ACQUISITION

On August 1, 2013, the Company acquired all of the outstanding membership interests of WorkflowOne for a total purchase price of one dollar (the "Acquisition"). In connection with the Acquisition, the Company also assumed $210,000 of WorkflowOne's existing debt under two secured credit facilities (the "First Lien Term Loan" and "Second Lien Term Loan") and issued warrants with an estimated fair value of $6,509 that were subsequently converted into 2,645,945 shares of the Company's Common Stock in October 2013. The exercise price of each warrant was $0.00001 per common share. The estimated fair value of the warrants issued was calculated based on the closing market price of the Company's stock on July 31, 2013, with an estimated discount for lack of marketability due to certain restrictions.

In addition, the Company issued $10,000 of non-interest bearing “Tranche B Second Lien Term Loans" that were subsequently cancelled for no consideration as part of the final working capital settlement. The working capital adjustment also resulted in (i) the conversion of $3,678 of the Tranche B Second Lien Term Loans into the Second Lien Term Debt, (ii) the reduction of $3,678 in the First Lien Term Debt, and (iii) the receipt of an additional $1,322 in cash from the Acquisition in October 2013. The transaction did not contain any other contingent consideration arrangements.

WorkflowOne provides printing, document management, distribution, and marketing services to a large customer base. We believe the Acquisition will advance the Company's revenue position, enhance its product and solutions portfolio, broaden its customer base, improve its cost structure, and provide greater financial flexibility and stability.

Results of operations for WorkflowOne are included in the Company's consolidated financial statements from the date of acquisition. The Acquisition was integrated into our Healthcare and Business Solutions segments. Total revenue of $183,984 and net income of $4,492 attributable to WorkflowOne are included in the Company’s Consolidated Statement of Income for the year ended December 29, 2013.

Recording of assets acquired and liabilities assumed

The transaction has been accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. No material assets or liabilities arose from contingencies recognized at the acquisition date. The acquisition accounting is complete and all fair values assigned are considered final. Amounts previously reported were preliminary, and therefore some values have changed. Significant adjustments made in the fourth quarter primarily include a $3,029 increase in the cash received from the acquisition, a $1,503 increase in the fair value assigned to accounts receivable, and a related reduction in the amount of goodwill recognized. The following summarizes the assets acquired and the liabilities assumed by the Company in the Acquisition:



	August 1, 2013
Assets
Cash and cash equivalents	$	4,694
Accounts receivable	55,154
Inventories	24,518
Plant and equipment	42,915
Goodwill	71,178
Identified intangibles	53,740
Other assets	7,140
Liabilities
Long-term debt and capital leases, including current portion	(210,538		)
Other liabilities assumed	(42,292		)
Net assets acquired	$	6,509

Intangible Assets

Identifiable intangible assets created as a result of the WorkFlowOne acquisition are being amortized on a straight-line basis. The fair value and weight-average useful lives assigned to to intangible assets acquired are as follows:



	Fair Value		Weighted-Average Useful life
Customer relationships	$	45,100	6 years
Trademarks	8,500		8 years
Favorable lease agreements	140		2.5 years
Total	$	53,740	6.3 years

Goodwill

Goodwill in the amount of $71,178 has been recorded for the acquisition of WorkFlowOne. Goodwill is calculated as the excess of the consideration transferred over the fair value of net assets recognized and represents the estimated future benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill will not be amortized, but will be tested for impairment at least annually or more frequently if events or circumstances indicate impairment may exist. We expect that all of the goodwill will be deductible for tax purposes. The goodwill recorded includes the synergies and other benefits that we expect to result from combining the operations of WorkFlowOne with the Company and any intangible assets that do not qualify for separate recognition, such as the WorkFlowOne trained and assembled workforce. Of the total amount, $51,391 was allocated to our Business Solutions segment and $19,787 was allocated to our Healthcare segment.

Expenses related to the acquisition

The Company expects to incur substantial transaction and integration expenses in connection with the Acquisition, including the necessary costs associated with integrating the operations of the two companies. Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred. All such costs are classified as acquisition and integration costs in the accompanying Consolidated Statements of Income. We incurred $10,776 and $982 of acquisition and integration costs in 2013 and 2012, of which $9,042 in 2013 and substantially all of 2012 represent transaction costs that primarily include advisory, legal, accounting, valuation, and other professional fees. In addition, $2,357 of debt-issuance costs were incurred and recorded as a long-term asset being amortized to interest expense over the term of the respective debt agreements.

We expect to incur approximately $14,000 to $19,000 over the next two years for technology and facility integration costs that do not qualify as restructuring and other exit costs under U.S. GAAP. While we have assumed a certain level of expenses will be incurred, there are many factors that could affect the total amount or the timing of these expenses, and many of the expenses are, by their nature, difficult to estimate.

Pro forma impact of the acquisition

The following table summarizes pro forma financial information for the years ended December 29, 2013 and December 30, 2012 as if the Acquisition had occurred at the beginning of fiscal 2012. The pro forma financial information includes adjustments to interest expense for the long-term debt assumed and amendment to our Revolving Credit Facility, adjustments to amortization associated with the acquired intangible assets, and adjustments to depreciation expense for fair value adjustments to inventory and plant and equipment. Adjustments were also made to exclude the non-recurring transaction costs discussed above and $1,813 of non-recurring expense related to the fair value adjustment to acquisition-date inventory.

The pro forma financial information does not reflect any cost savings that may be realized as a result of the Acquisition and is not necessarily indicative of what our consolidated results would have been had the Acquisition been completed on January 2, 2012.



(Unaudited)	2013			2012
Revenue	$	975,256		$	1,061,342
Operating income (loss)	15,321			(13,912		)
Net loss	(2,695		)	(34,572		)

Loss per share	(0.42		)	(5.92		)