10. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for continuing operations during the years ended December 31, 2012 and 2011 are as follows by segment:


	CTU			AIU		Health Education			Culinary Arts			Design & Technology			International			Transitional			Total
	(Dollars in thousands)
Goodwill balance as of December 31, 2010 ⁽¹⁾	$	46,148		$	41,418	$	106,497		$	73,748		$	31,899		$	44,037		$	30,840		$	374,587
Goodwill impairment		(210	)		—		(64,626	)		(73,748	)		—			—			(30,113	)		(168,697	)
Business acquisition		—			—		—			—			8,853			—			—			8,853
Effect of foreign currency exchange rate changes		—			—		—			—			—			(2,117	)		—			(2,117	)

Goodwill balance as of December 31, 2011 ⁽¹⁾	$	45,938		$	41,418	$	41,871		$	—		$	40,752		$	41,920		$	727		$	212,626

Goodwill impairment		—			—		(41,871	)		—			(40,752	)		—			(727	)		(83,350	)
Business acquisition		—			—		—			—			—			2,896			—			2,896
Effect of foreign currency exchange rate changes		—			—		—			—			—			853			—			853

Goodwill balance as of December 31, 2012	$	45,938		$	41,418	$	—		$	—		$	—		$	45,669		$	—		$	133,025

(1)	Goodwill balances were reclassified upon the reorganization of our reporting segments during the fourth quarter of 2012.

We performed our annual impairment testing of goodwill as of October 1, 2012 and determined that none of our reporting units were at risk of failing the first step of the goodwill impairment test as of October 1, 2012.

During the second quarter of 2012, in conjunction with the quarterly review process, we concluded that certain indicators existed to suggest the Health Education and Design & Technology reporting units were at risk of their respective carrying values exceeding fair values as of June 30, 2012. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. These indicators included, but were not limited to, a decline in cash flows, a decline in actual revenue and earnings as compared to projected results and a marked decline in new student interest which negatively impacted our overall student population.

In calculating the fair value for both of these reporting units, we performed extensive valuation analyses, utilizing both income and market approaches, in our goodwill assessment process. The following describes the valuation methodologies used to derive the fair value of our reporting units:

•

Income Approach: To determine the estimated fair value of each reporting unit, we discount the expected cash flows which are developed by management. We estimate our future cash flows after considering current economic conditions and trends, estimated future operating results, our views of growth rates and anticipated future economic and regulatory conditions. The discount rate used represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in our future expected cash flows and the rate of return an outside investor would expect to earn. To estimate cash flows beyond the final year of our models, we use a terminal value approach and incorporate the present value of the resulting terminal value into our estimate of fair value.

•

Market-Based Approach: To corroborate the results of the income approach described above, we estimate the fair value of our reporting units using several market-based approaches, including the guideline company method, which focuses on comparing our risk profile and growth prospects to select reasonably similar publicly traded companies.

The determination of estimated fair value of each reporting unit requires significant estimates and assumptions, and as such, these fair value measurements are categorized as Level 3 per ASC Topic 820. These estimates and assumptions primarily include, but are not limited to, the discount rate, terminal growth rates, operating cash flow projections and capital expenditure forecasts. Due to the inherent uncertainty involved in deriving those estimates, actual results could differ from those estimates. We evaluate the merits of each significant assumption used, both individually and in the aggregate, to determine the fair value of each reporting unit for reasonableness.

As a result of the interim impairment test during the second quarter of 2012, we recorded goodwill impairment charges of $41.9 million and $41.5 million within Health Education and Design & Technology, respectively, during the second quarter of 2012; of which $0.7 million was reclassified to Transitional Schools as a result of the segment reorganization in the fourth quarter of 2012. Of the total charge, $9.8 million will be deductible for income tax purposes. In addition, in conjunction with the second step of the goodwill impairment test, fair values are assigned to all assets and liabilities for each reporting unit, including all other intangible assets, as if the reporting unit had been acquired in a business combination. The fair values for our indefinite-lived trade names within the Health Education segment declined below their respective carrying values, and as a result, we recorded a $1.0 million charge for our Sanford-Brown and Missouri College trade names during the second quarter of 2012.

In connection with the acquisition of Luxury Attitude during the second quarter of 2012, we recorded goodwill of approximately $2.9 million. During December 2012, we acquired ESC Chambéry. The preliminary allocation of purchase price resulted in a bargain purchase of $0.7 million, which was recorded as a gain on purchase within other income (expense) on our consolidated statement of income and comprehensive income for the year ended December 31, 2012. The preliminary purchase price allocation is subject to change upon finalization of the closing balance sheet.

As of December 31, 2012 and 2011, the cost basis, accumulated amortization and net book value of intangible assets for continuing operations are as follows:


	December 31, 2012							December 31, 2011
	Cost		Accumulated Amortization			Net Book Value		Cost		Accumulated Amortization			Net Book Value
	(Dollars in thousands)							(Dollars in thousands)
Amortizable intangible assets:
Accreditation rights	$	—	$	—		$	—	$	6,812	$	(6,812	)	$	—
Courseware		14,606		(11,937	)		2,669		14,569		(10,394	)		4,175
Other		379		(284	)		95		424		(277	)		147

Amortizable intangible assets, net	$	14,985	$	(12,221	)	$	2,764	$	21,805	$	(17,483	)	$	4,322

Non-amortizable intangible assets:
Accreditation, licensing, and Title IV Program participation rights						$	1,719						$	1,706
Trade names							57,198							70,258

Non-amortizable intangible assets							58,917							71,964

Intangible assets, net						$	61,681						$	76,286

Amortizable intangible assets are amortized on a straight-line basis over their estimated remaining useful lives, which range from less than one year to fifteen years. Amortization expense from continuing operations was $1.6 million, $5.8 million and $0.9 million, for the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, estimated future amortization expense from continuing operations is as follows:


	(Dollars in thousands)
2013	$	1,437
2014		725
2015		136
2016		136
2017		136
2018 and thereafter		194

Total	$	2,764

As of December 31, 2012, net intangible assets include certain accreditation, licensing, and Title IV Program participation rights and trade names that are considered to have indefinite useful lives and, in accordance with FASB ASC Topic 350—Intangibles—Goodwill and Other, are not subject to amortization but rather reviewed for impairment on at least an annual basis by applying a fair-value-based test. We performed our annual impairment testing of indefinite-lived intangible asset balances as of October 1, 2012 and determined that the carrying values of several of our trade names, including Le Cordon Bleu, Sanford-Brown, International University of Monaco and Missouri College, exceeded their relative fair values. As a result, we recorded a $12.1 million impairment charge in the fourth quarter of 2012. The decline in fair value for our domestic trade names was primarily a result of the overall decline in new student interest due to economic conditions, negative publicity regarding the industry and a decrease in market demand for certain areas of focus. These factors are expected to negatively impact our future operating results, and as a result the fair value calculation for the trade names declined below their respective carrying values. In addition, the decline in fair value for our International University of Monaco trade name was primarily a result of reduced online product offerings and a slower rate of local and regional market expansion than expected.

We calculate the fair value of each of our trade names in accordance with FASB ASC Topic 820—Fair Value Measurement, by utilizing the relief from royalty method under the income approach. The assumptions utilized in determining fair value include utilizing projected revenue growth rates, discount rates of approximately 30%, royalty rates ranging from 1% to 5% and terminal growth rates of approximately 3%. These fair value measurements are categorized as Level 3 per ASC Topic 820. Due to the inherent uncertainty involved in deriving those estimates, actual results could differ from those estimates. We evaluate the merits of each significant assumption used, both individually and in the aggregate, to determine the fair value of each trade name for reasonableness.