Discontinued Operations

At December 31, 2015, our reportable segments were Nexsan, Ironkey and Storage Media and Accessories ("Legacy Businesses"). In September, 2015, the Company adopted a Board approved restructuring plan which began the termination process of our Legacy Businesses (which included all product lines and operations associated with commercial storage media (magnetic tape), consumer storage media (optical disc and flash drive) and audio and accessories). Strategically, our Board and Management determined that there was not a viable plan to make the Legacy Businesses successful and, accordingly, we began to aggressively wind-down these businesses in an accelerated manner via a restructuring plan (the "Restructuring Plan"). The Restructuring Plan also called for the aggressive rationalization of Imation’s corporate overhead and focused on reducing our operating losses. As of June 30, 2016, our wind-down of our Legacy Businesses is materially complete as we have effectively terminated all employees associated with our Legacy Businesses and ceased all operations, including revenue producing activities. We are still in the process of collecting our outstanding receivables and settling our outstanding payable balances associated with these businesses, but all material activities associated with the Legacy Businesses were completed by March 31, 2016.

U.S. GAAP requires accumulated foreign currency translation balances to be reclassified into the Consolidated Statement of Operations once the liquidation of the net assets of a foreign entity is substantially complete. As of June 30, 2016, because we have ceased operations in all of our international legal entities other than those associated with Nexsan, we have determined that the liquidations of our international entities associated with our Legacy Businesses are substantially complete. All remaining activities associated with these entities, including the final disposition of remaining balance sheet amounts and formal dissolution of these entities are being managed and controlled by the Company's U.S. Corporate function. Accordingly, during the quarter ended June 30, 2016 and March 31, 2016, respectively, the Company reclassified into discontinued operations $0.1 million and $75.7 million of foreign currency translation losses associated with our Legacy Businesses.

Additionally, in February 2016 the Company sold its IronKey business to Kingston Digital, Inc. and DataLocker Inc. in two asset purchase agreements, but which qualified as the sale of a business. To Kingston Digital, Inc., we sold the assets representing the Company's business of developing, designing, manufacturing and selling IronKey mobile security solutions. This includes Windows to Go USB flash drives, Windows to Go use cases and encrypted USB flash drives and external USB hard drives. The sale specifically excluded the software and services aspect of the IronKey business. Kingston Digital, Inc. paid a purchase price of $4.3 million at closing for certain assets, including inventory, and the Company retained accounts receivable and accounts payable relating to that business. To DataLocker, Imation sold the assets of the Company’s business of software and services for its IronKey products, including services related to Windows to Go USB flash drives. DataLocker paid a purchase price of $0.4 million at closing and agreed to assume certain service obligations in the amount of approximately $2 million, as well as pay the Company earnouts in the event certain service revenue targets are achieved. The potential earn-outs to Imation are determined in each of the three annual periods subsequent to the sale of IronKey, whereby the Company will receive 10% of the amount, if any, whereby revenue exceeds thresholds established under the sale agreement. The Company’s best estimate, at this time, is that it will not receive any contingent consideration and, accordingly, has not recorded any associated receivable. The Company recorded a pre-tax gain on this sale of $3.8 million during the first quarter of 2016.

The operating results for the Legacy Businesses and IronKey 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 were eliminated from our ongoing operations.

The key components of the results of discontinued operations were as follows:



	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In millions)	2016		2015			2016			2015
Net revenue	—		$	133.7		$	2.0		$	273.4
Cost of goods sold	—		111.6			0.6			223.3
Gross Profit	—		22.1			1.4			50.1
Selling, General and administrative	(1.2	)	21.5			2.8			45.7
Research and development	—		1.9			0.5			3.7
Restructuring and other	0.6		0.6			(0.3		)	1.2
Reclassification of cumulative translation adjustment	0.1		—			75.8			—
Other (Income) Expense	(0.5	)	1.2			0.4			1.5
Income (loss) from operations of discontinued businesses, before income taxes	1.0		(3.1		)	(77.8		)	(2.0		)
Gain on sale of discontinued businesses, before income taxes	—		—			3.8			—
Income tax provision	0.4		0.2			1.8			0.2
Income (loss) from discontinued operations, net of income taxes	0.6		$	(3.3	)	$	(75.8	)	$	(2.2	)

The depreciation and amortization expenses related to discontinued operations were $0.0 and $1.6 million for the quarter ended June 30, 2016 and 2015, respectively. Capital expenditures associated with discontinued operations were $0.0 and $0.2 million for the quarter ended June 30, 2016 and 2015, respectively.

The depreciation and amortization expenses related to discontinued operations were $0.0 and $3.2 million for the six months ended June 30, 2016 and 2015, respectively. Capital expenditures associated with discontinued operations were $0.0 and $0.3 million for the six months ended June 30, 2016 and 2015, respectively.

The income tax provision related to discontinued operations were $0.4 million and $1.8 million for the quarter and six months ended June 30, 2016, respectively. See Note 10 - Income Taxes for additional information.

Current assets of discontinued operations of $15.4 million as of June 30, 2016 included approximately $9.6 million of restricted cash (primarily associated with our disputing of certain payables to vendors) and $1.9 million of accounts receivables, with the remainder consisting of a variety of immaterial other current asset amounts. Current assets of discontinued operations of $44.3 million as December 31, 2015 included approximately $16.0 million of accounts receivable, $10.0 million of restricted cash, $9.0 million of assets held for sale, $2.0 million of inventory and other current assets.

Current liabilities of discontinued operations of $39.4 million as of June 30, 2016 included accounts payable of $29.4 million and $6.0 million of customer credit and rebate accruals, with the remainder consisting of a variety of immaterial other current liability amounts. Current liabilities of discontinued operations of $74.6 million as of December 31, 2015 included approximately $39.0 million of accounts payable, $15.0 million of restructuring accruals, $5.0 million of rebates, $2.0 million of deferred revenue and other current liabilities.