NOTE 9: INTANGIBLE ASSETS

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

Intangible assets consist of the following (in thousands):

	As of June 30, 2016
	Gross Carrying Amount		Accumulated Amortization		Weighted Average Amortization Period
Amortizable Intangible Assets:
Student Relationships	$	14,530	$	(7,150)	(a)
Customer Relationships		400		(170)	10 Years
Non-compete Agreements		940		(799)	5 Years
Curriculum/Software		4,038		(1,914)	5 Years
Franchise Contracts		10,968		(863)	18 Years
Clinical Agreements		406		(81)	15 Years
Trade Names		1,183		(858)	10 Years
Total	$	32,465	$	(11,835)
Indefinite-lived Intangible Assets:
Trade Names	$	70,731
Trademarks		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		20,200
AUC Title IV Eligibility and Accreditations		100,000
DeVry Brasil Accreditation		100,410
Total	$	322,226

(a)

The total weighted average estimated amortization period for Student Relationships is 6 years for Faculdade Boa Viagem ("FBV"), 5 years for Centro Universitario Vale do Ipojuca ("UniFavip"), 6 years for Damasio and 5 years for Grupo Ibmec.

	As of June 30, 2015
	Gross Carrying Amount		Accumulated Amortization
Amortizable Intangible Assets:
Student Relationships	$	83,036	$	(78,906)
Customer Relationships		400		(130)
Test Prep Relationships		1,029		(429)
Non-compete Agreements		2,290		(1,961)
Curriculum/Software		3,092		(2,615)
Outplacement Relationships		3,900		(1,764)
Franchise Contracts		11,287		(261)
Clinical Agreements		418		0
Trade Names		5,007		(4,550)
Total	$	110,459	$	(90,616)
Indefinite-lived Intangible Assets:
Trade Names	$	48,134
Trademarks		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 Accreditation		57,669
Total	$	303,888

Amortization expense for amortized intangible assets was $5.4 million, $4.1 million and $6.4 million for the years ended June 30, 2016, 2015 and 2014, respectively. Estimated amortization expense for amortizable intangible assets by reporting unit for the next five fiscal years ending June 30, and in the aggregate, is as follows (in thousands). These amounts do not include future amortization related to the July 1, 2016, acquisition of Association of Certified Anti-Money Laundering Specialists (“ACAMS”) (See “Note 17: Subsequent Event”).

Fiscal Year	DeVry Brasil		Becker		Total
2017	$	4,769	$	312	$	5,081
2018		3,326		40		3,366
2019		2,290		40		2,330
2020		1,550		40		1,590
2021		945		40		985
Thereafter		7,248		30		7,278

All amortizable intangible assets except student relationships are being amortized on a straight-line basis. The amount being amortized for student relationships is based on the estimated progression of the students through the respective FBV, UniFavip, Damasio and Grupo Ibmec programs, giving consideration to the revenue and cash flow associated with both existing students and new applicants.

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 GAAP, goodwill and indefinite-lived intangibles arising from a business combination are not amortized and charged to expense over time. Instead, these assets must be reviewed annually for impairment or more frequently if circumstances arise indicating potential impairment. Authoritative guidance provides for a three step approach to evaluating potential impairment of goodwill and a quantitative or qualitative review of indefinite-lived intangible assets in order to determine if it is more likely than not that these assets have been impaired. Step 0 is a qualitative assessment used to determine whether it is necessary to perform the succeeding two-steps in evaluating impairment of goodwill.

DeVry Group had seven reporting units which contained goodwill as of the fourth quarter of fiscal year 2016. These reporting units constitute components for which discrete financial information is available and regularly reviewed by segment management. If the carrying amount of a reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized to the extent the “implied fair value” of the reporting unit goodwill is less than the carrying amount of the goodwill. In analyzing the results of operations and business conditions of all seven reporting units (Step 0), it was determined that for five of the reporting units, a Step 1 impairment analysis was not necessary to determine if the carrying values of the reporting unit exceeded their fair values as of the May 31, 2016, annual impairment review date. For the other two reporting units (DeVry University and Carrington) the results of operations as compared to plan and the prior year as well as forecasted results and the general business environment surrounding their operations required a Step 1 analysis and, in the case of Carrington, a Step 2 analysis.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. For the Step 1 analysis, the estimate of the fair value of each reporting unit is based on management’s projection of revenue, gross margin, operating costs and cash flows considering planned business and operational strategies over a long-term planning horizon of five years along with a terminal value calculated based on discounted cash flows. These measures of business performance are similar to those management uses to evaluate the results of operations on a regular basis. The growth rates used to project cash flows, operating results and terminal values of reporting units are commensurate with historical results and future plans and analysis of the economic environment in which the reporting units operate. The valuations employ present value techniques to estimate fair value and consider market factors. Management believes the assumptions used for the impairment testing are consistent with those that would be utilized by a market participant in performing similar valuations of its reporting units. Discount rates of 14.8% and 13.8% were utilized for the DeVry University and Carrington reporting units, respectively. The discount rate utilized by each unit takes into account management’s assumptions on growth rates and risk, both institution specific and macro-economic, inherent in that reporting unit. 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 these estimates which could lead to additional impairments of goodwill.

For indefinite-lived intangible assets, management first analyzes qualitative factors including results of operations and business conditions of all seven reporting units, significant changes in cash flows at the individual indefinite-lived intangible asset level, if applicable, as well as how much previously calculated fair values exceed carrying values to determine if it is more likely than not that the intangible assets associated with these reporting units have been impaired. In calculating fair value, DeVry Group uses various valuation techniques including a royalty rate model for trade names, trademarks and intellectual property, a discounted income stream model for Title IV eligibility and a discounted cash flow model for accreditation. The estimated fair values of these indefinite-lived intangible assets are based on management’s projection of revenue, gross margin, operating costs and cash flows considering planned business and operational strategies over a long-term planning horizon of five years. The assumed royalty rates and the growth rates used to project cash flows and operating results are based upon historical results and analysis of the economic environment in which the reporting units that record indefinite-lived intangible assets operate. The valuations employ present value techniques to measure fair value and consider market factors. Management believes the assumptions used for the impairment testing are consistent with those that would be utilized by a market participant in performing similar valuations of its indefinite-lived intangible assets. In qualitatively assessing the indefinite-lived assets of all seven reporting units, it was determined that for all intangibles except those in the DeVry University and Carrington reporting units, it was more likely than not that these assets’ fair values exceeded their carrying values as of the May 31, 2016, annual impairment review date. For two reporting units (DeVry University and Carrington) the qualitative assessment required further quantitative analysis. In fiscal year 2016, in determining fair values of intangible assets, discount rates of 14.8% and 13.8% were utilized for those assets at the DeVry University and Carrington reporting units, respectively. The discount rate utilized takes into account management’s assumptions on growth rates and risk, both institution specific and macroeconomic, inherent in that reporting unit. These intangible assets are closely tied to the overall risk of the reporting units in which they are recorded so management would expect the discount rates to also match those used for valuing these reporting units.

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 Group based on events specific to DeVry Group’s operations. Management believes the decline in the market capitalization of DeVry Group in fiscal year 2016 is indicative of the reaction to the news of regulatory inquires, in particular the Federal Trade Commission civil complaint filed against DeVry University in January 2016 (see “Note 14: Commitments and Contingencies”), as well as continuing declining enrollment and financial results of DeVry University. DeVry University’s contributions to the operating results of DeVry Group have been diminishing for several years as DeVry University diminishes in size and the other DeVry Group institutions continue to grow; however, the market continues to react unfavorably as if DeVry University was a much larger contributor to DeVry Group. Management concluded that the decline in market capitalization during fiscal year 2016 was not indicative that the fair values of the DeVry Group reporting units had more likely than not declined below their carrying values and was not cause for an interim impairment review. 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, among others.

During the second quarter of fiscal year 2016, revenue and operating income for the Carrington reporting unit were significantly below management’s operating plan. Carrington had invested in faculty and program costs based on planned growth in enrollment; however, new student enrollment did not meet plan and costs could not be reduced commensurate with these enrollment shortfalls. This plan was utilized in the annual impairment review completed as of May 31, 2015. In this review, the Carrington fair value exceeded its carrying value by 8%. Carrington’s second quarter revenue was 12% below plan. As a result of this revenue shortfall, Carrington generated a fully allocated operating loss in the second quarter as compared to planned operating income.

Based upon these facts and circumstances, management performed an interim impairment review as of November 30, 2015 for the Carrington indefinite-lived intangible asset and the Carrington reporting unit. As a result of the revenue shortfall experienced in the second quarter of fiscal year 2016, management revised its fiscal year 2016 forecast and future cash flow projections for Carrington. To determine the fair value of the Carrington indefinite-lived intangible asset and Carrington reporting unit in our interim step one impairment analysis, a discounted cash flow valuation method was utilized incorporating assumptions that a reasonable market participant would use regarding the impact of the current operating losses and the increased uncertainty impacting future operations. Management used significant unobservable inputs (Level 3) in our discounted cash flow valuation including future cash flow projections and discount rate assumptions. A discount rate of 14% was utilized in the Carrington valuation which takes into account management’s assumptions on growth rates and risk, both institution specific and macro-economic, inherent in the reporting unit. This rate was higher than the 13% used in the fiscal year 2015 valuation due to the addition of an institution specific premium necessitated by an increased risk of meeting future operating plans. This intangible asset is closely tied to the overall risk of the reporting unit in which it is recorded so management would expect the discount rate to approximate that used for valuing this reporting unit. Management bases its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty.

Management’s interim step two impairment analysis in the second quarter of fiscal year 2016 resulted in an estimated fair value for the Carrington Accreditation and Title IV Eligibility intangible asset of $60.7 million which was $6.5 million less than its carrying value at November 30, 2015. Based on a calculation of the estimated fair value of the Carrington reporting unit and a hypothetical purchase price allocation which included the estimated fair value of the Accreditation and Title IV Eligibility intangible asset, management determined the Carrington reporting unit would have implied goodwill of $5.8 million. This was $93.0 million less than the carrying value of this reporting unit. Accordingly, Carrington’s Accreditation and Title IV Eligibility indefinite-lived intangible assets and the goodwill balance were considered to be impaired and were written down by $6.5 million and $93.0 million, respectively, in the second quarter of fiscal year 2016.

An interim triggering event analysis was limited to Carrington during fiscal year 2016 because only Carrington had a small enough margin between estimated fair value and carrying value as of May 31, 2015 where the actual results in any quarter deviated from plan by an amount sufficient to result in a possible impairment. The estimated fair values of DeVry Group’s indefinite-lived intangible assets exceeded their carrying values by no less than 56% as of the end of fiscal year 2015, except the AUC accreditation where the excess was 7%. Operating income at all reporting units except Carrington, as discussed above, during fiscal year 2016 were not materially different from the budgeted operating income that was used in the impairment analysis as of May 31, 2015; thus, management did not believe the fair values of any reporting unit would have declined enough to fall below the carrying values prior to the May 31, 2016 annual impairment review.

The May 31, 2016 annual impairment review, using inputs and techniques mentioned above, indicated further impairment of the Carrington reporting unit. Revenue and operating income for the second half of fiscal year 2016 were significantly below management’s revised financial projections used in the second quarter interim impairment analysis. Second half revenue was approximately 8% below the revised forecast which contributed to an operating loss in the period as compared to forecast operating income. Carrington’s planned growth in enrollment did not materialize as total student enrollment declined 10% in the March and June quarters compared to the prior year and 8% sequentially from the first half of fiscal year 2016 and costs could not be reduced commensurate with enrollment shortfalls. The financial projections used in the second quarter valuation assumed enrollment levels that could not ultimately be achieved on the original timeline due to slower than anticipated opening of new learning centers and slower expansion of programs to existing centers. Accordingly, in conjunction with DeVry Group’s fiscal year 2017 annual plan which was approved by the Board of Directors in June 2016, Carrington’s fiscal year 2017 previous operating plan was revised downward as were future cash flow projections.

At May 31, 2016, management performed an impairment analysis and calculated fair value estimates for the Carrington intangible assets, primarily for the Accreditation and Title IV Eligibility intangible asset, of $20.2 million which was $42.4 million less than the carrying values at May 31, 2016. Based on a calculation of the estimated fair value of the Carrington reporting unit and a hypothetical purchase price allocation which included the estimated fair value of the Accreditation and Title IV Eligibility intangible asset, management determined the Carrington reporting unit would have no implied goodwill. This was $5.8 million less than the carrying value of this reporting unit. As a result, Carrington intangible assets, consisting principally of the Accreditation and Title IV Eligibility asset, and the goodwill balance were considered to be impaired and were written down by $42.4 million and $5.8 million, respectively, in the fourth quarter of fiscal year 2016.

Management also evaluated Carrington’s remaining long-lived assets, including leasehold improvements and equipment and finite-lived intangible assets, for recoverability and determined there was no impairment at either the interim or year-end reporting periods. Therefore, in fiscal year 2016, Carrington’s goodwill and other intangibles impairment charges in the aggregate were $147.7 million, with an income tax benefit of $30.4 million resulting in an after-tax impairment charge of $117.3 million.

The May 31, 2016 annual impairment review did not indicate impairment of any other reporting unit. For fiscal year 2016, the DeVry University reporting unit experienced a 23.0% decline in revenue and a decline in operating income, before restructuring charges and a gain on the sale of assets, of 12.7% from the prior year. Based on the May 31, 2016 impairment review, DeVry University’s current and forecasted profitability is sufficient to maintain a fair value greater than its carrying value. The fair value of this reporting unit exceeded its carrying value by 6% as of the May 31, 2016 valuation date. An increase of 100 basis points in the discount rate used in the fourth quarter impairment analysis would result in a fair value less than the carrying value for DeVry University. Management considers the use of this level of sensitivity in the discount rate reasonable considering the strength of DeVry Group’s sustained operations. If the impairment analysis resulted in any reporting unit’s fair value being less than the carrying value, an additional step would be required to determine the implied fair value of goodwill associated with that reporting unit. The implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all its assets and liabilities and then computing the excess of the reporting unit’s fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment, and, accordingly such impairment is recognized. DeVry University has been able to adjust operating expenses to offset in excess of 90% of the revenue declines experienced over the last two years. This has resulted in positive cash flows sufficient to produce a fair value in excess of the carrying value of this reporting unit. Management monitors enrollment and financial performance of the reporting unit. Should management not be able to adjust costs to offset future declines in student enrollment and revenue, resulting in financial performance that is significantly below management expectations, the carrying value of this reporting unit may exceed its fair value, and goodwill and intangible assets could be impaired. Also, regulatory changes and the outcome of legal or regulatory actions could have a material adverse effect on the financial condition, results of operations and cash flows of DeVry University and impose significant restrictions on the ability of DeVry University to operate. These scenarios could require a write-off of up to $23.8 million of intangible assets and goodwill.

At June 30, 2016, intangible assets from business combinations totaled $342.9 million and goodwill totaled $588.0 million. Together, these assets equaled approximately 44% of total assets as of such date, and any impairment could significantly affect future results of operations.

The table below summarizes goodwill balances by reporting unit as of June 30, 2016 (in thousands):

Reporting Unit	As of June 30, 2016
American University of the Caribbean School of Medicine	$	68,321
Ross University School of Medicine and Ross University School of Veterinary Medicine		237,173
Chamberlain College of Nursing		4,716
DeVry Brasil		223,558
Becker Professional Education		32,043
DeVry University		22,196
Total	$	588,007

The table below summarizes goodwill balances by reporting segment as of June 30, 2016 (in thousands):

Reporting Segment:	As of June 30, 2016
Medical and Healthcare	$	310,210
International and Professional Education		255,601
Business, Technology and Management		22,196
Total	$	588,007

The table below summarizes the changes in the carrying amount of goodwill, by segment as of June 30, 2016 (in thousands):

	Medical and Healthcare				International		Business,
			Accumulated		and		Technology
			Impairment		Professional		and
	Gross		Losses		Education		Management		Total
Balance at June 30, 2013	$	495,927	$	(86,933)	$	77,747	$	22,196	$	508,937
Acquisitions		-		-		9,675		-		9,675
Foreign currency exchange rate changes		-		-		1,267		-		1,267
Balance at June 30, 2014		495,927		(86,933)		88,689		22,196		519,879
Acquisitions		-		-		55,915		-		55,915
Foreign currency exchange rate changes		-		-		(23,465)		-		(23,465)
Balance at June 30, 2015		495,927		(86,933)		121,139		22,196		552,329
Purchase Accounting Adjustment		-		-		4,575		-		4,575
Acquisitions		-		-		116,007		-		116,007
Impairments		-		(98,784)		-		-		(98,784)
Foreign currency exchange rate changes		-		-		13,880		-		13,880
Balance at June 30, 2016	$	495,927	$	(185,717)	$	255,601	$	22,196	$	588,007

The increase in the goodwill balance from June 30, 2015 in the International and Professional Education segment is the result of the addition of $116.0 million with the acquisition of Grupo Ibmec and Facimp. The increase was also impacted by a change in the value of the Brazilian Real as compared to the U.S. dollar. Since DeVry Brasil operation’s goodwill is recorded in local currency, fluctuations in the respective local currency’s 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 asset balances by reporting segment as of June 30, 2016 (in thousands):

Reporting Segment	As of June 30, 2016
Medical and Healthcare	$	157,700
International and Professional Educational		162,881
Business, Technology and Management		1,645
Total	$	322,226

Total indefinite-lived intangible assets increased by $18.3 million from June 30, 2015. The increase is the result of the addition of $55.7 million with the acquisition of Grupo Ibmec and Facimp and by a change in the value of the Brazilian Real as compared to the U.S. dollar. This increase was partially offset by the Carrington impairment charge of $47.0 million. 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.