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, 2019
	Gross				Weighted Average
	Carrying		Accumulated		Amortization
	Amount		Amortization		Period
Amortizable Intangible Assets:
Student Relationships	$	8,109	$	(7,679)	5 Years
Customer Relationships		69,300		(14,448)	10 Years
Curriculum/Software		18,445		(6,500)	5 Years
Franchise Contracts		9,123		(2,238)	18 Years
Clinical Agreements		338		(135)	15 Years
Course Delivery Technology		7,200		(487)	5 Years
Total	$	112,515	$	(31,487)
Indefinite-Lived Intangible Assets:
Trade Names	$	124,711
Chamberlain Title IV Eligibility and Accreditations		1,200
AUC Title IV Eligibility and Accreditations		100,000
Ross Title IV Eligibility and Accreditations		14,100
Adtalem Brazil Accreditation		83,118
Intellectual Property		13,940
Total	$	337,069


	June 30, 2018
	Gross
	Carrying		Accumulated
	Amount		Amortization
Amortizable Intangible Assets:
Student Relationships	$	8,193	$	(6,972)
Customer Relationships		42,900		(9,598)
Non-compete Agreements		700		(700)
Curriculum/Software		6,833		(4,265)
Franchise Contracts		9,064		(1,720)
Clinical Agreements		336		(112)
Trade Names		976		(904)
Course Delivery Technology		500		(250)
Total	$	69,502	$	(24,521)
Indefinite-Lived Intangible Assets:
Trade Names	$	106,132
Chamberlain Title IV Eligibility and Accreditations		1,200
AUC Title IV Eligibility and Accreditations		100,000
Ross Title IV Eligibility and Accreditations		14,100
Adtalem Brazil Accreditation		82,578
Intellectual Property		13,940
Total	$	317,950

Amortization expense for amortized intangible assets was $8.7 million, $9.5 million and $11.2 million for the years ended June 30, 2019, 2018 and 2017, 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):


	Financial		Adtalem
Fiscal Year	Services		Brazil		Total
2020	$	10,292	$	1,247	$	11,539
2021		10,113		781		10,894
2022		9,974		529		10,503
2023		9,792		529		10,321
2024		9,348		529		9,877
Thereafter		23,453		4,441		27,894

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 and 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, 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 five reporting units, which contained goodwill as of the fourth quarter of fiscal year 2019. 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 five reporting units (Step 0), it was determined that for four 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, 2019 annual impairment review date because it was determined to be more likely than not that fair value exceeded carrying value. For the Adtalem Brazil reporting unit, it was determined that a Step 1 analysis to assess if fair value exceeded carrying value was necessary. The estimate of the fair value 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 are based upon an analysis of the economic environment in which the reporting unit operates. The valuation employs present value techniques to estimate fair value and considers 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. The discount rate utilized 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 impairments of goodwill.

Based on management’s May 31, 2019 goodwill impairment review, the fair value of the Adtalem Brazil reporting unit exceeded its carrying value by 13%. Adtalem Brazil has a goodwill balance of $187.2 million as of June 30, 2019. The key assumptions utilized in calculating the fair value of this reporting unit were a discount rate of 13%, revenue growth rate of 10% over the forecast period and a terminal growth rate of 3%. Assuming all other assumptions remained constant, the discount rate for Adtalem Brazil would have to increase to 15% for the calculated fair value to equal carrying value of this reporting unit at May 31, 2019. Similarly, holding all other assumptions constant, the terminal growth rate would have to decrease to 1% for the calculated fair value to equal carrying value of Adtalem Brazil at May 31, 2019. If the impairment analysis resulted in fair value being less than carrying value, a goodwill impairment charge would be recorded for the difference (up to the carrying value of goodwill).

Adtalem has five reporting units, which contained indefinite-lived intangible assets as of the fourth quarter of fiscal year 2019. For indefinite-lived intangible assets, management first analyzes qualitative factors, including results of operations and business conditions of the five 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 qualitatively assessing the indefinite-lived intangible assets of the five reporting units, it was determined that it was more likely than not that these assets’ fair values exceeded their carrying values as of the May 31, 2019 annual impairment review date.

In January 2019, Adtalem relocated RUSM to Barbados from its temporary locations in Knoxville, Tennessee at facilities owned by Lincoln Memorial University (“LMU”) and at a facility in St Kitts. Management believes the values of RUSM’s goodwill and indefinite-lived intangible assets are not affected by this move. The Trade Name will continue to be used and the U.S. Department of Education (“ED”) has provided approval for RUSM to operate in Barbados. No new accreditation is necessary, as RUSM’s secondary accreditor, the Caribbean Accreditation Authority for Education in Medicine and other Health Professions (“CAAM-HP”), is now its primary accreditor as of the start of the January 2019 semester. CAAM-HP is authorized by the government of Barbados to accredit medical programs.

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.

As of June 30, 2019, intangible assets from business combinations totaled $418.1 million and goodwill totaled $874.5 million. Together, these assets equaled 58% 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, 2019		June 30, 2018
Chamberlain	$	4,716	$	4,716
AUC		68,321		68,321
RUSM and RUSVM		237,173		237,173
Financial Services		377,046		317,699
Adtalem Brazil		187,195		185,978
Total	$	874,451	$	813,887

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


Reporting Segment	June 30, 2019		June 30, 2018
Medical and Healthcare	$	310,210	$	310,210
Financial Services		377,046		317,699
Business and Law		187,195		185,978
Total	$	874,451	$	813,887

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


	Medical and		Financial		Business and
	Healthcare		Services		Law		Total
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
Acquisitions		—		59,519		—		59,519
Foreign exchange rate changes		—		(172)		1,217		1,045
Balance at June 30, 2019	$	310,210	$	377,046	$	187,195	$	874,451

The increase in the goodwill balance from June 30, 2018 in the Financial Services segment is the result of the addition of $59.5 million with the acquisition of OCL. 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 the Becker’s European subsidiary 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 increase in the goodwill balance from June 30, 2018 in the Business and Law 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, 2019		June 30, 2018
Medical and Healthcare	$	137,500	$	137,500
Financial Services		87,517		69,126
Business and Law		112,052		111,324
Total	$	337,069	$	317,950

Total indefinite-lived intangible assets increased by $19.1 million from June 30, 2019. The increase is the result the addition of $18.4 million with the acquisition of OCL and by a change in the value of the Brazilian Real compared to the U.S. dollar. 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.