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Discontinued Operations | 9 Months Ended
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Jun. 30, 2016
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operations | DISCONTINUED OPERATIONS On October 23, 2015, we sold all the outstanding stock of our wholly owned subsidiary, Etherios to West Monroe Partners, LLC. We sold Etherios as part of a strategy to focus on providing highly reliable machine connectivity solutions for business and mission-critical application environments. Etherios was included in our single operating segment. Below is a summary of the gain on sale (in thousands):
Gross proceeds |  | $ | 4,096 |
Less: |  |
Employee related liabilities |  | (1,134 | )
Working capital adjustment |  | (113 | )
Net cash proceeds |  | 2,849 |
Present value of receivable due on October 23, 2016 |  | 2,941 |
Present value of receivable due on October 23, 2017 |  | 1,922 |
Total fair value of consideration received |  | 7,712 |
Less: |  |
Net assets of Etherios |  | (3,383 | )
Facility abandonment costs |  | (725 | )
Transaction costs, primarily professional fees |  | (734 | )
Gain on sale of discontinued operations, before income taxes |  | $ | 2,870 |
The terms of the sale agreement provide that West Monroe Partners LLC will pay us $3.0 million on October 23, 2016 and $2.0 million on October 23, 2017. The present value of these amounts is included within the total fair value of consideration received. These receivable amounts are unsecured and non-interest bearing. The carrying value of these receivables presented on our Condensed Consolidated Balance Sheet at June 30, 2016 approximates their fair values, which were determined using level 3 cash flow fair value measurement techniques. 3. DISCONTINUED OPERATIONS (CONTINUED) Goodwill has been included in the net assets of Etherios based on the relative fair value of Etherios compared to the fair value of the Company, as the Company consists of a single reporting unit for goodwill impairment testing purposes. As a condition to the sale agreement, we retained the operating leases in the Dallas and Chicago locations. Digi is no longer using these facilities and has sublet the Dallas location to West Monroe Partners, LLC through December 31, 2017. Also in connection with the sale, we assigned our San Francisco lease to West Monroe Partners, LLC. A remaining potential obligation exists in the event of a default under the assigned lease. However, we believe the likelihood of a liability related to this lease is remote. As of June 30, 2016, the future minimum lease payments for the San Francisco lease are approximately $0.1 million. Income (loss) from discontinued operations, after income taxes, as presented in the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2016 and 2015 is as follows (in thousands):
| Three months ended June 30, |  | Nine months ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Service revenue | $ | — |  |  | $ | 2,483 |  |  | $ | 891 |  |  | $ | 6,738 |
Cost of service | — |  |  | 2,158 |  |  | 713 |  |  | 6,205 |
Gross profit | — |  |  | 325 |  |  | 178 |  |  | 533 |
Operating expenses: |  |  |  |  |  |  |
Sales and marketing | — |  |  | 452 |  |  | 148 |  |  | 1,433 |
Research and development | — |  |  | 589 |  |  | 103 |  |  | 1,567 |
General and administrative | — |  |  | 246 |  |  | 43 |  |  | 850 |
Restructuring | — |  |  | — |  |  | — |  |  | 106 |
Total operating expenses | — |  |  | 1,287 |  |  | 294 |  |  | 3,956 |
Loss from discontinued operations, before income taxes | — |  |  | (962 | ) |  | (116 | ) |  | (3,423 | )
Gain on sale of discontinued operations, before income taxes | — |  |  | — |  |  | 2,870 |  |  | — |
Total income (loss) from discontinued operations, before income taxes | — |  |  | (962 | ) |  | 2,754 |  |  | (3,423 | )
Income tax benefit on discontinued operations | — |  |  | (373 | ) |  | (476 | ) |  | (1,261 | )
Income (loss) from discontinued operations, after income taxes | $ | — |  |  | $ | (589 | ) |  | $ | 3,230 |  |  | $ | (2,162 | )
Income tax benefit on discontinued operations for the nine months ended June 30, 2016 was $0.5 million and primarily represents income tax benefits for deductible transaction costs, partially offset by a tax expense for equity awards for which we will not receive a tax deduction. For tax purposes, this transaction resulted in a capital loss, as the tax basis of the Etherios stock was higher than the book basis of the assets that were sold. Since we do not expect to be able to utilize this capital loss in the five year carryforward period, a deferred tax asset offset by a full valuation allowance was recorded in the third quarter of fiscal 2016 upon completion of the capital loss calculation. 3. DISCONTINUED OPERATIONS (CONTINUED) At September 30, 2015, the carrying amounts of major classes of assets and liabilities of discontinued operations included in the Consolidated Balance Sheet was as follows (in thousands):
| September 30, 2015
Current assets: |
Accounts receivable, net | $ | 1,417 |
Deferred tax assets | 127 |
Other current assets | 80 |
Total current assets | 1,624 |
Property, equipment and improvements, net | 18 |
Identifiable intangible assets, net | 1,531 |
Goodwill | 1,914 |
Deferred tax assets (1) | (589 | )
Total assets of discontinued operations | $ | 4,498 |
Current liabilities: |
Accounts payable | $ | 50 |
Accrued compensation | 1,346 |
Other current liabilities | 85 |
Total current liabilities | 1,481 |
Other non-current liabilities | 95 |
Total liabilities of discontinued operations | $ | 1,576 |
(1) As of September 30, 2015, we had a consolidated net deferred income tax asset related to the United States federal jurisdiction. That net deferred income tax asset position included a deferred income tax liability of $589 thousand related to Etherios which was entirely in the United States federal tax jurisdiction. The following table presents amortization, depreciation and purchases of property, equipment, improvements and certain other intangible assets of the discontinued operations related to Etherios (in thousands):
| Nine months ended June 30,
| 2016 |  | 2015
Amortization of identifiable intangible assets | $ | 30 |  |  | $ | 362 |
Depreciation of property, equipment and improvements | $ | — |  |  | $ | 21 |
Purchases of property, equipment, improvements and certain other intangible assets | $ | — |  |  | $ | (11 | )

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=65878427&loc=SL51721533-107759 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721665-107760 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5C -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721675-107760 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 50 -Paragraph 3A -URI http://asc.fasb.org/extlink&oid=64862545&loc=SL51724579-110230 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721663-107760 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=64862545&loc=d3e2941-110230 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64827811&loc=d3e1361-107760 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5B -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721673-107760 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 3A -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721659-107760 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5A -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721671-107760 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5D -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721677-107760 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=64827811&loc=d3e1474-107760 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721683-107760 + Details
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