BUSINESS COMBINATIONS BUSINESS COMBINATIONS | 9 Months Ended |
Oct. 31, 2013 |
Business Combinations [Abstract] | ' |
Business Combination Disclosure | ' |
BUSINESS COMBINATIONS |
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Nine Months Ended October 31, 2013 |
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CTI Merger |
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On February 4, 2013, we completed the CTI Merger which is discussed in Note 4, "Merger with CTI". |
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Other Business Combinations |
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During the three months ended October 31, 2013, we completed two business combinations: |
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• | On August 1, 2013, we acquired certain technology and other assets for use in our Communications Intelligence operating segment in a transaction that qualified as a business combination. | | | |
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• | On October 4, 2013, we acquired all of the outstanding shares of a privately held company specializing in performance improvements in customer contact centers, based in the Europe, the Middle East and Africa ("EMEA") region, that is being integrated into our Enterprise Intelligence operating segment. | | | |
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These business combinations were not individually material to our condensed consolidated financial statements. |
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We have included the financial results of these business combinations in our condensed consolidated financial statements from their respective acquisition dates. |
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The combined consideration for these business combinations was approximately $15.4 million, including $10.9 million of combined cash paid at the closings. We also agreed to make potential additional cash payments to the respective former shareholders or asset owners aggregating up to approximately $5.4 million, contingent upon the achievement of certain performance targets over periods ending through July 2014. The combined fair values of these contingent consideration obligations were estimated to be $4.6 million as of the respective acquisition dates, and have not significantly changed as of October 31, 2013. |
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The fair values assigned to identifiable intangible assets acquired in these business combinations were determined primarily by using the income approach, which discounts expected future cash flows attributable to these assets to present value using estimates and assumptions determined by management. The acquired identifiable finite-lived intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives. |
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Included among the factors contributing to the recognition of goodwill in these transactions were synergies in products and technologies, and the addition of a skilled, assembled workforce. Of the $7.8 million of goodwill associated with these business combinations, $7.1 million was assigned to our Enterprise Intelligence segment and is not deductible for income tax purposes and $0.7 million was assigned to our Communications Intelligence segment, which is deductible for income tax purposes. |
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Revenue and the impact on net income attributable to these acquisitions for the three months ended October 31, 2013 were not significant. |
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Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to these acquisitions, totaled $0.6 million and $1.1 million for the three and nine months ended October 31, 2013, respectively. All transaction and related costs were expensed as incurred within selling, general and administrative expenses. |
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The following table sets forth the components and the allocations of the purchase prices for the two business combinations completed during the three months ended October 31, 2013. These purchase price allocations have been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available during the respective measurement periods (up to one year from the respective acquisition dates). |
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(in thousands) | | Amount |
Components of Combined Purchase Price: | | |
Cash | | $ | 10,853 | |
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Fair value of contingent consideration | | 4,557 | |
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Total Combined Purchase Price | | $ | 15,410 | |
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Allocation of Combined Purchase Price: | | |
Net tangible liabilities: | | |
Accounts receivable | | $ | 1,545 | |
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Other current assets, including cash acquired | | 1,468 | |
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Other assets | | 245 | |
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Current and other liabilities | | (1,118 | ) |
Deferred revenue | | (760 | ) |
Deferred income taxes, net - current and long-term | | (2,164 | ) |
Net tangible liabilities | | (784 | ) |
Identifiable intangible assets: | | |
Customer relationships | | 6,809 | |
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Developed technology | | 1,209 | |
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Trademarks and trade names | | 409 | |
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Total identifiable intangible assets | | 8,427 | |
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Goodwill | | 7,767 | |
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Total Combined Purchase Price | | $ | 15,410 | |
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For these acquisitions, customer relationships, developed technology, and trademarks and trade names were assigned estimated useful lives of nine years, from three years to five years, and two years, respectively, the weighted average of which is approximately 8.1 years. |
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The pro forma impact of these acquisitions was not material to our historical condensed consolidated operating results and is therefore not presented. |
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In October 2013, we signed a definitive agreement to acquire all of the outstanding shares of a privately held provider of fraud prevention and identity authentication solutions, based in the Americas region, which would be integrated into our Enterprise Intelligence operating segment. This business combination, if completed, will not be material to our condensed consolidated financial statements. We expect to close this acquisition prior to January 31, 2014. |
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Please refer to Note 18, "Subsequent Event", for information regarding a business combination completed subsequent to October 31, 2013. |
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Business Combinations in Prior Periods |
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Transactions associated with business combinations completed in prior periods that impacted our condensed consolidated financial statements as of October 31, 2013, and for the nine months ended October 31, 2013 and 2012, are described below. |
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Vovici Corporation |
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On August 4, 2011, we acquired all of the outstanding shares of Vovici Corporation (“Vovici”), a U.S.-based provider of online survey management and enterprise feedback solutions, for total consideration of $66.1 million. Included in this consideration was $9.9 million for the fair value of potential additional cash payments to the former Vovici shareholders of up to approximately $19.1 million, payment of which was contingent upon the achievement of certain performance targets over the period from the acquisition date through January 31, 2013. |
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At each reporting date, we revalue all contingent consideration obligations associated with business combinations to their estimated fair values, and any increases or decreases in fair values are reflected within selling, general and administrative expenses in our condensed consolidated statement of operations. Changes in the fair value of the contingent consideration obligation may result from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood of achieving the performance targets. |
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As of January 31, 2013, $6.4 million had been accrued for the actual contingent consideration earned and expected to be paid to the former Vovici shareholders under this arrangement. This liability changed by a negligible amount during the three months ended April 30, 2013, and payment of this amount was made during the three months ending July 31, 2013. No contingent consideration had been paid to the former Vovici shareholders prior to this payment. We have no further contingent consideration obligations for this acquisition. |
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For the three and nine months ended October 31, 2012, we recorded an expense of $0.8 million and a benefit of $2.9 million, respectively, within selling, general and administrative expenses for changes in the fair value of the Vovici contingent consideration obligation, which primarily reflected the impacts of revised expectations of achieving the performance targets. |
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Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to the acquisition of Vovici totaled $0.3 million and $0.5 million for the three and nine months ended October 31, 2012, respectively, and were expensed as incurred within selling, general and administrative expenses. Such costs for the nine months ended October 31, 2013 were not significant. |
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Global Management Technologies |
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On October 7, 2011, we acquired all of the outstanding shares of Global Management Technologies (“GMT”), a U.S.-based provider of workforce management solutions whose software and services are widely used by organizations, particularly in retail branch banking environments, for total consideration of $36.6 million. Included in this consideration was $12.0 million for the fair value of potential additional cash payments to the former GMT shareholders of up to approximately $17.4 million, payment of which is contingent upon the achievement of certain performance targets over the period from the acquisition date through January 31, 2014. |
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As of January 31, 2013, the fair value of this contingent consideration was $2.8 million. During the three months ended July 31, 2013, we reached an agreement to settle our potential obligations under the GMT contingent consideration arrangement with respect to the former GMT securityholders in exchange for a payment of $2.7 million. This payment, which was made during the three months ending July 31, 2013, eliminated any remaining contingent consideration obligations to these former securityholders. No contingent consideration had been paid under the GMT contingent consideration arrangement prior to this payment. Certain other participants under the GMT contingent consideration arrangement, who were not GMT securityholders, remain eligible to earn contingent consideration for the period ended January 31, 2014, the fair value of which was negligible at October 31, 2013. For the three and nine months ended October 31, 2013, we recorded benefits of $0.8 million and $0.1 million, respectively, within selling, general and administrative expenses for the change in the fair value of the GMT contingent consideration obligation. |
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For the three and nine months ended October 31, 2012, we recorded benefits of $1.3 million and $5.8 million, respectively, within selling, general and administrative expenses for changes in the fair value of the GMT contingent consideration obligation, which primarily reflected the impacts of revised expectations of achieving the performance targets. |
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Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to the acquisition of GMT, totaled $0.1 million and $0.3 million for the three and nine months ended October 31, 2012, and were expensed as incurred within selling, general and administrative expenses. Such costs for the nine months ended October 31, 2013 were not significant. |
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Other Business Combinations |
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During the year ended January 31, 2012, in addition to the acquisitions of Vovici and GMT, we executed five additional business combinations for total combined consideration of $55.2 million, including $20.5 million for the fair value of potential additional cash payments to the respective former shareholders or asset owners aggregating up to approximately $41.0 million, payment of which is contingent upon the achievement of certain performance targets over periods extending through January 31, 2015. |
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For the three and nine months ended October 31, 2013, we recorded net benefits of $1.0 million and $1.6 million, respectively, within selling, general and administrative expenses for changes in the aggregate fair values of the contingent consideration obligations associated with these acquisitions, reflecting the impacts of revised expectations of achieving the performance targets, as well as decreases in the discount periods since the acquisition dates. As of October 31, 2013, the aggregate fair value of the contingent consideration obligations associated with these acquisitions was $6.4 million. During the nine months ended October 31, 2013 and 2012, we made payments of $7.8 million and $5.2 million, respectively, to the respective former shareholders or asset owners under these arrangements. |
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Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to these acquisitions, totaled $0.1 million and $0.6 million for the three and nine months ended October 31, 2012, respectively, and were expensed as incurred within selling, general and administrative expenses. Such costs for the nine months ended October 31, 2013 were not significant. |
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In connection with one of the foregoing business combinations, the purchase price allocation included liabilities for uncertain tax positions and certain other liabilities associated with pre-acquisition business activities of the acquired company. Based upon our evaluation of these matters, including assessments of additional information obtained subsequent to the acquisition date regarding facts and circumstances that existed as of the acquisition date, the purchase price allocation for this acquisition included current liabilities of approximately $4.7 million associated with certain other pre-acquisition business activities of the acquired company and long-term liabilities of approximately $5.2 million associated with uncertain tax positions of the acquired company. Corresponding indemnification assets of $4.7 million and $5.2 million, respectively, classified in the same manner, were also recorded as components of the purchase price allocation for this acquisition, in recognition of the selling shareholders’ contractual obligation to indemnify us for these pre-acquisition liabilities and were measured on the same basis as the corresponding liabilities. |
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As of January 31, 2013, the liability associated with pre-acquisition uncertain tax positions of the acquired company was $3.0 million and was included within other liabilities, and the corresponding indemnification asset of $2.6 million was included within other assets. Also as of January 31, 2013, the liability associated with certain other pre-acquisition business activities of the acquired company was $3.0 million, and was included within accrued expenses and other current liabilities, and the corresponding indemnification asset, reflected within prepaid expenses and other current assets, was $3.0 million. |
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As of October 31, 2013, the liability associated with certain other pre-acquisition business activities of the acquired company, included within accrued expenses and other current liabilities, and the corresponding indemnification asset, reflected within prepaid expenses and other current assets, were $2.2 million. The changes in these carrying values during the nine months ended October 31, 2013 reflected derecognition of certain liabilities and corresponding indemnification assets and the impact of foreign currency exchange rate fluctuations. These changes were offsetting and therefore did not impact our condensed consolidated statement of operations for the three and nine months ended October 31, 2013. |
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As of October 31, 2013, the liability associated with pre-acquisition uncertain tax positions of the acquired company was $2.2 million and was included within other liabilities. The change in the carrying value of this liability during the nine months ended October 31, 2013 reflected the settlement of an uncertain tax position and the impact of foreign currency exchange rate fluctuations. In addition, during the three months ended April 30, 2013 and October 31, 2013, based upon our assessment of the collectibility of the indemnification from the former shareholders of the acquired company, we recognized impairments of $0.3 million and $0.4 million, respectively, of the indemnification asset associated with these liabilities, which is included in other income (expense), net. No impairment was recognized for the three months ended July 31, 2013. The indemnification asset associated with these liabilities was $1.2 million as of October 31, 2013 and is included within other assets. |