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Discontinued Operations
 6 Months Ended
Mar. 31, 2017
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 Inc. (“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.
The terms of the sale agreement provided that West Monroe Partners, LLC would pay us $3.0 million on October 23, 2016 and $2.0 million on October 23, 2017. The present value of these amounts was included within the total fair value of consideration received. These receivable amounts are unsecured and non-interest bearing. We received $3.0 million in October 2016. The carrying value of the remaining receivable of $2.0 million presented on our Condensed Consolidated Balance Sheet at March 31, 2017 approximates its fair value, which was determined using Level 3 cash flow fair value measurement techniques.
Goodwill was 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 ceased using these facilities in October 2015 and has sublet the Dallas location to West Monroe Partners, LLC through December 31, 2017. In January 2017, we signed an early-termination agreement along with an immaterial payment to exit our Chicago lease. Also in connection with the sale, we assigned our San Francisco lease to West Monroe Partners, LLC.
Income from discontinued operations, after income taxes, as presented in the Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2016 is as follows (in thousands):
 
Three months ended March 31, 2016
 
Six months ended March 31, 2016
Service revenue
$
—

 
$
891

Cost of service
—

 
713

Gross profit
—

 
178

Operating expenses:
 
 
 
Sales and marketing
—

 
148

Research and development
—

 
103

General and administrative
—

 
43

Total operating expenses
—

 
294

Loss from discontinued operations, before income taxes
—

 
(116
)
(Loss) gain on sale of discontinued operations, before income taxes
(42
)
 
2,870

Total (loss) income from discontinued operations, before income taxes
(42
)
 
2,754

Income tax expense (benefit) on discontinued operations
47

 
(476
)
(Loss) income from discontinued operations, after income taxes
$
(89
)
 
$
3,230


Income tax benefit on discontinued operations for the six months ended March 31, 2016, was $0.5 million, which primarily represented 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.
The following table presents amortization, depreciation and purchases of property, equipment, improvements and certain other identifiable intangible assets of the discontinued operations related to Etherios (in thousands):
 
Six months ended
 
March 31, 2016
Amortization of identifiable intangible assets
$
30

Depreciation of property, equipment and improvements
$
—

Purchases of property, equipment, improvements and certain other identifiable intangible assets
$
—