www.apollo.edu.

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

Three Months Ended
May 31,

Nine Months Ended
May 31,
(In thousands, except per share data) 2016 2015 2016 2015
Net revenue $ 558,002 $ 676,358 $ 1,609,371 $ 1,965,986
Costs and expenses:
Instructional and student advisory 274,486 294,841 836,453 907,348
Marketing 87,530 116,839 279,128 369,120
Admissions advisory 30,192 52,994 94,500 167,919
General and administrative 59,066 64,437 192,300 206,215
Depreciation and amortization 28,330 29,969 82,478 95,705
Provision for uncollectible accounts receivable 15,716 13,005 43,812 42,372
Restructuring and impairment charges 22,366 11,444 149,578 52,722
Merger, acquisition and other related costs (credit), net 8,317 (455 ) 25,188 4,506
Litigation charge - - - 100
Total costs and expenses 526,003 583,074 1,703,437 1,846,007
Operating income (loss) 31,999 93,284 (94,066 ) 119,979
Interest income 1,041 762 2,883 2,091
Interest expense (1,569 ) (1,715 ) (4,997 ) (5,116 )
Other loss, net (273 ) (2,038 ) (2,229 ) (4,480 )
Income (loss) from continuing operations before income taxes 31,198 90,293 (98,409 ) 112,474
Provision for income taxes (11,399 ) (40,667 ) (3,796 ) (53,797 )
Income (loss) from continuing operations 19,799 49,626 (102,205 ) 58,677
Loss from discontinued operations, net of tax - (2,186 ) (3,259 ) (14,906 )
Net income (loss) 19,799 47,440 (105,464 ) 43,771
Net loss attributable to noncontrolling interests 945 624 5,047 4,468
Net income (loss) attributable to Apollo $ 20,744 $ 48,064 $ (100,417 ) $ 48,239
Earnings (loss) per share - Basic:
Continuing operations attributable to Apollo $ 0.19 $ 0.47 $ (0.89 ) $ 0.59
Discontinued operations attributable to Apollo - (0.02 ) (0.03 ) (0.14 )
Basic income (loss) per share attributable to Apollo $ 0.19 $ 0.45 $ (0.92 ) $ 0.45
Earnings (loss) per share - Diluted:
Continuing operations attributable to Apollo $ 0.19 $ 0.46 $ (0.89 ) $ 0.58
Discontinued operations attributable to Apollo - (0.02 ) (0.03 ) (0.14 )
Diluted income (loss) per share attributable to Apollo $ 0.19 $ 0.44 $ (0.92 ) $ 0.44
Basic weighted average shares outstanding 108,658 107,678 108,567 108,140
Diluted weighted average shares outstanding 109,444 108,623 108,567 109,124

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

As of
($ in thousands) May 31,
2016		 August 31,
2015
ASSETS
Current assets:
Cash and cash equivalents $ 361,526 $ 503,705
Restricted cash and cash equivalents 185,320 198,369
Marketable securities 242,301 194,676
Accounts receivable, net 193,477 198,459
Prepaid taxes 29,165 38,371
Other current assets 53,201 48,823
Assets of business held for sale - 40,897
Total current assets 1,064,990 1,223,300
Marketable securities 39,323 95,815
Property and equipment, net 343,094 370,281
Goodwill 265,765 247,190
Intangible assets, net 200,756 143,244
Deferred taxes 93,772 92,105
Other assets 29,926 29,129
Total assets $ 2,037,626 $ 2,201,064
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 19,514 $ 14,080
Accounts payable 56,297 64,100
Student deposits 213,986 245,470
Deferred revenue 185,025 186,950
Accrued and other current liabilities 248,863 280,847
Liabilities of business held for sale - 40,897
Total current liabilities 723,685 832,344
Long-term debt 42,597 31,566
Deferred taxes 16,924 7,729
Other long-term liabilities 182,491 172,452
Total liabilities 965,697 1,044,091
Commitments and contingencies
Redeemable noncontrolling interests 7,204 11,915
Shareholders' equity:
Preferred stock, no par value - -
Apollo Class A nonvoting common stock, no par value 103 103
Apollo Class B voting common stock, no par value 1 1
Additional paid-in capital - -
Apollo Class A treasury stock, at cost (3,915,279 ) (3,928,419 )
Retained earnings 5,061,631 5,153,452
Accumulated other comprehensive loss (82,286 ) (80,579 )
Total Apollo shareholders' equity 1,064,170 1,144,558
Noncontrolling interests 555 500
Total equity 1,064,725 1,145,058
Total liabilities, redeemable noncontrolling interests and shareholders' equity $ 2,037,626 $ 2,201,064

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended

May 31,

($ in thousands) 2016 2015
Operating activities:
Net (loss) income $ (105,464 ) $ 43,771
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Share-based compensation 27,318 29,768
Excess tax benefits from share-based compensation - (236 )
Depreciation and amortization 82,478 101,779
Accelerated depreciation included in restructuring 12,262 7,207
Impairment charges and loss on asset dispositions 76,470 22,228
Non-cash foreign currency loss, net 492 1,722
Provision for uncollectible accounts receivable 43,812 42,372
Deferred income taxes (6,175 ) (12,471 )
Changes in assets and liabilities, excluding the impact of acquisitions:
Restricted cash and cash equivalents 13,567 5,529
Accounts receivable (37,296 ) (51,555 )
Prepaid taxes 8,104 21,038
Other assets (684 ) (1,974 )
Accounts payable (8,872 ) 7,753
Student deposits (32,002 ) (25,918 )
Deferred revenue (28,564 ) 22,677
Accrued and other liabilities (35,813 ) (89,987 )
Net cash provided by operating activities 9,633 123,703
Investing activities:
Purchases of property and equipment (51,414 ) (74,254 )
Purchases of marketable securities (203,504 ) (156,465 )
Maturities and sales of marketable securities 208,360 156,337
Acquisitions, net of cash acquired (101,196 ) (21,166 )
Other investing activities (727 ) (14,216 )
Net cash used in investing activities (148,481 ) (109,764 )
Financing activities:
Payments on borrowings (63,785 ) (605,214 )
Proceeds from borrowings 56,961 4,515
Share repurchases (732 ) (40,700 )
Share reissuances 638 995
Excess tax benefits from share-based compensation - 236
Payment for contingent consideration - (21,371 )
Net cash used in financing activities (6,918 ) (661,539 )
Exchange rate effect on cash and cash equivalents 3,587 (3,991 )
Net decrease in cash and cash equivalents (142,179 ) (651,591 )
Cash and cash equivalents, beginning of period 503,705 1,228,813
Cash and cash equivalents, end of period $ 361,526 $ 577,222
Supplemental disclosure of cash flow and non-cash information:
Cash paid for income taxes, net of refunds $ 1,144 $ 36,545
Cash paid for interest 5,081 5,134
Restricted stock units vested and released 2,083 7,407

Apollo Education Group, Inc. and Subsidiaries

Segment Data and University of Phoenix Operating Metrics

(Unaudited)

Three Months Ended

May 31,

Nine Months Ended

May 31,

($ in thousands) 2016 2015 2016 2015
Net revenue:
University of Phoenix:
Degree seeking gross revenues $ 474,749 $ 625,949 $ 1,412,637 $ 1,825,254
Less: Discounts and other (61,010 ) (79,362 ) (188,741 ) (219,315 )
Degree seeking net revenues 413,739 546,587 1,223,896 1,605,939
Other revenues 10,740 14,105 28,156 35,375
Total University of Phoenix 424,479 560,692 1,252,052 1,641,314
Apollo Global 125,007 109,622 334,135 305,862
Other 8,516 6,044 23,184 18,810
Net revenue $ 558,002 $ 676,358 $ 1,609,371 $ 1,965,986
Operating income (loss):
University of Phoenix $ 59,681 $ 103,395 $ 33,099 $ 216,776
Apollo Global (459 ) 5,465 (29,677 ) (26,918 )
Other (27,223 ) (15,576 ) (97,488 ) (69,879 )
Operating income (loss) $ 31,999 $ 93,284 $ (94,066 ) $ 119,979

Represents revenue from tuition and other fees for students enrolled in University of Phoenix degree programs or certificate programs of at least 18 credits in length with some course applicability into a related degree program.

University of Phoenix Enrollment Data:

(Rounded to the nearest hundred,
except per degreed enrollment)

Three Months Ended May 31, Nine Months Ended May 31,
2016 2015

%
Change

2016 2015

%
Change

Degreed Enrollment 155,600 206,900 (24.8 )% Average Degreed Enrollment 171,400 220,400 (22.2 )%
New Degreed Enrollment 17,900 29,400 (39.1 )% Aggregate New Degreed Enrollment 59,600 97,300 (38.7 )%

Degree seeking net revenues
per degreed enrollment

$ 2,659 $ 2,642

Represents students enrolled in a 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 an 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.

As described in Footnote 1, Degreed Enrollment includes students who attended a credit bearing course during the quarter and had not graduated as of the end of the quarter. The proportion of students included in Degreed Enrollment who have completed their academic work but not yet formally graduated ('academically complete students') increased during the third quarter of fiscal year 2016 compared to the prior year period due to changes in the manner in which graduation applications are processed. We estimate that the number of academically complete students reflected in this increase is approximately 2,000 - 3,000.

Represents new students and students who have been out of attendance for more than 12 months who enroll in a 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.

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

Apollo Education Group, Inc. and Subsidiaries

Reconciliation of GAAP Financial Information to Non-GAAP Financial Information

(Unaudited)

Three Months Ended

May 31,

Nine Months Ended

May 31,

(In thousands, except per share data) 2016 2015 2016 2015
Net income (loss) attributable to Apollo, as reported $ 20,744 $ 48,064 $ (100,417 ) $ 48,239
Less: Loss from discontinued operations, net of tax - (2,186 ) (3,259 ) (14,906 )
Income (loss) from continuing operations attributable to Apollo 20,744 50,250 (97,158 ) 63,145
Special items:
Restructuring and impairment charges 22,366 11,444 149,578 52,722
Merger, acquisition and other related costs (credit), net 8,317 (455 ) 25,188 4,506
Litigation charge - - - 100
Special items before income taxes 30,683 10,989 174,766 57,328
Less: income tax effects of special items (10,972 ) (4,532 ) (37,262 ) (21,747 )
Tax expense from resolution with tax authority - 3,002 - 3,002
Special items, net of income taxes 19,711 9,459 137,504 38,583
Income from continuing operations attributable to Apollo, excluding special items $ 40,455 $ 59,709 $ 40,346 $ 101,728
Diluted income (loss) per share from continuing operations attributable to Apollo, as reported $ 0.19 $ 0.46 $ (0.89 ) $ 0.58
Diluted income per share from continuing operations attributable to Apollo, excluding special items $ 0.37 $ 0.55 $ 0.37 $ 0.93

During the first quarter of fiscal year 2016, we recorded $73.4 million of goodwill impairment charges.

Reconciliation of Adjusted EBITDA to Net Income (Loss)

Three Months Ended

May 31,

Nine Months Ended

May 31,

($ in thousands) 2016 2015 2016 2015
Adjusted EBITDA:
University of Phoenix $ 93,326 $ 129,644 $ 205,345 $ 315,986
Apollo Global 11,374 12,481 2,221 771
Other (13,961 ) (9,921 ) (46,617 ) (48,225 )
Adjusted EBITDA 90,739 132,204 160,949 268,532
Less: Special items before income taxes (see above table) 30,683 10,989 174,766 57,328
Less: Depreciation and amortization 28,330 29,969 82,478 95,705
Less: Interest expense, net of interest income 528 953 2,114 3,025
Less: Provision for income taxes 11,399 40,667 3,796 53,797
Plus: Loss from discontinued operations, net of tax - (2,186 ) (3,259 ) (14,906 )
Net income (loss), as reported $ 19,799 $ 47,440 $ (105,464 ) $ 43,771

Use of Non-GAAP Financial Information

The Company's non-GAAP financial measures are intended to supplement, but not substitute for, the most directly comparable GAAP measures. Management uses, and chooses to disclose to investors, these non-GAAP financial measures because: (i) such measures provide an additional analytical tool to clarify the Company's results from operations and help to identify underlying trends in its results of operations; (ii) as to the non-GAAP earnings measures, such measures help compare the Company's performance on a consistent basis across time periods; and (iii) these non-GAAP measures are employed by the Company's management in its own evaluation of performance and are utilized in financial and operational decision-making processes, such as budgeting and forecasting. Exclusion of items in the non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate non-GAAP financial measures differently, limiting their usefulness as a comparative measure across companies.

'Adjusted EBITDA' is earnings from continuing operations before interest expense and interest income, income taxes, depreciation and amortization, and special items. It is intended to provide an indicator of our operating performance across time periods.

Forward-Looking Statements Safe Harbor

Statements about Apollo Education Group and its business in this release which are not statements of historical fact, including statements regarding Apollo Education Group's future strategy and plans and commentary regarding future results of operations and prospects, are forward-looking statements and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual plans implemented and actual results achieved may differ materially from those set forth in or implied by such statements due to various factors, including, without limitation: (i) the timing of the completion of the previously announced pending merger transaction with AP VIII Queso Holdings, L.P., an affiliate of Apollo Management VIII, L.P., which is a fund managed by an affiliate of Apollo Global Management, LLC, an entity unrelated to Apollo Education Group; (ii) the inability to complete the merger due to the failure to satisfy customary and other conditions to completion of the merger, including receipt of required regulatory approvals; (iii) the risk that regulatory agencies impose restrictions, limitations, costs, divestitures or other conditions in connection with providing regulatory approval of the merger; (iv) the outcome of pending or potential litigation or governmental investigations; (v) disruptions resulting from the proposed merger making it more difficult for Apollo Education Group to maintain relationships with its students, customers, employees, suppliers and strategic partners; (vi) competitive responses to the proposed merger; (vii) unexpected costs, liabilities, charges or expenses resulting from the merger; (viii) the inability to obtain, renew or modify permits in a timely manner, or comply with government regulations; (ix) the inability to retain key personnel of Apollo Education Group or its subsidiaries; (x) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, including a termination of the merger agreement under circumstances that could require Apollo Education Group to pay a termination fee; (xi) unexpected expenses or other challenges in integrating acquired businesses, student, consumer or regulatory impact arising from consummation of such acquisitions, and unexpected changes or developments in the acquired businesses; (xii) diversion of management's attention from ongoing business concerns; (xiii) limitations placed on Apollo Education Group's ability to operate its business by the merger agreement; (xiv) the impact of increased competition from traditional public universities and proprietary educational institutions; (xv) the impact of the initiatives to transform University of Phoenix into a more-focused, higher-retaining and less-complex institution, including the near-term impact on enrollment; (xvi) the impact of Apollo Education Group's ongoing restructuring and cost-reduction initiatives; (xvii) impacts from actions taken by our regulators that could affect University of Phoenix's eligibility to participate in or the manner in which it participates in U.S. Federal and state student financial aid programs, including the recent requirement that all substantial changes be approved by the U.S. Department of Education in advance; (xviii) further delay in University of Phoenix's pending recertification by the U.S. Department of Education for participation in Title IV student financial aid programs, or any limitations or qualifications imposed in connection with any recertification; (xix) the impact of any reduction in financial aid available to students, including active and retired military personnel, due to the U.S. government deficit reduction proposals, debt ceiling limitations, budget sequestration or otherwise; (xx) changes in regulation of the U.S. education industry and eligibility of proprietary schools to participate in U.S. Federal student financial aid programs; (xxi) changes in University of Phoenix's enrollment or student mix; (xxii) the impact on student enrollments of the announcement of the proposed merger and general economic conditions; (xxiii) the impact of third party claims that Apollo Education Group's products and services infringe their intellectual property rights; and (xxiv) fluctuations in non-U.S. currencies that could impact reported operating results of foreign subsidiaries. For a discussion of the various factors that may cause actual plans implemented and actual results achieved to differ materially from those set forth in the forward-looking statements, please refer to the risk factors and other disclosures contained in Apollo Education Group's Form 10-K for fiscal year 2015, filed with the Securities and Exchange Commission (the 'SEC') on October 22, 2015, Form 10-Q for the quarterly period ended May 31, 2016, filed with the SEC on July 7, 2016, and other filings with the SEC which are available at www.apollo.edu. 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 Apollo Education Group or persons acting on Apollo Education Group's behalf. Apollo Education Group undertakes 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, Apollo Education Group cannot guarantee future results, events, levels of activity, performance, or achievements.

View source version on businesswire.com:http://www.businesswire.com/news/home/20160707006472/en/

Source: Apollo Education Group, Inc.

Apollo Education Group, Inc.
Investor Relations Contact:
Beth Coronelli, 312-660-2059
beth.coronelli@apollo.edu
Media Contact:
Media Relations Hotline, 602-254-0086
media@apollo.edu

Apollo Education Group Inc. published this content on 07 July 2016 and is solely responsible for the information contained herein.
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