On November 3, 2020, the Company completed its acquisition of Torrens University and related assets in Australia and New Zealand ("ANZ") pursuant to the sale and purchase agreement dated July 29, 2020. The acquired operations include Torrens University Australia, Think Education, and Media Design School, which together provide diversified student curricula to over 19,000 students across five industry verticals, including business, hospitality, health, education, creative technology and design.

Pursuant to the Purchase Agreement, the aggregate consideration paid was approximately $658.4 million in cash, which reflected the original agreed upon purchase price of $642.7 million, plus a $15.7 million adjustment reflecting an estimated $11.0 million of net cash at close, and an estimated $4.7 million related to higher net working capital. These estimated adjustments are subject to a final true-up of net cash and net working capital, based on the actual closing accounts to be finalized by both parties.

The Company applied the acquisition method of accounting to ANZ, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable net assets was allocated to goodwill. Goodwill reflects workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result from the acquisition. The goodwill recorded as part of the acquisition was allocated to the Australia/New Zealand reportable segment in the amount of $546.1 million, and is not deductible for tax purposes.

Through December 31, 2020, the Company has incurred $8.0 million of acquisition-related costs related to this acquisition. These costs were primarily attributable to legal, financial, and accounting support services incurred by the Company in connection with the acquisition, and are included in Merger and integration costs in the accompanying unaudited condensed consolidated statement of income.

The preliminary opening balance sheet is subject to adjustment based on final assessment of the fair values of certain acquired assets and liabilities, primarily intangible assets and income taxes. As the Company finalizes its assessment of the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The Company reflects measurement period adjustments, if any, in the period in which the adjustments occur.

The preliminary fair value of assets acquired and liabilities assumed as well as a reconciliation to considered transferred is presented in the table below (in thousands):


Cash and cash equivalents	$	16,082
Tuition receivable	24,447
Other current assets	17,713
Property and equipment, net	41,770
Right-of-use lease assets	44,229
Intangible assets	103,161
Goodwill	546,053
Other assets	2,799
Total assets acquired	796,254
Accounts payable and accrued expenses	(33,876)
Income taxes payable	(229)
Contract liabilities	(33,309)
Lease liabilities	(9,685)
Deferred income taxes	(18,712)
Lease liabilities, non-current	(34,544)
Other long-term liabilities	(7,520)
Total liabilities assumed	(137,875)
Total consideration	$	658,379

The Company determined the fair value of assets acquired and liabilities assumed based on assumptions that reasonable market participants would use while employing the concept of highest and best use of the assets and liabilities. The Company utilized the following assumptions, some of which include significant unobservable inputs which would qualify the valuations as Level 3 measurements, and valuation methodologies to determine fair value:

▪Trade names - to determine the fair value of the trade names, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate. Key assumptions used in the valuation included revenue growth rates ranging from 2.5% to 6.3% per year, a royalty rate of 2.5% and a discount rate of 11%.

▪Student relationships - to determine the fair value of the student relationships, the Company used the excess earnings method, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, earnings before interest and taxes margins, annual attrition rate, and discount rate. Key assumptions used in the valuation included an annual attrition rate of 60% and a discount rate of 11%.

•Property and equipment - Included in property and equipment is course content of $10.0 million. To determine the fair value of course content, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate. Key assumptions used in the valuation included revenue growth rates ranging from 5.6% to 6.2%, a royalty rate of 3% and a discount rate of 11%. The course content will be amortized over 3 years. All other property and equipment was valued at estimated cost.

•Contract liabilities - The Company estimated the fair value of contract liabilities using the cost build-up method, which represents the cost to deliver the services plus a normal profit margin. Based on this method, fair value of contract liabilities were estimated to be 70% of carrying value as of the acquisition date.

•Other current and noncurrent assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.

The operations of ANZ were included in the consolidated financial statements as of the acquisition date. The revenue and net loss for ANZ reported within the consolidated statements of income (loss) for the year ended December 31, 2020 were $23.4 million and $10.5 million, respectively.

The following unaudited pro forma information has been presented as if the ANZ acquisition occurred on January 1, 2019. The information is based on the historical results of operations of the acquired business, adjusted for:

•The allocation of purchase price and related adjustments, including the adjustments to amortization expense related to the fair value of intangible assets acquired;

The pro forma results do not necessarily represent what would have occurred if the acquisition had actually taken place on January 1, 2019, nor do they represent the results that may occur in the future. The pro forma adjustments are based on available information and upon assumptions the Company believes are reasonable to reflect the impact of this acquisition on the Company’s historical financial information on a supplemental pro forma basis. The following table presents the Company's pro forma combined revenues and net income (in thousands).

On August 1, 2018, the Company completed its merger with CEC and its wholly-owned subsidiaries, pursuant to a merger agreement dated October 29, 2017. The merger enabled the Company to become a national leader in education innovation that improves affordability and enhances career outcomes by offering complementary programs and sharing academic and technological best practices, through a best-in-class corporate platform supporting independent universities.

Pursuant to the merger agreement, the Company issued 0.875 shares of the Company’s common stock for each issued and outstanding share of CEC common stock. Outstanding equity awards held by existing CEC employees and certain non-employee directors of CEC were assumed by the Company and converted into comparable Company awards at the exchange ratio. Outstanding equity awards held by CEC non-employee directors who did not serve as directors of the Company after completion of the merger were converted to Company awards and settled. Outstanding equity awards held by former CEC employees were settled upon completion of the merger in exchange for cash payments as specified in the merger agreement.


Fair value of Company common stock issued in exchange for CEC outstanding shares(1)	$	1,209,483
Fair value of Company equity-based awards issued in exchange for CEC equity-based awards	27,478
Total fair value of consideration transferred	$	1,236,961

The Company applied the acquisition method of accounting to CEC’s business, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable net assets was allocated to goodwill. Goodwill reflects workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are

expected to result from the acquisition. The goodwill recorded as part of the merger was allocated to the Strayer University and Capella University reportable segments in the amount of $330.6 million and $394.7 million, respectively, and is not deductible for tax purposes.

The Company incurred $20.1 million of acquisition-related costs which were recognized in Merger and integration costs in the consolidated statements of income (loss). Issuance costs of $0.1 million were recognized in additional paid-in capital in the consolidated balance sheets.

During the year ended December 31, 2019, the Company finalized the fair value of assets acquired and liabilities assumed. Measurement period adjustments were reflected in the periods in which the adjustments occurred. During the year ended December 31, 2019, the Company recorded measurement period adjustments that reduced deferred income taxes and current assets by $3.8 million and $1.9 million, respectively, and increased current liabilities and long-term liabilities by $1.3 million and $0.1 million, respectively. These adjustments resulted in a $0.5 million decrease to goodwill recognized in connection with the CEC merger during the year ended December 31, 2019. All measurement period adjustments are reflected in the fair value of assets acquired and liabilities assumed in the table below.

The fair value of assets acquired and liabilities assumed, as well as a reconciliation to consideration transferred is presented in the table below (in thousands):


Cash and cash equivalents	$	167,859
Marketable securities	31,419
Tuition receivable	36,716
Income tax receivable	163
Other current assets	9,041
Marketable securities, non-current	34,700
Property and equipment, net	53,182
Other assets	14,556
Intangible assets	349,800
Goodwill	725,275
Total assets acquired	1,422,711
Accounts payable and accrued expenses	(48,103)
Contract liabilities	(39,000)
Deferred income taxes	(96,320)
Other long-term liabilities	(2,327)
Total liabilities assumed	(185,750)
Total consideration	$	1,236,961

▪Trade names - to determine the fair value of the trade names, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate. Key assumptions used in the valuation included a revenue growth rate of 2.5%, a royalty rate of 5% and a discount rate of 13%.

▪Student relationships - to determine the fair value of the student relationships, the Company used the excess earnings method, which involved the use of estimates and assumptions with respect to timing and amounts of future cash flows, earnings before interest and taxes margin, annual attrition rate, and discount rate. Key assumptions used in the valuation included an annual attrition rate of 45% and a discount rate of 10%.

•Property and equipment - Included in property and equipment is course content of $14.0 million and internally developed software of $5.0 million. Each will be amortized over three years. All other property and equipment was valued at estimated cost.

▪Course content - to determine the fair value of the course content, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate. Key assumptions used in the valuation included a revenue growth rate of 2.5%, a royalty rate of 3% and a discount rate of 10%.

▪Internally developed software - to determine the fair value of internally developed software, the Company used the cost approach, which involved estimating the direct and indirect costs required to reproduce the software.

•Other current and noncurrent assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.

The operations of CEC were included in the consolidated financial statements as of the acquisition date. The revenue and net loss for CEC reported within the consolidated statements of income (loss) for the year ended December 31, 2018 were $160.4 million and $39.6 million, respectively.

The following unaudited pro forma information has been presented as if the CEC acquisition occurred on January 1, 2018. The information is based on the historical results of operations of the acquired business, adjusted for:

•The allocation of purchase price and related adjustments, including the adjustments to amortization expense related to the fair value of intangible assets acquired;

The pro forma results do not necessarily represent what would have occurred if the acquisition had actually taken place on January 1, 2018, nor do they represent the results that may occur in the future. The pro forma adjustments are based on available information and upon assumptions the Company believes are reasonable to reflect the impact of this acquisition on the Company’s historical financial information on a supplemental pro forma basis. The following table presents the Company's pro forma combined revenues and net income (in thousands). Pro forma results for the years ended December 31, 2019 and 2020 are not presented below because the results of CEC are included in the Company's December 31, 2019 and 2020 consolidated statements of income (loss).