Acquisitions and Divestitures

Acquisitions

Connected Data, Inc.

On October 14, 2015, the Company acquired 100% of the stock of Connected Data, Inc. ("CDI") to augment the Company’s vision in delivering a comprehensive and secure storage, backup and collaboration ecosystem. The purchase price consisted of a cash payment of $0.7 million, issuance of 151,115 unregistered shares of GlassBridge common stock valued at $2.6 million (based on applying a 15% liquidity discount to the fair value of our stock at acquisition date), $2.6 million associated with the repayment of all of CDI's outstanding debt at the time of acquisition and future contingent consideration totaling up to $5 million (considered to have an estimated fair value of $0.8 million at the time of acquisition) for a total purchase price of $6.7 million. The purchase price allocation resulted in goodwill of $3.8 million which is primarily attributable to its workforce, strategic synergies and intangible assets that do not qualify for separate recognition. This goodwill is not deductible for tax purposes.

The following table illustrates our finalized allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed as of acquisition date:



	Amount
	(In millions)
Cash	$	0.2
Inventory	0.2
Prepaid and other	0.1
Intangible assets, net	4.3
Goodwill	3.8
Accounts payable	(0.7		)
Accrued expenses	(1.1		)
Deferred revenue - current	(0.1		)
	$	6.7

Our allocation of the purchase price to the assets acquired and liabilities assumed resulted in the recognition of the following intangible asset:



			Weighted
			Average
	Amount		Life
	(In millions)
Other - developed technology	$	4.3	6 years

Goodwill acquired in the acquisition of CDI was fully allocated to our Nexsan reporting unit. Upon the acquisition of CDI, we quickly began integrating CDI with our Nexsan business, both operationally and with respect to its management team.

The contingent consideration arrangement includes the potential for three separate payments of cash and unregistered shares of GlassBridge common stock based on defined revenue targets. The first contingent consideration payment is for $0.1 million of cash and 31,354 shares of unregistered GlassBridge common stock. The first contingent payment is based on revenue targets from January 1, 2016 to June 30, 2016. The second contingent consideration payment is for $0.3 million of cash and 57,482 shares of unregistered GlassBridge common stock. The second contingent payment is based on revenue targets from July 1, 2016 to December 31, 2016. The third contingent consideration payment is for $0.3 million of cash and 57,482 shares of unregistered GlassBridge common stock. The third contingent payment is based on revenue targets from January 1, 2017 to June 30, 2017. We used the real option valuation technique for calculating the estimated fair value of contingent consideration with a 15% discount rate. For the year ended December 31, 2016 the revenue targets related to the first and second contingent payment were not met and no payment was made.

Discontinued Operations

At December 31, 2015, our reportable segments were the Legacy Businesses, IronKey and Nexsan. In September 2015, the Company adopted a restructuring plan (the "Restructuring Plan") approved by the Board of Directors of the Company (the "Board") 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 the Restructuring Plan. On January 4, 2016 the company closed on the sale of its Memorex trademark and receivables associated with two associated trademark licenses to DPI Inc., a St. Louis-based branded consumer electronics company for $9.4 million. The Restructuring Plan also called for the aggressive rationalization of the Company's corporate overhead and focused on reducing our operating losses. As of December 31, 2016, the wind-down of our Legacy Businesses is substantially complete. 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; however, the principal operating activities of the Legacy Businesses were effectively discontinued by quarter ended March 31, 2016.

U.S. GAAP requires accumulated foreign currency translation balances to be reclassified into the Consolidated Statement of Operations when the liquidation of the net assets of a foreign entity is substantially complete. As of December 31, 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 first quarter of 2016, the Company reclassified into discontinued operations $75.8 million of foreign currency translation losses associated with our Legacy Businesses in the other expense line.

Additionally, in February 2016 the Company sold its IronKey business to Kingston Digital, Inc. ("Kingston") and DataLocker Inc. ("DataLocker") pursuant to two asset purchase agreements which qualified as the sale of a business. To Kingston, we sold the assets representing the Company's business of developing, designing, manufacturing and selling IronKey mobile security solutions including 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 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, GlassBridge 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 $2.0 million, as well as pay the Company earn-outs in the event certain service revenue targets are achieved. The potential earn-outs to GlassBridge 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. In December 2016, the Company signed a new agreement with DataLocker to receive a one-time payment of $0.2 million and acknowledges that no further consideration shall be due or payable. The Company recorded a pre-tax gain on the sale of $3.8 million during the first quarter of 2016 and the one-time payment in the fourth quarter 2016.

Results of Discontinued Operations

The operating results for these businesses are presented in our 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:



	For the Years Ended December 31,
	2016			2015
	(In millions)
Net revenue	$	2.0		$	466.4
Cost of goods sold	0.6			389.8
Gross profit	1.4			76.6
Selling, general and administrative	6.0			78.7
Research and development	0.5			7.0
Intangible impairment	—			7.9
Goodwill impairment	—			8.0
Restructuring and other	8.4			23.2
Operating loss	(13.5		)	(48.2		)
Other net expense	0.6			2.3
Reclassification of cumulative translation adjustment	75.8			—
Loss from operations of discontinued businesses, before income taxes	(89.9		)	(50.5		)
Income tax (provision) benefit	0.7			(12.6		)
Loss from operations of discontinued businesses, net of income taxes	$	(89.2	)	$	(63.1	)
Gain (loss) on sale of discontinued businesses	3.8			11.8
Loss from discontinued businesses, net of income taxes	$	(85.4	)	$	(51.3	)

The depreciation and amortization expenses related to discontinued operations were $0.3 million and $5.3 million for the year ended December 31, 2016 and 2015, respectively. Capital expenditures associated with discontinued operations were $0.0 million and $0.3 million for the year ended December 31 2016 and 2015.

The income tax (provision) benefit related to discontinued operations was $0.7 million and ($12.6) million for the year ended December 31, 2016 and 2015, respectively. See Note 10 - Income Taxes for additional information.

Current assets of discontinued operations of $10.5 million as of December 31, 2016 principally include approximately $9.4 million of restricted cash, primarily associated with our disputing of certain payables to vendors. Current assets of discontinued operations of $44.3 million as of December 31, 2015 include approximately $15.6 million of accounts receivable, $6.4 million of restricted cash, $9.6 million of assets held for sale and $2.4 million of inventory and $10.3 million other current assets.

Current liabilities of discontinued operations of $39.7 million as of December 31, 2016 include accounts payable of $22.8 million, $3.2 million of customer credit and rebate accruals, $11.0 million of legal accruals and $2.7 million of other current liability amounts. Current liabilities of discontinued operations of $74.6 million as of December 31, 2015 include approximately $39.3 million of accounts payable, $14.6 million of restructuring accruals, $5.4 million of rebate accruals, $2.0 million of deferred revenue and $13.3 million of other current liabilities.