Pension Trust Fund For Operating Engineers v. DeVry Education Group, Inc. et al

Northern District of Illinois, ilnd-1:2016-cv-05198

Exhibit H

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Case: 1:16-cv-05198 Document #: 93-8 Filed: 03/30/18 Page 1 of 7 PageID #:1677 EXHIBIT H Case: 1:16-cv-05198 Document #: 93-8 Filed: 03/30/18 Page 2 of 7 PageID #:1678 Section 1: 10-K Section 1: 10-K (FORM (FORM 10-K) 10-K) UNITED STATES UNITED STATES SECURITIES AND EXCHANGE SECURITIES AND EXCHANGE COMMISSION COMMISSION Washington, D.C. 20549 Washington, D.C. 20549 Form 10-K Form 10-K (Mark One) (Mark One) þ 0 ANNUAL REPORT ANNUAL REPORT PURSUANT PURSUANT TOTO SECTION SECTION 13 13 OR OR 15(d) 15(d) OF THE OF THE SECURITIES EXCHANGE ACT SECURITIES EXCHANGE ACT OF OF 1934 1934 For the For the fiscal fiscal year year ended: ended: June June 30, 30, 2017 2017 OR OR ¨ 0 TRANSITION REPORT PURSUANT TRANSITION REPORT PURSUANT TO TO SECTION SECTION 13 13 OR OR 15(d) 15(d) OF THE OF THE SECURITIES EXCHANGE ACT SECURITIES EXCHANGE ACT OF OF 1934 1934 For the For the transition transition period period from from _____to to _____ Commission Commission file number: 1-13988 file number: 1-13988 ADTALEM GLOBAL ADTALEM GLOBAL EDUCATION INC. EDUCATION INC. (Exact name of (Exact name of registrant as specified registrant as specified in in its charter) its charter) DELAWARE DELAWARE 36-3150143 36-3150143 (State (State or or other jurisdiction of other jurisdiction of (I.R.S. Employer (I12.S. Employer incorporation incorporation or organization) or organization) Identification No) Identification No.) 3005 HIGHLAND 3005 HIGHLAND PARKWAY PARKWAY 60515 60515 DOWNERS GROVE, DOWNERS ILLINOIS GROVE, ILLINOIS (Zip (Zip Code) Code) (Address of (Address principal executive ofprincipal executive offices) offices) Registrant's telephone Registrant's telephone number; including area number; including area code: code: (630) 515-7700 (630) 515-7700 Securities registered Securities pursuant to registered pursuant to section section 12(b) 12(b) of of the the Act: Act: Title of Title of Each Each Class Class Name of Name of Each Each Exchange Exchange on on Which Which Registered: Registered: Common Common Stock $0.01 Par Stock $0.01 Par Value Value NYSE, CSE NYSE, CSE Securities registered Securities registered pursuant to Section pursuant to Section 12(g) 12(g) of of the the Act: Act: None None Indicate by Indicate by check check mark mark ifif the the Registrant Registrant isis aa well-known well-known seasonedseasoned issuer, as defined issuer, as defined inin Rule Rule 405405 of the Securities of the Act. Yes Securities Act. Yes þ0 No ¨ No ❑ Indicate by Indicate by check check mark mark if the Registrant if the Registrant is not required is not required to to file file reports pursuant to reports pursuant to Section Section 13 13 or or Section 15(d) of Section 15(d) the Act. of the Act. Yes Yes ¨❑ No No þ0 Indicate by Indicate by check mark whether check mark whether thethe Registrant Registrant (1) (1) has has filed filed all all reports required to reports required to be be filed filed byby Section Section 1313 or 15(d) of or 15(d) of the the Securities Exchange Act Securities Exchange Act of of 1934 1934 during during the preceding the preceding 12 months (or 12 months (or for for such such shorter shorter period period that that the the registrant registrant was was required required to to file such reports), file such and (2) reports), and (2) has has been been subject subject to to such such filing requirements for filing requirements the for the past 90 past days. Yes 90 days. Yes þ0 No ¨ No ❑ Indicate by Indicate by check mark whether check mark whether thethe registrant registrant has has submitted submitted electronically electronically andand posted posted on on its its corporate corporate WebWeb site, site, if if any, every Interactive any, every Interactive Data Data File File required required to be to be submitted and submitted and posted posted pursuant pursuant to to Rule Rule 405 405 of Regulation S-T of Regulation S-T (§ (§ 232.405 232.405 of this chapter) of this chapter) during the preceding during the preceding 12 months (or 12 months (or for such shorter for such shorter period period that that the the registrant was required registrant was required toto submit submit andand post post such such files). files). YesYes þ 0 No ¨ No ❑ Indicate by Indicate by check check mark mark if if disclosure of delinquent disclosure of delinquent filers filers pursuant pursuant toto Item Item 405 405 ofof Regulation Regulation S-K S-K isis not contained herein, not contained herein, and and will will not not be be contained, contained, toto the the best best of of registrant's registrant's knowledge, knowledge, in in definitive definitive proxy proxy oror information statements incorporated information statements incorporated by by reference reference in Part III in Part III of of this this Form Form 10-K 10-K oror any any amendment amendment to to this this Form Form 10-10- K. ¨ K. 0 Indicate by Indicate by check check mark mark whether whether thethe registrant registrant is is aa large large accelerated accelerated filer, an accelerated filer, an accelerated filer, filer, aa non-accelerated non-accelerated filer, smaller reporting filer, smaller reporting company, company, or an emerging or an emerging growth company. See growth company. the definitions See the definitions of "large accelerated of "large accelerated filer," "accelerated filer," filer," "accelerated "smaller reporting filer," "smaller company," and reporting company," "emerging growth and "emerging growth company" company" in Rule 12b-2 in Rule of 12b-2 of the Exchange the Exchange Act. Act. Large accelerated filer Large accelerated filer þ 0 Accelerated filer Accelerated filer ¨ ❑ Non-accelerated filer Non-accelerated filer ¨ ❑ (Do (Do not not check check if if aa smaller smaller reporting reporting company) company) Smaller reporting company Smaller reporting company ¨ ❑ Emerging growth Emerging growth company company ¨ ❑ If an If an emerging growth company, emerging growth company, indicate indicate by by checkmark checkmark if the registrant if the registrant has has elected not to elected not to use use the the extended extended transition transition period period for for complying with any complying with any new new or or revised revised financial Case: 1:16-cv-05198 accounting financial accounting standards provided standards Document provided pursuant pursuant to Section to #: 93-8 13(a) Section 13(a) of Filed: 03/30/18 the Exchange of the Exchange Act. ¨ Act. ❑ Page 3 of 7 PageID #:1679 Indicate by Indicate by check mark whether check mark whether the the registrant registrant is is aa shell shell company (as defined company (as defined in in Rule Rule 12b-2 of the 12b-2 of the Exchange Exchange Act). Act). Yes Yes ¨ No þ ❑ No 0 State the aggregate State the aggregate market market value value of the voting of the and non-voting voting and non-voting common common equity held by equity held by nonaffiliates nonaffiliates computed computed byby reference reference to the price to the price at at which which the the common common equity was last equity was sold, or last sold, the average or the average bid bid and asked price and asked price of of such such common common equity, equity, as of the as of the last business day last business of the day of the Registrant's Registrant's most most recently recently completed second completed second fiscal quarter. Shares fiscal quarter. Shares of of common stock held common stock held directly directly or or controlled by each controlled by director and each director and executive executive officer have been officer have been excluded. excluded. December 31, December 31, 2016 2016 -- $1,929,518,906 $1,929,518,906 Indicate the Indicate the number number of shares outstanding of shares of each outstanding of each of the registrant's of the classes of registrant's classes of common common stock, stock, as as of of the the latest latest practicable practicable date. date. August 17, August 17, 2017 2017 -- 62,076,000 shares of 62,076,000 shares of Common Common Stock, $0.01 par Stock, $0.01 par value value DOCUMENTS INCORPORATED DOCUMENTS INCORPORATED BY BY REFERENCE REFERENCE Certain portions of Certain portions of the the Registrant's Registrant's definitive Proxy Statement definitive Proxy Statement for the Annual for the Annual Meeting Meeting of of Stockholders to be Stockholders to be held held on on November November 8, 8, 2017, 2017, are are incorporated incorporated into into Part III Part III of of this Form 10-K this Form 10-K to to the the extent stated herein. extent stated herein. Case: 1:16-cv-05198 Document #: 93-8 Filed: 03/30/18 Page 4 of 7 PageID #:1680 ADTALEM GLOBAL ADTALEM EDUCATION INC. GLOBAL EDUCATION INC. ANNUAL REPORT ANNUAL REPORT ON FORM 10-K ON FORM 10-K FISCAL YEAR FISCAL YEAR ENDED ENDED JUNE JUNE 30, 30, 2017 2017 TABLE OF TABLE OF CONTENTS CONTENTS Page # Page # PART II PART Item 11 Item — Business — Business 33 Item 1A Item lA — Risk Factors — Risk Factors 37 37 Item 1B Item 1B — Unresolved Staff — Unresolved Comments Staff Comments 51 51 Item 22 Item — Properties — Properties 51 51 Item 33 Item — Legal Proceedings — Legal Proceedings 53 53 — — Supplementary Item-Executive Officers Supplementary Item-Executive Officers of the Registrant of the Registrant 54 54 PART II PART II Item 55 Item — Market for — Market Registrant's Common for Registrant's Common Equity, Equity, Related Related Stockholder Matters and Stockholder Matters and Issuer Issuer Purchases Purchases of Equity Securities of Equity Securities 57 57 Item 66 Item — — Selected Financial Data Selected Financial Data 59 59 Item 77 Item — Management's Discussion — Management's Discussion and and Analysis Analysis of of Financial Financial Condition Condition and and Results Results of of Operations Operations 60 60 Item 7A Item 7A — — Quantitative and Qualitative Quantitative and Qualitative Disclosures Disclosures about about Market Market Risk Risk 94 94 Item 88 Item — Financial Statements — Financial and Supplementary Statements and Data Supplementary Data 95 95 Item 99 Item — — Changes Changes in and Disagreements in and Disagreements with with Accountants Accountants on Accounting and on Accounting and Financial Financial Disclosure Disclosure 95 95 Item 9A Item 9A — — Controls and Procedures Controls and Procedures 95 95 Item 9B Item 9B — — Other Information Other Information 96 96 PART III PART III Item 10 Item 10 — Directors, Executive — Directors, Executive Officers and Corporate Officers and Corporate Governance Governance 139 139 Item 11 Item 11 — Executive Compensation — Executive Compensation 139 139 Item 12 Item 12 — — Security Ownership of Security Ownership of Certain Certain Beneficial Beneficial Owners Owners and and Management Management and and Related Related Stockholder Matters Stockholder Matters 139 139 Item 13 Item 13 — — Certain Relationships and Certain Relationships and Related Related Transactions, and Director Transactions, and Director Independence Independence 139 139 Item 14 Item 14 — Principal Accountant — Principal Accountant Fees Fees and and Services Services 139 139 PART IV PART IV Item 15 Item 15 — Exhibits and — Exhibits and Financial Financial Statement Statement Schedules Schedules 140 140 Item 16 Item 16 — Form 10-K — Form 10-K Summary Summary 140 140 Signatures Signatures 147 147 Case: 1:16-cv-05198 Document #: 93-8 Filed: 03/30/18 Page 5 of 7 PageID #:1681 DeVry University DeVry University is is one one of of the the largest regionally accredited largest regionally accredited higher higher education systems in education systems in North North America, America, offering offering associate, associate, bachelor's bachelor's and and master's degree master's degree programs programs in technology, healthcare in technology, healthcare technology, technology, business business and and management. management. At At June June 30, 30, 2017, 2017, DeVry DeVry University University programs programs were were offered at 59 offered at 59 locations locations in the U.S. in the U.S. and and through through DeVry DeVry University's University's online online platform. platform. Carrington operates Carrington operates 2121 academic academic sites sites in in eight western states. eight western states. Carrington Carrington offers offers degree degree and and diploma diploma programs programs primarily primarily in healthcare, dental in healthcare, dental and and veterinary career veterinary career fields. fields. NOTE 2: NOTE 2: DISCONTINUED DISCONTINUED OPERATIONS OPERATIONS In December In December 2013, 2013, the the assets assets of of Adtalem's Adtalem's Advanced Advanced Academics Academics Inc. Inc. ("AAI") ("AAI") subsidiary, subsidiary, which which had had previously previously been been disclosed as "held disclosed as "held for for sale" were sale" were divested. divested. These assets were These assets were sold sold for for $2.0 million, which $2.0 million, which approximated approximated the the recorded recorded netnet book book value value of of the the assets assets on on the the date date of of sale. sale. The The operating results of operating results of AAI AAI are are separately separately disclosed disclosed in the Consolidated in the Consolidated Statements Statements of of Income Income (Loss) (Loss) asas "Discontinued "Discontinued Operations Operations — – Income Income from from Operations of Operations of Divested Divested Component." Component." TheThe following following is is aa summary summary of of operating operating results of the results of the discontinued discontinued operations operations for the year for the year ended June 30, ended June 30, 2015 (in 2015 (in thousands). thousands). The reported Income The reported Income from from Discontinued Discontinued Operations, Net of Operations, Net of Income Income Taxes Taxes in in fiscal year 2015 fiscal year 2015 is comprised of is comprised of $1.0 million in $1.0 million pre- in pre- tax income tax income from the net from the net settlement settlement of service agreements of service agreements and and an an adjustment adjustment ofof $4.6 $4.6 million million related to the related to the correction correction of of an an error to properly error to properly record record the the income tax benefit income tax benefit of of the the impairment charge taken impairment charge taken in the first in the first quarter of fiscal quarter of fiscal year year 2014. 2014. Year Ended Year Ended June June 30, 30, 2017 2017 2016 2016 2015 2015 Income from Operations Income from Operations of Divested Component of Divested Component $ - $ - $ 1,011 1,011 Income Tax Income Benefit Tax Benefit - - 4,565 4,565 Income from Income Discontinued Operations, from Discontinued Net of Operations, Net of Income Income Taxes Taxes $$ -- $ $ -- $$ 5,576 5,576 NOTE 3: NOTE 3: ASSETS ASSETS HELD HELD FOR FOR SALE SALE During the During the second second quarter of fiscal quarter of year 2017, fiscal year 2017, management management committed committed to to aa plan plan to to sell sell the the DeVry DeVry University University and and Carrington Carrington co-located co-located campus campus in in Pomona, California, Pomona, California, which which met met criteria to be criteria to be classified as an classified as an asset asset held held for sale. This for sale. This required required aa write-down write-down of of the the assets assets to to fair market value fair market value less less costs to sell. costs to sell. The building is The building is being being marketed marketed to to prospective prospective buyers buyers and and is available for is available for immediate immediate sale, sale, which which is is likely to occur likely to occur within within one one year. year. Based on Based on third third party party offers, management estimated offers, management the assets' estimated the assets' fair market values fair market values less less costs to sell costs to sell at at approximately approximately $11.3 million, which $11.3 million, which resulted resulted in in the carrying the carrying value value exceeding exceeding thethe fair fair market market value value by by $4.8 million. As $4.8 million. As aa result, result, Land, Land, Building Building and and Equipment Equipment HeldHeld for for Sale, Net of Sale, Net of $11.3 million was $11.3 million was recorded recorded on the Consolidated on the Consolidated Balance Balance Sheet Sheet atat June June 30, 30, 2017 2017 and and aa $4.8 million pre-tax $4.8 million pre-tax Loss Loss onon Assets Assets Held Held for for Sale was recorded Sale was recorded in the in the Consolidated Statement Consolidated Statement ofof Income Income for the year for the year ended June 30, ended June 30, 2017. 2017. The assets being The assets being held held for for sale sale are are classified within the classified within the U.S. U.S. Traditional Traditional Postsecondary segment. Postsecondary segment. NOTE 4: NOTE 4: REGULATORY REGULATORY SETTLEMENTS SETTLEMENTS In the In the second second quarter quarter of of fiscal year 2017, fiscal year 2017, Adtalem, Adtalem, DeVry DeVry University University Inc., Inc., and and DeVry/New DeVry/New York York Inc. Inc. (collectively, (collectively, the the "DeVry "DeVry Parties") Parties") and and the the Federal Trade Federal Trade Commission Commission ("FTC") ("FTC") agreed agreed to to aa Stipulation Stipulation asas to to Entry Entry ofof an an Order Order for Permanent Injunction for Permanent Injunction andand Monetary Monetary Judgment Judgment (the (the "Agreement") resolving "Agreement") resolving litigation brought by litigation brought by the the FTC regarding DeVry FTC regarding DeVry University's University's use use of of employment employment statistics statistics in in former advertising. Under former advertising. Under the the terms of terms of the the Agreement, Agreement, the the DeVry DeVry Parties Parties agreed agreed toto pay pay $49.4 million to $49.4 million to be be distributed at the distributed at the sole sole discretion discretion of the FTC, of the FTC, to to forgive forgive $30.4 million of $30.4 million of institutional institutional loans loans issued before September issued before 30, 2015, September 30, 2015, and and toto forgive forgive outstanding outstanding DeVry DeVry University University accounts accounts receivable receivable balances balances by by $20.2 million for $20.2 million for former students. In former students. In addition, addition, the the DeVry DeVry Parties Parties agreed agreed that that Adtalem Adtalem institutions institutions marketing marketing toto U.S. U.S. consumers will maintain consumers will maintain specific specific substantiation substantiation to to support any support any future advertising regarding future advertising regarding graduate graduate outcomes outcomes and and educational benefits, and educational benefits, and will will implement training and implement training and other other agreed-upon agreed-upon compliance measures. Adtalem compliance measures. Adtalem chose chose to to settle settle the the FTC FTC litigation after filing litigation after filing an an answer answer denying denying allall allegations allegations of wrongdoing. of wrongdoing. 103 103 Case: 1:16-cv-05198 Document #: 93-8 Filed: 03/30/18 Page 6 of 7 PageID #:1682 In the In the second second quarter quarter of of fiscal fiscal year year 2017, 2017, Adtalem Adtalem also also recorded recorded charges related to charges related to the the resolution resolution of an inquiry of an made by inquiry made by the the Office Office of of the the Attorney General Attorney General ofof the the State of New State of New York York ("NYAG") ("NYAG") to to the the DeVry DeVry Parties Parties regarding DeVry University's regarding DeVry University's use use of of employment employment and and salary salary statistics statistics in in former advertising. The former advertising. DeVry Parties The DeVry Parties chose to resolve chose to resolve the the NYAG NYAG inquiry by entering inquiry by entering into into an an Assurance Assurance ofof Discontinuance Discontinuance (the (the "Assurance") "Assurance") with with the NYAG the NYAG on January 27, on January 27, 2017, 2017, without without admitting admitting or denying the or denying the allegations allegations therein. therein. Pursuant Pursuant to to the the Assurance, Assurance, the the DeVry DeVry Parties Parties agreed agreed to to pay pay $2.25 million for $2.25 million for consumer restitution and consumer restitution and $0.5 million in $0.5 million in penalties, penalties, fees and costs. fees and costs. In In addition, addition, the the DeVry DeVry Parties Parties agreed agreed that that Adtalem Adtalem institutions institutions marketing to marketing to New New York York consumers will maintain consumers will maintain specific specific substantiation substantiation and and present present certain statistics as certain statistics as prescribed prescribed to to support support any any future advertising future advertising regarding regarding graduate outcomes and graduate outcomes and educational benefits, and educational benefits, and will will implement other agreed-upon implement other agreed-upon compliance compliance measures. measures. Student services Student services and and access access to to federal student loans federal student are not loans are not impacted by the impacted by the Agreement Agreement or the Assurance or the Assurance andand at at no no time time has has the the academic academic quality quality of of aa DeVry DeVry University University education education been been questioned. questioned. See "Note 16: See "Note 16: Commitments and Contingencies" Commitments and Contingencies" for for further discussion. further discussion. The regulatory The settlements expense regulatory settlements of $56.3 expense of million recorded $56.3 million recorded during during the the year year ended June 30, ended June 30, 2017 2017 consists consists of the $49.4 of the million cash $49.4 million cash payment payment to to the FTC, the FTC, the the $4.1 million unreserved $4.1 million and expensed unreserved and expensed institutional institutional loans and the loans and the $2.75 million cash $2.75 million payment to cash payment to the the NYAG. NYAG. Of these regulatory Of these regulatory settlement charges, settlement charges, $4.1 million was $4.1 million was allocated allocated to to the the U.S. U.S. Traditional Traditional Postsecondary Postsecondary segment segment and and $52.2 $52.2 million million was was allocated allocated to to the the Adtalem Adtalem home home office, which is office, which classified as is classified as "Home "Home Office and Other" Office and Other" in in "Note "Note 17: 17: Segment Information." Segment Information." In the In the second second quarter quarter of of fiscal year 2017, fiscal year 2017, DeVry DeVry University University reached reached aa settlement settlement agreement agreement with with the the U.S. U.S. Department Department of Education ("ED") of Education ("ED") regarding regarding its January 27, its January 27, 2016 2016 Notice Notice of Intent to of Intent to Limit Limit ("Notice"). ("Notice"). The Notice related The Notice related narrowly narrowly to to aa specific specific graduate graduate employment statistic employment statistic previously used previously used by by DeVry DeVry University, University, calculated since 1975. calculated since 1975. The settlement includes, The settlement among other includes, among things, an other things, an agreement agreement to to no no longer longer use the use the statistic in statistic in question question oror to to make make any any other other representations representations regarding the graduate regarding the graduate employment employment outcomes outcomes of of DeVry DeVry University University graduates from 1975 graduates from 1975 toto October 1980. October 1980. DeVry DeVry University University will will also also refrain refrain from making any from making any future future graduate employment representations graduate employment representations without without possessing possessing graduate-specific graduate-specific information, information, and,and, for for five years after five years after the the effective effective date of the date of the settlement, settlement, will will post post aa letter of credit letter of with ED credit with ED equal equal toto 10% 10% of of DeVry DeVry University's University's annual Title annual IV disbursement. Title IV disbursement. A A $68.4 $68.4 million million letter of credit letter of credit was was posted posted inin the the second second quarter quarter of of fiscal year 2017 fiscal year 2017 in relation to in relation to this this requirement. requirement. Also, Also, as aa result as result of the settlement of the settlement agreement, agreement, DeVry DeVry University's University's participation participation in in Title IV programs Title IV programs will will be be under under provisional provisional certification. The settlement certification. The settlement in in no way hinders no way hinders DeVry DeVry University's University's ability ability to to serve serve current or future current or future students. students. DeVry DeVry University University resolved the Notice resolved the Notice inin full full cooperation with ED. cooperation with ED. The settlement allows The settlement allows DeVry DeVry University University toto continue communicating its continue communicating strong student its strong student outcomes, outcomes, while while providing providing assurances assurances regarding the extent regarding the extent of its of its graduate employment data. graduate employment data. See "Note 14: See "Note 14: Debt" Debt" and and "Note "Note 16: 16: Commitments Commitments and and Contingencies" Contingencies" for further discussion. for further discussion. NOTE 5: NOTE 5: SUMMARY SUMMARY OF SIGNIFICANT ACCOUNTING OF SIGNIFICANT ACCOUNTING POLICIES POLICIES Principles of Principles of Consolidation Consolidation The Consolidated The Consolidated Financial Financial Statements Statements include the accounts include the accounts ofof Adtalem Adtalem and and its its wholly-owned wholly-owned and and majority-owned majority-owned subsidiaries. subsidiaries. All All intercompany balances and intercompany balances and transactions transactions have have been been eliminated eliminated in in consolidation. Where our consolidation. Where our ownership ownership interest interest is less than is less than 100 100 percent, percent, the the noncontrolling ownership noncontrolling ownership interest interest is reported on is reported on our our Consolidated Balance Sheets. Consolidated Balance Sheets. The noncontrolling ownership The noncontrolling ownership interest interest earnings earnings portion portion is is classified as "Net classified as "Net Income Income Attributable Attributable to to Noncontrolling Noncontrolling Interest" Interest" in in our our Consolidated Consolidated Statements Statements of Income (Loss). of Income (Loss). Unless Unless indicated, indicated, or or the the context context requires otherwise, references requires otherwise, to years references to years refer refer to to Adtalem's Adtalem's fiscal years. fiscal years. Equity Method Equity Method Investment Investment The equity The method of equity method of accounting accounting is used for is used for those those investments investments where where wewe have the ability have the ability to to influence influence the the operating operating and and financial decisions of financial decisions of the investee the but do investee but do not not possess possess more more than than aa 50% 50% ownership ownership interest. Generally, this interest. Generally, this occurs occurs when when the the ownership ownership interest interest is is greater greater than than 20%. 20%. The The investments are initially investments are initially recorded recorded at at cost and classified cost and classified as as Other Assets on Other Assets on the the Consolidated Consolidated Balance Balance Sheet. Sheet. The The carrying amount of carrying amount of the the investment investment is adjusted in is adjusted subsequent periods in subsequent periods for for Adtalem's Adtalem's share share of of the the earnings or losses earnings or losses of the investee, of the which are investee, which are recorded recorded in the Consolidated in the Consolidated Statements Statements of Income of Income (Loss) (Loss) as as Equity Equity Method Method Investment Investment Loss. Loss. Cash and Cash Cash and Equivalents Cash Equivalents Cash and Cash and cash cash equivalents can include equivalents can time deposits, include time deposits, high-grade high-grade commercial paper, money commercial paper, money market market funds funds and and bankers bankers acceptances acceptances with with original original maturities of maturities of three three months months oror less. less. Short-term Short-term investment objectives are investment objectives are to to minimize minimize risk risk and and maintain maintain liquidity. liquidity. These These investments are stated investments are stated at at cost cost (which approximates (which approximates fairfair value) value) because because of their short of their short duration duration or or liquid nature. Adtalem liquid nature. Adtalem places places its cash and its cash and temporary temporary cash cash investments with high investments with high credit quality institutions. credit quality Cash and institutions. Cash and cash cash equivalent balances in equivalent balances U.S. bank in U.S. bank accounts accounts are are generally generally in in excess of the excess of the Federal Federal Deposit Deposit Insurance Insurance Corporation ("FDIC") Corporation ("FDIC") insurance insurance limit. Cash and limit. Cash and cash cash equivalent balances in equivalent balances Brazilian bank in Brazilian bank accounts accounts are are generally generally in in excess of the excess of the deposit deposit insurance insurance limits limits for Brazilian banks. for Brazilian banks. Adtalem Adtalem has has not not experienced any losses experienced any on its losses on cash and its cash and cash cash equivalents. equivalents. 104 104 Case: 1:16-cv-05198 Document #: 93-8 Filed: 03/30/18 Page 7 of 7 PageID #:1683 NOTE 16: NOTE 16: COMMITMENTS COMMITMENTS AND AND CONTINGENCIES CONTINGENCIES Adtalem and Adtalem and its subsidiaries lease its subsidiaries lease certain certain equipment equipment and and facilities facilities under noncancelable operating under noncancelable operating leases, leases, some some of of which which contain renewal options, contain renewal options, escalation clauses and escalation clauses and requirements requirements toto pay pay taxes, taxes, insurance insurance and and maintenance maintenance costs. costs. Future minimum Future minimum rental rental commitments for all commitments for all noncancelable noncancelable operating operating leases leases having having aa remaining term in remaining term in excess of one excess of one year year at at June June 30, 30, 2017, 2017, are are as as follows (in thousands): follows (in thousands): Fiscal Year Fiscal Year Amount Amount 2018 2018 $ $ 91,431 91,431 2019 2019 83,746 83,746 2020 2020 77,387 77,387 2021 2021 70,505 70,505 2022 2022 59,617 59,617 Thereafter Thereafter 160,060 160,060 Adtalem recognizes Adtalem recognizes rent rent expense on aa straight-line expense on straight-line basis basis over over the the term term of the lease, of the lease, although although the the lease may include lease may include escalation clauses that escalation clauses that provide for provide for lower lower rent payments at rent payments at the the start start of of the the lease term and lease term and higher higher lease payments at lease payments at the the end of the end of the lease term. Rent lease term. Rent expense expense for the years for the years ended June 30, ended June 30, 2017, 2017, 2016 2016 and and 2015 2015 was was $79.9 million, $80.0 $79.9 million, million and $80.0 million and $90.1 million, respectively. $90.1 million, respectively. Adtalem is Adtalem is subject subject toto lawsuits, administrative proceedings, lawsuits, administrative proceedings, regulatory regulatory reviews reviews andand investigations investigations associated associated with with financial assistance programs financial assistance programs and other and other matters matters arising arising in in the the normal normal conduct conduct ofof its business. The its business. The following following isis aa description description of pending legal of pending legal and and regulatory regulatory matters matters that that may may be be considered other than considered other than ordinary, ordinary, routine and incidental routine and incidental toto the the business. business. Descriptions Descriptions of of certain matters from certain matters from prior prior SEC SEC filings may not filings may not be be carried carried forward forward in this report in this report to to the the extent extent we we believe believe such such matters matters no no longer are required longer are required to to be be disclosed or there disclosed or there has has not not been, been, toto our our knowledge, knowledge, significant activity significant activity relating to them. relating to them. The timing or The timing or outcome outcome of the following of the matters, or following matters, or their their possible possible impact impact on Adtalem's business, on Adtalem's business, financial financial condition or results condition or results of operations, cannot of operations, cannot be be predicted predicted atat this this time. time. The The continued continued defense, defense, resolution resolution or or settlement settlement ofof any any of of the the following matters following matters could require us could require to expend us to significant resources expend significant resources and and could could have have aa material material adverse adverse effect effect on our business, on our business, financial condition, results financial condition, results of of operations operations and cash and cash flows flows and and result result in the imposition in the imposition of significant restrictions of significant on us restrictions on us and and our our ability ability to to operate. operate. In April In April 2013, 2013, Adtalem Adtalem received received aa Civil Civil Investigative Investigative Demand Demand (a (a "CID") "CID") issued by the issued by the Office Office of of the the Attorney Attorney General General of the Commonwealth of the Commonwealth of of Massachusetts ("MA Massachusetts ("MA AGO"). AGO"). The CID was The CID was issued in connection issued in connection withwith an an investigation investigation into whether Adtalem into whether Adtalem caused caused false false claims and/or false claims and/or false statements to statements to be be submitted submitted toto the the Commonwealth Commonwealth of of Massachusetts Massachusetts relating relating toto student student loans, guarantees, and loans, guarantees, and grants grants provided provided to to Adtalem's Adtalem's Massachusetts students Massachusetts students and and required Adtalem to required Adtalem to answer answer interrogatories and to interrogatories and to provide provide documents relating to documents relating to periods periods onon or or after after January January 1,1, 2007. 2007. Adtalem responded Adtalem responded toto the the CID CID in in May May 2013. 2013. InIn July July 2016, 2016, Adtalem Adtalem received received aa second second CID CID from MA AGO from MA AGO requesting information regarding requesting information DeVry regarding DeVry University advertising, University advertising, admissions admissions materials, materials, placement placement rates, rates, and and credit/transferability agreements. Adtalem credit/transferability agreements. Adtalem responded responded to to the the second second CID and CID and Adtalem chose Adtalem chose toto resolve resolve the the MA MA AGO AGO inquiry inquiry byby entering entering into an Assurance into an Assurance of of Discontinuance Discontinuance (the(the "MA "MA Assurance") Assurance") withwith the the MA MA AGOAGO onon June 30, June 30, 2017, 2017, without without admitting admitting or denying the or denying the allegations allegations therein. therein. Pursuant Pursuant toto the the MA MA Assurance, Assurance, Adtalem Adtalem agreed agreed to to pay pay $0.5 million to $0.5 million to the the MA MA AGO. In AGO. In addition, addition, Adtalem Adtalem agreed agreed that that it will refrain it will refrain from from certain certain representations representations regarding regarding graduate graduate outcomes outcomes and and educational educational benefits, benefits, and and will will implement implement other agreed-upon compliance other agreed-upon measures. compliance measures. On August On August 28, 28, 2015, 2015, DeVry DeVry University University received received aa request request from the Multi-Regional from the Multi-Regional and and Foreign Foreign School School Participation Division of Participation Division of the the Federal Federal Student Aid office Student Aid office of of the the Department Department of of Education Education ("ED ("ED FSA") FSA") for documents and for documents and information regarding published information regarding published employment outcomes and employment outcomes and relative relative earnings earnings information information of of DeVry DeVry University University graduates (the "Inquiry"). graduates (the "Inquiry"). The The stated stated purpose purpose of of the the Inquiry Inquiry was was to to permit permit EDED FSA FSA toto assess assess DeVry University's DeVry University's compliance with applicable compliance with applicable regulations regulations under under Title Title IV. IV. On January 27, On January 27, 2016, 2016, DeVry DeVry University University received received aa Notice Notice of of Intent Intent to to Limit Limit from ED FSA from ED FSA (the (the "ED "ED January January 2016 2016 Notice"), Notice"), based based on on aa portion portion of of the the Inquiry, Inquiry, informing informing DeVry DeVry University University of ED FSA's of ED FSA's intention intention to to impose impose certain certain limitations limitations on the participation on the participation ofof DeVry DeVry University University in in programs programs authorized authorized pursuant pursuant to to Title IV. The Title IV. The proposed proposed limitations related to limitations related to representations representations in advertising and in advertising and marketing, marketing, regarding the post-graduation regarding the post-graduation employment outcomes of employment outcomes of DeVry DeVry University University students students over over aa period period from from 1975 to 1975 to October 1980 (the October 1980 (the "Since "Since 1975 1975 Representation"). Representation"). OnOn October October 13, 2016, DeVry 13, 2016, DeVry University University and and the the U.S. U.S. Department Department ofof Education Education ("ED") ("ED") reached reached aa negotiated negotiated agreement agreement to to settle settle the the ED ED January January 2016 2016 Notice. Notice. 131 131