Changes in Presentation

Operating Expenses

In executing our strategy, we have recently implemented and are continuing to implement a number of important changes and initiatives to transition our business to more effectively support our students and improve their educational outcomes. One of our most significant initiatives is to better align our admissions personnel with our students’ success. Effective September 1, 2010, we eliminated enrollment factors in evaluating the performance and any related compensation adjustments for our admissions personnel. This represents a significant change as admissions personnel have been transitioned to more of an advisory function for prospective students during the admissions process, which includes potential students that do not matriculate into one of our educational programs.

Based on our business transition, we evaluated the presentation of our operating expenses and determined that additional disaggregation will provide more meaningful information and increased transparency of our operations. The following details the additional disaggregation and a description of the costs included in our operating expense categories:

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Instructional and student advisory - We previously reported our provision for uncollectible accounts receivable and a portion of our depreciation and amortization in “instructional costs and services” on our Consolidated Statements of Income. We have disaggregated and are presenting separately our provision for uncollectible accounts receivable and depreciation and amortization, which are discussed in more detail below. Effective during the first quarter of fiscal year 2011, we have renamed the remaining costs “instructional and student advisory.” This category primarily consists of costs related to the delivery and administration of our educational programs and include costs related to faculty, student advisory and administrative compensation, classroom and administration lease expenses (including facilities that are shared and support both instructional and admissions functions), financial aid processing costs, costs related to the development of our educational programs and other related costs. Tuition costs for all employees and their eligible family members are recorded as an expense within instructional and student advisory.

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Admissions advisory - We previously reported costs related to our admissions advisory personnel in “selling and promotional” on our Consolidated Statements of Income. Effective during the first quarter of fiscal year 2011, we began separately stating such costs on our Consolidated Statements of Income as “admissions advisory.” Based on the strategic initiative discussed above, we believe the disaggregation of admissions personnel costs better represents our admissions advisory function and provides a more transparent view of our operations. The substantial majority of costs included in this disaggregated presentation consist of compensation for admissions personnel. The category also includes other costs directly related to admissions advisory functions.

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Marketing - The costs associated with admissions personnel represented a significant portion of our previously reported “selling and promotional” expense. As discussed above, we began presenting such costs separately on our Consolidated Statements of Income. Considering the substantial majority of the remaining costs represent advertising and other marketing activities, we believe the disaggregation of our marketing costs provides additional transparency. Specifically, effective during the first quarter of fiscal year 2011, we have renamed the remaining costs “marketing,” which were previously referred to as “selling and promotional.” The substantial majority of costs included in the disaggregated presentation of marketing consist of advertising expenses, compensation for marketing personnel including personnel responsible for establishing relationships with selected employers, which we refer to as our Workforce Solutions team, and production of marketing materials. The category also includes other costs directly related to marketing functions. Based on this disaggregation, we also identified certain costs previously included in “selling and promotional” that we believe are now more appropriately represented as general and administrative in our revised presentation of operating expenses. These costs principally include compensation associated with our External Affairs employees and other costs related to our External Affairs activities.

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General and administrative - Excluding the change in presentation noted above related to External Affairs and the disaggregation of depreciation and amortization discussed below, there are no additional changes to our presentation of general and administrative expense. General and administrative costs consist primarily of corporate compensation, occupancy costs, legal and professional fees, and other related costs.


•	Provision for uncollectible accounts receivable - We previously reported our provision for uncollectible accounts receivable in “instructional costs and services” on our Consolidated Statements of Income. We believe the disaggregated presentation of our provision for uncollectible accounts receivable is meaningful and provides a more transparent view of our operations.

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Depreciation and amortization - We previously reported depreciation and amortization in a combination of all of our operating expense categories on our Consolidated Statements of Income. The assets associated with our depreciation and amortization often possess characteristics that can be associated with multiple operating expense categories. We expect this trend to continue as we implement various strategic initiatives that enhance our operational efficiencies as well as improve the student experience. Accordingly, we believe the disaggregated presentation of our depreciation and amortization provides a more transparent view of our operations.

We have changed our presentation of operating expenses for prior periods to conform to the above disaggregation and revisions to our presentation. There were no changes to total operating expenses or operating income as a result of these changes in presentation. The following table presents our operating expenses as previously reported and as changed on our Consolidated Statements of Income for the fiscal years ended:



	Year Ended August 31,
	2010				2009
($ in thousands)	As Reported		As Changed		As Reported		As Changed
Instructional and student advisory	$	2,125,082	$	1,733,134	$	1,567,754	$	1,333,919
Marketing	1,112,666		623,743		952,884		497,568
Admissions advisory	—		466,358		—		437,908
General and administrative	314,795		301,116		286,493		277,887
Provision for uncollectible accounts receivable	—		282,628		—		151,021
Depreciation and amortization	—		145,564		—		108,828
Goodwill and other intangibles impairment	184,570		184,570		—		—
Litigation charge	177,982		177,982		80,500		80,500
Total costs and expenses	$	3,915,095	$	3,915,095	$	2,887,631	$	2,887,631

Restricted Cash and Cash Equivalents

Effective during fiscal year 2011, we changed our presentation of changes in restricted cash and cash equivalents related to financial aid program funds to cash flows from operating activities on our Consolidated Statements of Cash Flows from Continuing and Discontinued Operations. We previously presented such changes as cash flows from investing activities. Our restricted cash and cash equivalents primarily represents funds held for students for unbilled educational services that were received from Title IV financial aid program funds. When we receive such funds, they are recorded as restricted cash on our balance sheet with an offsetting liability recorded as student deposits. These restricted funds are a core activity of our operations and, accordingly, we believe presentation of changes in such funds as an operating activity more appropriately reflects the nature of the restricted cash. Additionally, we believe that including both changes in the restricted cash asset and the student deposit liability within operating activities provides better transparency. We have changed our presentation on our Consolidated Statements of Cash Flows from Continuing and Discontinued Operations for all periods presented. The changes have no other impact on our financial position and results of operations.

The following table presents our cash flows as previously reported and as changed for the fiscal years ended:



	Year Ended August 31,
	2010						2009
($ in thousands)	As Reported			As Changed			As Reported			As Changed
Cash flows provided by (used in) operating activities:
Change in restricted cash and cash equivalents	$	—		$	(11,828	)	$	—		$	(48,149	)
Net cash provided by operating activities	$	1,045,070		$	1,033,242		$	960,227		$	912,078
Cash flows provided by (used in) investing activities:
Collateralization of letter of credit⁽¹⁾	$	(138,443	)	$	(126,615	)	$	(48,149	)	$	—
Net cash used in investing activities	$	(307,117	)	$	(295,289	)	$	(691,265	)	$	(643,116	)

⁽¹⁾Following the change in presentation discussed above, the remaining change in restricted cash and cash equivalents in fiscal year 2010 represents funds used to collateralize a letter of credit. We have continued to present this change as an investing activity based on the nature of the restricted cash; however, we have renamed the remaining change, "Collateralization of letter of credit." Refer to Note 8, Restricted Cash Equivalents for Collateralization of Letter of Credit, for further discussion.