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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table illustrates our allocation of the purchase price to the assets acquired and liabilities assumed:
Amount
(In millions)
Accounts receivable and other assets ............................................... $ 0.8
Inventories ................................................................... 1.1
Intangible assets ............................................................... 10.6
Goodwill ..................................................................... 21.9
Accounts payable and other liabilities ............................................... (0.7)
$33.7
Our allocation of the purchase price to the assets acquired and liabilities assumed resulted in the recognition of the
following intangible assets:
Amount
Weighted
Average
Life
(In millions)
Trademark ......................................................... $ 0.7 10years
Supply agreement .................................................... 1.4 3years
Customer relationships ................................................ 1.0 8years
Proprietary technology ................................................. 7.5 6years
$10.6
During 2012, the MXI trademark was abandoned due to consolidating our brands and we recorded a charge of $0.6 million
in our Consolidated Statement of Operations. The other intangible assets acquired with MXI were not impaired as a part of the
impairment recorded during the fourth quarter of 2012 as discussed further in Note 6 — Intangible Assets and Goodwill.
The amount of contingent consideration was to be based on incremental revenue and gross margin percent from MXI
and MXI-based Defender branded products. During the second quarter of 2012, the MXI Security contingent consideration
agreement was amended in light of the IronKey acquisition that occurred late in 2011. Under the amended agreement, the
amount of contingent consideration will continue to allow for up to $45.0 million of additional payments, and will be based on
incremental gross profit (revenue less cost of goods sold) and gross margin percent from MXI branded products, IronKey
products and all other Defender branded products as well as future Imation mobile security products. The contingent
consideration arrangement included the potential for three separate payments based on defined criteria for whether the
individual payments would be made and, if so, for how much. The first contingent consideration payment was not achieved.
The second contingent consideration payment allows for up to $25.0 million of additional payments with the sum of the first
and second payments being up to a maximum of $25.0 million. The second contingent consideration payment is based on
gross profit and gross margin percent achieved from July 1, 2012 through June 30, 2013. The third contingent consideration
payment allows for up to $20.0 million of additional payments and is based on gross profit and gross margin percent achieved
from January 1, 2013 through December 31, 2013.
We remeasure the estimated fair value of the remaining contingent consideration each reporting period. At
December 31, 2012, our estimated fair value of this contingent consideration obligation was determined to be $0.6 million.
The decrease in the fair value of this contingent consideration obligation from December 31 2011 was $8.6 million which was
recorded as a benefit in restructuring and other in the Consolidated Statements of Operations.
We use the income approach in calculating the fair value of our contingent consideration. Our expected cash flows are
affected by various significant assumptions, including the discount rate and cash flow projections. Our valuation as of
December 31, 2012 utilized our business plans and projections as the basis for expected future cash flows and a discount
rate of 16.0 percent. See Note 12 — Fair Value Measurements for further discussion of our valuation technique.
58