Acquisitions and Divestitures

Acquisitions

On December 31, 2012, we acquired Nexsan Corporation (Nexsan), a provider of disk-based storage systems with a portfolio of disk-based and hybrid disk-and-solid-state storage systems, for a purchase price of $120.1 million. The acquisition resulted in $65.5 million of goodwill. During the six months ended June 30, 2013, the purchase price was adjusted to reflect working capital variances in accordance with the merger agreement. This adjustment resulted in a decrease to goodwill of $1.6 million and a cash receipt for this amount. As of June 30, 2013, our purchase price allocation is preliminary pending final evaluation of income tax balances. See Note 6 - Intangible Assets and Goodwill for more information regarding goodwill. We have not shown proforma results for the comparative period for the acquisition of Nexsan as it is not material to our Condensed Consolidated Results of Operations.

On June 4, 2011, we acquired the assets of MXI Security (MXI). The purchase price included a contingent consideration arrangement with an estimated fair value of $0.6 million at December 31, 2012. See Note 4 - Acquisitions in our 2012 Annual Report on Form 10-K for further information regarding the contingent consideration.

We remeasure the estimated fair value of the remaining contingent consideration each reporting period. At June 30, 2013, our estimated fair value of this contingent consideration was determined to be $0.2 million. We recorded a decrease of $0.3 million and $0.4 million in the fair value of this contingent consideration from December 31, 2012 in the three and six months ended June 30, 2013, respectively, as a benefit in the restructuring and other line in the Condensed Consolidated Statements of Operations. See Note 12 - Fair Value Measurements for further discussion of our valuation technique.

On February 28, 2011, we acquired substantially all of the assets of BeCompliant Corporation, doing business as Encryptx (Encryptx). The purchase price included future contingent consideration with an estimated fair value of $0.6 million at December 31, 2012. The final contingent consideration payment of $0.8 million was determined based on certain 2012 milestones and was paid during the first quarter of 2013. In the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2013, $0.5 million was presented in cash flows from financing activities and the remaining $0.3 million was presented in cash flows from operating activities as it pertains to the excess of actual payments over the initially recognized fair value of the contingent consideration.

During the three months ended June 30, 2012, we recorded a working capital adjustment to the purchase price in our acquisition of the secure data hardware of IronKey Systems Inc. in the amount of $0.6 million. As the purchase accounting for this acquisition was finalized in 2011, the adjustment was recorded as a charge to restructuring and other in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012.

Discontinued Operations

On February 13, 2013, we announced our plans to divest our XtremeMac and Memorex consumer electronics businesses. The consumer storage business under the Memorex and TDK Life on Record brands will be retained. These expected divestitures are part of the acceleration of our strategic transformation that we announced during the fourth quarter of 2012 in conjunction with our plan to increase focus on data storage and security. As a part of exiting these disposal groups, we plan to dispose of the assets directly associated with these businesses, which primarily include inventory, tooling and intangible assets. We are in varying degrees of negotiations for the sale of these assets and believe such sales are probable to be consummated in the next 12 months. We have classified inventory of $18.4 million, intangible assets of $1.7 million and tooling (previously classified as Property, plant and equipment) of $1.7 million as assets held for sale as of June 30, 2013. The operating results for these businesses are presented in our Condensed Consolidated Statements of Operations as discontinued operations for all periods presented and only reflect revenues and expenses that are directly attributable to these businesses that will be eliminated from ongoing operations. See Note 7 - Restructuring and Other for disclosure of severance expense that was recorded relating to these planned divestitures.

The key components from discontinued operations were as follows:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2013			2012			2013			2012
Net revenue	$	12.2		$	21.4		$	23.4		$	39.8

Loss from operations of discontinued businesses, before income taxes	$	(3.3	)	$	(2.8	)	$	(8.8	)	$	(6.1	)
Income tax benefit	—			(0.3		)	—			(0.6		)
Discontinued operations	$	(3.3	)	$	(2.5	)	$	(8.8	)	$	(5.5	)