Restructuring and Impairment Charges

Restructuring and impairment charges includes the following for the respective periods:



	Three Months Ended February 28,				Six Months Ended February 28,
($ in thousands)	2015		2014		2015		2014
Restructuring charges	$	16,587	$	15,209	$	35,615	$	47,172
Intangibles impairment	12,999		—		12,999		—
Property and equipment impairment	5,950		—		5,950		—
Restructuring and impairment charges	$	35,536	$	15,209	$	54,564	$	47,172

The U.S. higher education industry continues to experience 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 our business processes and 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 costs to align with our lower enrollment and revenue.

Our restructuring activities initiated prior to fiscal year 2015 principally include rationalizing our administrative real estate facilities, closing 115 University of Phoenix ground locations, and workforce reductions. During the six months ended February 28, 2015, we incurred $23.3 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.

During the six months ended February 28, 2015, we incurred $12.3 million of restructuring expense associated with new restructuring activities initiated after fiscal year 2014. The expense consisted of $8.5 million of severance and other employee separation costs associated with the elimination of approximately 300 positions. The majority of the remaining restructuring expense represents costs associated with termination of a curriculum-based contract. The expense associated with these activities for the six months ended February 28, 2015 is reflected in our segment reporting as follows: $1.1 million in University of Phoenix and $11.2 million in Other.

The following details the changes in our restructuring liabilities during the six months ended February 28, 2015:



	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	—		90,131			3,545			167			3,150			1,160			98,153
Expense	—		12,014			3,860			426			—			287			16,587
Other	—		(2,530		)	(635		)	—			—			—			(3,165		)
Payments	—		(13,290		)	(2,801		)	(475		)	—			(704		)	(17,270		)
February 28, 2015⁽²⁾	$	—	$	86,325		$	3,969		$	118		$	3,150		$	743		$	94,305

⁽¹⁾ We have incurred $367 million of cumulative costs associated with prior year restructuring as of February 28, 2015, which includes lease exit, employee separation, and other related costs of $241 million, $84 million and $42 million, respectively. These cumulative costs have been reflected in our segment reporting as follows: $285 million in University of Phoenix, $18 million in Apollo Global, and $64 million in Other.

⁽²⁾The gross, undiscounted obligation associated with our restructuring liabilities as of February 28, 2015 was approximately $167 million, which principally represents non-cancelable leases that will be paid over the respective lease terms through fiscal year 2023.

We intend to further reduce costs to align with our lower enrollment and revenue, and expect to incur material charges associated with other future restructuring activities. These efforts include University of Phoenix continuing to actively evaluate the extent, functionality and location of its ground facilities and the potential closure of additional facilities in the future that are determined to be underutilized or unnecessary.

Impairment Charges

In February 2015, University of Phoenix ceased using certain technology that had been incorporated into its academic platform. The University had finite-lived intangibles with a remaining carrying value of $13.0 million associated with this technology. We do not expect any future cash flows associated with this technology over its remaining useful life and, accordingly, we recorded a $13.0 million impairment charge during the second quarter of fiscal year 2015.

Based on developments and trends at University of Phoenix during the second quarter of fiscal year 2015, we evaluated the property and equipment at University of Phoenix’s remaining ground locations for recoverability. Accordingly, we compared the estimated undiscounted cash flows of the locations over the remaining useful lives of their fixed assets to the carrying amount of their fixed assets. Based on our analysis, we recorded $6.0 million of impairment charges during the second quarter of fiscal year 2015. Changes to our business or other circumstances could lead to additional impairments in the future.