ACQUISITION AND DISCONTINUED OPERATIONS

(a) Acquisition

Professional Warranty Service Corporation:

On October 12, 2017, the Company acquired 100% of the outstanding shares of Professional Warranty Service Corporation ("PWSC") for estimated cash consideration of approximately $9.9 million. The final purchase price is subject to a true-up that will be finalized in 2018. As further discussed in Note 17, "Segmented Information," PWSC is included in the Extended Warranty segment. PWSC is based in Virginia and is a leading provider of new home warranty products and administration services to the largest tier of domestic residential construction firms in the United States. This acquisition allows the Company to grow its portfolio of warranty companies and expand into the home warranty business.

The Company intends to finalize during 2018 its fair value analysis of the assets acquired and liabilities assumed. The assets acquired and liabilities assumed are recorded in the consolidated financial statements at their estimated fair market values. These estimates, allocations and calculations are subject to change as we obtain further information; therefore, the final fair market values of the assets acquired and liabilities assumed may not agree with the estimates included in the consolidated financial statements. The following table summarizes the estimated allocation of the assets acquired and liabilities assumed at the date of acquisition:



(in thousands)
	October 12, 2017
Cash and cash equivalents	$	2,071
Other receivables	50
Service fee receivable	1,422
Property and equipment	238
Other assets	205
Goodwill	9,051
Total assets	$	13,037

Deferred service fees	$	2,079
Accrued expenses and other liabilities	1,089
Total liabilities	$	3,168

Purchase price	$	9,869

(b) Discontinued Operations

Mendota Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company:

On July 16, 2018, the Company announced it has entered into a definitive agreement to sell its non-standard automobile insurance companies Mendota Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company (collectively "Mendota") for an aggregate purchase price equal to Mendota's statutory surplus at June 30, 2018, which is approximately $28.9 million. The transaction is expected to be completed during the third quarter of 2018 subject to the receipt of regulatory approvals. As part of the transaction, the Company will indemnify the buyer for any loss and loss adjustment expenses with respect to open claims and certain specified claims in excess of Mendota's carried unpaid loss and loss adjustment expenses at June 30, 2018. The maximum obligation to the Company with respect to the open claims is $2.5 million. There is no maximum obligation to the Company with respect to the specified claims.

As a result of this announcement, Mendota, previously disclosed as part of the Insurance Underwriting segment, has been classified as a discontinued operation and the results of their operations are reported separately for all periods presented. The Company recognized a loss on disposal of $8.0 million during the second quarter of 2018, as a result of adjusting the net carrying value of Mendota to be equal to the estimated purchase price. The assets and liabilities of Mendota are presented as held for sale in the consolidated balance sheets at June 30, 2018 and December 31, 2017.

Itasca Real Estate Investors, LLC:

On June 1, 2018, the Company disposed of its subsidiary, Itasca Real Estate Investors, LLC ("Itasca Real Estate"). During the second quarter of 2018, the Company recognized a gain on disposal of Itasca Real Estate of $0.0 million. As a result of the sale, Itasca Real Estate has been classified as a discontinued operation and the results of their operations are reported separately for all periods presented. The assets and liabilities of Itasca Real Estate are presented as held for sale in the consolidated balance sheets at December 31, 2017.

Assigned Risk Solutions Ltd.:

On April 1, 2015, the Company closed on the sale of its subsidiary, Assigned Risk Solutions Ltd. ("ARS"). The terms of the sale provided for receipt by the Company of future earnout payments equal to 1.25% of ARS' written premium and fee income during the earnout periods. The earnout payments were payable in three annual installments beginning in April 2016 through April 2018. During the second quarter of 2018, the Company received cash consideration, before expenses, for the third annual installment earnout payment of $1.7 million. Net of expenses, the Company recorded an additional gain on disposal of ARS of $1.3 million and $1.0 million for the three and six months ended June 30, 2018 and June 30, 2017, respectively. As a result of the sale, ARS, previously disclosed as part of the Extended Warranty (formerly Insurance Services) segment, has been classified as a discontinued operation.

Summary financial information for Mendota, Itasca Real Estate and ARS included in (loss) income from discontinued operations, net of taxes in the statements of operations for the three and six months ended June 30, 2018 and June 30, 2017 is presented below:



(in thousands)	Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
Income (loss) from discontinued operations, net of taxes:
Revenues:
Net premiums earned	$	22,956		$	33,518		$	51,592		$	66,440
Rental income	4			6			10			12
Net investment income (loss)	570			(1,008		)	519			(478		)
Net realized (losses) gains	(1		)	735			2			1,133
(Loss) gain on change in fair value of equity investments	(77		)	—			237			—
Other income	2,445			2,556			4,876			5,027
Total revenues	25,897			35,807			57,236			72,134
Expenses:
Loss and loss adjustment expenses	18,927			26,130			41,728			51,321
Commissions	2,251			5,375			6,442			10,688
General and administrative expenses	3,808			4,872			7,748			10,407
Impairment of intangible assets	—			—			—			250
Total expenses	24,986			36,377			55,918			72,666
Income (loss) from discontinued operations before income tax benefit	911			(570		)	1,318			(532		)
Income tax benefit	—			—			—			(85		)
Income (loss) from discontinued operations, net of taxes	911			(570		)	1,318			(447		)
(Loss) gain on disposal of discontinued operations, net of taxes:
(Loss) gain on disposal of discontinued operations before income tax expense	(6,611		)	1,017			(6,611		)	1,017
Income tax expense	—			—			—			—
(Loss) gain on disposal of discontinued operations, net of taxes	(6,611		)	1,017			(6,611		)	1,017
Total (loss) income from discontinued operations, net of taxes	$	(5,700	)	$	447		$	(5,293	)	$	570

The assets and liabilities of Mendota and Itasca Real Estate are presented as held for sale in the consolidated balance sheets. The carrying amounts of the major classes of assets and liabilities of Mendota and Itasca Real Estate at June 30, 2018 and December 31, 2017 are as follows:



(in thousands)	June 30, 2018		December 31, 2017
Assets
Investments:
Fixed maturities, at fair value	$	42,714	$	38,673
Equity investments, at fair value	3,681		4,518
Limited liability investments	18,427		20,251
Limited liability investment, at fair value	3,629		4,543
Other investments, at cost which approximates fair value	1,400		1,400
Total investments	69,851		69,385
Cash and cash equivalents	18,517		23,505
Accrued investment income	239		195
Premiums receivable, net	27,673		27,855
Other receivables	174		603
Reinsurance recoverable	6,509		108
Prepaid reinsurance premiums	13,493		—
Deferred acquisition costs, net	2,048		6,720
Property and equipment, net	162		903
Intangible assets, net	—		7,553
Other assets	138		299
Assets held for sale	$	138,804	$	137,126
Liabilities
Unpaid loss and loss adjustment expenses	$	58,817	$	62,323
Unearned premiums	34,969		36,686
Reinsurance payable	14,869		82
Deferred income tax liability	—		1,586
Accrued expenses and other liabilities	4,211		5,272
Liabilities held for sale	$	112,866	$	105,949