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Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2017
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Noncontrolling Interest Holder Put Arrangements and Company Call Arrangements The following section provides a summary table and description of the various noncontrolling interest holder put arrangements that Laureate had outstanding as of September 30, 2017. Laureate has elected to accrete changes in the arrangements’ redemption values over the period from the date of issuance to the earliest redemption date. The redeemable noncontrolling interests are recorded at the greater of the accreted redemption value or the traditional noncontrolling interest. Until the first exercise date, the put instruments’ reported values may be lower than the final amounts that will be required to settle the minority put arrangements. As of September 30, 2017, the carrying value of all noncontrolling interest holder put arrangements was $11,911, which includes accreted incremental value of $14,441 in excess of traditional noncontrolling interests. If the minority put arrangements were all exercised at September 30, 2017, Laureate would be obligated to pay the noncontrolling interest holders an estimated amount of $11,911, as summarized in the following table:
| Nominal Currency | First Exercisable Date | Estimated Value as of September 30, 2017 redeemable within 12-months: |  | Reported Value
Noncontrolling interest holder put arrangements |  |  |  |  |
INTI Education Holdings Sdn Bhd (INTI) - 10% | MYR | Current | $ | 10,016 |  |  | $ | 10,016 |
Pearl Retail Solutions Private Limited and Creative Arts Education Society (Pearl) - 10% | INR | Current | 1,835 |  |  | 1,835 |
Stamford International University (STIU) - Puttable preferred stock of TEDCO | THB | Current | 60 |  |  | 60 |
Total noncontrolling interest holder put arrangements |  |  | 11,911 |  |  | 11,911 |
Puttable common stock - currently redeemable | USD | Current | 4 |  |  | 4 |
Puttable common stock - not currently redeemable | USD | * | — |  |  | 2,300 |
Total redeemable noncontrolling interests and equity |  |  | $ | 11,915 |  |  | $ | 14,215 |
* Contingently redeemable MYR: Malaysian Ringgit INR: Indian Rupee THB: Thai Baht Laureate’s noncontrolling interest put arrangements are specified in agreements with each noncontrolling interest holder. The terms of these agreements determine the measurement of the redemption value of the put options based on a non-GAAP measure of earnings before interest, taxes, depreciation and amortization (EBITDA, or recurring EBITDA), the definition of which varies for each particular contract. Commitments and contingencies are generally denominated in foreign currencies. Pearl As part of the acquisition of Pearl, the minority owners had a put option to require Laureate to purchase the remaining 45% noncontrolling interest, and Laureate has a call option to require the minority owners to sell to Laureate up to 35% of the total equity of Pearl that is still owned by the noncontrolling interest holders (i.e. approximately 78% of the remaining 45% noncontrolling interest). On June 19, 2017, Laureate and the noncontrolling interest holders of Pearl amended the put and call option agreements in order to clarify certain aspects of the formula for determining the purchase price of the noncontrolling interests. The modifications to the agreement resulted in the exclusion of certain campus costs and liabilities in the purchase price calculation. On July 11, 2017, the noncontrolling interest holders of Pearl notified Laureate of their election to exercise their put option for a portion of their total noncontrolling interest, which requires Laureate to purchase an additional 35% equity interest in Pearl. The purchase price for the 35% equity interest, which has been agreed to by the parties, is approximately $11,400 and has been recorded in Other current liabilities in the Consolidated Balance Sheet as of September 30, 2017. This liability was paid in October 2017. The remaining 10% puttable equity interest that is still held by the minority owners is recorded at its estimated redemption value of $1,835. Series A Convertible Redeemable Preferred Stock Offering As disclosed in our 2016 Form 10-K, on December 4, 2016, we signed a subscription agreement with six investors, including Kohlberg, Kravis and Roberts Co. L.P. and Snow Phipps Group LLC, both of which are affiliates of ours, pursuant to which we agreed to issue and sell to those investors an aggregate of 400 shares of a new series of our convertible redeemable preferred stock (the Series A Preferred Stock), consisting of 23 shares of Series A-1 Preferred Stock and 377 shares of Series A-2 Preferred Stock, in a private offering for total net proceeds of approximately $383,000. The closing of this transaction, for 343 shares, occurred on December 20, 2016 and we received net proceeds, after issuance costs, of approximately $328,000. One investor funded a portion of its purchase price for 57 shares, equal to $57,000 (approximately $55,000 net of issuance costs), in January 2017. The issuance costs are being accreted to the carrying value of the Series A Preferred Stock over the five-year redemption period. The Series A Preferred Stock includes a Beneficial Conversion Feature (BCF) that was contingent on a qualified IPO (as defined in the Certificate of Designations governing the terms of the Series A Preferred Stock), which was consummated on February 6, 2017. Accordingly, during the first quarter of 2017, the Company recorded the BCF at its estimated fair value of $261,794 as a reduction of the carrying value of the Series A Preferred Stock and an increase to Additional Paid-In Capital. Beginning in the first quarter of 2017, the accretion of this BCF reduces net income available to common stockholders in the calculation of earnings per share, as shown in Note 15, Earnings (Loss) Per Share. During the nine months ended September 30, 2017, the Company recorded additional BCF of $3,574 related to the paid-in-kind dividends. The total BCF of $265,368 will be accreted using a constant yield approach over a one-year period. For the nine months ended September 30, 2017, we have recorded total accretion on the Series A Preferred Stock of $185,149, and as of September 30, 2017 the Series A Preferred Stock had a carrying value of $302,693. As of December 31, 2016, prior to the January 2017 funding of purchase price for the additional 57 shares of Series A Preferred Stock, and prior to the IPO and the recording of the IPO-contingent BCF, the Series A Preferred Stock had a carrying value of $332,957. Other Loss Contingencies Laureate is subject to legal actions arising in the ordinary course of its business. In management's opinion, we have adequate legal defenses, insurance coverage and/or accrued liabilities with respect to the eventuality of such actions. We do not believe that any settlement would have a material impact on our Consolidated Financial Statements. Contingent Liabilities for Taxes As of September 30, 2017 and December 31, 2016, Laureate has recorded cumulative liabilities totaling $58,046 and $67,192, respectively, for taxes other-than-income tax, principally payroll-tax-related uncertainties recorded at the time of an acquisition. The changes in this recorded liability are related to acquisitions, interest and penalty accruals, changes in tax laws, expirations of statutes of limitations, settlements and changes in foreign currency exchange rates. The terms of the statutes of limitations on these contingencies vary but can be up to 10 years. This liability is included in Other long-term liabilities on the Consolidated Balance Sheets. We have also recorded current liabilities for taxes other-than-income tax of $248 and $1,896, respectively, as of September 30, 2017 and December 31, 2016, in Other current liabilities on the Consolidated Balance Sheets. The recorded value of contingent liabilities is reduced when they are extinguished or the related statutes of limitations expire. In addition, as of September 30, 2017 and December 31, 2016, Laureate has recorded cumulative liabilities for income tax contingencies of $110,513 and $103,471, respectively. In addition, we have identified certain tax-related contingencies that we have assessed as being reasonably possible of loss, but not probable of loss, and could have an adverse effect on the Company’s results of operations if the outcomes are unfavorable. In most cases, Laureate has received indemnifications from the former owners and/or noncontrolling interest holders of the acquired businesses for contingencies, and therefore, we do not believe we will sustain an economic loss even if we are required to pay these additional amounts. As of September 30, 2017 and December 31, 2016, indemnification assets primarily related to acquisition contingencies were $90,576 and $97,607, respectively. These indemnification assets primarily covered contingencies for income taxes and taxes other-than-income taxes. Other Loss Contingencies Laureate has accrued liabilities for certain civil actions against our institutions, a portion of which existed prior to our acquisition of these entities. As of September 30, 2017 and December 31, 2016, approximately $23,000 and $18,000, respectively, of loss contingencies were included in Other long-term liabilities and Other current liabilities on the Consolidated Balance Sheets. Laureate intends to vigorously defend against these lawsuits. Hunan International Economics University (HIEU), our institution in China, is named as one of five defendants in a civil case involving a loan transaction that was entered into by certain noncontrolling interest holders of HIEU as borrowers, and was allegedly guaranteed by HIEU. The amount of the loan is approximately $29,000, including interest and penalties. The noncontrolling interest holders are the primary defendants in this civil case, with HIEU added in its alleged role as guarantor. Due to developments in the case that occurred during the second quarter of 2017, we determined that the probability of incurring a loss in this legal matter is reasonably possible as of September 30, 2017, but not probable, and therefore a liability has not been recorded. On November 4, 2017, HIEU was informed by the court that the case against it would be dismissed, although no formal judgment has been received. Until it receives the formal judgment of dismissal, HIEU will continue to vigorously defend this case. Material Guarantees – Student Financing Chile The accredited Chilean institutions in the Laureate network also participate in a government-sponsored student financing program known as Crédito con Aval del Estado (the CAE Program). The CAE Program was formally implemented by the Chilean government in 2006 to promote higher education in Chile for lower socio-economic level students in good academic standing. The CAE Program involves tuition financing and guarantees that are provided by our institutions and the government. As part of the CAE Program, these institutions provide guarantees which result in contingent liabilities to third-party financing institutions, beginning at 90% of the tuition loans made directly to qualified students enrolled through the CAE Program and declining to 60% over time. The guarantees by these institutions are in effect during the period in which the student is enrolled, and the guarantees are assumed entirely by the government upon the student’s graduation. When a student leaves one of Laureate's institutions and enrolls in another CAE-qualified institution, the Laureate institution will remain guarantor of the tuition loans that have been granted up to the date of transfer, and until the student's graduation from a CAE-qualified institution. The maximum potential amount of payments our institutions could be required to make under the CAE Program was approximately $515,000 and $479,000 at September 30, 2017 and December 31, 2016, respectively. This maximum potential amount assumes that all students in the CAE Program do not graduate, so that our guarantee would not be assigned to the government, and that all students default on the full amount of the CAE-qualified loan balances. As of September 30, 2017 and December 31, 2016, we recorded $27,900 and $20,636, respectively, as estimated long-term guarantee liabilities for these obligations. Material Guarantees – Other In conjunction with the purchase of UNP, Laureate pledged all of the acquired shares as a guarantee of our payments of rents as they become due. In the event that we default on any payment, the pledge agreement provides for a forfeiture of the relevant pledged shares. In the event of forfeiture, Laureate may be required to transfer the books and management of UNP to the former owners. Laureate acquired the remaining 49% ownership interest in UAM Brazil in April 2013. As part of the agreement to purchase the 49% ownership interest, Laureate pledged 49% of its total shares in UAM Brazil as a guarantee of our payment obligations under the purchase agreement. In the event that we default on any payment, the agreement provides for a forfeiture of the pledged shares. In connection with the purchase of FMU on September 12, 2014, Laureate pledged 75% of the acquired shares to third-party lenders as a guarantee of our payment obligations under the loans that financed a portion of the purchase price. Laureate pledged the remaining 25% of the acquired shares to the sellers as a guarantee of our payment obligations under the purchase agreement for the seller notes. In the event that we default on any payment of the loans or seller notes, the purchase agreement provides for a forfeiture of the relevant pledged shares. After the payment of the seller notes in September 2017, the shares pledged to the sellers were pledged to the third-party lenders until full payment of the loans, which mature in April 2021. See Note 5, Due to Shareholders of Acquired Companies. Standby Letters of Credit, Surety Bonds and Other Commitments As of September 30, 2017 and December 31, 2016, Laureate's outstanding letters of credit (LOCs) and surety bonds primarily consisted of the items discussed below. As of both September 30, 2017 and December 31, 2016, we had approximately $105,600 posted as LOCs in favor of the United States Department of Education (DOE). These LOCs were required to allow Walden, Kendall, NewSchool, and St. Augustine to continue participating in the DOE Title IV program. These LOCs are fully collateralized with cash equivalents and certificates of deposit, which are classified as Restricted cash and investments on our September 30, 2017 Consolidated Balance Sheet. We received a letter dated October 12, 2017 from the DOE stating that, based on Laureate’s failure to meet standards of financial responsibility for the fiscal year ended December 31, 2016, we are required to either: 1) increase our LOC to an amount equal to 50% of the Title IV, Higher Education Act (HEA) funds received by Laureate in the fiscal year ended December 31, 2016 (calculated by the DOE to be $456,293) and qualify as a financially responsible institution; or 2) increase our LOC to an amount equal to 15% of the Title IV, HEA funds received by Laureate in the fiscal year ended December 31, 2016 (calculated by the DOE to be $136,888) and remain provisionally certified for a period of up to three complete award years. In the letter, the DOE also has required us to continue to comply with additional notification and reporting requirements. We have chosen the second option, to increase our LOC to $136,888 and to remain provisionally certified for a period of up to three complete award years, and we are in the process of obtaining one or more LOCs for such amount. We also chose that option in 2016, resulting in our letter of credit balance of $105,600 that is posted as of September 30, 2017. As of September 30, 2017 and December 31, 2016, we had $39,236 and $34,746, respectively, posted as cash-collateral for LOCs related to the Spain Tax Audits. The cash collateral for these LOCs was classified as Restricted cash and investments on our September 30, 2017 Consolidated Balance Sheet. As part of our normal operations, our insurers issue surety bonds on our behalf, as required by various state education authorities in the United States. We are obligated to reimburse our insurers for any payments made by the insurers under the surety bonds. As of September 30, 2017 and December 31, 2016, the total face amount of these surety bonds was $13,980 and $12,162, respectively. These bonds are fully collateralized with cash, which is classified as Restricted cash and investments on our September 30, 2017 Consolidated Balance Sheet. In November 2016, in order to continue participating in Prouni, a federal program that offers tax benefits designed to increase higher education participation rates in Brazil, UAM Brazil posted a guarantee in the amount of $15,300. In connection with the issuance of the guarantee, UAM Brazil obtained a non-collateralized surety bond from a third party in order to secure the guarantee. The cost of the surety bond was $1,400, of which half was reimbursed by the former owner of UAM Brazil, and is being amortized over the five-year term. The Company believes that this matter will not have a material impact on our Consolidated Financial Statements.

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