11. Divestiture, Restructuring Costs, and Discontinued Operations

Divestiture

On March 30, 2010, the Company entered into and closed an Asset Purchase Agreement, a Transition Services Agreement, and a License Agreement (collectively the "Transaction") with CAE Healthcare USA ("CAE"). Under the Asset Purchase Agreement, CAE acquired certain assets including inventory, fixed assets, and certain liabilities which included warranty liabilities of the Endoscopy, Endovascular, and Laparoscopy medical simulation product lines used in the field of medical training for approximately $1.6 million subject to purchase price adjustments for final inventory levels. The agreement also provided for the transfer of certain employees to CAE as well as distribution agreements and customer relationships. Under the transition services agreement, the Company provided certain back-office services to CAE for up to nine months and was being reimbursed for the expenses incurred for such services. Under the license agreement, the Company licensed to CAE the Immersion TouchSense patent portfolio within a specific field of use. As such, revenues and costs for the Endoscopy, Endovascular, and Laparoscopy medical simulation product lines have been included in operating income (loss) in the accompanying consolidated statements of operations through the date of sale. Although the Company has ceased manufacturing these three specific product lines, these operating results have not been reported as discontinued operations. The Company continues to manufacture Virtual IV products, another medical product line, but the primary focus of the Company's business has changed from simulation product sales to licensing fees. During the year ended December 31, 2010, the Company recognized a pre-tax loss of approximately $43,000 in continuing operations in connection with the asset purchase agreement and the transition services agreement. There was no cost in 2011 related to the CAE transaction. The cost reimbursements received under the Transition Services Agreement were recorded as an off-set to the related operating expense line items. The Company's license agreement with CAE includes quarterly revenue under the license arrangement which started in July 2010. Under the terms of the Company's revenue recognition policy for transactions with extended payment terms such as this, the Company recognizes revenue as amounts become due and payable and all revenue recognition criteria are met. In connection with the transaction, the Company agreed to indemnify CAE for certain liabilities, claims, and other specified items in the asset purchase agreement.

Restructuring Costs

The following table sets forth the charges and expenses relating to continuing operations that are included in the restructuring line on the Company's consolidated statement of operations for the year ended December 31, 2009. There was no activity in 2010 or 2011.


	December 31, 2008		Year Ended December 31, 2009										December 31, 2009
	Restructuring Reserve		Add Charges		Non-Cash Adjustments			Net Expense		Deduct Cash Payments			Restructuring Reserve
			(in thousands)
Medical workforce reductions	$	0	$	570	$	(98	)	$	472	$	(472	)	$	0
Touch workforce reductions		142		558		(31	)		527		(669	)		0
Medical division location transition		0		463		0			463		(463	)		0

Total .	$	142	$	1,591	$	(129	)	$	1,462	$	(1,604	)	$	0

Results of discontinued operations

On November 17, 2008, the Company announced that it would divest its 3D product line which was part of its Touch segment. During 2009, the Company sold all of its 3D product line including inventory, fixed assets, and intangibles and recorded gains on the sale of discontinued operations of $187,000 at the time of the sales. Negotiated consideration for the sales was $2.7 million in the form of cash of $320,000 and notes receivable of $2.4 million payable through 2013, for which the proceeds are being recognized when they are received. The Company has abandoned all other 3D operations. Accordingly, the operations of the 3D product line have been classified as discontinued operations, net of income tax, in the consolidated statement of operations for all periods presented. The assets sold consisted primarily of intangible assets that had no carrying value on the Company's books at the time of sale. In the years ended December 31, 2011, 2010, and 2009 the Company recorded gains on sales of discontinued operations net of tax of $61,000, $129,000 and $237,000 respectively, from the original sale and payments on notes from the sale of the 3D product line.

The following is a summary of the components of income from discontinued operations included in the consolidated statements of operations:


	Years Ended December 31,
	2011		2010		2009
	(In thousands)
Revenues	$	0	$	1	$	714
Cost of Revenue		0		0		59
Sales and Marketing		0		0		99

Income from discontinued operations before taxes		0		1		556
Provision for taxes		0		0		(216	)

Gain from discontinued operations (net of tax)	$	0	$	1	$	340