3.BUSINESS ACQUISITIONS

Acquisition of Germany, Switzerland, and Austria Licensee

On December 5, 2018, we purchased all of the equity of Leadership Institut GmbH, a Munich, Germany based company with wholly owned subsidiary companies in Switzerland and Austria. Leadership Institut GmbH previously operated as an independent licensee that provided our training and products to Germany, Switzerland, and Austria (GSA). We transitioned the GSA licensee operation into a directly owned office operation during fiscal 2019. The purchase price was $0.2 million in cash, plus $0.8 million in forgiveness of liabilities owed to the Company from the pre-existing relationship at the purchase date. There is no contingent or other additional consideration associated with the purchase of the former GSA licensee. We accounted for the acquisition of Leadership Institut Gmbh as a business combination in the second quarter of fiscal 2019. We incurred costs for severance, legal, and other related acquisition expenses which totaled $0.5 million and were expensed in selling, general, and administrative expense during fiscal 2019. The acquisition of the GSA licensee will provide us with the opportunity to operate a directly owned office in one of the world’s largest economic markets and is expected to provide significant future growth opportunities. The total purchase price consisted of the following (in thousands):



Cash paid at closing	$	159
Accounts receivable from GSA licensee		798
Total purchase price	$	957

The major classes of assets and liabilities to which we have preliminarily allocated the purchase price were as follows (in thousands):

p

Cash acquired	$	127
Accounts receivable		564
Inventories		80
Prepaid expenses and other current assets		45
Intangible assets		741
Property and equipment		27
Other long-term assets		11
Assets acquired		1,595

Accounts payable		(208)
Accrued liabilities		(383)
Income taxes payable		(47)
Liabilities assumed		(638)
	$	957

The allocation of the purchase price to the intangible assets acquired was as follows (in thousands):



			Weighted Average
Description		Amount	Life
Reacquisition of license rights	$	360	3 years
Localized content		202	3 years
Customer relationships		179	3 years
	$	741

We have included the financial results of the former GSA licensee in our financial results since the date of acquisition. Since the date of the acquisition, the new direct office that serves the GSA region recognized $1.5 million of sales and a $0.2 million operating loss. During fiscal 2018, we recognized $0.4 million of royalty revenue from the GSA licensee. The acquisition of the former GSA licensee was immaterial to our financial statements and pro forma financial information was not deemed necessary for this acquisition.

Robert Gregory Partners, LLC

On May 15, 2017, we acquired the assets of Robert Gregory Partners, LLC (RGP), a Dublin, Ohio based corporate coaching firm, for $3.5 million in cash plus potential contingent consideration totaling $4.5 million. Robert Gregory Partners is a corporate coaching firm with expertise in executive coaching, transition acceleration coaching, leadership development coaching, implementation coaching, and consulting. We believe that the acquired RGP services and methodologies have become important offerings in our training and consulting business. The financial results of RGP have been included in our consolidated financial statements since the date of the acquisition.

The total purchase price consisted of the following (in thousands):



Cash paid to RGP at closing	$	3,500
Fair value of contingent consideration		1,413
Total purchase price	$	4,913

The major classes of assets and liabilities to which we have allocated the purchase price were as follows (in thousands):



Accounts receivable	$	458
Prepaid expenses		136
Intangible assets		3,811
Goodwill		1,232
Assets acquired		5,637

Accounts payable		(51)
Accrued liabilities		(80)
Deferred revenues		(593)
Liabilities assumed		(724)
	$	4,913

The goodwill generated from the RGP acquisition was allocated to each of our operating segments. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of RGP’s coaching methodologies into our services and offerings. All of the goodwill from the RGP acquisition is expected to be deductible for income tax purposes.

The payment of contingent consideration is based on the achievement of specified financial results and the delivery of “add-on coaching services” content that is included in our All Access Pass offering. We paid the former owners of RGP $1.0 million during fiscal 2018 as contingent consideration for achieving specified financial results. During the fourth quarter of fiscal 2017, we paid the former owners of RGP $0.5 million of contingent consideration for delivery of the content that was integrated into our AAP offering. Due to the timing of the $0.5 million payment for add-on coaching services, this amount was included in the investing activities section of the accompanying consolidated statement of cash flows for fiscal 2017. Refer to Note 11 for further information regarding the fair value of the contingent consideration liability resulting from the RGP acquisition.

The details of the purchase price allocated to the intangible assets acquired were as follows (in thousands):



			Weighted Average
Description		Amount	Life
Customer list	$	2,249	10 years
Content		461	5 years
Trade name		341	5 years
Non-compete agreements		328	2 years
Deferred contract revenue		237	2 years
Coach relationships		150	10 years
Acquired technology		45	3 years
	$	3,811	8 years

Our fiscal 2017 consolidated statement of operations include $1.2 million of revenue and $0.4 million of income from operations, excluding amortization of intangible assets, attributable to RGP since the date of the acquisition. The costs to acquire RGP totaled approximately $0.1 million and were expensed as components of selling, general, and administrative expense in our consolidated financial statements.

Jhana Education

On July 11, 2017, we acquired all of the outstanding stock of Jhana Education (Jhana), a San Francisco based company that specializes in the creation and dissemination of relevant, bite-sized content and learning tools for leaders and managers. The acquired Jhana content and delivery methodologies have become key features of our current AAP offering. The purchase price was $3.5 million in cash plus up to $7.2 million of contingent consideration. The financial results of Jhana have been included in our consolidated financial statements since the date of the acquisition.

The total purchase price consisted of the following (in thousands):



Cash paid to Jhana at closing	$	3,525
Fair value of contingent consideration		6,052
Total purchase price	$	9,577

The major classes of assets and liabilities to which we have allocated the purchase price were as follows (in thousands):



Cash	$	253
Accounts receivable		195
Prepaid expenses and other current assets		86
Deferred tax asset		3,138
Intangible assets		6,076
Goodwill		3,085
Assets acquired		12,833

Accounts payable		(185)
Accrued liabilities		(19)
Deferred tax liability		(2,257)
Deferred revenues		(795)
Liabilities assumed		(3,256)
	$	9,577

The details of the purchase price allocated to the intangible assets acquired consisted of the following (in thousands):



			Weighted Average
Description		Amount	Life
Content	$	3,097	5 years
Acquired technology		1,474	3 years
Customer list		1,016	5 years
Trade name		445	5 years
Non-compete agreements		44	3 years
	$	6,076	5 years

The goodwill from the Jhana acquisition was assigned to the Direct Offices and International Licensee segments. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of Jhana’s content and delivery methodologies into our services and offerings, especially in the All Access Pass. None of the goodwill from the Jhana acquisition is expected to be deductible for income tax purposes.

During fiscal 2018, we paid $2.4 million to the former owners of Jhana as contingent consideration based on the acquisition agreement. The first $1.1 million was paid within 90 days of the acquisition date and was classified as a component of cash flows from investing activities in our fiscal 2018 consolidated statement of cash flows. The payment of the remaining contingent consideration is based on certain revenue streams over the measurement period, which ends in July 2026. Refer to Note 11 for further information regarding the fair value of contingent consideration resulting from the Jhana acquisition.

The acquisition of Jhana had an immaterial impact on our consolidated financial statements for the fiscal year ended August 31, 2017. The costs to acquire Jhana totaled approximately $0.1 million and were expensed as incurred. The acquisition costs were included in our selling, general, and administrative expenses.

Unaudited Pro Forma Information

The following are supplemental consolidated financial results of Franklin Covey Co. on an unaudited pro forma basis as if the acquisitions of RGP and Jhana had been completed on September 1, 2016 (in thousands, except per share amounts):



YEAR ENDED
AUGUST 31,		2017
Revenue	$	187,745
Net loss		(7,976)
Diluted loss per share		(0.58)

These pro forma results were based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had we been a combined company during the period presented, and are not necessarily indicative of our consolidated results of operations in future periods. The pro forma results include adjustments related to purchase accounting, primarily the amortization of intangible assets, interest expense, and inclusion of acquisition costs.