NOTE 8: INTANGIBLE ASSETS

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

Intangible assets consist of the following (dollars in thousands):

	September 30, 2013
	Gross Carrying Amount		Accumulated Amortization		Weighted Avg. Amortization Period
Amortizable Intangible Assets:
Student Relationships	$	81,619	$	(76,130)	(a)
Customer Relationships		3,554		(813)	12 years
Non-compete Agreements		2,517		(1,859)	(b)
Curriculum/Software		5,648		(4,424)	5 years
Outplacement Relationships		3,900		(1,309)	15 years
Trade Names		5,838		(4,828)	(c)
Clinical Agreement		585		(10)	15 years
Total	$	103,661	$	(89,373)
Indefinite-lived Intangible Assets:
Trade Names	$	40,894
Trademark		1,645
Ross Title IV Eligibility and Accreditations		14,100
Intellectual Property		13,940
Chamberlain Title IV Eligibility and Accreditations		1,200
Carrington Title IV Eligibility and Accreditations		67,200
AUC Title IV Eligibility and Accreditations		100,000
DeVry Brasil Accreditations		45,152
Total	$	284,131

(a) The total weighted average estimated amortization period for Student Relationships is 5 years for DeVry Brasil (Fanor, Ruy Barbosa and AREA 1), 6 years for FBV, 5 years for Favip and 4 years for AUC. All other student student relationships are fully amortized as of September 30, 2013.

(b) The total weighted average estimated amortization period for Non-compete Agreements is 1.5 years for ATC and 5 years for Falcon. All other and Non-compete agreements are fully amortized as of September 30, 2013.

(c) The total weighted average estimated amortization period for Trade Names is 2 years for ATC, 8.5 years for DeVry Brasil (Fanor, Ruy Barbosa and AREA1) and 1.5 years for Falcon. All other trade names are fully amortized at September 30, 2013.

	As of September 30, 2012
	Gross Carrying Amount		Accumulated Amortization
Amortizable Intangible Assets:
Student Relationships	$	82,700	$	(69,975)
Customer Relationships		3,550		(458)
License and Non-compete Agreements		3,716		(2,837)
Curriculum/Software		5,689		(3,763)
Outplacement Relationships		3,900		(1,049)
Trade Names		6,078		(4,546)
Total	$	105,633	$	(82,628)
Indefinite-lived Intangible Assets:
Trade Names	$	39,233
Trademark		1,645
Ross Title IV Eligibility and Accreditations		14,100
Intellectual Property		13,940
Chamberlain Title IV Eligibility and Accreditations		1,200
Carrington Title IV Eligibility and Accreditations		71,100
AUC Title IV Eligibility and Accreditations		100,000
DeVry Brasil Accreditations		32,831
Total	$	274,049

Amortization expense for amortized intangible assets was $1.6 million and $2.3 million for the three months ended September 30, 2013 and 2012, respectively. Estimated amortization expense for amortized intangible assets for the next five fiscal years ending June 30, by reporting unit, is as follows (dollars in thousands):

Fiscal Year	AUC		Becker		DeVry Brasil		Carrington		Total
2014	$	3,347	$	935	$	1,882	$	295	$	6,459
2015		387		926		1,093		260		2,666
2016		-		892		701		260		1,853
2017		-		627		333		260		1,220
2018		-		355		210		260		825
Thereafter		-		1,140		565		1,356		3,061

All amortizable intangible assets, except for the DeVry Brasil Student Relationships, the FBV Student Relationships, the Favip Student Relationships and the AUC Student Relationships, are being amortized on a straight-line basis. The amounts being amortized for theses Student Relationships are based on the estimated progression of the students through the respective programs, giving consideration to the revenue and cash flow associated with both existing students and new applicants. This results in the basis being amortized at an annual rate for each of the years of estimated economic life as follows:

Fiscal Year	AUC		DeVry Brasil		FBV		FAVIP
2009	-		8.3	%	-		-
2010	-		30.3	%	-		-
2011	-		24.7	%	-		-
2012	38.0	%	19.8	%	11.9	%	-
2013	38.5	%	13.6	%	33.7	%	27.6	%
2014	21.6	%	3.3	%	25.9	%	32.2	%
2015	1.9	%	-		16.7	%	23.0	%
2016	-		-		9.0	%	13.2	%
2017	-		-		2.6	%	4.0	%
2018	-		-		0.2	%	-

Indefinite-lived intangible assets related to Trademarks, Trade Names, Title IV Eligibility, Accreditations and Intellectual Property are not amortized, as there are no legal, regulatory, contractual, economic or other factors that limit the useful life of these intangible assets to the reporting entity.

In accordance with U.S. generally accepted accounting principles, goodwill and indefinite-lived intangibles arising from a business combination are not amortized and charged to expense over time. Instead, these assets must be reviewed annually for impairment or more frequently if circumstances arise indicating potential impairment. This annual impairment review was most recently completed during the fourth quarter of fiscal year 2013. As a result, it was determined that the goodwill and the indefinite-lived intangible asset of the Carrington Colleges Group (“Carrington”) reporting unit had been impaired. As of the fourth quarter of fiscal year 2013 impairment review, there was no impairment loss associated with recorded goodwill or indefinite-lived intangible assets for any other reporting unit, as estimated fair values exceeded the carrying amounts.

Management considers certain triggering events when evaluating whether an interim impairment analysis is warranted. Among these would be a significant long-term decrease in the market capitalization of DeVry based on events specific to DeVry’s operations. As of September 30, 2013, DeVry’s market capitalization exceeded its book value by approximately 40%, which is consistent with the premium as of June 30, 2013. Other triggering events that could be cause for an interim impairment review would be changes in the accreditation, regulatory or legal environment; increased competition; innovation changes and changes in the market acceptance of our educational programs and the graduates of those programs.

The estimated fair values of DeVry’s reporting units exceeded their carrying values by at least 12% as of the end of fiscal year 2013, except that of Carrington. The estimated fair values of the indefinite-lived intangible assets exceeded their carrying values by at least 100% as of the end of fiscal year 2013, except those indefinite-lived intangible assets acquired with the acquisitions of AUC and FBV and where fair values exceeded carrying values by 4% to 67%. The smaller premiums for the FBV and AUC indefinite-lived intangible assets would be expected considering the assets were acquired within two years of the fourth quarter fiscal year 2013 valuation date and there has been less time for these assets to have appreciated in value from their fair market value purchase price. As for Carrington, during the fourth quarter of fiscal year 2013, management recorded an impairment loss of $57.0 million for the decline in fair value of this reporting unit and its associated indefinite-lived intangible assets. Therefore, no premiums existed with respect to either the reporting unit’s carrying value or the carrying value of the indefinite-lived intangible assets as of June 30, 2013. Accordingly, this situation also requires management to remain cognizant of the fact that if Carrington’s realized and projected operating results do not meet expectations, an interim review and possible further impairment would be necessary.

To improve Carrington’s financial results, management continues to execute a turn-around plan initiated in fiscal year 2012 which includes increasing its focus on building Carrington’s brand awareness, optimizing its marketing approach to emphasize the development of internally-generated inquiries, improving its recruiting process through its new student contact center and narrowing its focus geographically and programmatically around Carrington’s core strengths in healthcare. Carrington continues to make additional investments in its website interface and admissions processes to better serve prospective students. Despite a difficult economy, evidence of a recovery in enrollments was experienced at Carrington where total student enrollment increased for four consecutive terms through September 2013. Though new student enrollment decreased in the September 2013 term as compared to the year-ago term, this was the result of the number of session starts in the current year period as compared to the year-ago period. During the first quarter of fiscal year 2014, Carrington had only four session starts as compared to five in the year-ago period.

These improvements in enrollment resulted in increased revenues in the first quarter of fiscal year 2014 compared to the same period last fiscal year and, along with cost control efforts, reduced the operating losses from levels of a year ago in the quarter ended September 30, 2013. The revenue and operating results also exceeded internal plans for the first quarter. Management believes its planned business and operational strategies have reversed the negative trend in revenue and operating income declines experienced over the past several years. However, if operating improvements do not continue, all or some of the remaining goodwill could be impaired in the future.

Though certain reporting units experienced a decline in operating results in the first quarter of fiscal year 2014 compared to the year-ago quarter, management did not believe business conditions had deteriorated in any of its reporting units such that it was more likely than not that the fair value was below carrying value for those reporting units or their associated indefinite-lived intangible assets at September 30, 2013. In this regard, revenues, operating results and cash flows grew for all reporting units in fiscal year 2013 except at DeVry University and DeVry Brasil. The revenue and operating results of DeVry Brasil exceeded internal plans for the first quarter of fiscal 2014. Revenues grew by more than 35% from the year-ago quarter. Operating earnings declined from the year-ago quarter reflecting investments for expansion and growth.

At DeVry University, which carries a goodwill balance of $22.2 million, revenue declined by approximately18% from the year-ago quarter. The revenue decline at DeVry University was primarily the result of a decline in undergraduate student enrollments and graduate coursetakers due to lower demand among the university’s target segment of students, believed to be driven by the challenging economic environment, persistent high levels of unemployment, perceptions of the value of a college degree, increased reluctance to take on debt and heightened competition. To address this issue, DeVry University is focused on implementing management’s five-point turnaround plan which is:

	·	Further improve academic quality;
	·	Align the cost structure with enrollment levels;
	·	Regain enrollment growth;
	·	Make targeted investments with the intent to drive future growth; and
	·	Manage the change while developing the team.

In aligning the cost structure, management is focused on increasing efficiencies. Over the past year DeVry has reduced costs through staffing adjustments and by lowering costs. Management has made the decision to close or consolidate certain DeVry University campuses while balancing the potential impact on enrollment and student satisfaction. Management is also focused on process redesign and restructuring in areas such as student finance.

The plan to increase enrollments includes communication of DeVry University’s value proposition, which is educational quality, career prospects and high levels of student service. This communication plan includes integrated university-wide efforts at key points in the year. A September 2013 “call to action event” included the new Career Catalyst Scholarship. Under the Career Catalyst Scholarship DeVry University has committed more than $15 million over the next three years to be awarded to qualifying students who enroll in the September 2013 session. The scholarships are valued at up to a total of $20,000 per student, depending on the degree and credits required to attain that degree. Students qualifying for DeVry University’s Career Catalyst Scholarship are eligible to receive scholarship awards of progressive amounts over a period of three years. For example, students in their first year of a bachelor’s degree program can be awarded up to $5,000. During the second year, the available award may increase up to $7,000. For the third year, the award can increase up to $8,000. To facilitate this new scholarship, management consolidated multiple, smaller scholarships into a larger program which was more clearly communicated to prospective students. In addition, tuition rates for fiscal year 2014 at DeVry University remain unchanged from those of fiscal year 2013. Enhanced use of technology is also expected to increase the effectiveness of the student recruiting process.

Management believes its planned business and operational strategies will reverse the negative trends over the next several years. However, if operating improvements are not realized, all or some of the goodwill could be impaired in the future. The impairment review completed in the fourth quarter of fiscal year 2013 indicated the fair value exceeded the carrying value of the DeVry University reporting unit by 100%. This excess margin has been declining in recent years. Should business conditions at DeVry University continue to deteriorate resulting in the carrying value of this reporting unit exceeding its fair value then goodwill and intangible assets could be impaired. This would require a possible write-off of up to $22.2 million.

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

The table below summarizes the goodwill balances by reporting unit as of September 30, 2013 (dollars in thousands):

	As of September 30,
Reporting Unit	2013
DeVry University	$	22,196
Becker Professional Review		32,936
Ross University		237,174
Chamberlain College of Nursing		4,716
Carrington Colleges Group		98,784
American University of the Caribbean		68,321
DeVry Brasil		53,528
Total	$	517,655

The table below summarizes goodwill balances by reporting segment as of September 30, 2013 (dollars in thousands):

	As of September 30,
	2013
Reporting Segment:
Business, Technology and Management	$	22,196
Medical and Healthcare		408,995
International and Professional Education		86,464
Total	$	517,655

The table below summarizes the changes in the carrying amount of goodwill, by segment, for the quarter ended September 30, 2013 (dollars in thousands):

		Goodwill Changes by Segment
	Business, Technology and Management		Medical and Healthcare		International and Professional Education		Total
Balance at June 30, 2013	$	22,196	$	408,994	$	77,747	$	508,937
Acquisitions		-		-		8,238		8,238
Dispositions		-		-		-		-
Impairments		-		-		-		-
Foreign currency exchange rate changes and other		-		-		480		480
Balance at September 30, 2013	$	22,196	$	408,994	$	86,465	$	517,655

The increase in the goodwill balance from June 30, 2013 in the International and Professional Education segment is the result the addition of goodwill of $8.2 million from the acquisition of Facid and changes in the value of the Brazilian Real and British Pound Sterling as compared to the U.S. dollar. See the discussions above for further explanation of the acquisition. Since DeVry Brasil and ATC goodwill is recorded in their respective local currencies, fluctuations in its value in relation to the U.S. dollar will cause changes in the balance of this asset.

The table below summarizes the indefinite-lived intangible assets balances by reporting unit as of September 30, 2013 (dollars in thousands):

Reporting Unit:	Indefinite- lived Intangible Assets
DeVry University	$	1,645
Becker Professional Review		27,912
Ross University		19,200
Chamberlain College of Nursing		1,200
Carrington Colleges Group		67,200
American University of the Caribbean		117,100
DeVry Brasil		49,874
Total	$	284,131

Total indefinite-lived intangible assets increased by $17.3 million from June 30, 2013. This increase is the result of the addition of $17.1 million of indefinite-lived intangibles associated with the acquisition of Facid and by the effects of foreign currency translation on the DeVry Brasil assets. Since DeVry Brasil intangible assets are recorded in the local Brazilian currency, fluctuations in the value of the Brazilian Real in relation to the U.S. dollar will cause changes in the balance of these assets.