14. Acquisitions and Investments

Investment in Web International Education Group, Ltd. (“Web”)

In January 2011, the Company invested $10.0 million to obtain a 20% minority interest in Web International Education Group, Ltd. (“Web”), a provider of English language learning centers in cities throughout China. On May 6, 2013, the Company exercised its right to put its investment back to Web for return of its original $10.0 million investment. The Company reclassified this $10.0 million investment, recording it in other current assets. During the fourth quarter of fiscal year 2017, the Company recorded an impairment of $10.0 million in the consolidated statement of operations. The Company continues to work with Web, and to the extent it collects in a subsequent period, the Company will record the amount collected in other income in the period received.

Investment in School Mortgage

On September 11, 2013, the Company issued a mortgage note (“Mortgage”) lending $2.1 million to a managed school partner (“Partner”). The note bore interest at a fixed rate of 5.25% per year with a five year maturity and it was secured by the underlying property. During fiscal year 2016, the borrower defaulted on the loan payment, and in March 2017, the Company received the deed of ownership to the property.

In the third quarter of fiscal year 2017, the Company decided to dispose of the property and classified it as an asset held for sale, and included it in other current assets on the consolidated balance sheet. The Company reduced the property’s estimated carrying value to $1.2 million, resulting in an impairment loss of $0.6 million, which was included in selling, administrative and other operating expenses on the consolidated statements of operations. As of March 31, 2018, the property had been classified as a held for sale asset for greater than one year. As such, the Company reclassified the property as a held and used asset, subject to depreciation, and is included in property and equipment, net on the consolidated balance sheet.

During the year ended June 30, 2016, the Company conducted an appraisal of the property to assess its market value. At June 30, 2016, the estimated market value had declined below the note’s carrying value, resulting in an impairment loss of $0.2 million.

Acquisition of LTS Education Systems

On April 21, 2016, the Company completed its acquisition of Disguise the Learning, Inc. dba LTS Education Systems (“LTS”), a provider of personalized, digital game–based online learning solutions. With its acquisition of LTS, the Company aimed to expand its online courses offerings in math, reading, english language arts, science and history.

The total purchase price consideration for this acquisition was $23.1 million, which consisted primarily of cash of $20.2 million and $2.9 million of contingent consideration (earn–out liability), of which $21.0 million was allocated to goodwill, $4.6 million to acquired intangible assets and $2.5 million to net liabilities assumed. The customer relationships and developed technology had estimated lives of seven and four years, respectively; while the other intangible assets had estimated lives ranging from two to five years. The goodwill was not deductible for income tax purposes. Acquisition costs incurred by the Company related to this transaction included in selling, administrative and other operating expenses were $0.4 million. The acquisition of LTS was not significant to the Company’s results of operations.

During the year ended June 30, 2017, the Company made its final adjustments to the purchase price of LTS which included a $0.1 million escrow refund resulting from the final working capital adjustment which was recorded as a reduction to goodwill.

The following table summarizes the fair values of considerations paid and identifiable assets acquired and liabilities assumed for LTS as of the date of acquisition, after the Company’s final purchase price adjustments (in millions):


Acquisition consideration:	June 30, 2017
Cash	$	20.2
Fair value of contingent consideration (earn-out liability)		2.9
Total consideration transferred	$	23.1
Identifiable assets acquired and liabilities assumed:
Customer relationships	$	1.9
Developed technology		1.7
Other intangible assets		1.0
Goodwill		21.0
Deferred tax		(2.6)
Other net assets		0.1

The contingent consideration included in the table above represents the fair value of additional consideration payable to the seller, estimated using a discounted cash flow method. Consideration is to be distributed on the eighteen month and thirty month anniversaries of the closing date, and is contingent on the future performance of two key contracts. Each contract is to be assessed independently with an aggregate potential payment of $3.0 million. Performance metrics are based on the year-over-year maintenance of a total aggregate contract value in excess of 51%, with a greater than 90% success rate ensuring full payment.