Acquisition Of NinetyFive 5 LLC

12 Months Ended

Aug. 31, 2014

Acquisition Of NinetyFive 5 LLC [Abstract]

Acquisition Of NinetyFive 5 LLC

NOTE 16 – ACQUISITION OF NINETYFIVE 5 LLC

On March 11, 2013 we acquired substantially all of the assets of NinetyFive 5 LLC (NinetyFive 5).  NinetyFive 5 provides sales success training services that complement our existing sales performance content and is a key component of our Sales Performance practice.  The purchase price was $4.2 million in cash, payable in four installments through December 6, 2013, plus contingent earn out payments up to a maximum of $8.5 million, based on cumulative earnings before interest, income taxes, depreciation, and amortization (EBITDA) as set forth in the purchase agreement.

The following table summarizes the estimated fair values of the assets acquired, liabilities assumed, and separately identifiable intangible assets at the acquisition date (in thousands):

Computer equipment	$	14
Intangible assets		3,989
Goodwill		4,728
Loss on reacquired license arrangement		950
Purchase price payable and unearned revenue		(2,651)
Contingent earn-out liability (long-term liabilities)		(4,109)
Gain on equity ownership interest		(971)
Cash paid	$	1,950

The fair value of the contingent earn-out liability was determined using the Probability Weighted Expected Return Method.  We estimated the projected EBITDA to be achieved during the earn-out period utilizing various potential pay-out scenarios.  Probabilities were applied to each potential scenario and the resulting values were discounted using a rate that considered NinetyFive 5’s weighted average cost of capital as well as a specific risk premium associated with the riskiness of the earn out itself, the related projections, and the overall business.  Under the applicable accounting guidance, we are required to reassess the fair value of the contingent earn-out liability each reporting period.  Any changes to the fair value are recorded to operating income in the period of change.

To complete the purchase transaction, we incurred $0.1 million of acquisition costs, which were recorded as selling, general, and administrative expenses in our consolidated income statements.  The acquisition of NinetyFive 5 had an immaterial impact on our consolidated income statements for the fiscal year ended August 31, 2013 and the acquisition of NinetyFive 5 was determined to be insignificant as defined by Regulation S-X.  NinetyFive 5 had total sales of $8.7 million (unaudited) and net income of $1.9 million (unaudited) for the year ended December 31, 2012.

Prior to the acquisition date, NinetyFive 5 operated under an agreement that granted them a worldwide, non-exclusive, and royalty-free license to use specified Company content.  As consideration for this license agreement, we obtained an equity interest in NinetyFive 5 and we owned 10.5 percent of NinetyFive 5 at the acquisition date.  We were also entitled to receive ownership distributions, which were immaterial to our consolidated income statements in the periods received.  In connection with the acquisition of NinetyFive 5, and in accordance with Accounting Standards Codification 805, Business Combinations, we revalued our ownership interest to fair value at the acquisition date and determined the fair value of the reacquired license rights.  In accordance with the valuation of our ownership interest, we recognized a gain from the purchase transaction for the amount by which the fair value of our equity interest exceeded its carrying value.  We then considered whether the reacquired license rights were favorable or unfavorable to the terms of a current market transaction to determine the need to recognize a settlement gain or loss.  Based on the valuation of the reacquired license rights, we recognized a settlement loss.  The gain from our ownership interest in NinetyFive 5 and the loss from the reacquired license rights consisted of the following amounts, which were recorded as other income, net in our consolidated income statements for the fiscal year ended August 31, 2013 (in thousands).

Gain on equity ownership interest	$	971
Loss on reacquired license arrangement		(950)
Other income, net	$	21

The goodwill generated by the transaction is primarily attributable to the organization, methodologies, and related processes developed by NinetyFive 5 that complement our existing sales performance content.  We expect the acquisition of NinetyFive 5 and its integration into our Sales Performance practice will be highly synergistic for our clients.

We reassess the fair value of expected contingent earn out consideration and the corresponding liability resulting from the acquisition of NinetyFive 5 at the end of each fiscal quarter.  The reduction of the liability for the fiscal year ended August 31, 2014 totaled $1.6 million with a corresponding reduction in selling, general, and administrative expenses.