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 nine months ended September 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 September 30, 2013, our purchase price allocation is preliminary pending final evaluation of income tax balances, which will take place by December 31, 2013. See Note 6 - Intangible Assets and Goodwill for more information regarding goodwill.

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 September 30, 2013, our estimated fair value of this contingent consideration was determined to be $0.2 million. We did not record an adjustment in the fair value of the contingent consideration in the three months ended September 30, 2013. We recorded a decrease of $0.4 million in the fair value of this contingent consideration from December 31, 2012 in the nine months ended September 30, 2013 as a benefit in the restructuring and other line in the Condensed Consolidated Statements of Operations.

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 nine months ended September 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 second quarter of 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 nine months ended September 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 and the consumer electronics business under the TDK Life on Record brand are being 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 sell the assets directly associated with these businesses, which primarily include inventory, tooling and intangible assets.

On October 15, 2013 we completed the sale of the Memorex consumer electronics business. We do not expect a loss in the fourth quarter of 2013 on this transaction. In addition, we currently have a signed term sheet for the sale of the XtremeMac business and we anticipate that a sale will be completed by December 31, 2013. Based on the estimated value of the expected consideration to be received, we have adjusted the carrying value of the XtremeMac disposal group as of September 30, 2013 and recorded a charge of $5.5 million in the three and nine months ended September 30, 2013 as an element of discontinued operations. We do not expect a loss in the fourth quarter of 2013 upon the closing of this transaction. Total proceeds to be received from discontinuing these businesses are estimated at approximately $19 million, with approximately $10 million spread between the fourth quarter of 2013 and early 2014, and the balance over the next several years. Proceeds expected to be received consist of various forms of consideration including up-front payments, notes receivable, guaranteed minimum royalties and a percent of the value of inventory transferred.

The operating results for these businesses are presented in our Condensed Consolidated Statements of Operations as discontinued operations for all periods presented and 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 of discontinued operations were as follows:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions)	2013			2012			2013			2012
Net revenue	$	10.5		$	20.8		$	33.9		$	60.6

Loss from operations of discontinued businesses, before income taxes	$	(3.2	)	$	(2.8	)	$	(12.0	)	$	(8.9	)
Adjustment to carrying value of disposal group	(5.5		)	—			(5.5		)	—
Income tax benefit	—			(0.3		)	—			(0.9		)
Loss from discontinued businesses, net of income taxes	$	(8.7	)	$	(2.5	)	$	(17.5	)	$	(8.0	)