Discontinued Operations

9 Months Ended

Jan. 31, 2015

Discontinued Operations

3. Discontinued Operations

On June 4, 2014, the Company entered into a definitive agreement to divest the assets of PowerReviews, Inc. (“PowerReviews”), pursuant to a Joint Stipulation with the Department of Justice and Order to the U.S. District Court for the Northern District of California, San Francisco Division, for $30.0 million in cash, $4.5 million of which is to be held in escrow as a partial security for the Company’s indemnification obligations under the definitive agreement and is set to expire July 2015 (See Note 11). As a result, PowerReviews revenues, related expenses and loss on disposal, net of tax, are components of “income (loss) from discontinued operations, net of tax” in the condensed consolidated statements of operations. Any reduction in proceeds of the escrow related to the divestiture agreement would be recorded as an additional loss. As of April 30, 2014, on the condensed consolidated balance sheets, the assets and liabilities of the discontinued operations of PowerReviews were presented as ‘Assets held for sale’ and ‘Liabilities held for sale,’ respectively. The statement of cash flows is reported on a combined basis without separately presenting cash flows from discontinued operations for all periods presented.

The Company incurred a total loss on the disposal of the PowerReviews business of $10.7 million; of which, $9.2 million was recognized as an estimated loss on disposal of discontinued operations during the twelve months ended April 30, 2014. The additional $1.5 million loss recognized in the nine months ended January 31, 2015 was primarily caused by a decrease of $0.5 million in estimated cash proceeds as of April 30, 2014 and incremental transaction costs of $0.4 million.

Results from discontinued operations were as follows (in thousands):

	Three Months Ended January 31,				Nine Months Ended January 31,
	2015		2014		2015			2014
Revenues from discontinued operations	$	—	$	4,397	$	2,535		$	13,039
Income from discontinued operations before income taxes	$	—	$	691	$	303		$	1,810
Income tax expense		—		261		23			682
Net income from discontinued operations		—		430		280			1,128
Loss on disposal of discontinued operations, net of tax		—		—		(1,537	)		—
Income (loss) from discontinued operations, net of tax	$	—	$	430	$	(1,257	)	$	1,128

The carrying amounts of the major classes of assets and liabilities of discontinued operations were as follows (in thousands):

	July 2,		April 30,
	2014		2014
ASSETS:
Restricted cash	$	104	$	—
Accounts receivable, net		1,097		1,036
Prepaid expenses and other current assets		48		49
Total current assets		1,249		1,085
Property and equipment, net		37		37
Goodwill		9,002		9,002
Acquired intangible assets, net		32,813		32,813
Total assets	$	43,101	$	42,937
LIABILITIES:
Accounts payable	$	76	$	221
Accrued expenses and other current liabilities		823		895
Deferred revenue		2,230		2,505
Total Liabilities	$	3,129	$	3,621

The Company recorded a loss on the disposal of discontinued operations of $1.5 million, net of tax, in the nine months ended January 31, 2015 which was calculated as follows (in thousands):

Cash consideration	$	30,000
Less:
Basis in net assets as of July 2, 2014		39,972
Costs incurred directly attributable to the transaction		1,039
Loss before income taxes		(11,011	)
Income tax benefit		(282	)
Loss on disposal of discontinued operations, net of taxes		(10,729	)
Loss on disposal of discontinued operations, net of taxes, previously recognized		9,192
Loss on disposal of discontinued operations, net of tax, recognized in current  period	$	(1,537	)

The carrying amount of assets held for sale in the condensed consolidated balance sheet was calculated as follows (in thousands):

	April 30, 2014
Total assets of discontinued operations	$	42,937
Estimated loss on disposal of discontinued operations, net of tax		(9,192	)
Assets held for sale	$	33,745

As of January 31, 2015, there were no ‘assets held for sale’ as the divestiture of the PowerReviews business was completed on July 2, 2014. The $4.5 million held in escrow is recorded as a receivable in “Prepaid expenses and other current assets” on the Condensed Consolidated Balance Sheet as of January 31, 2015. As of January 31, 2015, the Company has received no claims for indemnification under the definitive agreement.