INTANGIBLE ASSETS

12 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 11: 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):

	June 30, 2017
	Gross Carrying Amount		Accumulated Amortization		Weighted Average Amortization Period
Amortizable Intangible Assets:
Student Relationships	$	12,459	$	(9,323)	5 Years
Customer Relationships		42,900		(4,923)	10 Years
Non-compete Agreements		700		(665)	1 Year
Curriculum/Software		7,147		(2,329)	4 Years
Franchise Contracts		10,615		(1,425)	18 Years
Clinical Agreements		393		(104)	15 Years
Trade Names		1,145		(945)	10 Years
Proprietary Technology		500		(125)	4 Years
Total	$	75,859	$	(19,839)
Indefinite-Lived Intangible Assets:
Trade Names	$	109,519
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
Adtalem Brazil Accreditation		97,179
Total	$	357,783

	June 30, 2016
	Gross Carrying Amount		Accumulated Amortization
Amortizable Intangible Assets:
Student Relationships	$	14,530	$	(7,150)
Customer Relationships		400		(170)
Non-compete Agreements		940		(799)
Curriculum/Software		4,038		(1,914)
Franchise Contracts		10,968		(863)
Clinical Agreements		406		(81)
Trade Names		1,183		(858)
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
Adtalem Brazil Accreditation		100,410
Total	$	322,226

Amortization expense for amortized intangible assets was $11.2 million, $5.4 million and $4.1 million for the years ended June 30, 2017, 2016 and 2015, respectively. Estimated amortization expense for amortizable intangible assets for the next five fiscal years ending June 30, and in the aggregate, by reporting unit, is as follows (in thousands):

Fiscal Year	Adtalem Brazil		Becker		Total
2018	$	2,866	$	6,501	$	9,367
2019		2,060		6,422		8,482
2020		1,451		4,671		6,122
2021		908		4,440		5,348
2022		616		4,300		4,916
Thereafter		6,399		15,386		21,785

All amortizable intangible assets except student relationships and customer 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. The amount being amortized for customer relationships related to ACAMS is based on the estimated retention of the customers, giving consideration to the revenue and cash flow associated with these existing customers.

Indefinite-lived intangible assets related to trade names, trademarks, 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. Adtalem has six reporting units, which contained goodwill as of the fourth quarter of fiscal year 2017. 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 to goodwill is recognized. In analyzing the results of operations and business conditions of all six 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, 2017 annual impairment review date. For the DeVry University reporting unit, continued enrollment declines, forecasted results and the general business environment surrounding their operations required a Step 1 analysis.

For indefinite-lived intangible assets, management first analyzes qualitative factors including results of operations and business conditions of the seven reporting units that contained indefinite-lived intangible assets, 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, Adtalem 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 intangible assets of the seven reporting units, it was determined that for six of the seven reporting units, it was more likely than not that these assets’ fair values exceeded their carrying values as of the May 31, 2017 annual impairment review date. For the DeVry University reporting unit, the qualitative assessment required further quantitative analysis.

Based on the May 31, 2017 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 36% as of the May 31, 2017 valuation date using a discount rate of 15.8%. 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. An increase of 100 basis points in the discount rate used in the fourth quarter impairment analysis would result in a fair value exceeding carrying value by 12%. Management considers the use of this level of sensitivity in the discount rate reasonable considering the strength of Adtalem’s sustained operations. If the carrying value of goodwill exceeds the fair value of goodwill, such excess represents the amount of goodwill impairment, and, accordingly such impairment is recognized. Also, based on the quantitative analysis of the DeVry University indefinite-lived intangible asset, the fair value of this assets exceeds its carrying value by more than 100%. In determining the fair value of the indefinite-lived intangible asset, a discount rate of 15.8% was utilized. The 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 the reporting unit. DeVry University has been able to adjust operating expenses to offset in excess of 90% of the revenue declines experienced over the last several 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 indefinite-lived 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 indefinite-lived intangible assets and goodwill.

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, which could lead to additional impairments of intangible assets.

At June 30, 2017, intangible assets from business combinations totaled $413.8 million and goodwill totaled $851.3 million. Together, these assets equaled approximately 55% 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 (in thousands):

Reporting Unit	June 30, 2017		June 30, 2016
Chamberlain	$	4,716	$	4,716
AUC		68,321		68,321
RUSM and RUSVM		237,173		237,173
Becker		306,653		32,043
Adtalem Brazil		212,223		223,558
DeVry University		22,196		22,196
Total	$	851,282	$	588,007

The table below summarizes goodwill balances by reporting segment (in thousands):

Reporting Segment	June 30, 2017		June 30, 2016
Medical and Healthcare	$	310,210	$	310,210
Professional Education		306,653		32,043
Technology and Business		212,223		223,558
U.S. Traditional Postsecondary		22,196		22,196
Total	$	851,282	$	588,007

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

							U.S. Traditional Postsecondary
	Medical				Technology				Accumulated
	and		Professional		and				Impairment
	Healthcare		Education		Business		Gross		Losses		Total
Balance at June 30, 2014	$	310,210	$	33,217	$	55,472	$	207,913	$	(86,933)	$	519,879
Acquisitions		-		-		55,915		-		-		55,915
Foreign exchange rate changes		-		(420)		(23,045)		-		-		(23,465)
Balance at June 30, 2015		310,210		32,797		88,342		207,913		(86,933)		552,329
Purchase Accounting Adjustments		-		-		4,575		-		-		4,575
Acquisitions		-		-		116,007		-		-		116,007
Impairments		-		-		-		-		(98,784)		(98,784)
Foreign exchange rate changes		-		(754)		14,634		-		-		13,880
Balance at June 30, 2016		310,210		32,043		223,558		207,913		(185,717)		588,007
Purchase Accounting Adjustments		-		-		(3,603)		-		-		(3,603)
Acquisitions		-		274,689		-		-		-		274,689
Foreign exchange rate changes		-		(79)		(7,732)		-		-		(7,811)
Balance at June 30, 2017	$	310,210	$	306,653	$	212,223	$	207,913	$	(185,717)	$	851,282

The increase in the goodwill balance from June 30, 2016 in the Professional Education segment is the result of the addition of $274.7 million with the acquisition of ACAMS. The increase was partially offset by a change in the value of the British Sterling Pound compared to the U.S. dollar. Since Becker Europe goodwill is recorded in local currency, fluctuations in the value of the British Sterling Pound in relation to the U.S. dollar will cause changes in the balance of this asset. The decrease in the goodwill balance from June 30, 2016 in the Technology and Business segment is the result of a change in the value of the Brazilian Real compared to the U.S. dollar. Since Adtalem Brazil goodwill is recorded in local currency, fluctuations in the value of the Brazilian Real 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 (in thousands):

Reporting Segment	June 30, 2017		June 30, 2016
Medical and Healthcare	$	137,500	$	137,500
Professional Education		67,812		27,912
Technology and Business		130,626		134,969
U.S. Traditional Postsecondary		21,845		21,845
Total	$	357,783	$	322,226

Total indefinite-lived intangible assets increased by $35.6 million from June 30, 2016. The increase is the result of the addition of $39.9 million with the acquisition of ACAMS. The increase was partially offset by a change in the value of the Brazilian Real compared to the U.S. dollar. Since Adtalem Brazil intangible assets are recorded in the local 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.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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