Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed. Changes in the carrying amount of goodwill by reportable segment during fiscal years 2011 and 2010 are as follows:



			Apollo Global
	University of								Insight			Other		Total
($ in thousands)	Phoenix		BPP			Other			Schools			Schools		Goodwill
Goodwill as of August 31, 2009	$	37,018	$	421,836		$	35,452		$	12,742		$	15,310	$	522,358
Impairment on discontinued operations	—		—			—			(9,400		)	—		(9,400		)
Impairment	—		(156,321		)	(8,712		)	—			—		(165,033		)
Included in assets held for sale	—		—			—			(3,342		)	—		(3,342		)
Currency translation adjustment	—		(24,311		)	1,887			—			—		(22,424		)
Goodwill as of August 31, 2010	37,018		241,204			28,627			—			15,310		322,159
Impairment	—		(197,674		)	—			—			—		(197,674		)
Currency translation adjustment	—		7,164			1,648			—			—		8,812
Goodwill as of August 31, 2011	$	37,018	$	50,694		$	30,275		$	—		$	15,310	$	133,297

The following table presents the components of the net carrying amount of goodwill by reportable segment as of August 31, 2011 and 2010:



			Apollo Global
	University of								Other			Total
($ in thousands)	Phoenix		BPP			Other			Schools			Goodwill
August 31, 2010
Gross carrying amount	$	37,018	$	425,638		$	39,617		$	35,515		$	537,788
Accumulated impairments	—		(156,321		)	(8,712		)	(20,205		)	(185,238		)
Effect of foreign currency translation	—		(28,113		)	(2,278		)	—			(30,391		)
Net carrying amount	$	37,018	$	241,204		$	28,627		$	15,310		$	322,159



			Apollo Global
	University of								Other			Total
($ in thousands)	Phoenix		BPP			Other			Schools			Goodwill
August 31, 2011
Gross carrying amount	$	37,018	$	425,638		$	39,617		$	35,515		$	537,788
Accumulated impairments	—		(353,995		)	(8,712		)	(20,205		)	(382,912		)
Effect of foreign currency translation	—		(20,949		)	(630		)	—			(21,579		)
Net carrying amount	$	37,018	$	50,694		$	30,275		$	15,310		$	133,297

Intangible assets consist of the following as of August 31:



	2011										2010
($ in thousands)	Gross Carrying Amount		Accumulated Amortization			Effect of Foreign Currency Translation Loss			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Effect of Foreign Currency Translation Loss			Net Carrying Amount
Finite-lived intangible assets
Student and customer relationships	$	9,477	$	(6,538	)	$	(1,284	)	$	1,655	$	19,935	$	(12,891	)	$	(1,624	)	$	5,420
Copyrights	20,891		(11,521		)	(422		)	8,948		20,891		(6,039		)	(1,066		)	13,786
Other	18,702		(12,499		)	(1,166		)	5,037		20,676		(9,342		)	(1,591		)	9,743
Total finite-lived intangible assets	49,070		(30,558		)	(2,872		)	15,640		61,502		(28,272		)	(4,281		)	28,949
Indefinite-lived intangible assets
Trademarks⁽¹⁾	98,849		—			(737		)	98,112		121,879		—			(7,191		)	114,688
Accreditations and designations	7,456		—			(91		)	7,365		7,456		—			(500		)	6,956
Total indefinite-lived intangible assets	106,305		—			(828		)	105,477		129,335		—			(7,691		)	121,644
Total intangible assets, net	$	155,375	$	(30,558	)	$	(3,700	)	$	121,117	$	190,837	$	(28,272	)	$	(11,972	)	$	150,593

⁽¹⁾ We recorded impairments charges of $22.2 million and $19.6 million of BPP’s intangible assets during fiscal year 2011 and 2010, respectively. See below for further discussion.

Finite-lived intangible assets are amortized on either a straight-line basis or using an accelerated method to reflect the pattern in which the benefits of the asset are consumed. The weighted average useful life of our finite-lived intangible assets that are not fully amortized as of August 31, 2011 is 5.2 years. Amortization expense for intangible assets for fiscal years 2011, 2010 and 2009 was $14.7 million, $24.8 million and $9.3 million, respectively.

Estimated future amortization expense of finite-lived intangible assets is as follows:



($ in thousands)
2012	$	8,577
2013	4,291
2014	1,546
2015	475
2016	92
Thereafter	659
Total estimated amortization expense	$	15,640

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

We completed goodwill and indefinite-lived intangible asset impairment tests, as applicable, for each of our reporting units on their respective annual impairment test dates during fiscal year 2011 as follows:


•	University of Phoenix — May 31


•	BPP — July 1


•	UNIACC (included in Apollo Global — Other) — May 31


•	ULA (included in Apollo Global — Other) — May 31


•	Western International University (included in Apollo Global — Other) — May 31


•	CFFP (included in Other Schools) — August 31

For our BPP reporting unit, we were required to perform an interim goodwill impairment test in the second quarter of fiscal year 2011, which resulted in recognizing goodwill and other intangibles impairment charges, as further discussed below. We did not record any impairment charges associated with our other reporting units as the estimated fair value of each of the reporting units exceeded the carrying value of their respective net assets as of their annual impairment test date. The excess as a percentage of fair value for University of Phoenix, UNIACC, Western International University and CFFP was at least 25%, and the excess for ULA was approximately 16% as of their respective annual impairment test dates.

We believe the assumptions used in our goodwill and 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. To determine the fair value for our University of Phoenix and Western International University reporting units, we used market multiple information and recent transaction data, if applicable, of comparable sized companies. For our CFFP reporting unit, we determined fair value using the discounted cash flow valuation method utilizing a 14.0% discount rate and 3% terminal growth rate. For our UNIACC and ULA reporting units, which had $13.1 million and $15.6 million of goodwill, respectively, as of August 31, 2011, we determined fair value by using a combination of the discounted cash flow valuation method and the market-based approach, to which we applied weighting factors of 80% and 20%, respectively. Specifically, for our UNIACC and ULA reporting units, the key assumptions used in our analysis include the following:

•

Projected net revenue growth at UNIACC through its established online and working learner educational programs, and projected net revenue growth at ULA through its working learner educational programs offered through a blend of on-campus and online modalities. If the projected revenue growth from these programs does not materialize, we may be required in the future to record impairment charges for our goodwill and intangible assets.


•	Discount rates for UNIACC and ULA of 15.5% and 16.5%, respectively, and a terminal growth rate of 5% for both reporting units. For sensitivity purposes, a 100 basis point change in either of these assumptions would not have resulted in the carrying value exceeding the fair value for either reporting unit as of their May 31, 2011 annual impairment test date.

Our UNIACC and ULA reporting units also have indefinite lived intangible assets consisting of trademarks and accreditations totaling $7.8 million as of August 31, 2011. We performed a fair value analysis of these indefinite lived intangible assets and determined there was no impairment.

BPP Reporting Unit

Fiscal Year 2011

During the second quarter of fiscal year 2011, BPP experienced lower than expected rates of enrollment for its accounting and finance professional training programs. As a result, we revised our outlook for BPP and reduced forecasted revenues and operating cash flows for the remainder of fiscal year 2011.

The majority of students take multiple years to complete these programs and, as a result, the lower than expected rates of enrollment in these programs are expected to negatively impact revenue growth for the next couple of years. In addition, we also reduced our forecasts for future years from what we had previously anticipated, as we now believe that we will likely experience further near term declines. Currently, accounting and finance professional training programs account for approximately one-half of BPP’s revenues and a significant portion of BPP’s operating cash flows. For these reasons, we performed an interim goodwill impairment analysis for BPP in the second quarter of fiscal year 2011.

To determine the fair value of our BPP reporting unit in our interim step one analysis, we used a combination of the discounted cash flow valuation method and the market-based approach and applied weighting factors of 80% and 20%, respectively. We used assumptions in our interim step one analysis to reflect what we believe to be a reasonable market participant’s view of the increased uncertainty in the broader market conditions impacting BPP. Specifically, the key assumptions used in our revised cash flow estimates include the following:


•	the markets in which BPP’s professional training programs operate in will experience further declines in the near term, and a recovery in the market for such programs will take longer than previously expected,


•	decreased our pricing assumptions for degree programs at BPP’s University college, given the emerging competitive landscape and the implementation of the U.K. government’s review of funding for higher education,


•	a significant increase in revenues over a long-term horizon at BPP’s University College, and


•	a 13.5% discount rate and 3.0% terminal growth rate.

Incorporating these assumptions into our interim step one goodwill impairment analysis resulted in a lower estimated fair value for the BPP reporting unit as compared to its carrying value. This was the second time that we had received new information that has caused us to revise our forecasts for BPP and record impairment charges, as we recorded goodwill and other intangibles impairment charges in fiscal year 2010, which is discussed below.

Accordingly, we performed an interim step two analysis which required us to fair value BPP’s assets and liabilities, including identifiable intangible assets, using the fair value derived from the interim step one analysis as the purchase price in a hypothetical acquisition of the BPP reporting unit. The significant hypothetical purchase price adjustments included in the step two analysis consisted of:


•	Adjusting the carrying value of land and buildings included in property and equipment to estimated fair value using the market approach and based on appraisals.

•

Adjusting the carrying value of the trademark and accreditations and designation indefinite-lived intangible assets to estimated fair value using the valuation methods discussed at Note 2, Significant Accounting Policies. Our interim impairment tests for these indefinite-lived intangible assets utilized the same assumptions used in the BPP reporting unit goodwill impairment analysis which resulted in a lower fair value estimate for BPP’s trademark.


•	Adjusting all other finite-lived intangible assets to estimated fair value using a variety of methods under the income approach. As a result of this analysis, we determined that all significant finite-lived intangible assets were not impaired in the second quarter of fiscal year 2011.

Based on our analysis, we recorded impairment charges during the second quarter of fiscal year 2011 for BPP’s goodwill and trademark of $197.7 million and $22.2 million, respectively. As BPP’s goodwill is not deductible for tax purposes, we did not record a tax benefit associated with the goodwill impairment charge. In the second quarter of fiscal year 2011, BPP’s goodwill and other intangibles impairment charges in the aggregate approximate $213.9 million (net of $6.0 million benefit for income taxes associated with the other intangibles impairment charge).

In the fourth quarter of fiscal year 2011, we performed our annual goodwill impairment for BPP. There have been no significant changes within BPP or the U.K. that we believe would have a meaningful impact on our cash flow estimates and other significant assumptions used in the interim impairment test performed in the second quarter of fiscal year 2011 discussed above. Accordingly, for the purpose of performing the annual goodwill impairment as of July 1, 2011, we utilized a similar valuation methodology and underlying assumptions. BPP’s goodwill was determined to not be impaired and the excess as a percentage of fair value was approximately 23%. Additionally, we completed our annual impairment tests for the indefinite-lived assets at BPP and determined there was no impairment.

Although our projections used in both our interim and annual goodwill impairment tests assume that the markets in which BPP operates will ultimately stabilize, we may be required to record additional impairment charges for BPP’s remaining goodwill and other intangibles balances of $50.7 million and $110.4 million, respectively, if there are further deteriorations in these markets, if economic conditions in the U.K. further decline, or we are unable to achieve the projected growth in future enrollment and related revenue at BPP’s University College.

Fiscal Year 2010

On July 1, 2010, we conducted our first annual goodwill impairment test for BPP. To determine the fair value of our BPP reporting unit in our step one analysis, we used a combination of the discounted cash flow valuation method and the market-based approach and applied weighting factors of 80% and 20%, respectively. In October 2010, BPP concluded its fall enrollment period which we believe was adversely impacted by the continued economic downturn in the U.K. Accordingly, we revised our forecast for BPP, which caused our step one annual goodwill impairment analysis to result in a lower estimated fair value for the BPP reporting unit as compared to its carrying value due to the effects of the economic downturn in the U.K. on BPP’s operations and financial performance and increased uncertainty as to when these conditions would recover. Specifically, the assumptions used in our cash flow estimates assumed no near-term recovery in the markets in which BPP operates, modest overall long-term growth in BPP’s core programs and a significant increase in revenues over a long-term horizon at BPP’s University College. We also utilized a 13.0% discount rate and 3.0% terminal growth rate in the analysis.

Accordingly, we performed a step two analysis and the significant hypothetical purchase price adjustments included in the analysis consisted of:


•	Adjusting the carrying value of land and buildings included in property and equipment to estimated fair value using the market approach and based on recent appraisals.

•

Adjusting the carrying value of the trademark and accreditations and designation indefinite-lived intangible assets to estimated fair value using the valuation methods discussed at Note 2, Significant Accounting Policies. Our annual impairment tests for these indefinite-lived intangible assets utilized the same revenue, margin and discount rate assumptions used in the BPP reporting unit goodwill impairment step one analysis which resulted in a lower fair value estimate for BPP’s trademark. Accordingly, we recorded a $17.6 million impairment charge for these indefinite-lived intangible assets in fiscal year 2010.

•

Adjusting all other finite-lived intangible assets to estimated fair value using a variety of methods under the income approach specifically the costs savings method, with and without method and excess earnings method, or replacement cost approach. As a result of this analysis, we determined that one of our student relationship intangible assets was not recoverable resulting in recording an impairment charge of $2.0 million in fiscal year 2010.

Based on our analysis, we recorded a $156.3 million impairment charge for BPP’s goodwill in fiscal year 2010. As BPP’s goodwill is not deductible for tax purposes, we did not record a tax benefit associated with the goodwill impairment charge. In the fiscal year 2010, BPP's goodwill and intangible asset impairment charges in the aggregate approximate $170.4 million (net of $5.5 million benefit for income taxes associated with the intangible asset impairment charges).

ULA

During fiscal year 2010, we recorded an $8.7 million impairment charge for ULA’s goodwill. As ULA’s goodwill is not deductible for tax purposes, we did not record a tax benefit associated with the goodwill impairment charge.

Please refer to Note 2, Significant Accounting Policies, for our policy and methodology for evaluating potential impairment of goodwill and indefinite-lived intangible assets.