Discontinued Operations

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

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 March 31, 2016, because we had ceased operations in all of our international legal entities other than those associated with the Nexsan Business, we had 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, the Company reclassified into discontinued operations $75.7 million and $75.8 million of foreign currency translation losses associated with our Legacy Businesses for the three months ended March 31, 2016 and for the nine months ended September 30, 2016, respectively.

Additionally, in February 2016 the Company sold its IronKey mobile security solutions business to Kingston Digital, Inc. (“Kingston”) and DataLocker Inc. (“DataLocker”) pursuant to two asset purchase agreements which qualified as the sale of a business. The Company recorded a pre-tax gain on the IronKey sale of $3.8 million during the first quarter of 2016.

In September 2017, we entered into an agreement with a Dutch counterparty with respect to certain potential transactions (the “French Levy Monetization Transactions”) intended to monetize our claims against the French levy collecting society in furtherance of our efforts to position for winddown the European subsidiary holding such claims. The French Levy Monetization Transactions are structured as “back-to-back” sales of certain leviable products to French purchasers designed to utilize the Dutch company’s French distribution channel to recover a portion of overpaid levies via setoff. See Note 15 - Litigation, Commitments and Contingencies for additional information on these overpaid levies.

For the three and nine months ended September 30, 2017, we recorded less than $0.1 million of services fee revenue and as of September 30, 2017, our European subsidiary recorded less than $0.1 million of services fee due to the Dutch counterparty. For the three months and nine months ended September 30, 2017, our European subsidiary recorded revenue of $0.3 million due from a French purchaser and cost of goods sold of $0.2 million due to the Dutch counterparty.

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



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions)	2017			2016			2017			2016
Net revenue	$	0.3		$	—		$	0.3		$	2.0
Cost of goods sold	0.2			—			0.2			0.6
Gross profit	0.1			—			0.1			1.4
Selling, general and administrative	1.3			0.8			4.2			3.6
Research and development	—			—			—			0.5
Restructuring and other	(13.2		)	(0.7		)	(13.6		)	(0.4		)
Reclassification of cumulative translation adjustment	—			—			—			75.8
Other (income) expense	0.8			(0.4		)	1.7			(0.6		)
Income (loss) from discontinued operations, before income taxes	11.2			0.3			7.8			(77.5		)
Gain on sale of discontinued businesses, before income taxes	—			—			—			3.8
Income tax provision	(3.5		)	(0.1		)	(3.3		)	(1.9		)
Income (loss) from discontinued operations, net of income taxes	$	7.7		$	0.2		$	4.5		$	(75.6	)

For the three months ended September 30, 2017, “restructuring and other” predominantly reflects a $7.3 million net gain attributable to the settlement of the lawsuits brought against us by CMC Magnetic Corp. (“CMC”), a $3.3 million net gain attributable to the settlement of the lawsuit brought against us by IOENGINE, LLC (“IOENGINE”), a $2.4 million gain on resolution of customer and vendor balances related to the Legacy Businesses, and a $0.6 million gain on asset claim recovery. See Note 15 - Litigation, Commitments and Contingencies for additional information on the CMC and IOENGINE settlements.

Current assets of discontinued operations of $10.3 million as of September 30, 2017 principally include approximately $9.0 million of restricted cash, primarily associated with disputed CMC trade payables. Current assets of discontinued operations of $10.5 million as of December 31, 2016 principally included approximately $9.4 million of restricted cash, primarily associated with disputed trade payables. The change in the restricted cash was due to currency translation. Pursuant to the settlement agreement with CMC, we undertook certain obligations to release restricted cash associated with the CMC trade payables. See Note 15 - Litigation, Commitments and Contingencies for additional information.

Current liabilities of discontinued operations of $22.4 million as of September 30, 2017 included $1.1 million of accounts payable, $1.0 million of customer credit and rebate accruals, $11.1 million due to CMC (includes $9.0 million of restricted cash to be released to CMC), $3.8 million due to IOENGINE, $1.8 million of legal accruals and $3.6 million of other current liability amounts. Current liabilities of discontinued operations of $39.7 million as of December 31, 2016 included $22.8 million of accounts payable, $3.2 million of customer credit and rebate accruals, $11.0 million of legal accruals and $2.7 million of other current liability amounts. The change in accounts payable and legal accruals were primarily attributable to the settlement of our CMC and IOENGINE lawsuits. See Note 15 - Litigation, Commitments and Contingencies for additional information.

Other liabilities of discontinued operations of $9.2 million as of September 30, 2017 included $1.0 million due to CMC, $4.0 million due to IOENGINE, and $4.2 million of other liability amounts. Other liabilities of discontinued operations of $4.4 million as of December 31, 2016 included $4.4 million of other liability amounts. See Note 15 - Litigation, Commitments and Contingencies for additional information on the CMC and IOENGINE settlements.