American Public Education
Annual Report 2015

Plain-text annual report

A Strong Foundation American Public Education, Inc. 2015 Annual Report 111 WEST CONGRESS STREET‚ CHARLES TOWN‚ WEST VIRGINIA 25414 www.americanpubliceducation.com Foundations for Real Lives As of December 31, 2015, nearly 96,000 students were enrolled at American Public University System and more than 1,500 students were enrolled at Hondros College of Nursing—working adult students who are motivated to advance in their profession and make a real difference in the lives of others. American Public Education, Inc. (NASDAQ: APEI) is a mission-driven provider of higher education to working adults with a proud history of serving the military, public service and nursing communities through American Public University System (APUS) and Hondros College of Nursing (HCON). Today, we are focused on creating an engaging, interactive learning environ- ment, optimizing our outreach efforts and refining our enrollment process—so we can help college-ready students achieve their full potential. 2 American Public Education, Inc. 2015 Annual Report 1 Dear Stockholders, Dr. Wallace E. Boston, President and CEO Although 2015 was a challenging year, American Public Education, Inc. is building on our strong foundation to fulfill our mission by addressing the critical needs of a rapidly changing higher education landscape and preparing our institutions—and our graduates—for an exciting future. American Public University System, which encompasses American Military University (AMU) and American Public University (APU), is a regionally accredited provider of online education with a longstanding reputation for academic quality, affordability and innovation. Our newest institution, Hondros College of Nursing, is a respected, nationally accredited school of nursing with four Ohio campuses. Through these institutions, we are fulfilling our mission—to improve lives by empowering students to reach their full potential, solve challenging problems, and make a contribution to their communities and to society. By providing an exceptional learning experience that is engaging and affordable, we serve the educational needs of working adults, including military, public service and nursing professionals. Today, given increased competition for qualified students from both traditional and online universities, we face the challenge of attracting more college-ready students to APUS programs and improving the quality mix of our students. In 2015, we added an assessment to the enrollment process at APUS to help determine the college readiness of applicants. This new approach to admissions, combined with the impact of increased 2 American Public Education, Inc. 2015 Annual Report 1 To watch our feature videos, go to www.americanpubliceducation.com Trusted Partner “ AMU has been a trusted partner with FBI National Academy Associates. We foster a learning environment—to get better and grow as leaders. When our students leave the National Academy, American Public University becomes an extension of that learning. It allows the students to continue their education and continue to better themselves, which ultimately betters the profession.” Barry Thomas, President FBI National Academy Associates The FBI National Academy Associates, Inc. (FBI NAA) is a non-profit, international organization of nearly 17,000 senior law enforcement professionals who have completed the FBI’s prestigious National Academy Program. Its mission includes providing opportunities for continuing education, training, professional development, peer networking and research in law enforcement disciplines. competition, changes in the adminis- prospective students are looking for university and the first 100% online tration of the Department of Defense an engaging academic environment, a university to receive the prestigious Tuition Assistance Program and other rich curriculum, a strong faculty and a factors, contributed to a decline in net collaborative, supportive community course registrations in 2015. For the of learners. Today at APUS, we are year December 31, 2015, net course building a strong and sustainable future registrations declined 7% at APUS by creating an engaging, collaborative, compared to the same period in 2014. and innovative online learning envi- ronment designed to attract—and Historically, relationship marketing retain—qualified students. and partnerships have played a key role in helping APUS attract qualified students with strong academic intent. A Strong Foundation APUS is a vibrant academic community Today, in addition to refining enrollment with a longstanding commitment to processes at APUS, we are taking a teaching excellence and quality more targeted approach to outreach academic programs. Ranked among and optimizing our marketing processes the top online undergraduate degree to help attract more college-ready programs by U.S. News and World students. Whether they are considering Report for four consecutive years, an online or traditional university, APUS was the first online for-profit Ralph E. Gomory Award for best practices from the Online Learning Consortium (OLC) and has received an unprecedented four Effective Practices awards from OLC. AMU is the leading educational institution serving the 94% EMPLOYERS SURVEYED feel our graduates possess field specific academic skills1 2 American Public Education, Inc. 2015 Annual Report 3 Supporting Our Community “ American Public University System plays a vital role in our community, and is a critical partner in our efforts to expand entrepreneurship and bring high tech businesses to the Charles Town region. As part of President Obama’s Maker’s Movement Challenge, we’re working with APUS and other local partners to boost innovation, education and technology jobs here in Charles Town.” Peggy A. Smith, Mayor City of Charles Town, WV Headquartered in Charles Town, WV since 2002, APUS is the town’s second largest employer. The university has invested millions in local construction and renovation projects, including the construction of West Virginia’s largest solar array, which reflects its commitment to addressing the environmental, social and economic interests of the local and global communities we serve. U.S. military. In 2015, Military Times conferred degrees on more than magazine ranked AMU the number one 10,800 APU and AMU graduates—our school serving active duty military and largest graduating class ever. Today, the number nine school serving veterans. there are more than 60,000 AMU and APU alumni worldwide. More than 45% During 2015, the distinguished faculty of of our alumni return for a second degree. APUS published more than 500 books We believe that this speaks to the and papers, earned more than quality, affordability and uniqueness 200 awards for professional practice, of our programs. Many of our degrees research and community service, and are highly specialized offerings in fields presented at more than 1,200 confer- such as Transportation and Logistics, ences, workshops and panels. They Space Studies and Homeland Security. are leaders and practitioners in their Affordability and value remain the fields, and dedicated to the success cornerstone of our approach. Our total 88% EMPLOYERS SURVEYED would hire another one of our graduates1 A Strategy for the Future We believe APEI is at the forefront of of their students. costs of combined tuition, books, and higher education, investing in education required fees are approximately 19% technologies and exploring new ways We have never wavered from our less for undergraduate and 38% less to excite students by providing them commitment to supporting our students for graduate students than the average with interactive content, such as simula- in their efforts to reach their goals. I am published in-state total costs at public tions, gamification and rich media. We proud to report that in 2015, APUS four-year institutions.2 are using innovative technologies to 2 American Public Education, Inc. 2015 Annual Report 3 To watch our feature videos, go to www.americanpubliceducation.com From the Battlefield to the Boardroom “ I went from the battlefield to the boardroom. The company I started—MAFAZO: Digital Solutions— provides information security services. I’m an expert in my field. I wouldn’t be an expert without some sound fundamental knowledge. The military teaches you the practical, but they don’t teach you the theoretical concepts. AMU prepares the student for tomorrow. And that’s what happened to me.” Max Aulakh, Data Security and Compliance Leader MAFAZO: Digital Solutions BS, Information Systems Security, 2009, AMU A former security specialist with the U.S. military who completed three tours in Iraq, Max Aulakh received his B.S. in Information Systems Security from AMU in 2009. In 2012, he founded MAFAZO: Digital Solutions to help organizations identify, protect and adapt to the changing pace of technology as well as cyber threats. 90% ALUMNI SURVEYED either completely or very satisfied with education received3 support collaboration, engagement and student success in ways that differentiate us. For example, the new APUS Native app, a proprietary application developed by APUS and participate in closed academic chats on At APUS, we are using CIVITAS, a their mobile devices. To date, the app predictive analytics tool, to identify has been installed on more than 44,000 devices. In January 2016, usage averaged 1.2 million page views per week. students who may be falling behind, so faculty can reach out to offer academic support and help them achieve success. Technology is a driving force behind the changing educational landscape and we are finding new ways to promote engagement and student success We are already seeing the early results of our efforts to improve student success, and to identify and assist at-risk stu- dents. In the fourth quarter of 2015, through innovative technologies. undergraduate first course pass and Launched at APUS in 2015, ClearPath completion rates improved 38% over the is a learning relationship management system developed by Fidelis Education, a technology company in which we have a minority investment. It enables prior year period among students receiv- ing federal financial aid. These initial improvements represent an important first step in stabilizing enrollments and increasing persistence rates. In Closing APUS is built on certain fundamental introduced in 2015, allows students to student-faculty interaction, and allows interact with their classmates and with students to collaborate with their faculty, to receive updates and notifi- teachers and to bring in outside cations, to review class material and mentors for academic support. strengths—affordable tuition, a reputa- 4 American Public Education, Inc. 2015 Annual Report 5 Helping Employees Develop Professionally “ Our partnership with APUS is definitely a benefit we can offer our employees. They can pursue a degree or certification in fields such as Intelligence Studies, Cybersecurity and IT. It’s something they need. It’s relevant to their jobs and it’s relevant to our customers.” Cheryl Kula, Sr. Training Programming Manager ManTech University ManTech International Corp is a publicly-traded company that provides advanced technological services to the U.S. government. ManTech offers training and educational opportunities to its employees through ManTech University. tion for academic quality, and a sup- portive, engaging culture that fosters innovation and student success. At the end of the first quarter of 2016, with the optimization of our admission process well underway, we expect to further refine our marketing and enrollment practices to help ensure that our students are prepared for college and have strong academic intent. In addition, we continue to advance the interactivity and appeal of our learning environment to attract and engage students, and we utilize new technologies to foster greater collaboration, student engagement and student success. We are excited about the future of APUS and Hondros College of Nursing important developments put us in a better position to serve the needs of the nursing and healthcare communities of Ohio. At APEI, we envision a world in which every qualified student has access to the best possible higher education and the brightest possible future. We appreciate the continued support of all our stakeholders as we continue to pursue that vision. 95% ALUMNI SURVEYED would recommend us to a friend or colleague4 in February 2016, we received final change of ownership and control authorization notice for HCON from the U.S. Department of Education. HCON further expanded access to its programs by offering courses at night Dr. Wallace E. Boston (HCON), which we acquired in Novem- and on weekends at two addtional President and Chief Executive Officer ber of 2013. I’m pleased to report that campuses in 2015. These and other American Public Education, Inc. 1. APUS Alumni Employer Survey, 2010–2015. 2. Public four-year, in-state undergraduate data is provided by the College Board’s Trends in College Pricing 2014. Graduate information is provided by the National Center for Education Statistics (NCES) Digest of Educational Statistics 2012-13 data. Annual estimates are based on total institutional costs (published tuition, required fees, and books) assuming 30 undergraduate or 18 graduate-level semester credit hours. 3. APUS End of Program Survey, 2015. 4. APUS Alumni Survey, 2015. 2015 Annual Report 5 4 American Public Education, Inc. Executive Leadership FROM LEFT TO RIGHT Michael N. Netzer, Dr. Karan H. Powell, Harry T. Wilkins, CPA, Dr. Gwendolyn M. Hall, Richard W. Sunderland, CPA, Dr. Wallace E. Boston, Peter W. Gibbons, Carol S. Gilbert, Dr. Conrad D. Lotze Dr. Wallace E. Boston* President and Chief Executive Officer; Member, Board of Trustees; Member, Board of Directors Richard W. Sunderland, Jr., CPA* Executive Vice President and Chief Financial Officer Carol S. Gilbert* Executive Vice President, Programs and Marketing Dr. Karan H. Powell* Executive Vice President and Provost Harry T. Wilkins, CPA (retired December 2015) Executive Vice President and Chief Development Officer, American Public Education, Inc.; Chief Executive Officer, Hondros College of Nursing Thomas A. Beckett (not pictured) Senior Vice President, General Counsel Peter W. Gibbons* Senior Vice President and Chief Administrative Officer Dr. Gwendolyn M. Hall Senior Vice President and Associate Provost Dr. Conrad D. Lotze Senior Vice President and Associate Provost, Academic Affairs Michael N. Netzer Senior Vice President and Associate Provost, Academic Program Development & Outreach Tracy M. Woods (not pictured) Senior Vice President, Chief Information Officer Executive Leadership Team as of April 2016. *Denotes executive officers for purposes of the Securities Exchange Act. 6 American Public Education, Inc. 2015 Annual Report 3 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K [×] AnnualReportPursuanttoSection13or15(d)oftheSecuritiesExchangeActof1934  ForthefiscalyearendedDecember 31,2015 or [ ] TransitionreportpursuanttoSection13or15(d)oftheSecuritiesExchangeActof1934  Forthetransitionperiodfrom______to______ Commission File Number: 001-33810 American Public Education, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 01-0724376 (I.R.S. Employer Identification No.) 111 West Congress Street Charles Town, West Virginia 25414 (Address, including zip code, of principal executive offices) (304) 724-3700 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $.01 par value Name of each exchange on which registered NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None (Title of class) 2015 Annual Report 7 Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405ofthe  SecuritiesAct.  Yes [ ] No [×] IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)  oftheAct.  Yes [ ] No [×] Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)  oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthatthe  registrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast  90 days.  Yes [×] No [ ] IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,  ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T  (§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwas  requiredtosubmitandpostsuchfiles).  Yes [×] No [ ] IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(§229.405ofthis  chapter)isnotcontainedherein,andwillnotbecontained,tothebestofregistrant’sknowledge,indefinitive  proxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-Koranyamendmentto  thisForm10-K.  [ ] Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceler - atedfiler,orasmallerreportingcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler”and  “smallerreportingcompany”inRule12b-2oftheExchangeAct. Largeacceleratedfiler [ ] Acceleratedfiler [×] Non-acceleratedfiler [ ] Smallerreportingcompany [ ] (Donotcheckifasmallerreportingcompany) Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchange  Act).  Yes [ ] No [×] Theaggregatemarketvalueoftheregistrant’scommonstockheldbynon-affiliatescomputedbyreferenceto  thepriceatwhichthecommonequitywaslastsoldasofJune 30,2015,thelastbusinessdayoftheregistrant’s  mostrecentlycompletedsecondfiscalquarter,wasapproximately$412.5 million.Forpurposesofthiscalcu - lation,sharesofcommonstockheldbytheregistrant’schiefexecutiveofficer,theregistrant’schieffinancial  officer,andtheregistrant’sdirectorswereexcluded.Exclusionofsuchsharesheldbyanypersonshouldnotbe  construedtoindicatethatthepersonpossessesthepower,directorindirect,todirectorcausethedirectionof  themanagementorpoliciesoftheregistrant,orthatthepersoniscontrolledbyorundercommoncontrolwith  theregistrant. ThetotalnumberofsharesofcommonstockoutstandingasofFebruary 25,2016,was16,050,540. Documents Incorporated by Reference Certainportionsoftheregistrant’sDefinitiveProxyStatementforits2016AnnualMeetingofStockholders  (whichisexpectedtobefiledwiththeCommissionwithin120daysaftertheendoftheregistrant’s2015fiscal  year)areincorporatedbyreferenceintoPartIIIofthisReport. 8 American Public Education, Inc. Index Part I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Part III Item 10. Directors, Executive Officers, and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Party Transactions, and Director Independence Item 14. Principal Accountant Fees and Services Part IV Item 15. Exhibits and Financial Statement Schedules Page 11 57 101 101 101 101 102 105 106 130 130 160 160 163 164 164 165 165 165 166 2015 Annual Report 9 Special Note Regarding Forward-Looking Statements ThisAnnualReport,includingthesectionsentitled“RiskFactors,”“Management’sDiscussionandAnalysisof  FinancialConditionandResultsofOperations,”and“Business,”containsforward-lookingstatements.Wemay,  insomecases,usewordssuchas“project,”“believe,”“anticipate,”“plan,”“expect,”“estimate,”“intend,”“should,”  “would,”“could,”“potentially,”“will,”or“may,”orotherwordsthatconveyuncertaintyoffutureeventsorout - comestoidentifytheseforward-lookingstatements.Forward-lookingstatementsinthisAnnualReportinclude,  butarenotlimitedto,statementsabout: • changestothesizeofourstudentenrollment,netcourseregistrations,andthecompositionofourstudent  body,includingthepaceofsuchchanges; • ourabilitytomanageandinfluenceourbaddebtexpense; • ourabilitytomaintain,develop,andgrowourtechnologyinfrastructuretosupportourstudentbody; • ourconversionofprospectivestudentstoenrolledstudentsandourretentionofactivestudents; • ourabilitytoupdateandexpandthecontentofexistingprogramsanddevelopnewprogramsinacost-  effectivemanneroronatimelybasis; • ourplansfor,andinitiativesat,NationalEducationSeminars,Inc.,whichwerefertoasHondrosCollege  ofNursing; • ourabilitytoleverageourinvestmentsinsupportofourinitiatives,students,andinstitutions; • ourmaintenanceandexpansionofourrelationshipsandpartnershipswiththeUnitedStatesArmedForces,  corporations,andotherorganizations,andthedevelopmentofnewrelationshipsandpartnerships; • actionsbytheDepartmentofDefenseorbranchesoftheUnitedStatesArmedForces; • federalappropriationsandotherbudgetarymattersthataffecttheabilityofourstudentstofinancetheir  educationthroughprogramsadministeredbytheDepartmentofEducation,theDepartmentofDefense,and  theDepartmentofVeteransAffairs; • ourabilitytocomplywiththeextensiveregulatoryframeworkapplicabletoourindustry,includingTitle IVof  theHigherEducationActof1965,asamended,andtheregulationsthereunder,aswellasstatelawandregula - tionsandaccreditingagencyrequirements; • ourabilitytoundertakeinitiativestoimprovethelearningexperienceandattractstudentswhoarelikely  topersist; • thecompetitiveenvironmentinwhichweoperate; • ourcashneedsandexpectationsregardingcashflowfromoperations; • ourabilitytomanage,grow,anddiversifyourbusinessandexecuteourbusinessinitiativesandstrategy;and • ourfinancialperformancegenerally. Althoughwebelievethattheexpectationsreflectedintheforward-lookingstatementsarereasonable,wecan - notguaranteefutureresults,levelsofactivity,performance,orachievements.Thereareanumberofimportant  factorsthatcouldcauseactualresultstodiffermateriallyfromtheresultsanticipatedbytheseforward-looking  statements,whichapplyonlyasofthedateofthisAnnualReport.Theseimportantfactorsincludethosethat  wediscussinItem1A“RiskFactors,”Item7“Management’sDiscussionandAnalysisofFinancialConditionand  ResultsofOperations”andelsewhere.Youshouldreadthesefactorsandtheothercautionarystatementsmade  inthisAnnualReportasbeingapplicabletoallrelatedforward-lookingstatementswherevertheyappearinthis  AnnualReport.Ifoneormoreofthesefactorsmaterialize,orifanyunderlyingassumptionsproveincorrect,  ouractualresults,performance,orachievementsmayvarymateriallyfromanyfutureresults,performance,  orachievementsexpressedorimpliedbytheseforward-lookingstatements.Weundertakenoobligationto  publiclyupdateanyforward-lookingstatementsafterthedateofthisAnnualReport,whetherasaresultofnew  information,futureevents,orotherwise,exceptasrequiredbylaw. 10 American Public Education, Inc. Part I Item 1. Business AmericanPublicEducation,Inc.,orAPEI,providesonlineandon-campuspostsecondaryeducationtoover  97,500studentsthroughtwosubsidiaryinstitutions.InthisAnnualReport,“we,”“our,”“us,”“theCompany”and  similartermsrefertoAPEIanditssubsidiaryinstitutionscollectivelyunlessthecontextindicatesotherwise. ThisItem1ofourAnnualReportcontainsaCompanyOverviewsectionthatprovidesinformationregardingour  subsidiaryinstitutions,anexplanationofourreportingsegments,anoverviewofthepostsecondaryeducational  marketandmarketopportunities,ourcompetitivestrengths,growthstrategy,executiveofficers,theseasonality  ofouroperations,andwhereinvestorscanobtainavailableinformation.Item1alsocontainsasectionentitled  “OurInstitutions”thatprovidesinstitutionspecificinformationregardingeachofourtwosubsidiaryinstitutions,  andasectionentitled“RegulatoryEnvironment,”whichcontainsinformationonsomeoftheregulationsthat  impactpostsecondaryeducationalinstitutions. Company Overview Subsidiary Institutions Ourinstitutionsofferprogramsdesignedtoprepareindividualsforproductivecontributionstotheirprofessions  andsociety,andtoofferopportunitiesthatmayadvancestudentsintheircurrentprofessionorhelpthempre - parefortheirnextcareer.Ourwholly-ownedoperatingsubsidiaryinstitutionsincludethefollowing: • AmericanPublicUniversitySystem,Inc.,orAPUS,providesonlinepostsecondaryeducationdirectedpri - marilyattheneedsofthemilitaryandpublicsafetycommunities.APUSisanonlineuniversitythatincludes  AmericanMilitaryUniversity,orAMU,andAmericanPublicUniversity,orAPU.APUSisregionallyaccreditedby  theHigherLearningCommission.APUShasapproximately96,000studentsandoffers100degreeprograms  and95certificateprogramsinfieldsofstudyrelatedtonationalsecurity,militarystudies,intelligence,home - landsecurity,criminaljustice,technology,businessadministration,education,healthscience,andliberalarts.  APUSemploysapproximately410full-timefacultymembersand1,800part-timefacultymembers. SinceAPUS’sfoundingin1991asAMU,adistancelearninggraduate-levelinstitutionformilitaryofficersseeking  anadvanceddegreeinmilitarystudies,APUShasgraduallybroadeneditsfocustoincludeothermilitarycom - munities,veterans,publicsafety,andcertainothercivilianprofessionalcommunities.In2002,AMUwasreorga - nizedintoasingleuniversitysystem,APUS,withtwocomponents:AMU,whichisfocusedoneducatingmilitary  students,andAPU,whichisfocusedoneducatingnon-militarystudents.Asanonlineinstitutionofhigher  learning,webelieveAPUSiswell-suitedtomeettheneedsofitsmilitarystudentswhoserveinpositionsrequir - ingextendedandirregularworkschedules,areon-callforrapidresponsemissions,participateinextended  deploymentsandexercises,travelorrelocatefrequentlyorhavelimitedfinancialresources.AlthoughAPUS’s  focushasbroadened,APUScontinuestohaveanemphasisonitsrelationshipwiththemilitarycommunity.As  ofDecember 31,2015,approximately56%ofAPUS’sstudentsself-reportedthattheyservedinthemilitaryon  activedutyatthetimeofinitialenrollment.TheremainderofAPUS’sstudentsweremilitary-affiliatedindividu - als(suchasveterans,reservistsorNationalGuardmembers),publicsafetyprofessionals(suchaslaw-enforce - mentpersonnelorotherfirstresponders)andothercivilians(suchasworkingadultstudents). • NationalEducationSeminars,Inc.,whichwerefertoasHondrosCollegeofNursing,orHCON,providesnurs - ingeducationtostudentsatfourcampusesintheStateofOhio,aswellasonline,toservetheneedsofthe  nursingandhealthcarecommunities.HCON’sprogramsareofferedinaquarterlyformattoapproximately  1,520students. 2015 Annual Report 11 HCONoffersaDiplomainPracticalNursingandanAssociateDegreeinNursingatitsOhiocampuses,which  arelocatedinthesuburbanareasofCincinnati,Cleveland,Columbus,andDayton.HCONalsooffersan  onlineRegisteredNursetoBachelorofScienceinNursingcompletionprogram,whichwerefertoasthe  RN-to-BSNProgram,predominantlytostudentsinOhio.HCONisnationallyaccreditedbytheAccrediting  CouncilofIndependentCollegesandSchoolsandtheRN-to-BSNProgramisaccreditedbytheCommission  onCollegiateNursingEducation,orCCNE.HCON’slocationsandprogramsareapprovedbytheOhioState  BoardofCareerCollegesandSchoolsandtheRN-to-BSNProgramisapprovedbytheOhioDepartmentof  HigherEducation.Inaddition,theDiplomainPracticalNursingandAssociateDegreeinNursingprograms  areapprovedbytheOhioBoardofNursing.HCONemploysapproximately100full-timefacultymembersand 45part-timefacultymembers. WeacquiredHCONonNovember 1,2013.OuracquisitionofHCONisconsistentwithourstrategytodiversify  oureducationbusinessandexpandfurtherintohealthscienceandtechnologyfocusedprograms.Webelieve  HCONwillpotentiallyserveasaplatformforfuturehealthcarerelatedprogramexpansion. Our Reporting Segments Ouroperationsareorganizedintotworeportingsegments: • American Public Education Segment, or APEI Segment. Thissegmentreflectstheoperationalactivitiesof  APUS,othercorporateactivities,andminorityinvestments. • Hondros College of Nursing Segment, or HCON Segment. Thissegmentreflectstheoperationalactivitiesof  HCON.WeacquiredHCONonNovember 1,2013,andthereforetheconsolidatedresultsforperiodspriorto  November 1,2013donotincludeanyresultsfromHCON. OurconsolidatedrevenuefortheyearendedDecember 31,2015decreasedto$327.9 millionfrom$350.0 million  intheyearendedDecember 31,2014.Netincomewas$32.4 millionfortheyearendedDecember 31,2015,com - paredtonetincomeof$40.9 millionfortheyearendedDecember 31,2014.Financialinformationregardingeach ofourreportingsegments,includinginformationregardingsegmentrevenue,netincome,andtotalassetsfor  eachofthelastthreefiscalyears,canbefoundinourConsolidatedFinancialStatementsfoundinItem8ofPart  IIofthisAnnualReport;financialinformationisreportedinthisAnnualReportin“Management’sDiscussionand  AnalysisofFinancialConditionandResultsofOperations,”“SelectedFinancialData,”and“FinancialStatements  andSupplementaryData.” Postsecondary Education Market Structure and Market Opportunities Today,theU.S.postsecondaryeducationmarketcomprisesmorethan4,000collegesanduniversitiesserving  bothtraditionalcollege-agedstudentsandadultlearners.Themarketishighlyfragmentedwithinstitutions  varyingbygeography,programofferings,deliverymethod,ownership,affordability,levelofacademicquality  andselectivityofadmissions.Nosingleinstitutionholdsasignificantproportionoftheoverallpostsecondary  educationmarket. Webelievethatmanystudentsareseekinganeducationalvaluethatoffersthemtheprogramstheywant,at  acompetitiveprice,inanengagingandoftenmobileformatthatwillsupporttheirimmediateandlong-term  careeraspirations,andthatemployersareseekingtohiregraduateswithcompetenciesalignedtotheirneeds.  Thus,institutionssuchasAPUS,withaffordablepricing,flexibledelivery,andarobustcatalogofofferings  alignedtoworkforceneedsarewell-positionedtoaddressthecurrentchallengesandtomeetthedemandsof  aconnectedandmobilesociety. Webelievethatwithnearly2.2 millionactive-dutymilitaryandreservists,theU.S.ArmedForceswillcontinue  tobeasignificantmarketforonlineeducationevenwithplannedtroopdrawdowns.Becauseoftheirirregular  12 American Public Education, Inc. schedules,geographicmobilityandaccesstotuitionassistancefunding,webelieveservicememberswill  continuetoseekrespecteduniversitiesthatprovidemilitary-focusedsupportservicescoupledwithonline  curriculumthatisdesignedtopreparegraduatesforcareeradvancement.Aspartoftheirlongstandingtradi - tion,militaryleadersoftenencourageservicememberstocapitalizeontheirearnededucationbenefits,andto  enhancetheirqualificationsforpurposesofthemilitary’scompensation,promotion,assignment,andperfor - mancesystems. Atthesametime,electedandprivate-industryleadersareheavilypromotingnewpoliciesandcampaignsto  facilitatethehiringofveterans,withapriorityonplacingindividualswhoaretransitioningfrommilitaryser - vicetotheprivatesector.Asthesepolicieslowerbarrierstononmilitaryjobsandfederalcontractsforveter - an-ownedbusinesses,postsecondarydistanceuniversitiesoffervaluableeducationalopportunitiesformilitary  constituentsregardlessofwheretheylive,workandlearn. TheDepartmentofDefense(DoD)uniformtuitionassistancepolicyoffersservicemembersavarietyofafford - ableeducationandfinancialaidoptions.Additionally,veterans(andcertainservicemembers)areentitled  toeducationalbenefitsfromtheDepartmentofVeteransAffairs(VA).Formoreinformation,referto“Our  Institutions”and“RegulatoryEnvironment—StudentFinancingSourcesandRelatedRegulations/Requirements.” Webelievethat,liketheU.S.militarycommunity,ournation’spublicserviceprofessionalsneedaccesstoafford - ableandflexibleeducationthatfitstheirchangingschedules.Moreandmore,webelieveleadershipadvance - mentwithinmanypublicserviceagenciesrequiresanadvanceddegree.Oftenpublicserviceprofessionals  haveextendedandshiftingschedulespreventingthemfromattendingtraditionalorin-classprograms.Many  traditionalinstitutionslackthebroadselectionofdegrees,certifications,andconcentrationsthatarespecifically  relevanttopublicservicecareers.APUSaddressesthisvoidbyofferingabroadarrayofindustry-specificpro - gramsthatarecontinuallyassessedagainstlearningoutcomes,andenhancedthroughguidanceandinputfrom  selectedindustryleaders. Onanationalleveltheexpandinghealthcaresectorisdrivingdemandfornursingeducation.Accordingto  theU.S.BureauofLaborStatistics’OccupationalOutlookHandbook,2016–17Edition,jobopportunitiesfor  registerednursesareexpectedtogrowapproximately16%between2014and2024,fasterthantheaverage  growthforalloccupations.Despiteanticipatedgrowthinjobopportunities,a2014reportfromtheAmerican  AssociationofCollegesofNursingstatedthatover53,000qualifiedapplicationswerenotacceptedbyentry- levelbaccalaureateprogramsatnursingschoolsin2013.Thesestatisticssuggesttheremaybeunmetdemand  fromqualifiedstudentsforon-campusandonlinenursingeducationalprograms.Thesestatisticsmaynotbe  indicativeofdemandonaregionalorlocallevel,includinginOhio. Ourinstitutionscontinuetofacesignificantcompetitionandotherchallenges,includingchallengesrelatedto  federalpoliciesgoverningeducationprovidersandfinancialaid.Mostpublicinstitutionsareaidedbysubstan - tialgovernmentsubsidies.Publicandprivatenonprofitinstitutionsbenefitfromgovernmentandfoundation  grants,inadditiontotax-exemptstatus,tax-deductiblecontributions,andotherfinancialresourcesnotwidely  availabletofor-profitinstitutions.Manypubliccompetitorsbenefitfromlongstandingnamerecognition,and  theyareabletodirectlyrecruitstudentsmorecost-effectively,especiallyintheirlocalmarkets.Inaddition,  competitorsareupgradingthewaytheydelivertheiracademicprograms,whichinvolvesavarietyoftradi - tional,blended,andasynchronouslearningplatforms.Additionally,non-traditionalcompetitors,suchasenti - tiesofferingcodingbootcamps,areofferingnewalternativeeducationalpaths.Someinstitutionsareshifting  theirdeliverymodelstoincludeamixoftraditional,nontraditional,credit-bearingandnon-credit-bearing  educationprograms,andmassivelyopenonlinecourses(MOOCs)canbeofferedatlittletonocost.Thistrend  isacceleratingasmanyinstitutionsrealignandadopttheflexibleandcost-effectivebenefitsthatonlineeduca - tionoffersthemodernlearner. 2015 Annual Report 13 Our Competitive Strengths Webelieveourinstitutionsdemonstratethefollowingcompetitivestrengths: • Academic Excellence. Wearecommittedtocontinuallyassessingandenhancingouracademicprogramsand  ourstudentservicestosupportsuccessfuloutcomesforourstudentsandgraduates.APUSinvestssignificant  resourcesinfaculty,learningtechnologies,curriculumdesign,andstudentsupportforitslearningcommunity.  APUS’sacademicprogramofferingsareoverseenbyanindependentBoardofTrusteesthatincludesformer  collegepresidentsandexecutiveteammembers,activeaccreditationevaluators,aformerCommandantofthe MarineCorps,aformerNavyAdmiral,andaformerDepartmentoftheArmyInspectorGeneral.Additionally,  APUSutilizesIndustryAdvisoryCouncils(IACs)toevaluateandinformtheoverallandprogram-specificaca - demiclearningstrategy.ThisfacilitateseffortstoconnectAPUS’scurriculumtotheindustryandthestu - dentsitserves.Similarly,HCONfocusesoneducationalsupportbyhiringexperiencedindustryprofessionals  whileenhancingstudentservicestoassiststudentswithcourses,labs,andclinicalofferings.HCON’sfaculty  includesindividualswithresearchexperience,andspecializednursingcredentials. • Affordable Tuition. ThecombinedtuitionandfeesatAPUSarelessexpensiveforundergraduateandgradu - atestudentsthantheaveragein-statecostatapublicuniversity.This,whencombinedwithAPUS’sundergrad - uatebookgrant,whichisprovidedtoallundergraduatestudents,resultsinsignificantsavingsforstudents.  FollowingatuitionincreasethatwaseffectiveinJuly 2015,undergraduatetuitionatAPUSis$270persemester  hour,or$810perthree-creditcourse.Afull121-credithourundergraduatedegreemaybeearnedfor$32,670  intuitioncostsatcurrenttuitionrates.FollowingtheJuly 2015tuitionincrease,APUS’sgraduatetuitionis  $350persemesterhour,or$1,050perthree-creditcourse,whichmeansmanyAPUSgraduatedegreesmaybe  earnedfor$12,600intuitionatcurrenttuitionrates.APUSprovidesatuitiongranttosupportstudentswho  areU.S.Militaryactive-dutyservicemembers,Guard,Reserve,militaryspousesanddependents,andveter - ans.Forsuchindividualstuitionissetatpre-July 2015rates,withundergraduatecoursetuitionat$250per  semesterhour,andgraduatecoursetuitionat$325persemesterhour.APUSestimatesthatthetuitiongrant  appliestoapproximately75%ofitstotalnetcourseregistrations.TuitionandfeesatHCONarealsodesigned  tobeaffordableandcompetitivewiththoseofsimilarinstitutionsofferingthesamelevelofflexibility,accessi - bility,andstudentexperience.Aftertakingintoaccountthetuitiongrantthatisavailabletoservicemembers,  APUS’sundergraduatetuitioniscovered100%byDoDtuitionassistanceandgraduatetuitionisapproximately  80%covered.Tuition,fees,andbooksatHCONarealsodesignedtobeaffordableandcompetitivewiththose  ofsimilarinstitutionsofferingthesamelevelofflexibility,accessibility,andstudentexperience. • Online Higher Education and Diverse Program Offerings. APUSdesignscoursesandprogramsspecifically foronlinedelivery.APUSrecruitsandpreparesitsfacultyexclusivelytodeliveronlineinstruction.Because  studentsarelocatedworldwide,APUSfocusesonprovidingasynchronous,interactiveeducationtostudents  thatfitstheirbusylives.APUSoffers100degreeprogramsinfieldsrangingfromhomelandsecurity,space  studies,andemergencyanddisastermanagement,toliberalartsandelectricalengineering.HCONcurrently  offersaDiplomainPracticalNursing,anAssociateDegreeinNursing,andanonlineregisterednurseto  BachelorofScienceinNursingcompletionprogram. Our Strategic Approach Togrowourrevenueandimproveourfinancialperformance,weplantoemploythefollowingstrategies: • Maintain Our Leading Position in the Military Market. APUShasfocusedontheneedsoftheU.S.military  communitysincebeingfoundedasAMU.Thecombinationofouronlinemodel,focusedcurriculum,andout - reachtomilitarycommunitieshasenabledAPUStomaintainmarketshareagainstmoreestablishedschools,  manyofwhicharetraditionalschoolsofferingon-campusinstructionthathaveservedthemilitarymarketfor  longerperiods.APUSremainsfirmlycommittedtoprovidingexceptionalserviceandsupporttothemilitary  14 American Public Education, Inc. community.OneexampleofthiscommitmentandtheresourcesdedicatedtoitisAPUS’sVirtualVeterans  Center,whichisanonlineinformationrepository,agatewaytopersonalizedsupportservices,andagather - ingplaceforveteranandactive-dutystudentsandalumni.Itprovidesuserswithbranch-specificdiscussion  boards,careerservices,academicadvising,StudentVeteransofAmericachapterinformation,andarangeof  otherresources. • Broaden APUS’s Acceptance in the Civilian Market. APUSdesignsitscurriculumtoberelevanttopublic  safetyprofessionalsandcivilianprofessionalswithextendedandirregularworkschedules,andotheradult  learners.Webelievethattoday’sadultstudents,regardlessoftheirspecificcareerrequirements,arelooking  forahighly-tailorededucationalexperiencethatpreparesthemforsuccess.WhileAPUS’squality,affordable,  anddiverseacademicofferingsarehighlyattractiveoptionsforstudents. • Add New Degree Programs and Offerings at Our Institutions. Overthelongterm,weintendforourinstitu - tionstocontinueexpandingtheirdegreeofferingstomeetstudentneedsandmarketplacedemands,witha  focusonnewprogramsinfieldsexhibitinghigherthanaveragegrowth.OuracquisitionofHCON,andthetype  ofprogramofferingsatHCON,reflectthisstrategy,andweplantofocusonincreasingstudentenrollmentsin  HCON’sprograms,growHCON’son-campusandonlineprogramofferings,andopennewcampusesforHCON.  APUSisalsopreparing,academicallyandculturally,topotentiallybeginofferingdoctoralprogramsinthenext  fewyears. • Pursue and Expand Strategic Partnerships. Webelievethatarticulationagreementsandpartnershipswith  otherinstitutionsofhigherlearning,corporations,professionalassociations,andotherorganizationsare  importanttoinstitutionalperformance,enrollmentgrowthandexpandingaccesstohighereducation.We  planforourinstitutionstocontinuepursuingsuchrelationships. • Utilize Innovative Education Technology. APUShasdevelopedproprietarytechnologiesandsystemsto  enhancestudentservices,classroominstruction,learningoutcomes,andtheoverallstudentexperience.  Tofurtherimprovestudentoutcomes,satisfactionrates,access,ourinstitutionalefficiencyandourbrand  differentiation,wearefocusedonprovidingauniqueandadvancedlearningenvironment,includingthrough  enhancingourexistingtechnologiesandinvestinginemergingtechnologiesandcompanies.Forexample,asa  resultofourinvestmentinFidelisEducation,Inc.,orFidelisEducation,wepursuedapilotprogramtoprovide  studentswithaccesstoFidelisEducation’sClearPathsystem.TheClearPathsystemisdesignedtohelponline  studentsinteractwithfacultyandstaffinmeaningfulwaysoutsidetheclassroom,improvepersistence,and  helpstudentssuccessfullyprepareforcareertransitions.Afterasuccessfulpilot,in2015weopenedthe  ClearPathsystemtoallAPUSstudents. • Improve Student Persistence. Ourabilitytomaintainandincreaseenrollmentdependslargelyonourability  toattractnewstudentsandprovidethemwithaneffectiveuniversityexperience.Wearefocusedonincreas - ingthepercentageofourstudentswhoarepreparedfortherigorsofhighereducationandcapableofsuc - cessfullycompletingcoursesandgraduatingfromourprograms.WehavelaunchedseveralprojectsatAPUS  toaccomplishthesegoals,includinginitiativestoattractcollege-readystudents,increasethelevelofengage - mentandcollaborationintheclassroom,andintroducenewclassroominterventionstohelpstudentssucceed  academically.Inaddition,weresearchandexplorenewwaystoimprovestudentpersistenceandacademic  qualitythroughcollaborativeinitiativeswithnon-profitorganizationsandotheruniversities. Toassistusinachievingelementsofourgrowthstrategyandfurtherdevelopourbusinesscapabilities,wewill  continuetoassessandpursuestrategicinvestmentsandacquisitions.Futurestrategicinvestmentsoracquisi - tionscouldinclude,amongotherthings,investmentsinpartnershipsorjointventureswith,ortheacquisitionof,  otherschools,serviceproviders,oreducationtechnology-relatedcompanies.Examplesofourinvestmentsand  acquisitionsinclude: 2015 Annual Report 15 • Hondros College of Nursing. InNovember 2013,weacquiredalloftheissuedandoutstandingcapitalstock  ofNationalEducationSeminars,Inc.,whichwerefertoasHCON,foranapproximateadjustedaggregatepur - chasepriceof$46.8 million.AsdescribedmorefullyelsewhereinthisAnnualReport,HCONoffersaDiploma  inPracticalNursing,anAssociateDegreeinNursing,andanonlineRN-to-BSNprogram. • New Horizons Worldwide, Inc. InSeptember 2012,wemadea$6.8 millionequityinvestmentanda$6.0 mil - liondebtinvestmentinaholdingcompanythatacquiredNewHorizons,aglobalinformationtechnologytrain - ingcompanyoperatingover300locationsaroundtheworldthroughfranchisearrangementsinapproximately  70countries.Inconnectionwiththeinvestmentweacquiredapproximately19.9%ofthefullydilutedequityof  NewHorizonsandareentitledtocertainrights,includingrightstorepresentationontheBoardofDirectorsof  theholdingcompany.InDecember2014,NewHorizonsprepaidthe$6.0 milliondebtinvestmentwemadein  connectionwiththetransaction. • Fidelis Education, Inc. InFebruary 2013,wemadea$4.0 millioninvestmentinpreferredstockofFidelis  Education,representingapproximately21.6%ofitsfullydilutedequity.OnFebruary 1,2016,theCompany  madeanadditional$950,000investmentinpreferredstockofFidelisEducation,increasingitsinvestmentin  FidelisEducationtoapproximately22%ofitsfullydilutedequity.FidelisEducationoffersalearningrelation - shipmanagementplatformthathasthegoalofimprovingeducationadvisingandcareermentoringservices  offeredtostudentsastheypursuecollegedegrees.Inconnectionwithitsinvestments,APEIisentitledto  certainrights,includingtherighttorepresentationonFidelisEducation’sBoardofDirectors. Foradditionalinformationregardingtheseandourotherinvestmentsandacquisitions,pleaserefertothe  “FinancialStatementsandSupplementaryData—NotestoConsolidatedFinancialStatements.” Executive Officers of the Registrant SetforthbelowiscertaininformationconcerningourexecutiveofficersservingasofthedateofthisAnnualReport. Name Dr. Wallace E. Boston Richard W. Sunderland, Jr., CPA Dr. Karan Powell Carol S. Gilbert Peter W. Gibbons Age 61 55 62 57 63 Position President, Chief Executive Officer and Director of APEI and President and Chief Executive Officer of APUS Executive Vice President, Chief Financial Officer Executive Vice President, Provost of APUS Executive Vice President, Marketing Senior Vice President, Chief Administrative Officer Dr. Wallace E. Boston joinedusinSeptember 2002asExecutiveVicePresidentandChiefFinancialOfficerof  APUSand,sinceJune 2004,hasservedasPresident,ChiefExecutiveOfficer,andamemberoftheBoardof  DirectorsofAPEIandPresidentandChiefExecutiveOfficerofAPUS.FromAugust 2001toApril 2002,Dr.Boston  servedasChiefFinancialOfficerofSunHealthcareGroup.FromJuly 1998toMay 2001,Dr.Bostonservedas  ChiefOperatingOfficerand,later,PresidentofNeighborCare,Inc.FromFebruary 1993toMay 1998,Dr.Boston  servedasVicePresidentofFinanceand,later,SeniorVicePresidentofAcquisitionsandDevelopmentofManor  HealthcareCorporation,nowManorCare,Inc.FromNovember 1985toDecember1992,Dr.Bostonservedas  ChiefFinancialOfficerofMeridianHealthcare. Richard W. Sunderland, Jr., CPAjoinedusinFebruary 2011asaconsultantandbecameSeniorVicePresident  ofFinanceatAPUSinDecember2012.EffectiveJanuary1,2014,Mr.SunderlandwasappointedasExecutiveVice  PresidentandChiefFinancialOfficerofAPEI.PriortojoiningAPUS,Mr.SunderlandservedastheChiefFinancial  OfficerofNovaSom,Inc.from2008to2010.Inaddition,Mr.SunderlandservedasChiefFinancialOfficerof  16 American Public Education, Inc. ActiveDay,Inc.between2005and2008,andinvariousroles,includingasController,SeniorVicePresidentand  ChiefFinancialOfficer,atNeighborCare,Inc.from1993to2004. Dr. Karan Powell joinedusinApril 2004asInterimChancellorafterservingontheBoardofTrusteesofAPUS  fortwoyears.FromOctober 2005toDecember2005,Dr.PowellservedastheDeanoftheSchoolofBusiness,  ManagementandGraduatestudies.FromJanuary2006toJuly 2008,Dr.PowellservedasVicePresident  andAcademicDean.InJuly 2008,Dr.PowellwaspromotedtoSeniorVicePresidentandservedasSenior  VicePresidentandAcademicDeanuntilAugust 2011whenshewaspromotedtoExecutiveVicePresident  andProvost.In2010,Dr.PowelljoinedtheboardoftheHigherEducationResourceServices(HERS)andwas  electedtotheHERSexecutiveboardasSecretaryin2014.From2011to2012,Dr.PowellservedasChairof  theHERS’40thAnniversaryCommittee,andin2012,wasappointedasProgramCommitteeChair,andin  2015wasappointedtotheFinanceCommittee.Dr.PowellhasservedontheBoardofTrusteesforGarrison  ForestSchoolinBaltimore,Marylandsince2012,andiscurrentlychairoftheHumanResourcesCommittee.  Dr.PowellwaselectedtotheBoardfortheAssociationofChiefAcademicOfficersin2014.Dr.Powellalso  servesasanacademicadvisortotheBoardofDirectorsofFidelisEducation,Inc.Between1988and2007,Dr.  PowellservedatGeorgetownUniversityinvariousroles,includingDirectorofProfessionalDevelopmentinthe  SchoolofContinuingEducation,DirectorofOrganizationDevelopmentPrograms,andDirectorofIRSExecutive  DevelopmentProgram.WhileatGeorgetownUniversity,Dr.PowellalsoservedasanExecutiveInstructoratthe  SchoolofBusiness. Carol S. Gilbert joinedusinMay 2004asVicePresident,ProgramsandMarketing,waspromotedtoSeniorVice  President,MarketinginJanuary2005andwaspromotedtoExecutiveVicePresident,MarketinginJanuary2009.  From1998to2000,Ms.GilbertservedasBrandTeamVicePresident,Marketing/StrategicPlanning,Fairfield  Inn,andfrom2000to2003servedasBrandVicePresident,SpringHillSuitesbyMarriott.FromApril 1996to  October 1997,Ms.GilbertservedasVicePresident,StrategicPlanningatChoiceHotelsInternational(formerly  ownedbyManorCare,Inc.).From1991to1996Ms.GilbertservedasDirector,thenSeniorDirectorofMarketing  StrategyforManorCare,Inc. Peter W. Gibbons joinedusinOctober 2002asVicePresident,StudentServicesandbecameSeniorVice  President,ChiefOperatingOfficerinJanuary2005.InMay 2007,Mr.Gibbons’titlewaschangedtoSeniorVice  President,ChiefAdministrativeOfficer.FromJune 2000toOctober 2002,Mr.GibbonsservedasVicePresident,  HumanResourcesforSitelCorporation.FromMay 1975toJune 2000,Mr.Gibbonsservedasafieldartillery  officerintheUnitedStatesArmy.Mr.Gibbonscommandedsoldiersincombat,heldseniorstaffpositionsatthe  DepartmentofArmy,andtaughtattheUnitedStatesMilitaryAcademyforthreeyears. Seasonality Ourquarterlyresultsfluctuateand,therefore,theresultsinanyquartermaynotrepresenttheresultswemay  achieveinanysubsequentquarterorfullyear.Ourrevenueandoperatingresultsnormallyfluctuateasaresult  ofseasonalorothervariationsinourenrollments.Ourstudentpopulationvariesasaresultofnewenrollments,  graduations,studentattrition,thesuccessofourmarketingprograms,andotherreasonsthatwecannotalways  anticipate.Weexpectquarterlyfluctuationsinoperatingresultstocontinueasaresultofthesefactors. Available Information About Us APEIwasincorporatedinDelawarein2002,asthesuccessortoaVirginiacorporationincorporatedin1991.Our  websiteiswww.americanpubliceducation.com.Theinformationonourwebsiteisexpresslynotincorporated  byreferenceinthisAnnualReportonForm10-K.Wemakeavailable,freeofchargethroughourwebsite,our  AnnualReportsonForm10-K,QuarterlyReportsonForm10-Q,CurrentReportsonForm8-K,andamendments  tothosereportsfiledorfurnishedpursuanttoSection13(a)or15(d)oftheExchangeAct,assoonasreasonably  2015 Annual Report 17 practicableaftertheyareelectronicallyfiledwith,orfurnishedto,theSEC.Inadditiontovisitingourwebsite,  youmayreadandcopymaterialswefilewiththeSecuritiesandExchangeCommission,orSEC,attheSEC’s  PublicReferenceRoomat100F.Street,NE,WashingtonDC20549,oratwww.sec.gov.Youmayobtaininforma - tionontheoperationofthePublicReferenceRoombycallingtheSECat1-800-SEC-0330. Our Institutions Weprovidepostsecondaryeducationthroughtwosubsidiaryinstitutions,APUSandHCON.Ourinstitutionsare  licensedorotherwiseauthorizedbystateauthorities,orareintheprocessofobtainingsuchlicensesorauthori - zations,toofferpostsecondaryeducationprogramstotheextenttheinstitutionsbelievesuchlicensesorautho - rizationsarerequired,andarecertifiedbytheUnitedStatesDepartmentofEducation,orED,toparticipatein  studentfinancialaidprogramsauthorizedunderTitle IVoftheHigherEducationActof1965,asamended,or  Title IVprograms. American Public University System APUSisregionallyaccreditedbytheHigherLearningCommission,orHLC,andisbasedinCharlesTown,West  Virginia.In2002,APUSwasorganizedintoasingleuniversitysystem,withtwocomponentuniversities,AMU,  whichisfocusedonappealingtomilitarystudents,andAPU,whichisfocusedonappealingtonon-military  students.APUStracesitsrootstoAMU,whichwasfoundedasadistancelearninggraduate-levelinstitution  formilitaryofficersseekinganadvanceddegreeinmilitarystudies.APUShasgraduallybroadeneditsfocusto  includeothermilitarycommunities,veterans,publicsafety,andcertainothernon-militarycommunities.APUS  isanonlineinstitutionofhigherlearning,whichwebelieveiswell-suitedtoitsstudents,especiallyitsmilitary  students,whoserveinpositionsrequiringextendedandirregularworkschedules,areon-callforrapidresponse  missions,participateinextendeddeploymentsandexercises,travelorrelocatefrequentlyandhavelimited  financialresources. AlthoughAPUS’sfocushasbroadened,itcontinuestohaveanemphasisonitsrelationshipwiththemilitary  community.AsofDecember 31,2015,approximately56%ofAPUS’sstudentsself-reportedthattheyservedin  themilitaryonactivedutyatthetimeofinitialenrollment.TheremainderofAPUS’sstudentsaremilitary-affil - iatedprofessionals(suchasveterans,reservistsorNationalGuardmembers),publicsafetyprofessionals(such  aslaw-enforcementpersonnelorotherfirstresponders)andothercivilians(suchasworkingadultstudents). Curriculum and Scheduling APUSoffers195degreeandcertificateprogramsthroughover1,600uniquecoursesthatareofferedineithereight- orsixteen-weekformats.AcademictermsbeginonthefirstMondayofeachmonth.APUS’sprogramsareasfollows: Programs Masters Degrees Bachelors Degrees Associates Degrees Total Degree Programs Certificates Graduate Undergraduate Total Certificates TOTAL PROGRAMS AND CERTIFICATES 18 American Public Education, Inc. Number 34 44 22 100 Number 43 52 95 195 Atthegraduatelevel,APUSoffersprogramsinthefollowingfieldsofstudy: MasterofArtsin: CriminalJustice EmergencyandDisasterManagement EmergencyandDisasterManagement andHomelandSecurity Entrepreneurship History HomelandSecurity Humanities IntelligenceStudies InternationalRelationsandConflictResolution LegalStudies Management MilitaryHistory MilitaryStudies NationalSecurityStudies PoliticalScience Psychology ReverseLogisticsManagement SecurityManagement TransportationManagementandLogistics MasterofBusinessAdministration MasterofEducationin: EducationalLeadership Teaching MasterofPublicAdministration MasterofPublicHealth MasterofPublicPolicy MasterofSciencein: Accounting CybersecurityStudies EnvironmentalPolicyandManagement HealthInformationManagement InformationTechnology Nursing SpaceStudies SportsandHealthSciences SportsManagement Attheundergraduatelevel,APUSoffersprogramsinthefollowingfieldsofstudy: BachelorofArtsin: CriminalJustice ReverseLogisticsManagement SecurityManagement EmergencyandDisasterManagement Sociology English Entrepreneurship GeneralStudies GovernmentContractingandAcquisition History HomelandSecurity HospitalityManagement HumanDevelopmentandFamilyStudies IntelligenceStudies InternationalRelations Management Marketing MiddleEasternStudies MilitaryHistory Philosophy PoliticalScience Psychology Religion RetailManagement TransportationandLogisticsManagement BachelorofBusinessAdministration BachelorofSciencein: Accounting CriminalJustice—Forensics Cybersecurity ElectricalEngineering EnvironmentalScience HealthInformationManagement FireScienceManagement InformationSystemSecurity InformationTechnology InformationTechnologyManagement LegalStudies Mathematics NaturalSciences Nursing PublicHealth 2015 Annual Report 19 AssociateofAppliedScienceinHealthSciences AssociateofSciencein: Accounting ComputerApplications DatabaseApplicationDevelopment ExplosiveOrdnanceDisposal FireScience ParalegalStudies PublicHealth WebPublishing SpaceStudies SportsandHealthSciences SportsManagement AssociateofArtsin: BusinessAdministration Communication Counter-TerrorismStudies CriminalJustice EarlyChildhoodCareandEducation GeneralStudies History Hospitality Management MilitaryHistory PublicHealth RealEstateStudies RetailManagement WeaponsofMassDestructionPreparedness APUS’scertificateprogramsgenerallyconsistofaminimumof18semesterhoursandfocusonaparticularcom - ponentofabroaderdegreeprogram.Studentsmayearndiscretecertificatesorearncertificatesincombina - tionwithworktowardadegreeprogram.APUSalsooffersseveralLearningTrackscomprisedofonetwo-week  “ClassroomSuccess”orientationcourseaboutonlinelearning,andthreeacademiccoursesinarelatedareaof  interest.ALearningTrackallowsstudentstopursueacourseofstudywithouthavingtocommittoadegreeor  certificateprogram. Enrollment and Student Body TheactivestudentbodyofAPUSconsistsofapproximately96,000students,mostofwhomholdfull-time  employment.Activestudentsaredefinedasthosewhohavecompletedacourseinthepast12months,orare  currentlyenrolledorregisteredforanupcomingcourse.APUSdisenrollsstudentswhofailtoregisterforand  completeatleastonecourseinacalendaryear,althoughstudentsmayapplyforre-admissionandactivestatus.  Studentsonextendedmilitarydeploymentsmayapplyforaprogramhold,whichkeepssuchstudentsactive  untiltheyreturnandareabletoresumetheirstudies. Accreditation APUSisregionallyaccreditedbyHLC,whichaccreditsdegree-grantinginstitutionslocatedina19-stateregion,  includingWestVirginia,andisrecognizedbyED.Thestatusandmeaningofthisinstitutionalaccreditationis  describedmorefullybelowin“RegulatoryEnvironment—Accreditation.” 20 American Public Education, Inc. InadditiontoinstitutionalaccreditationbyHLC,certainprogramsofferedbyAPUShavereceivedspecialized  accreditationsorprofessionalrecognition.Forexample,theAccreditationCouncilforBusinessSchoolsand  Programs,orACBSP,accreditsthefollowingprograms: • AssociateofScience,BachelorofScienceandMasterofScienceinAccounting; • AssociateofArts,BachelorandMasterofBusinessAdministration; • AssociateofArtsandBachelorofArtsinHospitalityManagement; • AssociateofArts,BachelorofArts,andMasterofArtsinManagement; • AssociateofArtsinRealEstateStudies; • AssociateofArtsandBachelorofArtsinRetailManagement; • BachelorofArtsandMasterofArtsinReverseLogisticsManagement; • BachelorofArtsinMarketing;and • BachelorandMasterofArtsinTransportationandLogisticsManagement. CCNEaccreditstheBachelorofScienceinNursing.Furthermore,APUShasobtainedprofessionalrecognition  foritsprogramconcentrationsinHumanResourcesfromtheSocietyforHumanResourceManagement,certain  coursesintheSportsandHealthSciencesprogramfromtheAmericanSportEducationProgramforBronze  LevelCertificationandtheNationalAcademyofSportsMedicinePerformanceEnhancementSpecialist,forthe  InformationSystemsSecurityprogramfromtheNationalSecurityAgency—InformationAssuranceCourseware  Evaluation,andcertaincoursesintheHumanDevelopmentandFamilyStudiesprogramfromtheNational  CouncilonFamilyRelationsfortheCertifiedFamilyLifeEducator.Theseaccreditationsandrecognitionsare  describedmorefullybelowin“RegulatoryEnvironment—Accreditation.” Student Recruitment and Marketing APUS’smarketingstrategytraditionallyfocusedonbuildinglong-term,mutuallybeneficialrelationshipswith  organizationsandindividualsinmilitaryandpublicsafetycommunities.ThecoreofAPUS’sreferralstrategyis  rootedinourmilitaryandpublicsafetyoutreachteams,whichservethoseprimarycommunitiesanddevelop  lastingpartnerships.WebelieveAPUS’sreputationasatrustededucatoryieldspeer-to-peerreferrals,andposi - tionsAPUSasarespectedinstitutionamongtopfederalandprivatesectoremployers.Theserelationships,as  wellasAPUS’sstudentandalumninetworks,alsocreatepersonalreferrals.Thisrelationship-basedmarketing  approachenablesAPUStoachievestudentacquisitioncostslowerthanwebelieveitwouldotherwisehaveifit  focusedmoreheavilyontraditionalmediaadvertising. APUSsupplementsrelationship-basedmarketingwithtraditionalmediaadvertisingandmultifacetedinteractive  marketingcampaignstocreategreaterbrandawareness,particularlyfortheAPUbrandoutsidethemilitaryand  publicsafetycommunities,andtoincreaseinquiriesfrompotentialstudents.Inthesecampaigns,APUSutilizes  digitalmarketingchannelssuchasorganicsearch,pay-per-click,banneradvertising,andonlinesocialmedia,  amongothers.ThisaspectofAPUS’smarketingstrategy,alongwithincreasedcompetitionandmoreinvestment  inmarketingthelesswellknownAPUbrand,hasresultedinincreasedstudentacquisitioncosts,andhasalso  attractedstudentswhogenerallydidnotperformaswellasthosewhoenrolledthroughrelationship-based  marketing.Inthefourthquarterof2014,APUSrevisedthisstrategytouseamoretargetedandnarrowergeo - graphicalapproachthatwasintendedtoattractstudentswithgreatercollegereadiness. 2015 Annual Report 21 Student Admissions APUSwelcomesprospectivestudentstoapplyforadmissionatanytimethroughanonlineapplicationprocess.  ThecurrentqualificationsformostundergraduateprogramsareahighschooldiplomaorGeneralEducation  Developmentcertificate.Applicantsforgraduateprogramsmustholdabachelor’sdegreefromanaccredited  U.S.institutionoranequivalentforeigninstitution.Certainprogramsmayhaveadditionaladmissionsstan - dardsandrestrictions.FollowingadmissionstudentsareissuedastudentIDnumberandpassword,andare  providedinformationonhowtofinalizetheiradmissionandapplyforevaluationoftransfercredits.Students  arealsoprovidedinformationonhowtoregisterforcourses,arrangeforpayment,andnavigatetheonline  studentenvironment. InApril 2015,APUSimplementedanadmissionsprocessrequiringprospectivestudentstocompleteafree,non- creditadmissionsassessmentiftheyarenot(i)activedutymilitaryorveteranapplicants;(ii)graduatesofcerti - fiedfederal,stateorlocallawenforcementorpublicsafetyacademies;or(iii)studentswithatleastninehours  oftransfercreditfromanaccreditedinstitutionwithagradeof“C”orbetterforeachcourse. APUScontinuestoimprovethelearningexperienceandattractstudentswhoaremorelikelytopersistinits  programs,andmayimplementanumberofimportantchangesandinitiativestoadmitmorecollegereadystu - dents.Suchinitiativesmayincludealteringadmissionsstandards,whichmayhaveanadverseeffectonAPUS’s  enrollmentandourfinancialcondition. ForadditionalinformationontherisksassociatedwithsuchinitiativesandtheAPUSadmissionsprocessplease  referto“RiskFactors—RisksRelatedtoOurBusiness.” Cost of Attendance and Financial Aid WebelievethatAPUS’sabilitytoofferaffordableprogramsisoneofitscompetitivestrengths.ManyAPUSstu - dentsalsotransferasignificantnumberofpreviouslyearnedacademiccredithours,whichreducesthecostand  timeofearningtheirdegrees. BeginninginJuly 2015,APUSincreasedundergraduateandgraduatetuitionbyapproximately8%.  UndergraduatetuitionatAPUSisnow$270persemesterhour,or$810perthree-creditcourse.Afull121-credit  hourundergraduatedegreemaybeearnedfor$32,670intuitioncostsatcurrenttuitionrates.APUS’sgraduate  tuitionisnow$350persemesterhour,or$1,050perthree-creditcourse,whichmeansmanyAPUSgraduate  degreesmaybeearnedfor$12,600intuitionatcurrenttuitionrates.Thecombinedtuition,feesandbooksat  APUSaredesignedtobelessexpensiveforundergraduateandgraduatestudentsthantheaveragein-statecost  atapublicuniversity.APUSprovidesatuitiongranttosupportstudentswhoareU.S.Militaryactive-dutyservice  members,Guard,Reserve,militaryspousesanddependents,andveterans.Forsuchindividualstuitionissetat  pre-July 2015rates,withundergraduatecoursetuitionat$250persemesterhour,andgraduatecoursetuition  at$325persemesterhour.APUSestimatesthatthetuitiongrantappliestoapproximately75%ofitstotalnet  courseregistrations. TheJuly 2015tuitionincreasewasAPUS’sfirstundergraduatetuitionincreasesince2000,andthefirstgraduate  tuitionincreaseinfouryears.BasedoninformationintheCollegeBoard’s2015Trends in College Pricing (under- graduate)andtheNationalCenterforEducationStatisticsDigestofEducationalStatistics2013–14(graduate),we  estimatethat,afterthetuitionincrease,APUS’scombinedtuition,fees,andbooksremainapproximately19%  lessforundergraduatestudentsand38%lessforgraduatestudentsthantheaveragepublishedin-stateratesat  publicuniversities. Undergraduatestudentsenrolledincoursesforacademiccreditreceivetheirtextbooksandcertaincourse  materialsatnoadditionalcosttothemthroughabookgrantprogram.Thisbookgrantrepresentsanaverage  22 American Public Education, Inc. potentialsavingsoverthecourseofastudent’sundergraduatedegreeprogramofapproximately$5,192as  comparedtopublicfour-yearcollegesanduniversitiesaccordingtocomparativeinformationfromTheCollege  Board’sTrends in College Pricing 2015report.APUSalsoutilizesopenaccessandonlinelibrarymaterialswhere  applicableandworkswithvariouspublisherstoreducethecostoftextbooksandcoursematerials. APUSdoesnotchargeanadmissionfeeorfeesforservicessuchasregistration,coursedrops,andsimilar  eventsthattriggerfeesatmanyotherinstitutions.BecauseAPUSisanexclusivelyonlineinstitution,thereare  norequiredresidentfees,suchasforparking,foodservice,studentunion,andrecreation.APUSchargesstu - dentsatechnologyfee,butprovidesagranttocoverthetechnologyfeeforstudentsusingDoDtuitionassis - tanceprograms.Whenapplicable,APUSstudentsarechargedcertainadditionalfees,suchasgraduation,late  registration,transcriptrequest,andcomprehensiveexaminationfees. DoDtuitionassistanceprogramscover$750ofthetuitioncostspercourseformilitarystudents,andthese  studentsmayalsobeabletouseVAeducationbenefitsoraidfromED’sTitle IVprogramstocoveranyremaining  cost,asdescribedmorefullybelowin“SourcesofStudentFinancing”and“RegulatoryEnvironment—Student  FinancingSourcesandRelatedRegulations/Requirements.”APUShassetitstuitiongrantsothattheDoDtuition  assistanceprogramcoversthefulltuitioncostofundergraduatecoursesformembersofthemilitaryuptothe  annualmaximumbenefit. Sources of Student Financing APUS’sstudentsfinancetheireducationthroughacombinationofindividualresources,DoDtuitionassistance  programs,VAeducationbenefits,ED’sTitle IVprograms,privateloans,stateandfederalgrants,andcorpo - ratereimbursementprograms.MostofAPUS’sstudentsrelyonsomeformoffinancialaidinadditiontotheir  individualresources.StudentsutilizingED’sTitle IVprogramsaccountedfor32%ofAPUS’snetcourseregis - trationsin2015,andwebelievethattheabilityofourstudentstoparticipateintheseprogramsisessentialto  APUS’ssuccess.ParticipationintheDoDtuitionassistanceprograms,VAeducationbenefitsandED’sTitle IV  programsaddtoAPUS’sregulatoryburden,asdescribedmorefullybelowin“RegulatoryEnvironment—Student  FinancingSourcesandRelatedRegulations/Requirements.”Participationintheseprogramsmeansthatchanges  toorinterruptionsinfederalappropriationsfortheseprogramsorotheractionsbythefederalgovernmentwill  impactAPUS’soperationsandourfinancialcondition. Asdescribedmorefullybelowin“RegulatoryEnvironment—RecentLegislativeandEDActivity—Federal  LegislativeActivity—SequestrationandBudgetaryMatters,”inMarch 2013,inresponsetoautomaticacross-the- boardreductionsinfederalspending(alsoknownas“sequestration”),eachofthemilitaryservicessuspended  newenrollmentsinDoD’stuitionassistanceprograms.AsaresultofCongressionalaction,eachoftheservices  reinstatedenrollmentsinDoDtuitionassistanceprogramsinApril 2013.However,ourresultsofoperationsin  thesecondquarterof2013werenegativelyimpactedbytheseactions,resultinginwhatwebelievewerefewer  enrollmentsfromservicemembersthanotherwisewouldhavebeenexpected. InOctober 2013,DoDtuitionassistanceprogramsweretemporarilysuspendedasaresultofthepartialU.S.  governmentshutdown.OnOctober 1,2013,priortothegovernmentshutdown,APUS’scourseregistrations  forOctober 2013wereapproximately41,200.However,asofOctober 14,2013,approximately13,100registra - tionshadbeendropped,resultinginanetcourseregistrationreductionofapproximately20%comparedto  October 2012.WebelievethatmanyofthesedroppedregistrationsresultedfromthesuspensionofDoDtuition  assistanceprograms.Afterthegovernmentshutdownended,DoDresumeditstuitionassistanceprograms;how - ever,wedonotbelievethatAPUS’sregistrationsforsubsequentperiodsreplacedallofthedroppedregistrations. Asaresultofcontinueduncertaintyabouttheavailabilityoffunding,severalofthemilitarybranches  announcedchangestotheirtuitionassistanceprogramsthattookeffectinfederalfiscalyear2014.Forexample,  2015 Annual Report 23 theAirForceisnolongerauthorizingtuitionassistanceforassociatesdegreesiftheservicememberalready  hasanassociatesdegreefromtheCommunityCollegeoftheAirForce,theArmynowrequiresservicemembers  tocompleteoneyearofserviceaftergraduationfromAdvancedIndividualTraininginordertobeeligiblefor  tuitionassistance,theArmyhasreducedthetotalannualbenefitperservicememberfrom$4,500to$4,000,  andtheMarineCorpsnowrequiresMarinestohave24monthsonactivedutypriortobeingeligibletoapply  fortuitionassistance.InOctober 2015,theCoastGuardrestoredtuitionassistancefundingto$250persemes - terhour,anincreasefromthepreviouscapof$187.50persemesterhour,whichwasimplementedin2014.For  additionalinformationregardingtherisksassociatedwithDoDtuitionassistanceprograms,pleasereferto“Risk  Factors—RisksRelatedtoOurBusiness.” WhileDoD’stuitionassistanceprogramshavebeenreinstated,subjecttothemodificationsdescribedabove,  budgetarypressuresremain,andwedonotknowwhatfutureactionwillbetakenwithrespecttoDoDtuition  assistanceprograms,whichcouldincludeeliminatingthoseprograms,reducingthefundsorbenefits(orboth)  availableunderthoseprograms,orenactingnewrestrictionsonparticipationinthoseprograms.Anysuch  changes,oranyotherreductionsinthefundingforDoDtuitionassistanceprograms,couldhaveamaterial  adverseeffectonAPUS’senrollmentsandourfinancialcondition.Thepotentialrisksassociatedwiththeseand  similareventsaredescribedmorefullybelowin“RiskFactors—RisksRelatedtoOurBusiness.” Faculty and Staff APUS’sfacultyconsistsofapproximately2,210fullandpart-timefacultymemberswithrelevantteachingand  practitionerexperienceaswellasaprofessionalstaffofapproximately950non-facultyemployeesadminister - ingAPUS’sacademic,technology,service,andbusinessoperations.MostofAPUS’snon-facultyemployeeswork  ateitheritsheadquartersinCharlesTown,WestVirginia,oratitsadministrativeofficesinManassas,Virginia.  NoneofAPUS’semployeesarepartiestoanycollectivebargainingarrangement.WebelievethatAPUShasa  goodrelationshipwithitsemployees. Approximately410facultymembersaredesignatedasfull-timefacultywiththeremainderdesignatedaspart- time.APUSestablishesfull-timeandpart-timepositionsbasedonprogramandcourseenrollment.Manyof  APUS’sfull-timefacultybegantheircareerswithAPUSaspart-timefaculty.WeexpectthatAPUS’sfacultyhead - countandthecompositionoffull-timeandpart-timefacultywillvarywithfluctuationsinenrollment. WebelievethatAPUS’swell-regardedfaculty,whichincludesmanyformerandcurrentpractitionersintheir  fields,attractsnewstudentstoAPUS.AsignificantmajorityofAPUS’sgraduatefacultyholdadoctorateinthe  relevantfield,whilevirtuallyallundergraduatefacultyhaveearnedagraduatedegree.Exceptionshavebeen  grantedforalimitednumberofAPUS’sfacultymemberswhodonotmeetthesedegreestandardsbutevidence  significantexperienceandachievementinthefieldofstudythattheyteach.ManyAPUSfacultymembershave  relevantexperienceatleadinguniversitiesandwithinmilitaryandgovernmentinstitutions. WebelievethatthequalityofAPUS’sfacultyiscriticaltothestudentexperienceandstudentoutcomesandis  thereforevitaltoAPUS’ssuccess.APUSregularlyreviewstheperformanceofitsfacultyby,amongotherthings,  monitoringtheamountofonlinecontactthatfacultyhavewithstudents,reviewingstudentfeedback,andeval - uatingthelearningoutcomesachievedbystudents.IfAPUSdeterminesthatafacultymemberisnotperforming  atanacceptablelevelitworkswiththefacultymembertoimproveperformance,includingthroughassigning  thefacultymemberamentor.Ifthefacultymember’sperformancedoesnotimprove,APUSwillnolongerallow  thatfacultymembertoteach.APUSdoesnotofferitsfacultytenure. WebelievethatthecompositionofAPUS’sstudentbodyandcurriculumareparticularlyattractivetopotential  facultymembersbecauseoftheopportunitytoteachrelevantmaterialtostudentswhocanimplementclass - roomlessonsattheirworkplaces.APUSrecruitsfacultymembersthroughreferralsbycurrentfacultymembers,  24 American Public Education, Inc. advertisementsineducationandtradeassociationjournals,anditsinternetpresence.Uponselectionfora  position,APUSrequireseachnewfacultymembertocompleteanorientationandtrainingprogramthatleadsto  theircertificationtoteachatAPUSandassignmenttocourses. Information Technology APUShasinvestedsignificantcapitalandresourcesintodevelopingproprietaryinformationsystemsandpro - cessestosupportwhatwerefertoasPartnershipAtaDistance™,orPAD.PADisAPUS’splatformforinteracting  withAPUS’sstudents.PADisaninformationsystemdesignedtoenableAPUStoprovideeachstudentwithindi - vidualizedsupportatappropriatetimesfrompre-enrollmentthroughandbeyondgraduation,includingstudent  advising,administrativesupport,andcommunitynetworking. APUSusesSakaiCollaborationandLearningEnvironment,or“SakaiCLE,”anopen-sourceLearningManagement  Systemforitsonlineclassroom.Thereareapproximately350educationalinstitutionsaroundtheworldreport - edlyusingSakaiCLEtosupportteaching,learning,research,andcollaboration.PADandSakaiCLEareAPUS’s  twocoreenterprisesystems. APUShasseveralothersystemsthatareusedtosupportfinancialaidprocessing,financialmanagement,human  resourcesprocesses,marketing,anddecisionsupport. ThebackboneofAPUS’sinformationtechnologyinfrastructureconsistsoftwodatacenters:oneinVirginia,  andoneataco-locationfacilityinTexas.APUS’stechnologyenvironmentismanagedinternally.Studentaccess  toAPUS’ssystemsisprovidedthroughredundantdatacarriersinbothdatacenters.WebelievethatAPUShas  establishedafunctional,secure,andreliabletechnologysystemthathelpssupportitsmission. InformationtechnologysystemsareanessentialpartoftheAPUSstudentexperienceandourbusinessoper - ations,andwecontinuetoinvestintechnologyoperationsandenhancementstosupportoursystemsand  missionandevaluatewhenitisappropriatetomakesignificantchanges,modificationsorupgrades.Forexam - ple,in2010,weselectedSakaiCLEtoreplaceAPUS’sexistingproviderasthefoundationalsoftwareforAPUS’s  onlineclassroom,andin2015APUSselectedGlobalFinancialAidServicesforfinancialaidprocessingservices,  whichrequiredmeaningfulinformationtechnologychanges.Thesetypesofchangesarenotwithoutrisktoour  operationsandfinancialresults.WecontinuallyevaluateourPADsystemforpossiblechangesandupgrades,  andsuchchangesandupgradesmayresultinusincurringsignificantcoststhatcouldaffectourfinancialresults  inthenearterm. TheperformanceandreliabilityofAPUS’snetworksandtechnologyinfrastructure,includingthoseofthirdpar - tiessystemsAPUSuses,iscriticaltoitsreputationandabilitytoattractandretainstudents.Anysystemerror  orfailurecouldinterruptAPUS’sabilitytooperateandcouldresultintheunavailabilityofitsonlineclassrooms,  preventingstudentsfromaccessingtheircoursesandadverselyaffectingourresultsofoperations.APUS’s  technologyinfrastructure,andthetechnologyinfrastructureofitsthird-partiesvendors,couldbevulnerable  tointerruptionormalfunctionduetoeventsbeyondourcontrol,includingnaturaldisasters,cyberattacks,  hackerorterroristactivities,andtelecommunicationsfailures.APUS’scomputernetworks,andthenetworksof  itsthird-partyvendors,mayalsobevulnerabletounauthorizedaccess,computerhackers,computerviruses,  andothersecurityproblems.APUSperformssecurityassessmentsonaperiodicbasistoreviewandassessits  security.APUSutilizesthisinformationtoaudititselftoensurethatitisadequatelymonitoringthesecurityofits  technologyinfrastructure.However,wecannotensurethatthesesecurityassessmentsandauditswillprotect  APUS’scomputernetworksagainstthethreatofsecuritybreaches.Similarly,althoughAPUSrequiresitsthird- partyvendorstomaintainalevelofsecuritythatisacceptabletousandworkscloselywithitsthird-partyven - dorstoaddresspotentialandactualsecurityconcernsandattacks,wecannotensurethatAPUSanditssystems  andproprietaryinformationorpersonalinformationaboutitsstudentsoremployeeswillbeprotectedagainst  2015 Annual Report 25 thethreatofsecurityattacksonthird-partyvendorsthataffectAPUSsystemsorsuchinformation.System  disruptionsandsecuritybreachestoAPUS’sonlinecomputernetworks,technologyinfrastructure,oronline  classroominfrastructure,ortothenetworks,infrastructuresandsystemsofthirdpartiescouldhaveanadverse  effectonourfinancialcondition. Foradditionalinformationregardingrisksrelatedtoourinformationtechnologypleasereferto“RiskFactors— RisksRelatedtoOurBusiness.” Intellectual Property APUSexercisesrightsassociatedwithpatents,copyrights,trademarks,servicemarks,domainnames,agree - ments,andregistrationstoprotectitsintellectualproperty.APUS’scoursesyllabiareitsproperty,maybeused  incurrentandfuturecoursesasneededtofacilitateinstruction,andmaybemodifiedtomeetevolvingcourse  orcurriculumrequirements.IntellectualpropertyofAPUS’sindividualfacultymembersremainsthepropertyof  eachsuchfacultymemberandisreservedspecificallyforuseonlybythefacultymemberwhoownsit,unless  thefacultymembergrantspermissionforusebyothers.APUSreliesonagreementsunderwhichitobtains  rightstousecoursecontentdevelopedbyfacultymembersandotherthirdpartycontentproviders. APUShassecuredrightstotrademarksforvariousnamesandtermsusedinitsbusiness,including“American  PublicUniversitySystem,”“AmericanMilitaryUniversity,”“AmericanPublicUniversity”andlogosincorporat - ingtheforegoingtermsandacronymsofthoseterms,aswellas“ReadyWhenYouAre,”“EducatingthoseWho  Serve,”“RESPECTED.AFFORDABLE.ONLINE.”andtheterm“PartnershipAtaDistance.”Webelievethesetrade - marksandbrandnamesareimportanttohowprospectivestudentsidentifyAPUSandarecentraltoanumber  ofitsmarketingefforts.APUSalsoownsrightstomorethan200internetdomainnamespertainingtoAPUS,  AMU,APUandotheruniquedescriptors.TheU.S.PatentandTrademarkOfficeissuedAPUSapatentforPADin  February 2011. Competition Withinthepostsecondaryeducationmarket,APUScompetesprimarilywithnot-for-profitpublicandprivate  two-yearandfour-yearcollegesaswellasotherfor-profitschools,particularlythosethatofferonlinelearning  programs.APUSalsocompetesinspecifictargetedmarkets,suchasthosediscussedbelow.Foradditionalinfor - mationregardingAPUS’scompetitiveenvironment,pleasereferto“Business—CompanyOverview.” APUShasfocusedonservingthemilitarycommunitysinceitsfoundingasAMU,andthemilitarymarketcontin - uestobetheprimarymarketforAPUS.Withinthemilitarymarket,therearemorethan2,700institutionsthat  servemilitarystudentsandreceivefundsthroughtheDoDtuitionassistanceprogram.Theprimarycompetitors  formilitarystudentsareotherinstitutionsofferingonlineinstruction,andcollegesanduniversitiesoffering  on-campusinstructionlocatednearmilitaryinstallations.Overthelastseveralyears,anumberofAPUS’scom - petitorshaveexpandedtheiroutreachandmarketingeffortsdirectedatactivedutyandreserveservicemem - bers,aswellasveterans. WebelievethatAPUSwillcontinuetoseeincreasedcompetitioninthemilitarycommunityfrombothnon-profit  andfor-profitschools.Webelievethatcompetitionfromfor-profitschoolswillcontinuetoincreaseasthose  schoolsseektoattractstudentseligibleforDoDtuitionassistanceprogramsandVAeducationbenefits,rather  thanED’sTitle IVprograms,inanattempttocomplywithED’sregulatoryrequirementknownasthe90/10Rule.  Thisregulatoryrequirementisdescribedmorefullybelowin“RegulatoryEnvironment—StudentFinancing  SourcesandRelatedRegulations/Requirements.” Withinthemarketforpublicsafetyprofessionals,suchaslaw-enforcementpersonnelorotherfirstresponders,  andnon-militaryprofessionalsandotherworkingadultswithextendedandirregularworkschedules,APUS  26 American Public Education, Inc. facesbroadcompetitionwithnot-for-profitpublicandprivatetwo-yearandfour-yearcollegesaswellasother  for-profitschools,particularlythosethatofferonlinelearningprograms. Hondros College of Nursing HCONisnationallyaccreditedbytheAccreditingCouncilofIndependentCollegesandSchools,orACICS.HCON’s  programsaregenerallydesignedtoprepareindividualsforproductivecareersinthefieldofnursing.HCON’s  studentsprincipallyreceiveinstructionon-campusatoneofHCON’sfourcampusesinOhio,whicharelocated  inthesuburbanareasofCincinnati,Cleveland,Columbus,andDayton.HCONalsoofferscertaincoursesandits  RN-to-BSNProgramviaonlinedelivery.Asdiscussedmorefullybelowin“RegulatoryEnvironment—Regulatory  ActionsandRestrictionsonOperations—ChangeofOwnershipResultinginaChangeofControl,”HCONpartici - patesinED’sTitle IVprogramspursuanttoaProvisionalProgramParticipationAgreement. Curriculum and Scheduling HCONofferson-campusinstructionleadingtoaDiplomainPracticalNursing,orPNProgram,andanAssociate  DegreeinNursing,orADNprogram.GraduatesofthePNProgramareeligibletoseeklicensureasalicensed  practicalnurseafterpassingtheNCLEX-PNexam.GraduatesoftheADNProgramareeligibletoseeklicen - sureasaregisterednurseafterpassingtheNCLEX-RNexam.HCONalsooffersonlineinstructionleadingtoa  BachelorofScienceinNursing,throughitsRN-to-BSNProgram,forstudentswhoalreadypossessanassociate’s  degreeinthefield.HCON’sprogramsareofferedinaquarterlyformat.AcademictermsforthePNandtheADN  programsbeginfourtimeseachyear,withcoursesstartinginJanuary,April,July andOctober.Inanefforttobet - terservestudentsandincreaseenrollments,HCONhasincreaseditsofferingofeveningandweekendcourses. Enrollment and Student Body HCON’sstudentenrollmentasofDecember 31,2015,wasapproximately1,520students.Thisnumberincludes  thoseHCONstudentswhoenrolledinatleastonecourseeitheroncampusoronlineduring2015. Accreditation HCONisaccreditedontheinstitutionallevelbyACICS,whichisrecognizedbyEDasanationalaccred - itingagency.TheRN-to-BSNProgramhasreceivedprogrammaticaccreditationfromCCNE.Thesta - tusandmeaningoftheseaccreditationsandrecognitionsisdescribedmorefullybelowin“Regulatory  Environment—Accreditation.” Student Recruitment and Marketing HCON’smarketingstrategyisfocusedonbuildinglong-termrelationshipswithbusinesses,organizationsand  individualsinthehealthcarecommunity,primarilyinOhio.Webelievethisstrategywillcontinuetogeneratea  significantnumberofreferrals.Inaddition,HCONutilizestraditionalmediaaswellasinternet-focusedmarket - ingchannels,includingorganicsearch,localdisplayadvertisingandpay-per-click. Student Admissions HCONwelcomesprospectivestudentstoapplyforadmissionatanytimebysubmittinganapplicationalongwith  anapplicationfee.TobeacceptedintoanyHCONprogram,anapplicantmustbeaU.S.citizenorpermanent  resident,beatleast18yearsoldatthetimeofstartingtheprogram,andholdahighschooldiplomaorGeneral  EducationDevelopmentcertificate.HCON’sprogramsalsohaveprogram-specificadmissionsrequirements. ApplicantsforboththePNProgramandtheADNProgramarerequiredtocompleteaninterviewwithanadmis - sionsrepresentative,andcompleteandpassacriminalbackgroundcheckandadrugscreening.Applicants  2015 Annual Report 27 forthePNProgramarealsogenerallyrequiredtotakeandpasstheHealthEducationSystemsAdmissions  Assessment,orHESIExam. ApplicantsfortheADNprogramwhograduatedfromthePNProgrammusthavegraduatedfromthatprogram  withintwoquartersoftheirenrollmentintheADNprogram,ormustholdanactive,unencumberedpractical  nurselicense.ApplicantsfortheADNprogramwhohavenotgraduatedfromthePNProgrammusthavecom - pletedtheirpracticalnursingtrainingatanapprovedprogram,andmustholdanactive,unencumberedpracti - calnurselicense. ApplicantsfortheRN-to-BSNProgrammustholdanactive,unencumberedregisterednurselicenseinthestate  inwhichtheydesiretocompletetheirpracticum.Applicantsmustalsohavegraduatedfromanapprovedreg - isterednursingprogramwithacumulativegradepointaverageofatleast2.0,andmustcompleteaninterview  withanadmissionsrepresentative.ApplicantsapplyingtobegintheRN-to-BSNPrograminthequarterimmedi - atelyfollowinggraduationfromtheADNProgrammaybeadmittedwithoutalicense,butarerequiredtoobtain  onepriortotheirthirdquarterintheRN-to-BSNProgram. Cost of Attendance and Financial Aid HCON’stuitioncostsvaryamongitsthreeprograms.HCON’sPNProgrammaybecompletedforapproximately  $19,065intuitionandfees,theADNprogrammaybecompletedforapproximately$30,175intuitionandfees,  andtheRN-to-BSNProgrammaybecompletedforapproximately$16,790intuitionandfees. HCON’sstudentsalsoincurcostsfortextbooksandsupplies.ThesecostsvaryamongHCON’sthreeprograms  andarepaidforbyHCON’sstudentsasthetextbooksorsuppliesareneeded.HCONestimatesthatoverthe  lifeofitsprogramsastudent’scostsrelatedtotextbooksandsupplieswillbeapproximately$2,723forthePN  Program,$4,382fortheADNProgram,and$1,723fortheRN-to-BSNProgram. HCON’sstudentspayvariousotherfeesandcharges,includingapplicationfeesandgraduationfees.  Additionally,studentsinHCON’sPNprogramandADNprogram,arechargedaone-timefeeof$489forits  technologypackage.HCON’sstudentsalsoincuradditionalcostsforuniforms,examinationreviewmaterials,  examinationfees,andfeesforapplicationswiththeOhioBoardofNursing,amongothers.Someofthesecosts  arepayabletoHCONandothersarepayabledirectlytothirdparties. Sources of Student Financing HCON’sstudentsfinancetheireducationthroughacombinationofindividualresources,VAeducationbenefits,  ED’sTitle IVprograms,privateloans,stateandfederalgrants,andcorporatereimbursementprograms.Most  HCONstudentsrelyonsomeformoffinancialaidinadditiontotheirindividualresources.Thesubstantial  majorityofHCON’srevenueisderivedfromstudentsutilizingED’sTitle IVprograms,whichresultsinincreased  regulatoryrisks,asdiscussedmorefullybelowin“RegulatoryEnvironment—StudentFinancingSourcesand  RelatedRegulations/Requirements—DepartmentofEducation—RegulationofTitle IVFinancialAidPrograms— The‘90/10Rule.’”Asaresult,HCON’smanagementmayfinditnecessarytodecreaseHCON’sexposuretoTitle IV  students,whichcouldhaveanegativeimpactonitsoperatingresultsandourfinancialcondition. WhileHCONdoesnotcurrentlyparticipateinDoD’stuitionassistanceprogramsitmayattempttodosointhe  future.ShouldHCONchoosetoparticipateintheDoDtuitionassistanceprogram,itwillbesubjecttosuch  program’srequirementsandrestrictions,whicharemorefullydiscussedinthe“OurInstitutions—American  PublicUniversitySystem—SourcesofStudentFinancing,”“RegulatoryEnvironment—StudentFinancing  SourcesandRelatedRegulations/Requirements,”“RegulatoryEnvironment—RecentLegislativeandRegulatory  Activity—FederalLegislativeActivity—SequestrationandBudgetaryMatters,”and“RiskFactors”sectionsof  thisAnnualReport. 28 American Public Education, Inc. Faculty and Staff HCON’sfacultyconsistsofapproximately145facultymemberswithrelevantteachingandnursingorhealthcare  practitionerexperience.HCONalsoemploysapproximately80staffmemberswhoadministerHCON’sacademic,  technology,service,andbusinessoperations.HCON’sfacultyandstafflargelyworkatoneofitsfourcampuses.  NoneofHCON’semployeesarepartiestoanycollectivebargainingarrangement.WebelievethatHCONhasa  goodrelationshipwithitsemployees. Approximately100ofHCON’sfacultymembersaredesignatedasfull-timefacultywiththeremainderdesig - natedaspart-timefaculty.AllfacultywhoseinstructionisfocusedwithinthePNProgrammusthaveearnedthe  minimumofabachelor’sdegreeinnursing.AllfacultywhoseinstructionisfocusedwithintheADNProgramand  RN-to-BSNProgrammusthaveearnedtheminimumofamaster’sdegree.AllHCONfacultywhoseinstruction  isnursingtheory-basedmusthaveanactivelicensetopracticeasaRegisteredNurse.Inadditiontotheformal  educationofHCON’sfaculty,manyhavealsoobtainedspecializedcertificationsinthefieldofnursing. Webelievethatselectingwell-educatedandqualifiedfacultymembersisakeycomponenttoHCON’ssuccess.In additiontohavingthenecessaryeducationalrequirements,HCONseeksfacultywhohavedemonstratedexpe- rienceinthefieldofnursing.AlmostallfacultywhoteachHCON’snursingcourseshavenursingexperienceina clinicalsetting,whichwebelievehelpsteachHCON’sstudentstheskillsneededtobeeffectiveandsafecaregivers. HCONtrainsanddevelopsnewfacultythroughaformal,structuredon-boarding,training,andmentoring  program.AllnewHCONfacultymembersreceivea90-dayon-boardingexperience,whichincludesaformal  orientationtotheorganization,policiesandprocedures,teachingstrategies,performanceexpectationsand  roleresponsibilities. Information Technology In2015,thehostingandmaintenanceofHCON’sinformationtechnologyinfrastructurewastransitionedfroma  third-partyaffiliatedwithHCON’spreviousownershiptoAPUSwhichprovidesservicesthroughanintercompany  arrangement.ForinformationregardingthesecurityandreliabilityofAPUSprovidedsystemspleasereferto  “OurInstitutions—AmericanPublicUniversitySystem—InformationTechnology.” Intellectual Property InconnectionwithouracquisitionofHCON,wereceivedtherighttothecorporatenameNationalEducation  Seminars,Inc.andaroyalty-free,irrevocable,exclusive,transferable,sublicensablelicensetousethenames  “HondrosCollege”and“HondrosCollegeofNursing”(or,insteadof“Nursing,”anyotherqualifierdirectlyrelated  tonursing,medicineorhealthcareinconnectionwiththebusinessandoperationsofHCON). HCONexercisesrightsassociatedwithcopyrights,trademarks,servicemarks,domainnames,agreements,and  registrationstoprotectitsintellectualproperty. Competition HCONcompeteswithotherschoolsofferingnursingprogramsintheregionswhereithascampuses,including  for-profitandnot-for-profitpublicandprivatecolleges.BecauseHCON’sRN-to-BSNProgramisofferedonline,it  alsocompetesinabroadermarketagainstotheronlinenursingprograms.Foradditionalinformationregarding  HCON’scompetitiveenvironment,pleasereferto“Business—CompanyOverview.” 2015 Annual Report 29 Regulatory Environment IntheUnitedStates,postsecondaryeducationinstitutionsareoverseenbyathree-partregulatoryframework  comprisedof(i)accreditingagenciesrecognizedbytheU.S.SecretaryofEducation,(ii)stateregulatorybod - ies,and(iii)thefederalgovernment,throughtheU.S.DepartmentofEducation,orED.BecauseAPUSpartici - patesinmilitarytuitionassistanceandAPUSandHCONparticipateinveteranseducationbenefitsprograms  administeredbytheU.S.DepartmentofDefense,orDoD,andtheU.S.DepartmentofVeteransAffairs,orVA,  respectively,wearealsosubjecttooversightbythoseagencies.Theregulations,standards,andpoliciesof  theseorganizationscoverthevastmajorityofouroperations,includingoureducationalprograms,facilities,  instructionalandadministrativestaff,administrativeprocedures,marketing,recruiting,financialoperations,  andfinancialcondition. Thepostsecondaryeducationregulatoryenvironmentcontinuestobecomemorecomplex.Applicableregula - tions,standards,andpoliciesfrequentlychange,andchangesin,ornewinterpretationsofexistingregulations,  standards,andpolicies,aswellasapplicablelaws,couldhavematerialconsequencesforouraccreditation,  authorizationtooperateinvariousstates,permissibleactivities,receiptoffundsunderfederalstudentfinan - cialaidprograms,andcostsofdoingbusiness.InrecentyearsEDhasbeenactivelyissuingnewruleswhich  havehadasubstantialimpactontheproprietarypostsecondaryeducationindustry.Forexample,in2010,ED  adoptedanewsetofrules,whichwerefertoastheProgramIntegrityRegulations,whichweregenerallyeffec - tiveonJuly 1,2011,establishingsignificantnewcompliancerequirementsforinstitutionsofhighereducation.In  2014,EDadoptedanewsetofrules,whichwerefertoastheFinalGERegulations,definingthecircumstances  underwhichaneducationprogrampreparesstudentsfor“gainfulemploymentinarecognizedoccupation,”as  isrequiredinorderforstudentsenrolledinsuchprogramstobeeligibletoreceivestudentfinancialaidunder  Title IVoftheHigherEducationActof1965,asamended.CertainportionsoftheProgramIntegrityRegulations  andtheFinalGERegulationsarediscussedinthisAnnualReport. Accreditation Accreditationisavoluntary,non-governmentalprocessthroughwhichaninstitutionoraprogramsubmitsto  qualitativereviewbyanorganizationofpeerinstitutions,basedonthestandardsoftheaccreditingagencyand  thestatedaimsandpurposesoftheinstitutionorprogram.Accreditingagenciesestablishcriteriaforaccredi - tation,conductpeer-reviewevaluationsofinstitutionsorprograms,andpubliclyrecognizethoseinstitutionsor  programsthatmeetthestatedcriteria.Accreditedschoolsandprogramsaresubjecttoperiodicreviewbyaccred- itingagenciestoensurecontinuedhighperformance,institutionalandprogramimprovement,andinstitutional  andprogramintegrity,andtoconfirmthataccreditationcriteriacontinuetobesatisfied.Aninstitutionorpro - gramthatisdeterminednottomeetthecriteriamayhaveitsaccreditationlimited,revoked,ornotrenewed. PursuanttoprovisionsoftheHigherEducationActof1965,asamended,ortheHEA,EDreliesonaccrediting  agenciestodeterminewhethertheacademicqualityofaninstitution’seducationalprogramsissufficientto  qualifytheinstitutiontoparticipateinstudentfinancialaidprogramsauthorizedunderTitle IVoftheHEA,or  Title IVprograms.InstitutionalaccreditationbyanaccreditingagencyrecognizedbytheSecretaryofEducation  isalsonecessarytoparticipateinDoDtuitionassistanceprograms.ToberecognizedbytheSecretaryof  Education,accreditingagenciesmustadoptspecificstandardsandproceduresforthereviewofeducational  institutionsorprograms.Asdescribedmorefullyaboveineachreportingsegment’s“OurInstitutions— Accreditation”section,eachofourinstitutionsareaccreditedbyaninstitutionalaccreditingagencyrecognized  bytheSecretaryofEducation: • AmericanPublicUniversitySystem,orAPUS,isinstitutionallyaccreditedbyTheHigherLearningCommission,  orHLC,aregionalaccreditingagency.InJuly 2011,HLCreaffirmedtheaccreditationstatusofAPUS.In  February 2017,HLCwillconductasitevisitatAPUSandperformacomprehensiveevaluationaspartofa  30 American Public Education, Inc. mid-cyclereview.Thenextcomprehensiveevaluationforreaffirmationofaccreditationisscheduledforthe  2020–2021academicyear. In2015,asrequiredbyHLCinconnectionwiththe2011reaffirmationofaccreditation,APUSsubmittedan  interimprogressreporttoHLConthedevelopmentofauniversitysystem-widecoordinationandimprove - mentofgraduatestudiesandthereportwassubsequentlyacceptedbyHLC.HLCalsofromtimetotimemay  schedulesitevisitsforotherreasons,includingafocusedvisitrelatedtoachangeofcontrol,structureor  organizationtransaction,asubstantivechange,orconformitywithHLC’sCriteriaforAccreditation(relatedto  topicssuchasteachingandlearning,andresources). • HondrosCollegeofNursing,orHCON,isinstitutionallyaccreditedbytheAccreditingCouncilforIndependent  CollegesandSchools,orACICS,anationalaccreditingagency.OnAugust 13,2013,ACICSactedtoaward  HCONanewgrantofaccreditationthroughDecember 31,2016.AftercompletionofouracquisitionofHCON,  ACICSactedtoreinstateHCON’saccreditationthroughDecember 31,2016,effectivefromthedateofthe  acquisition.Duringthefirstquarterof2016,ACICSconductedasitevisitateachofHCON’scampusesaspart  ofACICS’evaluationofHCON’srenewalofaccreditationapplication.Formoreinformation,see“Regulatory  Environment—RegulatoryActionsandRestrictionsonOperations—ChangeinOwnershipResultingina  ChangeofControl”and“RiskFactors—RisksRelatedtotheRegulationofOurIndustry.” Institutionalaccreditationisanimportantattributeofourinstitutions.Collegesanduniversitiesdepend,inpart,  onaccreditationinevaluatingtransfersofcreditandapplicationstograduateschools.Employersrelyonthe  accreditedstatusofinstitutionswhenevaluatingacandidate’scredentials,andstudents,corporations,andgov - ernmentsponsorsundertuitionreimbursementprogramslooktoaccreditationforassurancethataninstitution  maintainsqualityeducationalstandards. TheNationalAdvisoryCommitteeonInstitutionalQualityandIntegrity,orNACIQI,ischargedwithadvisingthe  SecretaryofEducationonwhethertorecognizeaccreditingagenciesforfederalpurposes,includingforpartic - ipationinTitle IVprograms.InDecember2009,theEDOfficeoftheInspectorGeneral,orOIG,recommended  thatEDconsiderlimiting,suspending,orterminatingHLC’srecognitionasanaccreditorforpurposesofdeter - mininginstitutionaleligibilitytoparticipateinTitle IVprograms.HLCreceivedadditionalscrutinyinJune 2010  duringaHouseEducationandLaborCommitteehearingfocusedonOIG’sfindingswithregardtocredithour  policies.InNovember 2015,EDannouncedseveralexecutiveactionstoincreasetransparencyandrigorin  accreditation,includinganannouncementthatEDwillensurethatNACIQImembershavestudentoutcomes  data,stateandfederallitigationreports,andotherinformationabouttheschoolsaccreditedbyeachaccredit - ingagency.IncreasedscrutinyofaccreditingagenciesbytheSecretaryofEducationandCongressinconnection  withED’srecognitionprocessmayresultinincreasedscrutinyofinstitutionsbyaccreditingagencies. InDecember2010,NACIQIreviewedHLC’sstatusasarecognizedaccreditingagency.Atthattime,NACIQIvoted  tocontinueHLC’srecognitionasanaccreditingagencybutalsoorderedtheagencytosubmitanadditional  compliancereportinoneyear.AtitsDecember2011meeting,NACIQIcharacterizedHLC’sreportas“informa - tional”andnotedthatnovotewastobetakenonit.InJune 2013,NACIQIvotedtorecommendcontinuation  ofHLC’srecognitionasanaccreditingagencyuntilitreachedafinaldecisiononwhethertore-recognizeHLC.  InJune 2015,NACIQIvotedtorecommendthatEDrenewHLC’srecognitionasanaccreditingagencythrough  December2017.EDsubsequentlyacceptedNACIQI’srecommendationandcontinuedHLC’srecognitionthrough  December2017.IfHLCweretoloseitsrecognitionasanaccreditingagency,APUScouldloseitseligibilitytopar - ticipateinTitle IVprogramsandDoDtuitionassistanceprograms.Foradditionalinformationregardingtherisks  associatedwithlossofaccreditationpleaserefertothe“RiskFactors—RisksRelatedtotheRegulationofOur  Industry”sectionofthisAnnualReport. 2015 Annual Report 31 Inadditiontoinstitutionalaccreditation,wehaveobtainedspecializedaccreditationorprofessionalrecognition  forseveralspecificprogramsatourinstitutions,asdescribedmorefullyaboveineachreportingsegment’ssec - tionentitled“OurInstitutions—Accreditation.”Accreditationofaprogrambyaspecializedaccreditingagencyor  grantingofprofessionalrecognitionbyaprofessionalorganizationsignifiesthattheprogrammeetsthestan - dardsofthatagencyororganization.Ifwefailtosatisfythestandardsofthesespecializedaccreditingagencies  andprofessionalorganizations,wecouldlosethespecializedaccreditationorprofessionalrecognitionforthe  relevantprograms,whichcouldresultinmateriallyreducedstudentenrollmentsinthoseprograms,preventus  fromofferingtheprogramsincertainstates,orpreventourstudentsfromseekingandobtainingappropriate  licensureintheirdesiredfieldsoremploymentfromparticularemployers. State Licensure/Authorization Wearesubjecttoextensiveregulationsbythestatesinwhichweareauthorizedtooperate.Thelevelofreg - ulatoryoversightvariessubstantiallyfromstatetostate,andstateregulationschangefrequently.Statelaws  typicallyestablishstandardsforinstruction,qualificationsoffaculty,administrativeprocedures,marketing,  recruiting,financialoperations,andotheroperationalmatters.Somestatesmayalsoprescriberegulations  relatedtoaninstitution’sfinancialcondition,andsomestatesrequirethepostingofsuretybonds.Statelaws  andregulationsmayalsoaffectourabilitytooffereducationalprograms,openlocations,andawarddegrees.If  wefailtocomplywithastate’sregulatoryrequirements,wemayloseourstatelicensureorauthorization,which  wouldresultinourinabilitytoenrollstudentsinthatstate,andcouldresultinourinabilitytoreceiveTitle IV  programfundsandDoDtuitionassistancefunds,atleastforstudentsinthatstate. Somestatesassertauthoritytoregulateaninstitutionifitseducationalprogramsareofferedtoresidentsof  thosestates,regardlessofwhethertheinstitutionmaintainsaphysicalpresenceinthestatewherethestu - dentresides.Theincreasedpopularityofonlineeducationhasledandmayfurtherleadtotheadoptionofnew  lawsandregulatorypracticesandnewinterpretationsofexistinglawsandregulationsinvariousstates.States  mayalsorevisetheirregulationsinthisareaasaresultoffutureEDregulations,asdiscussedmorefullybelow  in“StateLicensure/AuthorizationRequirements.”Newlaws,regulations,orinterpretationsrelatedtodoing  businessovertheinternetcouldincreaseourcostofdoingbusinessandaffectourabilitytorecruitstudentsin  particularstates,whichcould,inturn,negativelyaffectenrollmentsandrevenueandhaveamaterialadverse  effectonourbusiness.Foradditionalinformationregardingtherisksrelatedtotheregulationoftheinternet,  pleasereferto“RiskFactors—RisksRelatedtoOurBusiness.” Changesinourbusinessorchangesinthenatureoramountofourcontactwithorpresencewithinaparticular  statecouldleadstatesthatdonotcurrentlyrequireustobelicensedorauthorizedtorequiresuchlicensure  orauthorizationinthefuture.Forexample,programsthatinclude“ontheground”componentsthatmaybe  describedasinstructionalactivities,suchasstudentteachingandclinicalinternships,maybeviewedbysome  stateregulatoryagenciesasconstitutingaphysicalpresenceforregulatorypurposes.Asthoseprograms  expand,itispossiblethatwewillneedtoseekformalauthorizationtooperateinsomestateswherehistorically  wehavenotbeenrequiredtodoso.Theextentofthisexpansioninregulatoryrequirements,andtheassociated  costs,arenotknownatthistime,butweanticipatetheymaybesignificant.Furthermore,theremaybesome  stateswhereittakesasignificantamountoftimetomeettheapplicableregulatoryrequirementswithrespect  toanewprograminitiative,orwherewearenotabletodosoatall. Manystatesalsohavespecificrequirementsthatanindividualmustsatisfyinordertobelicensedasapro - fessionalinaspecifiedfield.Studentsoftenseektoobtainprofessionallicensureintheirchosenfieldsafter  graduation.Theirsuccessinobtaininglicensuretypicallydependsonseveralfactors,including,forexample:the  individualmeritsofthegraduate;whethertheinstitutionandtheprogramwereapprovedbythestateinwhich  32 American Public Education, Inc. thegraduateseekslicensure,orbyaprofessionalassociation;whethertheprogrammeetsallstaterequire - mentsforprofessionallicensure;andtheaccreditationoftheinstitutionandthespecificprogram. State Licensure/Authorization Requirements “Home” State Authorization. ThefinalProgramIntegrityRegulationsadoptedbyEDaddresscertaininstitu - tionalandprogrameligibilityissues,includingstateauthorization.TheProgramIntegrityRegulationsspecify  howaninstitutionmaydemonstratethatitisauthorizedtoofferpostsecondaryeducationalprogramsbythe  state(s)whereitislocated,whichwerefertoasits“home”state.IfrequestedbyED,aninstitutionmustbeable  todocumentitshomestate’sapprovalinordertoparticipateinTitle IVprograms.Inaddition,thehomestate  musthaveaprocesstoreviewandtakeappropriateactiononcomplaintsconcerningpostsecondaryinstitu - tions.EDhasstatedthatitwillnotpublishalistofstatesthatmeet,orfailtomeet,theserequirements.IfED  determinesthataninstitutiondoesnothavetherequiredstateapproval,theinstitutionwillbeineligibleto  participateinTitle IVprograms.AfterEDstayedimplementationofthehomestateauthorizationrulesfrom  July 1,2011toJuly 1,2015,theruleswereimplementedeffectiveJuly 1,2015.Wecannotpredicttheextentto  whichEDwilldeterminethattheinstitutionalauthorizationorcomplaintreviewprocessofanystatesatisfies  ED’sregulations.IfoneofourinstitutionsweretoloseitsabilitytoparticipateinTitle IVprogramsbecauseit  failedtoobtainauthorizationbythestateinwhichitislocatedorbecauseastate’sinstitutionalauthorization  andcomplaintprocessdidnotsatisfyED’srequirements,itcouldhaveamaterialadverseeffectonourbusiness  andfinancialcondition. State Authorization of Online Education. InNovember 2013,EDannounceditsintenttoestablishanegoti - atedrulemakingpaneltoconsiderregulationsfor,amongotherissues,stateauthorizationofprogramsoffered  throughdistanceeducation.Negotiatedrulemakingsessionsoccurredinthewinterandspringof2014,butthe  negotiatingcommitteedidnotreachconsensus.InJune 2014EDannouncedthatitwoulddelaythereleaseof  proposedrulesregardingstateauthorizationfordistanceeducation.EDhadincludedprovisionsregardingstate  authorizationfordistanceeducationintheProgramIntegrityRegulations,whichprovidedthat,ifaninstitution  offeredpostsecondaryeducationthroughdistanceeducationtostudentsinastate,itwasrequiredtoobtain  anynecessarystateapprovalstodoso.However,onJune 5,2012,theU.S.CourtofAppealsfortheDistrictof  ColumbiaaffirmedtheU.S.DistrictCourtfortheDistrictofColumbia’sJuly 12,2011rulingupholdingED’spower  topromulgateregulationsonstateauthorizationfordistanceeducationbutvacatingonproceduralgrounds  thoseprovisionsoftheProgramIntegrityRegulations.InaDearColleagueLetterdatedJuly 27,2012,EDwarned  thatwhileitcannotenforcethevacatedprovision,institutionscontinuetoberesponsibleforcomplyingwithall  statelawsastheyrelatetodistanceeducation.NoassurancecanbegivenwithrespecttowhetherEDwilladopt  newrulesonstateauthorizationfordistanceeducationor,intheeventthatsuchregulationsareadopted,our  abilitytocomplywiththenewregulations. SARA TheStateAuthorizationReciprocityAgreement,orSARA,isavoluntaryagreementamongmemberstates,  districtsandterritoriesthatestablishescomparablenationalstandardsforinterstateofferingofpostsecond - arydistanceeducationcoursesandprograms.SARAisintendedtomakeiteasierforstudentstotakeonline  coursesofferedbypostsecondaryinstitutionsbasedinanotherstate.SARAisoverseenbyaNationalCouncil  andadministeredbyfourregionaleducationcompacts,whichacceptapplicationsfromstatesintheirregions  tojoinSARA.SARArequiresstatestoapproveinstitutionsintheirstatetoparticipateinSARA,basedupon  institutionalaccreditationandfinancialstability,andtoresolvestudentcomplaints.SARAmembershipis  opentodegree-grantingpostsecondaryinstitutionsfromallsectors,includingpubliccollegesanduniversities  aswellasnon-profitandfor-profitindependentinstitutions.Aninstitutionmustbeaccreditedbyanagency  recognizedbytheU.S.SecretaryofEducation.SARAmemberstatesagreetoimposenoadditional(non-SARA)  2015 Annual Report 33 authorizationrequirementsoninstitutionsfromotherSARAstates.ForSARApurposes,aninstitution’s“home  state”isthestatewhereitsmaincampusorcentralunitholdsitsprincipallegaldomicile.SARAshiftsprincipal  oversightresponsibilitiesfromthestateinwhichthedistanceeducationisbeingreceivedtothe“homestate”  oftheinstitutionofferingtheinstruction.ForpurposesofSARA,aninstitutionhasaphysicalpresenceinastate  andthereforemustmeetthestate’snon-SARAlicensurerequirementsifitconductscertainactivitiesinastate.  MembershipinSARAwasopenedtostatesinJanuary2014.TheStateofWestVirginiajoinedSARAeffective  December1,2014.APUS’sinitialapplicationtobecomeaSARAinstitutionwasapprovedonDecember8,2014,  andAPUShasbeenaparticipatingSARAinstitutionsincethattime. State Authorization/Licensure of Our Institutions APUSisphysicallyheadquarteredintheStateofWestVirginia,withadministrativeofficesintheCommonwealth  ofVirginia.Atpresent,APUSenrollsstudentsfromeachofthe50states,aswellastheDistrictofColumbia.  APUSiscurrentlyauthorizedtoofferitsprogramsbytheWestVirginiaHigherEducationPolicyCommission,or  WVHEPC,theregulatoryagencygoverningpostsecondaryeducationintheStateofWestVirginia.Webelieve  thatundercurrentlawtheonlystateauthorizationorlicensurenecessaryforAPUStoparticipateinDoDtuition  assistanceprogramsisitsauthorizationfromWVHEPC.WebelievethesameistrueforTitle IVprograms.Failure  tocomplywiththerequirementsofWVHEPCcouldresultinAPUSlosingitsauthorizationfromWVHEPC,itseligi - bilitytoparticipateinTitle IVprogramsandDoDtuitionassistance,oritsabilitytooffercertainprograms,anyof  whichcouldforceAPUStoceaseoperations. DuetoAPUShavingadministrativeofficeslocatedinVirginia,underVirginialawAPUSisalsorequiredtobe  authorizedbytheStateCouncilofHigherEducationforVirginia,orSCHEV.Accordingly,APUShasobtained  SCHEV’sauthorizationtooperateasanout-of-stateinstitutioninVirginia. SinceDecember2014,APUShasbeenaparticipatinginstitutioninSARA,whichisdescribedmorefullyabove,  resultinginAPUSbeingauthorizedthroughreciprocityin34SARAstates.WestVirginiaisaSARAstatebut,as  discussedabove,APUSisrequiredtobeauthorizedbytheWVHEPCduetoWestVirginiabeingitshomestate.  VirginiaisaSARAstatebut,asdiscussedabove,APUSisrequiredtobeauthorizedinVirginiaduetohaving  administrativeofficeslocatedwithinVirginia;therefore,SCHEV’sregulationofAPUSisoutsidethescopeof  SARA.Additionally,APUShasobtainedlicensureorauthorizationtooperateorconductactivitiesinthreestates  thathavenotjoinedSARA.APUShasalsosoughtandreceivedconfirmationthatitsoperationsdonotrequire  statelicensureorauthorization,orhasbeennotifiedthatitisexemptfromlicensureorauthorizationrequire - ments,in11states. HCONisphysicallyheadquarteredinWesterville,Ohio,andhasfourcampusesinOhio.HCONiscurrentlyautho - rizedtoofferitsprogramsbytheOhioStateBoardofCareerCollegesandSchools,theregulatoryagencythatis  responsibleforauthorizingfor-profitandnon-profitprivatecareerschoolsofferingassociatedegree,certificate,  anddiplomaprogramsintheStateofOhio.HCON’sPracticalNursingDiplomaandAssociateDegreeinNursing  programsareapprovedbytheOhioBoardofNursing.HCON’sonlinecompletionprogramleadingtoaBachelor  ofScienceinNursingisapprovedbytheOhioDepartmentofHigherEducation,theregulatoryagencyinOhio  responsibleforauthorizingeducationprogramsatthebachelor’sdegreelevelandabove.HCONisapprovedas  anout-of-stateinstitutionbytheKentuckyCouncilonPostsecondaryEducationandtheNevadaCommissionon  PostsecondaryEducation.AsofDecember 31,2015,HCONisnotaparticipatingSARAinstitution. Failuretocomplywithstateauthorizationorlicensurerequirementscouldrestrictourinstitutions’ability  torecruitorenrollstudentsincertainstatesorresultinothersanctionsbeingimposedonourinstitutions,  includingfinesandpenalties.Insomecases,stateauthorizationorlicensuremayimposelimitationsoncertain  activitiesandmayimposeparticularrequirementswithrespecttocertainprograms.Wereviewthelicensure  34 American Public Education, Inc. requirementsofstatestodeterminewhetherourinstitutions’activitiesinthosestatesmayconstituteapres - enceorotherwisemayrequireauthorizationorlicensurebytherespectivestateeducationagencies.Wecan - notpredicttheextenttowhichSARAwillimpactourinstitutions’regulatoryburdenandcosts,whetherstates  willjoinandretainmembershipinSARA,themannerinwhichSARA’sruleswillbeinterpretedandenforcedby  SARA’smemberstates,APUS’sabilitytocomplywithSARA’srequirementsandretainmembershipeligibility,or  theimpactthatfailuretomeettheSARArequirementsmayhaveonourbusiness.Todate,state-specificlim - itationsandrequirementshavenothadamaterialeffectonourinstitutions’operations.However,newlaws,  regulations,interpretations,orchangedcircumstancesrelatedtoourinstitutions’educationalprogramscould  increaseourcostofdoingbusinessandaffectourabilitytorecruitstudentsandofferprogramsinparticular  states,whichcould,inturn,adverselyaffectourinstitutions’enrollmentsandrevenueandhaveamaterialeffect  onourbusiness. Student Financing Sources and Related Regulations/Requirements OurstudentsfinancetheireducationthroughacombinationofTitle IVprogramsadministeredbyED,tuition  assistanceprogramsadministeredbytheDoD,educationbenefitsadministeredbytheVA,privateloans,corpo - ratereimbursementprograms,andindividualresources.Participationinfederalstudentaidprograms,including  thoseadministeredbyDoDandVA,addstotheregulationofouroperations.Inparticular,theHEAandtheregu - lationsissuedthereunderbyEDsubjectustosignificantregulatoryscrutinyintheformofnumerousstandards  wemustsatisfyinordertoparticipateinandadministerTitle IVprograms. Department of Education ThefederalgovernmentprovidesasubstantialpartofitssupportforpostsecondaryeducationthroughTitle IV  programs,intheformofgrantsandloanstoeligiblestudentswhocanusethosefundsatanyinstitutionthat  hasbeencertifiedbyEDtoparticipateinTitle IVprograms,providedthestudent’sprogramsatisfiesTitle IV  programeligibilityrequirements.AninstitutionmayparticipateinTitle IVprogramsonlyifitiscertifiedtodoso  anditentersintoawrittenprogramparticipationagreement,orPPA,withtheSecretaryofEducation.ThePPA  conditionsinitialandcontinuedparticipationinTitle IVprogramsuponcompliancewithEDregulations,includ - ingregulationsapplicabletoindividualTitle IVprograms,andanyadditionalconditionsspecifiedinthePPA. Types of Title IV Financial Aid Programs Title IVprogramaidisprimarilyawardedtostudentsonthebasisoffinancialneed,generallydefinedasthe  differencebetweenthecostofattendinganinstitutionandtheamountastudentcanreasonablycontributeto  thatcost.AllrecipientsofTitle IVprogramfundsmustmaintainsatisfactoryacademicprogressandmustprog - ressinatimelymannertowardcompletionoftheirprogramofstudy.Inaddition,eachschoolmustensurethat  Title IVprogramfundsareproperlyaccountedforanddisbursedinthecorrectamountsandinatimelymanner  toeligiblestudents. StudentsatourinstitutionsreceivegrantsandloanstofundtheireducationunderseveralTitle IVprograms,of  whichthetwolargestareDirectLoansandPellGrants.Studentsatourinstitutionsareeligibletoparticipatein  thefollowingTitle IVprograms: (1) Federal Student and Parent Loans. ED’smostsignificantformofaidincludesloanstostudentsandtheir  parentsthroughtheWilliamD.FordFederalDirectLoanProgram,orDirectLoanProgram.DirectLoan  Programloansaremadedirectlybythefederalgovernmenttostudentsortheirparents.TheDirectLoan  ProgramoffersFederalStaffordLoans,FederalParentPLUSLoans,FederalGradPLUSLoansandFederal  ConsolidationLoans.PriortoJuly 1,2010,studentscouldobtainloansmadeundertheFederalFamily  EducationLoanProgram,orFFELProgram,inadditiontoorinsteadofDirectLoanProgramloans,depend - ingonthefederalloanprograminwhichtheirschoolparticipated.TheFFELProgramwaseliminated  2015 Annual Report 35 throughlegislationenactedinMarch 2010,and,afterJune 30,2010,FederalStaffordLoans,FederalParent  PLUSLoans,FederalGradPLUSLoans,andFederalConsolidationLoansmayonlybemadethroughthe  DirectLoanProgram. FederalStaffordLoans,orStaffordLoans,mayeitherbesubsidizedorunsubsidized.Astudentwithdemon - stratedfinancialneedmaybeeligibletoreceiveasubsidizedStaffordLoanwhereEDpaystheinterest  ontheloanwhilethestudentisenrolledatleasthalf-timeinschoolandduringthefirstsixmonthsafter  leavingschool.Astudentwithoutdemonstratedfinancialneedmaybeeligibletoreceiveanunsubsidized  StaffordLoanwherethestudentisresponsiblefortheinterestthataccruedwhileinschoolandafterleaving  school.StudentswhoareeligibleforasubsidizedStaffordLoanmayalsobeeligibletoreceiveanunsubsi - dizedStaffordLoan.FederalParentPLUSLoans,orParentPLUSLoans,maybeobtainedbytheparentsofa  dependentundergraduatestudentinanamountnottoexceedthedifferencebetweenthetotalcostofthat  student’seducation(includingallowableexpenses)andotheraidtowhichthatstudentisentitled.Students  whoareclassifiedasindependent,anddependentstudentswhoseparentsareunabletoobtainParent  PLUSLoans,canreceiveadditionalunsubsidizedStaffordLoans.FederalGradPLUSLoans,orGradPLUS  Loans,areavailabletograduateorprofessionalstudentsenrolledatleasthalf-time.Theobligationtobegin  repayingfederalloansdoesnotcommenceuntilsixmonthsafterastudentceasesenrollmentasatleasta  half-timestudent.FederalConsolidationLoansallowastudentwhohasgraduated,leftschool,ordropped  belowhalf-timeenrollmenttocombinemultiplefederaleducationloansintooneloanwithoneinterestrate  andonemonthlypayment. (2) Federal Grant Programs. PellGrantsareED’sprimaryprogramforgrantstoundergraduatestudents  whodemonstratefinancialneed.ThemaximumamountofavailabilityofaPellGrantis$5,730forthe  2014–2015awardyear,$5,775forthe2015–2016awardyear,and$5,815forthe2016–2017awardyear.The  ConsolidatedAppropriationsAct,2012,ortheAppropriationsAct,amendedtheHEAtoreducetheincome  thresholdforanautomaticzero“expectedfamilycontribution”forbothdependentandindependent  students,whichforsomestudentsdecreasedtheamountoftheirPellGrants.TheAppropriationsActalso  amendedtheHEAtoreducethedurationofastudent’slifetimeeligibilitytoreceiveaPellGrantfrom18  semesters(oritsequivalent)to12semesters(oritsequivalent).Thismayeliminatetheabilityofsomeofour  studentstocontinuetoreceivePellGrants,dependingontheirpriorreceiptofPellGrantsfromourinstitu - tionsandfromotherinstitutionspriortoenrollinginoneofourschools. TheFederalSupplementalEducationOpportunityGrant,orFSEOG,programprovidesgrantawards  designedtosupplementPellGrantsfortheneediestundergraduatestudents.TheavailabilityofFSEOG  awardsislimitedbytheamountofthosefundsallocatedbyEDtoaninstitutionunderaformulathattakes  intoaccountthesizeoftheinstitution,itscosts,andtheincomelevelsofstudents. TheTeacherEducationAssistanceforCollegeandHigherEducationGrant,orTEACHGrant,programpro - videsgrantassistancetoundergraduate,post-baccalaureate,andgraduatestudentswhoagreetoservefor  atleastfouryearsasfull-time“highlyqualified”teachersinhigh-needfieldsinpublicornot-for-profitprivate  elementaryorsecondaryschoolsthatservestudentsfromlow-incomefamilies.Duetosequestration,the  maximumawardforanyTEACHGrantfirstdisbursedonorafterOctober 1,2015andbeforeOctober 1,2016  wasreducedto$3,728fromanearliermaximumof$4,000. (3) Federal Work-Study. UndertheFederalWork-Studyprogram,EDpaysashare,generally75%,ofthecost  ofpart-timeemploymentofeligiblestudents,basedontheirfinancialneed,toperformworkfortheinstitu - tionstheyattend,orforoff-campuspublicornon-profitorganizations. 36 American Public Education, Inc. Regulation of Title IV Financial Aid Programs TobeeligibleandcertifiedtoparticipateinTitle IVprograms,aninstitutionmustbeaccreditedbyanaccrediting  bodyrecognizedbytheSecretaryofEducation,mustbeauthorizedtooperatebytheappropriateregulatory  authorityineachstatewheretheinstitutionmaintainsaphysicalpresence,andmustcomplywithspecificstan - dardsandproceduressetforthintheHEAandtheregulationsissuedthereunderbyED. EDperiodicallyrevisesitsregulationsandchangesitsinterpretationsofexistinglawsandregulations.  Accreditingagenciesandstateeducationagenciesalsohaveresponsibilitiesforoverseeingcomplianceofinsti - tutionswithTitle IVprogramrequirements.Asaresult,ourinstitutionsaresubjecttoextensiveoversightand  review.Forallthesereasons,wecannotpredictwithcertaintyhowTitle IVprogramrequirementswillbeapplied  inallcircumstances.See“RecentLegislativeandRegulatoryActivity”belowformoreinformation.Keyprovisions  relatingtoinstitutionalparticipationinTitle IVandtheprocessingofTitle IVaidthatcouldadverselyaffectus  includethefollowing: Eligibility and Certification Procedures. AninstitutionmustapplyperiodicallytoEDforcontinuedcertifica - tiontoparticipateinTitle IVprograms.Recertificationgenerallyisrequiredeverysixyears,butmayberequired  earlier,includingwhenaninstitutionundergoesachangeofcontrol.Aninstitutionmaycomeunderreview  whenitexpandsitsactivitiesincertainways,suchasopeninganadditionallocation,addinganewprogram,or,  incertaincases,whenitmodifiesacademiccredentialsthatitoffers. EDmayplaceaninstitutiononprovisionalcertificationstatusifEDfindsthattheinstitutiondoesnotfullysatisfy  allTitle IVrequirementsandincertainothercircumstances,suchaswhenaninstitutionisinitiallycertifiedor  undergoesachangeinownershipresultinginachangeincontrol.Duringaperiodofprovisionalcertification,  theinstitutionmustcomplywithanyadditionalconditionsincludedinitsPPA.Inaddition,EDmaymoreclosely  reviewaninstitutionthatisprovisionallycertifiedifitappliesforapprovaltoopenanewlocation,addaneduca - tionalprogram,acquireanotherschool,ormakeanyothersignificantchange.IfEDdeterminesthataprovision - allycertifiedinstitutionisunabletomeetitsresponsibilitiesunderitsPPA,itmayseektorevoketheinstitution’s  certificationtoparticipateinTitle IVprogramswithfewerdueprocessprotectionsfortheinstitutionthanifit  werefullycertified.StudentsattendingprovisionallycertifiedinstitutionsremaineligibletoreceiveTitle IVpro - gramfunds. APUSisfullycertifiedtoparticipateinTitle IVprogramsthroughSeptember 30,2020.HCONwasdeemedtohave  undergoneachangeofownershipandcontrolinNovember 2013,requiringreviewbyEDinordertoreestablish  eligibilityandcontinueparticipationinTitle IVprograms.Asdescribedmorefullybelowin“RegulatoryActions  andRestrictionsonOperations—ChangeinOwnershipResultinginaChangeofControl,”inJanuary2016we  receivedaletterfromEDapprovingthechangeinownershipandcontrolandgrantingHCONprovisionalcertifi - cationtoparticipateintheTitle IVprogramsuntilDecember 31,2018.HCONreceivedafullyexecutedprovisional  programparticipationagreementinFebruary 2016.HCONmustcomplywithspecificconditionswhileitisprovi - sionallycertified,asdescribedmorefullyin“RestrictionsonAddingLocationsandEducationalPrograms,”below. State Authorization. ToparticipateinTitle IVprograms,aschoolmustreceiveandmaintainauthorizationby  theappropriatestateeducationagencies.Asdescribedmorefullyabovein“StateLicensure/Authorization,”ED  hasspecifiedthetypesofstateapprovalsthatareacceptabletodemonstratethataninstitutionisauthorizedto  offereducationalprogramsbeyondthesecondarylevelbythestatewhereitislocated. Administrative Capability. CurrentEDregulationsspecifyextensivecriteriabywhichaninstitutionmustestab - lishthatithastherequisite“administrativecapability”toparticipateinTitle IVprograms.Tomeettheadminis - trativecapabilitystandards,aninstitutionmust,amongotherthings: • complywithallapplicableTitle IVprogramregulations; 2015 Annual Report 37 • havecapableandsufficientpersonneltoadministerTitle IVprograms; • haveacceptablemethodsofdefiningandmeasuringthesatisfactoryacademicprogressofitsstudents; • nothavecohortdefaultratesabovespecifiedlevels; • havevariousproceduresinplaceforsafeguardingfederalfunds; • notbe,andnothaveanyprincipaloraffiliatewhois,debarredorsuspendedfromfederalcontractingor  engaginginactivitythatiscausefordebarmentorsuspension; • providefinancialaidcounselingtoitsstudents; • refertoED’sOfficeofInspectorGeneralanycredibleinformationindicatingthatanyapplicant,student,  employeeoragentoftheinstitutionhasbeenengagedinanyfraudorotherillegalconductinvolving  Title IVprograms; • submitinatimelymannerallreportsandfinancialstatementsrequiredbytheregulations; • reportannuallytotheSecretaryofEducationonanyreasonablereimbursementspaidorprovidedbyapri - vateeducationlenderorgroupoflenderstoanyemployeewhoisemployedintheinstitution’sfinancialaid  office,orwhootherwisehasresponsibilitieswithrespecttoeducationloans; • developandapplyanadequatesystemtoidentifyandresolvediscrepantinformationwithrespecttoastu - dent’sapplicationforTitle IVaid;and • nototherwiseappeartolackadministrativecapability. Ifaninstitutionfailstosatisfyanyofthesecriteria,EDmayrequiretherepaymentoffederalstudentfinancial  aidfunds,transfertheinstitutionfromthe“advance”systemofpaymentofTitle IVprogramfundstocashmon - itoringstatusortothe“reimbursement”systemofpayment,placetheinstitutiononprovisionalcertification  status,orcommenceaproceedingtoimposeafineortolimit,suspend,orterminatetheparticipationofthe  institutioninTitle IVprograms. Financial Responsibility. TheHEAandEDregulationsestablishextensivestandardsoffinancialresponsibility  thatinstitutionsmustsatisfyinordertoparticipateinTitle IVprograms.Thesestandardsgenerallyrequirethat  aninstitutionprovidetheservicesdescribedinitsofficialpublicationsandstatements,properlyadminister  Title IVprogramsinwhichitparticipates,andmeetallofitsfinancialobligations,includingrequiredrefundsand  anyrepaymentstoEDfordebtsandliabilitiesincurredinprogramsadministeredbyED. EDevaluatesinstitutionsonanannualbasisforcompliancewithspecifiedfinancialresponsibilitystandards.The  financialresponsibilitystandardsincludeacomplexformulathatuseslineitemsfromtheinstitution’saudited  financialstatements.Theformulafocusesonthreefinancialratios:(1)equityratio(whichmeasurestheinstitu - tion’scapitalresources,financialviability,andabilitytoborrow);(2)primaryreserveratio(whichmeasuresthe  institution’sviabilityandliquidity);and(3)netincomeratio(whichmeasurestheinstitution’sprofitabilityorabil - itytooperatewithinitsmeans).Generally,aninstitution’sfinancialratiosmustyieldacompositescoreofatleast  1.5fortheinstitutiontobedeemedfinanciallyresponsiblewithouttheneedforfurtherfederaloversight.Under  certaincircumstances,aninstitutionmaybeabletoestablishfinancialresponsibilityonanalternativebasis. EDmayalsoapplythefinancialresponsibilitystandardstoaneligibleinstitution’sparentownershipentities.At  therequestofED,forpurposesofevaluatingthefinancialresponsibilityofourinstitutions,includingthecom - positescorecalculation,wesupplyconsolidatedfinancialstatementstoED. Failureofoneofourinstitutionstomeetthe“financialresponsibility”requirements,becauseitdoesnotmeet  theminimumcompositescoretoestablishfinancialresponsibilityorisunabletoestablishfinancialresponsibil - ityonanalternativebasis,orbecauseitfailstomeetotherfinancialresponsibilityrequirements,couldcause  38 American Public Education, Inc. theinstitutiontoloseaccesstoTitle IVprogramfunding,orresultinotherpenaltiesorconditionsoncontinued  participation.BecauseEDmayalsoapplythefinancialresponsibilitystandardstoaneligibleinstitution’sowner - shipentities,ED’sdeterminationthatourConsolidatedFinancialStatementsdonotsatisfythe“financialrespon - sibility”requirementscouldcausebothAPUSandHCONtoloseaccesstoTitle IVprogramfunding,orresultin  otherpenaltiesorconditionsoncontinuedparticipation. The “90/10 Rule.” ArequirementoftheHEA,commonlyreferredtoasthe“90/10Rule,”appliesonlyto“propri - etaryinstitutionsofhighereducation,”whichincludesfor-profitschoolslikeourinstitutions.Underthisrule,a  proprietaryinstitutionisprohibitedfromderivingfromTitle IVprograms,onacashaccountingbasis(exceptfor  certaininstitutionalloans)foranyfiscalyear,morethan90%ofitsrevenue(ascomputedfor90/10Rulepur - poses).Ifaninstitutionviolatesthe90/10Ruleforanyfiscalyear,theinstitutionisplacedonprovisionalstatusfor  twofiscalyears.Aninstitutionthatviolatestherulefortwoconsecutivefiscalyearsbecomesineligibletopartici - pateinTitle IVprogramsforatleasttwofiscalyearsandisrequiredtodemonstratecompliancewithTitle IVeligi - bilityandcertificationrequirementsforatleasttwofiscalyearspriortoresumingTitle IVprogramparticipation.  EDdisclosesonitswebsiteanyproprietaryinstitutionofhighereducationthatfailstomeetthe90/10require - ment,andreportsannuallytoCongresstherelevantratiosforeachproprietaryinstitutionofhighereducation. Usingtheapplicable90/10formula,thefollowingtablecontainsthepercentageofcash-basisrevenueearned  fromTitle IVprogramfunds. APUS HCON 2012 43% 75% 2013 46% 81% 2014 47% 87% Wecontinuetomonitorcompliancewiththe90/10Rule. The90/10RulehasbeenasubjectofinterestoverthepastseveralCongresseswhichhasresultedinseveral  membersofCongressintroducingproposalsandlegislationthatwouldmodifythe90/10Rule.Oneprevious  CongressionalproposalwoulddecreasethelimitonTitle IVfundsfrom90%to85%andwouldhavecounted  DoDtuitionassistanceandGIBilleducationbenefitstowardthatlimit.Further,thePresident’s2016Budgetpro - posedtheinclusionofDoDtuitionassistanceandGIeducationbenefitsinthe90%portionofthe90/10calcula - tion.Suchproposals,orothersimilarlegislation,shouldtheybecomelaw,couldhaveamaterialadverseimpact  ontheoperationsofourinstitutions. Incentive Payment Rule. Aspartofaninstitution’sTitle IVprogramparticipationagreementwithEDandin  accordancewiththeHEA,aninstitutionmaynotprovideanycommission,bonusorotherincentivepaymentto  anypersonorentityengagedinanystudentrecruitment,admissions,orfinancialaidawardingactivitybased  directlyorindirectlyonsuccessinsecuringenrollmentsorfederalstudentfinancialaid.Failuretocomplywith  theincentivepaymentrulecouldresultinterminationofparticipationinTitle IVprograms,limitationonpartici - pationinTitle IVprograms,orfinancialpenalties.UnderregulationseffectiveJuly 1,2011,EDeliminated12“safe  harbors”undertheincentivepaymentruleandcodifiedastricterreadingoftherule. OnMarch 24,2015,theEDOfficeoftheInspectorGeneral,orOIG,issuedafinalauditreporttitled“Federal  StudentAid’sOversightofSchools’CompliancewiththeIncentiveCompensationBan.”Initsreport,OIGcon - cludedthatED’sOfficeofFederalStudentAidfailedto(i)reviseitsenforcementproceduresandguidanceafter  EDeliminatedthesafeharbors,(ii)developproceduresandguidanceonappropriateenforcementaction,and  (iii)properlyresolveincentivecompensationbanfindings.Inresponsetothereport,OIGandtheOfficeof  FederalStudentAidagreedoncorrectiveactionthatmayincreasescrutinyandenforcementactionrelatedto  paymentofincentivecompensation. 2015 Annual Report 39 OnJune 2,2015,EDreleasedamemorandumregardingenforcementoftheprohibitiononthepaymentof  incentivecompensationbypostsecondaryinstitutionstoanypersonorentityengagedinanystudentrecruit - ingoradmissionsactivities,orinmakingdecisionsregardingtheawardofstudentfinancialassistancebased  directlyorindirectlyuponsuccessinsecuringenrollmentsorfinancialaid.Institutionsagreetocomplywiththe  incentivecompensationrulesasaconditionoftheirparticipationintheTitle IVaidprogram.Thememorandum  indicatedthatEDwillreviseitsapproachtomeasuringdamagesfornoncompliancewiththeprohibitionagainst  incentivecompensation.Inadministrativeenforcementactions,EDwillcalculatetheamountoftheinstitutional  liabilitybasedonthecosttoEDoftheTitle IVfundsimproperlyreceivedbytheinstitution,includingthecost  toEDofalloftheTitle IVfundsreceivedbytheinstitutionoveraparticularperiodoftimeifthosefundswere  obtainedthroughimplementationofapolicyorpracticeinwhichstudentswererecruitedinviolationofthe  incentivecompensationprohibition.EDmayalsoimposeafineuponaninstitution,ortakeadministrativeaction  tolimit,suspend,revoke,deny,orterminateaninstitution’seligibilitytoparticipateintheTitle IVprograms,if  theinstitutionviolatestheprohibition.WearecurrentlyunabletopredicttheimpactthatED’srevisedapproach  tomeasuringdamagesundertheincentivecompensationprohibitionmighthaveonourfinancialconditionif  oneofourinstitutionsisfoundtobeinviolationoftheprohibition. Webelievethatouremployeecompensationandthird-partycontractualarrangementscomplywiththeincen - tivepaymentrulecurrentlyineffect.However,certainambiguitiesinthefinalrule,ED’saccompanyingstate - mentsintherulerelease,andguidanceissuedbyEDinMarch 2011andJune 2015,createuncertaintyastohow  therevisedrulewillbeinterpretedandenforcedbyED.Inlightoftheseuncertainties,orotherwise,wecan  makenoassurancesthatEDwouldnotfinddeficienciesinourpast,current,orfutureemployeecompensation  plansandrelevantthird-partycontractualarrangements. Inaddition,inrecentyears,otherpostsecondaryeducationalinstitutionshavebeennamedasdefendantsto  whistleblowerlawsuits,knownas“quitam”cases,broughtpursuanttotheFederalFalseClaimsAct,allegingthat  aninstitution’scompensationpracticesdidnotcomplywiththeincentivecompensationrule.Anysuchlitiga - tioncouldbecostlyandcoulddivertmanagement’stimeandattentionawayfromthebusiness,regardlessof  whetheraclaimhasmerit. Gainful Employment. UndertheHEA,asamended,proprietaryschoolsaregenerallyeligibletoparticipatein  Title IVprogramsonlyinrespectofeducationalprogramsthatpreparestudentsfor“gainfulemploymentina  recognizedoccupation.”Historically,thisconcepthasnotbeendefinedindetailedregulations.Finalregulations  adoptedbyED,whichgenerallybecameeffectiveonJuly 1,2011,andwhichwerefertoastheProgramIntegrity  Regulations,addresscertaininstitutionalandprogrameligibilityissues,includinggainfulemployment.Under  theProgramIntegrityRegulations,allinstitutionsmustuseatemplatedesignedbyEDtodisclosetoprospective  students,withrespecttoeachgainfulemploymentprogram,occupationsthattheprogrampreparesstudentsto  enter,totalcostoftheprogram,on-timegraduationrate,jobplacementrate,ifapplicable,andthemedianloan  debtofprogramcompletersforthemostrecentlycompletedawardyear.TheProgramIntegrityRegulations  includedadditionalrulespertinenttogainfulemploymentprograms.Afederalcourtstruckdowntheseaddi - tionalrulesandleftthedisclosurerequirementsinplace. InSeptember 2013,EDconvenedanegotiatedrulemakingcommittee,whichwerefertoastheGainful  EmploymentRulemakingCommittee,toprepareproposedregulationstoreplacethosestruckdownbythe  federalcourt.TheGainfulEmploymentRulemakingCommitteemetinthefallof2013,butdidnotachieve  consensusonregulatorylanguage.OnOctober 31,2014,EDpublishedthefinalregulationsrelatedtogain - fulemployment,whichwerefertoastheFinalGERegulations.OnMay 27,2015,aU.S.DistrictCourtinthe  SouthernDistrictofNewYorkdismissedasuitbroughtbytheAssociationofProprietaryColleges’,whichchal - lengedtheFinalGERegulations.OnJune 23,2015,theU.S.DistrictCourtfortheDistrictofColumbiadismissed  aseparatesuitbroughtbytheAssociationofPrivateSectorCollegesandUniversities,orAPSCU,whichalso  40 American Public Education, Inc. challengedtheFinalGERegulations.APSCUappealedtheDistrictCourt’sdecisiontotheU.S.CourtofAppeals  fortheDistrictofColumbiaCircuit.OralargumentfortheappealwasheldonJanuary22,2016,andthefinal  resultispending.OnJuly 1,2015,theFinalGERegulationswentintoeffect,withtheexceptionofnewdisclosure  requirements,whichtakeeffectJanuary1,2017. TheFinalGERegulationsestablishdebt-relatedmeasuresfordeterminingwhethercertainpostsecondaryedu - cationprogramspreparestudentsforgainfulemploymentinarecognizedoccupation.TheFinalGERegulations  setforthtwodebt-to-earningsmeasures:anannualearningsrate,andadiscretionaryincomerate.Aprogram  willpassthemeasuresiftheprogram’sgraduateshaveannualloanpayments: • lessthanorequalto8%oftheirtotalearnings;or • lessthanorequalto20%oftheirdiscretionaryincome. Aprogramthatdoesnotpasseitherofthedebt-to-earningsmeasuresandthathasanannualearningsratethat  isgreaterthan8%andlessthanorequalto12%,oradiscretionaryincomeratethatisgreaterthan20%and  lessthanorequalto30%,willbeinawarning“zone.”Aprogramfailsthemeasuresifitsannualearningsrateis  greaterthan12%(orthedenominatoroftherate(annualearnings)iszero)anditsdiscretionaryincomerateis  greaterthan30%(ortheincomeforthedenominatoroftherate(discretionaryearnings)isnegativeorzero). PursuanttotheFinalGERegulations,andsubjecttothepotentialforadjustmentsbasedonatransitionperiod,  aprogramwillbecomeineligibleforTitle IVfundingifitfailsbothdebt-to-earningsmeasurestwiceinthree  consecutiveyears,oriftheprogramisinthewarning“zone”forfourconsecutiveyears.Aninstitutionwillbe  requiredtoprovidewarningstostudents,includingprospectivestudents,whennotifiedbyEDthataprogram  couldbecomeineligiblebasedonitsfinaldebt-to-earningsmeasuresforthenextawardyear. Inadditiontothedebt-to-earningsmeasures,theFinalGERegulationsincludenewrequirementsrelatedtogain- fulemploymentprograms.Forexample,theFinalGERegulationsrequireaninstitution’smostseniorexecutive  officertocertify,aspartoftheprogramparticipationagreement,thateacheligiblegainfulemploymentprogram  offeredbytheinstitutionsatisfiescertainrequirementsrelatedtoinstitutionalandprogrammaticaccreditation  andprofessionallicensureorcertificationexamrequirements.Also,theFinalGERegulationsexpanduponthe  existinggainfulemploymentprogramdisclosurerequirements;thenewdisclosurerequirementsareeffective  January1,2017.AfailuretocomplywiththeFinalGERegulationscouldresultinourinstitutionslosingeligibility  toparticipateinTitle IVprograms,whichcould,inturn,adverselyaffectourinstitutions’enrollmentsandreve - nueandhaveamaterialeffectonourbusiness. Student Loan Defaults. UndertheHEA,aneducationalinstitutionmayloseitseligibilitytoparticipateinsome  oralloftheTitle IVprogramsifdefaultsontherepaymentofFFELProgramorDirectLoanProgramloansbyits  studentsexceedcertainlevels. PursuanttotheHigherEducationOpportunityActenactedin2008,ortheHEOA,whichamendedtheHEA,an  institution’scohortdefaultrate,orthree-yearcohortdefaultrate,iscalculatedasthepercentageofborrowers  inthecohortwhodefaultbeforetheendofthesecondfiscalyearfollowingthefiscalyearinwhichtheborrow - ersenteredrepayment.EDcalculatesasinglecohortdefaultrateforeachfederalfiscalyearthatincludesinthe  cohortallcurrentorformerstudentborrowersattheinstitutionwhoenteredrepaymentonanyFFELProgram  orDirectLoanProgramloanduringthatyear.Beginningwiththethree-yearcohortdefaultrateforthe2011  cohortpublishedbyEDinSeptember 2014,three-yearcohortdefaultratesareappliedforpurposesofmeasur - ingcompliancewiththerequirements.Forpreviousyears,theapplicablecohortdefaultrate,ortwo-yearcohort  defaultrate,wascalculatedasthepercentageofborrowersinthecohortwhodefaultedbeforetheendofthe  firstfiscalyearfollowingthefiscalyearinwhichtheborrowersenteredrepayment.PursuanttoEDrequire - ments,ifthethree-yearcohortdefaultrateforanyyearafter2011exceeds40%,aninstitutionloseseligibilityto  2015 Annual Report 41 participateinTitle IVprograms,andiftheinstitution’sthree-yearcohortdefaultrateexceeds30%forthreecon - secutiveyears,beginningwiththe2009cohort,theinstitutionloseseligibilitytoparticipateinTitle IVprograms.  Ifaninstitution’scohortdefaultrateisequaltoorgreaterthan30%inanyyearafter2011,itmustestablisha  defaultpreventiontaskforce. InSeptember 2015,EDreleasedAPUS’sandHCON’sofficialthree-yearcohortdefaultratesforfederalfiscalyear  2012.ThefinalofficialEDcohortdefaultrateforthefederalfiscalyears2010,2011,and2012areasfollows: APUS HCON 2010 11.9% 12.7% 2011 13.0% 12.1% 2012 23.3% 11.8% Ifoneorbothofourinstitutionshasadefaultrateinexcessofallowablelevels,itcouldresultinthatinstitution’s orthoseinstitutions’lossofeligibilitytoparticipateinTitle IVprogramsorincurringadditionalcostsrelatedto  defaultprevention,whichcouldhaveamaterialadverseeffectonourbusiness. Privacy of Student Records. TheFamilyEducationalRightsandPrivacyActof1974,orFERPA,andthe  DepartmentofEducation’sFERPAregulationsrequireeducationalinstitutionstoprotecttheprivacyofstudents’  educationalrecordsbylimitinganinstitution’sdisclosureofastudent’spersonallyidentifiableinformationwith - outthestudent’spriorwrittenconsent.FERPAalsorequiresinstitutionstoallowstudentstoreviewandrequest  changestotheireducationalrecordsmaintainedbytheinstitution,tonotifystudentsatleastannuallyoftheir  rightsunderFERPA,andtomaintainrecordsineachstudent’sfilelistingcertainrequestsforaccesstoanddis - closuresofpersonallyidentifiableinformationandtheinterestofsuchpartyinthatinformation.Ifaninstitution  failstocomplywithFERPA,EDmayrequirecorrectiveactionsbytheinstitutionormayterminateaninstitution’s  eligibilitytoparticipateinTitle IVprograms.Inaddition,educationalinstitutionsareobligatedtosafeguard  studentinformationpursuanttotheGramm-Leach-BlileyAct,orGLBA,afederallawdesignedtoprotectcon - sumers’personalfinancialinformationheldbyfinancialinstitutionsandotherentitiesthatprovidefinancial  servicestoconsumers.GLBAandtheapplicableGLBAregulationsrequireaninstitution,toamongotherthings,  developandmaintainacomprehensive,writteninformationsecurityprogramdesignedtoprotectagainstthe  unauthorizeddisclosureofpersonallyidentifiablefinancialinformationofstudents,parents,orotherindividu - alswithwhomsuchinstitutionhasacustomerrelationship.Ifaninstitutionfailstocomplywiththeapplicable  GLBArequirements,itmayberequiredtotakecorrectiveactions,besubjecttomonitoringandoversightbythe  FederalTradeCommission,orFTC,andbesubjecttofinesorpenaltiesimposedbytheFTC.Institutionsarealso  subjecttothegeneraldeceptivepracticesjurisdictionoftheFTCwithrespecttotheircollection,useanddisclo - sureofstudentinformation.InstitutionsmustalsocomplywiththeFTCRedFlagsRule,asectionofthefederal  FairCreditReportingAct,whichrequirestheestablishmentofguidelinesandpoliciesregardingidentitytheft  relatedtostudentcreditaccounts. College Affordability and Transparency Lists. AsrequiredbytheHEOA,EDpublishesonitswebsitelistsof  thetop5%ofinstitutions,ineachofninecategories,with(i)thehighesttuitionandfeesforthemostrecent  academicyear,(ii)thehighest“netprice”forthemostrecentacademicyear,(iii)thelargestpercentageincrease  intuitionandfeesforthemostrecentthreeacademicyears,and(iv)thelargestpercentageincreaseinnetprice  forthemostrecentthreeacademicyears.Aninstitutionthatisplacedonalistforhighpercentageincreasesin  eithertuitionandfeesorinnetpricemustsubmitareporttoEDexplainingtheincreasesandthestepsthatit  intendstotaketoreducecosts.EDreportsannuallytoCongressontheseinstitutionsandpublishesitsreports  onitswebsite.EDalsopostslistsofthetop10%ofinstitutionsineachoftheninecategorieswithlowesttuition  andfeesorthelowestnetpriceforthemostrecentacademicyear.UndertheHEOA,netpricemeansaverage  yearlypriceactuallychargedtofirst-time,full-timeundergraduatestudentswhoreceivestudentaidatahigher  42 American Public Education, Inc. educationinstitutionaftersuchaidisdeducted.For2013–2014,APUSwaslistedastheinstitutionwiththe  seventhlowesttuitionandseventhlowestnetpriceamongprivatefor-profit,four-yearormoreinstitutions.We  cannotpredictwithcertaintytheeffectsuchlistswillhaveonouroperations. College Scorecard. PresidentObamadirectedEDtodevelopandpublishanewcollegeratingssystemby  the2015–2016schoolyear.OnDecember19,2014,EDissuedaframeworkforthecollegeratingssystem.On  June 25,2015,EDstatedthatinlieuofcreatingitspreviouslyannouncedcollegeratingssystem,itwouldinstead  createaconsumer-drivenwebsitethatwillallowuserstocomparecollegesbasedonmeasuresthatmaybeof  importancetothem.InSeptember 2015,EDpubliclyreleasedits“CollegeScorecard”website.Amongotherchar - acteristics,theCollegeScorecardallowsuserstosearchforschoolsbaseduponprogramsoffered,location,size,  taxstatus,mission,andreligiousaffiliation.WedonotbelievetheCollegeScorecardisanappropriateindicator  ofAPUS’sgraduationratebecausetheCollegeScorecard’sgraduationrateincludesonlytheperformanceof  firsttime,full-timeundergraduatestudents,whichrepresentslessthanapproximately1%ofallAPUSstudents.  Furthermore,substantiallyalloftheotherCollegeScorecardmeasuresarebasedondatacollectedonlyabout  studentswhoreceiveTitle IVprogramaid.WhileasignificantportionofAPUSstudentsreceiveTitle IVprogram  aid,intotaltheyareaminorityofAPUS’sstudents.WecannotpredicttheextenttowhichtheCollegeScorecard  mayimpactourinstitution’senrollments,reputation,oroperatingresults. Third-Party Servicers. EDregulationspermitaninstitutiontoenterintoawrittencontractwithathird-party  servicerfortheadministrationofanyaspectoftheinstitution’sparticipationinTitle IVprograms.Thethird- partyservicermust,amongotherobligations,complywithTitle IVrequirementsandbejointlyandseverally  liablewiththeinstitutiontotheSecretaryofEducationforanyviolationbytheservicerofanyTitle IVprovision.  AninstitutionmustreporttoEDnewcontractswithoranysignificantmodificationstocontractswiththird-party  servicersaswellasothermattersrelatedtothird-partyservicers.Ifanythird-partyservicerthatweengage  doesnotcomplywithapplicablestatuteandregulationsincludingtheHEA,wemaybeliableforitsactions,and  wecouldloseoureligibilitytoparticipateinTitle IVprograms. Title IV Return of Funds. UnderED’sreturnoffundsregulations,whenastudentwithdraws,aninstitution  mustreturnunearnedfundstoEDinatimelymanner.AninstitutionmustfirstdeterminetheamountofTitle IV  programfundsthatastudent“earned”beforewithdrawal.Ifthestudentwithdrawsduringthefirst60%ofany  periodofenrollmentorpaymentperiod,theamountofTitle IVprogramfundsthatthestudentearnedisequal  toaprorataportionofthefundsforwhichthestudentwouldotherwisebeeligible.Ifthestudentwithdraws  afterthe60%threshold,thenthestudenthasearned100%oftheTitle IVprogramfunds.Theinstitutionmust  returntotheappropriateTitle IVprograms,inaspecifiedorder,thelesserof(i)theunearnedTitle IVprogram  fundsor(ii)theinstitutionalchargesincurredbythestudentfortheperiodmultipliedbythepercentageof  unearnedTitle IVprogramfunds.Aninstitutionmustreturnthefundsnolaterthan45daysafterthedateofthe  institution’sdeterminationthatastudentwithdrew. Iffundsarenottimelyreturned,aninstitutionmaybesubjecttoadverseaction,includingbeingrequired  tosubmitaletterofcreditequalto25%oftherefundstheinstitutionshouldhavemadeinitsmostrecently  completedfiscalyear.UnderEDregulations,latereturnsofTitle IVprogramfundsfor5%ormoreofstudents  sampledintheinstitution’sannualcomplianceauditconstitutematerialnoncomplianceforwhichaninstitu - tiongenerallymustsubmitanirrevocableletterofcredit.HCON’sTitle IVcomplianceauditfortheyearended  December 31,2012identifiedadeficiencyrelatedtotimelyreturnofTitle IVprogramfunds.InaPreliminary  AuditDeterminationLetterdatedJuly 10,2013,EDrequestedadditionalinformationfromHCONaboutthe  situationandrequiredHCONtoconductafilereviewtoidentifythosefilesthatreflectedaninaccuraterefund.  HCONwasrequiredtopostanirrevocableletterofcreditintheamountof$128,290,whichexpiresinJuly 2016.  EDhadindicatedthatthematterwillbeaddressedaspartofitsreviewofHCON’sapplicationforachangeof  2015 Annual Report 43 ownership,whichisdescribedmorefullybelowin“RegulatoryActionsandRestrictionsonOperations—Change  inOwnershipResultinginaChangeofControl.” Misrepresentation. UndertheHEAanditsimplementingregulations,EDmayfine,suspendorterminatethe  participationinTitle IVprogramsbyaninstitutionthatengagesinsubstantialmisrepresentationregarding  thenatureofitseducationalprogram,itsfinancialcharges,ortheemployabilityofitsgraduates.Inthefuture,  EDcouldpromulgateregulationsthatexpanditsroleinmonitoringandenforcingprohibitionsonmisrepre - sentation.ForinformationregardingarecentEDfindingofsubstantialmisrepresentationatHCONbasedon  circumstancesthatoccurredpriortoouracquisitionofHCON,see“RegulatoryActionsandRestrictionson  Operations—ChangeinOwnershipResultinginaChangeofControl.” Credit Hours. TheHEAandcurrentregulationsusetheterm“credithour”todefineaneligibleprogramand  anacademicyearandtodetermineenrollmentstatusandtheamountofTitle IVprogramfundsaninstitution  maydisburseduringapaymentperiod.TheProgramIntegrityRegulationsdefinethepreviouslyundefinedterm  “credithour”intermsofacertainamountoftimeinclassandoutsideclass,oranequivalentamountofwork.  TheProgramIntegrityRegulationsalsorequireaccreditingagenciestoreviewthereliabilityandaccuracyofan  institution’scredithourassignments.Ifanaccreditoridentifiessystematicorsignificantnoncomplianceinone  ormoreofaninstitution’sprograms,theaccreditormustnotifytheSecretaryofEducation.IfEDdetermines  thataninstitutionisoutofcompliancewiththecredithourdefinition,EDcouldrequiretheinstitutiontorepay  anyincorrectlyawardedamountsofTitle IVprogramfunds.Inaddition,ifEDdeterminesthataninstitutionhas  significantlyoverstatedtheamountofcredithoursassignedtoaprogram,itmayfinetheinstitution,orlimit,  suspend,orterminateitsparticipationinTitle IVprograms. VAWA and Clery. OnApril 1,2014,anegotiatedrulemakingcommittee,convenedbyED,reachedconsensus  onproposedregulationstoaddressimplementationofthechangesmadebytheViolenceAgainstWomen  ReauthorizationActof2013,orVAWA,tosection485(f)oftheHEA,otherwiseknownastheJeanneClery  DisclosureofCampusSecurityPolicyandCampusCrimeStatisticsAct,ortheCleryAct.OnOctober 20,2014,  EDpromulgatedfinalregulationstoimplementchangesmadebyVAWA,theFinalVAWARegulations.TheClery  ActrequiresaninstitutiontoreporttoEDanddiscloseinitsannualsecurityreport,forthethreemostrecent  calendaryears,statisticsconcerningthenumberofcertaincrimesthatoccurredonorwithintheinstitution’s  so-called“Clerygeography.”UndertheFinalVAWARegulations,aninstitutionmustreportanddisclosestatis - ticsabout,forexample,crimesof“datingviolence,”“domesticviolence,”and“stalking,”asdefinedbytheFinal  VAWARegulations.Also,undertheFinalVAWARegulations,aninstitution’sannualsecurityreportmustinclude  certainstatementsaboutwhataninstitutionwilldotoassistpersonswhoallegethattheyhavebeenavictim  ofdatingviolence,domesticviolence,sexualassault,orstalking;inaddition,aninstitutionmustpublishinits  annualsecurityreportproceduresforinstitutionaldisciplinaryactioninsuchcases.TheFinalVAWARegulations  requireinstitutionstoprovide“primarypreventionprograms”forincomingstudentsandnewemployeesand  “ongoingpreventionandawarenesscampaigns”forstudentsandemployees,andtodescribetheseprograms  andcampaignsintheirannualsecurityreport.AfailuretocomplywiththeFinalVAWARegulationscouldresult  inourinstitutionsbeingfinedorhavingoureligibilitytoparticipateinTitle IVprogramslimited,suspended,or  terminated,whichcould,inturn,adverselyaffectourinstitutions’enrollmentsandrevenueandhaveamaterial  effectonourbusiness. Borrower Defenses. OnJune 8,2015,EDissuedafactsheetwhereitannounceddebtreliefmechanismsthat  itassertsaredesignedtoholdfor-profitinstitutionsaccountable.Theannouncementspecificallyaddresses  debtreliefforstudentsatCorinthianColleges’institutionsthatclosedandCorinthianColleges’institutionsthat  didnotclose,butthefactsheetisframedmorebroadly.Inthefactsheet,EDdiscussestheabilitytodischarge  federalstudentloans,whichwerefertoasFederalDirectLoans,whenaninstitutioncloses.Generally,pursu - anttoED’sregulations,whenaninstitutioncloses,studentsareeligibletodischargetheirFederalDirectLoans  44 American Public Education, Inc. iftheywereattendingtheinstitutionwhenitclosedorhadwithdrawnwithin120daysoftheclosingdate.ED  alsopointsoutthatED’sregulationsprovideFederalDirectLoanrecipientswithadefenseagainstanattemptto  collecttheirFederalDirectLoansbasedonanactoromissionoftheinstitutionthatwouldgiverisetoacauseof  actionunderapplicablestatelaw.EDindicatesthatsuchprovisionhas“rarelybeenusedinthepast”andthatit  istaking“unprecedentedaction”withrespecttoCorinthianCollegesstudentstoextenddebtrelieftosuchstu - dentswhereverpossible.Inthefactsheet,EDalsoannouncedplanstodevelopnewregulationsto“clarifyand  streamlineloanforgiveness”undertheloandischargeprovision. OnOctober 20,2015,EDannouncedthatitwouldestablishanewnegotiatedrulemakingcommitteetodevelop  proposedregulationsfordeterminingwhichactsoromissionsofaninstitutionofhighereducationastudent  borrowermayassertasadefensetorepaymentofaloanmadeundertheFederalDirectLoanProgram(“bor - rowerdefenses”)andtheconsequencesofsuchborrowerdefensesforborrowers,institutions,andED.ED  furtherannouncedthattherulemakingcommitteeisintendedtoaddress(i)theprocedurestobeusedfora  borrowertoestablishadefensetorepayment;(ii)thecriteriathatEDwillusetoidentifyactsoromissionsof  aninstitutionthatconstitutedefensestorepaymentofFederalDirectLoans;(iii)thestandardsandprocedures  thatEDwillusetodeterminetheliabilityoftheinstitutionparticipatingintheFederalDirectLoanProgramfor  amountsbasedonborrowerdefenses;(iv)theeffectofborrowerdefensesoninstitutionalcapabilityassess - ments;and(v)otherloandischarges.TherulemakingcommitteemetinJanuary2016.Weareunabletopredict  whenEDmayultimatelyissueregulationsonthesetopics,theresultofanyothercurrentorfuturerulemakings  ortheimpactofsuchrulemakingsonourbusiness.IfEDdeterminesthatborrowersofFederalDirectLoanswho  attendedourinstitutionshaveadefensetorepaymentoftheirFederalDirectLoansbasedonastatelawclaim,  therepaymentliabilitytoEDcouldhaveamaterialadverseeffectonourfinancialcondition,resultsofopera - tions,andcashflows. Cash Management Regulations. OnOctober 27,2015,EDannouncedthepublicationoffinalregulationsto  amendED’scashmanagementregulations,whichwerefertoastheCashManagementRegulations.TheCash  ManagementRegulationsgointoeffectonJuly 1,2016.Amongothertopics,theCashManagementRegulations  addressarrangementsbetweenpostsecondaryinstitutionsandfinancialaccountproviderstodisburseTitle IV  Programcreditbalancestostudents,includingthroughtheuseofdebitorprepaidcards.TheCashManagement  RegulationsrequireinstitutionstoestablishaprocesstofacilitatestudentchoiceinhowstudentsreceiveTitle IV  Programfederalstudentfinancialaidcreditbalances;limitthepersonallyidentifiableinformationaboutstu - dentsthatmaybesharedwithfinancialaccountproviders;andrequireinstitutionstoobtainstudentconsent  beforeopeninganaccountinthestudent’sname.UndertheCashManagementRegulations,aninstitution  thathasenteredintoanarrangementwithafinancialaccountprovidermustmitigatecertainfeesincurred  byTitle IVaidrecipients,andcertaintypesoffeesareprohibited.TheCashManagementRegulationsrequire  thatcontractsgoverningarrangementswithfinancialaccountprovidersbepubliclydisclosedandevaluatedin  lightofthebestfinancialinterestsofstudents.TheCashManagementRegulationsalsomakeotherchangesto  requirementsfortheinstitutionaladministrationofTitle IVPrograms,includingbyclarifyinghowpreviously  passedcourseworkistreatedforTitle IVeligibilitypurposes,alteringtherequirementsforconvertingclock  hourstocredithours,andupdatingotherprovisionsinED’scashmanagementregulations.Forexample,the  CashManagementRegulationsestablisharequirementthatinstitutionsparticipatingintheTitle IVPrograms  underthereimbursementorheightenedcashmonitoringpaymentmethodsmustpayanycreditbalancedueto  astudentbeforeseekingreimbursementorarequestforfunds.TheCashManagementRegulationsalsospecify  thecircumstancesunderwhichaninstitutionmayincludethecostofbooksandsuppliesaspartofinstitutional  tuitionandfeeschargedtoastudent,suchasiftheinstitutionhasmadearrangementswithpublishersto  obtainbooksatbelow-marketratesorifbooksorelectroniccoursematerialsarenotavailableelsewhere.The  CashManagementRegulationsalsoexpandthegroupofstudentstowhomaninstitutionmustprovideawayto  obtainorpurchase,bytheseventhdayofapaymentperiod,thebooksandsuppliesapplicabletothepayment  2015 Annual Report 45 period.Previously,aninstitutionwasrequiredtoprovidesuchassistanceonlytostudentswhoreceivePell  Grants,butundertheCashManagementRegulations,aninstitutionwillberequiredtoprovidesuchassistance  toanystudentwhoiseligibleforTitle IVProgramaid.Ourinstitutionsutilizeathirdpartyservicertoprovide  servicesrelatedtothedisbursementofTitle IVfinancialaidcreditbalancerefunds.Wearecurrentlyunableto  predicttheimpactthatcompliancewiththeCashManagementRegulationsmighthaveonouroperationsand  operatingresults. Department of Defense ServicemembersoftheUnitedStatesArmedForcesareeligibletoreceivetuitionassistancefromtheirbranch  ofservicethroughtheUniformTuitionAssistanceProgramoftheDoD,orDoDtuitionassistanceprograms.  Servicemembersmayusethistuitionassistancetopursuepostsecondarydegreesatinstitutionsthatare  accreditedbyaccreditingagenciesrecognizedbytheSecretaryofEducation.ForstudentsinAPUSundergradu - ateprograms,wehaveestablishedtuitionratespersemestercredithourthatundercurrentDoDpoliciescanbe  100%coveredbyDoDtuitionassistancefundsprovidedthatthestudentdoesnotexceedtheannuallimitsper  student.Atthistime,HCONdoesnotparticipateinDoDtuitionassistanceprograms. UnderaDoDfinalruleeffectiveJanuary7,2013,eachinstitutionparticipatinginDoDtuitionassistancepro - gramsisrequiredtosignaMemorandumofUnderstanding,orMOU,outliningcertaincommitmentsandagree - mentsbetweentheinstitutionandDoDpriortobeingpermittedtoparticipateintheDoDtuitionassistance  programs.InMay 2014,DoDpromulgatednewregulationsandarevisedMOU,the2014MOU.OnJuly 7,2014,  DoDreleasedrevisionstothe2014MOU,andAPUSsignedtherevised2014MOUinAugust 2014.The2014MOU  containsrequirementsandlimitationsthatwerenotcontainedinpreviousMOUstowhichAPUSwasaparty.  Pursuanttothe2014MOU,amongotherrequirements,institutionsmust:explaincertainEDandConsumer  FinancialProtectionBureau,orCFPB,toolstoservicemembers,suchasED’s“CollegeNavigator”websiteandthe  CFPB’s“PayingforCollege”website;complywithrequirementsrelatedtoreadmissionpoliciesforservicemem - bers;abidebynewlimitationsontheuseoffundsderivedfromtuitionassistance;provideadditionalacademic  andstudentsupportservices;discloseinformationabouttransferofcredit;incertaincircumstances,returntui - tionassistancefundstoDoD(suchaswhenastudentceasestoattendoraninstitutioncancelsacourse);offer  toservicemembersloancounselingbeforeprivatestudentloansareofferedorrecommended;andcomply  withED’sTitle IV“programintegrity”rules,includingrulesrelatedtoincentivepaymentsandmisrepresentation.  The2014MOUalsoprovidesthataninstitutionmayonlyparticipateinDoDtuitionassistanceprogramsifitis  accreditedbyanaccreditingagencyrecognizedbyED,approvedforVAfunding,andaparticipantinTitle IVpro - grams.Additionalinformationregardingthepotentialrisksassociatedwiththe2014MOUareaddressedinthe  “RiskFactors”sectionofthisAnnualReport. OnMarch 14,2013,DoDissuedaninstructionrestrictingtheabilityofservicemembersincertaindutyloca - tionsoutsidethecontinentalUnitedStates,oroverseaslocations,toreceiveDoDtuitionassistanceforcourses  offeredbyinstitutionsofhighereducationthatarenotpartiestocontractswiththeDoDtoprovideDoDvolun - taryeducationprogramsatthoselocations.BecausewedonothavecontractswiththeDoDtoprovideinstruc - tionatoverseaslocations,servicememberswhobeginapostsecondaryeducationprogramafterarrivalinan  applicableoverseasdutylocationmaynotuseDoDtuitionassistanceprogramstopayfortheireducationin  ourprogramsuntilaftertheyhavealreadysuccessfullycompletedacoursewithaninstitutionthathasentered  intoacontracttoprovidevoluntaryeducationprogramsatthatoverseaslocation.Servicememberswhowere  alreadyenrolledinoneofourprogramsbeforearrivingatanoverseasdutylocationmaycontinuetoreceive  DoDtuitionassistanceforthein-progressprogram,buttheywillbeencouragedtoenrollincoursesprovided  byinstitutionsthathaveenteredintocontractswiththeDoDtoprovideprogramsattheapplicableoverseas  dutylocation. 46 American Public Education, Inc. OnJanuary30,2014,theDoD,VA,ED,andFTC,incollaborationwiththeCFPBandDepartmentofJustice,  announcedanewonlinestudentcomplaintsystemforservicemembers,veterans,andtheirfamiliestoreport  negativeexperiencesateducationinstitutionsandtrainingprogramsadministeringthePost-9/11GIBill,DoD  tuitionassistanceprograms,andothermilitary-relatededucationbenefitprograms.Thecomplaintsystemis  designedtohelpthegovernmentidentifyandaddressunfair,deceptive,andmisleadingpractices.Thecom - plaintsystemisbasedonPresidentObama’sApril 27,2012ExecutiveOrder13607,EO13607,whichrequires  federalagenciestocreateacentralizedcomplaintsystemforstudentsreceivingfederalmilitaryandveterans  educationalbenefitstoregistercomplaintsthatcanbetrackedandrespondedtobyrelevantagencies.An  institutionhavingrecurringsubstantivecomplaints,ordemonstratinganunwillingnesstoresolvecomplaints,  mayfacearangeofpenalties,includingrevocationofitsMOUandremovalfromparticipationintheDoDtuition  assistanceprograms. Department of Veterans Affairs TheVAadministerseducationbenefitsprovidedbyfederallaw,includingtheMontgomeryGIBill,orGIBill,and  thePost-9/11VeteransEducationalAssistanceActof2008,orPost-9/11GIBill.Pursuanttofederallawrelated  tothoseprograms,APUSisapprovedtoprovideeducationtoveteransandmembersoftheselectivereserve  andtheirdependentsbythestateapprovingagenciesinWestVirginiaandVirginia.ProgramsateachofHCON’s  campusesareapprovedforVAbenefitsbythestateapprovingagencyinOhio. ThePost-9/11GIBillexpandededucationbenefitsforveteranswhohaveservedonactivedutysince  September 11,2001,includingreservistsandmembersoftheNationalGuard,aswellasbenefitsavailableunder  theGIBill.ThePost-9/11GIBillexpandedtheabilityofservicememberstotransfertheirbenefitstofamily  members.ThePost-9/11GIBillalsoprovidesveteransupto$1,000peracademicyearforbooks,supplies,equip - ment,andothereducationcosts.ThePost-9/11VeteransEducationalAssistanceImprovementsActof2010,or  ImprovementsAct,revisedthecalculationsofbenefitsrelatedtotuitionandfeesunderthePost-9/11GIBill.For  aveteranattendinganon-publicU.S.institution,theImprovementsActprovidestuitionandfeesbasedonthe  netcosttotheveteran(afteraccountingforstateandfederalstudentfinancialaid,scholarships,institutional  aid,feewaivers,andsimilarassistance),upto$21,084.89peryear.Veteranspursuingaprogramofeducationon  amorethanhalf-timebasisatanon-campuslocationareeligibleforamonthlyhousingallowanceequaltothe  basicallowanceforhousingavailabletoservicememberswhoareatamilitarypaygradeE-5andhavedepen - dents.Veteranspursuingaprogramofeducationsolelythroughdistanceeducationonamorethanhalf-time  basisareeligibletoreceive$783permonth. TotheextentthatDoDtuitionassistanceprogramsdonotcoverthefullcostoftuitionforservicemembers,eli - gibleservicemembersmayalsousetheirbenefitsundertheGIBillorthePost-9/11GIBillthroughthe“Top-Up”  program.The“Top-Up”programallowsactive-dutyservicememberstousetheirGIBillorPost-9/11GIBillben - efitstopaythedifferencebetweenthetotalcostofacollegecourseandtheamountofDoDtuitionassistance  thatispaidbythemilitaryforthecourse,butislimitedto36monthsofpayments. Additional Sources of Student Payments InadditiontotheTitle IV,DoD,andVAprogramsdescribedabove,eligiblestudentsmayparticipateinseveral  otherfinancialaidprogramsorreceivesupportfromothergovernmentalandprivatesources.Someofour  studentsfinancetheirowneducationorreceivefullorpartialtuitionreimbursementfromtheiremployers.Our  institutionsmayofferinterestfreepaymentplansoflessthan12monthstostudentstoassistthemwiththe  financingofeducationalexpenses.Ourinstitutionsenterintoagreementswithvariousemployerswhoprovide  employeetuitionreimbursementplans.Throughtheseagreementsourinstitutionsagreetoavarietyofterms,  includingtermsrelatedtotheprovisionoftuitiongrantstoeligibleemployees.Incertaincircumstances,our  2015 Annual Report 47 studentsmayaccessalternativeloanprogramsfromprivatelenders.Alternativeloansfromprivatelendersare  intendedtocoverthedifferencebetweenwhatthestudentreceivesfromallfinancialaidsourcesandcertain  costsofthestudent’seducation.Studentscanapplytoanumberofdifferentprivatelendersforthisfunding.  Aspartofaninstitution’sTitle IVPPA,theinstitutionmustadoptacodeofconductpertainingtostudentloans,  includingalternativeloans. Consumer Protection Consumer Financial Protection Bureau TheCFPBhaspursuedenforcementactionsagainstcertainfor-profitinstitutionsofhighereducationandhas  releasedseveralreportsthatdirectlyaddressissuesrelatedtoinstitutionsofhighereducation.OnAugust 29,  2012,theCFPBsubmittedareporttoseveralCongressionalcommitteesentitled“PrivateStudentLoans.”The  reportcontainedspecificsuggestionsforCongressionalactiontorestructurethestudentlendingexperience,  includingpossiblyrequiringinstitutionstocertifythatastudentisnoteligibleforanyfurtherfederalstudent  financialaidfundsbeforeaprivateloanmaybeissuedtosuchstudent.OnOctober 18,2012theCFPBreleased  areportentitled“TheNextFront?StudentLoanServicingandtheCosttoOurMenandWomeninUniform.”The  reportdetailsthechallengesthatsomeservicemembershaveencounteredwhenutilizingprivateandfederal  studentloans.InOctober 2015,theCFPBStudentLoanOmbudsmanreleaseditsannualreportanalyzingmore  than6,400complaintstheCFPBreceivedfromprivatestudentloanborrowersbetweenOctober 1,2014and  September 30,2015.WedonotknowwhatenforcementactionstheCFPBmaypursue,orwhatstepsCongress  orfederalagenciesmaytake,inresponsetothesereportsandwhethersuchactions(ifany)willhaveanadverse  effectonourbusinessorresultsofoperations. OnJanuary31,2013,theCFPBencouragedinstitutionsofhighereducation,students,andotherstoprovide  informationtotheCFPBaboutthefinancialproductsandservicescurrentlyofferedtostudents,andcomments  onhowcurrentandfuturearrangementsbetweenhighereducationinstitutionsandfinancialinstitutionscould  bestructuredinordertopromotepositivefinancialdecision-makingamongconsumers.Inresponsetothose  comments,theCFPBissueditsfindingsoncampusbankingproductsduringaforumheldinSeptember 2013.In  December2013andagaininFebruary 2014,theCFPBissuedarequestaskingfinancialinstitutionstovoluntarily  makeavailableontheirwebsitesagreementswithcollegesanduniversitiestomarketdepositaccounts,prepaid  cards,debitcards,andotherfinancialproductstostudents.InFebruary 2014,theGovernmentAccountability  Office,orGAO,issuedareportoncollegedebitcardsinwhichtheGAOrecommendedthatCongressconsider  requiringfinancialinstitutionsthatprovidedebitandprepaidcardservicestocollegesanduniversitiesto  publiclydisclosetheiragreements.TheGAOreportincludedaletterfromED,concurringwithGAO’srecom - mendationsandindicatingthattheissuewouldbeconsideredbytheProgramIntegrityandImprovement  negotiatedrulemakingcommitteescheduledtomeetinspring2014.OnOctober 27,2015,EDreleasedthe  CashManagementRegulationsdiscussedabovein“StudentFinancingSourcesandRelatedRegulations/ Requirements—DepartmentofEducation—RegulationofTitle IVFinancialAidPrograms.” OnFebruary 21,2013,theCFPBissuedaNoticeandRequestforInformationsolicitinginputonaffordablerepay - mentoptionsforborrowerswithexistingstudentloans.Basedonthecommentsreceived,inMay 2013,the  CFPBissuedareportanalyzingtheimpactofstudentloanburdensandproposinganumberofpolicyandmar - ket-basedsolutions.OnDecember3,2013,theCFPBissuedafinalrulethatallowstheCFPBtosupervisecertain  “larger”nonbankfederalandprivatestudentloanservicersforthefirsttime,effectiveMarch 1,2014. InJuly 2013,theCFPBissuedabulletinstatingthatanyentitysubjecttotheCFPB’sjurisdiction,whethera  third-partycollectororacreditorcollectingitsowndebts,canbeheldaccountableforanyunfair,deceptive,or  abusivepracticesincollectingaconsumer’sdebts.InNovember 2013,theCFPBissuedanAdvancedNoticeof  48 American Public Education, Inc. ProposedRulemakingannouncingthatitisconsideringwhetherrulesgoverningthecollectionofdebtsarewar - rantedundertheFairDebtCollectionPracticesAct,orFDCPA,orotherCFPBauthorities,and,ifso,whattypes  ofruleswouldbeappropriate.Aspartofitsproposedrulemaking,theCFPBsoughtcommentsaboutapplying  aregulatoryregimesimilartotheFDCPA,whichappliesonlytothird-partydebtcollectors,tofirst-partydebt  collectors.ShouldtheCFPBissuerulesregulatingfirst-partydebtcollectorssuchrulesmightapplytoourinsti - tutions,whichmayadverselyimpactourcollectionsefforts. OnDecember23,2014,theCFPBissuedaNoticeofProposedRulemaking,orNPRM,proposingtoestablish  disclosurerequirementsforprepaidaccounts,suchasreloadablecardsthatinstitutionsmayusetorefund  students’creditbalances.Theproposedrulewouldrequirefinancialinstitutionstoprovidecertaindisclosures  toconsumerspriortoandaftertheacquisitionofaprepaidaccount,includingdisclosureoftermsandfees,and  postingsampleaccountagreementsonline. InAugust 2015,theCFPBissuedacivilinvestigativedemand,orCID,toACICS,theaccreditingagencythataccred- itsHCON.TheCIDrequiredACICStoprovidedocumentsandtestimony,toidentifyallschoolsithasaccredited  sinceJanuary1,2010,andtoidentifytheindividualsinvolvedinACICS’sreviewsofcertainschools,notpublicly  identified.InSeptember 2015,ACICSsubmittedapetitiontotheCFPBtosetasidetheCID,arguingthatACICSis  notundertheCFPB’sjurisdiction.ACICSarguedthatitdoesnotprovideanyfinancialproductorservicenordoes itassistorsupportitsaccreditedinstitutionsinprocuringandmaintainingloansfromED.InOctober 2015,the  CFPBrejectedACICS’spetitionandfiledapetitiontoenforcetheCIDintheUnitedStatesDistrictCourtforthe  DistrictofColumbia.WeareunabletopredicttheimpactthattheCFPBCIDmayhaveonACICSoritspractices. Other Issues Related to Consumer Protection and Complaints ConcurrentwithreleaseoftheFinalGERegulations,EDannouncedthatitwillleadanefforttoformalizean  interagencytaskforcetohelpensureoversightoffor-profithighereducationinstitutions.Inparticular,EDand  otherfederalandstateagencieswillcoordinatetheiractivitiesandpromoteinformationsharingtoprotect  studentsfromunfair,deceptive,andabusivepoliciesandpractices.EDexplainedthatthetaskforcewillbuildon  existingeffortsamongvariousfederalagencies,andwillincludetheDepartmentsofJustice,Treasury,VA,the  CFPB,theFTC,andtheSecuritiesandExchangeCommission.Stateattorneysgeneralwillbeinvitedtopartici - pateaswell.AccordingtoED,thetaskforcewillformalizeandstrengthenaworkinggroupthathasbeenwork - ingtogetheroverthepastyearandthathascoordinatedeffortsinseveralreviewsandinvestigatorywork.The  taskforcewillmeetatleastonceeachquarter. Manystateshavebecomemoreactiveinregulatingproprietaryeducationfromaconsumerprotectionperspec - tive,specificallyrelatedtoenforcementofconsumerprotectionlawsandimplementationofnewregulations  bystateattorneysgeneral.Forexample,agroupofstateattorneysgeneral,ledbytheAttorneyGeneralof  Kentucky,areexaminingthefor-profiteducationindustry.TheKentuckyAttorneyGeneral’swebsitereportsthat  approximately30stateattorneysgeneralareparticipating.Whilewehaveastrongtrackrecordofregulatory  compliance,suchactivities,evenifnotdirectedatoneofourinstitutions,maymakeouroperatingenvironment  morechallenging. Ourinstitutionsarerecipientsofcomplaintsfiledwithstateregulatoryauthorities,theBetterBusinessBureau,  andpostedinonlineforums.Ourinstitutionsattempttoresolvesuchcomplaintsinacooperativemanner.  However,evenifsuchcomplaintsareresolvedorareotherwiseunfoundedtheymaystillharmthereputationof  ourinstitutions. 2015 Annual Report 49 Compliance with Regulatory Standards and the Effect of Regulatory Violations Compliance Reviews Ourinstitutionsaresubjecttoannouncedandunannouncedcompliancereviewsandauditsbyvariousexter - nalagencies,includingED,itsOfficeofInspectorGeneral,statelicensingagencies,agenciesthatguarantee  FFELProgramloans,DoD,VA,andaccreditingagencies.TheHEAandEDregulationsalsorequireinstitutionsto  submitannuallyacomplianceauditconductedbyanindependentcertifiedpublicaccountantinaccordancewith  GovernmentAuditingStandardsandapplicableEDOfficeofInspectorGeneralauditstandards.Inaddition,to  enabletheSecretaryofEducationtomakeadeterminationoffinancialresponsibility,institutionsmustannually  submitauditedfinancialstatementspreparedinaccordancewithEDregulations. TheDoDMOUrequiresinstitutionstoparticipateintheDoDThirdPartyAssessmenttoensurethattheinsti - tutionisincompliancewiththeDoDMOUandthatservicemembersareprovidedqualityvoluntaryeducation  opportunitiesthatmeettheirneeds.AThirdPartyAssessmentofAMUwasconductedinJune 2012witha  revisedreportsubmittedinOctober 2012.Thereportstatedthat,basedontheassessmentteam’sfindings,  AMUandAPUSwereincompliancewiththeDoDMOUthatAPUSexecuted. Potential Effect of Regulatory Violations IfourinstitutionsfailtocomplywiththeregulatorystandardsgoverningTitle IVprograms,EDcouldimpose  oneormoresanctions,includingtransferringourinstitutionstothereimbursementorcashmonitoringsystem  ofpayment,seekingtorequirerepaymentofcertainTitle IVprogramfunds,requiringthepostingofaletterof  creditinfavorofEDasaconditionforcontinuedTitle IVcertification,takingemergencyactionagainstourinsti - tutions,referringthematterforcriminalprosecution,orinitiatingproceedingstoimposeafineortolimit,con - dition,suspend,orterminateparticipationinTitle IVprograms.Ifsuchsanctionsorproceedingswereimposed  againstourinstitutionsandresultedinasubstantialcurtailment,ortermination,ofparticipationinTitle IV  programs,ourinstitution’senrollments,revenue,andresultsofoperationswouldbemateriallyandadversely  affected.IfAPUS’sapprovaltoparticipateinTitle IVprogramsisterminated,APUSwillalsoloseitsabilityto  participateinDoDtuitionassistanceprogramspursuanttotheDoDMOU,whichwouldmateriallyandadversely  affectourenrollments,revenue,resultsofoperations,andfinancialcondition. IfoneofourinstitutionsweretoloseitseligibilitytoparticipateinTitle IVprograms,oriftheamountofavail - ableTitle IVprogramfundswerereduced,wecouldseektoarrangeorprovidealternativesourcesofrevenueor  financialaidforstudents.Althoughwebelievethatoneormoreprivateorganizationswouldbewillingtopro - videfinancialassistancetostudentsattendingourinstitutions,thereisnoassurancethatthiswouldbethecase,  andtheinterestrateandothertermsofsuchfinancialaidmightnotbeasfavorableasthoseforTitle IVprogram  funds.Wemayberequiredtoguaranteeallorpartofsuchalternativeassistanceormightincurotheradditional  costsinconnectionwithsecuringalternativesourcesoffinancialaid.Accordingly,thelossofoureligibilityto  participateinTitle IVprograms,orareductionintheamountofavailablefederalstudentfinancialaid,wouldbe  expectedtohaveamaterialadverseeffectonourfinancialconditionandresultsofoperationsevenifwecould  arrangeorprovidealternativesourcesofrevenueorstudentfinancialaid. InadditiontotheactionsthatmaybebroughtagainstusasaresultofourparticipationinTitle IVprograms,we  alsomaybesubject,fromtimetotime,tocomplaintsandlawsuitsrelatingtoregulatorycompliancebrought  notonlybyourregulatoryagencies,butalsobyothergovernmentagenciesandthirdparties,suchaspresentor  formerstudentsoremployeesandothermembersofthepublic. 50 American Public Education, Inc. Regulatory Actions and Restrictions on Operations Manyactionsthatwemaywishtotakeinconnectionwithouroperationsarealsosubjecttoregulationfrom  avarietyofagencies.ED’sregulations,stateregulatoryrequirementsandaccreditingagencystandardsmay,  incertaininstances,limitourabilitytoacquireorsellinstitutions,andtoestablishadditionallocationsand  programs.Manystatesrequireapprovalbeforeinstitutionscanaddnewprograms,campuses,orteaching  locations.HLC,WVHEPC,SCHEV,ACICS,theOhioStateBoardofCareerCollegesandSchools,andtheOhio  DepartmentofHigherEducationgenerallyrequireinstitutionstonotifythem,andsometimesrequireinstitu - tionstoobtaintheirapproval,inadvanceofopeninganewlocationorimplementingnewprograms. Change in Ownership Resulting in a Change of Control ED’sregulations,stateregulatoryrequirementsandaccreditationstandardsmaylimitourabilitytoacquire,  merge,orsellinstitutions,andmayimposerestrictionsonactivitiesfollowingatransaction.Theserestrictions  mayimpedeourabilitytogrowbyacquisition,ortodisposeofassets,whichmayhaveamaterialadverseeffect  onourfinancialcondition. Achangeincontrolcouldoccurasaresultoffuturetransactionsinwhichweareinvolved,suchascorporate  reorganizationsorchangesintheBoardofDirectors.Moreover,asapubliclytradedcompany,thepotential  adverseeffectsofachangeincontrolcouldinfluencefuturedecisionsbyusandourstockholdersregarding  thesale,purchase,transfer,issuance,orredemptionofourstock.Inaddition,theregulatoryburdensandrisks  associatedwithachangeofcontrolcoulddiscouragebidsforyoursharesofcommonstockandcouldhavean  adverseeffectonthemarketpriceofyourshares. U.S. Department of Education TheHEAprovidesthataninstitutionwhichundergoesachangeinownershipresultinginachangeincontrol  losesitseligibilitytoparticipateinTitle IVprogramsandmustapplytoEDinordertoreestablishsucheligibility.  ED’sregulationsprovidethatachangeincontrolofapubliclytradedcompanyoccursinoneoftwoways:(i)if  thereisaneventthatwouldobligatethecorporationtofileaCurrentReportonForm8-KwiththeSecurities  andExchangeCommissiondisclosingachangeincontrol,or(ii)ifthecorporationhasastockholderthatownsat  least25%ofthetotaloutstandingvotingstockofthecorporationandisthelargeststockholderofthecorpora - tion,andthatstockholderceasestoownatleast25%ofsuchstock,orceasestobethelargeststockholder.As  aresult,asignificantpurchaseordispositionofourvotingstock,includinganacquisitionresultinginastock - holderowningatleast25%ofouroutstandingstock,couldbedeterminedbyEDtobeachangeinownership  andcontrolpursuanttoED’sregulations. Uponachangeinownershipandcontrol,aninstitutionisineligibletoreceiveTitle IVprogramfundsduringthe  periodpriortorecertification.TheHEAprovidesthatEDmaytemporarilyprovisionallycertifyaninstitution  seekingapprovalofachangeinownershipandcontrolbasedonpreliminaryreviewofamateriallycomplete  applicationreceivedwithin10businessdaysafterthetransaction.EDmaycontinuesuchtemporaryprovisional  certificationonamonth-to-monthbasisuntilithasrenderedafinaldecisionontheinstitution’sapplication.If  EDdeterminestoapprovetheapplicationafterachangeinownershipandcontrol,itissuesaprovisionalcerti - fication,whichextendsforaperiodexpiringnotlaterthantheendofthethirdcompleteawardyearfollowing  thedateofprovisionalcertification.ED’sregulationsdescribesometransactionsthatconstituteachangein  ownershipandcontrol,includingthetransferofacontrollinginterestinthevotingstockofaninstitutionorthe  institution’sparentcorporation. Whenachangeinownershipandcontroloccurs,EDappliescertainfinancialteststodeterminethefinan - cialresponsibilityoftheinstitutioninconjunctionwithitsreviewandapprovalofthechange.Theinstitution  2015 Annual Report 51 generallyisrequiredtosubmitasame-dayauditedbalancesheetreflectingthefinancialconditionofthe  institutionimmediatelyfollowingthechangeinownership.Theinstitution’ssame-daybalancesheetmust  demonstrateanacidtestratioofatleast1:1,whichiscalculatedbyaddingcashandcashequivalentstocurrent  accountsreceivableanddividingthesumbytotalcurrentliabilities(andexcludingallunsecuredoruncollater - alizedrelatedpartyreceivables).Thesame-daybalancesheetmustdemonstratepositivetangiblenetworth.In  addition,whenachangeinownershipandcontroloccursandthereisanewowner,theinstitutionmustsubmit  toEDauditedfinancialstatementsoftheinstitution’snewowner’stwomostrecentlycompletedfiscalyears  thatarepreparedandauditedinaccordancewithEDrequirements.EDmaydeterminewhetherthefinancial  statementsmeetfinancialresponsibilitystandardswithrespecttothecompositescoreformula.Iftheinsti - tutiondoesnotsatisfytheserequirements,EDmayconditionitsapprovalofthechangeofownershiponthe  institution’sagreementtolettersofcredit,provisionalcertification,andadditionalmonitoringrequirements.  ThecompositescoreformulaandrelatedEDconditionsaredescribedmorefullyabovein“StudentFinancing  SourcesandRelatedRegulations/Requirements—DepartmentofEducation—RegulationofTitle IVFinancialAid  Programs—FinancialResponsibility.”Ifthenewownerdoesnothavetherequiredauditedfinancialstatements,  EDmayimposecertainrestrictionsontheinstitution,includingwithrespecttoaddinglocationsandprograms. OnNovember 1,2013,asaresultofourpurchaseofalloftheoutstandingstockinNationalEducationSeminars,  Inc.,HCONwasdeemedtohaveundergoneachangeofownershipandcontrolrequiringreviewbyEDinorder  toreestablisheligibilityandcontinueparticipationinTitle IVprograms.AsrequiredunderED’sregulations,we  timelysubmittedachangeinownershipapplicationandrequireddocumentation.InJanuary2016,wereceiveda  letterfromEDapprovingthechangeinownershipandcontrolofHCONandgrantingHCONprovisionalcertifi - cationtoparticipateinTitle IVprogramsuntilDecember 31,2018.HCONreceivedafullyexecutedprovisional  programparticipationagreementinFebruary 2016.HCONmustcomplywithspecificconditionswhileitis  provisionallycertified,asdescribedmorefullyin“RestrictionsonAddingLocationsandEducationalPrograms,”  below.PriortoreceivingED’sapprovalofthechangeinownershipandcontrolandaspartofED’spost-clos - ingreview,inMay andDecember2014EDrequestedadditionalinformationrelatedtoaputativeclassaction  broughtagainstHCONbytwoformerHCONstudentsthatwassettledinexchangeforademinimissettlement  payment,withHCONadmittingtonowrongdoing;weprovidedtherequestedinformationtoEDshortlyafter  itwasrequested.OnDecember4,2015,EDsentHCONaletterinformingHCONthatEDhaddeterminedtofine  HCON$27,500.ThefinewasbasedonED’sreviewofthesubmittedinformationandafindingthatHCONhad  substantiallymisrepresenteditsprogrammaticaccreditationstatusduringatimeperiodpriortoourownership  ofHCON.OnDecember18,2015,HCONrespondedtoEDinaletterinwhichitnoteditsdisagreementwithED’s  findingsbutinformedEDofitsdecisiontopaythefineinordertopromptlyresolvethematterandtoenableED  tofinalizeitsreviewoftheapplicationforachangeinownership.HCONpaidthefineinDecember2015. State Regulatory Agencies Manystatesrequireinstitutionsofhighereducationtoreportorobtainapprovalofcertainchangesinowner - shiporotheraspectsofinstitutionalstatus,butthetypesofandtriggersforsuchreportingorapprovalvary  amongstateregulatoryagencies.Manystatesincludethesaleofacontrollinginterestofcommonstockinthe  definitionofachangeincontrolrequiringapproval.Achangeincontrolunderthedefinitionsofastateagency  thatregulatesusmayrequireustoobtainapprovalofthechangeinownershipandcontrolinordertomaintain  ourstateapproval.Undercertaincircumstances,WVHEPCandtheSCHEVmayrequireustoseekapprovalof  changesinownershipandcontrolinordertomaintainAPUS’sstateauthorizationorlicensure. Wewererequiredtoseek,andweobtained,approvalfromtheOhioStateBoardofCareerCollegesandSchools  andtheOhioDepartmentofHigherEducationforthechangeinownershipandcontrolofHCON.Inthefuture,  ifweattempttoacquireotherinstitutions,thestatesregulatingthetargetinstitutionsmayrequireustoseek  approval,whichmayormaynotbegranted. 52 American Public Education, Inc. Accreditors Manyaccreditingagenciesrequireinstitutionsofhighereducationtoreportorobtainapprovalforcertain  changesinownershiporotheraspectsofinstitutionalstatus,butthetypesofandtriggersforsuchreportingor  approvalvaryamongstatesandaccreditingagencies. HLC,theaccreditingagencyforAPUS,requiresHLCaccreditedinstitutionstoinformHLCinadvanceofany  substantivechange.ExamplesofsubstantivechangesrequiringadvancenoticetoHLCincludechangesinthe  legalstatus,ownership,orformofcontroloftheinstitution,suchasthesaleofafor-profitinstitution.HLCmust  approveasubstantivechangeinadvanceinordertoincludethechangeintheinstitution’saccreditationstatus.  HLCalsorequiresanon-siteevaluationwithinsixmonthstoconfirmtheappropriatenessoftheapproval. Pursuanttopoliciesadoptedin2009and2010,HLCoversightextendstodefinedchangesthatoccurinan  institution’sparentorcontrollingentity,andnotnecessarilyintheinstitutionitself.Actionsby,orrelatingto,an  accreditedinstitution,includingasignificantacquisitionofanotherinstitution,significantchangesinboardcom - positionororganizationaldocuments,andaccumulationsbyonestockholderofgreaterthan25%ofthecapital  stockcouldtriggeradditionalreviewsoftheinstitutionandpossiblechangefromaccreditedstatustocandidate  status,whichenhancestherisksassociatedwiththesetypesofactions.Inparticular,achangefromaccredited  statustocandidatestatuscouldadverselyimpactaninstitution’sabilitytoparticipateinTitle IVprograms. ACICS,theaccreditingagencyforHCON,requiresACICS-accreditedinstitutionstoinformACICSinadvanceof  anysubstantivechange.ExamplesofsubstantivechangesrequiringadvancenoticetoACICSincludechanges  inthelegalstatus,formofcontrol,orownershipoftheinstitution.AninstitutionmustnotifyACICSofachange  ofownershipatleast15daysbeforeconsummatingtheproposedchange,andACICSmustacttoreinstatethe  institution’saccreditationstatusafterthechangeofownership.ACICSalsorequiresanon-siteevaluationwithin  sixmonthstoconfirmtheappropriatenessoftheapproval.HCONtimelynotifiedACICSoftheNovember 1,  2013changeofownership,andonDecember20,2013,ACICSgrantedtoHCONareinstatementofaccreditation  throughDecember 31,2016,effectivefromthedateofthechange.ACICSconductedon-sitequalityassurance  visitsinthesummerof2014andfoundHCONtobeincompliancewithaccreditationcriteria.Duringthefirst  quarterof2016,ACICSconductedasitevisitateachofHCON’scampusesaspartofACICS’evaluationofHCON’s  renewalofaccreditationapplication. Shouldweattempttoenterintotransactionswithinstitutionsaccreditedbyotheraccreditors,wewouldbe  requiredtofollowtherequirementsofsuchaccreditors.Ourmanagementmaynothaveexperiencewiththe  accreditorsofthetargetinstitution,whichwouldincreasetherisksrelatedtosuchatransactionandmanage - mentoftheinstitutionsubsequenttothetransaction. Other Agencies Pursuanttofederallawprovidingbenefitsforveteransandreservists,APUSisapprovedforeducationof  veteransandmembersoftheselectivereservesandtheirdependentsbythestateapprovingagenciesinWest  VirginiaandVirginia.ProgramsateachofHCON’scampusesareapprovedforVAbenefitsbythestateapprov - ingagencyinOhio.Incertaincircumstances,stateapprovingagenciesmayrequireaninstitutiontoobtain  approvalforachangeinownershipandcontrol.ThestateapprovingagencyinOhioapprovedtheNovember 1,  2013changeofownershipofHCON.However,thereisnoguaranteethatrelevantstateapprovingagencieswill  approvefuturetransactions. Restrictions on Adding Locations and Educational Programs EDmay,asaconditionofcertificationtoparticipateinTitle IVprograms,requirepriorapprovalofnewcampus  locations,programsorotherwiserestrictthenumberofprogramsaninstitutionmayadd.ED’sregulationsalso  2015 Annual Report 53 requirethatitapproveanychangeinownershipresultinginachangeofcontrol.Asdescribedabovein“Change  inOwnershipResultinginaChangeofControl,”HCONwasdeemedtohaveundergoneachangeofownership  andcontrolonNovember 1,2013requiringreviewbyEDinordertoreestablisheligibilityandcontinuepartic - ipationinTitle IVprograms.InJanuary2016,wereceivedaletterfromEDapprovingthechangeinownership  andcontrolofHCONandgrantingHCONprovisionalcertificationtoparticipateintheTitle IVprogramsuntil  December 31,2018.HCONreceivedafullyexecutedProvisionalProgramParticipationAgreement,orPPPA,in  February 2016.Whileprovisionallycertified,HCONoperatesunderthePPPA,whichrequiresHCONtoapplyfor  andreceiveapprovalfromtheSecretaryofEducationbeforeinitiatinganysubstantialchanges,suchasestab - lishinganadditionallocationatwhichatleast50%ofaneligibleprogramwillbeofferedandTitle IVprogram  fundswillbedisbursed,offeringacademicprogramsathigherthanthebachelor’sdegreelevel,oraddinganew  educationprogram. TheHEArequiresproprietaryinstitutionsofhighereducationtobeinfulloperationfortwoyearsbeforequal - ifyingtoparticipateinTitle IVprograms.However,theapplicableregulationsinmanycircumstancespermitan  institutionthatisalreadyqualifiedtoparticipateinTitle IVprogramstoestablishadditionalcampuslocations  thatareexemptfromthetwo-yearrule.Thenewcampuslocationmustsatisfyallotherapplicablerequirements  forinstitutionaleligibility,includingapprovaloftheadditionalcampuslocationbytherelevantstateauthorizing  agencyandtheinstitution’saccreditingagency.ED’sregulationsalsorequireinstitutionstoreportand,incer - taincases(suchaswhenaninstitutionisprovisionallycertified),toseekapprovalforanewadditionalcampus  locationatwhichatleast50%ofaneligibleprogramwillbeofferediftheinstitutionwantstodisburseTitle IV  programfundstostudentsenrolledatthatlocation.Institutionsareresponsibleforknowingwhethertheyneed  approval,andinstitutionsthataddlocationsanddisburseTitle IVprogramfundswithouthavingobtainedany  necessaryapprovalmaybesubjecttoadministrativerepaymentsandothersanctions.UnderthePPPA,HCON  mustobtainEDapprovalfortheadditionofanyadditionallocationatwhichatleast50%ofaneligibleprogram  willbeofferedandTitle IVprogramfundswillbedisbursed. Afullycertifieddegree-grantinginstitutiongenerallyisnotobligatedtoobtainED’sapprovalofanadditional  programleadingtoadegreeatthesamelevelpreviouslyapprovedbyED.Similarly,afullycertifiedinstitution  generallyisnotrequiredtoobtainadvanceapprovalforanewprogramthatbothpreparesstudentsforgainful  employmentinthesameorrelatedrecognizedoccupationasaneducationalprogramthathaspreviouslybeen  designatedasaneligibleprogramatthatinstitutionandmeetscertainminimum-lengthrequirements.However,  asaconditionofcertificationtoparticipateinTitle IVprograms,EDcouldrequirepriorapprovalofsuchpro - gramsorotherwiserestrictthenumberofprogramsaninstitutionmayadd.Intheeventthataninstitutionis  requiredtoobtainED’sapprovalfortheadditionofanewprogram,failstodoso,anderroneouslydetermines  thattheneweducationalprogramiseligibleforTitle IVprogramfunds,theinstitutioncouldbeliableforrepay - mentofTitle IVprogramfundsreceivedbytheinstitutionorstudentsinconnectionwiththatprogram. Recent Legislative and ED Activity Federal Legislative Activity Asaresultofbudgetarypressures,Congresshasenactedseveralpiecesoflegislationthatimpactthefunding  ofTitle IVandothertuitionassistanceprograms.Duetothesubstantialamountoffederalfundsdisbursedto  schoolsthroughTitle IVprograms,thelargenumberofstudentsandinstitutionsparticipatinginthesepro - grams,andsignificantpoliticalinterestinthecostofeducation,Congresscontinuestoshowinterestinregula - tionandoversightofinstitutionsofhighereducation,especiallythosethatarefor-profit. 54 American Public Education, Inc. Sequestration and Budgetary Matters OnAugust 2,2011,CongresspassedtheBudgetControlActof2011whichputintoplaceaseriesofautomatic  federalbudgetcuts,knownassequestration.Thebudgetcuts,orsequestration,impactcertainfederalstudent  aidprograms.WhilethePellGrantprogramwasspecificallyexemptedfromtheeffectsofsequestrationinfiscal  year2013andtheFiscalYear2016OmnibusAppropriationsBillincreasedthemaximumawardto$5,915inthe  2016–2017awardyear,thePellGrantprogramcouldbesubjecttocutsorchangesinthefuture.Whileseques - trationdoesnototherwisechangetheamountortermsorconditionsofDirectLoanProgramloans,including  StaffordLoansandPLUSLoans,itraisestheloanfeepaidbyborrowersforDirectLoanProgramloansdisbursed  afterMarch 1,2013.CutstoED’sadministrativebudgetcouldleadtodelaysinstudenteligibilitydeterminations,  anddelaysinoriginationandprocessingoffederalstudentloans. AftersequestrationtookeffectinMarch 2013,theArmy,AirForce,CoastGuard,andMarineCorpsannounced  thesuspensionoftheirtuitionassistanceprograms.Congresssubsequentlyapprovedlegislationrequiring  DoDtorestoreitstuitionassistanceprograms.InOctober 2013,theDoDtuitionassistanceprogramswere  againtemporarilysuspendedasaresultoftheU.S.governmentpartialshutdown.Eachbranchofthemilitary  restoreditstuitionassistanceprogramthroughfiscalyear2014.Asaresultofcontinueduncertaintyaboutthe  availabilityoffunding,severalofthemilitarybranchesannouncedchangestotheirtuitionassistanceprograms  thattookeffectinfederalfiscalyear2014.Forexample,theAirForceisnolongerauthorizingtuitionassistance  forassociate’sdegreesiftheservicememberalreadyhasanassociate’sdegreefromtheCommunityCollegeof  theAirForce,theArmynowrequiresservicememberstocompleteoneyearofserviceaftergraduationfrom  AdvancedIndividualTraininginordertobeeligiblefortuitionassistance,theArmyhasreducedthetotalbene - fitperservicememberperyearfrom$4,500to$4,000,andtheMarineCorpsnowrequiresMarinestohave24  monthsonactivedutypriortobeingeligibletoapplyforTA.InOctober 2015,theCoastGuardrestoredtuition  assistancefundingto$250persemesterhour,anincreasefromthepreviouscapof$187.50persemesterhour  whichwasimplementedin2014.Additionalchangestothetuitionassistanceprogramscouldoccur,including  duetoCongressionalactionorDoDpolicyandfundingchanges. Higher Education Act TheHEAmustbeperiodicallyreauthorizedbytheU.S.CongressandeachTitle IVprogrammustbefunded  throughappropriationsactsonanannualbasis.Themostrecentcomprehensivereauthorizationoccurredin  2008whenCongressreauthorizedmostHEAprogramsthroughthe2014federalfiscalyearbypassingtheHEOA.  AlthoughthecurrentHEAauthorizationexpiredattheendofthe2014federalfiscalyear,theConsolidatedand  FurtherContinuingAppropriationsAct,2015extendedfundingforTitle IVprogramsthroughSeptember 30,2016. CongresscontinuestodiscussreauthorizationoftheHEA.AmendmentstotheHEAcouldoccurduringreau - thorization,whichcouldrequireustomodifyourbusinesspracticesandincreaseadministrativecosts,thereby  negativelyimpactingourresultsofoperations. Regulatory Activity ED’s Accreditation Initiative OnNovember 6,2015,EDannouncedseveralexecutiveactionstoincreasetransparencyandrigorinaccred - itation.EDannouncedthelaunchofanewEDwebsiteonwhichithaspublishedeachaccreditor’scurrent  standardsrelatedtostudentoutcomesandstudentandinstitutionalmetrics.EDwillrequireallaccreditorsto  forwardtoEDprobationdecisionletters,thepubliclyreleasableportionsofwhichEDwillpublishonitsweb - site.EDalsoannouncedtherequestofareportonstrategiestoimproveinformationcoordinationbetween  andamongaccreditorsandED.EDannouncedthatitwillensuredecision-makersintheaccreditorrecognition  2015 Annual Report 55 process,suchasmembersofNACIQI,haveinformationincludingoutcomesdata,stateandfederallitigation  reports,andotherinformationabouteachagency’sschools.Acknowledgingthatitsauthorityrelatedtoaccred - itationandstudentoutcomesisrestrictedundertheHEA,EDalsomadeseveralproposalsforlegislativechange  relatedtoaccreditation. ED’s Student Aid Enforcement Unit OnFebruary 8,2016,EDannouncedthecreationofaStudentAidEnforcementUnittoenableEDto  respondmorequicklyandefficientlytoallegationsofillegalactionsbyhighereducationinstitutions.The  EnforcementUnitwillconsistoffourdivisions,includinganInvestigationsGroup,aBorrowerDefenseGroup,  anAdministrativeActionsandAppealsServiceGroup,andaCleryGroup.TheEnforcementUnitwillcollabo - ratewithpartnerstateandfederalagenciestoenforceviolationsoflaw.TheEnforcementUnitwillalsowork  withED’sProgramComplianceUnittoreviewevidencethatmayaffectprogramreviews.Thecreationofthe  EnforcementUnitisdesignedtoensurethatEDcansupportmorereviewsofwhatitreferstoas“high-risk  institutions,”respondtoconcernsraisedbystates’andotherfederalagencies’investigations,andrespond  tocomplaintsandclaimsforloanforgivenessbystudents.TheEnforcementUnitwillbeledbyalawyerwho  mostrecentlyledtheFTC’sconsumerprotectionunit.Aspartofthe2017budget,thePresidentisrequesting  $13.6 millioninadditionalfundstostrengthenED’senforcementandoversightactivities.EDhasindicatedthat  thenewInvestigationsGroupwillutilizeabroadsetofinterventionsandtools,includingsubpoenaauthority,  documentdemands,andinterrogatoriesandinterviewstoenforceagainstviolationsoffederallaw. Pending Federal Rulemakings OnJuly 9,2015,EDpublishedanNPRMthatproposestoamendtheregulationsgoverningtheFederalDirect  LoanProgramtocreateanewincome-contingentrepaymentplaninaccordancewiththePresident’sinitiative  toallowmoreFederalDirectLoanborrowerstocaptheirloanpaymentsat10%oftheirmonthlyincomes.In  addition,theregulationsproposetostreamlineandenhanceexistingprocessesandprovideadditionalsupport  tostrugglingborrowers,including,amongotherthings,establishingnewproceduresforFFELProgramloan  holderstoidentifyservicememberswhomaybeeligibleforbenefitsundertheServicemembersCivilReliefAct.  Also,theproposedregulationswouldexpandthecircumstancesunderwhichaninstitutioncouldchallengeor  appealadraftorfinalcohortdefaultrate.WecannotpredicttheextenttowhichanyrulespromulgatedbyED  willimpactourinstitutions,norcanwepredictpossibleregulatoryburdensandcosts. The States Asdiscussedabovein“ConsumerProtection—OtherIssuesRelatedtoConsumerProtectionandComplaints,”  manystateshavebecomemoreactiveinregulatingproprietaryeducationfromaconsumerprotectionperspec - tive,specificallyinregardstoenforcementofconsumerprotectionlawsandimplementationofnewregulations  bystateattorneysgeneral.Sinceourinstitutionsoperateinmanyjurisdictionsourinstitutionsmaybesubjectto  regulationspromulgatedbyavarietyofregulators. 56 American Public Education, Inc. Item 1A. Risk Factors Investing in our common stock involves a high degree of risk. Before making an investment in our common stock, you should carefully consider the following risks, as well as the other information contained in this Annual Report, includ- ing our “Financial Statements and Supplementary Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Any of the risk factors described below could significantly and adversely affect our business, financial condition, operating results, cash flows, and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also adversely affect our business, financial condition, operating results, cash flows, and prospects. As a result of the risks and uncertainties described below as well as such additional risks and uncertainties, the trading price of our common stock could decline, and you may lose all or part of your investment. Risks Related to Our Business The ability of active duty service members to enroll in APUS’s courses can be impacted by factors that we do not anticipate, which can impact APUS’s registrations and make it more difficult for us to accurately forecast expected enrollment. Duetothevariabilityofmilitaryactivityandotherfactorsoverwhichwehavenocontrol,attimesitmaybe  difficulttopredictAmericanPublicUniversitySystem’s,orAPUS’s,militaryenrollments.Forexample,beginning  withregistrationsforthethirdquarterof2010,growthofournetcourseregistrationsfromactivedutyservice  membersslowedmorethanweexpected.Whilewedonotknowallofthefactorsthatcausedthistooccur,we  believethatthechangeswesawinnetcourseregistrationsfromstudentswhoareactiveservicemembersin  theUnitedStatesArmedForceswereinpartduetoincreasedoperationsactivityandoverseasdeployments  acrossallbranchesofthemilitary,particularlythelevelofactivityintheUnitedStatesMarineCorps.Webelieve  thatincreaseddemandsonmanyactivedutyservicemembers,combinedwithlimitedinternetaccessasso - ciatedwithsomedeployments,impactedtheabilityofcertainactivedutymilitarystudentstopursuehigher  educationin2010.Additionally,inDecember2015,theU.S.Armyimplementeditsnewenrollmentmanagement  toolthatmembersoftheArmymustusetoaccesstheUniformTuitionAssistanceProgramoftheDepartment  ofDefense,orDoDtuitionassistanceprograms.MembersoftheArmyexperiencedvariousissueswiththenew  enrollmentmanagementtool,includingdifficultyselectingAPUSasaninstitution.Webelievethattheissues  encounteredwiththenewenrollmentmanagementtoolmaynegativelyimpactAPUS’senrollmentsandnet  courseregistrationsduring2016.Theoccurrenceoftheseorotherfactorsinthefuturecouldmakeitmoredif - ficulttopredictenrollments.AnydeclineinAPUSenrollmentsfromactivedutymilitarystudentscouldhavean  adverseimpactonourtotalnetcourseregistrationsandrevenue. Tuition assistance programs offered to service members of the United States Armed Forces constituted approximately 35% of APUS’s adjusted net course registrations for 2015, and our revenue and number of students would decrease if APUS is no longer able to receive funds under these tuition assistance programs or if tuition assistance is reduced, eliminated, or temporarily suspended. ServicemembersoftheUnitedStatesArmedForcesareeligibletoreceivetuitionassistancefromtheirbranch  ofservicethroughtheDoDtuitionassistanceprograms.ServicemembersmayuseDoDtuitionassistance  programstopursuepostsecondaryeducationatinstitutionsthatareaccreditedbyanaccreditingagency  recognizedbytheU.S.SecretaryofEducationandthatsatisfyotherrequirements,includingexecutionof,and  compliancewith,aMemorandumofUnderstandingthatspecifiestermsandconditionsofparticipationinDoD  tuitionassistanceprograms.AsignificantportionofAPUSstudentsrelyonDoDtuitionassistanceprogramsto  payfortheireducation.Theseprogramsconstitutedapproximately35%ofAPUS’sadjustednetcourseregistra - tionsfor2015.Atthistime,HCONdoesnotparticipateinDoDtuitionassistanceprograms. 2015 Annual Report 57 EventemporarysuspensionsofDoDtuitionassistanceprogramsadverselyaffectouroperations.InMarch 2013,  inresponsetoautomatic,across-the-boardreductionsinfederalspending(alsoknownas“sequestration”),  eachofthemilitaryservicessuspendednewenrollmentsinDoDtuitionassistanceprograms.Asaresult  ofCongressionalaction,eachoftheservicesreinstatedenrollmentsinDoDtuitionassistanceprogramsin  April 2013.However,ourresultsofoperationsinthesecondquarterof2013werenegativelyimpactedbythese  actions,resultinginwhatwebelievewerefewerenrollmentsfromservicemembersthanotherwisewouldhave  beenexpected.InOctober 2013,DoDtuitionassistanceprogramsweretemporarilysuspendedasaresultof  theU.S.federalgovernmentpartialshutdown.OnOctober 1,2013,priortothegovernmentshutdown,APUS  courseregistrationsforOctober 2013wereapproximately41,200.AsofOctober 14,2013,however,approxi - mately13,100registrationshadbeendropped,resultinginanetcourseregistrationreductionofapproximately  20%comparedtoOctober 2012.Webelievethatmanyofthesedroppedregistrationsresultedfromthesus - pensionofDoDtuitionassistanceprograms.AlthoughDoDresumeditstuitionassistanceprogramsafterthe  governmentshutdownended,wedonotbelievethattheregistrationsforsubsequentmonthsservedtoreplace,  ormakeup,alloftheregistrationsthathadbeendropped.TheU.S.Congresshaspassedlegislationtoextend  governmentfundingfortheDoDthroughSeptember 30,2016;however,iffundingisnotextendedbeyondthat  date,anothergovernmentshutdowncouldoccur,resultinginanothersuspensionofDoDtuitionassistance  programs.AnyfuturegovernmentshutdownorsuspensionofDoDtuitionassistanceprogramscouldhavea  materialadverseeffectonouroperations. WhileDoDtuitionassistanceprogramswerereinstatedandthegovernmentshutdownended,budgetarypres - suresremain,andwedonotknowthefullscaleoffutureactionsthatmaybetakenwithrespecttoDoDtuition  assistanceprograms,whichcouldincludeeliminatingthoseprograms,reducingthefundsorbenefits(orboth)  availableunderthoseprogramsorenactingnewrestrictionsonparticipationinthoseprograms.Iffundsavail - ableunderDoDtuitionassistanceprogramsarereducedoreliminated,webelievethatmostservicemembers  wouldbeeligibleandabletofinanceout-of-pockettuitioncostsresultingfromthisshortfallusingtheirbenefits  undertheMontgomeryGIBillorthePost-9/11VeteransEducationalAssistanceActof2008,asamended,orthe  Post-9/11GIBill,throughthe“Top-Up”program.The“Top-Up”programallowsactive-dutyservicemembers  tousetheirGIBillorPost-9/11GIBillbenefitstopaythedifferencebetweenthetotalcostofacollegecourse  andtheamountofDoDtuitionassistancethatispaidbythemilitaryforthecourse.However,wedonotknow  whetherinthelong-termservicememberswouldbewillingtousetheTop-Upoption,orwhethertheincreased  administrativeprocessinusingtheTop-Upoptionorcoveringtheshortfallthroughotherfundingsourceswould  leadtoservicemembersdecidingnottoenrollortoenrollataslowerrate. OtheradministrativechangestoDoDprogramscouldalsohavenegativeeffectsonourenrollments.Forexam - ple,inMarch 2013,DoDissuedaninstructionrestrictingtheabilityofservicemembersincertainoverseasduty  locationsoutsidethecontinentalUnitedStates,oroverseaslocations,toreceiveDoDtuitionassistancefor  coursesofferedbyinstitutionsofhighereducationthatarenotpartiestocontractswiththeDoDtoprovideDoD  voluntaryeducationprogramsatthoselocations.BecausewedonothaveacontractwiththeDoDtoprovide  instructionatoverseaslocations,servicememberswhobeginapostsecondaryeducationprogramafterarrival  atanapplicableoverseasdutylocationmaynotuseDoDtuitionassistanceprogramstopayfortheireducation  inourprogramsuntilaftertheyhavesuccessfullycompletedacoursewithaninstitutionthathasacontractto  providevoluntaryeducationprogramsatthatoverseaslocation.Servicememberswhowerealreadyenrolledin  oneofourprogramsbeforearrivingatanoverseasdutylocationmaycontinuetoreceiveDoDtuitionassistance  forthein-progressprogram,buttheywillbeencouragedtoenrollincoursesprovidedbyinstitutionsthathave  enteredintoacontractwiththeDoDtoprovideprogramsattheapplicableoverseasdutylocation. WearenotabletoestimatetheeffectoffutureexpectedchangestoDoDtuitionassistanceprogramsor  whethertheserviceswouldimposeothercriteriainadditiontothelevelofreimbursementthatwouldimpact  58 American Public Education, Inc. enrollmentsfromservicemembers.ChangestotheDoDtuitionassistanceprogramshavealreadyoccurred  andweexpectchangestotheprogramsinthefuture.Forexample,theAirForceisnolongerauthorizingtuition  assistanceforassociate’sdegreesiftheservicememberalreadyhasanassociate’sdegreefromtheCommunity  CollegeoftheAirForce,theArmynowrequiresservicememberstocompleteoneyearofserviceaftergradu - ationfromAdvancedIndividualTraininginordertobeeligiblefortuitionassistance,theArmyhasreducedthe  totalbenefitperservicememberperyearfrom$4,500to$4,000,andtheMarineCorpsnowrequiresMarinesto  have24monthsonactivedutypriortobeingeligibletoapplyforTuitionAssistance.InOctober 2015,theCoast  Guardrestoredtuitionassistancefundingto$250persemesterhour,anincreasefromthepreviouscapof  $187.50persemesterhourwhichwasimplementedin2014.Additionalchangestothetuitionassistancepro - gramscouldoccurduetoCongressionalactionorDoDpolicyandfundingchanges. WearealsonotabletoestimatetheresponsesthatourcompetitorswouldtaketoreducedDoDtuitionassistance paymentsorthewillingnessofservicememberstousetheirTop-UpoptionorotherU.S.DepartmentofVeterans Affairs,orVA,educationbenefits.Inthisregard,ourcompetitors,particularlythosewithlargerstudentpopula- tionsorasmallerconcentrationofstudentsfromthemilitary,maybebettersituatedtolowerthecostoftuition forservicemembers.IfwearenolongerabletoreceivefundsfromDoDtuitionassistanceprograms,orifthose programsarereduced,eliminated,ortemporarilysuspended,ourenrollmentsandrevenuecouldbesignificantly reduced,whichwouldresultinamaterialadverseeffectonourresultsofoperationsandfinancialcondition. The DoD’s revised Memorandum of Understanding includes terms and conditions that impose extensive new regulatory requirements on APUS with respect to participation in DoD tuition assistance programs. UnderaDoDfinalrule,effectiveJanuary7,2013,eachinstitutionparticipatinginDoDtuitionassistancepro - gramsisrequiredtosignaMemorandumofUnderstanding,orMOU,outliningcertaincommitmentsand  agreementsbetweentheinstitutionandDoDpriortoacceptingfundsfromDoDtuitionassistanceprograms.  OnMay 15,2014,DoDpromulgatednewregulationsandarevisedMOU,the2014MOU.OnJuly 7,2014,DoD  releasedrevisionstothe2014MOU.Institutionswererequiredtosignthe2014MOUonorbeforeSeptember 5,  2014inordertocontinuetoparticipateinDoDtuitionassistanceprograms.APUSsignedthe2014MOUand  continuestoparticipateintheDoDtuitionassistanceprogramsubjecttoitsterms.HCONdoesnotparticipate  inDoDtuitionassistanceprogramsandthereforehasnotsignedthe2014MOU;however,HCONmayparticipate  inDoDtuitionassistanceprogramsinthefutureandwouldbecomesubjecttotheDoDrequirementsrelatedto  tuitionassistanceprogramsandassociatedrisksatthattime.The2014MOUcontainsmanyrequirementsand  limitationsthatwerenotcontainedinpreviousMOUstowhichAPUSwasaparty.Pursuanttothe2014MOU,  amongotherrequirements,institutionsmust:explaincertainDepartmentofEducation,orED,andConsumer  FinancialProtectionBureau,orCFPB,toolstoservicemembers,suchasED’s“CollegeNavigator”websiteandthe  CFPB’s“PayingforCollege”website;complywithrequirementsrelatedtoreadmissionpoliciesforservicemem - bers;abidebynewlimitationsontheuseoffundsderivedfromtuitionassistanceprograms;provideadditional  academicandstudentsupportservices;discloseinformationabouttransferofcredit;incertaincircumstances,  returntuitionassistanceprogramfundstoDoD(suchaswhenastudentceasestoattendoraninstitution  cancelsacourse);offertoservicemembersloancounselingbeforeprivatestudentloansareofferedorrecom - mended;andcomplywithED’sTitle IV“programintegrity”rules,includingrulesrelatedtoincentivepayments  andmisrepresentation.The2014MOUalsoprovidesthataninstitutionmayonlyparticipateinDoDtuition  assistanceprogramsifitisaccreditedbyanaccreditingagencyrecognizedbyED,approvedforVAfunding,and  aparticipantinTitle IVprograms.WecannotpredicthowDoDwillinterpretandenforcetheserequirementsor  whattypeofimmediatesanctions,ifany,willbeimplementedbeforeaninstitutionlosestheabilitytopartici - pateinDoDtuitionassistanceprogramsforfailuretocomplywithcertainprovisionsofthe2014MOU.Ifwefail  tocomplywiththerequirementsofthe2014MOU,wewillnotbeabletoparticipateinDoDtuitionassistance  programs,whichcouldhaveasignificantadverseeffectonourresultsofoperationsandfinancialcondition. 2015 Annual Report 59 If APUS does not maintain continued strong relationships with various military bases and educational service officers, and if APUS is unable to expand the use of articulation agreements, our future growth may be impaired. APUShasnon-exclusivearticulationagreementsormemorandaofunderstanding(separatefromthe2014  MOU)withvariouseducationalinstitutionsoftheUnitedStatesArmedForcesandothergovernmentaleduca - tionprograms.Articulationagreementsandmemorandaofunderstandingareagreementspursuanttowhich  weagreetoawardacademiccreditstowardourdegreesforlearningineducationalprogramsofferedbyothers.  Additionally,APUSreliesonrelationshipswitheducationalserviceofficesonmilitarybasesandbaseeducation  officerstodistributeinformationaboutAPUStointerestedservicemembers.WhileAPUS’sinteractionswith  educationserviceofficesandmilitarybasesaregovernedbythetermsandconditionsofthe2014MOU,theDoD  alsoissuesbriefingsfromtimetotimethatimpacttheseinteractions.Inrecentyears,includingasaresultof  DoDinstructionsorbriefings,ithasbecomeincreasinglydifficulttomaintainrelationshipswitheducationser - viceofficersandaccessmilitarybases,includingbecausetheDoDhasissuedbriefingsthatspecificallyprohibit  authorizingregularorrecurringofficehoursforaneducationalinstitutiontosolelyprovidecounselingandthat  prohibitallowingformermilitarymemberstoaccessinstallationstorepresentaneducationalinstitutionusing  theirgovernmentIDcardprivileges.IfAPUS’srelationshipswitheducationalserviceofficesorbaseeducation  counselorsdeteriorateorend,orouraccesstobasesisfurtherrestricted,oureffortstorecruitstudentsfrom  thosebasescouldbeimpaired,andourresultsofoperationsandfinancialconditioncouldbemateriallyand  adverselyaffected.IfAPUS’sarticulationagreementsandmemorandaofunderstandingareeliminatedthis  couldalsomateriallyandadverselyaffectourresultsofoperationsandfinancialcondition. OnMarch 14,2013,DoDissuedaninstructionrestrictingtheabilityofservicemembersincertaindutyloca - tionsoutsidethecontinentalUnitedStates,oroverseaslocations,toreceiveDoDtuitionassistanceforcourses  offeredbyinstitutionsofhighereducationthatarenotpartiestocontractswiththeDoDtoprovideDoDvolun - taryeducationprogramsatthoselocations.BecausewedonothavecontractswiththeDoDtoprovideinstruc - tionatoverseaslocations,servicememberswhobeginapostsecondaryeducationprogramafterarrivalinan  applicableoverseasdutylocationmaynotuseDoDtuitionassistanceprogramstopayfortheireducationin  ourprogramsuntilaftertheyhavealreadysuccessfullycompletedacoursewithaninstitutionthathasentered  intoacontracttoprovidevoluntaryeducationprogramsatthatoverseaslocation.Servicememberswhowere  alreadyenrolledinoneofourprogramsbeforearrivingatanoverseasdutylocationmaycontinuetoreceive  DoDtuitionassistanceforthein-progressprogram,buttheywillbeencouragedtoenrollincoursesprovided  byinstitutionsthathaveenteredintocontractswiththeDoDtoprovideprogramsattheapplicableoverseas  dutylocation. Furthermore,the2014MOUandtherelatedincreasedfocusbytheDoDonrelationshipsandoversightofedu - cationalproviders,oradditionalnewDoDinstructionsorbriefings,couldleadtofurtherchangesinthenature  ofourrelationshipswithmilitarybasesandeducationalserviceofficers,whichcouldbeadverseinnature. Our business could be harmed if our institutions experience a disruption in their ability to process Title IV financial aid. Wecollectedasubstantialportionofourfiscalyear2015consolidatedrevenuefromreceiptofTitle IVfinancial  aidprogramfunds.AnyprocessingdisruptionsbyED,byourinstitutions,orbythird-partyserviceproviders  mayimpacttheabilityofourinstitutions’studentstoobtainTitle IVfinancialaidonatimelybasis.Ifourinsti - tutionsexperienceadisruptionintheirabilitytoprocessTitle IVfinancialaid,eitherbecauseofadministrative  challengesontheirpartorthepartoftheirvendors,ortheinabilityofEDtoprocessTitle IVfundsonatimely  basis,itcouldhaveamaterialadverseeffectonourinstitutions’businessandonourfinancialcondition,results  ofoperationsandcashflows. 60 American Public Education, Inc. As part of our business strategy, we have entered into, and may enter into or seek to enter into, business combinations and acquisitions that may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention. OnNovember 1,2013,wecompletedouracquisitionofNationalEducationSeminars,Inc.,whichwerefertoas  HondrosCollegeofNursing,orHCON.Wemayseektoenterintoadditionalbusinesscombinationsoracquisi - tionsinthefuture.Acquisitionsaretypicallyaccompaniedbyanumberofrisks,including: • difficultiesconsolidatingoperationsandintegratinginformationtechnologyandothersystems,aswellasthe  inabilitytomaintainuniformstandards,controls,policiesandprocedures; • distractionofmanagement’sattentionfromnormalbusinessoperationsduringtheacquisitionandintegra - tionprocesses; • inabilitytoobtain,ordelayinobtaining,approvaloftheacquisitionfromthenecessaryregulatoryagencies,or  theimpositionofoperatingrestrictionsoraletterofcreditrequirementonusorontheacquiredinstitution; • challengesrelatingtoconformingnon-compliantfinancialreportingprocedurestothoserequiredofasubsidi - aryofaU.S.reportingcompany,includingproceduresrequiredbytheSarbanes-OxleyAct; • expensesassociatedwiththeintegrationefforts;and • unidentifiedissuesnotdiscoveredintheduediligenceprocess,includinglegalcontingencies. Anyinabilitytointegratecompletedacquisitionsinanefficientandtimelymanner,includingtheHCONacqui - sition,couldhaveanadverseimpactonourresultsofoperations.Further,acquisitionshaveresultedinus  recordinggoodwillandmayagaininthefuture.Ifsuchacquisitionsarenotsuccessful,ourgoodwillmaybecome  impaired,whichwouldhaveanadverseimpactonourfinancialcondition.Inaddition,ouracquisitionofan  educationalinstitutioncouldbeconsideredachangeinownershipandcontroloftheacquiredinstitutionunder  applicableregulatorystandards,asintheHCONacquisition.Forsuchanacquisition,wemayneedapproval  fromED,applicablestateagenciesandaccreditingagencies,andpossiblyotherregulatorybodies.Ourinability  toobtainsuchapprovalswithrespecttoacompletedacquisitioncouldhaveamaterialadverseeffectonour  business,financialcondition,resultsofoperationsandcashflows.Ifwearenotsuccessfulincompletingacqui - sitions,wemayincursubstantialexpensesanddevotesignificantmanagementtimeandresourceswithouta  productiveresult.Inaddition,futureacquisitionscouldresultindilutiveissuancesofsecuritiesorcouldrequire  useofsubstantialportionsofouravailablecash,asintheHCONacquisition,orissuancesofdebt,whichcould  adverselyaffectourfinancialcondition. We have recently announced an organizational realignment, and challenges encountered due to the realignment may cause strategic or operational challenges and adversely impact us. OnDecember14,2015,APUS,issuedapressreleaseannouncingthatithadcommencedasearchforanew  APUSpresidentinconnectionwithananticipatedorganizationalrealignment.Aftertheidentificationofhis  successor,APUSPresidentandCEODr.WallaceE.BostonwillfocusonhispositionasCEOofAmericanPublic  Education,Inc.,orAPEI,providingstrategicandleadershipsupporttoAPUS,HCON,andotherAPEIventures.  Thistransition,andtherelatedanticipatedorganizationalrealignment,could,amongotherthings,requirea  significantinvestmentofcapitalandhumanresourcesandmaybecostlyanddisruptivetoouroperations,  andcouldimposesubstantialdemandsonthetimeofmanagement.Thetransitionandrealignmentmayalso  require,amongotherthings,changesinoursystems,modificationofinternalcontrolproceduresandtraining  ofemployeesorthirdpartyresources.Theimpactofanystrategicoroperationalchallengeswefaceduringor  asaresultofthetransitionandrealignmentcouldadverselyaffectourbusiness,financialcondition,resultsof  operationsandcashflows. 2015 Annual Report 61 We have continued to experience increases in our institutions’ administrative and infrastructure expenses, unpredictability in our institutions’ enrollment and exposure to bad debt. AfterAPUSbeganparticipatinginTitle IVprograms,asignificantportionofitsgrowthwasattributableto  studentsusingfundsfromthoseprograms.Asaresult,APUSexperiencedachangeinthecompositionofits  studentbody,whichhasresulted,andwillcontinuetoresultinaneedtoprovideagreaterlevelofservicesto  itsstudents.TheHCONacquisitionhasfurtherchangedthecompositionofourstudentbody,increasingthe  numberofstudentsusingTitle IVprogramfunds,aswellasaddingstudentswhoattendcoursesatphysical  campuses.Ourcostsandexpenseshaveincreaseddueinparttoincreasedgeneralandadministrativeexpenses  relatedtothesechangesandprimarilyattributabletoanincreaseinexpendituresforfinancialaidprocessing,  expendituresfortechnologyrequiredtosupporttheincreaseinnon-militarystudentsatAPUS,andincreased  baddebtprimarilyassociatedwithnon-militarystudentsatAPUS.InordertosupportthenumberofAPUS  studentswenowhave,planforthefuture,andprovidethetechnologyexperienceandaccessacrossavarietyof  platformsthatwebelievestudentsandpotentialstudentshavecometoexpect,weanticipatethatwewillcon - tinuetomakesignificantinvestmentsinourtechnologyinfrastructureandfinancialaidprocessingcapabilities. WhilebaddebtfortheyearendedDecember 31,2015decreasedfromthelevelofbaddebtfortheyearended  December 31,2014,overthepastseveralyearswehaveexperiencedanincreaseinourbaddebtexpense,  particularlyatAPUS.Webelieveourhistoricalincreaseinbaddebtexpensewasprimarilydrivenbyachange  inourstudentbodyatAPUS,operationalpolicies,processingchallenges,andcollectionsmanagement.In  September 2015,APUSchangedthemethodbywhichitdisbursesTitle IVprogramfundsfromasingledisburse - mentmethodtoamultipledisbursementmethodforfirst-timeAPUSundergraduatestudents.Whilethischange  mayadverselyimpactenrollment,wearemakingthischangeinordertopotentiallylowerbaddebtexpense  andtoreducetheattractivenessofourprogramstostudentswhoareseekingtotakeimproperadvantageof  theTitle IVprograms.Wehavenoassurancethatthischangewillbesuccessfulatreducingbaddebt.Ifweare  unabletomakeappropriateimprovements,orifourimprovementsarenotaseffectiveasanticipated,ourbad  debtexpensecouldincrease,whichcouldhaveamaterialadverseeffectonourfinancialcondition,cashflows  andresultsofoperations. We rely on third-party vendors whose service may be of lower quality than ours, whose responsiveness may be less timely than ours, and whose compliance practices may increase our operational and compliance risk. Werelyonthird-partyvendorstoprovidecertainservicestoourinstitutionsandtheirstudents.Whilewe  monitorandassesstheserviceofthesevendors,itispossiblethatthequalityoftheirserviceandthetime - linessoftheirresponsesmaybelessthantheserviceandresponsivenessthatweorourinstitutionswould  provide.Thesethird-partyvendorsmaylackadequatebusinesscontinuityplanning.Usingthird-partyvendors  increasescomplianceriskthatthevendorsmaynotadequatelyprotectpersonalinformationregardingour  institutions’studentsandtheirfamilies,orthattheymaynotcomplywithapplicablefederalorstateregula - tionsapplicabletoourinstitutions’businesses.Further,transitioningfromexistingvendorsorfromin-house  processestonewprovidersinvolvesinherentrisks,includingtheriskofsignificantdisruptionsofintegral  processes.Intheeventthird-partyvendorsfailtoprovideservices,lackadequatecontinuityplanning,orfail  toprovidenecessaryimplementationortransitionservices,ourfinancialconditionandresultsofoperations  couldbeadverselyaffected. 62 American Public Education, Inc. We encountered problems related to the software and services of a third-party vendor that we used to assist with APUS’s financial aid processing, which could result in adverse regulatory actions and reputational problems and negatively affect our operating results, and we may experience risks and costs related to the transition of these services to a different third-party vendor. Inthebeginningofthethirdquarterof2013,APUStransitionedfromusingtheservicesofathird-partyservicer  toassistwiththeadministrationandmanagementofAPUS’sparticipationinTitle IVprogramstoutilizingan  internalsolutionthatrelies,inpart,onsoftwareandservicesprovidedbyathird-partyvendor.Weexperienced  unexpecteddelaysinfinancialaidprocessingasaresultofvarioussoftwareandprogrammingerrorsandlim - itations,resultinginEDrejectingcertainstudentrecords,aninabilitytodisburseTitle IVprogramfundstosome  studentsandotherrelatedissues.Whilewehadanticipatedthatinconnectionwiththetransitiontherewould  beadelayinprocessingfinancialaidforashortperiodoftime,thedelayswerelongerthanexpectedandthere  weremoreerrorsthanexpected.Inaddition,whenthedecisionwasmadetomovefinancialaidprocessing  in-houseusingsoftwaresuppliedbyathird-partyvendor,weanticipatedbeingabletoautomatecertainmanual  processes.Errorsinthesoftware,aswellaslackofexperiencewiththesoftwarebymanyofourfinancialaid  staff,requiredmanualworkoutsidethesystem,increasingthetimetoprocessTitle IVprogramfinancialaid.  APUSattemptedtoworkwiththevendortoidentifythecausesofthedelays,errorsandproblems.Manywere  resolved,butsomeremained,andAPUShadtoperformmanualworkoutsidetheautomatedsystemtoprocess  Title IVprogramfinancialaid.ThechallengeswiththeprocessingofTitle IVprogramfinancialaidledto,orcould  leadto,furtherreputationalproblems,adverseeffectsonouroperatingresults,reducedcourseenrollments,  increasedcosts,andregulatoryproblems.InApril 2015,APUSbegantotransitionitsfinancialaidprocessingto  athird-partyservicer,GlobalFinancialAidServices.APUSsubstantiallycompletedthetransitionattheendof  2015.ThereweresignificantcostsrelatingtotheimplementationofGlobalFinancialAidServices’financialaid  processingservicesandtheremaybesignificantcostsandrisksrelatedtothetransitiongoingforward.Further,  futurechallengesencounteredduetothepreviousthird-partysoftwarevendormaydivertmanagement’satten - tion,whichcouldadverselyimpactourbusiness. Wehavedescribedadditionalrisksrelatedtothissituation,Title IVcompliance,andtheuseofthird-partyser - vicersintheseRisksFactors.Thoserisksandtheissuesexplainedinthisriskfactormayhaveamaterialadverse  effectonouroperationsandfinancialcondition. We may have unanticipated tax liabilities that could adversely impact our results of operations and financial condition. WeandourinstitutionsaresubjecttomultipletypesoftaxesintheU.S.andmaybesubjecttotaxationin  thefutureinvariousforeignjurisdictions.Thedeterminationofourprovisionforincometaxesandothertax  accrualsinvolvesvariousjudgments,andthereforetheultimatetaxdeterminationissubjecttouncertainty.In  addition,changesintaxlaws,regulations,orrules,orapplicationofstatesalestaxes,mayadverselyaffectour  futurereportedfinancialresults,mayimpactthewayinwhichweconductourbusiness,ormayincreasethe  riskofauditbytheInternalRevenueServiceorothertaxauthorities.Althoughwebelieveourtaxaccrualsare  reasonable,thefinaldeterminationoftaxreturnsunderrevieworreturnsthatmaybereviewedinthefuture  andanyrelatedlitigationcouldresultintaxliabilitiesthatmateriallydifferfromourhistoricalincometaxprovi - sionsandaccruals.Inaddition,anincreasingnumberofstatesareadoptingnewlawsorchangingtheirinter - pretationofexistinglawsregardingtheapportionmentofservicerevenueforcorporateincometaxpurposes  inamannerthatcouldresultinalargerproportionofourincomebeingtaxedbythestatesinwhichwesell  services.Theselegislativeandadministrativechangescouldhaveamaterialadverseeffectonourbusinessand  financialcondition. 2015 Annual Report 63 We rely on dividends, distributions and other payments, advances and transfers of funds from our operating subsidiaries to meet our obligations and to fund acquisitions and certain investments. Werelyondividends,distributionsandotherpayments,advancesandtransfersoffundsfromouroperating  subsidiariestomeetourobligationsandtofundacquisitionsandcertaininvestments.Weconductallofour  operationsthroughoursubsidiaries,andasofDecember 31,2015,hadnosignificantassetsotherthancash,the  capitalstockofourrespectivesubsidiaries,andassetsrelatedtoseveralinvestments.Asaresult,werelyondiv - idendsandotherpaymentsordistributionsfromouroperatingsubsidiariestomeetourobligationsandtofund  acquisitionsandinvestments.Theabilityofouroperatingsubsidiariestopaydividendsortomakedistributions  orotherpaymentstousdependsontheirrespectiveoperatingresultsandmayberestrictedby,amongother  things,thelawsoftheirrespectivejurisdictionsoforganization,regulatoryandaccreditationrequirements,  agreementsenteredintobythoseoperatingsubsidiaries,andthecovenantsofanyfutureobligationsthatweor  oursubsidiariesmayincur. Having students physically present on HCON’s campuses may result in threats to student safety and other issues. Wemanageandmonitoron-the-groundoperationsatfourphysicalcampuseswhereHCONstudentsattend  coursesandparticipateineducationalactivities.Thepresenceofstudentsonphysicalcampusesrequiresus  toconsiderandrespondtoissuesrelatedtostudentsafety,security,andviolence.Failuretoprevent,orade - quatelyrespondto,threatstostudentandemployeesafetyorotherproblemscouldharmourreputation,caus - ingenrollmentandrevenuetodecline,orcouldresultincostlyandresource-intensivelitigation. WearesubjecttonewregulatoryrequirementsinconnectionwithouroperationofHCON’sphysicalcampuses.  HCONmustcomplywiththecampussafetyandsecurityreportingrequirementsaswellasotherrequirements  intheJeanneCleryDisclosureofCampusSecurityPolicyandCampusCrimeStatisticsAct,orCleryAct,includ - ingchangesmadetotheCleryActbytheViolenceAgainstWomenReauthorizationActof2013,orVAWA.The  CleryActrequiresaninstitutiontoreporttoEDanddiscloseinitsannualsecurityreport,forthethreemost  recentcalendaryears,statisticsconcerningthenumberofcertaincrimesthatoccurredonorwithintheinstitu - tion’sso-called“Clerygeography.”OnOctober 20,2014,EDpublishedafinalruleimplementingthosestatutory  changesmadetotheCleryActbyVAWA.Thefinalrulerequires,amongotherthings,thatinstitutionsmaintain  statisticsaboutthenumberofincidentsofdatingviolence,domesticviolence,sexualassault,andstalkingthat  meetthedefinitionsofthosetermsassetforthinthefinalrule;provideincomingstudentsandnewemployees  with,anddescribeintheirannualsecurityreports,theirprimarypreventionandawarenessprograms;pro - videstudentsandemployeeswith,anddescribeintheirannualsecurityreports,theirongoingpreventionand  awarenesscampaigns;andprovideadescriptionintheirannualsecurityreportsofeachtypeofdisciplinary  proceedingusedbytheinstitution,whichmustbeprompt,fair,andimpartial.Thenewregulationswereeffec - tiveJuly 1,2015.CompliancewiththesenewregulationscouldincreaseHCON’sadministrativecosts,which  wouldhaveanegativeimpactonourresultsofoperations.FailuretocomplywiththeCleryActrequirements  orregulationspromulgatedbyEDcouldresultinactionbyEDtofineourinstitutionsortolimitorsuspendour  institutions’participationinTitle IVprograms. Natural disasters or other extraordinary events may cause us to close one or more of HCON’s campuses or may cause HCON’s enrollment and revenue to decline. HCONmayexperiencebusinessinterruptionsresultingfromnaturaldisasters,inclementweather,transit  disruptionsorothereventsinoneormoreofthecitiesinOhioinwhichitoperates.Theseeventscouldcause  HCONtoclosecampusestemporarilyorpermanently.Further,aregionalornationaloutbreakofinfluenzaor  otherillnesseasilyspreadbyhumancontactcouldcauseustocloseoneormoreofHCON’scampusesforan  64 American Public Education, Inc. extendedperiodoftime.Theseeventscouldaffectstudentrecruitingopportunitiesinthoselocations,causing  enrollmentandrevenuetodecline. We have limited experience in making investments in other entities, and any such investments may not result in strategic benefits for our business or could expose us to other risks. Toassistusinachievingelementsofourbusinessstrategyortofurtherdevelopourbusinesscapabilities,from  timetotimewewillconsiderandmaypursuestrategicinvestmentsandacquisitions.Thesetransactionscould  include,amongotherthings,investmentsin,partnershipsorjointventureswith,ortheacquisitionofother  schools,serviceprovidersoreducationtechnologyrelatedcompanies,amongothertypesofentities.Investing  inanotherentityrequiresexpertiseinevaluatinganotherentity’sbusinessandidentifyingstrategicbenefits  ofapotentialinvestmentinsuchentity,amongotherexpertise.Thesetypesofinvestmentsinvolvesignifi - cantchallengesandrisks,includingthattheinvestmentdoesnotadvanceourbusinessstrategy,thatithasan  adverseeffectonourresultsofoperations,thatwedonotrealizeasatisfactoryreturnonourinvestment,that  weacquireunknownliabilities,orthatmanagement’sattentionisdivertedfromourcorebusiness.Theseevents  couldharmouroperatingresultsorfinancialcondition.Anyinvestmentsinotherentitiesmayalsosubjectus  totheoperatingandfinancialrisksofsuchentities,andwerelyontheinternalcontrolsandfinancialreporting  controlsofsuchentities. Since2012,wehavemademinorityinvestmentsinentitiesinwhichwedonothavesolecontrol,whichpresent  risksinadditiontothosethatapplytootherinvestmentsoracquisitions.Theseinvestmentsincludeourinvest - mentinaholdingcompanythatacquiredandnowoperatesNewHorizonsWorldwide,Inc.,orNewHorizons,our  investmentinpreferredstockofFidelisEducation,Inc.,orFidelisEducation,ourinvestmentinpreferredstock  ofSecondAvenueSoftware,Inc.,orSecondAvenue,andourinvestmentinpreferredstockofanonlinesocial  networkingcompany.AlthoughwehavetherighttorepresentationontheBoardofDirectorsoftheholding  companyofNewHorizons,theBoardofDirectorsofFidelisEducation,andtheBoardofDirectorsofSecond  Avenue,andhaveobserverrightsfortheBoardofDirectorsoftheonlinesocialnetworkingcompany,wedonot  havetheabilitytocontrolthepolicies,managementoraffairsoftheseentities,andgenerallywewouldnothave  thatabilityinanyminorityinvestmentinanentity.Theinterestsofpersonswhocontroltheentitiesinwhich  wehaveinvestedandmayinvestmaydifferfromourinterests,andtheymaycausesuchentitiestotakeactions  thatarenotinourbestinterest,andwemaybecomeinvolvedindisputeswithsuchpersons.Ourinabilityto  controlentitiesinwhichwemakeminorityinvestmentscouldnegativelyaffectourabilitytorealizethestrategic  benefitsofthoseinvestments. Wehavemademinorityinvestmentstorealizestrategicbenefitsforourbusiness,ratherthantogenerate  incomeorcapitalgainsfromtheseinvestments,andweanticipatethatwewouldmakefutureminorityinvest - mentsforsimilarpurposes.Wecannotensurethatwewillrealizeanystrategicbenefitsfromtheseinvestments  inthenear-termoratall.Totheextentthatthestrategicbenefitsofanyinvestmentarenottimelyrealized,or  theinvestmentotherwiseunderperforms,wemaywishtodisposeoftheinvestment.Becauseourinterestsin  entitiesinwhichwehavemademinorityinvestments,suchasNewHorizons,FidelisEducation,SecondAvenue,  andtheonlinesocialnetworkingcompanyarehighlyilliquidandnottradedinanypublicmarket,wemaynotbe  abletotimelydisposeoftheseinterests,ormayhavetosellatlessthanourcarryingvalue.Further,shouldthe  valueoftheseinvestmentsbecomeimpaired,wemayberequiredtoreducethecarryingvalueoftheseinvest - ments.Ourinabilitytodisposeofourinterestinsuchanentity,orareductioninthecarryingvalueofsuchan  entityonourbooks,wouldnegativelyaffectouroperatingresults. 2015 Annual Report 65 The loss of any key member of our management team may impair our ability to operate effectively and may harm our business. Oursuccessdependslargelyuponthecontinuedservicesofourexecutiveofficersandotherkeymanagement  andtechnicalpersonnel.Thelossofoneormoreofourkeypersonnelcouldharmourbusiness.Whilewehave  employmentagreementswithourPresidentandChiefExecutiveOfficer,Dr.Boston,andeachofourExecutive  VicePresidents,wedonothaveemploymentagreementswithotherexecutivesorpersonnel,andtheemploy - mentagreementsthatwedohavedonotpreventourexecutivesfromvoluntarilyceasingtoworkforus. If we are unable to attract and retain management, faculty, administrators, and skilled personnel, our business and growth prospects could be severely harmed. Wemustattractandretainhighlyqualifiedmanagement,faculty,administrators,andskilledpersonneltoour  institutions.Competitionforhiringtheseindividualsisintense,especiallywithregardtofacultyinspecialized  areas,andexecutiveswithrelevantindustryexpertise.Ourinstitutions’pastgrowthcreatedconstantdemands  tofindqualifiedindividualsacrossalllevels,andwebelievethatweneedtocontinuetoexpandandstrengthen  ourmanagementteamtosupporttheoperationsofourinstitutions.Forinstance,APUShascommenceda  searchforanewAPUSpresidentinconnectionwithananticipatedorganizationalrealignment.Onceanew  APUSpresidentisidentifiedandappointed,Dr.WallaceE.Boston,thecurrentAPUSpresident,willfocusonhis  positionasCEOofAPEI,providingstrategicleadershipsupporttoAPUS,HCONandotherAPEIventures.Ifwe  failtoattractnewmanagement,faculty,administrators,orskilledpersonnelorfailtoretainandmotivateour  existingmanagement,faculty,administrators,andskilledpersonnel,ourinstitutionsandourabilitytoserveour  studentsandexpandourprogramscouldbeseverelyharmed.ED’sincentivepaymentrulemayalsoaffectthe  mannerinwhichweattract,retain,andmotivatenewandexistingemployees,asdescribedmorefullybelowin  “RisksRelatedtotheRegulationofourIndustry.” If our institutions fail to maintain adequate systems and processes to detect and prevent fraudulent activity in student enrollment and financial aid, our institutions may lose the ability to participate in Title IV programs or Department of Defense tuition assistance programs, or have participation in these programs conditioned or limited. Institutionsofferingonlineeducation,includingAPUS,haveexperiencedfraudulentactivityrelatedtoTitle IV  programfunds.GrantsandloanstostudentsunderTitle IVprogramsareprimarilyawardedonthebasisof  financialneed,generallydefinedasthedifferencebetweenthecostofattendinganinstitutionandtheamount  astudentcanbeexpectedtocontributetothatcost.Inordertoaccountforlivingexpensesandothercosts  thatourstudentsmayreasonablyincurinthecontextofpursuingadegreeorcertificate,thecostofattending  eachofourinstitutionsisanamountthatexceedsthecostofitstuition.Whilesomestudentselecttoreceive  grantsandloansthatcoveronlythecostoftuitionandfees,otherselecttoreceiveamountsuptothefullcost  ofattendance.WhenoneofourinstitutionsreceivesTitle IVprogramfundsonastudent’sbehalf,itcredits  thosefundstothestudent’saccount.Ifastudenthaselectedtoreceivefundsinexcessofthecostoftuitionand  fees,acreditbalanceisgenerated,andtheinstitutionmustpaythatcreditbalancetothestudentunlessthe  studenthasauthorizedtheinstitutiontoholdthecreditbalanceortakeotherpermissibleactionwithrespectto  thecreditbalance.TheavailabilityofTitle IVprogramfunds,includinganycreditbalancepayment,isanimport - antpartofenablingsomestudentstopursueadegreeorcertificate.However,someindividualsseektotake  advantageofTitle IVprogramsbyenrollingforthepurposeofobtainingfundstheymayreceivedirectlythrough  acreditbalancepayment.OnSeptember 26,2011,ED’sInspectorGeneralreleasedareportaboutanincreasing  numberofcasesinvolvinglarge,looselyaffiliatedgroupsofindividuals,so-called“fraudrings,”whoconspireto  defraudTitle IVprogramsthroughenrollmentindistanceeducationprograms.Thesefraudringstakeadvantage  oftheavailabilityofcreditbalancepaymentsunderTitle IV. 66 American Public Education, Inc. OurinstitutionshavebeenthetargetoffraudulentactivityrelatedtoTitle IVprogramfunds,aswellasother  fraudulentactivities,andgrowthatourinstitutionsmaymakethemmoresusceptibletoanincreasedriskof  suchactivities.Thepotentialforoutsidepartiestoperpetratefraudinconnectionwiththeawardanddisburse - mentofTitle IVprogramfundsatAPUS,includingasaresultofidentitytheft,maybeheightenedduetoits  beinganexclusivelyonlineeducationprovideranditsrelativelylowtuition.Ourinstitutionsmustmaintainsys - temsandprocessestoidentifyandpreventfraudulentapplicationsforenrollmentandfinancialaid.Wecannot  becertainthatourinstitutions’systemsandprocesseswillcontinuetobeadequateinthefaceofincreasingly  sophisticatedfraudschemes,orthatwewillbeabletoexpandsuchsystemsandprocessesatapaceconsistent  withthechangingnatureofthesefraudschemes. EDrequiresinstitutionsthatparticipateinTitle IVprogramstorefertotheEDOfficeoftheInspectorGeneral,  orOIG,credibleinformationaboutfraudorotherillegalconductinvolvingTitle IVprograms,andinthepastwe  havereferredtotheOIGinformationwithrespecttopotentialfraudbyapplicantsandstudents.Ifthesystems  andprocessesthatourinstitutionshaveestablishedtodetectandpreventfraudareinadequate,EDmayfind  thatourinstitutionsdonotsatisfyED’s“administrativecapability”requirements.Ifourinstitutionsfailtosatisfy  theadministrativecapabilityrequirements,EDmayrequiretherepaymentofTitle IVprogramfunds,transfer  ourinstitutionsfromthe“advance”systemofpaymentofTitle IVprogramfundstoheightenedcashmonitoring  status,ortothe“reimbursement”systemofpayment,placeourinstitutionsonprovisionalcertificationstatus,  orcommenceaproceedingtoimposeafineortolimit,suspend,orterminateourinstitutions’participationin  Title IVprograms,whichwouldlimitourinstitutions’potentialforgrowthandadverselyaffectourinstitutions’  enrollment,revenue,andresultsofoperations.Inaddition,ourinstitutions’abilitytoparticipateinTitle IV  programsandDoDtuitionassistanceprogramsisconditionedonmaintainingaccreditationbyanaccrediting  agencythatisrecognizedbytheSecretaryofEducation.Thesignificanceofaccreditationisdescribedmorefully  abovein“RegulatoryEnvironment—Accreditation.”Anysignificantfailuretoadequatelydetectfraudulentactiv - ityrelatedtostudentenrollmentandfinancialaidcouldcauseourinstitutionstofailtomeettheiraccreditors’  standards.Furthermore,undertheHigherEducationOpportunityAct,orHEOA,accreditingagenciesthatevalu - ateinstitutionsofferingonlineprograms,likeAPUS’sprogramsandHCON’sonlineRegisteredNursetoBachelor  ofScienceinNursingcompletionprogram,mustrequiresuchinstitutionstohaveprocessesthroughwhichthe  institutionestablishesthatastudentwhoregistersforsuchaprogramisthesamestudentwhoparticipatesin  andreceivescreditfortheprogram.Failuretomeetthestandardsofourinstitutions’accreditingagenciescould  resultinthelossofaccreditationofoneormoreofourinstitutions,whichcouldresultintheirlossofeligibility  toparticipateinTitle IVprograms,DoDtuitionassistanceprograms,orboth. Our limited ability to obtain exclusive proprietary rights and protect our intellectual property, as well as disputes we may encounter from time to time with third parties regarding our use of their intellectual property, could harm our operations and prospects. Intheordinarycourseofbusiness,ourinstitutionsdevelopintellectualpropertyofmanykindsthatisorwill  bethesubjectofpatents,copyrights,trademarks,servicemarks,domainnames,agreements,andotherregis - trations.Ourinstitutionsrelyonagreementsunderwhichweobtainrightstousecoursecontentdevelopedby  facultymembersandotherthird-partycontentexperts. Wecannotensurethatanymeasuresweandourinstitutionstaketoprotectourintellectualpropertyorobtain  rightstotheintellectualpropertyofotherswillbeadequate,orthattheyhavesecured,orwillbeabletosecure,  appropriateprotectionsforallofourinstitutions’proprietaryrightsintheUnitedStatesorforeignjurisdic - tions,orthatthirdpartieswillnotinfringeuponorviolatetheproprietaryrightsofourinstitutions.Despiteour  effortstoprotecttheserights,thirdpartiesmayattempttodevelopcompetingprogramsorcopyaspectsofour  institutions’curriculum,onlineresourcematerial,qualitymanagement,andotherproprietarycontent.Anysuch  attempt,ifsuccessful,couldadverselyaffectourinstitutions’business.Protectingthesetypesofintellectual  2015 Annual Report 67 propertyrightscanbedifficult,particularlyasitrelatestothedevelopmentbyourinstitutions’competitorsof  competingcoursesandprograms. Ourinstitutionsmayencounterdisputesfromtimetotimeoverrightsandobligationsconcerningintellectual  property,andmaynotprevailinthesedisputes.Thirdpartiesmayraiseaclaimagainstourinstitutionsalleg - inganinfringementorviolationoftheirintellectualproperty.InJuly 2006,APUSsettledadisputewithanother  institutionregardingtheuseofcertainmarksthatallowedustocontinuetousethemarksatissue,butwe  maynotbeabletofavorablyresolvefuturedisputes.Somethird-partyintellectualpropertyrightsmaybe  extremelybroad,anditmaynotbepossibleforourinstitutionstoconductoperationsinsuchawayastoavoid  disputesregardingthoseintellectualpropertyrights.Anysuchdisputecouldsubjectourinstitutionstocostly  litigationandimposeasignificantstrainonourfinancialresourcesandmanagementpersonnelregardlessof  whetherthatdisputehasmerit.Ourinsurancemaynotcoverpotentialclaimsofthistypeadequatelyoratall,  andourinstitutionsmayberequiredtoalterthecontentoftheircoursesorpaymonetarydamages,whichmay  besignificant. We may incur liability for the unauthorized duplication or distribution of course materials posted online for course discussions. Insomeinstances,ourinstitutions’facultymembersorstudentsmaypostvariousarticlesorotherthird-party  contentonlineincoursediscussionboardsorinothervenues.Thelawsgoverningthefairuseofthesethird- partymaterialsareimpreciseandadjudicatedonacase-by-casebasis,whichmakesitchallengingtoadoptand  implementappropriatelybalancedinstitutionalpoliciesgoverningthesepractices.Weandourinstitutionsmay  incurliabilityfortheunauthorizedduplicationordistributionofthismaterialpostedonline.Thirdpartiesmay  raiseclaimsagainstusandourinstitutionsfortheunauthorizedduplicationofthismaterial.Anysuchclaims  couldsubjectusandourinstitutionstocostlylitigationandimposeasignificantstrainonfinancialresourcesand managementpersonnelregardlessofwhethertheclaimshavemerit.Ourinstitutions’facultymembersorstu - dentscouldalsopostclassifiedmaterialoncoursediscussionboards,whichcouldexposeustocivilandcriminal  liabilityandharmourinstitutions’reputationsandrelationshipswithmembersofthemilitaryandgovernment.  Ourinsurancemaynotcoverpotentialclaimsofthistypeadequatelyoratall,andwemayberequiredtopay  monetarydamagesandourinstitutionsmayberequiredtoalterthecontentoftheircourses. Legal proceedings, particularly class action lawsuits, may require human and financial resources, distract our management and negatively affect our reputation and operating results. Fromtimetotime,weandourinstitutionshavebeenandmaybeinvolvedinvariouslegalproceedings.Inrecent  years,wehaveobservedanincreaseinlitigationbroughtagainstfor-profitschools,includingclassactions  broughtbystudentsandprospectivestudentsbasedonallegedmisrepresentationsaboutaschool’spro - grams,andanincreasein“quitam”lawsuits,whicharedescribedbelowundertheheading“RisksRelatedtothe  RegulationofourIndustry.”Forexample,inNovember 2013,aputativeclassactionwasbroughtagainstHCON  relatingtoatimeperiodpriortoourownership.Thelawsuitassertedclaimsforfraudandfraudulentinduce - ment,negligentmisrepresentation,breachofimplied-in-factcontract,promissoryestoppel,unjustenrichment,  andviolationoftheOhioConsumerSalesPracticesAct,for,amongotherthings,theallegedprovisionoffalseor  misleadinginformationtothenamedplaintiffsandotherputativeclassmembersin2011and2012regardingthe  statusofaccreditationbytheNationalLeagueforNursingAccreditingCommissionofHCON’sAssociateDegree  inNursing,orADN,programofferedatitsIndependence,Ohiocampus.HCONandthenamedplaintiffsentered  intoasettlementagreementonNovember 19,2014underwhichtheplaintiffsagreedtodismisstheircasefor  ade minimissettlementpayment.HCONadmittedtonowrongdoinginthesettlementagreementandthecase  wasdismissedwithprejudice.AspartofED’spost-closingreviewofouracquisitionofHCON,EDrequested  additionalinformationrelatedtothelawsuit.OnDecember4,2015,EDsentHCONaletterinformingHCONthat  68 American Public Education, Inc. EDhaddeterminedtofineHCON$27,500basedonED’sreviewofthesubmittedinformationandafindingthat  HCONhadsubstantiallymisrepresenteditsprogrammaticaccreditationstatusduringatimeperiodpriortoour  ownershipofHCON.OnDecember18,2015,HCONrespondedtoEDinaletterinwhichitnoteditsdisagreement  withED’sfindings,butinformedEDofitsdecisiontopaythefineinordertoresolvepromptlythematterand  toenableEDtofinalizeitsreviewoftheapplicationforachangeinownership.HCONpaidthefineinDecember  2015.Inthefuture,notallclaimsmaybeaseasilyresolved.Thesignificanthumanandfinancialresources  requiredtoinvestigateandrespondtoclaimsbroughtinanyfuturelitigationmaydistractmanagement’satten - tionfromoperatingourbusinessorleadtolargerpaymentsorliabilities,includingadverseregulatoryaction,  and,asaresult,negativelyaffectouroperatingresults. Changes our institutions may make to their operations to enhance their ability to identify and enroll students who are likely to succeed and to improve the student experience may adversely affect our institutions’ enrollment, growth rate, profitability, financial condition, results of operations, and cash flows. Inordertoincreaseourinstitutions’focusonimprovingthelearningexperienceandattractingstudentswho  arelikelytopersistinourinstitutions’programs,ourinstitutionsmayimplementchangesandinitiativestomore  effectivelyadmitcollege-readystudents,supportthosestudentsandhelpimprovethosestudents’educational  outcomes,includingthroughinitiativestoincreasethelevelofengagementandcollaborationintheclassroom.  Forexample,inApril 2015,APUSimplementedanadmissionsprocessrequiringprospectivestudentstocom - pleteafree,non-creditadmissionsassessmentiftheyarenot(i)activedutymilitaryorveteranapplicants;(ii)  graduatesofcertifiedfederal,stateorlocallawenforcementorpublicsafetyacademies;or(iii)studentswithat  leastninehoursoftransfercreditfromanaccreditedinstitutionwithagradeof“C”orbetterforeachcourse.  Additionalinitiativesmayinclude,butarenotlimitedto,thefollowing: • furtherchangestoadmissionsstandardsandrequirements; • alteringtheadmissionsprocessandprocedures; • implementingmorestringentsatisfactoryacademicprogressstandards; • changingtuitioncostsandpaymentoptions; • transitioningstudentfacingservices,includingexpandeduseoftheClearPathsystem; • experimentingwithcompetency-basedlearningandotheralternativedeliverymethods;and • alteringourinstitutions’marketingprogramstotargettheappropriateprospectivestudents. Theseinitiativesmayadverselyimpactourinstitutions’business,financialcondition,resultsofoperationsand  cashflows,particularlyinthenearterm.Theseinitiativesrequiresignificanttime,energy,andresources,and  involvemanysignificantinterrelatedandsimultaneouschangesinourprocessesandprograms.Wemaynot  succeedinachievingourobjectivesduetoorganizational,operational,regulatory,orotherconstraints.Ifour  effortsarenotsuccessful,wemayexperiencereducedenrollment,increasedexpense,orotherimpactsonour  businessthatmateriallyandadverselyimpactouroperatingresultsandfinancialcondition. Increases in tuition at APUS may adversely impact APUS’s registrations, financial condition, results of operations and cash flows. APUSimplementedatuitionincreaseforallundergraduateandgraduatecourseregistrationsmadeonorafter  July 1,2015.TosupportAPUS’sactivedutymilitaryandcertainmilitary-affiliatedstudents,APUSisprovidinga  tuitiongrantthatmaintainsthecostoftuitionforsuchstudentsatapproximatelyitspreviouslevel.APUSesti - matesthatthetuitiongrantappliestoapproximately75%ofitstotalnetcourseregistrations.Thefullimpactof  thetuitionincreaseisunknownandcouldresultinfluctuationsinAPUS’sregistrations,includingadecreasein  2015 Annual Report 69 registrationsasaresultofexistingandfuturestudentsseekingalternativestoenrollingatAPUS,orthosestu - dentsregisteringforfewercourses.Declinesinregistrationswouldnegativelyimpactenrollments,revenueand  cashflow,andwouldadverselyimpactourfinancialcondition,andresultsofoperations. The growth rate of our business is uncertain, and we may not be able to assess our future growth prospects effectively. Thegrowthrateofourbusinessisuncertain,ourbusinessmaynotgrow,andwemaynotbeabletoassessour  futuregrowthprospectseffectively.Ourabilitytoactonanygrowthmodelisdependentonanumberoffactors, includingthesuccessofourinstitutions,andtheabilitytoobtaintimelyregulatoryapprovals,identifylocations  andmarketsegments,andrecruitandretainhigh-qualityacademicandadministrativepersonnel.Duetoa  rapidlyevolvingindustry,achallengingregulatoryandgovernmentbudgetenvironment,andbroadereconomic  uncertainty,ithasbecomemorechallengingtoforecastourinstitutions’enrollmentsandconsequentlyour  financialresults.Thesechallengesmayresultinaninefficientdeploymentofresources,uncertaintyinourfinan - cialresultsandvolatilityinourstockprice,whichmayhaveanadverseeffectonthereturnonaninvestmentin  ourcommonstock. Growth may require continued investment of capital, time, and resources, including to develop and update our institutions’ technology, which may place a strain on resources that could adversely affect our systems, controls, and operating efficiency, and those of our institutions, and if we are unable to increase the capacity of our institutions’ resources appropriately, our institutions’ ability to handle future growth and to attract or retain students, and our financial condition and results of operations, could be adversely affected. Thegrowthwehaveexperiencedinthepast,aswellasanyfuturegrowththatwemayexperience,couldplacea  significantstrainonourresourcesandtheresourcesofourinstitutionsandincreasedemandsonourmanage - mentinformationandreportingsystemsandfinancialmanagementcontrols.Wedonothaveexperiencesched - ulingcoursesandadministeringprogramsformorestudentsthanhavebeenenrolledatourinstitutions,andif  growthnegativelyimpactsourabilitytodoso,thelearningexperienceforstudentscouldbeadverselyaffected,  resultinginahigherrateofstudentattritionandfewerstudentreferrals.Wealsohavelimitedexperience  addingtoourcourses,programs,andoperationsthroughacquisitions.PriortotheacquisitionofHCON,wehad  noexperienceoperatingphysicalcampuseswherestudentsattendcoursesandotherwiseparticipateinedu - cationalactivities,andwehavenoexperienceopeningnewcampuslocations.Futuregrowthwillalsorequire  continuedimprovementofourinternalcontrolsandsystems,particularlythoserelatedtocomplyingwith  federalregulationsundertheHigherEducationActof1965,orHEA,asadministeredbyED,includingasaresult  ofourinstitutions’participationinTitle IVprograms.Wehavedescribedsomeofthemostsignificantregulatory  risksthatapplytousandourinstitutions,includingthoserelatedtoTitle IVprograms,undertheheading“Risks  RelatedtotheRegulationofourIndustry”below.Ifweareunabletomanageourgrowthorsuccessfullycarry  outandintegrateacquisitions,includingtheHCONintegration,wemayalsoexperienceoperatinginefficiencies  thatcouldincreaseourcostsandadverselyaffectourprofitabilityandresultsofoperations. Thechangeinthecompositionofourstudentbodyhasalsomadeitharderforustomakeforecastsabout  studentenrollments.Wehavehadmoredifficultyforecastingthenumberofstudentswhowillenrollandhave  noticedadecreaseinthepredictabilityoftherateatwhichweconvertleadsintoenrolledstudents,whichwe  attribute,inpart,toincreasedcompetition,changesinourmarketingapproach,ournewadmissionsassessment  process,andourrecenttuitionincrease,amongotherfactors.Ifweareunabletoadapttochangesinthecompo - sitionofourstudentbodyandcontrolthegrowthofrelatedexpenditures,wemayexperienceoperatingineffi - cienciesthatcouldincreaseourcostsandadverselyaffectourprofitabilityandresultsofoperations.Further,if  weareunabletoattractandretainqualifiedTitle IVstudents,ourfinancialconditionmaybeadverselyimpacted. 70 American Public Education, Inc. Iffuturegrowthrequiresanincreaseinthecapacityandcapabilitiesofourinstitutions’technologyinfrastruc - ture,wewillneedtoinvestcapital,time,andresources,whichweexpectfromtimetotimewillleadtoincreased  spendingontechnologyinfrastructure,notallofwhichcanbecapitalized.Thereisnoassurancethat,evenwith  sufficientinvestment,oursystemswillbescalabletoaccommodatefuturegrowth.Wewillalsoneedtoinvest  capital,time,andresourcestoupdateourinstitutions’technologyinresponsetocompetitivepressuresinthe  marketplace,includingincreaseddemandsforinteractivesolutionsandaccessfrommobileplatforms,aswell  astoallowfordifferentialpricing,andwewillhavetomakesimilarinvestmentstointegratethetechnology  systemsofHCONandanyotherbusinesswemayacquireinthefuture.Ifweareunabletoincreasethecapacity  ofourinstitutions’resourcesorupdatetheirresourcesappropriately,theirabilitytohandlefuturegrowthand  toattractorretainstudents,andourfinancialconditionandresultsofoperations,couldbeadverselyaffected.  Similarly,evenifweareabletoincreasethecapacityofourinstitutions’resourcesandupdatetheirresources  appropriately,ourfinancialconditionandresultsofoperationscouldbeadverselyaffectedbyanincreasedlevel  ofspending. We may need additional capital in the future, but there is no assurance that funds will be available on acceptable terms. Wemayneedadditionalcapitalinthefutureforvariousreasons,includingtofinancebusinessacquisitionsand  investmentsintechnologyortoachievegrowthorfundotherbusinessinitiatives,butthereisnoassurance  thatcapitalwillbeavailableinsufficientamountsorontermsacceptabletousandmaybedilutivetoexisting  stockholders.Additionally,anysecuritiesissuedtoraisecapitalmayhaverights,preferencesorprivilegessenior  tothoseofexistingstockholders.Ifadequatecapitalisnotavailableorisnotavailableonacceptableterms,  ourandourinstitutions’abilitytoexpand,developorenhanceservicesorproducts,orrespondtocompetitive  pressures,willbelimited. Ouraccesstocapitalmarketsandsourcingforadditionalfundingtoexpandoroperateourbusinessmaybe  adverselyimpactedbydisruptionsandvolatilityinthecreditandequitymarketsworldwideandconcerns  regardingourindustryingeneralandusinparticular.Thecreditandequitymarketsofbothmatureanddevel - opingeconomieshaveexperiencedextraordinaryvolatility,asseterosionanduncertaintyduringthelastseveral  years.Untilthesemarketdisruptionsdiminish,itmaybemoredifficulttoaccessthecapitalmarketstoobtain  fundingneededtoexpandourbusinessbyacquisition,organically,orotherwise.Inaddition,changesinthe  capitalorotherlegalrequirementsapplicabletolendersandinvestorsmayaffecttheavailabilityorincreasethe  costofraisingcapital.Creditconcernsregardingtheproprietarypostsecondaryeducationindustryasawhole  alsomayimpedeouraccesstocapitalmarkets.Ifweareunabletoobtainneededcapitalontermsacceptableto  us,wemayhavetolimitstrategicinitiativesortakeotheractionsthatmateriallyadverselyaffectourbusiness,  financialcondition,resultsofoperationsandcashflows. Our business has been and may in the future be adversely affected by a general economic slowdown or recession in the U.S. or abroad. Ourbusinesshasbeenandmayinthefuturebeadverselyaffectedbyageneraleconomicslowdownorreces - sionintheU.S.orabroad.Intherecentpast,theUnitedStatesandotherindustrializedcountrieshaveexperi - encedreducedeconomicactivity,substantialuncertaintyabouttheirfinancialservicesmarketsand,insome  cases,economicrecession.Webelievethattheseeventsnegativelyimpactedourresultsduringthistimeperiod  andmaycontinuetoreducethedemandforourprogramsamongstudentsinthefuture,whichcouldmateri - allyandadverselyaffectourbusiness,financialcondition,resultsofoperations,andcashflows.Theseadverse  economicdevelopmentsalsomayresultinareductioninthenumberofjobsavailabletoourgraduatesand  lowersalariesbeingofferedinconnectionwithavailableemployment,which,inturn,mayresultindeclinesin  ourplacementandpersistencerates.Inaddition,theseeventscouldadverselyaffecttheabilityorwillingnessof  2015 Annual Report 71 ourformerstudentstorepaystudentloans,whichcouldincreaseourinstitutions’studentloancohortdefault  ratesandrequireincreasedtime,attention,andresourcestomanagethesedefaults.Ourinstitutions’students  areabletoborrowTitle IVloansinexcessoftheirtuitionandfees.Theexcessisreceivedbysuchstudentsasa  creditbalancerefund.However,ifastudentwithdraws,ourinstitutionsmustreturnanyunearnedTitle IVfunds,  whichmayincludeaportionofthecreditbalancerefund,andmustseektocollectfromthestudentanyresult - ingamountsowedtotheinstitution.Aprotractedeconomicslowdowncouldnegativelyimpactsuchstudents’  abilitytosatisfydebtstotheinstitution,includingdebtsthatresultfromreturnsofunearnedTitle IVamounts.  Asaresult,theamountofTitle IVfundswewouldhavetoreturnwithoutrepaymentfromourinstitutions’stu - dentscouldincrease,andourfinancialresultscouldsuffer.Further,theimpactofeconomicconditionsabroad  havenothistoricallyhadasignificantimpactonouroperationsexcepttotheextenttheyimpacttheU.S.econ - omy,butshouldweincreaseourinternationalenrollmentsthebroaderglobaleconomywillincreasinglyhavean  impactonourresults. An increase in interest rates could adversely affect our ability to attract and retain students. OurinstitutionsderiveasignificantportionoftheirrevenuefromTitle IVprograms,whichincludestudentloans  withinterestratessubsidizedbythefederalgovernment.Additionally,somestudentsfinancetheireduca - tionthroughprivateloansthatarenotgovernmentsubsidized.Ifourstudents’employmentcircumstances  areadverselyaffectedbyregionalornationaleconomicdownturns,theymaybemoreheavilydependenton  studentloans.Historicallylowinterestrateshavecreatedafavorableborrowingenvironmentforstudents.  However,ifinterestratesincreaseorCongressdecreasestheamountoffundingavailableforTitle IVprograms,  ourstudentsmayhavetopayhigherinterestratesontheirTitle IVprogramloansandprivateloans.Anyfuture  increaseinapplicableinterestratescouldresultinacorrespondingincreaseineducationalcoststoourexist - ingandprospectivestudents,whichcouldresultinareductioninourenrollment.Higherinterestratescould  alsocontributetohigherdefaultrateswithrespecttoourstudents’repaymentoftheireducationloans.Higher  defaultratesmayinturnadverselyimpactoureligibilitytoparticipateinsomeTitle IVprograms,whichcould  adverselyimpactouroperationsandfinancialcondition. Efforts to diversify our business outside of the traditional areas served by our institutions may adversely impact our financial performance. Asweseekopportunitiestoexpandourbusinessandservemarketsbeyondthosetraditionallyservedbyour  institutions,wemayencounterstrategicandoperationalchallengesdifferentfromthosewithinourexisting  institutions.Ifweareunabletosuccessfullycapitalizeontheseopportunities,ourbusiness,financialcondition,  resultsofoperations,andcashflowscouldbeadverselyimpacted. Strong competition in the postsecondary education market generally and in the military market could decrease our institutions’ market share and increase our cost of acquiring students. Withinthepostsecondaryeducationmarket,ourinstitutionscompeteprimarilywithnot-for-profitpublicand  privatetwo-yearandfour-yearcollegesaswellasotherfor-profitschools,particularlythosethatofferonline  learningprograms.Publicinstitutionsreceivesubstantialgovernmentsubsidies,andpublicandprivatenot-for- profitinstitutionshaveaccesstogovernmentandfoundationgrants,tax-deductiblecontributions,andother  financialresourcesgenerallynotavailabletofor-profitschools.Theseinstitutionsmayhaveinstructionaland  supportresourcesthataresuperiortothoseofourinstitutionsandotherfor-profitschools.Manyofourcom - petitorsalsohavesubstantiallygreaternamerecognitionandfinancialandotherresourcesthanwehave,which  mayenablethemtocompetemoreeffectivelyforpotentialstudents,ortoprovideinstructionalandsupport  resourcesthataresuperiortothoseofourinstitutionsandotherfor-profitschools.Theseinstitutionsare  increasinglydifferentiatingthemselvesinthewaythattheydeliveronlinecourseofferings,andwebelievethat  72 American Public Education, Inc. inthefuturestudentsseekingonlineinstructionwillbeattractedtoaninstitutioninpartbecauseofthetech - nologyusedbytheinstitutiontodeliverinstructionandotherelementsofthestudentexperience.Tocompete  forthesestudentswillrequirecontinuedinnovationsandourpeopleandtechnologyplatformsmaynotbe  capableofdeliveringcompetitivesolutionsthataredesirabletostudents.Inrecentyears,competinginstitutions andothershavealsostartedprovidingnon-traditional,credit-bearingandnon-credit-bearingeducationpro - grams,includingmassivelyopenonlinecourses,orMOOCs,withoutchargeoratlowcosts.Additionally,non-tra - ditionalcompetitors,suchasentitiesofferingcodingbootcamps,areofferingnewalternativeeducationalpaths.  Wehavealsoobservedanincreaseininstitutionsofferingcompetency-basedprograms,whichpermitstudents  toprogressinaprogrambydemonstratingthattheyhaveachievedcertainskillsorknowledgeratherthanby  earningcredithours,andEDhasissuedguidanceaddressingaccesstoTitle IVprogramsforstudentsinthese  programs.Webelievethatourinstitutionswillcontinuetofacenewcompetitionfromsuchprograms,includ - ingcompetitionfromlowercostalternatives.Ourinstitutionsmaynotbeabletocompetesuccessfullyagainst  currentorfuturecompetitorsandmayfacecompetitivepressuresthatcouldadverselyaffecttheirbusinessor  resultsofoperations.Thesecompetitivefactorscouldcauseourinstitutions’enrollments,revenue,andprofit - abilitytodecreasesignificantly. Withinthepostsecondaryeducationmarketgenerally,weanticipateincreasedcompetition.Thetotalpostsec - ondarystudentpopulationhasbeendeclining.AccordingtotheNationalStudentClearinghouse,enrollment  inTitle IVpostsecondarydegree-grantinginstitutionsinthefallof2015decreased1.7%,comparedtofall2014,  withadecreaseof13.7%takingplaceamongfour-yearfor-profitschools.Longertermprojectionssuggestthat  previousgrowthinenrollmentinpostsecondarydegree-grantinginstitutionsisslowing.AccordingtoaMay 2015  reportfromED,suchenrollmentwasprojectedtogrow15%overthe11-yearperiodendinginfallof2023,com - paredto24%growthoverthe10-yearperiodthatendedin2012.Thecombinationofreducedgrowthordeclines  inthepostsecondarystudentpopulationandincreasedcapacityinthepostsecondaryeducationmarketwill  furtherintensifycompetition. WealsoanticipatethatAPUSwillcontinuetoseeincreasedcompetitionwithinthemilitarymarket,which  continuestobeaprimarymarketforAPUS,includingfromfor-profitschoolsasthoseschoolsseektoattract  studentseligibleforDoDtuitionassistanceprograms,VAeducationbenefits,orboth,atleastinpartasastrat - egytosatisfyaregulatoryrequirementofEDknownasthe90/10Rule.Thisregulatoryrequirementisdescribed  morefullyin“RegulatoryEnvironment—StudentFinancingSourcesandRelatedRegulations/Requirements— DepartmentofEducation—RegulationofTitle IVFinancialAidPrograms—The‘90/10Rule.’”Publicandprivate  not-for-profitinstitutionsarealsoprovidingincreasedcompetition,includingcommitmentstoparticipateinthe  VAYellowRibbonProgramthroughwhichsuchinstitutionsagreetomakeadditionalfinancialaidfundsavailable  toveteransreceivingPost-9/11GIBillbenefits. Because APUS provides exclusively online education, it is dependent on continued growth and acceptance of exclusively online education and, if the recognition by students and employers of the value of online education does not continue to grow, its ability to grow could be adversely impacted. Webelievethatcontinuedgrowthinonlineeducationwillbelargelydependentonadditionalstudentsand  employersrecognizingthevalueofdegreesearnedonline.Increasingly,employersdemandthat,inadditionto  technicalorsubstantiveskills,theirnewemployeespossessappropriate“soft”skills,suchascommunication,  criticalthinking,andteamworkskills,whichcanevolverapidlyinachangingeconomicandtechnologicalenvi - ronmentandmaybe,ormaybeperceivedtobe,moredifficulttodevelopthroughonlineeducation.Ifstudents  andemployersarenotconvincedthatonlineinstitutionsareanacceptablealternativetotraditionalschools,  orthatanonlineeducationprovidesvalue,orifgrowthinthemarketpenetrationofonlineeducationslows,  growthintheindustryandatAPUScouldbeadverselyaffected.BecauseourbusinessmodelforAPUSisbased  2015 Annual Report 73 onexclusivelyonlineeducation,iftheacceptanceofonlineeducationdoesnotgrow,ourabilitytogrowAPUS’s  businessandourfinancialconditioncouldbemateriallyadverselyaffected. If our institutions are unable to update and expand the content of existing programs and develop new programs and specializations on a timely basis and in a cost-effective manner, our future growth may be impaired. Theupdatesandexpansionsofourinstitutions’existingprogramsandthedevelopmentofnewprogramsand  specializationsmaynotbeacceptedbytheiraccreditors,stateregulators,ED,existingorprospectivestudents,  oremployers.Ifwecannotrespondtochangesinmarketrequirements,ourbusinessmaybeadverselyaffected.  Evenifourinstitutionsareabletodevelopacceptablenewprograms,theymaynotbeabletointroducethese  newprogramsasquicklyasstudentsrequireorasquicklyascompetitorsintroducecompetingprograms.  Toofferanewacademicprogram,ourinstitutionsmayberequiredtoobtainappropriatefederal,state,and  accreditingagencyapprovals,whichmaybeconditionedordelayedinamannerthatcouldsignificantlyaffect  ourgrowthplans.Ifweareunabletorespondadequatelytochangesinmarketrequirementsduetofinancial  constraints,regulatorylimitations,orotherfactors,ourinstitutions’abilitytoattractandretainstudentscould  beimpairedandourfinancialresultscouldsuffer. Establishingnewacademicprogramsormodifyingoreliminatingexistingprogramsrequiresourinstitutions  tomakeinvestmentsinmanagementandcapitalexpenditures,incurmarketingexpenses,andreallocateother  resources.Ourinstitutionsmayhavelimitedexperienceprovidingcoursesinnewfieldsofstudyandmayneed  tomodifysystemsandstrategyorenterintoarrangementswithotherinstitutionstoprovidenewprograms  effectivelyandprofitably.Ifourinstitutionsareunabletoincreasethenumberofstudentsenrollinginnewaca - demicprograms,offerprogramsinacost-effectivemanner,orotherwisemanageeffectivelytheoperationsof  thoseprograms,ourresultsofoperationsandfinancialconditioncouldbeadverselyaffected. APUS may market its programs in international markets, which could subject us to a variety of risks not previously encountered and negatively impact our profitability and liquidity. APUSmaymarketitsprogramsininternationalmarkets,whichcouldsubjectustoavarietyofrisksnotpreviously  encounteredandnegativelyimpactourprofitabilityandliquidity.WehavemarketedAPUS’sprogramstoalimited  numberofinternationalstudentsinthepastandwemayincreasetheseeffortsinthefuture.APUSmaymarket  itsprogramsusingforeignrepresentativesandothermethods.Wedonothavepreviousexperiencemarketing  APUS’sprogramsthroughforeignrepresentativesandwemaybeunabletoadequatelymanagerisksassociated  withtheseplannedinternationalefforts,whichcouldadverselyaffectourabilitytosuccessfullyattract,retain,  andservestudentsininternationalmarketsandnegativelyimpactourprofitabilityandfinancialcondition. Theseinternationalrisksinclude,butarenotlimitedto,thefollowing: • uncertaintyofacceptanceofourofferingsbystudentsininternationalmarkets; • difficultiesinstaffingandmanaginginternationaloperations; • challengesfinding,managing,andretainingforeignrepresentativerelationships; • compliancewithforeignlegalandregulatoryrequirementsandunforeseenchangesinsuchrequirements; • investmentandexecutionmisstepsduetoafailuretounderstandthelocalcultureandmarket; • politicalandeconomicinstabilityinthecountriesinwhichwemarket; • potentialadversetaxconsequences;and • compliancewithcertainU.S.lawsandregulationssuchastheForeignCorruptPracticesAct. 74 American Public Education, Inc. If we are unable to successfully pursue HCON’s program initiatives and expansions, including opening new HCON campuses and increasing online education, our future growth may be impaired. ThesuccessofHCONwilldependonourabilitytomaintainandincreasestudentenrollmentsinHCON’spro - gramsandgrowHCON’son-campusandonlineprogramofferings.Aspartofourstrategy,weintendtoopen  newcampusesforHCON.Suchactionsrequireustoobtainappropriatefederal,stateandaccreditingagency  approvals.Inaddition,addingnewlocationsmayrequiresignificantfinancialinvestments,humanresource  capabilities,andnewclinicalplacementrelationships.Ifweareunableto,orsufferanydelayinourabilityto,  obtainappropriateapprovals,attractadditionalstudentstonewcampuslocations,offerprogramsatnewcam - pusesinacost-effectivemanner,identifyappropriateclinicalplacements,orotherwisemanageeffectivelythe  operationsofnewlyestablishedcampuses,ourresultsofoperationsandfinancialconditioncouldbeadversely  affected.Atthistime,becauseHCONiscertifiedtoparticipateintheTitle IVprogramsonaprovisionalbasis  basedonthechangeinownershipandcontrolofHCONthatresultedfromouracquisitionofit,HCONmust  applytoEDandwaitforapprovalbeforeitcanawardanddisburseTitle IVprogramfundstostudentsenrolled  atnewHCONlocationsatwhichHCONoffers50%ormoreofaneligibleprogram,orbeforeitcanawardTitle IV  programfundstostudentsenrolledinnewdegreeorcertificateprograms. OutsideOhio,otherstates’regulatorybodieshaveregulationsthatapplytoHCONprograms.Forexample,a  numberofstatesmayrequirethatweobtainadditionalauthorizationsforHCONstudentsenrolledintheonline  RegisteredNursetoBachelorofScienceinNursingcompletionprogramtoparticipateinpracticumcoursesin  thosestates,evenwhereHCONhasnootherphysicalpresenceinthestate.Thesetypesofprovisionsmaymake  itmoredifficulttoofferonlineeducationprogramsinthosestates.Theinabilitytoexpandefficientlyorsuccess - fullyexistingprogramsandpursuenewprograminitiativeswouldharmourabilitytogrowthebusinessand  couldhaveanadverseimpactonourfinancialcondition. If our institutions do not have adequate continued personal referrals and marketing and advertising programs that are effective in developing awareness, attracting, and retaining qualified students, our financial performance in the future would suffer. Buildingawarenessofourinstitutionsandtheprogramstheyofferamongpotentialstudentsiscriticaltoour  institutions’abilitytoattractnewstudents.Inordertomaintainandincreaseourrevenueandprofits,our  institutionsmustcontinuetoattractnew,qualifiedstudentsinacost-effectivemanner,andthesestudentsmust  remainactiveinourinstitutions’programs.Inaddition,becauseourinstitutionsexperiencedeclinesintheir  studentpopulationasaresultofgraduation,transferstootheracademicinstitutions,militarydeploymentsand  otherreasons,inordertogrowweneedtofirstattractsufficientstudentstoreplacethosewhohaveleft.Our  marketingstrategyforAPUShastraditionallyfocusedonbuildinglong-term,mutuallybeneficialrelationships  withorganizationsandindividualsinthemilitaryandpublicsafetycommunities.APUShassupplementedits  relationship-basedmarketingwithmulti-facetedinteractivemarketingcampaignstocreateagreaterbrand  awareness,particularlyofourAPUbrandoutsidethemilitaryandpublicsafetycommunities,andtoincrease  inquiriesfrompotentialstudents.Similarly,HCON’smarketingstrategyhasfocusedonbuildinglong-termrela - tionshipswithbusinesses,organizations,andindividualsinthehealthcarecommunity,primarilyinOhio,where  HCON’scampusesarelocated.Inaddition,HCONutilizestraditionalmediaaswellasinternet-focusedmarketing  channels,includingorganicsearch,localdisplayadvertisingandpay-per-click. Someofthefactorsthatcouldpreventusfromsuccessfullyadvertisingandmarketingourinstitutions’pro - gramsandfromsuccessfullyenrollingandretainingqualifiedstudentsinthoseprogramsinclude,butarenot  limitedto: • theemergenceofmore,andmoresuccessful,competitors; 2015 Annual Report 75 • factorsrelatedtoourinstitutions’marketing,includingthecostsofinternetadvertisingandmulti-faceted  interactivemarketingcampaigns; • challengesindesigningmarketingcampaignsthatsuccessfullyattractcollege-readystudents; • limitsonourabilitytoattractandretaineffectiveemployeesbecauseoftheincentivepaymentrule,as  describedmorefullybelowin“RisksRelatedtotheRegulationofourIndustry;” • performanceproblemswithourinstitutions’onlinesystems; • ourinstitutions’failuretomaintainaccreditation,stateauthorization,eligibilityforTitle IVprograms,or  otherapprovals; • increasedregulationofonlineeducation,includinginstatesinwhichwedonothaveaphysicalpresence; • regulatoryinvestigationsorlitigationthatmaydamageourreputation; • studentdissatisfactionwithourinstitutions’servicesandprograms; • failuretodevelopanddeliveramessageorimageforAPUSthatresonateswellwithnon-militarystudents; • adilutionofourbrandasaresultoftheHCONacquisitionorotherexpansion; • adversepublicityregardingus,ourinstitutions,ourcompetitors,oronlineorfor-profiteducationgenerally; • adversedevelopmentsinAPUS’srelationshipswithmilitaryofficersandotherleadersinthemilitarycommunity; • inabilitytointegratetheHCONacquisitioninanefficientandtimelymanner; • adeclineintheacceptanceofonlineeducationgenerally;and • adecreaseintheperceivedoractualeconomicbenefitsthatstudentsderivefromourinstitutions’programs  orprogramsprovidedbyfor-profitschoolsgenerally. TocontinuetogrowanddiversifythestudentbodyofAPUS,wewillneedtoidentifymarketingchannelsthat  supportthatgrowthanddiversificationwhilealsoattractingstudentswhoperformwellatAPUSuponenroll - ment.However,becauseourtuitionisgenerallylowerthanthatofmostofourcompetitors,wehavefewer  dollarsavailabletospendonmarketingandadvertisingthantheydo.Asaresult,wemaydecidetoimplement  newmarketingtacticsandchannelswithwhichwehavenoexperienceandwhichhavenoguaranteeofsuccess.  Accordingly,wemayfinditincreasinglydifficulttocontinuetocompeteanddiversifyourenrollmentsatAPUS.If  weareunabletocontinuetodevelopawarenessofourinstitutionsandtheprogramsweoffer,andtoenrolland  retainqualifiedstudentsinmilitaryandnon-militarymarkets,ourenrollmentswouldsufferandourabilityto  increaserevenueandmaintainprofitabilitywouldbesignificantlyimpaired. ThesuccessofHCONdepends,inpart,onourabilitytomaintainandincreasestudentenrollmentsinHCON’s  programs.PriortotheHCONacquisition,wehadnoexperiencewithattractingnewstudentsto,andretaining  studentsin,educationalprogramsofferedprimarilyonphysicalcampuses.Ifweareunabletoeffectivelymarket  suchprograms,wemaynotbeabletosuccessfullyexecuteourlong-termstrategicplantodiversifyourbusiness  andexpandourprograms,whichwouldnegativelyaffectouroperatingresults. System disruptions and security breaches to our online computer networks, technology infrastructure, or online classroom infrastructure, or to the networks, infrastructure and systems of third parties, could negatively impact our ability to generate revenue and could damage our reputation, limiting our ability to attract and retain students. Theperformanceandreliabilityofourandourinstitutions’networksandtechnologyinfrastructure,including  thoseofthirdpartiessystemsweuse,iscriticaltoourinstitutions’reputationandabilitytoattractandretain  students.Anysystemerrororfailure,orasuddenandsignificantincreaseinbandwidthusage,couldinterrupt  76 American Public Education, Inc. ourorourinstitutions’abilitytooperateandcouldresultintheunavailabilityofourinstitutions’onlineclass - rooms(whichisparticularlyrelevanttoAPUS),preventingstudentsfromaccessingtheircoursesandadversely  affectingourresultsofoperations. OursystemsatAPUS,particularlythoseproprietaryinformationsystemsandprocessesthatwerefertoasPAD,  havebeenpredominantlydevelopedin-house,withlimitedsupportfromoutsidevendors.Totheextentthat  wehaveutilizedthird-partyvendorstoprovidecertainsoftwareproductsforoursystems,wehavegenerally  neededtointegratethoseproductsinto,andensurethattheyfunctionwith,PAD.Wecontinuouslyworkon  upgradestoPAD,andouremployeesdevotesubstantialtimetoitsdevelopmentandtothesuccessfulintegra - tionofthird-partyproductsintoPAD.TotheextentthatwefacesystemdisruptionsormalfunctionswithPAD,  wemaynothavethecapacitytoaddresssuchdisruptionsormalfunctionswithourinternalresources,andwe  maynotbeabletoidentifyoutsidecontractorswithexpertiserelevanttoourcustomsystem. Ourinstitutions’technologyinfrastructure,andthetechnologyinfrastructureofourthird-partiesvendors,  couldbevulnerabletointerruptionormalfunctionduetoeventsbeyondourcontrol,includingnaturaldisasters,  cyberattacks,hackerorterroristactivities,andtelecommunicationsfailures.Ourcomputernetworks,andthe  networksofourthird-partyvendors,mayalsobevulnerabletounauthorizedaccess,computerhackers,com - puterviruses,andothersecurityproblems.Auserwhocircumventssecuritymeasurescouldmisappropriate  proprietaryinformationorpersonalinformationaboutourstudentsoremployees,orcouldcauseinterruptions  ormalfunctionsinoperations.Ifweorthirdpartieswithaccesstooursystems,ortoourproprietaryinforma - tionorpersonalinformationaboutourstudentsoremployees,experiencesecuritybreachesinthefuture,we  mayberequiredtoexpendsignificantresourcestoprotectagainstthethreatofthesesecuritybreachesorto  alleviateproblemscausedbysuchbreaches,whichcouldincludelitigationfromourstudentsoremployeesor  theimpositionsofpenalties. Weperformsecurityassessmentsonaperiodicbasistoreviewandassessoursecurity.Weutilizethisinfor - mationtoauditourselvestoensurethatweareadequatelymonitoringthesecurityofourtechnologyinfra - structure.However,wecannotensurethatthesesecurityassessmentsandauditswillprotectourcomputer  networksagainstthethreatofsecuritybreaches.Similarly,althoughwerequireourthird-partyvendorsto  maintainalevelofsecuritythatisacceptabletousandworkcloselywithourthird-partyvendorstoaddress  potentialandactualsecurityconcernsandattacks,wecannotensurethatweandoursystemsandproprietary  informationorpersonalinformationaboutourstudentsoremployeeswillbeprotectedagainstthethreatof  securityattacksonourthird-partyvendorsthataffectoursystemsorsuchinformation.Systemdisruptions  andsecuritybreachestoouronlinecomputernetworks,technologyinfrastructure,oronlineclassroominfra - structure,ortothenetworks,infrastructuresandsystemsofthirdpartiescouldhaveanadverseeffectonour  financialcondition. The personal information that we collect may be vulnerable to breach, theft or loss that could adversely affect our reputation and operations. Possessionanduseofpersonalinformationinourinstitutions’operationssubjectsustorisksandcoststhat  couldharmourbusiness.Ourinstitutionsmaycollect,use,andretainlargeamountsofpersonalinformation  regardingourstudentsandtheirfamilies,includingsocialsecuritynumbers,taxreturninformation,personal  andfamilyfinancialdata,bankaccountinformation,andcreditcardnumbers.Ourinstitutionsalsocollectand  maintainpersonalinformationofemployeesintheordinarycourseofourbusiness.Someofthispersonal  informationisheldandmanagedbycertainthird-partyvendors,includingourthird-partyservicersandinfor - mationtechnologyvendors.Althoughourinstitutionsusesecurityandbusinesscontrolstolimitaccessanduse  ofpersonalinformation,athirdpartymaybeabletocircumventthosesecurityandbusinesscontrols,which  couldresultinabreachofstudentoremployeeprivacy.Inaddition,errorsinthestorage,useortransmission  2015 Annual Report 77 ofpersonalinformationcouldresultinabreachofstudentoremployeeprivacy.Possessionanduseofper - sonalinformationinourinstitutions’operationsalsosubjectsustolegislativeandregulatoryburdensthat  couldrestricttheuseofpersonalinformationandrequirenotificationofdatabreaches.Wecannotguarantee  thatabreach,lossortheftofpersonalinformationwillnotoccur.Aviolationofanylawsorregulationsrelating  tothecollectionoruseofpersonalinformationcouldresultintheimpositionoffinesorlawsuitsagainstusor  ourinstitutions.Asaresult,wemayberequiredtoexpendsignificantresourcestoprotectagainstthethreatof  thesesecuritybreachesortoalleviateproblemscausedbysuchbreaches.Abreach,theft,orlossofpersonal  informationregardingourinstitutions’studentsandtheirfamiliesorourinstitutions’employeesthatisheldby  ourinstitutionsorthird-partyvendorscouldhaveamaterialadverseeffectonourinstitutions’reputationsand  resultsofoperationsandresultinliabilityunderforeign,stateandfederalprivacystatutesandlegalactions  bystateattorneysgeneralandprivatelitigants,anyofwhichcoulddivertmanagement’sattentionandhavea  materialadverseeffectonourbusiness,financialcondition,resultsofoperations,andcashflows. Wefaceaneverincreasingnumberofthreatstoourcomputersystems,includingunauthorizedactivityand  access,maliciouspenetration,systemviruses,maliciouscodeandorganizedcyber-attacks,whichcouldbreach  oursecurityanddisruptoursystems.Theserisksincreasewhenwemakechangestoourinformationtechnol - ogysystemsorimplementnewones.Oursizemakesusaprominenttargetforhackingandothercyberattacks  withintheeducationindustry.Fromtimetotimeweexperiencesecurityeventsandincidents,andthesereflect  anincreasinglevelofmalicioussophistication,organization,andinnovation.Wehavedevotedandwillcontinue  todevotesignificantresourcestothesecurityofourcomputersystems,buttheymaystillbevulnerabletothese  threats.Auserwhocircumventssecuritymeasurescouldmisappropriateproprietaryinformationorcause  interruptionsormalfunctionsinoperations,perhapsoveranextendedperiodoftimepriortodetection.Asa  result,wemayberequiredtoexpendsignificantadditionalresourcestoprotectagainstthethreatoforalleviate  problemscausedbythesesystemdisruptionsandsecuritybreaches.Anyoftheseeventscouldhaveamaterial  adverseeffectonourbusinessandfinancialcondition.Althoughwemaintaininsuranceinrespecttothesetypes ofevents,thereisnoassurancethatavailableinsuranceproceedswouldbeadequatetocompensateusfor  damagessustainedduetotheseevents. Failure to comply with privacy laws or regulations could have an adverse effect on our business. Variousfederal,stateandinternationallawsandregulationsgovernthecollection,use,retention,sharingand  securityofconsumerdata.Thisareaofthelawisevolving,andinterpretationsofapplicablelawsandregula - tionsdiffer.Legislativeactivityintheprivacyareamayresultinnewlawsthatarerelevanttousandtheoper - ationsofourinstitutions,forexample,useofconsumerdataformarketingoradvertising.Claimsoffailureto  complywithourinstitutions’privacypoliciesorapplicablelawsorregulationscouldformthebasisofgovern - mentalorprivate-partyactionsagainstus.Suchclaimsandactionsmaycausedamagetoourinstitutions’repu - tationandcouldhaveanadverseeffectonourfinancialcondition. Any significant interruption in the operation of data centers hosting our institutions’ technology infrastructure could cause a loss of data and disrupt the ability to manage our institutions’ technology infrastructure. Anysignificantinterruptionintheoperationofourinstitutions’datacentersorserverroomscouldcausealoss  ofdataanddisrupttheabilitytomanagenetworkhardwareandsoftwareandtechnologicalinfrastructure.  Evenwithredundancy,asignificantinterruptionintheoperationofthesefacilitiesorthelossofinstitutional  andoperationaldataduetoanaturaldisaster,fire,powerinterruption,actofterrorismorotherunanticipated  catastrophiceventmaynotbepreventable.Anysignificantinterruptionintheoperationofthesefacilities,  includinganinterruptioncausedbythefailuretosuccessfullyexpandorupgradesystemsormanagetransitions  andimplementations,couldreducetheabilitytomanagenetworkandtechnologicalinfrastructure,whichcould  78 American Public Education, Inc. adverselyaffectourinstitutions’operationsandreputations.Additionally,ourinstitutionsdonotnecessarily  controltheoperationofthefacilitieshostingourtechnologyinfrastructureandmayberequiredtorelyonother  partiestoprovidephysicalsecurity,facilitiesmanagementandcommunicationsinfrastructureservices.Ifany  third-partyvendorsencounterfinancialdifficultysuchasbankruptcyorothereventsbeyondourcontrolthat  causesthemtofailtoadequatelysecureandmaintaintheirfacilitiesorprovidenecessarydatacommunications  capacity,ourinstitutions’studentsmayexperienceinterruptionsinserviceorthelossortheftofimportant  data,whichcouldadverselyaffectourfinancialcondition. Government regulations relating to the internet could increase our cost of doing business and affect our ability to grow. Governmentregulationsrelatingtotheinternetcouldincreaseourcostofdoingbusinessandaffectourability  togrow.Theincreasingrelianceonanduseoftheinternetandotheronlineserviceshasledandmaycontinue  toleadtotheadoptionofnewlawsandregulatorypracticesintheUnitedStatesorforeigncountriesandto  newinterpretationsofexistinglawsandregulations.Thesenewlawsandinterpretationsmayrelatetoissues  suchasonlineprivacy,internetneutrality,copyrights,trademarksandservicemarks,salestaxes,fairbusiness  practices,andtherequirementthatonlineeducationinstitutionsqualifytodobusinessasforeigncorporations  orbelicensedinoneormorejurisdictionswheretheyhavenophysicallocation.Newlaws,regulationsorinter - pretationsrelatedtodoingbusinessovertheinternetcouldincreaseourcostsofcomplianceordoingbusiness  andmateriallyaffectourinstitutions’abilitytoofferonlinecourses,whichwouldhaveamaterialeffectonour  businessandfinancialcondition. Risks Related to the Regulation of Our Industry If we or our institutions fail to comply with the extensive regulatory requirements for the operation of postsecondary education institutions, we and our institutions could face penalties and significant restrictions on operations, including loss of access to DoD tuition assistance programs and federal student loans and grants. Weandourinstitutionsaresubjecttoextensiveregulationby(i)accreditingagenciesrecognizedbytheU.S.  SecretaryofEducation,(ii)stateregulatorybodies,and(iii)thefederalgovernment,throughED.BecauseAPUS  participatesinDoDtuitionassistanceandVAeducationbenefitsprogramsadministeredbyDoDandtheVA,  respectively,andHCONparticipatesinVAbenefitprograms,theyarealsosubjecttooversightbythoseagen - cies.Theregulations,standards,andpoliciesoftheseorganizationscoverthevastmajorityofourinstitutions’  operations,includingtheireducationalprograms,facilities,instructionalandadministrativestaff,administrative  procedures,marketing,recruiting,financialoperations,andfinancialcondition.Theseregulatoryrequirements  canalsoaffecttheabilitytoacquirenewinstitutions,toopennewlocations,toaddneworexpandexisting  educationalprograms,tochangeourcorporatestructureorownership,andtomakeothersubstantivechanges.  Theserequirementscanalsoincreaseourcostofoperations. Findingsofnoncompliancewiththeselaws,regulations,standards,andpoliciescouldresultinanyoftherel - evantregulatoryagenciestakingactionincluding:imposingmonetaryfines,penalties,orinjunctions;limiting  operations,includingrestrictingourinstitutions’abilitytooffernewprogramsofstudyortoopennewlocations,  orimposinglimitsonourgrowth;limitingorterminatingourabilitytograntdegrees;restrictingorrevoking  ourinstitutions’accreditation,licensure,orotherapprovaltooperate;limiting,suspending,orterminatingour  institutions’eligibilitytoparticipateinTitle IVprograms,DoDtuitionassistanceprograms,orotherfinancialaid  programsbyrequiringustorepayfunds,postaletterofcredit,becomesubjecttopaymentmethodsforTitle IV  programsthatarenottheadvancepaymentsystem;subjectingustocivilorcriminalpenalties;orotheractions  thatcouldhaveamaterialadverseeffectonourbusiness. 2015 Annual Report 79 Theregulations,standards,andpoliciesofED,stateregulatorybodies,andourinstitutions’accreditingagen - cieschangefrequentlyandaresubjecttointerpretiveambiguities,particularlywheretheyarewrittenforinsti - tutionsthatofferon-campusinstruction,suchasHCON,ratherthanonlineinstitutions,suchasAPUS.Recent  andpendingchangesin,ornewinterpretationsof,applicablelaws,regulations,standards,orpolicies,orour  noncompliancewithanyapplicablelaws,regulations,standards,orpolicies,couldhaveamaterialadverse  effectonouraccreditation,authorizationtooperateinvariousstates,permissibleactivities,receiptoffunds  underDoDtuitionassistanceprograms,ourabilitytoparticipateinTitle IVprograms,ourabilitytoparticipate  inVAeducationbenefitprograms,orcostsofdoingbusiness.Wecannotpredictwithcertaintyhowallofthese  regulatoryrequirementswillbeappliedorwhetherwewillbeabletocomply,orwillbedeemedbyothersto  havecomplied,withalloftherequirements.Inthesectionentitled“RegulatoryEnvironment”ofthisAnnual  ReportandtheseRiskFactors,wehavedescribedsomeofthemoresignificantrisksrelatedtotheabilityof  ourinstitutionstocomplywiththeregulations,standards,andpoliciesofED,stateregulatorybodies,andour  accreditingagencies. Inaddition,insomecircumstancesofnoncomplianceorallegednoncompliance,wemaybesubjectto“quitam”  lawsuitsundertheFederalFalseClaimsActorvarious,similar,statefalseclaimstatutes,andvarious“whis - tleblower”statutes.InFederalFalseClaimsActactions,privateplaintiffsseektoenforceremediesunderthe  FederalFalseClaimsActonbehalfoftheU.S.governmentand,ifsuccessful,areentitledtorecovertheircosts  andtoreceiveaportionofanyamountsrecoveredbytheU.S.governmentinthelawsuit.Asimilarprocess  appliestostatefalseclaimstatutes.Theselawsuitscanbeprosecutedbyaprivateplaintiffinrespectofsome  actiontakenbyus,evenifEDoranotherregulatorybodydoesnotagreewiththeplaintiff’stheoryofliability,  orthegovernmentcaninterveneandbecomeapartytothelawsuit.Quitamlawsuitshavethepotentialto  generateverysignificantdamageslinkedtoourreceiptofgovernmentfunds,includingTitle IVfundingandDoD  tuitionassistancefunds. If our institutions fail to maintain their institutional accreditation, they would lose the ability to participate in DoD tuition assistance programs and also to participate in Title IV programs. Asdescribedmorefullyaboveineachoperatingsegment’ssectionin“OurInstitutions—Accreditation”and  “RegulatoryEnvironment—Accreditation,”eachofourinstitutionsisaccreditedbyaninstitutionalaccrediting  agencyrecognizedbytheSecretaryofEducation.Accreditationbyanaccreditingagencythatisrecognizedby  theSecretaryofEducationisrequiredforparticipationinDoDtuitionassistanceprogramsandforaninstitution  tobecomeandremaineligibletoparticipateinTitle IVprograms.APUSparticipatesinDoDtuitionassistance  programsandTitle IVprograms,andHCONparticipatesinTitle IVprograms. Ourinstitutions’accreditingagenciesmayimposerestrictionsontheiraccreditationormayterminatetheir  accreditation.Toremainaccredited,ourinstitutionsmustcontinuouslymeetcertaincriteriaandstandardsrelat - ingto,amongotherthings,performance,governance,institutionalintegrity,educationalquality,faculty,admin - istrativecapability,resources,andfinancialstability.Failuretomeetanyofthesecriteriaorstandardscould  resultinthelossofaccreditationatthediscretionoftheaccreditingagencies.Thecompletelossofaccreditation  would,amongotherthings,renderourinstitutionsandtheirstudentsineligibletoparticipateinDoDtuition  assistanceprogramsandTitle IVprograms,andhaveamaterialadverseeffectonourenrollments,revenue,and  resultsofoperations. Our institutions’ student enrollments could decline if they fail to maintain accreditation. Institutionalaccreditationisanimportantattributeofourinstitutions.Collegesanduniversitiesdepend,in  part,onaccreditationinevaluatingtransfersofcreditandapplicationstograduateschools;someinstitutions  willaccepttransfercreditonlyfromregionallyaccreditedinstitutions.Employersrelyontheaccreditedstatus  80 American Public Education, Inc. ofinstitutionswhenevaluatingacandidate’scredentials,andstudents,corporations,andgovernmentspon - sorsundertuitionreimbursementprogramslooktoaccreditationforassurancethataninstitutionmaintains  qualityeducationalstandards.Failuretomaintainourinstitutionalaccreditationwouldhaveamaterialadverse  effectonourenrollments,revenue,andresultsofoperations.Inaddition,certainofourindividualprograms  areaccreditedbyspecializedaccreditingagencies,orrecognizedbyprofessionalorganizations.Ifwefailto  satisfythestandardsofthesespecializedaccreditingagenciesandprofessionalorganizations,wecouldlosethe  specializedaccreditationorprofessionalrecognitionfortheaffectedprograms,whichcouldresultinmaterially  reducedstudentenrollmentsinthoseprogramsandhaveamaterialadverseeffectonus.Inaddition,incertain  cases,professionallicensurewillnotbegrantedifanapplicantforlicensureearnedtherelevanteducational  credentialfromaninstitutionoreducationalprogramthatlacksregionalorspecializedaccreditation.Failure  toobtainormaintainspecializedaccreditationorprofessionalrecognitionforcertainprogramscouldresultin  materiallyreducedstudentenrollmentsinaffectedprogramsandhaveamaterialadverseeffectonus. Increased scrutiny of accrediting agencies by the Secretary of Education and the U.S. Congress may result in increased scrutiny of institutions, particularly for-profit institutions, by accrediting agencies, and if the accrediting agency of one of our institutions were to lose its ability to serve as an accrediting agency for Title IV program purposes, that institution may lose its ability to participate in Title IV programs. APUSisaccreditedbytheHigherLearningCommission,orHLC.InDecember2009,theEDOfficeoftheInspector  General,orOIG,recommendedthatEDconsiderlimiting,suspending,orterminatingHLC’srecognitionasan  accreditorforpurposesofdetermininginstitutionaleligibilitytoparticipateinTitle IVprograms.HLCreceived  additionalscrutinyinJune 2010duringaHouseEducationandLaborCommitteehearingfocusedonOIG’sfind - ingswithregardtocredithourpolicies.IncreasedscrutinyofaccreditingagenciesbytheSecretaryofEducation  andCongressinconnectionwithED’srecognitionprocessmayresultinincreasedscrutinyofinstitutionsby  accreditingagencies. InDecember2010,theNationalAdvisoryCommitteeonInstitutionalQualityandIntegrity,orNACIQI,the  panelchargedwithadvisingEDonwhethertorecognizeaccreditingagenciesforTitle IVpurposes,reviewed  HLC’sstatusasarecognizedaccreditingagency.Atthattime,NACIQIvotedtocontinueHLC’srecognitionasan  accreditingagencybutalsoorderedtheagencytosubmitanadditionalcompliancereportinoneyear.Atits  December2011meeting,NACIQIcharacterizedHLC’sreportas“informational”andnotedthatnovotewasto  betakenonit.InJune 2013,NACIQIvotedtorecommendcontinuationofHLC’srecognitionasanaccrediting  agencyuntilitreachesafinaldecisiononwhethertore-recognizeHLC.InJune 2015,NACIQIvotedtorecom - mendthatEDrenewHLC’srecognitionasanaccreditingagencythroughDecember2017.EDsubsequently  acceptedNACIQI’srecommendationandcontinuedHLC’srecognitionthroughDecember2017.Wecannotpre - dictwhetherNACIQIwillrecommendrenewingHLC’srecognitionbeyondDecember2017.IfHLCweretoloseits  recognitionasanaccreditingagency,APUSwouldloseitseligibilitytoparticipateinTitle IVprogramsandDoD  tuitionassistanceprograms. HCONisaccreditedbytheAccreditingCouncilforIndependentCollegesandSchools,orACICS.InJune 2011,  NACIQIreviewedACICS’sstatusasarecognizedaccreditingagency.Atthattime,NACIQIvotedtocontinue  ACICS’srecognitionasanaccreditingagencybutalsoorderedtheagencytobringitselfintocomplianceandsub - mitwithinoneyearareportdemonstratingitseffortstoaddressconcernsrelatedto,amongotherthings,the  agency’sexperienceinaccreditingdoctoralprograms,thecompositionofitsreviewteamsanddecision-making  bodies,accesstoinstitutionalfiles,andreviewandmonitoringofstudentachievement,andreportingofthe  resultstotheinstitution.InJune 2013,uponreviewofthecompliancereportsubmittedbyACICS,NACIQIvoted  torenewACICS’srecognitionforaperiodofthreeyears. 2015 Annual Report 81 IfEDceasedtorecognizeoneofourinstitutionalaccreditingagenciesforanyreason,theinstitutionaccredited  bythatagencywouldnotbeeligibletoparticipateinTitle IVprogramsortheDoDtuitionassistanceprograms,  unlesstheinstitutionwasaccreditedbyanotheraccreditingagencyrecognizedbyED,orEDcontinuedtocer - tifytheeligibilityoftheinstitutiontoparticipateinTitle IVprograms.EDmaycontinuetocertifyaninstitution  foraperiodnolongerthan18monthsafterthedatesuchrecognitionceases.Theineligibilityofourinstitutions toparticipateinTitle IVprogramswouldhaveamaterialadverseeffectonenrollments,revenue,andresults  ofoperations. National or regional accreditation agencies may prescribe more rigorous accreditation standards for our institutions, which could have a material adverse effect on our student enrollment, revenue and cash flows. Theaccreditationstandardsofthenationalorregionalaccreditationagenciesthataccreditourinstitutionscan  anddovary,andtheaccreditationagenciesmayprescribemorerigorousstandardsthanarecurrentlyinplace.  Complyingwithmorerigorousaccreditationstandardscouldrequiresignificantchangestothewayweoperate  ourbusinessandincreaseouradministrativeandothercosts.Noassurancescanbegiventhatourinstitutions  wouldbeabletocomplywithmorerigorousaccreditationstandardsinatimelymanneroratall.Ifoneofour  institutionsdoesnotmeetitsaccreditationrequirements,itsaccreditationcouldbelimited,modified,sus - pended,orterminated.Failuretomaintainaccreditationwouldmakesuchinstitutionineligibletoparticipate  inDoDtuitionassistanceprogramsandTitle IVprograms,whichcouldhaveamaterialadverseeffectonthe  institution’sstudentenrollmentandrevenue. Becauseofrapidgrowthin,andincreasedscrutinyof,thefor-profiteducationsector,accreditingbodiesmay  adoptneworrevisedcriteria,standards,andpoliciesthatareintendedtomonitor,regulate,orlimitthegrowth  offor-profitinstitutionslikeours.Forexample,inJune 2009,HLCadoptednewpoliciesrelatedtoinstitutional  control,structure,andorganization.ThepoliciesextendHLC’soversighttotransactionsthatchange,orhavethe  potentialtochange,thecontrolofaninstitutionoritsfundamentalstructureandorganization.Underthepoli - cies,HLCextendsitsoversighttodefinedchangesthatoccurinaparentorcontrollingentity,andnotnecessarily intheinstitutionitself.Actionsby,orrelatingto,anaccreditedinstitution,includingasignificantacquisitionof  anotherinstitution,significantchangesinboardcompositionororganizationaldocuments,andaccumulations  byonestockholderofgreaterthan25%ofthecapitalstock,couldresultinadditionalreviewsbyHLCandpossi - blechangefromanaccreditedstatustocandidatestatus,whichenhancestherisksassociatedwiththesetypes  ofactions.Inparticular,thechangefromaccreditedstatustocandidatestatuscouldadverselyimpactaninsti - tution’sabilitytoparticipateinTitle IVprogramsandDoDtuitionassistanceprograms.For-profitinstitutions  mayalsobelessattractiveacquisitioncandidatesbecauseHLChasenhanceditsscrutinyofchangeincontrol  transactions,obtainedtheexplicitabilitytomoveaninstitutionfromaccreditedstatustocandidatestatus,and  willbeexaminingmorecloselyentitiesthatownaccreditedinstitutions. Beginningin2012,ACICS,HCON’saccreditor,establishedcompliancestandardstomeasurestudentretention,  graduateplacementandlicensurepassagerates.Intheeventthatacampusorprogramofferedbyacampus  failstomeettheminimumcompliancestandardfortwoconsecutiveyearsafternoticefromACICSanddoes  notsatisfytherequirementforawaiver,ACICSmaywithdrawaccreditationfromthecampusorprogram.The  compliancestandardsforretentionandgraduateplacementincreasedsubstantiallyfrom2012to2013.Ifoneof  theHCONcampusesfailstomeetthecompliancestandardsforeitherstudentretentionorgraduateplacement,  enrollmentinsuchHCONcampusesprogramscoulddecline,whichcouldhaveamaterialadverseimpacton  HCON’sstudentenrollment,revenue,andcashflows. 82 American Public Education, Inc. If our institutions fail to maintain state authorization in the states where they are physically located, the institutions would lose their ability to grant degrees and other credentials in that state and to participate in Title IV programs and DoD tuition assistance programs. Asdiscussedinthe“RegulatoryEnvironment—StateLicensure/Authorization”sectionofthisAnnualReport,to  participateinTitle IVprogramsandDoDtuitionassistanceprograms,aninstitutionmustbelegallyauthorized  bytherelevanteducationagencyofthestateinwhichitisphysicallylocated.Lossofstateauthorizationbyone  ofourinstitutionsinthestateinwhichitisphysicallylocatedwouldcausethatinstitutiontobeineligibletopar - ticipateinTitle IVprogramsandDoDtuitionassistanceprogramsandloseitsabilitytograntcredentials. APUSisphysicallyheadquarteredintheStateofWestVirginiaandiscurrentlyauthorizedtoofferitsprograms  bytheWestVirginiaHigherEducationPolicyCommission,orWVHEPC,theregulatoryagencygoverningpostsec - ondaryeducationintheStateofWestVirginia.Suchauthorizationmaybelost,limitedorwithdrawnifAPUSfails  tocomplywithmaterialrequirementsunderWestVirginiastatutesandrulesforcontinuedauthorization.Under  currentlaw,ifAPUSweretoloseitsregionalaccreditationbyHLC,WVHEPCmaysuspend,withdraw,orrevoke  APUS’sauthorization.Inaddition,inordertomaintainoureligibilityforaccreditationbyHLC,wemustremain  headquarteredandhaveasubstantialpresenceinoneofthestatesinitsregion,whichincludesWestVirginia.  Thus,ifAPUSweretoloseitsauthorizationfromWVHEPC,APUSwouldbeunabletoprovideeducationalser - vicesinWestVirginia,APUSwouldloseitseligibilityforTitle IVprogramsandDoDtuitionassistanceprograms,  andAPUSwouldloseitsHLCaccreditation. HCONislocatedintheStateofOhioandisauthorizedbytheOhioStateBoardofCareerCollegesandSchools  andtheOhioDepartmentofHigherEducation.Suchauthorizationmaybelimited,suspended,orrevokedif  HCONfailstosubmitrenewalapplicationsorotherrequiredsubmissionstothestateinatimelymanner,or  ifHCONfailstocomplywithmaterialrequirementsunderapplicableOhiostatutesandrulesforcontinued  authorization.ContinuedstateauthorizationisrequiredinordertomaintainACICSaccreditation.IfHCONwere  toloseitsauthorizationfromtheOhioStateBoardofCareerCollegesandSchools,HCONwouldbeunableto  provideeducationalservicesinOhio,HCONwouldloseitseligibilityforTitle IVprograms,andHCONwouldlose  itsaccreditation.IfHCONweretoloseitsauthorizationfromtheOhioDepartmentofHigherEducation,HCON  wouldbeunabletooffertheonlineRegisteredNursetoBachelorofScienceinNursingcompletionprogramin  Ohio.IfHCONweretoloseapprovalfromtheOhioBoardofNursingfortheDiplomainPracticalNursingorthe  AssociateDegreeinNursing,studentsintheprogramlackingapprovalwouldnotbeeligibletoapplyforlicen - surebyexaminationtopracticenursinginOhio. EffectiveJuly 1,2011,EDregulationsprovidethataninstitutionisconsideredlegallyauthorizedbyastateifthe  statehasaprocesstoreviewandappropriatelyactoncomplaintsconcerningtheinstitution,includingenforc - ingapplicablestatelaws,andtheinstitutioncomplieswithanyapplicablestateapprovalorlicensurerequire - mentsconsistentwiththenewrules.Ifastateinwhichoneofourinstitutionsislocatedfailstocomplyinthe  futurewiththeprovisionsofthatregulation,ourinstitutions’abilitytooperateinthatstateandtoparticipate  inTitle IVprogramscouldbelimitedorterminated.Foradditionalinformationontheseregulationsplease  refertothe“RegulatoryEnvironment—ED’sStateLicensure/AuthorizationRegulatoryRequirements”sectionof  thisAnnualReport. Our institutions’ failure to comply with regulations of various states could result in actions taken by those states that would have a material adverse effect on our enrollments, revenue, and results of operations. Variousstatesimposeregulatoryrequirementsoneducationalinstitutionsoperatingwithintheirboundar - ies.Manystatesassertjurisdictionoveronlineeducationalinstitutionsthathavenophysicallocationorother  2015 Annual Report 83 presenceinthestatebutoffereducationalservicestostudentswhoresideinthestateoradvertisetoorrecruit  prospectivestudentsinthestate.Stateregulatoryrequirementsforonlineeducationareinconsistentamong  statesandnotwelldevelopedinmanyjurisdictions.Assuch,theserequirementschangefrequentlyand,in  someinstances,arenotclearorarelefttothediscretionofstateregulators. ForinformationaboutthosejurisdictionsinwhichAPUSandHCONareauthorized,see“Regulatory  Environment—StateLicensure/Authorization”inthisAnnualReport.Totheextentthatwehaveobtained,or  obtaininthefuture,stateauthorizationsorlicensure,changesinstatelawsandregulationsandtheinterpreta - tionofthoselawsandregulationsbytheapplicableregulatorsmaylimitourabilitytooffereducationalpro - gramsandawarddegrees.Somestatesmayalsoprescribefinancialregulationsthataredifferentfromthose  ofED.Ifwefailtocomplywithstatelicensingorauthorizationrequirementstoprovidedistanceeducationin  thatstate,wemaybesubjecttothelossofstatelicensureorauthorizationtoprovidedistanceeducationinthat  state.Ifwefailtocomplywithstaterequirementstoobtainlicensureorauthorization,wemaybethesubjectof  injunctiveactionsorpenalties. Asdescribedinthe“RegulatoryEnvironment—StateLicensure/Authorization”sectionofthisAnnualReport,ED’s  ProgramIntegrityRegulationsprovidedthatifaninstitutionofferedpostsecondaryeducationthroughdistance  educationtostudentsinastate,itwasrequiredtoobtainanynecessaryapprovalstodoso.However,onJune 5,  2012,theU.S.CourtofAppealsfortheDistrictofColumbiaaffirmedtheU.S.DistrictCourtfortheDistrictof  Columbia’sJuly 12,2011,rulingupholdingED’spowertopromulgateregulationsonstateauthorizationfordis - tanceeducationbutvacatingonproceduralgroundsthoseprovisionsoftheProgramIntegrityRegulations.In  November 2013,EDannounceditsintenttoestablishanegotiatedrulemakingpaneltoconsiderregulationsfor,  amongotherissues,stateauthorizationofprogramsofferedthroughdistanceeducation.Negotiatedrulemak - ingsessionsoccurredinthewinterandspringof2014,butthenegotiatingcommitteedidnotreachconsensus.  InJune 2014,EDannouncedthatitwoulddelaythereleaseofproposedrulesregardingstateauthorizationfor  distanceeducation.NoassurancecanbegivenwithrespecttowhetherEDwilladoptnewrulesonstateautho - rizationfordistanceeducationor,intheeventthatsuchregulationsareadopted,ourabilitytocomplywiththe  newregulations.ShouldEDadoptnewrulesaddressinglicensingrequirementsfordistanceeducation,andif  oneofourinstitutionsfailstoobtainormaintainrequiredstateauthorizationtoprovidepostsecondarydis - tanceeducationinaspecificstate,theinstitutioncouldloseitsabilitytoawardTitle IVaidtostudentsinthat  stateandcouldloseitsabilitytoprovidedistanceeducationinthatstate. The inability of our institutions’ graduates to obtain professional licensure, employment or other outcomes in their chosen fields of study could reduce our enrollments and revenue, and potentially lead to litigation that could be costly to us. Certainofourinstitutions’graduatesseekprofessionallicensure,employmentorotheroutcomesintheircho - senfieldsfollowinggraduation.Theirsuccessinobtainingtheseoutcomesdependsonseveralfactors,including,  forexample,theindividualmeritsofthegraduate;whethertheinstitutionandtheprogramwereapprovedby  thestateinwhichthegraduateseekslicensure,orbyaprofessionalassociation;whethertheprogramfrom  whichthestudentgraduatedmeetsallstaterequirementsforprofessionallicensure;andwhethertheinstitu - tionorprogramhasanyrequiredaccreditation.Certainstateshaverefusedtolicenseorcertifystudentsfrom  particularAPUSprogramsongroundsthattheprogramdidnotmeetoneormoreofthestate’sspecificlicen - surerequirementsorwasnotapprovedbythestateforpurposesofprofessionallicensure.Basedonchallenges  relatedtosatisfyingvaryingstaterulesregardingeligibilityforteacherlicensureinastate,APUSdeterminednot  toenrollnewstudentsinanyofitsinitialteacherlicensureprogramsasofDecember2014. ToapplyforlicensuretopracticenursinginOhio,anapplicantmusthavesuccessfullycompletedanursing  educationprogramthatisapprovedbytheOhioBoardofNursing.RegulationsoftheOhioBoardofNursing,  84 American Public Education, Inc. whichapprovestheHCONPracticalNurse,orPNprogram,andAssociatesDegreeinNursing,orADNprograms,  requirethatanursingeducationprogramsuchastheHCONPNandADNprogramsmusthaveapassrateonthe  relevantNCLEXlicensureexamthatisatleastninety-fivepercentofthenationalaverageforfirst-timecandi - datesinacalendaryear.Ifaprogramdoesnotattainsuchpassrate,theprogrammayfacesanctions,includ - ing,afterfourconsecutiveyearsoffailingtomeetthatstandard,placementonprovisionalapprovalstatus.If  aprogramonprovisionalapprovalcontinuestofailtomeettherequirements,theOhioBoardofNursingmay  withdrawitsapprovaloftheprogram. Thestaterequirementsforlicensurearesubjecttochange,asaretheprofessionalcertificationstandards,and  wemaynotbecomeawareofchangesthatmayimpactourstudentsincertaininstances.Inaddition,require - mentsforemploymentvaryfromemployertoemployerandfromfieldtofield.Intheeventthatoneormore  statesrefusetorecognizeourinstitutions’studentsforprofessionallicensurebasedonfactorsrelatingtoour  institutionsorprograms,thepotentialgrowthofourinstitutions’programswouldbenegativelyimpacted,which  couldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandcashflows.  Further,totheextentourgraduatesfailtosatisfyrequirementsforemploymentbyparticularemployersorina  particularprofessionbasedoncharacteristicsofourprograms,thepotentialgrowthofourinstitutions’pro - gramswouldbenegativelyimpacted,whichcouldhaveamaterialadverseeffectonourbusiness,financialcon - dition,resultsofoperationsandcashflows.Inaddition,weandourinstitutionscouldbeexposedtolitigation  thatwouldforceustoincurlegalandotherexpensesthatcouldhaveamaterialadverseeffectonourbusiness,  financialcondition,resultsofoperations,andcashflows. Our institutions must periodically seek recertification to participate in Title IV programs, and may, in certain circumstances, be subject to review by the Department of Education prior to seeking recertification, and our future success may be adversely affected if our institutions are unable to successfully maintain certification or obtain recertification. AninstitutiongenerallymustseekrecertificationfromEDatleasteverysixyearsandpossiblymorefrequently  dependingonvariousfactors,suchaswhetheritisprovisionallycertified.EDmayalsoreviewaninstitution’s  continuedeligibilityandcertificationtoparticipateinTitle IVprograms,orscopeofeligibilityandcertification,  intheeventtheinstitutionundergoesachangeinownershipresultinginachangeofcontrol,orexpandsits  activitiesincertainways,suchastheadditionofcertaintypesofnewprograms,additionofnewlocations,or,in  certaincases,changestotheacademiccredentialsthatitoffers.Incertaincircumstances,EDmustprovisionally  certifyaninstitution,suchaswhenitisaninitialparticipantinTitle IVprograms,orhasundergoneachangein  ownershipandcontrol. AprovisionallycertifiedinstitutionmustapplyforandreceiveEDapprovalofsubstantialchangesandmust  complywithanyadditionalconditionsincludedinitsprogramparticipationagreement.IfEDdeterminesthat  aprovisionallycertifiedinstitutionisunabletomeetitsresponsibilitiesunderitsprogramparticipationagree - ment,itmayseektorevoketheinstitution’scertificationtoparticipateinTitle IVprogramswithfewerduepro - cessprotectionsfortheinstitutionthanifitwerefullycertified. APUSisfullyrecertifiedtoparticipateinTitle IVprogramsthroughSeptember 30,2020.APUSwillberequiredto applytimelyforrecertificationinordertocontinuetoparticipateintheTitle IVprogramsafterSeptember 30,2020. HCONwasdeemedtohaveundergoneachangeofownershipandcontrolinNovember 2013,requiringreviewby  EDinordertoreestablisheligibilityandcontinueparticipationinTitle IVprograms.InJanuary2016wereceived  aletterfromEDapprovingthechangeinownershipandcontrolandgrantingHCONprovisionalcertificationto  participateinTitle IVprogramsuntilDecember 31,2018.HCONreceivedafullyexecutedProvisionalProgram  ParticipationAgreement,orPPPA,inFebruary 2016.Whileprovisionallycertified,HCONoperatesunderthePPPA,  2015 Annual Report 85 whichrequiresHCONtoapplyforandreceiveapprovalfromtheSecretaryofEducationbeforeinitiatingany  substantialchanges,suchasestablishinganadditionallocationatwhichatleast50%ofaneligibleprogramwill  beofferedandTitle IVprogramfundswillbedisbursed,offeringacademicprogramsathigherthanthebachelor’s  degreelevel,oraddinganeweducationprogram.DuringthetermofthePPPA,HCON’sparticipationinTitle IV  programsissubjecttorevocationforcause,whichincludesafailuretocomplywithanyprovisionsetforthinthe  PPPA,aviolationofEDregulationsdeemedmaterialbyED,oramaterialmisrepresentationinthematerialsub - mittedtoEDaspartoftheinstitution’sapplicationforapprovalofthechangeofownershipandcontrol. IfEDweretowithdrawornotrenewourinstitutions’certificationtoparticipateinTitle IVprograms,ourstu - dentswouldnolongerbeabletoreceiveTitle IVprogramfunds,whichwouldhaveamaterialadverseeffecton  ourenrollments,revenue,andresultsofoperations. If our institutions are unable to successfully maintain certification or obtain recertification to participate in Title IV programs they will not be able to participate in DoD tuition assistance programs. Ifourinstitutionsareunabletosuccessfullymaintaincertificationorobtainrecertificationtoparticipatein  ED’sTitle IVprograms,theywillnotbeabletoparticipateinDoDtuitionassistanceprogramsbecausetheDoD  MOUrequiresaninstitutiontobecertifiedtoparticipateinTitle IVprogramsinordertoparticipateinDoD  tuitionassistanceprograms.LossofparticipationintheDoDtuitionassistanceprogramswouldhaveamaterial  adverseeffectonourenrollments,revenue,resultsofoperations,andfinancialcondition. A failure to demonstrate “administrative capability” may result in the loss of eligibility to participate in Title IV programs. ED’sregulationsspecifyextensivecriteriaaninstitutionmustsatisfytoestablishthatithastherequisite“admin - istrativecapability”toparticipateinTitle IVprogramsandthesanctionsEDmayimposeifaninstitutionfails  tosatisfyanyofthosecriteria.Tomeettheadministrativecapabilitystandards,aninstitutionmust,among  otherthings,complywithallapplicableTitle IVrequirements,includingwithrespecttotheadministrationof  Title IVprogramsandtheprocessingofTitle IVprogramfunds.See“RegulatoryEnvironment—FederalSupport  andRegulationofPostsecondaryEducation—RegulationofTitle IVFinancialAidPrograms—Administrative  Capability.”Ifaninstitutionfailstosatisfyanyoftheadministrativecapabilityrequirements,EDmayrequirethe  repaymentofTitle IVprogramfunds,transfertheinstitutionfromthe“advance”systemofpaymentofTitle IV  programfundstoheightenedcashmonitoringstatus,ortothe“reimbursement”methodofpayment,placethe  institutiononprovisionalcertificationstatus,orcommenceaproceedingtoimposeafineortolimit,suspend,or  terminatetheparticipationoftheinstitutioninTitle IVprograms. IfoneofourinstitutionsisfoundnottohavesatisfiedED’s“administrativecapability”requirements,itcould  belimitedinitsaccessto,orlose,Title IVprogramfunding,whichwouldlimitourpotentialforgrowthand  adverselyaffectourenrollment,revenue,andresultsofoperations. A failure to demonstrate “financial responsibility” may result in the loss of eligibility by one of our institutions to participate in Title IV programs or require the posting of a letter of credit in order to maintain eligibility to participate in Title IV programs. ToparticipateinTitle IVprograms,aneligibleinstitutionmustsatisfyspecificmeasuresoffinancialresponsi - bilityprescribedbyED,orpostaletterofcreditinfavorofED,andpossiblyacceptotherconditions,suchas  provisionalcertification,additionalreportingrequirements,orregulatoryoversightofitsparticipationinTitle IV  programs.EDmayalsoapplysuchmeasuresoffinancialresponsibilitytoaparentcompanyofaneligibleinsti - tutionand,ifsuchmeasuresarenotsatisfiedbytheparentcompany,requiretheinstitutiontopostaletterof  creditinfavorofED,andpossiblyacceptotherconditionsonitsparticipationinTitle IVprograms.Anobligation  86 American Public Education, Inc. topostaletterofcredit,ortoacceptotherconditions,suchasachangeinoursystemofTitle IVpaymentfrom  EDforpurposesofdisbursement,couldincreaseourcostsofregulatorycompliance,oraffectourcashflow.  IfoneofourinstitutionsisfoundnottohavesatisfiedED’s“financialresponsibility”requirements,itcouldbe  limitedinitsaccessto,orlose,Title IVprogramfunds,whichwouldlimitourpotentialforgrowthandadversely  affectourenrollment,revenue,andresultsofoperations.Ifwe,astheparentcompanyofaneligibleinstitution,  arefoundnottohavesatisfiedED’sfinancialresponsibilityrequirements,allofourinstitutionscouldbelimited  intheiraccessto,orlose,Title IVprogramfunds. If our institutions do not comply with the 90/10 Rule, they will lose eligibility to participate in federal student financial aid programs. AprovisionoftheHEArequiresallproprietaryeducationinstitutionstocomplywithwhatiscommonlyreferred  toasthe90/10Rule,whichimposessanctionsonparticipatinginstitutionsthatderivemorethan90%oftheir  totalrevenueonacashaccountingbasisfromTitle IVprogramsascalculatedunderED’sregulations.For  moreinformationincludingthe90/10percentagesforourinstitutions,see“RegulatoryEnvironment—Student  FinancingSourcesandRelatedRegulations/Requirements—DepartmentofEducation—RegulationofTitle IV  FinancialAidPrograms—The90/10Rule.” The90/10Rulepercentageforourinstitutionscouldincreaseinthefuture,dependingontheimpactoffuture  changesinourenrollmentmix,andregulatoryandotherfactorsoutsideourcontrol,includinganyreduction  intuitionassistanceprovidedbytheDoDforservicemembersandeducationbenefitsprovidedbytheVAfor  veterans,orchangesinthetreatmentofsuchfundingforpurposesofthe90/10Rulecalculation.Currently,DoD  tuitionassistanceandVAeducationbenefitsarenottreatedasTitle IVrevenueunderthe90/10Ruleand,there - fore,forAPUS,amajorityofsuchfundingisincludedinthe“10%”portionoftherulecalculation.Areductionin  theavailabilityofthistypeoffunding,orachange(throughlegislation,regulatoryaction,oranexecutiveorder)  thatrequiresthatthosefundsbetreatedinthesamemannerasTitle IVfundingunderthe90/10Rule,would  increaseourinstitutions’90/10Rulepercentage.Ifanyofourinstitutionsviolatesthe90/10Ruleandloseseligi - bilitytoparticipateinTitle IVprograms,itsineligibilitytoparticipateinTitle IVprogramswouldhaveamaterial  adverseeffectonourenrollments,revenue,resultsofoperations,andcashflows. A failure by our institutions to comply with the Department of Education’s incentive payment rule could result in sanctions. Ifoneofourinstitutionspaysabonus,commission,orotherincentivepaymentinviolationofapplicableED  rules,thatinstitutioncouldbesubjecttosanctions,whichcouldhaveamaterialadverseeffectonourbusiness.  IfEDdeterminesthatoneofourinstitutionsviolatedtheincentivepaymentrule,itmayrequiretheinstitution  tomodifyitspaymentarrangementstoED’ssatisfaction.EDmayalsofinetheinstitutionorinitiateactionto  limit,suspend,orterminatetheinstitution’sparticipationinTitle IVprograms.EDmayalsoseektorecover  Title IVfundsdisbursedinconnectionwiththeprohibitedincentivepayments.Asdescribedin“Regulatory  Environment—StudentFinancingSourcesandRelatedRegulations/Requirements—DepartmentofEducation— RegulationofTitle IVFinancialAidPrograms—IncentivePaymentRule,”abolitionofregulatorysafeharborsthat  describedpermissiblearrangements,andotherrecentchangesintheregulationanditsinterpretation,may  createuncertaintyaboutwhatconstitutesimpermissibleincentivepayments.Themodifiedincentivepayment  ruleandrelateduncertaintyastohowitwillbeinterpretedalsomayinfluenceourapproach,orlimitouralter - natives,withrespecttoemploymentpoliciesandpracticesandconsequentlymaynegativelyaffectourability  torecruitandretainemployees,and,asaresult,ourbusinesscouldbemateriallyandadverselyaffected.In  addition,theGovernmentAccountabilityOffice,orGAO,hasissuedareportcriticalofED’senforcementofthe  incentivepaymentrule,andEDhasundertakentoincreaseitsenforcementefforts. 2015 Annual Report 87 TheDoD’s2014MOUrequiresthatinstitutionsparticipatingintheDoDtuitionassistanceprogramshavepol - iciesinplacecompliantwithregulationsissuedbyEDrelatedtorestrictionsonpaymentofincentivecompen - sation.UnderthetermsoftheDoDMOU,aninstitutionparticipatingintheDoDtuitionassistanceprograms  mustrefrainfromprovidinganycommission,bonus,orotherincentivepaymentbaseddirectlyorindirectlyon  securingenrollmentsorfederalfinancialaid,includingDoDtuitionassistanceprogramfunds,toanypersonsor  entitiesengagedinstudentrecruiting,admissionactivities,ormakingdecisionsregardingtheawardofstudent  financialassistance.In2013,theImprovingTransparencyofEducationOpportunitiesforVeteransActsestab - lishedabanonincentivecompensationbasedonsuccessinsecuringenrollmentsorfinancialaidwithregardto  VAbenefits. OnJune 2,2015,EDreleasedamemorandumregardingenforcementoftheprohibitiononthepaymentofincen - tivecompensationbypostsecondaryinstitutionstoanypersonorentityengagedinanystudentrecruitingor  admissionsactivitiesorinmakingdecisionsregardingtheawardofstudentfinancialassistancebaseddirectlyor  indirectlyuponsuccessinsecuringenrollmentsorfinancialaid.Institutionsagreetocomplywiththeincentive  compensationrulesasaconditionoftheirparticipationintheTitle IVprogram.Thememorandumindicatedthat  EDwillreviseitsapproachtomeasuringdamagesfornoncompliancewiththeprohibitionagainstincentivecom - pensation.Inadministrativeenforcementactions,EDwillcalculatetheamountoftheinstitutionalliabilitybased  onthecosttoEDoftheTitle IVfundsimproperlyreceivedbytheinstitution,includingthecosttoEDofallofthe  Title IVfundsreceivedbytheinstitutionoveraparticularperiodoftimeifthosefundswereobtainedthrough  implementationofapolicyorpracticeinwhichstudentswererecruitedinviolationoftheincentivecompensa - tionprohibition.EDmayalsoimposeafineuponaninstitution,ortakeadministrativeactiontolimit,suspend,  revoke,deny,orterminateaninstitution’seligibilitytoparticipateintheTitle IVprograms,iftheinstitution  violatestheprohibition.WearecurrentlyunabletopredicttheimpactthatED’srevisedapproachtomeasuring  damagesundertheincentivecompensationprohibitionmighthaveonourfinancialconditionifoneofourinsti - tutionsisfoundtobeinviolationoftheprohibition. Inaddition,thirdpartiesmayfile“quitam”or“whistleblower”suitsonbehalfofthefederalgovernmentalleging  violationoftheincentivepaymentprovision.SuchsuitsmaypromptEDinvestigations,andthefederalgovern - mentmaydeterminetointerveneinthelawsuits.Particularlyinlightoftheuncertaintysurroundingthemodi - fiedincentivepaymentruleandED’sJune 2015memorandum,theexistenceof,thecostsofrespondingto,and  theoutcomeof,quitamorwhistleblowersuitsorEDinvestigationscouldhaveamaterialadverseeffectonour  reputationcausingourenrollmentstodecline,couldcauseustoincurcoststhatarematerialtoourbusiness,  andcouldimpacttheabilityofourinstitutionstoparticipateinTitle IVprograms,amongotherthings.Asa  result,ourbusinesscouldbemateriallyandadverselyaffected. A failure to comply with the Department of Education’s “gainful employment” regulations could result in the loss of eligibility to participate in Title IV programs . UndertheHEA,proprietaryschoolsaregenerallyeligibletoparticipateinTitle IVprogramsonlyinrespectof  educationalprogramsthatpreparestudentsfor“gainfulemploymentinarecognizedoccupation.”Historically,  thisconcepthasnotbeendefinedindetailedregulations.OnOctober 29,2010andJune 13,2011,EDpub - lishedfinalregulationsongainfulemployment.Formoreinformation,see“RegulatoryEnvironment—Federal  SupportandRegulationofPostsecondaryEducation—RegulationofTitle IVFinancialAidPrograms—Gainful  Employment”inthisAnnualReport.InresponsetoalegalchallengetoED’sgainfulemploymentregulations,on  June 30,2012theU.S.DistrictCourtfortheDistrictofColumbiastruckdownthedebtmeasuresandallother  gainfulemploymentrequirementsexceptthedisclosurerequirements.OnMarch 19,2013,thecourtdeniedED’s  motiontoreinstatecertainofthoseregulations.Becausethedisclosurerequirementswerenotstuckdown,  institutionswererequiredtocomplywiththedisclosurerequirements. 88 American Public Education, Inc. InSeptember 2013,EDconvenedanegotiatedrulemakingcommittee,whichwerefertoastheGainful  EmploymentRulemakingCommittee,toprepareproposedregulationstoreplacethosestruckdownbythe  federalcourt.TheGainfulEmploymentRulemakingCommitteemetinthefallof2013,butdidnotachieve  consensusonregulatorylanguage.OnOctober 31,2014,EDpublishedthefinalregulationsrelatedtogain - fulemployment,whichwerefertoastheFinalGERegulations.OnJuly 1,2015,theFinalGERegulationswent  intoeffect,withtheexceptionofnewdisclosurerequirements,whichtakeeffectJanuary1,2017.TheFinalGE  Regulationsestablishdebt-relatedmeasuresfordeterminingwhethercertainpostsecondaryeducationpro - gramspreparestudentsforgainfulemploymentinarecognizedoccupation.TheFinalGERegulationssetforth  twodebt-to-earningsmeasures:anannualearningsrateandadiscretionaryincomerate.UndertheFinalGE  Regulations,aprogramwillpassthemeasuresifitsgraduateshaveannualloanpaymentslessthanorequalto  8%oftheirtotalearningsorlessthanorequalto20%oftheirdiscretionaryincome.Aprogramthatdoesnot  passeitherofthedebt-to-earningsmeasuresandthathasanannualearningsratethatisgreaterthan8%and  lessthanorequalto12%,oradiscretionaryincomeratethatisgreaterthan20%andlessthanorequalto30%,  wouldbeconsideredtobeinawarning“zone.”Subjecttothepotentialforadjustmentsbasedonatransition  period,aprogramwillfailthemeasuresifitsannualearningsrateisgreaterthan12%(orthedenominatorof  therate(annualearnings)iszero)anditsdiscretionaryincomerateisgreaterthan30%(ortheincomeforthe  denominatoroftherate(discretionaryearnings)isnegativeorzero). AprogramwillbecomeineligibleforTitle IVfundingifitfailsbothdebt-to-earningsmeasurestwiceinthree  consecutiveyears,oriftheprogramisinthe“zone”forfourconsecutiveyears.Aninstitutionwillberequiredto  providewarningstostudents,includingprospectivestudents,whennotifiedbyEDthataprogramcouldbecome  ineligiblebasedonitsfinaldebt-to-earningsmeasuresforthenextawardyear. Inadditiontothedebt-to-earningsmeasures,theFinalGERegulationsincludeadditionalrequirementsrelated  togainfulemploymentprograms.Forexample,theFinalGERegulationsrequireaninstitution’smostsenior  executiveofficertocertify,aspartoftheprogramparticipationagreement,thateachofitseligiblegainful  employmentprogramsofferedbytheinstitutionsatisfiescertainrequirementsrelatedtoinstitutionaland  programmaticaccreditationandprofessionallicensure,orcertificationexamrequirements.Also,theFinalGE  Regulationsexpanduponthegainfulemploymentprogramdisclosurerequirements. TheFinalGERegulationscouldputthecontinuingTitle IVeligibilityofoureducationalprogramsatriskdueto  factorsbeyondourcontrol,suchaschangesintheactualordeemedincomelevelofourgraduates,changesin  studentborrowinglevels,increasesininterestrates,changesinthefederalpovertyincomelevelrelevantfor  calculatingdiscretionaryincome,andotherfactors.Failuretosatisfythegainfulemploymentmeasurescould  reducetheabilityofourinstitutionstoofferorcontinuecertaintypesofprogramsforwhichthereismarket  demand,whichcouldthereforeimpactourabilitytomaintainorgrowourbusiness.Additionally,theexpanded  gainfulemploymentprogramdisclosurerequirementscouldadverselyimpactstudentenrollment,persistence,  andretentionifourinstitutions’disclosedprograminformationcomparesunfavorablywithdisclosedinforma - tionofothereducationalinstitutions. Our institutions may lose eligibility to participate in Title IV programs if their student loan default rates are too high, and if our institutions lose that eligibility our future growth could be impaired. ToremaineligibletoparticipateinTitle IVprograms,aneducationalinstitution’sfederalstudentloancohort  defaultratesmustremainbelowcertainspecifiedlevels.Eachcohortisthegroupofstudentswhofirstenter  intostudentloanrepaymentduringafederalfiscalyear(endingSeptember 30).Themeasurementperiodfor  thestudentloancohortdefaultratesincreasedfromtwotothreeyearsstartingwiththe2009cohort.Formore  informationincludingthedefaultratesofourinstitutions,see“RegulatoryEnvironment—StudentFinancing  SourcesandRelatedRegulations/Requirements—DepartmentofEducation—RegulationofTitle IVFinancialAid  2015 Annual Report 89 Programs—StudentLoanDefaults.”GiventhatAPUSandHCONonlyrelativelyrecentlybegantoparticipatein  Title IVprogramsandthatthenumberofstudentsreceivingTitle IVprogramfundshasgrownsignificantlyover  time,thecohortdefaultratesinthefirstfewyearsofparticipationmaynotbeindicativeoftheratesthatwillbe  applicabletobothinstitutionsoverthelongtermasagreaternumberofstudentsenterrepayment. Ifaninstitution’sthree-yearcohortdefaultrateequalsorexceeds30%foranygivenyear,itmustestablisha  defaultpreventiontaskforceanddevelopadefaultpreventionplanwithmeasurableobjectivesforimprov - ingthecohortdefaultrate.Beginningwiththethree-yearcohortdefaultrateforthe2011cohortpublishedin  September 2014,onlythree-yearcohortdefaultrateswillbeappliedforpurposesofmeasuringcompliance.  EducationalinstitutionswillloseeligibilitytoparticipateinTitle IVprogramsiftheirthree-yearcohortdefault  rateexceeds40%foranygivenyearorisequaltoorgreaterthan30%forthreeconsecutiveyears. Ifoneofourinstitutionsisrequiredtodevelopadefaultpreventionplan,itmayincreaseouradministrative  costswhichwouldadverselyimpactourresultsofoperations.Recentlytherehasbeenincreasedattentionby  membersofCongressandothersondefaultpreventionactivitiesofproprietaryeducationinstitutions.Ifsuch  attentionleadstoCongressionalorregulatoryactionrestrictingthetypesofdefaultpreventionassistancethat  educationalinstitutionsarepermittedtoprovide,thedefaultratesofourformerstudentsmaybenegatively  impacted.SuchattentioncouldalsoleadtoCongressionalproposalstoincreasethemeasuringperiod,which  couldnegativelyimpactourdefaultrates.MembersofCongresshavealsointroducedproposedlegislationthat  wouldassessinstitutionsashareofthecostsassociatedwithdefaultofstudentloansbystudentswhowere  enrolledintheinstitutions’educationprogramsandwouldtieaninstitution’sobligationtomakesuch“risk-shar - ing”paymentstotheinstitution’seligibilitytoparticipateintheTitle IVprograms.Ifoneofourinstitutionsloses  itseligibilitytoparticipateinTitle IVprogramsbecauseofhighstudentloandefaultrates,studentswouldno  longerbeeligibletouseTitle IVprogramfundsatthatinstitution,whichwouldsignificantlyreducethatinstitu - tion’senrollmentsandrevenueandhaveamaterialadverseeffectonourresultsofoperations. We rely on third parties to administer our institutions’ participation in Title IV programs and their failure to perform services as agreed or to comply with applicable regulations could cause us to lose our eligibility to participate in Title IV programs. ED’sregulationspermitaninstitutiontoenterintoawrittencontractwithathird-partyservicerforthe  administrationofanyaspectoftheinstitution’sparticipationinTitle IVprograms.Thethird-partyservicer  must,amongotherobligations,complywithTitle IVrequirementsandbejointlyandseverallyliablewiththe  institutiontotheSecretaryofEducationforanyviolationbytheservicerofanyTitle IVprovision.Ourinsti - tutionsutilizethird-partyservicersforsomeservices,suchasfinancialaidprocessing,defaultmanagement,  andprocessingstudentcreditbalancerefunds,andinthefuturemayconsiderusingthird-partyservicersfor  otherfunctionsthatarecurrentlymanageddirectlybyourinstitutions.Ifanythird-partyservicerthatwehave  engageddoesnotcomplywithapplicablestatutesandregulationsincludingtheHEA,ourinstitutionsmaybe  liableforitsactions,andourinstitutionscouldloseeligibilitytoparticipateinTitle IVprograms.Intheevent  thatoneofourthird-partyservicersfailstoperformtheservicesasagreeditmayimpactourabilitytooperate,  negativelyimpactoureligibilitytoparticipateinTitle IVprograms,andotherwisenegativelymateriallyimpact  ourfinancialcondition.Further,intheeventthatourinstitutionstransitiontoorfromathird-partyservicerfor  anyofitsservicestherewouldbecostsandrisksrelatedtothetransitionwhichcouldhaveamaterialadverse  effectonourfinancialcondition. 90 American Public Education, Inc. Our institutions will be subject to sanctions that could be material to our results and damage our reputation if the Department of Education determines that our institutions failed to correctly calculate and timely return Title IV program funds for students who withdraw before completing their educational program. AninstitutionparticipatinginTitle IVprogramsmustcorrectlycalculatetheamountofunearnedTitle IVpro - gramfundsthathavebeendisbursedtostudentswhowithdrawfromtheireducationalprogramsbeforecom - pletion,andmustreturnthoseunearnedfundstotheTitle IVprogramsinatimelymanner,generallywithin45  daysafterthedatetheschooldeterminesthatthestudenthaswithdrawn.UnderEDregulations,latereturns  ofTitle IVprogramfundsfor5%ormoreofstudentssampledinconnectionwiththeinstitution’sannualcom - plianceauditconstitutematerialnoncomplianceforwhichaninstitutiongenerallymustsubmitanirrevocable  letterofcredit. HCON’sTitle IVcomplianceauditfortheyearendedDecember 31,2012,identifiedadeficiencyrelatedtotimely  returnofTitle IVprogramfunds.InaPreliminaryAuditDeterminationLetterdatedJuly 10,2013,EDrequested  additionalinformationfromHCONaboutthesituationandrequiredHCONtoconductafilereviewtoidentify  thosefilesthatreflectedaninaccuraterefund.EDsaidthatthematterwouldbeaddressedaspartofitsreview  ofHCON’sapplicationforachangeofownershipthatHCONfiledinconnectionwithouracquisitionofiton  November 1,2013.IfEDdeterminesthatTitle IVfundswerenotproperlycalculatedandtimelyreturned,wemay  havetorepayTitle IVfunds,postaletterofcreditwithEDinanamountequalto25%ofthetotaldollaramount  ofunearnedTitle IVfundsthattheinstitutionwasrequiredtoreturnwithrespecttowithdrawnstudentsduring  themostrecentlycompletedfiscalyear,orotherwisebesanctionedbyED,whichcouldincreaseHCON’scostof  regulatorycomplianceandadverselyaffectourfinancialcondition. Our institutions’ failure to comply with ED’s substantial misrepresentation rules could result in material sanctions. EDmaytakeactionagainstaninstitutionintheeventofsubstantialmisrepresentationbytheinstitutioncon - cerningthenatureofitseducationalprograms,itsfinancialcharges,ortheemployabilityofitsgraduates.The  ProgramIntegrityRegulationsexpandedthedefinitionof“substantialmisrepresentation”tocoveradditional  representativesoftheinstitutionandadditionalsubstantiveareas,expandedthepartiestowhomasubstan - tialmisrepresentationcannotbemade,andincreasedactionsEDmaytakeifitdeterminesthataninstitution  hasengagedinsubstantialmisrepresentation.Aninstitutionengagesinsubstantialmisrepresentationwhen  theinstitutionitself,oneofitsrepresentatives,oranorganizationorpersonwithwhichtheinstitutionhasan  agreementtoprovideeducationalprograms,marketing,advertising,oradmissionsservices,makesasubstan - tialmisrepresentationdirectlyorindirectlytoastudent,prospectivestudentoranymemberofthepublic,orto  anaccreditingagency,astateagency,ortotheSecretaryofEducation. IfEDdeterminesthataninstitutionhasengagedinsubstantialmisrepresentation,EDmay(i)iftheinstitutionis  provisionallycertified,revokeaninstitution’sprogramparticipationagreementorimposelimitationsonitspar - ticipationinTitle IVprograms,(ii)denyparticipationapplicationsmadeonbehalfoftheinstitution,or(iii)initiate  aproceedingagainsttheinstitutiontofinetheinstitutionortolimit,suspendorterminatetheinstitution’spar - ticipationinTitle IVprograms.Weexpectthattherecouldbeanindustry-wideincreaseinadministrativeactions  andlitigationclaimingsubstantialmisrepresentation.Ifsuchadministrativeactionsorlitigationwerebrought  againstusorourinstitutions,wecouldincurlegalcostsrelatedtotheirinvestigationanddefense,whichcould  materiallyandadverselyimpactourfinancialcondition.InDecember2015,EDsentHCONaletterinforming  HCONthatEDhaddeterminedtofineHCON$27,500basedonED’sfindingthatHCONhadsubstantiallymis - representeditsprogrammaticaccreditationstatusduringatimeperiodpriortoourownershipofHCON.HCON  paidthefineinDecember2015.Formoreinformation,seethe“RegulatoryEnvironment—RegulatoryActions  2015 Annual Report 91 andRestrictionsonOperations—ChangeinOwnershipResultinginaChangeofControl—U.S.Departmentof  Education”sectionofthisAnnualReport. Failure to comply with ED’s credit hour requirements could result in sanctions. IntheProgramIntegrityRegulations,EDdefined“credithour”forTitle IVpurposesasaninstitutionallyestab - lishedequivalencythatreasonablyapproximatescertainspecifiedtimeinclassandoutsideclass,oranequiva - lentamountofworkforotheracademicactivities.TheProgramIntegrityRegulationsalsorequireinstitutional  accreditorstoreviewthereliabilityandaccuracyofaninstitution’scredithourassignments.Anaccreditor  musttakeappropriateactionstoaddressaninstitution’scredithourdeficienciesandtonotifyEDifitfinds  systemicnoncomplianceorsignificantnoncomplianceinoneormoreprograms.EDhasindicatedthatifitfinds  aninstitutiontobeoutofcompliancewiththecredithourdefinitionforTitle IVpurposes,itmayrequirethe  institutiontorepaytheamountofTitle IVawardedundertheincorrectassignmentofcredithoursand,ifitfinds  significantoverstatementofcredithours,itmayfinetheinstitutionorlimit,suspend,orterminateitsparticipa - tioninTitle IVprograms.Anysuchactioncouldmateriallyandadverselyaffectthebusinessofourinstitutions.  Formoreinformation,seethe“RegulatoryEnvironment—StudentFinancingSourcesandRelatedRegulations/ Requirements—DepartmentofEducation—RegulationofTitle IVFinancialAidPrograms—CreditHours”section  ofthisAnnualReport. Government and regulatory agencies and third parties may conduct compliance reviews, bring claims, or initiate enforcement actions or litigation against us, any of which could disrupt our institutions’ operations and adversely affect their performance. Becauseourinstitutionsoperateinahighlyregulatedindustry,wearesubjecttoaudits,compliancereviews,  inquiries,complaints,investigations,claimsofnoncompliance,enforcementproceedings,andlawsuitsbygov - ernmentagencies,regulatoryagencies,andthirdparties,includingclaimsbroughtbythirdpartiesonbehalfof  thefederalgovernment.Forexample,EDregularlyconductsprogramreviewsofeducationalinstitutionsthat  areparticipatinginTitle IVprogramsandtheEDOIGregularlyconductsauditsandinvestigationsofsuchinstitu - tions.InFebruary 2016,EDannouncedthecreationofaStudentAidEnforcementUnittoenableEDtorespond  morequicklyandefficientlytoallegationsofillegalactionsbyhighereducationinstitutions.TheEnforcement  UnitwillcollaboratewithstateandfederalagenciestoenforceviolationsoflawandwillworkwithED’sProgram  ComplianceUnittoreviewevidencethatmayaffectprogramreviews.TheFederalTradeCommissionhasinvesti - gatedandinsomecasesbroughtlawsuitsagainstproprietaryinstitutionsallegingthattheinstitutionsengaged  indeceptivetradepractices.TheConsumerFinancialProtectionBureauhassuedproprietaryinstitutionsfor  engaginginallegedlyillegalpredatorylendingpractices.Iftheresultsofcompliancereviewsorotherproceed - ingsareunfavorabletous,orifweareunabletodefendsuccessfullyagainstlawsuitsorclaims,ourinstitutions  mayberequiredtopaymonetarydamagesorbesubjecttofines,limitations,lossofTitle IVfunding,injunctions,  orotherpenalties,includingtherequirementtomakerefunds.Evenifourinstitutionsadequatelyaddressissues raisedbyanagencyrevieworsuccessfullydefendalawsuitorclaim,wemayhavetodivertsignificantfinancial  andmanagementresourcesfromourongoingbusinessoperationstoaddressissuesraisedbythosereviews  ortodefendagainstthoselawsuitsorclaims.Claimsandlawsuitsbroughtagainstusoroneofourinstitutions  mayresultinreputationaldamage,evenifsuchclaimsandlawsuitsarewithoutmerit.Anyoneofthesesanc - tionscouldmateriallyadverselyaffectourbusiness,financialcondition,resultsofoperationsandcashflows  andresultintheimpositionofsignificantrestrictionsonusandourinstitutions,whichmaymateriallyadversely  affectourabilitytooperate. 92 American Public Education, Inc. Investigations by state Attorneys General, Congress, and governmental agencies may result in increased regulatory burdens and costs. Weandotherproprietarypostsecondaryeducationprovidershavebeensubjecttoincreasedregulatoryscru - tinyandlitigationinrecentyears.StateAttorneysGeneralhaveincreasinglyfocusedonallegationsofimproper  recruitingcompensationanddeceptivemarketingpractices,amongotherissues.AnumberofstateAttorneys  Generalhavelaunchedinvestigationsintoproprietarypostsecondaryeducationinstitutions.InJuly 2011,the  AttorneyGeneralofKentuckyannouncedanationalbipartisaneffort,whichnowincludesapproximately30  states,toexaminepotentialabusesbyproprietaryeducationalinstitutions.Whiletheinitialgoalofthejoint  investigationissharinginformationamongtheAttorneysGeneralaboutpotentialviolationsofconsumerprotec - tionlaws,theAttorneyGeneralofKentuckyindicatedthattheAttorneysGeneralmayultimatelyattempttocom - pelproprietaryinstitutionslocatedintheirrespectivejurisdictionstorevisetheirrecruitingpractices.InJanuary  2014,manyofthepubliclytradedfor-profitpostsecondaryinstitutions,notincludingus,receiveddemandsfor  informationfromanetworkof12stateAttorneysGeneralrelatingto,amongothermatters,therecruitmentof  students,admissionsstandards,graduateplacementstatistics,graduatecertificationandlicensingresults,and  studentlendingactivities.InJune 2014,theMassachusetts’AttorneyGeneralreleasedseveralconsumerprotec - tionregulations,which,amongotherthings,requirecertaindisclosuresthatapplytofor-profitandoccupational  schoolsoperatinginthestate.ActionsbystateAttorneysGeneralandothergovernmentalagencies,whetheror  notinvolvingusorourinstitutions,coulddamageourreputationandthereputationofourinstitutionsandlimit  theabilitytorecruitandenrollstudents,whichcouldreducestudentdemandforourinstitutions’programsand  adverselyimpactourrevenueandcashflowfromoperations. Inrecentyears,thestudentlendingpracticesofpostsecondaryeducationalinstitutions,financialaidofficers,  andstudentloanprovidershavebeensubjectedtoseveralinvestigationsbystateAttorneysGeneral,Congress,  andgovernmentalagencies.Theseinvestigationsconcern,amongotherthings,possibledeceptivepracticesin  themarketingofprivatestudentloansandloansprovidedbylenderspursuanttoTitle IVprograms.TheHEOA  containsrequirementspertinenttorelationshipsbetweenlendersandinstitutions.TheHEOAalsoimposessub - stantiveanddisclosureobligationsoninstitutionsthatmakeavailablealistofrecommendedlendersforpoten - tialborrowers.NewproceduresintroducedandrecommendationsmadebytheConsumerFinancialProtection  BureaualsocreateuncertaintyaboutwhetherCongresswillimposenewburdensonprivatestudentlenders.  Statelegislatorshavealsopassedormaybeconsideringlegislationrelatedtorelationshipsbetweenlenders  andinstitutions.Further,severalfederalagenciesrecentlyimplementedanonlinestudentcomplaintsystem  forservicemembers,veterans,andtheirfamiliestoreportnegativeexperiencesateducationalinstitutionsand  trainingprogramsadministeringthePost-9/11GIBill,DoDtuitionassistanceprograms,andothermilitary-  relatededucationbenefitprograms.Wecanneitherknownorpredictwithcertaintytheeffectsofsuchdevelop - ments.Governmentalactionmayimposeincreasedadministrativeandregulatorycostsandadverselyaffectour  financialcondition. If we undergo a change in ownership and control, the Department of Education will place our institutions on provisional certification, and the terms of that provisional certification could limit our institutions’ potential for growth and adversely affect our institutions’ enrollment, our revenue, and results of operations. ED’sregulationsprovidethatachangeofcontrolofapubliclytradedcorporationoccursif:(i)thereisanevent  thatwouldobligatethecorporationtofileaCurrentReportonForm8-KwiththeSECdisclosingachangeofcon - trol;or(ii)thecorporationhasastockholderthatownsatleast25%ofthetotaloutstandingvotingstockofthe  corporationandisthelargeststockholderofthecorporation,andthatstockholderceasestoownatleast25%of  suchstockorceasestobethelargeststockholder.Asignificantpurchaseordispositionofourvotingstockcould  bedeterminedbyEDtobeachangeinownershipandcontrolunderthisstandard.UndertheHEA,aninstitution  2015 Annual Report 93 whoseparentundergoesachangeinownershipresultinginachangeincontrollosesitseligibilitytoparticipate  inTitle IVprogramsandmustapplytoEDinordertoreestablishsucheligibility. FuturetransactionscouldconstituteachangeinownershiporcontrolunderED’sregulationsandcouldcause  EDtoplaceourinstitutionsonprovisionalcertificationasrequiredbytheHEA.Theconditionsofprovisional  certificationorcloserreviewbyEDcouldimpact,amongotherthings,ourinstitutions’abilitytoaddeducational  programs,oradditionallocations,ourabilitytoacquireotherinstitutions,orourabilitytomakeothersignificant  changes.Inaddition,ifEDweretodeterminethatourinstitutionswereunabletomeettheirresponsibilities  whiletheywereprovisionallycertified,EDcouldseektorevokeourinstitutions’certificationtoparticipatein  Title IVprogramswithfewerdueprocessprotectionsthaniftheywerefullycertified.Limitationsonourinsti - tutions’operationscould,andthelossofourinstitutions’certificationtoparticipateinTitle IVprogramswould,  adverselyaffectourinstitutions’abilitytogrowinadditiontohavingadverseeffectsontheirenrollment,and  ourrevenueandresultsofoperations. If regulators do not approve or delay their approval of transactions involving a change of control of our company or of institutions that we own or acquire, our and our institutions’ ability to operate could be impaired. Ifweoroneofourinstitutionsexperienceachangeofownershiporcontrolunderthestandardsofapplica - blestateregulatorybodies,accreditingagencies,ED,orotherregulators,weortheinstitutiongovernedby  suchagenciesmustnotifyorseektheapprovalofeachrelevantregulatoryagency.Transactionsoreventsthat  constituteachangeofcontrolincludesignificantacquisitionsordispositionsofaninstitution’scommonstock,  significantchangesinthecompositionofaninstitution’sBoardofDirectors,internalrestructurings,acquisitions  ofinstitutionsfromotherowners,orcertainothertransactions.Someofthesetransactionsoreventsmaybe  beyondourcontrol.Ourorourinstitutions’failuretoobtain,oradelayinreceiving,approvalofanychangeof  controlfromtherelevantregulatoryagenciesfollowingatransactioninvolvingachangeofownershiporcontrol  couldresultinasuspensionofoperatingauthority,lossofaccreditation,orsuspensionorlossoffederalstudent  financialaidfunding,whichcouldhaveamaterialadverseeffectonourinstitutionsandourfinancialcondition.  Ourfailuretoobtain,oradelayinreceiving,approvalofanychangeofcontrolfromotherstatesinwhichweare  currentlylicensedorauthorizedcouldrequireourinstitutionstosuspendactivitiesinthatstateorotherwise  impairourinstitutions’operations.Thepotentialadverseeffectsofachangeofcontrolcouldinfluence,among  otherthings,futuredecisionsbyusandourstockholdersregardingthesale,purchase,transfer,issuance,or  redemptionofourstock.Inaddition,theregulatoryburdensandrisksassociatedwithachangeofcontrolalso  couldhaveanadverseeffectonthemarketpriceofourcommonstock. Certain contingents of the U.S. Congress have been examining the proprietary postsecondary education sector, which could result in legislation, heightened oversight, or additional Department of Education rulemaking that may limit or condition Title IV program participation of proprietary schools in a manner that may materially and adversely affect our business. Inrecentyears,certaincontingentsoftheU.S.Congresshaveincreasedtheirfocusonproprietaryeducational  institutions.Thisincreasedfocushasresultedintheintroductionofvariouspiecesoflegislation,theholding  ofseveralhearingsbyvariousCongressionalcommittees,andCongressionalinvestigationsandinquiries.We  havepreviouslyincurredsignificantlegalandothercoststorespondtoCongressionalinquiries,andcouldincur  significantlegalandothercoststorespondtoanyfutureinquiries.Wecannotpredicttheextenttowhich,or  whether,thesehearingsandinvestigationswillresultinlegislation,furtherrulemakingaffectingourparticipa - tioninTitle IVprograms,orlitigationallegingstatutoryviolations,regulatoryinfractionsorcommonlawcauses  ofaction.Theadoptionofanylaworregulationthatreducesfundingforfederalstudentfinancialaidprograms  ortheabilityofourinstitutionsorstudentstoparticipateintheseprogramscouldhaveamaterialadverse  94 American Public Education, Inc. effectonourstudentpopulationandrevenue.Legislativeactionalsomayincreaseouradministrativecostsand  requireourinstitutionstomodifytheirpracticesinordertocomplywithapplicablerequirements.Additionally,  membersofCongresshavealsofromtimetotimeencouragedEDtoadoptadditionalregulationsforparticipa - tioninTitle IVProgramsthatcouldincreaseourcostofoperationsorexposeustoadditionalrisks.Forexample,  inFebruary 2016,nineSenatorsencouragedEDtoadoptarequirementthatwouldprohibitinstitutionsthat  participateintheTitle IVprogramsfromincludingbindingarbitrationclauses,bansonclassactionsorother  contractualbarrierstocourtaccessinstudentenrollmentagreements.IfEDweretoadoptregulationsfor  thispurpose,weandourinstitutionscouldbeexposedtolitigationthatcouldbelessefficientthanresolving  disputesthrougharbitrationandcouldforceustoincurlegalandotherexpensesthatcouldhaveamaterial  adverseeffectonourbusiness,financialcondition,resultsofoperations,andcashflows. Congressional examination of DoD oversight of tuition assistance used for distance education and proprietary institutions could result in legislative or regulatory changes that may materially and adversely affect our business. Inrecentyears,theU.S.CongresshasincreaseditsfocusonDoDtuitionassistancethatisusedfordistance  educationandprogramsatfor-profitinstitutions.InSeptember 2010,theSubcommitteeonOversightand  InvestigationsoftheU.S.HouseofRepresentatives’ArmedServicesCommitteeheldahearingtitled“AQuestion  ofQualityandValue:DepartmentofDefenseOversightofTuitionAssistanceUsedforDistanceLearningand  For-ProfitColleges.”WitnessesandSubcommitteemembersexpressedconcernaboutDoD’soversightofdis - tanceeducationprograms,especiallythoseofferedbyproprietaryinstitutions.Inaddition,inDecember2010,  theSenateHealth,Education,LaborandPensionsCommittee,orHELP,releasedareportentitled“Benefitting  Whom?For-ProfitEducationCompaniesandtheGrowthofMilitaryEducationalBenefits,”whichraisedques - tionsaboutthegrowingshareofDoDtuitionassistancereceivedbyfor-profitinstitutions.InMarch 2011,the  GAOpublishedareportentitled“DoDEducationBenefits:IncreasedOversightofTuitionAssistanceProgram  isNeeded,”whichofferedseveralrecommendationsforimprovingaccountabilitywithinthetuitionassis - tanceprogram.InSeptember 2011,theSenateSubcommitteeonFederalFinancialManagement,Government  Information,FederalServices,andInternationalSecurityheldahearingfocusedontheclassificationofmilitary  educationbenefitsunderthe90/10Rule.Someofthepanelistssuggestedthattheclassificationofmilitaryben - efitsasnon-Title IVrevenueforpurposesofthe90/10Rulehasledsomefor-profitinstitutionstorecruitaggres - sivelyandsometimesillegallymembersofthemilitaryinordertoensurecompliancewiththe90/10Rule. The90/10RulehasbeenasubjectofinterestoverthepastseveralCongresses,whichhasresultedinseveral  membersofCongressintroducingproposalsandlegislationthatwouldmodifythe90/10Rule.Onepastpro - posalwoulddecreasethelimitfrom90%to85%andwouldcountDoDtuitionassistanceandVAeducation  benefitstowardthatlimit.Suchaproposalorothersimilarlegislation,shoulditbecomelaw,couldhaveamate - rialadverseimpactontheoperationsofAPUSandHCON.Wecannotpredicttheextenttowhich,orwhether,  Congressionalhearingswillresultinlegislationorfurtherrulemakingaffectingourinstitutions’abilitytopar - ticipateinDoDtuitionassistanceprogramsorTitle IVprograms.MembersofCongresshavestated,bothin  committeehearingsandintheHELPCommitteereport,thatCongressshouldrevisethe90/10RuletocountDoD  tuitionassistanceandVAveteranseducationalbenefitstowardthe90%limit.Wecannotpredictthelikelihood  thatCongresswillamendthe90/10RuletocountDoDtuitionassistanceandVAeducationbenefitstowardthe  90%limitortolowertheratioto85/15,norcanwepredictthelikelihoodthatCongressorthePresidentwilltake  someotheractiontolimittheuseofDoDtuitionassistanceandVAeducationbenefitsatfor-profitinstitutions.  Totheextentthatanylawsorregulationsareadoptedthatlimitorconditiontheparticipationofproprietary  schoolsordistanceeducationprogramsinDoDtuitionassistanceprogramsorinTitle IVprograms,orthatlimit  orconditiontheamountofDoDtuitionassistanceforwhichfor-profitschoolsordistanceeducationprograms  areeligibletoreceive,ourfinancialconditioncouldbemateriallyandadverselyaffected. 2015 Annual Report 95 Congress has in the past changed, and may in the future change, eligibility standards and funding levels for federal student financial aid programs, DoD tuition assistance, and other programs. Other governmental or regulatory bodies may also change similar laws or regulations relating to such programs, which could adversely affect our student population, revenue and financial condition. PoliticalandbudgetaryconcernscansignificantlyaffectTitle IVprograms,militarytuitionassistanceprograms,  andotherlawsandregulationsgoverningfederalandstateaidprograms. Title IVprogramsaremadeavailablepursuanttotheprovisionsoftheHEA,andtheHEAcomesupforreautho - rizationbyCongressapproximatelyeveryfivetosixyears.AuthorizationofappropriationsformostHEApro - gramsiscurrentlyprovidedthroughSeptember 30,2016bytheConsolidatedAppropriationsAct,2016.Inthe  past,Congresshaspassedshort-termnonsubstantiveextensionsoftheHEApendingcomprehensivereauthori - zationlegislation.Further,whenCongressdoesnotactoncomprehensivereauthorizationthroughasinglepiece  oflegislation,itmayactthroughmultiplepiecesoflegislation.Congresscompletedthemostrecentreauthori - zationthroughmultiplepiecesoflegislationandmayreauthorizetheHEAinapiecemealmannerinthefuture.  Additionally,CongressdeterminesthefundinglevelforeachTitle IVprogramonanannualbasis. FutureCongressionalaction,includinginreauthorizationsorappropriationsacts,mayresultinnumerouslegis - lativechanges,includingthosethatcouldadverselyaffecttheabilityofourinstitutionstoparticipateinTitle IV  programs,DoDtuitionassistanceprograms,andtheavailabilityofsuchfundingsourcesforourstudents.  MembersofCongressfrequentlyproposelegislationtoalteroramendthetermsunderwhichourinstitutions  participateinthefederalstudentfinancialaidprograms.AnyactionbyCongressthatsignificantlyreduces  fundingforTitle IVprogramsortheabilityofourinstitutionsorstudentstoparticipateintheseprograms  couldmateriallyharmourinstitutions’business.Areductioningovernmentfundinglevelscouldleadtolower  enrollmentsatourinstitutionsandrequireourinstitutionstoarrangeforalternativesourcesoffinancialaidfor  theirstudents.Lowerstudentenrollmentsatourinstitutionsortheirinabilitytoarrangealternativesourcesof  fundingcouldadverselyaffectourfinancialcondition.Congressionalactionmayalsorequireourinstitutionsto  modifytheirpracticesinwaysthatcouldresultinincreasedadministrativeandregulatoryexpenses. WearenotinapositiontopredictwhetheranylegislationwillbepassedbyCongressorsignedintolawinthe  future.ThereallocationoffundingamongTitle IVprograms,materialchangesintherequirementsforpartic - ipationinsuchprograms,orthesubstitutionofmateriallydifferentTitle IVprogramscouldreducetheability  ofcertainstudentstofinancetheireducationatourinstitutionsandadverselyaffectourrevenueandresults  ofoperations. Recent regulatory developments may adversely impact our institutions’ enrollment, financial condition, results of operations, expenses, and cash flows. OnJune 8,2015,EDissuedafactsheetwhereitannounceddebtreliefmechanismsthatitassertsaredesigned  toholdfor-profitinstitutionsaccountable.Theannouncementspecificallyaddressesdebtreliefforstudentsat  CorinthianColleges’schoolsthatclosedandCorinthianColleges’schoolsthatdidnotclose,butthefactsheet  isframedmorebroadly.Inthefactsheet,EDdiscussestheabilitytodischargefederalstudentloans,whichwe  refertoasFederalLoans,whenaninstitutioncloses.Generally,pursuanttoED’sregulations,whenaninstitution  closes,studentsareeligibletodischargetheirFederalDirectLoansiftheywereattendingtheinstitutionwhen  itclosedorhadwithdrawnwithin120daysoftheclosingdate.EDalsopointsoutthatEDregulationsprovide  FederalDirectLoanrecipientswithadefenseagainstanattempttocollecttheirFederalLoansbasedonanact  oromissionoftheinstitutionthatwouldgiverisetoacauseofactionunderapplicablestatelaw.EDindicates  thatsuchprovisionhas“rarelybeenusedinthepast”andthatitistaking“unprecedentedaction”withrespect  toCorinthianColleges’studentstoextenddebtrelieftosuchstudentswhereverpossible.InthefactsheetED  96 American Public Education, Inc. alsoannouncedplanstodevelopnewregulationsto“clarifyandstreamlineloanforgiveness”undertheloan  dischargeprovision.Thefailureofourinstitutionstocomplywithstatelawsmayresultinliabilityto,orreme - dialactionagainst,ourinstitutions,includingrecoupmentbyEDofdischargedstudentloanfundsunderthe  defensetorepaymentprovisions.Theassertionofanyclaimsbyourinstitutions’studentsunderthe“defense  torepayment”provisionsandanyresultingremedialaction,oranyrecoupmentbyEDofdischargedstudent  loanfundspursuanttothedefensetorepaymentprovisionscoulddamageourreputationintheindustryand  haveamaterialadverseeffectonenrollmentsandourrevenue,financialcondition,cashflows,andresultsof  operations.OnOctober 20,2015,EDannouncedthatitwouldestablishanewnegotiatedrulemakingcommittee  todevelopproposedregulationsfordeterminingwhichactsoromissionsofaninstitutionofhighereducationa  studentborrowermayassertasadefensetorepaymentofaloanmadeundertheFederalDirectLoanProgram  (“borrowerdefenses”)andtheconsequencesofsuchborrowerdefensesforborrowers,institutions,andED.  EDfurtherannouncedthattherulemakingcommitteeisintendedtoaddress(i)theprocedurestobeusedfora  borrowertoestablishadefensetorepayment;(ii)thecriteriathatEDwillusetoidentifyactsoromissionsofan  institutionthatconstitutedefensestorepaymentofFederalLoans;(iii)thestandardsandproceduresthatED  willusetodeterminetheliabilityoftheinstitutionparticipatingintheFederalLoanProgramforamountsbased  onborrowerdefenses;(iv)theeffectofborrowerdefensesoninstitutionalcapabilityassessments;and(v)other  loandischarges.TherulemakingcommitteemetforthefirsttimeinJanuary2016andisscheduledtomeetagain  inFebruary andMarch of2016.WeareunabletopredictwhenEDmayultimatelyissueregulationsonthese  topics.IfEDdeterminesthatborrowersofFederalDirectLoanswhoattendedourinstitutionshaveadefenseto  repaymentoftheirFederalLoansbasedonastatelawclaim,therepaymentliabilitytoEDcouldhaveamaterial  adverseeffectonourfinancialcondition,resultsofoperations,andcashflows. OnOctober 27,2015,EDannouncedthepublicationoffinalregulationsgoverningtheFederalDirectLoan  Programtocreateanewincome-contingentrepaymentplaninaccordancewiththePresident’sinitiativeto  allowmoreFederalDirectLoanborrowerstocaptheirloanpaymentsat10percentoftheirmonthlyincomes.  Thisnewincome-contingentrepaymentplan,calledtheRevisedPayAsYouEarnrepaymentplan,orREPAYE  plan,becameavailableinDecember2015toallDirectLoanstudentborrowersregardlessofwhentheborrower  tookouttheloans.Inaddition,theregulations,whicharegenerallyeffectiveJuly 1,2016,implementchangesto  theFederalFamilyEducationLoanProgram,orFFELProgram,andDirectLoanProgramregulationstostream - lineandenhanceexistingprocessesandprovideadditionalsupporttostrugglingborrowers,including,among  otherthings,establishingnewproceduresforFFELProgramloanholderstoidentifyservicememberswho  maybeeligibleforbenefitsundertheServicemembersCivilReliefAct.Theregulationsalsoexpandthecircum - stancesunderwhichaninstitutioncouldchallengeorappealadraftorfinalcohortdefaultrate,beginningin  February 2017.Wecannotpredicttheextenttowhichthesefinalregulationswillimpactourinstitutions,norcan  wepredictpossibleregulatoryburdensandcosts. OnOctober 27,2015,EDannouncedthepublicationoffinalregulationstoamendED’scashmanagementregula - tions,whichwerefertoastheCashManagementRegulations.TheCashManagementRegulationsgointoeffect  onJuly 1,2016.Amongothertopics,theCashManagementRegulationsaddressarrangementsbetweenpost - secondaryinstitutionsandfinancialaccountproviderstodisburseTitle IVProgramcreditbalancestostudents,  includingthroughtheuseofdebitorprepaidcards.TheCashManagementRegulationsrequireinstitutionsto  establishaprocesstofacilitatestudentchoiceinhowstudentsreceiveTitle IVProgramfederalstudentfinan - cialaidcreditbalances;limitthepersonallyidentifiableinformationaboutstudentsthatmaybesharedwith  financialaccountproviders;andrequireinstitutionstoobtainstudentconsentbeforeopeninganaccountinthe  student’sname.UndertheCashManagementRegulations,aninstitutionthathasenteredintoanarrangement  withafinancialaccountprovidermustmitigatecertainfeesincurredbyTitle IVaidrecipients,andcertaintypes  offeesareprohibited.TheCashManagementRegulationsrequirethatcontractsgoverningarrangementswith  financialaccountprovidersbepubliclydisclosedandevaluatedinlightofthebestfinancialinterestsofstudents.  2015 Annual Report 97 TheCashManagementRegulationsalsomakeotherchangestorequirementsfortheinstitutionaladministration  ofTitle IVPrograms,includingbyclarifyinghowpreviouslypassedcourseworkistreatedforTitle IVeligibility  purposes,alteringtherequirementsforconvertingclockhourstocredithours,andupdatingotherprovisions  inED’scashmanagementregulations.Forexample,theCashManagementRegulationsestablisharequirement  thatinstitutionsparticipatingintheTitle IVProgramsunderthereimbursementorheightenedcashmonitoring  paymentmethodsmustpayanycreditbalanceduetoastudentbeforeseekingreimbursementorarequestfor  funds,respectively.TheCashManagementRegulationsalsospecifythecircumstancesunderwhichaninstitu - tionmayincludethecostofbooksandsuppliesaspartofinstitutionaltuitionandfeeschargedtoastudent,  suchasiftheinstitutionhasmadearrangementswithpublisherstoobtainbooksatbelow-marketratesorif  booksorelectroniccoursematerialsarenotavailableelsewhere.Ourinstitutionsutilizeathirdpartyservicer  toprovideservicesrelatedtothedisbursementofTitle IVfinancialaidcreditbalancerefunds.Wearecurrently  unabletopredicttheimpactthatcompliancewiththeCashManagementRegulationsmighthaveonouropera - tionsandoperatingresults. PresidentObamadirectedEDtodevelopandpublishanewcollegeratingssystembythe2015–2016schoolyear.  OnDecember19,2014,EDissuedaframeworkforthecollegeratingssystem.OnJune 25,2015,EDstatedthat  inlieuofcreatingitspreviouslyannouncedcollegeratingssystem,itwouldinsteadcreateaconsumer-driven  websitethatwillallowuserstocomparecollegesbasedonmeasuresthatmaybeofimportancetothem.In  September 2015,EDpubliclyreleasedits“CollegeScorecard”website.Amongothercharacteristics,theCollege  Scorecardallowsuserstosearchforschoolsbaseduponprogramsoffered,location,size,taxstatus,mission,  andreligiousaffiliation.WedonotbelievetheCollegeScorecardisanappropriateindicatorofAPUS’sgradua - tionratebecausetheCollegeScorecard’sgraduationrateonlyincludestheperformanceoffirsttime,full-time  undergraduatewhichrepresentslessthanapproximately1%ofallAPUSstudents.Furthermore,substantially  alloftheotherCollegeScorecardmeasuresarebasedonstudentswhoarerecipientsofTitle IVprogramfunds;  suchstudentsrepresentaminorityofAPUS’sstudents.WecannotpredicttheextenttowhichtheCollege  Scorecardmayimpactourinstitution’senrollments,reputation,oroperatingresults,includingifstudents  excludeourinstitutionsfromconsiderationbecauseoftheCollegeScorecard’spresentationofourgraduation  rate,thefocusontaxstatusandourstatusasaforprofitbusinessorbecauseofotherfactors. Wecannotpredictthenatureofanyfinalrules,actionsorinterpretationsthatmaybeimplementedasaresult  oftheaforementioned,oranyfuture,actionsbyED.However,theseandfutureregulatorydevelopments  mayadverselyimpactourinstitutions’enrollments,financialcondition,resultsofoperations,expenses,and  cashflows. Our regulatory environment and our reputation may be negatively influenced by the actions of other for-profit institutions. Ourinstitutionsaretwoofamuchlargernumberoffor-profitinstitutionsservingthepostsecondaryeducation  market.Inrecentyears,regulatoryinvestigationsandcivillitigationhavebeencommencedagainstseveralfor- profiteducationalinstitutions.Theseinvestigationsandlawsuitshavealleged,amongotherthings,deceptive  tradepracticesandnoncompliancewithEDregulations.Theseallegationshaveattractedadversemediacover - ageandhavebeenthesubjectoffederalandstatelegislativehearings.Broaderallegationsagainsttheoverall  for-profitschoolsectormaynegativelyaffectpublicperceptionsoffor-profiteducationalinstitutions,including  ourinstitutions.Inaddition,inrecentyears,reportsonstudentlendingpracticesofvariouslendinginstitutions  andschools,includingfor-profitschools,andinvestigationsbyanumberofstateattorneysgeneral,Congress  andgovernmentalagencieshaveledtoadversemediacoverageofpostsecondaryeducation.Adversemedia  coverageregardingothersinourindustry,orregardingusorourinstitutionsdirectly,coulddamageourrepu - tation,couldresultinlowerenrollmentsatourinstitutions,lowerrevenueandincreasedexpenses,andcould  haveanegativeimpactonourstockprice.Suchallegationscouldalsoresultinincreasedscrutinyandregulation  98 American Public Education, Inc. byED,Congress,accreditingbodies,statelegislatures,stateattorneysgeneral,orothergovernmentalauthori - tieswithrespecttoallfor-profitinstitutions,includingusandourinstitutions. Risks Related to Owning our Common Stock The price of our common stock may be volatile, and as a result returns on an investment in our common stock may be volatile. Forasignificantportionofthetimesinceourinitialpublicoffering,wehavehadrelativelylimitedpublicfloat,  andtradinginourcommonstockhasalsobeenlimitedand,attimes,volatile.Anactivetradingmarketforour  commonstockmaynotbesustained,andthetradingpriceofourcommonstockmayfluctuatesubstantially. Thepriceofourcommonstockmayfluctuateasaresultof,butnotbelimitedto,someorallofthefollowing: • priceandvolumefluctuationsintheoverallstockmarketfromtimetotime; • significantvolatilityinthemarketpriceandtradingvolumeofcomparablecompanies; • actualoranticipatedchangesinourearnings,ourinstitutions’enrollmentsornetcourseregistrations,orfluc - tuationsinouroperatingresultsorintheexpectationsofsecuritiesanalysts; • theactual,anticipatedorperceivedimpactofchangesinthepoliticalenvironment,governmentpolicies,laws  andregulations,orsimilarchangesmadebyaccreditingbodies; • thedepthandliquidityofthemarketforourcommonstock; • generaleconomicconditionsandtrends; • catastrophicevents; • salesoflargeblocksofourstock;or • recruitmentordepartureofkeypersonnel. Inthepast,followingperiodsofvolatilityinthemarketpriceofacompany’ssecurities,securitiesclassaction  litigationhasoftenbeenbroughtagainstthatcompany.Becauseofthepotentialvolatilityofourstockprice,we  maybecomethetargetofsecuritieslitigationinthefuture.Securitieslitigationcouldresultinsubstantialcosts  andmonetarydamagesandcoulddivertmanagement’sattentionandresourcesfromourbusiness. Seasonal and other fluctuations in our results of operations could adversely affect the trading price of our common stock. Ourquarterlyresultsfluctuateand,therefore,theresultsinanyquartermaynotrepresenttheresultswemay  achieveinanysubsequentquarterorfullyear.Ourrevenueandoperatingresultsnormallyfluctuateasaresult  ofseasonalorothervariationsinourinstitutions’enrollmentsandassociatedexpenses.Studentpopulationat  ourinstitutionsvariesasaresultofnewenrollments,graduations,studentattrition,thesuccessofourmarket - ingprograms,andotherreasonsthatwecannotalwaysanticipate.Weexpectquarterlyfluctuationsinoperating  resultstocontinueasaresultofseasonalenrollmentpatternsatourinstitutionsandrelatedfluctuationsin  expenses.Thesefluctuationsmayresultinvolatilityinourresultsofoperations,haveanadverseeffectonthe  marketpriceofourcommonstock,orboth. 2015 Annual Report 99 Provisions in our organizational documents and in the Delaware General Corporation Law may prevent takeover attempts that could be beneficial to our stockholders. ProvisionsinourcharterandbylawsandintheDelawareGeneralCorporationLawmaymakeitdifficultand  expensiveforathirdpartytopursueatakeoverattemptweopposeevenifachangeincontrolofourCompany  wouldbebeneficialtotheinterestsofourstockholders.Theseprovisionsinclude: • theabilityofourBoardofDirectorstoissueupto10,000,000sharesofpreferredstockinoneormoreseries  andtofixthepowers,preferences,andrightsofeachserieswithoutstockholderapproval,whichmaydiscour - ageunsolicitedacquisitionproposalsormakeitmoredifficultforathirdpartytogaincontrolofourCompany; • arequirementthatstockholdersprovideadvancenoticeoftheirintentiontonominateadirectorortopro - poseanyotherbusinessatanannualmeetingofstockholders; • aprohibitionagainststockholderactionbymeansofwrittenconsentunlessotherwiseapprovedbyourBoard  ofDirectorsinadvance;and • Section203oftheDelawareGeneralCorporationLaw,whichgenerallyprohibitsusfromengaginginmerg - ersandotherbusinesscombinationswithstockholdersthatbeneficiallyown15%ormoreofourvoting  stock,orwiththeiraffiliates,unlessourdirectorsorstockholdersapprovethebusinesscombinationinthe  prescribedmanner. 100 American Public Education, Inc. Item 1B. Unresolved Staff Comments None. Item 2. Properties AmericanPublicEducation,Inc.,orAPEI,andAmericanPublicUniversitySystem,Inc.,orAPUS,togetheroperate  administrativefacilitiesinCharlesTown,WestVirginiaandinManassas,Virginia,whicharewithinaonehour  driveofeachotherandlocatedwithintheWashington,DCmetropolitanarea.Thecorporateheadquartersand  administrativeoffices,whicharelocatedintheimmediateCharlesTownarea,occupy13ownedfacilitiestotal - ingapproximately250,000squarefeet.APUSalsoownstwoandahalfacresoflandinCharlesTownforfuture  developmenttosupportpotentialgrowthandexpansion.APUS’sstudentservices,graduation,andmarketing  operationsarelocatedin25,000squarefeetofleasedspaceinManassasunderaleasethatexpiresin2018. HondrosCollegeofNursing,orHCON,operatesfourOhiocampusesinthesuburbanareasofCincinnati,(West  Chester),Cleveland(Independence),Columbus(Westerville),andDayton(Fairborn).Thesecampusesincludea  totalofeightleasedfacilitieswithapproximately90,000squarefeetcombined.Thefacilitiesareprimarilyused  forinstructionalactivities.ThemaincampusinWesterville,OhioalsohousesHCON’scorporateofficesand  additionaladministrativeservices,suchastheinformationtechnology,marketing,andstudentservicesdepart - ments.Leasetermsandextensionoptionsvarybyfacility,withexpirationdatesrangingfrom2022to2029. TheCompanybelievesitsexistingfacilitiesareingoodoperatingconditionandareadequateandsuitablefor  theconductofitsbusiness. Item 3. Legal Proceedings Fromtimetotime,wehavebeenandmaybeinvolvedinvariouslegalproceedings.Wecurrentlyhavenomate - riallegalproceedingspending. Item 4. Mine Safety Disclosures Notapplicable. 2015 Annual Report 101 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information OurcommonstocktradesontheNASDAQGlobalSelectMarketunderthesymbol“APEI.”Thefollowingtable  setsforth,fortheperiodsindicated,thehighandlowsalespriceofourcommonstockasreportedonthe  NASDAQGlobalSelectMarket. Year Ended December 31, 2014 First Quarter Second Quarter Third Quarter Fourth Quarter Year Ended December 31, 2015 First Quarter Second Quarter Third Quarter Fourth Quarter Holders Low $33.47 $32.51 $26.98 $26.24 Low $29.13 $21.30 $19.22 $18.56 High $46.62 $38.00 $36.47 $37.46 High $37.08 $32.56 $27.26 $25.17 AsofFebruary 25,2016,therewereapproximately432holdersofrecordofourcommonstock. Dividends Wehavenothistoricallypaiddividendsonourcommonstockanddonotanticipatedeclaringorpayinganycash  dividendsonourcommonstockintheforeseeablefuture.Thepaymentofanydividendsinthefuturewillbe  atthediscretionofourBoardofDirectorsandwilldependuponourfinancialcondition,resultsofoperations,  earnings,capitalrequirements,contractualrestrictions,outstandingindebtedness,andotherfactorsdeemed  relevantbyourBoard. Performance Graph Thegraphbelowcomparesthe5-yearcumulativetotalreturnofholdersofourcommonstockwiththecumu - lativetotalreturnsoftheS&P500index,theNASDAQCompositeindexandacustomizedpeergroupofnine  companiesthatincludes:ApolloEducationGroup,Inc.;BridgepointEducation,Inc.;CapellaEducationCompany;  CareerEducationCorporation;DeVryEducationGroupInc.;GrandCanyonEducation,Inc.;ITTEducational  Services,Inc.;NationalAmericanUniversityHoldings,Inc.;andStrayerEducation,Inc.Wehaveremoved  CorinthianColleges,Inc.fromthecustomizedpeergroupbecauseithasceasedsubstantiallyalloperations  inconnectionwithChapter11bankruptcyproceedings.Thegraphassumesthatthevalueoftheinvestment  inourcommonstock,ineachindex,andinthepeergroup(includingreinvestmentofdividends)was$100on  December 31,2010andtracksthevalueofthoseinvestments,respectively,throughDecember 31,2015. 102 American Public Education, Inc. Theinformationcontainedintheperformancegraphshallnotbedeemed“solicitingmaterial”ortobe“filed”  withtheSecuritiesandExchangeCommission,norshallsuchinformationbedeemedincorporatedbyreference  intoanypriororfuturefilingundertheSecuritiesActortheExchangeAct,excepttotheextentthatwespecifi - callyincorporateitbyreferenceintosuchfiling. Comparison of 5-Year Cumulative Total Return* AmongAmericanPublicEducation,Inc.,theS&P500Index,theNASDAQCompositeIndex,andaPeerGroup $250 $200 $150 $100 $50 0 12/10 12/11 12/12 12/13 12/14 12/15 AmericanPublicEducation,Inc. S&P500 NASDAQComposite PeerGroup *$100 invested on 12/31/10 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2016 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 APEI S&P 500 NASDAQ Composite Peer Group 100.00 100.00 100.00 100.00 116.22 102.11 100.53 94.43 96.99 118.45 116.92 48.08 116.73 156.82 166.19 71.69 99.01 178.29 188.78 81.84 49.97 180.75 199.95 43.31 The stock price performance included in the graph and table above is not necessarily indicative of future stock price performance. Recent Sales of Unregistered Securities None. Use of Proceeds from Registered Securities Notapplicable. 2015 Annual Report 103 Purchases of Equity Securities by the Issuer and Affiliated Purchasers OnMay 14,2012,ourBoardofDirectorsauthorizedaprogramtorepurchaseupto$20 millionofsharesofour  commonstock.OneachofMarch 14,2013,June 13,2014,andJune 12,2015,ourBoardofDirectorsincreased  theauthorizationbyanadditional$15 millionofshares,foracumulativeincreaseof$45 millionofshares,and  atotalcumulativeauthorizationof$65 millionofshares.Subjecttomarketconditions,applicablelegalrequire - ments,andotherfactors,therepurchasesmaybemadefromtimetotimeintheopenmarketorinprivately  negotiatedtransactions.Theauthorizationdoesnotobligateustoacquireanyshares,andpurchasesmaybe  commencedorsuspendedatanytimebasedonmarketconditionsandotherfactorsaswedeemappropriate. DuringtheyearendedDecember 31,2015,werepurchased1,322,846sharesunderourrepurchaseprograms  foranaggregateamountof$33.5 million.AsofDecember 31,2015,$148,008remainedauthorizedforrepur - chaseundertheexpandedprograms. ThefollowingtablepresentsoursharerepurchasesduringthequarterendedDecember 31,2015.Foradditional  informationregardingoursharerepurchasespleasereferto“FinancialStatementsandSupplementaryData— NotestoConsolidatedFinancialStatements—Note7.Stockholders’Equity—Repurchase.” Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(2)(3) Total Number of Shares Purchased Average Price Paid per Share 211,040 199,391 118,746 529,177 $23.19 $22.11 $22.39 $22.60 211,040 199,391 118,746 529,177 — — — — $7,214,395 $2,806,575 $ 148,008 $ 148,008 Period October 1, 2015–October 31, 2015 November 1, 2015–November 30, 2015 December 1, 2015–December 31, 2015 Total (1) On December 9, 2011, our Board of Directors approved a stock repurchase program for our common stock, under which we may annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans. Repurchases may be made from time to time in the open market at prevailing market prices or in privately negoti- ated transactions based on business and market conditions. The stock repurchase program may be suspended or discontinued at any time, and is funded using our available cash. (2) On May 14, 2012, our Board of Directors authorized a program to repurchase up to $20 million of shares of our common stock. On each of March 14, 2013, June 13, 2014, and June 12, 2015, our Board of Directors increased the authorization by an additional $15 million of shares, for a cumulative increase of $45 million of shares and a total cumulative authorization of $65 million of shares. Subject to market conditions, applicable legal requirements, and other factors, the repurchases may be made from time to time in the open market or in privately negotiated transactions. The authorization does not obligate us to acquire any shares, and purchases may be commenced or suspended at any time based on market conditions and other factors as we deem appropriate. (3) During the quarter ended December 31, 2015, the Company was deemed to have repurchased 12,665 shares of common stock forfeited by employees to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants. These repurchases were not part of the stock repurchase programs authorized by our Board of Directors. 104 American Public Education, Inc. Item 6. Selected Financial Data Thefollowingtablesetsforthourselectedconsolidatedfinancialandoperatingdataasofthedatesandforthe  periodsindicated.Youshouldreadthisdatatogetherwith“Item7—Management’sDiscussionandAnalysisof  FinancialConditionandResultsofOperations”andourConsolidatedFinancialStatementsandrelatednotes,  includedelsewhereinthisAnnualReport.Theselectedconsolidatedstatementofoperationsdataforeachofthe  yearsinthethree-yearperiodendedDecember 31,2015,andtheselectedConsolidatedBalanceSheetdataasof  December 31,2015and2014,havebeenderivedfromourauditedConsolidatedFinancialStatements,whichare  includedelsewhereinthisAnnualReport.Theselectedconsolidatedstatementsofoperationsdatafortheyears  endedDecember 31,2011and2012,andselectedConsolidatedBalanceSheetdataasofDecember 31,2011,2012,  and2013,havebeenderivedfromourauditedConsolidatedFinancialStatementsnotincludedinthisAnnual  Report.WeacquiredHondrosCollegeofNursing,orHCON,onNovember 1,2013,andthereforetheconsolidated  resultsforperiodspriortoNovember 1,2013donotincludeanyresultsfromHCON.Historicalresultsarenot  necessarilyindicativeoftheresultsofoperationsthatshouldbeexpectedinfutureperiods. (In thousands, except per share and net registration data) 2011 2012 2013 2014 2015 Year Ended December 31, Statement of Operations Data: Revenue Costs and expenses: Instructional costs and services Selling and promotional General and administrative Depreciation and amortization $260,377 $313,516 $329,479 $350,020 $327,910 95,216 44,713 48,350 9,239 110,192 59,761 63,615 11,146 112,784 65,687 70,063 13,508 123,765 118,848 69,229 75,073 16,121 62,397 73,864 20,520 Total costs and expenses 197,518 244,714 262,042 284,188 275,629 Income from continuing operations before interest income and income taxes 62,859 68,802 67,437 65,832 52,281 Interest income, net 109 135 309 361 115 Income from continuing operations before income taxes Income tax expense 62,968 22,211 68,937 26,528 67,746 25,645 66,193 25,150 Investment income/(loss), net of taxes — (86) (67) (166) 52,396 20,072 90 Net income attributable to common stockholders $ 40,757 $ 42,323 $ 42,034 $ 40,877 $ 32,414 Net income attributable to common stockholders per common share: Basic Diluted Weighted average number of shares outstanding: Basic Diluted Other Data: $ 2.28 $ 2.23 $ 2.38 $ 2.35 $ 2.38 $ 2.36 $ 2.35 $ 2.33 $ 1.94 $ 1.93 17,877 18,295 17,772 18,041 17,656 17,921 17,357 17,543 16,676 16,797 Net cash provided by operating activities Capital expenditures Stock-based compensation APUS net course registrations(1) $ 70,438 $ 24,925 $ 3,189 341,669 $ 52,838 $ 35,014 $ 3,818 402,205 $ 59,414 $ 61,030 $ 20,649 $ 24,596 $ 4,024 $ 5,369 409,719 403,920 $ 57,211 $ 26,002 $ 5,912 375,101 2015 Annual Report 105 (In thousands) 2011 2012 2013 2014 2015 As of December 31, Consolidated Balance Sheet Data: Cash and cash equivalents Working capital(2) Total assets Stockholders’ equity $119,006 $ 82,034 $198,891 $133,833 $ 114,901 $ 86,004 $237,603 $ 171,153 $ 94,820 $ 62,327 $ 271,655 $207,069 $ 115,634 $ 87,968 $297,904 $ 234,218 $ 105,734 $ 80,312 $303,896 $ 237,153 (In thousands) 2011 2012 2013 2014 2015 Year Ended December 31, Net income attributable to common stockholders Interest (income), net Income tax expense Equity investment (income)/ loss, net of taxes Depreciation and amortization $40,757 $42,323 $42,034 $40,877 (109) 22,211 — 9,239 (135) 26,528 86 11,146 (309) 25,645 67 13,508 $80,945 (361) 25,150 166 16,121 $81,953 $32,414 (115) 20,072 (90) 20,520 $72,801 EBITDA from continuing operations $72,098 $79,948 (1) APUS net course registrationsrepresent the aggregate number of courses for which students remain enrolled after the date by which they may drop a course without financial penalty. (2) Working capital is calculated by subtracting total current liabilities from total current assets. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion together with the financial statements and the related notes included else- where in this Annual Report. This discussion contains forward-looking statements that are based on management’s current expectations, estimates, and projections about our business and operations, and involves risks and uncertain- ties. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and elsewhere in this Annual Report. Overview AmericanPublicEducation,Inc.,orAPEI,whichtogetherwithitssubsidiariesisreferredtoasthe“Company,”is  aproviderofonlineandon-campuspostsecondaryeducationtoapproximately97,500studentsthroughtwo  subsidiaryinstitutions.Weprovideonlinepostsecondaryeducationprimarilydirectedattheneedsofthemili - taryandpublicsafetycommunitiesthroughAmericanPublicUniversitySystem,orAPUS,aregionallyaccredited  onlineuniversitythatincludesAmericanMilitaryUniversity,orAMU,andAmericanPublicUniversity,orAPU.  Weprovideon-campusnursingeducationtostudentsinOhiothroughNationalEducationSeminars,Inc.,which  werefertoasHondrosCollegeofNursing,orHCON.HCONoperatesfourcampusesintheStateofOhio,as  wellasanonlineRN-to-BSNProgram,inordertoservetheneedsofthenursingandhealthcarecommunities.  Additionalinformationregardingoursubsidiaryinstitutionsandtheirregulationisincludedinthe“Business— CompanyOverview”and“Business—RegulatoryEnvironment”sectionsofthisAnnualReport. Ourrevenueislargelydrivenbythenumberofstudentsenrolledatourinstitutionsandthenumberofcourses  thattheytake.OurconsolidatedrevenuefortheyearendedDecember 31,2015decreasedto$327.9 million  106 American Public Education, Inc. from$350.0 millionintheyearendedDecember 31,2014.Ourconsolidatedrevenueincreasedto$350.0 million  intheyearendedDecember 31,2014from$329.5 millionintheyearendedDecember 31,2013.Therevenue  decreasethatoccurredin2015wascausedbyadecreaseinnetcourseregistrationsatAPUS,whiletherevenue  increasethatoccurredin2014wascausedbytheinclusionofHCONinouroperatingresultsfortheentireyear. Ouroperationsareorganizedintotworeportablesegments: • American Public Education Segment, or APEI Segment. Thissegmentreflectstheoperationalactivitiesat  APUS,othercorporateactivities,andminorityinvestments. • Hondros College of Nursing Segment, or HCON Segment. Thissegmentreflectstheoperationalactivitiesof  HCON.WeacquiredHCONonNovember 1,2013,andthereforetheconsolidatedresultsforperiodspriorto  November 1,2013donotincludeanyresultsfromHCON. FinancialinformationregardingeachofourreportablesegmentsisreportedinthisAnnualReportinthesections  “FinancialStatementsandSupplementaryData,”“Management’sDiscussionandAnalysisofFinancialCondition  andResultsofOperations—OperatingResultsbyReportableSegmentYearEndedDecember 31,2015Compared  toYearEndedDecember 31,2014,”and“Management’sDiscussionandAnalysisofFinancialConditionand  ResultsofOperations—YearEndedDecember 31,2014ComparedtoYearEndedDecember 31,2013.” Acquisition of HCON. WeacquiredHCONonNovember 1,2013,andwecontinuetoexecuteinitiativestogrow  HCONandimproveitsefficiency.Theseinitiativesmayresultinincreasedoperatingexpensesandcapital  investments,whichmaynotresultinhigherrevenueornetincome.WereceivedED’sapprovalofourHCON  change-in-ownershipapplicationonJanuary19,2016,andHCONsubsequentlyenteredintoaProvisional  ProgramParticipationAgreement,whichrequiresHCONtocomplywithspecificconditionswhileprovisionally  certified.FurtherinformationregardingtheHCONacquisitionandthepotentialrisksassociatedwithitare  furtheraddressedinthe“Business—RegulatoryEnvironment”and“RiskFactors—RisksRelatedtoOurBusiness”  sectionsofthisAnnualReport. Changing Student Body. AlthoughAPUS’sfocushasbroadened,itcontinuestohaveanemphasisonitsrela - tionshipwithmilitaryandmilitaryaffiliatedcommunities.AsofDecember 31,2015,approximately56%ofAPUS’s  studentsself-reportedthattheyservedinthemilitaryonactivedutyatthetimeofinitialenrollment,andas  aresultAPUSisparticularlyreliantonDoD’stuitionassistanceprogramsandDoD’sbudget.Since2006,when  APUSbeganparticipatinginED’sTitle IVfinancialaidprograms,orTitle IVprograms,asignificantportionof  APUS’sgrowthhasbeenattributabletostudentsusingfundsfromthoseprogramsand,asaresult,APUSexperi - encedachangeinthecompositionofitsstudentbody,whichhasresulted,andmaycontinuetoresult,inaneed  toprovideabroaderarrayofservicestoitsstudents.TheHCONacquisitionfurtherchangedthecompositionof  ourstudentbody,addingstudentswhoattendclassesatphysicalcampuses,aswellasadditionalstudentsusing  Title IVprogramfunds. ThechangeinthecompositionofAPUS’sstudentbodyhasmadeitmoredifficultforustomakelong-range  studentenrollmentforecasts.Wehavehadincreaseddifficultyforecastingthenumberofstudentswhowill  enroll,andhavenoticedadecreaseinthepredictabilityoftherateatwhichourinstitutionsconvertprospective  studentsintoenrolledstudents,whichweattribute,inpart,toincreasedcompetition,changesinourmarketing  approach,ournewadmissionsassessmentprocessatAPUS,andourrecenttuitionincreaseatAPUS,among  otherfactors.Ifweareunabletomanagechangesinthecompositionofourinstitutions’studentbodiesand  controlthegrowthofrelatedexpenditures,wemayexperienceoperatinginefficienciesthatcouldincreaseour  costsandadverselyaffectourresultsofoperationsandfinancialcondition.Formoreinformationaboutthe  risksrelatedtothesechallengespleasesee“RiskFactors—RisksRelatedtoOurBusiness.” 2015 Annual Report 107 Increased Costs and Expenses; Our Initiatives. Ourcostsandexpenseshaveincreasedovertimeduein  parttoincreasedgeneralandadministrativeexpensesrelatedtotheadditionofHCON’sphysicalcampuses,  achangingstudentbody,anincreaseinexpendituresforfinancialaidprocessing,andexpendituresfortech - nologyrequiredtosupportstudentsatAPUS.Further,althoughbaddebtexpenseasapercentageofrevenue  decreasedduringtheyearendedDecember 31,2015,ithastrendedupwardovertimeandcouldincreasein  futureperiods. Ourrevenuemaydeclineandourcostsandexpensesmayincreaseasourinstitutionsadjusttochangesintheir  studentcomposition,undertakeinitiativestoimprovethelearningexperience,andattractstudentswhoare  morelikelytopersistintheirprograms.Theseinitiativesmayinclude,butarenotlimitedto,thefollowing: • furtherchangestoadmissionsandgraduationstandardsandrequirements; • alteringtheadmissionsprocessandprocedures; • revisingsatisfactoryacademicprogressstandards; • changingtuitioncostsandpaymentoptions; • transitioningstudentfacingservices,includingexpandeduseoftheClearPathsystem; • experimentingwithcompetency-basedlearningandotheralternativedeliverymethods; • openingnewcampusesandexpandingprogramsatHCON;and • alteringourinstitutions’marketingprogramstotargettheappropriateprospectivestudents. InformationtechnologysystemsareanessentialpartoftheAPUSstudentexperienceandourbusinessopera - tions,andwecontinuetoinvestintechnologyoperationsandenhancementstosupportoursystemsandmis - sionandcontinuallyevaluatewhetheritisappropriatetomakesignificantchanges,modificationsorupgrades.  Thesetypesofchangesarenotwithoutrisktoouroperationsandfinancialresults.Wecontinuallyevaluate  ourPADsystemforpossiblechangesandupgrades,andsuchchangesandupgradesmayresultinusincurring  significantcoststhatcouldaffectourfinancialresultsinthenearterm.Theseinvestmentsmayresultinan  increasedlevelofspending,notallofwhichcanbecapitalized. Organizational Realignment. OnDecember14,2015,APUSissuedapressreleaseannouncingthatithadcom - mencedasearchforanewAPUSpresidentinconnectionwithananticipatedorganizationalrealignment.After  theidentificationofhissuccessor,APUSPresidentandCEODr.WallaceE.Bostonwillfocusonhispositionas  CEOofAPEI,providingstrategicandleadershipsupporttoAPUS,HCON,andotherAPEIventures.Thistransition,  andtherelatedanticipatedorganizationalrealignment,maycausestrategicoroperationalchallengesforus,the  impactofwhichcouldadverselyaffectourbusiness,financialcondition,resultsofoperations,andcashflows. Admissions Process. InApril 2015,APUSimplementedanadmissionsprocessrequiringprospectivestudentsto  completeafree,noncreditadmissionsassessmentiftheyarenot(i)activedutymilitaryorveteranapplicants;  (ii)graduatesofcertifiedfederal,state,orlocallawenforcementorpublicsafetyacademies;or(iii)studentswith  atleastninehoursoftransfercreditfromanaccreditedinstitutionwithagradeof“C”orbetterforeachcourse.  Sinceinitialimplementation,APUShasundertakenprojectstooptimizetheapplicationandassessmentprocess  whichitanticipateshavingsubstantiallycompletedduring2016.WebelievethatthedeclineinAPUS’snetcourse  registrationsmaybepartiallyduetothenewadmissionsprocessandcannotpredicthowthenewadmissions  processoranyoptimizationsmayimpactourresultsofoperations,cashflows,andfinancialcondition. Tuition and Fees. InApril 2015,APUSstoppedprovidinga$50percoursetechnologyfeegranttostudentswho  wereidentifiedasveteransduringtheirapplicationprocess.InJuly 2015,thefollowingtuitionincreasesforAPUS  undergraduateandgraduatecourseregistrationswentintoeffect: 108 American Public Education, Inc. • Thetuitionforundergraduatelevelcoursesincreasedby$20persemesterhourto$270persemesterhour. • Thetuitionforgraduatelevelcoursesincreasedby$25persemesterhourto$350persemesterhour. TosupportAPUS’sactivedutymilitaryandcertainmilitaryaffiliatedstudents,APUSisprovidingatuitiongrant  thatwillkeepthecostoftuitionforthesestudentsatitspreviouslevel.Asaresult,undergraduatecoursetuition  willcontinuetobe$250persemesterhour,andgraduatecoursetuitionwillcontinuetobe$325persemester  hourforU.S.Militaryactive-dutyservicemembers,Guard,Reserve,militaryspousesanddependents,and  veterans.APUSestimatesthatthetuitiongrantappliestoapproximately75%ofitstotalnetcourseregistrations.  TheJuly 2015tuitionincreasewasAPUS’sfirstundergraduatetuitionincreasesince2000,andthefirstgraduate  tuitionincreaseinfouryears.BasedoninformationintheCollegeBoard’s2015TrendsinCollegePricing(under - graduate)andtheNationalCenterforEducationStatisticsDigestofEducationalStatistics2013–14(graduate),we  estimatethat,afterthetuitionincrease,APUS’scombinedtuition,fees,andbooksremainapproximately19%  lessforundergraduatestudentsand38%lessforgraduatestudentsthantheaveragepublishedin-stateratesat  publicuniversities. In2016,weexpecttoevaluaterepositioningselectdegreeprogramsbyimplementingdifferentiatedpricing,  primarilytobetteraligntuitionofcertainprogramswithhighermarketdemand.Wecannotpredictwhetherand  whenwewouldimplementthischangeorhowtheimplementationoftuitionpricingbyprogramwouldimpact  ournetcourseregistrations,resultsofoperations,andfinancialcondition. Financial Aid Processing Transition. Inthethirdquarterof2013,APUStransitionedfromusingtheservices  ofathird-partyservicertoassistwiththeadministrationandmanagementofAPUS’sparticipationinTitle IV  programstoutilizinganinternalsolutionthatrelied,inpart,onsoftwareandservicesprovidedbyathird- partyvendor.Weexperiencedunexpecteddelaysinfinancialaidprocessingasaresultofvarioussoftwareand  programmingerrorsandlimitations,resultinginEDrejectingcertainstudentrecords,aninabilitytodisburse  Title IVprogramfundstosomestudents,andotherrelatedissues.Whilewehadanticipatedthatinconnection  withthetransitiontherewouldbeadelayinprocessingfinancialaidforashortperiodoftime,thedelayswere  longerthanexpectedandthereweremoreerrorsthanexpected.Inaddition,whenthedecisionwasmadeto  movefinancialaidprocessingin-houseusingsoftwaresuppliedbyathird-partyvendor,weanticipatedbeing  abletoautomatecertainmanualprocesses.Errorsinthesoftware,aswellaslackofexperiencewiththesoft - warebymanyofourfinancialaidstaff,requiredmanualworkoutsidethesystem,increasingthetimetoprocess  financialaid.APUSattemptedtoworkwiththevendortoidentifythecausesofthedelays,errors,andproblems.  Manywereresolved,butsomeremained,andAPUShadtoperformmanualworkoutsidetheautomatedsystem  toprocessfinancialaid.Challengeswiththeprocessingoffinancialaidledtoreputationalproblems,adverse  effectsonouroperatingresults,reducedcourseenrollments,andincreasedcosts.InApril 2015,APUSbegan  totransitionitsfinancialaidprocessingtoathird-partyservicer,GlobalFinancialAidServices.APUSsubstan - tiallycompletedthetransitionattheendof2015.Thereweresignificantcostsrelatingtotheimplementation  ofGlobalFinancialAidServices’financialaidprocessingservicesandtheremaybesignificantcostsandrisks  relatedtothetransitiongoingforward.FormoreinformationregardingtherisksassociatedwithAPUS’sfinan - cialaidprocessingsystemsandthetransitionbacktoGlobalFinancialAidServices,pleasesee“RiskFactors— RisksRelatedtoOurBusiness.” Bad Debt Expense. OvertimewehaveexperiencedincreasesinourAPEISegment’sbaddebtexpense,though  thistrendhasstabilizedandbaddebtexpensedecreasedfortheyearendedDecember 31,2015ascompared  totheprioryearperiod.WehaveobservedthatsomestudentsenrollorattempttoenrollatAPUSsolelyto  obtainfundsfromTitle IVprograms,andsomestudentswhomightnototherwisepursueadegreeorcertificate  areattractedtoenrollinAPUS’sprogramsbecauseoftheavailabilityofsuchfunds.Webelievethesestudents  maybemorelikelythanotherstudentstoceasepursuingadegreeorcertificateduetoseveralfactors,suchas  2015 Annual Report 109 becomingemployed,ornothavingthelevelofcommitmentnecessarytosuccessfullycompletetherequired  coursework.Asdescribedmorefullyabovein“RiskFactors—RisksRelatedtoOurBusiness,”wehavealsobeen  thetargetoffraudulentactivitiesbyoutsidepartieswithrespecttostudentenrollmentandTitle IVprograms,  andshouldweexperiencegrowthwemaybesusceptibletoanincreasedriskofsuchactivities.Webelievethe  factorsdiscussedinthisparagraphweretheprimarydriversoftheincreasedbaddebtexpensethatoccurred  duringtheyearsendedDecember 31,2013and2014.Wearenotabletoestimatethenumberofstudentswho  fallintotheseenrollmentcategories,andourabilitytoestimatetheimpactonourenrollmentsovertimeis  limited,asisourabilitytoestimateanyadditionalimpactthatthiscouldhaveonourexposuretobaddebtor  thenumberofourstudentswhodefaultontheirTitle IVprogramloans.Webelievethatourinitiativesdiscussed  inthisAnnualReport,includingthenewadmissionsprocess,havecontributedtothestabilizationofourAPEI  Segment’sbaddebtexpense.Further,webelievethatAPUS’sSeptember 2015changeinthemethodbywhichit  disbursesTitle IVaidfromasingledisbursementmethodtoamultipledisbursementmethodforfirst-timeAPUS  undergraduatestudentsmayresultinfurtherdecreasesinbaddebtexpense. Impact of Government Budgetary Pressures. OnAugust 2,2011,CongresspassedtheBudgetControlActof  2011,whichputintoplaceaseriesofautomaticfederalbudgetcutsknownassequestration.Thebudgetcuts,or  sequestration,impactcertainfederalstudentaidprograms,aswellasDepartmentofDefense,orDoD,tuition  assistanceprograms.Asaresultofsequestration,thesizeofthemilitarymaydecreaseandamountsavailable  underDoDtuitionassistanceprogramscouldbesignificantlycurtailedoreveneliminated,andthetimeforthe  variousservicestoprocessrequestsfortuitionassistancecouldbelengthened. TheConsolidatedandFurtherContinuingAppropriationsAct,2015increasedthemaximumPellawardto$4,860  inthe2015–2016awardyear,andTheStudentAidandFiscalResponsibilityActprovidesforanautomaticannual  increasethroughawardyear2017–2018basedonchangesintheConsumerPriceIndextotheappropriated  FederalPellGrantmaximumaward,resultingina2015–2016maximumawardof$5,775.TheFiscalYear2016  OmnibusAppropriationsBillincreasedthemaximumawardto$5,815inthe2016–2017awardyear.ThePell  Grantprogramcouldbesubjecttocutsorchangesinthefuture.CutstoED’sadministrativebudgetcouldleadto  delaysinstudenteligibilitydeterminationsanddelaysintheoriginationandprocessingoffederalstudentloans.  Theseeventscouldmakeitmoredifficultforstudentstoobtainfundingfortheireducation,eitherinatimely  manneroratall,andwouldhaveanadverseeffectonourfinancialcondition.Formoreinformationonseques - trationandotherlegislativeactivitythatmayimpactourresults,pleasereferto“RegulatoryEnvironment— RecentLegislativeandRegulatoryActivity.” InMarch 2013,inresponsetosequestration,eachofthemilitaryservicessuspendednewenrollmentsinDoD  tuitionassistanceprograms.AsaresultofCongressionalaction,eachoftheservicesreinstatedenrollmentsin  DoDtuitionassistanceprogramsinApril 2013.However,ourresultsofoperationsinthesecondquarterof2013  werenegativelyimpactedbytheseactions,resultinginwhatwebelievewerefewerenrollmentsatAPUSfrom  servicemembersthanotherwisewouldhavebeenachieved.InOctober 2013,DoDtuitionassistanceprograms  wereagaintemporarilysuspendedasaresultoftheU.S.governmentpartialshutdown.OnOctober 1,2013,  priortothegovernmentshutdown,APUScourseregistrationsforOctober 2013wereapproximately41,200.  AsofOctober 14,2013,however,approximately13,100registrationshadbeendropped,resultinginanet  courseregistrationreductionofapproximately20%comparedtoOctober 2012.Webelievethatmanyofthese  droppedregistrationsresultedfromthesuspensionofDoDtuitionassistanceprograms.Afterthegovernment  shutdownended,DoDresumeditstuitionassistanceprograms;however,wedonotbelievethatAPUS’sreg - istrationsforsubsequentmonthsservedtoreplace,ormakeup,alloftheregistrationsthatweredropped.  WebelievethatcontinueduncertaintyregardingtheavailabilityofDoD’stuitionassistanceprogramsandthe  impactfromtheOctober 2013temporarysuspensionmayalsohavenegativelyimpactedournetcourseregis - trationsduring2014. 110 American Public Education, Inc. WhileDoDtuitionassistanceprogramswerereinstatedandthegovernmentshutdownended,budgetarypres - suresremain,andwedonotknowthefullscaleoffutureactionsthatmaybetakenwithrespecttoDoDtuition  assistanceprograms,whichcouldincludeeliminatingthoseprograms,reducingthefundsorbenefits(orboth)  availableunderthoseprograms,orenactingnewrestrictionsonparticipationinthoseprograms.Iffundsavail - ableunderDoDtuitionassistanceprogramsarereducedoreliminated,webelievethatmostservicemembers  wouldbeeligibleandabletofinanceout-of-pockettuitioncostsresultingfromthisshortfallusingtheirbenefits  undertheMontgomeryGIBillorthePost-9/11VeteransEducationalAssistanceActof2008,asamended,or  thePost-9/11GIBill,throughthe“TopUp”program.The“Top-Up”programallowsactive-dutyservicemembers  tousetheirGIBillorPost-9/11GIBillbenefitstopaythedifferencebetweenthetotalcostofacollegecourse  andtheamountofDoDtuitionassistancethatispaidbythemilitaryforthecourse.However,wedonotknow  whetherinthelong-termservicememberswillbewillingtousetheTop-Upoption,orwhethertheincreased  administrativeprocessinusingtheTop-Upoptionorcoveringtheshortfallthroughotherfundingsourceswill  leadtoservicemembersdecidingnottoenrollorenrollingataslowerrate. InJune 2015,theU.S.Armyreportedthat,bySeptember 30,2017,itplanstoreduceitstroopcountby40,000  anditscivilianemployeecountby17,000.Thesereductionswereexpected,butthetimelineforimplementation  hasbeenadvancedbyoneyear.WecannotpredictthetimingorfullextentofreductionsinthesizeoftheU.S.  Military,butanysuchreductionsmayhaveanadverseimpactonAPUS’senrollments,ourresultsofoperations,  cashflows,andfinancialcondition. DoD MOU. UnderaDoDfinalrule,effectiveJanuary7,2013,eachinstitutionparticipatinginDoDtuitionassis - tanceprogramsisrequiredtosignaMemorandumofUnderstanding,orMOU,outliningcertaincommitments  andagreementsbetweentheinstitutionandDoDpriortoacceptingfundsfromDoDtuitionassistancepro - grams.SinceAugust 14,2013,DoDhasissuedaseriesofproposedrevisionstotheMOU.OnJuly 7,2014,the  DoDreleasedarevisedMOU(the“2014MOU”)andinstitutionswereinformedthattheywererequiredtosign  the2014MOUonorbeforeSeptember 5,2014inordertocontinuetoparticipateinDoDtuitionassistance  programs.InAugust 2014,APUSsignedthe2014MOU,whichgovernsAPUS’sinteractionswitheducationservice  officesandmilitarybases.The2014MOUandtherelatedincreasedfocusbytheDoDonrelationshipsand  oversightofeducationalproviders,oradditionalnewDoDinstructionsorbriefings,couldalsoleadtochanges  inthenatureofourrelationshipswithmilitarybasesandeducationalserviceofficers,whichcouldbeadverse  innature.Forexample,theDoDhasissuedbriefingsthatspecificallyprohibitauthorizingregularorrecurring  officehoursforaneducationalinstitutiontosolelyprovidecounselingandthatprohibitallowingformermil - itarymemberstoaccessinstallationstorepresentaneducationalinstitutionusingtheirgovernmentIDcard  privileges.IfAPUS’srelationshipswitheducationalserviceofficesorbaseeducationcounselorsdeteriorateor  end,orouraccesstomilitarybasesisfurtherrestricted,oureffortstorecruitstudentsfromthosebasescould  beimpaired,andourresultsofoperationsandfinancialconditioncouldbemateriallyandadverselyaffected.  Additionalinformationregardingthe2014MOUandpotentialrisksassociatedwithitarefurtheraddressedin  the“RegulatoryEnvironment—StudentFinancingSourcesandRelatedRegulations/Requirements”andthe“Risk  Factors”sectionsofthisAnnualReport. Army Enrollment Management Tool. InDecember2015,theU.S.Armyimplementeditsnewenrollmentman - agementtoolthatmembersoftheArmymustusetoaccessDoDtuitionassistance.MembersoftheArmyhave  continuedtoexperiencevariousissueswiththenewenrollmentmanagementtool,includingdifficultyselecting  APUSasaninstitution.WebelievethattheissuesencounteredwiththeArmy’snewenrollmentmanagement  toolmaynegativelyimpactAPUS’senrollmentsandnetcourseregistrationsduring2016. Regulated Industry. Ourinstitutionsoperateinahighlyregulatedindustry.Formoreinformationontheregula- tionstowhichourinstitutionsaresubject,pleaserefertothe“Business—RegulatoryEnvironment”sectionof  2015 Annual Report 111 thisAnnualReport.Suchregulationsmayimpactourfinancialresultsinawaythatwecannotpredict,andmay  haveanadverseimpactonourfinancialcondition. Our Key Financial Results Metrics Revenue Whenreviewingourrevenueweevaluatethefollowingcomponents:netcourseregistrationsandenrollment;  tuitionratecharged;tuitionnetofscholarships;andotherfees. Net course registrations and enrollment. Forfinancialreportingandanalysispurposes,APUSmeasuresitsstu- dentpopulationintermsofaggregatecourseenrollments,ornetcourseregistrations.Courseenrollments,or  netcourseregistrations,whichincludeone-creditlabcoursescombinedwiththeirrelatedthree-creditcourses,  representtheaggregatenumberofcoursesinwhichstudentsremainenrolledafterthedatebywhichtheymay  dropthecoursewithoutfinancialpenalty.HCONmeasuresitsstudentpopulationintermsofstudentenroll - ments.Studentenrollmentrepresentsthenumberofstudentsenrolledinoneormorecoursesafterthedateby  whichtheymaydropthecoursewithoutfinancialpenalty. Courseenrollments,ornetcourseregistrations,atAPUSrepresenttheaggregatenumberofcoursesinwhich  studentsremainenrolledafterthedatebywhichtheymaydropthecoursewithoutfinancialpenalty. Becausewerecognizerevenueoverthelengthofacourse,netcourseregistrationsandstudentenrollmentsin  afinancialreportingperioddonotcorrelatedirectlywithrevenueforthatperiodbecauserevenuerecognized  fromcoursesisnotnecessarilyrecognizedinthefinancialreportingperiodinwhichthecourseregistrationsor  enrollmentsoccur.Forexample,revenueinaquarterreflectsaportionoftherevenuefromcoursesthatbegan  inapriorquarterandcontinuedintothequarter,allrevenuefromcoursesthatbeganandendedinthequarter,  andaportionoftherevenuefromcoursesthatbeganbutdidnotendinthequarter. Since2006,inpartbecauseAPUS’sstudentscanaccessED’sTitle IVprogramsandbecauseofanalreadystrong  positionservingservicemembers,APUShasbeenincreasingitsfocusonpublicsafetyprofessionalsandother  civilianmarkets.ED’sTitle IVprogramsrequireparticipatingstudentstotakemorecoursespersemesterthan  studentsparticipatinginDoDtuitionassistanceprograms.Asaresult,shouldthenumberofAPUS’sstudents  whoutilizeED’sTitle IVprogramsincrease(orthenumberofstudentsusingDoDtuitionassistanceprograms  decreases),weanticipatethatitmaycausetheaveragenumberofcoursesperstudentpersemestertoincrease. Youshouldnotrelyontheresultsofanypriorperiodsasanindicationoffuturenetcourseregistrationsat  APUS,studentenrollmentsatHCON,orconsolidatedrevenue.Thecompositionofourstudents,changingmar - ketdemandsandcompetition,makeforecastingverydifficult,andweareunabletodetermineifwewillreturn  togrowthorwhatlevelofgrowthwewillachieve,ifany.Similarly,youshouldnotrelyonouroperatingmargins  inanypriorperiodsasanindicationofourfutureoperatingmargins. Tuition rate. Providingaffordableprogramsisanimportantelementofourstrategyforgrowth.Asdiscussed  abovein“Management’sDiscussionandAnalysis—Overview,”weestimatethatAPUS’stuitionislowerthan  theaveragein-stateratesatpublicuniversitiesandtheJuly 2015tuitionincreasewasAPUS’sfirstundergradu - atetuitionincreasesince2000,andthefirstgraduatetuitionincreaseinfouryears.Tuition,fees,andbooksat  HCONarealsodesignedtobeaffordableandcompetitivewithothersimilarinstitutionsofferingthesamelevel  offlexibility,accessibility,andstudentexperience. Net tuition. Tuitionrevenuevariesfromperiodtoperiodbasedontheaggregatenumberofstudentsattending  coursesandthenumberofcoursestheyareattendingduringtheperiod,themixofprogramsthatstudentsare  attendingduringtheperiod,aswellasthenumberofstudentsstartingcourseseachmonthduringtheperiod  112 American Public Education, Inc. andthetimingofthestartofacourseeachmonthorterm.Tuitionrevenueisadjustedtoreflectamountsfor  studentswhowithdrawfromacourseinthemonthortermthewithdrawaloccurs.Wealsoprovidescholarships  tocertainstudentstoassistthemfinanciallywiththeireducationalgoals.Thecostofthesescholarshipsisnet - tedagainsttuitionrevenueintheperiodincurredforpurposesofestablishingnettuitionrevenue. Other fees. OtherfeesatAPUSincludechargesfortranscriptcreditevaluation,whichincludesassistancein  securingofficialtranscriptsonbehalfofthestudentandevaluatingtranscriptsfortransfercredit,andatech - nologyfeepercourse.APUSmayalterfeesinthefutureandanticipateseliminatingitstransfercreditevalu - ationfeeduringthesecondquarterof2016,sucheliminationisnotexpectedtohaveamaterialeffectonour  revenueorfinancialcondition.APUSstudentsarealsochargedcertainadditionalfees,suchasgraduation,late  registration,transcriptrequest,andcomprehensiveexaminationfees,whenapplicable.APUSprovidesagrant  tocoverthetechnologyfeeforcertainstudents,includingthoseusingDoDtuitionassistanceprograms.Forthe  yearendedDecember 31,2015,technologyfeerevenuewasapproximately$7.6 million,or2.3%ofrevenue.In  accordancewithFASBASCTopic605-50,Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,otherfeesalsoincludebookpurchasecommissionsthatAPUSreceivesforgraduate  studentbookpurchasesandancillarysupplypurchasesthatstudentsmakedirectlyfromourpreferredbook  vendor.HCONstudentsarechargedapplication,enrollment,andgraduationfees,whenapplicable. Costs and Expenses Wecategorizeourcostsandexpensesas(i)instructionalcostsandservices,(ii)sellingandpromotional,(iii)gen - eralandadministrative,and(iv)depreciationandamortization. Instructional costs and services. Instructionalcostsandservicesareexpensesdirectlyattributabletothe  educationalservicesourinstitutionsprovidetotheirstudents.Thisexpensecategoryincludessalariesand  benefitsforfull-timefaculty,administrators,andacademicadvisors,andcostsassociatedwithpart-timefaculty.  Instructionalcostsandservicesexpensesalsoincludecostsassociatedwithacademicrecordsandgraduation,  aswellasotherservicesprovidedbyourinstitutions,suchasevaluatingtranscripts. AtAPUS,instructionalcostsandservicesalsoincludesexpensesrelatedtoourundergraduatebookgrantpro - gramandinstructionalpayforpart-timefacultythatisprimarilydependentonthenumberofstudentstaught.  BeginningwiththeyearendedDecember 31,2014,instructionalcostsandservicesalsoincludesoperating  expensesdirectlyassociatedwithHCON’scampusoperations,includingrent. Selling and promotional. Sellingandpromotionalexpensesincludesalariesandbenefitsofpersonnelengaged  instudentenrollment,aswellascostsassociatedwithadvertisingandtheproductionofmarketingmaterials  relatedtobothnewenrollmentsandcurrentstudents.Oursellingandpromotionalexpensesaregenerally  affectedbythecostofadvertisingmedia,theefficiencyofoursellingefforts,salariesandbenefitsforour  sellingandadmissionspersonnel,andthelevelofexpendituresforadvertisinginitiativesfornewandexisting  academicprograms.WebelievetheavailabilityofTitle IVprogramfundstostudentshasincreasedourmarket - abilityinnon-militarymarkets,butthenatureofthesemarkets,includingtheimpactofcompetition,andthe  risingcostofinternetandotheradvertisinghascausedourstudentacquisitioncoststoincrease.Thistrendmay  continueandourstudentacquisitioncostsmayincrease. General and administrative. Generalandadministrativeexpensesincludesalariesandbenefitsofemployees  engagedincorporatemanagement,finance,financialaidprocessing,informationtechnology,humanresources,  facilities,complianceandothercorporatefunctions.Inaddition,thecostofrentingandmaintainingAPUS’s  administrativefacilities,technologyexpenses,andcostsforprofessionalservicesareincludedingeneraland  administrativecosts.Generalandadministrativeexpensesalsoincludebaddebtexpense. 2015 Annual Report 113 Depreciation and amortization. Weincurdepreciationandamortizationexpensesforcostsrelatedtothe  capitalizationofproperty,equipment,software,andprogramdevelopmentonastraight-linebasisoverthe  estimatedusefullivesoftheassets.Inaddition,weincuramortizationexpensefortheamortizationofidentified  intangibleassetswithadefiniteliferesultingfromouracquisitionofHCONonNovember 1,2013. Interest Income, Net Interestincome,netconsistsprimarilyofinterestincomeearnedonnotesreceivableandoncashandcash  equivalents,netofanyinterestexpense. Equity Investment Loss, Net of Tax Equityinvestmentloss,netoftaxconsistsprimarilyofourproportionalshareofafter-taxearningsorlosses  attributabletoourinvestmentsincertaincompanies.Weusetheequitymethodofaccountingforaninvest - mentinacompanyinwhichourownershipis20%orgreaterbutlessthanorequalto50%,orwhenwehavethe  abilitytoexercisesignificantinfluenceoveroperatingandfinancialpoliciesoftheinvestment.Werefertothese  companiesasinvestees. Undertheequitymethod,ourinvestmentsinandamountsduetoandfromaninvesteeareincludedinthe  ConsolidatedBalanceSheets.Ourshareoftheinvestee’searningsorlossesisincludedintheConsolidated  StatementofIncomeasequityinvestmentincome(loss),netoftax.Dividends,cashdistributions,loans,or  othercashreceivedfromtheinvestee,additionalcashinvestments,loanrepaymentsorothercashpaidtothe  investeeareincludedintheConsolidatedStatementofCashFlows.Additionally,whencircumstanceswarrant,  thecarryingvalueofinvestmentsaccountedforusingtheequitymethodofaccountingareadjusteddownward  toreflectanyother-than-temporarydeclinesinvalue. AsofDecember 31,2015,ourequitymethodinvestmentsincludeaninvestmentinpreferredstockofNWHW  Holdings,Inc.,orNWHWHoldings,aholdingcompanythatoperatesNewHorizonsWorldwide,Inc.,orNew  Horizons,representingapproximately19.9%ofitsfullydilutedequity,aninvestmentinpreferredstockofFidelis  Education,Inc.,orFidelisEducation,representingapproximately21.6%ofitsfullydilutedequity,andaninvest - mentinpreferredstockofSecondAvenueSoftware,Inc.,orSecondAvenueSoftware,representingapproxi - mately25.9%ofitsfullydilutedequity.Inconnectionwiththeseinvestments,weareentitledtocertainrights,  includingtherighttorepresentationontheBoardsofDirectorsofNWHWHoldings,FidelisEducation,and  SecondAvenueSoftware.OnFebruary 1,2016,wemadeanadditionalinvestmentinpreferredstockofFidelis  Education,increasingourinvestmenttoapproximately22%ofitsfullydilutedequity. Critical Accounting Policies and Use of Estimates ThediscussionofourfinancialconditionandresultsofoperationsisbaseduponourConsolidatedFinancial  Statements,whichhavebeenpreparedinaccordancewithaccountingprinciplesgenerallyacceptedinthe  UnitedStates,orGAAP.Duringthepreparationofthesefinancialstatements,wearerequiredtomakeesti - matesandassumptionsthataffectthereportedamountsofassets,liabilities,revenue,costsandexpenses,  andrelateddisclosures.Onanongoingbasis,weevaluateourestimatesandassumptions,includingthose  relatedtorevenuerecognition,accountsreceivableandallowancefordoubtfulaccounts,valuationoflong- livedassets,contingencies,incometaxes,andstock-basedcompensationexpense.Webaseourestimates  onhistoricalexperienceandonvariousotherassumptionsthatwebelievearereasonableunderthecircum - stances.Theresultsofouranalysisformthebasisformakingassumptionsaboutthecarryingvaluesofassets  andliabilitiesthatarenotreadilyapparentfromothersources.Actualresultsmaydifferfromtheseesti - matesunderdifferentassumptionsorconditions,andtheimpactofsuchdifferencesmaybematerialtoour  ConsolidatedFinancialStatements. 114 American Public Education, Inc. Asummaryofourcriticalaccountingpoliciesfollows: Revenue recognition. TheCompanyrecordsalltuitionasdeferredrevenuewhenastudentbeginsanonline  course,inthecaseofAPUS,orstartsaterm,inthecaseofHCON.Atthebeginningofeachcourseorterm,rev - enueisrecognizedonaproratabasisovertheperiodofthecourseorterm,whichis,forAPUS,eitheraneight-  orsixteen-weekperiodandforHCON,aquarterlyterm.ThisresultsindeferredrevenueontheCompany’s  ConsolidatedBalanceSheetsthatincludesfuturerevenuethathasnotyetbeenearnedforcoursesandterms  thatareinprogress. Revenue Recognition—American Public University System APUS’stuitionrevenuevariesfromperiodtoperiodbasedonthenumberofnetcourseregistrations.Students  mayremittuitionpaymentsthroughtheonlineregistrationprocessatanytimeortheymayelectvariouspay - mentoptions,includingpaymentsbysponsors,alternativeloans,financialaid,ortheDoDtuitionassistancepro- gramwhichremitspaymentsdirectlytoAPUS.Theseotherpaymentoptionscandelaythereceiptofpayment  upuntilthecoursestartsorlonger,resultingintherecordingofanaccountreceivableatthebeginningofeach  session.TuitionrevenueforsessionsinprogressthathasnotbeenearnedbyAPUSispresentedasdeferred  revenueintheaccompanyingConsolidatedBalanceSheets. APUSrefunds100%oftuitionforcoursesthataredroppedbystudentsbeforetheconclusionofthefirstseven  daysofacourse.BecausecoursesbeginthefirstMondayofeverymonthandpenaltyfreedropsoccurbythe  secondMondayofeverymonth,wedonotrecognizerevenuerelatedtopenaltyfreedrops.Afteracourse  begins,ifastudentdoesnotdropthecoursewithinthefirstsevendays,APUSusesthefollowingrefundpolicy: 8-Week Course—Tuition Refund Schedule Withdrawal Date Before or During Week 1 During Week 2 During Weeks 3 and 4 During Weeks 5 through 8 16-Week Course—Tuition Refund Schedule Withdrawal Date Before or During Week 1 During Week 2 During Weeks 3 and 4 During Weeks 5 through 8 During Weeks 9 through 16 Tuition Refund Percentage 100% 75% 50% No Refund Tuition Refund Percentage 100% 100% 75% 50% No Refund PriortoJanuary1,2016,alternativerefundpoliciesappliedtostudentsincertainstatesasaresultofspecific  stateandotherlocalrequirements.However,afterJanuary1,2016,APUSisnotawareofanystatespecific  refundpoliciesthatwillbeapplicable. APUSrecognizesrevenueonaproratabasisovertheperiodofitscoursesasAPUScompletesthetasksentitling ittothebenefitsrepresentedbysuchrevenue.Ifastudentwithdrawsduringtheacademicterm,APUSrecognizes asrevenuetheremainingnon-refundableamountduefromthestudentintheperiodthewithdrawaloccurs.The calculationoftheremainingnon-refundableamountisbasedupontheAPUSstudentrefundpolicy.Forthose 2015 Annual Report 115 studentswhohaveanoutstandingreceivablebalanceatthedateofwithdrawal,APUSassessescollectabilityand onlyrecognizesasrevenuethoseamountswherecollectabilityisreasonablyassuredbasedonAPUS’shistorywith similarstudentaccounts.ThispolicywasimplementedonJanuary1,2015.Previously,APUSrecognizedrevenuefor allstudentwithdrawalsandestablishedanallowanceforthosereceivablesconsidereduncollectible.TheCompany doesnotbelievethatthischangeinpolicyhadamaterialeffectonitsresultsofoperationsorfinancialcondition. Otherrevenueincludeschargesfortranscriptcreditevaluation,whichincludesassistanceinsecuringofficial  transcriptsonbehalfofthestudentinadditiontoevaluatingtranscriptsfortransfercredit,andatechnologyfee  percourse.APUSmayalterfeesinthefutureandanticipateseliminatingitstransfercreditevaluationfeeduring  thesecondquarterof2016.Sucheliminationisnotexpectedtohaveamaterialeffectonourrevenueorfinancial  condition.APUSprovidesagranttocoverthetechnologyfeeforstudentsusingDoDtuitionassistanceprograms.  PriortoApril 2015,APUSprovidedagranttocoverthetechnologyfeeforstudentsusingVAeducationbenefits.  AfterApril 1,2015,thetechnologyfeegrantwasnolongerappliedtostudentsusingVAeducationbenefits. Studentsalsoarechargedgraduation,lateregistration,transcriptrequest,andcomprehensiveexamination  fees,whenapplicable.InaccordancewithFASBASCTopic605-50,Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,otherfeesalsoincludebookpurchasecommissionsAPUS  receivesforgraduatestudentbookpurchasesandancillarysupplypurchasesstudentsmakedirectlyfrom  APUS’spreferredbookvendor. Revenue Recognition—Hondros College of Nursing HCON’stuitionrevenuevariesfromperiodtoperiodbasedonthenumberofstudentsenrolled.HCONstudents mayremittuitionpaymentsatanytime,ortheymayelectvariouspaymentoptionsthatcandelayreceiptofpay- mentupuntilthetermstartsorlonger.Theseotherpaymentoptionsincludepaymentsbysponsors,financialaid, alternativeloans,orpaymentplanoptions.Ifoneofthevariousotherpaymentoptionsareconfirmedassecured, thestudentisallowedtostarttheterm.Allfinancialaidisawardedpriortothestartofthetermandrequestsfor authorizationofdisbursementbegininthefirstweekoftheterm.Tuitionrevenuefortheterminprogressthathas notbeenearnedbyHCONispresentedasdeferredrevenueintheaccompanyingConsolidatedBalanceSheets. TheHCONrefundpolicycomplieswiththerulesoftheOhioStateBoardofCareerCollegesandSchoolsandis  applicabletoeachterm.Foracoursewithanon-campusorotherin-personcomponent,thedateofwithdrawal  isdeterminedbyastudent’slastattendeddayofclinicaloffering,laboratorysession,orlecture.Foranonline  course,thedateofwithdrawalisdeterminedbyastudent’slastsubmittedassignmentinthecourse.HCONuses  thefollowingrefundpolicy: Withdrawal Date Before first full calendar week of the quarter During first full calendar week of the quarter During second full calendar week of the quarter During third full calendar week of the quarter During fourth full week of the quarter Tuition Refund Percentage 100%, plus registration fee 75%, plus registration fee 50%, plus registration fee 25%, plus registration fee No Refund Alternativerefundpoliciesmayapplytostudentsofcertainstatesinaccordancewithspecificstateandother  localregulations. Accounts receivable. Coursetuitionisrecordedasaccountsreceivableanddeferredrevenueatthetimestu - dentsbeginacourseorterm.Studentsmayremittuitionpaymentsatanytimeortheymayelectvariouspay - mentoptions,whichcandelaythereceiptofpaymentupuntilthecourseortermstartsorlonger.Theseother  116 American Public Education, Inc. paymentoptionsincludepaymentsbysponsors,financialaid,alternativeloans,paymentplanoptions,ortuition  assistanceprogramsthatremitpaymentsdirectlytoourinstitutions.Whenastudentremitspaymentaftera  courseortermhasbegan,accountsreceivableisreduced.Ifpaymentismadepriortothestartofacourseor  term,thepaymentisrecordedasastudentdeposit,andthestudentisprovidedaccesstotheonlineclassroom  whencoursesstart,inthecaseofAPUS,orallowedtostarttheterm,inthecaseofHCON.Ifoneofthevarious  otherpaymentoptionsareconfirmedassecured,thestudentisprovidedaccesstotheonlineclassroomor  allowedtostarttheterm.Ifnoreceiptisconfirmedorpaymentoptionsecured,thestudentwillbedroppedfrom  theonlinecourseornotallowedtostarttheterm.Therefore,billedamountsrepresentchargesthathavebeen  preparedandsenttostudentsortheapplicablethirdpartypayoraccordingtothetermsagreeduponinadvance. DoDtuitionassistanceprogramsarebilledbybranchofserviceonacourse-by-coursebasiswhenastudent  startscourses,whereasED’sTitle IVprogramsarebilledbasedonthecoursesincludedinastudent’ssemester.  Billedaccountsreceivableareconsideredpastdueiftheinvoicehasbeenoutstandingformorethan30days.  Theallowancefordoubtfulaccountsisbasedonmanagement’sevaluationofthestatusofexistingaccounts  receivable.Amongotherfactors,managementconsiderstheageofthereceivable,theanticipatedsourceofpay - ment,andourhistoricalallowanceconsiderations.Considerationisalsogiventoanyspecificknownriskareas  amongtheexistingaccountsreceivablebalances.Recoveriesofreceivablespreviouslywrittenoffarerecorded  whenreceived.Wedonotchargeinterestonourpastdueaccountsreceivable. Property and equipment. Allpropertyandequipmentarecarriedatcostlessaccumulateddepreciation,except  theacquiredassetsofHCON,whichwererecordedatfairvalueattheacquisitiondate.Depreciationandamor - tizationarecalculatedonastraight-linebasisovertheestimatedusefullivesoftheassets.OurPartnershipAta  DistanceTM,orPADsystem,isacustomizedstudentinformationandservicessystemusedbyAPUStomanage  admissions,onlineorientation,courseregistrations,tuitionpayments,gradereporting,progresstowarddegrees,  andvariousotherfunctions.CostsassociatedwiththesystemhavebeencapitalizedinaccordancewithFASBASC  Subtopic350-40,Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, andclassified aspropertyandequipment.Thesecostsareamortizedovertheestimatedusefullifeoffiveyears.Wealsocapi - talizecertaincostsforacademicprogramdevelopment.Thesecostsaretransferredtopropertyandequipment  uponcompletionofeachprogramandamortizedoveranestimatedlifenottoexceedthreeyears. Investments. OnSeptember 30,2012,wemadea$6.8 millioninvestmentinpreferredstockofNWHWHoldings,  aholdingcompanythatoperatesNewHorizons,representingapproximately19.9%ofthefullydilutedequityof  NWHWHoldings.NewHorizonsisaglobalITtrainingcompanyoperatingover300locationsaroundtheworld  throughfranchisearrangementsinapproximately70countries.Inconnectionwiththeinvestment,weare  entitledtocertainrights,includingtherighttorepresentationontheBoardofDirectorsofNWHWHoldings.We  accountforourinvestmentinNWHWHoldingsundertheequitymethodofaccounting.Therefore,werecorded  theinvestmentatcostandrecognizeourshareofearningsorlossesinNWHWHoldingsintheperiodsforwhich  theyarereportedwithacorrespondingadjustmentinthecarryingamountoftheinvestment. OnFebruary 20,2013,wemadea$4.0 millioninvestmentinpreferredstockofFidelisEducation,representing  approximately21.6%ofitsfullydilutedequity.OnFebruary 1,2016,wemadeanadditional$950,000investment  inpreferredstockofFidelisEducation,increasingourinvestmenttoapproximately22%ofitsfullydilutedequity. FidelisEducationoffersalearningrelationshipmanagementplatformthathasthegoalofimprovingeducation  advisingandcareermentoringservicesofferedtostudentsastheypursuecollegedegrees.Inconnectionwith  theinvestments,weareentitledtocertainrights,includingtherighttorepresentationontheBoardofDirectors  ofFidelisEducation.WeaccountforourinvestmentinFidelisEducationundertheequitymethodofaccounting.  Therefore,werecordedtheinitialandsubsequentinvestmentatcostandwillrecognizeourshareofearnings  orlossesinFidelisEducationintheperiodsforwhichtheyarereportedwithacorrespondingadjustmentinthe  carryingamountoftheinvestment. 2015 Annual Report 117 OnApril 2,2014,wemadea$1.5 millioninvestmentinpreferredstockofSecondAvenueSoftware,representing  approximately25.9%ofitsfullydilutedequity.SecondAvenueSoftwareisagame-basededucationsoftware  companythatdevelopssoftwareonaproprietaryand“work-for-hire”basis.Inconnectionwiththeinvestment,  weareentitledtocertainrights,includingtherighttorepresentationontheBoardofDirectors.Weaccountfor  ourinvestmentinSecondAvenueSoftwareundertheequitymethodofaccounting.Therefore,werecordedthe  investmentatcostandwillrecognizeourshareofearningsorlossesinSecondAvenueSoftwareintheperiods  forwhichtheyarereportedwithacorrespondingadjustmentinthecarryingamountoftheinvestment. OnDecember21,2015,wemadea$3.5 millioninvestmentinpreferredstockofanonlinesocialnetworking  companyrepresentingapproximately13.8%ofitsfullydilutedequity.Weaccountforourinvestmentinthe  onlinesocialnetworkingcompanyusingthecostmethodofaccounting. WeevaluatedourcostmethodinvestmentsforimpairmentasofDecember 31,2015andestimatedthatthefair  valueofourcostmethodinvestmentswereatleastequaltotheircarryingvaluesasofthatdate.Unlessindica - torsofimpairmentexist,thefairvalueofourcostmethodinvestmentsarenotestimatedinanyperiodwhereit  isnotpracticabletoestimatethefairvalueofsuchinvestments. Note Receivable. Weevaluatenotesreceivablebyanalyzingtheborrower’screditworthiness,cashflowsand  financialstatus,andtheconditionandestimatedvalueofthecollateral.Weconsideranotetobeimpaired  when,baseduponcurrentinformationandevents,webelieveitisprobablethatwewillbeunabletocollectall  amountsdueaccordingtothetermsofthenote. Income taxes. Deferredtaxesaredeterminedusingtheliabilitymethod,wherebydeferredtaxassetsarerec - ognizedfordeductibletemporarydifferencesanddeferredtaxliabilitiesarerecognizedfortaxabletemporary  differences.Temporarydifferencesarethedifferencesbetweenthereportedamountsofassetsandliabilities  andtheirtaxbasis.Asthosedifferencesreverse,theywillenterintothedeterminationoffuturetaxableincome.  Deferredtaxassetsarereducedbyavaluationallowancewhen,intheopinionofmanagement,itismorelikely  thannotthatsomeportionorallofthedeferredtaxassetswillnotberealized.Deferredtaxassetsandliabili - tiesareadjustedfortheeffectsofchangesintaxlawsandratesonthedateofenactmentofsuchchanges. Stock-based compensation. Priorto2012,weusedamixofstockoptionsandrestrictedstock,butsince2011,  wehavenotissuedstockoptions.WeapplyFASBASCTopic718,Share-Based Payment, whichrequiresthemea - surementandrecognitionofcompensationexpenseforstock-basedpaymentawardsmadetoemployeesand  directors,includingemployeestockoptions. Stock-basedcompensationexpenserelatedtorestrictedstockgrantsisexpensedoverthevestingperiod  usingthestraight-linemethodforouremployeesandthegraded-vestingmethodformembersoftheBoardof  Directors,andismeasuredusingourstockpriceonthedateofgrant.Thefairvalueofeachoptionawardisesti - matedatthedateofgrantusingaBlack-Scholesoption-pricingmodelthatusescertainassumptionswhichhave  beennotedin“FinancialStatementsandSupplementaryData—NotestoConsolidatedFinancialStatements— Stockholders’Equity.”Priorto2012,wecalculatedtheexpectedtermofstockoptionawardsusingthe“simpli - fiedmethod”inaccordancewithSecurities and Exchange Commission Staff Accounting Bulletins No. 107 and 110 becausewelackedhistoricaldataandwereunabletomakereasonableassumptionsregardingthefuture.We  estimateforfeituresofshare-basedawardsatthetimeofgrantandrevisesuchestimatesinsubsequentperiods  ifactualforfeituresdifferfromoriginalestimates.Wemakeassumptionswithrespecttoexpectedstockprice  volatilitybasedontheaveragehistoricalvolatilityofthestockpricesofpeerswithsimilarattributes.Inaddition,  wedeterminetheriskfreeinterestratebyselectingtheU.S.Treasuryfive-yearconstantmaturity,quotedonan  investmentbasisineffectatthetimeofgrantforthatbusinessday.Estimatesoffairvaluearesubjectiveand  118 American Public Education, Inc. arenotintendedtopredictactualfutureevents,andsubsequenteventsarenotindicativeofthereasonableness oftheoriginalestimatesoffairvaluemadeunderFASB ASC Topic 718 . Goodwill and indefinite-lived intangible assets. Goodwillrepresentstheexcessofthepurchasepriceofan  acquiredbusinessovertheamountassignedtotheassetsacquiredandliabilitiesassumed.Goodwillandthe  indefinite-livedintangibleassetareassessedatleastannuallyforimpairment,ormorefrequentlyifevents  occurorcircumstanceschangebetweenannualteststhatwouldmorelikelythannotreducethefairvalue  oftherespectivereportingunitbelowitscarryingamount.UnderAccounting Standards Update No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment,wearepermitted,butnotrequired,  tofirstassessqualitativefactorstodeterminewhetheritisnecessarytoperformthequantitativegoodwill  impairmenttest. Ourgoodwillandotherintangiblesbyreportablesegmentaresummarizedbelow(inthousands): Annual Impairment Test Date American Public Education Segment Hondros College of Nursing Segment(1) N/A 10/31 Total Goodwill as of December 31, Other Intangibles as of December 31, 2014 $ — 38,634 $38,634 2015 $ — 38,634 $38,634 2014 $ — 8,082 $8,082 2015 $ — 8,082 $8,082 (1) Effective November 1, 2013, we acquired HCON which resulted in recognition of goodwill and other identifiable intangible assets. Additional information regarding the recognition of goodwill related to the HCON acquisition is contained in Notes 2 and 11 of our “Notes to Consolidated Financial Statements.” A goodwill impairment test was conducted on October 31, 2015. We currently intend to test goodwill for impairment on or around each anniversary date of the acquisition. Valuation of long-lived assets. Weaccountforthevaluationoflong-livedassetsunderFASBASCTopic360,  Accounting for the Impairment or Disposal of Long-Lived Assets. FASBASCTopic360requiresthatlong-livedassets  andcertainidentifiableintangibleassetsbereviewedforimpairmentwhenevereventsorchangesincircum - stancesindicatethatthecarryingamountofanassetmaynotberecoverable.Recoverabilityofthelong-lived  assetismeasuredbyacomparisonofthecarryingamountoftheassettofutureundiscountednetcashflows  expectedtobegeneratedbytheasset.Ifsuchassetsareconsideredtobeimpaired,theimpairmenttobe  recognizedismeasuredbytheamountbywhichthecarryingamountoftheassetsexceedstheestimatedfair  valueoftheassets.Assetstobedisposedofarereportableatthelowerofthecarryingamountorfairvalue,  lesscoststosell. Recent Accounting Pronouncements InMay 2014,theFinancialAccountingStandardsBoard,orFASB,issuedASUNo.2014-09,“Revenuefrom  ContractswithCustomers(Topic606)”(“ASU2014-09”).Thestandardisacomprehensivenewrevenuerecogni - tionmodelthatrequiresrevenuetoberecognizedinamannertodepictthetransferofgoodsorservicestoa  customeratanamountthatreflectstheconsiderationexpectedtobereceivedinexchangeforthosegoodsor  services.Asoriginallyissued,ASU2014-09wouldhavebeeneffectiveforfiscalyears,andinterimperiodswithin  thoseyears,beginningafterDecember15,2016,withearlyadoptionnotpermitted.Accordingly,thestandard  wouldonlybeeffectiveforusforperiodsbeginningonorafterJanuary1,2017.However,onJuly 9,2015,the  FASBvotedtoapproveaone-yeardeferraloftheeffectivedateofthenewrevenuerecognitionstandardwith  earlyadoptionpermitted.Publiccompanieswillnowapplythenewrevenuestandardtoannualreporting  periodsbeginningafterDecember15,2017,andtoallinterimreportingperiodswithintheyearofadoption.  Accordingly,therevisedrevenuerecognitionstandardwillbeeffectiveforusfortheyearendingDecember 31,  2015 Annual Report 119 2018,withearlyadoptionpermittedforannualperiodsbeginningafterDecember16,2016.Therevisedstan - dardwillbeeffectiveforallinterimperiodswithintheyearofadoption. InAugust 2014,theFASBissuedASUNo.2014-15,“Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ” (“ASU2014-15”).Thestandardrequiresmanagementtoevaluate,ateachinterimandannual  reportingperiod,whetherthereareconditionsoreventsthatraisesubstantialdoubtabouttheentity’sability  tocontinueasagoingconcernwithinoneyearafterthedatethefinancialstatementsareissued,andprovide  relateddisclosures.ASU2014-15iseffectiveforannualperiodsendingafterDecember15,2016,andforannual  andinterimperiodsthereafter,andearlyadoptionispermitted. InApril 2015,theFASBissuedASUNo.2015-05,“Intangibles-Goodwill and Other-Internal-Use Software, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (Subtopic 350-40)” (“ASU2015-05”).ASU2015-05 requirescustomerstodeterminewhetheracloudcomputingarrangementcontainsasoftwarelicense.Ifthe  arrangementcontainsasoftwarelicense,customersmustaccountforfeesrelatedtothesoftwarelicense  elementinamannerconsistentwithhowtheacquisitionofothersoftwarelicensesisaccountedforunderASC  350-40;ifthearrangementdoesnotcontainasoftwarelicense,customersmustaccountforthearrangementas  aservicecontract.ASU2015-05willtakeeffectforusfortheyearendingDecember 31,2016andallinterimperi - odstherein.EntitiesmayadoptASU2015-05:(i)retrospectively,or(ii)prospectivelytoarrangementsentered  into,ormateriallymodified,afterASU2015-05’seffectivedate. InSeptember 2015,theFASBissuedASUNo.2015-16,“Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”(“ASU2015-16”).Thestandardrequiresthatadjustmentsmadetoprovisional amountsrecognizedinabusinesscombinationberecordedintheperiodsuchadjustmentsaredetermined,  ratherthanretrospectivelyadjustingpreviouslyreportedamounts.ASU2015-16iseffectiveforfiscalyears,and  interimperiodswithinthoseyears,beginningafterDecember15,2015,andearlyadoptionispermitted. InNovember 2015,theFASBissuedASUNo.2015-17,“Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”(“ASU2015-17”).Thestandardrequiresthatdeferredtaxassetsandliabilitiesbeclassifiedas  noncurrentonthebalancesheetratherthanbeingseparatedintocurrentandnoncurrent.ASU2015-17iseffec - tiveforfiscalyears,andinterimperiodswithinthoseyears,beginningafterDecember15,2016.Earlyadoption  ispermittedandthestandardmaybeappliedeitherretrospectivelyoronaprospectivebasistoalldeferredtax  assetsandliabilities. InJanuary2016,theFASBissuedASUNo.2016-01,“Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”(“ASU2016-01”).Thestandardaddressescertain  aspectsofrecognition,measurement,presentation,anddisclosureoffinancialinstruments.ASU2016-01is  effectiveforfiscalyears,andinterimperiodswithinthoseyears,beginningafterDecember15,2017,andearly  adoptionisnotpermitted. Wearecurrentlyevaluating,buthavenotyetdetermined,theimpactthatimplementationofthesestandards  mayhaveonourConsolidatedFinancialStatementsanddisclosures. 120 American Public Education, Inc. Results of Operations WeacquiredHCONonNovember 1,2013,andthereforeourconsolidatedresultsforperiodspriortoNovember 1, 2013donotincludeanyresultsfromHCON,whileperiodsafterthedateofHCON’sacquisitionincludeHCON’sresults. Thefollowingtablesetsforthstatementsofoperationsdataasapercentageofrevenueforeachoftheyearsended: Revenue Costs and expenses: Instructional costs and services Selling and promotional General and administrative Depreciation and amortization Total costs and expenses Income from operations before interest income and income taxes Interest income, net Income from operations before income taxes Income tax expense Equity investment loss/(gain), net of taxes Net income 2013 100.0% 2014 100.0% 2015 100.0% 34.2% 19.9% 21.3% 4.1% 79.5% 20.5% 0.1% 20.6% 7.8% —% 12.8% 35.4% 19.8% 21.3% 4.6% 81.1% 18.9% 0.1% 19.0% 7.2% (0.1)% 11.9% 36.2% 19.0% 22.5% 6.3% 84.0% 16.0% —% 16.0% 6.1% —% 9.9% Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 Revenue OurconsolidatedrevenuefortheyearendedDecember 31,2015was$327.9 million,adecreaseof$22.1 million  or6.3%,comparedto$350.0 millionfortheyearendedDecember 31,2014. ThedecreaseinrevenuewasaresultofadecreaseinnetcourseregistrationsinourAPEISegment.APEI  Segmentnetcourseregistrations,whichincludeone-creditlabcoursescombinedwiththeirrelatedthree-credit  course,decreasedtoapproximately375,100intheyearendedDecember 31,2015fromapproximately404,000  intheyearendedDecember 31,2014,adecreaseofapproximately7.1%.WebelievethatthedecreaseintheAPEI  Segment’snetcourseregistrationsfortheyearendedDecember 31,2015,isattributable,inpart,toincreased  competition,changesinourmarketingapproach,ournewadmissionsassessmentatAPUS,andourtuition  increaseatAPUS,amongotherfactorsasdiscussedinthisAnnualReport. Costs and Expenses Costsandexpenseswere$275.6 millionfortheyearendedDecember 31,2015,adecreaseof$8.6 million,or  3.0%,comparedto$284.2 millionfortheyearendedDecember 31,2014.Thisdecreasewasprimarilytheresult  ofdecreasedsalesandpromotionalandinstructionalcostsandservicesexpenses,partiallyoffsetbyincreased  depreciationandamortizationexpenses. Costsandexpensesasapercentageofrevenueincreasedto84.0%intheyearendedDecember 31,2015from  81.1%intheyearendedDecember 31,2014.Similarly,ourincomebeforeinterestincomeandincometaxes,  orouroperatingmargin,decreasedto16.0%from18.9%overthatsameperiod.Ourcostsandexpensesasa  percentageofrevenueincreasedprimarilyduetoourrevenuedecreasingatarategreaterthanthedecreasein  costsandexpenses. 2015 Annual Report 121 IntheyearendedDecember 31,2015,ourAPEISegmentincurredincreasedcostsof$1.4 millionduetotheaccel- erateddepreciationofinformationtechnologyassetsthatwasincludedindepreciationandamortizationexpense, and$0.7 millionrelatedtoassetwriteoffsincludedingeneralandadministrativeexpense.Wealsoincurred  increasedcostsintheamountof$1.6 millionduetochargestakenasaresultofworkforcerealignments.Additional chargessuchasthosetakenduringtheyearendedDecember 31,2015maybeincurredinthefutureasaresultof assetwrite-offs,theaccelerationofdepreciation,workforcerealignments,reductionsinstaff,andotherinitiatives. Instructional costs and services. InstructionalcostsandservicesexpensesfortheyearendedDecember 31,  2015were$118.8 million,adecreaseofapproximately$5.0 million,or4.0%,comparedto$123.8 millionforthe  yearendedDecember 31,2014.Instructionalcostsandservicesexpensesasapercentageofrevenuewere  36.2%fortheyearendedDecember 31,2015,comparedto35.4%fortheyearendedDecember 31,2014.The  decreaseininstructionalcostsandservicesexpenseswasprimarilytheresultofdecreasedcompensationand  coursematerialcostsinourAPEISegmentastheresultoflowernetcourseregistrations,anddecreasedcurric - ulumexpensesinourHCONSegment.Ourinstructionalcostsandservicesexpensesasapercentageofrevenue  increasedprimarilyduetoourrevenuedecreasingatarategreaterthanthedecreaseincostsandexpenses. Selling and promotional. SellingandpromotionalexpensesfortheyearendedDecember 31,2015were  $62.4 million,adecreaseof$6.8 million,or9.8%,comparedto$69.2 millionfortheyearendedDecember 31,  2014.ThisdecreasewasduetodecreasedadvertisingexpensesinourAPEISegment,partiallyoffsetby  increasedsellingandpromotionalexpensesinourHCONSegment.Sellingandpromotionalexpensesas  apercentageofrevenuewere19.0%fortheyearendedDecember 31,2015and19.8%fortheyearended  December 31,2014.Sellingandpromotionalexpensesasapercentageofrevenuedecreasedyearoveryeardue  tosellingandpromotionalexpensesdecreasingatarategreaterthanrevenue. General and administrative. GeneralandadministrativeexpensesfortheyearendedDecember 31,2015were $73.9 million,adecreaseof$1.2 million,or1.6%comparedto$75.1 millionfortheyearendedDecember 31,2014.  Thedecreaseingeneralandadministrativeexpenseswasprimarilyaresultofdecreasesinbaddebtexpense,  partiallyoffsetbyincreasesinexpensesrelatedtoTitle IVprocessinginourAPEISegment.Generalandadminis - trativeexpensesasapercentageofrevenuewere22.5%fortheyearendedDecember 31,2015and21.3%forthe  yearendedDecember 31,2014.Ourgeneralandadministrativeexpensesasapercentageofrevenueincreased  primarilyduetoourrevenuedecreasingatarategreaterthanthedecreaseinsuchcostsandexpenses. Baddebtexpensedecreasedto$12.7 million,orapproximately3.9%ofrevenue,intheyearendedDecember 31,  2015,from$19.2 million,orapproximately5.5%ofrevenue,intheyearendedDecember 31,2014.Webelieve  thattheinitiativesofourAPEISegmentdiscussedinthisAnnualReport,includingthenewadmissionsprocessat  APUS,weretheprimarycontributorstothedecreaseinourbaddebtexpenseasanamountandasapercentage  ofrevenue.Forfurtherinformationregardingtheinitiativesdiscussedintheprevioussentence,pleasereferto  “Overview-BadDebtExpense”above. Depreciation and amortization. Depreciationandamortizationexpenseswere$20.5 millionfortheyearended  December 31,2015,comparedto$16.1 millionfortheyearendedDecember 31,2014,oranincreaseof27.3%.  TheincreaseresultedfromhigherdepreciationandamortizationinourAPEISegmentasaresultofalargerfixed  assetbaseandaccelerateddepreciationoncertainassets. Stock-based compensation. Stock-basedcompensationexpensesincludedininstructionalcostsandservices,  sellingandpromotional,andgeneralandadministrativeexpensesfortheyearendedDecember 31,2015were  $5.9 millionintheaggregate,representinganincreaseof$0.5 million,or10.1%,comparedto$5.4 millionfor  theyearendedDecember 31,2014.Thisincreaseresultedprimarilyfromagreaternumberofemployeesbeing  eligibleforstock-basedcompensation. 122 American Public Education, Inc. Thetablebelowreflectsourstock-basedcompensationexpenserecognizedintheConsolidatedStatementsof  IncomefortheyearsendedDecember 31,2014and2015(inthousands): Instructional costs and services Selling and promotional General and administrative Total stock-based compensation expense Income Tax Expense Year Ended December 31, 2014 $1,274 568 3,527 $5,369 2015 $1,598 684 3,630 $5,912 WerecognizedtaxexpensefromcontinuingoperationsfortheyearsendedDecember 31,2015and2014of  $20.1 millionand$25.1 million,respectively,oreffectivetaxratesof38.3%and38.0%,respectively. Net Income Netincomewas$32.4 millionfortheyearendedDecember 31,2015,comparedtonetincomeof$40.9 million  fortheyearendedDecember 31,2014,adecreaseof$8.5 million,or20.8%.Thisdecreasewasrelatedtothe  factorsdiscussedabove. Operating Results by Reportable Segment—Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 Thetablebelowdetailsouroperatingresultsbyreportablesegmentfortheperiodsindicated(inthousands): Year Ended December 31, 2014 2015 $ Change % Change Revenue American Public Education Segment $ 319,879 $297,439 $(22,440) Hondros College of Nursing Segment 30,141 30,471 330 Total Revenue $350,020 $327,910 $ (22,110) Income from continuing operations before interest income and income taxes American Public Education Segment $ 62,499 $ 48,967 $ (13,532) Hondros College of Nursing Segment 3,333 3,314 (19) (7.0)% 1.1% (6.3)% (21.7)% (0.6)% Total income from continuing operations before interest income and income taxes $ 65,832 $ 52,281 $ (13,551) (20.6)% APEI Segment FortheyearendedDecember 31,2015,ourAPEISegmentearnedapproximately$297.4 millioninrevenue,a  $22.4 million,or7.0%,decreaseascomparedtotheyearendedDecember 31,2014,whichisprimarilyattribut - abletolowernetcourseregistrations.Incomefromcontinuingoperationsbeforeinterestincomeandincome  taxeswasapproximately$49.0 millionfortheyearendedDecember 31,2015,adecreaseof$13.5 million,or  21.7%,comparedtotheyearendedDecember 31,2014asaresultofthedecreaseinnetcourseregistrations  partiallyoffsetbyadecreaseinexpenses.ForinformationregardingtheAPEISegment’snetcourseregistrations  pleasereferto“YearEndedDecember 31,2015ComparedtoYearEndedDecember 31,2014—Revenue”above. 2015 Annual Report 123 HCON Segment FortheyearendedDecember 31,2015,theHCONSegmentearnedapproximately$30.5 millioninrevenue,a  $0.3 million,or1.1%increaseascomparedtotheyearendedDecember 31,2014,whichisprimarilyattributable  toincreasedtuitionrates.Incomefromcontinuingoperationsbeforeinterestincomeandincometaxeswas  approximately$3.3 millionfortheyearendedDecember 31,2015,a0.6%decrease,comparedtotheyearended  December 31,2014,asaresultofexpensesincreasingatarategreaterthanrevenue.WebelieveourHCON  Segment’srevenuewasnegativelyimpactedin2015duetodecreasedenrollmentinHCON’sADNprogramasa  resultofstrengthenedcompletionrequirementsinthePracticalNursingprogram,whichistheprimarysource  ofADNstudents,andtheadditionofnightandweekendcourses,whichhasresultedinstudentstakingfewer  totalcourseseachacademictermassomestudentsthatwouldotherwisehavestudiedonafull-timebasisare  nowpursuingcoursesonapart-timebasis.InJanuary2016,HCONimplementedcurriculumchangesthatcaused  recruitingchallenges,whichwebelieveresultedincertainstudentschoosingnottopursuetheirstudiesat  HCON;weareunabletopredictwhetherthistrendmaycontinue. Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 Revenue OurconsolidatedrevenuefortheyearendedDecember 31,2014was$350.0 million,anincreaseof$20.5 mil - lionor6.2%,comparedto$329.5 millionfortheyearendedDecember 31,2013.Theincreasewastheresult  oftheinclusionoftheresultsoftheHCONSegmentfortheyearendedDecember 31,2014,partiallyoffsetby  decreasedrevenueinourAPEISegmentduetoadecreaseinnetcourseregistrations. APEISegmentnetcourseregistrations,whichincludeone-creditlabcoursescombinedwiththeirrelatedthree- creditcourse,decreasedtoapproximately404,000intheyearendedDecember 31,2014fromapproximately  409,700intheyearendedDecember 31,2013,adecreaseofapproximately1.4%.Webelievethatthedecrease  intheAPEISegment’snetcourseregistrationsfortheyearendedDecember 31,2014wasprimarilyattribut - abletouncertaintyinthemilitarymarketaccompaniedbyincreasedcompetitionforstudents.Webelievethat  continueduncertaintyregardingtheavailabilityofDoD’stuitionassistanceprogramsandtheimpactfromthe  October 2013temporarysuspensionofsuchprogramsmayhavenegativelyimpactedournetcourseregistra - tionsduring2014.FormoreinformationontheimpactofthetemporarysuspensionsofDoD’stuitionassistance  programspleasereferto“Overview”above. Costs and Expenses Costsandexpenseswere$284.2 millionfortheyearendedDecember 31,2014,anincreaseof$22.1 million,or  8.4%,comparedto$262.1 millionfortheyearendedDecember 31,2013.Thisincreasewasprimarilytheresultof  theinclusionoftheresultsoftheHCONSegmentfortheyearendedDecember 31,2014,andthespecificfactors  discussedbelow. Costsandexpensesasapercentageofrevenueincreasedto81.1%intheyearendedDecember 31,2014from  79.5%intheyearendedDecember 31,2013.Similarly,ourincomebeforeinterestincomeandincometaxes,  orouroperatingmargin,decreasedto18.9%from20.5%overthatsameperiod.Ourcostsandexpensesasa  percentageofrevenueincreasedduetotheinclusionoftheoperatingresultsoftheHCONSegment,whichhas  highercostsandexpensesasapercentageofrevenuethanourAPEISegmentlargelybecauseHCONoffersthe  majorityofitscoursesatphysicalcampuses,whichhaveahighercoststructurethancoursesdeliveredfully  online,andalsoduetothespecificfactorsdiscussedbelow. 124 American Public Education, Inc. Instructional costs and services. InstructionalcostsandservicesexpensesfortheyearendedDecember 31,  2014were$123.8 million,anincreaseof$11.0 million,or9.8%,comparedto$112.8 millionfortheyearended  December 31,2013.Instructionalcostsandservicesexpensesasapercentageofrevenueswere35.4%forthe  yearendedDecember 31,2014,comparedto34.2%fortheyearendedDecember 31,2013.Theincreasein  instructionalcostsandservicesexpenseswasprimarilytheresultoftheinclusionoftheresultsoftheHCON  SegmentfortheyearendedDecember 31,2014,partiallyoffsetbydecreasesininstructionalcostsandser - vicesexpensesinourAPEISegmentastheresultoflowernetcourseregistrations.Beginningtheyearended  December 31,2014,instructionalcostsandservicesexpensesincludecampus-leveloperatingexpensesforthe  HCONSegment. Selling and promotional. SellingandpromotionalexpensesfortheyearendedDecember 31,2014were  $69.2 million,anincreaseof$3.5 million,or5.3%,comparedto$65.7 millionfortheyearendedDecember 31,  2013.ThisincreasewasduetoincreasedadvertisingexpensesinourAPEISegmentandtheinclusionofthe  resultsoftheHCONSegmentfortheyearendedDecember 31,2014.Sellingandpromotionalexpensesasaper - centageofrevenuewas19.8%fortheyearendedDecember 31,2014and19.9%fortheyearendedDecember 31, 2013.Sellingandpromotionalexpensesasapercentageofrevenuewaslargelyunchangedyearoveryeardue  tohigherspendinginourAPEISegmentoffsetbyourHCONSegmentwhichspendslessonsuchexpensesasa  percentageofrevenuethanourAPEISegment. General and administrative. GeneralandadministrativeexpensesfortheyearendedDecember 31,2014were  $75.1 million,anincreaseof$5.0 million,or7.1%comparedto$70.1 millionfortheyearendedDecember 31,  2013.Theincreaseingeneralandadministrativeexpenseswasprimarilyaresultoftheinclusionoftheresults  oftheHCONSegmentfortheyearendedDecember 31,2014,andincreasesincompensationandbaddebt  expenseinourAPEISegment.Generalandadministrativeexpensesasapercentageofrevenueswere21.3%for  theyearsendedDecember 31,2014and2013. Baddebtexpenseincreasedto$19.2 million,orapproximately5.5%ofrevenue,intheyearendedDecember 31,  2014,from$14.3 million,orapproximately4.3%ofrevenue,intheyearendedDecember 31,2013.Webelieve  theincreaseinbaddebtexpensewasprimarilyduetonon-militarystudentsinourAPEISegmentutilizingfunds  fromED’sTitle IVprogramsandnotcompletingtheiracademicperiod,resultinginareturnofTitle IVprogram  aidandaresultingunpaidbalanceduedirectlyfromthestudent,whichinturncanresultinbaddebt.Forfur - therinformationregardingouraccountingpoliciesforthestudentsdiscussedintheprevioussentence,please  referto“CriticalAccountingPoliciesandUseofEstimates”above. Depreciation and amortization. Depreciationandamortizationexpenseswere$16.1 millionfortheyearended  December 31,2014,comparedto$13.5 millionfortheyearendedDecember 31,2013,oranincreaseof19.3%.  Thisincreaseresultedfromgreatercapitalexpendituresandhigherdepreciationandamortizationonalarger  fixed-assetbaseinourAPEISegment,andtheinclusionoftheresultsoftheHCONSegmentfortheyearended  December 31,2014. Stock-based compensation. Stock-basedcompensationexpensesincludedininstructionalcostsandservices,  sellingandpromotional,andgeneralandadministrativeexpensesfortheyearendedDecember 31,2014was  $5.4 millionintheaggregate,representinganincreaseof$1.4 million,or33.4%,comparedto$4.0 millionfor  theyearendedDecember 31,2013.Thisincreaseresultedprimarilyfromahighernumberofemployeesbeing  eligibleforstock-basedcompensation. 2015 Annual Report 125 Thetablebelowreflectsourstock-basedcompensationexpenserecognizedintheconsolidatedstatementsof  incomefortheyearsendedDecember 31,2013and2014(inthousands): Instructional costs and services Selling and promotional General and administrative Total stock-based compensation expense Income Tax Expense Year Ended December 31, 2013 $ 876 444 2,704 $4,024 2014 $ 1,274 568 3,527 $5,369 WerecognizedtaxexpensefromcontinuingoperationsfortheyearsendedDecember 31,2014and2013of  $25.1 millionand$25.6 million,respectively,oreffectivetaxratesof38.0%and37.9%,respectively. Net Income Netincomewas$40.9 millionfortheyearendedDecember 31,2014,comparedtonetincomeof$42.0 million  fortheyearendedDecember 31,2013,adecreaseof$1.1 million,or2.6%.Thisdecreasewasrelatedtothefac - torsdiscussedabove. Operating Results by Reportable Segment—Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 Thetablebelowdetailsouroperatingresultsbyreportablesegmentfortheperiodsindicated(inthousands): Year Ended December 31, 2013 2014 $ Change % Change Revenue American Public Education Segment $325,678 $ 319,879 Hondros College of Nursing Segment 3,801 30,141 Total Revenue $329,479 $350,020 Income from continuing operations before interest income and income taxes American Public Education Segment $ 67,161 $ 62,499 Hondros College of Nursing Segment 276 3,333 $ (5,799) 26,340* $ 20,541 $ (4,662) 3,057* (1.8)% 6.2% (6.9)% Total income from continuing operations before interest income and income taxes $ 67,437 $ 65,832 $ (1,605) (2.4)% * HCON’s results were not included in our Consolidated Financial Statements prior to the acquisition of HCON on November 1, 2013, and therefore the percentage change is not meaningful for purposes of comparison. APEI Segment FortheyearendedDecember 31,2014,ourAPEISegmentearnedapproximately$319.9 millioninrevenue,a  $5.8 million,or1.8%,decreaseascomparedtotheyearendedDecember 31,2013,whichisprimarilyattribut - abletolowernetcourseregistrations.Incomefromcontinuingoperationsbeforeinterestincomeandincome  taxeswasapproximately$62.5 millionfortheyearendedDecember 31,2014,adecreaseof$4.7 million,or  6.9%,comparedtotheyearendedDecember 31,2013,asaresultofthedecreaseinnetcourseregistrationsand  126 American Public Education, Inc. increasesingeneralandadministrativeexpensesandinsellingandpromotionalexpensespartiallyoffsetbya  decreaseininstructionalcostsandservicesexpenses.ForinformationregardingtheAPEISegment’snetcourse  registrationspleasereferto“YearEndedDecember 31,2014ComparedtoYearEndedDecember 31,2013— Revenue”above. HCON Segment FortheyearendedDecember 31,2014,theHCONSegmentearned$30.1 millioninrevenueand$3.3 millionin  incomefromcontinuingoperationsbeforeinterestincomeandincometaxes.FortheyearendedDecember 31,  2013,wereported$3.8 millioninrevenuefromourHCONSegmentand$0.3 millioninincomefromcontinuing  operationsbeforeinterestincomeandincometaxes.Theincreasesinrevenueandincomefromcontinuing  operationsbeforeinterestincomeandincometaxesfortheyearendedDecember 31,2014isaresultofinclud - ingtheresultsoftheHCONSegmentfortheentireyear. Quarterly Results Thefollowingtablepresentsourunauditedquarterlyresultsofoperationsforeachofoureightlastquarters  priortoDecember 31,2015.YoushouldreadthefollowingtableinconjunctionwiththeConsolidatedFinancial  StatementsandrelatednotescontainedelsewhereinthisAnnualReport.Wehavepreparedtheunaudited  informationonthesamebasisasourauditedConsolidatedFinancialStatements.Resultsofoperationsforany  quarterarenotnecessarilyindicativeofresultsforanyfuturequartersorforafullyear(inthousands). (Unaudited) Statement of Operations Data: Revenue Costs and expenses: March 31, 2014 June 30, 2014 Sept. 30, 2014 Dec. 31, 2014 March 31, 2015 June 30, 2015 Sept. 30, 2015 Dec. 31, 2015 Quarter Ended $88,553 $85,463 $84,707 $91,297 $85,444 $80,263 $ 76,291 $85,912 Instructional costs and services Selling and promotional General and administrative Depreciation and amortization 31,348 17,067 19,524 3,889 30,197 16,982 18,491 3,958 30,626 17,948 17,432 4,054 Total costs and expenses 71,828 69,628 70,060 Income before taxes Interest income, net 16,725 15,835 14,647 81 98 98 31,594 17,232 19,626 4,220 72,672 18,625 84 Income before income taxes 16,806 15,933 14,745 18,709 6,327 6,173 5,877 6,773 30,260 29,696 17,019 19,105 4,589 16,152 18,141 4,698 29,167 14,062 17,659 4,891 29,725 15,164 18,959 6,342 70,973 68,687 65,779 70,190 14,471 11,576 10,512 15,722 10 14,481 5,650 31 11,607 4,548 37 10,549 3,796 37 15,759 6,078 $ (43) $ 42 $ (26) $ (139) $ (38) $ 14 $ 4 $ 110 $10,436 $ 9,802 $ 8,842 $ 11,797 $ 8,793 $ 7,073 $ 6,757 $ 9,791 Income tax expense Investment income (loss), net of taxes Net income Other Data: Stock-based compensation $ 1,156 $ 1,267 $ 1,267 $ 1,679 $ 1,394 $ 1,348 $ 1,341 $ 1,829 Net cash provided by operating activities Capital expenditures $ 12,449 $ 9,776 $24,945 $13,860 $ 7,146 $ 15,585 $20,077 $14,403 $ 4,612 $ 4,603 $ 6,043 $ 9,338 $ 5,288 $ 7,475 $ 6,801 $ 6,438 APUS net course registrations 105,800 96,100 100,200 101,800 99,615 88,979 94,160 92,347 2015 Annual Report 127 Liquidity and Capital Resources WefinancedouroperatingactivitiesandcapitalexpendituresduringtheyearsendedDecember 31,2015and  December 31,2014primarilythroughcashprovidedbyoperatingactivities.Cashandcashequivalentswere  $105.7 millionand$115.6 millionatDecember 31,2015andDecember 31,2014,respectively,representinga  decreaseof$9.9 million,or8.6%,duringtheyearendedDecember 31,2015.Thedecreaseincashandcash  equivalentsduringtheyearendedDecember 31,2015wasprimarilyduetoincreasedexpendituresrelatedto  therepurchaseofourcommonstock.Cashandcashequivalentswere$94.8 millionatDecember 31,2013.Cash  andcashequivalentsthereforeincreased$20.8 million,or22.0%,duringtheyearendedDecember 31,2014,  whichwasduetocashprovidedbyoperatingactivitiesexceedingcashusedininvestingandfinancingactivities. IntheyearendedDecember 31,2015,weusedcashtorepurchaseourcommonstockandforourminority  investmentinanonlinesocialnetworkingcompany,whileintheyearendedDecember 31,2014,weusedcashto  repurchaseourcommonstockandforourminorityinvestmentinSecondAvenueSoftware. WederiveasignificantportionofourrevenuefromourparticipationinED’sTitle IVprograms,forwhichdis - bursementsaregovernedbyfederalregulations.WehavetypicallyreceiveddisbursementsunderED’sTitle IV  programswithin30daysofthestartoftheapplicablecourse.AnothersignificantsourceofrevenueforourAPEI  SegmentisrevenuederivedfromDoDtuitionassistanceprograms.Generally,thesefundsarereceivedwithin  60daysofthestartofthecoursestowhichtheyrelate.Thesefactors,togetherwiththenumberofcourses  startingeachmonth,affectouroperatingcashflow. Ourcostsandexpensesasapercentageofrevenuehaveincreasedduetorevenuedecreasingatarategreater  thanvariableexpenses,changesinthecompositionofourstudentbody,increasedoverhead,andoperation  ofHCON.Weexpecttocontinuetofundthesecostsandexpensesthroughcashgeneratedfromoperations.  Basedonourcurrentlevelofoperations,webelievethatourcashflowfromoperationsandothersourcesof  liquidity,includingcashandcashequivalents,willprovideadequatefundsforongoingoperationsandplanned  capitalexpendituresfortheforeseeablefuture.Wemayneedadditionalcapital,however,inconnectionwith  anychangeinourcurrentlevelofoperations,includingwerewetopursuesignificantbusinessacquisitionsor  investmentopportunities,ordeterminetomakeothersignificantinvestmentsinourbusiness. Operating Activities Netcashprovidedbyoperatingactivitieswas$57.2 million,$61.0 millionand$59.4 millionfortheyearsended  December 31,2015,2014,and2013,respectively.Thedecreaseincashflowfromoperationsintheyearended  December 31,2015wasprimarilyduetoadecreaseinnetincomeandaccountspayable,andanincreasein  accountsreceivable.TheincreaseincashflowinoperationsintheyearendedDecember 31,2014wasprimarily  theresultoftheconsolidationofHCON,whichwasacquiredeffectiveNovember 1,2013,partiallyoffsetbylower  netincome. Investing Activities Netcashusedininvestingactivitieswas$31.3 million,$21.3 millionand$69.2 millionfortheyearsended  December 31,2015,2014,and2013respectively.Thedifferencesincashusedininvestingactivitiesisprimarily  relatedtodifferingamountsoffundsbeingusedeachyeartofundacquisitionsandcapitalexpenditures. FortheyearendedDecember 31,2015,cashusedininvestingactivitiesforcapitalexpenditureswasprimarily  relatedtothefollowingwithinourAPEISegment:softwaredevelopment;buildingstosupportouroperations;  computersandequipmenttosupportstaff;andon-goingsoftwaredevelopmentrelatedtoPAD.Inaddition,  duringtheyearendedDecember 31,2015,ourAPEISegmentmadea$3.5 millioninvestmentinanonlinesocial  networkingcompany. 128 American Public Education, Inc. DuringtheyearendedDecember 31,2014,ourAPEISegmentmadea$1.5 millionequityinvestmentinSecond  AvenueSoftware,whichwasoffsetbytheprepaymentofa$6.0 millionloanwemadeinconnectionwithour  investmentinNewHorizons.DuringtheyearendedDecember 31,2013ourAPEISegmentmadea$4.0 million  equityinvestmentinFidelisEducation,andwepurchasedHCONforanadjustedpurchasepriceofapproximately $44.4 millionnetofcashacquired. Weexpectthatwewillcontinuetomakeinvestmentsrelatedtostrategicopportunitiesandtoenhanceourbusi - nesscapabilities.Capitalexpenditurescouldalsobehigherinthefutureasaresultoftheacquisitionorleaseof  existingstructuresorpotentialnewconstructionprojectsandnecessarytenantimprovementsthatariseasa  resultofourongoingevaluationofourspaceneedsandneworexpandedcampusesatourHCONSegment,and  asaresultofexpendituresontechnologyandotherbusinesscapabilities.Wewillcontinuetoexploreopportu - nitiesforstrategicinvestmentintheeducationindustry,whichcouldincludepurchasingorinvestinginother  education-relatedcompaniesorcompaniesdevelopingnewtechnologies. Financing Activities Netcashusedinfinancingactivitieswas$35.8 millionfortheyearendedDecember 31,2015comparedto  $18.9 millionand$10.2 millionfortheyearsendedDecember 31,2014and2013,respectively.Theincreasesin  cashusedinfinancingactivitiesfortheyearsendedDecember 31,2015andDecember 31,2014,ascompared  totherespectiveprioryearperiods,wereprimarilyrelatedtohigheramountsofcashbeingexpendedforthe  repurchaseofourcommonstock,partiallyoffsetbyadecreaseintheamountofcashreceivedinexchangefor  theissuanceofourcommonstock. Contractual and Capital Commitments Wehavevariouscontractualobligationsconsistingofpurchaseobligationsandoperatingleases.Purchase  obligationsincludeagreementswithconsultants,contractswiththirdpartyserviceproviders,andotherfuture  contractsoragreements.ThefollowingtablesetsforthourfuturecontractualobligationsasofDecember 31,  2015(inthousands): Operating lease obligations Purchase obligations Total contractual obligations Payments Due by Period Total $ 15,812 3,691 $19,503 Less than 1 Year $2,003 2,676 $ 4,679 1–3 Years $ 3,713 963 $4,676 3–5 Years $3,106 52 $3,158 More than 5 Years $6,990 — $6,990 Off-Balance Sheet Arrangements Wedonothaveoff-balancesheetfinancingarrangements,includinganyrelationshipswithunconsolidatedenti - tiesorfinancialpartnerships,suchasentitiesoftenreferredtoasstructuredfinanceorspecialpurposeentities. Impact of Inflation Wedonotbelievethatinflationhadamaterialimpactonourresultsofoperationsfortheyearsended  December 31,2015,2014,or2013.Therecanbenoassurancethatfutureinflationwillnothaveanadverse  impactonouroperatingresultsandfinancialcondition. 2015 Annual Report 129 Item 7A. Quantitative and Qualitative Disclosures about Market Risk Wearesubjecttotheimpactofinterestratechangesandmaybesubjecttochangesinthemarketvaluesof  futureinvestments.Weinvestourexcesscashinbankovernightdeposits.Wehavenomaterialderivativefinan - cialinstrumentsorderivativecommodityinstrumentsasofDecember 31,2015. Market Risk WehavenomaterialderivativefinancialinstrumentsorderivativecommodityinstrumentsasofDecember 31,  2015.Wemaintainourcashandcashequivalentsinbankdepositaccounts,whichmayexceedfederallyinsured  limits.Wehavehistoricallynotexperiencedanylossesinsuchaccounts.Webelievewearenotexposedtoany  significantcreditriskoncashandcashequivalents.Duetotheshort-termdurationofourinvestmentportfolio  andthelowriskprofileofourinvestments,animmediate100basispointchangeininterestrateswouldnot  haveamaterialeffectonthefairmarketvalueofourportfolio. Interest Rate Risk Wearesubjecttoriskfromadversechangesininterestrates,primarilyrelatingtoourinvestingofexcessfunds  incashequivalentsbearingvariableinterestrates,whicharetiedtovariousmarketindices.Ourfutureinvest - mentincomewillvaryduetochangesininterestrates.AtDecember 31,2015,a10%increaseordecreasein  interestrateswouldnothaveamaterialimpactonourfutureearnings,fairvalues,orcashflowsrelatedto  investmentsincashequivalents. Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements American Public Education, Inc. and Subsidiaries Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2014 and 2015 Consolidated Statements of Income for the years ended December 31, 2013, 2014 and 2015 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013, 2014 and 2015 Consolidated Statements of Cash Flows for the years ended December 2013, 2014 and 2015 Notes to Consolidated Financial Statements Page 131 132 133 134 135 137 130 American Public Education, Inc. Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders American Public Education, Inc. WehaveauditedtheaccompanyingconsolidatedbalancesheetsofAmericanPublicEducation,Inc.and  SubsidiariesasofDecember 31,2014and2015,andtherelatedconsolidatedstatementsofincome,stockholders’  equity,andcashflowsforeachofthethreeyearsintheperiodendedDecember 31,2015.Ourauditalsoincluded  thefinancialstatementscheduleofAmericanPublicEducation,Inc.andSubsidiarieslistedinItem15(a).These  financialstatementsandfinancialstatementschedulearetheresponsibilityoftheCompany’smanagement.Our  responsibilityistoexpressanopiniononthesefinancialstatementsandschedulebasedonouraudits. WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard  (UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceabout whetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis, evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingthe accountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinan- cialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion. Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,  thefinancialpositionofAmericanPublicEducation,Inc.andSubsidiariesasofDecember 31,2014and2015,and  theresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedDecember 31,  2015,inconformitywithU.S.generallyacceptedaccountingprinciples.Also,inouropinion,therelatedfinan - cialstatementschedule,whenconsideredinrelationtothebasicconsolidatedfinancialstatementstakenasa  whole,presentsfairlyinallmaterialrespectstheinformationsetforththerein. Wehavealsoaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard  (UnitedStates),AmericanPublicEducation,Inc.andSubsidiaries’internalcontroloverfinancialreportingas  ofDecember 31,2015,basedoncriteriaestablishedinInternal Control—Integrated Framework issuedbythe CommitteeofSponsoringOrganizationsoftheTreadwayCommissionin2013,andourreportdatedFebruary 29, 2016expressedanunqualifiedopinionontheeffectivenessofAmericanPublicEducation,Inc.andSubsidiaries’ internalcontroloverfinancialreporting. /s/RSMUSLLP McLean,Virginia February 29,2016 2015 Annual Report 131 Consolidated Balance Sheets (In thousands, except per share amounts) Assets Current assets: Cash and cash equivalents Accounts receivable, net of allowance of $10,699 in 2014 and $13,012 in 2015 Prepaid expenses Income tax receivable Deferred income taxes Total current assets Property and equipment, net Investments Goodwill Other assets, net Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Accrued liabilities Deferred revenue and student deposits Total current liabilities Deferred income taxes Total liabilities Commitments and contingencies (Notes 4 and 8) Stockholders’ equity: Preferred Stock, $.01 par value; authorized shares—10,000; no shares issued or outstanding Common Stock, $.01 par value; authorized shares—100,000; 17,152 issued and outstanding in 2014; 15,989 issued and outstanding in 2015 Additional paid-in capital Retained earnings Total stockholders’ equity As of December 31, 2014 2015 $ 115,634 $ 105,734 6,130 6,379 2,029 6,046 136,218 102,424 12,051 38,634 8,577 7,917 10,746 — 6,714 131,111 109,281 15,915 38,634 8,955 $297,904 $303,896 $11,029 13,416 23,805 48,250 15,436 63,686 — 172 169,654 64,392 234,218 $6,264 14,808 29,727 50,799 15,944 66,743 — 160 173,700 63,293 237,153 Total liabilities and stockholders’ equity $297,904 $303,896 The accompanying notes are an integral part of these consolidated statements. 132 American Public Education, Inc. Consolidated Statements of Income (In thousands, except per share amounts) Revenue Costs and expenses: Instructional costs and services Selling and promotional General and administrative Depreciation and amortization Total costs and expenses Income before interest income and income taxes Interest income, net Income from operations before income taxes Income tax expense Equity investment income/(loss), net of tax Net income Net income per common share: Basic Diluted Weighted average number of shares outstanding: Basic Diluted Year Ended December 31, 2013 $329,479 2014 $350,020 2015 $327,910 112,784 65,687 70,063 13,508 262,042 67,437 309 67,746 25,645 (67) 123,765 69,229 75,073 16,121 284,188 65,832 361 66,193 25,150 (166) 118,848 62,397 73,864 20,520 275,629 52,281 115 52,396 20,072 90 $ 42,034 $ 40,877 $ 32,414 $ 2.38 $ 2.35 17,656 17,921 $ 2.36 $ 2.33 17,357 17,543 $ 1.94 $ 1.93 16,676 16,798 The accompanying notes are an integral part of these consolidated statements. 2015 Annual Report 133 Preferred Stock Shares Amount — — — — — — — — — — — — — — — — — — — — — — — — — $— 17,751,945 $178 — — — — — — — — — — — — — — — — — — — — — — — $— 15,988,813 $160 $ — $173,700 $ 63,293 $237,153 17,577,625 176 164,913 41,980 207,069 Common Stock Repurchased Stock Shares Amount Shares Amount $ — (394,064) (13,584) (394,064) (4) 394,064 13,584 (13,580) 237,482 2,802 (20,540) — — — — — — — — — 133,643 2,535 (30,973) 213,921 2,248 (56,272) 2 — — — — — 1 — — — 1 — — — — — (5) — — (530,962) (18,470) (530,962) 530,962 18,470 (1,322,846) (33,526) (1,322,952) (13) 1,322,846 33,526 — — — — — — — — — — — — — — — — — — — Total Stockholders’ Equity $ 171,153 3,312 104 (14,423) 4,024 — 865 42,034 42,034 Additional Paid-In Capital $157,449 3,310 104 (839) 4,024 (1,242) 5,107 — 865 — 536 90 — 250 — 54 66 (1,784) 6,229 (519) — — Retained Earnings $ 13,526 — — — — — — — — — — — — — — — (18,465) 40,877 (33,513) 32,414 — — — — — — — — — — — — — — — — — 537 90 (19,712) 5,107 — 250 40,877 55 66 (35,310) 6,229 — (519) 32,414 17,151,868 172 169,654 64,392 234,218 Consolidated Statements of Stockholders’ Equity (In thousands, except shares) Balance as of December 31, 2012 Stock issued for cash Stock issued for director compensation Repurchased shares of common and restricted stock from stockholders Stock-based compensation Repurchased and retired shares of common stock Excess tax benefit from stock based compensation Net income Balance as of December 31, 2013 Stock issued for cash Stock issued for director compensation Repurchased shares of common and restricted stock from stockholders Stock-based compensation Repurchased and retired shares of common stock Excess tax benefit from stock based compensation Net income Balance as of December 31, 2014 Stock issued for cash Stock issued for director compensation Repurchased shares of common and restricted stock from stockholders Stock-based compensation Repurchased and retired shares of common stock Excess tax expense from stock based compensation Net income Balance as of December 31, 2015 The accompanying notes are an integral part of these consolidated statements. 134 American Public Education, Inc. Common Stock Repurchased Stock Shares Amount Shares Consolidated Statements of Stockholders’ Equity Preferred Stock Shares Amount $— Repurchased shares of common and restricted stock from stockholders (In thousands, except shares) Balance as of December 31, 2012 Stock issued for cash Stock issued for director compensation Stock-based compensation Repurchased and retired shares of common stock Excess tax benefit from stock based compensation Net income Balance as of December 31, 2013 Stock issued for cash Stock issued for director compensation Stock-based compensation Repurchased and retired shares of common stock Excess tax benefit from stock based compensation Net income Balance as of December 31, 2014 Stock issued for cash Stock issued for director compensation Stock-based compensation Repurchased and retired shares of common stock Excess tax expense from stock based compensation Net income Repurchased shares of common and restricted stock from stockholders Repurchased shares of common and restricted stock from stockholders — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 17,751,945 $178 237,482 2,802 (20,540) — (394,064) — — 2 — — — (4) — — 17,577,625 176 133,643 2,535 (30,973) — (530,962) — — 17,151,868 213,921 2,248 (56,272) — (1,322,952) — — 1 — — — (5) — — 172 1 — — — (13) — — Balance as of December 31, 2015 $— 15,988,813 $160 The accompanying notes are an integral part of these consolidated statements. — — — (394,064) — 394,064 — — — — — Amount $ — — — (13,584) — 13,584 — — — — — (530,962) — 530,962 (18,470) — 18,470 — — — — — — — — — — (1,322,846) (33,526) — 1,322,846 — — — — 33,526 — — Additional Paid-In Capital Retained Earnings Total Stockholders’ Equity $157,449 $ 13,526 $ 171,153 3,310 104 (839) 4,024 — 865 — — — — — (13,580) — 42,034 3,312 104 (14,423) 4,024 — 865 42,034 164,913 41,980 207,069 536 90 (1,242) 5,107 — 250 — — — — — (18,465) — 40,877 537 90 (19,712) 5,107 — 250 40,877 169,654 64,392 234,218 54 66 (1,784) 6,229 — (519) — — — — — (33,513) — 32,414 55 66 (35,310) 6,229 — (519) 32,414 $ — $173,700 $ 63,293 $237,153 2015 Annual Report 135 Consolidated Statements of Cash Flows (In thousands) Operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities, net of assets and liabilities acquired Depreciation and amortization Stock-based compensation Loss on disposal Investment loss/(income) Stock issued for director compensation Deferred income taxes Changes in operating assets and liabilities: Accounts receivable, net of allowance for bad debt Prepaid expenses and other assets Income tax receivable Accounts payable Accrued liabilities Deferred revenue and student deposits Net cash provided by operating activities Investing activities Capital expenditures Equity investment Note receivable Acquisition, net of cash acquired Capitalized program development costs and other assets Net cash used in investing activities Financing activities Cash paid for repurchase of common/restricted stock Cash received from issuance of common stock Excess tax benefit/(expense) from stock-based compensation Year Ended December 31, 2013 2014 2015 $ 42,034 $ 40,877 $ 32,414 13,508 4,024 62 67 104 2,018 2,720 (1,262) 1,738 (5,903) 5,047 (4,743) 59,414 (20,649) (4,000) — (44,356) (244) (69,249) (14,423) 3,312 865 16,121 5,369 115 166 90 2,494 3,390 (512) 1,186 (534) (6,708) (1,024) 61,030 (24,596) (1,620) 6,000 — (1,075) (21,291) 20,520 5,912 817 (90) 66 (160) (1,787) (4,405) 2,029 (4,765) 738 5,922 57,211 (26,002) (3,871) (199) — (1,265) (31,337) (19,711) (35,310) 536 250 55 (519) Net cash used in financing activities (10,246) (18,925) (35,774) Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period (20,081) 114,901 20,814 94,820 (9,900) 115,634 Cash and cash equivalents at end of period $ 94,820 $115,634 $105,734 Supplemental disclosures of cash flow information Income taxes paid $ 21,014 $ 21,631 $ 18,037 The accompanying notes are an integral part of these consolidated statements. 136 American Public Education, Inc. Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies AmericanPublicEducation,Inc.,orAPEI,whichtogetherwithitssubsidiariesisreferredtoasthe“Company,”is  aproviderofonlineandcampus-basedpostsecondaryeducationtoapproximately97,500studentsthroughthe  operationsoftwosubsidiaryinstitutions: • AmericanPublicUniversitySystem,Inc.,orAPUS,providesonlinepostsecondaryeducationdirectedprimarily  attheneedsofthemilitaryandpublicsafetycommunitiesthroughAmericanMilitaryUniversity,orAMU,and  AmericanPublicUniversity,orAPU.APUSisregionallyaccreditedbytheHigherLearningCommission. • NationalEducationSeminars,Inc.,whichisreferredtointhesefinancialstatementsasHondrosCollegeof  Nursing,orHCON,providesnursingeducationtostudentsatfourcampusesintheStateofOhioaswellas  onlinetoservetheneedsofthenursingandhealthcarecommunities.HCONisnationallyaccreditedbythe  AccreditingCouncilofIndependentCollegesandSchools,andtheRN-to-BSNProgramisaccreditedbythe  CommissiononCollegiateNursingEducation.HCONwasacquiredbyAPEIonNovember 1,2013. TheCompany’sinstitutionsarelicensedorotherwiseauthorized,orareintheprocessofobtainingsuchlicenses  orauthorizations,toofferpostsecondaryeducationprogramsbystateauthoritiestotheextenttheinstitu - tionsbelievesuchlicensesorauthorizationsarerequired,andarecertifiedbytheUnitedStatesDepartment  ofEducation,orED,toparticipateinstudentfinancialaidprogramsauthorizedunderTitle IVoftheHigher  EducationActof1965,asamended,orTitle IVprograms. Ouroperationsareorganizedintotworeportablesegments: • American Public Education Segment, or APEI Segment. Thissegmentreflectstheoperationalactivitiesat  APUS,othercorporateactivities,andminorityinvestments. • Hondros College of Nursing Segment, or HCON Segment. Thissegmentreflectstheoperationalactivitiesof  HCON.TheCompanyacquiredHCONonNovember 1,2013,andthereforetheconsolidatedresultsforperiods  priortoNovember 1,2013donotincludeanyresultsfromHCON. AsummaryoftheCompany’ssignificantaccountingpoliciesfollows: Basis of accounting. Theaccompanyingfinancialstatementsarepresentedinaccordancewiththeaccrualbasis  ofaccounting,wherebyrevenueisrecognizedwhenearnedandexpensesarerecognizedwhenincurred. Principles of consolidation. TheaccompanyingconsolidatedfinancialstatementsincludeaccountsofAPEI  anditswholly-ownedsubsidiaries.Allmaterialinter-companytransactionsandbalanceshavebeeneliminated  inconsolidation. Cash and cash equivalents. TheCompanyconsidersallhighlyliquidinvestmentswithoriginalmaturitiesof  ninetydaysorlesswhenpurchasedtobecashequivalents. Restricted Cash. Cashandcashequivalentsincludesfundsheldforstudentsforunbillededucationalservices  thatwerereceivedfromTitle IVprograms.AsatrusteeoftheseTitle IVprogramfunds,wearerequiredto  maintainandrestrictthesefundspursuanttothetermsofourprogramparticipationagreementwiththeU.S.  DepartmentofEducation.RestrictedcashonourConsolidatedBalanceSheetsasofDecember 31,2014and  2015was$3.9 millionand$3.3 million,respectively.Changesinrestrictedcashthatrepresentfundsheldforstu - dentsasdescribedaboveareincludedincashflowsfromoperatingactivitiesonourConsolidatedStatementsof  CashFlowsbecausetheserestrictedfundsareacoreactivityofouroperations. 2015 Annual Report 137 Accounts receivable. Coursetuitionisrecordedasaccountsreceivableanddeferredrevenueatthetimestu - dentsbeginacourseorterm.Studentsmayremittuitionpaymentsatanytimeortheymayelectvariousother  paymentoptionswhichcandelaythereceiptofpaymentupuntilthecourseortermstartsorlonger.These  otherpaymentoptionsincludepaymentsbysponsors,financialaid,alternativeloans,oratuitionassistance  programthatremitspaymentsdirectlytothesubsidiary.Whenastudentremitspaymentafteracourseorterm  hasbegun,accountsreceivableisreduced.Ifpaymentismadepriortothestartofacourseorterm,thepay - mentisrecordedasastudentdeposit,andthestudentisprovidedaccesstotheonlineclassroomwhencourses  start,inthecaseofAPUS,orallowedtostarttheterm,inthecaseofHCON.Ifoneofthevariousotherpayment  optionsareconfirmedassecured,thestudentisprovidedaccesstotheonlineclassroomorallowedtostart  theterm.Generally,ifnoreceiptisconfirmedorpaymentoptionsecured,thestudentwillbedroppedfromthe  onlinecourseornotallowedtostarttheterm.Therefore,billedamountsrepresentchargesthathavebeenpre - paredandsenttostudentsortheapplicablethirdpartypayoraccordingtothetermsagreeduponinadvance. DepartmentofDefense,orDoD,tuitionassistanceprogramsarebilledbybranchofserviceonacourse-by-course basiswhenastudentstartsacourse,whereasTitle IVprogramsarebilledbasedonthecoursesincludedinastu- dent’ssemester.Billedaccountsreceivableareconsideredpastdueiftheinvoicehasbeenoutstandingformore than30days.Theallowancefordoubtfulaccountsisbasedonmanagement’sevaluationofthestatusofexisting accountsreceivable.Amongotherfactors,managementconsiderstheageofthereceivable,theanticipatedsource ofpaymentandtheCompany’shistoricalallowanceconsiderations.Considerationisalsogiventoanyspecific knownriskareasamongtheexistingaccountsreceivablebalances.Recoveriesofreceivablespreviouslywrittenoff arerecordedwhenreceived.TheCompanydoesnotchargeinterestonitspastdueaccountsreceivable. Property and equipment. Allpropertyandequipmentarecarriedatcostlessaccumulateddepreciation,except  theacquiredassetsofHCON,whichwererecordedatfairvalueattheacquisitiondate.Depreciationandamor - tizationarecalculatedonastraight-linebasisovertheestimatedusefullivesoftheassets.OurPartnershipAta  DistanceTMsystem,orPAD,isacustomizedstudentinformationandservicessystemusedbyAPUStoman - ageadmissions,onlineorientation,courseregistrations,tuitionpayments,gradereporting,progresstoward  degrees,andvariousotherfunctions.Costsassociatedwiththissystemhavebeencapitalizedinaccordance  withFinancialAccountingStandardsBoardAccountingStandardsCodification,orFASBASC,Subtopic350-40,  Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, andclassifiedasproperty andequipment.Thesecostsareamortizedovertheestimatedusefullifeoffiveyears.TheCompanyalsocapital- izescertaincostsforacademicprogramdevelopment.Thesecostsaretransferredtopropertyandequipment  uponcompletionofeachprogramandamortizedoveranestimatedlifenottoexceedthreeyears. Investments. OnSeptember 30,2012,theCompanymadea$6.8 millioninvestmentinpreferredstockofNWHW  Holdings,Inc.,orNWHWHoldings,aholdingcompanythatoperatesNewHorizonsWorldwide,Inc.,orNew  Horizons,representingapproximately19.9%ofthefullydilutedequityofNWHWHoldings.NewHorizonsisa  globalITtrainingcompanyoperatingover300locationsaroundtheworldthroughfranchisearrangementsin  70countries.Inconnectionwiththeinvestment,theCompanyisentitledtocertainrights,includingtherightto  representationontheBoardofDirectorsofNWHWHoldings.TheCompanyaccountsforitsinvestmentinNew  Horizonsundertheequitymethodofaccounting.Therefore,theCompanyrecordedtheinvestmentatcostand  recognizesitsshareofearningsorlossesintheinvesteeintheperiodsforwhichtheyarereportedwithacorre - spondingadjustmentinthecarryingamountoftheinvestment. OnFebruary 20,2013,theCompanymadea$4.0 millioninvestmentinpreferredstockofFidelisEducation,Inc.,  orFidelisEducation,representingapproximately21.6%ofitsfullydilutedequity.FidelisEducationoffersalearn - ingrelationshipmanagementplatformthathasthegoalofimprovingeducationadvisingandcareermentoring  servicesofferedtostudentsastheypursuecollegedegrees.Inconnectionwiththeinvestment,theCompanyis  entitledtocertainrights,includingtherighttorepresentationontheBoardofDirectorsofFidelisEducation.The  138 American Public Education, Inc. CompanyaccountsforitsinvestmentinFidelisEducationundertheequitymethodofaccounting.Therefore,the  Companyrecordedtheinvestmentatcostandrecognizesitsshareofearningsorlossesintheinvesteeinthe  periodsforwhichtheyarereportedwithacorrespondingadjustmentinthecarryingamountoftheinvestment.  ForinformationonanadditionalinvestmentbytheCompanyinFidelisEducationinFebruary 2016,pleaserefer  toNote12,“SubsequentEvents”oftheseNotestoConsolidatedFinancialStatements. OnApril 2,2014,theCompanymadea$1.5 millioninvestmentinpreferredstockofSecondAvenueSoftware,  Inc.,orSecondAvenueSoftware,representingapproximately25.9%ofitsfullydilutedequity.SecondAvenue  Softwareisagame-basededucationsoftwarecompanythatdevelopssoftwareonaproprietaryand“work-for- hire”basis.Inconnectionwiththeinvestment,theCompanyisentitledtocertainrights,includingtherightto  representationontheBoardofDirectorsofSecondAvenueSoftware.TheCompanyaccountsforitsinvestment  inSecondAvenueSoftwareundertheequitymethodofaccounting.Therefore,theCompanyrecordedthe  investmentatcostandrecognizesitsshareofearningsorlossesintheinvesteeintheperiodsforwhichtheyare  reportedwithacorrespondingadjustmentinthecarryingamountoftheinvestment. OnDecember21,2015,theCompanymadea$3.5 millioninvestmentinpreferredstockofanonlinesocial  networkingcompanyrepresentingapproximately13.8%ofitsfullydilutedequity.TheCompanyaccountsforits  investmentintheonlinesocialnetworkingcompanyusingthecostmethodofaccounting. TheCompanyevaluateditscostmethodinvestmentsforimpairmentasofDecember 31,2015andestimated  thatthefairvalueofitscostmethodinvestmentswasatleastequaltoitscarryingvalueasofthatdate.The  CompanyhadnoinvestmentsthatwerepresentedascostmethodinvestmentsonitsConsolidatedBalance  SheetasofDecember 31,2014.TheaggregatecarryingamountoftheCompany’scostmethodinvestments  presentedonitsConsolidatedBalanceSheetasofDecember 31,2015is$4.1 million.Unlessindicatorsofimpair - mentexist,thefairvalueoftheCompany’scostmethodinvestmentsarenotestimatedinanyperiodwhereitis  notpracticabletoestimatethefairvalueof  suchinvestments. Note Receivable. TheCompanyevaluatesnotesreceivablebyanalyzingtheborrower’screditworthiness,cash  flowsandfinancialstatus,andtheconditionandestimatedvalueofthecollateral.TheCompanyconsidersa  notetobeimpairedwhen,baseduponcurrentinformationandevents,managementbelievesitisprobable  thattheCompanywillbeunabletocollectallamountsdueaccordingtothetermsofthenote.Inconnection  withtheCompany’sminorityinvestmentinNWHWHoldings,theCompanyextended$6.0 millionincreditto  NewHorizonsinexchangeforasubordinatednote.Thenotewasinterestonlyandwasscheduledtomatureon  September 28,2018.Interestwaspayablemonthlyatarateof5.0%perannumduringthefirstfiveyearsofthe  noteandmonthlyatarateof6.0%perannuminthesixthyear.OnDecember16,2014,NewHorizonsprepaid  thesubordinatednoteinfull,includingproratainterestowed. Goodwill and indefinite-lived intangible assets. Goodwillrepresentstheexcessofthepurchasepriceof  anacquiredbusinessovertheamountassignedtotheassetsacquiredandliabilitiesassumed.Goodwill  andtheindefinite-livedintangibleassetsareassessedatleastannuallyforimpairment,ormorefrequentlyif  eventsoccurorcircumstanceschangebetweenannualteststhatwouldmorelikelythannotreducethefair  valueoftherespectivereportingunitbelowitscarryingamount.UnderAccounting Standards Update No. 2011- 08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment,theCompanyispermitted,but  notrequired,tofirstassessqualitativefactorstodeterminewhetheritisnecessarytoperformaquantitative  goodwillimpairmenttest. 2015 Annual Report 139 Valuation of long-lived assets. TheCompanyaccountsforthevaluationoflong-livedassetsunderFASBASC  Topic360,Accounting for the Impairment or Disposal of Long-Lived Assets. FASBASCTopic360requiresthatlong- livedassetsandcertainidentifiableintangibleassetsbereviewedforimpairmentwhenevereventsorchanges  incircumstancesindicatethatthecarryingamountofanassetmaynotberecoverable.Recoverabilityofthe  long-livedassetismeasuredbyacomparisonofthecarryingamountoftheassettofutureundiscountednet  cashflowsexpectedtobegeneratedbytheasset.Ifsuchassetsareconsideredtobeimpaired,theimpairment  toberecognizedismeasuredbytheamountbywhichthecarryingamountoftheassetsexceedstheestimated  fairvalueoftheassets.Assetstobedisposedofarereportableatthelowerofthecarryingamountorfairvalue,  lesscoststosell. Revenue recognition. TheCompanyrecordsalltuitionasdeferredrevenuewhenastudentbeginsanonline  course,inthecaseofAPUS,orstartsaterm,inthecaseofHCON.Atthebeginningofeachcourseorterm,rev - enueisrecognizedonaproratabasisovertheperiodofthecourseorterm,whichis,forAPUS,eitheraneight-  orsixteen-weekperiodand,forHCON,aquarterlyterm.ThisresultsindeferredrevenueontheCompany’s  ConsolidatedBalanceSheetsthatincludesfuturerevenuethathasnotyetbeenearnedforcoursesandterms  thatareinprogress.TherevenuerecognitionpoliciesofeachoftheCompany’sreportablesegmentsisdis - cussedbelow. American Public University System APUS’stuitionrevenuevariesfromperiodtoperiodbasedonthenumberofnetcourseregistrations.Students  mayremittuitionpaymentsthroughtheonlineregistrationprocessatanytimeortheymayelectvariouspay - mentoptions,includingpaymentsbysponsors,alternativeloans,financialaid,ortheDoDtuitionassistancepro- gramwhichremitspaymentsdirectlytoAPUS.Theseotherpaymentoptionscandelaythereceiptofpayment  upuntilthecoursestartsorlonger,resultingintherecordingofanaccountsreceivableatthebeginningofeach  session.TuitionrevenueforsessionsinprogressthathasnotbeenearnedbyAPUSispresentedasdeferred  revenueintheaccompanyingConsolidatedBalanceSheets. APUSrefunds100%oftuitionforcoursesthataredroppedbystudentsbeforetheconclusionofthefirstseven  daysofacourse.BecausecoursesbeginthefirstMondayofeverymonthandpenaltyfreedropsoccurbythe  secondMondayofeverymonth,theCompanydoesnotrecognizerevenuefordroppedcourses.Afteracourse  begins,ifastudentdoesnotdropthecoursewithinthefirstsevendays,APUSusesthefollowingrefundpolicy: 8-Week Course—Tuition Refund Schedule Withdrawal Date Before or During Week 1 During Week 2 During Weeks 3 and 4 During Weeks 5 through 8 16-Week Course—Tuition Refund Schedule Withdrawal Date Before or During Week 1 During Week 2 During Weeks 3 and 4 During Weeks 5 through 8 During Weeks 9 through 16 140 American Public Education, Inc. Tuition Refund Percentage 100% 75% 50% No Refund Tuition Refund Percentage 100% 100% 75% 50% No Refund PriortoJanuary1,2016,alternativerefundpoliciesappliedtostudentsincertainstatesasaresultofspecific  stateandotherlocalrequirements.However,beginningJanuary1,2016,APUSisnotawareofanystatespecific  refundpoliciesthatwillbeapplicable. APUSrecognizesrevenueonaproratabasisovertheperiodofitscoursesasAPUScompletesthetasksenti - tlingittothebenefitsrepresentedbysuchrevenue.Ifastudentwithdrawsduringtheacademicterm,APUS  recognizesasrevenuetheremainingnon-refundableamountduefromthestudentintheperiodthewithdrawal  occurs.Thecalculationoftheremainingnon-refundableamountisbasedupontheAPUSstudentrefundpolicy.  Forthosestudentswhohaveanoutstandingreceivablebalanceatthedateofwithdrawal,APUSassessescol - lectabilityandonlyrecognizesasrevenuethoseamountswherecollectabilityisreasonablyassuredbasedon  APUS’shistorywithsimilarstudentaccounts.ThispolicywasimplementedonJanuary1,2015.Previously,APUS  recognizedrevenueforallstudentwithdrawalsandestablishedanallowanceforthosereceivablesconsidered  uncollectible.TheCompanydoesnotbelievethatthischangeinpolicyhashadorwillhaveamaterialeffecton  itsresultsofoperationsorfinancialcondition. Otherrevenueincludeschargesfortranscriptcreditevaluation,whichincludesassistanceinsecuringofficial  transcriptsonbehalfofthestudentinadditiontoevaluatingtranscriptsfortransfercredit,andatechnologyfee  percourse.APUSprovidesagranttocoverthetechnologyfeeforstudentsusingDoDtuitionassistancepro - grams.PriortoApril 2015,APUSprovidedagranttocoverthetechnologyfeeforstudentsusingeducationben - efitprogramsadministeredbytheU.S.DepartmentofVeteransAffairs,orVA.AfterApril 1,2015,thetechnology  feegrantwasnolongerappliedtostudentsusingVAeducationbenefits. Studentsalsoarechargedgraduation,lateregistration,transcriptrequestandcomprehensiveexaminationfees,  whenapplicable.InaccordancewithFASBASCTopic605-50,Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, otherfeesalsoincludebookpurchasecommissionsAPUSreceives  forgraduatestudentbookpurchasesandancillarysupplypurchasesstudentsmakedirectlyfromAPUS’spre - ferredbookvendor. Hondros College of Nursing HCON’stuitionrevenuevariesfromperiodtoperiodbasedonthenumberofstudentsenrolledandthepro - gramstheyareenrolledin.Studentsmayremittuitionpaymentsatanytime,ortheymayelectvariouspay - mentoptionsthatcandelayreceiptofpaymentupuntilthetermstartsorlonger.Theseotherpaymentoptions  includepaymentsbysponsors,financialaid,alternativeloans,orpaymentplanoptions.Ifoneofthevarious  otherpaymentoptionsareconfirmedassecured,thestudentisallowedtostarttheterm.Allfinancialaidis  awardedpriortothestartofthetermandrequestsforauthorizationofdisbursementbegininthefirstweek  oftheterm.TuitionrevenuefortheterminprogressthathasnotyetbeenearnedbyHCONispresentedas  deferredrevenueintheaccompanyingConsolidatedBalanceSheets. 2015 Annual Report 141 HCON’srefundpolicycomplieswiththerulesoftheOhioStateBoardofCareerCollegesandSchoolsandis  applicabletoeachterm.Foracoursewithanon-campusorotherin-personcomponent,thedateofwithdrawal  isdeterminedbyastudent’slastattendeddayofclinicaloffering,laboratorysession,orlecture.Foranonline  course,thedateofwithdrawalisdeterminedbyastudent’slastsubmittedassignmentinthecourse.HCONuses  thefollowingrefundpolicy: Withdrawal Date Before first full calendar week of the quarter During first full calendar week of the quarter During second full calendar week of the quarter During third full calendar week of the quarter During fourth full week of the quarter Tuition Refund Percentage 100%, plus registration fee 75%, plus registration fee 50%, plus registration fee 25%, plus registration fee No Refund Alternativerefundpoliciesmayapplytostudentsofcertainstatesinaccordancewithspecificstateandother  localrequirements. Deferred Revenue and Student Deposits. DeferredrevenueandstudentdepositsatDecember 31,2014and  2015consistedofthefollowing(inthousands): Deferred revenue Student deposits Total deferred revenue and student deposits As of December 31, 2014 $ 13,367 10,438 $23,805 2015 $17,239 12,488 $29,727 TheCompanyprovidesscholarshipstocertainstudents,includingemployeesandeligibledependents,toassist  themfinanciallyandpromotetheirregistration.Scholarshipassistanceof$2,855,000,$2,589,000and$7,583,000  wasprovidedfortheyearsendedDecember 31,2013,2014and2015,respectively,andisincludedasareduction  torevenueintheaccompanyingConsolidatedStatementsofIncome. Advertising costs. Advertisingcostsareexpensedasincurred.Advertisingexpensesfortheyearsended  December 31,2013,2014and2015were$46,995,000,$50,950,000and$42,226,000respectively,andareincluded  insellingandpromotioncostsintheaccompanyingConsolidatedStatementsofIncome. Income taxes. Deferredtaxesaredeterminedusingtheliabilitymethod,wherebydeferredtaxassetsarerecog - nizedfordeductibletemporarydifferencesanddeferredtaxliabilitiesarerecognizedfortaxabletemporarydif - ferences.Temporarydifferencesarethedifferencesbetweenthereportedamountsofassetsandliabilitiesand  theirtaxbases.Asthesedifferencesreverse,theywillenterintothedeterminationoffuturetaxableincome.  Deferredtaxassetsarereducedbyavaluationallowancewhen,intheopinionofmanagement,itismorelikely  thannotthatsomeportionorallofthedeferredtaxassetswillnotberealized.Deferredtaxassetsandliabili - tiesareadjustedfortheeffectsofchangesintaxlawsandratesonthedateofenactmentofsuchchanges. TherewerenomaterialuncertaintaxpositionsasofDecember 31,2013,2014and2015.Interestandpenalties  associatedwithuncertainincometaxpositionswouldbeclassifiedasincometaxexpense.TheCompanyhasnot  recordedanymaterialinterestorpenaltiesduringanyoftheyearspresented. Stock-based compensation. TheCompanyappliesFASBASCTopic718,Share-Based Payment, whichrequires  companiestoexpenseshare-basedcompensationbasedonfairvalue. 142 American Public Education, Inc. Thefollowingamountsofstock-basedcompensationhavebeenincludedintheoperatingexpenseline-items  indicated(inthousands): Instructional costs and services Selling and promotional General and administrative Total stock-based compensation expense Year Ended December 31, 2013 $ 876 444 2,704 $4,024 2014 $ 1,274 568 3,527 $5,369 2015 $1,598 684 3,630 $5,912 Income per common share. Basicnetincomepercommonshareisbasedontheweightedaveragenumberof  sharesofcommonstockoutstandingduringtheperiod.Dilutednetincomepercommonshareincreasesthe  sharesusedinthepersharecalculationbythedilutiveeffectsofoptions,warrants,andrestrictedstock. Therewerenooutstandingoptionstopurchasecommonsharesthatwereexcludedinthecomputationofdiluted  netincomepercommonsharefortheyearendedDecember 31,2013.Therewere365,832and317,961anti-dilutive stockoptionsexcludedfromthecalculationfortheyearsendedDecember 31,2014and2015,respectively. Fair value of financial instruments. Thecarryingamountsofcashandcashequivalents,tuitionreceivable,  accountspayable,andaccruedliabilitiesapproximatefairvaluebecauseoftheshortmaturityoftheseinstruments. Concentration of credit risk. TheCompanymaintainsitscashandcashequivalentsinbankdepositaccounts  withvariousfinancialinstitutions.CashandcashequivalentbalancesmayexceedtheFDICinsurancelimit.The  Companyhashistoricallynotexperiencedanylossesinsuchaccounts. Estimates. Thepreparationoffinancialstatementsrequiresmanagementtomakeestimatesandassumptions  thataffectthereportedamountsofassetsandliabilities,thedisclosureofcontingentassetsandliabilitiesat  thedateofthefinancialstatements,andthereportedamountsofrevenueandexpensesduringthereporting  period.Actualresultscoulddifferfromthoseestimates. Accounting Pronouncements. InMay 2014,theFinancialAccountingStandardsBoard,orFASB,issuedASU  No.2014-09,“RevenuefromContractswithCustomers(Topic606)”(“ASU2014-09”).Thestandardisacom - prehensivenewrevenuerecognitionmodelthatrequiresrevenuetoberecognizedinamannertodepictthe  transferofgoodsorservicestoacustomeratanamountthatreflectstheconsiderationexpectedtobereceived  inexchangeforthosegoodsorservices.Asoriginallyissued,ASU2014-09wouldhavebeeneffectiveforfis - calyears,andinterimperiodswithinthoseyears,beginningafterDecember15,2016,withearlyadoptionnot  permitted.Accordingly,thestandardwouldonlybeeffectivefortheCompanyforperiodsbeginningonorafter  January1,2017.However,onJuly 9,2015,theFASBvotedtoapproveaone-yeardeferraloftheeffectivedateof  thenewrevenuerecognitionstandardwithearlyadoptionpermitted.Publiccompanieswillnowapplythenew  revenuestandardtoannualreportingperiodsbeginningafterDecember15,2017,andtoallinterimreporting  periodswithintheyearofadoption.Accordingly,therevisedrevenuerecognitionstandardwillbeeffectivefor  theCompanyfortheyearendingDecember 31,2018,withearlyadoptionpermittedforannualperiodsbegin - ningafterDecember16,2016.Therevisedstandardwillbeeffectiveforallinterimperiodswithintheyearof  adoption.TheCompanyiscurrentlyevaluating,buthasnotyetdetermined,theimpactthatimplementationof  thisstandardmayhaveontheCompany’sConsolidatedFinancialStatementsanddisclosures. InNovember 2015,theFASBissuedASUNo.2015-17,“IncomeTaxes(Topic740):BalanceSheetClassification  ofDeferredTaxes”(“ASU2015-17”).Thestandardrequiresthatdeferredtaxassetsandliabilitiesbeclassified  asnoncurrentonthebalancesheetratherthanbeingseparatedintocurrentandnoncurrent.ASU2015-17is  2015 Annual Report 143 effectiveforfiscalyears,andinterimperiodswithinthoseyears,beginningafterDecember15,2016.Earlyadop - tionispermittedandthestandardmaybeappliedeitherretrospectivelyoronaprospectivebasistoalldeferred  taxassetsandliabilities.TheCompanyiscurrentlyevaluating,buthasnotyetdetermined,theimpactthatimple - mentationofthisstandardmayhaveontheCompany’sConsolidatedFinancialStatementsanddisclosures. Note 2. Acquisition Accounting OnNovember 1,2013,theCompanyacquiredalloftheoutstandingcommonstockofHCON,foraninitial  adjustedaggregatepurchasepriceofapproximately$46.3 million.TheHCONacquisitionwasaccountedfor  underFASBASCTopic805,Business Combinations, whichrequirestheacquisitionmethodtobeusedforallbusi - nesscombinations.UnderFASBASCTopic805,theassetsandliabilitiesofanacquiredcompanyarereportedat  businessfairvaluealongwiththefairvalueofunrecordedintangibleassetsatthedateofacquisition.Goodwill  representstheexcessofthepurchasepriceofanacquiredbusinessovertheamountassignedtotheassets  acquiredandliabilitiesassumedandthefairvalueassignedtoidentifiableintangibleassets.Theinitialpurchase  priceallocationresultedin$38.1 millionofgoodwill,whichisdeductiblefortaxpurposes.Intangibleassetsare  amortizedovertheirestimatedusefullivesunlesstheyaredeemedtohaveanindefinitelife.Identifiedintangi - bleassetswithanindefinitelifearetradename,accreditation,licensingandTitle IV,andaffiliateagreementsas  theybenefittheCompanyindefinitely.BecauseHCONiswhollyownedbytheCompanyasaresultoftheacquisi - tion,managementhasdeterminedthatpush-downaccountingisappropriate. Aspartofthetransaction,theCompanyandthesellingshareholdersofHCONagreedtoanelectionunder  Section338(h)(10)oftheInternalRevenueCodeof1986,asamended,asitrelatestotheacquisitionofHCONby  theCompany.ASection338(h)(10)electionisanelectionmadejointlybybuyer(s)andseller(s)totreatastock  acquisitionasanassetacquisitionforU.S.federalincometaxpurposes.Theacquisitionresultedinaprelimi - naryestimateoffairvalueofitsliabilitytothesellingshareholdersrelatedtotheSection338(h)(10)electionin  theamountof$150,000,whichwasincludedintheinitialgoodwillallocation.PriortoDecember 31,2014,the  CompanyreviseditsestimateofthefairvalueofitsliabilitytoHCON’ssellingshareholdersrelatedtotheSection  338(h)(10)electiontoapproximately$636,000.Asaresult,thetotaladjustedaggregatepurchasepriceandthe  amountofgoodwillwererevisedto$46.8 millionand$38.6 million,respectively. Thefairvalueofidentifiedintangibleassetsacquiredwasdeterminedusingoneofthefollowingthreevaluation  methodologies: • Costapproach; • Incomeapproach;or • Marketapproach. (in thousands) Fair value consideration transferred: Cash Fair Value of IRC 338(h)(10) election Total fair value consideration transferred Recognized amounts of identifiable tangible assets acquired and liabilities assumed: Assets acquired Liabilities assumed Assets acquired in excess of liabilities assumed 144 American Public Education, Inc. $46,128 636 $46,764 $ 4,834 4,786 $ 48 Recognized identified intangible assets: Student contracts and relationships Trade name Curricula Accreditation, licensing and Title IV Affiliate agreements Non-compete agreements Total recognized identified intangible assets Goodwill Note 3. Property and Equipment PropertyandequipmentatDecember 31,2014and2015consistedofthefollowing: (in thousands) Land Building and building improvements Leasehold improvements Office equipment Computer equipment Furniture and fixtures Other Capitalizable Assets Software development Program development Accumulated depreciation and amortization Useful Life — 27.5–39 years up to 15 years 5 years 3 years 7 years 1–5 years 5 years 3 years 2014 $ 9,244 52,938 2,391 2,351 22,615 7,533 708 64,593 4,110 166,483 64,059 $102,424 Useful Life 6 years $ 3,870 3 years 5 years 1,998 405 1,686 37 86 $ 8,082 $38,634 2015 $ 9,501 58,429 1,002 2,322 25,179 8,124 1,829 74,737 4,920 186,043 76,762 $109,281 DuringtheyearsendedDecember 31,2013,2014and2015,theCompanyrecordeddepreciationexpenseof  $13,225,000,$14,980,000and$19,626,000,respectively.Inaddition,theCompanyrecordedamortization  expenserelatedtootherassetsof$283,000,$1,141,000,and$894,000duringtheyearsendedDecember 31,  2013,2014and2015,respectively. Note 4. Operating Leases TheAPEISegmentleasesofficespaceinMarylandandVirginiaunderoperatingleasesthatexpirethrough  September 2018.HCONoperatesfourcampusesinOhio,locatedinthesuburbanareasofCincinnati,Cleveland,  Columbus,andDayton,underoperatingleasesthatexpirethroughJune 2029.RentexpenserelatedtotheAPEI  Segment’soperatingleaseswas$1,647,000,$1,666,000and$1,094,000fortheyearsendedDecember 31,2013,  2014and2015,respectively.RentexpenserelatedtotheHCONSegment’soperatingleaseswas$317,000forthe  two-monthperiodendedDecember 31,2013,and$2,212,000,and$2,347,000fortheyearsendedDecember 31,  2014and2015,respectively.HCONwasacquiredbyAPEIonNovember 1,2013. 2015 Annual Report 145 Theminimumrentalcommitmentsdueundertheoperatingleasesareasfollows(inthousands): Years Ending December 31, 2016 2017 2018 2019 2020 and beyond Total minimum rental commitment Note 5. Income Taxes Combined $ 2,003 2,023 1,690 1,530 8,566 $15,812 ThecomponentsofincometaxexpensefortheyearsendedDecember 31,2013,2014and2015wereasfollows  (inthousands): Current income tax expense: Federal State Deferred tax expense: Federal State 2013 2014 2015 $20,533 3,094 23,627 1,858 160 2,018 $19,404 3,252 22,656 2,623 (129) 2,494 $ 17,910 2,322 20,232 (241) 81 (160) Income Tax Expense $25,645 $25,150 $20,072 Thetaxeffectsofprincipaltemporarydifferencesareasfollows(inthousands): Deferred tax assets: Property and equipment Stock option compensation expense Allowance for doubtful accounts Accrued vacation and severance Restricted stock Investment Deferred tax liabilities: Income tax deductible capitalized software development costs Prepaid expenses 2014 2015 $ 9,215 $ 13,629 1,556 3,846 549 1,818 100 17,084 (24,750) (1,724) (26,474) 1,336 4,988 576 1,830 19 22,378 (29,592) (2,016) (31,608) Deferred tax liabilities, net $ (9,390) $ (9,230) 146 American Public Education, Inc. IncometaxexpensediffersfromtheamountoftaxdeterminedbyapplyingtheUnitedStatesFederalincometax ratestopretaxincomeandlossduetopermanenttaxdifferences,andtheapplicationofstateapportionment  laws,asfollows(inthousands): Tax expense at statutory rate State taxes, net Permanent differences Other 2013 2014 2015 Amount $23,688 2,069 (275) 163 $25,645 % Amount % Amount % 35.00% 3.06% (0.41)% 0.24% 37.89% $23,110 1,985 228 (173) $25,150 35.00% $18,370 35.00% 3.01% 0.35% (0.27)% 38.09% 1,590 278 (166) $20,072 3.03% 0.53% (0.32)% 38.24% Permanentdifferencesinthetableabovearemainlyattributabletominorityinvestmentlosses,nondeduct - iblemealsandentertainmentexpenses,andnon-deductibleemployercontributionstotheAmericanPublic  Education,Inc.EmployeeStockPurchasePlan,orESPP. TheCompanyissubjecttoU.S.federalincometaxesaswellasincometaxofmultiplestatejurisdictions.For  federalandstatetaxpurposes,taxyears2012–2015remainopentoexamination. Note 6. Other Employee Benefits TheCompanyhasestablishedataxdeferred401(k)retirementplanthatprovidesretirementbenefitstoallofits  eligibleemployees.Participantsmayelecttocontributeupto60%oftheirgrossannualearningsnottoexceed  ERISAandIRSlimits.TheplanprovidesforCompanydiscretionaryprofitsharingcontributionsatmatchingper - centages.Employeesimmediatelyvest100%inallsalaryreductioncontributionsandemployercontributions.  OnJune 20,2008,theCompanyfiledaFormS-8toregister100,000sharesofcommonstockthatmaybepur - chasedintheopenmarketandsubsequentlyissuedpursuanttotheretirementplan. InJune 2015,theCompany’s401(k)retirementplanwasamendedsothateffectiveAugust 31,2015,the  Company’s401(k)retirementplannolongerallowsparticipantstoinvestfuturecontributionsintheCompany’s  commonstock.TheCompany’s401(k)retirementplanwillcompletelyremovetheCompany’scommonstockas  aninvestmentelectiononJune 30,2016.AnyoftheCompany’scommonstockheldby401(k)retirementplan  participantsasofJune 30,2016willbesoldandautomaticallyre-allocatedtoanage-appropriatemutualfund. TheCompanymadediscretionarycontributionstotheplanof$2,753,000,$3,270,000and$3,309,000forthe  yearsendedDecember 31,2013,2014and2015,respectively. InNovember 2007,theCompanyadoptedtheAmericanPublicEducation,Inc.EmployeeStockPurchasePlan,or  theESPP,whichwasimplementedeffectiveJuly 1,2008withquarterlyenrollmentperiods.Eligibleparticipants  mayonlyentertheplanandestablishtheirwithholdingsatthestartofanenrollmentperiod.Participating  employeesmaywithdrawfromtheplanandendpayrolldeductionsanytimeuptofivedaysbeforetheshare  purchasedateandfundswillbereturnedtothem.UndertheESPP,participatingemployeesmaypurchase  sharesoftheCompany’scommonstock,subjecttocertainlimitations,at85%ofitsfairmarketvalueonthelast  dayofthequarterlyperiod.Thetotalvalueofcontributionsperparticipantmaynotexceed$21,000annuallyor  thevalueofthecommonstockpurchasedperparticipantcannotexceed$25,000.Therewereinitially100,000  sharesofcommonstockavailableforpurchasebyparticipatingemployeesundertheESPP.OnJune 13,2014,  theCompany’sshareholdersapprovedanamendmenttotheESPPtoincreasethenumberofsharesofthe  Company’scommonstockavailableforissuanceundertheplanby100,000shares,extendthetermoftheESPP  2015 Annual Report 147 toMarch 7,2024,andmakeotheradministrativechanges.Sharespurchasedintheopenmarketforissuanceto  employeespursuanttotheplanfortheyearsendedDecember 31,2013,2014and2015wereasfollows: Purchase Date March 31, 2013 June 30, 2013 September 30, 2013 December 31, 2013 Total/Weighted Average March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 Total/Weighted Average March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015 Total/Weighted Average Shares 4,760 4,726 4,226 4,556 18,268 4,961 5,180 5,246 3,931 19,318 4,322 5,443 4,939 6,822 21,526 Common Stock Fair Value Purchase Price Compensation Expense $34.89 $37.16 $37.80 $43.47 $38.29 $35.08 $34.38 $26.99 $36.87 $33.06 $29.98 $ 25.72 $23.45 $18.61 $23.80 $29.66 $31.59 $32.13 $36.95 $32.55 $29.82 $29.22 $22.94 $31.34 $28.10 $25.49 $21.86 $19.93 $15.82 $20.23 $ 24,895 $ 26,324 $ 23,961 $ 29,705 $104,885 $ 26,095 $ 26,729 $ 21,246 $ 21,738 $ 95,808 $ 19,406 $ 21,010 $ 17,385 $ 19,033 $ 76,834 Note 7. Stockholders’ Equity Stock Incentive Plans OnMarch 15,2011,theCompany’sBoardofDirectorsadoptedtheAmericanPublicEducation,Inc.2011  OmnibusIncentivePlan,orthe2011IncentivePlan,andtheCompany’sstockholdersapprovedthe2011  IncentivePlanonMay 6,2011,atwhichtimethe2011IncentivePlanbecameeffective.Uponeffectivenessof  the2011IncentivePlan,theCompanyceasedmakingawardsundertheAmericanPublicEducation,Inc.2007  OmnibusIncentivePlan,orthe2007IncentivePlan.The2011IncentivePlanallowstheCompanytograntup  to2,000,000sharesplusanysharesofcommonstockthataresubjecttooutstandingawardsunderthe2007  IncentivePlanortheAmericanPublicEducation,Inc.2002StockPlan,orthe2002StockPlan(and,togetherwith  the2011IncentivePlanandthe2007IncentivePlan,theStockIncentivePlans),thatterminateduetoexpiration,  forfeiture,cancellationorotherwisewithouttheissuanceofsuchshares.AsofDecember 31,2015,therewere  305,295sharessubjecttooutstandingawardsunderthe2011IncentivePlan,and329,872sharessubjecttoout - standingawardsunderthe2007IncentivePlanandthe2002StockPlan.Awardsunderthe2011IncentivePlan  mayincludethefollowingawardtypes:stockoptions,whichmaybeeitherincentivestockoptionsornon-qual - ifiedstockoptions;stockappreciationrights;restrictedstock;restrictedstockunits;dividendequivalentrights;  performanceshares;performanceunits;cash-basedawards;otherstock-basedawards,includingunrestricted  shares;oranycombinationoftheforegoing.Priorto2012,theCompanyusedamixofstockoptionsand  restrictedstock,butsince2011theCompanyhasnotissuedanystockoptions. FortheyearsendedDecember 31,2013,2014and2015,theCompanyrecognized$4,024,000,$5,369,000and  $5,912,000instock-basedcompensationexpenseasrequiredunderFASBASCTopic718,andrecognizedatotal  incometaxbenefitof$1,594,000,$2,022,000and$2,467,000,respectively. 148 American Public Education, Inc. Stock-basedcompensationexpenserelatedtorestrictedstockandrestrictedstockunitgrantsisexpensedover  thevestingperiodusingthestraight-linemethodforCompanyemployeesandthegraded-vestingmethodfor  membersoftheBoardofDirectors,andismeasuredusingAPEI’sstockpriceonthedateofgrant.Thefairvalue  ofeachoptionawardisestimatedatthedateofgrantusingaBlack-Scholesoption-pricingmodel.Priorto2012,  theCompanycalculatedtheexpectedtermofstockoptionawardsusingthe“simplifiedmethod”inaccordance  withSecurities and Exchange Commission Staff Accounting Bulletins No. 107 and 110becausetheCompanylacked historicaldataandwasunabletomakereasonableassumptionsregardingthefuture.TheCompanyalsoesti - matesforfeituresofshare-basedawardsatthetimeofgrantandrevisessuchestimatesinsubsequentperiods  ifactualforfeituresdifferfromoriginalestimates.TheCompanymakesassumptionswithrespecttoexpected  stockpricevolatilitybasedontheaveragehistoricalvolatilityofpeerswithsimilarattributes.Inaddition,the  CompanydeterminestheriskfreeinterestratebyselectingtheU.S.Treasuryfive-yearconstantmaturity,  quotedonaninvestmentbasisineffectatthetimeofgrantforthatbusinessday.Estimatesoffairvalueare  subjectiveandarenotintendedtopredictactualfutureevents,andsubsequenteventsarenotnecessarilyindic - ativeofthereasonablenessoftheoriginalestimatesoffairvaluemadeunderFASB ASC Topic 718. AsummaryofthestatusoftheCompany’sStockIncentivePlansasofDecember 31,2013andthechanges  duringtheperiodsthenendedisasfollows: Outstanding, December 31, 2012 Options granted Awards exercised Options forfeited Outstanding, December 31, 2013 Exercisable, December 31, 2013 Number of Options 691,082 — (171,897) (17,983) 501,202 445,564 Weighted Average Exercise Price Weighted Average Contractual Life (years) Aggregate Intrinsic Value (in thousands) $26.59 $ — $18.92 $37.64 $28.82 $27.73 3.05 2.93 $7,343 $7,012 AsummaryofthestatusoftheCompany’sStockIncentivePlansasofDecember 31,2014andthechanges  duringtheperiodsthenendedisasfollows: Outstanding, December 31, 2013 Options granted Awards exercised Options forfeited Outstanding, December 31, 2014 Exercisable, December 31, 2014 Number of Options 501,202 — (46,198) (20,603) 434,401 434,401 Weighted Average Exercise Price Weighted Average Contractual Life (years) Aggregate Intrinsic Value (in thousands) $28.82 $ — $13.66 $37.04 $30.04 $30.04 2.14 2.14 $3,080 $3,080 2015 Annual Report 149 AsummaryofthestatusoftheCompany’sStockIncentivePlansasofDecember 31,2015andthechanges  duringtheperiodsthenendedisasfollows: Outstanding, December 31, 2014 Options granted Awards exercised Options forfeited Outstanding, December 31, 2015 Exercisable, December 31, 2015 Number of Options 434,401 — (55,382) (49,147) 329,872 329,872 Weighted Average Exercise Price Weighted Average Contractual Life (years) Aggregate Intrinsic Value (in thousands) $30.04 $ — $ 3.29 $35.97 $33.65 $33.65 1.30 1.30 $359 $359 Thefollowingtablesummarizesinformationregardingstockoptionexercises: (In thousands) Proceeds from stock options exercised Intrinsic value of stock options exercised Tax benefit from exercises 2013 $3,253 $3,667 $1,348 2014 $ 631 $1,033 $ 193 2015 $ 182 $1,057 $ 54 Therewerenooutstandingoptionstopurchasecommonsharesthatwereexcludedinthecomputationofdiluted  netincomepercommonsharefortheyearendedDecember 31,2013.Therewere365,832and317,961anti-dilutive stockoptionsexcludedfromthecalculationfortheyearsendedDecember 31,2014and2015,respectively. Restricted Stock and Restricted Stock Units ThetablebelowsetsforththerestrictedstockandrestrictedstockunitactivityfortheyearendedDecember 31,2013: Non vested, December 31, 2012 Shares granted Vested shares Shares forfeited Non vested, December 31, 2013 Number of Shares Weighted Average Grant Price and Fair Value 136,397 123,951 (65,585) (4,002) 190,761 $39.21 37.50 37.70 39.94 $38.61 ThetablebelowsetsforththerestrictedstockandrestrictedstockunitactivityfortheyearendedDecember 31,2014: Number of Shares 190,761 272,550 (87,445) (15,097) 360,769 Weighted Average Grant Price and Fair Value $38.61 36.73 38.69 41.64 $37.03 Non vested, December 31, 2013 Shares granted Vested shares Shares forfeited Non vested, December 31, 2014 150 American Public Education, Inc. ThetablebelowsetsforththerestrictedstockandrestrictedstockunitactivityfortheyearendedDecember 31,2015: Non vested, December 31, 2014 Shares granted Vested shares Shares forfeited Non vested, December 31, 2015 Number of Shares 360,769 127,469 (164,144) (30,675) 293,419 Weighted Average Grant Price and Fair Value $37.03 35.15 37.85 36.76 $35.86 Therewerenosharesofrestrictedstockorrestrictedstockunitsexcludedinthecomputationofdilutednet  incomepercommonsharefortheyearendedDecember 31,2015.TheCompanyrecognizedanincometaxbene- fitof$1,294,000,$1,880,000,and$2,467,000fromvestedrestrictedstockandrestrictedstockunitsfortheyears  endedDecember 31,2013,2014and2015,respectively. AtDecember 31,2015,totalunrecognizedcompensationexpenseintheamountof$6.0 millionrelatestonon- vestedrestrictedstockandrestrictedstockunitswhichwillberecognizedoveraweightedaverageperiodof  1.4years. DuringtheyearsendedDecember 31,2013,2014and2015,theCompanyacceptedforforfeiture4,002shares  for$159,840,15,097sharesfor$628,639,and22,066sharesfor$815,886,respectively,asaresultoftermination  ofemployment. 2015 Annual Report 151 Repurchase DuringtheyearendedDecember 31,2013,theCompanyrepurchasedsharesoftheCompany’scommonstock,  parvalue$0.01pershare.ThechartbelowprovidesdetailastotheCompany’srepurchasesduringtheperiod. Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1) Total Number of Shares Purchased Average Price Paid Per Share January 1, 2013 January 1, 2013–January 31, 2013 February 1, 2013–February 28, 2013 March 14, 2013 March 1, 2013–March 31, 2013 April 1, 2013–April 30, 2013 May 1, 2013–May 31, 2013 June 1, 2013–June 30, 2013 July 1, 2013–July 31, 2013 August 1, 2013–August 31, 2013 September 1, 2013–September 30, 2013 October 1, 2013–October 31, 2013 November 1, 2013–November 30, 2013 December 1, 2013–December 31, 2013 Total — 3,638 — — 150,587 2,164 60,000 — — — 10,000 167,675 — — 394,064 $ — $34.79 $ — $ — $32.30 $33.00 $32.55 $ — $ — $ — $ 37.91 $36.86 $ — $ — $34.47 — 3,638 3,638 3,638 154,225 156,389 216,389 216,389 216,389 216,389 226,389 394,064 394,064 394,064 394,064 — — — — — — — — — — — — — — — Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(2)(3) $ 7,992,647 7,866,068 7,866,068 22,866,068 18,001,740 17,930,337 15,977,321 15,977,321 15,977,321 15,977,321 15,598,221 9,417,721 9,417,721 9,417,721 $ 9,417,721 152 American Public Education, Inc. DuringtheyearendedDecember 31,2014,theCompanyrepurchasedsharesoftheCompany’scommonstock,  parvalue$0.01pershare.ThechartbelowprovidesdetailastotheCompany’srepurchasesduringtheperiod. Total Number of Shares Purchased Average Price Paid Per Share January 1, 2014 January 20, 2014 January 1, 2014–January 30, 2014 February 1, 2014–February 28, 2014 March 1, 2014–March 31, 2014 April 1, 2014–April 30, 2014 May 1, 2014–May 31, 2014 June 1, 2014–June 30, 2014 June 13, 2014 July 1, 2014–September 31, 2014 October 1, 2014–October 31, 2014 November 1, 2014–November 30, 2014 December 1, 2014–December 31, 2014 Total — — — — 40,000 185,000 139,568 51,760 — — — 30,000 84,634 530,962 $ — $ — $ — $ — $35.26 $34.60 $ 35.11 $34.95 $ — $ — $ — $35.48 $34.09 $34.78 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(2)(3) — — — — 40,000 185,000 139,568 51,760 — — — 30,000 84,634 530,962 — $ 9,417,721 147,284 147,284 147,284 107,284 14,784 — — — — 114,634 84,634 — — 9,417,721 9,417,721 9,417,721 9,417,721 6,217,221 1,836,055 27,043 15,027,043 15,027,043 15,027,043 15,027,043 15,027,043 $15,027,043 2015 Annual Report 153 DuringtheyearendedDecember 31,2015,theCompanyrepurchasedsharesoftheCompany’scommonstock,  parvalue$0.01pershare.ThechartbelowprovidesdetailastotheCompany’srepurchasesduringtheperiod. Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(2)(3) Total Number of Shares Purchased Average Price Paid Per Share January 1, 2015 January 1, 2015–January 31, 2015 February 1, 2015–February 28, 2015 March 1, 2015–March 31, 2015 April 1, 2015–April 30, 2015 May 1, 2015–May 31, 2015 June 1, 2015–June 30, 2015 June 30, 2015 July 1, 2015–July 31, 2015 August 1, 2015–August 31, 2015 — — — 100,000 203,820 200,000 160,000 — — — September 1, 2015–September 30, 2015 129,849 October 1, 2015–October 31, 2015 November 1, 2015–November 30, 2015 December 1, 2015–December 31, 2015 Total 211,040 199,391 118,746 1,322,846 $ — $ — $ — $31.69 $30.84 $25.59 $24.93 $ — $ — $ — $ 23.15 $ 23.19 $ 22.11 $22.39 $25.34 — — — 100,000 203,820 200,000 160,000 — — — 129,849 211,040 199,391 118,746 1,322,846 — $15,027,043 116,910 116,910 66,910 — — — — — — — — — — — 15,027,043 15,027,043 13,442,543 9,220,841 4,102,131 114,029 15,114,029 15,114,029 15,114,029 12,107,835 7,214,395 2,806,575 148,008 $ 148,008 (1) On December 9, 2011, the Company’s Board of Directors approved a stock repurchase program for its common stock, under which the Company may annually purchase up to the cumulative number of shares issued or deemed issued in that year under the Company’s equity incentive and stock purchase plans. Repurchases may be made from time to time in the open market at prevailing market prices or in privately negotiated transactions based on business and market conditions. The stock repurchase program may be suspended or discontinued at any time, and will be funded using the Company’s available cash. (2) On May 14, 2012, our Board of Directors authorized a program to repurchase up to $20 million of shares of our common stock. On each of March 14, 2013, June 13, 2014, and June 12, 2015 our Board of Directors increased the authorization by an additional $15 million of shares, for a cumulative increase of $45 million of shares and a total authorization of $65 million of shares. Subject to market conditions, applicable legal requirements and other factors, the repurchases may be made from time to time in the open market or privately negotiated transactions. The authorization does not obligate us to acquire any shares, and purchases may be commenced or suspended at any time based on market conditions and other factors as we deem appropriate. (3) The Company was deemed to have repurchased 20,540 and 56,272 shares of common stock forfeited by employees to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants during the 12 months ended December 31, 2013 and 2015, respectively. During the 12 months ended December 31, 2014, the Company was deem to have repur- chased 30,973 shares of common stock forfeited by employees to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants and to cover the exercise and minimum tax-withholding requirements of expiring stock options. These repurchases were not part of the stock repurchase program authorized by the Company’s Board of Directors. DuringtheyearsendedDecember 31,2013,2014,and2015,theCompanyretired394,064,530,962,and  1,322,846,sharesofcommonstock,respectively,thathadbeenpreviouslyrepurchasedandheldinthe  Company’streasury. 154 American Public Education, Inc. Note 8. Contingencies FromtimetotimetheCompanymaybeinvolvedinlitigationinthenormalcourseofitsbusiness.TheCompany  isnotcurrentlysubjecttoanypendingmateriallegalproceedings. Note 9. Concentration APUSstudentsutilizevariouspaymentsourcesandprogramstofinancetuition.Theseprogramsincludefunds  fromDoDtuitionassistanceprograms,VAeducationbenefitprograms,andfederalstudentaidfromTitle IVpro - grams,aswellascashandothersources.ReductionsinorchangestoDoDtuitionassistance,VAeducationben - efits,Title IVprogramsandotherpaymentsourcescouldhaveasignificantimpactontheCompany’soperations.  AsofDecember 31,2015approximately56%ofAPUSstudentsself-reportedthattheyservedinthemilitaryon  activedutyatthetimeofinitialenrollment.Activedutymilitarystudentsgenerallytakefewercoursesperyear  onaveragethannon-militarystudents. AsummaryofAPEISegmentrevenuederivedfromstudentsbyprimaryfundingsourcefortheyearsended  December 31,2013,2014and2015isasfollows: Title IV programs DoD tuition assistance programs VA education benefits Cash and other sources Year Ended December 31, 2013 38% 34% 16% 12% 2014 36% 35% 18% 11% 2015 32% 35% 21% 12% AsofDecember 31,2015approximately86.1%oftheHCONSegment’srevenuewasderivedfromstudentswho  receivedfederalstudentaidandapproximately2.4%oftheHCONSegment’srevenuewasderivedfromstu - dentswhoreceivedveteran’seducationbenefits. AreductioninorchangetoanyoftheseprogramscouldhaveasignificantimpactontheCompany’soperations  andfinancialcondition. Note 10. Segment Information OnNovember 1,2013,APEIacquiredHCONandsubsequentlyrevisedtheCompany’ssegmentreportingtomain- tainconsistencywiththemethodmanagementusestoevaluateperformanceandallocateresources,aswellas  toprovideadditionalinformationtoshareholders.Accordingly,theCompanyhastwooperatingsegmentsthat  aremanagedinthefollowingreportablesegments: • AmericanPublicEducationSegment,orAPEISegment;and • HondrosCollegeofNursingSegment,orHCONSegment. InaccordancewithFASBASCTopic280,Segment Reporting, thechiefoperatingdecision-makerhasbeenidenti - fiedastheChiefExecutiveOfficer.TheChiefExecutiveOfficerreviewsoperatingresultstomakedecisionsabout  allocatingresourcesandassessingperformanceforAPEIandHCON. 2015 Annual Report 155 Asummaryoffinancialinformationbyreportablesegmentisasfollows(inthousands): Revenue American Public Education Segment Hondros College of Nursing Segment Total Revenue Depreciation and Amortization American Public Education Segment Hondros College of Nursing Segment Total Depreciation and Amortization Income from continuing operations before interest income and income taxes American Public Education Segment Hondros College of Nursing Segment Total income from continuing operations before interest income and income taxes Interest Income, Net American Public Education Segment Hondros College of Nursing Segment Total Interest Income, Net Income Tax Expense American Public Education Segment Hondros College of Nursing Segment Total Income Tax Expense Capital Expenditures American Public Education Segment Hondros College of Nursing Segment Total Capital Expenditures Year Ended December 31, 2013 2014 2015 $325,678 3,801 $329,479 $ 13,344 164 $ 13,508 $ 319,879 30,141 $350,020 $ 14,859 1,262 $ 16,121 $297,439 30,471 $327,910 $ 19,337 1,183 $ 20,520 $ 67,161 276 $ 62,499 3,333 $ 48,967 3,314 $ 67,437 $ 65,832 $ 52,281 $ 308 $ 361 $ 115 0 0 0 $ 308 $ 361 $ 115 $ 25,635 10 $ 25,645 $ 20,642 7 $ 20,649 $ 23,861 1,289 $ 25,150 $ 24,273 323 $ 24,596 $ 18,788 1,284 $ 20,072 $ 24,541 1,461 $ 26,002 AsummaryoftheCompany’sconsolidatedassetsbyreportablesegmentisasfollows(inthousands): Assets American Public Education Segment Hondros College of Nursing Segment Total Assets As of December 31, 2014 2015 $245,544 52,360 $297,904 $ 250,118 53,778 $303,896 Note 11. Goodwill and Intangible Assets InconnectionwithitsNovember 1,2013acquisitionofHCON,theCompanyrecorded$38.6 millionofgoodwill.  Goodwillrepresentstheexcessofthepurchasepriceovertheamountassignedtothenetassetsacquiredand  thefairvalueassignedtoidentifiedintangibleassets.TheCompanyintendstoconductanannualgoodwill  impairmenttestonoraroundeachanniversarydateoftheacquisition.Foradditionalinformationregarding  156 American Public Education, Inc. theCompany’saccountingforitsacquisitionofHCON,pleaserefertoNote2,“AcquisitionAccounting”ofthese  NotestoConsolidatedFinancialStatements. Inadditiontogoodwill,HCONrecordedatotalof$8.1 millionofotheridentifiableintangibleassetsattheacqui - sitiondate.HCONrecordedidentifiedintangibleassetswithanindefiniteusefullifeintheaggregateamountof  $3.7 million,whichincludestradenames,accreditation,licensingandTitle IV,andaffiliateagreements.HCON  recorded$4.4 millionofidentifiedintangibleassetswithadefiniteusefullife.Attheacquisitiondate,theuseful  lifeassignedtoeachtypeofintangibleassetwithadefiniteusefullifewasasfollows: Student contracts and relationships Curricula Non-compete agreements Thefutureamortizationofintangibleassetsisasfollows(inthousands): 2016 2017 2018 2019 2020 and beyond Total Useful Life 6 years 3 years 5 years $ 710 598 563 322 — $2,193 ChangesinthecarryingamountofgoodwillbyreportablesegmentduringfiscalyearendingDecember 31,2014  areasfollows(inthousands): Goodwill as of December 31, 2013 Goodwill acquired(1) Impairment Section 338(h)(10) adjustment Goodwill as of December 31, 2014 APEI Segment HCON Segment Total Goodwill $— — — — $— $38,148 $38,148 — — 486 — — 486 $38,634 $38,634 ChangesinthecarryingamountofgoodwillbyreportablesegmentduringfiscalyearendingDecember 31,2015  areasfollows(inthousands): Goodwill as of December 31, 2014 Goodwill acquired(1) Impairment Section 338(h)(10) adjustment Goodwill as of December 31, 2015 APEI Segment HCON Segment Total Goodwill $— — — — $— $38,634 $38,634 — — — — — — $38,634 $38,634 2015 Annual Report 157 Thefollowingtablepresentsthecomponentsofthenetcarryingamountofgoodwillbyreportablesegmentas  ofDecember 31,2014(inthousands): Gross carrying amount of Goodwill as of December 31, 2014 Accumulated impairment Net Carrying amount of Goodwill as of December 31, 2014 APEI Segment HCON Segment Total Goodwill $— — $— $38,634 — $38,634 — $38,634 $38,634 Thefollowingtablepresentsthecomponentsofthenetcarryingamountofgoodwillbyreportablesegmentas  ofDecember 31,2015(inthousands): Gross carrying amount of Goodwill as of December 31, 2015 Accumulated impairment Net Carrying amount of Goodwill as of December 31, 2015 APEI Segment HCON Segment Total Goodwill $— — $— $38,634 — $38,634 — $38,634 $38,634 OtherintangibleassetsconsistofthefollowingasofDecember 31,2015(inthousands): 2015 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Finite-lived intangible assets Curricula Non-compete agreements Student contracts and relationships Total finite-lived intangible assets Indefinite-lived intangible assets Trade name Accreditation, licensing and Title IV Affiliation agreements Total indefinite-lived intangible assets $ 405 86 3,870 4,361 1,998 1,686 37 3,721 $ 293 37 1,838 2,168 — — — — Total intangible assets $8,082 $2,168 $ 112 49 2,032 2,193 1,998 1,686 37 3,721 $5,914 Identifiedintangibleassetsareamortizedinamannerthatreflectstheestimatedeconomicbenefitoftheintan - gibleassets.CurriculaandNon-competeagreementsareamortizedonastraight-linebasis.Studentcontracts  andrelationshipsareamortizedusinganacceleratedmethod. 158 American Public Education, Inc. Note 12. Subsequent Events OnJanuary19,2016,theCompanyreceivedtheDepartmentofEducation’sapprovalofitschange-in-ownership  applicationfortheHCONacquisition.HCONsubsequentlyenteredintoaProvisionalProgramParticipation  Agreement,expiringinDecember2018,whichrequiresHCONtocomplywithspecificconditionswhileprovision - allycertifiedtoparticipateinTitle IVprograms. OnFebruary 1,2016,theCompanymadeanadditional$950,000investmentinpreferredstockofFidelis  Education,Inc.,orFidelisEducation,increasingitsinvestmentinFidelisEducationtoapproximately22%ofits  fullydilutedequity.Inconnectionwiththeinvestment,theCompanyisentitledtocertainrights,includingthe  retentionofitsrighttorepresentationontheBoardofDirectorsofFidelisEducation.Foradditionalinformation  ontheCompany’sinvestmentinFidelisEducation,pleaserefertoNote1,“NatureofBusinessandSignificant  AccountingPolicies”oftheseNotestoConsolidatedFinancialStatements. Note 13. Quarterly Financial Summary (unaudited) Thefollowingunauditedconsolidatedinterimfinancialinformationpresentedshouldbereadinconjunction  withotherinformationincludedintheCompany’sconsolidatedfinancialstatements.Intheopinionofmanage - ment,thefollowingunauditedconsolidatedfinancialinformationreflectsalladjustmentsnecessaryforthefair  presentationoftheresultsofinterimperiods.Historicalresultsarenotnecessarilyindicativeoftheresultsof  operationstobeexpectedforfutureperiods.Thefollowingtablessetforthselectedunauditedquarterlyfinan - cialinformationforeachoftheCompany’slasteightquarters: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter (in thousands, except per share data) Revenue Income before income taxes Net income Net income per common share: Basic Diluted Revenue Income before income taxes Net income Net income per common share: Basic Diluted $85,444 14,481 8,793 $ 0.51 $ 0.51 $88,553 16,806 10,436 $ 0.59 $ 0.59 $80,263 11,607 7,073 $ 0.42 $ 0.42 $85,463 15,933 9,802 $ 0.56 $ 0.56 2015 2014 $ 76,291 10,549 6,757 $ 0.41 $ 0.41 $84,708 14,745 8,842 $ 0.51 $ 0.51 $85,912 15,759 9,791 $ 0.61 $ 0.60 $91,297 18,709 11,797 $ 0.69 $ 0.68 2015 Annual Report 159 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Wehavecarriedoutanevaluation,underthesupervisionandwiththeparticipationofourmanagement,  includingourprincipalexecutiveofficerandprincipalfinancialofficer,oftheeffectivenessofourdisclosure  controlsandprocedures(asdefinedinRules13a-15(e)and15d-15(e)undertheSecuritiesExchangeActof1934,  asamended,ortheSecuritiesExchangeAct),asofDecember 31,2015.Baseduponthatevaluation,ourprincipal  executiveofficerandprincipalfinancialofficerconcludedthat,asoftheendofthatperiod,ourdisclosurecon - trolsandprocedureswereeffective. Changes in Internal Control Over Financial Reporting Therewasnochangeinourinternalcontroloverfinancialreportingidentifiedinconnectionwiththeevaluation  requiredbyRules13a-15(d)and15d-15(d)oftheExchangeActthatoccurredduringthefourthquarterof2015  thathasmateriallyaffectedorisreasonablylikelytomateriallyaffectourinternalcontroloverfinancialreporting. 160 American Public Education, Inc. Management’s Annual Report on Internal Control over Financial Reporting Ourmanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancial  reportingfortheCompany.InternalcontroloverfinancialreportingisdefinedinRule13a-15(f)or15d-15(f)  promulgatedundertheSecuritiesExchangeActof1934,asamended,asaprocessdesignedby,orunderthe  supervisionof,theCompany’sPrincipalExecutiveandPrincipalFinancialOfficersandeffectedbytheCompany’s  BoardofDirectors,managementandotherpersonnel,toprovidereasonableassuranceregardingthereliability  offinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgen - erallyacceptedaccountingprinciplesandincludesthosepoliciesandproceduresthat: • pertaintothemaintenanceofrecordsthatinreasonabledetailaccuratelyandfairlyreflectthetransactions  anddispositionsoftheassetsoftheCompany; • providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancial  statementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpenditures  ofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthe  Company;and • providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,useor  dispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements. Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstate - ments.Projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmay  becomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesor  proceduresmaydeteriorate. UnderthesupervisionandwiththeparticipationofourPrincipalExecutiveOfficerandPrincipalFinancialOfficer, ourmanagementassessedtheeffectivenessofourinternalcontroloverfinancialreportingasofDecember 31,  2015.Inmakingthisassessment,ourmanagementusedthecriteriaestablishedinInternal Control—Integrated FrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommissionin2013. Basedonitsassessment,managementconcludedthat,asofDecember 31,2015,ourinternalcontroloverfinan - cialreportingiseffectivebasedonthosecriteria.Managementreviewedtheresultsofitsassessmentwiththe  AuditCommitteeofourBoardofDirectors. Ourindependentauditors,RSMUSLLP,whoauditedandreportedontheConsolidatedFinancialStatementsof  theCompanyincludedinthisAnnualReport,hasalsoauditedtheeffectivenessoftheCompany’sinternalcon - troloverfinancialreportingasofDecember 31,2015,asstatedinitsreportthatappearsbelow. 2015 Annual Report 161 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders American Public Education, Inc. WehaveauditedAmericanPublicEducation,Inc.andSubsidiaries’internalcontroloverfinancialreportingas  ofDecember 31,2015,basedoncriteriaestablishedinInternal Control—Integrated Framework issuedbythe CommitteeofSponsoringOrganizationsoftheTreadwayCommissionin2013.AmericanPublicEducation,Inc.  andSubsidiaries’managementisresponsibleformaintainingeffectiveinternalcontroloverfinancialreporting  andforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreportingincludedintheaccompa - nyingManagement’sAnnualReportonInternalControloverFinancialReporting.Ourresponsibilityistoexpress  anopiniononthecompany’sinternalcontroloverfinancialreportingbasedonouraudit. WeconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard  (UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassurance  aboutwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Our  auditincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthata  materialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrol  basedontheassessedrisk.Ourauditalsoincludedperformingsuchotherproceduresasweconsideredneces - saryinthecircumstances.Webelievethatourauditprovidesareasonablebasisforouropinion. Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassurance  regardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposes  inaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreport - ingincludesthosepoliciesandproceduresthat(a)pertaintothemaintenanceofrecordsthat,inreasonable  detail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(b)provide  reasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatements  inaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompany  arebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(c)  providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordis - positionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements. Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstate - ments.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrols  maybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesor  proceduresmaydeteriorate. Inouropinion,AmericanPublicEducation,Inc.andSubsidiariesmaintained,inallmaterialrespects,effective internalcontroloverfinancialreportingasofDecember 31,2015,basedoncriteriaestablishedinInternal Control— Integrated FrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommissionin2013. Wehavealsoaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard  (UnitedStates),theconsolidatedbalancesheetofAmericanPublicEducation,Inc.anditsSubsidiariesasof  December 31,2014and2015,andtherelatedconsolidatedstatementsofincome,stockholders’equity,andcash  flowsforeachofthethreeyearsintheperiodendedDecember 31,2015,andourreportdatedFebruary 29,  2016expressedanunqualifiedopinion. /s/RSMUSLLP McLean,VA February 29,2016 162 American Public Education, Inc. Item 9B. Other Information None. 2015 Annual Report 163 Part III Item 10. Directors, Executive Officers, and Corporate Governance Executive Officers PursuanttoGeneralInstructionG(3)ofForm10-K,informationregardingourexecutiveofficersissetforthin  Item1ofPartIofthisAnnualReportunderthecaption“ExecutiveOfficersoftheRegistrant.” Code of Ethics Aspartofoursystemofcorporategovernance,ourBoardofDirectorshasadoptedaCodeofBusinessConduct  andEthicsthatisapplicabletoallofouremployees,officersanddirectorsandalsocontainsprovisionsonly  applicabletoourprincipalexecutiveofficerandseniorfinancialofficers.OurCodeofBusinessConductand  EthicsisavailableontheGovernancepageofourwebsiteathttp://www.americanpubliceducation.com.We  intendtosatisfyanydisclosurerequirementunderItem5.05ofForm8-Kregardinganamendmentto,orwaiver  from,aprovisionoftheCodeofBusinessConductandEthicsthatappliestoourprincipalexecutiveofficeror  seniorfinancialofficers,bypostingsuchinformationonourwebsiteattheaddressabove.Theinformationon  ourwebsiteisexpresslynotincorporatedbyreferenceinthisAnnualReportonForm10-K. Additional Information Theadditionalinformationregardingdirectors,executiveofficers,andcorporategovernancerequiredby  thisItemisherebyincorporatedbyreferencefromtheinformationcontainedunderthecaptions“Corporate  GovernanceStandardsandDirectorIndependence,”“BoardCommitteesandTheirFunctions,”“Director  NominationsandCommunicationwithDirectors,”“ProposalNo.1—ElectionofDirectors”and“Section16(a)  BeneficialOwnershipReportingCompliance”intheCompany’sProxyStatement,whichwillbefiledwiththeSEC  nolaterthan120daysfollowingDecember 31,2015withrespecttoour2016AnnualMeetingofStockholders. Item 11. Executive Compensation TheinformationrequiredbythisItemisherebyincorporatedbyreferencefromtheinformationcontained  underthecaptions“DirectorCompensation,”“ExecutiveCompensation,”“CompensationCommitteeReport”and  “CompensationCommitteeInterlocksandInsiderParticipation”intheCompany’sProxyStatement,whichwill  befiledwiththeSecuritiesandExchangeCommissionnolaterthan120daysfollowingDecember 31,2015with  respecttoour2016AnnualMeetingofStockholders. 164 American Public Education, Inc. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters TheinformationrequiredbythisItemisherebyincorporatedbyreferencefromtheinformationcontained  underthecaptions“BeneficialOwnershipofCommonStock”and“EquityCompensationPlanInformation”inthe  Company’sProxyStatement,whichwillbefiledwiththeSecuritiesandExchangeCommissionnolaterthan120  daysfollowingDecember 31,2015withrespecttoour2016AnnualMeetingofStockholders. Item 13. Certain Relationships and Related Party Transactions, and Director Independence TheinformationrequiredbythisItemisherebyincorporatedbyreferencefromtheinformationcontainedunder  thecaptions“CertainRelationshipsandRelatedPersonsTransactions”and“BoardIndependenceandLeadership  Structure”intheCompany’sProxyStatement,whichwillbefiledwiththeSecuritiesandExchangeCommissionno  laterthan120daysfollowingDecember 31,2015withrespecttoour2016AnnualMeetingofStockholders. Item 14. Principal Accountant Fees and Services TheinformationrequiredbythisItemisherebyincorporatedbyreferencefromtheinformationcontained  underthecaptions“PrincipalAccountantFeesandServices”and“AuditCommittee’sPre-ApprovalPoliciesand  Procedures”intheCompany’sProxyStatement,whichwillbefiledwiththeSecuritiesandExchangeCommission  nolaterthan120daysfollowingDecember 31,2015withrespecttoour2016AnnualMeetingofStockholders. 2015 Annual Report 165 Part IV Item 15. Exhibits and Financial Statement Schedules (a) ListofdocumentsfiledaspartofthisAnnualReport: (1) TherequiredfinancialstatementsareincludedinItem8ofPartIIofthisAnnualReport. (2) TherequiredfinancialstatementschedulesareincludedinItem8ofPartIIofthisAnnualReport. (3) AcompletelistingofexhibitsisincludedintheIndextoExhibits. (b) AcompletelistingofexhibitsisincludedintheIndextoExhibits. (c) ScheduleII:ValuationandQualifyingAccounts. Otherschedulesareomittedbecausetheyarenotrequired. 166 American Public Education, Inc. Schedule II Valuation and Qualifying Accounts (in thousands) Year ended December 31, 2015: American Public Education Segment Hondros College of Nursing Segment Allowance for receivables Year ended December 31, 2014: American Public Education Segment Hondros College of Nursing Segment Allowance for receivables Year ended December 31, 2013: American Public Education Segment Hondros College of Nursing Segment(1) Allowance for receivables Balance at Beginning of Period Additions/ (Reductions)(1) Write-Offs Balance at End of Period $ 8,461 2,238 10,699 $11,452 1,723 $13,175 $11,106 $ — $11,106 $ 11,203 $ (9,378) 1,511 12,714 $17,480 1,344 $18,824 $ 14,011 $ 1,723 $ 15,734 (1,023) (10,401) $ (20,471) (829) $(21,300) $ (13,665) $ — $(13,665) $10,286 2,726 13,012 $ 8,461 2,238 $10,699 $ 11,452 $ 1,723 $ 13,175 (1) Hondros College of Nursing additions include a $1.461 million beginning balance as of November 1, 2013. 2015 Annual Report 167 Signatures PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthas  dulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized.  Dated:February 29,2016   American Public Education, Inc. By: /s/Dr.WallaceE.Boston Name: Dr.WallaceE.Boston Title: PresidentandChiefExecutiveOfficer PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisReporthasbeensignedbelowbythe  followingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedateindicated. Name Date Title /s/ Dr. Wallace E. Boston February 29, 2016 Dr. Wallace E. Boston President, Chief Executive Officer and Director (Principal Executive Officer) /s/ Richard W. Sunderland, Jr. February 29, 2016 Richard W. Sunderland, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Barbara G. Fast Barbara G. Fast /s/ Eric C. Andersen Eric C. Andersen /s/ Jean C. Halle Jean C. Halle /s/ Barbara Kurshan Barbara Kurshan February 29, 2016 Chairperson of the Board of Directors February 29, 2016 Director February 29, 2016 Director February 29, 2016 Director /s/ Timothy J. Landon February 29, 2016 Director Timothy J. Landon /s/ Wes Moore Wes Moore February 29, 2016 Director /s/ Timothy T. Weglicki February 29, 2016 Director Timothy T. Weglicki 168 American Public Education, Inc. Index to Exhibits Exhibit No. Exhibit Description 3.1 3.2 4.1 10.1+ 10.2+ 10.3+ 10.4+ 10.5+ 10.6+ 10.7+ 10.8+ 10.9+ 10.10+ Fifth Amended and Restated Certificate of Incorporation of the Company(1) Second Amended and Restated Bylaws of the Company(1) Form of certificate representing the Common Stock, $0.01 par value per share, of the Company(2) American Public Education, Inc. 2002 Stock Incentive Plan, as amended(2) American Public Education, Inc. 2007 Omnibus Incentive Plan(2) Form of Indemnification Agreement with directors and executive officers(2) Amended and Restated Employment Agreement dated April 28, 2014, by and between American Public University System, Inc., American Public Education, Inc. and Wallace E. Boston, Jr.(3) Amended and Restated Employment Agreement dated April 28, 2014, by and among American Public University System, Inc., American Public Education, Inc. and Harry T. Wilkins(3) Letter Agreement dated November 6, 2015, by and between American Public Education, Inc. and Harry T. Wilkins(4) Employment Agreement dated August 1, 2014 by and among American Public University System, Inc., American Public Education, Inc. and Carol Gilbert(5) Amended and Restated Employment Agreement dated August 1, 2014, by and among American Public University System, Inc., American Public Education, Inc. and Karan Powell(5) Employment Agreement dated August 1, 2014, by and among American Public University System, Inc., American Public Education, Inc. and Richard W. Sunderland, Jr.(5) American Public Education, Inc. Employee Stock Purchase Plan(2) 10.10a+ Amendment to the American Public Education, Inc. Employee Stock Purchase Plan(6) 10.11+ 10.12+ 10.13 21.1 23.1 31.1 31.2 32.1 32.2 American Public Education, Inc. 2011 Omnibus Incentive Plan(7) APUS Non-Qualified Plan(8) Stock Purchase Agreement, dated August 28, 2013, by and among, the Company National Education Seminars, Inc., the Selling Stockholders, the Founders and the Stockholder Representative(9) List of Subsidiaries (filed herewith) Consent of RSM US LLP (filed herewith) Certification of Chief Executive officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) 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 (filed herewith) 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 (filed herewith) 2015 Annual Report 169 Exhibit No. Exhibit Description EX-101.INS XBRL Instance Document EX-101.SCH XBRL Taxonomy Extension Schema Document EX-101.CAL XBRL Taxonomy Extension Calculation Linkbase Document EX-101.DEF XBRL Taxonomy Extension Definition Linkbase Document EX-101.LAB XBRL Taxonomy Extension Label Linkbase Document EX-101.PRE XBRL Taxonomy Extension Presentation Linkbase Document + Management contract or compensatory plan or arrangement. (1) Incorporated by reference to exhibit filed with Registrant’s Current Report on Form 8-K (File No. 001-33810), filed with the Commission on November 14, 2007. (2) Incorporated by reference to exhibit filed with Registrant’s Registration Statement on Form S-1 (File No. 333-145185). (3) Incorporated by reference to exhibit filed with Registrant’s Current Report on Form 8-K (File No. 001-33810), filed with the Commission on May 2, 2014. (4) Incorporated by reference to exhibit filed with Registrant’s Current Report on Form 8-K (File No. 001-33810), filed with the Commission on November 6, 2015. (5) Incorporated by reference to exhibit filed with Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 (File No. 001-33810), filed with the Commission on August 5, 2014. (6) Incorporated by reference to exhibit filed with Registrant’s Current Report on Form 8-K (File No. 001-33810), filed with the Commission on June 17, 2014. (7) Incorporated by reference to exhibit filed with Registrant’s Current Report on Form 8-K (File No. 001-33810), filed with the Commission on May 6, 2011. (8) Incorporated by reference to exhibit filed with Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 (File No. 001-33810), filed with the Commission on February 27, 2014. (9) Incorporated by reference to exhibit filed with Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 (File No. 001-33810), filed with the Commission on November 5, 2013. 170 American Public Education, Inc. Exhibit 21.1 List of Subsidiaries Entity American Public University System, Inc. National Education Seminars, Inc. State of Organization West Virginia Ohio 2015 Annual Report 171 Exhibit 23.1 Consent of Independent Registered Public Accounting Firm WeconsenttotheincorporationbyreferenceinRegistrationStatements(333-197086,333-174105,333-151789,  and333-150454)onFormS-8ofAmericanPublicEducation,Inc.ofourreportsdatedFebruary 29,2016,relating  toourauditsoftheconsolidatedfinancialstatementsandthefinancialstatementscheduleandinternalcontrol  overfinancialreporting,whichappearinthisAnnualReportonForm10-KofAmericanPublicEducation,Inc.and  SubsidiariesfortheyearendedDecember 31,2015. /s/RSMUSLLP McLean,Virginia February 29,2016 172 American Public Education, Inc. Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) I,WallaceE.Boston,certifythat: 1. IhavereviewedthisannualreportonForm10-KofAmericanPublicEducation,Inc.; 2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromitto  stateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuch statementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport; 3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,  fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsofthereg - istrantasof,andfor,theperiodspresentedinthisreport; 4. Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosure  controlsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontrolover  financialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:     a) Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedures  tobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,  includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularly  duringtheperiodinwhichthisreportisbeingprepared; b) Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancial  reportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabil - ityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccor - dancewithgenerallyacceptedaccountingprinciples; c) Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthis  reportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheend  oftheperiodcoveredbythisreportbasedonsuchevaluation;and d) Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthat  occurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthe  caseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,the  registrant’sinternalcontroloverfinancialreporting;and 5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinter - nalcontroloverfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’s  boardofdirectors(orpersonsperformingtheequivalentfunctions):   a) Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontrolover  financialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,pro - cess,summarizeandreportfinancialinformation;and b) Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignifi - cantroleintheregistrant’sinternalcontroloverfinancialreporting. Date:February 29,2016 By: /s/Dr.WallaceE.Boston Name: Dr.WallaceE.Boston Title: PresidentandChiefExecutiveOfficer 2015 Annual Report 173 Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) I,RichardW.Sunderland,Jr.,certifythat: 1. IhavereviewedthisannualreportonForm10-KofAmericanPublicEducation,Inc.; 2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromitto  stateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuch statementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport; 3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,  fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsofthereg - istrantasof,andfor,theperiodspresentedinthisreport; 4. Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosure  controlsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontrolover  financialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:     a) Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedures  tobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,  includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularly  duringtheperiodinwhichthisreportisbeingprepared; b) Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancial  reportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabil - ityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccor - dancewithgenerallyacceptedaccountingprinciples; c) Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthis  reportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheend  oftheperiodcoveredbythisreportbasedonsuchevaluation;and d) Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthat  occurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthe  caseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,the  registrant’sinternalcontroloverfinancialreporting;and 5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinter - nalcontroloverfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’s  boardofdirectors(orpersonsperformingtheequivalentfunctions):   a) Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontrolover  financialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,pro - cess,summarizeandreportfinancialinformation;and b) Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignifi - cantroleintheregistrant’sinternalcontroloverfinancialreporting. Date:February 29,2016 By: /s/RichardW.Sunderland,Jr. Name: RichardW.Sunderland,Jr Title: ExecutiveVicePresidentandChiefFinancialOfficer 174 American Public Education, Inc. 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 Theundersigned,theChiefExecutiveOfficerofAmericanPublicEducation,Inc.(“theCompany”),herebycertifies  that,tohisknowledge,onthedatehereof: (a) TheannualreportonForm10-KoftheCompanyfortheperiodendedDecember 31,2015filedonthedate  hereofwiththeSecuritiesandExchangeCommission(“theReport”)fullycomplieswiththerequirementsof  Section13(a)or15(d)oftheSecuritiesExchangeActof1934;and (b) InformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionand  resultsofoperationsoftheCompany. Date:February 29,2016 By: /s/Dr.WallaceE.Boston Name: Dr.WallaceE.Boston Title: PresidentandChiefExecutiveOfficer AsignedoriginalofthiswrittenstatementrequiredbySection906,orotherdocumentauthenticating,acknowl - edging,orotherwiseadoptingthesignaturethatappearsintypedformwithintheelectronicversionofthis  writtenstatementrequiredbySection906,hasbeenprovidedtoAmericanPublicEducation,Inc.andwillbe  retainedbytheCompanyandfurnishedtotheSecuritiesandExchangeCommissionoritsstaffuponrequest. 2015 Annual Report 175 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 Theundersigned,theChiefFinancialOfficerofAmericanPublicEducation,Inc.(“theCompany”),herebycertifies  that,tohisknowledge,onthedatehereof: (a) TheannualreportonForm10-KoftheCompanyfortheperiodendedDecember 31,2015filedonthedate  hereofwiththeSecuritiesandExchangeCommission(“theReport”)fullycomplieswiththerequirementsof  Section13(a)or15(d)oftheSecuritiesExchangeActof1934;and (b) InformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionand  resultsofoperationsoftheCompany. Date:February 29,2016 By: /s/RichardW.Sunderland,Jr. Name: RichardW.Sunderland,Jr Title: ExecutiveVicePresidentandChiefFinancialOfficer AsignedoriginalofthiswrittenstatementrequiredbySection906,orotherdocumentauthenticating,acknowl - edging,orotherwiseadoptingthesignaturethatappearsintypedformwithintheelectronicversionofthis  writtenstatementrequiredbySection906,hasbeenprovidedtoAmericanPublicEducation,Inc.andwillbe  retainedbytheCompanyandfurnishedtotheSecuritiesandExchangeCommissionoritsstaffuponrequest. 176 American Public Education, Inc. Thispageintentionallyleftblank. 2015 Annual Report 177 American Public University System Dr. Patricia Campbell Assistant Provost, Graduate Studies, Research and Innovation Finance and Information Technology Ms. Caroline Simpson Assistant Provost Student Affairs Dr. Jennifer Stephens-Helm Assistant Provost, Assessment and Accreditation Ms. Karen VenDouern-Srba Associate Vice President, Academic and Instructional Technology Mr. Daniel Benjamin Dean, School of Science, Technology, Engineering and Math Dr. Brian Freeland Dean, School of Health Sciences and Interim Dean School of Education Dr. Grace Glass Dean, School of Arts and Humanities Dr. Chad Patrizi Dean, School of Business Dr. Mark Riccardi Dean, School of Security and Global Studies Dr. Kim Jacobs Associate Dean, Core Learning Ms. Michelle Newman Registrar Mr. John Aldrich Vice President, Military, Veterans, and Community College Outreach Mr. Michael S. Harbert Vice President, Strategic Markets and Relationships Mr. Richard B. Locher Executive Director, Center for Corporate and Professional Development Dr. Chris Reynolds Dean Academic Outreach and Program Development Mr. Richard Sunderland, Jr., CPA Executive Vice President and Chief Financial Officer Ms. Tracy Woods Senior Vice President, Chief Information Officer Ms. Melissa Frey Vice President, Finance Operations Ms. Claudine Stubblefield Vice President, Controller Mr. Chris Symanoskie Vice President, Investor Relations Mr. Keith Wellings Vice President, Financial Aid and Compliance Mr. Michael White, CPA Vice President, Budgeting, Tax and Facilities Management Marketing and Enrollment Ms. Carol Gilbert Executive Vice President, Programs and Marketing Ms. Elizabeth LaGuardia Cooper Vice President, Marketing Ms. Terry Grant Vice President, Enrollment Management and Student Support Mr. Jeffrey McCafferty Vice President, Strategic Planning Hondros College of Nursing Mr. Tony F. Mediate Chief Operating Officer and Acting CEO Office of the President Dr. Wallace Boston President and Chief Executive Officer Mr. Thomas Beckett Senior Vice President, General Counsel Mr. Peter Gibbons Senior Vice President and Chief Administrative Officer Dr. David Becher Vice President, Institutional Research Mr. Daniel Casto, CPA Vice President, Associate General Counsel Dr. Russell Kitchner Vice President, Regulatory and Government Relations Ms. Amy Panzarella, SPHR, SHRM-SCP Vice President, Human Resources Ms. Lynn Wallace Vice President, Ombudsperson Ms. Amy Weber, CPA Vice President, Internal Audit Academic Leadership Dr. Karan Powell Executive Vice President and Provost Dr. Gwendolyn Hall Senior Vice President and Associate Provost, Academic Effectiveness and Student Success Dr. Conrad Lotze Senior Vice President and Associate Provost, Academic Affairs Mr. Michael Netzer Senior Vice President and Associate Provost, Academic Program Development and Outreach Mr. Hedi BenAicha Assistant Provost, Library and Instructional Resources 178 American Public Education, Inc. Corporate Information Corporate & Administrative Offices American Public Education, Inc. 111 West Congress Street Charles Town, WV 25414 Phone: (304) 724-3700 Toll Free: (877) 468-6268 Stock Exchange Listing The NASDAQ Global Select Market under the symbol “APEI.” Annual Shareholder Meeting The Annual Meeting of American Public Education, Inc. shareholders will be held at the Gaylord National Resort & Conference Center, 201 Waterfront Street, National Harbor, Maryland 20745 on June 17, 2016 at 7:30 a.m. ET. Investor Relations Chris Symanoskie Vice President, Investor Relations American Public Education, Inc. 111 West Congress Street Charles Town, WV 25414 Phone: (703) 334-3880 csymanoskie@apus.edu Accountants RSM US LLP 1861 International Drive, Suite 400 McLean, VA 22102 Phone: (703) 336-6400 Transfer Agent American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 Attn: Shareholder Services Toll Free: (800) 937-5449 Legal Hogan Lovells US LLP William Intner Harbor East 100 International Drive, Suite 2000 Baltimore, MD 21202 Phone: (410) 659-2700 www.hoganlovells.com Online Information Investor Relations www.AmericanPublicEducation.com APUS Board of Trustees APEI Board of Directors Eric C. “Ric” Andersen, DIRECTOR Partner, Peak Equity Dr. Wallace E. Boston, DIRECTOR President and Chief Executive Officer, American Public Education, Inc. Major General (Retired) Barbara G. Fast, CHAIR Senior Vice President, CGI Federal Jean C. Halle, DIRECTOR Independent Consultant Dr. Barbara L. Kurshan, DIRECTOR Executive Director and Senior Fellow, Academic Innovation, University of Pennsylvania Graduate School of Education Timothy J. Landon, DIRECTOR CEO, Aggrego, LLC Wes Moore, DIRECTOR Author Chairman of Omari Productions Timothy T. Weglicki, DIRECTOR Founding Partner, ABS Capital Partners Dr. Wallace E. Boston, MEMBER President and Chief Executive Officer, American Public Education, Inc. General (Retired) Alfred M. Gray, CHAIRMAN EMERITUS AND MEMBER Chairman, Board of Regents, Potomac Institute for Policy Studies Chancellor, Marine Military Academy 29th Commandant of the Marine Corps Dr. Lucie Lapovsky, MEMBER Principal, Lapovsky Consulting Former President, Mercy College Dr. Katy E. Marre, MEMBER Professor, University of Dayton Former Assoc. Vice President, Graduate Studies and Research, University of Dayton Major General (Retired) Robert L. Nabors, MEMBER Executive Advisor, Booz Allen Hamilton Dr. J. D. Polk, MEMBER Senior Medical Officer, National Aeronautics and Space Administration (NASA) Vice Admiral (Retired) Dr. Ann E. Rondeau, VICE-CHAIR Independent Consultant Lieutenant General (Retired) Richard G. Trefry, MEMBER Senior Fellow, Institute of Land Warfare Former Program Manager, The Army Force Management School Dr. Katherine Zatz, CHAIR Vice President, Allpar LLC Member, Registry of College Presidents 6 American Public Education, Inc. 2015 Annual Report 3 111 WEST CONGRESS STREET‚ CHARLES TOWN‚ WEST VIRGINIA 25414 www.americanpubliceducation.com VISIT OUR SOCIAL COMMUNITIES FOR APUS, AMU & APU www.apus.edu/communities VISIT OUR SOCIAL COMMUNITIES FOR HONDROS COLLEGE OF NURSING facebook.com/HondrosCollegeNursingPrograms twitter.com/HondrosNursing 

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