~~ADTALEM GLOBAL EDUCATION INC.~~

~~CONSOLIDATED BALANCE SHEETS~~

~~(Unaudited)~~

ADTALEM GLOBAL EDUCATION INC.

March 31, June 30, March 31,
2019 2018 2018
(in thousands, except share and par value amounts)
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 321,211 $ 430,690 $ 265,325
Investments in Marketable Securities 8,341 4,255 4,200
Restricted Cash 391 310 498
Accounts Receivable, Net 155,372 146,726 155,418
Prepaid Expenses and Other Current Assets 54,776 58,887 70,275
Current Assets Held for Sale - 47,132 43,624
Total Current Assets 540,091 688,000 539,340
Land, Building and Equipment:
Land 43,801 48,177 48,359
Building 374,535 389,129 383,880
Equipment 279,170 302,516 304,971
Construction in Progress 16,445 25,360 29,711
713,951 765,182 766,921
Accumulated Depreciation (354,330 ) (376,528 ) (363,556 )
Land, Building and Equipment Held for Sale, Net - - 14,994
Land, Building and Equipment, Net 359,621 388,654 418,359
Noncurrent Assets:
Deferred Income Taxes 19,199 38,780 30,500
Intangible Assets, Net 355,147 362,931 385,142
Goodwill 811,260 813,887 845,843
Other Assets, Net 63,385 39,259 32,021
Other Assets Held for Sale - 13,450 37,121
Total Noncurrent Assets 1,248,991 1,268,307 1,330,627
TOTAL ASSETS $ 2,148,703 $ 2,344,961 $ 2,288,326
LIABILITIES:
Current Liabilities:
Accounts Payable $ 42,322 $ 47,477 $ 33,992
Accrued Salaries, Wages and Benefits 54,901 71,289 60,794
Accrued Liabilities 86,622 80,803 77,917
Deferred Revenue 122,360 106,773 133,299
Current Portion of Long-Term Debt 3,000 3,000 -
Current Liabilities Held for Sale - 56,439 72,624
Total Current Liabilities 309,205 365,781 378,626
Noncurrent Liabilities:
Long-Term Debt 288,589 290,073 120,000
Deferred Income Taxes 33,278 29,115 33,519
Other Liabilities 104,562 131,380 96,920
Income Taxes Payable - - 88,562
Noncurrent Liabilities Held for Sale - 216 1,021
Total Noncurrent Liabilities 426,429 450,784 340,022
TOTAL LIABILITIES 735,634 816,565 718,648
COMMITMENTS AND CONTINGENCIES (NOTE 13)
NONCONTROLLING INTEREST 8,482 9,110 11,391
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 Par Value, 200,000,000 Shares Authorized; 56,954,000, 59,893,000 and 60,369,000 Shares Outstanding at March 31, 2019, June 30, 2018 and March 31, 2018, respectively 801 793 792
Additional Paid-in Capital 483,043 454,653 450,120
Retained Earnings 1,964,169 1,917,373 1,852,122
Accumulated Other Comprehensive Loss (148,706 ) (142,168 ) (59,195 )
Treasury Stock, at Cost, 23,149,000, 19,390,000 and 18,852,000 Shares at March 31, 2019, June 30, 2018 and March 31, 2018, respectively (894,720 ) (711,365 ) (685,552 )
TOTAL SHAREHOLDERS' EQUITY 1,404,587 1,519,286 1,558,287
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND SHAREHOLDERS' EQUITY $ 2,148,703 $ 2,344,961 $ 2,288,326

CONSOLIDATED BALANCE SHEETS

(unaudited)


	September 30,		June 30,		September 30,
	2019		2019		2018
	(in thousands, except share and par value amounts)
ASSETS:
Current Assets:
Cash and Cash Equivalents	$	121,079	$	204,202	$	334,222
Investments in Marketable Securities		8,763		8,680		8,402
Restricted Cash		710		1,022		877
Accounts Receivable, Net		116,212		83,560		108,213
Prepaid Expenses and Other Current Assets		39,476		29,313		60,031
Current Assets Held for Sale		169,873		177,923		227,641
Total Current Assets		456,113		504,700		739,386
Land, Building and Equipment:
Land		41,441		41,938		41,183
Building		309,893		322,657		288,438
Equipment		235,027		228,533		221,294
Construction in Progress		8,681		13,545		25,799
		595,042		606,673		576,714
Accumulated Depreciation		(314,219)		(323,240)		(306,340)
Land, Building and Equipment Held for Sale, Net		73,763		81,250		81,029
Land, Building and Equipment, Net		354,586		364,683		351,403
Noncurrent Assets:
Operating Lease Assets		195,238		—		—
Deferred Income Taxes		14,977		18,314		31,080
Intangible Assets, Net		295,324		297,989		240,166
Goodwill		686,992		687,256		627,239
Other Assets, Net		91,086		52,113		45,201
Other Assets Held for Sale		366,008		317,641		315,390
Total Noncurrent Assets		1,649,625		1,373,313		1,259,076
TOTAL ASSETS	$	2,460,324	$	2,242,696	$	2,349,865

LIABILITIES:
Current Liabilities:
Accounts Payable	$	44,674	$	53,385	$	48,087
Accrued Salaries, Wages and Benefits		30,071		46,664		32,056
Accrued Liabilities		61,966		76,529		80,591
Deferred Revenue		168,533		95,944		173,856
Current Operating Lease Liabilities		54,057		—		—
Current Portion of Long-Term Debt		3,000		3,000		3,000
Current Liabilities Held for Sale		50,174		36,109		121,496
Total Current Liabilities		412,475		311,631		459,086
Noncurrent Liabilities:
Long-Term Debt		327,600		398,094		289,579
Long-Term Operating Lease Liabilities		192,055		—		—
Deferred Income Taxes		29,094		29,426		29,378
Other Liabilities		92,252		86,326		101,561
Noncurrent Liabilities Held for Sale		76,468		16,146		21,412
Total Noncurrent Liabilities		717,469		529,992		441,930
TOTAL LIABILITIES		1,129,944		841,623		901,016
COMMITMENTS AND CONTINGENCIES (NOTE 14)
NONCONTROLLING INTEREST		3,187		9,543		8,814
SHAREHOLDERS’ EQUITY:
Common Stock, $0.01 Par Value, 200,000,000 Shares Authorized; 54,649,000, 55,303,000 and 59,120,000 Shares Outstanding at September 30, 2019, June 30, 2019 and September 30, 2018, respectively		805		801		798
Additional Paid-in Capital		492,151		486,061		469,545
Retained Earnings		2,027,263		2,012,902		1,908,465
Accumulated Other Comprehensive Loss		(176,739)		(137,290)		(163,168)
Treasury Stock, at Cost, 25,862,000, 24,830,000 and 20,727,000 Shares at September 30, 2019, June 30, 2019 and September 30, 2018, respectively		(1,016,287)		(970,944)		(775,605)
TOTAL SHAREHOLDERS’ EQUITY		1,327,193		1,391,530		1,440,035
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY	$	2,460,324	$	2,242,696	$	2,349,865

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

Table of Contents

ADTALEM GLOBAL EDUCATION INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

~~(Unaudited)~~(unaudited)

Three Months Ended
March 31,

Nine Months Ended
March 31,

2019 2018 2019 2018
(in thousands, except per share amounts)
REVENUE $ 308,609 $ 310,070 $ 909,393 $ 911,424
OPERATING COST AND EXPENSE:
Cost of Educational Services 156,339 159,312 463,224 489,931
Student Services and Administrative Expense 102,062 97,633 300,548 276,000
Restructuring Expense 3,902 621 47,095 3,184
Insurance Settlement Gain - - (15,571 ) -
Total Operating Cost and Expense 262,303 257,566 795,296 769,115
Operating Income from Continuing Operations 46,306 52,504 114,097 142,309
OTHER INCOME (EXPENSE):
Interest and Dividend Income 2,003 1,329 6,121 4,812
Interest Expense (5,269 ) (2,850 ) (17,027 ) (7,247 )
Investment Gain (Loss) 715 - (407 ) -
Net Other Expense (2,551 ) (1,521 ) (11,313 ) (2,435 )
Income from Continuing Operations Before Income Taxes 43,755 50,983 102,784 139,874
Income Tax Provision (7,542 ) (8,024 ) (18,820 ) (122,775 )
Equity Method Investment Loss - (100 ) - (138 )
Income from Continuing Operations 36,213 42,859 83,964 16,961
DISCONTINUED OPERATIONS (NOTE 2):
Income (Loss) from Discontinued Operations Before Income Taxes 2,038 (7,422 ) (12,410 ) (71,280 )
Loss on Disposal of Discontinued Operations Before Income Taxes
(265
) - (32,979 ) -
Income Tax (Provision) Benefit (120 ) 3,851 7,212 25,741
Income (Loss) from Discontinued Operations 1,653 (3,571 ) (38,177 ) (45,539 )
NET INCOME (LOSS) 37,866 39,288 45,787 (28,578 )
Net Loss (Income) Attributable to Noncontrolling Interest 39 46 (117 ) (459 )
NET INCOME (LOSS) ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION $ 37,905 $ 39,334 $ 45,670 $ (29,037 )
AMOUNTS ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION:
Income from Continuing Operations $ 36,252 $ 42,905 $ 83,847 $ 16,502
Income (Loss) from Discontinued Operations 1,653 (3,571 ) (38,177 ) (45,539 )
NET INCOME (LOSS) ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION $ 37,905 $ 39,334 $ 45,670 $ (29,037 )
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION SHAREHOLDERS:
Basic:
Continuing Operations $ 0.62 $ 0.70 $ 1.42 $ 0.27
Discontinued Operations $ 0.03 $ (0.06 ) $ (0.64 ) $ (0.74 )
Total $ 0.65 $ 0.64 $ 0.77 $ (0.47 )
Diluted:
Continuing Operations $ 0.62 $ 0.69 $ 1.40 $ 0.26
Discontinued Operations $ 0.03 $ (0.06 ) $ (0.64 ) $ (0.73 )
Total $ 0.64 $ 0.63 $ 0.76 $ (0.46 )


	Three Months Ended
	September 30,
	2019		2018
	(in thousands, except per share amounts)
REVENUE	$	254,613	$	236,939
OPERATING COST AND EXPENSE:
Cost of Educational Services		128,034		111,534
Student Services and Administrative Expense		99,087		89,164
Restructuring Expense		6,530		39,473
Gain on Sale of Assets		(4,779)		—
Total Operating Cost and Expense		228,872		240,171
Operating Income (Loss) from Continuing Operations		25,741		(3,232)
OTHER INCOME (EXPENSE):
Interest and Dividend Income		678		969
Interest Expense		(5,328)		(4,918)
Investment Gain		23		—
Net Other Expense		(4,627)		(3,949)
Income (Loss) from Continuing Operations Before Income Taxes		21,114		(7,181)
Income Tax (Provision) Benefit		(3,706)		2,330
Income (Loss) from Continuing Operations		17,408		(4,851)
DISCONTINUED OPERATIONS (NOTE 2):
Loss from Discontinued Operations Before Income Taxes		(2,883)		(5,719)
Income Tax (Provision) Benefit		(273)		985
Loss from Discontinued Operations		(3,156)		(4,734)
NET INCOME (LOSS)		14,252		(9,585)
Net Loss Attributable to Noncontrolling Interest from Continuing Operations		109		64
Net Income Attributable to Noncontrolling Interest from Discontinued Operations		—		(9)
NET INCOME (LOSS) ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION	$	14,361	$	(9,530)

AMOUNTS ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION:
Income (Loss) from Continuing Operations	$	17,517	$	(4,787)
Loss from Discontinued Operations		(3,156)		(4,743)
NET INCOME (LOSS) ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION	$	14,361	$	(9,530)

EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION SHAREHOLDERS:
Basic:
Continuing Operations	$	0.32	$	(0.08)
Discontinued Operations	$	(0.06)	$	(0.08)
Total	$	0.26	$	(0.16)
Diluted:
Continuing Operations	$	0.31	$	(0.08)
Discontinued Operations	$	(0.06)	$	(0.08)
Total	$	0.26	$	(0.16)

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

Table of Contents

ADTALEM GLOBAL EDUCATION INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

~~(Unaudited)~~(unaudited)

Three Months Ended
March 31, Nine Months Ended
March 31,
2019 2018 2019 2018
(in thousands)
NET INCOME (LOSS) $ 37,866 $ 39,288 $ 45,787 $ (28,578 )
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Currency Translation (Loss) Gain (5,238 ) 1,598 (6,193 ) (101 )
Change in Fair Value of Available-For-Sale Securities 50 (48 ) 36 25
COMPREHENSIVE INCOME (LOSS) 32,678 40,838 39,630 (28,654 )
COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST 138 17 51 (451 )
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION $ 32,816 $ 40,855 $ 39,681 $ (29,105 )


		Three Months Ended
		September 30,
	2019		2018
	(in thousands)
NET INCOME (LOSS)	$	14,252	$	(9,585)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Currency Translation Loss		(39,494)		(20,615)
Change in Fair Value of Available-For-Sale Securities		45		(4)
COMPREHENSIVE LOSS		(25,197)		(30,204)
COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST		184		669
COMPREHENSIVE LOSS ATTRIBUTABLE TO ADTALEM GLOBAL EDUCATION	$	(25,013)	$	(29,535)

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

Table of Contents

ADTALEM GLOBAL EDUCATION INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(Unaudited)~~(unaudited)


	Three Months Ended
	September 30,
	2019		2018
	(in thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	14,252	$	(9,585)
Loss from Discontinued Operations		3,156		4,734
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Stock-Based Compensation Expense		5,223		4,137
Amortization and Adjustments to Operating Lease Assets		12,804		—
Depreciation		8,393		7,727
Amortization of Intangible Assets		2,534		1,605
Amortization of Deferred Debt Issuance Costs		392		392
Provision for Bad Debts		5,554		1,203
Deferred Income Taxes		2,991		7,915
Loss on Disposals, Accelerated Depreciation and Adjustments to Land, Building and Equipment		1,053		37,984
Realized Loss on Investments		11		—
Unrealized Gain on Investments		(33)		—
Realized Gain on Sale of Assets		(4,779)		—
Changes in Assets and Liabilities:
Accounts Receivable		(38,206)		(39,199)
Prepaid Expenses and Other Current Assets		(13,646)		(11,308)
Accounts Payable		(7,566)		1,397
Accrued Salaries, Wages, Benefits and Liabilities		(19,010)		(14,257)
Deferred Revenue		72,589		74,909
Operating Lease Liabilities		(13,681)		—
Other Assets and Liabilities		1,270		(14,137)
Net Cash Provided by Operating Activities-Continuing Operations		33,301		53,517
Net Cash Provided by Operating Activities-Discontinued Operations		14,167		24,497
NET CASH PROVIDED BY OPERATING ACTIVITIES		47,468		78,014
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures		(10,436)		(13,321)
Sales of Marketable Securities		290		—
Purchases of Marketable Securities		(292)		(4,152)
Proceeds from Sale of Assets		6,421		—
Net Cash Used in Investing Activities-Continuing Operations		(4,017)		(17,473)
Net Cash Used in Investing Activities-Discontinued Operations		(1,728)		(2,946)
NET CASH USED IN INVESTING ACTIVITIES		(5,745)		(20,419)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options		828		10,492
Employee Taxes Paid on Withholding Shares		(5,045)		(5,188)
Proceeds from Stock Issued Under Colleague Stock Purchase Plan		—		159
Repurchase of Common Stock for Treasury		(40,255)		(59,175)
Borrowings Under Credit Facility		30,000		—
Repayments Under Credit Facility		(100,750)		(750)
Proceeds from Down Payment on Seller Loan		5,200		—
Payment for Purchase of Noncontrolling Interest of Subsidiary		(6,247)		—
Net Cash Used in Financing Activities-Continuing Operations		(116,269)		(54,462)
Net Cash Used in Financing Activities-Discontinued Operations		(480)		(470)
NET CASH USED IN FINANCING ACTIVITIES		(116,749)		(54,932)
Effects of Exchange Rate Differences		(6,750)		(1,579)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(81,776)		1,084
Cash, Cash Equivalents and Restricted Cash at Beginning of Period		300,467		444,405
Cash, Cash Equivalents and Restricted Cash at End of Period		218,691		445,489
Less: Cash, Cash Equivalents and Restricted Cash of Discontinued Operations at End of Period		96,902		110,390
Cash, Cash Equivalents and Restricted Cash at End of Period	$	121,789	$	335,099
Non-cash Investing and Financing Activity:
Decrease in Redemption Value of Noncontrolling Interest Put Option	$	—	$	(241)

Nine Months Ended
March 31,

2019 2018
(in thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 45,787 $ (28,578 )
Loss from Discontinued Operations 38,177
45,539

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Stock-Based Compensation Expense 10,369 11,517
Depreciation 31,758 33,554
Amortization of Intangible Assets 6,231 7,333
Amortization of Deferred Debt Issuance Costs 1,175 528
Provision for Bad Debts 11,203 13,370
Deferred Income Taxes 23,717 3,541
Loss on Disposals, Accelerated Depreciation and Adjustments to Land, Building and Equipment 44,489 29,964
Realized Loss on Investments 193 -
Unrealized Loss on Investments 214 -
Insurance Settlement Gain (15,571 ) -
Changes in Assets and Liabilities:
Accounts Receivable (20,838 ) (18,967 )
Prepaid Expenses and Other (39,127 ) (30,625 )
Accounts Payable (4,292 ) (3,960 )
Accrued Salaries, Wages, Benefits and Liabilities (4,566 ) (29,538 )
Deferred Revenue 15,688 29,003
Income Taxes Payable, Long-Term - 88,562
Net Cash Provided by Operating Activities-Continuing Operations 144,607
151,243

Net Cash (Used in) Provided by Operating Activities-Discontinued Operations (16,072 )
32,021

NET CASH PROVIDED BY OPERATING ACTIVITIES 128,535 183,264
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (50,853 ) (50,433 )
Insurance Proceeds Received for Damage to Buildings and Equipment 35,706 -
Sales of Marketable Securities 1,625 -
Purchases of Marketable Securities (6,070 ) (145 )
Payment for Purchase of Businesses, Net of Cash Acquired - (4,041 )
Loan to DeVry University (see "Note 2: Discontinued Operations") (10,000 ) -
Net Cash Used in Investing Activities-Continuing Operations (29,592 ) (54,619 )
Net Cash (Used in) Provided by Investing Activities-Discontinued Operations (1,833 ) 5,189
Cash and Restricted Cash Transferred in Divestitures of Discontinued Operations (48,876 ) -
NET CASH USED IN INVESTING ACTIVITIES (80,301 ) (49,430 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options 16,825 22,557
Employee Taxes Paid on Withholding Shares (6,527 ) (3,862 )
Proceeds from Stock Issued Under Colleague Stock Purchase Plan 421 585
Repurchase of Common Stock for Treasury (176,903 ) (111,626 )
Payments of Seller Financed Obligations (2,154 ) (10,559 )
Borrowings Under Credit Facility - 258,000
Repayments Under Credit Facility (2,250 ) (263,000 )
NET CASH USED IN FINANCING ACTIVITIES (170,588 ) (107,905 )
Effects of Exchange Rate Differences (449 ) (714 )
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (122,803 ) 25,215
Cash, Cash Equivalents and Restricted Cash at Beginning of Period 444,405 251,096
Cash, Cash Equivalents and Restricted Cash at End of Period 321,602 276,311
Less: Cash, Cash Equivalents and Restricted Cash of Discontinued Operations at End of Period - 10,488
Cash, Cash Equivalents and Restricted Cash at End of Period $ 321,602 $ 265,823
Non-cash Investing and Financing Activity:
(Decrease) Increase in Redemption Value of Noncontrolling Interest Put Options $ (745 ) $ 573

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

Table of Contents

ADTALEM GLOBAL EDUCATION INC.

CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS'~~SHAREHOLDERS’ EQUITY

~~(Unaudited)~~(unaudited)

Three Months Ended Common
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
(in thousands)
Balance at December 31, 2018 $ 801 $ 479,946 $ 1,926,134 $ (143,518 ) $ (833,716 ) $ 1,429,647
Net income 37,905 37,905
Foreign currency translation (5,238 ) (5,238 )
Unrealized investment gains, net of tax 50 50
Change in noncontrolling interest put option 130 130
Stock-based compensation 3,039 3,039
Net activity from stock-based compensation awards - 40 (126 ) (86 )
Proceeds from stock issued under Colleague Stock Purchase Plan 18 92 110
Repurchase of common shares for treasury (60,970 ) (60,970 )
Balance at March 31, 2019 $ 801 $ 483,043 $ 1,964,169 $ (148,706 ) $ (894,720 ) $ 1,404,587

Three Months Ended
Balance at December 31, 2017 $ 787 $ 433,855 $ 1,812,746 $ (60,745 ) $ (666,684 ) $ 1,519,959
Net income 39,334 39,334
Foreign currency translation 1,598 1,598
Unrealized investment losses, net of tax (48 ) (48 )
Change in noncontrolling interest put option 42 42
Stock-based compensation 2,737 2,737
Net activity from stock-based compensation awards 5 13,499 (585 ) 12,919
Proceeds from stock issued under Colleague Stock Purchase Plan 29 165 194
Repurchase of common shares for treasury (18,448 ) (18,448 )
Balance at March 31, 2018 $ 792 $ 450,120 $ 1,852,122 $ (59,195 ) $ (685,552 ) $ 1,558,287


							Accumulated
			Additional				Other
	Common		Paid-In		Retained		Comprehensive		Treasury
	Stock		Capital		Earnings		Loss		Stock		Total
Three Months Ended	(in thousands)
Balance at June 30, 2019	$	801	$	486,061	$	2,012,902	$	(137,290)	$	(970,944)	$	1,391,530
Net income						14,361						14,361
Foreign currency translation								(39,494)				(39,494)
Unrealized investment gains, net of tax								45				45
Stock-based compensation				5,225								5,225
Net activity from stock-based compensation awards		4		865						(5,088)		(4,219)
Repurchase of common shares for treasury										(40,255)		(40,255)
Balance at September 30, 2019	$	805	$	492,151	$	2,027,263	$	(176,739)	$	(1,016,287)	$	1,327,193

Three Months Ended
Balance at June 30, 2018	$	793	$	454,653	$	1,917,373	$	(142,168)	$	(711,365)	$	1,519,286
Cumulative effect adjustment upon the adoption of ASU 2016-01						381		(381)				—
Net loss						(9,530)						(9,530)
Foreign currency translation								(20,615)				(20,615)
Unrealized investment losses, net of tax								(4)				(4)
Change in noncontrolling interest put option						241						241
Stock-based compensation				4,369								4,369
Net activity from stock-based compensation awards		5		10,487						(5,188)		5,304
Proceeds from stock issued under Colleague Stock Purchase Plan				36						123		159
Repurchase of common shares for treasury										(59,175)		(59,175)
Balance at September 30, 2018	$	798	$	469,545	$	1,908,465	$	(163,168)	$	(775,605)	$	1,440,035

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

Table of Contents

ADTALEM GLOBAL EDUCATION INC.

~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY~~

~~(Unaudited)~~

Nine Months Ended Common
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
(in thousands)
Balance at June 30, 2018 $ 793 $ 454,653 $ 1,917,373 $ (142,168 ) $ (711,365 ) $ 1,519,286
Cumulative effect adjustment upon the adoption of ASU 2016-01 381 (381 ) -
Net income 45,670 45,670
Foreign currency translation (6,193 ) (6,193 )
Unrealized investment gains, net of tax 36 36
Change in noncontrolling interest put option 745 745
Stock-based compensation 11,227 11,227
Net activity from stock-based compensation awards 8 17,075 (6,785 ) 10,298
Proceeds from stock issued under Colleague Stock Purchase Plan 88 333 421
Repurchase of common shares for treasury (176,903 ) (176,903 )
Balance at March 31, 2019 $ 801 $ 483,043 $ 1,964,169 $ (148,706 ) $ (894,720 ) $ 1,404,587

Nine Months Ended
Balance at June 30, 2017 $ 781 $ 415,912 $ 1,881,397 $ (59,119 ) $ (569,932 ) $ 1,669,039
Cumulative effect adjustment upon the adoption of ASU 2016-09 (596 ) 360 (236 )
Net loss (29,037 ) (29,037 )
Foreign currency translation (101 ) (101 )
Unrealized investment gains, net of tax 25 25
Change in noncontrolling interest put option (573 ) (573 )
Stock-based compensation 11,517 11,517
Net activity from stock-based compensation awards 11 23,253 (4,570 ) 18,694
Proceeds from stock issued under Colleague Stock Purchase Plan 34 (25 ) 576 585
Repurchase of common shares for treasury (111,626 ) (111,626 )
Balance at March 31, 2018 $ 792 $ 450,120 $ 1,852,122 $ (59,195 ) $ (685,552 ) $ 1,558,287

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~ADTALEM GLOBAL EDUCATION INC.~~

Notes to Consolidated Financial Statements

~~(Unaudited)~~(unaudited)

NOTE 1: INTERIM FINANCIAL STATEMENTS

For purposes of this report, “Adtalem,” “we,” “our,” “us,” or similar references refers to Adtalem Global Education Inc. and its consolidated subsidiaries, unless the context requires otherwise. The interim Consolidated Financial Statements include accounts of Adtalem and its wholly-owned and majority-owned subsidiaries. Adtalem’s wholly-owned subsidiaries include:

·●

Chamberlain University (“Chamberlain”)

·●

American University of the Caribbean School of Medicine (“AUC”)

·●

Ross University School of Medicine (“RUSM”)

·●

Ross University School of Veterinary Medicine (“RUSVM”)

·●

Association of Certified Anti-Money Laundering Specialists (“ACAMS”)

·●

Becker Professional Education (“Becker”)

●

OnCourse Learning (“OCL”)

In addition, Adtalem maintains a 69% ownership interest in EduPristine.

In addition, Adtalem had a 97.9% ownership interest in Adtalem Education of Brazil (“Adtalem Brazil”) as of June 30, 2019. On July 1, 2019, the Adtalem Brazil management noncontrolling interest members exercised their put options and sold their remaining ownership interests in Adtalem Brazil to Adtalem. As of the first quarter of fiscal year 2020, Adtalem owns 100% of Adtalem Brazil. On October 18, 2019, Adtalem entered into a ~~69% ownership interest in EduPristine.~~

definitive agreement to sell Adtalem Brazil. Adtalem Brazil is presented as discontinued operations, see “Note 2: Discontinued Operations and Assets Held for Sale” for further details.

On December 4, 2018, Adtalem completed the sale of its previously wholly-owned subsidiary Carrington College (“Carrington”). On December 11, 2018, Adtalem completed the sale of its previously wholly-owned subsidiary DeVry University. Carrington and DeVry University are presented as discontinued operations. See “Note 2: Discontinued ~~Operations”~~Operations and Assets Held for Sale” for additional details.

These financial statements are unaudited but, in the opinion of management, contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial condition and results of operations of Adtalem. ~~The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”).~~

The interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in Adtalem's Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018 and Adtalem’s Quarterly Report on Form 10-Q for the quarters ended September 30, 2018 and December 31, 2018, each~~2019, as filed with the Securities and Exchange Commission (“SEC”).

The results of operations for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2019 are not necessarily indicative of results to be expected for the entire fiscal year.

NOTE 2: DISCONTINUED OPERATIONS

AND ASSETS HELD FOR SALE

On December 4, 2018, Adtalem completed the sale of Carrington to San Joaquin Valley College, Inc. (“SJVC”) for de minimis consideration. As the sale represented a strategic shift that has a major effect on Adtalem’s operations and financial results, Carrington is presented in Adtalem’s financial reporting as a discontinued operation. Adtalem has retained certain leases associated with the Carrington operations. Adtalem remains the primary lessee on these leases and subleases to Carrington. Adtalem records the proceeds from these subleases as an offset to operating costs. Adtalem also assigned certain leases to Carrington but remains contingently liable under these leases. Adtalem recorded a pre-tax loss of ~~$11.1~~$11.3 million on the sale of Carrington and transferred $9.9 million of cash and restricted cash balances to Carrington in the second quarter of fiscal year 2019, subject to post-closing adjustments to be completed in ~~the fourth quarter of~~ fiscal year ~~2019.~~2020.

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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~~$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 ~~loan.~~Note. This loan is presented as Other Assets, Net on the Consolidated Balance Sheet. Adtalem has retained certain leases associated with DeVry University operations. Adtalem remains the primary lessee on these leases and subleases to DeVry University. In addition, Adtalem owns the buildings for certain DeVry University operating and administrative office locations and leases space to DeVry University under one-year operating leases, renewable annually at DeVry University’s option. Adtalem records the proceeds from these leases and subleases as an offset to operating costs. Adtalem also assigned certain leases to DeVry University but remains contingently liable under these leases. Adtalem recorded a pre-tax loss of ~~$21.7~~$22.3 million on the sale of DeVry University and transferred ~~$39.0~~$40.2 million of cash and restricted cash balances to DeVry University in fiscal year 2019.

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

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

	March 31,		June 30,		March 31,
	2019		2018		2018

							September 30,		June 30,		September 30,
							2019		2019		2018
ASSETS:
Current Assets:
Cash and Cash Equivalents	$	-	$	1	$	707	$	96,902	$	95,243	$	94,423
Restricted Cash		-		13,404		9,781		—		—		15,967
Accounts Receivable, Net		-		25,294		23,549		64,915		74,269		98,089
Prepaid Expenses and Other Current Assets		-		8,433		9,587		8,056		8,411		19,162
Total Current Assets Held for Sale		-		47,132		43,624		169,873		177,923		227,641
Land, Building and Equipment Held for Sale, Net		-		-		14,994		73,763		81,250		81,029
Noncurrent Assets:
Intangible Assets		-		-		20,200
Operating Lease Assets								72,261		—		—
Intangible Assets, Net								110,711		120,108		115,429
Goodwill								173,064		187,195		178,046
Perkins Program Fund, Net		-		13,450		13,450		—		—		13,450
Other Assets, Net		-		-		3,471		9,972		10,338		8,465
Total Noncurrent Assets Held for Sale		-		13,450		37,121		366,008		317,641		315,390
Total Assets Held for Sale	$	-	$	60,582	$	95,739	$	609,644	$	576,814	$	624,060


LIABILITIES:
Current Liabilities:
Accounts Payable	$	-	$	24,312	$	18,190	$	2,857	$	4,242	$	25,896
Accrued Salaries, Wages and Benefits		-		13,979		11,610		16,239		17,828		22,526
Accrued Liabilities		-		1,514		2,548		9,800		10,193		14,580
Deferred Revenue		-		16,634		40,276		11,104		3,846		58,494
Current Operating Lease Liabilities								10,174		—		—
Total Current Liabilities Held for Sale		-		56,439		72,624		50,174		36,109		121,496
Noncurrent Liabilities:
Long-Term Operating Lease Liabilities								62,367		—		—
Deferred Income Taxes		-		216		1,021		—		—		216
Other Liabilities								14,101		16,146		21,196
Total Noncurrent Liabilities Held for Sale		-		216		1,021		76,468		16,146		21,412
Total Liabilities Held for Sale	$	-	$	56,655	$	73,645	$	126,642	$	52,255	$	142,908

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The following is a summary of income statement information of operations reported as discontinued operations (in thousands). The results include Carrington's and DeVry University's operations through the date of each respective sale. ~~For the three months ended March 31, 2019, activity is related to adjustments to accounts based on settlement of balances.~~

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2019			2018			2019			2018

													Three Months Ended
													September 30,
													2019		2018
REVENUE	$	-		$	122,705		$	195,716		$	370,263		$	45,652	$	159,554
OPERATING COST AND EXPENSE:
Cost of Educational Services		-			65,182			109,416			209,871			33,948		98,460
Student Services and Administrative Expense		(65	)		53,057			99,227			162,130			14,373		64,706
Restructuring (Gain) Expense		(1,973	)		6,150			(2,470	)		16,342
Asset Impairment Charge - Intangible and Goodwill		-			-			-			23,841
Restructuring Expense (Gain)														35		(443)
Asset Impairment Charge - Building and Equipment		-			5,738			1,953			29,129			—		2,242
Loss on Sale of Assets		-			-			-			230
Total Operating Cost and Expense		(2,038	)		130,127			208,126			441,543			48,356		164,965
Income (Loss) from Discontinued Operations Before Income Taxes		2,038			(7,422	)		(12,410	)		(71,280	)
Loss on Disposal of Discontinued Operations Before Income Taxes		(265	)		-			(32,979	)		-
Operating Loss from Discontinued Operations														(2,704)		(5,411)
OTHER INCOME (EXPENSE):
Interest and Dividend Income														978		976
Interest Expense														(1,157)		(1,284)
Net Other Expense														(179)		(308)
Loss from Discontinued Operations Before Income Taxes														(2,883)		(5,719)
Income Tax (Provision) Benefit		(120	)		3,851			7,212			25,741			(273)		985
Income (Loss) from Discontinued Operations	$	1,653		$	(3,571	)	$	(38,177	)	$	(45,539	)
Loss from Discontinued Operations														(3,156)		(4,734)
Net Income Attributable to Noncontrolling Interest														—		(9)
Loss from Discontinued Operations Attributable to Adtalem Global Education													$	(3,156)	$	(4,743)

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Adtalem and its wholly-owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Where our ownership interest is less than 100%, but greater than 50%, the noncontrolling ownership interest is reported on our Consolidated Balance Sheets. The noncontrolling ownership interest earnings portion is classified as “Net Loss ~~(Income)~~ Attributable to Noncontrolling ~~Interest”~~Interest from Continuing Operations” and “Net Income Attributable to Noncontrolling Interest from Discontinued Operations” in our Consolidated Statements of Income (Loss). Unless indicated, or the context requires otherwise, references to years refer to Adtalem’s fiscal years.

Investments in Equity Securities

~~Equity/Cost Method Investment~~

~~The equity method of accounting is used for~~For an investment where we have the ability to influence the operating and financial decisions of the investee but do not possess more than a 50% ownership interest. Generally, this occurs when the ownership interest is greater than 20%. The investment is initially recorded at cost and classified as Other Assets, Net on the Consolidated Balance Sheets. The carrying amount of the investment is adjusted in ~~subsequent periods for Adtalem’s share of the earnings or losses of the investee, which is recorded in the Consolidated Statements of Income (Loss) as Equity Method Investment Loss.~~

~~The cost method of accounting is used for an investment~~equity securities where we do not have the ability to influence the operating and financial decisions of the ~~investee.~~investee, the initially recorded cost basis is adjusted upon the occurrence of an observable transaction in the security. Generally, ~~this occurs when the~~an investment in an equity security is defined as an ownership interest isof less than 20%. The equity investment is ~~recorded at cost and~~ classified as Other Assets, Net on the Consolidated Balance Sheets.

Cash and Cash Equivalents

Cash and cash equivalents can include time deposits, high-grade commercial paper, money market funds and bankers acceptances with original maturities of three months or less. Short-term investment objectives are to minimize risk and maintain liquidity. These investments are stated at cost (which approximates fair value) because of their short duration or liquid nature. Adtalem places its cash and temporary cash investments with high credit quality institutions. Cash and cash equivalent balances in U.S. bank accounts are generally in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. ~~Cash and cash equivalent balances in Brazilian bank accounts are generally in excess of the deposit insurance limits for Brazilian banks.~~ Adtalem has not experienced any losses on its cash and cash equivalents.

Management periodically evaluates the creditworthiness of the security issuers and financial institutions with which it invests and maintains deposit accounts.

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Financial Aid and Restricted Cash

A significant portion of cash is received from students who participate in government financial aid and assistance programs which are subject to political and governmental budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations in the U.S. ~~and Brazil~~ govern all of the government financial assistance programs in which students participate. Administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for disciplinary action, which could include the suspension, limitation or termination from such financial aid programs.

Restricted cash represents amounts received from federal and state governments under various student aid grant and loan programs and such restricted funds are held in separate bank accounts. Once the financial aid authorization and disbursement process for the student has been completed, the funds are transferred to unrestricted accounts, and these funds then become available for use in Adtalem’s operations. This authorization and disbursement process that precedes the transfer of funds generally occurs within the period of the academic term for which such funds were authorized.

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to our customers ~~(students)~~(students and members), in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services.

The following tables disaggregate revenue by source (in thousands):


	Three Months Ended September 30, 2019
	Medical and		Financial		Home Office
	Healthcare		Services		and Other		Consolidated
Higher Education	$	201,453	$	—	$	—	$	201,453
Test Preparation/Certifications		—		24,972		—		24,972
Conferences/Seminars		—		17,070		—		17,070
Memberships/Subscriptions		—		4,867		—		4,867
Other		6,034		217		—		6,251
Total	$	207,487	$	47,126	$	—	$	254,613

	Three Months Ended March 31, 2019
	Medical and Healthcare		Professional Education		Technology and Business		Home Office and Other			Consolidated

												Three Months Ended September 30, 2018
												Medical and		Financial		Home Office
												Healthcare		Services		and Other		Consolidated
Higher Education	$	217,423	$	-	$	46,558	$	-		$	263,981	$	201,173	$	—	$	—	$	201,173
Test Preparation		-		19,533		3,349		(808	)		22,074
Certifications		-		8,029		-		-			8,029
Test Preparation/Certifications													—		28,716		(807)		27,909
Conferences/Seminars		-		3,860		-		-			3,860		—		2,868		—		2,868
Memberships/Subscriptions		-		4,299		-		-			4,299		—		3,936		—		3,936
Other		6,152		214		-		-			6,366		927		126		—		1,053
	$	223,575	$	35,935	$	49,907	$	(808	)	$	308,609
Total												$	202,100	$	35,646	$	(807)	$	236,939

Nine Months Ended March 31, 2019
Medical and
Healthcare Professional
Education Technology
and Business Home Office
and Other Consolidated
Higher Education $ 630,083 $ - $ 149,792 $ - $ 779,875
Test Preparation - 60,049 9,999 (2,423 ) 67,625
Certifications - 23,527 - - 23,527
Conferences/Seminars - 17,405 - - 17,405
Memberships/Subscriptions - 12,135 - - 12,135
Other 8,219 607 - - 8,826
$ 638,302 $ 113,723 $ 159,791 $ (2,423 ) $ 909,393

Three Months Ended March 31, 2018
Medical and
Healthcare Professional
Education Technology
and Business Home Office
and Other Consolidated
Higher Education $ 220,067 $ - $ 53,803 $ - $ 273,870
Test Preparation - 19,652 5,227 (532 ) 24,347
Certifications - 5,432 - - 5,432
Conferences/Seminars - 2,371 - - 2,371
Memberships/Subscriptions - 3,580 - - 3,580
Other - 470 - - 470
$ 220,067 $ 31,505 $ 59,030 $ (532 ) $ 310,070

Nine Months Ended March 31, 2018
Medical and
Healthcare Professional
Education Technology
and Business Home Office
and Other Consolidated
Higher Education $ 614,649 $ - $ 181,078 $ - $ 795,727
Test Preparation - 56,641 15,524 (1,733 ) 70,432
Certifications - 21,259 - - 21,259
Conferences/Seminars - 13,334 - - 13,334
Memberships/Subscriptions - 9,852 - - 9,852
Other - 820 - - 820
$ 614,649 $ 101,906 $ 196,602 $ (1,733 ) $ 911,424

In addition, see “Note ~~14:~~15: Segment Information” for a disaggregation of revenue by geographical region.

Performance Obligations and Revenue Recognition

Higher Education: Higher education revenue consists of tuition, fees, books and other educational products. The majority of revenue is derived from tuition and fees, which is recognized on a straight-line basis over the term as instruction is delivered. Books and other educational product revenue is recognized when products are shipped or students receive access to electronic materials. Under certain circumstances, we report revenue from these transactions on a net basis because our performance obligation is to facilitate a transaction between the student and a vendor.

Test ~~Preparation:~~Preparation/Certifications: Test preparation revenue consists of test preparation course instruction and self-study materials sales. Becker test preparation revenue is recognized when access to the course materials is delivered to the customer. ~~Adtalem Brazil and~~ EduPristine test preparation course instruction revenue is recognized on a straight-line basis over the applicable

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instruction delivery periods.

~~Certifications:~~ Certification revenue consists of exam preparation guides, seminars, exam sitting fees and recertification fees. We recognize revenue for each of these items at a point in time when the applicable performance obligation is satisfied.

Conferences/Seminars: Conference revenue consists of revenue from attendees, sponsors and exhibitors. We recognize revenue for all items related to conferences at the time of the conference. Seminar revenue consists of seminars delivered in live, live-online, or on-demand online formats. We recognize revenue for live and live-online seminars on the day of the seminar. On-demand online seminars, in which customers have access to a webcast of a seminar, are recognized on the day the customer places the order.

Memberships/Subscriptions: Membership revenue is recognized on a straight-line basis over the membership period. Subscription revenue is recognized on a straight-line basis over the subscription period.

Other: Other revenue consists of housing and other miscellaneous services. Other revenue is recognized over the period in which the applicable performance obligation is satisfied.

Customer contracts generally have separately stated prices for each performance obligation contained in the contract. Therefore, each performance obligation generally has its own standalone selling price. For higher education students, arrangements for payment are agreed to prior to registration of the student’s first academic term. The majority of U.S. students obtain Title IV or other financial aid resulting in institutions receiving a significant amount of the transaction price at the beginning of the academic term. Students utilizing private funding or funding through Adtalem’s institutional loan ~~program~~programs (see “Note 6: Financing Receivables” for further discussion) generally pay during or after the academic term is complete. For non-higher education customers, payment is typically due and collected at the time a customer places an order.

Transaction Price

Revenue, or transaction price, is measured as the amount of consideration expected to be received in exchange for transferring goods or services.

For higher education, students may receive discounts, scholarships or refunds, which gives rise to variable consideration. The amounts of discounts or scholarships are applied to individual student accounts when such amounts are awarded. Therefore, the transaction price is reduced directly by these discounts or scholarships from the amount of the standard tuition rate charged. Upon withdrawal, a student may be eligible to receive a refund, or partial refund, the amount of which is dependent on the timing of the withdrawal during the academic term. If a student withdraws prior to completing an academic term, federal and state regulations and accreditation criteria permit Adtalem to retain only a set percentage of the total tuition received from such student, which varies with, but generally equals or exceeds, the percentage of the academic term completed by such student. Payment amounts received by Adtalem in excess of such set percentages of tuition are refunded to the student or the appropriate funding source. For contracts with similar characteristics and historical data on refunds, the expected value method is applied in determining the variable consideration related to refunds. Estimates of Adtalem’s expected refunds are determined at the outset of each academic term, based upon actual refunds in previous academic terms. Reserves related to refunds are presented as refund liabilities within Accrued Liabilities on the Consolidated Balance Sheets. All refunds are netted against revenue during the applicable academic term.

Management reassesses collectability throughout the period revenue is recognized by the Adtalem institutions, on a student-by-student basis. This reassessment is based upon new information and changes in facts and circumstances relevant to a student’s ability to pay. Management also reassesses collectability when a student withdraws from the institution and has unpaid tuition charges. Such unpaid charges do not meet the threshold of reasonably collectible and are recognized as revenue on a cash basis.

For test preparation and other ~~Professional Education~~Financial Services products, the transaction price is equal to the amount charged to the customer, which is the standard rate, less any discounts and an estimate for returns or refunds.

We believe it is ~~not~~ probable that ano significant reversal will occur in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved. Therefore, the estimate of variable consideration is not constrained.

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Contract Balances

For higher education institutions, students are billed at the beginning of each academic term and payment is due at that time. Adtalem’s performance obligation is to provide educational services in the form of instruction during the academic term. As instruction is provided, deferred revenue is reduced. A significant portion of student payments are from Title IV financial aid and other programs and are generally received during the first month of the respective academic term. For students utilizing Adtalem’s institutional loan ~~program~~programs (see “Note 6: Financing Receivables”), payments are generally received after the academic term, and the corresponding performance obligation, is complete. When payments are received, accounts receivable is reduced.

For our ~~Professional Education~~Financial Services businesses, customers are billed and payment is due at the time of order placement. In most cases, performance obligations are delivered subsequent to payments received. Delivering our performance obligations reduces deferred revenue, and accounts receivable is reduced upon payments received. Becker offers ~~an 18-month term loan program~~flexible payment plans with terms of up to 18-months as a financing option for the Becker CPA Exam Review Course (see “Note 6: Financing Receivables”). In this case, payment is received after satisfying the performance obligation.

Revenue of ~~$100.5~~$79.4 million was recognized during the first ~~nine~~three months of fiscal year ~~2019~~2020 that was included in the deferred revenue balance at the beginning of fiscal year ~~2019.~~2020. Revenue recognized from performance obligations that were satisfied, or partially satisfied, in prior periods was not material.

The difference between the opening and closing balances of deferred revenue includes decreases from revenue recognized during the period and increases from charges and payments received related to the start of academic terms beginning during the period.

Allowance for bad debts as of ~~March 31,~~September 30, 2019, June 30, 2019 and September 30, 2018 ~~and March 31, 2018 was $20.0~~were $18.8 million, ~~$27.6~~$14.5 million and ~~$28.4~~$13.3 million, respectively.

Practical Expedients

As our performance obligations have an original expected duration of one year or less, we have applied the practical expedient (as provided in ASC 606-10-50-14) to not disclose the information in ASC 606-10-50-13, which requires disclosure of the amount of the transaction price allocated to our performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period and when the entity expects to recognize this amount as revenue. All consideration from contracts with customers is included in the transaction price.

Internal-Use Software Development Costs

Adtalem capitalizes certain internal-use software development costs that are amortized using the straight-line method over the estimated lives of the software, not to exceed seven years. Capitalized costs include external direct costs of equipment, materials and services consumed in developing or obtaining internal-use software and payroll-related costs for employees directly associated with the internal-use software development project. Capitalization of such costs ceases at the point at which the project is substantially complete and ready for its intended purpose. Capitalized internal-use software development costs for projects not yet complete are included as Construction in Progress in the Land, Building and Equipment section of the Consolidated Balance Sheets. Once the project is complete, capitalized internal-use software development costs are included as Equipment on the Consolidated Balance Sheets. As of ~~March 31,~~September 30, 2019, June 30, ~~2018~~2019 and ~~March 31,~~September 30, 2018, the net balance of capitalized internal-use software development costs was ~~$11.2~~$11.1 million, ~~$13.5~~$10.6 million and ~~$3.4~~$12.4 million, respectively.

Impairment of Long-Lived Assets

Adtalem evaluates the carrying amount of its significant long-lived assets whenever changes in circumstances or events indicate that the value of such assets may not be fully recoverable. Events that may trigger an impairment analysis could include a decision by management to exit a market or a line of business or to consolidate operating locations. During the ~~nine months ended March 31,~~first quarter of fiscal year 2019, we recorded impairment charges of ~~$2.0~~$2.2 million to write-down building, building improvements, furniture and equipment to ~~zero~~0 based on the fair market value of the DeVry University ~~and Carrington~~ operations, which are classified within discontinued operations. During the first quarter of fiscal year 2018, the campuses of AUC and RUSM were damaged from Hurricanes Irma and Maria, respectively. Hurricane-related impairment charges of $29.9 million were recorded in the nine months ended March 31, 2018 for building, building improvements, furniture and equipment, along with receivables for insurance reimbursements of these amounts, less deductibles, of $20.8 million as of March 31, 2018. The impairment charges are included in Cost of Educational Services in the Consolidated Statements of Income (Loss). In the first quarter of fiscal year 2019, Adtalem announced its decision to

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relocate RUSM’s campus operations to Barbados and not return to RUSM’s Dominica campus. Adtalem recorded impairment charges of ~~$39.1~~$37.8 million in the ~~nine months ended March 31,~~first quarter of fiscal year 2019, to fully impair the land, buildings and equipment in Dominica as management ~~has~~ determined the market value less the costs to sell the facilities or move the equipment is zero (see “Note 10: Restructuring Charges”). The impairment charges are included in Restructuring Expense in the Consolidated Statements of Income (Loss). For a discussion of the impairment review of goodwill and intangible assets see “Note 9: Intangible Assets.”

Foreign Currency Translation

The financial position and results of operations of the AUC, RUSM and RUSVM Caribbean operations are measured using the U.S. dollar as the functional currency. As such, there is no translation gain or loss associated with these operations. Adtalem Brazil’s and EduPristine’s operations and ~~Becker’s and ACAMS’s~~ACAMS international operations are measured using the local currency as the functional currency. Assets and liabilities of these entities are translated to U.S. dollars using exchange rates in effect at the balance sheet dates. Income and expense items are translated at monthly average exchange rates. The resulting translation adjustments are included in the component of Shareholders’ Equity designated as Accumulated Other Comprehensive Loss. Transaction gains or losses during each of the three-month ~~and nine-month~~ periods ended ~~March 31,~~September 30, 2019 and 2018 were not material.

Noncontrolling Interest

As of June 30, 2019, Adtalem ~~currently maintains~~maintained a 97.9% ownership interest in Adtalem Brazil with the remaining 2.1% owned by members of the ~~current~~ Adtalem Brazil senior management group. In addition, Adtalem currently maintains a 69% ownership interest in EduPristine with the remaining 31% owned by Kaizen Management Advisors (“Kaizen”), an India-based private equity firm. The adjustment to increase or decrease the Adtalem Brazil and EduPristine noncontrolling interests for their respective proportionate shares of Adtalem Brazil’s and EduPristine’s profit (loss) flows through the Consolidated Statements of Income (Loss) each reporting period based on Adtalem’s noncontrolling interest accounting policy.

Since July 1, 2015, Adtalem has had the right to exercise a call option and purchase any remaining Adtalem Brazil stock from Adtalem Brazil management. Likewise, Adtalem Brazil management has had the right to exercise a put option and sell its remaining ownership interest in Adtalem Brazil to Adtalem.

In addition, Adtalem currently maintains a 69% ownership interest in EduPristine with the remaining 31% owned by Kaizen Management Advisors (“Kaizen”), an India-based private equity firm.

The adjustment to increase or decrease the Adtalem Brazil and EduPristine noncontrolling interests for their respective proportionate shares of Adtalem Brazil’s and EduPristine’s profit (loss) flows through the Consolidated Statements of Income (Loss) each reporting period based on Adtalem’s noncontrolling interest accounting policy.

Beginning on March 26, 2020, Adtalem will have the right to exercise a call option and purchase any remaining EduPristine stock from Kaizen. Likewise, Kaizen will have the right to exercise a put option and sell up to 33% of its remaining ownership interest in EduPristine to Adtalem. Beginning on March 26, 2022, Kaizen will have the right to exercise a put option and sell its remaining ownership interest in EduPristine to Adtalem.

Since the put options are out of the control of Adtalem, authoritative guidance requires the noncontrolling interests, which includes the value of the put options, to be displayed outside of the equity section of the Consolidated Balance Sheets.

~~The~~On July 1, 2019, the Adtalem Brazil management noncontrolling members exercised their put option and ~~Kaizen~~sold their remaining ownership interest in Adtalem Brazil to Adtalem. In the first quarter of fiscal year 2020, $6.2 million of noncontrolling interest was removed from the Consolidated Balance Sheet as a result of the put ~~options are~~option exercise and Adtalem currently owns 100% of Adtalem Brazil.

Prior to July 1, 2019, the Adtalem Brazil management put option was being accreted to ~~their respective redemption values~~its fair value in accordance with the terms of the related stock purchase ~~agreements.~~agreement. The adjustments to increase or decrease the put ~~options~~option to ~~their~~its expected redemption ~~values~~value each reporting period ~~are~~was recorded in retained earnings in accordance with ~~GAAP.~~U.S. Generally Accepted Accounting Principles (“GAAP”). Adtalem has not adjusted the redemption value related to the Kaizen put option as management believes the redemption value has not materially changed since acquiring a majority stake in EduPristine.

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The following is a reconciliation of the noncontrolling interest balance (in thousands):


	Three Months Ended
	September 30,
	2019		2018
Balance at Beginning of Period	$	9,543	$	9,110
Net Loss Attributable to Noncontrolling Interest		(109)		(55)
Decrease in Redemption Value of Noncontrolling Interest Put Option		—		(241)
Payment for Purchase of Noncontrolling Interest of Subsidiary		(6,247)		—
Balance at End of Period	$	3,187	$	8,814

Three Months Ended
March 31,

Nine Months Ended
March 31,

2019 2018 2019 2018
Balance at Beginning of Period $ 8,651 $ 7,405 $ 9,110 $ 6,285
Net (Loss) Income Attributable to Noncontrolling Interest (39 ) (46 ) 117 459
(Decrease) Increase in Redemption Value of Noncontrolling Interest Put Options (130 ) (42 ) (745 ) 573
Acquisition of Noncontrolling Interest in EduPristine - 4,074 - 4,074
Balance at End of Period $ 8,482 $ 11,391 $ 8,482 $ 11,391

Earnings per Common Share

Basic earnings per share is computed by dividing net income or loss attributable to Adtalem by the weighted average number of common shares outstanding during the period plus unvested participating restricted stock units (“RSUs”). Diluted earnings per share is computed by dividing net income or loss attributable to Adtalem by the weighted average number of shares assuming dilution. As required by GAAP, because the three months ended September 30, 2018 resulted in a loss from continuing operations, diluted earnings per share was computed by dividing the net loss attributable to Adtalem by the weighted average number of basic shares. Diluted shares are computed using the Treasury Stock Method and reflect the additional shares that would be outstanding if dilutive stock-based grants were exercised during the period. Excluded from the computations of diluted earnings per share were outstanding stock-based grants representing ~~194,000~~329,000 and ~~223,000~~272,000 shares of common stock for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2019 ~~respectively,~~ and ~~294,000 and 1,273,000 shares of common stock for the three and nine months ended March 31,~~ 2018, respectively. These outstanding stock-based grants were excluded because the exercise prices were greater than the average market price of the common shares or the assumed proceeds upon exercise under the Treasury Stock Method resulted in the repurchase of more shares than would be issued; thus, their effect would be anti-dilutive.

The following is a reconciliation of basic shares to diluted shares (in thousands):


	Three Months Ended
	September 30,
	2019	2018
Weighted Average Shares Outstanding	55,018	59,722
Unvested Participating RSUs	475	606
Basic Shares	55,493	60,328
Effect of Dilutive Stock Options	647	874
Diluted Shares	56,140	61,202

Three Months Ended
March 31,

Nine Months Ended
March 31,

2019 2018 2019 2018
Weighted Average Shares Outstanding 57,583 60,352 58,656 60,970
Unvested Participating RSUs 478 678 543 718
Basic Shares 58,061 61,030 59,199 61,688
Effect of Dilutive Stock Options 741 935 805 786
Diluted Shares 58,802 61,965 60,004 62,474

Treasury Stock

Adtalem’s Board of Directors (the “Board”) has authorized share repurchase programs on eleven occasions (see “Note 7: Share Repurchase Programs”). ~~The tenth share repurchase program was approved on February 16, 2017 and commenced in February 2017.~~ The eleventh share repurchase program was approved on November 7, 2018 and commenced in January 2019. Shares that are repurchased by Adtalem are recorded as Treasury Stock at cost and result in a reduction of Shareholders’ Equity.

From time to time, shares of our common stock are delivered back to Adtalem under a swap arrangement resulting from employees’ exercise of incentive stock options pursuant to the terms of the Adtalem Stock Incentive Plans (see “Note 4: Stock-Based Compensation”). In addition, shares of our common stock are delivered back to Adtalem for payment of withholding taxes from employees for vesting RSUs. These shares are recorded as Treasury Stock at cost and result in a reduction of Shareholders’ Equity.

Prior to March 2019, treasury shares were reissued on a monthly basis, at market value, less a ~~five percent~~5% discount, to the Adtalem Colleague Stock Purchase Plan in exchange for employee payroll deductions. When treasury shares are reissued, Adtalem uses an average cost method to reduce the Treasury Stock balance. Gains on the difference between the average cost and the reissuance price are credited to Additional Paid-in Capital. Losses on the difference are charged to Additional

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Paid-in Capital to the extent that previous net gains from reissuance are included therein, otherwise such losses are charged to Retained Earnings.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenue and expense reported during the period. Actual results could differ from those estimates.

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss is composed of the change in cumulative translation adjustment, primarily at Adtalem Brazil, and unrealized gains on available-for-sale marketable securities, net of the effects of income taxes.

The Accumulated Other Comprehensive Loss balance ~~as of March 31,~~at September 30, 2019, consists of ~~$148.8~~$176.9 million of cumulative translation losses ($~~145.4~~176.6 million attributable to Adtalem and ~~$3.4~~$0.3 million attributable to noncontrolling interest) and unrealized gains on available-for-sale debt securities were immaterial. As of June 30, 2018, this balance consisted of $142.6 million of cumulative translation losses ($139.6 million attributable to Adtalem and $3.0 million attributable to noncontrolling interest) and $0.4$0.1 million of unrealized gains on available-for-sale marketable securities, net of tax of ~~$0.1~~$0.0 million and all attributable to Adtalem. ~~As of March 31, 2018,~~At June 30, 2019, this balance consisted of ~~$59.5~~$137.4 million of cumulative translation losses ($~~58.2~~134.3 million attributable to Adtalem and ~~$1.3~~$3.1 million attributable to noncontrolling interest) and ~~$0.3~~$0.1 million of unrealized gains on available-for-sale marketable securities, net of tax of ~~$0.2~~$0.0 million and all attributable to Adtalem. As of September 30, 2018, this balance consisted of $163.2 million of cumulative translation losses ($159.4 million attributable to Adtalem and $3.8 million attributable to noncontrolling interest) and unrealized gains on available-for-sale marketable securities were immaterial.

Advertising Expense

Advertising costs are recognized as expense in the period in which materials are purchased or services are performed. Advertising expense, which is included in Student Services and Administrative Expense in the Consolidated Statements of Income (Loss), was ~~$21.7~~$20.2 million and ~~$61.9~~$16.8 million for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2019 ~~respectively,~~ and ~~$22.1 million and $59.5 million for the three and nine months ended March 31,~~ 2018, respectively.

Hurricane Expense

In September 2017, Hurricanes Irma and Maria caused damage and disrupted operations at AUC and RUSM. Adtalem recorded expenses of ~~$12.5~~$6.9 million in the ~~nine months ended March 31,~~first quarter of fiscal year 2019 associated with incremental costs of teaching at alternative sites, and $11.1 million and $55.1 million in the three and nine months ended March 31, 2018, respectively, associated with the evacuation process, temporary housing and transportation of students, faculty and staff, and incremental additional costs of teaching in alternate locations. No hurricane relatedsites. NaN hurricane-related costs were recorded in the ~~third~~first quarter of fiscal year ~~2019. Insurance~~2020. Received and expected insurance proceeds of $12.5 million were recorded in the nine months ended March 31, 2019, and insurance receivables of $20.8 million were recorded in the nine months ended March 31, 2018 to offset these expenses. Based upon damage assessments of the AUC and RUSM facilities, impairment write-downs of buildings, building improvements, furniture and equipment of $29.9 million were recorded in the nine months ended March 31, 2018. Insurance receivables of $20.8$6.9 million were recorded to offset these expenses in the nine months ended March 31, 2018. No further asset impairments were recorded in fiscal year 2019. In total, no net expense related to the hurricanes was recorded in the three and nine months ended March 31, 2019. In total, no net expense was recorded in the three months ended March 31, 2018 and $13.4 million of net expense was recorded in Cost of Educational Services in the Consolidated Statement of Income (Loss) for the nine months ended March 31, 2018. The expense primarily represented the deductibles under insurance policies. During the secondfirst quarter of fiscal year ~~2019, Adtalem received the final insurance proceeds related to Hurricanes Irma and Maria and recorded a pre-tax gain of $15.6 million in the nine months ended March 31,~~ 2019.

Restructuring Charges

Adtalem’s financial statements include charges related to severance and related benefits for workforce reductions in staff. These charges also include early lease termination or cease-of-use costs, accelerated depreciation and losses on disposals of property and equipment related to campus and administrative office consolidations (see “Note 10: Restructuring Charges”). When estimating the costs of exiting lease space, estimates are made which could differ materially from actual results and result in additional restructuring charges or reversals in future periods.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13: “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This guidance was issued to provide financial statement users with more decision-useful information about the expected losses on financial instruments by replacing the incurred loss impairment methodology with a methodology that reflects expected credit losses by requiring a broader range of reasonable and supportable information to inform credit loss estimates. The amendments are effective for financial statements issued for fiscal years beginning after December 15,

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2019, and interim periods within those fiscal years. Management is evaluating the impact the guidance will have on Adtalem’s Consolidated Financial Statements.

In February 2016, FASB issued ASU No. 2016-02: “Leases (Topic 842).” This guidance was issued to increase transparency and comparability among organizations by recognizing ~~right-to-use~~right-of-use assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. ~~Adtalem will implement~~We adopted this guidance, along with the related clarifications and improvements, effective July 1, ~~2019. Management is evaluating~~2019 using the ~~impact the guidance will have on Adtalem’s Consolidated Financial Statements and believes the~~modified retrospective approach without adjusting prior comparative periods. The adoption ~~will impact the~~of this standard significantly impacts our Consolidated Balance ~~Sheet with significant increases in assets and liabilities.~~

In January 2016, FASB issued ASU No. 2016-01: “Financial Instruments–Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This guidance was issued to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The guidance eliminates the classification of equity securities into different categories (that is, trading or available-for-sale) and requires equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. In the first quarter of fiscal year 2019, we retrospectively adopted this guidance. The adoption resulted in a cumulative adjustment to decrease retained earnings and increase additional paid-in capital, each by $0.4 million. This guidance requires Adtalem to record the changes in the fair value of its available-for-sale equity investments through net income, which is included within theSheets, but did not impact our Consolidated Statements of Income (Loss) ~~beginning with~~. We elected the ~~first quarter of fiscal year 2019.~~

~~In May 2014, FASB issued ASU No. 2014-09: “Revenue from Contracts with Customers (Topic 606).” This guidance was issued~~practical expedients package which allows us to ~~clarify~~forego reassessing (i) whether any expired or existing contracts are or contain leases; (ii) the ~~principles~~lease classification for ~~recognizing revenue~~any expired or expiring leases; and ~~develop a common revenue standard~~(iii) initial direct costs for ~~GAAP and International Financial Reporting Standards (“IFRS”). The guidance is effective for the fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.~~any existing leases. We ~~adopted this guidance effective July 1, 2018 using the full retrospective approach. The adoption of this standard~~ did not ~~have any impact on Adtalem’s Consolidated Financial Statements,~~elect the hindsight practical expedient, which permits the use of hindsight when determining the lease term and ~~therefore, no adjustments were made to the prior year comparative financial statements.~~impairment of operating lease assets. See ~~subsection “Revenue Recognition” in~~ “Note ~~3: Summary of Significant Accounting Policies”~~11: Leases” for the disclosures related to this new accounting standard.

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The impact on the Consolidated Balance Sheet upon adoption of ASC 842 is as follows:

~~Reclassifications~~


	June 30,		Adjustments due to		July 1,
	2019		adoption of ASC 842		2019
	(in thousands, except share and par value amounts)
ASSETS:
Current Assets:
Cash and Cash Equivalents	$	299,445	$	—	$	299,445
Investments in Marketable Securities		8,680		—		8,680
Restricted Cash		1,022		—		1,022
Accounts Receivable, Net		157,829		—		157,829
Prepaid Expenses and Other Current Assets		37,724		(3,483)		34,241
Total Current Assets		504,700		(3,483)		501,217
Land, Building and Equipment:
Land		44,609		—		44,609
Building		383,331		—		383,331
Equipment		281,551		—		281,551
Construction in Progress		16,222		—		16,222
		725,713		—		725,713
Accumulated Depreciation		(361,030)		—		(361,030)
Land, Building and Equipment, Net		364,683		—		364,683
Noncurrent Assets:
Operating Lease Assets		—		282,978		282,978
Deferred Income Taxes		18,314		—		18,314
Intangible Assets, Net		418,097		—		418,097
Goodwill		874,451		—		874,451
Other Assets, Net		62,451		—		62,451
Total Noncurrent Assets		1,373,313		282,978		1,656,291
TOTAL ASSETS	$	2,242,696	$	279,495	$	2,522,191

LIABILITIES:
Current Liabilities:
Accounts Payable	$	57,627	$	—	$	57,627
Accrued Salaries, Wages and Benefits		64,492		—		64,492
Accrued Liabilities		86,722		(16,946)		69,776
Deferred Revenue		99,790		—		99,790
Current Operating Lease Liabilities		—		66,707		66,707
Current Portion of Long-Term Debt		3,000		—		3,000
Total Current Liabilities		311,631		49,761		361,392
Noncurrent Liabilities:
Long-Term Debt		398,094		—		398,094
Long-Term Operating Lease Liabilities		—		269,387		269,387
Deferred Income Taxes		29,426		—		29,426
Other Liabilities		102,472		(39,653)		62,819
Total Noncurrent Liabilities		529,992		229,734		759,726
TOTAL LIABILITIES		841,623		279,495		1,121,118
NONCONTROLLING INTEREST		9,543		—		9,543
SHAREHOLDERS’ EQUITY:
Common Stock, $0.01 Par Value		801		—		801
Additional Paid-in Capital		486,061		—		486,061
Retained Earnings		2,012,902		—		2,012,902
Accumulated Other Comprehensive Loss		(137,290)		—		(137,290)
Treasury Stock, at Cost		(970,944)		—		(970,944)
TOTAL SHAREHOLDERS’ EQUITY		1,391,530		—		1,391,530
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY	$	2,242,696	$	279,495	$	2,522,191

Upon the adoption of ASC 842, the following balances were removed from the Consolidated Balance Sheet as of July 1, 2019: (i) $3.5 million of prepaid rent balances within Prepaid Expenses and Other Current Assets; (ii) $6.8 million of current deferred rent liability balances within Accrued Liabilities; (iii) $10.1 million of current restructure liability balances within Accrued Liabilities; (iv) $24.8 million of noncurrent deferred rent liability balances within Other Liabilities; and (v) $14.9 million of noncurrent restructure liability balances within Other Liabilities.

Reclassifications

Beginning in the ~~fourth~~first quarter of fiscal year ~~2018, Carrington~~2020, Adtalem Brazil operations were classified as discontinued operations. See “Note 2: Discontinued ~~Operations”~~Operations and Assets Held for Sale” for further information. Prior period amounts have been revised to conform to the current classification. Certain expenses in prior periods previously allocated to ~~Carrington~~Adtalem Brazil within ~~the U.S. Traditional Postsecondary~~our former Business and Law segment have been reclassified to the Home Office and Other segment based on

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discontinued operation reporting guidance regarding allocation of corporate overhead. See “Note ~~14:~~15: Segment Information” for additional information.

~~In addition, we have reclassified certain amounts in the operating section of the Consolidated Statement of Cash Flows to conform to current period classification.~~

NOTE 4: STOCK-BASED COMPENSATION

Adtalem maintains ~~two~~2 stock-based incentive plans: the Amended and Restated Incentive Plan of 2005 and the Fourth Amended and Restated Incentive Plan of 2013. Under these plans, directors, key executives and managerial employees are eligible to receive incentive stock or nonqualified options to purchase shares of Adtalem’s common stock. The Fourth Amended and Restated Incentive Plan of 2013 and the Amended and Restated Incentive Plan of 2005 also permit the granting of stock appreciation rights, RSUs, performance-based RSUs and other stock and cash-based compensation. Although options remain outstanding under the 2005 incentive plan, no further stock-based grants will be issued under this plan. The Fourth Amended and Restated Incentive Plan of 2013 and the Amended and Restated Incentive Plan of 2005 are administered by the Compensation Committee of the Board. Options are granted for terms of up to ten years and can vest immediately or over periods of up to five years. The requisite service period is equal to the vesting period. The option price under the plans is the fair market value of the shares on the date of the grant.

Stock-based compensation expense is measured at the grant date based on the fair value of the award. Adtalem accounts for stock-based compensation granted to retirement eligible employees that fully vests upon an employee’s retirement under the non-substantive vesting period approach. Under this approach, the entire stock-based compensation expense is recognized at the grant date for stock-based grants issued to retirement eligible employees. For non-retirement eligible employees, stock-based compensation expense is recognized as expense over the employee requisite service period. We account for forfeitures of outstanding but unvested grants in the period they occur.

As of ~~March 31,~~September 30, 2019, ~~7,131,350~~6,735,482 authorized but unissued shares of common stock were reserved for issuance under Adtalem’s stock-based incentive plans.

The following is a summary of options activity for the ~~nine~~three months ended ~~March 31,~~September 30, 2019:


				Weighted
		Weighted		Average	Aggregate
		Average		Remaining	Intrinsic
	Number of	Exercise		Contractual	Value
	Options	Price		Life (in Years)	(in thousands)
Outstanding at July 1, 2019	1,488,478	$	31.33
Granted	229,125		43.39
Exercised	(37,889)		28.94
Forfeited	(15,576)		42.51
Expired	(65,274)		52.28
Outstanding at September 30, 2019	1,598,864		32.15	7.15	$	12,512
Exercisable at September 30, 2019	768,712	$	28.43	5.87	$	8,385

Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Number of Exercise Contractual Value
Options Price Life (in Years) (in thousands)
Outstanding at July 1, 2018 1,806,133 $ 32.88
Granted 129,025 49.01
Exercised (405,810 ) 42.75
Forfeited - -
Expired (19,429 ) 51.65
Outstanding at March 31, 2019 1,509,919 31.37 6.89 $ 23,301
Exercisable at March 31, 2019 592,407 $ 31.60 5.09 $ 9,103

The total intrinsic value of options exercised for the ~~nine~~three months ended ~~March 31,~~September 30, 2019 and 2018 was ~~$4.2~~$0.5 million and ~~$10.7~~$1.8 million, respectively.

The fair value of Adtalem’s stock option awards was estimated using a binomial model. This model uses historical cancellation and exercise experience of Adtalem to determine the option value. It also takes into account the illiquid nature of employee options during the vesting period.

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The weighted average estimated grant date fair value of options granted at market price under Adtalem’s stock-based incentive plans during the first ~~nine~~three months of fiscal years 2020 and 2019 was $16.98 and ~~2018 was~~ $20.96, ~~and $14.63,~~ per share, respectively. The fair value of Adtalem’s stock option grants was estimated assuming the following weighted average assumptions:

	Fiscal Year
	2019			2018

							Fiscal Year
							2019		2018
Expected Life (in Years)		6.50			6.68		6.51		6.50
Expected Volatility		39.60	%		41.45	%	37.66	%	39.60	%
Risk-free Interest Rate		2.73	%		1.95	%	1.40	%	2.73	%
Dividend Yield		0.00	%		0.00	%	0.00	%	0.00	%

The expected life of the options granted is based on the weighted average exercise life with age and salary adjustment factors from historical exercise behavior. Adtalem’s expected volatility is computed by combining and weighting the implied market volatility, the most recent volatility over the expected life of the option grant and Adtalem’s long-term historical volatility.

If factors change and different assumptions are employed in the valuation of stock-based grants in future periods, the stock-based compensation expense that Adtalem records may differ significantly from what was recorded in previous periods.

During the first ~~nine~~three months of fiscal year ~~2019,~~2020, Adtalem granted ~~217,960~~370,280 RSUs to selected ~~employees and directors.~~employees. Of these, ~~65,160~~135,660 are performance-based RSUs and ~~152,800~~234,620 are non-performance-based RSUs. Performance-based RSUs are earned by the recipients over a three-year period based on achievement of ~~certain mission-based goals, academic goals,~~ return on invested capital and free cash flow per share. Certain awards are subject to achievement of a minimum level of Adtalem’s earnings before interest, taxes, depreciation and amortization. Non-performance-based RSUs are subject to restrictions which lapse ratably over one, three or four-year periods on the grant anniversary date based on the recipient’s continued service on the Board, employment with Adtalem or upon retirement. During the restriction period, the recipient of the non-performance based RSUs has the right to receive dividend equivalents, if any. This right does not pertain to the performance-based RSUs. The following is a summary of RSU activity for the ~~nine~~three months ended ~~March 31,~~September 30, 2019:

				Weighted
				Average
	Number of			Grant Date
	RSUs			Fair Value
Outstanding at July 1, 2018		1,226,958		$	28.31

							Weighted
							Average
						Number of	Grant Date
						RSUs	Fair Value
Outstanding at July 1, 2019						878,030	$	34.86
Granted		217,960			49.57	370,280		43.39
Vested		(450,484	)		27.86	(330,216)		27.37
Forfeited		(79,958	)		33.26	(40,611)		37.83
Outstanding at March 31, 2019		914,476		$	33.45
Outstanding at September 30, 2019						877,483	$	40.01

The weighted average estimated grant date fair value of RSUs granted at market price under Adtalem’s stock-based incentive plans during the first ~~nine~~three months of fiscal years 2020 and 2019 was $43.39 and ~~2018 was $49.57 and $34.34,~~$49.03, per share, respectively.

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The following table shows total stock-based compensation expense included in the Consolidated Statements of Income (Loss) (in thousands):


	Three Months Ended
	September 30,
	2019		2018
Cost of Educational Services	$	455	$	395
Student Services and Administrative Expense		4,768		3,742
		5,223		4,137
Income Tax Benefit		(2,533)		(2,007)
Net Stock-Based Compensation Expense	$	2,690	$	2,130

Three Months Ended
March 31,

Nine Months Ended
March 31,

2019 2018 2019 2018
Cost of Educational Services $ 279 $ 876 $ 976 $ 3,510
Student Services and Administrative Expense 2,729 1,861 9,393 7,459
Restructuring Expense - - - 548
3,008 2,737 10,369 11,517
Income Tax Benefit (692 ) (554 ) (3,930 ) (4,655 )
Net Stock-Based Compensation Expense $ 2,316 $ 2,183 $ 6,439 $ 6,862

As of ~~March 31,~~September 30, 2019, ~~$21.5~~$30.9 million of total pre-tax unrecognized stock-based compensation expense related to unvested grants is expected to be recognized over a weighted average period of ~~2.3~~2.7 years. The total fair value of options and RSUs vested during the ~~nine~~three months ended ~~March 31,~~September 30, 2019 and 2018 was approximately ~~$13.7~~$12.1 million and ~~$14.3~~$11.1 million, respectively.

There was no0 capitalized stock-based compensation cost at each of ~~March 31,~~September 30, 2019, June 30, ~~2018~~2019 and ~~March 31,~~September 30, 2018.

Adtalem has an established practice of issuing new shares of common stock to satisfy stock-based grant exercises. However, Adtalem also may issue treasury shares to satisfy stock-based grant exercises under certain of its stock-based incentive plans.

NOTE 5: FAIR VALUE MEASUREMENTS

Adtalem has elected not to measure any assets or liabilities at fair value other than those required to be measured at fair value on a recurring basis. Assets measured at fair value on a nonrecurring basis include goodwill, intangible assets and assets of businesses where the long-term value of the operations have been impaired.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The guidance specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The guidance establishes fair value measurement classifications under the following hierarchy:

Level 1 ––Quoted prices for identical instruments in active markets.

Level 2 – ~~Quoted~~Observable inputs other than prices included in Level 1, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

Level 3 ~~– Model-derived~~–Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

When available, Adtalem uses quoted market prices to determine fair value, and such measurements are classified within Level 1. In ~~some~~ cases where market prices are not available, Adtalem makes use of observable market-based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates and yield curves. These measurements are classified within Level 3.

Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.

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The carrying value of our Cash and Cash Equivalents approximates fair value because of their short-term nature.

Adtalem maintains a rabbi trust to fund obligations under a non-qualified deferred compensation plan. Amounts in the rabbi trust are invested in stock and bond mutual funds, which are designated as available-for-sale securities carried at fair value, and are included in Investments in Marketable Securities on the Consolidated Balance Sheets. All Investments in Marketable Securities are recorded at fair value based upon quoted market prices using Level 1 inputs.

As of September 30, 2019, June 30, 2019 and September 30, 2018, there were no assets or liabilities measured at fair value using Level 2 or Level 3 inputs.

Assets measured at fair value on a nonrecurring basis include goodwill and indefinite-lived intangibles arising from a business combination. These assets are not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangibles must be reviewed annually for impairment or more frequently if circumstances arise indicating potential impairment. This impairment review was most recently completed as of May 31, ~~2018.~~2019. See “Note 9: Intangible Assets” for further discussion on the impairment review including valuation techniques and assumptions.

~~The following table presents Adtalem's assets and liabilities at March 31, 2019, that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):~~

Level 1 Level 2 Level 3
Cash and Cash Equivalents $ 321,211 $ - $ -
Investments in Marketable Securities 8,341 - -
Institutional Loans Receivable, Net - 42,577 -
Loan Receivable from DeVry University - 10,000 -
Deferred Acquisition Obligations - 16,001 -
Total Financial Assets at Fair Value $ 329,552 $ 68,578 $ -

~~The following table presents Adtalem's assets and liabilities at June 30, 2018, that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):~~

Level 1 Level 2 Level 3
Cash and Cash Equivalents $ 430,690 $ - $ -
Investments in Marketable Securities 4,255 - -
Institutional Loans Receivable, Net - 44,320 -
Deferred Acquisition Obligations - 18,585 -
Total Financial Assets at Fair Value $ 434,945 $ 62,905 $ -

~~The following table presents Adtalem's assets and liabilities at March 31, 2018, that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):~~

Level 1 Level 2 Level 3
Cash and Cash Equivalents $ 265,325 $ - $ -
Investments in Marketable Securities 4,200 - -
Institutional Loans Receivable, Net - 41,646 -
Deferred Acquisition Obligations - 21,393 -
FIES Receivable - 15,094 -
Total Financial Assets at Fair Value $ 269,525 $ 78,133 $ -

~~Cash and Cash Equivalents and Investments in Marketable Securities are valued using a market approach based on quoted market prices of identical instruments.~~

The fair value of the institutional loans receivable included in Accounts Receivable, Net and Other Assets, Net on the Consolidated Balance Sheets as of March 31, 2019, June 30, 2018 and March 31, 2018 is estimated by discounting the future cash flows using current rates for similar arrangements. See “Note 6: Financing Receivables” for further discussion on these institutional loans receivable.

In connection with the completion of the sale of DeVry University, Adtalem loaned $10.0 million to DeVry University under the terms of 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. The fair value of the DeVry University loan receivable included in Other Assets, Net on the Consolidated Balance Sheet as of March 31, 2019 is estimated by discounting the future cash flows using current rates for similar arrangements.

The fair value of the deferred acquisition obligations is estimated by discounting the future cash flows using current rates for similar arrangements. The amounts of $6.1 million, $4.3 million and $4.8 million were classified as Accrued Liabilities on the Consolidated Balance Sheets at March 31, 2019, June 30, 2018 and March 31, 2018, respectively, and $9.9 million, $14.3 million and $16.6 million were classified as Other Liabilities on the Consolidated Balance Sheets at March 31, 2019, June 30, 2018 and March 31, 2018, respectively.

The fair value of Adtalem Brazil’s receivable under Brazil’s “Fundo de Financiamento Estudantil” or “Students Financing Fund” (“FIES”) public loan program included in Accounts Receivable, Net on the Consolidated Balance Sheet as of March 31, 2018 is estimated by discounting the future cash flows using published market data on Brazilian interest and inflation rates.

~~As of March 31, 2019, June 30, 2018 and March 31, 2018, there were no assets or liabilities measured at fair value using Level 3 inputs.~~

NOTE 6: FINANCING RECEIVABLES

Adtalem’s financing receivables consist of trade receivables related to institutional loan programs ~~are~~ available to students at Chamberlain, AUC, RUSM and RUSVM. These loan programs are designed to assist students who are unable to completely cover educational costs consisting of tuition, books and fees and are available only after all other student financial assistance has been applied toward those purposes. In addition, AUC, RUSM and RUSVM loans may be used for students’ living expenses. Repayment plans for institutional loan program balances are developed to address the financial circumstances of the particular student. Interest charges at rates from 3.0% to 12.0% per annum accrue each month on the unpaid balance. ~~Students~~Most students are required to begin repaying their loans while they are still in school with a minimum payment level designed to demonstrate their capability to repay, reduce the possibility of over borrowing and to minimize interest being accrued on the loan balance. Payments may increase upon completing or departing ~~the program.~~school. After a student leaves school, the student typically will have a monthly installment repayment plan. In addition, the Becker CPA Exam Review Course can be financed through ~~Becker~~Becker’s flexible payment plans with ~~an 18-month term loan program.~~

terms of up to 18-months.

Reserves for uncollectible loans are determined by analyzing the current aging of institutional loans and historical loss rates of loans at each institution. Management performs this analysis periodically throughout the year. Loans are considered nonperforming ~~and are fully reserved~~ if they are more than 90 days past due. Since all of Adtalem’s ~~financing receivables~~institutional loans are generated through the extension of credit to fund educational costs, all such receivables are considered part of the same loan portfolio.

The following table details the institutional loan balances along with the related allowances for credit losses (in thousands).


	September 30, 2019				June 30, 2019				September 30, 2018
Gross Institutional Loans			$	47,673			$	47,937			$	48,936
Allowance for Credit Losses:
Balance at July 1	$	(6,289)			$	(10,003)			$	(10,003)
Charge-offs and Adjustments		26				10,777				5,355
Recoveries		(24)				(83)				(32)
Additional Provision		(3,291)				(6,980)				(2,462)
Balance at End of Period				(9,578)				(6,289)				(7,142)
Net Institutional Loans			$	38,095			$	41,648			$	41,794

March 31, 2019 June 30, 2018 March 31, 2018
Gross Institutional Loans $ 47,259 $ 54,323 $ 51,389
Allowance for Credit Losses:
Balance at July 1 $ (10,003 ) $ (9,736 ) $ (9,736 )
Charge-offs and Adjustments 9,965 330 206
Recoveries (73 ) (61 ) (51 )
Additional Provision (4,571 ) (536 ) (162 )
Balance at End of Period (4,682 ) (10,003 ) (9,743 )
Net Institutional Loans $ 42,577 $ 44,320 $ 41,646

Of the net balances above, ~~$15.7~~$14.1 million, ~~$21.2~~$16.6 million and ~~$19.8~~$12.7 million was classified as Accounts Receivable, Net on the Consolidated Balance Sheets at ~~March 31,~~September 30, 2019, June 30, ~~2018~~2019 and ~~March 31,~~September 30, 2018, respectively, and ~~$26.9~~

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$24.0 million, ~~$23.1~~$25.1 million and ~~$21.8~~$29.1 million, representing amounts due beyond one year, was classified as Other Assets, Net on the Consolidated Balance Sheets at ~~March 31,~~September 30, 2019, June 30, ~~2018~~2019 and ~~March 31,~~September 30, 2018, respectively.

The following tables detail the credit risk profiles of the institutional loan balances based on payment activity and an aging of past due institutional loans (in thousands):.

	March 31,		June 30,		March 31,
	2019		2018		2018

							September 30,		June 30,		September 30,
							2019		2019		2018
Institutional Loans:
Performing	$	42,716	$	44,492	$	42,048	$	36,712	$	38,049	$	41,963
Nonperforming		4,543		9,831		9,341		10,961		9,888		6,973
Total Institutional Loans	$	47,259	$	54,323	$	51,389	$	47,673	$	47,937	$	48,936

1-29 Days
Past Due 30-59
Days Past
Due 60-89
Days Past
Due Greater
Than 90
Days Past
Due Total
Past Due Current Total
Institutional
Loans
Institutional Loans:
March 31, 2019 $ 4,092 $ 4,412 $ 4,125 $ 4,543 $ 17,172 $ 30,087 $ 47,259
June 30, 2018 $ 8,473 $ 900 $ 3,099 $ 9,831 $ 22,303 $ 32,020 $ 54,323
March 31, 2018 $ 8,903 $ 464 $ 175 $ 9,341 $ 18,883 $ 32,506 $ 51,389


							Greater
			30-59		60-89		Than 90						Total
	1-29 Days		Days Past		Days Past		Days Past		Total				Institutional
	Past Due		Due		Due		Due		Past Due		Current		Loans
Institutional Loans:
September 30, 2019	$	3,317	$	1,342	$	526	$	10,961	$	16,146	$	31,527	$	47,673
June 30, 2019	$	3,578	$	2,458	$	687	$	9,888	$	16,611	$	31,326	$	47,937
September 30, 2018	$	6,437	$	757	$	752	$	6,973	$	14,919	$	34,017	$	48,936

Allowances for credit losses on nonperforming loans as of September 30, 2019, June 30, 2019 and September 30, 2018 were $9.4 million, $6.1 million and $7.0 million, respectively.

In connection with the completion of the sale of DeVry University, Adtalem loaned $10.0 million to DeVry University under the terms of 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. The value of the DeVry University loan receivable included in Other Assets, Net on the Consolidated Balance Sheet as of September 30, 2019 and June 30, 2019 is estimated by discounting the future cash flows using an average of current rates for similar arrangements, which is estimated at 4% per annum. Management has evaluated the collectability of this note and has determined no reserve is necessary.

On July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep Foundation (“DePaul College Prep”). In connection with the sale, Adtalem holds a mortgage from DePaul College Prep for $46.8 million. The mortgage is due on July 31, 2024 as a balloon payment and bears interest at a rate of 4% per annum, payable monthly. The value of the DePaul College Prep loan receivable included in Other Assets, Net on the Consolidated Balance Sheet as of September 30, 2019 is $40.4 million, which is estimated by discounting the future cash flows using an average of current rates for similar arrangements, which is estimated at 7% per annum. Management has evaluated the collectability of this note and has determined no reserve is necessary.

NOTE 7: SHARE REPURCHASE PROGRAMS

~~Adtalem has repurchased shares under the following programs as of March 31, 2019:~~

Date Shares Total Cost
Authorized Repurchased (in millions)
November 15, 2006 908,399 $ 35.0
May 13, 2008 1,027,417 50.0
November 11, 2009 972,205 50.0
August 11, 2010 1,103,628 50.0
November 10, 2010 968,105 50.0
May 20, 2011 2,396,143 100.0
November 2, 2011 3,478,299 100.0
August 29, 2012 2,005,317 62.7
December 15, 2015 1,672,250 36.6
February 16, 2017 7,091,188 300.0
November 7, 2018 870,564 41.9
Totals 22,493,515 $ 876.2

On February 16, 2017, the Board authorized Adtalem’s tenth share repurchase program, which allowed Adtalem to repurchase up to $300 million of its common stock through December 31, 2020. The tenth share repurchase program was completed during January 2019. On November 7, 2018, the Board authorized Adtalem’s eleventh share repurchase program, which allows Adtalem to repurchase up to $300 million of its common stock through December 31, 2021. The eleventh share repurchase program commenced ~~during~~in January 2019. ADuring the three months ended September 30, 2019, a total of ~~3,631,611~~918,807 shares were repurchased ~~during the nine months ended March 31, 2019 under the tenth and eleventh share repurchase programs~~ for an aggregate of ~~$176.9 million.~~$40.3 million under the eleventh share repurchase program. To date, a total of 3,463,963 shares were repurchased for an aggregate of $158.1 million under the eleventh share repurchase program, resulting in $141.9 million of authorized share repurchases remaining under the eleventh share repurchase program as of September 30, 2019. The timing and amount of any ~~repurchase~~repurchases will be determined based on an evaluation of market conditions and other factors. These repurchases may be made through the open market, including block purchases, in privately negotiated transactions, or otherwise. The ~~buyback~~repurchases will be funded through available cash balances and/or borrowings and may be suspended or discontinued at any time.

Shares of stock repurchased under the programs are held as treasury shares. These repurchased shares have reduced the weighted average number of shares of common stock outstanding for basic and diluted earnings per share calculations.

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NOTE 8: BUSINESS COMBINATIONS

~~EduPristine~~

OnCourse Learning

On ~~February 5, 2018,~~May 31, 2019, Adtalem completed the acquisition of ~~a majority interest in EduPristine. Under the terms~~100% of the ~~agreement, Adtalem agreed to pay approximately $3.2~~equity interests of OCL for $118.4 million, innet of cash ~~in exchange~~of $1.2 million. The payment for ~~stock of EduPristine, increasing Adtalem’s ownership share from 36% to 64%. This ownership percentage~~this purchase was ~~increased to 69% with an additional equity investment of $1.3 million in March 2018. The payments for these additional investments were~~ made in the ~~third~~fourth quarter of fiscal year ~~2018. EduPristine~~2019, and was funded with available domestic cash balances and $100 million in borrowings under Adtalem’s revolving credit facility. OCL is a leading provider of compliance training, licensure preparation, continuing education and professional ~~education provider in India~~development in the ~~areas of finance, accounting, analytics, marketing~~banking and ~~healthcare.~~mortgage industries across the U.S. The acquisition furthers Adtalem’s ~~global~~ growth strategy into ~~professional education.~~

financial services.

The operations of ~~EduPristine~~OCL are included in Adtalem’s ~~Professional Education~~Financial Services segment. ~~Prior to the February 5, 2018 investment, Adtalem accounted for its ownership interest in EduPristine under the equity method of accounting for investments.~~ The results of ~~EduPristine’s~~OCL’s operations have been ~~fully consolidated~~included in the Consolidated Financial Statements of Adtalem since the ~~February 5, 2018 acquisition date. The fair value~~date of Adtalem’s equity investment immediately prior to the majority interest investment was $4.1 million, which was based on a discounted cash flow analysis. The $4.1 million noncontrolling interest recorded on the acquisition date was also derived using the same discounted cash flow analysis. In the third quarter of fiscal year 2018, Adtalem recorded a $1.2 million gain on its previous equity investment.

acquisition.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition ~~of Adtalem’s majority interest in EduPristine~~ (in thousands):


	May 31,
	2019
Current Assets	$	5,260
Property and Equipment		1,197
Intangible Assets		63,100
Goodwill		59,519
Total Assets Acquired		129,076
Liabilities Assumed		9,445
Net Assets Acquired	$	119,631

February 5,
2018
Current Assets $ 866
Property and Equipment 239
Other Long-term Assets 69
Intangible Assets 1,380
Goodwill 11,527
Total Assets Acquired 14,081
Liabilities Assumed 2,715
Net Assets Acquired $ 11,366

Goodwill, which represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired, was all assigned to the ~~Professional Education~~Financial Services reporting unit and ~~reporting~~reportable segment. Factors that contributed to a purchase price resulting in the recognition of goodwill include ~~EduPristine’s~~OCL’s strategic fit into Adtalem’s expanding presence in ~~professional education and~~financial services, the ~~acquired assembled workforce. None~~reputation of the ~~goodwill acquired is expected to be deductible for income tax purposes. The $1.4~~OCL brand as a leader in the industry and potential future growth opportunity. Of the $63.1 million of acquired intangible assets, ~~was assigned to Trade Names. None of the acquired intangible assets were determined to be subject to amortization.~~

~~There is no pro forma presentation of operating results for this acquisition due to the insignificant effect on consolidated operations.~~

~~São Judas Tadeu~~

On November 1, 2017, Adtalem Brazil completed the acquisition of São Judas Tadeu (“SJT”). Under the terms of the agreement, Adtalem Brazil agreed to pay approximately $6.0 million in cash, in exchange for 100% of the stock of SJT. Approximately $1.0 million of payments were made in the second quarter of fiscal year 2018, with additional aggregate payments of approximately $5.0 million required over the succeeding four years. Located in São Paulo, SJT offers medical doctor specialty test preparation and currently serves approximately 2,700 students. The acquisition of SJT adds a new product offering to Adtalem Brazil’s test preparation business.

The operations of SJT are included in Adtalem’s Technology and Business segment. The results of SJT’s operations have been included in the Consolidated Financial Statements of Adtalem since the date of acquisition.

~~The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):~~

November 1,
2017
Current Assets $ 558
Property and Equipment 64
Other Long-term Assets 9
Intangible Assets 381
Goodwill 5,636
Total Assets Acquired 6,648
Liabilities Assumed 684
Net Assets Acquired $ 5,964

Goodwill, which represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired, was assigned to the Adtalem Brazil reporting unit, which is classified within the Technology and Business segment. Factors that contributed to a purchase price resulting in the recognition of goodwill include SJT’s strategic fit into Adtalem’s expanding presence in test preparation and the acquired assembled workforce. Of the $0.4 million of acquired intangible assets, $0.2$18.4 million was assigned to Trade Names, which has been determined not to be subject to amortization. The remaining acquired intangible ~~asset was~~assets were determined to be subject to amortization with aan average useful life of approximately ~~six months.~~nine years. The ~~value~~values and estimated useful ~~life~~lives by asset type isare as follows (in thousands):


	May 31, 2019
	Value		Estimated
	Assigned		Useful Life
Customer Relationships	$	26,400	11 years
Curriculum		11,600	6 years
Course Delivery Technology		6,700	5 years

November 1, 2017
Value
Assigned Estimated
Useful Life
Student Relationships $ 162 6 months

There is no ~~pro forma~~proforma presentation of operating results for this acquisition due to the insignificant effect on consolidated operations.

NOTE 9: INTANGIBLE ASSETS

Intangible assets relate mainly to acquired business operations. These assets consist of the acquisition fair value of certain identifiable intangible assets acquired and goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired.

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Intangible assets consist of the following (in thousands):


	September 30, 2019
	Gross				Weighted Average
	Carrying		Accumulated		Amortization
	Amount		Amortization		Period
Amortizable Intangible Assets:
Customer Relationships	$	68,900	$	(15,865)	10 Years
Curriculum/Software		11,600		(644)	6 Years
Course Delivery Technology		7,200		(853)	5 Years
Total	$	87,700	$	(17,362)
Indefinite-Lived Intangible Assets:
Trade Names	$	95,746
Chamberlain Title IV Eligibility and Accreditations		1,200
AUC Title IV Eligibility and Accreditations		100,000
Ross Title IV Eligibility and Accreditations		14,100
Intellectual Property		13,940
Total	$	224,986


	June 30, 2019
	Gross
	Carrying		Accumulated
	Amount		Amortization
Amortizable Intangible Assets:
Customer Relationships	$	69,300	$	(14,448)
Curriculum/Software		16,600		(5,193)
Course Delivery Technology		7,200		(487)
Total	$	93,100	$	(20,128)
Indefinite-Lived Intangible Assets:
Trade Names	$	95,777
Chamberlain Title IV Eligibility and Accreditations		1,200
AUC Title IV Eligibility and Accreditations		100,000
Ross Title IV Eligibility and Accreditations		14,100
Intellectual Property		13,940
Total	$	225,017

	March 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Weighted Average Amortization Period

							September 30, 2018
							Gross
							Carrying		Accumulated
							Amount		Amortization
Amortizable Intangible Assets:
Student Relationships	$	7,952	$	(7,401	)	5 Years
Customer Relationships		42,900		(13,071	)	10 Years	$	42,900	$	(10,756)
Curriculum/Software		6,810		(5,775	)	4 Years		5,000		(3,750)
Franchise Contracts		8,947		(2,071	)	18 Years
Clinical Agreements		331		(127	)	15 Years
Trade Names		965		(965	)	10 Years
Proprietary Technology		500		(344	)	4 Years		500		(281)
Total	$	68,405	$	(29,754	)		$	48,400	$	(14,787)
Indefinite-Lived Intangible Assets:
Trade Names	$	105,745					$	77,313
Chamberlain Title IV Eligibility and Accreditations								1,200
AUC Title IV Eligibility and Accreditations								100,000
Ross Title IV Eligibility and Accreditations		14,100						14,100
Intellectual Property		13,940						13,940
Chamberlain Title IV Eligibility and Accreditations		1,200
AUC Title IV Eligibility and Accreditations		100,000
Adtalem Brazil Accreditation		81,511
Total	$	316,496					$	206,553

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June 30, 2018
Gross
Carrying
Amount Accumulated
Amortization
Amortizable Intangible Assets:
Student Relationships $ 8,193 $ (6,972 )
Customer Relationships 42,900 (9,598 )
Non-compete Agreements 700 (700 )
Curriculum/Software 6,833 (4,265 )
Franchise Contracts 9,064 (1,720 )
Clinical Agreements 336 (112 )
Trade Names 976 (904 )
Proprietary Technology 500 (250 )
Total $ 69,502 $ (24,521 )
Indefinite-Lived Intangible Assets:
Trade Names $ 106,132
Ross Title IV Eligibility and Accreditations 14,100
Intellectual Property 13,940
Chamberlain Title IV Eligibility and Accreditations 1,200
AUC Title IV Eligibility and Accreditations 100,000
Adtalem Brazil Accreditation 82,578
Total $ 317,950

March 31, 2018
Gross
Carrying
Amount Accumulated
Amortization
Amortizable Intangible Assets:
Student Relationships $ 9,601 $ (7,831 )
Customer Relationships 42,900 (8,430 )
Non-compete Agreements 700 (691 )
Curriculum/Software 7,148 (3,901 )
Franchise Contracts 10,621 (1,868 )
Clinical Agreements 393 (125 )
Trade Names 1,146 (1,031 )
Proprietary Technology 500 (219 )
Total $ 73,009 $ (24,096 )
Indefinite-Lived Intangible Assets:
Trade Names $ 109,755
Ross Title IV Eligibility and Accreditations 14,100
Intellectual Property 13,940
Chamberlain Title IV Eligibility and Accreditations 1,200
AUC Title IV Eligibility and Accreditations 100,000
Adtalem Brazil Accreditation 97,234
Total $ 336,229

Amortization expense for amortized intangible assets was ~~$2.0~~$2.5 million and ~~$6.2~~$1.6 million for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2019 ~~respectively,~~ and ~~$2.4 million and $7.3 million for the three and nine months ended March 31,~~ 2018, respectively. Estimated amortization expense for amortizable intangible assets for the next five fiscal years ending June 30 and in the aggregate, by reporting unit, is as follows (in thousands):


	Financial
Fiscal Year	Services
2020 (Remaining)	$	7,728
2021		10,073
2022		9,944
2023		9,792
2024		9,509
Thereafter		23,292
Total	$	70,338

Professional Adtalem
Fiscal Year Education Brazil Total
2019 (excluding the nine months ended March 31, 2019) $ 1,605 $ 349 $ 1,954
2020 4,671 1,223 5,894
2021 4,440 766 5,206
2022 4,300 519 4,819
2023 4,118 519 4,637
Thereafter 11,268 4,873 16,141

All amortizable intangible assets except ~~student relationships and~~ACAMS customer relationships are being amortized on a straight-line basis. The amount being amortized for student relationships is based on the estimated progression of the students through the respective Damásio Educacional (“Damasio”) and Grupo Ibmec Educacional S.A. (“Grupo Ibmec”) programs, giving consideration to the revenue and cash flow associated with both existing students and new applicants. The amount being amortized for customer relationships related to ACAMS is based on the estimated retention of the customers, giving consideration to the revenue and cash flow associated with these existing customers.

Indefinite-lived intangible assets related to trade names, Title IV eligibility, accreditations and intellectual property 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.

In accordance with GAAP, goodwill and indefinite-lived intangibles arising from a business combination are not amortized and charged to expense over time. Instead, these assets must be reviewed annually for impairment or more frequently if circumstances arise indicating potential impairment. Adtalem’s annual impairment review was most recently completed as of May 31, ~~2018,~~2019, at which time there was no0 impairment loss associated with recorded goodwill or indefinite-lived intangible assets for any reporting unit.

Adtalem has ~~five~~4 reporting units that contained goodwill as of the ~~third~~first quarter of fiscal year ~~2019.~~2020. These reporting units constitute components for which discrete financial information is available and regularly reviewed by segment management. If the carrying amount of a reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss to goodwill is recognized. In analyzing the results of operations and business conditions of all the reporting units, as of ~~March 31,~~September 30, 2019, it was determined that no triggering event had occurred that would indicate the carrying value of a reporting unit had exceeded its fair value.

Adtalem has ~~five~~4 reporting units that contained indefinite-lived intangible assets as of the ~~third~~first quarter of fiscal year ~~2019.~~2020. For indefinite-lived intangible assets, management first analyzes qualitative factors including results of operations and business conditions of the ~~five~~4 reporting units that contained indefinite-lived intangible assets, significant changes in cash flows at the individual indefinite-lived intangible asset level, if applicable, as well as how much previously calculated fair values exceed carrying values to determine if it is more likely than not that the intangible assets associated with these reporting units have been impaired.

These interim triggering event conclusions were based on the fact that the annual impairment review of Adtalem’s reporting units and indefinite-lived intangible assets resulted in no0 impairment indicators as of the end of fiscal year ~~2018,~~2019, and that no interim events or deviations from planned operating results occurred as of ~~March 31,~~September 30, 2019, that would cause management to reassess these conclusions.

In January 2019, Adtalem relocated RUSM to Barbados from its temporary locations in Knoxville, Tennessee at facilities owned by Lincoln Memorial University (“LMU”) and at a facility onin St Kitts. Management believes the values of RUSM’s goodwill and indefinite-lived intangible assets are not affected by this move. The Trade Name will continue to be used and the U.S. Department of Education (“ED”) has provided approval for RUSM to operate in Barbados. No new accreditation is necessary, as RUSM’s secondary accreditor, the Caribbean Accreditation Authority for Education in Medicine and other Health Professions (“CAAM-HP”), is now its primary accreditor as of the start of the January 2019 semester. CAAM-HP is authorized by the government of Barbados to accredit medical programs.

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Determining the fair value of a reporting unit or an intangible asset involves the use of significant estimates and assumptions. Management bases its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates, which could lead to additional impairments of intangible assets or goodwill.

As of ~~March 31,~~September 30, 2019, intangible assets from business combinations totaled ~~$355.1~~$295.3 million and goodwill totaled ~~$811.3~~$687.0 million. Together, these assets equaled ~~54%~~40% of total assets as of such date, and any impairment could significantly affect future results of operations.

The table below summarizes goodwill balances by reporting unit (in thousands):

	March 31,		June 30,		March 31,

							September 30,		June 30,		September 30,
Reporting Unit	2019		2018		2018		2019		2019		2018
Chamberlain	$	4,716	$	4,716	$	4,716	$	4,716	$	4,716	$	4,716
AUC		68,321		68,321		68,321		68,321		68,321		68,321
RUSM and RUSVM		237,173		237,173		237,173		237,173		237,173		237,173
Professional Education		317,475		317,699		319,528
Adtalem Brazil		183,575		185,978		216,105
Financial Services								376,782		377,046		317,029
Total	$	811,260	$	813,887	$	845,843	$	686,992	$	687,256	$	627,239

The table below summarizes goodwill balances by ~~reporting~~reportable segment (in thousands):


	September 30,		June 30,		September 30,
Reportable Segment	2019		2019		2018
Medical and Healthcare	$	310,210	$	310,210	$	310,210
Financial Services		376,782		377,046		317,029
Total	$	686,992	$	687,256	$	627,239

March 31, June 30, March 31,
Reporting Segment 2019 2018 2018
Medical and Healthcare $ 310,210 $ 310,210 $ 310,210
Professional Education 317,475 317,699 319,528
Technology and Business 183,575 185,978 216,105
Total $ 811,260 $ 813,887 $ 845,843

The table below summarizes the changes in goodwill balances by ~~reporting~~reportable segment (in thousands):


	Medical and		Financial
	Healthcare		Services		Total
Balance at June 30, 2018	$	310,210	$	317,699	$	627,909
Foreign exchange rate changes		—		(670)		(670)
Balance at September 30, 2018		310,210		317,029		627,239
Acquisitions		—		59,519		59,519
Foreign exchange rate changes		—		498		498
Balance at June 30, 2019		310,210		377,046		687,256
Foreign exchange rate changes		—		(264)		(264)
Balance at September 30, 2019	$	310,210	$	376,782	$	686,992

Medical and
Healthcare Professional
Education Technology
and Business Total
Balance at June 30, 2017 310,210 306,653 212,223 829,086
Acquisitions - 12,548 3,807 16,355
Foreign exchange rate changes - 327 75 402
Balance at March 31, 2018 310,210 319,528 216,105 845,843
Purchase accounting adjustments - (1,021 ) 1,829 808
Foreign exchange rate changes - (808 ) (31,956 ) (32,764 )
Balance at June 30, 2018 310,210 317,699 185,978 813,887
Foreign exchange rate changes - (224 ) (2,403 ) (2,627 )
Balance at March 31, 2019 $ 310,210 $ 317,475 $ 183,575 $ 811,260

The decrease in the goodwill balance from June 30, ~~2018~~2019 in the ~~Professional Education~~Financial Services segment is the result of a change in the value of the ~~British Sterling Pound and~~ Indian Rupee compared to the U.S. dollar. Since ~~the Becker’s European subsidiary and~~ EduPristine’s goodwill is recorded in local currency, fluctuations in the values of the ~~British Sterling Pound and~~ Indian Rupee in relation to the U.S. dollar will cause changes in the balance of this asset. The decrease in the goodwill balance from June 30, 2018 in the Technology and Business segment is the result of a change in the value of the Brazilian Real compared to the U.S. dollar. Since Adtalem Brazil goodwill is recorded in local currency, fluctuations in the value of the Brazilian Real in relation to the U.S. dollar will cause changes in the balance of this asset.

The table below summarizes the indefinite-lived intangible asset balances by ~~reporting~~reportable segment (in thousands):


	September 30,		June 30,		September 30,
Reportable Segment	2019		2019		2018
Medical and Healthcare	$	137,500	$	137,500	$	137,500
Financial Services		87,486		87,517		69,053
Total	$	224,986	$	225,017	$	206,553

March 31, June 30, March 31,
Reporting Segment 2019 2018 2018
Medical and Healthcare $ 137,500 $ 137,500 $ 137,500
Professional Education 69,111 69,126 67,812
Technology and Business 109,885 111,324 130,917
Total $ 316,496 $ 317,950 $ 336,229

~~Total indefinite-lived intangible assets decreased by $1.5 million from June 30, 2018. The decrease is the result~~Table of a change in the value of the Brazilian Real as compared to the U.S. dollar. Since Adtalem Brazil intangible assets are recorded in local currency, fluctuations in the value of the Brazilian Real in relation to the U.S. dollar will cause changes in the balance of these assets.Contents

NOTE 10: RESTRUCTURING CHARGES

During the ~~third~~first quarter of fiscal year 2020, Adtalem recorded restructuring charges primarily related to the sale of Becker’s courses for healthcare students and Adtalem’s home office real estate consolidations. During the first ~~nine months~~quarter of fiscal year 2019, Adtalem recorded restructuring charges primarily related to the impairment of the land, buildings and equipment at the Dominica campus of RUSM and severance related to workforce reductions in Dominica. In January 2019, RUSM relocated its campus operations to Barbados with no plans to return to Dominica. The land, buildings and equipment in Dominica have been fully impaired as management ~~has~~ determined the market value less the costs to sell the facilities or move the equipment is ~~zero~~0 (see “Note 3: Summary of Significant Accounting Policies”). In addition, during the ~~third~~first quarter ~~and first nine months~~ of fiscal year 2019, Adtalem recorded restructuring charges primarily related to real estate consolidations at Adtalem Brazil and Adtalem’s home office. During the third quarter and first nine months of fiscal year 2018, Adtalem recorded restructuring charges related to workforce reductions and real estate consolidations at the medical and veterinary schools and Adtalem’s home office. When estimating costs of exiting lease space, estimates are made which could differ materially from actual results and result in additional restructuring charges or reversals in future periods. Termination benefit charges, ~~as a result of~~resulting from reducing Adtalem’s workforce by ~~203~~15 and ~~111~~176 positions in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 and ~~2018,~~2019, respectively, represented severance pay and benefits for these employees. Adtalem’s home office is classified as “Home Office and Other” in “Note ~~14:~~15: Segment Information.” Pre-tax restructuring charges by segment were as follows (in thousands):

	Three Months Ended March 31, 2019									Nine Months Ended March 31, 2019
	Real Estate and Other			Termination Benefits			Total			Real Estate and Other		Termination Benefits		Total

																Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
																Real Estate		Termination				Real Estate		Termination
																and Other		Benefits		Total		and Other		Benefits		Total
Medical and Healthcare	$	(110	)	$	(23	)	$	(133	)	$	40,033	$	1,294	$	41,327	$	127	$	—	$	127	$	37,753	$	1,262	$	39,015
Technology and Business		1,716			-			1,716			1,901		-		1,901
Financial Services																	1,690		289		1,979		—		—		—
Home Office and Other		2,271			48			2,319			3,748		119		3,867		4,122		302		4,424		509		(51)		458
Total	$	3,877		$	25		$	3,902		$	45,682	$	1,413	$	47,095	$	5,939	$	591	$	6,530	$	38,262	$	1,211	$	39,473

Three Months Ended March 31, 2018 Nine Months Ended March 31, 2018

Real Estate
and Other

Termination
Benefits
Total
Real Estate
and Other

Termination
Benefits
Total
Medical and Healthcare $ - $ 530 $ 530 $ 26 $ 616 $ 642
Home Office and Other 46 45 91 (419 ) 2,961 2,542
Total $ 46 $ 575 $ 621 $ (393 ) $ 3,577 $ 3,184

The following table summarizes the separation and restructuring plan activity for the fiscal years ~~2019~~2020 and ~~2018,~~2019, for which cash payments are required (in thousands):


Liability balance at June 30, 2018	$	38,927
Increase in liability (separation and other charges)		8,870
Reduction in liability (payments and adjustments)		(22,714)
Liability balance at June 30, 2019		25,083
ASC 842 (Leases) Adjustment ⁽¹⁾		(25,030)
Liability balance at July 1, 2019		53
Increase in liability (separation and other charges)		591
Reduction in liability (payments and adjustments)		(500)
Liability balance at September 30, 2019	$	144

Liability balance at June 30, 2017 $ 46,115
Increase in liability (separation and other charges) 19,893
Reduction in liability (payments and adjustments) (27,081 )
Liability balance at June 30, 2018 38,927
Increase in liability (separation and other charges) 4,761
Reduction in liability (payments and adjustments) (20,568 )
Liability balance at March 31, 2019 $ 23,120

~~Of this~~⁽¹⁾Reflects amounts reclassified out of the opening balance of restructuring reserve accruals as of June 30, 2019, to operating lease assets that was recorded with the adoption of ASC 842. See “Note 3: Summary of Significant Accounting Policies” for further details.

The liability balance ~~$9.0~~of $0.1 million as of September 30, 2019 is recorded as Accrued Liabilities ~~and $14.1 million is recorded as Other Liabilities~~ on the Consolidated Balance ~~Sheet as of March 31, 2019. These~~Sheet. This liability ~~balances primarily represent rent accruals and~~balance represents costs for employees who have either not yet separated from Adtalem or for whom full severance has not yet been paid. All of these remaining costs are expected to be paid ~~out for periods of up to 7 years.~~within the next 12 months.

NOTE 11: LEASES

Management determines if a contract contains a lease at inception. Adtalem has entered into operating leases for academic sites, housing facilities and office space which expire at various dates through February 2030, most of which include options to terminate for a fee or extend the leases for an additional five-year period. The lease term includes options to terminate or extend when it is reasonably certain that the option will be exercised. Management elected to account for lease and non-lease components (e.g., common-area maintenance costs) as a single lease component for all operating

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leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Adtalem has not entered into any financing leases.

Operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets represent our right to use an underlying asset during the lease term. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. Operating lease assets are adjusted for any prepaid or accrued lease payments, lease incentives, initial direct costs and impairments. Adtalem’s incremental borrowing rate is utilized in determining the present value of the lease payments when the implicit rate is not readily determinable based upon the information available at the commencement date. Adtalem’s incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease. Operating lease expense is recognized on a straight-line basis over the lease term.

As of September 30, 2019, an additional operating lease that has not yet commenced will result in an additional operating lease asset and lease liability of $10.0 million. This operating lease will commence during the third quarter of fiscal year 2020 and has an 11-year lease term.

The components of lease cost were as follows (in thousands):


		Three Months Ended
	September 30,
	2019
Operating Lease Cost	$	13,703
Sublease Income		(5,126)
Total Lease Cost	$	8,577

Maturities of lease liabilities by fiscal year were as follows as of September 30, 2019 (in thousands):


	Operating
Fiscal Year	Leases
2020 (Remaining)	$	50,344
2021		61,142
2022		56,349
2023		45,344
2024		28,880
Thereafter		40,791
Total lease payments		282,850
Less: imputed interest		(36,738)
Present value of lease liabilities	$	246,112

Lease term and discount rate were as follows:


	September 30,
	2019
Weighted-average remaining operating lease term (years)		5.1
Weighted-average operating lease discount rate		5.4%

Supplemental disclosures of cash flow information related to leases were as follows (in thousands):


	September 30,
	2019
Cash paid for amounts in the measurement of operating lease liabilities (net of sublease receipts)	$	11,963
Operating lease assets obtained in exchange for operating lease liabilities	$	4,868

Adtalem maintains agreements to lease 4 facilities owned by Adtalem to DeVry University with various expiration dates through December 2023. Adtalem entered into agreements to sublease either a portion or the full leased space at 25 of its operating lease locations. Most of these subleases are a result of Adtalem retaining leases associated with restructured

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lease activities at DeVry University and Carrington prior to their divestitures during fiscal year 2019. All sublease expirations with DeVry University and Carrington coincide with Adtalem’s original head lease expiration dates. At that time, Adtalem will be relieved of its obligations. In addition, Adtalem has entered into subleases with non-affiliated entities for vacated or partially vacated space from restructuring activities. Adtalem sublease agreements expire at various dates through December 2025. Adtalem records sublease income as an offset against its lease expense recorded on the head lease. For leases which Adtalem vacated or partially vacated space, Adtalem recorded estimated restructuring charges in prior periods. Actual results may differ from these estimates, which could result in additional restructuring charges or reversals. Future minimum lease and sublease rental income under these agreements at September 30, 2019, are as follows (in thousands):


Fiscal Year	Amount
2020 (Remaining)	$	18,608
2021		20,099
2022		17,103
2023		16,368
2024		10,523
Thereafter		7,308
Total	$	90,009

As previously disclosed in our 2019 Annual Report on Form 10-K and under the previous lease accounting, future minimum rental commitments for all noncancelable operating leases, adjusted to exclude Adtalem Brazil, having a remaining term in excess of one year at June 30, 2019, were as follows (in thousands):


Fiscal Year	Amount
2020	$	67,109
2021		60,781
2022		55,982
2023		44,970
2024		28,374
Thereafter		36,120
Total minimum lease payments	$	293,336

Rent expense, adjusted to exclude Adtalem Brazil, for the years ended June 30, 2019 and 2018 was $35.8 million and $25.0 million, respectively.

NOTE 12: INCOME TAXES

The effective tax rate on income from continuing operations was ~~17.2% in the third quarter and 18.3%~~17.6% in the first ~~nine months~~quarter of fiscal year ~~2019,~~2020 compared to ~~15.7%~~32.4% on ~~income~~loss from continuing operations in the ~~third~~first quarter ~~and 87.8%~~of fiscal year 2019. The effective tax rate in the first ~~nine months of fiscal year 2018. Tax expense in the first nine months~~quarter of fiscal year 2019 included a pre-tax income special item of $39.0 million related to ~~one-time impacts from~~ the ~~Tax Cuts~~write-offs of assets and ~~Jobs Act of 2017 (the “Tax Act”) and various impacts due to the sale of DeVry University.~~restructuring charges in Dominica. The effective tax ~~rate~~rates on income from continuing operations excluding ~~tax expense related to the~~this non-recurring special item was ~~16.8%~~16.4% in the first ~~nine months~~quarter of fiscal year 2019. ~~Also, tax expense~~The increase in the first ~~nine months~~quarter of fiscal year 2018 included a special item of $101.2 million related to the Tax Act. The effective tax rate on income from continuing operations excluding the special item was 15.4% in the first nine months of fiscal year 2018. This increase in fiscal year 20192020 primarily reflects ~~a lower U.S. tax rate resulting from the Tax Act offset by higher additional expense from provisions of the Tax Act that were effective beginning in fiscal year 2019 and~~ a decrease in the percentage of earnings from foreign operations, which are taxed at lower rates than domestic earnings. The provisions from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) impacting the first quarter of fiscal year ~~2019~~2020 effective tax rate include a tax on global intangible low-taxed income (“GILTI”), a deduction for foreign derived intangible income (“FDII”), and a limitation of certain executive ~~compensation, and the repeal of the domestic production activity deduction. We have elected to account for GILTI as a period cost. The effective tax rate includes estimates of these new provisions.~~compensation. Our estimates may be revised in future periods as we obtain additional data and any new regulations or guidance is released.

~~Four~~NaN of Adtalem’s operating units benefit from ~~location~~local tax incentives: AUC, which operates in St. Maarten, RUSM, which ~~operated~~operates in ~~Dominica~~Barbados, and ~~beginning in January 2019 in Barbados,~~ RUSVM, which operates in St. ~~Kitts, and Adtalem Brazil, which operates in Brazil.~~Kitts. AUC’s effective tax rate reflects benefits derived from investment incentives. RUSM and RUSVM each have agreements with their respective domestic governments that exempt them from local income taxation. Both of these agreements have been extended to provide, in the case of RUSM, an indefinite period of exemption and, in the case of RUSVM, exemption until 2037. In January 2019, RUSM moved its operations from Dominica to Barbados. RUSM has ~~negotiated~~ an ~~agreement with the~~exemption in Barbados ~~government that exempts it from local income taxation~~ until 2039. ~~Adtalem Brazil’s effective tax rate reflects benefits derived from its participation~~RUSVM has an exemption in ~~“Programa Universidade para Todos” or “University for All Program” (“PROUNI”), a Brazilian program for providing scholarships to a portion~~St. Kitts until 2037.

Table of ~~its undergraduate students.~~Contents

Adtalem has completed its accounting for the tax effects of the enactment of the Tax Act. The SEC has issued rules that allowed for a measurement period of up to one year after the enactment date of the legislation to finalize the recording of the related tax impacts. As that period has now ended, we have finalized the calculations of the Tax Act’s impacts previously recorded in the second and fourth quarters of fiscal year 2018 with an immaterial adjustment in the second quarter of fiscal year 2019.

NOTE ~~12:~~13: DEBT

Long-term debt consists of the following (in thousands):


	September 30,		June 30,		September 30,
	2019		2019		2018
Total Debt:
Term B Loan	$	296,250	$	297,000	$	299,250
Revolver		40,000		110,000		—
Total Principal Payments Due		336,250		407,000		299,250
Deferred Debt Issuance Costs		(5,650)		(5,906)		(6,671)
Total Amount Outstanding		330,600		401,094		292,579
Less Current Portion:
Term B Loan		(3,000)		(3,000)		(3,000)
Noncurrent Portion	$	327,600	$	398,094	$	289,579

March 31, June 30, March 31,
2019 2018 2018
Total Debt:
Term B Loan $ 297,750 $ 300,000 $ -
Revolver - - 120,000
Total Principal Payments Due 297,750 300,000 120,000
Deferred Debt Issuance Costs (6,161 ) (6,927 ) -
Total Amount Outstanding 291,589 293,073 120,000
Less Current Portion:
Term B Loan (3,000 ) (3,000 ) -
Noncurrent Portion $ 288,589 $ 290,073 $ 120,000

Scheduled future maturities of long-term debt for the next five fiscal years ending June 30 and in the aggregate are as follows (in thousands):


	Maturity
Fiscal Year	Payments
2020 (Remaining)	$	2,250
2021		3,000
2022		3,000
2023		43,000
2024		3,000
Thereafter		282,000
Total	$	336,250

Fiscal Year Maturity
Payments
2019 (excluding the nine months ended March 31, 2019) $ 750
2020 3,000
2021 3,000
2022 3,000
2023 3,000
Thereafter 285,000
$ 297,750

~~Prior Credit Facility~~

Adtalem entered into a revolving credit facility on March 31, 2015, which was set to expire on March 31, 2020 (“Prior Credit Facility”). The Prior Credit Facility provided for a multi-currency revolving credit facility in the amount of $400 million and $100 million available for letters of credit. As of March 31, 2018, Adtalem’s borrowings under the Prior Credit Facility were $120 million with a weighted average interest rate of 3.70%.

Senior Secured Credit Facilities

On April 13, 2018, Adtalem ~~replaced the Prior Credit Facility with new credit facilities under~~entered into a ~~new~~ Credit Agreement (the “Credit Agreement”)~~. The Credit Agreement~~ that provides for (1) a $300 million revolving facility (“Revolver”) with a maturity date of April 13, 2023, and (2) a $300 million senior secured Term B loan (“Term B Loan”) with a maturity date of April 13, 2025. We refer to the Revolver and Term B Loan collectively as the “Credit Facility.” The Revolver has availability for currencies other than U.S. dollars of up to $200 million and $100 million available for letters of credit. Subject to certain conditions set forth in the Credit Agreement, the Credit Facility may be increased by $250 million.

Interest on the Term B Loan and the Revolver is set based on the London Interbank Offered Rate (“LIBOR”) based on observable market transactions. The U.K. Financial Conduct Authority (“FCA”), which regulates LIBOR, has announced that it has commitments from panel banks to continue to contribute to LIBOR through the end of 2021, but that it will not use its powers to compel contributions beyond such date. Various parties, including government agencies, are seeking to identify an alternative rate to replace LIBOR. Management is monitoring their efforts, and evaluating the need for an amendment to the Credit Agreement to accommodate a replacement rate.

Term B Loan

For Eurocurrency rate loans, Term B Loan interest is equal to LIBOR or a LIBOR-equivalent rate plus 3%. For base rate loans, Term B Loan interest is equal to the base rate plus 2%. The Term B Loan amortizes in equal quarterly installments of $750,000, with the balance due at maturity on April 13, 2025. As of ~~March 31,~~September 30, 2019, June 30, 2019 and September 30, 2018, the interest rate for borrowings under the Term B Loan facility was ~~5.50%~~5.04%, 5.40% and 5.24%, respectively, which approximated the effective interest rate.

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Revolver

Revolver interest is equal to LIBOR or a LIBOR-equivalent rate for Eurocurrency rate loans or a base rate, plus an applicable rate based on Adtalem’s consolidated leverage ratio, as defined in the Credit Agreement. The applicable rate ranges from 1.75% to 2.75% for Eurocurrency rate loans and from 0.75% to 1.75% for base rate loans.

As of September 30, 2019 and June 30, 2019, borrowings under the Revolver were $40 million and $110 million with a weighted average interest rate of 4.20% and 4.66%, respectively. There were 0 outstanding borrowings under the Revolver as of September 30, 2018.

Adtalem had a letter of credit outstanding of $68.4 million as of each of ~~March 31,~~September 30, 2019, June 30, ~~2018~~2019 and ~~March 31,~~September 30, 2018. This letter of credit was posted in the second quarter of fiscal year 2017 in relation to a settlement with the Federal Trade Commission ~~settlement.~~(“FTC”). As of ~~March 31,~~September 30, 2019, Adtalem is charged an annual fee equal to 2.25% of the undrawn face amount of the outstanding letters of credit under the Revolver, payable quarterly. Adtalem continues to post the letter of credit in relation to the ~~Federal Trade Commission~~ settlement with the FTC on behalf of DeVry University and is reimbursed by DeVry University for 2.00% of the outstanding amount of this letter of credit. The Credit Agreement also requires payment of a commitment fee equal to 0.40% of the undrawn portion of the Revolver as of ~~March 31,~~September 30, 2019. The amount undrawn under the Revolver, which includes the impact of the outstanding letters of credit, was ~~$231.6~~$191.6 million as of ~~March 31,~~September 30, 2019. The letter of credit fees and commitment fees are adjustable quarterly, based upon Adtalem’s achievement of certain financial ratios.

Debt Issuance Costs

Adtalem incurred $9.9 million in fees that were capitalized in relation to the Credit Agreement, $7.1 million of which was related to the Term B Loan facility and $2.7 million of which was related to the Revolver facility. The deferred debt issuance costs related to the Term B Loan are presented as a direct deduction from the face amount of the debt, while the deferred debt issuance costs related to the Revolver are classified as Other Assets, Net on the Consolidated Balance Sheets. The deferred debt issuance costs amortization is recorded in Interest Expense in the Consolidated Statements of Income (Loss). The following table summarizes the total deferred debt issuance costs for the Term B Loan and Revolver, which ~~will be~~are being amortized over seven years and five years, respectively (in thousands):


	Term B Loan		Revolver		Total
Deferred Debt Issuance Costs at June 30, 2019	$	5,906	$	2,061	$	7,967
Amortization of Deferred Debt Issuance Costs		(256)		(136)		(392)
Deferred Debt Issuance Costs at September 30, 2019	$	5,650	$	1,925	$	7,575

Term B Loan Revolver Total
Deferred Debt Issuance Costs at June 30, 2018 $ 6,927 $ 2,606 $ 9,533
Amortization of Deferred Debt Issuance Costs (766 ) (409 ) (1,175 )
Deferred Debt Issuance Costs at March 31, 2019 $ 6,161 $ 2,197 $ 8,358

Covenants and Guarantees

The Credit Agreement contains customary covenants, including restrictions on our restricted subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interest on assets, make acquisitions, loans, advances or investments, or sell or otherwise transfer assets.

The Credit Agreement contains covenants that, among other things, require maintenance of certain financial ratios, as defined in the agreement. Maintenance of these financial ratios could place restrictions on Adtalem’s ability to pay dividends. These financial ratios include a consolidated fixed charge coverage ratio, a consolidated leverage ratio and a U.S. Department of Education financial responsibility ratio based upon a composite score of an equity ratio, a primary reserve ratio and a net income ratio. Failure to maintain any of these ratios or to comply with other covenants contained in the Credit Agreement would constitute an event of default and could result in termination of the Credit Agreement and require payment of all outstanding borrowings and replacement of outstanding letters of credit. Adtalem was in compliance with the debt covenants as of ~~March 31,~~September 30, 2019.

The stock of all U.S. and certain foreign subsidiaries of Adtalem is pledged as collateral for borrowings under the Credit Agreement.

The Term B Loan requires mandatory prepayments equal to a percentage of Excess Cash Flow, which is defined within the Credit Agreement, subject to incremental step-downs, depending on the consolidated leverage ratio. Beginning in

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fiscal year 2019, the Excess Cash Flow payment is due in the first quarter of each year and is based on the Excess Cash Flow and ~~consolidated~~ leverage ratio for the prior year. NoNaN payment was due as of ~~March 31,~~September 30, 2019.

Our borrowings under the Credit Facility are guaranteed by us and all of our domestic subsidiaries (subject to certain exceptions) and secured by a first lien on our assets and the assets of our guarantor subsidiaries (excluding real estate), including capital stock of the subsidiaries.

~~Deferred Acquisition Obligations~~

Adtalem also has liabilities recorded for deferred purchase price agreements with sellers related to the purchases of Faculdade Diferencial Integral (“Facid”), Faculdade Ideal (“Faci”), Damasio, Grupo Ibmec, Faculdade de Imperatriz (“Facimp”) and SJT. This financing is in the form of holdbacks of a portion of the purchase price of these acquisitions or installment payments. Payments are made under these agreements based on payment schedules or the resolution of any pre-acquisition contingencies.

NOTE ~~13:~~14: COMMITMENTS AND CONTINGENCIES

Adtalem is subject to lawsuits, administrative proceedings, regulatory reviews and investigations associated with financial assistance programs and other matters arising in the normal conduct of its business. As of ~~March 31,~~September 30, 2019, Adtalem believes it has adequately reserved for potential losses. The following is a description of pending legal and regulatory matters that may be considered other than ordinary, routine and incidental to the business. Descriptions of certain matters from prior SEC filings may not be carried forward in this report to the extent we believe such matters no longer are required to be disclosed or there has not been, to our knowledge, significant activity relating to them. The timing or outcome of the following matters, or their possible impact on Adtalem’s business, financial condition or results of operations, cannot be predicted at this time. The continued defense, resolution or settlement of any of the following matters could require us to expend significant resources and could have a material adverse effect on our business, financial condition, results of operations and cash flows and result in the imposition of significant restrictions on us and our ability to operate.

On May 13, 2016, a putative class action lawsuit was filed by the Pension Trust Fund for Operating Engineers, individually and on behalf of others similarly situated, against Adtalem, Daniel Hamburger, Richard M. Gunst, and Timothy J. Wiggins in the United States District Court for the Northern District of Illinois. The complaint was filed on behalf of a putative class of persons who purchased Adtalem common stock between February 4, 2011 and January 27, 2016. The complaint cites the January 27, 2016 Notice of Intent to Limit (the “January 2016 Notice”) and a civil complaint (the “FTC lawsuit”) filed by the FTC on January 27, 2016 against Adtalem, DeVry University, Inc., and DeVry/New York Inc. (collectively, the “Adtalem Parties”), which was resolved with the FTC in 2017, that alleged that certain of DeVry University’s advertising claims were false or misleading or unsubstantiated at the time they were made in violation of Section 5(a) of the FTC Act, as the basis for claims that defendants made false or misleading statements regarding DeVry University’s graduate employment rate and the earnings of DeVry University graduates relative to the graduates of other universities and colleges. As a result of these alleged false or misleading statements, the plaintiff alleged that defendants overstated Adtalem’s growth, revenue and earnings potential and made false or misleading statements about Adtalem’s business, operations and prospects. The plaintiff alleged direct liability against all defendants for violations of §10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (the “Exchange Act”) and asserted liability against the individual defendants pursuant to § 20(a) of the Exchange Act. The plaintiff sought monetary damages, interest, attorneys’ fees, costs and other unspecified relief. On July 13, 2016, the Utah Retirement System (“URS”) moved for appointment as lead plaintiff and approval of its selection of counsel, which was not opposed by the Pension Trust Fund for Operating Engineers. URS was appointed as lead plaintiff on August 24, 2016. URS filed a second amended complaint (“SAC”) on December 23, 2016. The SAC sought to represent a putative class of persons who purchased Adtalem common stock between August 26, 2011 and January 27, 2016 and named an additional individual defendant, Patrick J. ~~Unzicker.~~Unzicker, Adtalem’s former Chief Financial Officer. Like the original complaint, the SAC asserted claims against all defendants for alleged violations of §10(b) and Rule 10b-5 of the Exchange Act and asserted liability against the individual defendants pursuant to § 20(a) of the Exchange Act for alleged material misstatements or omissions regarding DeVry University graduate outcomes. On January 27, 2017, defendants moved to dismiss the SAC, which motion was granted on December 6, 2017, without prejudice. The plaintiffs filed a ~~Third Amended Complaint~~third amended complaint (“TAC”) on January 29, 2018. The defendants moved to dismiss the TAC on March 30, 2018. The court denied the motion to dismiss the TAC on December 20, 2018. On February 8, 2019, defendants filed their answer to the TAC wherein defendants denied all material allegations in the TAC. The parties ~~have exchanged written discovery requests~~engaged in mediation and ~~responses and objections to those requests.~~reached a tentative resolution. On September 5, 2019, the court granted preliminary approval of the class action settlement. The ~~Magistrate Judge assigned to manage discovery in this case has~~final approval hearing is set ~~a status conference~~ for ~~June 19, 2019, to address any preliminary discovery disputes arising from the parties’ initial discovery responses.~~

December 6, 2019.

On October 14, 2016, a putative class action lawsuit was filed by Debbie Petrizzo and ~~five~~5 other former DeVry University students, individually and on behalf of others similarly situated, against the Adtalem Parties in the United States District Court for the Northern District of Illinois (the “~~Petrizzo~~“Petrizzo Case”). The complaint was filed on behalf of a putative class of persons consisting of those who enrolled in and/or attended classes at DeVry University ~~from at least~~during and after 2002 ~~through the present~~ and

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who were unable to find employment within their chosen field of study within six months of graduation. Citing the FTC lawsuit, the plaintiffs claimed that defendants made false or misleading statements regarding DeVry University’s graduate employment rate and asserted claims for unjust enrichment and violations of ~~six~~6 different states’ consumer fraud, unlawful trade practices, and consumer protection laws. The plaintiffs seek monetary, declaratory, injunctive, and other unspecified relief.

On October 28, 2016, a putative class action lawsuit was filed by Jairo Jara and ~~eleven~~11 others, individually and on behalf of others similarly situated, against the Adtalem Parties in the United States District Court for the Northern District of Illinois (the “~~Jara~~“Jara Case”). The individual plaintiffs claimed to have graduated from DeVry University in 2001 or later and sought to proceed on behalf of a putative class of persons consisting of those who obtained a degree from DeVry University and who were unable to find employment within their chosen field of study within six months of graduation. Citing the FTC lawsuit, the plaintiffs claimed that defendants made false or misleading statements regarding DeVry University’s graduate employment rate and asserted claims for unjust enrichment and violations of ~~ten~~10 different states’ consumer fraud, unlawful trade practices, and consumer protection laws. The plaintiffs sought monetary, declaratory, injunctive, and other unspecified relief.

By order dated November 28, 2016, the district court ordered thePetrizzo Case and the Jara ~~Cases~~ Case be consolidated under thePetrizzo caption for all further purposes. On December 5, 2016, plaintiffs filed an amended consolidated complaint on behalf of 38 individual plaintiffs and others similarly situated. The amended consolidated complaint sought to bring claims on behalf of the named individuals and a putative nationwide class of individuals for unjust enrichment and alleged violations of the Illinois Consumer Fraud and Deceptive Practices Act and the Illinois Private Businesses and Vocational Schools Act of 2012. In addition, it purported to assert causes of action on behalf of certain of the named individuals and 15 individual state-specific putative classes for alleged violations of 15 different states’ consumer fraud, unlawful trade practices, and consumer protection laws. Finally, it sought to bring individual claims under Georgia state law on behalf of certain named plaintiffs. The plaintiffs sought monetary, declaratory, injunctive, and other unspecified relief. A motion to dismiss the amended complaint was filed by the Adtalem Parties and granted by the court, without prejudice, on February 12, 2018.

On April 12, 2018, thePetrizzo plaintiffs refiled their complaint with a new lead plaintiff, Renee Heather Polly. The plaintiffs’ refiled complaint is nearly identical to the complaint previously dismissed by the court on February 12, 2018. The Adtalem Parties moved to dismiss this refiled complaint on May 14, 2018. The court granted defendants’ motion and dismissed the amended complaint with prejudice on February 13, 2019. On March 15, 2019, plaintiffs filed a notice of appeal and this matter is currently pending on appeal before the Seventh Circuit.

On January 17, 2017, Harriet Myers filed a complaint derivatively on behalf of Adtalem in the United States District Court for the Northern District of Illinois against individual defendants Daniel M. Hamburger, Timothy J. Wiggins, Richard M. Gunst, Patrick J. Unzicker, Christopher B. Begley, David S. Brown, Lisa W. Wardell, Ann Weaver Hart, Lyle Logan, Alan G. Merten, Fernando Ruiz, Ronald L. Taylor and James D. White. Adtalem was named as a nominal defendant only. The plaintiff agreed to a stipulated order moving the case to the United States District Court for the District of Delaware. Citing the FTC lawsuit and settlement, the January 2016 Notice, the negotiated agreement reached by DeVry University and ED on October 13, 2016 (the “ED Settlement”), and the allegations in the lawsuit filed by the Pension Trust Fund for Operating Engineers, each referenced above, the plaintiff has alleged that the individual defendants have breached their fiduciary duties and violated federal securities law since at least 2011. The plaintiff has asserted that the individual defendants permitted Adtalem to engage in unlawful conduct, failed to correct misconduct or prevent its recurrence, and failed to ensure the accurate dissemination of information to shareholders. The complaint attempts to state ~~three~~3 claims: (i) breach of fiduciary duty by all named defendants for allegedly allowing the illegal conduct to occur, (ii) unjust enrichment by all individual defendants in the receipt of compensation, and (iii) violation of Section 14(a) of the Exchange Act by failing to disclose the alleged illegal scheme in proxy statements and falsely stating that compensation was based on “pay for performance” where those performance results were allegedly false. The plaintiff seeks on behalf of Adtalem monetary, injunctive and other unspecified relief. The parties reached an agreement to settle this matter along with theCity of Hialeah matter (described below). The settlement approval hearing for theCity of Hialeah matter ~~will be heard~~was held on May 17, 2019. ~~Following approval of~~The court approved the settlement byand the ~~court in the~~~~City of Hialeah~~matter ~~the plaintiff in~~~~Myers~~ ~~matter will dismiss her lawsuit.~~

was dismissed.

On June 20, 2017, the City of Hialeah Employees Retirement System filed a complaint derivatively on behalf of Adtalem in the Court of Chancery of the State of Delaware against individual defendants Daniel M. Hamburger,

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Christopher B. Begley, Lisa W. Wardell, Lyle Logan, Fernando Ruiz, Ronald L. Taylor and James D. White. Adtalem was named as a nominal defendant only. Citing the FTC lawsuit and settlement, the January 2016 Notice and ED Settlement, and documents produced in response to plaintiff’s request under Section 220 of the Delaware ~~Code,~~General Corporation Law, the plaintiff alleges that the individual defendants have breached their fiduciary duties. The plaintiff asserts that the individual defendants permitted Adtalem and DeVry University to make, and failed to stop, false and misleading advertisements in breach of their fiduciary duties and in bad faith. The plaintiff seeks on behalf of Adtalem monetary and other unspecified relief. A motion to dismiss the complaint was filed by the Adtalem Parties on September 1, 2017, which was partially granted as to one count and partially denied as to another count on April 20, 2018. The parties reached an agreement to settle this matter along with theMyers matter (described above). The settlement approval hearing for theCity of Hialeah matter ~~will be heard~~was held on May 17, 2019.

The court approved the settlement and the matter was dismissed.

On April 13, 2018, a putative class action lawsuit was filed by Nicole Versetto, individually and on behalf of other similarly situated, against the Adtalem Parties in the Circuit Court of Cook County, Illinois, Chancery Division. The complaint was filed on behalf of herself and ~~three~~3 separate classes of similarly situated individuals who were citizens of the State of Illinois and who purchased or paid for a DeVry University program between January 1, 2008 and April 8, 2016. The plaintiff claims that defendants made false or misleading statements regarding DeVry University’s graduate employment rate and asserts causes of action under the Illinois Uniform Deceptive Trade Practices Act, Illinois Consumer Fraud and Deceptive Trade Practices Act, and Illinois Private Business and Vocational Schools Act, and claims of breach of contract, fraudulent misrepresentation, concealment, negligence, breach of fiduciary duty, conversion, unjust enrichment, and declaratory relief as to violations of state law. The plaintiff seeks compensatory, exemplary, punitive, treble, and statutory penalties and damages, including pre-judgment and post-judgment interest, in addition to restitution, declaratory and injunctive relief, and attorneys’ fees. The Adtalem Parties moved to dismiss this complaint on June 20, 2018. On March 11, 2019, the court granted plaintiff’s motion for leave to file an amended complaint. Plaintiff filed an amended complaint that same day, asserting similar claims, with new lead plaintiff, Dave McCormick. Defendants filed a motion to dismiss plaintiff’s amended complaint on April 15, 2019 and the court granted Defendants’ motion on July 29, 2019, with leave to amend. The plaintiff has filed an amended complaint on August 26, 2019.

Defendants’ intend to move to dismiss this complaint as it is substantially similar to the one the court previously dismissed.

On May 8, 2018, the Carlson Law Firm (“Carlson”) filed a lawsuit against Adtalem and DeVry University, Inc., on behalf of 71 individual former DeVry University students in Rangel v. Adtalem and DeVry University, Inc. Carlson filed this lawsuit in the United States District Court for the Western District of Texas. Plaintiffs contend that DeVry University “made deceptive representations about the benefits of obtaining a degree from DeVry University” in violation of Texas state laws and seek full restitution of all monies paid to DeVry University and any student loan lenders, punitive damages, and attorneys’ fees. The defendants moved to dismiss this complaint on June 5, 2018. On June 27, 2018, Carlson filed a second lawsuit on behalf of 32 former DeVry University students against Adtalem and DeVry University, Inc. in Lindberg v. Adtalem and DeVry University, Inc. Carlson filed this lawsuit in the United States District Court for the Western District of Texas. The allegations are identical to the allegations in the lawsuit Carlson filed on May 8, 2018. Specifically, plaintiffs contend that DeVry University “made deceptive representations about the benefits of obtaining a degree from DeVry University” in violation of Texas state ~~law~~laws and seek full restitution of all monies paid to DeVry University and any student loan lenders, punitive damages, and attorneys’ fees. The defendants moved to dismiss this complaint on August 28, 2018. The court consolidated these ~~two~~2 lawsuits on December 10, 2018. The defendants moved to dismiss the consolidated action on December 18, 2018. On January 2, 2019, Carlson filed a motion to intervene on behalf of 13 additional former DeVry University students seeking to join the consolidated lawsuit. The parties re-filed their briefing on the motions to dismiss so that the motion would apply to all three groups of plaintiffs. On April 24, 2019, the Court granted Adtalem’s and DeVry University’s motions to ~~dismiss.~~dismiss, with leave to amend. The ~~Court gave~~plaintiffs filed an amended complaint on June 7, 2019. Defendants moved to dismiss the ~~plaintiffs 45 days to refile their~~ complaint ~~otherwise their cases will be dismissed with prejudice.~~

on July 5, 2019. That motion is fully briefed and set for oral argument on November 20, 2019.

On April 4, 2019, the Carlson Law Firm sent notice pursuant to California Legal Remedies Act, Civil Code § 1750, of 105 individuals who purportedly have claims against DeVry University and Adtalem based on allegedly deceptive comments made about the benefits of obtaining a DeVry University degree; specifically, that 90% of graduates obtained a job in their chosen field of study within six months of graduation, and that graduates were paid more than graduates of other universities. ~~Pursuant to~~On July 16, 2019, the ~~letter,~~Carlson Law Firm filed a lawsuit in the United States District Court for the Northern District of California – San Jose Division against Adtalem and DeVry University on behalf of 102 individual former DeVry University students in Alvarez v. Adtalem and DeVry University, Inc. The plaintiffs contend that defendants

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misrepresented the benefits of graduating from DeVry University and falsely and misleadingly advertised the employment rate and income rate of their graduates to induce potential students to purchase educational products and services, and to remain students through graduation. The lawsuit seeks exemplary damages, restitution, economic damages, punitive damages, pre- and post-judgment interest, attorneys’ fees and the cost of suit. The plaintiffs brought claims for fraud by misrepresentation, fraud by concealment, negligent misrepresentation, civil theft, violation of the California Consumer Legal Remedies Act, violation of California’s Unfair Competition Law, and violation of California’s False Advertising Law. Defendants filed a motion to dismiss the complaint on October 1, 2019, and are awaiting Plaintiffs’ response to that motion.

On August 13, 2019, a plaintiff, Magana, filed a putative class action lawsuit against Adtalem ~~have until May 4, 2019, to respond to~~and DeVry University, Inc. in the ~~demand letters or~~United States District Court for the ~~individuals will have~~Eastern District of California, alleging damages based on allegedly deceptive statements made about the ~~right~~benefits of obtaining a DeVry University degree. Plaintiffs assert claims under the California Unfair Competition Law, California False Advertising Law, and claims of fraud/material misrepresentation, fraudulent concealment/intentional omission of material facts, negligent misrepresentation, breach of contract, breach of fiduciary duty, conversion, unjust enrichment, and declaratory relief. Defendants intend to file a ~~lawsuit.~~

motion to dismiss plaintiffs’ complaint.

On June 21, 2018, ~~the~~ Stoltmann Law ~~Firm~~Offices filed a lawsuit against Adtalem in Cook County Circuit Court, alleging that Adtalem breached a contract with ~~the~~ Stoltmann Law ~~Firm~~Offices to pay filing fees associated with arbitration claims ~~the~~ Stoltmann Law ~~Firm~~Offices has filed with ~~JAMS. The~~the Judicial Arbitration and Mediation Services, Inc. (“JAMS”). Stoltmann Law ~~Firm~~Offices is seeking ~~Specific Performance~~specific performance from the court. Adtalem moved to dismiss this complaint on August 3, 2018. Prior to the court ruling on Adtalem’s motion to dismiss, ~~the~~ Stoltmann Law ~~Firm~~Offices and 399 individuals filed an amended complaint on August 9, 2018, asserting claims for specific performance, declaratory judgment and a petition to compel arbitration. Adtalem moved to dismiss the amended complaint on August 31, 2018. The court granted Adtalem’s motion to dismiss on November 30, 2018, but granted plaintiffs leave to file a second amended complaint. A single individual plaintiff filed a second amended complaint on January 3, 2019. Adtalem ~~has until~~moved to dismiss the complaint on May 23, 2019. While the motion to dismiss has been fully briefed, a hearing date has not yet been set.

On June 7, 2019, Stoltmann Law Offices filed a complaint in the Northern District of Illinois on behalf of Michael Forsythe seeking to ~~file~~compel arbitration of his consumer claims before JAMS. Adtalem moved to dismiss the complaint on July 1, 2019. The motion to dismiss is fully briefed, however, a ~~responsive pleading.~~hearing date has not yet been set.

Stoltmann Law Offices is representing hundreds of individuals who have filed claims with JAMS alleging fraud-based claims based on DeVry University’s graduate employment statistics. Stoltmann Law Offices has paid the filing fees for 8 of these arbitrations to move forward. On June 14, 2019, JAMS sent commencement letters initiating the arbitration process for the claims of James Archibald and Gilbert Caro. Defendants filed their answers to these 2 claims on June 28, 2019. An arbitration hearing is tentatively scheduled for March 9-12, 2020, to adjudicate the claims of James Archibald, and February 3-6, 2020, to adjudicate the claims of Gilbert Caro. On August 2, 2019, JAMS sent commencement letters initiating the arbitration process for the claims of Sterling Bridges, David Cobb, and Lacresha Houser. Defendants filed their answers to these claims on August 16, 2019. An arbitration hearing is tentatively scheduled to begin on April 14, 2020, to adjudicate the claims of David Cobb. An arbitration hearing is tentatively scheduled to begin on May 11, 2020, to adjudicate the claims of Lacresha Houser. On August 5, 2019, JAMS sent commencement letters initiating the arbitration process for the claims of Micael Pizzo, Damion Tilghman, and Rickya Tillery. Defendants filed their answers on August 19, 2019. An arbitration hearing is tentatively scheduled to begin on July 13, 2020, to adjudicate the claims of Rickya Tillery.

On March 29, 2019, a putative class action lawsuit was filed by Robby Brown, individually and on behalf of all others similarly situated, against Adtalem ~~Global Education Inc.~~ and DeVry University, Inc., in the Western District of Missouri. The complaint was filed on behalf of himself and ~~two~~2 separate classes of similarly situated individuals who were citizens of the State of Missouri and who purchased or paid for and received any part of a DeVry University program. The plaintiffs claim that defendants made false or misleading statements regarding DeVry University’s graduate employment rate and assert claims of breach of contract, negligent misrepresentation, fraudulent misrepresentation, fraudulent concealment, breach of fiduciary duty, conversion, unjust enrichment, and declaratory relief. The plaintiffs seek compensatory, exemplary, punitive, treble, and statutory penalties and damages as allowed by law, including pre-judgment and post-judgment interest disgorgement, restitution, injunctive and declaratory relief, and attorneys’ fees. Defendants ~~have not yet been served~~filed a motion to dismiss the

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complaint on May 31, 2019. On October 9, 2019, the court granted in part and denied in part the motion to dismiss. The court dismissed plaintiffs’ claims for unjust enrichment and conversion, allowing the remaining claims to proceed.

On or about April 1, 2019, Adtalem, Chamberlain and DeVry University received similar Civil Investigative Demands (“CID”) from the U.S. Department of Justice (the “DOJ”). The CIDs were issued pursuant to a False Claims Act inquiry concerning allegations that Adtalem, in particular Chamberlain and Adtalem’s former subsidiary DeVry University, submitted or caused the submission of false claims to the U.S. Department of Defense and U.S. Department of Veteran Affairs for federal funds under the GI Bill Programs and Tuition Assistance Program from 2011 to the date of the CIDs. It is specifically alleged that Chamberlain and DeVry University engaged in unlawful recruitment tactics, and provided incentive payments based directly or indirectly on securing federal financial aid. At this time, we cannot predict the duration or outcome of this investigation, but Adtalem is cooperating fully with this DOJ inquiry and is providing documents and other information requested by the ~~complaint.~~

DOJ.

On April 3, 2019, a putative class action lawsuit was filed by T’Lani Robinson, individually and on behalf of all others similarly situated, against Adtalem ~~Global Education Inc.~~ and DeVry University, Inc., in the Northern District of Georgia. The complaint was filed on behalf of herself and ~~three~~3 separate classes of similarly situated individuals who were citizens of the State of Georgia who purchased or paid for and received any part of a DeVry University program. The plaintiffs claim that defendants made false or misleading statements regarding DeVry University’s graduate employment rate and assert claims of breach of contract, negligent misrepresentation, fraudulent misrepresentation, fraudulent concealment, breach of fiduciary duty, conversion, unjust enrichment, and declaratory relief. The plaintiffs seek compensatory, exemplary, punitive, treble, and statutory penalties and damages as allowed by law, including pre-judgment and post-judgment interest disgorgement, restitution, injunctive and declaratory relief, and attorneys’ fees. Defendants ~~have not yet~~filed a motion to dismiss the complaint on May 31, 2019. The motion to dismiss has been ~~served with~~fully briefed and the ~~complaint.~~parties are awaiting a decision by the court.

NOTE ~~14:~~15: SEGMENT INFORMATION

~~Beginning in the second quarter of fiscal year 2018, DeVry University operations were classified as discontinued operations. In addition, beginning in~~During the fourth quarter of fiscal year ~~2018, Carrington~~2019, Adtalem renamed 2 of its segments: Professional Education was renamed Financial Services, and Technology and Business was renamed Business and Law.

Beginning in the first quarter of fiscal year 2020, Adtalem Brazil operations were classified as discontinued operations. See “Note 2: Discontinued ~~Operations”~~Operations and Assets Held for Sale” for further information. Segment information presented excludes the results of ~~DeVry University~~Adtalem Brazil. Adtalem eliminated its Business and ~~Carrington, which were previously~~Law reportable segment during the first quarter of fiscal year 2020 when Adtalem Brazil was classified ~~within our former U.S. Traditional Postsecondary segment and are presented~~ as discontinued ~~operations in the Consolidated Financial Statements.~~operations. Discontinued operations assets are included in the table below to reconcile to Total Consolidated Assets presented on the Consolidated Balance Sheets. In addition, certain expenses previously allocated to ~~DeVry University and Carrington~~Adtalem Brazil within our former ~~U.S. Traditional Postsecondary~~Business and Law segment have been reclassified to the Home Office and Other segment based on discontinued ~~operating~~operations reporting guidance regarding allocation of corporate overhead.

~~Adtalem’s principal business is the provision of educational services.~~ Adtalem presents ~~three reporting~~2 reportable segments: “Medical and Healthcare,” which includes the operations of Chamberlain and the medical and veterinary schools (which include AUC, RUSM and RUSVM); ~~“Professional Education,~~and “Financial Services,” which includes the operations of ACAMS, Becker, OCL and ~~EduPristine;~~EduPristine. “Home Office and ~~“Technology and Business,” which~~Other” includes ~~the operations of Adtalem Brazil.~~

activity not allocated to a reportable segment.

These segments are consistent with the method by which the Chief Operating Decision Maker (Adtalem’s Chairman, President and Chief Executive Officer) evaluates performance and allocates resources. Performance evaluations are based, in part, on each segment’s operating income. Intersegment sales are accounted for at amounts comparable to sales to nonaffiliated customers and are eliminated in consolidation. “Home Office and Other” includes activity not allocated to a ~~reporting~~reportable segment and is included to reconcile segment results to the Consolidated Financial Statements. Segments may have allocated depreciation expense related to depreciable assets reported as an asset in a different segment. The accounting policies of the segments are the same as those described in “Note 3: Summary of Significant Accounting Policies.”

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Summary financial information by ~~reporting~~reportable segment is as follows (in thousands):


	Three Months Ended
	September 30,
	2019		2018
Revenue:
Medical and Healthcare	$	207,487	$	202,100
Financial Services		47,126		35,646
Home Office and Other		—		(807)
Total Consolidated Revenue	$	254,613	$	236,939
Operating Income (Loss) from Continuing Operations:
Medical and Healthcare	$	28,500	$	1,656
Financial Services		2,128		4,750
Home Office and Other		(4,887)		(9,638)
Total Consolidated Operating Income (Loss) from Continuing Operations	$	25,741	$	(3,232)
Segment Assets:
Medical and Healthcare	$	1,006,655	$	872,108
Financial Services		582,820		452,054
Home Office and Other		261,205		401,643
Discontinued Operations		609,644		624,060
Total Consolidated Assets	$	2,460,324	$	2,349,865
Additions to Long-Lived Assets:
Medical and Healthcare	$	6,467	$	11,776
Financial Services		539		962
Home Office and Other		3,430		583
Total Consolidated Additions to Long-Lived Assets	$	10,436	$	13,321
Reconciliation to Consolidated Financial Statements:
Capital Expenditures	$	10,436	$	13,321
Total Consolidated Additions to Long-Lived Assets	$	10,436	$	13,321
Depreciation Expense:
Medical and Healthcare	$	7,231	$	6,260
Financial Services		294		367
Home Office and Other		868		1,100
Total Consolidated Depreciation Expense	$	8,393	$	7,727
Intangible Asset Amortization Expense:
Financial Services	$	2,534	$	1,605
Total Consolidated Intangible Asset Amortization Expense	$	2,534	$	1,605

Three Months Ended
March 31,

Nine Months Ended
March 31,

2019 2018 2019 2018
Revenue:
Medical and Healthcare $ 223,575 $ 220,067 $ 638,302 $ 614,649
Professional Education 35,935 31,505 113,723 101,906
Technology and Business 49,907 59,030 159,791 196,602
Home Office and Other (808 ) (532 ) (2,423 ) (1,733 )
Total Consolidated Revenue $ 308,609 $ 310,070 $ 909,393 $ 911,424
Operating Income (Loss) from Continuing Operations:
Medical and Healthcare $ 53,093 $ 60,304 $ 115,396 $ 141,583
Professional Education 5,086 2,382 19,469 15,082
Technology and Business (2,561 ) (103 ) 3,165 15,749
Home Office and Other (9,312 ) (10,079 ) (23,933 ) (30,105 )
Total Consolidated Operating Income from Continuing Operations $ 46,306 $ 52,504 $ 114,097 $ 142,309
Segment Assets:
Medical and Healthcare $ 827,452 $ 935,360 $ 827,452 $ 935,360
Professional Education 446,752 455,358 446,752 455,358
Technology and Business 559,408 625,752 559,408 625,752
Home Office and Other 315,091 176,117 315,091 176,117
Discontinued Operations - 95,739 - 95,739
Total Consolidated Assets $ 2,148,703 $ 2,288,326 $ 2,148,703 $ 2,288,326
Additions to Long-Lived Assets:
Medical and Healthcare $ 10,978 $ 10,740 $ 37,696 $ 25,076
Professional Education 84 12,918 1,487 14,139
Technology and Business 2,287 3,746 5,584 19,445
Home Office and Other 2,149 4,506 6,086 8,811
Total Consolidated Additions to Long-Lived Assets $ 15,498 $ 31,910 $ 50,853 $ 67,471
Reconciliation to Consolidated Financial Statements:
Capital Expenditures $ 15,498 $ 18,960 $ 50,853 $ 50,433
Increase in Capital Assets from Acquisitions - 287 - 303
Increase in Intangible Assets and Goodwill - 12,663 - 16,735
Total Increase in Consolidated Long-Lived Assets $ 15,498 $ 31,910 $ 50,853 $ 67,471
Depreciation Expense (1):
Medical and Healthcare $ 7,680 $ 8,360 $ 20,449 $ 23,171
Professional Education 480 533 1,212 1,515
Technology and Business 2,348 2,569 7,032 7,792
Home Office and Other 653 399 3,065 1,076
Total Consolidated Depreciation Expense $ 11,161 $ 11,861 $ 31,758 $ 33,554
Intangible Asset Amortization Expense:
Professional Education $ 1,605 $ 1,626 $ 4,816 $ 4,876
Technology and Business 389 748 1,415 2,457
Total Consolidated Amortization Expense $ 1,994 $ 2,374 $ 6,231 $ 7,333

~~(1) Depreciation expense for each reporting segment has been modified to current presentation to include the Home Office and Other depreciation which is allocated to each reporting segment.~~

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Adtalem conducts its educational and financial services operations in the U.S., Barbados, St. Kitts, St. Maarten, ~~Brazil,~~India, Europe, China, Canada, ~~Europe,~~and the Middle ~~East, India, China and the Pacific Rim.~~East. Other international revenue ~~which is derived principally from Europe and the Pacific Rim,~~ was less than 5% of total revenue for each of the three ~~and nine~~ months ended ~~March 31,~~September 30, 2019 and 2018. Revenue and long-lived assets by geographic area are as follows (in thousands):


	Three Months Ended
	September 30,
	2019		2018
Revenue from Unaffiliated Customers:
Domestic Operations	$	161,397	$	146,662
International Operations:
Barbados, Dominica, St. Kitts and St. Maarten		90,969		88,447
Other		2,247		1,830
Total International		93,216		90,277
Total Consolidated Revenue	$	254,613	$	236,939
Long-Lived Assets:
Domestic Operations	$	196,331	$	152,427
International Operations:
Barbados, Dominica, St. Kitts and St. Maarten		173,793		161,136
Other		1,785		2,012
Total International		175,578		163,148
Total Consolidated Long-Lived Assets	$	371,909	$	315,575

Three Months Ended
March 31,

Nine Months Ended
March 31,

2019 2018 2019 2018
Revenue from Unaffiliated Customers:
Domestic Operations $ 160,948 $ 157,064 $ 468,787 $ 453,183
International Operations:
Barbados, Dominica, St. Kitts and St. Maarten 95,366 91,580 274,207 257,194
Brazil 49,907 59,030 159,791 196,602
Other 2,388 2,396 6,608 4,445
Total International 147,661 153,006 440,606 458,241
Total Consolidated Revenue $ 308,609 $ 310,070 $ 909,393 $ 911,424
Long-Lived Assets:
Domestic Operations $ 156,881 $ 150,759 $ 156,881 $ 150,759
International Operations:
Barbados, Dominica, St. Kitts and St. Maarten 174,827 174,921 174,827 174,921
Brazil 89,233 107,573 89,233 107,573
Other 2,065 2,133 2,065 2,133
Total International 266,125 284,627 266,125 284,627
Total Consolidated Long-Lived Assets $ 423,006 $ 435,386 $ 423,006 $ 435,386

No one customer accounted for more than 10% of ~~Adtalem's~~Adtalem’s consolidated revenue.

NOTE ~~15: SUBSEQUENT EVENT~~

16: REAL ESTATE TRANSACTIONS

On ~~April 12,~~July 31, 2019, Adtalem ~~entered into~~sold its Chicago, Illinois, campus facility to DePaul College Prep for $52.0 million. Adtalem received $5.2 million of cash at the time of closing and holds a ~~Membership Interests Purchase Agreement (the “Purchase Agreement”)~~mortgage, secured by the property, from DePaul College Prep for $46.8 million. The mortgage is due on July 31, 2024 as a balloon payment and bears interest at a rate of 4% per annum, payable monthly. The buyer has an option to make prepayments. Due to Adtalem’s involvement with ~~OCL Financial Services LLC (“OCL FS”)~~financing the sale, the transaction did not qualify as a sale for accounting purposes. Adtalem continues to maintain the assets associated with the sale on the Consolidated Balance Sheets. Adtalem has recorded a note receivable of $40.4 million and ~~OCL Professional Education, Inc. (“Seller”), pursuant to~~a financing payable of $45.6 million, which ~~Adtalem agreed to purchase all~~are classified as Other Assets, Net and Other Liabilities, respectively, on the Consolidated Balance Sheets. See “Note 6: Financing Receivables” for a discussion on the discounting of the ~~membership interests of OCL FS from Seller. OCL FS offers education and compliance solutions courses in~~note receivable. The $5.2 million received during the field of financial services. Subject to the terms and conditions of the Purchase Agreement, at the closing of the transaction, Adtalem will pay consideration of $121.0 million in cash to Seller, subject to adjustments for working capital, cash, indebtedness and transaction expenses, to acquire all of the membership interests of OCL FS (the “Transaction”). The Transaction is expected to close in the fourthfirst quarter of fiscal year ~~2019.~~2020 is classified as a financing activity on the Consolidated Statements of Cash Flows.

On September 27, 2019, Adtalem closed on the sale of its Columbus, Ohio, campus facility. Net proceeds from the sale of $6.4 million resulted in a gain on the sale of $4.8 million. This gain was recorded at Adtalem’s home office, which is classified as “Home Office and Other” in “Note 15: Segment Information.”

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Through its website, Adtalem Global Education Inc. (“Adtalem,” “we,” “our,” or “us”) offers its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other reports filed with the Securities and Exchange Commission (“SEC”). Adtalem’s website is http://www.adtalem.com. Except as otherwise stated in these reports, the information contained on our website or available by hyperlink from our website is not incorporated into our Annual Report on Form 10-K, this Quarterly Report on Form 10-Q, or other documents we file with, or furnish to, the SEC.

The following discussion of Adtalem’s results of operations and financial condition should be read in conjunction with Adtalem’s Consolidated Financial Statements and the related Notes thereto in “Item 1 – Financial Statements” in this Quarterly Report on Form 10-Q and Adtalem’s Consolidated Financial Statements and related Notes thereto in “Item 8 –

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Financial Statements and Supplementary Data” in Adtalem’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~2019. Adtalem’s Annual Report on Form 10-K includes a description of critical accounting policies and estimates and assumptions used in the preparation of Adtalem’s financial statements. These assumptions include, but are not limited to, the use of estimates and assumptions that affect the reported amounts of assets and liabilities; revenue and expense recognition; allowance for uncollectible accounts; internal-use developed software; land, building and equipment; stock-based compensation; valuation of goodwill and other intangible assets; valuation of long-lived assets; and income taxes.

The seasonal pattern of Adtalem’s enrollments and its educational programs’ starting dates affect the results of operations and the timing of cash flows. Therefore, management believes that comparisons of its results of operations should primarily be made to the corresponding period in the preceding year. Comparisons of financial position should be made to both the end of the previous fiscal year and to the end of the corresponding quarterly period in the preceding year.

Unless indicated, or the context requires otherwise, references to “net income” refers to “net income attributable to Adtalem Global Education.”

During the fourth quarter of fiscal year 2019, Adtalem renamed two of its segments to better reflect our focus on growth strategies: Professional Education was renamed Financial Services, and Technology and Business was renamed Business and Law. As of ~~June~~September 30, ~~2018,~~2019, Adtalem eliminated its ~~U.S. Traditional Postsecondary reporting~~Business and Law reportable segment when ~~Carrington College~~Adtalem Education of Brazil (“~~Carrington”~~Adtalem Brazil”) was ~~placed into~~classified as discontinued operations and assets held for sale (see further details below under the heading ~~“Divestiture of Carrington College”~~"Divestitures"). As a result, Adtalem now has ~~three reporting~~two reportable segments: ~~“Medical~~"Medical and Healthcare,”" which includes the operations of Chamberlain University ~~(“Chamberlain”~~("Chamberlain") and the medical and veterinary schools (which include American University of the Caribbean School of Medicine ~~(“AUC”~~("AUC"), Ross University School of Medicine ~~(“RUSM”~~("RUSM") and Ross University School of Veterinary Medicine ~~(“RUSVM”~~("RUSVM")); ~~“Professional Education,”~~and "Financial Services," which includes the operations of the Association of Certified Anti-Money Laundering Specialists ~~(“ACAMS”~~("ACAMS"), Becker Professional Education ("Becker"), OnCourse Learning (“~~Becker”~~OCL”) and ~~EduPristine;~~EduPristine. “Home Office and ~~“Technology~~Other” includes activity not allocated to a reportable segment. Financial and ~~Business,” which includes~~descriptive information about Adtalem’s reportable segments is presented in “Note 15: Segment Information” to the ~~operations of Adtalem Education of Brazil (“Adtalem Brazil”).~~

Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q, including those statements concerning Adtalem’s expectations or plans, may constitute forward-looking statements subject to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. These forward-looking statements generally can be identified by phrases such as Adtalem ~~Global Education~~ or its management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,” “will,” “should,” “could,” or other words or phrases of similar import which predict or indicate future events or trends or that are not statements of historical matters. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances.

These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference are described throughout this report and from time to time in our filings with the SEC, including those in this Quarterly Report on Form 10-Q: “Note ~~13:~~14: Commitments and Contingencies” to the Consolidated Financial Statements, ~~“Item~~Part II, Item 1 ~~– Legal Proceedings” and “Item 1A – Risk Factors,~~“Legal Proceedings,” and in the subsection of Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” titled “Liquidity and Capital Resources” and in our most recent Annual Report on Form 10-K for the fiscal year ended June 30, 2019 filed with the SEC on August 28, 2019: in the subsections of ~~“Item~~Item 1 ~~– Business”~~“Business” titled “Market Trends and Competition,” “Student Admissions,” “Accreditation,” “Financial Aid and Financing Student Education,” “Legislative and Regulatory Requirements,” “Seasonality” and “Employees” and in ~~our most recent Annual Report on Form 10-K for the year ending June 30, 2018 filed with the SEC on August 24, 2018 and our other filings with the SEC.~~Item 1A “Risk Factors.” Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. All forward-looking statements set forth in this Quarterly Report on Form 10-Q are qualified by these cautionary statements, and should be considered in the context of the risk factors referred to above and discussed elsewhere in this Quarterly Report on Form 10-Q. There can

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be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to or effects on us or our business or operations. Forward-looking statements set forth in this Quarterly Report on Form 10-Q speak only as of the date hereof, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events, except to the extent required by ~~law.~~

law or the rules and regulations of the SEC.

OVERVIEW

Adtalem’s financial results for the ~~third~~first quarter of fiscal year ~~2019~~2020 reflect a revenue ~~decrease~~growth of ~~$1.5~~$17.7 million, or ~~0.5%~~7.5%, compared to the year-ago quarter, driven by ~~a decrease in~~increased revenue in ~~the Technology and Business segment, which included a negative foreign currency exchange impact in Brazil. This decrease was partially offset by revenue increases in the~~both Medical and Healthcare and ~~Professional Education~~Financial Services segments. On a constant currency basis, revenue in the third quarter of fiscal year 2019 increased 2.1% compared to the year-ago quarter. Net income in the third quarter of fiscal year 2019 of $37.9 million decreased $1.4 million, or 3.6%, compared to the year-ago quarter. Net income from continuing operations ~~excluding~~increased to $17.5 million compared to a net loss of $4.8 million in the year ago quarter. Excluding special items, net income from continuing operations decreased ~~7.7%~~29.2% in the ~~third~~first quarter of fiscal year ~~2019~~2020 compared to the year-ago quarter driven by an increase in interest expense and operating income decreases in the Medical and Healthcare and Technology and Business segments. These decreases were partially offset by an increase in operating income in the Professional Education segment and cost reductions at home office. (See(see “Use of Non-GAAP Financial Information and Supplemental Reconciliation Schedule” below).Operational and financial highlights for the ~~third~~first quarter of fiscal year ~~2019 include~~:

2020 include:

·●

In January 2019, RUSM commenced operations at its new campus in Barbados. Academic facilities are located in Bridgetown. Student housing is located close to academic facilities in the parish of Christ Church at an existing housing community that was completed by RUSM and includes amenities, student services and convenient transportation to campus.

For the ~~March~~September 2019 session, new and total student enrollment at Chamberlain increased ~~3.4%~~2.9% and 1.4%, respectively, compared to the same term last year. Chamberlain continues to invest in its programs, student services and campus locations. Chamberlain’s newest campus in San Antonio, Texas, began instruction in October 2019.

·●

~~For~~The addition of OCL and the ~~March 2019 session, at Adtalem Brazil new student enrollment increased 17.7% and total student enrollment increased 5.6%, compared~~shift of revenue from the largest annual ACAMS conference to the ~~same session last year. Online and Grupo Ibmec enrollment were~~first quarter of fiscal year 2020 from the ~~main drivers of the increases.~~

~~During the third~~second quarter of fiscal year 2019, ~~Adtalem recorded restructuring charges~~contributed to revenue growth in the Financial Services segment of ~~$3.9 million primarily related~~32.2% in the first quarter of fiscal year 2020 compared to ~~real estate consolidations at Adtalem Brazil and Adtalem’s home office.~~the year-ago quarter. ACAMS memberships have increased to more than 75,000 as of September 30, 2019.

·●

Adtalem ~~completed its tenth share repurchase program and commenced~~continued its eleventh share repurchase program by repurchasing a total of ~~1,266,160~~918,807 shares of Adtalem’s common stock at an average cost of ~~$48.15~~$43.81 per share during the ~~third~~first quarter of fiscal year 2019. On November 7, 2018, the Board of Directors of Adtalem approved the eleventh share repurchase program, which allows Adtalem to repurchase up to $300 million of its common stock, from time to time, through December 31, 2021.2020.

·●

Adtalem’s financial position ~~remained strong, generating $128.5~~remains strong. Operating cash flows were $47.5 million ~~of operating cash flow~~ during the first ~~nine months~~quarter of fiscal year ~~2019.~~2020. As of ~~March 31,~~September 30, 2019, cash and cash equivalents totaled ~~$321.2~~$121.1 million and outstanding borrowings totaled ~~$297.8~~$336.3 million.

~~DIVESTITURE OF DEVRY UNIVERSITY~~DIVESTITURES

On ~~December 11, 2018,~~October 18, 2019, Adtalem ~~completed the sale~~entered into a Stock Purchase Agreement (“Purchase Agreement”) with Estácio Participações S.A. (“Estácio”) and Sociedade de Ensino Superior Estaćio de Sá Ltda, a wholly owned subsidiary of ~~DeVry University to Cogswell pursuant~~Estácio (“Purchaser”). Pursuant to the ~~purchase agreement dated December 4, 2017. To support DeVry University’s future success,~~terms and subject to the conditions set forth in the Purchase Agreement, Adtalem ~~transferred DeVry University with~~ will sell all of the issued and outstanding shares of Adtalem Brasil Holding S.A. (a/k/a ~~working capital balance of $8.75~~Adtalem Brazil) to the Purchaser for approximately $465 million ~~at the closing date.~~in cash. In addition, Adtalem ~~has agreed~~expects to ~~indemnify Cogswell~~receive approximately $74 million in settlement of cash balances as of June 30, 2019 of $89 million, net of indebtedness of $15 million, resulting in total proceeds of $539 million. This transaction is expected to be completed in the first half of fiscal year 2021. This sale advances Adtalem’s strategy to become a leading workforce solutions provider in the medical and healthcare and financial services industries, aligning Adtalem’s portfolio to better address the global workforce skills gap and serve its markets in a more competitive and comprehensive way. In connection with the announced proposed sale of Adtalem Brazil, Adtalem entered into certain deal contingent foreign exchange forward contracts to economically hedge the Brazilian Real denominated purchase price through mitigation of the currency exchange rate risk. Management does not expect this contract to qualify for ~~certain losses including those related~~hedge accounting treatment under Accounting Standards Codification (“ASC”) 815, and as a result, all changes in fair value will be recorded to ~~certain pre-closing defense to repayment claims. The purchase agreement also includes an earn-out entitling~~ the income statement.

Adtalem ~~to payments of up to $20 million over a ten-year period payable based on DeVry University’s free cash flow.~~

~~DeVry University~~Brazil was an operating segment and was ~~previously included in our~~the only component of the former ~~U.S. Traditional Postsecondary reporting~~Business and Law reportable segment. Subject to the terms and conditions of the ~~purchase agreement, DeVry University was~~Purchase Agreement, Adtalem Brazil will be sold in its entirety. ~~Divesting DeVry University is a~~The potential strategic shift in the operations of Adtalem. DeVry University offered principally bachelor’s and master’s degrees in technology and business in the U.S., and Adtalem exited this market with this disposition. Adtalem’s only other operating segment that grants primarily bachelor’s and master’s degrees is Chamberlain, and this institution’s degrees are in nursing and related healthcare fields. Selling the DeVry University operating segment reduces the organization’s dependence on government Title IV funds for its revenue, which was one of Adtalem’s strategic goals. DeVry University was the legacy businesssale of Adtalem ~~and at one time accounted for the majority of its consolidated revenue and operating income. Disposal of this operating segment will~~Brazil is expected to have a significant effect on the operations and financial results of Adtalem (See “Note 2: Discontinued ~~Operations”)~~Operations and Assets Held for Sale” to the Consolidated Financial ~~Statements.~~Statements).

In addition to the potential sale of Adtalem Brazil, during the second quarter of fiscal year 2019, Adtalem divested DeVry University and Carrington College (“Carrington”). In accordance with U.S. Generally Accepted Accounting

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Principles (“GAAP”), we have classified the DeVry University, ~~entity~~Carrington and Adtalem Brazil entities as “Held for Sale” and “Discontinued ~~Operations.”~~Operations” in all periods presented as applicable. As a result, all financial results, disclosures and discussions of continuing operations in this Quarterly Report on Form 10-Q exclude DeVry University, Carrington and Adtalem Brazil operations, unless otherwise noted.

~~DIVESTITURE OF CARRINGTON COLLEGE~~

On December 4, 2018, Adtalem completed the sale of Carrington to SJVC pursuant to the Membership Interest Purchase Agreement (the “MIPA”) dated June 28, 2018. To support Carrington’s future success, Adtalem made a capital contribution of $7.5 million to Carrington, based on an agreed working capital balance of $11.5 million at the closing date.

Carrington was an operating segment and was previously included in our former U.S. Traditional Postsecondary reporting segment. Subject to the terms and conditions of the MIPA, Carrington was sold in its entirety. Divesting Carrington is a strategic shift in the operations of Adtalem. Carrington offered principally career specific certificate or associate degree programs in the U.S., and Adtalem exited this market with this disposition. Selling the Carrington operating segment reduces the organization’s dependence on government Title IV funds for its revenue, which is one of Adtalem’s important strategic goals. Disposal of this operating segment will have a significant effect on the operations and financial results of Adtalem (See “Note 2: Discontinued Operations”) to the Consolidated Financial Statements.

In accordance with GAAP, we have classified the Carrington entity as “Held for Sale” and “Discontinued Operations.” As a result, all financial results, disclosures and discussions of continuing operations in this Quarterly Report on Form 10-Q exclude Carrington operations, unless otherwise noted.

USE OF NON-GAAP FINANCIAL INFORMATION AND SUPPLEMENTAL RECONCILIATION SCHEDULE

During the ~~third~~first quarter of fiscal year 2020, Adtalem recorded special items related to the following:

●

Gain on the sale of Adtalem’s Columbus, Ohio, campus facility.

●

Restructuring charges at Becker related to the sale of Becker’s courses for healthcare students and at Adtalem’s home office related to real estate consolidations.

During the first ~~nine months~~quarter of fiscal year 2019, Adtalem recorded special items ~~related~~relating to the following:

·●

Restructuring charges related to the closing of the RUSM campus in Dominica ~~loss on sale charges at Adtalem Brazil related to the disposition of the Joao Pessoa institution,~~ and real estate consolidations at ~~Adtalem Brazil and~~ Adtalem’s home office.

~~Insurance settlement gain related to the final insurance settlement related to Hurricanes Irma and Maria at AUC and RUSM.~~

~~Adjustments to the preliminary income tax charges related to the implementation of the Tax Cuts and Jobs Act of 2017 and tax charges related to the divestiture of DeVry University.~~

~~During the third quarter and first nine months of fiscal year 2018, Adtalem recorded special items related to the following:~~

~~Restructuring charges related to severance for workforce reductions and real estate consolidations at the medical and veterinary schools and Adtalem’s home office.~~

~~Income tax charges related to implementation of the Tax Cuts and Jobs Act of 2017.~~

The following table illustrates the effects of discontinued operations and special items on Adtalem’s net income (loss). Management believes that the non-GAAP disclosure of net income from continuing operations excluding special items and adjusted earnings per share excluding discontinued operations and special items provides investors with useful supplemental information regarding the underlying business trends and performance of Adtalem’s ongoing operations and is useful for period-over-period comparisons of such operations given the nature of discontinued operations, ~~restructuring charges, insurance settlement~~ gain on sale of assets and ~~certain income tax~~restructuring charges. Adtalem uses these supplemental financial measures internally in its management and budgeting process. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, Adtalem’s reported results prepared in accordance with GAAP. The following table reconciles these non-GAAP measures to the most directly comparable GAAP information (in thousands, except per share amounts):

Three Months Ended
March 31,

Nine Months Ended
March 31,

2019 2018 2019 2018
Net Income (Loss) $ 37,905 $ 39,334 $ 45,670 $ (29,037 )
Earnings (Loss) per Share (diluted) $ 0.64 $ 0.63 $ 0.76 $ (0.46 )
Continuing Operations:
Restructuring Expense $ 3,902 $ 621 $ 47,095 $ 3,184
Effect on Earnings per Share (diluted) $ 0.07 $ 0.01 $ 0.78 $ 0.05
Insurance Settlement Gain $ - $ - $ (15,571 ) $ -
Effect on Earnings per Share (diluted) $ - $ - $ (0.26 ) $ -
Tax Cuts and Jobs Act of 2017 and Tax Charges Related to the Divestiture of DeVry University $ - $ - $ 1,526 $ 101,196
Effect on Earnings per Share (diluted) $ - $ - $ 0.03 $ 1.62
Income Tax Impact on Non-GAAP Adjustments (1) $ (105 ) $ (144 ) $ (5,074 ) $ (999 )
Effect on Earnings per Share (diluted) $ (0.00 ) $ (0.00 ) $ (0.08 ) $ (0.02 )
Discontinued Operations, net of tax $ (1,653 ) $ 3,571 $ 38,177 $ 45,539
Effect on Earnings per Share (diluted) $ (0.03 ) $ 0.06 $ 0.64 $ 0.73
Net Income from Continuing Operations Excluding
Special Items, net of tax $ 40,049 $ 43,382 $ 111,823 $ 119,883
Earnings per Share from Continuing Operations
Excluding Special Items, net of tax (diluted) $ 0.68 $ 0.70 $ 1.86 $ 1.92
Shares used in EPS calculation 58,802 61,965 60,004 62,474

~~(1)~~

Three Months Ended

September 30,

2019

2018

(in thousands, except per share amounts)

Net Income (Loss)

$
14,361

$
(9,530)

Earnings (Loss) per Share (diluted-2019, basic-2018)

$
0.26

$
(0.16)

Continuing Operations:

Restructuring Expense

$
6,530

$
39,473

Effect on Earnings per Share (diluted)

$
0.12

$
0.64

Gain on Sale of Assets

$
(4,779)

$
—

Effect on Earnings per Share (diluted)

$
(0.09)

$
—

Income Tax Impact on Non-GAAP Adjustments (1)

$
(343)

$
(7,952)

Effect on Earnings per Share (diluted)

$
(0.01)

$
(0.13)

Discontinued Operations, net of tax

$
3,156

$
4,743

Effect on Earnings per Share (diluted)

$
0.06

$
0.08

Net Income from Continuing Operations Excluding Special Items, net of tax

$
18,925

$
26,734

Earnings per Share from Continuing Operations Excluding Special Items, net of tax (diluted)

$
0.34

$
0.44

Shares used in Basic EPS Calculation

NA

60,328

Shares used in Diluted EPS Calculation

56,140

61,202

(1)	Represents the income tax impact of non-GAAP continuing operations adjustments that is recognized in our GAAP financial statements.

Table of ~~non-GAAP continuing operations adjustments that is recognized in our GAAP financial statements.~~Contents

RESULTS OF OPERATIONS

The following table presents information with respect to the relative size to revenue of ~~each item~~certain items in the Consolidated Statements of Income (Loss) for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2019 and 2018. Percentages may not add because of rounding.


	Three Months Ended
	September 30,
	2019		2018
Revenue	100.0	%	100.0	%
Cost of Educational Services	50.3	%	47.1	%
Student Services and Administrative Expense	38.9	%	37.6	%
Restructuring Expense	2.6	%	16.7	%
Gain on Sale of Assets	(1.9)	%	0.0	%
Total Operating Cost and Expense	89.9	%	101.4	%
Operating Income (Loss) from Continuing Operations	10.1	%	(1.4)	%
Net Other Expense	(1.8)	%	(1.7)	%
Income (Loss) from Continuing Operations Before Income Taxes	8.3	%	(3.0)	%
Income Tax (Provision) Benefit	(1.5)	%	1.0	%
Income (Loss) from Continuing Operations	6.8	%	(2.0)	%
Loss from Discontinued Operations, Net of Tax	(1.2)	%	(2.0)	%
Net Income (Loss)	5.6	%	(4.0)	%
Net Loss Attributable to Noncontrolling Interest	0.0	%	0.0	%
Net Income (Loss) Attributable to Adtalem Global Education	5.6	%	(4.0)	%

Three Months Ended
March 31,

Nine Months Ended
March 31,

2019 2018 2019 2018
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of Educational Services 50.7 % 51.4 % 50.9 % 53.8 %
Student Services and Administrative Expense 33.1 % 31.5 % 33.0 % 30.3 %
Restructuring Expense 1.3 % 0.2 % 5.2 % 0.3 %
Insurance Settlement Gain 0.0 % 0.0 % (1.7 )% 0.0 %
Total Operating Cost and Expense 85.0 % 83.1 % 87.5 % 84.4 %
Operating Income from Continuing Operations 15.0 % 16.9 % 12.5 % 15.6 %
Net Other Expense (0.8 )% (0.5 )% (1.2 )% (0.3 )%
Income from Continuing Operations Before Income Taxes 14.2 % 16.4 % 11.3 % 15.3 %
Income Tax Provision (2.4 )% (2.6 )% (2.1 )% (13.5 )%
Equity Method Investment Loss 0.0 % (0.0 )% 0.0 % (0.0 )%
Income from Continuing Operations 11.7 % 13.8 % 9.2 % 1.9 %
Income (Loss) from Discontinued Operations, Net of Tax 0.5 % (1.2 )% (4.2 )% (5.0 )%
Net Income (Loss) 12.3 % 12.7 % 5.0 % (3.1 )%
Net Loss (Income) Attributable to Noncontrolling Interest 0.0 % 0.0 % (0.0 )% (0.1 )%
Net Income (Loss) Attributable to Adtalem Global
Education 12.3 % 12.7 % 5.0 % (3.2 )%

REVENUE

All discussions of the results of operations exclude the results of DeVry University, Carrington and ~~Carrington,~~Adtalem Brazil, which are included in the discontinued operations section of the Consolidated Statements of Income (Loss) for all periods presented.

The following ~~tables present~~table presents revenue by segment detailing the changes from the year-ago ~~comparative periods~~period including disclosures of the effect of ~~acquisitions, Hurricanes Irma and Maria, and changes in~~ the ~~value~~acquisition of ~~the Brazilian Real compared to the U.S. dollar.~~OCL. Total consolidated revenue for the ~~third~~first quarter of fiscal year ~~2019~~2020 of ~~$308.6~~$254.6 million ~~decreased 0.5%~~increased 7.5%, or ~~$1.5~~$17.7 million, compared to the year-ago quarter. ~~For~~Excluding the ~~first nine months~~revenue added from OCL, which was acquired in the fourth quarter of fiscal year 2019, ~~total consolidated~~ revenue grew 4.2% or $10.1 million in the first quarter of ~~$909.4 million decreased 0.2%, or $2.0 million,~~fiscal year 2020 compared to the year-ago ~~period.~~quarter. Revenue results by segment are discussed in more detail in the sections below.


	Three Months Ended September 30, 2019
	(in thousands)
Revenue:	Medical and Healthcare			Financial Services			Home Office and Other		Consolidated
Fiscal Year 2019 as Reported	$	202,100		$	35,646		$	(807)	$	236,939
Organic Growth		5,387			3,867			807		10,061
Effect of Acquisitions		—			7,613			—		7,613
Fiscal Year 2020 as Reported	$	207,487		$	47,126		$	—	$	254,613

Fiscal Year 2020 % Change:
Organic Growth		2.7	%		10.8	%		NM		4.2	%
Effect of Acquisitions		—			21.4	%		NM		3.2	%
Fiscal Year 2020 % Change as Reported		2.7	%		32.2	%		NM		7.5	%

Three Months Ended March 31, 2019
(in thousands)
Revenue:
Medical and
Healthcare

Professional
Education

Technology
and Business

Home Office
and Other
Consolidated
Fiscal Year 2018 as Reported $ 220,067 $ 31,505 $ 59,030 $ (532 ) $ 310,070
Organic Growth (Decline) 7,177 3,848 (1,173 ) (276 ) 9,576
Effect of Acquisitions - 582 - - 582
Hurricane Impact (3,669 ) - - - (3,669 )
Effect of Currency Change - - (7,950 ) - (7,950 )
Fiscal Year 2019 as Reported $ 223,575 $ 35,935 $ 49,907 $ (808 ) $ 308,609

Fiscal Year 2019 % Change:
Organic Growth (Decline) 3.3 % 12.2 % (2.0 )% NM 3.1 %
Effect of Acquisitions - 1.8 % - NM 0.2 %
Hurricane Impact (1.7 )% - - NM (1.2 )%
Constant Currency 1.6 % 14.1 % (2.0 )% NM 2.1 %
Effect of Currency Change - - (13.5 )% NM (2.6 )%
Fiscal Year 2019 % Change as Reported 1.6 % 14.1 % (15.5 )% NM (0.5 )%

Nine Months Ended March 31, 2019
(in thousands)
Revenue:
Medical and
Healthcare

Professional
Education

Technology
and Business

Home Office
and Other
Consolidated
Fiscal Year 2018 as Reported $ 614,649 $ 101,906 $ 196,602 $ (1,733 ) $ 911,424
Organic Growth (Decline) 19,086 9,344 (6,638 ) (690 ) 21,102
Effect of Acquisitions - 2,473 1,100 - 3,573
Hurricane Impact 4,567 - - - 4,567
Effect of Currency Change - - (31,273 ) - (31,273 )
Fiscal Year 2019 as Reported $ 638,302 $ 113,723 $ 159,791 $ (2,423 ) $ 909,393

Fiscal Year 2019 % Change:
Organic Growth (Decline) 3.1 % 9.2 % (3.4 )% NM 2.3 %
Effect of Acquisitions - 2.4 % 0.6 % NM 0.4 %
Hurricane Impact 0.7 % - - NM 0.5 %
Constant Currency 3.8 % 11.6 % (2.8 )% NM 3.2 %
Effect of Currency Change - - (15.9 )% NM (3.4 )%
Fiscal Year 2019 % Change as Reported 3.8 % 11.6 % (18.7 )% NM (0.2 )%

Table of Contents

Medical and Healthcare

Revenue in the Medical and Healthcare segment increased ~~1.6%~~2.7%, or ~~$3.5~~$5.4 million, to ~~$223.6 million in the third quarter and increased 3.8%, or $23.7 million, to $638.3~~$207.5 million in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 compared to the year-ago ~~periods. In September 2017, Hurricanes Irma and Maria delayed~~quarter. Revenue in the ~~September 2017 semester of basic science academic instruction at AUC and RUSM, respectively, resulting in a $3.7 million shift of revenue from the~~ first ~~half of fiscal year 2018 to the third~~ quarter of fiscal year ~~2018, in addition to a~~2020 increased at Chamberlain driven primarily by increasing total student enrollment and increased revenue ~~loss in~~at the ~~first nine months of fiscal year 2018 of $4.6 million.~~medical and veterinary schools primarily driven by increased housing revenue at RUSM from its Barbados campus. Key trends for Chamberlain and the medical and veterinary schools are set forth below.

Chamberlain

~~Chamberlain Undergraduate and Graduate~~ Student Enrollment:


	Fiscal Year 2020
Term	July 2019		Sept. 2019
New Students	2,396		5,595
% Change from Prior Year	(5.0)	%	2.9	%
Total Students	28,691		31,736
% Change from Prior Year	2.3	%	1.4	%

	Fiscal Year 2019

																			Fiscal Year 2019
Term	July 2018			Sept. 2018			Nov. 2018			Jan. 2019			Mar. 2019						July 2018		Sept. 2018		Nov. 2018		Jan. 2019		Mar. 2019		May 2019
New Students		2,523			5,435			2,617			4,759			2,726					2,523		5,435		2,617		4,759		2,726		3,997
% Change from Prior Year		1.0	%		9.5	%		(6.7	)%		6.4	%		(3.7	)%				1.0	%	9.5	%	(6.7)	%	6.4	%	(3.7)	%	2.6	%
Total Students		28,037			31,295			30,833			32,354			32,104					28,037		31,295		30,833		32,354		32,104		30,867
% Change from Prior Year		4.6	%		4.1	%		3.7	%		3.3	%		3.4	%				4.6	%	4.1	%	3.7	%	3.3	%	3.4	%	1.8	%

	Fiscal Year 2018
Term	July 2017			Sept. 2017			Nov. 2017			Jan. 2018			Mar. 2018			May 2018
New Students		2,497			4,962			2,806			4,472			2,830			3,896
% Change from Prior Year		16.5	%		(0.8	)%		5.5	%		6.9	%		4.3	%		3.1	%
Total Students		26,811			30,062			29,719			31,333			31,053			30,309
% Change from Prior Year		6.3	%		4.5	%		5.1	%		5.2	%		4.5	%		4.7	%

Chamberlain revenue ~~decreased 0.2%~~increased 2.5%, or ~~$0.3~~$2.9 million, to ~~$128.2~~$116.5 million in the ~~third~~first quarter of fiscal year ~~2019~~2020 compared to the year-ago quarter, ~~as higher~~driven by increases in total student enrollment ~~was offset by lower fee revenue. Chamberlain revenue increased 1.9%, or $6.6 million, to $364.1 million~~ in the ~~first nine months~~July 2019 and September 2019 sessions. Chamberlain admitted its largest class of ~~fiscal year 2019 compared to the year-ago period, driven primarily by higher new and total enrollment~~campus students in ~~all tracks of the Master of Science in Nursing (“MSN”) degree, the campus-based Bachelor of Science of Nursing (“BSN”) program and the Doctorate of Nursing Practice (“DNP”) program.~~

September 2019.

Chamberlain currently operates 2122 campuses in 15 states. Chamberlain’s newest campus in ~~New Orleans, Louisiana,~~San Antonio, Texas, began instruction in ~~May 2018.~~

October 2019.

Tuition Rates:

Tuition is $675 per credit hour for ~~students enrolling~~the Bachelor of Science in ~~the BSN~~Nursing (“BSN”) onsite degree program. Tuition for the ~~RN-to-BSN~~Registered Nurse to BSN (“RN-to-BSN”) online degree program is $590 per credit hour. Tuition for ~~students enrolled in~~ the online ~~MSN~~Master of Science in Nursing (“MSN”) degree program is $650 per credit hour. For students enrolled in the Family Nurse Practitioner (“FNP”) ~~track,~~degree program, tuition is $665 per credit ~~hour for the ten FNP specialty courses.~~hour. Tuition for the online ~~DNP~~Doctor of Nursing Practice (“DNP”) degree program is $750 per credit hour. Tuition for the Master of Public Health (“MPH”) degree program is $550 per credit hour. Tuition for the online Master of Social Work (“MSW”) degree program that began in September 2019 is $695 per credit hour. All of these tuition rates are unchanged from the prior year. These tuition rates do not include the cost of books, supplies, transportation or living expenses.

Medical and Veterinary Schools

Medical and Veterinary Schools Student Enrollment:


	Fiscal Year 2020		Fiscal Year 2019
Term	Sept. 2019		Sept. 2018		Jan. 2019		May 2019
New Students	872		889		471		496
% Change from Prior Year	(1.9)	%	9.5	%	(8.5)	%	(0.6)	%
Total Students	5,608		5,887		5,548		5,220
% Change from Prior Year	(4.7)	%	2.5	%	(6.6)	%	(6.0)	%

Fiscal Year 2019
Term Sept. 2018 Jan. 2019
New Students 889 471
% Change from Prior Year 9.5 % (8.5 )%
Total Students 5,887 5,548
% Change from Prior Year 2.5 % (6.6 )%

Fiscal Year 2018
Term Sept. 2017 Jan. 2018 May 2018
New Students 812 515 499
% Change from Prior Year 0.7 % 11.5 % 9.0 %
Total Students 5,744 5,938 5,556
% Change from Prior Year (6.9 )% 1.3 % 1.2 %

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The medical and veterinary schools’ revenue increased ~~4.1%~~2.9%, or ~~$3.8~~$2.5 million, to ~~$95.4 million in the third quarter and increased 6.6%, or $17.0 million, to $274.2~~$91.0 million in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 compared to the year-ago ~~periods.~~quarter. The ~~principle drivers~~principal driver of the ~~increases were~~increase was higher housing revenue at the new Barbados campus of ~~RUSM,~~RUSM. This increase was partially offset by lower tuition price increases at the medical and veterinary schools and total enrollment increases. In the third quarter of fiscal year 2019, the comparison with fiscal year 2018 was negatively affected by $3.7 million of revenue at AUC and RUSM ~~(together~~driven by lower enrollment and increased discounts and scholarships from listed tuition rates.

In the ~~medical schools) that was recognized in~~September 2019 semester, total student enrollment declined at AUC, RUSM and RUSVM, and new student enrollment increased at AUC and RUSVM and declined at RUSM. The lower enrollment is the ~~third quarter of fiscal year 2018 and was deferred from the second quarter of fiscal year 2018 as a~~ result of Hurricanes Irma and Maria and the resulting postponement of the September 2017 semester’s basic science academic instruction at the medical schools. The revenue increase for first nine months of fiscal year 2019 was positively affected by lower comparable revenue in the first nine months of fiscal year 2018 due to $4.6 million in lost revenue at the medical schools as a result of the students withdrawing due to the hurricane disruptions.heightened competition. Management is executing its plan to differentiate the medical and veterinary schools from the competition, with a core goal of increasing international students, increasing RUSM affiliations with historically black colleges and universities (“HBCU”) and Hispanic-serving institutions (“HSI”), expanding AUC’s medical education program based in the U.K. in partnership with the University of Central Lancashire (“UCLAN”), and improving the effectiveness of marketing strategies by restructuring the marketing organization, and shifting from traditional media and event-driven marketing to greater use of digital and social media channels to drive awareness throughout the year.

New and total student enrollment increases in the September 2018 term were positively influenced by lower comparable enrollment in the September 2017 term due to the effects of the hurricanes at the medical schools. The January 2019 new student enrollment decline at the medical schools was negatively influenced by a high number of new students in the January 2018 term that had previously enrolled in September 2017, but did not start due to hurricanes. The new student enrollment increase in the September 2018 term also benefitted from improved effectiveness of marketing and recruiting strategies at RUSM and RUSVM.investments. Management believes the demand for medical and veterinary education remains strong and can support management’s longer-term expectations to grow new enrollments in the low-single digit range; however, heightened competition may continue to adversely affect the medical and veterinary schools’ ability to continue to attract qualified students to its ~~programs.~~programs resulting in lower tuition revenue.

In September 2019, AUC opened its medical education program in the U.K. in partnership with UCLAN. The program offers students a postgraduate diploma in International Medical Sciences (“PGIMS”) from UCLAN, followed by their Doctor of Medicine degree with AUC. Students will then be eligible to do clinical rotations at AUC’s clinical sites, which include hospitals in the U.S., the U.K. and Canada. This program is aimed at preparing students for the U.S. Medical Licensing Examination (“USMLE”).

In January 2019, RUSM moved its basic science instruction to a new location in Barbados. The academic facility is located in Bridgetown and student housing is located close to the academic facility in the parish of Christ Church ~~at an existing housing community that~~and includes amenities, student services and convenient transportation to campus.

Tuition Rates:

·●

Effective for semesters beginning in September ~~2018,~~2019, tuition rates for the beginning basic sciences and final clinical rotation portions of AUC’s medical program are ~~$22,454~~$23,240 and ~~$25,120,~~$26,000, respectively, per semester. These tuition rates represent a 3.5% increase over the prior academic year.

·●

Effective for semesters beginning in September ~~2018,~~2019, tuition rates for the beginning basic sciences and Internal Medicine Foundations/final clinical portion of the programs at RUSM are ~~$23,240~~$24,170 and ~~$25,650,~~$26,676, respectively, per semester. These tuition rates represent a 4.0% increase over the prior academic year.

·●

For students ~~beginning~~who entered the RUSVM program in September 2018 or later, the tuition rate for the pre-clinical (Semesters 1-7) and clinical curriculum (Semesters 8-10) is ~~$20,304~~$20,873 per ~~semester.~~semester effective September 2019. For students who entered RUSVM before September 2018, tuition rates for the pre-clinical and clinical curriculum are ~~$18,859~~$19,387 and ~~$23,676,~~$24,339, respectively, per ~~semester. These~~semester effective September 2019. The tuition rates effective September 2019 represent a 3%2.8% increase over the prior academic year.

The respective tuition rates for AUC, RUSM and RUSVM do not include the cost of transportation, living expenses or health insurance.

~~Professional Education~~Financial Services

Revenue in the ~~Professional Education~~Financial Services segment increased ~~14.1%~~32.2%, or ~~$4.4~~$11.5 million, to ~~$35.9 million in the third quarter and increased 11.6%, or $11.8 million, to $113.7~~$47.1 million in the first ~~nine months~~quarter of fiscal year 2020 compared to the year-ago quarter. Excluding the revenue added from OCL, which was acquired in the fourth quarter of fiscal year 2019, revenue grew 10.8% or $3.9 million in the first quarter of fiscal year 2020 compared to the year-ago ~~periods.~~quarter. The increase ~~in the third quarter and first nine months of fiscal year 2019~~ is driven ~~primarily~~ by revenue growth at ACAMS, ~~and improved~~partially due to the timing of their largest conference of the year taking place in the first quarter of fiscal year 2020 compared to it taking place in the second quarter of fiscal year 2019. The increase was partially offset with revenue ~~at Becker Accounting.~~declines related to Becker’s courses for healthcare students, which were divested in August 2019. ACAMS memberships have increased to ~~over 72,000~~ more than 75,000

Table of Contents

as of ~~March 31,~~September 30, 2019, driven by strong domestic growth as well as expansion in the Asia Pacific and European regions. ~~In addition, the acquisition in February 2018 of a 69% ownership interest in EduPristine has contributed to the revenue growth in both the third quarter and first nine months of fiscal year 2019.~~

~~Technology and Business~~

Revenue in the Technology and Business segment, which is composed solely of Adtalem Brazil, decreased 15.5%, or $9.1 million, to $49.9 million in the third quarter and decreased 18.7%, or $36.8 million, to $159.8 million in the first nine months of fiscal year 2019 compared to the year-ago periods. The decrease in value of the Brazilian Real compared to the U.S. dollar decreased reported revenue in the third quarter and first nine months of fiscal year 2019 by $8.0 million and $31.3 million, respectively, compared to the year-ago periods. Constant currency calculations assume conversions of local currency amounts at exchange rates in effect in the year-ago period compared to those conversions at exchange rates in effect during the current fiscal year period. On a constant currency basis, revenue decreased by 2.0% and 2.8% in the third quarter and first nine months of fiscal year 2019, respectively, compared to the year-ago periods. In addition to increased competition, the decreases were partially driven by the higher discounting necessary to offset the effect of reductions and timing delays in and the “Fundo de Financiamento Estudantil” or “Students Financing Fund” (“FIES”) program and reductions in the “Programa Universidade para Todos” or “University for All Program” (“PROUNI”) program. The Brazilian government run system that administers FIES was inaccessible to students for several weeks during March and April 2019, due to system issues. This hindered students’ ability to obtain funding necessary to finance their educations. In order to assist students with this funding gap, Adtalem Brazil increased the use of discounts. See below for further discussion of the changes in the FIES program. Additionally, declines in the number of students enrolled in law exam test preparation courses partially drove the revenue decreases. These declines are related to changes in the timing of the exam compared to the prior year as well as changes in the exam that are resulting in lower pass rates for the first level of the exam, which lowers demand for preparation courses for the subsequent level.

Brazil’s economy presented challenges for enrollment growth and created pricing pressures in the education sector. Adtalem Brazil’s revenue results have been negatively impacted by these conditions as well as reductions in the FIES program and increased competition. Adtalem Brazil students are eligible for loans under Brazil’s FIES public loan program, which is financed by the Brazilian government. As of March 31, 2019, approximately 19% of Adtalem Brazil’s degree-seeking students have obtained financing under the FIES program. This represents approximately 17% of Adtalem Brazil’s revenue. The Brazilian government has stated that it is supportive of the FIES program, which is an important factor in helping to increase the number of college graduates. However, the changes enacted during fiscal year 2018 reducing the number of FIES contracts available for grant by approximately 31% to all higher education institutions in Brazil, have impacted Adtalem Brazil’s growth. Adtalem Brazil institutions have increased efforts to attract more non-FIES students in order to diversify their payer mix. Also, Adtalem Brazil is working with private lenders to increase funding sources for prospective students. Management believes Adtalem Brazil institutions offer programs of study and operate in areas of the country that the Brazilian government favors in issuing FIES loans. Should economic conditions continue to weaken and additional austerity measures be instituted by the Brazilian government, Adtalem Brazil’s ability to grow its student enrollment may be further impacted.

~~Key trends for Adtalem Brazil are set forth below.~~

~~Adtalem Brazil Student Enrollment:~~

Fiscal Year 2019 Fiscal Year 2018
Term Sept. 2018 Mar. 2019 Sept. 2017 Mar. 2018
New Students 17,956 27,505 14,507 23,367
% Change over Prior Year 23.8 % 17.7 % (8.7 )% 3.7 %
Total Students 81,088 79,919 78,340 75,700
% Change over Prior Year 3.5 % 5.6 % 1.9 % (4.9 )%

These enrollment figures include students enrolled in degree-granting programs and exclude students enrolled in test preparation programs at Damásio Educacional (“Damasio”). The November 2017 acquisition of São Judas Tadeu (“SJT”) did not affect the fiscal year 2019 or 2018 enrollment figures because these medical test preparation students are also excluded from reported enrollment. The increase in new and total student enrollment in the September 2018 and March 2019 terms are driven primarily by increases in online enrollment and tuition discounting. This enrollment increase is not driving higher revenue due to lower tuition pricing of the online programs.

Brazilian government regulations on opening and operating distance learning in the country have streamlined the approval process for launching online facilities, making this segment more economically attractive to larger institutions. Adtalem Brazil began offering several bachelor’s and associate degree programs via distance learning in February 2018. These programs are offered under the Wyden Online brand. They are delivered through the Damasio network of over 200 learning centers, which currently has the infrastructure and staff necessary to support distance learning degrees. These online programs are not currently a significant contributor to Adtalem Brazil’s revenue.

COSTS AND EXPENSES

Cost of Educational Services

The largest component of Cost of Educational Services is the cost of faculty and staff who support educational operations. This expense category also includes the costs of facilities, adjunct faculty, supplies, housing, bookstore and other educational materials, student education-related support activities and the provision for bad debts.


	Three Months Ended September 30, 2019
	(in thousands)
Cost of Educational Services:	Medical and Healthcare			Financial Services			Home Office and Other		Consolidated
Fiscal Year 2019 as Reported	$	105,640		$	5,944		$	(50)	$	111,534
Cost Increase		11,099			3,095			667		14,861
Effect of Acquisitions		—			1,639			—		1,639
Fiscal Year 2020 as Reported	$	116,739		$	10,678		$	617	$	128,034

Fiscal Year 2020 % Change:
Cost Increase		10.5	%		52.1	%		NM		13.3	%
Effect of Acquisitions		—			27.6	%		NM		1.5	%
Fiscal Year 2020 % Change as Reported		10.5	%		79.6	%		NM		14.8	%

Three Months Ended March 31, 2019
(in thousands)
Cost of Educational Services:
Medical and
Healthcare

Professional
Education

Technology
and Business

Home Office
and Other
Consolidated
Fiscal Year 2018 as Reported $ 108,700 $ 5,264 $ 44,265 $ 1,083 $ 159,312
Cost Increase (Reduction) 5,828 355 (2,293 ) (1,291 ) 2,599
Effect of Acquisitions - 253 - - 253
Effect of Currency Change - - (5,825 ) - (5,825 )
Fiscal Year 2019 as Reported $ 114,528 $ 5,872 $ 36,147 $ (208 ) $ 156,339

Fiscal Year 2019 % Change:
Cost Increase (Reduction) 5.4 % 6.7 % (5.2 )% NM 1.6 %
Effect of Acquisitions - 4.8 % - NM 0.2 %
Constant Currency 5.4 % 11.6 % (5.2 )% NM 1.8 %
Effect of Currency Change - - (13.2 )% NM (3.7 )%
Fiscal Year 2019 % Change
as Reported 5.4 % 11.6 % (18.3 )% NM (1.9 )%

Nine Months Ended March 31, 2019
(in thousands)
Cost of Educational Services:
Medical and
Healthcare

Professional
Education

Technology
and Business

Home Office
and Other
Consolidated
Fiscal Year 2018 as Reported $ 326,766 $ 18,528 $ 139,657 $ 4,980 $ 489,931
Cost Increase (Reduction) 15,916 1,289 (5,061 ) (5,388 ) 6,756
Effect of Acquisitions - 1,084 627 - 1,711
Hurricane Impact (13,372 ) - - - (13,372 )
Effect of Currency Change - - (21,802 ) - (21,802 )
Fiscal Year 2019 as Reported $ 329,310 $ 20,901 $ 113,421 $ (408 ) $ 463,224

Fiscal Year 2019 % Change:
Cost Increase (Reduction) 4.9 % 7.0 % (3.6 )% NM 1.4 %
Effect of Acquisitions - 5.9 % 0.4 % NM 0.3 %
Hurricane Impact (4.1 )% - - NM (2.7 )%
Constant Currency 0.8 % 12.8 % (3.2 )% NM (1.0 )%
Effect of Currency Change - - (15.6 )% NM (4.5 )%
Fiscal Year 2019 % Change
as Reported 0.8 % 12.8 % (18.8 )% NM (5.5 )%

Cost of Educational Services ~~decreased 1.9%~~increased 14.8%, or ~~$3.0~~$16.5 million, to ~~$156.3 million in the third quarter and decreased 5.5%, or $26.7 million, to $463.2~~$128.0 million in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 compared to the year-ago ~~periods.~~quarter. Excluding the ~~effect~~costs added with the acquisition of OCL, which occurred in the ~~change in value~~fourth quarter of ~~the Brazilian Real compared to the U.S. dollar, total consolidated~~fiscal year 2019, Cost of Educational Services increased ~~1.8%,~~13.3% or ~~$2.9 million, in the third quarter and decreased 1.0%, or $4.9~~$14.9 million in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 compared to the year-ago ~~periods. Prior year expense~~quarter. Cost increased in the first ~~nine months~~quarter of fiscal year 2018 also included a $13.4 million charge representing the deductibles under insurance policies, incurred for facility and equipment impairment write-offs and the evacuations of the medical school students, faculty and staff in the wakes of Hurricanes Irma and Maria. Cost increases at the medical schools in fiscal year 2019, excluding the insurance deductibles in fiscal year 2018, were partially driven by AUC and RUSM as operations returned to St. Maarten and moved to Barbados, respectively, and operating costs returned to normal levels. Costs in fiscal year 2018 were reduced as teaching operations were moved to an alternate site. In addition, expenses increased in fiscal year 20192020 due to increased housing costs at RUSM’s Barbados campus, increased institutional loan program bad debt expense resulting from increased aging of balances, primarily at the medical and veterinary schools, costs associated with the largest ACAMS conference of the year taking place in the first quarter of fiscal year 2020 compared to it taking place in the second quarter of fiscal year 2019, and increased investment in growth in the Medical and Healthcare and Professional Education segments and the acquisition in February 2018 of a 69% ownership interest in EduPristine. Partially offsetting the cost increases were cost reduction measures in the Technology and Business segment, which were instituted in response to declining revenue at Adtalem Brazil, and at Adtalem home office, which were necessary with the divestitures of DeVry University and Carrington.

across all reportable segments.

As a percentage of revenue, Cost of Educational Services was ~~50.7% and 50.9%~~50.3% in the ~~third~~first quarter ~~and first nine months~~ of fiscal year ~~2019, respectively,~~2020 compared to ~~51.4% and 53.8%, respectively, during~~47.1% in the year-ago ~~periods.~~quarter. The ~~decrease~~increase in the percentage ~~in the third quarter and the first nine months of fiscal year 2019~~ was primarily the result of revenue growth in the ~~cost reduction efforts across all institutions~~lower margin sources of RUSM housing and ~~the result of the negative effects on revenue and expense from Hurricanes Irma and Maria during the third quarter and first nine months of fiscal year 2018.~~

ACAMS conferences.

Student Services and Administrative Expense

The Student Services and Administrative Expense category includes expenses related to sales, student admissions, marketing and advertising, general and administrative, curriculum development and amortization expense of finite-lived intangible assets related to acquisitions of businesses.

Table of Contents

Three Months Ended March 31, 2019
(in thousands)
Student Services and Administrative Expense:
Medical and
Healthcare

Professional
Education

Technology
and Business

Home Office
and Other
Consolidated
Fiscal Year 2018 as Reported $ 50,533 $ 23,859 $ 14,868 $ 8,373 $ 97,633
Cost Increase (Reduction) 5,555 555 1,452 (1,980 ) 5,582
Effect of Acquisitions - 563 - - 563
Effect of Currency Change - - (1,716 ) - (1,716 )
Fiscal Year 2019 as Reported $ 56,088 $ 24,977 $ 14,604 $ 6,393 $ 102,062

Fiscal Year 2019 % Change:
Cost Increase (Reduction) 11.0 % 2.3 % 9.8 % NM 5.7 %
Effect of Acquisitions - 2.4 % - NM 0.6 %
Constant Currency 11.0 % 4.7 % 9.8 % NM 6.3 %
Effect of Currency Change - - (11.5 )% NM (1.8 )%
Fiscal Year 2019 % Change as Reported 11.0 % 4.7 % (1.8 )% NM 4.5 %


	Three Months Ended September 30, 2019
	(in thousands)
Student Services and Administrative Expense:	Medical and Healthcare			Financial Services			Home Office and Other		Consolidated
Fiscal Year 2019 as Reported	$	55,789		$	24,952		$	8,423	$	89,164
Cost Increase (Reduction)		6,331			1,234			(3,797)		3,768
Effect of Acquisitions		—			6,155			—		6,155
Fiscal Year 2020 as Reported	$	62,120		$	32,341		$	4,626	$	99,087

Fiscal Year 2020 % Change:
Cost Increase (Reduction)		11.3	%		4.9	%		NM		4.2	%
Effect of Acquisitions		—			24.7	%		NM		6.9	%
Fiscal Year 2020 % Change as Reported		11.3	%		29.6	%		NM		11.1	%

Nine Months Ended March 31, 2019
(in thousands)
Student Services and Administrative Expense:
Medical and
Healthcare

Professional
Education

Technology
and Business

Home Office
and Other
Consolidated
Fiscal Year 2018 as Reported $ 145,658 $ 68,296 $ 41,196 $ 20,850 $ 276,000
Cost Increase (Reduction) 22,182 2,947 5,627 (2,800 ) 27,956
Effect of Acquisitions - 2,111 23 - 2,134
Effect of Currency Change - - (5,542 ) - (5,542 )
Fiscal Year 2019 as Reported $ 167,840 $ 73,354 $ 41,304 $ 18,050 $ 300,548

Fiscal Year 2019 % Change:
Cost Increase (Reduction) 15.2 % 4.3 % 13.7 % NM 10.1 %
Effect of Acquisitions - 3.1 % 0.1 % NM 0.8 %
Constant Currency 15.2 % 7.4 % 13.7 % NM 10.9 %
Effect of Currency Change - - (13.5 )% NM (2.0 )%
Fiscal Year 2019 % Change as Reported 15.2 % 7.4 % 0.3 % NM 8.9 %

Student Services and Administrative Expense increased ~~4.5%~~11.1%, or ~~$4.4~~$9.9 million, to ~~$102.1 million in the third quarter and increased 8.9%, or $24.5 million, to $300.5~~$99.1 million in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 compared to the year-ago ~~periods.~~quarter. Excluding the ~~effect~~costs added with the acquisition of OCL, which occurred in the ~~change in value~~fourth quarter of ~~the Brazilian Real compared to the U.S. dollar, total consolidated~~fiscal year 2019, Student Services and Administrative Expense increased ~~6.3%,~~4.2% or ~~$6.1 million, in the third quarter and increased 10.9%, or $30.1~~$3.8 million in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 compared to the year-ago ~~periods.~~quarter. Cost increases to support future enrollment growth at the medical and veterinary schools, Chamberlain, ACAMS and ~~Adtalem Brazil~~Becker were the main drivers of the increase in costs. These increases were partially offset by cost reductions at Becker. Approximately $6.4 million and $24.0 million of the increase in the third quarter and the first nine months of fiscal year 2019, respectively, was due to home office costs reallocated to continuing operations from DeVry University and Carrington. Amortization of finite-lived intangible assets ~~decreased $0.4 million and $1.1~~increased $0.9 million in the ~~third~~first quarter ~~and first nine months~~ of fiscal year ~~2019, respectively,~~2020 compared to the year-ago ~~periods.~~quarter, driven by OCL intangible asset amortization. Amortization expense is included entirely in the Student Services and Administrative Expense category.

As a percentage of revenue, Student Services and Administrative Expense was ~~33.1% and 33.0%~~38.9% in the ~~third~~first quarter ~~and first nine months~~ of fiscal year ~~2019, respectively,~~2020 compared to ~~31.5% and 30.3%, respectively, during~~37.6% in the year-ago ~~periods. The~~quarter. Amortization expense for OCL intangible assets and costs to support enrollment growth ~~support and the reallocation of home office expense to continuing operations noted above, along with reduced revenue, particularly at Adtalem Brazil, resulted in~~caused the increase in this percentage.

Restructuring Expense

During the ~~third~~first quarter of fiscal year 2020, Adtalem recorded restructuring charges primarily related to the sale of Becker’s courses for healthcare students and Adtalem’s home office real estate consolidations. During the first ~~nine months~~quarter of fiscal year 2019, Adtalem recorded restructuring charges primarily related to the impairment of the land, buildings and equipment at the Dominica campus of RUSM and severance related to workforce reductions in Dominica. In January 2019, RUSM relocated its campus operations to Barbados with no plans to return to Dominica. The land, buildings and equipment in Dominica have been fully impaired as management ~~has~~ determined the market value less the costs to sell the facilities or move the equipment is zero (see “Note 3: Summary of Significant Accounting Policies” to the Consolidated Financial Statements). In addition, during the ~~third~~first quarter ~~and first nine months~~ of fiscal year 2019, Adtalem recorded restructuring charges primarily related to real estate consolidations at Adtalem Brazil and Adtalem’s home office. During the third quarter and first nine months of fiscal year 2018, Adtalem recorded restructuring charges related to workforce reductions and real estate consolidations at the medical and veterinary schools and Adtalem’s home office. When estimating costs of exiting lease space, estimates are made which could differ materially from actual results and result in additional restructuring charges or reversals in future periods. Termination benefit charges, ~~as a result of~~resulting from reducing Adtalem’s workforce by ~~203~~15 and ~~111~~176 positions in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 and ~~2018,~~2019, respectively, represented severance pay and benefits for these employees. Adtalem’s home office is classified as “Home Office and Other” in “Note ~~14:~~15: Segment Information” to the Consolidated Financial Statements. Pre-tax restructuring charges by segment were as follows (in thousands):


	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	Real Estate		Termination				Real Estate		Termination
	and Other		Benefits		Total		and Other		Benefits		Total
Medical and Healthcare	$	127	$	—	$	127	$	37,753	$	1,262	$	39,015
Financial Services		1,690		289		1,979		—		—		—
Home Office and Other		4,122		302		4,424		509		(51)		458
Total	$	5,939	$	591	$	6,530	$	38,262	$	1,211	$	39,473

Three Months Ended March 31, 2019 Nine Months Ended March 31, 2019

Real Estate
and Other

Termination
Benefits
Total
Real Estate
and Other

Termination
Benefits
Total
Medical and Healthcare $ (110 ) $ (23 ) $ (133 ) $ 40,033 $ 1,294 $ 41,327
Technology and Business 1,716 - 1,716 1,901 - 1,901
Home Office and Other 2,271 48 2,319 3,748 119 3,867
Total $ 3,877 $ 25 $ 3,902 $ 45,682 $ 1,413 $ 47,095

~~Cash payments for restructuring charges were $20.6 million in the first nine months~~Table of ~~fiscal year 2019. The remaining accrual for these charges is $23.1 million as of March 31, 2019. The balance is expected to be paid out for periods of up to 7 years.~~ Contents

Additional restructuring expense is expected to be recorded in the remainder of fiscal year ~~2019~~2020 as Adtalem ~~continues~~plans to continue to reduce home office costs.

~~Insurance Settlement~~ Gain on Sale of Assets

~~In December 2018, AUC~~On September 27, 2019, Adtalem closed on the sale of its Columbus, Ohio, campus facility. Net proceeds from the sale of $6.4 million resulted in a gain on the sale of $4.8 million. This gain was recorded at Adtalem’s home office, which is classified as “Home Office and ~~RUSM received the final insurance settlement proceeds related~~Other” in “Note 15: Segment Information” to the property damage and disruption of operations caused by Hurricanes Irma and Maria in fiscal year 2018. AUC and RUSM have completed substantially all planned repairs and replacement of damaged facilities and equipment. AUC and RUSM received total insurance proceeds of $110.0 million to fully cover the cumulative expense incurred for the evacuation process, temporary housing and transportation of students, faculty and staff, incremental costs of teaching at alternative sites, and cumulative impairment write-downs. These costs totaled $106.7 million, less $12.3 million in deductibles, which were adjusted in the second quarter of fiscal year 2019 from $13.4 million recordedConsolidated Financial Statements. There is no corresponding gain in the first quarter of fiscal year ~~2018. The resulting gain of $15.6 million was recorded in the second quarter of fiscal year~~ 2019.

OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS

Total consolidated operating income from continuing operations ~~decreased 11.8%, or $6.2~~increased $29.0 million, to ~~$46.3 million in the third quarter and decreased 19.8%, or $28.2 million, to $114.1~~$25.7 million in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 compared to the year-ago ~~periods.~~quarter. Excluding the ~~effect~~decrease in restructuring expense of $32.9 million and the ~~change in value~~gain on sale of ~~the Brazilian Real compared to the U.S. dollar, total~~assets of $4.8 million, consolidated operating income from continuing operations decreased ~~11.0%,~~24.1% or ~~$5.8 million, in the third quarter and decreased 17.1%, or $24.3~~$8.8 million in the first ~~nine months of fiscal year 2019 compared to the year-ago periods.~~

Excluding the effect of the currency change, the effects of the hurricanes and the increase in restructuring expense of $3.3 million, consolidated operating income from continuing operations increased $1.2 million, or 2.3%, in the third quarter of fiscal year ~~2019~~2020 compared to the year-ago quarter. The primary drivers of ~~the increase~~this decrease were ~~increased revenue at Professional Education and reduced home office costs, partially offset by a $6.4 million~~an increase in ~~home office~~bad debt expense at the medical and veterinary schools and costs ~~reallocated to continuing operations and the return~~of returning to a normal level of expense at AUC and RUSM as operations returned to St. Maarten and moved to Barbados, respectively.


	Three Months Ended September 30, 2019
	(in thousands)
Operating Income (Loss):	Medical and Healthcare		Financial Services		Home Office and Other		Consolidated
Fiscal Year 2019 as Reported	$	1,656	$	4,750	$	(9,638)	$	(3,232)
Organic Change		(12,044)		(462)		3,938		(8,568)
Effect of Acquisitions		—		(181)		—		(181)
Restructuring Expense Change		38,888		(1,979)		(3,966)		32,943
Gain on Sale of Assets Change		—		—		4,779		4,779
Fiscal Year 2020 as Reported	$	28,500	$	2,128	$	(4,887)	$	25,741

The primary driver of the decreased operating income from continuing operations in the first nine months of fiscal year 2019 was the $43.9 million increase in restructuring expense, partially offset with the $15.6 million hurricane insurance settlement gain. Excluding the effect of the currency change, the hurricane insurance settlement gain in fiscal year 2019, and the effects of the hurricanes and the restructuring expense in both fiscal years 2019 and 2018, consolidated operating income from continuing operations decreased $13.9 million, or 8.5%, in the first nine months of fiscal year 2019 compared to the year-ago period. The primary driver of this decrease was the $24.0 million increase in home office costs reallocated to continuing operations. This increase was partially offset with increased revenue at Professional Education reduced home office costs.

Three Months Ended March 31, 2019
(in thousands)
Operating Income (Loss):
Medical and
Healthcare

Professional
Education

Technology
and Business

Home Office
and Other
Consolidated
Fiscal Year 2018 as Reported $ 60,304 $ 2,382 $ (103 ) $ (10,079 ) $ 52,504
Organic Change (4,205 ) 2,938 (333 ) 2,995 1,395
Effect of Acquisitions - (234 ) - - (234 )
Hurricane Impact (3,669 ) - - - (3,669 )
Restructuring Expense Change 663 - (1,716 ) (2,228 ) (3,281 )
Effect of Currency Change - - (409 ) - (409 )
Fiscal Year 2019 as Reported $ 53,093 $ 5,086 $ (2,561 ) $ (9,312 ) $ 46,306

Nine Months Ended March 31, 2019
(in thousands)
Operating Income (Loss):
Medical and
Healthcare

Professional
Education

Technology
and Business

Home Office
and Other
Consolidated
Fiscal Year 2018 as Reported $ 141,583 $ 15,082 $ 15,749 $ (30,105 ) $ 142,309
Organic Change (19,012 ) 5,109 (7,204 ) 7,497 (13,610 )
Effect of Acquisitions - (722 ) 450 - (272 )
Hurricane Impact 17,939 - - - 17,939
Restructuring Expense Change (40,685 ) - (1,901 ) (1,325 ) (43,911 )
Insurance Settlement Gain 15,571 - - - 15,571
Effect of Currency Change - - (3,929 ) - (3,929 )
Fiscal Year 2019 as Reported $ 115,396 $ 19,469 $ 3,165 $ (23,933 ) $ 114,097

Medical and Healthcare

Medical and Healthcare segment operating income ~~decreased 12.0%, or $7.2~~increased $26.8 million, to ~~$53.1 million in the third quarter and decreased 18.5%, or $26.2 million, to $115.4~~$28.5 million in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 compared to the year-ago ~~periods.~~quarter. Excluding ~~the~~ restructuring charges, ~~the effects of Hurricanes Irma and Maria and the hurricane insurance settlement gain,~~ segment operating income decreased ~~7.4%~~29.6%, or ~~$4.2 million, to $53.0 million in the third quarter and decreased 11.9%, or $19.0 million, to $141.2~~$12.0 million, in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 compared to the year-ago ~~periods.~~quarter. The primary drivers of the decrease in operating income ~~in the third quarter and first nine months of fiscal year 2019~~ relate to ~~cost increases~~increased marketing expense to ~~support~~drive future enrollment growth, ~~including $4.5 million~~increased bad debt expense for the institutional loan programs, primarily at the medical and ~~$17.0 million, respectively, in home office~~veterinary schools, costs ~~reallocated to continuing operations and the return~~of returning to a normal level of expense at AUC and RUSM as post-hurricane operations returned to St. Maarten and moved to Barbados, ~~respectively.~~

~~Professional Education~~

~~Professional Education segment operating income increased 113.5%, or $2.7~~respectively, and an increase of approximately $3.8 million to $5.1 million in the third quarter and increased 29.1%, or $4.4 million, to $19.5 million in the first nine months of fiscal year 2019 compared to the year-ago periods. Operating income increased at ACAMS driven by increases in revenue and at Becker through cost reduction efforts. These increases were partially offset by cost increases to support future growth in the third quarter and first nine months of fiscal year 2019, including $1.1 million and $4.0 million, respectively, in home office costs reallocated from Home Office and Other to ~~continuing operations.~~

the Medical and Healthcare segment in the first quarter of fiscal year 2020 compared to the year-ago quarter.

~~Technology and Business~~Financial Services

~~Technology and Business~~Financial Services segment operating income decreased ~~$2.5~~55.2%, or $2.6 million, to ~~an operating loss of $2.6 million in the third quarter and operating income decreased $12.6 million to $3.2~~$2.1 million in the first ~~nine months~~quarter of fiscal year ~~2019~~2020 compared to the year-ago ~~periods. Operating income was reduced by the effect of exchange rate changes by $0.4 million and $3.9 million in the third quarter and first nine months of fiscal year 2019, respectively.~~quarter. Excluding ~~the effect of the exchange rate changes and~~ restructuring charges, segment operating income decreased ~~$0.3~~13.5%, or $0.6 million, ~~and $6.8~~to $4.1 million in the ~~third~~first quarter ~~and first nine months~~ of fiscal year ~~2019, respectively,~~2020 compared to the year-ago ~~periods, primarily~~quarter. Operating income decreased at Becker driven by ~~higher discounting and~~ increased ~~student recruiting costs. In addition,~~ costs ~~increased~~ to support future ~~growth in the third quarter and first nine months of fiscal year 2019, including $0.8~~growth. In addition, approximately $0.9 million ~~and $3.0 million, respectively,~~ in home office costs were reallocated from Home Office and Other to ~~continuing operations.~~the Medical and Healthcare segment in the first quarter of fiscal year 2020 compared to the year-ago quarter. The decreases in operating income were partially offset by increased operating income at ACAMS driven by an increase in revenue.

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NET OTHER EXPENSE

Net other expense in the ~~third~~first quarter ~~and first nine months~~ of fiscal year ~~2019~~2020 was ~~$2.6~~$4.6 million ~~and $11.3 million, respectively,~~ compared to ~~net other expense of $1.5~~$3.9 million ~~and $2.4 million, respectively,~~ in the year-ago ~~periods.~~quarter. The net other expense ~~increases were~~increase was primarily the result of increased borrowings under Adtalem’s Credit Facility (as ~~defined herein). Net other expense was also impacted with implementing ASU 2016-01 which requires investment gains and losses~~discussed in ~~available-for-sale equity investments to be reported in the income statement, rather than as previously disclosed in accumulated other comprehensive income. See~~ “Note ~~12:~~13: Debt” ~~and “Note 3: Summary of Significant Accounting Policies”~~ to the Consolidated Financial ~~Statements for further details.~~

Statements).

INCOME TAXES

~~Four~~Three of Adtalem’s operating units benefit from local tax incentives: AUC, which operates in St. Maarten, RUSM, which ~~operated~~operates in ~~Dominica,~~Barbados, and RUSVM, which operates in St. ~~Kitts, and Adtalem Brazil, which operates in Brazil.~~Kitts. AUC’s effective tax rate reflects benefits derived from investment incentives. RUSM and RUSVM each have agreements with their respective domestic governments that exempt them from local income taxation. ~~Both~~RUSM has an exemption in Barbados until 2039. RUSVM has an exemption in St. Kitts until 2037.

As of ~~these agreements have been extended~~June 30, 2019, Adtalem had an indefinite reinvestment assertion with respect to ~~provide,~~accumulated and future earnings in Brazil. Beginning in the case of RUSM, an indefinite period of exemption and, in the case of RUSVM, exemption until 2037. In January 2019, RUSM moved its operations from Dominica to Barbados. RUSM has negotiated an agreement with the Barbados government that exempts it from local income taxation until 2039. Adtalem Brazil’s effective tax rate reflects benefits derived from its participation in “Programa Universidade para Todos” or “University for All Program” (“PROUNI”), a Brazilian program for providing scholarships to a portion of its undergraduate students.

2020, Adtalem Brazil operations were classified as discontinued operations. As such, Adtalem no longer maintains this assertion. The tax impact of the reversal of the assertion is immaterial.

DISCONTINUED OPERATIONS

Loss from discontinued operations includes $4.2 million in costs associated with the divested DeVry University operations, primarily consisting of ongoing litigation costs and settlements. In addition, beginning in the first quarter of fiscal year 2020, Adtalem Brazil operations were classified as discontinued operations. See “Note 2: Discontinued Operations and Assets Held for Sale” to the Consolidated Financial Statements for further information. Management will continue to disclose and discuss Adtalem Brazil operations in its public filings until the period in which the sale closes as Adtalem Brazil operations continue to have an effect on Adtalem’s reported net income.

Adtalem Brazil

Revenue at Adtalem Brazil decreased 3.4%, or $1.6 million, to $45.7 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. The decrease in value of the Brazilian Real compared to the U.S. dollar decreased reported revenue in the first quarter of fiscal year 2020 by $0.6 million compared to the year-ago quarter. Constant currency calculations assume conversions of local currency amounts at exchange rates in effect in the year-ago period compared to those conversions at exchange rates in effect during the current fiscal year period. On a constant currency basis, revenue decreased 2.2% in the first quarter of fiscal year 2020 compared to the year-ago quarter. Declines in enrollment at Wyden Educational institutions (“Wyden”) and in law exam test preparation courses, along with increased discounting were the primary drivers of the revenue decrease.

Brazil’s economy presented challenges for enrollment growth and created pricing pressures in the education sector. Adtalem Brazil’s revenue results have been negatively impacted by these conditions as well as reductions in Brazil’s government-funded loan program, “Fundo de Financiamento Estudantil” or “Students Financing Fund” (“FIES”) and increased competition. Adtalem Brazil students are eligible for loans under the FIES program, which is financed by the Brazilian government. As of September 30, 2019, approximately 16% of Adtalem Brazil’s degree-seeking students have obtained financing under the FIES program. This represents approximately 18% of Adtalem Brazil’s revenue. The

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Brazilian government has stated that it is supportive of the FIES program, which is an important factor in helping to increase the number of college graduates. However, the changes enacted during fiscal year 2018 reducing the number of contracts available for grant under the FIES program by approximately 31% to all higher education institutions in Brazil, have impacted Adtalem Brazil’s growth. Adtalem Brazil institutions have increased efforts to attract more non-FIES program students in order to diversify their payer mix. Also, Adtalem Brazil is working with private lenders to increase funding sources for prospective students. Management believes Adtalem Brazil institutions offer programs of study and operate in areas of the country that the Brazilian government favors in issuing loans under the FIES program. Should economic conditions continue to weaken and additional austerity measures be instituted by the Brazilian government, Adtalem Brazil’s ability to grow its student enrollment may be further impacted.

Key trends for Adtalem Brazil are set forth below.

Adtalem Brazil Student Enrollment:


	Fiscal Year 2020		Fiscal Year 2019
Term	Sept. 2019		Sept. 2018		Mar. 2019
New Students	17,588		17,956		27,505
% Change over Prior Year	(2.0)	%	23.8	%	17.7	%
Total Students	76,904		81,088		79,919
% Change over Prior Year	(5.2)	%	3.5	%	5.6	%

These enrollment figures include students enrolled in degree-granting programs and exclude students enrolled in test preparation programs at Damásio Educacional (“Damasio”). The decrease in enrollment in the September 2019 term is driven by a decline in new and continuing onsite enrollment at Wyden and the degree granting operations of Damasio, partially offset with increases in new and continuing online enrollment and enrollment increases at Grupo Ibmec Educacional S.A. (“Ibmec”). Enrollment increases in online students are less beneficial to revenue growth due to lower tuition pricing of the online programs.

Adtalem Brazil operating income increased $2.6 million to $3.3 million in the first quarter of fiscal year 2020 compared to the year-ago quarter. Operating income was reduced by the effect of exchange rate changes by $0.3 million in the first quarter of fiscal year 2020. Excluding the effect of the exchange rate changes and restructuring charges, Adtalem Brazil operating income increased $2.9 million in the first quarter of fiscal year 2020 compared to the year-ago quarter, primarily driven by cost reduction measures implemented to offset declining enrollment and the need for higher discounting. These operating income amounts in fiscal years 2020 and 2019 have been adjusted for the reduction in home office expenses allocated to Adtalem Brazil within discontinued operations and now allocated to continuing operations. For fiscal year 2020, these costs are being allocated to the Medical and Healthcare and Financial Services segments. For fiscal year 2019, these costs were allocated to Home Office and Other. See “Note 15: Segment Information” to the Consolidated Financial Statements for further details.

Beginning in the second quarter of fiscal year 2018, DeVry University operations were classified as discontinued operations. In addition, beginning in the fourth quarter of fiscal year 2018, Carrington operations were classified as discontinued operations. See “Note 2: Discontinued Operations” to the Consolidated Financial Statements in Item 8 of Adtalem's Annual Report on Form 10-K for the fiscal year ended June 30, 2019 for further information. The divestiture of both of these operations was completed in the second quarter of fiscal year 2019. As a result, management ~~has~~ discontinued discussion of the DeVry University and Carrington operating results beginning with the second quarter of fiscal year 2019 Quarterly Report on Form 10-Q as comparable results are no longer meaningful.

LIQUIDITY AND CAPITAL RESOURCES

Student Payments

Adtalem’s primary source of liquidity is the cash received from payments for student tuition, books, other educational materials and fees. These payments include funds originating as financial aid from various federal and state loan and grant programs, student and family educational loans (“private loans”), employer educational reimbursements, scholarships and

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student and family financial resources. Adtalem continues to provide financing options for its students, including Adtalem’s institutional loan programs.

The following table, which excludes DeVry University, Carrington and Adtalem Brazil revenue, summarizes Adtalem’s ~~cash receipts from tuition and related fee payments~~revenue by fund source as a percentage of total revenue for fiscal years 2018 and 2017.

Fiscal Year
2018 2017
Funding Source:
Federal Assistance (Title IV) Program Funding (Grants and Loans) 46 % 47 %
Brazil FIES Public Loan Program 6 % 7 %
Private Loans 1 % 1 %
Student accounts, cash payments, private scholarships, employer and military provided tuition assistance and other 47 % 45 %
Total 100 % 100 %

The table above excludes DeVry University and Carrington revenue. The increase in the “Student accounts, cash payments, private scholarships, employer and military provided tuition assistance and other” funding source Final data for fiscal year 2019 is ~~the result of management’s efforts to reduce Adtalem’s funding provided by U.S. federal and Brazilian FIES sources.~~not yet available.


	Fiscal Year
Funding Source:	2018		2017
Federal Assistance (Title IV) Program Funding (Grants and Loans)	59	%	60	%
Private Loans	2	%	2	%
Student accounts, cash payments, private scholarships, employer and military provided tuition assistance and other	39	%	38	%
Total	100	%	100	%

The pattern of cash receipts during the year is seasonal. Adtalem’s cash collections on accounts receivable peak at the start of each institution’s term. Accounts receivable reach their lowest level at the end of each term, dropping to the lowest point at the end of December.

Adtalem’s consolidated cash balances of $321.2 million as of March 31, 2019 included $155.8 million of cash attributable to Adtalem’s international operations. As a result of the Tax Act, Adtalem has revised its intent to indefinitely reinvest accumulated cash balances, future cash flows and post-acquisition undistributed earnings and profits in foreign operations, and only intends to maintain this position with respect to cash balances, cash flows and accumulated and future earnings in Brazil. In accordance with this plan, only cash held by the subsidiaries of Brazil will not be available for general company purposes. As of March 31, 2019, the cash balance attributable to operations in Brazil was $90.5 million. Management does not believe this policy will adversely affect Adtalem’s overall liquidity.

Financial Aid

Like other higher education institutions, Adtalem is highly dependent upon the timely receipt of federal financial aid funds. All financial aid and assistance programs are subject to political and governmental budgetary considerations. In the U.S., the Higher Education Act (“HEA”) guides the federal government’s support of postsecondary education. If there are changes to financial aid programs that restrict student eligibility or reduce funding levels, Adtalem’s financial condition and cash flows could be materially and adversely affected. See “Item 1A – Risk Factors” in Adtalem’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018~~2019 filed with the SEC on August ~~24, 2018,~~28, 2019, for a discussion of student financial aid related risks.

In addition, government-funded financial assistance programs are governed by extensive and complex regulations in the U.S. ~~and Brazil.~~ Like any other educational institution, Adtalem’s administration of these programs is periodically reviewed by various regulatory agencies and is subject to audit or investigation by other governmental authorities. Any violation could be the basis for penalties or other disciplinary action, including initiation of a suspension, limitation or termination proceeding.

If the U.S. Department of Education (“ED”) determines that we have failed to demonstrate either financial responsibility or administrative capability in any pending program review, or otherwise determines that an institution has violated the terms of its Program Participation Agreement (“PPA”), we could be subject to sanctions including: fines, penalties, reimbursement for discharged loan obligations, a requirement to post a letter of credit and/or suspension or termination of our eligibility to participate in the Title IV programs.

On October 13, 2016, DeVry University and ED reached a negotiated agreement (the “ED Settlement”) to settle the claims asserted in a Notice of Intent to Limit from the Multi-Regional and Foreign School Participation Division of the Federal Student Aid office of the Department of Education (“ED FSA”). Under the terms of the ED Settlement, among other things, without admitting wrongdoing, DeVry University agreed to certain compliance requirements regarding its past and future advertising, that DeVry University’s participation in Title IV programs is subject to provisional certification for five years and that DeVry University is required to post a letter of credit equal to the greater of 10% of DeVry University’s annual Title IV disbursements or $68.4 million for a five-year period. The posted letter of credit continues to be posted by Adtalem following the closing of the sale of DeVry University and reduces Adtalem’s borrowing capacity dollar-for-dollar under its Credit Facility.

ED regulations known as its “gainful employment” (“GE”) regulations, which became effective July 1, 2015, define which private-sector programs prepare students for gainful employment in a recognized profession and are therefore eligible for Title IV funding. ED announced a negotiated rulemaking process on June 16, 2017 to substantially revise the GE regulations and held rulemaking sessions beginning December 2017 through March 2018. Draft regulations rescinding the GE regulations were published by ED on August 14, 2018; ED allowed for a 30-day comment period and publication of the final, revised GE regulations is pending.

~~Current GE regulations have three components:~~

Certification: Institutions must certify that each of their GE programs meet applicable state licensure and accreditation requirements and satisfy applicable educational prerequisites for professional licensure and certification.

Accountability Measures: To maintain Title IV eligibility, GE programs must meet minimum standards for limiting the debt burden versus the earnings of their graduates. GE programs will be considered passing, in the zone, or failing for each year in which the accountability measures are calculated, described as follows:

~~Pass: Programs whose graduates have an assumed annual loan repayment burden of 8% or less of total earnings or 20% or less of discretionary income.~~

Zone: Programs that are not passing and whose graduates have an assumed annual loan repayment burden greater than 8% and less than or equal to 12% of total earnings or greater than 20% and less than or equal to 30% of discretionary income.

~~Fail: Programs whose graduates have an assumed annual loan repayment burden greater than 12% of total earnings and greater than 30% of discretionary income.~~

Programs that fail in two out of any three consecutive years or do not pass in any four consecutive years will be disqualified from participation in Title IV programs for a period of three years, and an institution is prohibited from establishing Title IV eligibility for any substantially similar program during that period.

Transparency: Institutions are required to make annual public disclosures regarding the performance and outcomes of their GE programs. The disclosures include information regarding program costs, median debt of all graduates and completion and placement rates and may include additional disclosure items in future periods.

The accountability measures typically weigh a calculated debt burden from graduates who completed their studies three and four years prior to the measuring academic year against the mean or median earnings of these graduates during the most recent calendar year prior to the conclusion of the measuring academic year. Thus, for the 2014-2015 academic year (the first measurement year under these regulations), the cohort includes graduates from the 2010-2011 and 2011-2012 academic years and earnings for these graduates from calendar year 2014. ED obtained its graduate earnings data from the Social Security Administration. Debt burdens for students enrolled in programs that require an internship or residency prior to licensure, such as the medical doctor degrees offered by AUC and RUSM, are calculated from cohorts who completed their studies six and seven years prior to the measuring academic year.

Final accountability measures for the 2014-2015 academic year were released to institutions on January 8, 2017. The only Adtalem Title IV-participating program classification that did not pass the GE metric was RUSVM’s Doctor of Veterinary Medicine (“DVM”) program, which was considered to be in the zone. Required warnings were provided in February 2017 to enrolled and prospective RUSVM DVM students. Enrollment in this GE program zone classification represents 4% of total enrollment in the Medical and Healthcare reporting segment, which is the sole Adtalem Title IV-participating reporting segment, and $59 million of Title IV revenue during the nine months ended March 31, 2019 and $76 million during the year ended June 30, 2018.

Management expects RUSVM will continue to be in the zone for the 2015-2016 and 2016-2017 academic years under the current GE structure. This is possible notwithstanding strong student outcomes and very low cohort default rates for RUSVM graduates (0.7% for fiscal year 2015, the latest 3-year cohort period for which official data is available). If the GE regulations and guidance are not changed prior to ED’s issuance of GE rates for the 2015-2016 and 2016-2017 years, and RUSVM’s veterinary program is determined by ED to be in the zone for those years, RUSVM would be required to issue warnings to students that Title IV funding may no longer be available to students attending RUSVM. If the GE regulations are unchanged and RUSVM’s veterinary program is determined to be in the zone for the 2017-2018 academic year, RUSVM students would no longer have access to Title IV student aid, which could have a material adverse effect on the business, financial condition, results of operations and cash flows.

An ED regulation known as the “90/10 Rule” affects only proprietary postsecondary institutions, such as Chamberlain, AUC, RUSM and RUSVM. Under this regulation, an institution that derives more than 90% of its revenue on a cash basis from Title IV student financial assistance programs in two consecutive fiscal years loses eligibility to participate in these programs for at least two fiscal years. The following table details the percentage of revenue on a cash basis from federal

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financial assistance programs (excluding the U.S. Department of Veterans Affairs and military tuition assistance benefits) for each of Adtalem’s Title IV-eligible institutions for fiscal years 2018 and 2017. Final data for fiscal year 2019 is not yet available.


	Fiscal Year
	2018		2017
Chamberlain University	62	%	63	%
American University of the Caribbean School of Medicine	74	%	80	%
Ross University School of Medicine	81	%	82	%
Ross University School of Veterinary Medicine	82	%	83	%

Fiscal Year
2018 2017
Chamberlain University 62 % 63 %
American University of the Caribbean School of Medicine 74 % 80 %
Ross University School of Medicine 81 % 82 %
Ross University School of Veterinary Medicine 82 % 83 %

In September 2016, Adtalem committed to voluntarily limit to 85% the amount of revenue that each of its four Title IV-eligible institutions derive from federal funding, including the U.S. Department of Veterans Affairs and military tuition assistance benefits. As disclosed in the third party review report that has been made publicly available, Adtalem’s institutions have met this lower threshold for fiscal year 2018. Final data for fiscal year 2019 is not yet available. Adtalem is committed to implementing measures to promote responsible recruitment and enrollment, successful student outcomes, and informed student choice. Management believes students deserve greater transparency to make informed choices about their education. This commitment builds upon a solid foundation and brings Adtalem to a new self-imposed level of public accountability and transparency.

Under the terms of Adtalem institutions’ participation in financial aid programs, certain cash received from state governments and ED is maintained in restricted bank accounts. Adtalem receives these funds either after the financial aid authorization and disbursement process for the benefit of the student is completed, or just prior to that authorization. Once the authorization and disbursement process for a particular student is completed, the funds may be transferred to unrestricted accounts and become available for Adtalem to use in operations. This process generally occurs during the academic term for which such funds have been authorized. Cash in the amount of ~~$0.4~~$0.7 million, ~~$0.3~~$1.0 million and ~~$0.5~~$0.9 million was held in restricted bank accounts at ~~March 31,~~September 30, 2019, June 30, ~~2018~~2019 and ~~March 31,~~September 30, 2018, respectively.

A financial responsibility test is required for continued participation by an institution’s students in U.S. federal financial assistance programs. For Adtalem’s participating institutions, this test is calculated at the consolidated Adtalem level. The test is based upon a composite score of three ratios: an equity ratio that measures the institution’s capital resources; a primary reserve ratio that measures an institution’s ability to fund its operations from current resources; and a net income ratio that measures an institution’s ability to operate profitably. A minimum score of 1.5 is necessary to meet ED’s financial standards. Institutions with scores of less than 1.5 but greater than or equal to 1.0 are considered financially responsible, but require additional oversight. These schools are subject to heightened cash monitoring and other participation requirements. An institution with a score of less than 1.0 is considered not financially responsible. However, a school with a score of less than 1.0 may continue to participate in the Title IV programs under provisional certification. In addition, this lower score typically requires that the school be subject to heightened cash monitoring requirements and post a letter of credit (equal to a minimum of 10% of the Title IV aid it received in the institution's most recent fiscal year).

For the past several years, Adtalem’s composite score has exceeded the required minimum of 1.5. If Adtalem becomes unable to meet requisite financial responsibility standards or otherwise demonstrate, within the regulations, its ability to continue to provide educational services, then Adtalem could be subject to heightened cash monitoring or be required to post a letter of credit to enable its students to continue to participate in federal financial assistance programs.

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Cash Provided by Operating Activities

The following table provides a summary of cash flows from operations (in thousands):


	Three Months Ended
	September 30,
	2019		2018
Net Income (Loss) from Continuing Operations	$	17,408	$	(4,851)
Non-cash Items		34,143		60,963
Changes in Assets and Liabilities		(18,250)		(2,595)
Net Cash Provided by Operating Activities-Continuing Operations	$	33,301	$	53,517

Nine Months Ended
March 31,

2019 2018
Net Income from Continuing Operations $ 83,964 $ 16,961
Non-cash Items 113,778 99,807
Changes in Assets and Liabilities (53,135 ) 34,475
Net Cash Provided by Operating Activities-Continuing Operations $ 144,607 $ 151,243

Cash generated from operating activities ~~for~~by continuing operations in the first ~~nine~~three months of fiscal year ~~2019~~2020 was ~~$144.6~~$33.3 million compared to ~~$151.2~~$53.5 million in the year-ago period. Net income from continuing operations increased by ~~$67.0~~$22.3 million in the first ~~nine~~three months of fiscal year ~~2019~~2020 compared to the year-ago period.

The ~~increase~~decrease in non-cash items of ~~$14.0~~$26.8 million in the first ~~nine~~three months of fiscal year ~~2019~~2020 compared to the year-ago period was the result of the following:

·●

~~An increase~~A decrease of ~~$12.7~~$36.3 million in depreciation and write-offs of building, building improvements, leasehold improvements, furniture and equipment. This was primarily the result of recording ~~$39.1~~$37.8 million in impairment write-downs of land, buildings and equipment at RUSM’s Dominica campus in the first ~~nine~~three months of fiscal year 2019, compared to $29.9 million in impairment write-downs of building, building improvements, furniture and equipment at AUC and RUSM from damage caused by Hurricanes Irma and Maria in the first nine months of fiscal year 2018.2019.

·●

An increase of ~~$0.6~~$12.8 million in amortization and adjustments to operating lease assets which results from the implementation of ~~deferred debt issuance costs related to costs of the new Credit Agreement (defined herein).~~ASC 842 on July 1, 2019.

·●

~~A decrease~~An increase of ~~$2.2~~$4.4 million in provision for bad debts due to ~~improved collections of accounts receivable primarily at Chamberlain.~~increases in reserves for institutional student loans.

·●

~~A decrease~~An increase of $1.1 million in stock-based compensation expense.

·●

~~A decrease~~An increase of ~~$1.1~~$0.9 million in amortization expense of intangible assets.

·●

~~An increase~~A decrease of ~~$20.2~~$4.9 million in the deferred income tax provision related to the timing of deductions.

·●

An increase in realized ~~and unrealized loss~~gain on ~~investments~~the sale of ~~$0.4 million.~~

~~An increase in insurance settlement gain~~assets of ~~$15.6 million. This gain resulted~~$4.8 million from final settlement of hurricane claims which were in excess of expense recorded for hurricane related evacuation processes, temporary housing and transportation of students, faculty and staff, and incremental costs of teaching at alternative sites. The excess funds were applied against capital repairs and replacement, which requires classificationthe sale of the ~~proceeds as an investing activity.~~Columbus, Ohio, campus facility.

Changes in Assets and Liabilities from June 30, ~~2018 consisted of~~2019 reduced operating cash flow by $18.3 million, driven by the following:

·●

~~The~~A $38.2 million decrease resulting from an increase in ~~cash flows in~~accounts receivable balances (excluding provisions for bad debts) due to higher accounts receivable balances at the ~~first nine months of fiscal year~~Medical and Healthcare segment. These balances are seasonally higher at September 30, 2019 compared to June 30, 2019 due to ~~changes~~the timing of cash receipts at Chamberlain, AUC, RUSM and RUSVM resulting from the timing of academic terms.

●

A $72.6 million increase resulting from an increase in ~~net~~deferred revenue balances due to the timing of the Chamberlain, AUC, RUSM and RUSVM academic terms at September 30, 2019 compared to June 30, 2019.

●

A $13.7 million decrease in operating lease liabilities which results from the payments under operating lease liabilities recorded upon the implementation of ASC 842 on July 1, 2019.

●

A $40.2 million decrease resulting from a change in prepaid ~~expenses~~expense and other current assets, accounts payable and accrued salaries, wages, benefits and liabilities and income taxes payable was $72.4 million more than the combined change in the year-ago period driven by a one-time Tax Reform and Jobs Act accrual of $101.2 million in the prior year partially offset by a $30.5 million insurance reimbursement receivable in the prior year. These one-time events do not reoccur in the current fiscal year. In the current fiscal year, the receipt of $20.1 million from the insurance reimbursement receivable was reclassified to investing activity in the Consolidated Statements of Cash Flows. In addition, prepaid income taxes increased by $13.5 million in the current fiscal year compared to a decrease of $1.0 million in the year-ago period, relatedbalances due to the timing of ~~income tax payments. Other offsets result in changes from the timing of the period-end relative to Adtalem’s payroll and bill payment cycles.~~

~~The decrease in cash flows~~disbursements in the first nine months of fiscal year 2019 in combined accounts receivable (excluding the provisions for bad debts) and deferred revenue was $15.2 million larger than the combined decrease in the year-ago period. The main driver of this change was lower deferred revenue balances due to lower revenue at Adtalem Brazil and the timing of revenue recognition.normal processing cycles.

Cash Used in Investing Activities

Capital expenditures in the first ~~nine~~three months of fiscal year ~~2019~~2020 were ~~$50.9~~$10.4 million compared to ~~$50.4~~$13.3 million in the year-ago period. The capital expenditures in fiscal year 2020 include spending for ~~relocating RUSM’s~~Chamberlain new campus ~~from Dominica to Barbados in fiscal year 2019~~development, maintenance and ~~hurricane-related spending to repair the AUC and RUSM-Dominica campuses mainly in fiscal year 2018.~~

Adtalem’s home office reorganization.

Capital spending for the remainder of fiscal year ~~2019~~2020 will support continued investment ~~at RUSM’s new Barbados campus,~~for new campus development at Chamberlain and ~~moderate facility improvements~~maintenance at ~~Adtalem Brazil.~~the medical and veterinary schools. Management anticipates full fiscal year ~~2019~~ 2020

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capital spending to be ~~approximately $65~~in the $45 to $50 million range, including ~~approximately $20~~$10.4 million ~~to $25 million for~~spent during the ~~relocation of RUSM to Barbados.~~

~~In the second~~first quarter of fiscal year 2019, AUC and RUSM received the final insurance proceeds in settlement of claims made related to Hurricanes Irma and Maria. The total proceeds received from insurance settlements were in excess of expense recorded for hurricane-related evacuation processes, temporary housing and transportation of students, faculty and staff, and incremental costs of teaching at alternative sites, less deductibles. The resulting excess proceeds of $35.7 million were applied against asset damages and capital repairs and replacement, which requires classification of the gain as an investing activity.

2020.

On ~~February 5, 2018,~~September 27, 2019, Adtalem completed the acquisition of a majority interest in EduPristine. Under the terms of the agreement, Adtalem agreed to pay approximately $3.2 million in cash, in exchange for stock of EduPristine, increasing Adtalem’s ownership share from 36% to 64%. This ownership percentage was increased to 69% with an additional equity investment of $1.3 million in March 2018. The payments for these additional investments were made in the third quarter of fiscal year 2018. EduPristine is a training provider in India in the areas of finance, accounting, analytics, marketing and healthcare. The acquisition furthers Adtalem’s global growth strategy into professional education.

On November 1, 2017, Adtalem Brazil completed the acquisition of São Judas Tadeu (“SJT”). Under the terms of the agreement, Adtalem Brazil agreed to pay approximately $6.0 million in cash, in exchange for 100% of the stock of SJT. Approximately $1.0 million of payments were made in the second quarter of fiscal year 2018, with additional aggregate payments of approximately $5.0 million required over the succeeding four years. SJT offers medical doctor specialty test preparation and currently serves approximately 2,700 students located in São Paulo. The acquisition of SJT added a new product offering to Adtalem Brazil’s test preparation business.

~~On December 4, 2018, Adtalem completed~~closed on the sale of its ownership of all the outstanding equity interests in U.S. Education Holdings LLC, the holding company of Carrington, to SJVC, pursuant to the terms and conditions of the MIPA, dated June 28, 2018. The equity interests were sold for deminimis consideration, subject to customary adjustments for working capital and required transfer of $9.9 million of cash and restricted cash balances in the second quarter of fiscal year 2019.

~~On December 11, 2018, Adtalem completed~~Columbus, Ohio, campus facility. Net proceeds from the sale of the equity interests of DeVry University to Cogswell under the terms of the purchase agreement dated December 4, 2017. The equity interests were sold for deminimis consideration, subject to customary adjustments for working capital and required transfer of $39.0$6.4 million ~~of cash and restricted cash balances~~resulted in ~~the second quarter of fiscal year 2019. In connection with the completion of~~a gain on the sale ~~Adtalem loaned $10.0 million~~of $4.8 million. This gain was recorded at Adtalem’s home office, which is classified as “Home Office and Other” in “Note 15: Segment Information” to ~~DeVry University under~~ the ~~terms of the promissory note, dated 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.~~

Consolidated Financial Statements.

Cash Used in Financing Activities

The following table provides a summary of cash flows from financing activities (in thousands):


	Three Months Ended
	September 30,
	2019		2018
Proceeds from Exercise of Stock Options	$	828	$	10,492
Repurchase of Common Stock for Treasury		(40,255)		(59,175)
Net Payments Under Credit Facility		(70,750)		(750)
Payment for Purchase of Noncontrolling Interest of Subsidiary		(6,247)		—
Other		155		(5,029)
Net Cash Used in Financing Activities-Continuing Operations	$	(116,269)	$	(54,462)

Nine Months Ended
March 31,

2019 2018
Proceeds from Exercise of Stock Options $ 16,825 $ 22,557
Repurchase of Common Stock for Treasury (176,903 ) (111,626 )
Payments of Seller Financed Obligations (2,154 ) (10,559 )
Net Payments Under Credit Facilities (2,250 ) (5,000 )
Other (6,106 ) (3,277 )
Net Cash Used in Financing Activities $ (170,588 ) $ (107,905 )

Proceeds from Exercise of Stock Options - Cash received from option holders for price paid at time of exercise.

Repurchase of Common Stock for Treasury - Cash paid for the repurchase of Adtalem’s common stock.

~~Payments of Seller Financed Obligations~~ - Adtalem has recorded liabilities for deferred purchase price agreements with sellers related to the acquisitions of Faculdade Diferencial Integral (“Facid”), Faculdade Ideal (“Faci”), Damasio, Grupo Ibmec Educacional S.A. (“Grupo Ibmec”), Faculdade de Imperatriz (“Facimp”) and SJT. This financing is in the form of holdbacks of a portion of the purchase price of these acquisitions or installment payments. Payments are made under these agreements based on payment schedules or the resolution of certain pre-acquisition contingencies.

Net ~~Borrowings~~Payments Under Credit ~~Facilities~~Facility - Net borrowings and repayments under its ~~Prior Credit Facility and the new~~ Credit Facility (see “Note ~~12:~~13: Debt” to the Consolidated Financial Statements).

Payment for Purchase of Noncontrolling Interest of Subsidiary - On July 1, 2019, the Adtalem Brazil management noncontrolling interest members exercised their put option and sold their remaining ownership interests in Adtalem Brazil to Adtalem.

Historically, Adtalem has produced positive cash flows from operating activities sufficient to fund the delivery of its educational programs and services as well as to fund capital investment and share repurchases. ~~As a result of the Tax Act, Adtalem has revised its intent to indefinitely reinvest accumulated~~Adtalem’s consolidated cash balances future cash flows and post-acquisition undistributed earnings and profits in foreign operations, and only intends to maintain this position with respect to cash balances, cash flows and accumulated and future earnings in Brazil. In accordance with this plan, beginning in the third quarter of ~~fiscal year 2018,~~$121.1 million as of September 30, 2019 included $102.1 million of cash held ~~by all foreign subsidiaries except those in Brazil~~at Adtalem’s international operations, which is available to Adtalem for general company purposes. ~~The~~As of September 30, 2019, the cash balance attributable to Adtalem Brazil was $96.9 million, which is excluded from the balances above as they are classified as assets held ~~in Brazil along~~for sale and are not available for Adtalem general company purposes. In accordance with ~~future cash flows from operating activities is sufficient to fund~~the terms of the Adtalem Brazil ~~operations.~~

Purchase Agreement (see “Note 2: Discontinued Operations and Assets Held for Sale”), Adtalem expects to receive approximately $89 million in settlement of cash balances as of June 30, 2019 upon the close of the sale transaction.

Management believes current balances of unrestricted cash, cash generated from operations and the Credit Facility will be sufficient to fund both Adtalem’s current domestic and international operations, growth plans ~~including the acquisition of OCL Financial Services, LLC (“OCL FS”),~~ and current share repurchase program for the foreseeable future unless significant investment opportunities should arise. ~~See “Note 15: Subsequent Event” to the Consolidated Financial statements for additional information on the OCL FS acquisition.~~

Other Contractual Arrangements

Adtalem’s long-term contractual obligations consist of its $600 million Credit Facility (discussed in “Note ~~12:~~13: Debt” to the Consolidated Financial Statements), operating leases on facilities and ~~equipment and~~ agreements for various services. ~~In addition, Adtalem has recorded liabilities for deferred purchase price agreements with sellers related to acquisitions at Adtalem Brazil (discussed above).~~

In fiscal year 2018, Adtalem recorded a liability of $96.3 million for the one-time transition tax on the deemed repatriation of foreign earnings, pursuant to the Tax Act. This amount was reduced to ~~$14.4~~$8.7 million after utilization of tax credits and current and prior year tax losses, and is payable over eight years. The first installment ~~would have been due on September 15, 2018; however, no payments~~ will be required ~~until~~in fiscal year ~~2021 as we utilize tax credits to offset the liability.~~2021.

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On December 11, 2018, Adtalem ~~closed~~completed the sale ~~of the equity interests~~ of DeVry University to Cogswell ~~under the terms of the purchase agreement dated December 4, 2017.~~Education, LLC (“Cogswell”). In connection with the closing of the sale, Adtalem loaned to DeVry University $10.0 million under the terms of the ~~Note.~~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.

On July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep Foundation (“DePaul College Prep”) for $52.0 million. Adtalem received $5.2 million of cash at the time of closing and holds a mortgage, secured by the property, from DePaul College Prep for $46.8 million. The mortgage is due on July 31, 2024 as a balloon payment and bears interest at a rate of 4% per annum, payable monthly. The buyer has an option to make prepayments.

Adtalem is leasing space to DeVry University ~~and Carrington 6~~at four facilities owned by Adtalem and subleasing 20space, in full or in part, at an additional 25 facilities, ~~where~~of which 17 are subleased to DeVry University and/or Carrington. Adtalem remains the primary lessee on the ~~base~~25 underlying leases. These lease and sublease agreements were entered into at ~~current~~comparable market ~~rates. The~~rates and the terms ~~of these leases and subleases~~ range from one to ~~seven~~six years. Future minimum lease and sublease rental income under these agreements at ~~March 31,~~September 30, 2019, are as follows (in thousands):


Fiscal Year	Amount
2020 (Remaining)	$	18,608
2021		20,099
2022		17,103
2023		16,368
2024		10,523
Thereafter		7,308
Total	$	90,009

Fiscal Year Amount
2019 (excluding the nine months ended March 31, 2019) $ 6,304
2020 20,511
2021 15,508
2022 13,812
2023 13,489
Thereafter 18,068

Subject to certain conditions as set forth in the purchase agreement, through December 11, 2020, DeVry University is permitted to put back to Adtalem subleased space to the extent Adtalem’s expenses, which consist of lost rent associated with the remaining term of Adtalem’s lease for any such subleased space and certain capital expenditures incurred in connection with repurposing or otherwise readying and such subleased space leasable to a third-party, do not exceed $4.0 million.

Adtalem also assigned certain leases to DeVry University and Carrington but remains contingently liable under these leases.

OFF-BALANCE SHEET ARRANGEMENTS

Adtalem is not a party to any off-balance sheet financing or contingent payment arrangements, nor are there any unconsolidated subsidiaries. Adtalem has not extended any loans to any officer, director or other affiliated person. Adtalem has not entered into any synthetic leases, and there are no residual purchase or value commitments related to any facility lease. Adtalem did not enter into any derivatives, swaps, futures contracts, calls, hedges or non-exchange traded contracts during the first ~~nine~~three months of fiscal year ~~2019.~~2020. Adtalem had no open derivative positions at ~~March 31,~~September 30, 2019.

~~Critical Accounting Estimates~~CRITICAL ACCOUNTING ESTIMATES

There have been no material changes in the Company’s Critical Accounting Estimates, as disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~

2019.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements, see “Note 3: Summary of Significant Accounting Policies” to the Consolidated Financial Statements.

ITEM 3–QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Adtalem is not dependent upon the price levels, nor affected by fluctuations in pricing, of any particular commodity or group of commodities. However, more than 50% of Adtalem’s costs are in the form of wages and benefits. Changes in employment market conditions or escalations in employee benefit costs could cause Adtalem to experience cost increases at levels beyond what it has historically experienced.

The financial position and results of operations of AUC, RUSM and RUSVM Caribbean operations are measured using the U.S. dollar ~~or local currencies with an exchange rate pegged to the U.S. dollar~~ as the functional currency. Substantially all of these financial transactions are denominated in ~~the~~ U.S. ~~dollar.~~dollars.

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The ~~financial position~~assets and liabilities held for sale and results of discontinued operations of Adtalem Brazil ~~operations~~ are measured using the Brazilian Real as the functional currency. Adtalem Brazil has not entered into any material long-term contracts to purchase or sell goods and services, other than the lease agreements on teaching facilities and contingencies relating to prior acquisitions. ~~Currently,~~As of September 30, 2019, Adtalem ~~does~~did not have any foreign exchange contracts or derivative financial instruments designed to mitigate changes in the value of the Brazilian Real. Brazilian-based assets held for sale constitute ~~26.0%~~24.8% of Adtalem’s overall assets, and Adtalem’s Brazilian liabilities held for sale constitute ~~8.3%~~11.2% of overall liabilities. The value of the Brazilian Real has been volatile in relation to the U.S. dollar over the past several years. The value ~~averaged about 16% lower in~~during the first ~~nine months~~quarter of fiscal year ~~2019~~2020 averaged roughly 1% lower compared to the ~~first nine months of fiscal year 2018.~~year-ago quarter. Based upon the current value of the net assets in Adtalem Brazil’s operations, a change of $0.01 in the value of the U.S. dollar relative to the Brazilian Real results in a translation adjustment to Accumulated Other Comprehensive Loss of approximately ~~$16.7~~$17.5 million. ~~For the first nine months of fiscal year 2019, the lower value of the Brazilian Real also resulted in lower U.S. translated revenue and operating income compared to the year-ago period.~~

The interest rate on Adtalem’s Credit Facility is based upon LIBOR or a LIBOR-equivalent rate for Eurocurrency rate loans or a base rate for periods typically ranging from one to three months. As of ~~March 31,~~September 30, 2019, Adtalem had ~~$297.8~~$336.3 million in outstanding borrowings under the Term B Loan and Revolver with a weighted average interest rate of ~~5.50%~~4.94%. Based upon borrowings of ~~$297.8~~$336.3 million, a 100 basis point increase in short-term interest rates would result in ~~$3.0~~$3.4 million of additional annual interest expense.

Adtalem’s customers are principally individual students enrolled in its various educational programs. Accordingly, concentration of accounts receivable credit risk is small relative to total revenue and accounts receivable. However, the Adtalem Brazil FIES accounts receivable balance has remained elevated for the past several years due to changes in government funding of the program. As of ~~March 31,~~September 30, 2019, June 30, ~~2018~~2019 and ~~March 31,~~September 30, 2018, the FIES accounts receivable balance was $17.8 million, $26.2 million and $22.8 million, ~~$35.9 million and $34.5 million,~~ respectively.

These accounts receivable balances are classified as held for sale.

Adtalem’s cash is held in accounts at various large, financially secure depository institutions. Although the amount on deposit at a given institution typically will exceed amounts subject to guarantee, Adtalem has not experienced any deposit losses to date, nor does management expect to incur such losses in the future.

ITEM 4 –CONTROLS AND PROCEDURES

Principal Executive and Principal Financial Officer Certificates

The required compliance certificates signed by Adtalem’s Chief Executive Officer and Chief Financial Officer are included as Exhibits 31 and 32 of this Quarterly Report on Form 10-Q.

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to help ensure that all the information required to be disclosed in Adtalem’s reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified by the applicable rules and forms.

Adtalem’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that Adtalem’s disclosure controls and procedures (as defined in ~~Rule~~Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective to ensure that information required to be disclosed in the reports that Adtalem files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to Adtalem’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting that occurred during our latest fiscal quarter that materially affected, or are reasonably likely to materially affect, Adtalem’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

For a discussion of legal proceedings, see “Note ~~13:~~14: Commitments and Contingencies” to the Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 1A – RISK FACTORS

In addition to the other information set forth in this report, the factors discussed in “Item 1A – Risk Factors” in Adtalem’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018,~~2019, which could materially affect Adtalem’s business, financial condition or future results, should be carefully considered. Such risks are not the only risks facing Adtalem. Additional risks and uncertainties not currently known to Adtalem or that management currently deems to be immaterial also may materially adversely affect its business, financial condition and/or operating results. ~~There~~Except for the risk factor discussed below, there have been no material changes to Adtalem’s risk factors since its Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~2019.

A delayed or unsuccessful sale of Adtalem Brazil could have a material adverse effect on the stock valuation of Adtalem or may impact the growth prospects or financial resources of Adtalem.

Adtalem has entered into a binding stock purchase agreement to sell its Brazilian portfolio, Adtalem Brazil, to Estácio Participações S.A. (“Estácio”) and Sociedade de Ensino Superior Estaćio de Sá Ltda, a wholly owned subsidiary of Estácio (“Purchaser”) (the “Transaction”). Adtalem’s transfer of ownership to the Purchaser is subject to numerous closing conditions, including the approval by Brazil’s Administrative Council of Economic Defense (“CADE”), the Brazilian antitrust authority. Additionally, the Purchaser is not required to close the Transaction in certain circumstances, including in the event that the closing has not occurred by 270 days following the filing with CADE of all required notification and report forms (subject to each party’s right to extend for an additional 90 days under certain conditions. There is no assurance that the conditions to closing will be satisfied in a timely manner or at all. If the Transaction is not completed, the valuation of Adtalem common stock may materially and adversely decline.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities


				Total Number of Shares	Approximate Dollar
				Purchased as Part of	Value of Shares that May
	Total Number of	Average Price Paid		Publicly Announced	Yet Be Purchased Under
Period	Shares Purchased	per Share		Plans or Programs (1)	the Plans or Programs (1)
July 2019	240,714	$	46.69	240,714	$	170,881,305
August 2019	253,302	$	46.66	253,302	$	159,062,529
September 2019	424,791	$	40.49	424,791	$	141,864,748
Total	918,807	$	43.81	918,807	$	141,864,748

Period Total Number of
Shares Purchased Average Price Paid
per Share Total Number of Shares
Purchased as Part of
Publically Announced
Plans or Programs (1) Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs (1)
January 2019 435,511 $ 48.21 435,511 $ 298,041,288
February 2019 389,566 $ 48.72 389,566 $ 279,060,893
March 2019 441,083 $ 47.59 441,083 $ 258,068,568
Total 1,266,160 $ 48.15 1,266,160 $ 258,068,568

(1) On February 16, 2017, the Board of Directors of Adtalem authorized the tenth share repurchase program to buy back up to $300 million of Adtalem common stock through December 31, 2020. The tenth share repurchase program was completed during January 2019. On November 7, 2018, the Board of Directors of Adtalem authorized ~~the eleventh~~a share repurchase program to repurchase up to $300 million of Adtalem common stock through December 31, 2021. The eleventh share repurchase program commenced ~~during~~in January 2019. The timing and amount of any ~~repurchase~~repurchases will be determined based on an evaluation of the market ~~conditions~~ and other factors. The total remaining authorization under this share repurchase program was $141,864,748 as of September 30, 2019.

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Other Purchases of Equity Securities


				Total Number of Shares	Approximate Dollar
				Purchased as Part of	Value of Shares that May
	Total Number of	Average Price Paid		Publicly Announced	Yet Be Purchased Under
Period	Shares Purchased (1)	per Share		Plans or Programs	the Plans or Programs
July 2019	947	$	44.98	NA	NA
August 2019	112,572	$	44.80	NA	NA
September 2019	66	$	41.70	NA	NA
Total	113,585	$	44.80	NA	NA

(1)	Represents shares delivered back to Adtalem for payment of withholding taxes from employees for vesting restricted stock units and shares swapped for payment on exercise of incentive stock options pursuant to the terms of Adtalem's stock incentive plans.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

Period Total Number of
Shares Purchased (1) Average Price Paid
per Share Total Number of Shares
Purchased as Part of
Publically Announced
Plans or Programs Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs
January 2019 1,604 $ 52.31 NA NA
February 2019 874 $ 48.25 NA NA
March 2019 - $ - NA NA
Total 2,478 $ 50.88 NA NA

(1) Represents shares delivered back to Adtalem for payment of withholding taxes from employees for vesting restricted stock units and shares swapped for payment on exercise of incentive stock options pursuant to the terms of Adtalem's stock incentive plans.

~~Unregistered Sales of Equity Securities~~ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 – OTHER INFORMATION

At the 2005 Annual Meeting of Stockholders held on November 9, 2005, the Company’s stockholders approved the DeVry Inc. Employee Stock Purchase Plan (“ESPP”) that authorized 200,000 shares of common stock for issuance under the ESPP, effective January 1, 2006. The ESPP provided for monthly purchase dates on the last business day of each month beginning January 2006 and purchases at a 5% discount to fair market value on such date. The ESPP was an amendment and restatement of a prior DeVry Inc. employee stock purchase plan that was effective August 1, 1993. On December 22, 2005, the Company registered 200,000 shares common stock that were authorized under the ESPP on a Registration Statement on Form S-8 (Reg. No. 333-130604).None.

From January 1, 2006 to February 28, 2019, eligible ESPP participants purchased 450,095 shares of common stock under the ESPP at purchase prices ranging from $16.41 to $61.94 per share. Of the total shares of common stock purchased under the ESPP from January 1, 2006 to February 28, 2019, the Company inadvertently issued 250,095 shares of common stock that were not registered under federal securities laws and not authorized under the ESPP. Under the applicable provisions of federal securities laws, plan participants who purchased unregistered shares of common stock may seek to rescind the transaction within one year following the date of purchase, which is the applicable federal statute of limitation. The last potential rescission rights related to the shares of common stock held by the original purchasers expires by the statute of limitations on February 28, 2020. As of March 31, 2019, approximately 13,700 shares were subject to rescission rights.

~~The Company believes its potential liability, if any, with respect to shares of common stock subject to rescission rights and still held by the original purchasers is not material to the Company.~~

Although the 250,095 shares of common stock purchased by ESPP participants through the ESPP were not registered prior to such purchase, ESPP participants may resell all such shares pursuant to Rule 144.

The Company terminated the ability to purchase shares of common stock under the ESPP and the last purchase made through the ESPP was on February 28, 2019. The Company is in the process of implementing a new employee stock purchase plan and submitting the new plan for stockholder approval at the Company’s next annual meeting of stockholders to be held in November 2019.

Additionally, effective March 31, 2019, the Company is reducing the number of shares of common stock available under the Adtalem Global Education Inc. Fourth Amended and Restated Incentive Plan of 2013 by 250,095 shares of common stock to reduce any potential dilution to stockholders.

ITEM 6 – EXHIBITS


Exhibit 10		Executive Employment Agreement dated as of August 23, 2019 between Adtalem and Michael Randolfi (incorporated by reference to Exhibit 10.1 to Adtalem’s Current Report on Form 8-K dated August 27, 2019)*

Exhibit 31		Certifications Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended

Exhibit 32		Certification Pursuant to Title 18 of the United States Code Section 1350**

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Designates management contract and compensatory plan or arrangement.

** Furnished herewith.

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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 thereunto duly authorized.


	Adtalem Global Education Inc.

Date: ~~May 2,~~October 29, 2019		/s/ Michael Randolfi
		By	~~/s/ Patrick J. Unzicker~~ Michael Randolfi
			~~Patrick J. Unzicker~~
			Senior Vice President and Chief Financial Officer
			~~Financial Officer and Treasurer~~
			(Principal Financial Officer and Principal Accounting Officer)


(Mark One)
þ
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended: ~~March 31,~~September 30, 2019

	OR

¨ ☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _____ to _____

	Commission file number: 1-13988

~~DELAWARE~~	~~36-3150143~~
DELAWARE	36-3150143
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

500 WEST MONROE STREET
CHICAGO, ILLINOIS	60661
(Address of principal executive offices)	(Zip Code)


Title of ~~Each Class~~each class	Trading Symbol(s)	Name of ~~Each Exchange~~each exchange on ~~Which Registered~~which registered	~~Ticker Symbol~~
Common Stock $0.01 Par Value	ATGE	NYSE, CSE	~~ATGE~~


Large accelerated filer	þ	Accelerated filer	¨ ☐
Non-accelerated filer	¨ ◻	Smaller reporting company	¨ ☐
		Emerging growth company	¨ ☐