ACQUISITION AND DISCONTINUED OPERATIONS

(a) Acquisition

On October 12, 2017, the Company acquired 100% of the outstanding shares of Professional Warranty Service Corporation ("PWSC") for cash consideration of $10.0 million. As further discussed in Note 20, "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.

This acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. During the third quarter of 2018, the Company completed its fair value analysis of the assets acquired and liabilities assumed. Goodwill of $2.9 million was recognized. The goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired, which the Company paid to grow its portfolio of warranty companies and acquire an assembled workforce. The goodwill is not deductible for tax purposes. Separately identifiable intangible assets of $6.2 million were recognized resulting from the valuations of acquired customer relationships, non-compete agreement and trade name. Refer to Note 10, "Intangible Assets," for further disclosure of the intangible assets related to this acquisition.

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
Deferred tax asset	118
Property and equipment	238
Goodwill	2,867
Intangible assets - subject to amortization	5,569
Intangible asset - not subject to amortization	627
Other assets	206
Total assets	$	13,168

Deferred service fees	$	800
Accrued expenses and other liabilities	2,368
Total liabilities	$	3,168

Purchase price	$	10,000

(b) Discontinued Operations

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

On July 16, 2018, the Company announced it had 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"). On October 18, 2018, the Company completed the previously announced sale of Mendota. The final aggregate purchase price of $28.6 million was redeployed primarily to acquire equity investments, limited liability investments, limited liability investment, at fair value and other investments, which were owned by Mendota at the time of the closing, and to fund $5.0 million into an escrow account to be used to satisfy potential indemnity obligations under the definitive stock purchase agreement. 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, which was 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 Mendota of $1.2 million and $9.1 million for the three and nine months ended September 30, 2018 as a result of adjusting the net carrying value of Mendota to be equal to the final purchase price. The assets and liabilities of Mendota are presented as held for sale in the consolidated balance sheets at September 30, 2018 and 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, of $1.7 million for the third annual installment earnout payment. Net of expenses, the Company recorded an additional gain on disposal of ARS of $1.3 million and $1.0 million for the nine months ended September 30, 2018 and September 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 and ARS included in income (loss) from discontinued operations, net of taxes in the consolidated statements of operations for the three and nine months ended September 30, 2018 and September 30, 2017 is presented below:



(in thousands)	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Income (loss) from discontinued operations, net of taxes:
Revenues:
Net premiums earned	$	16,727		$	32,556		$	68,319		$	98,996
Net investment income (loss)	240			(110		)	674			(255		)
Net realized gains (losses)	130			1,976			(4		)	3,109
Loss on change in fair value of equity investments	(122		)	—			(16		)	—
Other income	2,184			2,467			7,060			7,494
Total revenues	19,159			36,889			76,033			109,344
Expenses:
Loss and loss adjustment expenses	14,104			27,732			55,832			79,053
Commissions and premium taxes	713			5,128			7,101			15,764
General and administrative expenses	3,925			4,400			11,703			14,830
Impairment of intangible assets	—			—			—			250
Total expenses	18,742			37,260			74,636			109,897
Income (loss) from discontinued operations before income tax benefit	417			(371		)	1,397			(553		)
Income tax benefit	—			—			—			(85		)
Income (loss) from discontinued operations, net of taxes	417			(371		)	1,397			(468		)
(Loss) gain on disposal of discontinued operations before income tax expense	(1,172		)	—			(7,800		)	1,017
Income tax expense	—			—			—			—
(Loss) gain on disposal of discontinued operations, net of taxes	(1,172		)	—			(7,800		)	1,017
Total (loss) income from discontinued operations, net of taxes	$	(755	)	$	(371	)	$	(6,403	)	$	549

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



(in thousands)	September 30, 2018		December 31, 2017
Assets
Investments:
Fixed maturities, at fair value	$	40,910	$	38,673
Equity investments, at fair value	—		4,405
Total investments	40,910		43,078
Cash and cash equivalents	18,112		23,512
Accrued investment income	247		195
Premiums receivable, net	25,243		27,855
Other receivables	1		603
Deferred acquisition costs, net	1,130		6,720
Property and equipment, net	138		222
Intangible assets, net	—		7,553
Other assets	26,253		407
Assets held for sale	$	112,034	$	110,145
Liabilities
Unpaid loss and loss adjustment expenses	$	56,332	$	62,323
Unearned premiums	31,159		36,686
Reinsurance payable	15,425		82
Net deferred income tax liabilities	—		1,586
Accrued expenses and other liabilities	4,160		5,223
Liabilities held for sale	$	107,076	$	105,900