Acquisition Accounting

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Acquisition Accounting

Acquisition Accounting

On November 1, 2013, the Company acquired all of the outstanding common stock of HCON, for an initial adjusted aggregate purchase price of approximately $46.3 million. The HCON acquisition was accounted for under FASB ASC Topic 805, Business Combinations, which requires the acquisition method to be used for all business combinations. Under FASB ASC Topic 805, the assets and liabilities of an acquired company are reported at business fair value along with the fair value of unrecorded intangible assets at the date of acquisition. Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed and the fair value assigned to identifiable intangible assets. The initial purchase price allocation resulted in $38.1 million of goodwill, which is deductible for tax purposes. Intangible assets are amortized over their estimated useful lives unless they are deemed to have an indefinite life. Identified intangible assets with an indefinite life are trade name, accreditation, licensing and Title IV, and affiliate agreements as they benefit the Company indefinitely. Because HCON is wholly owned by the Company as a result of the acquisition, management has determined that push-down accounting is appropriate.

As part of the transaction, the Company and the selling stockholders of HCON agreed to an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, as it relates to the acquisition of HCON by the Company. A Section 338(h)(10) election is an election made jointly by buyer(s) and seller(s) to treat a stock acquisition as an asset acquisition for U.S. federal income tax purposes. The acquisition resulted in a preliminary estimate of fair value of its liability to the selling stockholders related to the Section 338(h)(10) election in the amount of $150,000, which was included in the initial goodwill allocation. Prior to December 31, 2014, the Company revised its estimate of the fair value of its liability to HCON’s selling stockholders related to the Section 338(h)(10) election to approximately $636,000. As a result, the total adjusted aggregate purchase price and the amount of goodwill were revised to $46.8 million and $38.6 million, respectively.

The fair value of identified intangible assets acquired was determined using one of the following three valuation methodologies:

• Cost approach;

• Income approach; or

• Market approach.

		(in thousands)
Fair value consideration transferred:
Cash		$	46,128
Fair Value of IRC 338(h)(10) election		636
Total fair value consideration transferred		$	46,764
Recognized amounts of identifiable tangible assets acquired and liabilities assumed:
Assets acquired		$	4,834
Liabilities assumed		4,786
Assets acquired in excess of liabilities assumed		$	48
	Useful Life
Recognized identified intangible assets:
Student contracts and relationships	6 years	$	3,870
Trade name	Indefinite	1,998
Curricula	3 years	405
Accreditation, licensing and Title IV	Indefinite	1,686
Affiliate agreements	Indefinite	37
Non-compete agreements	5 years	86
Total recognized identified intangible assets		$	8,082
Goodwill		$	38,634