INTANGIBLE ASSETS

12 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 10: 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, 2018
	Gross ‎ Carrying ‎ Amount		Accumulated ‎ Amortization			Weighted Average ‎ Amortization ‎ Period
Amortizable Intangible Assets:
Student Relationships	$	8,193	$	(6,972	)	5 Years
Customer Relationships		42,900		(9,598	)	10 Years
Non-compete Agreements		700		(700	)	1 Year
Curriculum/Software		6,833		(4,265	)	4 Years
Franchise Contracts		9,064		(1,720	)	18 Years
Clinical Agreements		336		(112	)	15 Years
Trade Names		976		(904	)	10 Years
Proprietary Technology		500		(250	)	4 Years
Total	$	69,502	$	(24,521	)
Indefinite-Lived Intangible Assets:
Trade Names	$	106,132
Ross Title IV Eligibility and Accreditations		14,100
Intellectual Property		13,940
Chamberlain Title IV Eligibility and Accreditations		1,200
AUC Title IV Eligibility and Accreditations		100,000
Adtalem Brazil Accreditation		82,578
Total	$	317,950

	June 30, 2017
	Gross ‎ Carrying ‎ Amount		Accumulated ‎ Amortization
Amortizable Intangible Assets:
Student Relationships	$	12,459	$	(9,323	)
Customer Relationships		42,900		(4,923	)
Non-compete Agreements		700		(665	)
Curriculum/Software		7,147		(2,329	)
Franchise Contracts		10,615		(1,425	)
Clinical Agreements		393		(104	)
Trade Names		1,145		(945	)
Proprietary Technology		500		(125	)
Total	$	75,859	$	(19,839	)
Indefinite-Lived Intangible Assets:
Trade Names	$	109,519
Ross Title IV Eligibility and Accreditations		14,100
Intellectual Property		13,940
Chamberlain Title IV Eligibility and Accreditations		1,200
AUC Title IV Eligibility and Accreditations		100,000
Adtalem Brazil Accreditation		97,179
Total	$	335,938

Amortization expense for amortized intangible assets was $9.5 million, $11.2 million and $5.2 million for the years ended June 30, 2018, 2017 and 2016, 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):

	Professional		Adtalem
Fiscal Year	Education		Brazil		Total
2019	$	6,422	$	1,728	$	8,150
2020		4,671		1,270		5,941
2021		4,440		775		5,215
2022		4,300		526		4,826
2023		4,118		526		4,644
Thereafter		11,268		4,937		16,205

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 Damasio, Grupo Ibmec and SJT 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, 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’s annual impairment review was most recently completed as of May 31, 2018, at which time, there was no impairment loss associated with recorded goodwill or indefinite-lived intangible assets for any reporting unit.

Adtalem had five reporting units that contained goodwill as of the start of the fourth quarter of fiscal year 2018. 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 the reporting units, as of May 31, 2018, it was determined that no triggering event had occurred that would indicate the carrying value of a reporting unit had exceeded its fair value. The estimate of the fair value of each reporting unit is based on management’s projection of revenues, 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 based upon an 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 11.2% to 13.9% were utilized for the reporting units. The discount rate utilized by each unit takes into account management’s assumptions on growth rates and risk, both organization 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.

All of the reporting units’ estimate fair values exceeded their carrying values as of the fourth quarter impairment analysis by at least 55% except for Adtalem Brazil, where the excess was 12%. An increase of 100 basis points in the discount rates used in this analysis would result in no less than a 41% premium of fair value over carrying value except for Adtalem Brazil where fair value

would be

less than carrying value.

Adtalem Brazil has

a goodwill balance of $186.0 million at June 30, 2018.

The key assumptions utilized in calculating the fair value of this reporting unit were a discount rate of 13.9%, revenue growth rate of 10% over the forecast period and a terminal growth rate of 5%. Assuming all other assumptions remained constant the discount rate for Adtalem Brazil would have to increase to 14.8% for the calculated fair value to equal carrying value of this reporting unit at May 31, 2018. Similarly, holding all other assumptions constant the terminal growth rate would have to decrease to 3.7% for calculated fair value to equal carrying value of Adtalem Brazil at May 31, 2018. If the impairment analysis resulted in any reporting unit’s fair value being less than the carrying value, a goodwill impairment charge would be recorded for the difference (up to the carrying value of goodwill).

During the second quarter of fiscal year 2018, a triggering event did occur within the DeVry University reporting unit, now classified as discontinued operation, which resulted in a write-off of all goodwill balances for this reporting unit as of December 31, 2017. On December 4, 2017, Adtalem, entered into a Stock Purchase Agreement (the “Purchase Agreement”), pursuant to which Adtalem agreed to sell DeVry University to Cogswell. Subject to the terms and conditions of the Purchase Agreement, Adtalem will sell all of the outstanding equity interests of DeVry University, Inc. and DeVry/New York Inc. to Cogswell for $1.00. As this sales price indicates a fair value that is less than the carrying value of the DeVry University goodwill and intangible asset balances, both amounts were written down to zero as of December 31, 2017. This resulted in impairment charges for goodwill of $22.2 million and indefinite-lived intangible assets of $1.6 million in the second quarter of fiscal year 2018. These amounts were charged to Discontinued Operations (see “Note 2: Discontinued Operations and Assets Held for Sale”).

For indefinite-lived intangible assets at the six reporting units that contained indefinite-lived intangible assets as of May 31, 2018, management determines fair value based on the nature of the asset using 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 Accreditation. The estimated fair values of these indefinite-lived intangible assets are based on management’s projection of revenues, 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. The discount rates of 11.2% to 13.9% that were utilized in the valuations take into account management’s assumptions on growth rates and risk, both company specific and macro-economic, inherent in each reporting unit that records indefinite-lived intangible assets. 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 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 impairments of intangible assets.

If the carrying amount of an indefinite-lived intangible asset exceeds the fair value, an impairment loss is recognized in an amount equal to that excess. As of May 31, 2018, it was determined that no triggering event had occurred that would indicate the carrying value of a reporting unit’s indefinite-lived intangible assets had exceeded their fair value except at the Carrington reporting unit, now classified as discontinued operations. During the fourth quarter of fiscal year 2018, management had negotiated a sale of this reporting unit, which indicated a fair value below its carrying value.

On June 28, 2018, Adtalem entered into a Membership Interest Purchase Agreement (“MIPA”), pursuant to which Adtalem agreed to sell U.S. Education Holdings LLC (d/b/a Carrington College) to SJVC. Subject to the terms and conditions of the MIPA, Adtalem will sell all of the outstanding equity interests of U.S. Education Holdings LLC and its subsidiaries for $1.00. As this sales price indicates a fair value that is less than the carrying value of the Carrington intangible asset balance, the intangible asset was written down to zero as of June 30, 2018. This resulted in an impairment charge for indefinite-lived intangible assets of $20.2 million in the fourth quarter of fiscal year 2018. The impairment charge was charged to Discontinued Operations (see “Note 2: Discontinued Operations and Assets Held for Sale”).

All other fair value estimates of indefinite-lived intangible assets exceed the carrying values of those assets as of the May 31, 2018 impairment analysis by more than 35% except for the ACAMS and Adtalem Brazil

UniFBV

trade name assets where the excess was less than 10% on each. An increase of 100 basis points in the discount rates used in this analysis would result in no less than a 22% premium of fair value over carrying value except for the same two trade name assets. The smaller premium for the ACAMS trade names with a carrying value of $39.9 million would be expected considering it was acquired in fiscal year 2017

. The key assumptions used in calculating the fair value of this trade name included a discount rate of 12.2%, a royalty rate of 5% and revenue growth of 13.6% over the forecast period. Assuming all other assumptions remained constant, if the discount rate increased to 14.6% calculated fair value would equal carrying value of this asset at May 31, 2018. Similarly, assuming all other assumptions remained constant, if the royalty rate decreased to 4.6% calculated fair value would equal carrying value at May 31, 2018. The fair value of the UniFBV

trade name, with a carrying value of $1.1 million, has declined due to a decrease in revenue from this institution. If the carrying amount of a trade name falls below its fair value, an impairment loss will be recognized in an amount equal to that excess. Management considers the use of this level of sensitivity in the discount rate reasonable considering the strength of Adtalem’s sustained operations. Since no fair values, except for the Carrington asset, were estimated to be below carrying value, no other impairment of intangible assets was recorded as of June 30, 2018.

Management does not believe the effects of Hurricanes Irma and Maria created a triggering event that would require an impairment analysis of AUC’s or RUSM’s indefinite-lived intangible assets and goodwill. Damage to physical property is being repaired with the majority of costs expected to be reimbursable by insurance proceeds. The September 2017 semesters at both institutions were completed with minimal lost students and revenue and commencement of future semesters was not impacted. Management believes it is probable that the response to the crisis and its ability to continue providing educational services demonstrates AUC’s and RUSM’s ability to generate future revenue and operating results sufficient to maintain fair values of these assets in excess of their carrying values.

On August 3, 2018, Adtalem announced plans to relocate RUSM to Barbados from its temporary location in Knoxville, Tennessee at facilities owned by Lincoln Memorial University (“LMU”) and a facility on St Kitts (see “Note 18: Subsequent Events”). Management believes the values of RUSM’s goodwill and indefinite-lived intangible assets will not be affected by this move. The Trade Name will continue to be used and we expect to receive ED approval to operate in Barbados prior to the move. No new accreditation is necessary, RUSM’s secondary accreditor the Caribbean Accreditation Authority for Education in Medicine and other Health Professions (“CAAM-HP”) will become its primary accreditor upon the start of the January 2019 semester, pending approval by ED. CAAM-HP is authorized to accredit medical programs by the government of Barbados.

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 or goodwill.

At June 30, 2018, intangible assets from business combinations totaled $362.9 million and goodwill totaled $813.9 million. Together, these assets equaled 50% 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, 2018		June 30, 2017
Chamberlain	$	4,716	$	4,716
AUC		68,321		68,321
RUSM and RUSVM		237,173		237,173
Professional Education		317,699		306,653
Adtalem Brazil		185,978		212,223
Total	$	813,887	$	829,086

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

Reporting Segment	June 30, 2018		June 30, 2017
Medical and Healthcare	$	310,210	$	310,210
Professional Education		317,699		306,653
Technology and Business		185,978		212,223
Total	$	813,887	$	829,086

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

	Medical and ‎ Healthcare		Professional ‎ Education			Technology ‎ and Business			Total
Balance at June 30, 2016	$	310,210	$	32,043		$	223,558		$	565,811
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			829,086
Acquisitions		-		11,527			5,636			17,163
Foreign exchange rate changes		-		(481	)		(31,881	)		(32,362	)
Balance at June 30, 2018	$	310,210	$	317,699		$	185,978		$	813,887

The increase in the goodwill balance from June 30, 2017 in the Professional Education segment is the result of the addition of $11.5 million with the acquisition of EduPristine. This increase was partially offset by a change in the value of the British Sterling Pound and Indian Rupee compared to the U.S. dollar. Since Becker’s European subsidiary’s and EduPristine’s goodwill is recorded in local currency, fluctuations in the values of the British Sterling Pound and Indian Rupee 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, 2017 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. This decrease was partially offset by the addition of $5.6 million with the acquisition of SJT. 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, 2018		June 30, 2017
Medical and Healthcare	$	137,500	$	137,500
Professional Education		69,126		67,812
Technology and Business		111,324		130,626
Total	$	317,950	$	335,938

Total indefinite-lived intangible assets decreased by $18.0 million from June 30, 2017. The decrease is the result of a change in the value of the Brazilian Real as compared to the U.S. dollar, as well as a $0.4 million impairment at Joao Pessoa, an institution at Adtalem Brazil. This decrease was partially offset by the addition of $0.2 million with the acquisition of SJT and $1.4 million with the acquisition of EduPristine. Since Adtalem Brazil intangible assets are 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 these assets.