Discontinued Operations and Assets Held for Sale

9 Months Ended

Mar. 31, 2020

Discontinued Operations and Assets Held for Sale

Discontinued Operations and Assets Held for Sale

4. Discontinued Operations and Assets Held for Sale

On December 4, 2018, Adtalem completed the sale of Carrington to San Joaquin Valley College, Inc. (“SJVC”) for de minimis consideration. As the sale represented a strategic shift that has a major effect on Adtalem’s operations and financial results, Carrington is presented in Adtalem’s financial reporting as a discontinued operation. Adtalem has retained certain leases associated with the Carrington operations. Adtalem remains the primary lessee on these leases and subleases to Carrington. Adtalem records the proceeds from these subleases as an offset to operating costs. Adtalem also assigned certain leases to Carrington but remains contingently liable under these leases. Adtalem recorded a pre-tax loss of $11.1 million on the sale of Carrington and transferred $9.9 million of cash and restricted cash balances to Carrington in the second quarter of fiscal year 2019, subject to post-closing adjustments to be completed in fiscal year 2020.

On December 11, 2018, Adtalem completed the sale of DeVry University to Cogswell Education, LLC (“Cogswell”) for de minimis consideration. As the sale represented a strategic shift that has a major effect on Adtalem’s operations and financial results, DeVry University is presented in Adtalem’s financial reporting as a discontinued operation. The purchase agreement includes an earn-out entitling Adtalem to payments of up to $20 million over a ten-year period payable based on DeVry University’s free cash flow. In connection with the closing of the sale, Adtalem loaned to DeVry University $10.0 million under the terms of the promissory note, dated as of December 11, 2018 (the “Note”). The Note bears interest at a rate of 4% per annum, payable annually in arrears, and has a maturity date of January 1, 2022. DeVry University may make prepayments on the Note. This loan is recorded as other assets, net on the Consolidated Balance Sheets. Adtalem has retained certain leases associated with DeVry University operations. Adtalem remains the primary lessee on these leases and subleases to DeVry University. In addition, Adtalem owns the buildings for certain DeVry University operating and administrative office locations and leases space to DeVry University under one-year operating leases, renewable annually at DeVry University’s option with the exception of one lease which expires December 2023. Adtalem records

the proceeds from these leases and subleases as an offset to operating costs. Adtalem also assigned certain leases to DeVry University but remains contingently liable under these leases. Adtalem recorded a pre-tax loss of $21.7 million on the sale of DeVry University and transferred $39.0 million of cash and restricted cash balances to DeVry University in the second quarter of fiscal year 2019.

On April 24, 2020, Adtalem completed the sale of Adtalem Brazil to Estácio Participações S.A. (“Estácio”) and Sociedade de Ensino Superior Estaćio de Sá Ltda, a wholly owned subsidiary of Estácio (“Purchaser”). As the sale represented a strategic shift that has a major effect on Adtalem’s operations and financial results, Adtalem Brazil is presented in Adtalem’s financial reporting as a discontinued operation. Pursuant to the terms and subject to the conditions set forth in the purchase agreement, Adtalem sold the issued and outstanding shares of Adtalem Brasil Holding S.A. (a/k/a Adtalem Brazil) to the Purchaser for R$1,920 million, subject to certain post-closing adjustments pursuant to the purchase agreement. Net proceeds received on April 24, 2020, after settlement of debt, transaction fees, taxes and hedge proceeds (described below) were $424.0 million, in addition to $73.0 million of cash previously unavailable, which is now available for general corporate use. In connection with the sale of Adtalem Brazil, Adtalem entered into a deal-contingent foreign currency hedge arrangement to economically hedge the Brazilian Real denominated sales price through mitigation of the currency exchange rate risk. The hedge agreement had a total notional amount of R$2,154 million (approximately $415 million as of March 31, 2020). The derivative associated with the hedge agreement did not qualify for hedge accounting treatment under ASC 815, and as a result, all changes in fair value were recorded within the income statement. Adtalem recorded a pre-tax unrealized gain on the hedge agreement derivative based on the foreign exchange forward spot rate as of March 31, 2020 of $111.8 million and $83.8 million for the three and nine months ended March 31, 2020, respectively, (see Note 18 “Fair Value Measurements” for additional information) with an $83.8 million asset included within prepaid expenses and other current assets on the March 31, 2020 Consolidated Balance Sheet. This deal-contingent foreign currency hedge was settled in conjunction with the close of the sale of Adtalem Brazil with cash proceeds of $110.7 million during the fourth quarter of fiscal year 2020.

The following is a summary of balance sheet information of assets and liabilities reported as held for sale, which includes only Adtalem Brazil balances as Carrington and DeVry University were sold as of each period presented below (in thousands):

	March 31,		June 30,		March 31,
	2020		2019		2019
Assets:
Current assets:
Cash and cash equivalents	$	83,961	$	95,243	$	90,511
Accounts receivable, net		52,507		74,269		65,794
Prepaid expenses and other current assets		5,949		8,411		10,252
Total current assets held for sale		142,417		177,923		166,557
Noncurrent assets:
Property and equipment, net		57,610		81,250		80,234
Operating lease assets		54,092		—		—
Intangible assets, net		88,403		120,108		118,134
Goodwill		138,914		187,195		183,575
Other assets, net		9,542		10,338		8,999
Total noncurrent assets held for sale		348,561		398,891		390,942
Total assets held for sale	$	490,978	$	576,814	$	557,499
Liabilities:
Current liabilities:
Accounts payable	$	2,378	$	4,242	$	3,230
Accrued payroll and benefits		10,671		17,828		15,462
Accrued liabilities		4,891		10,193		12,008
Deferred revenue		8,688		3,846		13,990
Current operating lease liabilities		8,322		—		—
Total current liabilities held for sale		34,950		36,109		44,690
Noncurrent liabilities:
Long-term operating lease liabilities		46,747		—		—
Other liabilities		10,103		16,146		16,372
Total noncurrent liabilities held for sale		56,850		16,146		16,372
Total liabilities held for sale	$	91,800	$	52,255	$	61,062

The following is a summary of income statement information of operations reported as discontinued operations, which includes Adtalem Brazil operations and includes Carrington’s and DeVry University’s operations through the date of each respective sale (in thousands):

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2020		2019		2020		2019
Revenue	$	41,355	$	49,906	$	142,160	$	355,506
Operating cost and expense:
Cost of educational services		28,940		36,147		98,605		222,837
Student services and administrative expense		17,781		11,252		47,860		130,615
Restructuring expense (gain)		199		(257)		625		(570)
Asset impairment charge - building and equipment		—		—		—		1,953
Total operating cost and expense		46,920		47,142		147,090		354,835
Operating (loss) income from discontinued operations		(5,565)		2,764		(4,930)		671
Other income (expense):
Interest and dividend income		425		941		2,164		2,917
Interest expense		(807)		(483)		(2,770)		(2,317)
Net other (expense) income		(382)		458		(606)		600
(Loss) income from discontinued operations before income taxes		(5,947)		3,222		(5,536)		1,271
Loss on disposal of discontinued operations before income taxes		—		(265)		—		(32,979)
Benefit from income taxes		3,228		182		3,778		5,762
(Loss) income from discontinued operations		(2,719)		3,139		(1,758)		(25,946)
Net income attributable to redeemable noncontrolling interest		—		(74)		—		(382)
Net (loss) income from discontinued operations attributable to Adtalem	$	(2,719)	$	3,065	$	(1,758)	$	(26,328)