Restructuring and Other Charges

The U.S. higher education industry is experiencing unprecedented, rapidly developing changes that challenge many of the core principles underlying the industry. We began initiating restructuring activities in fiscal year 2011 to reengineer and simplify our business processes and refine our educational delivery systems to improve the efficiency and effectiveness of our services to students. We have continued restructuring activities in fiscal year 2015 as we further reduce the size of our services infrastructure and associated operating expenses to align with our reduced enrollment and revenue.

Fiscal Year 2015 Restructuring

During the first quarter of fiscal year 2015, we incurred $8.4 million of restructuring expense associated with new restructuring activities initiated after fiscal year 2014. The expense consisted of $4.6 million of severance and other employee separation costs associated with the elimination of approximately 200 positions. The substantial majority of the remaining restructuring expense during the first quarter of fiscal year 2015 represented costs associated with termination of a curriculum-based contract. The expense associated with these activities is reflected in our segment reporting as follows: $0.3 million in University of Phoenix and $8.1 million in Other.

We do not expect to incur material future charges related to these restructuring activities; however, we intend to further reduce the size of our services infrastructure and associated operating expenses to align with our reduced enrollment and revenue, and expect to incur material charges associated with future restructuring activities.

Prior Fiscal Year Restructuring

Our restructuring activities initiated prior to fiscal year 2015 principally include rationalizing our administrative real estate facilities, closing 115 University of Phoenix ground locations, which at the time was intended to result in 110 remaining ground locations, and workforce reductions. University of Phoenix began closing its ground locations during fiscal year 2013 and has maintained locations throughout the U.S. and Puerto Rico. However, University of Phoenix continues to evaluate the extent, functionality and location of its ground facilities and to close facilities that are underutilized or unnecessary.

During the first quarter of fiscal year 2015, we incurred $10.6 million of expense associated with restructuring activities initiated prior to fiscal year 2015. The substantial majority of the expense represents an increase in our estimated future cash payments associated with certain lease obligations included in the University of Phoenix ground location rationalization discussed above. We do not expect to incur material charges related to the remaining space expected to be vacated. However, we will incur interest accretion and may record additional adjustments associated with the estimated lease obligations, which involves significant judgment, in future periods.

Restructuring Liability Changes

The following details the changes in our restructuring liabilities during the three months ended November 30, 2014:



	Lease and Related Costs, Net					Severance and Other Employee Separation Costs						Other Restructuring Related Costs						Total
($ in thousands)	2015 Restructuring		Prior Year Restructuring⁽¹⁾			2015 Restructuring			Prior Year Restructuring⁽¹⁾			2015 Restructuring			Prior Year Restructuring⁽¹⁾			Total
August 31, 2014	$	—	$	96,204		$	—		$	5,687		$	—		$	1,192		$	103,083
Expense	—		10,094			4,643			167			3,767			357			19,028
Other	—		(2,605		)	(752		)	—			—			—			(3,357		)
Payments	—		(13,562		)	(346		)	(5,687		)	(617		)	(389		)	(20,601		)
November 30, 2014⁽²⁾	$	—	$	90,131		$	3,545		$	167		$	3,150		$	1,160		$	98,153

⁽¹⁾ We have incurred $355 million of cumulative costs associated with prior year restructuring as of November 30, 2014, which includes lease exit, employee separation, and other related costs of $230 million, $83 million and $42 million, respectively. These cumulative costs have been reflected in our segment reporting as follows: $274 million in University of Phoenix, $18 million in Apollo Global, and $63 million in Other.

⁽²⁾The gross, undiscounted obligation associated with our restructuring liabilities as of November 30, 2014 was approximately $163 million, which principally represents non-cancelable leases that will be paid over the respective lease terms through fiscal year 2023.