Apollo Group (APOL)

 

Goodwill is primarily the result of our acquisitions of CFP and Insight. SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), addresses goodwill and other intangible assets that have indefinite useful lives and prescribes that these assets will not be amortized, but instead tested for impairment at least annually or more frequently if circumstances arise indicating potential impairment. If the carrying amount of the reporting unit containing goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized to the extent the “implied fair value” of the goodwill is less than the carrying amount of the goodwill. This pronouncement provides specific guidance on performing impairment tests for goodwill and indefinite-lived intangibles.

 

The process of evaluating the potential impairment of goodwill requires judgment. In assessing the fair value of our reporting units, we make estimates about the future cash flows of our reporting units. Our cash flow forecast is based on assumptions that are consistent with the plans and estimates we are using to manage the underlying businesses. Other factors we consider include, but are not limited to, significant underperformance relative to expected historical or projected future operating results, significant changes in the manner or use of the acquired assets or the overall business strategy, and significant negative industry or economic trends. If our estimates or related assumptions change in the future, we may be required to record non-cash impairment charges for these assets. In addition, we make certain judgments about allocating shared assets and liabilities to the balance sheets for our reporting units. We have engaged a third-party valuation expert to assist in evaluating the fair values of our reporting units. We have selected August 31 and May 31 as the dates on which we perform our annual goodwill impairment tests for CFP and Insight, respectively. Based on our goodwill impairment tests, no impairments in goodwill were recorded during 2007.

 

 

Goodwill is primarily the result of the Company’s acquisition of CFP, which was acquired in September 1997. SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), addresses goodwill and other intangible assets that have indefinite useful lives and prescribes that these assets will not be amortized, but instead tested for impairment at least annually or more frequently if circumstances arise indicating potential impairment. If the carrying amount of the reporting unit containing goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized to the extent the “implied fair value” of the goodwill is less than the carrying amount of the goodwill. This pronouncement provides specific guidance on performing impairment tests for goodwill and indefinite-lived intangibles.

 

The process of evaluating the potential impairment of goodwill requires judgment. In assessing the fair value of the Company’s reporting units, the Company makes estimates about the future cash flows of its reporting units. The Company’s cash flow forecast is based on assumptions that are consistent with the plans and estimates the Company is using to manage the underlying businesses. Other factors the Company considers include, but are not limited to, significant underperformance relative to expected historical or projected future operating results, significant changes in the manner or use of the acquired assets or the overall business strategy, and significant negative industry or economic trends. If the Company’s estimates or related assumptions change in the future, the Company may be required to record non-cash impairment charges for these assets. In addition, the Company makes certain judgments about allocating shared assets and liabilities to the balance sheets for its reporting units. The Company has engaged a third-party valuation expert to assist in evaluating the fair values of its reporting units. The Company has selected August 31 as the date on which it performs its annual goodwill impairment test.

 

As of August 31, 2006, the Company concluded that the goodwill for CFP was impaired in the amount of $20.2 million. This impairment was included in the Company’s Other Schools segment. In performing its annual impairment test, the Company assessed the recoverability of the goodwill by evaluating the future discounted cash flows and the fair value of CFP’s tangible and intangible assets. The total discounted future cash flows was determined to be significantly less than the Company’s original expectations due to slower-than-forecasted revenue growth. After the impairment charge, the remaining goodwill totaled $16.9 million, which represents approximately 1.3% of total assets. There are no other long-lived assets that the Company believes are impaired. Additional impairments could affect future results of operations.