LAUREATE EDUCATION, INC. You should read the following discussion of our results of operations and financial condition with the audited historical consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K (Form 10-K). This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Item 1A. Risk Factors" section of this Form 10-K. Actual results may differ materially from those contained in any forward-looking statements. See "Forward-Looking Statements" on page 2 of this Form 10-K.
Introduction
This Management's Discussion and Analysis of Financial Condition and Results of Operations (the ''MD&A'') is provided to assist readers of the financial statements in understanding the results of operations, financial condition and cash flows ofLaureate Education, Inc. This MD&A should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Form 10-K. The consolidated financial statements included elsewhere in this Form 10-K are presented inU.S. dollars (USD) rounded to the nearest thousand, with the amounts in MD&A rounded to the nearest tenth of a million. Therefore, discrepancies in the tables between totals and the sums of the amounts listed may occur due to such rounding. Our MD&A is presented in the following sections: •Overview; •Results of Operations;
•Liquidity and Capital Resources;
•Critical Accounting Policies and Estimates; and
•Recently Issued Accounting Standards.
Overview Our Business
We operate a portfolio of degree-granting higher education institutions in
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We believe that the higher education markets in Mexico and Peru present an
attractive long-term opportunity, primarily because of the large and growing
imbalance between the supply and demand for affordable, quality higher education
in those markets. We believe that the combination of the projected growth in the
middle class, limited government resources dedicated to higher education, and a
clear value proposition demonstrated by the higher earnings potential afforded
by higher education, creates substantial opportunities for high-quality private
institutions to meet this growing and unmet demand. By offering high-quality,
outcome-focused education, we believe that we enable students to prosper and
thrive in the dynamic and evolving knowledge economy. We have two reportable
segments as described below. We group our institutions by geography in Mexico
and Peru for reporting purposes.
COVID-19
After the novel coronavirus ("COVID-19") outbreak was declared a pandemic in
March 2020 , we closed all of our physical campuses in a matter of a few short
weeks, and all of our students were effectively transitioned to an online
learning environment, and our staff and faculty were effectively moved to a
fully remote environment. The vast majority of our campuses have remained closed
throughout this ongoing pandemic. We believe that our institutions have a
competitive advantage in online and distance learning given the investments that
we have made in digital learning platforms in prior years and believe that we
are well-positioned to continue to serve our students during and after the
pandemic.
We have recently commenced a return to campus where safe and appropriate to do
so, implementing a range of precautions, in accordance with local laws,
regulations and health guidelines, to protect the health and safety of our
students, faculty and staff. Most of our universities are expecting to adopt a
phased approach, prioritizing classes that require in-person technical teaching
(such as in our interactive labs). We will continue to monitor the situation and
adjust based on what is most appropriate for each market. See also "Item 1A-Risk
Factors-"An epidemic, pandemic or other public health emergency, such as the
current global coronavirus (COVID-19) outbreak and the efficacy and distribution
of COVID-19 vaccines in the locations in which we operate could have a material
adverse effect on our business, financial condition, cash flows and results of
operations."
Discontinued Operations
In 2017 and 2018, the Company announced the divestiture of certain subsidiaries
located in Europe , Asia and Central America , which were included in the
following segments: Peru (formerly Andean), Central America (formerly Central
America & U.S. Campuses), and Rest of World. The goal of the divestitures was to
create a more focused and simplified business model and generate proceeds to be
used for further repayment of long-term debt. This represented a strategic shift
that had a major effect on the Company's operations and financial results.
Accordingly, all of the divestitures that were part of this strategic shift,
which have now been completed, were accounted for as Discontinued Operations for
all periods presented in accordance with Accounting Standards Codification (ASC)
205-20, "Discontinued Operations" (ASC 205).
On January 27, 2020 , we announced that our Board of Directors had authorized the
Company to explore strategic alternatives for each of its businesses to unlock
shareholder value. As a result of these efforts to explore strategic
alternatives, during the third quarter of 2020, the Company announced that it
had completed a sale of its operations in Chile and had signed agreements to
sell its operations in Brazil , Australia and New Zealand , as well as Walden
University , its fully online higher education institution in the United States .
This also represented a strategic shift that had a major effect on the Company's
operations and financial results. As such, Chile , Brazil , Australia and New
Zealand , and Walden also have been accounted for as Discontinued Operations for
all periods presented in accordance with ASC 205. The sale of our operations in
Australia and New Zealand was completed on November 3, 2020 , the sale of our
operations in Brazil was completed on May 28, 2021 , and the sale of Walden
University was completed on August 12, 2021 . For Laureate's institutions in
Mexico and Peru , the board decided after a thorough evaluation of all strategic
options, including a potential sale, to continue to operate these assets under
Laureate management. Accordingly, Mexico and Peru represent our Continuing
Operations.
Our Discontinued Operations are excluded from the segment information for all
periods presented, as they no longer meet the criteria for a reportable segment
under ASC 280, "Segment Reporting." Unless indicated otherwise, the information
in the MD&A relates to Continuing Operations. See also Note 4, Discontinued
Operations and Assets Held for Sale, and Note 5, Dispositions, in our
consolidated financial statements included elsewhere in this Form 10-K.
Our Segments
Our segments generate revenues by providing an education that emphasizes
profession-oriented fields of study with undergraduate and graduate degrees in a
wide range of disciplines. In response to the COVID-19 pandemic, we transitioned
the educational delivery method at all of our institutions to be online,
leveraging our existing technologies and learning platforms to serve students
outside of the traditional classroom setting. Our institutions are focused on
planning for a safe return to campus
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when appropriate to do so. We expect our educational offerings will utilize
hybrid (a combination of online and in-classroom) courses and programs to
deliver their curriculum. The Mexico and Peru markets are characterized by what
we believe is a significant imbalance between supply and demand. The demand for
higher education is large and growing and is fueled by several demographic and
economic factors, including a growing middle class, global growth in services
and technology-related industries and recognition of the significant personal
and economic benefits gained by graduates of higher education institutions. The
target demographics are primarily 18- to 24-year-olds in the countries in which
we compete. We compete with other private higher education institutions on the
basis of price, educational quality, reputation and location. We believe that we
compare favorably with competitors because of our focus on quality,
professional-oriented curriculum and the competitive advantages provided by our
network. There are a number of private and public institutions in both of the
countries in which we operate, and it is difficult to predict how the markets
will evolve and how many competitors there will be in the future. We expect
competition to increase as the Mexican and Peruvian markets mature. Essentially
all of our revenues were generated from private pay sources as there are no
material government-sponsored loan programs in Mexico or Peru . Specifics related
to both of our reportable segments are discussed below:
•Private education providers in Mexico constitute 35% of the total
higher-education market. The private sector plays a meaningful role in higher
education, bridging supply and demand imbalances created by a lack of capacity
at public universities. Laureate owns two institutions and is present throughout
the country with a footprint of over 35 campuses. Each institution in Mexico has
a national license. Students in our Mexican institutions typically finance their
own education.
•In Peru, private universities are increasingly providing the capacity to meet
growing demand and constitute 69% of the total higher-education market. Laureate
owns three institutions in Peru .
Corporate is a non-operating business unit whose purpose is to support
operations. Its departments are responsible for establishing operational
policies and internal control standards, implementing strategic initiatives, and
monitoring compliance with policies and controls throughout our operations. Our
Corporate segment is an internal source of capital and provides financial, human
resource, information technology, insurance, legal and tax compliance services.
The Corporate segment also contains the eliminations of inter-segment revenues
and expenses.
The following information for our reportable segments is presented as of
December 31, 2021 :
2021 Revenues (in % Contribution to 2021 YTD
Institutions Enrollment millions) (1) Revenues
Mexico 2 203,500 $ 540.4 50 %
Peru 3 185,000 537.1 50 %
Total (1) 5 388,500 $ 1,086.7 100 %
(1) Amounts related to Corporate, partially offset by the elimination of
inter-segment revenues, totaled
Challenges
Our operations are outside ofthe United States and are subject to complex business, economic, legal, regulatory, political, tax and foreign currency risks, which may be difficult to adequately address. As a result, we face risks that are inherent in international operations, including: fluctuations in exchange rates, possible currency devaluations, inflation and hyper-inflation; price controls and foreign currency exchange restrictions; potential economic and political instability in the countries in which we operate; expropriation of assets by local governments; key political elections and changes in government policies; multiple and possibly overlapping and conflicting tax laws; and compliance with a wide variety of foreign laws. See "Item 1A-Risk Factors-Risks Relating to Our Business-We operate a portfolio of degree-granting higher education institutions inMexico andPeru and are subject to complex business, economic, legal, political, tax and foreign currency risks, which risks may be difficult to adequately address." We plan to grow our Continuing Operations organically by: 1) adding new programs and course offerings; 2) expanding target student demographics; and 3) increasing capacity at existing and new campus locations. Our success in growing our business will depend on the ability to anticipate and effectively manage these and other risks related to operating in various countries.
Regulatory Environment and Other Matters
Our business is subject to varying laws and regulations based on the
requirements of local jurisdictions. These laws and regulations are subject to
updates and changes. We cannot predict the form of the rules that ultimately may
be adopted in the
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future or what effects they might have on our business, financial condition,
results of operations and cash flows. We will continue to develop and implement
necessary changes that enable us to comply with such laws and regulations. See
"Item 1A-Risk Factors-Risks Relating to Our Business-Our institutions are
subject to uncertain and varying laws and regulations, and any changes to these
laws or regulations or their application to us may materially adversely affect
our business, financial condition and results of operations," and "Item
1-Business-Industry Regulation," for a detailed discussion of our different
regulatory environments and Note 17, Legal and Regulatory Matters, in our
consolidated financial statements included elsewhere in this Form 10-K.
Key Business Metric
Enrollment
Enrollment is our lead revenue indicator and represents our most important non-financial metric. We define "enrollment" as the number of students registered in a course on the last day of the enrollment reporting period. New enrollments provide an indication of future revenue trends. Total enrollment is a function of continuing student enrollments, new student enrollments and enrollments from acquisitions, offset by graduations, attrition and enrollment decreases due to dispositions. Attrition is defined as a student leaving the institution before completion of the program. To minimize attrition, we have implemented programs that involve assisting students in remedial education, mentoring, counseling and student financing. Each of our institutions has an enrollment cycle that varies by geographic region and academic program. Each institution has a "Primary Intake" period during each academic year in which the majority of the enrollment occurs. Most institutions also have one or more smaller "Secondary Intake" periods. Our Peruvian institutions have their Primary Intake during the first calendar quarter and a Secondary Intake during the third calendar quarter. Institutions in ourMexico segment have their Primary Intake during the third calendar quarter and a Secondary Intake during the first calendar quarter. Our institutions inPeru are generally out of session in January, February and July, while institutions inMexico are generally out of session in May through July. Revenues are recognized when classes are in session.
Principal Components of Income Statement
Revenues
The majority of our revenue is derived from tuition and educational services. The amount of tuition generated in a given period depends on the price per credit hour and the total credit hours or price per program taken by the enrolled student population. The price per credit hour varies by program, by market and by degree level. Additionally, varying levels of discounts and scholarships are offered depending on market-specific dynamics and individual achievements of our students. Revenues are recognized net of scholarships and other discounts, refunds and waivers. In addition to tuition revenues, we generate other revenues from student fees, dormitory/residency fees and other education-related activities. These other revenues are less material to our overall financial results and have a tendency to trend with tuition revenues. The main drivers of changes in revenues between periods are student enrollment and price. We continually monitor market conditions and carefully adjust our tuition rates to meet local demand levels. We proactively seek the best price and content combinations to remain competitive in all the markets in which we operate. Direct Costs Our direct costs include labor and operating costs associated with the delivery of services to our students, including the cost of wages, payroll taxes and benefits, depreciation and amortization, rent, utilities, bad debt expenses, and marketing and promotional costs to grow future enrollments. In general, a significant portion of our direct costs tend to be variable in nature and trend with enrollment, and management continues to monitor and improve the efficiency of instructional delivery.
General and Administrative Expenses
Our general and administrative expenses primarily consist of costs associated with corporate departments, including executive management, finance, legal, business development and other departments that do not provide direct operational services.
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--------------------------------------------------------------------------------Factors Affecting Comparability
Acquisitions
Our past experiences provide us with the expertise to further our mission of providing high-quality, accessible and affordable higher education to students by expanding into new markets if opportunities arise. Acquisitions completed during one period affect the comparability to a prior period in which we did not own the acquired entity. Therefore, changes related to such entities are considered "incremental impact of acquisitions" for the first 12 months of our ownership. While we may consider acquisitions in the future if opportunities arise, we have not made any acquisitions in recent years, including from 2019 through 2021. Dispositions Any dispositions of our Continuing Operations affect the comparability of our financial statements from period to period. Dispositions completed during one period impact comparability to a prior period in which we owned the divested entity. Therefore, changes related to such entities are considered "incremental impact of dispositions" for the first 12 months subsequent to the disposition. As discussed above, all of the divestitures that are part of the strategic shifts are included in Discontinued Operations for all periods presented.
Foreign Exchange
While the USD is our reporting currency, our institutions are located inMexico andPeru and operate in other functional currencies, namely the Mexican peso and Peruvian nuevo sol. We monitor the impact of foreign currency movements and the correlation between the local currency and the USD. Our revenues and expenses are generally denominated in local currency. The principal foreign exchange exposure is the risk related to the translation of revenues and expenses incurred in each country from the local currency into USD. See "Item 1A-Risk Factors-Risks Relating to Our Business-Our reported revenues and earnings may be negatively affected by the strengthening of theU.S. dollar and currency exchange rates." In order to provide a framework for assessing how our business performed excluding the effects of foreign currency fluctuations, we present organic constant currency in our segment results, which is calculated using the change from prior-year average foreign exchange rates to current-year average foreign exchange rates, as applied to local-currency operating results for the current year, and then excludes the impact of acquisitions, divestitures and other items, as described in the segments results.
Seasonality
Our institutions have a summer break during which classes are generally not in session and minimal revenues are recognized. In addition to the timing of summer breaks, holidays such as Easter also have an impact on our academic calendar. Operating expenses, however, do not fully correlate to the enrollment and revenue cycles, as the institutions continue to incur expenses during summer breaks. Given the geographic diversity of our institutions and differences in timing of summer breaks, our second and fourth quarters are stronger revenue quarters as the majority of our institutions are in session for most of these respective quarters. Our first and third fiscal quarters are weaker revenue quarters because our institutions have summer breaks for some portion of one of these two quarters. However, our primary enrollment intakes occur during the first and third quarters. Due to this seasonality, revenues and profits in any one quarter are not necessarily indicative of results in subsequent quarters and may not be correlated to new enrollment in any one quarter. Additionally, seasonality may be affected due to other events that could change the academic calendar at our institutions. See "Item 1A-Risk Factors-Risks Relating to Our Business-We experience seasonal fluctuations in our results of operations."
Income Tax Expense
Our consolidated income tax provision is derived based on the combined impact of
federal, state and foreign income taxes. Also, discrete items can arise in the
course of our operations that can further impact the Company's effective tax
rate for the period. Our tax rate fluctuates from period to period due to
changes in the mix of earnings between our tax-paying entities and our
loss-making entities for which it is not 'more likely than not' that a tax
benefit will be realized on the loss. See "Item 1A-Risk Factors-Risks Relating
to Our Business-We may have exposure to greater-than-anticipated tax
liabilities."
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--------------------------------------------------------------------------------Results of the Discontinued Operations
The results of operations of the Discontinued Operations for the years ended
For the
year ended
2021 2020 2019
Revenues $ 543.0 $ 1,674.6 $ 2,540.0
Depreciation and amortization expense - (60.4) (111.4)
Share-based compensation expense (1.3) (3.1) (2.7)
Other direct costs (433.1) (1,313.3) (2,026.2)
Loss on impairment of assets (1.3) (438.3) (0.7)
Other non-operating expense (22.3) (68.6) (70.7)
Gain on sale of discontinued operations before
taxes, net 636.2 25.0 793.5
Pretax income (loss) of discontinued operations 721.2 (183.8) 1,121.8
Income tax expense (234.3) (114.3) (33.7)
Income (loss) from discontinued operations, net
of tax $ 486.9 $ (298.1) $ 1,088.1 Year Ended
On
OnJanuary 25, 2018 , we completed the sale ofLEI Lie Ying Limited (LEILY). At the closing of the sale, a portion of the total transaction value was paid into an escrow account, to be distributed to the Company pursuant to the terms and conditions of the escrow agreement. InApril 2021 , the Company received168.3 million Hong Kong Dollars (approximately$21.7 million at the date of receipt), which represented payment in full for the remainder of the escrow account and resulted in a pretax gain of approximately$13.6 million . During the first quarter of 2021, we recorded a loss of approximately$32.4 million in order to adjust the carrying value of ourBrazil disposal group to its estimated fair value less costs to sell as ofMarch 31, 2021 . This loss is included in Gain on sale of discontinued operations before taxes, net.
On
OnAugust 12, 2021 , we completed the sale ofWalden University , which resulted in a pre-tax gain of$619.4 million , including a working capital settlement completed during the fourth quarter of 2021. In addition, the Company recognized estimated tax expense of approximately$278.0 million .
Year Ended
OnJanuary 10, 2020 , we sold our operations inCosta Rica , which resulted in an additional pre-tax loss of approximately$18.6 million . Together with the 2019 loss described below, the total loss on the sale ofCosta Rica was approximately$43.6 million .
On
During the second quarter of 2020, we recorded impairment charges of$418.0 million related to our Chilean operations, in order to write down the carrying value of their assets to their estimated fair value, and$3.3 million related to theBrazil enrollment to graduation (E2G) software assets. We also recorded a loss of$10.0 million on the held-for-saleHonduras disposal group, in order to write down the carrying value of the group to its estimated fair value, which is included in Gain on sale of discontinued operations before taxes, net. 35 -------------------------------------------------------------------------------- During the third quarter of 2020, we recorded a loss of approximately$190.0 million related to ourBrazil operations in order to write down the carrying value ofBrazil's disposal group to its estimated fair value. We also recorded an additional loss of$10.0 million related to our held-for-saleHonduras group, in order to write down its carrying value to the estimated fair value based on the sale agreement that was signed inOctober 2020 . These losses are included in Gain on sale of discontinued operations before taxes, net. OnSeptember 10, 2020 , we completed the divestiture of our operations inChile , resulting in a pre-tax loss of approximately$338.2 million that relates primarily to the accumulated foreign currency translation losses associated with the Chilean operations.
On
In earlyOctober 2020 , we received a payment for$8.4 million , representing a portion of the$15.0 million deferred purchase price related to the sale of our operations inTurkey inAugust 2019 . At the time of the sale, the Company determined that this deferred purchase price would be recognized if collected.
On
During the fourth quarter of 2020, we recorded an additional loss of
approximately
Year Ended
On
On
OnJanuary 25, 2018 , we completed the sale of LEILY. During the first quarter of 2019, a legal matter, for which the Company had indemnified the buyer and recorded a contingent liability, was settled with no cost to the Company. Accordingly, the Company reversed the liability and recognized additional gain on the sale of LEILY of approximately$13.7 million .
On
On
On
On
During the third quarter of 2019, we recorded a loss of approximately$25.0 million on the held-for-saleCosta Rica disposal group, in order to write down its carrying value to the estimated fair value. This loss is included in Gain on sale of discontinued operations before taxes, net.
In
On
During the fourth quarter of 2019, we recorded a loss of approximately$17.8 million related to the held-for-saleHonduras disposal group, in order to write down its carrying value to the estimated fair value. This loss is included in Gain on sale of discontinued operations before taxes, net. 36 --------------------------------------------------------------------------------
Results of Operations
The following discussion of the results of our operations is organized as follows:
•Summary Comparison of Consolidated Results;
•Non-GAAP Financial Measure; and
•Segment Results.
Summary Comparison of Consolidated Results
Discussion of Significant Items Affecting the Consolidated Results for the Years
Ended
Year Ended
InMarch 2021 , the Company decided that, during 2021, it would wind down certain support functions related to the Laureate network and would no longer invest in and support the Laureate tradename beyond 2021. As a result, the Company tested the asset for impairment and estimated the fair value of the tradename asset using the relief-from-royalty method, based on the projected revenues for each business over the estimated remaining useful life of the asset. As a result of the impairment test, the Company concluded that the estimated fair value of the Laureate tradename was less than its carrying value by approximately$51.4 million and recorded an impairment charge for that amount. During the second quarter of 2021, the Company fully repaid the remaining balance outstanding under its Senior Notes due 2025 using a portion of the proceeds received from the sales of its operations inAustralia and New Zealand andBrazil . In connection with the debt repayment, the Company recorded a loss on debt extinguishment of$77.9 million , related to the redemption premium paid and the write off of the unamortized deferred financing costs associated with the repaid debt balances. This loss is included in Other non-operating expense in the table below. InNovember 2020 , in connection with the signing of the sale agreement for ourBrazil operations, the Company entered intosix BRL -to-USD swap agreements to mitigate the risk of foreign currency exposure on the expected proceeds from the sale. The sale of ourBrazil operations closed onMay 28, 2021 . OnJune 2, 2021 , the Company settled the swap agreements, which resulted in a realized loss on derivatives of$24.5 million . This loss is included in Other non-operating expense in the table below. InDecember 2021 , the Company completed a lease termination agreement with the landlord of ourKendall property inChicago, Illinois . In connection with the lease termination agreement, we recorded a loss of approximately$25.8 million , which is included in Excellence-in-Process (EiP) expenses within Operating (loss) income in the table below.
Year Ended
During the first quarter of 2020, the Company recorded an impairment charge of
During the second quarter of 2020, the Company recorded an impairment charge of approximately$23.8 million related to theBrazil enrollment to graduation cycle (E2G) software assets that were recorded on the Corporate segment, as described in Note 7,Goodwill and Other Intangible Assets, in our consolidated financial statements included elsewhere in this Form 10-K. During the third quarter of 2020, the Company recognized an impairment charge of$320.0 million on the Laureate tradename, an intangible asset, as described in Note 7,Goodwill and Other Intangible Assets, in our consolidated financial statements included elsewhere in this Form 10-K. InNovember 2020 , Universidad del Valle deMexico , SC, a wholly owned subsidiary of the Company, signed an agreement to sell the land and buildings of Campus Guadalajara Norte, after a decision was made to relocate all students of Campus Guadalajara Norte to the nearby Campus Zapopan inJalisco, Mexico . The total purchase price was approximately$13.9 million , prior to transaction fees. The Company recognized a pre-tax operating gain on the sale of this property and equipment of approximately$5.8 million , which is included in Direct costs in the table below. During the fourth quarter of 2020, the Company dissolved a dormant subsidiary, resulting in the release of accumulated foreign currency translation loss of approximately$6.1 million . This loss is included in Other non-operating expense in the table below and is part of Continuing Operations as this entity was not part of the strategic shifts described above in Overview. 37 --------------------------------------------------------------------------------
Year Ended
During the first quarter of 2019, we used approximately$340.0 million of the net proceeds from the sale ofSt. Augustine to repay a portion of our term loan that had a maturity date ofApril 2024 (the 2024 Term Loan). In connection with this debt repayment, the Company recorded a loss on debt extinguishment of$6.3 million , primarily related to the write off of a pro-rata portion of the unamortized deferred financing costs associated with the repaid debt balances. This loss is included in Other non-operating expense in the table below. During the second quarter of 2019, we fully repaid the remaining balance outstanding under our 2024 Term Loan, using the proceeds received from the sales of our operations inIndia ,Spain andPortugal . The remaining proceeds were used to repay borrowings outstanding under the senior secured revolving credit facility. In connection with these debt repayments, the Company recorded a loss on debt extinguishment of$15.6 million related to the write off of a pro-rata portion of the unamortized deferred financing costs associated with the repaid debt balances, as well as the debt discount associated with the 2024 Term Loan. This loss is included in Other non-operating expense in the table below. During the third and fourth quarters of 2019, we dissolved several dormant subsidiaries, resulting in the release of accumulated foreign currency translation loss of approximately$37.5 million . This loss is included in Other non-operating expense in the table below and is part of Continuing Operations as these entities were not part of the strategic shifts described above in Overview. Comparison of Consolidated Results for the Years EndedDecember 31, 2021 , 2020 and 2019 % Change Better/(Worse) (in millions) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Revenues$ 1,086.7 $ 1,024.9 $ 1,212.1 6 % (15) % Direct costs 814.5 802.5 949.5 (1) % 15 % General and administrative expenses 204.4 199.8 226.3 (2) % 12 % Loss on impairment of assets 72.5 352.0 0.2 79 % nm Operating (loss) income (4.6) (329.3) 36.0 99 % nm Interest expense, net of interest income (41.9) (98.7) (121.7) 58 % 19 % Other non-operating expense (91.0) (22.8) (33.9) nm 33 % Loss from continuing operations before income taxes and equity in net income of affiliates (137.5) (450.8) (119.7) 69 % nm Income tax (expense) benefit (145.6) 130.1 (31.0) nm nm Equity in net income of affiliates, net of tax - 0.2 0.2 (100) % - % Loss from continuing operations (283.1) (320.6) (150.5) 12 % (113) % Income (loss) from discontinued operations, net of tax 486.9 (298.1) 1,088.1 nm (127) % Net income (loss) 203.8 (618.7) 937.7 133 % (166) % Net (income) loss attributable to noncontrolling interests (11.3) 5.4 0.8 nm nm Net income (loss) attributable to Laureate Education, Inc.$ 192.4 $ (613.3) $ 938.5 131 % (165) %
nm - percentage changes not meaningful
For further details on certain discrete items discussed below, see "Discussion of Significant Items Affecting the Consolidated Results."
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Comparison of Consolidated Results for the Year Ended
Revenues increased by$61.8 million to$1,086.7 million for 2021 from$1,024.9 million for 2020. Average total enrollment at a majority of our institutions, mainly in ourPeru segment, increased during 2021, increasing revenues by$75.2 million compared to 2020. The increase in average total enrollment inPeru was attributable to a robust primary intake cycle during 2021 and increased retention rates. Additionally, the effect of changes in tuition rates and enrollments in programs at varying price points ("product mix"), pricing and timing increased revenues by$19.6 million compared to 2020. These increases in revenues were partially offset by the effect of a net change in foreign currency exchange rates, which decreased revenues by$34.8 million , due to weakening of the Peruvian nuevo sol against the USD. Other Corporate and Eliminations changes accounted for an increase in revenues of$1.8 million . Direct costs and general and administrative expenses combined increased by$16.6 million to$1,018.9 million for 2021 from$1,002.3 million for 2020. The effect of operational changes increased direct costs by$42.0 million compared to 2020, mainly driven by higher amortization expense at Corporate, mostly related to the amortization of the finite-lived tradename. Changes in acquisition-related contingent liabilities for taxes other-than-income tax, net of changes in indemnification assets resulted in a year-over-year increase in costs of$7.8 million . These increases in direct costs were partially offset by a decrease in EiP implementation expense, which decreased direct costs by$14.2 million , driven by cost-saving initiatives. Additionally, the effect of a net change in foreign currency exchange rates decreased costs by$12.2 million compared to 2020. Other Corporate and Eliminations expenses accounted for a decrease in costs of$6.8 million in 2021, related to cost-reduction efforts. Operating loss decreased by$324.7 million to$4.6 million for 2021 from$329.3 million for 2020. This change was primarily a result of lower impairment charges of$279.5 million , mainly related to the Laureate tradename impairment recognized during 2020. Additionally, operating income at ourPeru andMexico segments increased during 2021 compared to 2020. Interest expense, net of interest income decreased by$56.8 million to$41.9 million for 2021 from$98.7 million for 2020. The decrease in interest expense was primarily attributable to lower average debt balances as a result of debt repayments. Other non-operating expense increased by$68.2 million to$91.0 million for 2021 from$22.8 million for 2020. This increase was attributable to a higher loss on debt extinguishment of$77.3 million , primarily related to the repayment of the Senior Notes due 2025 during 2021. This increase in other non-operating expense was partially offset by: (1) a lower loss on disposal of subsidiaries of$6.7 million ; (2) a lower loss on derivative instruments during 2021 of$1.5 million ; (3) a decrease in foreign currency exchange gain of$0.3 million ; and (4) a decrease in other non-operating expense of$0.6 million . Income tax (expense) benefit changed by$275.7 million to an expense of$(145.6) million for 2021 from a benefit of$130.1 million for 2020. This change was attributable to tax expense recorded in 2021 of approximately$35.7 million related to amended returns filed for the Company's election to exclude certain foreign income of foreign corporations from GILTI. In the prior year the Company recorded a$70.9 million tax benefit for this item, resulting in a year-over-year change of approximately$106.6 million . In addition, the decrease in pre-tax loss in the current year resulted in$76.9 million of less tax benefit as compared to 2020. Additionally, there was a year-over-year increase in state tax expense of$41.3 million and a year-over-year increase in withholding taxes of$30.0 million . Income (loss) from discontinued operations, net of tax changed by$785.0 million to income of$486.9 million for 2021 from a loss of$(298.1) million for 2020. This change was primarily driven by the gain on sale ofWalden University during 2021, combined with impairment charges recorded during 2020 and charges recorded during 2020 to write down certain held-for-sale disposal groups to fair value. See Overview for further detail on results of the Discontinued Operations. Net (income) loss attributable to noncontrolling interests changed by$16.7 million to income of$(11.3) million for 2021 from a loss of$5.4 million for 2020. This change was primarily related to our previous joint venture inSaudi Arabia and the income effect to noncontrolling interests that resulted in 2021 from the settlement of certain intercompany transactions. 39 --------------------------------------------------------------------------------
Comparison of Consolidated Results for the Year Ended
Revenues decreased by$187.2 million to$1,024.9 million for 2020 from$1,212.1 million for 2019. The effect of a net change in foreign currency exchange rates decreased revenues by$81.8 million , due to weakening of the Mexican peso and the Peruvian nuevo sol against the USD. Average total enrollment at a majority of our institutions decreased during 2020, reducing revenues by$62.3 million compared to 2019. The effect of product mix, pricing and timing decreased revenues by$38.0 million , mainly driven by an increase in discounts and scholarships as a percentage of revenues in 2020 compared to 2019. Other Corporate and Eliminations changes accounted for a decrease in revenues of$5.1 million . Direct costs and general and administrative expenses combined decreased by$173.5 million to$1,002.3 million for 2020 from$1,175.8 million for 2019. The effect of a net change in foreign currency exchange rates decreased costs by$61.1 million . The effect of operational changes decreased direct costs by$75.8 million compared to 2019. Other Corporate and Eliminations expenses accounted for a decrease in costs of$50.4 million in 2020, related to cost-reduction efforts. Changes in acquisition-related contingent liabilities for taxes other-than-income tax, net of changes in recorded indemnification assets resulted in a year-over-year decrease in costs of$0.8 million . These decreases in direct costs were partially offset by EiP implementation expense, which increased direct costs by$14.6 million . Operating (loss) income changed by$365.3 million to loss of$(329.3) million for 2020 from income of$36.0 million for 2019. This change was primarily a result of the impairment charges of$352.0 million during 2020 and operating loss at ourMexico segment for 2020 compared to operating income for 2019, partially offset by lower 2020 operating expenses at Corporate. Interest expense, net of interest income decreased by$23.0 million to$98.7 million for 2020 from$121.7 million for 2019. The decrease in interest expense was primarily attributable to lower average debt balances. Other non-operating expense decreased by$11.1 million to$22.8 million for 2020 from$33.9 million for 2019. This decrease was attributable to: (1) a decrease in loss on debt extinguishment of$22.0 million , primarily related to the repayment of the 2024 Term Loan during 2019; (2) a foreign currency exchange gain for 2020 compared to a loss for 2019, for a change of$21.6 million ; and (3) a decrease in loss on disposal of subsidiaries of$13.2 million . These decreases in other non-operating expense were partially offset by a loss on derivative instruments for 2020 compared to a gain for 2019, for a change of$34.3 million , and other non-operating expense for 2020 compared to income for 2019, for a change of$11.4 million , primarily attributable to non-operating income recorded during 2019 related to the sale of an equity security held at Corporate. Income tax benefit (expense) changed by$161.1 million to a benefit of$130.1 million for 2020 from an expense of$(31.0) million for 2019. This change was primarily attributable to a$75.1 million benefit due to the increase in pretax loss, a tax benefit of approximately$70.9 million related to the Company's election to exclude certain foreign income of foreign corporations from GILTI, and a tax benefit for release of valuation allowances for state deferred tax assets of$32.3 million , partially offset by a tax expense of approximately$32.4 million that was recognized during 2020 related to the tax-basis step up of certain intellectual property that became subject to taxation inthe Netherlands . (Loss) income from discontinued operations, net of tax changed by$1,386.2 million to a loss of$(298.1) million for 2020, from income of$1,088.1 million for 2019, primarily driven by lower gains upon the completion of divestitures in 2020 as compared to 2019, combined with higher losses recorded during 2020 for discontinued operations due to impairments and charges to write held-for-sale disposal groups down to fair value. See Overview for further detail on results of the Discontinued Operations.
Net loss attributable to noncontrolling interests increased by
Non-GAAP Financial Measure
We define Adjusted EBITDA as income (loss) from continuing operations, before
equity in net (income) loss of affiliates, net of tax, income tax expense
(benefit), (gain) loss on sale or disposal of subsidiaries, net, foreign
currency exchange (gain) loss, net, other (income) expense, net, loss (gain) on
derivatives, loss on debt extinguishment, interest expense and interest income,
plus depreciation and amortization, share-based compensation expense, loss on
impairment of assets and expenses related to our Excellence-in-Process (EiP)
initiative. When we review Adjusted EBITDA on a segment basis, we exclude
inter-segment revenues and expenses that eliminate in consolidation. Adjusted
EBITDA is used in addition to and in conjunction with results presented in
accordance with GAAP and should not be relied upon to the exclusion of GAAP
financial measures.
Adjusted EBITDA is a key measure used by our management and Board of Directors
to understand and evaluate our core operating performance and trends, to prepare
and approve our annual budget and to develop short- and long-term operational
40
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plans. In particular, the exclusion of certain expenses in calculating Adjusted
EBITDA can provide a useful measure for period-to-period comparisons of our core
business. Additionally, Adjusted EBITDA is a key financial measure used by the
compensation committee of our Board of Directors and our Chief Executive Officer
in connection with the payment of incentive compensation to our executive
officers and other members of our management team. Accordingly, we believe that
Adjusted EBITDA provides useful information to investors and others in
understanding and evaluating our operating results in the same manner as our
management and Board of Directors.
The following table presents Adjusted EBITDA and reconciles loss from continuing
operations to Adjusted EBITDA for the years ended December 31, 2021 , 2020 and
2019:
% Change
Better/(Worse)
(in millions) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Loss from continuing operations $ (283.1) $ (320.6) $ (150.5) 12 % (113) %
Plus:
Equity in net income of affiliates, net of tax - (0.2) (0.2) (100) % - % Income tax expense (benefit) 145.6 (130.1) 31.0 nm nm Loss from continuing operations before income taxes and equity in net income of affiliates (137.5) (450.8) (119.7) 69 % nm
Plus:
Loss on disposal of subsidiaries, net 0.6 7.3 20.4 92 % 64 % Foreign currency exchange (gain) loss, net (13.8) (13.5) 8.1 2 % nm Other expense (income), net 1.7 2.4 (8.9) 29 % (127) % Loss (gain) on derivatives 24.5 26.0 (8.3) 6 % nm Loss on debt extinguishment 77.9 0.6 22.6 nm 97 % Interest expense 46.3 100.9 125.0 54 % 19 % Interest income (4.4) (2.2) (3.3) 100 % (33) % Operating (loss) income (4.6) (329.3) 36.0 99 % nm Plus: Depreciation and amortization 101.2 83.1 82.0 (22) % (1) % EBITDA 96.6 (246.2) 118.0 139 % nm Plus: Share-based compensation expense (a) 8.9 10.2 10.3 13 % 1 % Loss on impairment of assets (b) 72.5 352.0 0.2 79 % nm EiP implementation expenses (c) 75.4 89.6 75.0 16 % (19) % Adjusted EBITDA$ 253.4 $ 205.7 $ 203.6 23 % 1 %
nm - percentage changes not meaningful
(a) Represents non-cash, share-based compensation expense pursuant to the provisions of ASC 718, "Stock Compensation." (b) Represents non-cash charges related to impairments of long-lived assets. For further details on certain impairment items see "Discussion of Significant Items Affecting the Consolidated Results for the Years EndedDecember 31, 2021 , 2020 and 2019." (c) EiP implementation expenses are related to our enterprise-wide initiative to optimize and standardize Laureate's processes, creating vertical integration of procurement, information technology, finance, accounting and human resources. It included the establishment of regional shared services organizations (SSOs), as well as improvements to the Company's system of internal controls over financial reporting. The EiP initiative also includes other back- and mid-office areas, as well as certain student-facing activities, expenses associated with streamlining the organizational structure, an enterprise-wide program aimed at revenue growth, and certain non-recurring costs incurred in connection with the dispositions. As ofDecember 31, 2021 , the EiP initiative had been completed. The only EiP expenses expected in 2022 are those related to the run out of programs that began in prior periods. 41 --------------------------------------------------------------------------------
Comparison of Depreciation and Amortization, Share-based Compensation and EiP
Implementation Expenses for the Years Ended
Depreciation and amortization increased by$18.1 million to$101.2 million for 2021 from$83.1 million for 2020. This increase was primarily attributable to amortization of Laureate's tradename which, during 2020, changed from being an indefinite-lived intangible asset to being a finite-lived intangible asset. When combined with other items, this increased depreciation and amortization expense by$19.3 million . Partially offsetting this increase was the effect of foreign currency exchange, which decreased depreciation and amortization expense by$1.2 million for 2021, as compared to 2020.
Share-based compensation expense decreased by
EiP implementation expenses decreased by$14.2 million to$75.4 million for 2021 from$89.6 million for 2020. This decrease was primarily attributable to lower costs during 2021 associated with an enterprise-wide program aimed at revenue growth, combined with lower severance costs and lower legal and consulting fees related to our divestiture activity. The decreases in EiP costs were partially offset by the cost associated with the lease buyout for ourKendall property inChicago, Illinois , and lease termination for our previous Corporate headquarters in 2021.
Comparison of Depreciation and Amortization, Share-based Compensation and EiP
Implementation Expenses for the Years Ended
Depreciation and amortization increased by$1.1 million to$83.1 million for 2020 from$82.0 million for 2019. This increase was primarily attributable to amortization of Laureate's tradename which, during 2020, changed from being an indefinite-lived intangible asset to being a finite-lived intangible asset. When combined with other items, this increased depreciation and amortization expense by$5.5 million . Partially offsetting this increase was the effect of foreign currency exchange, which decreased depreciation and amortization expense by$4.4 million for 2020, as compared to 2019.
Share-based compensation expense decreased by
EiP implementation expenses increased by$14.6 million to$89.6 million for 2020 from$75.0 million for 2019. This increase was primarily attributable to higher legal and consulting fees related to our divestiture activity and the inclusion in EiP of expenses associated with an enterprise-wide program aimed at revenue growth. 42 --------------------------------------------------------------------------------
Segment Results
We have two reportable segments:Mexico andPeru , as discussed in Overview. For purposes of the following comparison of results discussion, "segment direct costs" represent direct costs incurred by the segment as they are included in Adjusted EBITDA, such that depreciation and amortization expense, loss on impairment of assets, share-based compensation expense and our EiP implementation expenses have been excluded. Organic enrollment is based on average total enrollment for the period. For a further description of our segments, see Overview. The following tables, derived from our consolidated financial statements included elsewhere in this Form 10-K, present selected financial information of our reportable segments: (in millions) % Change Better/(Worse) For the year ended December 31, 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Revenues: Mexico$ 540.4 $ 534.6 $ 652.8 1 % (18) % Peru 537.1 482.9 546.8 11 % (12) % Corporate 9.2 7.4 12.5 24 % (41) % Consolidated Total Revenues$ 1,086.7 $ 1,024.9 $ 1,212.1 6 % (15) % Adjusted EBITDA: Mexico$ 95.8 $ 112.9 $ 147.8 (15) % (24) % Peru 245.7 189.5 197.8 30 % (4) % Corporate (88.1) (96.7) (142.0) 9 % 32 %
Consolidated Total Adjusted EBITDA
203.6 23 % 1 % Mexico Financial Overview
[[Image Removed: laur-20211231_g6.jpg]] [[Image Removed: laur-20211231_g7.jpg]]
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Comparison of Mexico Results for the Year Ended December 31, 2021 to the Year
Ended December 31, 2020
(in millions) Revenues Direct Costs Adjusted EBITDA
December 31, 2020 $ 534.6 $ 421.7 $ 112.9
Organic enrollment (1) -
Product mix, pricing and timing (1) (21.2)
Organic constant currency (21.2) (5.6) (15.6)
Foreign exchange 27.0 20.6 6.4
Dispositions - - -
Other (2) - 7.9 (7.9)
December 31, 2021 $ 540.4 $ 444.6 $ 95.8
(1) Organic enrollment and Product mix, pricing and timing are not separable for
the calculation of direct costs and therefore are combined and defined as
Organic constant currency for the calculation of Adjusted EBITDA.
(2) Other is composed of acquisition-related contingent liabilities for taxes
other-than-income tax, net of changes in recorded indemnification assets.
Revenues increased by
•The Mexican peso strengthened against the USD during 2021 compared to 2020,
increasing revenue by
•Organic enrollment during 2021 remained relatively flat compared to 2020.
•The decrease in revenues from product mix, pricing and timing was mainly due to an increase in discounts and scholarships as a percentage of revenues.
•Revenues represented 50% of our consolidated total revenues for 2021, compared to 53% for 2020.
Adjusted EBITDA decreased by
•The decrease in Adjusted EBITDA includes the year-over-year effect of a gain of$5.8 million from the sale of land and buildings at one of our campuses in 2020, which is included in Organic constant currency. Comparison of Mexico Results for the Year EndedDecember 31, 2020 to the Year EndedDecember 31, 2019 (in millions) Revenues Direct Costs Adjusted EBITDA December 31, 2019$ 652.8 $ 505.0 $ 147.8 Organic enrollment (1) (28.8) Product mix, pricing and timing (1) (31.0) Organic constant currency (59.8) (38.8) (21.0) Foreign exchange (58.4) (43.7) (14.7) Dispositions - - - Other (2) - (0.8) 0.8 December 31, 2020$ 534.6 $ 421.7 $ 112.9 (1) Organic enrollment and Product mix, pricing and timing are not separable for the calculation of direct costs and therefore are combined and defined as Organic constant currency for the calculation of Adjusted EBITDA. (2) Other is composed of acquisition-related contingent liabilities for taxes other-than-income tax, net of changes in recorded indemnification assets. 44 --------------------------------------------------------------------------------
Revenues decreased by
•Organic enrollment decreased during 2020 by 4%, which decreased revenues by
•The decrease in revenues from product mix, pricing and timing was mainly due to an increase in discounts and scholarships as a percentage of revenues.
•Revenues represented 53% of our consolidated total revenues for 2020 compared to 54% for 2019.
Adjusted EBITDA decreased by
•The overall decrease in Adjusted EBITDA was partially offset by a gain of$5.8 million from the sale of land and buildings at one of our campuses in 2020. This gain is included in Organic constant currency.
Financial Overview [[Image Removed: laur-20211231_g8.jpg]] [[Image Removed: laur-20211231_g9.jpg]] Comparison of Peru Results for the Year EndedDecember 31, 2021 to the Year EndedDecember 31, 2020 (in millions) Revenues Direct Costs Adjusted EBITDA December 31, 2020$ 482.9 $ 293.4 $ 189.5 Organic enrollment (1) 75.2 Product mix, pricing and timing (1) 40.8 Organic constant currency 116.0 29.7 86.3 Foreign exchange (61.8) (31.6) (30.2) Dispositions - - - Other - (0.1) 0.1 December 31, 2021$ 537.1 $ 291.4 $ 245.7 (1) Organic enrollment and Product mix, pricing and timing are not separable for the calculation of direct costs and therefore are combined and defined as Organic constant currency for the calculation of Adjusted EBITDA. (2) Other is composed of acquisition-related contingent liabilities for taxes other-than-income tax, net of changes in recorded indemnification assets.
Revenues increased by
•Revenue represented 50% of our consolidated total revenues for 2021 compared to 47% for 2020.
45
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Adjusted EBITDA increased by
Comparison of Peru Results for the Year EndedDecember 31, 2020 to the Year EndedDecember 31, 2019 (in millions) Revenues Direct Costs Adjusted EBITDA December 31, 2019$ 546.8 $ 349.0 $ 197.8 Organic enrollment (1) (33.5) Product mix, pricing and timing (1) (7.0) Organic constant currency (40.5) (42.6) 2.1 Foreign exchange (23.4) (13.0) (10.4) Dispositions - - - Other - - - December 31, 2020$ 482.9 $ 293.4 $ 189.5
(1) Organic enrollment and Product mix, pricing and timing are not separable for the calculation of direct costs and therefore are combined and defined as Organic constant currency for the calculation of Adjusted EBITDA.
Revenues decreased by
•Organic enrollment decreased during 2020 by 7%, decreasing revenues by
•The decrease in revenues from product mix, pricing and timing was mainly due to an increase in discounts and scholarships as a percentage of revenues.
•Revenues represented 47% of our consolidated total revenues for 2020 compared to 46% for 2019.
Adjusted EBITDA decreased by
Corporate
Corporate revenues primarily include our transition services agreements related to divestitures and centralized IT costs charged to other business units, partially offset by the elimination of inter-segment revenues.
Operating results for Corporate for the years endedDecember 31, 2021 , 2020 and 2019 were as follows: % Change Better/(Worse) (in millions) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Revenues$ 9.2 $ 7.4 $ 12.5 24 % (41) % Expenses 97.3 104.1 154.5 7 % 33 % Adjusted EBITDA$ (88.1) $ (96.7) $ (142.0) 9 % 32 % 46
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Comparison of Corporate Results for the Year Ended
Adjusted EBITDA increased by
•Labor costs and other professional fees decreased expenses by$23.3 million for 2021 compared to 2020, related to cost-reduction efforts. Other items accounted for a decrease in Adjusted EBITDA of$14.7 million .
Comparison of Corporate Results for the Year Ended
Adjusted EBITDA increased by
•Labor costs and other professional fees decreased expenses by
•Other items accounted for a decrease in Adjusted EBITDA of$10.2 million , primarily related to a reduction in revenues from the joint venture with theUniversity of Liverpool .
Liquidity and Capital Resources
Liquidity Sources
We anticipate that cash flow from operations and available cash will be sufficient to meet our current operating requirements and manage our liquidity needs, including any effects on the Company's business operations that arise from the COVID-19 pandemic, for at least the next 12 months from the date of issuance of this report. We continue to assess our liquidity needs as a result of the COVID-19 pandemic. A continued worldwide disruption could materially affect our future access to liquidity sources, particularly our cash flows from operations, as well as our financial condition and capitalization. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions, such as obtaining additional financing. The Company will continue to evaluate its financial position in light of future developments, particularly those relating to the COVID-19 pandemic. Our primary source of cash is revenue from tuition charged to students in connection with our various education program offerings. Essentially all of our revenues are generated from private pay sources as there are no material government-sponsored loan programs inMexico orPeru . We anticipate generating sufficient cash flow from operations in the countries in which we operate to satisfy the working capital and financing needs of our organic growth plans for each country. If our educational institutions within one country were unable to maintain sufficient liquidity, we would consider using internal cash resources or reasonable short-term working capital facilities to accommodate any short- to medium-term shortfalls. As ofDecember 31, 2021 , our secondary source of liquidity was cash and cash equivalents of$324.8 million . Our cash accounts are maintained with high-quality financial institutions with no significant concentration in any one institution. The Company also maintains a revolving credit facility with a syndicate of financial institutions as a source of liquidity. The revolving credit facility provides for borrowings of$410.0 million and has a maturity date ofOctober 7, 2024 . From time to time, we draw down on the revolver, and, in accordance with the terms of the credit agreement, any proceeds drawn on the revolving credit facility may be used for general corporate purposes. If certain conditions are satisfied, the Third Amended and Restated Credit Agreement (the Third A&R Credit Agreement) also provides for incremental revolving and term loan facilities, at the request of the Company, not to exceed (i) the greater of (a)$565.0 million and (b) 100% of the consolidated EBITDA of the Company, plus (ii) additional amounts so long as both immediately before and after giving effect to such incremental facilities the Company's Consolidated Senior Secured Debt to Consolidated EBITDA ratio, as defined in the Third A&R Credit Agreement, on a pro forma basis, does not exceed 2.75x, plus, (iii) the aggregate amounts of any voluntary repayments of term loans, if any, and aggregate amount of voluntary repayments of revolving credit facilities that are accompanied by a corresponding termination or reduction of revolving credit commitments. 47 --------------------------------------------------------------------------------
Completed Sale Transactions
OnMarch 8, 2021 , we completed the divestiture of our operations inHonduras and received proceeds of approximately$24.0 million , net of cash sold and closing costs. In 2018, we completed the sale ofLEI Lie Ying Limited inChina . At the closing of the sale, a portion of the total transaction value was paid into an escrow account, to be distributed to the Company pursuant to the terms and conditions of the escrow agreement. InApril 2021 , the Company received the final balance from the escrow account, which was approximately$21.7 million at the date of receipt. OnMay 28, 2021 , we completed the sale of our operations inBrazil and received proceeds of approximately$625.0 million , net of cash sold, transaction fees and settlement of foreign currency swaps. The Company used a portion of the proceeds to repay the remaining balance outstanding under its Senior Notes due 2025. OnAugust 12, 2021 , we completed the sale ofWalden University and received proceeds of approximately$1,403.5 million , net of cash sold, transaction fees, and certain closing adjustments. At closing, the Company also recorded a receivable of$74.0 million , representing a portion of the transaction value that was paid into an escrow account, to be released to the Company one year following the closing of the transaction pursuant to the terms and conditions of the escrow agreement. In addition, approximately$83.6 million of restricted cash on the Company's balance sheet related to collateralized regulatory obligations was released during the fourth quarter of 2021. As described in Note 11, Share-based Compensation and Equity, in our consolidated financial statements included elsewhere in this Form 10-K, in connection with the adoption of a plan of partial liquidation providing for the distribution of the net proceeds from the sale ofWalden University , onOctober 29, 2021 , the Company paid a special cash distribution to shareholders of approximately$1,270.0 million , and, onDecember 28, 2021 , the Company paid a special cash distribution to shareholders of approximately$105 million , which primarily consisted of the cash that was released during the fourth quarter of 2021 related to the collateralized regulatory obligations. In addition, inDecember 2021 , the Company paid approximately$150 million in estimated taxes and fees due on prior sales (includingWalden University ). OnSeptember 10, 2020 , we completed the divestiture of our operations inChile . Under the terms of the agreement, the purchase price included a note receivable of$21.5 million that was payable one year from the date of divestiture. We collected this receivable inSeptember 2021 .
Liquidity Restrictions
Our liquidity is affected by restricted cash balances, which totaled$20.8 million and$117.2 million as ofDecember 31, 2021 and 2020, respectively. As ofDecember 31, 2021 , restricted cash consisted of cash equivalents held to collateralize LOCs related to the Spanish Tax Audits and cash equivalents held as assets for a supplemental employment retention agreement for a former executive.
Indefinite Reinvestment of Foreign Earnings
We earn a significant portion of our income from subsidiaries located in countries outsidethe United States . As part of our business strategies, we have determined that all earnings from our foreign continuing operations will be deemed indefinitely reinvested outside ofthe United States . As ofDecember 31, 2021 ,$272.6 million of our total$324.8 million of cash and cash equivalents were held by foreign subsidiaries. As ofDecember 31, 2020 ,$127.7 million of our total$750.1 million of cash and cash equivalents were held by foreign subsidiaries. These amounts above do not include$270.2 million of cash recorded at subsidiaries that are classified as held for sale atDecember 31, 2020 , of which$66.4 million was held by foreign subsidiaries. Our plans to indefinitely reinvest certain earnings are supported by projected working capital and long-term capital requirements in each foreign subsidiary location in which the earnings are generated. We have analyzed our domestic operation's cash repatriation strategies, projected cash flows, projected working capital and liquidity, and the expected availability within the debt or equity markets to provide funds for our domestic needs. Based on our analysis, we believe we have the ability to indefinitely reinvest our historical foreign earnings. If our expectations change based on future developments such that some or all of the undistributed earnings of our foreign subsidiaries may be remitted tothe United States in the foreseeable future, we will be required to recognize deferred tax expense and liabilities and pay additional taxes on any amounts that we are unable to repatriate in a tax-free manner. ForPeru , we have recognized deferred tax liabilities of approximately$0.1 million for the portion of the undistributed foreign earnings that are not expected to be indefinitely reinvested outsidethe United States . 48 --------------------------------------------------------------------------------
Liquidity Requirements
Our short-term liquidity requirements include: funding for debt service (including finance leases); operating lease obligations; payments of deferred compensation; working capital; operating expenses; capital expenditures; repurchase of the Company's common stock; and business development activities.
Long-term liquidity requirements include: payments on long-term debt (including finance leases); operating lease obligations; payments of deferred compensation; and payments of other third-party obligations.
Debt
As of
Senior Secured Credit Facility
Our senior secured revolving credit facility (the Senior Secured Credit
Facility) provides for borrowings of
Covenants
Under the Third A&R Credit Agreement, we are subject to a Consolidated Senior Secured Debt to Consolidated EBITDA financial maintenance covenant that applies only to the revolving credit facility (a leverage ratio covenant), as defined in the Third A&R Credit Agreement, unless certain conditions are satisfied. As ofDecember 31, 2021 , these conditions were satisfied and, therefore, we were not subject to the leverage ratio. The maximum ratio, as defined, is 3.50x as of the last day of each quarter commencing with the quarter endingDecember 31, 2019 and thereafter. In addition, indebtedness at some of our locations contain financial maintenance covenants. We were in compliance with these covenants as ofDecember 31, 2021 . Other Debt
Other debt includes lines of credit and short-term borrowing arrangements of subsidiaries and notes payable.
As of
InDecember 2017 , UVM Mexico entered into an agreement with a bank for a loan of MXN 1,700.0 million (approximately$89.0 million at the time of the loan). The loan matures inJune 2024 and carries a variable interest rate based on TIIE, plus an applicable margin, which is established based on the ratio of debt to EBITDA, as defined in the agreement (8.12% as ofDecember 31, 2021 ). The current quarterly payments on the loan total MXN 68.0 million ($3.3 million atDecember 31, 2021 ) and increasing over the remaining term of the loan to MXN 76.5 million ($3.7 million atDecember 31, 2021 ), with a balloon payment of MXN 425.0 million ($20.5 million atDecember 31, 2021 ) due at maturity. In 2019, this loan was reassigned to another wholly owned Mexican subsidiary of the Company. In 2021, the loan was again reassigned to another wholly owned Mexican subsidiary of the Company, following a merger. As ofDecember 31, 2021 and 2020, the outstanding balance of this loan was$52.5 million and$68.0 million , respectively. The Company obtained financing to fund the construction of two new campuses at one of our institutions inPeru , Universidad Peruana de Ciencias Aplicadas. In 2019, the Company repaid the loans except for one, which, as ofDecember 31, 2021 , carried an interest rate of 5.09% and is scheduled to mature inNovember 2025 . Over the remaining term of the loan, principal payments, plus accrued and unpaid interest, of approximately$1.4 million are made semi-annually in April and October. As ofDecember 31, 2021 and 2020, the outstanding balance on the loan was$10.3 million and$13.4 million , respectively. InDecember 2017 , one of our subsidiaries inPeru entered into an agreement to borrow PEN 247.5 million (approximately$76.0 million at the agreement date). The loan bears interest at a fixed rate of 6.62% per annum and is scheduled to mature inDecember 2023 . Over the remaining term of the loan, quarterly payments of PEN 14.4 million ($3.6 million atDecember 31, 2021 ) are due. As ofDecember 31, 2021 and 2020, this loan had a balance of$29.0 million and$44.0 million , respectively. 49 --------------------------------------------------------------------------------
Leases
We conduct a significant portion of our operations from leased facilities, including many of our higher education facilities and other office locations. As discussed in Note 9, Leases, in our consolidated financial statements included elsewhere in this Form 10-K, we have significant operating lease liabilities recorded related to our leased facilities, which will require future cash payments. As ofDecember 31, 2021 and 2020, the present value of operating lease liabilities was$415.3 million and$519.1 million , respectively. These amounts exclude operating lease liabilities for our discontinued operations of$10.8 million and$151.4 million as ofDecember 31, 2021 and 2020, respectively. As ofDecember 31, 2021 , the minimum lease payments required during 2022 for our Continuing Operations is$77.1 million .
Capital Expenditures
Capital expenditures primarily consist of purchases of property and equipment. Our capital expenditure program is a component of our liquidity and capital management strategy. This program includes discretionary spending, which we can adjust in response to economic and other changes in our business environment, to grow our network through the following: (1) capacity expansion at institutions to support enrollment growth; (2) new campuses for institutions in our existing markets; and (3) information technology to increase efficiency and controls. Our non-discretionary spending includes the maintenance of existing facilities. We typically fund our capital expenditures through cash flow from operations and external financing. In the event that we are unable to obtain the necessary funding for capital expenditures, our long-term growth strategy could be significantly affected. We believe that our internal sources of cash and our ability to obtain additional third-party financing, subject to market conditions, will be sufficient to fund our investing activities. Our total capital expenditures for our continuing and discontinued operations, excluding receipts from the sale of subsidiaries and property and equipment, were$56.3 million ,$89.2 million and$173.3 million during 2021, 2020 and 2019, respectively. The 37% decrease in capital expenditures for 2021 compared to 2020 was primarily due to the completed divestitures. The 49% decrease in capital expenditures for 2020 compared to 2019 was driven mainly by a targeted reduction and deferral across all business lines to preserve cash amid the COVID-19 pandemic, as well as a result of the executed divestitures.
During the first quarter of 2021, the Company's Board of Directors approved the termination of a deferred compensation plan for certain executive employees and members of our Board of Directors, with such termination effectiveApril 1, 2021 . The Company expects that the participants will receive a distribution payout of their account balances under the terms of the plan inApril 2022 . The plan allowed participants to defer their salaries, bonuses, and Board of Directors' retainers and fees in order to accumulate funds for retirement on a pre-tax basis. Participants are 100% vested in their respective deferrals and the earnings thereon. As ofDecember 31, 2021 and 2020, plan assets included in Other assets in our Consolidated Balance Sheets were$1.9 million and$3.1 million , respectively. As ofDecember 31, 2021 and 2020, the plan liabilities reported in our Consolidated Balance Sheets were$5.1 million and$6.2 million , respectively. As ofDecember 31, 2021 and 2020,$5.1 million and$1.2 million , respectively, of the total plan liability was classified as a current liability; the remainder was noncurrent and recorded in Other long-term liabilities. The Company plans to fund the difference between the assets and the liabilities with operating cash flows. 50 --------------------------------------------------------------------------------
Stock Repurchase Program
OnNovember 5, 2020 , Laureate's Board of Directors approved a new stock repurchase program to acquire up to$300 million of the Company's common stock. OnApril 30, 2021 , the Company's Board of Directors approved an increase of the above authorization to repurchase shares of the Company's common stock by$200 million , and, onDecember 14, 2021 , the Company's Board of Directors approved an increase of the above authorization to repurchase shares of the Company's common stock by$100 million , for a total authorization (including the above authorized repurchases) of up to$600 million of the Company's common stock. The Company's proposed repurchases may be made from time to time on the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Repurchases may be effected pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act. The Company's Board of Directors will review the share repurchase program periodically and may authorize adjustment of its terms and size or suspend or discontinue the program. The Company expects to finance the remaining repurchases with cash on-hand or from its revolving credit facility, or a combination thereof. The Company also expects to complete the repurchase program in the first half of 2022, dependent on market conditions. As ofDecember 31, 2021 , the approximate dollar value of shares yet to be purchased under this stock repurchase program is$156.7 million .
Cash Flows
In the consolidated statements of cash flows, the changes in operating assets and liabilities are presented excluding the effects of exchange rate changes, acquisitions, and reclassifications, as these effects do not represent operating cash flows. Accordingly, the amounts in the consolidated statements of cash flows do not agree with the changes of the operating assets and liabilities as presented in the consolidated balance sheets. The effects of exchange rate changes on cash are presented separately in the consolidated statements of cash flows.
The following table summarizes our cash flows from operating, investing, and financing activities for each of the past three fiscal years:
(in millions) 2021 2020 2019
Cash (used in) provided by:
Operating activities$ (156.1) $
259.6
Investing activities 2,044.2 587.4 1,116.8 Financing activities (2,683.2) (272.7) (1,674.0) Effects of exchange rates changes on cash (14.7) (0.5) 5.1
Change in cash included in current assets held for sale
288.1 195.8 184.6
Net change in cash and cash equivalents and
restricted cash $ (521.7) $ 769.5 $ (27.8) Comparison of Cash Flows for the Year Ended
Operating activities Cash flows from operating activities changed by$415.7 million to cash outflow of$(156.1) million for 2021, compared to a cash inflow of$259.6 million for 2020. This decrease in operating cash was primarily attributable to: (1) changes in working capital and divestiture of subsidiaries that contributed positive operating cash flows during 2020, which accounted for$266.6 million of the decrease; (2) higher cash paid for taxes of$159.7 million , from$91.4 million in 2020 to$251.1 million in 2021, primarily due to the payment of estimated taxes related to the sale ofWalden University in 2021 and payment of withholding taxes for intercompany loans that were capitalized during 2021; and (3) payments of$46.8 million for lease termination agreements in 2021. These decreases in operating cash flow were partially offset by a decrease in cash paid for interest of$57.4 million , prior to interest income, from$120.6 million in 2020 to$63.2 million in 2021, attributable to lower average debt balances. Investing activities Cash provided by investing activities increased by$1,456.8 million , to$2,044.2 million for 2021 from$587.4 million in 2020. This increase was primarily attributable to higher cash receipts from the sales of discontinued operations of$1,474.2 million , 51 -------------------------------------------------------------------------------- from$676.6 million in 2020 (for the net effect of the sales of NSAD and our operations inCosta Rica ,Chile ,Malaysia ,Australia and New Zealand , net of cash sold, and the receipt of a portion of the escrow receivable balance related to the 2018 sale of ourChina operations) to$2,150.8 million , net, in 2021 (primarily for the sale ofWalden University , our operations inHonduras andBrazil , the receipt of the note receivable related to the 2020 divestiture of our Chilean operations, and the receipt of a portion of the purchase prices that were withheld in connection to the 2018 sale of ourChina operations and the 2020 sale of ourMalaysia operations). In addition, cash used for capital expenditures decreased by$32.9 million compared to 2020. These increases in investing cash were partially offset by payments of$50.3 million for derivative instruments related to foreign exchange swap agreements associated with the sale of ourBrazil operations. Financing activities Cash used in financing activities increased by$2,410.5 million to$2,683.2 million for 2021 from$272.7 million for 2020. This increase in financing cash outflows was primarily attributable to: (1) payments of special cash distributions to shareholders in 2021 of$1,374.9 million following the sale ofWalden University ; (2) higher net payments of long-term debt in 2021 as compared to 2020 of$718.6 million , primarily related to the 2021 repayment in full of the balance outstanding under the Senior Notes due 2025; (3) higher payments in 2021 of$281.0 million to repurchase shares of our common stock under our stock repurchase program; (4) higher payments of call premiums and debt issuance costs of$32.2 million , mainly the call premiums associated with the redemption of the Senior Notes due 2025 during 2021; and (5) lower proceeds from stock option exercises of$22.3 million during 2021, as compared to 2020. These increases in financing cash outflows were partially offset by the year-over-year effect of a$13.7 million payment in 2020 to the minority owner of ourMalaysia operations in connection with the sale of those operations and$5.7 million of deferred purchase price payments in 2020 related to acquisitions. Other items accounted for the remaining difference of$0.9 million .
Comparison of Cash Flows for the Year Ended
Operating activities Cash provided by operating activities decreased by$80.2 million to$259.6 million for 2020, compared to$339.8 million for 2019. This decrease in operating cash was primarily attributable to changes in working capital, as well as the year-over-year effect of the divestitures that occurred, as certain of the divested institutions contributed positive operating cash flows during 2019 prior to divestiture. These factors accounted for a decrease in operating cash flows of approximately$184.7 million . This decrease was partially offset by: (1) a decrease in cash paid for interest of$68.1 million , prior to interest income, that is attributable to the lower average debt balances, from$188.7 million of cash paid for interest in 2019 to$120.6 million in 2020; (2) a decrease in cash paid for taxes of$28.3 million , from$119.7 million in 2019 to$91.4 million in 2020; and (3) a positive year-over-year effect to operating cash of$8.1 million primarily related to a cash payment in 2019 to settle cross currency and interest rate swaps inChile .
Investing activities
Cash provided by investing activities decreased by$529.4 million to$587.4 million for 2020 from$1,116.8 million in 2019. This decrease was primarily attributable to: (1) lower cash receipts from the sales of discontinued operations of$589.4 million , from$1,266.0 million in 2019 (for the sales ofSt. Augustine and ourThailand ,South Africa ,India ,Spain ,Portugal ,Turkey ,Panama , and UniNorte operations) to$676.6 million , net, in 2020 (for the net effect of the sales of NSAD and our operations inCosta Rica ,Chile ,Malaysia ,Australia and New Zealand , net of cash sold, and the receipt of a portion of the escrow receivable balance related to the 2018 sale of ourChina operations); (2) the year-over-year negative effect of cash receipt from derivative settlements of$12.9 million , related to the foreign exchange swap agreements associated with the sale of theSpain andPortugal institutions in 2019; and (3) the year-over-year effect of proceeds of$0.9 million in 2019 from the sale of shares of a preferred stock investment in a private education company. These decreases in investing cash were partially offset by a decrease in capital expenditures of$84.2 million , and the year-over-year effect of a payment of$1.2 million in 2019 for a small acquisition inBrazil . Other items accounted for the remaining change of$11.6 million . 52 --------------------------------------------------------------------------------
Financing activities
Cash used in financing activities decreased by$1,401.3 million to$272.7 million for 2020 from$1,674.0 million for 2019. This decrease in financing cash outflows was primarily attributable to: (1) higher net payments of long-term debt in 2019 as compared to 2020 of$1,207.6 million , primarily related to the use of divestiture proceeds for debt repayment; (2) lower payments in 2020 of$164.6 million to repurchase shares of our common stock under our stock repurchase program; (3) lower payments of deferred purchase price for acquisitions of$14.5 million , due primarily to the full repayment of the St. Augustine seller note in 2019; (4) higher proceeds from stock option exercises of$11.7 million during 2020, as compared to 2019; and (5) lower payments for debt issuance costs and redemption and call premiums of$8.3 million , mostly related to a debt repayment inChile in 2019. These decreases in financing cash outflows were partially offset by higher year-over-year payments to purchase noncontrolling interests of$7.9 million , from a$5.8 million payment in 2019 to acquire the remaining noncontrolling interest of one of our operations inIndia , immediately prior to the sale of those operations, to a$13.7 million payment in 2020 to the minority owner of ourMalaysia operations in connection with the sale of those operations. Other items accounted for the remaining difference of$2.5 million .
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Our significant accounting policies are discussed in Note 2, Significant Accounting Policies, in our consolidated financial statements included elsewhere in this Form 10-K. Our critical accounting policies require the most significant judgments and estimates about the effect of matters that are inherently uncertain. As a result, these accounting policies and estimates could materially affect our financial statements and are critical to the understanding of our results of operations and financial condition. Management has discussed the selection of these critical accounting policies and estimates with the audit committee of the Board of Directors.
We perform annual impairment tests of indefinite-lived intangible assets, including goodwill and tradenames, as ofOctober 1st each year. We also evaluate these assets on an interim basis if events or changes in circumstances between annual tests indicate that the assets may be impaired. For example, during the second quarter of 2020, we recorded an impairment of the indefinite-lived intangible assets that were part of theChile reporting unit. We have not made material changes to the methodology used to assess impairment loss on indefinite-lived tradenames during the past three fiscal years. If the estimates and related assumptions used in assessing the recoverability of our goodwill and indefinite-lived tradenames decline, we may be required to record impairment charges for those assets. We base our fair value estimates on assumptions that we believe to be reasonable but that are unpredictable and inherently uncertain. Actual results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.
OnJanuary 1, 2020 , the Company adopted Accounting Standards Update (ASU) No. 2017-04, Intangibles -Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. This ASU requires entities to calculate goodwill impairment as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Under the updated guidance, the Company continues to have the option of first performing a qualitative goodwill impairment assessment (i.e., step zero) in order to determine if the quantitative impairment test is necessary. The requirement to perform a qualitative assessment for a reporting unit with a zero or negative carrying amount is eliminated. A reporting unit is defined as a component of an operating segment for which discrete financial information is available and regularly reviewed by management of the segment. Based on the qualitative assessment, if we determine that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, the quantitative impairment test is not required. If we do not perform the qualitative assessment for a reporting unit or determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative fair value-based test is performed. We estimate the fair value of each reporting unit, and, if the carrying amount of the reporting unit is less than the reporting unit's estimated fair value, then there is no goodwill impairment. If the carrying amount of the reporting unit exceeds its estimated fair value, then goodwill is 53 -------------------------------------------------------------------------------- impaired and the difference between the reporting unit's carrying amount and its fair value is recognized as a loss on impairment of assets in the consolidated statements of operations. We completed our annual impairment testing, and no impairments of goodwill were identified. Our valuation approach to estimate the fair value of a reporting unit utilizes a weighted combination of a discounted cash flow analysis and a market multiples analysis. The discounted cash flow analysis relies on historical data and internal estimates, which are developed as a part of our long-range plan process, and includes an estimate of terminal value based on these expected cash flows using the generally accepted Gordon Dividend Growth formula, which derives a valuation using an assumed perpetual annuity based on the reporting unit's residual cash flows. The discount rate is based on the generally accepted Weighted Average Cost of Capital methodology, and is derived using a cost of equity based on the generally accepted Capital Asset Pricing Model and a cost of debt based on the typical rate paid by market participants. The market multiples analysis utilizes multiples of business enterprise value to revenues, operating income and earnings before interest, taxes, depreciation and amortization of comparable publicly traded companies and multiples based on fair value transactions where public information is available. Significant assumptions used in estimating the fair value of each reporting unit include: (1) the revenue and profitability growth rates and (2) the discount rate. We also evaluate the sensitivity of a change in assumptions related to goodwill impairment, assessing whether a 10% reduction in our estimates of revenue or a 1% increase in our estimated discount rates would result in impairment of goodwill. Using the current estimated cash flows and discount rates, each reporting unit's estimated fair value exceeds its carrying value by at least 15% in instances where we performed fair value-based impairment testing. We have determined that none of our reporting units with material goodwill were at risk of failing the goodwill impairment test as ofDecember 31, 2021 . We completed our initial public offering (IPO) onFebruary 6, 2017 at an initial public offering price that was below the expected range, and since then our stock price at times has traded below the initial public offering price. While our market capitalization is currently in excess of the carrying value of our stockholders' equity, a significant decline in our stock price for an extended period of time could be considered an impairment indicator that would cause us to perform an interim impairment test that could result in additional impairments of goodwill or other intangible assets.
Indefinite-lived Intangible Assets
The impairment test for indefinite-lived intangible assets, such as indefinite-lived tradenames, generally requires a new determination of the fair value of the intangible asset using the relief-from-royalty method. This method estimates the amount of royalty expense that we would expect to incur if the assets were licensed from a third party. We use publicly available information in determining certain assumptions to assist us in estimating fair value using market participant assumptions. If the fair value of the intangible asset is less than its carrying value, the intangible asset is adjusted to its new estimated fair value, and an impairment loss is recognized. Significant assumptions used in estimating the fair value of indefinite-lived tradenames include: (1) the revenue growth rates; (2) the discount rates; and (3) the estimated royalty rates. In 2020, following the reclassification of several of our subsidiaries as held-for-sale, the Company tested the Laureate tradename for impairment and concluded that the estimated fair value of the Laureate tradename was less than its carrying value. As a result, the Company recognized an impairment charge of$320.0 million , in accordance with ASC 350-30-35-17. Additionally, the Company determined that the remaining Laureate tradename asset no longer had an indefinite life and was fully amortized as ofDecember 31, 2021 During the first quarter of 2021, the Company decided that, during 2021, it would wind down certain support functions related to the Laureate network and would no longer invest in and support the Laureate tradename, a finite-lived intangible asset, beyond 2021. As a result, the Company tested the asset for impairment and estimated the fair value of the tradename asset using the relief-from-royalty method, based on the projected revenues for each business over the estimated remaining useful life of the asset. As a result of the impairment test, the Company concluded that the estimated fair value of the Laureate tradename was less than its carrying value by approximately$51.4 million and recorded an impairment charge for that amount. The remaining carrying value of the tradename asset was fully amortized as ofDecember 31, 2021 .
Long-Lived Assets and Finite-Lived Intangible Assets
We evaluate our long-lived assets, including property and equipment and finite-lived intangible assets, to determine whether events or changes in circumstances indicate that the remaining estimated useful lives of such assets may warrant revision or that their carrying values may not be fully recoverable.
54
--------------------------------------------------------------------------------Indicators of impairment include, but are not limited to:
•a significant deterioration of operating results; •a change in regulatory environment; •a change in business plans; or •an adverse change in anticipated cash flows. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to result from the use and eventual disposition of the assets. If the assets are determined to be impaired, the impairment recognized is the excess of the carrying amount over the fair value of the assets. Fair value is generally determined by the discounted cash flow method. The discount rate used in any estimate of discounted cash flows is the rate commensurate with a similar investment of similar risk. We use judgment in determining whether a triggering event has occurred and in estimating future cash flows and fair value. Changes in our judgments could result in impairments in future periods. We recorded impairment losses on long-lived assets for the years endedDecember 31, 2021 , 2020, and 2019. See Note 7,Goodwill and Other Intangible Assets, in our consolidated financial statements included elsewhere in this Form 10-K for further details. Deferred Costs Deferred costs on the Consolidated Balance Sheets consist primarily of direct costs associated with online course development, accreditation and costs to obtain a contract. Deferred costs associated with the development of online educational programs are capitalized after technological feasibility has been established. Deferred online course development costs are amortized to direct costs on a straight-line basis over the estimated period that the associated products are expected to generate revenues. Deferred online course development costs are evaluated on a quarterly basis through review of the corresponding course catalog. If a course is no longer listed or offered in the current course catalog, then the costs associated with its development are written off. As ofDecember 31, 2021 and 2020, the unamortized balances of online course development costs were$3.1 million and$15.3 million , respectively. We defer direct and incremental third-party costs incurred for obtaining initial accreditation and for the renewal of accreditations. These accreditation costs are amortized to direct costs over the life of the accreditation on a straight-line basis. As of bothDecember 31, 2021 and 2020, the unamortized balances of accreditation costs were$0.2 million . Laureate also defers certain commissions and bonuses earned by third party agents and our employees that are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are amortized over the period of benefit, which ranges from two to four years. As ofDecember 31, 2021 and 2020, the unamortized balances of contract costs were$2.7 million and$2.1 million , respectively. AtDecember 31, 2021 and 2020, our total deferred costs were$27.1 million and$33.4 million , respectively, with accumulated amortization of$(21.1) million and$(15.7) million , respectively.
Income Taxes
We record the amount of income taxes payable or refundable for the current year, as well as deferred tax assets and liabilities for the expected future tax consequences of events that we have recognized in our consolidated financial statements or tax returns. We exercise judgment in assessing future profitability and the likely future tax consequences of these events.
Deferred Taxes
Estimates of deferred tax assets and liabilities are based on current tax laws, rates and interpretations, and, in certain cases, business plans and other expectations about future outcomes. We develop estimates of future profitability based upon historical data and experience, industry projections, forecasts of general economic conditions, and our own expectations. Our accounting for deferred tax consequences represents management's best estimate of future events that can be appropriately reflected in our accounting estimates. Changes in existing tax laws and rates, their related interpretations, as well as the uncertainty generated by the current economic environment, may impact the amounts of deferred tax liabilities or the valuations of deferred tax assets.
Tax Contingencies
We are subject to regular review and audit by both domestic and foreign tax
authorities. We apply a more-likely-than-not threshold for tax positions, under
which we must conclude that a tax position is more likely than not to be
sustained in order for us to continue to recognize the benefit. This assumes
that the position will be examined by the appropriate taxing authority and
55
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that full knowledge of all relevant information is available. In determining the
provision for income taxes, judgment is used, reflecting estimates and
assumptions, in applying the more-likely-than-not threshold. A change in the
assessment of the outcome of a tax review or audit could materially adversely
affect our consolidated financial statements.
See Note 13, Income Taxes, in our consolidated financial statements included elsewhere in this Form 10-K for details of our deferred taxes and tax contingencies.
Indefinite Reinvestment of Foreign Earnings
We earn substantially all of our income from subsidiaries located in countries outsidethe United States . Deferred tax liabilities have not been recognized for undistributed historical foreign earnings because management believes that the historical retained earnings will be indefinitely reinvested outsidethe United States under the Company's planned tax-neutral methods. Our assertion that earnings from our foreign operations will be indefinitely reinvested is supported by projected working capital and long-term capital plans in each foreign subsidiary location in which the earnings are generated. Additionally, we believe that we have the ability to indefinitely reinvest foreign earnings based on our domestic operation's cash repatriation strategies, projected cash flows, projected working capital and liquidity, and the expected availability of capital within the debt or equity markets. If our expectations change based on future developments, such that some or all of the undistributed earnings of our foreign subsidiaries may be remitted tothe United States in the foreseeable future, we will be required to recognize deferred tax expense and liabilities on any amounts that we are unable to repatriate in a tax-free manner.
Revenue Recognition
Our revenues primarily consist of tuition and educational service revenues. We also generate other revenues from student fees, dormitory/residency fees and other education-related activities. These other revenues are less material to our overall financial results and have a tendency to trend with tuition revenues. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. These revenues are recognized net of scholarships and other discounts, refunds and waivers. For further description, see also Note 3, Revenue, in our consolidated financial statements included elsewhere in this Form 10-K.
Allowance for Doubtful Accounts
Receivables are deemed to be uncollectible when they have been outstanding for
two years, or earlier when collection efforts have ceased, at which time they
are written off. Prior to that, we record an allowance for doubtful accounts to
reduce our receivables to their net realizable value. Our allowance estimation
methodology is based on the age of the receivables, the status of past-due
amounts, historical collection trends, current economic conditions and student
enrollment status. In the event that current collection trends differ from
historical trends, an adjustment is made to the allowance account and bad debt
expense.
Derivatives
In the normal course of business, our operations have significant exposure to
fluctuations in foreign currency values and interest rate changes. Accordingly,
we mitigate a portion of these risks through a risk-management program that
includes the use of derivative financial instruments (derivatives). Laureate
selectively enters into foreign exchange forward contracts to reduce the
earnings impact related to receivables and payables that are denominated in
foreign currencies. In addition, in certain cases Laureate uses interest rate
swaps to mitigate certain risks associated with floating-rate debt arrangements.
We do not engage in speculative or leveraged transactions, nor do we hold or
issue derivatives for trading purposes.
We report all derivatives on the consolidated balance sheets at fair value. The
values are derived using valuation models commonly used for derivatives. These
valuation models require a variety of inputs, including contractual terms,
market prices, forward-price yield curves, notional quantities, measures of
volatility and correlations of such inputs. Our fair value models incorporate
the measurement of our own nonperformance risk into our calculations. Our
derivatives expose us to credit risk to the extent that the counterparty may
possibly fail to perform its contractual obligation when we are in a net gain
position. As a result, our valuation models reflect measurements for
counterparty credit risk. We also actively monitor counterparty credit ratings
for any significant changes that could impact the nonperformance risk
calculation for our fair value. We value derivatives using management's best
estimate of inputs we believe market participants would use in pricing the asset
or liability at the measurement date. Derivative and hedge accounting requires
judgment in the use of estimates that are inherently uncertain and that may
change in subsequent periods. External factors, such as economic conditions,
will impact the inputs to the valuation model over time. The effect of changes
in assumptions and estimates could materially impact our financial statements.
See Note 12, Derivative Instruments, in our consolidated financial statements
included elsewhere in this Form 10-K for details of our derivatives.
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--------------------------------------------------------------------------------Share-Based Compensation
We use the Black-Scholes-Merton option pricing model to calculate the fair value of stock options. This option valuation model requires the use of subjective assumptions, including the estimated fair value of the underlying common stock, the expected stock price volatility, and the expected term of the option. Prior to the IPO, the estimated fair value of the underlying common stock was based on third-party valuations. After our IPO, the estimated fair value of the underlying common stock is based on the closing price of our common stock on the grant date. Because we have only been publicly traded sinceFebruary 2017 , our volatility estimates are based on an average of: (1) a peer group of companies and (2) Laureate's historical volatility. We estimate the expected term of awards to be the weighted average mid-point between the vesting date and the end of the contractual term. We use this method to estimate the expected term because we do not have sufficient historical exercise data. We have granted restricted stock, restricted stock units, stock options, and performance awards for which the vesting is based on our annual performance metrics. For interim periods, we use our year-to-date actual results, financial forecasts, and other available information to estimate the probability of the award vesting based on the performance metrics. The related compensation expense recognized is affected by our estimates of the vesting probability of these performance awards. See Note 11, Share-based Compensation and Equity, in our consolidated financial statements included elsewhere in this Form 10-K for further discussion of these arrangements.
Recently Issued Accounting Standards
Refer to Note 2, Significant Accounting Policies, in our consolidated financial statements included elsewhere in this Form 10-K for recently issued accounting standards.
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