Annual report pursuant to Section 13 and 15(d)

Acquisition Of Qumu, Inc.

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Acquisition Of Qumu, Inc.
12 Months Ended
Dec. 31, 2013
Business Combinations [Abstract]  
Acquisition of Qumu, Inc.
Acquisition of Qumu, Inc.
On October 10, 2011, the Company entered into an Agreement and Plan of Merger (“the Merger Agreement”) to acquire 100% of the outstanding stock of Qumu, Inc., a leading supplier of enterprise video communication solutions and social enterprise applications for business based in San Bruno, California. The acquisition was made to accelerate the Company’s growth potential in the global enterprise video content management software market.
After inclusion of working capital and other adjustments required under the Merger Agreement, the aggregate purchase price totaled approximately $53 million, consisting of a net cash outlay of approximately $39 million and approximately 1,000,000 shares of Qumu Corporation's common stock. For the purposes of calculating the number of shares of common stock issuable in the merger, the parties agreed upon a value of $13.1865 per share. Pursuant to the terms of a lock-up agreement, the shares issued in the merger were restricted from transfer, subject to certain exceptions. The restrictions lapsed for one-third of the shares at each of 180 days, 270 days and 365 days following the effective date of the merger. Following the acquisition, Qumu, Inc.'s liabilities consisted of trade payables, accrued operating expenses and deferred income related primarily to active software maintenance contracts. Of the cash amounts payable in the merger, $5.2 million was subject to escrow for a one-year period to secure a possible working capital adjustment and the indemnification obligations to the Company. The escrow period lapsed as of October 10, 2012, with no required working capital adjustments or indemnification claims. As such, the full escrow balance was released to the selling shareholders of Qumu, Inc. and other entitled parties. The acquisition was funded through the use of cash held by the Company at the acquisition date and the Company's common stock.
The acquisition was accounted for under the provisions of ASC 805, Business Combinations. The aggregate purchase price was allocated to the fair values of the tangible and intangible assets acquired and liabilities assumed. Management engaged the services of an independent qualified third-party appraiser to assist with establishing fair values. The fair values assigned to intangible assets were determined through the use of forecasted cash inflows and outflows and applying a relief-from royalty and a multi-period excess earnings method. These valuation methods were based on management’s estimates as of the acquisition date of October 10, 2011. The excess of the purchase price over the net tangible and identifiable intangible assets acquired was recorded as goodwill, which is non-deductible for tax purposes. Transaction costs of approximately $1.7 million were expensed as incurred and were included in the Company’s selling, general and administrative expenses.
The following table summarizes the purchase accounting allocation of the total purchase price to Qumu, Inc.'s net tangible and intangible assets, with the residual allocated to goodwill (in thousands).
Aggregate purchase price
$
51,275

Less: discount applied to Qumu Corporation stock for trade restrictions
(1,955
)
Net transaction consideration
$
49,320

Current assets
$
5,213

Property and equipment
390

Intangible assets
18,900

Goodwill
22,218

Net deferred tax assets
7,229

Current liabilities
(4,630
)
Total net assets acquired
$
49,320


The aggregate purchase price for purchase accounting of $51,275,000 reflects the cash consideration plus the valuation of issued Qumu Corporation stock at the closing price per share of $11.50 on the date of the acquisition. The purchase price allocation was finalized during the three months ended September 30, 2012 with no further changes required relative to the original allocation. See Note 8, "Goodwill and Intangible Assets" for a roll forward of the carrying value of goodwill and intangible assets and a discussion of goodwill and intangible asset impairments recorded during the year ended December 31, 2012.
Qumu, Inc. operating results are included in the Company's Consolidated Statements of Operations in the Company's enterprise video content management software segment from the date of acquisition. The following table contains unaudited pro forma consolidated results for the year ended December 31, 2011 as if the Qumu, Inc. acquisition had occurred on January 1, 2010 (in thousands, except per share data).
 
Year Ended December 31, 2011
 
Reported
 
Pro Forma
(Unaudited)
Net sales
$
83,634

 
$
94,092

Net earnings
2,835

 
308

Net earnings per share:
 

 
 

Basic and Diluted
$
0.29

 
$
0.03


The above pro forma financial information is based on the historical financial results of Qumu Corporation and Qumu, Inc. after giving effect to the acquisition and certain pro forma adjustments, summarized below.
Pro forma adjustments relate primarily to 1) amortization of identified intangible assets of $1.6 million and 2) elimination of $0.9 million of Qumu, Inc.'s interest expense and bank fees associated with debt that was retired with acquisition proceeds and certain other adjustments together with related income tax effects of $1.9 million. The pro forma financial results do not include the impact of one-time transaction-related costs.
The pro forma consolidated results do not purport to be indicative of results that would have occurred had the acquisition been in effect for the periods presented, nor do they claim to be indicative of the results that will be obtained in the future. In addition, the pro forma results do not reflect the realization of any cost savings that may have been achieved from operating efficiencies, synergies or other restructuring activities that may result from the acquisition.