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Commitments and Contingencies | 6 Months Ended
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Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Noncontrolling Interest Holder Put Arrangements The following section provides a summary table and description of the various noncontrolling interest holder put arrangements that Laureate had outstanding as of June 30, 2018. 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 June 30, 2018, the carrying value of all noncontrolling interest holder put arrangements was $11,258, which includes accreted incremental value of $12,406 in excess of traditional noncontrolling interests. If the minority put arrangements were all exercised at June 30, 2018, Laureate would be obligated to pay the noncontrolling interest holders an estimated amount of $11,258, as summarized in the following table:
| Nominal Currency | First Exercisable Date | Estimated Value as of June 30, 2018 redeemable within 12-months: |  | Reported Value
Noncontrolling interest holder put arrangements |  |  |  |  |
INTI Education Holdings Sdn Bhd (Inti Holdings) - 10.10% | MYR | Current | $ | 9,267 |  |  | $ | 9,267 |
Pearl Retail Solutions Private Limited (Pearl) - 10% | INR | Current | 1,930 |  |  | 1,930 |
Stamford International University (STIU) - Puttable preferred stock of TEDCO | THB | Current | 61 |  |  | 61 |
Total noncontrolling interest holder put arrangements |  |  | 11,258 |  |  | 11,258 |
Puttable common stock - not currently redeemable | USD | * | — |  |  | 1,722 |
Total redeemable noncontrolling interests and equity |  |  | $ | 11,258 |  |  | $ | 12,980 |
* 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. Series A Convertible Redeemable Preferred Stock As disclosed in our 2017 Form 10-K, in December 2016 and January 2017, the Company issued an aggregate of 400 shares of convertible redeemable preferred stock (the Series A Preferred Stock) for total gross proceeds of $400,000. The Series A Preferred Stock included 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 as a reduction of the carrying value of the Series A Preferred Stock and an increase to Additional paid-in capital. The accretion of this BCF reduced net income available to common stockholders in the calculation of earnings per share, as shown in Note 16, Earnings (Loss) Per Share. The total BCF of $265,368 was accreted using a constant yield approach over a one-year period. For the six months ended June 30, 2018 and 2017, we recorded total accretion on the Series A Preferred Stock of $61,974 and $101,194, respectively, and paid cash dividends on the Series A Preferred Stock of $11,103 and $0, respectively. As of December 31, 2017, the Series A Preferred Stock had a carrying value of $400,276. The Company and each holder of shares of the Company’s Series A Preferred Stock could elect to convert all of the shares of Series A Preferred Stock into shares of Class A Common Stock one day following the first anniversary of the closing of the Company’s initial public offering, which occurred on February 6, 2017. However, the Company was not permitted to convert any shares of Series A Preferred Stock until there was an effective registration statement available to permit the holders of Series A Preferred Stock to sell the underlying shares of Class A Common Stock. On April 23, 2018, immediately after the Company’s shelf registration statement on Form S-3 became effective, all of the issued and outstanding shares of the Series A Preferred Stock were converted into 36,143 shares of the Company’s Class A common stock, par value $0.004 per share. This conversion was treated as a redemption for accounting purposes and resulted in an increase in Additional paid-in capital upon reclassification of the carrying value of the Series A Preferred Stock. See Note 13, Stockholders' Equity, for further detail. A portion of the fair value of the shares of Class A common stock issued to redeem the Series A Preferred Stock was allocated to the BCF contained in the Series A Preferred Stock. The difference between the remaining fair value of the shares of Class A common stock issued, the carrying value of the Series A Preferred Stock and fair value of the embedded derivatives resulted in a gain of $74,110, which was recorded as Additional paid-in capital but included in income available to common stockholders in the calculation of earnings per share. 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. Refer to Note 18, Legal and Regulatory Matters, for a discussion of certain matters. Contingent Liabilities for Taxes As of June 30, 2018 and December 31, 2017, Laureate has recorded cumulative liabilities totaling $66,922 and $74,318, 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 $135 and $138, respectively, as of June 30, 2018 and December 31, 2017, in Other current liabilities on the Consolidated Balance Sheets. Changes in the recorded values of non-income tax contingencies impact operating income and interest expense, while changes in the related indemnification assets impact only operating income. The total increase/(decrease) to operating income for adjustments to non-income tax contingencies and indemnification assets were $928 and $(3,813), respectively, for the six months ended June 30, 2018 and 2017. In addition, as of June 30, 2018 and December 31, 2017, Laureate has recorded cumulative liabilities for income tax contingencies of $61,242 and $100,404, respectively. As of June 30, 2018 and December 31, 2017, indemnification assets primarily related to acquisition contingencies were $98,177 and $98,493, respectively. These indemnification assets primarily cover contingencies for income taxes and taxes other-than-income taxes. In addition, we have identified certain contingencies, primarily tax-related, 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. In cases where we are not indemnified, the unrecorded contingencies are not individually material and are primarily in Brazil. In the aggregate, we estimate that the reasonably possible loss for these unrecorded contingencies in Brazil could be up to approximately $48,000 if the outcomes were unfavorable in all cases. 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. Laureate intends to vigorously defend against these matters. As of June 30, 2018 and December 31, 2017, approximately $48,000 and $22,000, respectively, of loss contingencies were included in Other long-term liabilities and Other current liabilities on the Consolidated Balance Sheets. The increase is primarily due to loss contingencies recorded as a result of the sale of LEILY in China, as discussed in Note 5, Dispositions, as well as loss contingencies in the Brazil segment for which we are indemnified by the former owner and have recorded a corresponding indemnification asset. 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 $506,000 and $527,000 at June 30, 2018 and December 31, 2017, 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 June 30, 2018 and December 31, 2017, we recorded $36,115 and $27,073, respectively, as estimated long-term guarantee liabilities for these obligations. Material Guarantees – Other In conjunction with the purchase of UNP Brazil, 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. In connection with a loan agreement entered into by a Laureate subsidiary in Peru, all of the shares of UPN Peru, one of our universities, were pledged to the third-party lender as a guarantee of the payment obligations under the loan. Standby Letters of Credit, Surety Bonds and Other Commitments As of June 30, 2018 and December 31, 2017, Laureate's outstanding letters of credit (LOCs) and surety bonds primarily consisted of the items discussed below. As of June 30, 2018 and December 31, 2017, we had approximately $136,700 and $136,900, respectively, posted as LOCs in favor of the 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 on our June 30, 2018 and December 31, 2017 Consolidated Balance Sheets. As of June 30, 2018 and December 31, 2017, we had $0 and $39,505, respectively, posted as cash collateral for LOCs related to the Spain Tax Audits. As discussed in Note 15, Income Taxes, the cash collateral for these LOCs was released during the first quarter of 2018 and used for payments to the Spanish taxing authorities in order to stop additional interest from accruing while the appeals process continues. The cash collateral for these LOCs was classified as Restricted cash on our December 31, 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 June 30, 2018 and December 31, 2017, the total face amount of these surety bonds was $14,922 and $13,980, respectively. These bonds are fully collateralized with cash, which was classified as Restricted cash on our June 30, 2018 and December 31, 2017 Consolidated Balance Sheets. 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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