Business Acquisition

12 Months Ended

Sep. 28, 2013

Business Acquisition

Business Acquisition

I.  Business Acquisition

On April 30, 2013, the Company acquired all of the outstanding stock of FastPencil, Inc. (“FastPencil”), a California-based developer of end-to-end, cloud-based content management technologies. FastPencil’s technology serves publishers and other companies interested in providing a self-publishing platform to their customers or communities. In addition, FastPencil provides a platform and services to thousands of self-publishers. The acquisition complements the Company’s content management and customization technology and gives the Company an entry into the rapidly growing self-publishing market. The Company paid $5 million at the time of acquisition, with additional future “earn out” potential payments conditioned upon the achievement of revenue targets from $0 to a maximum payout of three payments of up to $6.5 million, $1.25 million and $5.25 million (undiscounted) which may be paid out over the next five years. The future earn out potential payments were valued at acquisition at $4.7 million using a probability weighted, discounted cash flow model.  Related acquisition costs of approximately $250,000 were included in selling and administrative expenses. The acquisition was accounted for as a purchase and, accordingly, FastPencil’s financial results are included as a reporting unit within the book manufacturing segment in the consolidated financial statements from the date of acquisition.

The acquisition of FastPencil was recorded by allocating the fair value of the consideration paid to the identified assets acquired, including intangible assets and liabilities assumed, based on their estimated fair value at the acquisition date.  The excess of the fair value of the consideration paid over the net amounts assigned to the fair value of the assets acquired and liabilities assumed was recorded as goodwill, which is not tax deductible. Based on these valuations, the purchase price allocation was as follows:

	(000’s omitted)
Cash paid	$	5,000
Fair value of contingent “earn out” consideration	4,700
Total	$	9,700
Accounts receivable	$	3
Inventories	42
Licensing contract receivable	1,500
Amortizable intangibles	2,770
Goodwill	5,875
Other assets	32
Accounts payable and accrued liabilities	(325		)
Deferred tax liabilities, net	(197		)
Total	$	9,700

A fair value assessment of the contingent earn out consideration payable was performed at year end resulting in recognition of $260,000 of expense in fiscal 2013. The balance at September 28, 2013 was $5.0 million.

The Company expects to finalize the preliminary estimates of the fair value of the intangible assets by the end of the second quarter of fiscal 2014.