8. Goodwill and Intangible Assets

Goodwill

The following table summarizes the changes in the carrying amount of goodwill by segment as of September 30, 2018 (in thousands):


	Strayer		Capella		Non-Degree Programs		Total
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		—		—		—		—
Balance as of September 30, 2018	$	337,381	$	393,348	$	—	$	730,729

The additions to goodwill during the nine months ended September 30, 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 second quarter of 2018, the Company determined that the rate of growth reflected in NYCDA’s operating results, in relation to the prior impairment assessment, represented a triggering event which warranted an interim re-assessment. 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 the quantitative impairment assessment. ASU 2017-04 simplifies the quantitative goodwill impairment assessment process and permits an entity to recognize a goodwill impairment charge based on the excess of a reporting unit's carrying value over the estimated fair value of the reporting unit. Accordingly, the Company performed a quantitative impairment assessment using the last day of the second quarter of 2018 as the assessment date. Based on the results of the quantitative goodwill analysis performed on NYCDA (which, following the merger, is included in the Non-Degree Programs segment), the Company recognized a goodwill impairment charge of $2.8 million during the second quarter of 2018.

During the third quarter 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 assessment, in addition to information and insights obtained through the CEC merger and changes to the overall investment strategy following the merger, represented a triggering event which warranted an interim re-assessment. Accordingly, the Company performed a quantitative goodwill impairment test as of August 1, 2018, 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 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.

Based on the results of the quantitative goodwill impairment analysis performed, the Company recorded an $11.1 million goodwill impairment charge during the three months ended September 30, 2018, which is reflected within the Fair value adjustments and impairment of intangible assets line in the unaudited condensed consolidated statements of income. 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. There were no goodwill impairment charges recorded during the three or nine month periods ended September 30, 2017.

Intangible Assets

The following table represents the balance of the Company’s intangible assets as of September 30, 2018 (in thousands):


	September 30, 2018
		Gross Carrying Amount		Accumulated Amortization		Net
Subject to amortization
Student relationships	$	166,000	$	(9,223)	$	156,777
Not subject to amortization
Trade names		185,700		—		185,700
Total	$	351,700	$	(9,223)	$	342,477

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 $9.2 million for both the three and nine months ended September 30, 2018.

Indefinite-lived intangible assets not subject to amortization consist of trade names and represent $185.7 million and $7.3 million at September 30, 2018 and December 31, 2017, respectively. 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. In conducting the annual impairment test for indefinite-lived intangible assets, the Company may elect to first evaluate the likelihood of impairment by considering qualitative factors relevant to the reporting unit, such as macroeconomic conditions, industry and market considerations, cost factors and financial performance relevant to the asset being tested, and any other factors that have a significant bearing on fair value, such as royalty rates.

During the second quarter of 2018, the Company determined that the rate of growth reflected in NYCDA’s 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 as of the last day of the second quarter of 2018, using an income-based approach to determine fair value. Based on the results of the quantitative analysis performed on NYCDA (which, following the merger, is included in the Non-Degree Programs segment), the Company recognized an indefinite-lived intangible asset impairment charge of $3.4 million during the second quarter of 2018.

During the third quarter of 2018, the Company determined that the rate of growth reflected in the actual operating results of its NYCDA trade name, in relation to the prior impairment assessment, in addition to information and insights obtained through the CEC merger and changes to the overall investment strategy following the merger, represented a triggering event which warranted an interim re-assessment. Accordingly, the Company performed a quantitative impairment test as of August 1, 2018, 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.

Based on the results of the quantitative indefinite-lived intangible asset impairment assessment performed, the Company recorded a $2.0 million impairment charge during the three months ended of September 30, 2018, which is reflected within the Fair value adjustments and impairment of intangible assets line in the unaudited condensed 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 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 three or nine month periods ended September 30, 2017.