DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

3 Months Ended

Sep. 30, 2019

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

NOTE 2: DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

On December 4, 2018, Adtalem completed the sale of Carrington to San Joaquin Valley College, Inc. (“SJVC”) for de minimis consideration. As the sale represented a strategic shift that has a major effect on Adtalem’s operations and financial results, Carrington is presented in Adtalem’s financial reporting as a discontinued operation. Adtalem has retained certain leases associated with the Carrington operations. Adtalem remains the primary lessee on these leases and subleases to Carrington. Adtalem records the proceeds from these subleases as an offset to operating costs. Adtalem also assigned certain leases to Carrington but remains contingently liable under these leases. Adtalem recorded a pre-tax loss of $11.3 million on the sale of Carrington and transferred $9.9 million of cash and restricted cash balances to Carrington in the second quarter of fiscal year 2019, subject to post-closing adjustments to be completed in fiscal year 2020.

On December 11, 2018, Adtalem completed the sale of DeVry University to Cogswell Education, LLC (“Cogswell”) for de minimis consideration. As the sale represented a strategic shift that has a major effect on Adtalem’s operations and financial results, DeVry University is presented in Adtalem’s financial reporting as a discontinued operation. The purchase agreement includes an earn-out entitling Adtalem to payments of up to $20 million over a ten-year period payable based on DeVry University’s free cash flow. In connection with the closing of the sale, Adtalem loaned to DeVry University $10.0 million under the terms of the promissory note, dated as of December 11, 2018 (the “Note”). The Note bears interest at a rate of 4% per annum, payable annually in arrears and has a maturity date of January 1, 2022. DeVry University may make prepayments on the Note. This loan is presented as Other Assets, Net on the Consolidated Balance Sheet. Adtalem has retained certain leases associated with DeVry University operations. Adtalem remains the primary lessee on these leases and subleases to DeVry University. In addition, Adtalem owns the buildings for certain DeVry University operating and administrative office locations and leases space to DeVry University under one-year operating leases, renewable annually at DeVry University’s option. Adtalem records the proceeds from these leases and subleases as an offset to operating costs. Adtalem also assigned certain leases to DeVry University but remains contingently liable under these leases. Adtalem recorded a pre-tax loss of $22.3 million on the sale of DeVry University and transferred $40.2 million of cash and restricted cash balances to DeVry University in fiscal year 2019.

On October 18, 2019, Adtalem entered into a Stock Purchase Agreement (“Purchase Agreement”) with Estácio Participações S.A. (“Estácio”) and Sociedade de Ensino Superior Estaćio de Sá Ltda, a wholly owned subsidiary of Estácio (“Purchaser”). Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, Adtalem will sell all of the issued and outstanding shares of Adtalem Brasil Holding S.A. (a/k/a Adtalem Brazil) to the Purchaser for approximately $465 million in cash. In addition, Adtalem expects to receive approximately $74 million in settlement of cash balances as of June 30, 2019 of $89 million, net of indebtedness of $15 million, resulting in total proceeds of $539 million. This transaction is expected to be completed in the first half of fiscal year 2021. This sale advances Adtalem’s strategy to become a leading workforce solutions provider in the medical and healthcare and financial services industries, aligning Adtalem’s portfolio to better address the global workforce skills gap and serve its markets in a more competitive and comprehensive way. As the potential sale represents a strategic shift that will have a major effect on Adtalem’s operations and financial results, Adtalem Brazil is presented in Adtalem’s financial reporting as a discontinued operation. All prior periods presented disclose Adtalem Brazil’s assets and liabilities as held for sale, and operations and cash flows of Adtalem Brazil, which were previously included as the only component of the Business and Law reportable segment, as discontinued operations. In connection with the announced proposed sale of Adtalem Brazil, Adtalem entered into certain deal contingent foreign exchange forward contracts to economically hedge the Brazilian Real denominated purchase price through mitigation of the currency exchange rate risk. Management does not expect this contract to qualify for hedge accounting treatment under Accounting Standards Codification (“ASC”) 815, and as a result, all changes in fair value will be recorded to the income statement.

The following is a summary of balance sheet information of assets and liabilities reported as held for sale (in thousands).

	September 30,		June 30,		September 30,
	2019		2019		2018
ASSETS:
Current Assets:
Cash and Cash Equivalents	$	96,902	$	95,243	$	94,423
Restricted Cash		—		—		15,967
Accounts Receivable, Net		64,915		74,269		98,089
Prepaid Expenses and Other Current Assets		8,056		8,411		19,162
Total Current Assets Held for Sale		169,873		177,923		227,641
Land, Building and Equipment Held for Sale, Net		73,763		81,250		81,029
Noncurrent Assets:
Operating Lease Assets		72,261		—		—
Intangible Assets, Net		110,711		120,108		115,429
Goodwill		173,064		187,195		178,046
Perkins Program Fund, Net		—		—		13,450
Other Assets, Net		9,972		10,338		8,465
Total Noncurrent Assets Held for Sale		366,008		317,641		315,390
Total Assets Held for Sale	$	609,644	$	576,814	$	624,060
LIABILITIES:
Current Liabilities:
Accounts Payable	$	2,857	$	4,242	$	25,896
Accrued Salaries, Wages and Benefits		16,239		17,828		22,526
Accrued Liabilities		9,800		10,193		14,580
Deferred Revenue		11,104		3,846		58,494
Current Operating Lease Liabilities		10,174		—		—
Total Current Liabilities Held for Sale		50,174		36,109		121,496
Noncurrent Liabilities:
Long-Term Operating Lease Liabilities		62,367		—		—
Deferred Income Taxes		—		—		216
Other Liabilities		14,101		16,146		21,196
Total Noncurrent Liabilities Held for Sale		76,468		16,146		21,412
Total Liabilities Held for Sale	$	126,642	$	52,255	$	142,908

The following is a summary of income statement information of operations reported as discontinued operations (in thousands). The results include Carrington's and DeVry University's operations through the date of each respective sale.

	Three Months Ended
	September 30,
	2019		2018
REVENUE	$	45,652	$	159,554
OPERATING COST AND EXPENSE:
Cost of Educational Services		33,948		98,460
Student Services and Administrative Expense		14,373		64,706
Restructuring Expense (Gain)		35		(443)
Asset Impairment Charge - Building and Equipment		—		2,242
Total Operating Cost and Expense		48,356		164,965
Operating Loss from Discontinued Operations		(2,704)		(5,411)
OTHER INCOME (EXPENSE):
Interest and Dividend Income		978		976
Interest Expense		(1,157)		(1,284)
Net Other Expense		(179)		(308)
Loss from Discontinued Operations Before Income Taxes		(2,883)		(5,719)
Income Tax (Provision) Benefit		(273)		985
Loss from Discontinued Operations		(3,156)		(4,734)
Net Income Attributable to Noncontrolling Interest		—		(9)
Loss from Discontinued Operations Attributable to Adtalem Global Education	$	(3,156)	$	(4,743)