American Public Education
Annual Report 2016

Plain-text annual report

111 WEST CONGRESS STREET‚ CHARLES TOWN‚ WEST VIRGINIA 25414 www.americanpubliceducation.com Higher education that makes a difference AMERICAN PUBLIC EDUCATION, INC. 2016 ANNUAL REPORT We have a proud history of serving military and public service professionals, as well as the community at large. Our students come to us primarily as working adults to expand their knowl- edge, to improve their skills, to pursue new opportunities—and to achieve their full potential. As graduates, they’re out there making a difference in the world. This is APEI. We change lives through higher education. 2 SHAREEMA GRANVILLE, M.A. (with honors), Management, APU (2014) AMERICAN PUBLIC EDUCATION, INC. 2016 ANNUAL REPORT 1 Dear Stakeholder DR. WALLACE E. BOSTON, PRESIDENT & CEO American Public Education, Inc. (APEI) serves a unique purpose. Students come to our insti- tutions of higher learning to advance in their careers and pursue new opportunities. Many of them work in service to others in the military, public service and nursing professions, and many are working adults who are supporting their families and communities as they pursue their education. By providing them with a quality, affordable education and by supporting their success, we’re helping them change their own lives and the lives of others. APEI TODAY APEI encompasses the American Public University System (APUS) and Hondros College of Nursing. In 2016, Hondros made great progress in attracting new students while enhancing the quality of its programs and strengthening its overall student population. In fact, new student enrollment for the 2017 winter term increased 22 percent compared to prior year. Today, Hondros serves more than 1,700 students on five Ohio campuses; the college opened its fifth campus in suburban Toledo in January 2017. With a growing reputation and 5,600 alumni, Hondros has partnered with several clinical networks, and built close relationships with more than 30 com- munity healthcare organizations to provide staffing solutions and education benefits to their employees. I am proud of the progress the college made over the past year. However, we still have work to do. For example, Hondros is pursuing initial accreditation by the Accrediting Bureau of Higher Education Schools (ABHES), a national accreditor for allied health schools, a significant step for us. Today, APUS continues to earn recognition for quality and inno- vation. At the start of 2017, APUS was awarded its fifth Effective Practice Award from the Online Learning Consortium, an unprecedented achievement. In addition, in 2017, APUS received the “Best for Vets Colleges” distinction from Military Times for 2 AMERICAN PUBLIC EDUCATION, INC. 2016 ANNUAL REPORT 1 “ I knew when I left the Marine Corps I was going to be a firefighter. My education has opened so many doors for me.” EARL DAY, B.S. (with honors), Fire Science Management, AMU (2012) A Degree of Difference U.S. Marine Corps veteran and AMU alumnus Earl Day has a deeply rooted passion for helping others. He served his country in the military and now he’s serving his community as a firefighter and EMT. “I thought the best way to make myself competitive would be with a degree in fire science management,” he says. “AMU’s classes have given me extensive knowledge beyond what the Fire Academy would have.” APUS ENROLLMENT BY DEGREE LEVEL ■ 59% Bachelor’s ■ 16% Associate’s ■ 16% Master’s ■ 9% Certificate/other APUS ENROLLMENT BY SCHOOL the third consecutive year and U.S. News and World Report ranked APUS bachelor’s programs among the best nationally for the fifth consecutive year in its 2017 ranking of online institutions. Originally founded in 1991 to provide affordable education to a mobile military, APUS today has grown to serve a diverse array of students and offer a full complement of programs including 200 degree and certificate programs. I am pleased to report that APUS conferred degrees upon 11,000 hard-working students in 2016. These graduates joined the ranks of more than 70,000 AMU and APU alumni worldwide. That is the true ■ 26% Security & Global measure of our success. Studies ■ 23% Business ■ 23% Arts & Humanities ■ 15% Science, Technology, Engineering & Math ■ 10% Public Service and Health ■  3% Education Quality and affordability have always been fundamental hallmarks of an APUS education. We believe the cost of tuition, books and fees at APUS remains significantly below in-state costs at four- year institutions. We keep costs down through our efficient online approach and programs such as our Undergraduate Book Grant, which provides textbooks and course materials at 2 AMERICAN PUBLIC EDUCATION, INC. 2016 ANNUAL REPORT 3 no cost to our undergraduate students. This focus on affordability ANNUAL TUITION & FEES* provides immeasurable benefits to the families and communities we serve. Our unwavering focus on quality has helped advance APUS’ reputation throughout the higher education community. The distinguished faculty of APUS consists of scholar practitioners, leaders in their respective disciplines who bring a real-world experience to the classroom. They reported publishing more than 400 articles, papers or books; earning approximately 50 awards for professional practice, research and community service; and presenting at more than 500 conferences, work- shops and panels in 2016. APUS is a community of teachers and learners committed to excellence. We take great pride in the fact that, in 2016, four APUS students were named finalists in the Presidential Manage- ment Fellows (PMF) program. Overall, since 2012, APUS has had 38 PMF finalists. PMF receives 8,000 applications for its program each year, making it one of the most prestigious and competitive government opportunities in leadership development. A pioneer in online higher education, APUS offers a compelling learning environment—small class sizes, flexibility, an engaging curriculum and a high level of faculty support. The curriculum includes specialized programs such as cybersecurity, emergency & disaster management, and transportation logistics that attract highly motivated students—as well as classes such as Asymmetric Warfare, Space Studies, and Explosive Ordinance Disposal that might be hard to find elsewhere. Consistently high levels of student satisfaction and alumni referrals are a testament to the quality and relevance of our programs and levels of student engagement. COLLEGE READINESS AND PERSISTENCE In recent years, we have increased our emphasis on improving retention and attracting more college-ready students to the university. As part of this effort, APUS implemented changes to the enrollment process and introduced assessments for new applicants. In addition, each year we add new programs and enhancements aimed at attracting students and increasing engagement, including rich media, simulations and other enhancements. $270 PER CREDIT HOUR $8,600 $250 PER CREDIT HOUR $7,500 $350 PER CREDIT HOUR $6,600 $325 PER CREDIT HOUR $5,850 WITH MILITARY GRANT WITHOUT GRANT WITH MILITARY GRANT WITHOUT GRANT UNDERGRADUATE (30 CREDITS ANNUALLY) GRADUATE (18 CREDITS ANNUALLY) * Annual estimates are based on published tuition and technology fees assuming 30 undergraduate or 18 graduate-level semester credit hours. Technology fees are $50 per course and are covered by APUS grants for U.S. active-duty military service members, and for Guard and Reserve personnel when using military tuition assistance. 95% APUS ALUMNI SURVEYED respondents were either completely satisfied or very satisfied with education received.1 91% APUS SENIORS SURVEYED respondents would probably or definitely chose APUS again if they could start over.2 1. APUS, 2016 End of Program Survey 2. National Survey of Student Engagement (NSSE), 2016 Survey 2 AMERICAN PUBLIC EDUCATION, INC. 2016 ANNUAL REPORT 3 TALENT DEVELOPMENT PROFESSIONALS SAY3: 56% Skills of current work- force do not match changes in company strategy, goals, markets or business models. 48% When promoting internal candidates for certain types of jobs, there is a lack of requisite skills. 45% When hiring for certain types of jobs, there are too few qualified candidates. 3. 2015 ATD Skills Gap Survey (p.5) At the same time, we have instituted a number of initiatives and innovations to drive even greater student persistence and success. For example, we introduced a Learning Relationship Management (LRM) system that supports student engagement and mentorship. In addition, we recently added a predictive analytics tool that helps faculty and advisors identify and engage at-risk students so they can provide those students with additional resources and support. In 2016, for the third year in a row, we saw improvement in student persistence. For the three months ended December 31, 2016, the first-course pass and completion rate for APUS under- graduate students using Federal Student Aid increased by 19% compared to the same period last year. We believe this continued improvement in persistence may be an indicator that our efforts to attract and retain students with greater college readiness are having an impact. BUILDING OUR WORKFORCE DEVELOPMENT CAPABILITIES Today, U.S. employers are experiencing a substantial skills gap. They report increased difficulty filling certain types of jobs with qualified candidates, as well as a growing need for skills devel- opment in certain fields. As an example, in a 2015 study by the Association for Talent Development (ATD), 84% of those surveyed across a variety of industries reported a skills gap in their organizations. Given our history of building partnerships with corporations and organizations, we believe APUS is well positioned to bridge the skills gap through workforce development programs that address the specific needs of today’s employers. We’re moving forward with this strategic objective on a number of fronts. We continue to expand our program offerings in areas where demand is growing and where corporations struggle to find talent to fill job openings. In 2016, we launched seven new degree programs in business analytics, technical management and accounting—areas where our corporate partners tell us they can find good people but many of them lack specific skills. We also continue to add new corporate and strategic partners. In 2016, new partnerships included Holland America Group, the U.S. Postal Service and National Public Employees Alliance, the only national affinity group dedicated to the public service sector. In addition, APUS recently launched MomentumTM, an initiative to provide competency-based degree programs that address the 4 AMERICAN PUBLIC EDUCATION, INC. 2016 ANNUAL REPORT 5 skills gap in specific fields. We believe this program is one way to help our partners advance their workforce and to help students advance their careers. Through our Momentum program, participating students who possess work experience in specific fields can potentially test out of certain courses and further benefit from personalized learning content and guidance from faculty mentors. Going forward, we are interested in partnering with, investing in and potentially acquiring businesses that will help us address the growing demand for workforce development. In an environment where more and more traditional universities are getting into the field of online education, we belief this strategy will open up new opportunities. APEI is well positioned to pursue such investments. For the twelve months ending December 31, 2016, cash and cash equivalents increased to $146.4 million despite a decline in total revenues and net income. That represents an increase of $40.7 million over the prior year. Total assets increased to $313.7 million. That cash reserve gives us the financial strength to explore investments “ My bachelor’s degree in nursing from APU will make me more marketable. It is certainly well respected in the community.” SHANNON O’BRIEN, B.S., Nursing, APU (2017) Ready When You Are 4 AMERICAN PUBLIC EDUCATION, INC. 2016 ANNUAL REPORT 5 Shannon O’Brien began her nursing career in the critical care department of a shock trauma center and now works in the radiation oncology division of a large medical center in Maryland. “A lot of bigger hospital organizations prefer that nurses come in with a bachelor’s degree,” she says. “As an oncology nurse, I would like to dedicate my life to helping others—which my degree will allow me to do.” in nursing and healthcare education, as well as other education and training opportunities. 2016 APPOINTMENTS In July, Dr. Karan Powell was named president of APUS. Dr. Powell has more than 30 years of experience in higher education and online learning, including leadership development, organizational transformation within business, government and non-profit sectors. Prior to her appointment, she had served as Provost of APUS since 2011 and has held several other senior academic leadership roles within the university. Dr. Powell is committed to expanding APUS’s reputation as a premier provider of higher education and as a partner in fostering the success of its students. In 2016, we made a number of other key appointments to support our strategic objectives. We named a new Provost, who will focus on learning outcomes assessments, new program and faculty development, as well as curriculum innovation and advancement. Improving retention and developing new programs will be at the forefront of his agenda. Our top priority in 2017 is stabilizing student enrollment at APUS. To help lead the advancement of our enrollment efforts, we recently appointed a new SVP and Chief Operations Officer with a strong background in enrollment management. This new position has responsibility for re-engineering our enrollment management processes to improve conversion rates of incoming Educating Tomorrow’s Leaders DR. KARAN POWELL, PRESIDENT, APUS “ Our vision is to continue to pursue our mission of educating and pre- paring tomorrow’s leaders. That’s our mandate—which is especially important in today’s complex world, with all its challenges. We are creating students as well as the onboarding experience. Within APEI, we a learning environment that engages and supports our students—and helps them succeed. I think that’s our greatest responsibility.“ appointed a new chief innovation officer. She will play a central role in advancing our long-term strategy of investing in health- care education and education companies aimed at bridging the skills gap and serving our nation’s workforce development needs. IN CLOSING APEI has a 25-year history of innovation as a provider of higher education in the digital space. During that period, our world has changed dramatically. Today, technology is how people connect, how they find jobs, how they do their work, how they communi- cate. Based on a 2015 study, fully 87% of college students use a laptop to do school work and 78% of elementary school students regularly use a tablet.4 The current generation of elementary 4. Pearson Student Mobile Device Survey, 2015 6 AMERICAN PUBLIC EDUCATION, INC. 2016 ANNUAL REPORT 7 “ My education at AMU helped me better understand the strategic planning and decision making that goes into leading a business.” AL HOPPER, MBA, American Military University (2015) The Path to Success A veteran of the U.S. Army, Al Hopper leveraged his education to co-found SocialPath Solutions, where he helps clients develop their social media customer service operations. Today, he’s building a business and a reputation. In 2016, he was featured in a Microsoft e-book outlining the top 10 customer service trends for the year and profiled in the San Antonio Business Journal, which dubbed him a social media guru. school students are digital natives. In today’s world, technology Truly yours, has become an indispensable element of education at every level. Over time, this change has drawn more institutions into the field of online higher education. The competition for college-ready students has increased. Nonetheless, APUS has built a reputation based on certain fundamental strengths that set us apart— including highly specialized programs, experience with best practices in online learning, and an understanding of how to engage students and build supportive relationships in an online setting. We believe our affordability and quality is a key differen- tiator, as is our commitment to the nursing, public service and military communities we serve. As we approach our tenth anniversary as a public company on November 17, we have built an excellent platform not only for continued leadership in providing higher education for adult learners, but also for addressing the growing need for health- care education and workforce development. We look forward to an exciting future and to serving our students with distinction. Dr. Wallace E. Boston, President & CEO American Public Education, Inc. 6 AMERICAN PUBLIC EDUCATION, INC. 2016 ANNUAL REPORT 7 Executive Leadership FROM LEFT TO RIGHT Amy Bevilacqua, Amy Panzarella, Richard Sunderland, Jr., CPA, Dr. Wallace Boston, Dr. Karan Powell, Thomas Beckett Dr. Wallace Boston* President and Chief Executive Officer, American Public Education, Inc. Richard Sunderland, Jr., CPA* Executive Vice President and Chief Financial Officer Dr. Karan Powell* President, American Public University System Thomas Beckett* Senior Vice President, General Counsel Amy Bevilacqua Senior Vice President, Chief Innovation Officer Peter Gibbons* Senior Vice President, Special Projects (not pictured) Amy Panzarella, SPHR, SHRM-SCP* Senior Vice President, Human Resources *denotes executive officers for Rule 3b-7 University Leadership FROM LEFT TO RIGHT Dr. Gwendolyn Hall, Richard Sunderland, Jr., CPA, Dr. Karan Powell, Robert Gay, Dr. Vernon Smith Dr. Karan Powell President, American Public University System Richard Sunderland, Jr., CPA Executive Vice President and Chief Financial Officer Robert Gay Senior Vice President and Chief Operations Officer Dr. Gwendolyn Hall Senior Vice President and Chief of Staff Dr. Vernon Smith Senior Vice President and Provost 8 AMERICAN PUBLIC EDUCATION, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K [×] AnnualReportpursuanttoSection13or15(d)oftheSecuritiesExchangeActof1934 ForthefiscalyearendedDecember 31,2016 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) 2016 Annual Report 9 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  thepriceatwhichthecommonequitywaslastsoldasofJune30,2016,thelastbusinessdayoftheregistrant’s  mostrecentlycompletedsecondfiscalquarter,wasapproximately$361.7million.Forpurposesofthiscalcu - lation,sharesofcommonstockheldbytheregistrant’schiefexecutiveofficer,theregistrant’schieffinancial  officer,andtheregistrant’sdirectorswereexcluded.Exclusionofsuchsharesheldbyanypersonshouldnotbe  construedtoindicatethatthepersonpossessesthepower,directorindirect,todirectorcausethedirectionof  themanagementorpoliciesoftheregistrant,orthatthepersoniscontrolledbyorundercommoncontrolwith  theregistrant. ThetotalnumberofsharesofcommonstockoutstandingasofFebruary 24,2017,was16,205,924. DocumentsIncorporatedbyReference Certainportionsoftheregistrant’sDefinitiveProxyStatementforits2017AnnualMeetingofStockholders  (whichisexpectedtobefiledwiththeCommissionwithin120daysaftertheendoftheregistrant’s2016fiscal  year)areincorporatedbyreferenceintoPartIIIofthisReport. 10 AmericanPublicEducation,Inc. Index PART I Item1. Business Item1A. RiskFactors Item1B. UnresolvedStaffComments Item2. Properties Item3. LegalProceedings Item4. MineSafetyDisclosures PART II Item5. MarketforRegistrant’sCommonEquity,RelatedStockholderMatters  andIssuerPurchasesofEquitySecurities Item6. SelectedFinancialData Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations Item7A. QuantitativeandQualitativeDisclosuresaboutMarketRisk Item8. FinancialStatementsandSupplementaryData Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure Item9A. ControlsandProcedures Item9B. OtherInformation PART III Item10. Directors,ExecutiveOfficers,andCorporateGovernance Item11. ExecutiveCompensation PAGE 5 60 103 103 103 103 104 107 109 135 136 169 169 172 173 173 Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 173 Item13. CertainRelationshipsandRelatedPartyTransactions,andDirectorIndependence Item14. PrincipalAccountantFeesandServices PART IV Item15. ExhibitsandFinancialStatementSchedules 174 174 174 2016 Annual Report 11 SpecialNoteRegardingForward-LookingStatements 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  statementsabout: • changestothesizeofourstudentenrollment,netcourseregistrations,andthecompositionofourstudent  body,includingthepaceofsuchchanges; • ourabilitytomanageandinfluenceourbaddebtexpense; • ourabilitytomaintain,develop,andgrowourtechnologyinfrastructuretosupportourstudentbody; • ourconversionofprospectivestudentstoenrolledstudentsandourretentionofactivestudents; • ourabilitytoupdateandexpandthecontentofexistingprogramsanddevelopnewprogramsinacost-effec - tivemanneroronatimelybasis; • ourplansfor,marketingof,andinitiativesat,NationalEducationSeminars,Inc.,whichwerefertoasHondros  CollegeofNursing; • ourabilitytoleverageourinvestmentsinsupportofourinitiatives,students,andinstitutions; • ourmaintenanceandexpansionofourrelationshipsandpartnershipswiththeUnitedStatesArmedForces,  corporations,andotherorganizations,andthedevelopmentofnewrelationshipsandpartnerships; • actionsbytheDepartmentofDefenseorbranchesoftheUnitedStatesArmedForces; • federalappropriationsandotherbudgetarymattersthataffecttheabilityofourstudentstofinancetheir  educationthroughprogramsadministeredbytheDepartmentofEducation,theDepartmentofDefense,and  theDepartmentofVeteransAffairs; • ourabilitytocomplywiththeextensiveregulatoryframeworkapplicabletoourindustry,includingTitleIVof  theHigherEducationActof1965,asamended,andtheregulationsthereunder,aswellasstatelawandregula - tionsandaccreditingagencyrequirements; • ourabilitytoundertakeinitiativestoimprovethelearningexperienceandattractstudentswhoarelikelyto  persist; • 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. 12 AmericanPublicEducation,Inc. PartI Item1. Business AmericanPublicEducation,Inc.,orAPEI,providesonlineandon-campuspostsecondaryeducationtoapprox - imately90,000studentsthroughtwosubsidiaryinstitutions.InthisAnnualReport,“we,”“our,”“us,”“the  Company”andsimilartermsrefertoAPEIanditssubsidiaryinstitutionscollectivelyunlessthecontextindicates  otherwise. ThisItem1ofourAnnualReportcontainsa“CompanyOverview”sectionthatprovidesinformationaboutour  subsidiaryinstitutions,reportingsegments,ourhistory,thepostsecondaryeducationalmarket,competition,  competitivestrengths,strategicapproach,executiveofficers,seasonalityandavailableinformation.Item1also  containsasectionentitled“OurInstitutions”thatprovidesinstitution-specificinformationregardingeachofour  twosubsidiaryinstitutions,anda“RegulatoryEnvironment,”sectionthatprovidesinformationonsomeofthe  regulationsthatimpactpostsecondaryeducationalinstitutions. CompanyOverview SUBSIDIARY INSTITUTIONS Ourinstitutionsofferprogramsdesignedtoprepareindividualsforproductivecontributionstotheirprofessions  andsociety,andtoofferopportunitiesthatmayadvancestudentsintheircurrentprofessionorhelpthempre - parefortheirnextcareer.Ourwholly-ownedoperatingsubsidiaryinstitutionsinclude: • AmericanPublicUniversitySystem,Inc.,orAPUS,providesonlinepostsecondaryeducationtoapproximately  88,700adultlearnerswithahistoryofservingtheneedsofthemilitaryandpublicsafetycommunities.APUS  isanoverarchinguniversitysystem,withtwocomponents:AmericanMilitaryUniversity,orAMU,whichis  focusedoneducatingmilitarystudents,andAmericanPublicUniversity,orAPU,whichisfocusedoneducating non-militarystudents. APUSoffers106degreeprogramsand103certificateprogramsindiversefieldsofstudy,includingbusiness  administration,healthscience,technology,criminaljustice,educationandliberalarts,aswellasnational  security,militarystudies,intelligence,andhomelandsecurity.APUSemploysapproximately390full-timefac - ultymembersand1,650part-timefacultymembersandhasregionalaccreditationfromtheHigherLearning  Commission,orHLC. AlthoughAPUS’sfocushasexpanded,APUScontinuestohaveanemphasisonitsrelationshipwiththemilitary  community.AsofDecember31,2016,approximately54%ofAPUS’sstudentsself-reportedthattheyservedin  themilitaryonactivedutyatthetimeofinitialenrollment. • NationalEducationSeminars,Inc.,whichwerefertoasHondrosCollegeofNursing,orHCON,providesnurs - ingeducationtoapproximately1,300studentsacrossfivecampusesintheStateofOhio,aswellasonline.  HCONoffersaDiplomainPracticalNursingandanAssociateDegreeinNursing.Thecampusesarelocatedin  thesuburbanareasofCincinnati,Cleveland,Columbus,Daytonand,beginninginJanuary2017,Toledo.HCON  alsooffersanonlineRegisteredNursetoBachelorofScienceinNursingcompletionprogram,whichwerefer  toastheRN-to-BSNProgram,predominantlytostudentsinOhio. HCONisnationallyaccreditedbytheAccreditingCouncilofIndependentCollegesandSchools,orACICS,and  theRN-to-BSNProgramisaccreditedbytheCommissiononCollegiateNursingEducation,orCCNE.HCON’s  locationsandprogramsareapprovedbytheOhioStateBoardofCareerCollegesandSchoolsandtheRN-to- BSNProgramisapprovedbytheOhioDepartmentofHigherEducation.Inaddition,theDiplomainPractical  2016 Annual Report 13 NursingandAssociateDegreeinNursingprogramsareapprovedbytheOhioBoardofNursing.TheRN-to- BSNprogramisfullyonline,whiletheDiplomainPracticalNursingandAssociateDegreeinNursingoffer  portionsoftheprogramonline.HCONemploysapproximately90full-timefacultymembersand40part-time  facultymembers. REPORTING SEGMENTS Ouroperationsareorganizedintotworeportingsegments: • American Public Education Segment, or APEI Segment. Thissegmentreflectstheoperationalactivitiesof  APUS,othercorporateactivities,andminorityinvestments. • Hondros College of Nursing Segment, or HCON Segment. Thissegmentreflectstheoperationalactivitiesof HCON. OurconsolidatedrevenuefortheyearendedDecember31,2016,decreasedto$313.1millionfrom$327.9million fortheyearendedDecember31,2015.Netincomewas$24.2millionfortheyearendedDecember31,2016,  comparedtonetincomeof$32.4millionfortheyearendedDecember31,2015.Financialinformationregard - ingeachofourreportingsegments,includinginformationregardingsegmentrevenue,netincomeandtotal  assetsforeachofthelastthreefiscalyears,canbefoundinourConsolidatedFinancialStatementsfoundin  Item8ofPartIIofthisAnnualReport;financialinformationisreportedinthisAnnualReportin“Management’s  DiscussionandAnalysisofFinancialConditionandResultsofOperations,”“SelectedFinancialData,”and  “FinancialStatementsandSupplementaryData.” OUR HISTORY In1991,retiredMarineCorpsofficerJamesP.EtterfoundedAmericanMilitaryUniversity,orAMU,inVirginia,  offeringdistancegraduateeducationtoamobilepopulationofmilitarylearnerswithuniqueneeds.Overtime,  undergraduateandgraduateprogramswereaddedtohelppreparestudentsforleadershiprolesbothwithin  themilitaryandfortransitiontopost-militarylifeandcareers. In2002,AMUwasreorganizedintoaholdingcompanyandAPEIwasformedandincorporatedinDelawareas  theparentofAPUS,whichwasorganizedwithtwocomponents:AMUandAmericanPublicUniversity,orAPU,  whichwascreatedtoprovidethesamequality,affordableandflexibleeducationtoabroaderaudienceofadult  learners. In2003,APUSmovedtoitscurrenthomeinCharlesTown,WestVirginia. In2006,APUSreceivedregionalaccreditationfromtheHigherLearningCommission,orHLC. In2007,APEIbecameapubliclytradedcompanyonNASDAQ. In2011,HLCreaffirmedaccreditationforAPUSthroughthe2020-2021academicyear. In2013,APEIacquiredHCON,withcampuseslocatedinOhio. Today,APUSisoneofthelargestprovidersofonlinehighereducation,offeringabroadarrayofprogramstostu - dentsenrolledworldwide,includingAssociate,Bachelor’sandMaster’sdegrees,alongwithUndergraduateand  Graduatecertificates,dedicatedtopreparingstudentsforexcellenceinservice,leadershipandachievement. POSTSECONDARY EDUCATION MARKET STRUCTURE AND MARKET OPPORTUNITIES ThepostsecondaryeducationsectorintheUnitedStatesislarge,withover4,000institutions,diverseinitsbusi - nessmodelsandfragmentedinthatnooneinstitutionhasasignificantshareofthesector.Mostpostsecondary  14 AmericanPublicEducation,Inc. institutions,includingfor-profitpostsecondaryinstitutions,regardlessofwheretheyarelocated,howtheyare  organized,andwhotheyserve,facecertainkeydriversofchange,including: • continuedfocusonthecostofacollegeeducationandtheresultingimpactonaccess;  • concernoverthehighlevelofindebtednessthatcollegestudentstakeon;  • largenumberofstudentswithsomecollegecredit,butnodegree;  • questionsaboutthequalityofacademicprogramsandtheabilitytotranslatethevalueofapostsecondary  educationintoeconomicmobility;and • risingnumbersofadultlearnerswithadifferentiatedsetofneedsfromtraditionalagestudents. Webelievethatwithnearly2.1millionactive-dutymilitaryandreservists,themilitarycommunitywillcontinue  tobeasignificantmarketforonlineeducation.Becauseofirregularschedules,geographicmobilityandaccess  totuitionassistancefunding,webelieveservicememberswillcontinuetoseekrespecteduniversitiesthatpro - videmilitary-focusedsupportservicescoupledwithanonlinecurriculumthatisdesignedtopreparegraduates  forbothcareeradvancementandemploymentoutsideofthemilitary.Aspartoftheirlongstandingtradition,  militaryleadersoftenencourageservicememberstousetheirearnededucationbenefits,andtoenhancetheir  qualificationsforpurposesofthemilitary’scompensation,promotion,assignmentandperformancesystems. Electedandprivate-industryleadersareheavilypromotingnewpoliciesandcampaignstofacilitatethehiring  ofveterans,supportingatransitionfrommilitaryservicetotheworkforceandstimulatingdemandforonline  education.Asthesepolicieslowerbarrierstonon-militaryjobsandfacilitateveteran-ownedbusinesseswinning  federalcontracts,onlineuniversitiesoffervaluableeducationalopportunitiesforconstituentsregardlessof  wheretheylive,workorlearn. TheDepartmentofDefense,orDoD,uniformtuitionassistancepolicyoffersservicemembersavarietyof  affordableeducationandfinancialaidoptions.Additionally,veterans(andcertainservicemembers)areentitled  toeducationalbenefitsfromtheDepartmentofVeteransAffairs,orVA.Formoreinformation,referto“Our  Institutions”and“RegulatoryEnvironment—StudentFinancingSourcesandRelatedRegulations/Requirements.” Onanationallevel,theexpandinghealthcaresectorisdrivingdemandfornursingeducation.Accordingtothe  U.S.BureauofLaborStatistics’OccupationalOutlookHandbook,2016-17Edition,jobopportunitiesforlicensed  practicalnursesandregisterednursesareexpectedtogrowapproximately16%between2014and2024,faster  thantheaveragegrowthforalloccupations.ThedemandfornursesinOhioissimilartonationaldemand.  AccordingtotheOhioDepartmentofJobandFamilyServices’2022OhioJobOutlookreport,jobopportunities  forlicensedpracticalnursesandregisterednursesareexpectedtogrow21.6%and15.4%,respectively.Despite  anticipatedgrowthinjobopportunities,a2014reportfromtheAmericanAssociationofCollegesofNursing  statedthatover53,000qualifiedapplicationswerenotacceptedbyentry-levelbaccalaureateprogramsatnurs - ingschoolsin2013.Thesestatisticssuggesttheremaybeunmetdemandfromqualifiedstudentsfornursing  educationalprograms. COMPETITION APUScompetesprimarilywithnot-for-profitpublicandprivatetwo-yearandfour-yearcolleges,aswellasother  for-profitschools,particularlythosethatofferonlinelearningprograms.WebelieveAPUS’sprimarycompeti - torsinclude:AshfordUniversity,CapellaUniversity,GrandCanyonUniversity,LibertyUniversity,SouthernNew  HampshireUniversity,StrayerUniversity,UniversityofMarylandUniversityCollege,andflagshipandmid-size  stateuniversitiesofferingdegreeprogramsonline. WebelievethatthecompetitivefactorsintheU.S.postsecondaryeducationmarketinclude: 2016 Annual Report 15 • alignmentofacademicprogramstohighgrowthsectorsofthejobmarket; • affordability; • breadthofdegreeofferings; • flexibilityindeliverymodels; • experiencedfacultyengagedinthepracticeoftheirfields; • levelofsupportforstudentsuccess; • effectivenessofmarketingeffortsdirectedatattractingstudents;and • strongcompliancetrackrecord. Ourinstitutionscontinuetofacesignificantcompetitionandotherchallengesthatimpactthecompetitiveenvi - ronment.Thesechallengesincludethoserelatedtofederalpoliciesgoverningfor-profitinstitutionsandfinancial  aidthateitherapplyonlytofor-profitinstitutionsandexcludenot-for-profitandpubliceducation,suchasthe  90/10Rule,orthatineffectimposemorerestrictionsonfor-profitinstitutionsthanonnot-for-profitandpublic  institutionsbasedonthenatureoftherequirements,suchasgainfulemploymentregulations. Mostpublicinstitutionsareaidedbysubstantialgovernmentsubsidies.Publicandprivatenot-for-profitinstitu - tionsbenefitfromgovernmentandfoundationgrants,inadditiontotax-exemptstatus,tax-deductiblecontri - butionsandotherfinancialresourcesnotwidelyavailabletofor-profitinstitutions.Manypubliccompetitorsalso  benefitfromlongstandingnamerecognitionandareabletodirectlyrecruitstudentsinamorecost-effective  manner,especiallyintheirlocalmarkets. Wealsoexpectourinstitutionstocontinuetofacegreatercompetitionfromanincreasingnumberofinstitu - tionsshiftingtheirdeliverymodelstoincludeonlineeducationprograms,aswellasfromnon-traditionaloffer - ingsprovidedbybotheducationalinstitutionsandnon-traditionalproviders.Inrecentyears,otherinstitutions,  includingcompetinginstitutions,havestartedprovidingnon-traditional,credit-bearingandnon-credit-bearing  educationprograms,includingmassivelyopenonlinecourses,orMOOCs,withoutchargeoratlowcosts.We  havealsoobservedanincreaseininstitutionsofferingcompetency-basedprograms,whichpermitstudents  toprogressinaprogrambydemonstratingthattheyhaveachievedcertainskillsorknowledgeratherthanby  earningcredithours.Webelievethatourinstitutionswillcontinuetofacenewcompetitionfromsuchprograms,  includingcompetitionfromlowercostalternatives.Additionally,non-traditionalcompetitors,suchasentities  offeringcodingbootcampsandmicro-credentials,areofferingnewalternativeeducationalpaths.Whileweare  workingtodevelopourownalternativesinsomeoftheseareas,includingwithrespecttocompetency-based  educationatAPUS,thereareotherinstitutionswithprogramsthataremorefullydeveloped,andourofferings  maynotreceivemarketacceptanceorqualifyforaccesstoTitleIVprograms.Thecompetitionfromanincreased  numberofschoolsshiftingtheirdeliverymodelstoincludeonlineeducationprogramsandfromnon-traditional  offeringsisaccelerating,includingbecausetheonlineexperimentsthatmanyinstitutionsbeganseveralyears  agoarenowbecomingmoremainstreamandbecauseagreaternumberofstudentsandemployersareseeking  alternativestoatraditionalformat. Withinthepostsecondaryeducationmarketgenerally,weanticipateincreasedcompetition,includingbecause  thetotalpostsecondarystudentpopulationhasbeendeclining.Thecombinationofreducedgrowthordeclines  inthepostsecondarystudentpopulation,increasedcapacityinthepostsecondaryeducationmarketand  greatercompetitionfromnon-traditionalofferingswillfurtherintensifycompetition,andanyfurtherdecline  inthenumberofenrollmentscouldhaveanadverseeffectonourresultsofoperations.Formoreinformation  oncompetitionwithinthepostsecondaryeducationmarket,see“RiskFactors—RisksRelatedtoAttractingand  RetainingStudents.” 16 AmericanPublicEducation,Inc. COMPETITIVE STRENGTHS Today’sadultlearners,whethermilitaryorcivilian,areoftenworkingwithextendedorirregularworkschedules,  havefamilyobligations,travelorrelocatefrequently,andoftenhavelimitedfinancialresources. TheLuminaFoundationpublished“WhoisToday’sStudent,”whichaggregatedkeyfactsdescribingtoday’spost - secondarystudents,wholargely: • Areolderthan25andarejugglingmorethanjusteducation—38%ofcollegestudentstodayareolderthan25,  25%areraisingchildrenwhilepursuingtheireducation; • Aretryingtofitcollegealongsideworkobligations—58%areworkingwhiletheyareenrolled,40%attend  schoolpart-time; • Arebalancinglivingexpenseswiththerisingaveragenationalcostofcollege—42%oftoday’scollegestudents  arelivingnearorbelowthepovertyline,25%ofrecipientsofaBachelor’sdegreegraduatewithatleast  $24,000indebt; • Arestrugglingtograduate—53%ofstudent-parentsleavecollegewithnodegree,11%oflow-income,first-gen- erationcollegestudentshadattainedabachelor’sdegreewithinsixyears. Whilemanyinstitutionsarestrugglingtodeterminehowtomeettheneedsoftoday’sstudents,bothAPUSand  HCONhavebeensuccessfullyservingstudentswiththeseprofilessincetheirfounding.  Thesourcesofourinstitutions’competitivestrengthsinclude: • Academic Relevance and Excellence. BothAPUSandHCONofferprogramsalignedtoareasofhighgrowth  inthejobmarketassupportedbydataprovidedbytheBureauofLaborStatisticsandnon-governmental  organizations.Thisisparticularlytrueinthehealthcare,technologyandbusinesssectors,andincybersecu - rity,nursingandhealthinformationmanagementprograms.APUSalsooffersaliberalartscurriculumthat  developsthe“softskills”indemandbyemployers.APUSutilizesIndustryAdvisoryCouncils,orIACs,toeval - uateandinformtheoverallandprogram-specificacademiclearningstrategyregardingcareerrelevanceof  programsanddegrees.ThisfacilitateseffortstoconnectAPUS’scurriculumtotheindustriesandthestudents  itservesandtodeliverahigh-qualityacademicproduct.ThedepthandbreadthofAPUS’sprogramofferings  aredesignedtoeffectivelyaddressthediverseneedsofstudentswhoenterintoeducationprogramswith  vastlydifferenteducationalandcareerbackgroundsandgoals.Similarly,HCONfocusesoneducationalrele - vanceandexcellencebyhiringexperiencedindustryprofessionalsasfacultywhileenhancingstudentservices  toassiststudentswithcourses,labs,andclinicalofferings.HCON’sfacultyincludesindividualswithresearch  experienceandspecializednursingcredentials.Further,HCONhasinvestedinaninnovativeconcept-based  curriculumandsimulationlabstoenhancethestudentlearningexperienceandimprovestudentsuccess.Our  institutionsarecommittedtocontinuallyassessingandenhancingouracademicprogramsandourstudent  servicestoofferahigh-qualityeducationandsupportsuccessfuloutcomesforourstudentsandgraduates. • Affordable Tuition. Fromitsfounding,APUSsettuitiontoalignwithtuitionassistanceprogramsavailable  tomembersofthemilitaryandtoday,tuitionatAPUSremainsamongthelowestinthesector,therefore  notrequiringstudentstotakeonasmuchindebtednessastheymightatanotherinstitution.Thecombined  tuitionandfeesatAPUSare,inalmosteverycase,lessexpensiveforundergraduateandgraduatestudents  thantheaveragein-statecostatapublicuniversity.This,whencombinedwithAPUS’sundergraduatebook  grant,whichisprovidedtoallundergraduatestudents,resultsinsignificantsavingsforstudents.Fornearly15  years,APUSdidnotincreaseundergraduatetuition.FollowingatuitionincreasethatwaseffectiveinJuly2015,  undergraduatetuitionatAPUSis$270percredithour,or$810perthree-creditcourse.Afull121-credithour  undergraduatedegreemaybeearnedfor$32,670intuitioncostsatcurrenttuitionrates.FollowingtheJuly  2015tuitionincrease,APUS’sgraduatetuitionis$350percredithour,or$1,050perthree-creditcourse,which  2016 Annual Report 17 meansmanyAPUSgraduatedegreesmaybeearnedfor$12,600intuitionatcurrentrates.APUSprovidesa  tuitiongranttosupportstudentswhoareU.S.Militaryactive-dutyservicemembers,Guard,Reserve,military  spousesanddependents,andveterans.Forsuchindividuals,tuitionissetatpre-July2015rates,withunder - graduatecoursetuitionat$250percredithour,andgraduatecoursetuitionat$325percredithour.APUSesti- matesthatthetuitiongrantappliedtoapproximately75%ofitstotalnetcourseregistrationsin2016.Because  ofthetuitiongrant,APUS’sundergraduatetuitionis100%coveredbyDoDtuitionassistanceandapproxi - mately80%ofgraduatetuitioniscovered.TuitionandfeesatHCONarealsodesignedtobeaffordableand  competitivewiththoseofsimilarinstitutionsofferingthesamelevelofflexibility,accessibility,andstudent  experience. • Flexible Delivery and Frequent Entry Points, Focused on Adult Learners. APUSdesignscoursesandprograms specificallyforonlinedelivery.APUSrecruitsandpreparesitsfacultyexclusivelytodeliveronlineinstruction.  Becausestudentsarelocatedworldwide,APUSfocusesonprovidingasynchronous,interactiveeducationto  studentsthatfitstheirbusylives.APUSoffersmonthlystarts,givingstudentstheopportunitytobegintheir  studiesatatimethatworksforthem.Ouracademicsupportofferings,fromadvisingandmentoringtolibrary  servicesandcareerplanning,areindividualizedtostudents’needs,designedtosupportthemateachstep  oftheireducationjourneyandinaformatthatworksbestforthem.Theseofferingsrangefromself-service  accesstoresourcesandvirtualcareerfaireventstolivevideochatsandpersonalizedcoachingsessionswith  expertsintheapplicablediscipline.HCONoffersprogramsthataccommodateworkingadultsbyofferinga  fullyonlineRN-to-BSNprogram,blendedonlineandin-personcoursesfortheDiplomainPracticalNursing  andAssociateDegreeinNursingprograms,anddaytimeandevening/weekendoptionsforin-personclasses. • History of serving the military community. AlthoughAPUS’sfocushasexpanded,theuniversitysystem  continuestohaveastrongemphasisonitsrelationshipwiththemilitarycommunityandisoneofthelead - ingprovidersofpostsecondaryeducationtomembersofthemilitarycommunity.AsofDecember31,2016,  approximately54%ofAPUSstudentsself-reportedthattheyservedinthemilitaryonactivedutyatthetime  ofinitialenrollment. STRATEGIC APPROACH Inanefforttoreturntorevenuegrowthandimproveourfinancialperformance,weareemployingthefollowing  strategies: • Maintain Our Leading Position in the Military Market. APUShasfocusedontheneedsoftheU.S.military  communitysincebeingfoundedasAMU.Thecombinationofouronlinemodel,focusedcurriculum,andout - reachtomilitarycommunitieshasenabledAPUStomaintainmarketshareagainstmoreestablishedinsti - tutions,manyofwhicharetraditionalschoolsofferingon-campusinstructionthathaveservedthemilitary  marketforlongerperiods.APUSremainsfirmlycommittedtoprovidingexceptionalserviceandsupporttothe  militarycommunity. • Increase APUS’s Share of the Civilian Market. APUSdesignsitscurriculumtobebroadlyrelevanttoadult  learners,andparticularlyresponsivetothoseinpublicsafety,security,andpublicservicecommunities.  Today’sadultlearners,regardlessoftheirspecificcareerrequirements,arelookingforahighly-tailorededu - cationalexperiencethatpreparesthemforsuccess.APUS’sacademicofferingsareattractiveoptionsforall  studentslookingforhighquality,affordableandflexibleprograms. • Add New Degree Programs and Offerings at Our Institutions. Ourinstitutionswillcontinueexpandingtheir degreeofferingstomeetemergingstudentneedsandmarketplacedemands,withafocusonnewprograms  infieldsexhibitinghigherthanaveragejobgrowth.Ourinstitutionswillalsocontinuetoconsideralternatives  andnon-traditionalofferings,includingcompetency-basededucation. 18 AmericanPublicEducation,Inc. • Enhance Student Success. Wearefocusedonincreasingthepercentageofapplicantswhoarepreparedfor  therigorsofhighereducationandcapableofsuccessfullycompletingcoursesandgraduatingfromourpro - grams.Wealsoprovideservicesdesignedtoimprovestudentpersistence,increasethelevelofengagement  andcollaborationintheclassroom,anddeliverinterventionsdesignedt ohelpstudentssucceed. • Utilize Innovative Education Technology. Weprovideauniqueandadvancedonlinelearningenvironment  leveragingexistingandproprietarytechnologies,aswellasemergingtechnologies,inserviceofenhancing  studentservices,classroominstruction,learningoutcomesandtheoverallstudentexperience,aswellasto  encouragestudentpersistenceandengagement. Tosupportgrowthinourexistingbusinessesaswellaseffectbusinessmodeldiversification,wewillcontinueto  assessandpursuestrategicinvestmentsandacquisitions.Examplesofourinvestmentsandacquisitionstodate  include: • Hondros College of Nursing. InNovember2013,weacquiredalloftheissuedandoutstandingcapitalstockof  NationalEducationSeminars,Inc.,whichwerefertoasHCON,foranapproximateadjustedaggregatepur - chasepriceof$46.8million.AsdescribedmorefullyelsewhereinthisAnnualReport,HCONoffersaDiploma  inPracticalNursing,anAssociateDegreeinNursing,andanonlineRN-to-BSNprogram. • RallyPoint. InDecember2015,wemadea$3.5millioninvestmentinpreferredstockofRallyPointNetworks,  Inc.,orRallyPoint,anonlinesocialnetworkformembersofthemilitary.Ourinvestmentrepresentedapproxi - mately14%ofitsfullydilutedequityandentitledAPEItotwoboardobserverseats. • New Horizons Worldwide, Inc. InSeptember2012,wemadea$6.8millionequityinvestmentanda$6.0million debtinvestmentinaholdingcompanythatacquiredNewHorizons,aglobalinformationtechnologytraining  companyoperatingover300locationsaroundtheworldthroughfranchisearrangementsinapproximately  70countries.Inconnectionwiththeinvestment,weacquiredapproximately20%ofthefullydilutedequityof  theNewHorizonsholdingcompanyandareentitledtocertainrights,includingrightstorepresentationonthe  BoardofDirectorsoftheholdingcompany.InDecember2014,theNewHorizonsholdingcompanyprepaidthe  $6.0milliondebtinvestmentwemadeinconnectionwiththetransaction.In2016,wereceiveda$3.0million  dividendfromtheNewHorizonsholdingcompany.WeaccountforourinvestmentintheNewHorizonshold - ingcompanyusingtheequitymethodofaccounting,andthereforerecordedacorrespondingreductioninthe  amountofourinvestment. Thestrategyforfutureinvestmentswillbetofocusoninvestinginhealthcareandincompaniesthatbridge  educationtoemployment,deliveringonthepromisetoenableeconomicmobilityforadultlearners,inparticu - larthoseinthemilitary,nationalsecurityandpublicservicecommunities,throughacombinationofeducational  offeringsandworkforce-relatedsolutions. Foradditionalinformationregardingtheseandourotherinvestmentsandacquisitions,pleaserefertothe  “FinancialStatementsandSupplementaryData—NotestoConsolidatedFinancialStatements.” EXECUTIVE OFFICERS SetforthbelowiscertaininformationconcerningourexecutiveofficersservingasofthedateofthisAnnual  Report. Name Age Position Dr.WallaceE.Boston RichardW.Sunderland,Jr.,CPA Dr.KaranPowell 62 56 63 President,ChiefExecutiveOfficerandDirectorofAPEI ExecutiveVicePresident,ChiefFinancialOfficer PresidentofAPUS 2016 Annual Report 19 Name ThomasA.Beckett AmyN.Panzarella,SPHR,SHRM-SCP Age Position 49 42 SeniorVicePresident,GeneralCounselandSecretary SeniorVicePresident,HumanResourcesandCommunityAffairs Dr. Wallace E. Boston joinedusinSeptember2002asExecutiveVicePresidentandChiefFinancialOfficerof  APUSand,sinceJuly2016,hasservedasPresidentandChiefExecutiveOfficerandamemberoftheBoardof  DirectorsofAPEI.FromJune2004toJuly2016,heservedasPresident,ChiefExecutiveOfficerandamember  oftheBoardofDirectorsofAPEIaswellasPresidentandChiefExecutiveOfficerofAPUS.FromAugust2001to  April2002,Dr.BostonservedasChiefFinancialOfficerofSunHealthcareGroup.FromJuly1998toMay2001,  Dr.BostonservedasChiefOperatingOfficerand,later,PresidentofNeighborCare,Inc.FromFebruary1993to  May1998,Dr.BostonservedasVicePresidentofFinanceandlater,SeniorVicePresidentofAcquisitionsand  DevelopmentofManorHealthcareCorporation,nowManorCare,Inc.FromNovember1985toDecember1992,  Dr.BostonservedasChiefFinancialOfficerofMeridianHealthcare. Richard W. Sunderland, Jr., CPA joinedusinFebruary2011asaconsultantandbecameSeniorVicePresident  ofFinanceofAPUSinDecember2012.EffectiveJanuary1,2014,Mr.SunderlandwasappointedExecutiveVice  PresidentandChiefFinancialOfficerofAPEI.PriortojoiningAPUS,Mr.SunderlandservedastheChiefFinancial  OfficerofNovaSom,Inc.from2008to2010.Inaddition,Mr.SunderlandservedasChiefFinancialOfficerof  ActiveDay,Inc.between2005and2008,andinvariousroles,includingasController,SeniorVicePresidentand  ChiefFinancialOfficer,ofNeighborCare,Inc.from1993to2004. Dr. Karan H. Powell joinedusinApril2004asInterimChancellorafterservingontheBoardofTrusteesofAPUS  fortwoyearsand,sinceJuly2016,hasservedasPresidentofAPUS.FromOctober2005toDecember2005,Dr.  PowellservedastheDeanoftheSchoolofBusiness,ManagementandGraduatestudies.FromJanuary2006  toJuly2008,Dr.PowellservedasVicePresidentandAcademicDean.InJuly2008,Dr.Powellwaspromotedto  SeniorVicePresidentandservedasSeniorVicePresidentandAcademicDeanuntilAugust2011,whenshewas  promotedtoExecutiveVicePresidentandProvost.In2010,Dr.PowelljoinedtheboardoftheHigherEducation  ResourceServices(HERS)andwaselectedtotheHERSexecutiveboardasSecretaryin2014.Dr.Powellhas  servedontheBoardofTrusteesforGarrisonForestSchoolinBaltimore,Marylandsince2012.Between1988  and2007,Dr.PowellservedatGeorgetownUniversityinvariousroles,includingDirectorofProfessional  DevelopmentintheSchoolofContinuingEducation,DirectorofOrganizationDevelopmentPrograms,Director  ofIRSExecutiveDevelopmentProgramandasanExecutiveInstructorintheSchoolofBusiness. Thomas A. Beckett joinedusinApril2011asDirector,LegalAffairsforAPUS,inJanuary2012becameVice  President,LegalAffairsand,sinceJanuary2016,hasservedasSeniorVicePresidentandGeneralCounselfor  APEIandAPUS,andSecretaryforAPEIsinceJune2016.PriortojoiningAPUS,Mr.BeckettwastheGeneral  CounselandChiefOperatingOfficerofHealthSport,Inc.anditswhollyownedsubsidiary,InnoZen,Inc.(now  CUREPharmaceutical)fromDecember2007toSeptember2010.Inaddition,from2004to2010,Mr.Beckettheld  variousleadershippositionsatHealthSportandInnoZen.Priortothis,Mr.BeckettwasanassociateatKing&  SpaldingLLPfrom1996to1999andatHolland&KnightLLPfrom1995to1996.Mr.Beckettbeganhiscareerin  1989asabankingofficerwithFirstUnionNationalBank. Amy N. Panzarella, SPHR, SHRM-SCP joinedusin2008astheManagerofHumanResourcesofAPUS,andsince  July2016,hasservedasSeniorVicePresident,HumanResourcesandCommunityAffairs.PriortojoiningAPUS,  Ms.PanzarellawastheDirectorofHumanResourcesatDALB,Inc.fromSeptember2006toFebruary2008;  EmployeeRelationsManageratHollywoodCasinoatCharlesTownRacesfromApril2003toSeptember2006;  andHumanResourcesGeneralistatWright-PattCreditUnion,Inc.fromDecember1995toJune2002.Ms.  PanzarellaearnedherSeniorProfessionalHumanResourceCertification(SPHR)in2009andherSocietyfor  HumanResourceManagementSeniorCertifiedProfessionalCertification(SHRM-SCP)in2014. 20 AmericanPublicEducation,Inc. SEASONALITY AND QUARTERLY FLUCTUATIONS Ourquarterlyresultsfluctuateand,therefore,theresultsinanyquartermaynotrepresenttheresultswemay  achieveinanysubsequentquarterorfullyear.Ourrevenueandoperatingresultsnormallyfluctuateasaresult  ofseasonalorothervariationsinourenrollments.Ourstudentpopulationalsovariesasaresultofnewenroll - ments,graduations,studentattrition,thesuccessofourmarketingprograms,andotherreasonsthatwecannot  alwaysanticipate.Weexpectquarterlyfluctuationsinoperatingresultstocontinueasaresultofthesefactors. AVAILABLE INFORMATION ABOUT US APEIwasincorporatedinDelawarein2002,asthesuccessortoaVirginiacorporationincorporatedin1991.Our  websiteiswww.americanpubliceducation.com.Theinformationonourwebsiteisnotincorporatedbyreference  inthisAnnualReportonForm10-K.Wemakeavailable,freeofchargethroughourwebsite,ourAnnualReports  onForm10-K,QuarterlyReportsonForm10-Q,CurrentReportsonForm8-K,andamendmentstothose  reportsfiledorfurnishedpursuanttoSection13(a)or15(d)oftheExchangeAct,assoonasreasonablypractica - bleaftertheyareelectronicallyfiledwith,orfurnishedto,theSEC. OurInstitutions Weprovidepostsecondaryeducationthroughtwosubsidiaryinstitutions,APUSandHCON.Ourinstitutionsare licensedorotherwiseauthorizedbystateauthorities,orareintheprocessofobtainingsuchlicensesorauthoriza- tions,toofferpostsecondaryeducationprogramstotheextenttheinstitutionsbelievesuchlicensesorauthoriza- tionsarerequired,andarecertifiedbytheUnitedStatesDepartmentofEducation,orED,toparticipateinstudent financialaidprogramsauthorizedunderTitleIVoftheHigherEducationActof1965,asamended,orTitleIV. AMERICAN PUBLIC UNIVERSITY SYSTEM APUSisbasedinCharlesTown,WestVirginia,andhasregionalaccreditationfromtheHigherLearning  Commission,orHLC.APUStracesitsrootstoAMU,whichwasfoundedin1991asadistance-learning,grad - uate-levelinstitutionformilitaryofficersseekinganadvanceddegreeinmilitarystudies.APUShasgradually  broadeneditsfocustoincludeothermilitarycommunities,veterans,publicsafety,andcertainothernon-mili - tarycommunitieswithafocusonabroadpurposeof“educatingthosewhoserve.”In2002,APUSwasorganized  intoauniversitysystemwithtwocomponents:AmericanMilitaryUniversity,orAMU,andAmericanPublic  University,orAPU.AMUisfocusedoneducatingstudentsfromthemilitary,nationalsecurityandpublicsafety  communities.APUisfocusedoneducatingcareer-focusedworkingadultswithanemphasisoneducatingpro - fessionalsworkinginpublicservicerelatedcommunities.APUSisanonlineinstitutionofhigherlearning,which  webelieveiswell-suitedtoitsstudents,especiallyitsmilitary,publicserviceandworkingadultstudents,who  serveinpositionsrequiringextendedandirregularworkschedules,areoncallforrapidresponsemissions,par - ticipateinextendeddeploymentsandexercises,travelorrelocatefrequently,balancefamilyandworkdemands  andmaybesingleparentswithlimitedfinancialresources.Manyofourstudentshavesignificantprioreduca - tionandcareerexperiences.APUSisdesignedtoservethosestudentswithtailoredofferingstosupportthemin  successfullyreachingtheirindividualgoals. AlthoughAPUS’sfocushasbroadened,itcontinuestohaveanemphasisonitsrelationshipwiththemilitarycommu- nity.AsofDecember31,2016,approximately54%ofAPUS’sstudentsself-reportedthattheyservedinthemilitary onactivedutyatthetimeofinitialenrollment.TheremainderofAPUS’sstudentsaremilitary-affiliatedprofessionals (suchasveterans,reservistsorNationalGuardmembers),publicsafetyprofessionals(suchaslawenforcementper- sonnelorotherfirstresponders)andothercivilians(suchasmilitaryspousesandworkingadultstudents). 2016 Annual Report 21 CURRICULUM AND SCHEDULING APUSoffers209degreeandcertificateprogramsthroughover1,700uniquecoursesthatareprimarilyofferedin eithereight-or16-weekformats.AcademictermsbeginonthefirstMondayofeachmonth.APUS’sprogramsareas Number  37  46  23 106 Number  49  54  103 209 follows: Programs Master’sDegrees Bachelor’sDegrees AssociateDegrees TotalDegreePrograms Certificates Graduate Undergraduate TotalCertificates TOTALPROGRAMSANDCERTIFICATES Atthegraduatelevel,APUSoffersprogramsinthefollowingfieldsofstudy: MasterofArtsin: CriminalJustice MasterofEducationin: EducationalLeadership EmergencyandDisasterManagement Teaching EmergencyandDisasterManagementand Teaching—Non-LicensureConcentration HomelandSecurity Entrepreneurship History HomelandSecurity Humanities IntelligenceStudies InternationalRelationsandConflictResolution LegalStudies Management MilitaryHistory MilitaryStudies NationalSecurityStudies PoliticalScience Psychology ReverseLogisticsManagement SecurityManagement TransportationManagementandLogistics MasterofBusinessAdministration inElementaryEducation Teaching—Non-LicensureConcentration inSocialStudies MasterofPublicAdministration MasterofPublicHealth MasterofPublicPolicy MasterofSciencein: Accounting AppliedBusinessAnalytics CybersecurityStudies EnvironmentalPolicyandManagement HealthInformationManagement InformationTechnology Nursing SpaceStudies SportsandHealthSciences SportsManagement Attheundergraduatelevel,APUSoffersprogramsinthefollowingfieldsofstudy: BachelorofArtsin: CriminalJustice BachelorofSciencein(continued): InformationTechnologyManagement EmergencyandDisasterManagement English LegalStudies Mathematics 22 AmericanPublicEducation,Inc. Entrepreneurship GeneralStudies GovernmentContractingandAcquisition History HomelandSecurity HospitalityManagement HumanDevelopmentandFamilyStudies IntelligenceStudies InternationalRelations Management Marketing MiddleEasternStudies MilitaryHistory Philosophy PoliticalScience Psychology Religion RetailManagement ReverseLogisticsManagement SecurityManagement Sociology TransportationandLogistics NaturalSciences Nursing PublicHealth SpaceStudies SportsandHealthSciences SportsManagement TechnicalManagement AssociateofArtsin: BusinessAdministration Communication Counter-TerrorismStudies CriminalJustice EarlyChildhoodCareandEducation GeneralStudies History Hospitality Management MilitaryHistory RealEstateStudies RetailManagement WeaponsofMassDestructionPreparedness BachelorinBusinessAdministration AssociateinAppliedSciencein: BachelorofSciencein: Accounting BusinessAnalytics CriminalJustice–Forensics Cybersecurity ElectricalEngineering EnvironmentalScience HealthInformationManagement FireScienceManagement InformationSystemSecurity InformationTechnology HealthSciences TechnicalManagement AssociateofSciencein: Accounting ComputerApplications DatabaseApplicationDevelopment ExplosiveOrdinanceDisposal FireScience ParalegalStudies PublicHealth WebPublishing APUSoffers103certificateprograms.APUS’scertificateprogramsgenerallyconsistofaminimumof18credit  hoursandfocusonaparticularcomponentofabroaderdegreeprogram.Studentsmayearndiscretecertifi - catesorearncertificatesincombinationwithworktowardadegreeprogram.APUSalsooffersseveralLearning  Trackscomprisedofonetwo-week“ClassroomSuccess”orientationcourseaboutonlinelearning,andthree  academiccoursesinarelatedareaofinterest.ALearningTrackallowsstudentstopursueacourseofstudy  withouthavingtocommittoadegreeorcertificateprogram.Inthefirstquarterof2017,APUSintendstolaunch  MomentumTM,itsCompetencyBasedEducationProgram.CompetencyBasedEducation,orCBE,focuseson  theachievementofknowledgeandskills,providingamoreflexibledegreepathtonon-traditionalstudentsseek - inganalternativetoprevailingscheduleandtuitionconstraints. 2016 Annual Report 23 STUDENT RECRUITMENT AND MARKETING APUS’srelationship-basedmarketingstrategyfocusesonbuildinglong-term,mutuallybeneficialrelationships  withorganizationsandindividualsinthemilitaryandpublicsafetycommunities.Thecoreofthisstrategyis  rootedinourmilitaryandpublicsafetyoutreachteams,whichservethesecommunitiesandfosterlong-stand - ingrelationships.WebelieveAPUS’sreputationasatrustededucatoryieldspeer-to-peerreferrals,andpositions  APUSasarespectedinstitutionamongcertainfederalandprivatesectoremployers.Theserelationships,aswell  asAPUS’sstudentandalumninetworks,alsocreatepersonalreferrals.Webelievethatthisrelationship-based  marketingapproachenablesAPUStoachievelowerstudentacquisitioncoststhanotherwisewouldbeachieved  ifitfocusedmoreheavilyontraditionalmediaadvertising. APUSsupplementsrelationship-basedmarketingwithmultichannelmarketingcampaignstocreategreater  brandawareness,particularlyfortheAPUbrandoutsidethemilitaryandpublicsafetycommunities,andto  connectwithandattractacademicallypreparedpotentialstudents.Inthesecampaigns,APUSutilizesdigital  marketingchannelssuchasorganicandpaidsearch,APUSownedandexternalcontentmarketingcommunities,  traditionalanddigitalTV,radio,printadvertising,andsocialmedia,amongothers.ThisaspectofAPUS’smar - ketingstrategy,alongwithincreasedcompetitionandmoreinvestmentinmarketingthelesswellknownAPU  brand,hasresultedinincreasedstudentacquisitioncosts.Tobettermanagecostsandfocusmarketingefforts  onprospectivestudentaudiencesmostlikelytomatriculateandsucceed,APUSputinplacetoolstoprovidenew  insightsconnectingindividualstudentperformancedatawiththemarketingchannelthatattractedthem.APUS  isusingtheseinsightstoimprovefuturedecisionswithrespecttomarketingmixallocation,audiencetargeting,  newinitiatives,andmessagingdecisions. APUScontinuestoenhancethestudentlearningexperiencetoattractstudentswhoaremorelikelytopersist  andsucceedinitsprograms,andwillcontinuetoworktoidentifyandimplementpotentialchangesandinitia - tivesthatwillmoreeffectivelyattractandenrollmorecollege-readystudents.Suchinitiativesmayincludealter - ingadmissionsstandards,whichmayhaveanadverseeffectonAPUS’senrollmentandourfinancialcondition.  ForadditionalinformationontheriskfactorsassociatedwithsuchinitiativesandtheAPUSadmissionsprocess  pleasereferto“RiskFactors—RisksRelatedtoOurBusiness.” ENROLLMENTANDSTUDENTBODY TheactivestudentbodyofAPUSconsistsofapproximately88,700students,mostofwhomholdfull-time  employment.Activestudentsaredefinedasthosewhohavecompletedacourseinthepast12months,orare  currentlyenrolledinorregisteredforanupcomingcourse.APUSdisenrollsstudentswhofailtoregisterforand  completeatleastonecourseintheprior12-monthperiod,althoughstudentsmayapplyforreadmissionand  activestatus.Studentsonextendedmilitarydeploymentsmayapplyforaprogramhold,whichkeepssuchstu - dentsfrombeingdisenrolledfromtheuniversity.  APUSisfocusedonidentifyingpotentialchangesandinitiativesthatwillmoreeffectivelysupportitsstudents  andhelpimprovethosestudents’educationaloutcomes,includingthroughfacultyengagementinitiativesand  co-curricularinitiativestoincreasethelevelofengagementandcollaborationintheclassroomandstrengthen  thebondbetweenAPUSanditsstudents.ImprovedengagementisanimportantelementinAPUS’sgoalof  retainingqualifiedstudents. ACCREDITATION APUShasregionalaccreditationfromHLC.HLCaccreditsdegree-grantinginstitutionsina19-stateregion,  includingWestVirginia,andisrecognizedbytheDepartmentofEducation,orED.Thestatusandmeaningofthis  accreditationisdescribedmorefullybelowin“RegulatoryEnvironment—Accreditation.” 24 AmericanPublicEducation,Inc. InadditiontoregionalaccreditationbyHLC,certainprogramsofferedbyAPUShavereceivedspecializedaccred - itationsorprofessionalrecognition.Forexample,theAccreditationCouncilforBusinessSchoolsandPrograms,  orACBSP,accredits19differentacademicprograms,includingthefollowing: • AssociateofScience,BachelorofScienceandMasterofScienceinAccounting; • AssociateofArts,BachelorandMasterofBusinessAdministration; • AssociateofArtsandBachelorofArtsinHospitalityManagement; • AssociateofArts,BachelorofArts,andMasterofArtsinManagement; • AssociateofArtsinRealEstateStudies; • AssociateofArtsandBachelorofArtsinRetailManagement; • BachelorofArtsandMasterofArtsinReverseLogisticsManagement; • BachelorofArtsinMarketing;and • BachelorandMasterofArtsinTransportationandLogisticsManagement. InadditiontothegeneralACBSPaccreditation,theBachelorofScienceandMasterofScienceinAccountinghold  specializedAccountingaccreditationfromACBSP. TheCommissiononCollegiateNursingEducation,orCCNE,accreditstheBachelorofScienceinNursingpro - gram.Inaddition,APUShasobtainedprofessionalrecognitionforitsprogramconcentrationsinHuman  ResourcesfromtheSocietyforHumanResourceManagement,forcertaincoursesintheSportsandHealth  SciencesprogramfromtheAmericanSportEducationProgramforBronzeLevelCertificationandtheNational  AcademyofSportsMedicinePerformanceEnhancementSpecialist,fortheInformationSystemsSecurity  programfromtheNationalSecurityAgency—InformationAssuranceCoursewareEvaluation,andforcertain  coursesintheHumanDevelopmentandFamilyStudiesprogramfromtheNationalCouncilonFamilyRelations  fortheCertifiedFamilyLifeEducator.Theseaccreditationsandrecognitionsaredescribedmorefullybelowin  “RegulatoryEnvironment—Accreditation.” STUDENT ADMISSIONS APUSwelcomesprospectivestudentstoapplyforadmissionatanytimethroughanonlineapplicationprocess.  ThecurrentqualificationsformostundergraduateprogramsareahighschooldiplomaorGeneralEducation  Developmentcertificate.Applicantsforgraduateprogramsmustholdabachelor’sdegreefromanaccredited  U.S.institutionoranequivalentforeigninstitution.Certainprogramsmayhaveadditionaladmissionsstandards  andrestrictions.FollowingadmissionstudentsareissuedastudentIDnumberandpassword,andarepro - videdinformationonhowtofinalizetheiradmissionandapplyforevaluationoftransfercredits.Studentsare  alsoprovidedinformationonhowtoregisterforcourses,arrangeforpaymentandnavigatetheonlinestudent  environment. InApril2015,APUSimplementedanadmissionsprocessrequiringprospectivestudentstocompleteafree,  non-creditadmissionsassessmentiftheyarenot(i)activedutymilitaryorveteranapplicants;(ii)graduatesof  certifiedfederal,stateorlocallawenforcementorpublicsafetyacademies;or(iii)studentswithatleastnine  hoursoftransfercreditfromanaccreditedinstitutionwithagradeof“C”orbetterforeachcourse.APUShas  mademultiplechangestotheassessmentprocesssinceitsoriginalimplementationandmayfurthermodifyitin  thefutureinordertobetteridentifycollege-readystudents. 2016 Annual Report 25 COST OF ATTENDANCE AND FINANCIAL AID WebelievethatAPUS’sabilitytoofferaffordableprogramsisoneofitscompetitivestrengths.ManyAPUSstu - dentsalsotransferasignificantnumberofpreviouslyearnedacademiccredithours,whichreducesthecostand  timeofearningtheirdegrees. BeginninginJuly2015,APUSincreasedundergraduateandgraduatetuitionbyapproximately8%.  UndergraduatetuitionatAPUSisnow$270percredithour,or$810perthree-creditcourse.Ingeneral,abach - elor’sdegreemaybeearnedfor$32,670intuitioncostsatcurrenttuitionrates.APUS’sgraduatetuitionisnow  $350percredithour,or$1,050perthree-creditcourse,whichmeansmanyAPUSgraduatedegreesmaybe  earnedfor$12,600intuitionatcurrenttuitionrates.Thecombinedtuition,feesandbooksatAPUSaredesigned  tobelessexpensiveforundergraduateandgraduatestudentsthantheaveragein-statecostatapublicuni - versity.APUSprovidesatuitiongranttosupportstudentswhoareU.S.Militaryactive-dutyservicemembers,  Guard,Reserve,militaryspousesanddependents,andveterans.Forsuchindividuals,tuitionissetatthepre- July2015rates,withundergraduatecoursetuitionat$250percredithour,andgraduatecoursetuitionat$325  percredithour.APUSestimatesthatthemilitarytuitiongrantappliedtoapproximately75%ofits2016totalnet  courseregistrations. TheJuly2015tuitionincreasewasAPUS’sfirstundergraduatetuitionincreasesince2000,andthefirstgraduate  tuitionincreaseinfouryears.BasedoninformationintheCollegeBoard’sTrendsinCollegePricing2015(under - graduate)andtheNationalCenterforEducationStatistics’DigestofEducationalStatistics,2014(graduate),we  estimatethat,afterthetuitionincrease,APUS’scombinedtuition,feesandbooksremainapproximately19%  lessforundergraduatestudentsand38%lessforgraduatestudentsthantheaveragepublishedin-stateratesat  publicuniversities. Undergraduatestudentsenrolledincoursesforacademiccreditreceivetheirtextbooksandcertaincourse  materialsatnoadditionalcosttothemthroughabook-grantprogram.Thisbookgrantrepresentsanapprox - imatesavingsoverthecourseofastudent’sundergraduatedegreeprogramof$5,000ascomparedtopublic  four-yearcollegesanduniversitiesaccordingtocomparativeinformationfromTheCollegeBoard’sTrendsin  CollegePricing2015report.APUSalsoutilizesopenaccessandonlinelibrarymaterialswhereappropriateand  workswithvariouspublisherstoreducethecostoftextbooksandcoursematerialsforbothundergraduatestu - dentsreceivingthebookgrantandforgraduatestudentswhopayfortextbooksandcoursematerials. APUSdoesnotchargeanadmissionfeeorfeesforservicessuchasregistration,coursedropsorsimilarevents  thattriggerfeesatmanyotherinstitutions.BecauseAPUSisanexclusivelyonlineinstitution,thereareno  requiredresidentfees,suchasforparking,foodservice,studentunion,andrecreation.APUSchargesstudents  atechnologyfee,butprovidesagranttocoverthetechnologyfeeforstudentsusingDoDtuitionassistance  programs.Whenapplicable,APUSstudentsarechargedcertainadditionalfees,suchasgraduation,lateregistra - tion,transcriptrequest,andcomprehensiveexaminationfees. DoDtuitionassistanceprogramscover$750ofthetuitioncostspercourseor$250percredithourformilitary  students,andthesestudentsmayalsobeabletouseVAeducationbenefitsoraidfromED’sTitleIVprograms  tocoveranyremainingcost,asdescribedmorefullybelowin“SourcesofStudentFinancing”and“Regulatory  Environment—StudentFinancingSourcesandRelatedRegulations/Requirements.”APUShassetitstuitiongrant  sothattheDoDtuitionassistanceprogramcoversthefulltuitioncostofundergraduatecoursesformembersof  themilitaryuptotheannualmaximumbenefit. 26 AmericanPublicEducation,Inc. SOURCES OF STUDENT FINANCING APUS’sstudentsfinancetheireducationthroughacombinationofindividualresources,DoDtuitionassistance  programs,VAeducationbenefits,ED’sTitleIVprograms,privateloans,stateandfederalgrants,andcorpo - ratereimbursementprograms.Moststudentsrelyonsomeformoffinancialaidinadditiontotheirindividual  resources.StudentsutilizingED’sTitleIVprogramsaccountedfor29%ofAPUS’snetcourseregistrationsin2016,  andwebelievethattheabilityofourstudentstoparticipateintheseprogramsisessentialtoAPUS’ssuccess.  ParticipationintheDoDtuitionassistanceprograms,VAeducationbenefitsandED’sTitleIVprogramsadd  toAPUS’sregulatoryburden,asdescribedmorefullybelowin“RegulatoryEnvironment—StudentFinancing  SourcesandRelatedRegulations/Requirements.”Participationintheseprogramsmeansthatchangesto,or  interruptionsin,federalappropriationsfortheseprogramsorotheractionsbythefederalgovernmentwill  impactAPUS’soperationsandourfinancialcondition. Asdescribedmorefullybelowin“RegulatoryEnvironment—RecentLegislativeandEDActivity—Federal  LegislativeActivity—SequestrationandBudgetaryMatters,”inMarch2013,inresponsetoautomaticacross- the-boardreductionsinfederalspending,alsoknownassequestration,theArmy,AirForce,CoastGuard,and  MarineCorpsannouncedthesuspensionoftheirtuitionassistanceprograms.Congresssubsequentlyapproved  legislationrequiringDoDtorestoreitstuitionassistanceprograms.InOctober2013,theDoDtuitionassistance  programswereagaintemporarilysuspendedasaresultoftheU.S.governmentpartialshutdown.Eachbranch  ofthemilitaryrestoreditstuitionassistanceprogramthroughfiscalyear2014.Asaresultofcontinueduncer - taintyabouttheavailabilityoffunding,severalofthemilitarybranchesannouncedchangestotheirtuition  assistanceprogramsthattookeffectinfederalfiscalyear2014.Forexample,theAirForceisnolongerautho - rizingtuitionassistanceforassociatedegreesiftheservicememberalreadyhasanassociatedegreefromthe  CommunityCollegeoftheAirForce,theArmynowrequiresservicememberstocompleteoneyearofservice  aftergraduationfromAdvancedIndividualTraininginordertobeeligiblefortuitionassistanceandhasreduced  thetotalbenefitperservicememberperyearfrom$4,500to$4,000,andtheMarineCorpsnowrequires  Marinestohave24monthsonactivedutypriortobeingeligibletoapplyfortuitionassistance.InOctober2015,  theCoastGuardrestoredtuitionassistancefundingto$250percredithour,anincreasefromthepreviouscap  of$187.50percredithour,whichwasimplementedin2014.Additionalchangestothetuitionassistancepro - gramscouldoccur,includingduetoCongressionalactionorDoDpolicyandfundingchanges. OnDecember10,2016,theU.S.Congressenactedacontinuingresolutiontoextendfundingforthefederal  government,includingtheDoD,throughApril28,2017;however,iffundingisnotextendedbeyondthatdate  agovernmentshutdowncouldoccurresultinginasuspensionofDoDtuitionassistanceprograms.Agovern - mentshutdownorsuspensionofDoDtuitionassistanceprogramscouldhaveamaterialadverseeffectonour  operationsandfinancialcondition.Forinstance,onOctober1,2013,priortothegovernmentshutdownand  temporarysuspensionofDoDtuitionassistanceprograms,APUS’scourseregistrationsforOctober2013were  approximately41,200.However,asofOctober14,2013,approximately13,100registrationshadbeendropped,  resultinginanetcourseregistrationreductionofapproximately20%comparedtoOctober2012.Webelievethat manyofthesedroppedregistrationsresultedfromthesuspensionofDoDtuitionassistanceprograms.Afterthe  governmentshutdownended,DoDresumeditstuitionassistanceprograms;however,wedonotbelievethat  APUS’sregistrationsforsubsequentperiodsreplacedallofthedroppedregistrations. WedonotknowwhatfutureactionmaybetakenwithrespecttoDoDtuitionassistanceprograms,whichcould  includeeliminatingthoseprograms,reducingthefundsorbenefits(orboth)availableunderthoseprograms,or  enactingnewrestrictionsonparticipationinthoseprograms.Anysuchchanges,oranyotherreductionsinthe  fundingforDoDtuitionassistanceprograms,couldhaveamaterialadverseeffectonAPUS’senrollmentsand  ourfinancialcondition.Thepotentialrisksassociatedwiththeseandsimilareventsaredescribedmorefully  belowin“RiskFactors—RisksRelatedtoOurBusiness.” 2016 Annual Report 27 FACULTYANDSTAFF APUS’sfacultyconsistsofapproximately2,040fullandpart-timefacultymemberswithrelevantteachingand  practitionerexperienceaswellasaprofessionalstaffofapproximately940non-facultyemployeesadminister - ingAPUS’sacademic,technology,serviceandbusinessoperations.MostofAPUS’snon-facultyemployeeswork  ateitheritsheadquartersinCharlesTown,WestVirginia,oratitsadministrativeofficesinManassas,Virginia.  NoneofAPUS’semployeesarepartiestoanycollectivebargainingarrangement.WebelievethatAPUShasa  goodrelationshipwithitsemployees. Approximately390facultymembersaredesignatedasfull-timefacultywiththeremainderdesignatedaspart- time.APUSestablishesfull-timeandpart-timepositionsbasedonprogramandcourseenrollment.Manyof  APUS’sfull-timefacultybegantheircareerswithAPUSaspart-timefaculty.WeexpectthatAPUS’sfacultyhead - countandthecompositionoffull-timeandpart-timefacultywillvarywithfluctuationsinenrollment. WebelievethatAPUS’swell-regardedfaculty,whichincludesmanyformerandcurrentpractitionersintheir  fields,attractsnewstudentstoAPUS.AsignificantmajorityofAPUS’sgraduatefacultyholdaterminaldegree  ordoctorateintherelevantfield,whilevirtuallyallundergraduatefacultyhaveanearned-graduatedegree.  ExceptionshavebeengrantedforalimitednumberofAPUS’sfacultymemberswhodonotmeetdegreestan - dardsandwhoprovideevidenceofsignificantexperienceandachievementinthefieldofstudythattheyteach,  accordingtoAPUSfacultyqualityguidelines.ManyAPUSfacultymembershaverelevantexperienceatleading  universitiesandwithinmilitary,corporateandgovernmentinstitutions. WebelievethatthequalityofAPUS’sfacultyiscriticaltothestudentexperienceandstudentoutcomesandis  thereforevitaltoAPUS’ssuccess.APUSregularlyreviewstheperformanceofitsfacultyby,amongotherthings,  monitoringtheonlinecontactthatfacultyhaswithstudents,reviewingstudentfeedback,andevaluatingthe  learningoutcomesachievedbystudents.IfAPUSdeterminesthatafacultymemberisnotperformingatan  acceptablelevel,itworkswiththefacultymembertoimproveperformancebyassigningthefacultymembera  mentor,providingadditionaltrainingand/orcoachingthefacultymemberforsuccess.Ifthefacultymember’s  performancedoesnotimprove,APUSwillnolongeremploythatfacultymembertoteach.APUSdoesnotoffer  itsfacultytenure. WebelievethatthecompositionofAPUS’sstudentbodyandcurriculumareparticularlyattractivetopoten - tialfacultymembersbecauseoftheopportunitytoteachrelevantmaterialtostudentswhocanimplement  highereducationlearningattheirworkplaces.APUSrecruitsfacultymembersthroughreferralsbycurrent  facultymembers,advertisementsinhighereducationandtradeassociationjournalsanditsInternetpresence.  Uponselectionforaposition,APUSrequireseachnewfacultymembertocompleteanorientationandtraining  programthatleadstotheircertificationtoteachatAPUSandassignmenttocourses.Allfacultyparticipatein  annualfaculty-developmentopportunitiesandrequirements. INFORMATIONTECHNOLOGY APUShasinvestedsignificantcapitalandresourcesintodevelopingproprietaryinformationsystemsandpro - cessestosupportwhatwerefertoasPartnershipAtaDistance™,orPAD.PADisAPUS’splatformforinteracting  withitsstudents.PADisaninformationsystemdesignedtoenableAPUStoprovideeachstudentwithindivid - ualizedsupportatappropriatetimesfrompre-enrollmentthroughandbeyondgraduation,includingstudent  advising,administrativesupport,andcommunitynetworking. APUSusesSakaiCollaborationandLearningEnvironment,orSakaiCLE,anopen-sourceLearningManagement  System,foritsonlineclassroom.Thereareapproximately350educationalinstitutionsaroundtheworld  28 AmericanPublicEducation,Inc. reportedlyusingSakaiCLEtosupportteaching,learning,research,andcollaboration.PADandSakaiCLEare  APUS’stwocoreenterprisesystems. APUShasseveralothersystemsthatareusedintheonlinecampus,andtosupportthestudentexperience,  financialaidprocessing,financialmanagement,humanresourcesprocesses,marketing,anddecisionsupport. ThebackboneofAPUS’sinformationtechnologyinfrastructureconsistsoftwodatacenters:oneinVirginia,and  oneataco-locationfacilityinTexas.APUS’stechnologyenvironmentismanagedinternally.Studentaccessto  APUS’ssystemsisprovidedthroughredundantdatacarriersinbothdatacenters. InformationtechnologysystemsareanessentialpartoftheAPUSstudentexperienceandourbusinessopera - tions,andwebelievewewillneedtocontinueto,andpotentiallyincrease,ourinvestmentofcapital,timeand  resourcesintechnologyoperationsandenhancementstosupportoursystemsandmissionandevaluatewhen  itisappropriatetomakesignificantchanges,modificationsorupgrades.Forexample,webelievewewillneed  tocontinuetomakeinvestmentsinresponsetocompetitivepressuresinthemarketplace,includingincreased  demandsforinteractivesolutionsandaccessfrommultipleplatforms,toupdateoldersystemsandtoenhance  functionality,suchasdifferentialpricing.Forexample,in2010,weselectedSakaiCLEtoreplaceAPUS’sexisting  providerasthefoundationalsoftwareforAPUS’sonlineclassroom,andin2015,APUSselectedGlobalFinancial  AidServicesforfinancialaidprocessingservices,whichrequiredmeaningfulinformationtechnologychanges.  Thesetypesofchangesarenotwithoutrisktoouroperationsandfinancialresults.Wecontinuallyevaluate  ourPADsystemforpossiblechangesandupgrades,andsuchchangesandupgradesmayresultinusincurring  significantcoststhatcouldaffectourfinancialresultsinthenearterm.Ourinvestmentsininformationtechnol - ogysystemsmayresultinanincreasedlevelofspending,notallofwhichcanbecapitalized,andmaycostmore  thanexpectedorfailtobesuccessful.Furthermore,asaresultofunsuccessfuldevelopmentefforts,oraresult  ofreplacingoutdatedtechnology,softwareorothertechnologyrelatedassets,wemayhaveassetsthatbecome  impaired.Forexample,APUSreporteda$4.0millioncostassociatedwiththeabandonmentofdevelopmentofa  newstudentcourseregistrationsystemintheyearendedDecember31,2016. TheperformanceandreliabilityofAPUS’snetworksandtechnologyinfrastructure,includingthoseofthird- partysystemsutilizedbyAPUS,arecriticaltoitsreputationandabilitytoattractandretainstudents.Any  systemerrororfailurecouldinterruptAPUS’sabilitytooperateandcouldresultintheunavailabilityofitsonline  classrooms,preventingstudentsfromaccessingtheircoursesandadverselyaffectingourresultsofoperations.  APUS’stechnologyinfrastructure,andthetechnologyinfrastructureofitsthird-partyvendors,couldbevulner - abletointerruptionormalfunctionduetoeventsbeyondourcontrol,includingnaturaldisasters,cyber-attacks,  hackerorterroristactivities,andtelecommunicationsfailures.APUS’scomputernetworks,andthenetworksof  itsthird-partyvendors,mayalsobevulnerabletounauthorizedaccess,computerhackers,computerviruses,  andothersecurityproblems.APUSusesexternalvendorstoperformitssecurityassessmentsonaperiodic  basistoreviewandassessitssecurity.APUSutilizesthisinformationtoaudititselftoensurethatitisadequately  monitoringthesecurityofitstechnologyinfrastructure.However,wecannotensurethatthesesecurityassess - mentsandauditswillprotectAPUS’scomputernetworksagainstthethreatofsecuritybreaches.Similarly,  althoughAPUSrequiresitsthird-partyvendorstomaintainalevelofsecuritythatisacceptabletousandworks  closelywithitsthird-partyvendorstoaddresspotentialandactualsecurityconcernsandattacks,wecannot  ensurethatAPUSanditssystemsandproprietaryinformationorpersonalinformationaboutitsstudents  oremployeeswillbeprotectedagainstthethreatofsecurityattacksonthird-partyvendorsthataffectAPUS  systemsorsuchinformation.SystemdisruptionsandsecuritybreachesofAPUS’sonlinecomputernetworks,  technologyinfrastructure,oronlineclassroominfrastructure,orofthenetworks,infrastructuresandsystems  ofthirdpartiescouldhaveanadverseeffectonourfinancialcondition. 2016 Annual Report 29 Foradditionalinformationregardingrisksrelatedtoourinformationtechnologypleasereferto“RiskFactors— RisksRelatedtoOurBusiness.” INTELLECTUALPROPERTY APUSexercisesrightsassociatedwithpatents,copyrights,trademarks,servicemarks,domainnames,agree - ments,andregistrationstoprotectitsintellectualproperty.APUS’scoursesyllabiareitsproperty,maybeused  incurrentandfuturecoursesasneededtofacilitateinstruction,andmaybemodifiedtomeetevolvingcourse  orcurriculumrequirements.IntellectualpropertyofAPUS’sindividualfacultymembersremainsthepropertyof  eachsuchfacultymemberandisreservedspecificallyforuseonlybythefacultymemberwhoownsit,unless  thefacultymembergrantspermissionforusebyothers.APUSreliesonagreementsunderwhichitobtains  rightstousecoursecontentdevelopedbyfacultymembersandotherthird-partycontentproviders. APUShassecuredrightstotrademarksforvariousnamesandtermsusedinitsbusiness,including“American  PublicUniversitySystem,”“AmericanMilitaryUniversity,”“AmericanPublicUniversity”andlogosincorporat - ingtheforegoingtermsandacronymsofthoseterms,aswellas“ReadyWhenYouAre,”“EducatingthoseWho  Serve,”“RESPECTED.AFFORDABLE.ONLINE.”andtheterm“PartnershipataDistance.”Webelievethesetrade - marksandbrandnamesareimportanttohowprospectivestudentsidentifyAPUSandarecentraltoanumber  ofitsmarketingefforts.APUSalsoownsrightstomorethan200internetdomainnamespertainingtoAPEI,  APUS,AMU,APUandotheruniquedescriptors.TheU.S.PatentandTrademarkOfficeissuedAPUSapatentfor  PADinFebruary2011. 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. WebelievethatAPUSwillcontinuetoseeincreasedcompetitioninthemilitarycommunityfrombothnot-for- profitandfor-profitschools.Astraditionalnot-for-profitpublicandprivateschoolsadvancetheironlinecapa - bilities,theywillbeabletomoreeasilysupportthemilitarycommunity.Atthesametime,for-profitschoolswill  markettostudentseligibleforDoDtuitionassistanceprogramsandVAeducationbenefits,ratherthanED’sTitle  IVprograms,inanattempttocomplywithED’sregulatoryrequirementknownasthe90/10Rule.Thisregulatory  requirementisdescribedmorefullybelowin“RegulatoryEnvironment—StudentFinancingSourcesandRelated  Regulations/Requirements.” Withinthemarketforpublicsafetyprofessionals,suchaslawenforcementpersonnelorotherfirstresponders,  andnon-militaryprofessionalsandotherworkingadultswithextendedandirregularworkschedules,APUS  facesbroadcompetitionwithnot-for-profitpublicandprivatetwo-yearandfour-yearcollegesaswellasother  for-profitschools,particularlythosethatofferonlinelearningprograms. 30 AmericanPublicEducation,Inc. HONDROS COLLEGE OF NURSING HCONisnationallyaccreditedbytheAccreditingCouncilofIndependentCollegesandSchools,orACICS.HCON’s  programsaredesignedtoprepareindividualsforproductivecareersinthefieldofnursing.HCON’sstudents  principallyreceiveon-campusinstructionatoneofHCON’sOhiocampuses.In2016,HCONhadfouroperating  campuseslocatedinthesuburbanareasofCincinnati,Cleveland,Columbus,andDayton.EffectiveJanuary2017,  HCONopenedafifthcampusintheToledoarea.Additionally,HCONoffersonlinebothitsRN-to-BSNProgram  andsomenursingcourses.Asdiscussedmorefullybelowin“RegulatoryEnvironment—RegulatoryActionsand  RestrictionsonOperations,”HCONparticipatesintheDepartmentofEducation’s,orED’s,TitleIVprograms  pursuanttoaProvisionalProgramParticipationAgreementthatwasamendedinDecember2016,inresponse  toED’sdecisiontowithdrawandterminateED’srecognitionofACICS.HCONhasanin-processapplicationfor  accreditationbytheAccreditingBureauofHealthEducationSchools,orABHES,anaccreditorforalliedhealth  schoolsthatisrecognizedbyED. CURRICULUM AND SCHEDULING HCONofferson-campusinstructionleadingtoaDiplomainPracticalNursing,orPNProgram,andanAssociate  DegreeinNursing,orADNProgram.GraduatesofthePNProgramareeligibletoseeklicensureasaLicensed  PracticalNurse,orLPN,afterpassingtheNCLEX-PNexam.GraduatesoftheADNProgramareeligibletoseek  licensureasaRegisteredNurse,orRN,afterpassingtheNCLEX-RNexam.ThroughitsRN-to-BSNProgram,  HCONalsooffersonlineinstructionleadingtoaBachelorofScienceinNursingtostudentswhoalreadypossess  anassociatedegreeinnursing.HCON’sprogramsareofferedinaquarterlyformat.AcademictermsforthePN  andtheADNprogramsbeginfourtimeseachyear,withcoursesstartinginJanuary,April,JulyandOctober.Inan  efforttobetterservestudentsandincreaseenrollments,HCONhasincreaseditsofferingofeveningandweek - endcourses. ENROLLMENTANDSTUDENTBODY HCON’sstudentenrollment,asofDecember31,2016,wasapproximately1,300students.Thisnumberincludes  thoseHCONstudentswhowereenrolledincourseseitheroncampusoronlineasofthatdate. ACCREDITATION HCONisinstitutionallyaccreditedbytheAccreditingCouncilforIndependentCollegesandSchools,orACICS.  BydecisiondatedDecember12,2016,theSecretaryofEDwithdrewandterminatedED’srecognitionofACICS.  WhentheSecretarywithdrawstherecognitionofanaccreditingagency,apostsecondaryeducationalinsti - tutionmaybeallowedtocontinueitsparticipationintheTitleIVprogramsonaprovisionalbasisforaperiod  nottoexceed18monthsfromthedateoftheSecretary’sdecisiontoallowtheinstitutiontoseekaccreditation  fromanotherrecognizedaccreditingagency.EDhasindicatedthatduringtheperiodofprovisionalparticipa - tionitwilldeemanACICS-accreditedinstitutiontoholdrecognizedaccreditationandwillrequiretheinstitution  tocomplywithcertainconditionsandrestrictions.OnDecember21,2016,HCONandEDexecutedarevised  provisionalprogramparticipationagreement,orPPPA,andaddendumtothePPPAinwhichHCONagreedto  complywithED’sconditionsandrequirements.HCONhasanin-processapplicationforaccreditationbyABHES.  ABHESisanationalaccreditorforalliedhealthschoolsrecognizedbyED.InJune2016,HCONwasnotifiedthat  itsDiplomainPracticalNursingandAssociateDegreeinNursingprogramshavebeengrantedpre-accreditation  candidacystatusbytheNationalLeagueforNursingCommissionforNursingEducationAccreditationeffective  throughJune23,2019.TheRN-to-BSNProgramhasreceivedprogrammaticaccreditationfromtheCommission  onCollegiateNursingEducation,orCCNE.Thestatusandmeaningoftheseaccreditationsandrecognitionsis  describedmorefullybelowin“RegulatoryEnvironment—Accreditation.” 2016 Annual Report 31 Beginningin2012,ACICSestablishedrequirements,includingminimum“standards”andexpected“bench - marks,”tomeasurestudentretention,graduateplacementandlicensureexampassagerates.Asaresultofthe  placementratesreportedforthePNProgramattheClevelandcampus,onFebruary24,2017,ACICSnotified  HCONthatunlessitnotifiesACICSthatitisdiscontinuingthePNProgramattheClevelandcampus,thenACICS  expectstoissueashow-causeletterrequiringHCONtodemonstratewhyACICSapprovalofthePNProgramat  thelocationshouldnotbewithdrawn.AdditionalinformationandadiscussionofapplicableACICSrequirements  aredescribedmorefullybelowin“RegulatoryEnvironment—Accreditation.” STUDENT RECRUITMENT AND MARKETING PriortoouracquisitionofHCON,wehadnoexperiencewithattractingnewstudentsto,andretainingstudents  in,educationalprogramsofferedprimarilyonphysicalcampuses,andwiththeopeningofHCON’sfifthlocation  wewillnowbemarketinginageographicmarketinwhichHCONdidnotpreviouslymarket.HCON’smarketing  strategyisfocusedonbuildinglong-termrelationshipswithbusinesses,organizationsandindividualsinthe  healthcarecommunity,primarilyinOhio.Webelievethisstrategywillcontinuetogenerateasignificantnumber  ofreferrals.Inaddition,HCONutilizestraditionalmediaaswellasinternet-focusedmarketingchannels,includ - ingorganicsearch,localdisplayadvertisingandpay-per-click.However,ifweareunabletoeffectivelymarket  HCON’sprograms,wemaynotbeabletosuccessfullyexecuteourlong-termstrategicplantodiversifyourbusi - nessandexpandourprograms,whichwouldnegativelyaffectouroperatingresults. STUDENT ADMISSIONS HCONwelcomesprospectivestudentstoapplyforadmissionatanytimebysubmittinganapplicationalong  withanapplicationfee.TobeacceptedintoanyHCONprogram,anapplicantmustbeaU.S.citizenorper - manentresident,beatleast18yearsoldatthetimeofstartingtheprogram,andholdahighschooldiploma  orGeneralEducationDevelopmentcertificate.HCON’sprogramsalsohaveprogram-specificadmissions  requirements. ApplicantsforboththePNProgramandtheADNProgramarerequiredtocompleteaninterviewwithanadmis - sionsrepresentative,andcompleteandpassacriminalbackgroundcheckandadrugscreening.Applicants  forthePNProgramarealsogenerallyrequiredtotakeandpasstheHealthEducationSystemsIncorporated  AdmissionAssessment,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  $18,435intuitionandfees,theADNprogrammaybecompletedforapproximately$26,925intuitionandfees,  andtheRN-to-BSNProgrammaybecompletedforapproximately$22,305intuitionandfees.Feesincludethe  32 AmericanPublicEducation,Inc. costofexaminationreviewmaterials,labfees,testreviewfees,andfeesforapplicationswiththeOhioBoardof  Nursing,amongothers.SomeofthesecostsarepayabletoHCONandothersarepayabletothirdparties. HCON’sstudentsalsoincurcostsfortextbooks,supplies,uniformsanditstechnologypackage.Thesecostsvary  amongHCON’sthreeprogramsandarepaidforbyHCON’sstudentsasthetextbooksorsuppliesareneeded.  HCONestimatesthatoverthelifeofitsprogramsastudent’scostsrelatedtotextbooksandsupplieswillbe  approximately$2,700forthePNProgram,$4,100fortheADNProgram,and$3,000fortheRN-to-BSNProgram. SOURCES OF STUDENT FINANCING HCON’sstudentsfinancetheireducationthroughacombinationofindividualresources,VAeducationbenefits,  ED’sTitleIVprograms,privateloans,stateandfederalgrants,andcorporatereimbursementprograms.Most  HCONstudentsrelyonsomeformoffinancialaidinadditiontotheirindividualresources.Thesubstantial  majorityofHCON’srevenueisderivedfromstudentsutilizingED’sTitleIVprograms,whichresultsinincreased  regulatoryrisks,asdiscussedmorefullybelowin“RegulatoryEnvironment—StudentFinancingSourcesand  RelatedRegulations/Requirements—DepartmentofEducation—RegulationofTitleIVFinancialAidPrograms— The‘90/10Rule.’”Asaresult,HCON’smanagementmayfinditnecessarytodecreaseHCON’senrollmentof  studentsutilizingtheTitleIVprogramsorpursueotherapproaches,anyofwhichcouldhaveanegativeimpact  onitsoperatingresultsandourfinancialcondition. WhileHCONdoesnotcurrentlyparticipateinDoD’stuitionassistanceprograms,itmaydosointhefuture,in  whichcaseitwillbesubjecttosuchprogram’srequirementsandrestrictions,whicharemorefullydiscussed  inthe“OurInstitutions—AmericanPublicUniversitySystem—SourcesofStudentFinancing,”“Regulatory  Environment—StudentFinancingSourcesandRelatedRegulations/Requirements,”“RegulatoryEnvironment— RecentLegislativeandRegulatoryActivity—FederalLegislativeActivity—SequestrationandBudgetaryMatters,”  and“RiskFactors”sectionsofthisAnnualReport. FACULTYANDSTAFF HCON’sfacultyconsistsofapproximately130facultymemberswithrelevantteachingandnursingorhealthcare  practitionerexperience.HCONalsoemploysapproximately90staffmemberswhoadministerHCON’sacademic,  technology,service,andbusinessoperations.HCON’sfacultyandstafflargelyworkatoneofitsfivecampuses.  NoneofHCON’semployeesarepartiestoanycollectivebargainingarrangement.WebelievethatHCONhasa  goodrelationshipwithitsemployees. Approximately90ofHCON’sfacultymembersaredesignatedasfull-timefacultywiththeremainderdesig - natedaspart-timefaculty.AllfacultywhoseinstructionisfocusedwithinthePNProgrammusthaveearnedthe  minimumofabachelor’sdegreeinnursing.AllfacultywhoseinstructionisfocusedwithintheADNProgramand  RN-to-BSNProgrammusthaveearnedtheminimumofamaster’sdegree.AllHCONfacultywhoseinstruction  isnursingtheory-basedmusthaveanactivelicensetopracticeasaRegisteredNurse.Inadditiontotheformal  educationofHCON’sfaculty,manyhavealsoobtainedspecializedcertificationsinthefieldofnursing. Webelievethatselectingwell-educatedandqualifiedfacultymembersisakeycomponenttoHCON’ssuccess.  Inadditiontohavingthenecessaryeducationalrequirements,HCONseeksfacultywhohavedemonstrated  experienceinthefieldofnursing.AlmostallfacultywhoteachHCON’snursingcourseshavenursingexperience  inaclinicalsetting,whichwebelievehelpsteachHCON’sstudentstheskillsneededtobeeffectiveandsafe  caregivers. HCONtrainsanddevelopsnewfacultythroughaformal,structuredon-boarding,training,andmentoring  program.AllnewHCONfacultymembersreceivea90-dayon-boardingexperience,whichincludesaformal  2016 Annual Report 33 orientationtotheorganization,policiesandprocedures,teachingstrategies,performanceexpectationsandrole  responsibilities. INFORMATIONTECHNOLOGY In2015,thehostingandmaintenanceofHCON’sinformationtechnologyinfrastructurewastransitionedfrom  athird-partyaffiliatedwithHCON’spreviousownershiptoAPUS,whichprovidesservicesthroughanintercom - panyarrangement.ForinformationregardingthesecurityandreliabilityofAPUSprovidedsystems,pleaserefer  to“OurInstitutions—AmericanPublicUniversitySystem—InformationTechnology.” INTELLECTUALPROPERTY 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 HCON’sprogramsarelargelyofferedascampus-basedprogramstoresidentsinthegeographicareaswhereit  hascampuses.Intheseregions,HCONcompeteswithotherschoolsofferingnursingprograms,includingfor- profitandnot-for-profitpublicandprivatecolleges.Becauseofthegeographicfocus,HCON’scompetitiveenvi - ronmentisimpactedbyvariousfactorsthatarespecificnotonlytoOhiobutalsototheparticularareasofOhio  wherecampusesarelocated,includingintermsofthelocalsupplyof,anddemandfor,bothnursesandnursing  schools.AsaresultofHCON’sgeographicfocus,HCON’sresultsarealsomoresusceptibletotheactionsof  singlecompetitorsthananinstitutionthatdrawsfromabroadergeographicalarea.Forexample,aparticularly  effectiveorineffectivemarketingapproachbyanotherschool,ortheopeningorclosingofanotherschool,could  haveunanticipateddetrimentsorbenefitstoHCON’scompetitiveposition.BecauseHCON’sRN-to-BSNProgram  isofferedonline,HCONalsocompetesinabroadermarketagainstotheronlinenursingprograms.Foraddi - tionalinformationregardingHCON’scompetitiveenvironment,pleasereferto“Business—CompanyOverview.” RegulatoryEnvironment IntheUnitedStates,postsecondaryeducationinstitutionsareoverseenbyathree-partregulatoryframe - workcomprisedof(i)accreditingagenciesrecognizedbytheU.S.SecretaryofEducation,(ii)stateregulatory  bodies,and(iii)thefederalgovernment,throughtheU.S.DepartmentofEducation,orED.BecauseAmerican  PublicUniversitySystem,orAPUS,participatesinmilitarytuitionassistanceprogramsadministeredbytheU.S.  DepartmentofDefense,orDOD,andAPUSandHCONparticipateinveteranseducationbenefitsprograms  administeredbytheU.S.DepartmentofVeteransAffairs,orVA,ourinstitutionsarealsosubjecttooversightby  thoseagencies.Theregulations,standards,andpoliciesoftheseorganizationscoverthevastmajorityofour  operations,includingoureducationalprograms,facilities,instructionalandadministrativestaff,administrative  procedures,marketing,recruiting,financialoperations,andfinancialcondition. Thepostsecondaryeducationregulatoryenvironmentcontinuestobecomemorecomplex.Applicableregu - lations,standards,andpoliciesfrequentlychange,andchangesin,ornewinterpretationsof,existingregula - tions,standards,andpolicies,aswellasapplicablelaws,couldhavematerialconsequencesforourinstitutions’  accreditation,authorizationtooperateinvariousstates,permissibleactivities,receiptoffundsunderfederal  studentfinancialaidprograms,andcostsofdoingbusiness.InrecentyearsEDhasbeenactivelyissuingnew  34 AmericanPublicEducation,Inc. rulesthathavehadasubstantialimpactontheproprietarypostsecondaryeducationindustry.Forexample,  in2010,EDadoptedrules,whichweregenerallyeffectiveJuly1,2011andwhichwerefertoastheProgram  IntegrityRegulations,establishingsignificantnewcompliancerequirementsforinstitutionsofhighereduca - tion.In2014,EDadoptedrules,whichweregenerallyeffectiveJuly1,2015andwhichwerefertoastheFinal  GERegulations,definingthecircumstancesunderwhichaneducationprogrampreparesstudentsfor“gain - fulemploymentinarecognizedoccupation,”asisrequiredinorderforstudentsenrolledinsuchprograms  toreceivestudentfinancialaidunderTitleIVoftheHigherEducationActof1965,asamended,ortheHEA.In  2016,EDadoptedrules,whichgenerallyareeffectiveJuly1,2017andwhichwerefertoastheBorrowerDefense  Regulations,establishinganewfederalstandardandprocessfordeterminingwhetheraborrowerhasadefense  torepaymentonaloan,oraDirectLoan,madeundertheWilliamD.FordFederalDirectLoanProgram,orDirect  LoanProgram,basedonanactoromissionofaninstitution;prohibitinginstitutionsthatparticipateinthe  DirectLoanprogramfromusingcertaincontractualprovisionsregardingdisputeresolution,suchaspre-dis - putearbitrationagreementsorclassactionwaivers,andrequiringcertainnotificationsanddisclosuresregard - ingtheuseofarbitration;andrevisingED’sfinancialresponsibilitystandardsandaddingrelateddisclosure  requirements.CertainportionsoftheProgramIntegrityRegulations,theFinalGERegulations,andtheBorrower  DefenseRegulationsarediscussedinthisAnnualReport. ThepostsecondaryeducationregulatoryenvironmentmaychangeinthefutureasaresultoftheU.S.federal  electioninNovember2016.ThenewPresidentialAdministrationandnewCongressmayacttochangeorelim - inatecurrentlyeffectiveEDregulations,includingtheProgramIntegrityRegulationsandFinalGERegulations,  amongothers,andfinalEDregulationsthathavebeenpromulgatedbutarenotyeteffective,suchasthe  BorrowerDefenseRegulationsandregulationsrelatedtostateauthorizationofdistanceeducation,among  others.Forexample,thenewCongresscouldseektoactundertheCongressionalReviewAct,whichestablishes  legislativeproceduresthroughwhichCongressmayadoptajointresolutionofdisapprovaltonullifycertain  agencyfinalregulationswithinacertaintimeperiodaftertheregulationsarefinalizedbytheagency.ED,under  newleadership,couldalsoinitiatenewrulemakingprocessestoalterexistingregulationsandcouldactto  changeexistingEDpoliciesandpracticeswithrespecttomattersrelatedtopostsecondaryeducationinstitu - tions.OnJanuary30,2017,EDannouncedthatitintendstotakeunspecifiedregulatoryactionsregardingcertain  regulationsthathavebeenpublishedbuthavenotyettakeneffect,includingtheBorrowerDefenseRegulations  andregulationsrelatedtostateauthorizationofdistanceeducation.Wecannotpredicttheextenttowhichthe  newPresidentialAdministrationandnewCongresswillacttochangeoreliminateEDregulations,policies,and  practices,norcanwepredicttheformthatnewregulations,policies,orpracticesmaytake. ACCREDITATION Accreditationisavoluntary,non-governmentalprocessthroughwhichaninstitutionoraprogramsubmitsto qualitativereviewbyanorganizationofpeerinstitutions,basedonthestandardsoftheaccreditingagencyandthe statedaimsandpurposesoftheinstitutionorprogram.Accreditingagenciesestablishcriteriaforaccreditation, conductpeer-reviewevaluationsofinstitutionsorprograms,andpubliclyrecognizethoseinstitutionsorpro- gramsthatmeetthestatedcriteria.Accreditedschoolsandprogramsaresubjecttoperiodicreviewbyaccrediting agenciestoensurecontinuedhighperformance,institutionalandprogramimprovement,andinstitutionaland programintegrity,andtoconfirmthataccreditationcriteriacontinuetobesatisfied.Aninstitutionorprogramthat isdeterminednottomeetthecriteriamayhaveitsaccreditationlimited,revoked,ornotrenewed. PursuanttoprovisionsoftheHEA,EDreliesonaccreditingagenciestodeterminewhethertheacademicquality  ofaninstitution’seducationalprogramsissufficienttoqualifytheinstitutiontoparticipateinstudentfinancial  aidprogramsauthorizedunderTitleIVoftheHEA,orTitleIVprograms.Institutionalaccreditationbyanaccred - itingagencyrecognizedbytheSecretaryofEducationisalsonecessarytoparticipateinDoDtuitionassistance  programs.ToberecognizedbytheSecretaryofEducation,accreditingagenciesmustadoptspecificstandards  2016 Annual Report 35 andproceduresforthereviewofeducationalinstitutionsorprograms.Thelossofinstitutionalaccreditation  wouldresultinthelossofeligibilitytoparticipateinTitleIVprograms,whichwouldhaveamaterialadverse  impactonourresultsofoperationsandfinancialcondition.Additionalinformationabouteachofourinstitu - tions’accreditationisprovidedaboveineachreportingsegment’s“OurInstitutions—Accreditation”sectionand  asfollows: • APUSisinstitutionallyaccreditedbyTheHigherLearningCommission,orHLC,aregionalinstitutionalaccred - itingagencyrecognizedbytheSecretaryofEducation.InJuly2011,HLCreaffirmedtheaccreditationstatusof  APUS.In2015,asrequiredbyHLCinconnectionwiththe2011reaffirmationofaccreditation,APUSsubmitted  aninterimprogressreportthatwassubsequentlyacceptedbyHLC.HLCalsofromtimetotimemayschedule  sitevisitsforotherreasons,includinganon-sitevisitrelatedtoachangeofcontrol,structureororganization  transaction,asubstantivechange,orconformitywithHLC’sCriteriaforAccreditation(relatedtotopicssuchas  teachingandlearning,andresources). Inconnectionwithourorganizationalrealignment,HLCrequestedthatAPUSsubmitanapplicationtoenable  HLCtodeterminewhetherAPUS’sproposaltoenterintoasharedservicesmodelwithAPEIconstitutesa  changeinorganizationorstructurethatrequiresHLCpriorapproval.OnDecember22,2016,APUSsubmit - tedtherequestedchangeofstructureapplication.HLCiscurrentlyreviewingAPUS’sapplicationandaspart  ofthatreviewprocessplanstoconductanon-sitevisittoAPUSinearlyMay2017.WeanticipatethattheHLC  BoardofTrusteeswillconsiderandactonAPUS’sapplicationduringitsmeetinginJune2017.HLChadplanned  tovisitAPUSinFebruary2017aspartofastandardmid-cyclereview.Asaresultofthechange-of-structure  applicationprocess,HLCagreedtopostponethatmid-cyclereviewuntilearly2018.Weareunabletopredict  whetherHLCwillapproveAPUS’sapplicationandwhetherornotsuchapprovalwillbesubjecttolimitationsor  conditions.Further,weareunabletopredictwhatchanges,ifany,HLCmayrequiretoAPUS’sorganizational  realignmentandhowsuchchangesmayimpactourbusiness,operations,financialcondition,resultsofoper - ations,andcashflows.Thenextcomprehensiveevaluationforreaffirmationofaccreditationisscheduledfor  the2020-2021academicyear. OnAugust31,2016,HLCadoptedpolicychangesthatareintendedtofacilitatequickerHLCresponsesto  changingcircumstancesataccreditedinstitutions.ThepolicychangespermitHLCtodesignatepubliclyan  institutionas“infinancialdistress”or“undergovernmentalinvestigation”wheresuchsituationshavethe  potentialtoimpacttheinstitution’soperationsandHLCbelievesthepublicshouldhaveinformationinmak - ingadecisiontoattendorcontinuetoattendtheinstitution.Anaccreditedinstitutionwithadesignationmay  berequiredtosubmitreportsaboutitsfinancialorlegalsituationorundergospecialmonitoring,andmay  besubjecttolimitsonsubstantivechanges.Adesignationtypicallywillextendfornotmorethantwoyears  andmayberemovedwhenHLCdeterminesthedesignationisnolongerrequiredbecausetheinstitutionhas  resolvedtheissuesthatledtothedesignation. • HondrosCollegeofNursing,orHCON,isinstitutionallyaccreditedbytheAccreditingCouncilforIndependent  CollegesandSchools,orACICS,anationalaccreditingagency.AftercompletionofouracquisitionofHCON,  ACICSactedtoreinstateHCON’saccreditationthroughDecember31,2016,effectivefromthedateofthe  acquisition.Duringthefirstquarterof2016,ACICSconductedasitevisitateachofHCON’scampusesas  partofACICS’evaluationofHCON’srenewalofaccreditationapplication.In2016,ACICSreaffirmedHCON’s  Clevelandcampus’accreditationthroughDecember31,2020,itsCincinnatiandDaytoncampuses’accredita - tionthroughDecember31,2021anditsColumbuscampus’accreditationthroughDecember31,2022.ACICS  alsohasgrantedaccreditationtothenewToledocampusthroughDecember31,2017.Formoreinformation,  see“RegulatoryEnvironment—RegulatoryActionsandRestrictionsonOperations—ChangeinOwnership  ResultinginaChangeofControl”and“RiskFactors—RisksRelatedtotheRegulationofOurIndustry.” 36 AmericanPublicEducation,Inc. ACICSrequiresaccreditedinstitutionstosubmitannuallycertaincampus-levelandprogram-leveldata(e.g.,  retentionrates,placementrates,andlicensureexampassrates)forpurposesofmonitoringstudentachieve - mentagainstestablishedrequirements,includingminimum“standards”andexpected“benchmarks.”To  satisfyACICS’s“standards,”theretentionrate,placementrate,andlicensureexampassrateeachmustexceed  60%.TosatisfyACICS“benchmarks,”eachratemustexceed70%.IfACICSdeterminesthataninstitution’scam - pus-levelorprogram-leveldatadonotsatisfyoneormorestandardsorbenchmarks,ACICSmaytakecertain  actions.InJanuary2017,ACICSpublishedanewpolicy,effectiveDecember6,2016,thatdefinesintermsof  metricrangeswhenaparticularactionwillbetakenatthecampusandprogramlevels,includingtheissuance  ofacompliancewarning,ashow-causedirective,anadverseactionorreportingwithrestrictionsagainsta  campusorprogram. ForthereportingyearJuly1,2015throughJune30,2016,severalHCONcampusesandprogramsdidnotsat - isfyACICSstudentachievementmeasures.OnFebruary24,2017,ACICSnotifiedHCONthatunlessitnotifies  ACICSthatitisdiscontinuingthePNProgramattheClevelandcampus,thenACICSexpectstoissueashow- causeletterrequiringHCONtodemonstratewhyACICSapprovalofthePNProgramatthelocationshould  notbewithdrawn.ACICStooksuchactionunderthenewpolicybecausetheplacementratesreportedforthe  PNProgramattheClevelandcampuswerebetween50-59.9%fortwoconsecutiveyears.Aninstitutionthat  ACICSdirectstoshowcausemustimmediatelynotifycurrentandprospectivestudentsoftheshow-cause  status,includingbypostingaprominentnoticeonitswebsite.WeunderstandthatifthePNProgramatthe  Clevelandcampusisputonshowcause,HCONwillberequiredtomakecertainreportstoACICSandwill  haveuntilitsnextcampusaccountabilityreport,duebyNovember1,2017,todemonstrateitsplacementrate  complieswiththerelevantstudentachievementmeasure.Atthistime,weareunabletopredicttheimpactof  thisdevelopmentandthepossibleoutcomesonourenrollmentsandresultsofoperations.Inaddition,based  onourunderstandingoftheACICS’snewpolicyrelatedtostudentachievementmeasuresandrelatedactions,  weanticipatethatcertainotherHCONcampusesandprogramswillbesubjecttocompliancemonitoringand  improvementplanrequirements. BydecisiondatedDecember12,2016,theSecretaryofEDwithdrewandterminatedED’srecognitionofACICS,  asdiscussedmorefullybelowinthissection.HCONhasanin-processapplicationforaccreditationbythe  AccreditingBureauofHealthEducationSchools,orABHES,anationalaccreditorforalliedhealthschoolsthat  isrecognizedbyEDforfederalstudentfinancialaidpurposes.ABHESpoliciesrequirethatinstitutionsandpro- gramsapplyingforABHESaccreditationmustadviseABHESimmediatelyofanyadverseorpotentiallyadverse  action,includingashow-causedirective,byanotheraccreditingagency.ABHESalsoreservestherightnotto  grantinitialaccreditationifaninstitutionisonprobationoranequivalentstatusimposedbyanotheraccred - itingagency.Atthistime,wecannotpredictwhetherABHESwillrespondtoACICS’sactionswithrespecttothe  Clevelandcampus’sPNProgram,includinghowitwillimpactanydecisionwithrespecttoinitialaccreditation  ofHCONortheapprovalofthePNProgramaspartofinitialaccreditation. Institutionalaccreditationisanimportantattributeofourinstitutions.Collegesanduniversitiesdepend,inpart,  onaccreditationinevaluatingtransfersofcreditandapplicationstograduateschools.Students,corporations,  andgovernmentsponsorsundertuitionreimbursementprogramslooktoaccreditationforassurancethatan  institutionmaintainsqualityeducationalstandards,andemployersrelyontheaccreditedstatusofinstitutions  whenevaluatingacandidate’scredentials. TheNationalAdvisoryCommitteeonInstitutionalQualityandIntegrity,orNACIQI,ischargedwithadvisingthe  SecretaryofEducationonwhethertorecognizeaccreditingagenciesforfederalpurposes,includingforpartici - pationinTitleIVprograms.NACIQIiscomposedof18memberswithsix-yearmembershipterms,withmembers  appointedequallyandatstaggeredintervalsbytheSecretaryofED,theU.S.HouseofRepresentatives,andthe  U.S.Senate. 2016 Annual Report 37 InJune2015,NACIQIvotedtorecommendthatEDrenewHLC’srecognitionasanaccreditingagencythrough  December2017.EDsubsequentlyacceptedNACIQI’srecommendationandcontinuedHLC’srecognitionthrough  December2017.IfHLCweretoloseitsrecognitionasanaccreditingagency,APUScouldloseitseligibilitytopar - ticipateinTitleIVprogramsandDoDtuitionassistanceprograms. InJune2016,NACIQIrecommendedthatED’sSeniorDepartmentOfficialdenyACICS’spetitionforrenewal  ofrecognitionandwithdrawACICS’sstatusasarecognizedaccreditor.OnSeptember22,2016,theEDSenior  DepartmentOfficialconcurredwithNACIQI’srecommendationandterminatedED’srecognitionofACICSasa  nationallyrecognizedaccreditingagency.ACICSappealedthedecisiontotheSecretaryofED,whobydecision  datedDecember12,2016,withdrewandterminatedED’srecognitionofACICS.WhentheSecretarywithdraws  therecognitionofanaccreditingagency,apostsecondaryeducationalinstitutionmaybeallowedtocontinue  itsparticipationonaprovisionalbasisintheTitleIVprogramsforaperiodnottoexceed18monthsfromthe  dateoftheSecretary’sdecisiontoallowtheinstitutiontoseekaccreditationfromanotherrecognizedaccredit - ingagency.InconnectionwithACICS’slossofrecognition,EDhasindicatedthatduringtheperiodofprovisional  participationitwilldeemanACICS-accreditedinstitutiontoholdrecognizedaccreditationandwillrequirethe  institutiontocomplywithcertainconditions,includingthattheinstitution: • willberestrictedfrommakingmajorchanges,suchasaddinglocations,increasingthelevelofacademic  offeringsoraddingnewprograms,withoutEDapproval,andsuchapprovalwillbegrantedonlyinlimited  circumstances; • mustsubmitateach-outplantoEDbyJanuary11,2017; • mustmakecertainnotificationsanddisclosuresandwillnotbeeligibletoreceiveTitleIVfundsforanynewly  enrolledstudentsifstudentsbecomeineligibletositforanylicensingorcertificationexamasaresultofthe  lossofaccreditation; • mustmakecertainnotificationsanddisclosuresandwillnotbeeligibletoreceiveTitleIVfundsiftheinstitu - tionlosesitsauthorizationtooperateandissuepostsecondarycredentials; • mustsubmitreportstoEDregardinglawsuits,arbitrations,andinvestigationsandmustinformstudents  aboutwheretofilecomplaintstheymayhavepreviouslysubmittedtotheinstitution’saccreditor;and • mustengageitsthird-partyauditortoevaluatecertaindataandcomplianceindicatorsthatwouldhavebeen  monitoredbytheaccreditingagency. EDwillalsoimposecertainadditionalrequirementsonACICS-accreditedinstitutionsthatdonotmeetcertain  milestonestowardaccreditationbyanotherrecognizedaccreditingagency.Aninstitutionthatdoesnothave  anin-processapplicationwithanotherrecognizedaccreditingagencybyMarch13,2017,mustsubmitaformal  teach-outagreementtoEDanddisclosetoitsstudentsthatitdoesnothaveanin-processapplication.Aninsti - tutionthatdoesnothaveanin-processapplicationwithanotherrecognizedaccreditingagencybyJune12,2017,  orhasnotcompletedanaccreditingagencysitevisitbyOctober10,2017,willnotbeeligibletoreceiveanyTitle  IVfundsforanystudentthatenrollsafterthatdate,mustmakeadditionaldisclosurestostudents,mustsubmit  aletterofcredittoEDinanamountdeterminedbyED,andmustsubmitstudentrostersandarecordretention  plantoED.OnDecember21,2016,HCONandEDexecutedarevisedprovisionalprogramparticipationagree - ment,orPPPA,andaddendumtothePPPAinwhichHCONagreedtocomplywithED’sconditionsandrequire - ments.HCONhasanin-processapplicationforaccreditationbyABHES,anaccreditorforalliedhealthschools  thatisrecognizedbyED. OnDecember15,2016,ACICSfiledamotionforatemporaryrestrainingorderandpreliminaryinjunctionagainst EDintheUnitedStatesDistrictCourtfortheDistrictofColumbia.ACICSaskedthecourttostaytheSecretary’s  decisionterminatingACICS’srecognitionstatus,restoreACICS’srecognitionstatus,andenjoinEDfromenforcing  38 AmericanPublicEducation,Inc. therequirementsforACICS-accreditedinstitutions,includingthosesetforthinED’sprovisionalprogrampartic - ipationagreement.OnDecember20,2016,thecourtdeniedACICS’srequestforatemporaryrestrainingorder,  andonFebruary21,2017,thecourtdeniedACICS’srequestforapreliminaryinjunction. InadditiontoED,theapprovalstatusandinsomecasesfundingprovidedbyotheragenciescouldbeadversely  affectedbyHCON’slossofaccreditationbyarecognizedaccreditingagency,effectiveatthetimetheaccredita - tionislost,evenduringanyperiodthatED’sprovisionalcertificationofHCONcontinues.Foradditionalinforma - tionregardingtherisksassociatedwithlossofaccreditation,pleaserefertothe“RiskFactors—RisksRelatedto  theRegulationofOurIndustry”sectionofthisAnnualReport. Inadditiontoinstitutionalaccreditation,ourinstitutionshaveobtainedspecializedaccreditationorprofessional  recognitionforseveralspecificprograms,asdescribedmorefullyaboveineachreportingsegment’ssection  entitled“OurInstitutions—Accreditation.”Accreditationofaprogrambyaspecializedaccreditingagencyor  grantingofprofessionalrecognitionbyaprofessionalorganizationsignifiesthattheprogrammeetsthestan - dardsofthatagencyororganization.Ifoneofourinstitutionsfailstosatisfythestandardsofthesespecialized  accreditingagenciesandprofessionalorganizations,theinstitutioncouldlosethespecializedaccreditationor  professionalrecognitionfortherelevantprograms,whichcouldresultinmateriallyreducedstudentenroll - mentsinthoseprograms,preventtheinstitutionfromofferingtheprogramsincertainstates,orpreventour  studentsfromseekingandobtainingappropriatelicensureintheirdesiredfieldsoremploymentfromparticular  employers. STATE LICENSURE/AUTHORIZATION Ourinstitutionsaresubjecttoextensiveregulationsbythestatesinwhichtheyareauthorizedtooperate.The  levelofregulatoryoversightvariessubstantiallyfromstatetostate,andstateregulationschangefrequently.  Statelawstypicallyestablishstandardsforinstruction,qualificationsoffaculty,administrativeprocedures,  marketing,recruiting,financialoperations,andotheroperationalmatters.Somestatesmayalsoprescribe  regulationsrelatedtoaninstitution’sfinancialcondition,andsomestatesrequirethepostingofsuretybonds.  Statelawsandregulationsmayalsoaffectourinstitutions’abilitytooffereducationalprograms,openlocations,  andawarddegrees.Ifoneofourinstitutionsfailstocomplywithastate’sregulatoryrequirements,itmaylose  statelicensureorauthorization,whichwouldresultintheinstitution’sinabilitytoenrollstudentsinthatstate,  andcouldresultintheinstitution’sinabilitytoreceiveTitleIVprogramfundsandDoDtuitionassistancefunds,  atleastforstudentsinthatstate. Somestatesassertauthoritytoregulateaninstitutionifitseducationalprogramsareofferedtoresidentsof  thosestates,regardlessofwhethertheinstitutionmaintainsaphysicalpresenceinthestatewherethestudent  resides.Theincreasedpopularityofonlineeducationhasled,andmayfurtherlead,totheadoptionofnew  lawsandregulatorypracticesandnewinterpretationsofexistinglawsandregulationsinvariousstates.States  mayalsorevisetheirregulationsinthisareaasaresultofrecentEDregulations,asdiscussedmorefullybelow  in“StateLicensure/AuthorizationRequirements.”Newlaws,regulations,orinterpretationsrelatedtodoing  businessovertheinternetcouldincreaseourcostofdoingbusinessandaffectourabilitytorecruitstudentsin  particularstates,whichcould,inturn,negativelyaffectenrollmentsandrevenueandhaveamaterialadverse  effectonourbusiness.ForadditionalinformationregardingtherisksrelatedtotheregulationoftheInternet,  pleasereferto“RiskFactors—RisksRelatedtoOurBusiness.” Changesinourbusinessorchangesinthenatureoramountofourcontactwith,orpresencewithin,aparticular  statecouldleadstatesthatdonotcurrentlyrequireourinstitutionstobelicensedorauthorizedtorequiresuch  licensureorauthorizationinthefuture.Forexample,programsthatinclude“ontheground”componentsthat  maybedescribedasinstructionalactivities,suchasclinicalinternships,maybeviewedbysomestateregulatory  2016 Annual Report 39 agenciesasconstitutingaphysicalpresenceforregulatorypurposes.Asthoseprogramsexpand,itispossible  thatourinstitutionswillneedtoseekformalauthorizationtooperateinsomestateswherehistoricallythey  havenotbeenrequiredtodoso.Theextentofthisexpansioninregulatoryrequirements,andtheassociated  costsandsignificance,arenotknownatthistime.Furthermore,theremaybesomestateswhereittakesasig - nificantamountoftimetomeettheapplicableregulatoryrequirementswithrespecttoanewprograminitiative,  orwherewearenotabletodosoatall. TheStateAuthorizationReciprocityAgreement,orSARA,isavoluntaryagreementamongmemberstates,  districtsandterritoriesthatestablishescomparablenationalstandardsforinterstateofferingofpostsecond - arydistanceeducationcoursesandprograms.SARAisintendedtomakeiteasierforstudentstotakeonline  coursesofferedbypostsecondaryinstitutionsbasedinanotherstate.SARAisoverseenbyaNationalCouncil  andadministeredbyfourregionaleducationcompacts,whichacceptapplicationsfromstatesintheirregionsto  joinSARA.SARArequiresstatestoapproveinstitutionsintheirstatetoparticipateinSARA,baseduponinsti - tutionalaccreditationandfinancialstability,andtoresolvestudentcomplaints.SARAmembershipisopento  degree-grantingpostsecondaryinstitutionsfromallsectors,includingpubliccollegesanduniversitiesaswellas  not-for-profitandfor-profitindependentinstitutions.Aninstitutionmustbeaccreditedbyanagencyrecognized  bytheU.S.SecretaryofEducation.SARAmemberstatesagreetoimposenoadditional(non-SARA)authorization  requirementstoprovidedistanceeducationoninstitutionsfromotherSARAstates.ForSARApurposes,aninsti - tution’s“homestate”isthestatewhereitsmaincampusorcentralunitholdsitsprincipallegaldomicile.SARA  shiftsprincipaloversightresponsibilitiesfromthestateinwhichthedistanceeducationisbeingreceivedto  the“homestate”oftheinstitutionofferingtheinstruction.SARAdoesnotcover,orlimititscoveragerelatedto,  certainactivitiesinwhichaninstitutionmayengageinastate,meaningiftheinstitutionengagesinthatactivity  inastate,itmaystillberequiredtoobtainstateauthorizationinthatstateevenifitisaSARAmember,including  forexample,authorizationfromagenciesorboardsresponsibleforprofessionalrequirements.Membershipin  SARAwasopenedtostatesinJanuary2014.TheStateofWestVirginiajoinedSARAeffectiveDecember1,2014.  APUS’sinitialapplicationtobecomeaSARAinstitutionwasapprovedonDecember8,2014,andAPUShasbeen  aparticipatingSARAinstitutionsincethattime.TheStateofOhiojoinedSARAeffectiveMarch2,2015.HCON’s  applicationtobecomeaSARAinstitutionwasapprovedinApril2016,andHCONhasbeenaparticipatinginstitu - tionsincethattime. Manystatesalsohavespecificrequirementsthatanindividualmustsatisfyinordertobelicensedasapro - fessionalinaspecifiedfield.Studentsoftenseektoobtainprofessionallicensureintheirchosenfieldsafter  graduation.Theirsuccessinobtaininglicensuretypicallydependsonseveralfactors,including,forexample:the  individualmeritsofthegraduate;whethertheinstitutionandtheprogramwereapprovedbythestateinwhich  thegraduateseekslicensure,orbyaprofessionalassociation;whethertheprogrammeetsallstaterequire - mentsforprofessionallicensure;andtheaccreditationoftheinstitutionandthespecificprogram.SARAhasno  effectonstateprofessionallicensurerequirements. STATELICENSURE/AUTHORIZATIONREQUIREMENTS “Home” State Authorization ThefinalProgramIntegrityRegulationsadoptedbyEDaddresscertaininstitutionalandprogrameligibility  issues,includingstateauthorization.TheProgramIntegrityRegulationsspecifyhowaninstitutionmaydemon - stratethatitisauthorizedtoofferpostsecondaryeducationalprogramsbythestate(s)whereitislocated,which  werefertoasits“home”state.IfrequestedbyED,aninstitutionmustbeabletodocumentitshomestate’s  approvalinordertoparticipateinTitleIVprograms.Inaddition,thehomestatemusthaveaprocesstoreview  andtakeappropriateactiononcomplaintsconcerningpostsecondaryinstitutions.EDhasstatedthatitwillnot  publishalistofstatesthatmeet,orfailtomeet,theserequirements.IfEDdeterminesthataninstitutiondoes  40 AmericanPublicEducation,Inc. nothavetherequiredstateapproval,theinstitutionwillbeineligibletoparticipateinTitleIVprograms.After  EDstayedimplementationofthehomestateauthorizationrulesfromJuly1,2011toJuly1,2015,theruleswere  implementedeffectiveJuly1,2015.WecannotpredicttheextenttowhichEDwilldeterminethattheinstitutional  authorizationorcomplaintreviewprocessofanystatesatisfiesED’sregulations.IfAPUSweretoloseitsability  toparticipateinTitleIVprogramsbecauseitfailedtoobtainauthorizationbythestateinwhichitislocatedor  becauseastate’sinstitutionalauthorizationandcomplaintprocessdidnotsatisfyED’srequirements,itwould  alsoloseitsabilitytoparticipateinDoDtuitionassistanceprograms.Thelossofabilityofoneofourinstitu - tionstoparticipateineitherTitleIVprogramsorDoDtuitionassistanceprogramscouldhaveamaterialadverse  effectonourbusinessandfinancialcondition. State Authorization of Online Education InNovember2013,EDannounceditsintenttoestablishanegotiatedrulemakingpaneltoconsiderregula - tionsfor,amongotherissues,stateauthorizationofprogramsofferedthroughdistanceeducation.Negotiated  rulemakingsessionsoccurredinthewinterandspringof2014,butthenegotiatingcommitteedidnotreachcon - sensus.EDpublishedfinalregulationsonDecember19,2016.Thefinalregulationsrequireaninstitutionoffering  distanceeducationprogramstobeauthorizedbyeachstateinwhichtheinstitutionenrollsstudents,ifsuch  authorizationisrequiredbythestate,inordertoawardTitleIVaidtosuchstudents.Aninstitutioncouldobtain  suchauthorizationdirectlyfromthestateorthroughastateauthorizationreciprocityagreementthatsatisfies  ED’sdefinitionofsuchanagreement. Underthefinalrule,forstatesthatdonotparticipateinSARA,ourinstitutionswillberequiredtoobtainany  requiredstateauthorizationfromthosestatesinordertoofferdistanceeducationprogramstostudentswho  resideinthosestatesandtoawardfederalstudentfinancialaidtothosestudents.Forstatesthatdoparticipate  inSARA,ifEDdeemsSARAnottosatisfyED’sdefinitionofastateauthorizationreciprocityagreement,ourinsti - tutionswouldberequiredtoseekanyrequiredauthorizationfromthosestatesaswellinordertoofferdistance  educationprogramstostudentswhoresideinthosestatesandtoawardfederalstudentfinancialaidtothose  students,whichwouldincreaseourregulatoryburdensandcosts. Thefinalregulationsalsorequireaninstitutiontodocumentthestateprocessforresolvingcomplaintsfrom  studentsenrolledinprogramsofferedthroughdistanceeducationforeachstateinwhichsuchstudentsreside.  Inaddition,thefinalregulationsrequireaninstitutiontoprovidepublicandindividualizeddisclosuresto  enrolledandprospectivestudentsregardingitsprogramsthatareprovidedorcanbecompletedsolelythrough  distanceeducationorcorrespondencecourses,excludinginternshipsandpracticums.Thepublicdisclosures  wouldincludestateauthorizationfortheprogram,theprocessforsubmittingcomplaintstorelevantstates,any  adverseactionsbyastateoraccreditingagencyrelatedtothedistanceeducationprogramwithinthepastfive  years,refundpolicies,andapplicablelicensureorcertificationrequirementsforacareerastudentpreparesto  enterandtheprogram’ssufficiencytomeetthoserequirements.Aninstitutionwouldberequiredtodisclose  directlyandindividuallytoallprospectivestudentswhenadistanceeducationprogramdoesnotmeetthelicen - sureorcertificationrequirementsforthestateinwhichthestudentresides.Aninstitutionwouldberequired  todisclosetoeachenrolledandprospectivestudentwhenanadverseactionistakenagainsttheprogramby  astateagencyoraccreditingagencyandanydeterminationthataprogramceasestomeetlicensureorcertifi - cationrequirements.ThefinalregulationsareeffectiveJuly1,2018.OnJanuary30,2017,EDannouncedthatit  intendstotakeunspecifiedregulatoryactionsregardingthefinalregulations. STATEAUTHORIZATION/LICENSUREOFOURINSTITUTIONS APUSisphysicallyheadquarteredintheStateofWestVirginia,withadministrativeofficesintheCommonwealth  ofVirginia.Atpresent,APUSenrollsstudentsfromeachofthe50states,aswellastheDistrictofColumbia.  2016 Annual Report 41 APUSiscurrentlyauthorizedtoofferitsprogramsbytheWestVirginiaHigherEducationPolicyCommission,or  WVHEPC,theregulatoryagencygoverningpostsecondaryeducationintheStateofWestVirginia.Webelieve  thatundercurrentlawtheonlystateauthorizationorlicensurenecessaryforAPUStoparticipateinDoDtuition  assistanceprogramsisitsauthorizationfromWVHEPC.WebelievethesameistrueundercurrentlawforTitleIV  programs.Asdescribedaboveunder“StateAuthorizationofOnlineEducation,”EDpublishedfinalrulesregard - ingstateauthorizationofdistanceeducationforTitleIVpurposes,andthoserulesareeffectiveJuly1,2018.  FailuretocomplywiththerequirementsofWVHEPCcouldresultinAPUSlosingitsauthorizationfromWVHEPC,  itseligibilitytoparticipateinTitleIVprogramsandDoDtuitionassistanceprograms,oritsabilitytooffercertain  programs,anyofwhichcouldforceAPUStoceaseoperations. DuetoAPUShavingadministrativeofficeslocatedinVirginia,underVirginialawAPUSisalsorequiredtobe  authorizedbytheStateCouncilofHigherEducationforVirginia,orSCHEV.Accordingly,APUShasobtained  SCHEV’sauthorizationtooperateasanout-of-stateinstitutioninVirginia. SinceDecember2014,APUShasbeenaparticipatinginstitutioninSARA,whichisdescribedmorefullyabove.  APUSislicensedinWestVirginiabyWVHEPCandinVirginiabySCHEVbecauseofitsoperationsinthosestates.  Inaddition,APUSisauthorizedthroughreciprocityintheother45SARA-memberstatesandtheDistrictof  Columbia.APUShasalsoobtainedlicensureorauthorizationtooperateorconductactivitiesinthethreestates  (i.e.,California,Florida,andMassachusetts)thathavenotjoinedSARA. HCONisphysicallyheadquarteredinWesterville,Ohio,andhasfivecampusesinOhio.HCONiscurrently  authorizedtoofferitsprogramsbytheOhioStateBoardofCareerCollegesandSchools,theregulatoryagency  responsibleforauthorizingfor-profitandnot-for-profitprivatecareerschoolsofferingassociatedegree,certif - icate,anddiplomaprogramsintheStateofOhio.HCON’sPracticalNursingDiplomaandAssociateDegreein  NursingprogramsareapprovedbytheOhioBoardofNursing,orOBN.HCON’sonlinecompletionprogramlead - ingtoaBachelorofScienceinNursingisapprovedbytheOhioDepartmentofHigherEducation,theregulatory  agencyinOhioresponsibleforauthorizingeducationprogramsatthebachelor’sdegreelevelandabove.Asof  April2016,HCONisaparticipatingSARAinstitution. ToapplyforlicensuretopracticenursinginOhio,anapplicantmusthavesuccessfullycompletedanursingedu - cationprogramthatisapprovedbytheOBN.RegulationsoftheOBNrequirethatanursingeducationprogram  suchastheHCONPNandADNprogramsmusthaveapassrateontherelevantNCLEXlicensureexamthatisat  least95%ofthenationalaverageforfirst-timecandidatesinacalendaryear.Ifaprogramdoesnotattainsuch  passrate,theprogrammayfaceconsequences,including,afterfourconsecutiveyearsoffailingtomeetthat  standard,placementonprovisionalapprovalstatus.Ifaprogramonprovisionalapprovalcontinuestofailto  meettherequirements,theOBNmaywithdrawitsapprovaloftheprogram.HCON’sADNprogram’spassrate  ontherelevantNCLEXlicensureexamhasnotmettherequirementsoftheOBNforthepreviousfouryears.Asa  result,weexpectthatHCON’sADNprogrammaybeplacedonprovisionalapprovalstatusbytheOBNinMarch  2017.IfaprogramonprovisionalapprovalfailstomeetandmaintaintherequirementsoftheOBNattheendof  thetimeperiodestablishedforprovisionalapproval,theOBNmayproposetocontinueprovisionalapprovalfor  asettimeperiodormayproposetowithdrawapprovalpursuanttoanadjudicationproceeding.FortheOBNto  considerrestoringaprogramtoFullApprovalstatusafteraprogramisplacedonprovisionalstatusduetolow  NCLEXscores,theprogrammustattainapassratethatmeetsorexceeds95%ofthenationalaverageforfirst- timecandidatesforatleasttwoconsecutiveyears.HCONhasbeenimplementingchanges,includingthecur - riculumchangesdiscussedinthisAnnualReport,anditsNCLEXpassratesforthePNandADNprogramshave  increasedinrecentperiods.Placementonprovisionalstatusmayresultinadditionalregulatoryrequirements,  suchasarequirementtodisclosetheprovisionalstatus.Anyconsequencesthatresultfromthissituationmay  haveanadverseimpactonourresultsofoperations,cashflows,andfinancialcondition. 42 AmericanPublicEducation,Inc. Failuretocomplywithstateauthorizationorlicensurerequirementscouldrestrictourinstitutions’ability  torecruitorenrollstudentsincertainstatesorresultinothersanctionsbeingimposedonourinstitutions,  includingfinesandpenalties.Insomecases,stateauthorizationorlicensuremayimposelimitationsoncertain  activitiesandmayimposeparticularrequirementswithrespecttocertainprograms.Wereviewthelicensure  requirementsofstatestodeterminewhetherourinstitutions’activitiesinthosestatesmayconstituteapres - enceorotherwisemayrequireauthorizationorlicensurebytherespectivestateeducationagencies.Wecannot  predicttheextenttowhichstateswillretainmembershipinSARA,themannerinwhichSARA’srulesapplicable  tomemberstatesandrulesapplicabletoparticipatinginstitutionsmaybemodified,interpretedandenforced,  includinginresponsetoregulationbyED,ourinstitutions’abilitytocomplywithSARA’srequirementsandretain  membershipeligibility,ortheimpactthatfailuretomeettheSARArequirementsmayhaveonourbusiness.To  date,state-specificlimitationsandrequirementshavenothadamaterialeffectonourinstitutions’operations.  However,newlaws,regulations,interpretations,orchangedcircumstancesrelatedtoourinstitutions’educa - tionalprogramscouldincreaseourcostofdoingbusinessandaffectourabilitytorecruitstudentsandoffer  programsinparticularstates,whichcould,inturn,adverselyaffectourinstitutions’enrollmentsandrevenue  andhaveamaterialeffectonourbusiness. STUDENT FINANCING SOURCES AND RELATED REGULATIONS/REQUIREMENTS OurstudentsfinancetheireducationthroughacombinationofTitleIVprogramsadministeredbyED,theDOD  tuitionassistanceprograms,educationbenefitsadministeredbytheVA,privateloans,corporatereimbursement programs,andindividualresources.Participationinfederalstudentaidprograms,includingthoseadministered  byDoDandVA,addstotheregulationofouroperations.Inparticular,theHEAandtheregulationsissuedthere - underbyEDsubjectustosignificantregulatoryscrutinyintheformofnumerousstandardswemustsatisfyin  ordertoparticipateinandadministerTitleIVprograms. DEPARTMENTOFEDUCATION ThefederalgovernmentprovidesasubstantialpartofitssupportforpostsecondaryeducationthroughTitleIV  programs,intheformofgrantsandloanstoeligiblestudentswhocanusethosefundsatanyinstitutionthat  hasbeencertifiedbyEDtoparticipateinTitleIVprograms,providedthestudent’sprogramsatisfiesTitleIV  programeligibilityrequirements.AninstitutionmayparticipateinTitleIVprogramsonlyifitiscertifiedtodoso  anditentersintoawrittenprogramparticipationagreement,orPPA,withtheSecretaryofEducation.ThePPA  conditionsinitialandcontinuedparticipationinTitleIVprogramsuponcompliancewithEDregulations,includ - ingregulationsapplicabletoindividualTitleIVprograms,andanyadditionalconditionsspecifiedinthePPA. Types of Title IV Financial Aid Programs TitleIVprogramaidisprimarilyawardedtostudentsonthebasisoffinancialneed,generallydefinedasthedif - ferencebetweenthecostofattendinganinstitutionandtheamountastudentcanreasonablycontributetothat  cost.AllrecipientsofTitleIVprogramfundsmustmaintainsatisfactoryacademicprogressandmustprogress  inatimelymannertowardcompletionoftheirprogramofstudy.Inaddition,eachschoolmustensurethatTitle  IVprogramfundsareproperlyaccountedforanddisbursedinthecorrectamountsandinatimelymannerto  eligiblestudents. StudentsatourinstitutionsreceivegrantsandloanstofundtheireducationunderseveralTitleIVprograms,of  whichthetwolargestareDirectLoansandPellGrants.Studentsatourinstitutionsareeligibletoparticipatein  thefollowingTitleIVprograms: (1) Federal Student and Parent Loans. ED’smostsignificantformofaidincludesloanstostudentsandtheir  parentsthroughtheDirectLoanProgram.DirectLoanProgramloansaremadedirectlybythefederal  2016 Annual Report 43 governmenttostudentsortheirparents.TheDirectLoanProgramoffersFederalStaffordLoans,Federal  ParentPLUSLoans,FederalGradPLUSLoansandFederalConsolidationLoans. 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’sprimaryprogramforgrantstoundergraduatestudentswho  demonstratefinancialneed.ThemaximumamountofavailabilityofaPellGrantis$5,775forthe2015-2016  awardyear,$5,815forthe2016-2017awardyear,and$5,920forthe2017-2018awardyear,andastudent’s  lifetimeeligibilitytoreceiveaPellGrantis12semesters(oritsequivalent).Studentsmaynotbeabletouse  allofthiseligibilityatAPUSbasedontheirpriorreceiptofPellGrantsfromotherinstitutionspriortoenroll - inginoneofourinstitutions. 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  maximumawardforanyTEACHGrantfirstdisbursedonorafterOcto ber1,2016,andbeforeOctober1,  2017,wasreducedto$3,724fromanearliermaximumof$4,000. (3) Federal Work-Study. UndertheFederalWork-Studyprogram,EDpaysashare,generally75%,ofthecostof  part-timeemploymentofeligiblestudents,basedontheirfinancialneed,toperformworkfortheinstitu - tionstheyattend,orforoff-campuspublicornot-for-profitorganizations. Regulation of Title IV Financial Aid Programs TobeeligibleandcertifiedtoparticipateinTitleIVprograms,aninstitutionmustbeaccreditedbyanaccrediting  bodyrecognizedbytheSecretaryofEducation,mustbeauthorizedtooperatebytheappropriateregulatory  authorityineachstatewheretheinstitutionmaintainsaphysicalpresence,andmustcomplywithspecificstan - dardsandproceduressetforthintheHEAandtheregulationsissuedthereunderbyED. 44 AmericanPublicEducation,Inc. EDperiodicallyrevisesitsregulationsandchangesitsinterpretationsofexistinglawsandregulations.  Accreditingagenciesandstateeducationagenciesalsohaveresponsibilitiesforoverseeingcomplianceofinsti - tutionswithTitleIVprogramrequirements.Asaresult,ourinstitutionsaresubjecttoextensiveoversightand  review.Forallthesereasons,wecannotpredictwithcertaintyhowTitleIVprogramrequirementswillbeapplied  inallcircumstances.See“RecentLegislativeandRegulatoryActivity”belowformoreinformation.Keyprovisions  relatingtoinstitutionalparticipationinTitleIVandtheprocessingofTitleIVaidthatcouldadverselyaffectus  includethefollowing: Eligibility and Certification Procedures. AninstitutionmustapplyperiodicallytoEDforcontinuedcertification  toparticipateinTitleIVprograms.Recertificationgenerallyisrequiredeverysixyears,butmayberequiredear - lier,includingwhenaninstitutionundergoesachangeofcontrol.Aninstitutionmaycomeunderreviewwhen  itexpandsitsactivitiesincertainways,suchasopeninganadditionallocation,addinganewprogram,or,in  certaincases,whenitmodifiesacademiccredentialsthatitoffers. EDmayplaceaninstitutiononprovisionalcertificationstatusifEDfindsthattheinstitutiondoesnotfullysatisfy  allTitleIVrequirementsandincertainothercircumstances,suchaswhenaninstitutionisinitiallycertified  orundergoesachangeinownershipresultinginachangeincontrol.Duringaperiodofprovisionalcertifica - tion,theinstitutionmustcomplywithanyadditionalconditionsincludedinitsPPPA.Inaddition,EDmaymore  closelyreviewaninstitutionthatisprovisionallycertifiedifitappliesforapprovaltoopenanewlocation,add  aneducationalprogram,acquireanotherschool,ormakeanyothersignificantchange.IfEDdeterminesthata  provisionallycertifiedinstitutionisunabletomeetitsresponsibilitiesunderitsPPPA,itmayseektorevokethe  institution’scertificationtoparticipateinTitleIVprogramswithfewerdueprocessprotectionsfortheinstitution  thanifitwerefullycertified.StudentsattendingprovisionallycertifiedinstitutionsremaineligibletoreceiveTitle  IVprogramfunds. APUSisfullycertifiedtoparticipateinTitleIVprogramsthroughSeptember30,2020.HCONwasdeemedtohave undergoneachangeofownershipandcontrolinNovember2013,requiringreviewbyEDinordertoreestablish  eligibilityandcontinueparticipationinTitleIVprograms.Asdescribedmorefullybelowin“RegulatoryActions  andRestrictionsonOperations—ChangeinOwnershipResultinginaChangeofControl,”inJanuary2016,we  receivedaletterfromEDapprovingthechangeinownershipandcontrolandgrantingHCONprovisionalcerti - ficationtoparticipateintheTitleIVprogramsuntilDecember31,2018.HCONreceivedafullyexecutedprovi - sionalprogramparticipationagreementinFebruary2016.HCONmustcomplywithspecificconditionswhileitis  provisionallycertified,asdescribedmorefullyin“RestrictionsonAddingLocationsandEducationalPrograms,”  below.Inaddition,asdescribedabovein“Accreditation,”inconnectionwiththeSecretaryofED’sdecisionto  withdrawandterminateED’srecognitionofACICS,onDecember21,2016,HCONandEDexecutedarevised  PPPAandaddendumtothePPPAinwhichHCONagreedtocomplywithadditionalconditionsandrequirements.  UnderthePPPAandaddendum,HCONmaycontinuetoparticipateintheTitleIVprogramsonaprovisional  basisuntilJune12,2018,whileHCONseeksaccreditationbyanotherrecognizedaccreditingagency. State Authorization. ToparticipateinTitleIVprograms,aschoolmustreceiveandmaintainauthorizationby  theappropriatestateeducationagencies.Asdescribedmorefullyabovein“StateLicensure/Authorization,”ED  hasspecifiedthetypesofstateapprovalsthatareacceptabletodemonstratethataninstitutionisauthorizedto  offereducationalprogramsbeyondthesecondarylevelbythestatewhereitislocated,andEDrecentlypromul - gatednewrules,effectiveJuly1,2018,thataddressauthorizationbystatesinwhichstudentsenrolledindis - tanceeducationprogramsreside. 2016 Annual Report 45 Administrative Capability. CurrentEDregulationsspecifyextensivecriteriabywhichaninstitutionmustestab - lishthatithastherequisite“administrativecapability”toparticipateinTitleIVprograms.Tomeettheadminis - trativecapabilitystandards,aninstitutionmust,amongotherthings: • complywithallapplicableTitleIVprogramregulations; • havecapableandsufficientpersonneltoadministerTitleIVprograms; • haveacceptablemethodsofdefiningandmeasuringthesatisfactoryacademicprogressofitsstudents; • nothavecohortdefaultratesabovespecifiedlevels; • havevariousproceduresinplaceforsafeguardingfederalfunds; • notbe,andnothaveanyprincipaloraffiliatewhois,debarredorsuspendedfromfederalcontractingor  engaginginactivitythatiscausefordebarmentorsuspension; • providefinancialaidcounselingtoitsstudents; • refertoED’sOfficeofInspectorGeneralanycredibleinformationindicatingthatanyapplicant,student,  employeeoragentoftheinstitutionhasbeenengagedinanyfraudorotherillegalconductinvolvingTitleIV  programs; • submitinatimelymannerallreportsandfinancialstatementsrequiredbytheregulations; • reportannuallytotheSecretaryofEducationonanyreasonablereimbursementspaidorprovidedbyapri - vateeducationlenderorgroupoflenderstoanyemployeewhoisemployedintheinstitution’sfinancialaid  office,orwhootherwisehasresponsibilitieswithrespecttoeducationloans; • developandapplyanadequatesystemtoidentifyandresolvediscrepantinformationwithrespecttoastu - dent’sapplicationforTitleIVaid;and • nototherwiseappeartolackadministrativecapability. Ifaninstitutionfailstosatisfyanyofthesecriteria,EDmayrequiretherepaymentoffederalstudentfinancial  aidfunds,transfertheinstitutionfromthe“advance”systemofpaymentofTitleIVprogramfundstocashmon - itoringstatusortothe“reimbursement”systemofpayment,placetheinstitutiononprovisionalcertification  status,orcommenceaproceedingtoimposeafineortolimit,suspend,orterminatetheparticipationofthe  institutioninTitleIVprograms. Financial Responsibility. TheHEAandEDregulationsestablishextensivestandardsoffinancialresponsibility  thatinstitutionsmustsatisfyinordertoparticipateinTitleIVprograms.Thesestandardsgenerallyrequirethat  aninstitutionprovidetheservicesdescribedinitsofficialpublicationsandstatements,properlyadministerTitle  IVprogramsinwhichitparticipates,andmeetallofitsfinancialobligations,includingrequiredrefundsandany  repaymentstoEDfordebtsandliabilitiesincurredinprogramsadministeredbyED. EDevaluatesinstitutionsonanannualbasisforcompliancewithspecifiedfinancialresponsibilitystandards.The financialresponsibilitystandardsincludeacomplexformulathatuseslineitemsfromtheinstitution’saudited financialstatements.Theformulafocusesonthreefinancialratios:(1)equityratio(whichmeasurestheinstitu- tion’scapitalresources,financialviability,andabilitytoborrow);(2)primaryreserveratio(whichmeasuresthe institution’sviabilityandliquidity);and(3)netincomeratio(whichmeasurestheinstitution’sprofitabilityorability tooperatewithinitsmeans).Generally,aninstitution’sfinancialratiosmustyieldacompositescoreofatleast1.5 fortheinstitutiontobedeemedfinanciallyresponsiblewithouttheneedforfurtherfederaloversight.Undercer- taincircumstances,aninstitutionmaybeabletoestablishfinancialresponsibilityonanalternativebasis. 46 AmericanPublicEducation,Inc. EDmayalsoapplythefinancialresponsibilitystandardstoaneligibleinstitution’sparentownershipentities.At  therequestofED,forpurposesofevaluatingthefinancialresponsibilityofourinstitutions,includingthecom - positescorecalculation,wesupplyconsolidatedfinancialstatementstoED. AspartoftheBorrowerDefenseRegulationspublishedNovember1,2016,andeffectiveJuly1,2017,EDmodified  itsfinancialresponsibilitystandardstoprovidethataninstitution(otherthanapublicinstitution)maynotbe  abletomeetitsfinancialoradministrativeobligations,andisthereforenotfinanciallyresponsible,ifitissubject  tooneormoretriggeringevents,onorafterJuly1,2017.OnJanuary30,2017,EDannouncedthatitintendsto  takeunspecifiedregulatoryactionsregardingtheBorrowerDefenseRegulations.Underthefinalregulations,ED  determinesautomaticallythataninstitutionisnotfinanciallyresponsibleifitissubjecttooneormorespecified  triggeringevents,includingiftheinstitution: • isaproprietaryinstitutionthatfailsinthepreviousfiscalyearthe90/10non-TitleIVrevenuerequirement; • isapubliclytradedinstitutionthatreceivescertainwarningsfromtheSECorfailstotimelyfilerequired  reports;or • hasacohortdefaultrateof30%orgreaterforeachofthetwomostrecentofficialcalculations. Underthefinalregulations,EDalsodeterminesthataninstitutionisnotabletomeetitsfinancialoradministra - tiveobligationsif,aftertheendofthefiscalyearforwhichEDhasmostrecentlycalculatedtheinstitution’scom - positescore,theinstitutionissubjecttooneormorespecifiedtriggeringevents,andasaresultoftheactualor  potentialdebts,liabilities,orlossesthathavestemmedormaystemfromthoseactionsorevents,theinstitu - tion’srecalculatedcompositescoreislessthan1.0.Suchtriggeringeventsincludecasesinwhichtheinstitution: • isadefendantincertainlawsuitsandotheractionsthathaveresultedinorcouldresultinliabilityormonetary  damages; • isrequiredbyitsaccreditingagencytosubmitateach-outplanforcertainreasons; • hasgainfulemploymentprogramsthatcouldbecomeineligibleforTitleIVbasedontheirfinaldebt-to-earn - ingsratesforthenextawardyear;or • isaproprietaryinstitution,hasacompositescoreoflessthan1.5,andhasawithdrawalofowner’sequityby  anymeans,includingbydeclaringadividend. Inaddition,underthefinalregulations,EDmaydeterminethatothereventsorconditionsarereasonablylikely  tohaveamaterialadverseeffectonthefinancialcondition,business,orresultsofoperationsoftheinstitution  andmayatitsdiscretiondeterminethataninstitutionisnotfinanciallyresponsibleonthebasisofsuch“discre - tionarytrigger”events,whichinclude: • significantfluctuationintheamountofTitleIVfundsreceivedbytheinstitution; • citationbyastateagencyorauthorizingagencyforfailingrequirements; • failureofafinancialstresstestdevelopedbyED; • “high”annualdropoutrates,ascalculatedbyED; • actionbyanaccreditingagencytoplacetheinstitutiononprobationorissueashow-causeorderforfailureto  meetoneormoreaccreditingstandards; • violationofaprovisioninordefaultonaloanagreement;or • pendingclaimsforborrowerreliefdischargeoranexpectationthatasignificantnumberofborrowerrelief  claimswillbefiledrelatedtotheinstitution,asdeterminedbyED. 2016 Annual Report 47 Foreachtriggeringevent,inanattempttodemonstratethattheinstitutionremainsfinanciallyresponsible,the  institutionmaysubmitevidencethatthetriggeringeventnolongerexistsorhasbeenresolved,orthattheinsti - tutionhasinsurancethatwillcoverpartorallofthedebtorliabilities. Failureofoneofourinstitutionstomeetthe“financialresponsibility”requirementsbecauseitdoesnotmeet  theminimumcompositescoretoestablishfinancialresponsibilityorisunabletoestablishfinancialresponsibil - ityonanalternativebasis,orbecauseitfailstomeetotherfinancialresponsibilityrequirements,couldcause  theinstitutiontoloseaccesstoTitleIVprogramfundingorresultinotherpenaltiesorconditionsoncontin - uedparticipation.IfEDdeterminesthatoneofourinstitutionsisnotfinanciallyresponsiblebecauseofoneor  moretriggeringevents,theinstitutionwouldberequiredtoprovideanirrevocableletterofcreditequaltoat  least10%oftheamountoffederalstudentfinancialaidfundsreceivedbytheinstitutionforthepastyear.An  institutionthatisrequiredtoprovidealetterofcreditmayalsoberequiredtodisclosetostudentsinformation  abouttheletterofcreditifEDdeterminesthroughconsumertestingthatsuchdisclosuresaremeaningfulto  students.BecauseEDmayalsoapplythefinancialresponsibilitystandardstoaneligibleinstitution’sownership  entities,ED’sdeterminationthatourConsolidatedFinancialStatementsdonotsatisfythe“financialresponsibil - ity”requirementscouldcausebothAPUSandHCONtoloseaccesstoTitleIVprogramfunding,orresultinother  penaltiesorconditionsoncontinuedparticipation. The “90/10 Rule.” ArequirementoftheHEA,commonlyreferredtoasthe“90/10Rule,”appliesonlyto“propri - etaryinstitutionsofhighereducation,”whichincludesfor-profitschoolslikeourinstitutions.Underthisrule,a  proprietaryinstitutionisprohibitedfromderivingfromTitleIVprograms,onacashaccountingbasis(exceptfor  certaininstitutionalloans)foranyfiscalyear,morethan90%ofitsrevenue(ascomputedfor90/10Rulepur - poses).Ifaninstitutionviolatesthe90/10Ruleforanyfiscalyear,theinstitutionisplacedonprovisionalstatus  fortwofiscalyears.Aninstitutionthatviolatestherulefortwoconsecutivefiscalyearsbecomesineligibleto  participateinTitleIVprogramsforatleasttwofiscalyearsandisrequiredtodemonstratecompliancewithTitle  IVeligibilityandcertificationrequirementsforatleasttwoadditionalfiscalyearspriortoresumingTitleIVpro - gramparticipation.EDdisclosesonitswebsiteanyproprietaryinstitutionofhighereducationthatfailstomeet  the90/10requirement,andreportsannuallytoCongresstherelevantratiosforeachproprietaryinstitutionof  highereducation. Usingtheapplicable90/10formula,thefollowingtablecontainsthepercentageofcash-basisrevenueearned  fromTitleIVprogramfunds. APUS HCON 2014 47% 87% 2015 45% 86% 2016 43% 84% Wecontinuetomonitorcompliancewiththe90/10Rule. The90/10RulehasbeenasubjectofinterestoverthepastseveralCongresses,whichhasresultedinseveral  membersofCongressintroducingproposalsandlegislationthatwouldmodifythe90/10Rule.Oneprevious  CongressionalproposalwoulddecreasethelimitonTitleIVfundsfrom90%to85%andwouldhavecounted  DoDtuitionassistanceandGIBilleducationbenefitstowardthatlimit.Further,thePresident’s2016Budgetpro - posedtheinclusionofDoDtuitionassistanceandGIeducationbenefitsinthe90%portionofthe90/10calcula - tion.AtthistimewecannotpredictwhetherorhowtherecentchangeinAdministrationandCongresswillaffect  proposalstomodifythe90/10rule.Suchproposals,orothersimilarlegislation,shouldtheybecomelaw,could  haveamaterialadverseimpactontheoperationsofourinstitutions. 48 AmericanPublicEducation,Inc. Incentive Payment Rule. Aspartofaninstitution’sTitleIVprogramparticipationagreementwithEDandin  accordancewiththeHEA,aninstitutionmaynotprovideanycommission,bonusorotherincentivepaymentto  anypersonorentityengagedinanystudentrecruitment,admissions,orfinancialaidawardingactivitybased  directlyorindirectlyonsuccessinsecuringenrollmentsorfederalstudentfinancialaid.Failuretocomplywith  theincentivepaymentrulecouldresultinterminationofparticipationinTitleIVprograms,limitationonpartici - pationinTitleIVprograms,orfinancialpenalties. OnJune2,2015,EDreleasedamemorandumregardingenforcementoftheprohibitiononthepaymentof  incentivecompensationbypostsecondaryinstitutionstoanypersonorentityengagedinanystudentrecruit - ingoradmissionsactivities,orinmakingdecisionsregardingtheawardofstudentfinancialassistancebased  directlyorindirectlyuponsuccessinsecuringenrollmentsorfinancialaid.ThememorandumindicatedthatED  willreviseitsapproachtomeasuringdamagesfornoncompliancewiththeprohibitionagainstincentivecom - pensation.Inadministrativeenforcementactions,EDwillcalculatetheamountoftheinstitutionalliabilitybased  onthecosttoEDoftheTitleIVfundsimproperlyreceivedbytheinstitution,includingthecosttoEDofallofthe  TitleIVfundsreceivedbytheinstitutionoveraparticularperiodoftimeifthosefundswereobtainedthrough  implementationofapolicyorpracticeinwhichstudentswererecruitedinviolationoftheincentivecompensa - tionprohibition.EDmayalsoimposeafineuponaninstitution,ortakeadministrativeactiontolimit,suspend,  revoke,deny,orterminateaninstitution’seligibilitytoparticipateintheTitleIVprograms,iftheinstitution  violatestheprohibition.WearecurrentlyunabletopredicttheimpactthatED’srevisedapproachtomeasuring  damagesundertheincentivecompensationprohibitionmighthaveonourfinancialconditionifoneofourinsti - tutionsisfoundtobeinviolationoftheprohibition. Webelievethatouremployeecompensationandthird-partycontractualarrangementscomplywiththeincen - tivepaymentrulecurrentlyineffect.However,certainambiguitiesinthefinalrule,ED’saccompanyingstate - mentsintherulerelease,andguidanceissuedbyEDinMarch2011,andJune2015,createuncertaintyasto  howtherevisedrulewillbeinterpretedandenforcedbyED.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  TitleIVprogramsonlyinrespectofeducationalprogramsthatpreparestudentsfor“gainfulemploymentina  recognizedoccupation.”Historically,thisconcepthasnotbeendefinedindetailedregulations.Finalregulations  adoptedbyED,whichgenerallybecameeffectiveonJuly1,2011,andwhichwerefertoastheProgramIntegrity  Regulations,addresscertaininstitutionalandprogrameligibilityissues,includinggainfulemployment.Under  theProgramIntegrityRegulations,allinstitutionsmustuseatemplatedesignedbyEDtodisclosetoprospective  students,withrespecttoeachgainfulemploymentprogram,occupationsthattheprogrampreparesstudentsto  enter,totalcostoftheprogram,on-timegraduationrate,jobplacementrate,ifapplicable,andthemedianloan  debtofprogramcompletersforthemostrecentlycompletedawardyear.TheProgramIntegrityRegulations  includedadditionalrulespertinenttogainfulemploymentprograms.Afederalcourtstruckdowntheseaddi - tionalrulesandleftthedisclosurerequirementsinplace. OnOctober31,2014,EDpublishedfinalregulationsrelatedtogainfulemployment,whichwerefertoastheFinal  GERegulations.OnJuly1,2015,theFinalGERegulationswentintoeffect,withtheexceptionofnewdisclosure  2016 Annual Report 49 requirements,whichwentintoeffectJanuary1,2017.TheEDtemplatetobeusedinconnectionwiththenew  disclosurerequirementswasreleasedJanuary19,2017,andinstitutionsmustprovideupdateddisclosuresno  laterthanApril3,2017. TheFinalGERegulationsestablishdebt-relatedmeasuresfordeterminingwhethercertainpostsecondaryedu - cationprogramspreparestudentsforgainfulemploymentinarecognizedoccupation.TheFinalGERegulations  setforthtwodebt-to-earningsmeasures:anannualearningsrateandadiscretionaryincomerate,whichwe  refertocollectivelyastheD/Erates.Aprogramwillpassthemeasuresiftheprogram’sgraduateshaveannual  loanpayments: • lessthanorequalto8%oftheirtotalearnings;or • lessthanorequalto20%oftheirdiscretionaryincome. Aprogramthatdoesnotpasseitherofthedebt-to-earningsmeasures,andthathasanannualearningsrate  thatisgreaterthan8%andlessthanorequalto12%oradiscretionaryincomeratethatisgreaterthan20%and  lessthanorequalto30%,willbeinawarning“zone.”Aprogramfailsthemeasuresifitsannualearningsrate  isgreaterthan12%(orthedenominatoroftheannualearningsrateiszero)anditsdiscretionaryincomerateis  greaterthan30%(ortheincomeforthedenominatorofthediscretionaryearningsrateisnegativeorzero). PursuanttotheFinalGERegulations,andsubjecttothepotentialforadjustmentsbasedonatransitionperiod,  aprogramwillbecomeineligibleforTitleIVfundingifitfailsbothdebt-to-earningsmeasurestwiceinthree  consecutiveyears,oriftheprogramisinthewarning“zone”forfourconsecutiveyears.Aninstitutionwillbe  requiredtoprovidewarningstostudents,includingprospectivestudents,whennotifiedbyEDthataprogram  couldbecomeineligiblebasedonitsfinaldebt-to-earningsmeasuresforthenextawardyear. AccordingtoED’sfinal2015D/Erates,whichwerereleasedinJanuary2017,noneoftheAPUSgainfulemploy - mentprogramswereidentifiedasfailingorinthewarning“zone.”ED’sD/Eratesincludenocalculationsof  regularortransitionalD/Eratesforapproximatelythreequarters(76outof100)ofAPUS’sgainfulemployment  programsbecauseofthesizeofthoseprograms.Specifically,underED’sgainfulemploymentrules,EDdoesnot  calculateregularD/Eratesforgainfulemploymentprogramswithfewerthan30studentswhoreceivedTitleIV  programaidinthecohort,aftermakingcertainadjustments,andEDdoesnotcalculatetransitionalD/Erates  forgainfulemploymentprogramswithfewerthan10studentswhoreceivedTitleIVprogramaidinthecohort,  aftermakingcertainadjustments.Forpurposesofapplyingthegainfulemploymentaccountabilitymeasures,if  againfulemploymentprogram’sD/Eratesarenotcalculatedorissuedforanawardyear,theprogramreceives  noresultundertheD/Eratesmeasureforthatawardyearandtheprogram’sstatusundertheD/Eratesmea - sureisunchangedfromthelastyearforwhichD/Erateswerecalculated,providedthatifEDdoesnotcalculate  D/Eratesfortheprogramforfourormoreconsecutiveyears,EDwilldisregardtheprogram’sD/Eratesforany  awardyearpriortothefour-yearperiodwhendeterminingwhethertheprogramiseligibleforTitleIVfunds.  NotwithstandingthelowtuitionrateschargedbyAPUS,weareunabletoreliablyandaccuratelypredicthowthe  gainfulemploymentprogramsforwhichEDdidnotcalculate2015D/Eratesmayperformundertheaccountabil - itymeasuresinthefuture,includingbecausecertainunderlyingdatarequiredtocalculatetheD/Eratesarenot  availabletous. WithrespecttoHCON,accordingtoED’sfinal2015D/Erates,noneoftheHCONgainfulemploymentprograms  wereidentifiedasfailingorinthewarning“zone.”TheDiplomainPracticalNursingandAssociateDegreein  NursingprogramseachpasstheD/Eratesmeasure.TheAssociateDegreeinNursingprogrampassedbecause  ithadadiscretionaryincomeratelessthanorequalto20%,althoughitsannualearningsratewasnotlessthan  orequalto8%.ED’sD/EratesincludenocalculationsofregularortransitionalD/EratesfortheHCONonline  RN-to-BSNprogrambecauseofthesizeofthatprogram.Weareunabletoreliablyandaccuratelypredicthow  50 AmericanPublicEducation,Inc. theRN-to-BSNprogrammayperformundertheaccountabilitymeasuresinthefuture,includingbecausecertain  underlyingdatarequiredtocalculatetheD/Eratesarenotavailabletous. FortheAPUSandHCONprogramsforwhichwedohaveD/Erates,thereisnoassurancethattheratesinthe  futurewillremainthesameandhowourgainfulemploymentprogramswillperformunderED’saccountability  measures. Inadditiontothedebt-to-earningsmeasures,theFinalGERegulationsincludenewrequirementsrelatedtogain- fulemploymentprograms.Forexample,theFinalGERegulationsrequireaninstitution’smostseniorexecutive  officertocertify,aspartoftheprogramparticipationagreement,thateacheligiblegainfulemploymentprogram  offeredbytheinstitutionsatisfiescertainrequirementsrelatedtoinstitutionalandprogrammaticaccreditation  andprofessionallicensureorcertificationexamrequirements.Also,theFinalGERegulationsexpanduponthe  existinggainfulemploymentprogramdisclosurerequirements.AfailuretocomplywiththeFinalGERegulations  couldresultinourinstitutionslosingeligibilitytoparticipateinTitleIVprograms,whichcould,inturn,adversely  affectourinstitutions’enrollmentsandrevenueandhaveamaterialeffectonourbusiness. TheBorrowerDefenseRegulations,whichareeffectiveJuly1,2017,andarediscussedinmoredetailbelow,  requireaproprietaryinstitutiontoincludealoanrepaymentratewarninginallpromotionalmaterialsforany  awardyearinwhichtheinstitution’sloanrepaymentrate,ascalculatedbyED,showsthatthemedianborrower  hasnoteitherfullyrepaidormadeloanpaymentssufficienttoreducebyatleastonedollartheoutstanding  balanceofeachoftheborrower’sFFELorDirectLoans. Student Loan Defaults. UndertheHEA,aneducationalinstitutionmayloseitseligibilitytoparticipateinsome  oralloftheTitleIVprogramsifdefaultsontherepaymentofFFELProgramorDirectLoanProgramloansbyits  studentsexceedcertainlevels. PursuanttotheHigherEducationOpportunityActenactedin2008,ortheHEOA,whichamendedtheHEA,an  institution’scohortdefaultrate,orthree-yearcohortdefaultrate,iscalculatedasthepercentageofborrowers  inthecohortwhodefaultbeforetheendofthesecondfiscalyearfollowingthefiscalyearinwhichtheborrow - ersenteredrepayment.EDcalculatesasinglecohortdefaultrateforeachfederalfiscalyearthatincludesinthe  cohortallcurrentorformerstudentborrowersattheinstitutionwhoenteredrepaymentonanyFFELProgram  orDirectLoanProgramloanduringthatyear.Beginningwiththethree-yearcohortdefaultrateforthe2011  cohortpublishedbyEDinSeptember2014,three-yearcohortdefaultratesareappliedforpurposesofmeasur - ingcompliancewiththerequirements.Forpreviousyears,theapplicablecohortdefaultrate,ortwo-yearcohort  defaultrate,wascalculatedasthepercentageofborrowersinthecohortwhodefaultedbeforetheendofthe  firstfiscalyearfollowingthefiscalyearinwhichtheborrowersenteredrepayment.PursuanttoEDrequire - ments,ifthethree-yearcohortdefaultrateforanyyearafter2011exceeds40%,aninstitutionloseseligibilityto  participateinTitleIVprograms,andiftheinstitution’sthree-yearcohortdefaultrateexceeds30%forthreecon - secutiveyears,beginningwiththe2009cohort,theinstitutionloseseligibilitytoparticipateinTitleIVprograms.  Ifaninstitution’scohortdefaultrateisequaltoorgreaterthan30%inanyyearafter2011,itmustestablisha  defaultpreventiontaskforce. InSeptember2016,EDreleasedAPUS’sandHCON’sofficialthree-yearcohortdefaultratesforfederalfiscalyear  2013.ThefinalofficialEDcohortdefaultrateforthefederalfiscalyears2011,2012,and2013,areasfollows: APUS HCON 2014 13.0% 12.1% 2015 23.3% 11.8% 2016 20.1% 11.4% 2016 Annual Report 51 Ifoneorbothofourinstitutionshasadefaultrateinexcessofallowablelevels,itcouldresultinthatinstitution’s orthoseinstitutions’lossofeligibilitytoparticipateinTitleIVprogramsorincurringadditionalcostsrelatedto  defaultprevention,whichcouldhaveamaterialadverseeffectonourbusiness. Privacy of Student Records. TheFamilyEducationalRightsandPrivacyActof1974,orFERPA,andED’sregu - lationsimplementingFERPArequireeducationalinstitutionstoprotecttheprivacyofstudents’educational  recordsbylimitinganinstitution’sdisclosureofastudent’spersonallyidentifiableinformationwithoutthestu - dent’spriorwrittenconsent.FERPAalsorequiresinstitutionstoallowstudentstoreviewandrequestchanges  totheireducationalrecordsmaintainedbytheinstitution,tonotifystudentsatleastannuallyoftheirrights  underFERPA,andtomaintainrecordsineachstudent’sfilelistingcertainrequestsforaccessto,anddisclosures  of,personallyidentifiableinformationandtheinterestofsuchpartyinthatinformation.Ifaninstitutionfails  tocomplywithFERPA,EDmayrequirecorrectiveactionsbytheinstitutionormayterminateaninstitution’s  eligibilitytoparticipateinTitleIVprograms.Inaddition,educationalinstitutionsareobligatedtosafeguard  studentinformationpursuanttotheGramm-Leach-BlileyAct,orGLBA,afederallawdesignedtoprotectcon - sumers’personalfinancialinformationheldbyfinancialinstitutionsandotherentitiesthatprovidefinancial  servicestoconsumers.GLBAandtheapplicableGLBAregulationsrequireaninstitutionto,amongotherthings,  developandmaintainacomprehensive,writteninformationsecurityprogramdesignedtoprotectagainstthe  unauthorizeddisclosureofpersonallyidentifiablefinancialinformationofstudents,parents,orotherindividu - alswithwhomsuchinstitutionhasacustomerrelationship.Ifaninstitutionfailstocomplywiththeapplicable  GLBArequirements,itmayberequiredtotakecorrectiveactions,besubjecttomonitoringandoversightbythe  FederalTradeCommission,orFTC,andbesubjecttofinesorpenaltiesimposedbytheFTC.Institutionsarealso  subjecttothegeneraldeceptivepracticesjurisdictionoftheFTCwithrespecttotheircollection,useanddisclo - sureofstudentinformation.InstitutionsmustalsocomplywiththeFTCRedFlagsRule,asectionofthefederal  FairCreditReportingAct,whichrequirestheestablishmentofguidelinesandpoliciesregardingidentitytheft  relatedtostudentcreditaccounts. Accessibility for Students with Disabilities. Section504oftheRehabilitationActof1973,orSection504,prohib - itsdiscriminationagainstapersonwithadisabilitybyanyorganizationthatreceivesfederalfinancialassistance,  whichincludesus.In2010,ED’sOfficeforCivilRights,whichenforcesSection504,togetherwiththeDepartment  ofJustice,assertedthatrequiringtheuseoftechnologyinaclassroomenvironmentwhensuchtechnologyis  inaccessibletoindividualswithdisabilitiesviolatesSection504,unlessthoseindividualsareprovidedaccommo - dationsormodificationsthatpermitthemtoreceivealltheeducationalbenefitsprovidedbythetechnologyin  anequallyeffectiveandintegratedmanner.Inrecentyears,ED’sOfficeforCivilRightshastakenenforcement  actionagainstseveralinstitutionsofhighereducation,includingprimarilyonlineinstitutions,afterinvestigat - ingtheirwebsitesandonlinelearningmanagementplatformsanddeterminingthattheinstitutionswerenot  incompliancewithSection504becausetheonlineresourceswerenotaccessibletopersonswithadisability.If  oneofourinstitutionsisfoundtohaveviolatedSection504,itmayberequiredtomodifyexistingcontentand  functionalityofitsonlineclassroomorotherusesoftechnology,includingthroughadoptionofspecifictechnical  standards.AninstitutionthatdoesnotcomeintocompliancewithSection504couldloseaccesstofederalfund - ing,includingtheabilitytoparticipateintheTitleIVprogramsandDoDtuitionassistanceprograms. College Affordability and Transparency Lists. AsrequiredbytheHEOA,EDpublishesonitswebsitelistsofthe  top5%ofinstitutions,ineachofninecategories,with(i)thehighesttuitionandfeesforthemostrecentaca - demicyear,(ii)thehighest“netprice”forthemostrecentacademicyear,(iii)thelargestpercentageincreasein  tuitionandfeesforthemostrecentthreeacademicyears,and(iv)thelargestpercentageincreaseinnetprice  forthemostrecentthreeacademicyears.Aninstitutionthatisplacedonalistforhighpercentageincreasesin  eithertuitionandfeesorinnetpricemustsubmitareporttoEDexplainingtheincreasesandthestepsthatit  intendstotaketoreducecosts.EDreportsannuallytoCongressontheseinstitutionsandpublishesitsreports  52 AmericanPublicEducation,Inc. onitswebsite.EDalsopostslistsofthetop10%ofinstitutionsineachoftheninecategorieswithlowesttuition  andfeesorthelowestnetpriceforthemostrecentacademicyear.UndertheHEOA,netpricemeansaverage  yearlypriceactuallychargedtofirst-time,full-timeundergraduatestudentswhoreceivestudentaidatahigher  educationinstitutionaftersuchaidisdeducted.For2014-2015,APUSwaslistedastheinstitutionwiththeninth  lowesttuitionandseventeenthlowestnetpriceamongprivatefor-profit,four-yearormoreinstitutions.Wecan - notpredictwithcertaintytheeffectsuchlistswillhaveonouroperations. College Scorecard. PresidentObamadirectedEDtodevelopandpublishanewcollegeratingssystembythe  2015-2016schoolyear.OnDecember19,2014,EDissuedaframeworkforthecollegeratingssystem.OnJune25,  2015,EDstatedthatinlieuofcreatingitspreviouslyannouncedcollegeratingssystem,itwouldinsteadcreate  aconsumer-drivenwebsitethatwillallowuserstocomparecollegesbasedonmeasuresthatmaybeofimpor - tancetothem.InSeptember2015,EDpubliclyreleasedits“CollegeScorecard”website.Amongothercharac - teristics,theCollegeScorecardallowsuserstosearchforschoolsbaseduponprogramsoffered,location,size,  taxstatus,mission,andreligiousaffiliation.WedonotbelievetheCollegeScorecardisanappropriateindicator  ofAPUS’sgraduationratebecausetheCollegeScorecard’sgraduationrateincludesonlytheperformanceof  firsttime,full-timeundergraduatestudents,whorepresentlessthanapproximately1%ofallAPUSstudents.  Furthermore,substantiallyalloftheotherCollegeScorecardmeasuresarebasedondatacollectedonlyabout  studentswhoreceiveTitleIVprogramaid.WhileasignificantportionofAPUSstudentsreceiveTitleIVprogram  aid,intotaltheyareaminorityofAPUS’sstudents.WecannotpredicttheextenttowhichtheCollegeScorecard  mayimpactourinstitution’senrollments,reputation,oroperatingresults. Third-Party Servicers. EDregulationspermitaninstitutiontoenterintoawrittencontractwithathird-partyser - vicerfortheadministrationofanyaspectoftheinstitution’sparticipationinTitleIVprograms.Thethird-party  servicermust,amongotherobligations,complywithTitleIVrequirementsandbejointlyandseverallyliable  withtheinstitutiontotheSecretaryofEducationforanyviolationbytheservicerofanyTitleIVprovision.An  institutionmustreporttoEDnewcontractswith,oranysignificantmodificationstocontractswith,third-party  servicersaswellasothermattersrelatedtothird-partyservicers.Ifanythird-partyservicerengagedbyoneof  ourinstitutionsdoesnotcomplywithapplicablestatuteandregulationsincludingtheHEA,ourinstitutionmay  beliableforitsactions,andourinstitutioncouldloseitseligibilitytoparticipateinTitleIVprograms. Title IV Return of Funds. UnderED’sreturnoffundsregulations,whenastudentwithdraws,aninstitutionmust  returnunearnedfundstoEDinatimelymanner.AninstitutionmustfirstdeterminetheamountofTitleIV  programfundsthatastudent“earned”beforewithdrawal.Ifthestudentwithdrawsduringthefirst60%ofany  periodofenrollmentorpaymentperiod,theamountofTitleIVprogramfundsthatthestudentearnedisequal  toaprorataportionofthefundsforwhichthestudentwouldotherwisebeeligible.Ifthestudentwithdraws  afterthe60%threshold,thenthestudenthasearned100%oftheTitleIVprogramfunds.Theinstitutionmust  returntotheappropriateTitleIVprograms,inaspecifiedorder,thelesserof(i)theunearnedTitleIVprogram  fundsor(ii)theinstitutionalchargesincurredbythestudentfortheperiodmultipliedbythepercentageof  unearnedTitleIVprogramfunds.Aninstitutionmustreturnthefundsnolaterthan45daysafterthedateofthe  institution’sdeterminationthatastudentwithdrew. Iffundsarenottimelyreturned,aninstitutionmaybesubjecttoadverseaction,includingbeingrequired  tosubmitaletterofcreditequalto25%oftherefundstheinstitutionshouldhavemadeinitsmostrecently  completedfiscalyear.UnderEDregulations,latereturnsofTitleIVprogramfundsfor5%ormoreofstudents  sampledintheinstitution’sannualcomplianceauditconstitutematerialnoncomplianceforwhichaninstitu - tiongenerallymustsubmitanirrevocableletterofcredit.HCON’sTitleIVcomplianceauditfortheyearended  December31,2012,identifiedadeficiencyrelatedtotimelyreturnofTitleIVprogramfunds.InaPreliminary  AuditDeterminationLetterdatedJuly10,2013,EDrequestedadditionalinformationfromHCONaboutthesitu - ationandrequiredHCONtoconductafilereviewtoidentifythosefilesthatreflectedaninaccuraterefund.Ina  2016 Annual Report 53 FinalAuditDeterminationLetterdatedFebruary28,2014,EDdeterminedthatHCONwasnotrequiredtorepay  theliabilitytoEDanddirectedHCONtoadoptprocedurestopreventreoccurrence.HCONwasalsorequiredto  postanirrevocableletterofcreditintheamountof$128,290,whichissettoexpireinJuly2017. Misrepresentation. UndertheHEAanditsimplementingregulations,EDmayfine,suspendorterminatethe  participationinTitleIVprogramsbyaninstitutionthatengagesinsubstantialmisrepresentationregardingthe  natureofitseducationalprogram,itsfinancialcharges,ortheemployabilityofitsgraduates.IntheBorrower  DefenseRegulations,effectiveJuly1,2017anddiscussedinmoredetailbelow,EDrevisedthedefinitionof  misrepresentationtoincludeomissionsofinformationandstatementswithalikelihoodortendencytomislead  underthecircumstances.IntheBorrowerDefenseRegulations,thisdefinitionwasamendedformisrepresen - tationsforwhichEDmayimposeafineorlimit,suspend,orterminateparticipationinTitleIVprogramsand  wasadoptedasabasisforallegingborrowerdefenseclaimsforDirectLoansfirstdisbursedafterJuly1,2017.  Inthefuture,EDcouldpromulgateregulationsthatexpanditsroleinmonitoringandenforcingprohibitionson  misrepresentation.ForinformationregardinganEDfindingofsubstantialmisrepresentationatHCONbased  oncircumstancesthatoccurredpriortoouracquisitionofHCON,see“RegulatoryActionsandRestrictionson  Operations—ChangeinOwnershipResultinginaChangeofControl.” Credit Hours. TheHEAandcurrentregulationsusetheterm“credithour”todefineaneligibleprogramandan  academicyearandtodetermineenrollmentstatusandtheamountofTitleIVprogramfundsaninstitutionmay  disburseduringapaymentperiod.TheProgramIntegrityRegulationsdefinethepreviouslyundefinedterm  “credithour”intermsofacertainamountoftimeinclassandoutsideclass,oranequivalentamountofwork.  TheProgramIntegrityRegulationsalsorequireaccreditingagenciestoreviewthereliabilityandaccuracyof  aninstitution’scredithourassignments.Ifanaccreditoridentifiessystematicorsignificantnoncompliancein  oneormoreofaninstitution’sprograms,theaccreditormustnotifytheSecretaryofED.IfEDdeterminesthat  aninstitutionisoutofcompliancewiththecredithourdefinition,EDcouldrequiretheinstitutiontorepayany  incorrectlyawardedamountsofTitleIVprogramfunds.Inaddition,ifEDdeterminesthataninstitutionhas  significantlyoverstatedtheamountofcredithoursassignedtoaprogram,itmayfinetheinstitution,orlimit,  suspend,orterminateitsparticipationinTitleIVprograms. VAWA and Clery. OnApril1,2014,anegotiatedrulemakingcommittee,convenedbyED,reachedconsensus  onproposedregulationstoaddressimplementationofthechangesmadebytheViolenceAgainstWomen  ReauthorizationActof2013,orVAWA,tosection485(f)oftheHEA,otherwiseknownastheJeanneClery  DisclosureofCampusSecurityPolicyandCampusCrimeStatisticsAct,ortheCleryAct.OnOctober20,2014,  EDpromulgatedfinalregulationstoimplementchangesmadebyVAWA,theFinalVAWARegulations.TheClery  ActrequiresaninstitutiontoreporttoEDanddiscloseinitsannualsecurityreport,forthethreemostrecent  calendaryears,statisticsconcerningthenumberofcertaincrimesthatoccurredonorwithintheinstitution’s  so-called“Clerygeography.”UndertheFinalVAWARegulations,aninstitutionmustreportanddisclosestatistics  about,forexample,crimesof“datingviolence,”“domesticviolence,”and“stalking,”asnewlydefinedbytheFinal  VAWARegulations.Also,undertheFinalVAWARegulations,aninstitution’sannualsecurityreportmustinclude  certainstatementsaboutwhataninstitutionwilldotoassistpersonswhoallegethattheyhavebeenavictim  ofdatingviolence,domesticviolence,sexualassault,orstalking;inaddition,aninstitutionmustpublishinits  annualsecurityreportproceduresforinstitutionaldisciplinaryactioninsuchcases.TheFinalVAWARegulations  requireinstitutionstoprovide“primarypreventionprograms”forincomingstudentsandnewemployeesand  “ongoingpreventionandawarenesscampaigns”forstudentsandemployees,andtodescribetheseprograms  andcampaignsintheirannualsecurityreport.AfailuretocomplywiththeFinalVAWARegulationscouldresult  inourinstitutionsbeingfinedorhavingtheireligibilitytoparticipateinTitleIVprogramslimited,suspended,or  terminated,whichcould,inturn,adverselyaffectourinstitutions’enrollmentsandrevenueandhaveamaterial  effectonourbusiness. 54 AmericanPublicEducation,Inc. Borrower Defenses. UndertheHEA,EDisauthorizedtospecifyinregulationswhichactsoromissionsofan  institutionofhighereducationaborrowermayassertasadefensetorepaymentofaDirectLoan.OnNovember  1,2016,EDpublishedfinalregulationsconcerningthesedefensesandothermatters.ED’scurrentregulations  permitaborrowertoassertaborrowerdefensetorepaymentofaDirectLoaniftheinstitution’sactsoromis - sionsgiverisetoacauseofactionagainsttheinstitutionunderstatelaw.Thefinalregulationscreateanew  federalstandardforborrowerdefensestorepaymentofDirectLoans,newlimitationperiodsforsuchclaims,  andnewprocessesforresolutionofsuchclaims.Underthefinalregulations,forloansfirstdisbursedpriorto  July1,2017,EDwillconsideraborrowerdefenseclaiminaccordancewiththeexistingprovisions,i.e.,whether  theinstitution’sactsoromissionsgiverisetoacauseofactionagainsttheinstitutionunderstatelaw.ForDirect  LoansfirstdisbursedonorafterJuly1,2017,aborrowerwillbeabletoassertadefensetorepaymentbasedon  oneofthreetypesofclaims: • breachofcontract,iftheinstitutionfailedtoperformitsobligationsunderthetermsofacontractwiththe  student; • substantialmisrepresentation,iftheinstitutionoritsagentsmadeasubstantialmisrepresentationonwhich  theborrowerreasonablyreliedtotheborrower’sdetrimentwhentheborrowerdecidedtoattendortocon - tinueattendingtheinstitution;or • judgmentagainsttheinstitution,ifagovernmentalagencyortheborrowerasanindividualoramemberof  aclassobtainedanon-defaultfavorablejudgmentagainsttheinstitutionbeforeacourtoradministrative  agency. Thefinalregulationsamendthedefinitionof“misrepresentation”toincludeomissionsofinformationandto  includestatementswithalikelihoodortendencytomisleadunderthecircumstances.Thisdefinitionisadopted  forpurposesoftheborrowerdefensesunderthenewregulationandalsoforpurposesofED’ssubstantial  misrepresentationregulationsforwhichEDmayimposeafine,orlimit,suspend,orterminateaninstitution’s  participationinTitleIVprograms. Underthefinalrules,aborrowerassertingbreachofcontractwillbeabletoassertadefensetorepaymentof  amountsowedtothegovernmentatanytimeaftertheinstitution’sbreachandwillbeabletoassertarightto  recoveramountsthegovernmentpreviouslycollectedforaperiodnotlaterthansixyearsafterthebreach.A  borrowerassertingsubstantialmisrepresentationwillbeabletoassertadefensetorepaymentofamounts  owedtothegovernmentatanytimeandwillbeabletoassertarighttoreceiveamountsthegovernmentpre - viouslycollectednotlaterthansixyearsaftertheborrowerdiscovers,orreasonablycouldhavediscovered,the  informationconstitutingthesubstantialmisrepresentation.Aborrowerwillbeabletoassertadefensetorepay - mentorrighttoreceivepreviouslycollectedamountsbasedonajudgmentagainsttheinstitutionatanytime. Thefinalregulationssetforthtwoproceduresforborrowerdefenseclaims,oneforindividualborrowersand  oneforgroupsofborrowersidentifiedbyED.Forclaimsfiledbyindividualborrowers,attheconclusionofa  fact-findingprocess,EDwillissueafinaldecisionastothemeritoftheclaimsandanyreliefgrantedtothe  borrower.EDwillbeabletoinitiateaseparateproceedingtocollectfromtheinstitutiontheamountofrelief  grantedtotheborrower.ThegroupprocesswillallowEDtoidentifypotentialclaimsagainstaninstitutionon  behalfofborrowerswhomayhavefiledindividualclaimsorwhomEDotherwiseidentifiesfromothersources.  EDwillcollectfromtheinstitutionanyliabilityassessedagainsttheinstitutionforreliefgrantedtothegroupof  borrowers. ForclaimsthatmayformthebasisforaborrowerdefensetorepaymentofaDirectLoan,theregulationsalso  prohibitinstitutionsfromrequiringthatstudentsfirstengageintheinstitution’sinternalcomplaintprocess  beforecontactingotheragencies,prohibittheuseofpre-disputearbitrationagreementsbytheinstitution,pro - hibittheuseofclassactionlawsuitwaivers,andrequireinstitutionstodisclosetoandnotifyEDofarbitration  2016 Annual Report 55 filingsandawards.Theseprocessesandprohibitionscouldhavetheeffectofincreasingthenumberof,andtime  andexpensesnecessarytoresolve,studentclaims,whetherornotthoseclaimshavemerit.Thefinalregulations  generallyareeffectiveJuly1,2017,exceptforcertainregulationsrelatedtostudenteligibilityforforbearance  andsuspensionofcollectionactivity,whichareeffectiveimmediately,andrelatedtoautomaticclosedschool  discharges,whichareeffectiveassoonasoperationallypossible.IfEDdeterminesthatborrowersofDirect  LoanswhoattendedourinstitutionshaveadefensetorepaymentoftheirDirectLoans,ourrepaymentliability  toEDcouldhaveamaterialadverseeffectonourfinancialcondition,resultsofoperations,andcashflows. WearecontinuingtoevaluatethepotentialeffecttheseregulationswillhaveonAPUSandHCON.However,itis  andwillbechallengingtopredictfullythemannerandeffectoffullimplementationofthefinalregulationsfor  anumberofreasons.Forexample,theregulationshaveabroadscopeandhaveonlybeenrecentlyadopted.  Inaddition,EDhassaiditmayinthefutureissueadditionalguidanceandregulationsoncertainaspectsof  thefinalregulations.OnJanuary30,2017,EDannouncedthatitintendstotakeunspecifiedregulatoryactions  regardingthefinalregulations. Cash Management Regulations: OnOctober27,2015,EDannouncedthepublicationoffinalregulationsto  amendED’scashmanagementregulations,whichwerefertoastheCashManagementRegulations.TheCash  ManagementRegulationswereeffectiveJuly1,2016.Amongothertopics,theCashManagementRegulations  addressarrangementsbetweenpostsecondaryinstitutionsandfinancialaccountproviderstodisburseTitleIV  Programcreditbalancestostudents,includingthroughtheuseofdebitorprepaidcards.TheCashManagement  RegulationsrequireinstitutionstoestablishaprocesstofacilitatestudentchoiceinhowstudentsreceiveTitle  IVProgramfederalstudentfinancialaidcreditbalances;limitthepersonallyidentifiableinformationabout  studentsthatmaybesharedwithfinancialaccountproviders;andrequireinstitutionstoobtainstudentcon - sentbeforeopeninganaccountinthestudent’sname.UndertheCashManagementRegulations,aninstitution  thathasenteredintoanarrangementwithafinancialaccountprovidermustmitigatecertainfeesincurred  byTitleIVaidrecipients,andcertaintypesoffeesareprohibited.TheCashManagementRegulationsrequire  thatcontractsgoverningarrangementswithfinancialaccountprovidersbepubliclydisclosedandevaluatedin  lightofthebestfinancialinterestsofstudents.TheCashManagementRegulationsalsomakeotherchangesto  requirementsfortheinstitutionaladministrationofTitleIVPrograms,includingbyclarifyinghowpreviously  passedcourseworkistreatedforTitleIVeligibilitypurposes,alteringtherequirementsforconvertingclock  hourstocredithours,andupdatingotherprovisionsinED’scashmanagementregulations.Forexample,the  CashManagementRegulationsestablisharequirementthatinstitutionsparticipatingintheTitleIVPrograms  underthereimbursementorheightenedcashmonitoringpaymentmethodsmustpayanycreditbalancedueto  astudentbeforeseekingreimbursementorarequestforfunds.TheCashManagementRegulationsalsospecify  thecircumstancesunderwhichaninstitutionmayincludethecostofbooksandsuppliesaspartofinstitutional  tuitionandfeeschargedtoastudent,suchasiftheinstitutionhasmadearrangementswithpublishersto  obtainbooksatbelow-marketratesorifbooksorelectroniccoursematerialsarenotavailableelsewhere.The  CashManagementRegulationsalsoexpandthegroupofstudentstowhomaninstitutionmustprovideaway  toobtainorpurchase,bytheseventhdayofapaymentperiod,thebooksandsuppliesapplicabletothepay - mentperiod.Previously,aninstitutionwasrequiredtoprovidesuchassistanceonlytostudentswhoreceivePell  Grants,butundertheCashManagementRegulations,aninstitutionwillberequiredtoprovidesuchassistance  toanystudentwhoiseligibleforTitleIVProgramaid.Ourinstitutionsutilizeathird-partyservicertoprovide  servicesrelatedtothedisbursementofTitleIVfinancialaidcreditbalancerefunds. DEPARTMENTOFDEFENSE ServicemembersoftheUnitedStatesArmedForcesareeligibletoreceivetuitionassistancefromtheirbranch  ofservicethroughtheUniformTuitionAssistanceProgramoftheDoD,orDoDtuitionassistanceprograms.  Servicemembersmayusethistuitionassistancetopursuepostsecondarydegreesatinstitutionsthatare  56 AmericanPublicEducation,Inc. accreditedbyaccreditingagenciesrecognizedbytheSecretaryofEducation.ForstudentsinAPUSundergrad - uateprograms,wehaveestablishedtuitionratespercredithourthatundercurrentDoDpoliciescanbe100%  coveredbyDoDtuitionassistancefundsprovidedthatthestudentdoesnotexceedtheannuallimitsperstu - dent.Atthistime,HCONhassubmittedanapplicationtoparticipateinDoDtuitionassistanceprograms.Under  aDoDfinalruleeffectiveJanuary7,2013,eachinstitutionparticipatinginDoDtuitionassistanceprogramsis  requiredtosignaMemorandumofUnderstanding,orMOU,outliningcertaincommitmentsandagreements  betweentheinstitutionandDoDpriortobeingpermittedtoparticipateintheDoDtuitionassistanceprograms.  InMay2014,DoDpromulgatednewregulationsandarevisedMOU,the2014MOU.OnJuly7,2014,DoDreleased  revisionstothe2014MOU,andAPUSsignedtherevised2014MOUinAugust2014.The2014MOUcontains  requirementsandlimitationsthatwerenotcontainedinpreviousMOUstowhichAPUSwasaparty.Pursuant  tothe2014MOU,amongotherrequirements,institutionsmust:explaincertainEDandConsumerFinancial  ProtectionBureau,orCFPB,toolstoservicemembers,suchasED’s“CollegeNavigator”websiteandtheCFPB’s  “PayingforCollege”website;complywithrequirementsrelatedtoreadmissionpoliciesforservicemembers;  abidebynewlimitationsontheuseoffundsderivedfromtuitionassistance;provideadditionalacademicand  studentsupportservices;discloseinformationabouttransferofcredit;incertaincircumstances,returntuition  assistancefundstoDoD(suchaswhenastudentceasestoattendoraninstitutioncancelsacourse);offerto  servicemembersloancounselingbeforeprivatestudentloansareofferedorrecommended;andcomplywith  ED’sTitleIV“programintegrity”rules,includingrulesrelatedtoincentivepaymentsandmisrepresentation.  The2014MOUalsoprovidesthataninstitutionmayonlyparticipateinDoDtuitionassistanceprogramsifit  isaccreditedbyanaccreditingagencyrecognizedbyED,approvedforVAfunding,andaparticipantinTitleIV  programs.Additionalinformationregardingthepotentialrisksassociatedwiththe2014MOUisprovidedinthe  “RiskFactors”sectionofthisAnnualReport. OnMarch14,2013,DoDissuedaninstructionrestrictingtheabilityofservicemembersincertaindutylocations outsidethecontinentalUnitedStates,oroverseaslocations,toreceiveDoDtuitionassistanceforcoursesoffered byinstitutionsofhighereducationthatarenotpartiestocontractswiththeDoDtoprovideDoDvoluntaryedu- cationprogramsatthoselocations.BecausewedonothavecontractswiththeDoDtoprovideinstructionat overseaslocations,servicememberswhobeginapostsecondaryeducationprogramafterarrivalinanapplicable overseasdutylocationmaynotuseDoDtuitionassistanceprogramstopayfortheireducationinourprograms untilaftertheyhavealreadysuccessfullycompletedacoursewithaninstitutionthathasenteredintoacontractto providevoluntaryeducationprogramsatthatoverseaslocation.Servicememberswhowerealreadyenrolledin oneofourprogramsbeforearrivingatanoverseasdutylocationmaycontinuetoreceiveDoDtuitionassistance forthein-progressprogram,buttheywillbeencouragedtoenrollincoursesprovidedbyinstitutionsthathave enteredintocontractswiththeDoDtoprovideprogramsattheapplicableoverseasdutylocation. OnJanuary30,2014,theDoD,VA,ED,andFTC,incollaborationwiththeCFPBandDepartmentofJustice,  announcedanewonlinestudentcomplaintsystemforservicemembers,veterans,andtheirfamiliestoreport  negativeexperiencesateducationinstitutionsandtrainingprogramsadministeringthePost-9/11GIBill,DoD  tuitionassistanceprograms,andothermilitary-relatededucationbenefitprograms.Thecomplaintsystemis  designedtohelpthegovernmentidentifyandaddressunfair,deceptive,andmisleadingpractices.Thecom - plaintsystemisbasedonPresidentObama’sApril27,2012ExecutiveOrder13607,EO13607,whichrequires  federalagenciestocreateacentralizedcomplaintsystemforstudentsreceivingfederalmilitaryandveterans  educationalbenefitstoregistercomplaintsthatcanbetrackedandrespondedtobyrelevantagencies.An  institutionhavingrecurringsubstantivecomplaints,ordemonstratinganunwillingnesstoresolvecomplaints,  mayfacearangeofpenalties,includingrevocationofitsMOUandremovalfromparticipationintheDoDtuition  assistanceprograms. 2016 Annual Report 57 DEPARTMENTOFVETERANSAFFAIRS TheVAadministerseducationbenefitsprovidedbyfederallaw,includingtheMontgomeryGIBill,orGIBill,and  thePost-9/11VeteransEducationalAssistanceActof2008,orPost-9/11GIBill.Pursuanttofederallawrelated  tothoseprograms,APUSisapprovedtoprovideeducationtoveteransandmembersoftheselectivereserve  andtheirdependentsbythestateapprovingagenciesinWestVirginiaandVirginia.ProgramsateachofHCON’s  campusesareapprovedforVAbenefitsbythestateapprovingagencyinOhio. ThePost-9/11GIBillexpandededucationbenefitsforveteranswhohaveservedonactivedutysinceSeptember  11,2001,includingreservistsandmembersoftheNationalGuard,aswellasbenefitsavailableundertheGI  Bill.ThePost-9/11GIBillexpandedtheabilityofservicememberstotransfertheirbenefitstofamilymem - bers.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$21,970.46fortheacademicyearfromAugust1,2016–July31,  2017.Veteranspursuingaprogramofeducationonamorethanhalf-timebasisatanon-campuslocationare  eligibleforamonthlyhousingallowanceequaltothebasicallowanceforhousingavailabletoservicemembers  whoareatamilitarypaygradeE-5andhavedependents.Veteranspursuingaprogramofeducationsolely  throughdistanceeducationonamorethanhalf-timebasisareeligibletoreceive$805.50permonth. TotheextentthatDoDtuitionassistanceprogramsdonotcoverthefullcostoftuitionforservicemembers,eli - gibleservicemembersmayalsousetheirbenefitsundertheGIBillorthePost-9/11GIBillthroughthe“Top-Up”  program.The“Top-Up”programallowsU.S.Militaryactive-dutyservicememberstousetheirGIBillorPost-9/11  GIBillbenefitstopaythedifferencebetweenthetotalcostofacollegecourseandtheamountofDoDtuition  assistancethatispaidbythemilitaryforthecourse,butislimitedto36monthsofpayments. ADDITIONALSOURCESOFSTUDENTPAYMENTS InadditiontotheTitleIV,DoD,andVAprogramsdescribedabove,eligiblestudentsmayparticipateinseveral  otherfinancialaidprogramsorreceivesupportfromothergovernmentalandprivatesources.Someofour  studentsfinancetheirowneducationorreceivefullorpartialtuitionreimbursementfromtheiremployers.Our  institutionsmayofferinterestfreepaymentplansoflessthan12monthstostudentstoassistthemwiththe  financingofeducationalexpenses.Ourinstitutionsenterintoagreementswithvariousemployerswhoprovide  employeetuitionreimbursementplans.Throughtheseagreementsourinstitutionsagreetoavarietyofterms,  includingtermsrelatedtotheprovisionoftuitiongrantstoeligibleemployees.Incertaincircumstances,our  studentsmayaccessalternativeloanprogramsfromprivatelenders.Alternativeloansfromprivatelenders  areintendedtocoverthedifferencebetweenwhatthestudentreceivesfromallfinancialaidsourcesandthe  student’stotalcostofattendance.Studentscanapplytoanumberofdifferentprivatelendersforthisfunding.  Aspartofaninstitution’sTitleIVPPA,theinstitutionmustadoptacodeofconductpertainingtostudentloans,  includingalternativeloans. CONSUMER PROTECTION CONSUMERFINANCIALPROTECTIONBUREAU TheCFPBhaspursuedenforcementactionsagainstcertainfor-profitinstitutionsofhighereducationandhas  releasedseveralreportsthatdirectlyaddressissuesrelatedtoinstitutionsofhighereducation.InOctober  2016,theCFPBStudentLoanOmbudsmanreleaseditsannualreportanalyzingmorethan5,500complaintsthe  58 AmericanPublicEducation,Inc. CFPBreceivedfromprivatestudentloanborrowersbetweenSeptember1,2015andAugust31,2016,andmore  than3,900federalstudentloanfinancingcomplaintstheCFPBreceivedfromfederalstudentloanborrowers  betweenMarch1,2016andAugust31,2016.WedonotknowwhatenforcementactionstheCFPBmaypursue,  orwhatstepsCongressorfederalagenciesmaytake,inresponsetothesereportsandwhethersuchactions(if  any)willhaveanadverseeffectonourbusinessorresultsofoperations. InJuly2013,theCFPBissuedabulletinstatingthatanyentitysubjecttotheCFPB’sjurisdiction,whethera  third-partycollectororacreditorcollectingitsowndebts,canbeheldaccountableforanyunfair,deceptive,or  abusivepracticesincollectingaconsumer’sdebts.InNovember2013,theCFPBissuedanAdvancedNoticeof  ProposedRulemakingannouncingthatitwasconsideringwhetherrulesgoverningthecollectionofdebtsare  warrantedundertheFairDebtCollectionPracticesAct,orFDCPA,orotherCFPBauthorities,and,ifso,what  typesofruleswouldbeappropriate.Aspartofitsproposedrulemaking,theCFPBsoughtcommentsabout  applyingaregulatoryregimesimilartotheFDCPA,whichappliesonlytothird-partydebtcollectors,tofirst-party  debtcollectors.ShouldtheCFPBissuerulesregulatingfirst-partydebtcollectors,suchrulesmightapplytoour  institutions,whichmayadverselyimpactourcollectionsefforts. InAugust2015,theCFPBissuedacivilinvestigativedemand,orCID,toACICS,theaccreditingagencythataccred- itsHCON.TheCIDrequiredACICStoprovidedocumentsandtestimony,toidentifyallschoolsithasaccredited  sinceJanuary1,2010,andtoidentifytheindividualsinvolvedinACICS’sreviewsofcertainschools,notpublicly  identified.InSeptember2015,ACICSsubmittedapetitiontotheCFPBtosetasidetheCID,arguingthatACICS  isnotundertheCFPB’sjurisdiction.ACICSarguedthatitdoesnotprovideanyfinancialproductorservicenor  doesitassistorsupportitsaccreditedinstitutionsinprocuringandmaintainingloansfromED.InOctober2015,  theCFPBrejectedACICS’spetitionandfiledapetitiontoenforcetheCIDintheUnitedStatesDistrictCourtfor  theDistrictofColumbia.InApril2016,theDistrictCourtdeniedtheCFPB’spetitionanddismissedthecase.The  CFPBappealedtheDistrictCourt’sdecisiontotheU.S.CourtofAppealsfortheDistrictofColumbia,whichheld  oralargumentonFebruary2,2017.WeareunabletopredicttheimpactthattheCFPBCIDmayhaveonACICSor  itspractices. OTHERISSUESRELATEDTOCONSUMERPROTECTIONANDCOMPLAINTS ConcurrentwithreleaseoftheFinalGERegulations,EDannouncedtheformationofaninteragencytaskforceto  helpensureoversightoffor-profithighereducationinstitutions.ThetaskforceincludesED,theDepartmentsof  JusticeandTreasury,VA,theCFPB,theFTC,andtheSecuritiesandExchangeCommission.Stateattorneysgen - eralalsohavebeeninvitedtoparticipate.Thepurposeofthetaskforceistocoordinatetheagencies’activities  andpromoteinformationsharingtoprotectstudentsfromunfair,deceptive,andabusivepoliciesandpractices.  EDexplainedthatthetaskforce,whichhaditsfirstofficialmeetinginMay2015,isexpectedtobuildonexisting  effortsamongvariousfederalagencies. Manystateshavebecomemoreactiveinregulatingproprietaryeducationfromaconsumerprotectionperspec - tive,specificallyrelatedtoenforcementofconsumerprotectionlawsandimplementationofnewregulations  bystateattorneysgeneral.Forexample,agroupofstateattorneysgeneral,ledbytheAttorneyGeneralof  Kentucky,areexaminingthefor-profiteducationindustry.TheKentuckyAttorneyGeneral’swebsitereportsthat  approximately30stateattorneysgeneralareparticipating.Whilewehaveastrongtrackrecordofregulatory  compliance,suchactivities,evenifnotdirectedatoneofourinstitutions,maymakeouroperatingenvironment  morechallenging. Ourinstitutionsarerecipientsofcomplaintsfiledwithstateregulatoryauthorities,theBetterBusinessBureau,  andpostedinonlineforums.Ourinstitutionsattempttoresolvesuchcomplaintsinacooperativemanner.  2016 Annual Report 59 However,evenifsuchcomplaintsareresolvedorareotherwiseunfounded,theymaystillharmthereputation  ofourinstitutions. COMPLIANCE WITH REGULATORY STANDARDS AND THE EFFECT OF REGULATORY VIOLATIONS COMPLIANCEREVIEWS Ourinstitutionsaresubjecttoannouncedandunannouncedcompliancereviewsandauditsbyvariousexter - nalagencies,includingED,itsOfficeofInspectorGeneral,statelicensingagencies,agenciesthatguarantee  FFELProgramloans,DoD,VA,andaccreditingagencies.TheHEAandEDregulationsalsorequireinstitutionsto  submitannuallyacomplianceauditconductedbyanindependentcertifiedpublicaccountantinaccordancewith  GovernmentAuditingStandardsandapplicableEDOfficeofInspectorGeneralauditstandards.Inaddition,to  enabletheSecretaryofEducationtomakeadeterminationoffinancialresponsibility,institutionsmustannually  submitauditedfinancialstatementspreparedinaccordancewithEDregulations. TheDoDMOUrequiresinstitutionstoparticipateintheDoDThird-PartyAssessmenttoensurethattheinsti - tutionisincompliancewiththeDoDMOUandthatservicemembersareprovidedqualityvoluntaryeducation  opportunitiesthatmeettheirneeds.Athird-partyassessmentofAmericanMilitaryUniversitywasconducted  inJune2012,witharevisedreportsubmittedinOctober2012.Thereportstatedthat,basedontheassessment  team’sfindings,AMUandAPUSwereincompliancewiththeDoDMOUthatAPUSexecuted. InSeptember2016,EDbeganaprogramreviewofAPUS’sadministrationoftheTitleIVprogramsduringthe  2014-2015and2015-2016awardyears.Aspartoftheprogramreview,EDconductedasitevisitfromSeptember  12toSeptember15,2016.Ingeneral,afterEDconductsitssitevisitandreviewsdatasuppliedbytheinstitution,  ifEDidentifiesanyinstancesofnoncompliance,EDsendstheinstitutionapreliminaryprogramreviewreport.  Theinstitutionhastheopportunitytorespondtothefindingsinthepreliminaryprogramreviewreport.ED  thenissuesafinalprogramreviewdeterminationletter,whichidentifiesanyfindings,includinganyliabilities.  Theinstitutionmayappealanymonetaryliabilitiesspecifiedinthefinalprogramreviewdeterminationletter.If  EDdoesnotidentifyanyinstancesofnoncompliance,itissuesanexpeditedfinalprogramdeterminationletter  insteadofapreliminaryprogramreviewreport.APUShasnotreceivedapreliminaryprogramreviewreportor  expeditedfinalprogramdeterminationletter,andtheprogramreviewremainsopenandongoing.Atthistime,  wecannotpredicttheoutcomeoftheprogramreview,whenitwillbecompleted,orwhetherEDwillplaceany  liabilityorotherlimitationsonAPUSasaresultofthereview. POTENTIALEFFECTOFREGULATORYVIOLATIONS IfourinstitutionsfailtocomplywiththeregulatorystandardsgoverningTitleIVprograms,EDcouldimpose  oneormoresanctions,includingtransferringourinstitutionstothereimbursementorcashmonitoringsystem  ofpayment,seekingtorequirerepaymentofcertainTitleIVprogramfunds,requiringthepostingofaletterof  creditinfavorofEDasaconditionforcontinuedTitleIVcertification,takingemergencyactionagainstourinsti - tutions,referringthematterforcriminalprosecution,orinitiatingproceedingstoimposeafineortolimit,con - dition,suspend,orterminateparticipationinTitleIVprograms.Ifsuchsanctionsorproceedingswereimposed  againstourinstitutionsandresultedinasubstantialcurtailment,ortermination,ofparticipationinTitleIV  programs,ourinstitution’senrollments,revenue,andresultsofoperationswouldbemateriallyandadversely  affected.IfAPUS’sapprovaltoparticipateinTitleIVprogramsisterminated,APUSwillalsoloseitsabilityto  participateinDoDtuitionassistanceprogramspursuanttotheDoDMOU,whichwouldmateriallyandadversely  affectourenrollments,revenue,resultsofoperations,andfinancialcondition. 60 AmericanPublicEducation,Inc. IfoneofourinstitutionsweretoloseitseligibilitytoparticipateinTitleIVprograms,oriftheamountofavail - ableTitleIVprogramfundswerereduced,wecouldseektoarrangeorprovidealternativesourcesofrevenueor  financialaidforstudents.Althoughwebelievethatoneormoreprivateorganizationswouldbewillingtopro - videfinancialassistancetostudentsattendingourinstitutions,thereisnoassurancethatthiswouldbethecase,  andtheinterestrateandothertermsofsuchfinancialaidmightnotbeasfavorableasthoseforTitleIVprogram  funds.Wemayberequiredtoguaranteeallorpartofsuchalternativeassistanceormightincurotheradditional  costsinconnectionwithsecuringalternativesourcesoffinancialaid.Accordingly,thelossofoureligibilityto  participateinTitleIVprograms,orareductionintheamountofavailablefederalstudentfinancialaid,wouldbe  expectedtohaveamaterialadverseeffectonourfinancialconditionandresultsofoperationsevenifwecould  arrangeorprovidealternativesourcesofrevenueorstudentfinancialaid. Inadditiontotheactionsthatmaybebroughtagainstusasaresultofourinstitutions’participationinTitleIV  programs,wealsomaybesubject,fromtimetotime,tocomplaintsandlawsuitsrelatingtoregulatorycompli - ancebroughtnotonlybyourregulatoryagencies,butalsobyothergovernmentagenciesandthirdparties,such  aspresentorformerstudentsoremployeesandothermembersofthepublic. 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. CHANGEINOWNERSHIPRESULTINGINACHANGEOFCONTROL 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 TheHEAprovidesthataninstitutionthatundergoesachangeinownershipresultinginachangeincontrol  losesitseligibilitytoparticipateinTitleIVprogramsandmustapplytoEDinordertoreestablishsucheligibility.  ED’sregulationsprovidethatachangeincontrolofapubliclytradedcompanyoccursinoneoftwoways:(i)if  thereisaneventthatwouldobligatethecorporationtofileaCurrentReportonForm8-KwiththeSecurities  andExchangeCommissiondisclosingachangeincontrol;or(ii)ifthecorporationhasastockholderthatowns  atleast25%ofthetotaloutstandingvotingstockofthecorporationandisthelargeststockholderofthecorpo - ration,andthatstockholderceasestoownatleast25%ofsuchstock,orceasestobethelargeststockholder.  Asaresult,asignificantpurchaseordispositionofourvotingstock,includinganacquisitionresultingina  2016 Annual Report 61 stockholderowningatleast25%ofouroutstandingstock,couldbedeterminedbyEDtobeachangeinowner - shipandcontrolpursuanttoED’sregulations. Uponachangeinownershipandcontrol,aninstitutionisineligibletoreceiveTitleIVprogramfundsduringthe  periodpriortorecertification.TheHEAprovidesthatEDmaytemporarilyprovisionallycertifyaninstitution  seekingapprovalofachangeinownershipandcontrolbasedonpreliminaryreviewofamateriallycomplete  applicationreceivedwithin10businessdaysafterthetransaction.EDmaycontinuesuchtemporaryprovisional  certificationonamonth-to-monthbasisuntilithasrenderedafinaldecisionontheinstitution’sapplication.If  EDdeterminestoapprovetheapplicationafterachangeinownershipandcontrol,itissuesaprovisionalcerti - fication,whichextendsforaperiodexpiringnotlaterthantheendofthethirdcompleteawardyearfollowing  thedateofprovisionalcertification.ED’sregulationsdescribesometransactionsthatconstituteachangein  ownershipandcontrol,includingthetransferofacontrollinginterestinthevotingstockofaninstitutionorthe  institution’sparentcorporation. Whenachangeinownershipandcontroloccurs,EDappliescertainfinancialteststodeterminethefinancial  responsibilityoftheinstitutioninconjunctionwithitsreviewandapprovalofthechange.Theinstitutiongener - allyisrequiredtosubmitasame-dayauditedbalancesheetreflectingthefinancialconditionoftheinstitution  immediatelyfollowingthechangeinownership.Theinstitution’ssame-daybalancesheetmustdemonstratean  acidtestratioofatleast1:1,whichiscalculatedbyaddingcashandcashequivalentstocurrentaccountsreceiv - ableanddividingthesumbytotalcurrentliabilities(andexcludingallunsecuredoruncollateralizedrelated  partyreceivables).Thesame-daybalancesheetmustdemonstratepositivetangiblenetworth.Inaddition,when  achangeinownershipandcontroloccursandthereisanewowner,theinstitutionmustsubmittoEDaudited  financialstatementsoftheinstitution’snewowner’stwomostrecentlycompletedfiscalyearsthatareprepared  andauditedinaccordancewithEDrequirements.EDmaydeterminewhetherthefinancialstatementsmeet  financialresponsibilitystandardswithrespecttothecompositescoreformula.Iftheinstitutiondoesnotsatisfy  theserequirements,EDmayconditionitsapprovalofthechangeofownershipontheinstitution’sagreement  tolettersofcredit,provisionalcertification,andadditionalmonitoringrequirements.Thecompositescore  formulaandrelatedEDconditionsaredescribedmorefullyabovein“StudentFinancingSourcesandRelated  Regulations/Requirements—DepartmentofEducation—RegulationofTitleIVFinancialAidPrograms—Financial  Responsibility.”Ifthenewownerdoesnothavetherequiredauditedfinancialstatements,EDmayimposecer - tainrestrictionsontheinstitution,includingwithrespecttoaddinglocationsandprograms. OnNovember1,2013,asaresultofourpurchaseofalloftheoutstandingstockinNationalEducationSeminars,  Inc.,HCONwasdeemedtohaveundergoneachangeofownershipandcontrolrequiringreviewbyEDinorder  toreestablisheligibilityandcontinueparticipationinTitleIVprograms.AsrequiredunderED’sregulations,we  timelysubmittedachangeinownershipapplicationandrequireddocumentation.AspartofED’spost-clos - ingreview,inMayandDecember2014,EDrequestedadditionalinformationrelatedtoaputativeclassaction  broughtagainstHCONbytwoformerHCONstudentsthatwassettledinexchangeforademinimissettlement  payment,withHCONadmittingtonowrongdoing;weprovidedtherequestedinformationtoEDshortlyafter  itwasrequested.OnDecember4,2015,EDsentHCONaletterinformingHCONthatEDhaddeterminedtofine  HCON$27,500.ThefinewasbasedonED’sreviewofthesubmittedinformationandafindingthatHCONhad  substantiallymisrepresenteditsprogrammaticaccreditationstatusduringatimeperiodpriortoourownership  ofHCON.OnDecember18,2015,HCONrespondedtoEDinaletterinwhichitnoteditsdisagreementwithED’s  findingsbutinformedEDofitsdecisiontopaythefineinordertopromptlyresolvethematterandtoenableED  tofinalizeitsreviewoftheapplicationforachangeinownership.HCONpaidthefineinDecember2015. InJanuary2016,wereceivedaletterfromEDapprovingthechangeinownershipandcontrolofHCONandgrant- ingHCONprovisionalcertificationtoparticipateinTitleIVprogramsuntilDecember31,2018.HCONreceiveda  fullyexecutedprovisionalprogramparticipationagreement,orPPPA,inFebruary2016.HCONmustcomplywith  62 AmericanPublicEducation,Inc. specificconditionswhileitisprovisionallycertified,asdescribedmorefullyin“RestrictionsonAddingLocations  andEducationalPrograms,”below.Asdescribedin“RegulatoryEnvironment—Accreditation,”inconnectionwith  ED’sdecisiontoterminaterecognitionofACICS,onDecember21,2016,HCONandEDexecutedarevisedPPPA  andaddendumtothePPPApursuanttowhichHCONagreedtocomplywithcertainconditionsandrequirements  whileHCONpursuesaccreditationbyanotheraccreditingagencyrecognizedbyED. 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. Accreditors Manyaccreditingagenciesrequireinstitutionsofhighereducationtoreportorobtainapprovalforcertain  changesinownershiporotheraspectsofinstitutionalstatus,butthetypesofandtriggersforsuchreportingor  approvalvary. HLC,theaccreditingagencyforAPUS,requiresHLCaccreditedinstitutionstoinformHLCinadvanceofany  substantivechange.ExamplesofsubstantivechangesrequiringadvancenoticetoHLCincludechangesinthe  legalstatus,ownership,orformofcontroloftheinstitution,suchasthesaleofafor-profitinstitution.HLCmust  approveasubstantivechangeinadvanceinordertoincludethechangeintheinstitution’saccreditationstatus.  HLCalsorequiresanon-siteevaluationwithinsixmonthstoconfirmtheappropriatenessoftheapproval. HLCoversightextendstodefinedchangesthatoccurinaninstitution’sparentorcontrollingentity,andnot  necessarilyintheinstitutionitself.Actionsby,orrelatingto,anaccreditedinstitution,includingasignificant  acquisitionofanotherinstitution,significantchangesinboardcompositionororganizationaldocuments,and  accumulationsbyonestockholderofgreaterthan25%ofthecapitalstockcouldtriggeradditionalreviewsofthe  institutionandpossiblechangefromaccreditedstatustocandidatestatus,whichenhancestherisksassociated  withthesetypesofactions.Inparticular,achangefromaccreditedstatustocandidatestatuscouldadversely  impactaninstitution’sabilitytoparticipateinTitleIVprograms,whichinturnwouldimpacttheinstitution’s  abilitytoparticipateinDoDtuitionassistanceprograms. ACICS,theaccreditingagencyforHCON,requiresACICS-accreditedinstitutionstoinformACICSinadvanceof  anysubstantivechange.ExamplesofsubstantivechangesrequiringadvancenoticetoACICSincludechanges  inthelegalstatus,formofcontrol,orownershipoftheinstitution.AninstitutionmustnotifyACICSofachange  ofownershipatleast15daysbeforeconsummatingtheproposedchange,andACICSmustacttoreinstatethe  institution’saccreditationstatusafterthechangeofownership.ACICSalsorequiresanon-siteevaluationwithin  sixmonthstoconfirmtheappropriatenessoftheapproval.HCONtimelynotifiedACICSoftheNovember1,  2013,changeofownership,andonDecember20,2013,ACICSgrantedtoHCONareinstatementofaccreditation  throughDecember31,2016,effectivefromthedateofthechange.ACICSconductedon-sitequalityassurance  2016 Annual Report 63 visitsinthesummerof2014,andfoundHCONtobeincompliancewithaccreditationcriteria.Duringthefirst  quarterof2016,ACICSconductedasitevisitateachofHCON’scampusesaspartofACICS’evaluationofHCON’s  renewalofaccreditationapplication.In2016,ACICSreaffirmedHCON’sClevelandcampusaccreditationthrough  December31,2020,itsCincinnatiandDaytoncampuses’accreditationthroughDecember31,2021andits  Columbuscampus’accreditationthroughDecember31,2022.See“RegulatoryEnvironment—Accreditation”for  adiscussionofthedecisionbyEDtoterminatetherecognitionofACICSasarecognizedaccreditingagency. Shouldweattempttoenterintotransactionswithinstitutionsaccreditedbyotheraccreditors,wewouldbe  requiredtofollowtherequirementsofsuchaccreditors.Ourmanagementmaynothaveexperiencewiththe  accreditorsofthetargetinstitution,whichwouldincreasetherisksrelatedtosuchatransactionandmanage - mentoftheinstitutionsubsequenttothetransaction. Other Agencies Pursuanttofederallawprovidingbenefitsforveteransandreservists,APUSisapprovedforeducationof  veteransandmembersoftheselectivereservesandtheirdependentsbythestateapprovingagenciesinWest  VirginiaandVirginia.ProgramsateachofHCON’scampusesareapprovedforVAbenefitsbythestateapprov - ingagencyinOhio.Incertaincircumstances,stateapprovingagenciesmayrequireaninstitutiontoobtain  approvalforachangeinownershipandcontrol.ThestateapprovingagencyinOhioapprovedtheNovember1,  2013,changeofownershipofHCON.However,thereisnoguaranteethatrelevantstateapprovingagencieswill  approvefuturetransactions. RESTRICTIONSONADDINGLOCATIONSANDEDUCATIONALPROGRAMS EDmay,asaconditionofcertificationtoparticipateinTitleIVprograms,requirepriorapprovalofnewcampus  locations,programsorotherwiserestrictthenumberofprogramsaninstitutionmayadd.ED’sregulationsalso  requirethatitapproveanychangeinownershipresultinginachangeofcontrol.Asdescribedabovein“Change  inOwnershipResultinginaChangeofControl,”HCONwasdeemedtohaveundergoneachangeofownership  andcontrolonNovember1,2013,requiringreviewbyEDinordertoreestablisheligibilityandcontinuepartic - ipationinTitleIVprograms.InJanuary2016,wereceivedaletterfromEDapprovingthechangeinownership  andcontrolofHCONandgrantingHCONprovisionalcertificationtoparticipateintheTitleIVprogramsuntil  December31,2018.HCONreceivedafullyexecutedProvisionalProgramParticipationAgreement,orPPPA,in  February2016.Whileprovisionallycertified,HCONoperatesunderthePPPA,whichrequiresHCONtoapplyfor  andreceiveapprovalfromtheSecretaryofEducationbeforeinitiatinganysubstantialchanges,suchasestab - lishinganadditionallocationatwhichatleast50%ofaneligibleprogramwillbeofferedandTitleIVprogram  fundswillbedisbursed,offeringacademicprogramsathigherthanthebachelor’sdegreelevel,oraddinganew  educationprogram.Inaddition,asdescribedabovein“Accreditation,”inconnectionwiththeSecretaryofED’s  decisiontowithdrawandterminateED’srecognitionofACICS,onDecember21,2016,HCONandEDexecuted  arevisedPPPAandaddendumtothePPPAinwhichHCONagreedtocomplywithadditionalconditionsand  requirements,andunderwhichEDhassaidthatitwillapproveadditionoflocationsoreducationalprograms  onlyinlimitedcircumstances. TheHEArequiresproprietaryinstitutionsofhighereducationtobeinfulloperationfortwoyearsbeforequal - ifyingtoparticipateinTitleIVprograms.However,theapplicableregulationsinmanycircumstancespermitan  institutionthatisalreadyqualifiedtoparticipateinTitleIVprogramstoestablishadditionalcampuslocations  thatareexemptfromthetwo-yearrule.Thenewcampuslocationmustsatisfyallotherapplicablerequirements  forinstitutionaleligibility,includingapprovaloftheadditionalcampuslocationbytherelevantstateauthorizing  agencyandtheinstitution’saccreditingagency.ED’sregulationsalsorequireinstitutionstoreportand,incer - taincases(suchaswhenaninstitutionisprovisionallycertified),toseekapprovalforanewadditionalcampus  64 AmericanPublicEducation,Inc. locationatwhichatleast50%ofaneligibleprogramwillbeofferediftheinstitutionwantstodisburseTitleIV  programfundstostudentsenrolledatthatlocation.Institutionsareresponsibleforknowingwhethertheyneed  approval,andinstitutionsthataddlocationsanddisburseTitleIVprogramfundswithouthavingobtainedany  necessaryapprovalmaybesubjecttoadministrativerepaymentsandothersanctions.UnderthePPPAandthe  addendumtothePPPA,HCONmustobtainEDapprovalfortheadditionofanyadditionallocationatwhichat  least50%ofaneligibleprogramwillbeofferedandTitleIVprogramfundswillbedisbursed. Afullycertifieddegree-grantinginstitutiongenerallyisnotobligatedtoobtainED’sapprovalofanadditional  programleadingtoadegreeatthesamelevelpreviouslyapprovedbyED.Similarly,afullycertifiedinstitution  generallyisnotrequiredtoobtainadvanceapprovalforanewprogramthatbothpreparesstudentsforgainful  employmentinthesameorrelatedrecognizedoccupationasaneducationalprogramthathaspreviouslybeen  designatedasaneligibleprogramatthatinstitutionandmeetscertainminimum-lengthrequirements.However,  asaconditionofcertificationtoparticipateinTitleIVprograms,EDcouldrequirepriorapprovalofsuchpro - gramsorotherwiserestrictthenumberofprogramsaninstitutionmayadd.Intheeventthataninstitutionis  requiredtoobtainED’sapprovalfortheadditionofanewprogram,failstodoso,anderroneouslydetermines  thattheneweducationalprogramiseligibleforTitleIVprogramfunds,theinstitutioncouldbeliableforrepay - mentofTitleIVprogramfundsreceivedbytheinstitutionorstudentsinconnectionwiththatprogram. RECENT LEGISLATIVE AND ED ACTIVITY FEDERALLEGISLATIVEACTIVITY Asaresultofbudgetarypressures,Congresshasenactedseveralpiecesoflegislationthatimpactthefunding  ofTitleIVandothertuitionassistanceprograms.Duetothesubstantialamountoffederalfundsdisbursedto  schoolsthroughTitleIVprograms,thelargenumberofstudentsandinstitutionsparticipatinginthesepro - grams,andsignificantpoliticalinterestinthecostofeducation,Congresscontinuestoshowinterestinregula - tionandoversightofinstitutionsofhighereducation,especiallythosethatarefor-profit. Sequestration and Budgetary Matters OnAugust2,2011,CongresspassedtheBudgetControlActof2011thatputintoplaceaseriesofautomaticfed - eralbudgetcuts,knownassequestration.Thebudgetcuts,orsequestration,impactcertainfederalstudentaid  programseffectiveforfiscalyear2013.WhilethePellGrantprogramwasspecificallyexemptedfromtheeffects  ofsequestrationinfiscalyear2013,andtheFiscalYear2016OmnibusAppropriationsBillincreasedthemaxi - mumawardto$5,920inthe2017-2018awardyear,thePellGrantprogramcouldbesubjecttocutsorchanges  inthefuture.WhilesequestrationdoesnototherwisechangetheamountortermsorconditionsofDirectLoan  Programloans,includingStaffordLoansandPLUSLoans,itraisestheloanfeepaidbyborrowersforDirectLoan  ProgramloansdisbursedafterMarch1,2013.CutstoED’sadministrativebudgetcouldleadtodelaysinstudent  eligibilitydeterminations,anddelaysinoriginationandprocessingoffederalstudentloans. Aftersequestrationtookeffect,theArmy,AirForce,CoastGuard,andMarineCorpsannouncedthesuspen - sionoftheirtuitionassistanceprograms.CongresssubsequentlyapprovedlegislationrequiringDoDtorestore  itstuitionassistanceprograms.InOctober2013,theDoDtuitionassistanceprogramswereagaintemporarily  suspendedasaresultoftheU.S.governmentpartialshutdown.Eachbranchofthemilitaryrestoreditstuition  assistanceprogramthroughfiscalyear2014.Asaresultofcontinueduncertaintyabouttheavailabilityoffund - ing,severalofthemilitarybranchesannouncedchangestotheirtuitionassistancesprogramsthattookeffect  infederalfiscalyear2014.Forexample,theAirForceisnolongerauthorizingtuitionassistanceforassociate  degreesiftheservicememberalreadyhasanassociatedegreefromtheCommunityCollegeoftheAirForce,the  ArmynowrequiresservicememberstocompleteoneyearofserviceaftergraduationfromAdvancedIndividual  Traininginordertobeeligiblefortuitionassistanceandhasreducedthetotalbenefitperservicememberper  2016 Annual Report 65 yearfrom$4,500to$4,000,andtheMarineCorpsnowrequiresMarinestohave24monthsonactivedutyprior  tobeingeligibletoapplyforTA.InOctober2015,theCoastGuardrestoredtuitionassistancefundingto$250  percredithour,anincreasefromthepreviouscapof$187.50percredithour,whichwasimplementedin2014.  Additionalchangestothetuitionassistanceprogramscouldoccur,includingduetoCongressionalactionorDoD  policyandfundingchanges. OnDecember10,2016,theU.S.Congressenactedacontinuingresolutiontoextendfundingforthefederal  government,includingtheDoD,throughApril28,2017;however,iffundingisnotextendedbeyondthatdatea  governmentshutdowncouldoccurresultinginasuspensionofDoDtuitionassistanceprograms.Agovernment  shutdownorsuspensionofDoDtuitionassistanceprogramscouldhaveamaterialadverseeffectonouropera - tionsandfinancialcondition. Higher Education Act TheHEAmustbeperiodicallyreauthorizedbytheU.S.CongressandeachTitleIVprogrammustbefunded  throughappropriationsactsonanannualbasis.Themostrecentcomprehensivereauthorizationoccurred  in2008,whenCongressreauthorizedmostHEAprogramsthroughthe2014federalfiscalyearbypassing  theHEOA.AlthoughthecurrentHEAauthorizationexpiredattheendofthe2014federalfiscalyear,the  ConsolidatedAppropriationsAct,2016,extendedfundingforTitleIVprogramsthroughSeptember30,2017. CongresscontinuestodiscussreauthorizationoftheHEA.AmendmentstotheHEAcouldoccurduringreau - thorization,whichcouldrequireustomodifyourbusinesspracticesandincreaseadministrativecosts,thereby  negativelyimpactingourresultsofoperations. REGULATORYACTIVITY ED’s Accreditation Initiative OnNovember6,2015,EDannouncedseveralexecutiveactionstoincreasetransparencyandrigorinaccred - itation.EDannouncedthelaunchofanewEDwebsiteonwhichithaspublishedeachaccreditor’scurrent  standardsrelatedtostudentoutcomesandstudentandinstitutionalmetrics.EDwillrequireallaccreditorsto  forwardtoEDprobationdecisionletters,thepubliclyreleasableportionsofwhichEDwillpublishonitsweb - site.EDalsoannouncedtherequestofareportonstrategiestoimproveinformationcoordinationbetween  andamongaccreditorsandED.EDannouncedthatitwillensuredecision-makersintheaccreditorrecognition  process,suchasmembersofNACIQI,haveinformationincludingoutcomesdata,stateandfederallitigation  reports,andotherinformationaboutinstitutionsaccreditedbyeachaccreditingagency.Acknowledgingthatits  authorityrelatedtoaccreditationandstudentoutcomesisrestrictedundertheHEA,EDalsomadeseveralpro - posalsforlegislativechangerelatedtoaccreditation.IncreasedscrutinyofaccreditingagenciesbytheSecretary  ofEducationandCongressinconnectionwithED’srecognitionprocessmayresultinincreasedscrutinyofinsti - tutionsbyaccreditingagencies. ED’s Student Aid Enforcement Unit OnFebruary8,2016,EDannouncedthecreationofaStudentAidEnforcementUnit,ortheEnforcementUnit,  toenableEDtorespondmorequicklyandefficientlytoallegationsofillegalactionsbyhighereducationinsti - tutions.TheEnforcementUnitconsistsoffourdivisionsincludinganInvestigationsGroup,aBorrowerDefense  Group,anAdministrativeActionsandAppealsServiceGroup,andaCleryGroup.TheEnforcementUnitcollab - orateswithpartnerstateandfederalagenciestoenforceviolationsoflaw.TheEnforcementUnitalsoworks  withED’sProgramComplianceUnittoreviewevidencethatmayaffectprogramreviews.Thecreationofthe  EnforcementUnitwasdesignedtoensurethatEDcansupportmorereviewsofwhatitreferstoas“high-risk  66 AmericanPublicEducation,Inc. institutions,”respondtoconcernsraisedbystates’andotherfederalagencies’investigations,andrespond  tocomplaintsandclaimsforloanforgivenessbystudents.TheEnforcementUnitisledbyalawyerwhomost  recentlyledtheFTC’sconsumerprotectionunit.EDhasindicatedthattheInvestigationsGroupwillutilizea  broadsetofinterventionsandtools,includingsubpoenaauthority,documentdemands,andinterrogatoriesand  interviewstoenforceagainstviolationsoffederallaw. Other Federal Rulemakings OnOctober30,2015,EDpublishedfinalrulestoamendtheregulationsgoverningtheDirectLoanProgramto  createanewincome-contingentrepaymentplan,theRevisedPayAsYouEarnrepaymentplan,orREPAYE,in  accordancewiththePresident’sinitiativetoallowmoreDirectLoanborrowerstocaptheirloanpaymentsat  10%oftheirmonthlyincomes.Inaddition,theregulationsalsoimplementchangestotheFFELProgramand  DirectLoanProgramtostreamlineandenhanceexistingprocessesandprovideadditionalsupporttostrug - glingborrowers,including,amongotherthings,establishingnewproceduresforFFELProgramloanholdersto  identifyservicememberswhomaybeeligibleforbenefitsundertheServicemembersCivilReliefAct.Thefinal  rulesalsoexpandthecircumstancesunderwhichaninstitutioncouldchallengeorappealadraftorfinalcohort  defaultratebasedontheinstitution’sparticipationrateindex.ThefinalruleswereeffectiveJuly1,2016. The States Asdiscussedabovein“ConsumerProtection—OtherIssuesRelatedtoConsumerProtectionandComplaints,”  manystateshavebecomemoreactiveinregulatingproprietaryeducationfromaconsumerprotectionperspec - tive,specificallyinregardstoenforcementofconsumerprotectionlawsandimplementationofnewregulations  bystateattorneysgeneral.Sinceourinstitutionsoperateinmanyjurisdictions,ourinstitutionsmaybesubject  toregulationspromulgatedbyavarietyofregulators. 2016 Annual Report 67 ITEM1A.RISKFACTORS 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 ATTRACTING AND RETAINING STUDENTS Our success and financial performance depends on the effectiveness of our ability to attract students that persist in our institutions’ programs. Buildingawarenessofourinstitutionsandtheprogramstheyofferamongpotentialstudentsiscriticaltoour  institutions’abilitytoattractnewstudents.Inordertomaintainandincreaseourrevenueandprofits,our  institutionsmustcontinuetoattractnew,qualifiedstudentsinacost-effectivemanner,andthesestudentsmust  remainactiveinourinstitutions’programs.Inaddition,becauseourinstitutionsexperiencedeclinesintheir  studentpopulationasaresultofgraduation,transferstootheracademicinstitutions,militarydeploymentsand  otherreasons,inordertogrowweneedtofirstattractsufficientstudentstoreplacethosewhohaveleft.Some  ofthefactorsthatcouldpreventusfromsuccessfullyadvertisingandmarketingourinstitutions’programsand  fromsuccessfullyenrollingandretainingqualifiedstudentsinthoseprogramsinclude: • changesandrevisionstopoliciesoftheDepartmentofDefense,orDoD,andthevariousmilitaryservices; • challengesinmaintainingstrongrelationshipswithmilitaryandmilitary-affiliatedcommunities; • theemergenceofmore,andmoresuccessful,competitors,andalternativeeducationmodels; • factorsrelatedtoourinstitutions’marketing,includingthecostsofInternetadvertisingandmulti-faceted  interactivemarketingcampaigns; • challengesindesigningmarketingcampaignsthatsuccessfullyattractcollege-readystudents; • thereducedavailabilityof,orhigherinterestratesandothercostsassociatedwith,TitleIVloanfundsorother  sourcesoffinancialaid; • performanceproblemswithourinstitutions’onlinesystems; • ourinstitutions’failuretomaintainaccreditation,stateauthorization,eligibilityforTitleIVprograms,orother  approvals; • increasedregulationofonlineeducation,includinginstatesinwhichwedonothaveaphysicalpresence; • regulatoryinvestigationsorlitigationthatmaydamageourreputation; • studentdissatisfactionwithourinstitutions’servicesandprograms; • failuretodevelopanddeliveramessageorimageforAPUSthatresonateswellwithnon-militarystudents; • adversepublicityregardingus,ourinstitutions,ourcompetitors,oronlineorfor-profiteducationgenerally; • adeclineintheacceptanceofonlineeducationgenerally;and • adecreaseintheperceivedoractualeconomicbenefitsthatstudentsderivefromourinstitutions’programs  orprogramsprovidedbyfor-profitschoolsgenerally. 68 AmericanPublicEducation,Inc. Ifweareunabletocontinuetodevelopawarenessofourinstitutionsandtheprogramsweoffer,andtorecruit  andenrollstudentsthatpersistinourprogramsovertime,ourenrollmentswillsufferandtherecouldbea  materialadverseeffectonourfinancialconditionandresultsofoperations. Our efforts to market APUS have not always been successful, and if we are unable to develop and optimize marketing and advertising programs that are effective, we will be unable to attract students and stabilize or grow our enrollments. OurmarketingstrategyforAPUStraditionallyfocusedonbuildinglong-term,mutuallybeneficialrelationships  withorganizationsandindividualsinthemilitaryandpublicsafetycommunities.However,withlimitationson  accesstomilitarystudents,asdiscussedfurtherbelowundertheRiskFactorthatbegins“IfAPUSdoesnothave  strongrelationshipswith,andaccessto,variousmilitaryinstallations...”andwithcontinueddiversification  outsideofthemilitary,weidentifiedaneedformarketingchannelsthatattractcollege-readystudentswho  performwellatAPUSuponenrollment.However,wehaveexperiencedchallengeswithdoingso,andthereisno  assurancethatwewillbeabletodoso,onacost-effectivebasis. Furthermore,becauseAPUS’stuitionisgenerallylowerthanthatofmostofitscompetitors,ithasfewerdollars  availabletospendonmarketingandadvertisingthantheydo.Asaresult,APUShastriedto,andmayinthe  futuretryto,implementnewmarketingtacticsandchannelswithwhichithasnoexperienceandwhichhave  noguaranteeofsuccess.Ifweareunabletodevelopandoptimizemarketingandadvertisingprogramsthatare  effectiveindevelopingawarenessofourinstitutionsandtheprogramsweoffer,andareunabletoenrolland  retainqualifiedstudentsinmilitaryandnon-militarymarkets,ourenrollmentswouldsufferandourabilityto  increaserevenueandmaintainprofitabilitywouldbesignificantlyimpaired. We have limited experience with marketing HCON, and if we are unable to effectively market its programs, our operating results would be negatively affected. ThesuccessofHondrosCollegeofNursing,orHCON,depends,inpart,onourabilitytomaintainandincrease  studentenrollmentsinHCON’sprograms.PriortoouracquisitionofHCON,wehadnoexperiencewithattract - ingnewstudentsto,andretainingstudentsin,educationalprogramsofferedprimarilyonphysicalcampuses,  andwiththeopeningofHCON’sfifthlocationinJanuary2017,wewillnowbemarketinginageographicmarket  inwhichHCONdidnotpreviouslymarket.IfweareunabletoeffectivelymarketHCON’sprograms,wemaynot  beabletosuccessfullyexecuteourlong-termstrategicplantodiversifyourbusinessandexpandourprograms,  whichwouldnegativelyaffectouroperatingresults. If APUS does not have strong relationships with, and access to, various military installations and installation education centers, our ability to maintain enrollments from military students and our future growth may be impaired. AsofDecember31,2016,approximately54%ofAPUS’sstudentsself-reportedthattheyservedinthemilitaryon  activedutyatthetimeofinitialenrollment,andasignificantportionofAPUSstudentsrelyonDoDtuitionpro - gramstopayfortheireducation.Wearethereforehighlydependentonourrelationshipwiththemilitaryandits  members,andourabilitytoattractandretainmilitaryservicemembersasstudents. APUShistoricallyreliedonitsrelationshipswiththestaffofeducationalcentersonmilitaryinstallationsto  distributeinformationaboutAPUStointerestedservicemembers.APUSalsohistoricallyprovidedcounseling  servicesdirectlytoexistingstudentsonmilitaryinstallations,whichisbeneficialinsupportingthosestudents  andhelpingthemtopersistwiththeireducation.BecauseAPUSreliesonreferralsandpersonalrelationships  forrecruiting,impedimentstoaccesscanhaveanadverseeffectonmaintainingandgeneratingregistrations  frommilitarystudents. 2016 Annual Report 69 Inrecentyears,DoDhasissuedbriefingsthatspecificallyprohibitauthorizingregularorrecurringofficehours  foraneducationalinstitutiontosolelyprovidecounselingandthatprohibitallowingformermilitarymembers  toaccessinstallationstorepresentaneducationalinstitutionusingtheirgovernmentIDcardprivileges.This  changehasadverselyaffectedoureffortstosupportexistingstudentsandrecruitnewstudents.Ifwearenot  abletoimproveouraccesstomilitaryinstallationsandourexistingstudentsonthoseinstallations,orfind  alternativemethodstoservethem,ourmilitaryenrollmentscouldcontinuetodecline.Furthermore,the2014  MOU,whichisdiscussedin“RegulatoryEnvironment—DepartmentofDefense,”andtherelatedincreasedfocus  byDoDonrelationshipsandoversightofeducationalproviders,oradditionalnewDoDinstructionsorbriefings,  couldleadtofurtheradversechangesinthenatureofourrelationshipswithmilitaryinstallationsandtheiredu - cationcentersandouraccesstomilitaryservicemembers. Inadditiontothechallengescausedbylimitsonaccesstomilitaryinstallations,inDecember2015,theU.S.  Armyimplementedanewenrollmentmanagementtool,referredtoasVIA,thatmembersoftheArmymust  usetoaccessDoDtuitionassistanceprograms.WebelievethatmembersoftheArmycontinuetoexperience  variousissueswiththenewenrollmentmanagementtool,includingdifficultyselectingAPUSasaninstitution.  WebelievethattheissuesencounteredwiththenewenrollmentmanagementtoolnegativelyimpactedAPUS’s  enrollmentsandnetcourseregistrationsduring2016,andmaycontinuetohaveanimpactinto2017. Aninabilitytomaintainstrongrelationshipswithinstallationeducationcentersandwithmilitaryservicemem - berswouldhaveanadverseeffectonAPUS’sabilitytoattractandretainqualifiedstudents,resultinginan  adverseeffectonourfinancialcondition. Enrollments and course registrations by active duty service members may be adversely affected by a variety of factors not directly related to education programs, including changes in military activity and budgets. Eventsnotdirectlyrelatedtoeducationprogramsthatcouldoccurinthefuturecouldleadtoareductioninreg - istrationsfromstudentsonactiveduty.Forexample,webelievethatlarge-scalepersonnelreductionsorother  significantdrawdownsofU.S.activedutymilitaryforceswouldlikelyhaveanegativeeffectonenrollmentand  courseregistrations.Increasedoperationsandoverseasdeploymentsacrossallbranchesofthemilitaryandthe  relatedincreaseddemandsonmanyactivedutyservicemembers,combinedwithlimitedInternetaccessassoci - atedwithsomedeployments,couldalsonegativelyimpacttheabilityofcertainactivedutymilitarystudentsto  pursuehighereducation. Militarybudgetcutscouldalsonegativelyaffectusbyleadingtoforcereductionsorcutstoservicesandtools  thatweorAPUS’sstudentsrelyuponforrecruitment,enrollment,accessandtuitionassistance.Eventempo - rarychangestomilitaryactivityandbudgetsmayadverselyaffectoperations.Forexample,inOctober2013,  theUniformTuitionAssistanceProgramoftheDoD,ortheDoDtuitionassistanceprograms,wastemporarily  suspendedasaresultoftheU.S.federalgovernmentpartialshutdown,whichwebelievecouldhavecaused  asmanyas13,100registrationsatAPUStobedropped.TheU.S.Congresshaspassedlegislationtoextend  governmentfundingforDoDthroughApril28,2017;however,iffundingisnotextendedbeyondthatdate,a  governmentshutdowncouldoccur,resultinginasuspensionofDoDtuitionassistanceprograms.Anyfuture  governmentshutdownorsuspensionofDoDtuitionassistanceprogramscouldhaveamaterialadverseeffect  onAPUS’senrollments. Wewillremainsubjecttotheriskofeventsthatoccurwithin,andwithrespectto,themilitary,evenwherethey  donotdirectlyrelatetotheuseofDoDtuitionassistanceprograms.Becauseofourdependenceonactiveduty  militarystudents,changesthatoccurwithinandwithrespecttothemilitarycouldhaveamaterialadverseeffect  onouroperations. 70 AmericanPublicEducation,Inc. DoD tuition assistance programs offered to service members of the U.S. Armed Forces constituted approximately 36% of APUS’s adjusted net course registrations for 2016, 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 suspended. ServicemembersoftheU.S.ArmedForcesareeligibletoreceivetuitionassistancefromtheirbranchofservice  throughtheDoDtuitionassistanceprograms.ServicemembersmayuseDoDtuitionassistanceprogramsto  pursuepostsecondaryeducationatinstitutionsthatareaccreditedbyanaccreditingagencyrecognizedbythe  U.S.SecretaryofEducationandthatsatisfyotherrequirements,includingexecutionof,andcompliancewith,  aMemorandumofUnderstanding,orMOU,thatspecifiestermsandconditionsofparticipationinDoDtuition  assistanceprograms.DoDtuitionassistanceprogramsconstitutedapproximately36%ofAPUS’sadjustednet  courseregistrationsfor2016.WhileHCONhassubmittedanapplicationtoparticipateintheDODtuitionassis - tanceprograms,HCONdoesnotcurrentlyparticipateinDoDtuitionassistanceprograms. WedonotknowthescaleornatureoffutureactionsthatmaybetakenwithrespecttoDoDtuitionassistance  programs,whichcouldincludeeliminatingthoseprograms,reducingthefundsorbenefitsavailablethereunder,  enactingnewrestrictionsonparticipationorimposingothercriteriainadditiontothelevelofreimbursement  thatwouldimpactenrollmentsfromservicemembers.OtheradministrativechangestoDoDprogramscould  alsohavenegativeeffectsonourenrollments.Forexample,inMarch2013,DoDissuedaninstructionrestrict - ingtheabilityofservicemembersincertainoverseasdutylocationsoutsidethecontinentalUnitedStates,or  overseaslocations,toreceiveDoDtuitionassistanceforcoursesofferedbyinstitutionsofhighereducationthat  arenotpartiestocontractswithDoDtoprovideDoDvoluntaryeducationprogramsatthoselocations.Because  wedonothaveacontractwithDoDtoprovideinstructionatoverseaslocations,servicememberswhobegina  postsecondaryeducationprogramafterarrivalatanapplicableoverseasdutylocationmaynotuseDoDtuition  assistanceprogramstopayfortheireducationinourprogramsuntilaftertheyhavesuccessfullycompleteda  coursewithaninstitutionthathasacontracttoprovidevoluntaryeducationprogramsatthatoverseaslocation. ChangestoDoDtuitionassistanceprogramshavealreadyoccurred,andweexpectchangestotheprograms  inthefuture.Forexample,theAirForceisnolongerauthorizingtuitionassistanceforassociatedegreesifthe  servicememberalreadyhasanassociatedegreefromtheCommunityCollegeoftheAirForce,theArmynow  requiresservicememberstocompleteoneyearofserviceaftergraduationfromAdvancedIndividualTraining  inordertobeeligiblefortuitionassistance,theArmyhasreducedthetotalbenefitperservicememberby$500  peryear,andtheMarineCorpsrequires24monthsonactivedutypriortoMarinesbeingeligibletoapplyfor  tuitionassistance.InOctober2015,theCoastGuardrestoredtuitionassistancefundingto$250percredithour,  anincreaseof$62.50percredithourfromthepreviouscapimplementedin2014.AdditionalchangestoDoD  tuitionassistanceprogramscouldoccurduetoCongressionalactionorDoDpolicyandfundingchanges.Ifwe  arenolongerabletoreceivefundsfromDoDtuitionassistanceprograms,orifthoseprogramsarereduced,  eliminated,ortemporarilysuspended,ourenrollmentsandrevenuecouldbesignificantlyreduced,whichwould  resultinamaterialadverseeffectonourresultsofoperationsandfinancialcondition. If our institutions are unable to successfully adjust to future market demands by updating and expanding the content of existing programs and developing new programs, specializations and modes of teaching on a timely basis and in a cost-effective manner, our future growth may be impaired. Webelievethatinordertocontinuetoretainandattractqualifiedstudentsourinstitutionsneedtocontinu - ouslyupdateandexpandthecontentoftheirexistingprogramsanddevelopnewprograms,specializationsand  modesofteaching.However,theupdatesandexpansionsofourinstitutions’existingprogramsandthedevel - opmentofnewprogramsandspecializationsmaynotbeacceptedbytheiraccreditors,stateregulators,ED,  existingorprospectivestudents,oremployers.Ifwecannotrespondtochangesinmarketrequirements,our  2016 Annual Report 71 businessmaybeadverselyaffected.Evenifourinstitutionsareabletodevelopacceptablenewprograms,they  maynotbeabletointroducethesenewprogramsasquicklyasstudentsrequireorasquicklyascompetitors  introducecompetingprograms.Toofferanewacademicprogram,ourinstitutionsmayberequiredtoobtain  appropriatefederal,state,andaccreditingagencyapprovals,whichmaybeconditionedordelayedinamanner  thatcouldsignificantlyaffectourgrowthplans.Ifweareunabletorespondadequatelytochangesinmarket  requirementsduetofinancialconstraints,regulatorylimitations,orotherfactors,ourinstitutions’abilityto  attractandretainstudentscouldbeimpairedandourfinancialresultscouldsuffer. Establishingnewacademicprograms,specializationsandmodesofteachingormodifyingoreliminatingexisting  programsrequiresourinstitutionstomakeinvestmentsinmanagementandcapitalexpenditures,incurmarket - ingexpenses,andreallocateotherresources.Ourinstitutionsmayhavelimitedexperienceprovidingcoursesin  newfieldsofstudyornewmodesofteaching(suchascompetency-basededucation,micro-credentialsorother  non-degreecredentials)andmayneedtomodifysystemsandstrategyorenterintoarrangementswithother  institutionstoprovidenewprogramseffectivelyandprofitably.Ifourinstitutionsareunabletoincreasethe  numberofstudentsenrollinginnewacademicprograms,offerprogramsinacost-effectivemanner,orother - wisemanageeffectivelytheoperationsofthoseprograms,ourresultsofoperationsandfinancialcondition  couldbeadverselyaffected. Strong competition in the postsecondary education market could continue to decrease our institutions’ market share and increase our cost of acquiring students. Withinthepostsecondaryeducationmarket,ourinstitutionscompeteprimarilywithnot-for-profitpublicand  privatetwo-yearandfour-yearcolleges,aswellasotherfor-profitschools,particularlythosethatofferonline  learningprograms.Publicinstitutionsreceivesubstantialgovernmentsubsidies,andpublicandprivatenot-for- profitinstitutionshaveaccesstogovernmentandfoundationgrants,tax-deductiblecontributions,andother  financialresourcesgenerallynotavailabletofor-profitschools.Theseinstitutionsmayhaveinstructionaland  supportresources,orcoursedeliverytools,thataresuperiortothoseofourinstitutionsandotherfor-profit  schools.Manyofourcompetitorsalsohavesubstantiallygreaternamerecognitionandfinancialandother  resourcesthanwehave,whichmayenablethemtocompetemoreeffectivelyforpotentialstudents,orto  provideinstructionalandsupportresourcesthataresuperiortothoseofourinstitutionsandotherfor-profit  schools.Withinthepostsecondaryeducationmarketgenerally,weanticipateincreasedcompetition,including  becausethetotalpostsecondarystudentpopulationhasbeendeclining.AccordingtotheNationalStudent  Clearinghouse,enrollmentinTitleIVpostsecondarydegree-grantinginstitutionsinthefallof2016decreased  1.4%,comparedtothefallof2015,withadecreaseof14.5%takingplaceamongfour-yearfor-profitschools.  Longertermprojectionssuggestthatpreviousgrowthinenrollmentinpostsecondarydegree-grantinginstitu - tionsisslowing.AccordingtoaMay2015reportfromED,suchenrollmentwasprojectedtogrow15%overthe  11-yearperiodendinginfallof2023,comparedto24%growthoverthe10-yearperiodthatendedin2012.The  combinationofreducedgrowthordeclinesinthepostsecondarystudentpopulationandincreasedcapacityin  thepostsecondaryeducationmarketwillfurtherintensifycompetition,andanyfurtherdeclineinthenumberof  enrollmentscouldhaveanadverseeffectonourresultsofoperations. We expect to continue to face greater competition from non-traditional offerings, provided by both educational institutions and non-traditional providers. Inrecentyears,competinginstitutionsandothershavestartedprovidingnon-traditional,credit-bearingand  non-credit-bearingeducationprograms,includingmassivelyopenonlinecourses,orMOOCs,withoutcharge  oratlowcosts.Wehavealsoobservedanincreaseininstitutionsofferingcompetency-basedprograms,which  permitstudentstoprogressinaprogrambydemonstratingthattheyhaveachievedcertainskillsorknowledge  ratherthanbyearningcredithours.EDhasissuedguidanceaddressingaccesstoTitleIVprogramsforstudents  72 AmericanPublicEducation,Inc. intheseprograms.Webelievethatourinstitutionswillcontinuetofacenewcompetitionfromsuchprograms,  includingcompetitionfromlowercostalternatives.Additionally,non-traditionalcompetitors,suchasentities  offeringcodingbootcampsandmicro-credentials,areofferingnewalternativeeducationalpaths.Whileweare  workingtodevelopourownalternativesinsomeoftheseareas,includingwithrespecttocompetency-based  educationatAPUS,thereareotherinstitutionswithprogramsthataremorefullydeveloped,andourofferings  maynotreceivemarketacceptanceorqualifyforaccesstoTitleIVprograms.Ourinstitutionsmaynotbeable  tocompetesuccessfullyagainstcurrentorfuturecompetitorsandmayfacecompetitivepressuresthatcould  adverselyaffecttheirbusinessorresultsofoperations.Thesecompetitivefactorscouldcauseourinstitutions’  enrollments,revenue,andprofitabilitytodecreasesignificantly. Strong competition in the military market could decrease our institutions’ market share and increase our cost of acquiring students. WeanticipatethatAPUSwillcontinuetoseestrongcompetitionwithinthemilitarymarket,whichcontinuesto  beaprimarymarketforAPUS.Thereareanumberoffor-profitschoolsandnot-for-profitinstitutionsthatfocus  onthemilitarymarketbecauseofthesizeofthemarketandtheavailabilityoffunding,andsomefor-profit  schoolsseektoattractstudentseligibleforDoDtuitionassistanceprograms,VAeducationbenefits,orboth,  atleastinpartasastrategyofthoseinstitutionstosatisfythe90/10Rule,whichisdescribedin“Regulatory  Environment—StudentFinancingSourcesandRelatedRegulations/Requirements—DepartmentofEducation— RegulationofTitleIVFinancialAidPrograms—The‘90/10Rule.’” 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;restrictingorrevokingour  institutions’accreditation,licensure,orotherapprovaltooperate;limiting,suspending,orterminatingourinsti - tutions’eligibilitytoparticipateinTitleIVprograms,DoDtuitionassistanceprograms,orVAbenefitprograms  byrequiringustorepayfunds,postaletterofcredit,becomesubjecttopaymentmethodsforTitleIVprograms  thatarenottheadvancepaymentsystem;subjectingustocivilorcriminalpenalties;orotheractionsthatcould  haveamaterialadverseeffectonourbusiness. 2016 Annual Report 73 Theregulations,standards,andpoliciesofED,stateregulatorybodies,andourinstitutions’accreditingagencies  changefrequentlyandaresubjecttointerpretiveambiguities,particularlywheretheyarewrittenforinstitu - tionsthatofferon-campusinstruction,suchasHCON,ratherthanonlineinstitutions,suchasAPUS.Recentand  pendingchangesin,ornewinterpretationsof,applicablelaws,regulations,standards,orpolicies,orournon - compliancewithanyapplicablelaws,regulations,standards,orpolicies,couldhaveamaterialadverseeffect  onouraccreditation,authorizationtooperateinvariousstates,permissibleactivities,receiptoffundsunder  DoDtuitionassistanceprograms,ourabilitytoparticipateinTitleIVprograms,ourabilitytoparticipateinVA  educationbenefitprograms,orcostsofdoingbusiness.Wecannotpredictwithcertaintyhowallofthesereg - ulatoryrequirementswillbeappliedorwhetherwewillbeabletocomply,orwillbedeemedbyotherstohave  complied,withalloftherequirements.Inthesectionentitled“RegulatoryEnvironment”ofthisAnnualReport  andtheseRiskFactors,wehavedescribedsomeofthemoresignificantrisksrelatedtotheabilityofourinstitu - tionstocomplywiththeregulations,standards,andpoliciesofED,stateregulatorybodies,andouraccrediting  agencies. Inaddition,insomecircumstancesofnoncomplianceorallegednoncompliance,wemaybesubjectto“quitam”  lawsuitsundertheFederalFalseClaimsActorvarious,similar,statefalseclaimstatutes,andvarious“whis - tleblower”statutes. InFederalFalseClaimsActactions,privateplaintiffsseektoenforceremediesundertheFederalFalseClaimsAct  onbehalfoftheU.S.governmentand,ifsuccessful,areentitledtorecovertheircostsandtoreceiveaportionof  anyamountsrecoveredbytheU.S.governmentinthelawsuit.Asimilarprocessappliestostatefalseclaimstat - utes.Theselawsuitscanbeprosecutedbyaprivateplaintiffinrespectofsomeactiontakenbyus,evenifEDor  anotherregulatorybodydoesnotagreewiththeplaintiff’stheoryofliability,orthegovernmentcanintervene  andbecomeapartytothelawsuit.Quitamlawsuitshavethepotentialtogenerateverysignificantdamages  linkedtoourreceiptofgovernmentfunds,includingTitleIVfundingandDoDtuitionassistancefunds. If our institutions fail to maintain their institutional accreditation, they would lose the ability to participate in DoD tuition assistance programs and Title IV programs. AccreditationbyanaccreditingagencythatisrecognizedbytheSecretaryofEducationisrequiredforpartici - pationinDoDtuitionassistanceprogramsandforaninstitutiontobecomeandremaineligibletoparticipate  inTitleIVprograms.APUSparticipatesinDoDtuitionassistanceprogramsandTitleIVprograms,andHCON  participatesinTitleIVprograms.Asdescribedmorefullyaboveineachoperatingsegment’ssectionin“Our  Institutions—Accreditation”and“RegulatoryEnvironment—Accreditation,”APUSisaccreditedbyHLC,an  institutionalaccreditingagencyrecognizedbytheSecretaryofEducation,andHCONisaccreditedbyACICS,an  institutionalaccreditingagencythatuntilrecentlywasrecognizedbytheSecretaryofEducation.Bydecision  datedDecember12,2016,theSecretaryofEDwithdrewandterminatedED’srecognitionofACICS.Asaresult,  underthetermsofitsprovisionalprogramparticipationagreement,orPPPA,HCONmaycontinuetoparticipate  intheTitleIVprogramsforupto18monthsfollowingtheSecretary’sdecisiontowithdrawrecognitionofACICS  ifHCONcomplieswithcertainconditionsandrequirements,includingthatHCONmustpursueaccreditation  byanotheraccreditingagencyrecognizedbyED.HCONhasaninprocessapplicationforaccreditationbythe  AccreditingBureauofHealthEducationSchools,orABHES,anationalaccreditorforalliedhealthschoolsthatis  recognizedbyED. Ourinstitutions’accreditingagenciesmayimposerestrictionsontheiraccreditationormayterminatetheir  accreditation.Toremainaccredited,ourinstitutionsmustcontinuouslymeetcertaincriteriaandstandards  relatingto,amongotherthings,performance,governance,institutionalintegrity,educationalquality,faculty,  administrativecapability,resources,andfinancialstability.Ourinstitutionsalsomustcomplywithaccrediting  agencypoliciesandrequirements,suchastoapplyandwaitforapprovalbeforemakingcertainchanges.For  74 AmericanPublicEducation,Inc. example,inconnectionwithourorganizationalrealignment,HLCrequestedthatAPUSsubmitanapplicationto  enableHLCtodeterminewhetherAPUS’sproposaltoenterintoasharedservicesmodelwithAPEIconstitutes  achangeinorganizationorstructurethatrequiresHLCpriorapproval.OnDecember22,2016,APUSsubmitted  therequestedchangeofstructureapplication.ACICSrequiresaccreditedinstitutionstosubmitannuallycer - taincampus-levelandprogram-leveldataforpurposesofmonitoringstudentachievementagainstestablished  requirements,andacampusorprogramwiththreeconsecutiveyearsofbelow-standardratesmaybesubjectto  withdrawalofaccreditationormayberequiredtoceaseenrollmentintheprogram.Failuretomeetanyofthese  criteriaorstandardsortocomplywiththesepoliciesandrequirementscouldresultinthelossofaccreditation  atthediscretionoftheaccreditingagencies.Thecompletelossofaccreditationwould,amongotherthings,ren - derourinstitutionsandtheirstudentsineligibletoparticipateinDoDtuitionassistanceprogramsandTitleIV  programs,andhaveamaterialadverseeffectonourenrollments,revenue,andresultsofoperations. Our institutions’ student enrollments could decline if they fail to maintain accreditation. Institutionalaccreditationisanimportantattributeofourinstitutions.Collegesanduniversitiesdepend,in  part,onaccreditationinevaluatingtransfersofcreditandapplicationstograduateschools;someinstitutions  willaccepttransfercreditonlyfromregionallyaccreditedinstitutions.Students,corporations,andgovernment  sponsorsundertuitionreimbursementprogramslooktoaccreditationforassurancethataninstitutionmain - tainsqualityeducationalstandards,andemployersrelyontheaccreditedstatusofinstitutionswhenevaluat - ingacandidate’scredentials.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. Further, if the accrediting agency of one of our institutions was to lose its ability to serve as an accrediting agency for Title IV program purposes and the institution was unable to obtain recognition from another recognized accrediting agency, that institution would lose its ability to participate in Title IV programs and DoD tuition assistance programs. IncreasedscrutinyofaccreditingagenciesbytheSecretaryofEducationandCongressinconnectionwithED’s  recognitionprocessmayresultinincreasedscrutinyofinstitutionsbyaccreditingagencies.APUSisaccredited  byHLC.InJune2015,theNationalAdvisoryCommitteeonInstitutionalQualityandIntegrity,orNACIQI,the  panelchargedwithadvisingEDonwhethertorecognizeaccreditingagenciesforTitleIVpurposes,votedto  recommendthatEDrenewHLC’srecognitionasanaccreditingagencythroughDecember2017.EDsubsequently  acceptedNACIQI’srecommendationandcontinuedHLC’srecognitionthroughDecember2017.Wecannotpre - dictwhetherNACIQIwillrecommendrenewingHLC’srecognitionbeyondDecember2017.IfHLCweretolose  itsrecognitionasanaccreditingagencyandAPUSwasunabletoobtainrecognitionfromanotherrecognized  accreditingagency,APUSwouldloseitseligibilitytoparticipateinTitleIVprogramsandDoDtuitionassistance  programs.TheinabilityofAPUStoparticipateinTitleIVprogramswouldhaveamaterialadverseeffecton  enrollments,revenue,andresultsofoperations. 2016 Annual Report 75 HCONisaccreditedbyACICS.InJune2016,NACIQIrecommendedthatED’sSeniorDepartmentOfficial  denyACICS’spetitionforrenewalofrecognitionandwithdrawACICS’sstatusasarecognizedaccreditor.On  September22,2016,theEDSeniorDepartmentOfficialconcurredwithNACIQI’srecommendationandtermi - natedED’srecognitionofACICSasanationallyrecognizedaccreditingagency.BydecisiondatedDecember12,  2016,theSecretaryofEDwithdrewandterminatedED’srecognitionofACICS.Asdescribedbelow,ACICShas  appealedtheSecretary’sdecisionintheU.S.DistrictCourtfortheDistrictofColumbia. WhentheSecretarywithdrawstherecognitionofanaccreditingagency,apostsecondaryeducationalinstitution  maybeallowedtocontinueitsparticipationonaprovisionalbasisintheTitleIVprogramsforaperiodnotto  exceed18monthsfromthedateoftheSecretary’sdecisiontoallowtheinstitutiontoseekaccreditationfrom  anotherrecognizedaccreditingagency.Duringthisperiodofprovisionalparticipation,EDwilldeemanACICS- accreditedinstitutiontoholdrecognizedaccreditation,andEDwillrequiretheinstitutiontocomplywithaddi - tionalconditions.EDwillalsoimposecertainadditionalrequirementsonACICS-accreditedinstitutionsthatdo  notmeetcertainmilestonestowardaccreditationbyanotherrecognizedaccreditingagency.OnDecember21,  2016,HCONandEDexecutedarevisedPPPAandaddendumtothePPPAinwhichHCONagreedtocomplywith  ED’sconditionsandrequirements.HCONhasanin-processapplicationforaccreditationbyABHES,anaccredit - ingagencythatisrecognizedbyED. OnDecember15,2016,ACICSfiledamotionforatemporaryrestrainingorderandpreliminaryinjunctionagainst EDintheU.S.DistrictCourtfortheDistrictofColumbia.ACICSaskedthecourttostaytheSecretary’sdecision  terminatingACICS’srecognitionstatus,restoreACICS’srecognitionstatus,andenjoinEDfromenforcingthe  requirementsforACICS-accreditedinstitutions,includingthosesetforthinED’sPPPA.OnDecember20,2016,  thecourtdeniedACICS’srequestforatemporaryrestrainingorder,andonFebruary21,2017,thecourtdenied  ACICS’srequestforapreliminaryinjunction.IfthecourtdoesnotrestoreACICS’srecognitionstatus,HCON  wouldnotbeeligibletoparticipateinTitleIVprogramsbeyondJune12,2018,unlessHCONbecomesaccredited  byanotheraccreditingagencyrecognizedbyEDwithinthatperiod.Inaddition,theapprovalstatus,andinsome  casesfundingprovidedbyotheragencies,couldbeadverselyaffectedbythelossofaccreditationbyACICS. TheineligibilityofHCONtoparticipateinTitleIVprogramswouldhaveamaterialadverseeffectonHCON’s  enrollmentsandonourrevenue,resultsofoperations,andfinancialcondition. 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  inDoDtuitionassistanceprogramsandTitleIVprograms,whichcouldhaveamaterialadverseeffectonthe  institution’sstudentenrollmentandrevenue. Becauseofrapidgrowthin,andincreasedscrutinyof,thefor-profiteducationsector,accreditingbodiesmay  adoptneworrevisedcriteria,standards,andpoliciesthatareintendedtomonitor,regulate,orlimitthegrowth  offor-profitinstitutionslikeours.Forexample,onAugust31,2016,HLCadoptedpolicychangesthatare  intendedtoallowHLCtorespondquickertodevelopingsituationsataccreditedinstitutions.Thepolicychanges  permitHLCtodesignatepubliclyaninstitutionas“infinancialdistress”or“undergovernmentalinvestigation,”  76 AmericanPublicEducation,Inc. wheresuchsituationshavethepotentialtoimpacttheinstitution’soperationsandHLCbelievesthepublic  shouldhaveinformationinmakingadecisiontoattendorcontinuetoattendtheinstitution.Anaccreditedinsti - tutionwithadesignationmayberequiredtosubmitreportsaboutitsfinancialorlegalsituationorundergospe - cialmonitoring,andmaybesubjecttolimitsonsubstantivechanges.Adesignationtypicallywillextendfornot  morethantwoyearsandmayberemovedwhenHLCdeterminesthedesignationisnolongerrequiredbecause  theinstitutionhasresolvedtheissuesthatledtothedesignation.IfAPUSweredeemedbyHLCtobe“infinan - cialdistress”or‘undergovernmentalinvestigation,”APUSwouldbesubjecttoheightenedscrutinyintheformof  requirementstosubmitperiodicreports,specialmonitoring,andlimitsonrequestsforsubstantivechange. Beginningin2012,ACICS,HCON’saccreditor,establishedrequirements,includingminimum“standards”and  expected“benchmarks,”tomeasurestudentretention,graduateplacementandlicensureexampassagerates.  TosatisfyACICS’s“standards,”theretentionrate,placementrate,andlicensureexampassrateeachmust  exceed60%.TosatisfyACICS’s“benchmarks,”eachratemustexceed70%.IfACICSdeterminesthataninstitu - tion’scampus-levelorprogram-leveldatadoesnotsatisfyoneormorestandardsorbenchmarks,ACICSmay  takecertainactions.InJanuary2017,ACICSpublishedanewpolicy,effectiveDecember6,2016,thatdefines  intermsofmetricrangeswhenaparticularactionwillbetaken,atthecampusandprogramlevels,including  theissuanceofacompliancewarning,ashow-causedirective,anadverseactionorreportingwithrestrictions  againstacampusorprogram.ForthereportingyearfromJuly1,2015throughJune30,2016,severalHCONcam - pusesandprogramsdidnotsatisfyACICSrequirements.OnFebruary24,2017,ACICSnotifiedHCONthatunless  itnotifiesACICSthatitisdiscontinuingthePNProgramattheClevelandcampus,thenACICSexpectstoissuea  show-causeletterrequiringHCONtodemonstratewhyACICSapprovalofthePNProgramatthelocationshould  notbewithdrawn.ACICStooksuchactionunderthenewpolicybecausetheplacementratesreportedforthe  PNProgramattheClevelandcampuswerebetween50-59.9%fortwoconsecutiveyears.Aninstitutionthat  ACICSdirectstoshowcausemustimmediatelynotifycurrentandprospectivestudentsoftheshow-causesta - tus,includingbypostingaprominentnoticeonitswebsite.WeunderstandthatifthePracticalNursingprogram  attheClevelandcampusisputonshowcause,HCONwillberequiredtomakecertainreportstoACICSandwill  haveuntilitsnextcampusaccountabilityreport,dueNovember1,2017,todemonstratethatitsplacementrate  complieswiththerelevantstudentachievementmeasure.Atthistime,weareunabletopredicttheimpactof  thisdevelopmentandthepossibleoutcomesonourenrollmentsandresultsofoperations.IfoneoftheHCON  campusesorprogramsfailstosatisfyACICSachievementmeasures,enrollmentinsuchHCONcampusesorpro - gramscoulddecline,whichcouldhaveamaterialadverseimpactonHCON’sstudentenrollment,revenue,and  cashflows.Inaddition,HCONisseekingaccreditationfromABHES,andABHESpoliciesrequirethatinstitutions  andprogramsapplyingforABHESaccreditationmustadviseABHESimmediatelyofanyadverseorpotentially  adverseaction,includingashow-causedirective,byanotheraccreditingagency.ABHESalsoreservestheright  nottograntinitialaccreditationifaninstitutionisonprobationoranequivalentstatusimposedbyanother  accreditingagency.Atthistime,wecannotpredictABHES’sreaction,ifany,regardingACICS’sactionwithrespect  totheClevelandcampus’sPNProgram,includinghowitwillimpactanydecisionwithrespecttoinitialaccredita - tionofHCONortheapprovalofthePNProgramaspartofinitialaccreditation. 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  participateinTitleIVprogramsandDoDtuitionassistanceprograms,aninstitutionmustbelegallyauthorized  bytherelevanteducationagencyofthestateinwhichitisphysicallylocated.Lossofstateauthorizationbyone  ofourinstitutionsinthestateinwhichitisphysicallylocatedwouldcausethatinstitutiontobeineligibletopar - ticipateinTitleIVprogramsandDoDtuitionassistanceprogramsandloseitsabilitytograntcredentials. 2016 Annual Report 77 APUSiscurrentlyauthorizedtoofferitsprogramsbytheWestVirginiaHigherEducationPolicyCommission,or  WVHEPC,theregulatoryagencygoverningpostsecondaryeducationintheStateofWestVirginia.Suchauthori - zationmaybelost,limitedorwithdrawnifAPUSfailstocomplywithmaterialrequirementsunderWestVirginia  statutesandrulesforcontinuedauthorization.Undercurrentlaw,ifAPUSweretoloseitsregionalaccreditation  byHLC,WVHEPCmaysuspend,withdraw,orrevokeAPUS’sauthorization.Inaddition,inordertomaintainits  eligibilityforaccreditationbyHLC,APUSmustremainheadquarteredandhaveasubstantialpresenceinoneof  thestatesinitsregion,whichincludesWestVirginia.Thus,ifAPUSweretoloseitsauthorizationfromWVHEPC,  APUSwouldbeunabletoprovideeducationalservicesinWestVirginia,APUSwouldloseitseligibilityforTitleIV  programsandDoDtuitionassistanceprograms,andAPUSwouldloseitsHLCaccreditation. HCONisauthorizedbytheOhioStateBoardofCareerCollegesandSchoolsandtheOhioDepartmentofHigher  Education.Suchauthorizationmaybelimited,suspended,orrevokedifHCONfailstosubmitrenewalapplica - tionsorotherrequiredsubmissionstothestateinatimelymanner,orifHCONfailstocomplywithmaterial  requirementsunderapplicableOhiostatutesandrulesforcontinuedauthorization.Continuedstateauthoriza - tionisrequiredinordertomaintainACICSaccreditation.IfHCONweretoloseitsauthorizationfromtheOhio  StateBoardofCareerCollegesandSchools,HCONwouldbeunabletoprovideeducationalservicesinOhio,  HCONwouldloseitseligibilityforTitleIVprograms,andHCONwouldloseitsaccreditation.IfHCONwereto  loseitsauthorizationfromtheOhioDepartmentofHigherEducation,HCONwouldbeunabletooffertheonline  RegisteredNursetoBachelorofScienceinNursingcompletionprograminOhio.IfHCONweretoloseapproval  fromtheOhioBoardofNursingfortheDiplomainPracticalNursingortheAssociateDegreeinNursing,stu - dentsintheprogramlackingapprovalwouldnotbeeligibletoapplyforlicensurebyexaminationtopractice  nursinginOhio. EffectiveJuly1,2011,EDregulationsprovidethataninstitutionisconsideredlegallyauthorizedbyastateifthe  statehasaprocesstoreviewandappropriatelyactoncomplaintsconcerningtheinstitution,includingenforcing  applicablestatelaws,andtheinstitutioncomplieswithanyapplicablestateapprovalorlicensurerequirements  consistentwiththenewrules.Ifastateinwhichoneofourinstitutionsislocatedfailstocomplyinthefuture  withtheprovisionsofthatregulation,ourinstitutions’abilitytooperateinthatstateandtoparticipateinTitle  IVprogramscouldbelimitedorterminated.Foradditionalinformationontheseregulations,pleaserefertothe  “RegulatoryEnvironment—ED’sStateLicensure/AuthorizationRegulatoryRequirements”sectionofthisAnnual  Report. Our institutions’ failure to comply with the requirements of the State Authorization Reciprocity Agreement or regulations of various states could result in actions that would have a material adverse effect on our enrollments, revenue, and results of operations. Variousstatesimposeregulatoryrequirementsoneducationalinstitutionsoperatingwithintheirboundaries,  includingregistrationrequirementsapplicabletoonlineeducationalinstitutionsthathavenophysicallocation  orotherpresenceinthestatebutoffereducationalservicestostudentswhoresideinthestateoradvertise  toorrecruitprospectivestudentsinthestate.SARAisavoluntaryagreementamongmemberstates,districts  andterritoriesthatestablishescomparablenationalstandardsforinterstateofferingofpostsecondarydistance  educationcoursesandprograms.SARAisintendedtomakeiteasierforstudentstotakeonlinecoursesoffered  bypostsecondaryinstitutionsbasedinanotherstate.OurinstitutionsparticipateinSARA,whichallowsour  institutionstoenrollstudentswhoresideinjurisdictionsthataremembersofSARA.AllstatesandtheDistrictof  Columbia,withtheexceptionofCalifornia,Massachusetts,andNewYork,aremembersofSARAasofFebruary  2017.ForjurisdictionsthatarenotmembersofSARA,ourinstitutionsmustsatisfytherequirementsofthose  individualstateswithregardtoonlineeducation,whichrequirementsmaychangefromtimetotimeand,in  someinstances,arenotclearorarelefttothediscretionofstateregulators. 78 AmericanPublicEducation,Inc. FormoreinformationaboutthosejurisdictionsinwhichAPUSandHCONareauthorized,includingwheresuch  authorizationisprovidedthroughSARA,see“RegulatoryEnvironment—StateLicensure/Authorization”inthis  AnnualReport.ChangesinrequirementstoparticipateinSARAorchangestostatelawsandregulationsandthe  interpretationofthoselawsandregulationsbytheapplicableregulatorsmaylimitourabilitytooffereduca - tionalprogramsandawarddegrees.Ifoneofourinstitutionswastofailtocomplywiththerequirementstopar - ticipateinSARAorstatelicensingorauthorizationrequirementstoprovidedistanceeducationinanon-SARA  state,theinstitutionmayloseitsabilitytoparticipateinSARAormaybesubjecttothelossofstatelicensureor  authorizationtoprovidedistanceeducationinthatnon-SARAstate,respectively.Ifoneofourinstitutionswas  tofailtocomplywithstaterequirementstoobtainlicensureorauthorization,itmaybethesubjectofinjunctive  actionsorpenalties. Asdescribedinthe“RegulatoryEnvironment—StateLicensure/Authorization”sectionofthisAnnualReport,  onDecember19,2016,EDpublishedfinalregulationsaddressing,amongotherissues,stateauthorizationof  programsofferedthroughdistanceeducation.Thefinalregulations,whichareeffectiveJuly1,2018,require  aninstitutionofferingdistanceeducationprogramstobeauthorizedbyeachstateinwhichtheinstitution  enrollsstudents,ifsuchauthorizationisrequiredbythestate,inordertoawardTitleIVaidtosuchstudents.An  institutioncouldobtainsuchauthorizationdirectlyfromthestateorthroughastateauthorizationreciprocity  agreement.Thefinalregulationsrequireaninstitutiontodocumentthestateprocessforresolvingcomplaints  fromstudentsenrolledinprogramsofferedthroughdistanceeducationforeachstateinwhichsuchstudents  resideandprovidecertainpublicandindividualizeddisclosurestoenrolledandprospectivestudentsregarding  itsprogramsthatareprovidedorcanbecompletedsolelythroughdistanceeducation.OnJanuary30,2017,ED  announcedthatitintendstotakeunspecifiedregulatoryactionsregardingcertainregulationsthathavebeen  publishedbuthavenotyettakeneffect,includingtheregulationsrelatedtostateauthorizationofdistanceedu - cation.Ifoneofourinstitutionsfailstoobtainormaintainrequiredstateauthorizationtoprovidepostsecond - arydistanceeducationinaspecificstate,theinstitutioncouldloseitsabilitytoawardTitleIVaidtostudentsin  thatstateandcouldloseitsabilitytoprovidedistanceeducationinthatstate. 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,anapplicantmusthavesuccessfullycompletedanursingedu - cationprogramthatisapprovedbytheOhioBoardofNursing,orOBN.RegulationsoftheOBN,whichapproves  theHCONPracticalNurse,orPNprogram,andAssociateDegreeinNursing,orADNprograms,requirethata  nursingeducationprogramsuchastheHCONPNandADNprogramsmusthaveapassrateontherelevant  NCLEXlicensureexamthatisatleast95%ofthenationalaverageforfirst-timecandidatesinacalendaryear.Ifa  programdoesnotattainsuchpassrate,theprogrammayfaceconsequences,including,afterfourconsecutive  yearsoffailingtomeetthatstandard,placementonprovisionalapprovalstatus.Ifaprogramonprovisional  2016 Annual Report 79 approvalcontinuestofailtomeet therequirements,theOBNmaywithdrawitsapprovaloftheprogram.HCON’s ADNprogram’spassrateontherelevantNCLEXlicensureexamhasnotmettherequirementsoftheOBNforthe previousfouryears.Asaresult,weexpectthatHCON’sADNprogramwillbeplacedonprovisionalapprovalsta - tusbytheOBNinMarch2017.Ifaprogramonprovisionalapprovalfailstomeetandmaintaintherequirements  oftheOBNattheendofthetimeperiodestablishedforprovisionalapproval,theOBNmayproposetocontinue  provisionalapprovalforasettimeperiodormayproposetowithdrawapprovalpursuanttoanadjudication  proceeding.FortheOBNtoconsiderrestoringaprogramtoFullApprovalstatusafteraprogramisplacedon  provisionalstatusduetolowNCLEXscores,theprogrammustattainapassratethatmeetsorexceeds95%of  thenationalaverageforfirst-timecandidatesforatleasttwoconsecutiveyears.HCONhasbeenimplementing  changes,includingthecurriculumchangesdiscussedinthisAnnualReport,anditsNCLEXpassratesforthePN  andADNprogramshaveincreasedinrecentperiods.Placementonprovisionalstatusmayresultinadditional  regulatoryrequirements,suchasarequirementtodisclosetheprovisionalstatus.Anyconsequencesthatresult  fromthissituationmayhaveanadverseimpactonourresultsofoperations,cashflows,andfinancialcondition. Thestaterequirementsforlicensurearesubjecttochange,asaretheprofessionalcertificationstandards,  andwemaynotbecomeawareofchangesthatmayimpactourstudentsincertaininstances.Intheeventthat  oneormorestatesrefusetorecognizeourinstitutions’studentsforprofessionallicensurebasedonfactors  relatingtoourinstitutionsorprograms,thepotentialgrowthofourinstitutions’programswouldbenegatively  impacted,whichcouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperations  andcashflows.Requirementsforemploymentvaryfromemployertoemployerandfromfieldtofield.Tothe  extentourgraduatesfailtosatisfyrequirementsforemploymentbyparticularemployersorinaparticularpro - fessionbasedoncharacteristicsofourprograms,thepotentialgrowthofourinstitutions’programswouldbe  negativelyimpacted,whichcouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsof  operationsandcashflows.Inaddition,ifourinstitutions’graduatesfailtoobtainprofessionallicensure,employ - mentorotheroutcomesintheirchosenfieldsofstudy,weandourinstitutionscouldbeexposedtolitigation,  includingclass-actionlitigation,thatwouldforceustoincurlegalandotherexpensesthatcouldhaveamaterial  adverseeffectonourbusiness,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  continuedeligibilityandcertificationtoparticipateinTitleIVprograms,orscopeofeligibilityandcertification,  intheeventtheinstitutionundergoesachangeinownershipresultinginachangeofcontrol,orexpandsits  activitiesincertainways,suchastheadditionofcertaintypesofnewprograms,additionofnewlocations,or,in  certaincases,changestotheacademiccredentialsthatitoffers.Incertaincircumstances,EDmustprovisionally  certifyaninstitution,suchaswhenitisaninitialparticipantinTitleIVprograms,orhasundergoneachangein  ownershipandcontrol. AprovisionallycertifiedinstitutionmustapplyforandreceiveEDapprovalofsubstantialchangesandmust  complywithanyadditionalconditionsincludedinitsprogramparticipationagreement.IfEDdeterminesthat  aprovisionallycertifiedinstitutionisunabletomeetitsresponsibilitiesunderitsprogramparticipationagree - ment,itmayseektorevoketheinstitution’scertificationtoparticipateinTitleIVprogramswithfewerduepro - cessprotectionsfortheinstitutionthanifitwerefullycertified. 80 AmericanPublicEducation,Inc. APUSisfullyrecertifiedtoparticipateinTitleIVprogramsthroughSeptember30,2020.APUSwillberequiredto  applytimelyforrecertificationinordertocontinuetoparticipateintheTitleIVprogramsafterSeptember30,  2020. HCONwasdeemedtohaveundergoneachangeofownershipandcontrolinNovember2013,requiringreview  byEDinordertoreestablisheligibilityandcontinueparticipationinTitleIVprograms.InJanuary2016,we  receivedaletterfromEDapprovingthechangeinownershipandcontrolandgrantingHCONprovisionalcer - tificationtoparticipateinTitleIVprogramsuntilDecember31,2018.HCONreceivedafullyexecutedPPPAin  February2016.Whileprovisionallycertified,HCONoperatesunderthePPPA,whichrequiresHCONtoapplyfor  andreceiveapprovalfromtheSecretaryofEducationbeforeinitiatinganysubstantialchanges,suchasestab - lishinganadditionallocationatwhichatleast50%ofaneligibleprogramwillbeofferedandTitleIVprogram  fundswillbedisbursed,offeringacademicprogramsathigherthanthebachelor’sdegreelevel,oraddinganew  educationprogram.Inaddition,asaresultoftheSecretaryofEducation’sdecisiontowithdrawandterminate  ED’srecognitionofACICS,onDecember21,2016,HCONandEDexecutedarevisedPPPAandanaddendumto  thePPPAinwhichHCONagreedtocomplywithadditionalconditionsandrequirements.Formoreinformation  abouttheseconditionsandrequirements,see“RegulatoryEnvironment—RestrictionsonAddingLocationsand  EducationalPrograms”inthisAnnualReport.Undertheaddendum,HCONmaycontinuetoparticipateinthe  TitleIVprogramsonaprovisionalbasisuntilJune12,2018,whileHCONseeksaccreditationbyanotherrecog - nizedaccreditingagency.DuringthetermofthePPPA,HCON’sparticipationinTitleIVprogramsissubjectto  revocationforcause,whichincludesafailuretocomplywithanyprovisionsetforthinthePPPA,aviolationofED regulationsdeemedmaterialbyED,oramaterialmisrepresentationinthematerialsubmittedtoEDaspartof  theinstitution’sapplicationforapprovalofthechangeofownershipandcontrol. IfEDweretowithdrawornotrenewourinstitutions’certificationtoparticipateinTitleIVprograms,ourstu - dentswouldnolongerbeabletoreceiveTitleIVprogramfundsorDoDtuitionassistanceprogramfunds,which  wouldhaveamaterialadverseeffectonourenrollments,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’sTitleIVprograms,theywillnotbeabletoparticipateinDoDtuitionassistanceprogramsbecausetheDoD  MOUrequiresaninstitutiontobecertifiedtoparticipateinTitleIVprogramsinordertoparticipateinDoD  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”toparticipateinTitleIVprogramsandthesanctionsEDmayimposeifaninstitutionfails  tosatisfyanyofthosecriteria.Tomeettheadministrativecapabilitystandards,aninstitutionmust,among  otherthings,complywithallapplicableTitleIVrequirements,includingwithrespecttotheadministrationof  TitleIVprogramsandtheprocessingofTitleIVprogramfunds.See“RegulatoryEnvironment—FederalSupport  andRegulationofPostsecondaryEducation—RegulationofTitleIVFinancialAidPrograms—Administrative  Capability.”Ifaninstitutionfailstosatisfyanyoftheadministrativecapabilityrequirements,EDmayrequirethe  repaymentofTitleIVprogramfunds,transfertheinstitutionfromthe“advance”systemofpaymentofTitleIV  programfundstoheightenedcashmonitoringstatus,ortothe“reimbursement”methodofpayment,placethe  2016 Annual Report 81 institutiononprovisionalcertificationstatus,orcommenceaproceedingtoimposeafineortolimit,suspend,or  terminatetheparticipationoftheinstitutioninTitleIVprograms. IfoneofourinstitutionsisfoundnottohavesatisfiedED’s“administrativecapability”requirements,itcould  belimitedinitsaccessto,orlose,TitleIVprogramfunding,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. ToparticipateinTitleIVprograms,aneligibleinstitutionmustsatisfyspecificmeasuresoffinancialresponsi - bilityprescribedbyED,orpostaletterofcreditinfavorofED,andpossiblyacceptotherconditions,suchas  provisionalcertification,additionalreportingrequirements,orregulatoryoversightofitsparticipationinTitle  IVprograms.EDmayalsoapplysuchmeasuresoffinancialresponsibilitytoaparentcompanyofaneligibleinsti- tutionand,ifsuchmeasuresarenotsatisfiedbytheparentcompany,requiretheinstitutiontopostaletterof  creditinfavorofED,andpossiblyacceptotherconditionsonitsparticipationinTitleIVprograms.Forourinsti - tutions,EDappliesitsmeasuresoffinancialresponsibilityattheleveloftheparentcompany,APEI.Anobligation  topostaletterofcredit,ortoacceptotherconditions,suchasachangeinoursystemofTitleIVpaymentfrom  EDforpurposesofdisbursement,couldincreaseourcostsofregulatorycompliance,oraffectourcashflow. InfinalregulationspublishedNovember1,2016,EDmodifieditsfinancialresponsibilitystandardstoprovide  thataninstitution(otherthanapublicinstitution)maynotbeabletomeetitsfinancialoradministrativeobliga - tions,andisthereforenotfinanciallyresponsible,ifitissubjecttooneormoretriggeringeventsthatoccuronor  afterJuly1,2017.IfEDdeterminesthataninstitutionisnotfinanciallyresponsiblebecauseofoneormoretrig - geringevents,tocontinueparticipatinginTitleIVprograms,theinstitutionwillberequiredtoprovideanirre - vocableletterofcreditequaltoatleast10%oftheamountoffederalstudentfinancialaidfundsreceivedbythe  institutionforthepastyear.Aninstitutionthatisrequiredtoprovidealetterofcreditmayalsoberequiredto  disclosetostudentsinformationabouttheletterofcredit.Ifwearesubjecttooneormoretriggeringeventsand  asaresultEDdeterminesthatwearenotfinanciallyresponsible,wemayberequiredtopostaletterofcredit  oracceptotherlimitationstocontinueparticipatinginTitleIVprograms,whichcouldhaveamaterialadverse  effectonourbusiness,financialconditionandresultsofoperations.Formoreinformationabouttheregula - tions,whichareeffectiveJuly1,2017,see“RegulatoryEnvironment—StudentFinancingSourcesandRelated  Regulations/Requirements—DepartmentofEducation—RegulationofTitleIVFinancialAidPrograms—Borrower  Defenses”ofthisAnnualReport.OnJanuary30,2017,EDannouncedthatitintendstotakeunspecifiedregula - toryactionsregardingcertainregulationsthathavebeenpublishedbuthavenotyettakeneffect,includingthe  finalregulationsmodifyingED’sfinancialresponsibilitystandards. IfoneofourinstitutionsisfoundnottohavesatisfiedED’sfinancialresponsibilityrequirements,itcouldbe  limitedinitsaccessto,orlose,TitleIVprogramfunds,whichwouldlimitourpotentialforgrowthandadversely  affectourenrollment,revenue,andresultsofoperations.Ifwe,astheparentcompanyofaneligibleinstitution,  arefoundnottohavesatisfiedED’sfinancialresponsibilitymeasures,allofourinstitutionscouldbelimitedin  theiraccessto,orlose,TitleIVprogramfunds,whichwouldlimitourpotentialforgrowthandadverselyaffect  ourenrollment,revenue,andresultsofoperations. 82 AmericanPublicEducation,Inc. ED has published final rules setting forth new standards and procedures related to borrower defense-to- repayment claims with respect to Title IV loan obligations and institutional liability for successful claims. While the impact of the final regulations remains unclear, it is possible that the final regulations may create significant liability that could have a material adverse effect on our business. OnNovember1,2016,EDpublishedfinalregulationsconcerningwhichactsoromissionsofaninstitutionof  highereducationastudentborrowermayassertasadefensetorepaymentofaloanmadeundertheDirect  LoanProgram,oraDirectLoan,andcertainothermatters.Thefinalregulationscreateanewfederalstandard  forborrowerdefenses,newlimitationperiodsforborrowerdefenseclaims,andnewprocessesforresolution  ofsuchclaims.Underthefinalregulations,EDmayinitiateaseparateproceedingtocollectfromtheinstitution  theamountofreliefresultingfromaborrowerdefensebroughtbyanindividualborrower,andaspartofthe  group-processhearingEDwillcollectfromtheinstitutionanyliabilityforamountsdischargedorreimbursed  toborrowersunderthegroupprocess.Formoreinformationaboutthefinalregulations,see“Regulatory  Environment—StudentFinancingSourcesandRelatedRegulations/Requirements—DepartmentofEducation— RegulationofTitleIVFinancialAidPrograms—BorrowerDefenses”ofthisAnnualReport. ThefinalregulationsgenerallyareeffectiveJuly1,2017.Wearecontinuingtoevaluatethepotentialeffectthese  regulationswillhaveonHCONandAPUS.However,itisandwillbechallengingtopredictfullythemannerand  effectoffullimplementationofthefinalregulations,includingbecauseoftheirbroadscope,becausetheyhave  onlybeenrecentlyadopted,andbecauseEDhassaiditmayinthefutureissueadditionalguidanceoncertain  aspectsofthefinalregulations.OnJanuary30,2017,EDannouncedthatitintendstotakeunspecifiedregula - toryactionsregardingcertainregulationsthathavebeenpublishedbuthavenotyettakeneffect,includingthe  BorrowerDefenseRegulations. IfEDdeterminesthatborrowersofDirectLoanswhoattendedourinstitutionshaveadefensetorepaymentof  theirDirectLoans,ourrepaymentliabilitytoEDcouldhaveamaterialadverseeffectonourfinancialcondition,  resultsofoperations,andcashflows. Furthermore,thefinalregulationsprohibitinstitutionsfromrequiringthatstudentsfirstengageintheinsti - tution’sinternalcomplaintprocessbeforecontactingotheragencies,prohibittheuseofpre-disputearbitra - tionagreementsbytheinstitution,prohibittheuseofclassactionlawsuitwaivers,andrequireinstitutionsto  disclosetoandnotifyEDofarbitrationfilingsandawards,forclaimsthatmayformthebasisforaborrower  defensetorepaymentofaDirectLoan.Asaresultoftheseprohibitions,wecouldincurclaimsandexpenses  thatwehavenotpreviouslyincurred,andwhichcouldhaveamaterialadverseeffectonourbusiness,financial  conditionandresultsofoperations. If one or more of our institutions does not comply with the 90/10 Rule, it or they will lose eligibility to participate in federal student financial aid programs. AprovisionoftheHEArequiresallproprietaryeducationinstitutionstocomplywithwhatiscommonlyreferred  toasthe90/10Rule,whichimposessanctionsonparticipatinginstitutionsthatderivemorethan90%oftheir  totalrevenueonacashaccountingbasisfromTitleIVprogramsascalculatedunderED’sregulations.For  moreinformationincludingthe90/10percentagesforourinstitutions,see“RegulatoryEnvironment—Student  FinancingSourcesandRelatedRegulations/Requirements—DepartmentofEducation—RegulationofTitleIV  FinancialAidPrograms—The90/10Rule.” The90/10Rulepercentageforourinstitutionscouldincreaseinthefuture,dependingontheimpactoffuture  changesinourenrollmentmix,andregulatoryandotherfactorsoutsideourcontrol,including,forAPUS,any  reductionintuitionassistanceprovidedbyDoDforservicemembersandeducationbenefitsprovidedbytheVA  forveterans,orchangesinthetreatmentofsuchfundingforpurposesofthe90/10Rulecalculation.Currently,  2016 Annual Report 83 DoDtuitionassistanceandVAeducationbenefitsarenottreatedasTitleIVrevenueunderthe90/10Ruleand,  therefore,forAPUS,amajorityofsuchfundingisincludedinthe“10%”portionoftherulecalculation.Areduc - tionintheavailabilityofthistypeoffunding,orachange(throughlegislation,regulatoryaction,oranexecutive  order)thatrequiresthatthosefundsbetreatedinthesamemannerasTitleIVfundingunderthe90/10Rule,  wouldincreaseourinstitutions’90/10Rulepercentage.Forthepastthreeyears,HCONhasderivedmorethan  80%ofitstotalrevenueonacashaccountingbasisfromTitleIVprogramsascalculatedunderED’sregulations.  IfHCONisunabletoattractstudentswhodonotdependonTitleIVprogramaid,suchasstudentswhofinance  theirowneducationorreceivefullorpartialtuitionreimbursementfromtheiremployers,orthroughVAben - efits,HCONmayviolatethe90/10Rule.Ifanyofourinstitutionsviolatesthe90/10Ruleandloseseligibilityto  participateinTitleIVprograms,itsineligibilitytoparticipateinTitleIVprogramswouldhaveamaterialadverse  effectonourenrollments,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’sparticipationinTitleIVprograms.EDmayalsoseektorecover  TitleIVfundsdisbursedinconnectionwiththeprohibitedincentivepayments.Asdescribedin“Regulatory  Environment—StudentFinancingSourcesandRelatedRegulations/Requirements—DepartmentofEducation— RegulationofTitleIVFinancialAidPrograms—IncentivePaymentRule,”changesintheinterpretationofthe  regulationmaycreateuncertaintyaboutwhatconstitutesimpermissibleincentivepayments.Uncertaintyasto  howtheincentivepaymentrulewillbeinterpretedalsomayinfluenceourapproach,orlimitouralternatives,  withrespecttoemploymentpoliciesandpracticesandconsequentlymaynegativelyaffectourabilitytorecruit  andretainemployees,and,asaresult,ourbusinesscouldbemateriallyandadverselyaffected. DoD’s2014MOUrequiresthatinstitutionsparticipatingintheDoDtuitionassistanceprogramshavepolicies  inplacecompliantwithregulationsissuedbyEDrelatedtorestrictionsonpaymentofincentivecompensa - tion.Underthetermsofthe2014MOU,aninstitutionparticipatingintheDoDtuitionassistanceprograms  mustrefrainfromprovidinganycommission,bonus,orotherincentivepaymentbaseddirectlyorindirectlyon  securingenrollmentsorfederalfinancialaid,includingDoDtuitionassistanceprogramfunds,toanypersonsor  entitiesengagedinstudentrecruiting,admissionactivities,ormakingdecisionsregardingtheawardofstudent  financialassistance.In2013,theImprovingTransparencyofEducationOpportunitiesforVeteransActsestab - lishedabanonincentivecompensationbasedonsuccessinsecuringenrollmentsorfinancialaidwithregardto  VAbenefits. OnJune2,2015,EDreleasedamemorandumregardingenforcementoftheprohibitiononthepaymentof  incentivecompensationbypostsecondaryinstitutionstoanypersonorentityengagedinanystudentrecruit - ingoradmissionsactivitiesorinmakingdecisionsregardingtheawardofstudentfinancialassistancebased  directlyorindirectlyuponsuccessinsecuringenrollmentsorfinancialaid.ThememorandumindicatedthatED  willreviseitsapproachtomeasuringdamagesfornoncompliancewiththeprohibitionagainstincentivecom - pensation.Inadministrativeenforcementactions,EDwillcalculatetheamountoftheinstitutionalliabilitybased  onthecosttoEDoftheTitleIVfundsimproperlyreceivedbytheinstitution,includingthecosttoEDofallofthe  TitleIVfundsreceivedbytheinstitutionoveraparticularperiodoftimeifthosefundswereobtainedthrough  implementationofapolicyorpracticeinwhichstudentswererecruitedinviolationoftheincentivecompensa - tionprohibition.EDmayalsoimposeafineuponaninstitution,ortakeadministrativeactiontolimit,suspend,  revoke,deny,orterminateaninstitution’seligibilitytoparticipateintheTitleIVprograms,iftheinstitution  84 AmericanPublicEducation,Inc. violatestheprohibition.WeareunabletopredicttheimpactthatED’srevisedapproachtomeasuringdamages  undertheincentivecompensationprohibitionmighthaveonourfinancialconditionifoneofourinstitutionsis  foundtobeinviolationoftheprohibition. Inaddition,thirdpartiesmayfile“quitam”or“whistleblower”suitsonbehalfofthefederalgovernmentalleging  violationoftheincentivepaymentprovision.SuchsuitsmaypromptEDinvestigations,andthefederalgovern - mentmaydeterminetointerveneinthelawsuits.Particularlyinlightoftheuncertaintysurroundingthemodi - fiedincentivepaymentruleandED’sJune2015memorandum,theexistenceof,thecostsofrespondingto,and  theoutcomeof,quitamorwhistleblowersuitsorEDinvestigationscouldhaveamaterialadverseeffectonour  reputationcausingourenrollmentstodecline,couldcauseustoincurcoststhatarematerialtoourbusiness,  andcouldimpacttheabilityofourinstitutionstoparticipateinTitleIVprograms,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,proprietaryschoolsaregenerallyeligibletoparticipateinTitleIVprogramsonlywithrespectto  educationalprogramsthatpreparestudentsfor“gainfulemploymentinarecognizedoccupation.”Historically,  thisconcepthasnotbeendefinedindetailedregulations.OnOctober31,2014,EDpublishedregulationsrelated  togainfulemployment,whichwerefertoastheFinalGERegulations.OnJuly1,2015,theFinalGERegulations  wentintoeffect,withtheexceptionofnewdisclosurerequirements,whichtookeffectJanuary1,2017.TheFinal  GERegulationsestablishdebt-relatedmeasuresfordeterminingwhethercertainpostsecondaryeducation  programspreparestudentsforgainfulemploymentinarecognizedoccupation.TheFinalGERegulationsset  forthtwodebt-to-earningsmeasures:anannualearningsrateandadiscretionaryincomerate.UndertheFinal  GERegulations,aprogramwillpassthemeasuresifitsgraduateshaveannualloanpaymentslessthanorequal  to8%oftheirtotalearningsorlessthanorequalto20%oftheirdiscretionaryincome.Aprogramthatdoesnot  passeitherofthedebt-to-earningsmeasuresandthathasanannualearningsratethatisgreaterthan8%and  lessthanorequalto12%,oradiscretionaryincomeratethatisgreaterthan20%andlessthanorequalto30%,  wouldbeconsideredtobeinawarning“zone.”Subjecttothepotentialforadjustmentsbasedonatransition  period,aprogramwillfailthemeasuresifitsannualearningsrateisgreaterthan12%(orthedenominatorofthe  annualearningsrateiszero)anditsdiscretionaryincomerateisgreaterthan30%(orthedenominatorofthe  discretionaryearningsrateisnegativeorzero). AprogramwillbecomeineligibleforTitleIVfundingifitfailsbothdebt-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. TheFinalGERegulationscouldputthecontinuingTitleIVeligibilityofoureducationalprogramsatriskdueto  factorsbeyondourcontrol,suchaschangesintheactualordeemedincomelevelofourgraduates,changesin  studentborrowinglevels,increasesininterestrates,changesinthefederalpovertyincomelevelrelevantfor  calculatingdiscretionaryincome,andotherfactors.Failuretosatisfythegainfulemploymentmeasurescould  2016 Annual Report 85 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. ToremaineligibletoparticipateinTitleIVprograms,aneducationalinstitution’sfederalstudentloancohort  defaultratesmustremainbelowcertainspecifiedlevels.Eachcohortisthegroupofstudentswhofirstenter  intostudentloanrepaymentduringafederalfiscalyear(endingSeptember30).Ifaninstitution’scohortdefault  rateequalsorexceeds30%foranygivenyear,itmustestablishadefaultpreventiontaskforceanddevelopa  defaultpreventionplanwithmeasurableobjectivesforimprovingthecohortdefaultrate.Educationalinstitu - tionswillloseeligibilitytoparticipateinTitleIVprogramsiftheircohortdefaultrateexceeds40%foranygiven  yearorisequaltoorgreaterthan30%forthreeconsecutiveyears.Formoreinformationincludingthedefault  ratesofourinstitutions,see“RegulatoryEnvironment—StudentFinancingSourcesandRelatedRegulations/ Requirements—DepartmentofEducation—RegulationofTitleIVFinancialAidPrograms—StudentLoan  Defaults.” Ifoneofourinstitutionsisrequiredtodevelopadefaultpreventionplan,itmayincreaseouradministrative  costswhichwouldadverselyimpactourresultsofoperations.Recentlytherehasbeenincreasedattentionby  membersofCongressandothersondefaultpreventionactivitiesofproprietaryeducationinstitutions.Ifsuch  attentionleadstoCongressionalorregulatoryactionrestrictingthetypesofdefaultpreventionassistancethat  educationalinstitutionsarepermittedtoprovide,thedefaultratesofourformerstudentsmaybenegatively  impacted.SuchattentioncouldalsoleadtoCongressionalproposalstoincreasethemeasuringperiod,which  couldnegativelyimpactourdefaultrates.MembersofCongresshavealsointroducedproposedlegislationthat  wouldassessinstitutionsashareofthecostsassociatedwithdefaultofstudentloansbystudentswhowere  enrolledintheinstitutions’educationprogramsandwouldtieaninstitution’sobligationtomakesuch“risk-shar - ing”paymentstotheinstitution’seligibilitytoparticipateintheTitleIVprograms.Ifoneofourinstitutionsloses  itseligibilitytoparticipateinTitleIVprogramsbecauseofhighstudentloandefaultrates,studentswouldno  longerbeeligibletouseTitleIVprogramfundsatthatinstitution,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-partyservicerfortheadminis - trationofanyaspectoftheinstitution’sparticipationinTitleIVprograms.Thethird-partyservicermust,among  otherobligations,complywithTitleIVrequirementsandbejointlyandseverallyliablewiththeinstitutiontothe  SecretaryofEducationforanyviolationbytheservicerofanyTitleIVprovision.Ourinstitutionsutilizethird- partyservicersforsomeservices,suchasfinancialaidprocessing,defaultmanagement,andprocessingstudent  creditbalancerefunds,andinthefuturemayconsiderusingthird-partyservicersforotherfunctionsthatare  currentlymanageddirectlybyourinstitutions.Ifanythird-partyservicerthatwehaveengageddoesnotcom - plywithapplicablestatutesandregulationsincludingtheHEA,ourinstitutionsmaybeliableforitsactions,and  ourinstitutionscouldloseeligibilitytoparticipateinTitleIVprograms.Intheeventthatoneofourthird-party  servicersfailstoperformtheservicesasagreed,itmayimpactourabilitytooperate,negativelyimpactoureligi - bilitytoparticipateinTitleIVprograms,andotherwisehaveamaterialadverseeffectonourfinancialcondition.  86 AmericanPublicEducation,Inc. Further,intheeventthatourinstitutionstransitiontoorfromathird-partyservicerforanyofitsservices,there  wouldbecostsandrisksrelatedtothetransition,whichcouldhaveamaterialadverseeffectonourfinancial  condition. 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. AninstitutionparticipatinginTitleIVprogramsmustcorrectlycalculatetheamountofunearnedTitleIVpro - gramfundsthathavebeendisbursedtostudentswhowithdrawfromtheireducationalprogramsbeforecom - pletion,andmustreturnthoseunearnedfundstotheTitleIVprogramsinatimelymanner,generallywithin45  daysafterthedatetheschooldeterminesthatthestudenthaswithdrawn.UnderEDregulations,latereturns  ofTitleIVprogramfundsfor5%ormoreofstudentssampledinconnectionwiththeinstitution’sannualcom - plianceauditconstitutematerialnoncomplianceforwhichaninstitutiongenerallymustsubmitanirrevocable  letterofcredit. HCON’sTitleIVcomplianceauditfortheyearendedDecember31,2012,identifiedadeficiencyrelatedtotimely  returnofTitleIVprogramfunds.InaPreliminaryAuditDeterminationLetterdatedJuly10,2013,EDrequested  additionalinformationfromHCONaboutthesituationandrequiredHCONtoconductafilereviewtoidentify  thosefilesthatreflectedaninaccuraterefund.InaFinalAuditDeterminationLetterdatedFebruary28,2014,ED  determinedthatHCONwasnotrequiredtorepaytheliabilitytoEDanddirectedHCONtoadoptproceduresto  preventreoccurrence.HCONalsowasrequiredtopostanirrevocableletterofcreditintheamountof$128,290,  whichissettoexpireinJuly2017. 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)iftheinstitution  isprovisionallycertified,revokeaninstitution’sprogramparticipationagreementorimposelimitationsonits  participationinTitleIVprograms,(ii)denyparticipationapplicationsmadeonbehalfoftheinstitution,or(iii)  initiateaproceedingagainsttheinstitutiontofinetheinstitutionortolimit,suspendorterminatetheinstitu - tion’sparticipationinTitleIVprograms.Weexpectthattherecouldbeanindustry-wideincreaseinadministra - tiveactionsandlitigationclaimingsubstantialmisrepresentationbecausesuchclaimscouldformthebasisof  aborrowerdefenseclaimundertheBorrowerDefenseregulationseffectiveJuly1,2017.Ifsuchadministrative  actionsorlitigationwerebroughtagainstourinstitutions,wecouldincurlegalcostsrelatedtotheirinvesti - gationanddefense,whichcouldmateriallyandadverselyimpactourfinancialcondition.InDecember2015,  EDsentHCONaletterinformingHCONthatEDhaddeterminedtofineHCON$27,500basedonED’sfinding  2016 Annual Report 87 thatHCONhadsubstantiallymisrepresenteditsprogrammaticaccreditationstatusduringatimeperiodprior  toourownershipofHCON.HCONpaidthefineinDecember2015.Formoreinformation,seethe“Regulatory  Environment—RegulatoryActionsandRestrictionsonOperations—ChangeinOwnershipResultinginaChange  ofControl—U.S.DepartmentofEducation”sectionofthisAnnualReport. Failure to comply with ED’s credit hour requirements could result in sanctions. IntheProgramIntegrityRegulations,EDdefined“credithour”forTitleIVpurposesasaninstitutionallyestab - lishedequivalencythatreasonablyapproximatescertainspecifiedtimeinclassandoutsideclass,oranequiva - lentamountofworkforotheracademicactivities.TheProgramIntegrityRegulationsalsorequireinstitutional  accreditorstoreviewthereliabilityandaccuracyofaninstitution’scredithourassignments.Anaccreditor  musttakeappropriateactionstoaddressaninstitution’scredithourdeficienciesandtonotifyEDifitfinds  systemicnoncomplianceorsignificantnoncomplianceinoneormoreprograms.EDhasindicatedthatifitfinds  aninstitutiontobeoutofcompliancewiththecredithourdefinitionforTitleIVpurposes,itmayrequirethe  institutiontorepaytheamountofTitleIVawardedundertheincorrectassignmentofcredithoursand,ifitfinds  significantoverstatementofcredithours,itmayfinetheinstitutionorlimit,suspend,orterminateitsparticipa - tioninTitleIVprograms.Anysuchactioncouldmateriallyandadverselyaffectthebusinessofourinstitutions.  Formoreinformation,seethe“RegulatoryEnvironment—StudentFinancingSourcesandRelatedRegulations/ Requirements—DepartmentofEducation—RegulationofTitleIVFinancialAidPrograms—CreditHours”section  ofthisAnnualReport. Failure to comply with the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act, as implemented by ED, could result in sanctions. Ourinstitutionsmustcomplywithcertaincampussafetyandsecurityreportingrequirementsaswellasother  requirementsintheJeanneCleryDisclosureofCampusSecurityPolicyandCampusCrimeStatisticsAct,or  CleryAct,includingchangesmadetotheCleryActbytheViolenceAgainstWomenReauthorizationActof2013,  orVAWA.TheCleryActrequiresaninstitutiontoreporttoEDanddiscloseinitsannualsecurityreport,forthe  threemostrecentcalendaryears,statisticsconcerningthenumberofcertaincrimesthatoccurredwithinthe  institution’sso-called“Clerygeography.”APUShistoricallyhasnothadtocomplywiththeCleryActbecauseitis  awhollyonlineinstitution,butAPUSrecentlydeterminedthatitisnolongersubjecttothatexclusionandissued  itsfirstannualsecurityreportin2016.NewregulationsimplementingstatutorychangesmadetotheCleryAct  byVAWAwereeffectiveJuly1,2015.Thenewregulationsrequire,amongotherthings,thatinstitutionsmaintain  statisticsaboutthenumberofincidentsofdatingviolence,domesticviolence,sexualassault,andstalkingthat  meetthedefinitionsofthosetermsassetforthinthefinalrule;provideincomingstudentsandnewemploy - eeswith,anddescribeintheirannualsecurityreports,primarypreventionandawarenessprograms;provide  studentsandemployeeswith,anddescribeintheirannualsecurityreports,ongoingpreventionandawareness  campaigns;andprovideintheirannualsecurityreportsadescriptionofeachtypeofdisciplinaryproceeding  usedbytheinstitution,whichmustbeprompt,fair,andimpartial.Ourinstitutions’failuretocomplywiththe  CleryActrequirementsorregulationspromulgatedbyEDcouldresultinactionbyEDtofineourinstitutionsor  tolimitorsuspendourinstitutions’participationinTitleIVprograms. Enforcement of laws related to the accessibility of technology continues to evolve, which could result in increased information technology development costs and compliance risks. APUS’seducationalprogramsandtheHCONRN-to-BSNprogramaremadeavailabletostudentsthrough  personalcomputersandothertechnologicaldevices.Foreachoftheseprograms,thecurriculummakesuse  ofacombinationofgraphics,pictures,videos,animations,soundsandinteractivecontent.Federalagen - cies,includingEDandtheDepartmentofJustice,haveconsideredorareconsideringhowelectronicand  88 AmericanPublicEducation,Inc. informationtechnologyshouldbemadeaccessibletopersonswithdisabilities.Forexample,Section504of  theRehabilitationActof1973,orSection504,prohibitsdiscriminationagainstapersonwithadisabilitybyany  organizationthatreceivesfederalfinancialassistance.In2010,ED’sOfficeforCivilRights,whichenforcesSection 504,togetherwiththeDepartmentofJusticeassertedthatrequiringtheuseoftechnologyinaclassroomenvi - ronmentwhensuchtechnologyisinaccessibletoindividualswithdisabilitiesviolatesSection504,unlessthose  individualsareprovidedaccommodationsormodificationsthatpermitthemtoreceivealltheeducationalbene - fitsprovidedbythetechnologyinanequallyeffectiveandintegratedmanner.Ifoneofourinstitutionsisfound  tohaveviolatedSection504,itmayberequiredtomodifyexistingcontentandfunctionalityofitsonlineclass - roomorotherusesoftechnology,includingthroughadoptionofspecifictechnicalstandards.Asaresultofsuch  enforcementaction,orasaresultofnewlawsandregulationsthatrequiregreateraccessibility,ourinstitutions  mayhavetomodifytheironlineclassroomsandotherusesoftechnologytosatisfyapplicablerequirements,  whichcouldrequiresubstantialfinancialinvestment.Aswithallnondiscriminationlawsthatapplytorecipients  offederalfinancialassistance,aninstitutionmayloseaccesstofederalfinancialassistanceifitdoesnotcomply  withSection504requirements.Inaddition,privatepartiesmayfileorthreatentofilelawsuitsallegingfailureto  complywithlawsthatprohibitdiscriminationonthebasisofdisability,anddefendingagainstsuchactionsmay  requireourinstitutionstoincurcoststomodifytheironlineclassroomsandotherusesoftechnologyandcosts  oflitigation. 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,students,employees,andthirdparties,includingclaimsbroughtbythird  partiesonbehalfofthefederalgovernment.Forexample,EDregularlyconductsprogramreviewsofeduca - tionalinstitutionsthatareparticipatinginTitleIVprogramsandtheEDOIGregularlyconductsauditsandinves - tigationsofsuchinstitutions.InFebruary2016,EDcreatedaStudentAidEnforcementUnit,ortheEnforcement  Unit,toenableEDtorespondmorequicklyandefficientlytoallegationsofillegalactionsbyhighereducation  institutions.TheEnforcementUnitcollaborateswithstateandfederalagenciestoenforceviolationsoflawand  workswithED’sProgramComplianceUnittoreviewevidencethatmayaffectprogramreviews.TheFederal  TradeCommissionhasinvestigated,andinsomecasesbroughtlawsuitsagainst,proprietaryinstitutionsalleging thattheinstitutionsengagedindeceptivetradepractices.TheConsumerFinancialProtectionBureauhassued  proprietaryinstitutionsforengaginginallegedlyillegalpredatorylendingpractices.Iftheresultsofcompliance  reviewsorotherproceedingsareunfavorabletous,orifweareunabletodefendsuccessfullyagainstlawsuits  orclaims,ourinstitutionsmayberequiredtopaymonetarydamagesorbesubjecttofines,limitations,lossof  TitleIVfunding,injunctions,orotherpenalties,includingtherequirementtomakerefunds.Evenifourinstitu - tionsadequatelyaddressissuesraisedbyanagencyrevieworsuccessfullydefendalawsuitorclaim,wemay  havetodivertsignificantfinancialandmanagementresourcesfromourongoingbusinessoperationstoaddress  issuesraisedbythosereviewsortodefendagainstthoselawsuitsorclaims.Claimsandlawsuitsbroughtagainst  usoroneofourinstitutionsmayresultinreputationaldamage,evenifsuchclaimsandlawsuitsarewithout  merit.Anyoneofthesesanctionscouldmateriallyadverselyaffectourbusiness,financialcondition,results  ofoperationsandcashflowsandresultintheimpositionofsignificantrestrictionsonusandourinstitutions,  whichmaymateriallyadverselyaffectourabilitytooperate. 2016 Annual Report 89 ED is currently conducting a program review of APUS’s administration of the Title IV programs, and we cannot predict the outcome of the review. InSeptember2016,EDbeganaprogramreviewofAPUS’sadministrationoftheTitleIVprogramsduringthe  2014-2015and2015-2016awardyears.Aspartoftheprogramreview,EDconductedasitevisitfromSeptember  12toSeptember14,2016.Theprogramreviewremainsopenandongoing.Atthistime,wecannotpredictthe  outcomeoftheprogramreview,whenitwillbecompleted,orwhetheritwillimposeanyliabilityorotherlimita - tionsonAPUSasaresultofthereview. Investigations by state attorneys general, Congress, and governmental agencies may result in increased regulatory burdens and costs. We,andotherproprietarypostsecondaryeducationproviders,havebeensubjecttoincreasedregulatoryscru - tinyandlitigationinrecentyears.Stateattorneysgeneralhaveincreasinglyfocusedonallegationsofimproper  recruiting,compensation,anddeceptivemarketingpractices,amongotherissues.Anumberofstateattorneys  generalhavelaunchedinvestigationsintoproprietarypostsecondaryeducationinstitutions.InJuly2011,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.InJune2014,theMassachusettsattorneygeneralreleasedseveralconsumerprotec - tionregulations,which,amongotherthings,requirecertaindisclosuresthatapplytofor-profitandoccupational  schoolsoperatinginthestate.Actionsbystateattorneysgeneralandothergovernmentalagencies,whetheror  notinvolvingusorourinstitutions,coulddamageourreputationandthereputationofourinstitutionsandlimit  theabilitytorecruitandenrollstudents,whichcouldreducestudentdemandforourinstitutions’programsand  adverselyimpactourrevenueandcashflowfromoperations. Inrecentyears,thestudentlendingpracticesofpostsecondaryeducationalinstitutions,financialaidofficers,  andstudentloanprovidershavebeensubjectedtoseveralinvestigationsbystateattorneysgeneral,Congress,  andgovernmentalagencies.Theseinvestigationsconcern,amongotherthings,possibledeceptivepracticesin  themarketingofprivatestudentloansandloansprovidedbylenderspursuanttoTitleIVprograms.TheHigher  EducationOpportunityAct,orHEOA,containsrequirementspertinenttorelationshipsbetweenlendersand  institutions.TheHEOAalsoimposessubstantiverequirementsanddisclosureobligationsoninstitutionsthat  makeavailablealistofrecommendedlendersforpotentialborrowers.Newproceduresintroducedandrecom - mendationsmadebytheConsumerFinancialProtectionBureaualsocreateuncertaintyaboutwhetherCongress willimposenewburdensonprivatestudentlenders.Statelegislatorshavealsopassed,ormaybeconsidering,  legislationrelatedtorelationshipsbetweenlendersandinstitutions.Further,in2014,severalfederalagencies  implementedanonlinestudentcomplaintsystemforservicemembers,veterans,andtheirfamiliestoreport  negativeexperiencesateducationalinstitutionsandtrainingprogramsadministeringthePost-9/11GIBill,DoD  tuitionassistanceprograms,andothermilitary-relatededucationbenefitprograms.Wecanneitherknownor  predictwithcertaintytheeffectsofsuchdevelopments.Governmentalactionmayimposeincreasedadminis - trativeandregulatorycostsandadverselyaffectourfinancialcondition. 90 AmericanPublicEducation,Inc. 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  whoseparentundergoesachangeinownershipresultinginachangeofcontrollosesitseligibilitytoparticipate  inTitleIVprogramsandmustapplytoEDinordertoreestablishsucheligibility. FuturetransactionscouldconstituteachangeinownershiporcontrolunderED’sregulationsandcouldcause  EDtoplaceourinstitutionsonprovisionalcertificationasrequiredbytheHEA.Theconditionsofprovisional  certificationorcloserreviewbyEDcouldimpact,amongotherthings,ourinstitutions’abilitytoaddeducational  programs,oradditionallocations,ourabilitytoacquireotherinstitutions,orourabilitytomakeothersignificant  changes.Inaddition,ifEDweretodeterminethatourinstitutionswereunabletomeettheirresponsibilities  whiletheywereprovisionallycertified,EDcouldseektorevokeourinstitutions’certificationtoparticipatein  TitleIVprogramswithfewerdueprocessprotectionsthaniftheywerefullycertified.Limitationsonourinsti - tutions’operationscould,andthelossofourinstitutions’certificationtoparticipateinTitleIVprogramswould,  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.Our,orourinstitutions’,failuretoobtain,oradelayinreceiving,approvalofanychangeof  controlfromtherelevantregulatoryagenciesfollowingatransactioninvolvingachangeofownershiporcon - trolcouldresultinasuspensionofoperatingauthority,lossofaccreditation,orsuspensionorlossofabilityto  participateinTitleIVprograms,whichcouldhaveamaterialadverseeffectonourinstitutionsandourfinancial  condition.Ourfailuretoobtain,oradelayinreceiving,approvalofanychangeofcontrolfromotherstatesin  whichwearecurrentlylicensedorauthorizedcouldrequireourinstitutionstosuspendactivitiesinthatstateor  otherwiseimpairourinstitutions’operations.Thepotentialadverseeffectsofachangeofcontrolcouldinflu - ence,amongotherthings,futuredecisionsbyusandourstockholdersregardingthesale,purchase,transfer,  issuance,orredemptionofourstock.Inaddition,theregulatoryburdensandrisksassociatedwithachangeof  controlalsocouldhaveanadverseeffectonthemarketpriceofourcommonstock. 2016 Annual Report 91 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 - tioninTitleIVprograms,orlitigationallegingstatutoryviolations,regulatoryinfractionsorcommonlawcauses  ofaction.Theadoptionofanylaworregulationthatreducesfundingforfederalstudentfinancialaidprograms  ortheabilityofourinstitutionsorstudentstoparticipateintheseprogramscouldhaveamaterialadverse  effectonourstudentpopulationandrevenue.Legislativeactionalsomayincreaseouradministrativecostsand  requireourinstitutionstomodifytheirpracticesinordertocomplywithapplicablerequirements.Additionally,  membersofCongresshavealsofromtimetotimeencouragedEDtoadoptadditionalregulationsforparticipa - tioninTitleIVprogramsthatcouldincreaseourcostofoperationsorexposeustoadditionalrisks. 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. The90/10RulehasbeenasubjectofinterestoverthepastseveralCongresses,whichhasresultedinseveral  membersofCongressintroducingproposalsandlegislationthatwouldmodifythe90/10Rule.Onepastpro - posalwoulddecreasethelimitfrom90%to85%andwouldcountDoDtuitionassistanceandVAeducation  benefitstowardthatlimit.Suchaproposalorothersimilarlegislation,shoulditbecomelaw,couldhaveamate - rialadverseimpactontheoperationsofAPUSandHCON.Wecannotpredicttheextenttowhich,orwhether,  Congressionalhearingswillresultinlegislationorfurtherrulemakingaffectingourinstitutions’abilitytopar - ticipateinDoDtuitionassistanceprogramsorTitleIVprograms.MembersofCongresshavestated,bothin  committeehearingsandintheHELPCommitteereport,thatCongressshouldrevisethe90/10RuletocountDoD  tuitionassistanceandVAveteranseducationalbenefitstowardthe90%limit.Wecannotpredictthelikelihood  thatCongresswillamendthe90/10RuletocountDoDtuitionassistanceandVAeducationbenefitstowardthe  90%limitortolowertheratioto85/15,norcanwepredictthelikelihoodthatCongressorthePresidentwilltake  someotheractiontolimittheuseofDoDtuitionassistanceandVAeducationbenefitsatfor-profitinstitutions.  Totheextentthatanylawsorregulationsareadoptedthatlimitorconditiontheparticipationofproprietary  schoolsordistanceeducationprogramsinDoDtuitionassistanceprogramsorinTitleIVprograms,orthatlimit  orconditiontheamountofDoDtuitionassistanceforwhichfor-profitschoolsordistanceeducationprograms  areeligibletoreceive,ourfinancialconditioncouldbemateriallyandadverselyaffected. 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. PoliticalandbudgetaryconcernscansignificantlyaffectTitleIVprograms,militarytuitionassistanceprograms,  andotherlawsandregulationsgoverningfederalandstateaidprograms. 92 AmericanPublicEducation,Inc. TitleIVprogramsaremadeavailablepursuanttotheprovisionsoftheHEA,andtheHEAcomesupforreau - thorizationbyCongressapproximatelyeveryfivetosixyears.AuthorizationofappropriationsformostHEA  programsiscurrentlyprovidedthroughSeptember30,2017,bytheConsolidatedAppropriationsAct,2016.  Inthepast,Congresshaspassedshort-termnonsubstantiveextensionsoftheHEApendingcomprehensive  reauthorizationlegislation.Further,whenCongressdoesnotactoncomprehensivereauthorizationthrougha  singlepieceoflegislation,itmayactthroughmultiplepiecesoflegislation.Congresscompletedthemostrecent  reauthorizationthroughmultiplepiecesoflegislationandmayreauthorizetheHEAinapiecemealmannerinthe  future.Additionally,CongressdeterminesthefundinglevelforeachTitleIVprogramonanannualbasis.Future  Congressionalaction,includinginreauthorizationsorappropriationsacts,mayresultinnumerouslegislative  changes,includingthosethatcouldadverselyaffecttheabilityofourinstitutionstoparticipateinTitleIVpro - grams,DoDtuitionassistanceprograms,andtheavailabilityofsuchfundingsourcesforourstudents.Members  ofCongressfrequentlyproposelegislationtoalteroramendthetermsunderwhichourinstitutionsparticipate  inthefederalstudentfinancialaidprograms.AnyactionbyCongressthatsignificantlyreducesfundingfor  TitleIVprogramsortheabilityofourinstitutionsorstudentstoparticipateintheseprogramscouldmaterially  harmourinstitutions’business.Areductioningovernmentfundinglevelscouldleadtolowerenrollmentsat  ourinstitutionsandrequireourinstitutionstoarrangeforalternativesourcesoffinancialaidfortheirstudents.  Lowerstudentenrollmentsatourinstitutionsortheirinabilitytoarrangealternativesourcesoffundingcould  adverselyaffectourfinancialcondition.Congressionalactionmayalsorequireourinstitutionstomodifytheir  practicesinwaysthatcouldresultinincreasedadministrativeandregulatoryexpenses. WearenotinapositiontopredictwhetheranylegislationwillbepassedbyCongressorsignedintolawinthe  future.ThereallocationoffundingamongTitleIVprograms,materialchangesintherequirementsforpartici - pationinsuchprograms,orthesubstitutionofmateriallydifferentTitleIVprogramscouldreducetheabilityof  certainstudentstofinancetheireducationatourinstitutionsandadverselyaffectourrevenueandresultsof  operations. Our institutions’ failure to comply with ED’s cash management regulations may result in the loss of eligibility to participate in Title IV programs. OnOctober30,2015,EDpublishedfinalregulationstoamendED’scashmanagementregulations,whichwe  refertoastheCashManagementRegulations.TheCashManagementRegulationswentintoeffectonJuly1,  2016.Amongothertopics,theCashManagementRegulationsaddressarrangementsbetweenpostsecondary  institutionsandfinancialaccountproviderstodisburseTitleIVprogramcreditbalancestostudents,including  throughtheuseofdebitorprepaidcards.TheCashManagementRegulationsrequireinstitutionstoestablisha  processtofacilitatestudentchoiceinhowstudentsreceiveTitleIVprogramfederalstudentfinancialaidcredit  balances;limitthepersonallyidentifiableinformationaboutstudentsthatmaybesharedwithfinancialaccount  providers;andrequireinstitutionstoobtainstudentconsentbeforeopeninganaccountinthestudent’sname.  UndertheCashManagementRegulations,aninstitutionthathasenteredintoanarrangementwithafinancial  accountprovidermustmitigatecertainfeesincurredbyTitleIVaidrecipients,andcertaintypesoffeesare  prohibited.TheCashManagementRegulationsrequirethatcontractsgoverningarrangementswithfinancial  accountprovidersbepubliclydisclosedandevaluatedinlightofthebestfinancialinterestsofstudents.The  CashManagementRegulationsalsomakeotherchangestorequirementsfortheinstitutionaladministration  ofTitleIVprograms,includingbyclarifyinghowpreviouslypassedcourseworkistreatedforTitleIVeligibility  purposes,alteringtherequirementsforconvertingclockhourstocredithours,andupdatingotherprovisions  inED’scashmanagementregulations.Forexample,theCashManagementRegulationsestablisharequirement  thatinstitutionsparticipatingintheTitleIVprogramsunderthereimbursementorheightenedcashmonitoring  paymentmethodsmustpayanycreditbalanceduetoastudentbeforeseekingreimbursementorarequestfor  funds,respectively.TheCashManagementRegulationsspecifythecircumstancesunderwhichaninstitution  2016 Annual Report 93 mayincludethecostofbooksandsuppliesaspartofinstitutionaltuitionandfeeschargedtoastudent,such  asiftheinstitutionhasmadearrangementswithpublisherstoobtainbooksatbelow-marketratesorifbooks  orelectroniccoursematerialsarenotavailableelsewhere.TheCashManagementRegulationsalsoexpandthe  groupofstudentstowhomaninstitutionmustprovideawaytoobtainorpurchase,bytheseventhdayofapay - mentperiod,thebooksandsuppliesapplicabletothepaymentperiod.Previously,aninstitutionwasrequiredto  providesuchassistanceonlytostudentswhoreceivePellGrants,butundertheCashManagementRegulations,  aninstitutionwillberequiredtoprovidesuchassistancetoanystudentwhoiseligibleforTitleIVprogramaid.  Ourinstitutionsutilizeathird-partyservicertoprovideservicesrelatedtothedisbursementofTitleIVfinancial  aidcreditbalancerefunds.IfanyofourinstitutionsviolatestheCashManagementRegulations,EDmayfindthat  theinstitutionlackstheadministrativecapability,fiscalresponsibility,orsystemofinternalcontrolsrequiredto  participateintheTitleIVprograms.IfoneofourinstitutionsisfoundnottohavesatisfiedED’srequirements,it  couldbelimitedinitsaccessto,orlose,TitleIVprogramfunding,whichwouldlimitourpotentialforgrowthand  adverselyaffectourenrollment,revenue,andresultsofoperations. Recent and future regulatory developments may adversely impact our institutions’ enrollment, financial condition, results of operations, expenses, and cash flows. EDhasinthepastpublished,andinthefuturemaypublish,additionalrulesthataffectourinstitutions.For  example,onOctober30,2015,EDpublishedfinalregulationsthatintroducedanewincome-contingentrepay - mentplan,calledtheRevisedPayAsYouEarnrepaymentplan,orREPAYEplan,whichbecameavailablein  December2015,toallDirectLoanstudentborrowersregardlessofwhentheborrowertookouttheloans.Under  theREPAYEplan,DirectLoanborrowersmaycaptheirloanpaymentsat10%oftheirmonthlyincomes.The  regulationsalsoexpandthecircumstancesunderwhichaninstitutioncouldchallengeorappealadraftorfinal  cohortdefaultrate,beginninginFebruary2017. Inadditiontopublishingrules,EDhasinthepastandmayinthefuturetakeotheractionsthataffectourinstitu - tions.Forexample,inSeptember2015,EDpubliclyreleaseditsCollegeScorecardwebsite.Amongothercharac - teristics,theCollegeScorecardallowsuserstosearchforschoolsbaseduponprogramsoffered,location,size,  taxstatus,mission,andreligiousaffiliation.WedonotbelievetheCollegeScorecardisanappropriateindicator  ofAPUS’sgraduationratebecausetheCollegeScorecard’sgraduationrateonlyincludestheperformanceof  firsttime,full-timeundergraduatestudentswhorepresentlessthanapproximately1%ofallAPUSstudents.  Furthermore,substantiallyalloftheotherCollegeScorecardmeasuresarebasedonstudentswhoarerecipi - entsofTitleIVprogramfunds;suchstudentsrepresentaminorityofAPUS’sstudents.Wecannotpredictthe  extenttowhichtheCollegeScorecardhasimpactedormayimpactourinstitution’senrollments,reputation,  oroperatingresults,includingifstudentsexcludeourinstitutionsfromconsiderationbecauseoftheCollege  Scorecard’spresentationofourgraduationrate,thefocusontaxstatusandourstatusasafor-profitbusiness,  orbecauseofotherfactors. Wecannotpredictthenatureofanyfuturerulemakings,actionsorinterpretationsthatmaybeimplemented  oradoptedbyED.However,theseandfutureregulatorydevelopmentsmayadverselyimpactourinstitutions’  enrollments,financialcondition,resultsofoperations,expenses,andcashflows. 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.Theseallegationshaveattractedadversemediaand  94 AmericanPublicEducation,Inc. socialmediacoverage,havebeenthesubjectoffederalandstatelegislativehearings,andhaveinsomecases  resultedinlegislationorrulemaking.Insomecases,institutionshaveceasedoperations,includingwhileunder  multiplegovernmentinvestigations.Broaderallegationsagainsttheoverallfor-profitschoolsectorhavenega - tivelyaffectedpublicperceptionsoffor-profiteducationalinstitutions,includingourinstitutions,andthistrend  couldcontinueorbroaden.Inaddition,inrecentyears,reportsonstudentlendingpracticesofvariouslending  institutionsandschools,includingfor-profitschools,andinvestigationsbyanumberofstateattorneysgeneral,  Congressandgovernmentalagencieshaveledtoadversemediaandsocialmediacoverageofpostsecondary  education.Adversemediaorsocialmediacoverageregardingothersinourindustry,orregardingusorour  institutionsdirectly,coulddamageourreputation,couldresultinlowerenrollmentsatourinstitutions,lower  revenueandincreasedexpenses,andcouldhaveanegativeimpactonourstockprice.Suchallegationscould  alsoresultinincreasedscrutinyandregulationbyED,Congress,accreditingbodies,statelegislatures,state  attorneysgeneral,orothergovernmentalauthoritieswithrespecttoallfor-profitinstitutions,includingusand  ourinstitutions.Inaddition,forthesereasons,orothers,not-for-profitorpubliceducationalinstitutionsmay  takeactionstodifferentiatethemselvesfromthefor-profiteducationalinstitutions,includingbychoosingnot  toenterintocollaborationswithfor-profitinstitutions,includingus,orbyexcludingfor-profitinstitutionsfrom  membershipinindustrygroups. RISKS RELATED TO OUR BUSINESS DoD’s revised MOU includes terms and conditions that impose extensive regulatory requirements on APUS with respect to participation in DoD tuition assistance programs. UnderaDoDfinalrule,eachinstitutionparticipatinginDoDtuitionassistanceprogramsisrequiredtosign  anMOUoutliningcertaincommitmentsandagreementsbetweentheinstitutionandDoDpriortoaccepting  fundsfromDoDtuitionassistanceprograms.In2014,DoDpromulgatednewregulationsandinstitutionswere  requiredtosignanewMOU,whichwerefertoasthe2014MOU,inordertocontinuetoparticipateinDoD  tuitionassistanceprograms.The2014MOUaddedrequirements,manyofwhicharefocusedonthemannerin  whichinstitutionsinteractwithservicemembers.Formoreinformationabouttherequirementsimposedby  the2014MOU,see“RegulatoryEnvironment—DepartmentofDefense”inthisAnnualReport.Wecannotpredict  preciselyhowDoDwillinterpretandenforcetheserequirementsorwhattypeofimmediatesanctions,ifany,  willbeimplementedbeforeaninstitutionlosestheabilitytoparticipateinDoDtuitionassistanceprogramsfor  failuretocomplywiththe2014MOU.WebelievethatDoDmayalsoimposesanctionsotherthandenyingan  institutiontheabilitytoparticipateinthetuitionassistanceprograms,includingsuspendinganinstitutionfrom  enrollingnewstudentsintuitionassistanceprograms,limitingaccesstomilitaryinstallations,subjectinginsti - tutionstoheightenedcomplianceoversight,orotherwiselimitinganinstitution’sabilitytoparticipateintuition  assistanceprogramsorrestrictingenrollmentofstudents.WeanticipatethatDoDwillbeannouncingadditional  changestotheMOUinthenearfuture,butwecannotpredicttheextentornatureofsuchchanges.Ifwefail  tocomplywiththerequirementsofthe2014MOUoranysuccessorMOU,wewillnotbeabletoparticipatein  DoDtuitionassistanceprograms,whichcouldhaveasignificantadverseeffectonourresultsofoperationsand  financialcondition. Our business could be harmed if our institutions experience a disruption in their ability to process Title IV financial aid. Wecollectedasubstantialportionofourfiscalyear2016consolidatedrevenuefromreceiptofTitleIVfinancial  aidprogramfunds.AnyprocessingdisruptionsbyED,byourinstitutions,orbythird-partyserviceproviders  mayimpacttheabilityofourinstitutions’studentstoobtainTitleIVfinancialaidonatimelybasis.Ifourinsti - tutionsexperienceadisruptionintheirabilitytoprocessTitleIVfinancialaid,eitherbecauseofadministrative  challengesontheirpartorthepartoftheirvendors,ortheinabilityofEDtoprocessTitleIVfundsonatimely  2016 Annual Report 95 basis,itcouldhaveamaterialadverseeffectonourinstitutions’businessandonourfinancialcondition,results  ofoperationsandcashflows. 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’focusonimprovingthelearningexperienceandattractingstudentswhoare  likelytopersistinourinstitutions’programs,wehavebeenworkingtoidentifypotentialchangesandinitiatives  thatwillmoreeffectivelyattractandenrollcollege-readystudents,supportthosestudentsandhelpimprove  thosestudent’seducationaloutcomes,includingthroughfacultyengagementinitiativesandco-curricularinitia - tivestoincreasethelevelofengagementandcollaborationintheclassroomandstrengthenthebondbetween  APUSanditsstudents.Wehavebeguntoimplementsomeofthesechanges.Forexample,inApril2015,APUS  implementedanadmissionsprocessrequiringprospectivestudentstocompleteafree,non-creditadmissions  assessmentiftheyarenot(i)activedutymilitaryorveteranapplicants;(ii)graduatesofcertifiedfederal,stateor  locallawenforcementorpublicsafetyacademies;or(iii)studentswithatleastninehoursoftransfercreditfrom  anaccreditedinstitutionwithagradeof“C”orbetterforeachcourse.APUShasmademultiplechangestothe  assessmentprocesssinceitsoriginalimplementationandmayfurthermodifyitinthefutureinordertoidentify  college-readystudents.Additionalinitiativesmayincludethefollowing: • furtherchangingadmissionsstandardsandrequirements; • alteringtheadmissionsprocessandprocedures; • implementingmorestringentsatisfactoryacademicprogressstandards; • changingtuitioncostsandpaymentoptions; • experimentingwithcompetency-basedlearningandotheralternativedeliverymethods;and • alteringourinstitutions’marketingprogramstotargettheappropriateprospectivestudents. Theseinitiativesmayadverselyimpactourinstitutions’business,financialcondition,resultsofoperationsand  cashflows,particularlyinthenearterm,eveniftheyaresuccessfulinachievingthedesiredresultofidentifying  andenrollingstudentswhoarelikelytosucceedandimprovingthestudentexperience.Duetothemanyfactors  thatcanimpactenrollments,wemaynotappropriatelyidentifythecauseofanyadverseimpacts,andtherefore  maynotbeabletoappropriatelymodifyourinitiatives.Theseinitiativesrequiresignificanttime,energy,and  resources,andinvolvemanysignificantinterrelatedandsimultaneouschangesinourprocessesandprograms.  Wemaynotsucceedinachievingourobjectivesduetoorganizational,operational,regulatory,orothercon - straints.Ifoureffortsarenotsuccessful,wemayexperiencereducedenrollment,increasedexpense,orother  impactsonourbusinessthatmateriallyandadverselyimpactouroperatingresultsandfinancialcondition. We have announced an organizational realignment, and challenges encountered due to the realignment may cause strategic or operational challenges and adversely impact us. OnJuly1,2016,Dr.KaranH.Powell,thethen-currentprovostofAPUS,assumedthePresidencyofAPUSin  anticipationofanorganizationalrealignment.Dr.WallaceE.Boston,whohadbeenservingasthePresidentof  APUSandtheCEOofAPEI,remainedinhispositionasCEOofAPEI,providingstrategicandleadershipsupport  toAPUS,HCON,andotherAPEIventures.During2016,weinvestedcapitalandhumanresourcesinthetransi - tionandplannedrealignment,aswellasinchangestooursystems,modificationofinternalcontrolprocedures  andtrainingofemployees,amongotherthings.HLC,astheinstitutionalaccreditorforAPUS,requestedthat  APUSsubmitanapplicationtoenableHLCtodeterminewhetherAPUS’sproposaltoenterintoasharedser - vicesmodelwithAPEIconstitutesachangeinorganizationorstructurethatrequiresHLC’spriorapproval.On  96 AmericanPublicEducation,Inc. December22,2016,APUSsubmittedtherequestedchangeofstructureapplication.TheHLCstaffiscurrently  reviewingAPUS’sapplicationand,aspartofthatreviewprocess,hasscheduledasitevisitinthesecondquar - terof2017.WebelievethattheearliestthattheHLCBoardofTrusteeswouldmakeadeterminationonthe  realignmentisJune2017.IfHLCdoesnotapprovetherealignment,imposeslimitationsorconditionsonthe  realignment,takeslongerthanexpectedtotakeactionwithrespecttotherealignment(includingtodetermine  nofurtheractionisneeded),orotherwisesanctionsAPUS,wecouldincurincreasedcosts,failtorealizethe  efficienciesthatweexpectandincuradditionalstrategicoroperationalchallenges.Furthermore,aswithany  leadershiporoperationalchange,theimplementationoftheplannedrealignmentcouldalsoleadtostrategic  andoperationalchallenges,inefficienciesorincreasedcosts,anyofwhichcouldadverselyaffectourbusiness,  financialcondition,resultsofoperationsandcashflows. 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. Wemayseektoenterintobusinesscombinationsoracquisitionsinthefuture.Acquisitionsaretypicallyaccom - paniedbyanumberofrisks,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. Anyinabilitytointegratecompletedacquisitionsinanefficientandtimelymannercouldhaveanadverseimpact  onourresultsofoperations.Further,manyacquisitionsresultintheacquirerrecordinggoodwill.Ifanyacqui - sitionsforwhichwerecordgoodwillarenotsuccessfulorexperiencechallenges,thatgoodwillmaybecome  impairedandhaveanadverseimpactonourfinancialcondition.Forexample,werecordedapretax,non-cash  chargeof$4.7millionforthefiscalyearendedDecember31,2016,toreducethecarryingvalueofourgoodwill  asaresultofadeterminationthatthefairvalueofHCONwaslessthanitscarryingvalue. Ouracquisitionofaneducationalinstitutionwouldalsolikelybeconsideredachangeinownershipandcontrol  oftheacquiredinstitutionunderapplicableregulatorystandards,asintheHCONacquisition.Forsuchanacqui - sition,wemayneedapprovalfromED,applicablestateagenciesandaccreditingagencies,andpossiblyother  regulatorybodies,anumberofwhichcanonlyberequestedaftercompletionoftheacquisition.Ourinability  toobtainsuchapprovalswithrespecttoacompletedacquisitioncouldhaveamaterialadverseeffectonour  business,financialcondition,resultsofoperationsandcashflows.Ifwearenotsuccessfulincompletingacqui - sitions,wemayincursubstantialexpensesanddevotesignificantmanagementtimeandresourceswithouta  productiveresult.Inaddition,futureacquisitionscouldresultindilutiveissuancesofsecuritiesorcouldrequire  useofsubstantialportionsofouravailablecash,asintheHCONacquisition,orissuancesofdebt,whichcould  adverselyaffectourfinancialcondition. 2016 Annual Report 97 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,ortheacquisitionof,other  schools,serviceprovidersoreducationtechnologyrelatedcompanies,amongothertypesofentities.Investing  inanotherentityrequiresexpertiseinevaluatinganotherentity’sbusinessandidentifyingstrategicbenefits  ofapotentialinvestmentinsuchentity,amongotherexpertise.Thesetypesofinvestmentsinvolvesignificant  challengesandrisks,includingthattheinvestmentdoesnotadvanceourbusinessstrategy,thatwedonotreal - izeasatisfactoryreturnonourinvestment,thatweacquireunknownliabilities,orthatmanagement’sattention  isdivertedfromourcorebusiness.Theseeventscouldharmouroperatingresultsorfinancialcondition.Any  investmentsinotherentitiesmayalsosubjectustotheoperatingandfinancialrisksofsuchentities,andwerely  ontheinternalcontrolsandfinancialreportingcontrolsofsuchentities. Since2012,wehavemademinorityinvestmentsinentitiesinwhichwedonothavesolecontrol,whichpresent  risksinadditiontothosethatapplytootherinvestmentsoracquisitions.Theseinvestmentsincludeourinvest - mentinaholdingcompanythatacquiredandnowoperatesNewHorizonsWorldwide,Inc.,orNewHorizons,  ourinvestmentinpreferredstockofFidelisEducation,Inc.,orFidelisEducation,ourinvestmentinpreferred  stockofSecondAvenueSoftware,Inc.,orSecondAvenue,andourinvestmentinpreferredstockofRallyPoint,  anonlinesocialnetworkformembersofthemilitary.AlthoughwehavetherighttorepresentationontheBoard  ofDirectorsoftheholdingcompanyofNewHorizons,theBoardofDirectorsofFidelisEducation,andtheBoard  ofDirectorsofSecondAvenue,andhaveobserverrightsfortheBoardofDirectorsofRallyPoint,wedonothave  theabilitytocontrolthepolicies,managementoraffairsoftheseentities,andgenerallywewouldnothavethat  abilityinanyminorityinvestmentinanentity.Theinterestsofpersonswhocontroltheentitiesinwhichwehave  investedandmayinvestmaydifferfromourinterests,andtheymaycausesuchentitiestotakeactionsthat  arenotinourbestinterest,andwemaybecomeinvolvedindisputeswithsuchpersons.Ourinabilitytocontrol  entitiesinwhichwemakeminorityinvestmentscouldnegativelyaffectourabilitytorealizethestrategicbene - fitsofthoseinvestments. Wehavemadetheseminorityinvestmentstorealizestrategicbenefitsforourbusiness,ratherthantogenerate  incomeorcapitalgainsfromtheseinvestments,andweanticipatethatwewouldmakefutureminorityinvest - mentsforsimilarpurposes.Wecannotensurethatwewillrealizeanystrategicbenefitsfromtheseinvestments  inthenear-termoratall.Totheextentthatthestrategicbenefitsofanyinvestmentarenottimelyrealized,or  theinvestmentotherwiseunderperforms,wemaywishtodisposeoftheinvestment.Becauseourinterestsin  entitiesinwhichwehavemademinorityinvestments,suchasNewHorizons,FidelisEducation,SecondAvenue,  andRallyPointarehighlyilliquidandnottradedinanypublicmarket,wemaynotbeabletotimelydisposeof  theseinterests,ormayhavetosellatlessthanourcarryingvalue.Further,shouldthevalueoftheseinvest - mentsbecomeimpaired,wemayberequiredtoreducethecarryingvalueoftheseinvestments.Ourinability  todisposeofourinterestinsuchanentity,orareductioninthecarryingvalueofsuchanentityonourbooks,  wouldnegativelyaffectouroperatingresults. Efforts to diversify our business outside of the traditional areas served by our institutions may provide strategic and operational challenges that we are not prepared or able to address. Asweseekopportunitiestoexpandourbusinessandservemarketsbeyondthosetraditionallyservedbyour  institutions,wemayencounterstrategicandoperationalchallengesdifferentfromthosewithinourexisting  institutions.Forexample,oursystemsandinfrastructuremaynotbeabletorespondquicklyenoughtosupport  newbusinessopportunities,orwemaynototherwisebeabletoaddressthestrategicoroperationaldifferences  98 AmericanPublicEducation,Inc. ofthesenewopportunities.Ifweareunabletosuccessfullycapitalizeonnewopportunities,thevalueofour  commonstockmaydeclineovertime,includingbecauseofthechallengesofgrowingourcorebusinessunder  ourcurrentmodel. To address competitive pressures in the market, replace older systems or provide enhanced functionality, we will need to continue to invest, and may need to increase our level of investment in, 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. Webelievewewillneedtoinvestcapital,time,andresourcestoupdateourinstitutions’technologyinresponse  tocompetitivepressuresinthemarketplace,includingincreaseddemandsforinteractivesolutionsandaccess  frommultipleplatforms,toupdateoldersystemsandtoenhancefunctionality,suchasdifferentialpricing.  Wewouldlikelyhavetomakesimilarinvestmentstointegratethetechnologysystemsofanybusinesswemay  acquireinthefuture.Oureffortstodosomaynotbesuccessful,maycostmorethanexpected,mayincrease  ourlevelofspending,ormayotherwiseadverselyaffectourfinancialcondition.Asaresultofunsuccessful  developmentefforts,orasaresultofreplacingoutdatedtechnology,softwareorothertechnologyrelated  assets,wemayhaveassetsthatbecomeimpaired.Forexample,werecordedapretax,non-cashchargeof$4.0  millionforthefiscalyearendedDecember31,2016,towriteoffcertainstudentcourseregistrationsoftware  development. Ifweareunabletoincreasethecapacityofourinstitutions’resourcesorupdatetheirresourcesappropriately,  theirabilitytohandlefuturegrowth,toattractorretainstudents,andourfinancialconditionandresultsof  operationscouldbeadverselyaffected.Similarly,evenifweareabletoincreasethecapacityofourinstitutions’  resourcesandupdatetheirresourcesappropriately,ourfinancialconditionandresultsofoperationscouldbe  adverselyaffectedbyanincreasedlevelofspending. We have continued to experience increases in our institutions’ administrative expenses. AfterAPUSbeganparticipatinginTitleIVprograms,asignificantportionofitsgrowthwasattributabletostudents usingfundsfromthoseprograms.Asaresult,APUSexperiencedachangeinthecompositionofitsstudentbody, whichhasresulted,andwillcontinuetoresult,inaneedtoprovideagreaterlevelofservicestoitsstudents.The HCONacquisitionhasfurtherchangedthecompositionofourstudentbody,increasingthenumberofstudents usingTitleIVprogramfunds,aswellasaddingstudentswhoattendcoursesatphysicalcampuses.Thesechanges, aswellastoeffortstostrengthenourleadership,controlandgovernancestructures,haveledtoincreasedcostsin avarietyofareas,includingwithrespecttoincreasedgeneralandadministrativeexpenses. WhilebaddebtforeachoftheyearsendedDecember31,2016and2015decreasedfromthelevelofbaddebt  foreachoftheimmediatelyprioryears,overthepreviousseveralyearsweexperiencedincreasesinourbad  debtexpense,particularlyatAPUS.Webelieveourpreviousincreasesinbaddebtexpensewereprimarilydriven  byanincreaseinthenumberofstudentsusingTitleIVprogramfundsatAPUS,operationalpolicies,processing  challenges,andcollectionsmanagement.InSeptember2015,APUSchangedthemethodbywhichitdisburses  TitleIVprogramfundsfromasingledisbursementmethodtoamultipledisbursementmethodforfirst-time  APUSundergraduatestudents.Whilethischangemayhavehad,andmaycontinuetohave,anadverseimpact  onenrollment,APUSmadethischangeinordertopotentiallylowerbaddebtexpenseandtoreducetheattrac - tivenessofourprogramstostudentswhoareseekingtotakeimproperadvantageoftheTitleIVprograms.  WhileourbaddebtexpensedeclinedatAPUSduring2015and2016,wehavenoassurancethatthechangesthat  weremadecausedthereductionorthatwewillbeabletofurtherreducebaddebt.Ifweareunabletomake  appropriateimprovements,orifourimprovementsarenotaseffectiveasanticipated,ourbaddebtexpense  2016 Annual Report 99 couldagainincrease,whichcouldhaveamaterialadverseeffectonourfinancialcondition,cashflowsand  resultsofoperations. 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-partyvendorstoprovidecertainservicestoourinstitutionsandtheirstudentsprimarily  relatedtoinformationtechnologyservicesandfinancialaidprocessing.Whilewemonitorandassesstheservice  ofthesevendors,itispossiblethatthequalityoftheirserviceandthetimelinessoftheirresponsesmaybeless  thantheserviceandresponsivenessthatweorourinstitutionswouldprovide.Thesethird-partyvendorsmay  lackadequatebusinesscontinuityplanning.Usingthird-partyvendorsincreasescomplianceriskthattheven - dorsmaynotadequatelyprotectpersonalinformationregardingourinstitutions’studentsandtheirfamilies,or  thattheymaynotcomplywithapplicablefederalorstateregulationsapplicabletoourinstitutions’businesses.  Further,transitioningfromexistingvendorsorfromin-houseprocessestonewprovidersinvolvesinherent  risks,includingtheriskofsignificantdisruptionsofintegralprocesses.Intheeventthird-partyvendorsfailto  provideservices,lackadequatecontinuityplanning,orfailtoprovidenecessaryimplementationortransition  services,ourfinancialconditionandresultsofoperationscouldbeadverselyaffected. Implementing systems to comply with regulatory requirements applicable to the administration of Title IV programs is difficult and complex, and challenges in doing so could result in adverse regulatory actions and reputational problems and negatively affect our operating results. Inthebeginningofthethirdquarterof2013,APUStransitionedfromusingtheservicesofathird-partyservicer  toassistwiththeadministrationandmanagementofAPUS’sparticipationinTitleIVprogramstoutilizingan  internalsolutionthatrelied,inpart,onsoftwareandservicesprovidedbyathird-partyvendor.Weexperienced  unexpecteddelaysinfinancialaidprocessingasaresultofvarioussoftwareandprogrammingerrorsandlim - itations,resultinginEDrejectingcertainstudentrecords,aninabilitytodisburseTitleIVprogramfundstosome  studentsandotherrelatedissues,includingdelaysinprocessingaid,errors,aninabilitytoautomatecertain  functionsandhigherlevelsofmanualworkthanhadbeenanticipated.Thechallengeswiththeprocessingof  TitleIVprogramfinancialaidledto,orcouldleadto,furtherreputationalproblems,adverseeffectsonouroper - atingresults,reducedcourseenrollments,increasedcosts,andregulatoryproblems.In2015,APUStransitioned  itsfinancialaidprocessingtoathird-partyservicer,GlobalFinancialAidServices.Wehavedescribedadditional  risksrelatedtothissituation,TitleIVcompliance,andtheuseofthird-partyservicersintheseRisksFactors.  Thoserisksandtheissuesexplainedinthisriskfactormayhaveamaterialadverseeffectonouroperationsand  financialcondition. 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,haveexperiencedfraudulentactivityrelatedtoTitleIV  programfunds.GrantsandloanstostudentsunderTitleIVprogramsareprimarilyawardedonthebasisof  financialneed,generallydefinedasthedifferencebetweenthecostofattendinganinstitutionandtheamount  astudentcanbeexpectedtocontributetothatcost.Inordertoaccountforlivingexpensesandothercoststhat  ourstudentsmayreasonablyincurinthecontextofpursuingadegreeorcertificate,thecostofattendingeach  ofourinstitutions,inmostcases,isanamountthatexceedsthecostofitstuition.Whilesomestudentselect  toreceivegrantsandloansthatcoveronlythecostoftuitionandfees,otherselecttoreceiveamountsupto  100 AmericanPublicEducation,Inc. thefullcostofattendance.WhenoneofourinstitutionsreceivesTitleIVprogramfundsonastudent’sbehalf,  itcreditsthosefundstothestudent’saccount.Ifastudenthaselectedtoreceivefundsinexcessofthecostof  tuitionandfees,acreditbalanceisgenerated,andtheinstitutionmustpaythatcreditbalancetothestudent  unlessthestudenthasauthorizedtheinstitutiontoholdthecreditbalanceortakeotherpermissibleactionwith  respecttothecreditbalance.TheavailabilityofTitleIVprogramfunds,includinganycreditbalancepayment,is  animportantpartofenablingsomestudentstopursueadegreeorcertificate.However,someindividualsseek  totakeadvantageofTitleIVprogramsbyenrollingforthepurposeofobtainingfundstheymayreceivedirectly  throughacreditbalancepayment. Ourinstitutions,inparticularAPUS,havebeenthetargetoffraudulentactivityrelatedtoTitleIVprogramfunds,  aswellasotherfraudulentactivities.Webelievetheriskofoutsidepartiesattemptingtoperpetratefraudin  connectionwiththeawardanddisbursementofTitleIVprogramfundsatAPUS,includingasaresultofidentity  theft,isheightenedduetoitsbeinganexclusivelyonlineeducationprovideranditsrelativelylowtuition.Our  institutionsmustmaintainsystemsandprocessestoidentifyandpreventfraudulentapplicationsforenrollment  andfinancialaid.Wecannotbecertainthatourinstitutions’systemsandprocesseswillcontinuetobeadequate  inthefaceofincreasinglysophisticatedfraudschemes,orthatwewillbeabletoexpandsuchsystemsandpro - cessesatapaceconsistentwiththechangingnatureofthesefraudschemes. EDrequiresinstitutionsthatparticipateinTitleIVprogramstorefertotheEDOfficeoftheInspectorGeneral,  orOIG,credibleinformationaboutfraudorotherillegalconductinvolvingTitleIVprograms,andinthepastour  institutionshavereferredtotheOIGinformationwithrespecttopotentialfraudbyapplicantsandstudents.If  thesystemsandprocessesthatourinstitutionshaveestablishedtodetectandpreventfraudareinadequate,ED  mayfindthatourinstitutionsdonotsatisfyED’s“administrativecapability”requirements.Ifourinstitutionsfail  tosatisfytheadministrativecapabilityrequirements,EDmayrequiretherepaymentofTitleIVprogramfunds,  transferourinstitutionsfromthe“advance”systemofpaymentofTitleIVprogramfundstoheightenedcash  monitoringstatus,ortothe“reimbursement”systemofpayment,placeourinstitutionsonprovisionalcertifica - tionstatus,orcommenceaproceedingtoimposeafineortolimit,suspend,orterminateourinstitutions’par - ticipationinTitleIVprograms,whichwouldlimitourinstitutions’potentialforgrowthandadverselyaffectour  institutions’enrollment,revenue,andresultsofoperations.Inaddition,ourinstitutions’abilitytoparticipatein  TitleIVprogramsandDoDtuitionassistanceprogramsisconditionedonmaintainingaccreditationbyanaccred - itingagencythatisrecognizedbytheSecretaryofEducation.Thesignificanceofaccreditationisdescribedmore  fullyabovein“RegulatoryEnvironment—Accreditation.”Anysignificantfailuretoadequatelydetectfraudulent  activityrelatedtostudentenrollmentandfinancialaidcouldcauseourinstitutionstofailtomeettheiraccred - itors’standards.Furthermore,undertheHEOA,accreditingagenciesthatevaluateinstitutionsofferingonline  programs,likeAPUS’sprogramsandHCON’sonlineRegisteredNursetoBachelorofScienceinNursingcomple - tionprogram,mustrequiresuchinstitutionstohaveprocessesthroughwhichtheinstitutionestablishesthat  astudentwhoregistersforsuchaprogramisthesamestudentwhoparticipatesinandreceivescreditforthe  program.Failuretomeettherequirementsofourinstitutions’accreditingagenciescouldresultinthelossof  accreditationofoneormoreofourinstitutions,whichcouldresultintheirlossofeligibilitytoparticipateinTitle  IVprograms,DoDtuitionassistanceprograms,orboth. We may have unanticipated tax liabilities that could adversely impact our results of operations and financial condition. WeandourinstitutionsaresubjecttomultipletypesoftaxesintheUnitedStates,andmaybesubjecttotaxa - tioninthefutureinvariousforeignjurisdictions.Thedeterminationofourprovisionforincometaxesandother  taxaccrualsinvolvesvariousjudgments,andthereforetheultimatetaxdeterminationissubjecttouncertainty.  Inaddition,changesintaxlaws,regulations,orrules,orapplicationofstatesalestaxes,mayadverselyaffect  ourfuturereportedfinancialresults,mayimpactthewayinwhichweconductourbusiness,ormayincrease  2016 Annual Report 101 theriskofauditbytheInternalRevenueServiceorothertaxauthorities.Althoughwebelieveourtaxaccru - alsarereasonable,thefinaldeterminationoftaxreturnsunderrevieworreturnsthatmaybereviewedinthe  futureandanyrelatedlitigationcouldresultintaxliabilitiesthatmateriallydifferfromourhistoricalincometax  provisionsandaccruals.Inaddition,anincreasingnumberofstatesareadoptingnewlaws,orchangingtheir  interpretationofexistinglaws,regardingtheapportionmentfactorsusedforstatecorporateincometaxpur - posesinamannerthatcouldresultinalargerproportionofourincomebeingtaxedbythestatesinwhichwe  arerequiredtofilestatetaxreturns.Theselegislativeandadministrativechangescouldhaveamaterialadverse  effectonourbusinessandfinancialcondition. 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,andasofDecember31,2016,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-groundoperationsatfivephysicalcampuseswhereHCONstudentsattend  coursesandparticipateineducationalactivities.Thepresenceofstudentsonphysicalcampusesrequiresus  toconsiderandrespondtoissuesrelatedtostudentsafety,security,andviolence.Failuretoprevent,orade - quatelyrespondto,threatstostudentandemployeesafetyorotherproblemscouldharmourreputation,caus - ingenrollmentandrevenuetodecline,orcouldresultincostlyandresource-intensivelitigation. 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  HCONtocloseoneormorecampusestemporarilyorpermanently.Forexample,aregionalornationaloutbreak  ofinfluenzaorotherillnesseasilyspreadbyhumancontactcouldcauseustocloseoneormoreofHCON’s  campusesforanextendedperiodoftime.Thesetypesofeventscouldaffectstudentrecruitingopportunitiesin  thoselocations,causingenrollmentandrevenuetodecline. 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  employmentagreementswithourChiefExecutiveOfficer,ourChiefFinancialOfficerandthePresidentofAPUS,  wedonothaveemploymentagreementswithotherexecutivesorpersonnel,andtheemploymentagreements  thatwedohavedonotpreventourexecutivesfromvoluntarilyceasingtoworkforus. 102 AmericanPublicEducation,Inc. If we are unable to attract and retain management, faculty, administrators, and skilled personnel, our business and growth prospects could be severely harmed, and changes in management could cause disruption and uncertainty. Wemustattractandretainhighlyqualifiedmanagement,faculty,administrators,andskilledpersonneltoour  institutions.Competitionforhiringtheseindividualsisintense,especiallywithregardtofacultyinspecialized  areas,andexecutiveswithrelevantindustryexpertise.Wehavehadanumberofotherexecutiveofficersretire  orotherwisedepartourCompanyoverthelastseveralyears,andwealsocontinuetoundergoanorganizational  realignment.Forinstance,APUSconductedasearchforanewAPUSpresidentinconnectionwithananticipated  organizationalrealignment,andonewashiredonJuly1,2016.Inthefourthquarterof2016,wealsohiredanew  provostandanewexecutiveresponsibleforenrollmentmanagementatAPUS.Evenwiththesehires,wemay  needtocontinuetostrengthenourmanagementteamtosupporttheoperationsofourinstitutions.Ifwefailto  attractnewmanagement,faculty,administrators,orskilledpersonnelorfailtoretainandmotivateourexisting  management,faculty,administrators,andskilledpersonnel,ourinstitutionsandourabilitytoserveourstu - dentsandexpandourprogramscouldbeseverelyharmed,andchangesinmanagementcoulddisruptourbusi - nessandcauseuncertainty.ED’sincentivepaymentrulemayalsoaffectthemannerinwhichweattract,retain,  andmotivatenewandexistingemployees,asdescribedmorefullybelowin“RisksRelatedtotheRegulationof  OurIndustry.” 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,orthatwehavesecured,orwillbeabletosecure,  appropriateprotectionsforallofourinstitutions’proprietaryrightsintheUnitedStatesorforeignjurisdic - tions,orthatthirdpartieswillnotinfringeuponorviolatetheproprietaryrightsofourinstitutions.Despiteour  effortstoprotecttheserights,thirdpartiesmayattempttodevelopcompetingprogramsorcopyaspectsofour  institutions’curriculum,onlineresourcematerial,qualitymanagement,andotherproprietarycontent.Anysuch  attempt,ifsuccessful,couldadverselyaffectourinstitutions’business.Protectingthesetypesofintellectual  propertyrightscanbedifficult,particularlyasitrelatestothedevelopmentbyourinstitutions’competitorsof  competingcoursesandprograms. Ourinstitutionsmayencounterdisputesfromtimetotimeoverrightsandobligationsconcerningintellectual  property,andmaynotprevailinthesedisputes.Thirdpartiesmayraiseaclaimagainstourinstitutionsalleging  aninfringementorviolationoftheirintellectualproperty.Somethird-partyintellectualpropertyrightsmaybe  extremelybroad,anditmaynotbepossibleforourinstitutionstoconductoperationsinsuchawayastoavoid  disputesregardingthoseintellectualpropertyrights.Anysuchdisputecouldsubjectourinstitutionstocostly  litigationandimposeasignificantstrainonourfinancialresourcesandmanagementpersonnelregardlessof  whetherthatdisputehasmerit.Ourinsurancemaynotcoverpotentialclaimsofthistypeadequatelyoratall,  andourinstitutionsmayberequiredtoalterthecontentoftheircoursesorpaymonetarydamages,whichmay  besignificant. 2016 Annual Report 103 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,whicharedescribedaboveundertheheading“RisksRelatedtothe  RegulationofOurIndustry.”Forexample,inNovember2013,aputativeclassactionwasbroughtagainstHCON  relatingtoatimeperiodpriortoourownership.Thelawsuitassertedclaimsforfraudandfraudulentinduce - ment,negligentmisrepresentation,breachofimplied-in-factcontract,promissoryestoppel,unjustenrichment,  andviolationoftheOhioConsumerSalesPracticesAct.WhileHCONadmittedtonowrongdoingintheeventual  settlementagreementandthecasewasdismissedwithprejudiceafterthepaymentofademinimissettlement,  onDecember4,2015,EDsentHCONaletterinformingHCONthatEDhaddeterminedtofineHCON$27,500  basedonED’sfindingthatHCONhadsubstantiallymisrepresenteditsprogrammaticaccreditationstatusduring  atimeperiodpriortoourownershipofHCON.HCONinformedEDinaletterthatitdisagreedwithED’sfind - ingsbutwouldpaythefineinordertoresolvepromptlythematterandtoenableEDtofinalizeitsreviewof  theapplicationforachangeinownership.Inthefuture,notallclaimsmaybeaseasilyresolved.Aspartofthe  DefensetoRepaymentregulationsthatgointoeffectJuly1,2017,EDrecentlyadoptedregulationsthatpro - hibitinstitutionsfromrequiringthatstudentsfirstengageinaninstitution’sinternalcomplaintprocessbefore  contactingotheragencies,prohibittheuseofpre-disputearbitrationagreementsbyaninstitution,prohibitthe  useofclassactionlawsuitwaivers,andrequireinstitutionstodisclosetoandnotifyEDofarbitrationfilingsand  awardsforclaimsthatmayformthebasisforaborrowerdefensetorepaymentofaDirectLoan.Asaresultof  thesechanges,wewouldnolongerbepermittedtoincludetheclassactionwaiversandmandatoryarbitration  provisionscontainedinAPUSandHCON’senrollmentagreements.Thesechangesalsocouldhavetheeffectof  increasingthenumberoffrivolouslawsuitsbroughtagainstusandourinstitutions,couldexposeusandour  institutionstolitigationthatcouldbelessefficientthanresolvingdisputesthrougharbitrationandcouldforce  ustoincurlegalandotherexpenses.Thesignificanthumanandfinancialresourcesrequiredtoinvestigateand  respondtoclaimsbroughtinanyfuturelitigationmaydistractmanagement’sattentionfromoperatingour  businessorleadtolargerpaymentsorliabilities,includingadverseregulatoryaction,and,asaresult,negatively  affectouroperatingresults. 104 AmericanPublicEducation,Inc. 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. Ouraccesstocapitalmarketsandsourcingforadditionalfundingtoexpandoroperateourbusinessissubject  tomarketconditions.Creditconcernsregardingtheproprietarypostsecondaryeducationindustryasawhole  alsomayimpedeouraccesstocapitalmarkets.Ifweareunabletoobtainneededcapitalontermsacceptableto  us,wemayhavetolimitstrategicinitiativesortakeotheractionsthatmateriallyadverselyaffectourbusiness,  financialcondition,resultsofoperationsandcashflows. Economic and market conditions, including changes in interest rates, could affect our enrollments, placement and persistence rates and cohort default rates in the United States or abroad. Ourbusinesshasbeen,andmayinthefuturebe,adverselyaffectedbyageneraleconomicslowdownorreces - sionintheUnitedStatesorabroad.OurinstitutionsderiveasignificantportionoftheirrevenuefromTitleIV  programs,whichincludestudentloanswithinterestratessubsidizedbythefederalgovernment.Additionally,  somestudentsfinancetheireducationthroughprivateloansthatarenotgovernmentsubsidized.Historically  lowinterestrateshavecreatedafavorableborrowingenvironmentforstudents.However,ifinterestrates  increaseorCongressdecreasestheamountoffundingavailableforTitleIVprograms,ourstudentsmayhave  topayhigherinterestratesontheirTitleIVprogramloansandprivateloans.Anyfutureincreaseinapplicable  interestratescouldresultinacorrespondingincreaseineducationalcoststoourexistingandprospectivestu - dents,whichcouldresultinareductioninourenrollment.Higherinterestratescouldalsocontributetohigher  defaultrateswithrespecttoourstudents’repaymentoftheireducationloans.Higherdefaultratesmayinturn  adverselyimpactoureligibilitytoparticipateinsomeTitleIVprograms,whichcouldadverselyimpactouropera - tionsandfinancialcondition. Intherecentpast,theUnitedStatesandotherindustrializedcountrieshaveexperiencedreducedeconomic  activity,substantialuncertaintyabouttheirfinancialservicesmarketsand,insomecases,economicrecession.  Theseadverseeconomicdevelopmentsmayresultinareductioninthenumberofjobsavailabletoourgrad - uatesandlowersalariesbeingofferedinconnectionwithavailableemployment,which,inturn,mayresultin  declinesinourplacementandpersistencerates.Inaddition,theseeventscouldadverselyaffecttheabilityor  willingnessofourformerstudentstorepaystudentloans,whichcouldincreaseourinstitutions’studentloan  cohortdefaultratesandrequireincreasedtime,attention,andresourcestomanagethesedefaults.Ourinstitu - tions’studentsareabletoborrowTitleIVloansinexcessoftheirtuitionandfees.Theexcessisreceivedbysuch  studentsasacreditbalancerefund.However,ifastudentwithdraws,ourinstitutionsmustreturnanyunearned  TitleIVfunds,whichmayincludeaportionofthecreditbalancerefund,andmustseektocollectfromthestu - dentanyresultingamountsowedtotheinstitution.Aprotractedeconomicslowdowncouldnegativelyimpact  suchstudents’abilitytosatisfydebtstotheinstitution,includingdebtsthatresultfromreturnsofunearned  TitleIVamounts.Asaresult,theamountofTitleIVfundswewouldhavetoreturnwithoutrepaymentfromour  institutions’studentscouldincrease,andourfinancialresultscouldsuffer. 2016 Annual Report 105 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,suchasthenewcampusinsuburbanToledo,Ohio,thatbeganoperationsinearly  2017.Suchactionsrequireustoobtainappropriatefederal,stateandaccreditingagencyapprovals.Inaddi - tion,addingnewlocationsmayrequiresignificantfinancialinvestments,humanresourcecapabilities,andnew  clinicalplacementrelationships.Ifweareunableto,orsufferanydelayinourabilityto,obtainappropriate  approvals,attractadditionalstudentstonewcampuslocations,offerprogramsatnewcampusesinacost-ef - fectivemanner,identifyappropriateclinicalplacements,orotherwisemanageeffectivelytheoperationsof  newlyestablishedcampuses,ourresultsofoperationsandfinancialconditioncouldbeadverselyaffected.At  thistime,becauseHCONiscertifiedtoparticipateintheTitleIVprogramsonaprovisionalbasisbasedonthe  changeinownershipandcontrolofHCONthatresultedfromouracquisitionofit,HCONmustapplytoEDand  waitforapprovalbeforeitcanawardanddisburseTitleIVprogramfundstostudentsenrolledatnewHCON  locationsatwhichHCONoffers50%ormoreofaneligibleprogram,orbeforeitcanawardTitleIVprogram  fundstostudentsenrolledinnewdegreeorcertificateprograms.Similarly,basedonED’sdecisiontowithdraw  andterminaterecognitionoftheAccreditingCouncilforIndependentCollegesandSchools,orACICS,HCONis  alsosubjecttocertainconditionsandrestrictions.Formoreinformationabouttheconditionsandrestrictions  imposedbyED,see“RegulatoryEnvironment—Accreditation”inthisAnnualReport.IfHCONfailstocomplywith  theconditionsandrestrictionsimposedbyED,orifHCONfailstoobtainaccreditationfromanotherrecognized  accreditingagencybyJune12,2018,18monthsafterthedateoftheSecretary’sdecisiontowithdrawrecognition  fromACICS,HCONwilllosetheabilitytoparticipateintheTitleIVprograms. OutsideOhio,otherstates’regulatorybodieshaveregulationsthatapplytoHCONprograms.Forexample,a  numberofstatesmayrequirethatweobtainadditionalauthorizationsforHCONstudentsenrolledintheonline  RegisteredNursetoBachelorofScienceinNursingcompletionprogramtoparticipateinpracticumcoursesin  thosestates,evenwhereHCONhasnootherphysicalpresenceinthestateorwhereHCONisauthorizedfor  suchplacementsundertheStateAuthorizationReciprocityAgreement,orSARA.Thesetypesofprovisionsmay  makeitmoredifficulttoofferonlineeducationprogramsinthosestates.Theinabilitytoexpandefficientlyor  successfullyexistingprograms,pursuenewprograminitiativesandaddnewcampuseswouldharmourability  togrowthebusinessandcouldhaveanadverseimpactonourfinancialcondition. 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. Theperformanceandreliabilityofour,andourinstitutions’,networksandtechnologyinfrastructure,including  thoseofthird-partysystemsweuse,iscriticaltoourinstitutions’reputationandabilitytoattractandretainstu - dents.Anysystemerrororfailure,orasuddenandsignificantincreaseinbandwidthusage,couldinterruptour,  orourinstitutions’,abilitytooperateandcouldresultintheunavailabilityofourinstitutions’onlineclassrooms  (whichisparticularlyrelevanttoAPUS),preventingstudentsfromaccessingtheircoursesandadverselyaffect - ingourresultsofoperations. OursystemsatAPUS,particularlythoseproprietaryinformationsystemsandprocessesthatwerefertoas  PartnershipataDistance,orPAD,havebeenpredominantlydevelopedin-house,withlimitedsupportfrom  outsidevendors.Totheextentthatwehaveutilizedthird-partyvendorstoprovidecertainsoftwareproducts  foroursystems,wehavegenerallyneededtointegratethoseproductsinto,andensurethattheyfunctionwith,  106 AmericanPublicEducation,Inc. PAD.WecontinuouslyworkonupgradestoPAD,andouremployeesdevotesubstantialtimetoitsdevelopment  andtothesuccessfulintegrationofthird-partyproductsintoPAD.Totheextentthatwefacesystemdisruptions  ormalfunctionswithPAD,wemaynothavethecapacitytoaddresssuchdisruptionsormalfunctionswithour  internalresources,andwemaynotbeabletoidentifyoutsidecontractorswithexpertiserelevanttoourcustom  system. Ourinstitutions’technologyinfrastructure,andthetechnologyinfrastructureofourthird-partyvendors,could  bevulnerabletointerruptionormalfunctionduetoeventsbeyondourcontrol,includingnaturaldisasters,  cyber-attacks,terroristactivities,andtelecommunicationsfailures.Ourcomputernetworks,andthenetworks  ofourthird-partyvendors,mayalsobevulnerabletounauthorizedaccess,computerhackers,ransom-ware,  computerviruses,andothersecurityproblems.Auserwhocircumventssecuritymeasurescouldmisappro - priateproprietaryinformationorpersonalinformationaboutourstudentsoremployees,orcouldcause  interruptionsormalfunctionsinoperations.Ifweorthirdpartieswithaccesstooursystems,ortoourpropri - etaryinformationorpersonalinformationaboutourstudentsoremployees,experiencesecuritybreachesin  thefuture,wemayberequiredtoexpendsignificantresourcestoprotectagainstthethreatofthesesecurity  breachesortoalleviateproblemscausedbysuchbreaches,whichcouldincludelitigationbroughtbyaffected  individualsorotherparties,theimpositionsofpenalties,disruptiontoouroperations,anddamagetoour  reputation. APUSusesexternalvendorstoperformsecurityassessmentsonaperiodicbasistoreviewandassessits  security.Weutilizethisinformationtoauditourselvestoensurethatweareadequatelymonitoringthesecu - rityofourtechnologyinfrastructure.However,wecannotensurethatthesesecurityassessmentsandaudits  willprotectourcomputernetworksagainstthethreatofsecuritybreaches.Similarly,althoughwerequireour  third-partyvendorstomaintainalevelofsecuritythatisacceptabletousandworkcloselywithourthird-party  vendorstoaddresspotentialandactualsecurityconcernsandattacks,wecannotensurethatweandoursys - temsandproprietaryinformationorpersonalinformationaboutourstudentsoremployeeswillbeprotected  againstthethreatofsecurityattacksonourthird-partyvendorsthataffectoursystemsorsuchinformation.  Systemdisruptionsandsecuritybreachestoouronlinecomputernetworks,technologyinfrastructure,oronline  classroominfrastructure,ortothenetworks,infrastructuresandsystemsofthirdpartiescouldhaveanadverse  effectonourfinancialcondition. 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.Ourinstitutionsor,insomecases,certainthird-partyvendorshiredbyourinstitu - tions,collect,use,andretainlargeamountsofpersonalinformationregardingourstudentsandtheirfamilies,  includingsocialsecuritynumbers,taxreturninformation,personalandfamilyfinancialdata,andfinancial  accountinformation.Ourinstitutionsalsocollectandmaintainpersonalinformationofemployeesinthe  ordinarycourseofourbusiness.Someofthispersonalinformationisheldandmanagedbycertainthird-party  vendors,includingourthird-partyservicersandinformationtechnologyvendors.Althoughourinstitutions  usesecurityandbusinesscontrolstolimitaccessanduseofpersonalinformation,athirdpartymaybeableto  circumventthosesecurityandbusinesscontrols,whichcouldresultinabreachofstudentoremployeepri - vacy.Inaddition,errorsinthestorage,useortransmissionofpersonalinformationcouldresultinabreachof  studentoremployeeprivacy.Possessionanduseofpersonalinformationinourinstitutions’operationsalso  subjectsustolegislativeandregulatoryburdensthatcouldrestricttheuseofpersonalinformationandrequire  notificationofdatabreaches.Wecannotguaranteethatabreach,lossortheftofpersonalinformationwillnot  occur.Aviolationofanylawsorregulationsrelatingtothecollectionoruseofpersonalinformationcouldresult  intheimpositionoffinesorlawsuitsagainstusorourinstitutions.Asaresult,wemayberequiredtoexpend  2016 Annual Report 107 significantresourcestoprotectagainstthethreatofthesesecuritybreachesortoalleviateproblemscaused  bysuchbreaches.Abreach,theft,orlossofpersonalinformationregardingourinstitutions’studentsandtheir  familiesorourinstitutions’employeesthatisheldbyourinstitutionsorthird-partyvendorscouldhaveamate - rialadverseeffectonourinstitutions’reputationsandresultsofoperationsandresultinlegalactionsbyregu - lators,stateattorneysgeneral,andprivatelitigants,anyofwhichactionscoulddivertmanagement’sattention  andhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperations,andcashflows. Wefaceanever-increasingnumberofthreatstoourcomputersystems,includingunauthorizedactivityand  access,maliciouspenetration,systemviruses,ransomwareandothermaliciouscodeandorganizedcyber-at - tacks,whichcouldbreachoursecurityanddisruptoursystems.Theserisksincreasewhenwemakechangesto  ourinformationtechnologysystemsorimplementnewones.Oursizemakesusaprominenttargetforhacking  andothercyber-attackswithintheeducationindustry.Fromtimetotimeweexperiencesecurityeventsand  incidents,andthesereflectanincreasinglevelofmalicioussophistication,organization,andinnovation.We  havedevotedandwillcontinuetodevotesignificantresourcestothesecurityofourcomputersystems,but  theymaystillbevulnerabletothesethreats.Auserwhocircumventssecuritymeasurescouldmisappropriate  proprietaryinformationorcauseinterruptionsormalfunctionsinoperations,perhapsoveranextendedperiod  oftimepriortodetection.Asaresult,wemayberequiredtoexpendsignificantadditionalresourcestoprotect  againstthethreatof,oralleviateproblemscausedby,thesesystemdisruptionsandsecuritybreaches.Anyof  theseeventscouldhaveamaterialadverseeffectonourbusinessandfinancialcondition.Althoughwemaintain  insuranceinrespectofthesetypesofevents,thereisnoassurancethatavailableinsuranceproceedswouldbe  adequatetocompensateusfordamagessustainedduetotheseevents. 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,restrictinguseofconsumerdataformarketingoradvertising,andmay  leadtoincreasesinthecostofcompliance.Claimsoffailuretocomplywithourinstitutions’privacypoliciesor  applicablelawsorregulationscouldformthebasisofgovernmentalorprivate-partyactionsagainstus.Such  claimsandactionsmaycausedamagetoourinstitutions’reputationandcouldhaveanadverseeffectonour  financialcondition. 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  adverselyaffectourinstitutions’operationsandreputations.Additionally,ourinstitutionsdonotnecessarily  controltheoperationofthefacilitieshostingourtechnologyinfrastructureandmayberequiredtorelyonother  partiestoprovidephysicalsecurity,facilitiesmanagementandcommunicationsinfrastructureservices.Ifany  third-partyvendorsencounterfinancialdifficultysuchasbankruptcyorothereventsbeyondourcontrolthat  causesthemtofailtoadequatelysecureandmaintaintheirfacilitiesorprovidenecessarydatacommunications  108 AmericanPublicEducation,Inc. 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 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. Sinceourinitialpublicoffering,wehavehadrelativelylimitedpublicfloat,andtradinginourcommonstockhas  alsobeenlimitedand,attimes,volatile.Anactivetradingmarketforourcommonstockmaynotbesustained,  andthetradingpriceofourcommonstockmayfluctuatesubstantially. Thepriceofourcommonstockmayfluctuateasaresultofsomeorallofthefollowing: • priceandvolumefluctuationsintheoverallstockmarketfromtimetotime; • significantvolatilityinthemarketpriceandtradingvolumeofcomparablecompanies; • actualoranticipatedchangesinourearnings,ourinstitutions’enrollmentsornetcourseregistrations,orfluc - tuationsinouroperatingresultsorintheexpectationsofsecuritiesanalysts; • theactual,anticipatedorperceivedimpactofchangesinthepoliticalenvironment,governmentpolicies,laws  andregulations,orsimilarchangesmadebyaccreditingbodies; • thedepthandliquidityofthemarketforourcommonstock; • generaleconomicconditionsandtrends; • catastrophicevents; • salesoflargeblocksofourstock; • recruitmentordepartureofkeypersonnel;or • actionsofothersinourindustry. Inthepast,followingperiodsofvolatilityinthemarketpriceofacompany’ssecurities,securitiesclassaction  litigationhasoftenbeenbroughtagainstthatcompany.Becauseofthepotentialvolatilityofourstockprice,we  maybecomethetargetofsecuritieslitigationinthefuture.Securitieslitigationcouldresultinsubstantialcosts  andmonetarydamagesandcoulddivertmanagement’sattentionandresourcesfromourbusiness. 2016 Annual Report 109 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. Provisions in our organizational documents and in the Delaware General Corporation Law may prevent takeover attempts that could be beneficial to our stockholders. ProvisionsinourcharterandbylawsandintheDelawareGeneralCorporationLawmaymakeitdifficultand  expensiveforathirdpartytopursueatakeoverattemptweopposeevenifachangeofcontrolofourCompany  wouldbebeneficialtotheinterestsofourstockholders.Theseprovisionsinclude: • theabilityofourBoardofDirectorstoissueupto10,000,000sharesofpreferredstockinoneormoreseries  andtofixthepowers,preferences,andrightsofeachserieswithoutstockholderapproval,whichmaydiscour - ageunsolicitedacquisitionproposalsormakeitmoredifficultforathirdpartytogaincontrolofourCompany; • arequirementthatstockholdersprovideadvancenoticeoftheirintentiontonominateadirectorortopro - poseanyotherbusinessatanannualmeetingofstockholders; • aprohibitionagainststockholderactionbymeansofwrittenconsentunlessotherwiseapprovedbyourBoard  ofDirectorsinadvance;and • Section203oftheDelawareGeneralCorporationLaw,whichgenerallyprohibitsusfromengaginginmergers  andotherbusinesscombinationswithstockholdersthatbeneficiallyown15%ormoreofourvotingstock,or  withtheiraffiliates,unlessourdirectorsorstockholdersapprovethebusinesscombinationintheprescribed  manner. 110 AmericanPublicEducation,Inc. Item1B.UnresolvedStaffComments None. Item2.Properties AmericanPublicEducation,Inc.,orAPEI,andAmericanPublicUniversitySystem,Inc.,orAPUS,togetheroperate administrativefacilitiesinCharlesTown,WestVirginia,Manassas,Virginia,andColumbia,Maryland,whichare withinanapproximateone-hourdriveofoneanotherandarelocatedwithintheWashington,DC,metropolitan area.ThecorporateheadquartersandadministrativeofficesarelocatedinCharlesTownandconsistof12owned facilitiestotalingapproximately254,000squarefeet.AlsoinCharlesTown,APUSownstwoandahalfacresofland earmarkedforfuturedevelopmentanda12,000squarefootbuildingthatisunoccupiedandforsaleasofthedate ofthisAnnualReport.APUS’sstudentservices,graduation,andmarketingoperationsarelocatedin25,000square feetofleasedspaceinManassasunderaleasethatexpiresin2018.APEIleasesanadministrativeofficeofapproxi- mately2,000squarefeetinColumbia,Maryland,underaleasethatexpiresin2018. HondrosCollegeofNursing,orHCON,operatesfiveOhiocampusesinthesuburbanareasofCincinnati(West  Chester),Cleveland(Independence),Columbus(Westerville),Dayton(Fairborn)andToledo(Maumee).These  campusesincludeatotalofeightleasedfacilitieswithapproximately109,000squarefeetcombined.Thefacili - tiesareprimarilyusedforinstructionalactivities.ThemaincampusinWestervillealsohousesHCON’scorporate  officesandadditionaladministrativeservices.Leasetermsandextensionoptionsvarybyfacility,withexpiration  datesrangingfrom2022to2029. TheCompanybelievesitsexistingfacilitiesareingoodoperatingconditionandareadequateandsuitablefor  theconductofitsbusiness. Item3.LegalProceedings Fromtimetotime,wehavebeenandmaybeinvolvedinvariouslegalproceedings.Wecurrentlyhavenomate - riallegalproceedingspending. Item4.MineSafetyDisclosures Notapplicable. 2016 Annual Report 111 PARTII Item5. MarketforRegistrant’sCommonEquity,Related StockholderMattersandIssuerPurchasesofEquity  Securities MARKET INFORMATION OurcommonstocktradesontheNASDAQGlobalSelectMarketunderthesymbol“APEI.”Thefollowingtable  setsforth,fortheperiodsindicated,thehighandlowsalespriceofourcommonstockasreportedonthe  NASDAQGlobalSelectMarket. Year Ended December 31, 2015 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Year Ended December 31, 2016 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter HOLDERS Low $29.13 $21.30 $19.22 $18.56 Low $13.80 $19.25 $18.53 $14.75 High $37.08 $32.56 $27.26 $25.17 High $22.50 $28.64 $30.79 $27.20 AsofFebruary24,2017,therewereapproximately531holdersofrecordofourcommonstock.  DIVIDENDS Wehavenothistoricallypaiddividendsonourcommonstockanddonotanticipatedeclaringorpayinganycash  dividendsonourcommonstockintheforeseeablefuture.Thepaymentofanydividendsinthefuturewillbe  atthediscretionofourBoardofDirectorsandwilldependuponourfinancialcondition,resultsofoperations,  earnings,capitalrequirements,contractualrestrictions,outstandingindebtedness,andotherfactorsdeemed  relevantbyourBoard. PERFORMANCE GRAPH Thegraphbelowcomparesthefive-yearcumulativetotalreturnofholdersofourcommonstockwiththe  cumulativetotalreturnsoftheS&P500index,theNASDAQCompositeindexandacustomizedpeergroupof  sevencompaniesthatincludes:BridgepointEducation,Inc.;CapellaEducationCompany;CareerEducation  Corporation;DeVryEducationGroupInc.;GrandCanyonEducation,Inc.;NationalAmericanUniversityHoldings,  Inc.;andStrayerEducation,Inc.WehaveremovedApolloEducationGroup,Inc.andITTEducationalServices,Inc. fromthecustomizedpeergroup.Apollowasremovedbecauseitacceptedapurchaseofferfromaprivateequity  firm.ITTwasremovedbecauseithasceasedsubstantiallyalloperationsinconnectionwithitsbankruptcy  proceedings.Thegraphassumesthatthevalueoftheinvestmentinourcommonstock,ineachindex,andinthe  112 AmericanPublicEducation,Inc. peergroup(includingreinvestmentofdividends)was$100onDecember31,2011,andtracksthevalueofthose  investments,respectively,throughDecember31,2016. Theinformationcontainedintheperformancegraphshallnotbedeemed“solicitingmaterial”ortobe“filed”  withtheSecuritiesandExchangeCommission,norshallsuchinformationbedeemedincorporatedbyreference  intoanypriororfuturefilingundertheSecuritiesActortheExchangeAct,excepttotheextentthatwespecifi - callyincorporateitbyreferenceintosuchfiling. COMPARISONOF5-YEARCUMULATIVETOTALRETURN* AmongAmericanPublicEducation,Inc.,theS&P500Index,theNASDAQCompositeIndex,andaPeerGroup. $250 $200 $150 $100 $50 0 12/11 12/12 12/13 12/14 12/15 12/16 AmericanPublicEducation,Inc. S&P500 NASDAQComposite PeerGroup *$100investedon12/31/11instockorindex,includingreinvestmentofdividends. FiscalyearendingDecember31. Copyright©2017Standard&Poor’s,adivisionofS&PGlobal.Allrightsreserved. December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2016 APEI S&P500 NASDAQComposite PeerGroup 100.00 100.00 100.00 100.00  83.46 116.00 116.41   67.11 100.44 153.58 165.47 103.87  85.19 174.60 188.69 123.92  43.00 177.01 200.32  83.42  56.72 198.18 216.54 123.55 Thestockpriceperformanceincludedinthegraphandtableaboveisnotnecessarilyindicativeoffuturestockprice performance. RECENT SALES OF UNREGISTERED SECURITIES None. 2016 Annual Report 113 USE OF PROCEEDS FROM REGISTERED SECURITIES Notapplicable. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS OnMay14,2012,ourBoardofDirectorsauthorizedaprogramtorepurchaseupto$20millionofsharesofour  commonstock.OneachofMarch14,2013,June13,2014,andJune12,2015,ourBoardofDirectorsincreased  theauthorizationbyanadditional$15millionofshares,foracumulativeincreaseof$45millionofshares,and  atotalcumulativeauthorizationof$65millionofshares.Subjecttomarketconditions,applicablelegalrequire - ments,andotherfactors,therepurchasesmaybemadefromtimetotimeintheopenmarketorinprivately  negotiatedtransactions.Theauthorizationdoesnotobligateustoacquireanyshares,andpurchasesmaybe  commencedorsuspendedatanytimebasedonmarketconditionsandotherfactorsaswedeemappropriate. DuringtheyearendedDecember31,2016,noshareswereacquiredunderourrepurchaseprograms.In2015,we  repurchased1,322,846sharesunderourrepurchaseprogramsforanaggregateamountof$33.5million.Asof  December31,2016,$148,008ofsharesremainedauthorizedforrepurchase. Thefollowingtablepresentsinformationonoursharerepurchaseprograms.Foradditionalinformation  regardingoursharerepurchasespleasereferto“FinancialStatementsandSupplementaryData—Notesto  ConsolidatedFinancialStatements—Note11.Stockholders’Equity—Repurchase.” Period October 1,2015–October 31,2015 November 1,2015– November 30,2015 December1,2015– December 31,2015 Total Total Number of Shares Purchased Average Price Paid per Share — — — — $ — $ — $ — $ — 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) — — — — 336,434 $ 148,008 336,434 148,008 336,434 336,434 148,008 $ 148,008 (1) OnDecember9,2011,ourBoardofDirectorsapprovedastockrepurchaseprogramforourcommonstock,underwhich wemayannuallypurchaseuptothecumulativenumberofsharesissuedordeemedissuedinthatyearunderourequity incentiveandstockpurchaseplans.Repurchasesmaybemadefromtimetotimeintheopenmarketatprevailingmarket pricesorinprivatelynegotiatedtransactionsbasedonbusinessandmarketconditions.Thestockrepurchaseprogrammay besuspendedordiscontinuedatanytime,andisfundedusingouravailablecash. (2) OnMay14,2012,ourBoardofDirectorsauthorizedaprogramtorepurchaseupto$20millionofsharesofourcommon stock.OneachofMarch14,2013,June13,2014,andJune12,2015,ourBoardofDirectorsincreasedtheauthorizationbyan additional$15millionofshares,foracumulativeincreaseof$45millionofsharesandatotalcumulativeauthorizationof $65millionofshares.Subjecttomarketconditions,applicablelegalrequirements,andotherfactors,therepurchasesmay bemadefromtimetotimeintheopenmarketorinprivatelynegotiatedtransactions.Theauthorizationdoesnotobligateus toacquireanyshares,andpurchasesmaybecommencedorsuspendedatanytimebasedonmarketconditionsandother factorsaswedeemappropriate. (3) Duringtheyear-endedDecember31,2016,theCompanywasdeemedtohaverepurchased49,512sharesofcommonstock forfeitedbyemployeestosatisfyminimumtax-withholdingrequirementsinconnectionwiththevestingofrestrictedstock grants.TheserepurchaseswerenotpartofthestockrepurchaseprogramsauthorizedbyourBoardofDirectors. 114 AmericanPublicEducation,Inc. Item6.SelectedFinancialData Thefollowingtablesetsforthourselectedconsolidatedfinancialandoperatingdataasofthedatesandforthe  periodsindicated.Youshouldreadthisdatatogetherwith“Item7—Management’sDiscussionandAnalysisof  FinancialConditionandResultsofOperations”andourConsolidatedFinancialStatementsandrelatednotes,  includedelsewhereinthisAnnualReport.Theselectedconsolidatedstatementofoperationsdataforeachof  theyearsinthethree-yearperiodendedDecember31,2016,andtheselectedConsolidatedBalanceSheetdata  asofDecember31,2015and2016,havebeenderivedfromourauditedConsolidatedFinancialStatements,  whichareincludedelsewhereinthisAnnualReport.Theselectedconsolidatedstatementsofoperationsdata  fortheyearsendedDecember31,2012and2013,andselectedConsolidatedBalanceSheetdataasofDecember  31,2012,2013,and2014,havebeenderivedfromourauditedConsolidatedFinancialStatementsnotincluded  inthisAnnualReport.WeacquiredHondrosCollegeofNursing,orHCON,onNovember1,2013,andthere - foretheconsolidatedresultsforperiodspriortoNovember1,2013,donotincludeanyresultsfromHCON.  Historicalresultsarenotnecessarilyindicativeoftheresultsofoperationsthatshouldbeexpectedinfuture  periods.Certainprioryearamountshavebeenreclassifiedforcomparativepurposestoconformwiththe2016  presentation. (In thousands, except per share and net registration data) 2012 2013 2014 2015 2016 Year Ended December 31, Statement of Operations Data: Revenue Costsandexpenses: $313,516 $329,479 $350,020 $327,910 $313,139 Instructionalcostsandservices 110,192 112,784 123,765 118,848 117,013 Sellingandpromotional Generalandadministrative Lossondisposalsoflong-livedassets Lossonassetsheldforsale Impairmentofgoodwill 59,761 63,615 65,687 70,063 — — — — — — 69,229 74,958 115 — — 62,397 73,047 817 — — Depreciationandamortization 11,146 13,508 16,121 20,520 59,095 68,666 5,147 823 4,735 19,384 Totalcostsandexpenses 244,714 262,042 284,188 275,629 274,863 Incomefromcontinuingoperationsbefore interestincomeandincometaxes 68,802 67,437 65,832 52,281 38,276 Interestincome,net 135 309 361 115 116 Incomefromcontinuingoperations beforeincometaxes Incometaxexpense Investmentincome/(loss) 68,937 26,528 (86) 67,746 25,645 66,193 25,150 52,396 20,072 38,392 14,940 (67) (166) 90 703 Netincomeattributabletocommonstockholders $ 42,323 $42,034 $ 40,877 $ 32,414 $ 24,155 Netincomeattributabletocommon stockholderspercommonshare: Basic Diluted Weightedaveragenumberof sharesoutstanding: Basic Diluted $   2.38 $   2.35 $   2.38 $   2.35 $   2.36 $   1.94 $   1.50 $   2.33 $   1.93 $   1.49 17,772 18,041 17,656 17,921 17,357 17,543 16,676 16,798 16,068 16,214 2016 Annual Report 115 (In thousands, except per share and net registration data) 2012 2013 2014 2015 2016 Year Ended December 31, Other Data: Netcashprovidedbyoperatingactivities $ 52,838 $ 59,414 $ 61,030 $ 57,211 $ 56,014 Capitalexpenditures Stock-basedcompensation APUSnetcourseregistrations(1) $ 35,014 $ 20,649 $ 24,596 $ 26,002 $ 13,826 $  3,818 $  4,024 $  5,369 $  5,912 $  5,211 402,200 409,700 403,900 375,100 345,400 (In thousands) 2012 2013 2014 2015 2016 As of December 31, ConsolidatedBalanceSheetData: Cashandcashequivalents Workingcapital(2) Totalassets Stockholders’equity $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 $299,427 $237,153 $146,351 $121,544 $320,712 $264,670 (In thousands) 2012 2013 2014 2015 2016 Year Ended December 31, Netincomeattributableto commonstockholders Interest(income),net Incometaxexpense Equityinvestment(income)/loss Depreciationandamortization EBITDAfromcontinuingoperations $79,948 $42,323 $42,034 $40,877 $32,414 $24,155 (135) 26,528 86 11,146 (309) 25,645 67 13,508 $80,945 (361) 25,150 166 16,121 $81,953 (115) 20,072 (90) 20,520 $72,801 (116) 14,940 (703) 19,384 $57,660 (1) APUSnetcourseregistrationsrepresenttheaggregatenumberofcoursesforwhichstudentsremainenrolledafterthedate bywhichtheymaydropacoursewithoutfinancialpenalty. (2) Workingcapitaliscalculatedbysubtractingtotalcurrentliabilitiesfromtotalcurrentassets. 116 AmericanPublicEducation,Inc. Item7.Management’sDiscussionandAnalysisofFinancial  ConditionandResultsofOperations You should read the following discussion together with the consolidated financial statements and the related notes included elsewhere 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 uncertainties. 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-campuspostsecondaryeducationtoapproximately90,000studentsthroughtwo  subsidiaryinstitutions.Weprovideonlinepostsecondaryeducationprimarilydirectedattheneedsofthemili - taryandpublicsafetycommunitiesthroughAmericanPublicUniversitySystem,orAPUS,aregionallyaccredited  onlineuniversitythatincludesAmericanMilitaryUniversity,orAMU,andAmericanPublicUniversity,orAPU.  Weprovideon-campusnursingeducationtostudentsinOhiothroughNationalEducationSeminars,Inc.,which  werefertoasHondrosCollegeofNursing,orHCON.HCONoperatesfivecampusesintheStateofOhio,aswell  asanonlineRN-to-BSNProgram,toservetheneedsofthenursingandhealthcarecommunities.Additional  informationregardingoursubsidiaryinstitutionsandtheirregulationisincludedinthe“Business—Company  Overview”and“Business—RegulatoryEnvironment”sectionsofthisAnnualReport. Ourrevenueislargelydrivenbythenumberofstudentsenrolledatourinstitutionsandthenumberofcourses  thattheytake.OurconsolidatedrevenuefortheyearendedDecember31,2016,decreasedto$313.1million  from$327.9millionfortheyearendedDecember31,2015.Ourconsolidatedrevenuedecreasedto$327.9  millionfortheyearendedDecember31,2015,from$350.0millionfortheyearendedDecember31,2014.The  revenuedecreasesthatoccurredin2016and2015werecausedbydecreasesinnetcourseregistrationsatAPUS  anddecreasesinenrollmentatHCON. Ouroperationsareorganizedintotworeportablesegments:  • American Public Education Segment, or APEI Segment. Thissegmentreflectstheoperationalactivitiesof  APUS,othercorporateactivities,andminorityinvestments.  • Hondros College of Nursing Segment, or HCON Segment. Thissegmentreflectstheoperationalactivitiesof  HCON. FinancialinformationregardingeachofourreportablesegmentsisreportedinthisAnnualReportinthesec - tions“FinancialStatementsandSupplementaryData,”“Management’sDiscussionandAnalysisofFinancial  ConditionandResultsofOperations—OperatingResultsbyReportableSegmentYearEndedDecember31,2016  ComparedtoYearEndedDecember31,2015,”and“Management’sDiscussionandAnalysisofFinancialCondition andResultsofOperations—YearEndedDecember31,2015ComparedtoYearEndedDecember31,2014.” Acquisition of HCON. WeacquiredHCONonNovember1,2013,andwecontinuetoexecuteinitiativesfocused  ongrowingHCONandimprovingitsefficiency.Theseinitiativesmayresultinincreasedoperatingexpensesand  capitalinvestments,whichmaynotresultinhigherrevenueornetincome.WereceivedED’sapprovalofour  HCONchange-in-ownershipapplicationonJanuary19,2016,andHCONsubsequentlyenteredintoaProvisional  ProgramParticipationAgreement,orPPPA,whichrequiresHCONtocomplywithspecificconditionswhileprovi - sionallycertified.Inaddition,asaresultoftheSecretaryofEducation’sdecisiontowithdrawandterminateED’s  2016 Annual Report 117 recognitionofACICS,onDecember21,2016,HCONandEDexecutedarevisedPPPAandanaddendumtothe  PPPAinwhichHCONagreedtocomplywithadditionalconditionsandrequirements.Priortoouracquisitionof  HCON,wehadnoexperiencewithattractingandretainingstudentsineducationalprogramsofferedprimarily  onphysicalcampuses.WiththeopeningofHCON’sfifthlocationinJanuary2017,wearenowmarketinginanew  geographicmarket.FurtherinformationregardingtheHCONandthepotentialrisksassociatedwithitarefur - theraddressedinthe“Business—RegulatoryEnvironment”and“RiskFactors—RisksRelatedtotheRegulationof  OurIndustry”sectionsofthisAnnualReport. Changing Student Body. AlthoughAPUS’sfocushasbroadened,itcontinuestohavearelationshipwithmilitary  andmilitaryaffiliatedcommunities.AsofDecember31,2016,approximately54%ofAPUS’sstudentsself-re - portedthattheyservedinthemilitaryonactivedutyatthetimeofinitialenrollment,andasaresultAPUSis  particularlyreliantontheDepartmentofDefense,orDoD’s,tuitionassistanceprogramsandDoD’sbudget.  Since2006,whenAPUSbeganparticipatinginED’sTitleIVfinancialaidprograms,orTitleIVprograms,asignif - icantportionofAPUS’sgrowthhasbeenattributabletostudentsusingfundsfromthoseprogramsand,asa  result,APUSexperiencedachangeinthecompositionofitsstudentbody,whichhasresulted,andmaycontinue  toresult,inaneedtoprovideabroaderarrayofservicestoitsstudents.TheHCONacquisitionfurtherchanged  thecompositionofourstudentbody,addingstudentswhoattendclassesatphysicalcampuses,aswellasaddi - tionalstudentsusingTitleIVprogramfunds.Activedutymilitarystudentsgenerallytakefewercoursesperyear  onaveragethannon-militarystudents. ThechangeinthecompositionofAPUS’sstudentbodyhasalsomadeitmoredifficultforustomakelong-range  studentenrollmentforecasts.Forexample,wehavenoticedadecreaseinthepredictabilityoftherateatwhich  ourinstitutionsconvertprospectivestudentsintoenrolledstudents,whichweattribute,inpart,toincreased  competition,changesinourmarketingapproach,ouradmissionsassessmentprocessatAPUS,andthe2015  tuitionincreaseatAPUS,amongotherfactors.Webelievethatinordertocontinuetoretainandattractqualified  studentsourinstitutionsneedtocontinuouslyupdateandexpandthecontentoftheirexistingprogramsand  developnewprograms,whichmayrequireobtainingappropriatefederal,state,andaccreditingapprovals,incur - ringmarketingexpenses,makinginvestmentsinmanagementandcapitalexpenditures,andreallocatingother  resources.Ifweareunabletomanagechangesinthecompositionofourinstitutions’studentbodies,attract  andretainqualifiedstudentsandcontrolthegrowthofrelatedexpenditures,wemayexperienceoperating  inefficienciesthatcouldincreaseourcostsandadverselyaffectourresultsofoperationsandfinancialcondition.  Formoreinformationabouttherisksrelatedtothesechallenges,pleasesee“RiskFactors—RisksRelatedto  AttractingandRetainingStudents.” Increased Costs and Expenses; Our Initiatives. Ourcostsandexpenseshaveincreasedovertimedueinpartto  increasedgeneralandadministrativeexpensesrelatedtotheadditionofHCON’sphysicalcampuses,achanging  studentbody,anincreaseinexpendituresforfinancialaidprocessing,andexpendituresfortechnologyrequired  tosupportstudentsatAPUS.Further,althoughbaddebtexpenseasapercentageofrevenuedecreasedduring  theyearsendedDecember31,2015andDecember31,2016,ithastrendedupwardovertimeandcouldincrease  infutureperiods. Ourrevenuemaycontinuetodeclineandourcostsandexpensesmayincreaseasourinstitutionsadjustto  changesintheirstudentcomposition,undertakeinitiativestoimprovethelearningexperience,andattract  studentswhoaremorelikelytopersistintheirprograms.Additionalinitiativesthatmayincreasecostsand  expensesoradverselyaffectourrevenuesmayincludethefollowing: • furtherchangestoadmissionsstandardsandrequirements; • alteringtheadmissionsprocessandprocedures; • implementingmorestringentsatisfactoryacademicprogressstandards; 118 AmericanPublicEducation,Inc. • changingtuitioncostsandpaymentoptions; • potentialimplementationofdifferentialprogrampricing; • changingfunddisbursementmethods; • implementingcompetency-basedlearningandotheralternativedeliverymethods;and • alteringourinstitutions’marketingprogramstotargettheappropriateprospectivestudents. InformationtechnologysystemsareanessentialpartoftheAPUSstudentexperienceandourbusinessoper - ations.Wewillneedtoinvestcapital,timeandresourcestoupdateourinstitutions’technologyinresponseto  competitivepressuresinthemarketplace,includingincreaseddemandsforinteractivesolutionsandaccess  frommultipleplatforms,toupdateoldersystemsandtoenhancefunctionality.Oureffortstodosomaynotbe  successful,maycostmorethanexpected,mayincreaseourlevelofspending,ormayotherwiseadverselyaffect  ourfinancialcondition.Asaresultofunsuccessfuldevelopmentefforts,orasaresultofreplacingoutdated  technology,softwareorothertechnologyrelatedassets,wemayhavesomeassetsthatbecomeimpaired.In  thissituation,therelatedassetabandonmentscouldadverselyimpactourresultsofoperation,cashflows,and  financialcondition. Thesetypesofchangesarenotwithoutrisktoouroperationsandfinancialresults.Wecontinuallyevaluate  ourPADsystemforpossiblechangesandupgrades,andsuchchangesandupgradesmayresultinusincur - ringsignificantcoststhatcouldaffectourfinancialresultsinthenearterm.Theseinvestmentsmayresultin  anincreasedlevelofspending,notallofwhichcanbecapitalized.Forexample,fortheyearendedDecember  31,2016,APUSdisposedofapproximately$5.1millioninlong-livedassets,primarilyconsistingofalossthat  resultedfromtheabandoneddevelopmentofanewstudentcourseregistrationsystembecauseitwasnolon - gerprobablethatdevelopmentwouldbecompletedandthesoftwareplacedinservice. Organizational Realignment. OnJuly1,2016,aspreviouslyannounced,Dr.KaranH.Powellassumedthe  PresidencyofAPUSinconnectionwithourorganizationalrealignment.Dr.WallaceE.Bostonisfocusedonhis  positionasPresidentandCEOofAPEI,providingstrategicleadershipsupporttoAPUS,HCON,andotherAPEI  ventures.HLC,astheinstitutionalaccreditorofAPUS,requestedthatAPUSsubmitanapplicationtoenableHLC  todeterminewhetherAPUS’sproposaltoenterintoasharedservicesmodelwithAPEIconstitutesachange  inorganizationorstructurethatrequiresHLCpriorapproval.OnDecember22,2016,APUSsubmittedthe  requestedchangeofstructureapplication.HLCiscurrentlyreviewingAPUS’sapplicationandaspartofthe  reviewprocessplanstoconductanon-sitevisittoAPUSinearlyMay2017.WeanticipatethattheHLCBoardof  TrusteeswillconsiderandactonAPUS’sapplicationduringitsmeetinginJune2017.Thisorganizationalrealign - ment,andthepossibilitythatHLCmaynotapprovetherealignment,maycausestrategicoroperationalchal - lengesforus,theimpactofwhichcouldadverselyaffectourbusiness,resultsofoperations,cashflows,and  financialcondition. Admissions Process. InApril2015,APUSimplementedanadmissionsprocessrequiringprospectivestudentsto  completeafree,noncreditadmissionsassessmentiftheyarenot(i)activedutymilitaryorveteranapplicants;  (ii)graduatesofcertifiedfederal,state,orlocallawenforcementorpublicsafetyacademies;or(iii)studentswith  atleastninehoursoftransfercreditfromanaccreditedinstitutionwithagradeof“C”orbetterforeachcourse.  APUShasmademultiplechangestotheassessmentprocesssinceitsoriginalimplementationandmayfurther  modifyitinthefutureinordertobetteridentifycollege-readystudents.Eveniftheseinitiativesaresuccessful  inachievingthedesiredresultofidentifyingandenrollingstudentsthatarelikelytosucceedandimproving  studentexperience,duetomanyfactorsthatimpactenrollments,wemaynotbeabletoappropriatelyiden - tifythecauseofanyadverseimpacts,andthereforemaynotbeabletoappropriatelymodifyourinitiatives.  2016 Annual Report 119 Theseinitiativesrequiresignificanttime,energyandresources,andifoureffortsarenotsuccessful,theymay  adverselyimpactourresultsofoperations,cashflows,andfinancialcondition. Tuition and Fees. InApril2015,APUSstoppedprovidinga$50percoursetechnologyfeegranttostudentswho  wereidentifiedasveteransduringtheirapplicationprocess.APUScontinuestoprovideagranttocoverthetech - nologyfeeforstudentsusingDoDtuitionassistanceprograms.InJuly2015,thefollowingtuitionincreasesfor  APUSundergraduateandgraduatecourseregistrationswentintoeffect: • Thetuitionforundergraduatelevelcoursesincreasedby$20percredithourto$270percredithour. • Thetuitionforgraduatelevelcoursesincreasedby$25percredithourto$350percredithour. TosupportAPUS’sactivedutymilitaryandcertainmilitaryaffiliatedstudents,APUScurrentlyprovidesatuition  grantthatkeepsthecostoftuitionforthesestudentsatitspreviouslevel.Asaresult,undergraduatecourse  tuitioncontinuestobe$250percredithour,andgraduatecoursetuitionwillcontinuetobe$325percredithour  forU.S.Militaryactive-dutyservicemembers,Guard,Reserve,militaryspousesanddependents,andveterans.  APUSestimatesthatthetuitiongrantappliedtoapproximately75%ofitstotalnetcourseregistrationsin2016.  TheJuly2015tuitionincreasewasAPUS’sfirstundergraduatetuitionincreasesince2000,andthefirstgraduate  tuitionincreaseinfouryears.BasedoninformationintheCollegeBoard’sTrendsinCollegePricing2015(under - graduate)andtheNationalCenterforEducationStatisticsDigestofEducationalStatistics2014(graduate),we  estimatethat,afterthetuitionincrease,APUS’scombinedtuition,fees,andbooksremainapproximately19%  lessforundergraduatestudentsand38%lessforgraduatestudentsthantheaveragepublishedin-stateratesat  publicuniversities. InMarch2016,APUSeliminateditstransfercreditevaluationfee.FortheyearendedDecember31,2015,APUS  recordedapproximately$0.4millioninrevenuerelatedtothetransfercreditevaluationfee. APUScontinuestoevaluatethepossibilityofrepositioningselectdegreeprogramsbyimplementingdifferenti - atedpricingofitsprograms,primarilytobetteralignthetuitionofcertainprogramswithmarketdemand.We  cannotpredictwhetherandwhenwewouldimplementthischangeorhowtheimplementationoftuitionpricing  byprogramwouldimpactournetcourseregistrations,resultsofoperations,andfinancialcondition. Financial Aid Processing Transition. In2015,APUStransitioneditsfinancialaidprocessingtoathird-party  servicer,GlobalFinancialAidServices.ThereweresignificantcostsrelatedtotheimplementationofGlobal  FinancialAidServices’financialaidprocessingservicesandtheremaybesignificantcostsandrisksgoingfor - ward.FormoreinformationregardingtherisksassociatedwithAPUS’sfinancialaidprocessingsystems,please  seethefollowingitemsinthe“RiskFactors”sectionofthisAnnualReport:“Implementingsystemstocomply,”  “TitleIVcompliance,”and“Theuseofthird-partyservices”. Bad Debt Expense. OvertimewehaveexperiencedincreasesinourAPEISegment’sbaddebtexpense;however,  thistrendhasstabilizedandbaddebtexpenseasapercentageofrevenuehasdecreasedfortheyearsended  December31,2015andDecember31,2016,whencomparedtotheprioryears.Wehaveobservedthatsome  studentsenrollorattempttoenrollatAPUSsolelytoobtainfundsfromTitleIVprograms,andsomestudents  whomightnototherwisepursueadegreeorcertificateareattractedtoenrollinAPUS’sprogramsbecauseof  theavailabilityofsuchfunds.Webelievethesestudentsmaybemorelikelythanotherstudentstoceasepursu - ingadegreeorcertificateduetoseveralfactors,suchasbecomingemployed,ornothavingthelevelofcom - mitmentnecessarytosuccessfullycompletetherequiredcoursework.Asdescribedmorefullyabovein“Risk  Factors—RisksRelatedtoOurBusiness,”wehavealsobeenthetargetoffraudulentactivitiesbyoutsideparties  withrespecttostudentenrollmentandTitleIVprograms,andwemaybesusceptibletoanincreasedriskof  suchactivities.Webelievethefactorsdiscussedinthisparagraphweretheprimarydriversoftheincreasedbad  debtexpenseinprioryears.Wearenotabletoestimatethenumberofstudentswhofallintotheseenrollment  120 AmericanPublicEducation,Inc. categories,andourabilitytoestimatetheimpactonourenrollmentsovertimeislimited,asisourabilitytoesti - mateanyadditionalimpactthatthiscouldhaveonourexposuretobaddebtorthenumberofourstudentswho  defaultontheirTitleIVprogramloans.WebelievethatourinitiativesdiscussedinthisAnnualReport,including  bothouradmissionsprocessandthechangeinthedisbursementmethodofTitleIVaidfromasingledisburse - mentmethodtoamultipledisbursementmethodforfirst-timeundergraduatestudentsatAPUS,havecontrib - utedtothestabilizationofourAPEISegment’sbaddebtexpense. Impact of Government Budgetary Pressures. OnAugust2,2011,CongresspassedtheBudgetControlActof  2011whichputintoplaceaseriesofautomaticfederalbudgetcuts,knownassequestration.Thebudgetcuts,  orsequestration,impactedcertainfederalstudentaidprogramseffectivebeginningfiscalyear2013.Whilethe  PellGrantprogramwasspecificallyexemptedfromtheeffectsofsequestrationinfiscalyear2013,andtheFiscal  Year2016OmnibusAppropriationsBillincreasedthemaximumawardto$5,920inthe2017-2018awardyear,the  PellGrantprogramcouldbesubjecttocutsorchangesinthefuture.Whilesequestrationdoesnototherwise  changetheamountortermsorconditionsofDirectLoanProgramloans,includingStaffordLoansandPLUS  Loans,itdidraisetheloanfeepaidbyborrowersforDirectLoanProgramloansdisbursedafterMarch1,2013.  CutstoED’sadministrativebudgetcouldleadtodelaysinstudenteligibilitydeterminations,anddelaysinorigi - nationandprocessingoffederalstudentloans. Aftersequestrationtookeffect,theArmy,AirForce,CoastGuard,andMarineCorpsannouncedthesuspension  oftheirtuitionassistanceprograms.CongresssubsequentlyapprovedlegislationrequiringtheDoDtorestore  itstuitionassistanceprograms.InOctober2013,theDoDtuitionassistanceprogramswereagaintemporarily  suspendedasaresultoftheU.S.governmentpartialshutdown.Eachbranchofthemilitaryrestoreditstuition  assistanceprogram.However,asaresultofcontinueduncertaintyabouttheavailabilityoffunding,severalof  themilitarybranchesannouncedchangestotheirtuitionassistanceprogramsthattookeffectinfederalfiscal  year2014.Forexample,theAirForceisnolongerauthorizingtuitionassistanceforassociatedegreesifthe  servicememberalreadyhasanassociatedegreefromtheCommunityCollegeoftheAirForce,theArmynow  requiresservicememberstocompleteoneyearofserviceaftergraduationfromAdvancedIndividualTrainingin  ordertobeeligiblefortuitionassistanceandhasreducedthetotalbenefitperservicememberby$500peryear,  andtheMarineCorpsnowrequiresMarinestohave24monthsonactivedutypriortobeingeligibletoapplyfor  tuitionassistance.InOctober2015,theCoastGuardrestoredtuitionassistancefundingto$250percredithour,  anincreaseof$62.50percredithourfromthepreviouscapimplementedin2014.AdditionalchangestotheDoD  tuitionassistanceprogramscouldoccurduetoCongressionalactionorDoDpolicyandfundingchanges. OnDecember10,2016,theU.S.Congressenactedacontinuingresolutiontoextendfundingforthefederal  government,includingtheDoD,throughApril28,2017;however,iffundingisnotextendedbeyondthatdatea  governmentshutdowncouldoccurresultinginasuspensionofDoDtuitionassistanceprograms.Agovernment  shutdownorsuspensionofDoDtuitionassistanceprogramscouldhaveamaterialadverseeffectonAPUS’s  operationsandfinancialcondition. U.S. Army Troop Reductions. InJune2015,theU.S.Armyreportedthat,bySeptember30,2017,itplanstoreduce  itstroopcountby40,000anditscivilianemployeecountby17,000.Wecannotpredictthetimingorfullextentof  reductionsinthesizeoftheU.S.Military,butanysuchreductionsmayhaveanadverseimpactonAPUS’senroll - ments,ourresultsofoperations,cashflows,andfinancialcondition. DoD MOU. UnderaDoDfinalrule,eachinstitutionparticipatinginDoDtuitionassistanceprogramsisrequired  tosignaMemorandumofUnderstanding,orMOU,outliningcertaincommitmentsandagreementsbetween  theinstitutionandDoDpriortoacceptingfundsfromDoDtuitionassistanceprograms.In2014,DoDpromul - gatednewregulationsandinstitutionswererequiredtosignanewMOU,whichwerefertoasthe2014MOU,in  ordertocontinuetoparticipateinDoDtuitionassistanceprograms.The2014MOUaddedrequirements,many  2016 Annual Report 121 ofwhicharefocusedonthemannerinwhichinstitutionsinteractwithservicemembers.Formoreinformation  abouttherequirementsimposedbythe2014MOU,see“RegulatoryEnvironment—DepartmentofDefense”and  “RiskFactors—RisksRelatedtoOurBusiness”inthisAnnualReport. Army Enrollment Management Tool. Inadditiontothechallengescausedbylimitsonaccesstomilitaryinstal - lations,inDecember2015,theU.S.Armyimplementedanewenrollmentmanagementtool,referredtoasVIA,  thatmembersoftheArmymustusetoaccessDoDtuitionassistanceprograms.Webelievethatmembersof  theArmycontinuetoexperiencevariousissueswiththenewenrollmentmanagementtool,includingdifficulty  selectingAPUSasaninstitution.Webelievethattheissuesencounteredwiththenewenrollmentmanagement  toolnegativelyimpactedAPUS’senrollmentsandnetcourseregistrationsduring2016,andmaycontinuetohave animpactin2017.Formoreinformationaboutthenewenrollmentmanagementtool,see“RiskFactors—IfAPUS  doesnothavestrongrelationshipswith...”inthisAnnualReport. Regulated Industry. Ourinstitutionsoperateinahighlyregulatedindustry.Formoreinformationontheregula - tionstowhichourinstitutionsaresubject,pleaserefertothe“Business—CompanyOverview”and“Business— RegulatoryEnvironment”sectionofthisAnnualReport.Suchregulationsmayimpactourfinancialresultsina  waythatwecannotpredict,andmayhaveanadverseimpactonourfinancialcondition. OUR KEY FINANCIAL RESULTS METRICS REVENUE Whenreviewingourrevenue,weevaluatethefollowingcomponents:netcourseregistrationsandenrollment,  tuitionrate,nettuitionandotherfees.  Net course registrations and enrollment. Forfinancialreportingandanalysispurposes,APUSmeasuresitsstu - dentpopulationintermsofaggregatecourseenrollments,ornetcourseregistrations.Courseenrollments,or  netcourseregistrations,whichincludeone-creditlabcoursescombinedwiththeirrelatedthree-creditcourses,  representtheaggregatenumberofcoursesinwhichstudentsremainenrolledafterthedatebywhichtheymay  dropthecoursewithoutfinancialpenalty.HCONmeasuresitsstudentpopulationintermsofstudentenroll - ments.Studentenrollmentrepresentsthenumberofstudentsenrolledinoneormorecoursesafterthedateby  whichtheymaydropthecoursewithoutfinancialpenalty. Becausewerecognizerevenueoverthelengthofacourse,netcourseregistrationsandstudentenrollmentsin  afinancialreportingperioddonotcorrelatedirectlywithrevenueforthatperiodbecauserevenuerecognized  fromcoursesisnotnecessarilyrecognizedinthefinancialreportingperiodinwhichthecourseregistrationsor  enrollmentsoccur.Forexample,revenueinaquarterreflectsaportionoftherevenuefromcoursesthatbegan  inapriorquarterandcontinuedintothequarter,allrevenuefromcoursesthatbeganandendedinthequarter,  andaportionoftherevenuefromcoursesthatbeganbutdidnotendinthequarter.  TheaveragenumberofcoursespersemesteratAPUSvariesbypayortype.Forexample,ED’sTitleIVprograms  requireparticipatingstudentstotakemorecoursespersemesterthanstudentsparticipatinginDoDtuition  assistanceprograms.Asaresult,shouldthenumberofAPUS’sstudentswhoutilizeED’sTitleIVprograms  decrease(orthenumberofstudentsusingDoDtuitionassistanceprogramsincrease),weanticipatethatitmay  causetheaveragenumberofcoursesperstudentpersemestertodecrease. Youshouldnotrelyontheresultsofanypriorperiodsasanindicationoffuturenetcourseregistrationsat  APUS,studentenrollmentsatHCON,orconsolidatedrevenue.Thecompositionofourstudents,changingmar - ketdemandsandcompetition,makeforecastingverydifficult,andweareunabletodetermineifwewillreturn  122 AmericanPublicEducation,Inc. togrowthorwhatlevelofgrowthwewillachieve,ifany.Similarly,youshouldnotrelyonouroperatingmargins  inanypriorperiodsasanindicationofourfutureoperatingmargins. Tuition rate. Providingaffordableprogramsisanimportantelementofourstrategyforgrowth.Assuch,we  estimatethatAPUS’stuitionislowerthantheaveragein-stateratesatpublicuniversities.TheJuly2015tuition  increasewasAPUS’sfirstundergraduatetuitionincreasesince2000,andthefirstgraduatetuitionincreasein  fouryears.HCON’stuitionandfeesarealsodesignedtobeaffordableandcompetitivewhencomparedtothe  costsofothernursingprograms. Net tuition. Tuitionrevenuevariesfromperiodtoperiodbasedontheaggregatenumberofstudentsattending  coursesandthenumberofcoursestheyareattendingduringtheperiod,themixofprogramsthatstudentsare  attendingduringtheperiod,aswellasthenumberofstudentsstartingcourseseachmonthduringtheperiod  andthetimingofthestartofacourseeachmonthorterm.Tuitionrevenueisadjustedtoreflectamountsfor  studentswhowithdrawfromacourseinthemonthortermthewithdrawaloccurs.Wealsoprovidescholar - shipstocertainstudentstoassistthemfinanciallywiththeireducationalgoals.Thecostofthesescholarships  isreportedasareductionoftuitionrevenueintheperiodincurredforpurposesofestablishingnettuition  revenue. Other fees. Inadditiontotuition,APUSchargesapercoursetechnologyfee.APUSmayalterthisfeeinthe  future.APUSstudentsarealsochargedcertainadditionalfees,suchasgraduation,lateregistration,transcript  request,andcomprehensiveexaminationfees,whenapplicable.APUSprovidesagranttocoverthetechnol - ogyfeeforcertainstudents,includingstudentsusingDoDtuitionassistanceprograms.Fortheyearended  December31,2016,technologyfeerevenuenetoftechnologyfeegrantswasapproximately$8.0million,or2.6%  ofrevenue.InMarch2016,APUSeliminatedthetransfercreditevaluationfeechargedtostudentslookingto  transfercreditsfromotherinstitutions.Additionally,APUSreceivespurchasecommissionsforgraduatestudent  bookpurchasesandancillarysupplypurchasesthatstudentsmakedirectlyfromourpreferredbookvendor.  HCONstudentsarechargedfeesforvariousitemssuchasapplication,testing,booksandsupplies,lab,technol - ogyandgraduation. COSTSANDEXPENSES Wecategorizeourcostsandexpensesinthefollowingcategories:instructionalcostsandservices,sellingand  promotional,generalandadministrative,lossondisposaloflong-livedassets,lossonassetsheldforsale,  impairmentofgoodwill,anddepreciationandamortization. Instructional costs and services. Instructionalcostsandservicesaredirectlyattributabletotheeducational  servicesourinstitutionsprovidetotheirstudents.Instructionalcostsandservicesinclude:salariesandben - efitsforfull-timefaculty,administrators,andacademicadvisors,andcostsassociatedwithpart-timefaculty.  Instructionalcostsandservicesalsoincludecostsassociatedwithacademicrecordsandgraduation,aswellas  otherservicesprovidedbyourinstitutions,suchasevaluatingtranscripts.  AtAPUS,instructionalcostsandservicesincludesexpensesrelatedtocoursematerials,learningresources,  thelibrary,theundergraduatebookgrantprogramandinstructionalpayforpart-timefacultythatisprimarily  dependentonthenumberofstudentstaught.AtHCON,instructionalcostsandservicesalsoincludesoperating  expensesdirectlyassociatedwithHCON’scampusoperations,includingrent. Selling and promotional. Sellingandpromotionalincludes:salariesandbenefitsofpersonnelengagedin  studentenrollment,advertisingcosts,andmarketingmaterialproductioncosts.Oursellingandpromotional  expensesaregenerallyaffectedbythecostofadvertisingmedia,theefficiencyofoursellingefforts,salaries  andbenefitsforoursellingandadmissionspersonnel,andthelevelofexpendituresforadvertisinginitiatives  2016 Annual Report 123 fornewandexistingacademicprograms.WebelievetheavailabilityofTitleIVprogramfundstostudentshas  increasedourmarketabilityinnon-militarymarkets,butthenatureofthesemarkets,includingtheimpactof  competition,andtherisingcostofInternetsearchandotheradvertisingmediahascausedourstudentacquisi - tioncoststoincrease.Thistrendmaycontinueandourstudentacquisitioncostsmayincrease. General and administrative. Generalandadministrativeincludes:salariesandbenefitsofemployeesengaged  incorporatemanagement,finance,financialaidprocessing,informationtechnology,humanresources,facilities,  complianceandothercorporatefunctions,thecostofrentingandmaintainingAPUS’sadministrativefacilities,  technologyexpenses,andcostsforprofessionalservices.Generalandadministrativealsoincludesbaddebt  expense. Loss on disposal of long-lived assets. Lossondisposaloflong-livedassetsisthedifferencebetweenthelong- livedasset’sresidualvalueanditsbookvalueatthetimeoftheasset’sdispositionorabandonment. Loss on assets held for sale. Lossonassetsheldforsaleisthedifferencebetweentheasset’sestimatedfair  valuelessestimatedcoststosellandtheasset’sbookvalueatthetimetheassetisnolongerusedforopera - tionsandclassifiedasheldforsaleinaccordancewiththeheld-for-salecriteria. Impairment of goodwill. Impairmentofgoodwillrecognizesthedifferencebetweenthecarryingvalueofgood - willandtheimpliedfairvalueofgoodwillbaseduponahypotheticalsaleatfairvalue. Depreciation and amortization. Weincurdepreciationandamortizationexpensesforcostsrelatedtothe  capitalizationofproperty,equipment,software,andprogramdevelopmentonastraight-linebasisoverthe  estimatedusefullivesoftheassets.Inaddition,weincuramortizationexpensefortheamortizationofidentified  intangibleassetswithadefiniteliferesultingfromouracquisitionofHCON. INTEREST INCOME, NET Interestincome,netconsistsprimarilyofinterestincomeearnedonnotesreceivableandoncashandcash  equivalents,netofanyinterestexpense. EQUITYINVESTMENTINCOMEANDLOSS Equityinvestmentincomeandlossconsistsprimarilyofourproportionalshareofafter-taxearningsorlosses  attributabletoourinvestmentsincertaincompanies.Weusetheequitymethodofaccountingforaninvest - mentinacompanyinwhichourownershipis20%orgreaterbutlessthanorequalto50%,orwhenwehavethe  abilitytoexercisesignificantinfluenceoveroperatingandfinancialpoliciesoftheinvestment.Werefertothese  companiesasinvestees. Undertheequitymethod,ourinvestmentsinandamountsduetoandfromaninvesteeareincludedinthe  ConsolidatedBalanceSheets.Ourshareoftheinvestee’searningsorlossesisincludedintheConsolidated  StatementsofIncomeasequityinvestmentincome(loss).Dividends,cashdistributions,loans,orothercash  receivedfromtheinvesteeaswellasadditionalcashinvestments,loanrepaymentsorothercashpaidtothe  investeeareincludedintheConsolidatedStatementsofCashFlows.Additionally,whencircumstanceswarrant,  thecarryingvalueofinvestmentsaccountedforusingtheequitymethodofaccountingareadjusteddownward  toreflectanyother-than-temporarydeclinesinvalue. CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES ThediscussionofourfinancialconditionandresultsofoperationsisbaseduponourConsolidatedFinancial Statements,whichhavebeenpreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnited States,orGAAP.Duringthepreparationofthesefinancialstatements,wearerequiredtomakeestimatesand 124 AmericanPublicEducation,Inc. assumptionsthataffectthereportedamountsofassets,liabilities,revenue,costsandexpenses,andrelated disclosures.Onanongoingbasis,weevaluateourestimatesandassumptions,includingthoserelatedtorevenue recognition,accountsreceivableandallowancefordoubtfulaccounts,valuationoflong-livedassets,contingencies, incometaxes,andstock-basedcompensationexpense.Webaseourestimatesonhistoricalexperienceandonvar- iousotherassumptionsthatwebelievearereasonableunderthecircumstances.Theresultsofouranalysisform thebasisformakingassumptionsaboutthecarryingvaluesofassetsandliabilitiesthatarenotreadilyapparent fromothersources.Actualresultsmaydifferfromtheseestimatesunderdifferentassumptionsorconditions,and theimpactofsuchdifferencesmaybematerialtoourConsolidatedFinancialStatements. Asummaryofourcriticalaccountingpoliciesfollows: Revenue recognition. Werecordalltuitionasdeferredrevenuewhenastudentbeginsanonlinecourse,inthe  caseofAPUS,orstartsaterm,inthecaseofHCON.Atthebeginningofeachcourseorterm,revenueisrecog - nizedonaproratabasisovertheperiodofthecourseorterm,whichis,forAPUS,eitheraneight-or16-week  periodand,forHCON,aquarterlyterm.ThisresultsindeferredrevenueonourConsolidatedBalanceSheets  thatincludesfuturerevenuethathasnotyetbeenearnedforcoursesandtermsthatareinprogress.Thereve - nuerecognitionpoliciesofeachofourreportablesegmentsarediscussedbelow. AMERICAN PUBLIC UNIVERSITY SYSTEM APUS’stuitionrevenuevariesfromperiodtoperiodbasedonthenumberofnetcourseregistrations.Students  mayremittuitionpaymentsthroughtheonlineregistrationprocessatanytimeortheymayelectvariouspay - mentoptions,includingpaymentsbysponsors,alternativeloans,financialaid,ortheDoDtuitionassistancepro- gramwhichremitspaymentsdirectlytoAPUS.Theseotherpaymentoptionscandelaythereceiptofpayment  upuntilthecoursestartsorlonger,resultingintherecordingofanaccountreceivableatthebeginningofeach  session.TuitionrevenueforsessionsinprogressthathasnotbeenearnedbyAPUSispresentedasdeferred  revenueintheaccompanyingConsolidatedBalanceSheets. APUSrefunds100%oftuitionforcoursesthataredroppedbeforetheconclusionofthefirstsevendaysofacourse. APUSdoesnotrecognizerevenuefordroppedcourses.Afteracoursebegins,APUSusesthefollowingrefundpolicy: 8-Week Course—Tuition Refund Schedule Withdrawal Date BeforeorduringWeek1 DuringWeek2 DuringWeeks3and4 DuringWeeks5through8 16-Week Course—Tuition Refund Schedule Withdrawal Date BeforeorDuringWeek1 DuringWeek2 DuringWeeks3and4 DuringWeeks5through8 DuringWeeks9through16 Studentsaffiliatedwithcertainorganizationsmayhaveanalternaterefundpolicy. Tuition Refund Percentage 100% 75% 50% NoRefund Tuition Refund Percentage 100% 100% 75% 50% NoRefund 2016 Annual Report 125 APUSrecognizesrevenueonaproratabasisovertheperiodofitscoursesasAPUScompletesthetasksentitling  ittothebenefitsrepresentedbysuchrevenue.Ifastudentwithdrawsduringtheacademicterm,APUScalcu - latestheportionoftuitionthatisnon-refundablebasedonthetuitionrefundpolicyandrecognizesitasreve - nueintheperiodthewithdrawaloccurs.Forthosestudentswhohaveanoutstandingreceivablebalanceatthe  dateofwithdrawal,APUSassessescollectabilityandrecognizesasrevenuethoseamountswherecollectability  isreasonablyassuredbasedonAPUS’shistorywithsimilarstudentaccounts.Thispolicywasimplementedon  January1,2015.Previously,APUSrecognizedrevenueforallstudentwithdrawalsandestablishedanallowance  forthosereceivablesconsidereduncollectible.Wedonotbelievethatthischangeinpolicyhashadamaterial  effectonitsresultsofoperationsorfinancialcondition. Otherrevenueincludesatechnologyfeechargedpercourseandatransfercreditevaluationfee.APUSprovides  agranttocoverthetechnologyfeeforstudentsusingDoDtuitionassistanceprograms.PriortoApril2015,APUS  providedagranttocoverthetechnologyfeeforstudentsusingeducationbenefitprogramsadministeredbythe  U.S.DepartmentofVeteransAffairs,orVA.AfterApril1,2015,thetechnologyfeegrantwasnolongerprovided  tostudentsusingVAeducationbenefits.APUSeliminatedthetransfercreditevaluationfeeinMarch2016.The  transfercreditevaluationfeewasforsecuringofficialtranscriptsonbehalfofthestudentandevaluatingthe  transcriptsfortransfercredit. Studentsalsoarechargedgraduation,lateregistration,transcriptrequestandcomprehensiveexamination  fees,whenapplicable.InaccordancewithASC605-50,Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,otherfeesalsoincludebookpurchasecommissionsAPUSreceivesfor  graduatestudentbookpurchasesandancillarysupplypurchasesstudentsmakedirectlyfromAPUS’spreferred  bookvendor. HONDROS COLLEGE OF NURSING HCON’stuitionrevenuevariesfromperiodtoperiodbasedonthenumberofstudentsenrolledandthepro - gramstheyareenrolledin.Studentsmayremittuitionpaymentsatanytime,ortheymayelectvariouspay - mentoptionsthatcandelayreceiptofpaymentupuntilthetermstartsorlonger.Theseotherpaymentoptions  includepaymentsbysponsors,financialaid,alternativeloans,orpaymentplanoptions.Ifoneofthevarious  otherpaymentoptionsareconfirmedassecured,thestudentisallowedtostarttheterm.Allfinancialaidis  awardedpriortothestartofthetermandrequestsforauthorizationofdisbursementbegininthefirstweek  oftheterm.TuitionrevenuefortheterminprogressthathasnotyetbeenearnedbyHCONispresentedas  deferredrevenueintheaccompanyingConsolidatedBalanceSheets. HCON’srefundpolicycomplieswiththerulesoftheOhioStateBoardofCareerCollegesandSchoolsandis  applicabletoeachterm.Foracoursewithanon-campusorotherin-personcomponent,thedateofwithdrawal  isdeterminedbyastudent’slastattendeddayofclinicaloffering,laboratorysession,orlecture.Foranonline  course,thedateofwithdrawalisdeterminedbyastudent’slastsubmittedassignmentinthecourse.HCONuses  thefollowingrefundpolicy: Withdrawal Date Beforefirstfullcalendarweekofthequarter Duringfirstfullcalendarweekofthequarter Duringsecondfullcalendarweekofthequarter Duringthirdfullcalendarweekofthequarter Duringfourthfullweekofthequarter Tuition Refund Percentage 100% 75% 50% 25% NoRefund Studentsaffiliatedwithcertainorganizationsmayhaveanalternaterefundpolicy. 126 AmericanPublicEducation,Inc. HCONrecognizesrevenueonaproratabasisovertheacademicterm.Ifastudentwithdrawalsduringtheterm,  HCONcalculatestheportionoftuitionthatisnon-refundablebasedonthetuitionrefundpolicyandrecognizes  itasrevenueintheperiodthewithdrawaloccurs. Otherrevenueincludesapplicationfeesandfeesfortesting,booksandsupplies,lab,technology,andgraduation. Accounts receivable. Coursetuitionisrecordedasaccountsreceivableanddeferredrevenueatthetimestu - dentsbeginacourseorterm.Studentsmayremittuitionpaymentsatanytimeortheymayelectvariousother  paymentoptionswithpaymenttermsextendingbeyondthestartofthecourseorterm.Theseotherpay - mentoptionsincludepaymentsbysponsors,financialaid,alternativeloans,oratuitionassistanceprogram  thatremitspaymentsdirectlytothesubsidiary.Whenastudentremitspaymentafteracourseortermhas  begun,accountsreceivableisreduced.Ifpaymentismadepriortothestartofacourseorterm,thepaymentis  recordedasastudentdeposit,andthestudentisprovidedaccesstotheonlineclassroomwhencoursesstart,in  thecaseofAPUS,orallowedtostarttheterm,inthecaseofHCON.Ifoneofthevariousotherpaymentoptions  areconfirmedassecured,thestudentisprovidedaccesstotheonlineclassroomorallowedtostarttheterm.  Generally,ifnoreceiptisconfirmedorpaymentoptionsecured,thestudentwillbedroppedfromtheonline  courseornotallowedtostarttheterm.Therefore,billedamountsrepresentchargesthathavebeenprepared  andsenttostudentsortheapplicablethird-partypayoraccordingtothetermsagreeduponinadvance. DoDtuitionassistanceprogramsarebilledbybranchofserviceonacourse-by-coursebasiswhenastudent  startsacourse,whereasTitleIVprogramsarebilledbasedonthecoursesincludedinastudent’ssemester.  Billedaccountsreceivableareconsideredpastdueiftheinvoicehasbeenoutstandingformorethan30days. Theallowancefordoubtfulaccountsisbasedonmanagement’sevaluationofthestatusofexistingaccounts  receivable.Amongotherfactors,managementconsiderstheageofthereceivable,theanticipatedsourceof  paymentandthehistoricalallowanceconsiderations.Considerationisalsogiventoanyspecificknownriskareas  amongtheexistingaccountsreceivablebalances.Recoveriesofreceivablespreviouslywrittenoffarerecorded  whenreceived.Wedonotchargeinterestonpastdueaccountsreceivable. Property and equipment. Allpropertyandequipmentarecarriedatcostlessaccumulateddepreciationand  amortization,excepttheacquiredassetsofHCON,whichwererecordedatfairvalueattheacquisitiondate.  Depreciationandamortizationarecalculatedonastraight-linebasisovertheestimatedusefullivesofthe  assets.Fortaxpurposes,differentmethodsareused.Maintenanceandrepairsareexpensedasincurred,while  othercostsarecapitalizediftheyextendtheusefullifeoftheasset. OurPartnershipAtaDistanceTM,orPADsystem,isacustomizedstudentinformationandservicessystemused  byAPUStomanageadmissions,onlineorientation,courseregistrations,tuitionpayments,gradereporting,  progresstowarddegrees,andvariousotherfunctions.Costsassociatedwiththesystemhavebeencapital - izedinaccordancewithFASBASCSubtopic350-40,Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,andclassifiedaspropertyandequipment.Thesecostsareamortizedovertheesti - matedusefullifeoffiveyears.Wealsocapitalizecertaincostsforacademicprogramdevelopment.Thesecosts  aretransferredtopropertyandequipmentuponcompletionofeachprogramandamortizedoveranestimated  lifenottoexceedthreeyears. Investments. Weaccountforourinvestmentsinlessthanmajorityownedcompaniesundereithertheequity  orcostmethod.Weapplytheequitymethodtoinvestmentswhenwehavetheabilitytoexercisesignificant  influence,butdonotcontroltheoperatingandfinancialpoliciesofthecompany.Investmentsaccounted  forundertheequitymethodareinitiallyrecordedatcost.Ourpro-ratashareoftheoperatingresultsofthe  investeeisreportedintheConsolidatedStatementsofIncomeas“Equityinvestmentincome/(loss).”We  evaluatetherecoverabilityofequitymethodinvestmentsonanannualbasisorsoonerifthereareindicators  2016 Annual Report 127 ofimpairment.Managementmustexercisesignificantjudgmentinevaluatingthepotentialimpairmentofits  equityinvestments.Weapplythecostmethodtoinvestmentswhenwedonothavetheabilitytoexercisesig - nificantinfluenceovertheoperatingandfinancialpoliciesoftheinvestment.Underthecostmethod,werecord  theinvestmentatcostandrecognizeasincomeanydividendsreceivedfromtheinvestment.Weevaluatethe  costmethodinvestmentsforimpairmentonanannualbasisorsoonerifthereareindicatorsofimpairment.  Ourinvestmentsarepresentedonaone-linebasisas“Investments”intheaccompanyingConsolidatedBalance  Sheets.AdditionalinformationregardingourinvestmentsislocatedinNote6.Investments,initsConsolidated  FinancialStatements. Notes receivable. Weevaluatenotesreceivablebyanalyzingtheborrower’screditworthiness,cashflowsand  financialstatus,andtheconditionandestimatedvalueofthecollateral.Weconsideranotetobeimpaired  when,baseduponcurrentinformationandevents,webelieveitisprobablethatwewillbeunabletocollectall  amountsdueaccordingtothetermsofthenote.Notesreceivableareincludedin“Otherassets”intheaccompa - nyingConsolidatedBalanceSheets. Income taxes. Deferredtaxesaredeterminedusingtheliabilitymethod,wherebydeferredtaxassetsarerec - ognizedfordeductibletemporarydifferencesanddeferredtaxliabilitiesarerecognizedfortaxabletemporary  differences.Temporarydifferencesarethedifferencesbetweenthereportedamountsofassetsandliabilities  andtheirtaxbasis.Asthesedifferencesreverse,theywillenterintothedeterminationoffuturetaxableincome.  Deferredtaxassetsarereducedbyavaluationallowancewhen,intheopinionofmanagement,itismorelikely  thannotthatsomeportionorallofthedeferredtaxassetswillnotberealized.Deferredtaxassetsandliabili - tiesareadjustedfortheeffectsofchangesintaxlawsandratesonthedateofenactmentofsuchchanges. TherewerenomaterialuncertaintaxpositionsasofDecember31,2014,2015or2016.Interestandpenal - tiesassociatedwithuncertainincometaxpositionswouldbeclassifiedasincometaxexpense.Wehavenot  recordedanymaterialinterestorpenaltiesduringanyoftheyearspresented. Stock-based compensation. Weaccountforstock-basedcompensationinaccordancewithASC718,Stock Compensation,whichrequirescompaniestoexpenseshare-basedcompensationbasedonfairvalue.Stock-based paymentsmayinclude:incentivestockoptionsornon-qualifiedstockoptions,stockappreciationrights,restricted stock,restrictedstockunits,dividendequivalentrights,performanceshares,performanceunits,cash-basedawards, otherstock-basedawards,includingunrestrictedshares,oranycombinationoftheforegoing.Atthepresenttime, thecompanyutilizesrestrictedstockgrantsandhasnotissuedanystockoptionssince2011. Stock-basedcompensationexpenserelatedtorestrictedstockgrantsisrecognizedoverthevestingperiod  usingthestraight-linemethodforouremployeesandthegraded-vestingmethodformembersoftheBoardof  Directors,andismeasuredusingourstockpriceonthedateofthegrant.Thefairvalueofeachoptionaward  isestimatedatthedateofgrantusingaBlack-Scholesoption-pricingmodelthatusescertainassumptions,  whichhavebeennotedin“Note11.Stockholders’Equity,NotestotheConsolidatedFinancialStatements”in  thisAnnualReport.Wemakeassumptionswithrespecttoexpectedstockpricevolatilitybasedontheaverage  historicalvolatilityofthestockpricesofpeerswithsimilarattributes.Inaddition,wedeterminetheriskfree  interestratebyselectingtheU.S.Treasuryfive-yearconstantmaturity,quotedonaninvestmentbasisineffect  atthetimeofgrantforthatbusinessday.Weestimateforfeituresofstock-basedawardsatthetimeofgrantand  revisesuchestimatesinsubsequentperiodsifactualforfeituresdifferfromtheoriginalestimates.Estimates  offairvaluearesubjectiveandarenotintendedtopredictactualfutureevents,andsubsequenteventsarenot  indicativeofthereasonablenessoftheoriginalestimatesoffairvaluemadeunderFASBASCTopic718. Goodwill and indefinite-lived intangible assets. Goodwillrepresentstheexcessofthepurchasepriceofan  acquiredbusinessovertheamountassignedtotheassetsacquiredandliabilitiesassumed.Goodwillisnot  128 AmericanPublicEducation,Inc. amortized.InaccordancewithASC350,IntangiblesGoodwillandOther,weassessgoodwillforimpairment  annuallyonoraroundtheanniversarydate,ormorefrequentlyifeventsandcircumstancesindicatethatgood - willmightbeimpaired.InconnectionwithourNovember1,2013acquisitionofHCON,werecorded$38.6million  ofgoodwill,representingtheexcessofthepurchasepriceovertheamountassignedtothenewassetsacquired  andthefairvalueassignedtoidentifiedintangibleassets.Wealsorecorded$3.7millionofindefinite-livedtangi - bleassetsaspartoftheHCONacquisition. Goodwillimpairmenttestingconsistsofanoptionalqualitativeassessmentaswellasatwo-stepquantitative  test.Steponeinvolvescomparingthefairvalueofthereportingentitytoitscarryingvalue.Ifthecarryingvalue  ofthereportingentityisgreaterthanzeroanditsfairvalueisgreaterthanitscarryingamount,thereisno  impairment.Ifthecarryingvalueisgreaterthanthefairvaluethensteptwomustbecompletedtomeasurethe  amountofimpairment,ifany.Steptwoinvolvescalculatingtheimpliedfairvalueofgoodwillbydeductingthe  fairvalueofalltangibleandintangibleassets,excludinggoodwill,ofthereportingunitfromthefairvalueofthe  reportingunitasdeterminedinstepone.Theimpliedfairvalueofgoodwilldeterminedinthisstepiscompared  tothecarryingvalueofgoodwill.Iftheimpliedfairvalueofgoodwillislessthanthecarryingvalueofgoodwill,  animpairmentlossisrecognizedequaltothedifference. Inconnectionwiththepreparationofthethirdquarterfinancialstatements,theCompanycompletedaquali - tativeassessmenttodetermineifaninterimgoodwillimpairmenttestwasnecessary.Duetorelevantcircum - stancesthatincluded,butwerenotlimitedto:(1)HCON’sunderperformanceagainstinternaltargets;(2)the  challenginghighereducationcompetitiveandregulatoryenvironment,particularlyforproprietaryinstitutions;  (3)overallfinancialperformance;and(4)theuncertainstatusofACICS,theCompanyconcludeditwasmore  likelythannotthefairvalueofHCONwaslessthanitscarryingamount;therefore,theCompanyproceededwith  steponeofthegoodwillimpairmenttest.SteponeofthegoodwillimpairmenttestidentifiedthatHCON’sfair  valuewaslessthanthecarryingvalue.Accordingly,steptwotestingwascompletedinordertodeterminethe  amountoftheimpairment.Insteptwo,thefairvalueofallassetsandliabilitieswasestimatedforthepurpose  ofderivinganestimateoftheimpliedfairvalueofgoodwill.Theimpliedfairvalueofgoodwillwasthencom - paredtotherecordedgoodwilltodeterminetheamountofimpairment.Steptwotestingindicatedthatthefair  valueofgoodwillwas$33.9millionor$4.7millionlessthanitscarryingvalue.Asaresult,theCompanyrecorded  a$4.7millionimpairmentchargetoreducethecarryingvalueofitsgoodwill. TheCompanyutilizedanindependentvaluationfirmtodeterminethefairvalueofHCON.Theindependent  valuationfirmweightedtheresultsoffourdifferentvaluationmethods:(1)discountedcashflow;(2)guideline  companymethod;(3)guidelinetransactionmethod—comparabletransactions;and(4)guidelinetransaction  method—privateequitytransactions.Undertheincomeapproach,fairvaluewasdeterminedbasedonesti - mateddiscountedfuturecashflowsofHCON.Thecashflowswerediscountedbyanestimatedriskweighted-av - eragecostofcapital,whichwasintendedtoreflecttheoveralllevelofinherentriskofHCON.Underthemarket  approach,valuationmultiplesfromothertransactionsinthehighereducationmarketwereusedtodetermine  thevalueofHCON.ValuesderivedunderthefourvaluationmethodswerethenweightedtoestimateHCON’s  enterprisevalue. Inaccordancewithcompanypolicy,steponeimpairmenttestingwascompletedasofOctober31,2016.That  testingindicatedthatfairvalueexceededcarryingvaluebyapproximately$1.1million.Determiningthefair  valueofHCONisjudgmentalinnatureandrequirestheuseofsignificantestimatesandassumptions,including  revenuegrowthrates,operatingmargins,discountratesandfuturemarketconditions,amongothers.Giventhe  currentcompetitiveandregulatoryenvironment,andtheuncertaintiesregardingtherelatedimpactonHCON’s  business,therecanbenoassurancethattheestimatesandassumptionsmadeforpurposesoftheCompany’s  goodwillimpairmenttestingwillprovetobeaccuratepredictionsofthefuture.IftheCompany’sassumptions  arenotachieved,theCompanymayrecordadditionalgoodwillimpairmentchargesinfutureperiods.Itisnot  2016 Annual Report 129 possibleatthistimetodetermineifanysuchfutureimpairmentchargewouldresultor,ifitdoes,whethersuch  chargewouldbematerial. Indefinite-livedintangibleassetsaretestedatleastannuallyforimpairmentbycomparingthefairvalueofthe  assettothecarryingvalue.APEIutilizestheservicesofathird-partyvaluationfirmtoestimatefairvalue.In  completingtheiranalysis,thevaluationfirmcompletesadiscountedcashflowanalysis.Thediscountedcash  flowanalysisincludessignificantmanagementassumptionssuchasrevenuegrowthrates,operatingmargins  andfutureeconomicandmarketconditions.Additionally,thevaluationfirm’sanalysisincludessignificant  assumptionswithrespecttodiscountratesandassumedroyaltyrates.Ifthefairvalueislessthanthecarrying  value,theassetisreducedtofairvalue.Theannualtestingconcludedthattheindefinite-livedassetswerenot  impaired. Foradditionaldetailsregardinggoodwillandindefinite-livedintangibleassets,refertoNote7.Goodwilland  IntangibleAssets,intheseConsolidatedFinancialStatements. Valuation of long-lived assets. Weaccountforthevaluationoflong-livedassetsunderASC360,Accounting for the Impairment or Disposal of Long-Lived Assets.ASC360requiresthatlong-livedassetsandcertainidentifiable  intangibleassetsbereviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthe  carryingamountofanassetmaynotberecoverable.Recoverabilityofthelong-livedassetismeasuredbya  comparisonofthecarryingamountoftheassettofutureundiscountednetcashflowsexpectedtobegenerated  bytheasset.Ifsuchassetsareconsideredtobeimpaired,theimpairmenttoberecognizedismeasuredbythe  amountbywhichthecarryingamountoftheassetsexceedstheestimatedfairvalueoftheassets.Assetstobe  disposedofarereportableatthelowerofthecarryingamountorfairvalue,lesscoststosell. RECENT ACCOUNTING PRONOUNCEMENTS WeconsidertheapplicabilityandimpactofallAccountingStandardsUpdates,orASUs.SeeNote2toour  ConsolidatedFinancialStatementsforinformationrelatingtoourdiscussionoftheeffectsofrecentaccounting  pronouncements.InadditiontotheASUsthatarediscussedinourConsolidatedFinancialStatements,wehave  summarizedadditionalASUsbelow,includingthoseforwhichweareuncertainofthepotentialimpact. InMay2014,theFinancialAccountingStandardsBoard,orFASB,issuedASUNo.2014-09,Revenuefrom  ContractswithCustomers(Topic606).Thestandardisacomprehensivemodeltouseinaccountingforrevenue  arisingfromcontractswithcustomersandsupersedestherevenuerecognitionrequirementsintheAccounting  StandardsCodification,orASC,605,RevenueRecognition,aswellasothervarioussectionsoftheASC.Thecore  principleofASU2014-09istorecognizerevenuewhenpromisedgoodsorservicesaretransferredtocustomers  inanamountthatreflectstheconsiderationtowhichanentityexpectstobeentitledforthosegoodsorser - vices.Theauthoritativeguidanceprovidesafive-stepanalysisoftransactionstodeterminewhenandhowrev - enueisrecognized.Morejudgmentandestimatesmayberequiredwithintherevenuerecognitionprocessthan  arerequiredunderexistingU.S.GAAP.Thestandardalsoincludesacohesivesetofdisclosurerequirements  includingcomprehensiveinformationaboutthenature,amount,timinganduncertaintyofrevenueandcash  flowsarisingfromcontractswithcustomers.ASU2014-09wasinitiallyintendedtobeeffectiveforfiscalyears,  andtheinterimperiodswithinthesefiscalyears,beginningonorafterDecember15,2016.InAugust2015,the  FASBissuedASU2015-14,RevenuefromContractswithCustomers(Topic606):DeferraloftheEffectiveDate.  ThisstandarddefersforoneyeartheeffectivedateofASU2014-09.Thedeferralwillresultinthisstandard  beingeffectiveforfiscalyears,andinterimperiodswithinthosefiscalyears,beginningafterDecember15,2017.  EarlierapplicationispermittedonlyasofannualreportingperiodsbeginningafterDecember15,2016,including  interimreportingperiodswithinthatreportingperiod.Entitiesmustuseeitherafullretrospectiveapproachfor  allperiodspresentedintheperiodofadoptionoramodifiedretrospectiveapproach. 130 AmericanPublicEducation,Inc. InadditiontoASU2015-14,therehavebeenthreenewASUsissuedamendingcertainaspectsofASU2014-09. • ASUNo.2016-08,Principal versus Agent Considerations (Reporting Revenue Gross Versus Net),issuedinMarch 2016,clarifiescertainaspectsoftheprincipalversusagentguidance. • ASUNo.2016-10,Identifying Performance Obligations and Licensing,issuedinApril2016,clarifiesguidance  relatedtoidentifyingperformanceobligationsandlicensingimplementation. • ASUNo.2016-12,Revenue from Contracts with Customers—Narrow Scope Improvements and Practical Expedients, issuedinMay2016,providesamendmentsandpracticalexpedientsintheareasofassessingcollectability,  presentationofsalestaxesreceivedfromcustomers,noncashconsideration,contractmodificationandclarifi - cationofusingthefullretrospectiveapproachtoadoptASU2014-09. ASU2014-09requiresidentifyingperformanceobligationsbytheCompanyandtheCustomer.Asaresult,the  revenuerecognitionperiodmaybeextendedincertainlimitedinstancesforAPUStuitionandtechnologyfee  revenue.APUSgraduationfeerevenue,includedintheCompany’sotherrevenue,iscurrentlyrecognizedatthe  timetheapplicationforgraduationissubmittedbythestudent.Thenewstandardmayextendtherevenuerec - ognitionperiodforthisrevenuestream.TheCompanyiscurrentlyevaluatingtheimpactofthenewstandardon  otherAPUSandHCONrevenuestreams. TheCompanyiscurrentlyevaluatingwhichtransitionapproachtouseandadditionalimpactsthenewrevenue  recognitionstandardandsubsequentupdateswillhaveonitsConsolidatedFinancialStatements. InJanuary2016,theFASBissuedASUNo.2016-01,Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.Thestandardaddressescertainaspectsofrecogni - tion,measurement,presentation,anddisclosureoffinancialinstruments.Thesechangeswillrequireanentity  tomeasure,atfairvalue,investmentsinequitysecuritiesandotherownershipinterestsinanentityandto  recognizethechangesinfairvaluewithinnetincome.ASU2016-01iseffectiveforfiscalyears,andinterimperi - odswithinthoseyears,beginningafterDecember15,2017,andearlyadoptionisnotpermitted.TheCompany  iscurrentlyassessingtheimpactoftheadoptionofthisstandardanddoesnotcurrentlyanticipateitwillhavea  materialimpactonitsConsolidatedFinancialStatements. InFebruary2016,theFASBissuedASUNo.2016-02, Leases (Topic 842) .Thisstandardrequiresentitiesthatlease  assetstorecognizeonthebalancesheettheassetsandliabilitiesfortherightsandobligationscreatedbythose  leasesinadditiontodisclosingcertainkeyinformationaboutleasingarrangements.Entitiesmayelectnotto  recognizeleaseassetsandliabilitiesformostleaseswithtermsof12monthsorless.Expensesrelatedtofinance  leaseswillbethesumofinterestontheleaseobligationandamortizationoftheright-of-useassetandexpenses  relatedtooperatingleaseswillgenerallyberecognizedonastraight-linebasis.Intransition,lesseesandlessors  arerequiredtorecognizeandmeasureleasesatthebeginningoftheearliestperiodpresentedusingamodified  retrospectiveapproach.Thisstandardiseffectiveforfiscalyears,andtheinterimperiodswithinthosefiscal  years,beginningafterDecember15,2018.Earlyadoptionispermitted.TheCompanydoesnotplantoearly  adoptandiscurrentlyevaluatingtheimpactthisstandardwillhaveonitsConsolidatedFinancialStatements. InMarch2016,theFASBissuedASUNo.2016-09,Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,changinghowentitiesaccountforcertainaspectsofshare-based  paymentstoemployees.Thenewguidancerequiresexcesstaxbenefitsandtaxdeficienciestoberecognizedas  incometaxexpenseorbenefitintheincomestatement,andcouldintroducevolatilitytotheCompany’sprovi - sionforincometaxes.Excesstaxbenefitsmustbepresentedasanoperatingactivityonthestatementofcash  flowsratherthanafinancingactivity.ASU2016-09requirescompaniestomakeanaccountingpolicyelectionat  thetimeofadoptiontoeitherestimatethenumberofawardsthatareexpectedtovest(consistentwithexisting  U.S.GAAP)oraccountforforfeitureswhentheyoccur.Theforfeitureelectionprovisionmustbeappliedusinga  2016 Annual Report 131 retrospectivetransitionapproach,withacumulative-effectadjustmentrecordedtoretainedearningsasofthe  beginningoftheperiodofadoption.ThenewguidanceiseffectiveforfiscalyearsbeginningafterDecember15,  2016,includinginterimperiodswithinthosefiscalyears.TheCompanyelectedtheforfeitureoptiontocontinue  toestimatethenumberofawardsthatareexpectedtovest.TheCompanyestimatestheadoptionof2016-09  mayincreaseitsreportedincometaxexpensebetween$400,000and$700,000inthefirstquarterof2017,and  between$600,000and$900,000inthefirstquarterof2018,duetoexpiringstockoptionswithanoptionprice  greaterthanthecurrentstockprice.Otherincreasesinincometaxexpensemayoccurthroughouttheyearfor  thevestingofrestrictedstock,determinedbythestockpriceattheendofeachreportingperiod. InJune2016,theFASBissuedASUNo.2016-13,Financial Instruments—Credit Losses, which is included in ASC Topic 326, Measurement of Credit Losses on Financial Instruments.Thenewguidancerevisestheaccountingrequire - mentsrelatedtothemeasurementofcreditlossesandwillrequireentitiestomeasureallexpectedcreditlosses  forfinancialassetsbasedonhistoricalexperience,currentconditionsandreasonableandsupportableforecasts  aboutcollectability.Assetsmustbepresentedinthefinancialstatementsatthenetamountexpectedtobe  collected.TheguidancewillbeeffectiveforthefiscalyearsbeginningafterDecember15,2019,includinginterim  periodswithinthosefiscalyears.EarlyadoptionispermittedwithfiscalyearsbeginningafterDecember15,  2018.TheCompanyisevaluatingtheimpactthisstandardwillhaveonitsConsolidatedFinancialStatements. InAugust2016,theFASBissuedASUNo.2016-15,Classification of Certain Cash Receipts and Cash Payments, which isincludedinFASBASCTopic230,StatementofCashFlows.Thenewguidanceclarifieshowcompaniespresent  andclassifycertaincashreceiptsandcashpaymentsinthestatementofcashflows,includingcontingentcon - siderationpaymentsmadeafterabusinesscombinationanddistributionsreceivedfromequitymethodinvest - ees.TheguidanceiseffectiveforfiscalyearsbeginningafterDecember15,2017,includinginterimperiodswithin  thosefiscalyears,withearlyadoptionpermitted.TheCompanydoesnotplantoearlyadoptandiscurrently  evaluatingtheimpactthisstandardwillhaveonitsConsolidatedFinancialStatements. InOctober2016,theFASBissuedASUNo.2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,requiringentitiestorecognizetheincometaxconsequencesofanintra-entitytransferofan  assetotherthaninventorywhenthetransferoccurs.Thenewguidanceiseffectiveforfiscalyearsbeginning  afterDecember15,2017,includinginterimperiodswithinthosefiscalyears.Earlyadoptionispermittedifinthe  firstinterimperiodanentityissuesinterimfinancialstatements.ASU2016-16mustbeappliedonamodifiedret - rospectivebasisthroughacumulative-effectadjustmentdirectlytoretainedearningsasofthebeginningofthe  periodofadoption.TheCompanyiscurrentlyevaluatingtheimpactthisstandardwillhaveonitsConsolidated  FinancialStatements. InJanuary2017,theFASBissuedASUNo.2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business,providingaframeworkforentitiestousewhendeterminingwhetherasetofassetsandactivities  constitutesabusiness.TheguidanceiseffectiveforfiscalyearsbeginningafterDecember15,2017,including  interimperiodswithinthosefiscalyears,andshouldbeappliedprospectively.Earlyadoptionispermitted.The  CompanyiscurrentlyevaluatingtheimpactthisstandardwillhaveonitsConsolidatedFinancialStatements. InJanuary2017,theFASBissuedASUNo.2017-04,Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,whicheliminatessteptwofromthegoodwillimpairmenttest.Instead,ifthecarryingamount ofareportingunitexceedsitsfairvalue,animpairmentlossshouldberecognizedinanamountequaltothe excess,butlimitedtothetotalamountofgoodwillallocatedtothereportingunit.Theguidancemustbeapplied onaprospectivebasisanddisclosureofthenatureofandreasonforthechangeinaccountingprincipleisrequired upontransition.ASU2017-04iseffectiveforfiscalyearsbeginningafterDecember15,2019.Earlyadoptionis permittedforinterimorannualgoodwillimpairmenttestsperformedontestingdatesafterJanuary1,2017.The CompanyiscurrentlyevaluatingtheimpactthisstandardwillhaveonitsConsolidatedFinancialStatements. 132 AmericanPublicEducation,Inc. RESULTS OF OPERATIONS Thefollowingtablesetsforthstatementsofoperationsdataasapercentageofrevenueforeachoftheyearsended: Revenue Costsandexpenses: Instructionalcostsandservices Sellingandpromotional Generalandadministrative Lossondisposalsoflong-livedassets Lossonassetsheldforsale Impairmentofgoodwill Depreciationandamortization Totalcostsandexpenses Incomefromoperationsbeforeinterestincomeandincometaxes Interestincome,net Incomefromoperationsbeforeincometaxes Incometaxexpense Equityinvestmentloss/(gain),netoftaxes Netincome 2014 100.0% 2015 100.0% 2016 100.0% 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% 22.3% 0.2% —% —% 6.3% 84.0% 16.0% —% 16.0% 6.1% —% 9.9% 37.4% 18.9% 21.9% 1.6% 0.3% 1.5% 6.2% 87.8% 12.2% 0.1% 12.3% 4.8% 0.2% 7.7% 2016 Annual Report 133 YEAR ENDED DECEMBER 31, 2016 COMPARED TO YEAR ENDED DECEMBER 31, 2015 REVENUE OurconsolidatedrevenuefortheyearendedDecember31,2016was$313.1million,adecreaseof$14.8million  or4.5%,comparedto$327.9millionfortheyearendedDecember31,2015. ThedecreaseinrevenuewasaresultofadecreaseinnetcourseregistrationsatAPUSandadecreaseinenroll - mentsatHCON.APUSnetcourseregistrations,whichincludeone-creditlabcoursescombinedwiththeir  relatedthree-creditcourse,decreasedtoapproximately345,000intheyearendedDecember31,2016from  approximately375,000intheyearendedDecember31,2015,adecreaseofapproximately8.0%.Webelievethat  thedecreaseinAPUS’snetcourseregistrationsfortheyearendedDecember31,2016isattributable,inpart,  toincreasedcompetition,changesinourmarketingapproach,ouradmissionsassessment,andourJuly2015  tuitionincrease,amongotherfactors.WebelievethatHCON’sstudentenrollmentdecreaseisattributable,in  part,toHCON’sJanuary2016implementationofcurriculumchangesthatcausedrecruitingchallenges,whichwe  believeresultedincertainstudentschoosingnottopursuetheirstudiesatHCON. COSTSANDEXPENSES Costsandexpenseswere$274.8millionfortheyearendedDecember31,2016,adecreaseof$0.8million,or  0.3%,comparedto$275.6millionfortheyearendedDecember31,2015.Thisdecreasewasprimarilytheresult  ofdecreasedcostsandexpensesfor:generalandadministrative,salesandpromotional,instructionalcostsand  services,anddepreciationandamortization;offsetbyincreasedcostsandexpensesfor:impairmentofgood - will,lossondisposalsoflong-livedassets,andlossonassetsheldforsale. Costsandexpensesasapercentageofrevenueincreasedto87.8%intheyearendedDecember31,2016,from  84.0%intheyearendedDecember31,2015.Similarly,ourincomebeforeinterestincomeandincometaxes,  orouroperatingmargin,decreasedto12.2%from16.0%overthatsameperiod.Ourcostsandexpensesasa  percentageofrevenueincreaseddueto:increasedinstructionalcostsandservicesexpensesasapercentof  revenue,thelossesattributabletotheimpairmentofgoodwillinourHCONsegment,thelossesonthedisposal  oflong-livedassetsandlossesonassetsheldforsaleinourAPEIsegment. Instructional costs and services. InstructionalcostsandservicesexpensesfortheyearendedDecember31,  2016,were$117.0million,adecreaseofapproximately$1.8million,or1.5%,comparedto$118.8millionforthe  yearendedDecember31,2015.Instructionalcostsandservicesexpensesasapercentageofrevenuewere  37.4%fortheyearendedDecember31,2016,comparedto36.2%fortheyearendedDecember31,2015.The  decreaseininstructionalcostsandservicesexpensesisprimarilytheresultofdecreasedcompensationand  bookcostsduetolowernetcourseregistrationsatAPUS,partiallyoffsetbyhigherprofessionalfees,andhigher  instructionalcostsandservicesexpensesatHCON.Ourinstructionalcostsandservicesexpensesasapercent - ageofrevenueincreasedprimarilyduetoourrevenuedecreasingatarategreaterthanthedecreaseincosts  andexpenses. Selling and promotional. SellingandpromotionalexpensesfortheyearendedDecember31,2016,were$59.1  million,adecreaseof$3.3million,or5.3%,comparedto$62.4millionfortheyearendedDecember31,2015.  Thisdecreasewasprimarilyduetodecreasedadvertisingandpromotionalexpenses.Sellingandpromotional  expensesasapercentageofrevenuewere18.9%fortheyearendedDecember31,2016,comparedto19.0%for  theyearendedDecember31,2015.Sellingandpromotionalexpensesasapercentageofrevenuedecreased  yearoveryearduetosellingandpromotionalexpensesdecreasingatarategreaterthanthedecreasein  revenue. 134 AmericanPublicEducation,Inc. General and administrative. GeneralandadministrativeexpensesfortheyearendedDecember31,2016,were  $68.7million,adecreaseof$4.3million,or5.9%comparedto$73.0millionfortheyearendedDecember31,  2015.Thedecreaseingeneralandadministrativeexpensesisduetolowerbaddebtexpense,partiallyoffset  byincreasesinprofessionalfees.Generalandadministrativeexpensesasapercentageofrevenuewere21.9%  fortheyearendedDecember31,2016comparedto22.3%fortheyearendedDecember31,2015.Ourgeneral  andadministrativeexpensesasapercentageofrevenuedecreasedprimarilyduetogeneralandadministrative  expensesdecreasingatarategreaterthanthedecreaseinrevenue. Baddebtexpensedecreasedto$6.7million,orapproximately2.1%ofrevenue,intheyearendedDecember31,  2016,from$12.7million,orapproximately3.9%ofrevenue,intheyearendedDecember31,2015.Webelieve  thattheinitiativesofourAPEISegmentdiscussedinthisAnnualReport,includingtheadmissionsprocessat  APUSandthechangetoamultipledisbursementmethodforfirsttimeAPUSstudents,weretheprimarycon - tributorstothedecreaseinourbaddebtexpenseasanamountandasapercentageofrevenue.Forfurther  informationregardingtheinitiativesdiscussedintheprevioussentence,pleasereferto“Overview-BadDebt  Expense”above. Loss on disposal of long-lived assets. Thelossondisposaloflong-livedassetswas$5.1millionintheyearended  December31,2016,comparedto$0.8millionintheyearendedDecember31,2015.Theincreaseisprimarilydue  tothelossthatresultedfromtheabandoneddevelopmentofanewstudentcourseregistrationsysteminour  APEIsegment. Loss on assets held for sale. Thelossondisposalofassetsheldforsaleresultedfromthesaleofrealproperty  nolongerinuse,andafairmarketvalueadjustmentofasecondpropertyheldforsale,inourAPEIsegmentin  theyearendedDecember31,2016.TherewasnolossonassetsheldforsaleintheyearendedDecember31,  2015. Impairment of goodwill. The$4.7millionimpairmentofgoodwillduringtheyearendedDecember31,2016,  resultedfromthereductionofthecarryingvalueofgoodwillinourHCONsegmentfromitscarryingvaluetoits  impliedfairvalue.The$4.7milliongoodwillimpairmentchargeeliminatedthedifferencebetweentheimplied  fairvalueofgoodwillandthebookvalueofgoodwillasofAugust31,2016.Assuch,futurechanges,including  minorchanges,inrevenue,operatingincome,valuationmultiples,discountratesandotherinputstothevalua - tionprocessmayresultinfutureimpairmentchargesandthosechargesmaybematerial.Foradditionalinfor - mationregardingtheimpairmentofgoodwill,pleaserefertothediscussionaboveand“Note7.Goodwilland  IntangibleAssets,NotestotheConsolidatedFinancialStatements”inthisAnnualReport.Therewasnogoodwill  impairmentchargeduringtheyearendedDecember31,2015. Depreciation and amortization. Depreciationandamortizationexpenseswere$19.4millionfortheyearended  December31,2016,comparedto$20.5millionfortheyearendedDecember31,2015,adecreaseof$1.1million  or5.4%.Whencomparedtotheprioryear,thedecreaseindepreciationandamortizationwasduetolowercapi - talexpendituresandlowertotalinvestmentinpropertyandequipmentnetofdepreciation. Stock-based compensation. Stock-basedcompensationexpensesincludedininstructionalcostsandservices,  sellingandpromotional,andgeneralandadministrativeexpensesfortheyearendedDecember31,2016,were  $5.2millionintheaggregate,representingadecreaseof$0.7million,or11.9%,comparedto$5.9millionforthe  yearendedDecember31,2015.Thisdecreaseresultedprimarilyduetoafewernumberofemployeesbeing  eligibleforstock-basedcompensation. 2016 Annual Report 135 Thetablebelowreflectsourstock-basedcompensationexpenserecognizedintheConsolidatedStatementsof  IncomefortheyearsendedDecember31,2015and2016(inthousands): Instructionalcostsandservices Sellingandpromotional Generalandadministrative Totalstock-basedcompensationexpense INCOMETAXEXPENSE Year Ended December 31, 2015 $1,598 684 3,630 $5,912 2016 $1,497 672 3,042 $5,211 WerecognizedtaxexpensefromcontinuingoperationsfortheyearsendedDecember31,2015and2016of  $20.1millionand$14.9million,respectively,oraneffectivetaxrateof38.2%inbothperiods. EQUITYINVESTMENTINCOME/(LOSS) Equityinvestmentincomewas$0.7millionfortheyearendedDecember31,2016,comparedto$0.1million  fortheyearendedDecember31,2015,anincreaseof$0.6million.Theincreasewasrelatedtoourpro-rata  shareofearningsfromNWHWHoldings,Inc.’sfavorableadjustmentofitsdeferredtaxvaluationallowance.For  furtherinformationregardingNWHWHoldings,Inc.andourotherequityinvestments,pleasereferto“Note6.  Investments,NotestoConsolidatedFinancialStatements”inthisAnnualReport. NET INCOME Netincomewas$24.2millionfortheyearendedDecember31,2016,comparedtonetincomeof$32.4million  fortheyearendedDecember31,2015,adecreaseof$8.2million,or25.3%.Thisdecreasewasrelatedtothe  factorsdiscussedabove. OPERATING RESULTS BY REPORTABLE SEGMENT—YEAR ENDED DECEMBER 31, 2016 COMPARED TO YEAR ENDED DECEMBER 31, 2015 Thetablebelowdetailsouroperatingresultsbyreportablesegmentfortheperiodsindicated(inthousands): Year Ended December 31, 2015 2016 $ Change % Change Revenue AmericanPublicEducationSegment HondrosCollegeofNursingSegment $297,439 30,471 $283,941 $ (13,498) 29,198 (1,273) Total Revenue $327,910 $313,139 $(14,771) Income (loss) from continuing operations before interest income and income taxes AmericanPublicEducationSegment $ 48,967 $ 41,916 $ (7,051) HondrosCollegeofNursingSegment 3,314 (3,640) (6,954) (4.5)% (4.2)% (4.5)% (14.4)% (209.8)% Total income from continuing operations before interest income and income taxes $ 52,281 $ 38,276 $(14,005) (26.8)% 136 AmericanPublicEducation,Inc. APEISEGMENT FortheyearendedDecember31,2016,ourAPEISegmentearnedapproximately$283.9millioninrevenue,a  $13.5million,or4.5%,decreaseascomparedtotheyearendedDecember31,2015,whichisprimarilyattrib - utabletolowernetcourseregistrationspartiallyoffsetbytheJuly2015tuitionincrease.Incomefromcontinu - ingoperationsbeforeinterestincomeandincometaxeswasapproximately$41.9millionfortheyearended  December31,2016,adecreaseof$7.1million,or14.4%,comparedtotheyearendedDecember31,2015asa  resultofthedecreaseinrevenueresultingfromlowernetcourseregistrationspartiallyoffsetbyadecreasein  costsandexpenses.ForinformationregardingtheAPEISegment’snetcourseregistrationspleasereferto“Year  EndedDecember31,2016ComparedtoYearEndedDecember31,2015-Revenue”above. HCON SEGMENT FortheyearendedDecember31,2016,theHCONSegmentearnedapproximately$29.2millioninrevenue,a  $1.3million,or4.2%decreasedascomparedtotheyearendedDecember31,2015,whichisprimarilyattribut - abletodecreaseenrollments.Lossfromcontinuingoperationsbeforeinterestincomeandincometaxeswas  approximately$3.6millionfortheyearendedDecember31,2016,a209.8%decrease,comparedtothe$3.3mil - lionincomefromcontinuingoperationsbeforeinterestincomeandincometaxesfortheyearendedDecember  31,2015.The$3.6millionlossfromcontinuingoperationsbeforeinterestincomeandincometaxesfortheyear  endedDecember31,2016,wasprimarilyduetothe$4.7millionimpairmentofgoodwill,revenuedecreasingat  arategreaterthanexpensesandtoalesserdegree,costsincurredrelatedtothestart-upoftheToledocampus  inJanuary2017.WebelieveourHCONSegment’srevenuewasnegativelyimpactedin2016bytheJanuary2016  implementationofcurriculumchangesthatcausedrecruitingchallenges,whichwebelieveresultedincertain  studentschoosingnottopursuetheirstudiesatHCON. ForthereportingyearJuly1,2015throughJune30,2016,severalHCONcampusesandprogramsdidnotsatisfy  ACICSstudentachievementmeasures.OnFebruary24,2017,ACICSnotifiedHCONthatunlessitnotifiesACICS  thatitisdiscontinuingthePNProgramattheClevelandcampus,thenACICSexpectstoissueashow-causeletter  requiringHCONtodemonstratewhyACICSapprovalofthePNProgramatthelocationshouldnotbewithdrawn.  ACICStooksuchactionunderthenewpolicybecausetheplacementratesreportedforthePNProgramatthe  Clevelandcampuswerebetween50-59.9%fortwoconsecutiveyears.AninstitutionthatACICSdirectstoshow  causemustimmediatelynotifycurrentandprospectivestudentsoftheshow-causestatus,includingbypost - ingaprominentnoticeonitswebsite.WeunderstandthatifthePNProgramattheClevelandcampusisputon  showcause,HCONwillberequiredtomakecertainreportstoACICSandwillhaveuntilitsnextcampusaccount - abilityreport,duebyNovember1,2017,todemonstratethatitsplacementratecomplieswiththerelevant  studentachievementmeasure.Atthistime,weareunabletopredicttheimpactofthisdevelopmentandthe  possibleoutcomesonourenrollmentsandresultsofoperations. 2016 Annual Report 137 YEAR ENDED DECEMBER 31, 2015 COMPARED TO YEAR ENDED DECEMBER 31, 2014 REVENUE OurconsolidatedrevenuefortheyearendedDecember31,2015,was$327.9million,adecreaseof$22.1million,  or6.3%,comparedto$350.0millionfortheyearendedDecember31,2014. ThedecreaseinrevenuewasaresultofadecreaseinnetcourseregistrationsinourAPEISegment.APEI  Segmentnetcourseregistrations,whichincludeone-creditlabcoursescombinedwiththeirrelatedthree- creditcourse,decreasedtoapproximately375,000intheyearendedDecember31,2015,fromapproximately  404,000intheyearendedDecember31,2014,adecreaseofapproximately7.9%.Webelievethatthedecrease  intheAPEISegment’snetcourseregistrationsfortheyearendedDecember31,2015,isattributable,inpart,to  increasedcompetition,changesinourmarketingapproach,ouradmissionsassessmentatAPUS,andourtuition  increaseatAPUS,amongotherfactorsasdiscussedinthisAnnualReport. COSTSANDEXPENSES Costsandexpenseswere$275.6millionfortheyearendedDecember31,2015,adecreaseof$8.6million,or  3.0%,comparedto$284.2millionfortheyearendedDecember31,2014.Thisdecreasewasprimarilytheresult  ofdecreasedsalesandpromotionalandinstructionalcostsandservicesexpenses,partiallyoffsetbyincreased  depreciationandamortizationexpenses. Costsandexpensesasapercentageofrevenueincreasedto84.0%intheyearendedDecember31,2015,from  81.1%intheyearendedDecember31,2014.Similarly,ourincomebeforeinterestincomeandincometaxes,  orouroperatingmargin,decreasedto16.0%from18.9%overthatsameperiod.Ourcostsandexpensesasa  percentageofrevenueincreasedprimarilyduetoourrevenuedecreasingatarategreaterthanthedecreasein  costsandexpenses. IntheyearendedDecember31,2015,ourAPEISegmentincurredincreasedcostsof$1.4millionduetothe  accelerateddepreciationofinformationtechnologyassetsthatwasincludedindepreciationandamortization  expense,and$0.8millionrelatedtoimpairmentsincludedinlossesondisposalsoflong-livedassets.Wealso  incurredincreasedcostsintheamountof$1.6millionduetochargestakenasaresultofworkforcerealign - ments.AdditionalchargessuchasthosetakenduringtheyearendedDecember31,2015,maybeincurredinthe  futureasaresultofassetimpairmentsordisposals,theaccelerationofdepreciation,workforcerealignments,  reductionsinstaff,andotherinitiatives. Instructional costs and services. InstructionalcostsandservicesexpensesfortheyearendedDecember31,  2015,were$118.8million,adecreaseofapproximately$5.0million,or4.0%,comparedto$123.8millionfor  theyearendedDecember31,2014.Instructionalcostsandservicesexpensesasapercentageofrevenuewere  36.2%fortheyearendedDecember31,2015,comparedto35.4%fortheyearendedDecember31,2014.The  decreaseininstructionalcostsandservicesexpenseswasprimarilytheresultofdecreasedcompensationand  coursematerialcostsinourAPEISegmentastheresultoflowernetcourseregistrations,anddecreasedcurric - ulumexpensesinourHCONSegment.Ourinstructionalcostsandservicesexpensesasapercentageofrevenue  increasedprimarilyduetoourrevenuedecreasingatarategreaterthanthedecreaseincostsandexpenses. Selling and promotional. SellingandpromotionalexpensesfortheyearendedDecember31,2015,were$62.4  million,adecreaseof$6.8million,or9.8%,comparedto$69.2millionfortheyearendedDecember31,2014.  ThisdecreasewasduetodecreasedadvertisingexpensesinourAPEISegment,partiallyoffsetbyincreasedsell - ingandpromotionalexpensesinourHCONSegment.Sellingandpromotionalexpensesasapercentageofreve - nuewere19.0%fortheyearendedDecember31,2015,and19.8%fortheyearendedDecember31,2014.Selling  138 AmericanPublicEducation,Inc. andpromotionalexpensesasapercentageofrevenuedecreasedyearoveryearduetosellingandpromotional  expensesdecreasingatarategreaterthanrevenue. General and administrative. GeneralandadministrativeexpensesfortheyearendedDecember31,2015,were $73.0million,adecreaseof$2.0million,or2.7%,comparedto$75.0millionfortheyearendedDecember31,2014. Thedecreaseingeneralandadministrativeexpenseswasprimarilyaresultofdecreasesinbaddebtexpense,par- tiallyoffsetbyincreasesinexpensesrelatedtoTitleIVprocessinginourAPEISegment.Generalandadministrative expensesasapercentageofrevenuewere22.3%fortheyearendedDecember31,2015,and21.3%fortheyear endedDecember31,2014.Ourgeneralandadministrativeexpensesasapercentageofrevenueincreasedprimar- ilyduetoourrevenuedecreasingatarategreaterthanthedecreaseinsuchcostsandexpenses. Baddebtexpensedecreasedto$12.7million,orapproximately3.9%ofrevenue,intheyearendedDecember31, 2015,from$19.2million,orapproximately5.5%ofrevenue,intheyearendedDecember31,2014.Webelievethatthe initiativesofourAPEISegmentdiscussedinthe2015AnnualReport,includingtheadmissionsprocessatAPUS,were theprimarycontributorstothedecreaseinourbaddebtexpenseasanamountandasapercentageofrevenue. Loss on disposal of long-lived assets. Thelossondisposaloflong-livedassetsfortheyearendedDecember31, 2015,was$0.8million,anincreaseof$0.7million,comparedto$0.1millionfortheyearendedDecember31,2014. Depreciation and amortization. Depreciationandamortizationexpenseswere$20.5millionfortheyearended  December31,2015,comparedto$16.1millionfortheyearendedDecember31,2014,oranincreaseof27.3%.  TheincreaseresultedfromhigherdepreciationandamortizationinourAPEISegmentasaresultofalargerfixed  assetbaseandacceleratedamortizationoncertainintangibleassets. Stock-based compensation. Stock-basedcompensationexpensesincludedininstructionalcostsandservices,  sellingandpromotional,andgeneralandadministrativeexpensesfortheyearendedDecember31,2015,were  $5.9millionintheaggregate,representinganincreaseof$0.5million,or10.1%,comparedto$5.4millionfor  theyearendedDecember31,2014.Thisincreaseresultedprimarilyfromagreaternumberofemployeesbeing  eligibleforstock-basedcompensation. Thetablebelowreflectsourstock-basedcompensationexpenserecognizedintheConsolidatedStatementsof  IncomefortheyearsendedDecember31,2014and2015(inthousands): Instructionalcostsandservices Sellingandpromotional Generalandadministrative Totalstock-basedcompensationexpense INCOMETAXEXPENSE Year Ended December 31, 2014 $1,274 568 3,527 $5,369 2015 $1,598 684 3,630 $5,912 WerecognizedtaxexpensefromcontinuingoperationsfortheyearsendedDecember31,2014and2015of  $20.1millionand$25.1million,respectively,oreffectivetaxratesof38.2%and38.1%,respectively. NET INCOME Netincomewas$32.4millionfortheyearendedDecember31,2015,comparedtonetincomeof$40.9million  fortheyearendedDecember31,2014,adecreaseof$8.5million,or20.8%.Thisdecreasewasrelatedtothe  factorsdiscussedabove. 2016 Annual Report 139 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 AmericanPublicEducationSegment HondrosCollegeofNursingSegment $319,879 30,141 $297,439 30,471 $(22,440) 330 Total Revenue $350,020 $327,910 $(22,110) Income (loss) from continuing operations before interest income and income taxes AmericanPublicEducationSegment $ 62,499 $ 48,967 $(13,532) HondrosCollegeofNursingSegment 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)% APEISEGMENT FortheyearendedDecember31,2015,ourAPEISegmentearnedapproximately$297.4millioninrevenue,a  $22.4million,or7.0%,decreaseascomparedtotheyearendedDecember31,2014,whichisprimarilyattribut - abletolowernetcourseregistrations.Incomefromcontinuingoperationsbeforeinterestincomeandincome  taxeswasapproximately$49.0millionfortheyearendedDecember31,2015,adecreaseof$13.5million,or  21.7%,comparedtotheyearendedDecember31,2014,asaresultofthedecreaseinnetcourseregistrations  partiallyoffsetbyadecreaseinexpenses.ForinformationregardingtheAPEISegment’snetcourseregistra - tions,pleasereferto“YearEndedDecember31,2015ComparedtoYearEndedDecember31,2014-Revenue”  above. HCON SEGMENT FortheyearendedDecember31,2015,theHCONSegmentearnedapproximately$30.5millioninrevenue,a  $0.3million,or1.1%,increaseascomparedtotheyearendedDecember31,2014,whichisprimarilyattributable  toincreasedtuitionrates.Incomefromcontinuingoperationsbeforeinterestincomeandincometaxeswas  approximately$3.3millionfortheyearendedDecember31,2015,a0.6%decrease,comparedtotheyearended  December31,2014,asaresultofexpensesincreasingatarategreaterthanrevenue.WebelieveourHCON  Segment’srevenuewasnegativelyimpactedin2015duetodecreasedenrollmentinHCON’sADNprogramasa  resultofstrengthenedcompletionrequirementsinthePracticalNursingprogram,whichistheprimarysource  ofADNstudents,andtheadditionofnightandweekendcourses,whichhasresultedinstudentstakingfewer  totalcourseseachacademictermassomestudentsthatwouldotherwisehavestudiedonafull-timebasisare  nowpursuingcoursesonapart-timebasis.InJanuary2016,HCONimplementedcurriculumchangesthatcaused  recruitingchallenges,whichwebelieveresultedincertainstudentschoosingnottopursuetheirstudiesat  HCON;weareunabletopredictwhetherthistrendmaycontinue. QUARTERLY RESULTS Thefollowingtablepresentsourunauditedquarterlyresultsofoperationsforthelasteightquarters,and  shouldbereviewedinconjunctionwiththeConsolidatedFinancialStatementsandrelatednotescontained  elsewhereinthisAnnualReport.Wehavepreparedtheunauditedinformationonthesamebasisasouraudited  140 AmericanPublicEducation,Inc. ConsolidatedFinancialStatements.Resultsofoperationsforanyquarterarenotnecessarilyindicativeofresults  foranyfuturequartersorforafullyear(inthousands). (Unaudited) Statement of Operations Data: Revenue Costsandexpenses: March 31, 2015 June 30, 2015 Sept. 30, 2015 Dec. 31, 2015 March 31, 2016 June 30, 2016 Sept. 30, 2016 Dec. 31, 2016 Quarter Ended $85,444 $80,263 $76,291 $85,912 $83,966 $76,745 $73,803 $78,625 Instructionalcostsandservices 30,260 Sellingandpromotional Generalandadministrative 17,019 19,104 29,696 16,152 18,125 29,167 14,062 17,616 29,725 15,164 18,202 29,708 16,469 16,669 28,903 14,984 16,909 28,357 13,139 17,125 30,045 14,503 17,963 Lossondisposalsof long-livedassets Lossonassetsheldforsale Impairmentofgoodwill 1 — — 16 — — 43 — — 757 — — 261 — — 464 — — Depreciationandamortization 4,589 4,698 4,891 6,342 4,889 4,825 4,323 822 4,735 4,910 99 1 — 4,760 Totalcostsandexpenses 70,973 68,687 65,779 70,190 67,996 66,085 73,411 67,371 Incomefromcontinuing operationsbeforeinterest incomeandincometaxes 14,471 11,576 10,512 15,722 15,970 10,660 Interestincome,net 10 31 37 37 37 37 392 37 11,254 5 Incomefromcontinuing operationsbefore incometaxes Incometaxexpense Investmentincome (loss),netoftaxes Netincome Other Data: 14,481 11,607 10,549 15,759 16,007 10,697 5,650 4,548 3,796 6,078 6,267 4,172 429 85 11,259 4,416 $   (38) $    14 $      4 $    110 $   600 $    71 $   (18) $    50 $ 8,793 $ 7,073 $ 6,757 $ 9,791 $10,340 $ 6,596 $  326 $ 6,893 Stock-basedcompensation $ 1,394 $ 1,348 $ 1,341 $ 1,829 $ 1,502 $ 1,179 $ 1,291 $ 1,239 Netcashprovidedby operatingactivities $ 7,146 $15,585 $20,077 $14,403 $20,052 $ 8,735 $13,901 $13,326 Capitalexpenditures $ 5,288 $ 7,475 $ 6,801 $ 6,438 $ 3,139 $ 3,765 $ 3,610 $ 3,312 APUSnetcourseregistrations 99,600 89,000 94,200 92,300 95,800 82,000 84,600 83,000 LIQUIDITY AND CAPITAL RESOURCES WefinancedouroperatingactivitiesandcapitalexpendituresduringtheyearsendedDecember31,2016and  December31,2015,primarilythroughcashprovidedbyoperatingactivities.Cashandcashequivalentswere  $146.4millionand$105.7millionatDecember31,2016andDecember31,2015,respectively,representingan  increaseof$40.6million,or38.4%,duringtheyearendedDecember31,2016.Theincreaseincashandcash  equivalentsduringtheyearendedDecember31,2016,wasduetocashprovidedbyoperatingactivitiesexceed - ingcashusedininvestingandfinancingactivities.Cashandcashequivalentswere$115.6millionatDecember  31,2014.Cashandcashequivalentsthereforeincreased$10.9million,or11.5%,duringtheyearended  December31,2015,whichwasduetocashprovidedbyoperatingactivitiesexceedingcashusedininvestingand  financingactivities. 2016 Annual Report 141 IntheyearendedDecember31,2016,weusedcashforaninvestmentinthepreferredstockofFidelisEducation, Inc.,whileintheyearendedDecember31,2015,weusedcashtorepurchaseourcommonstockandforour  minorityinvestmentinRallyPoint,anonlinesocialnetworkformembersofthemilitary. WederiveasignificantportionofourrevenuefromourparticipationinED’sTitleIVprograms,forwhichdis - bursementsaregovernedbyfederalregulations.WehavetypicallyreceiveddisbursementsunderED’sTitleIV  programswithin30daysofthestartoftheapplicablecourse.AnothersignificantsourceofrevenueforourAPEI  SegmentisrevenuederivedfromDoDtuitionassistanceprograms.Generally,thesefundsarereceivedwithin  60daysofthestartofthecoursestowhichtheyrelate.Thesefactors,togetherwiththenumberofcourses  startingeachmonth,affectouroperatingcashflow. Ourcostsandexpensesasapercentageofrevenuehaveincreasedduetorevenuedecreasingatarategreater  thantherateofdecreaseincostsandexpensesforinstructionalcostsandservices,sellingandpromotional,  generalandadministrative,anddepreciationandamortization,andfortheyearendedDecember31,2016,  theimpairmentofgoodwill,thelossondisposalsoflong-livedassets,andthelossonassetsheldforsale.We  expecttocontinuetofundcostsandexpensesthroughcashgeneratedfromoperations.Basedonourcurrent  levelofoperations,webelievethatourcashflowfromoperationsandothersourcesofliquidity,includingcash  andcashequivalents,willprovideadequatefundsforongoingoperationsandplannedcapitalexpendituresfor  theforeseeablefuture.Wemayneedadditionalcapital,however,inconnectionwithanychangeinourcurrent  levelofoperations,includingwerewetopursuesignificantbusinessacquisitionsorinvestmentopportunities,or  determinetomakeothersignificantinvestmentsinourbusiness. OPERATINGACTIVITIES Netcashprovidedbyoperatingactivitieswas$61.0million,$57.2million,and$56.0millionfortheyearsended  December31,2014,2015and2016,respectively.FortheyearendedDecember31,2016,cashflowfromopera - tionsdecreasedby$1.2millionwhencomparedtotheprioryear.Thisdecreaseisprimarilyduetothedecrease  innetincomepartiallyoffsetbynon-cashcharges,andchangesinworkingcapitalduetothetimingofreceipts  anddisbursements. INVESTINGACTIVITIES Netcashusedininvestingactivitieswas$21.3million,$31.3millionand$13.5million,fortheyearsended  December31,2014,2015and2016,respectively.Thedifferencesincashusedininvestingactivitiesareprimarily  relatedtodifferingamountsoffundsbeingusedeachyeartofundcapitalexpendituresandinvestments.  FortheyearendedDecember31,2016,cashusedininvestingactivitiesforcapitalexpenditureswasprimar - ilyforthefollowingwithinourAPEISegment:computerhardwareandsoftware,andsoftwaredevelopment,  includingsoftwaredevelopmentrelatedtoPAD.Inaddition,duringtheyearendedDecember31,2016,ourAPEI  Segmentmadea$1.0millionequityinvestmentinFidelisEducationandreceiveda$3.0milliondividendfrom  NWHWHoldingsInc. DuringtheyearendedDecember31,2015,ourAPEISegmentmadea$3.5millionequityinvestmentin  RallyPoint,anonlinesocialnetworkformembersofthemilitary.DuringtheyearendedDecember31,2014,our  APEISegmentmadea$1.5millionequityinvestmentinSecondAvenueSoftware,andreceivedprepaymentofa  $6.0millionloanwehadinconnectionwithourinvestmentinNewHorizons. Weexpectthatwewillcontinuetomakeexpenditurestoinvestinstrategicopportunitiesandtoenhanceour  businesscapabilities.Wewillcontinuetoexploreopportunitiestoinvestintheeducationindustry,whichcould  includepurchasingorinvestinginothereducation-relatedcompaniesorcompaniesdevelopingnewtechnolo - gies.Wemayneedadditionalcapitalinconnectionwithanychangeinourcurrentlevelofoperations,including  142 AmericanPublicEducation,Inc. ifweweretopursuesignificantbusinessacquisitionsorinvestmentopportunities,ordeterminetomakeother  significantinvestmentsinourbusiness. FINANCINGACTIVITIES Netcashusedinfinancingactivitieswas$1.8millionfortheyearendedDecember31,2016,comparedto$35.8  millionand$18.9millionfortheyearsendedDecember31,2015,and2014,respectively.Thedecreaseincash  usedinfinancingactivitiesfortheyearendedDecember31,2016,comparedtotheyearendedDecember31,  2015,wasprimarilyduetolesscashbeingexpendedfortherepurchaseofourcommonstock.Theincreasein  cashusedinfinancingactivitiesfortheyearendedDecember31,2015,comparedtotheyearendedDecember  31,2014,wasprimarilyduetomorecashbeingexpendedfortherepurchaseofourcommonstock. CONTRACTUALANDCAPITALCOMMITMENTS Wehavevariouscontractualobligationsconsistingofoperatingleasesandpurchaseobligations.Purchase  obligationsincludeagreementswithconsultants,contractswiththird-partyserviceproviders,andotherfuture  contractsoragreements.ThefollowingtablesetsforthourfuturecontractualobligationsasofDecember31,  2016(inthousands): Operatingleaseobligations Purchaseobligations Totalcontractualobligations Payments Due by Period Total $15,217 3,526 $18,743 Less than 1 Year $2,207 2,983 $5,190 1–3 Years $ 3,652 517 $4,169 3–5 Years $3,598 26 $3,624 More than 5 Years $5,760 — $5,760 OFF-BALANCESHEETARRANGEMENTS Wedonothaveoff-balancesheetfinancingarrangements,includinganyrelationshipswithunconsolidatedenti - tiesorfinancialpartnerships,suchasentitiesoftenreferredtoasstructuredfinanceorspecialpurposeentities. IMPACTOFINFLATION Wedonotbelievethatinflationhadamaterialimpactonourresultsofoperationsfortheyearsended  December31,2014,2015,or2016.Therecanbenoassurancethatfutureinflationwillnothaveanadverse  impactonouroperatingresultsandfinancialcondition. Item7A.QuantitativeandQualitativeDisclosuresaboutMarketRisk Wearesubjecttotheimpactofinterestratechangesandmaybesubjecttochangesinthemarketvaluesof  futureinvestments.Weinvestourexcesscashinbankovernightdeposits.Wehavenomaterialderivativefinan - cialinstrumentsorderivativecommodityinstrumentsasofDecember31,2016.  MARKET RISK Wemaintainourcashandcashequivalentsinbankdepositaccounts,whichmayexceedfederallyinsuredlimits.  Wehavehistoricallynotexperiencedanylossesinsuchaccounts.Webelievewearenotexposedtoanysignif - icantcreditriskoncashandcashequivalents.Duetotheshort-termdurationofourinvestmentportfolioand  thelowriskprofileofourinvestments,animmediate100basispointchangeininterestrateswouldnothavea  materialeffectonthefairmarketvalueofourportfolio. 2016 Annual Report 143 INTEREST RATE RISK Wearesubjecttoriskfromadversechangesininterestrates,primarilyrelatingtoourinvestingofexcessfunds  incashequivalentsbearingvariableinterestrates,whicharetiedtovariousmarketindices.Ourfutureinvest - mentincomewillvaryduetochangesininterestrates.AtDecember31,2016,a10%increaseordecreasein  interestrateswouldnothaveamaterialimpactonourfutureearnings,fairvalues,orcashflowsrelatedto  investmentsincashequivalents. Item8.FinancialStatementsandSupplementaryData INDEX TO CONSOLIDATED FINANCIAL STATEMENTS American Public Education, Inc. and Subsidiaries ReportofIndependentRegisteredPublicAccountingFirm ConsolidatedBalanceSheetsasofDecember31,2015and2016 ConsolidatedStatementsofIncomefortheyearsendedDecember31,2014,2015and2016 ConsolidatedStatementsofStockholders’Equityfortheyears endedDecember31,2014,2015and2016 ConsolidatedStatementsofCashFlowsfortheyearsendedDecember2014,2015and2016 NotestoConsolidatedFinancialStatements Page 137 138 139 140 142 143 144 AmericanPublicEducation,Inc. ReportofIndependentRegisteredPublicAccountingFirm TOTHEBOARDOFDIRECTORSANDSTOCKHOLDERS AMERICANPUBLICEDUCATION,INC. WehaveauditedtheaccompanyingconsolidatedbalancesheetsofAmericanPublicEducation,Inc.and SubsidiariesasofDecember31,2015and2016,andtherelatedconsolidatedstatementsofincome,stockholders’ equity,andcashflowsforeachofthethreeyearsintheperiodendedDecember31,2016.Ourauditsalsoincluded 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.andSubsidiariesasofDecember31,2015and2016,and  theresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedDecember31,  2016,inconformitywithU.S.generallyacceptedaccountingprinciples.Also,inouropinion,therelatedfinan - cialstatementschedule,whenconsideredinrelationtothebasicconsolidatedfinancialstatementstakenasa  whole,presentsfairlyinallmaterialrespectstheinformationsetforththerein. Wehavealsoaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard  (UnitedStates),AmericanPublicEducation,Inc.andSubsidiaries’internalcontroloverfinancialreportingas  ofDecember31,2016,basedoncriteriaestablishedinInternalControl-IntegratedFrameworkissuedbythe  CommitteeofSponsoringOrganizationsoftheTreadwayCommissionin2013,andourreportdatedMarch1,  2017expressedanunqualifiedopinionontheeffectivenessofAmericanPublicEducation,Inc.andSubsidiaries’  internalcontroloverfinancialreporting. /s/RSMUSLLP Richmond,Virginia March1,2017 2016 Annual Report 145 ConsolidatedBalanceSheets (In thousands, except per share amounts) Assets Currentassets: Cashandcashequivalents(Note2) Accountsreceivable,netofallowanceof$13,012 in2015and$8,077in2016. Prepaidexpenses Deferredincometaxes Totalcurrentassets Propertyandequipment,net Assetsheldforsale Investments Goodwill Otherassets,net Totalassets Liabilities and Stockholders’ Equity Currentliabilities: Accountspayable Accruedliabilities Deferredrevenue Incometaxpayable Totalcurrentliabilities Deferredincometaxes Totalliabilities Commitmentsandcontingencies(Notes8and12) Stockholders’equity: PreferredStock,$.01parvalue;authorizedshares— 10,000;nosharesissuedoroutstanding CommonStock,$.01parvalue;authorizedshares— 100,000;15,989issuedandoutstandingin2015; 16,109issuedandoutstandingin2016 Additionalpaid-incapital Retainedearnings Totalstockholders’equity As of December 31, 2015 2016 $105,734 $146,351 7,917 6,277 6,714 126,642 109,281 — 15,915 38,634 8,955 6,949 5,327 5,092 163,719 97,687 2,100 14,611 33,899 8,696 $299,427 $320,712 6,264 14,126 25,258 682 46,330 15,944 62,274 6,853 14,124 20,639 559 42,175 13,867 56,042 — — 160 173,700 63,293 237,153 161 177,061 87,448 264,670 Totalliabilitiesandstockholders’equity $299,427 $320,712 Theaccompanyingnotesareanintegralpartoftheseconsolidatedstatements. 146 AmericanPublicEducation,Inc. ConsolidatedStatementsofIncome (In thousands, except per share amounts) Revenue Costsandexpenses: Instructionalcostsandservices Sellingandpromotional Generalandadministrative Lossondisposalsoflong-livedassets Lossonassetsheldforsale Impairmentofgoodwill Depreciationandamortization Totalcostsandexpenses Incomefromcontinuingoperationsbefore interestincomeandincometaxes Interestincome,net Incomefromcontinuingoperations beforeincometaxes Incometaxexpense Equityinvestmentincome(loss) Netincome Netincomepercommonshare: Basic Diluted Weightedaveragenumberofsharesoutstanding: Basic Diluted Year Ended December 31, 2014 $350,020 2015 $327,910 2016 $313,139 123,765 69,229 74,958 115 — — 16,121 284,188 65,832 361 66,193 25,150 (166) 118,848 62,397 73,047 817 — — 20,520 275,629 52,281 115 52,396 20,072 90 117,013 59,095 68,666 5,147 823 4,735 19,384 274,863 38,276 116 38,392 14,940 703 $ 40,877 $ 32,414 $ 24,155 $   2.36 $   2.33 17,357 17,543 $   1.94 $   1.93 16,676 16,798 $   1.50 $   1.49 16,068 16,214 Theaccompanyingnotesareanintegralpartoftheseconsolidatedstatements. 2016 Annual Report 147 Preferred Stock Shares Amount Common Stock Repurchased Stock Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings Stockholders’ Total Equity — — — — — — — — — — — — — — — — — — — — — — — — — $— 17,577,625 $176 $     — $164,913 $ 41,980 $207,069 — — — — — — — — — — — — — — — — — — — — — — — (530,962) (18,470) 530,962 18,470 (18,465) 17,151,868 172 169,654 64,392 234,218 40,877 40,877 (1,322,846) (33,526) (1,322,952) (13) 1,322,846 33,526 (33,513) — — — — — — — — — — — — — — — — — — — 536 90 (1,242) 5,107 — 250 — 54 66 (1,784) 6,229 (519) — — 118 47 (848) 5,164 (1,120) — — — — — — — — — — — — — — — — — — 24,155 (19,712) 5,107 537 90 — 250 55 66 (35,310) 6,229 — (519) 119 47 (848) 5,164 — (1,120) 24,155 32,414 32,414 173,700 63,293 237,153 133,643 2,535 (30,973) (530,962) 213,921 2,248 (56,272) — — — — — — 15,988,813 167,270 2,322 (49,512) — — — — 1 — — — (5) — — 1 — — — — — 160 1 — — — — — — — — — — — — — — — — — — — — — — — — — — $— 16,108,893 $161 — $     — $177,061 87,448 $264,670 ConsolidatedStatementsofStockholders’Equity (In thousands, except shares) BalanceasofDecember 31,2013 Stockissuedforcash Stockissuedfordirectorcompensation Repurchasedsharesofcommonandrestrictedstockfromstockholders Stock-basedcompensation Repurchasedandretiredsharesofcommonstock Excesstaxbenefitfromstockbasedcompensation Netincome BalanceasofDecember 31,2014 Stockissuedforcash Stockissuedfordirectorcompensation Repurchasedsharesofcommonandrestrictedstockfromstockholders Stock-basedcompensation Repurchasedandretiredsharesofcommonstock Excesstaxbenefitfromstockbasedcompensation Netincome BalanceasofDecember 31,2015 Stockissuedforcash Stockissuedfordirectorcompensation Repurchasedsharesofcommonandrestrictedstockfromstockholders Stock-basedcompensation Repurchasedandretiredsharesofcommonstock Excesstaxexpensefromstockbasedcompensation Netincome BalanceasofDecember 31,2016 Theaccompanyingnotesareanintegralpartoftheseconsolidatedstatements. 148 AmericanPublicEducation,Inc. ConsolidatedStatementsofStockholders’Equity Preferred Stock Shares Amount Common Stock Repurchased Stock Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings Total Stockholders’ Equity Repurchasedsharesofcommonandrestrictedstockfromstockholders (In thousands, except shares) BalanceasofDecember 31,2013 Stockissuedforcash Stockissuedfordirectorcompensation Stock-basedcompensation Repurchasedandretiredsharesofcommonstock Excesstaxbenefitfromstockbasedcompensation Netincome BalanceasofDecember 31,2014 Stockissuedforcash Stockissuedfordirectorcompensation Stock-basedcompensation Repurchasedandretiredsharesofcommonstock Excesstaxbenefitfromstockbasedcompensation Netincome BalanceasofDecember 31,2015 Stockissuedforcash Stockissuedfordirectorcompensation Stock-basedcompensation Repurchasedandretiredsharesofcommonstock Excesstaxexpensefromstockbasedcompensation Netincome Repurchasedsharesofcommonandrestrictedstockfromstockholders Repurchasedsharesofcommonandrestrictedstockfromstockholders — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — $— 17,577,625 $176 133,643 2,535 (30,973) — (530,962) — — 1 — — — (5) — — 17,151,868 172 213,921 2,248 (56,272) — (1,322,952) — — 15,988,813 167,270 2,322 (49,512) — — — — 1 — — — (13) — — 160 1 — — — — — — $     — $164,913 $ 41,980 $207,069 — — — (530,962) — 530,962 — — — — — — — (18,470) — 18,470 — — — — — (1,322,846) — 1,322,846 (33,526) — 33,526 — — — — — — — — — — — — — — — — — — — — 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 63,293 237,153 118 47 (848) 5,164 — (1,120) — — — — — — — 24,155 119 47 (848) 5,164 — (1,120) 24,155 BalanceasofDecember 31,2016 $— 16,108,893 $161 — $     — $177,061 87,448 $264,670 Theaccompanyingnotesareanintegralpartoftheseconsolidatedstatements. 2016 Annual Report 149 Year Ended December 31, 2014 2015 2016 $40,877 $32,414 $24,155 ConsolidatedStatementsofCashFlows (In thousands) Operating activities Netincome Adjustmentstoreconcilenetincometonet cashprovidedbyoperatingactivities Depreciationandamortization Stock-basedcompensation Investmentloss/(income) Deferredincometaxes Lossondisposaloflong-livedassets Lossonassetsheldforsale Impairmentofgoodwill Other Changesinoperatingassetsandliabilities: Accountsreceivable,netofallowanceforbaddebt Prepaidexpensesandotherassets Incometaxreceivable Accountspayable Accruedliabilities Incometaxpayable Deferredrevenueandstudentdeposits Netcashprovidedbyoperatingactivities Investing activities Capitalexpenditures Proceedsfromsaleofrealproperty Equityinvestment Dividendreceivedfromequityinvestment Notereceivable Capitalizedprogramdevelopmentcostsandotherassets Netcashusedininvestingactivities Financing activities 16,121 5,369 166 2,494 115 — — 90 3,390 (512) 1,186 (534) (6,708) — (1,024) 61,030 (24,596) — (1,620) 6,000 (1,075) (21,291) Cashpaidforrepurchaseofcommon/restrictedstock (19,711) Cashreceivedfromissuanceofcommonstock Excesstaxbenefit/(expense)from stock-basedcompensation Netcashusedinfinancingactivities Netincrease(decrease)incashandcashequivalents Cashandcashequivalentsatbeginningofperiod Cashandcashequivalentsatendofperiod Supplemental disclosures of cash flow information 536 250 (18,925) 20,814 94,820 $115,634 20,520 5,912 (90) (160) 817 — — 66 (1,787) 64 2,029 (4,765) 56 682 1,453 57,211 (26,002) — (3,871) (199) (1,265) (31,337) (35,310) 55 (519) (35,774) (9,900) 19,384 5,211 (703) (455) 5,147 823 4,735 329 968 997 — 589 (424) (123) (4,619) 56,014 (13,826) 844 (950) 2,957 — (2,573) (13,548) (847) 118 (1,120) (1,849) 40,617 115,634 $105,734 105,734 $146,351 Incometaxespaid $21,631 $18,037 $16,637 Theaccompanyingnotesareanintegralpartoftheseconsolidatedstatements. 150 AmericanPublicEducation,Inc. NotestoConsolidatedFinancialStatements NOTE 1. NATURE OF BUSINESS AmericanPublicEducation,Inc.,orAPEI,whichtogetherwithitssubsidiariesisreferredtoasthe“Company,”is  aproviderofonlineandcampus-basedpostsecondaryeducationtoapproximately90,000studentsthroughthe  operationsoftwosubsidiaryinstitutions: • AmericanPublicUniversitySystem,Inc.,orAPUS,providesonlinepostsecondaryeducationdirectedprimarily  attheneedsofthemilitaryandpublicsafetycommunitiesthroughAmericanMilitaryUniversity,orAMU,and  AmericanPublicUniversity,orAPU.APUSisregionallyaccreditedbytheHigherLearningCommission.  • NationalEducationSeminars,Inc.,whichisreferredtointhesefinancialstatementsasHondrosCollegeof  Nursing,orHCON,providesnursingeducationtostudentsatfivecampusesintheStateofOhioaswellas  onlinetoservetheneedsofthenursingandhealthcarecommunities.HCONisnationallyaccreditedbythe  AccreditingCouncilofIndependentCollegesandSchools,orACICS,andtheRN-to-BSNProgramisaccred - itedbytheCommissiononCollegiateNursingEducation.InJune2016,HCONwasnotifiedthatitsDiplomain  PracticalNursingandAssociateDegreeinNursingprogramshavebeengrantedpre-accreditationcandidacy  statusbytheNationalLeagueforNursingCommissionforNursingEducationAccreditationeffectivethrough  June23,2019. TheCompany’sinstitutionsarelicensedorotherwiseauthorized,orareintheprocessofobtainingsuchlicenses  orauthorizations,toofferpostsecondaryeducationprogramsbystateauthoritiestotheextenttheinstitu - tionsbelievesuchlicensesorauthorizationsarerequired,andarecertifiedbytheUnitedStatesDepartment  ofEducation,orED,toparticipateinstudentfinancialaidprogramsauthorizedunderTitleIVoftheHigher  EducationActof1965,asamended,orTitleIVprograms. Ouroperationsareorganizedintotworeportablesegments:  • American Public Education Segment, or APEI Segment. Thissegmentreflectstheoperationalactivitiesat  APUS,othercorporateactivities,andminorityinvestments. • Hondros College of Nursing Segment, or HCON Segment. Thissegmentreflectstheoperationalactivitiesof  HCON. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AsummaryoftheCompany’ssignificantaccountingpoliciesfollows: Basis of accounting. Theaccompanyingfinancialstatementshavebeenpreparedinaccordancewithaccounting  principlesgenerallyacceptedintheUnitedSates,orGAAP.Certainprioryearamountshavebeenreclassifiedfor  comparativepurposestoconformwiththe2016presentation. Principles of consolidation. TheaccompanyingconsolidatedfinancialstatementsincludeaccountsofAPEIand  itswholly-ownedsubsidiaries.Allmaterialintercompanytransactionsandbalanceshavebeeneliminatedin  consolidation. Use of estimates. InpreparingfinancialstatementsinconformitywithGAAP,theCompanyisrequiredtomake  estimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,thedisclosureofcontin - gentassetsandliabilitiesatthedateofthefinancialstatements,andthereportedamountsofrevenueand  expensesduringthereportingperiod.Weevaluatetheseestimatesandjudgmentsonanongoingbasisand  2016 Annual Report 151 baseourestimatesonexperience,currentandexpectedfutureconditionsandvariousotherassumptionsthat  webelievearereasonableunderthecircumstances.Actualresultscoulddifferfromthoseestimates. Cash and cash equivalents. TheCompanyconsidersallshort-termhighlyliquidinvestmentswithoriginalmatur - itiesof90daysorlesswhenpurchasedtobecashequivalents. Restricted cash. Cashandcashequivalentsincludesfundsheldforstudentsforunbillededucationalservices  thatwerereceivedfromTitleIVprograms.AsatrusteeoftheseTitleIVprogramfunds,theCompanyisrequired  tomaintainandrestrictthesefundspursuanttothetermsoftheprogramparticipationagreementwiththeU.S.  DepartmentofEducation.RestrictedcashontheCompany’sConsolidatedBalanceSheetsasofDecember31,  2015and2016was$3.3millionand$1.6million,respectively.Changesinrestrictedcashthatrepresentfunds  heldforstudentsasdescribedaboveareincludedincashflowsfromoperatingactivitiesontheConsolidated  StatementsofCashFlowsbecausetheserestrictedfundsareacoreactivityofoperations. Accounts receivable. Coursetuitionisrecordedasaccountsreceivableanddeferredrevenueatthetimestu - dentsbeginacourseorterm.Studentsmayremittuitionpaymentsatanytimeortheymayelectvariousother  paymentoptionswithpaymenttermsextendingbeyondthestartofthecourseorterm.Theseotherpay - mentoptionsincludepaymentsbysponsors,financialaid,alternativeloans,oratuitionassistanceprogram  thatremitspaymentsdirectlytothesubsidiary.Whenastudentremitspaymentafteracourseortermhas  begun,accountsreceivableisreduced.Ifpaymentismadepriortothestartofacourseorterm,thepaymentis  recordedasastudentdeposit,andthestudentisprovidedaccesstotheonlineclassroomwhencoursesstart,in  thecaseofAPUS,orallowedtostarttheterm,inthecaseofHCON.Ifoneofthevariousotherpaymentoptions  areconfirmedassecured,thestudentisprovidedaccesstotheonlineclassroomorallowedtostarttheterm.  Generally,ifnoreceiptisconfirmedorpaymentoptionsecured,thestudentwillbedroppedfromtheonline  courseornotallowedtostarttheterm.Therefore,billedamountsrepresentchargesthathavebeenprepared  andsenttostudentsortheapplicablethird-partypayoraccordingtothetermsagreeduponinadvance. DepartmentofDefense,orDoD,tuitionassistanceprogramsarebilledbybranchofserviceonacourse-by- coursebasiswhenastudentstartsacourse,whereasTitleIVprogramsarebilledbasedonthecoursesincluded  inastudent’ssemester.Billedaccountsreceivableareconsideredpastdueiftheinvoicehasbeenoutstanding  formorethan30days. Theallowancefordoubtfulaccountsisbasedonmanagement’sevaluationofthestatusofexistingaccounts  receivable.Amongotherfactors,managementconsiderstheageofthereceivable,theanticipatedsourceofpay - mentandtheCompany’shistoricalallowanceconsiderations.Considerationisalsogiventoanyspecificknown  riskareasamongtheexistingaccountsreceivablebalances.Recoveriesofreceivablespreviouslywrittenoffare  recordedwhenreceived.TheCompanydoesnotchargeinterestonitspastdueaccountsreceivable. Property and equipment. Allpropertyandequipmentarecarriedatcostlessaccumulateddepreciationand  amortization,excepttheacquiredassetsofHCON,whichwererecordedatfairvalueattheacquisitiondate.  Depreciationandamortizationarecalculatedonastraight-linebasisovertheestimatedusefullivesofthe  assets.Fortaxpurposes,differentmethodsareused.Maintenanceandrepairsareexpensedasincurred,while  othercostsarecapitalizediftheyextendtheusefullifeoftheasset. TheCompany’sPartnershipAtaDistanceTMsystem,orPAD,isacustomizedstudentinformationandservices  systemusedbyAPUStomanageadmissions,onlineorientation,courseregistrations,tuitionpayments,grade  reporting,progresstowarddegrees,andvariousotherfunctions.Costsassociatedwiththissystemhave  beencapitalizedinaccordancewithAccountingStandardsCodification,orASC,subtopic350-40,(ASC350-40)  Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,andclassifiedasproperty andequipment.Thesecostsareamortizedovertheestimatedusefullifeoffiveyears.TheCompanyalso  152 AmericanPublicEducation,Inc. capitalizescertaincostsforacademicprogramdevelopment.Thesecostsaretransferredtopropertyandequip - mentuponcompletionofeachprogramandamortizedoveranestimatedlifenottoexceedthreeyears. Investments. TheCompanyaccountsforitsinvestmentsinlessthanmajorityownedcompaniesundereither  theequityorcostmethod.TheCompanyappliestheequitymethodtoinvestmentswhenithastheability  toexercisesignificantinfluence,butdoesnotcontroltheoperatingandfinancialpoliciesofthecompany.  Investmentsaccountedforundertheequitymethodareinitiallyrecordedatcost.Thepro-ratashareofthe  operatingresultsoftheinvesteeisreportedintheConsolidatedStatementsofIncomeas“Equityinvestment  income/(loss).”TherecoverabilityoftheCompany’sequitymethodinvestmentsisevaluatedonanannual  basisorsoonerifthereareindicatorsofimpairment.TheCompanyappliesthecostmethodtoinvestments  whenitdoesnothavetheabilitytoexercisesignificantinfluenceovertheoperatingandfinancialpoliciesofthe  investment.Underthecostmethod,theinvestmentisrecordedatcostandanydividendsreceivedfromthe  investmentarerecognizedasincome.Thecostmethodinvestmentsareevaluatedforimpairmentonanannual  basisorsoonerifthereareindicatorsofimpairment.TheCompany’sinvestmentsarepresentedonaone-line  basisas“Investments”intheaccompanyingConsolidatedBalanceSheets.Additionalinformationregardingthe  Company’sinvestmentsislocatedinNote6.Investments,intheseConsolidatedFinancialStatements. Notes receivable. TheCompanyevaluatesnotesreceivablebyanalyzingtheborrower’screditworthiness,cash  flowsandfinancialstatus,andtheconditionandestimatedvalueofthecollateral.TheCompanyconsidersa  notetobeimpairedwhen,baseduponcurrentinformationandevents,managementbelievesitisprobablethat  theCompanywillbeunabletocollectallamountsdueaccordingtothetermsofthenote.Notesreceivableare  includedin“Otherassets”intheaccompanyingConsolidatedBalanceSheets. Goodwill and indefinite-lived intangible assets. Goodwillrepresentstheexcessofthepurchasepriceofan  acquiredbusinessovertheamountassignedtotheassetsacquiredandliabilitiesassumed.Goodwillisnot  amortized,butisevaluatedforimpairmentannuallyormorefrequentlyifindicatorsofimpairmentexist.The  Company’smeasurementofgoodwillimpairmentinvolvesacomparisonoftheestimatedfairvalueofthe  reportingunittoitscarryingvalue. Iftheestimatedfairvalueofthereportingunitislessthanthecarrying value, anestimateofthecurrentfairvaluesofallassetsandliabilitiesismadetodeterminetheamountofimplied  goodwilland,consequently,theamountofanygoodwillimpairment.Fairvalueisderivedusingacombinationof  valuationapproaches.ThemarketapproachutilizesmarketbasedrevenueandEBITDAmultiplestoestimatefair  value.Theincomeapproachutilizesadiscountedcashflowmodeltoestimatefairvalue. Indefinite-livedintangibleassetsareassessedatleastannuallyforimpairment,ormorefrequentlyifevents  occurorcircumstanceschangebetweenannualteststhatwouldmorelikelythannotreducethefairvalueofthe  respectivereportingunitbelowitscarryingamount. UnderAccountingStandardsUpdateNo.2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment,theCompanyispermitted,butnotrequired,tofirstassessqualitativefactorstodeterminewhether  itisnecessarytoperformaquantitativegoodwillimpairmenttest.TheCompany’sannualimpairmenttestingis  performedonoraroundeachanniversarydateoftheHCONacquisition.Foradditionaldetailsregardinggood - willandindefinite-livedintangibleassetsrefertoNote7.GoodwillandIntangibleAssets,intheseConsolidated  FinancialStatements. Valuation of long-lived assets. TheCompanyaccountsforthevaluationoflong-livedassetsunderASC360,  Accounting for the Impairment or Disposal of Long-Lived Assets.ASC360requiresthatlong-livedassetsandcertain  identifiableintangibleassetsbereviewedforimpairmentwhenevereventsorchangesincircumstancesindicate  thatthecarryingamountofanassetmaynotberecoverable.Recoverabilityofthelong-livedassetismeasured  byacomparisonofthecarryingamountoftheassettofutureundiscountednetcashflowsexpectedtobe  2016 Annual Report 153 generatedbytheasset.Ifsuchassetsareconsideredtobeimpaired,theimpairmenttoberecognizedismea - suredbytheamountbywhichthecarryingamountoftheassetsexceedstheestimatedfairvalueoftheassets.  Assetstobedisposedofarereportableatthelowerofthecarryingamountorfairvalue,lesscoststosell. Revenue recognition. TheCompanyrecordsalltuitionasdeferredrevenuewhenastudentbeginsanonline  course,inthecaseofAPUS,orstartsaterm,inthecaseofHCON.Atthebeginningofeachcourseorterm,  revenueisrecognizedonaproratabasisovertheperiodofthecourseorterm,whichis,forAPUS,eitheran  eight-or16-weekperiodand,forHCON,aquarterlyterm.ThisresultsindeferredrevenueontheCompany’s  ConsolidatedBalanceSheetsthatincludesfuturerevenuethathasnotyetbeenearnedforcoursesandterms  thatareinprogress.TherevenuerecognitionpoliciesofeachoftheCompany’sreportablesegmentsaredis - cussedbelow. AMERICANPUBLICUNIVERSITYSYSTEM APUS’stuitionrevenuevariesfromperiodtoperiodbasedonthenumberofnetcourseregistrations.Students  mayremittuitionpaymentsthroughtheonlineregistrationprocessatanytimeortheymayelectvariouspay - mentoptions,includingpaymentsbysponsors,alternativeloans,financialaid,ortheDoDtuitionassistance  programthatremitspaymentsdirectlytoAPUS.Theseotherpaymentoptionscandelaythereceiptofpayment  upuntilthecoursestartsorlonger,resultingintherecordingofanaccountreceivableatthebeginningofeach  session.TuitionrevenueforsessionsinprogressthathasnotbeenearnedbyAPUSispresentedasdeferred  revenueintheaccompanyingConsolidatedBalanceSheets. APUSrefunds100%oftuitionforcoursesthataredroppedbeforetheconclusionofthefirstsevendaysofa  course.TheCompanydoesnotrecognizerevenuefordroppedcourses.Afteracoursebegins,APUSusesthe  followingrefundpolicy: 8-Week Course—Tuition Refund Schedule Withdrawal Date BeforeorDuringWeek1 DuringWeek2 DuringWeeks3and4 DuringWeeks5through8 16-Week Course—Tuition Refund Schedule Withdrawal Date BeforeorDuringWeek1 DuringWeek2 DuringWeeks3and4 DuringWeeks5through8 DuringWeeks9through16 Tuition Refund Percentage 100% 75% 50% NoRefund Tuition Refund Percentage 100% 100% 75% 50% NoRefund Studentsaffiliatedwithcertainorganizationsmayhaveanalternaterefundpolicy. APUSrecognizesrevenueonaproratabasisovertheperiodofitscoursesasAPUScompletesthetasksentitling  ittothebenefitsrepresentedbysuchrevenue.Ifastudentwithdrawsduringtheacademicterm,APUScalcu - latestheportionoftuitionthatisnon-refundablebasedonthetuitionrefundpolicyandrecognizesitasreve - nueintheperiodthewithdrawaloccurs.Forthosestudentswhohaveanoutstandingreceivablebalanceatthe  154 AmericanPublicEducation,Inc. dateofwithdrawal,APUSassessescollectabilityandrecognizesasrevenuethoseamountswherecollectability  isreasonablyassuredbasedonAPUS’shistorywithsimilarstudentaccounts.Thispolicywasimplementedon  January1,2015.Previously,APUSrecognizedrevenueforallstudentwithdrawalsandestablishedanallowance  forthosereceivablesconsidereduncollectible.TheCompanydoesnotbelievethatthischangeinpolicyhashad  amaterialeffectonitsresultsofoperationsorfinancialcondition. Otherrevenueincludeschargesforatechnologyfeepercourse.APUSprovidesagranttocoverthetechnology  feeforstudentsusingDoDtuitionassistanceprograms.PriortoApril2015,APUSprovidedagranttocoverthe  technologyfeeforstudentsusingeducationbenefitprogramsadministeredbytheU.S.DepartmentofVeterans  Affairs,orVA.AfterApril1,2015,thetechnologyfeegrantwasnolongerappliedtostudentsusingVAeducation  benefits.APUSchargedatransfercreditevaluationfeeandeliminatedthefeeinMarch2016.Thetransfercredit  evaluationfeewasforsecuringofficialtranscriptsonbehalfofthestudentandevaluatingthetranscriptsfor  transfercredit. Studentsalsoarechargedgraduation,lateregistration,transcriptrequestandcomprehensiveexamination  fees,whenapplicable.InaccordancewithASC605-50,Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,otherfeesalsoincludebookpurchasecommissionsAPUSreceivesforgrad - uatestudentbookpurchasesandancillarysupplypurchasesstudentsmakedirectlyfromAPUS’spreferredbook  vendor. HONDROS COLLEGE OF NURSING HCON’stuitionrevenuevariesfromperiodtoperiodbasedonthenumberofstudentsenrolledandthepro - gramstheyareenrolledin.Studentsmayremittuitionpaymentsatanytime,ortheymayelectvariouspay - mentoptionsthatcandelayreceiptofpaymentupuntilthetermstartsorlonger.Theseotherpaymentoptions  includepaymentsbysponsors,financialaid,alternativeloans,orpaymentplanoptions.Ifoneofthevarious  otherpaymentoptionsareconfirmedassecured,thestudentisallowedtostarttheterm.Allfinancialaidis  awardedpriortothestartofthetermandrequestsforauthorizationofdisbursementbegininthefirstweek  oftheterm.TuitionrevenuefortheterminprogressthathasnotyetbeenearnedbyHCONispresentedas  deferredrevenueintheaccompanyingConsolidatedBalanceSheets. HCON’srefundpolicycomplieswiththerulesoftheOhioStateBoardofCareerCollegesandSchoolsandis  applicabletoeachterm.Foracoursewithanon-campusorotherin-personcomponent,thedateofwithdrawal  isdeterminedbyastudent’slastattendeddayofclinicaloffering,laboratorysession,orlecture.Foranonline  course,thedateofwithdrawalisdeterminedbyastudent’slastsubmittedassignmentinthecourse.HCONuses  thefollowingrefundpolicy: Withdrawal Date Beforefirstfullcalendarweekofthequarter Duringfirstfullcalendarweekofthequarter Duringsecondfullcalendarweekofthequarter Duringthirdfullcalendarweekofthequarter Duringfourthfullweekofthequarter Studentsaffiliatedwithcertainorganizationsmayhaveanalternaterefundpolicy. Tuition Refund Percentage 100% 75% 50% 25% NoRefund 2016 Annual Report 155 HCONrecognizesrevenueonaproratabasisovertheacademicterm.Ifastudentwithdrawsduringtheterm,  HCONcalculatestheportionoftuitionthatisnon-refundablebasedonthetuitionrefundpolicyandrecognizes  itasrevenueintheperiodthewithdrawaloccurs. Otherrevenueincludesapplicationfeesaswellasfeesfortesting,booksandsupplies,lab,technologyand  graduation. Deferred revenue and student deposits. DeferredrevenueandstudentdepositsatDecember31,2015and  2016,was$29,727,000and$20,639,000,respectively. TheCompanyprovidesscholarshipstocertainstudents,includingemployeesandeligibledependents,to  assistthemfinanciallyandpromotetheirregistration.Scholarshipassistanceof$2,589,000,$7,583,000and  $18,021,000wasprovidedfortheyearsendedDecember31,2014,2015and2016,respectively,andisincluded  asareductiontorevenueintheaccompanyingConsolidatedStatementsofIncome. Advertising costs. AdvertisingcostsareexpensedasincurredduringtheyearpursuanttoASC720-35.  AdvertisingexpensesfortheyearsendedDecember31,2014,2015and2016,were$50,950,000,$42,226,000  and$39,450,000respectively,andareincludedinsellingandpromotionalcostsintheaccompanying  ConsolidatedStatementsofIncome. Income taxes. Deferredtaxesaredeterminedusingtheliabilitymethod,wherebydeferredtaxassetsarerecog - nizedfordeductibletemporarydifferencesanddeferredtaxliabilitiesarerecognizedfortaxabletemporarydif - ferences.Temporarydifferencesarethedifferencesbetweenthereportedamountsofassetsandliabilitiesand  theirtaxbases.Asthesedifferencesreverse,theywillenterintothedeterminationoffuturetaxableincome.  Deferredtaxassetsarereducedbyavaluationallowancewhen,intheopinionofmanagement,itismorelikely  thannotthatsomeportionorallofthedeferredtaxassetswillnotberealized.Deferredtaxassetsandliabili - tiesareadjustedfortheeffectsofchangesintaxlawsandratesonthedateofenactmentofsuchchanges. TherewerenomaterialuncertaintaxpositionsasofDecember31,2014,2015or2016.Interestandpenalties  associatedwithuncertainincometaxpositionswouldbeclassifiedasincometaxexpense.TheCompanyhasnot  recordedanymaterialinterestorpenaltiesduringanyoftheyearspresented. Stock-based compensation. TheCompanyaccountsforstock-basedpaymentsinaccordancewithASC718,  Stock Compensation,whichrequirescompaniestoexpenseshare-basedcompensationbasedonfairvalue.  Stock-basedpaymentsmayinclude:incentivestockoptionsornon-qualifiedstockoptions,stockappreciation  rights,restrictedstock,restrictedstockunits,dividendequivalentrights,performanceshares,performance  units,cash-basedawards,otherstock-basedawards,includingunrestrictedshares,oranycombinationofthe  foregoing. Income per common share. Basicnetincomepercommonshareisbasedontheweightedaveragenumberof  sharesofcommonstockoutstandingduringtheperiod.Dilutednetincomepercommonshareincreasesthe  sharesusedinthepersharecalculationbythedilutiveeffectsofoptions,warrants,andrestrictedstock. Fair value of financial instruments. Thecarryingamountsofcashandcashequivalents,tuitionreceivable,  accountspayable,andaccruedliabilitiesapproximatefairvaluebecauseoftheshortmaturityofthese  instruments. Concentration of credit risk. TheCompanymaintainsitscashandcashequivalentsinbankdepositaccounts  withvariousfinancialinstitutions.CashandcashequivalentbalancesmayexceedtheFDICinsurancelimit.The  Companyhashistoricallynotexperiencedanylossesinsuchaccounts. 156 AmericanPublicEducation,Inc. Accounting Pronouncements. WeconsidertheapplicabilityandimpactofallAccountingStandardsUpdates,or  ASUs.ASUsissuedbutnotlistedbelowwereassessedanddeterminedtobeeithernotapplicableorexpectedto  haveminimalimpactonourconsolidatedfinancialpositionand/orresultsofoperations. InMay2014,theFinancialAccountingStandardsBoard,orFASB,issuedASUNo.2014-09,Revenue from Contracts with Customers (Topic 606).Thestandardisacomprehensivemodeltouseinaccountingforrevenuearising  fromcontractswithcustomersandsupersedestherevenuerecognitionrequirementsinASC605,R evenue Recognition,aswellasothervarioussectionsoftheASC.ThecoreprincipleofASU2014-09istorecognizereve - nuewhenpromisedgoodsorservicesaretransferredtocustomersinanamountthatreflectstheconsideration  towhichanentityexpectstobeentitledforthosegoodsorservices.Theauthoritativeguidanceprovidesafive- stepanalysisoftransactionstodeterminewhenandhowrevenueisrecognized.Morejudgmentandestimates  mayberequiredwithintherevenuerecognitionprocessthanarerequiredunderexistingU.S.GAAP.Thestan - dardalsoincludesacohesivesetofdisclosurerequirementsincludingcomprehensiveinformationaboutthe  nature,amount,timinganduncertaintyofrevenueandcashflowsarisingfromcontractswithcustomers.ASU  2014-09wasinitiallyintendedtobeeffectiveforfiscalyears,andtheinterimperiodswithinthesefiscalyears,  beginningonorafterDecember15,2016.InAugust2015,theFASBissuedASU2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.Thisstandarddefersforoneyeartheeffectivedateof  ASU2014-09.Thedeferralwillresultinthisstandardbeingeffectiveforfiscalyears,andinterimperiodswithin  thosefiscalyears,beginningafterDecember15,2017.Earlierapplicationispermittedonlyasofannualreport - ingperiodsbeginningafterDecember15,2016,includinginterimreportingperiodswithinthatreportingperiod.  Entitiesmustuseeitherafullretrospectiveapproachforallperiodspresentedintheperiodofadoptionora  modifiedretrospectiveapproach. InadditiontoASU2015-14,therehavebeenthreenewASUsissuedamendingcertainaspectsofASU2014-09.  • ASUNo.2016-08,Principal versus Agent Considerations (Reporting Revenue Gross Versus Net),issuedinMarch  2016,clarifiedcertainaspectsoftheprincipalversusagentguidance. • ASUNo.2016-10,Identifying Performance Obligations and Licensing,issuedinApril2016,clarifiesguidance  relatedtoidentifyingperformanceobligationsandlicensingimplementation. • ASUNo.2016-12,Revenue from Contracts with Customers—Narrow Scope Improvements and Practical Expedients, issuedinMay2016,providesamendmentsandpracticalexpedientsintheareasofassessingcollectability,  presentationofsalestaxesreceivedfromcustomers,noncashconsideration,contractmodificationandclarifi - cationofusingthefullretrospectiveapproachtoadoptASU2014-09. ASU2014-09requiresidentifyingperformanceobligationsbytheCompanyandtheCustomer.Asaresult,the  revenuerecognitionperiodmaybeextendedincertainlimitedinstancesforAPUStuitionandtechnologyfee  revenue.APUSgraduationfeerevenue,includedintheCompany’sotherrevenue,iscurrentlyrecognizedatthe  timetheapplicationforgraduationissubmittedbythestudent.Thenewstandardmayextendtherevenuerec - ognitionperiodforthisrevenuestream.TheCompanyiscurrentlyevaluatingtheimpactofthenewstandardon  otherAPUSandHCONrevenuestreams. TheCompanyisevaluatingwhichtransitionapproachtouseandadditionalimpactsthatthenewrevenuerecog - nitionstandardandsubsequentupdateswillhaveonitsConsolidatedFinancialStatements. InAugust2014,theFASBissuedASUNo.2014-15,Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.Thestandardrequiresmanagementtoevaluate,ateachinterimandannualreportingperiod,  whetherthereareconditionsoreventsthatraisesubstantialdoubtabouttheentity’sabilitytocontinueasa  goingconcernwithinoneyearafterthedatethefinancialstatementsareissued,andproviderelateddisclo - sures.ASU2014-15iseffectiveforannualperiodsendingafterDecember15,2016,andforannualandinterim  2016 Annual Report 157 periodsthereafter,andearlyadoptionispermitted.TheCompany’sadoptionofthisstandarddidnothavea  materialimpactonitsConsolidatedFinancialStatements. InApril2015,theFASBissuedASUNo.2015-05,Intangibles-Goodwill and Other-Internal-Use Software, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (Subtopic 350-40).Thestandardrequirescustomersto determinewhetheracloudcomputingarrangementcontainsasoftwarelicense.Ifthearrangementcontainsa  softwarelicense,customersmustaccountforfeesrelatedtothesoftwarelicenseelementinamannerconsis - tentwithhowtheacquisitionofothersoftwarelicensesisaccountedforunderASC350-40;ifthearrangement  doesnotcontainasoftwarelicense,customersmustaccountforthearrangementasaservicecontract.ASU  2015-05waseffectivefortheCompanyforthefiscalyearendingDecember31,2016.Theprospectiveadoption  ofthisstandarddidnothaveamaterialimpactontheCompany’sConsolidatedFinancialStatements. InSeptember2015,theFASBissuedASUNo.2015-16,Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.Thenewguidanceeliminatestherequirementthatanacquirerinabusiness  combinationaccountformeasurement-periodadjustmentsretrospectivelyandinsteadallowsrecognitionof  measurement-periodadjustmentsduringtheperiodinwhichtheamountoftheadjustmentisdetermined.This  standardwaseffectiveforfiscalyearsbeginningafterDecember15,2015,andinterimperiodswithinthosefiscal  years.TheadoptionofthisstandarddidnothaveamaterialimpactontheCompany’sConsolidatedFinancial  Statements. InNovember2015,theFASBissuedASUNo.2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.Thestandardrequiresthatdeferredtaxassetsanddeferredtaxliabilitiesbeclassifiedas  non-currentonthebalancesheetratherthanbeingseparatedintocurrentandnon-current.Thisstandard  iseffectiveforfiscalyears,andinterimperiodswithinthoseyears,beginningafterDecember15,2016.Early  adoptionispermittedandthestandardmaybeappliedeitherretrospectivelyoronaprospectivebasis.The  Companydoesnotplantoearlyadopt,willapplytheguidanceprospectively,andcurrentlyanticipatesthatthe  implementationofthisstandardwillnothaveamaterialimpactonitsConsolidatedFinancialStatements. InJanuary2016,theFASBissuedASUNo.2016-01,Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.Thestandardaddressescertainaspectsofrecogni - tion,measurement,presentation,anddisclosureoffinancialinstruments.Thesechangeswillrequireanentity  tomeasure,atfairvalue,investmentsinequitysecuritiesandotherownershipinterestsinanentityandto  recognizethechangesinfairvaluewithinnetincome.ASU2016-01iseffectiveforfiscalyears,andinterimperi - odswithinthoseyears,beginningafterDecember15,2017,andearlyadoptionisnotpermitted.TheCompany  iscurrentlyassessingtheimpactoftheadoptionofthisstandardanddoesnotcurrentlyanticipateitwillhavea  materialimpactonitsConsolidatedFinancialStatements. InFebruary2016,theFASBissuedASUNo.2016-02,Leases (Topic 842) .Thisstandardrequiresentitiesthatlease  assetstorecognizeonthebalancesheettheassetsandliabilitiesfortherightsandobligationscreatedbythose  leasesinadditiontodisclosingcertainkeyinformationaboutleasingarrangements.Entitiesmayelectnotto  recognizeleaseassetsandliabilitiesformostleaseswithtermsof12monthsorless.Expensesrelatedtofinance  leaseswillbethesumofinterestontheleaseobligationandamortizationoftheright-ofuseassetandexpenses  relatedtooperatingleaseswillgenerallyberecognizedonastraight-linebasis.Intransition,lesseesandlessors  arerequiredtorecognizeandmeasureleasesatthebeginningoftheearliestperiodpresentedusingamodified  retrospectiveapproach.Thisstandardiseffectiveforfiscalyears,andtheinterimperiodswithinthosefiscal  years,beginningafterDecember15,2018.Earlyadoptionispermitted.TheCompanydoesnotplantoearly  adoptandiscurrentlyevaluatingtheimpactthisstandardwillhaveonitsConsolidatedFinancialStatements. 158 AmericanPublicEducation,Inc. InMarch2016,theFASBissuedASUNo.2016-09,Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,changinghowentitiesaccountforcertainaspectsofshare-based  paymentstoemployees.Thenewguidancerequiresexcesstaxbenefitsandtaxdeficienciestoberecognizedas  incometaxexpenseorbenefitintheincomestatement,andcouldintroducevolatilitytotheCompany’sprovi - sionforincometaxes.Excesstaxbenefitsmustbepresentedasanoperatingactivityonthestatementofcash  flowsratherthanafinancingactivity.ASU2016-09requirescompaniestomakeanaccountingpolicyelectionat  thetimeofadoptiontoeitherestimatethenumberofawardsthatareexpectedtovest(consistentwithexisting  U.S.GAAP)oraccountforforfeitureswhentheyoccur.Theforfeitureelectionprovisionmustbeappliedusinga  retrospectivetransitionapproach,withacumulative-effectadjustmentrecordedtoretainedearningsasofthe  beginningoftheperiodofadoption.ThenewguidanceiseffectiveforfiscalyearsbeginningafterDecember15,  2016,includinginterimperiodswithinthosefiscalyears.TheCompanyhaselectedtheforfeitureoptiontocon - tinuetoestimatethenumberofawardsthatareexpectedtovest.TheCompanyestimatestheadoptionof2016- 09mayincreaseitsreportedincometaxexpensebetween$400,000and$700,000inthefirstquarterof2017,  andbetween$600,000and$900,000inthefirstquarterof2018,duetoexpiringstockoptionswithanoption  pricegreaterthanthecurrentstockprice.Otherincreasesinincometaxexpensemayoccurthroughouttheyear  forthevestingofrestrictedstock,determinedbythestockpriceattheendofeachreportingperiod. InJune2016,theFASBissuedASUNo.2016-13,Financial Instruments—Credit Losses, which is included in ASC Topic 326, Measurement of Credit Losses on Financial Instruments.Thenewguidancerevisestheaccountingrequire - mentsrelatedtothemeasurementofcreditlossesandwillrequireentitiestomeasureallexpectedcreditlosses  forfinancialassetsbasedonhistoricalexperience,currentconditionsandreasonableandsupportableforecasts  aboutcollectability.Assetsmustbepresentedinthefinancialstatementsatthenetamountexpectedtobe  collected.TheguidancewillbeeffectiveforthefiscalyearsbeginningafterDecember15,2019,includinginterim  periodswithinthosefiscalyears.EarlyadoptionispermittedwithfiscalyearsbeginningafterDecember15,  2018.TheCompanyisevaluatingtheimpactthisstandardwillhaveonitsConsolidatedFinancialStatements. InAugust2016,theFASBissuedASUNo.2016-15,Classification of Certain Cash Receipts and Cash Payments, which is included in FASB Accounting Standards Codification (ASC) Topic 230,Statement of Cash Flows.Thenewguidance clarifieshowcompaniespresentandclassifycertaincashreceiptsandcashpaymentsinthestatementof  cashflows,includingcontingentconsiderationpaymentsmadeafterabusinesscombinationanddistributions  receivedfromequitymethodinvestees.TheguidanceiseffectiveforfiscalyearsbeginningafterDecember15,  2017,includinginterimperiodswithinthosefiscalyears,withearlyadoptionpermitted.TheCompanydoesnot  plantoearlyadoptandiscurrentlyevaluatingtheimpactthisstandardwillhaveonitsConsolidatedFinancial  Statements. InOctober2016,theFASBissuedASUNo.2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, requiringentitiestorecognizetheincometaxconsequencesofanintra-entitytransferofan  assetotherthaninventorywhenthetransferoccurs.Thenewguidanceiseffectiveforfiscalyearsbeginning  afterDecember15,2017,includinginterimperiodswithinthosefiscalyears.Earlyadoptionispermittedifinthe  firstinterimperiodanentityissuesinterimfinancialstatements.ASU2016-16mustbeappliedonamodifiedret - rospectivebasisthroughacumulative-effectadjustmentdirectlytoretainedearningsasofthebeginningofthe  periodofadoption.TheCompanyiscurrentlyevaluatingtheimpactthisstandardwillhaveonitsConsolidated  FinancialStatements. InNovember2016,theFASBissuedASUNo.2016-18,Restricted Cash,whichisincludedinFASBAccounting  StandardsCodification(ASC)Topic230,Statement of Cash Flows. Thenewguidancerequiresthatamountsgen - erallydescribedasrestrictedcashandrestrictedcashequivalentsbeincludedwithcashandcashequivalents  whenreconcilingthebeginning-of-periodandend-of-periodtotalamountsshownonthestatementofcash  flows.TheguidanceiseffectiveforfiscalyearsbeginningafterDecember15,2017,includinginterimperiods  2016 Annual Report 159 withinthosefiscalyears,withearlyadoptionpermitted.TheCompanydoesnotcurrentlyanticipatethenew  guidancewillhaveamaterialimpactonitsConsolidatedFinancialStatements. InJanuary2017,theFASBissuedASUNo.2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business,providingaframeworkforentitiestousewhendeterminingwhetherasetofassetsandactivities  constitutesabusiness.TheguidanceiseffectiveforfiscalyearsbeginningafterDecember15,2017,including  interimperiodswithinthosefiscalyears,andshouldbeappliedprospectively.Earlyadoptionispermitted.The  CompanyiscurrentlyevaluatingtheimpactthisstandardwillhaveonitsConsolidatedFinancialStatements. InJanuary2017,theFASBissuedASUNo.2017-04,Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,whicheliminatessteptwofromthegoodwillimpairmenttest.Instead,ifthecarryingamount ofareportingunitexceedsitsfairvalue,animpairmentlossshouldberecognizedinanamountequaltothe excess,butlimitedtothetotalamountofgoodwillallocatedtothereportingunit.Theguidancemustbeappliedon aprospectivebasisanddisclosureofthenatureof,andreasonfor,thechangeinaccountingprincipleisrequired upontransition.ASU2017-04iseffectiveforfiscalyearsbeginningafterDecember15,2019.Earlyadoptionis permittedforinterimorannualgoodwillimpairmenttestsperformedontestingdatesafterJanuary1,2017.The CompanyiscurrentlyevaluatingtheimpactthisstandardwillhaveonitsConsolidatedFinancialStatements. NOTE 3. ACQUISITION ACCOUNTING OnNovember1,2013,theCompanyacquiredalloftheoutstandingcommonstockofHCON,foraninitial  adjustedaggregatepurchasepriceofapproximately$46.3million.TheHCONacquisitionwasaccountedfor  underFASBASCTopic805,Business Combinations, whichrequirestheacquisitionmethodtobeusedforallbusi - nesscombinations.UnderFASBASCTopic805,theassetsandliabilitiesofanacquiredcompanyarereportedat  businessfairvaluealongwiththefairvalueofunrecordedintangibleassetsatthedateofacquisition.Goodwill  representstheexcessofthepurchasepriceofanacquiredbusinessovertheamountassignedtotheassets  acquiredandliabilitiesassumedandthefairvalueassignedtoidentifiableintangibleassets.Theinitialpurchase  priceallocationresultedin$38.1millionofgoodwill,whichisdeductiblefortaxpurposes.Intangibleassetsare  amortizedovertheirestimatedusefullivesunlesstheyaredeemedtohaveanindefinitelife.Identifiedintangi - bleassetswithanindefinitelifearetradename,accreditation,licensingandTitleIV,andaffiliateagreementsas  theybenefittheCompanyindefinitely.BecauseHCONiswhollyownedbytheCompanyasaresultoftheacquisi - tion,managementhasdeterminedthatpush-downaccountingisappropriate. Aspartofthetransaction,theCompanyandthesellingstockholdersofHCONagreedtoanelectionunder  Section338(h)(10)oftheInternalRevenueCodeof1986,asamended,asitrelatestotheacquisitionofHCONby  theCompany.ASection338(h)(10)electionisanelectionmadejointlybybuyer(s)andseller(s)totreatastock  acquisitionasanassetacquisitionforU.S.federalincometaxpurposes.Theacquisitionresultedinaprelimi - naryestimateoffairvalueofitsliabilitytothesellingstockholdersrelatedtotheSection338(h)(10)electionin  theamountof$150,000,whichwasincludedintheinitialgoodwillallocation.PriortoDecember31,2014,the  CompanyreviseditsestimateofthefairvalueofitsliabilitytoHCON’ssellingstockholdersrelatedtotheSection  338(h)(10)electiontoapproximately$636,000.Asaresult,thetotaladjustedaggregatepurchasepriceandthe  amountofgoodwillwererevisedto$46.8millionand$38.6million,respectively. Thefairvalueofidentifiedintangibleassetsacquiredwasdeterminedusingoneofthefollowingthreevaluation  methodologies: • Costapproach; • Incomeapproach;or • Marketapproach. 160 AmericanPublicEducation,Inc. (in thousands) Fair value consideration transferred: Cash FairValueofIRC338(h)(10)election Total fair value consideration transferred Recognized amounts of identifiable tangible assets acquired and liabilities assumed: Assetsacquired Liabilitiesassumed Assets acquired in excess of liabilities assumed Recognized identified intangible assets: Studentcontractsandrelationships Tradename Curricula Accreditation,licensingandTitle IV Affiliateagreements Non-competeagreements Total recognized identified intangible assets Goodwill Useful Life 6years Indefinite 3years Indefinite Indefinite 5years NOTE 4. PROPERTY AND EQUIPMENT PropertyandequipmentatDecember31,2015and2016consistedofthefollowing: (in thousands) Land Buildingandbuildingimprovements Leaseholdimprovements Officeequipment Computerequipment Furnitureandfixtures OtherCapitalizableAssets Softwaredevelopment Programdevelopment Accumulateddepreciationandamortization Useful Life — 27.5–39years upto15years 5years 3years 7years 5years 5years 3years 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 $46,128 636 $46,764 $ 4,834 4,786 $   48 $ 3,870 1,998 405 1,686 37 86 $ 8,082 $38,634 2016 $  9,394 54,541 1,208 2,219 22,492 8,036 128 79,452 6,966 184,436 86,749 $ 97,687 Assetsheldforsaleof$2.1millionareexcludedfromthe$97.7millioninpropertyandequipmentintheabove  table.Foradditionalinformationsee“Note5.AssetsHeldforSale”intheseConsolidatedFinancialStatements. FortheyearendedDecember31,2016,theCompany’sAPEISegmentdisposed$5.0millioninlong-livedassets,  primarilyconsistingofalossthatresultedfromtheabandoneddevelopmentofanewstudentcourseregistra - tionsystem.Itwasnolongerprobablethatdevelopmentwouldbecompletedandthesoftwareplacedinservice  2016 Annual Report 161 duetoprogrammingdifficultiesthatcouldnotberesolvedinatimelybasisandwithoutadditionalcost.The  originalcarryingvalueofthesoftwareandincurredcostwas$4.0million.Thelossesonlong-livedassetsare  includedaslossondisposalsoflong-livedassetsintheseConsolidatedFinancialStatements. DuringtheyearsendedDecember31,2014,2015and2016,theCompanyrecordeddepreciationexpense  of$14,980,000,$19,626,000and$18,674,000,respectively.Inaddition,theCompanyrecordedamortization  expenserelatedtootherassetsof$1,141,000,$894,000,and$710,000duringtheyearsendedDecember31,  2014,2015and2016,respectively. NOTE 5: ASSETS HELD FOR SALE AssetsheldforsalerepresentexcessrealpropertylocatedinCharlesTown,WestVirginia,forourAPEISegment,  whichisnolongerinuseduetotherelocationofemployeestoanewfacility.Long-livedassetsareclassifiedas  heldforsalewhentheassetsareexpectedtobesoldwithinthenext12monthsandmeettheotherrelevant  held-for-salecriteria.Assuch,thepropertyisrecordedatthelowerofthecarryingvalueorfairvalue,lesscost  tosell,untilsuchtimeastheassetissold.Thefairvalueoftheassetof$2.1million,asdeterminedbyaninde - pendentappraisal,waslessthanthecarryingvalue,andthereforetheCompanyrecognizedalossof$0.5million  fortheyearendedDecember31,2016. Inaddition,fortheyearendedDecember31,2016,theCompany’sAPEIsegmentsoldcertainexcessrealprop - ertylocatedinCharlesTown,WestVirginia,withacarryingvalueof$1.1millionforanetsalespriceof$0.8  million.Thispropertywasnolongerinuseduetotherelocationofemployeestoanotherfacility.Inconnection  withthissale,theCompanyrecordedalossonsaleof$0.3million. Inconnectionwiththeitemsnotedabove,theCompany’sAPEIsegmenthadalossonassetsheldforsaleof$0.8  millionincludedinlossonassetsheldforsaleintheseConsolidatedFinancialStatements. NOTE 6: INVESTMENTS OnSeptember30,2012,theCompanymadea$6.8millioninvestmentinpreferredstockofNWHWHoldings,  Inc.,orNWHWHoldings,aholdingcompanythatoperatesaninformationtechnologytrainingcompany,New  HorizonsWorldwide, Inc.,orNewHorizons,representingapproximately20%ofthefullydilutedequityofNWHWHoldings.Duringthe  yearendedDecember31,2016,theCompanyreceivedadividendof$3.0millionfromNWHWHoldings.Incon - nectionwiththeinvestment,theCompanyisentitledtocertainrights,includingtherighttorepresentationon  theBoardofDirectorsofNWHWHoldings.TheCompanyaccountsforitsinvestmentinNewHorizonsunderthe  equitymethodofaccounting.Therefore,theCompanyrecordedtheinvestmentatcostandrecognizesitsshare  ofearningsorlossesintheinvesteeintheperiodsforwhichtheyarereportedwithacorrespondingadjustment  inthecarryingamountoftheinvestment. OnFebruary20,2013,theCompanymadea$4.0millioninvestmentinpreferredstockofFidelisEducation,  Inc.,orFidelisEducation,representingapproximately22%ofitsfullydilutedequity.OnFebruary1,2016,the  Companymadeanadditional$950,000investmentinpreferredstock.AsofDecember31,2016,theCompany  ownedapproximately23%ofitsfullydilutedequity.FidelisEducationoffersalearningrelationshipmanagement  platformthathasthegoalofimprovingeducationadvisingandcareermentoringservicesofferedtostudents  astheypursuecollegedegrees.Inconnectionwiththeinvestment,theCompanyisentitledtocertainrights,  includingtherighttorepresentationontheBoardofDirectorsofFidelisEducation.TheCompanyaccountsfor  itsinvestmentinFidelisEducationundertheequitymethodofaccounting.Therefore,theCompanyrecorded  theinvestmentatcostandrecognizesitsshareofearningsorlossesintheinvesteeintheperiodsforwhichthey  arereportedwithacorrespondingadjustmentinthecarryingamountoftheinvestment. 162 AmericanPublicEducation,Inc. OnApril2,2014,theCompanymadea$1.5millioninvestmentinpreferredstockofSecondAvenueSoftware,  Inc.,orSecondAvenueSoftware,representingapproximately26%ofitsfullydilutedequity.SecondAvenue  Softwareisagame-basededucationsoftwarecompanythatdevelopssoftwareonaproprietaryand“work-for- hire”basis.Inconnectionwiththeinvestment,theCompanyisentitledtocertainrights,includingtherightto  representationontheBoardofDirectorsofSecondAvenueSoftware.TheCompanyaccountsforitsinvestment  inSecondAvenueSoftwareundertheequitymethodofaccounting.Therefore,theCompanyrecordedthe  investmentatcostandrecognizesitsshareofearningsorlossesintheinvesteeintheperiodsforwhichtheyare  reportedwithacorrespondingadjustmentinthecarryingamountoftheinvestment. OnDecember21,2015,theCompanymadea$3.5millioninvestmentinpreferredstockofRallyPoint,anonline  socialnetworkformembersofthemilitary,representingapproximately14%ofitsfullydilutedequity.The  CompanyaccountsforitsinvestmentinRallyPointusingthecostmethodofaccounting. TheCompanyevaluateditscostmethodinvestmentsforimpairmentasofDecember31,2016,andestimated  thatthefairvalueofitscostmethodinvestmentswasatleastequaltoitscarryingvalueasofthatdate.The  aggregatecarryingamountoftheCompany’scostmethodinvestmentspresentedonitsConsolidatedBalance  SheetasofDecember31,2015,andDecember31,2016,is$4.1million.Unlessindicatorsofimpairmentexist,the fairvalueoftheCompany’scostmethodinvestmentsisnotestimatedinanyperiodwhereitisnotpracticableto  estimatethefairvalueofsuchinvestments. NOTE 7. GOODWILL AND INTANGIBLE ASSETS InconnectionwithitsNovember1,2013,acquisitionofHCON,theCompanyappliedASC805,Business  Combinations,usingtheacquisitionmethodofaccounting.TheCompanyrecorded$38.6millionofgoodwill,  representingtheexcessofthepurchasepriceovertheamountassignedtothenetassetsacquiredandthefair  valueassignedtoidentifiedintangibleassets,andrecorded$8.1millionofidentifiedintangibleassets. InaccordancewithASC350,Intangibles-GoodwillandOther,theCompanyassessesgoodwillforimpairmenton  oraroundeachanniversarydateoftheacquisition,andmorefrequentlyifeventsandcircumstancesindicate  thatgoodwillmightbeimpaired.Goodwillimpairmenttestingconsistsofanoptionalqualitativeassessmentas  wellasatwo-stepquantitativetest.Steponeinvolvescomparingthefairvalueofthereportingunittoitscarry - ingvalue.Ifthecarryingvalueofthereportingunitisgreaterthanzeroanditsfairvalueisgreaterthanitscarry - ingamount,thereisnoimpairment.Ifthecarryingvalueisgreaterthanthefairvalue,thesecondstepmustbe  completedtomeasuretheamountofimpairment,ifany.Steptwoinvolvescalculatingtheimpliedfairvalueof  goodwillbydeductingthefairvalueofalltangibleandintangibleassets,excludinggoodwill,ofthereportingunit  fromthefairvalueofthereportingunitasdeterminedinstepone.Theimpliedfairvalueofgoodwilldetermined  inthisstepiscomparedtothecarryingvalueofgoodwill.Iftheimpliedfairvalueofgoodwillislessthanthe  carryingvalueofgoodwill,animpairmentlossisrecognizedequaltothedifference. Inadditiontogoodwill,HCONrecordedatotalof$8.1millionofidentifiableintangibleassetsattheacquisi - tiondate.HCONrecordedidentifiedintangibleassetswithanindefiniteusefullifeintheaggregateamountof  $3.7million,whichincludestradenames,accreditation,licensingandTitleIV,andaffiliateagreements.HCON  2016 Annual Report 163 recorded$4.4millionofidentifiedintangibleassetswithadefiniteusefullife.Attheacquisitiondate,theuseful  lifeassignedtoeachtypeofintangibleassetwithadefiniteusefullifewasasfollows: (in thousands) Studentcontractsandrelationships Curricula Non-competeagreements Thefutureamortizationofintangibleassetsisasfollows(inthousands): 2017 2018 2019 2020andbeyond Total Useful Life 6years 3years 5years $598 563 322 — $1,483 InAugust2016,theCompanycompletedaqualitativeassessmenttodetermineifaninterimgoodwillimpair - menttestwasnecessary.Duetorelevantcircumstancesthatincluded:(1)HCON’sunderperformanceagainst  internaltargets;(2)thechallenginghighereducationcompetitiveandregulatoryenvironment,particularlyfor  proprietaryinstitutions;(3)overallfinancialperformance;and(4)theuncertainstatusofACICS,theCompany  concludeditwasmorelikelythannotthefairvalueofHCONwaslessthanitscarryingamount;therefore,the  CompanyproceededwithsteponeofthegoodwillimpairmenttestasofAugust31,2016.Steponeofthegood - willimpairmenttestidentifiedthatHCON’sfairvaluewaslessthanthecarryingvalue.Accordingly,steptwotest - ingwascompletedinordertodeterminetheamountoftheimpairment.Insteptwo,thefairvalueofallassets  andliabilitieswasestimatedforthepurposeofderivinganestimateoftheimpliedfairvalueofgoodwill.The  impliedfairvalueofgoodwillwasthencomparedtotherecordedgoodwilltodeterminetheamountofimpair - ment.Steptwotestingindicatedthatthefairvalueofgoodwillwas$33.9millionor$4.7millionlessthanits  carryingvalue.Therewasnoimpairmentoftheintangibleassets.Asaresult,theCompanyrecordedapretax,  non-cashchargeof$4.7milliontoreducethecarryingvalueofitsgoodwill. TheCompanyutilizedanindependentvaluationfirmtodeterminethefairvalueofHCON.Theindependent  valuationfirmweightedtheresultsoffourdifferentvaluationmethods:(1)discountedcashflow;(2)guideline  companymethod;(3)guidelinetransactionmethod-comparabletransactions;and(4)guidelinetransaction  method-privateequitytransactions.Undertheincomeapproach,fairvaluewasdeterminedbasedonesti - mateddiscountedfuturecashflowsofHCON.Thecashflowswerediscountedbyanestimatedriskweighted-av - eragecostofcapital,whichwasintendedtoreflecttheoveralllevelofinherentriskofHCON.Underthemarket  approach,pricingtermsfromothertransactionsinthehighereducationmarketwereusedtodeterminethe  valueofHCON.ValuesderivedunderthefourvaluationmethodswerethenweightedtoestimateHCON’senter - prisevalue. ThegoodwillimpairmentchargerecordedinthequarterendedSeptember30,2016,eliminatedthedifference  betweenthefairvalueofgoodwillandthebookvalueofgoodwill.Assuch,futurechanges,includingminor  changes,inrevenue,operatingincome,valuationmultiples,discountratesandotherinputstothevaluation  processmayresultinfutureimpairmentchargesandthosechargesmaybematerial. AsofOctober31,2016,theCompanycompletedsteponeofthegoodwillimpairmenttestaspartofitsannual  assessment.SteponeofthegoodwillimpairmenttestconcludedthatHCON’sfairvaluewasmorethanthecar - ryingvalue;consequently,therewasnoimpairment.Themethodandestimatesusedinthesteponetestwere  consistentwiththoseusedintheAugust31,2016,impairmenttesting. 164 AmericanPublicEducation,Inc. ChangesinthecarryingamountofgoodwillbyreportablesegmentduringfiscalyearendingDecember31,2015  andDecember31,2016areasfollows(inthousands): Goodwill as of December 31, 2014 Impairment Goodwill as of December 31, 2015 Impairment Goodwill as of December 31, 2016 APEI Segment HCON Segment Total Goodwill — — — — — $38,634 — $38,634 (4,735) 33,899 $38,634 — 38,634 (4,735) 33,899 Thefollowingtablepresentsthecomponentsofthenetcarryingamountofgoodwillbyreportablesegmentas  ofDecember31,2015(inthousands): Gross carrying amount of Goodwill as of December 31, 2014 Accumulatedimpairment Net Carrying amount of Goodwill as of December 31, 2015 APEI Segment HCON Segment Total Goodwill — — — $38,634 — $38,634 — $38,634 $38,634 Thefollowingtablepresentsthecomponentsofthenetcarryingamountofgoodwillbyreportablesegmentas  ofDecember31,2016(inthousands): Gross carrying amount of Goodwill as of December 31, 2015 Accumulatedimpairment Net Carrying amount of Goodwill as of December 31, 2016 APEI Segment HCON Segment Total Goodwill — — — $38,634 (4,735) $38,634 (4,735) $33,899 $33,899 Otherintangibleassets,includedinOtherAssetsontheConsolidatedBalanceSheetsintheseConsolidated  FinancialStatements,consistofthefollowingasofDecember31,2016(inthousands): Finite-lived intangible assets  Curricula  Non-competeagreements  Studentcontractsandrelationships Total finite-lived intangible assets Indefinite-lived intangible assets  Tradename  Accreditation,licensingandTitleIV  Affiliationagreements Total indefinite-lived intangible assets Total intangible assets 2016 Gross Carrying Amount Accumulated Amortization Net Carrying Amount $  405 86 3,870 4,361 1,998 1,686 37 3,721 $8,082 $  405 54 2,419 2,878 $   — — — — $2,878 $   — 32 1,451 1,483 $1,998 1,686 37 3,721 $5,204 2016 Annual Report 165 Identifiedintangibleassetsareamortizedinamannerthatreflectstheestimatedeconomicbenefitoftheintan - gibleassets.CurriculaandNon-competeagreementsareamortizedonastraight-linebasis.Studentcontracts  andrelationshipsareamortizedusinganacceleratedmethod. DeterminingthefairvalueofHCONrequiresjudgmentandtheuseofsignificantestimatesandassumptions,  includingrevenuegrowthrates,EBITDAmargins,discountratesandfuturemarketconditions,amongothers.  Giventhecurrentcompetitiveandregulatoryenvironment,andtheuncertaintiesregardingtherelatedimpact  onHCON’sbusiness,therecanbenoassurancethattheestimatesandassumptionsmadeforpurposesofthe  Company’sinterimandannualgoodwillimpairmenttestswillprovetobeaccuratepredictionsofthefuture.If  theCompany’sassumptionsarenotachieved,theCompanymayrecordadditionalgoodwillimpairmentcharges  infutureperiods.Itisnotpossibleatthistimetodetermineifanysuchfutureimpairmentchargewouldresult  orwhethersuchchargewouldbematerial. NOTE 8. OPERATING LEASES TheAPEISegmentleasesofficespaceinMarylandandVirginiaunderoperatingleasesthatexpirethrough  September2018.HCONoperatesfivecampusesinOhio,locatedinthesuburbanareasofCincinnati,Cleveland,  Columbus,DaytonandToledounderoperatingleasesthatexpirethroughJune2029.Rentexpenserelatedto  theAPEISegment’soperatingleaseswas$1,666,000,$1,094,000and$584,000fortheyearsendedDecember  31,2014,2015and2016,respectively.RentexpenserelatedtotheHCONSegment’soperatingleaseswas  $2,212,000,$2,347,000,and$2,528,000fortheyearsendedDecember31,2014,2015and2016,respectively. Theminimumrentalcommitmentsdueundertheoperatingleasesareasfollows(inthousands): Years Ending December 31, 2017 2018 2019 2020 2021andbeyond Totalminimumrentalcommitment NOTE 9. INCOME TAXES Combined $ 2,207 1,891 1,761 1,803 7,555 $15,217 ThecomponentsofincometaxexpensefortheyearsendedDecember31,2014,2015and2016wereasfollows  (inthousands): Currentincometaxexpense: Federal State Deferredtaxexpense: Federal State 2014 2015 2016 $19,404 3,252 22,656 2,623 (129) 2,494 $17,910 2,322 20,232 (241) 81 (160) $13,518 1,877 15,395 (424) (31) (455) IncomeTaxExpense $25,150 $20,072 $14,940 166 AmericanPublicEducation,Inc. Thetaxeffectsofprincipaltemporarydifferencesareasfollows(inthousands): Deferredtaxassets: Stockoptioncompensationexpense Allowancefordoubtfulaccounts Accruedvacationandseverance Restrictedstock Investment Deferredtaxliabilities: Incometaxdeductiblecapitalizedsoftwaredevelopmentcosts Propertyandequipment Prepaidexpenses 2015 2016 $ 1,336 $ 1,057 4,988 576 1,830 19 8,749 (11,275) (4,688) (2,016) (17,979) 3,079 798 1,874 168 6,976 (11,827) (2,208) (1,716) (15,751) Deferredtaxliabilities,net $ (9,230) $ (8,775) IncometaxexpensediffersfromtheamountoftaxdeterminedbyapplyingtheUnitedStatesfederalincometax  ratestopretaxincomeandlossduetopermanenttaxdifferences,andtheapplicationofstateapportionment  laws,asfollows(inthousands): Taxexpenseatstatutoryrate Statetaxes,net Permanentdifferences Other 2014 2015 2016 Amount $23,110 1,985 228 (173) $25,150 % Amount % Amount % 35.00% $18,370 35.00% $13,683 35.00% 3.01% 0.35% (0.27)% 38.09% 1,590 278 (166) $20,072 3.03% 0.53% (0.32)% 38.24% 1,278 221 (242) $14,940 3.27% 0.56% (0.62)% 38.21% Permanentdifferencesinthetableabovearemainlyattributabletominorityinvestmentearningsand/orlosses,  nondeductiblemealsandentertainmentexpenses,andnon-deductibleemployercontributionstotheAmerican  PublicEducation,Inc.EmployeeStockPurchasePlan,orESPP. TheCompanyissubjecttoU.S.federalincometaxesaswellasincometaxofmultiplestatejurisdictions.ForU.S.  federalandstatetaxpurposes,taxyears2013-2016remainopentoexamination. NOTE 10. OTHER EMPLOYEE BENEFITS TheCompanyhasestablishedataxdeferred401(k)retirementplanthatprovidesretirementbenefitstoallofits  eligibleemployees.Participantsmayelecttocontributeupto60%oftheirgrossannualearningsnottoexceed  ERISAandIRSlimits.TheplanprovidesforCompanydiscretionaryprofitsharingcontributionsatmatchingper - centages.Employeesimmediatelyvest100%inallsalaryreductioncontributionsandemployercontributions. InJune2015,theCompany’s401(k)retirementplanwasamendedsothateffectiveAugust31,2015,the  Company’s401(k)retirementplannolongerallowsparticipantstoinvestfuturecontributionsintheCompany’s  commonstock.TheCompany’s401(k)retirementplancompletelyremovedtheCompany’scommonstockasan  2016 Annual Report 167 investmentelectiononJune30,2016.AnyoftheCompany’scommonstockheldby401(k)retirementplanpartic - ipantsasofJune30,2016,wassoldandautomaticallyre-allocatedtoanage-appropriatemutualfund. TheCompanymadediscretionarycontributionstotheplanof$3,270,000,$3,309,000and$3,284,000forthe  yearsendedDecember31,2014,2015and2016,respectively. InNovember2007,theCompanyadoptedtheAmericanPublicEducation,Inc.EmployeeStockPurchasePlan,  ortheESPP,whichwasimplementedeffectiveJuly1,2008,withquarterlyenrollmentperiods.Eligiblepartici - pantsmayonlyentertheplanandestablishtheirwithholdingsatthestartofanenrollmentperiod.Participating  employeesmaywithdrawfromtheplanandendpayrolldeductionsanytimeuptofivedaysbeforetheshare  purchasedateandfundswillbereturnedtothem.UndertheESPP,participatingemployeesmaypurchase  sharesoftheCompany’scommonstock,subjecttocertainlimitations,at85%ofitsfairmarketvalueonthelast  dayofthequarterlyperiod.Thetotalvalueofcontributionsperparticipantmaynotexceed$21,000annuallyor  thevalueofthecommonstockpurchasedperparticipantcannotexceed$25,000.Therewereinitially100,000  sharesofcommonstockavailableforpurchasebyparticipatingemployeesundertheESPP.OnJune13,2014,  theCompany’sstockholdersapprovedanamendmenttotheESPPtoincreasethenumberofsharesofthe  Company’scommonstockavailableforissuanceundertheplanby100,000shares,extendthetermoftheESPP  toMarch7,2024,andmakeotheradministrativechanges.Sharespurchasedintheopenmarketforissuanceto  employeespursuanttotheplanfortheyearsendedDecember31,2014,2015and2016,wereasfollows: Purchase Date March31,2014 June30,2014 September30,2014 December31,2014 Total/WeightedAverage March31,2015 June30,2015 September30,2015 December31,2015 Total/WeightedAverage March31,2016 June30,2016 September30,2016 December31,2016 Total/WeightedAverage Shares 4,961 5,180 5,246 3,931 19,318 4,322 5,443 4,939 6,822 21,526 4,617 3,617 4,991 3,717 16,942 Common Stock Fair Value Purchase Price Compensation Expense $35.08 $34.38 $26.99 $36.87 $33.06 $29.98 $25.72 $23.45 $18.61 $23.80 $20.63 $28.10 $19.81 $24.80 $22.90 $29.82 $29.22 $22.94 $31.34 $28.10 $25.49 $21.86 $19.93 $15.82 $20.23 $17.54 $23.89 $16.84 $21.08 $19.46 $26,095 $26,729 $21,246 $21,738 $95,808 $19,406 $21,010 $17,385 $19,033 $76,834 $14,267 $15,228 $14,823 $13,827 $58,145 NOTE 11. STOCKHOLDERS’ EQUITY STOCKINCENTIVEPLANS OnMarch15,2011,theCompany’sBoardofDirectorsadoptedtheAmericanPublicEducation,Inc.2011  OmnibusIncentivePlan,orthe2011IncentivePlan,andtheCompany’sstockholdersapprovedthe2011  IncentivePlanonMay6,2011,atwhichtimethe2011IncentivePlanbecameeffective.Uponeffectivenessof  the2011IncentivePlan,theCompanyceasedmakingawardsundertheAmericanPublicEducation,Inc.2007  OmnibusIncentivePlan,orthe2007IncentivePlan.The2011IncentivePlanallowstheCompanytograntup  168 AmericanPublicEducation,Inc. to2,000,000sharesplusanysharesofcommonstockthataresubjecttooutstandingawardsunderthe2007 IncentivePlanortheAmericanPublicEducation,Inc.2002StockPlan,orthe2002StockPlan,thatterminatedueto expiration,forfeiture,cancellationorotherwisewithouttheissuanceofsuchshares.Priorto2012,theCompany usedamixofstockoptionsandrestrictedstock,butsince2011,theCompanyhasnotissuedanystockoptions. RESTRICTEDSTOCKANDRESTRICTEDSTOCKUNITAWARDS Stock-basedcompensationexpenserelatedtorestrictedstockandrestrictedstockunitgrantsisexpensedover  thevestingperiodusingthestraight-linemethodforCompanyemployeesandthegraded-vestingmethodfor  membersoftheBoardofDirectors,andismeasuredusingAPEI’sstockpriceonthedateofgrant.TheCompany  alsoestimatesforfeituresofshare-basedawardsatthetimeofgrantandrevisessuchestimatesinsubsequent  periodsifactualforfeituresdifferfromoriginalestimates. ThetablebelowsetsforththerestrictedstockandrestrictedstockunitactivityfortheyearendedDecember31,2014: Nonvested,December31,2013 Sharesgranted Vestedshares Sharesforfeited Nonvested,December31,2014 Number of Options 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 ThetablebelowsetsforththerestrictedstockandrestrictedstockunitactivityfortheyearendedDecember31,2015: Nonvested,December31,2014 Sharesgranted Vestedshares Sharesforfeited Nonvested,December31,2015 Number of Options 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 ThetablebelowsetsforththerestrictedstockandrestrictedstockunitactivityfortheyearendedDecember31,2016: Nonvested,December31,2015 Sharesgranted Vestedshares Sharesforfeited Nonvested,December31,2016 Number of Options 293,419 336,434 (152,714) (39,168) 437,971 Weighted Average Grant Price and Fair Value $35.86 16.34 35.83 25.46 $21.54 2016 Annual Report 169 Therewerenosharesofrestrictedstockorrestrictedstockunitsexcludedinthecomputationofdilutednet  incomepercommonsharefortheyearendedDecember31,2016.TheCompanyrecognizedincometaxbenefits  of$2,022,000,$2,467,000,and$2,064,000fromvestedrestrictedstockandrestrictedstockunitsfortheyears  endedDecember31,2014,2015and2016,respectively. AtDecember31,2016,totalunrecognizedcompensationexpenseintheamountof$5.1millionrelatestonon-vested restrictedstockandrestrictedstockunitswhichwillberecognizedoveraweightedaverageperiodof1.6years. Asaresultofterminationofemployment,theCompanyacceptedthefollowingcommonsharesforforfeiture:  15,097sharesfor$628,639in2014,22,066sharesfor$815,886in2015,and31,370sharesfor$611,335in2016. OPTIONAWARDS ThefairvalueofeachoptionawardisestimatedatthedateofgrantusingaBlack-Scholesoption-pricingmodel.  Priorto2012,theCompanycalculatedtheexpectedtermofstockoptionawardsusingthe“simplifiedmethod”  inaccordancewithSecurities and Exchange Commission Staff Accounting Bulletins No. 107 and 110becausethe Companylackedhistoricaldataandwasunabletomakereasonableassumptionsregardingthefuture.The  Companymakesassumptionswithrespecttoexpectedstockpricevolatilitybasedontheaveragehistoricalvol - atilityofpeerswithsimilarattributes.Inaddition,theCompanydeterminestheriskfreeinterestratebyselect - ingtheU.S.Treasuryfive-yearconstantmaturity,quotedonaninvestmentbasisineffectatthetimeofgrantfor  thatbusinessday.Estimatesoffairvaluearesubjectiveandarenotintendedtopredictactualfutureevents,and  subsequenteventsarenotnecessarilyindicativeofthereasonablenessoftheoriginalestimatesoffairvalue  madeunderFASBASCTopic718.Optionspreviouslygrantedvestratablyoverperiodsofthreetofiveyearsand  expireinsevento10yearsfromthedateofgrant. AsummaryofthestatusoftheCompany’sStockIncentivePlansasofDecember31,2014,andthechanges  duringtheperiodsthenendedisasfollows: Outstanding,December 31,2013 Optionsgranted Awardsexercised Optionsforfeited 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 $3,080 170 AmericanPublicEducation,Inc. AsummaryofthestatusoftheCompany’sStockIncentivePlansasofDecember31,2015,andthechanges  duringtheperiodsthenendedisasfollows: Outstanding,December 31,2014 Optionsgranted Awardsexercised Optionsforfeited 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 AsummaryofthestatusoftheCompany’sStockIncentivePlansasofDecember31,2016,andthechanges  duringtheperiodsthenendedisasfollows: Outstanding,December 31,2015 Optionsgranted Awardsexercised Optionsforfeited Outstanding,December 31,2016 Exercisable,December 31,2016 Number of Options 329,872 — (16,878) (53,025) 259,969 259,969 Weighted Average Exercise Price Weighted Average Contractual Life (years) Aggregate Intrinsic Value (in thousands) $33.65 $   — $  7.00 $37.09 $34.68 $34.68 0.53 0.53 $246 $246 Thefollowingtablesummarizesinformationregardingstockoptionexercises: Proceedsfromstockoptionsexercised Intrinsicvalueofstockoptionsexercised Taxbenefitfromexercises Year Ended December 31, 2014 $  631 $1,033 $  193 2015 $  182 $1,057 $   54 2016 $118 $290 $ 94 Therewere365,832,317,961and247,993anti-dilutivestockoptionsexcludedfromthecalculationofdilutednet  incomepercommonsharefortheyearsendedDecember31,2014,2015and2016,respectively. STOCK-BASEDCOMPENSATIONEXPENSE AsofDecember31,2016,therewere437,971sharessubjecttooutstandingawardsunderthe2011Incentive  Plan,and259,969sharessubjecttooutstandingawardsunderthe2007IncentivePlanandthe2002StockPlan.  2016 Annual Report 171 FortheyearsendedDecember31,2014,2015and2016,theCompanyrecognized$5,369,000,$5,912,000and  $5,211,000instock-basedcompensationexpense,andrecognizedatotalincometaxbenefitof$2,022,000,  $2,467,000and$2,064,000,respectively. Instructionalcostsandservices Sellingandpromotional Generalandadministrative Totalstock-basedcompensationexpense REPURCHASE Year Ended December 31, 2014 $1,274 568 3,527 $5,369 2015 $1,598 684 3,630 $5,912 2016 $1,497 672 3,042 $5,211 DuringtheyearendedDecember31,2014,theCompanyrepurchasedsharesoftheCompany’scommonstock,  parvalue$0.01pershare.ThechartbelowprovidesdetailastotheCompany’srepurchasesduringtheperiod. Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs January1,2014 January20,2014 January1,2014–January30,2014 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 — — — — 40,000 185,000 139,568 51,760 — — — $   — $   — $   — $   — $35.26 $34.60 $35.11 $34.95 $   — $   — $   — — — — — 40,000 185,000 139,568 51,760 — — — 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) — $ 9,417,721 147,284 147,284 147,284 107,284 14,784 — — — — 9,417,721 9,417,721 9,417,721 9,417,721 6,217,221 1,836,055 27,043 15,027,043 15,027,043 114,634 15,027,043 November 1,2014– November 30,2014 December1,2014– December 31,2014 Total 30,000 $35.48 30,000 84,634 15,027,043 84,634 530,962 $34.09 $34.78 84,634 530,962 — — 15,027,043 $15,027,043 172 AmericanPublicEducation,Inc. DuringtheyearendedDecember31,2015,theCompanyrepurchasedsharesoftheCompany’scommonstock,  parvalue$0.01pershare.ThechartbelowprovidesdetailastotheCompany’srepurchasesduringtheperiod.  Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs January1,2015 January1,2015–January31,2015 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 September 1,2015– September 30,2015 October 1,2015–October 31,2015 November 1,2015– November 30,2015 December1,2015– December 31,2015 Total — — — 100,000 203,820 200,000 160,000 — — — 129,849 211,040 $   — $   — $   — $31.69 $30.84 $25.59 $24.93 $   — $   — $   — $23.15 $23.19 — — — 100,000 203,820 200,000 160,000 — — — 129,849 211,040 199,391 $22.11 199,391 118,746 1,322,846 $22.39 $25.34 118,746 1,322,846 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) — $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 2016 Annual Report 173 DuringtheyearendedDecember31,2016,theCompanydidnotrepurchasesharesoftheCompany’scommon  stock,parvalue$0.01pershare.Thechartbelowprovidesdetailastothemaximumnumberofsharesthatmay  yetbepurchasedundertheexistingplans. Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs January1,2016 January1,2016–January31,2016 February1,2016–February29,2016 March1,2016–March31,2016 April1,2016–April30,2016 May1,2016–May31,2016 June1,2016–June30,2016 July1,2016–July31,2016 August1,2016–August31,2016 September1,2016– September30,2016 October1,2016–October31,2016 November1,2016– November30,2016 December1,2016– December31,2016 Total — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 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) — $148,008 315,231 315,231 315,231 316,935 316,935 330,816 336,125 336,125 336,125 336,434 148,008 148,008 148,008 148,008 148,008 148,008 148,008 148,008 148,008 148,008 336,434 148,008 336,434 336,434 148,008 $148,008 1. OnDecember9,2011,theCompany’sBoardofDirectorsapprovedastockrepurchaseprogramforourcommonstock,under whichtheCompanymayannuallypurchaseuptothecumulativenumberofsharesissuedordeemedissuedinthatyear undertheCompany’sequityincentiveandstockpurchaseplans.Repurchasesmaybemadefromtimetotimeintheopen marketatprevailingmarketpricesorinprivatelynegotiatedtransactionsbasedonbusinessandmarketconditions.The stockrepurchaseprogrammaybesuspendedordiscontinuedatanytime,andisfundedusingtheCompany’savailablecash. 2. OnMay14,2012,theCompany’sBoardofDirectorsauthorizedaprogramtorepurchaseupto$20millionofsharesofthe Company’scommonstock.OneachofMarch14,2013,June13,2014,andJune12,2015theCompany’sBoardofDirectors increasedtheauthorizationbyanadditional$15millionofshares,foracumulativeincreaseof$45millionofsharesanda totalauthorizationof$65millionofshares.Subjecttomarketconditions,applicablelegalrequirementsandotherfactors, therepurchasesmaybemadefromtimetotimeintheopenmarketorprivatelynegotiatedtransactions.Theauthorization doesnotobligatetheCompanytoacquireanyshares,andpurchasesmaybecommencedorsuspendedatanytimebased onmarketconditionsandotherfactorsastheCompanydeemsappropriate. 3. TheCompanywasdeemedtohaverepurchased56,272and49,512sharesofcommonstockforfeitedbyemployeestosat- isfyminimumtax-withholdingrequirementsinconnectionwiththevestingofrestrictedstockgrantsduringthe12months endedDecember31,2015and2016,respectively.Duringthe12monthsendedDecember31,2014,theCompanywas deemedtohaverepurchased30,973sharesofcommonstockforfeitedbyemployeestosatisfyminimumtax-withholding requirementsinconnectionwiththevestingofrestrictedstockgrantsandtocovertheexerciseandminimumtax-withhold- ingrequirementsofexpiringstockoptions.Theserepurchaseswerenotpartofthestockrepurchaseprogramauthorizedby theCompany’sBoardofDirectors. 174 AmericanPublicEducation,Inc. DuringtheyearsendedDecember31,2014and2015,theCompanyrepurchasedandretired530,962,and  1,322,846,sharesofcommonstock,respectively.Nosharesofcommonstockwererepurchasedandretiredin  2016. NOTE 12. CONTINGENCIES FromtimetotimetheCompanymaybeinvolvedinlitigationinthenormalcourseofitsbusiness.TheCompany  isnotcurrentlysubjecttoanypendingmateriallegalproceedings. NOTE 13. CONCENTRATION APUSstudentsutilizevariouspaymentsourcesandprogramstofinancetuition.Theseprogramsincludefunds  fromDoDtuitionassistanceprograms,VAeducationbenefitprograms,andfederalstudentaidfromTitleIV  programs,aswellascashandothersources.Reductionsin,orchangesto,DoDtuitionassistance,VAeducation  benefits,TitleIVprogramsandotherpaymentsourcescouldhaveasignificantimpactontheCompany’soper - ations.AsofDecember31,2016,approximately54%ofAPUSstudentsself-reportedthattheyservedinthemil - itaryonactivedutyatthetimeofinitialenrollment.Activedutymilitarystudentsgenerallytakefewercourses  peryearonaveragethannon-militarystudents. AsummaryofAPEISegmentrevenuederivedfromstudentsbyprimaryfundingsourcefortheyearsended  December31,2014,2015and2016,isasfollows: Title IVprograms DoDtuitionassistanceprograms VAeducationbenefits Cashandothersources 2014 36% 35% 18% 11% Year Ended December 31, 2015 32% 35% 21% 12% 2016 29% 36% 22% 13% AsofDecember31,2016,approximately84%oftheHCONSegment’srevenuewasderivedfromstudentswho  receivedfederalstudentaidandapproximately2.5%oftheHCONSegment’srevenuewasderivedfromstu - dentswhoreceivedveteran’seducationbenefits. AreductioninorchangetoanyoftheseprogramscouldhaveasignificantimpactontheCompany’soperations  andfinancialcondition. NOTE 14. SEGMENT INFORMATION TheCompanyhastwooperatingsegmentsthataremanagedinthefollowingreportablesegments: • •AmericanPublicEducationSegment,orAPEISegment,and • •HondrosCollegeofNursingSegment,orHCONSegment. InaccordancewithFASBASCTopic280,SegmentReporting,thechiefoperatingdecision-makerhasbeenidenti - fiedastheChiefExecutiveOfficer.TheChiefExecutiveOfficerreviewsoperatingresultstomakedecisionsabout  allocatingresourcesandassessingperformanceforAPEIandHCON. 2016 Annual Report 175 Asummaryoffinancialinformationbyreportablesegmentisasfollows(inthousands): Revenue AmericanPublicEducationSegment HondrosCollegeofNursingSegment Total Revenue Depreciation and Amortization AmericanPublicEducationSegment HondrosCollegeofNursingSegment Total Depreciation and Amortization Income from continuing operations before interest income and income taxes AmericanPublicEducationSegment HondrosCollegeofNursingSegment Total income from continuing operations Year Ended December 31, 2014 2015 2016 $319,879 30,141 $350,020 $  14,859 1,262 $  16,121 $297,439 30,471 $327,910 $ 19,337 1,183 $ 20,520 $283,941 29,198 $313,139 $  18,029 1,355 $  19,384 $  62,499 3,333 $  48,967 3,314 $  41,916 (3,640) before interest income and income taxes $ 65,832 $  52,281 $  38,276 Interest Income, Net AmericanPublicEducationSegment $    361 $    115 $    116 HondrosCollegeofNursingSegment 0 0 — Total Interest Income, Net Income Tax Expense AmericanPublicEducationSegment HondrosCollegeofNursingSegment Total Income Tax Expense Capital Expenditures AmericanPublicEducationSegment HondrosCollegeofNursingSegment Total Capital Expenditures $    361 $    115 $    116 $  23,861 1,289 $  25,150 $  24,273 323 $  24,596 $  18,788 1,284 $ 20,072 $  24,541 1,461 $  26,002 $  16,322 (1,382) $  14,940 $  12,912 914 $  13,826 AsummaryoftheCompany’sconsolidatedassetsbyreportablesegmentisasfollows(inthousands): Assets AmericanPublicEducationSegment HondrosCollegeofNursingSegment Total Assets NOTE 15. SUBSEQUENT EVENTS As of December 31, 2015 2016 $245,649 53,778 $299,427 $ 271,436 49,276 $320,712 OnFebruary24,2017,ACICSnotifiedHCONofitsintentiontoissueashow-causedirectiveonHCON’sPractical  NursingprogramattheCleveland,Ohio,campusbecausetheplacementratesforthePracticalNursingprogram  atthislocationwerebetween50-59.9%fortwoconsecutiveyears.Atthistime,theCompanyisunabletopredict  theimpactofthisdevelopmentandpossibleoutcomesonitsenrollmentsandresultsofoperations. 176 AmericanPublicEducation,Inc. NOTE 16. 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 Incomefromcontinuingoperations Netincome Netincomepercommonshare: Basic Diluted Revenue Incomebeforeincometaxes Netincome Netincomepercommonshare: Basic Diluted $83,966 16,007 10,340 $  0.64 $  0.64 $85,444 14,481 8,793 $  0.51 $  0.51 $76,745 10,697 6,596 $  0.41 $  0.41 $80,263 11,607 7,073 $  0.42 $  0.42 2016 2015 $73,803 429 326 $  0.02 $  0.02 $76,291 10,549 6,757 $  0.41 $$  0.41 $78,625 11,259 6,893 $  0.43 $  0.42 $85,912 15,759 9,791 $  0.61 $  0.60 Item9. ChangesinandDisagreementswithAccountantson  AccountingandFinancialDisclosure None. Item9A. ControlsandProcedures EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Wehavecarriedoutanevaluation,underthesupervisionandwiththeparticipationofourmanagement,  includingourprincipalexecutiveofficerandprincipalfinancialofficer,oftheeffectivenessofourdisclosure  controlsandprocedures(asdefinedinRules13a-15(e)and15d-15(e)undertheSecuritiesExchangeActof1934,  asamended,ortheSecuritiesExchangeAct),asofDecember31,2016.Baseduponthatevaluation,ourprincipal  executiveofficerandprincipalfinancialofficerconcludedthat,asoftheendofthatperiod,ourdisclosurecon - trolsandprocedureswereeffective. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. Therewasnochangeinourinternalcontroloverfinancialreportingidentifiedinconnectionwiththeevalua - tionrequiredbyRules13a-15(d)and15d-15(d)oftheExchangeActthatoccurredduringthefourthquarterof  2016,thathasmateriallyaffectedorisreasonablylikelytomateriallyaffectourinternalcontroloverfinancial  reporting. 2016 Annual Report 177 Management’sAnnualReportonInternalControloverFinancial  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, ourmanagementassessedtheeffectivenessofourinternalcontroloverfinancialreportingasofDecember31,  2016.Inmakingthisassessment,ourmanagementusedthecriteriaestablishedinInternalControl-Integrated  FrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommissionin2013.  Basedonitsassessment,managementconcludedthat,asofDecember31,2016,ourinternalcontroloverfinan - cialreportingiseffectivebasedonthosecriteria.Managementreviewedtheresultsofitsassessmentwiththe  AuditCommitteeofourBoardofDirectors. Ourindependentauditors,RSMUSLLP,whoauditedandreportedontheConsolidatedFinancialStatementsof  theCompanyincludedinthisAnnualReport,havealsoauditedtheeffectivenessoftheCompany’sinternalcon - troloverfinancialreportingasofDecember31,2016,asstatedinitsreportthatappearsbelow. 178 AmericanPublicEducation,Inc. ReportofIndependentRegisteredPublicAccountingFirm  TOTHEBOARDOFDIRECTORSANDSTOCKHOLDERS AMERICANPUBLICEDUCATION,INC. WehaveauditedAmericanPublicEducation,Inc.andSubsidiaries’internalcontroloverfinancialreportingasof December31,2016,basedoncriteriaestablishedinInternalControl-IntegratedFrameworkissuedbytheCommittee ofSponsoringOrganizationsoftheTreadwayCommissionin2013.AmericanPublicEducation,Inc.andSubsidiaries’ managementisresponsibleformaintainingeffectiveinternalcontroloverfinancialreportingandforitsassessment oftheeffectivenessofinternalcontroloverfinancialreportingincludedintheaccompanyingManagement’sAnnual ReportonInternalControloverFinancialReporting.Ourresponsibilityistoexpressanopiniononthecompany’s internalcontroloverfinancialreportingbasedonouraudit. WeconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(United States).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhether effectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditincludedobtain- inganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists, andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Our auditalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelieve thatourauditprovidesareasonablebasisforouropinion. Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregard- ingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccor- dancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludes thosepoliciesandproceduresthat(a)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyand fairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(b)providereasonableassurancethat transactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerally acceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccor- dancewithauthorizationsofmanagementanddirectorsofthecompany;and(c)providereasonableassurance regardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthat couldhaveamaterialeffectonthefinancialstatements. Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements. Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecome inadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmay deteriorate. Inouropinion,AmericanPublicEducation,Inc.andSubsidiariesmaintained,inallmaterialrespects,effectiveinternal controloverfinancialreportingasofDecember31,2016,basedoncriteriaestablishedinInternalControl-Integrated FrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommissionin2013. Wehavealsoaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(United States),theconsolidatedbalancesheetsofAmericanPublicEducation,Inc.anditsSubsidiariesasofDecember31, 2015and2016,andtherelatedconsolidatedstatementsofincome,stockholders’equity,andcashflowsforeachof thethreeyearsintheperiodendedDecember31,2016,andourreportdatedMarch1,2017expressedanunquali- fiedopinion. /s/RSMUSLLP Richmond,VA March1,2017 2016 Annual Report 179 Item9B. OtherInformation None. 180 AmericanPublicEducation,Inc. PARTIII Item10. Directors,ExecutiveOfficers,andCorporateGovernance 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  nolaterthan120daysfollowingDecember31,2016,withrespecttoour2017AnnualMeetingofStockholders.  Item11. ExecutiveCompensation TheinformationrequiredbythisItemisherebyincorporatedbyreferencefromtheinformationcontained  underthecaptions“DirectorCompensation,”“ExecutiveCompensation,”“CompensationCommitteeReport”and  “CompensationCommitteeInterlocksandInsiderParticipation”intheCompany’sProxyStatement,whichwill  befiledwiththeSecuritiesandExchangeCommissionnolaterthan120daysfollowingDecember31,2016,with  respecttoour2017AnnualMeetingofStockholders. Item12. SecurityOwnershipofCertainBeneficialOwnersand  ManagementandRelatedStockholderMatters TheinformationrequiredbythisItemisherebyincorporatedbyreferencefromtheinformationcontained  underthecaptions“BeneficialOwnershipofCommonStock”and“EquityCompensationPlanInformation”inthe  Company’sProxyStatement,whichwillbefiledwiththeSecuritiesandExchangeCommissionnolaterthan120  daysfollowingDecember31,2016,withrespecttoour2017AnnualMeetingofStockholders. 2016 Annual Report 181 Item13. CertainRelationshipsandRelatedPartyTransactions,  andDirectorIndependence TheinformationrequiredbythisItemisherebyincorporatedbyreferencefromtheinformationcontained  underthecaptions“CertainRelationshipsandRelatedPersonsTransactions”and“BoardIndependenceand  LeadershipStructure”intheCompany’sProxyStatement,whichwillbefiledwiththeSecuritiesandExchange  Commissionnolaterthan120daysfollowingDecember31,2016,withrespecttoour2017AnnualMeetingof  Stockholders. Item14.PrincipalAccountantFeesandServices TheinformationrequiredbythisItemisherebyincorporatedbyreferencefromtheinformationcontained  underthecaptions“PrincipalAccountantFeesandServices”and“AuditCommittee’sPre-ApprovalPoliciesand  Procedures”intheCompany’sProxyStatement,whichwillbefiledwiththeSecuritiesandExchangeCommission  nolaterthan120daysfollowingDecember31,2016withrespecttoour2017AnnualMeetingofStockholders. PARTIV Item15. ExhibitsandFinancialStatementSchedules (a) ListofdocumentsfiledaspartofthisAnnualReport:    (1) TherequiredfinancialstatementsareincludedinItem8ofPartIIofthisAnnualReport. (2) TherequiredfinancialstatementschedulesareincludedinItem8ofPartIIofthisAnnualReport. (3) AcompletelistingofexhibitsisincludedintheIndextoExhibits. (b) AcompletelistingofexhibitsisincludedintheIndextoExhibits. (c) ScheduleII:ValuationandQualifyingAccounts. Otherschedulesareomittedbecausetheyarenotrequired. 182 AmericanPublicEducation,Inc. American Pubic Education Inc. Schedule II Valuation and Qualifying Accounts (in thousands) Year ended December 31, 2016: AmericanPublicEducationSegment HondrosCollegeofNursingSegment Allowanceforreceivables Year ended December 31, 2015: AmericanPublicEducationSegment HondrosCollegeofNursingSegment Allowanceforreceivables Year ended December 31, 2014: AmericanPublicEducationSegment HondrosCollegeofNursingSegment Allowanceforreceivables Balance at Beginning of Period Additions/ (Reductions) Write-Offs Balance at End of Period $10,286 2,726 $13,012 $ 8,461 2,238 10,699 $11,452 1,723 $13,175 $ 4,861 1,898 $ 6,759 $(10,435) (1,259) $(11,694) $11,203 $ (9,378) 1,511 12,714 $17,480 1,344 $18,824 (1,023) (10,401) $ (20,471) (829) $(21,300) $ 4,712 3,365 $ 8,077 $10,286 2,726 13,012 $ 8,461 2,238 $10,699 2016 Annual Report 183 Signatures PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthas  dulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized. Dated:March1,2017   American Public Education, Inc. By: /s/Dr.WallaceE.Boston Name: Dr.WallaceE.Boston Title: PresidentandChiefExecutiveOfficer PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisReporthasbeensignedbelowbythe  followingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedateindicated. Name Date Title /s/Dr.WallaceE.Boston March1,2017 Dr.WallaceE.Boston President,ChiefExecutiveOfficerandDirector (PrincipalExecutiveOfficer) /s/RichardW.Sunderland,Jr. March1,2017 RichardW.Sunderland,Jr. ExecutiveVicePresidentandChiefFinancial Officer (PrincipalFinancialOfficerand PrincipalAccountingOfficer) /s/BarbaraG.Fast BarbaraG.Fast /s/EricC.Andersen EricC.Andersen /s/JeanC.Halle JeanC.Halle /s/BarbaraKurshan BarbaraKurshan /s/TimothyJ.Landon TimothyJ.Landon /s/WestleyMoore WestleyMoore March1,2017 ChairpersonoftheBoardofDirectors March1,2017 Director March1,2017 Director March1,2017 Director March1,2017 Director March1,2017 Director /s/WilliamG.Robinson,Jr. March1,2017 Director WilliamG.Robinson,Jr. 184 AmericanPublicEducation,Inc. INDEXTOEXHIBITS 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+ FifthAmendedandRestatedCertificateofIncorporationoftheCompany(1) FourthAmendedandRestatedBylawsoftheCompany(10) FormofcertificaterepresentingtheCommonStock,$0.01parvaluepershare,oftheCompany(2) AmericanPublicEducation,Inc.2002StockIncentivePlan,asamended(2) AmericanPublicEducation,Inc.2007OmnibusIncentivePlan(2) FormofIndemnificationAgreementwithdirectorsandexecutiveofficers(2) AmendedandRestatedEmploymentAgreementdatedMay31,2016,byandbetweenAmerican PublicUniversitySystem,Inc.,AmericanPublicEducation,Inc.andWallaceE.Boston,Jr.(3) AmendedandRestatedEmploymentAgreementdatedApril28,2014,byandamongAmerican PublicUniversitySystem,Inc.,AmericanPublicEducation,Inc.andHarryT.Wilkins(3) LetterAgreementdatedNovember6,2015,byandbetween AmericanPublicEducation,Inc.andHarryT.Wilkins(4) EmploymentAgreementdatedAugust1,2014byandamongAmericanPublic UniversitySystem,Inc.,AmericanPublicEducation,Inc.andCarolGilbert(5) LetterAgreementdatedDecember15,2016byandamong AmericanPublicEducation,Inc.andCarolGilbert(10) AmendedandRestatedExecutiveEmploymentAgreementdatedMay31,2016,byandamong AmericanPublicUniversitySystem,Inc.,AmericanPublicEducation,Inc.andKaranPowell(5) 10.10+ EmploymentAgreementdatedAugust1,2014,byandamongAmericanPublicUniversity System,Inc.,AmericanPublicEducation,Inc.andRichardW.Sunderland,Jr.(5) 10.11+ AmericanPublicEducation,Inc.EmployeeStockPurchasePlan(2) 10.12+ AmendmenttotheAmericanPublicEducation,Inc.EmployeeStockPurchasePlan(6) 10.13+ AmericanPublicEducation,Inc.2011OmnibusIncentivePlan(7) 10.14+ APUSNon-QualifiedPlan(8) 10.15 21.1 23.1 31.1 31.2 32.1 32.2 StockPurchaseAgreement,datedAugust28,2013,byandamong,theCompanyNationalEducation Seminars,Inc.,theSellingStockholders,theFoundersandtheStockholderRepresentative(9) ListofSubsidiaries(filedherewith) ConsentofRSMUSLLP(filedherewith) CertificationofChiefExecutiveofficerpursuanttoRule13a-14(a)undertheSecuritiesExchangeAct of1934asadoptedpursuanttoSection302oftheSarbanes-OxleyActof2002(filedherewith) CertificationofChiefFinancialOfficerpursuanttoRule13a-14(a)undertheSecuritiesExchangeAct of1934asadoptedpursuanttoSection302oftheSarbanes-OxleyActof2002(filedherewith) CertificationofChiefExecutiveOfficerpursuantto18U.S.C.Section1350asadopted pursuanttoSection906oftheSarbanes-OxleyActof2002(filedherewith) CertificationofChiefFinancialOfficerpursuantto18U.S.C.Section1350asadopted pursuanttoSection906oftheSarbanes-OxleyActof2002(filedherewith) 2016 Annual Report 185 Exhibit No. Exhibit Description EX-101.INS XBRLInstanceDocument EX-101.SCH XBRLTaxonomyExtensionSchemaDocument EX-101.CAL XBRLTaxonomyExtensionCalculationLinkbaseDocument EX-101.DEF XBRLTaxonomyExtensionDefinitionLinkbaseDocument EX-101.LAB XBRLTaxonomyExtensionLabelLinkbaseDocument EX-101.PRE XBRLTaxonomyExtensionPresentationLinkbaseDocument + Managementcontractorcompensatoryplanorarrangement. (1) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sCurrentReportonForm8-K(FileNo.001-33810),filedwiththe CommissiononNovember14,2007. (2) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sRegistrationStatementonFormS-1(FileNo.333-145185). (3) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sCurrentReportonForm8-K(FileNo.001-33810),filedwiththe CommissiononMay2,2014. (4) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sCurrentReportonForm8-K(FileNo.001-33810),filedwiththe CommissiononNovember6,2015. (5) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sQuarterlyReportonForm10-QforthequarterlyperiodendedJune 30,2014(FileNo.001-33810),filedwiththeCommissiononAugust5,2014. (6) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sCurrentReportonForm8-K(FileNo.001-33810),filedwiththe CommissiononJune17,2014. (7) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sCurrentReportonForm8-K(FileNo.001-33810),filedwiththe CommissiononMay10,2011. (8) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sAnnualReportonForm10-KfortheyearendedDecember31,2013 (FileNo.001-33810),filedwiththeCommissiononFebruary27,2014. (9) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sQuarterlyReportonForm10-Qforthequarterlyperiodended September30,2013(FileNo.001-33810),filedwiththeCommissiononNovember5,2013. (10) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sCurrentReportonForm8-K(FileNo.001-33810),filedwiththe CommissiononDecember15,2016. (11) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sCurrentReportonForm8-K(FileNo.001-33810),filedwiththe CommissiononJune1,2016. (12) IncorporatedbyreferencetoexhibitfiledwithRegistrant’sQuarterlyReportonForm10-QforthequarterlyperiodendedJune 30,2016(FileNo.001-33810),filedwiththeCommissiononAugust9,2016. 186 AmericanPublicEducation,Inc. Exhibit21.1 LISTOFSUBSIDIARIES Entity AmericanPublicUniversitySystem,Inc. NationalEducationSeminars,Inc. State of Organization WestVirginia Ohio 2016 Annual Report 187 Exhibit23.1 CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM WeconsenttotheincorporationbyreferenceinRegistrationStatements(333-197086,333-174105,333-151789,  and333-150454)onFormS-8ofAmericanPublicEducation,Inc.ofourreportsdatedMarch1,2017,relatingto  ourauditsoftheconsolidatedfinancialstatementsandthefinancialstatementscheduleandinternalcontrol  overfinancialreporting,whichappearinthisAnnualReportonForm10-KofAmericanPublicEducation,Inc.and  SubsidiariesfortheyearendedDecember31,2016. /s/RSMUSLLP Richmond,VA March1,2017 188 AmericanPublicEducation,Inc. Exhibit31.1 CERTIFICATIONOFCHIEFEXECUTIVEOFFICERPURSUANTTORULE13A-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,orcausedsuchdisclosurecontrolsandprocedurestobe designedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitscon- solidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhich thisreportisbeingprepared; (b) Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreport- ingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinan- cialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerally acceptedaccountingprinciples; (c) Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthis reportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendofthe periodcoveredbythisreportbasedonsuchevaluation;and (d) Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurred duringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannual report)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontrolover financialreporting;and 5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinter - nalcontroloverfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’s  boardofdirectors(orpersonsperformingtheequivalentfunctions):   (a) Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinan- cialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarize andreportfinancialinformation;and (b) Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantrole intheregistrant’sinternalcontroloverfinancialreporting. Date:March1,2017 By: /s/Dr.WallaceE.Boston Name: Dr.WallaceE.Boston Title: PresidentandChiefExecutiveOfficer 2016 Annual Report 189 Exhibit31.2 CERTIFICATIONOFCHIEFFINANCIALOFFICERPURSUANTTORULE13A-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,includ - ingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringthe  periodinwhichthisreportisbeingprepared; (b) Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancial  reportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliability  offinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewith  generallyacceptedaccountingprinciples; (c) Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthis  reportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendof  theperiodcoveredbythisreportbasedonsuchevaluation;and (d) Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthat  occurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthecase  ofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’s  internalcontroloverfinancialreporting;and 5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinter - nalcontroloverfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’s  boardofdirectors(orpersonsperformingtheequivalentfunctions):   (a) Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontrolover  financialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,  summarizeandreportfinancialinformation;and (b) Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignifi - cantroleintheregistrant’sinternalcontroloverfinancialreporting. Date:March1,2017 By: /s/RichardW.Sunderland,Jr. Name: RichardW.Sunderland,Jr Title: ExecutiveVicePresidentandChiefFinancialOfficer 190 AmericanPublicEducation,Inc. Exhibit32.1 CERTIFICATIONOFCHIEFEXECUTIVEOFFICERPURSUANTTO18U.S.C.SECTION1350,AS ADOPTEDPURSUANTTOSECTION906OFTHESARBANES-OXLEYACTOF2002 Theundersigned,theChiefExecutiveOfficerofAmericanPublicEducation,Inc.(“theCompany”),herebycertifies  that,tohisknowledge,onthedatehereof: (a) TheannualreportonForm10-KoftheCompanyfortheperiodendedDecember31,2016filedonthedatehereof withtheSecuritiesandExchangeCommission(“theReport”)fullycomplieswiththerequirementsofSection  13(a)or15(d)oftheSecuritiesExchangeActof1934;and (b) InformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionand  resultsofoperationsoftheCompany. Date:March1,2017 By: /s/Dr.WallaceE.Boston Name: Dr.WallaceE.Boston Title: PresidentandChiefExecutiveOfficer AsignedoriginalofthiswrittenstatementrequiredbySection906,orotherdocumentauthenticating,acknowl - edging,orotherwiseadoptingthesignaturethatappearsintypedformwithintheelectronicversionofthis  writtenstatementrequiredbySection906,hasbeenprovidedtoAmericanPublicEducation,Inc.andwillbe  retainedbytheCompanyandfurnishedtotheSecuritiesandExchangeCommissionoritsstaffuponrequest. 2016 Annual Report 191 Exhibit32.2 CERTIFICATIONOFCHIEFFINANCIALOFFICERPURSUANTTO18U.S.C.SECTION1350,AS ADOPTEDPURSUANTTOSECTION906OFTHESARBANES-OXLEYACTOF2002 Theundersigned,theChiefFinancialOfficerofAmericanPublicEducation,Inc.(“theCompany”),herebycertifies  that,tohisknowledge,onthedatehereof: (a) TheannualreportonForm10-KoftheCompanyfortheperiodendedDecember31,2016filedonthedate  hereofwiththeSecuritiesandExchangeCommission(“theReport”)fullycomplieswiththerequirementsof  Section13(a)or15(d)oftheSecuritiesExchangeActof1934;and (b) InformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionand  resultsofoperationsoftheCompany. Date:March1,2017 By: /s/RichardW.Sunderland,Jr. Name: RichardW.Sunderland,Jr Title: ExecutiveVicePresidentandChiefFinancialOfficer AsignedoriginalofthiswrittenstatementrequiredbySection906,orotherdocumentauthenticating,acknowl - edging,orotherwiseadoptingthesignaturethatappearsintypedformwithintheelectronicversionofthis  writtenstatementrequiredbySection906,hasbeenprovidedtoAmericanPublicEducation,Inc.andwillbe  retainedbytheCompanyandfurnishedtotheSecuritiesandExchangeCommissionoritsstaffuponrequest. 192 AmericanPublicEducation,Inc. Thispageintentionallyleftblank. 2016 Annual Report 193 AmericanPublicEducation,Inc. EXECUTIVE LEADERSHIP Dr. Wallace Boston* President and Chief Executive Officer, American Public Education, Inc. AMERICAN PUBLIC UNIVERSITY SYSTEM Michael Harbert Vice President, Alumni Relations Dr. Grady Batchelor Dean, Faculty and Student Success Dr. Jennifer Helm Vice President, Accreditation Richard Sunderland, Jr., CPA* Executive Vice President and Chief Financial Officer Daniel Benjamin Dean, School of Science, Technology, Engineering and Math Daniel Lochner Vice President, Business Planning and Project Management Dr. Karan Powell* President, American Public University System Dr. Patricia Campbell Dean, Graduate Studies, Research and Innovation Dr. Brian Freeland Dean, School of Health Sciences Dr. Grace Glass Dean, School of Arts & Humanities Jeffrey McCafferty Vice President, Strategic Planning Caroline Simpson Vice President, Student Services Karen Vendouern-Srba Vice President, Academic and Instructional Technology Dr. Conrad Lotze Dean, School of Education Resources and School of Education Keith Wellings Vice President, Financial Aid and Compliance Dr. Chad Patrizi Dean, School of Business Dr. Chris Reynolds Dean Academic Outreach and Program Development Dr. Mark Riccardi Dean, School of Security and Global Studies Michelle Newman University Registrar Richard Locher Executive Director, Center for Applied Learning John Aldrich Vice President, Military, Veterans, and Community College Outreach Wendy Anson Vice President, Faculty Human Resources and Administration Dr. David Becher Vice President, Institutional Research Elizabeth LaGuardia Cooper Vice President, Marketing Terry Grant Vice President, Enrollment Management and Student Support FINANCE, INFORMATION TECHNOLOGY AND HUMAN RESOURCES Melissa Frey, CPA Senior Vice President and Controller Tracy Woods Senior Vice President and Chief Information Officer Jessica Jackson Vice President, Human Resources Chris Symanoskie, IRC Vice President, Investor Relations Amy Weber, CPA Vice President, Internal Audit Michael White, CPA Vice President, Budgeting, Tax and Facilities Management HONDROS COLLEGE OF NURSING Tony Mediate Chief Operating Officer & CEO Dr. Jeremy Hoshor-Johnson Chief Administrative Officer and Provost Thomas Beckett* Senior Vice President, General Counsel Amy Bevilacqua Senior Vice President, Chief Innovation Officer Peter Gibbons* Senior Vice President, Special Projects Amy Panzarella, SPHR, SHRM-SCP* Senior Vice President, Human Resources *denotes executive officers for Rule 3b-7 UNIVERSITY LEADERSHIP Dr. Karan Powell President, American Public University System Richard Sunderland, Jr., CPA Executive Vice President and Chief Financial Officer Robert Gay Senior Vice President and Chief Operations Officer Dr. Gwendolyn Hall Senior Vice President and Chief of Staff Dr. Vernon Smith Senior Vice President and Provost 194 AmericanPublicEducation,Inc. Corporate Information APUS Board of Trustees APEI Board of Directors Corporate and 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 shareholders will be held at the Gaylord National Resort & Conference Center, 201 Waterfront Street, National Harbor, Maryland 20745 on May 12, 2017 at 7:30 a.m. Eastern time. Investor Relations Chris Symanoskie, IRC 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 919 East Main Street, Suite 1800 Richmond, VA, 23219 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 www.APEI.com Dr. Wallace Boston, Member President and Chief Executive Officer, American Public Education, Inc. Eric C. “Ric” Andersen, Director Partner, Peak Equity Frank Ball, Member Emeritus Independent Consultant Faculty Member, Georgetown University Lieutenant General (USMC Retired) Thomas Conant, Member Former Deputy Commander, United States Pacific Command Dr. Wallace Boston, Director President and Chief Executive Officer, American Public Education, Inc. Major General (Retired) Barbara Fast, Chairperson President and CEO, BGF Enterprises LLC Jean Halle, Director Independent Consultant General (Retired) Alfred 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. Barbara Kurshan, Director Executive Director and Senior Fellow, Academic Innovation, University of Pennsylvania Graduate School of Education Timothy Landon, Director Chief Executive Officer, Aggrego LLC Wes Moore, Director Author, Chairman of Omari Productions William Robinson, Jr., Director Executive Vice President and Chief Human Resources Officer, Sabre Dr. Lucie Lapovsky, Member Principal, Lapovsky Consulting Former President, Mercy College Dr. Katy Marre, Member Professor Emerita Assoc. Vice President, Graduate Studies & Research (Ret.), University of Dayton Major General (Retired) Robert Nabors, Member Executive Advisor, Booz Allen Hamilton Dr. J. D. Polk, Member Senior Medical Officer, National Aeronautics and Space Administration (NASA) Lieutenant General (Retired) Richard Trefry, Member Senior Fellow, Institute of Land Warfare Former Program Manager, The Army Force Management School Dr. Katherine Zatz, Chair Vice President, Allpar LLC Senior Consultant, Tookpack.com Member, Registry of College Presidents 111 WEST CONGRESS STREET‚ CHARLES TOWN‚ WEST VIRGINIA 25414 www.americanpubliceducation.com VISIT OUR SOCIAL COMMUNITIES FOR APUS, AMU & APU www.apus.edu/communities VISIT OUR SOCIAL COMMUNITIES FOR HONDROS COLLEGE OF NURSING facebook.com/HondrosCollegeNursingPrograms twitter.com/HondrosNursing 

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