8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549  

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 8, 2021

ADTALEM GLOBAL EDUCATION INC.

(Exact name of registrant as specified in its charter)

Delaware	001-13988	36-3150143
(State or other jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

500 West Monroe Chicago, Illinois	60661
(Address of registrant’s principal executive office)	(Zip code)

(866) 374-2678

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	AGTE	New York Stock Exchange, NYSE Chicago

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

¨ Emerging growth company

¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Item 7.01 Regulation FD Disclosure.

In connection with a proposed notes offering described below, Adtalem Global Education Inc. (the “Company”) anticipates disclosing to prospective investors certain information. This information is furnished hereto as Exhibit 99.1 and incorporated by reference herein.

Additionally, furnished as Exhibit 99.2, Exhibit 99.3 and Exhibit 99.4 herewith, respectively, are (a) the audited financial statements of Walden e-Learning, LLC and, its subsidiary, Walden University, LLC (“Walden”, and together with related Laureate Education, Inc. activities and balances, and certain Laureate Education, Inc. corporate cost allocations, the “Walden Education Business”) as of and for the years ended December 31, 2019 and 2018, (b) the unaudited financial statements of Walden Education Business as of September 30, 2020 and for the nine months ended September 30, 2020 and 2019 and (c) the Company’s unaudited pro forma condensed combined statement of operations and explanatory notes for the three months ended September 30, 2020 and for the year ended June 30, 2020 and the Company’s unaudited pro forma condensed combined balance sheet data and explanatory notes as of September 30, 2020, to illustrate the estimated effects of the previously announced acquisition by the Company of Walden (the “Acquisition”).

The information disclosed under this Item 7.01, including Exhibits 99.1, 99.2, 99.3 and 99.4 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, nor shall it be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended (the “Securities Act”), except as expressly set forth in such filing.

Item 8.01 Other Events.

On February 8, 2021, the Company announced that its wholly-owned subsidiary, Adtalem Escrow Corporation, intends, subject to market and other conditions, to offer $650 million aggregate principal amount of senior secured notes due 2028. The Company intends to use the net proceeds from the offering, along with other financing sources, to finance the purchase price payable in connection with the Acquisition and to pay related fees and expenses. The closing of the offering is not conditioned on the closing of the Acquisition.

The notes to be offered have not been registered under the Securities Act, or any state securities laws and, unless so registered, may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The notes will be offered, by the initial purchasers, only to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act and non-U.S. persons in transactions outside the United States in reliance on Regulation S under the Securities Act.

This report is neither an offer to purchase nor a solicitation of an offer to sell any securities.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements and Exhibits.

The audited financial statements of Walden Education Business as of and for the years ended December 31, 2019 and 2018 are attached hereto as Exhibit 99.2. The unaudited financial statements of Walden Education Business as of September 30, 2020 and for the nine months ended September 30, 2020 and 2019 are attached hereto as Exhibit 99.3 and are incorporated herein by reference.

(b) Pro forma Financial Information.

The Company’s unaudited pro forma condensed combined statement of operations and explanatory notes for the three months ended September 30, 2020 and for the year ended June 30, 2020 and the Company’s unaudited pro forma condensed combined balance sheet data and explanatory notes as of September 30, 2020 are attached hereto as Exhibit 99.4 and are incorporated by herein by reference.

(c) Exhibits.

Exhibit No.	Description
99.1	Certain information related to proposed notes offering
99.2	Audited financial statements of Walden Education Business as of and for the years ended December 31, 2019 and 2018
99.3	Unaudited financial statements of Walden Education Business as of September 30, 2020 and for the nine months ended September 30, 2020 and 2019
99.4	Unaudited pro forma condensed combined statement of operations and explanatory notes of the Company for the three months ended September 30, 2020 and for the year ended June 30, 2020 and the Unaudited pro forma condensed combined balance sheet data and explanatory notes of the Company as of September 30, 2020
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ADTALEM GLOBAL EDUCATION INC.
Date: February 8, 2021	By:	/s/ Michael O. Randolfi
		Name:	Michael O. Randolfi
		Title:	Senior Vice President,
			Chief Financial Officer
			(Principal Financial Officer)

EX-99.1

Exhibit 99.1

Risks Related to the Proposed Walden Acquisition

The Proposed Walden Acquisition is subject to conditions, some or all of which may not be satisfied, or completed on a timely basis, if at all. Failure to complete the Proposed Walden Acquisition could have material adverse effects on the business of Adtalem.

The completion of the Proposed Walden Acquisition is subject to certain closing conditions, including receipt of a DOE Preacquisition Response (as defined in the Purchase Agreement), approval by the HLC and required antitrust approvals and other customary closing conditions, which make the completion and timing of the completion of the Proposed Walden Acquisition uncertain. In particular, the DOJ Investigation is still ongoing, and pursuant to its access rights under the terms of the Purchase Agreement, Adtalem is continuing to conduct its own investigation of the matters addressed in the DOJ and HLC correspondence, including reviewing relevant documents and other information and interviewing relevant Laureate and/or Walden personnel. As a condition to closing the Proposed Walden Acquisition, certain designated regulatory authorities, including the HLC, must consent to the Proposed Walden Acquisition. The parties are required to cooperate and use reasonable best efforts to obtain those designated pre-closing consents from, among others, the HLC. However, HLC may nonetheless approve the Proposed Walden Acquisition despite the DOJ investigation being ongoing, and we may be required to close the Proposed Walden Acquisition.

Also, either Adtalem or Laureate may terminate the Purchase Agreement if the Proposed Walden Acquisition has not been consummated by March 11, 2022, except that this right to terminate the Purchase Agreement will not be available to any party whose action or failure to perform any of its obligations under this Agreement has been the primary cause of, or primarily resulted in, the failure of the Proposed Walden Acquisition to be consummated on or before that date.

If the Proposed Walden Acquisition is not completed, Adtalem’s ongoing business may be materially adversely affected and, without realizing any of the benefits that Adtalem could have realized had the Proposed Walden Acquisition been completed, Adtalem will be subject to a number of risks, including the following:

· the market price of Adtalem common stock could decline;

· if the Purchase Agreement is terminated and the Adtalem Board seeks another business combination, Adtalem stockholders cannot be certain that Adtalem will be able to find a party willing to enter into any transaction on terms equivalent to or more attractive than the terms that Adtalem and Laureate have agreed to in the Purchase Agreement;

· time and resources committed by Adtalem’s management to matters relating to the Proposed Walden Acquisition could otherwise have been devoted to pursuing other beneficial opportunities;

· Adtalem may experience negative reactions from the financial markets or from its customers or employees; and

· Adtalem will be required to pay its costs relating to the Proposed Walden Acquisition, such as legal, accounting, financial advisory and printing fees, whether or not the Proposed Walden Acquisition is completed.

In addition, if the Proposed Walden Acquisition is not completed, Adtalem could be subject to litigation related to any failure to complete the Proposed Walden Acquisition or related to any enforcement proceeding commenced against Adtalem to perform its obligations under the Purchase Agreement. If any such risk materializes, it could adversely impact Adtalem’s ongoing business. Furthermore, under certain specified circumstances, Adtalem may be required to pay Laureate a termination fee of $88.8 million, including if Adtalem terminates the Purchase Agreement as a result of the imposition by the DOE of certain restrictions, or if Laureate terminates the Agreement as a result of Adtalem’s failure to consummate the transaction upon satisfaction of the closing conditions

Similarly, delays in the completion of the Proposed Walden Acquisition could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with uncertainty about completion of the Proposed Walden Acquisition and cause us not to realize some or all of the benefits that we expect to achieve if the Proposed Walden Acquisition is successfully completed within its expected timeframe. There can be no assurance that the conditions to the closing of the Proposed Walden Acquisition will be satisfied or waived or that the Proposed Walden Acquisition will be consummated.

The Proposed Walden Acquisition is subject to the receipt of approvals, consents or clearances from regulatory authorities that may impose conditions that could have an adverse effect on Adtalem or the combined company or, if not obtained, could prevent completion of the Proposed Walden Acquisition.

Before the Proposed Walden Acquisition may be completed, any approvals, consents or clearances required in connection with the Proposed Walden Acquisition must have been obtained, in each case, under applicable law, including pursuant to the anti-trust laws and education laws. The terms and conditions of the approvals, consents and clearances that are granted may impose requirements, limitations or costs or place restrictions on the conduct of the combined company’s business. Under the Purchase Agreement, Adtalem has agreed with Laureate to cooperate and use their reasonable best efforts to obtain such approvals, consents and clearances and therefore may be required to comply with conditions or limitations imposed by governmental authorities, except that Adtalem’s may not be required to cooperate if the DOE Preacquisition Approval contains a “Burdensome Condition” (as defined in the Purchase Agreement).

In addition, regulators may impose conditions, terms, obligations or restrictions in connection with their approval of or consent to the Proposed Walden Acquisition, and such conditions, terms, obligations or restrictions may delay completion of the Proposed Walden Acquisition or impose additional material costs on or materially limit the revenues of the combined company following the completion of the Proposed Walden Acquisition. Regulators may impose such conditions, terms, obligations or restrictions, and, if imposed, such conditions, terms, obligations or restrictions may delay or lead to the abandonment of the Proposed Walden Acquisition.

As part of the regulatory approval process, we have entered into certain undertakings with the DOE and HLC, including a Preacquisition Application with the DOE and a Change of Control, Organization and Legal Structure Application with the HLC. The undertakings are anticipated to contain various commitments by us that will be effective upon completion of the Proposed Walden Acquisition.

The Proposed Walden Acquisition remains subject to regulatory approval from the applicable Educational Agencies, the Burdensome Condition provision of Section 5.05(b) of the Purchase Agreement, and certain closing conditions. There can be no assurance that we will receive regulatory approval for the Proposed Walden Acquisition or that the closing of the Proposed Walden Acquisition will occur.

Each party is subject to business uncertainties and contractual restrictions while the proposed acquisition is pending, which could adversely affect the business and operations of Adtalem or the combined company.

In connection with the pendency of the Proposed Walden Acquisition, it is possible that some customers, suppliers and other persons with whom Adtalem or Walden has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with Adtalem or Walden, as the case may be, as a result of the Proposed Walden Acquisition, which could negatively affect Adtalem’s current or the combined company’s future revenues, earnings and cash flows, as well as the market price of Adtalem common stock, regardless of whether the Proposed Walden Acquisition is completed.

Under the terms of the Purchase Agreement, Walden is subject to certain restrictions on the conduct of its business prior to completing the Proposed Walden Acquisition, which may adversely affect its ability to execute certain of its business strategies, including the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness or incur capital expenditures. Such limitations could adversely affect Walden’s business and operations prior to the completion of the Proposed Walden Acquisition.

Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the Proposed Walden Acquisition.

2

Uncertainties associated with the Proposed Walden Acquisition may cause a loss of management personnel and other key employees, which could adversely affect the future business and operations of the combined company.

Adtalem and Walden are each dependent on the experience and industry knowledge of their management and other key employees to execute their business plans. The combined company’s success after the completion of the Proposed Walden Acquisition will depend in part upon the ability of each of Adtalem and Walden to retain key management personnel and other key employees. Prior to completion of the Proposed Walden Acquisition, current and prospective employees of each of Adtalem and Walden may experience uncertainty about their roles within the combined company following the completion of the Proposed Walden Acquisition, which may have an adverse effect on the ability of each of Adtalem and Walden to attract or retain key management and other key personnel. In addition, no assurance can be given that the combined company will be able to attract or retain key management personnel and other key employees of each of Adtalem and Walden to the same extent that Adtalem and Walden have previously been able to attract or retain their own employees.

The historical financial information relating to the Walden business to be acquired in the Proposed Walden Acquisition may not be representative of the results or financial condition of such assets if they had been operated independently and, as a result, may not be a reliable indicator of their future results.

The Walden business to be acquired in the Proposed Walden Acquisition are currently operated by Laureate. Consequently, the financial information relating to such assets included in this document has been derived from the financial statements and accounting records of Laureate and reflect the costs as well as assumptions and allocations made by Laureate’s management. The financial position, results of operations and cash flows relating to such assets presented may be different from those that would have resulted had such assets been operated independently, during the applicable periods or at the applicable dates. As a result, the historical financial information relating to such Walden business may not be a reliable indicator of future results.

The unaudited pro forma condensed combined financial information in this offering memorandum is presented for illustrative purposes only and may not be reflective of the operating results and financial condition of the combined company following completion of the Proposed Walden Acquisition.

The unaudited pro forma condensed combined financial information in this offering memorandum is presented for illustrative purposes only and is not necessarily indicative of what the combined company’s actual financial position or results of operations would have been had the Proposed Walden Acquisition been completed on the dates indicated. Further, the combined company’s actual results and financial position after the Proposed Walden Acquisition may differ materially and adversely from the unaudited pro forma condensed combined financial information that is included in this offering memorandum. These estimates may be revised as additional information becomes available and as additional analyses are performed. The unaudited pro forma condensed combined financial information has been prepared with the expectation, as of the date of this offering memorandum, that Adtalem will be identified as the acquirer under GAAP and reflects adjustments based upon preliminary estimates of the fair value of assets to be acquired and liabilities to be assumed. The final acquisition accounting will be based upon the actual Acquisition Consideration and the fair value of the assets and liabilities of Adtalem under GAAP as of the date of the completion of the Proposed Walden Acquisition. In addition, subsequent to the closing date, there will be further refinements of the acquisition accounting as additional information becomes available. Accordingly, the final acquisition accounting may differ materially from the pro forma condensed combined financial information reflected in this offering memorandum.

Completion of the Proposed Walden Acquisition may trigger change in control or other provisions in certain agreements to which Walden is a party, which may have an adverse impact on the combined company’s business and results of operations.

The completion of the Proposed Walden Acquisition may trigger change in control and other provisions in certain agreements to which Walden is a party. If we are unable to negotiate waivers of those provisions with the counterparties, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if we are able to negotiate waivers with the counterparties, they may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Walden or the combined company. Any of the foregoing or similar developments may have an adverse impact on the combined company’s business and results of operations.

3

We may not have discovered undisclosed liabilities of Walden or adequately estimated the potential risks related to its disclosed or undisclosed liabilities during our due diligence process.

In the course of the due diligence review of Walden that we conducted prior to the execution of the Purchase Agreement, we may not have discovered, or may have been unable to quantify, undisclosed liabilities of Walden and its subsidiaries, and our stockholders may not be indemnified for any of these liabilities.

In addition, we may not have adequately estimated the potential risks related to disclosed and undisclosed liabilities of Walden and its subsidiaries. Any such disclosed or undisclosed liabilities or risks that have not been adequately estimated could have an adverse effect on our business, results of operations, financial condition and cash flows and on the value of our common stock following the completion of the Proposed Walden Acquisition. Examples of such liabilities may include, but are not limited to, pending or threatened litigation or regulatory matters, such as the ongoing DOJ investigation of Walden as further described below.

On September 16, 2020, Laureate advised Adtalemof the DOJ Investigation. Subsequently, Walden disclosed the DOJ Investigation to the HLC. On October 13, 2020, Laureate advised Adtalem that Walden had received a letter from the HLC notifying Walden that the HLC sought to assign a public Governmental Investigation designation to Walden University. On November 9, 2020, the HLC assigned the designation of “Under Governmental Investigation” to Walden, which will remain in place until the President of the HLC determines that Walden has resolved the issues that led to the designation.

Pursuant to its access rights under the terms of the Purchase Agreement, Adtalem is continuing to conduct its own investigation of the matters addressed in the DOJ and HLC correspondence, including reviewing relevant documents and other information and interviewing relevant Laureate and/or Walden personnel. As a condition to closing the Proposed Walden Acquisition, certain designated regulatory authorities, including the HLC, must consent to the Proposed Walden Acquisition. Pursuant to Section 5.05(a) of the Purchase Agreement, the parties are required to cooperate and use reasonable best efforts to obtain those designated pre-closing consents from, among others, the HLC. Consistent with the HLC’s policies and procedures, a Governmental Investigation designation by the HLC could delay or prevent the HLC’s approval of a substantive change application to approve the Proposed Walden Acquisition. We continue to evaluate these regulatory developments and the potential impact, if any, on the Proposed Walden Acquisition.

If the HLC consented to the Proposed Walden Acquisition prior to resolution of the DOJ Investigation or if the DOJ Investigation is not resolved in a manner that is favorable to Walden, and we were otherwise required under the Purchase Agreement to close the Proposed Walden Acquisition, any adverse or unfavorable outcome of the DOJ Investigation could materially and adversely impact Walden, or subject Walden to operational restrictions, litigation and increased costs. As a result, our ability to realize the benefit or synergies of the Proposed Walden Acquisition which could also have a material and adverse impact on our business, financial condition, cash flows and results of operations.

Many contracts, which will need to be assigned from Walden to us in connection with the Acquisition, require the consent of the counterparty to such an assignment, and failure to obtain these consents could increase our expenses or otherwise reduce our profitability.

In connection with the Proposed Walden Acquisition, a number of contracts with customers, suppliers, landlords and other third parties are to be assigned from Walden or its affiliates to us or our affiliates. However, many of these contracts may require the contractual counterparty’s consent to such an assignment. Similarly, in some circumstances, we and another business unit of Walden are joint beneficiaries of contracts, and we will need to enter into a new agreement with the third party to replicate the contract or assign the portion of the contract related to our business. It is possible that some parties may use the consent requirement to seek more favorable contractual terms from us. If we are unable to obtain these consents, we may be unable to obtain some of the benefits, assets and contractual commitments that are intended to be allocated to us as part of the Proposed Walden Acquisition. If we are unable to obtain consents with respect to contracts with any of our important authors or other contractual counterparties, the loss of these contracts could increase our expenses or otherwise reduce our profitability.

4

Failure to complete the Proposed Walden Acquisition could negatively impact our stock price and our future business and financial results.

If the Proposed Walden Acquisition is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Proposed Walden Acquisition, we could be subject to a number of negative consequences, including, among others: (i) we may experience negative reactions from the financial markets, including negative impacts on our stock price; (ii) we will still be required to pay certain significant costs relating to the Proposed Walden Acquisition, including legal, accounting, and financial advisor costs; (iii) we may be required to pay a cash termination fee as required by the Agreement; and (iv) matters related to the Proposed Walden Acquisition (including integration planning) require substantial commitments or our time and resources, which could have resulted in our inability to pursue other opportunities that could have been beneficial to us.

If the Proposed Walden Acquisition is not completed, any of these risks may materialize and may adversely affect our businesses, financial condition, financial results, and stock price.

The combined company is expected to incur substantial expenses related to the completion of the Proposed Walden Acquisition and the integration of Walden with Adtalem’s business.

We have incurred, and the combined company is expected to continue to incur, substantial expenses in connection with the completion of the Proposed Walden Acquisition and the integration of Adtalem and Walden. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, payroll, marketing and benefits. In addition, the businesses of Adtalem and Walden will continue to maintain a global presence. The substantial majority of these costs will be non-recurring expenses related to the Proposed Walden Acquisition (including financing of the Proposed Walden Acquisition). The combined company may incur additional costs to maintain employee morale and to retain key employees. Adtalem will also incur transaction fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs. Additionally, as a result of the Proposed Walden Acquisition, rating agencies may take negative actions with regard to the combined company’s credit ratings, which may increase the combined company’s costs in connection with the financing of the Proposed Walden Acquisition. These incremental transaction and acquisition-related costs may exceed the savings the combined company expects to achieve from the elimination of duplicative costs and the realization of other efficiencies related to the integration of the businesses, particularly in the near term and in the event there are material unanticipated costs.

Adtalem is incurring substantial indebtedness to finance the Proposed Walden Acquisition.

As of September 30, 2020, on a pro forma basis after giving effect to the Acquisition Financing (including this offering), the Proposed Walden Acquisition and the other adjustments described in “Unaudited Pro Forma Condensed Combined Financial Information of Adtalem and Walden”, Adtalem will have approximately $1.65 billion indebtedness outstanding. The increased indebtedness of the combined company in comparison to that of Adtalem on a historical basis could adversely affect the combined company in a number of ways, including:

· affecting the combined company’s ability to pay or refinance its debts as they become due during adverse economic, financial market and industry conditions;

· requiring the combined company to use a larger portion of its cash flow for debt service, reducing funds available for other purposes;

· causing the combined company to be less able to take advantage of business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions;

· increasing the combined company’s vulnerability to adverse economic, industry or competitive developments;

· affecting the combined company’s ability to obtain additional financing;

· decreasing the combined company’s profitability and/or cash flow;

· causing the combined company to be disadvantaged compared to competitors with less leverage;

5

· resulting in a downgrade in the credit rating of the combined company or any indebtedness of the combined company or its subsidiaries which could increase the cost of further borrowings; and

· limiting the combined company ability to borrow additional funds in the future to fund working capital, capital expenditures and other general corporate purposes.

If the combined company incurs additional indebtedness following the Proposed Walden Acquisition, the risks related to the substantial indebtedness of the combined company may intensify. For more information on the financial impact of the combined company’s indebtedness.

Risks Relating to the Combined Company After Completion of the Proposed Walden Acquisition

Outbreaks of communicable infections or diseases, or other public health pandemics, such as the global coronavirus outbreak currently being experienced, in the locations in which we, our students, faculty, and employees live, work, and attend classes, could substantially harm our business.

Disease outbreaks and other public health conditions, such as the current outbreak of COVID-19 currently being experienced, in the locations in which we, our students, faculty, and employees live, work, and attend classes could have a significant negative impact on our revenue, profitability, and business. We have developed and continue to develop plans to help mitigate the negative impact of the coronavirus to our business including all classes having shifted to online learning, all employees working from home, practice containment, recovery and normalization scenario planning, and emergency succession planning. In particular, our remote work arrangements for employees, coupled with stay-at-home orders and quarantines, pose challenges for those employees and our IT systems, and extended periods of remote work arrangements could strain our business continuity plans, introduce operational risk, including cybersecurity and IT systems management risks. The situation surrounding COVID-19 is fluid, and if financial markets become disrupted or volatile, we could face heightened risks related to our financing activities, including limited availability of funding or increased funding costs, which could adversely affect our business, financial position, and results of operations.

The coronavirus outbreak continues to be fluid and uncertain, making it difficult to forecast the final impact it could have on our future operations. If our business experiences prolonged occurrences of adverse public health conditions, such as the coronavirus, and the attendant stay-at-home orders, we believe it could have a material adverse effect on our business, financial condition, results of operations, and cash flows. We will continue to evaluate, and if appropriate, adopt other measures in the future required for the ongoing safety of our students and employees.

For Adtalem, COVID-19 resulted in estimated revenue losses of approximately $14 million and operating income losses of approximately $7 million in the first quarter of fiscal year 2021 and estimated revenue losses of approximately $29 million and operating income losses of approximately $19 million in fiscal year 2020. In addition, Adtalem implemented a workforce reduction of 32 positions in the fourth quarter of fiscal year 2020 to become more cost effective in response to COVID-19. The resulting severance charge in the fourth quarter of fiscal year 2020 was not significant.

For Walden, COVID-19 has had an immaterial unfavorable impact as the institution’s programs are 100% online and the institution has managed to deliver traditional face-to-face events virtually and has worked extensively with accreditors and partners to manage field experience assignments and risk.

Management anticipates further negative COVID-19 effects to consolidated revenue and net income further into fiscal year 2021 for as long as social distancing and other measures established to combat the virus continue.  The ongoing pandemic may also cause the risks associated with our industry and business described herein and in our public filings may become more significant.

If our business results and financial condition were materially and adversely impacted, then assets such as accounts receivable, property and equipment, operating lease assets, intangible assets and goodwill could be impaired, requiring a possible write-off. As of September 30, 2020, intangible assets from business combinations totaled $285.0 million and goodwill totaled $686.5 million for Adtalem and goodwill totaled $2.8 million for Walden.

6

The combined company may be unable to successfully integrate the business of Adtalem and the Walden business acquired in the Proposed Walden Acquisition and realize the anticipated benefits of the Proposed Walden Acquisition.

The success of the Proposed Walden Acquisition will depend, in part, on the combined company’s ability to successfully combine the business of Adtalem and the Walden business acquired in the Proposed Walden Acquisition, and realize the anticipated benefits, including synergies, cost savings, innovation and operational efficiencies, from the combination. If the combined company is unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected and the combined company’s financial position, results of operations and cash flows and the value of its common stock may be harmed. Additionally, rating agencies may take negative actions against the combined company.

The Proposed Walden Acquisition involves the integration of certain Walden assets of Laureate with Adtalem’s existing business, which is expected to be a complex, costly and time-consuming process. The integration may result in material challenges, including, without limitation:

· the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the Proposed Walden Acquisition;

· managing a larger combined company;

· maintaining employee morale and retaining key management and other employees;

· the possibility of faulty assumptions underlying expectations regarding the integration process;

· retaining existing business and operational relationships and attracting new business and operational relationships;

· consolidating corporate and administrative infrastructures and eliminating duplicative operations;

· coordinating geographically separate organizations;

· unanticipated issues in integrating information technology, communications and other systems;

· unanticipated changes in federal or state laws or regulations, including changes with respect to government financial aid programs and any regulations enacted thereunder;

· unforeseen or worse liabilities or risks related to Walden; and

· unforeseen expenses or delays associated with the Proposed Walden Acquisition.

Many of these factors will be outside of the combined company’s control and any one of them could result in delays, increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially affect the combined company’s financial position, results of operations and cash flows.

The integration of Walden with Adtalem’s business may result in unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. These integration matters could have an adverse effect on (i) each of Adtalem and Walden during this transition period and (ii) the combined company for an undetermined period after completion of the Proposed Walden Acquisition. In addition, any actual cost savings of the Proposed Walden Acquisition could be less than anticipated.

In addition, certain risks associated with our industry and business described herein and in our public filings may become more significant following consummation of the Proposed Walden Acquisition.

7

The future results of the combined company may be adversely impacted if the combined company does not effectively manage its expanded operations following the completion of the Proposed Walden Acquisition.

Following the completion of the Proposed Walden Acquisition, the size of the combined company’s business will be significantly larger than the current size of Adtalem’s business. The combined company’s ability to successfully manage this expanded business will depend, in part, upon management’s ability to design and implement strategic initiatives that address not only the integration of two discrete companies, but also the increased scale and scope of the combined business with its associated increased costs and complexity. The combined company may not be successful or may not realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Proposed Walden Acquisition.

The restrictive covenants in the debt instruments to be incurred in connection with the Proposed Walden Acquisition may limit our operating flexibility. Our failure to comply with these covenants could result in defaults under our indenture governing the notes offered hereby, Credit Agreement and future debt instruments even though we may be able to meet our debt service obligations.

The instruments that will governing our indebtedness, including our the indenture governing the notes offered hereby and the Credit Agreement, will impose significant operating and financial restrictions on us and our subsidiaries following the Proposed Walden Acquisition. These restrictions may in certain circumstances significantly limit, among other things, our ability to incur additional indebtedness, pay dividends, repay junior indebtedness, sell assets, make investments, engage in transactions with affiliates, create liens and engage in certain types of mergers or acquisitions. Our future debt instruments may have similar or more restrictive covenants. These restrictions could limit our ability to obtain future financings, make capital expenditures, withstand a future downturn in our business or the economy in general, or otherwise take advantage of business opportunities that may arise. If we fail to comply with these restrictions, the note holders or lenders under any debt instrument could declare a default under the terms of the relevant indebtedness even though we are able to meet debt service obligations and, because our indebtedness has cross-default and cross-acceleration provisions, could cause all or a substantial portion of our debt to become immediately due and payable.

There can be no assurance that we would have sufficient funds available, or that we would have access to sufficient capital from other sources, to repay any accelerated debt. Even if we could obtain additional financing, there can be no assurance that the terms would be favorable to us. If we default on any future secured debt, the secured creditors could foreclose on their liens. As a result, any event of default could have a material adverse effect on our business and financial condition, and could prevent us from paying amounts due under the notes.

Following the consummation of the Proposed Walden Acquisition, the combined company will have assumed all potential liabilities relating to Walden.

Following the consummation of the Proposed Walden Acquisition, the combined company will have assumed all liabilities relating to Walden. Any such liabilities could cause us to potentially experience significant losses, which could materially adversely affect our business, results of operations and financial condition.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — WALDEN

You should read the following discussion of Walden’s results of operations and financial condition with the audited combined financial statements and related notes of Walden, which are included elsewhere in this offering memorandum. Where applicable, please reference unaudited interim combined financial statements and related notes of Walden for the periods ending September 30, 2020 and 2019, which are included elsewhere in this offering memorandum. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements.

Introduction

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (this “Walden MD&A”) is provided to assist readers of the Walden financial statements in understanding the results of operations, financial condition and cash flows of Walden, related Laureate activities and balances, and certain Laureate corporate cost allocations (the “Walden Education Business”). The discussion of results that follows includes comparisons to a non-GAAP financial measure. The presentation of this non-GAAP measure is intended to enhance the usefulness of financial information by providing measures that Walden’s management uses internally to evaluate its performance. The reconciliation of reported U.S. GAAP results to non-GAAP measures is presented in “Non-GAAP Measures” including descriptions of the excluded items. The combined financial statements are presented in U.S. dollars (USD) rounded to the nearest thousand, with the amounts in this Walden MD&A rounded to the nearest tenth of a million. Therefore, discrepancies in the tables between totals and the sums of the amounts listed may occur due to such rounding. This Walden MD&A is presented in the following sections:

• Overview;

• Results of Operations;

• Liquidity and Capital Resources;

• Contractual Obligations;

• Off-Balance Sheet Arrangements;

• Critical Accounting Policies and Estimates; and

• Recently Issued Accounting Standards.

Overview

Walden’s Business

The Walden Education Business (“Walden”) is a global, comprehensive online institution of higher education serving over 52,000 students. In 2020, Walden is proud to experience its 50th anniversary of offering distance education to working professionals. Walden offers over 80 degree programs and is regionally accredited in the United States by the Higher Learning Commission (HLC). As a testament to quality, Walden actively pursues and maintains broad programmatic accreditation from groups like CCNE (Nursing), CACREP (Counseling), CSWE (Social Work), NCATE (Education), ACBSP (Business), and CEPH (Public Health) among others. Walden is a registered institution in the state of Minnesota and is currently authorized, licensed, registered, exempt or not subject to approval in all states of the United States, except New York and Rhode Island. Walden is the number one conferrer of MSN degrees, MHA degrees, online graduate degrees, and of doctoral degrees to African Americans. Walden believes that through its Mission of Social Change, it provides access to quality, affordable education focused on student outcomes and truly offer Education for Good.

On September 11, 2020, Walden’s parent Laureate Education, Inc. (Laureate), entered into a Membership Interest Purchase Agreement with Adtalem Global Education, Inc. to sell all of the issued and outstanding membership interests in Walden e-Learning, LLC, and its subsidiary, Walden University, LLC (which will include specifically identified carve-out items from Laureate Higher Education Shared Services transitioned to Walden University, LLC prior to closing).

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Enrollment and Revenue

Walden offers Bachelor, Master, and Doctorate programs in addition to various certificate programs. Additionally, the institution has a School of Lifelong Learning to encourage students, alumni and staff to affordably and effectively continue their educational journey. Students finance their education in a variety of ways, including Title IV. Enrollments are total students enrolled at period end and does not include enrollments in the School of Lifelong Learning.

The following information for Walden’s revenue by degree level is presented for the year ended December 31, 2019 and for nine months ended September 30, 2020.

​	12/31/2019 Enrollment		12/31/2019 Revenue ($ in millions)		% Contribution to 12/31/2019 Revenues			9/30/2020 Enrollment		9/30/2020 Revenue ($ in millions)		% Contribution to 9/30/2020 Revenues
Masters Programs		30,381	$	342.3		57.1	%		32,799	$	267.9		58.1	%
Doctoral Programs		14,461		154.5		25.8	%		14,249		109.4		23.7	%
Undergraduate Programs		7,816		60.9		10.2	%		9,200		49.4		10.7	%
Other(1)				42.1		7.0	%				34.2		7.4	%
Total		52,658	$	599.8		100.0	%		56,248	$	460.9		100.0	%

(1) Other includes Tech Fees, Residency Fees, School of Lifelong Learning, Commencement, and Other Revenues.

Challenges

Walden is subject to complex and ever-changing business, economic, legal, regulatory, political, and tax environment risks which may be difficult to adequately address. With Title IV participation, Walden faces the regulatory oversight and policies of the US Department of Education (DOE) which include a measure of financial responsibility for an institution or its parent as determined by the Department. Due to the DOE financial responsibility composite score of Walden’s parent corporation, Laureate Education, Inc., Walden is not a member of the National Council for State Authorization Reciprocity Agreement (NC-SARA). Therefore, Walden is required to manage state recognition and approvals on an independent state-by-state basis. Walden plans to grow its operations organically by: 1) adding new programs and course offerings; 2) investing in brand awareness; and 3) continuing to focus on improving student experience to improve persistence and graduation rates. Walden’s success in growing its institution will depend on the ability to anticipate and effectively manage these and other risks related to operating in a challenging and competitive environment.

Regulatory Environment and Other Matters

Walden’s business is subject to varying laws and regulations of the United States and state and local jurisdictions. These laws and regulations are subject to updates and changes. Walden cannot predict the form of the rules that ultimately may be adopted in the future or what effects they might have on its business, financial condition, results of operations and cash flows. Walden will continue to develop and implement necessary changes that enable it to comply with such laws and regulations.

As Walden’s business is subject to regulatory oversight, from time to time it must respond to inquiries about its compliance with the various statutory requirements under which it operates. On September 16, 2020, Laureate advised Adtalem of the DOJ Investigation. Subsequently, Walden disclosed the DOJ Investigation to the HLC. On October 13, 2020, Laureate advised Adtalem that Walden had received a letter from the HLC notifying Walden that the HLC seeks to assign a public Governmental Investigation designation to Walden University. On November 9, 2020, the HLC assigned the designation of “Under Governmental Investigation” to Walden, which will remain in place until the President of the HLC determines the institution has resolved the issues that led to the designation.

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Pursuant to its access rights under the terms of the Purchase Agreement, Adtalem is continuing to conduct its own investigation of the matters addressed in the DOJ and HLC correspondence, including reviewing relevant documents and other information and interviewing relevant Laureate and/or Walden personnel. As a condition to closing the Proposed Walden Acquisition, certain designated regulatory authorities, including the HLC, must consent to the Proposed Walden Acquisition. Pursuant to Section 5.05(a) of the Purchase Agreement, the parties are required to cooperate and use reasonable best efforts to obtain those designated pre-closing consents from, among others, the HLC. Consistent with the HLC’s policies and procedures, a Governmental Investigation designation by the HLC could delay or prevent the HLC’s approval of a substantive change application to approve the proposed Acquisition. We continue to evaluate these regulatory developments and the potential impact, if any, on the Proposed Walden Acquisition.

If we were to obtain the HLC’s approval prior to resolution of the Governmental Investigation and were to close the Acquisition, an adverse outcome of the Governmental Investigation could materially and adversely impact the Walden business that we acquire and we may not realize the benefit of the proposed acquisition and could also have adverse impact on our results post-transaction.

Walden accrues for a liability when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. The disclosures, accruals or estimates, if any, resulting from the foregoing analysis are reviewed and adjusted to reflect the effect of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. At this time, Walden does not believe that this matter will have a material effect on its financial position, results of operations, or cash flows.

Key Business Metric

Enrollment

Enrollment is Walden’s lead revenue indicator and represents its most important non-financial metric. Walden defines “enrollment” as the number of students registered in a course, and not having officially withdrawn or graduated, within three terms prior to or on the date reported. New enrollments provide an indication of future revenue trends. Total enrollment is a function of continuing student enrollments and new student enrollments offset by graduations and attrition. Attrition is defined as a student leaving the institution before completion of the program. To minimize attrition, Walden has improved its technology to help students along their journey and has further improved programs that assist students in remedial education, writing skills, mentoring, and counseling. Walden operates on multiple academic calendars that are offered based on the program design or modality. Walden is predominately an academic quarter-based institution but also offers semester programs, competency-based subscriptions (monthly term starts), and on-demand lifelong learning courses. Quarterly and semester terms also offer mid-term starts, while many programs offer “off-cycle” term starts as well. In Walden’s most recently completed academic year, it offered 31 full term starts, with at least one in each calendar month. This frequency of term starts provides flexibility and convenience for students to participate and continue their studies — Walden has a number of students that step in and step out of class to accommodate personal circumstances. As such, another key measure of enrollment is the number of revenue producing students, defined as those currently participating in a revenue producing educational activity.

Principal Components of Income Statement

Total Revenues, net of Scholarships

The majority of Walden’s revenue is derived from tuition and educational services. The amount of tuition generated in a given period depends on the price per credit hour and the total credit hours or price per program taken by the enrolled student population. The price per credit hour varies by program and by degree level. Additionally, varying levels of discounts and scholarships are offered depending on market-specific dynamics and individual achievements of Walden’s students. Total Revenues are recognized net of scholarships, other discounts, refunds, and waivers. In addition to tuition revenues, Walden generates other revenues from student technical fees, residency fees and other education-related activities. These other revenues are less material to Walden’s overall financial results and have a tendency to trend with tuition revenues. The main drivers of changes in revenues between periods are student enrollment and price. Walden continually monitors market conditions and carefully adjusts its tuition rates or discounting strategy to meet local demand levels. Walden proactively seeks the best price and content combinations to remain competitive in all the markets in which it operates.

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Direct Costs

Walden’s direct costs include labor and operating costs associated with the delivery of education and educational services to its students, including the cost of wages, payroll taxes and benefits, information technology, depreciation and amortization, rent, utilities, and product development. Direct costs also include those costs to promote, advertise in support of lead generation and subsequent enrollment of its students in order to grow future total enrollments. As Walden expands, these costs may grow slightly ahead of enrollment growth as investments are made in anticipation of future enrollment growth. In general, a significant portion of Walden’s direct costs tend to be variable in nature and trend with enrollment.

General and Administrative Expenses

Walden’s general and administrative (G&A) expenses primarily consist of costs associated with executive management, finance, legal, and other departments that do not provide direct operational services. G&A, as reflected in the carve-out financial statements, also include allocations of Laureate corporate functions. Refer to Walden’s combined financial statements, Note 2. Significant Accounting Policies contained elsewhere in this offering memorandum, for a description of the methodologies employed in assigning costs. Bad debt expense, which trends with revenues, is also included in general and administrative expenses.

Factors Affecting Comparability

Beginning in 2018, Walden University de-emphasized international student recruiting and instead has focused on a much narrower geographical recruitment strategy. While this has impacted comparable new student enrollments, total student enrollments and revenue, it has had minimal impact on EBITDA or operating income as this business was essentially breakeven due to high student acquisition costs and bad debt expense (variable expenses).

With the adoption of ASU 2018-15 in 2019, system investments in externally hosted computing environments are treated as prepaid expenses and charged to the combined statement of operations over the life expectancy of the investment. In 2018 and prior, these costs were capitalized as fixed assets and depreciated. The amount paid in 2019 for hosted computing environments was $8.2 million and the amount expensed was $0.4 million which would have been in depreciation and amortization under former accounting treatment. As such, the 2019 income statement impact is immaterial, however the $8.2 million is shown in the statement of cash flow as operating activity in 2019 and similar spend would have been included as investing activities in 2018 and prior. For the nine months ended September 30, $7.2 million of hosted computing environment spend was included in in cash flow operating activity for 2020 compared to $4.6 million in 2019.

Results of Operations

The following discussion of the results of Walden’s operations is organized as follows:

Summary Comparison of Combined Results; and Non-GAAP Financial Measure.

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Summary Comparison of Combined Results

Discussion of Significant Items Affecting the Combined Results for the Nine Months Ended September 30, 2020 and 2019

(in millions)	2020			2019			% Change Better/(Worse) 2020 vs. 2019
Total revenues, net of scholarships	$	460.9		$	449.5			3	%
Direct costs		308.1			300.1			3	%
General and administrative expenses		36.7			37.4			(2	)%
Operating income		116.1			112.0			(4	)%
Other income (expense)		(0.2	)		0.6			(133	)%
Income before income taxes		115.9			112.6			3	%
Provision for income taxes		(29.9	)		(29.4	)		2	%
Net income	$	86.0		$	83.2			3	%

Comparison of Combined Results for the Nine Months Ended September 30, 2020 and September 30, 2019

Total revenues, net of scholarships increased by $11.4 million to $460.9 million for the nine months ended September 30, 2020 from $449.5 million for the comparable period in 2019. Masters and undergraduate tuition revenue increased by 4.8% and 8.7% respectively, while other revenues increased 8.9%. As expected, revenues from doctoral programs declined 6.5% due to average student enrollment decline of 7% (including international). Doctoral enrollment has been strengthening throughout the year and as of September 30, 2020 Walden was down 4.5% as compared to September 30, 2019. Average revenue producing enrollments were up 1.5% for the nine months ended September 30, 2020 resulting in a $7.0 million increase in revenue (including average credit load and student mix of $(0.7) million). A strategy to reduce discounts in the US market contributed to increased revenue of $5.3 million (1.2% of net revenue) in 2020 versus 2019 despite increased enrollments. International revenue declined $1.4 million to $13.6 million for the nine months ended September 30, 2020 compared to $15.0 million in the comparable period in 2019.

Direct costs increased by $8.0 million to $308.1 million for the nine months ended September 30, 2020 from $300.1 million in the comparable period in 2019. Marketing and recruiting costs increased by $11.1 million mainly due to planned investment in a brand campaign of $12.6 million and lead generation spend increase of $0.5 million which was partially offset by reductions in enrollment and business development spending of $2.0 million. Student growth led to an increase of $1.7 million in instructional delivery costs while investments of $1.4 million in information technology to enhance the student experience and product development to meet increased course development activity were also made. Inflation, net of productivity actions, resulted in incremental cost of $1.2 million Expense reduction from cost control actions contributed to $7.4 million in savings, including $1.0 million from facility cost savings, a reduction of $5.7 million in face to face events from COVID-19, and $0.7 million in other cost efficiencies.

General and administrative expenses decreased by $0.7 million to $36.7 million for the nine months ended September 30, 2020 from $37.4 million for the comparable period in 2019. The primary drivers of the reduction were a planned temporary discontinuation of 401(k) company match of $2.3 million and reduced parent cost allocation of $0.8 million due to reductions in total corporate cost structure. These were partially offset by increased employee cash incentive compensation of $1.6 million and miscellaneous other of $0.8 million.

Provision for income taxes increased by $0.5 million to $29.9 million for the nine months ended September 30, 2020 from $29.4 million for the comparable period in 2019. This increase was directly related to the overall increase in taxable income for both state and federal taxes.

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Discussion of Significant Items Affecting the Combined Results for the Years Ended December 31, 2019 and 2018

(in millions)	2019			2018			% Change Better/(Worse) 2019 vs. 2018
Total revenues, net of scholarships	$	599.8		$	612.9			(2	)%
Direct costs		398.6			395.7			1	%
General and administrative expenses		49.8			57.1			(13	)%
Operating income		151.4			160.1			(5	)%
Other income (expense)		0.4			0.3			33	%
Income before income taxes		151.8			160.4			(5	)%
Provision for income taxes		(39.2	)		(45.5	)		(14	)%
Net income	$	112.6		$	114.9			(2	)%

Comparison of Combined Results for the Year Ended December 31, 2019 to the Year Ended December 31, 2018

Total revenue, net of scholarships decreased by $13.1 million to $599.8 million for the year ended December 31, 2019 from $612.9 million for the year ended December 31, 2018. Masters and undergraduate tuition revenue each increased by 3%. However, this was more than offset by a decrease in doctoral tuition and other tuition revenue of $23.7 million and $0.6 million respectively. As expected, revenues from doctoral programs were most affected due to student enrollment decline of 9% driven by a decline in enrollment by international students. The decrease in revenues was largely due to additional discounts in the market in 2019 as compared to 2018 of $13.6 million, and a decline in international student enrollment, which resulted in a $8.4 million decrease. These decreases were partially offset by improved attrition and mix for continuing students, and higher average credit load per student in 2019, which accounted for an increase in revenues of $8.9 million.

Direct costs increased by $2.9 million in to $398.6 million for the year ended December 31, 2019 from $395.7 million for December 31, 2018. The primary drivers of the increase were information systems costs of $6.3 million, instructional delivery and academic support costs of $3.4 million, partially offset by declines in marketing and recruiting costs of $3.0 million, product development costs of $1.5 million, and facility costs of $2.3 million. The biggest drivers for increased costs in the IT and academic areas were investments in student experience of $3.1 million, depreciation increases of $1.7 million, and inflation and other costs of $4.9 million. Marketing and recruitment costs declined mainly due to a reduction in international marketing and enrollment costs of $6.2 million and a realignment of the US enrollment team reducing costs by an additional $1.5 million. This was partially offset by competitive pressures in US marketing spend and general inflation and mix / channel activity which increased costs by $4.7 million. Product development costs were reduced due to an internal reorganization and facility cost improvements were largely a result of the Walden team moving from the Laureate Baltimore, MD office location to Columbia, MD.

General and administrative expenses decreased by $7.3 million to $49.8 million in December 31, 2019 from $57.1 for the year ended December 31, 2018. The primary drivers of the reduction were a 2018 legal settlement and related legal fees of $3.0 million which were paid in 2018, an improvement in bad debt expense of $1.6 million due to improved collections and a decline in international student activity, a reduction of $0.8 million in 2019 incentive costs due to performance versus plan, accrued executive severance costs in 2018 of $1.4 million, and other expense reductions of $0.5 million.

Provision for income taxes decreased by $6.3 million to $39.2 million for the year ended December 31, 2019 from $45.5 million for the year ended December 31, 2018. This decrease was directly related to the overall reduction in taxable income for both state and federal taxes

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Non-GAAP Financial Measure

Walden defines Adjusted EBITDA as Operating income plus depreciation and amortization, and share-based compensation expense. Adjusted EBITDA is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures.

Adjusted EBITDA is a key measure used by Walden’s management and board of directors to understand and evaluate its core operating performance and trends, to prepare and approve its annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of its core business. Additionally, Adjusted EBITDA is a key financial measure used by Laureate in connection with the payment of incentive compensation to its team. Accordingly, Walden believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating its operating results in the same manner as its management and board of directors.

The following table presents Adjusted EBITDA and reconciles net income from operations to Adjusted EBITDA for the nine months ended September 30, 2020 and 2019:

	Twelve Months ended September 30,		Nine Months ended September 30,						Year ended December 31,
(in millions)	2020		2020			2019			2019			2018
Net Income	$	115.4	$	86.0			83.2		$	112.6			114.9
Plus:
Income tax expense	$	39.7		29.9			29.4			39.2			45.5
Income before income taxes	$	155.1		115.9			112.6			151.8			160.4
Plus:
Other income, net	$	0.4		0.3			(0.3	)		(0.2	)		—
Interest income, net	$	—		(0.1	)		(0.3	)		(0.2	)		(0.3	)
Operating income	$	155.5		116.1			112.0			151.4			160.1
Plus:
Depreciation and amortization	$	21.5		15.4			18.7			24.8			27.8
EBITDA	$	177.0		131.5			130.7			176.2			187.9
Plus:
Share-based compensation expense(1)	$	1.2		0.9			0.7			1.0			1.1
Adjusted EBITDA	$	178.2	$	132.4		$	131.4		$	177.2		$	189.0

(1) Represents non-cash, share-based compensation expense attributable to Walden employees from the Laureate plan pursuant to the provisions of ASC 718, “Stock Compensation.”

Comparison of Depreciation and Amortization and Share-based Compensation for the Nine Months Ended September 30, 2020 and 2019

Depreciation and amortization decreased by $3.3 million to $15.4 million for the nine months ended September 30, 2020 from $18.7 million for the nine months ended September 30, 2019. The decrease is primarily attributable to a smaller depreciable asset base in 2020 compared to 2019 and the adoption of ASU 2018-15, whereby certain cloud computing investments are now treated as prepaid assets and charged to the combined statement of operations. Prior to 2019, those costs were capitalized and amortized to depreciation and amortization expense. In 2020, Walden charged $2.0 million to the combined statement of operations (included in Adjusted EBITDA) for cloud computing costs compared to $0.2 million in 2019.

Share-based compensation expense increased by $0.2 million to $0.9 million for 2020 from $0.7 million for 2019.

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The following table presents Adjusted EBITDA and reconciles net income (loss) from operations to Adjusted EBITDA for the years ended December 31, 2019 and 2018:

	Twelve Months ended September 30,		Nine Months ended September 30,						Year ended December 31,
(in millions)	2020		2020			2019			2019			2018
Net Income	$	115.4	$	86.0			83.2		$	112.6			114.9
Plus:
Income tax expense	$	39.7		29.9			29.4			39.2			45.5
Income before income taxes	$	155.1		115.9			112.6			151.8			160.4
Plus:
Other income, net	$	0.4		0.3			(0.3	)		(0.2	)		—
Interest income, net	$	—		(0.1	)		(0.3	)		(0.2	)		(0.3	)
Operating income	$	155.5		116.1			112.0			151.4			160.1
Plus:
Depreciation and amortization	$	21.5		15.4			18.7			24.8			27.8
EBITDA	$	177.0		131.5			130.7			176.2			187.9
Plus:
Share-based compensation expense(1)	$	1.2		0.9			0.7			1.0			1.1
Adjusted EBITDA	$	178.2	$	132.4		$	131.4		$	177.2		$	189.0

(1) Represents non-cash, share-based compensation expense attributable to Walden employees from the Laureate plan pursuant to the provisions of ASC 718, “Stock Compensation.”

Comparison of Depreciation and Amortization and Share-based Compensation for the Years Ended December 31, 2019 and 2018

Depreciation and amortization decreased by $3.0 million to $24.8 million for the year ended December 31, 2019 from $27.8 million for the year ended December 31, 2018. The decrease is primarily attributable to a smaller depreciable asset base in 2019 compared to 2018 and the adoption of ASU 2018-15, whereby certain cloud computing assets are charged to the combined statement of operations, versus fixed assets that are amortized to depreciation and amortization expense.

Share-based compensation expense decreased by $0.1 million to $1.0 million for 2019 from $1.1 million for 2018.

Comparison of Walden Education Business Results for the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019

Revenues increased by $11.4 million, a 3% increase from the comparable period in 2019.

• Average revenue producing students increased 1.4% providing a $7.7 million increase in revenue for the period, less student mix and average credit load impacts of $0.7 million. New student enrollments were up by 1,624 or 6.8% for the nine months ended September 30, 2020 compared to the same period in 2019. Additionally, Walden saw the number of continuing students improve by 930 contributing to a 1.6% improvement in retention. Walden also continues to see declines in international student revenue of 9% or, $1.4 million due to a strategic shift in its geographic focus which began in 2018.

• We experienced positive impacts from pricing due to a planned reduction in discounting which resulted in a $5.3 million revenue increase in for 2020.

Adjusted EBITDA increased by $1.0 million, a 0.8% increase compared to the comparable period in 2019. Increased revenue from new student growth, improved retention and reduced discounting was largely offset by additional marketing spending of $12.6 million from Walden’s brand campaign and inflation costs. Walden continues to be successful in managing other operational costs (net of investments) which include face to face cost elements due to COVID-19. In 2020, Walden charged $2.0 million to the combined statement of operations (included in Adjusted EBITDA) for cloud computing costs compared to $0.2 million in 2019.

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Comparison of Walden Education Business Results for the Year Ended December 31, 2019 to the Year Ended December 31, 2018

Revenues decreased by $13.1 million, a 2% decrease from the comparable period in 2018.

• Enrollment decreased during 2019 by 3%, decreasing revenues by $5.6 million. This decrease was almost exclusively attributable to Walden’s de-emphasis on international student recruitment.

• The remaining balance of the decline or $7.5 million was primarily due to higher US discounts and scholarships of $13.6 million, partially offset by positive tuition pricing and average credit load increases of $6.1 million.

Adjusted EBITDA decreased by $11.8 million, a 6% decrease compared to 2018. This was primarily driven by US domestic discounting which resulted in a decrease of $13.6 million, as well as student experience investments and inflationary pressures. This was partially offset by tuition pricing, average credit load, and net student enrollment as well as in variable expenses relating to marketing and enrollment and general educational activity of $7.5 million.

Liquidity and Capital Resources

Liquidity Sources

Walden anticipates that cash flow from operations and available cash will be sufficient to meet its operating requirements for at least the next 12 months from the date of issuance of this report.

Walden’s primary source of cash is revenue from tuition charged to students in connection with its various education program offerings. The majority of Walden’s students finance the cost of their own education and/or seek third-party financing programs such as Title IV. Walden anticipates that it will continue to generate sufficient cash flow from operations to fund all growth and investment plans. Walden has no debt other than the long-term portion of operating leases.

As of September 30, 2020, Walden’s primary source of liquidity was cash and cash equivalents, including restricted cash equivalents, of $146.7 million. Walden’s cash accounts are maintained with high-quality financial institutions with no significant concentration in any one institution.

As of December 31, 2019, Walden’s primary source of liquidity was cash and cash equivalents, including restricted cash equivalents, of $210.2 million.

Liquidity Restrictions

Walden’s liquidity is affected by restricted cash balances, which totaled $142.5 million as of September 30, 2020. For December 31, 2019 and 2018, restricted cash balances totaled $151.8 million and $148.5 million, respectively.

Restricted cash consists of cash equivalents held to collateralize standby letters of credit in favor of the DOE. These letters of credit are required by the DOE in order to allow Walden’s U.S. institutions to participate in the Title IV program. As of September 30, 2020, Walden had approximately $124.7 million posted as LOCs in favor of the DOE. As of December 31, 2019, and 2018, Walden had approximately $126.3 million posted as LOCs in favor of the DOE.

As part of Walden’s normal operations, its insurers issue surety bonds on its behalf, as required by various state education authorities in the United States. Walden is obligated to reimburse its insurers for any payments made by the insurers under the surety bonds. As of September 30, 2020, the total face amount of these surety bonds was $17.8 million. As of December 31, 2019, and 2018, the total face amount of these surety bonds was $25.5 million and $22.2 million, respectively.

17

Liquidity Requirements

Walden’s short-term liquidity requirements include: lease obligations; working capital; operating expenses; capital expenditures; and business development activities.

Long-term liquidity requirements are related to lease obligations.

Debt

Walden has no debt obligations other than certain lease obligations that were previously accounted for as operating leases prior to the adoption of ASC 842.

Leases

Walden conducts a significant portion of its operations from leased facilities. These facilities include Walden’s institution’s home office and other office locations in the US. As discussed in Note 4, Leases, in Walden’s combined financial statements contained elsewhere in this offering memorandum, Walden has significant liabilities recorded related to its leased facilities, which will require future cash payments.

Capital Expenditures

Capital expenditures consist of purchases of property and equipment, leasehold improvements, expenditures for internally capitalized software, and expenditures for deferred costs. Walden’s capital expenditure program is a component of its liquidity and capital management strategy. This program includes discretionary spending, which Walden can adjust in response to economic and other changes in its business environment, to grow its institution through the following: (1) program expansion at institutions; (2) information technology to improve student experience and to increase efficiency and controls; and (3) online content refresh. Walden has minimal non-discretionary capital expenditures. Walden funds its capital expenditures through cash flow from operations and has no concerns regarding its ability to deliver its long-term growth strategy in this manner.

Walden’s total capital expenditures were $10.2 million and $10.3 million during the first nine months of 2020 and 2019 respectively. For the years ended December 31, 2019 and 2018, Walden’s total capital expenditures were $14.5 million and $21.9 million respectively. For comparability purposes, an additional $6.7 million in cloud computing investments were made in 2019 that, due to GAAP requirements, are included in prepaid expenses and other current assets.

Cash Flows

The following table summarizes Walden’s cash flows from operating, investing, and financing activities for the nine months ended September 30, 2020 and 2019:

(in millions)	2020			2019			% Change Better/(Worse)
Cash provided by (used in):
Operating activities	$	107.4		$	113.2		$	(5.8	)
Investing activities		(10.2	)		(10.3	)		0.1
Financing (Parent) Activities		(160.7	)		(155.8	)		(4.9	)
Net change in cash and restricted cash	$	(63.5	)	$	(52.9	)	$	(10.6	)

18

Comparison of Cash Flows for the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019

Operating activities

Cash provided by operating activities decreased by $5.8 million to $107.4 million for the nine months ended September 30, 2020, compared to $113.2 million for the same period in 2019. This decrease in operating cash flows during 2020 was primarily due to increased working capital requirements and other investments (including cloud computing spending) of $6.8 million (largely accounts payable driven) partially offset by an improvement in Operating Income of $4.1 million (Adjusted EBITDA increase of +$1.0 million).

Investing activities

Investing activity was relatively flat year over year at $10.2 million in 2020 versus $10.3 million in 2019.

Financing activities

Financing activities reflect the net change in activity between Walden and Laureate, inclusive of cash sweep activity, for each fiscal year with a net decrease of $160.7 million in the nine months ended September 30, 2020 compared to a net decrease of $155.8 million during the same period in 2019. See Note 2 in the combined financial statements of Walden contained elsewhere in this offering memorandum, for additional information.

The following table summarizes Walden’s cash flows from operating, investing, and financing activities for each of the past two fiscal years:

(in millions)	2019			2018			% Change Better/(Worse)
Cash provided by (used in):
Operating activities	$	145.5		$	158.9		$	(13.4	)
Investing activities		(14.5	)		(22.0	)		7.5
Financing (Parent) Activities		(125.3	)		(80.1	)		(45.2	)
Net change in cash and restricted cash	$	5.7		$	56.8		$	(51.1	)

Comparison of Cash Flows for the Year Ended December 31, 2019 to the Year Ended December 31, 2018

Operating activities

Cash provided by operating activities decreased by $13.4 million to $145.5 million for 2019, compared to $158.9 million for 2018. This decrease in operating cash flows during 2019 was primarily due to a reduction in Operating Income of $8.7 million (Adjusted EBITDA of $11.8 million) and 2019 investments in prepaid assets for cloud computing systems of $6.7 million, which were previously accounted for as investment activity).

Investing activities

Cash flows from investing activities decreased by $7.5 million to $14.5 million in 2019 from $22.0 million in 2018, largely driven by $6.7 million in prepaid assets for cloud computing systems in 2019 that are considered operating activities (previously considered investment activities due to the adoption of ASU 2018-15). The remainder of $0.8 million is reduced capital expenditures.

Financing activities

Cash flows from financing activities decreased by $45.2 million to $125.3 million in 2019 from $80.1 million in 2018. Financing activities reflect the net change in activity between Walden and Laureate, inclusive of cash sweep activity, for each fiscal year. See Note 2 in the combined financial statements of Walden contained elsewhere in this offering memorandum, for additional information.

19

Contractual Obligations

The following table reflects a summary of Walden’s contractual obligations as of December 31, 2019:

Payments due by period

(in millions)	Total		less than 1 year		1-3 years		3-5 years		More than 5
Operating lease obligations(1)	$	12.8	$	2.9	$	5.2	$	4.6	$	—

(1) Represents the minimum future operating lease payments as of December 31, 2019.

Off-Balance Sheet Arrangements

As of September 30, 2020, December 31, 2019 and December 31, 2018, Walden had the following off-balance sheet arrangements:

Standby Letters of Credit

As of September 30, 2020, Laureate had outstanding letters of credit (LOCs), which consisted primarily of the following:

• Walden fully cash-collateralized its portion of Laureate’s LOC of $124.7 million in favor of the DOE, which is included in restricted cash. This LOC is required to allow Walden to continue participating in the DOE Title IV program.

As of December 31, 2019, Laureate had outstanding letters of credit (LOCs), which consisted primarily of the following:

• For December 31, 2019 and 2018, Walden fully cash-collateralized Walden’s portion of Laureate’s LOC of $126.3 million in favor of the DOE, which is included in restricted cash. This LOC is required to allow Walden to continue participating in the DOE Title IV program.

Surety Bonds

As part of Walden’s normal operations, its insurers issue surety bonds on its behalf, as required by various state education authorities in the United States. Walden is obligated to reimburse its insurers for any payments made by the insurers under the surety bonds. As of September 30, 2020, the total face amount of these fully cash-collateralized surety bonds was $17.8 million compared to $25.5 million as of September 30, 2019. For December 31, 2019, the total face amount of these fully cash-collateralized surety bonds was $25.5 million compared to $22.2 million on December 31, 2018.

Critical Accounting Policies and Estimates

The preparation of Walden’s combined financial statements in conformity with GAAP requires Walden’s management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Walden’s significant accounting policies are discussed in Note 2, Significant Accounting Policies, in Walden’s combined financial statements contained elsewhere in this offering memorandum. Walden’s critical accounting policies require the most significant judgments and estimates about the effect of matters that are inherently uncertain. As a result, these accounting policies and estimates could materially affect Walden’s financial statements and are critical to the understanding of its results of operations and financial condition. Management has discussed the selection of these critical accounting policies and estimates with the audit committee of the board of directors.

Goodwill

Each year, a qualitative assessment is performed to determine the likelihood of an impairment for the institution. If it is determined that an impairment has likely incurred, a quantitative approach using market value assessment and discounted projected cash flows would be performed to determine the impairment value. No impairment to goodwill was recognized in the nine months ended September 30, 2020, and for the years ended December 31, 2019 and 2018.

Long-Lived Assets

Walden evaluates its long-lived assets, specifically property and equipment to determine whether events or changes in circumstances indicate that the remaining estimated useful lives of such assets may warrant revision or that their carrying values may not be fully recoverable.

20

Indicators of impairment include, but are not limited to:

• a significant deterioration of operating results;

• a change in regulatory environment;

• a significant change in the use of an asset, its physical condition, or a change in management’s intended use of the asset;

• an adverse change in anticipated cash flows; or

• a significant decrease in the market price of an asset.

If an impairment indicator is present, Walden evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to result from the use and eventual disposition of the assets. If the assets are determined to be impaired, the impairment recognized is the excess of the carrying amount over the fair value of the assets. Fair value is generally determined by the discounted cash flow method. The discount rate used in any estimate of discounted cash flows is the rate commensurate with a similar investment of similar risk. Walden uses judgment in determining whether a triggering event has occurred and in estimating future cash flows and fair value. Changes in Walden’s judgments could result in impairments in future periods. Walden recorded no impairment on long-lived or finite-lived assets in the nine months ended September 30, 2020, and for the years ended December 31, 2019 and 2018.

Deferred Costs

Deferred costs on the combined balance sheets consist primarily of direct costs associated with online course development and are capitalized after technological feasibility has been established. Deferred online course development costs are amortized to program delivery costs on a straight-line basis over the estimated period that the associated products are expected to generate revenues. Deferred online course development costs are evaluated on a quarterly basis through review of the corresponding course catalog. If a course is no longer listed or offered in the current course catalog, then the costs associated with its development are written off.

As of September 30, 2020, the unamortized balance of online course development costs was $21.2 million with Walden’s total deferred costs at $100.8 million and accumulated amortization of $(79.6) million.

As of December 31, 2019, and 2018, the unamortized balances of online course development costs were $20.2 million and $20.9 million, respectively. At December 31, 2019 and 2018, Walden’s total deferred costs were $98.1 million and $96.4 million, respectively, with accumulated amortization of $(77.9) million and $(75.5) million, respectively.

Income Taxes

Walden records the amount of income taxes payable or refundable for the current year, as well as deferred tax assets and liabilities for the expected future tax consequences of events that is has recognized in its combined financial statements. Walden exercises judgment in assessing future profitability and the likely future tax consequences of these events.

Deferred Taxes

Estimates of deferred tax assets and liabilities are based on current tax laws, rates and interpretations, and, in certain cases, business plans and other expectations about future outcomes. Walden develops estimates of future profitability based upon historical data and experience, industry projections, forecasts of general economic conditions, and its own expectations. Walden’s accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately reflected in its accounting estimates. Changes in existing tax laws and rates, their related interpretations, as well as the uncertainty generated by the current economic environment, may impact the amounts of deferred tax liabilities or the valuations of deferred tax assets.

21

Tax Contingencies

Walden is a party to a Tax Sharing arrangement with Laureate whereby Walden pays the parent for a tax amount equivalent to estimated taxable income (inclusive of deferred tax considerations) at tax effective rates. As a result, there are no tax contingencies for the institution.

Revenue Recognition

Walden’s revenues primarily consist of tuition and educational service revenues. Walden also generates other revenues from student fees, residency fees and other education-related activities. These other revenues are less material to Walden’s overall financial results and have a tendency to trend with tuition revenues. Revenues are recognized when control of the promised goods or services is transferred to Walden’s customers, in an amount that reflects the consideration Walden expects to be entitled to in exchange for those goods or services. These revenues are recognized net of scholarships and other discounts, refunds, and waivers. For further description, see also Note 2, Revenue Recognition, in Walden’s combined financial statements contained elsewhere in this offering memorandum.

Allowance for Doubtful Accounts

Receivables are deemed to be uncollectible when they have been outstanding for nine months, or earlier when collection efforts have ceased, at which time they are written off. Prior to that, Walden records an allowance for doubtful accounts to reduce its receivables to their net realizable value. Walden’s allowance estimation methodology is based on the age of the receivables, the status of past-due amounts, historical collection trends, current economic conditions and student enrollment status. In the event that current collection trends differ from historical trends, an adjustment is made to the allowance account and bad debt expense.

Share-Based Compensation

Key, though limited, management employees for Walden participate in the Laureate stock compensation program. Laureate has granted restricted stock, restricted stock units, stock options, and performance awards

for which the vesting is based on its annual performance metrics. The annual cost of share-based compensation is $1.0 million and $1.1 million for 2019 and 2018 respectively.

Recently Issued Accounting Standards

Refer to Note 2, Significant Accounting Policies — Recently Adopted Accounting Pronouncements, in Walden’s combined financial statements contained elsewhere in this offering memorandum for recently issued accounting standards.

22

EX-99.2

Exhibit 99.2

Walden Education Business
(Carve-Out Walden Operations of Laureate Education)

Combined Financial Report
December 31, 2019 and 2018

Index to Financial Statements

Contents	Page(s)
Report of Independent Auditors		F-1
Financial Statements
Combined Balance Sheets as of December 31, 2019 and 2018		F-2
Combined Statements of Operations for the years ended December 31, 2019 and 2018		F-3
Combined Statements of Changes in Net Parent Investment for the years ended December 31, 2019 and 2018		F-4
Combined Statements of Cash Flows for the years ended December 31, 2019 and 2018		F-5
Notes to Combined Financial Statements		F-6–F-19

Report of Independent Auditors

To the Management of Walden University, LLC

We have audited the accompanying combined financial statements of the Walden Education Business of Laureate Education, Inc., which comprise the combined balance sheets as of December 31, 2019 and 2018, and the related combined statements of operations, of changes in net parent investment and of cash flows for the years then ended.

Management’s Responsibility for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Walden Education Business of Laureate Education, Inc. as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Baltimore, Maryland
October 20, 2020

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

COMBINED BALANCE SHEETS
as of December 31, 2019 and 2018

($ in thousands)	2019		2018
Assets
Current Assets
Cash	$	58,414	$	56,072
Restricted cash		151,807		148,458
Student tuition and fees receivable, net		28,413		27,633
Prepaid expenses and other current assets		3,627		4,282
Total current assets		242,261		236,445
Property, Equipment and Leasehold Improvements, Net		36,335		46,773
Other Assets
Operating lease right-of-use assets, net		11,253		—
Deferred project costs, net		20,237		20,914
Prepaid expenses and other long term assets		7,837		94
Deferred tax asset		6,885		6,517
Goodwill		2,812		2,812
Total other assets		49,024		30,337
Total assets	$	327,620	$	313,555
Liabilities and Net Parent Investment
Current Liabilities
Accounts payable and accrued expenses	$	62,145	$	46,257
Deferred revenue and student deposits		73,610		74,177
Current portion of operating leases		2,225		—
Other current liabilities		412		544
Total current liabilities		138,392		120,978
Long-Term Liabilities
Long term portion of operating leases		8,969		—
Deferred Rent		—		583
Total long-term liabilities		8,969		583
Total liabilities		147,361		121,561
Commitments and Contingencies
Net Parent Investment		180,259		191,994
Total liabilities and Net Parent Investment	$	327,620	$	313,555

The accompanying notes are an integral part of these annual combined financial statements.

F-2 

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

COMBINED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2019 and 2018

($ in thousands)	2019			2018
Revenues
Masters programs	$	342,270		$	332,778
Doctoral programs		154,493			178,179
Undergraduate programs		60,908			59,284
Other revenues		42,121			42,713
Total revenues, net of scholarships		599,792			612,954
Operating Expenses
Direct costs		398,615			395,733
General and administrative		49,775			57,114
Total operating expenses		448,390			452,847
Operating income		151,402			160,107
Other income (expense):
Interest income, net		216			310
Other income (expense)		173			(16	)
Total other income		389			294
Income before income taxes		151,791			160,401
Provision for income taxes		(39,165	)		(45,478	)
Net income	$	112,626		$	114,923

The accompanying notes are an integral part of these annual combined financial statements.

F-3 

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

COMBINED STATEMENTS OF CHANGES IN NET PARENT INVESTMENT
For the Years Ended December 31, 2019 and 2018

($ in thousands)	Net parent investment
Balance as of January 1, 2018	$	156,111
Net income		114,923
Non-cash stock compensation		1,106
Net change in parent investment		(80,146	)
Balance as of December 31, 2018		191,994
Adoption of accounting standard		(63	)
Net income		112,626
Non-cash stock compensation		992
Net change in parent investment		(125,290	)
Balance as of December 31, 2019	$	180,259

The accompanying notes are an integral part of these annual combined financial statements.

F-4 

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2019 and 2018

($ in thousands)	2019			2018
Cash Flows From Operating Activities
Net income	$	112,626		$	114,923
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		24,806			27,849
Loss/(Gain) on disposal of property and equipment		170			(168	)
Impairment loss on deferred project costs		—			28
Amortization of operating lease right-of-use assets		2,911			—
Provision for doubtful accounts		18,995			20,641
Deferred rent		—			580
Non-cash stock compensation		992			1,106
Deferred income taxes		(368	)		3,389
Changes in operating assets and liabilities:
Student tuition and fees receivable		(19,775	)		(13,379	)
Prepaid expenses		655			614
Other long-term assets		(7,743	)		8
Accounts payable and accrued expenses		16,570			37
Deferred student tuitions and fees		(567	)		3,370
Other liabilities		(3,748	)		(128	)
Net cash provided by operating activities		145,524			158,870
Cash Flows From Investing Activities
Purchases of property and equipment		(8,866	)		(17,223	)
Additions to deferred project costs		(5,677	)		(4,681	)
Net cash used in investing activities		(14,543	)		(21,904	)
Cash Flows From Financing Activities
Net change in parent investment		(125,290	)		(80,146	)
Net cash used in financing activities		(125,290	)		(80,146	)
Net increase in cash and restricted cash		5,691			56,820
Cash and Restricted cash
Beginning of year		204,530			147,710
End of year	$	210,221		$	204,530
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Purchases of property and equipment in accrued expenses	$	223		$	739
Reconciliation of Cash and Restricted cash
Cash	$	58,414		$	56,072
Restricted cash		151,807			148,458
Total Cash and Restricted cash shown in the Statements of Cash Flows	$	210,221		$	204,530

The accompanying notes are an integral part of these annual combined financial statements.

F-5

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 1. Nature of Business

The Walden Education Business (“Walden”, “we”, “us” or “our”) of Laureate Education, Inc. (“Laureate”, “LEI”, or “Parent”) operates an institution of higher education under the trade name of Walden University, providing students with bachelors, masters and doctoral degrees and certificates online in a broad range of disciplines including health sciences, counseling, criminal justice, human services, management, psychology, education, public health, nursing, social work, public administration and information technology. Walden is accredited by the Higher Learning Commission in addition to a number of specialized accreditations. Walden is a registered institution in the state of Minnesota and is currently authorized, licensed, registered, exempt or not subject to approval in all states of the United States, except New York and Rhode Island. On September 11, 2020, our Parent, entered into Membership Interest Purchase Agreement with AdTalem Global Education, Inc. (“Adtalem” or the “Purchaser”), to sell all of the issued and outstanding membership interests in Walden e-Learning, LLC, and its subsidiary, Walden University, LLC, as well as carve-out operations of LEI (see Note 10).

Note 2. Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The combined financial statements have been prepared on a standalone basis and included the operations, financial position, and cash flows of Walden E-Learning, LLC and Subsidiary, related Laureate Higher Education Group (LHEG) Shared Services, and certain Laureate corporate cost allocations (the “Walden Education Business”) as carved out from the historical consolidated financial statements of Laureate using both specific identification and the allocation methodologies described below. A statement of comprehensive income has not been presented as there are no differences. We believe the assumptions underlying the combined financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by Walden. However, these shared expenses may not represent the amounts that would have been incurred had Walden operated autonomously or independently from Laureate. Actual costs that would have been incurred if Walden had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions in various areas such as information technology and infrastructure.

Net parent investment represents Laureate’s historical investment in us, the net effect of transactions with and allocations from Laureate. All charges and allocations of costs for facilities, functions, and services performed by Laureate have been deemed paid by the Business to Laureate in the period in which the cost was recorded in the combined statements of Changes in Net Parent Investment. While we do own and maintain separate bank accounts our Parent uses a centralized approach to cash management and funds our operating and investing activities as needed. Accordingly, cash held by our Parent at the corporate level was not allocated to us for any of the periods presented. We reflect the cash generated by our operations and expenses paid by our Parent on our behalf as a component of “Net Parent Investment” on our combined balance sheets, and as a net change in parent investment in our combined statements of cash flows. Intracompany balances and accounts within Walden have been eliminated.

During the periods presented, Walden functioned as part of the larger group of schools controlled by Laureate, and accordingly, utilized centralized functions, such as academic support, technology, financial services, marketing, product development, sales and other management and administrative services to support continuing operations and to help accelerate the Walden business plan. As consideration of these services, Walden is allocated a monthly management fee that is based on LEI’s estimate of the portion of the centralized costs incurred by the LEI shared services group attributable to Walden. Laureate also performed certain corporate functions for Walden. The corporate expenses related to Walden have been allocated from the Parent.

F-6

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 2. Significant Accounting Policies (Continued)

These allocated costs are primarily related to certain governance and corporate functions such as finance, treasury, tax, human resources, legal, investor relations, and certain other costs. Where it is possible to specifically attribute such expenses to activities of Walden, these amounts have been charged or credited directly to Walden without allocation or apportionment. Allocation of other such expenses is based on a reasonable reflection of the utilization of the services provided or benefits received by Walden during the periods presented on a consistent basis, such as, but not limited to, apportioned salary and benefits based on time spent, and relative percentage of headcount. The aggregate costs allocated for these functions to Walden are included within the combined statements of operations as part of their natural functional expense groupings within direct costs and general and administrative expenses and are shown in detail within the following table.

	2019		2018
Walden shared service costs(1)	$	91,234	$	95,694
Additional Shared Service Cost Allocated to Walden(2)		3,940		6,918
Stock compensation expense(3)		992		1,106
Laureate Corporate expense allocation(4)		5,907		5,953
	$	102,073	$	109,671

⁽¹⁾ Under an existing shared services agreement with LEI which renews on January 1, 2020 (disclosed above)

⁽²⁾ Amounts represent the Parent’s Corporate shared service cost allocated to Walden

⁽³⁾ Stock compensation expense represents both the allocation of the Parent’s Corporate stock compensation expense and the costs specifically identifiable to Walden employees

⁽⁴⁾ Represents the additional costs of the centralized functions of the Parent allocated to Walden

Laureate used a centralized approach to cash management and financing its operations. Historically, the majority of Walden cash was transferred to the Parent on a periodic basis. This arrangement is not reflective of the manner in which Walden would have been able to finance its operations had it been a standalone business separate from the Parent during the periods presented. Transactions between Walden and Laureate and its subsidiaries are reflected in the combined balance sheets as “Net parent investment” and in the combined statements of cash flows as a financing activity in “Net change in net parent investment”.

Additionally Walden uses various assets paid for by Laureate as well as liabilities incurred to operate its business consisting of but not limited to the following: prepaid expenses, fixed assets (leasehold improvements, furniture and equipment, computer and software), surety bonds collateralized with restricted cash which is a requirement for Walden to operate in various states, allocable employee benefit plan costs attributable to Walden employees, accrued expenses and operating leases for the benefit of Walden which have been deemed attributable to, and reflective of the historical operations of Walden. The assets and liabilities have historically been accounted for by Laureate as contracts which are shared among the Laureate network or that Laureate was deemed the obligor. The amounts recorded in these combined financial statements may not be representative of the amounts that would have been incurred had Walden been an entity that operated independently of Laureate. Consequently, these combined financial statements may not be indicative of Walden’s future performance and do not necessarily reflect what its results of operations, financial position and cash flows would have been had Walden operated as a separate entity apart from Laureate during the periods presented.

Our Parent’s debt and related interest expense have not been allocated to us for any of the periods presented since we are not the legal obligor of the debt, and our Parent’s borrowings were not directly attributable to us.

F-7

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 2. Significant Accounting Policies (Continued)

Estimates and Assumptions

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities in the financial statements and accompanying notes. Actual results could differ from those estimates. We will continue to monitor the effect to Walden of the COVID-19 pandemic and assess whether any changes to our accounting estimates are warranted as additional information becomes available.

Cash

Walden considers all highly liquid investments with an original maturity date of three months or less, when purchased, to be cash equivalents. No cash equivalents existed at December 31, 2019 and 2018.

Restricted Cash

Walden participates in the United States Department of Education (“DOE”) Title IV student financing assistance lending programs (“Title IV Programs”). At times, the DOE may require institutions to post standby letters of credit (“LOC”) in order to continue participation in Title IV programs. LOC requirements are based on a number of considerations including recent changes in ownership and failure to meet minimum financial ratio requirements set forth by the DOE. Walden is included within a group letter of credit with other U.S. based institutions controlled by LEI totaling $127,252 and $139,003 as of December 31, 2019 and 2018, respectively. As of December 31, 2019 Walden’s portion represents 99.2%, or $126,255, of the LOC that expires January 31, 2020. See Note 10 for renewal information on this LOC.

Walden is also required by various states to post a surety bond. The bonds reflect a financial guarantee of the total amount of non-title IV adjusted gross tuition and fees from the enrollment of students totaling $25,552 and $22,203 as of December 31, 2019 and 2018, respectively.

As of December 31, 2019 and 2018, Walden’s restricted cash balance was $151,807 and $148,458, respectively, and held by the issuing banks as collateral for the LOC and surety bonds. The surety bonds collateral include a portion accounted for by Laureate as of December 31, 2019 and 2018 totaled $15,843 and $14,716 respectively, and included in the combined financial statements as Walden is the principal on the surety bonds.

In addition, over the course of the years ended December 31, 2019 and 2018, Walden received Title IV program funds in advance of billing students for educational services. As a trustee of these Title IV program funds, Walden is required to maintain and restrict these funds pursuant to the terms of the institution’s program participation agreement with the DOE. As of December 31, 2019 and 2018, there was no restricted cash related to advanced payments of Title IV program funds.

Concentration of Credit Risk

Financial instruments that potentially expose Walden to concentrations of credit risk consist primarily of cash and student tuition and fees receivable. Walden has cash with financial institutions in excess of federally insured limits. As of December 31, 2019 and 2018, we have not experienced losses related to amounts in excess of federally insured limits and believes it is not exposed to any significant credit risk on cash.

Student tuition and fees receivable are unsecured and are derived from students enrolled in Walden’s educational programs. Student receivables are not collateralized; however, credit risk is reduced as the amount owed by any individual student is small relative to the total student tuition and fees receivables.

F-8

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 2. Significant Accounting Policies (Continued)

Revenue Recognition

As of January 1, 2018, Walden adopted Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606),” using the modified retrospective method, which does not allow us to adjust prior periods. Application did not result in a significant change to Walden’s method of recognizing tuition revenues and did not have a material impact on the Company’s financial statements.

Our revenues consist of tuition, educational product & service revenues, and student fees. Tuition revenues are recognized ratably on a straight-line basis over each academic session as the performance obligations are satisfied. Revenues from the sale of educational products are generally recognized point in time upon delivery. Educational services, such as continuing professional education, are recognized ratably as services are rendered which generally approximate one to three days in length, and collectability is probable.

We have elected a practical expedient portfolio approach for assessing student collectability given the large volume of homogeneous transactions and assess all students as one portfolio. Due to our high collection rate, management does not expect there to be any material differences from assessing the portfolio when compared to collectability on a student by student basis.

Billings on student contracts are billed at the start of each academic session and are paid over the term. Generally, students cannot re-enroll for the next academic session without satisfactory resolution of any past-due amounts.

Revenue is reported net of scholarships and other discounts, refunds and waivers. Management has determined that variable consideration need not be estimated at contract inception as scholarships and other discounts are usually known and taken at contract inception and refunds would not need to be accounted throughout the semester as revenue will only be recognized for the proportional amount of education provided and no amount of revenue recognized will be subject to a refund. For the years ended December 31, 2019 and 2018, our revenue was reduced by scholarships and discounts of $116,791 and $105,260 respectively, that we have offered to our students.

Deferred revenue and student deposits, which consist of tuition paid prior to the start of academic session and unearned tuition amounts, begins to be recognized as revenue after an academic session begins. If a student withdraws within the refund period, we are obligated to issue a refund according to the refund policy and the timing of the student’s withdrawal. The amount of refund obligations are reduced over the course of the academic term. Refunds are recorded as a reduction of deferred revenue and student deposits, as applicable. Deferred revenue and student deposits totaled $73,610 and $74,177 at December 31, 2019 and 2018, respectively.

Student Tuition and Fees Receivable

Student tuition and fees receivable primarily consists of tuition and educational services and are recognized when an academic session begins, although students generally enroll in courses prior to the start of the academic session. Receivables are recognized only to the extent that amounts are due and collection is probable. The receivable balance as of December 31, 2019 and 2018 totaled $44,362 and $44,962, respectively.

Allowance for Doubtful Accounts

Walden uses estimates to determine the amount of the allowance for doubtful accounts necessary to reduce the student tuition and fees receivable to net realizable value. Walden estimates the amount of the required allowance by reviewing the status of past-due receivables, analyzing historical bad debt trends, as well as analysis of aged accounts receivable balances with allowances generally increasing as the receivable ages. The analysis of receivables is performed monthly, and allowances are adjusted accordingly. Receivables are generally due on the date on which the related class commences.

F-9

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 2. Significant Accounting Policies (Continued)

Additionally, a substantial portion of our receivables are derived from students that participate in the Title IV programs administered by the DOE. Walden writes off receivables deemed to be uncollectible to the allowance for doubtful accounts when all collection efforts have been exhausted. Allowance for student tuition and fees was $15,949 and $17,329 as of December 31, 2019 and 2018.

Property, Equipment and Leasehold Improvements, and Impairment of Long-Lived Assets

Property, equipment and leasehold improvements are recorded at cost, except for assets acquired using acquisition accounting, which are recorded at fair value. Depreciation is provided on the straight-line method over estimated useful lives, or the shorter of the term of the lease for leasehold improvements. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation is eliminated from the accounts and any resulting gain or loss is credited or charged to income. Assets under construction are recorded in construction-in-progress until they are available for use. Maintenance and repairs costs are charged to operating expenses as incurred. Improvements and betterments are capitalized and depreciated over the remaining useful life of the related asset.

Long-lived assets, which include property, equipment, and leasehold improvements are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. No impairment of long-lived depreciable assets occurred during the years ended December 31, 2019 and 2018.

Walden analyzes individual leases to determine whether it should be classified as finance or operating. For operating leases, right-of-use assets and lease liabilities are recognized at the commencement date of the lease based on the estimated present value of lease payments over the lease term. For finance leases, the assets and lease liabilities are initially recorded at the present value of the future minimum lease payments. As our leases do not provide an implicit rate, we use our own incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

Deferred Project Costs

Deferred project costs include the direct cost of internally developing proprietary educational products and materials or the purchase of similar costs from affiliated companies that have extended useful lives. These costs are capitalized and amortized on a straight-line basis over the estimated period that the associated products are expected to generate revenues, which generally approximates five years. Walden had $20,237 and $20,914 of capitalized deferred project costs as of December 31, 2019 and 2018, respectively.

Deferred costs are evaluated for impairment on a quarterly basis through review of the corresponding course catalog. If a course is no longer listed or offered in the current course catalog, then the costs associated with its development are written off. Costs that do not meet capitalization criteria are expensed as incurred.

Goodwill

Goodwill consists of the excess of cost of acquired enterprises over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. Goodwill is reviewed for impairment annually during Walden’s fourth fiscal quarter, or more frequently if impairment indicators arise. A qualitative assessment is performed to determine whether it is more likely than not that the fair value of the reporting unit is impaired. If it is more likely than not, a comparison of fair value, which is determined utilizing both a market value method and discounted projected future cash flows, to carrying value is performed for the purpose of identifying impairment. The carrying value of goodwill at December 31, 2019 and 2018 was $2,812. No impairment of goodwill occurred during the years ended December 31, 2019 and 2018.

F-10

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 2. Significant Accounting Policies (Continued)

Stock-Based Compensation

Stock-based compensation expense allocated from the Parent’s Stock Incentive Plan is based on the grant-date fair value, as calculated by the Black-Scholes option pricing model. Stock-based compensation expense, less estimated forfeitures, is recognized on a straight-line basis over the requisite service period for time based vesting awards and on a graded expense attribution method for performance based vesting awards to the extent that it is probable that the stated annual performance target will be achieved and awards will vest for any year. The estimated forfeitures are calculated based on historical activity, expected employee turnover, and other qualitative factors which are adjusted for changes in estimates and award vesting.

Income Taxes

Walden is included in the Parent’s consolidated income tax return as a wholly-owned subsidiary. For purposes of these stand-alone financial statements, Walden applies the separate-return approach to allocate current and deferred tax as if we were a separate taxpayer rather than a member of the Parent’s consolidated tax return. Accordingly, we recognize a provision for income taxes that includes federal and state income taxes using the liability method of accounting. Under the liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases including net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Walden also is a party to a tax-sharing agreement with the Parent that includes provisions governing the allocation of tax liabilities that is calculated as if we were subject to income taxes as a separate stand-alone corporation.

Management evaluated the Walden’s tax positions and concluded there were no uncertain tax positions taken that require adjustment to the financial statements. With few exceptions, Walden is no longer subject to income tax examinations by the U.S. federal, state or local tax authorities for the tax years before 2016.

Financial Instruments

Walden’s financial instruments consist of cash, restricted cash, student tuition and fees receivable, other receivables, accounts payable and accrued expenses, and are carried at cost.

Advertising Costs

Advertising costs which are expensed as incurred totaled $108,067 and $104,896 for the years ended December 31, 2019 and 2018. Advertising expenses are included in the accompanying combined statement of operations.

Contingencies

Walden accrues for contingent obligations when it is probable that a liability is incurred and the amount or range of amounts is reasonably estimable. As new facts become known to management, the assumptions related to a contingency are reviewed and adjustments are made, as necessary. Refer to Note 7 for further details of contingency matters.

F-11

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 2. Significant Accounting Policies (Continued)

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued a new lease accounting standard (ASU 2016-02), which requires that lessees recognize on their balance sheet a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability is equal to the present value of the lease payments. The asset is based on the liability, subject to adjustment, such as for initial direct costs and uneven rent payments. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases result in straight-line expense (similar to operating leases prior to adoption of ASU 2016-02) while finance leases result in a front-loaded expense pattern (similar to capital leases prior to adoption of ASU 2016-02). Walden early adopted the lease standard as of January 1, 2019 under a modified retrospective method. The standard provided companies with an additional, optional transition method that allowed entities to prospectively apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We elected this optional transition method. In accordance with ASC Topic 842 we also elected the package of practical expedients, which permits us to not reassess: (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) any initial direct costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment. We elected the practical expedient to combine our lease and related nonlease components for our building leases. The impacts to our combined financial statements of adopting this standard are as follows:

• The recognition of right-of-use assets, net, and lease liabilities for operating leases, which totaled $11,253 and $11,194, respectively, as of December 31, 2019.

• A cumulative-effect adjustment to retained earnings upon adoption of $63.

In October 2016, the FASB issued ASU 2016-16 in order to improve the accounting for income tax consequences for intra-entity transfers of assets other than inventory. Prior to adopting this new standard, the recognition of current and deferred income taxes for an intra-entity transfer was prohibited until the asset was sold to a third party. The amendments in this new standard state that an entity should recognize income tax consequences of an intra-entity transfer when the transfer occurs. Walden adopted this standard on January 1, 2019. The adoption of this new standard did not have a material impact on Walden’s combined financial statements.

In August 2018, the FASB issued a new intangibles-goodwill and other-internal-use software standard (ASU 2018-15), which addresses the accounting for implementation costs associated with a hosted service. The standard provides amendments to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). Walden elected to early adopt ASU 2018-15 on January 1, 2019. The adoption did not have a material effect on our combined financial statements.

Recently Issued Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04 in order to simplify the test for goodwill impairment by eliminating Step 2, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This new guidance will be effective for Walden beginning on January 1, 2023, with early adoption permitted. The adoption of this new standard is not expected to have a material impact on our combined financial statements.

F-12

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 2. Significant Accounting Policies (Continued)

In June 2016, the FASB issued ASU 2016-13, which sets forth a “current expected credit loss” (CECL) model and requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. ASU 2016-13 applies to financial instruments that are not measured at fair value, including receivables that result from revenue transactions. This ASU is effective for Walden beginning on January 1, 2023 with early adoption permitted. We will adopt this standard as of January 1, 2020 and we do not expect this guidance to have a material impact on our combined financial statements.

Note 3. Property, Equipment and Leasehold Improvements

Walden’s property, equipment and leasehold improvements as of December 31, 2019 and 2018 consisted of the following:

	Estimated Useful Life	2019			2018
Leasehold improvements	5–15 years	$	12,778		$	12,790
Furniture and fixtures	5–7 years		3,491			3,491
Computer hardware, software and other equipment	2–12 years		104,251			125,203
			120,520			141,485
Less: accumulated depreciation			(86,783	)		(100,909	)
			33,737			40,576
Construction in progress			2,598			6,197
Property, Equipment and Leasehold Improvements, Net		$	36,335		$	46,773

For the year ended December 31, 2019, Walden recorded depreciation and loss on disposal of property and equipment and leasehold improvements of $18,446 and $170, respectively, which are reflected in the accompanying combined statement of operations.

For the year ended December 31, 2018, Walden recorded depreciation and gain on disposal of property and equipment and leasehold improvements of $21,108 and $168, respectively, which are reflected in the accompanying combined statement of operations.

Note 4. Leases

Walden conducts a significant portion of its operations at leased facilities. The facilities include our corporate headquarters and other office locations that support our operations. Walden analyzes each lease agreement to determine whether is should be classified as a finance lease or an operating lease. As a result of adopting ASC Topic 842 on January 1, 2019, we recorded on our balance sheet significant asset and liability balances associated with operating leases and no finance leases, as described further below.

Our operating lease agreements are primarily for real estate space and are included within operating lease right-of-use assets and operating lease liabilities on the 2019 combined balance sheet. The terms of our operating leases vary with certain leases containing renewal options and provide for increasing rent over the term of the lease.

F-13

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 4. Leases (Continued)

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. As discussed in Note 2, Significant Accounting Policies, right-of-use assets and lease liabilities are recognized at the commencement date of the lease based on the estimated present value of lease payments over the lease term. Our variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the right-of-use assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Many of our lessee agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised.

As of December 31, 2019, Walden had lease agreements in Minneapolis MN, Columbia MD, San Antonio TX, and Tempe AZ, with a total net right-of-use asset of $11,253, current lease liability of $2,225, and long-term lease liability of $8,969. The lease weighted average discount rate is 5.18% and has various termination dates through November 30, 2024. As of December 31, 2019, the weighted average remaining lease term is 4.5 years. Total operating lease cost, including amounts allocated by Parent, was $7,250, including short-term lease expense of $231 and total variable lease cost of $1,024, for the year ended December 31, 2019 and is reflected in the accompanying combined statement of operations. For the year ended December 31, 2018 rent expense, including amounts allocated by Parent, totaled $8,109 and is reflected in the accompanying combined statement of operations. Total cash paid for operating leases included in the measurement of lease liabilities was $4,342 for the year ended December 31, 2019.

Future minimum rental payments under these leases, summarized by year, were as follows as of December 31, 2019:

2020	$	2,942
2021		2,723
2022		2,496
2023		2,390
2024		2,255
Total minimum lease payments		12,806
Less: interest		(1,612	)
Present value of lease liabilities	$	11,194

Prior to the adoption of ASC Topic 842, future minimum rental payments under these leases, summarized by year, were as follows as of December 31, 2018:

	Lease Payments
2019		2,585
2020		2,237
2021		2,253
2022		2,321
2023		2,390
Thereafter		2,255
Total minimum lease payments	$	14,041

F-14

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education) 

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 5. Deferred Project Costs

Walden’s deferred project costs as of December 31, 2019 and 2018 consisted of the following:

	2019			2018
Deferred projects costs	$	94,427		$	91,366
Less: accumulated amortization		(77,922	)		(75,532	)
	$	16,505		$	15,834
Projects in development		3,732			5,079
Deferred project costs, net	$	20,237		$	20,914

For the year ended December 31, 2019 Walden recorded amortization and impairment loss of deferred project costs of $6,360 and $0, respectively, which are reflected in the accompanying combined statement of operations.

For the year ended December 31, 2018 Walden recorded amortization and impairment loss of deferred project costs of $6,741 and $28, respectively, which are reflected in the accompanying combined statement of operations.

Note 6. Income Taxes

The significant components of Walden’s provision for income taxes for the years ended December 31, 2019 and 2018 were as follows:

	2019			2018
Current
Federal	$	30,271		$	31,143
State		9,263			10,945
Total Current Expense		39,534			42,088
Deferred
Federal		(455	)		2,505
State		86			885
Total Deferred Expense		(369	)		3,390
Total provision for income taxes	$	39,165		$	45,478

The tax effects of the temporary differences between financial and income tax accounting that give rise to Walden’s deferred tax assets and liabilities at December 31, 2019 and 2018 were as follows:

	2019		2018
Deferred tax assets
Deferred compensation	$	4,627	$	4,672
Allowance for doubtful accounts		4,077		4,544
Nondeductible reserves		655		838
Operating lease liability		2,862		—
Deferred rent		—		153
Total deferred tax assets		12,221		10,207

F-15

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education) 

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 6. Income Taxes (Continued)

	2019			2018
Deferred tax liabilities
Depreciation		(1,666	)		(2,925	)
Amortization of intangible assets		(719	)		(737	)
Unrealized gain		(73	)		(28	)
Operating lease right-of-use assets, net		(2,877	)		—
Total deferred tax liabilities		(5,335	)		(3,690	)
Net deferred tax assets	$	6,885		$	6,517

Walden files a consolidated federal income tax return with LEI, who has net operating loss carryforwards available to offset future taxable income. The statements above are prepared as if Walden filed a stand-alone tax return and was not considered part of a consolidated tax return.

A reconciliation of the reported income tax expense to the amount that would result by applying the U.S. federal statutory rate of 21% to income before income taxes for the year ended December 31, 2019 and 2018 was as follows:

	2019			2018
Tax expense at U.S. statutory rate of 21%	$	31,876		$	33,684
State income tax expense, net of federal tax effect		7,386			9,346
Deferred only adjustment – Depreciation		(491	)		418
Deferred only adjustment Excess Tax Benefits		132			1,921
Withholding Tax Paid		—			1,359
Utilization of WHT		—			(1,359	)
Effect of permanent differences and other		262			109
Income tax expense	$	39,165		$	45,478

For the years ended December 31, 2019 and 2018, Walden’s effective tax rate was approximately 26% and 28%, respectively.

Note 7. Commitments and Contingencies

Other Commitments

Walden participates in student financial aid through the Federal Department of Education’s Guaranteed Student Loan Program (the “Program”). Transfers of funds from the financial aid programs to Walden are made in accordance with the DOE requirements.

The financial aid and assistance programs are subject to political and budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations govern the financial assistance programs in which Walden’s students participate. Walden’s administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potential adverse actions including a suspension, limitation or termination proceeding which could have a material adverse effect on us. While unlikely, if we were to lose our eligibility to participate in federal student financial aid programs, the students at that institution would lose access to funds derived from those programs and would have to seek alternative sources of funds to pay their tuition and fees. Management believes there are no matters of noncompliance that could have a material effect on the accompanying combined financial statements or our liquidity.

F-16

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education) 

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Litigation Matters

From time to time, Walden can be a defendant in various lawsuits. Management monitors the status of such events and accrues an estimated amount when an obligation becomes probable and estimable. As of December 31, 2019 and 2018 $0 and $85 were accrued for such events.

Note 8. Related Party Transactions

Employee Benefit Plans

Eligible employees of Walden participate in a defined contribution plan administered by LEI under Section 401(k) of the Internal Revenue Code, up to certain annual limits. LEI matches 50% of the first 6% of eligible compensation an employee contributes to the benefit plan. Walden’s match is discretionary and based on LEI’s financial performance. Additional discretionary contributions may also be made at the option of LEI. Matching contributions of $2,092 and $1,982 were funded subsequent to the 2019 and 2018 plan year respectively. No additional discretionary contributions were made by LEI. The matching contributions were included in the accompanying combined balance sheets in accounts payable and accrued expenses as of December 31, 2019 and 2018.

Compensation

Walden’s combined financial statements include an expense allocation of non-cash stock compensation from the Parent of $992 and $1,106 for the years ended December 31, 2019 and 2018. Periodically the Parent grants share-based compensation awards, including stock options, restricted stock, and restricted stock unit awards, to Walden employees under the following incentive plan:

2013 Long-Term Incentive Plan

In June 2013, the Board of Directors of the Parent approved the Laureate Education, Inc. 2013 Long-Term Incentive Plan (the “2013 Plan”), as a successor plan to the 2007 Plan.

Under the 2013 Plan, LEI may grant stock options, stock appreciation rights, unrestricted common stock or restricted stock (collectively, “stock awards”), unrestricted stock units or restricted stock units, and other stock-based awards, to eligible Walden individuals on the terms and subject to the conditions set forth in the 2013 Plan. Stock options awards under the 2013 Plan generally have a contractual term of 10 years and are granted with an exercise price equal to the fair market value of Laureate’s stock at the date of grant. Restricted stock and restricted stock units awards under 2013 Plan are measured using the fair value of Laureate’s common stock on the date of grant or the most recent modification date, whichever is later. Stock options and restricted stock units awards are split into two tranches: a time-based vesting and a performance-based vesting tranche. The time-based vesting tranche typically vest over a five-year or three-year period. The performance-based vesting tranche are eligible for vesting based on achieving annual pre-determined performance targets, as defined in the plan, and the continued service of the employee. Certain performance based awards include a catch-up provision, allowing the grantee to vest in any year in which a target is missed if a following year’s target is achieved as long as the following year is within eight years from the grant date. Stock options, stock appreciation rights, and restricted stock units granted under the 2013 Plan have provisions for accelerated vesting if there is a change in control of Laureate, as defined by the 2013 Plan.

F-17

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education) 

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 8. Related Party Transactions (Continued)

For Time Options, expense is recognized ratably over the five-year or three-year vesting period. For Performance Options, expense is recognized to the extent that it is probable that the stated annual earnings target will be achieved. Laureate assesses the probability of each performance tranche vesting throughout the life of each grant. For the year ended December 31, 2019, Walden recorded $272 of stock option and $720 of restricted stock and restricted stock unit expenses, respectively. For the year ended December 31, 2018, the Company recorded $275 of stock option and $831 of restricted stock and restricted stock unit expenses, respectively.

Pledged Assets

Pursuant to a Second Amended and Restated Collateral Agreement dated as of April 26, 2017 between Walden and Citibank, N.A., as collateral agent (in such capacity, the “Collateral Agent”), Walden has pledged specific assets as collateral for a revolving credit facility and term loans from various lenders to the Parent. These assets include all of our receivables (except Title IV student loans) as well as our copyrights, patents and trademarks.

Standby Letters of Credit

During the year ended December 31, 2019, the Parent’s LOC in favor of the DOE, which allows Walden and certain other LEI subsidiaries to participate in Title IV programs, decreased by $11,751, to a total of $127,252. The percentage attributable to Walden of 99.2% was calculated based on our portion of the total 2018 Title IV HEA program funds. As of December 31, 2019, $126,255 was held as collateral in a money market account by us and is included in restricted cash in the accompanying combined balance sheet.

During the year ended December 31, 2018, the Parent’s LOC in favor of the DOE, which allows Walden and certain other LEI subsidiaries to participate in Title IV programs, was increased by $2,115, to a total of $139,003. The percentage attributable to Walden of 90.8% was calculated based on our portion of the total 2017 Title IV HEA program funds. As of December 31, 2018, $126,255 was held as collateral in a money market account by us and is included in restricted cash in the accompanying combined balance sheet.

Note 9. Title IV Program Participation

Walden derives a substantial portion of its revenues from Student Financial Aid (“SFA”) received by its students under the Title IV programs administered by the DOE, pursuant to the HEA. To continue to participate in the SFA programs, Walden must comply with the regulations promulgated under the HEA. The regulations restrict the proportion of cash receipts for tuition and fees from eligible programs to be not more than 90 percent from Title IV programs. If an institution fails to satisfy the test for one year, its participation status becomes provisional for two consecutive fiscal years. If the test is not satisfied for two consecutive years, eligibility to participate in Title IV programs is lost for at least two fiscal years.

For the years ended December 31, 2019 and 2018, Walden derived 75.87% and 75.69% of cash receipts for tuition and fees from Title IV funds.

Note 10. Subsequent Events

Management has evaluated events through October 20, 2020, which is the date the combined financial statements were available to be issued.

F-18

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 10. Subsequent Events (Continued)

On January 1, 2020, Walden commenced its lease with University of Phoenix, Inc. (sublessor), which was executed on December 10, 2019 for twenty-four months to December 31, 2021. Payments over the term of the lease total $732. Walden has the option to extend the sublease expiration date through August 31, 2023 upon written notice given to sublessor not later than August 31, 2021. Management has represented that the option is not deemed reasonably certain. In addition, Walden did not obtain control of the space until the commencement date on January 1, 2020 and will record the $720 right-of-use asset and lease liability on January 1, 2020.

On January 31, 2020 the Parents LOC in favor of the DOE was renewed and reduced by $1,496 to $125,756 and scheduled to expire on January 31, 2021.

The outbreak of COVID-19 has caused domestic and global disruption in operations for institutions of higher education. The long-term impact to Walden of the COVID-19 outbreak depends on numerous factors, including the effect on student enrollment in future periods, which cannot be fully determined at this time. As a result, the full impact of COVID-19 and the scope of any adverse impact on our finances and operations, may materially impact accounting estimates and assumptions, which cannot be fully determined at this time.

On September 11, 2020, LEI entered into a Membership Interest Purchase Agreement with Adtalem. Pursuant to the Purchase Agreement, LEI has agreed to sell to the Purchaser all of the issued and outstanding membership interests in Walden e-Learning, LLC, and its subsidiary, Walden University, LLC, as well as carve out operations of LEI in exchange for a purchase price of $1,480 million in cash, subject to certain adjustments set forth in the Purchase Agreement. The closing of the transaction is expected to occur toward the end of 2021 and is subject to customary closing conditions, including regulatory approval by the U.S. Department of Education and the Higher Learning Commission and required antitrust approvals.

Our business is subject to regulatory oversight and from time to time we must respond to inquiries about its compliance with the various statutory requirements under which it operates. On Monday, September 14, 2020, Walden University (Walden) received a letter from the United States Department of Justice (DOJ) at its headquarters in Minneapolis. This letter indicates that the DOJ is looking into whether Walden, in the operation of its Masters of Science in Nursing program, may have violated the Federal False Claims Act by virtue of representations made to students, its nursing program accreditor, the Commission on Collegiate Nursing Education (CCNE) that it was in compliance with the Program Participation Agreement for Title IV participation. Although the letter asks Walden voluntarily to provide information in a number of specific areas primarily related to the practicum component of the program, it makes no specific allegations of any misconduct or wrongdoing by Walden. Walden is fully cooperating with the DOJ’s inquiry. Further, on October 12, 2020, Walden received notice from the Higher Learning Commission (HLC) of its intent to assign a public “Government Investigation” designation to the university due to the DOJ inquiry. While the HLC has complete discretion in whether to issue such a public designation, Walden plans to submit a response in opposition and request that such a designation not be made, as there has been no governmental allegation of any misconduct or illegal acts. Walden accrues for a liability when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. The disclosures, accruals or estimates, if any, resulting from the foregoing analysis are reviewed and adjusted to reflect the effect of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. At this time, Walden does not believe that this matter will have a material effect on its financial position, results of operations, or cash flows.

F-19

EX-99.3

Exhibit 99.3

Walden Education Business
(Carve-Out Walden Operations of Laureate Education)

Combined Financial Report
Condensed Combined Financial Statements as of September 30, 2020 and
December 31, 2019 and for the nine months ended September 30, 2020 and 2019

Index to Financial Statements

Contents	Page(s)
Report of Unaudited Financials	F-1
Financial Statements
Condensed Combined Balance Sheets as of September 30, 2020 and December 31, 2019 (unaudited)	F-2
Condensed Combined Statements of Operations for the nine months ended September 30, 2020 and 2019 (unaudited)	F-3
Condensed Combined Statements of Changes in Net Parent Investment for the nine months ended September 30, 2020 and 2019 (unaudited)	F-4
Condensed Combined Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)	F-5
Notes to Combined Financial Statements	F-6–F-12

 

To the Management of Walden University, LLC

We have reviewed the accompanying condensed combined interim financial information of the Walden Education Business of Laureate Education, Inc., which comprise the condensed combined balance sheet as of September 30, 2020, and the related condensed combined statements of operations, changes in net parent investment and cash flows for the nine-month periods ended September 30, 2020 and 2019.

Management’s Responsibility for the Condensed Combined Interim Financial Information

The Company’s management is responsible for the preparation and fair presentation of the condensed combined interim financial information in accordance with accounting principles generally accepted in the United States of America; this responsibility includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of the condensed combined interim financial information in accordance with accounting principles generally accepted in the United States of America.

Auditors’ Responsibility

Our responsibility is to conduct our review in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information taken as a whole. Accordingly, we do not express such an opinion.

Conclusion

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed combined interim financial information for it to be in accordance with accounting principles generally accepted in the United States of America.

Other Matters

We previously audited, in accordance with auditing standards generally accepted in the United States of America, the combined balance sheet of the Walden Education Business of Laureate Education, Inc. as of December 31, 2019, and the related combined statements of operations, changes in net parent investment and cash flows for the year then ended (not presented herein), and in our report dated October 20, 2020, we expressed an unmodified opinion on those combined financial statements. In our opinion, the information set forth in the accompanying combined balance sheet information as of December 31, 2019 is consistent, in all material respects, with the audited combined balance sheet from which it has been derived.

This report is intended solely for the information and use of Management of Walden University, LLC and is not intended to be and should not be used by anyone other than this specified party.

 

Baltimore, Maryland
November 13, 2020

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

CONDENSED COMBINED BALANCE SHEETS
as of September 30, 2020 and December 31, 2019 (Unaudited)

($ in thousands)	September 2020		December 2019
Assets
Current Assets
Cash	$	4,268	$	58,414
Restricted cash		142,456		151,807
Student tuition and fees receivable, net		42,649		28,413
Prepaid expenses		5,052		3,627
Total current assets		194,425		242,261
Property, Equipment and Leasehold Improvements, Net		30,139		36,335
Other Assets
Operating lease right-of-use assets, net		9,344		11,253
Deferred project costs, net		21,187		20,237
Other long term assets		13,015		7,837
Deferred tax asset		6,837		6,885
Goodwill		2,812		2,812
Total other assets		53,195		49,024
Total assets	$	277,759	$	327,620
Liabilities and Net Parent Investment
Current Liabilities
Accounts payable and accrued expenses	$	60,496	$	62,145
Deferred revenue and student deposits		100,697		73,610
Current portion of operating leases		2,764		2,225
Other current liabilities		193		412
Total current liabilities		164,150		138,392
Long-Term Liabilities
Long term portion of operating leases		7,245		8,969
Total long-term liabilities		7,245		8,969
Total liabilities		171,395		147,361
Commitments and Contingencies
Net Parent Investment		106,364		180,259
Total liabilities and Net Parent Investment	$	277,759	$	327,620

The accompanying notes are an integral part of these interim combined financial statements.

F-2 

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

($ in thousands)	2020			2019
Revenues
Masters programs	$	267,860		$	255,692
Doctoral programs		109,420			117,015
Undergraduate programs		49,414			45,450
Other revenues		34,183			31,366
Total revenues, net of scholarships		460,877			449,523
Operating Expenses
Direct costs		308,110			300,107
General and administrative		36,703			37,382
Total operating expenses		344,813			337,489
Operating income		116,064			112,034
Other (expense) income:
Interest income, net		132			301
Other (expense) income, net		(333	)		283
Total other (expense) income		(201	)		584
Income before income taxes		115,863			112,618
Provision for income taxes		(29,884	)		(29,453	)
Net income	$	85,979		$	83,165

The accompanying notes are an integral part of these interim combined financial statements.

F-3 

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

CONDENSED COMBINED STATEMENTS OF CHANGES IN NET PARENT INVESTMENT
For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

($ in thousands)	Net parent investment
Balance as of January 1, 2019	$	191,994
Adoption of accounting standard		(63	)
Net income		83,165
Non-cash stock compensation		711
Net change in parent investment		(155,836	)
Balance as of September 30, 2019	$	119,971
Balance as of January 1, 2020	$	180,259
Net income		85,979
Non-cash stock compensation		860
Net change in parent investment		(160,734	)
Balance as of September 30, 2020	$	106,364

The accompanying notes are an integral part of these interim combined financial statements.

F-4 

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

CONDENSED COMBINED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

($ in thousands)	2020			2019
Cash Flows From Operating Activities
Net income	$	85,979		$	83,165
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,442			18,665
(Gain) Loss on disposal of property and equipment		(17	)		87
Impairment loss on deferred project costs		11			—
Amortization of operating lease right-of-use assets		2,586			2,002
Provision for doubtful accounts		14,142			14,094
Non-cash stock compensation		860			711
Deferred income taxes		48			100
Changes in operating assets and liabilities:
Student tuition and fees receivable		(28,378	)		(20,547	)
Prepaid expenses		(1,425	)		(1,134	)
Other long-term assets		(5,178	)		(4,354	)
Accounts payable and accrued expenses		(1,612	)		4,231
Deferred student tuitions and fees		27,087			18,710
Other liabilities		(2,081	)		(2,474	)
Net cash provided by operating activities		107,464			113,256
Cash Flows From Investing Activities
Purchases of property and equipment		(4,638	)		(6,461	)
Additions to deferred project costs		(5,589	)		(3,877	)
Net cash used in investing activities		(10,227	)		(10,338	)
Cash Flows From Financing Activities
Net change in parent investment		(160,734	)		(155,836	)
Net cash used in financing activities		(160,734	)		(155,836	)
Net decrease in cash and restricted cash		(63,497	)		(52,918	)
Cash and Restricted cash
Beginning of year		210,221			204,530
End of year	$	146,724		$	151,612
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Purchases of property and equipment in accrued expenses	$	267		$	1,473
Reconciliation of Cash and Restricted Cash
Cash	$	4,268		$	2,324
Restricted cash		142,456			149,288
Total Cash and Restricted cash shown in the Statements of Cash Flows	$	146,724		$	151,612

The accompanying notes are an integral part of these interim combined financial statements.

F-5

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)

Note 1.   Nature of Business

The Walden Education Business (“Walden”, “we”, “us” or “our”) of Laureate Education, Inc. (“Laureate”, “LEI”, or “Parent”) operates an institution of higher education under the trade name of Walden University, providing students with bachelors, masters and doctoral degrees and certificates online in a broad range of disciplines including health sciences, counseling, criminal justice, human services, management, psychology, education, public health, nursing, social work, public administration and information technology. Walden is accredited by the Higher Learning Commission in addition to a number of specialized accreditations. Walden is a registered institution in the state of Minnesota and is currently authorized, licensed, registered, exempt or not subject to approval in all states of the United States, except New York and Rhode Island. On September 11, 2020, our Parent, entered into Membership Interest Purchase Agreement with AdTalem Global Education, Inc. (“Adtalem” or the “Purchaser”), to sell all of the issued and outstanding membership interests in Walden e-Learning, LLC, and its subsidiary, Walden University, LLC, as well as carve-out operations of LEI in exchange for a purchase price of $1,480 million in cash, subject to certain adjustments set forth in the Purchase Agreement. The closing of the transaction is expected to occur toward the end of 2021 and is subject to customary closing conditions, including regulatory approval by the U.S. Department of Education and the Higher Learning Commission and required antitrust approvals.

Note 2.   Significant Accounting Policies

Fiscal Year — Walden’s fiscal year consists of twelve months ending December 31.

Basis of Presentation and Use of Estimates

The accompanying condensed combined financial statements are unaudited. The financial statements include condensed combined balance sheets, condensed combined statements of operations, condensed combined statements of changes in net parent investment and condensed combined statements of cash flows. A statement of condensed comprehensive income has not been presented as there are no differences. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to fairly state the financial position, results of operations, net parent investment and cash flows for all periods presented have been made.

The results of the operations are not necessarily indicative of the results to be expected for the full calendar year. Therefore, these financial statements should be read in conjunction with the audited combined financial statements and notes thereto. Certain footnote disclosures included in the annual combined financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted.

The accompanying condensed combined financial statements have been prepared in accordance with U.S. GAAP. The combined financial statements have been prepared on a standalone basis and included the operations, financial position, and cash flows of Walden E-Learning, LLC and Subsidiary, related Laureate Higher Education Group (LHEG) Shared Services, and certain Laureate corporate cost allocations (the “Walden Education Business”) as carved out from the historical consolidated financial statements of Laureate using both specific identification and the allocation methodologies described below. We believe the assumptions underlying the combined financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by Walden. However, these shared expenses may not represent the amounts that would have been incurred had the Walden operated autonomously or independently from Laureate.

Actual costs that would have been incurred if Walden had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions in various areas such as information technology and infrastructure.

F-6

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)

Note 2.   Significant Accounting Policies (Continued)

Net parent investment represents Laureate’s historical investment in us, the net effect of transactions with and allocations from Laureate. All charges and allocations of costs for facilities, functions, and services performed by Laureate have been deemed paid by the Business to Laureate in the period in which the cost was recorded in the condensed combined statements of Changes in Net Parent Investment. While we do own and maintain separate bank accounts our Parent uses a centralized approach to the cash management and funds our operating and investing activities as needed. Accordingly, cash held by our Parent at the corporate level was not allocated to us for any of the periods presented. We reflect the cash generated by our operations and expenses paid by our Parent on our behalf as a component of “Net Parent Investment” on our condensed combined balance sheets, and as a net change in parent investment in our condensed combined statements of cash flows. Intracompany balances and accounts within the Walden Business have been eliminated.

During the periods presented, Walden functioned as part of the larger group of schools controlled by Laureate, and accordingly, utilized centralized functions, such as academic support, technology, financial services, marketing, product development, sales and other management and administrative services to support continuing operations and to help accelerate the Walden business plan. As consideration of these services, Walden is allocated a monthly management fee that is based on LEI’s good faith estimate of the portion of the centralized costs incurred by the LEI shared services group attributable to Walden. Laureate also performed certain corporate functions for Walden. The corporate expenses related to Walden have been allocated from the Parent. These allocated costs are primarily related to certain governance and corporate functions such as finance, treasury, tax, human resources, legal, investor relations, and certain other costs. Where it is possible to specifically attribute such expenses to activities of Walden, these amounts have been charged or credited directly to Walden without allocation or apportionment. Allocation of other such expenses is based on a reasonable reflection of the utilization of the services provided or benefits received by Walden during the periods presented on a consistent basis, such as, but not limited to apportioned salary and benefits based on time spent, and relative percentage of headcount. The aggregate costs allocated for these functions to Walden are included within the condensed combined statements of operations as part of their natural functional expense groupings within direct costs and general and administrative expenses and are shown in detail within the following table.

	Nine Months Ended September 30
	2020		2019
Walden shared service costs(1)	$	8,822	$	70,885
Stock compensation expense(2)		860		711
Laureate Corporate expense allocation(3)		4,131		4,974
	$	13,813	$	76,570

(1)  Under an existing shared services agreement with LEI which renews on January 1, 2020 (disclosed above) and additional Parent’s Corporate shared service cost allocated to Walden. Effective January 1, 2020 approximately 800 non-faculty employees were moved to be a direct cost to Walden from Shared Services.

(2)   Stock compensation expense represents both the allocation of the Parent’s Corporate stock compensation expense and the costs specifically identifiable to Walden employees

(3)   Represents the additional costs of the centralized functions of the Parent allocated to Walden

Laureate used a centralized approach to cash management and financing its operations. Historically, the majority of Walden cash was transferred to the Parent on a periodic basis. This arrangement is not reflective of the manner in which Walden would have been able to finance its operations had it been a standalone business separate from the Parent during the periods presented. Transactions between Walden and Laureate and its subsidiaries are reflected in the condensed combined balance sheets as “Net parent investment” and in the condensed combined statements of cash flows as a financing activity in “Net change in net parent investment”.

F-7

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)

Note 2.   Significant Accounting Policies (Continued)

Additionally Walden uses various assets paid for by Laureate as well as liabilities incurred to operate its business consisting of but not limited to the following: prepaid expenses, fixed assets (leasehold improvements, furniture and equipment, computer and software), surety bonds collateralized with restricted cash which is a requirement for Walden to operate in various states, allocable employee benefit plan costs attributable to Walden employees, accrued expenses and operating leases for the benefit of Walden which have been deemed attributable to, and reflective of the historical operations of Walden. The assets and liabilities have historically been accounted for by Laureate as contracts which are shared among the Laureate network or that Laureate was deemed the obligor. The amounts recorded in these condensed combined financial statements may not be representative of the amounts that would have been incurred had Walden been an entity that operated independently of Laureate. Consequently, these condensed combined financial statements may not be indicative of Walden’s future performance and do not necessarily reflect what its results of operations, financial position and cash flows would have been had Walden operated as a separate entity apart from Laureate during the periods presented.

Our Parent’s debt and related interest expense have not been allocated to us for any of the periods presented since we are not the legal obligor of the debt, and our Parent’s borrowings were not directly attributable to us.

Estimates and Assumptions

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities in the financial statements and accompanying notes. Actual results could differ from those estimates.

The outbreak of COVID-19 has caused domestic and global disruption in operations for institutions of higher education. The long-term impact to Walden of the COVID-19 outbreak depends on numerous factors, including the effect on student enrollment in future periods, which cannot be fully determined at this time. As a result, the full impact of COVID-19 and the scope of any adverse impact on our finances and operations, may materially impact accounting estimates and assumptions, cannot be fully determined at this time.

Cash

Walden considers all highly liquid investments with an original maturity date of three months or less, when purchased, to be cash equivalents. No cash equivalents existed at September 30, 2020 and December 31, 2019.

Restricted Cash

Walden participates in the United States Department of Education (“DOE”) Title IV student financing assistance lending programs (“Title IV Programs”). At times, the DOE may require institutions to post standby letters of credit (“LOC”) in order to continue participation in Title IV programs. LOC requirements are based on a number of considerations including recent changes in ownership and failure to meet minimum financial ratio requirements set forth by the DOE. Walden is included within a group letter of credit with other U.S. based institutions controlled by LEI (See note 5).

Walden is also required by various states to post a surety bond. The bonds reflect a financial guarantee of the total amount of non-title IV adjusted gross tuition and fees from the enrollment of students totaling $17,710 and $25,552 as of September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020 and December 31, 2019, Walden’s restricted cash balance was $142,456 and $151,807, respectively, and held by the issuing banks as collateral for the LOC and surety bonds. The surety bonds collateral include a portion accounted for by Laureate as of September 30, 2020 and December 31, 2019 totaled $7,128 and $15,843 respectively, and included in the condensed combined financial statements as Walden is the principal on the surety bonds.

F-8

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)

Note 2.   Significant Accounting Policies (Continued)

In addition, over the course of the nine months ended September 30, 2020 and the year ended December 31, 2019, Walden received Title IV program funds in advance of billing students for educational services. As a trustee of these Title IV program funds, Walden is required to maintain and restrict these funds pursuant to the terms of the institution’s program participation agreement with the DOE. As of September 30, 2020 and December 31, 2019, there was no restricted cash related to advanced payments of Title IV program funds.

Revenue Recognition

Our revenues consist of tuition, educational product & service revenues, and student fees. Tuition revenues are recognized ratably on a straight-line basis over each academic session as the performance obligations are satisfied. Revenues from the sale of educational products are generally recognized point in time upon delivery. Educational services, such as continuing professional education, are recognized ratably as services are rendered which generally approximate one to three days in length, and collectability is probable.

We have elected a practical expedient portfolio approach for assessing student collectability given the large volume of homogeneous transactions and assess all students as one portfolio. Due to our high collection rate, management does not expect there to be any material differences from assessing the portfolio when compared to collectability on a student by student basis.

Billings on student contracts are billed at the start of each academic session and are paid over the term. Generally, students cannot re-enroll for the next academic session without satisfactory resolution of any past-due amounts.

Revenue is reported net of scholarships and other discounts, refunds and waivers. Management has determined that variable consideration need not be estimated at contract inception as scholarships and other discounts are usually known and taken at contract inception and refunds would not need to be accounted throughout the semester as revenue will only be recognized for the proportional amount of education provided and no amount of revenue recognized will be subject to a refund. For the nine months ended September 30, 2020 and 2019, our revenue was reduced by scholarships and discounts of $81,229 and $86,997, respectively, that we have offered to our students.

Deferred revenue and student deposits, which consist of tuition paid prior to the start of academic session and unearned tuition amounts, begins to be recognized as revenue after an academic session begins. If a student withdraws within the refund period, we are obligated to issue a refund according to the refund policy and the timing of the student’s withdrawal. The amount of refund obligations are reduced over the course of the academic term. Refunds are recorded as a reduction of deferred revenue and student deposits, as applicable. Deferred revenue and student deposits totaled $100,697 and $73,610 at September 30, 2020 and December 31, 2019, respectively.

Student Tuition and Fees Receivable

Student tuition and fees receivable primarily consists of tuition and educational services and are recognized when an academic session begins, although students generally enroll in courses prior to the start of the academic session. Receivables are recognized only to the extent that amounts are due and collection is probable. The receivable balance totaled $60,041 and $44,362 as of September 30, 2020 and December 31, 2019, respectively.

F-9

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)

Note 2.   Significant Accounting Policies (Continued)

Allowance for Doubtful Accounts

Walden uses estimates to determine the amount of the allowance for doubtful accounts necessary to reduce the student tuition and fees receivable to net realizable value. Walden estimates the amount of the required allowance by reviewing the status of past-due receivables, analyzing historical bad debt trends, as well as analysis of aged accounts receivable balances with allowances generally increasing as the receivable ages. The analysis of receivables is performed monthly, and allowances are adjusted accordingly. Receivables are generally due on the date on which the related class commences.

Additionally, a substantial portion of our receivables are derived from students that participate in the Title IV programs administered by the DOE. Walden writes off receivables deemed to be uncollectible to the allowance for doubtful accounts when all collection efforts have been exhausted. Allowance for student tuition and fees was $17,392 and $15,949 as of September 30, 2020 and December 31, 2019.

Advertising Costs

Advertising costs which are expensed as incurred totaled $95,443 and $83,479 for the nine months ended September 30, 2020 and 2019. Advertising expenses are included in the accompanying condensed combined statement of operations.

Contingencies

Walden accrues for contingent obligations when it is probable that a liability is incurred and the amount or range of amounts is reasonably estimable. Refer to Note 3 for further details of contingency matters.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, which sets forth a “current expected credit loss” (CECL) model and requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. ASU 2016-13 applies to financial instruments that are not measured at fair value, including receivables that result from revenue transactions. This ASU was effective for Walden beginning on January 1, 2020 and did not have a material impact on our condensed combined financial statements.

In January 2017, the FASB issued ASU 2017-04 in order to simplify the test for goodwill impairment by eliminating Step 2, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in this ASU, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for Walden beginning on January 1, 2020 and did not have a material impact on our condensed combined financial statements.

Subsequent Events

Management has evaluated events through November 13, 2020, which is the date the condensed combined financial statements were available to be issued. Walden had no material subsequent events that were not reflected in the financial statements for the period.

Note 3.   Income Taxes

The significant components of Walden’s provision for income taxes for the nine months ended September 30, 2020 and 2019 were as follows:

F-10

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)

Note 3.   Income Taxes (Continued)

	Nine months ended September 30,
	2020		2019
Current
Federal	$	24,327	$	23,771
State		5,509		5,582
Total Current Expense		29,836		29,353
Deferred
Federal		—		—
State		48		100
Total Deferred Expense		48		100
Total provision for income taxes	$	29,884	$	29,453

For the nine months ended September 30, 2020 and 2019 Walden’s effective tax rate was approximately 26% for both periods.

Note 4.   Commitments and Contingencies

Other Commitments

Walden participates in student financial aid through the Federal Department of Education’s Guaranteed Student Loan Program (the “Program”). Transfers of funds from the financial aid programs to Walden are made in accordance with the DOE requirements.

The financial aid and assistance programs are subject to political and budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations govern the financial assistance programs in which Walden’s students participate. Walden’s administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potential adverse actions including a suspension, limitation or termination proceeding which could have a material adverse effect on us. While unlikely, if we were to lose our eligibility to participate in federal student financial aid programs, the students at that institution would lose access to funds derived from those programs and would have to seek alternative sources of funds to pay their tuition and fees. Management believes there are no matters of noncompliance that could have a material effect on the accompanying combined financial statements or our liquidity.

Litigation Matters

From time to time, Walden can be a defendant in various lawsuits. Management monitors the status of such events and accrues an estimated amount when an obligation becomes probable and estimable. Any amount recorded is based on the status of current activity and the advice from legal counsel. As of September 30, 2020 and December 31, 2019 no amounts were accrued for such events.

F-11

WALDEN EDUCATION BUSINESS
(Carve-Out of Walden Operations of Laureate Education)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)

Note 4.   Commitments and Contingencies (Continued)

Regulatory Matters

Our business is subject to regulatory oversight and from time to time we must respond to inquiries about its compliance with the various statutory requirements under which it operates. On September 14, 2020, Walden University (Walden) received a letter from the United States Department of Justice (DOJ) indicating that the DOJ is examining whether Walden, in the operation of its Masters of Science in Nursing program (Nursing Program), may have violated the Federal False Claims Act by misrepresenting compliance with its program participation agreement with the U.S. Department of Education, which agreement covers Walden University’s participation in federal student financial aid programs under Title IV of the U.S. Higher Education Act. The letter invites Walden to provide information regarding a number of specific areas primarily related to the practicum component its Nursing Program, but it makes no specific allegations of any misconduct or wrongdoing by Walden. While Walden is cooperating with the DOJ’s request to voluntarily provide information, it cannot predict the timing or outcome of this matter. Further, on October 12, 2020, Walden received notice from the Higher Learning Commission (HLC) of its intent to assign a public “Government Investigation” designation to Walden due to the DOJ inquiry. While the HLC has complete discretion in whether to issue such a public designation, Walden requested that such a designation not be imposed, as there has been no governmental allegation of any misconduct or illegal acts. On November 9, 2020, the HLC made the “Government Investigation” designation to Walden and informed Walden that Walden will need to provide an update report to the HLC by May 7, 2021. The HLC further stipulated that the designation is not a determination or expression of view on the merits of the DOJ actions. The HLC will continue to monitor the situation and revisit the designation based on developments in the matter. Walden accrues for a liability when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. The disclosures, accruals or estimates, if any, resulting from the foregoing analysis are reviewed and adjusted to reflect the effect of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. At this time, Walden does not believe that this matter will have a material effect on its financial position, results of operations, or cash flows.

Note 5.   Related Party Transactions

Pledged Assets

Pursuant to a Second Amended and Restated Collateral Agreement dated as of April 26, 2017 between the Walden and Citibank, N.A., as collateral agent (in such capacity, the “Collateral Agent”), Walden has pledged specific assets as collateral for a revolving credit facility and term loans from various lenders to the Parent. These assets include all of our receivables (except Title IV student loans) as well as our copyrights, patents and trademarks.

Standby Letters of Credit

During the nine months ended September 30, 2020, the Parent’s LOC in favor of the DOE, which allows Walden and certain other LEI subsidiaries to participate in Title IV programs, was renewed and decreased by $1,496, to a total of $125,756. The percentage attributable to Walden of 99.2% was calculated based on our portion of the total 2018 Title IV HEA program funds. As of September 30, 2020, $124,746 was held as collateral in a money market account by us and is included in restricted cash in the accompanying condensed combined balance sheet.

During the year ended December 31, 2019, the Parent’s LOC in favor of the DOE, which allows Walden and certain other LEI subsidiaries to participate in Title IV programs, was renewed on December 31, 2018 and decreased by $11,751, to a total of $127,252. The percentage attributable to Walden of 99.2% was calculated based on our portion of the total 2018 Title IV HEA program funds. As of December 31, 2019, $126,255 was held as collateral in a money market account by us and is included in restricted cash in the accompanying condensed combined balance sheet.

F-12

EX-99.4

Exhibit 99.4

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF ADTALEM AND WALDEN

In connection with the Proposed Walden Acquisition, the Company has obtained, expects to obtain or otherwise incur additional financing for the Proposed Walden Acquisition. This includes the Term Facility and the Revolving Facility and $650.0 million aggregate principal amount of the notes offered hereby.

The following unaudited pro forma condensed combined financial information gives effect to the following Pro Forma Transactions:

•    the Proposed Walden Acquisition; and

•    the Acquisition Financing and the Refinancing (discussed in Note 2 to the unaudited pro forma condensed combined financial statements)

The unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements of the Company and historical carve-out combined financial statements of Walden as adjusted to give effect to the Proposed Walden Acquisition. The unaudited pro forma condensed combined balance sheet as of September 30, 2020 gives effect to the Pro Forma Transactions as if they occurred or had become effective on September 30, 2020. The unaudited pro forma condensed combined statement of income for the fiscal year ended June 30, 2020, three months ended September 30, 2020 and twelve months ended September 30, 2020 gives effect to the Pro Forma Transactions as if they occurred or had become effective on July 1, 2019. Further information about this basis of presentation is provided in Note 1 to these unaudited pro forma condensed combined financial statements.

The unaudited pro forma consolidated financial statements and the related notes should be read in conjunction with “Offering Memorandum Summary,” “Summary Historical Consolidated Financial Information of Adtalem,” “Summary Historical Combined Financial Information of Walden,” “Use of Proceeds,” “Capitalization,” “Description of Proposed Walden Acquisition,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Walden,” “Description of Other Indebtedness,” as included in the offering memorandum, and the Company’s annual and interim consolidated financial statements and the related notes which are incorporated by reference or included, as applicable, into the offering memorandum.

The unaudited pro forma condensed combined financial information does not include adjustments regarding cost savings to be achieved subsequent to the completion of the Proposed Walden Acquisition. The unaudited pro forma condensed combined financial statements are provided for informational purposes only and do not purport to represent or be indicative of the consolidated results of operations or financial condition of the Company had the Proposed Walden Acquisition been completed as of the dates presented, and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity. Future results may vary significantly from the results reflected due to various factors, including those discussed in Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 and Item 1A “Risk Factors” of the Company’s Quarterly Report on Form 10-Q for the quarterly periods ended September 30, 2020 and December 31, 2020.

The unaudited pro forma condensed combined financial statements have been derived from:

•    Audited consolidated financial statements and accompanying notes of the Company as of and for the fiscal year ended June 30, 2020 (as contained in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on August 18, 2020) and the unaudited consolidated financial statements and accompanying notes of the Company as of and for the three months ended September 30, 2020 and 2019 (as contained in its Quarterly Report on Form 10-Q filed with the SEC on November 5, 2020), each of which has been incorporated by reference into this offering memorandum;

•    Audited combined financial statements and accompanying notes of Walden as of and for the year ended December 31, 2019, and unaudited condensed combined financial statements and accompanying notes of Walden as of September 30, 2020 and for the nine months ended September 30, 2020 and 2029, both of which are contained elsewhere in this offering memorandum, and unaudited condensed combined financial statements and accompanying notes of Walden as of June 30, 2020 and for the six month periods ended June 30, 2020 and 2019, which are not included in this offering memorandum

1

ADTALEM GLOBAL EDUCATION INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2020
(IN THOUSANDS, EXCEPT PER SHARE DATA)

	Adtalem Global Education Inc. historical			Walden Education Business historical		Pro forma adjustments				Pro forma condensed combined
Assets:
Current assets:
Cash and cash equivalents	$	561,170		$	4,268	$	(248,901	)	(5a)	$	312,269
							(4,268	)	(5b)
Investments in marketable securities		9,434			—		—				9,434
Restricted cash		947			142,456		(142,456	)	(5b)		947
Accounts receivable, net		99,536			42,649		—				142,185
Prepaid expenses and other current assets		97,386			5,052		—				102,438
Total current assets		768,473			194,425		(395,625	)			567,273
Noncurrent assets:
Property and equipment, net		289,944			30,139		—				320,083
Operating lease assets		186,824			9,344		—				196,168
Intangible assets, net		285,027			—		728,237		(3)		1,013,264
Goodwill		686,480			2,812		770,654		(3)		1,459,946
Other assets, net		113,149			41,039		8,169		(2)		131,830
							(21,187	)	(3)
							(6,837	)	(5b)
							(2,503	)	(5d)
Total assets	$	2,329,897		$	277,759	$	1,080,908			$	3,688,564
Liabilities and shareholders’ equity:
Current liabilities:
Accounts payable, accrued payroll and benefits, and accrued liabilities	$	186,787		$	60,689	$	(26	)	(2)	$	247,450
Deferred revenue and student deposits		168,253			100,697		(49,493	)	(3)		219,457
Current operating lease liabilities		51,897			2,764		—				54,661
Current portion of long-term debt		3,000					4,500		(2)		7,500
Total current liabilities		409,937			164,150		(45,019	)			529,068
Noncurrent liabilities:
Long-term debt		285,621					1,307,257		(2)		1,592,878
Long-term operating lease liabilities		189,607			7,245		—				196,852
Other liabilities		111,000			—		(10,232	)	(2)		100,768
Total liabilities		996,165			171,395		1,252,006				2,419,566
Commitments and contingencies Redeemable noncontrolling interest		2,761			—		—				2,761
Shareholders’ equity:
Common stock, $0.01 par value per share, 200,000 shares authorized; 52,089 shares outstanding		810			—		—				810
Additional paid-in capital		508,487			—		—				508,487
Retained earnings		1,947,498			—		(72,463	)	(5d)		1,875,035
Accumulated other comprehensive loss		(8,612	)		—		7,729		(5d)		(883	)
Treasury stock, at cost, 28,912 shares		(1,117,212	)		—		—				(1,117,212	)
Net parent investment					106,364		(106,364	)	(5e)		—
Total shareholders’ equity		1,330,971			106,364		(171,098	)			1,266,237
Total liabilities and shareholders’ equity	$	2,329,897		$	277,759	$	1,080,908			$	3,688,564

See accompanying notes to unaudited pro forma condensed combined financial information.

2

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME OF ADTALEM AND WALDEN
TWELVE MONTHS ENDED JUNE 30, 2020
(IN THOUSANDS, EXCEPT PER SHARE DATA)

	Adtalem Global Education Inc. historical			Walden Education Business historical			Pro forma adjustments				Pro forma condensed combined
Revenue	$	1,052,001		$	591,337		$	—			$	1,643,338
Operating cost and expense:
Cost of educational services		490,054			245,954			17,906		(5f)		753,914
Student services and administrative expense		395,838			202,473			76,651		(4)		657,056
								(17,906	)	(5f)
Restructuring expense		28,628			—			—				28,628
Gain on sale of assets		(4,779	)		—			—				(4,779	)
Total operating cost and expense		909,741			448,427			76,651				1,434,819
Operating income		142,260			142,910			(76,651	)			208,519
Other income (expense):
Interest expense		(19,510	)		—			(70,124	)	(2)		(89,634	)
Other income, net		114,429			16			—				114,445
Net other income (expense)		94,919			16			(70,124	)			24,811
Income from continuing operations before income taxes		237,179			142,926			(146,775	)			233,330
Benefit from (provision for) income taxes		6,358			(36,504	)		36,107		(5c)		5,961
Income from continuing operations		243,537			106,422			(110,668	)			239,291
Net loss attributable to redeemable noncontrolling interest from continuing operations		444			—			—				444
Net income (loss) from continuing operations	$	243,981		$	106,422		$	(110,668	)		$	239,735
Earnings (loss) per share from continuing operations:
Basic	$	4.55									$	4.47
Diluted	$	4.51									$	4.43
Weighted-average shares outstanding:
Basic shares		53,659										53,659
Diluted shares		54,094										54,094

See accompanying notes to unaudited pro forma condensed combined financial information.

3

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME OF ADTALEM AND WALDEN
THREE MONTHS ENDED SEPTEMBER 30, 2020
(IN THOUSANDS, EXCEPT PER SHARE DATA)

	Adtalem Global Education Inc. historical			Walden Education Business historical			Pro forma adjustments				Pro forma condensed combined
Revenue	$	268,241		$	167,360		$	—			$	435,601
Operating cost and expense:
Cost of educational services		113,698			61,318			5,961		(5f)		180,977
Student services and administrative expense		100,178			59,491			17,352		(4)		171,060
								(5,961	)	(5f)
Restructuring expense		4,223			—			—				4,223
Business acquisition and integration expense		13,436			—			(13,436	)	(5g)		—
Total operating cost and expense		231,535			120,809			3,916				356,260
Operating income		36,706			46,551			(3,916	)			79,341
Other income (expense):
Interest expense		(3,692	)		—			(17,987	)	(2)		(21,679	)
Other income (expense), net		1,522			(89	)		—				1,433
Net other expense		(2,170	)		(89	)		(17,987	)			(20,246	)
Income from continuing operations before income taxes		34,536			46,462			(21,903	)			59,095
Provision for income taxes		(7,090	)		(12,035	)		5,388		(5c)		(13,737	)
Income from continuing operations		27,446			34,427			(16,515	)			45,358
Net loss attributable to redeemable noncontrolling interest from continuing operations		91			—			—				91
Net income (loss) from continuing operations	$	27,537		$	34,427		$	(16,515	)		$	45,449
Earnings per share from continuing operations:
Basic	$	0.52									$	0.87
Diluted	$	0.52									$	0.86
Weighted-average shares outstanding:
Basic shares		52,464										52,464
Diluted shares		52,797										52,797

See accompanying notes to unaudited pro forma condensed combined financial information.

4

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME OF ADTALEM AND WALDEN
TWELVE MONTHS ENDED SEPTEMBER 30, 2020
(IN THOUSANDS, EXCEPT PER SHARE DATA)

	Adtalem Global Education Inc. historical			Walden Education Business historical			Pro forma adjustments				Pro forma condensed combined
Revenue	$	1,065,629		$	611,146		$	—			$	1,676,775
Operating cost and expense:
Cost of educational services		475,718			244,528			19,043		(5f)		739,289
Student services and administrative expense		396,929			211,186			68,452		(4)		657,524
								(19,043	)	(5f)
Restructuring expense		26,321			—			—				26,321
Business acquisition and integration expense		13,436			—			(13,436	)	(5g)		—
Total operating cost and expense		912,404			455,714			55,016				1,423,134
Operating income		153,225			155,432			(55,016	)			253,641
Other income (expense):
Interest expense		(17,874	)		—			(71,052	)	(2)		(88,926	)
Other income (expense), net		115,250			(396	)		—				114,854
Net other income (expense)		97,376			(396	)		(71,052	)			25,928
Income from continuing operations before income taxes		250,601			155,036			(126,068	)			279,569
Benefit from (provision for) income taxes		2,974			(39,596	)		31,013		(5c)		(5,609	)
Income from continuing operations		253,575			115,440			(95,055	)			273,960
Net loss attributable to redeemable noncontrolling interest from continuing operations		426			—			—				426
Net income (loss) from continuing operations	$	254,001		$	115,440		$	(95,055	)		$	274,386
Earnings (loss) per share from continuing operations:
Basic	$	4.80									$	5.19
Diluted	$	4.77									$	5.15
Weighted-average shares outstanding:
Basic shares		52,897										52,897
Diluted shares		53,245										53,245

See accompanying notes to unaudited pro forma condensed combined financial information.

5

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF ADTALEM AND WALDEN

Note 1 — Basis of pro forma presentation

The unaudited pro forma condensed combined financial information has been prepared by Adtalem in connection with the Company’s acquisition of Walden, a leading online healthcare education provider, from Laureate.

Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures provided herein are adequate to make the information presented not misleading.

The unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements of the Company and the historical combined financial statements of Walden prepared on a carve-out basis, as adjusted to give effect to the Pro Forma Transactions. The unaudited pro forma condensed combined balance sheet as of September 30, 2020 gives effect to the Pro Forma Transactions as if they had occurred or become effective on September 30, 2020. The unaudited pro forma condensed combined statements of income for the fiscal year ended June 30, 2020, for the three months ended September 30, 2020 and for the twelve months ended September 30, 2020 give effect to the Pro Forma Transactions as if they had occurred or become effective on July 1, 2019.

The historical financial statements of the Company and Walden have been adjusted to give effect to pro forma events that are: (i) directly attributable to the Proposed Walden Acquisition, (ii) factually supportable, and (iii) with respect to the statements of income, expected to have a continuing effect on the combined results.

The Company and Walden have different fiscal years ending June 30th and December 31st, respectively. Consequently, Walden’s historical statements of income have been aligned to the fiscal year of the Company as follows:

•    For the fiscal year ended June 30, 2020 by adjusting (i) Walden’s audited combined statement of operations for the year ended December 31, 2019, included in the offering memorandum, to (ii) include Walden’s unaudited combined statement of operations data for the six months ended June 30, 2020, not included in the offering memorandum, and to (iii) exclude Walden’s unaudited combined statement of operations data for the six months ended June 30, 2019, not included in the offering memorandum.

•    For the three months ended September 30, 2020 by adjusting (i) Walden’s unaudited combined statement of operations for the nine months ended September 30, 2020, included in the offering memorandum, and to (ii) exclude Walden’s unaudited combined statement of operations data for the six months ended June 30, 2020, not included in the offering memorandum.

•    For the twelve months ended September 30, 2020 by adjusting (i) Walden’s audited combined statement of operations for the year ended December 31, 2019, included in the offering memorandum, to (ii) include Walden’s unaudited combined statement of operations for the nine months ended September 30, 2020, included in the offering memorandum, and to (iii) exclude Walden’s unaudited combined statement of operations for the nine months ended September 30, 2019, included in the offering memorandum.

The Company’s statements of income for the twelve months ended September 30, 2020 have been derived by adjusting (i) Adtalem’s audited consolidated statement of income for the year ended June 30, 2020 to (ii) include Adtalem’s unaudited consolidated statement of operations for the three months ended September 30, 2020 and to (iii) exclude Adtalem’s unaudited consolidated statement of operations for the three months ended September 30, 2019.

6

The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. Management is not aware of any material differences between the accounting policies of the two companies that would continue to exist subsequent to the application of purchase accounting. Following the consummation of the Walden Acquisition, Adtalem will conduct a more detailed review of Walden’s accounting policies in an effort to determine if differences in accounting policies require further reclassification of Walden’s results of operations or reclassification of assets or liabilities to conform to Adtalem’s accounting policies and classifications. As a result, Adtalem may identify additional differences between the accounting policies of the two companies that, when conformed, could have a material impact on this unaudited pro forma condensed combined financial information. Management has included certain reclassification adjustments for consistency in presentation as indicated in the subsequent notes. The unaudited pro forma condensed combined financial information does not include any adjustments for cost savings to be achieved subsequent to the completion of the Proposed Walden Acquisition. The unaudited pro forma condensed combined financial information is provided for informational purposes only and does not purport to represent or be indicative of the consolidated results of operations or financial condition of the Company had the Pro Forma Transactions been completed as of the dates presented, and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity. Future results may vary significantly from the results reflected due to various factors, including those discussed in Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 and Item 1A “Risk Factors” of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020.

Note 2 — Acquisition Financing and Refinancing

Acquisition consideration

The Sale and Purchase Agreement provides for purchase consideration of $1.48 billion in cash, subject to adjustment for net working capital conveyed at the closing date (“Acquisition Consideration”).

Substantially concurrently with the consummation of the Proposed Walden Acquisition, Adtalem is expected to repay all of its outstanding indebtedness under the Existing Credit Facilities, as defined below, terminate the Existing Credit Agreement, and enter into definitive agreements related to the Facilities discussed below. There are no outstanding balances on the existing Revolver as of September 30, 2020.

Senior Secured Notes

As discussed in this offering memorandum, in connection with the Acquisition Consideration, Adtalem is offering $650.0 million aggregate principal amount of    % senior secured notes due 2028 (the “Notes”). Interest is payable semi-annually on           and           of each year, beginning on           , 2021. The notes mature on           , 2028.

Adtalem may redeem some or all of the Notes on and after consummation of the Escrow Merger and in the future under terms discussed in this offering memorandum. For purposes of this pro forma presentation, it is assumed that none of the Notes have been redeemed.

In addition to this offering, the Company has obtained, expects to obtain or otherwise incur additional financing for the Proposed Walden Acquisition as described below.

Credit Facilities and Bridge Facility Commitment

On September 11, 2020, in connection with the execution of the Purchase Agreement, Adtalem entered into the Commitment Letter with the Commitment Parties pursuant to which the Commitment Parties committed to provide the (i) the Term Facility and the Revolving Facility and (ii) to the extent one or more series of senior secured notes pursuant to a Rule 144A offering or other private placement in an aggregate principal amount of $650,000,000 are not issued (in escrow or otherwise), which includes the offering, prior to the consummation of the Proposed Walden Acquisition, the Bridge Facility. The commitments under the Commitment Letter are subject to customary closing conditions. The proceeds of this offering will reduce the commitments under the Bridge Facility by a corresponding amount.

Use of proceeds

Absent a special mandatory redemption, we intend to use the net proceeds of this offering, together with the borrowings under the Term Facility, cash on hand, and, if necessary, the Bridge Facility, to finance the Acquisition Consideration payable in connection with the Proposed Walden Acquisition, to terminate Adtalem’s Existing Credit Facilities (as defined below) and to pay related fees and expenses. We expect to use any remaining net proceeds from this offering and future borrowings under the Revolving Facility for ongoing working capital and general corporate purposes.

7

Pro forma adjustments

We incurred fees of $39.2 million that were capitalized in connection with securing the Facilities, $21.5 million of which was related to the Term Facility, $8.2 million of which was related to the Senior Notes and $9.5 million of which was related to the Revolving Facility. The deferred debt issuance costs related to the Term Facility are presented as a direct deduction from the face amount of the debt, while the deferred debt issuance costs related to the Revolving Facility are classified as other assets, net. The deferred debt issuance costs relating to the Term Facility are amortized using the effective interest rate method, whereas those relating to the Senior Notes and Revolving Facility are amortized on a straight-line basis over the term of the debt facilities and recorded in interest expense in the unaudited pro forma condensed combined statements of income.

The effective interest rate used in calculating pro forma adjustments under the Term Facility is 5.2%, which is based on nominal rate of 4.5% (0.5% LIBOR floor plus 4.0% margin), contemplating amortization of 2.0% original issue discount and deferred debt issuance costs. The nominal interest rate under the Term Facility initially is Adjusted LIBOR plus 4.0% or, at the option of the Borrower, ABR plus 3.0%, subject to subsequent reductions as stipulated in the Commitment Letter. The interest rate under the Senior Secured notes is estimated to be at a fixed annual interest of 5.0%. There is also a commitment fee of 0.25% on the unused portion of the Revolving Facility. Interest expense as reflected within the unaudited pro forma condensed combined statements of income have been calculated based on agreed upon terms, contemplating principal payments.

We also expect to incur one-time financing costs of $40.3 million in connection with securing the Facilities that are not presented in the pro forma income statements. These include ticking fees of $11.7 million relating to the Term Facility, commitment fees and interest in escrow of $26.9 million relating to the Bridge Facility, and amendment fees relating to Adtalem’s current credit agreement associated with the Walden acquisition of $1.7 million. These balances have been reflected as an adjustment to cash and retained earnings in equity in the pro forma balance sheet.

Pro forma adjustments to recognize the new debt facilities and remove the existing debt facilities, including related interest expense and amortization of related financing costs classified as interest expense are summarized below. The repayment of the Existing Credit Facilities has been treated as a debt extinguishment due to the assumption that the lending group and the corresponding debt amounts will be substantially different with the New Credit Facilities based on the limited information known to date. This analysis is subject to change based on the facts and circumstances at the date of close:

Amounts in thousands	Balance as of September 30, 2020			Interest expense Year ended June 30, 2020		Interest expense Three months ended September 30, 2020		Interest expense Twelve months ended September 30, 2020
New Credit Facilities:
Term Facility (4.5%; 7 years)	$	1,000,000		$	44,916	$	11,166	$	44,831
Senior Secured Notes (5.0%, 7 years)		650,000			32,500		8,125		32,500
Deferred debt issuance costs – Term Facility		(29,622	)
Original issue discount (2.0%) – Term Facility		(20,000	)
Amortization of deferred debt issuance costs and original issue discount					6,409		1,635		6,466
Acquisition Financing, net		1,600,378			83,825		20,926		83,797
Current portion of long-term debt		7,500

8

Amounts in thousands	Balance as of September 30, 2020			Interest expense Year ended June 30, 2020			Interest expense Three months ended September 30, 2020			Interest expense Twelve months ended September 30, 2020
Non current portion of long-term debt		1,592,878
Revolver (0.25% unused commitment fee 5 years)		—			830			208			830
Deferred debt issuance costs – Revolver		9,549			1,910			477			1,910
Other assets, net		9,549			2,740			685			2,740
Existing Credit Facilities:
Existing Term B Loan	$	(293,250	)	$	(14,875	)	$	(3,232	)	$	(13,919	)
Deferred debt issuance costs		4,629			(1,021	)		(256	)		(1,021	)
Existing Credit Facilities		(288,621	)		(15,896	)		(3,488	)		(14,940	)
Current portion of long-term debt		(3,000	)
Non current portion of long-term debt		(285,621	)
Interest payable (within Accrued Liabilities)		(26	)
Interest swap payable (within Other liabilities)		(10,232	)
Existing Revolver		—			—			—			—
Deferred debt issuance costs		(1,380	)		(545	)		(136	)		(545	)
Other assets, net		(1,380	)
Pro forma adjustments:
Current portion of long-term debt		4,500
Non current portion of long-term debt		1,307,257
Other assets, net		8,169
Interest payable (within Accrued Liabilities)		(26	)
Interest swap payable (within Other liabilities)		(10,232	)
Interest expense					70,124			17,987			71,052

A change in nominal interest rates of 1/8% relating to the Term facility would result in an increase or decrease in interest expense of $1.2 million, $0.3 million and $1.2 million for the year ended June 30, 2020, the three months ended September 30, 2020, and the twelve months ended September 30, 2020, respectively.

Note 3 — Preliminary purchase price allocation

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), with Adtalem as the accounting acquirer. Accordingly, consideration to be paid by the Company to complete the Proposed Walden Acquisition has been assigned to identifiable assets and liabilities of Walden based on estimated fair values as of the most recent quarter end of September 30, 2020. Management’s assignment of the consideration was based on preliminary estimates of the fair value of tangible and intangible assets acquired and liabilities assumed. The estimates and underlying assumptions, some of which cannot be finalized until the closing of the Proposed Walden Acquisition, will be revised as additional information becomes available and those changes could be significant. Management expects to finalize accounting for the business combination as soon as practicable after closing of the Proposed Walden Acquisition, but in no event later than one year from closing (in accordance with ASC 805). Prior to the end of the measurement period, if information becomes available that requires material adjustment to the purchase price assignment, such adjustments will be included prospectively.

The table below presents the preliminary estimate of fair value of Walden’s net assets to be acquired, excluding assets and liabilities that will not transfer to the Company, and the corresponding adjustment to goodwill.

9

Amounts in thousands	Preliminary estimate of fair value			Total
Purchase price consideration				$	1,480,000
Walden’s net assets to be acquired:
Current assets		47,701
Property and equipment, net		30,139
Operating lease assets		9,344
Intangible assets, net		728,237
Current liabilities, excluding deferred revenue		(69,953	)
Deferred revenue		(44,704	)
Other assets and liabilities, net		5,770
Net assets acquired					706,534
Less: Walden Historical Goodwill					(2,812	)
Pro forma adjustment to Goodwill				$	770,654

The table below presents Walden’s assets and liabilities based on preliminary assessments of fair value and the corresponding pro forma adjustment:

Amounts in thousands	Historical basis		Preliminary estimate of fair value		Adjustment
Assets:
Trade name	$	—	$	123,850	$	123,850
Title IV accreditation		—		400,000		400,000
Student relationships		—		183,200		183,200
Curriculum		—		21,187		21,187
Intangible assets, net					$	728,237
Curriculum	$	21,187	$	—	$	(21,187	)
Other assets, net					$	(21,187	)
Liabilities:
Deferred revenue	$	94,197	$	44,704	$	(49,493	)

Curriculum has historically been reflected by Walden under other assets, net. This has been reclassified under intangible assets, net in the unaudited pro forma condensed combined balance sheet and is presented at historical carrying value pending further assessment of fair value.

Note 4 — Identified intangible assets

The fair value of Walden’s trade name, Title IV accreditation and student relationship assets were determined using an income-based approach of either the multi-period excess earnings method or relief from royalty method. For purposes of this preliminary purchase price assignment, the curriculum asset was determined with regard to cost based methodologies that will be reassessed within the measurement period. Indefinite-lived intangible assets related to trade name and Title IV accreditation are not amortized, as there are no legal, regulatory, contractual, economic or other factors that limit the useful life of these intangible assets to the reporting entity. The student relationships asset is amortized based on the estimated retention of the customers, giving consideration to the revenue and cash flow associated with these existing customers. Curriculum is amortized on a straight-line basis; however, since the preliminary estimate of fair value of curriculum in the unaudited pro forma condensed combined balance sheet is consistent with the historical amount, there is no amortization adjustment.

10

Intangible assets Amounts in thousands	Amount		Useful life (years)		Adjustment to Amortization Year ended June 30, 2020		Adjustment to Amortization Three months ended September 30, 2020		Adjustment to Amortization Twelve months ended September 30, 2020
Trade name	$	123,850		Indefinite	$	—	$	—	$	—
Title IV accreditation		400,000		Indefinite		—		—		—
Student relationships		183,200		2.5		76,651		17,352		68,452
Curriculum		21,187		5		—		—		—
Total	$	728,237			$	76,651	$	17,352	$	68,452

The fair value of deferred revenue was determined with regard to cost to fulfill the underlying obligation plus a normal margin. The normal margin represents a cost-based earnings before interest and taxes (“EBIT”) margin (attributable to intangible assets) for each discrete period. Deferred revenue has a runoff period of less than one year as the underlying obligations are performed. Amortization related to the fair value adjustment to deferred revenue has not been reflected in the pro forma statements of income since the adjustment is not anticipated to have a continuing impact or any effect to the results of operations for a period greater than one year.

Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net tangible and intangible assets acquired and liabilities assumed. Goodwill will not be amortized but instead will be tested for impairment at least annually (or more frequently if indicators of impairment arise). In the event that management determines that goodwill has become impaired, the Company will incur an accounting charge for the amount of the impairment during the fiscal quarter in which the determination is made. Goodwill is deductible for tax purposes.

These unaudited pro forma condensed combined financial statements includes certain assets that are currently reported at historical amounts, including but not limited to curriculum, operating lease right-of-use assets, and property, plant and equipment, as the Company has not yet assessed whether any adjustment to fair value would be material. The Company expects to complete these assessments within the measurement period.

Note 5 — Other pro forma adjustments

(a)    Changes in the pro forma cash and cash equivalents balance is calculated as follows:

Description	Amounts in thousands
Sources of funds:
Term loan	$	1,000,000
Senior notes		650,000
Deferred debt issuance costs (Term and Revolver)		(39,171	)
Original issue discount of 2.0% (Senior notes)		(20,000	)
Net cash inflow from borrowings	$	1,590,829
Uses of funds:
Extinguishment of existing debt, including deferred debt issuance costs	$	(293,250	)
Interest payable related to existing debt		(26	)
Interest payable related to existing interest swap agreement		(10,232	)
Purchase price consideration for Walden		(1,480,000	)
Estimated transaction costs		(15,000	)
One-time financing costs relating to the new credit facilities		(40,307	)
Insurance for representations and warranties		(915	)
Net cash outflow from use of funds	$	(1,839,730	)
Pro forma adjustment to cash and cash equivalents	$	(248,901	)

11

(b)   Adjustments to remove Walden’s assets and liabilities that will not transfer to the Company as part of the acquisition:

In thousands	Historical amount		Pro forma adjustment
Removal of Walden’s historical cash and cash equivalents	$	4,268	$	(4,268	)
Removal of Walden’s restricted cash		142,456		(142,456	)
Removal of Walden’s historical deferred tax balance		6,837		(6,837	)

Management is assuming that there will be no requirement to replace the restricted cash, however, there might be a requirement to increase the letters of credit upon change in control.

(c)   Adjustment to record impact on income tax expense with regard to each pro forma adjustment, as appropriate, is based on a composite tax rate of 24.6%, adjusted by jurisdictional earnings mix and discrete tax benefits. The composite tax rate represents the mix of jurisdictional statutory tax rates in which the adjustments are expected to occur..

(d)   Adjustments to record impact of existing deferred debt issuance costs write-off, estimated transaction costs and one-time financing costs relating to the new credit facilities to retained earnings:

In thousands	Pro forma adjustment
Existing deferred debt issuance costs write-off	$	(6,009	)
Estimated transaction costs		(15,000	)
One-time financing costs relating to the new credit facilities		(40,307	)
Release of accumulated other comprehensive income relating to the extinguishment of existing interest swap agreement		(7,729	)
Release of deferred taxes relating to the extinguishment of existing interest swap agreement		(2,503	)
Insurance for representations and warranties		(915	)
Total	$	(72,463	)

(e)   Adjustment to remove the net parent investment balance of Walden as it will become a wholly-owned subsidiary of Adtalem.

(f)    Adjustment to reclassify Walden’s provision for bad debts from student services and administrative expense to cost of education services for consistency in presentation.

(g)   Adjustment to remove one-time transaction costs recorded as “Business acquisition and integration expense” in the pro forma statements of income specific to the acquisition transaction.

12

XML

Cover	Feb. 08, 2021
Document Information [Line Items]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Feb. 08, 2021
Entity File Number	001-13988
Entity Registrant Name	ADTALEM GLOBAL EDUCATION INC.
Entity Central Index Key	0000730464
Entity Tax Identification Number	36-3150143
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	500 West Monroe
Entity Address, City or Town	Chicago
Entity Address, State or Province	IL
Entity Address, Postal Zip Code	60661
City Area Code	866
Local Phone Number	374-2678
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false
New York Stock Exchange | Common Stock [Member]
Document Information [Line Items]
Title of 12(b) Security	Common Stock, $0.01 Par Value
Trading Symbol	AGTE
Security Exchange Name	NYSE
NYSE Chicago | Common Stock [Member]
Document Information [Line Items]
Title of 12(b) Security	Common Stock, $0.01 Par Value
Trading Symbol	AGTE
Security Exchange Name	NYSE