accrued and other liabilities	(57,219		)	3,923
Net cash provided by operating activities	193,484			298,950
Investing activities:
Purchases of property and equipment	(58,119		)	(49,024		)
Purchases of marketable securities	(227,978		)	(39,444		)
Maturities of marketable securities	105,237			7,470
Acquisition, net of cash acquired	(94,937		)	—
Other investing activities	3,446			(1,500		)
Net cash used in investing activities	(272,351		)	(82,498		)
Financing activities:
Payments on borrowings	(619,268		)	(629,544		)
Proceeds from borrowings	—			2,176
Purchase of noncontrolling interest	—			(42,500		)
Purchases of stock for treasury	(72,237		)	(3,881		)
Issuances of stock	1,793			2,131
Net cash used in financing activities	(689,712		)	(671,618		)
Exchange rate effect on cash and cash equivalents	34			(46		)
Net decrease in cash and cash equivalents	(768,545		)	(455,212		)
Cash and cash equivalents, beginning of period	1,414,485			1,276,375
Cash and cash equivalents, end of period	$	645,940		$	821,163
Supplemental disclosure of cash flow and non-cash information:
Cash paid for income taxes, net of refunds	$	70,868		$	100,713
Cash paid for interest	3,911			4,010
Restricted stock units vested and released	7,104			10,825
Capital lease additions	—			2,755
Credits received for tenant improvements	—			1,540

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

Apollo Education Group, Inc. and its wholly-owned subsidiaries and majority-owned subsidiaries, collectively referred to herein as “the Company,” “Apollo Education Group,” “Apollo,” “APOL,” “we,” “us,” or “our,” has been an education provider since 1973. We offer educational programs and services, online and on-campus, at the undergraduate, master’s and doctoral levels. Our learning platforms include the following:

• The University of Phoenix, Inc. (“University of Phoenix”);

• Apollo Global, Inc. (“Apollo Global”):

• BPP Holdings Limited (“BPP”) in the United Kingdom (“U.K.”);

• Open Colleges Australia Pty Ltd. (“Open Colleges”) in Australia;

• Universidad Latinoamericana (“ULA”) in Mexico;

• Universidad de Artes, Ciencias y Comunicación (“UNIACC”) in Chile; and

• India Education Services Private Ltd. in India;

• Western International University, Inc. (“Western International University”, or “WIU”);

• Institute for Professional Development (“IPD”);

• The College for Financial Planning Institutes Corporation (“CFFP”);

• Carnegie Learning, Inc. (“Carnegie Learning”); and

• Apollo Lightspeed, LLC (“Apollo Lightspeed”).

During the first quarter of fiscal year 2014, Apollo changed its name from Apollo Group, Inc. to Apollo Education Group, Inc.

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.Refer toNote 4,Acquisitions.

Note 2. Significant Accounting Policies

Basis of Presentation

The unaudited interim condensed consolidated financial statements include the accounts of Apollo Education Group, Inc., its wholly-owned subsidiaries, and subsidiaries that we control. 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 the opinion of management, 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 notes thereto contained in our 2013 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on October 22, 2013. We consistently applied the accounting policies described in Item 8, Financial Statements and Supplementary Data, in our 2013 Annual Report on Form 10-K in preparing these unaudited interim condensed consolidated financial statements.

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

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

Our operations are generally subject to seasonal trends. We experience, 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. 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. Because of the seasonal nature of our business and other factors, the results of operations for the three and six months ended February 28, 2014 are not necessarily indicative of results to be expected for the entire fiscal year.

9

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Reclassifications

During fiscal year 2013, we began presenting amortization of deferred gains on sale-leasebacks and amortization of lease incentives as a component of the change in accrued and other liabilities on our Condensed Consolidated Statements of Cash Flows. We have reclassified the six months ended February 28, 2013 to conform to our current presentation, which did not impact total cash provided by operating activities.

Note 3. Restructuring and Other Charges

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

	Three Months Ended February 28,				Six Months Ended February 28,				Cumulative Costs as of February 28, 2014
($ in thousands)	2014		2013		2014		2013
Lease and related costs, net	$	9,505	$	34,640	$	23,265	$	44,752	$	195,576
Severance and other employee separation costs	4,863		8,217		20,117		19,160		71,143
Other restructuring related costs	841		1,219		3,790		4,280		40,686
Restructuring and other charges	$	15,209	$	44,076	$	47,172	$	68,192	$	307,405

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

	Three Months Ended February 28,				Six Months Ended February 28,				Cumulative Costs as of February 28, 2014
($ in thousands)	2014		2013		2014		2013
University of Phoenix	$	11,229	$	38,445	$	36,655	$	55,341	$	238,327
Apollo Global	304		3,336		1,567		3,415		13,332
Other	3,676		2,295		8,950		9,436		55,746
Restructuring and other charges	$	15,209	$	44,076	$	47,172	$	68,192	$	307,405

The following details the changes in our restructuring liabilities by type of cost during the six months ended February 28, 2014:

($ in thousands)	Lease and Related Costs, Net			Severance and Other Employee Separation Costs			Other Restructuring Related Costs			Total
Balance at August 31, 2013(1)	$	104,048		$	7,623		$	8,130		$	119,801
Restructuring and other charges	23,265			20,117			3,790			47,172
Non-cash adjustments(2)	(1,811		)	(2,326		)	—			(4,137		)
Payments	(27,082		)	(16,437		)	(4,015		)	(47,534		)
Balance at February 28, 2014(1)	$	98,420		$	8,977		$	7,905		$	115,302

⁽¹⁾ The current portion of our restructuring liabilities was $56.7 million and $55.2 million as of February 28, 2014 and August 31, 2013, respectively. These balances are included in accrued and other current liabilities on our Condensed Consolidated Balance Sheets and the long-term portion is included in other long-term liabilities. The gross, undiscounted obligation associated with our restructuring liabilities as of February 28, 2014 is approximately $175 million, which principally represents non-cancelable leases that will be paid over the respective lease terms through fiscal year 2023.

⁽²⁾ Non-cash adjustments for lease and related costs, net represents $4.3 million of accelerated depreciation, partially offset by the release of certain associated liabilities such as deferred rent. Non-cash adjustments for severance and other employee separation costs represents share-based compensation.

• Lease and Related Costs, Net - Beginning in fiscal year 2011, University of Phoenix began rationalizing its administrative real estate facilities. In addition to continuing to rationalize its administrative facilities, University of Phoenix began implementing a plan during fiscal year 2013 to close 115 of its ground locations. As of February 28, 2014, University of Phoenix has closed approximately three-fourths of the locations included in these plans, which

10

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

represents approximately 90% of the total square feet we are exiting. The remaining closures will continue through fiscal year 2014 and beyond as University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations. We have recorded $140.6 million of initial aggregate charges, representing the estimated fair value of future contractual operating lease obligations, which were recorded in the periods we ceased using the respective facilities, $17.0 million of which was recorded in the six months ended February 28, 2014. The other lease and related costs in the six months ended February 28, 2014 consist of accelerated depreciation, as discussed below, and interest accretion on the lease obligations.

We measure lease obligations at fair value using a discounted cash flow approach encompassing significant unobservable inputs (Level 3). The significant unobservable inputs principally include estimated future cash flows and discount rates, which have ranged between 3%-6% for our lease obligations. The estimation of future cash flows includes non-cancelable contractual lease costs over the remaining terms of the leases, partially offset by estimated future sublease rental income, which involves significant judgment. Our estimate of the amount and timing of sublease rental income considers subleases that we have executed and subleases we expect to execute, current commercial real estate market data and conditions, comparable transaction data and qualitative factors specific to the facilities. The estimates will be subject to adjustment as market conditions change or as new information becomes available, including the execution of additional sublease agreements. As of February 28, 2014, we have recorded adjustments to our initial lease obligation liabilities for interest accretion and immaterial adjustments for changes in estimated sublease income.

Lease and related costs, net includes $4.3 million of accelerated depreciation in the six months ended February 28, 2014 associated with revising the useful lives of the fixed assets at the facilities we are closing through their expected closure dates. Prior to revising the useful lives, we perform a recoverability analysis for the facilities’ fixed assets by comparing the estimated undiscounted cash flows of the locations through their expected closure dates to the carrying amount of the locations’ fixed assets. Based on such analyses, we recorded immaterial impairment charges during fiscal year 2013 and no impairment charges in the six months ended February 28, 2014.

• Severance and Other Employee Separation Costs - Beginning in fiscal year 2011 and continuing into fiscal year 2014, we have implemented workforce reductions as we reengineer our business processes and refine our educational delivery systems. We incurred severance and other employee separation costs of $20.1 million in the six months ended February 28, 2014. These costs are included in the reportable segments in which the respective personnel were employed.

Excluding interest accretion associated with our lease obligation liabilities, we expect to incur approximately $10 million of future restructuring charges for the initiatives announced to date. These costs will generally be incurred over the period of time University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations associated with campuses that have not yet been closed.

Note 4. Acquisitions

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, which supports our strategy to expand our global operations. We paid A$110.3 million (equivalent to $98.1 million on the transaction date), plus contingent consideration of up to A$52.5 million (equivalent to $46.5 million on the transaction date) upon the satisfaction of specified conditions. If the applicable conditions are satisfied, the amount of the contingent consideration will be calculated principally on the basis of Open Colleges’ operating results for its fiscal year ending June 30, 2014 as defined in the acquisition agreement. On the acquisition date, we estimated the fair value of the contingent consideration to be $21.4 million using a discounted cash flow valuation method encompassing significant unobservable inputs. The inputs include estimated operating results for the performance period, probability weightings assigned to the operating results scenarios and the discount rate applied. We incurred $3.6 million of transaction costs in connection with this acquisition, which are included in acquisition costs and contingent consideration charges on our Condensed Consolidated Statements of Income in the three months ended February 28, 2014.

In connection with the acquisition, we also have the option to buy the remaining outstanding shares of Open Colleges, and the noncontrolling shareholders have the option to sell their shares to us, in early 2017, 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 Open Colleges’ calendar year 2016 operating results as defined in the acquisition agreement, or an earlier measurement period in the limited circumstances that the options are exercised prior to 2017. 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

11

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

redeem their shares, we have classified the noncontrolling interests as redeemable equity on our Condensed Consolidated Balance Sheets. Refer to Note 12, Shareholders’ Equity and Redeemable Noncontrolling Interests.

We accounted for the acquisition as a business combination and allocated the purchase price to the assets acquired and liabilities assumed at fair value as summarized below:

($ in thousands)
Net working capital deficit	$	(10,979	)
Property and equipment	2,684
Intangibles:
Course designations (5 year useful life)	20,652
Trademark (10 year useful life)	17,919
Course curriculum (4 year useful life)	15,790
Customer relationships (1 year useful life)	5,238
Accreditations (4 year useful life)	976
Goodwill	127,656
Deferred taxes, net	(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

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 all of the acquired intangibles. The trademark, course designations, and course curriculum were valued using the relief-from-royalty method, which represents the benefit of owning these intangible assets rather than paying royalties for their use. The remaining intangibles were valued using the excess earnings method or cost savings method.

• Deferred revenue - Deferred revenue is included in net working capital deficit in the above table. We estimated the fair value of deferred revenue using the cost build-up method, which represents the cost to deliver the services, plus a normal profit margin.

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

• Redeemable noncontrolling interests - We estimated the fair value of the redeemable noncontrolling interests as the noncontrolling ownership percentage of the implied fair value of Open Colleges as a whole. Based on the terms of the acquisition, including the redemption options held by the noncontrolling shareholders, we did not apply a discount for lack of control to the value of the noncontrolling interest.

We recorded $127.7 million of goodwill as a result of the Open Colleges acquisition, which is not expected to be deductible for tax purposes. 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 determined all of the 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 intangibles was 5.9 years. Refer to Note 7, Goodwill and Intangibles, for the estimated future amortization of our finite-lived intangibles.

12

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Open Colleges’ operating results are included in our consolidated financial statements from date of acquisition. We have not provided pro forma information because Open Colleges’ results of operations are not significant to our consolidated results of operations.

Note 5. Financial Instruments

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

	February 28, 2014
($ in thousands)	Cash and Cash Equivalents(1)		Current Marketable Securities		Noncurrent Marketable Securities		Total Carrying Value		Unrealized Gains		Unrealized Losses			Fair Value
Cash	$	749,176	$	—	$	—	$	749,176	$	—	$	—		$	749,176
Level 1:
Money market funds	152,684		—		—		152,684		—		—			152,684
Level 2:
Tax-exempt municipal bonds	602		61,224		48,190		110,016		201		(6		)	110,211
Commercial paper	—		29,573		—		29,573		3		—			29,576
Corporate bonds	2,397		27,657		54,857		84,911		143		(16		)	85,038
Time deposits	25,010		25,013		—		50,023		—		—			50,023
Other	—		14,776		2,716		17,492		4		—			17,496
Level 3:
Auction-rate securities	—		—		5,946		5,946
Total	$	929,869	$	158,243	$	111,709	$	1,199,821

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

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

We measure our money market funds on a recurring basis at fair value using Level 1 inputs that primarily consist of real-time quotes for transactions in active exchange markets involving identical assets.

Other than our auction-rate securities, which are discussed further below, all of our marketable securities are classified as held-to-maturity as we have the intent and ability to hold them until contractual maturity, which will occur within two years. Our held-to-maturity securities are reported at amortized cost and we have not recorded gains or losses on our held-to-maturity investments. The estimated fair values of our held-to-maturity investments are determined using a market approach with Level

13

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2 observable inputs including quoted prices for similar assets in active markets, or quoted prices for identical or similar assets in markets that are not active.

Our auction-rate securities are classified as available-for-sale and measured at fair value on a recurring basis. Fair value is measured using a discounted cash flow model encompassing Level 3 significant unobservable inputs such as estimated interest rates, credit spreads, timing and amount of cash flows, credit quality of the underlying securities and illiquidity considerations. We have classified our auction-rate securities as noncurrent due to illiquidity considerations.

There were no changes in the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended February 28, 2014.

Note 6. Accounts Receivable, Net

Accounts receivable, net consist of the following as of the respective periods:

($ in thousands)	February 28, 2014			August 31, 2013
Student accounts receivable	$	236,571		$	243,660
Less allowance for doubtful accounts	(53,038		)	(59,744		)
Net student accounts receivable	183,533			183,916
Other receivables	15,569			31,485
Total accounts receivable, net	$	199,102		$	215,401

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)	2014			2013			2014			2013
Beginning allowance for doubtful accounts	$	55,895		$	101,793		$	59,744		$	107,230
Provision for uncollectible accounts receivable	11,534			18,902			25,512			52,308
Write-offs, net of recoveries	(14,391		)	(35,922		)	(32,218		)	(74,765		)
Ending allowance for doubtful accounts	$	53,038		$	84,773		$	53,038		$	84,773

Note 7. Goodwill and Intangibles

The following details changes in the carrying amount of our goodwill by reportable segment during the six months ended February 28, 2014:

($ in thousands)	University of Phoenix		Apollo Global		Other		Total
Goodwill as of August 31, 2013	$	71,812	$	14,917	$	16,891	$	103,620
Open Colleges acquisition	—		127,656		—		127,656
Currency translation adjustment	—		1,761		—		1,761
Goodwill as of February 28, 2014	$	71,812	$	144,334	$	16,891	$	233,037

14

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Intangible assets consist of the following as of the respective periods:

	February 28, 2014										August 31, 2013
($ in thousands)	Gross Carrying Amount		Accumulated Amortization			Effect of Foreign Currency Translation Gain (Loss)			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Effect of Foreign Currency Translation Loss			Net Carrying Amount
Software and technology	$	42,389	$	(20,912	)	$	—		$	21,477	$	42,389	$	(16,673	)	$	—		$	25,716
Accreditations and designations(1)	21,628		(733		)	288			21,183		—		—			—			—
Trademarks(1)	17,919		(300		)	242			17,861		—		—			—			—
Curriculum(1)	15,790		(661		)	210			15,339		—		—			—			—
Student and customer relationships(1)	15,264		(7,612		)	(1,282		)	6,370		12,026		(7,727		)	(1,363		)	2,936
Other	20,891		(19,408		)	(695		)	788		20,891		(18,706		)	(777		)	1,408
Total finite-lived intangibles	133,881		(49,626		)	(1,237		)	83,018		75,306		(43,106		)	(2,140		)	30,060
Trademarks	100,736		—			526			101,262		100,736		—			(5,347		)	95,389
Accreditations and designations	7,260		—			(197		)	7,063		7,260		—			(517		)	6,743
Total indefinite-lived intangibles	107,996		—			329			108,325		107,996		—			(5,864		)	102,132
Total intangible assets, net	$	241,877	$	(49,626	)	$	(908	)	$	191,343	$	183,302	$	(43,106	)	$	(8,004	)	$	132,192

⁽¹⁾ We acquired certain intangibles during the second quarter of fiscal year 2014 as a result of our acquisition of Open Colleges. Refer to Note 4, Acquisitions.

As of February 28, 2014, the estimated future amortization expense of our finite-lived intangibles is as follows:

($ in thousands)
Remainder of fiscal year 2014	$	12,969
2015	22,054
2016	18,968
2017	10,538
2018	7,411
2019	3,207
Thereafter	7,871
Total estimated future amortization expense(1)	$	83,018

⁽¹⁾ 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, 2014 and August 31, 2013:

			Fair Value Measurements at Reporting Date Using
	Fair Value as of Respective Reporting Date		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, 2014	$	36,023	$	—	$	—	$	36,023
Contingent consideration as of August 31, 2013	$	5,277	$	—	$	—	$	5,277

15

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our contingent consideration liabilities are classified within Level 3 and valued using discounted cash flow valuation methods encompassing significant unobservable inputs. The inputs include estimated operating results scenarios for the applicable performance periods, probability weightings assigned to operating results scenarios and the discount rates applied. Our contingent consideration liabilities relate to the following:

• Open Colleges - We acquired Open Colleges during the second quarter of fiscal year 2014 and are obligated to pay contingent consideration of up to A$52.5 million (equivalent to $47.2 million as of February 28, 2014) upon the satisfaction of specified conditions. If the applicable conditions are satisfied, the amount of the contingent consideration will be calculated principally on the basis of Open Colleges’ operating results for its fiscal year ending June 30, 2014 as defined in the acquisition agreement. Based on information available as of the acquisition date, we initially estimated the fair value of the contingent consideration to be $21.4 million. As of February 28, 2014, we increased the estimated fair value to $29.9 million based on information available after the acquisition date, including Open Colleges’ recent operating results. The increase in fair value was included in acquisition costs and contingent consideration charges on our Condensed Consolidated Statements of Income during the second quarter of fiscal year 2014.

• Noncontrolling Interest in 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, 2014, the estimated fair value for this contingent consideration was $6.1 million.

We did not change our valuation techniques associated with recurring fair value measurements from prior periods. The following summarizes the changes in liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the respective periods:

	Six Months Ended February 28,
($ in thousands)	2014		2013
Beginning balance	$	5,277	$	—
Initial contingent consideration at fair value	21,371		6,000
Change in fair value included in net income	8,754		(145		)
Currency translation adjustment	621		—
Ending balance	$	36,023	$	5,855

Liabilities measured at fair value on a nonrecurring basis during the six months ended February 28, 2014, all of which are included in other liabilities on our Condensed Consolidated Balance Sheets, consist of the following:

			Fair Value Measurements at Measurement Dates Using
($ in thousands)	Fair Value at Measurement Dates		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses for Six Months Ended February 28, 2014
Initial lease obligations	$	16,972	$	—	$	—	$	16,972	$	16,972

During the six months ended February 28, 2014, we recorded $17.0 million of aggregate initial lease obligations at fair value associated with closing certain leased facilities as part of our restructuring activities. We recorded the lease obligation liabilities on the dates we ceased use of the facilities, and we measured the liabilities at fair value using Level 3 inputs included in the valuation method. Refer to Note 3, Restructuring and Other Charges.

16

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9. Accrued and Other Liabilities

Accrued and other current liabilities consist of the following as of the respective periods:

($ in thousands)	February 28, 2014		August 31, 2013
Salaries, wages and benefits	$	89,394	$	135,553
Restructuring obligations	56,687		55,191
Accrued legal and other professional obligations	35,600		31,310
Contingent consideration, current portion	29,926		—
Accrued advertising	27,275		45,850
Student refunds, grants and scholarships	15,780		7,180
Deferred rent and other lease liabilities	12,728		14,001
Curriculum materials	10,073		10,764
Other	50,777		46,857
Total accrued and other current liabilities	$	328,240	$	346,706

Other long-term liabilities consist of the following as of the respective periods:

($ in thousands)	February 28, 2014		August 31, 2013
Deferred rent and other lease liabilities	$	62,903	$	67,641
Restructuring obligations	58,615		64,610
Deferred gains on sale-leasebacks	22,379		22,894
Uncertain tax positions	17,929		33,637
Other	60,238		44,660
Total other long-term liabilities	$	222,064	$	233,442

Note 10. Debt

Debt and short-term borrowings consist of the following as of the respective periods:

($ in thousands)	February 28, 2014			August 31, 2013
Revolving Credit Facility, see terms below	$	—		$	605,000
Capital lease obligations	38,752			49,628
Other, see terms below	35,671			37,426
Total debt	74,423			692,054
Less short-term borrowings and current portion of long-term debt	(30,781		)	(628,050		)
Long-term debt	$	43,642		$	64,004

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 $605.0 million and had approximately $14 million of outstanding letters of credit under the Revolving Credit Facility as of August 31, 2013. We repaid the entire amount borrowed under the Revolving Credit Facility during the first quarter of fiscal year 2014. As of February 28, 2014, we have approximately $24 million of outstanding letters of credit under the Revolving Credit Facility.

17

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2013 was 3.5%.

The Revolving Credit Facility contains various customary representations, covenants and other provisions, including a material adverse event clause and the following financial covenants: maximum leverage ratio, minimum interest and rent expense coverage ratio, and a U.S. Department of Education financial responsibility composite score. We were in compliance with all applicable covenants related to the Revolving Credit Facility at February 28, 2014 and August 31, 2013.

Other debt principally includes debt at subsidiaries of Apollo Global and the present value of an obligation payable over a 10-year period associated with our purchase of technology in fiscal year 2012. The weighted average interest rate on our outstanding other debt at February 28, 2014 and August 31, 2013 was 5.8% and 5.3%, respectively.

The carrying value of our debt, excluding capital leases, approximates fair value based on the nature of our debt, which includes consideration of the portion that is variable-rate.

Note 11. Income Taxes

We determine our interim income tax provision by estimating our effective income tax rate expected to be applicable for the full fiscal year. 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.

Internal Revenue Service Audits

Our U.S. federal income tax return for fiscal year 2012 is currently under review by the Internal Revenue Service (“IRS”). In addition, we are participating in the IRS’s Compliance Assurance Process for fiscal year 2014, which is a voluntary program in which taxpayers seek to resolve all or most issues with the IRS prior to or soon after filing their U.S. federal income tax returns.

In February 2014, we executed a Closing Agreement with the IRS to settle a matter related to the deductibility of certain costs for our foreign subsidiaries in fiscal years 2011 through 2013, which resulted in a $10.2 million tax benefit during the second quarter of fiscal year 2014. In addition, our fiscal year 2011 federal income tax return was closed in connection with this settlement. Based principally on these events, our unrecognized tax benefits decreased $16.5 million during the six months ended February 28, 2014.

Other

In December 2013, Mexico enacted comprehensive tax reform legislation which, among other things, eliminated the flat rate business tax and modified the income tax exemption for educational companies. Based on this legislation, ULA is no longer subject to the flat rate business tax, and is now subject to income tax. Accordingly, we adjusted our deferred taxes associated with this jurisdiction in the second quarter of fiscal year 2014, which resulted in a $2.8 million tax benefit.

In addition to the IRS audits discussed above, we are subject to numerous ongoing audits by state, local and foreign tax authorities. 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 Apollo Education Group 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 $180.3 million remained available as of February 28, 2014. There is no expiration date on the repurchase authorizations and the amount and timing of future share repurchase authorizations and repurchases, if any, will be made as market and business conditions warrant. Repurchases occur at our discretion and may be made on the open market through various methods including but not limited to accelerated share repurchase programs, or in privately negotiated transactions,

18

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

pursuant to the applicable Securities and Exchange Commission rules, and may include repurchases pursuant to Securities and Exchange Commission Rule 10b5-1 nondiscretionary trading programs.

We also repurchase shares in connection with tax withholding requirements associated with the release of vested shares of restricted stock units, which do not fall under the repurchase program described above.

The following summarizes our share repurchase activity for the respective periods:

	Three Months Ended February 28,				Six Months Ended February 28,
(In thousands, except per share data)	2014		2013		2014		2013
Share repurchases under share repurchase program:
Number of shares repurchased	1,713		—		2,290		—
Weighted average purchase price per share	$	31.93	$	—	$	30.44	$	—
Cost of share repurchases	$	54,684	$	—	$	69,684	$	—
Share repurchases related to vesting of restricted stock units:
Number of shares repurchased	25		20		113		159
Cost of share repurchases	$	682	$	409	$	2,553	$	3,881

Share Reissuances

We reissue our Apollo Education Group Class A common stock from our treasury stock as a result of the release of shares covered by vested restricted stock units, stock option exercises and purchases under our employee stock purchase plan. Share reissuances were as follows for the respective periods:

	Three Months Ended February 28,		Six Months Ended February 28,
(In thousands)	2014	2013	2014	2013
Share reissuances	110	118	391	524

Purchase of Noncontrolling Interest in Apollo Global

The following details net income attributable to Apollo and transfers to noncontrolling interest during the respective periods:

	Six Months Ended February 28,
($ in thousands)	2014		2013
Net income attributable to Apollo	$	113,496	$	147,022
Transfer to noncontrolling interest:
Decrease in equity for purchase of noncontrolling interest in Apollo Global(1)	—		(48,543		)
Change from net income attributable to Apollo and transfer to noncontrolling interest	$	113,496	$	98,479

⁽¹⁾ Represents the difference between the fair value of the consideration paid to purchase the noncontrolling ownership interest in Apollo Global and the carrying amount of the noncontrolling interest acquired, and an adjustment to accumulated other comprehensive loss to reflect the change in Apollo’s proportionate interest.

Redeemable Noncontrolling Interests

On December 20, 2013, Apollo Global acquired 70% of the outstanding shares of Open Colleges. In connection with the acquisition, we also have the option to buy the remaining outstanding shares of Open Colleges, and the noncontrolling shareholders have the option to sell their shares to us, in early 2017, 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 Open Colleges’ calendar year 2016 operating results as defined in the acquisition agreement, or an earlier measurement period in the limited circumstances that the options are exercised prior to 2017. 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.

The redeemable noncontrolling interests are probable of becoming redeemable. Accordingly, we record the redeemable noncontrolling interests at the greater of the carrying value or the redemption value at the end of each reporting period. We

19

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

determine the redemption value using the formula specified at the acquisition date, and by assuming the end of each reporting period is the redemption date. We record redemption value adjustments through retained earnings. As of February 28, 2014, the redemption value of the redeemable noncontrolling interest approximated the carrying value.

Note 13. Earnings Per Share

Our outstanding shares consist of Apollo Education Group Class A and Class B common stock. Our Articles of Incorporation treat the declaration of dividends on the Apollo Education Group Class A and Class B common stock in an identical manner. As such, both the Apollo Education Group Class A and Class B common stock are included in the calculation of our earnings per share.

Diluted weighted average shares outstanding includes the incremental effect of shares that would be issued upon the assumed exercise of stock options and the vesting and release of restricted stock units and performance share awards. The components of basic and diluted earnings per share are as follows:

	Three Months Ended February 28,				Six Months Ended February 28,
(In thousands, except per share data)	2014		2013		2014		2013
Numerator:
Net income attributable to Apollo (basic and diluted)	$	14,605	$	13,527	$	113,496	$	147,022
Denominator:
Basic weighted average shares outstanding	112,151		112,573		112,742		112,496
Dilutive effect of restricted stock units and performance share awards	1,070		495		838		488
Dilutive effect of stock options	159		—		96		—
Diluted weighted average shares outstanding	113,380		113,068		113,676		112,984
Basic income per share attributable to Apollo	$	0.13	$	0.12	$	1.01	$	1.31
Diluted income per share attributable to Apollo	$	0.13	$	0.12	$	1.00	$	1.30
Anti-dilutive securities excluded from diluted earnings per share calculation:
Anti-dilutive restricted stock units and performance share awards outstanding	9		1,802		842		1,902
Anti-dilutive stock options outstanding	2,628		7,849		3,079		8,124

Note 14. Share-Based Compensation

The following details share-based compensation expense for the respective periods:

	Three Months Ended February 28,				Six Months Ended February 28,
($ in thousands)	2014		2013		2014		2013
Instructional and student advisory	$	3,280	$	5,614	$	6,813	$	13,202
Marketing	937		1,054		2,045		3,097
Admissions advisory	212		196		314		366
General and administrative	5,644		3,399		11,012		9,422
Restructuring and other charges	464		363		2,326		1,428
Share-based compensation expense	$	10,537	$	10,626	$	22,510	$	27,515

In accordance with our Apollo Education Group, Inc. Amended and Restated 2000 Stock Incentive Plan, we granted 104,000 and 169,000 restricted stock units and performance share awards during the three and six months ended February 28, 2014, respectively. The granted awards had a weighted average grant date fair value of $25.79 and $26.12, respectively. As of February 28, 2014, there was $57.8 million and $2.2 million of total unrecognized share-based compensation cost, net of forfeitures, related to unvested restricted stock units and performance share awards, respectively. These costs are expected to be recognized over a weighted average period of 2.4 years.

In accordance with our Apollo Education Group, Inc. Amended and Restated 2000 Stock Incentive Plan, we granted 31,000 stock options during the three months ended February 28, 2014 and no stock options during the three months ended November 30, 2013. The weighted average grant date fair value of the options granted was $9.98 and the weighted average exercise price was $25.79.

20

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of February 28, 2014, there was $6.5 million of total unrecognized share-based compensation cost, net of forfeitures, related to unvested stock options. These costs are expected to be recognized over a weighted average period of 1.8 years.

Note 15. Commitments and Contingencies

Surety Bonds

As part of our normal operations, our insurers issue surety bonds for us that are required by various states where we operate. We are obligated to reimburse our insurers for any surety bonds that are paid. As of February 28, 2014, the face amount of these surety bonds was $42.4 million.

Letters of Credit

As of February 28, 2014, we had approximately $24 million of outstanding letters of credit that are required as part of our normal operations.

Litigation and Other Matters

We are subject to various claims and contingencies that arise from time to time in the ordinary course of business, including those related to regulation, litigation, business transactions, employee-related matters and taxes, among others. We do not believe any of these are material for separate disclosure.

The following is a description of pending litigation, settlements, and other proceedings that fall outside the scope of ordinary and routine litigation incidental to our business.

Securities Class Action (Apollo Institutional Investors Group)

On August 13, 2010, a securities class action complaint was filed in the U.S. District Court for the District of Arizona by Douglas N. Gaer naming us, John G. Sperling, Gregory W. Cappelli, Charles B. Edelstein, Joseph L. D’Amico, Brian L. Swartz and Gregory J. Iverson as defendants for allegedly making false and misleading statements regarding our business practices and prospects for growth. That complaint asserted a putative class period stemming from December 7, 2009 to August 3, 2010. A substantially similar complaint was also filed in the same Court by John T. Fitch on September 23, 2010 making similar allegations against the same defendants for the same purported class period. Finally, on October 4, 2010, another purported securities class action complaint was filed in the same Court by Robert Roth against the same defendants as well as Brian Mueller, Terri C. Bishop and Peter V. Sperling based upon the same general set of allegations, but with a defined class period of February 12, 2007 to August 3, 2010. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On October 15, 2010, three additional parties filed motions to consolidate the related actions and be appointed the lead plaintiff.

On November 23, 2010, the Fitch and Roth actions were consolidated with Gaer and the Court appointed the “Apollo Institutional Investors Group” consisting of the Oregon Public Employees Retirement Fund, the Mineworkers’ Pension Scheme, and Amalgamated Bank as lead plaintiffs. The case is now entitled, In re Apollo Group, Inc. Securities Litigation, Lead Case Number CV-10-1735-PHX-JAT. On February 18, 2011, the lead plaintiffs filed a consolidated complaint naming Apollo, John G. Sperling, Peter V. Sperling, Joseph L. D’Amico, Gregory W. Cappelli, Charles B. Edelstein, Brian L. Swartz, Brian E. Mueller, Gregory J. Iverson, and William J. Pepicello as defendants. The consolidated complaint asserts a putative class period of May 21, 2007 to October 13, 2010. On April 19, 2011, we filed a motion to dismiss and oral argument on the motion was held before the Court on October 17, 2011. On October 27, 2011, the Court granted our motion to dismiss and granted plaintiffs leave to amend. On December 6, 2011, the lead plaintiffs filed an Amended Consolidated Class Action Complaint, which alleges similar claims against the same defendants. On January 9, 2012, we filed a motion to dismiss the Amended Consolidated Class Action Complaint. On June 22, 2012, the Court granted our motion to dismiss and entered a judgment in our favor. On July 20, 2012, the plaintiffs filed a Notice of Appeal with the U.S. Court of Appeals for the Ninth Circuit, and their appeal remains pending before that Court. If the plaintiffs are successful in their appeal, we anticipate they will seek substantial damages.

Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.

21

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Securities Class Action (Teamsters Local 617 Pensions and Welfare Funds)

On November 2, 2006, the Teamsters Local 617 Pension and Welfare Funds filed a class action complaint purporting to represent a class of shareholders who purchased our stock between November 28, 2001 and October 18, 2006. The complaint, filed in the U.S. District Court for the District of Arizona, is entitled Teamsters Local 617 Pension & Welfare Funds v. Apollo Group, Inc. et al., Case Number 06-cv-02674-RCB, and alleges that we and certain of our current and former directors and officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by purportedly making misrepresentations concerning our stock option granting policies and practices and related accounting. The defendants are Apollo, J. Jorge Klor de Alva, Daniel E. Bachus, John M. Blair, Dino J. DeConcini, Kenda B. Gonzales, Hedy F. Govenar, Brian E. Mueller, Todd S. Nelson, Laura Palmer Noone, John R. Norton III, John G. Sperling and Peter V. Sperling. On September 11, 2007, the Court appointed The Pension Trust Fund for Operating Engineers as lead plaintiff. Lead plaintiff filed an amended complaint on November 23, 2007, asserting the same legal claims as the original complaint and adding claims for violations of Section 20A of the Securities Exchange Act of 1934 and allegations of breach of fiduciary duties and civil conspiracy. On April 30, 2009, plaintiffs filed their Second Amended Complaint, which alleges similar claims for alleged securities fraud against the same defendants.

On March 31, 2011, the U.S. District Court for the District of Arizona dismissed the case with prejudice and entered judgment in our favor. Plaintiffs filed a motion for reconsideration of this ruling, and the Court denied this motion on April 2, 2012. On April 27, 2012, the plaintiffs filed a Notice of Appeal with the U.S. Court of Appeals for the Ninth Circuit, and their appeal remains pending before that Court. If the plaintiffs are successful in their appeal, we anticipate they will seek substantial damages.

As of February 28, 2014, we have accrued an immaterial amount reflecting a rejected settlement offer we made during the second quarter of fiscal year 2014. The outcome of this legal proceeding is uncertain at this point and the actual amount of any loss will not be known until a settlement or other resolution is reached. Additionally, we intend to pursue reimbursement from our insurance carriers for losses, if any, associated with this matter.

Incentive Compensation False Claims Act Lawsuit

On May 25, 2011, we were notified that a qui tam complaint had been filed against us in the U.S. District Court, Eastern District of California, by private relators under the Federal False Claims Act and California False Claims Act, entitled USA and State of California ex rel. Hoggett and Good v. University of Phoenix, et al, Case Number 2:10-CV-02478-MCE-KJN. When the federal government declines to intervene in a qui tam action, as it has done in this case, the relators may elect to pursue the litigation on behalf of the federal government and, if successful, they are entitled to receive a portion of the federal government’s recovery.

The complaint alleges, among other things, that University of Phoenix has violated the Federal False Claims Act since December 12, 2009 and the California False Claims Act for the preceding ten years by falsely certifying to the U.S. Department of Education and the State of California that University of Phoenix was in compliance with various regulations that require compliance with federal rules regarding the payment of incentive compensation to admissions personnel, in connection with University of Phoenix’s participation in student financial aid programs. In addition to injunctive relief and fines, the relators seek significant damages on behalf of the Department of Education and the State of California, including all student financial aid disbursed by the Department to our students since December 2009 and by the State of California to our students during the preceding ten years. On July 12, 2011, we filed a motion to dismiss and on August 30, 2011, relators filed a motion for leave to file a Second Amended Complaint, which the Court granted. On November 2, 2011, we filed a motion to dismiss relators’ Second Amended Complaint, which was denied by the Court on July 6, 2012. On August 1, 2012, we filed a motion for certification of an interlocutory appeal, which was denied by the Court on March 7, 2013. Discovery in this matter has commenced, and trial is scheduled for January 2015.

Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.

Himmel Derivative Action

On November 12, 2010, we received a shareholder demand to investigate, address and commence proceedings against each of our directors and certain of our officers for violation of any applicable laws, including in connection with the subject matter of the report of the Government Accountability Office prepared for the U.S. Senate in August 2010, our withdrawal of the outlook we previously provided for our fiscal year 2011, the investigation into possible unfair and deceptive trade practices associated with certain alleged practices of University of Phoenix by the State of Florida Office of the Attorney General in Fort Lauderdale, Florida, the participation by the State of Oregon Office of the Attorney General in the Securities Class Action (Apollo Institutional Investors Group), and the informal inquiry by the Enforcement Division of the Securities and Exchange Commission commenced in October 2009.

22

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On March 24, 2011, a shareholder derivative complaint was filed in the Superior Court for the State of Arizona, Maricopa County by Daniel Himmel, the foregoing shareholder who previously made a demand for investigation. In the complaint, the plaintiff asserts a derivative claim on our behalf against certain of our current and former officers and directors for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The complaint alleges that the individual defendants made improper statements and engaged in improper business practices that caused our stock price to drop, led to securities class actions against us, and enhanced regulation and scrutiny by various government entities and regulators. The case is entitled, Himmel v. Bishop, et al, Case Number CV2011-005604. Pursuant to a stipulation between all parties, on August 31, 2011, the Court ordered this action stayed during the pendency of the underlying Securities Class Action (Apollo Institutional Investors Group) matter.

K.K. Modi Investment and Financial Services Pvt. Ltd.

On November 8, 2010, a suit was filed by K.K. Modi Investment and Financial Services Pvt. Ltd. (“Modi”) in the High Court of Delhi at New Delhi against defendants Apollo, Western International University, Inc., University of Phoenix, Inc., Apollo Global, Inc., Modi Apollo International Group Pvt. Ltd., Apollo International, Inc., John G. Sperling, Peter V. Sperling and Jorge Klor De Alva, seeking to permanently enjoin the defendants from making investments in the education industry in the Indian market in breach of an exclusivity and noncompete provision which plaintiff alleges is applicable to Apollo and its subsidiaries. The case is entitled, K.K. Modi Investment and Financial Services Pvt. Ltd. v. Apollo International, et. al. We believe that the relevant exclusivity and noncompete provision is inapplicable to us and our affiliates, we have sought to dismiss this action on those grounds, and our application for such relief remains pending before the Court. If plaintiff ultimately obtains the requested injunctive relief, our ability to conduct business in India, including through our joint venture with HT Media Limited, may be adversely affected. It is also possible that in the future K.K. Modi may seek to expand existing litigation in India or commence litigation in the U.S. in which it may assert a significant damage claim against us.

Attorney General Investigations

On October 22, 2010, University of Phoenix received notice that the State of Florida Office of the Attorney General in Fort Lauderdale, Florida had commenced an investigation into possible unfair and deceptive trade practices associated with certain alleged practices of the University. The notice included a subpoena to produce documents and detailed information for the time period of January 1, 2006 to the present about a broad spectrum of the University’s business. We are cooperating with the investigation, but also filed a suit to quash or limit the subpoena and to protect information sought that constitutes propriety or trade secret information. We cannot predict the eventual scope, duration or outcome of the investigation at this time.

In May 2011 and January 2013, University of Phoenix received Civil Investigative Demands from the State of Massachusetts Office of the Attorney General. The Demands relate to an investigation of possible unfair or deceptive methods, acts, or practices by for-profit educational institutions in connection with the recruitment of students and the financing of education. The Demands seek documents, information and testimony regarding a broad spectrum of the University’s business for the time period of January 1, 2002 to the present. We are cooperating with the investigation. We cannot predict the eventual scope, duration or outcome of the investigation at this time.

UNIACC Investigations

UNIACC was advised by the National Accreditation Commission of Chile in November 2011 that its institutional accreditation would not be renewed and therefore had lapsed. Subsequently, in June 2012, a prosecutor’s office in Santiago, Chile requested that UNIACC provide documents relating to UNIACC’s relationship with a former employee and consultant who served as a member of the National Accreditation Commission until March 2012, and we have since received requests for additional information in connection with this investigation. Furthermore, in August 2012, the prosecutor’s office began requesting that UNIACC provide information about UNIACC’s business structure and operations and its relationship with other Apollo entities, in connection with an additional investigation regarding UNIACC’s compliance with applicable laws concerning the generation of profit by universities such as UNIACC. The prosecutor’s office is also requesting additional information from UNIACC regarding certain government funding received by the institution. UNIACC is cooperating with these investigations. At this time, we cannot predict the eventual scope, duration or outcome of these investigations.

In November 2012, UNIACC learned that the Ministry of Education was commencing a formal investigation into profit related issues and concerning the official recognition of UNIACC as a university under Chilean law. On November 18, 2013, we were notified by the Ministry of Education that it declined to pursue any charges against UNIACC and closed its investigation without imposing any sanction on UNIACC. In closing its investigation, the Ministry forwarded certain of its files for review by the Chilean tax authorities and the criminal prosecutor conducting the profit investigation referenced above.

23

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Office of the Inspector General of the U.S. Department of Education (“OIG”) Subpoena

On March 21, 2014, University of Phoenix received a subpoena from the Mid-Atlantic Region of the OIG. The subpoena seeks the production by the University of documents and detailed information regarding a broad spectrum of the activities conducted in the University’s Centralized Service Center for the Northeast Region located in Columbia, Maryland, for the time period of January 1, 2007 to the present, including information relating to marketing, recruitment, enrollment, financial aid processing, fraud prevention, student retention, personnel training, attendance, academic grading and other matters. We intend to cooperate with these requests but cannot at this time predict the eventual scope, duration or outcome of this matter.

Patent Infringement Litigation

On March 3, 2008, Digital-Vending Services International Inc. filed a complaint against University of Phoenix and Apollo, as well as Capella Education Company, Laureate Education Inc., and Walden University Inc. in the U.S. District Court for the Eastern District of Texas, since transferred on plaintiff’s motion to the Eastern District of Virginia. The case is entitled, Digital Vending Services International, LLC vs. The University of Phoenix, et al, Case Number 2:09cv555 (JBF-TEM). The complaint alleges that we and the other defendants have infringed and are infringing various patents relating to managing courseware in a shared use operating environment and seeks injunctive relief and substantial damages, including royalties as a percentage of our net revenue over a multi-year period. We filed an answer to the complaint on May 27, 2008, in which we denied that Digital-Vending Services International’s patents were duly and lawfully issued, and asserted defenses of non-infringement and patent invalidity, among others. We also asserted a counterclaim seeking a declaratory judgment that the patents are invalid, unenforceable, and not infringed by us.

On January 7, 2011, the Court granted our motion for summary judgment and dismissed the case with prejudice, citing plaintiff’s failure to point to admissible evidence that could support a finding of infringement. Plaintiff appealed the order granting summary judgment to the United States Court of Appeals for the Federal Circuit, which held oral argument on December 5, 2011. On March 7, 2012, a divided three-judge panel of the Federal Circuit issued an opinion affirming in part and reversing in part the order granting summary judgment, and it remanded a portion of the plaintiff’s claims to the district court for further proceedings. We filed a Petition for Rehearing with the Federal Circuit regarding the portion of the decision reversing the grant of summary judgment, which the Federal Circuit denied on May 25, 2012. Accordingly, the case was remanded to the U.S. District Court for the Eastern District of Virginia for further proceedings. In July 2013, we filed another motion for summary judgment based on non-infringement, and on October 4, 2013, the Court granted our motion and dismissed each of plaintiff’s remaining claims with prejudice. On November 1, 2013, plaintiff filed a Notice of Appeal of the District Court’s order. The parties subsequently entered into a settlement agreement for an immaterial amount pursuant to which plaintiff agreed to dismiss its appeal. Plaintiff’s appeal was dismissed on November 21, 2013, which resolved the litigation.

Note 16. Regulatory Matters

Student Financial Aid

In fiscal year 2013, University of Phoenix generated 90% of our total consolidated net revenue and more than 100% of our operating income, and 83% of the University’s cash basis revenue for eligible tuition and fees was derived from Title IV financial aid program funds, as calculated under the 90/10 Rule described below.

All U.S. federal financial aid programs are established by Title IV of the Higher Education Act and regulations promulgated thereunder. The U.S. Congress must periodically reauthorize the Higher Education Act and annually determine the funding level for each Title IV program. In August 2008, the Higher Education Act was reauthorized through September 30, 2013 by the Higher Education Opportunity Act. Congress has begun Higher Education Act reauthorization hearings and there is currently an automatic one year extension that continues the current authorization through September 30, 2014. Changes to the Higher Education Act, including changes in eligibility and funding for Title IV programs, are likely to occur in connection with this reauthorization, but we cannot predict the scope and substance of any such changes.

The Higher Education Act, as reauthorized, specifies the manner in which the U.S. Department of Education reviews institutions for eligibility and certification to participate in Title IV programs. Every educational institution involved in Title IV programs must be certified to participate and is required to periodically renew this certification.

University of Phoenix was recertified in November 2009 and entered into a new Title IV Program Participation Agreement which expired on December 31, 2012. University of Phoenix has submitted necessary documentation for re-certification and its eligibility continues on a month-to-month basis until the Department issues its decision on the application. We have no reason to believe that the University’s application will not be renewed in due course, and it is not unusual to be continued on a month-

24

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

to-month basis until the Department completes its review. We cannot predict whether, or to what extent, the imposition of the Notice sanction by The Higher Learning Commission, as described below, might have on this process.

Western International University was recertified in May 2010 and entered into a new Title IV Program Participation Agreement which expires September 30, 2014.

Higher Learning Commission (“HLC”)

University of Phoenix and Western International University are accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools (“HLC”). This accreditation provides the following:

• Recognition and acceptance by employers, other higher education institutions and governmental entities of the degrees and credits earned by students;

• Qualification to participate in Title IV programs (in combination with state higher education operating and degree granting authority); and

• Qualification for authority to operate in certain states.

During fiscal year 2013, the accreditations of University of Phoenix and Western International University were reaffirmed by HLC through the 2022-2023 academic year. At the same time, HLC placed both universities on Notice status for a two-year period. Notice status is a sanction that means that HLC has determined that an institution is on a course of action that, if continued, could lead the institution to be out of compliance with one or more of the HLC Criteria for Accreditation or Core Components. We believe the imposition of the sanction of Notice on University of Phoenix could adversely impact our business.

90/10 Rule

To remain eligible to participate in Title IV programs, proprietary institutions of higher education must comply with the so-called “90/10 Rule” under the Higher Education Act, as reauthorized, and must derive 90% or less of their cash basis revenue, as defined in the rule, from Title IV programs. The 90/10 Rule percentage for University of Phoenix was 83% for fiscal year 2013. Based on recent trends, we do not expect the 90/10 Rule percentage for University of Phoenix to exceed 90% for fiscal year 2014. However, the 90/10 Rule percentage for University of Phoenix remains high and could exceed 90% in the future depending on the degree to which its various initiatives are effective, the impact of future changes in its enrollment mix, and regulatory and other factors outside our control, including any reduction in military benefit programs or changes in the treatment of such funding for purposes of the 90/10 Rule calculation. Various members of Congress have proposed changes to the 90/10 Rule that would, if enacted, reduce the percentage to 85% and adversely change the manner in which military aid is treated for purposes of the rule calculation.

Student Loan Cohort Default Rates

To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. Educational institutions will lose eligibility to participate in Title IV programs if their three-year cohort default rate equals or exceeds 40% for any given year or 30% for three consecutive years. The three-year cohort default rate for University of Phoenix for the 2010 federal fiscal year was 26.0%, and the draft three-year cohort default rate for the 2011 federal fiscal year, which will be finalized in September 2014, was 19.0%. If our student loan default rates approach the applicable limits, we may be required to increase efforts and resources dedicated to improving these default rates.

25

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

OIG Audit of the U.S. Department of Education

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

Note 17. Segment Reporting

We operate primarily in the education industry. Our reportable segments have been determined based on the method by which management evaluates performance and allocates resources. Our seven operating segments are presented in the following reportable segments:

• University of Phoenix;

• Apollo Global; and

• Other (includes Western International University, IPD, CFFP, Carnegie Learning, and Apollo Lightspeed).

During the fourth quarter of fiscal year 2013, we revised our internal management reporting structure and determined Carnegie Learning and Western International University are operating segments. Accordingly, Carnegie Learning is no longer included in our University of Phoenix reportable segment, and Western International University is no longer included in our Apollo Global reportable segment. These operating segments are included in Other in our segment reporting and we have changed our presentation for all periods presented to reflect our revised segment reporting.

Apollo Global acquired Open Colleges during the second quarter of fiscal year 2014 and Open Colleges’ operating results are included in our Apollo Global operating segment from date of acquisition. Refer to Note 4, Acquisitions.

26

APOLLO EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of financial information by reportable segment is as follows:

	Three Months Ended February 28,						Six Months Ended February 28,
($ in thousands)	2014			2013			2014			2013
Net revenue:
University of Phoenix	$	594,081		$	753,566		$	1,338,944		$	1,689,350
Apollo Global	68,634			56,965			159,793			147,479
Other	16,343			23,841			36,656			52,726
Net revenue	$	679,058		$	834,372		$	1,535,393		$	1,889,555
Operating income (loss)(1):
University of Phoenix	$	86,682		$	74,757		$	270,155		$	318,617
Apollo Global(2)	(40,004		)	(25,921		)	(37,787		)	(35,287		)
Other(3)	(39,548		)	(19,056		)	(55,444		)	(22,604		)
Operating income	7,130			29,780			176,924			260,726
Reconciling items:
Interest income	599			388			1,167			937
Interest expense	(1,983		)	(2,092		)	(4,069		)	(4,134		)
Other, net	107			(126		)	914			1,673
Income before income taxes	$	5,853		$	27,950		$	174,936		$	259,202

⁽¹⁾ University of Phoenix, Apollo Global and Other include charges associated with our restructuring activities. Refer to Note 3, Restructuring and Other Charges.

⁽²⁾ The operating loss for Apollo Global for the three and six months ended February 28, 2014 includes $13.0 million of acquisition costs and contingent consideration charges.

⁽³⁾ The operating loss for Other in the three and six months ended February 28, 2014 includes $9.0 million of charges associated with our legal matters. The operating loss for Other in the three and six months ended February 28, 2013 includes credits of $5.0 million and $21.9 million, respectively, associated with a legal matter.

A summary of our consolidated assets by reportable segment is as follows:

($ in thousands)	February 28, 2014		August 31, 2013
University of Phoenix	$	874,980	$	790,537
Apollo Global	613,187		359,903
Other(1)	1,043,263		1,847,507
Total assets	$	2,531,430	$	2,997,947

⁽¹⁾ The majority of assets included in Other consists of corporate cash and cash equivalents and marketable securities.

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help investors understand our results of operations, financial condition and present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended August 31, 2013 and our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1, Financial Statements in this Form 10-Q.

Overview

Apollo is one of the world’s largest private education providers and has been a provider of education services since 1973. We believe that our success depends on providing high quality educational products and services to students at the right value to maximize the benefits of their educational experience. We offer educational programs and services, online and on-campus, at the undergraduate, master’s and doctoral levels. Our principal learning platforms include the following:

• The University of Phoenix, Inc. (“University of Phoenix”);

• Apollo Global, Inc. (“Apollo Global”):

• BPP Holdings Limited (“BPP”);

• Open Colleges Australia Pty Ltd. (“Open Colleges”);

• Universidad Latinoamericana (“ULA”);

• Universidad de Artes, Ciencias y Comunicación (“UNIACC”); and

• India Education Services Private Ltd.

• Western International University, Inc. (“Western International University” or “WIU”);

• Institute for Professional Development (“IPD”);

• The College for Financial Planning Institutes Corporation (“CFFP”);

• Carnegie Learning, Inc. (“Carnegie Learning”); and

• Apollo Lightspeed, LLC (“Apollo Lightspeed”).

Substantially all of our net revenue is composed of tuition and fees for educational services. In fiscal year 2013, University of Phoenix represented 90% of our total consolidated net revenue and generated more than 100% of our operating income.

Key Trends, Developments and Challenges

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

• Rapidly Evolving and Highly Competitive Education Industry. The U.S. higher education industry, including the proprietary sector, is experiencing unprecedented, rapidly developing changes due to technological developments, evolving needs and objectives of students and employers, economic constraints affecting educational institutions and students, rising costs of education and increased focus on affordability, price competition and other factors that challenge many of the core principles underlying the industry. We believe these changes have contributed to the decline in University of Phoenix enrollment since 2010, and the 16.5% decline in New Degreed Enrollment in the second quarter of fiscal year 2014 compared to the prior year. See further discussion of enrollment in Results of Operations below.

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

• Education to Careers Value Proposition. We believe it is critical that we demonstrate a compelling and cost-effective relationship between our educational offerings and improvement in our graduates’ prospects for employment in their field of choice or advancement within their existing careers. This is our key value proposition to prospective students. Our goal is to provide programs that provide our students skills in high-growth industries and careers. We have launched career-oriented tools and continue to increase career connections and relationships to meet student and employer needs. To ensure we offer relevant workforce skills, we are working with industry experts and employers to

28

develop and incorporate curriculum changes. We are also redesigning our programs to allow students to earn credentials and/or certificates they can use in the workplace as they are earning their ultimate degree goal.

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

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

• Piloting a new format of University of Phoenix’s University Orientation program;

• Modified entry course structure and sequencing;

• Enhancement of our adaptive learning math tools for students;

• Targeted use of scholarships; and

• Redesigning our programs to allow students to earn credentials and/or certificates they can use in the workplace as they are earning their ultimate degree goal.

• Business Process Reengineering. We remain focused on continuing the reengineering of our business processes and refining our educational delivery systems to improve the effectiveness of our services to students, and reducing the size of our services infrastructure and associated operating expenses to align with our reduced enrollment and revenue. These activities include the following:

• University of Phoenix Campus Closures. Beginning in fiscal year 2013, University of Phoenix began implementing a plan to close 115 of its ground locations, after which the University will operate ground campus facilities in 111 locations in 36 states, the District of Columbia and the Commonwealth of Puerto Rico. As of February 28, 2014, University of Phoenix has closed approximately three-fourths of the locations included in these plans, which represents approximately 90% of the total square feet we are exiting. The remaining closures will continue through fiscal year 2014 and beyond as University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations. Because of the rapidly evolving and transformational changes in higher education, the University continues to evaluate the extent, functionality and location of its ground facilities, and may close additional facilities in the future.

• Services. In addition to the ground facility closures, we have streamlined, automated where appropriate, and enhanced our administrative and student facing services.

As of February 28, 2014, we have incurred $307.4 million of cumulative restructuring and other charges associated with our restructuring activities. Excluding interest accretion associated with our lease obligation liabilities, we expect to incur approximately $10 million of future restructuring charges for the initiatives announced to date. These costs will generally be incurred over the period of time University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations associated with campuses that have not yet been closed.

Our costs that are more variable in nature represent approximately 14% of our net revenue and are included in Instructional and student advisory on our Condensed Consolidated Statements of Income. Due principally to our cost optimization and restructuring activities in recent years, our fiscal year 2013 operating costs that have historically been more fixed in nature decreased approximately $350 million, or 10%, from our fiscal year 2012 cost base during which time our net revenue decreased approximately 13%. In fiscal year 2014, we expect to further reduce our fixed operating costs by a minimum of $325 million, which would result in a total decline of $675 million, or 19%, from our fiscal year 2012 cost base.

• Expansion into New Markets. We believe that learners worldwide can benefit from our career-focused education offerings. We are working to expand our global operations so that they become an increasingly significant portion of our consolidated operating results, and are exploring new opportunities for growth in other non-traditional higher education and service offerings. To date, we have acquired educational institutions in the United Kingdom, Australia, Mexico and Chile, and we have a joint venture in India providing educational services and programs. The integration and operation of acquired businesses in foreign jurisdictions entails substantial regulatory, market and execution risks and such acquisitions may not be accretive for an extended period of time, if at all, depending on the circumstances.

• Information Technology. We are upgrading a substantial portion of our key IT systems, including our student learning system, student services platform and corporate applications, and retiring the related legacy systems. We believe that these new systems will improve the productivity, scalability, reliability and sustainability of our IT infrastructure and improve the student experience. However, the transition from our legacy systems entails risk of unanticipated disruption, including disruptions in our core business functions that could adversely impact our business.

29

• Regulatory Environment. The following summarizes significant regulatory matters applicable to our business. For a more detailed discussion of the regulatory environment and related risks, refer to Part I, Item 1, Business, and Item 1A, Risk Factors, in our 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 22, 2013.

• Financial Aid Funding. In recent years, there has been increased focus by members of the U.S. Congress and federal agencies such as the Consumer Financial Protection Bureau and the Federal Trade Commission on the role that proprietary educational institutions play in higher education. We expect this focus to increase, particularly during the time leading up to the 2014 mid-term elections. Congressional hearings and roundtable discussions have been held regarding various aspects of the education industry, and reports have been issued that are highly critical of proprietary institutions and include a number of recommendations to be considered by Congress in connection with the upcoming reauthorization of the federal Higher Education Act. The current reauthorization expired September 30, 2013, but was extended automatically to September 30, 2014. In addition, financial aid programs are a potential target for reduction as Congress seeks to reduce the U.S. budget deficit. Any action by Congress that reduces Title IV program funding, whether through across-the-board funding reductions, sequestration or otherwise, or alters the eligibility of our institutions or students to participate in Title IV programs could have a material adverse effect on our enrollment, financial condition, results of operations and cash flows. Action by Congress or federal agencies could also require us to modify our practices in ways that increase our administrative costs and reduce our operating income.

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

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

• U.S. Department of Education Rulemaking Initiative. A negotiated rulemaking committee was convened by the Department in September 2013 on the topic of gainful employment. The committee held negotiated rulemaking sessions in September, November, and December 2013; however, the committee failed to reach consensus. In March 2014, the Department issued a Notice of Proposed Rulemaking to establish measures for determining whether certain postsecondary educational programs prepare students for gainful employment in a recognized occupation, and the conditions under which these educational programs remain eligible to participate in Title IV programs. The effective date of any such regulations cannot be determined at this time, but it is likely that the rules, if adopted, would be effective on or after July 1, 2015. Additional details are available at http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/gainfulemployment.html.

Additionally, the Department announced the creation of another rulemaking committee to focus on other topics, including cash management and state authorization. This committee held its first negotiated rulemaking session in February 2014 and additional negotiated rulemaking sessions are scheduled. These negotiated rulemaking initiatives are expected to produce new regulations in a variety of areas. In March 2014, prior to the second negotiated rulemaking session, the Department issued its proposal for certain new regulations, including those for state authorization. The proposed regulations, if promulgated as drafted, would impose significant new regulatory burdens on postsecondary institutions which provide distance education, regardless of educational sector, including University of Phoenix. The effective date of any such regulations cannot be determined at this time, but it is likely that the rules, if adopted, would be effective on or after July 1, 2015. Additional details are available at http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html.

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

30

• The Higher Learning Commission Accreditation Reaffirmation. During fiscal year 2013, the accreditations of University of Phoenix and Western International University were reaffirmed by The Higher Learning Commission, their institutional accreditor (“HLC”), through the 2022-2023 academic year. At the same time, HLC placed both universities on Notice status for a two-year period. Notice status is a sanction that means that HLC has determined that an institution is on a course of action that, if continued, could lead the institution to be out of compliance with one or more of the HLC Criteria for Accreditation or Core Components. We believe the imposition of the sanction of Notice on University of Phoenix could adversely impact our business.

• 90/10 Rule. To remain eligible to participate in Title IV programs, proprietary institutions of higher education must comply with the so-called “90/10 Rule” under the Higher Education Act, as reauthorized, and must derive 90% or less of their cash basis revenue, as defined in the rule, from Title IV programs. The 90/10 Rule percentage for University of Phoenix was 83% for fiscal year 2013. Based on recent trends, we do not expect the 90/10 Rule percentage for University of Phoenix to exceed 90% for fiscal year 2014. However, the 90/10 Rule percentage for University of Phoenix remains high and could exceed 90% in the future depending on the degree to which its various initiatives are effective, the impact of future changes in its enrollment mix, and regulatory and other factors outside our control, including any reduction in military benefit programs or changes in the treatment of such funding for purposes of the 90/10 Rule calculation. Various members of Congress have proposed changes to the 90/10 Rule that would, if enacted, reduce the percentage to 85% and adversely change the manner in which military aid is treated for purposes of the rule calculation.

• Student Loan Cohort Default Rates. To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. Educational institutions will lose eligibility to participate in Title IV programs if their three-year cohort default rate equals or exceeds 40% for any given year or 30% for three consecutive years. The three-year cohort default rate for University of Phoenix for the 2010 federal fiscal year was 26.0%, and the draft three-year cohort default rate for the 2011 federal fiscal year, which will be finalized in September 2014, was 19.0%. If our student loan default rates approach the applicable limits, we may be required to increase efforts and resources dedicated to improving these default rates.

• Office of the Inspector General of the U.S. Department of Education (“OIG”) Subpoena. On March 21, 2014, University of Phoenix received a subpoena from the Mid-Atlantic Region of the OIG. The subpoena seeks the production by the University of documents and detailed information regarding a broad spectrum of the activities conducted in the University’s Centralized Service Center for the Northeast Region located in Columbia, Maryland, for the time period of January 1, 2007 to the present, including information relating to marketing, recruitment, enrollment, financial aid processing, fraud prevention, student retention, personnel training, attendance, academic grading and other matters. We intend to cooperate with these requests but cannot at this time predict the eventual scope, duration or outcome of this matter.

• Open Colleges Registration. Open Colleges primarily provides educational services through the Open Colleges Pty Ltd registered training organization as approved by the Australian Skills Quality Authority. This registration is scheduled to expire in June 2014, and Open Colleges has already begun pursuing re-registration.

For a more detailed discussion of trends, risks and uncertainties, refer to our 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 22, 2013.

31

Fiscal Year 2014 Significant Events

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

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

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

• In September 2013, William J. Pepicello announced his retirement from his position as President of University of Phoenix, effective upon the naming of a successor;

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

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

• On April 1, 2014, University of Phoenix announced that the University’s Board of Trustees named Timothy P. Slottow as the new President of the University, effective June 20, 2014.

3. Empowering America: Reinventing Pathways to College and the Workforce Report. In November 2013, we released this report focusing on the current college and career readiness challenges facing the U.S., innovative ways to address students and their needs, and the economic impact of increasing student preparedness. A copy of this report can be found on our website.

4. Accreditation Updates.

• CFFP - During the first quarter of fiscal year 2014, CFFP was informed in writing by The Higher Learning Commission, their institutional accreditor (“HLC”), that CFFP had addressed HLC’s findings from its most recent accreditation reaffirmation review. The next comprehensive visit from HLC is scheduled during the 2017-2018 school year.

• ULA - During the first quarter of fiscal year 2014, ULA received the highest level of institutional accreditation from the Mexican Federation of Private Institutions of Higher Education, which is the principal accreditor of private universities in Mexico.

5. Open Colleges Acquisition. On December 20, 2013, Apollo Global acquired 70% of the outstanding shares of Open Colleges, which is a provider of education and training to adult learners in Australia. Refer to Note 4. Acquisitions, in Item 1, Financial Statements.

6. Balloon. During the third quarter of fiscal year 2014, Apollo Lightspeed launched Balloon™, an online career skills and learning marketplace designed to connect individuals to online learning offerings where they can acquire skills valued by technology companies.

7. Update on Proposed Change in Apollo Group, Inc. Class B Voting Stock Trust. Approximately 51% of our Class B voting common stock is held by the John Sperling Voting Stock Trust, of which our founder, Dr. John G. Sperling, is the grantor and sole trustee (the “Voting Stock Trust”). Dr. Sperling has proposed to convert the Voting Stock Trust into an irrevocable trust and to appoint Mr. Peter V. Sperling, Ms. Terri Bishop and Ms. Darby Shupp, all of whom are members of our Board of Directors, as trustees, with the sole power to appoint successor and additional trustees. Peter Sperling is the Chair of our Board of Directors and the beneficial owner of the remaining 49% of our outstanding Class B voting common stock and approximately 3.8% of our outstanding Class A nonvoting common stock. Ms. Bishop is the Vice Chair of our Board of Directors. After the proposed amendment, Dr. Sperling would continue to have a limited power to direct the disposition of the shares held by the Voting Stock Trust during his lifetime or upon his death, subject to the transfer restrictions in the Shareholder Agreement among us and the holders of our Class B common stock, dated September 7, 1994, as amended, relating to the ownership and transfer of our Class B common stock.

As previously announced, these proposed changes were approved in November 2013 by the Higher Learning Commission (“HLC”), the principal accreditor of University of Phoenix and Western International University (the “Apollo Institutions”). In March 2014, the U.S. Department of Education notified us that it concurred with our view that the proposed changes to the Voting Stock Trust would constitute an excluded change of control transaction under 34 CFR §600.31(e)(2). Accordingly, the proposed changes will not require the Apollo Institutions to reestablish their eligibility to participate in student financial aid programs under Title IV of the Higher Education Act.

32

HLC’s approval of the proposed changes in the Voting Stock Trust is subject to the condition that each Apollo Institution hosts a visit by HLC within six months after the effectiveness of the change focused on ascertaining the appropriateness of the approval, implications for succession planning, and the effect, if any, of the change in trust arrangements on Apollo and the Apollo Institutions and their ability to continue to meet HLC’s Criteria for Accreditation and Assumed Practices. HLC’s approval also was subject to the requirement that the change be made within 30 days after the approval was granted. Accordingly, the Apollo Institutions must obtain an updated approval from HLC before these changes can be effected.

In addition to the updated HLC approval, the proposed changes may require certain approvals and consents of state education regulatory bodies, which we expect to obtain in due course. We anticipate that the proposed changes to the Voting Stock Trust will be effected before the end of fiscal year 2014, upon the receipt of all necessary approvals.

These proposed changes to the Voting Stock Trust are intended to reduce the regulatory uncertainty associated with the future death or incompetency of Dr. Sperling. For a discussion of the risks associated with these possible change of control matters, seeIf regulators do not approve or delay their approval of transactions involving a change of control of our company, our eligibility to participate in Title IV programs, our accreditation and our state licenses may be impaired in a manner that materially and adversely affects our business, under Risk Factors in our 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 22, 2013.

Critical Accounting Policies and Estimates

Refer to our 2013 Annual Report on Form 10-K for our critical accounting policies and estimates.

Recent Accounting Pronouncements

Refer to our 2013 Annual Report on Form 10-K for recent accounting pronouncements.

Results of Operations

We have included below a discussion of our operating results and significant items explaining the material changes in our operating results during the three and six months ended February 28, 2014 compared to the three and six months ended February 28, 2013.

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

Our operations are generally subject to seasonal trends. We experience, 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. 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.

33

Analysis of Condensed Consolidated Statements of Income

The following details our consolidated results of operations. For a more detailed discussion of our operating results by reportable segment, refer to Analysis of Operating Results by Reportable Segment below.

	Three Months Ended February 28,										Six Months Ended February 28,
	2014			2013			% of Net Revenue				2014			2013			% of Net Revenue
($ in thousands)							2014		2013								2014		2013
Net revenue	$	679,058		$	834,372		100.0	%	100.0	%	$	1,535,393		$	1,889,555		100.0	%	100.0	%
Costs and expenses:
Instructional and student advisory	319,575			383,702			47.1	%	46.0	%	659,254			815,852			42.9	%	43.2	%
Marketing	143,392			173,313			21.1	%	20.8	%	281,236			336,186			18.3	%	17.8	%
Admissions advisory	55,072			68,232			8.1	%	8.2	%	106,581			139,540			6.9	%	7.4	%
General and administrative	67,676			81,218			10.0	%	9.7	%	142,906			154,757			9.3	%	8.2	%
Depreciation and amortization	37,465			41,499			5.5	%	5.0	%	73,803			85,194			4.8	%	4.5	%
Provision for uncollectible accounts receivable	11,534			18,902			1.7	%	2.2	%	25,512			52,308			1.7	%	2.7	%
Restructuring and other charges	15,209			44,076			2.3	%	5.3	%	47,172			68,192			3.1	%	3.6	%
Acquisition costs and contingent consideration charges	13,005			—			1.9	%	—	%	13,005			—			0.9	%	—	%
Litigation charge (credit), net	9,000			(6,350		)	1.3	%	(0.8	)%	9,000			(23,200		)	0.6	%	(1.2	)%
Total costs and expenses	671,928			804,592			99.0	%	96.4	%	1,358,469			1,628,829			88.5	%	86.2	%
Operating income	7,130			29,780			1.0	%	3.6	%	176,924			260,726			11.5	%	13.8	%
Interest income	599			388			0.1	%	—	%	1,167			937			0.1	%	—	%
Interest expense	(1,983		)	(2,092		)	(0.3	)%	(0.3	)%	(4,069		)	(4,134		)	(0.3	)%	(0.2	)%
Other, net	107			(126		)	0.1	%	—	%	914			1,673			0.1	%	0.1	%
Income before income taxes	5,853			27,950			0.9	%	3.3	%	174,936			259,202			11.4	%	13.7	%
Benefit from (provision for) income taxes	6,324			(14,291		)	0.9	%	(1.7	)%	(63,718		)	(111,803		)	(4.2	)%	(5.9	)%
Net income	12,177			13,659			1.8	%	1.6	%	111,218			147,399			7.2	%	7.8	%
Net loss (income) attributable to noncontrolling interests	2,428			(132		)	0.4	%	—	%	2,278			(377		)	0.2	%	—	%
Net income attributable to Apollo	$	14,605		$	13,527		2.2	%	1.6	%	$	113,496		$	147,022		7.4	%	7.8	%

Net Revenue

Our net revenue decreased$155.3 million and $354.2 million, or 18.6% and 18.7%, in the three and six months ended February 28, 2014, respectively, compared to the prior year periods. The decreases were primarily attributable to net revenue declines at University of Phoenix of 21.2% and 20.7% during the respective periods, principally due to lower enrollment. Refer to further discussion of net revenue by reportable segment below at Analysis of Operating Results by Reportable Segment.

Instructional and Student Advisory

Instructional and student advisory decreased$64.1 million and $156.6 million, or 16.7% and 19.2%, in the three and six months ended February 28, 2014, respectively, compared to the prior year periods. This represented an increase as a percentage of net revenue of 110 basis points, and a decrease as a percentage of net revenue of 30 basis points for the three and six months ended February 28, 2014, respectively. The decreases in expense were primarily due to lower costs including rent and compensation attributable to our restructuring activities (refer to Restructuring and Other Charges below), and lower costs from the enrollment decline. For the six months ended February 28, 2014, the decrease was also due to the assessment of approximately $11 million of foreign indirect taxes in the first quarter of fiscal year 2013 associated with certain instructional materials.

34

Marketing

Marketing decreased$29.9 million and $55.0 million, or 17.3% and 16.3%, in the three and six months ended February 28, 2014, respectively, compared to the prior year periods. This represented increases as a percentage of net revenue of 30 and 50 basis points, respectively. The decreases in expense were principally attributable to lower advertising costs, and lower headcount due in part to our restructuring activities.

Admissions Advisory

Admissions advisory decreased$13.2 million and $33.0 million, or 19.3% and 23.6%, in the three and six months ended February 28, 2014, respectively, compared to the prior year periods. This represented decreases as a percentage of net revenue of 10 and 50 basis points, respectively. The decreases in expense were principally attributable to lower headcount due in part to our restructuring activities.

General and Administrative

General and administrative decreased$13.5 million and $11.9 million, or 16.7% and 7.7%, in the three and six months ended February 28, 2014, respectively, compared to the prior year periods. This represented increases as a percentage of net revenue of 30 and 110 basis points, respectively. The decreases in expense were primarily due to lower costs including rent and compensation attributable to our restructuring activities, and a $5.0 million retirement bonus in the second quarter of fiscal year 2013.

Depreciation and Amortization

Depreciation and amortization decreased$4.0 million and $11.4 million, or 9.7% and 13.4%, in the three and six months ended February 28, 2014, respectively, compared to the prior year periods. This represented increases as a percentage of net revenue of 50 and 30 basis points, respectively. The decreases in expense were principally attributable to lower depreciation due in part to the decline in depreciable assets resulting from our restructuring activities. This was partially offset by $2.5 million of intangible asset amortization in the three and six months ended February 28, 2014 as a result of the Open Colleges acquisition.

Provision for Uncollectible Accounts Receivable

Provision for uncollectible accounts receivable decreased$7.4 million and $26.8 million, or 39.0% and 51.2%, in the three and six months ended February 28, 2014, respectively, compared to the prior year periods. This represented decreases as a percentage of net revenue of 50 and 100 basis points, respectively. The decreases were primarily due to reductions in our gross student receivables from lower enrollment, and process improvements that significantly contributed to lowering our gross student receivables associated with students no longer enrolled in our programs. The decline was less significant in the three months ended compared to six months ended because certain process improvements were initiated in the second quarter of fiscal year 2013. Our collection rates have also increased due in part to changes in the relative composition of our student receivables including a higher proportion attributable to students in higher degree level programs.

Restructuring and Other Charges

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

	Three Months Ended February 28,				Six Months Ended February 28,				Cumulative Costs as of February 28, 2014
($ in thousands)	2014		2013		2014		2013
Lease and related costs, net	$	9,505	$	34,640	$	23,265	$	44,752	$	195,576
Severance and other employee separation costs	4,863		8,217		20,117		19,160		71,143
Other restructuring related costs	841		1,219		3,790		4,280		40,686
Restructuring and other charges	$	15,209	$	44,076	$	47,172	$	68,192	$	307,405

35

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

	Three Months Ended February 28,				Six Months Ended February 28,				Cumulative Costs as of February 28, 2014
($ in thousands)	2014		2013		2014		2013
University of Phoenix	$	11,229	$	38,445	$	36,655	$	55,341	$	238,327
Apollo Global	304		3,336		1,567		3,415		13,332
Other	3,676		2,295		8,950		9,436		55,746
Restructuring and other charges	$	15,209	$	44,076	$	47,172	$	68,192	$	307,405

• Lease and Related Costs, Net - Beginning in fiscal year 2011, University of Phoenix began rationalizing its administrative real estate facilities. In addition to continuing to rationalize its administrative facilities, University of Phoenix began implementing a plan during fiscal year 2013 to close 115 of its ground locations. As of February 28, 2014, University of Phoenix has closed approximately three-fourths of the locations included in these plans, which represents approximately 90% of the total square feet we are exiting. The remaining closures will continue through fiscal year 2014 and beyond as University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations. We have recorded $140.6 million of initial aggregate charges, representing the estimated fair value of future contractual operating lease obligations, which were recorded in the periods we ceased using the respective facilities, $17.0 million of which was recorded in the six months ended February 28, 2014. The other lease and related costs in the six months ended February 28, 2014 consist of accelerated depreciation, as discussed below, and interest accretion on the lease obligations.

We measure lease obligations at fair value using a discounted cash flow approach encompassing significant unobservable inputs (Level 3). The significant unobservable inputs principally include estimated future cash flows and discount rates, which have ranged between 3%-6% for our lease obligations. The estimation of future cash flows includes non-cancelable contractual lease costs over the remaining terms of the leases, partially offset by estimated future sublease rental income, which involves significant judgment. Our estimate of the amount and timing of sublease rental income considers subleases that we have executed and subleases we expect to execute, current commercial real estate market data and conditions, comparable transaction data and qualitative factors specific to the facilities. The estimates will be subject to adjustment as market conditions change or as new information becomes available, including the execution of additional sublease agreements. As of February 28, 2014, we have recorded adjustments to our initial lease obligation liabilities for interest accretion and immaterial adjustments for changes in estimated sublease income.

Lease and related costs, net includes $4.3 million of accelerated depreciation in the six months ended February 28, 2014 associated with revising the useful lives of the fixed assets at the facilities we are closing through their expected closure dates. Prior to revising the useful lives, we perform a recoverability analysis for the facilities’ fixed assets by comparing the estimated undiscounted cash flows of the locations through their expected closure dates to the carrying amount of the locations’ fixed assets. Based on such analyses, we recorded immaterial impairment charges during fiscal year 2013 and no impairment charges in the six months ended February 28, 2014.

• Severance and Other Employee Separation Costs - Beginning in fiscal year 2011 and continuing into fiscal year 2014, we have implemented workforce reductions as we reengineer our business processes and refine our educational delivery systems. We incurred severance and other employee separation costs of $20.1 million in the six months ended February 28, 2014. These costs are included in the reportable segments in which the respective personnel were employed.

Excluding interest accretion associated with our lease obligation liabilities, we expect to incur approximately $10 million of future restructuring charges for the initiatives announced to date. These costs will generally be incurred over the period of time University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations associated with campuses that have not yet been closed.

Our costs that are more variable in nature represent approximately 14% of our net revenue and are included in Instructional and student advisory on our Condensed Consolidated Statements of Income. Due principally to our cost optimization and restructuring activities in recent years, our fiscal year 2013 operating costs that have historically been more fixed in nature decreased approximately $350 million, or 10%, from our fiscal year 2012 cost base during which time our net revenue decreased approximately 13%. In fiscal year 2014, we expect to further reduce our fixed operating costs by a minimum of $325 million, which would result in a total decline of $675 million, or 19%, from our fiscal year 2012 cost base.

36

Acquisition Costs and Contingent Consideration Charges

During the three and six months ended February 28, 2014, we recorded $13.0 million of acquisition costs and charges associated with changes in the fair value of contingent consideration associated with our acquisitions. The substantial majority of this expense is attributable to our acquisition of Open Colleges.

Litigation Charge (Credit), Net

We recorded a $9.0 million charge in the second quarter of fiscal year 2014 associated with our legal matters. Refer to Note 15, Commitments and Contingencies in Item 1, Financial Statements. We recorded credits of $6.4 million and $23.2 million in the three and six months ended February 28, 2013, respectively, resulting from resolution of certain of our legal matters.

Benefit from (Provision for) Income Taxes

We had pre-tax income of $5.9 million during the three months ended February 28, 2014 and recorded an aggregate $6.3 million benefit from income taxes. The aggregate benefit was principally attributable to a $10.2 million benefit in the second quarter of fiscal year 2014 from resolution with the Internal Revenue Service related to the deductibility of certain costs for our foreign subsidiaries, and a $2.8 million tax benefit resulting from tax reform in Mexico. Refer to Note 11, Income Taxes, in Item 1, Financial Statements. These benefits were partially offset by an increase in nondeductible foreign losses primarily due to the Acquisition costs and contingent consideration charges discussed above.

Our effective income tax rate was 36.4% and 43.1% for the six months ended February 28, 2014 and 2013, respectively. The decrease was principally attributable to the tax benefits recorded in the second quarter of fiscal year 2014 discussed above.

Net Loss (Income) Attributable to Noncontrolling Interests

The change in net loss (income) attributable to noncontrolling interests during the three and six months ended February 28, 2014 compared to the prior periods was principally attributable to Open College’s noncontrolling shareholders’ portion of Open Colleges operating results.

Analysis of Operating Results by Reportable Segment

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

	Three Months Ended February 28,											Six Months Ended February 28,
($ in thousands)	2014			2013			$ Change			% Change		2014			2013			$ Change			% Change
Net revenue
University of Phoenix	$	594,081		$	753,566		$	(159,485	)	(21.2	)%	$	1,338,944		$	1,689,350		$	(350,406	)	(20.7	)%
Apollo Global	68,634			56,965			11,669			20.5	%	159,793			147,479			12,314			8.3	%
Other	16,343			23,841			(7,498		)	(31.5	)%	36,656			52,726			(16,070		)	(30.5	)%
Net revenue	$	679,058		$	834,372		$	(155,314	)	(18.6	)%	$	1,535,393		$	1,889,555		$	(354,162	)	(18.7	)%
Operating income (loss)
University of Phoenix	$	86,682		$	74,757		$	11,925		16.0	%	$	270,155		$	318,617		$	(48,462	)	(15.2	)%
Apollo Global	(40,004		)	(25,921		)	(14,083		)	(54.3	)%	(37,787		)	(35,287		)	(2,500		)	(7.1	)%
Other	(39,548		)	(19,056		)	(20,492		)	(107.5	)%	(55,444		)	(22,604		)	(32,840		)	(145.3	)%
Operating income	$	7,130		$	29,780		$	(22,650	)	(76.1	)%	$	176,924		$	260,726		$	(83,802	)	(32.1	)%

University of Phoenix

University of Phoenix’s net revenue decreased $159.5 million and $350.4 million, or 21.2% and 20.7%, during the three and six months ended February 28, 2014, respectively, compared to the prior year periods. The decreases were principally attributable to lower enrollment. During fiscal year 2014, we increased our use of discounts, grants and scholarships to improve University of Phoenix’s value proposition to prospective students. These discounts, grants and scholarships also reduced net revenue compared to the prior year. Future net revenue will be impacted by tuition price and other fee changes, changes in enrollment and student mix within programs and degree levels, and discounts, grants and scholarships.

37

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

	Three Months Ended February 28					Six Months Ended February 28
	2014	2013	% Change			2014	2013	% Change
Degreed Enrollment(1)	250,300	300,800	(16.8	)%	Average Degreed Enrollment(3)	260,800	316,300	(17.5	)%
New Degreed Enrollment(2)	32,500	38,900	(16.5	)%	Aggregate New Degreed Enrollment	74,200	93,000	(20.2	)%

⁽¹⁾ Represents students enrolled in a University of Phoenix degree program who attended a credit bearing course during the quarter and had not graduated as of the end of the quarter; students who previously graduated from one degree program and started a new degree program in the quarter (e.g., a graduate of the associate’s degree program returns for a bachelor’s degree); and students participating in certain certificate programs of at least 18 credits with some course applicability into a related degree program.

⁽²⁾ Represents new students and students who have been out of attendance for more than 12 months who enroll in a University of Phoenix degree program and start a credit bearing course in the quarter; students who have previously graduated from a degree program and start a new degree program in the quarter; and students who commence participation in certain certificate programs of at least 18 credits with some course applicability into a related degree program.

⁽³⁾ Represents the average of quarterly Degreed Enrollment from the beginning to the end of the respective periods.

University of Phoenix Average Degreed Enrollment decreased 17.5% in the six months ended February 28, 2014 compared to the prior year period. We believe University of Phoenix enrollment has been adversely impacted by unprecedented, rapidly developing changes and increasing competition in the U.S. higher education industry as further discussed in the Overview of this MD&A. We are working to accelerate the enhancement of our offerings to remain competitive and to more effectively deliver a quality student experience at the right value. Certain of our initiatives under consideration could adversely impact our operating results, especially in the short-term.

University of Phoenix’s operating income decreased $48.5 million, or 15.2%, during the six months ended February 28, 2014 compared to the prior period. This year-to-date decrease consisted of a $60.4 million decrease in the first quarter and a $11.9 million increase in the second quarter. Although net revenue declined in both quarters as described above, University of Phoenix increased operating income in the second quarter due to more significant decreases in expenses principally attributable to less restructuring charges and lower advertising. For a more detailed discussion of operating expenses, refer to Analysis of Condensed Consolidated Statements of Income.

Apollo Global

Apollo Global net revenue increased $11.7 million and $12.3 million, or 20.5% and 8.3%, during the three and six months ended February 28, 2014, respectively, compared to the prior year periods. The increases were principally attributable to revenue from Open Colleges from the date of acquisition, and higher enrollment at other international institutions.

Operating losses increased $14.1 million and $2.5 million in the three and six months ended February 28, 2014, respectively, compared to the prior year periods. The increases were principally attributable to the $13.0 million of acquisition costs and contingent consideration charges discussed above associated primarily with our acquisition of Open Colleges, and $2.5 million of intangible asset amortization associated with the acquisition. For the six months ended February 28, 2014, the increase was partially offset by the assessment of approximately $11 million of foreign indirect taxes in the first quarter of fiscal year 2013 associated with certain instructional materials.

Other

Other net revenue decreased $7.5 million and $16.1 million during the three and six months ended February 28, 2014, respectively, compared to the prior year periods. The decreases were principally attributable to declines at IPD and WIU. The IPD decline principally resulted from a decrease in the number of its Client Institutions and the WIU decline was due to lower enrollment and the launch of its new strategy at the end of fiscal year 2013. We expect WIU’s new strategy to continue to reduce its revenue in the near-term due to the new pricing structure that allows prospective WIU students to test the academic experience for a significantly reduced price in their initial courses.

Operating losses increased $20.5 million and $32.8 million during the three and six months ended February 28, 2014, respectively, compared to the prior year periods. The increases were principally attributable to the decline in net revenue, the $9.0 million litigation charge in the second quarter of fiscal year 2014, and $5.0 million and $21.9 million of litigation credits recorded in the three and six months ended February 28, 2013, respectively.

38

Liquidity, Capital Resources and Financial Position

We believe that our cash and cash equivalents and available liquidity will be adequate to satisfy our working capital and other liquidity requirements associated with our existing operations through at least the next 12 months. We believe that the most strategic uses of our cash resources include investments in initiatives to achieve significant improvements in student retention and career outcomes, investments in opportunities to increase organic growth through new education offerings, expansion of our global operations through acquisitions or other initiatives, and share repurchases.

Although we currently have substantial available liquidity, our ability to access the credit markets and other sources of liquidity may be adversely affected if we experience regulatory compliance challenges, including, but not limited to, maintaining a U.S. Department of Education financial responsibility composite score of at least 1.5, reduced availability of Title IV funding, or other adverse effects on our business from regulatory or legislative changes. For a detailed discussion of the regulatory environment and related risks, refer to Part I, Item 1A, Risk Factors, in our 2013 Annual Report on Form 10-K.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents and Marketable Securities

The substantial majority of our cash and cash equivalents, including restricted cash and cash equivalents, are held by our domestic operations and placed with high-credit-quality financial institutions. The following provides a summary of our cash and cash equivalents, restricted cash and cash equivalents and current marketable securities as of the respective periods:

					% of Total Assets at
($ in thousands)	February 28, 2014		August 31, 2013		February 28, 2014		August 31, 2013		% Change
Cash and cash equivalents	$	645,940	$	1,414,485	25.5	%	47.2	%	(54.3	)%
Restricted cash and cash equivalents	283,929		259,174		11.2	%	8.7	%	9.6	%
Marketable securities(1)	158,243		105,809		6.3	%	3.5	%	49.6	%
Total	$	1,088,112	$	1,779,468	43.0	%	59.4	%	(38.9	)%

⁽¹⁾ Represents current marketable securities. We also had $111.7 million and $43.9 million of long-term marketable securities as of February 28, 2014 and August 31, 2013, respectively, which principally includes held-to-maturity securities maturing in less than two years.

Cash and cash equivalents (excluding restricted cash) decreased $768.5 million primarily due to $619.3 million of payments on borrowings, $122.7 million of marketable securities purchases (net of maturities), $94.9 million to acquire Open Colleges, $72.2 million for share repurchases, and $58.1 million for capital expenditures. These items were partially offset by $193.5 million of cash provided by operations.

We consider the unremitted earnings attributable to certain of our foreign subsidiaries to be permanently reinvested. As of February 28, 2014, the earnings from these operations were not significant.

As of February 28, 2014, we had $152.7 million of money market funds included in cash and restricted cash equivalents that we measure at fair value. Our remaining cash and cash equivalents included in the above table approximate fair value because of the short-term nature of the financial instruments.

As of February 28, 2014, our current marketable securities principally includes tax-exempt municipal bonds, commercial paper and corporate bonds that have original maturities to us greater than three months, and contractual maturities that will occur within one year. Our current marketable securities are classified as held-to-maturity as we have the intent and ability to hold them until contractual maturity. Accordingly, they are reported at amortized cost and we have not recorded gains or losses on our held-to-maturity investments. We determine the fair value of our held-to-maturity investments using a market approach with Level 2 observable inputs including quoted prices for similar assets in active markets, or quoted prices for identical or similar assets in markets that are not active. Refer to Note 5, Financial Instruments in Item 1, Financial Statements.

Debt

In fiscal year 2012, we entered into a syndicated $625 million unsecured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility is used for general corporate purposes, which may include acquisitions and share repurchases. The term is five years and will expire in April 2017. The Revolving Credit Facility may be used for borrowings in certain foreign currencies and letters of credit, in each case up to specified sublimits.

We borrowed $605.0 million and had approximately $14 million of outstanding letters of credit under the Revolving Credit Facility as of August 31, 2013. We repaid the entire amount borrowed under the Revolving Credit Facility during the first quarter of fiscal year 2014. As of February 28, 2014, we have approximately $24 million of outstanding letters of credit under the Revolving Credit Facility.

39

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, 2013 was 3.5%.

The Revolving Credit Facility contains various customary representations, covenants and other provisions, including a material adverse event clause and the following financial covenants: maximum leverage ratio, minimum interest and rent expense coverage ratio, and a U.S. Department of Education financial responsibility composite score. We were in compliance with all applicable covenants related to the Revolving Credit Facility at February 28, 2014 and August 31, 2013.

Other debt principally includes debt at subsidiaries of Apollo Global and the present value of an obligation payable over a 10-year period associated with our purchase of technology in fiscal year 2012. The weighted average interest rate on our outstanding other debt at February 28, 2014 and August 31, 2013 was 5.8% and 5.3%, respectively.

The carrying value of our debt, excluding capital leases, approximates fair value based on the nature of our debt, which includes consideration of the portion that is variable-rate.

Cash Flows

Operating Activities

The following provides a summary of our operating cash flows during the respective periods:

	Six Months Ended February 28,
($ in thousands)	2014			2013
Net income	$	111,218		$	147,399
Non-cash items	127,498			168,504
Changes in assets and liabilities, excluding the impact of acquisition and disposition	(45,232		)	(16,953		)
Net cash provided by operating activities	$	193,484		$	298,950

Six Months Ended February 28, 2014 - Our non-cash items primarily consisted of $73.8 million of depreciation and amortization, a $25.5 million provision for uncollectible accounts receivable, and $22.5 million of share-based compensation. The changes in assets and liabilities primarily consisted of a $57.2 million decrease in accrued and other liabilities principally attributable to the timing of our payroll cycle and accrued bonus payments, and a $24.2 million increase in restricted cash and cash equivalents. This was partially offset by a $32.9 million increase in deferred revenue principally attributable to the timing of course starts at BPP, a $17.4 million increase in student deposits, and a $15.2 million decrease in prepaid income taxes principally attributable to the timing of our quarterly tax payments.

Six Months Ended February 28, 2013 - Our non-cash items primarily consisted of $85.2 million of depreciation and amortization, a $52.3 million provision for uncollectible accounts receivable, $30.6 million of restructuring accelerated depreciation, and $27.5 million of share-based compensation. These items were partially offset by a $23.2 million credit resulting from resolution in certain of our legal matters. The changes in assets and liabilities primarily consisted of a $33.9 million use of cash related to the change in accounts receivable, excluding the provision for uncollectible accounts receivable, partially offset by a $16.1 million decrease in prepaid taxes principally attributable to the timing of our quarterly tax payments.

We monitor our accounts receivable through a variety of metrics, including days sales outstanding. We calculate our days sales outstanding by determining average daily student revenue based on a rolling twelve month analysis and divide it into the gross student accounts receivable balance as of the end of the period. As of February 28, 2014, excluding accounts receivable and the related net revenue for Apollo Global, our days sales outstanding was 19 days, which was consistent with our days sales outstanding as of February 28, 2013, and was a two day decrease compared to August 31, 2013.

40

Investing Activities

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

	Six Months Ended February 28,
($ in thousands)	2014			2013
Purchases of marketable securities, net	$	(122,741	)	$	(31,974	)
Acquisition of Open Colleges	(94,937		)	—
Capital expenditures	(58,119		)	(49,024		)
Other	3,446			(1,500		)
Net cash used in investing activities	$	(272,351	)	$	(82,498	)

Financing Activities

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

	Six Months Ended February 28,
($ in thousands)	2014			2013
Payments on borrowings, net	$	(619,268	)	$	(627,368	)
Purchases of stock for treasury	(72,237		)	(3,881		)
Purchase of noncontrolling interest	—			(42,500		)
Issuances of stock	1,793			2,131
Net cash used in financing activities	$	(689,712	)	$	(671,618	)

Six Months Ended February 28, 2014 - Cash used in financing activities primarily consisted of $619.3 million used for payments on borrowings, and $72.2 million used for share repurchases. Share repurchases consisted of $69.7 million used to repurchase 2.3 million shares at a weighted average purchase price of $30.44 per share, and additional repurchases related to tax withholding requirements on the restricted stock units.

As of February 28, 2014, $180.3 million remained available under our share repurchase authorization. There is no expiration date on the repurchase authorization and the amount and timing of future share repurchase authorizations and repurchases, if any, will be made as market and business conditions warrant. Repurchases occur at our discretion and may be made on the open market through various methods including but not limited to accelerated share repurchase programs, or in privately negotiated transactions, pursuant to the applicable Securities and Exchange Commission rules, and may include repurchases pursuant to Securities and Exchange Commission Rule 10b5-1 nondiscretionary trading programs.

Six Months Ended February 28, 2013 - Cash used in financing activities primarily consisted of $627.4 million used for payments on borrowings (net of proceeds from borrowings), and $42.5 million used for the purchase of the noncontrolling ownership interest in Apollo Global.

Contractual Obligations and Other Commercial Commitments

We had the following material changes in our contractual obligations and other commercial commitments during the six months ended February 28, 2014:

• We repaid the entire amount borrowed on our Revolving Credit Facility of $605.0 million.

• In connection with our acquisition of Open Colleges in the second quarter of fiscal year 2014, we are obligated to pay contingent consideration of up to A$52.5 million (equivalent to $47.2 million as of February 28, 2014) upon the satisfaction of specified conditions. As of February 28, 2014, the estimated fair value for this contingent consideration was $29.9 million, and the balance is included in other current liabilities on our Condensed Consolidated Balance Sheets as we expect this amount to be paid within one year.

We also have the option to buy the 30% noncontrolling interests in Open Colleges, and the noncontrolling shareholders have the option to sell their shares to us, in early 2017, 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 Open Colleges’ calendar year 2016 operating results as defined in the acquisition agreements, or an earlier measurement period in the limited circumstances that the options are exercised prior to 2017. There is no minimum or maximum price for these options. Refer to Note 4, Acquisitions in Item 1, Financial Statements.

41

There have been no other material changes in our contractual obligations and other commercial commitments other than in the ordinary course of business since the end of fiscal year 2013 through February 28, 2014. Information regarding our contractual obligations and other commercial commitments is provided in our 2013 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes to our market risk since August 31, 2013. For a discussion of our exposure to market risk, refer to our 2013 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We intend to maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our Chief Executive Officer (“Principal Executive Officer”) and our Senior Vice President and Chief Financial Officer (“Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. Our Disclosure Committee meets on a quarterly basis and more often if necessary.

Our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act), as of the end of the period covered by this report. Based on that evaluation, management concluded that, as of that date, our disclosure controls and procedures were effective at the reasonable assurance level.

Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of our Principal Executive Officer and Principal Financial Officer, which are required in accordance with Rule 13a-14 of the Securities Exchange Act. This Disclosure Controls and Procedures section includes information concerning management’s evaluation of disclosure controls and procedures referred to in those certifications and, as such, should be read in conjunction with the certifications of our Principal Executive Officer and Principal Financial Officer.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting during the quarter ended February 28, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

42

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Refer to Note 15, Commitments and Contingencies, in Part I, Item 1, Financial Statements, for legal proceedings, which is incorporated into this Item 1 of Part II by this reference.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in our 2013 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchase of Equity Securities

Our Board of Directors has authorized us to repurchase outstanding shares of Apollo Education Group Class A common stock, from time to time, depending on market conditions and other considerations. During the 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. There is no expiration date on the repurchase authorizations and repurchases occur at our discretion.

During the three months ended February 28, 2014, we repurchased 1.7 million shares of our Class A common stock at a total cost of $54.7 million, representing a weighted average purchase price of $31.93 per share. The following details changes in our treasury stock during the three months ended February 28, 2014:

(In thousands, except per share data)	Total Number of Shares Repurchased		Average Price Paid per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs		Maximum Value of Shares Available for Repurchase
Treasury stock as of November 30, 2013	75,566		$	50.69	75,566		$	235,000
New authorizations	—		—		—		—
Shares repurchased	271		26.03		271		(7,061		)
Shares reissued	(40	)	50.60		(40	)	—
Treasury stock as of December 31, 2013	75,797		$	50.60	75,797		$	227,939
New authorizations	—		—		—		—
Shares repurchased	1,442		33.04		1,442		(47,623		)
Shares reissued	(35	)	50.27		(35	)	—
Treasury stock as of January 31, 2014	77,204		$	50.27	77,204		$	180,316
New authorizations	—		—		—		—
Shares repurchased	—		—		—
Shares reissued	(10	)	50.27		(10	)	—
Treasury stock as of February 28, 2014	77,194		$	50.27	77,194		$	180,316

Resales by Directors and Officers

From time to time, our directors and officers enter into written trading plans under Securities and Exchange Commission Rule 10b5-1(c) for the resale of shares of our common stock, including shares to be acquired upon the vesting of restricted stock units and performance share awards, and shares to be acquired pursuant to the exercise of stock options. These plans, which must be entered into during an open trading window and at a time when the director or officer is not in possession of material nonpublic information, provide for sales in accordance with a formula, algorithm or other instructions such that the seller cannot exercise any influence over how, when or whether to effect sales. After adopted, sales may occur in accordance with the plans regardless of whether or not the seller subsequently possesses material nonpublic information or otherwise would then be permitted to trade in our securities. Our insider trading policy permits the adoption of these types of trading plans, and we encourage our directors and officers to utilize such plans, where practical. We do not announce, via Form 8-K or otherwise, the adoption or any termination of such trading plans, if any. Sales under these plans generally must be reported within two business days on Form 4 filed with the SEC, pursuant to Section 16 of the Securities Exchange Act of 1934, as amended.

Sales of Unregistered Securities

We did not have any sales of unregistered equity securities during the three months ended February 28, 2014.

43

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number	Exhibit Description
2.1	Share Sale Agreement by and among the Sellers and Restrained Persons party thereto, ACN 149 902 330 Pty Limited, Apollo Global Asia-Pacific Pty Ltd and Apollo Education Group, Inc., dated December 16, 2013(1)
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

⁽¹⁾ Portions of this exhibit have been omitted pursuant to a request for confidential treatment from the Securities and Exchange Commission.

44

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

APOLLO EDUCATION GROUP, INC.

An Arizona Corporation

Date: April 1, 2014

By:	/s/  Brian L. Swartz
	Brian L. Swartz Senior Vice President and Chief Financial Officer (Principal Financial Officer)

By:	/s/  Gregory J. Iverson
	Gregory J. Iverson Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)

45

EX-2.1

Exhibit 2.1

CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. §§ 200.80(b)(4) AND 240.24b-2. THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND ARE MARKED ACCORDINGLY AS [**]. THE CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

Share Sale Agreement

The parties listed in column 1 of the table in section (ii) of part A of Schedule 1

and

The parties listed in Schedule 12

and

ACN 149 902 330 Pty Limited

ACN 149 902 330

and

Apollo Global Asia-Pacific Pty Ltd

ACN 167 233 490

and

Apollo Education Group, Inc.

Final execution version

Date: 17 December 2013

K&L Gates

Sydney office

Ref: 7408769.00012

Table of Contents
1.	Definitions and interpretation	1
1.1	Definitions	1
1.2	Interpretation	21
1.3	Obligations	22
2.	Agreement to buy and sell Shares	22
2.1	Sale and purchase	22
2.2	Date for Completion	23
2.3	Encumbrances and rights	23
2.4	Title and risk	23
2.5	Waiver of pre-emptive rights	23
3.	Conditions precedent	23
3.1	Conditions precedent to Completion	23
3.2	Duties in relation to Conditions	24
3.3	Fulfilment by waiver	24
3.4	Failure of Condition	24
3.5	Sellers’ Representative	25
4.	Purchase Price and payments	25
4.1	Purchase Price	25
4.2	Payment of the Purchase Price	25
4.3	Company funding	26
4.4	RTO Condition	26
4.5	Escrow Sum	27
4.6	Calculation of Imputed FY14 EBITDA	27
4.7	Confirmation by the Sellers	27
4.8	Expert	28
4.9	Adjustment to the Purchase Price	28
4.10	Tax Benefit Payment	29
4.12	Manner of payment	29
5.	Conduct pending Completion	29
5.1	Conduct of Business	29
5.2	Permitted acts	31
5.3	Required acts	31
5.4	Access to Business and Records	31
5.5	Material changes	32
6.	Completion	32
6.1	Time and place for Completion	32
6.2	Sellers’ obligations at Completion	32
6.3	Buyer’s obligations at Completion	34
6.4	Interdependency	34
6.5	Buyer’s notice to complete	35
6.6	Sellers’ notice to complete	35
6.7	Failure to complete	35

2

Table of Contents (ctd)

7.	Action after Completion	35
7.1	Access to Records after Completion	35
7.2	ESOP	36
7.3	Business Plan	36
8.	Obligations until registration of transfer	36
8.1	Buyer’s obligation to register	36
8.2	Sellers’ obligations	36
8.3	Indemnity from Buyer	37
8.4	Power of attorney	37
8.5	Indemnity from Buyer	37
9.	Tax matters	37
9.1	Completion of Tax Returns and calculations	37
10.	Sellers’ Warranties	38
10.1	Warranties	38
10.2	Disclosure Material	38
10.3	Awareness	38
10.4	Separate warranties	39
10.5	Buyer’s acknowledgments	39
11.	Claiming under the Sellers’ Warranties	39
11.1	Notice of Warranty Claims	39
11.2	Sellers to consider Warranty Claims	39
11.3	Limits on types of Warranty Claims	39
11.4	Time limits for Warranty Claims	40
11.5	Small Warranty Claims	40
11.6	Maximum amount the Buyer may recover	40
11.7	Indemnity	41
11.8	Disclosures	41
11.9	Tax effect	41
11.10	Mitigation	42
12.	Tax Indemnity	42
12.1	Tax indemnity	42
12.2	Notice of Tax Claim	42
12.3	Reduction in Purchase Price	42
13.	Warranty and Indemnity Insurance Policy	42
13.1	Warranty and Indemnity Insurance Policy	42
13.2	Release by Buyer	43
13.3	Definition of Seller	44
13.4	Release by Buyer – third parties	45
13.5	Meaning of fraud	45
13.6	Assignment of rights by the Buyer to the Insurer	45
13.7	Inconsistency	45
14.	Buyer’s Warranties	45
14.1	Warranties	45

3

Table of Contents (ctd)

14.2	Warranties true on Completion	46
15.	Assistance in relation to change of Control	46
15.1	Consent of other persons	46
15.2	Where consents not obtained	47
15.3	Third party costs	47
15.4	Disclosure of Confidential Information	47
16.	Interest on overdue payments	47
16.1	Payment of default interest	47
16.2	Other rights not affected	47
17.	Public announcements	48
17.1	Making announcements	48
17.2	Requirements	48
18.	Confidentiality	48
18.1	Obligations of confidentiality	48
18.2	Exceptions	48
18.3	Authorised disclosure	49
18.4	Return or destruction of Confidential Information	49
18.5	Liability for breach by Recipient	50
18.6	Post Completion	50
19.	Restrictive covenant	50
19.1	Restrictions	50
19.2	Restraint Period	50
19.3	Restraint Area	51
19.4	Permitted involvement	51
19.5	Independence of restrictions	51
19.6	Reasonableness of restraint	52
19.7	Injunction	52
20.	Non-solicitation	52
20.1	Non-solicitation Restraint	52
20.2	Reasonableness of non-solicitation restraint	53
20.3	Injunction	53
20.4	Warranties	53
21.	Dispute resolution	53
21.1	Delivering a dispute notice	53
21.2	Determination by Expert	54
21.3	Obligations of parties	54
21.4	Other proceedings	55
22.	Party as trustee	55
22.1	Capacity	55
22.2	Change of Trustee	56
23.	Specific indemnities	56
23.1	Leakage	56
23.2	Related Party Liabilities	56

4

Table of Contents (ctd)

23.3	Excess Transaction Costs	57
23.4	ESOP	57
23.5	Mitigation	57
23.6	Reduction in Purchase Price	57
24.	Guarantee and indemnity	58
24.1	Guarantee of Buyer’s performance	58
24.2	Indemnity	58
24.3	Continuing obligation	58
24.4	Obligations and rights not affected by certain matters	58
24.5	Guarantor’s rights suspended	58
24.6	Reinstating the Sellers’ rights	59
24.7	Reimbursing the Sellers for costs	59
24.8	Applying money paid by the Guarantor	59
25.	Put options	59
25.1	Grant of Put Options	59
25.2	Put Option fees	59
25.3	Exercise of Put Option	60
25.4	Expiry of Put Options	60
26.	Call Options	60
26.1	Grant of Call Options	60
26.2	Call Option fees	60
26.3	Exercise of Call Option	60
26.4	Expiry of Call Options	60
27.	Exercise notice	60
27.1	Acquisition under Shareholders’ Agreement	60
27.2	Issuance of Exercise Notice	60
27.3	Withdrawal of Exercise Notice	61
28.	Purchase Price for Option Shares	61
28.1	Purchase Price	61
28.2	Calculation of CY16 EBITDA	62
28.3	Confirmation by the Sellers	62
28.4	Expert	62
29.	ESOP Options	62
29.1	Cancellation at Completion	62
29.2	Right to cancel following Completion	62
29.3	Final ESOP Option Termination Amount	63
30.	Covenants	63
31.	Completion arrangements	63
31.1	Completion	63
31.2	Completion deliverables	64
32.	Warranties	64
33.	GST	65
33.1	Definitions	65

5

Table of Contents (ctd)

33.2	Consideration is GST exclusive	66
33.3	Payment of GST	66
33.4	Reimbursement of expenses	66
34.	General	66
34.1	Nature of obligations	66
34.2	Entire understanding	66
34.3	Survival of obligations	67
34.4	No adverse construction	67
34.5	Further assurances	67
34.6	No waiver	67
34.7	Severability	67
34.8	Successors and assigns	67
34.9	No assignment	68
34.10	Consents and approvals	68
34.11	No variation	68
34.12	Costs	68
34.13	Duty	68
34.14	Governing law and jurisdiction	68
34.15	Specific performance	68
34.16	Notices	68
34.17	Counterparts	70
34.18	Execution and delivery	70
34.19	Conflicting provisions	70
34.20	No merger	70
34.21	Operation of indemnities	70
34.22	Right of set-off	71
34.23	Relationship of parties	71

1

Share Sale Agreement

Date17 December2013

Parties

1. The parties listed in column 1 of the table set out in section (ii) of part A of Schedule 1 (each a Seller and collectively known as the Sellers, in the contexts contemplated by clause 1.1)

2. The parties listed in Schedule 12 (each a Restrained Person and collectively known as the Restrained Persons)

3. Apollo Global Asia-Pacific Pty Ltd ACN 167 233 490 of c/- Johnson Winter & Slattery, Level 25, 20 Bond Street, Sydney New South Wales (Buyer)

4. Apollo Education Group, Inc. (a company incorporated in the State of Arizona, USA) of 4025 S. Riverpoint Parkway, Phoenix, Arizona 85040 United States of America (Guarantor)

5. ACN 149 902 330 Pty Limited ACN 149 902 330 of Level 7, 280 Elizabeth Street, Sydney, New South Wales (New Trustee)

Background

A. The Sellers are, between them, the registered and beneficial owners of the Shares which comprise all of the issued shares in the capital of the Company.

B. The Sellers have agreed to sell to the Buyer and the Buyer has agreed to buy the Sale Shares from the Sellers on the terms and conditions of this Agreement.

C. The Guarantor has agreed to guarantee the Buyer’s obligations under this Agreement.

D. The parties to this Agreement and the Company have entered into the Shareholders’ Agreement on or around the Agreement Date.

E. The Company has entered into the AB Executive Contract and the MR Executive Contract on or around the Agreement Date.

F. The New Trustee will replace the ESOP Option Trustee as trustee of the ESOP.

Agreed terms

1. Definitions and interpretation

1.1 Definitions

In this Agreement the capitalised terms below shall have the following meanings. Other terms used in this Agreement may be defined in other clauses of this Agreement:

AB Executive Agreement means the contract of employment between the Company and Anthony Bohm;

2

Accounting Principles means the principles, policies, practices and procedures of the Group used in preparing the Accounts, and to be used for the purposes of calculating EBITDA, the Calendar Year End Statement, the Financial Year End Statement and the Deferred Payment;

Accounting Standards means:

(a) the accounting standards made by the Australian Accounting Standards Board in accordance with the Corporations Act, and the requirements of that Act relating to the preparation and content of financial statements; and

(b) generally accepted accounting principles that are consistently applied in Australia, except those inconsistent with the standards or requirements referred to in paragraph (a);

Accounts means:

(a) the Audited consolidated balance sheet of the Group as at the Accounts Date;

(b) the Audited consolidated income statement of the Group for the 12 month period ending on the Accounts Date;

(c) the Audited consolidated statement of cash flow of the Group for the 12 month period ending on the Accounts Date; and

(d) the notes to, and the reports of the directors relating to, those statements,

as set out in

 1;

Accounts Adoption Date means:

(a) in relation to the Financial Year End Statement, the earlier of:

(i) the date on which the Financial Year End Statement is adopted by simple majority decision of the board of directors of the Company; and

(ii) 31 August 2014;

(b) in relation to the Calendar Year End Statement, the earlier of:

(i) the date on which the Calendar Year End Statement is adopted by simple majority decision of the board of directors of the Company; and

(ii) 28 February 2017;

Accounts Date means 30 June 2013;

Actual FY14 EBITDA means the EBITDA for the Group in respect of the 12 month period ending 30 June 2014, as calculated by the Buyer using the Financial Year End Statement under clause 4.6;

3

Actual FY14 Revenues means total revenues for the Group in respect of the 12 month period ending 30 June 2014, derived from the Financial Year End Statement prepared under clause 4.6;

Affiliate means, with respect to any person, its Privileged Relations and any other person directly or indirectly Controlling, Controlled by, or under common Control with, that person;

Agreement means this document including the background, any schedules and any annexures;

Agreement Date means the date of this Agreement;

ASIC means the Australian Securities and Investment Commission;

ASQA means the Australian Skills Quality Authority;

Assets means assets and properties of every kind, nature, character and description (whether real or personal, whether tangible or intangible) used by a Group Company, including the following:

(a) Records;

(b) Owned Intellectual Property Rights and the Intellectual Property Rights the subject of the Intellectual Property Licences;

(c) the relevant Group Company’s rights and benefits under the Contracts, Equipment Leases and leases relating to the Business Premises;

(d) any improvements to the Leased Premises;

(e) Goodwill;

(f) book debts;

(g) Authorisations;

(h) Systems;

(i) Inventory;

(j) Plant and Equipment;

(k) securities in any Group Company other than the Company; and

(l) other assets reflected in the Accounts;

Associate has the same meaning as “associate” in the Corporations Act and includes a person deemed to be an associate of a designated body (within the meaning of section 12 of the Corporations Act);

Audited means audited in accordance with the Accounting Standards;

Authorisations means:

4

(a) all approvals, consents, permits, leases, licences, registrations, rulings, concessions, certificates, filings, variances, writs, judgements, decrees, injunctions or other similar orders and other authorisations; and

(b) exemptions and waivers,

(c) from, by or with a Government Agency that are required for or used in the conduct of the Business, including those set out in Schedule 11.

Board Reserved Matters Majority has the meaning given to that term in the Shareholders’ Agreement;

Business means the business of the development, provision or delivery of online Vocational Education and Training (“VET”) in Australia;

Business Day means a day that is not a Saturday, Sunday, public holiday or bank holiday in Sydney in the State of New South Wales and Chicago in the State of Illinois;

Business Plan means the budget for the Group and the Business set out in the Market Growth Share and PL Forecasting Model (document ID 12.03.02.01.04 in the Data Room) and the 20131128 OC Integrated Cash Flow Model (document ID 12.03.02.01.06 in the Data Room);

Business Premises means any premises on or from which the Group operates the Business, including each Property;

Buyer Group means the Buyer and its Affiliates and Buyer Group Member means any member of the Buyer Group;

Buyer’s Lawyers means Johnson Winter & Slattery;

Buyer Share means a share in the Company with the following rights:

(a) no right to vote;

(b) right to participate in winding up as a preference to ordinary shareholder to $1.00 in total;

(c) no right to dividends unless approved by a Board Reserved Matters Majority;

(d) right to convert to one or more ordinary shares with the same rights attaching to other existing ordinary shares in the Company once the holder of the Buyer Share owns 100% of all other shares issued by the Company; and

(e) right to be redeemed by the Company or put by the holder of the Buyer Share to the Company once the holder of the Buyer Share owns 100% of the Shares;

Calendar Year End Statement means the statement of comprehensive income for the Group prepared on a consolidated basis for the 12 month period ending 31 December 2016, calculated on the same basis as the Accounts and in accordance with the Accounting Principles as applied at the Accounts Date;

Call Options means the options granted to the Buyer in clause 26.1 and Call Option means any one of them;

5

Cash means, as at the relevant time, the aggregate amount of all cash on hand or credited to an account with a bank or other financial institution for each Group Company and other cash equivalents, including:

(a) any bank cheques received by the Company but not cashed on or before the relevant time (excluding unpresented personal cheques and cheques presented and dishonoured before the relevant time);

(b) all cash on hand or credited to an account with a bank or other financial institution to which the Company was beneficially entitled at the relevant time;

(c) all amounts held in the Student Fee Account as at the relevant time; and

(d) all amounts received by DebitSuccess Pty Ltd, but not remitted to any Group Company, up to and including the relevant time to the extent held for the sole benefit of the Company (less any fees payable to DebitSucess Pty Ltd),

but excludes:

(e) any amounts paid by or on behalf of the Buyer or any Seller to any Group Company in accordance with this Agreement; and

(f) any bank cheques issued and distributed by a Group Company that the payee has not cashed on or before the relevant time;

Chosen Funds means each superannuation, pension or other similar fund, scheme or arrangement to which the Group makes superannuation, pension, retirement or other similar contributions in respect of any Employees, each of which is:

(a) for Employees based in Australia, a “chosen fund” of the Employee within the meaning of Part 3A of the SGA Act; and

(b) operated by an entity not associated with, or related to, any Seller;

Claim includes a claim, notice, demand, action, proceeding, litigation, prosecution, arbitration, investigation, judgment, award, damage, loss, cost, expense or liability however arising, whether present, unascertained, immediate, future or contingent, whether based in contract, tort or statute and whether involving a Third Party or a party to this Agreement or otherwise;

Company means Open Colleges Australia Pty Ltd ACN 142 950 507;

Completion means the completion of the sale and purchase of the Sale Shares in accordance with clause 6;

Completion Payment means $100,057,263.40;

Completion Date means the date on which Completion occurs;

Conditions means the conditions referred to in clause 3 and specified in Schedule 3;

Confidential Information means:

6

(a) the terms of this Agreement and its subject matter, including Information submitted or disclosed by a party during negotiations, discussions and meetings relating to this Agreement;

(b) Information that at the time of disclosure by a Disclosing Party is identified to the Receiving Party as being confidential; and

(c) all other Information belonging or relating to a Disclosing Party, or any Affiliate of that Disclosing Party, that is not generally available to the public at the time of disclosure other than by reason of a breach of this Agreement or which the Receiving Party knows, or ought reasonably to be expected to know, is confidential to that Disclosing Party or any Affiliate of that Disclosing Party;

Consolidated Group has the same meaning given to that expression in Part 3-90 of the Tax Act;

Contract means any contract, agreement, arrangement, lease, licence, evidence of indebtedness, mortgage, indenture, security agreement or other legally binding arrangement or commitment, as well as all amendments, supplements and modifications thereof, whether oral or written, entered into by any of the Group Companies in relation to the Business and which is not fully performed as at the Completion Date;

Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities ownership interests, by contract or otherwise and Controlled and Controlling have corresponding meanings;

Controller means, in relation to a person:

(a) a controller (as defined in the Corporations Act), receiver, receiver and manager, administrator, liquidator (whether provisional or otherwise) of that person or that person’s property or any other person (however described) holding or appointed to an analogous office or acting or purporting to act in an analogous capacity; or

(b) anyone else who (whether or not as agent for the person) is in possession, or has control, of that person’s property to enforce an Encumbrance;

Corporations Act means the Corporations Act 2001 (Cth);

CY16 EBITDA means the EBITDA for the Group in respect of the 12 month period ending on 31 December 2016, as calculated by the Buyer using the Calendar Year End Statement under clause 28.2;

Data Room means the data room as at 5.00pm on 14 December 2013 (Sydney time) established by the Sellers and conducted electronically by accessing the Ansarada data room at the URL https://dataroom.ansarada.com/project.praxis (the information in such data room is referred to in Annexure 3 and contained in the USBs initialled by the Sellers’ Representative and the Buyer’s authorised representative (or the Buyer’s Lawyers) prior to signing of this Agreement);

Deed of Variation means the document of that name to be entered into by the Company and each of Kevin Lynch, Kim Wright and Philip Kilic separately to be delivered at Completion (in the form as set out in Annexure 4);

Deferred Payment means an amount equal to the greater of:

7

(a) zero; and

(b) an amount equal to 70% of [**] multiplied by (Imputed FY14 EBITDA minus $[**]) less the Interim ESOP Option Termination Amount;

Deferred Payment Date means the date referred to in clause 4.9(a)(i);

Deferred Revenue means, at any time, the unearned portion of all student fees net of related doubtful debts provision, recognised in accordance with the Accounting Principles;

Disclosing Party means the party to whom Information belongs or relates;

Disclosure Material means:

(a) the letter from the Sellers to the Buyer received 2 Business Days prior to the Agreement Date which is set out in Annexure 3;

(b) the written material relating to the Group and the Business that has been disclosed to the Buyer or its advisers by or on behalf of the Sellers, which is contained in the Data Room;

(c) all written material made available to Christine Ecob of the Buyer’s Lawyers by Allens Linklaters on 11 December 2013 relating to the claim by Open Universities Australia in connection with the name “Open Colleges”;

(d) all records available for public inspection maintained by ASIC, which would have been disclosed to the Buyer if it had conducted searches of such records on 13 December 2013 in respect of the Company and any Group Company; and

(e) all matters which have or would have been disclosed as a result of searches or enquiries made by the Buyer of the records available for public inspection maintained by the:

(i) High Court of Australia on 30 October 2013;

(ii) Federal Court of Australia on 6 November 2013;

(iii) Supreme Courts (all States and Territories of Australia) between 29 October and 6 November 2013;

(iv) District Courts of Queensland, South Australia and Western Australia between 31 October and 6 November 2013; and

(v) County Court of Victoria on 6 November 2013;

EBITDA has the meaning set out in Schedule 6;

EBITDA Margin means [**]%;

Effective Date means 30 November 2013;

Effective Time means 5.00pm on the Effective Date;

Employees means the employees employed by the Group as at Completion;

Employee Entitlements means all unpaid amounts and benefits to which any Employee is entitled under that Employee’s contract of employment or any Law, agreement, award

8

or determination relating to the terms of employment of that Employee or to which that Employee is subject including in respect of:

(a) emoluments relating to employment before 30 November 2013; and

(b) leave entitlements (including annual leave and long service leave) accrued or arising before 30 November 2013.

Encumbrance means:

(a) any:

(i) legal or equitable interest or power created, arising in or reserved in or over an interest in any property or asset, including any restriction or limitation on voting, ownership or transfer of any nature whatsoever; or

(ii) security for payment of money, performance of obligations or protection against default (including a mortgage, easement, restrictive covenant, encroachment, bill of sale, conditional sale, charge, lien, pledge, trust, power or retention of title arrangement, right of set-off, assignment of income, garnishee order, monetary claim and flawed deposit arrangement);

(b) any thing or preferential interest or arrangement of any kind giving a person priority or preference over claims or other persons with respect to any Asset or any other property or asset;

(c) a PPSA Security Interest; or

(d) any agreement or arrangement (whether legally binding or not) to grant or create anything referred to in paragraphs (a), (b) or (c),

other than any Permitted Encumbrances.

Environment means components of the earth, including:

(a) land, air and water;

(b) any layer of the atmosphere;

(c) any organic or inorganic matter and any living organism; and

(d) human-made or modified structures and areas,

and includes interacting natural ecosystems that include components referred to in paragraphs (a) to (d);

Environmental Law means a Law (including any determination of any Government Agency) relating to the Environment, including in relation to land use, planning, pollution of air or water, soil or ground water, contamination, chemicals, waste, use of dangerous goods or to any other aspect of protection of the Environment, person or property;

Equipment Leases means the equipment leases of the Company;

Escrow Account means an interest bearing account to be established by the Buyer’s Lawyers for the purpose of holding the Escrow Sum;

9

Escrow Agent means the Buyer’s Lawyers;

Escrow Deed means the escrow deed between the Sellers, the Buyer and the Buyer’s Lawyers (in form and substance acceptable to all parties to that document);

Escrow Sum means $10 million plus all accrued interest;

ESOP means the employee share option plan of the Company current as at the date of this Agreement;

ESOP Options means all allocated or unallocated options to acquire Shares held by the ESOP Option Trustee as trustee of the Open Colleges Australia Option Share Trust issued under the ESOP at the Agreement Date. The details of the allocated options are set out in the table in part A of Schedule 1;

ESOP Option Amount means aggregate of the Initial ESOP Option Termination Amount, the Interim ESOP Option Termination Amount and the Final ESOP Option Termination Amount;

ESOP Option Call Deed means the call option deed to be entered into by the Company, the Sellers, and each of the ESOP Unitholders separately to be delivered at Completion (in the form as set out in Annexure 5);

ESOP Option Cancellation Deed means the document of that name to be entered into by the New Trustee, the Company and each ESOP Unitholder separately, and delivered at Completion (in a form acceptable to the Buyer);

ESOP Option Plan Rules means the Employee Share Option Plan Rules in respect of the Company (document ID 08.02.168.2.3 in the Data Room);

ESOP Option Trustee means Trinity Management Pty Ltd ACN 063 878 875;

ESOP Option Trust Deed means the Open Colleges Australia Option Share Trust Deed as of 14 August 2013 executed by Trinity Management Pty Ltd ACN 118 314 515 and Remuneration Strategies Group Pty Limited ACN 095 347 783;

ESOP Unitholders means Greg Fordred, Kevin Lynch, Kim Wright and Philip Kilic;

Exercise Notice has the meaning given to that expression in clause 27.1;

Exercise Period means the period commencing from 12.01am on the date on which the Calendar Year End Statement is accepted by the parties or determined by the Expert under clause 21 to 11.59pm on the date that is 6 months after such date or as otherwise agreed;

Existing Shareholders’ Agreement has the meaning given to that expression in item 1 of Schedule 10;

Expert has the meaning given to that expression in clause 21.1(b);

Final ESOP Option Termination Amount means the greater of:

(a) $1.00; and

10

(b) A x2,583
B

Where:

A = ([**] x CY16 EBITDA) less Financial Debt of the Group plus Cash as at 31 December 2016

B = The total number of shares in the capital of the Company on a fully diluted basis (excluding any Buyer Shares). For these purposes there will be deemed to be an additional 8,610 Shares on issue.

Final ESOP Option Termination Date means either:

(a) if an Option is Exercised, the Option Shares Completion Date; or

(b) if no Option is exercised during the Exercise Period, 5 Business Days after the end of the Exercise Period;

Financial Debt means the sum of:

(a) all monies borrowed (whether or not under normal commercial lending terms or upon the issue of bills, bonds, notes or loan stock) and any accrued interest payable in respect of those monies;

(b) obligations under hire purchase and other asset finance arrangements, equipment leasing and mezzanine and shareholder loans;

(c) declared and/or accrued but unpaid dividends (other than dividends due from one Group Company to another Group Company);

(d) receivables sold or discounted otherwise than on a non-recourse basis;

(e) all amounts payable (including the mark to market amount) under any derivative instrument;

(f) any guarantee, counter-indemnity, letter of credit, indemnity or similar assurance against the financial loss of any person other than a Group Company;

(g) any amount in respect of the sale or discounting of a Group Company’s rights or assets in return for funding in the nature of finance and any other off balance sheet finance;

(h) any deferred or contingent consideration payable in connection with the acquisition of any share capital, business, asset or undertaking; and

(i) any amounts payable in the nature of costs and/or fees on the termination, repayment, prepayment or cancellation of any of the above,

including:

(j) Liabilities owing by the Group under the NAB Facilities,

but excluding any indebtedness owed by a Group Company to another Group Company, any loan from a Buyer Group Member, or any amount included in Transaction Costs, Transaction Bonuses, the RPS Amount or the Initial ESOP Option Termination Amount;

11

Financial Market has the meaning given to that term in the Corporations Act and includes NASDAQ;

Financial Year End Statement means the Audited statement of comprehensive income for the Group prepared on a consolidated basis for the 12 month period ending 30 June 2014, calculated on the same basis as the Accounts and in accordance with the Accounting Principles as applied at the Accounts Date;

Franking Tax means Tax imposed pursuant to Part 3-6 of the Tax Act, the New Business Tax System (Franking Deficit Tax) Act 2002 (Cth) and/or any comparable provision of any other relevant Tax Law;

Goodwill means the goodwill of the Group Companies in and attaching to the Business;

Government Agency means any entity, in Australia or elsewhere, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including government or any public, statutory, governmental (including a local government), semi-governmental or judicial body, entity, department or authority and any self-regulatory organisation established under statute;

Group means the Company and each Subsidiary, details of which are set out in Schedule 2;

Group Company means any one of the companies comprising the Group;

Group Debt Amount means the aggregate of the following amounts:

(a) Financial Debt as at the Effective Date less Cash as at the Effective Date; and

(b) the RPS Amount;

GST has the meaning given to that term in A New Tax System (Goods and Services Tax) Act 1999 (Cth);

Immediately Available Funds means bank cheque or electronic transfer of cleared fund to an account nominated by the payee;

Imputed FY14 EBITDA means the least of:

(a) $[**];

(b) Actual FY14 EBITDA; and

(c) the product of the EBITDA Margin multiplied by Actual FY14 Revenues;

Industrial Instrument means any award, modern award, collective agreement, enterprise agreement, transitional instrument or any other form of agreement made or taken to exist under any industrial law including, without limitation, the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 and the Fair Work Act 2009 as amended from time to time;

Information means any information, whether oral, graphic, written or in any other form, including:

12

(a) forms, memoranda, letters, specifications, processes, procedures, statements, formulae, technology, inventions, trade secrets, research and development information, know how, designs, plans, photographs, microfiche, business records, notes, accounting procedures or financial information, sales and marketing information, names and details of customers, suppliers and agents, employee details, reports, drawings and data;

(b) copies and extracts made of or from that information and data, whether translated from the original form, recompiled, partially copied, modified, updated or otherwise altered; and

(c) samples or specimens (if any) disclosed either before or after execution of this Agreement;

Initial ESOP Option Termination Amount means $8,005,504.57;

Intellectual Property Licences means the licences granting Intellectual Property Rights to any Group Company, as set out in the Data Room;

Intellectual Property Rights means all present and future intellectual and industrial property rights conferred by Law and wherever existing, including:

(a) patents, invention disclosures, and all related continuations, continuations in-part, divisional, reissues, re-examinations, substitutions and extensions thereof; copyrights and copyrightable subject matter; logos, symbols, get up, trade marks, service marks, brand names, names, corporate names, trade names, domain names, slogans, trade dress, design rights, and colour schemes and other similar designations of source or origin; product names, trade secrets, databases, manuals, technical specifications, rights in circuit layouts, plant breeder’s rights; and all other confidential or proprietary information, ideas, know how, inventions, processes, formulae, models, methodologies, and designs and any other rights subsisting in the results of intellectual effort in any field, whether or not registered or capable of registration, and the reputation and goodwill associated with such;

(b) any computer programmes and software;

(c) any other intangible assets similar to those described above;

(d) any application or right to apply for registration of any of these rights referred to in above;

(e) any registration of any of those rights or any registration of any application referred to in paragraph (b);

(f) all renewals and extensions of these rights; and

(g) all rights and remedies against past, present and future infringement, dilution, misappropriation or other violations thereof;

Interim ESOP Option Termination Amount means the greater of:

(a) $1.00; and

(b) 7.63% multiplied by (70% x ([**] x (Imputed FY14 EBITDA - $[**])));

13

Inventory means all inventory of any Group Company used for the Business including all student books and materials;

Key Contracts means the following contracts:

(a) Media Services Agreement with Fairfax Digital Pty Ltd;

(b) Collection Services Agreement with Australian Recoveries and Collections Pty Ltd;

(c) Merchant Terms and Conditions with GE Capital Retailer Solutions and GE Money Retail Finance;

(d) Payroll Services Agreement with Automatic Data Processing Limited;

(e) NEC telecommunications / “Team Leasing” contract; and

(f) Australia Post Agreement;

Law means any applicable statute, law (including common law or equity), ordinance, directive, rule, regulation (including by way of bulletin), judgment, injunction, decree or other requirement or rule of law (including any of the foregoing related to privacy) promulgated, issued, enforced or entered by any Government Agency;

Leakage means:

(a) any dividend, or distribution declared, paid or made by any Group Company to any Seller or any Affiliate of a Seller;

(b) any payments made (including professional advisers’ fees and expenses in connection with the transactions contemplated by this Agreement) to (or assets transferred or Liabilities assumed, indemnified, or incurred for the benefit of) a Seller or its Affiliate by any Group Company, other than any payment reflected in the Seller Loan Account;

(c) any payments made by any Group Company to a Seller or its Affiliate in respect of any capital in any Group Company being issued, redeemed, purchased or repaid, or any other return of capital by any Group Company;

(d) the waiver by any Group Company of any amount owed to that Group Company by any Seller or its Affiliates;

(e) any management charge or fee, or any management incentive payment in connection with the transactions contemplated herein, that has been paid by any Group Company to any Seller or its Affiliates or has otherwise become due;

(f) any issuance, redemption, purchase or repayment of share or loan capital in favour of any Seller or its Affiliates;

(g) any financial, accounting, tax, legal and other advisory fees and costs incurred by a Group Company in connection with the preparation, negotiation or implementation of the transactions contemplated by this Agreement (including GST) other than any amount reflected in the Sellers’ Loan Account at the Completion Date;

14

(h) any bonuses or other incentive payment by any Group Company to any employee of a Group Company that are payable as a result of or in connection with the transactions contemplated by this Agreement (except for any amounts that form part of Transaction Bonuses);

(i) the payment of any fees, costs, Tax or GST incurred by a Group Company as a result of those matters set out in paragraphs (a) to (f) above; and

(j) any agreement or arrangement to do any of the matters set out in paragraphs (a) to (f) above,

in each case between the Effective Date and Completion, but does not include Permitted Leakage. For the avoidance of doubt any amount properly accrued as a Sellers’ Loan Account at the Completion Date will not be Leakage;

Leased Premises means the property and premises that are subject to a Property Lease, being:

(a) Suites G.01 and G.02, Ground Floor, Centennial Plaza, Tower A, 260 Elizabeth Street NSW 2000;

(b) Level 7, Centennial Plaza, Tower B, 280 Elizabeth Street NSW 2000; and

(c) Suite 29 Cooks Hill Commercial Centre, 235 Darby Street, Cooks Hill NSW.

Liability includes all liabilities, losses, debt, damages, injuries, diminution in value, costs, charges, interest, fees (including all attorneys’ fees and disbursements), penalties, fines, judgments, settlements, assessments, forfeiture and expenses of whatever description and however arising, and other obligations of any kind or character (whether actual, contingent, prospective or otherwise);

Management Accounts means:

(a) the unaudited statement of financial position as at the Management Accounts Date; and

(b) the unaudited statement of financial performance for the 5 month period ending on the Management Accounts Date,

as set out in Annexure 2;

Management Accounts Date means 30 November 2013;

Material Adverse Change means any change, state of facts, circumstance, event or development that:

(a) has or is reasonably likely to have a material adverse effect on the condition (financial or otherwise), properties, assets, liabilities, obligations (whether accrued, absolute, contingent or otherwise), business or result of operations of the Group taken as a whole; or

(b) prohibits, prevents, materially impairs or materially delays the completion of the transactions contemplated by this Agreement,

15

and, for the avoidance of doubt, includes the loss or likely loss of any Authorisation, or written notification from ASQA identifying material issues that could affect the validity or prospects of renewal in respect of any Authorisation;

Minority Directors has the meaning ascribed to that term in the Shareholders’ Agreement;

MR Executive Agreement means the contract of employment between the Company and Mark Rohald;

NAB means National Australia Bank Limited ACN 004 044 937 (or its related body corporate);

NAB Facilities means each of the facilities provided by NAB to a Group Company, including those set out in part A of Schedule 5;

OC means Open Colleges Pty Ltd ACN 000 011 692;

Option Shares Completion has the meaning given to that expression in clause 27.2(a)(iii);

Option Shares Completion Date means any date on which an Option Shares Completion occurs;

Option Shares means the Shares set out in column 10 of the table in section (ii) of part A of Schedule 1 plus any other Shares acquired by the relevant Seller after Completion;

Option Shares Purchase Price means the purchase price for the Option Shares as determined under clause 28.1;

Options means the Put Options and/or the Call Options;

Outsourced IT means all information technology systems including all hardware, software and communications systems (and including all websites and remote devices) used by or on behalf of a Group Company in the conduct of the Business that are owned by a third party, together with all related services provided by any third party;

Owned Intellectual Property Rights means all Intellectual Property Rights used or held for use by any Group Company in connection with the Business, including the Intellectual Property Rights set out in Schedule 14 but excluding the Intellectual Property Licences;

Permitted Encumbrances means the security interests listed in part B of Schedule 5;

Permitted Leakage means the following payments made and actions taken by the Company or any other Group Company:

(a) any payment made to repay and redeem the Redeemable Preference Shares or the Initial ESOP Option Termination Amount;

(b) employee remuneration or director fees paid by a Group Company to a Seller or its Affiliates;

(c) a dividend of $861,314 to be paid to the Sellers prior to Completion;

(d) any amount paid by a Group Company to a Seller or its Affiliates in reimbursement of any bona fide employment or director expenses incurred by that Seller or its Affiliates on behalf of a Group Company; or

16

(e) any payment which is approved in writing by the Buyer,

provided that: in each case of paragraphs (a) through (e), (i) such payments are made on arms’ length terms and in the ordinary course of Business consistent with past practice, and (ii) nothing therein shall be interpreted to permit the payment of any Transaction Costs except where such payment is reflected in the Sellers’ Loan Accounts.

Plant and Equipment means all plant, equipment (including computer equipment), motor vehicles, machinery, spare parts, tools and other maintenance items, furniture, fixtures and fittings, and information technology items (including mobile or portable devices) used in the Business as at the Completion Date;

PPSA means the Personal Property Securities Act 2009 (Cth);

PPS Register means the “register” as defined in the PPSA;

PPSA Security Interest means a security interest as defined in the PPSA;

Preferred Completion Date has the meaning given to that expression in clause 27.2(a)(iii);

Prescribed Rate means the rate specified from time to time by Rule 36.7 of the Uniform Civil Procedure Rules 2005 for the purposes of section 101 of the Civil Procedure Act 2005 (NSW);

Privileged Relation of a person, means any individual related by blood, marriage, de facto or adoption to any such person, including the spouse or domestic partner/defacto, siblings, parents, children and grandchildren of such person, as the case may be;

Property means the Leased Premises;

Property Lease means each lease, sublease, licence or other arrangement relating to the Leased Premises;

Proposed Business means the following:

(a) the provision of higher education courses in Australia;

(b) offering university pathways in Australia;

(c) the provision of vocational education and training courses for overseas students in Australia; and

(d) the provision of vocational education and training courses outside of Australia;

Purchase Price means the purchase price for the Sale Shares as determined in accordance with clause 4.1;

Put Options means the options granted to the Sellers in clause 25.1;

Receiving Party means the party to whom Information is disclosed or who possesses or otherwise acquires Information belonging or relating to a Disclosing Party;

Records means the originals and copies, in machine readable, electronic, printed or any other readable form, of all files, reports, records, accounts, registers, correspondence,

17

documents and other material relating to or used by any Group Company or the Business, including:

(a) sales literature, market research reports, brochures and other promotional material (including printing blocks, negatives, soundtracks and associated materials);

(b) sales and purchasing records;

(c) lists of all clients, suppliers and customers;

(d) financial records and accounts including ledgers, journals and books of account;

(e) trading records;

(f) records of wages, employment benefits and other payroll and personnel information;

(g) records of and relating to the key contracts;

(h) stationery; and

(i) all other data, however recorded, owned or used by any Group Company or the Sellers which relates to any Group Company or the Business;

Redeemable Preference Shares means the redeemable preference shares (of any class) on issue as at the Agreement Date, details of which are set out in section (i) of part A of Schedule 1; 

Related Party Liability means a Liability owed to or from any Group Company on the one hand and from or to any Seller or any of its Affiliates on the other hand, including any interest accrued on those Liabilities but excluding:

(a) any Liability owed by a Group Company to a Seller (or by a Seller to a Group Company, as the case may be) arising in connection with this Agreement; and

(b) wages, salaries and superannuation paid in accordance with any employment arrangements in place between a Group Company and a Seller (or its Affiliate) at the Agreement Date;

Residual Amount means an amount equal to the greater of:

(a) zero; and

(b) an amount equal to 70% of [**] multiplied by (Imputed FY2014 EBITDA minus $[**]);

Respective Proportions means the respective proportions in which each Seller is entitled to share in the Purchase Price (and all parts of it) as set out in column 9 of the table in section (ii) of part A of Schedule 1;

Restrained Business means, in relation to a particular Restrained Person:

(a) the Business; and

(b) any Proposed Business;

18

Restrained Persons means each of the persons listed in Schedule 12 and Restrained Person means any one of them;

Restrained Relation of a person means any spouse or domestic partner/defacto, or minor children of such person, as the case may be;

RPS Amount means $1,828,750 (being the aggregate amounts payable to holders of the Redeemable Preference Shares to redeem all such Redeemable Preference Shares including any outstanding interest as at the Agreement Date and the Completion Date);

RTO means a registered training organisation;

RTO Condition means the condition referred to in clause 4.4; 

Sale Shares mean 73,035 Shares, which comprises 70% of the Shares existing immediately before Completion, as specified in section (ii) of part A of Schedule 1;

Sellers’ Accountant means Deloitte Touche Tohmatsu, Sydney or any substitute chartered accountant or firm of chartered accountants designated by the Sellers from time to time;

Sellers’ Loan Accounts means the amount owed by the Sellers to the Company in relation to the Transaction Costs paid or payable by the Company on behalf of the Sellers which will be repaid in full at Completion in accordance with clause 4.2(a);

Sellers’ Representative means Mr Robert Gavshon or such other person as is nominated by the Sellers and notified by the Sellers to the Buyer;

Sellers’ Warranties means the representations and warranties of the Sellers contained in Schedule 4;

SGA Acts means the Superannuation Guarantee (Administration) Act 1992 (Cth) and Superannuation Guarantee Charge Act 1992 (Cth);

Shares means the shares (of any class) in the capital of the Company;

Shareholders’ Agreement means the shareholders agreement to be entered into between the parties to this Agreement and the Company on the Agreement Date and with effect from Completion;

Subsidiaries means each entity, in relation to which the Company is at the relevant time the ultimate holding company (as that term is defined in the Corporations Act), including each entity listed in Part 2 of Schedule 2;

Stamp Duty means any stamp, transaction or registration duty or similar charge imposed by any Government Agency and includes any interest, fine, penalty, charge or other amount in respect of the above but excludes any goods and services tax;

Student Fee Account means the account operated by OC in relation to course fees received from students under clause 9 of the TAFE Agreement;

Systems means all information technology systems including all hardware, software and communications systems (and including all websites and remote devices) used by a Group Company in the conduct of the Business but excluding the Outsourced IT;

19

TAFE Agreement means the Strategic Co-Operation Agreement with North Coast Institute of TAFE dated on or about 29 June 2012;

Tax, Taxes or Taxation means all forms of present and future taxes, excise, stamp or other duties, imposts, deductions, charges, withholdings, rates, levies or other governmental impositions imposed, assessed or charged by any Government Agency, together with all interest, penalties, fines, expenses and other additional statutory charges relating to any of them, imposed or withheld by a Government Agency;

Tax Act means the Income Tax Assessment Act 1936 (Cth), the Income Tax Assessment Act 1997 (Cth) or the Taxation Administration Act 1953 (Cth) as the case may be;

Tax Benefit Payment means the payment made in accordance with clause 4.10;

Tax Claim Amount means the amount:

(a) the Buyer or a Group Company is required to pay in respect of Tax as a result of a Tax Claim;

(b) the Buyer or a Group Company is required to pay as a result of a Tax Claim relating to the recovery by the Government Agency of all or part of a Tax incentive, concession or other form of relief allowed to or applied by the Company before Completion;

(c) of any credit (excluding a franking credit arising from a payment of Tax by the Buyer, a Group Company or the head company of a Consolidated Group of which the Buyer or a Group Company is a member), rebate or refund of Tax or franking credits lost to or paid by the Buyer or a Group Company as a result of a Tax Claim; or

(d) the amount of the loss by the Buyer or a Group Company of any relief, allowance, deduction or loss carried forward, as a result of a Tax Claim, multiplied by the rate of Tax applicable to companies in the year to which the Tax Claim relates,

plus any associated fines, additional Tax, interest or penalties;

Tax Claim means any Claim against a Group Company or the Buyer in respect of Tax;

Tax Indemnity means the indemnity provided in clause 12.1;

Tax Indemnity Claim means a Claim under the Tax Indemnity;

Tax Law means any Law relating to Tax;

Tax Refund means any net Tax refund or credit (less all costs associated with the preparation and submission of the relevant Tax Returns) received or that will be utilised in the then current financial year by the Group as a result of an overpayment of Tax by the Group for (i) the period to the Completion Date and/or (ii) the period during which the Interim ESOP Option Termination Amount is paid (in both cases arising only as a result of the cancellation of the ESOP Options under clauses 29.1, 29.2(a) or 29.2(b) as contemplated by this Agreement) as determined by the ATO following the obtaining of a private binding ruling and lodgement of the Group’s Tax Returns in accordance with clause 9.1 in a form approved by the Sellers and the Buyer;

Tax Return means an income tax return and includes a Business Activity Statement;

20

Tax Warranty means the Sellers’ Warranties set out in item 11 of Schedule 4;

Tax Warranty Claim means a Warranty Claim the subject of which is a Tax Warranty;

Third Party means a person who is not a party to this Agreement;

Third Party Claim means a Claim made or threatened by a Third Party against the Buyer, any Group Company or the Sellers;

Title and Capacity Warranty means the Sellers’ Warranties set out in items 1, 2 and 5 of Schedule 4;

Trade and other Payables means the aggregate amount of trade and other payables of the Company arising from the conduct of the Business up to the Effective Time; and

Trade and other Receivables means the aggregate amount of trade and other receivables of the Company for sales of goods and services to customers up to the Effective time after deducting provisions against such items for bad or doubtful debts. Debtors is not to include amounts collected by DebitSuccess but not yet remitted to the Group and amounts held in the North Coast TAFE trust account.

Transaction Bonus means any bonuses or other incentive payment by any Group Company that are payable to Simon Hitchick or Kevin Lynch totalling $358,482.03 inclusive of all related costs, superannuation and Taxes;

Transaction Costs means any financial, accounting, tax, legal and other advisory fees and costs incurred by a Group Company (including on behalf of the Sellers) in connection with the preparation for, negotiation and implementation of the transactions contemplated by this Agreement (including GST) that have been paid or are payable by the relevant Group Company at any time, which is estimated as at the Agreement Date to be an amount equal to $1,250,000, will be treated as a payment by the Company on behalf of the Sellers, giving rise to a consolidated Seller Loan Account the balance of which will be discharged in full at Completion by the Sellers under clause 4.2(a)(iii);

Transaction Documents means this Agreement, the Shareholders’ Agreement, AB Executive Agreement, the MR Executive Agreement and any other document agreed in writing by the Sellers and the Buyer to be a Transaction Document;

Transfer Terms means that the relevant Option Shares will be sold and purchased in accordance with the terms of this Agreement free from any Encumbrance and the consideration for the Option Shares will be the Option Shares Purchase Price;

Warranty and Indemnity Insurance Policy means the warranty and indemnity insurance policy in the name of AIG Australia Limited which satisfies the requirements set out in clause 13.1;

Warranty Claim means any Claim by the Buyer (or any person making a Claim through or on behalf of the Buyer) against the Sellers or a Seller or any one or more of the Sellers for breach of any one or more of the Sellers’ Warranties and includes a Claim under the indemnity in clause 11.7;

WC Accounting Principles means the principles, policies, practices and procedures set out in Schedule 7;

Working Capital Amount means, as at the Effective Time:

21

(a) sundry debtors and prepayments (including for services, goods or wages);

(b) plus Inventory;

(c) plus current Tax provision (if a refund is due from the Australian Taxation Office other than the Tax Benefit Payment);

(d) plus any GST receivables;

(e) plus Trade Accounts and other Receivables;

(f) plus the Sellers’ Loan Account;

(g) minus accruals;

(h) minus Trade and other Payables;

(i) minus provisions for employee bonuses or unpaid wages;

(j) minus current Tax provisions (if amounts due to the Australian Tax Office);

(k) minus any GST payables;

(l) minus Deferred Revenue;

(m) minus course transfer credits,

to be calculated in accordance with the WC Accounting Principles. Any amounts that are included in Financial Debt or Cash (in each case, as of the Effective Time) will be excluded from the Working Capital Amount.

1.2 Interpretation

In this Agreement, the headings are used for convenience only and do not affect the interpretation of this Agreement, and unless the context requires otherwise:

(a) the singular includes the plural and vice versa;

(b) a gender includes the other genders;

(c) other grammatical forms of defined words or expressions have corresponding meanings;

(d) a reference to a document includes the document as modified from time to time and any document replacing it;

(e) if something is to be or may be done on a day that is not a Business Day then it must be done on the next Business Day;

(f) a reference to time is to local time in Sydney, Australia;

(g) the word “person” includes a natural person, the estate of a natural person, a corporation, an authority, an association or joint venture, a partnership, a trust and any other body or entity whether incorporated or not;

(h) the word “month” means calendar month and the word “year” means 12 months;

(i) the words “in writing” include any communication sent by letter, facsimile transmission or email or any other form of communication capable of being read by the recipient;

22

(j) a reference to a thing includes a part of that thing;

(k) a reference to all or any part of a statute, rule, regulation or ordinance (statute) includes that statute as amended, consolidated, re‑enacted or replaced from time to time;

(l) wherever “include” or any form of that word is used, it must be construed as if it were followed by “(without being limited to)”;

(m) money amounts are stated in Australian currency; and

(n) a reference to any agency or body, if that agency or body ceases to exist or is reconstituted, renamed or replaced or has its powers or functions removed (defunct body), means the agency or body that performs most closely the functions of the defunct body.

1.3 Obligations

(a) Subject to clauses 1.3(b) and 1.3(c), the obligations of the Sellers under this Agreement and any Transaction Document that states that clause 1.3 of this Agreement applies are several in their Respective Proportions, and not joint and several.

(b) Subject to clause 1.3(c), where an obligation or liability under clauses 19 (Restrictive covenant), 20 (Non-solicitation), 23.2 (Related party liabilities) and 30 (Covenants) is expressed to be, or may be construed as, that of a particular Seller, or is to be performed by a particular Seller, that obligation or liability is imposed on that Seller and not on any other Seller and that Seller’s relevant proportion of that right, obligation or liability is 100%.

(c) The maximum amount that the Buyer may recover from any individual Seller under this Agreement and any Transaction Document that states that clause 1.3 of this Agreement applies (whether by way of damages or otherwise) must not exceed the aggregate of that Seller’s Respective Proportion of:

i. $110,250,000, plus

ii. the Deferred Payment (to the extent paid or set off in accordance with any Transaction Document), plus

iii. the Interim ESOP Option Termination Amount (to the extent paid or set off in accordance with any Transaction Document), plus

iv. the Final ESOP Option Termination Amount (to the extent paid or set off in accordance with any Transaction Document), plus

v. the Tax Benefit Payment (to the extent paid or set off in accordance with any Transaction Document).

(d) The parties acknowledge that the individuals who are Restrained Persons but not the Sellers have entered into this Agreement only for the purposes of clauses 19, 20 and 29.

2.Agreement to buy and sell Shares

2.1 Sale and purchase

23

On and subject to the terms of this Agreement:

(a) each Seller as legal and beneficial owner agrees to sell to the Buyer the Sale Shares, as listed against that Seller’s name in column 4 of the table in section (ii) of part A of Schedule 1; and

(b) the Buyer agrees to purchase the Sale Shares from the Sellers,

free from all Encumbrances for the Purchase Price.

2.2 Date for Completion

Completion must occur on the date that is the later of:

(a) 2  Business Days after the first date by which both parties are aware that the Conditions set out in item 1 of Schedule 3 have been fulfilled (or waived under clause 3.3); and

(b) 20 December 2013,

or any other date agreed by the parties in writing.

2.3 Encumbrances and rights

The Sellers must transfer the Sale Shares to the Buyer at Completion:

(a) free from any Encumbrance; and

(b) together with all benefits and rights, including dividend and voting rights, attached or accrued to them on or after the Effective Date.

2.4 Title and risk

(a) The legal title to the Sale Shares:

(i) until Completion, remains solely with the Sellers; and

(ii) on and from Completion, passes from the Sellers to the Buyer.

(b) Conditional upon Completion occurring, the parties intend the economic risk and benefit of the Sale Shares to be transferred from the Sellers to the Buyer on the Effective Date.

2.5 Waiver of pre-emptive rights

Each Seller, by its execution of this Agreement, consents to the sale and purchase contemplated by clause 2.1 and irrevocably waives in favour of the Buyer any rights of pre-emption or similar rights that that Seller has, or may have, in respect of the Sale Shares, whether conferred by the constitution of any Group Company or otherwise.

3.Conditions precedent

3.1 Conditions precedent to Completion

Completion is conditional on each of the Conditions set out in Schedule 3 being fulfilled, or waived under clause 3.3, on or before 20 December 2013 or any other date agreed by the Sellers and the Buyer in writing (End Date). If the Conditions in item 1 of Schedule 3 are

24

not satisfied or waived under clause 3.3 by 20 December 2013, the End Date will be the second Business Day after the first date by which both parties are aware that the Conditions set out in item 1 of Schedule 3 have been fulfilled or waived, or 31 January 2014 (whichever is earlier).

3.2 Duties in relation to Conditions

(a) The Sellers must use their reasonable endeavours to ensure that the Conditions referred to in clause 3.1 are fulfilled or waived on or before the date specified in that clause. The Sellers are responsible for all costs associated with fulfilling the Conditions.

(b) The Buyer must provide such assistance as is reasonably requested by the Sellers in connection with fulfilling the Conditions. In respect of the Condition in item 2 of Schedule 3, on the Agreement Date, the Sellers must procure that the Company notify ASQA in writing (in the form set out in Schedule 16, together with any other regulatory form required by ASQA) of the transaction contemplated by this Agreement on the Agreement Date (including requesting a meeting in person between representatives of the Sellers and the Buyer and ASQA to take place as soon as possible), provide the Buyer with copies of all correspondence, and also keep the Buyer informed of all communications between ASQA and the Sellers or the Group. The Buyer acknowledges and agrees that the Condition in item 2 of Schedule 3 will be satisfied if no objection or material concerns are raised by ASQA by no later than immediately prior to Completion. The Buyer may only communicate with ASQA in conjunction with the Sellers or the Group.

(c) Each party must:

(i) supply each other party with copies of all applications made and documents supplied for the purpose of fulfilling any Condition;

(ii) not take any action that would, or would be likely to, prevent or hinder the fulfilment of any Condition; and

(iii) within 2 Business Days of a party becoming aware that a Condition has been fulfilled, notify the other parties in writing of that fact.

(d) Nothing in this clause 3 requires a party to waive a Condition under clause 3.3 or accept unreasonable conditions or requirements imposed by Third Parties to satisfy any Condition.

3.3 Fulfilment by waiver

A Condition may be waived only:

(a) where the Condition is expressed to be for the benefit of a particular party only, if that party gives notice of waiver of the Condition to the other parties; or

(b) otherwise, if the Sellers’ Representative and the Buyer agree in writing to waive the Condition,

but only to the extent set out in the waiver.

3.4 Failure of Condition

25

The Buyer may, if not otherwise in breach of this Agreement, terminate this Agreement by giving notice to all other parties at any time before Completion if:

(a) a Condition is not fulfilled (or waived under clause 3.3) before 5.00 pm on the date specified in clause 3.1, as appropriate; or

(b) a Condition having been fulfilled, that Condition does not remain fulfilled in all respects at all times until Completion.

3.5 Sellers’ Representative

(a) The Sellers acknowledge and agree that:

(i) the Sellers’ Representative is irrevocably approved and appointed to act on behalf of the Sellers for the purposes of this Agreement including to issue all notices, communications or directions to pay for and on behalf of the Sellers; and

(ii) any requirement or obligation in this Agreement to give any notice or other communication to a Seller will be satisfied by a party giving any such notice or other communication to the Sellers’ Representative.

(b) For the avoidance of doubt and for all purposes of this Agreement, each Seller instructs the Buyer to exclusively deal with the Sellers’ Representative.

(c) The Sellers acknowledge that the Buyer will be entitled to rely on any action, election, direction or document executed by or on behalf of the Sellers’ Representative without the need for further enquiry.

4. Purchase Price and payments

4.1 Purchase Price

The price payable by the Buyer to the Sellers for the Sale Shares will be:

(a) the Completion Payment;

(b) the Deferred Payment; and

(c) an amount equal to 50% of each Tax Benefit Payment (if any).

4.2 Payment of the Purchase Price

In consideration of the Sellers agreeing to sell the Sale Shares to the Buyer, the Buyer must pay the Purchase Price in accordance with the following:

(a) pay on Completion as follows:

(i) pay each Seller such Seller’s Respective Proportion of an amount equal to the Completion Payment as set out opposite the name of that Seller in column 8 of the table in section (ii) of part A of Schedule 1, less such Seller’s Respective Proportion of:

26

(ii) the Escrow Sum, which will be directed by the Sellers to the Escrow Agent;

(iii) the balance of the Sellers’ Loan Accounts, which will be directed by the Sellers to the Company to repay in full the Sellers’ Loan Account; and

(b) pay or procure each Seller, its Respective Proportion of the Deferred Payment in accordance with clause 4.9.

4.3 Company funding

(a) The Sellers have advised the Buyer that, as at the Effective Time, the total amount of Cash exceeds the total amount of Financial Debt and the difference between these two aggregate amounts is $861,314 and, on that basis, the Buyer has agreed that the Company may pay a dividend to the Sellers equal to that amount prior to Completion.

(b) By no later than 2 Business Days prior to the Completion Date, the Sellers must provide to the Buyer details of the Transaction Costs, Sellers’ Loan Accounts, Transaction Bonuses and the Initial ESOP Option Termination Amount (including the aggregate totals for each item), together with supporting documentation.

(c) On Completion, the Buyer must subscribe for 1 Buyer Share at a subscription price sufficient to enable the Company to pay the Transaction Bonuses, RPS Amount and the Initial ESOP Option Termination Amount. By direction of the Company, the Buyer may pay the RPS Amount and the Initial ESOP Option Termination Amount to the relevant counterparty. The Transaction Bonuses must be paid to the Company.

(d) Subject to clause 4.4, on the Deferred Payment Date, the Buyer must subscribe for 1 Buyer Share at a subscription price sufficient to enable the Company to pay the Interim ESOP Option Termination Amount.

(e) At least 2 Business Days prior to the Final ESOP Option Termination Date, the Buyer must subscribe for 1 Buyer Share at a subscription price sufficient to enable the Company to pay the Final ESOP Option Termination Amount.

4.4 RTO Condition

(a) Subject to clause 4.4(b), payment of the Deferred Payment by the Buyer and the Interim ESOP Option Termination Amount by the Company (and related funding by the Buyer) under clause 4.9 is conditional on receipt of ASQA’s written confirmation of OC’s registration as an RTO on terms substantially the same as the current terms on which OC is registered as a RTO with ASQA (RTO Condition).

(b) Subject to clause 4.4(c), where the customary or conventional maximum period for re-registration permitted by ASQA is 5 years as at the Agreement Date and ASQA’s determination is that OC’s re-registration be granted for a lesser period, then the amount of the Deferred Payment will be discounted by 10% for each year that the period of OC’s re-registration as an RTO is less than 5 years provided the maximum discount to be applied to the Deferred Payment is 40%. Notwithstanding the foregoing, for the avoidance of doubt, no Deferred Payment will be payable if

27

OC’s re-registration is for less than 1 year. The discounted amount determined in accordance with this clause will apply for the purposes of clause 4.9.

(c) The parties acknowledge and agree that the amount of the Deferred Payment will not be discounted pursuant to clause 4.4(b) to the extent the reduction of OC’s re-registration as an RTO is the result of:

(i) ASQA changing its registration policies to reduce the customary or conventional maximum re-registration period for RTOs (as evidenced by a media release or other written statement by ASQA to that effect); or

(ii) an act (or failure to act) or omission by the Buyer or its Affiliates (excluding the Group).

4.5 Escrow Sum

The Buyer and the Sellers’ Representative must jointly direct the Escrow Agent to release all amounts in the Escrow Account to the Sellers in their Respective Proportions or to the Buyer in the following manner (together with all applicable interest on that amount):

(a) where the RTO Condition has been satisfied before the date on which the Deferred Payment is determined, $10,000,000 to the Sellers within 5 Business Days of the date on which the RTO Condition is satisfied;

(b) where the RTO Condition has not been satisfied before the date on which the Deferred Payment is determined but is satisfied before 31 December 2016:

(i) where the Deferred Payment is equal to or more than $12,500,000, $10,000,000 to the Sellers on the Deferred Payment Date;

(ii) where the Deferred Payment is less than $12,500,000, the Deferred Payment less $2,500,000 to the Sellers on the Deferred Payment Date;

(iii) the balance of the Escrow Account (if any) to the Sellers within 5 Business Days of the date the RTO Condition is satisfied;

(c) where the RTO Condition is not satisfied by 31 December 2016:

(i) the balance of the Escrow Account will be paid to the Buyer; and

(ii) the Buyer will have no obligation to pay the Deferred Payment or the Interim ESOP Option Termination Amount.

4.6 Calculation of Imputed FY14 EBITDA

(a) The Buyer will prepare (or procure the preparation of) the Financial Year End Statement and deliver a copy, together with a calculation of Imputed FY14 EBITDA, the Deferred Payment and all relevant working papers, to the Sellers’ Representative by no later than the Accounts Adoption Date.

4.7 Confirmation by the Sellers

(a) The Sellers’ Representative must notify the Buyer within 10 Business Days of receipt from the Buyer of the documents specified in clause 4.6 as to whether the Sellers’

28

Representative agrees with the Buyer’s calculation of the Imputed FY14 EBITDA and the Deferred Payment.

(b) If the Sellers’ Representative agrees with the Buyer’s calculation of the Imputed FY14 EBITDA and the Deferred Payment, the Purchase Price will be adjusted in accordance with clause 4.9.

(c) If the Sellers’ Representative does not agree with the Buyer’s calculation, the Sellers’ Representative must notify the Buyer of its disagreement in writing prior to the end of the 10 Business Day period under clause 4.7(a) and the procedures in clause 21 apply.

(d) If the Sellers’ Representative fails to notify the Buyer of its agreement or disagreement prior to the end of the 10 Business Day period referred to under clause 4.7(a), the Sellers are deemed to agree to the Buyer’s calculation of Imputed FY14 EBITDA and the Deferred Payment.

4.8 Expert

The Sellers’ Representative and the Buyer must use reasonable endeavours to agree on the Imputed FY14 EBITDA and the Deferred Payment within 10 Business Days of the Buyer receiving notice under clause 4.7(c). If the Sellers’ Representative and the Buyer cannot agree on the Imputed FY14 EBITDA and the Deferred Payment within that period, the Buyer or the Sellers’ Representative may direct the Expert to prepare a report in accordance with clause 21.

4.9 Adjustment to the Purchase Price

(a) Subject to clause 4.4, if the determination of the Deferred Payment results in:

(i) a positive number, the Buyer must pay or procure that the Company pays (as applicable):

(A) each Seller its Respective Proportion of the Deferred Payment (less the Residual Amount) within 5 Business Days of acceptance by the Sellers’ Representative in accordance with clause 4.7 or determination by the Expert of the Deferred Payment (Deferred Payment Date);

(B) the New Trustee as trustee of the Open Colleges Australia Option Share Trust, the Interim ESOP Option Termination Amount within 5 Business Days of the Deferred Payment Date;

(C) pay each Seller its Respective Proportion of the Residual Amount within 5 Business Days of 31 December 2016, subject to satisfaction of the RTO Condition in accordance with the terms of this Agreement and no claim having been made under a Transaction Document by 31 December 2016 where that Transaction Document expressly states that the amount may be set-off against the Residual Amount; or

(ii) a negative number, then no amount is payable by the Buyer to the Sellers on the Deferred Payment Date.

29

(b) If the payment is made under clauses 4.9(a)(i) to a Seller, the payment is to be treated as an increase in the Purchase Price.

4.10 Tax Benefit Payment

(a) On receipt of any and each Tax Refund by the Company, the parties agree to procure that the Company pays a fully franked dividend on the Buyer Share equal to the amount of the Tax Refund.

(b) On receipt of the dividend by the Buyer, the Buyer will pay to each of the Sellers (in their Respective Proportions) the amount, if any, equal to in aggregate 50% of the applicable dividend within 5 Business Days of receipt and the Buyer will retain the other aggregate 50% of the applicable dividend.

(c) To the extent the Company does not have sufficient franking credits, the amount payable to the Sellers under this clause will be adjusted to reflect 100% of any Tax payable on the dividend received from the Company by the Buyer.

(d) The Sellers and the Buyer shall be permitted to jointly prepare an application in the name of the Company for a binding private ruling to the ATO in relation to the cancellation of the ESOP Options as contemplated by this Agreement provided the cost of such applications will be shared equally by the Sellers and the Buyer.

4.11 Manner of payment

All payments of any nature to the Sellers under this Agreement must be made:

(a) unless otherwise specified in this Agreement (including in clauses 4.2(b) and 4.9(a)), to the Sellers according to the Respective Proportions of each Seller, or to the person or persons and in the manner that the Sellers directs in writing not less than 5 Business Days before the due date for payment; and

(b) with respect to payments in cash, by Real Time Gross Settlement (RTGS) system electronic transfer to an account or accounts nominated by each Seller (if available between the United State of America and Australia) and otherwise in Immediately Available Funds.

5. Conduct pending Completion

5.1 Conduct of Business

Except as otherwise provided in clause 5.2 or elsewhere under this Agreement, the Sellers must ensure that from the Effective Time until Completion, each Group Company:

(a) manages and conducts the Business in the ordinary course of the Business as carried on by the relevant Group Company immediately prior to the Agreement Date;

(b) uses reasonable endeavours to maintain relationships with its employees, customers, landlords, suppliers and with Government Agencies in place immediately prior to the Agreement Date;

30

(c) uses reasonable endeavours to preserve the Goodwill existing as of the Effective Date;

(d) promptly notifies the Buyer of the occurrence of any Material Adverse Change;

(e) maintains sufficient working capital to support the ongoing operation of the Business;

(f) maintains the insurance policies and level of cover as in place immediately prior to the Agreement Date;

(g) does not, except the purchase and sale of Inventory in the ordinary course of Business, unless required or contemplated by this Agreement, or unless the Buyer consents in writing:

(i) enter into any material contract or commitment requiring it to pay more than $250,000 or more than $250,000 per annum for more than 1 year or terminate or alter any term of any such contract or commitment;

(ii) incur any Liabilities of $250,000 or more;

(iii) acquire, dispose of, agree to acquire or dispose of, Encumber or grant an option over any of that Group Company’s assets or any interest in those assets where the aggregate value of the asset or assets in question exceeds $250,000;

(iv) engage any new employee, terminate the employment of any Employee or alter the terms of employment (including the terms of superannuation or any other benefit) of any Employee, or offer to do any of those things;

(v) provide any guarantee or any other security to any Third Party;

(vi) create or permit any Encumbrance to be given or created over any of the Group’s assets or undertakings or part thereof;

(vii) borrow money, increase the amount of existing borrowings or draw on any credit lines other than $250,000 in aggregate under existing credit facilities with NAB;

(viii) issue, agree to issue or grant any option to issue any equity or loan securities or similar instruments or any security convertible into any such securities including subscription, warrants or “phantom” stock rights;

(ix) effect a buy back of its shares or make a capital reduction, or make any other distribution of its assets or profits;

(x) declare or pay any dividend or make any distributions to the Sellers;

(xi) alter or agree to alter its constitution;

(xii) settle any Claim, action or proceeding for an amount exceeding $250,000;

(xiii) make any changes in the accounting methods, principles or practices used by it in the Accounts;

31

(xiv) fail to settle in accordance with the payment procedures and time scales normally observed by that Group Company, any material debts incurred in the ordinary course of trading;

(xv) terminate or vary any material Contract to which a Group Company is party;

(xvi) renew, amend or terminate any material Contract or any Property Lease;

(xvii) make any changes to election in respect of Taxes or amend any Tax Returns;

(xviii) effect any consolidation or restructure of the Group;

(xix) breach any Law or breach or amend any Authorisation;

(xx) enter into any agreement or make any payments to any Seller or its Affiliates other than wages, salaries and superannuation paid in accordance with any employment arrangements in place between a Group Company and a Seller (or a Group Company and an Affiliate or Related Entity of a Seller) at the Agreement Date; or

(xxi) pass any special or ordinary resolution.

(h) The Buyer must not unreasonably withhold or delay its consent to any matter referred to in clause 5.1(g).

5.2 Permitted acts

Before Completion, the Sellers and any Group Company may do, or omit to do, any of the following:

(a) anything to reasonably and prudently respond to an existing or pending emergency or disaster;

(b) anything which is necessary to meet its legal or contractual obligations;

(c) anything required by this Agreement; and

(d) anything reasonably required to be done in the ordinary course of the Business as carried on immediately prior to the Agreement Date and in accordance with the Business Plan (which for the avoidance of doubt shall not excuse any action in contravention of clauses 5.1(g)(viii) to 5.1(g)(xiii) inclusive, 5.1(g)(xviii) or 5.1(g)(xxi)).

5.3 Required acts

(a) On or before Completion, the Sellers, at their own cost, must do (or must procure, as applicable) each of the acts, matters or things set out in Schedule 10, in each case in such form, substance and manner approved in writing by the Buyer, acting reasonably.

(b) The Buyer may in its sole discretion waive the Sellers’ obligation to do one or more of the acts, matters or things set out in Schedule 10.

5.4 Access to Business and Records

32

(a) The Sellers must allow the Buyer, its employees, agents and representatives reasonable access to the Records (on reasonable notice during business hours at times and on conditions agreed between the Sellers’ Representative and the Buyer) before Completion to enable the Buyer to:

(i) become familiar with the Business and the affairs of the Group; and

(ii) investigate the accuracy of the Sellers’ Warranties.

(b) The Buyer must ensure that any access under clause 5.4(a) is exercised and conducted in a manner to avoid unreasonable interruption to the conduct of the Business and the activities and operations of the Group and their employees.

5.5 Material changes

Until Completion, the Sellers must ensure that the Buyer is informed of, and consulted about, any matter which materially affects the Group or the Business.

6. Completion

6.1 Time and place for Completion

Completion must occur on the date determined under clause 2.2 at:

(a) the offices of K&L Gates, Level 31, 1 O’Connell Street, Sydney NSW 2000 at 2pm; or

(b) any other place or time agreed in writing between the Sellers’ Representative and the Buyer.

6.2 Sellers’ obligations at Completion

On or before Completion the Sellers must:

(a) deliver or cause to be delivered to the Buyer:

(i) a duly executed transfer of the Sale Shares in favour of the Buyer in registrable form;

(ii) original share certificates (or if the original share certificates have been lost or destroyed: a statutory declaration as to the loss or accidental destruction of such certificates and original replacement share certificates issued by the Company) in respect of all of the Sale Shares;

(iii) original share certificates relating to the issued shares in each Group Company other than the Company (or if the original share certificates have been lost or destroyed: a statutory declaration as to the loss or accidental destruction of such certificates and original replacement share certificates issued by each relevant Group Company);

(iv) duly executed written instruments irrevocably waiving in favour of the Buyer all pre-emptive and similar rights (if any) which any person other than the Sellers have in respect of any of the Sale Shares;

33

(v) copies of any consents, waivers or documents necessary to evidence to the Buyer’s satisfaction that each of the Conditions has been and remains fulfilled or waived under clause 3.3;

(vi) duly executed releases and discharges of all Encumbrances and any other Third Party interest registered against each Seller’s Shares, including any necessary financing statement discharge forms, each being in form and substance reasonably acceptable to the Buyer;

(vii) the constitution, certificate of incorporation or registration (including any certificate of incorporation or registration on change of name), common seal (if any), all statutory registers, minute books and other records of directors’ and shareholders’ meetings of each Group Company;

(viii) the ASIC corporate key for each Group Company;

(ix) to the extent that they are in the possession or control of the Sellers or any Group Company, all cheque books, financial and accounting books and Records, copies of Taxation returns lodged and assessments issued under the Tax Act, fringe benefits tax returns, business activity statements, land tax assessments, mortgages, leases, agreements, insurance policies, title documents, licences, certificates and all other Records;

(x) a duly completed authority for the alteration of the signatories of every bank account of each Group Company in the manner required by the Buyer;

(xi) to the extent that they are in the possession or control of the Sellers or any Group Company, all Authorisations issued to any Group Company under any Law relating to its business activities;

(xii) written evidence that each of the acts, matters or things set out in Schedule 10 have been completed, in each case in a form, substance and manner approved in writing by the Buyer, acting reasonably;

(xiii) original reliance letters duly executed by Deloitte Touche Tohmatsu in respect of the Project Praxis final draft vendor due diligence report dated 18 October 2013, which do not include the Buyer or the Guarantor as a party and K&L Gates LLP in respect of the vendor legal due diligence report in relation to the Group dated 24 October 2013;

(xiv) three duplicate copies of the Escrow Deed duly executed by the Sellers; and

(xv) two duplicate copies of each Deed of Variation duly executed by the Company and each of Kevin Lynch, Kim Wright and Philip Kilic separately;

(xvi) three duplicate copies of each ESOP Option Cancellation Deed duly executed by the Company, the New Trustee and each of the ESOP Unitholders separately; and

(xvii) two duplicate copies of each ESOP Option Call Deed duly executed by each of the ESOP Unitholders separately.

(b) cause circulating resolutions of the directors of each Group Company to be passed in which:

34

(i) the registration of the transfer to the Buyer of the Sale Shares is, subject to payment of any Stamp Duty on them, approved;

(ii) the persons nominated in writing for that purpose by the Buyer and who have consented to so act, are appointed as directors, secretary and public officer of that Group Company; and

(iii) unless otherwise directed by the Buyer, the existing directors, alternate directors, secretary and public officer of each Group Company resign in writing from their respective offices with effect from Completion (without any payment as compensation for loss of office or otherwise acknowledging that he or she has no Claim or basis for a Claim against the Group); and

(iv) with effect from Completion, the registered office of each Group Company is changed to the address requested by the Buyer;

(c) if required by the Buyer and notified by the Buyer to the Sellers at least 2 Business Days before Completion, and subject to any consent required from ASIC (which, if required, must be sought by the Sellers before Completion), cause the resignation of the auditors of each Group Company with effect from Completion with a written acknowledgment from the auditors confirming that they have no outstanding Claims of any nature against any Group Company;

(d) ensure that all matters or actions necessary to give effect to the resolutions of each Group Company passed in accordance with clause 6.2(b) are done or taken; and

(e) do all other acts and execute all other documents (in form and substance agreed by the parties, acting reasonably) that this Agreement requires the Sellers to do or execute at Completion to effect the transfer of the Sale Shares to the Buyer.

6.3 Buyer’s obligations at Completion

At Completion the Buyer must:

(a) pay the Completion Payment to the Sellers in accordance with clauses 4.1 and 4.2(a);

(b) deliver three duplicate copies of the Escrow Deed duly executed by the Buyer and the Buyer’s Lawyers;

(c) deliver two duplicate copies of each ESOP Option Call Deed duly executed by the Buyer;

(d) cause sufficient instruments of consent to be available to allow each Group Company to pass the resolutions required by clause 6.2(b)(ii); and

(e) do all other acts and execute all other documents (in form and substance agreed by the parties, acting reasonably) that this Agreement requires the Buyer to do or execute at Completion.

6.4 Interdependency

35

The obligations of the Buyer and the Sellers under this clause 6 are interdependent. Completion is conditional on, and will not be taken to have occurred until, both the Buyer and the Sellers have complied with all of their respective obligations under this clause 6.

6.5 Buyer’s notice to complete

If the Sellers, or any one of them, fail to fully comply with their obligations under this clause 6 on the Completion Date and the Buyer is ready, willing and able to perform its obligations, then the Buyer need not perform its obligations at Completion and may give the Sellers’ Representative written notice setting a new date for Completion (which must be a time on the Business Day that is 2 Business Days after the date then scheduled for Completion).

6.6 Sellers’ notice to complete

If the Buyer fails to fully comply with its obligations under this clause 6 on the Completion Date and the Sellers are ready, willing and able to perform their obligations, then the Sellers need not perform their obligations at Completion and the Sellers’ Representative may give the Buyer written notice setting a new date for Completion (which must be a time on the Business Day that is 2 Business Days after the date then scheduled for Completion).

6.7 Failure to complete

(a) If any of the Buyer or the Sellers do not perform their obligations on the new date scheduled for Completion pursuant to clauses 6.5 or 6.6, the party that gave the notice under clause 6.5 or 6.6 may terminate this Agreement and each of the Sellers and the Buyer must promptly:

(i) return to the other all documents delivered to it under this clause 6;

(ii) repay to the other all payments received by it under this clause 6; and

(iii) do everything reasonably required by the other to reverse any action taken under this clause 6, without prejudice to any other rights any party may have in respect of that failure.

7. Action after Completion

7.1 Access to Records after Completion

(a) The Sellers may retain after Completion copies of any Records necessary for the Sellers to comply with any applicable Law (including Tax Law) and to prepare Tax and other returns required of the Sellers by Law.

(b) The Buyer must ensure that each Group Company retains all Records required to be retained by Law existing at Completion for the period that they are required to be retained by Law after Completion.

(c) Without limiting clause 7.1(a), the Buyer must ensure that the Sellers are promptly afforded reasonable access, at the Sellers’ cost, to the Records referred to in clause 7.1(b) on reasonable request by the Sellers for the purpose of enabling the Sellers to do all or any of the following:

36

(i) comply with any applicable Law (including a Tax Law);

(ii) prepare any financial statement or Tax Return; and

(iii) defend or deal with any Claim against the Sellers.

7.2 ESOP

(a) The parties agree to leave in place the ESOP subject to the arrangements as outlined in Schedule 1 and replacement of the current ESOP Option Trustee with the New Trustee in accordance with the terms of the ESOP Option Trust Deed.

(b) The shareholder of the New Trustee will be LGL Capital Pty Ltd until the Final ESOP Option Termination Date. The directors of the New Trustee will be Mark Rohald, Anthony Bohm and Robert Gavshon. The Buyer’s prior written consent must be obtained before any change of shareholding or directorship occurs with respect to the New Trustee.

(c) The parties agree that no additional ESOP Options will be issued under the ESOP. The New Trustee acknowledges and agrees that no additional person (other than the ESOP Unitholders) will be entitled to any benefit under the ESOP except for the Sellers, unless the Buyer has given its prior written consent.

(d) The Buyer must procure that the Company make payments to the New Trustee to cancel any outstanding ESOP Options subject to the terms of this Agreement.

(e) The New Trustee and the Sellers will ensure that no ESOP Options are exercised prior to the date that is 2 months after the Final ESOP Option Termination Date. The Sellers must procure that the New Trustee does not resign as trustee of the Open Colleges Australia Option Share Trust without the prior written consent of the Buyer.

7.3 Business Plan

Within 90 days after Completion, the Sellers must update the Business Plan to incorporate a monthly breakdown of the budget for the period between 1 July 2016 to 31 December 2016 provided such update is consistent with the aggregate numbers for such period.

8. Obligations until registration of transfer

8.1 Buyer’s obligation to register

The Buyer must ensure that registration of the transfer of the Sale Shares to the Buyer takes place as soon as possible after Completion.

8.2 Sellers’ obligations

After Completion and until the Sale Shares are registered in the name of the Buyer, the Sellers must convene and attend meetings of the Company, vote at those meetings and

37

take all other action as registered holder of the Shares as the Buyer may reasonably require from time to time by notice to the Sellers.

8.3 Indemnity from Buyer

The Buyer indemnifies the Sellers from all Claims and Liability arising from any action taken by the Sellers in complying with any direction of the Buyer under clause 8.2.

8.4 Power of attorney

(a) The Sellers appoint the Buyer to be the Sellers’ attorney for the purposes set out in this clause 8 from Completion until the Shares are registered in the Buyer’s name.

(b) The Buyer may do in the name of the Sellers and on the Sellers’ behalf everything necessary or expedient, and in compliance with the Law, to:

(i) transfer the Sale Shares to the Buyer;

(ii) exercise any rights, including rights to appoint a proxy or representative and voting rights, attaching to the Sale Shares;

(iii) receive any dividend or other entitlement paid or credited to the Sellers on or after Completion in respect of the Sale Shares; and

(iv) do any other act or thing in respect of the Sale Shares or the Company.

(c) All acts and things done by the Buyer in exercising powers under this power of attorney will be as valid as if they had been done by the Sellers and the Sellers must ratify and confirm whatever the Buyer does in exercising powers under this power of attorney.

(d) The Sellers acknowledge and agree that this power of attorney in favour of the Buyer is given for valuable consideration and is irrevocable until the Sale Shares are registered in the name of the Buyer.

(e) On registration of the Sale Shares in the Buyer’s name, the powers conferred on the Buyer under this clause 8.4 immediately cease.

8.5 Indemnity from Buyer

The Buyer indemnifies the Sellers from all Claims and Liability arising from any action taken by the Buyer in exercise of the power of attorney in clause 8.4.

9. Tax matters

9.1 Completion of Tax Returns and calculations

(a) The Sellers must at their own cost and expense have the sole conduct and control of the preparation and filing of all Tax Returns of the Group Companies for income years ending before Completion. The Sellers must ensure that the pre-Completion Tax Returns are filed on or before their due date.

(b) The Sellers must prepare such pre-Completion Tax Returns in a manner that is consistent with historical Tax Returns for the Group and must not make any Tax elections or choices (whether explicit or implicit by the manner in which the pre-

38

Completion Tax Returns are prepared) in respect of those pre-Completion Tax Returns. The Buyer’s prior written approval is required before any such Tax elections or choices can be made by the Seller.

(c) The Buyer must at its own cost and expense have the sole conduct and control of the preparation and filing of all Tax Returns of the Group Members for income years commencing before but ending after Completion.

10. Sellers’ Warranties

10.1 Warranties

(a) The Sellers represent and warrant to the Buyer that, subject to the limitations in this clause 10, each of the Sellers’ Warranties is true and accurate, and not misleading or deceptive (whether by omission or otherwise), at the Agreement Date and, except as expressly stated, will be true, accurate and not misleading or deceptive (whether by omission or otherwise) at Completion.

(b) Each Seller acknowledges that it has given the Sellers’ Warranties to the Buyer with the intention of inducing the Buyer to enter into this Agreement and the Buyer has entered into this Agreement on the basis of and in reliance on, the Sellers’ Warranties.

10.2 Disclosure Material

The Buyer acknowledges that, where applicable, the Sellers’ Warranties (other than the Title and Capacity Warranties) are qualified by all information fairly disclosed in the Disclosure Material.

10.3 Awareness

Where a Sellers’ Warranty is given “to the best of the Sellers’ knowledge”, or “so far as the Sellers are aware”, or with similar qualification as to the Sellers’ awareness or knowledge, the Sellers will be deemed to know or be aware of a particular fact, matter or circumstance if any of:

(a) the following individuals: or

Name	Position in the Company	Relevant Warranties
Mark Rohald	Joint CEO	All
Anthony Bohm	Joint CEO	All
Greg Fordred	CFO / GM, Finance & Corporate Services	All
Philip Kilic	GM, Student Recruitment	15, 17, 18, 19, 20
Kim Wright	GM, Student Services & Systems	15, 16, 17, 18, 19, 20
Kevin Lynch	GM, Marketing & Communications	15, 16, 17,18, 19, 20
Simon Hitchick	GM, Education & Training	15, 17, 18, 19, 20
Michael Allara	GM, Course Development (Acting)	15, 17, 18, 19, 20
Sam Linz	Non-Executive Director	All
Robert Gavshon	Non-Executive Director	All

39

(b) is actually aware of or should have been aware of after due and proper enquiry, that fact, matter or circumstance on the date that the Sellers’ Warranty is given.

10.4 Separate warranties

Each of the Sellers’ Warranties is a separate warranty and is not limited or restricted by any other warranty, except if that limit or restriction is clearly stated in the relevant Sellers’ Warranty.

10.5 Buyer’s acknowledgments

The Buyer acknowledges and agrees that:

(a) no Seller has made any representation or warranty in connection with this Agreement (including a representation or warranty about the financial or other prospects of the Group) other than the Sellers’ Warranties, and that no such representation or warranty has been made on any Warrantor’s behalf;

(b) it has reviewed the Disclosure Material, has asked questions of the Sellers regarding the Disclosure Material and has received responses to those queries;

(c) it has received independent professional advice in relation to the purchase of the Sale Shares and this Agreement (including legal, commercial, accounting, tax and financial advice);

(d) in entering into this Agreement and proceeding to Completion, the Buyer has relied only on the Sellers’ Warranties and no other representation or warranty; and

(e) to the maximum extent permitted by Law, all terms, conditions, undertakings, inducements, warranties or representations, whether express or implied, statutory or otherwise, not expressly set out in this Agreement and which relate to this Agreement or a matter the subject of a Sellers’ Warranty, are excluded.

11. Claiming under the Sellers’ Warranties

11.1 Notice of Warranty Claims

If the Buyer becomes aware of any matter that may give rise to a Warranty Claim, then subject to clause 13, the Buyer must notify the Sellers’ Representative of the Warranty Claim in writing as soon as practicable after the Buyer becomes aware of the matter and provide the Sellers with reasonable details of the matter to the extent available.

11.2 Sellers to consider Warranty Claims

The Sellers must notify the Buyer within 10 Business Days after receipt of a notice from the Buyer, indicating whether it admits or denies the relevant Claim (in whole or in part).

11.3 Limits on types of Warranty Claims

Without limiting the operation of clause 13 and to the maximum extent permitted by Law, the Buyer cannot make a Warranty Claim or Tax Indemnity Claim to the extent that:

40

(a) the matter giving rise to the Warranty Claim or the Tax Indemnity Claim is fairly disclosed in the Disclosure Material (excluding any Claim in relation to a Title and Capacity Warranty);

(b) a full provision, reserve or accrual has been made in the Accounts in connection with the matter giving rise to the Warranty Claim or the Tax Indemnity Claim;

(c) the Warranty Claim or the Tax Indemnity Claim results from, or the amount of the Warranty Claim or the Tax Indemnity Claim is increased because of a change in the Law taking effect on or after the Completion Date;

(d) the Warranty Claim or Tax Indemnity Claim results from any change in Accounting Standards on or after the Completion Date; or

(e) the Warranty Claim or the Tax Indemnity Claim is for indirect or consequential loss or damage, except to the extent such Claim relates to any such loss awarded to a Third Party.

11.4 Time limits for Warranty Claims

The Buyer cannot make a Warranty Claim or the Tax Indemnity Claim unless it notifies the Sellers of the Warranty Claim or the Tax Indemnity Claim in writing:

(a) in the case of a Tax Warranty Claim, Tax Indemnity Claim, a Claim under a Title and Capacity Warranty, or the indemnity under clause 11.7 (but only to the extent it relates to the Title and Capacity Warranties and Tax Warranties) on or before the expiration of 7 years after Completion; or

(b) in the case of any other Warranty Claim, on or before the expiration of 24 months after Completion.

11.5 Small Warranty Claims

(a) The Buyer cannot make a Warranty Claim or the Tax Indemnity Claim unless the value of that Warranty Claim (including any one of a series of Warranty Claims arising from the same event or circumstance) is more than $100,000 (Minimum Single Claim Amount), and then and only then the Buyer may then claim the full amount of that Warranty Claim and any Tax Indemnity Claim and not just the excess above the Minimum Single Claim Amount.

(b) Subject to clause 11.5(a), the Buyer cannot make a Warranty Claim or the Tax Indemnity Claim against the Sellers unless the aggregate of all of the Buyer’s Claims is more than $2,000,000 (Minimum Aggregate Claim Amount), and then and only then the Buyer may then claim the amount by which the Buyer’s Warranty Claims and any Tax Indemnity Claims are in the excess of the Minimum Aggregate Claim Amount.

(c) The limitations in clauses 11.5(a) and 11.5(b) do not apply to a Warranty Claim for breach of Title and Capacity Warranties.

11.6 Maximum amount the Buyer may recover

Subject to clause 13:

41

(a) the maximum total amount that the Buyer may recover for any Warranty Claims or any Tax Indemnity Claims (other than a Claim under a Title and Capacity Warranty) whether by way of damages or otherwise must not exceed $20,000,000 in aggregate; and

(b) the maximum total amount that the Buyer may recover from any individual Seller for any Claims under a Title and Capacity Warranty (whether by way of damages or otherwise) must not exceed the aggregate of that Seller’s Respective Proportion of :

vi. $110,250,000, plus

vii. the Deferred Payment (to the extent paid or set-off in accordance with any Transaction Document), plus

viii. the Interim ESOP Option Termination Amount (to the extent paid or set-off in accordance with any Transaction Document), plus

ix. the Tax Benefit Payment (to the extent paid or set-off in accordance with any Transaction Document).

11.7 Indemnity

Subject to clause 11.6, the Sellers indemnify each Buyer Group Member (including the Group Companies) (Indemnified Persons) as a continuing indemnity against any Liability suffered or incurred by an Indemnified Person (and any associated costs, charges or expenses) as a result of any breach of any Sellers’ Warranty.

11.8 Disclosures

In the period from the Agreement Date until Completion:

(a) the Sellers must as soon as reasonably practicable disclose to the Buyer; and

(b) the Buyer must as soon as reasonably practicable disclose to the Sellers,

(c) in writing any fact, matter or circumstance of which it becomes aware and which in its opinion would result or would be likely to result in any Sellers’ Warranty not being true, complete or accurate. Notwithstanding the Buyer’s rights under clause 3.4, the Sellers must before Completion remedy (if capable of remedy) the relevant fact, matter or circumstance or pay reasonable compensation to the Buyer.

11.9 Tax effect

If any payment by the Sellers in connection with a Warranty Claim, a Tax Indemnity Claim or a Claim under the indemnity contained in clause 11.7:

(a) would require the Buyer, the head company of any Consolidated Group that the Group Companies join after Completion or any Group Company to pay Tax (including, for the avoidance of doubt, any amount calculated under Parts 3-1 to 3-3 of the Tax Act) on, or as a result of, the amount received by the Buyer; or

(b) is subject to any deduction or withholding including for or on account of any Tax,

42

the Sellers must pay on demand to the Buyer an additional amount so that the Buyer receives free and clear of any Tax the full amount the Buyer would have received if no such deduction, withholding or payment of Tax had been required.

11.10 Mitigation

The Buyer must take reasonable action to mitigate any loss, Liability, costs or other damage suffered as a result of a breach of a Sellers’ Warranty, a Tax Indemnity Claim or a Claim under the indemnity contained in clause 11.7.

12. Tax Indemnity

12.1 Tax indemnity

The Sellers must indemnify and keep indemnified the Buyer, the head company of any Consolidated Group that the Group Companies join after Completion and each Group Company (Indemnified Entities) for the Tax Claim Amount in respect of any Tax Claim, to the extent that it:

(a) relates to any period that ends on or before the Completion Date; or

(b) arises as a result of or in respect of, or by reference to, any event, act or failure to act that occurs, or is deemed to occur, on or before or because of Completion.

12.2 Notice of Tax Claim

The Buyer must:

(a) give the Sellers a copy of any relevant assessment or notice of a Tax Claim (Tax Notice) within 10 Business Days after the earlier of:

(i) the day the Tax Notice is received; or

(ii) the day on which the obligation to pay the Tax created or evidenced by the Tax Notice arises; and

(b) within 10 Business Days of becoming aware of a matter that may lead to the making or issue of a relevant Tax Notice give details of that matter to the Sellers.

12.3 Reduction in Purchase Price

To the maximum extent permitted by Law, any amount paid by the Sellers to the Buyer under clause 11 or 12 operates as a decrease in the Purchase Price.

13. Warranty and Indemnity Insurance Policy

13.1 Warranty and Indemnity Insurance Policy

(a) Where the Buyer fails to effect or maintain the Warranty and Indemnity Insurance Policy, the Sellers’ Warranties (excluding the Title and Capacity Warranties) and the Tax Indemnity will be null and void and will have no force or effect whatsoever, on and from the Agreement Date.

(b) The Warranty and Indemnity Insurance Policy must be:

43

(i) provided by AIG Australia Limited;

(ii) in the name of the Buyer;

(iii) in respect of Warranty Claims, the Tax Indemnity and the indemnity under clause 11.7; and

(iv) obtained at the Buyer’s cost.

(c) The Buyer must ensure the Warranty and Indemnity Insurance Policy contains terms to the following effect:

(i) an acknowledgement by the Insurer that it underwrites the Warranty and Indemnity Insurance Policy on the basis of, and despite, the limitations of liability contained in this clause 13;

(ii) a waiver of the Insurer’s rights of subrogation, contribution and rights acquired by assignment against each of the Sellers (except in respect of a particular loss if the loss arose in whole or part out of the fraud of any Seller in which case the Insurer is only entitled to subrogate against such Seller (and, in each case, not any other Seller) and only to the extent of the rights of recovery relating directly to the fraud of such Seller (and then only to the extent of the payment received by the Insured)).

(d) The Buyer acknowledges there is no excess or any other amount payable by any Seller under the Warranty and Indemnity Insurance Policy.

(e) The Buyer must not:

(i) agree to any amendment, variation or waiver of the Warranty and Indemnity Insurance Policy (or do anything which has a similar effect) without the express prior written consent of the Sellers; or

(ii) novate, or otherwise assign its rights under, the Warranty and Indemnity Insurance Policy (except to an Affiliate of the Buyer).

(f) Clause 13.2 is not in any way limited, affected or otherwise prejudiced by:

(i) any purchase of, or failure to obtain or maintain, any warranty and indemnity insurance by the Buyer, including the Warranty and Indemnity Insurance Policy; and

(ii) the inability of the Buyer to pursue or obtain any remedy under any insurance policy, including the Warranty and Indemnity Policy, for any reason.

13.2 Release by Buyer

(a) Subject to clause 13.2(b), the Buyer:

(i) agrees to the extent permitted by Law, that no Seller has, and will not at any time, have any liability (whether under this Agreement, at common law or in equity) in respect of the Sellers’ Warranties, the Tax Indemnity and the indemnity under clause 11.7;

44

(ii) irrevocably releases each of the Sellers from any Tax Indemnity Claim and all Warranty Claims;

(iii) agrees not to commence or maintain any Tax Indemnity Claim or Warranty Claim against the Sellers;

(iv) agrees its sole recourse in respect of any Tax Indemnity Claim or Warranty Claim, is against the insurer under the Warranty and Indemnity Insurance Policy;

(v) agrees the Sellers may plead this clause as a bar to any Tax Indemnity Claim or Warranty Claim brought by the Buyer; and

(vi) agrees to ensure that any of its Affiliates does not commence or maintain any Tax Indemnity Claim or Warranty Claim against the Sellers.

(b) The release and other provisions in clause 13 do not apply:

(i) in respect of a Warranty Claim(s) or a Tax Indemnity Claim to the extent arising out of the fraud of one or more Sellers to the extent the claim arose out of the fraud of such Seller;

(ii) to a Warranty Claim for a breach of a Title and Capacity Warranty;

(iii) to any Warranty Claim or Tax Indemnity Claim that relates to any act, matter or thing that occurred during the period after the Agreement Date and before Completion that is within the actual knowledge of the Sellers prior to Completion; and

(iv) to any Claim under clause 23 (Specific Indemnities).

(c) For the avoidance of doubt, the release and other provisions in clause 13.2 do not operate to prevent the Buyer from making a claim under the Warranty and Indemnity Insurance Policy and notifying the Sellers of this claim provided the Buyer’s claim is made strictly on the basis the Sellers have no liability whatsoever in relation to the Buyer’s claim except:

(i) if clause 13.2(b)(i) applies – where there is fraud of one or more of the Sellers and the claim arose out of the fraud of such Seller; or

(ii) in all other cases - as otherwise provided in clause 13.2(b).

13.3 Definition of Seller

(a) In clauses 13.1 and 13.2(a), a reference to “Seller” includes:

(b) an Affiliate of that Seller;

(c) the current and former directors, officers and employees of that Seller;

(d) the current and former directors, officers and employees of any Affiliate of that Seller.

45

13.4 Release by Buyer – third parties

The release and other provisions in clause 13.2(a) in favour of persons not a party to this Agreement is intended to be, and is, directly enforceable by each of those persons, and this Agreement operates as a deed poll in favour of those persons.

13.5 Meaning of fraud

In this clause 13, Seller’s fraud means the fraud of a Seller or any of its officers, employees, shareholders or beneficiaries including knowingly and deliberately making a false Sellers’ Warranty.

13.6 Assignment of rights by the Buyer to the Insurer

The Buyer must ensure that any assignment of rights by the Buyer to the Insurer under the Warranty and Indemnity Insurance Policy includes a provision which states that the Insurer is only entitled to exercise the assigned rights against a Seller if the breach that led to the payment under the Warranty and Indemnity Insurance Policy in respect of which the rights have been assigned, arose in whole or part out of that Sellers’ fraud and then the Insurer is only entitled to exercise the assigned rights against such Seller (and in each case, not any other Seller) and only to the extent and in respect of those rights of recovery relating directly to that fraud.

13.7 Inconsistency

If there is conflict or inconsistency between this clause 13 and any other provisions of this Agreement, this clause prevails.

14. Buyer’s Warranties

14.1 Warranties

The Buyer warrants and represents to the Sellers, as an inducement to the Sellers to enter into this Agreement and to sell the Sale Shares that:

(a) the execution and delivery of this Agreement has been properly authorised by all necessary corporate action of the Buyer required to be taken prior to the completion of the transactions contemplated in this Agreement;

(b) the Buyer has full corporate power and lawful authority to execute and deliver this Agreement and to perform, or cause to be performed, its obligations under this Agreement;

(c) this Agreement constitutes a legal, valid and binding obligation on the Buyer enforceable in accordance with its terms by appropriate legal remedy;

(d) none of the following has occurred and is subsisting, or is threatened, in relation to the Buyer:

(i) an application or order made, proceeding commenced, resolution passed or proposed in a notice of meeting, petition presented, meeting convened or other step taken for:

(A) the winding up, dissolution, bankruptcy or administration of the Buyer; or

46

(B) the Buyer entering into an arrangement, compromise or composition with or assignment for the benefit of its creditors or a class of them;

(ii) the Buyer:

(A) being (or being taken to be under applicable legislation) unable to pay its debts as and when they fall due; or

(B) stopping or suspending, or threatening to stop or suspend, payment of all or a class of its debts; or

(iii) the appointment of an administrator, receiver, receiver and manager, liquidator, provisional liquidator or similar person to the Buyer or any of its assets; and

(e) this Agreement does not conflict with or result in the breach of or default under any provision of its constitution or any material term or provision of any agreement, deed, writ, order or injunction, judgment or Law to which it is a party or a subject or by which it is bound.

14.2 Warranties true on Completion

The Buyer warrants and represents to the Sellers that each of the warranties set out in clause 14.1 is true and accurate, and not misleading or deceptive (whether by omission or otherwise), at the Agreement Date and, except as expressly stated, will be true, accurate and not misleading or deceptive (whether by omission or otherwise) at Completion.

15. Assistance in relation to change of Control

15.1 Consent of other persons

If any Key Contract requires the consent (Required Consent) of the relevant lessor, licensor or counterparty (each a Contract Party) as a consequence of the sale or proposed sale of the Shares to the Buyer, then:

(a) the Sellers and the Buyer must each use their reasonable endeavours to obtain the Required Consent before Completion (provided that if the Required Consent is a Condition to Completion, then it must be obtained before Completion);

(b) the Buyer must, and must cause the relevant Group Company to, accept any terms imposed by the Contract Party that are:

(i) reasonably required; and

(ii) not materially more onerous for the Buyer or the relevant Group Company than those applying to the Sellers or the relevant Group Company at the Agreement Date;

(c) the Seller must pay the costs of any Contract Party incurred in providing the Required Consent; and

47

(d) subject to clause 3, the Buyer must not delay or fail to complete the purchase of the Sale Shares if a Required Consent has not been obtained on or before Completion.

15.2 Where consents not obtained

If a Required Consent has not been obtained on or before Completion in respect of a contract or other commitment referred to in clause 15.1 (Relevant Contract), then from the Completion Date until the Required Consent is obtained, and to the fullest extent permitted by the terms of the Relevant Contract:

(a) the Sellers and the Buyer must each continue to use their reasonable endeavours to obtain the Required Consent as soon as possible;

(b) in respect of the period from Completion until the Required Consent is obtained, the Buyer must procure that the obligations of the relevant Group Company under the Relevant Contract are observed and performed.

15.3 Third party costs

Nothing in this clause 15 requires the Buyer to pay or incur any costs or expenses of any Third Party, including a Contract Party.

15.4 Disclosure of Confidential Information

(a) A Receiving Party may disclose Confidential Information to any Contract Party but only for the purpose of securing, and only to the extent necessary to secure, the Required Consent of that Contract Party or otherwise to comply with the Sellers’ or any Group Company’s obligations to the Contract Party.

(b) The provisions of clause 18 apply to any disclosure of Confidential Information under clause 15.4(a) as if the Contract Party were a Recipient (as defined in clause 18.3), except that the parties are not obliged to comply with clause 18.3(c) in relation to that disclosure.

16. Interest on overdue payments

16.1 Payment of default interest

If a party fails to pay on the due date any amount that the party is obliged to pay under this Agreement, the party must pay interest on that amount. The interest:

(a) must be paid on written demand given to that party by the party to whom the amount is payable;

(b) is calculated from and including the day on which it falls due to but excluding the day on which it is paid in full, at the rate referred to in clause 16.1(c); and

(c) accrues each day at the Prescribed Rate.

16.2 Other rights not affected

A party’s right to require payment of interest under clause 16.1 does not affect any other rights or remedies it may have in respect of a failure to pay an amount due under this Agreement.

48

17. Public announcements

17.1 Making announcements

A party must not make, or authorise or cause to be made, any public announcement relating to the negotiations between the parties or the subject matter of this Agreement unless:

(a) it has the prior written consent of each other party (or in the case of the Buyer, the prior written consent of the Sellers’ Representative); or

(b) it is required to do so by Law or by the rules of any Financial Market or Governmental Agency to which a party, or an Affiliate of a party, is subject, or to protect or pursue a legal right.

17.2 Requirements

If a party is required to make a public announcement under clause 17.1(b), it must before doing so, to the extent practicable and as soon as reasonably possible:

(a) notify each other party of the proposed announcement;

(b) consult with each other party as to its content; and

(c) use reasonable endeavours to consider any reasonable request by any other party concerning the proposed announcement.

18. Confidentiality

18.1 Obligations of confidentiality

Subject to clauses 18.2, 18.3 and 15.4, the Receiving Party must:

(a) keep the Confidential Information confidential and not directly or indirectly disclose, divulge or communicate any Confidential Information to, or otherwise place any Confidential Information at the disposal of, any other person without the prior written approval of the Disclosing Party;

(b) take all reasonable steps to secure and keep secure all Confidential Information coming into its possession or control;

(c) not memorise, use, modify, reverse engineer or make copies, notes or records of the Confidential Information for any purpose other than in connection with the performance by the Receiving Party of its obligations under this Agreement; and

(d) take all reasonable steps to ensure that any person to whom the Receiving Party is permitted to disclose Confidential Information under clause 18.3 complies at all times with the terms of this clause 18 as if that person were a Receiving Party.

18.2 Exceptions

The obligations of confidentiality under clause 18.1 do not apply to:

(a) any Confidential Information that:

49

(i) is disclosed to the Receiving Party by a Third Party entitled to do so, whether before or after the Agreement Date;

(ii) was already lawfully in the Receiving Party’s possession when it was given to the Receiving Party and was not otherwise acquired from the Disclosing Party directly or indirectly; or

(iii) is generally available to the public at the Agreement Date or subsequently becomes so available other than by reason of a breach of this Agreement; or

(b) any disclosure of Confidential Information by the Receiving Party that is required by Law or the rules of any Financial Market to which a party, or an Affiliate of a party, is subject if, to the extent practicable and as soon as reasonably possible, the Receiving Party:

(i) notifies the Disclosing Party of the proposed disclosure;

(ii) consults with the Disclosing Party as to its content; and

(iii) uses reasonable endeavours to comply with any reasonable request by the Disclosing Party concerning the proposed disclosure.

18.3 Authorised disclosure

A Receiving Party may disclose Confidential Information to any Affiliate, employee, agent, contractor, officer, professional adviser, banker, auditor or other consultant of the Receiving Party (each a Recipient) only if the disclosure is made to the Recipient strictly on a “need to know basis” and, before the disclosure:

(a) the Receiving Party notifies the Recipient of the confidential nature of the Confidential Information to be disclosed;

(b) the Recipient undertakes to the Receiving Party (for the benefit of the Disclosing Party) to be bound by the obligations in this clause 18 as if the Recipient were a Receiving Party in relation to the Confidential Information to be disclosed to the Recipient; and

(c) if requested to do so by the Disclosing Party, the Recipient signs an undertaking or deed in a form acceptable to the Disclosing Party (and for the benefit of the Disclosing Party) agreeing to be bound by the obligations in this clause 18 as if it were a Receiving Party in relation to the Confidential Information to be disclosed to the Recipient.

18.4 Return or destruction of Confidential Information

Immediately on the written request of the Disclosing Party or on the termination of this Agreement for any reason, a Receiving Party must:

(a) cease the use of all Confidential Information of or relating to the Disclosing Party (or any Affiliate of the Disclosing Party);

(b) deliver to the Disclosing Party all documents and other materials in its possession or control containing, recording or constituting that Confidential Information or, at the

50

option of the Disclosing Party, destroy, and certify to the Disclosing Party that it has destroyed, those documents and materials; and

(c) for Confidential Information stored electronically, permanently delete that Confidential Information from all electronic media on which it is stored, so that it cannot be restored.

(d) Notwithstanding the foregoing, a Receiving Party shall be permitted to retain one copy of written Confidential Information solely in the files of its inside counsel or as necessary to comply with its regulatory recordkeeping requirements.

18.5 Liability for breach by Recipient

The Receiving Party is liable for any breach of this clause 18 by a Recipient as if the Recipient were a Receiving Party in relation to the Confidential Information disclosed to the Recipient.

18.6 Post Completion

On and from Completion:

(a) all Information in the possession or control of the Sellers relating to or in any way connected with the Company will be deemed to be “Confidential Information” of or relating to the Buyer for the purposes of this clause 18 and the Sellers must comply (and must procure that its Affiliates also comply) with the provisions of this clause 18 as if the Sellers were a “Receiving Party” of that Confidential Information; and

(b) the Buyer may make use of the Confidential Information of or relating to the Company as it sees fit and without restriction under this Agreement.

19. Restrictive covenant

19.1 Restrictions

In consideration of the Buyer agreeing to acquire the Sale Shares and enter into the Options, each of the Restrained Persons must not, and must procure that its Affiliates (other than Privileged Relations) and its Restrained Relations do not, in any capacity including on its own account or as a member, shareholder, unitholder, director, partner, joint venturer, employee, trustee, beneficiary, principal, agent, adviser, contractor, consultant, manager, Associate, representative or financier or in any other way or by any other means:

(a) during the period specified in clause 19.2 (Restraint Period); and

(b) in the area specified in clause 19.3 (Restraint Area),

carry on, control, participate in, benefit from, provide finance or services to, be interested in, assist with or otherwise be directly or indirectly involved, engaged, concerned or interested in a business, activity or operation that is the same as, substantially similar to, or competitive with, the Restrained Business or any part of it.

19.2 Restraint Period

The period referred to in clause 19.1 is each of the following periods separately:

51

(a) 5 years from the Completion Date;

(b) 4 years from the Completion Date;

(c) 3 years from the Completion Date;

(d) 2 years from the Completion Date; and

(e) 12 months from the Completion Date.

19.3 Restraint Area

The area referred to in clause 19.1 is each of the following areas separately:

(a) Australia;

(b) the State of Victoria, New South Wales, Western Australia and Queensland;

(c) the State of Victoria and New South Wales; and

(c) the State of New South Wales.

19.4 Permitted involvement

Nothing in this clause 19 prevents:

(a) any of the Restrained Persons, any Affiliate or any Restrained Relations of a Restrained Person:

(i) holding less than 5% of the issued shares of a body corporate, or interests in a registered managed investment scheme;

(ii) acting in a honorary capacity on the governing body of any educational institution (other than any TAFE institute or analogous institution) which does not compete with the business of the Group as conducted at the time of the appointment;

(iii) being involved in a honorary capacity for any not-for-profit organisation (other than any TAFE institute or analogous institution) which does not compete with the business of the Group as conducted at the time of the appointment;

(iv) being engaged or employed in a bona fide teaching or research position at an educational institution; or

(v) being engaged, or involved (in any capacity), in a business providing pre-school, primary or secondary education; or

(b) the wife of Anthony Bohm from being engaged or employed as a lawyer at an educational institution.

19.5 Independence of restrictions

Each:

(a) covenant in clause 19.1;

52

(b) paragraph of the Restraint Period definition in clause 19.2; and

(c) paragraph of the Restraint Area definition in clause 19.3,

is a separate and independent covenant of each Restrained Person. They can be combined and each combination is a separate covenant and restriction, although they are cumulative in effect.

19.6 Reasonableness of restraint

Each Restrained Person acknowledges that each of the restrictions imposed by this clause 19:

(a) is reasonable in its extent (as to duration, geographical area and restrained conduct) having regard to the interests of each party to this Agreement; and

(b) extends no further, in any respect, than is reasonably necessary and is solely for the protection of the Buyer in respect of the goodwill of the Restrained Business.

19.7 Injunction

Each Restrained Person acknowledges and agrees that monetary damages alone may not be adequate compensation to the Buyer for a breach by any of the Restrained Person of this clause 19 and that the Buyer is entitled to seek injunctive relief from a court of competent jurisdiction if:

(a) a Restrained Person fails to comply with any obligation under this clause 19 or threatens to do so; or

(b) the Buyer has reason to believe a Restrained Person will not comply with any obligation under this clause 19.

20. Non-solicitation

20.1 Non-solicitation Restraint

In consideration of the Buyer agreeing to acquire the Sale Shares and enter into the Options each Restrained Person must not, and must procure that its Affiliates (other than Privileged Relations) and its Restrained Relations do not, in any capacity including on its own account or as a member, shareholder, unitholder, director, partner, joint venturer, employee, trustee, beneficiary, principal, agent, adviser, contractor, consultant, manager, Associate, representative or financier or in any other way or by any other means during the Restraint Period and in or into the Restraint Area:

(a) solicit, canvass, entice, persuade, deal with, approach or accept an approach from any person who is at the Completion Date, or was at any time during the 12 month period ending on the Completion Date, a customer or supplier of the Business or a Group Company, or a partner, sponsor, promoter, agent or other key relationship of any Group Company, with any purpose of, or having the effect of, obtaining the custom or services of that person (or products from that person) in a business that is the same as or similar to the Restrained Business or in competition with the Restrained Business;

(b) at all times, represent itself as being in any way connected with, interested in or associated with the Restrained Business or the Group (except as a shareholder

53

before Completion) or any business conducted by the Buyer unless agreed otherwise by the Buyer in writing;

(c) interfere or seek to interfere with the relationship between any Group Company and its licensors, landlords, wholesalers, licensees, manufacturers, customers, distributors, employees, suppliers, partners, sponsors, promoters, agents or other key relationship of any Group Company in the conduct of the Restrained Business;

(d) solicit, canvass, encourage, approach or accept an approach from, induce or endeavour to do so, or help to induce, any person who is at the Completion Date, or was at any time during the 12 month period ending on the Completion Date, a director, employee, agent, Associate, contractor or advisor of a Group Company (or the Buyer) to leave the office, employment or agency of, or association with, the Group (or the Buyer).

20.2 Reasonableness of non-solicitation restraint

Each Seller acknowledges that each of the restrictions imposed by this clause 20;

(a) is reasonable in its extent having regard to the interests of each party to this Agreement; and

(b) extends no further, in any respect, than is reasonably necessary and is solely for the protection of the Buyer in respect of the goodwill of the Restrained Business.

20.3 Injunction

Each Restrained Person acknowledges and agrees that monetary damages alone may not be adequate compensation to the Buyer for a breach by any of the Restrained Persons of this clause 19 and that the Buyer is entitled to seek injunctive relief if:

(a) a Restrained Person fails to comply with any obligation under this clause 20 or threatens to do so; or

(b) the Buyer has reason to believe a Restrained Person will not comply with any obligation under this clause 20. 

20.4 Warranties

Each Restrained Person represents and warrants that he has full power and authority to enter into this Agreement and that this Agreement constitutes a legally valid and binding obligation of and is enforceable against him in accordance with its terms.

21. Dispute resolution

21.1 Delivering a dispute notice

(a) If the Sellers and the Buyer have been unable to resolve any dispute arising between them in relation to matters set out in clauses 4.8, 23.1 or 28.4 within 10 Business Days (Dispute), then the Sellers and the Buyer must refer the Dispute to an Expert for determination in accordance with this clause 21.

(b) For the purposes of this clause, the Expert is a person:

54

(i) having appropriate qualifications and experience relevant to determining the Dispute;

(ii) who is agreed by the parties or, failing agreement within 5 Business Days, is nominated at the request of the Buyer or the Sellers by the President of the Institute of Chartered Accountants (New South Wales); and

(iii) who does not act, or whose firm does not act, generally for any party.

21.2 Determination by Expert

The Expert:

(a) will act as an expert and not as an arbitrator;

(b) if applicable, is to determine the value of each disputed item in accordance with the Accounting Principles as soon as practicable and in any event within 20 Business Days of receipt by the Expert of the disputed calculations, the applicable financial statements and all relevant working papers prepared by the Buyer and, if applicable, the Sellers;

(c) deliver a report that sets out adjustments (if any) which need to be made to the numbers and calculations giving rise to the Dispute to comply with this Agreement;

(d) may determine the time, place and procedures (which will be as informal as is consistent with the proper conduct of the matter) for the determination by the Expert, having regard to the nature of the Dispute and the provisions of this Agreement;

(e) may communicate privately with the parties or with their lawyers;

(f) may or may not allow the appearance of lawyers on behalf of the parties;

(g) may accept written submissions from a party in relation to the Dispute, provided a copy of the submission is also given to all other parties;

(h) may co‑opt other expert assistance;

(i) must have regard to the fairness and reasonableness of any matters pertaining to the Dispute; and

(j) must deal with any matter as expeditiously as possible and by no later than 20 Business Days after referral to the Expert.

21.3 Obligations of parties

If an Expert is required to resolve a Dispute:

(a) the Expert’s determination will, except in the case of manifest error, be final and binding on the parties;

(b) the parties must attend the sessions with the Expert (which may be held by teleconference or video-conference) and make a determined and genuine effort to resolve the Dispute as soon as reasonably possible;

55

(c) without limiting clause 21.3(b), the parties must use their reasonable endeavours to make available to the Expert all information relevant to the Dispute and which the Expert reasonably requires in order to resolve the Dispute;

(d) everything that occurs before the Expert must be in confidence and in closed session;

(e) any information or documents disclosed by a party under this clause 21  must be kept confidential and cannot be used (and cannot be called into evidence in any subsequent litigation by any party) except to attempt to resolve the Dispute in circumstances where the parties have consented to such disclosure;

(f) all discussions must be without prejudice;

(g) each party must pay its own costs of complying with this clause 21 and the costs of the Expert must be shared half as to the Sellers and half as to the Buyer;

(h) the parties must continue performing their obligations under this Agreement while the Dispute is being resolved.

21.4 Other proceedings

A party may not commence court proceedings in respect of a Dispute unless it has complied with this clause 21  and until the procedures in this clause 21  have been followed in full, except where:

(a) the party seeks injunctive relief in relation to a Dispute from an appropriate court where failure to obtain such relief would cause irreparable damage to the party concerned; or

(b) following those procedures would mean that a limitation period for a cause of action relevant to the issues in dispute will expire.

22. Party as trustee

22.1 Capacity

(a) AJ & KE Bohm Pty Limited ACN 122 772 749 as trustee of the Bohm Family Trust;

(b) Deanmist Pty Limited ACN 102 735 437 as trustee of the Mendtron no2 Trust;

(c) Dufus Pty Ltd ACN 002 611 529 as trustee of the Linz Superannuation Fund; and

(d) Sarwill Pty Ltd ACN 002 412 795 as trustee of the Gavshon Family Superannuation Fund,

(each a Trustee and collectively, the Trustees) enter into this Agreement in their capacity as trustee of their respective trust (Trust) under the relevant trust deed, declaration of trust, deed of settlement or other instrument (Trust Deed), and whether or not any other party has notice of the Trust. Each Trustee also enters into this Agreement in its personal capacity. It is acknowledged that the New Trustee will replace the ESOP Option Trustee as trustee of the Open Colleges Australia Option Share Trust before Completion and immediately after its appointment, the terms “Trustee”, “Trust” and “Trust Deed” will be deemed to apply to the New Trustee. For the avoidance of doubt, the Sellers Warranties set out in item 2 of

56

Schedule 4 will apply to the New Trustee immediately after its appointment as trustee of the Open Colleges Australia Option Share Trust.

22.2 Change of Trustee

(a) No change of trustee of any Trust (including any appointment of an additional trustee) can occur without the prior written consent of the Buyer, which consent must not be unreasonably withheld or delayed.

(b) Each Trustee must not take, or omit to take, any action that would reduce, remove or otherwise affect its entitlement to a right of indemnity out of the relevant Trust assets.

23. Specific indemnities

23.1 Leakage

(a) The Sellers must notify the Buyer immediately upon becoming aware that any Leakage has occurred or is likely to occur between the Effective Date and Completion.

(b) In the event of any Leakage between the Effective Date and the Completion Date the Buyer must deliver to the Sellers a statement describing the Leakage and the Buyer’s calculation of that Leakage. If the Sellers and the Buyer agree on the amount of the Leakage prior to the Completion Date, that amount will be set off against the Completion Payment.

(c) The Sellers indemnify the Buyer or the Buyer will pay as an addition to the Purchase Price (as applicable), on a dollar-for-dollar basis, if there has been Leakage from the Group in the period commencing on and from the Effective Date and up to and including the Completion Date, to the extent that any such Leakage was not adjusted against the Purchase Price pursuant to any other clause of this Agreement.

(d) If the Working Capital Amount as at the Effective Time is more than $250,000 below $11,450,706 as a result of an error in the calculation of the Working Capital Amount (including where an amount has been incorrectly included or omitted in calculating the Working Capital Amount) (Error), the Sellers will pay to the Buyer an amount equal to the difference between the Working Capital Amount and $11,450,706 and the Buyer will use such funds to subscribe for 1 Buyer Share in the Company.

(e) If the Working Capital Amount is more than $250,000 above $11,450,706 as a result of an Error, the Buyer will pay to the Sellers an amount equal to 70% of the difference between the Working Capital Amount and $11,450,706.

23.2 Related Party Liabilities

(a) On and from the Completion Date, each Seller releases and discharges each Group Company from any and all Liabilities arising from, in relation to, or in any way connected with a Related Party Liability, except for an obligation that is due for performance or a Liability that is payable under this Agreement or any other Transaction Document.

57

(b) Each Seller indemnifies the Buyer and each Group Company as a continuing indemnity against any Liability suffered or incurred by the Buyer or any Group Company (and any associated costs, charges or expenses) as a result of any Related Party Liabilities which:

(i) have arisen before the Completion Date; or

(ii) arise after the Completion Date in respect of any act, matter or thing that occurred before the Completion Date,

(iii) to the extent that the relevant Related Party Liability is owed to that Seller or any of its Affiliates.

23.3 Excess Transaction Costs

The Sellers indemnify the Buyer and each Group Company as a continuing indemnity against any Liability suffered or incurred by the Buyer or any Group Company after the Completion Date in relation to any Transaction Costs payable by the Group in excess of the balance of the Sellers’ Loan Accounts as at the Completion Date.

23.4 ESOP

The Sellers indemnify the Buyer and each Group Company as a continuing indemnity against any Liability suffered or incurred by the Buyer or any Group Company after the Agreement Date (not being simply an accounting entry) in relation to the continuation of the ESOP, the replacement of the Option Trustee with the New Trustee, the exercise of any ESOP Options, the cancellation or potential cancellation of the ESOP Options and any other transactions contemplated by this Agreement in connection with the ESOP Options, the ESOP Unitholders, the holders of units in the ESOP Option Trust, the grant of units in the ESOP Trust at or around Completion, the determination of the Initial ESOP Option Termination Amount, Interim ESOP Option Termination Amount and Final ESOP Option Termination Amount, and the allocation of each of the foregoing amounts to the ESOP Option Trust, the ESOP Optionholders or otherwise, the ESOP Option Cancellation Deeds, any breach of the ESOP Plan Rules, offer letters issued thereunder, the ESOP Option Trust Deed and related documents, or applicable Laws in connection with any of the foregoing, including any amount the Buyer or a Group Company is required to pay in respect of Tax as a result of any letter, request, advice, notice, demand, notice of assessment or amended assessment issued, served or made by or on behalf of a Government Agency or lodgement of a Tax return in respect of Tax plus any associated fines, additional Tax, interest or penalties.

23.5 Mitigation

The Buyer will take reasonable steps to mitigate its loss in relation to any Claim covered by an indemnity set out in clause 23.

23.6 Reduction in Purchase Price

To the maximum extent permitted by Law, any amount paid by the Sellers to the Buyer under clause 23 operates as a decrease in the Purchase Price.

58

24. Guarantee and indemnity

24.1 Guarantee of Buyer’s performance

As an incentive for the Sellers to enter into this Agreement, the Guarantor guarantees to the Sellers the punctual performance by the Buyer of the Buyer’s obligations under this Agreement, including its obligations to pay money.

24.2 Indemnity

The Guarantor indemnifies and must keep indemnified the Sellers against all Claims or Liability (including legal costs on a full indemnity basis) that may be brought against the Sellers or which the Sellers may pay, sustain or incur as a direct or indirect result of any breach or non‑performance of this Agreement by the Buyer. The Sellers may enforce this right of indemnity at any time, including before they have incurred the liability, loss or costs.

24.3 Continuing obligation

The guarantee and indemnity given under this clause 24  is a continuing obligation which:

(a) continues after Completion and after the parties’ other obligations under this Agreement terminate; and

(b) is not discharged by any one payment.

24.4 Obligations and rights not affected by certain matters

The Guarantor’s obligations and the Sellers’ rights under this guarantee and indemnity are not affected by anything which might otherwise affect them at Law including:

(a) any concession (such as extra time) being given to any person, including the Guarantor or the Sellers;

(b) the Sellers’ failure or delay in taking action or asserting a right, or any other act, omission or mistake by the Sellers;

(c) the novation of a right of the Sellers;

(d) this Agreement (or any agreement entered into in order to perform this Agreement) being varied; or

(e) an obligation or liability of a person other than the Guarantor being invalid or unenforceable.

24.5 Guarantor’s rights suspended

The Guarantor must not do any of the following without the consent of the Sellers until all money payable to the Sellers in connection with this Agreement is paid:

(a) exercise a right of contribution or indemnity as against the Sellers;

(b) take a step to enforce a right against the Sellers in connection with money the Guarantor pays to the Sellers under this guarantee and indemnity;

59

(c) claim a share of any money the Sellers receives in connection with this Agreement;

(d) claim the benefit of (for example, by subrogation), or seek the transfer of, a guarantee, indemnity or security the Sellers holds in connection with this Agreement;

(e) try to reduce its liability under this guarantee and indemnity through set‑off or counterclaim; or

(f) prove in competition with the Sellers if the Buyer is unable to pay its debts when due.

24.6 Reinstating the Sellers’ rights

If a Claim is made (such as a Claim under the Law relating to insolvency) that a payment or transfer to the Sellers in connection with this Agreement is void or voidable and that Claim is upheld, conceded or compromised, then the Sellers are immediately entitled to the rights the Sellers had against the Guarantor before the payment or transfer was made.

24.7 Reimbursing the Sellers for costs

The Guarantor must pay or reimburse the Sellers on demand for:

(a) the Sellers’ costs in connection with enforcing or deciding whether to enforce this Guarantee and Indemnity; and

(b) all Tax payable in connection with this guarantee and indemnity or any transaction, including a payment, contemplated by it.

24.8 Applying money paid by the Guarantor

The Sellers may apply amounts they receive from the Guarantor under this Guarantee and Indemnity in any manner or order the Sellers choose.

25. Put options

25.1 Grant of Put Options

With effect from Completion, the Buyer grants to each Seller the right to require the Buyer to buy all of the Option Shares held by that Seller or its Affiliates including those set out opposite that Seller’s name in column 10 of the table in section (ii) of part A of Schedule 1, exercisable by the Seller on the Transfer Terms during the Exercise Period, provided that the Call Option has not been exercised in respect of the Option Shares held by the Seller in the Exercise Period.

25.2 Put Option fees

The consideration for the grant of each Put Option is the payment by each of the Sellers of $1.00 to the Buyer (the receipt of which is acknowledged by the Buyer).

60

25.3 Exercise of Put Option

Subject to 27.1, a Seller may exercise the Put Option granted to it for all of the Option Shares held by that Seller at any time during the Exercise Period.

25.4 Expiry of Put Options

The Put Options granted under clause 25.1 automatically expire at the end of the Exercise Period.

26. Call Options

26.1 Grant of Call Options

With effect from Completion, each Seller grants a call option to the Buyer to acquire all of the Option Shares held by that Seller or its Affiliates including those set out opposite that Seller’s name in column 10 of the table in section (ii) of part A of Schedule 1, exercisable by the Buyer on the Transfer Terms during the Exercise Period, provided that the Put Option has not been exercised in respect of the Option Shares held by that Seller in the Exercise Period.

26.2 Call Option fees

The consideration for the grant of each Call Option is the payment by the Buyer of $1.00 to each Seller (the receipt of which is acknowledged by the Sellers).

26.3 Exercise of Call Option

The Buyer may exercise a Call Option granted to it for all of the Option Shares held by the relevant Seller at any time during the Exercise Period.

26.4 Expiry of Call Options

The Call Options granted to the Buyer under clause 26.1 automatically expire at the end of the Exercise Period.

27. Exercise notice

27.1 Acquisition under Shareholders’ Agreement

The Put Options granted under clause 25.1 and the Call Options granted to the Buyer under clause 26.1 do not apply to any Shares that have been or are able to be acquired by the relevant party under the Shareholders’ Agreement.

27.2 Issuance of Exercise Notice

(a) The party exercising an Option may do so only by giving the Company and the other shareholders of the Company a written notice (an Exercise Notice) within the Exercise Period, stating:

(i) the date on which the Exercise Notice is given;

(ii) that such party is exercising its Option;

61

(iii) the date that is 20 Business Days after the date of receipt by the relevant party of the Exercise Notice (Preferred Completion Date) on which completion of the sale and purchase of the Option Shares is to take place (Option Shares Completion), which the parties acknowledge may be automatically postponed to a later date in accordance with clause 27.2(b);

(iv) the number of Option Shares in respect of which the Option is exercised (being all the Option Shares held by each relevant Shareholder); and

(v) where the Exercise Notice is exercised by a Seller, the relevant bank account details of the account into which the Seller would like to receive payment of the relevant Option Shares Purchase Price.

(b) The parties agree that the Company may alter the Preferred Completion Date specified in any Exercise Notice to align Option Shares Completion with the transfer date of other Option Shares by providing written notice of such alteration to the party which issued the Exercise Notice no later than 5 Business Days prior to that party’s Preferred Completion Date, provided that any new date must not be more than one month following the date of the Preferred Completion Date;

(c) A Put Option or a Call Option, as applicable, will be deemed to be exercised upon the receipt by any other party of a valid Exercise Notice issued by the relevant party in accordance with the terms of this Agreement.

27.3 Withdrawal of Exercise Notice

An Exercise Notice, once given, may not be withdrawn except with the written consent of:

(a) where the Exercise Notice is issued by a Seller, the Buyer; or

(b) where the Exercise Notice is issued by the Buyer, the relevant Seller(s) whose Option Shares are to be transferred pursuant to such Exercise Notice.

28.Purchase Price for Option Shares

28.1 Purchase Price

If an Option is exercised, the purchase price for the Option Shares in respect of which the Option is exercised (Option Shares Purchase Price) will be an amount equal to: ((A / B) x C)

Where:

A = ([**] x CY16 EBITDA) less Financial Debt of the Group plus Cash as at 31 December 2016

B = The total number of shares in the capital of the Company on a fully diluted basis (excluding any Buyer Shares). For these purposes there will be deemed to be an additional 8,610 Shares on issue.

C =    the number of Option Shares in respect of which the Options are exercised

62

28.2 Calculation of CY16 EBITDA

The Buyer will prepare (or procure the preparation of) the Calendar Year End Statement in accordance with the Accounting Principles and deliver a copy, together with a calculation of CY16 EBITDA and all relevant working papers, to the Sellers’ Representative by no later than the Accounts Adoption Date.

28.3 Confirmation by the Sellers

(a) The Sellers’ Representative must notify the Buyer within 10 Business Days of receipt from the Buyer of the documents specified in clause 28.2 as to whether the Sellers’ Representative agrees with the Buyer’s calculation of the CY16 EBITDA.

(b) If the Sellers’ Representative agrees with the Buyer’s calculation of the CY16 EBITDA, the Option Shares Purchase Price will be determined using that agreed CY16 EBITDA.

(c) If the Sellers’ Representative does not agree with the Buyer’s calculation of the CY16 EBITDA (Disputed CY16 EBITDA Calculation), the Sellers’ Representative must notify the Buyer of its disagreement in writing prior to the end of the 10 Business Day period under clause 28.3(a) and the procedures in clause 21 apply.

(d) If the Sellers’ Representative fails to notify the Buyer of its agreement or disagreement prior to the end of the 10 Business Day period referred to under clause 28.3(a), the Sellers are deemed to agree to the Buyer’s calculation of CY16 EBITDA.

28.4 Expert

The Sellers’ Representative and the Buyer must use reasonable endeavours to agree on the Disputed CY16 EBITDA Calculation within 10 Business Days of the Buyer receiving notice under clause 28.3(a). If the Sellers’ Representative and the Buyer cannot agree on the Disputed CY16 EBITDA Calculation within that period, the Buyer or the Sellers’ Representative may direct the Expert to prepare a report in accordance with clause 21.

29. ESOP Options

29.1 Cancellation at Completion

(a) The New Trustee agrees to cancel 30% of the allocated ESOP Options on the Completion Date for the Initial ESOP Option Termination Amount. The terms of such cancellation will be documented in the ESOP Option Cancellation Deeds.

(b) The New Trustee must cancel or procure the cancellation of all unallocated ESOP Options prior to Completion.

29.2 Right to cancel following Completion

(a) The New Trustee grants the Company a right to cancel a further 15% of the allocated ESOP Options on the Deferred Payment Date for the Interim ESOP Option Termination Amount.

63

(b) The Company grants the New Trustee a right to require cancellation of the options specified in clause 29.2(a) on the Deferred Payment Date for the Interim ESOP Option Termination Amount.

(c) The New Trustee grants the Company a right to cancel the remaining 55% of the allocated ESOP Options on the Final ESOP Option Termination Date for the Final ESOP Option Termination Amount.

(d) The Company grants the New Trustee a right to require cancellation of the options specified in clause 29.2(c) on the Final ESOP Option Termination Date for the Final ESOP Option Termination Amount.

29.3 Final ESOP Option Termination Amount

The Buyer must procure that the Company pays the Final ESOP Option Termination Amount to the New Trustee on the Final ESOP Option Termination Date.

30. Covenants

(a) The Restrained Persons employed by the Group during 2016 must ensure that from 1 January 2016 until Option Shares Completion, each Group Company manages and conducts the business of the Group in the ordinary course of the business consistent with past practice in the 12 month period ending on 31 December 2015.

(b) During the period referred to in clause 29(a), the Restrained Persons employed by the Group must ensure that each Group Company:

(i) does not defer, delay or postpone any commitments or expenditure that would be incurred in the ordinary course of business of the Group;

(ii) continues to market, advertise and promote the business of the Group and incur associated costs, consistent with past practice in the 12 month period ending on 31 December 2015; and

(iii) pays debts and any other Liabilities of the business of the Group as and when they become due and payable.

31.Completion arrangements

31.1 Completion

Completion with respect to the sale of the Option Shares pursuant to an Exercise Notice will take place at:

(a) the offices of K&L Gates, Level 31, 1 O’Connell Street, Sydney NSW 2000 at 2pm; or

(b) any other place or time agreed in writing between the Sellers’ Representative and the Buyer,

(c) but no later than 2pm on the Preferred Completion Date specified in the Exercise Notice (or such later date in accordance with clauses 27.2(a)(iii) or 27.2(b)).

64

31.2 Completion deliverables

(a) On Option Shares Completion:

(i) the relevant Seller must:

(A) transfer or procure the transfer to the Buyer of the Option Shares in respect of which the Option is exercised;

(B) deliver to the Buyer all relevant original share certificates and a signed transfer form transferring the Option Shares to the Buyer, for the Option Shares in respect of which the Option is exercised; and

(C) deliver to the Buyer duly executed releases and discharges of all Encumbrances and any other Third party interests registered against the relevant Option Shares in respect of which the Option is exercised, including any necessary financing statement discharge forms, each being in form and substance reasonably acceptable to the Buyer; and

(ii) the Buyer will pay or procure the payment of the Option Shares Purchase Price to the Seller to such bank account as the Seller will notify to the Buyer in advance.

(b) The obligations of the Seller and the Buyer under this clause 31.2 are interdependent. Option Shares Completion is conditional on, and will not be taken to have occurred until, both the Seller and the Buyer have complied with all of their respective obligations under this clause 31.2.

32. Warranties

(a) Each Seller represents and warrants to the Buyer, where an Option has been exercised, on the Option Shares Completion Date of such Option exercise that:

(i) Capacity: it has the capacity to unconditionally execute, deliver and perform its obligations under this Agreement;

(ii) Binding obligations: this Agreement constitutes valid and legally binding obligations of the party and is enforceable against it in accordance with its terms;

(iii) Action: it has taken all necessary action to authorise entry into and performance of this Agreement;

(iv) Sale: the Seller has the right to sell its Option Shares or cause the Option Shares to be sold;

(v) Title: the Option Shares will be sold with full and clear title free from any Encumbrance together with all rights attaching at the Exercise Date;

(vi) Owner: the Seller is the legal and (except in the case of the Trustees) beneficial owner of their Option Shares, subject only to the Options and they have full power and authority to grant an option in respect of the Option Shares upon the terms of this Agreement.

65

(b) Each of the Trustees represents and warrants to the Buyer, where an Option has been exercised, on the Option Shares Completion Date of such Option exercise that:

(i) Trustee: it is the sole trustee of the relevant Trust and no action has been taken to remove or replace it;

(ii) Power: it has the power under the relevant Trust Deed to:

(A) execute and deliver this Agreement; and

(B) perform its obligations under this Agreement;

(iii) Action: all actions required by the relevant Trust Deed to authorise:

(A) the Trustee’s execution and delivery of this Agreement; and

(B) the performance of the Trustee’s obligations under this Agreement,

(C) have been taken;

(iv) No contraventions: the execution by the Trustee of this Agreement and the performance by it of its obligations or the exercise of its rights under this Agreement does not contravene the relevant Trust Deed;

(v) Benefit: the Trustee has entered into this Agreement for the benefit of the beneficiaries of the relevant Trust; and

(vi) Indemnity: the Trustee has a right to be fully indemnified out of the relevant Trust fund in respect of its obligations under this Agreement.

(c) The Buyer represents and warrants to the Sellers on the Option Shares Completion Date of each Option exercise that:

(i) Capacity: it has capacity to unconditionally execute, deliver and perform its obligations under this Agreement;

(ii) Binding obligations: this Agreement constitutes valid and legally binding obligations of the party and is enforceable against it in accordance with its terms; and

(iii) Action: it has taken all necessary action to authorise the entry into and performance of this Agreement.

33. GST

33.1 Definitions

In this clause 33: 

(a) the expressions Consideration, GST, Input Tax Credit, Recipient, Supply, Tax Invoice and Taxable Supply have the meanings given to those expressions in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and

66

(b) Supplier means any party treated by the GST Act as making a Supply under this Agreement.

33.2 Consideration is GST exclusive

Unless otherwise expressly stated, all prices or other sums payable or Consideration to be provided under or in accordance with this Agreement are exclusive of GST.

33.3 Payment of GST

(a) If GST is imposed on any Supply made under or in accordance with this Agreement, the Recipient of the Taxable Supply must pay to the Supplier an additional amount equal to the GST payable on or for the Taxable Supply, subject to the Recipient receiving a valid Tax Invoice in respect of the Supply at or before the time of payment.

(b) Payment of the additional amount must be made at the same time as payment for the Taxable Supply is required to be made in accordance with this Agreement.

33.4 Reimbursement of expenses

If this Agreement requires a party (the First Party) to pay for, reimburse, set off or contribute to any expense, loss or outgoing (Reimbursable Expense) suffered or incurred by the other party (the Other Party), the amount required to be paid, reimbursed, set off or contributed by the First Party will be the sum of:

(a) the amount of the Reimbursable Expense net of Input Tax Credits (if any) to which the Other Party is entitled in respect of the Reimbursable Expense (Net Amount); and

(b) if the Other Party’s recovery from the First Party is a Taxable Supply, any GST payable in respect of that Supply,

such that after the Other Party meets the GST liability, it retains the Net Amount.

34.General

34.1 Nature of obligations

(a) Each obligation imposed on a party by this Agreement in favour of another is a separate obligation.

34.2 Entire understanding

(a) This Agreement and any other document expressly referred to in this Agreement contain the entire understanding between the parties concerning the subject matter of the Agreement and supersedes, terminates and replaces all prior agreements and communications between the parties.

(b) Each party acknowledges that, except as expressly stated in this Agreement, that party has not relied on any representation, warranty or undertaking of any kind made by or on behalf of another party in relation to the subject matter of this Agreement.

67

34.3 Survival of obligations

(a) Despite any other provision of this Agreement, any indemnity or obligation of confidence under this Agreement survives Completion or the termination of this Agreement, however arising, including (without limitation) clauses 1 (Definitions and interpretation), 10 (Sellers’ Warranties), 12 (Tax Indemnity), 13 (Warranty and Indemnity Insurance Policy), 14 (Buyer’s Warranties), 17 (Public announcements), 18 (Confidentiality), 19 (Restrictive covenant), 20 (Non solicitation), 23 (Specific indemnities), 24 (Guarantee and indemnity) and 34 (General).

(b) On termination under clause 3.4, no party has any obligation or liability to any other party, except in connection with claims that arose before termination.

34.4 No adverse construction

This Agreement, and any provision of this Agreement, is not to be construed to the disadvantage of a party because that party was responsible for its preparation.

34.5 Further assurances

A party, at its own expense (unless otherwise provided in this Agreement) and within a reasonable time of being requested by another party to do so, must do all things and execute all documents that are reasonably necessary to give full effect to this Agreement.

34.6 No waiver

(a) A failure, delay, relaxation or indulgence by a party in exercising any power or right conferred on the party by this Agreement does not operate as a waiver of the power or right.

(b) A single or partial exercise of the power or right does not preclude a further exercise of it or the exercise of any other power or right under this Agreement.

(c) A waiver of a breach does not operate as a waiver of any other breach.

34.7 Severability

Any provision of this Agreement which is invalid in any jurisdiction must in relation to that jurisdiction:

(a) be read down to the minimum extent necessary to achieve its validity, if applicable; and

(b) be severed from this Agreement in any other case,

without invalidating or affecting the remaining provisions of this Agreement or the validity of that provision in any other jurisdiction.

34.8 Successors and assigns

This Agreement binds and benefits the parties and their respective successors and permitted assigns under clause 34.9.

68

34.9 No assignment

(a) Subject to 34.9(b), a party cannot assign or otherwise transfer the benefit of this Agreement or any right under it (including the Options) without the prior written consent of each of the Buyer and the Sellers’ Representative.

(b) The Buyer may, if required by the Insurer, assign any right under this Agreement to the Insurer only to the extent permitted in clause 13. The Buyer may grant a security interest over its rights under this Agreement in favour of its financiers, provided that the Buyer does not grant any security over its Shares for so long as any Shares are held by a Seller.

34.10 Consents and approvals

Where anything depends on the consent or approval of a party then, unless this Agreement provides otherwise, that consent or approval may be given conditionally or unconditionally or withheld, in the absolute discretion of that party.

34.11 No variation

This Agreement cannot be amended or varied except in writing signed by the parties.

34.12 Costs

Each party must pay its own legal costs of and incidental to the preparation and completion of this Agreement.

34.13 Duty

(a) Any duty (including related interest or penalties) payable in respect of this Agreement or in connection with the sale of the Shares must be paid by the Buyer.

(b) The Buyer undertakes to keep the Sellers indemnified against all liability relating to such duty, fines and penalties.

34.14 Governing law and jurisdiction

(a) This Agreement is governed by and must be construed in accordance with the Law of New South Wales, Australia.

(b) The parties submit to the exclusive jurisdiction of the courts of that State and the Commonwealth of Australia in respect of all matters arising out of or relating to this Agreement, its performance or subject matter.

34.15 Specific performance

The parties acknowledge that monetary damages may be inadequate compensation for breach of this Agreement and the party not in breach may be entitled to specific performance of this Agreement, or an injunction or similar remedy with respect to any conduct or threatened conduct which is or would be a breach of this Agreement, in addition to any other remedies available at Law.

34.16 Notices

Any notice or other communication to or by a party under this Agreement:

69

(a) may be given by personal service, first class or airmail post with return receipt requested or facsimile;

(b) must be in writing, legible and in English addressed (depending on the manner in which it is given) as shown below:

(i) If to the Sellers (including Optionholders) or (before Completion) the Company:

Address:    67 Portland Street, Dover Heights NSW 2030

Attention:     Mr Robert Gavshon, Sellers’ Representative

Facsimile:     (02) 9433 3666

(ii) If to the Buyer or (after Completion) the Company:

Address:    4025 S. Riverpoint Parkway, Phoenix, Arizona 85040, United States of America

Attention:     General Counsel

Facsimile:     602.366.2943

(iii) If to the Guarantor:

Address:    4025 S. Riverpoint Parkway, Phoenix, Arizona 85040, United States of America

Attention:    General Counsel

Facsimile:    602.366.2943

(iv) If to a Restrained Person:

See Schedule 12 for details.

or to any other address last notified by the party to the sender by notice given in accordance with this clause;

(c) must be signed:

(i) in the case of a corporation registered in Australia, by the appropriate office holders of that corporation under section 127 of the Corporations Act; or

(ii) in the case of a corporation registered outside of Australia, by a person duly authorised by the sender under the laws governing the place of registration of that corporation; and

(d) is deemed to be given by the sender and received by the addressee:

(i) if delivered in person, when delivered to the addressee;

70

(ii) if posted by first class or airmail post with return receipt requested, at 9.00 am on the fifth Business Day after the date of posting to the addressee, whether delivered or not;

(iii) if sent by facsimile transmission, on the date and time shown on the transmission report by the machine from which the facsimile was sent which indicates that the facsimile was sent in its entirety and in legible form to the facsimile number of the addressee notified for the purposes of this clause,

but if the delivery or receipt is on a day which is not a Business Day or is after 4.00 pm (addressee’s time), it is deemed to have been received at 9.00 am on the next Business Day.

34.17 Counterparts

If this Agreement consists of a number of signed counterparts, each is an original and all of the counterparts together constitute the same document.

34.18 Execution and delivery

(a) By executing this Agreement, a party intends:

(i) to be immediately bound by this Agreement; and

(ii) for such execution to constitute delivery of this Agreement to each other party.

(b) Nothing in this clause 34.18 should be taken to exclude any statutory or common law principle applicable to the proper execution and delivery of a deed.

(c) This clause 34.18 supersedes, terminates and replaces any prior agreements and communications between the parties which indicate that the agreements recorded in this Agreement are “subject to contract” or similar arrangements.

34.19 Conflicting provisions

If there is any conflict between the main body of this Agreement and any schedules or annexures comprising it, then the provisions of the main body of this Agreement prevail.

34.20 No merger

A term or condition of, or act done in connection with, this Agreement or Completion does not operate as a merger of any of the undertakings, warranties and indemnities in this Agreement or the rights or remedies of the parties under this Agreement which continue unchanged.

34.21 Operation of indemnities

Unless this Agreement expressly provides otherwise:

(a) each indemnity in this Agreement survives the expiry or termination of this Agreement; and

71

(b) a party may recover a payment under an indemnity in this Agreement before it makes the payment in respect of which the indemnity is given.

34.22 Right of set-off

(a) Unless this Agreement expressly provides otherwise, a party has no right of set-off against a payment due to another party.

(b) The Buyer may set-off any amounts owing or payable by the Buyer to a Seller under this Agreement or any Transaction Document against any amount determined by an Expert in accordance with clause 21 as owing or payable by that Seller to the Buyer under this Agreement or any Transaction Document. If the Buyer wishes to set-off any such amount and the matter is under dispute in accordance with clause 21, the Buyer’s obligation to pay the amount to the relevant Seller will be suspended until that dispute has been resolved or determined by the Expert.

(c)    The Expert determination will occur in accordance with clause 21 except that:

(i) the Expert will be a senior counsel of the Sydney bar with 15 years experience agreed by the parties or, failing agreement within 5 Business Days, appointed by the President of the Law Society of New South Wales;

(ii) clauses 21.2(b) and 21.2(c) will not apply; and

(iii) clause 21.1(a) is deemed to include a reference to, “clause 34.22(b)(b)” after “4.8”.

34.23 Relationship of parties

Unless this Agreement expressly provides otherwise, nothing in this Agreement may be construed as creating a relationship of partnership, of principal and agent or of trustee and beneficiary.

Executed as a deed.

Executed by AJ & KE Bohm Pty Limited ACN 122 772 749 in its own capacity and in its capacity as trustee of the Bohm Family Trust in accordance with section 127(1) of the Corporations Act 2001 (Cth):
/s/ Anthony Bohm	/s/ Karen Bohm
Signature of director	Signature of director or company secretary*
	*delete whichever does not apply
Anthony Bohm	Karen Bohm
Name (please print)	Name (please print)

Executed by Deanmist Pty Limited ACN 102 735 437 in its own capacity and in its capacity as trustee of the Mendtron no2 Trust in accordance with section 127(1) of the Corporations Act 2001 (Cth):
/s/ Mark Rohald	/s/ Tessa Rohald
Signature of director	Signature of director or company secretary*
	*delete whichever does not apply
Mark Rohald	Tessa Rohald
Name (please print)	Name (please print)

Executed by Dufus Pty Ltd ACN 002 611 529 in its own capacity and in its capacity as trustee of the Linz Superannuation Fund in accordance with section 127(1) of the Corporations Act 2001 (Cth):
/s/ Sam Linz	/s/ Barbara Linz
Signature of director	Signature of director or company secretary*
	*delete whichever does not apply
Sam Linz	Barbara Linz
Name (please print)	Name (please print)

Signed Sealed and Delivered by Gregory Martyn Fordred in the presence of:
/s Russell Lyons	/s/ Gregory Fordred
Signature of witness	Signature
Russell Lyons
Name of witness (please print)
K&L Gates Solicitor
Level 31, 1 O’Connell St Sydney NSW 2000
Address of witness (please print)

Executed by Sarwill Pty Ltd ACN 002 412 795 in its own capacity and in its capacity as trustee of the Gavshon Family Superannuation Fund in accordance with section 127(1) of the Corporations Act 2001 (Cth):
/s/ Jennifer Gavshon	/s/ Robert Gavshon
Signature of director	Signature of director or company secretary*
	*delete whichever does not apply
Jennifer Gavshon	Robert Gavshon
Name (please print)	Name (please print)

Executed by ACN 149 902 330 Pty Limited ACN 149 902 330 in accordance with section 127(1) of the Corporations Act 2001 (Cth):
/s/ Mark Rohald	/s/ Anthony Bohm
Signature of director	Signature of director or company secretary*
	*delete whichever does not apply
Mark Rohald	Anthony Bohm
Name (please print)	Name (please print)

Signed Sealed and Delivered by Mark Rohald in the presence of:
/s Russell Lyons	/s/ Mark Rohald
Signature of witness	Signature
Russell Lyons
Name of witness (please print)
K&L Gates Solicitor
Level 31, 1 O’Connell St Sydney NSW 2000
Address of witness (please print)

Signed Sealed and Delivered by Anthony Bohm in the presence of:
/s Russell Lyons	/s/Anthony Bohm
Signature of witness	Signature
Russell Lyons
Name of witness (please print)
K&L Gates Solicitor
Level 31, 1 O’Connell St Sydney NSW 2000
Address of witness (please print)

Signed Sealed and Delivered by Sam Linz in the presence of:
/s Russell Lyons	/s/ Sam Linz
Signature of witness	Signature
Russell Lyons
Name of witness (please print)
K&L Gates Solicitor
Level 31, 1 O’Connell St Sydney NSW 2000
Address of witness (please print)

Signed Sealed and Delivered by Robert Gavshon in the presence of:
/s Russell Lyons	/s/ Robert Gavshon
Signature of witness	Signature
Russell Lyons
Name of witness (please print)
K&L Gates Solicitor
Level 31, 1 O’Connell St Sydney NSW 2000
Address of witness (please print)

Investor

Executed by Apollo Global Asia-Pacific Pty Ltd ACN ACN 167 233 490 in accordance with section 127(1) of the Corporations Act 2001 (Cth):
/s/ David Sadler	/s/ Mehul Patel
Signature of director	Signature of director or company secretary*
	*delete whichever does not apply
David Sadler	Mehul Patel
Name (please print)	Name (please print)

Guarantor

APOLLO EDUCATION GROUP, INC.

By /s/ Brian L. Swartz

Name: Brian L. Swartz

Title: SVP & Chief Financial Officer

[The following Schedules and Annexures to this Agreement have not been filed herewith. The Company hereby undertakes to furnish supplementally a copy of any omitted Schedule or Annexure to the Commission upon request.

Schedules

Schedule 1 - Share Details

Schedule 2 - Corporate Details

Schedule 3 - Conditions Precedent

Schedule 4 - The Sellers’ Warranties

Schedule 5 - NAB Facilities and Permitted Encumbrances

Schedule 6 - EBITDA

Schedule 7 - WC Accounting Principles

Schedule 8 - Worked example: Working Capital Amount

Schedule 9 - Not used

Schedule 10 - Pre-Completion required acts

Schedule 11 - Authorisations

Schedule 12 - Restrained Persons

Schedule 13 - Employees

Schedule 14 - Owned Intellectual Property Rights

Schedule 15 - Not used

Schedule 16 - Letter and notice to ASQA

Annexures

Annexure 1 - The Accounts

Annexure 2 - The Management Accounts

Annexure 3 - Disclosure Material

Annexure 4 - Deed of Variation

Annexure 5 - ESOP Call Option Deed]

** Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Request.

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory W. Cappelli, certify that:

1. I have reviewed this Form 10-Q of Apollo Education Group, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 1, 2014

/s/ Gregory W. Cappelli  

Gregory W. Cappelli 

Chief Executive Officer and Director

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Brian L. Swartz, certify that:

1. I have reviewed this Form 10-Q of Apollo Education Group, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 1, 2014

/s/ Brian L. Swartz

Brian L. Swartz

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Apollo Education Group, Inc. (the “Company”) on Form 10-Q for the quarter ended February 28, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory W. Cappelli, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 1, 2014

/s/ Gregory W. Cappelli  

Gregory W. Cappelli 

Chief Executive Officer and Director

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Apollo Education Group, Inc. and will be retained by Apollo Education Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Apollo Education Group, Inc. (the “Company”) on Form 10-Q for the quarter ended February 28, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian L. Swartz, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 1, 2014

/s/ Brian L. Swartz  

Brian L. Swartz 

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to Apollo Education Group, Inc. and will be retained by Apollo Education Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Acquisitions (Details)	6 Months Ended			1 Months Ended		6 Months Ended			6 Months Ended		6 Months Ended		6 Months Ended		6 Months Ended		6 Months Ended
	Feb. 28, 2014 USD ($)	Feb. 28, 2013 USD ($)	Aug. 31, 2013 USD ($)	Dec. 31, 2013 Open Colleges [Member] USD ($)	Dec. 31, 2013 Open Colleges [Member] AUD	Feb. 28, 2014 Open Colleges [Member] USD ($)	Dec. 20, 2013 Open Colleges [Member] USD ($)	Dec. 20, 2013 Open Colleges [Member] AUD	Feb. 28, 2014 Open Colleges [Member] Course designations [Member]	Dec. 20, 2013 Open Colleges [Member] Course designations [Member] USD ($)	Feb. 28, 2014 Open Colleges [Member] Trademark [Member]	Dec. 20, 2013 Open Colleges [Member] Trademark [Member] USD ($)	Feb. 28, 2014 Open Colleges [Member] Course curriculum [Member]	Dec. 20, 2013 Open Colleges [Member] Course curriculum [Member] USD ($)	Feb. 28, 2014 Open Colleges [Member] Customer relationships [Member]	Dec. 20, 2013 Open Colleges [Member] Customer relationships [Member] USD ($)	Feb. 28, 2014 Open Colleges [Member] Accreditations [Member]	Dec. 20, 2013 Open Colleges [Member] Accreditations [Member] USD ($)
Business Acquisition [Line Items]
Percentage of shares acquired							70.00%	70.00%
Initial cash payment				$ 98,100,000	110,300,000
Contingent consideration maximum						47,200,000	46,500,000	52,500,000.0
Fair value of contingent consideration				(21,371,000)		(21,371,000)
Transaction costs							3,600,000
Net working capital deficit							(10,979,000)
Property and equipment							2,684,000
Finite-lived intangibles										20,652,000		17,919,000		15,790,000		5,238,000		976,000
Finite-lived intangible assets, useful life									5 years		10 years		4 years		1 year		4 years
Goodwill	233,037,000		103,620,000				127,656,000
Deferred taxes, net							(9,279,000)
Total assets acquired and liabilities assumed							170,657,000
Less: Fair value of redeemable noncontrolling interests							(51,197,000)
Total fair value of consideration transferred							119,460,000
Less: Cash acquired							(3,152,000)
Cash paid for acquisition, net of cash acquired	$ 94,937,000	$ 0				$ 94,937,000
Finite-lived intangibles weighted-average useful life				5 years 10 months 24 days	5 years 10 months 24 days

XML

Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	Feb. 28, 2014	Aug. 31, 2013
Commitments and Contingencies Disclosure [Abstract]
Outstanding surety bonds	$ 42.4
Letters of credit outstanding	$ 24	$ 14

XML

Shareholders' Equity and Redeemable Noncontrolling Interests (Details) (USD $)	3 Months Ended		6 Months Ended
	Feb. 28, 2014	Feb. 28, 2013	Feb. 28, 2014	Feb. 28, 2013
Share Repurchases [Line Items]
Treasury stock purchases, cost			$ 72,237,000	$ 3,881,000
Apollo Education Group Class A nonvoting common stock [Member]
Share Repurchases [Line Items]
Aggregate share repurchase program			250,000,000
Amount remaining on repurchase authorization			180,300,000
Treasury stock reissued, shares	110,000	118,000	391,000	524,000
Apollo Education Group Class A nonvoting common stock [Member] | Share Repurchases [Member]
Share Repurchases [Line Items]
Treasury stock purchases (in shares)	1,713,000	0	2,290,000	0
Treasury stock purchases, cost	54,684,000	0	69,684,000	0
Treasury stock purchases, average price per share	$ 31.93	$ 0	$ 30.44	$ 0
Apollo Education Group Class A nonvoting common stock [Member] | Repurchases Related To Restricted Stock Units [Member]
Share Repurchases [Line Items]
Treasury stock purchases (in shares)	25,000	20,000	113,000	159,000
Treasury stock purchases, cost	$ 682,000	$ 409,000	$ 2,553,000	$ 3,881,000

XML

Commitments and Contingencies (Details 2) (Securities Class Action (Apollo Institutional Investors Group) [Member])	1 Months Ended
	Oct. 31, 2010 Plaintiffs
Securities Class Action (Apollo Institutional Investors Group) [Member]
Loss Contingencies [Line Items]
Number of plaintiffs	3

XML

Debt (Details) (USD $)	3 Months Ended	6 Months Ended
	Nov. 30, 2013	Feb. 28, 2014	Aug. 31, 2013
Debt [Line Items]
Total debt		$ 74,423,000	$ 692,054,000
Less short-term borrowings and current portion of long-term debt		(30,781,000)	(628,050,000)
Long-term debt		43,642,000	64,004,000
Letters of credit outstanding		24,000,000	14,000,000
Bank Facility [Member]
Debt [Line Items]
Total debt		0	605,000,000
Borrowing capacity		625,000,000
Debt term		5 years
Debt repaid	605,000,000
Weighted average interest rate			3.50%
Bank Facility [Member] | Minimum [Member]
Debt [Line Items]
Fees		0.25%
Bank Facility [Member] | Minimum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt [Line Items]
Fees for borrowings		1.25%
Bank Facility [Member] | Maximum [Member]
Debt [Line Items]
Fees		0.40%
Bank Facility [Member] | Maximum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt [Line Items]
Fees for borrowings		1.85%
Capital Lease Obligations [Member]
Debt [Line Items]
Total debt		38,752,000	49,628,000
Other Debt [Member]
Debt [Line Items]
Total debt		$ 35,671,000	$ 37,426,000
Weighted average interest rate		5.80%	5.30%
Technology Purchase Obligation [Member]
Debt [Line Items]
Debt term		10 years

XML

Shareholders' Equity and Redeemable Noncontrolling Interests (Tables)

6 Months Ended

Feb. 28, 2014

Equity [Abstract]

Share repurchases

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)	2014		2013		2014		2013
Share repurchases under share repurchase program:
Number of shares repurchased	1,713		—		2,290		—
Weighted average purchase price per share	$	31.93	$	—	$	30.44	$	—
Cost of share repurchases	$	54,684	$	—	$	69,684	$	—
Share repurchases related to vesting of restricted stock units:
Number of shares repurchased	25		20		113		159
Cost of share repurchases	$	682	$	409	$	2,553	$	3,881

Share reissuances

Share reissuances were as follows for the respective periods:

	Three Months Ended February 28,		Six Months Ended February 28,
(In thousands)	2014	2013	2014	2013
Share reissuances	110	118	391	524

Change from net income attributable to Apollo and transfer to noncontrolling interest

The following details net income attributable to Apollo and transfers to noncontrolling interest during the respective periods:

	Six Months Ended February 28,
($ in thousands)	2014		2013
Net income attributable to Apollo	$	113,496	$	147,022
Transfer to noncontrolling interest:
Decrease in equity for purchase of noncontrolling interest in Apollo Global(1)	—		(48,543		)
Change from net income attributable to Apollo and transfer to noncontrolling interest	$	113,496	$	98,479

⁽¹⁾ Represents the difference between the fair value of the consideration paid to purchase the noncontrolling ownership interest in Apollo Global and the carrying amount of the noncontrolling interest acquired, and an adjustment to accumulated other comprehensive loss to reflect the change in Apollo’s proportionate interest.

XML

Segment Reporting (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Feb. 28, 2014	Feb. 28, 2013	Feb. 28, 2014 Segments2	Feb. 28, 2013	Aug. 31, 2013
Segment Reporting [Abstract]
Number of operating segments			7
Segment reporting [Line Items]
Net revenue	$ 679,058	$ 834,372	$ 1,535,393	$ 1,889,555
Operating income	7,130	29,780	176,924	260,726
Interest income	599	388	1,167	937
Interest expense	(1,983)	(2,092)	(4,069)	(4,134)
Other, net	107	(126)	914	1,673
Income before income taxes	5,853	27,950	174,936	259,202
Acquisition costs and contingent consideration charges	13,005	0	13,005	0
Litigation charge (credit), net	(9,000)	6,350	(9,000)	23,200
Total assets	2,531,430		2,531,430		2,997,947
University Of Phoenix [Member]
Segment reporting [Line Items]
Net revenue	594,081	753,566	1,338,944	1,689,350
Operating income	86,682	74,757	270,155	318,617
Total assets	874,980		874,980		790,537
Apollo Global [Member]
Segment reporting [Line Items]
Net revenue	68,634	56,965	159,793	147,479
Operating income	(40,004)	(25,921)	(37,787)	(35,287)
Acquisition costs and contingent consideration charges	13,005		13,005
Total assets	613,187		613,187		359,903
Other [Member]
Segment reporting [Line Items]
Net revenue	16,343	23,841	36,656	52,726
Operating income	(39,548)	(19,056)	(55,444)	(22,604)
Litigation charge (credit), net	(9,000)	5,000	(9,000)	21,900
Total assets	$ 1,043,263		$ 1,043,263		$ 1,847,507

XML

Restructuring and Other Charges (Tables)

6 Months Ended

Feb. 28, 2014

Restructuring and Related Activities [Abstract]

Restructuring and other charges

We have incurred restructuring and other charges associated with these activities beginning in fiscal year 2011 as summarized below:

	Three Months Ended February 28,				Six Months Ended February 28,				Cumulative Costs as of February 28, 2014
($ in thousands)	2014		2013		2014		2013
Lease and related costs, net	$	9,505	$	34,640	$	23,265	$	44,752	$	195,576
Severance and other employee separation costs	4,863		8,217		20,117		19,160		71,143
Other restructuring related costs	841		1,219		3,790		4,280		40,686
Restructuring and other charges	$	15,209	$	44,076	$	47,172	$	68,192	$	307,405

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

	Three Months Ended February 28,				Six Months Ended February 28,				Cumulative Costs as of February 28, 2014
($ in thousands)	2014		2013		2014		2013
University of Phoenix	$	11,229	$	38,445	$	36,655	$	55,341	$	238,327
Apollo Global	304		3,336		1,567		3,415		13,332
Other	3,676		2,295		8,950		9,436		55,746
Restructuring and other charges	$	15,209	$	44,076	$	47,172	$	68,192	$	307,405

The following details the changes in our restructuring liabilities by type of cost during the six months ended February 28, 2014:

($ in thousands)	Lease and Related Costs, Net			Severance and Other Employee Separation Costs			Other Restructuring Related Costs			Total
Balance at August 31, 2013(1)	$	104,048		$	7,623		$	8,130		$	119,801
Restructuring and other charges	23,265			20,117			3,790			47,172
Non-cash adjustments(2)	(1,811		)	(2,326		)	—			(4,137		)
Payments	(27,082		)	(16,437		)	(4,015		)	(47,534		)
Balance at February 28, 2014(1)	$	98,420		$	8,977		$	7,905		$	115,302

⁽¹⁾ The current portion of our restructuring liabilities was $56.7 million and $55.2 million as of February 28, 2014 and August 31, 2013, respectively. These balances are included in accrued and other current liabilities on our Condensed Consolidated Balance Sheets and the long-term portion is included in other long-term liabilities. The gross, undiscounted obligation associated with our restructuring liabilities as of February 28, 2014 is approximately $175 million, which principally represents non-cancelable leases that will be paid over the respective lease terms through fiscal year 2023.

⁽²⁾ Non-cash adjustments for lease and related costs, net represents $4.3 million of accelerated depreciation, partially offset by the release of certain associated liabilities such as deferred rent. Non-cash adjustments for severance and other employee separation costs represents share-based compensation.

XML

Shareholders' Equity and Redeemable Noncontrolling Interests (Details 3) (Open Colleges [Member])	Dec. 20, 2013
Open Colleges [Member]
Business Acquisition [Line Items]
Percentage of shares acquired	70.00%

XML

Goodwill and Intangibles (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Feb. 28, 2014
Goodwill [Line Items]
Goodwill beginning balance	$ 103,620
Open Colleges acquisition	127,656
Currency translation adjustment	1,761
Goodwill ending balance	233,037
Future intangible amortization [Abstract]
Remainder of fiscal year 2014	12,969
2015	22,054
2016	18,968
2017	10,538
2018	7,411
2019	3,207
Thereafter	7,871
Total estimated amortization expense	83,018
University Of Phoenix [Member]
Goodwill [Line Items]
Goodwill beginning balance	71,812
Open Colleges acquisition	0
Currency translation adjustment	0
Goodwill ending balance	71,812
Apollo Global [Member]
Goodwill [Line Items]
Goodwill beginning balance	14,917
Open Colleges acquisition	127,656
Currency translation adjustment	1,761
Goodwill ending balance	144,334
Other [Member]
Goodwill [Line Items]
Goodwill beginning balance	16,891
Open Colleges acquisition	0
Currency translation adjustment	0
Goodwill ending balance	$ 16,891

XML

Nature of Operations (Details) (Open Colleges [Member])	Dec. 20, 2013
Open Colleges [Member]
Business Acquisition [Line Items]
Percentage of shares acquired	70.00%

XML

Share-Based Compensation (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Feb. 28, 2014	Feb. 28, 2013	Feb. 28, 2014	Feb. 28, 2013
Share-based compensation expense [Line Items]
Share-based compensation expense	$ 10,537	$ 10,626	$ 22,510	$ 27,515
Instructional and student advisory [Member]
Share-based compensation expense [Line Items]
Share-based compensation expense	3,280	5,614	6,813	13,202
Marketing [Member]
Share-based compensation expense [Line Items]
Share-based compensation expense	937	1,054	2,045	3,097
Admissions advisory [Member]
Share-based compensation expense [Line Items]
Share-based compensation expense	212	196	314	366
General and administrative [Member]
Share-based compensation expense [Line Items]
Share-based compensation expense	5,644	3,399	11,012	9,422
Restructuring and other charges [Member]
Share-based compensation expense [Line Items]
Share-based compensation expense	$ 464	$ 363	$ 2,326	$ 1,428

XML

Income Taxes (Details) (USD $)	3 Months Ended		6 Months Ended
	Feb. 28, 2014	Feb. 28, 2013	Feb. 28, 2014	Feb. 28, 2013
Income Tax Examination [Line Items]
Income tax benefit	$ 6,324,000	$ (14,291,000)	$ (63,718,000)	$ (111,803,000)
Reduction in unrecognized tax benefits			16,500,000
Internal Revenue Service (IRS) [Member]
Income Tax Examination [Line Items]
Income tax benefit	10,200,000
Foreign Tax Authority [Member]
Income Tax Examination [Line Items]
Income tax benefit	$ 2,800,000

XML

Restructuring and Other Charges

6 Months Ended

Feb. 28, 2014

Restructuring and Related Activities [Abstract]

Restructuring and Other Charges

Restructuring and Other Charges

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

	Three Months Ended February 28,				Six Months Ended February 28,				Cumulative Costs as of February 28, 2014
($ in thousands)	2014		2013		2014		2013
Lease and related costs, net	$	9,505	$	34,640	$	23,265	$	44,752	$	195,576
Severance and other employee separation costs	4,863		8,217		20,117		19,160		71,143
Other restructuring related costs	841		1,219		3,790		4,280		40,686
Restructuring and other charges	$	15,209	$	44,076	$	47,172	$	68,192	$	307,405

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

	Three Months Ended February 28,				Six Months Ended February 28,				Cumulative Costs as of February 28, 2014
($ in thousands)	2014		2013		2014		2013
University of Phoenix	$	11,229	$	38,445	$	36,655	$	55,341	$	238,327
Apollo Global	304		3,336		1,567		3,415		13,332
Other	3,676		2,295		8,950		9,436		55,746
Restructuring and other charges	$	15,209	$	44,076	$	47,172	$	68,192	$	307,405

The following details the changes in our restructuring liabilities by type of cost during the six months ended February 28, 2014:

($ in thousands)	Lease and Related Costs, Net			Severance and Other Employee Separation Costs			Other Restructuring Related Costs			Total
Balance at August 31, 2013(1)	$	104,048		$	7,623		$	8,130		$	119,801
Restructuring and other charges	23,265			20,117			3,790			47,172
Non-cash adjustments(2)	(1,811		)	(2,326		)	—			(4,137		)
Payments	(27,082		)	(16,437		)	(4,015		)	(47,534		)
Balance at February 28, 2014(1)	$	98,420		$	8,977		$	7,905		$	115,302

⁽¹⁾ The current portion of our restructuring liabilities was $56.7 million and $55.2 million as of February 28, 2014 and August 31, 2013, respectively. These balances are included in accrued and other current liabilities on our Condensed Consolidated Balance Sheets and the long-term portion is included in other long-term liabilities. The gross, undiscounted obligation associated with our restructuring liabilities as of February 28, 2014 is approximately $175 million, which principally represents non-cancelable leases that will be paid over the respective lease terms through fiscal year 2023.

⁽²⁾ Non-cash adjustments for lease and related costs, net represents $4.3 million of accelerated depreciation, partially offset by the release of certain associated liabilities such as deferred rent. Non-cash adjustments for severance and other employee separation costs represents share-based compensation.

• Lease and Related Costs, Net - Beginning in fiscal year 2011, University of Phoenix began rationalizing its administrative real estate facilities. In addition to continuing to rationalize its administrative facilities, University of Phoenix began implementing a plan during fiscal year 2013 to close 115 of its ground locations. As of February 28, 2014, University of Phoenix has closed approximately three-fourths of the locations included in these plans, which represents approximately 90% of the total square feet we are exiting. The remaining closures will continue through fiscal year 2014 and beyond as University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations. We have recorded $140.6 million of initial aggregate charges, representing the estimated fair value of future contractual operating lease obligations, which were recorded in the periods we ceased using the respective facilities, $17.0 million of which was recorded in the six months ended February 28, 2014. The other lease and related costs in the six months ended February 28, 2014 consist of accelerated depreciation, as discussed below, and interest accretion on the lease obligations.

We measure lease obligations at fair value using a discounted cash flow approach encompassing significant unobservable inputs (Level 3). The significant unobservable inputs principally include estimated future cash flows and discount rates, which have ranged between 3%-6% for our lease obligations. The estimation of future cash flows includes non-cancelable contractual lease costs over the remaining terms of the leases, partially offset by estimated future sublease rental income, which involves significant judgment. Our estimate of the amount and timing of sublease rental income considers subleases that we have executed and subleases we expect to execute, current commercial real estate market data and conditions, comparable transaction data and qualitative factors specific to the facilities. The estimates will be subject to adjustment as market conditions change or as new information becomes available, including the execution of additional sublease agreements. As of February 28, 2014, we have recorded adjustments to our initial lease obligation liabilities for interest accretion and immaterial adjustments for changes in estimated sublease income.

Lease and related costs, net includes $4.3 million of accelerated depreciation in the six months ended February 28, 2014 associated with revising the useful lives of the fixed assets at the facilities we are closing through their expected closure dates. Prior to revising the useful lives, we perform a recoverability analysis for the facilities’ fixed assets by comparing the estimated undiscounted cash flows of the locations through their expected closure dates to the carrying amount of the locations’ fixed assets. Based on such analyses, we recorded immaterial impairment charges during fiscal year 2013 and no impairment charges in the six months ended February 28, 2014.

• Severance and Other Employee Separation Costs - Beginning in fiscal year 2011 and continuing into fiscal year 2014, we have implemented workforce reductions as we reengineer our business processes and refine our educational delivery systems. We incurred severance and other employee separation costs of $20.1 million in the six months ended February 28, 2014. These costs are included in the reportable segments in which the respective personnel were employed.

Excluding interest accretion associated with our lease obligation liabilities, we expect to incur approximately $10 million of future restructuring charges for the initiatives announced to date. These costs will generally be incurred over the period of time University of Phoenix obtains the necessary regulatory approvals and completes its teach-out obligations associated with campuses that have not yet been closed.

XML

Goodwill and Intangibles (Details 2) (USD $) In Thousands, unless otherwise specified	Feb. 28, 2014	Aug. 31, 2013
Intangible Assets [Line Items]
Gross carrying amount	$ 241,877	$ 183,302
Accumulated amortization	(49,626)	(43,106)
Effect of foreign currency translation gain (loss)	(908)	(8,004)
Intangible assets, net	191,343	132,192
Finite-lived intangible assets [Member]
Intangible Assets [Line Items]
Gross carrying amount	133,881	75,306
Accumulated amortization	(49,626)	(43,106)
Effect of foreign currency translation gain (loss)	(1,237)	(2,140)
Intangible assets, net	83,018	30,060
Finite-lived intangible assets [Member] | Software and technology [Member]
Intangible Assets [Line Items]
Gross carrying amount	42,389	42,389
Accumulated amortization	(20,912)	(16,673)
Effect of foreign currency translation gain (loss)	0	0
Intangible assets, net	21,477	25,716
Finite-lived intangible assets [Member] | Accreditations and designations [Member]
Intangible Assets [Line Items]
Gross carrying amount	21,628	0
Accumulated amortization	(733)	0
Effect of foreign currency translation gain (loss)	288	0
Intangible assets, net	21,183	0
Finite-lived intangible assets [Member] | Trademarks [Member]
Intangible Assets [Line Items]
Gross carrying amount	17,919	0
Accumulated amortization	(300)	0
Effect of foreign currency translation gain (loss)	242	0
Intangible assets, net	17,861	0
Finite-lived intangible assets [Member] | Curriculum [Member]
Intangible Assets [Line Items]
Gross carrying amount	15,790	0
Accumulated amortization	(661)	0
Effect of foreign currency translation gain (loss)	210	0
Intangible assets, net	15,339	0
Finite-lived intangible assets [Member] | Student and customer relationships [Member]
Intangible Assets [Line Items]
Gross carrying amount	15,264	12,026
Accumulated amortization	(7,612)	(7,727)
Effect of foreign currency translation gain (loss)	(1,282)	(1,363)
Intangible assets, net	6,370	2,936
Finite-lived intangible assets [Member] | Other finite-lived intangibles [Member]
Intangible Assets [Line Items]
Gross carrying amount	20,891	20,891
Accumulated amortization	(19,408)	(18,706)
Effect of foreign currency translation gain (loss)	(695)	(777)
Intangible assets, net	788	1,408
Indefinite-lived intangible assets [Member]
Intangible Assets [Line Items]
Gross carrying amount	107,996	107,996
Accumulated amortization	0	0
Effect of foreign currency translation gain (loss)	329	(5,864)
Intangible assets, net	108,325	102,132
Indefinite-lived intangible assets [Member] | Accreditations and designations [Member]
Intangible Assets [Line Items]
Gross carrying amount	7,260	7,260
Accumulated amortization	0	0
Effect of foreign currency translation gain (loss)	(197)	(517)
Intangible assets, net	7,063	6,743
Indefinite-lived intangible assets [Member] | Trademarks [Member]
Intangible Assets [Line Items]
Gross carrying amount	100,736	100,736
Accumulated amortization	0	0
Effect of foreign currency translation gain (loss)	526	(5,347)
Intangible assets, net	$ 101,262	$ 95,389

XML

Goodwill and Intangibles (Tables)

6 Months Ended

Feb. 28, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in goodwill

The following details changes in the carrying amount of our goodwill by reportable segment during the six months ended February 28, 2014:

($ in thousands)	University of Phoenix		Apollo Global		Other		Total
Goodwill as of August 31, 2013	$	71,812	$	14,917	$	16,891	$	103,620
Open Colleges acquisition	—		127,656		—		127,656
Currency translation adjustment	—		1,761		—		1,761
Goodwill as of February 28, 2014	$	71,812	$	144,334	$	16,891	$	233,037

Intangible assets

Intangible assets consist of the following as of the respective periods:

	February 28, 2014										August 31, 2013
($ in thousands)	Gross Carrying Amount		Accumulated Amortization			Effect of Foreign Currency Translation Gain (Loss)			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Effect of Foreign Currency Translation Loss			Net Carrying Amount
Software and technology	$	42,389	$	(20,912	)	$	—		$	21,477	$	42,389	$	(16,673	)	$	—		$	25,716
Accreditations and designations(1)	21,628		(733		)	288			21,183		—		—			—			—
Trademarks(1)	17,919		(300		)	242			17,861		—		—			—			—
Curriculum(1)	15,790		(661		)	210			15,339		—		—			—			—
Student and customer relationships(1)	15,264		(7,612		)	(1,282		)	6,370		12,026		(7,727		)	(1,363		)	2,936
Other	20,891		(19,408		)	(695		)	788		20,891		(18,706		)	(777		)	1,408
Total finite-lived intangibles	133,881		(49,626		)	(1,237		)	83,018		75,306		(43,106		)	(2,140		)	30,060
Trademarks	100,736		—			526			101,262		100,736		—			(5,347		)	95,389
Accreditations and designations	7,260		—			(197		)	7,063		7,260		—			(517		)	6,743
Total indefinite-lived intangibles	107,996		—			329			108,325		107,996		—			(5,864		)	102,132
Total intangible assets, net	$	241,877	$	(49,626	)	$	(908	)	$	191,343	$	183,302	$	(43,106	)	$	(8,004	)	$	132,192

⁽¹⁾ We acquired certain intangibles during the second quarter of fiscal year 2014 as a result of our acquisition of Open Colleges. Refer to Note 4, Acquisitions.

Future intangibles amortization

As of February 28, 2014, the estimated future amortization expense of our finite-lived intangibles is as follows:

($ in thousands)
Remainder of fiscal year 2014	$	12,969
2015	22,054
2016	18,968
2017	10,538
2018	7,411
2019	3,207
Thereafter	7,871
Total estimated future amortization expense(1)	$	83,018

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

XML

Accounts Receivable, Net (Tables)

6 Months Ended

Feb. 28, 2014

Receivables [Abstract]

Accounts receivable, net

Accounts receivable, net consist of the following as of the respective periods:

($ in thousands)	February 28, 2014			August 31, 2013
Student accounts receivable	$	236,571		$	243,660
Less allowance for doubtful accounts	(53,038		)	(59,744		)
Net student accounts receivable	183,533			183,916
Other receivables	15,569			31,485
Total accounts receivable, net	$	199,102		$	215,401

Allowance for doubtful accounts

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)	2014			2013			2014			2013
Beginning allowance for doubtful accounts	$	55,895		$	101,793		$	59,744		$	107,230
Provision for uncollectible accounts receivable	11,534			18,902			25,512			52,308
Write-offs, net of recoveries	(14,391		)	(35,922		)	(32,218		)	(74,765		)
Ending allowance for doubtful accounts	$	53,038		$	84,773		$	53,038		$	84,773

XML

Regulatory Matters (Details)	6 Months Ended		6 Months Ended				12 Months Ended	6 Months Ended	12 Months Ended
	Feb. 28, 2014 Three Year Measuring Period [Member]	Feb. 28, 2014 Maximum [Member]	Feb. 28, 2014 Maximum [Member] Three Year Measuring Period [Member] Title IV Ineligibility [Member] Three Consecutive Cohorts [Member]	Feb. 28, 2014 Maximum [Member] Three Year Measuring Period [Member] Title IV Ineligibility [Member] One Cohort [Member]	Feb. 28, 2014 Maximum [Member] Proposed Regulatory Threshold [Member]	Aug. 31, 2013 University Of Phoenix [Member]	Aug. 31, 2013 University Of Phoenix [Member] Three Year Measuring Period [Member]	Feb. 28, 2014 University Of Phoenix [Member] Three Year Measuring Period [Member] Draft cohort default rate [Member]	Aug. 31, 2013 University Of Phoenix [Member] Minimum [Member]
Percentage of consolidated net revenue						90.00%
Percentage of consolidated operating income									100.00%
Title IV percentage		90.00%			85.00%	83.00%
Cohort default rate measuring period	3 years
Cohort default rate			30.00%	40.00%			26.00%	19.00%

XML

Fair Value Measurements (Details)	3 Months Ended		6 Months Ended		1 Months Ended	6 Months Ended							6 Months Ended
	Feb. 28, 2014 USD ($)	Feb. 28, 2013 USD ($)	Feb. 28, 2014 USD ($)	Feb. 28, 2013 USD ($)	Dec. 31, 2013 Open Colleges [Member] USD ($)	Feb. 28, 2014 Open Colleges [Member] USD ($)	Dec. 20, 2013 Open Colleges [Member] USD ($)	Dec. 20, 2013 Open Colleges [Member] AUD	Feb. 28, 2014 Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Recurring Fair Value Measurement [Member] USD ($)	Feb. 28, 2014 Recurring Fair Value Measurement [Member] Open Colleges [Member] USD ($)	Feb. 28, 2014 Recurring Fair Value Measurement [Member] Noncontrolling Interest in Apollo Global [Member] USD ($)	Feb. 28, 2014 Nonrecurring Fair Value Measurement [Member] USD ($)	Feb. 28, 2014 Level 1 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Level 1 [Member] Recurring Fair Value Measurement [Member] USD ($)	Feb. 28, 2014 Level 1 [Member] Nonrecurring Fair Value Measurement [Member] USD ($)	Feb. 28, 2014 Level 2 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Level 2 [Member] Recurring Fair Value Measurement [Member] USD ($)	Feb. 28, 2014 Level 2 [Member] Nonrecurring Fair Value Measurement [Member] USD ($)	Feb. 28, 2014 Level 3 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2013 Level 3 [Member] Recurring Fair Value Measurement [Member] USD ($)	Feb. 28, 2013 Level 3 [Member] Recurring Fair Value Measurement [Member] USD ($)	Aug. 31, 2012 Level 3 [Member] Recurring Fair Value Measurement [Member] USD ($)	Feb. 28, 2014 Level 3 [Member] Nonrecurring Fair Value Measurement [Member] USD ($)
Assets and liabilities measured on a recurring and nonrecurring basis [Line Items]
Contingent consideration maximum						$ 47,200,000	$ 46,500,000	52,500,000.0
Contingent consideration						29,926,000			36,023,000	5,277,000	29,926,000	6,100,000		0	0		0	0		36,023,000	5,277,000	5,855,000	0
Balance						0			36,023,000	5,277,000	29,926,000	6,100,000		0	0		0	0		36,023,000	5,277,000	5,855,000	0
Initial contingent consideration at fair value					21,371,000	21,371,000
Initial contingent consideration at fair value				6,000,000
Change in fair value included in net income			8,754,000	(145,000)
Currency translation adjustment			621,000	0
Balance						29,926,000			36,023,000	5,277,000	29,926,000	6,100,000		0	0		0	0		36,023,000	5,277,000	5,855,000	0
Initial lease obligations													16,972,000			0			0					16,972,000
Losses for period	$ 15,209,000	$ 44,076,000	$ 47,172,000	$ 68,192,000									$ 16,972,000

XML

Fair Value Measurements (Tables)

6 Months Ended

Feb. 28, 2014

Fair Value Disclosures [Abstract]

Fair value liabilities measured on recurring basis

Liabilities measured at fair value on a recurring basis, all of which are included in other liabilities on our Condensed Consolidated Balance Sheets, consist of the following as of February 28, 2014 and August 31, 2013:

			Fair Value Measurements at Reporting Date Using
	Fair Value as of Respective Reporting Date		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, 2014	$	36,023	$	—	$	—	$	36,023
Contingent consideration as of August 31, 2013	$	5,277	$	—	$	—	$	5,277

Fair value liabilities measured on recurring basis, unobservable input reconciliation

The following summarizes the changes in liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the respective periods:

	Six Months Ended February 28,
($ in thousands)	2014		2013
Beginning balance	$	5,277	$	—
Initial contingent consideration at fair value	21,371		6,000
Change in fair value included in net income	8,754		(145		)
Currency translation adjustment	621		—
Ending balance	$	36,023	$	5,855

Fair value liabilities measured on nonrecurring basis

Liabilities measured at fair value on a nonrecurring basis during the six months ended February 28, 2014, all of which are included in other liabilities on our Condensed Consolidated Balance Sheets, consist of the following:

			Fair Value Measurements at Measurement Dates Using
($ in thousands)	Fair Value at Measurement Dates		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses for Six Months Ended February 28, 2014
Initial lease obligations	$	16,972	$	—	$	—	$	16,972	$	16,972

XML

Accrued and Other Liabilities (Tables)

6 Months Ended

Feb. 28, 2014

Payables and Accruals [Abstract]

Accrued and other current liabilities

Accrued and other current liabilities consist of the following as of the respective periods:

($ in thousands)	February 28, 2014		August 31, 2013
Salaries, wages and benefits	$	89,394	$	135,553
Restructuring obligations	56,687		55,191
Accrued legal and other professional obligations	35,600		31,310
Contingent consideration, current portion	29,926		—
Accrued advertising	27,275		45,850
Student refunds, grants and scholarships	15,780		7,180
Deferred rent and other lease liabilities	12,728		14,001
Curriculum materials	10,073		10,764
Other	50,777		46,857
Total accrued and other current liabilities	$	328,240	$	346,706

Other long-term liabilities

Other long-term liabilities consist of the following as of the respective periods:

($ in thousands)	February 28, 2014		August 31, 2013
Deferred rent and other lease liabilities	$	62,903	$	67,641
Restructuring obligations	58,615		64,610
Deferred gains on sale-leasebacks	22,379		22,894
Uncertain tax positions	17,929		33,637
Other	60,238		44,660
Total other long-term liabilities	$	222,064	$	233,442

XML

Significant Accounting Policies

6 Months Ended

Feb. 28, 2014

Accounting Policies [Abstract]

Significant Accounting Policies

Significant Accounting Policies

Basis of Presentation

The unaudited interim condensed consolidated financial statements include the accounts of Apollo Education Group, Inc., its wholly-owned subsidiaries, and subsidiaries that we control. 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 the opinion of management, 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 notes thereto contained in our 2013 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on October 22, 2013. We consistently applied the accounting policies described in Item 8, Financial Statements and Supplementary Data, in our 2013 Annual Report on Form 10-K in preparing these unaudited interim condensed consolidated financial statements.

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

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

Our operations are generally subject to seasonal trends. We experience, 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. 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. Because of the seasonal nature of our business and other factors, the results of operations for the three and six months ended February 28, 2014 are not necessarily indicative of results to be expected for the entire fiscal year.

Reclassifications

During fiscal year 2013, we began presenting amortization of deferred gains on sale-leasebacks and amortization of lease incentives as a component of the change in accrued and other liabilities on our Condensed Consolidated Statements of Cash Flows. We have reclassified the six months ended February 28, 2013 to conform to our current presentation, which did not impact total cash provided by operating activities.

XML

Debt (Tables)

6 Months Ended

Feb. 28, 2014

Debt Disclosure [Abstract]

Debt

Debt and short-term borrowings consist of the following as of the respective periods:

($ in thousands)	February 28, 2014			August 31, 2013
Revolving Credit Facility, see terms below	$	—		$	605,000
Capital lease obligations	38,752			49,628
Other, see terms below	35,671			37,426
Total debt	74,423			692,054
Less short-term borrowings and current portion of long-term debt	(30,781		)	(628,050		)
Long-term debt	$	43,642		$	64,004

XML

Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Feb. 28, 2014	Aug. 31, 2013
Financial Instruments [Line Items]
Cash and cash equivalents	$ 929,869	$ 1,673,659
Current marketable securities	158,243	105,809
Noncurrent marketable securities	111,709	43,941
Total carrying value	1,199,821	1,823,409
Cash [Member]
Financial Instruments [Line Items]
Cash and cash equivalents	749,176	874,074
Current marketable securities	0	0
Noncurrent marketable securities	0	0
Total carrying value	749,176	874,074
Unrealized gains	0	0
Unrealized losses	0	0
Fair value	749,176	874,074
Money market funds [Member]
Financial Instruments [Line Items]
Cash and cash equivalents	152,684	732,530
Current marketable securities	0	0
Noncurrent marketable securities	0	0
Total carrying value	152,684	732,530
Unrealized gains	0	0
Unrealized losses	0	0
Tax-exempt municipal bonds [Member]
Financial Instruments [Line Items]
Cash and cash equivalents	602	2,055
Current marketable securities	61,224	69,621
Noncurrent marketable securities	48,190	24,070
Total carrying value	110,016	95,746
Unrealized gains	201	19
Unrealized losses	(6)	(54)
Commercial paper [Member]
Financial Instruments [Line Items]
Cash and cash equivalents	0	0
Current marketable securities	29,573	9,828
Noncurrent marketable securities	0	0
Total carrying value	29,573	9,828
Unrealized gains	3	0
Unrealized losses	0	0
Corporate bonds [Member]
Financial Instruments [Line Items]
Cash and cash equivalents	2,397	0
Current marketable securities	27,657	24,503
Noncurrent marketable securities	54,857	13,925
Total carrying value	84,911	38,428
Unrealized gains	143	6
Unrealized losses	(16)	(40)
Time deposits [Member]
Financial Instruments [Line Items]
Cash and cash equivalents	25,010
Current marketable securities	25,013
Noncurrent marketable securities	0
Total carrying value	50,023
Unrealized gains	0
Unrealized losses	0
Certificates of deposit [Member]
Financial Instruments [Line Items]
Cash and cash equivalents		65,000
Current marketable securities		1,200
Noncurrent marketable securities		0
Total carrying value		66,200
Unrealized gains		0
Unrealized losses		0
Other [Member]
Financial Instruments [Line Items]
Cash and cash equivalents	0	0
Current marketable securities	14,776	657
Noncurrent marketable securities	2,716	0
Total carrying value	17,492	657
Unrealized gains	4	0
Unrealized losses	0	0
Auction-rate securities [Member]
Financial Instruments [Line Items]
Cash and cash equivalents	0	0
Current marketable securities	0	0
Noncurrent marketable securities	5,946	5,946
Level 1 [Member] | Money market funds [Member]
Financial Instruments [Line Items]
Fair value	152,684	732,530
Level 2 [Member] | Tax-exempt municipal bonds [Member]
Financial Instruments [Line Items]
Fair value	110,211	95,711
Level 2 [Member] | Commercial paper [Member]
Financial Instruments [Line Items]
Fair value	29,576	9,828
Level 2 [Member] | Corporate bonds [Member]
Financial Instruments [Line Items]
Fair value	85,038	38,394
Level 2 [Member] | Time deposits [Member]
Financial Instruments [Line Items]
Fair value	50,023
Level 2 [Member] | Certificates of deposit [Member]
Financial Instruments [Line Items]
Fair value		66,200
Level 2 [Member] | Other [Member]
Financial Instruments [Line Items]
Fair value	17,496	657
Level 3 [Member] | Auction-rate securities [Member]
Financial Instruments [Line Items]
Total carrying value	$ 5,946	$ 5,946

XML

Share-Based Compensation (Details 2) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended				3 Months Ended	6 Months Ended
	Feb. 28, 2014	Nov. 30, 2013	Feb. 28, 2014 Restricted stock units [Member]	Feb. 28, 2014 Performance share awards [Member]	Feb. 28, 2014 Restricted stock units and performance share awards [Member]	Feb. 28, 2014 Restricted stock units and performance share awards [Member]	Feb. 28, 2014 Stock options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awards granted					104,000	169,000
Weighted average fair value of granted awards					$ 25.79	$ 26.12
Unrecognized shared-based compensation cost			$ 57.8	$ 2.2			$ 6.5
Weighted average period unrecognized share-based compensation expected to be recognized						2 years 4 months 24 days	1 year 8 months 35 days
Stock options granted	31,000	0
Weighted average fair value of granted options	$ 9.98
Weighted average exercise price of granted options	$ 25.79

XML

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Feb. 28, 2014	Aug. 31, 2013
Current assets:
Cash and cash equivalents	$ 645,940	$ 1,414,485
Restricted cash and cash equivalents	283,929	259,174
Marketable securities	158,243	105,809
Accounts receivable, net	199,102	215,401
Prepaid taxes	15,826	30,359
Deferred tax assets	64,758	60,294
Other current assets	59,283	64,134
Total current assets	1,427,081	2,149,656
Marketable securities	111,709	43,941
Property and equipment, net	457,503	472,614
Goodwill	233,037	103,620
Intangible assets, net	191,343	132,192
Deferred tax assets	60,409	63,894
Other assets	50,348	32,030
Total assets	2,531,430	2,997,947
Current liabilities:
Short-term borrowings and current portion of long-term debt	30,781	628,050
Accounts payable	64,290	73,123
Student deposits	328,394	309,176
Deferred revenue	256,899	213,260
Accrued and other current liabilities	328,240	346,706
Total current liabilities	1,008,604	1,570,315
Long-term debt	43,642	64,004
Deferred tax liabilities	24,814	12,177
Other long-term liabilities	222,064	233,442
Total liabilities	1,299,124	1,879,938
Commitments and contingencies
Redeemable noncontrolling interests	49,388	0
Shareholders’ equity:
Preferred stock, no par value
Additional paid-in capital	0	0
Apollo Education Group Class A treasury stock, at cost	(3,880,394)	(3,824,758)
Retained earnings	5,092,511	4,978,815
Accumulated other comprehensive loss	(30,024)	(36,563)
Total Apollo shareholders’ equity	1,182,197	1,117,598
Noncontrolling interests	721	411
Total equity	1,182,918	1,118,009
Total liabilities, redeemable noncontrolling interests and shareholders’ equity	2,531,430	2,997,947
Common stock [Member] | Apollo Education Group Class A nonvoting common stock [Member]
Shareholders’ equity:
Apollo Education Group common stock	103	103
Total equity	103	103
Common stock [Member] | Apollo Education Group Class B voting common stock [Member]
Shareholders’ equity:
Apollo Education Group common stock	1	1
Total equity	$ 1	$ 1

XML

Accrued and Other Liabilities (Details) (USD $)	Feb. 28, 2014	Aug. 31, 2013
Salaries, wages and benefits	$ 89,394,000	$ 135,553,000
Restructuring obligations	56,687,000	55,191,000
Accrued legal and other professional obligations	35,600,000	31,310,000
Accrued advertising	27,275,000	45,850,000
Student refunds, grants and scholarships	15,780,000	7,180,000
Deferred rent and other lease liabilities	12,728,000	14,001,000
Curriculum materials	10,073,000	10,764,000
Other	50,777,000	46,857,000
Total accrued and other current liabilities	328,240,000	346,706,000
Other Long-Term Liabilities [Abstract]
Deferred rent and other lease liabilities	62,903,000	67,641,000
Restructuring obligations	58,615,000	64,610,000
Deferred gains on sale-leasebacks	22,379,000	22,894,000
Uncertain tax positions	17,929,000	33,637,000
Other	60,238,000	44,660,000
Total other long-term liabilities	222,064,000	233,442,000
Open Colleges [Member]
Contingent consideration, current portion	$ 29,926,000	$ 0

XML

Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Feb. 28, 2014	Feb. 28, 2013
Operating activities:
Net income	$ 111,218	$ 147,399
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation	22,510	27,515
Depreciation and amortization	73,803	85,194
Accelerated depreciation included in restructuring	4,316	30,641
Gain on disposition	(1,984)	0
Non-cash foreign currency loss, net	596	146
Provision for uncollectible accounts receivable	25,512	52,308
Litigation charge (credit), net	9,000	(23,200)
Deferred income taxes	(6,255)	(4,100)
Changes in assets and liabilities, excluding the impact of acquisition and disposition:
Restricted cash and cash equivalents	(24,165)	(11,438)
Accounts receivable	(6,469)	(33,919)
Prepaid taxes	15,230	16,143
Other assets	(11,445)	(3,939)
Accounts payable	(11,454)	1,094
Student deposits	17,409	2,551
Deferred revenue	32,881	8,632
Accrued and other liabilities	(57,219)	3,923
Net cash provided by operating activities	193,484	298,950
Investing activities:
Purchases of property and equipment	(58,119)	(49,024)
Purchases of marketable securities	(227,978)	(39,444)
Maturities of marketable securities	105,237	7,470
Acquisition, net of cash acquired	94,937	0
Other investing activities	(3,446)	1,500
Net cash used in investing activities	(272,351)	(82,498)
Financing activities:
Payments on borrowings	(619,268)	(629,544)
Proceeds from borrowings	0	2,176
Purchase of noncontrolling interest	0	(42,500)
Purchases of stock for treasury	(72,237)	(3,881)
Issuances of stock	1,793	2,131
Net cash used in financing activities	(689,712)	(671,618)
Exchange rate effect on cash and cash equivalents	34	(46)
Net decrease in cash and cash equivalents	(768,545)	(455,212)
Cash and cash equivalents, beginning of period	1,414,485	1,276,375
Cash and cash equivalents, end of period	645,940	821,163
Supplemental disclosure of cash flow and non-cash information:
Cash paid for income taxes, net of refunds	70,868	100,713
Cash paid for interest	3,911	4,010
Restricted stock units vested and released	7,104	10,825
Capital lease additions	0	2,755
Credits received for tenant improvements	$ 0	$ 1,540

XML

Share-Based Compensation (Table)

6 Months Ended

Feb. 28, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-based compensation expense

The following details share-based compensation expense for the respective periods:

	Three Months Ended February 28,				Six Months Ended February 28,
($ in thousands)	2014		2013		2014		2013
Instructional and student advisory	$	3,280	$	5,614	$	6,813	$	13,202
Marketing	937		1,054		2,045		3,097
Admissions advisory	212		196		314		366
General and administrative	5,644		3,399		11,012		9,422
Restructuring and other charges	464		363		2,326		1,428
Share-based compensation expense	$	10,537	$	10,626	$	22,510	$	27,515

XML

Regulatory Matters

6 Months Ended

Feb. 28, 2014

Notes to Consolidated Financial Statements [Abstract]

Regulatory Matters

Regulatory Matters

Student Financial Aid

In fiscal year 2013, University of Phoenix generated 90% of our total consolidated net revenue and more than 100% of our operating income, and 83% of the University’s cash basis revenue for eligible tuition and fees was derived from Title IV financial aid program funds, as calculated under the 90/10 Rule described below.

All U.S. federal financial aid programs are established by Title IV of the Higher Education Act and regulations promulgated thereunder. The U.S. Congress must periodically reauthorize the Higher Education Act and annually determine the funding level for each Title IV program. In August 2008, the Higher Education Act was reauthorized through September 30, 2013 by the Higher Education Opportunity Act. Congress has begun Higher Education Act reauthorization hearings and there is currently an automatic one year extension that continues the current authorization through September 30, 2014. Changes to the Higher Education Act, including changes in eligibility and funding for Title IV programs, are likely to occur in connection with this reauthorization, but we cannot predict the scope and substance of any such changes.

The Higher Education Act, as reauthorized, specifies the manner in which the U.S. Department of Education reviews institutions for eligibility and certification to participate in Title IV programs. Every educational institution involved in Title IV programs must be certified to participate and is required to periodically renew this certification.

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

Western International University was recertified in May 2010 and entered into a new Title IV Program Participation Agreement which expires September 30, 2014.

Higher Learning Commission (“HLC”)

University of Phoenix and Western International University are accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools (“HLC”). This accreditation provides the following:

• Recognition and acceptance by employers, other higher education institutions and governmental entities of the degrees and credits earned by students;

• Qualification to participate in Title IV programs (in combination with state higher education operating and degree granting authority); and

• Qualification for authority to operate in certain states.

During fiscal year 2013, the accreditations of University of Phoenix and Western International University were reaffirmed by HLC through the 2022-2023 academic year. At the same time, HLC placed both universities on Notice status for a two-year period. Notice status is a sanction that means that HLC has determined that an institution is on a course of action that, if continued, could lead the institution to be out of compliance with one or more of the HLC Criteria for Accreditation or Core Components. We believe the imposition of the sanction of Notice on University of Phoenix could adversely impact our business.

90/10 Rule

To remain eligible to participate in Title IV programs, proprietary institutions of higher education must comply with the so-called “90/10 Rule” under the Higher Education Act, as reauthorized, and must derive 90% or less of their cash basis revenue, as defined in the rule, from Title IV programs. The 90/10 Rule percentage for University of Phoenix was 83% for fiscal year 2013. Based on recent trends, we do not expect the 90/10 Rule percentage for University of Phoenix to exceed 90% for fiscal year 2014. However, the 90/10 Rule percentage for University of Phoenix remains high and could exceed 90% in the future depending on the degree to which its various initiatives are effective, the impact of future changes in its enrollment mix, and regulatory and other factors outside our control, including any reduction in military benefit programs or changes in the treatment of such funding for purposes of the 90/10 Rule calculation. Various members of Congress have proposed changes to the 90/10 Rule that would, if enacted, reduce the percentage to 85% and adversely change the manner in which military aid is treated for purposes of the rule calculation.

Student Loan Cohort Default Rates

To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. Educational institutions will lose eligibility to participate in Title IV programs if their three-year cohort default rate equals or exceeds 40% for any given year or 30% for three consecutive years. The three-year cohort default rate for University of Phoenix for the 2010 federal fiscal year was 26.0%, and the draft three-year cohort default rate for the 2011 federal fiscal year, which will be finalized in September 2014, was 19.0%. If our student loan default rates approach the applicable limits, we may be required to increase efforts and resources dedicated to improving these default rates.

OIG Audit of the U.S. Department of Education

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

XML

Segment Reporting (Tables)

6 Months Ended

Feb. 28, 2014

Segment Reporting [Abstract]

Segment reporting information

A summary of financial information by reportable segment is as follows:

	Three Months Ended February 28,						Six Months Ended February 28,
($ in thousands)	2014			2013			2014			2013
Net revenue:
University of Phoenix	$	594,081		$	753,566		$	1,338,944		$	1,689,350
Apollo Global	68,634			56,965			159,793			147,479
Other	16,343			23,841			36,656			52,726
Net revenue	$	679,058		$	834,372		$	1,535,393		$	1,889,555
Operating income (loss)(1):
University of Phoenix	$	86,682		$	74,757		$	270,155		$	318,617
Apollo Global(2)	(40,004		)	(25,921		)	(37,787		)	(35,287		)
Other(3)	(39,548		)	(19,056		)	(55,444		)	(22,604		)
Operating income	7,130			29,780			176,924			260,726
Reconciling items:
Interest income	599			388			1,167			937
Interest expense	(1,983		)	(2,092		)	(4,069		)	(4,134		)
Other, net	107			(126		)	914			1,673
Income before income taxes	$	5,853		$	27,950		$	174,936		$	259,202

⁽¹⁾ University of Phoenix, Apollo Global and Other include charges associated with our restructuring activities. Refer to Note 3, Restructuring and Other Charges.

⁽²⁾ The operating loss for Apollo Global for the three and six months ended February 28, 2014 includes $13.0 million of acquisition costs and contingent consideration charges.

⁽³⁾ The operating loss for Other in the three and six months ended February 28, 2014 includes $9.0 million of charges associated with our legal matters. The operating loss for Other in the three and six months ended February 28, 2013 includes credits of $5.0 million and $21.9 million, respectively, associated with a legal matter.

A summary of our consolidated assets by reportable segment is as follows:

($ in thousands)	February 28, 2014		August 31, 2013
University of Phoenix	$	874,980	$	790,537
Apollo Global	613,187		359,903
Other(1)	1,043,263		1,847,507
Total assets	$	2,531,430	$	2,997,947

⁽¹⁾ The majority of assets included in Other consists of corporate cash and cash equivalents and marketable securities.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Feb. 28, 2014

Policy Text Block [Abstract]

Basis of Presentation Policy

Basis of Presentation

The unaudited interim condensed consolidated financial statements include the accounts of Apollo Education Group, Inc., its wholly-owned subsidiaries, and subsidiaries that we control. 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 the opinion of management, 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 notes thereto contained in our 2013 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on October 22, 2013. We consistently applied the accounting policies described in Item 8, Financial Statements and Supplementary Data, in our 2013 Annual Report on Form 10-K in preparing these unaudited interim condensed consolidated financial statements.

Use of Estimates Policy

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

XML

Nature of Operations

6 Months Ended

Feb. 28, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations

Nature of Operations

Apollo Education Group, Inc. and its wholly-owned subsidiaries and majority-owned subsidiaries, collectively referred to herein as “the Company,” “Apollo Education Group,” “Apollo,” “APOL,” “we,” “us,” or “our,” has been an education provider since 1973. We offer educational programs and services, online and on-campus, at the undergraduate, master’s and doctoral levels. Our learning platforms include the following:

• The University of Phoenix, Inc. (“University of Phoenix”);

• Apollo Global, Inc. (“Apollo Global”):

• BPP Holdings Limited (“BPP”) in the United Kingdom (“U.K.”);

• Open Colleges Australia Pty Ltd. (“Open Colleges”) in Australia;

• Universidad Latinoamericana (“ULA”) in Mexico;

• Universidad de Artes, Ciencias y Comunicación (“UNIACC”) in Chile; and

• India Education Services Private Ltd. in India;

• Western International University, Inc. (“Western International University”, or “WIU”);

• Institute for Professional Development (“IPD”);

• The College for Financial Planning Institutes Corporation (“CFFP”);

• Carnegie Learning, Inc. (“Carnegie Learning”); and

• Apollo Lightspeed, LLC (“Apollo Lightspeed”).

During the first quarter of fiscal year 2014, Apollo changed its name from Apollo Group, Inc. to Apollo Education Group, Inc.

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.Refer toNote 4,Acquisitions.

XML

Condensed Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Feb. 28, 2014	Feb. 28, 2013	Feb. 28, 2014	Feb. 28, 2013
Income Statement [Abstract]
Net revenue	$ 679,058	$ 834,372	$ 1,535,393	$ 1,889,555
Instructional and student advisory	319,575	383,702	659,254	815,852
Marketing	143,392	173,313	281,236	336,186
Admissions advisory	55,072	68,232	106,581	139,540
General and administrative	67,676	81,218	142,906	154,757
Depreciation and amortization	37,465	41,499	73,803	85,194
Provision for uncollectible accounts receivable	11,534	18,902	25,512	52,308
Restructuring and other charges	15,209	44,076	47,172	68,192
Acquisition costs and contingent consideration charges	13,005	0	13,005	0
Litigation charge (credit), net	9,000	(6,350)	9,000	(23,200)
Total costs and expenses	671,928	804,592	1,358,469	1,628,829
Operating income	7,130	29,780	176,924	260,726
Interest income	599	388	1,167	937
Interest expense	(1,983)	(2,092)	(4,069)	(4,134)
Other, net	107	(126)	914	1,673
Income before income taxes	5,853	27,950	174,936	259,202
Benefit from (provision for) income taxes	6,324	(14,291)	(63,718)	(111,803)
Net income	12,177	13,659	111,218	147,399
Net loss (income) attributable to noncontrolling interests	2,428	(132)	2,278	(377)
Net income attributable to Apollo	$ 14,605	$ 13,527	$ 113,496	$ 147,022
Basic income per share attributable to Apollo (in dollars per share)	$ 0.13	$ 0.12	$ 1.01	$ 1.31
Diluted income per share attributable to Apollo (in dollars per share)	$ 0.13	$ 0.12	$ 1.00	$ 1.30
Basic weighted average shares outstanding (in shares)	112,151	112,573	112,742	112,496
Diluted weighted average shares outstanding (in shares)	113,380	113,068	113,676	112,984

XML

Income Taxes

6 Months Ended

Feb. 28, 2014

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We determine our interim income tax provision by estimating our effective income tax rate expected to be applicable for the full fiscal year. 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.

Internal Revenue Service Audits

Our U.S. federal income tax return for fiscal year 2012 is currently under review by the Internal Revenue Service (“IRS”). In addition, we are participating in the IRS’s Compliance Assurance Process for fiscal year 2014, which is a voluntary program in which taxpayers seek to resolve all or most issues with the IRS prior to or soon after filing their U.S. federal income tax returns.

In February 2014, we executed a Closing Agreement with the IRS to settle a matter related to the deductibility of certain costs for our foreign subsidiaries in fiscal years 2011 through 2013, which resulted in a $10.2 million tax benefit during the second quarter of fiscal year 2014. In addition, our fiscal year 2011 federal income tax return was closed in connection with this settlement. Based principally on these events, our unrecognized tax benefits decreased $16.5 million during the six months ended February 28, 2014.

Other

In December 2013, Mexico enacted comprehensive tax reform legislation which, among other things, eliminated the flat rate business tax and modified the income tax exemption for educational companies. Based on this legislation, ULA is no longer subject to the flat rate business tax, and is now subject to income tax. Accordingly, we adjusted our deferred taxes associated with this jurisdiction in the second quarter of fiscal year 2014, which resulted in a $2.8 million tax benefit.

In addition to the IRS audits discussed above, we are subject to numerous ongoing audits by state, local and foreign tax authorities. 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.

XML

Document and Entity Information In Thousands, unless otherwise specified	6 Months Ended
	Feb. 28, 2014	Mar. 25, 2014 Apollo Education Group Class A nonvoting common stock [Member]	Mar. 25, 2014 Apollo Education Group Class B voting common stock [Member]
Entity Information [Line Items]
Document Type	10-Q
Document Period End Date	Feb. 28, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Registrant Name	Apollo Education Group Inc
Entity Central Index Key	0000929887
Current Fiscal Year End Date	--08-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock Outstanding (in shares)		110,819	475

XML

Shareholders' Equity and Redeemable Noncontrolling Interests

6 Months Ended

Feb. 28, 2014

Equity [Abstract]

Shareholders' Equity and Redeemable Noncontrolling Interests

Shareholders’ Equity and Redeemable Noncontrolling Interests

Share Repurchases

Our Board of Directors has authorized us to repurchase outstanding shares of Apollo Education Group 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 $180.3 million remained available as of February 28, 2014. There is no expiration date on the repurchase authorizations and the amount and timing of future share repurchase authorizations and repurchases, if any, will be made as market and business conditions warrant. Repurchases occur at our discretion and may be made on the open market through various methods including but not limited to accelerated share repurchase programs, or in privately negotiated transactions, pursuant to the applicable Securities and Exchange Commission rules, and may include repurchases pursuant to Securities and Exchange Commission Rule 10b5-1 nondiscretionary trading programs.

We also repurchase shares in connection with tax withholding requirements associated with the release of vested shares of restricted stock units, which do not fall under the repurchase program described above.

The following summarizes our share repurchase activity for the respective periods:

	Three Months Ended February 28,				Six Months Ended February 28,
(In thousands, except per share data)	2014		2013		2014		2013
Share repurchases under share repurchase program:
Number of shares repurchased	1,713		—		2,290		—
Weighted average purchase price per share	$	31.93	$	—	$	30.44	$	—
Cost of share repurchases	$	54,684	$	—	$	69,684	$	—
Share repurchases related to vesting of restricted stock units:
Number of shares repurchased	25		20		113		159
Cost of share repurchases	$	682	$	409	$	2,553	$	3,881

Share Reissuances

We reissue our Apollo Education Group Class A common stock from our treasury stock as a result of the release of shares covered by vested restricted stock units, stock option exercises and purchases under our employee stock purchase plan. Share reissuances were as follows for the respective periods:

	Three Months Ended February 28,		Six Months Ended February 28,
(In thousands)	2014	2013	2014	2013
Share reissuances	110	118	391	524

Purchase of Noncontrolling Interest in Apollo Global

The following details net income attributable to Apollo and transfers to noncontrolling interest during the respective periods:

	Six Months Ended February 28,
($ in thousands)	2014		2013
Net income attributable to Apollo	$	113,496	$	147,022
Transfer to noncontrolling interest:
Decrease in equity for purchase of noncontrolling interest in Apollo Global(1)	—		(48,543		)
Change from net income attributable to Apollo and transfer to noncontrolling interest	$	113,496	$	98,479

⁽¹⁾ Represents the difference between the fair value of the consideration paid to purchase the noncontrolling ownership interest in Apollo Global and the carrying amount of the noncontrolling interest acquired, and an adjustment to accumulated other comprehensive loss to reflect the change in Apollo’s proportionate interest.

Redeemable Noncontrolling Interests

On December 20, 2013, Apollo Global acquired 70% of the outstanding shares of Open Colleges. In connection with the acquisition, we also have the option to buy the remaining outstanding shares of Open Colleges, and the noncontrolling shareholders have the option to sell their shares to us, in early 2017, 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 Open Colleges’ calendar year 2016 operating results as defined in the acquisition agreement, or an earlier measurement period in the limited circumstances that the options are exercised prior to 2017. 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.

The redeemable noncontrolling interests are probable of becoming redeemable. Accordingly, we record the redeemable noncontrolling interests at the greater of the carrying value or the redemption value at the end of each reporting period. We determine the redemption value using the formula specified at the acquisition date, and by assuming the end of each reporting period is the redemption date. We record redemption value adjustments through retained earnings. As of February 28, 2014, the redemption value of the redeemable noncontrolling interest approximated the carrying value.

XML

Condensed Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Feb. 28, 2014		Feb. 28, 2013		Feb. 28, 2014		Feb. 28, 2013
Statement of Comprehensive Income [Abstract]
Net income	$ 12,177		$ 13,659		$ 111,218		$ 147,399
Other comprehensive income (loss) (net of tax):
Currency translation gain (loss)	4,483	[1]	(3,389)	[1]	7,318	[1]	(2,630)	[1]
Comprehensive income	16,660		10,270		118,536		144,769
Comprehensive loss (income) attributable to noncontrolling interests	1,748		199		1,499		(73)
Comprehensive income attributable to Apollo	$ 18,408		$ 10,469		$ 120,035		$ 144,696

[1] The tax effect on other comprehensive income during the three and six months ended February 28, 2014 and 2013, respectively, is not significant.

XML

Accounts Receivable, Net

6 Months Ended

Feb. 28, 2014

Receivables [Abstract]

Accounts Receivable, Net

Accounts Receivable, Net

Accounts receivable, net consist of the following as of the respective periods:

($ in thousands)	February 28, 2014			August 31, 2013
Student accounts receivable	$	236,571		$	243,660
Less allowance for doubtful accounts	(53,038		)	(59,744		)
Net student accounts receivable	183,533			183,916
Other receivables	15,569			31,485
Total accounts receivable, net	$	199,102		$	215,401

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)	2014			2013			2014			2013
Beginning allowance for doubtful accounts	$	55,895		$	101,793		$	59,744		$	107,230
Provision for uncollectible accounts receivable	11,534			18,902			25,512			52,308
Write-offs, net of recoveries	(14,391		)	(35,922		)	(32,218		)	(74,765		)
Ending allowance for doubtful accounts	$	53,038		$	84,773		$	53,038		$	84,773

XML

Financial Instruments

6 Months Ended

Feb. 28, 2014

Financial Instruments [Abstract]

Financial Instruments

Financial Instruments

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

	February 28, 2014
($ in thousands)	Cash and Cash Equivalents(1)		Current Marketable Securities		Noncurrent Marketable Securities		Total Carrying Value		Unrealized Gains		Unrealized Losses			Fair Value
Cash	$	749,176	$	—	$	—	$	749,176	$	—	$	—		$	749,176
Level 1:
Money market funds	152,684		—		—		152,684		—		—			152,684
Level 2:
Tax-exempt municipal bonds	602		61,224		48,190		110,016		201		(6		)	110,211
Commercial paper	—		29,573		—		29,573		3		—			29,576
Corporate bonds	2,397		27,657		54,857		84,911		143		(16		)	85,038
Time deposits	25,010		25,013		—		50,023		—		—			50,023
Other	—		14,776		2,716		17,492		4		—			17,496
Level 3:
Auction-rate securities	—		—		5,946		5,946
Total	$	929,869	$	158,243	$	111,709	$	1,199,821

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

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

We measure our money market funds on a recurring basis at fair value using Level 1 inputs that primarily consist of real-time quotes for transactions in active exchange markets involving identical assets.

Other than our auction-rate securities, which are discussed further below, all of our marketable securities are classified as held-to-maturity as we have the intent and ability to hold them until contractual maturity, which will occur within two years. Our held-to-maturity securities are reported at amortized cost and we have not recorded gains or losses on our held-to-maturity investments. The estimated fair values of our held-to-maturity investments are determined using a market approach with Level 2 observable inputs including quoted prices for similar assets in active markets, or quoted prices for identical or similar assets in markets that are not active.

Our auction-rate securities are classified as available-for-sale and measured at fair value on a recurring basis. Fair value is measured using a discounted cash flow model encompassing Level 3 significant unobservable inputs such as estimated interest rates, credit spreads, timing and amount of cash flows, credit quality of the underlying securities and illiquidity considerations. We have classified our auction-rate securities as noncurrent due to illiquidity considerations.

There were no changes in the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended February 28, 2014.

XML

Segment Reporting

6 Months Ended

Feb. 28, 2014

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

We operate primarily in the education industry. Our reportable segments have been determined based on the method by which management evaluates performance and allocates resources. Our seven operating segments are presented in the following reportable segments:

• University of Phoenix;

• Apollo Global; and

• Other (includes Western International University, IPD, CFFP, Carnegie Learning, and Apollo Lightspeed).

During the fourth quarter of fiscal year 2013, we revised our internal management reporting structure and determined Carnegie Learning and Western International University are operating segments. Accordingly, Carnegie Learning is no longer included in our University of Phoenix reportable segment, and Western International University is no longer included in our Apollo Global reportable segment. These operating segments are included in Other in our segment reporting and we have changed our presentation for all periods presented to reflect our revised segment reporting.

Apollo Global acquired Open Colleges during the second quarter of fiscal year 2014 and Open Colleges’ operating results are included in our Apollo Global operating segment from date of acquisition. Refer to Note 4, Acquisitions.

A summary of financial information by reportable segment is as follows:

	Three Months Ended February 28,						Six Months Ended February 28,
($ in thousands)	2014			2013			2014			2013
Net revenue:
University of Phoenix	$	594,081		$	753,566		$	1,338,944		$	1,689,350
Apollo Global	68,634			56,965			159,793			147,479
Other	16,343			23,841			36,656			52,726
Net revenue	$	679,058		$	834,372		$	1,535,393		$	1,889,555
Operating income (loss)(1):
University of Phoenix	$	86,682		$	74,757		$	270,155		$	318,617
Apollo Global(2)	(40,004		)	(25,921		)	(37,787		)	(35,287		)
Other(3)	(39,548		)	(19,056		)	(55,444		)	(22,604		)
Operating income	7,130			29,780			176,924			260,726
Reconciling items:
Interest income	599			388			1,167			937
Interest expense	(1,983		)	(2,092		)	(4,069		)	(4,134		)
Other, net	107			(126		)	914			1,673
Income before income taxes	$	5,853		$	27,950		$	174,936		$	259,202

⁽¹⁾ University of Phoenix, Apollo Global and Other include charges associated with our restructuring activities. Refer to Note 3, Restructuring and Other Charges.

⁽²⁾ The operating loss for Apollo Global for the three and six months ended February 28, 2014 includes $13.0 million of acquisition costs and contingent consideration charges.

⁽³⁾ The operating loss for Other in the three and six months ended February 28, 2014 includes $9.0 million of charges associated with our legal matters. The operating loss for Other in the three and six months ended February 28, 2013 includes credits of $5.0 million and $21.9 million, respectively, associated with a legal matter.

A summary of our consolidated assets by reportable segment is as follows:

($ in thousands)	February 28, 2014		August 31, 2013
University of Phoenix	$	874,980	$	790,537
Apollo Global	613,187		359,903
Other(1)	1,043,263		1,847,507
Total assets	$	2,531,430	$	2,997,947

⁽¹⁾ The majority of assets included in Other consists of corporate cash and cash equivalents and marketable securities.

XML

Earnings Per Share

6 Months Ended

Feb. 28, 2014

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Our outstanding shares consist of Apollo Education Group Class A and Class B common stock. Our Articles of Incorporation treat the declaration of dividends on the Apollo Education Group Class A and Class B common stock in an identical manner. As such, both the Apollo Education Group Class A and Class B common stock are included in the calculation of our earnings per share.

Diluted weighted average shares outstanding includes the incremental effect of shares that would be issued upon the assumed exercise of stock options and the vesting and release of restricted stock units and performance share awards. The components of basic and diluted earnings per share are as follows:

	Three Months Ended February 28,				Six Months Ended February 28,
(In thousands, except per share data)	2014		2013		2014		2013
Numerator:
Net income attributable to Apollo (basic and diluted)	$	14,605	$	13,527	$	113,496	$	147,022
Denominator:
Basic weighted average shares outstanding	112,151		112,573		112,742		112,496
Dilutive effect of restricted stock units and performance share awards	1,070		495		838		488
Dilutive effect of stock options	159		—		96		—
Diluted weighted average shares outstanding	113,380		113,068		113,676		112,984
Basic income per share attributable to Apollo	$	0.13	$	0.12	$	1.01	$	1.31
Diluted income per share attributable to Apollo	$	0.13	$	0.12	$	1.00	$	1.30
Anti-dilutive securities excluded from diluted earnings per share calculation:
Anti-dilutive restricted stock units and performance share awards outstanding	9		1,802		842		1,902
Anti-dilutive stock options outstanding	2,628		7,849		3,079		8,124

XML

Accrued and Other Liabilities

6 Months Ended

Feb. 28, 2014

Payables and Accruals [Abstract]

Accrued and other liabilities

Accrued and Other Liabilities

Accrued and other current liabilities consist of the following as of the respective periods:

($ in thousands)	February 28, 2014		August 31, 2013
Salaries, wages and benefits	$	89,394	$	135,553
Restructuring obligations	56,687		55,191
Accrued legal and other professional obligations	35,600		31,310
Contingent consideration, current portion	29,926		—
Accrued advertising	27,275		45,850
Student refunds, grants and scholarships	15,780		7,180
Deferred rent and other lease liabilities	12,728		14,001
Curriculum materials	10,073		10,764
Other	50,777		46,857
Total accrued and other current liabilities	$	328,240	$	346,706

Other long-term liabilities consist of the following as of the respective periods:

($ in thousands)	February 28, 2014		August 31, 2013
Deferred rent and other lease liabilities	$	62,903	$	67,641
Restructuring obligations	58,615		64,610
Deferred gains on sale-leasebacks	22,379		22,894
Uncertain tax positions	17,929		33,637
Other	60,238		44,660
Total other long-term liabilities	$	222,064	$	233,442

XML

Goodwill and Intangibles

6 Months Ended

Feb. 28, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangibles

Goodwill and Intangibles

The following details changes in the carrying amount of our goodwill by reportable segment during the six months ended February 28, 2014:

($ in thousands)	University of Phoenix		Apollo Global		Other		Total
Goodwill as of August 31, 2013	$	71,812	$	14,917	$	16,891	$	103,620
Open Colleges acquisition	—		127,656		—		127,656
Currency translation adjustment	—		1,761		—		1,761
Goodwill as of February 28, 2014	$	71,812	$	144,334	$	16,891	$	233,037

Intangible assets consist of the following as of the respective periods:

	February 28, 2014										August 31, 2013
($ in thousands)	Gross Carrying Amount		Accumulated Amortization			Effect of Foreign Currency Translation Gain (Loss)			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Effect of Foreign Currency Translation Loss			Net Carrying Amount
Software and technology	$	42,389	$	(20,912	)	$	—		$	21,477	$	42,389	$	(16,673	)	$	—		$	25,716
Accreditations and designations(1)	21,628		(733		)	288			21,183		—		—			—			—
Trademarks(1)	17,919		(300		)	242			17,861		—		—			—			—
Curriculum(1)	15,790		(661		)	210			15,339		—		—			—			—
Student and customer relationships(1)	15,264		(7,612		)	(1,282		)	6,370		12,026		(7,727		)	(1,363		)	2,936
Other	20,891		(19,408		)	(695		)	788		20,891		(18,706		)	(777		)	1,408
Total finite-lived intangibles	133,881		(49,626		)	(1,237		)	83,018		75,306		(43,106		)	(2,140		)	30,060
Trademarks	100,736		—			526			101,262		100,736		—			(5,347		)	95,389
Accreditations and designations	7,260		—			(197		)	7,063		7,260		—			(517		)	6,743
Total indefinite-lived intangibles	107,996		—			329			108,325		107,996		—			(5,864		)	102,132
Total intangible assets, net	$	241,877	$	(49,626	)	$	(908	)	$	191,343	$	183,302	$	(43,106	)	$	(8,004	)	$	132,192

⁽¹⁾ We acquired certain intangibles during the second quarter of fiscal year 2014 as a result of our acquisition of Open Colleges. Refer to Note 4, Acquisitions.

As of February 28, 2014, the estimated future amortization expense of our finite-lived intangibles is as follows:

($ in thousands)
Remainder of fiscal year 2014	$	12,969
2015	22,054
2016	18,968
2017	10,538
2018	7,411
2019	3,207
Thereafter	7,871
Total estimated future amortization expense(1)	$	83,018

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

XML

Fair Value Measurements

6 Months Ended

Feb. 28, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

We measure and disclose certain financial instruments at fair value as described in Note 5, Financial Instruments.Liabilities measured at fair value on a recurring basis, all of which are included in other liabilities on our Condensed Consolidated Balance Sheets, consist of the following as of February 28, 2014 and August 31, 2013:

			Fair Value Measurements at Reporting Date Using
	Fair Value as of Respective Reporting Date		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, 2014	$	36,023	$	—	$	—	$	36,023
Contingent consideration as of August 31, 2013	$	5,277	$	—	$	—	$	5,277

Our contingent consideration liabilities are classified within Level 3 and valued using discounted cash flow valuation methods encompassing significant unobservable inputs. The inputs include estimated operating results scenarios for the applicable performance periods, probability weightings assigned to operating results scenarios and the discount rates applied. Our contingent consideration liabilities relate to the following:

• Open Colleges - We acquired Open Colleges during the second quarter of fiscal year 2014 and are obligated to pay contingent consideration of up to A$52.5 million (equivalent to $47.2 million as of February 28, 2014) upon the satisfaction of specified conditions. If the applicable conditions are satisfied, the amount of the contingent consideration will be calculated principally on the basis of Open Colleges’ operating results for its fiscal year ending June 30, 2014 as defined in the acquisition agreement. Based on information available as of the acquisition date, we initially estimated the fair value of the contingent consideration to be $21.4 million. As of February 28, 2014, we increased the estimated fair value to $29.9 million based on information available after the acquisition date, including Open Colleges’ recent operating results. The increase in fair value was included in acquisition costs and contingent consideration charges on our Condensed Consolidated Statements of Income during the second quarter of fiscal year 2014.

• Noncontrolling Interest in 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, 2014, the estimated fair value for this contingent consideration was $6.1 million.

We did not change our valuation techniques associated with recurring fair value measurements from prior periods. The following summarizes the changes in liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the respective periods:

	Six Months Ended February 28,
($ in thousands)	2014		2013
Beginning balance	$	5,277	$	—
Initial contingent consideration at fair value	21,371		6,000
Change in fair value included in net income	8,754		(145		)
Currency translation adjustment	621		—
Ending balance	$	36,023	$	5,855

Liabilities measured at fair value on a nonrecurring basis during the six months ended February 28, 2014, all of which are included in other liabilities on our Condensed Consolidated Balance Sheets, consist of the following:

			Fair Value Measurements at Measurement Dates Using
($ in thousands)	Fair Value at Measurement Dates		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses for Six Months Ended February 28, 2014
Initial lease obligations	$	16,972	$	—	$	—	$	16,972	$	16,972

During the six months ended February 28, 2014, we recorded $17.0 million of aggregate initial lease obligations at fair value associated with closing certain leased facilities as part of our restructuring activities. We recorded the lease obligation liabilities on the dates we ceased use of the facilities, and we measured the liabilities at fair value using Level 3 inputs included in the valuation method. Refer to Note 3, Restructuring and Other Charges.

XML

Debt

6 Months Ended

Feb. 28, 2014

Debt Disclosure [Abstract]

Debt

Debt

Debt and short-term borrowings consist of the following as of the respective periods:

($ in thousands)	February 28, 2014			August 31, 2013
Revolving Credit Facility, see terms below	$	—		$	605,000
Capital lease obligations	38,752			49,628
Other, see terms below	35,671			37,426
Total debt	74,423			692,054
Less short-term borrowings and current portion of long-term debt	(30,781		)	(628,050		)
Long-term debt	$	43,642		$	64,004

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 $605.0 million and had approximately $14 million of outstanding letters of credit under the Revolving Credit Facility as of August 31, 2013. We repaid the entire amount borrowed under the Revolving Credit Facility during the first quarter of fiscal year 2014. As of February 28, 2014, we have approximately $24 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, 2013 was 3.5%.

The Revolving Credit Facility contains various customary representations, covenants and other provisions, including a material adverse event clause and the following financial covenants: maximum leverage ratio, minimum interest and rent expense coverage ratio, and a U.S. Department of Education financial responsibility composite score. We were in compliance with all applicable covenants related to the Revolving Credit Facility at February 28, 2014 and August 31, 2013.

Other debt principally includes debt at subsidiaries of Apollo Global and the present value of an obligation payable over a 10-year period associated with our purchase of technology in fiscal year 2012. The weighted average interest rate on our outstanding other debt at February 28, 2014 and August 31, 2013 was 5.8% and 5.3%, respectively.

The carrying value of our debt, excluding capital leases, approximates fair value based on the nature of our debt, which includes consideration of the portion that is variable-rate.

XML

Earnings Per Share (Tables)

6 Months Ended

Feb. 28, 2014

Earnings Per Share [Abstract]

Earnings per share

The components of basic and diluted earnings per share are as follows:

	Three Months Ended February 28,				Six Months Ended February 28,
(In thousands, except per share data)	2014		2013		2014		2013
Numerator:
Net income attributable to Apollo (basic and diluted)	$	14,605	$	13,527	$	113,496	$	147,022
Denominator:
Basic weighted average shares outstanding	112,151		112,573		112,742		112,496
Dilutive effect of restricted stock units and performance share awards	1,070		495		838		488
Dilutive effect of stock options	159		—		96		—
Diluted weighted average shares outstanding	113,380		113,068		113,676		112,984
Basic income per share attributable to Apollo	$	0.13	$	0.12	$	1.01	$	1.31
Diluted income per share attributable to Apollo	$	0.13	$	0.12	$	1.00	$	1.30
Anti-dilutive securities excluded from diluted earnings per share calculation:
Anti-dilutive restricted stock units and performance share awards outstanding	9		1,802		842		1,902
Anti-dilutive stock options outstanding	2,628		7,849		3,079		8,124

XML

Earnings Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Feb. 28, 2014	Feb. 28, 2013	Feb. 28, 2014	Feb. 28, 2013
Earnings Per Share [Abstract]
Net income attributable to Apollo (basic and diluted)	$ 14,605	$ 13,527	$ 113,496	$ 147,022
Basic weighted average shares outstanding (in shares)	112,151	112,573	112,742	112,496
Anti-dilutive securities [Line Items]
Diluted weighted average shares outstanding (in shares)	113,380	113,068	113,676	112,984
Basic income per share attributable to Apollo (in dollars per share)	$ 0.13	$ 0.12	$ 1.01	$ 1.31
Diluted income per share attributable to Apollo (in dollars per share)	$ 0.13	$ 0.12	$ 1.00	$ 1.30
Restricted stock units and performance share awards [Member]
Anti-dilutive securities [Line Items]
Dilutive effect of share-based awards (in shares)	1,070	495	838	488
Anti-dilutive securities excluded from earnings per share computation	9	1,802	842	1,902
Stock options [Member]
Anti-dilutive securities [Line Items]
Dilutive effect of share-based awards (in shares)	159	0	96	0
Anti-dilutive securities excluded from earnings per share computation	2,628	7,849	3,079	8,124

XML

Commitments and Contingencies

6 Months Ended

Feb. 28, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Surety Bonds

As part of our normal operations, our insurers issue surety bonds for us that are required by various states where we operate. We are obligated to reimburse our insurers for any surety bonds that are paid. As of February 28, 2014, the face amount of these surety bonds was $42.4 million.

Letters of Credit

As of February 28, 2014, we had approximately $24 million of outstanding letters of credit that are required as part of our normal operations.

Litigation and Other Matters

We are subject to various claims and contingencies that arise from time to time in the ordinary course of business, including those related to regulation, litigation, business transactions, employee-related matters and taxes, among others. We do not believe any of these are material for separate disclosure.

The following is a description of pending litigation, settlements, and other proceedings that fall outside the scope of ordinary and routine litigation incidental to our business.

Securities Class Action (Apollo Institutional Investors Group)

On August 13, 2010, a securities class action complaint was filed in the U.S. District Court for the District of Arizona by Douglas N. Gaer naming us, John G. Sperling, Gregory W. Cappelli, Charles B. Edelstein, Joseph L. D’Amico, Brian L. Swartz and Gregory J. Iverson as defendants for allegedly making false and misleading statements regarding our business practices and prospects for growth. That complaint asserted a putative class period stemming from December 7, 2009 to August 3, 2010. A substantially similar complaint was also filed in the same Court by John T. Fitch on September 23, 2010 making similar allegations against the same defendants for the same purported class period. Finally, on October 4, 2010, another purported securities class action complaint was filed in the same Court by Robert Roth against the same defendants as well as Brian Mueller, Terri C. Bishop and Peter V. Sperling based upon the same general set of allegations, but with a defined class period of February 12, 2007 to August 3, 2010. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On October 15, 2010, three additional parties filed motions to consolidate the related actions and be appointed the lead plaintiff.

On November 23, 2010, the Fitch and Roth actions were consolidated with Gaer and the Court appointed the “Apollo Institutional Investors Group” consisting of the Oregon Public Employees Retirement Fund, the Mineworkers’ Pension Scheme, and Amalgamated Bank as lead plaintiffs. The case is now entitled, In re Apollo Group, Inc. Securities Litigation, Lead Case Number CV-10-1735-PHX-JAT. On February 18, 2011, the lead plaintiffs filed a consolidated complaint naming Apollo, John G. Sperling, Peter V. Sperling, Joseph L. D’Amico, Gregory W. Cappelli, Charles B. Edelstein, Brian L. Swartz, Brian E. Mueller, Gregory J. Iverson, and William J. Pepicello as defendants. The consolidated complaint asserts a putative class period of May 21, 2007 to October 13, 2010. On April 19, 2011, we filed a motion to dismiss and oral argument on the motion was held before the Court on October 17, 2011. On October 27, 2011, the Court granted our motion to dismiss and granted plaintiffs leave to amend. On December 6, 2011, the lead plaintiffs filed an Amended Consolidated Class Action Complaint, which alleges similar claims against the same defendants. On January 9, 2012, we filed a motion to dismiss the Amended Consolidated Class Action Complaint. On June 22, 2012, the Court granted our motion to dismiss and entered a judgment in our favor. On July 20, 2012, the plaintiffs filed a Notice of Appeal with the U.S. Court of Appeals for the Ninth Circuit, and their appeal remains pending before that Court. If the plaintiffs are successful in their appeal, we anticipate they will seek substantial damages.

Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.

Securities Class Action (Teamsters Local 617 Pensions and Welfare Funds)

On November 2, 2006, the Teamsters Local 617 Pension and Welfare Funds filed a class action complaint purporting to represent a class of shareholders who purchased our stock between November 28, 2001 and October 18, 2006. The complaint, filed in the U.S. District Court for the District of Arizona, is entitled Teamsters Local 617 Pension & Welfare Funds v. Apollo Group, Inc. et al., Case Number 06-cv-02674-RCB, and alleges that we and certain of our current and former directors and officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by purportedly making misrepresentations concerning our stock option granting policies and practices and related accounting. The defendants are Apollo, J. Jorge Klor de Alva, Daniel E. Bachus, John M. Blair, Dino J. DeConcini, Kenda B. Gonzales, Hedy F. Govenar, Brian E. Mueller, Todd S. Nelson, Laura Palmer Noone, John R. Norton III, John G. Sperling and Peter V. Sperling. On September 11, 2007, the Court appointed The Pension Trust Fund for Operating Engineers as lead plaintiff. Lead plaintiff filed an amended complaint on November 23, 2007, asserting the same legal claims as the original complaint and adding claims for violations of Section 20A of the Securities Exchange Act of 1934 and allegations of breach of fiduciary duties and civil conspiracy. On April 30, 2009, plaintiffs filed their Second Amended Complaint, which alleges similar claims for alleged securities fraud against the same defendants.

On March 31, 2011, the U.S. District Court for the District of Arizona dismissed the case with prejudice and entered judgment in our favor. Plaintiffs filed a motion for reconsideration of this ruling, and the Court denied this motion on April 2, 2012. On April 27, 2012, the plaintiffs filed a Notice of Appeal with the U.S. Court of Appeals for the Ninth Circuit, and their appeal remains pending before that Court. If the plaintiffs are successful in their appeal, we anticipate they will seek substantial damages.

As of February 28, 2014, we have accrued an immaterial amount reflecting a rejected settlement offer we made during the second quarter of fiscal year 2014. The outcome of this legal proceeding is uncertain at this point and the actual amount of any loss will not be known until a settlement or other resolution is reached. Additionally, we intend to pursue reimbursement from our insurance carriers for losses, if any, associated with this matter.

Incentive Compensation False Claims Act Lawsuit

On May 25, 2011, we were notified that a qui tam complaint had been filed against us in the U.S. District Court, Eastern District of California, by private relators under the Federal False Claims Act and California False Claims Act, entitled USA and State of California ex rel. Hoggett and Good v. University of Phoenix, et al, Case Number 2:10-CV-02478-MCE-KJN. When the federal government declines to intervene in a qui tam action, as it has done in this case, the relators may elect to pursue the litigation on behalf of the federal government and, if successful, they are entitled to receive a portion of the federal government’s recovery.

The complaint alleges, among other things, that University of Phoenix has violated the Federal False Claims Act since December 12, 2009 and the California False Claims Act for the preceding ten years by falsely certifying to the U.S. Department of Education and the State of California that University of Phoenix was in compliance with various regulations that require compliance with federal rules regarding the payment of incentive compensation to admissions personnel, in connection with University of Phoenix’s participation in student financial aid programs. In addition to injunctive relief and fines, the relators seek significant damages on behalf of the Department of Education and the State of California, including all student financial aid disbursed by the Department to our students since December 2009 and by the State of California to our students during the preceding ten years. On July 12, 2011, we filed a motion to dismiss and on August 30, 2011, relators filed a motion for leave to file a Second Amended Complaint, which the Court granted. On November 2, 2011, we filed a motion to dismiss relators’ Second Amended Complaint, which was denied by the Court on July 6, 2012. On August 1, 2012, we filed a motion for certification of an interlocutory appeal, which was denied by the Court on March 7, 2013. Discovery in this matter has commenced, and trial is scheduled for January 2015.

Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.

Himmel Derivative Action

On November 12, 2010, we received a shareholder demand to investigate, address and commence proceedings against each of our directors and certain of our officers for violation of any applicable laws, including in connection with the subject matter of the report of the Government Accountability Office prepared for the U.S. Senate in August 2010, our withdrawal of the outlook we previously provided for our fiscal year 2011, the investigation into possible unfair and deceptive trade practices associated with certain alleged practices of University of Phoenix by the State of Florida Office of the Attorney General in Fort Lauderdale, Florida, the participation by the State of Oregon Office of the Attorney General in the Securities Class Action (Apollo Institutional Investors Group), and the informal inquiry by the Enforcement Division of the Securities and Exchange Commission commenced in October 2009.

On March 24, 2011, a shareholder derivative complaint was filed in the Superior Court for the State of Arizona, Maricopa County by Daniel Himmel, the foregoing shareholder who previously made a demand for investigation. In the complaint, the plaintiff asserts a derivative claim on our behalf against certain of our current and former officers and directors for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The complaint alleges that the individual defendants made improper statements and engaged in improper business practices that caused our stock price to drop, led to securities class actions against us, and enhanced regulation and scrutiny by various government entities and regulators. The case is entitled, Himmel v. Bishop, et al, Case Number CV2011-005604. Pursuant to a stipulation between all parties, on August 31, 2011, the Court ordered this action stayed during the pendency of the underlying Securities Class Action (Apollo Institutional Investors Group) matter.

K.K. Modi Investment and Financial Services Pvt. Ltd.

On November 8, 2010, a suit was filed by K.K. Modi Investment and Financial Services Pvt. Ltd. (“Modi”) in the High Court of Delhi at New Delhi against defendants Apollo, Western International University, Inc., University of Phoenix, Inc., Apollo Global, Inc., Modi Apollo International Group Pvt. Ltd., Apollo International, Inc., John G. Sperling, Peter V. Sperling and Jorge Klor De Alva, seeking to permanently enjoin the defendants from making investments in the education industry in the Indian market in breach of an exclusivity and noncompete provision which plaintiff alleges is applicable to Apollo and its subsidiaries. The case is entitled, K.K. Modi Investment and Financial Services Pvt. Ltd. v. Apollo International, et. al. We believe that the relevant exclusivity and noncompete provision is inapplicable to us and our affiliates, we have sought to dismiss this action on those grounds, and our application for such relief remains pending before the Court. If plaintiff ultimately obtains the requested injunctive relief, our ability to conduct business in India, including through our joint venture with HT Media Limited, may be adversely affected. It is also possible that in the future K.K. Modi may seek to expand existing litigation in India or commence litigation in the U.S. in which it may assert a significant damage claim against us.

Attorney General Investigations

On October 22, 2010, University of Phoenix received notice that the State of Florida Office of the Attorney General in Fort Lauderdale, Florida had commenced an investigation into possible unfair and deceptive trade practices associated with certain alleged practices of the University. The notice included a subpoena to produce documents and detailed information for the time period of January 1, 2006 to the present about a broad spectrum of the University’s business. We are cooperating with the investigation, but also filed a suit to quash or limit the subpoena and to protect information sought that constitutes propriety or trade secret information. We cannot predict the eventual scope, duration or outcome of the investigation at this time.

In May 2011 and January 2013, University of Phoenix received Civil Investigative Demands from the State of Massachusetts Office of the Attorney General. The Demands relate to an investigation of possible unfair or deceptive methods, acts, or practices by for-profit educational institutions in connection with the recruitment of students and the financing of education. The Demands seek documents, information and testimony regarding a broad spectrum of the University’s business for the time period of January 1, 2002 to the present. We are cooperating with the investigation. We cannot predict the eventual scope, duration or outcome of the investigation at this time.

UNIACC Investigations

UNIACC was advised by the National Accreditation Commission of Chile in November 2011 that its institutional accreditation would not be renewed and therefore had lapsed. Subsequently, in June 2012, a prosecutor’s office in Santiago, Chile requested that UNIACC provide documents relating to UNIACC’s relationship with a former employee and consultant who served as a member of the National Accreditation Commission until March 2012, and we have since received requests for additional information in connection with this investigation. Furthermore, in August 2012, the prosecutor’s office began requesting that UNIACC provide information about UNIACC’s business structure and operations and its relationship with other Apollo entities, in connection with an additional investigation regarding UNIACC’s compliance with applicable laws concerning the generation of profit by universities such as UNIACC. The prosecutor’s office is also requesting additional information from UNIACC regarding certain government funding received by the institution. UNIACC is cooperating with these investigations. At this time, we cannot predict the eventual scope, duration or outcome of these investigations.

In November 2012, UNIACC learned that the Ministry of Education was commencing a formal investigation into profit related issues and concerning the official recognition of UNIACC as a university under Chilean law. On November 18, 2013, we were notified by the Ministry of Education that it declined to pursue any charges against UNIACC and closed its investigation without imposing any sanction on UNIACC. In closing its investigation, the Ministry forwarded certain of its files for review by the Chilean tax authorities and the criminal prosecutor conducting the profit investigation referenced above.

Office of the Inspector General of the U.S. Department of Education (“OIG”) Subpoena

On March 21, 2014, University of Phoenix received a subpoena from the Mid-Atlantic Region of the OIG. The subpoena seeks the production by the University of documents and detailed information regarding a broad spectrum of the activities conducted in the University’s Centralized Service Center for the Northeast Region located in Columbia, Maryland, for the time period of January 1, 2007 to the present, including information relating to marketing, recruitment, enrollment, financial aid processing, fraud prevention, student retention, personnel training, attendance, academic grading and other matters. We intend to cooperate with these requests but cannot at this time predict the eventual scope, duration or outcome of this matter.

Patent Infringement Litigation

On March 3, 2008, Digital-Vending Services International Inc. filed a complaint against University of Phoenix and Apollo, as well as Capella Education Company, Laureate Education Inc., and Walden University Inc. in the U.S. District Court for the Eastern District of Texas, since transferred on plaintiff’s motion to the Eastern District of Virginia. The case is entitled, Digital Vending Services International, LLC vs. The University of Phoenix, et al, Case Number 2:09cv555 (JBF-TEM). The complaint alleges that we and the other defendants have infringed and are infringing various patents relating to managing courseware in a shared use operating environment and seeks injunctive relief and substantial damages, including royalties as a percentage of our net revenue over a multi-year period. We filed an answer to the complaint on May 27, 2008, in which we denied that Digital-Vending Services International’s patents were duly and lawfully issued, and asserted defenses of non-infringement and patent invalidity, among others. We also asserted a counterclaim seeking a declaratory judgment that the patents are invalid, unenforceable, and not infringed by us.

On January 7, 2011, the Court granted our motion for summary judgment and dismissed the case with prejudice, citing plaintiff’s failure to point to admissible evidence that could support a finding of infringement. Plaintiff appealed the order granting summary judgment to the United States Court of Appeals for the Federal Circuit, which held oral argument on December 5, 2011. On March 7, 2012, a divided three-judge panel of the Federal Circuit issued an opinion affirming in part and reversing in part the order granting summary judgment, and it remanded a portion of the plaintiff’s claims to the district court for further proceedings. We filed a Petition for Rehearing with the Federal Circuit regarding the portion of the decision reversing the grant of summary judgment, which the Federal Circuit denied on May 25, 2012. Accordingly, the case was remanded to the U.S. District Court for the Eastern District of Virginia for further proceedings. In July 2013, we filed another motion for summary judgment based on non-infringement, and on October 4, 2013, the Court granted our motion and dismissed each of plaintiff’s remaining claims with prejudice. On November 1, 2013, plaintiff filed a Notice of Appeal of the District Court’s order. The parties subsequently entered into a settlement agreement for an immaterial amount pursuant to which plaintiff agreed to dismiss its appeal. Plaintiff’s appeal was dismissed on November 21, 2013, which resolved the litigation.

XML

Acquisitions (Tables)

6 Months Ended

Feb. 28, 2014

Business Combinations [Abstract]

Acquisitions

We accounted for the acquisition as a business combination and allocated the purchase price to the assets acquired and liabilities assumed at fair value as summarized below:

($ in thousands)
Net working capital deficit	$	(10,979	)
Property and equipment	2,684
Intangibles:
Course designations (5 year useful life)	20,652
Trademark (10 year useful life)	17,919
Course curriculum (4 year useful life)	15,790
Customer relationships (1 year useful life)	5,238
Accreditations (4 year useful life)	976
Goodwill	127,656
Deferred taxes, net	(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

XML

Shareholders' Equity and Redeemable Noncontrolling Interests (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Feb. 28, 2014	Feb. 28, 2013	Feb. 28, 2014	Feb. 28, 2013
Net income attributable to Apollo	$ 14,605	$ 13,527	$ 113,496	$ 147,022
Purchase of noncontrolling interest				(48,500)
Change from net income attributable to Apollo and transfer to noncontrolling interest			113,496	98,479
Additional paid-in capital [Member]
Purchase of noncontrolling interest			$ 0	$ (48,543)

XML

Accounts Receivable, Net (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Feb. 28, 2014	Feb. 28, 2013	Feb. 28, 2014	Feb. 28, 2013	Aug. 31, 2013
Accounts receivable, net [Abstract]
Student accounts receivable	$ 236,571		$ 236,571		$ 243,660
Less allowance for doubtful accounts	(53,038)	(84,773)	(53,038)	(84,773)
Net student accounts receivable	183,533		183,533		183,916
Other receivables	15,569		15,569		31,485
Total accounts receivable, net	199,102		199,102		215,401
Allowance for doubtful accounts [Abstract]
Allowance for doubtful accounts	55,895	101,793	59,744	107,230
Provision for uncollectible accounts receivable	11,534	18,902	25,512	52,308
Write-offs, net of recoveries	(14,391)	(35,922)	(32,218)	(74,765)
Allowance for doubtful accounts	$ 53,038	$ 84,773	$ 53,038	$ 84,773

XML

Condensed Consolidated Statements of Shareholders' Equity and Redeemable Noncontrolling Interests (USD $)	Total USD ($)		Redeemable noncontrolling interests [Member] USD ($)	Apollo Education Group Class A nonvoting common stock [Member]	Apollo Education Group Class B voting common stock [Member]	Permanent Equity [Member] USD ($)	Common stock [Member] Apollo Education Group Class A nonvoting common stock [Member] USD ($)	Common stock [Member] Apollo Education Group Class B voting common stock [Member] USD ($)	Additional paid-in capital [Member] USD ($)	Apollo Education Group Class A treasury stock [Member] USD ($)	Retained earnings [Member] USD ($)	Accumulated other comprehensive loss [Member] USD ($)	Total Apollo shareholders' equity [Member] USD ($)	Noncontrolling interests [Member] USD ($)
Balance at Aug. 31, 2012	$ 924,323,000						$ 103,000	$ 1,000	$ 93,770,000	$ (3,878,612,000)	$ 4,743,150,000	$ (30,034,000)	$ 928,378,000	$ (4,055,000)
Treasury stock outstanding (in shares) at Aug. 31, 2012										76,239,000
Shares at Aug. 31, 2012				188,007,000	475,000
Treasury stock purchases (in shares)										159,000
Treasury stock purchases	(3,881,000)									(3,881,000)			(3,881,000)
Treasury stock issued under stock purchase plans (in shares)										(93,000)
Treasury stock issued under stock purchase plan	2,131,000								(2,591,000)	4,722,000			2,131,000
Treasury stock issued under stock incentive plans (in shares)										(431,000)
Treasury stock issued under stock incentive plans	0								(17,735,000)	17,735,000
Net tax effect for stock incentive plans	(8,816,000)								(8,816,000)				(8,816,000)
Share-based compensation	27,515,000								27,515,000				27,515,000
Currency translation adjustment, net of tax	(2,630,000)	[1]										(2,326,000)	(2,326,000)	(304,000)
Purchase of noncontrolling interest	(48,500,000)								(48,543,000)			(4,886,000)	(53,429,000)	(4,929,000)
Net income (loss)	147,399,000										147,022,000		147,022,000	377,000
Balance at Feb. 28, 2013	1,037,541,000						103,000	1,000	43,600,000	(3,860,036,000)	4,890,172,000	(37,246,000)	1,036,594,000	947,000
Treasury stock outstanding (in shares) at Feb. 28, 2013										75,874,000
Shares at Feb. 28, 2013				188,007,000	475,000
Redeemable noncontrolling interests at Aug. 31, 2013	0		0
Balance at Aug. 31, 2013	1,118,009,000						103,000	1,000	0	(3,824,758,000)	4,978,815,000	(36,563,000)	1,117,598,000	411,000
Treasury stock outstanding (in shares) at Aug. 31, 2013										75,182,000
Shares at Aug. 31, 2013				188,007,000	475,000
Treasury stock purchases (in shares)										2,403,000
Treasury stock purchases	(72,237,000)									(72,237,000)			(72,237,000)
Treasury stock issued under stock purchase plans (in shares)										(72,000)
Treasury stock issued under stock purchase plan	1,692,000								(1,931,000)	3,623,000			1,692,000
Treasury stock issued under stock incentive plans (in shares)										(319,000)
Treasury stock issued under stock incentive plans	(101,000)								(13,077,000)	12,978,000	(200,000)		(101,000)
Net tax effect for stock incentive plans	(7,502,000)								(7,502,000)				(7,502,000)
Share-based compensation	22,510,000								22,510,000				22,510,000
Currency translation adjustment, net of tax	7,318,000	[1]	676,000			6,642,000						6,539,000	6,539,000	103,000
Acquisition			51,197,000
Purchase of noncontrolling interest									0
Net income (loss)	113,703,000										113,496,000		113,496,000	207,000
Net income (loss)			(2,485,000)
Net income (loss)	111,218,000
Redeemable noncontrolling interests at Feb. 28, 2014	49,388,000		49,388,000
Balance at Feb. 28, 2014	$ 1,182,918,000						$ 103,000	$ 1,000	$ 0	$ (3,880,394,000)	$ 5,092,511,000	$ (30,024,000)	$ 1,182,197,000	$ 721,000
Treasury stock outstanding (in shares) at Feb. 28, 2014										77,194,000
Shares at Feb. 28, 2014				188,007,000	475,000

[1] The tax effect on other comprehensive income during the three and six months ended February 28, 2014 and 2013, respectively, is not significant.

XML

Acquisitions

6 Months Ended

Feb. 28, 2014

Business Combinations [Abstract]

Acquisitions

Acquisitions

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, which supports our strategy to expand our global operations. We paid A$110.3 million (equivalent to $98.1 million on the transaction date), plus contingent consideration of up to A$52.5 million (equivalent to $46.5 million on the transaction date) upon the satisfaction of specified conditions. If the applicable conditions are satisfied, the amount of the contingent consideration will be calculated principally on the basis of Open Colleges’ operating results for its fiscal year ending June 30, 2014 as defined in the acquisition agreement. On the acquisition date, we estimated the fair value of the contingent consideration to be $21.4 million using a discounted cash flow valuation method encompassing significant unobservable inputs. The inputs include estimated operating results for the performance period, probability weightings assigned to the operating results scenarios and the discount rate applied. We incurred $3.6 million of transaction costs in connection with this acquisition, which are included in acquisition costs and contingent consideration charges on our Condensed Consolidated Statements of Income in the three months ended February 28, 2014.

In connection with the acquisition, we also have the option to buy the remaining outstanding shares of Open Colleges, and the noncontrolling shareholders have the option to sell their shares to us, in early 2017, 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 Open Colleges’ calendar year 2016 operating results as defined in the acquisition agreement, or an earlier measurement period in the limited circumstances that the options are exercised prior to 2017. 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. Refer to Note 12, Shareholders’ Equity and Redeemable Noncontrolling Interests.

We accounted for the acquisition as a business combination and allocated the purchase price to the assets acquired and liabilities assumed at fair value as summarized below:

($ in thousands)
Net working capital deficit	$	(10,979	)
Property and equipment	2,684
Intangibles:
Course designations (5 year useful life)	20,652
Trademark (10 year useful life)	17,919
Course curriculum (4 year useful life)	15,790
Customer relationships (1 year useful life)	5,238
Accreditations (4 year useful life)	976
Goodwill	127,656
Deferred taxes, net	(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

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 all of the acquired intangibles. The trademark, course designations, and course curriculum were valued using the relief-from-royalty method, which represents the benefit of owning these intangible assets rather than paying royalties for their use. The remaining intangibles were valued using the excess earnings method or cost savings method.

• Deferred revenue - Deferred revenue is included in net working capital deficit in the above table. We estimated the fair value of deferred revenue using the cost build-up method, which represents the cost to deliver the services, plus a normal profit margin.

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

• Redeemable noncontrolling interests - We estimated the fair value of the redeemable noncontrolling interests as the noncontrolling ownership percentage of the implied fair value of Open Colleges as a whole. Based on the terms of the acquisition, including the redemption options held by the noncontrolling shareholders, we did not apply a discount for lack of control to the value of the noncontrolling interest.

We recorded $127.7 million of goodwill as a result of the Open Colleges acquisition, which is not expected to be deductible for tax purposes. 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 determined all of the 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 intangibles was 5.9 years. Refer to Note 7, Goodwill and Intangibles, for the estimated future amortization of our finite-lived intangibles.

Open Colleges’ operating results are included in our consolidated financial statements from date of acquisition. We have not provided pro forma information because Open Colleges’ results of operations are not significant to our consolidated results of operations.

XML

Financial Instruments (Tables)

6 Months Ended

Feb. 28, 2014

Financial Instruments [Abstract]

Financial instruments

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

	February 28, 2014
($ in thousands)	Cash and Cash Equivalents(1)		Current Marketable Securities		Noncurrent Marketable Securities		Total Carrying Value		Unrealized Gains		Unrealized Losses			Fair Value
Cash	$	749,176	$	—	$	—	$	749,176	$	—	$	—		$	749,176
Level 1:
Money market funds	152,684		—		—		152,684		—		—			152,684
Level 2:
Tax-exempt municipal bonds	602		61,224		48,190		110,016		201		(6		)	110,211
Commercial paper	—		29,573		—		29,573		3		—			29,576
Corporate bonds	2,397		27,657		54,857		84,911		143		(16		)	85,038
Time deposits	25,010		25,013		—		50,023		—		—			50,023
Other	—		14,776		2,716		17,492		4		—			17,496
Level 3:
Auction-rate securities	—		—		5,946		5,946
Total	$	929,869	$	158,243	$	111,709	$	1,199,821

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

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

XML

Restructuring and Other Charges (Details) (USD $)	3 Months Ended		6 Months Ended		42 Months Ended
	Feb. 28, 2014	Feb. 28, 2013	Feb. 28, 2014	Feb. 28, 2013	Feb. 28, 2014	Aug. 31, 2013
Restructuring [Line Items]
Restructuring and other charges	$ 15,209,000	$ 44,076,000	$ 47,172,000	$ 68,192,000
Cumulative costs for restructuring activities					307,405,000
Balance			119,801,000
Non-cash adjustments			(4,137,000)
Payments			(47,534,000)
Balance	115,302,000		115,302,000		115,302,000
Accelerated depreciation			4,316,000	30,641,000
Restructuring liability, current	56,687,000		56,687,000		56,687,000	55,191,000
Restructuring gross obligation	175,000,000		175,000,000		175,000,000
Expected future restructuring charges			10,000,000
Minimum [Member]
Restructuring [Line Items]
Discount rate					3.00%
Maximum [Member]
Restructuring [Line Items]
Discount rate					6.00%
University Of Phoenix [Member]
Restructuring [Line Items]
Restructuring and other charges	11,229,000	38,445,000	36,655,000	55,341,000
Cumulative costs for restructuring activities					238,327,000
Expected number of facilities abandoned			115
Percentage of square feet exited	90.00%		90.00%		90.00%
Apollo Global [Member]
Restructuring [Line Items]
Restructuring and other charges	304,000	3,336,000	1,567,000	3,415,000
Cumulative costs for restructuring activities					13,332,000
Other [Member]
Restructuring [Line Items]
Restructuring and other charges	3,676,000	2,295,000	8,950,000	9,436,000
Cumulative costs for restructuring activities					55,746,000
Lease and related costs, net [Member]
Restructuring [Line Items]
Restructuring and other charges	9,505,000	34,640,000	23,265,000	44,752,000
Cumulative costs for restructuring activities					195,576,000
Balance			104,048,000
Non-cash adjustments			(1,811,000)
Payments			(27,082,000)
Balance	98,420,000		98,420,000		98,420,000
Lease and related costs, net [Member] | University Of Phoenix [Member]
Restructuring [Line Items]
Accelerated depreciation			4,316,000
Lease Abandonment Obligation [Member] | University Of Phoenix [Member]
Restructuring [Line Items]
Cumulative costs for restructuring activities			16,972,000		140,600,000
Severance and other employee separation costs [Member]
Restructuring [Line Items]
Restructuring and other charges	4,863,000	8,217,000	20,117,000	19,160,000
Cumulative costs for restructuring activities					71,143,000
Balance			7,623,000
Non-cash adjustments			(2,326,000)
Payments			(16,437,000)
Balance	8,977,000		8,977,000		8,977,000
Other restructuring related costs [Member]
Restructuring [Line Items]
Restructuring and other charges	841,000	1,219,000	3,790,000	4,280,000
Cumulative costs for restructuring activities					40,686,000
Balance			8,130,000
Non-cash adjustments			0
Payments			(4,015,000)
Balance	$ 7,905,000		$ 7,905,000		$ 7,905,000

XML

Share-Based Compensation

6 Months Ended

Feb. 28, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock and Savings Plans

Share-Based Compensation

The following details share-based compensation expense for the respective periods:

	Three Months Ended February 28,				Six Months Ended February 28,
($ in thousands)	2014		2013		2014		2013
Instructional and student advisory	$	3,280	$	5,614	$	6,813	$	13,202
Marketing	937		1,054		2,045		3,097
Admissions advisory	212		196		314		366
General and administrative	5,644		3,399		11,012		9,422
Restructuring and other charges	464		363		2,326		1,428
Share-based compensation expense	$	10,537	$	10,626	$	22,510	$	27,515

In accordance with our Apollo Education Group, Inc. Amended and Restated 2000 Stock Incentive Plan, we granted 104,000 and 169,000 restricted stock units and performance share awards during the three and six months ended February 28, 2014, respectively. The granted awards had a weighted average grant date fair value of $25.79 and $26.12, respectively. As of February 28, 2014, there was $57.8 million and $2.2 million of total unrecognized share-based compensation cost, net of forfeitures, related to unvested restricted stock units and performance share awards, respectively. These costs are expected to be recognized over a weighted average period of 2.4 years.

In accordance with our Apollo Education Group, Inc. Amended and Restated 2000 Stock Incentive Plan, we granted 31,000 stock options during the three months ended February 28, 2014 and no stock options during the three months ended November 30, 2013. The weighted average grant date fair value of the options granted was $9.98 and the weighted average exercise price was $25.79. As of February 28, 2014, there was $6.5 million of total unrecognized share-based compensation cost, net of forfeitures, related to unvested stock options. These costs are expected to be recognized over a weighted average period of 1.8 years.