NOTE 5: FAIR VALUE MEASUREMENTS

DeVry Group 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. Assets measured at fair value on a non-recurring basis include goodwill, intangible assets and assets of businesses where the long-term value of the operations have been impaired. Management has fully considered all authoritative guidance when determining the fair value of DeVry Group’s financial assets as of June 30, 2016.

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 Group 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 Group 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 in May of fiscal year 2016. See “Note 9: Intangible Assets” for further discussion on the impairment review including valuation techniques and assumptions.

During the first quarter of fiscal year 2014, it was determined that net assets of the AAI reporting unit had been impaired. This determination was made after review of third-party offers to purchase the assets of the business. To determine the fair value of the AAI assets, management incorporated 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 analysis including third-party offers received to acquire the assets of AAI along with estimated costs to dispose of the assets. Based on this analysis, the fair market value of the AAI assets less the costs to sell was determined to be approximately $2.0 million which was approximately $13.5 million less than the carrying value. As a result, management recorded a pre-tax $13.5 million asset impairment charge in the first quarter of fiscal year 2014. The assets of this business were sold in December 2013 for $2.0 million. See “Note 2: Discontinued Operations” for further discussions on AAI.

The following table presents DeVry Group's assets and liabilities at June 30, 2016, that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):

	Level 1		Level 2		Level 3
Cash and Cash Equivalents	$	308,164	$	-	$	-
Available-for-Sale Investments:
Marketable Securities, short-term		3,609		-		-
Institutional Loans Receivable, Net		-		49,025		-
Deferred Acquisition Obligations		-		32,121		-
FIES Long-Term Receivable		-		13,057		-
Total Financial Assets at Fair Value	$	311,773	$	94,203	$	-

The following table presents DeVry Group's assets and liabilities at June 30, 2015, that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):

	Level 1		Level 2		Level 3
Cash and Cash Equivalents	$	353,022	$	-	$	-
Available-for-Sale Investments:
Marketable Securities, short-term		3,579		-		-
Institutional Loans Receivable, Net		-		49,715		-
Deferred Acquisition Obligations				26,827
Total Financial Assets at Fair Value	$	356,601	$	76,542	$	-

Cash and 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 fair value of the institutional loans receivable included in Accounts Receivable, Net and Other Assets on the Consolidated Balance Sheets as of June 30, 2016 and 2015 is estimated by discounting the future cash flows using current rates for similar arrangements. See “Note 6: Financing Receivables” for further discussion on these institutional loans receivable.

The fair value of the deferred acquisition obligations is estimated by discounting the future cash flows using current rates for similar arrangements. $7.7 million and $8.2 million were classified as Accrued Expenses in the Consolidated Balance Sheets at June 30, 2016 and 2015, respectively, and $24.4 million and $18.6 million were classified as Deferred Rent and Other Liabilities in the Consolidated Balance Sheets at June 30, 2016 and 2015, respectively.

The fair value of the FIES receivable included in Other Assets on the Consolidated Balance Sheet as of June 30, 2016 is estimated by discounting the future cash flows using published market data on Brazilian interest and inflation rates.

As of and for the years ended June 30, 2016 and 2015, there were no assets or liabilities measured at fair value using Level 3 inputs. Below is a roll-forward of accrued contingent liabilities measured at fair value using Level 3 inputs for the year ended 2014 (in thousands). During the third quarter of fiscal year 2014, UniFavip, a DeVry Brasil institution, was officially granted Centro Universitario status by the Brazilian Ministry of Education (“MEC”). As a result, the institution’s name was changed from Favip to UniFavip and the UniFavip Contingent Consideration liability, which was owed upon achieving this status, of approximately $2.6 million was paid. The amount recorded as foreign currency translation loss for the fiscal years ended 2015 and 2014 is classified as Student Services and Administrative Expense in the Consolidated Statements of Income (Loss).

	For the Year
	Ended
	June 30, 2014
Balance at Beginning of Period	$	2,509
Total Unrealized Gains Included in AOCI:
Foreign Currency Translation Changes		65
UniFavip Contingent Consideration Payment		(2,574)
Balance at End of Period	$	-