Quarterly report pursuant to Section 13 or 15(d)

Divestiture of Disc Publishing Business

v2.4.0.8
Divestiture of Disc Publishing Business
9 Months Ended
Sep. 30, 2014
Discontinued Operations and Disposal Groups [Abstract]  
Divestiture of Disc Publishing Business
Divestiture of Disc Publishing Business
On April 24, 2014, the Company entered into an asset purchase agreement (the “asset purchase agreement”) with Equus Holdings, Inc. and Redwood Acquisition, Inc. (now known as Rimage Corporation, “Buyer”). Under the terms of the asset purchase agreement, the Company agreed to sell to Buyer all of the assets primarily used or primarily held for use in connection with its disc publishing business. Buyer also agreed to assume on the closing date certain agreements and liabilities relating to the disc publishing business and the acquired assets.
At a special meeting of the Company's shareholders held on June 27, 2014, the Company's shareholders approved the sale of the disc publishing assets as contemplated by the asset purchase agreement. As a result, effective June 27, 2014, the disc publishing business was classified as held for sale and qualified for discontinued operations presentation in the Company’s consolidated financial statements. In accordance with ASC 205-20, the results of the discontinued disc publishing business have been presented as discontinued operations effective with the reporting of financial results for the second quarter 2014. As such, financial results for the three and nine months ended September 30, 2014 have been reported on this basis. Previously reported results for comparable periods in 2013 have also been restated to reflect this reclassification.
On July 1, 2014, the Company’s sale of the disc publishing business was completed. The Company also entered into a mutual transition services agreement with Buyer and entered into a lease agreement with Buyer for the lease from Buyer of a portion of the property located at 7725 Washington Avenue South, Minneapolis, MN 55349.
The adjusted purchase price paid to the Company was $22.0 million, of which $2.3 million was placed in an escrow account to support the Company’s indemnification obligations under the asset purchase agreement for a fifteen-month escrow period. The $2.3 million escrow is classified as restricted cash in current assets on the Condensed Consolidated Balance Sheets as of September 30, 2014. In the third quarter of 2014, the Company recorded a gain on sale of the disc publishing business of $16.2 million, exclusive of the impact of transaction related expenses recorded through September 30, 2014. The gain on sale attributable to the U.S. is offset for federal income tax purposes by current or prior-year tax losses but is subject to applicable state income taxes.
The operational results of the disc publishing business are presented in the “Net income from discontinued operations, net of tax” line item on the Condensed Consolidated Statements of Operations.  Also included in this line item for the 2014 periods is the gain on sale of the disc publishing business and non-recurring expenses incurred by the Company as a result of the sale of the disc publishing business, including third party transaction specific costs, one-time income tax related impacts, and for the year-to-date period, the acceleration of vesting of cash-based long-term incentive and stock-based awards payable to employees of the disc publishing business upon completion of the asset sale transaction. The described non-recurring expenses and income tax related impacts amounted to approximately $6.0 million and $9.0 million for the three and nine months ended September 30, 2014, respectively. In accordance with ASC 205-20, no general corporate charges were allocated to the discontinued business. The assets and liabilities of the discontinued business are presented on the Condensed Consolidated Balance Sheets as assets and liabilities from discontinued operations.
Other than consolidated amounts reflecting operating results and balances for both the continuing and discontinued operations, all remaining amounts presented in the accompanying condensed consolidated financial statements and notes reflect the financial results and financial position of the Company's continuing enterprise video content management software business.
Revenue, operating income, gain on sale of business, income tax expense and net income from discontinued operations were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Net revenue
$

 
$
16,689

 
$
29,922

 
$
48,255

Operating income
(97
)
 
3,481

 
4,520

 
7,117

Gain on sale of discontinued operations
16,182

 

 
16,182

 

Income tax expense
4,526

 
1,084

 
6,427

 
2,390

Net income from discontinued operations, net of tax
$
11,559

 
$
2,445

 
$
14,365

 
$
4,689


The major classes of assets and liabilities from discontinued operations were as follows (in thousands):
 
September 30,
2014
 
December 31,
2013
Receivables, net
$

 
$
8,778

Inventories

 
3,983

Other current assets
1,097

 
1,305

Current assets from discontinued operations
1,097

 
14,066

Property and equipment, net

 
4,040

Intangible assets, net

 
352

Other assets - non-current

 
28

Non-current assets from discontinued operations

 
4,420

Trade accounts payables
19

 
3,225

Accrued compensation
30

 
2,568

Deferred revenue

 
5,645

Other current liabilities
367

 
427

Current liabilities from discontinued operations
416

 
11,865

Non-current liabilities from discontinued operations
$

 
$
2,637