Goodwill and Intangible Assets

9 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

7. Goodwill and Intangible Assets

Goodwill

As a result of recent changes in the Company's organizational structure, which took effect on October 1, 2016, the Company now has three reportable business segments: the Intellectual and Developmental Disabilities (“I/DD”) segment, the Post-Acute Specialty Rehabilitation Services (“SRS”) Segment and the At-Risk Youth (“ARY”) segment. The Adult Day Health (“ADH”) operating segment, which was previously aggregated in the Human Services segment, is included in Corporate and Other. For more information refer to Note 10, "Segment Information."

The changes in goodwill for the nine months ended June 30, 2017 are as follows (in thousands):



	I/DD		SRS		ARY			Corporate and Other			Total
Balance as of September 30, 2016	$	104,155	$	81,909	$	73,464		$	14,132		$	273,660
Impact of segment change	35,212		—		(35,212		)	—			—
Goodwill acquired through acquisitions	626		461		—			13,849			14,936
Acquisition adjustments	—		—		—			(6		)	(6		)
Balance as of June 30, 2017	$	139,993	$	82,370	$	38,252		$	27,975		$	288,590

As a result of the changes in the organizational structure (Refer to Note 10, "Segment Information"), the Company's reporting units composed of the Company's I/DD and ARY operations changed. On October 1, 2016, the Company allocated goodwill between the new reporting units based on the relative fair values. The Company estimated the fair value of the new reporting units using the income approach. The income approach is based on a discounted cash flow analysis and calculates the fair value of a reporting unit by estimating the after–tax cash flows attributable to a reporting unit and then discounting them to a present value using a risk-adjusted discount rate. In our discounted cash flow analysis, we forecasted cash flows for the new reporting units for each of the next ten years and applied a long term growth rate to the final year of the forecasted cash flows to estimate terminal value. The cash flows were then discounted to a present value using a risk-adjusted discount rate. The discount rates, which are intended to reflect the risks inherent in future cash flow projections used in the discounted cash flow analysis, are based on estimates of the weighted average costs of capital of market participants relative to each respective reporting unit.

This change was considered a triggering event that indicated a test for goodwill impairment was necessary as of October 1, 2016. The Company completed impairment tests of the new reporting units as of October 1, 2016 and it was determined that the carrying value of goodwill was not impaired as the fair value of the reporting units significantly exceeded the carrying value.

Intangible Assets

Intangible assets consist of the following as of June 30, 2017 (in thousands):



Description	Weighted Average Amortization Period	Gross Carrying Value		Accumulated Amortization		Intangible Assets, Net
Agency contracts	7 years	$	521,172	$	282,066	$	239,106
Non-compete/non-solicit agreements	1 year	7,003		5,009		1,994
Relationship with contracted caregivers	—	7,521		7,521		—
Trade names	2 years	6,658		4,607		2,051
Trade names (indefinite life)	—	45,800		—		45,800
Licenses and permits	2 years	53,180		41,716		11,464
Intellectual property	—	452		452		—
		$	641,786	$	341,371	$	300,415

Intangible assets consist of the following as of September 30, 2016 (in thousands):



Description	Weighted Average Amortization Period	Gross Carrying Value		Accumulated Amortization		Intangible Assets, Net
Agency contracts	7 years	$	499,652	$	257,104	$	242,548
Non-compete/non-solicit	2 years	6,438		4,432		2,006
Relationship with contracted caregivers	—	7,521		7,505		16
Trade names	2 years	6,516		4,014		2,502
Trade names (indefinite life)	—	45,800		—		45,800
Licenses and permits	2 years	49,773		40,416		9,357
Intellectual property	—	452		452		—
		$	616,152	$	313,923	$	302,229

Amortization expense was $9.4 million and $27.4 million for the three and nine months ended June 30, 2017, respectively, and $10.1 million and $29.2 million for the three and nine months ended June 30, 2016, respectively.

The estimated remaining amortization expense related to intangible assets with finite lives for the three months remaining in fiscal 2017 and each of the four succeeding years and thereafter is as follows:



Year Ended September 30,	(in thousands)
2017	$	9,363
2018	37,492
2019	37,561
2020	36,507
2021	32,894
Thereafter	100,798
Total	$	254,615

- 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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