Goodwill and Intangibles

6 Months Ended

Feb. 29, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

The following details changes in our goodwill by reportable segment during the six months ended February 29, 2016:



($ in thousands)	University of Phoenix			Apollo Global			Other			Total
Goodwill as of August 31, 2015	$	71,812		$	142,599		$	32,779		$	247,190
Career Partner acquisition	—			96,353			—			96,353
Impairment⁽¹⁾	(71,812		)	—			(1,581		)	(73,393		)
Currency translation adjustment	—			(3,314		)	—			(3,314		)
Goodwill as of February 29, 2016	$	—		$	235,638		$	31,198		$	266,836

⁽¹⁾During the first quarter of fiscal year 2016, we recorded impairment charges of $71.8 million and $1.6 million for our University of Phoenix and Western International University reporting units, respectively.

Intangibles consist of the following as of the respective period ends:



	February 29, 2016										August 31, 2015
($ in thousands)	Gross Carrying Amount		Accumulated Amortization			Effect of Foreign Currency Translation			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Effect of Foreign Currency Translation			Net Carrying Amount
Curriculum⁽¹⁾	$	23,441	$	(9,596	)	$	(2,507	)	$	11,338	$	19,715	$	(7,361	)	$	(2,470	)	$	9,884
Accreditations and designations	21,628		(8,726		)	(3,084		)	9,818		21,628		(6,972		)	(3,153		)	11,503
Trademarks	21,019		(3,818		)	(2,953		)	14,248		21,019		(2,942		)	(3,034		)	15,043
Student and customer relationships⁽¹⁾	14,534		(3,722		)	(2,004		)	8,808		5,517		(2,632		)	(1,975		)	910
Other	3,513		(576		)	(832		)	2,105		3,746		(597		)	(633		)	2,516
Total finite-lived intangibles	84,135		(26,438		)	(11,380		)	46,317		71,625		(20,504		)	(11,265		)	39,856
Trademarks⁽¹⁾	132,106		—			(18,944		)	113,162		101,637		—			(9,906		)	91,731
Accreditations and designations⁽¹⁾	42,418		—			(3,770		)	38,648		14,470		—			(2,813		)	11,657
Total indefinite-lived intangibles	174,524		—			(22,714		)	151,810		116,107		—			(12,719		)	103,388
Total intangible assets, net	$	258,659	$	(26,438	)	$	(34,094	)	$	198,127	$	187,732	$	(20,504	)	$	(23,984	)	$	143,244

⁽¹⁾We acquired certain intangibles during fiscal year 2016 as a result of our acquisition of Career Partner. Refer to Note 4, Acquisitions.

The estimated future amortization expense of our finite-lived intangibles as of February 29, 2016 is as follows:



($ in thousands)	Remainder of 2016		2017		2018		2019		2020		2021		Thereafter		Total
Estimated future amortization expense⁽¹⁾	$	7,633	$	13,902	$	9,961	$	4,885	$	3,020	$	2,116	$	4,800	$	46,317

⁽¹⁾Estimated future amortization expense may vary as acquisitions and dispositions occur in the future and as a result of foreign currency translation adjustments.

Goodwill Impairment

Our market capitalization declined significantly during the first quarter of fiscal year 2016 after we reported our fourth quarter fiscal year 2015 results and our business outlook for fiscal year 2016. We believe the decline in the first quarter of fiscal year 2016 was attributable to University of Phoenix’s lower enrollment, increasing risk associated with the proprietary education sector, and uncertainty associated with its strategy to transform into a more focused, higher retaining and less complex institution. Additionally, initiatives associated with the University’s new strategy have accelerated the enrollment decline at the University and negatively impacted its cash flows in the short-term. Based on the decline in market capitalization, we performed an interim goodwill impairment analysis for University of Phoenix in the first quarter of fiscal year 2016.

University of Phoenix represents the substantial majority of our consolidated operating results and, as discussed above, we believe our market capitalization decline in the first quarter of fiscal year 2016 was attributable to the University. Accordingly, we estimated the fair value of our University of Phoenix reporting unit using a market-based valuation approach, which incorporated assumptions that we believe would be a reasonable market participant’s view of the increased risk and uncertainty associated with the University and its expected future cash flows. The market-based approach included multiples derived from comparable companies with consideration of the University’s current operating trends and transformational strategy in relation to the other companies. Our interim step one goodwill impairment analysis resulted in a lower estimated fair value for University of Phoenix compared to its carrying value. Based on the University’s estimated fair value and a hypothetical purchase price allocation, we determined the University would have no implied goodwill. Accordingly, we recorded a $71.8 million impairment charge in the first quarter of fiscal year 2016 representing the University’s entire goodwill balance. We did not record an income tax benefit associated with this charge as the University’s goodwill is not deductible for tax purposes.

During the first quarter of fiscal year 2016, we also recorded a $1.6 million goodwill impairment charge representing the entire goodwill balance for our Western International University reporting unit. Western International University operates in the same sector of the U.S. proprietary education industry as University of Phoenix.

We have not recorded any goodwill impairment charges associated with our other reporting units during fiscal year 2016 as we do not believe there have been any events or changes in circumstances since their respective most recent annual impairment tests that would more likely than not reduce the fair value of the respective reporting unit below its carrying amount. As part of this consideration, we compared the sum of the estimated fair values of our reporting units to our market capitalization, plus an assumed control premium to acquire a controlling interest in Apollo, which included consideration of the purchase price associated with our pending merger. Based on our evaluation, the fair values of our reporting units were reasonable in relation to our market capitalization. However, we may be required to record additional goodwill impairment charges in the future if our critical assumptions deteriorate or our market capitalization declines further.

- 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.

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