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