9. Goodwill and Intangible Assets

Goodwill

The following table presents changes in the carrying value of goodwill by segment for the years ended December 31, 2017 and 2018 (in thousands):


	Strayer University		Capella University		Non-Degree Programs		Total
Balance as of December 31, 2016	$	6,800	$	—	$	13,944	$	20,744
Additions		—		—		—		—
Impairments		—		—		—		—
Adjustments		—		—		—		—
Balance as of December 31, 2017		6,800		—		13,944		20,744
Additions		330,581		393,348		—		723,929
Impairments		—		—		(13,944)		(13,944)
Adjustments		—		1,811		—		1,811
Balance as of December 31, 2018	$	337,381	$	395,159	$	—	$	732,540

The additions to goodwill during the year ended December 31, 2018 were due to the acquisition of CEC described in Note 3.

The Company assesses goodwill at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit below its carrying amount. During the year ended December 31, 2018, the Company recorded a $13.9 million goodwill impairment charge related to its NYCDA reporting unit (which, following the merger, is included in the Non-Degree Programs segment). The goodwill impairment charge represents the excess of the carrying value of the net assets of the NYCDA reporting unit over its estimated fair value and is reflected within the Fair value adjustments and impairment of intangible assets line in the consolidated statements of income.

During the second and third quarters of 2018, the Company determined that the rate of growth reflected in the actual operating results of its NYCDA reporting unit, in relation to the prior impairment assessments, in addition to information and insights obtained through an operational and brand rationalization process following the CEC merger, represented triggering events which warranted interim goodwill impairment re-assessments. In accordance with ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”), the Company elected to bypass a qualitative impairment assessment over goodwill and proceeded directly to performing quantitative impairment assessments as of these interim assessment dates. Based on the results of the quantitative interim impairment assessments performed, the Company recorded a $2.8 million and $11.1 million goodwill impairment charge during the second and third quarters of 2018, respectively, related to its NYCDA reporting unit.

The Company used an income-based approach to determine the fair value of NYCDA in its interim goodwill impairment assessments. 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 the NYCDA reporting unit 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.

During the fourth quarter, the Company performed its annual impairment testing of goodwill assigned to its Strayer University and Capella University reporting units. The Company first evaluated the likelihood of impairment by considering qualitative factors relevant to the reporting units, such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and any other factors that have a significant bearing on fair value. Based on the results of its qualitative impairment analysis, the Company determined that no impairment indicators existed for the Strayer and Capella reporting units as of the assessment date. As such, no goodwill impairment charges were recorded in the fourth quarter of 2018.

There were no goodwill impairment charges recorded during the years ended December 31, 2016 and 2017.

Intangible Assets

The following table represents the balance of the Company’s intangible assets for the years ended December 31, 2017 and 2018 (in thousands):


	December 31,2017						December 31,2018
		Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Subject to amortization
Student relationships	$	—	$	—	$	—	$	166,000	$	(23,056)	$	142,944
Not subject to amortization
Trade names		7,260		—		7,260		185,400		—		185,400
Total	$	7,260	$	—	$	7,260	$	351,400	$	(23,056)	$	328,344

The Company’s finite-lived intangible assets are comprised of student relationships, which were recorded in connection with the CEC merger. The student relationships intangible asset is being amortized on a straight-line basis over a three-year useful life. The Company had no finite-lived intangible assets as of December 31, 2017.

Straight-line amortization expense for finite-lived intangible assets reflects the pattern in which the assets' economic benefits are consumed over their estimated useful lives. Amortization expense related to finite-lived intangible assets was $23.1 million for the year ended December 31, 2018.

The following table presents future amortization expense for finite-lived intangible assets as of December 31, 2018 (in thousands):


2019	$	55,333
2020		55,333
2021		32,278
2022		—
2023		—
2024 and thereafter		—
Total	$	142,944

Indefinite-lived intangible assets not subject to amortization consist of trade names. The Company assigned an indefinite useful life to its trade name intangible assets, as it is believed these assets have 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 intangibles.

Indefinite-lived intangible assets are assessed at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit below its carrying amount.

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.

Based on the results of the quantitative interim impairment assessments performed, the Company recorded a $3.4 million and $2.0 million indefinite-lived intangible asset impairment charge related to its NYCDA trade name (which, following the merger, is included in the Non-Degree Programs segment) during the second and third quarters of 2018, respectively. During the fourth quarter of 2018 following the CEC merger, the Company impaired the remaining $0.3 million NYCDA trade name balance related to the decision to stop teaching on-ground courses in early 2019. The indefinite-lived intangible asset impairment charge represents the excess of the carrying value of the NYCDA trade name over its estimated fair value and is reflected within the Fair value adjustments and impairment of intangible assets line in the consolidated statements of income.

During the fourth quarter, the Company performed its annual impairment testing of indefinite-lived intangible assets. The Company first evaluated the likelihood of impairment by considering qualitative factors, such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and any other factors that have a significant bearing on fair value. Based on the results of its qualitative impairment analysis, the Company determined that no impairment indicators existed for the indefinite-lived intangible assets as of the assessment date. As such, no intangible asset impairment charges, other than the NYCDA trade name impairment discussed above, were recorded in the fourth quarter of 2018.

There were no indefinite-lived impairment charges recorded during the years ended December 31, 2016 and 2017.