Discontinued Operations and Assets Held for Sale

6 Months Ended

Dec. 31, 2020

Discontinued Operations And Disposal Groups [Abstract]

Discontinued Operations and Assets Held for Sale

3. 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 had a major effect on Adtalem’s operations and financial results, Carrington is presented in Adtalem’s financial reporting as a discontinued operation. Adtalem has retained certain leases associated with the Carrington operations. Adtalem remains the primary lessee on these leases and subleases to Carrington. Adtalem records the proceeds from these subleases as an offset to operating costs. Adtalem also assigned certain leases to Carrington but remains contingently liable under these leases. Adtalem recorded a pre-tax loss of $11.3 million on the sale of Carrington and transferred $9.9 million of cash and restricted cash balances to Carrington in fiscal year 2019, subject to post-closing adjustments to be completed in fiscal year 2021.

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 had 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. Based on the terms of the Note, DeVry University may make prepayments and may be required to make prepayments on the Note. The Note is recorded within other assets, net on the Consolidated Balance Sheets as of December 31, 2020, June 30, 2020, and December 31, 2019, respectively, except for $5.1 million recorded within prepaid expenses and other current assets as of December 31, 2020 because that amount is due within one year. 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 $22.3 million on the sale of DeVry University and transferred $40.2 million of cash and restricted cash balances to DeVry University in fiscal year 2019.

On 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”), pursuant to the Stock Purchase Agreement dated October 18, 2019. As the sale represented a strategic shift that had 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. Adtalem received $345.9 million in sale proceeds and $56.0 million of Adtalem Brazil cash, for a combined $401.9 million upon the sale. Adtalem Brazil cash balance on the sale date was $88.4 million, resulting in $313.5 million of cash proceeds, net of this cash transferred. In addition, Adtalem received $110.7 million from the settlement of a deal-contingent foreign currency hedge arrangement entered into in connection with the sale of Adtalem Brazil to economically hedge the Brazilian Real sales price through the mitigation of the currency exchange rate risk. Adtalem recorded this settlement as a pre-tax gain on the hedge of $110.7 million in fiscal year 2020. The hedge agreement had a total notional amount of R$2,154 million. 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 loss on the hedge agreement derivative based on a foreign exchange forward spot rate as of December 31, 2019 of $28.0 million in the second quarter of fiscal year 2020 (see Note 17 “Fair Value Measurements” for additional information) and is included within accrued liabilities on the December 31, 2019 Consolidated Balance Sheet.

The following is a summary of balance sheet information of assets and liabilities reported as held for sale as of December 31, 2019, which includes only Adtalem Brazil balances as Carrington and DeVry University were sold prior to that date (in thousands):

	December 31,
	2019
Assets:
Current assets:
Cash and cash equivalents	$	104,040
Accounts receivable, net		60,494
Prepaid expenses and other current assets		6,750
Total current assets held for sale		171,284
Noncurrent assets:
Property and equipment, net		74,939
Operating lease assets		72,665
Deferred income taxes		5,346
Intangible assets, net		114,296
Goodwill		179,199
Other assets, net		12,108
Total noncurrent assets held for sale		458,553
Total assets held for sale	$	629,837
Liabilities:
Current liabilities:
Accounts payable	$	2,936
Accrued payroll and benefits		13,273
Accrued liabilities		6,484
Deferred revenue		3,096
Current operating lease liabilities		10,905
Total current liabilities held for sale		36,694
Noncurrent liabilities:
Long-term operating lease liabilities		62,345
Deferred income taxes		3,929
Other liabilities		16,186
Total noncurrent liabilities held for sale		82,460
Total liabilities held for sale	$	119,154

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

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Revenue	$	—	$	55,153	$	—	$	100,805
Operating cost and expense:
Cost of educational services		—		35,717		—		69,665
Student services and administrative expense		11,187		15,706		21,271		30,079
Restructuring expense		—		391		—		426
Total operating cost and expense		11,187		51,814		21,271		100,170
Operating (loss) income		(11,187)		3,339		(21,271)		635
Other income (expense):
Interest and dividend income		—		761		—		1,739
Interest expense		—		(806)		—		(1,963)
Net other expense		—		(45)		—		(224)
(Loss) income from discontinued operations before income taxes		(11,187)		3,294		(21,271)		411
Benefit from income taxes		2,748		823		5,225		550
Net (loss) income from discontinued operations attributable to Adtalem	$	(8,439)	$	4,117	$	(16,046)	$	961

We continue to incur costs, principally attorney fees, associated with ongoing litigation and settlements related to the DeVry University divestiture, which was completed during fiscal year 2019, and are classified as expense within discontinued operations.