NOTE 4: FAIR VALUE MEASUREMENTS

DeVry has elected not to measure any assets or liabilities at fair value other than those required to be measured at fair value on a recurring basis and assets measured at fair value on a non-recurring basis such as goodwill and intangible assets. Management has fully considered all authoritative guidance when determining the fair value of DeVry’s financial assets as of June 30, 2012.

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

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

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

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

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

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

Assets measured at fair value on a non-recurring basis include goodwill and indefinite-lived intangibles arising from a business combination. These assets are not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangibles must be reviewed annually for impairment or more frequently if circumstances arise indicating potential impairment. This impairment review was most recently completed during the fourth quarter of fiscal year 2012. See “Note 8: Intangible Assets” for further discussion on the impairment review including valuation techniques and assumptions.

During fiscal 2012, it was determined that the goodwill and the indefinite-lived intangible asset of the Carrington Colleges Group, Inc. (Carrington) and Advanced Academics Inc. (AAI) reporting units had been impaired.

To determine the fair value of the Carrington and AAI indefinite-lived intangible assets and AAI reporting units in our 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. We used significant unobservable inputs (Level 3) in our discounted cash flow valuation including future cash flow projections and discount rate assumptions.

Management’s impairment analysis resulted in an estimated fair value for the Carrington Accreditation and Title IV Eligibility intangible asset of $71.1 million which was $41.2 million less than its carrying value. 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 $151.9 million. This was $33.8 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 $41.2 million and $33.8 million, respectively, in the second quarter of fiscal 2012.

Management’s impairment analysis resulted in an estimated fair value for the AAI reporting unit that was less than its carrying value by approximately $20 million. This difference was greater than the balance of AAI’s combined intangible assets and goodwill. As a result, management determined the indefinite-lived intangible asset and goodwill were considered to be impaired and should have zero balances. Accordingly, AAI’s Trade Name indefinite-lived intangible asset and the goodwill balance were written down by $1.3 million and $17.1 million, respectively, in the fourth quarter of fiscal 2012

The following tables present DeVry’s assets at June 30, 2012, that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (dollars in thousands).


	Level 1		Level 2		Level 3
Cash and Cash Equivalents	$	174,076	$	—	$	—
Available for Sale Investments:
Marketable Securities, short-term		2,632		—		—
ATC Earn-out Liability		—		—		4,361

Total Financial Assets at Fair Value	$	176,708	$	—	$	4,361

Cash Equivalents and investments in short-term Marketable Securities are valued using a market approach based on the quoted market prices of identical instruments. The ATC earn-out liability is valued using standard present value techniques and a discount rate of 6.2% which management considers a reasonable market participant would assume for this type liability and duration. See “Note 7: Business Combinations” for further information on this liability.

The fair value of the institutional loans receivable included in Accounts Receivable, net and Other Assets on the Consolidated Balance Sheet as of June 30, 2012 is estimated by discounting the future cash flows using current rates for similar arrangements. As of June 30, 2012, the carrying value and the estimated fair value of these financial instruments was approximately $36.5 million. See “Note 5: Financing Receivables” for further discussion on these institutional loans receivable.

Below is a roll-forward of assets measured at fair value using Level 3 inputs for the twelve months ended June 30, 2012 (dollars in thousands). The amount recorded as interest expense in fiscal 2012 is classified in the Interest and Other (Expense) Income section of the Consolidated Statements of Income. The amount recorded as foreign currency translation gain is classified as student services and administrative expense in the Consolidated Statements of Income.


	Long-Term Liabilities
	For the Year Ended June 30, 2012
Balance at Beginning of Period	$	4,352
Total Realized (Gains) Losses Included in Income:
Interest Expense Accretion		264
Foreign Currency Translation Gain		(255	)

Balance at June 30, 2012	$	4,361