GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

10. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for continuing operations during the years ended December 31, 2013 and 2012 are as follows by segment (dollars in thousands):


	CTU		AIU		Health Education			Culinary Arts		Design & Technology			Transitional			Total
Goodwill balance as of December 31, 2011⁽¹⁾	$	45,938	$	41,418	$	41,293		$	—	$	40,752		$	1,305		$	170,706
Goodwill impairment⁽²⁾		—		—		(41,293	)		—		(40,752	)		(1,305	)		(83,350	)

Goodwill balance as of December 31, 2012 and 2013	$	45,938	$	41,418	$	—		$	—	$	—		$	—		$	87,356

(1)	Goodwill impairments of approximately $168.7 million were recorded during the year ended December 31, 2011.

(2)	Goodwill impairments were recorded during the year ended December 31, 2012.

We performed our annual impairment testing of goodwill as of October 1, 2013 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, 2013.

In calculating the fair value for CTU and AIU, 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 of December 31, 2013 and 2012, the cost basis, accumulated amortization and net book value of intangible assets for continuing operations are as follows (dollars in thousands):


	December 31, 2013							December 31, 2012
	Cost		Accumulated Amortization			Net Book Value		Cost		Accumulated Amortization			Net Book Value
Amortizable intangible assets:
Courseware	$	10,861	$	(10,297	)	$	564	$	12,361	$	(10,576	)	$	1,785
Other		96		(76	)		20		96		(52	)		44

Amortizable intangible assets, net	$	10,957	$	(10,373	)	$	584	$	12,457	$	(10,628	)	$	1,829

Non-amortizable intangible assets:
Accreditation, licensing, and Title IV Program participation rights						$	1,000						$	1,000
Trade names							38,533							53,177

Non-amortizable intangible assets							39,533							54,177

Intangible assets, net						$	40,117						$	56,006

Amortizable intangible assets are amortized on a straight-line basis over their estimated useful lives; remaining useful lives for these assets are less than one year as of December 31, 2013. Amortization expense from continuing operations was $1.2 million, $1.4 million and $5.6 million, for the years ended December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013, 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. During 2013, in conjunction with our quarterly review processes, we concluded that certain indicators, including variation from previously projected revenue results, existed to suggest the Le Cordon Bleu and Sanford-Brown trade names were at risk of their carrying values exceeding their respective fair values.

We calculated 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 determinations of estimated fair value for trade names require significant estimates and assumptions, and as such are categorized as Level 3 per ASC Topic 820. The assumptions utilized in determining the fair value of the Le Cordon Bleu and Sanford-Brown trade names included utilizing projected revenue growth rates, discount rates approximating 30%, royalty rates of 4.5% and 1.0% for Le Cordon Bleu and Sanford-Brown, respectively, and terminal growth rates of approximately 3%. As a result of our assessments, we recorded $13.0 million of trade name impairment charges for Le Cordon Bleu and a $1.7 million trade name impairment charge for Sanford-Brown.

The values of the Le Cordon Bleu and Sanford-Brown trade names are $27.3 million and $3.9 million, respectively, as of December 31, 2013. Additionally, we performed our annual impairment testing of indefinite-lived intangible asset balances as of October 1, 2013 and concluded that no indicators existed that would suggest that it is more likely than not that the assets would be further impaired. 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 for reasonableness. Although we believe our projected future operating results and cash flows and related estimates regarding fair value are based on reasonable assumptions, historically projected operating results and cash flows have not always been achieved. However, for sensitivity purposes, and with all other inputs remaining equal for our Le Cordon Bleu and Sanford-Brown trade names, a 0.5% change in the royalty rates assumed in the calculation would result in a change in the fair values of approximately $5.3 million. A 1% change in the discount rates utilized in the calculation would result in a change in the fair values of approximately $1.3 million. We continue to monitor the operating results and revenue projections related to our trade names on a quarterly basis for signs of possible further declines in estimated fair value and trade name impairment.

- 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.

+ References+ Details