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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets [Abstract]

Goodwill and Intangible Assets

7.    Goodwill and Intangible Assets

In 2016, the Company completed the acquisition of NYCDA for $13.5 million in cash, with up to an additional $11.5 million payable to the sellers as contingent consideration based on NYCDA’s future operating results. In connection with the acquisition, the Company recorded $13.9 million in goodwill, representing the excess of the purchase price over the fair value of identifiable assets acquired.

The Company regularly monitors the results of NYCDA in relation to the assumptions utilized in the impairment assessment at December 31, 2017. At June 30, 2018, the Company determined that the rate of growth reflected the actual operating results, in relation to the prior impairment assessment, represented a triggering event which warranted an interim re-assessment. Accordingly, the Company performed the quantitative goodwill impairment test using an income-based approach to determine fair value. The income approach consisted of a discounted cash flow model that included projections of future cash flows for NYCDA, calculating a terminal value, and discounting such cash flows by a risk-adjusted rate of return. The determination of fair value consists of using unobservable inputs under the fair value measurement standards.

The Company believes that the most critical assumptions and estimates used in determining the estimated fair value of NYCDA include, but are not limited to, the amounts and timing of expected future cash flows, the discount rate, and the terminal growth rate. The assumptions used in determining the expected future cash flows consider various factors such as historical operating trends, particularly in student enrollment and pricing, anticipated economic and regulatory conditions, reasonable expectations for planned business expansion opportunities, and long-term operating strategies and initiatives. The discount rate is based on the Company's assumption of a prudent investor's required rate of return for assuming the risk of investing in a particular company. The terminal growth rate reflects the sustainable operating income a reporting unit could generate in a perpetual state as a function of revenue growth, inflation, and future margin expectations. The Company also believes that these assumptions are consistent with a reasonable market participant view while employing the concept of highest and best use of the asset. However, the valuation is significantly impacted by the revenue growth assumptions. If the reporting unit does not achieve the growth currently expected, future impairments could be required.

Based on the results of the quantitative goodwill impairment analysis performed, the Company recorded a $2.8 million goodwill impairment charge during the three months ended June 30, 2018, which is reflected within the Fair value adjustments line in the unaudited consolidated statements of income. The goodwill impairment charge represents the excess of the carrying value of the net assets of NYCDA over its estimated fair value. There was no goodwill impairment charge recorded during the period ended June 30, 2017.

The following table presents a rollforward of goodwill balances for the six months ended June 30, 2017 and 2018 (in thousands):

		For the six months ended
		June 30,
		2017			2018
Balance, beginning of period		$	20,744		$	20,744
Impairment of goodwill			—			(2,825)
Balance, end of period		$	20,744		$	17,919

Intangible Assets

In connection with the purchase price allocations arising from the acquisition of NYCDA in 2016, the Company identified the trade name to be an intangible asset. The Company assigned an indefinite useful life to the trade name intangible asset, as it is believed this asset has the ability to generate cash flows indefinitely. In addition, there are no legal, regulatory, contractual, economic or other factors to limit the useful life of the trade name intangible.

The Company regularly monitors the results of NYCDA in relation to the assumptions utilized in the impairment assessment at December 31, 2017. At June 30, 2018, the Company determined that the rate of growth reflected the actual operating results, in relation to the prior impairment assessment, represented a triggering event which warranted an interim re-assessment. Accordingly, the Company performed a quantitative impairment assessment using the last day of the second quarter of 2018 as the assessment date.

The Company performed the quantitative indefinite-lived intangible asset impairment test using an income-based approach to determine fair value. The income approach consisted of a discounted cash flow model, using the relief from royalty method, which included a projection of future revenues for NYCDA, identifying a royalty rate, calculating a terminal value, and discounting such cash flows by a risk adjusted rate of return. The determination of fair value of the NYCDA trade name primarily consists of using unobservable inputs under the fair value measurement standards.

The Company believes that the most critical assumptions and estimates used in determining the estimated fair value of the NYCDA trade name include, but are not limited to, the amounts and timing of expected future revenues, the royalty rate, the discount rate, and the terminal growth rate. The assumptions used in determining the expected future revenues consider various factors such as historical operating trends, particularly in student enrollment and pricing, anticipated economic and regulatory conditions, reasonable expectations for planned business expansion opportunities, and long-term operating strategies and initiatives. The royalty rate is based on the Company’s assumption of what a reasonable market participant would pay to license the NYCDA trade name, expressed as a percentage of revenues. The discount rate is based on the Company's assumption of a prudent investor's required rate of return for assuming the risk of investing in a particular company. The terminal growth rate reflects the sustainable revenue growth the business could generate in a perpetual state as a function of inflationary expectations. The Company believes that the assumptions used in the indefinite-lived intangible asset impairment tests are consistent with a reasonable market participant view while employing the concept of highest and best use of the asset. However, the valuation is significantly impacted by the revenue growth assumptions. If the reporting unit does not achieve the growth currently expected, future impairments could be required.

Based on the results of the quantitative indefinite-lived intangible asset impairment assessment performed, the Company recorded a $3.4 million impairment charge during the three months ended June 30, 2018, which is reflected within the Fair value adjustments line in the unaudited consolidated statements of income. The indefinite-lived intangible asset impairment charge represents the excess of the carrying value of the NYCDA trade name over its respective estimated fair value calculated as part of the indefinite-lived intangible asset impairment assessment. There was no impairment charge related to indefinite-lived intangible assets recorded during the period ended June 30, 2017.

The following table presents a rollforward of indefinite-lived intangible assets for the six months ended June 30, 2017 and 2018  (in thousands):

		For the six months ended
		June 30,
		2017			2018
Balance, beginning of period		$	7,260		$	7,260
Impairment of intangible asset			—			(3,360)
Balance, end of period		$	7,260		$	3,900

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- References

No definition available.

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- 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

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-URI http://asc.fasb.org/topic&trid=2144416

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